RISK MANAGEMENT IMPLEMENTATION
Risk Management is a controlling risk activity through
the process of identifying, measuring, evaluating and
monitoring to a portfolio in estimating potential losses
that might occur. Therefore, with the application of risk
management, those potential losses that might occur it
is expected to bring proper mitigation and minimization.
Based on the Financial Services Authority Regulation
Number 18/POJK.03/2016 dated March 16, 2016,
concerning Application of Risk Management for
Commercial Banks and Financial Services Authority
Circular Letter Number 34/SEOJK.03/2016 dated
September 1, 2016, concerning Application of Risk
Management for Commercial Banks, the Bank had a
risk management policy as stipulated by the Decree
of the Bank's Director Number 056/182/DIR/MJR/KEP
dated September 7, 2017, concerning the Implementing
Risk Management Policies Guidelines. The application
of risk management at the Bank includes four pillars
aligned with the relevant laws and regulations,
particularly:
1. ACTIVE SUPERVISION OF THE BOARD OF
DIRECTORS AND COMMISSIONERS
The Board of Commissioners and Directors grant the
approval as well as evaluate the risk policies and
strategies actively and periodically. Conducted by the
Board of Commissioners, the establishment of policies
and strategies functions as a reference for the Board
of Directors to conduct out the Company's objective
and that has estimated risk tolerance and its impact on
capital, informing and communicating the risk policies
and strategies and evaluating its implementation to all
related work units.
2. ADEQUACY OF RISK MANAGEMENT POLICIES AND
PROCEDURES AND RISK LIMIT DETERMINATION
In implementing good corporate governance, one
of the governance principles is responsible for the
authority of the Bank officers and officials to conduct
out operational banking business in a work unit.
Therefore, to mitigate operational business risk in a
work unit also to utilize excellent internal control (best
practice), it is necessary to determine the business
limit of each type so that the Company can minimize
the arising risk.
The limit determination consists of overall limits
(exposure limit), individual limits, counterparty limits,
limits per type of risk and limits per certain functional
activity that holds risk exposure.
3. ADEQUACY OF RISK IDENTIFICATION,
MEASUREMENT, MONITORING AND
CONTROL PROCESS AS WELL AS RISK
MANAGEMENT INFORMATION SYSTEMS
The risk control policy guideline has provided an
adequate reference for identifying and measuring
risk process. Bank Jatim has measured and monitored
various risk components and has been accurately
prepared with a well-scheduled information
conveyance to the Risk Management Committee/
Directors regularly.
Based on the Financial Services Authority Circular
Number 14/SEOJK.03/2017 dated March 17, 2017,
concerning the Evaluation of Commercial Banks
Soundness Level Rating, the composite factor consists
of four evaluation components, namely:
Risk Profile;
GCG
Rentability (Earnings); and
Capital
The composite ranking of Soundness Level Rating uses
a risk approach well-known as Risk-Based Bank Rating
by considering the element of judgment. Besides,
this accomplished by identifying internal and external
factors which potentially can increase risk or affect the
current or future Bank's financial performance, so Bank
Jatim capability is expected to detect the root causes
early and take preventive and corrective measures
effectively and efficiently.
The used parameters or indicators also take into
account the characteristics and complexity of Bank
Jatim business in each assessment factor aims a better
impression of the Bank condition. Not to mention,
the Soundness Level Rating assessment consider
the accounting materiality and significance of the
assessment factors, particularly; risk profile, corporate
governance, rentability and capital in summarizing an
assessment results and determining the factor ranking.
4. COMPREHENSIVE INTERNAL CONTROL SYSTEM
The Bank has an organizational structure that clearly
illustrates the limits of the authority and responsibilities
of the Work Unit that handles risk management. Within
the organization owned, there is a clear separation of
functions between the Operational Work Unit (business
unit) with the Work Unit that carries out control. Only
appointed officials have the authority to access,
modify and change risk measurement models. The risk
management framework is evaluated periodically to
ensure its ability to function according to established
standards and monitor the follow-up of the regulator's
audit findings.
