Main Tasks of Internal Audit is to Assess the Effectiveness of Risk Management
0 comments Posted by DeXtR at 4:08 AM
After screening can assess the internal control system in the context of the risks inherent in the proven area. On the approaches to solving this problem as an internal audit process, corporate lending and will be discussed in this article.
To effectively solve this problem in our company has developed a unified methodology that is introduced directly into the program audit. It allows you to assess risks based on the detected violations and shortcomings of control.
The technique
In developing the methodology, in addition to the overall objectives of internal audit, was placed another: the possibility of integrating the results obtained after the risk assessment process, the matrix of all the risks of the bank. This matrix gives the owners, management and the audit committee a clear idea about the effectiveness of internal control and risk levels in different functional areas of the bank. That is literally on one sheet of A4 you can see the status of all functional areas in the context of inherent risks and identify the most problematic areas.
For greater clarity, the results of the audit should use the scale level of risk. For example, risks can be ranged on high, medium and low. Bind the results to this scale should be determined on the basis of the adopted in the bank risk tolerance. Few jumping ahead, we note that in the case of credit risk can fix certain levels of expected losses on the portfolio. For example, if the proportion of expected losses exceed 10% of the total portfolio, the risk of recognized high. In the case of operational risk management, sensitivity to them may be a certain monetary value.
Speaking about the pros techniques should be made use of monetary valuation of risks that can get a general proposition about the level of risk throughout the bank as a whole. Also advantage is the ability to move from individual observations to the overall assessment of the level of risk in a particular area and comparability of the results of audits in terms of consequences for the bank. Addition, you can compare the regional corporate portfolio. Consider the risks inherent in corporate lending, and approaches to their evaluation in more detail.
How to calculate the expected loss
The size of the expected loss is determined on the basis of regression analysis of statistics accumulated defaults.
Regression analysis - a method of mathematical statistics, which allows you to set an expression of the relationship between the studied traits: effective and Factoring. In this case, the resultant sign is the fact of default of the company, and factor variables - the reasons for this default.
Strategic risk and reputation risk are excluded from the notion of Basel 2 Operational Risk. In extreme cases they may be due to credit (for example, a wave of defaults of borrowers due to the crisis). But due to the fact that these risks will affect the whole bank, they are considered separately.
The risks inherent in the corporate lending
Corporate lending has two groups of risks - credit and operational. There may be a reasonable question: why is it marked? Why no attention by, for example, market risk? Risk Management Policy in the bank is engaged in risk management. Internal Audit closely cooperates with him, but represents the interests of shareholders and does not depend on the company's management. In this regard, approaches to the definition of risk may differ somewhat. For the purposes of internal audit under the definition of "market risk" refers to:
* The likelihood that the actual transaction price may differ significantly for the worse of the market price;
* The risk of adverse market fluctuations in prices for bank assets.
In any case, market risk is not peculiar to credit work.
Credit Risk
Under the credit risk means the probability of bank losses because of the inability or unwillingness of the client to fulfill their obligations under the contract (as on principal and on overdue interest). Credit risk arises whenever the bank invests the money or commits to provide them. It does not matter, as these amounts are recognized - as an asset on the balance sheet or as contingent liabilities off their balance sheets. Thus, all loans and bank guarantees are provided for the bank credit risk. To assess this risk was developed following an approach based on its own rating system. In this sense it is more common with the method of assessing the credit risk on the basis of internal ratings of Basel 2 (internal rating-based approach). The system allows on the basis of a number of parameters (the financial situation, the size of the borrower, its market position, credit history) to assess the probability of default of the borrower (probability of default), then calculate the level of expected credit losses, taking into account the quality of the transaction (recovery rate). This will be a monetary value to the credit risk (credit risk exposure - CR). Consequently, the overall level of credit risk inherent in the loan portfolio, will be equal to the sum of expected losses on each loan:
where CRi - the value of the expected loss for the i-th loan.
