Letno poročilo 2007 - UniCredit Banka Slovenija dd

Risk ReportRisk ReportOperational RiskOperational Risk is defined as risk of loss resulting from inadequateor failed internal processes, people and systems, or from externalevents. The definition includes legal risk but excludes strategic andreputation risk.The Bank collects all losses and profits related to operational riskevents above 100 euros and all potential losses above 10,000 eurosand allocates the operational risk events in line with ORX standardsto the following seven categories:• Internal fraud;• External fraud;• Employment practices and workplace safety;• Clients, products and business practices;• Damage to physical assets;• Business disruption and system failures;• Execution, delivery and process.Operational risk losses regularly get reconciled with the Bank’s profitand loss statement.Scenario analysis estimates the operational risk exposure ofUniCredit Banka Slovenija d.d. The scenarios are defined byanalyzing internal losses, external events deemed relevant, keyoperational risk indicators’ trend, processes, products and eventtypes. The experience of process managers and operational riskmanagers as well as suggestions from internal audit or ALCO istaken into consideration.Once scenarios are identified, the Operational Risk Managementfunction interviews the relevant process owners. Results, in termsof worst case scenarios, critical processes, mitigation proposals orimpacts on capital at risk, are described in specific scenario reportsproduced by the Banks’ Operational risk management function.UniCredit Banka Slovenija d.d. currently works on the implementationof key risk indicators, which reflect the operational risk profile of theBank and correlate to different levels of risk. Such key risk indicatorswill allow operational risk management and ALCO to have an earlywarning system and set mitigation measures before the operationalrisk hits the Bank.Legal RisksProvisions have been made for pending legal risks in line with theestimated probability of costs arising from litigation.Business RiskBusiness risk is defined as adverse, unexpected change in businessvolume and/or margins that cannot be attributed to other risk types,resulting in fluctuations of revenues and costs, not consideringextraordinary items. The changes in business volume result fromunexpected development of market trend, unexpected customerbehaviour or new market participants/products.The calculation of business risk is based on an earnings-at-riskmodel using historical time series of revenues and costs. Businessrisk is currently monitored within the risk capital planning process.Risks Arising from the Bank’sShareholdings and Equity InterestsUniCredit Banka Slovenija d.d. is not actively making long-terminvestments in shares on its own account for the purpose of realizingshort-term trading or long-term substantial value increases. Theshareholdings of the Bank are either closely related to the Bank’sbusiness (SWIFT; Ljubljana Stock Exchange etc.) or the result ofrestructuring attempts.Real Estate RiskUniCredit Banka Slovenija d.d. only has a minor exposure in realestate financing and does not invest in real estate itself.Financial DerivativesDerivatives are classified as interest rate contracts or foreignexchange contracts according to the underlying financial instrument.The breakdown of transactions by the remaining period to maturityand the classification of instruments as interest rate and foreignexchange contracts follow international recommendations. In allcategories of transactions, a distinction is made between over-thecounter(OTC) and exchange-traded contracts, whereas UniCreditBanka Slovenija d.d. was engaged only in OTC business in 2007.UniCredit Banka Slovenija d.d. is a business partner in plain-vanilla192 2007 Annual Report · UniCredit Bank