SAARC FINANCE,
REGIONAL SEMINAR, ISLAMABAD
13
Background
and Objectives
•The Defensive Risk Control (DRC) framework is a
concept used by many world class banks to manage risk in a proactive manner.
•This framework allow an entities to assess risk using
a dynamic toolkit to assess economic outlook and proactively manage risk through a pre-determined and
agreed management actions in response to a given event / situation.
•DRC
enables senior management of any entity to form a view, at an early stage, of
the changes in the general economic/risk
environment and the potential implications for the risk profile, portfolio,
and business strategy.
•DRC
establishes a link between outlook of political-economic environmental and
underwriting standards and portfolio
management through management actions.
•Being an
integral part of the risk management framework, DRC has direct implications on
other operational / portfolio
risk management processes and Risk Appetite Assessment.
•The
framework requires assessment of political-economic environment on a scale of
1 to 5; with level 5 describing a very benign environment and level 1
indicative of a very stressed environment.
•DRC will have a rider to
indicate if the risk is expected to remain stable at the current level or is
expected to get better or worse in the next 6 months, which will be
indicated by : " positive outlook", " stable outlook", or "negative
outlook".
•Agreed
and pre-defined framework of actionable items to do in a stressed environment
gives management the ability
to respond quickly, which can make a difference to the results.
Defensive Risk Control Framework