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Direct and immediate supervision over the operations of RCBC and implementation of all major business strategies rests on the President and Chief Executive Officer who is, in turn, supported by his senior management team.
Risk is an inherent part of the Bank's business activities. The Bank's risk management framework provides comprehensive controls and ongoing management of the major risks in the Bank's business activities. The Bank ensures it is able to properly identify, measure, monitor and report risk.
The Bank employs a committee system as a fundamental part of its process of managing risk. Each committee consists of the Chief Executive Officer/President, and other senior executives. The key committees are as follows:
- the Executive Committee, which approves exposure management standards, reviews concentrations of credit risk, sets documentation and credit support standards and reviews and approves large counterparty credit limits and consideration of credit-related transactions;
- the Risk Management Committee, which ensures wide portfolio diversification and establishes risk policies;
- the Senior Management Committee, which oversees all operational and other matters that affect the Bank's day to
day activities and reviews new products and businesses and ensures that policies and procedures are established
and in place prior to engaging in new business; and
- Assets and Liabilities Committee, which appraises market trends, economic, and political developments and provides strategic direction in the management of interest rate risk, liquidity risk, and trading and investment portfolio decisions.
The Bank has established a Corporate Risk Management Services, headed by a Chief Risk Officer, to identify, measure and assist in controlling and monitoring the risks inherent in its activities. CRISMS is independent of all business segments and reports directly to the Risk Management Committee.
The Bank distinguishes among four specific risks: liquidity risk, market risk, credit risk and operational risk.
Liquidity risk is the risk arising from our potential inability to meet all payment obligations when they become due, or only being able to meet these obligations at excessive costs.
Market risk arises from the uncertainty concerning changes in market prices and rates. These include interest rates, equity prices, foreign exchange rates and commodity prices.
Credit risk arises from all transactions that give rise to actual, contingent or potential claims against any counterparty, borrower or obligor.
Operational risk is the risk of loss from failed processes, people, systems or external events.
Treasury is responsible for the management of liquidity risk. The Bank's liquidity risk management framework is designed to identify, measure and manage the liquidity risk position. The underlying policies are reviewed and approved by the Asset and Liability Committee (ALCO).
The Bank's liquidity policy is to manage its operations to ensure that funds available are more than adequate to meet credit demands of its customers and to enable deposits to be repaid on demand or upon maturity. The main sources of the Bank's funding are capital, core deposits from retail and commercial clients and wholesale deposits. The Bank also maintains a portfolio of readily marketable securities to further strengthen its liquidity position.
To ensure that the Bank has sufficient liquidity at all times, the Bank's Treasury formulates a contingency plan using extreme scenarios of adverse liquidity and evaluates the Bank's ability to withstand these prolonged scenarios. The contingency plan focuses on the Bank's strategy for coordinating managerial action during a crisis and includes procedures for making up cash flow shortfalls in adverse situations. The plan details the amounts of funds available and the scenarios under which it could use them.
Market risk is present in both trading and non-trading activities. The bank assumes market risk by taking positions in debt, equity, foreign exchange and other securities. The bank uses risk sensitivities, value-at-risk, mark-to-market and stress testing metrics to manage market risks and establish limits. Value-at-risk is the primary measure used in managing market risk in the trading book. A summary of the Value-at-risk position of the trading portfolio can be found in the notes to the bank's audited financial statements discussing ‘Risk Management Policies and Objectives'.
Risk limits, both for position and performance, are recommended to and approved by the Board of Directors through the Risk Management Committee.
Market risk in non-trading activities consists mainly of interest rate risk in the banking book, as well as other assets not subject to mark-to-market. An interest rate gap, as well as stress tests to non-mark-to-market assets, are controlled by a Capital At Risk limit, also approved by the Risk Committee. An interest rate gap analysis of resources and liabilities as of December 31 based on re-pricing maturities, can be found in the notes to the bank's audited financial statements under the discussion on ‘Risk Management Policies and Objectives', specifically Interest Rate Risk.
