Sberbank considers risk management an important competitive advantage and a strategic area of its business operations.
Given the general deterioration of the macroeconomic environment in 2014, the bank purposefully created significant provisions for possible losses in troubled sectors, adhering to a conservative approach to forming provisions.
In 2014, implementation of effective risk management practices at the Group’s subsidiary banks continued.
Credit risk management
Starting from 2013, Sberbank has consistently implemented and developed both integrated and special risk management methods and processes.
Credit risk management methods:
- managing risk through assessment of potential risks prior to operations;
- planning the level of credit risk by assessing expected losses;
- minimising credit risk by setting limits;
- structuring transactions;
- ensuring transaction security;
- applying the decision-making system;
- monitoring and controlling the level of credit risk.
The Group has set up an Internal Ratings-based System. The foundation of the system is economic and mathematical models estimating the probability of default relating to contractors and transactions. Models are reviewed periodically using historical statistics. The risk factors assessed include those associated with the contractor’s financial position and its potential changes, ownership structure, business reputation, credit record, cash flow and financial risk management system, information transparency, the client’s position in the industry and the region, and the support of public authorities, parent companies, and the group to which the borrower belongs. Credit risk assessment models were validated in 2014.
Risk is limited and expected losses due to the borrower’s default are controlled through a system of limits available for each business line. The limit amount depends on the borrower’s risk level, which is calculated based on the borrower’s financial position and other factors: external influences, management quality, business reputation rating, etc. Country limits are classified as a separate group aimed at limiting the Group’s country-related risks. These limits restrict the geographic concentration of risks. In 2014, the bank introduced an automated control system for credit exposure limits.
The main tool for reducing credit risk is risk coverage. The amount of risk coverage depends on the risk of the borrower/transaction and is fixed under the terms of loan products. The bank applies collateral policy as one of the approaches to credit risk hedging in order to improve collateral quality of loan portfolio. The collateral quality is based on the probability of obtaining funds in the amount of the estimated collateral value when selling the collateral.
Considering the deterioration of the economic environment in Russia in 2014, the bank took the following measures:
- More stringent requirements were introduced when granting loans/credit cards and making relative decisions.
- As of October 2014, lending to micro-businesses and small businesses in foreign currency was suspended.
- Restrictions were imposed on lending to high-risk sectors.
An effective and fine-tuned credit risk management system enabled Sberbank to outperform the sector in terms of loan book quality and increase its advantage regarding both corporate and retail clients during 2014:
Overdue loans from corporate customers Non-consolidated RAS data, overdue loans 1+, %
Overdue loans from retail customers Non-consolidated RAS data, overdue loans 1+, %
|January 1, 2015||January 1, 2014|
|Provisions for loan impairment to customers' loan book||5.1%||5.0%|
|Coverage ratio for overdue loans||2.56 times||2.22 times|
The bank seeks to identify problems at early stages and makes every effort to settle customer debt issues amicably.
In light of the current difficult economic situation, a number of anti-crisis measures related to distressed assets have been drawn up:
- developing a talent pool of divisions handling distressed loans;
- creating anti-crisis teams dealing with major customers;
- adopting a set of measures to simplify the restructuring of retail loans.
The Group’s subsidiary banks have also taken a number of measures. Restructuring processes have been adjusted, transactions with distressed assets are controlled and monitored.
Liquidity management in 2014 was largely determined by the situation on the financial markets considering the current macroeconomic environment, the Ukrainian crisis, the sanctions imposed on Russia, RUB devaluation and other factors. Despite the volatility of the financial markets, Sberbank made the best use of its opportunities to borrow currency on the debt and capital markets:
- In February 2014, the bank placed subordinated bonds under reviewed Regulation No.
395-Pcapable of being redeemed after five years with the consent of the Bank of Russia. The issue totalled USD 1 bn. The bond placement resulted not only in attracting long-term funding, but also in improving the capital adequacy ratio.
- In March 2014, the bank made a private placement worth USD 500 mn and EUR 500 mn within the MTN programme.
- In June 2014, Sberbank issued its first Eurobonds worth EUR 1 billion.
Due to the flexible interest rate policy, a highly diversified liabilities structure and low dependence on external borrowing, Sberbank preserved a sufficient level of RUB and FX liquidity throughout the year. The bank managed to reduce short-term borrowings from the Bank of Russia by replacing them with medium-term and long-term borrowings and thus improving the liquidity profile.
More information about the risks is available in the Financial Risk Management Section of the Group’s IFRS financial statements.
Sberbank is focusing on the development of risk culture as an important system ensuring sustainable development in a constantly changing environment. The risk culture is part of the Bank’s corporate culture. It can be defined as a body of knowledge, values, principles and beliefs relating to risk management, which form the Bank’s collective ability to identify, analyse, openly discuss and respond to the current and future risks. The risk culture is a supplement to the Bank’s formal mechanisms and is an essential part of the integrated risk management system.
The bank pays special attention to employee behaviour as a practical demonstration of risk culture. The bank established standards of behaviour for all employees regardless of their position in terms of risk culture.