Report of the Board Integrated Risk Management Committee

Composition of Board Integrated Risk Management Committee

During the financial year ended March 2015, the Board Integrated Risk Management Committee (BIRMC) of DFCC Bank and DVB were combined to form a Group BIRMC under the permission of the Banking Supervision Department of the CBSL. The Group BIRMC consisted of the necessary representation from both the DFCC Bank and the DVB Board. Representing DFCC Bank, there are 3 Non-Executive Directors and one Executive Director as at 31 March 2015. The Group Chief Risk Officer, who has the voting power, functions as the Secretary to the Committee. Heads of key functional areas such as lending, finance, treasury, operations, IT and internal audit attend the meetings on invitation. The membership of the Group BIRMC as at 31 March 2015 was as follows:

Mr C R Jansz - Chairman of the Committee/Chairman of DVB and DFCC Bank
Mr A N Fonseka- Non-Executive Director of DVB
Mr A Fernando - Non-Executive Director of DVB/ General Manager of DFCC Bank
Mr T Dharmarajah - Non-Executive Director of DVB and DFCC Bank
Mr P M B Fernando - Non-Executive Director of DFCC Bank
Mr L H A L Silva - CEO/Executive Director of DVB
Mr T Fernandopulle - Group Chief Risk Officer

Charter and the Responsibilities of the BIRMC

The approved Charter for the BIRMC stipulates authority, structure, responsibilities and tasks of BIRMC. As per its Charter, the primary responsibilities of BIRMC are to review and ensure;

  1. Integrity and adequacy of the risk management function of DBB
  2. Adequacy of the DBB’s capital and its allocation
  3. Risk exposures and risk profiles of DBB are within acceptable parameters and to make recommendations to the Board of Directors on any action required;
  4. Review the adequacy and effectiveness of the management committees through a set of defined tools.
  5. Availability of a comprehensive and updated set of risk policies and guidelines covering overall operations of the Group.
  6. The compliance of the Group’s operations with relevant laws, regulations and standards including the adherence to the CBSL Direction on Corporate Governance.

Formulation of the Group BIRMC during the year, strengthened the risk management of DBB while improving the focus on both a holistic and a solo perspective.

The process through which the BIRMC discharges its responsibilities is detailed in the Risk Management section of this Annual Report.

BIRMC Meetings

BIRMC meets on a quarterly basis. During the year, DFCC Bank convened four BIRMC meetings. The attendance of members is listed on this table. The committee continued to review policy frameworks, risk management strategies, risk capital position and key risk indicators at these meetings and was satisfied that the risk exposures of the Bank and the Group were being appropriately managed. During the financial year, the following key initiatives were achieved by the Committee.

  1. Reviewed and approved the Internal Capital Adequacy Assessment Process (ICAAP) of DFCC Bank and DVB which was a regulatory requirement with effect from January 2014. BIRMC took several key decisions on the capital management based on the outcome revealed by the ICAAP.
  2. In relation to the management of compliance risk, compliance risk indicators with different risk scales were reviewed and specific areas of focus were recognized based on the possible impact and the probability of occurrence.
  3. Risk controls and monitoring tools were further improved with revisions to the overall risk limits system of DBB. Under this revision, a group perspective was brought as relevant with necessary attention on the specific risk profiles of DFCC Bank, DVB and other group companies.
  4. The Committee approved the revisions for credit rating models for SME exposures of DBB. This revision focused on recognising the borrower risk profile in a better approach and reduce the subjectivity in assigning the scores for the model parameters.
  5. The Committee reviewed the Probability of Default (PD) based on the rating grades, Loss Given Default (LGD) for facilities and technical validation results for the credit rating models. These credit risk parameters are used in credit appraisal process, credit pricing and risk management.
  6. The annual review of effectiveness and adequacy of the management committees were conducted by the BIRMC during the first quarter of 2015. The review results were shared with the respective committees for necessary improvements.
  7. Reviewed and approved certain new products and redesign of certain existing products of DBB while taking both business and risk management perspective.
  8. Reviewed the CBSL recommendations based on the examination report and the gap analysis on the ICAAP requirements in relation to the integrated risk management function of DBB.

Several new risk management policies and guidelines were introduced during the financial year, while all existing risk policies and practices were reviewed by the Committee in line with the Bank specific requirements, industry dynamics and regulatory specifications.

Reporting

The proceedings of the BIRMC meetings are reported to the Board through submission of the meeting minutes. Monthly key Risk Indicators and other specific matters are submitted separately for the Board’s approval on recommendation of the BIRMC. The recommendations made by the BIRMC during the year under review were approved by the Board.

 


C R Jansz
Chairman – Board Integrated Risk Management Committee

15 May 2015