This is the risk that the borrower, issuer or counterparty in a transaction may default and cause a potential loss to the Bank. The Bank is exposed to credit risk as trading counterparty to dealers and customers, as direct lender and as a holder of securities. Categories of credit risk include contingent credit risk (risk that potential counterparty or customer obligations become actual and will not be repaid on time), country risk (risk that actions of sovereign governments or other uncontrollable events will adversely affect the ability of counterparties or customers to fulfill obligations to the Bank), event risk (risk that the Bank will incur risk in unusual situations which are not captured in the daily risk management tools), underwriting risk (risk that an issue will lose value after launching but before trading in the secondary markets), and custody risk (risk that arises when the Bank has assets in the form of securities entrusted to a third party as a custodian).
Credit risk management partners with business segments in identifying and aggregating credit risk exposure across all business lines. The credit policy framework establishes credit approval authorities, industry concentration limits, risk rating methodologies and portfolio review parameters. Wholesale credit is monitored both on an aggregate portfolio as well as individual name basis. The bank diversifies exposure by borrower and industry concentration. Monitoring of the portfolio consists of regular reports of aggregate credit exposure, limit exceptions, risk rating changes, as well as industry concentration and adequacy of provisions.
This is the risk of loss arising out of failure of processes, systems, people as well as due to external events. Operational risk management is responsible for defining the operational risk framework and related policies. The responsibility for implementing the framework, as well as day to day operational risk management, lies with the business units.
Techniques used to efficiently manage operational risk consist of control self assessments, maintaining a loss events database, and the development and monitoring of key operational risk indicators.
In addition, the Bank ensures that its operating manuals are regularly updated. A Business Contingency Plan as well as Disaster Recovery Plan is in place. The Bank places emphasis on the security of its computer system and has a comprehensive IT security policy.
THE COMPLIANCE OFFICE
The Compliance Office is tasked with overseeing the effective implementation of its compliance program, consistent with the Bank's mission of conducting its business with integrity, excellence and commitment. The compliance program is updated annually and covers all banking laws, rules & regulations and all other issuances of the other regulatory agencies which exercise regulatory oversight on the Bank and its subsidiaries. These regulatory agencies include the BSP, BIR, SEC, PSE, PDIC, PDEx and the AMLC.
During the year, latest regulatory issuances were promptly disseminated to all concerned. Prompt and timely submission of reports to the regulators was also strictly monitored. Compliance testing was also conducted on various Business Centers and operating units to determine compliance with AMLA, KYC requirements, banking laws, rules and regulations, and policies and procedures of the Bank. Results of compliance testing and other activities are included in the monthly report submitted to the Audit Committee.
The Compliance Office also performs oversight function on the activities of the Bank's subsidiaries which are under BSP supervision. This ensures consistent and uniform implementation of the requirements of the BSP and other regulatory agencies.
Likewise, the Compliance Office oversees the proper implementation of the requirements of the Anti- Money Laundering Law, as amended, on covered and suspicious transactions as well as the freezing of accounts. Beginning 2009, the foreign subsidiaries' compliance with anti-money laundering rules and regulations, both in the Philippines and in the host country where said subsidiary is domiciled, were included in the oversight function of the Compliance Office.
Together with the Training and Development Department of the Human Resource Group, the Compliance Office provided basic and comprehensive AMLA training seminars to new hires, frontliners who customarily have direct contact with clients and all other associates of the Bank.
Likewise in 2009, the Bank, through the Compliance Office and the Corporate Secretariat, participated in the first annual Corporate Governance Balanced Scorecard for Banks. The Corporate Governance Balanced Scorecard for Banks is a project of the Institute of Corporate Directors (ICD) in cooperation with the Bangko Sentral ng Pilipinas (BSP). Additionally, the Compliance Office supervised the revision and submission of the Bank's Corporate Governance Manual in accordance with the requirements of SEC Memorandum Circular No. 6 series of 2009.