STATE COMMITTEE OF COMMUNICATIONS, INFORMATIZATION AND
TELECOMMUNICATION TECHNOLOGIES OF THE REPUBLIC OF
UZBEKISTAN
TASHKENT UNIVERSITY OF INFORMATION TECHNOLOGIES
To admit to protection
The head of the Department
_____________
«____» __________ 2014 y
Final Qualifying work
On the theme:
“WAYS TO REDUCE RISKS IN BANK’S ACTIVITY BY
THE EXAMPLE OF OJSC “ALOQABANK””
Graduate ________
Pak A.E.
signature
Supervisor ________ Makhkamov F.M.
signature
Reviewer ________
Sakhapova R.R.
signature
Adviser ________
Ivanova I.S.
signature
The adviser
of S.V.A ________
Borisova E.A.
signature
ТASHКЕNТ-2014
5
STATE COMMITTEE OF COMMUNICATIONS, INFORMATIZATION
AND TELECOMMUNICATION TECHNOLOGIES OF THE REPUBLIC
OF UZBEKISTAN
TASHKENT UNIVERSITY OF INFORMATION TECHNOLOGIES
Faculty of “Economics and Management” “Economics” department
Direction: 5340100 - Economics (on branches and spheres)
I CONFIRM
The head of the Department____________
«____»_____________ 2014 year
TASK
for final qualifying work of student : Pak Anastasiya Eduardovna
on the theme : “Ways to reduce risks in bank’s activity by the example of OJSC
“ALOQABANK””
1. The theme is confirmed by order on university from December 30th, 2013
№ 1323
2. Term of delivery of finished work: 27.05.2014.
3. The initial data to work:
President’s books, economics text-books, law and orders, other necessary
documents, bank’s financial annual report.
4. Accountant is a content of written explanation:
1.Theoretical methodological bases of
risk management in commercial banks. 2. The analysis of system management of bank risks in commercial
bank. 3. Problems and ways to reduce bank risks in modern conditions. 4. Safety of vital activity.
5. The table of graph materials:
Tables: 1.Classification of risks. 2. Internal estimated method of
Bank. 3. Correlation of fixed quantitative limit with Bank’s realization. 4. Financial standards for Aloqabank
for December 31st, 2013. 5. General analysis of currency risk of Bank. 6. Change of financial result. 7.
General analysis of percentage risk of Bank. 8. Rate of interest. 9. Fulfillment of Bank’s liquidity in
comparison with standard value. 10.Analysis of financial instruments by time to run.11. Liquidity of all banks
of Uzbekistan.
Figures: 1.Classification of bank risks. 2. The process of risk management. 3. Breakdown of Credit portfolio
on quality. 4. Dynamics of Credit portfolio structure. 5. Breakdown of Credit portfolio structure by types of
providing. 6. Diversification of Credit portfolio structure by economy branches.7.Diversification of a credit
portfolio structure by types of clients. 8. Diversification of Credit portfolio structure by terms and their
compliance with term resources. 9. Consequences of hypodynamia.
6. The date of delivery of the task on 14th of January 2014.
Supervisor: ______________
signature
Task was accepted: ___________
signature
6
7. The advisers of some parts of final work
Signature, data
Consultant
The task
was given
The task
was
received
1. Theoretical methodological
bases of risk management in
commercial banks
Supervisor
Makhkamov F.M.
14.01.2014
14.01.2014
2. The analysis of system
management of bank risks in
commercial bank
Supervisor
Makhkamov F.M.
14.02.2014
14.02.2014
3. Problems and ways to reduce
bank risks in modern
conditions
Supervisor
Makhkamov F.M.
17.03.2014
17.03.2014
Supervisor
Borisova E.A.
3.05.2014
3.05.2014
The name of the sections
4. Safety of vital activity
8. The schedule of performance of work
№
The names of diploma work’s parts
Period of
finishing
Theoretical methodological bases of risk
management in commercial banks
The analysis of system management of bank
risks in commercial bank
14.02.2014
3.
Problems and ways to reduce bank risks in
modern conditions
18.04.2014
4.
Safety of vital activity
20.05.2014
1.
2.
Supervisor
(sign)
17.03.2014
Graduate: ____________________
signature
2014 year ____ June
Supervisor: ___________________
signature
2014 year ____ June
7
In the final qualifying work "Ways to reduce risks in bank’s activity" (by the
example of OJSC "Aloqabank") questions of the essence and classification of bank
risks, modern methods of bank risk management analyzes the management of
credit, liquidity and market risks in OJSC "Aloqabank", problems and reduce bank
risks, also issues of safety of vital activity were concerned.
В выпускной квалификационной работе “Пути снижения рисков в
банковской деятельности” (на примере ОАК “Алокабанк”) рассмотрены
вопросы сущности и классификации банковских рисков, современные
методы управления банковскими рисками, анализы управления кредитным,
ликвидным и рыночным рисками в ОАК “Алокабанк”е, пути и проблемы
снижения
банковских
рисков,
а
также
вопросы
безопасности
жизнедеятельности.
Ушбу
битирув
малакавий
ишида
«Банк
фаолияти
рискларни
қиқартириш йоллари» ( ОАК «Алоқабанк» мисолида) Банк рискларни
ассослари ва классификацияси, рисклар бошқарувини замонавий усуллари,
кредит бошқаруви, ликвид ва бозор рисклари анализ қилиб чиқилган, хамда
банк рискларини қисқартириш
муамо ва йоллари, ва инсон хавсизлиги
саволари кориб чиқилган.
8
CONTENT:
INTRODUCTION …………………………………………………………..……5
Part I. TEORETICAL METHODOLOGICAL BASES OF RISK MANAGE
MENT IN COMMERCIAL BANKS
1.1. Conception, essence and typology of risks …………………………...…….8
1.2. Main types of risks of commercial bank ………………………………….13
1.3. Modern methods of risk management in commercial banks ……………...23
Part II. THE ANALYSIS OF SYSTEM MANAGEMENT OF BANK RISKS
IN
COMMERCIAL
BANK
(BY
THE
EXAMPLE
OF
OJSC
“ALOQABANK”)
2.1. The analysis of credit risk management in bank ………………………….32
2.2. The analysis of market risk management in bank …………………….…..41
2.3. The analysis of liquid risk management in bank …………………….……45
Part III. PROBLEMS AND WAYS TO REDUCE BANK RISKS IN
MODERN CONDITIONS
3.1. Problems of management and ways to reduce bank risks in modern
conditions with a glance of foreign experience………………………….…52
3.2. Insurance of bank risks – basis of economic stability…………………..…61
Part IV. SAFETY OF VITAL ACTIVITY
4.1. Hypodynamia and it’s influence on person’s health………………………67
4.2. Protection against defeat by electric current ………………………………71
CONCLUSION.………………………………………...……………………......76
9
BIBLIOGRAPHY………………………………………………………………..78
INTRODUCTION
Banking business throughout the world acts as one of the most important
sectors of the economy of any developed country. And economic development of
Uzbekistan in the banking and financial system plays an invaluable role.
Uzbekistan's banking system as a result of carried out under the leadership of
President Islam Karimov of reforms aimed at achieving high international rating
indicators and increasing financial stability of banks became the object of attention
of leading international financial institutions. As a high-tech, it is most susceptible
to changes, both at the macro and micro level. Practice shows that these changes
are related to the increasing internationalization of credit institutions and markets,
the improvement of banking legislation and modern computer technology,
increased competition, the emergence of the financial markets of new banking
products and services.
It should be noted that, in accordance with the decree of the President of the
Republic of Uzbekistan "On priorities for further reform and improve the stability
of the financial and banking system in 2011-2015 and achieving high international
rating indicators" of 26 November 2010 is set out specific activities and work is
underway to further development of the financial and banking system, strengthen
the financial stability of banks, improve the system of assessment of banks, in
accordance with international standards.
Actuality of the theme of the final qualifying work is risk is an element of
uncertainty that may affect the operations of a business entity or conducting any
economic transaction. So the bank cannot operate without risk, as well as cannot be
completely overcome any kind of risk. And since the purpose of the bank is to
maximize profits, he must pay great attention to the implementation of its
operations at the lowest possible risk. In order to avoid the bankruptcy of its
liquidation, to achieve and maintain a stable position in the banking market, banks
10
need to search for and apply effective methods and tools to manage these risks.
Specific risks that banks face more often will determine the results of their
activities. Consequently, while there are banks and banking operations will always
be relevant and meaningful management and reduction of bank risks and problems
associated with it.
At present, when economic and financial crisis have been starting almost all
spheres of a national economy, including the bank sphere in our country, questions
of stability, reliability, stability of banking system. are gained a large value the
large value.
The purpose of this final qualifying work is to analyze methods of
management and ways of reduce in bank risks. To allocate the most effective
methods of risks management, allowing maximum to reduce them, and also
possibility of their application in banking system of modern Uzbekistan.
For achievement of assigned goal is necessary to solve the following
problems:
1. To open concept, essence and typology of risks;
2. Show main types of risks in commercial bank;
3. To develop the modern methods of risks management, existing in
economic science;
4. To analyze credit, market, liquid risks of concrete commercial bank;
5. To reveal problems of bank risks management;
6. On the basis of studying of world experience to show ways of their
decrease.
Subject of researches of this final qualifying work is the analysis of the main
methods and ways of decrease risks in commercial bank.
Object of researches of this final qualifying work is activity of open joint
stock company "Aloqabank".
Methodological and theoretical basis of this work are works of domestic and
foreign economists in the field of banking.
11
The final qualifying work is consists of the introduction, four heads, the
conclusion and bibliography. The essence, classification and methods of risks
management is considered in first chapter; the analysis of credit, liquid and market
risks of commercial bank is provided in the second part by the example of OJSC
"Aloqabank"; the problems and ways of decreasing risks of commercial banks in
modern conditions and insurance of bank risks are stated in the third part; safety of
vital activity is considered in the fourth part.
12
Part I. TEORETICAL METHODOLOGICAL BASES OF RISK
MANAGEMENT IN COMMERCIAL BANKS
1.1. Conception, essence and typology of risks
The concept "risk" has rather long world history, but various aspects of risk
have been the most actively started studying at the end of XIX - at the beginning of
the XX century.
The word "risk" has ancient roots — in translation from old Italian "risicare"
means "to venture".
The risk gets into all spheres of our activity, work and rest, everyday life are
interfaced to it. The concept of definition risk meets already in "The explanatory
dictionary of alive great Russian language" Dale V. I. where the risk is considered,
on the one hand, as "danger of anything", and on another hand as "random act
requiring courage, determination and enterprise in hope for happy outcome". A
similar definition is given by Ojegov S.I. in the dictionary of the Russian language:
"the possibility of danger" or "action at random in the hope of a happy outcome".
But both of these definitions can be attributed to a number of household. For
modern conditions the concept of "risk" requires deeper scientific substantiation.
The term of "risk" is inextricably linked to economical activities of human
and has been counted the same age as civilization exists.
It’s existence is connected with an inability in many cases with 100%
certainty to predict appearance of that or certain events that can’t depend on our
desires, actions and deeds. Despite of the fact that the risk is present in almost all
spheres of human activity, accurately formulate it’s definition is quite difficult.
In Webster's dictionary, "risk" is defined as a danger, a possibility of losses
or damage.
13
In general sense, risk means the possibility of occurrence of some adverse
events entailing the appearance of various kinds of losses (e.g., physical injury,
loss of property, damage from natural disasters etc.).
Risk is activity which directly related to overcoming uncertainty in the
situation of compulsory choice. In the process of business, it is possible to
quantitatively and qualitatively assess the likelihood of achieving predicted result,
failures and deviations from the target. The concept of "risk" includes the
following elements, the relationship of it is the essence of risk: the possibility of
deviation from the intended purpose for which is chosen alternative; the likelihood
of getting projected results; no confidence in achieving the intended purpose; the
possibility of material moral and other losses which are associated with carrying
out the selected alternative in the face of uncertainty. In the normal course of
business totality of different types of risk have been to deal with. They differ from
each other by time and place of occurrence, combined internal and external factors
affecting their level and, consequently, by the method of their analysis and
description’s method.
All kinds of risks have contact with each other, a change of any of them will
give later change most of the other risks.
From economic point of view, scientific economist M. Bakhramov examines
the conception of risk as the aggregate probability category. Risk is defined as the
probability of not profit earning compared with the predicted variant or appearance
of losses.
According to the meaning of Redhed K., Hughes S. in their book "Financial
Risk Management", "Risk is possibility of any adverse effects on the economic
situation of the company."
In the book of "Fundamentals of Management" by Meskon M., Albert M.,
Hedouri F.: "The risk is level of uncertainty in predicting the outcome."1
According to the meaning of Knight F.X. in his work of "Risk - uncertainty
and profit": "Risk - is the possibility of loss and uncertainty of winning".
1
Meskon M., Albert M., Hedouri F, “Fundamentals of management”, M.: Williams, 2008, - 150p.
14
The essence of risk is the possibility of rejection of the result of the plan.
Moreover, rightly speaking about the risk of possible loss of benefits, i.e. indirect
(side) risk of financial loss (not receiving profit) as the result of the fact that an
event was not held or economic activity was stopped. If you look at the problem
more formally, then we can talk not only about the risk of loss, but also about the
risk of benefits (additional profit) as a deviation from the intended result can be in
a positive way.
Main characteristics of risk.
Economic nature. Risk is characterized as an economic category,
occupying a certain place in the system of economic concepts related to the
implementation of enterprise business process. It shows itself in the sphere of
economic activity of enterprise, directly associated with the formation of its profits
and is often characterized by the possible economic consequences in the
implementation of financial and economic activity.
