2016 In Review

Risk Group

Shallow beaches and constantly blowing winds make Ras Sedr one of the most ideal kite surfing sites in the world.

The Risk Group (RG) provides independent risk oversight and supports the enterprise risk management (ERM) framework across the organisation. The group proactively assists in recognising potential adverse events and establishes appropriate risk responses essential for the building of competitive advantage, which reduces costs and losses associated with unexpected business disruptions. The group works to identify, measure, monitor, control and manage risk exposure against limits and tolerance levels and reports to senior management and the Board of Directors (BoD). The group is managed by the Chief Risk Officer (CRO), whose responsibilities entail the day-to-day monitoring of the following key areas: credit, investment, market, operational, conduct, liquidity, interest rate, security, reputational, regulatory, social and environmental risks (referred to as Principal Risks), as well as the establishment of a holistic risk management framework.

Overview

2016 was yet another year of uncertain economic circumstances that experienced CIB’s prudent risk management framework support the containment of losses. Despite challenges, Risk Group continued to align and collaborate with business on product development and risk strategies to drive growth without compromising portfolio quality, which was maintained within the risk appetite parameters and continued to be on sound footing despite the difficult conditions.

Objectives

  • Implement an enterprise risk management framework with the elements of risk strategy/risk appetite, process, infrastructure and risk culture.
  • Maintain focus on Principle Risks.
  • Align our risk profile with the Bank’s risk strategy and support strategic initiatives with special focus to balance sheet optimisation.
  • Provide independent risk analysis via measurement and monitoring processes that are closely aligned with the business and support groups.
  • Work on raising efficiency to reduce expected losses, while maintaining adequate impairment coverage.
  • Initiate the process of embedding social and environmental risks as integral components of our risk review by developing social and benvironmental
  • policies, processes and procedures.
  • Support business growth while encouraging approval/delegation authorities to enhance turn-around time.
Enterprise Risk Management (ERM)

ERM remains a key pillar for the Bank. Its objective is to foster an integrated and forward-looking risk approach, dynamic risk culture, robust and adaptable technology platform aligned with the business and risk strategy and Identifying, Measuring, Managing, Monitoring, & Reporting (IMMMR) framework to support both financial and non-financial risks. The Bank is focused on non-financial risks such as conduct, vendor, reputational, cyber, information security and IT risks. CIB’s enterprise risk monitoring and reporting are critical components that support senior management and the Board of Directors (BoD) to effectively perform their risk management and oversight responsibilities. Risk Group has strong partnerships with key stakeholders throughout the organisation.

Risk Management Framework

Risk Culture IMMR Chart
Governance

CIB’s risk governance structure utilises the lines-of-defence model, with a robust committee structure and a comprehensive set of policies and operating guidelines that are approved by the BoD. The BoD, directly or in conjunction with Board Committees, provides oversight of approval processes, risk levels as well as key performance and risk indicators.

The CRO and other risk officers, who are key members of all credit, consumer, business banking, security, asset and liability management and operational risk committees, are responsible for the identification, assessment and reporting of all types of risks across all business lines.

Lines of Defence Model

To ensure the effectiveness of an organisation’s risk management framework, the BoD and senior management rely on adequate lines of defence functions, including monitoring and assurance within the organisation.

Board Of D.R.A.O.T Chart
Principles

CIB’s take on risk is directed by the following principles:

  • Business activities are conducted within established risk categories that are further cascaded down to limits.
  • Decision-making is based on a clear understanding of the given risk, which comes alongside robust analysis and continuous maintenance of a defined risk appetite.
  • Proactively considering changing economic conditions in a holistic and forward-looking manner.
  • Mitigate Social and Environmental risks that may disrupt business performance.
Risk Appetite

CIB aligns business objectives with risk appetite and risk tolerance, quantifying this using capital adequacy, stable funding and earnings volatility, as primary key risk indicators (KRIs) cascaded into risk tolerances by risk category and limits.

Risk appetite is the maximum level of risk the Bank is prepared to accept to accomplish its business objectives and is annually reviewed and approved by the BoD. CIB’s risk appetite statement is defined in both qualitative and quantitative terms and is integrated into our strategic planning processes for each line of business. Our framework for risk appetite is guided by the following principles:

  • Strong capital adequacy
  • Sound management of liquidity and funding risks
  • Stability of earnings
Limits & Policies

A robust system of risk limits and policies is fundamental to effective risk management and is guided by the risk appetite framework. CIB has a comprehensive set of risk management policies, processes and procedures that are regularly updated and aligned with CBE regulations, the Bank’s strategy framework and market dynamics. CIB policies and procedures are communicated throughout the organisation and are used to control the Bank’s risk level and tolerance.