The value of CR is an absolute monetary terms and, in addition to the quality of loans depends on the magnitude of the size of the loan portfolio. Therefore, for the purposes of assessing the quality of the loan portfolio should be applied relative indicator. As such an indicator is chosen the ratio of credit risk (CR) to the size of the entire portfolio. This figure allows us to estimate the proportion of credit risk in the portfolio. In addition, it helps to compare the quality of various loan portfolios, which is very important in evaluating the performance of regional branches of the bank.
Sergey Sukhorukov, Senior Auditor Internal Audit Service CJSC Credit Europe Bank "
In my opinion, with all the diversity of existing approaches to risk classification would be appropriate to apply the recommendations of the CBR, as set out in the letter dated 23.06.2004 № 70-T. They are very similar to the approaches used by banks in our holding in other countries. However, we appreciate that some kind of risk on a verifiable process. For example, in the process of corporate lending are possible following risks:
# Credit risk (the definition as quoted by the author of the article);
# Operational risk, which refers to the risk of losses due to mismatch of internal processes and procedures for banking transactions and other transactions, the nature and extent of the credit institution and / or requirements of the legislation. By the operational concerns and the risk of violations of internal procedures for employees of a bank or other persons because of incompetence, unintentional or intentional acts or omissions. This also should include disproportionate risks (lack of) functionality of the information, technological and other systems used by the credit institution, or violations of their functioning. IT-risk manifests itself in the fact that information systems are in the very architecture of software flaws that allow an incorrect operations.
For example, the program admits that entering information when issuing credit and further support is implemented under the rights of one and the same user (violates the principle of separation of powers), or general permits for operations with the empty fields with the necessary information. Finally, the risk of exposure to external events is also considered to be operating. This risk is assessed in the context of possible internal environment of the bank and internal control system to withstand negative external developments. For example, assessing the external risk of the borrower that may affect the servicing of its debt to the Bank, within the framework of auditing corporate lending to verify the reality of credit ratings services, bank business plan of the borrower and its dependence on external factors (seasonality, market characteristics, the dependence of business on the political situation ). It is also recommended to have a "black list" of organizations for which there is information on the preparation of bogus documents to obtain loans. This list will help expedite the review process and do not miss the application unscrupulous borrowers;
1. Poseidon.
It was a modest Australian mining company, which in September 1960 of the last century was struck by the business world is a big discovery of nickel deposits in the town Windarra in Western Australia. Here is the company's stock soared from 0.8 to 12.3 Australian dollar.
By February 1970 they cost 280 dollars, fueled by a speculative boom. But then the price of nickel fell, and the bubble burst. Those investors who were able to purchase 3571 share of the company for 2 thousand 856 Australian dollars and costs 0.80 per share in early September 1969 to February 1970 was the millionaire in Australian dollars.
2. Berkshire Hathaway.
For those who threw in his lot with the investment by the company headed by Warren Buffett, the famous American investor, did not have miscalculated. In 1962, three years before the Buffett took over the company, its share was worth $ 7.56. Now the price of one paper - $ 112 thousand which means that those who bought only nine shares at $ 68 in 1962, is a dollar millionaire.
3. Microsoft.
If Warren Buffett is the renowned American investor, then Bill Gates should be the most famous businessman. Those who in 1987 bought shares in his company Microsoft, have received generous pay later. In that year one of its action in a certain period cost only $ 0.08, whereas now the price reaches $ 25,4.
Thus, any investor with the 1987 package of shares worth only $ 3149 now - a full-fledged millionaire in dollar terms.
4. Cisco Systems.
Like Microsoft, this California-based company has successfully caught a wave of information technology boom of the late 90-ies of the last century. In March 1990, one of its share was quoted at a negligible level of $ 0.08. Ten years later, in March 2000, at a technology bubble, it is already estimated at $ 77,3.
It follows that any investor who invested in March 1990, the company just over $ 1 thousand in the decade became a millionaire in dollar terms.
5. Sage Group.
Not only in the New World there were so outlandish things in the information technology field. Sage Group, a British company specializing in the accounting business for the past 18 years has endowed income investors in the amount of 6000%. Those who in 1990 owned a part of the company amounting to 17 thousand pounds, and who reinvested all dividends are now reaping the fruits of success of over one million pounds.
