General Yapı Kredi’s risk management department functions independently of its commercial operations, and is an integral part of ensuring Yapı Kredi’s fulfillment of requirements stipulated by the new Banking Law on identifying, monitoring, measuring and managing credit, market and operational risks. The risk management department is responsible for ensuring that Yapı Kredi is in compliance with Basel II and KFS risk management standards
Functions of Risk Management Department The basic functions of the risk management department are to analyze risks and manage risk in a manner consistent with shareholders’ risk appetites. The risk management department is also responsible for:
  • maximizing returns on invested capital, and maintaining sustainable growth of profitability;
  • monitoring trends in risk exposures and communicating irregularities promptly to senior management;
  • monitoring asset and liability profiles for rebalancing actions on a timely basis;
  • identifying and classifying the risk structures of products, processes and services;
  • modeling risks and back-testing risk models; and
  • ensuring compliance with Basel II requirements and Turkish Banking Law.
The main organizational functions of the department are credit, market and operational risk management
Credit Risk Management Credit risk management involves the following key roles and responsibilities in the bank:
  • development of credit policies and definition of the optimum composition of the overall credit;
  • definition of guidelines and development of methods for credit risk evaluation, management, measurement and monitoring (i.e. rating, scoring and trend monitoring systems), and ensuring correct implementation thereof;
  • definition of principles for identifying risk positions and monitoring evolution of the credit portfolio for individual entities and for the Group as a whole;
  • preparation and presentation of the Credit Tableau de Bord report to senior management; and
  • compliance with Basel II and related projects.
Credit policies establish the general credit risk principles to be followed throughout Yapı Kredi’s lending activities, and reflect its strategies and goals, as well as shareholders’ risk appetites. The credit policy guidelines are prepared by Yapı Kredi’s credit risk department and approved by the Board of Directors.

Since 2002, Yapı Kredi has employed an internal rating model for the credit risk management of its corporate clients. The model enables Yapı Kredi to measure the cost of credit risk at both the client and segment levels. The system provides an important historical database on customer information and behavior.

In order to more accurately measure and manage credit risk for the SME segment, Yapı Kredi began in 2005 to use a new underwriting and evaluation tool developed especially for SMEs.

Using separate methodologies and processes for different market segments under two distinct credit evaluation tools gives Yapı Kredi the ability to measure, manage and monitor credit risk in a more accurate way. A scoring model is also used throughout the application and granting processes for the consumer loans and credit cards segment.

Yapı Kredi is currently in compliance with the Basel II IRB-Foundation approach. In order to implement best market practices in credit risk management, Yapı Kredi is also taking steps to attain compliance with the Basel II IRB-Advanced approach. In this respect, the credit risk management team also began in 2006 to analyse the effects of Basel II on Yapı Kredi’s loan portfolio.

The credit risk management team is an active contributor to the various functions and working groups organized by the Banks Association of Turkey, in furthering Turkey’s efforts towards attaining Basel II compliance.
Market Risk Management As part of a commercial group, whose core business is to serve the financial needs of the customers, Yapı Kredi is mainly exposed to interest rate, liquidity and foreign exchange risk. Yapı Kredi’s market risk policies provide guidelines on market risk management and binding limit structure, in addition to defining the roles and responsibilities of the parties involved in market risk management process.

Market risk is managed based on the treatment of Yapı Kredi’s banking and trading books. The banking book consists of all assets and liabilities arising from commercial activities, and is sensitive to interest rate and foreign exchange movements. The trading book includes positions held for trading or for keeping Yapı Kredi’s market-making status.

Yapı Kredi’s trading activity is realized on foreign exchange and securities. Risk limits are set in terms of end-of-day and intra-day positions, daily and monthly stop-loss, and value at risk (“VaR”). Monitoring of trading activity is performed daily via reports prepared by the market risk management department, which show VaR, positions and stop-loss limits, in addition to back–testing profit and loss figures.

The banking book’s interest rate risk is measured monthly through economic value sensitivity method, which calculates the potential change in fair value of Yapı Kredi’s interest rate positions resulting from a parallel upward or downward shift of the yield curves. Risk limits for Structural foreign exchange position is also monitored on daily basis and reported to senior management.

Yapı Kredi monitors liquidity risk daily, paying particular attention on keeping enough cash and cash equivalent instruments to fund increases in assets, unexpected decreases in liabilities, as well as meeting legal requirements, while optimizing the cost of carrying any excess liquidity.
Operational Risk Management The operational risk management team is primarily responsible for leading the compliance processes of Yapı Kredi, in line with the principles of Basel II and national regulatory requirements in terms of the identification, quantification, monitoring and management of operational risks.

Yapı Kredi’s operational risk management department is also responsible for maintaining a healthy risk awareness culture within personnel, from senior management to each individual business units. The department defines Yapı Kredi’s loss data collection processes, and through a web-based framework, has been collecting such data since 2004. In this manner, operational risk events are captured on a distributed basis even in the branches, and stored via loss data collection tools reconciled with the accounting system.

Additionally, the operational risk management department manages key operational risk indicators and is involved in key processes such as insurance management and contingency planning. New products, activities, processes and systems pass through and are evaluated by the operation risk management team.

In terms of capital management, the operational risk management team is responsible for calculation of the operational risk capital requirement, in line with the Basel II Capital Accord. In terms of Basel II compliance, the operational risk management team is in line with the BRSA Basel II Roadmap and plans to satisfy the conditions.