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2018 Pillar 3 Disclosures
Annex
8. Other risks
8.1 Reputational risk
The reputational risk control function has a
Reputational Risk Procedures Manual in place, which
was approved by the Compliance Committee at its
meeting held on 3rd December 2010. This manual sets
out the design of the structure for the assessment
of this risk in depth, which entails the identification
of the main areas affected by the risk, the factors
impacting on it and the preventive measures or
controls mitigating its impact. In addition, in 2016
the Compliance and Operational Risk Committee
approved a new system to assess reputational risk
of new counterparties/customers, which meant all
legal entities (falling within the predefined subjective
field) requesting the provision of services would be
assessed. According to this new procedure, if the
final assessment of the qualitative report (overall
risk assessment and assessment of product/service
sensitivity) is Medium-High or High, as well as when
there is not enough public information available to
perform an evaluation, the result would be put forward
to the Compliance and Operational Risk Committee
to approve the counterparty as a prerequisite for
admission. Reports produced over the year have also
served for reference in the process of the bank’s
measuring of general reputational risk.
8.2 Business risk
Business risk is understood as the possibility of
suffering losses arising from hypothetical downturns
(internal or external) that negatively affect the bank’s
capacity to achieve its objectives and, as a result,
negatively affect its profits (income statement) and,
thus, its solvency.
The Risk Tolerance Framework approved by the Board of
Directors establishes the pursuit of long-term revenue
stability as a priority for the management of this risk.
This is the principle which must prevail in relationships
with customers, including contractual relationships.
The risk assessment does not focus solely on those
elements which could result in a particular strategy
proving unsuccessful, but rather an analysis of the
elements that may affect long-term performance and
positioning.
All these risks are taken into account when the Board
of Directors sets the bank’s strategy, focusing on the
competition and structural elements of the markets that
could influence the competitive position and customer
base, affecting the company’s value.
The pillars on which this risk is addressed, which are
qualitative, which may take time to present itself and for
which a quantitative approach is not valid, are as follows:
•
A framework of ongoing monitoring for the markets in
which the bank is exposed, from various perspectives
(economic, regulatory, competition, business at risk,
etc.).
•
Monitoring at various levels of the evolution of
businesses and the comparison of these results with
the strategic planning suppositions.
•
Diversification by business type and by customer.
•
Maintenance of a stable and recurrent profit
structure. In addition to ensuring that, in terms of
individual businesses and for the bank as a whole, the
profitability of businesses is, over time, predictable,
sufficient and in line with the strategic planning
budgets.
•
Specialisation in businesses where the establishment
of stable, long-term relationships with customers is a
key element.
•
Management of the relationship with customers in a
transparent and transversal manner, with dialogue at
various levels of the bank, in order to reduce “key
person” risk.
The risk assessment does not solely focus on those
elements which could result in a particular strategy
proving unsuccessful, but rather an analysis of the
elements that may affect long-term performance and
positioning.
The monitoring structure established is based on three
levels:
•
The Units with business responsibilities are given
the task of monitoring the objectives set out in
the Strategic Plan and reporting on any aspect or
contingency which could jeopardise the achievement
of these objectives.
•
Senior management oversees the evolution of the
business lines, the levels of concentration and
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