Objectivity of manifestations. Risk is an objective phenomenon in
enterprise’s activity, i.e. accompanies all and all directions of its activity. Despite
of the fact that a number of parameters’ of risk depends on subjective management
decisions, the objective nature of it’s manifestations remains unchanged.
Probability of occurrence. It appears that the risk event may happen or may
not happen in the normal process of business enterprises’ activity. This probability
is determined by the degree of influence of both objective and subjective factors,
but the probabilistic nature of financial risk is a constant characteristic.
Uncertainty of effects. Consequences of the financial and economic activity
of operations depend on the type of risk and may fluctuate quite considerable
range. In other words, risk may be accompanied by both financial losses for the
company and it’s formation of the additional revenue. This risk characteristic is not
determination (not regularity in the appearance) of it’s financial results, primarily
the level of profitability of the operations.
Expected adverse of effects. While the consequences of risk manifestation
may be characterized as negative and positive indicators of financial and economic
15
activities, the risk in economic practice is characterized and measured by level of
possible adverse effects. This is due to the fact that a number of consequences of
risk determine the loss of not only income, but also the company's capital, which
leads it to bankruptcy (i.e. irreversible negative consequences for its activities).
Variability of level. Level of risk which is characteristic for a particular
operation or for certain activities of the company is not immutable. It changes over
time (depending on the duration of the operation, i.e. the factor of time has an
independent effect on the level of risk is manifested through liquidity of invested
funds, uncertainty movement lending rates in the financial market etc.) and under
the influence of other objective and subjective factors which are constant over
time.
Subjectivity of evaluation. Despite of the fact that risk as an economic
phenomenon has an objective nature, its performance indicator - the level of risk is subjective. This subjectivity (in equivalence of objective evaluation of this
phenomenon) is determined by different levels of completeness and accuracy of
the information base, financial managers’ qualifications, their experience in the
field of risk management and other factors.
An important factor in the creation of a risk management system is to
develop a risk classification.
Science-based risk classification allows to clearly identify the location of
each risk in their overall system. It creates opportunities for the effective use of
appropriate methods, techniques of risk management. As part of our course work
can not cover every classification of banking risks, so focus on the most common
ones. Depending on the scope or impact of bank risk, they are divided into external
and internal.
Set of authors agree that banking risks can be divided into three groups:
financial risks, risks and other functionality (external to the bank) risks. There are a
variety of classifications of risks that can generalize in the table1. Listed risk
classification interlinked.
16
Table 1
Classification of risks 2
Classification of risks
By the time of occurrence:
By the nature of dangers:
In the spheres of
manifestation:
By the possibility of
predicting:
Source of appearance:
By the size of potential
damage:
By the financial
consequences:
By the complexity of
research:
By the nature of
manifestation in time:
By the possibility of
insurance:
By the frequency of
implementation:
-
Kinds of risks
Retrospective;
Current;
Perspective.
Anthropogenic;
Natural;
Mixed.
Political;
Social;
Environmental;
Professional;
Commercial.
Projected;
Unpredictable;
Controlled;
Uncontrolled.
External;
Internal.
Acceptable;
Critical;
Catastrophic.
The risk entailing only economic loss;
The risk of giving rise to loss of profits;
The risk of giving rise to economic loss and additional
revenues.
Simple;
Difficult.
Permanent;
Temporary.
Insured;
Uninsured.
High;
Average;
Small.
Under the risks classification should understand their distribution into
separate groups according to certain criteria in order to achieve certain goals.
Scientifically based risk classification allows to clearly identifying the location of
each risk in their overall system. It creates opportunities for the effective use of
2
Lavrushin O.I., Banking. M.: Knorus, 2009, -15p.
17
appropriate methods and techniques of risk management. Each risk corresponds to
its gaining of risk management3.
Due to the large variety of risks inherent in the industry for the development
of risk assessment methodology of decisions is necessary systematization and
classification of all kinds of risks specific to the industry, type of activity and the
particular situation.
1.2. The main risks of the commercial bank
Banking activity is exposed to a large number of risks. As besides business
function the bank has the function of public importance and guides of monetary
policy, so the knowledge, identification and control of banking risks are interest in
a large number of external stakeholders.
From the article №1 in the Law "About Banks and Banking Activity ": bank
is a legal entity which is a commercial organization and carrying out the following
set of activities defined as banking: taking deposits from individuals and legal
entities and the use of funds received for lending or investing at own risk; making
payments.
Bank as an economic enterprise can risk their capital, their profits, but not
the client's capital and its profits. Commerce Bank should act according to the
principle: everything for the customer. In the main idea, this means that the bank is
fully responsible for the customer provides his income.
Thus, we can conclude that an important component of the strategic
management of banking institutions is a strategy risks.
To understand the nature of business risk is fundamental relationship of risk
and profit. Adam Smith in "Inquiry into the Nature and Causes of the Wealth of
Nations" wrote that the achievement of even ordinary rate of profit always
associated with more or less risk. It is known that a profit entrepreneur is not
3
Granaturov V.M. " Economic risk: the nature, measurement methods, ways to reduce", M.: Business and Services,
2010, - 21p.
18
guaranteed reward for having contributed their time, effort and ability can be both
profits and losses.
Businessman shows willingness to take risks in the face of uncertainty as
well as the risk of loss exists the possibility of additional income. J. Schumpeter in
his book "The Theory of Economic Development" writes that if risks are not taken
into account in the management plan, then they become the source, on the one
hand, losses, and on the other - profits. You can select a solution containing less
risk, but it will be less and make a profit.4
According to the meaning of Dolan E.J., Campbell K., Campbell R. in the
book "Money, banking and monetary policy", the risk is regarded as a specific
feature of the implementation process of the banking product - transfer at time, for
a period of ownership and use of the loan fund infrastructure and services required
for the effective use of this part ".
In the works of native and foreign scientists are different definitions of
"bank risk".
In the financial - credit banking dictionary defines risk as the uncertainty
about future cash flows, the probability of loss or revenue shortfall compared with
the planned, presented in terms of value". "Bank risk means danger (opportunity)
of loss of the Bank of its resources, revenue or work extra costs as a result of
certain financial transactions ".
In the handbook of Babicheva Y.A.: "Bank risk - the probability that any
event occurs that would affect the profits or capital of the bank".5
According to Egorov V.A. bank risk is the danger of losing existing
property, or inability of the planned outcome.
Most accurately represents the first definition, but it does not take into
account the likelihood of unplanned cost increases during certain banking
operations.
Therefore, the most complete is the following definition of "bank risk":
4
5
Schumpeter J., "The Theory of Economic Development", M.: Directmedia Publishing, 2008, -257p.
Babicheva Y.A., Handbook “Banking”, M.: Economy, 2008, - 128p.
19
Bank risk is uncertainty about future cash flows, the probability of loss or
revenue shortfall compared with planned or likelihood of unforeseen expenses
during certain banking transactions in value terms.
Thus, this definition can be identified such important components as
expenses, damages and losses. Consider them in detail:
- Costs. Banking activity is impossible without costs. Costs associated with
the banks need to pay the depositor interest, fees for loans purchased from other
financial institutions, allocation of funds to pay bank employees and other
operating expenses. In applying the concept of risk costs may occur in the
following forms: a change in the market situation has led to the need to increase
the interest paid on deposits; global credit deficit affected the increase of the
purchase price; increase staff salaries in other credit institutions has necessitated
the adoption of appropriate measures by the bank and so on.
- Losses. Losses, manifested in the form of revenue shortfall or excess of the
expenditure planned happen when there is insufficient analysis of the upcoming
operation, miscalculations, unfavorable circumstances or just the unpredictability
of the situation. The risk of such losses caused by unreasonable placement funds,
inaccurate assessment of market opportunities and threats, always threatens to turn
into a bank in serious trouble.
- Loss. Loss, understood as an unexpected reducing of bank profits, act
generalizing indicator of the risk inherent in the banking business. This figure
combines all of categories described above, and therefore the best characterized
risk.
Thus, the risk can be defined as the risk that the bank will incur losses, the
size of which is an indicator of the riskiness of the upcoming event and the quality
strategy of risk.
Risk is inherent in any operation, but it can be in different scales and
different offset. Consequently, the banking activity is important not to avoid risk at
all, but the management, foresight and reducing them to a minimum.
20
An important factor in the creation of a risk management system is to
develop a risk classification.
Science-based risk classification allows to clearly identify the location of
each risk in their overall system. It creates opportunities for the effective use of
appropriate methods, techniques of risk management. As part of my work it is
impossible to consider every classification of banking risks, so focus on the most
common ones.
Accordingly, risks are divided into:
- related to assets (credit, currency, market, settlement, leasing, factoring,
cash, the risk of a correspondent account, finance and investment, etc.);
- associated with liability management (risks of deposit and other deposit
operations on interbank loans);
- related to the quality management of the bank 's assets and liabilities;
- risk associated with the implementation of financial services (operational,
technological risks, innovation, strategic risks, accounting, administrative, risks of
abuse, safety).
By the nature of accounting bank risks are divided into risks on balance
sheet and off-balance sheet transactions. It is very often that the credit risk arising
from balance sheet transactions extends to off-balance-sheet activities, such as
bankruptcy of the company. Importance is proper accounting degree possible
losses from the same activity at the same time as passing on balance sheet and offbalance sheet accounts.
Risks are open and closed by opportunity and risk management tools. Open
risks are not subject to regulation. Closed risks are managed through a policy of
diversification, that is by a wide redistribution of loans in small amounts awarded a
large number of clients, while maintaining the total operations of the bank;
adoption of certificates of deposit; insurance of loans and deposits, etc.
By the methods of calculating the risks can be integrated (shared) and
private. Comprehensive risk includes a assessment and prediction of the amount of
21
bank risk from its income. Private risk based on the creation of the scale factors of
risk of certain banking operations or groups.
Risks are divided into two types: pure and speculative. Pure risks imply the
possibility of loss or no results. Speculative risks are expressed in probability to get
both positive and negative results.
A great number of authors agree to the meaning that banking risks can be
divided into three groups: financial risks, functional risks and other (external to the
bank) risks. Classification of bank risk can be offered in the following figure 1.
Bank risks
Financial risks
Functional risks
Other (external to the
bank) risks
Credit risks
Strategic risks
Liquid risks
Technological risks
Risk of unbalance of
government control’s
conditions
Market risks
Risks of operation
costs
Risk of loss of bank
reputation
Interest rate risks
Innovation risks
Currency risks
Other external risks
Inflation risks
Inability to pay of
risks
Fgr.1. Classification of bank risks6
Thus, it is important to list the main elements underlying the classifications
of all banking risks:
- the type or form, a commercial bank;
- the scope and impact of bank risk;
6
Shevchuk D.A., “Banking”, M.: Read Group, 2011, -56p.
22
- the composition of the bank's customers;
- the method of calculating risk;
- the degree of bank risk;
- the distribution of risk over time;
- taking into account the nature of the risk;
- the possibility of bank risk management;
- risk management tools.
The main types of risks in banking.
Credit risk. "In broad terms, the credit risk is the possibility of financial
losses due to counterparty primarily borrowers"7.Credit risk appears as on-balance
sheet and off-balance sheet obligations of counterparties. Credit risk can constitute
a violation of not only formal but also informal commitments partner, borrower or
issuer. It can lead to real and purely nominal losses.
Important components of credit risk are the risk of the industry, which “is
associated with uncertainty about the outlook for the industry of the borrower”, and
the country risk - the seat of the borrower. Last is a "foreign borrowers in lending
and due to the effect of risk factors related to the country in which the borrower".
Credit risk is present explicitly in lending, the formation of the securities
portfolio of interbank transactions, foreign exchange transactions, working with
guarantees and derivatives and securities dealer activities.
Liquidity risk. “Liquidity of the bank called its ability to meet the
requirements in a timely manner of its depositors and other creditors. Liquidity risk
is the risk arising from the fact that the bank may not be enough or too is liquid is
liquid .
Risk, lack of liquidity is the risk that the bank will not be able to meet its
obligations or it will require separate sale of bank assets on unfavorable terms.
Excessive liquidity risk is the risk that the bank's loss of income due to an excess
7
Zhukov E.F., “Bank and bank operations”, M.: " UNITY", 2004, -271p.
23
of highly liquid assets, and as a result, unnecessary financing low yielding assets
paid for by bank resources.”8
Liquidity is a measure of the ability of the credit institution to satisfy not
only the current requirements of its creditors, but also the legitimate demands of
borrowers. The example of the latter is the bank's liabilities of open credit lines.
Liquidity affects the wrong decisions in lending, unanticipated changes in interest
rates or changes in the economy as a whole. Virtually every bank transaction
affects liquidity, but it is essential that in many respects the factors that determine
the bank's liquidity is outside its control.
Price risks. The term refers to a whole group of banking risks, which along
with the credit and liquidity risks of the underlying financial risks.
Price risks associated with the possibility of an unforeseen change in the
income or value of assets and liabilities. "Three key bank risks related to this group
are the risk of changes in interest rates, market and currency risks.
Interest rate risk is as for credit investments, as well as obligations.
Market risk is the risk of changes in market value of assets.
Currency risk is the case, if we are talking about the risk of price changes in
the assets and liabilities in foreign currency deposited ".
Currency risk and interest rate risk due to their paramount importance in the
banking industry generally isolated separately, and price risk include only the risks
associated with changes in the prices of other assets, primarily securities. In the
latter case we are not talking about a group of risk - price risk, and the risk of the
price in the singular, identical concepts market risk.
