• Profile
  • TSKB in Brief
  • TSKB's Subsidiaries
  • Products and Services Of TSKB
• Performance
  • Value Creation
  • Awards & Recognitions
  • CEO's Assessment
• Approach
  • TSKB's Sustainable Banking Strategy
  • TSKB's Sustainability Priorities
• Dialogue
  • TSKB and Stakeholder Engagement
  • TSKB's Stakeholders
  • 2010 Stakeholder Dialogue Highlights
• Sustainability and Environmental Issues
  • Sustainable Banking at TSKB
  • Sustainable Banking Performance: the Economic Dimension
  • The Renewable Energy Sector and TSKB
  • TSKB Energy Index
  • TSKB, Climate Change, and the Environment
  • TSKB's Efforts on Behalf of Sustainability and the Environment
  • Who Wouldn't Want to Be Sustainable?
  • ISO 14001 Certification
  • The Structure of the TSKB Environmental Management Team
  • TSKB's Environment Policy
  • TSKB's Environmental Impact
  • Sustainable Banking Performance: the Environmental Dimension
  • Developments in External Environmental Impact
• Corporate Governance
  • Absolute Compliance With Laws and Regulations
  • TSKB's Corporate Governance Structure
  • Compliance With Corporate Governance Principles
  • Risk Management at TSKB
  • Prevention of Money-Laundering and the Financing of Terrorism
  • Relations with Suppliers
• People
  • Human Resources and the Workplace at TSKB
  • The TSKB Performance Management System
  • TSKB Compensation and Reward System
  • TSKB Human Resources Structure
  • Human Rights and Employee Rights at TSKB
  • Competency Development and Training
  • Health and Safety at TSKB
  • Commuting By Sea
  • Internal Communication at TSKB
• The Community
  • Social Responsibility at TSKB
  • "Environment: Our Priority": Past and present
  • The NGOs that TSKB Collaborates with
• Summarized TSKB Goals and Performance
• Appendices
  • About This Report
  • Statement GRI Application Level Check
  • Global Reporting Initiative Cross Index
  • Online Sustainability
  • Imprint
  • Communication and Service Channels

RISK MANAGEMENT AT TSKB

Risk management is an essential tool in the process of investing capital and other resources in such a way as to maximize returns for shareholders. For TSKB, risk management is one of the cornerstones of its corporate governance and sustainable success.

The global economic crisis of 2008-2009 made the concept of risk management more important than ever throughout the world. While the financial crisis began to affect Turkey as well as in the second quarter of 2008, the Turkish banking sector performed well and emerged successfully enough from it to be cited as an example for the rest of the world. The structural reforms that were carried out in the sector in the early days of the 2000s played a great role in achieving such healthy results.

TSKB’s risk management processes employ modern analytical methods that make it possible for profitable and sophisticated banking transactions to be conducted. These processes provide systematic and continuous input for the Bank’s management.

TSKB gives the utmost importance to full compliance with the requirements of law, to transparency, and to accountability. It has completely satisfied the requirements of all the new rules concerning risk management practices that have most recently been introduced in the country. In this process, risk management functions at TSKB have also been restructured and reinforced to make them more effective.

TSKB’s risk management processes employ modern analytical methods that make it possible for profitable and sophisticated banking transactions to be conducted. These processes provide systematic and continuous input for the Bank’s management when making decisions.

The TSKB Risk Management System
The Risk Management Group is responsible for preparing the risk management strategies and policies which the Bank will follow, for the conduct of risk management system activities, and for defining, quantifying, monitoring, analyzing, assessing, and reporting risks. The Risk Management Group consists of the Senior Risk Committee and of the Risk Management Department.

TSKB’s risk management processes are organized within the framework of risk management rules and serve to inculcate a risk management culture throughout the Bank. These processes are also structured in such a way that their risk definitions are compliant with international practice while their measurement, analysis, monitoring, and reporting functions may also be carried out within the same framework.

The TSKB Risk Management Department is responsible for activities that will assist in ensuring that risks to which the Bank may be exposed are monitored in compliance with the Bank’s policies, standards, and strategies, in identifying violations, in analyzing risk dimensions by developing different scenarios, and in measuring, monitoring, and reporting risks.

The Risk Management Department is responsible, in line with its fundamental goal of formulating risk management systems and ensuring their continuity, for identifying the essential risks to which the Bank is exposed and for measuring the risks which the Bank assumes. The department is also responsible for identifying and developing the methods that are to be used in risk quantification and for checking their mutual consistency.

The Risk Management Department is also responsible for the conduct of Basel II criteria compliance activities. The Risk Management Department prepares detailed solo and consolidated risk management reports at quarterly intervals and submits them, through the Audit Committee, to the Board of Directors. TSKB’s risk policies and the principles whereby such policies are to be implemented are determined by the TSKB Board of Directors. They consist of written standards that are adhered to by the Bank’s senior management.