Monitoring

Enterprise-level risk monitoring, transparency and reporting are crucial components of CIB’s risk framework and operating culture, ensuring the BoD, committees and senior management are effectively executing their responsibilities. CIB has developed practices designed to monitor risk and ensure control measures are exercised.

Culture

CIB’s risk culture encourages effective communication among employees to facilitate alignment of business and risk strategies and promote an understanding of the prevailing risks throughout the organisation. Integrity and reputation are embedded in CIB’s culture, being key requirements for successful operation. CIB continues to add learning opportunities and expand risk training across its departments to raise risk and internal control awareness and ensure the Bank’s employees are well equipped to make decisions in an ethical, professional, coordinated and consistent manner.

Stress Testing

Stress testing is performed on a regular basis to assess the impact of a severe economic downturn on our risk profile and financial position. The Bank’s methodologies undergo regular scrutiny to assess the impact of different scenarios. CIB is working toward having an integrated stress testing approach as a key component of the ERM framework.

Stress testing is critical in:

  • Identifying a unified technique for managing risk Bank wide.
  • Providing a forward-looking assessment of risks.
  • Addressing limitations in the historical forms and data.
  • Facilitating the future planning for capital and liquidity.
  • Developing applied risk mitigation techniques/contingency plans in distressed conditions.

Ancient Egyptian architects constructed the axis of Abu Simbel so that on October 22 and February 22, the sun would illuminate the sculptures on the back wall, except for the statue of Underworld god Ptah.

Chief Risk Officer Chart

The CRO and other risk officers, who are key members of all credit, consumer, business banking, security, asset and liability management and operational risk committees are responsible for identification, assessment and reporting all types of risks across all business lines.

  • The High Lending and Investment Committee (HLIC) is an Executive Committee composed of members of the Bank’s senior management team. Its primary mandate is to manage the asset side of the balance sheet, keeping a close eye on asset allocation, quality and development, while ensuring compliance with the Bank’s credit policies and the CBE’s directives and guidelines. The HLIC reviews and approves the Bank’s credit facilities and equity investments, although there are other Credit Committees responsible for approving different exposures that carry lower limits, shorter tenors and better Risk Ratings than those reviewed/approved by the HLIC.
  • The Asset & Liability Committee (ALCO) is charged with optimising the allocation of assets and liabilities, given expectations of the potential impact of future interest rate fluctuations, liquidity constraints and foreign exchange exposures. ALCO monitors the Bank’s liquidity and market risks, economic developments, market fluctuations and risk profile to ensure ongoing activities are compatible with the risk/reward guidelines approved by the BoD.
  • The Consumer Risk Committee’s (CRC) overall responsibility entails managing, approving and monitoring all matters related to the quality and growth of the consumer portfolio. CRC decisions are guided first and foremost by the Bank’s current risk appetite, in addition to prevailing market trends, all the while ensuring compliance with the principles stipulated by the Consumer Credit Policy Guide, as approved by the BoD.
  • The Senior Business Banking Committee’s (SBBC) overall responsibility is managing, approving and monitoring all matters related to the quality and growth of the Business Banking Portfolio and approval processes. SBBC decisions are guided first and foremost by the Bank’s current risk appetite, as well as prevailing market trends, while ensuring compliance with guidelines stipulated by the CBE and Business Banking Credit Policy Guide, as approved by the BoD.
  • The Security Committee’s main objective is to provide guidance and advice to help maintain and improve all matters related to security, including information confidentiality, integrity and availability, as well as physical security, Bank asset protection and workplace security.
  • The Operational Risk Committee’s (ORC) main objective is to oversee, approve and monitor all affairs pertaining to the Bank’s compliance with the operational risk framework and regulatory requirements.

Risk Organisation

Under the Risk Group, risks are monitored by Credit and Investment Exposure Management, Credit and Investment Administration and Credit Information, Consumer and Business Banking Risk and the Risk Management groups. These groups actively examine and review exposure to ensure the diversification of the Bank’s portfolio in terms of capital adequacy, customer base, geography, industry, tenor, currency, products, countries, risk rating, segments, etc.

