Risk Management

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 ranked 

Writer: Andi Prawidana
Mahasiswa STEI SEBI