Untitled - Bancpost

TABLE OF CONTENTS
1. GENERAL INFORMATION
1.1 Basel II Framework
1.2 Scope of the report
1.3 Implementation of the Basel III/ CRD IV framework
1.4 Regulatory versus accounting consolidation
3
3
4
4
5
2. INTERNAL GOVERNANCE
2.1 Management structure
2.2 Internal control system
2.3 Risk management
2.4 Risk Organization
6
6
8
9
9
3. CAPITAL MANAGEMENT
3.1 Regulatory capital – definition
3.2 Capital base/ own funds
3.3 Capital requirement as per Pillar 1
3.4 Internal Capital Adequacy Assessment Process
14
14
14
15
15
4. CREDIT RISK
4.1 Credit Risk
19
19
4.2. Concentration risk
4.3 Residual Risk
23
24
5. MARKET RISK
26
6. INTEREST RATE RISK IN THE BANKING BOOK
26
7. LIQUIDITY RISK
7.1. Liquidity Strategy
7.2 Liquidity Management by Business Lines and Significant Currencies
7.3 Liquidity Reserve
27
27
28
28
8. OPERATIONAL RISK
8.1 Governance
8.2 Operational risk management framework
29
29
29
3.4.1 ICAAP Design
3.4.2 Internal capital adequacy
4.1.1 General framework
4.1.2 Approval process
4.1.3 Monitoring, controlling and reporting process
4.1.4 Collection process
4.1.5 Country and Counterparty Limits
16
18
19
20
21
22
22
1
9. OTHER RISKS
9.1 Business and Strategic Risk
31
31
9.2 Other risks
32
10. THE STRUCTURE OF THE INCENTIVES/REMUNERATION
10.1. Introduction
10.2. Remuneration Policy scope
10.3. Remuneration Policy basic principles
10.4. Remuneration Policy Governance
10.5. Remuneration Committee
10.6. Remuneration
10.7 Board members remuneration
10.8 Targeted population remuneration
32
32
33
33
33
33
34
36
37
9.1.1 Business Risk
9.1.2 Strategic Risk
9.2.1 Reputational risk
9.2.2 Risks external to the credit institution
31
31
32
32
2
1. GENERAL INFORMATION
1.1 Basel II Framework
Bancpost SA (“The Bank”) has applied the Basel II framework since 2008. The new capital framework
was the result of the need for a more risk sensitive approach to capital requirements, as well as the need
to enhance the soundness and stability of the international banking system.
The Basel II framework is based on three mutually reinforcing pillars, seeking to align regulatory
requirements with the economic principles of risk management:
Pillar 1 defines the minimum regulatory capital requirements based on principles, rules and
methods specifying and measuring the credit risk, market risk and operational risk that a credit
institution faces during its operation. These requirements are covered by regulatory own funds,
according to the rules and specifications of Pillar 1;
Pillar 2 addresses the internal processes for assessing overall capital adequacy in relation to
risks (Internal Capital Adequacy Assessment Process - ICAAP). Pillar 2 also introduces the
Supervisory Review & Evaluation Process (SREP), which assesses the internal capital adequacy
of credit institutions;
Pillar 3 complements the first two pillars of Basel II and it focuses on the minimum
transparency and disclosure requirements for the credit institutions, covering the basic
information categories related to capital adequacy and management of risks.
The enhanced Basel II framework and the European Directive on Capital Requirements (CRD III) from
2009 and 2010 respectively, were adopted as a response to the economic and financial crisis and have
enhanced the disclosure and transparency requirements by including additional information regarding
the trading book, re-securitizations, the risk profile, the corporate governance and internal control
system, the remuneration structure.
The Basel III framework (consolidated Basel II and macro prudential framework) issued by the Basel
Committee on Banking Supervision in December 2010 establishes increased capital and liquidity
requirements that will be progressively adopted. The Basel III framework has been adopted at EU level in
2013 with effective date 1 January 2014 through:
EU Directive 36/2013 on access to the activity of credit institutions and the prudential
supervision of credit institutions and investment firms, amending Directive 2002/87/EC and
repealing Directives 2006/48/EC and 2006/49/EC (CRD IV – implemented in Romania by the
NBR Regulation 5/2013 on prudential requirements for credit institutions, effective dates
starting 1 January 2014)
EU Regulation 575/2013 on prudential requirements for credit institutions and investment firms
and amending Regulation (EU) No 648/2012 (CRR – directly applicable without implementation
in local regulatory framework).
The Pillar 3 requirements are captured in the following Romanian regulations:
Emergency Government Ordinance no. 99/2006 on credit institutions and capital adequacy, with
subsequent amendments and supplementations (OUG 99/2006);
Regulation no. 25/30/2006 regarding the disclosure requirements for credit institutions and
investment firms, with subsequent amendments and supplementations, issued by National
Bank of Romania (NBR) and the National Securities Commission (NSC) in force until 1 January
2014;
3
EU Regulation 575/2013 on prudential requirements for credit institutions and investment firms
and amending Regulation (EU) No 648/2012 (CRR – directly applicable without implementation
in local regulatory framework), Part 8, in force starting 1 January 2014.
1.2 Scope of the report
Bancpost SA is a banking institution based in Romania and a member of the Eurobank Group. The Bank
is supervised on a solo basis by the National Bank of Romania and the Financial Supervisory Authority,
being incorporated as Romanian legal entity.
This Report is prepared on an individual basis and is issued in compliance with the applicable Pillar 3
disclosure and transparency requirements and it is published for the financial year ending December 31,
2013.
This report supplements the information provided in the Bank’s audited financial statements for the
financial year ending December 31, 2013. This Report is not subject to and has not been audited by the
Bank’s external auditors.
1.3 Implementation of the Basel III/ CRD IV framework
Following the adoption of the new Basel 3 agreement transposed into EU Directive 36/ 2013 (CRD IV)
and related Regulation 575/2013/ EU on prudential requirements for credit institutions and investment
firms, BANCPOST has started a project for the implementation of the major changes introduced by the
new framework with respect to governance enhancement and internal capital adequacy process, as well
as for adjusting the calculation of the regulatory capital requirements and reporting frame.
In this sense the Bank started to prepare for covering the enhanced requirements in respect of:
Changes in the governance structure regarding :
o
management body members suitability, independence, roles and responsibilities,
conflicts of interest
o
review of Risk Committee and control functions responsibilities
o
enhanced requirements on remuneration practices;
Internal capital adequacy process including in particular the stress testing scenarios
New stricter eligibility criteria for capital components:
o
common equity should be the predominant component of Tier 1 capital
o
simplification and reduction of Tier 2 Capital changes in capital deductions treatment;
Higher capital requirements:
additional several capital buffers above minimum requirements
Leverage Ratio back stop to complement the classic risk prudential ratios;
More detailed asset classes allocation (Multilateral Development Banks, International
Organizations, Short term Exposures to Institutions)
Changes in risk-weighted asset calculation:
o
enhanced default definition considering both more than 90 overdue exposures and
unlikeliness to pay indicators
o
new definition and reduced risk weight for exposures to eligible SME exposures
4
o
modified risk treatment for institutions, public sector entities, central banks/
governments, regional and local authorities
o
revised Credit Risk Mitigation (CRM) techniques (e.g. CRE may be treated as eligible
collateral, the list of eligible protection providers is modified);
o
additional capital requirements for counterparty credit risk (Credit Value Adjustment
factor);
Enhanced disclosure requirements (e.g. Geographical breakdown including Observed new
defaults for the period and Written off exposures by country of residence of the obligor,
Immovable Property Losses, Leverage Report, Liquidity Ratio detailed report)
Revised large exposures regime
Liquidity Coverage Requirement (LCR) considering:
o
assessment of the eligibility criteria for LCR assets inflows and liability outflows
o
additional Liquidity Monitoring Metrics
o
more balanced liquidity for stressed market conditions by having sufficient "cash"
available both in the short term and in the longer run
Net Stable Funding Requirement:
o
Identification of available stable funding and required stable funding for NSFR
calculation.
1.4 Regulatory versus accounting consolidation
Each credit institution for which the NBR exercises its supervision has to comply with the obligations
relating to the minimum capital requirements, stipulated by Art. 126 of the OUG 99/2006.
In compliance with NBR-NSC Regulation no. 17/22/2006 on consolidated supervision of credit
institutions and investment firms, with subsequent amendments and supplementations, Bancpost SA is
not supervised at consolidated or sub-consolidated level by NBR, but at individual level.
5
2. INTERNAL GOVERNANCE
2.1 Management structure
The Bank is organized under the unitary administration system, and its management structure defined in
2013 in accordance with the provisions of the NBR Regulation no.18/2009 on the management
framework for the business activities of credit institutions, the internal capital adequacy assessment
process and the outsourcing conditions for the business activities thereof, with subsequent
amendments and supplementations1, consisted of the Board of Directors as the supervisory function
body and the Executive Officers as management function body.
