2013 Annual Report
RISK MANAGEMENT
Risk Policy
The bank operates in accordance with Santander Group's
risk culture, while also following the instructions of the
Board of Directors, the regulations of the Brazil's Central
Bank and the best international practices, in order to
protect capital and ensure business profitability.
In our operations, the Bank is mainly exposed to the
following risks:
→ Credit risk
→ Market risk
→ Social and environmental risk
→ Operational risk
Compliance risk (1)
CREDIT RISK MANAGEMENT IS DONE INDIVIDUALLY
IN WHOLESALE, IN A STANDARDIZED MANNER
FOR INDIVIDUAL AND FIRMS NOT CLASSIFIED
AS INDIVIDUALIZED CLIENTS
1. Credit risk
Credit risk management seeks to ensure the Bank's
performance is consistent with the risk appetite level
approved in advance by the Executive Committee and
Grupo Santander. Supported by exposure analysis and
trends and in control/follow up systems, this activity
helps define strategies while establishing credit limits for
clients. The objective here is to keep a risk profile
consistent with profitability in such a way as to offset the
estimated NPL ratio. This management is divided into
two client segments:
Individualized management: Conducted by a designated
risk analyst, who prepares the analyses, forwards them to the
Risk Committee, and monitors client progress It includes
clients from the wholesale segment, financial institutions and
certain firms;
Standardized management: focused on individuals
and firms not classified as individualized clients. The
management of these risks is based on automated decision-
making and internal risk assessment models, supported
by business authority levels and teams of expert analysts
to deal with exceptions.
1.1 Rating models
Santander uses its own internal rating models to
measure the credit quality of a client or a transaction,
which suggest the repayment capacity of borrowers.
Each rating is related to the probability of default
or non-payment, established using the Bank's past
experience. Ratings are used in the approval process
and risk monitoring.
The assessment of the different categories of credit
operations is carried out in accordance with the analysis
of the firm's economic and financial situation and other
registered information regularly updated, in addition to
the fulfillment of the agreed upon financial obligations.
Client assessments are reviewed on
a regular basis and include any new
financial information available and
the experience developed in the
banking relationship. These new
assessments are conducted more
frequently in the case of clients who
have attained certain levels in the
automatic warning systems and also
in the case of those deemed to
require special monitoring.
1.2 Credit loss and cost
Any losses in connection with credit
risk are estimated on a monthly basis
and eventually are compared with
the actual losses in the period. In
order to complement the use of the
admission and rating models, we use
other tools to facilitate prudent and
effective credit risk management
based on the loss in question.
1.3 The credit risk cycle
Santander holds a global view
of credit portfolio throughout the
various phases of the risk cycle, with
a level of detail sufficient enough
to be able to assess current risks
and any shifts at any time.
This cycle is made up of three different phases:
→ Pre-sale: planning, target setting, risk appetite by the Bank, approval
of new products, risk analysis and the credit rating process and limit setting;
Sale: decision-making for pre-rated, specific transactions;
→ Post-sale: risk monitoring, measurement and control, and recovery
process management.
1.4 Risk control
Changes to the Bank's credit risk exposure are controlled in an ongoing and
systematic manner. The impacts of these changes in certain future situations,
either via internal decisions or external events, are assessed with the aim
of establishing measures that place the profile and the amount of the credit
portfolio within the parameters set out by the Executive Committee.
1.5 Provisions
Banco Santander provisions are set up in accordance with the current
legislation of the Central Bank of Brazil (BACEN), CMN Resolutions
2682/1999 and 2697/2000 and Central Bank Circular Letter 2899/2000,
which classifies credit transactions by rating and determines the minimum
percentage of provision required.
By the end of 2013, Santander Brazil Coverage Ratio was 179%; this means
that for each R$1.00 of NPL over 90 days, the Bank had R$1.79 in provision,
a level that is deemed to be comfortable.
COVERAGE RATIO OVER 90 DAYS
141%
137%
137% 136%
133%
132%
126% 124%
113%
179%
173%
163%
151%
1. See more in Corporate Governance
42 Annual Report 2013
Dec/09 Sep/10 Dec/10 Sep/11 Dec/11 Sep/12 Dec/12 Mar/13 Jun/13 Sep/13 Oct/13 Nov/13 Dec/13
43View entire presentation