Risk of changes in interest rates. "Interest rate risk - is the risk that the
bank's profit negatively affects unforeseen changes in the general level of interest
rates". Interest rate risk arises as a result of their volatility and is a phenomenon
that is always present in a market economy. Interest rates on passive and active
operations, as well as to financial instruments differ. Thus between them there is a
clear relationship and interdependence that allows us to speak about the overall
8
Lavrushin O.I., “ Money, Credit , banks”, M.: Finance and Statistics , 2009, -157p.
24
structure of interest rates. For example, when deposit rates tend to decrease, falling
lending rates and direct borrowers.
The more developed financial market mechanism, so this pattern is more
pronounced;
The more the complicated financial market and competition grows, the more
important aspect of bank financial management becomes risk of changes in interest
rates.
Thus, like any bank liquidity risk is exposed to changes in interest rates.
Basis risk. Mark out also basis risk. In contrast, the risk of changes in
interest rates it is not associated with a change in the general level of interest rates,
and with shifts in the structure of interest rates. In other words, it is due to the
emergence of asymmetry in the motion of individual interest rates.
Currency risk. Foreign exchange risk arises when forming assets and
bringing livelihoods in currencies of foreign countries. Currency risk is due to
several factors, among which only a part is due to the action of normal market
forces. To a large extent on the exchange rate may affect the trend of economic
development and political issues, starting with changes in currency regulation
policy to the extent of social tensions.
Many authors identify three components of the currency risk:
- foreign exchange risk - the risk of depreciation of investments in foreign
currency due to an unanticipated change in the exchange rate.
- conversion risk associated with limitations in the providence of exchange.
- open currency position risk arising in the case of non-compliance in terms
of foreign exchange assets of the bank and its foreign currency obligations.
Other authors refer to currency risk: the risk of exchange rate fluctuations,
the risk of conversion, commercial risks, conversion, translation risk, the risk of
forfeiting and technological risk. In turn, the conversion risks include the risk of
open currency position, risk transfer and risk of the transaction.
"In terms of credit risk currency risk could lead to a liquidity crisis or
become a factor in the credit risk of the borrower. Currency risk is present in all
25
and off balance sheet transactions in foreign currencies. However, the credit
institution may slightly affect the risk factors themselves, and hence it can only
protect their interests, time determining risk and limit their potential
consequences"9
Technological risks include risks of failure of technology operations (risk of
failure of the computer system, loss of documents due to lack of storage and iron
cabinets, system failure SWIFT, an error in the system concept, disparate
investment, cost of lost or damaged computer equipment, or loss of electronic
measurement system audit or logical control, vulnerability of computer fraud,
destruction or disappearance of computer data).
The risks of transfer include:
- the lack of currency;
- liquidity risk foreign trade and investment, the balance of payments;
- repudiation;
- failure to comply with obligations in the future;
- revision of the contract;
- revision of the plan;
- change in the value of foreign currency assets and liabilities in national
currency.
Market risk. Market risk arises from the possible impact of market factors
affecting the value of assets, liabilities and off-balance sheet items. In some cases,
the term "market risk" is equated with the notion of "price risk". This occurs when
an equal with price risk group indicates terms currency risk and interest rate risk,
and then the main component of price risk is market risk. With this approach to the
classification of the terms "market risk" and "price risk" are synonymous. The
accuracy of determination of market risk is also affected by applicable accounting
rules.
Security risks consist of common security risks of the bank, internal and fire
safety.
9
Lavrushin O.I., Banking. M.: Knorus, 2009, -157p.
26
Risks of innovation consist of project risks (risk unique projects within the
banking risk, market risk or portfolio), a selective risk (the risk of a wrong choice
of innovation), a temporary risk (wrong timing for innovation), risks of lack of
funds, risk of changes in legislation to cancel the new bank activity.
"Strategic risks - this risk of not achieving the planned profit as a result of
exceeding the acceptable risk, the risk of a wrong choice and incorrect assessment
of the size and the degree of risk, the risk of a wrong decision of the bank (for
example, the risk of repeated prolongation of the same loan), the risks of an
incorrect definition of the timing of operations, lack of control over the bank's
losses, financial losses wrong, wrong choice of risk management methods (eg, the
bank guarantee instead of the legal entity registration of the pledge agreement), etc.
All of them with certain positions characterize the quality of bank management".10
Accounting risks include risks of losing money because of improper or
untimely charges, damage the bank's reputation in the eyes of third parties, as well
as the risk of fraud due to the large number of uncontrolled transactions, easy
access to bookkeeping and the simplified scheme.
Administrative risks usually associated with the loss of payment and other
documents. "Administrative risks are closely linked to the risk of bank abuses that
are associated with currency speculation, speculation securities regulation in loans
and interest rates in order to "push" on the client, the opportunity to influence the
financial condition of his client, in violation of credit and contractual relations by
Bank with the deliberate purpose of conspiracy, false expertise and consulting
projects with the intent of theft, embezzlement, fraud."11
The so-called competitive risks for banks related to the possibility of bank
mergers and nonbanks, the appearance of new types of banking operations and
transactions, lowering the cost of services to other banks, increased requirements
for the quality of banking services, ease of new banking institutions, complexity of
the procedure of bank failures.
10
11
Babicheva Y.A., Banking: a handbook, M.: Economics, 2006, - 124p.
Egorov V.A. The risk management system in the bank, M.: Finances, 2008, -112p.
27
Organizational risks include:
- the lack of qualified personnel;
- the absence or lack of commercial and financial information, etc.
With all the variety offered by different classifications and approaches
across a variety of risks should focus on "Core Principles for Effective Banking
Supervision", developed by the Basel Committee on Banking Supervision
published in September 1997 in an advisory letter, which are allocated according to
the following key risks:
- credit risk;
- country and transfer risk;
- market risk;
- interest rate risk;
- liquidity risk;
- operational risk;
- legal risk;
- reputational risk.
1.3. Modern methods of risk management in commercial banks
Because of the specificity of the banking business, as noted above, the risk
for the bank is the phenomenon of compulsory and indispensable. So you need to
talk not about avoiding risk at all, but about anticipation and reducing it to a
minimum level, that is, until such bank when the risk is manageable.
Financial markets are very complicated, unstable, high-tech environment. So
banking is directly linked with a variety of risks, and the practice and methodology
of monitoring and banking risk management is the most critical for banking.
One of the main strategic objectives of the bank is ensuring optimum
between profitability and risk. Strategy associated with high risk operations,
resulting in losses, lower liquidity. Conversely, if the profitability is below the
market level, the bank begins to experience difficulty in attracting resources,
28
requiring a certain level of costs etc. Consequently, the bank is advantageous to
operate at optimum of competing processes, i.e. with an optimal level of
profitability and capital adequacy.
Risk Management is synthetic scientific discipline that studies the impact of
various human activities random events that cause physical and material damage.
Would be more accurate to talk about risk management, not as science, but
as a methodology, which has its own set of terms, classification, unified approach
to the analysis of various risks.
Risk Management is a multi-stage process, which aims to reduce or
compensate for the object upon the occurrence of adverse events. It is important to
understand that the minimization of damage and risk reduction - not adequate
concepts. Secondly means either a reduction of possible damage or decrease the
probability of occurrence of adverse events. At the same time, there are a variety of
financial
management
mechanisms,
such
as
insurance,
which
provide
compensation for the damage without affecting either its size or the probability of
occurrence.
Risk management is one of the functions of the bank's management and is
based on certain principles, which include:
- awareness of risk acceptance (must consciously take risks for profit, as the
risk - it is an objective phenomenon, inherent in most operations);
- controllability taken risks (risk portfolio should include only those that are
amenable to neutralization process control);
- comparability of the level of exposure to the level of profitability of
operations (in the course of business should be only those types of risks , the level
of which does not exceed the corresponding level of expected profitability of
operations);
- comparability of the level of exposure to the financial possibilities of the
bank;
- cost of risk management (costs to neutralize the risk should not exceed the
amount of possible losses on it);
29
- consideration of the time factor in risk management (providing the
necessary additional level of profitability from operations with a long period and
the existence of a wide range of associated risks, to build the capacity to neutralize
the negative effects of such transactions in accordance with the criterion of
efficiency of risk management);
- consideration of the possibility of risk transfer (transfer of risk in case of
financial difficulties to neutralize their negative effects).
In view of these principles, the policy of risk management is created.
Formation of the risk management policy provides for consistent implementation
of the following steps depicted in figure 2.
Fgr .2. The process of risk management12
Risk identification is recognition phase of risk, identifying the likelihood of
loss, their causes, factors and circumstances arise. Identification of risks
(qualitative component) defines all the risks inherent in the system under study.
The main thing here is not to miss important points and describe in detail all
significant risks. At the stage of identification revealed the contents of risk, its
12
Baldin K.V., Risk management, M.: Yuniti-Dana, 2012, - 47p.
30
components. The sources and amounts of information needed for the study of risk
are identified, also methods of data collection and processing.
Risk assessment is calculation of the size of potential losses (quantitative
component). At the stage of the risk assessment determines the magnitude of
potential losses in absolute terms in the implementation of a particular type of risk
in a particular financial instrument. Due to the impossibility of taking into account
all factors is probabilistic risk assessment (estimated) character. Its calculation is
based on statistical, computational and analytical methods and techniques of expert
assessments, and the value depends on the confidence level is received. For
different types of risk calculation methods of risk assessments differ significantly.
Identification and risk assessment are closely linked, and it is not always
possible to divide them into separate parts of the overall process. Furthermore, the
analysis is often in two opposite directions is on the evaluation to the identification
and vice versa.
Risk management. It is choosing a strategy and method of influence on
risks in order to minimize potential damage in the future and its subsequent
implementation. Typically, each type of risk allows two or three traditional ways to
reduce it. Therefore, there is the problem of assessing the comparative
effectiveness of methods to influence the risk of choosing the best of them. The
comparison can be based on various criteria, including economic.
Control. It is the final stage of risk management. At this stage, the
correction results of the implementation of the chosen strategy, taking into account
new information. Control is to obtain information from the managers of the loss
occurred and the measures taken to minimize them. It can be expressed in the new
facts that change the level of risk, the transfer of this information the insurance
company, monitor the effectiveness of security systems etc.
During the implementation of banking risk management methods in practice,
the most common are:
- the establishment of intra- standards and limits;
- diversification;
31
- the formation of an adequate level of reserves to cover losses;
- hedging;
- insurance;
- self-insurance;
- quality management.
Establishing standards and limits implies restrictions on the value of
financial transactions carried out by the bank, and subsequent monitoring of its
execution. This method is used to avoid a dangerous concentration of credit risk
and market risk and maintain liquidity at the desired level.
Limits are set on certain types of assets or liabilities on the basis of approved
methodologies for assessing the financial condition of the counterparty and market
risk on bank operations. Thus, the value of the limit reflects the bank's ability to
take on some risk. The main types of limits are:
- limits on counterparty (defines the structure and volume of transactions, in
which the risks associated with a given counterparty acceptable to the bank);
- limits on the loan product (to limit the scope of the product sum of cash
which the counterparty could generate over the life of the product);
- exposure limits (limiting the amount of risk on the bank's operations
groups).
Monitoring compliance with limits is implemented through the complex
procedures of all entities involved in the implementation under limited operations.
Diversification is the distribution of assets and liabilities of the various
components, both at the level of financial instruments and their components in
order to reduce risk.
The basis of the method is based on a portfolio approach, which involves the
perception of the bank's assets and liabilities as a whole elements - portfolio with
the characteristics of risk and return, effectively to optimize the parameters of
banking risks.
The main forms of diversification of banking risks are as follows:
32
- diversification of portfolio securities (portfolio formation of specific
structure reflects the needs of the bank, on the one hand, to obtain interest on
invested capital, and on the other hand, the provision of capital gains due to the
increase in the market value of securities subject to an acceptable risk);
- diversification of the loan portfolio (lending smaller amounts to more
customers while maintaining total lending);
- diversification of bank currency basket (forming a basket of currencies
using multiple currencies in order to reduce losses in the event of one of the
devaluation of currencies);
- diversification of funding sources (attracting deposits, interbank loans in
smaller amounts and placement of securities of more investors to reduce the
likelihood of sufficient withdrawal).
Creation of reserves for covering losses allows to cover the risk for the
bank's own funds set aside earlier.
The effective application of this method, the bank determines the optimal
size of the reserve, that is, a value it, which would have been minimal, but at the
same time sufficient to cover possible losses. Thus, banks are using quantitative
and qualitative methods estimate the probability of loss on its operations and based
on an assessment of potential losses take a decision on the reserve.
According to the law (242), banks are required to establish reserves for
possible losses on all banking transactions for which there is a risk of loss:
- credit operations;
- securities transactions;
- leasing operations;
- other investment operations.
This measure is aimed at ensuring stable conditions for banks and financial
activity avoids fluctuations in profit margins due to the write-off of losses. The
growth of reserve increases costs (reduces capital), and a decrease in the reserve,
on the contrary, increases income (capital).
33
A method of limiting losses by setting limits Stop loss limits the amount of
losses defined quantity when it is exceeded the position should be closed
automatically. If you do not apply these restrictions, the loss can be increased to
critical levels.
Hedging. In order to protect the capital against unexpected changes and
force majeure introduced the concept of hedging. Hedging is an activity which
seeks to protect the capital against possible risks in the future. The essence of
hedging is in the overall asset and liability management to minimize the risks.
Thus, hedging is used to reduce the risk of losses resulting from changes in market
factors (prices of financial instruments, foreign exchange rates, interest rates) by
using different tools.
In fact, hedging means creating counterclaims and liabilities of transactions
with securities, currencies or real assets. At the conclusion of futures contracts and
options hedging is a form of insurance rates and profit from unwanted changes,
resulting in sharp fluctuations can be smoothed. Very often for hedge large
exposures used credit derivatives.
