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Bank Austria Creditanstalt identifies, measures, monitors and manages all risks of the Bank Austria Creditanstalt Group. In performing these tasks, Bank Austria Creditanstalt works closely with the risk control and risk management units of HypoVereinsbank and with the responsible units of UniCredit on the basis of the new group structure. In this context, Bank Austria Creditanstalt supports UniCredit’s ongoing projects which are aimed at establishing uniform group-wide risk controlling procedures.
Bank Austria Creditanstalt divides the monitoring and controlling processes associated with risk management into the following categories:
- Market risk (51a)
- Liquidity risk (51b)
- Counterparty risk (51c)
- Credit risk (including real estate risk; 51d)
- Operational risk (51e)
- Business risk (51f)
Risks arising from the bank’s shareholdings and equity interests (51g)
The Management Board determines the risk policy and approves the principles of risk management, the establishment of limits for all relevant risks, and the risk control procedures.
In performing these tasks, the Management Board is supported by specific committees and independent risk management units. All risk management activities of Bank Austria Creditanstalt are combined within a management function at Management Board level directed by the Chief Risk Officer (CRO) and comprise secondary lending decisions in the Credit Management department, the treatment of problem loans in the Special Accounts Management department, and strategic risk management in the Strategic Risk Management department. Active credit portfolio management activities have been combined within a single unit (Credit Trading) directly reporting to the Chief Financial Officer (CFO).
Strategic Risk Management is in charge of developing and implementing the methods of risk and income measurement; further improving and refining the measurement and control instruments; complying with the relevant minimum requirements of the German banking supervisory authority applicable to trading activities; developing and maintaining general policies; as well as reporting on the Bank Austria Creditanstalt Group’s risk profile in an independent and neutral manner.
Credit Management is reponsible for portfolio management, risk control and risk monitoring of the credit portfolio including credit ratings of corporate customers in CEE and SEE, and for preparing local accounts analyses and corporate analyses as well as collecting and evaluating sectoral information.
The responsibilities of Special Accounts Management include the management and settlement of non-performing loans. Activities focus on analysing and evaluating business and legal risks as a basis for preparing, obtaining approval for and implementing exposure strategies. In these activities, the department uses specific restructuring expertise which is also made available to banking subsidiaries.
The Asset/Liability Committee (ALCO) is responsible for the management of balance-sheet structure positions, it controls liquidity risk and deals with cross-divisional risk management issues arising between sales units and overall bank management as well as with the results of the credit portfolio model and operational risk. Control of market risk of the trading books is ensured by the Market Risk Committee (MACO), which meets once a week. MACO deals with short-term business management issues relating to the presentation and discussion of the risk/earnings position of Markets & Investment Banking and with limit adjustments, product approvals and positioning decisions. MACO also deals with methodological issues concerning the determination of counterparty risk. In addition, the general framework and limits for banking subsidiaries are defined by MACO. Credit risk is assessed by the credit committee.
The Management Board of Bank Austria Creditanstalt sets risk limits for market risk activities of the entire Bank Austria Creditanstalt Group at least once a year. MACO, which holds a meeting every week, makes limit decisions at the operational level and analyses the risk and earnings positions of the bank’s Market & Investment Banking units. ALCO performs analyses and makes decisions with regard to business activities closely connected with customer business (in particular, balance sheet structure, liquidity, operational risk, and risk management issues arising between sales units and overall bank management). The decisions and results of these committees are reported directly to the bank’s full Management Board. Strategic Risk Management, an independent department separate from the business divisions up to Management Board level, is in charge of preparing analyses and monitoring compliance with limits. In 2006, the Markets & Investment Banking division and Strategic Risk Management successfully implemented the first part of a joint project for counterparty risk calculation. Further activities in this context are to be completed in 2007.
The Bank Austria Creditanstalt Group applies the principle of value-based management. In line with this principle, for pricing purposes in business and customer relations (micro control), capital employed (comprising both the Tier 1 capital required pursuant to the Austrian Banking Act and economic capital) is expected to yield a specific return.
Beyond compliance with the regulatory capital rules pursuant to the Austrian Banking Act, economic capital is intended to reflect the bank’s specific risk profile in a comprehensive and more consistent way. For micro-control purposes, economic capital for credit risk is calculated using value-at-risk methodologies. These unexpected losses over a period of one year are calculated with a confidence level of 99.95 %.
Additionally, value-at risk methodologies are used in the BA-CA Group for calculating or planning economic capital for all specified types of risk (market risk, credit risk, risks arising from shareholdings and equity interests, real estate risk, operational risk, business risk).
The Bank Austria Creditanstalt Group is included in the risk monitoring and risk management system of HVB Group and of the entire UniCredit Group. This ensures overall risk management across the group. Under UniCredit’s leadership, initiatives were launched in 2005 within the new group with a view to standardising the methods and tools used for risk measurement and risk management. Work in this area continued and made rapid progress in 2006. With regard to market risk, activities focused on value-at-risk (VaR) calculation, standardised VaR limits, the standardisation of performance measurement, regular presentation of exposures on the basis of sensitivities and stress analyses. Activities related to credit risk included defining group-wide credit corporate governance rules and, in the development of models, identifying those areas where group-wide procedures are to be jointly developed in the future. Moreover, in the context of lending decisions, a process combining various risk positions was established to obtain a general impression.