Credit & Investment Exposure Management (CIEM)

In the current volatile market, CIB has successfully managed to maintain healthy growth momentum without compromising the credit portfolio’s quality. Maintaining positive momentum is the primary objective of the Credit & Investment Exposure Management Department (CIEM).

This risk-adjusted growth is a result of the consistent commitment to the credit risk process that outlines the comprehensive set of policies and operating guidelines adopted by Bank staff and under the supervision of the BoD and the Board Risk Committee. Credit Exposure Management (CEM) is responsible for the credit quality of the Bank’s portfolio and Investment Exposure Management (IEM) is responsible for safeguarding CIB’s interest in its equity investments and securitised bonds. The Credit & Investment Risk Process comprises of three Primary Elements, namely:

  • Risk identification and assessment
  • Risk mitigation
  • Risk monitoring and reporting
CICM Chart
Risk Identification and Assessment

CIEM’s primary objective is to evaluate Institutional Banking’s (IB) lending and investment portfolio and use qualitative and quantitative analysis to maintain a quality portfolio, enhance the Bank’s seniority, establish adequate protection and control and develop a solid provisioning process that ensures adequate portfolio coverage. The following are the tools used in risk identification and assessment:

  • Internal Credit Rating Assessment Model: CIEM was able to design an assessment model to evaluate corporate portfolio customers’ risk ratings through several phases, starting with gathering all regulatory guidelines, consolidating historical information and translating all aspects into qualitative and quantitative measures. In 2016, CIEM was able to convert the Credit Risk Rating Assessment Model (CRAM) into a reliable tool with a well-designed workflow.
  • Credit Risk Analysis: Credit approval memorandum risk analysis is the core function of CIEM. Historical performance and trends are analysed and stress tested using prevailing market and industry conditions. Following the review stage, potential risks are identified and scaled against the probability of occurrence and impact severity. The risk review is then calibrated with the output of CRAM and stress tested to create a holistic view for client creditworthiness and internal risk rating. This holistic view provides the insights needed in the next element of the Credit Risk Process.
Risk Mitigation

Based on the comprehensive analysis, risk mitigation measures are taken to align with the Bank’s risk appetite. Accepted low-level risks are monitored on a regular basis to account for any changes in risk evaluation. Medium and critical risks are either reduced through collaterals, supports, guarantees and covenants, or transferred to insurance companies.

In terms of additional governance, there are seven Credit Committees, each consisting of members from IB and CEM. Appropriate risk mitigation is assigned to assure maintaining a solid credit portfolio, following regulatory guidelines with precise monitoring triggers.

Risk Monitoring & Reporting

In CIB, we understand the interdependence of all economic activities. Therefore, credit analysts cover macroeconomic, environmental, political, social and technological research for all industries on a daily basis. This information acts as an alert for any unexpected risks, be they intrinsic, industry, concentration, FX or counterparty default.

CIEM is responsible for collecting monthly information to assess the Bank’s compliance status and ensure adhering to CBE limits. It also follows up on past due exposure or problematic accounts, with corrective actions taken if needed to meet our goal of maintaining a quality portfolio.

To maintain a quality portfolio, CIEM is continuously monitoring IB credit exposure and reporting to Senior Management. The BoD, directly or in conjunction with the Board Committees, oversees key performance and risk indicators. The reports delivered on a quarterly basis to the BoD include, but are not limited to: Portfolio Quality Summary, concentration levels, government exposure levels, past dues, coverage ratios, Key Risk Indicators, etc.

The impact of turbulent and stressed market conditions (i.e. macro and industry specific conditions) took a negative toll on the portfolio quality, with the CIB Default Ratio recording 6.7% as of December 2016, which would read 5.7% if the effect of the devaluation were to be excluded, with an adequate coverage of 149.11%.

On another note, the exposure of Watch List accounts was inflated to EGP 6,238 million in 2016, which would read EGP 3,245 million if the effect of devaluation is excluded, compared to EGP 2,680 million in 2015, mainly as a reflection of the witnessed devaluation during said period as 70% of said exposure is related to the Tourism Industry and is mainly in FCY. Said exposure is not alarming as the CBE initiative to support the tourism sector allows banks to restructure and reschedule loans to said industry without being downgraded to non-performing loans. The same effect was witnessed on restructured loans reaching EGP 7,771 million in 2016, up from EGP 3,127 million in 2015, as tourism and non-performing loans represent 49% and 28% of said amount respectively.