Derivatives allow the investor to "resell" the credit risk of their portfolio
without selling direct obligations of the borrower, and the buying and selling
contracts entitling them to receive certain payments from a third party in the event
of deterioration in the credit status of the borrower. The third party is acting as a
reinsurance company, a kind of guarantor of the risk to be covered by the terms of
the derivative instrument. When properly used credit derivatives to reduce the risk
of the loan portfolio of the investor.
Insurance. The essence of this method of management is to decrease the
Bank's participation in damages due to the transfer of the insurance company
(insurer) liable to incur risk. Application of this method of risk management at the
bank is justified in the following cases:
- if the probability of the risk, i.e., the appearance of the damage is low, but
the size of the possible damage is large enough. Regardless of homogeneity or
heterogeneity of risk and risk count (or mass unit), it is advisable to use security.
34
However, if the risks are homogeneous and there are many, the bank can manage
based not insurance and self-insurance, when the insurance funds formed within
the company. In this case, due to the homogeneous mass risks, creating an
insurance pool becomes justified. If the risks are not uniform, then, regardless of
the amount (mass or individual), the use of insurance is particularly justified - in
view of the heterogeneity of risks and possible heavy losses the bank will not be
able to secure financial stability based insurance;
- if the probability of the risk, i.e., the appearance of damage is high, but a
small amount of possible damage. Insurance is justified if the risks are
homogeneous or heterogeneous, and a lot of them. Of course, due to the small size
of the potential damage, the bank may leave them at home, but the mass of such
risks can lead to significant damage, so the use of insurance in this case is more
preferable. In the case where the risks and homogeneous are mass, the bank can
manage them based insurance.
Insurance is a contractual transfer of risk, as this uncertainty of loss is
transferred to the insurance pool. Insurance is particularly necessary in the
presence of catastrophic risks. In most cases, it is the basis of risk management
programs, especially as it is sometimes necessary to conduct by law (compulsory
insurance). Self-insurance is a kind of insurance. The term "self-insurance" in the
literature used in different ways - as a method of taking a risk to themselves, and as
a form of insurance. The essence of the method of risk management is to establish
their own insurance funds available to cover losses.
Self-insurance differs from the risk-taking over the fact that he works with a
large number of homogeneous risks. As with insurance, in order to accurately
predict the amount of loss, the method provides for self- concentration of a large
number of homogeneous risks. However, unlike insurance insurance reserves are
within the same business unit, usually industrial or industrial- financial group.
Self-insurance involves the creation of financial mechanisms to pre-generate
funds to finance the resulting losses. Self-insurance as a method of risk
management allows you to:
35
- strengthen incentives for preventive measures;
- to improve the procedure indemnity;
- to increase the company's profitability by investing collected insurance
reserves within the group.
Quality Management is one of the most modern methods of risk
management. It is the ability to upscale bank managers to solve problems before
they become serious difficulties for the bank. Thus, the basis of quality
management is the availability of classroom control.
Thus, in banking risk is present when performing virtually all operations, is
inextricably linked to income, the receipt of which, ultimately, is the main purpose
of banking. Obviously, the size of the expected income of the bank and the level of
risk related: as a rule, the higher the risk, the larger the expected revenues
Therefore, the risk management process requires not just minimize risks and
optimize them, i.e. select a level of risk at which the combination of risk and
expected revenues from the sale of banking products and services would be the
most rational.
36
Part II. THE ANALYSIS OF SYSTEM MANAGEMENT OF BANK RISKS
IN COMMERCIAL BANK (BY THE EXAMPLE OF OJSC
“ALOQABANK”)
2.1. The analysis of credit risk management in bank
The risk management function within the Bank is carried out in respect of
financial risks, operational risks and legal risks. Financial risk comprises market
risk (including currency risk, interest rate risk and other price risk), credit risk and
liquidity risk. The primary objectives of the financial risk management function are
to establish risk limits, and then ensure that exposure t risks stays within these
limits. The operational and legal risk management functions are intended to ensure
proper functioning of internal policies and procedures, in order to minimize
operational and legal risks.
The Bank takes on exposure to credit risk which is the risk that one party to
a financial instrument will cause a financial loss for the other party by failing to
discharge an obligation. Exposure to credit risk arises as a result of the Bank’s
lending and other transactions with counterparties giving rise to financial assets.
The main elements of credit risk management are: analysis of the financial
condition of borrowers and counterparties, providing credit, limiting operations,
redundancy, diversification and monitoring of borrowers.
Exposure to credit risk is managed through regular analysis of the ability of
borrowers and potential borrowers to meet interest and capital repayment
obligations and by changing these lending limits where appropriate. The Bank's
clients are divided into five groups of valuation. Bank internal rating scale reflects
the degree of default probabilities defined for each rating group. This means that,
in principle, when the evaluations of the likelihood of default risks are moved from
one group to another.
Clients of the Bank are segmented into five rating classes. The Bank’s rating
scale, which is shown below, reflects the range of default probabilities defined for
37
each rating class. This means that, in principle, exposures migrate between
classes as the assessment of their probability of default changes.
Table 2
Internal estimated method of Bank13
Good
1
Standard
2
Substandard
3
Doubtful
4
Loss
5
13
Timely repayment of these loans is not in doubt. The borrower is a
financially stable company, which has an adequate capital level, high
level profitability and sufficient cash flow to meet its all existing
obligations, including present debt. When estimating the reputation
of the borrower such factors as the history of previous repayments,
marketability of collateral (movable and immovable property
guarantee) are taken into consideration.
“Standard” loans are those loans, which are secured with a reliable
source of secondary repayment (guarantee or collateral). On the
whole, the financial situation of borrower is stable, but some
unfavorable circumstances or tendencies are present, which raise
doubts on the ability of the borrower to repay the loan on time.
“Good” loans with insufficient information in the credit file or
missed information on collateral could be also classified as
“standard” loans.
Substandard loans have obvious deficiencies, which make for
doubtful repayment of the loan on the conditions, envisaged by the
initial agreement. As for “substandard” loans, the primary source of
repayment is not sufficient and the Bank has to seek additional loan
repayment sources, which in case of non- repayment is a sale of
collateral.
Doubtful loans are those loans, which have all the weaknesses
inherent in those classified as “substandard” with the added
characteristic that the weaknesses make collection or liquidation in
full, on the basis of currently existing facts, conditions and values
highly questionable and improbable.
Loans classified as “loss” are considered to be uncollectible and have
such little value that their continuance as bankable assets of the Bank
is not warranted. This classification does not mean that the loans
have absolutely no chance of recovery, but rather means that it is not
practical or desirable to defer writing off these basically worthless
assets even though partial recovery may be effected in the future
and the Bank should make efforts on liquidation such debts
through selling collateral or should apply all forces for its repayment.
According to the financial statements “Aloqabank” by IAS
38
The Bank manages, limits and controls concentrations of credit risk
wherever they are identified − in particular, to individual counterparties and
groups, and to industries. The Bank structures the levels 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 geographical and industry segments. Such risks are
monitored on a revolving basis and subject to an annual or more frequent review,
when considered necessary. Limits on the level of credit risk by product, industry
sector and by country are approved quarterly by the Bank Council.
Speaking concerning credit risk management in commercial bank, first of
all, management of a credit portfolio of bank as it represents set of the main objects
subject to credit risk is meant.
The credit portfolio represents set of requirements of Bank on the credit
products, reflected in balance sheet accounts of Bank, and also the following offbalance requirements – guarantees and letters of credit, i.e. set of all credit
operations performed by bank for the purpose of profit earning.
The analysis of borrowers of Bank is provided in a credit portfolio in figure
3.
Fgr.3. Breakdown of the Credit portfolio on quality
for 01.01.2014 (billion Uzbek sum)14
14
On the basis of data provided in financial statements OJSC "Aloqabank" for 2014
39
The chart shows that borrowers of Bank are financial and steady in
percentage a ratio they occupy 98%, and only 2% make all other categories the
borrower. Therefore, the risk of bank is minimized and constitutes only 2%.
It is given below dynamics of a credit portfolio for the last five years in
figure 4.
Fgr.4. Dynamics of a credit portfolio
(billion Uzbek sum; % growth in comparison with last year)15
Dynamics of a credit portfolio shows that every year the number of
borrowers’ growths, big jump is observed in 2011 in comparison with other years.
In a percentage ratio constitutes 188.8%. After 2011 growth proceeds and 2013
constitutes 488.9 billion bags.
Providing. The Bank employs a range of policies and practices to mitigate
credit risk. The most traditional of these is the taking of security for funds
advances, which is common practice. The Bank implements guidelines on the
acceptability of specific classes of collateral or credit risk mitigation.
Collateral before being accepted by the Bank is thoroughly analyzed and
physically verified, where applicable. Collateral held as security for financial
15
On the basis of data provided in financial statements OJSC "Aloqabank" for 2009-2014
40
assets other than loans and advances is determined by the nature of the instrument.
Debt securities, treasury and other eligible bills are generally unsecured.
The Bank is eligible to lend to customers via blank (unsecured) loans for the
period not exceeding 1 year. The principal collateral types for loans and advances
as well as finance lease receivables are:
- cash deposits;
- motor vehicle;
- inventory;
- letter of surety;
- residential house;
- equipment;
- building;
- other assets.
The analysis of a credit portfolio by types of providing is provided in the
form of figure 5.
Fgr.5. Breakdown of Credit portfolio by types of providing
for 01.01.2014 (billion Uzbek sum)16
16
On the basis of data provided in financial statements OJSC "Aloqabank" for 2014
41
The diagram shows that most of the loans, namely, 51.31% preferred to give
the bank as collateral for real estate, because property is stable Bole bail for
inflation, does not lose its value.
An important element of credit risk management is to establish a
quantitative limit the provision of total credit to one borrower. Limit is
determined by the magnitude of the alleged risks associated with lending to the
client. However, the establishment of such quantitative restrictions does not
exclude credit risk, but only reduces the amount of possible negative
consequences. Limits can be regional, sectored, and at the rate of operational
breakeven.
The Bank established a number of credit committees which are responsible
for approving credit limits for individual borrowers:
- Board of Directors reviews and approves credit limits exceeding 3,000 of
Minimum Monthly Wage (“MMW”) which as at 31 December 2013 was UZS
96,105.
- The Credit Committee of Head office reviews and approves loan limits
from 1,500 to 3,000 of MMW.
- The credit committees of branches reviews and approves limits up to 1,500
of MMW.
Loan applications, along with financial analysis of loan applicant which
includes liquidity, profitability, interest coverage and debt service coverage ratios,
originated by the relevant client relationship managers are passed on to the Credit
Committee for approval of credit limit.
Establishing quantitative limit is represented in table 3.
The table shows that all limits are followed and no one loan does not exceed
the set limit.
Development of internal system of the limits providing diversification of a
credit portfolio on terms, industries, subjects of crediting, to types of loan, the
territories and other essential factors.
42
Table 3
Correlation of fixed quantitative limit with Bank’s realization17
Index
Normative
value
In fact for
Deviation
01.01.14
The maximum exposure to a single
borrower or group of related borrowers
≤ 25,0%
15,4%
9,6%
Unsecured loans
≤ 5,0%
0,0%
5%
Maximum risk exposure for all large loans ≤ 800,0%
65,7%
734,7%
Amount of loans to one insider, or a group
≤ 25,0%
of related persons
15,2%
9,8%
Unsecured loans
≤ 5,0%
0,0%
5%
The aggregate amount of loans granted by
the bank all insiders
≤ 100,0%
36,4%
63,6%
Entering of prohibitions and restrictions on the categories of the credits
which aren't conforming to standards of credit policy.
Establishment of limits provides diversification of credit activities of bank.
To be effective, limits shall be quite tough, reflect all amount of transactions with
the borrower, considered both on balance sheet, and on off-balance accounts and
shan't be adjusted, even taking into account the importance of the client for bank.
Below represent diversification of loan portfolio by industries in figure 6.
The diagram shows that most of the loan portfolio of loans for the
production of 32.5%, and a smaller portion are loans for transportation,
construction, communication and others. Bank prefers to lend to production. Since
production read more stable and of policy. State support for this activity, as it gives
most people jobs. Entrepreneurship in Feret production is considered the most
stable.
17
On the basis of data provided in financial statements OJSC "Aloqabank" for 2014
43
Fgr.6. Diversification of Credit portfolio by economy branches for 01.01.2014
(billion Uzbek sum)18
Below shows the diversification of the loan portfolio by type of customer in
figure 7.
Fgr.7. Diversification of a credit portfolio structure by types of clients
for 01.01.2014 (billion Uzbek sum)19
18
19
On the basis of data provided in financial statements OJSC "Aloqabank" for 2014
On the basis of data provided in financial statements OJSC "Aloqabank" for 2014
44
Diversification of the loan portfolio by type of customers shows that the
bank prefers to lend to the private and non-state enterprises, it is about 2/3 of the
total portfolio. Smallest portion occupy individual entrepreneurs.
Counter the negative effects of credit risk to help the creation and use of
reserves for possible loan losses. However, the order of use of this provision only
writing off bad and / or recognized uncollectible debt creates the need to create
other more flexible funding sources adverse effects of credit risk. As such may be a
minimum balance of funds of the credit institution. Value of this parameter can be
determined by the bank itself, depending on the nature of its activities, risk and
policy control them. This "reserve" increases the stability of credit institutions to
risk the consequences.
Creating a system of monitoring of credit risk in real-time is using special
computer programs for accounting and analysis.