The new regulatory framework issued by the NBR in late December 2013, i.e. the NBR Regulation
no.5/2013 on prudential requirements for credit institutions in force since January 01, 2014 introduced
a new paradigm on internal governance in line with the regulatory developments at the level of the
European Union. The relevant provisions in the NBR Regulation no.5/2013 which incorporate inter alia
new concepts in terms of (i) management body versus management structure, (ii) management body in
its supervisory function body versus supervisory function body, and (iii) senior management versus
management function body were duly mapped in 2014 into Bancpost’s internal regulatory framework.
In pursuance of its specific prerogatives, the Bank’s management structure developed a formal business
management and control framework, adapted to the characteristics, complexity and size of the Bank
which is regularly reviewed and amended so as to take into consideration any changes in the internal
and external factors having an impact on the Bank’s activity.
This framework comprises information on the following:
(i) the credit institution’s organizational structure, the delegation of the functional responsibilities,
the position in the Eurobank Group it forms part of,
(ii) the responsibilities of the management structure,
(iii) the internal control system,
(iv) disclosure and transparency requirements.
Administration of Bancpost SA
The administration of the Bank is entrusted, pursuant to the Charter’s provisions, to the Board of
Directors made up of minimum 7 and maximum 13 members elected by the Ordinary General Assembly
of Shareholders.
During the 2013 financial year, in compliance with the mentions made in the Trade Registry, the Board
structure comprised 11 members. The changes having occurred in 2013 in the composition of the
Bank’s Board of Directors were determined by (i) the termination of the Board member mandate by
resignation (4 members) and by expiry and non-renewal of the mandate (one member), (ii) the reelection of 5 Board member for a 1-year mandate, and (iii) the appointment of a new Board of Directors
member for a 1-year mandate. The changes were made whilst complying with the relevant requirements
and maintaining the prevailing share of non-executive directors in the structure of the Board of
Directors.
Detailed information about the nominal composition of the Board of Directors over the reference period,
including the list of non-executive members and independent members, is presented in the Appendix 1,
1
Superseded by the NBR Regulation no.5/2013 on prudential requirements for credit institutions.
6
the document also underscoring the changes in the Board structure, which were notified to the Ordinary
General Assembly of Shareholders in the first quarter of 2014.
In 2013, 11 Board of Directors meetings took place, i.e. 9 ordinary and 2 operative ones.
The Agenda of each quarterly Board of Directors meeting included inter alia various information on
specific and highly important topics, e.g. risk management (the Bank’s liquidity aspects, the risk profile,
compliance with internal and external regulations related to credit function), internal audit, compliance
matters. Furthermore, information related to the assets portfolio, the classification of loans, the level
and evolution of provisions, as well as the large exposures and related parties’ exposures was regularly
presented during 2013 to the Board members.
Management of Bancpost SA
Pursuant to the Charter’s provisions, the Bank is run by 5 Executive Officers appointed by the Board of
Directors, namely the Executive President (CEO) and 4 Executive Vice Presidents. The Executive Officers
are coordinating the day-to-day activity of the Bank and they are responsible to take all the measures
related to the management of the Bank in order to implement the Business Plan, within the limits of the
Bank’s business object and they are binding the Bank in compliance with the responsibilities and
authorizations given by the Board of Directors.
The Executive Officers shall perform their duties - other than the representation of the Bank - through
the Executive Committee consisting only of the Executive Officers and chaired by the Executive
President of the Bank. The Executive Officers and the Executive Committee, respectively, shall have the
authorities and responsibilities as set by the Bank’s Charter, the legal framework and the relevant
decisions of the Board of Directors and explicitly stipulated in the Internal Governance Manual.
The top management positions in the Bank’s organisational structure as of December 31, 2013 were the
following:
Executive President/ Chief Executive Officer
Executive Vice President - Retail Distribution
Executive Vice President - Risk and Compliance
Executive Vice President - Household Lending
Executive Vice President - Central Operations and IT.
The changes in the Executive Committee composition over January 01 – December 31, 2013 refer to the
capacity as member of the Executive Committee obtained by the Executive Vice President in charge of
the Risk Management function and Compliance function, as per the authorisation of the central bank
issued in February 2013.
As of December 31, 2013, all top management positions were occupied, whereas in early January 2014
the Executive Vice President – Retail Distribution ended his activity within the Bank, and the Executive
Vice President coordinating the household lending activity took over upon completion of all relevant
regulatory approvals the Executive Vice President position coordinating the entire retail activity.
The nominal structure of the Executive Committee as of December 31, 2013 is presented in Appendix
no.1 to the present Report.
7
2.2 Internal control system
The Board of Directors established and ensured that clear responsibility and authority lines are
implemented within Bancpost SA, so that the personnel may understand and apply the policies and
procedures related to their responsibilities and authorities. In 2013, the Bank was organized in sectors,
divisions, departments and offices at the Head Office level and network units (operational units)
throughout the territory.
Based on international good practice, the Bank’s internal control system is a continuous process
involving the Board of Directors, the Bank’s Executive Officers and the staff. The five components of the
internal control system and relevant principles, namely control environment, risk identification and
assessment, control activities and segregation of duties, information and communication, monitoring
and deficiencies correction, operating together in an integrated manner, are designed with the aim to
ensure the achievement of the objectives in the following categories:
(i) performance objectives, by efficient and effective operations,
(ii) information objectives, by ensuring reliable, relevant, complete and timely information to the
decision makers of the Bank as well as to outside users of such information,
(iii) compliance objectives, by ensuring compliance with applicable laws and internal policies and
procedures.
The Board of Directors organizes the internal control system functions according to the provisions of
the applicable regulatory framework, by means of approving the organizational structure of these
functions, and ensures that the internal control system stipulates an appropriate segregation of duties in
order to prevent any conflicts of interests.
a) Risk Management function
In 2013, the Risk Management function was organized at centralized level within the Bank, being
independent by means of having a direct reporting line to the Executive Vice President responsible for
the coordination of the Risk Management and Compliance functions. The Risk Management function
within the Bank is comprehensive, as the two components are being defined therein, namely: (i) the
Risk Control function by business lines, a function that operates via the Risk Control Division ensuring
the compliance with the risk policies and monitoring each significant risk the Bank is exposed to, as per
the approval decision of the Board of Directors and (ii) the risk identification, assessment and
monitoring component organized within distinct units, i.e. the Credit Risk Monitoring Division and the
Risk Monitoring Division.
The Bank’s risk management framework includes policies, guidelines, procedures, limits and controls
providing adequate, timely and continuous identification, measurement or assessment, monitoring,
mitigation and reporting of the risks posed by the activities performed at the business line and
institution-wide levels. The risk management responsibility is incumbent upon the personnel in all
business lines, without being limited only at the level of the Risk Management function.
b) Compliance function
In 2013, the Compliance Division acted as a key internal control system function, i.e. the Bank’s
independent and permanent organizational structure that co-ordinated the compliance activity of the
Bank, and operated in accordance with the Compliance Risk Management Policy & Framework and the
Compliance Division Mandate, as endorsed by the Audit Committee and approved by the Board of
Directors. As a key internal control system function, the Compliance Division assisted the management
function body of the Bank in identifying, assessing, monitoring, reporting and efficiently managing the
events/ activities/ processes that could generate compliance risk.
8
c) Internal Audit function
The Internal Audit Sector acted in 2013 as a key internal control system function, which operated based
on the Mandate and Terms of Reference endorsed by the Audit Committee and approved by the Board of
Directors. The Internal Audit Sector is a permanent, independent, objective and adequately organized
function designed to add value and improve the operations of the Bank. It helps the organization to
accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the
effectiveness of risk management, control and governance processes. The Bank’s management
structure was responsible for establishing a system of internal control adequate for the size and
complexity of the organization, whereas the Internal Audit Sector was responsible for reporting on the
adequacy of the internal control system in terms of effectiveness and efficiency.
2.3 Risk management
The Bank aims to adopt best practices regarding corporate governance, taking into account all relevant
guidelines and regulatory requirements, as set by the Basel Committee on Banking Supervision, the
Committee of European Banking Supervisors/ European Banking Authority, the National Bank of
Romania as well as any decisions of the competent authorities supervising the Bank.
The Bank’s risk management organization structure shall ensure the existence of clear lines of
responsibility, the efficient segregation of duties and the prevention of conflicts of interest at all levels,
including the Board of Directors, Executive Officers, as well as between its customers and any other
stakeholders.
Within the Bank, risk management activities broadly take place at the following levels:
strategic level – it encompasses risk management activities performed by the Board of
Directors.
tactical level – it encompasses risk management activities performed by the Executive
Committee and Risk Committee.
operational (business line) level – it involves management of risks at the point where they are
actually created. The relevant activities are performed by individuals who undertake risk on the
organization’s behalf. Risk management at this level is implemented by means of appropriate
controls incorporated into the relevant operational procedures and guidelines set by the
Management.
2.4 Risk Organization
In 2013 the Bank has operated an effective risk governance system made up of clear roles and
responsibilities.
