In compliance of the Basel II requirements, in 2005 Futurebank established an independent Risk Management Function embracing the all major risks.

Credit Risk

Market Risk, Liquidity Risk, FX Risk

Operational Risk

Within a span little more than of six years the Bank has managed to cover various areas of Risk Management. The overall Risk Management framework is enunciated through a Risk Charter which lays down the overall framework of strategies, infrastructure, policies and procedures. It also summarizes the committee structure adopted by the Bank for Management of Risk. The Risk Management Committee (RMC) set up with the representation of Senior Management, reports to the Board of Directors. The RMC is chaired by the CEO and is responsible for implementation, interpretation and follow up of the Risk Policies. The Terms of reference of the Committee broadly include the implementation of all policies relating to management Credit, Market liquidity and Operational Risk on an ongoing basis. There are three sub committees to specifically monitor Operational Risk Credit Risk ( Performing Loans ) and SAM ( Special Asset Management for Non Performing Loans ) respectively. All sub committees report to the main Risk committee. The Head of Risk reports to the CEO with a dotted line to the Board.

During 2009, based on Central Bank of Bahrain’s (CBB) guidelines, a risk profiling audit of the Bank was conducted by an independent external auditor and the report was sent to the CBB. Based on the gaps identified in the report, the Bank had submitted a time bound action plan to the CBB. The RMD followed up on this action plan and all gaps pointed out in the report since stand closed. During 2010 the organization structure was modified in order to elevate the role of the Risk Management in the Credit approval process. In addition the credit analysis function was shifted from front office to Credit Department in order to ensure independence of the appraisal function.

The Risk Management Department (RMD) is responsible for day to day management of Risk which includes monitoring of portfolio based limits, reporting all excesses and anomalies to RMC and follow up with respective front office representatives for regularization.

Internal audit assesses whether the policies and procedures are complied with and if necessary, suggest ways of improving internal controls. A separate internal control function in place under the Finance Department and looks after various internal control issues

The entire initiative and road map of Risk compliance with Basel II guidelines is being monitored by a Basel Steering Committee, chaired by CEO, which oversees progress of various projects undertaken for the purpose.
 

The activities of the Bank are broadly divided into three major business segments. The activities are guided by a business strategy.

Retail Banking

Corporate Banking

Treasury & Investments

The Retail Banking activities are being driven mainly to support deposit mobilization required for funding the assets.

This will be achieved through Branch expansion and product diversification. The products have been developed mainly to cater to the needs of the depositors as instruments of resource mobilization.

Credit Risk is being managed through standardization of each product, counterpart rating methodology and necessary organization and system support


Corporate Banking mainly caters to working capital medium and long term requirements of the commercial sector.

The activates include

Working capital and other short term financing

Syndicated loans

Project finance

In addition the Bank also cater to credit requirements of non Bahraini MNC and Corporates having strong presence in the Middle East. The Credit and funding strategy defines the type of activities the Bank undertakes in order to achieve the broad goals defined under Business strategy.

The Treasury and Investment division is mainly responsible for the treasury function of the Bank and investment in approved securities. The are also responsible for developing good business relations with other Banks and FIs. In addition it caters to short term trade finance business mainly through forfeiting of Bills drawn under reputed Bank’s LCs.
 

 

The Risk Management framework is enunciated through the Risk Charter which lays down the structure of strategies, policies and procedures. It also summarizes the committee structure adopted by the Bank for Management of Risk. The Risk Management Department is responsible for day to day management of Risk.

The Risk Management Committee has been operational to oversee the implementation, interpretation and follow up of the Risk policy of the Bank as enunciated in the Risk Charter.

The Risk Management Committee is chaired by the CEO and reports to the Board. Its principal responsibilities are as follows:-

 

	to oversee implementation of various components of the Credit , Operational and ALM Policy , including revision to existing policies and procedures.
	to establish a sound structure of Risk Management
	to establish guidelines for all lending activities
	to establish and monitor limits for Country exposure, product, sector, and review them on Annual basis.
	to conduct portfolio reviews on quarterly basis to track various risk concentrations and suggest remedial measures in case of deviations.
	to review all exception reports on regular basis to identify new weal list and watch list accounts and recommend appropriate actions to prevent slippage in ratings.
	to review Special Assets including criticized assets at regular intervals and suggest appropriate remedial measures to management including work out or exit.
	to consider and recommend legal action against defaulting borrowers based on assessment of the recovery prospects
	to consider all proposals for provisioning globally and in specific cases
	to review and assess on Annual basis, the process and quality of decision-making carried out by various delegates.
	to implement established policies and procedures for liquidity , market and operational risk management.

The risk appetite of the Bank is defined in the Risk Strategy document approved by the Board. Risk Strategy defines the risk categories to which bank is willing to expose itself and the levels up to which it is willing to expose ( limits ) while undertaking its business, defined under overall business strategy and the Credit and funding strategy.

Credit Risk is managed through a set of Credit Risk Policy guidelines and the procedures as laid down in the Credit Risk Policy.

The Credit Risk policy is derived in accordance with the Risk strategy of the Bank which defines the Risk appetite of the Bank. The purpose of Credit Policy is to provide a framework to achieve the Strategic objectives set by the Board. It provides the guidelines for approving credit risk (limits) and, the prudential norms for managing concentration risk and the mechanism for monitoring and control as part of overall self regulation.
The Credit Risk policy document covers all credit activities undertaken by the business segments including non-strategic investments
(counterparty risk)

 

In addition to liquidity Risk Future Bank is currently exposed to Market Risk only in the Banking Book since it is not engaged in any trading activities.
 

Operational risk (OR) is the risk of direct or indirect loss resulting from failed processes, technology, people or external events. It includes reputation risk. The Bank has put in place Standard Operating procedures which comply with the high standards of Internal Control. In the process, the activities have been segregated into back office and front office in accordance with international best practices.

The information security policy is supported by ISO 27001 standard. The MIS is being strengthened with particular focus on exception management. The Internal Audit Department is considered as the final layer of Internal Control and reports directly to the Board of Directors.

The Bank has put in place Standard Operating Procedures (SOPs) which comply with the high standards of internal control. In the process, the activities have been segregated into back office and front office in accordance with international best practices. During 2010, the SOPs were re-engineered in order to reflect the changes required through implementation of a new Core Banking module. During 2011 an RCSA review was conducted based on revised SOPs.

A Business Continuity plan is in place to ensure continuity of essential services to customers in case of occurrence of any calamity resulting in disruption of normal business activity. Similarly, a disaster recovery plan is also in place. The Bank has set up disaster recovery site at one of its branches as a back up site in case of any disaster.

An Operational risk management policy and procedure framework has been adopted which defines key operational risk areas, key control standards and key risk indicators in line with the Basel II recommendations. The Bank currently follows the basic indicator approach for operational risk. The operational risk sub committee is in charge of implementation of the OR policy and reports to the RMC. The RMD implements OR procedures. A dedicated software is in place to monitor Operational Risk.

 

In line with CBB guidelines the Bank has put in place a Disclosure Policy approved by its board. The policy defines a framework for the disclosure obligations including a committee established to oversee the entire process.