E-CARE Foundation, Inc.

August 18, 19, 25 and 26, 2020

Rogelio G. Decal
Resource Speaker
• Risk Management
“The process of identifying, assessing,
measuring, monitoring and controlling risk.”
• Risk Management process
The systematic examination of a business
activity or of a strategic plan,
to anticipate those things which might go
wrong,
so that a better, more “disaster-proof” plan
of action or activity can emerge.
• High Volume (volume & number of items)
• Supervision, Monitoring, Staff Turnover
• Concentrations of Exposures
• Changes in Systems & Record Keeping
• Geographical Spread
• Rapid Growth
• Proliferation of Signing Authorities (incl.
Access codes)
• Financial Needs of Individuals
 FUNCTION DESCRIPTON

1. Identifying Search and locate for

risks before they
become problems.

2. Analyzing Evaluate impact,

probability, and
timeframe, classify
risks, and prioritize
risks.
 Translate risk information into
3. Planning/ decisions and mitigating actions
( both present and future) and
Measuring implement those actions.

4. Monitoring Monitor risk indicators

and mitigation plans.

5. Controlling Check for & correct

deviations vis-a-vis risk
mitigating plans.

Provide information and feedback on

6. Reporting the risk activities, current risks, and
emerging risks.

Note: Communication happens throughout all

the functions of risk management
1. Avoiding
4. Pricing
2. Controlling
5. Transferring
3. Mitigating
Q - What is Risk?
A - Simply defined,
Risk is the
possibility of a
Loss.
Q - What is at Risk of
Loss?
A - Capital
 RISK
IDENTIFICATION
Risk is Ubiquitous:
- borne in the assets &
liabilities acquired
- inherent in the systems/
control adopted
- embedded in the financial
instruments bought
- present in the people hired

Risks are inevitable!

What are these Risks?
1. Quantifiable
Those which are subject to numerical
measurements; shall be managed &
controlled by means of a structure of
general & specific limits.

2. Non-Quantifiable
Not subject to specific numerical
measurement; but just as significant &
require similar mgmt attention.
Quantifiable Risks
1. Market
The risk of loss due to adverse
fluctuations in the price or market value
of currency, investment in equities and
money market placements.

2. Liquidity
The risk that Bank / Coop will be
unable to make a timely payment on
any of its financial obligation.
Quantifiable Risks

3. Credit
The risk that a customer or counterparty
or member-borrower will be unable or
unwilling to pay obligations on time or in
full as expected or previously contracted,
subjecting Bank / Coop to a financial
loss.
Non-Quantifiable Risks

1. Legal
Covers the potential for Bank / Coop to
suffer a financial loss due to non-
existent, incomplete, incorrect and
unenforceable documentation used by
Bank / Coop to protect and enforce its
rights under contracts and obligations.
Non-Quantifiable Risks
2. Fiduciary
Those that arise from the additional
responsibilities expected of Bank / Coop
and its employees because of the public
trust inherent in the institution’s charter.

