2011 Annual Report Financial Supplements - BDO

To manage the risk for holding financial assets and liabilities, BDO Unibank Group operatesan integrated risk management system to address the risks it faces in its banking activities,including liquidity, interest rate, credit and market risks. BDO Unibank Group’s riskmanagement objective is to adequately and consistently evaluate, manage, control, andmonitor the risk profile of BDO Unibank Group’s statements of financial position tooptimize the risk-reward balance and maximize return on BDO Unibank Group’s capital.BDO Unibank Group’s Risk Management Committee (RMC) has overall responsibility forBDO Unibank Group’s risk management systems and sets risk management policies acrossthe full range of risks to which BDO Unibank Group is exposed. Specifically, BDO UnibankGroup’s RMC places trading limits on the level of exposure that can be taken in relation toboth overnight and intra-day market positions. With the exception of specific hedgingarrangements, foreign exchange and interest rate exposures associated with these derivativesare normally offset by entering into counterbalancing positions, thereby controlling thevariability in the net cash amounts required to liquidate market positions.Within BDO Unibank Group’s overall risk management system, the Assets and LiabilitiesCommittee (ALCO) is responsible for managing the Group’s statement of financial position,including BDO Unibank Group’s liquidity, interest rate and foreign exchange related risks. Inaddition, ALCO formulates investment and financial policies by determining the assetallocation and funding mix strategies that are likely to yield the targeted financial results.Separately, the Risk Management Group (RMG) is mandated to adequately and consistentlyevaluate, manage, control, and monitor the over-all risk profile of the Bank’s activities acrossthe different risk areas (i.e., credit, market, liquidity, and operational) to optimize the riskrewardbalance and maximize return on capital.RMG has responsibility for the setting of risk policies across the full range of risks to whichBDO Unibank Group is exposed to.In the performance of its function, RMG observes the following framework:It is responsible for policy formulation in coordination with the relevantbusinesses/functions and ensures that proper approval for the manuals/policies isobtained from the appropriate body.It then disseminates the approved policies to the relevant businesses/functions afterwhich, pertinent authorities are delegated down to the businesses/functions to guidethem in the conduct of their businesses/functions. RMG then performs compliancemonitoring and review to ensure approved policies are adhered to.It is responsible for clarifying interpretations of risk policies/guidelines raised by theBusiness Heads/Units.When adverse trends are observed in the account/portfolio, RMG is responsible forflagging these trends and ensuring relevant policies for problem accounts/portfoliomanagement are properly applied.RMG is responsible for the direct management of accounts in BDO Unibank Group’sNon-Performing Loan (NPL)/property-related items in litigations portfolio andensures that appropriate strategies are formulated to maximize collection and/orrecovery of these assets.www.bdo.com.ph 57