Such a system involves regular monitoring of all transactions subject to
credit risk calculation and evaluation of the size of potential losses. It is mandatory
control. Its main objectives are: implementation of quality assessment of individual
loans and loan portfolio as a whole; development of proposals for limits of credit
risk; improving the way planning and lending operations.
Current examination includes checking:
- compliance with loan quality standards;
- correct completion of all documents;
- execution timing of payments by the borrower;
- targeted use of credit;
- preservation of collateral.
The monitoring system also involves a retrospective analysis of credit and
management of credit risk, which allows you to identify errors, and make
recommendations to optimize risk management in the future, to assess the
effectiveness of management.
In order to monitor credit risk exposures, weekly reports are produced by the
credit department’s officers based on a structured analysis focusing on the
45
customer’s business and financial performance, which includes overdue balances,
disbursements and repayments, outstanding balances and maturity of loan and as
well as grade of loan and collateral. Any significant exposures against
customers with deteriorating creditworthiness are reported to and reviewed by the
management daily. Management monitors and follows up past due balances.
2.2. The analysis of market risk management in bank
The Bank takes on exposure to market risks. Market risks arise from open
positions in interest rate, currency and equity products, all of which are exposed to
general and specific market movements. The Bank manages its market risk
through risk-based limits established by the Bank Supervisory Board on the value
of risk that may be accepted. The risk-based limits are subject to review by the
Bank Council on a quarterly basis. Overall Bank’s position is split between
Corporate and Retail banking positions. The exposure of Corporate and Retail
banking operations to market risk is managed through the system of limits
monitored by the Treasury Department on a daily basis. However, the use of this
approach does not prevent losses outside of these limits in the event of more
significant market movements.
There are three standard forms of market risks:
1. Currency risk. The Bank takes on exposure to the effect of fluctuations
in the prevailing foreign currency exchange rates on its financial position and cash
flows. In respect of currency risk, the Council sets limits on the level of exposure
by currency and in total for both overnight and intra-day positions, which are
monitored daily. The Bank’s Treasury Department measures its currency risk by
matching financial assets and liabilities denominated in same currency and
analyses effect of actual annual appreciation/depreciation of that currency against
Uzbekistan Sums to the profit and loss of the Bank.
The Bank measures its currency risk by:
46
- net position on each currency should not exceed 10 percent of Bank’s total
equity;
- total net position on all currencies should not exceed 20 percent of Bank’s
total equity.
The table below shows financial standards by CB in comparison with
Aloqabank (table 4)
Table 4
Financial standards for Aloqa Bank for December 31st, 201320
Normative
value
Index
Exposure of currency risk
(% Of regulatory capital)
Open currency position in any foreign
currency
The total value of open currency positions
Aloqa
bank
Deviation
≤ 10,0%
9,43%
0,57%
≤ 20,0%
13,64%
6,36%
The table shows that the Bank complied with all regulatory values.
The table below summaries the Bank’s exposure to foreign currency
exchange rate risk at the balance sheet date (table 5):
Table 5
General analysis of currency risk of Bank for reporting date21
In thousands of
Uzbekistan Sum
2013
UZS
US Dollars
Euros
Swiss francs
Other
Total
2012
UZS
US Dollars
Euros
Swiss francs
Other
Total
20
21
Monetary financial
assets
Monetary financial
liabilities
Net balance sheet
position
553,594,773
51,499,321
5,383,309
6,681,385
554,109
617,712,897
(525,434,191)
(33,751,527)
(5,235,290)
(1,992,027)
(566,413,035)
28,160,582
17,747,794
148,019
6,681,385
(1,437,918)
51,299,862
479,977,970
67,510,907
3,270,571
2,742,043
184,902
553,686,393
(459,397,080)
(59,703,664)
(3,159,609)
(520,612)
(172,019)
(522,952,984)
20,580,890
7,807,243
110,962
2,221,431
12,883
30,733,409
On the basis of data provided in financial statements OJSC "Aloqabank" for 2013
On the basis of data provided in financial statements OJSC "Aloqabank" for 2013
47
The above analysis includes only monetary assets and liabilities. Nonmonetary assets are not considered to give rise to any material currency risk.
The following table 6 presents sensitivities of profit and loss to reasonably
possible changes in exchange rates applied at the balance sheet date, with all other
variables held constant:
Table 6
Change of financial result22
In thousands of Uzbekistan Sum
US Dollars strengthening by 10.3%
(2012: 10.5%)
US Dollars weakening by 10.3% (2012:
10.5%)
EUR strengthening by 11.9% (2012:
12%)
EUR weakening by 11.9% (2012: 12%)
SFr strengthening by 13.1% (2012: 13%)
SFr weakening by 13.1% (2012: 13%)
At 31 December 2013
At 31 December 2012
Impact on profit or loss Impact on profit or loss
1,774,779
748,957
(1,774,779)
(748,957)
17,644
6,605
(17,644)
874,237
(874,237)
(6,605)
312,504
(312,504)
The exposure was calculated only for monetary balances denominated in
currencies other than the functional currency of the Bank. Impact on equity would
be the same as impact on statement of comprehensive income.
Interest rate risk. The Bank takes on exposure to the effects of fluctuations
in the prevailing levels of market interest rates on its financial position and cash
flows. Interest margins may increase as a result of such changes but may reduce or
create losses in the event that unexpected movements arise. Management monitors
on a daily basis and sets limits on the level of mismatch of interest rate reprising
that may be undertaken.
The table 7 below summaries the Bank’s exposure to interest rate risks. The
table presents the aggregated amounts of the Bank’s financial assets and liabilities
at carrying amounts, categorized by the earlier of contractual interest reprising or
maturity dates.
22
On the basis of data provided in financial statements OJSC "Aloqabank" for 2013
48
Table 7
General analysis of percentage risk of Bank23
In thousands of
Uzbekistan Sum
31 December 2013
Total financial
assets
Total financial
liabilities
Net interest
sensitivity gap at
31 December 2013
31 December 2012
Total financial
assets
Total financial
liabilities
Net interest
sensitivity gap at 31
December 2012
Demand
and less
than 1
month
From 1 to 6
months
From 6 to
12 months
Over 12
months
Total
125,363,275
35,724,563
67,790,435
388,834,624
617,712,897
(277,941,833)
(83,264,260)
(95,671,506)
(109,535,436)
(566,413,035)
(152,578,558)
(47,539,697)
(27,881,071)
279,299,188
51,299,862
179,074,180
83,446,904
73,772,250
221,557,959
557,851,293
(301,491,072)
(152,669,510)
(51,097,225)
(17,695,177)
(522,952,984)
(122,416,892)
(69,222,606)
22,675,025
203,862,782
34,898,309
The Bank is not exposed to the effects of fluctuations in the prevailing levels
of market interest rates on its financial position and cash flows as the interest rate
on the Bank’s only financial liability with floating interest rate is represented by
the long-term borrowing from China Development Bank. Refer to Note 20 for
details of long-term borrowing from China Development Bank.
At 31 December 2013, if interest rates at that date had been 200 basis points
lower (2012: 200 basis points lower) with all other variables held constant, profit
for the year would have been UZS 585,149 thousand (2012: UZS 129,570
thousand) lower, mainly as a result of lower interest expense on variable interest
liabilities.
If interest rates at that date had been 200 basis points higher (2012: 200 basis
points lower) with all other variables held constant, profit for the year would have
23
On the basis of data provided in financial statements OJSC "Aloqabank" for 2013
49
been UZS 585,149 thousand (2012: UZS 129,570 thousand) higher, mainly as a
result of lower interest expense on variable interest liabilities.
The Bank monitors interest rates for its financial instruments. The table 8
below summarizes interest rates based on reports reviewed by key management
personnel:
Table 8
Rate of interest24
2013
In % p.a.
UZS
2012
USD
UZS
USD
Assets
Cash and cash equivalents
Due from other banks
Loans and advances to customers
Finance leas e receivables
Investment securities held to maturity
0-0.02%
7%-12%
3%-27%
7%-16%
12%
0%- LIBOR-0.6%
LIBOR -0.6%
8%-12%
4%
-
0-0.02%
12%
3%-24%
3%-24%
3.6%-12%
3.6%-12%
Liabilities
Due to other banks
Customer accounts (weighted average)
Debt securities in issue
Other borrowed funds
5-11%
16%
12%
1.5%-3%
LIBOR +1.5%
5-12%
16%
12%
6-12%
-
Other price risk. The Bank is exposed to prepayment risk through
providing loans, including mortgages, which give the borrower the right to early
repay the loans. The Bank’s current year profit or loss and equity at the current
balance sheet date would not have been significantly impacted by changes in
prepayment rates because such loans are carried at amortized cost and the
prepayment right is at or close to the amortized cost of the loans and advances to
customers. The Bank has no significant exposure to equity price risk.
2.3. The analysis of liquid risk management in bank
Liquidity risk is defined as the risk that an entity will encounter difficulty in
meeting obligations associated with financial liabilities. The Bank is exposed to
daily calls on its available cash resources from overnight deposits, current
24
On the basis of data provided in financial statements OJSC "Aloqabank" for 2013
50
accounts, maturing deposits, loan draw downs, guarantees and from margin and
other calls on cash settled derivative instruments. The Bank does not maintain cash
resources to meet all of these needs as experience shows that a minimum level of
reinvestment of maturing funds can be predicted with a high level of certainty.
Liquidity risk is managed by the Resources Management Committee of the Bank.
The Bank seeks to maintain a stable funding base comprising primarily
amounts due to other banks, corporate and retail customer deposits and invest the
funds in inter-bank placements of liquid assets, in order to be able to respond
quickly and smoothly to unforeseen liquidity requirements.
The liquidity management of the Bank requires considering the level of
liquid assets necessary to settle obligations as they fall due; maintaining access to a
range of funding sources; maintaining funding contingency plans and monitoring
balance sheet liquidity ratios against regulatory requirements. The Bank calculates
liquidity ratios on a monthly basis in accordance with the requirement of the
Central Bank of Uzbekistan. These ratios are (ratios are calculated using figures
based on National Accounting Standards):
- Current ratio (not to be less than 0.30), which is calculated as the ratio of
liquid assets to liabilities payable on demand; the ratio was 0.49 at 31 December
2013 (31 December 2012:0.52).
Current ratio (R):
where CA - current assets;
CL - current demand liabilities and liabilities maturing within 30 days. The
minimum value of the standard is 30%.
Current assets include: cash on hand, to obtain from banks (30 days), the
securities of up to 1 year, other marketable securities, loans with a maturity of 30
days.
51
Current liabilities include: demand deposits, savings and time deposits with
maturities of 30 days for payment of the NBU and other banks, other deposits of
customers, other obligations.
Below is a table 9 of liquidity of Aloqabank in comparison with normative
value of NBU.
Table 9
Fulfillment of Bank’s liquidity in comparison with standard value25
Index
Normative
value
Liquidity
Current assets as% of liabilities payable on demand and expiry
date to 30 days
Required reserves deposited in CBU (% of deposits of legal
persons):
- Demand deposits and short-term
- Deposits with a maturity of 1 year to 3 years
- Deposits with a maturity of more than 3 years
Aloqabank
≥ 30,0%
48,8%
≥ 15,0%
≥ 12,0%
≥ 10,5%
16,6%
12,0%
0%
The table shows that the Bank complied with the inequality of current assets,
the standard value in Aloqabank is 48,8% ≥ 30,0%. Required reserves deposited
CBU correspond inequality normative values, except for deposits of more than 3
years, which is 0% <10.5%.
The Treasury Department receives information about the liquidity profile of
the financial assets and liabilities. The Treasury Department then provides for an
adequate portfolio of short-term liquid assets, largely made up of short-term liquid
trading securities, deposits with banks and other inter-bank facilities, to ensure that
sufficient liquidity is maintained within the Bank as a whole.
The daily liquidity position is monitored and regular liquidity stress testing
under a variety of scenarios covering both normal and more severe market
conditions is performed by the Treasury Department.
25
On the basis of data provided in financial statements OJSC "Aloqabank" for 2013
52
The table 10 below shows liabilities at 31 December 2013 by their
remaining contractual maturity. The amounts disclosed in the maturity table are
the contractual undiscounted cash flows. These undiscounted cash flows differ
from the amount included in the statement of financial position because the
statement of financial position amount is based on discounted cash flows.
When the amount payable is not fixed, the amount disclosed is determined
by reference to the conditions existing at the reporting date. Foreign currency
payments are translated using the spot exchange rate at the statement of financial
position date.
The table 10 below analyzes financial instruments by maturity, excluding
discount on December 31, 2013.
Table 10
Analysis of financial instruments by time to run26
In thousands of
Uzbekistan Sum
Liabilities
Due to other banks
Customer accounts
Debt securities in is sue
Other borrowed funds
Other financial liabilities
Guarantees is sued
Im port letter of credit
Undrawn credit lines
Total potential future
payments for financial
obligations
Demad
and less
than 1
month
From 1 to 6
months
From 6 to 12
months
Over 12
months
Total
3,644,370
274,894,519
482,466
315,089
1,754,410
344,310
742,336
6,114,050
40,317,765
51,438,000
591,781
4,780,445
--6,974,797
8,773,451
---
13,284,090
91,094,493
725,918
4,675,516
--2,382,702
46,293
---
37,308,265
73,397,603
14,529,863
5,006,552
951,788
-
94,554,490
490,824,615
16,330,028
14,777,602
1,754,410
10,653,597
9,562,080
6,114,050
288,291,550
112,876,239
112,209,012
131,194,071
644,570,872
The figure 8 below shows the diversification of the loan portfolio by
maturity and their compliance with the terms of the resources.
