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Risk Management Report

CHAIRMAN OF BRC MESSAGE

HEAD OF RISK STATEMENT

RISK MANAGEMENT STRATEGY

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GUIDED BY RISK APPETITE MANAGEMENT

Stress-Testing

The various type of scenario analysis performed at ABL are as follows:

Risk Weights

Committees established by the Board of Directors

Committees established by Management

Committees

MANAGEMENT OF KEY RISK AREAS

Definitions of Risk types

rmType of RiskDescriptionWhich capitals will be impacted? Mitigating Actions FINANCIAL RISKCredit RiskIt is the risk of loss arising out of the failure of obligors to meet their financial or contractual obligations when due. It is composed of obligor risk and concentration risk.1. Policies & Procedures2. Regulatory Guidelines3. Control & Monitoring4. Key Resources with technical expertise5. Ongoing TrainingCountry RiskCountry risk, also referred to as cross-border country risk, is the uncertainty that obligors (including the relevant sovereign, and the group’s branches and subsidiaries in a country) will be able to fulfil obligations due to the group given political or economic conditions in the host country.1. Regular Country Review 2. Cap in terms of Country Risk Limit3. Quality Review by Board 4. In line with Risk Appetite frameworkMarket RiskMarket risk is the risk of a change in the market value, actual or effective earnings, or future cash flows of a portfolio of financial instruments, including commodities, caused by adverse movements in market variables such as equity, bond and commodity prices, currency exchange and interest rates, credit spreads, recovery rates, correlations and implied volatilities in all of these variables.1. Work around solution (manually)2. Market Risk Policy3. Process & level of acceptance4. Tolerance limit5. System Implementation
rmType of RiskDescriptionWhich capitals will be impacted? Mitigating Actions FINANCIAL RISK (CONT’D)Funding and liquidity RiskFunding risk is the risk associated with the impact on a project’s cash flow from higher funding costs or lack of availability of funds. Liquidity risk is defined as the risk that an entity, although solvent, cannot maintain or generate sufficient cash resources to meet its payment obligations in full as they fall due, or can only do so at materially disadvantageous terms.1. Liquidity risk is manage in line with the Bank’s internal liquidity risk management framework and the BoM Guideline on Liquidity Risk Management.2. Daily reporting of liquidity metrics and monitoring of Liquidity Early Warning Indicators.3. TrainingInterest rate RiskThe risk arising from changes in interest rates or the prices of interest rate related securities and derivatives, impacting on the Bank’s earnings or economic value of equity.1. Monitoring of interest rate risk exposure in line with the Bank’s internally prescribed limits. NON-FINANCIAL RISKOperational RiskOperational risk is the risk of loss suffered as a result of the inadequacy of, or failure in, internal processes, people and/or systems or from external events.1. Documented policies, procedures and processes2. Implementation of systems and internal controls3. TrainingCompliance RiskCompliance risk is the risk of legal or regulatory sanction, financial loss or damage to reputation that the group may suffer as a result of its failure to comply with laws, regulations and codes of conduct and standards of good practice applicable to its financial services activities.1. Policies and Procedures- to ensure Bank is compliant to Regulatory Standards 2. Internal Controls3. Trained and qualified staff 4. Appropriate system/tools Information RiskThe risk of accidental or intentional unauthorized use, modification, disclosure or destruction of information resources, which would compromise the confidentiality, integrity or availability of information.1. Documented policies, processes and procedures. 2. Implementation of systems and internal controls3. Awareness Training and best practices.
rmType of RiskDescriptionWhich capitals will be impacted? Mitigating Actions TRANSVERSAL RISKBusiness strategic riskBusiness strategic risk is the risk of earnings variability, resulting in operating revenues not covering operating costs after excluding the effects of market risk, credit risk, structural interest rate risk and operational risk.1. Documented policies, procedures and processes 2. Implementation of systems and internal controls3. Training4. Ensuring that the Bank adheres to its Risk Appetite5. Ensuring that Business strategy is embedded in the Risk Appetite FrameworkReputational riskReputational risk is the risk of potential or actual damage to the group’s image, which may impair the profitability, and/or sustainability of its business.1. Effective communication, staff training, and HR practices2. Documented policies, procedures and processes3. Efficient complaints & feedback handling for continuous improvement of products/services4. Constant compliance checks and monitoring5. Information Security Key Financial Capital Human Capital Social & Relationship Capital Natural Capital Manufactured Capital Intellectual CapitalPlease refer to Principle 6- Reporting with Integrity in the Corporate Governance Report for an overview of each capital on Page 64