RISK MANAGEMENT ORGANIZATION
Risk management organization is led by the Risk
Management Director who responsible for risk
management. To assist the Risk Management Director,
Bank Jatim has established a Risk Management Unit
which is the Company's Risk Management Division
holds responsible to the Board of Directors conduct out
an independent risk management evaluation function.
RISK EVALUATION PROCESS
The Bank's Risk Management Division prepares Risk
Evaluation Reports on a periodic basis, i.e. quarterly, and
submits these reports to various levels of management
including to the Board of Commissioners, as well as to
related external parties such as the Financial Services
Authority. In addition, the Bank's Risk Management
Division has coordinated with the Internal Audit Division
to discuss audit findings as material for evaluating
risks and minimizing risks that occur. The findings are
submitted to the Company's Risk Management Division
for mitigation in accordance with 8 (eight) risks and
solutions are given.
The risks inherent in the Bank Jatim Business aligned
with the provisions of the Financial Services Authority
stipulated eight risks includes Credit Risk, Market Risk,
Liquidity Risk, Operational Risk, Legal Risk, Strategic
Risk, Compliance Risk, and Reputation Risk. A better
description of each risk as follows:
CREDIT RISK
Based on the Financial Services Authority Regulation
Number 18/POJK.03/2016, credit risk defined as the
arising risk from other parties which failed to fulfill their
obligations including credit risk due to debtor failure,
credit concentration risk, counterparty credit risk, and
settlement risk.
Until December 2019, Bank Jatim Management of credit
risk has optimally pursued as reflected in credit risk
profile rating in December 2019 results in a moderate
ranking. As for the quality of credit risk management
implementation related to the active supervision of the
Board of Commissioners and Directors has carried out
its duties aligned with its functions impact on a general
the quality of credit risk management assessment of is
fair so that the credit risk composite rating is ranked 3.
In terms of policy, Bank Jatim constantly reviews and
updates the limits of the provision of funds following
the development of businesses and organizations. As
for the process of limiting the provision of funds to
maintain business and organization developments. The
Company's Risk Management Division also reviews and
determines the risk level in determining Transaction
Facilities, as well as monitoring Risk Appetite and
Credit Risk Limit regularly. In terms of strengthening
Credit Risk Management, Bank Jatim also formed a
Credit Risk Division/Unit specifically focused in the
credit sector.
Potential Losses
Potential losses on the bank lending activities can
arise due to insufficient knowledge, inadequate
internal credit processes, inaccurate in-depth credit
analysis, funding in potentially high-risk sectors,
credit concentration, and placement activities
or the securities purchases in considered less
bona fide company handled by Human Resource
responsible in the credit sector, inducing defaults
and bank losses which forced to form Impairment
on Non-Financial Assets, costs incurred due to the
credit settlement process (collection fees, legal
process, auction process), as well as resources
required to allocated in the context of collecting
and restructuring credit. Besides that, credit losses
can also evoked in settlement failure process.
Mitigation
The invented mitigation effort towards credit risk
potential losses is: Advancing the knowledge of
Credit Analysts in the credit field aims to be more
professional and master their duties, improving
systems and procedures in the credit field, fostering
and monitoring credit realization, more intensive
collection efforts for 'The Special Case customers'
to prevent collectability deterioration, increase
the supervision credit function, implement the
principle of Prudential Banking in credit expansion,
supervise existing systems and procedures, as well
as accurate and excellent Counterparty analyze.
MARKET RISK
Market risk is a risk in the balance sheet and
administrative account including derivative
transactions, due to overall changes in the market
condition, particularly the changes risk in option
prices. Market risk management aims to minimize
the possibility of negative impacts due to the market
changes towards Bank Jatim capital assets. Aligned
with Financial Service Authority regulation, Bank Jatim
market risk management as reflected in the market
risk profile rating in December 2019 results in low
ranking for inherent risk and fair ranking for the quality
of risk management implementation, so in general the
composite rating is rankedÂ
Writer: Andi Prawidana
Mahasiswa STEI SEBI
