RISK MANAGEMENT SYSTEM

RISK MANAGEMENT SYSTEM

I S T A N B U L , O C T O B E R 2 0 1 1

CALIBRI BOLD 42 ptAGENDA

R I S K M A N A G E M E N T S Y S T E M

RISK MANAGEMENT IN BRIEFFUNCTIONORGANIZATIONRESPONSIBILITIESACTIVITIESREPORTSWORKS

RISK MANAGEMENT POLICIESCREDIT RISKMARKET RISKOPERATIONAL RISK

BÖLÜM BAŞLIĞI CALIBRI BOLD 42 ptRISK MANAGEMENT IN BRIEF


CALIBRI BOLD 42 ptFUNCTION

Risk Management System (RMS) was founded on Kuveyt Turk according to the Banking Law and BRSA regulations in 1st of December 2001. The Risk Management System is subjected to the “Regulation on the Risk Management System and Working Procedures and Principles for Risk Management,” a directive issued by the Board of Directors on 30 January 2007 (Decision No. 576). RMS functions include;

• defining, • monitoring,• measuring, • controlling, • reporting, and • managing

various risks, KT is exposed to. R I S K M A N A G E M E N T S Y S T E M

CALIBRI BOLD 42 ptORGANIZATION

Detailed structure are given at the below organizational chart. BOARD OF DIRECTORS

CHIEF EXECUTIVE OFFICER AUDIT AND RISK COMMITTEE

AUDIT COMMITTEE

CHIEF AUDIT AND RISK OFFICER

AUDIT & INSPECTORS

RISK MANAGEMENT

COMPLIANCE

INTERNAL CONTROL

MARKET RISK

CREDIT RISK

OPERATIONAL RISK

TREASURY MIDDLE OFFICE

IT RISK


CALIBRI BOLD 42 ptORGANIZATION – (Cont..d)

The ultimate responsibility of executing this regulation rests with our Board of Directors. However, the Board fulfils this responsibility through the Audit & Risk Committee, delegated under the title, Responsible Authority for Internal Systems. The Audit and Risk Committee performs this task through Chief Audit and Risk Officer, which assists the Committee in cooperation with RMS.

RMS consists of a Head, an Operational Risk Supervisor, a Credit Risk Supervisor, an IT Risk Supervisor, a Market Risk Specialist, and two Treasury Middle Office Staff.


CALIBRI BOLD 42 ptRESPONSIBILITIES

RMS has been managing and monitoring ;• Market Risks, • Credit Risks, • Operational Risks,• IT Risks,• Other Risks (such as reputational risk etc.)

that the bank may be exposed to and has been reporting the analysis to the Committee.

RMS also reported IT Risk Assesments, the Stress Tests Results and Scenario Analysis based on various assumptions to the related Committees.

RMS is responsible for soundness of Business Continuity Process in KT.


CALIBRI BOLD 42 ptACTIVITIES

R I S K M A N A G E M E N T & T R E A S U R Y M I D D L E O F F I C E D E P A R T M E N T

Kuwait Turk RMS Head and CARO attend to the meetings hold by our main partner, Kuwait Finance House, with its other subsidiaries, KFH Bahrain and KFH Malaysia.

As a result of these meetings, KFH Group members should cooperate efficiently in order to manage risks. Since KFH reports Consolidated BASEL II/IFSB Reports and Stress Testing Reports to Central Bank of Kuwait, Risk Management studies and prepares template for periodical reports and submitted to the Kuwait Finance House as consolidated Basel II / IFSB reports.

CALIBRI BOLD 42 ptREPORTS

R I S K M A N A G E M E N T & T R E A S U R Y M I D D L E O F F I C E D E P A R T M E N T

Risk Management Report also has been submitted to KFH monthly. Kuwait Turk has continued to work on the CRD / BASEL-II transition since 2007. On August 2011 parallel reporting for BASEL I and BASEL II based CAR calculations starts on Turkish Banking Sector for one year. After 2012 August, we will report BASEL II Pillar I CAR calculations only.

BRSA was informed regularly about surveys taken, in the context of our activities. Also economic conditions and the banking market in Turkey has been monitored closely and reported to Board of Directors.

CALIBRI BOLD 42 ptWORKS

The Risk Apettite of KT were prepared by RMS and In the framework of Risk Apettite, the portfolio limits for industrial risks, concentration risks, capital adequacy ratio trigger, geographical risk, country risk and big loans risk were determined by the decision of Board of Directors.

In the context of BASEL II, “The Internal Credit Scoring-Rating Project” was started in the 4th quarter of 2010, in order to develop an internal credit rating model with supervisory methods. After the project, KT will own internally developed corporate rating model and retail scoring model.


CALIBRI BOLD 42 ptWORKS – (Cont..d)


In-house trainings about “Risk Awareness” is organized. The stress test study is arranged by KFH, Kuwait. The KFH’s consulting firm collects data and this study.

Risk Management Head is carrying out the function of Chairman of Risk Group of Participation Banks and attending to the Basel II Steering Committee recommended periodically by BRSA on behalf of the Participation Bank to participate.


In the framework of operational risk studies, a database in which the historical in 08.03.2011records of losses recorded was set. From the beginning of 2009, the losses have been recorded by the departments. Moreover, the studies about setting an “Operational Loss Tracking System” were started. The aim of this project is to make the employees to record the losses properly.

In the framework of operational risk, an operational risk management program called SWORD was put into use. With the help of this program the information including operational losses is shared with our main partner KFH. It is planning to speed up the RCSA studies in the upcoming period. Also, the bank wide studies about updating and modeling the processes were being started. The operational risk department takes an active role in these studies and supports to express the risks in the processes.