Te graph shows four categories of loans: up to 1 month, for the period from
1 to 6 months, for the period from 6 to 12 months, over 1 year. The figure shows
26
On the basis of data provided in financial statements OJSC "Aloqabank" for 2013
53
that the lower line shows the resources of the bank, and the top row are the credit
investments that the Bank shall submit to the above stated period.
Fgr. 8. Diversification of Credit portfolio structure by terms and its
compliance with term resources for 01.01.2014 (billion Uzbek sum)
Analyzing the figure, we can conclude that the loans granted to banks for up
to 1 month, is the risk for the bank, as investors have contributed to the amount of
291.7 billion sums, and the bank will return the treasure only 171 billion sums, and
it is a risk for the bank, that in time it cannot fulfill its obligations. But at the
expense of other contributions in the three other categories of loans, it is seen that
all of its obligations the bank is able to perform on time and the bank's ability
exceed liabilities to depositors. Therefore, the risk for the bank for up to 1 month is
covered by other categories of deposits.
Normative value set by the Central Bank is 30%. Today in Uzbekistan and
there are 27 banks. All banks today operate standard value.
Below is a summary table 11 of all the liquidity banks in Uzbekistan for
01.01.2013 and 01.01.2014. Also a difference for the current year was showed.
The table shows that Saderat Bank is the most liquid bank. Compared to all
the banks, he's one of the few increases in the positive direction indicator.
54
Table 11
Liquidity of all banks of Uzbekistan27
№
Name of the bank
For
01.01.2013
For
01.01.2014
Difference between the periods
(+;-)
%
1
Saderat
135,5%
170,0%
34,5%
125,5%
2
Sanoatqurilish bank
81,2%
102,1%
20,9%
125,7%
3
Asia Alians bank
105,4%
102,0%
-3,4%
96,8%
4
UT bank
114,0%
97,0%
-17,0%
85,1%
5
KDB Bank Uzbekistan
98,8%
92,6%
-6,2%
93,7%
6
National bank
80,0%
84,7%
4,7%
105,9%
7
Davr bank
96,0%
83,3%
-12,7%
86,8%
8
Xamkor bank
90,6%
82,8%
-7,8%
91,4%
9
Ipak Yuli bank
82,7%
82,0%
-0,7%
99,2%
10 Ipoteka bank
77,9%
76,0%
-1,9%
97,6%
11 Orient Finans bank
98,4%
70,5%
-27,9%
71,6%
12 Turkiston bank
82,0%
69,5%
-12,5%
84,8%
13 Qishloq qurilish bank
73,9%
60,7%
-13,2%
82,1%
14 Invest Finans bank
73,6%
60,7%
-12,9%
82,5%
15 Asaka bank
72,8%
57,4%
-15,4%
78,8%
16 Xalq bank
67,8%
57,0%
-10,8%
84,1%
17 Capital bank
48,9%
56,1%
7,2%
114,7%
18 Hi-tech bank
57,4%
55,1%
-2,3%
96,0%
19 Microcredit bank
67,1%
54,9%
-12,2%
81,8%
20 Trust bank
70,7%
54,7%
-16,0%
77,4%
21 Universal bank
51,5%
50,5%
-1,0%
98,1%
22 Aloqabank
52,9%
48,8%
-4,1%
92,2%
23 Amirbank
49,9%
44,5%
-5,4%
89,2%
24 Agrobank
34,1%
42,7%
8,6%
125,2%
25 Turon bank
60,5%
42,0%
-18,5%
69,4%
26 Ravnak bank
85,9%
41,9%
-44,0%
48,8%
27
On the basis of data provided by Axbor Rating
55
27 Savdogar bank
Average %
39,0%
40,7%
1,7%
104,4%
75,9%
69,6%
-6,2%
91,8%
The table shows that all banks comply with the requirements of the
normative value CBU liquidity. Normative value is 30%, the table shows that each
bank is liquid. Aloqabank occupies 22nd place. In comparison with the 2013 year,
the standard value of the bank's liquidity decreased by 4.1%. But despite of the
reducing standard value is higher for 18.8% than the set CB.
56
Part III. PROBLEMS AND WAYS TO REDUCE BANK RISKS IN
MODERN CONDITIONS
3.1. Problems of management and ways to reduce bank risks in modern
conditions with a glance of foreign experience
Risk management problem for commercial banks in terms of improvement
of quality and offers banking products, involving banks in the international
banking system are of particular importance and urgency. High risks cause mistrust
not only from domestic customers, but also from foreign, and thereby reduced
investments in the banking sector of Uzbekistan. Many problems of Uzbek banks
are associated with high risk, because of Uzbekistan's banking system cannot be
developed at the appropriate level.
Today risk factors do risks indefinitely large and changing, it is extremely
difficult to manage risks. So the complication of the banking business and the
emergence of new banking risks stimulated awareness that approach to banking
supervision does not meet current market conditions. Operations of modern Uzbek
banks are often extremely complex and quite difficult to track and control. Banking
supervisors are increasingly moving away from traditional monitoring state banks.
Therefore, they alone cannot ensure the stability of the banking system.
Uzbek banks need for building a comprehensive risk management system
that takes into account all peculiarities of Uzbek banking system. The basis of this
system is the position of risk manager, who would govern all the possible risks of
the bank.
System optimization of banking risks is an integral part of risk management
and serves as a base for planning banking, cash flow management and banking
risks.
In recent years, the organization of economic activities of businesses is
characterized by the introduction of a risk management system. It applies to all
57
segments of the national economy: banks, businesses, organizations, providing a
variety of services, etc. The essence of risk management can be characterized as
follows: “risk management - focused search and organization of work to reduce the
risk, and the art of getting revenue increases in uncertainty. The purpose of risk
management is to maximize profit at the optimum, the permissible value of the
ratio of profits and business risks. The most common methods of risk management
are: business diversification, improvement of market research, risk insurance,
improvement of personnel management and financial incentives for employees, the
protection of information about the activities, commercial and banking secrecy,
etc.”28
Uzbek banks asset quality remains vulnerable. This is one of the main
reasons why the credit ratings of Uzbek banks are quite low. Along with the
growth of the actual physical changes occur in lending structure of the loan
portfolio and the emergence of new borrowers who do not have reliable credit
history, resulting in increased credit risk. Most stable part of the clientele of banks,
usually presented related companies. And independent clientele developed
relatively recently and in many cases have not yet been tested by the crisis.
A striking example is the development of retail lending, which is just
beginning to gain momentum in Uzbekistan. Volume of reserves created is not
sufficient to cover the value of overdue loans. Reserves are created by Uzbek
standards do not consider the financial situation of the borrower. In the face of
declining interest rates and increasing competition there is doubt in the ability of
banks to charge adequate risk premium. With regard to net interest income, in
many banks it does not cover operating costs.
Thus, the relationship between different types of risk, both within an
individual bank, and across the banking system increased and become more
complex. All the problems of the banking risk management related to the
fragmentation of the banking system of Uzbekistan.
28
Gruening H., Brajovic Bratanovich C.,Analysis of banking risks. System of corporate governance and financial
risk management, M.: All The World, 2007,- 334 p.
58
The risk management strategy in a commercial bank should be based on an
integrated structure consisting of duties and responsibilities that come down from
the Board level down to the operational levels, covering all aspects of risk, in
particular, market, credit and liquidity risk, operational, legal risks, and risks
associated with the reputation of the bank and with the staff. This structure
includes the Board itself as the ultimate responsible body, committees, risk
management department, as well as various support departments and control. They
all have clearly defined responsibilities and accountability.
One of the main ways to reduce the risk of default on a loan is careful
selection of potential borrowers.
Bank under the credit policy should develop methods for assessing the
quality of potential borrowers using all sorts of techniques for analyzing the
financial situation of clients and statistical models.
An example of such a "classification model" can serve as Zeta model,
developed by a group of American economists and used by banks in the credit
analysis. The model is designed to estimate the probability of bankruptcy of the
company. Value of the key parameter «Z» is determined by an equation whose
variables reflect some of the key characteristics of the analyzed company - its
liquidity, capital turnover rate, etc. If this ratio exceeds the company a certain
threshold, the firm will be credited to the category of reliable, if the resulting
coefficient below the critical value, then according to the model of the company's
financial position precarious and give credit to her is not recommended.
Using this approach, the American economist Altman proposed an equation
to estimate the probability of bankruptcy, contact the bank for a loan. He used five
variables:
X1 - the ratio of working capital to total assets of the company;
X2 - the ratio of retained earnings to total assets;
X3 - the ratio of operating income (before interest and taxes) to total
assets;
59
X4 - the ratio of the market value of the company's shares to the total
amount of debt;
X5 - the ratio of sales to total assets.
Altman linear model or equation Z-rated, as follows:
Z = 1,2 X1 + 1,4 X2 + 3,3 X3 + 0,6 X4 + 1,0 X5.
To calculate the numerical model parameters Altman applied the method of
multiple discriminated analysis. Classification "rule" derived using the equation
reads:
- if the value of Z is less than 2,675, the company should be attributed to the
group of potential bankrupts;
- if the value of Z is greater than 2,675, the company in the short term does
not threaten bankruptcy.
If the value Z from 1.81 to 2.99 model does not work, this interval is the
"area of ignorance."
Assessment model of commercial loans was offered by the American
economist Chesser, if a customer expects the conditions of the loan. By "nonfulfillment of conditions" is meant not only the outstanding loans, but also any
other abnormalities that make a loan to the lender is less profitable than was
originally envisaged. The model includes six variables:
X1 - the ratio of cash and marketable securities to total assets;
X2 - the ratio of net sales to the amount of cash and marketable securities;
X3 - earnings before interest and tax to total assets;
X4 - total debt to total assets;
X5 - fixed assets to equity;
X6 - working capital to net sales.
Metrics model are as follows:
Y = -2,0434 - 5,24 X1 + 0,0053 X2 - 6,6507 X3 + 4,4009 X4 - 0,0791 X5 0,1020 X6.
Variable Y, which is a linear combination of independent variables used in
the following formula to estimate the probability of any breach of contract P:
60
P = 1 / (1 + e - Y), where e = 2.71828.
The model by Chesser to assess the likelihood of default of the contract, the
following criteria:
- if P> 0.50, the borrower should be attributed to the group, which does not
fulfill the conditions of the contract;
- if P <0.50 should be assigned to a group of reliable borrower.
Risk assessment - one of the main directions of the preliminary work for the
successful operation and minimize risk.
Risk assessment is the definition of quantitative or qualitative value method
(degree) risks. Thus, to assess the degree of risk is used a quantitative and
qualitative analysis. Qualitative analysis is an analysis of the sources and potential
risk areas, its determinants. Therefore, qualitative analysis is based on the clear
separation factors, which list specific to each type of bank risk. An example of
qualitative analysis is the analysis of the loan portfolio.
Historical simulation is a simulation method. Seeking profit and loss
distribution is empirically.
Pre-cost portfolio instruments should be presented as a function of market
risk factors, i.e. basic prices and interest rates, which affect the value of the
portfolio. The current portfolio is exposed to changes in the values of real market
risk factors that have been observed in the past, such as the last n periods. For this
construction n sets of hypothetical values of market factors on the basis of their
current values and percentage changes for the last n periods. Thus, the hypothetical
values are based on real data, but not identical to them.
Based on these sets of values of hypothetical market factors are calculated
values of n hypothetical portfolio value. Comparison of these values with the
current value of the portfolio allows you to find n values of profits and losses due
to changes in market factors. The values obtained are also hypothetical, since the
portfolio could have a different composition for the last n periods.
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The last step is building the empirical probability distribution of profits and
losses resulting from changes in value of the portfolio, and determining the value
at risk.
Monte-Carlo simulation refers to methods of simulation and therefore has
a number of similarities with the method of historical simulation.
The main difference is that in the Monte Carlo simulation is not performed
using actual observed values of market factors. Instead of it statistical distribution
(normal or t-distribution) is chosen, which are generated on the basis of thousands
or tens of thousands of sets of values of hypothetical market factors. The values
obtained are used to calculate values of profits and losses due to changes in
portfolio value.
At the last stage a distribution of profits and losses of the portfolio is
determined by the quantity and value at risk. Selection of methods of calculating
VaR will be determined by the composition and structure of the portfolio, the
availability of statistical data and software, computing power and other factors.
Stress testing - is one of the analytical tools designed to provide an estimate
of the potential loss of credit institutions in the event of a possible recession in the
economy.
Stress testing can be defined as the potential impact on the financial situation
of the credit institution specified number of changes in the risk factors, which
correspond to exceptional but plausible events. Under stress testing credit
institution should consider a number of factors that can cause extraordinary losses
in the portfolio of assets or ultimately complicate the management of its risks.
These factors include various components of market, credit and liquidity risks.
Stress testing involves components of both quantitative and qualitative
analysis. Quantitative analysis is primarily aimed at the identification of possible
fluctuations of main macroeconomic indicators and assess of their impact on the
various components of the bank's assets. Using the methods of quantitative
analysis determines the probability of stress scenarios, which may be subject to
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credit institutions. Qualitative analysis is punctuated by two main problems of
stress testing:
1). Assessing the ability of the credit organization to compensate for
possible large losses;
2). Define a set of actions that must be taken by the credit institution to
reduce risk and preserve capital. Among the main steps in the organization of
stress testing are the following:
- initially checking is performed timely information on which stress testing;
- after making the necessary database provided a detailed analysis of the loan
portfolios and trading, risk identification, which is most prone to the credit
institution;
- further analyzes the current dynamics of risk factors by determining the
change in their values at specified time intervals. In this case, payment may be
taken as the difference between the maximum and minimum values of the factor
within a given period of time, and the difference values at the beginning and end of
the period. In the future, depending on the purpose of analysis in the calculations
or the average or maximum value of risk factor modification is used. Under stress
testing can be analyzed the impact on the financial situation of the credit institution
as a single or multiple risk factors (e.g., growth and decline index by 10%, rising
and falling exchange rates of 6% for the major currencies and 20% for other IT .
etc.). Most are available for regular monitoring of the single-factor model.
