Risk Management

Banco Indusval S.A. business strategy aims at the sustainable expansion of its activities in the long run. Therefore, it has constantly invested financial, material and human resources to improve risk control models and internal processes, as well as expanding and upgrading its technological infrastructure to support the future expansion of its activities.

Risk Management

Risk Management is one of the most important activities at Banco Indusval & Partners. The constant improvement in the management and control of credit, market, liquidity and operational risks is essential to provide stable financial results and to improve capital allocation.

The principles of prudence and ethics are always present in the policies, standards, procedures and goals in order to build a solid, integrated, cost effective and efficient financial conglomerate capable of facing potential market turbulences.

The measurement and risk management tools provide the development of the operational efficiency of all Indusval & Partners units, reducing losses and optimizing capital utilization in accordance with the business objectives.

Banco Indusval & Partners believes that the activities of risk management have a strategic nature and its policies, standards and procedures to manage risks are complaint to the current legislation and are approved by the Executive Board, reviewed annually and disseminated to all employees and third party service providers.

The Risk Management Policies ensure a compatible structure to control its operations, products and services, besides allowing the proper risk exposure measurement, identification, analysis, monitoring and efficiently and effectively reported.

The implemented risk management organizational structure of Indusval & Partners is in line with best corporate governance practices.

The Board of Directors and the Executive Officers annually review institutional risk policies and structure, which includes but it is not limited to the institutional Credit Risk Management, Market Risk Management, Liquidity Risk Management, Operating Risk Management, as well as being responsible for the information disclosed.

Credit Risk is related to the possibility of losses associated with the breach of contractual obligations agreed upon, either by the borrower or counterparty, also considering the depreciation of the contract entered into, due to higher exposure to risk by the borrower, to the reducing in profits or remuneration, to the advantages granted in the renegotiation and to recovery costs.

The Credit Risk Management structure should permit the identification, measurement, control and mitigation of risks, and set consistent procedures and routines to allow a comprehensive management of credit risk involved in all phases of the business.

Market Risk is the variation in the values of assets and liabilities caused by the oscillation of market prices and rates (such as interest, stock quotes, currency and commodity prices) and changes in correlation (interaction) between them and their volatilities.

The risk management involves an integrated set of controls and processes in line with best market practices, covering the activities of the financial conglomerate. This risk is identified, measured, mitigated and managed with great caution, following conservative guidelines regarding risk exposure. The Market Risk Management area is segregated from Treasury and from any other area that may impact its results and analysis, thus permitting an independent daily monitoring.

The main tools and measures for management of market risk are: the VaR (Value at Risk), which is a statistical measure that estimates the maximum potential loss of value of the bank's portfolio in normal market conditions within a given circumstance (horizon time), the calculation of losses in a scenario of stress (Stress Test), which determines the effects of extreme market conditions (both positive and negative) in value of the portfolio of the Bank, and the sensitivity analysis.

The policy, strategies and limits exposure to market risk are proposed and reviewed annually by the responsible department and approved by the Executive Board.

The main market risk management measurement tools are: the VaR (Value at Risk), which is a statistical measure that estimates the maximum potential loss of the bank's portfolio value in normal market conditions within a given circumstance (time horizon); the calculation of losses in a stressed scenario (Stress Test), which determines the effects of extreme market conditions (both positive and negative) in the value of the portfolio of the Bank; and, the sensitivity analysis.

The market risk policy, strategies and exposure limits are proposed and annually reviewed by the responsible department and approved by the Executive Board and the Board of Directors

Liquidity risk is understood as the possibility of mismatches between payments and receipts that may affect the ability to fulfill one or more obligations. This risk also arises from the inability to raise funds in sufficient amount to meet short, medium and long term commitments.

The liquidity risk management policy, as approved by the Board and reviewed annually, sets out principles, guidelines and responsibilities for the management of the liquidity risk of the conglomerate, in accordance with the liquidity risk control practices set forth in Resolution 2804/2000 of the Central Bank of Brazil. These criteria and procedures determine the liquidity reserve to be kept in a normal market scenario, and the measures to be taken in cases of liquidity contingency.

In compliance with legal requirements and in line with best market practices, Indusval & Partners conglomerate has implemented an operational risk management framework, consisting of a set of policies, procedures and actions permeated by the continuous improvement philosophy.

As defined in Resolution 3380/2006 of the Central Bank of Brazil, operational risk relates to the possibility of financial losses resulting from failure, deficiency or inadequacy of internal processes, systems, people or external events.

Indusval & Partners conglomerate adopted the STA 2 - Simplified Alternative Standardized Approach method to calculate the capital allocation related to the operational risk portion in pursuant to Circulate 3383/2008 of the Central Bank of Brazil.

Capital Management

Capital management is an activity of fundamental importance for BI&P - Banco Indusval & Partners. The Constant improvement of the management and control of credit, market, liquidity and operating risks have a relevant contribution for the stability of results and to refine capital allocation.

The efficient capital management includes the optimization of the capital utilized aligned to the Institution’s business strategy and its risk appetite. Thus, the Capital Management Structure comprises the following policies: Risk Management, Credit Risk Management, the Market Risk, the Liquidity Risk, Operating Risk and Risk Information Disclosure.

According to Resolution 3988 from the National Monetary Council, Capital Management is defined as the continuous process of:

  • Capital monitoring and controlling;
  • Analysis of capital required to face the risks taken by the Institution;
  • Targets and capital requirement planning, considering the Institution’s strategic objectives.

The Capital Management Structure shall support the Executive Board and the Board of Directors with consistent information on the risk profile of the Institution and the capital required to face each type of risk. This structure shall also implement and follow the Capital Plan and present alternatives to mitigate deviations, also maintaining the Management constantly updated on the applicable regulations.

The capital management policies and strategies shall be annually revised and approved by the Board of Directors in compliance with the prevailing regulations and aiming at maintaining the adequate Capital Management towards the Institution’s strategic planning and market conditions.