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Risk Management Practices in Hungarian Banks

Summary

This paper explores the risk management practices of two major Hungarian banks, CIB Bank and UniCredit Bank. The analysis focuses on market, interest rate, operational, and liquidity risks based on annual reports and financial statements from 2009 to 2014.

Main Points

Risk Management Frameworks

  • Both CIB Bank and UniCredit Bank have implemented robust risk management frameworks:
    • Risk appetite statements
    • Risk assessment processes
    • Internal control systems
  • These frameworks provide a solid foundation for managing risks and improving capital and liquidity positions.

Market Risk

  • The banks use various models to manage market risks, including:
    • Value-at-Risk (VaR) models
    • Stress testing
  • These models help identify potential losses due to market fluctuations and enable the banks to take proactive measures to mitigate these risks.

Interest Rate Risk

  • CIB Bank manages interest rate risk through pricing/maturity techniques that match the repricing of assets and liabilities.
  • UniCredit Bank uses derivative products to manage its interest rate risk exposure.

Operational Risk

  • Both banks have operational risk management units that use both qualitative and quantitative tools:
    • Identify, assess, and mitigate operational risks
    • Implement controls to reduce the likelihood and impact of operational failures
  • These units play a crucial role in maintaining the overall stability and integrity of the banking operations.

Liquidity Risk

  • The banks have implemented measures to strengthen their liquidity positions, including:
    • Improving loan-to-deposit ratios
    • Increasing cash reserves
  • These actions help ensure that the banks have sufficient liquid assets to meet their short-term obligations.

Conclusion

The paper concludes that CIB Bank and UniCredit Bank have made significant efforts to improve their risk management practices and strengthen their capital and liquidity positions. The findings support the statement by the National Bank of Hungary that the banking system has built up significant capital and liquidity buffers, which can reduce the impact of losses on lending.