The Risk Group is an integral part of the Bank’s organizational structure. It implements the Enterprise Risk Management (ERM) framework, creating value by contributing to the achievement of CIB’s objectives and the improvement of business performance. The Group uses the Three Lines Model in risk oversight, control, and governance to efficiently utilize existing risk management capabilities and help enhance the environment. It further ensures sustainable development of a risk management function that is operationalized, allowing management to make informed and risk-adjusted decisions. The ERM framework consists of the following five interrelated components:
- Alignment of business and risk strategy and risk appetite framework
- Robust identifying, measuring, managing, monitoring, and reporting (IMMMR) initiatives for all principal risks
- Effective risk infrastructure consisting of people, data, systems, methodologies, policies, and limits
- Robust risk governance and culture
- An integrated and forward-looking risk approach reflected in the ICAAP, ILAAP, and the Integrated Stress Testing framework
2021—2022 Highlights and Forward-looking Strategy
In 2021, the Risk Group helped expand the customer base according to CBE directives, which included: financial inclusion of the unbanked, mortgage facilities as a part of the housing initiative, and SME portfolio growth.
Maintaining a Strong Liquidity Position
The Bank maintained a strong liquidity position throughout 2021, with healthy liquidity ratios that are well above regulatory requirements. Local currency (LCY) liquidity ratio reached 57.47% against the CBE’s 20% limit, while the foreign currency (FCY) liquidity ratio reached 66.22% against the CBE’s 25% limit. The Bank’s liquidity coverage ratio (LCR) remained steady at 817%, and the net stable funding ratio (NSFR) recorded 247%. The interest rate risk in the banking book (IRRBB) remained at acceptable levels and allowed the balance sheet to benefit from a volatile interest rate environment. In 2022, the Bank is expected to maintain a healthy balance sheet, supported by dynamic growth and the ongoing realignment of the funding strategy.
Portfolio Growth and Quality
The Group helped the Bank expand the institutional, consumer and business banking loan portfolios, allowing CIB to capitalize on the gradual economic recovery recorded in 2021, which is expected to continue into 2022 as growth estimates stand at 5.1% for the year vs. 3.3% in 2020 / 2021.
On the credit quality side, the Bank continued to be prudent with stress testing scenarios to ensure robust capital adequacy in the event of a material increase in impairment requirements. Moreover, the Group maintained focus on current portfolio concerns, including concentration and sector diversification.
| 2020 | 2021 | |
|---|---|---|
|
Default Ratio |
4.29% |
5.13% |
|
Specific Coverage Ratio |
98.47% |
94.17% |
• Institutional Banking
The Bank aimed to increase its institutional banking portfolio, achieving significant loan growth of 21%—surpassing sector average growth.
Timely risk rating downgrades in 2021 helped position the portfolio for an upward trajectory as the economy and market improved. Asset quality indicators as of the end of 2021 illustrated a potential bottoming out of deteriorations in credit quality, and impairment practices continued to be sensible, with coverage ratio increasing to 215%.
Sectorial distributions continued to be crucial in 2021, as the Group worked to diversify industry contributions in light of the significant economic fallout from COVID-19. Furthermore, efforts were continued to dilute contributions from higher risk industries, such as tourism, textiles, and cement, in favor of industries with more positive outlooks, such as construction, non-bank financial institutions, infrastructure, and telecoms.
In 2021, risk appetite indicators were largely maintained; the Bank’s efforts to diversify growth were effective as additional companies were added to the portfolio.
• Consumer Banking
The Group introduced new programs to support consumer lending through online channels, targeted new segments, and developed tailored criteria to launch CBE initiatives, including the auto replacement and mortgage housing schemes for low- and middle-income segments.
While the impacts of the pandemic are still persisting, households continue to be vulnerable to potential long- and short-term economic impact, thus affecting debt repayment capabilities of customers. Therefore, comprehensive portfolio analysis and monitoring reports continue to be conducted to ensure robust controls and preemptive measures are adopted.
• Business Banking
In line with Egypt’s Vision 2030, the Group supports the CBE’s mandate for Banks to allocate 25% of their portfolios to SME lending. Credit program parameters and process will be enhanced to facilitate the same. Portfolio monitoring and early warning capabilities and dashboards were enhanced to ensure the Bank is within the risk appetite parameters, and the Business Banking team expanded tie-ups with other credit guarantee companies to hedge higher risk lending.
Despite the COVID-19 after-effects, CIB’s loan portfolio quality was resilient in 2020 and 2021.
Enhancing Non-Financial Risk Framework
The Bank invested in non-financial risk management capabilities to integrate with the existing ERM framework.
Operational Risk: A comprehensive framework is a set of interrelated tools and processes that are used to identify, assess, measure, monitor, and remediate the Bank’s operational risks. The main measurements include operational risk event management, risk and control self-assessments (RCSA), key risk indicators (KRIs), control testing validation, and operational risk assessment procedures (ORAP). During the height of the pandemic and in the months following, Operational Risk Management (ORM) held several virtual meetings and workshops with different stakeholders to ensure risk controls, mitigates, and treatments complied with regulatory instructions and health and safety requirements.
Model Risk: Validation automation and proper documentation are the main tools the Bank uses to mitigate the risk of using financial models.
Third-Party Risk: An organization assessment was conducted to assess and segregate expected business setbacks that may be faced by third parties during the pandemic. In parallel, the impact on the Bank’s operations and its continuity plan was measured. However, due to CIB’s readiness, as well as the assessment and identification of alternatives at an early stage, no significant business disruption or additional risk exposure occurred.
Reputational Risk: The Bank considers reputational risk as an integral part of ERM, with several quantitative and qualitative methods used to assess, control, and mitigate the risk. The Bank works on engaging key internal and external stakeholders through tools that assess the Bank’s reputation.
Improving Risk Infrastructure
The Group supports digital financial inclusion initiatives for lending to the unbanked and lower-income segments by leveraging the Bank’s channels and automated solutions. Furthermore, it introduces robust risk strategies, lending criteria and collection strategies addressing these untapped segments. At the same time, Business Banking is working with international vendors to automate end-to-end workflows to provide a superior customer experience.
CIB has successfully signed an agreement with a vendor to digitize and automate several processes across the institutional banking business. The project’s benefits range from automating workflow processes across credit origination, enhancement in risk grading models, digitization of credit-related data to power advanced analytics, and continued standardization of lending parameters to enhance credit origination.
Spreading Risk Culture
The Bank continues to promote a strong risk culture, where employees of all levels are engaged and empowered. The Risk Group conducted awareness sessions for employees using platforms that include e-learning and virtual trainings.