Credit Policy Guide (CPG)

CIEM is responsible for reviewing and updating the Bank’s Credit Policy Guide (CPG). The CPG regulates credit, industry, country and counter-party limits, in addition to regulating the risk appetite, tolerance and approval authorities. In 2016, CIEM finalised the Credit Processes & Procedures Guide that includes comprehensive corporate credit lending best practices and expertise that shaped the Bank’s success story and further elaborated on different parties’ roles and responsibilities.

Moving Forward

The BoD endorsed new functions to cope with the dynamic changes in the market environment over the year. Accordingly, CIEM has taken proactive steps by establishing two new teams:

Financial Institution (FI) & Country Risk Team

The FI & Country Risk Team has been formed to actively collaborate with international players and develop a broad network of correspondent relationships with a fast, yet prudent approval process. The team’s main objective is to meticulously manage country risks, confidently assess financial services in different jurisdictions, provide cross-border services and support international trade.

The team’s main functions are to:

  • Manage country risks along with top down approach by analysing the country’s economic and industry risks, the credit risk of economic participants, the quality and effectiveness of country regulations and the competitive environment.
  • Standardise process and analysis framework using up to date market data to enable immediate responses and to develop early warning signals
  • Prepare in depth reports covering key updates regarding the countries/ banks under review.
Social & Environmental Credit Risk Management

CIB believes in the importance of protecting natural resources and society as a key facet of any sustained business success. In light of this, CIEM formalised a Social & Environmental Credit Risk Management Department, which focuses on procedures to guarantee the sustainable growth of CIB clients’ businesses while minimising adverse projects’ impact on the community and the environment. A framework comprising of a set of actions and measures has been implemented concurrently with the Bank’s existing prudent risk management procedures. The Social & Environmental Credit Risk Policy Guide integrates social and environmental credit risks into the Bank’s evaluation process.

Green Financial Solution

The Social & Environmental Credit Risk Department monitors market opportunities in renewable energy and energy efficiency solutions, providing our clients with the necessary means to finance their transformation from a business-as-usual model to a more sustainable one. Energy efficiency solution courses were conducted internally to raise staff awareness while providing them with the tools needed to identify opportunities.

United Nations Environment Programme (UNEP) – Finance Initiative as an International Platform

The UNEP – Finance Initiative (FI) partnered with CIB to promote sustainable finance. Along with over 200 financial institutions, the Bank will work with UNEP FI to understand today’s environmental challenges and how to actively address them. CIB is the first financial institution in Egypt to sign the UNEP FI Statement of Commitment on Sustainable Development. The Bank will join forces with the UNEP FI to stimulate a country-level policy dialogue between finance institutions, supervisors, regulators and policy makers to promote the Egyptian financial sector’s involvement in processes such as global climate negotiations and integration of environmental and social considerations into all aspects of financing operations.

Furthermore, CIB took part in the UNEP FI Global Roundtable, which is widely recognised as one of the most prominent global platforms on sustainable finance. In the 14th edition of the Global Roundtable in Dubai, hundreds of leaders from all parts of the financial system, civil society, academia, governments and the United Nations gathered to discuss Financial Institutions future plans based on the Sustainable Development Goals (SDGs) and the Paris Climate Agreement. CIB enjoyed an exceptional representation in the opening Plenary, CEO’s Luncheon, energy, water and food session, in addition to the participation in the banking commission.

Credit & Investment Administration / Credit Information

The Credit & Investment Administration function ensures administrative control over institutional and investment exposures as well as compliance with both credit and investment policy guidelines and CBE directives.

The department is the backbone of the Investment Banking (IB) division as it maintains a quality control system that ensures CIB’s seniority, protection and control. The function has enhanced efficiency in meeting customer requests to disburse funds in a timely manner. It is the main focal point in compiling qualitative information and regulatory reporting on credit customers. Controls and compliance have been enhanced through the data integrity and risk management platform strategy.

Consumer and Business Banking Risk

Consumer and Business Banking Risk is a centralised, independent group under the Risk Group, monitoring risk for all Consumer and Business Banking asset products and applying a diversified set of strategies and mitigation tools.

The framework in which the Consumer and Business Banking Risk group operates is subject to constant evaluation to ensure it meets the challenges and requirements of the Egyptian market, regulatory standards and industry best practices.

The group structure is designed to facilitate the Credit Cycle and support the growth of the Consumer and Business Banking portfolio.

