Risk Management Job Orientation For Newly Hired Employees PDF

Job Orientation - Newly Hired Risk Management 5f Celestina Bldg. July 18, 2024  EMILY E. ENAD Chief Risk Officer eenad@1v...

Job Orientation - Newly Hired Risk Management 5f Celestina Bldg. July 18, 2024  EMILY E. ENAD Chief Risk Officer [email protected] MAYRASOL PACQUIAO Credit Risk Specialist [email protected] Risk Management VANESSA ANN DORAIDO Operational Risk Specialist Department [email protected] Feel free to reach out! EVITA PADALAPAT Risk Staff [email protected] KYLE JOSHNIE LAINE DELAN Risk Assistant [email protected] Gary Rebuyon Risk Assistant [email protected] What is RISK? What is RISK? Risk Is the possibility of a loss. The effect of uncertainty on the organization’s ability to meet it’s objectives. In the financial world, risk is often used in more specific sense to indicate possible variability in outcomes around certain expected value.  RISKS IN BANKING CREDIT RISK LIQUIDITY RISK Arises from the failure to meet maturing Arises from the borrower’s failure to obligations due to mismatch in cash flows pay interest and/or loan principal at and incidence of high past due loans which due date. may put pressure on the bank’s liquidity position MARKET & OPERATIONAL RISK INVESTMENT RISK Refers to the risk of loss resulting from Arises from the possible decline in the inadequate or failed internal processes, value of acquired assets and people and systems; or from external investments in equities and debt events. instruments  RISKS IN BANKING LEGAL RISK Arises as a result of unenforceable contracts, lawsuits or adverse COMPLIANCE RISK judgement. –The risk of legal or regulatory sanctions, financial loss, or loss to reputation a bank may suffer as a result of its failure to comply REPUTATIONAL RISK with all applicable laws, regulations, codes of conduct and standards of good practice. Arises from negative/adverse public opinion Risk management is a systematic approach to identifying, measuring, monitoring and managing business risks in an institution. It is the establishment of controls to minimize the possibility of a loss Risk Identification What are the possible sources of RISK? Execution, Delivery & Process Management Clients, Products and Business Practices Business Disruption and System Failures Damage to Physical Assets Employment Practices Internal Fraud External Fraud Risk Assesment Control Assessment Samples of Minimum Internal Controls: WHO ARE RESPONSIBLE FOR RISK MANAGEMENT? but the responsibilities vary according to position  Bank’s credit risk strategy and significant policies related to credit risk and its mgt. are approved by the Board and are reviewed annually or when the need arises Comply with the provisions of BSP Circular 855  Credit Analysis to determine likelihood that borrower will honor his obligations Focus on ability and willingness to pay Exhaust all means to verify/validate submitted information about the borrower/his business 5 C’s of Credit Borrower’s Risk Rating (BRR) Pre-approval/post-approval Monitoring mechanism Record all monitoring activities undertaken accurately and religiously Maintain up-to date credit files Early warning signals Pro-active and act early Efficient and effective collection system Record all collection efforts Loan Documentation Should be signed on behalf of Bank by officers duly authorized; All loan documentation entered into by the Bank should be required to be signed by at least 2 officers/employees of the Bank; No loan document should be signed by one officer of the Bank acting alone; Loan Documentation All original Loan Documents should be kept in fireproof safe custody at all times and a Register of all loan documentation held should be maintained; Authority of 2 members of staff should be required to remove any document; Working duplicates/shadow copy should be held on the Credit File, if applicable.  Major investments must be approved by the BOD; Treasury Mgt. to assess & identify the capabilities and stability of the financial institution/s before they recommend to the top mgt. and BOD of where to invest the funds of the Bank; Proper monitoring of maturing obligations before an investment shall be made; Treasury Mgt. should determine the benefits to be derived from investments, whether it could be used to increase the Risk-Based Adequacy Capital Ratio of the Bank; Identifying the investee; Concentration of investments; Term of investments; Treasury Management.  With operational risk mgt. framework; Have defined all categories of operational risk and framework covers all categories; Business and support functions should be an integral part of the overall operational risk mgt. framework; Establish process for identification, assessment, mitigation, monitoring and reporting; New products or systems conversions will be valuated for operational risk prior to going online, approved by the BOD and duly documented, with proper monitoring and control process; Written policies and procedures; With contingency and business continuity plans;  Internal fraud Corporate Finance External fraud Trading and Sales Employment practices and workplace safety Retail Banking Clients, products and business Commercial Banking practices Payment and Settlement Damage to physical assets Agency Services Business disruption and system failures Asset Management; and Execution, delivery and process Retail Brokerage management  Each area should have their own manuals, must be independent from each other and should be very much aware of the legal consequences of their actions should they deviate from operation procedures of the Bank; Accuracy and enforceability of forms, contracts and MOAs.  Effective PR in the community; Training of employees on consumer protection-related matters.  