Board of Directors
The Board of Directors’ prerogatives and duties related to the strategic view, supervision/ monitoring of
strategy and policy implementation, ultimate responsibility for the risk management system including
the internal capital adequacy assessment process of the Bank, were the following:
to develop and to maintain a sound internal control system; to organize the Risk Management
function, the Compliance function and the Internal Audit function according to the provisions of
the applicable regulatory framework;
9
to approve the risk management strategies and to establish the risk appetite or the risk
tolerance of the Bank;
to regularly monitor and assess the effectiveness of the management framework of the Bank’s
business and the business management practices;
to review the reports regarding the major deficiencies of the internal control system and to
review the results of the assessment of the internal control adequacy;
to approve the internal capital adequacy assessment process of the Bank, as well as the Plan
regarding the capital of the Bank;
to approve, prior to implementation, any operation resulting in the booking or derecognition of
a related party exposure, exceeding the ceiling stipulated in the internal norms, as well as any
operation of this type otherwise posing a particular risk;
to review information from the Risk Committee on relevant aspects of the stress testing general
framework, workflow and conclusions and to approve the stress testing general framework; the
Board has the final responsibility with respect to the stress testing general framework;
to take measures, as the case may be, depending on the risk exposure level evidenced by stress
testing, as well as depending on the goals and risk tolerances established;
to approve the outsourcing of the Bank’s activities, in accordance with the law.
Board of Directors Committees
The Board may set up, through relevant decision(s), committees under its coordination, made up of
Board members, aiming to assist the Board in fulfilling its duties in accordance with the regulatory
framework in force.
In pursuance of the provisions in the NBR Regulation no.18/2009 on the setting-up of committees to
assist the Board of Directors in fulfilling its risk management, audit and remuneration duties, the
following committees under the coordination of the Board of Directors were operational in 2013, having
responsibilities in the above mentioned fields:
the Risk Committee
the Audit Committee
the Remuneration Committee.
Risk Committee
The role of the Risk Committee was to assist the Board in carrying out its risk supervision-related
duties. To this end, relevant responsibilities allotted to the Risk Committee comprised, inter alia, the
following:
to analyze and monitor the Bank’s compliance with internal and external regulations related to
significant risk management and make appropriate recommendations in this sense;
to endorse the risk management strategies to be submitted to the Board approval and regularly,
at least one a year, review them and submit to the Board the amendments thereto;
to ensure that adequate policies are developed in order to identify, assess, monitor and control
significant risks and present to the Board information that is sufficiently detailed and adequate
10
to enable the Board to know and to assess the performance of the management in monitoring
and controlling significant risks, according to the approved policies;
to inform the Board about significant problems or developments that could have an impact on
the Bank’s risk profile, and to report to the Board any situations that can have an impact on the
significant risks the Bank is faced with and makes recommendations for the appropriate
amendment of risk management policies;
to approve all risk related policies, regarding the processes of assuming, identification,
measuring, control and reporting of the risks established through the Risk Profile of the Bank;
to revise the above mentioned policies systematically and regularly, at least once a year;
to ensure the implementation of the strategies, policies, and processes related to risks;
to review the reports submitted regularly with regard to the measuring, assessment and
reporting of the sizes, composition and quality of exposures, which reflect the risk profile and
capital requirements;
to approve and revise the policies, methodologies, assumptions and procedures related to the
internal capital adequacy assessment process of the Bank;
to review all the material credit concentrations based on regular reviews, in accordance with
risk management policies and processes, which set-up ceilings for acceptable credit
concentrations and provide such reporting mechanisms;
to approve the stress testing general framework and submit to the Board relevant information
on stress testing general framework, workflow and conclusions;
to initiate and to design the internal capital adequacy assessment process; to review the results
of the internal capital adequacy assessment process of the Bank and to revise, when necessary,
the above process;
to establish effective strategies and policies in order to maintain a continuous level/structure
and distribution both of the capital resulted from the implementation of the internal capital
adequacy assessment process - internal capital - and of own funds, required to hedge the risks
to which the Bank is exposed.
The Risk Committee convenes quarterly or whenever necessary to debate issues included in its area of
responsibility. In 2013, 8 Risk Committee meetings took place. The aspects under review and/ or
approval comprised inter alia the review and/ or approval of risk related policies, the follow-up on risk
projects, the review of loan portfolio and key policy changes, as well as various information and reports
on specific and highly important risk management topics, including a wide range of items pertaining to
the stress testing general framework, workflow and conclusions.
Management Committees
The following Management Committees were set up under the coordination of the Executive Committee,
in their capacity as specialized management supporting bodies:
the Asset and Liability Management Committee (“ALCO”)
the Credit Committee
the Non-Performing Loans Committee
the Expense Committee
11
the Procurement Committee
the Internal Regulations Committee
the New Products Committee
the Committee for the examination of cases of employees having kindred/affinity relationships
the Branch Network Lease Contracts Evaluation Committee
the Operational Risk Committee.
A brief outline of the role of several Management Committees the focus of which includes risk
management topics is noted below.
ALCO
The main role of the ALCO is to manage the assets and liabilities of the Bank, whereas the management
shall be executed mainly (but not limited to) by monitoring the liquidity, fees and commissions, rates
and variances, costs structures, ratios. The ALCO gathers monthly and whenever necessary at the
specific request of any member to debate issues under its competence, In 2013, 23 ALCO meetings
took place.
Credit Committee
The Credit Committee manages and monitors the loan portfolio of the Bank, keeping it within the limits
of credit exposure, whilst at the same time striving to achieve the Bank’s targets. The main roles of the
Credit Committee were to: (i) manage the loan portfolio of the Bank, (ii) monitor the loan portfolio of the
Bank with the aim of keeping it within the limits set by the Board, (iii) analyze the loan portfolio of the
Bank by the risk/income ratio, and (iv) manage banking credit risks.
The Credit Committee gathers whenever necessary at the specific request of any member for the debate
of issues under its competence. In 2013, the frequency of Credit Committee meetings ranged between 6
up to 15 meetings per month.
Non-Performing Loans Committee
The primary function of the Non-Performing Loans Committee is to ensure an adequate recovery
process for the overall non-performing loans portfolio, excepting consumer loans. The main
responsibilities of the Non-Performing Loans Committee related to, inter alia, the following: (i) remedial
action / setting strategy and specific action plan, rescheduling / restructuring of debts, (ii) amicable
settlement of debt (reduction of interest - regular and penalty - and rescheduling of principal), (iii)
release of collateral following partial repayment of the related debt, (iv) selling mortgaged fixed assets
or pledged assets for partial recovery of debt, (v) enforcement of security rights and seizure of assets,
(vi) abandonment from recovery of uncollectible receivables, (vii) write-offs of interest and commission
amounts as well as write offs of principal, (viii) approval of expenses related to recovery and litigation
processes.
The Non-Performing Loans Committee meets monthly or whenever necessary at the specific request of
any member for the debate of issues under its competence. In 2013, Non-Performing Loans Committee
meetings took place with a frequency that ranged between 3 up to 11 meetings per month.
Operational Risk Committee
The main role of the Operational Risk Committee is to understand and assess the operational risks
arising from the Bank’s activities, to be satisfied that each business unit has appropriate policies and
procedures for the control of its operational risk and to ensure that prompt corrective action is taken
12
whenever a high risk area is identified. The Operational Risk Committee convenes at least on a quarterly
basis and whenever necessary at the specific request of any member to debate issues under its
competence.
In 2013, 4 Operational Risk Committee meetings took place.
Detailed information on the risk governance framework in terms of responsibilities assigned to various
tiers of authority/ committees is included in the Bank’s Internal Governance Manual, which depicts the
Bank’s organisational structure, the delegation of functional responsibilities, as well as the structure of
the Committees under the coordination of the Board of Directors and the Executive Committee,
respectively.
13
3. CAPITAL MANAGEMENT
3.1 Regulatory capital – definition
During 2013 and as at December 31, 2013, the Pillar 1 regulatory capital adequacy of Bancpost SA was
calculated according to the rules set by the National Bank of Romania, in line with the EU Directives
referring to the capital adequacy of investment firms and credit institutions in force.
The credit institutions must have a level of own funds which should be at any time at a level at least
equal to the amount of the following capital requirements:
a) with reference to the credit risk and risk of diminution of the value of receivable related to the
entire activity, except for the operations in the transaction portfolio, 8% of the total risk
weighted exposure values computed, as the case may be, in pursuance of the NBR - NSC
Regulation no. 14/19/2006 on the treatment of the risk credit for the credit institutions and
investment companies according with the standard approach, as subsequently amended and
supplemented,
b) with reference to the transaction portfolio, for the position risk, settlement risk and credit risk of
counterparty, capital requirements set in pursuance of the NBR - NSC Regulation no.
22/27/2006 on the adequacy of the capital of credit institutions and investment companies , as
subsequently amended and supplemented,
c) with reference to the currency risk and commodity risk related to the entire activity, the capital
requirements set in pursuance of the NBR - NSC Regulations no. 22/27/2006 on the adequacy
of the capital of credit institutions and investment companies as subsequently amended and
supplemented, and
d) with reference to the operational risk related to the entire activity, the capital requirements set in
pursuance of the NBR - NSC Regulation no. 14/24/2010 on setting the minimum capital
requirements for the credit institutions and investment companies relating to the operational
risk, as subsequently amended and supplemented.
3.2 Capital base/ own funds
The table below synthetically presents the structure of the own funds of Bancpost SA at the end of
2013.
