FINANCIAL INFORMATION AND RISK MANAGEMENT
ANNUAL REPORT 2012
Bank risk policies and procedures constitute the internal rules and principles which are approved and enforced by the Board considering Risk
Management Division suggestions and executed by the senior management.
These policies that have been put into effect in accordance with international standards, stipulate general standards regarding the
organization and scope of risk management function, risk measurement methods, roles and responsibilities of the risk management group,
risk limit setting methodology, rules governing the breach of limits and confirmations that have to be given in various situations.
As a result of the main business of the Bank, credit risk is considered as the most important financial risk factor the Bank is exposed to. Aside
from credit risk, due to the fact that maturity mismatch in assets and liabilities is prevalent in the Turkish banking sector, liquidity risk and
interest rate risk are other financial risks that are regarded as prominent. In addition to these financial risks, although direct influence to the
Bank’s financial statements is fairly limited, currency risk is regarded as one of the important financial risks of the Bank due to its characteristic
to increase the credit risk profile of the Bank through exposure to the credit customers bearing short currency position against Turkish Lira.
Apart from the financial risks mentioned above, the most important non-financial risk of the Bank appears to be business environment risk.
Along with the weak outlook of the global economy; the process which leads to political instability in the neighbor countries and political
tensions with some of these countries are the main factors which lead to an increase in business environment risk profile of the Bank. The
above mentioned assessments are presented in financial statements.
To ensure the conformity of the Bank’s risk appetite with business plan and prevailing market environment, risk limits set by the Board of
Directors are monitored. In this context, breaches in market risk, liquidity risk, structural interest rate risk and credit risk limits are analyzed by
Risk Management Division taking market and industry conditions into consideration, and findings are reported to the Audit Committee.
Credit Risk Policy
Credit risk is defined as any situation where the counterparty obligation will not or can not be fulfilled partially or fully on maturity as affirmed
in the agreement. Credit risk policy sets the framework for credit risk management, control and monitoring, roles and responsibilities and
credit risk limits.
İşbank maintains identification, measurement and management of credit risk across all products and activities. The Board reviews credit risk
policies and strategies annually at minimum. Senior management is responsible for the execution of credit risk policies.
The findings of independent review of loans and credit risk are reported to the Board and the senior management regularly. Monitoring credit
risk includes parameters such as maturity, industry, collateral, geography, currency, loan type, and credit risk ratings as a whole, in addition to
the assessments on the obligor and the facility.
In managing credit risk, İşbank implements internal risk limits specified by the Board of Directors that restrict the maximum credit risk based
on parameters such as risk groups and sectors in addition to the credit risk limits that are mandated by legal regulations. These internal limits
are determined in a way that does not lead to risk concentrations.
Breaching risk limits until the regulatory limits are treated as “exceptional procedure”. The authorization for exceptional procedure resides
with the Board of Directors. The results of controls and assessments related to risk limit breaches are presented to senior management and
the Board of Directors by Internal Audit and Risk Management Functions.
İşbank employs internal credit risk rating systems that are developed to service the needs for credit management, credit granting decisions,
credit process audits and credit provision calculations. Internal systems functions regularly assess the internal credit risk rating systems
according to their compatibility with the structure, size and complexity of the Bank’s operations. If diverse circumstances required, necessary
adjustments and/or modifications are made to the system. Internal credit risk rating systems are assessed by the Risk Committee and
approved by the Board of Directors.
Asset and Liability Management Risk Policy
Asset and liability management risk is defined as; loss risk caused by Bank’s failure to effectively manage all financial risks arising from the
bank’s assets, liabilities and off-balance sheet transactions. Market risk of trading book, structural interest rate risk of banking book and
liquidity risk are all within the scope of asset and liability management risk.
All principles and procedures related to constitution andmanagement of Bank’s asset-liability structure and Bank’s risk appetite is established
by the Board of Directors. Ensuring asset and liability management risk being within the levels imposed by legal legislation and internal risk
limits is the primary priority. Internal risk limits are determined by Board of Directors taking into consideration liquidity, target income level,
general expectations about the changes in risk factors and risk appetite of the Bank.
Board of Directors and Audit Committee are obliged to track that Bank’s capital is used optimally. For this purpose these bodies are obligated
to keep risk limits under control and ensure necessary actions being taken.
Asset-Liability Committee is responsible for governance of asset and liability management risk in accordance with the risk appetite and risk
limits determined by Board of Directors and within the principles and procedures expressed in this policy.
Measuring asset and liabilitymanagement risk, reporting the results andmonitoring the compliancewith the risk limits are the responsibilities
of Risk Management Division. The course of the risk taken is reviewed under different scenarios. Measurement results are tested in terms
Information on Risk Management Policies Applied per Risk Types