UBI Banca Group

• risks defined as measurable, for which established quantitative methods have been
identified, which lead to the determination of internal capital or for which useful
quantitative thresholds or limits can be defined which, combined with qualitative
measurements, allow allocation and monitoring processes to be defined;
• risks defined as non measurable, for which policies and measures for control, reduction or
mitigation are considered more appropriate because no established approaches exist for the
measurement of internal capital that are useful for allocation purposes.
The second pillar risks subject to analysis are as follows:
MEASURABLE RISKS:
‐ concentration risk: risk resulting from exposures in the banking portfolio to counterparties, or groups
of counterparties in the same economic sector or counterparties engaged in the same business or
belonging to the same geographical area. Concentration risk can be divided into two types: single
name concentration risk and sector concentration risk;
‐ interest rate risk: the current or future risk of a change in net interest income and in the economic
value of the Group, following unexpected changes in interest rates which have an impact on the
banking book.
‐ business risk: the risk of adverse and unexpected changes in profits and margins with respect to
forecasts, connected with volatility in volumes of business due to competitive pressures and market
conditions;
‐ equity risk: the risk of losses incurred in equity investments that are not fully consolidated on a lineby-line
basis.
‐ fixed asset risk: the risk of changes in the value of the intangible fixed assets of the Group.
By convention measurable risks also include those risks for which, although no well established
approaches exist for the estimate of internal capital, operational limits of a quantitative nature, for which
there is a consensus in the literature, can be set to measure, monitor and mitigate them.
These risks are:
- liquidity risk: the risk of the failure to meet payment obligations which can be caused either by an
inability to raise funds or by raising them at higher than market costs (funding liquidity risk), or by
the presence of restrictions on the ability to sell assets (market liquidity risk) with losses incurred on
capital account;
- structural liquidity risk: the risk resulting from a mismatch between the sources of funding and
lending.
NON MEASURABLE RISKS:
- risks resulting from securitisations: the risk that the underlying economic substance of a
securitisation is not fully reflected in decisions made to measure and manage risk;
- compliance risk: the risk of incurring legal or administrative penalties, substantial financial
losses or damage to reputation resulting from violations of laws and mandatory external
regulations or internal regulations (by-laws, codes of conduct and voluntary codes);
- reputational risk: the risk of incurring losses resulting from a negative perception of the image of
the Bank by customers, counterparties, shareholders of the Bank, investors, the supervisory
authority or other stakeholders;
- residual risk: the risk of incurring losses resulting from the unforeseen ineffectiveness of
established methods of mitigating risk used by the Bank (e.g. mortgage collateral);
- strategic risk: the current or future risk of a fall in profits or in capital resulting from changes in
the operating context, inadequate decision-making, failure to react to changes in a competitive
environment.
Details are given below of risks which have significant impacts for the UBI Banca Group and
the action taken to mitigate them. Risks other than those reported below, which are of
marginal importance, are not expected to change during the course of the year.
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