- th RON31 December 2013
31 December 2012
1,350,245
81,133
1,350,245
81,133
40,756
41,583
40,756
41,583
(555)
58,157
(198,743)
-
67,565
(64,068)
-
Tier 1 capital
Share capital
Share premium
Legal reserve
General risk reserves
Special reserves
General reserves
Retained earnings
Minority interests
14
Less: Intangibles
Less: Other deductions from Tier I capital
(112,973)
(1,105)
(113,083)
(730)
Less: Prudential filters-provisions
(271,592)
(305,122)
(54,315)
(53,991)
933,203
1,044,288
448,470
442,870
30,362
8,016
Less: prudential filters-provisions
Total qualifying Tier 2 capital
271,592
305,122
(additional own funds)*
Less Equity investments in financial
207,240
145,764
institutions (holdings over 10%)
-
-
1,140,441
1,190,052
Less: Tax filters
Total qualifying Tier 1 capital
(core capital)*
Tier 2 capital
Eligible Subordinated capital
Revaluation reserve – available-for-sale investments
Available Own Funds
3.3 Capital requirement as per Pillar 1
The following table synthetically presents the capital requirement of Bancpost SA as of 31 December
2013:
- th RONOwn Funds requirements for:
Credit Risk
Market Risk
Foreign exchange Risk
Operational Risk
Total capital requirement
CAD ratios:
Total capital adequacy ratio*
Core Capital Ratio
Regulatory Total Capital Ratio
31 December 2013
31 December 2012
421,885
14,013
136,634
572,532
480,178
4,193
141,064
625,436
15.94%
13.04%
8%
15.22%
13.36%
8%
3.4 Internal Capital Adequacy Assessment Process
ICAAP Process sets out how the Bank identifies and manages the key risks it is exposed to and details
the approaches for determining internal capital requirements to achieve adequacy of capital in relation to
its risk profile.
15
The Bank’s processes for risk assessment, risk appetite setting, risk profile target setting and current
risk profile assessment as well as the ICAAP process (internal capital requirements calculation, stress
testing and capital planning) are interrelated and the information is circulated so that the Bank ensures
that:
all significant risks are identified in a timely manner;
the internal capital and available capital are adequate both on a current and prospective basis;
all required risk mitigation measures are applied in a preventive manner to the extent permitted
by the uncertainties of the economic and business environment.
The ICAAP framework has been annually assessed and updated, while the monitoring of the capital
adequacy process has been performed by the presentation to the management body of the Bank, at least
on a quarterly basis, of the assessment results, together with the Bank’s Risk Profile according to the
Risk Profile and The Strategy for the Management of Significant Risks in place.
The time horizon of the ICAAP is one financial year.
For the purpose of the ICAAP, the Bank defines its available internal capital through the own funds level
(regulatory capital) according to the provisions of the CRR.
3.4.1 ICAAP Design
The ICAAP in Bancpost is designed in line with the “Pillar 1+” approach described at art. 76 of NBR
Regulation 5/2013.
The Bank identifies and assesses all the significant risks it is or might be exposed to, in accordance with
paragraph 1, art. 70 of the NBR Regulation 5/2013 for the internal capital adequacy assessment
process.
Capital requirement for each risk regulated under Pillar 1 is the maximum value calculated under Pillar 1
approach and the capital requirement calculated according to Pillar 2 approach. Capital requirement for
each risk not regulated under Pillar 1 is the capital requirement calculated according to Pillar 2
approach.
The level of required internal capital is the sum of capital requirement for each of the significant risks
identified and quantified as no risk diversification adjustments were considered with the view of
applying a more conservative approach.
The resulting capital requirement is further assessed versus the internal capital.
As part of the internal capital adequacy assessment process, the Bank has identified the following risks
to be significant, hence requiring capital allocation:
16
SubRisk category
group
1.1
Credit risk
1.2
Market risk
1.3
Operational risk
Pillar 2 treatment
Internally defined approach.
Pillar 2 capital requirement is calculated as the capital
requirement under the standardized approach, based on the
stress test scenario.
Internally defined approach.
Pillar 2 capital requirement is calculated using VAR models
and stress testing effect.
Internally defined approach.
Quantification based on the stress testing results.
2.1 Risk arisen from
Internally defined approach.
applying less
Capital buffer based on Pillar 1 capital requirement for credit
sophisticated approaches
risk and operational risk.
2.2
Underestimation of
downturn LGD
Residual risk from the
2.3 usage of Credit Risk
Mitigating techniques
2.4 Securitization risk
Risks arisen from
2.5 foreign currency lending
to unhedged borrowers
Interest rate risk in the
3.1
banking book
Internally defined approach.
Capital buffer based on Pillar 1 capital requirement for credit
risk.
Internally defined approach.
Quantification based on the stress testing results.
N/A
Internally defined approach.
Capital buffer based on Pillar 1 capital requirement
calculated for FCY loans granted to unhedged borrowers
Internally defined approach based on the result of the
IRRBB NBR standardized approach (stress testing)
3.2
Internally defined approach.
Credit concentration risk Bank of Spain methodology (capital add-on based in HHI
level).
Although liquidity risk is part of the ICAAP, it is not a risk
mitigated with capital but with an appropriate level of the
3.3
liquidity buffer set in order to allow the Bank to withstand a
crisis across its chosen survival period (e.g. 30 days)
Quantitative
i.
Liquidity gaps
ii.
Liquidity scorecard based on KRI
Liquidity risk
iii.
Early Warning system
iv.
Stress testing approaches that result in
target levels for liquidity buffer and CBC
Qualitative
i.
Policies and procedures
ii.
Monitoring & reporting
iii.
Contingency Funding Plans
3.5 Business risk (including
Strategic Risk)
3.4 Reputational risk
Risks related to
4.1
regulatory environment
Risks related to the
4.3
business environment
Risks related to
economic environment
4.2
(including
macroeconomic risk)
Internally defined approach.
Stressed Business VAR model results.
Quantitative
General capital buffer of the Pillar 1 total minimum capital
requirement.
Qualitative
i.
Process based measures
ii.
Limit setting
iii.
Monitoring & reporting to management
17
3.4.2 Internal capital adequacy
The table below summarizes the internal capital requirements for the Bank as at December 31, 2013.
The solvency indicator, including the internal capital requirements, was maintained in 2013 at
satisfactory levels, within the established internal limit.
As of December 31, 2013, the solvency indicator was of 11.77 % (December 31, 2012: 11.71 %).
Amounts in mil. RON
Available internal capital (Own Funds)
Internal Capital Requirement
Capital Buffer
ICAD
Credit risk
Operational risk
Market risk
Risk arisen from foreign currency lending to unhedged borrowers
Risk arisen from applying less sophisticated
approaches
Underestimation of downturn LGD
External risks
Credit concentration risk
Interest rate risk in the banking book
Business risk (including Strategic Risk)
Residual risk from the usage of Credit Risk
Mitigating technique
Dec-13
ICAAP
1,140
775
365
11.77%
421
137
16
8
28
8
11
11
35
86
13
18
4. CREDIT RISK
4.1 Credit Risk
4.1.1 General framework
Bancpost manages the credit risk inherent in the entire portfolio as well as the risk in individual credits
or transactions.
Bancpost manages credit risk through a procedural framework based on sound credit principles, which
ensures that effective processes are run at the level of each business level. Both procedural framework
and organizational structure are designed so as to be aligned with Bancpost overall business strategy,
ensuring optimization of risk-return ratio. The sound practices set out specifically address the following
areas: (i) establishing an appropriate credit risk environment; (ii) operating under a sound creditgranting process; (iii) maintaining an appropriate credit administration, measurement and monitoring
process; and (iv) ensuring adequate controls over credit risk.
The evolution of Bancpost SA credit portfolio volume and quality in accordance with the Financial
Statements for the year ended December 31, 2013 prepared on standalone basis and in accordance with
International Financial Reporting Standards (IFRS) issued by the IASB, as endorsed and adopted by the
European Union (the 'EU'), and in particular with those IFRSs standards and IFRIC interpretations
issued and effective or issued and early adopted as at the time of preparing these statements is as
follows:
a. Total portfolio evolution*
- th RON-
Neither past due nor impaired
Past due but not impaired
Impaired**:
- collectively assessed
- individually assessed
Total loan portfolio, gross
Less: allowance for impairment
Net loans and advances
31 December 2013
31 December 2012
4,809,162
1,165,144
5,068,613
1,481,472
430,391
704,819
7,109,516
(676,045)
6,433,471
328,215
946,309
7,824,610
(676,149)
7,148,461
*source: Financial statements as of 31.12.2013
**A financial asset is impaired, if and only if, there is objective evidence of impairment as a result of one or more
events that occurred after the initial recognition of the asset and that loss event has an impact on the estimated
future cash flows of the financial asset that can be reliably estimated.
19
b. Analysis of loans granted to customers by type of customer
-th RON31 December 2013*
31 December 2012
4,309,315
2,800,201
7,109,516
4,197,090
3,627,520
7,824,610
Individuals
Legal entities
Total loan portfolio, gross
The Bank employs the following risk management methods in order to reach its defined credit risk
targets:
Risk avoidance: in lending operations, the Bank rejects credit exposures with poor creditworthiness on
the basis of required risk/return ratios and by defining risk sensitive business focuses by means of
specific exposure limits and target portfolio.
