59. Business risk management

Business risk is understood as the risk of incurring losses due to adverse changes in the business environment, taking bad decisions, the incorrect implementation of decisions taken, or not taking appropriate actions in response to changes in the business environment; this includes in particular strategic risk.

Managing the business risk is aimed at maintaining, on an acceptable level, the potential negative financial consequences resulting from adverse changes in the business environment, making adverse decisions, improper implementation of adopted decisions or lack of appropriate actions, which would be a response to changes in the business environment.

59.1.  Business risk measurement

Business risk identification is to recognise and determine factors both current and potential, resulting from current and planned activities of the Bank and which may significantly affect the financial position of the Bank, generating or change in the Bank’s income and expense. Business risk identification is made through the analysis of selected items from the income statement related to the Bank’s income and expense.

Measurement of business risk is aimed at defining the scale of threats related to the existence of business risk with the use of defined risk measures. The measurement of business risk is conducted quarterly and comprises:

  • calculation of selected business risk indicators,
  • conducting stress-tests,
  • calculation of internal capital.

The internal capital for covering business risk of the Bank is determined on the basis of analysis of historical volatility of selected items of the income statement, related to the Bank’s income and expense in accordance with the earnings at risk concept (Earnings at Risk).

The internal capital for covering business risk of the Group entities is determined as the product of:

  • ratio of internal capital calculation for covering business risk, and
  • results on banking activities.

A ratio of internal capital calculation for covering business risk for the Group entities is determined as the relation of internal capital for covering business risk of the Bank to total internal capital of the Bank.

59.2. Forecasting and monitoring of business risk

Forecasting of business risk in the Bank is conducted once a quarter on a yearly basis and includes forecast of the level of business risk and internal capital. Once a quarter, the verification of business risk forecast (so-called backtesting) is also performed.

Monitoring of business risk includes in particular:

  • strategic levels of business risk tolerance – on a quarterly basis,
  • stress-tests results – on an annual basis,
  • internal capital level – on a quarterly basis,
  • deviations from the implementation of business risk forecast – on a quarterly basis.

59.3. Reporting of business risk

Business risk reporting of the Group is conducted quarterly. Reports on business risk are prepared for the ALCO, the RC and the Management Board. Reports contain i.a. information on the internal capital level, stress-tests results, results of a survey conducted among senior management staff of the Bank, utilisation of strategic risk limits on business risk, business risk forecast and forecast backtesting.

59.4. Management decisions concerning business risk

The main tools used in business risk management in the Bank include: procedures for business risk management and limits and thresholds for business risk.