World-class standards control
risk exposure

Several initiatives launched in earlier years came to fruition and were embedded in the Bank’s processes over 2012. We had the task of embedding some of the significant changes such as credit ratings, tools such as RAROC (Risk Adjusted Return on Capital), and policy-related changes including minimum underwriting guidelines. ADCB also concluded the Unified Credit Culture programme, a Bank-wide, casestudy based, intensive credit risk training initiative. Besides raising common expertise levels across the asset acquisition teams, this also had a positive impact on our credit underwriting processes as its learnings were embedded in the new service model rolled out by the Credit Group.

Overall, it was a challenging but successful year in managing asset quality in a market which is still in recovery mode. In parallel with rolling out the new Risk Management paradigm, we had to perform the task of restructuring and cleaning up the Bank’s legacy book of problem loans, while ensuring that the attention to new business did not waver. We believe the Bank was able to do a credible job in all these areas, which is reflected in the numbers achieved.

In 2009, we had committed to our key stakeholders our intention to deliver an Enterprise-Wide Risk Management Framework comparable to the best in the region, and in the process to raise our risk practice to world-class standards. This ambition was enshrined as one of the Bank’s key strategic pillars. The road map had milestones ranging from low-hanging fruit (six months target), to medium-term objectives (18 months from launch date), and longer-term goals – three years from launch date. We believe that with the dedication, commitment, and hard work of an extraordinary team of people across various parts of the Bank who worked in unison in sometimes difficult circumstances, we have succeeded in delivering on our commitments.

Over the last few years, a significant amount of attention, investment, resources, and time has gone into developing and upgrading our Risk IT infrastructure. While we have tried to contain costs at manageable levels, this has been achieved without compromising on quality. Our internally-developed exposure management system satisfies almost all requirements for best practice exposure management and those set out in the management information systems paper recently published by the Basel Committee. Our ratings tool has scored well in terms of a preliminary accuracy ratio conducted by vendors, and our suite of rating scorecards covering most key elements of our credit risk portfolio has been confirmed to be one of the most extensive in the region. We recently upgraded our regulatory capital and asset-liability management engines to give us enhanced capacity in terms of capital and liquidity management. Our limits and collateral management systems, while composed of several interlocking systems – many of which were developed in-house or modified from existing vendor products – are comparable in capability to best-in-class systems provided by vendors, as demonstrated by recent presentations made to us by vendors active in these areas when we were seeking an external omnibus solution.

Our workflow management system represents a pioneering effort, and is in many respects ahead of comparable products in a market that is still evolving. In terms of compliance initiatives and achievements, we have received external endorsement of the various measures we have implemented from several consultants and at least one significant regulatory body.

Our credit transformation process is an ongoing attempt to raise our credit underwriting process to the highest level in terms of efficiency, turnaround time, and service delivery.

This is a project spread over 18 months and covers end-to-end process with accompanying system, people, and tool upgrades and is a joint initiative between the Business and Credit groups.

We revamped our loan documentation across Wholesale Banking in its entirety. We also completed an extensive review and upgrade of the Bank’s complete insurance coverage and terms to improve efficiencies and plug coverage gaps.

Given that credit risk is one of the biggest risks facing ADCB, jointly with the Business Groups we launched the Unified Credit Culture programme, which followed a cascade policy from the Board through management all the way down to the front-office staff. Other initiatives included e-learning within compliance, operational risk, and fraud risk as well as standard internally and externally conducted training in compliance, know your customer/anti money laundering, sanctions, personal trading, and whistle-blowing. We conducted additional educational workshops across the Bank on market risk, restructuring principles, lessons learned in the remedial risk area, etc. Clean-up of the Murex Financial Institutions limits and counterparties was an 18-month cross-functional exercise involving several different reporting areas across the Bank, which required extensive data clean-up and process modifications following the winding down of the Macquarie Joint Venture and implementation of the front to back Murex Treasury system. Credit Risk Management has also been active in developing Business Unit packs on management information systems and other customer profitability measures.

We continue to invest in our people through training and leadership programmes. Our second batch of ‘Aspiring Managers’ completed their structured programme, and in the process produced some very interesting project recommendations that are now in various stages of implementation by the Group.