Financial Crime World

Risk Management Strategies of Financial Institutions in Hungary

The Hungarian banking sector has undergone significant changes since the global financial crisis. This paper focuses on the different types of risks in the Hungarian banking sector and the most important methods of risk management carried out by CIB Bank and UniCredit Bank based on effective Hungarian regulation and EU rules, as well as guidelines from their parent banks.

Market Risk

Managing Market Risk at CIB Bank

CIB Bank manages market risk through a combination of quantitative and qualitative techniques. The bank’s Treasury and Asset-Liability Management (ALM) operations are responsible for managing market risk positions, which are aggregated at least daily and analyzed by the independent risk management unit.

  • Ongoing reporting on risk positions
  • Limit utilization
  • Daily presentation of markets’ operations

Managing Market Risk at UniCredit Bank

UniCredit Bank also manages market risk through its Treasury and ALM operations, with a focus on interest rate risk. The bank uses pricing/maturity techniques, including derivative products, to match the repricing of assets and liabilities.

  • Ongoing reporting on risk positions
  • Limit utilization
  • Daily presentation of markets’ operations

Credit Risk

Managing Credit Risk at CIB Bank

CIB Bank manages credit risk through a combination of qualitative and quantitative tools. The bank’s Credit Risk Management unit is responsible for identifying, assessing, and mitigating credit risk exposures.

  • Internal rating models
  • External credit assessments
  • Determining the creditworthiness of borrowers

Managing Credit Risk at UniCredit Bank

UniCredit Bank also manages credit risk through its Credit Risk Management unit, which identifies, assesses, and mitigates credit risk exposures. The bank uses a combination of internal rating models and external credit assessments to determine the creditworthiness of borrowers.

Operational Risk

Managing Operational Risk at CIB Bank

CIB Bank measures and monitors operational risk exposure through its Operational Risk Management unit. The unit is responsible for identifying, assessing, and mitigating operational risks, including reputational risk.

  • Qualitative tools
  • Quantitative tools
  • Historical loss data analysis
  • Risk scenarios

Managing Operational Risk at UniCredit Bank

UniCredit Bank also manages operational risk through its Operational and Reputational Risk Controlling unit, which identifies, assesses, and mitigates operational risks. The bank uses a combination of qualitative and quantitative tools, including internal loss data, external loss data, and risk scenarios.

Conclusion

The findings of this paper suggest that the crisis-related risk management measures have significantly contributed to the current stable operation of the Hungarian banking system. CIB Bank has a strong liquidity position, and its high degree of dependency on Intesa Sanpaolo has begun to decrease over the past years.

UniCredit Bank also has a solid capital position, which allows it to pay dividends to its shareholders from last year’s profits.

The paper underpins the statement by the National Bank of Hungary that “due to risks, the banking system has 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 szakmai 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].