bb proposal v2

8/8/2019 BB Proposal v2

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Boubyan BankBoubyan Bank

Assistance in developing the Organization Assistance in developing the OrganizationStructure of RMDStructure of RMD

November 2009



© 2009 Protiviti Member Firm (Middle East) Ltd

This document is for your company¶s internal use only and may not be distributed to any other third party.

1

Contents

Page

Your Needs 2

Scope & Approach 4

Engagement Approach 5

Role of Risk Management Department (RMD) 6

RMD Organization Structure 7

Composition of RMD 8

Job Descriptions of RMD Staff 9

Deliverables 12





2

Your Needs





3

Boubyan Bank (BB) is a Kuwaiti Islamic commercial bank established in 2004 by Amiri Decree No. 88 with a paid-up capital of 100 million Kuwaiti Dinars for the purpose of exercising all activities of the banking business in accordance with the rules and

regulations of the Central Bank of Kuwait. The bank¶s total revenues increased by 9% to KWD 59.7 million (USD218.5 million),

in 2008, while its net profits dropped by 89.6% to KWD1.9 million (USD7 million), due to provisions of KWD20.4 million

(USD74.7million), set aside at the end of 2008.

The Bank¶s primarily operates in four segments: Treasury, Corporate Banking, Investment and Retail Banking. Treasury

includes handling local and international Murabaha and other Islamic financing, primarily with financial institutions, as well as

the management of the Bank's funding operations. Corporate Banking includes handling Murabaha and Ijarah facilities for corporate and institutional customers. Investment provides services like direct investment, international real estate, business

development and management of marketable securities. Retail Banking includes handling deposits of individual customers

and small businesses, and consumer type Murabaha and Islamic covered card facilities.

The Bank has requested Protiviti Member Firm (Middle East) Ltd, for assistance in developing the organization structure of the

RMD, specifically comprising of

Role of the Risk Management Department

RMD composition (staffing strength, experience, qualifications etc.)

Job descriptions

The Bank has requested Protiviti to submit a proposal to achieve this scope, and this proposal is a response to that request.

Our Understanding of Your Needs





5

Engagement Approach

Analyzerisk environment

Understand the current state

DevelopDeliver ables

Management

Inputs

Conduct discussions withmanagement to understandexisting activities and businessunits of the Bank.

Discuss internal controls andrisk management measurespresent in business criticalprocesses.

Assess the Bank¶s organizationstructure and the fit of RMD inthe Bank¶s activities.

Understand the Bank¶s existingportfolio and key risksemanating from the same.

Evaluate the Bank¶s riskenvironment and identify major risks to which it is exposed.

Consult regulatory guidelines

(CBK) and best practice (e.g.Basel II, HKMA etc.)requirements with respect tothe role and composition of RMD.

Determine role of the RiskManagement Department onthe basis of senior managementdialogue, CBK requirementsand best practices.

Determine Composition of theRMD based on the Bank¶s riskenvironment and requirements.

Develop job descriptions for theRMD staff of the Bank.





6

Identifying the Bank¶s

Risk Universe

Conducting periodicevaluation of Bank¶s

processes & practices

to identify material

risks

Evaluating new

products launched by

the Bank, in order to

identifymaterial risks

Role of the RMD

Protiviti will conduct discussions with the Bank¶s Senior Management and Business Unit Heads to determine the extent of involvement of the RMD in the Bank¶s activities. We will document the role of the RMD considering the following key factors and

regulatory guidelines which will dictate RMD¶s fit into the Bank¶s organizational and functional structure ±

Bank specific factors - e.g. scale of the Bank¶s operations, material risks faced by the Bank, exotic instruments or products,

sophistication of risk management methodologies and practices etc.

Central Bank of Kuwait Guidelines

Roles and responsibilities of the RMD as per other regulatory documents (e.g. Basel II, FSA, Austrian National Bank (OeNB),

Hong Kong Monetary Authority (HKMA) etc.)

The activities of a typical RMD may be broadly grouped under three main groups as indicated in the figure below -

Risk Governance

Setting the Bank¶s Risk Appetite

and Risk Strategy.

Developing polic ies and

procedures for specific risks (e.g.

credit, market etc.) and for key

business units (e.g. Treasury,

Credit Department)

Establishing essential

committees such as ALCO,

RMC, Credit Committee etc. and

preparing committee charters.

Developing authority matrices for

financial, non-financial and

strategic activities.

Reporting & Monitoring

Consolidating reports from

respective business units.

Generating risk reports for

MTM market losses

Collateral Coverage

Portfolio concentration

FX reports

VaR reports

Liquidity levels etc.

Monitoring business units for

limit breaches/

Developing and implementing

escalation matrices reporting to

Senior Management

Risk Management

Risk

Identification

Risk

AssessmentRisk Control

Assessing impact and

likelihood of risks

identified Identifying key risks for

prioritizing action plans

Evaluating adequacy

and effectiveness of

controls in place

Identifying risks which

require further control

or management

Developing and

implementing action

plans for the treatmentand control of risks

Developing models for

risk measurement and

instituting processes

for risk control

Communicating risk

management practices

to business lines





7

RMD Organization Structure

Protiviti will consult CBK guidelines and other regulatory documents (e.g. FSA, HKMA) to identify the minimum requirements for theRMD, assess the major risks faced by the Bank and develop the RMD organization structure in order to enable the RMD to identify,

assess, monitor and control the risks faced by the Bank. The nature of the Bank¶s activities would typically dictate the organization

structure of the Risk Management Department.

