The Group's overall risk governance and management structure is governed by the Risk Appetite Framework and the relevant documents, which are constantly updated based on the evolution of the Group's strategic framework. Concerning the recent acquisition, Banca IFIS is currently aligning and integrating risk governance and management methods while taking into account the peculiarities of each business (factoring, corporate finance, leasing, NPL).
Banca IFIS has prepared a Taxonomy of Risks describing how it identifies the existing and/or potential risks the Group could be exposed to in pursuing its strategic goals, and implements tools suited to prevent and mitigate each type of risk.
Concerning operational risks, Banca IFIS has defined and implemented a management and governance framework that involves structuring a robust Loss Data Collection process, which extends to its local network and the Polish subsidiary IFIS Finance, as well as conducting periodic Risk Self Assessments. As for the newly acquired entities of the Group, a process similar to the Parent Company's one was already in place. We are currently aligning performance metrics and assessment instruments.
As for credit risk referring to trade receivables, Banca IFIS uses an Internal Rating System for Italian businesses that was developed using proprietary databases and consists of:
- a “financial” module, to assess the company's operating/financial soundness;
- a “central credit register” module, presenting the evolution of counterparty risk vis-à-vis the banking industry;
- an “internal performance” module, monitoring the performance of the factoring relationships between the counterparty and the Bank—especially as far as the account debtor is concerned.
This rating is used also in credit monitoring as one of the drivers to identify early warnings.
The expansion of the company's scope required launching a wide-ranging project to overhaul counterparty rating models in order to make them consistent across the Group. The risk management structure will work on this project throughout 2017.
As for non-performing loans managed by the NPL Area as well as tax receivables, the Bank has enhanced the monitoring and control process concerning the portfolio's collection risk, thanks to technological solutions allowing to easily manage large data sets. This has made the relevant reporting set more robust as well as allowed to evaluate the performance of the credit assessment model.
Referring again to non-performing loans, Banca IFIS revised and implemented a new SAS-based model to assess positions subject to judicial collection processes for which the judge has issued a garnishment order.
Liquidity and interest rate risks are managed at the Group level (including the positions of the newly acquired companies), and the Bank is currently reviewing the governance and monitoring policy for such risks. The calculation of Basel 3 indicators is now fully operational, including the calculation of the two liquidity ratios: Liquid Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR).
As for reputational risk, which potentially concerns most of the Bank's operational units, we have considered both external and internal factors as well as specific events concerning the individual operational units that could damage the Group's reputation in order to assess their impact. These factors include, for instance, employee dissatisfaction and turnover as well as accidents due to the failure to comply with health and safety regulations.