Financial Crime World

Risk Management in Banking: A Prudent Approach to Sustainable Value Creation

In today’s fast-paced business environment, financial institutions like Philippine National Bank (PNB) must adopt a robust risk management framework to optimize opportunities while minimizing the impact of potential risks. This approach ensures sustainable stakeholder value and fosters a culture of accountability and oversight throughout the organization.

Enterprise Risk Management Framework

To achieve this goal, PNB has established its Enterprise Risk Management Framework (ERMF), which outlines the bank’s risk management process, tools, and organizational structure. The framework is designed to identify, measure, monitor, and manage material risks across the entire organization.

Three Lines-Of-Defense Model

PNB’s approach to risk management relies heavily on the Three Lines-Of-Defense model, a proven method for enhancing communication and collaboration across the bank’s units. This model assigns clear roles and responsibilities to each level of defense, ensuring that risks are managed proactively and effectively.

First Line of Defense

  • PNB’s lines of business and legal entities are responsible for managing risks through proactive risk identification and design of risk mitigants and control mechanisms.
  • These teams identify and manage risks in their respective areas, using established procedures and controls to minimize potential losses.

Second Line of Defense

  • The Risk Management, Compliance, and Information Security/Cyber Security functions operate independently of business operations, providing an additional layer of oversight and assurance.
  • These functions include:
    • Risk Management Group: Led by the Chief Risk Officer (CRO), implements the bank’s risk management framework and provides independent oversight.
    • Enterprise Information Security Group (EISG): Manages information security and cyber security risks.
    • Global Compliance Group (GCG): Ensures compliance with legal and regulatory requirements.

Third Line of Defense

  • The Internal Audit Group (IAG) conducts independent assessments of the bank’s risk management, risk control, compliance, and governance functions.
  • IAG reports directly to the Board Audit and Compliance Committee (BACC).

Benefits of PNB’s Risk Management Approach

By adopting a disciplined risk management culture and framework, PNB ensures oversight and accountability for risk at all levels of the organization. The bank’s:

  • Board of Directors: Exercises oversight through the Risk Oversight Committee (ROC) and BACC.
  • Senior Management Team: Works closely with business lines to manage risk.
  • Robust ERMF: Enables effective implementation of risk management practices across PNB, its subsidiaries, and affiliates.

Conclusion

PNB’s approach to risk management demonstrates a commitment to sustainable value creation through prudent risk management practices. By adopting a robust framework that fosters accountability, oversight, and collaboration, the bank is well-positioned to navigate the complex and ever-changing banking landscape with confidence.