PASHA BANK ENG 20

prices were measured. Balance sheet and off-balance sheet foreign currency positions were followed and reported based on internal and regulatory limits. These reports were shared with Asset Liability Committee (ALCO) and Risk Management Committee and risk reduction techniques were implemented based on senior management views when necessary. The structural interest rate risk due to term discord in the structure of the Bank’s Balance sheet was monitored through gap analysis under the scope of Structural Interest Rate and Liquidity Risk. The executed stress tests were debated at the Asset-Liability Committee and Risk Management Committee. The Bank’s liquidity level is being monitored with both TL - FX and as total liquidity. The liquidity adequacy was tested under various stress assumptions of which the results were submitted regularly to the relevant Committees and Senior Management. Credit Risk is also monitored within the scope of regulatory reports, credit risk and credit risk capital requirement were calculated. Historical trend of credit portfolio and concentration risk were monitored. To keep credit concentration under control, concentration limits were identified and monitored for individual firms, group companies and banks. Provisions were calculated using provision methods established within the frame of compliance with legal and international standards based on IFRS 9. Under the scope of credit risk, our current risk assessment modeling which aims to digitize the risk considering the financial and qualitative data, behavioral data, group approach and warning signals with the objective of assessing the customers by more objective criteria and increasing the risk quantification efficiency, was reviewed and renewed as needed. The results of the rating model were integrated in the Bank’s systems to be used in processes such as credit rating, pricing, monitoring and credit provision calculation. Furthermore, the software improvements are finalized enabling the provision calculations to be made automatically in digital environment thus preventing possible operational risks. All of the analysis and reports covering the credit, market, liquidity and operational risks were submitted primarily to Asset-Liability Committee and Risk Management Committee and to relevant committees. Stress tests and scenario analyses which are intended to assess and measure all risks that the Bank may be exposed to and which enables the determination of necessary capital amount were performed and shared with the Board of Directors within the scope of Internal Capital Adequacy Assessment Process (ICAAP). Risks that the Bank may be exposed to and the risk appetite regarding these risks were identified by taking the stress test results into consideration and the Risk Appetite Statement was updated. Risks that the Bank may be exposed to and appetite for these risks were identified and Risk Appetite Statement was updated. Policies and procedures of Risk Management Department are updated to include the Bank’s current structure and risks that the Bank may be exposed to. The closely monitored Risk Health Indicators (RHI) score of the Bank improved significantly in comparison to 2019, the first year of the assessment, due to the reviewing of the Bank’s risk identification, monitoring, controlling and risk mitigation processes, the establishment of the suitable infrastructure for periodic stress testing, the technical infrastructure for reporting and monitoring activities and the development of human resources competencies. Areas of improvement for the coming term were identified for the RHI score which is the Bank’s one of the strategic key performance indicator, to reach the targeted level and action plans were made accordingly. Internal systems departments are at the focus of all transactions within the Bank in terms of risk, organization, quality management, effectiveness, adequacy and compliance. In this context, Internal Control and Risk Management Departments which constitute the second line of defense will continue its activities such as updating the infrastructure, performing second level controls, monitoring and reporting of results, fulfilling regulatory requirements and demands, improvement of the Bank’s internal control and risk management environment in 2021. Compliance Department will also continue its monitoring and control activities in accordance with the legislation. Similarly, Internal Audit Department will continue its activities to fulfill its auditing responsibilities for effectiveness, adequacy and compliance of internal control and risk management environment in the Bank, with the same scope and attention in 2021. Annual Report 2020 PASHA Bank Financial and Risk Management Review 97