Consumer Banking Risk

The Consumer Banking portfolio consists of a broad range of asset products, which include personal loans, credit cards, auto loans, real estate finance loans and overdrafts. Lending programs and decisions are guided through individual product programs that assess each product separately and incorporate detailed eligibility criteria, delegation authorities and approved peak exposures aligned with current risk appetite.

The Consumer Credit Policy Guide (CCPG) sets lending boundaries and establishes robust limits to oversee ongoing policy management. It provides guidelines on ensuring prudent risk management and maintaining high-quality loan portfolios, while keeping in mind the risk and reward equation. It also regulates the delegated approval authorities for new product launches, tests and promotions, as well as transactional approvals.

The consumer cycle comprises five main elements. and the consumer risk structure and framework mirrors these stages, each of which is managed entirely by a specialised functional department:

  • The Credit Policy Department, which undertakes product planning.
  • The Credit Assessment Department, which handles centralised credit underwriting.
  • The Collections and Recoveries Department, which handles delinquent customers.
  • The Strategic Analytics Department, which provides support for management in all stages, including information and analytics for decision making and credit actions.
  • Account maintenance activities.
Business Banking Risk

The Business Banking Risk Department has successfully partnered with the Business Team to achieve portfolio growth while maintaining its solid quality. This is achieved through regular reviews and dynamic parameter changes to keep abreast of the market and close monitoring and managing of high-risk segments. Continuous amendments are applied based on findings from portfolio reviews, including in-depth analysis, to ensure consistency in the performance of the Bank’s portfolio. The Business Banking Risk Department along with the Business Team have been focused on identifying new segments and sub-segments as well as implementing a simple product program approach that addresses the needs of those segments, leveraging the “Factory Approach.” This approach involves implementing a near straight-through processing mechanism that varies based on a set of standardised criteria, in addition to support packages and documentation that allow for a standardised evaluation and shorter turnaround time.

Portfolio Quality

Consumer and Business Banking portfolio quality has been sustained, ensuring advanced portfolio management techniques by monitoring all current and historical programs’ performance. This helps in the identification of potential growth segments and the detection of early warning signs. The 2016 Consumer and Business Banking Asset Portfolio stands at EGP 17.4 billion with the loss rate kept at minimal levels of 1.1%.

Despite the aggressive growth of the unsecured lending strategy adopted by the Bank, challenging economic circumstances and rising inflation, key risk indicators and loss rates were maintained within risk appetite benchmarks, with non-performing loans standing at 1.5%.

Our Strategy Going Forward

Consumer Banking Risk
  • Making the Consumer Risk Processes the best in terms of market customer experience: A transformation project was initiated to automate the credit decisioning process further.
  • Revamp Credit Policies & Processes: The division will work closely with Business Banking to realign and revamp all policies and processes to realise a segment-focus approach instead of a product-focused one, in line with the new Consumer and Business Banking strategy.
  • Moving to the next level of advanced bespoke scorecards: CIB has partnered with a vendor with a successful track record when it comes to implementing transformative solutions and cutting-edge technology for automation of decision rules, application and behavioural scoring models.
Business Banking Risk
  • Focus on unsecured product programs with simplified criteria and lending support to business growth.
  • Support the Business Team in expanding into further markets and untapped segments within the small- and very-small-size enterprise market.

Risk Management Department

The Risk Management Department identifies, measures, monitors and controls asset and liability management as well as market, operational and other non-financial risks via Bank policies, ensuring regulatory and risk analytics requirements are adequately managed and their status regularly reported to management and members of the BoD.

Enterprise Risk Management

ERM is dedicated to leading the Bank’s overall enterprise risk management framework and monitoring infrastructure initiatives, with the objective of having a holistic, integrated and forward-looking view of risks and following best practices, which was endorsed by the BoD via the ERM roadmap. The initial foundation for the ERM roadmap is strong data governance and continuous enhancement of quantitative and qualitative frameworks of Principal Risks.

CIB established a dedicated department within the Risk Group to lead and implement the ERM roadmap through the following:

  • Ensure CIB is in line with international best practices in modelling techniques.
  • Continuous enhancement in quantifying qualitative risks along with improving statistical techniques used to capture quantitative risks.
  • Align corporate, retail and business banking risk perspectives in modelling techniques.

