1. Managing Market Risk

2. Board of Directors The Boards defines –Market risk –Management policies –Procedures –Prudential risk limits –Review mechanisms –Reporting –Auditing systems –Bank’s exposure on a consolidated basis –Risk measurement systems to capture all material sources of market risk –Assess the effects on the bank –Operating prudential limits –Accountability of management

3. Organizational Set up for Market Risk Board of Directors Risk Management Committee Asset-Liability Management Committee ALM support group/ Market Risk Group

4. Market Risk Policies Mark-to-market Market valuation methods Identifying revenue sources Managing market risk (VaR) Stress simulation Investment and funding forecasts Independent market risk management Practices of users Measuring credit exposure

5. Market Risk Management Requirements Ensuring that market risk management processes (including people, systems, operations, limits and controls) satisfy bank’s policy Reviewing and approving market risk limits, including triggers or stop-losses for traded and accrual portfolios Ensuring robustness of financial models, and the effectiveness of all systems used to calculate market risk Appointment of qualified and competent staff Ensuring posting of qualified and competent staff and independent market risk managers

6. Asset Liability Management Committee Responsible for ensuring adherence to the limits set by the Board Deciding the business strategy of the bank in line with bank’s budget Decided risk management objectives Product pricing for deposits and advances Deciding on maturity profile and mix of incremental assets and liabilities

7. Asset Liability Management Committee Articulating interest rate view of the bank and deciding on the future business strategy Reviewing and articulating funding policy Decide the transfer pricing policy of the bank Reviewing economic and political impact on the balance sheet Size of each institution, business mix and organisational complexity Commitment of the top management Timely response to market dynamics

8. Member of ALM Chiefs of –Investment –Credit –Resources Management –Planning –Funds –Management –Treasury (forex and domestic) –International Banking –Economic Research

9. ALM Support Group Operating staff responsible for –Analysing –Monitoring –Reporting risk profiles Preparation of forecasts Responsible for simulations Effects of various possible changes in market conditions related to the balance sheet and recommend the action needed to adhere to bank’s internal limits

10. Organizational Structure

11. Efficient Market Risk Management Risk identification Setting limits and triggers –Functional –Departmental –Overall Risk monitoring Risk analysis models –Valuation of positions –Measurement of market risk Risk reporting

12. Risk Identification Market risk (product) program –Risk taking units –Procedures –Limits –Controls New products –Product transaction memorandum –Preparation of market risk product program –Procedures –Limits –Controls

13. Limits and Triggers Trading transactions booked on capable systems Sensitivity measure on a daily basis Use of value at risk limit for trading portfolios ALM committee set limits for accrual positions Limits for ‘available for sale’ portfolios Approved management action triggers set by ‘Risk Policy Committee’ Stop-loss orders for all mark-to-market risk activities Additional market risk limits to trading units

14. Risk Monitoring Rate reasonability process –Execution of transactions –Revaluation of transactions –Periodic marking-to-market –Accounting purpose –Financial models –Stress test

15. Risk Analysis Models Software performance evaluation –Position valuation –Measurement of market risk Administration of model control Software certification policy Technical advice through qualified and trained personnel

16. Risk Analysis Models Documentation of financial models Validation of quantitative parameters of the financial model Independent validation –Market factor sensitivity –Transaction sensitivity –Portfolio level sensitivity –Value-at-Risk

17. Risk Reporting Timely reporting Reasonably accurate reporting Portfolio risk concentration reporting Reporting written comments Concise reporting