Investor Presentaiton
NOTES TO THE GROUP CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
46
RISK MANAGEMENT (CONTINUED)
W.
IBOR transition
X.
NOTES TO THE GROUP CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
46
RISK MANAGEMENT (CONTINUED)
Internal Audit's role in overall risk management (continued)
The key risks for the Group arising from the IBOR transition are:
Conduct risk: The transition to alternative benchmark rates could result in the risk of market or customer
misconduct, which may lead to customer complaints, regulatory sanctions or reputational impact. This
includes the risk of misleading clients, market abuse (including insider dealing and market manipulation), anti-
competitive practices, both during and after transition (such as collusion and information sharing) and risks
arising from conflicts of interest. The Group has in place strong project governance to oversee the transition
to ensure this risk is mitigated.
Pricing risk: The transition to alternative benchmark rates and the discontinuation of interest rate benchmarks
may impact the pricing mechanisms used by the Group. New RFR based pricing models have been developed
for financial instruments.
Interest rate basis risk: If the bilateral negotiations with the Group's counterparties are not successfully
concluded before the cessation of IBORS, there are significant uncertainties with regard to the interest rate
that would apply. This gives rise to additional interest rate risk that was not anticipated when the contracts
were entered into and is not captured by our interest rate risk management strategy. The Group is working
closely with all counterparties to avoid this from occurring.
Liquidity risk: There are fundamental differences between IBORS and the various alternative benchmark
rates which the Group will be adopting. IBORS are forward looking term rates published for a period at the
beginning of that period and include an inter-bank credit spread, whereas alternative benchmark rates are
typically risk free overnight rates published at the end of the overnight period, with no embedded credit
spread. These differences will result in additional uncertainty regarding floating rate interest payments which
will require additional liquidity management. The Group's liquidity risk management policy has been updated
to ensure sufficient liquid resources to accommodate unexpected increases in overnight rates.
Management is running a project on the Group's transition activities and continues to engage with various
stakeholders to support an orderly transition and to mitigate the risks resulting from the transition. The project
is significant in terms of scale and complexity and will impact products, internal systems and processes.
Internal Audit's role in overall risk management
Group Internal Audit is an independent appraisal function established by the Board of Directors to examine
and evaluate the activities of the Group including all aspects of the Group Risk Management. The department
is organisationally independent of all other functions in the bank. The unit is headed by the Group Chief Audit
Officer, who is accountable to the Board of Directors through the Board Audit Committee.
The primary objectives of Group Internal Audit is to provide assurance on risks to which the Group's businesses
are exposed, evaluate the adequacy and effectiveness of financial/operating controls and the Corporate
Governance environment, assess the extent to which assets are accounted for and safeguarded from losses
and conduct follow-up activities to assess and report on the degree to which management has addressed risks
and compliance with action plans previously agreed.
X.
Y.
The unit's mission is achieved through a risk based annual audit plan approved by the Board Audit
Committee. A formal report is prepared at the end of each quarter which includes a summary of audit
activity completed during the period and an update on the status of previously reported matters for Board
Audit Committee attention.
The Board Audit Committee reviews and approves Group Internal Audit's plans and resources, and evaluates
the effectiveness of the Internal Audit function. External advisers also periodically conduct an assessment of
the function.
Risk management framework and processes at Group entities
In establishing risk management policies & processes at the Group entities level, due consideration is given to
the entities' specific regulatory environment.
Z.
Risk Management at DenizBank
The Group has put in place strategic risk controls to oversee the existing risk management practices currently
in place at DenizBank. The risk management framework is governed by the following policies:
Credit Risk Policy
Concentration Risk Policy
Model Risk Policy
Liquidity Risk Policy
Structural Interest Rate Risk Policy
Market Risk Policy
Exchange Rate Risk Policy
Operational Risk Policy
Reputation Risk Policy
Country Risk Policy
Compliance Risk Policy
Tax Risk Policy
All of these policies govern the following areas of risk:
Credit Risk
The Group has added an additional layer of supervision over and above the credit risk policies in force at
DenizBank, this supervisory layer is conditional to exceptional approvals for substantial exposures. From
a reporting standpoint all exposures (irrespective of materiality) are periodically reported to the Group by
DenizBank for internal alignment within the Group.
For calculation of credit risk-weighted assets DenizBank complies with BRSA's and Basel II standards. While for
Pillar II DenizBank calculates the annual general stress tests in accordance with its plans and scenarios that are
compliant with Basel II's credit risk internal assessment methods.
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EMIRATES NBD BANK PJSC - GROUP CONSOLIDATED FINANCIAL STATEMENTS - FOR THE YEAR ENDED 31 DECEMBER 2021
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