Hungarian Banks Strengthen Risk Management Strategies

Improving Risk Mitigation Measures

In an effort to ensure stability and mitigate risks, two major Hungarian banks, CIB Bank and UniCredit, have implemented robust risk management strategies. According to a recent report, both banks have set up Value-at-Risk (VaR) limits for interest rates, foreign exchange, equity, and total exposures.

Risk Management Measures

VaR limits are reviewed daily by the management to ensure that risks are kept in check.
Position limits and stop-loss limits have been established to monitor exposures in real-time.

Interest Rate Risk Management

CIB Bank has implemented measures to reduce interest rate risk by matching the repricing of assets and liabilities using pricing/maturity techniques. The bank’s Treasury department is responsible for managing interest rate risk, with input from the Financial Risk Committee.

Market Risk Management

UniCredit manages market risk through its Treasury and Asset-Liability Management (ALM) operations. The bank aggregates risk positions daily and compares them to risk limits set by the Management Board and ALCO.

Operational Risk Management

Operational risk is another area of focus for both banks. CIB Bank has established an Operational Risk Committee to oversee operational risk management, while UniCredit uses the Advanced Measurement Approach (AMA) to quantify its operational risk exposure.

Liquidity Position Strengthening

The two banks have also implemented measures to strengthen their liquidity positions. CIB Bank’s liquidity ratio has improved significantly over the past few years, while UniCredit’s loan-to-deposit ratio has decreased from 137% in 2008 to 81% in 2014.

Commitment to Risk Management

A spokesperson for CIB Bank stated: “The crisis-related risk management measures have significantly contributed to the current stable operation of the Hungarian banking system. We are committed to maintaining a strong liquidity position and ensuring that our risks are well-managed.”

National Bank’s Praise

The National Bank of Hungary has also praised the efforts of Hungarian banks, stating that they have built up significant capital and liquidity buffers which can reduce the impact of losses on lending.

References

Banai Á., Király J., Nagy M. (2010), Az aranykor vége Magyarországon. Külföldi szak-mai és lokális tulajdonú bankok a válság el őtt és válság után, [The end of the golden age in Hungary. Banks with foreign and local ownership before and after the crisis]
Financial Stability Report, November 2014
Management Reports, CIB Bank and UniCredit Bank