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- OPEN JOINT STOCK COMPANY AMRAHBANK JOINT STOCK BANK NOTES TO THE FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 31 DECEMBER 2008
- 27. CAPITAL RISK MANAGEMENT
- 28. RISK MANAGEMENT POLICIES
- Credit risk
OPEN JOINT STOCK COMPANY AMRAHBANK JOINT STOCK BANK NOTES TO THE FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 31 DECEMBER 2008 (in Azerbaijan Manats) 43
Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios of total (8%) and tier 1 capital (4%) to risk weighted assets.
The ratio was calculated according to the principles employed by the Basel Committee by applying following risk estimates to the assets and off-balance sheet commitments net of allowances for impairment losses.
As at 31 December 2008 the Bank’s total capital amount for Capital Adequacy purposes was AZN 21,048,401 and tier 1 capital amount was AZN 20,848,401 with ratios of 40.44 % and 40.06%, respectively.
As at 31 December 2007 the Bank’s total capital amount for Capital Adequacy purposes was AZN 10,921,457 and tier 1 capital amount was AZN 10,721,457 with ratios of 27.24 % and 26.74%, respectively.
In addition, the Bank has to calculate a statutory capital adequacy ratio based on the regulations of the Republic of Azerbaijan. During the years ended 31 December 2008 and 2007 the Bank was in compliance with the minimum capital requirements imposed by the NBA.
The Bank manages its capital to ensure that entities in the Bank will be able to continue as a going concern while maximising the return to stakeholders through the optimisation of the debt and equity balance.
The capital structure of the Bank consists of equity attributable to equity holders of the Bank, comprising issued capital, and retained earnings as disclosed in the statement of changes in equity.
The Management Board reviews the capital structure on an annual basis. As a part of this review, the Board considers the cost of capital and the risks associated with each class of capital. Based on recommendations of the Board, the Bank balances its overall capital structure through the payment of dividends, new share issues as well as the issue of new debt or the redemption of existing debt.
The Bank’s overall capital risk management policy remains unchanged from 2007.
Management of risk is fundamental to the banking business and is an essential element of the Bank’s operations. The main risks inherent to the Bank’s operations are those related to:
a) Credit risk b) Liquidity risk
c) Market risk OPEN JOINT STOCK COMPANY AMRAHBANK JOINT STOCK BANK NOTES TO THE FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 31 DECEMBER 2008 (in Azerbaijan Manats) 44
The Bank recognizes that it is essential to have efficient and effective risk management processes in place. To enable this, the Bank has established a risk management framework, whose main purpose is to protect the Bank from risk and allow it to achieve its performance objectives. Through the risk management framework, the Bank manages the following risks:
The Bank is exposed to credit risk which is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss.
Risk management and monitoring is performed within set limits of authority. These processed are performed by the Credit Committees and the Bank’s Management Board. Before any application is made by the Credit Committee, all recommendations on credit processes (borrower’s limits approved, or amendments made to loan agreements, etc.) are reviewed and approved by the Credit Department. Daily risk management is performed by the Head of the Credit Department and Branch Credit Divisions.
The Bank structures the level of credit risk it undertakes by placing limits on the amount of risk accepted in relation to one borrower, or groups of borrowers, and to industry segments. Limits on the level of credit risk by a borrower and a product are approved quarterly by the Management Board. The exposure to any one borrower including banks is further restricted by sub-limits covering on and off-balance sheet exposures which are set by the Credit Committee. Actual exposures against limits are monitored daily.
Where appropriate, and in the case of most loans, the Bank obtains collateral, corporate and personal guarantees, but a significant portion is personal lending, where no such facilities can be obtained. Such risks are monitored on a continuous basis and subject to annual or more frequent reviews.
Commitments to extend credit represent unused portions of credit in the form of loans, guarantees or letters of credit. The credit risk on off-balance sheet financial instruments is defined as a probability of losses due to the inability of counterparty to comply with the contractual terms and conditions. With respect to credit risk on commitments to extend credit, the Bank is potentially exposed to a loss in an amount equal to the total unused commitments. However, the likely amount of the loss is less than the total unused commitments since most commitments to extend credit are contingent upon customers maintaining specific credit standards. The Bank applies the same credit policy to the contingent liabilities as it does to the balance sheet financial instruments. The Bank monitors the term to maturity of off balance sheet contingencies because longer term commitments generally have a greater degree of credit risk than short-term commitments.
The Bank’s maximum exposure to credit risk varies significantly and is dependant on both individual risks and general market economy risks. The following table presents the maximum exposure to credit risk of financial assets and contingent liabilities. For financial assets the maximum exposure equals to a carrying value of those assets prior to any offset or collateral. For financial guarantees and other contingent liabilities the maximum exposure to credit risk is the maximum amount the Bank would have to pay if the guarantee was called on or in the case of commitments, if the loan amount was called on. Yüklə 2,74 Mb. Dostları ilə paylaş:
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