Studies are done about the BBB, ECC, PI and D&O Policies among the Operational Risk Insurance and our operational risks are insured.

In the context of market risk studies, currency risk reports with standard and supervisory methods (Monte Carlo Simulation, Historical simulation, etc.) are reported daily basis.

Economical Environment and Bank’s market risk reports arranged monthly are submitted to KFH and BRSA respectively.

Business Continuity Plans are managing with RMS coordination.RMS and Business Continuity Management Committee put KT’s Business Continuity Center into service in Ankara. IT Disaster Recovery Tests are performed twice a year.

In the IT Risk Assesment Framework; the IT risks are defined KT may exposed to and follow-up activity is done about the findings and actions to be taken yearly basis. Monitoring the IT risks are carried on throughout the year.

BÖLÜM BAŞLIĞI CALIBRI BOLD 42 pt

RISK MANAGEMENTPOLICIES


CALIBRI BOLD 42 ptCREDIT RISK MANAGEMENT POLICIES

The basic objectives of our credit risk management policy are to measure counterparty risks undertaken during credit transactions; to research new techniques and practices in monitoring, measuring and controlling risks, according to legislation and bank limitations; to follow up overdue receivables; to analyse reasons for such payment delays; and to take actions to prevent delays from recurring.


CALIBRI BOLD 42 ptCREDIT RISK MANAGEMENT POLICIES – (Cont..d)

The fundamental principle lies in our top management’s administering and monitoring credit policies according to CRD/Basel II directives and based on BRSA recommendations. The Risk Management and Treasury Middle Office Department cooperates with our top management to determine these strategies.


CALIBRI BOLD 42 ptCREDIT RISK MANAGEMENT POLICIES – (Cont..d)

The credit risk policy includes the guidance and explanatory information on enforcements and procedures regarding customer selection; the power to issue and provide loans; the transfer of power; the organisational structure of the credit committee; credit limits, returns, and guarantees; principles for allocating limits; risk monitoring, controlling, and improving; risk analysis of new products; key risk points; and actions to reduce the risks under those points.R I S K M A N A G E M E N T S Y S T E M

CALIBRI BOLD 42 ptMARKET RISK MANAGEMENT POLICIES

The primary objective of our market risk policy is aimed at materialising our bank’s profitability and growth targets: to minimize possible risks from trade transactions in foreign exchanges, gold, and securities and from possible structural interest risks during these transactions; and to preserve the bank’s capital adequacy ratio, accordingly.Our bank manages market risk by diversifying our portfolio, consulting with the Risk Management and Treasury Departments and the Assets-Liabilities Committees and staying abreast of both the long- and short-term market forecasts, constantly updated by prevailing market conditions and trends. As a guiding tool, our bank uses the transaction and portfolio limits determined by the Assets-Liabilities Committee and approved by top management.


CALIBRI BOLD 42 ptMARKET RISK MANAGEMENT POLICIES – (Cont..d)

The acceptable risk level in treasury operations are determined by means of such guiding tools as customer limits, transaction limits, permissible transaction types, counter party and country limits, all of which are approved by management. Based on a policy of transparency, especially since our bank wants to present our assets on the balance sheet according to sale potential, we use the “current market evaluation” criteria, “Mark-to-Market” (MTM), outlined in the international accounting rules, meaning that assets on the balance sheet are “to be stated with regard to their market value.” In other words, our bank proposes to give its shareholders and participating customers the bank’s real financial outlook. To abstain from undertaking excessive market and liquidity risks, our bank also follows the liquidity position, along with the position and profitability of securities and foreign exchanges, the total daily profit-loss status, and the daily nostro accounts.


CALIBRI BOLD 42 ptMARKET RISK MANAGEMENT POLICIES – (Cont..d)

The weekly Interest Cost Analysis Report enables the Assets-Liabilities Committee to closely follow the bank’s interest cost risks. To protect against the probability of positions occurring that exceed the bank’s risk limits, the measures the unit of Treasury may enact at any given time ensures that the interest costs and position risks of our bank are reduced to reasonable levels within limits.The informational reporting system our bank uses to manage market risks is based on these guiding principles:

• Ensure that risk management concepts function sensibly;• Make certain all risk-taking activities are compatible with

the bank’s risk capability and capacity; and • Ascertain that risk-taking levels are compatible with both

the markets where risks are taken and with the risk-taking capacities of those departments taking the risks.


CALIBRI BOLD 42 ptOPERATIONAL RISK MANAGEMENT POLICIES

To establish a management structure compatible with operational risk policies and practical procedures, our bank allocates all required and sufficient resources used in any category of business to risk management functions and to controlling procedures at the operational risk management level.The operational risk points are not only responsible for managing external functions, such as insurance, benefits and taking guarantees, procurement of external resources and services from third parties but also for ensuring effective communication with personnel managing credit, the markets, and other risks.


CALIBRI BOLD 42 ptOPERATIONAL RISK MANAGEMENT POLICIES – (Cont..d)

Our bank’s operational risk framework reflects our current organisational structure in practice, this framework also contains all the structural flaws, deficiencies, and difficulties found in any category of business. For this reason, when forming our operational risk profile and practical procedures and supervisory infrastructure for risk management, we consider the level of all similar operational risks and their importance. Our operational risk management process is shaped by appropriate policies and processes providing guidance for defining and measuring operational risks and by effective tests and controls of our operations through a well-built internal control system. R I S K M A N A G E M E N T S Y S T E M

CALIBRI BOLD 42 pt

THANK YOUTAMER SELÇUK DURMAN

HEAD

RISK MANAGEMENT

[email protected]

Documents

RISK MANAGEMENT SYSTEM