Risk mitigation/limitation: The Bank demands collateral and applies credit risk mitigating techniques
and adheres to defined credit risk limits as derived above.
Risk diversification: by diversifying its portfolio, the Bank hedges its dependence on specific
developments and thus reduces its credit risk. Should the Bank’s portfolio fall below the desired degree
of diversification, the Bank will need to take suitable measures.
Risk transfer: The Bank transfers risk by selling or sub participating credit exposure to third parties
entities
The actions undertaken by Bancpost in order to mitigate credit risk are:
evaluation on an individual level of the repayment capacity of debtors;
avoidance of credit concentration on: currencies, economic sectors, debtor categories, types of
collateral and protection provider, geographical regions, avoidance of insurance – re-insurance
with only one insurance company (or with problematic insurance companies);
dispersion of credit risk through diversification of client database and types of credits granted;
monitoring of the exposure assumed by the Bank towards “a sole debtor” and the total amount
of significant loans granted to debtors.
Segregation of duties ensures the independence among the staff responsible for client relationship,
credit approval, disbursement and credit monitoring over the life of the loans.
4.1.2 Approval process
Bancpost has a well-defined process for the approval of new loans, for change in terms and conditions
of the loans as well as for the renewal and refinancing of existing loans.
The lending process is based on the “four-eye principle”.
Bancpost SA has different credit approving levels depending on the exposure per client/group of clients,
collateral coverage and in case of corporate lending also depending on tenor and credit rating. At all
approval levels it is necessary the unanimously quorum of all members of the respective committees.
20
4.1.3 Monitoring, controlling and reporting process
The units involved in the lending and monitoring activity ensure the management of credit risk for each
credit facility but also on an aggregate level for the entire portfolio, the elements related to credit risk
being analyzed also in the context of other types of risks with which they are in close relationship, taking
into consideration the following:
(i) Credit concentration;
(ii) Counterparty risks;
(iii) Residual risk.
Risk management function closely monitors the credit portfolio evolution, assesses the existence and
revision of risk policies, as well as the compliance with the risk policies. To this aim, Risk Control
Division performs recurrent and ad-hoc reviews, as well as specific control missions per business lines
based on which recommendations are issued. Similarly, Credit Risk Monitoring Division identifies
additional risks and deficiencies during its day to day activity and addresses them during the credit risk
assessment process or during the procedural framework review process
Debtors with impairment indicators are constantly monitored based on a sound procedural framework.
In particular, performance of the restructured portfolio is closely monitored and specific classification
and provisioning rules are applied.
The monitoring system refers, without being limited to:
1. monitoring the compliance with covenants/ subsequent conditions imposed by the approval
level in order to mitigate the credit risk;
2. monitoring delinquencies by implementing an early and late collection system based on
notification letters sent to clients and phonecalls;
3. periodic reviews of exposures;
4. ongoing screening of customers portfolios for identifying early warning signals.
Evolution of the loan portfolio quality is monitored on an ongoing basis by Risk Control Division and
submitted to the attention of the relevant stakeholders by means of ad-hoc, monthly, quarterly
notifications and reports, and regularly analyzed and decided within Risk Committees, Executive
Committee and Board of Directors meetings.
Bancpost has in place information systems to evaluate credit risk for on-balance and off-balance sheet
items and to supply adequate information regarding the structure of the credit portfolio (by business
line, CCY, etc.), 90+ formation, NPL ratio evolution, average LTV per portfolio, as well as information
that would allow the identification of risk concentration (individual, sector concentration, on collateral or
protection provider) and of FX denominated exposures to un-hedged borrowers.
In 2013 Bancpost applied the following provisioning policies:
1. Prudential adjustment methodology according to NBR Regulations in place regarding setting-up
of prudential credit risk provisions.
2. IFRS Provisioning methodology embedding EuroBank Group global policy – which considers
rating models for wholesale customers, while for retail portfolio uses different provisioning
coefficients by types of exposures and the delinquency bucket. This methodology represents
the outcome of the cumulated experience of EuroBank Group accommodated to the profile of
the Bancpost portfolio based on a prudent risk approach.
21
4.1.4 Collection process
In 2013, Bancpost continued to calibrate its collection resources in order to continue to proactively
adjust to market conditions.
Collection process within Corporate Division is a proactive one for preventing customers to become
delinquent or to increase delinquencies towards Bancpost.
Risk based prioritization and collection intensity is applied on household lending portfolio thus
optimizing resources allocation.
Management of non-performing loans has been strengthened by enhancing the monitoring of debtors
under insolvency and by following various recovery methods, in parallel, against the collateral, the
debtors’ assets, the personal guarantees.
Non-performing Loans Division focused on negotiating amicable solutions for a better collection of NPL
in the first phase, through improving the marketability of collateral by enhancing the advertisement of
auctions all with the view of implementing the most effective and efficient recovery solutions for the
relevant portfolio.
4.1.5 Country and Counterparty Limits
According to the procedures in place, the people involved in treasury activities are not authorized to
conduct any type of business with counterparties for which there are no limits. If a limit is required for a
particular counterparty, the approval process is followed in order for the limit to be approved and set up.
The counterparty limits are approved by the Credit Committee. The Board of Directors continues to be
informed about the outstanding exposure exceeding 10% of the Bank’s own funds. The country limits
are submitted for approval to the Executive Committee.
Both counterparty and country limits are monitored on a daily basis by the Market Risk Department
within the risk management function according to internal procedures in place.
The limits are periodically reviewed in order to update the limits according to the counterparty’s quality,
market evolutions and the Bank’s business needs.
There is no sovereign exposure on foreign countries. As of December 31, 2013 the total exposure on
foreign countries due to exposures on financial institutions was EUR 53.91, mil representing 21.19% of
total own funds.
The exposures represented 1.92% for non-EU countries and 19.21% for EU countries of the Bank’s total
own funds as of December 2013.
22
4.2. Concentration risk
Bancpost manages concentration risk via limits on currencies, sectors, geographical regions, indirect
credit exposure and large exposures as well as by means of concentration indices (HerfindahlHirschman Index), CRM’s.
Limits are reviewed periodically and are integrant of the Bank’s strategy, while Risk Division informs
Risk Committee/BOD/EXCO periodically on the credit portfolio structure against exposure limits set up.
The Bank’s retail loan portfolio (individuals and SBB clients) as at December 31, 2013 is well balanced
between regions:
Retail Region
NORTH - EAST
NORTH
SOUTH - EAST
SOUTH - MUNTENIA
SOUTH - WEST OLTENIA
WEST
NORTH - WEST
CENTER
BUCHAREST SOUTH
BUCHAREST NORTH
Total
%
14%
9%
10%
12%
7%
7%
7%
8%
13%
13%
100%
Limit (%)
Excess of /
(Buffer)
against limit
(%)
20%
20%
20%
20%
20%
20%
20%
20%
-6%
-11%
-10%
-8%
-13%
-13%
-13%
-12%
50%
-24%
Large exposures
The total credit exposure on any single counterparty or group of connected counterparties shall not
exceed 25% of own funds. In case the counterparty is an institution or the group of connected parties
contains an institution, the exposure on the respective counterparty should not exceed the maximum
between 25% of own funds and a limit established in absolute amount, while the cumulated exposure
on those group members that are not an institution should not exceed 25% of own funds.
During 2013 no limits/thresholds were exceeded.
Economic sectors
The Bank’s loan book is well diversified with limited exposure to higher risk such as real estate.
Bancpost SA is cautious in taking exposure on independent insurance companies, leasing and factoring
companies and other finance entities. The exposure on the real estate sector is limited to EUR 250 mil
(total on and off balance sheet real estate credit exposure as of December 31, 2013 was EUR 157 mil).
23
4.3 Residual Risk
A key component of the Bank's business strategy is to reduce risk by utilizing various risk mitigation
techniques.
Solid collateral management grounds are established through norms and policies.
The Bank applies strict valuation standards and conservative collateralization levels are required at the
approval stage, taking discounted market values and volatility into account.
Bancpost SA uses the following types of guarantees:
Funded credit protection
Collaterals (real collateral)
On-balance sheet netting
Unfunded credit protection
Guarantees (personal guarantees)
Credit derivative
Main types of collaterals are, but not limited to:
Land
Buildings
Inventories
Vehicles
Equipment
Assignment of receivables
Deposits/ Cash collateral
Main types of guarantees are, but not limited to:
Bank’s counter- guarantees
Stand By LC
Corporate guarantee
Sovereign guarantee
24
Breakdown by guarantee type - 31.12.2013:
CRM TYPE*
EUR mil.
