My first Publication ocbc_ar17_fullreport_english | Page 86

RISK MANAGEMENT
(This section forms an integral part of OCBC’s audited financial statements)
KEY HIGHLIGHTS IN 2017
In 2017, global and regional activity
gathered strength and growth became
more broad-based. The threat of trade
protectionism faded while geopolitical
posturing in Asia was well managed.
Consequently, demand for financial
services in our key markets of Singapore,
Malaysia, Indonesia and Greater China
picked up. While we responded proactively
to the opportunities arising from more
rapid trade expansion and the revival of
investor and consumer confidence, we
stayed disciplined in our risk management
as we supported our three core business
pillars – Banking, Wealth Management
and Insurance. We remained vigilant
to ensure that our asset quality and
coverage ratios were maintained at
acceptable levels.
The momentum of growth in the global
and regional economies is expected to be
carried over into 2018, though at a more
moderate pace. Financial conditions are
likely to be less benign and with greater
uncertainties emerging as financial
markets and asset prices adjust to
possible surprises from higher inflation,
a faster pace of monetary normalisation
and rise in interest rates. The threat of
trade protectionism could re-emerge
to undermine global trade and set back
global growth. We remain watchful of
the possible large swings in liquidity
conditions and prices of financial assets
as well as geopolitical risks. We will
remain prudent and focus on our long-
term strategic priorities. With our strong
funding and capital position, we are
well placed to serve our customers and
capture new opportunities as they arise.
Recognising the importance of promoting
long-term sustainable development,
the Board has approved material
Environmental, Social and Governance
(“ESG”) factors of which Responsible
Financing is one. We have integrated ESG
considerations into our credit and risk
evaluation process for all new and existing
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OCBC ANNUAL REPORT 2017
corporate and institutional borrowers on
group-wide basis in 2017. Transactions
with high ESG or reputational risk are
escalated to the Reputational Risk Review
Group for clearance.
During the year, among the initiatives
undertaken to enhance risk management
capabilities and/or to meet regulatory
requirements, the key ones are:
• Established a new Group Data
Management Office reporting
into Group Risk Management
Division (“GRM”). This is part of our
effort to enhance group-wide risk
data aggregation and reporting
capabilities to comply with the
requirements stated in the Basel
Committee on Banking Supervision
Regulation No. 239 (“BCBS 239”).
• Completed the development of
reporting capabilities in overseas
locations through enhancements of
our Asset and Liability Management
(“ALM”) risk system. This is to comply
with the regulation on Group Net
Stable Funding Ratio (“NSFR”) which
is effective from January 2018.
• Started capabilities building for
regulatory reporting of group-wide
Interest Rate Risk in the Banking Book
(“IRRBB”) which will take effect from
December 2018.
• Adopted the Advanced Internal
Ratings-Based approach for
margin lending exposures in
Bank of Singapore.
• Adopted the Foundation Internal-
Ratings Based approach for sovereign
exposures in OCBC Group (excluding
Bank OCBC NISP).
In 2017, we saw an increase in security
threats including malicious cyber threats
across the globe causing disruptions to
businesses and facilities. In response,
these are several of the key initiatives
undertaken by us:
• Embarked on more extensive
cyber risk awareness programmes
to improve staff vigilance across
the Group.
• Enhanced our policy to strengthen
the management of cyber risks and
improve cyber resilience.
• Participated in the industry-wide
exercise conducted by the Association
of Banks in Singapore (“ABS”) where
the Bank exercised its emergency and
recovery responses to terrorism and
cyber-attacks.
• Made improvements in our physical
security infrastructure and controls at
key office buildings.
In recognition of our achievements
in capability building and operational
risk management, we received the
“Achievement in Operational Risk
Management Award” in The Asian Banker
Risk Management Awards 2017; this is our
third consecutive award since 2015.
Recognising the dynamic and complex
evolution of money laundering tactics,
we are among the first Singapore banks
to tap artificial intelligence (“AI”) and
machine learning to enhance the detection
of suspicious activity. We have successfully
piloted the use of fintech solutions to
supplement and optimise our existing
transaction monitoring system. This is
expected to significantly increase our
operational efficiency and accuracy in
the detection of suspicious transactions.
RISK MANAGEMENT
IN OCBC GROUP
Effective risk management is critical
to the long-term sustainability of
the Group. To achieve this, we have
identified the following key high-level
risk management fundamentals to forge
a common approach to managing risk
at the enterprise level.
•
Risk Culture – The Board of Directors
(“Board”) and top management set
the tone for a strong risk culture,
supported by a robust internal control
environment throughout the Group.
All customer-facing business units,
product teams, independent