2.1 Reputational Risk

Loss of reputation faced by Bank /
Coop from misdeeds of its personnel,
its own internal or external failures,
legal action from creditors or regulatory
sanctions.
Non-Quantifiable Risks
3. Regulatory
Also referred to as Compliance Risk. This
covers the potential of Bank / Coop to
suffer financial loss from changes in laws,
monetary, tax or other governmental
regulations.
CAUTION: Sanctions may involve not just
mere loss of reputation or financial
penalties, but a revocation of the
franchise or license.
Non-Quantifiable Risks
4. Personnel
Covers Bank / Coop’s risk of financial
loss due to the inadequate training,
inexperience or illegal activities of risk-
taking and other personnel.
- Competence
- Fraud
- Authorization
- Pressure on Profit
- Conflict of Interest
- “Force-Fitting” of Personnel
- No spirit of volunteerism
Non-Quantifiable Risks
5. Operations
The risk to earnings or capital arising
from problems with service or product
delivery.
- loss arising from various types of
human or technical error
- settlement or payment failures
- business interruption
- failure of information systems and
technology.
 RISK
MEASUREMENT
Only Quantifiable Risks are
capable of numerical
Measurement.
The fundamental market risk
factors to be captured by a risk
measurement system are:
1. Foreign Exchange Prices.
2. Equity/Commodity Prices.
3. Volatility of FX Rates, Interest
Rates, Equity/Commodity
Prices.
Only Quantifiable Risks are
capable of numerical
Measurement.
Liquidity risk measurement
involves assessing all of
Bank / Coop’s cash
inflows against its
outflows to identify the
potential for any net
shortfall going forward.
Only Quantifiable Risks are
capable of numerical
Measurement.
Credit risk measurement involves
quantifying the risk involved in
exposures to individual
borrowers or counterparties.
Bank / Coop shall also analyze
credit risk at the portfolio level in
order to identify any particular
sensitivities or concentrations.
The measurement of credit
risk should take account of:
the specific nature of the credit
(loan, facility, etc.) and its
contractual and financial
conditions (maturity, reference
rate, etc.)
the exposure profile
until maturity in relation to
potential market movements
The measurement of credit
risk should take account of:
the existence of collateral or
guarantees

the internal risk rating and its

potential evolution during the
duration of the exposure.
 RISK
MANAGEMENT
Risk Management is
the establishment of
controls to minimize
the possibility of a
loss.
Risk Management Tools
Market Risk
1. Set Investment Limits
2. Investment Criteria
a. Convertibility to cash
b. Safety
c. Yield
d. Investment Mix
Risk Management Tools

Liquidity Risk
-ALM Pillar - Diversification
-Contingency Planning
-Back-up liquidity
Risk Management Tools

Credit Risk:

Credit Limits
Sound Credit Initiation and
Approval Process
Credit Administration & Monitoring
Internal Rating System
Credit Review
Risk Management Tools
Legal Risk
• Managing and controlling legal risks
• Legal Sufficiency Review
o Capacity to Contract
o Documentation

o Terms and Condition

o Jurisdictional
Risk Management Tools
Personnel Risk - adequacy of code
of conduct, personnel policies and
training & development programs
in overall risk management.
As a best practice, Bank / Coop shall
promote a policy of constant training
and development for all key personnel
in the Risk Process.

Putting Core Values in action

by all Bank / Coop personnel.
Risk Management Tools
Operations Risk - policies &
procedures.

Operational Control Framework

Operational Controls for Product Manuals
Operations Support
Risk Management Tools
Operational Control Framework
Organizational Structure - reporting lines set to
achieve:

- effective segregation of duties

- internal controls
- accountabilities
Risk Management Tools
Operational Control Framework
Business Continuity - A BCP
maintained & tested at least
annually & updated for any
changes in systems or
procedures.
Service Quality - Complaints
log for logging, monitoring &
follow up of customer
complaints; independently
reviewed by senior
management.
Risk Management Tools
Operational Control for Product
Manuals
- Bank / Coop shall strive to
document all its products as part
of the Risk Process.

- This key document should provide

a comprehensive description of
the product, including the
identification of all risk factors.
Risk Management Tools
Operations Support - “back office”
functions:

- Database Administration
- Documentation
- Reconciliation
- Accounting & Financial Control
- MIS & Reports and Controls
Risk Management is an activity
critical to Bank / Coop’s success
and that the responsibility for
managing its risk is spread
across all business units and
functions.
 RISK
OVERSIGHT
The Risk Oversight Function
involves the active daily
monitoring and control of
risks against the limits that
were established to manage
the risks.
The general oversight
policies involve the clear
reporting of limit excesses
and the rectification
procedures for such
exceptions.
The Risk Process is part
of internal control, which
itself is a process effected
by the Board of Directors,
senior management and
all levels of personnel.
The Board of Directors and senior
management are responsible for
establishing and communicating, in
writing and in action, the appropriate
culture to facilitate an effective risk
process and for monitoring its
effectiveness on an ongoing basis.
HOWEVER, each
individual within
Bank / Coop must
participate
in the process!
Thank You!
and
Good Day!