Sberbank information (materials)

8.Risk Management

Credit Risk

Credit Risk Management

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  risk prevention by identifying, analyzing and assessing potential risks at a stage preceding transactions exposed to the credit risk;
  
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  restriction of the credit risk by establishing limits and/or limitations;
  
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  monitoring and control of the degree of credit risk;
  
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  creation of adequate reserves and relevant structuring of transactions in order to minimize the credit risk.
  

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  the method for assessing the likelihood of a default of its contracting parties
  

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  the model of assessment of losses in the event of a default
  

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  repayment of overdue debt with funds of the contracting party and third parties,
  
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  sale of collateral;
  
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  write-off of overdue debt,
  
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  reissue of credit and other contractual liabilities that were subject to a default into other financial instruments.
  

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  Loan Factory – the product approach is followed during risk assessment: the scoring grade is calculated, risk is assessed, the credit price and limit are calculated when the client files a loan request, a rating is assigned to the transaction. Starting in 2011, all territorial banks have been processing two types of unsecured loans through the Loan Factory. There are plans to expand this list in 2012 by including secured loans such as Express Auto and Express Asset.
  
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  Loan Conveyor is a technology that involves assignment of a long-term rating to a client/group of related parties based on an adapted corporate model of risk assessments that takes into account peculiar features of this client category, builds a limit management system, a decision-making authority system. 2011 saw the completion of the first stage of implementation of the Loan Conveyor technology in two territorial banks. Testing of this technology involved a unified approach to assessment of collateral and assessment of legal risks, optimization of the credit process, reduction of transaction review times, centralized independent expert examination of risks that included verification of client data, assessment of the credit history and the borrower's business reputation. 347 loans worth 1.3 bn. rubles were granted during the first stage. In there are plans to carry out gradual automation and replication of the Loan Conveyor technology throughout Sberbank's network.
  

Handling of Troubled Debt

The Bank is increasing repayment rates of troubled assets by modernizing its existing business processes and implementing new ones for different client segments.

As part of its efforts aimed at legal entities, the business process for an early-stage handling of new problem situations has been introduced and is in place. This helped to improve the figures of transition of debt overdue for 30 to 60 days to the 90 plus days category. This transition rate was 70% in 2010 and 50% in 2011. Outcomes of the handling of troubled assets of legal entities in 2011:

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  troubled assets recovered in cash amounted to 120.5 bn. rubles;
  
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  overdue interest, fines, penalties, forfeits worth 25.7 bn. rubles repaid;
  
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  loans worth 79.8 bn. rubles transitioned from the troubled category to untroubled loans;
  
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  allowance worth 148.5 bn. rubles for possible losses under loans among troubled assets restored.
  

A high repayment rate secured by bankruptcy procedures at 55% significantly facilitated reduction in troubled assets.

Special effort is made to control recovery of overdue debt on loans to retail clients at an early stage. For this purpose, the Bank implemented Tallyman, an automated system. The system follows a client approach, supports a centralized algorithm of debt collection, includes a set of debtor treatment strategies that make allowances for client risks, likelihood of repayment, economic reasonability of debt collection measures, criteria for forwarding the client to higher stages of collection. In addition, the system optimizes distribution of e-mail, SMS messages, letters, wires, automatic voice notices given to debtors regarding overdue liabilities. This system is integrated with the automated calling system which significantly reduces overdue loan handling times. In addition, there is a new opportunity to get relevant data on debt at the same time the call is put through to the operator.

Quality of the Loan Portfolio

By using its methods and procedures for credit risk management, the Bank managed to improve the quality of its loan portfolio. The volume of overdue debt lost more than 30 bn. rubles over the year, while the specific weight of overdue debt in the total loan portfolio of clients fell from 5.0% to 3.4%.

Comparison of risks realized by Sberbank and the banking system in 2011:

	1 January 2012		1 January 2011
%	Sberbank	Banking sector*	Sberbank	Banking sector*
Total share of overdue debt in the loan portfolio	3.4	4.6	5.0	5.5
in the loan portfolio of legal entities	3.6	4.5	5.5	5.1
in the loan portfolio of retail clients	2.7	5.2	3.5	6.9

* According to The Review of the Banking Sector of the Russian Federation (online version) #113, March 2012

Loan Concentration

The Bank pays special attention to controlling the concentration of credit risks and meeting prudential requirements of the Bank of Russia. The Bank has implemented the procedure of daily monitoring of major credit risks and forecasting of how requirements established by the Bank of requirement are met – N6 (maximum risk amount per one borrower or a group of related borrowers) and N7 (maximum amount of major credit risks).

The level of concentration of major credit risks is estimated by the Bank as acceptable. Loans to ten largest borrowers (groups of related borrowers) constituted, at the end of, 16.6% of the loan portfolio²⁰ (15.2% the year before). The Bank's largest borrowers included representatives of different sectors of the economy.

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