Risk management —

Safeguarding trust and stability

As the uppermost management and control body, the Board of Directors bears overall responsibility for risk management. Group Executive Management is responsible for implementing and complying with the risk policy and risk strategies approved by the Board of Directors.

We identify, assess and monitor key risks and manage our capital and liquidity in such a way that our risk-bearing capacity is always guaranteed. We do this in line with the risk management framework determined by the Board of Directors, which encompasses our risk appetite statement, risk policy and risk strategies. The risk appetite statement defines VP Bank’s comprehensive risk appetite, which is operationalised and monitored using a system of limits and targets. This enables us to ensure that risks are taken in conformity with the defined risk appetite. The risk policy regulates the principles, methods and tools of risk management. 

We use key regulatory figures, like LCR and NSFR, as well as such economic management tools as liquidity stress tests and cash flow analyses in order to ensure that our liquidity position is appropriate. Cash flow analyses provide forward-looking information about future liquidity needs, and they are supplemented with simulations of stress scenarios. Regular monitoring of early warning indicators enables us to identify developments at an early stage that may have a negative impact on liquidity and to take steps to counteract them.

At VP Bank, market risks result primarily from banking-book business, which consists of lending business, financial investments, interbank business and refinancing, mainly through deposits by clients and banks. VP Bank does not engage in active trading-book business. The market risks that result from this chiefly consist of interest rate, stock price and currency risks, as well as credit spread risks. We set risk, sensitivity and volume limits in order to curb and monitor market risks. We supplement market risk management by simulating various stress scenarios.

VP Bank’s lending business is a key element of its business model, with the focus on real estate financing and lombard loans. Credit risks are also associated with interbank business, as well as with the Bank’s investments in high-quality financial instruments, which are primarily used to meet liquidity requirements. Independent credit risk management is based on robust lending rules. We assure effective credit risk management through clear lines of authority for loan approvals, requirements for lending against collateral and limits on individual loans and risk concentrations, supported by a daily collateral monitoring process. In addition, we use credit risk models to simulate an unexpected credit loss, which is limited by the risk appetite set by the Board of Directors. We do not enter into loans that damage the reputation of VP Bank or are ethically and morally unacceptable.

Our robust IT and cyber risk management not only protects sensitive information but also works to guarantee the reputation of VP Bank, clients’ assets, their trust, and digital and financial stability in an increasingly networked digital environment. In addition, it forms the basis for protecting digital services and infrastructures that are of critical importance for our stakeholders.

Our strategy for managing IT and cyber risks covers a series of measures designed to strengthen cyber security:

1. Meeting international standards is the backbone of our approach. We thoroughly assess the threat landscape so that we can always remain one step ahead and be in a position to actively identify and eliminate vulnerabilities.
2. We address our awareness-raising programmes to employees and clients alike. We continuously analyse emerging trends, risks and dependencies so that we can proactively make adjustments. In addition, we are strengthening our cyber resilience, which will enable us to effectively respond to unforeseen challenges.
3. Finally, our robust strategies for incident and crisis management are an important element of our proactive approach to cyber threats.

VP Bank records, evaluates and takes into account ESG risks in its business activities as well as in the assessment of its counterparty and client relationships. We have set a target of having our loan and investment portfolios be net zero in terms of emissions by 2050. For that reason, financially significant climate risks are appropriately taken into account when making investment decisions and with regard to lending. Exposure to these risks is being reduced over the long term. For the purpose of lowering the impact of social risks, VP Bank expects its business partners to comply with at least three internationally recognised standards, namely the UN Global Compact, the UN Guiding Principles on Business and Human Rights and the labour standards of the International Labour Organisation (ILO). Responsible corporate governance with effective structures forms the foundation for rigorously enhancing the management of ESG risks.