CREDIT RISK

Organisation and Structure

CREDIT RISK MITIGATION

Collateral DetailTotal
Unsecured8,990,898,749
Others7,166,876,269
Claims on bank6,009,187,500
Floating Charge5,033,654,613
Fixed charge1,715,440,407
Cash secured790,271,278
 29,706,328,815

MARKET RISK

ASSETS AND LIABILITIES MANAGEMENT (ALM)

ENTERPRISE RISK MANAGEMENT

rmRareInsignificantIMPACTMinorModerateMajorMassiveM1 - Challenging economic environmentM2 - Regular changes in regulatory guidelinesM3 - Operational ChallengesM4 - Existing IT PlatformsM5 - Digital TransformationM6 - Cyber SecurityM7 - Fight against financial crimeM8 - Fair dealingM9 - Responsible financingM10 - Talent management and Employee RetentionUnlikelyOftenLikely ExpectedM8M9M3M3M5M5M1M1M10M10M2M2M6M6M4M4M7M7M9M8LegendVery LowLowMediumHighCritical
rmTrends Analysis of Enterprise Risk012345678910M6 Information Technology Cyber securityM10 People Talent management and Employee RetentionM2 External Factors and Operating EnvironmentRegular changes in regulatory guidelines M7Genuineness and Commitment towards our clients Fight against financial crimeM5 Information Technology DigitalTransformationM1 External Factors and Operating EnvironmentChallenging economic environmentM3 External Factors and Operating Environment Operational ChallengesM8 Genuineness and Commitment towards our clients Fair dealingM8 Genuineness and Commitment towards ourClients Responsible financingM4 Information Technology Existing IT Platforms