However, the effectiveness of such models is significantly lower, since in case of
crisis, there are usually multiple simultaneous changes in risk factors. When stress
testing credit organizations consider the asset portfolio as a whole, since the
detection of the risks inherent in its individual elements can be properly evaluated
the risks specific to the asset portfolio as a whole. Also important is the stress
testing of individual components or credit trading portfolio. Manual credit
institution must monitor the refinement of stress tests to better reflect the current
state and development prospects of the credit institution (for example, in terms of
overcoming the credit organization into new market segments, or the introduction
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of new banking products); assess the possibility of increasing or reducing the risk
in the future. Criteria for assessing the degree of risk can be both general and
specific to individual types of risk. Most developed in the economic literature of
credit risk assessment criteria, which are known as the rule of "Five C": the
reputation of the borrower, the ability to borrow funds, ability to earn money to
repay the debt in the normal course of business, the capital of the borrower, loan
collateral, the terms of the credit transaction, control (compliance operation
legislation and standards).
You can select criteria for the evaluation of other types of risk:
- interest rate risk: the impact of the movement of interest on active and
passive operations on the financial results of the bank, the duration of operation
payback from interest income, the degree of sensitivity of assets and liabilities to
changes in interest rates in this period;
- operational risk: the impact of the quality of staff on the results of the bank;
mistake’s degree in the transactions associated with the organization and
technology of the production process in the bank; the influence of external factors
on the mistaken decisions;
- liquidity risk: the quality of the assets and liabilities, matching of assets
and liabilities on the amount, timing, and extent of liquidity demand.
Allowable size of various types of risks must be fixed through standards
(limits and performance standards), reflected in the document on the bank's policy
for the coming period.
Risk Monitoring - a process of regular analysis of risk factors with respect to
his views and decisions aimed at minimizing the risk while maintaining the
required level of profitability.
Risk monitoring process includes: allocation of responsibilities for risk
monitoring, identification of benchmarking system (basic and advanced), methods
of risk management.
Responsibilities for monitoring risks are distributed among the functional
divisions of the bank, its specialized committees, departments of internal control,
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audit and analysis, treasury or other collective management of the bank, its
managers. Functional divisions of the bank are responsible for managing business
risks, and committees and Integrated Units - fundamental risk.
Circle benchmarks include financial ratios, limits on transactions, the
portfolio of assets and liabilities and their segments, standards for bank
counterparties (e.g., borrowers, issuers, securities, banking partners).
Regulation is a set of methods designed to protect the bank from risk.
These methods can be divided into four groups:
1) methods of prevention;
2) methods of risk transfer;
3) methods of risk allocation;
4) methods of risk absorption.
The methods of risk management are:
- the establishment of reserves for loan losses in accordance with the views
of the Bank's operations, how to use these reserves;
- procedures for covering losses equity of the bank;
- determination of the scale of different types of margin (interest, mortgage
etc.) based on the degree of risk;
- control over the quality of the loan portfolio;
- monitoring of critical parameters in the context of species at risk;
- diversification of operations based on risk factors;
- operations with derivative financial instruments;
-motivation business units and personnel associated with the risky operations
of the bank;
- pricing (interest rates, commissions) to risk;
- setting limits on risky operations;
-the sale of assets;
- hedging of individual risks.
International and domestic experience of commercial lending institutions
allows us to formulate principles of interbank risk management system:
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1) complexity, i.e. single management structure for all types of risk;
2) differentiation, i.e. the specific content of individual elements of the
system in relation to the types of banking risks;
3) the unity of the knowledge base;
4) coordination of the management of different risks.
To create an effective risk management system must:
1) based on the above principles of the system in the management of intra
documents formulate strategy and management tasks;
2) establish the principles for the identification, assessment and diagnosis of
risk as a basis for the formulation of priority strategies and objectives to ensure a
balanced protection of the interests of all persons related to the bank;
3) to use these principles as a basis for the creation of the most important
management control procedures, including the creation of an organizational
structure, training delegation instruments, as well as technical specifications;
4) establish procedures to ensure accountability, self-evaluation and results
of operations in accordance with the principles of risk management control systems,
use these procedures as factors improve the management process;
5) focusing on the above-mentioned principles and procedures should
develop a mechanism for monitoring and feedback in order to ensure the quality of
procedures to assess and verify compliance.
3.2. Insurance of bank risks – basis of economic stability
The main activity and source of income for the majority of banks is lending
business and consumer loans.
The banks have permanent credit risk, simply speaking, is the risks
associated with the complete or partial failure to return the money to the bank, and
these risks are present throughout the crediting period, regardless of the client's
solvency at the time of obtaining a loan, as the situation in the financial market
today does not have sufficient stability.
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Insurance risk is essentially a transfer of certain risks insurance company.
Credit insurance - the so-called protection against borrower default - at the
moment is considered perhaps one of the most common in the developed insurance
markets of view of financial risks.
Insurance can be used for protection against credit risk and to minimize it.
When insuring the risk of loan default creditor bank is insured. The object of
insurance acts responsibility of the borrower (or groups) to return the amount
received from the bank loan, including all accrued interest and other charges due,
limited time periods. Simply put, at default by the borrower (a group of borrowers)
its credit obligations to the lender, the insurance company compensates the bank
for all losses. The rate of interest on default indemnity obligations varies fifty ninety percent of the amount of all outstanding liabilities (including interest due on
the loan).
Compulsory insurance reimbursement percentage stipulated in the
preliminary approval of the insurance contract. After all, it will depend on the
value of the insurance rate (premium), which subsequently transfers the insurer. It
is also possible the risk of loan default insurance, in which the indemnity covers
one hundred percent of the loan funds, but excluding accrued interest due the credit
agreement.
As a rule, credit insurance is a contract of insurance, which guarantees
repayment to the lender in the event of insolvency of the debtor. Typically, credit
insurance is defined as a means aimed at reducing or eliminating the credit risk of
the loan provider. In other words, this type of insurance company is able to protect
the creditor of all the risks associated with the insolvency of the debtor or her in
the event of non-payment of debt by the borrower for any other reason. Thus,
credit insurance plays a crucial role in the financial management of the company,
protecting the financial interests of the seller or lender. Especially that the concept
of credit conceals much broader meaning than just providing funds on a returnable
basis. This term also includes all possible risks associated with the insolvency of
any of the parties to the transaction after the transaction. In particular this applies
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the provision of or delay in payment of installments on transactions involving the
sale of goods or services.
As practice shows, the more developed the market, the more developed it
credit insurance. This is primarily due to the fact that the service providing
company-seller buyer credit is one of the ways to survive the seller in a fiercely
competitive market, where the choice of a supplier of goods or services to the
buyer pays great attention to the conditions of payment for the transaction.
Naturally, providing goods on credit, the seller puts itself at risk of default by the
buyer. In this situation, the losses are incurred by the lender due to non-payment of
bills paid by the insurance company.
Head of the enterprise, it is important to understand that credit insurance has
its alternatives. This is primarily an irrevocable letter of credit, factoring and
advance. Thus, released by the bank or by irrevocable letter of credit is a letter
addressed to another company, which provides an indication of the customer to pay,
named in the letter, a certain amount of money on certain conditions. In this
irrevocable letter of credit cannot be closed by the person discovering it, without
the consent of the borrower. Such schemes are often used in trade during the
import and export calculations. For example, the exporting company can open a
letter of credit from a local bank foreign importer in an amount equal to the value
of the goods. In this case the payment is made after shipment, after the presentation
of shipping documents. However, the head of the company should be aware that
the use of letters of credit leads to a significant increase in costs for the buyer,
especially for small and medium businesses. In this case, completely are frozen
assets of the acquiring company. Factoring, or purchase debt obligations to the
manufacturing company with assuming responsibilities for their recovery and the
risk of default - is also quite an expensive service, as inevitably leads to
discounting of debt. But speaking about alternative credit insurance schemes, it is
necessary to remember that these schemes are characterized by instability, less
developed markets.
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In Uzbekistan, credit insurance is only in the very beginning of development,
although many domestic companies have long practiced this type of insurance
scheme. But as a rule, this applies only to companies engaged in various
commercial transactions, such as transactions related to export-import supplies. It
should be noted that insurers in these cases were mostly not the Uzbek companies
and their foreign partners.
It should be noted, insurance banking risks - this is not a private affair of the
bank as a credit institution at risk, especially not their means, and the contributions
of its customers.
Insurance of bank capital in full is impossible. Since this is usually in bank a
special reserve fund is created.
While especially important for a particular bank deposits are selectively
insured.
In some countries, banks have to procure general banking policy.
This comprehensive insurance of depositors certainly helps boost the bank's
reputation and attract new deposits and investments.
In addition, many countries have long been popular policies BBB (Bankers
Blanket Bond). European and American banks are actively buying the so-called
policy of BBB (Bankers Blanket Bond) - a comprehensive insurance policy for
banking risks. It combines several different in essence products that minimize the
risks of almost all banks. Insurers, occupying a leading position in this particular
form of insurance underwriters are Lloyd's of London.
What cover the liabilities of banks on complex insurance:
- disloyalty bank staff. All banks are exposed to losses due to the fault of the
staff. Frauds are perpetrated not computers, and people. There are many ways by
which employees can cause material damage to the bank, for example, they may be
complicit in the robbery may conduct fraudulent transactions with loans, giving
them, for example, fictitious persons or conducting fraudulent transactions to the
electronic transfer of money. Under disloyalty staff within BBB refers to the illegal
acts of fraud with employees for personal gain. From what specific actions disloyal
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staff will insure you, stipulated directly in the negotiations preceding the issuance
of the insurance policy. At the conclusion of insurance contracts may require the
insurer client compliance with the minimum necessary security measures to
prevent loss, and here the work on risk assessment and determination of the
necessary security measures to prevent possible losses connected surveyor. Usually,
a standard set of security measures to prevent the onset of losses includes internal
audit, as well as the implementation of the double-checking the conduct of
financial transactions;
- property situated in the premises of the bank. In this case, coverage for
losses are provided incurred by the bank as a result of the loss of property located
within its premises. The term "property" within the BBB understood, in fact, all
types of movable property, the most important part, which is money;
- cash in transit. In this case, insurers allocate two kinds of carriers of cash:
the first kind - is when the carrier acts as the bank itself, and the second - when the
carrier serves as a firm specializing in the implementation of the transport of goods.
In the latter case usually carried liability insurance, but the bank has the discretion
to enter into a separate insurance contract providing for the payment of that part of
the losses that are not covered under the insurance carrier's liability;
- losses incurred by the Bank in operations on forged documents. Objects
coverage in this case fall into two main groups: the first group - a fake checks and
similar to them on purpose financial documents; second group - a valuable fake
paper.
- losses incurred by the Bank in making the currency, which was later
recognized as false. Standard view coverage for this type of insurance covers the
official currency of the country in which the bank operates, but at the request of the
bank amount of coverage can be extended;
- standard package for comprehensive insurance banks also includes
additional types of coatings, such as office equipment, works of art, personal safes
and many other objects. Related insurance policies are issued on request.
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To take on such risks insurance, the insurer must, first of all, for a thorough
assessment (Survey). To do this, head of the bank to admit to "their territory" is an
unknown man from the insurance company or surveyor firms that "all will
inquire," to investigate the efficiency of security systems, and as the property itself
(of course, this is the least "painful" procedure) and financial information and even
computer networks.
In short, one side will be admitted to the sensitive information will begin to
analyze it in detail, and, worst of all, capture it all on paper. Do bankers obvious
concern arises: where this is the surveyor transmit the data, as will use the
information the insurance company or its partner reinsurer. Therefore, full
insurance of financial institutions is only possible when setting the maximum trust
relationship between the insurer and the bank. And it's real or within the same
financial group, or a long evolutionary path, when in the first year only the
standard insured risks in the second coverage is expanding and so on.
Apparently, this practice is the most convenient for both parties: the
insurance company and premiums are rising, and rising insurance culture, and a
few years later, when the relationship of wary-official finally develop into a trust
will be fully covered all the possible risks of the bank.
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Part IV. SAFETY OF VITAL ACTIVITY
4.1. Hypodynamia and it’s influence on person’s health
Even in ancient times, it was observed that physical activity contributes to a
strong and enduring human and immobility leads to a decrease in efficiency,
disease and obesity. All this is due to metabolic disorders. Reducing the energy
metabolism-related changes in the intensity of oxidation and decay of organic
substances leads to disruption of the biosynthesis as well as to changes in calcium
metabolism in the body. Consequently, in the bone profound changes are
undergoing. First of all, they begin to lose calcium. This leads to the fact that the
bone becomes loose less durable. Calcium enters the bloodstream, is deposited on
the walls of blood vessels, they sclerosis, i.e. impregnated with calcium, lose
elasticity and made brittle. Blood's ability to clot increases dramatically. There is a
risk of blood clots (thrombi) in the vessels. High content of calcium in blood
contributes to the formation of kidney stones.
Lack of muscular load reduces the intensity of energy metabolism, which
affects the skeletal and cardiac muscles. Furthermore, a small amount of nerve
impulses coming from the working muscles, reduces the tonus of the nervous
system, previously acquired skills lost without forming new. All this is very
negative impact on health. It should also consider the following. Sedentary lifestyle
leads to the fact that the cartilage gradually becomes less elastic and loses
flexibility. This may lead to decrease in the amplitude of respiratory movements
and loss of flexibility of the body. But particularly strong from low mobility or
immobility affected joints.