CRM % in total CRM
Cash collateral
State guarantee funds
Local authorities guarantees
Listed shares
Letters of guarantee
Residential real estate
Land
Construction in progress
Commercial real estate
Industrial real estate
Assignment of firm receivables
Equipment
Other guarantee funds
Vehicles
Inventories
Not listed shares
Other guarantees and collaterals**
TOTAL
6.1
33.8
10.9
2.1
5.8
539.8
86.6
11.3
222.5
114.1
82.9
41.5
13.3
3.2
56.4
0
1,756.20
2,986.40
0.20%
1.10%
0.40%
0.10%
0.20%
18.10%
2.90%
0.40%
7.50%
3.80%
2.80%
1.40%
0.40%
0.10%
1.90%
0.00%
58.80%
100%
* The value of collateral is reported at the nominal value capped at the level of the outstanding covered
** P/N, pledge on current accounts, assignment of frame contracts, pledge on future goods, personal
guarantees, corporate guarantees, life insurance, credit risk insurance
As shown in the table above, the most commonly used form of collateral is real estate (32.6%), which is
considered to be one of the strongest form of collaterals. The real estate property pledged to the Bank is
widely dispersed in terms of property types, owners and locations.
Collaterals value is reassessed on a regular basis to ensure that the loan impairment provisions are
calculated and business decision is taken on the most accurate and up-dated information. Monitoring
reports ensure the review of the portfolio by types of collaterals and percentage of revalued collaterals
versus not revalued collaterals. Insurance coverage is also part of the ongoing monitoring process of
the Bank.
25
5. MARKET RISK
The Bank monitors and manages market risk by established systems, processes and controls. Risk
sensitivity analyses are provided to estimate the impact of changes in market risk factors.
The market risk is managed by Global Markets Division within approved limits. Risk Monitoring Division
is responsible for monitoring the limits usage and escalating potential limit breaches. The risk is
monitored on a daily and weekly basis.
Global Markets Division may only enter into transactions in approved products, markets and currencies,
and with approved counterparties.
The trading portfolio positions are valuated (mark to market) daily.
On a monthly basis stress tests are performed on FX risk (depreciation of local currency against all
foreign currencies) and on Interest rate risk (shift in swap curves for RON, shift in swap curves for
foreign currencies and increase in country’s credit spread).
The bank is monitoring a VaR limit on daily basis. VaR is calculated with Monte Carlo simulation,
confidence level 99% and holding period 10days.
6. INTEREST RATE RISK IN THE BANKING BOOK
The Bank monitors and manages interest rate risk in banking book by established systems, processes
and controls. Risk sensitivity figures are provided to estimate the impact of charges in interest rates,
which is one of the primary ways in which these risks are assessed for risk management purposes.
The interest rate risk exposures in banking book arise from a number of sources, including money
market activities, loans to customers, investment in securities available for sale, due to customers,
borrowed funds, and derivative financial instruments.
The interest rate in banking book is managed by the Global Markets Division within approved limits
using hedging instruments such as interest rate swaps. Risk Monitoring Division is responsible for
monitoring the limits usage and escalating potential limit breaches. The risk is monitored on a weekly
basis. Stress tests (flattening, steepening and parallel shift scenarios) are performed on a monthly
basis.
The potential change in economic value relative to the own funds assuming a 200bps shift in the yield
curve was of 3.09% as of December 31, 2013.
26
7. LIQUIDITY RISK
7.1. Liquidity Strategy
The main objectives of the Bank’s liquidity strategy are:
The Bank keeps adequate liquidity reserves in order to be able to meet its obligations towards
its customers at any time;
The Bank enjoys a diversified liquidity base both in the short as well as the long term.
In pursuing these objectives, the Bank’s liquidity was compliant with both the regulatory and the internal
limits for liquidity ratios throughout 2013.
The Bank grows its loan and deposit business in a correlated manner.
The goal of the liquidity management framework is to accommodate the Bank’s budgeted targets and
provide appropriate solutions for meeting the Bank’s funding needs. To achieve that:
1. The Bank adequately manages its funding and liquidity needs both under “Business-as-usual”
conditions and – for a limited amount of time – under “Stress” conditions, and
2. The Bank has strategies policies and systems to address its funding and liquidity needs by lines
of business and significant currencies.
The Bank’s liquidity strategy addresses the key aspects of liquidity: (i) the drivers of liquidity risk
(intrinsic & extrinsic), (ii) the funding sources and available collateral, and (iii) the multiple time scales
(horizons) under which liquidity is examined.
A key feature of the Bank’s liquidity strategy is the attention paid to the diversification of funding
sources. With respect to this issue, Bancpost has a history of active pursuit of diversified sources of
funding. The financing from International Financial Institutions such as IFC, EIB and EBRD is one of the
sources,
The liquidity strategy employs a perspective encompassing multiple time horizons from short term to
long term and strives to gauge the liquidity situation and the liquidity risks both at an aggregate level
and per each significant individual currency separately.
General standards of liquidity risk control and management (limits and analyses) are implemented and
the limits excesses are reported to ALCO.
The management of the intraday liquidity is performed under normal and stressed market conditions.
There are four distinct categories of stress conditions that capture the main intraday liquidity risks in a
payment or settlement system (Bank stress, counterparty stress, customer or correspondent stress and
market stress).
The Bank’s liquidity strategy and policy contain the contingency plan that ensures the measures to be
taken and the coordination of all parties involved in liquidity crises management.
27
7.2 Liquidity Management by Business Lines and Significant Currencies
Pursuant to the Funding Strategy and Funds Transfer Pricing (“FTP”) framework, Bank-wide liquidity
management is structured by business lines and significant currencies, including a mechanism for
cost/benefit and liquidity risk allocation.
7.3 Liquidity Reserve
Liquidity reserve (buffer) is the short end of the counterbalancing capacity. In other words, it is the
liquidity available without any extraordinary measures needed to be taken. The size of the buffer is
then determined according to the funding gap under stressed conditions (general, specific
(idiosyncratic) and combined liquidity crisis) over defined time horizons (“the survival periods”).
“Survival period’ has to be viewed as a time period during which a Bank can continue operating
without needing to generate additional funds and still meet all its payments due under the assumed
stress scenarios.
Liquidity Buffer
Counterbalancing Capacity:
1.Liquid Assets (Marketable Securities - haircut applied,
excluding Collateral posted with NBR);
2.Cash, excess reserves at NBR;
3.Committed credit lines.
EUR equivalent
Dec-13
Dec-12
575,669,689
488,407,744
261,119,333
290,273,038
184,550,356
130,000,000
68,134,706
130,000,000
28
8. OPERATIONAL RISK
8.1 Governance
Acknowledging the fact that operational risk is embedded in every business activity, Bancpost’s internal
governance model stems from the Bank’s Board of Directors and Executive Officers through the
Executive Committee to the coordinators and staff of each and every business unit. Both the Board of
Directors and the Executive Committee has set up specialized and support committees to fulfill specific
responsibilities.
An Operational Risk Department is formed in Bancpost SA, being responsible for applying the EuroBank
Group operational risk strategy and framework in the Bank.
The prime responsibility for operational risk management lies with the respective Heads of each
business unit. To this end, every business unit:
identifies, evaluates and monitors its operational risks and implements risk mitigation
techniques;
introduce risk identification processes such as risk assessment, key risk indicators where
appropriate and historic risk events collection;
assesses control efficiency;
reports all relevant issues;
and has access to and uses the common methods and tools introduced by Operational Risk
Department, in order to facilitate identification, evaluation and monitoring of operational risk.
The Operational Risk Department is responsible for (i) defining and rolling out the methodology for the
identification, assessment and reporting of operational risk within Board of Directors / Risk Committee
decisions, (ii) implementing regulatory requirements and Eurobank Group guidelines, (iii) monitoring
the operational risk level and profile and reporting thereon to the Risk Committee, and (iv) defining and
rolling out the methodology for the calculation of the regulatory capital charge for operational risk.
8.2 Operational risk management framework
The Operational Risk Framework is built on four elements:
Principles
Governance & Organization
Processes
Infrastructure.
The operational risk management framework and related policies are designed to:
establish the operational risk framework and governance, aligning the structure and processes
with best international banking practices;
introduce risk identification processes such as risk assessment, key risk indicators where
appropriate and historic risk events collection;
establish a common definition and consistent approach for operational risk to enable common
identification and aggregation of operational risk across our business;
29
establish a proactive operational risk management culture across our business, linking business
operations with the objectives of risk control;
establish comprehensive and integrated operational risk reporting;
adhere to the Eurobank Group guidelines and meet local regulatory requirements and practices
relating to operational risk in Romania;
allow the achievement of a competitive advantage in terms of operational risk management
through risk-based decision making; and
leverage international knowledge and best practices on operational risk management.
Operational risk processes consist of risk identification, assessment (including measurement and
valuation), control management & risk mitigation and reporting & performance improvement. These
processes are supported by and implemented with the operational risk tools/ methods, which are the
following:
Risk & Control Self- Assessment (RCSA) is a technique aiming to identify assess and ultimately
mitigate operational risk. The RCSA exercise is carried out annually if however major changes
take place, the exercise is performed more often.
Operational risk indicators are metrics based on historical data relevant to specific and
measurable activities indicating operational risk exposures.
Operational risk events are identified and reported with the purpose to populate the internal loss
tracking/ reporting database. Operational risk events are classified according to their owner,
cause, risk category, consequence, impact, and business line.
Operational risk reporting, whereby reports are produced for internal and regulatory purposes.
Operational risk capital charge calculation and allocation, using the appropriate methodology
and assumptions.
