AICB Bank Risk Practices (BKR, Malaysia) flashcards

32 cards. Read the term and the definition here. The deck at the top of this page is optional.

Three lines model

First line owns and manages risk in the business; second line sets frameworks and challenges; third line, internal audit, provides independent assurance to the board and its committees.

Risk appetite statement

Board-approved articulation of the types and amount of risk the bank is willing to accept, expressed as qualitative statements and quantitative tolerances that cascade into business limits.

Chief Risk Officer independence

The CRO has a direct reporting line to the board risk committee, is not remunerated on revenue targets, and can escalate concerns without management filtering.

Risk register

A structured record of each identified risk with its owner, inherent rating, existing controls, residual rating and treatment plan, reviewed periodically and on material change.

Expected loss formula

Expected loss equals probability of default multiplied by loss given default multiplied by exposure at default; it is covered by pricing and provisions rather than capital.

Default definition

A borrower is in default when 90 days past due on a material obligation, or when unlikeliness to pay is evident, such as distress restructuring or bankruptcy filing.

Loss given default

The portion of exposure expected to be lost if the borrower defaults, reflecting collateral value, seniority, workout costs and recovery timing rather than borrower credit quality.

Credit concentration limit

A cap on exposure to a single name, connected group or sector, usually expressed as a percentage of capital, to prevent excessive dependence on one borrower or industry.

Credit risk mitigation eligibility

Collateral, guarantees or credit derivatives reduce capital requirements only when legally effective, enforceable in all relevant jurisdictions and supported by documented operational controls.

Value at Risk

A statistical estimate of the maximum loss over a defined holding period at a given confidence level, for example one-day 99% VaR; it ignores loss size beyond the threshold.

Expected Shortfall

The average loss occurring in the tail beyond the VaR percentile; it is sub-additive, captures tail severity and is preferred under Basel market risk reforms.

DV01

The change in the value of a position for a one basis point parallel shift in yield, used to aggregate interest rate sensitivity across instruments and currencies.

VaR backtesting

Daily comparison of actual profit and loss against predicted VaR; exceptions above the expected count trigger supervisory capital add-ons and model review.

IRRBB measurement

Interest rate risk in the banking book is measured through repricing gaps, earnings-at-risk and economic value of equity sensitivity to prescribed rate shocks.

Operational risk definition

The risk of loss from inadequate or failed internal processes, people, systems or external events; it includes legal risk but excludes strategic and reputational risk.

Operational risk event types

Basel categories: internal fraud, external fraud, employment practices, clients and business practices, physical asset damage, system failures, and execution or process management failures.

Standardised approach operational risk

Under the standardised approach, operational risk capital equals 15% of average annual gross income over the preceding three years, subject to supervisory adjustment.

Risk and control self-assessment

A structured exercise in which business units rate inherent risk and control effectiveness to derive residual risk, feeding the operational risk register and action plans.

Key risk indicator

A forward-looking metric with defined thresholds that signals rising risk exposure before losses occur, enabling escalation and pre-emptive control action.

Liquidity Coverage Ratio

High-quality liquid assets divided by net cash outflows over a 30 calendar day stress period; the minimum requirement is 100%.

Net Stable Funding Ratio

Available stable funding divided by required stable funding over a one-year horizon; it must be at least 100% to limit structural maturity mismatch.

High-quality liquid assets

Unencumbered assets readily convertible to cash in stressed markets with minimal value loss; Level 1 assets take no haircut, Level 2 assets face haircuts and caps.

Survival horizon

The number of days a bank can meet stressed cash outflows from its liquidity buffer without new funding, compared against a board-approved minimum.

Contingency funding plan

A documented playbook setting early warning indicators, escalation triggers, pre-identified funding sources and communication protocols for managing a liquidity stress event.

Compliance risk definition

The risk of legal or regulatory sanctions, material financial loss or reputational damage from failure to comply with applicable laws, regulations, codes and standards.

Customer due diligence

Identifying the customer and beneficial owners, understanding the purpose of the relationship and conducting ongoing monitoring before and during the relationship.

Suspicious transaction reporting

Filing a report with the financial intelligence unit when there are reasonable grounds to suspect proceeds of unlawful activity, without tipping off the customer.

Sanctions screening

Comparing customers, counterparties and payments against designated persons and entity lists; potential matches are investigated, and confirmed matches blocked and reported.

Legal risk

The risk of loss from unenforceable contracts, defective documentation, litigation or adverse legal interpretation; treated as a subset of operational risk.

Close-out netting

A contractual arrangement allowing amounts owed between parties to be offset on default, reducing exposure; enforceability depends on jurisdiction-specific legal opinions.

Capital conservation buffer

An additional Common Equity Tier 1 buffer above the minimum requirement, designed to be drawn down in stress with restrictions on distributions as it is depleted.

Reverse stress testing

A technique that starts from a defined failure outcome, such as breaching minimum capital, and works backwards to identify scenarios capable of causing it.