Risk appetite framework (RAF)
The Board of Directors has established four key dimensions expressing the Group’s aspirations for the main risks in the Corporate Risk Catalogue:
- Loss buffer: to maintain a medium-low risk profile and a comfortable level of capital adequacy to strengthen the position as one of the soundest entities in the European banking market.
- Liquidity and funding: to always be able to meet obligations and funding needs in a timely manner, even under adverse market conditions, with a stable and diversified funding base to protect and safeguard depositors’ interests.
- Composition of the business: to maintain leadership in the retail banking market and generate income and capital in a balanced and diversified manner.
- Franchise: committed to the highest ethical and governance standards in business conduct, encouraging sustainability and social responsibility, and ensuring operating excellence.
Risk Appetite Framework structure (RAF)
The first line of defence: comprising the bank’s business lines (risk takers) and support functions. These are responsible for developing and maintaining effective controls over their business. They are also responsible for identifying, managing and mitigating the risks they originate, and for operating an adequate control environment.
The second line of defence: comprising the Global Risk Management Function (RMF) and Compliance.
These functions identify, measure and monitor risks, establishing management policies and control procedures. They are also responsible for independent review of their application by the first line of defence.
The third line of defence: Internal Audit oversees the activities of the first and second lines of defence. It does this by reviewing the risk control environment, compliance and the effectiveness of corporate policies, providing independent information on the control model.
Corporate risk catalogue
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CaixaBank has defined a Corporate Risk Catalogue that facilitates monitoring and reporting of the Group’s risks. These risks have been approved by the Board of Directors and are reviewed annually.
Risks | Risk management | Situation and main activites in 2017 |
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Profitability risk | ||
Obtaining results below market expectations or Group targets that, ultimately, prevent the company from reaching a level of sustainable returns that exceeds the cost of capital |
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Own Funds/Solvency | ||
Risk resulting from constraints on the Group’s ability to adapt its level of capital to regulatory requirements or changes in its risk profile. |
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Funding and liquidity | ||
Risk of insufficient liquid assets or limited access to market financing to meet contractual maturities of liabilities, regulatory requirements or the investment needs of the Group. |
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1. The capital threshold below which there are limits on dividend payments, variable remuneration and interest payments to holders of Additional Tier 1 capital instruments.
Risks | Risk management | Situation and main activites in 2017 |
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Credit risk | ||
Risk of a decrease in the value of the CaixaBank Group’s assets due to uncertainty about a counterparty’s ability to meet its obligations. |
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Market risk | ||
Risk of a decrease in the value of the Group’s assets held for trading or an increase in the value of its liabilities held-for-trading and in the held-to-maturity portfolio, due to fluctuations in interest rates, credit spreads, external factors or prices in the market where the assets and liabilities are traded. |
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Interest rate risk in the banking book | ||
Negative effect on the economic value of the balance sheet or results, caused by the renewal of assets and liabilities at rates that are different to those previously established, due to changes in the structure of the interest rate curve. |
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Actuarial | ||
Risk of an increase in the value of commitments assumed through insurance contracts with customers and employee pension plans, due to differences between the estimates of claims and actual performance. |
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Impairment of other assets | ||
Reduction in the carrying amount of the equity portfolio and non-financial assets (tangible, intangible, deferred tax assets (DTAs) and other assets) of the Group. |
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Risks | Risk management | Situation and main activites in 2017 |
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Legal/Regulatory | ||
Loss or decline in profitability due to legislative or regulatory changes, errors in interpreting or applying prevailing laws, court rulings or administrative action that goes against the Entity’s interests or tax-related decisions taken by the Entity or the tax authorities. |
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Conduct and Compliance | ||
Application of criteria for action contrary to the interests of customers and stakeholders. Also includes weaknesses in procedures that generate actions or omissions that are not in line with the legal or regulatory framework, or with the internal codes and rules, which could result in administrative sanctions or reputational damage. |
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Technological | ||
Losses due to hardware or software inadequacies or failures in the technical infrastructures that could compromise the availability, integrity, accessibility and security of the infrastructures and data. |
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Operating processes and external events | ||
Loss or damage caused by operational errors in processes related to the bank’s activity due to external events beyond its control or third parties, whether accidental or fraudulent. Includes errors in the management of suppliers, model risk and the custody of securities. |
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Reliability of financial reporting | ||
Deficiencies in the accuracy, integrity and criteria of the process used when preparing the data necessary to evaluate the financial and equity position of the CaixaBank Group. |
This is managed in a number of ways:
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Reputational | ||
The possibility that CaixaBank’s competitive edge could be blunted by loss of trust by some of its stakeholders, based on their assessment of actions or omissions, real or purported, by the bank, its senior management or governing bodies, or because of related unconsolidated entities becoming bankrupt (Step-In risk). |
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