Risk Management in Banking: A Critical Component of PNB’s Growth Strategy

The Philippine banking industry is undergoing rapid changes, making risk management an essential component of any growth strategy. The Philippine National Bank (PNB) has implemented a robust risk management framework to ensure its operations are conducted within agreed limits.

Evolution of Risk Management at PNB

Following the merger with Allied Banking Corporation in 2013, PNB’s risk management function underwent significant changes. Harmonization activities commenced in 2008, involving bank policies, processes, and systems as well as the merged organizational structure. The risk management framework now applies various tools to the new bank, with data sourcing being one of the biggest challenges.

Prioritizing Risk Management

At PNB, risk management is given top priority. Efforts are being made to refine the framework further by identifying and controlling risks associated with operational activities. The Board and its Risk Oversight Committee operate as the highest level of PNB’s risk governance, while a structured hierarchy of committees undertakes risk governance at the management level.

Enterprise Risk Management Framework

PNB’s Enterprise Risk Management Framework is built on a three-line defense model, where responsibility for risk management resides at all levels within the organization. The framework consists of:

• First Line of Defense: Business units are responsible for ongoing assessment, evaluation, and measurement of risk.
• Second Line of Defense: The risk management function provides independent oversight and regular reporting to the Risk Oversight Committee.
• Third Line of Defense: The internal audit function assesses the adequacy and effectiveness of the overall risk management framework and governance structures.

Governance Structure

The PNB Board Risk Oversight Committee assists the board in overseeing the risk profile and approving the risk management framework for the Bank and its related subsidiaries and affiliates.

Comprehensive Risk Management Policy

PNB’s risk management policy includes:

• A comprehensive approach to risk management
• Detailed structure of limits and guidelines
• Clear lines of responsibility
• Adequate system for measuring risk
• Effective internal controls and reporting processes

By implementing this robust framework, PNB is well-positioned to achieve its growth plans in a controlled environment while protecting the Bank’s reputation and increasing shareholder value.