The ICAAP Report is a summary of the Bank’s risk management framework, starting from describing current methodologies and processes all the way to enhancements and the optimisation of risk processes and capital planning. The objective of ICAAP is to ensure the Bank understands its risk profile and has systems in place to assess, quantify and monitor all material risks. CIB maintains the following:

CIB has a comprehensive Liquidity Policy and Contingency Funding Plan to manage liquidity risk, which factors in the Bank’s risk profile, risk appetite as well as market and macroeconomic conditions.

  • The assessment process of capital for credit, market and operational risks.
  • Ample capital for covering other types of risks not covered under regulatory capital, such as interest rate risk, concentration risk, counterparty credit risk and liquidity risk.
  • Continuous risk management enhancements in line with local and international best practices.
  • BoD and management oversight of the risk management framework aligned with the regulatory requirements and approving necessary corrective actions in case of deviations.

In 2016, the Bank enhanced focus on the following Non-Financial Risks:

  • Cyber Risk: Protection against potential threats have been implemented and considered as a top strategic priority.
  • Information Security Risk: The framework is in progress and aims to set policy guidelines and controls for managing and handling information within the organisation.
  • IT Risks: Dedicated action plans are being monitored and implemented for IT risks based on best practices.
  • Vendor Risk: A dedicated framework has been put in place to ensure all vendors are evaluated, monitored and assessed to meet the criteria of qualified suppliers.
  • Reputational Risk: Added a dedicated Reputation Risk Department in 2016 to build a robust framework.
  • Conduct Risk: CIB was the first Egyptian bank to establish a Conduct Risk framework, in compliance with the Financial Conduct Authority (FCA), UK.The framework includes: Training and Awareness, Product Risk Assessment and Conduct Risk RCSA and Heat Map.
  • Social & Environmental Credit Risks: A devoted department was established and policy was approved to assess and mitigate material Social & Environmental Credit Risks.

Liquidity Risk arises from the Bank’s inability to meet financial obligations and regulatory liquidity requirements. CIB has a comprehensive Liquidity Policy and Contingency Funding Plan to manage liquidity risk, which factors in the Bank’s risk profile, risk appetite as well as market and macroeconomic conditions.

The main measures and monitoring tools used to assess the Bank’s liquidity risk include regulatory and internal liquidity ratios, liquidity gaps, Basel III liquidity ratios and funding base concentration.

CIB managed to maintain a strong liquidity ratio in 2016 compared to the guidelines of both the CBE and Basel III (Liquidity Coverage and Net Stable Funding ratios). The CBE’s liquidity ratios for LCY was 60.77% and FCY 47.80% for the year, maintaining the Bank’s strong position even during volatile times. CIB has a robust Contingency Funding Plan (CFP) that supports diverse funding sources of liquid assets, maintaining an adequate liquidity buffer with minimal reliance on wholesale funding. 2016 witnessed an exceptional percentage of customer deposits to total funding base (a major component of CIB’s Risk Appetite Statement) of 98.6%. Throughout the year, stress testing scenarios (specific and systemic) showed that no immediate action was required in the CFP, which was further fortified by the existence of sufficient high-quality liquid assets (HQLA).

2016Q1Q2Q3Q4
Percentage of Deposit Base to Total Funding Base99.6%99.2%99.7%98.6%

Interest Rate Risk is the potential loss resulting from the Bank’s exposure to adverse movements in interest rates. Interest rate risk primarily arises from re-pricing maturity structures. In 2015, CIB used an effective risk management process that maintained interest rate risk within prudent levels that ensured the Bank remains on safe and stable ground. Additionally, CIB proactively positioned the balance sheet in a way that allows it to benefit from a volatile interest rate environment. The Bank uses complementary technical approaches to measure and control interest rate risk including Interest Rate Gaps, Duration, Duration of Equity (CBE parameters) and Earnings-at-Risk (EaR).

The Bank also has a comprehensive interest rate risk measurement framework that assesses the impact of interest rate changes in manners that are consistent with the scope of activities, evaluating interest rate risk from both the earnings and economic value perspectives.

Market Risk is the risk of losses that may arise from adverse movements of market prices of trading positions, including interest rates, foreign exchange and equity as well as the changes in the correlations and volatility levels between those risk factors. Market Risk Management (MRM) sets key limits to monitor and control market risk by considering both the Bank’s risk appetite as well as the projected business plan.