Character movement in the joint is determined by its structure. In the knee
joint can only leg flexion and extension, and hip movements can take place in all
directions. However, the amplitude of motion depends on the workout. In case of
insufficient mobility ligaments lose elasticity. In the cavity of a joint motion
allocated insufficient synovial fluid acts as a lubricant. All this complicates the
work of the joint.
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Insufficient load affects the blood circulation in the joint. As a result, food is
broken bone, the formation of auricular cartilage that covers the head and the
acetabulum articulated bones, and the bone goes wrong that leads to various
diseases. But it is not limited thereto. Circulatory disturbance may result in uneven
bone growth, causing loosening of the seal and some other areas. Shape of the
bones as a result of this could be wrong, and lose joint mobility.
Hypodynamia - a weakness of muscle tissue that occurs due to the
extremely low physical activity. Modern man have access to all the benefits of
civilization: cars, shops at every turn, a sedentary job, internet. All this, of course,
good, but the problem is that the human body for a sedentary lifestyle - like death.
Indeed, the very nature inherent that we have a lot and move actively.
On the other hand, do not think that if you do it every day for 50 pushups or
100 times the rock press, the body that will be enough. The fact is that when the
muscles are constantly working in the same mode, perform the same actions every
day (say, every day you climb the 12 foot floor), this limitation of motion also
eventually lead to inactivity.
How to recognize hypodynamia?
1. If your muscles are often cut enough, then, on the idea of nature,
"unnecessary" organs atrophy. Of course, it takes time, so as soon as you notice
that the simple action (for example, to walk two blocks), cause you have shortness
of breath and pain in the legs, you need to sound the alarm - lack of exercise is
near! Indeed, lack of exercise and health are inextricably linked.
2. If your weight is constantly growing, it means that the body does not
receive the necessary physical activity. And calories are stocking them for
muscular exercise, instead turn into fat. At the same time slows down the
metabolism, and forms of "spread out" even faster.
3. Constantly pulls you to the fridge, though, apparently, dinner was not so
long ago? You'd be surprised, but it is also an indirect sign of inactivity. The fact is
that when a person moves a lot, the fats are broken and released into the
bloodstream, maintaining it at the desired level of sugar. Therefore, you will not
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feel hunger and want to eat as much as the body needs for normal functioning. If
the motion is small, the blood sugar drops rapidly as a result of weaker people and
tries to compensate for the lack of forces through the absorption of fatty and sugary
foods.
Hypodinamia and its consequences. Throughout the life of a person is
influenced by a variety of factors external and internal environment. Their ones are
huge amount. However, despite the large number of all of these factors can be
ranked in order of importance. For health the World Health Organization did it. Of
the 200 selected major factors that have the most significant influence on a person,
the first four places are occupied by physical inactivity (lack of exercise), poor diet
(and, above all, overweight), bad habits (alcohol, drugs and other substances) and
unfavorable ecological setting.
Fgr. 9. Consequences of hypodynamia29
The existing education system not only helps to improve the health of
students, but often requires a tremendous amount of movement for their
29
Novikov VS, "Do not forget about your muscles", M.: "Knowledge", 2007, -38p.
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development, not less than 50-60% of the time in the mode of the day should be
allocated to physical activity.
However, the need to move from the independent movement of students
satisfied only by 8-20%.
The figure 9 shows the consequences of hypodinamia.
Numerous studies show that the current system of physical education and the
program does not contribute to the harmonious development of children and
adolescents in need of improvement, new solutions, optimal impact of all forms,
tools and methods in order to preserve and promote the health of students.
For
diseases
associated
with
hypokinesia
include
cardiovascular,
neurological, gastrointestinal disorders, bone, muscle and cartilage changes, etc.
How to deal with physical inactivity?
As you can see, the impact of physical inactivity on the man hard enough
and detrimental to him. But deal with it can and should be. The main enemies of
hypodinamia are a variety of regular exercises. The fact that the charge is needed
every day and walking, you've probably already guessed. But there is another
effective remedy for this disease - isometric exercises (also called "pocket"). These
exercises are convenient in that they are almost invisible to outsiders, but because
they can be done anywhere. Moreover, they are based on strong muscle tension,
and repeating them only once a day, you can be sure that the necessary muscular
load is obtained. So here they are:
- stretch your arms, rest half-bent fingers into the table. Strong breath, exhale
gently, but firmly push his fingers on the table. Push need about 5-6 seconds, then
relax. After resting for 30 seconds, do the exercise again.
- slip your hands under the table and back of the hand with a force push the
desk up. Need to push for 5-6 seconds, half a minute to repeat.
- hands clasped behind his neck, try to bend it forward, while resisting all the
muscles of the neck. "Fight" 10 seconds, 30 seconds, repeat.
- sit in a chair, hold his legs and feet, straining, squeeze the legs as much as
possible. Compress to 10 seconds every half minute.
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- link brush outstretched arms into the lock, and without bending the arms,
try to unlock them. After half a minute rest, repeat.
As you can see, the prevention of physical inactivity is quite simple, and
following these simple recommendations, you will soon be able to say goodbye to
this ailment.
4.2. Protection against defeat by electric current
To ensure electrical safety in accordance with the Regulations for Electrical
use the following methods:
Ensuring unavailability, fencing and lock the live parts. These funds are
used to protect against accidental exposure to the danger zone or man to touch
electrical parts current-carrying. Height of fences in hazardous areas installations
on the premises, shall be not less than 1.7 m, and in open areas at least 2 m lock is
a device that allows a certain order or disable current-carrying parts, thereby
eliminating the possibility of Hit man in the danger zone. Electrical interlocking is
used to automatically disconnect the electrical door unlocking, removing fences
and other similar works in which offers access to live parts under voltage, as well
as the approach of man to the danger zone.
Application of low voltage (<42 VDC). Low voltage (less than 42V) is
used for hand tools, portable and local lighting in any indoor and outdoor use. It is
also used in areas with high risk and dangerous to power lighting fixtures local
stationary if they are located at a height of less than 2.5 m Circulated in applying
voltage 36 V, and in closed metal containers should apply a voltage not exceeding
12 V.
Electrical separation of networks on land via an isolating transformer.
Electrical separation of networks through a special isolation transformer, which
separates the network with earthed neutral or isolated from the network section of
the supply of electrical receivers. The connection between the power network and
the receiver via the magnetic field, the network portion of the receiver and the
receiver itself does not bind to the ground. Isolation transformer is a special
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transformer ratio equal to unity, a voltage not exceeding 380 V, with high
reliability design and insulation. Power from the transformer is allowed no more
than one receiver with a current not exceeding 15 A.
Protective grounding equipment enclosures. Ground is a connection with
the earth with dead metal parts of electrical equipment through the metal parts
being laid in the ground and called grounding, and parts sandwiched between
grounding and electrical enclosures, called grounding conductors. Conductors and
earth electrodes are usually made of low carbon steel, called colloquially iron.
Grounding is intended to eliminate the risk of electric shock to persons in
contact with dead parts under voltage. This is achieved by reducing the limits to
safe touch and step due to the low resistance grounding. Scope of protective
grounding are AC and DC isolated neutral voltage source or transformer.
For grounding may be used parts of existing structures, which are called
natural grounding:
- metal and concrete structures of buildings and structures that are in contact
with the ground;
- metal pipes laid in the ground, except for piping of flammable liquids and
gases;
- lead sheath cables laid in the ground;
- wells casings, etc.
Cutout network in no more than 0.2 seconds when a shock hazard.
Protective cutout device (RCD) consists of a sensor that responds to changes in
controlled quantities and executive body that disables the corresponding portion of
the network.
The sensing element can respond to potential housing, ground fault current,
voltage and zero sequence current operating current. As the switches can be used
contactors, magnetic starters, circuit breakers with shunt trip, special switches for
RCD.
Appointment RCD - Protection against electric shock by disabling ET when
a danger earthed equipment or directly at the touch current-carrying parts man.
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RCD used in ET 1000V isolated or earthed neutral as the main or additional
hardware protection method, if security cannot be achieved by the use of ground or
neutralization or if ground or vanishing cannot be performed for some reason.
RCD necessary for the control of isolation and disconnection EI while
reducing insulation in the EC for special purposes, such as in underground mines
(leakage relay).
An example is the RCD protective disconnect device type ZOUP-25 for
disable and enable three-phase power at a voltage of 380 V and a current of 25 A
in systems with earthed neutral, as well as to protect people at the touch of live
parts or equipment enclosures, be energized.
The vanishing of the housing of the electric networks with earthed neutral.
The vanishing - it's a deliberate electrical connection with zero protective
conductor. Current protections are fuses or circuit snout (switches) installed before
energy consumers for protection against short-circuit currents.
The vanishing used in electrical circuits voltage up to 1000V earthed.
Vanishing subject to the same metal design with dead parts of electrical equipment
which are subject to the protective earth (building machines and apparatus,
transformers, tanks, etc.)
Equipotential electrical enclosures. As you know, the touch voltage or step
is obtained when there is a potential difference between the base on which a man
stands and equipment housings, which he can relate to, or between the legs. If you
connect through additional electrodes and conductors places of possible touch the
human body, there is no potential difference and the associated risk.
Equipotential electrical towers and related structures and grounds by the
device loop earthing electrodes which are arranged around a building or structure
with a grounded or neutralization equipment. Inside the loop earthing under floor
space or pad laid horizontal longitudinal and transverse electrodes, the electrodes
are connected by welding circuit. In the presence of vanishing loop joins the
neutral wire.
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Equipotential equipment enclosures and structures adjoining structures and
carried all the buildings to the network or the vanishing ground.
Potential equalization is used as additional technical way to protect the
presence of vanishing or grounding in areas with high risk or particularly
dangerous.
Application of equipotential is necessarily in livestock buildings.
Equipotential device is carried on the project.
Application of the protective means. Protective devices called appliances,
devices, portable and transportable devices and devices, as well as parts of devices,
appliances and devices that serve to protect personnel working on electrical
systems, electric shock.
By appointment power protection means are divided into:
- insulating;
- protecting;
- auxiliary.
Isolation protection for isolating a person from electrical live parts in
tension, as well as from the ground (hull), if a person is simultaneously touch the
electrical grounding and electrical parts. According to the degree of reliability they
are divided into basic and advanced.
The main insulating protective equipment in installations up to 1000V
voltage include:
1. Insulating gloves;
2. Pliers to change the fuses and current measuring;
3. Hand tools with insulated handles;
4. Pointers voltage.
In electrical voltages above 1000V main remedies are:
1. Isolating and measuring rod;
2. Clamp meter and voltage testers;
3. Isolation removable platforms and stairs.
Additional include:
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1. Dielectric overshoes;
2. Bots;
3. Mats;
4. Isolation stand on porcelain insulators.
Protecting devices are intended for temporary fencing live parts under
voltage. These include shields, barriers, fences - cells, as well as temporary
portable ground which make it impossible for a disabled appearance voltage
equipment.
Ancillary remedies designed to protect personnel from accidentally falling
from a height (safety belts, claws insuring ropes), goggles, gloves, cloth and
canvas suits, etc.
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CONCLUSION
This final qualifying work is devoted to the actual issue ways to reduce the
risk of bank commercial bank.
In this work analyzes the theory of bank risks, defined risk management
practices are considered a risk management and ways to reduce them. Under risk is
the possible danger of loss arising from the specifics of certain natural phenomena
and activities of human society. Commercial risks are the risk of loss during the
financial and economic activity. Taking risks is the basis of banking. Banks are
successful when they adopt reasonable risks to control and are within their
financial capabilities and expertise. Banks tend to get the most profit. But this
desire is limited to the possibility of incurring losses. Banking and risk means the
probability that the actual profit of the bank is less than the planned expected. The
higher the expected return, the higher the risk.
Effective management of risk should address a range of problems - from
tracking (monitoring) the risk to its valuation. Each bank should think about
minimizing their risks. It is necessary for its survival. Minimizing risk - it is a
struggle for the reduction of losses, otherwise known as risk management. This
process includes: prediction of risks, identification of the likely size and impact the
development and implementation of measures to prevent or minimize the
associated losses.
The most common specific risk management practices include the following
methods: setting standards and limits intra diversification, forming a sufficient
level of reserves to cover losses, hedging, insurance, self-management and quality.
This way for the management of credit institutions at the present stage it is
important construction and risk management systems in the framework of their
choice of management practices appropriate to the nature and scope of activities of
credit institutions.
In this paper analyzes of credit, market and liquidity risks OSJC"ALOQA
BANK" for 2013-2014 years.
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The analysis shows that most of the risk is credit risk, it is about 72% of the
loans of the total assets of the bank. The analysis showed that the activities of the
OJSC "ALOQA BANK" credit risk is very small and is about 2%. When
considering the liquidity and market risks all their coefficients are within the
standards for commercial banks that characterize the positive work in the area of
the OJSC "ALOQA BANK."
In this work suggests ways to reduce risks through foreign experience. In
particular, it is recommended to use the estimate of the loan portfolio: stress testing,
historical simulation, Monte-Carlo simulation. Insurance is suggested as a method
to reduce risks, especially using insurance policy BBB.
In the last chapter contains theory inactivity and its influence on human
health and the protection of persons from electrical shock.
As a result of the measures expected to be significant increase reliability and
attractiveness of the bank, and as a result, and improve the reputation of the
banking market. This largely increases the number of both large and small credit
investments by businesses and individuals, and that led to the growth of the bank's
profits.
82
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