Risk and Capital Management

BBM has a strong risk management culture with proprietary quantitative models developed and continually improved over the past 20 years.

Credit Risk
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Banco BBM has a credit risk management structure comprising the following agents and their respective duties: a) Credit Committee, responsible for defining credit limits of economic groups and for the monitoring and the consolidated assessing of the portfolio, including its level of concentration and risk. It is also responsible for stipulating the term to solve credit operations in default or with any guarantee deterioration and for deciding the start of judicial collection, if necessary; b) Board of Directors, responsible for approving the policies and risk limits, at least once a year; c) Credit Risk, area reporting to the Risk Director, responsible for concentrating and assessing information related to individual credit risk per operation and the consolidated risk of the portfolio in order to ensure that the operating limits are followed, and for disclosing reports to assist the decision-making process of credit limits approved by the Credit Committee. The Risk area is also responsible for previously assessing new operating modalities in relation to credit risk; d) the Credit Analysis area, responsible for assessing the credit risk of economic groups with which the bank holds or intends to hold credit relations; e) Internal Audit, which carries out regular audits in business units and in the Group credit processes; f) Legal area, responsible for analyzing the contracts made between BBM and customers, as well as coordinating the actions aiming at recovering credit or protecting the rights of BBM; and g) Contract Control area, responsible for verifying the compliance of operations with parameters set in the Credit Limit Proposal (“PLC”), as well as the correct establishment of guarantees. It must also
issue contracts to be signed between BBM and the client.
Market Risk
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Banco BBM was one of the pioneer banks in quantifying risk in the Brazilian market, having developed in 1997 a proprietary system which ended up being used as reference in the industry. The structure for market risk management comprises the following agents, with their respective duties: a) Executive Committee, responsible for reviewing policies and suggesting operating limits for risk management, being subject to approval of the Board of Directors, at least once a year; b) Board of Directors, responsible for approving the policies and risk limits, at least once a year; c) Market Risk area, reporting to Risk Director, responsible for identifying, measuring, monitoring, and reporting the institution’s market risk online to the Executive Committee, thus ensuring the effective compliance
with the market risk management policy, as well as ensuring the operating limits are being followed; d) Pricing area, which among other duties defines the models and sources of prices used in marking to market of operated products, independently from the management areas; e) Internal Audit, responsible for ensuring the adequacy of procedures and the consistency between the market risk management policies and the structure in fact implemented. The market risk is monitored through the daily calculation of Value at Risk (VaR), a statistical tool which measures the potential loss of the Institution with a given level of confidence for a given investment horizon. A VaR limit is stipulated and may be allocated by the Treasury Director among the various risk factors. The calculation model of the VaR is submitted to periodic backtesting. In addition, on a daily basis it is done the analysis of scenarios, which are monthly defined by the Risk Committee independently from the management areas.
Liquidity Risks
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Banco BBM’s liquidity goal is to ensure that, at any time, the Bank possesses cash in enough amount to honor its liabilities and all other covenants without the need to carry out any additional rollover or raising of funds. In order to reach this goal, we practice a liability-raising policy paired with the assets: the fundings are made with the term and volume equal, at least, to the term and volume of credit operations, thus ensuring that the volume and term of the raising portfolio, jointly with the non-fixed assets of the Bank, are higher than the volume and term of the credit portfolio. The liquidity risk management is done with estimates of the cash flow of the institution, covering
various scenarios of the progress of funding, of credit operations, and of treasury. These cash flow analyses take into account a) the implied risk of each client; b) any additional cash for the compliance with reserve requirements of the Brazilian Central Bank; c) adjustments of derivatives, and d) other existing obligations. The general principle is to ensure the Bank’s commitments in accordance with the equity and current funding, credit, and treasury policies.
Banco BBM has a liquidity risk management structure comprising the following agents, and their respective duties: a) Liquidity Risk area, reporting to the Risk Director, responsible for centralizing and measuring the information related to liquidity risk management, for ensuring that operating limits are followed, and for disclosing reports to assist in the decision-making process specific to liquidity risk; b) Internal Audit, responsible for ensuring the adequacy of procedures and the consistency between the liquidity risk management policies and the indeed implemented structure.
Operational Risk
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Banco BBM has an operational risk management structure in accordance with the best market practices and in compliance with the rules in force. Such structure is enforced in the document “Operational Risk Management Policy”, which defines the methodology and management process, the roles and accountabilities, the categories, procedures for documentation and storage of information, in addition to the disclosure process which ensures the rectitude of
management activities. The Operational Risk area is an independent organization unit, segregated from Internal Audit and under responsibility of the Risk Director and Internal Controls.
The area is responsible for acting jointly with other components of the structure with the purpose of ensuring the compliance with the guidelines set forth in such Policy.