The principal risks to which TSKB may be exposed and which it monitors
In its Risk Policy, TSKB has defined the following risks as the principal ones to which it may be exposed:

• Credit risk
• Market risk
• Liquidity risk
• Operational risk

Credit Risk
Credit risk is the possibility that a credit customer–or some party with which the customer has entered into an agreement–will fail to fulfill the terms of a lending agreement. Although the biggest and most obvious source of credit risk consists of the loans which the Bank makes, other banking products and services that involve counterparty risk are also regarded as being fraught with credit risk.

Credit risk at TSKB is measured and managed taking into account compliance with limits set by the TSKB Board of Directors. In the quantification of credit risk at TSKB, an Internal Rating-Based Model is employed to monitor and control such risk in such a way as to generate early warnings as appropriate.

The TSKB Risk Management Group plays an active role in credit risk monitoring processes and it reports its findings on a regular basis to the Board of Directors, to the Audit Committee, to senior management, and to other bank units to which credit risk is a matter of concern.

Market Risk
Market risk is the possibility that the Bank may suffer losses arising from movements in the financial market interest rates, share prices, commodity prices, and exchange rates associated with the portfolios which the Bank controls or the positions which it takes. The objective of market risk management is to maximize the Bank’s risk-adjusted returns by taking a proactive approach to the management of the risks to which TSKB may be exposed within the framework of appropriate parameters.

To calculate market risk, TSKB makes use of two basic approaches: the BRSA’s Standard Method and the Value at Risk (VaR) method.

The validity of the VaR model’s results is checked by back-testing them. Such tests are based on making comparisons between the calculated value-at-risk and the actual losses that are sustained. Stress tests are also made use of in order to determine the possible VaR consequences impact of events which are unlikely to materialize but which could result in catastrophic losses if they were to take place.

The TSKB Risk Management Department plays an active role in market risk monitoring processes and it reports its findings on a regular basis to the Board of Directors, to the Audit Committee, to senior management, and to other bank units to which credit risk is a matter of concern.

Liquidity Risk
Liquidity risk is the risk that on or off-balance sheet liabilities cannot be met when they fall due.

There are two types of liquidity risk that are generally encountered in capital markets and trading activities: funding liquidity risk and market liquidity risk. Funding liquidity risk occurs when investment and funding obligations cannot be fulfilled on time or at a reasonable cost due to cash flow incompatibilities. Market liquidity risk occurs when it is not possible to close a position on time or at a reasonable cost due to such reasons as lack of market depth, market failures, or the Bank’s inability to access markets.

Effective and sustainable liquidity management requires that maximum use be made of opportunities to achieve diversification in terms of funding resources, markets, instruments, and maturities.

In the management of liquidity risk, portfolios are structured so as to be simultaneously compatible with the two functions of generating returns and managing market risk. Constant attention must be given to maintaining a balance between risk and return without sacrificing the requirements of liquidity.

Operational Risk
Operational risk is defined as the risk of loss resulting from inadequate or failed internal processes, people, and systems or from external events. This definition includes the risk of non-compliance with the requirements of law and with ethical standards.

,These risks are managed by:

• Maintaining specific control over functional areas that are fundamental to TSKB’s activities and taking such measures as are necessary to achieve this;
• Having a suitable internal auditing system as well as mechanisms whereby its authorities are distributed appropriately throughout the Bank;
• Performing detailed tests and checks on all of the Bank’s operating systems;
• Having a method of backing up data that is independent and achieves complete compatibility between the Bank’s internal and external systems.

TSKB adheres to the principle of separating duties and distributing functions in order to minimize the risks arising from malfeasance, misuse, or error. Operational risk quantification is achieved by means of the Basic Indicator Approach method.

Environmental Risks
Environmental risks have become a very important element of today’s approach to sustainable banking.

The Bank’s efforts in this area were made more systematic with the ERET environmental project evaluation model whose use was introduced in 2007. ERET is a set of tools that are used to identify environmental risks during the project evaluation process. Designed and developed by TSKB in light of Turkey’s market and environment-related criteria, ERET provides a valuable basis on which the Bank is able to conduct its sustainable banking activities. In addition to allowing TSKB to categorize environmental risks for its Environment Management System, ERET also meets most international lenders’ environmental information and reporting requirements for extending credit.

In fact ERET satisfies–and in many cases even exceeds–the Equator Principles, which were announced by the International Finance Corporation and which are widely accepted by banks doing business in the world’s developed economies nowadays.

Detailed information about ERET is presented beginning under the section Developments in External Environmental Impact.
In 2010, TSKB joined the Carbon Disclosure Project (CDP), which is regarded as another important step taken in the direction of managing environmental risks.

TSKB demonstrated its commitment to managing environmental risk by reducing its own carbon footprint by 46% in the year prior to its joining CDP.
Information about CDP is presented under the section Sustainable Banking Performance: the Environmental Dimension

Rules of ethics
TSKB subscribes to the “Principles of Banking Ethics” published by the Banks Association of Turkey.