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Risk Management Review

RISK MANAGEMENT REVIEW

Garanti BBVA measures and monitors its risk exposure on consolidated and unconsolidated bases by using methods compliant with international standards, and in accordance with the applicable legislation. Advanced risk management tools are utilized in measuring operational risk, market risk, structural interest rate risk, exchange rate risk, liquidity risk, counterparty credit risk and credit risk.

The Bank’s risk management strategy, policies and implementation procedures are reviewed within the framework of regulatory changes and the Bank’s needs.

The risk management process is organized in such a way that the material issues and strategic goals are linked and are the basis for the risks and opportunities identified.

Through the risk appetite framework, the Bank determines the risks that it is prepared to take based on the predicted capability of safe handling of risks so as to achieve the goals and strategic objectives as defined by the Board of Directors. Risk-based limits are monitored regularly using risk appetite metrics pertaining to capital, liquidity and profitability, which have been established as per the risk appetite framework.

Risk Management handles the preparation of the ICAAP (Banks’ Internal Systems and Internal Capital Adequacy Assessment Process) report by coordinating the related parties, which will be submitted to the BRSA. In addition, the stress test report is submitted to the BRSA, which addresses how the potential negative effects on macroeconomic data might alter the Bank’s three-year budget plan and results within the framework of certain scenarios, as well as their impact upon key ratios including the capital adequacy ratio.

MONITORING OF IMPORTANT DEVELOPMENTS WITH RESPECT TO RISK MANAGEMENT

Upon the COVID-19 pandemic, a number of major regulatory changes were introduced including changes in Assets Ratio, required reserves, and additional restrictions in derivative limits in 2020. However, gradual normalization steps began to be taken in the last quarter.

In this framework, regulatory changes, macroeconomic environment, their impact with respect to the Bank’s risk management and the Bank’s compliance with regulatory indicators were monitored closely at the Risk Committee level and within the Bank’s risk appetite. In the process, Risk Committee members were promptly informed of regulatory changes and their implications, in addition to regular committee reporting. No regulatory limits were breached in terms of risk management framework monitoring.

As part of risk management, lawsuits arising from operational risk incidents were followed up; allocated provisions were entered as loss into the operational risk loss database, root cause analyses were performed, and necessary actions were taken to avert recurrence.

Within the scope of measures adopted against COVID-19, financial support was made available to customers in the form of loan restructuring and deferral of principal amount and interest repayments, skip statement option up to 3 months for credit card payments, Credit Guarantee Fund loan package utilization, extension of commercial loan principal amount repayments up to 6 months, and additional credit lines offered to SME customers to support their cash flows.

Moreover, development of liquidity and structural risks were watched more closely through

Early Warning Indicators that began to be monitored daily from the start of the pandemic, daily monitoring reports and detailed analyses conducted, thus, ensuring proactive and effective management of risks.