Head, RMD

(CRO)

Senior Manager, Risk Analytics &Governance

Manager,Model

DevelopmentUnit

Manager, RiskGovernance

Unit

Senior Manager,

OperationalRisk

Manager,

RCSA Unit

Manager,

MIS Unit

Senior Manager,

Market Risk

Manager,

Market Risk

Risk Analyst,Liquidity Risk

Risk Analyst,FX & Equity

Risk

Risk Analyst,Profit Rate Risk

Senior Manager,

Credit Risk

Manager,Credit Review

Unit

Manager,Credit Admin &

Control Unit

Limit InputMonitoring &

ControlDocumentation

CollateralManagement

Manager,Credit PortfolioManagement

Unit

Fig: Sample RMD Organization Structure

For instance, a bank whose assets are concentrated in the banking book would have a more robust credit risk unit as compared to

a Bank which has an active trading desk and would be exposed to considerable market risk. Due to the nature of its activities, an

Islamic Bank would typically have a relatively small trading book and a large banking book.





8

RMD Composition

Protiviti will assess the Bank¶s risk management requirements on the basis of dialogue with the management and key process

owners. The extent of involvement of RMD in the Bank¶s day to day activities will determine the staffing requirements for RMD.

The strength and area of expertise of the RMD staff would also depend on key factors concerning the Bank¶s environment such as

(illustrative list only)

Regulatory requirements

Scale of operations

Concentration across product lines / countries / sector etc.

Risk tolerance levels of the Bank

Major risks affecting the Bank (e.g. credit risk / market risk)

Extent of sophistication in risk management procedures

Established risk measurement methodologies

Established risk models (e.g. Value at Risk models, credit rating models etc.)

Future expansion plans of the Bank into newer markets

Best practices as documented in OeNB and HKMA regulatory guidelines

We shall analyze the relevance of the above factors in the composition of the Bank¶s RMD and recommend the appropriate

strength and ideal staff profiles for the Risk Management Department.

The nature of expertise required by the RMD staff will dictate what qualifications and prior experience would be required in such

staff. Experience in the banking / financial services industry would typically be a mandatory requirement in addition to advanced

degrees in finance / risk management where the designation so demands. Knowledge of local markets and regulations would also

count as a key requirement for some of the roles of the RMD staff.





9

Job Descriptions

Protiviti will conduct discussions with the Bank¶s management and RMD staff in order to determine the roles and responsibilities of

the RMD staff and their fit into the Bank¶s organization structure. Based on these discussions job descriptions will be developed for

the RMD Staff.

Key components of the job description include ±

Position / Designation

Unit

Reporting to

Reportees

Role Summary

Responsibilities

The following pages illustrate two sample job descriptions which will be developed for the RMD staff as part of the engagement.





10

Sample Job Description - CRO

Position: Chief Risk Officer

Unit: Risk Management Department

Reporting to: Chief Executive Officer

Reportees: Senior Manager, RMD; Manager, Credit Risk; Manager, Market Risk; Manager, Operational Risk

Role Summary: Responsible for establishing a comprehensive risk management framework outlining the risk management

strategies, governance structure, and risk mitigation strategies.

Responsibilities:

Establish a bank-wide framework for identifying, measuring, monitoring, reporting and mitigating risks

Develop risk management strategies, governance structure, risk identification, measurement and reporting policies

Develop and implement a methodology for articulating the risk appetite and risk capacity of the Bank.

Oversee development of business unit, risk limits; review daily exposures against limits and determine corrective actions as

appropriate.

Review reports pertaining to breach of limits and bring these to the attention of the senior management based on pre-

defined trigger points

Recommend to the Risk Management Committee, Board of Directors any amendments pertaining to policies, procedures,models, report formats, limit structure and information systems as reported by credit, market and operational risk

managers.

Provide status reports and risk review reports to the Chairman & Managing Director and the Chief Executive Officer

Identify / develop relevant training programs for personnel in risk management.

Periodically review best practices in the area of risk management such as Basel, IFSB norms, etc. and proactively identify

areas of improvement for the company





11

Sample Job Description - Risk Analyst

Position: Risk Analyst

Unit: Risk Management Department

Reporting to: Senior Manager, RMD

Reportees: None

Role Summary: Assist Senior Manager, RMD in establishing and managing the departmental functions

Responsibilities:

Establish and implement a comprehensive framework for the identification, monitoring and measurement and mitigation of

credit, market, liquidity and operations risk

Establish a suitable limits structure for the credit related activities of the Company.

Prepare and present various risk reports including

± Gap reports on liquidity mismatches; and

± Reports on breach of various limits.

Develop and periodically update policy and procedures document

Maintain a database of business processes, risks, controls, mitigation measures Assist the Senior Manager in other day-to-day activities or any risk management initiatives.





1212

Project Deliverables





13

Deliverables

On completion of the engagement, Protiviti will provide the following in the form of a report to the Bank

Role of the Risk Management Department

Composition of the Risk Management Department (sample organization structure on page 7)

Job Descriptions (sample job descriptions on page 10 & 11).





1414

At Protiviti, we believe the or ganizations that most

effectively understand and manage their risk are the

companies that most of ten succeed.

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