Title: Risk Management at ANZ Banking Group
1Risk Management at ANZ Banking Group
Patrick Zhu Head of Retail Risk China
Partnerships
Jun 18, 2008
2ANZ is a leading bank in Australia, and the
largest bank in New Zealand
- Established in 1835
- Strong market positions in chosen markets
- Australian Bank of the Year six years in a row
- New Zealands largest bank
- Leading bank in the South Pacific
- Leading Australian bank in Asia
- Over 5 million customers, across 30 countries
- 34,353 employees 1,265 points of representation
- Strong annual performance as at 30 September 2007
- Annual profit AUD4.2 billion
- Total Assets AUD392 billion
- Cost/Income ratio 44.8
- Rated AA
3ANZ Risk Management structure is aligned to
business and meets Basel requirements for
consistency
ANZ Board Risk Committee
Chief Executive Officer
Chief Risk Officer
Respective Group Managing Directors
Chief Executive Officer, New Zealand
New Zealand
Institutional
Centre Risk
Personal
Asia Pacific
OTR
Head of Risk Personal Chief Retail Credit
Officer
Chief Risk Officer ANZNB
Head of Operational Technology Risk
Head of Risk, Institutional
Group General Manager, Compliance
Head of Risk Services
Head of Risk, Asia Pacific
4The following key principles which are aligned
with Basel II underpin the establishment of the
ANZ risk function
- Board of Directors should be aware of major
aspects of banks risks. It should approve and
review the banks risk management framework which
outlines the approach for the identification,
assessment, monitoring and control / mitigation
of risks. - Board of Directors should ensure the banks risk
management framework is subject to effective and
comprehensive internal audit by operationally
independent, appropriately trained and competent
staff. - Senior management should have responsibility for
implementing the risk management framework. The
framework should be consistently implemented
throughout the whole banking organisation. Senior
management should also have responsibility for
developing policies, processes and procedures for
managing risk across all of the banks material
products, activities, processes and systems.
- The principles fundamentally require that Risk
Management exist as an independent and
centralised function. As long as Risk Management
is independent and centralised, it can be
organised by - Risk type (credit, market, operational etc) or
- Line of Business (Retail, SME, Corporate etc)
- Typically in order to be more responsive to
customer needs, the Risk Management function
tends to be organised by Line of Business. Refer
to the Appendices for options on organisational
structure.
5Whether the Risk Management Function is organised
by risk types or Line of Business, there are
fundamental risk capabilities that are required
as outlined below
RISK MANAGEMENT
Centralised Risk Credit Risk in the Business
Policy Framework
Reporting Analysis
Risk Modelling
Credit Assessment Approval
Problem Credit Management
Portfolio Management
- Set and assure policies and frameworks
- Set the Credit Approval Discretion framework
- Provide risk reporting and analysis
- Specify risk measurement tools (eg. statistical
risk grade models)
- Operate within framework set by Centralised
Credit Risk
Market Risk
Policy Framework
Reporting Analysis
Portfolio Management
Risk Modelling
Risk Assessment Approval
Operational Risk
Policy Framework
Reporting Analysis
Portfolio Management
Risk Modelling
Risk Assessment
Business Continuity Planning
6Centralised Risk Management and Risk Management
in the Business
Centralised Risk Management
Define Risk Appetite
- Develop framework to ensure management of risk
within acceptable range including - Policies
- Credit Approval Discretions
- Risk measurement (e.g. Models)
- Portfolio Management
Risk Management in the Business
Operate within risk management framework set by
Centralised Risk Management
7Policies Roles and Responsibilities
The level of policy will determine the owners and
approvers, and level of oversight.
Formulate Maintain Approve Oversee
Chief Risk Officer Chief Risk Officer Board of Directors Chief Risk Officer
Centralised Risk Management Department Centralised Risk Management Department Executive Risk Committee Chief Risk Officer
Line of Business (LOB) Risk Management Department Line of Business (LOB) Risk Management Department Centralised Risk Management Head of LOB Risk Mgmt Dept
LOB / Relevant Risk Management Department LOB / Relevant Risk Management Department Head of LOB / Relevant Risk Department (or delegate) Head of LOB / Relevant Risk Department (or delegate)
Risk principles (Level 1)
Risk frameworks (Level 2)
Risk policies (Level 3)
Risk operating procedures (Level 4)
8Risk committees are key governance mechanisms
ANZ Board
Risk Committee
Audit Committee
Audit Committee
- Defines risk appetite, strategy
- Authorises Group Limit framework
- Delegates authority to committees
Review risk control framework and compliance
Operational Risk Executive Committee (OREC)
Credit Trading Risk Committee (CTC)
Group Asset Liability Committee (ALCO)
(CTC)
- Policy framework
- Credit risk
- Market (traded) risk
- Approve major lending decisions
- Approve asset writing strategies
- Manage bank portfolio
- Policy framework for all balance sheet risks and
operations. - Interest rate risk
- Liquidity funding
- Balance sheet structure
- Structural FX exposures
- Funds transfer pricing
- Operational Risk
- Compliance
- Information Security
9Process Credit Assessment and Approval
Front Office
Loan Processing
LOB Risk Management
Relationship Management
- Assessment and Administration
- Assess and Grade Risk
- Structure Loans and Facilities
- Execute Internal and External documentation
- Security Management
Credit Approval
Follow rules
Centralised Risk ManagementFramework Portfolio
Ensure compliance to framework
10Six Key Benefits of a Risk Grading System
Earning Warning System that identifies treatment
of NPLs
Centralised understanding and management of risk
at the portfolio level
Guides asset writing and pricing
Risk Grading
Objective, business outcome based staff
performance management
Timely and cost-effective decision making and
customer response (automation)
Enables low risk revenue growth data mining of
behavioural scoring
11Risk Grading System Expanded Scale Equals
Expanded Capability
ANZs Credit Rating Scale
Expanded performing risk grade scale provides
the capability to build an effective early
warning system
Rating 1
Rating 2
Rating 3
Rating 4
Rating 5
Rating 6
Rating 7
Rating 8
Rating 9
Rating 10
Traditional rating scales in China
Estimate of Comparative Scale
1 Standard
2 Special Mention
3 Substandard
4 Doubtful
5 Loss
12Risk Grading System Fundamentals
- Predicts likelihood of loss, using 2 distinct
dimensions - Risk/Likelihood of default - ability of the
customer to repay the loan - Loss given default - loss in the event of
non-payment of the loan
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