Credit Risk
The Risk Management Center is responsible for maintaining data in the credit risks that Türkiye Finans is exposed to on account of its loans, and for quantifying and analyzing such risks. Additionally, the center also monitors compliance with credit limits and criteria as prescribed by credit policies and reports the results of its risk monitoring, measurement, and analysis activities to the Board of Directors, the Audit Committee and to members of the senior management. In addition, all limits and concentrations for credit products, customers, terms, and for each sector and country are periodically checked for their compliance with lending policies as prescribed by applicable laws and regulations.
Credit risk is measured using “the Standardized Approach” set forth in the “Regulation on Measurement and Assessment of Capital Adequacy of Banks”.
The Center employs rating models for the credit risk quantification and grading of loans extended to SMEs, Commercial and Corporate Customers. These models are both appropriate for the sector and compliant with international standards, and make use of portfolio-specific statistical methods. These rating models not only come up with ratings for individual customers but also provide an estimate of a customer’s probability of default (PD).
In addition to these rating models, SMEs, Commercial and Corporate Customer credit risk measurement and grading also involve the use of a suite of “Target Market and Risk Acceptance Criteria” that allow judgments on individual customers’ ratings based on their sectoral, financial and market performance, market expectations, ratings and risk appetite.
In 2014, two new scoring models, which generate PD values unique to each portfolio were developed to measure and rate the risk of Micro and Enterprise credits.
In order to measure credit risk in a healthy and effective manner, Türkiye Finans uses scoring models that were developed through statistical methods unique to each portfolio with decision support systems and through which policies and business rules for Personal Financing Support and Credit Cards are managed systematically. In 2014, the Bank started to generate PD values with these scoring models.
Loans taken for close monitoring as well as non-performing loans are analyzed and recommendations are tabled to the Board of Directors, the Audit Committee and to members of senior management such that risk-mitigating measures may be taken based on the specific market, sector, customer, and product risk exposure as well as being in accordance with the Bank’s own practices and processes.
The risks associated with new products are analyzed based on a quantification of their potential impact on the Bank’s loan portfolio and the Bank’s financial structure.
The credit limit is systemically held to stress tests and scenario analyses on a regular basis in order to estimate how credit risks would be affected by possible crisis scenarios. Within the scope of stress test that are conducted, possible negative impact of scenarios on the Bank’s standard capital adequacy ratio is calculated
Market Risk
The factors contributing to Türkiye Finans’ market risk exposure and to the potential impact of those risks are measured and reported to the BRSA on a regular basis.
Market risk is measured using the simple-method standardized approach set forth in the “Regulation on Measurement and Assessment of Capital Adequacy of Banks”.
Moreover, as part of Market risk management, The Risk Management Center monitors, checks, and reports compliance with limits that are specified by the Türkiye Finans Board of Directors, on a daily, monthly, and yearly basis.
Liquidity Risk
Türkiye Finans makes use of such strategies as diversifying its resources, obtaining longer-term funding and matching the maturities of its assets and liabilities in order to protect itself against exposure to liquidity risk.
The Risk Management Center has formulated liquidity risk quantification methodologies and methods aimed at measuring, analyzing, reporting and managing Türkiye Finans’ exposure to liquidity risk. Target and warning indicators are followed in relation to liquidity risk. These indicators are assessed in the Asset Liability Committee and necessary actions are taken following the assessment.
Türkiye Finans has formulated and published a “Liquidity Risk Management & Contingency Plan” which sets out the actions and measures to be taken in the event of a shortage of liquidity, whether in the markets or in the Bank itself. The plan also defines those who are responsible for taking such actions and the measures to be taken, along with those who would be held accountable for their actions.
Operational Risk
Türkiye Finans currently quantifies its operational risk exposure using the “Basic Approach” prescribed by regulations pertaining to the calculation of capital requirements. The Bank is currently collecting loss data systematically in order to quantify operational risk exposure using the “Alternative Standard” or “Advanced Measurement” approaches as appropriate.
In order to abide by internationally recognized approaches in the management of operational risk, Türkiye Finans has adopted a risk terminology that is compatible with Basel II documentation. The use of such a common terminology ensures the consistency of an operational risk-related understanding and of communication throughout the Bank. Software solutions are being used to create a database of operational risk losses and to report such losses in order to formulate a standardized framework for operational risk management
Risk control assessments (RCA) are performed periodically at Türkiye Finans as a basic requirement of Basel II operational risk practices. On one hand, these assessments are carried out to identify which of the Bank’s business processes are exposed to operational risk and, on the other hand, to limit the impact of such risks through measures aimed at better supervising those responsible for the conduct of such processes.
Stress Tests and Scenario Analyses
Türkiye Finans regularly conducts stress tests and scenario analyses in order to measure the impacts of unexpected incidents and situations on the Bank’s shareholders’ equity, capital adequacy standard rate, and liquidity ratios by considering also other risks that are not defined in main risk categories. Risks are divided into main groups in the activities that are conducted by applying the shock application to the Bank’s main on-book and off-book positions. Risks are exposed to sensitivity analyses and loss amounts that will be exposed in the event of the realization of potential scenarios.
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