30
9. OTHER RISKS
9.1 Business and Strategic Risk
9.1.1 Business Risk
The Bank acknowledges that business risk is inherently linked to its business activities and thus
represents a material risk for the Bank. The Bank manages business risk under the normal conduct of its
business by establishing processes, structures and a culture that ensure changes in business risk
factors are identified on a timely manner while maximum ability to flexibly respond to such changes and
mitigate their impact is maintained and applied on a day-to-day basis. These are totally integrated in the
way the Bank undertakes its business activities and its overall orientation towards effectiveness and
superior performance and are not treated separately. Some examples include:
Maintaining a well-diversified revenue stream, through an equally diversified business mix as
well as a well-diversified customer base.
Maintaining a low cost-to-income ratio while also pursuing a flexible cost structure in all
instances.
Maintaining the ability to flexibly price products in response to changing market and customer
conditions.
Constantly developing competitive products and providing superior service to its customers.
Maintaining a strong profitability that allows potential business risk impacts to be
accommodated without severely affecting the Bank’s overall strategy, objectives and capital
adequacy in particular.
The Bank has established methodologies that aim at assessing the potential impact of business risk on
earnings and thus on its capital position. The Bank has complemented modeling results with substantial
expert judgment to arrive at a final quantitative estimate for business risk.
9.1.2 Strategic Risk
All decisions of potentially strategic impact are taken at the strategic, rather than the operational or
tactical organizational levels. For this purpose, appropriate governance arrangements, including
committees, divisions, and approval authorities, are in place, as well as robust processes around
strategic decision making and planning.
Any decision that involves major modifications to the core business or structural changes that materially
dilute the Bank’s equity or erode its economic interests (or share ownership rights) is considered as
strategic and is granted special attention. The following list provides examples of such issues:
Material changes in the scope or character of the company’s business
Significant management (or shareholder) changes
Capital increases; changes in capital structure
Debt issuance / terms
Acquisition of, merger with or sale by the company of any other company, business line,
material asset, division or subsidiary
Alliances and joint ventures with third parties in the short and/or long term
31
A number of key control mechanisms are in place to mitigate strategic risk. The most important
mitigation measure is the requirement that all strategic decisions be approved by the appropriate body.
In most cases, this would be the Board of Directors, or even the General Meeting of the Shareholders. In
some cases, such decisions could be taken by the executive management through the Executive
Committee.
9.2 Other risks
9.2.1 Reputational risk
The Bank regards reputation as one of its most valuable assets as it signifies its success in meeting
stakeholder expectations. The major stakeholder categories are: clients, employees, regulators,
shareholders, debt investors, financial analysts, rating agencies, suppliers and society in general. The
organization understands that appropriate reputation development and management can lead to a
sustainable competitive advantage and an increase in shareholder value.
Reputational risk management is performed in tandem with the Bank’s integrated risk management
philosophy. In particular, the Bank views reputation as crucially depending on its corporate identity and
the way this identity is communicated to its stakeholders.
9.2.2 Risks external to the credit institution
Risks external to the credit institution include the following risk categories:
Risks related to the regulatory environment
Risks related to the economic environment
Risks related to the business environment.
With regards to the risk related to the economic environment, the Bank performs at least annually
capital planning exercises and assesses at a Bank wide level if and what measures are required against
this risk.
10. THE STRUCTURE OF THE INCENTIVES/REMUNERATION
10.1. Introduction
Bancpost’s S.A. (“the Bank”) Remuneration Policy forms an integral part of the Bank’s corporate
governance practice and is developed in accordance with its operational model and business strategy of
the Bank. Consequently, its main aim is to align individual employees’ objectives with the Bank’s longterm business objectives and strategy, as well as the long-term value creation for shareholders.
Accordingly, the operating standards and mechanisms which have been adopted ensure that the levels
of rewards are directly linked to results and desired behaviours and that no conflicts of interest arise.
The Policy has been drafted in line with the NBR Regulation 18/2009, as subsequently amended and
supplemented. The Remuneration Policy is also aligned with the Eurobank Remuneration Policy as per
the requirements of Bank of Greece Act 2650/2012 in order to promote consistent implementation on a
consolidated basis throughout the Eurobank Group (“Group”).
32
10.2. Remuneration Policy scope
The Remuneration Policy is applied to all Bank employees, while also comprising provisions on the
remuneration of the Board of Directors members.
In this context, the Remuneration Policy is also applied to targeted population: senior management, risk
takers, individuals whose total remuneration takes them into the same remuneration level as the
aforementioned categories, staff engaged in internal control function, employees whose professional
activities have a significant impact on the risk profile of the Bank, whose remuneration is subject to the
rules set in paragraph 10.6 below.
The Remuneration Policy covers the employees’ total remuneration.
10.3. Remuneration Policy basic principles
The Bank has established a competitive compensation framework in order to attract, engage and retain
its employees. Its basic principles are to:
Safeguard that the compensation is sufficient to retain and attract personnel with appropriate
skills and experience;
Monitor that internal equity between Business Units is applied;
Avoid excessive risk behaviour;
Link compensation with long-term performance.
10.4. Remuneration Policy Governance
The Board of Directors (“BoD”) approves and reviews the Remuneration Policy, following the proposal
from the Remuneration Committee.
For the drafting of the Remuneration Policy, the Remuneration Committee collaborates with other BoD
Committees (Risk Committee, Audit Committee, etc.) both at Bank and/or Group level and ensures that
appropriate input is provided by Risk, Compliance, Internal Audit, Human Resources and Strategy at
Bank and/or Group level.
The Remuneration Policy and its implementation are subject to annual assessment performed by the
Internal Audit. Internal Audit’s findings and recommendations for potential improvements are
communicated to the Remuneration Committee in order to be addressed. The Board of Directors will be
informed about the potential findings identified during the assessment process as well as about the
recommendations made to the Remuneration Committee.
The remuneration of targeted population is approved by the BoD following the proposal from the
Remuneration Committee pending final ratification by the Group.
The Remuneration Policy is accessible to all employees through the Bank’s intranet site.
10.5. Remuneration Committee
The BoD has delegated to the Remuneration Committee the responsibility to provide specialized and
independent advice for matters relating to Remuneration Policy and the responsibility to maintain and
oversee the implementation of the Remuneration Policy throughout Romania, while also collaborate
with functions and committees at Group level (e.g. Group HR, Group Remuneration Committee, Group
Supervisory Remuneration Committee) to ensure appropriate implementation of Remuneration Policy
requirements throughout the Eurobank Group.
33
The Remuneration Committee, in carrying out its duties is accountable to the BoD.
The Remuneration Committee consists of three non-executive members of the BoD, one of which is
independent, in the sense of Romanian legal provisions. The members are appointed biennially by the
BoD.
The Chairperson of the Remuneration Committee is appointed by the BoD. The Remuneration
Committee meets and reaches valid decisions when all members are present. Decisions are adopted by
majority of votes. The members of the Remuneration Committee are not allowed to hold positions and
conduct transactions through which a conflict regarding the Remuneration Committee’s mission might
arise. The members of the Remuneration Committee can participate in other BoD Committees.
The Remuneration Committee appoints its secretary.
No individual is present when their own remuneration is being considered. Furthermore, Executives may
not participate in the approval process of the Remuneration Policy, their own remuneration and the
remuneration of targeted (as defined above) population.
Once every two years the Remuneration Committee reviews its own performance and terms of reference
(ToR). Information in this regard is submitted to the BoD, and any changes in the ToR considered
necessary are submitted to the BoD for approval.
In 2013 there were four Remuneration Committee meetings.
10.6. Remuneration
Remuneration plays a significant role in attracting and retaining talent whose contribution in the Bank’s
result is deemed critical. Remuneration mechanisms incorporate principles that take into account
employees’ skills and performance while supporting at the same time long term business objectives.
Employees’ total remuneration consists of fixed and variable remuneration
Fixed and variable components of the total remuneration are appropriately balanced and the fixed
component represents a sufficiently high proportion of the total remuneration to allow applying a fully
flexible policy on variable remuneration components, including the possibility to pay no variable
remuneration component.
The fixed remuneration is the contractual compensation for a specified position excluding any other
payments or allowances. Fixed remuneration reflects the educational level, experience, accountability,
position evaluation in comparison with peers, and the position’s functional requirements.
Fixed remuneration involves external and internal standards. The pay level decisions ensure that the
organization is in line with the requirements of the external environment and market competitiveness,
and pay structure decisions ensure that the pay for jobs is internally consistent, fair and equitable.
Potential fixed remuneration increases are accommodated during the annual salary review process.
Individual increases proposals are based on market data and employee performance.
Variable remuneration is designed to ensure total remuneration competitiveness and to reward
employee performance in alignment with unit and/or Bank’s performance taking into consideration the
general principles set below.
It is upon the Bank’s discretion to award variable remuneration to employees as long as financial
sustainability is maintained. The Bank has the right to partly or fully revoke the distribution of variable
remuneration to its employees, as noted in the paragraphs to follow.