6. Next.
Although the largest British trading company apparel sales experienced in the past year, a strong fall, those who are lucky during the last recession in December 1990 to buy its shares at 13.5 pence per share, received in the amount of broth 17600% when first half of 2007, her papers were leaving at 24 pounds per unit. It was enough to invest in the Next in December 1990 amounting to 5624 pounds - and the beginning of last year you would have more than one million pounds. However, the current downturn in the market to more than halve this amount.
7. Nokia.
In 1992, it was a little-known Finnish company producing phones. Then one of her campaign was estimated at a tenth of the euro. Now this paper is worth 17.8 euros, representing an increase of 17700%. Those who bought in October 1992, shares of Nokia in the amount of just over 5600 euros, now - a millionaire.
8. Gresham House investment trust.
This private investment fund for the nine years from August 1998 to August 2007 shed on investors in the form of golden rain arrived at 3800%. Any holder of shares of stock as of August 1998 amounting to 25,600 pounds, provided that all dividends reinvested, would now sitting on a bag with a million pounds.
9. BlackRock World Mining Trust.
This investment fund effectively used the boom in metals and minerals. Between September 1998 and May of his present income reached 1897%. This means that it was enough to invest just over 50 thousand pounds in September and reinvest the dividends to now join the club of millionaires.
10. Google.
Launched just four years ago, the Internet company has made millionaires of many of its employees and, judging by her activities, be able to repeat this success for many private investors.
Since August 2004 the share price, which then amounted to $ 85, has grown sixfold, to $ 485, and the peak position may be expressed in more than $ 700.
Fictional World by Psychologist Bruno Bettelheim in his book "The benefits of magic"
0 comments Posted by DeXtR at 12:23 PM
Peculiar magic narrative can be called and the actions of the U.S. Treasury Department, says Marketwatch (marketwatch.com). They did not cheat again and again speaking about the power of the dollar. While their words no longer provide investors with direct signals on further steps in the market, they still provide real support for the U.S. currency, constantly reminding the market that a "green" is the government.
"Belief in the national currency and its reliance on force must support the government", - said Cathy Liane, chief specialist of the company's strategy in Forex Capital Markets. According to Liane, "to stimulate the economy, the U.S. needed a weak dollar."
At the same time, the specialist noted that the country needs to attract foreign investment, and for this, however, useful to the tale of a strong dollar that can give confidence to investors.
To remain impartial
Talk about "strong dollar" is well known to specialists and market participants, who often know by heart all that the officials said, and often roll their eyes, hear such speech. Traders with short positions are simply not pay attention to these remarks.
"It is clear that a strong dollar is in our interests," - repeated again, Treasury Secretary Henry Paulson last Thursday. Nevertheless, his speech made at a press briefing at the White House on that day could not keep the dollar from falling against most of its competitors.
"The Finance Minister Paulson had the strength to calmly repeat the phrase" strong dollar is in our interests. "This phrase was yet another attempt to revive the" green ", which did not help even the growth of stock markets," - wrote in a research note shortly after the speech the Minister for Senior Specialist of currency strategy David Watt of RBC Capital Markets.
Later, Watt was asked to clarify written. The specialist noted that although Paulson's statement did not impact on the market, his impassive face once again the U.S. administration's intention to give the market a signal that the dollar is not always strong, but its significance remains. According to Watt, the Minister of words actually mean the following: "We do not care which way the dollar moves as long as people's confidence in our currency." Paulson uttered those words so many times that it suggests that people want to see a strong dollar, but nobody wants to admit that there was no objection to the weak dollar.
Getting started in a beautiful fairy tale and why over
In the 1990's to pursue a policy of strong dollar began to former Treasury Secretary Robert Rubin. Repeating the phrase about "a strong dollar in U.S. interests," Rubin gave investors understand that the authorities do not intend to intervene in the currency market to weaken. These words serve as a signal to foreign investors that they can fearlessly to invest in U.S. assets without fear of depreciation of the dollar, which could adversely affect profitability.
