REPUBLIC BANK LIMITED
90
Notes to theConsolidatedFinancial Statements
For the year ended September 30, 2014. Expressed in thousands of Trinidad and Tobago dollars ($’000), except where otherwise stated
21 Risk management
21.1 Introduction
The Group’s prudent banking practices are founded on solid risk management. In an effort to keep apace with its dynamic environment,
the Group has established a comprehensive framework for managing risks, which is continually evolving as the Group’s business activities
change in response to market, credit, product and other developments.
The basic principles of risk management followed by the Group include:
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Managing risk within parameters approved by the Board of Directors and Executives;
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Assessing risk initially and then consistently monitoring those risks through their life cycle;
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Abiding by all applicable laws, regulations and governance standards in every country in which we do business;
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Applying high and consistent ethical standards to our relationships with all customers, employees and other stakeholders; and
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Undertaking activities in accordance with fundamental control standards. These controls include the disciplines of planning,
monitoring, segregation, authorisation and approval, recording, safeguarding, reconciliation and valuation.
The Board of Directors has ultimate responsibility for the management of risk within the Group. Acting with authority delegated by the
Board, the Credit, Audit, Asset/Liability Committee and Other Risks Committees, review specific risk areas.
The Internal Audit function audits Risk Management processes throughout the Group by examining both the adequacy of the
procedures and the Group’s compliance with these procedures. Internal Audit discusses the results of all assessments with Management
and reports its findings and recommendations to the Audit Committees of the Parent and respective subsidiaries.
The Group’s activities are primarily related to the use of financial instruments. The Group accepts funds from customers and seeks
to earn above average interest margins by investing in high quality assets such as government and corporate securities as well as equity
investments and seeks to increase these margins by lending for longer periods at higher rates, while maintaining sufficient liquidity to
meet all claims that might fall due.
The main risks arising from the Group’s financial instruments are credit risk, interest rate and market risk, liquidity risk, foreign currency
risk and operational risk. The Group reviews and agrees policies for managing each of these risks as follows:
21.2 Credit risk
Credit risk is the potential that a borrower or counterparty will fail to meet its stated obligations in accordance with agreed terms. The
objective of the Group’s credit risk management function is to maximise the Group’s risk-adjusted rate of return by maintaining credit risk
exposure within acceptable parameters. The effective management of credit risk is a key element of a comprehensive approach to risk
management and is considered essential to the long-term success of the Group.
The Group’s credit risk management process operates on the basis of a hierarchy of discretionary authorities. A Board Credit
Committee, chaired by the Chairman of the Board and including executive and non-executive directors, is in place, with the authority to
exercise the powers of the Board on all risk management decisions.
The Risk Management unit is accountable for the general management and administration of the Group’s credit portfolio, ensuring
that lendings are made in accordance with current legislation, sound banking practice and in accordance with the applicable general
policy of the Board of Directors. The Risk Management function is kept separate from and independent of the business development
aspect of the operations.
The Group uses a risk rating system which groups commercial/corporate accounts into various risk categories to facilitate the
management of risk on both an individual account and portfolio basis. For retail lending, a computerised Credit Scoring system with
preset risk management criteria is in place at all branches to facilitate decision-making. Trend indicators are also used to evaluate risk
as improving, static or deteriorating. The evaluation of the risk and trend inform the credit decision and determines the intensity of the
monitoring process.
The Group’s credit control processes emphasise early detection of deterioration and prompt implementation of remedial action and
where it is considered that recovery of the outstanding balance may be doubtful or unduly delayed, such accounts are transferred from
performing to non-performing status.