Variable remuneration can be granted through the following schemes:
34
Incentive schemes – may be granted to employees based on the achievement of specific
quantitative and qualitative targets. The incentives schemes that are in place for the employees
in the Bank’s network have incorporated drivers linked to assessment of the business results
over time, as well as risk related goals, where the case. Moreover, qualitative targets are in
place, such as compliance to internal audit findings, etc.
Annual performance variable remuneration – may be granted based on individual performance
and the Bank’s annual results, taking into account the level and nature of responsibility of each
person as well as the contribution of the business unit they belong to, to the Bank’s total result.
One employee can only be eligible for one of the above mentioned variable remuneration (incentive or
performance variable remuneration).
The Bank’s variable remuneration pool is approved by the BoD following the proposal from the
Remuneration Committee pending final ratification by the Group. The distribution parameters used for
its allocation among different business units are approved by the Remuneration Committee based on
the following rules:
To avoid excessive risk taking by ensuring that total remuneration consists of a higher
proportion of fixed versus variable component which is linked to specific performance.
To determine the variable component based on the following:
o
The Bank’s and business units’ profitability;
o
The cost of tied-up capital which is associated to risks;
o
Key developments in terms of credit risk, liquidity risk, market risk further adjust the
Bank’s total variable remuneration pool;
o
Additional criteria for measuring effectiveness and efficiency include risk management
principles and qualitative factors (qualifications, skills, contribution to the unit’s
performance, and personal competencies such as business thinking, continuous
improvement, initiative, adaptability, customer orientation, team spirit and people
management).
The Bank ensures alignment between employees’ personal objectives and the desirable risk appetite.
The variable remuneration pool allocated to each business unit is adjusted through additional risk
parameters (for example provisions for non performing loans, value at risk, credit, market and liquidity
risk, losses incurred by fraud, etc.).
More specifically, for targeted population and provided that variable remuneration is awarded to them,
subject to current laws and regulations, the following rules should apply:
At least 40% of the variable remuneration awarded is deferred over a period of no less than 3
years in order to ensure that the risks undertaken have been assessed over a multi – year
framework and to avoid short term benefits;
At least 50% of the variable remuneration is paid in shares or other instruments in order to
ensure that performance as well as current and future risks related to the award are assessed
over several years. The Remuneration Committee will analyse and propose to the BoD for
approval if the framework can allow providing shares or equivalent ownership interests or other
instruments and the percentages of the variable remuneration components that might be
deferred for a period of time;
35
Variable remuneration (deferred and non-deferred) is awarded or vested when the financial
performance of the Bank as well as the individual and business unit performance are considered
satisfactory;
When the Bank has declining or negative financial performance, the deferred remuneration can
be reduced (malus). Maluses are applied after taking into consideration Bank and individual
performances and assessing the impact of imprudent risk taking. Additionally, the Bank can
revoke any vested part of the deferred remuneration;
Remuneration is directly linked to performance and as a result no guaranteed variable
remuneration is awarded to employees;
The remuneration of the coordinators of risk management function and compliance function
should be directly overseen by the Remuneration Committee
The remuneration of the personnel carrying out the internal control system function shall not be
related to the performance of the activities to be monitored and controlled by the internal
control system function;
It is prohibited to use personal hedging strategies or insurance to undermine the risk alignment
effects embedded in the remuneration arrangements;
The Bank can request the refund of any variable remuneration that was awarded if it is proven
afterwards that it derived from unethical/criminal actions, acts of negligence, non-compliant behaviours
to the internal Code of Conduct or the Remuneration Policy. Variable remuneration is not paid through
vehicles or methods that facilitate the avoidance of the requirements of this Policy.
Payments related to the early termination of a contract reflect performance achieved over time and are
designed in such a manner that it does not reward failure.
10.7 Board members remuneration
The remuneration of the Board members is approved by the Ordinary General Assembly of Bancpost
S.A. Shareholders, as part of the general limits of all remunerations to be granted during each financial
year to the categories of persons stipulated by the Law no. 31/1990, republished, following the proposal
from the Group Supervisory Remuneration Committee.
The remuneration of the non-executive members of the BoD is fixed and linked to their responsibilities,
the time dedicated to performing the duties assigned, and should not be determined by the individual
financial performance. Incentive based mechanisms are excluded from the remuneration of nonexecutive members of the BoD. If such mechanisms are to be provided for, they must be strictly tailored
to the assigned monitoring and control tasks, reflecting the individual’s capabilities and achieved
results. If instruments are granted appropriate measures should be taken, such as retention periods
until the end of the mandate, in order to preserve the independent judgment of those members of the
BoD.
The remuneration of the BoD members is included in the tables in section 10.8.
36
10.8 Targeted population remuneration
In compliance with the regulatory guidelines, the employees who fall under the scope of the
Remuneration Policy are identified as follows:
Senior Management (including executive members of the BoD);
Individuals whose total remuneration takes them into the same remuneration level as the
aforementioned category;
Executive positions in Control Functions (Audit, Compliance, Risk, Finance, HR);
Members of staff with material impact on the Bank’s risk profile.
The following table depicts the aggregated quantitative information on remuneration, broken down by
business area for 2013 (mil. RON):
Number of executives
that received
Business Area
indemnity/Voluntary Exit
scheme amount
Investment Banking
2
1.80
0
Retail Banking
5
4.87
0
Asset Management
0
0.00
0
Other
11
7.53
0
For 2013 there was no variable remuneration in the form of shares or other instruments.
# of
executives
Total
remuneration
Indemnity/
Voluntary Exit
scheme
amount
0
0
0
0
The following table depicts the aggregated quantitative information on remuneration for the targeted
population broken down by staff category for 2013 (mil. RON):
Function
# of
executives
Fixed
Remuneration
Variable
Remuneration
Senior Management
8
9.59
0.00
Members of staff with material
0
0.00
0.00
impact on the Bank's risk profile
Members of staff responsible for
6
1.99
0.07
independent control functions
Employees, whose total
remuneration takes them into the
4
2.25
0.31
same bracket as senior
management
For 2013 there was no variable remuneration in the form of shares or other instruments.
Indemnity/
Voluntary Exit
scheme amount
0
0
0
0
For 2013 there are no individuals being remunerated EUR 1 million or more.
The above tables follow the Group Eurobank Ergasias S.A. consolidated Pillar 3 report.
37
Appendix no.1
Board of Directors
Over January 01, 2013 – December 31, 2013
Non-executive directors
Mihai Bogza
Chairman of the Board of Directors
Dimitrios Damkalidis
Deputy Chairman of the Board of Directors
(representative of Eurobank Ergasias SA)
Theodoros Karakasis
Deputy Chairman of the Board of Directors
(representative of Eurobank Ergasias SA)
Iasmi Ralli
Michail Vlastarakis
Christina Theofilidi
Michael Colakides
Stavros Ioannou
Georgios Marinos
Executive directors
Antonios Hassiotis
Independent non-executive directors
Lambros Yiannis Demosthenous
Member (Eurobank Ergasias SA representative)
Member (Eurobank Ergasias SA representative)
Member (Eurobank Ergasias SA representative)
Member (Eurobank Ergasias SA representative)
Member (Eurobank Ergasias SA representative)
Member (Eurobank Ergasias SA representative)
Member (Eurobank Ergasias SA representative)
Member
Notes:
Mr. Damkalidis resigned from his position as Member of the Board of Directors, starting with
January 03, 2013, and the resignation was acknowledged by Bancpost’s shareholders during
the Ordinary General Assembly of Shareholders dated May 08, 2013.
During the General Assembly dated May 08, 2013 the Bank’s shareholders approved the reelection of five Board members, i.e. Mr. Bogza, Mr. Demosthenous, Ms. Ralli, Ms. Theofilidi and
Mr.Vlastarakis in the capacity as Member of the Board of Directors for a 1-year mandate.
The mandate of Mr. Marinos in the capacity as Bancpost’s Board of Directors expired on
December 15, 2013, and the termination of the mandate was acknowledged by the Bank’s
shareholders in Q1 2014.
During the General Assembly dated May 08, 2013 the Bank’s shareholders approved the
appointment of Mr. Codin – Radu Nastase in the capacity as Member of the Board of Directors
for a 1-year mandate, subject to the prior approval of the central bank. The authorization proces
for Mr. Nastase was undergoing as of December 31, 2013 and it was completed based on the
approval notified by the NBR in January 2014.
The following Members of the Board of Directors resigned in Q4 2013: Mr. Colakides (starting
with November 01, 2013), Mr. Ioannou and Ms. Theofilidi (starting with December 12, 2013).
The resignations were acknowledged by the Bank’s shareholders in Q1 2014.
38
Executive Committee as of December 31, 2013
Antonios Hassiotis, Chief Executive Officer
Chairman of the Executive Committee
Georgios Georgakopoulos, Executive Vice President
Member
Nektarios Vrongistinos, Executive Vice President
Member
Codin-Radu Nastase, Executive Vice President
Member
Kyriakos Xydis, Executive Vice President
Member
Notes:
Mr. Nastase exercises the responsibilities relevant to the Executive Vice President, responsible for
the coordination of the Risk Management function and the Compliance function pursuant to the
approval of the central bank issued in February 2013.
Mr. Xydis terminated his activity within the Bank in early January 2014.
39