According to the chief expert on strategy at CMC Markets Eshrafa Leydi, "the use of certain messages is significant for market participants began to lose effectiveness in the spring of 2002, when President George W. Bush gave the calls of American manufacturers, who demanded to do something to prevent excessive overvalued national currency .
Then, to protect American steel producers, Bush imposed tariffs on imports of certain grades of steel and steel products, which aroused a negative reaction from the foreign market participants. At the same time sounded a complaint that it goes against the norms of international trade law. In 2002, the dollar lost 15% against the euro about 10% against the yen.
Rubin's successors as Minister for Finance Secretary John Snow and Paul O'Neill continued to talk about the power of the dollar, using the long-familiar market momentum. However, even then, it became clear that the United States exchanged the policy "really" a strong dollar for some indifferent attitude towards him.
Real benefit
Of course, the weakness of the dollar could bring an increase in exports and economic growth. However, its strength also can be used. According to a senior expert on foreign exchange strategy at Bank of New York Mellon Maican Woolfolk, a strong dollar is in U.S. interests because it allows you to control inflation, attract foreign investors and allow the national currency at the center of the global financial system. "
Last enables the U.S. to cope with large current account deficit, as well as helping to maintain rapid economic growth and high employment.
The Market of Debt Collection Has Started an Interesting Precedent
0 comments Posted by DeXtR at 12:08 PM
The market of debt collection has started an interesting precedent - the bank has no customer service reservoirs, and their object. Center for Development collector went to a public phase of recovery of debt from the bank "Financial initiative". Customer Russia's agency has become a major Ukrainian company dealing with system integration.
As the CEO of the Center of collector Dmitri Zhdanuhin, his company is engaged in debt collection bank "Financial initiative" to the company, which is recorded by a court on Nov. 1, 2008 and currently amounts to 979 thousand UAH. Currently, the debtor disputes the decision.
At the same time, he said, the involvement of Russia experts in the process of collection of debt due to the fact that for the most rapid recovery of debt in this case the actual use of corporate collector, Ukrainian collectors who are just beginning to develop.
In particular, the main difference from the legal methods of solving the debt problems - use to motivate the debtor to perform the obligations methods of PR-support enforcement as a point and mass, it is the realization of the possibility of legitimate dissemination of information on the availability of debt and its consequences on key recovery for the debtor audiences, individual organizations and individuals.
"New technologies for comprehensive efforts to address debt problems, the connection of legal procedures and PR in the recovery from CB Financial Initiative" helps prevent counterparties and depositors of the credit institution may be difficult for her situation, - he explains Zhdanuhin .- It raises the question: how may fare affairs of the bank, which does not pay for work associated with providing fire and general safety? "
In particular, he said, the program provides for the recovery of debt sending special letters to the owners of the bank and associations in which it is a financial institution. It has already been sent to appeal to the Association of Ukrainian Banks. "In the AUB until we were asked to refrain from disseminating this information so as not to strain the situation around the bank, instead promising to try to influence the shareholders, but no results have not yet been reached," - noted the director TSRK.
According to some reports, the bank "Financial initiative" controls the Western Ukrainian businessman Oleg Bakhmatyuk, to structures which also include "Ukrainian gas financial consulting group, agroholding" Avangard "Ltd," Trans-Europe ", Financial Consulting Group Ukrmyaso, holding "MonolitTransBud" holding "UkrLendInvest and sales network" Favorite ".
A similar petition was received and the Finance and Banking Council of the CIS, the coordinating council which includes the chairman of the Supervisory Board's Finance Initiative Natalia Vasiljuk. Get a comment from the bank's management yesterday failed.
"The emergence of Russia's companies in returning to the client (legal person) of bank debt is very regular. Given that the main customers of Ukrainian collectors are just the banking industry, it is unlikely precedent for the work in this direction. Moreover, Center for Development collector previously stated the Ukrainian market, positioning himself as an expert in the field of corporate penalty. Obviously, this is one of the projects in Ukraine ", - says Alexander Ilchuk, director of the European Agency for Debt Recovery.