OPERATIONAL RISK MANAGEMENT

INFORMATION TECHNOLOGY

BUSINESS CONTINUITY MANAGEMENT

COMPLIANCE

CAPITAL STRUCTURE AND ADEQUACY

AFRASIA BANK LIMITED 201920182017
  MUR'000MUR'000MUR'000
Common Equity Tier 1 capital: instruments and reserves    
Share Capital 3,641,0493,641,0493,157,608
Share premium (from issue of ordinary shares included in CET1) --2,862
Statutory reserve 692,398454,679339,711
Retained earnings 1,836,2421,277,521944,373
Accumulated other comprehensive income and other disclosed reserves 108,36588,72870,618
Common Equity Tier 1 capital before regulatory adjustments 6,278,0545,461,9774,515,172
Common Equity Tier 1 capital: regulatory adjustments    
Treasury (Own Shares)  --
Other intangible assets (243,398)(249,585)(155,855)
Deferred Tax (100,953)(141,462)(147,057)
Significant investments in the capital of banking, financial and    
insurance entities that are outside the scope of regulatory    
consolidation, net of eligible short positions (amount above 10%    
threshold) -(151,650)(113,738)
Total regulatory adjustments to Common Equity Tier 1 capital (344,351)(542,697)(416,650)
Common Equity Tier 1 capital (CET1) 5,933,7034,919,2804,098,522
Additional Tier 1 capital: instruments    
Instruments issued by the Bank that meet the criteria for inclusion in Additional Tier 1 capital    
(not included in CET1) 1,323,5521,360,7151,340,467
Additional Tier 1 capital before regulatory adjustments 1,323,5521,360,7151,340,467
Additional Tier 1 capital: regulatory adjustments ---
Total regulatory adjustments to Additional Tier 1 capital ---
Additional Tier 1 capital (AT1) 1,323,5521,360,7151,340,467
Tier 1 capital (T1 = CET1 + AT1) 7,257,2556,279,9955,438,989
Tier 2 capital: instruments and provisions    
Instruments issued by the Bank that meet the criteria for inclusion in Tier 2 capital (and are    
not included in Tier 1 capital) -11,380269,260
Provisions or loan-loss reserves (subject to a maximum of 1.25 percentage points of credit    
risk-weighted risk assets calculated under the standardised approach) 463,159415,825381,347
Tier 2 capital before regulatory adjustments 463,159427,205650,607
Tier 2 capital: regulatory adjustments ---
Significant investments in the capital of banking, financial and insurance entities that are    
outside the scope of regulatory consolidation (net of eligible short positions) -(37,913)(75,825)
Total regulatory adjustments to Tier 2 capital -(37,913)(75,825)
Tier 2 capital (T2) 463,159389,292574,782
Total Capital (capital base) (TC = T1 + T2) 7,720,4146,669,2876,013,771
Risk weighted assets    
Credit Risk 43,810,04941,591,45942,506,702
Market Risk 499,978332,436440,288
Operational Risk 4,404,2673,421,4902,988,502
Total risk weighted assets 48,714,29445,345,38545,935,492
Capital ratios (as a percentage of risk weighted assets)Regulatory Limits under Basel III   
CET1 capital ratio9.38%12.18%10.85%8.92%
Tier 1 capital ratio10.88%14.90%13.85%11.84%
Total capital ratio12.88%15.85%14.71%13.09%

RECONCILIATION WITH AFRASIA BANK’S AUDITED FINANCIAL STATEMENTS

30 June 2019 
 Statement of Financial Position as in published financial statementsStatement of Financial Position as per Basel III
AssetsMUR'000MUR'000
Cash and cash equivalents *63,666,92265,383,047
Trading assets8,415,7258,433,956
Pledged assets--
Derivative assets held for risk management--
Loans and advances to banks6,019,0486,009,188
Loans and advances to customers22,150,19622,131,334
Derivative financial instruments92,413-
Financial investments-held for maturity36,892,44636,901,673
Investment securities--
of which: Insignificant capital investments in financial sector entities exceeding 10% threshold--
of which: Significant capital investments in financial sector entities exceeding 10% threshold--
Property, plant and equipment185,675185,675
Intangible assets243,398243,398
of which: Goodwill--
of which: Other intangible assets243,398243,398
Deferred tax assets100,953100,953
Other assets2,106,722884,374
of which: Defined benefit pension fund assets  
Total assets139,873,498140,273,598
Liabilities  
Deposits from banks30,43430,434
Deposits from customers131,208,365131,208,365
Derivative financial instruments49,99549,995
Trading liabilities--
Derivatives liabilities held for risk management--
Debt securities issues--
Other borrowed funds--
Subordinated liabilities184,205184,205
of which: Subordinated debt not eligible for inclusion in regulatory capital 184,205184,205
of which: Subordinated debt eligible for inclusion in regulatory capital --
Current tax liabilities112,116112,116
Deferred tax liabilities--
Provisions-463,159
of which: Provision reflected in regulatory capital-463,159
Other liabilities571,979561,502
Total liabilities132,157,094132,609,776
Shareholders' Equity  
Share capital and share premium5,026,8175,026,817
of which amount eligible for CET13,641,0493,641,049
of which amount eligible for AT11,323,5521,323,552
Retained earnings1,836,2421,836,242
Other reserves853,345800,763
Accumulated other comprehensive income--
Total shareholders' equity7,716,4047,663,822