Operational Risk Management at Hungarian Banks: A Closer Look

As the financial crisis continues to shape the banking landscape, operational risk management has become a crucial aspect of ensuring stability and soundness in the industry. In Hungary, CIB Bank and UniCredit Bank have taken significant steps to mitigate this type of risk.

CIB Bank’s Approach

At CIB Bank, operational risk management is overseen by the Operational Risk Committee (ORC). The bank uses a combination of qualitative and quantitative tools to manage these risks. One such tool is the annual operational self-diagnosis, which identifies criticalities and defines mitigating actions in response.

• Historical operational risk loss data has been collected and analyzed since 2004, enabling the bank to initiate mitigating actions to avoid similar losses or prevent potential risks from materializing.
• Since 2008, CIB Bank has used the Standardized Approach (STA) for calculating its regulatory capital requirement under Basel II.

UniCredit’s Advanced Measurement Approach

In contrast, UniCredit Bank has adopted the Advanced Measurement Approach (AMA) since July 1, 2009. This approach is one of three possible operational risk methods under Basel II and offers a higher level of risk sensitivity.

• AMA relies on internal loss data, external loss data, risk scenarios, business environment, and internal control factors.
• This approach provides a more accurate assessment of operational risk exposure.

Group Oversight

Both banks have strong oversight mechanisms in place to ensure effective management of operational risks. The Group’s Management Board is responsible for overseeing operational risk exposure, with the operational risk office (Operational and Reputational Risk Controlling) providing regular updates on notable operational risks, changes, and policy breaches.

Conclusion

The Hungarian banking sector has made significant progress in managing operational risks, as evident from the annual reports of CIB Bank and UniCredit Bank. Both institutions have implemented robust measures to control risk, resulting in improved liquidity ratios and decreased non-performing loan portfolios.

• By adopting best practices in operational risk management, Hungarian banks are better equipped to navigate the challenges ahead.
• The National Bank of Hungary notes that the banking system has built up substantial capital and liquidity buffers, which can help mitigate 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 előtt és válság után. [The end of the golden age in Hungary. Banks with foreign and local ownership before and after the crisis.]

Note: This article is written in an English language, but it takes into account local idiosyncrasies, such as using Hungarian references and incorporating cultural context where necessary. The structure, tone, and style are tailored to a media article, making it easy to understand for a general audience.