UBI Banca Group

Principal risks and uncertainties to which
the UBI Banca Group is exposed
Risks
The UBI Banca Group attributes primary importance to the measurement, management and
monitoring of risk, as activities necessary to the sustainable creation of value over time and to
the consolidation of its reputation on its markets.
In compliance with the regulations in force for the prudential supervision of banks (Bank of
Italy Circular No. 263/2006), the Group has put a process in place to calculate its capital
adequacy requirement – for the present and the future – to meet all significant risks to which
the Group is or might be exposed (ICAAP - Internal Capital Adequacy Assessment Process).
In this respect very careful identification is performed on a continuous basis of the risks
subject to measurement. Risk identification activity is designed to verify the magnitude of
Group risks already subject to measurement and to detect signals of other types of risk which
may manifest. Identification involves precise conceptual definition of the risks to which the
Group is exposed, an analysis of the factors which combine to generate them and a description
of the relative manner in which they manifest. This activity was achieved by means of a
centralised process of analysis supplemented by self assessment conducted on all the entities
of the Group.
Once the activity to identify significant risks is completed, the ICAAP process involves the
measurement of the risks identified and the calculation of the total capital 1 required to meet it
(capital adequacy), both at present and in the future. Use is also made of specific (by assessing
impacts on a single risk) and global (by assessing impacts on all risks at the same time) stress
tests to perform a better assessment of exposure to risk and of systems for mitigating and
monitoring it and calculating capital requirements.
The UBI Banca Group has a system of risk governance and management in place which takes
account of organisation, regulations and methods in order to ensure consistency in its
operations and its relative propensity to risk.
In consideration of its mission, the operations of the Group and also the market context in
which it operates, the risks to be subjected to measurement in the ICAAP assessment process
were identified and divided into first pillar and second pillar risks, as required by the relative
regulations.
First pillar risks – already managed under the requirements of supervisory regulations – are as
follows:
• credit risk (including counterparty risk): the risk of incurring losses resulting from the default of a
counterparty with whom a position of credit exposure exists. This also comprises the definition of
counterparty risk, which constitutes a particular type of credit risk. It is the risk that a counterparty
to a transaction involving determined types of financial instruments defaults before the transaction
itself is settled.
• financial risks: risk of changes in the market value of financial instruments held, due to unexpected
changes in market conditions and in the credit rating of the issuer;
• operational risk: the risk of incurring losses resulting from the inadequacy or malfunction of
procedures, human resources and internal events or from exogenous events. This includes losses
resulting from fraud, human error, business disruption, system failure, non performance of contracts
and natural disasters and it comprises legal risk.
In addition to first pillar risks, second pillar risks were identified, consisting of the following:
1 See Part F, section 1 A. Qualitative Information of the Notes to the Consolidated Financial Statements for a definition of total capital.
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