An effective risk management system is one of the crucial components in bank management and the foundation for running a
healthy, safe and good bank organization. Moreover, risk management system can also reduce the impact that may harm the
bank both materially and immaterially. Here are the following steps taken by bank bjb:
1. Risk Identification
Bank is required to periodically conduct identification process for all risks’
types and characteristics in each Bank's business activities. The risk identification
process is carried out by analyzing all available sources of risk, which at least carried
out on the risks of Bank's products and business activities. Moreover, the Bank needs to ensure
the risks of new products and activities have gone through risk management control process and have
been approved by the Board of Directors or recommended parties by the Risk Management Committee before
being introduced or conducted.
2. Risk Measurement
Risk measurement aims to estimate overall risk exposure and per type of risk on each product and activity
owned by the Bank. Risk measurement approach is used to measure the Bank's risk exposure in order to obtain
an outlook on the effectiveness of risk management implementation. The measurement approach and methodology
can be quantitative, qualitative or a combination of both and adapted to the characteristics and complexity
of Bank's business. Selection of risk measurement approach and methodology.
3. Risk Monitoring
Bank bjb has risk monitoring procedures, which include monitoring risks to the amount of compliance
with internal limits and the consistency of their implementation with established policies and procedures.
Monitoring process is conducted by evaluating the risk exposures in all bank bjb products and activities.
Monitoring is carried out by both RTU and SKMR.
4. Risk Management
The Bank has an adequate Risk control system in compliance with established policies and procedures
and aims to manage all risk exposures. One of which is by conducted risk control through
validation and evaluation of risk management models. Model validation and evaluation are carried
out in to overcome deficiency that may arise from the use of related risk measurement model conducted by
an independent internal party to another party that implement the model.
5. The concept of Three Lines of Defense
In realizing the implementation of an effective risk management system, the Bank applies the Three Lines of Defense
concept as a multi-layered defense mechanism to manage and implement risk management framework, namely:
6. Implementation of the Committee
- First Level Defense
Th Risk Taking Unit acts as the first line of defense and is responsible for identifying,
evaluating, controlling and mitigating risks in operational activities. The Risk Taking Unit has
primary responsibility for managing risk exposures in daily activities.
- Second Level Defense
Risk Management Work Unit (SKMR) acts as a key unit in providing second level defense through an
independent monitoring function. SKMR has conducted reviews on the completeness and accuracy of
identification, measurement, monitoring, controlling and reporting of risks, as well as the adequacy
of mitigation scenarios proposed by operational work unit.
- Third Level Defense
Internal Audit function assesses the adequacy of policies, strategies and framework of Risk Management as
well as the effectiveness of internal controls in order to provide an independent and objective assurance.
7.Reference on Risk Management Implementation
- Risk Management Committee (KMR)
Duties, authorities and responsibilities of Risk Management Committee (KMR) are to evaluate and provide recommendations regarding the implementation of risk management in the following matters:
- Establishment of risk management policies and its changes, including risk management strategies and contingency plans in abnormal external conditions (worst case scenario);
- Improvements and enhancement in the implementation of risk management that are conducted periodically and incidentally as a result of changes in Bank’s external and internal conditions that affect the adequacy of Bank's capital and risk profile also evaluation results on the effectiveness of the implementation;
- Determination (justification) of matters related to business decisions that deviate from normal procedures (irregularities), such as decisions for exceeding significant business expansion compared to predetermined bank business plans or taking positions/risk exposures that exceed the stipulated limit;
- Discussion on risk management methodology implementation including bank risk measurement models and risk limits;
- Discussion on the reporting of bank risk profile assessment.
- Integrated Risk Management Committee (KMRT)
Duties, authorities and responsibilities of Integrated Risk Management Committee (KMRT) are to provide recommendations to the Main Entity Directors regarding risk management implementation which at least include:
- Establishment and improvement of Integrated Risk Management Policy; and
- Improvement or enhancement of Integrated Risk Management Policy such as an improvement in risk strategy and framework based on the results of the implementation evaluation.
In the implementation of risk management, bank bjb is always complies with the prevailing regulation and legislation in Indonesia with reference to:
8.Pillar of Risk Management
- Financial Services Authority Regulations.
- Financial Services Authority Circular Letter.
- Best practice in banking.
In implementing effective risk management, bank bjb has 4 (four) pillars which defined as follows:
9.Risk Management Process
- Active supervision by the Board of Commissioners and Board of Directors;
- Adequacy of Risk Management Policies and Procedures and Determination of Risk Limits;
- Adequacy of Risk Identification, Measurement, Monitoring and Control process as well as Risk Management Information System;
- Comprehensive Internal Control System.
Risk management process is conducted on all risk factors that significantly affect bank bjb financial condition. Risk management process has been adjusted to objectives, business policies, size and complexity of the Bank’s business and ability. Based on applicable regulations, there are various risks that must be managed by Bank BJB that are grouped into:
10. Risk Management Implementation Report
- Credit Risk,
- Market Risk,
- Liquidity Risk,
- Operational Risk,
- Strategic Risk,
- Reputation Risk,
- Compliance Risk.
In the implementation of risk management, bank bjb has the obligation to submit Risk Profile Report to the Authority. Risk Profile is a comprehensive overview of the potential risks inherent in all bank portfolios or exposures, includes information on the level and trends of all risk exposures. Bank bjb presents the risk profile report in every quarter comparatively to the previous quarter.
Risk Profile Report
A comprehensive analysis is conducted in order to implement the risk assessment, including:
Bank bjb also compiles an Integrated Risk Profile Report, which is submitted semesterly to the Authority.
- Assessment of inherent risks and the adequacy of risk control system in Risk Management Implementation Quality (KPMR) level.
- Determination of rank assessment for each type of risk.
- Determination of composite rank of the risk profiles.