Comprehensive Risk Management System
Comprehensive Risk Management System
Comprehensive Risk Management System
Comprehensive Risk Management System management, the Chugoku Bank strives to strengthen control of credit risks and
The Bank defines risk management as one of its critical management agenda and its ability to earn stable income by monitoring the loan balance composition and
aims at well-balanced management in pursuit of enhanced profitability while credit risks and cost adjusted income.
maintaining operational soundness through further development of comprehensive Risk managers verify that calculated credit risk exposure is within the credit
risk management. To this end, risks are managed in accordance with the basic risk risk limits set under the credit risk management plan, conduct stress tests to
management rules which set out policies and framework of risk management for assess the Bank’s degree of capital adequacy, and report results regularly to the
the entire Bank along with other basic matters on the subject. Board of Directors and other management bodies.
Risks assumed by banks include credit risks, market risks, liquidity risks and Credit concentration risks are managed by grasping and controlling credit
operational risks. At the Chugoku Bank, we have established a system for exposure by debtor, industry and country, the status of which is reported to the
managing the various types of risks comprehensively through the establishment of Board of Directors and other management bodies on a regular basis.
a controller for risk management as well as various committees such as the Asset In addition, the Bank’s “Credit Management Committee” investigates and
and Liability Management (ALM) Committee. We also designate sections in charge analyzes large borrowers with regard to their multidimensional conditions to
of each risk and analyze the status of these risks by risk category, and evaluate discuss appropriate policies to cope with their current financial status. These
and manage them for the entire bank. We have also established a system to policies are subsequently deliberated on by the Board of Managing Directors;
ensure proper risk management on a continual basis under which the Audit & their decisions are regularly reported to the Board of Directors, with a view to
Inspection Department monitors the status of risk management by the various conducting proper management of large borrowers’ credit risks.
divisions.
In order to ensure the effectiveness of the comprehensive risk management, the Market Risk Management
Bank assesses and verifies the degree of capital adequacy by comparing its own Market risk refers to the risks of incurring losses from fluctuations in profits
capital with the total amount of risk the Bank is exposed to, as derived by arising from assets and liabilities and the risks of incurring losses from
aggregating the amounts of credit, market and operational risks calculated by fluctuations in the value of assets and liabilities (including those off balance sheet)
statistical and other methods. Meanwhile, stress tests are conducted to assess due to fluctuations in market risk factors such as interest rates, exchange rates
and verify the risk events, for which amount of each category of risk is unlikely to and share prices.
have been fully identified. The results of such assessment and verification are The Bank’s basic risk management policy for market risks is to determine and
utilized for the development and review of the operation plan and risk management analyze risks from the point of view of both price and return on asset movements
policies, to ensure operational soundness while enhancing profitability at the same as well as assessing the risks from various angles, using stress tests and other
time. Furthermore, to ensure operational soundness on a constant basis, the Bank methods. The Bank carries out its market risk management appropriately based
makes it a principle to conduct risk taking within the limit of the common equity on its Market Risk Management Standards, which stipulate the framework and
Tier 1 capital excluding losses that are actualized under certain stress situations systems for market risk management, and various detailed management methods
and net unrealized gains on available-for-sale-securities if its value is positive provided for in the Bank’s operating regulations.
(unrealized gain), whereby risk amounts are monitored and managed within the The structure for market risk management is divided into the business
risk limits established for each risk category. operations division (front office) and the administrative division (back office). We
have also established a risk management division (middle office). These serve as
Credit Risk Management reciprocal restraints.
Credit risk refers to the risks of losses incurred when the value of assets Trading limits and loss limits have been set for trading operations, the goal of
(including off-balance-sheet assets) declines or becomes worthless due to which is to earn trading profit from buying and selling securities in market
changes in the financial status of those to whom credit is provided. operations. These are managed to ensure that losses in excess of a certain
The Bank’s basic credit risk management policy is, (within the scope of its amount do not occur. Banking operations (investment securities) are managed for
management capabilities), to ensure that return is commensurate with risks in its risks by taking the risk-return balance into consideration through ALM analysis,
transactions and to appropriately manage the credit risks of the diverse Value at Risk (VaR) analysis and other means to ensure stable profits over the
transactions of each of its divisions and business sections using credit risk medium and long term. We have also established a system for the flexible
assessment and management methods that suit the special characteristics of management of market risks as well as credit risks and liquidity risks related to
each transaction in order to maintain a sound asset structure. The Bank carries market operations.
out its credit risk management appropriately based on its Credit Risk Market risk management for the entire bank, including lending and deposit
Management Standards and various detailed management methods provided for services, is carried out by analyzing risks from multiple aspects, such as the
in the Bank’s operating regulations. calculation of interest rate risks. The Risk Management Committee and the ALM
Based on this framework, the Credit Rating Center and Credit Supervision Committee discuss the overall management of assets and liabilities and consider
Department manage the risks of the individual loans of the operational divisions management and lending policies.
(branches and loan sales departments at the headquarters). The Risk
Management Department, which is completely independent of the loan sale, Liquidity Risk Management
screening, and approval process, is responsible for managing overall credit risks. Liquidity risk refers to the risks of incurring losses (hereafter, “fund procurement
The Bank has also established an auditing system for credit risks, appointing a risks”) when it becomes difficult to secure the requisite funds or when procuring
Credit Screening Supervisor in the Audit & Inspection Department who bears the funds at a much higher than normal interest rate becomes necessary due to a
responsibility for conducting internal audits for credit risks. mismatch between the timing of use and procurement or to an unexpected
Specifically, credit risk management entails determining the overall condition outflow of funds, or to risks incurred when transactions cannot be conducted or
of the customer’s business through credit ratings, self-assessment, and other must be conducted at prices that are much more disadvantageous than normal
methods. This information is utilized to carry out credit screening for individual due to market disruptions or other factors (hereafter, “market liquidity risks”).
loans, administer the loans after they have been extended, and properly The Bank recognizes fund procurement as an important management issue
determine write-offs and reserves. From the perspective of loan portfolio and its basic fund procurement risks policy is to ensure a stable supply of funds.
Board of Directors
Risk
Credit Supervision Dept.
Control
Division Credit Rating Center
Management
Planning
Dept.
Operational (in charge of ALM)
Divisions
Business Consolidated at the Headquarters
Business Operation at Branches, the Headquarters and Affiliated Companies
(As of June 30, 2016)