Compliance System With full time Chief Compliance Officer Library of Regulations Continuous Trainings/Seminars Compliance Testing Reporting  DEPOSIT TAKING UNDETECTED MISPOSTED DEPOSIT FAKE BILLS TRANSACTIONS DEPOSIT DATA UNAUTHORIZED WITHDRAWALS OF LOSSES DEPOSITORS  LENDING OPERATIONS INACCURATE FALSIFIED INCOMPLETE BORROWER’S COLLATERAL LOAN INFORMATION DOCUMENTS DOCUMENTATION OVERSTATEMENT UNREMITTED OF LOANABLE LOAN AMOUNT COLLECTIONS MOST COMMON OPERATIONAL RISK EVENTS Misposting - wrong account Misposting - incorrect amount Misposting - wrong mode of payment Check/cash deposits directly posted as loan payment instead for deposit to SA Double posting due to slow internet connection Erroneous input of 1st amortization date Erroneous set up of UID for GG payment Posted payment even without remittance ATM shortage Erroneous input of loan term Erroneous set up of ADA  Risks in loan documentation Ability of the borrower to repay the loan; Validity and enforceability of the guaranty; Quality of documentation in the loan portfolio is directly related to CREDIT QUALITY RATINGS assigned by BSP. KYC Docs with erasures no signatures of branch personnel KYC Docs with erasures no signatures of branch personnel Application Form Various fields not filled up Application Form No recommended amount No loan term  GG - PIS No signature of pledgor Disclosure Statement Erroneous booking of service charge Disclosure Statement Erroneous booking of service charge Post dated checks No payee indicated Parts of a check Write date in Peso sign is now MM-DD-YYYY outside the box format Signature inside the box provided Parts of a check COMMON ERRORS IN LOAN RELEASES Erroneous account opening- Erroneous loan amount, Erroneous selection of field contractual savings as interest rate, etc. for “service charge” on loans requirement of the loan Erroneous loan term, loan Incomplete uploaded Not properly set-up UID- scheme, industry tagging documents or no signatures, number of days for GG etc. payments PAR (PORTFOLIO-AT-RISK) NPL (NON-PERFORMING LOAN) Refers to total outstanding principal amount of all loans that Refers to total outstanding principal amount of all loans that have installment due of 1 day or more. have installment due of 1 day or more. –PAR 0+-with –PAR 0+-with installment due of 1 day or more installment due of 1 day or more –PAR 30+-with installment –PAR 30+-with installment due of 31 days or more due of 31 days or more –PAR 90+-with installment due of 91 –PAR 90+-with installment due of 91 days or more days or more DPD - DAYS PAST DUE Microfinance loans shall be considered on-performing after Refers to number of days overdue the contractual due date or after it has become pastdue; PD - PAST DUE Restructured loans shall be considered as non-performing An account is considered pastdue if any principal or interest unless before restructuring, the loans were categorized as is not paid on the due date. The total outstanding balance performing, such classification shall be retained; shall be pastdue the following day excluding the cure period. RISK EVENT RESPONSIBILITY OF EMPLOYEES Detection Mitigation REPORTING Prevention HOW TO REPORT? Online reporting (1VB RS) WHERE TO REPORT/ WHEN TO REPORT? Risk Management Department within 24 hours (if verbal); within 3 days (if written)  A process through which operational risks and the effectiveness of controls are assessed and examined.  RISK DISTRIBUTION Business Disruption and System Failures Internal Fraud 19% 21% Clients, Products, and Business Practices External Fraud 7% 8% Damage to Physical Assets 3% Employment Practices and Workplace Safety 6% Execution , Delivery & Process Management 36%  RISK DISTRIBUTION ON MAJOR PROCESSES System and Methods Compliance Management 6% Corporate Communication Strategic Planning Deposit Taking 2% 18% Risk Management 7% Human Resource Management 6% Operations Support Internal Audit 14% Legal Services Management Information System Lending Operations 15% 28% Created to empower bank employees to raise internal concerns at a senior level and to disclose information they believe demonstrates wrongdoing or improper conduct. These concerns could include Financial malpractice or impropriety or fraud Failure to comply with a legal obligation or Statutes Dangers to Health & Safety or the environment Criminal activity Improper conduct or unethical behavior Violation of the Bank’s Code of Conduct Attempts to conceal any of these  Confidentiality Safeguard Protection This policy encourages individuals to put their The bank will treat all such disclosures in a name to any disclosures they make. Concerns confidential and sensitive manner. The identity expressed anonymously are much less credible, of the individual making the allegation may be but they may be considered at the discretion of kept confidential so long as it does not hinder the Bank. or frustrate any investigation. In exercising this discretion, the factors to be However, the investigation process may reveal taken into account will include: the source of the information and the The seriousness of the issues raised individual making the disclosure may need to The credibility of the concerned provide a statement as part of the evidence The likelihood of confirming the allegation from required. attributable sources  Reporting Channels Untrue Allegations If an individual makes an allegation in good faith, VP Operations which is not confirmed by subsequent Chief Compliance Officer investigation, no action will be taken against that individual. In making a disclosure, the individual Chief Internal Audit should exercise due care to ensure the accuracy Chief Risk Officer of the information. Hotline 088-881-5097 or 09178498477 If, however, an individual makes malicious or Email: [email protected] vexatious allegations, and particularly if he or 5. The Chair of the Audit and Compliance Committee she persists with making them, disciplinary action may be taken against that individual. 09175307967 or [email protected]. Risk Management Department