Risk appetite
Amount of Risk that an organization is willing to take to meet its strategic objectives.
Risk Appetite Framework - explained.
A high level view of how various organizations within help the board and its senior leadership define risk appetite for a bank.
Key Business areas of the banks across product lines provide their inputs on the strategic goals considering the risk and returns, capital requirements, business plans, current and expected future market environment.
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Group wide Credit Exposure mainly by Ratings, Country, Industry and Products is consolidated. Similarly Market Risk across business lines is reported against allocated limits. Operational Risk numbers are reported by people, processes and technology.
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As part of the Chief Risk Officer Organization, various Risk Committee's provide insight on the Credit, Market, Operational, Liquidity Risk indicators. Group-wide Quantitative information like Economic Capital, Risk Weighted Assets, Leverage Ratios, Stressed portfolio limits, etc are provided as part of the Risk Appetite Framework to the Board.
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A Risk profile for the bank is prepared after gathering all the information from the heads of the business lines, CRO, CFO and the strategy and planning units.
The Board working with the Senior Management of business lines, CFO and CFO comes up with qualitative statements and quantifies risk appetite in terms of metrics and limits. Qualitative statements link the risk appetite statement to the mission and the vision of the organization, capital adequacy, desired risk profile, reputation and strategic business intent. Risk Appetite is quantified through limits and metrics. Limits are allocated across the organization by risk types, business lines from top to bottom, regions, legal entities and countries. Business lines incorporate the approved risk appetite into their strategy and the decision making. CRO reports and monitors the compliance against the approved limits. |