Risk governance is a self-discipline for sustainable control of risks by properly defining and making it function as a way of supervision and execution by the Board of Directors and management, and it is an important area in the corporate governance of financial institutions.
The Shinsei Bank Group has established a Group Risk Governance Policy, which outlines the concept of governance based on a sound risk culture, appropriate business execution based on risk appetite, and appropriate risk management. In general, for financial institutions to earn stable profits, they need to take risks while clarifying their risk appetite, as well as appropriate risk management framework to support this. These are the aggregation of the judgments and actions of individual employees and are strongly affected not only by rules and regulations, but also by the values and cultures of the organization. We believe that risk governance initiatives require a birdís-eye view of all elements.
We have worked to foster a sound risk culture and upgrade our risk management to create a system appropriate to the risks we face. In recent years, we have focused on building systems for appropriate business execution based on risk appetite, and have developed an integrated business management framework based on risk appetite and its consistency with financial plans.
The Shinsei Bank Group considers ROE (return on equity) and other factors to be key financial indicators for management strategy. We believe that risk governance is an important premise as appropriate risk-taking generates returns as expected and, in turn, aims to improve financial indicators.
Risk appetite is commonly referred to as the risk appetite framework. However, the Shinsei Bank Group focuses on the consistency of risk appetite and financial planning as a key premise. By operating the existing functions related to both in an integrated manner, we have established a system that aligns the intentions of the Board of Directors with the execution of management on risk appetite.
A sound corporate culture is one of the fundamental components of appropriate corporate governance. We have established the Charter of the Shinsei Bank Group Corporate Behavior and the Shinsei Bank Group Code of Conduct. At the Shinsei Bank Group, we act in accordance with the Charter of Corporate Behavior and Code of Conduct, and our risk culture is based on the values that serve as the principles of action when confronting risks. In general, scandals and loss incidents have various direct causes. In light of the underlying causes of these incidents, it is extremely important to foster a sound risk culture. Hence, in order to foster this risk culture, we should demonstrate that it is imperative to adhere to the basic stance of the Board of Directors and the executive management, and managers should play a role in instilling this within the organization.
Overview of the Group's Risk Management Systems
To ensure its risk management is more effective, the Bank has established various specific committees such as the ″Group Risk Policy Committee,″ ″Transaction Committee,″ ″Group Asset and Liability Management (ALM) Committee″ and ″Market Business Management Committee.″ All these committees are able to function effectively as bodies responsible for making important risk judgments by constantly improving their composition and functions in response to changes in the operating environment. The Group Risk Policy Committee, whose members include senior management such as the CEO, Chief Officer of the Group head of corporate planning and finance, and the Group head of risk management, performs the crucial role of setting and coordinating the appropriate and optimal level of risk taking by concurrently reviewing the BankĀfs risk management policies and business strategy. Shinsei Bank has established the ″Group Risk Management Policy″ as its fundamental policy on risk management and basic recognition of risk categories based upon its understanding of the totality of risks faced by the entire Shinsei Bank Group and the need to actively manage them.
Basic Concept regarding Risk Management
Financial institutions are exposed to various risks, including credit risk, market risk, interest rate risk, liquidity risk, and operational risk.
To maintain highly profitable and stable operations, a financial institution must make the control of these risks a management priority. For that purpose, the Bank must be able to ascertain that risks are taken in line with Bankwide policies as well as individual operational policies, remain within appropriate limits. To strengthen the required monitoring functions and further develop its risk management framework, the Bank established two risk management groups: 1) credit analysis divisions responsible for credit analysis, loan application approvals and monitoring and 2) divisions responsible for overall risk management, measuring and analyzing credit, market, and other risks, and integrating functions for examining and verifying fair value.