China’s Financial Institution Takes Risk Management to New Heights
In an effort to maximize shareholders’ interests while ensuring stability and prudence, Bank of China has developed a robust risk management framework that sets it apart from its peers. In this article, we will delve into the bank’s risk appetite, organizational structure for risk management, and strategies for credit risk management, market risk management, liquidity risk management, internal control, and anti-money laundering.
Risk Appetite
Bank of China’s risk appetite is deemed “neutral”, striking a delicate balance between risk and return in line with the principles of rationality, stability, and prudence. This approach enables the bank to optimize its risk exposure while ensuring the stability of its operations.
Organizational Structure for Risk Management
The bank’s organizational structure for risk management is comprehensive, comprising key committees such as:
- Board of Directors’ Risk Policy Committee
- Internal Control Committee
- Anti-Money Laundering Committee
- Asset Disposal Committee
- Risk Management Department
- Credit Enforcement Department
- Treasury
- Legal & Compliance Department
This setup enables effective decision-making and ensures that risk management is an integral part of every business operation.
Credit Risk Management
The bank has made significant efforts to strengthen its credit risk management capabilities, particularly in credit risk management. Its centralized credit approval process, coupled with a sophisticated examiner system, ensures that loans are carefully vetted before being disbursed. Additionally, the bank has enhanced post-loan management and disposal and recovery of non-performing loans.
Market Risk Management
Bank of China has developed a Market Risk Management Policy to define market risk measurement, credit limit structure, and credit limit monitoring. This policy enables the bank to effectively manage market risks and mitigate potential losses.
Liquidity Risk Management
The bank’s liquidity risk management is also noteworthy, with the head office taking charge of liquidity risks across the entire organization. This centralized approach ensures that liquidity risks are managed in a uniform manner, minimizing potential disruptions to business operations.
Internal Control
Bank of China has established three defense lines for internal control, ensuring that every level of the organization, from institutions to staff members, is accountable for internal control:
- Self-control: The first defense line involves self-control through self-evaluation, self-inspection, self-rectification, and self-training.
- Second defense line: The Legal Compliance Department and Business Line Department oversee this process, serving as the second defense line.
- Third defense line: The Audit Department serves as the third and final defense line, conducting systematic and standardized evaluations of business operations, risk management, internal control, and corporate governance across the entire bank.
Anti-Money Laundering
In 2001, Bank of China established its Anti-Money Laundering Committee, which is responsible for setting policy and overseeing anti-money laundering efforts. Both domestic and overseas branches have also set up their own anti-money laundering teams, ensuring that the bank’s anti-money laundering system is comprehensive and effective.
The formulation of Bank of China’s Anti-Money Laundering and Anti-Terrorism Financing Policy marks a significant milestone in its anti-money laundering efforts, enabling the bank to effectively discharge its duties in this area.