Deposit Base Concentration

Market Risk is the risk of losses that may arise from adverse movements of market prices of trading positions, including interest rates, foreign exchange and equity as well as the changes in the correlations and volatility levels between those risk factors. Market Risk Management (MRM) sets key limits to monitor and control market risk by considering both the Bank’s risk appetite as well as the projected business plan.

These limits include position, stop-loss and Value at Risk (VaR) limits. When limits are exceeded, MRM is responsible for identifying and escalating those cases instantly.

The Bank primarily uses the VaR technique to quantify the market risk. VaR is a probabilistic measure of the potential loss under normal market conditions, at a specific confidence level over a certain period of time. As the Bank’s trading book portfolio includes linear level 1 assets, the Variance-Covariance approach is used to calculate VaR, using a 95% confidence level and a one-day holding period. VaR is calculated for the Bank’s total trading book exposures as well as for each risk class, e.g. interest rate, equity and foreign exchange.

Trading VaR for 2016

95% 1-dayMinimumMaximumAverage
Trading Book VaR11.3335.951.7
95% 1-dayQ1Q2Q3Q4
Trading Book VaR30.927.914116.4

Regular back testing of daily profit and loss against the estimated VaR is performed to validate the accuracy and integrity of the Bank’s VaR model. In addition, the Bank estimates the Stressed Value at Risk (SVaR) on a daily basis. SVaR measures the potential loss under stressed market conditions. Stress testing combined with VaR provides a more comprehensive view of market risk. SVaR is calculated using the maximum volatility levels witnessed during the observation period and is estimated by using a 95% confidence level with a one-day holding period. Regular stress testing is also carried out using a combination of historical and hypothetical scenarios to monitor the Bank’s vulnerability to extreme and unexpected shocks.

Operational Risk refers to potential loss that could result from inadequate or failed internal processes, people or systems or due to external events. CIB maintains a comprehensive operational risk framework, with policies and processes designed to provide a controlled environment and to monitor the first line of defence in identifying and assessing operational risks and controls.

We monitor corrective action plan implementations to mitigate risks in systems, human factors, policies, internal processes and external events using CBE guidelines and best practices. The framework uses the following approaches to measure and control operational risk:

  • Operational Loss Events
  • Risk and Control Self-Assessment (RCSA)
  • Key Risk Indicators (KRIs)
  • Control Testing
  • Issues and Action Plans
  • Operational Risk Awareness Program
  • Operational Risk Champions Program
  • Stress Testing

2016 Accomplishments

  • CIB Risk Group won three awards in Achievement in Liquidity Risk, Operational Risk and Best Retail Risk Management Initiative for Middle East & Africa from Asian Banker Singapore.
  • CIB has been short listed as a finalist for the ERM Strategy of the Year by CIR Magazine in the UK for the Annual Risk Management Awards. Over the last two years, the group has won four risk awards in four different categories (ERM, Retail Risk, Liquidity Risk and Operational Risk), which validates the strength of our ERM initiative and overall Risk Group framework.
  • CIEM was able to inaugurate the Credit Rating Assessment Model (CRAM).
  • CIEM formed the Financial Institution (FI) & Country Risk and Social and Environmental Credit Risks teams.
  • CIB was the first and only bank in Egypt to join the United Nations Environmental Program Finance Initiative (UNEP FI).
  • Risk Culture was enhanced by covering almost 50% of the organization via training courses and awareness sessions. In addition, the Bank achieved a 96% passing and participation rates for the online organization awareness for Operational and Conduct Risks.
  • Supported the growth of high-return portfolios driven by significant high-yield parameter changes and new programs launched to support unsecured business growth while maintaining rigorous controls on portfolio quality.
  • Optimised our operating model to achieve more efficiency through process reengineering and underwriting automation initiatives resulting in significant improvements in asset products’ turnaround times, maintaining enhanced approval rates while achieving significant headcount optimisation.
  • Supported the successful migration of Citibank portfolios through facilitating the smooth integration of Citibank’s portfolio and personnel into CIB’s culture by providing training sessions and orientations for systems, policies and processes, as well as ensuring all key acquisition risks were effectively managed.
  • Reinforced our Collections structure in line with industry best practices; a Collection Strategy Unit was created to optimise collection capabilities and instilling best practice activities such as collection contests, champion challenger approach and developing different strategies for every bank segment.
  • Strengthened the stress-testing model to account for shifts in risk factors as well as including regression analysis between KRIs, Probability of Default (PD), and Macroeconomic Indicators. Results are integrated into risk management decision-making processes for risk limits and appetite.