Being a financial institution, risk management is an integral part of Nepal Investment Bank Limited (NIBL). With the continuing increase in the scale as well as complexity of the banking business and the rapid growth in the volume of financial-related transactions, risk management has become essential. Risk management in the bank includes risk identification, measurement and assessment, and its objective is to minimize negative effects that risks can have on the financial result and capital of a bank. Risk management strategies include the transfer of risk, avoidance of risk, reduction of the negative effect of the risk and acceptance of the consequences of a particular risk. The design of a risk management system depends on its size, capital structure, complexity of functions, technical expertise, and quality of Management Information System (MIS) among other things, and is structured to address both banking as well as non-banking risks to maximize shareholders’ value. Our consistent approach to risks over the years has enabled us to protect our customers and aid in the sustainable growth of the economy. NIBL’s key to continued success throughout its history is our ability to maintain an active approach to managing the risks through our management oversight and strong line of defense, monitoring and measurement of risk. As a financial institution, NIBL is exposed to three major risks:
1. Credit Risks
A credit risk is the probability that Bank’s borrower or counterparty fails to meet its payment obligations in accordance with the terms of credit. The aim of credit risk management is to ensure compliance of regulatory as well as internal policies, guidelines etc. and at the same time to maximize bank's risk-adjusted rate of return by effective credit risk management. NIBL aims to effectively manage credit for a sustainable success of the bank. Therefore, it executes assessment of capital adequacy, risk rating systems, portfolio analysis and aggregation, large exposures and risk concentration analysis. NIBL also has its own internal risk rating tools which helps in the identification of Early Warning Signals (EWS) and monitor credit risk and help in prompt corrective action.
2. Market Risk
Market risk is the risk of losses in on-balance sheet and off-balance sheet positions arising from adverse movements in market prices. It is also the uncertainty in the future value of the Bank's on-balance sheet and off-balance sheet resulting from interest rates, foreign currency, equity and commodity risks. The Asset Liability Management Committee (ALCO) serves as the primary oversight and decision-making body that provides strategic directions for the Bank's management of market risk. NIBL has taken measures to address various forms of risks and at the same time performs stress tests to evaluate the adequacy of capital using internal models for the measurement of market risk.
3. Operational Risks
Operational risk is the risk of loss resulting from inadequate internal processes, people, and systems, or from external events. The most important types of operational risk involve breakdowns in internal controls and corporate governance. Such breakdowns can lead to financial losses through error, fraud or failure to perform in a timely manner or cause the interests of the Bank to be compromised in some other way. Other aspects of operational risk include major failure of information technology system or events such as major fires or other disasters. NIBL has separate IT Risk Management unit with a dedicated IT Risk Officer and Information Security Officer (ISO) and ldentity & Accesses Management (lAM) unit to look after the risk and security related to IT. NIBL has various committees that reviews the operational risk at different level that constantly monitors, evaluates and provides necessary strategic direction, guideline for effective and efficient operational risk management.