Risk Management is embedded throughout the organisation. While business managers are primarily responsible for delivering a resilient business approach, they are supported by risk managers, with local business knowledge, to assess and manage risk. At a group level, a risk outlook process is implemented to align Triodos Bank’s risk profile with its risk appetite level, or the willingness to take risk in achieving its business objectives.
During this process each business unit performs a strategic risk assessment to identify and manage potential risks that could impede the realisation of their business objectives. The outcome of these assessments are consolidated and used as input for the Executive Board’s own risk assessment and to determine Triodos Bank’s risk appetite.
The outcome of these assessments was used to determine stress scenarios that were used to stress test Triodos Bank’s results, liquidity and capital on two occasions in 2011. The results of these tests were satisfactory.
Although not required to, Triodos Bank performed the stress test that the European Banking Authority has required of a subset of European banks to test their resilience to a major economic shock, based on publicly available scenarios and methodology. The results confirm a strong financial position with a total capital ratio of 13.6% and a Core Tier 1 ratio of 12.7% after a two year stress scenario. This is more than 2.5 times higher than the minimum 5.0% Core Tier 1 ratio required for the purpose of this stress test. More details of our capital requirements follow below.
A fully integrated risk management report has been developed that gives insights into the Triodos Bank risk profile on specific risk themes, and to provide an integrated picture of risk at business unit level. This report is made four times a year and is presented to the Supervisory Board Audit and Risk Committee.
The Asset and Liability Management system has been reviewed and upgraded in order to give more insight and provide monitoring tools for the monthly Asset and Liability Committee on interest rate risk, liquidity risk, currency risk and capital management.
The credit risk function was successfully reinforced in the course of 2011 both at head office level, and in the branches. This introduced more pro-active management of bad loans and a better review process of the loan portfolio, so the organisation can detect potential issues with borrowers earlier, and prevent risks.
The of Triodos Bank’s annual accounts provides a description of the main risks related to the strategy of the company. It also includes a description of the design and effectiveness of the internal risk management and control systems for the main risks during the financial year. No major failings in the internal risk management and control systems were discovered in the financial year. The developments of the main risks within Triodos Bank are discussed on a regular basis in the Audit and Risk Committee of the Supervisory Board.