PASHA Bank

The difference between strategic and other banking risks (e.g. credit, currency or legal risks, the risk of losing business reputation, etc.) is the possibility that the Bank may sustain financial losses in consequence of managerial imperfections or incorrect determination of strategic goals and objectives.

OJSC Pasha Bank has organized the management of strategic risks to meet the following objectives:
- to minimize the possibility that the Bank may select a wrong, ineffective or insufficiently balanced strategy (both overall development strategy and individual strategic decisions) which may lead to the loss of the Bank’s business reputation, affect its positions on the market and, consequently, to financial losses;
- to reduce possible losses, preserve and maintain the Bank’s business reputation before customers and contractors, founders, participants in the financial market, bodies of state authority and local governments, banking associations of which the Bank is a member;
- to improve the effectiveness of operations being carried out by way of streamlining the quality of their management;
- to ensure compliance with the legitimate interests of customers, shareholders and depositors which have entered into financial relations with the Bank.

The key objectives behind the establishment of a system on the management of strategic risks are as follows:

- to develop a sound and effective corporate governance model meeting the goals and scope of the Bank;
- to build the reputation of a bona fide bank through ensuring that the Bank honors its commitments, follows the requirements of regulatory bodies, observes the norms of business ethics, professional rules and standards;
- to rule out conflict of interest at all stages of the Bank’s activity.

While developing the system on the management of strategic risks, the Bank applies the following key approaches:
- permanent control over compliance with laws of the Azerbaijan Republic, including the laws on bank secrets and organization of in-house control with the aim of countering the legalization (laundering) of incomes obtained in criminal ways, and financing terrorism;
- timely processing of customer and contractor orders, payment of amounts on deposits, interest on accounts (deposits) and processing of other transactions;
- monitoring the effectiveness of operations and their quality assurance;
- control over the accuracy of accounting reports and other published information submitted to founders (partners), customers and contractors, regulatory and surveillance bodies and other interested persons, including the information required for advertising purposes;
- development of a common system of information support and document flow, which prevents the use of the Bank information by persons accessing such information for personal interests and ensures timely, complete and reliable provision of information to persons requiring such information for decision-making;
the principle of joint decision-making on issues representing particular importance to the Bank’s operation, and regulatory support of this principle;
- compliance with the principle of division of responsibilities among subdivisions involved in management processes.

The common principles of the system on the management of strategic risks are as follows:
- to establish a procedure for identifying, evaluating and determining an acceptable level of strategic risks, and to monitor strategic risks;
- to take measures to maintain strategic risks at an acceptable level, including control and (or) minimization of risks;
- to establish a procedure for submitting information on the management of strategic risks to the Supervisory Board, executive bodies, subdivisions and employees of the lending organization;
- to allocate powers and responsibilities among the Supervisory Board, executive bodies, subdivisions and employees regarding the implementation of the main principles of strategic risk management;
- to exercise control over the effectiveness of strategic risk management.

The system of the management of strategic risks consists of three key directions:
- a system of measures to prevent the emergence of risk factors (preventive measures);
- a system of measures to identify, analyze and evaluate risk factors (current measures);
- a system of measures to optimization, including the elimination of risk factors discovered (subsequent measures).

In order to establish a procedure for identifying, evaluating and determining an acceptable level of strategic risks, the Bank has developed a Methodology to identify and evaluate strategic risks.
Interaction between subdivisions with the aim of identifying and evaluating strategic risks is carried out within the framework of their functions defined in the “Policy on the management of strategic risks”, as well as their responsibilities, job descriptions and the role in the management of the Bank’s activities.

Responsibility for the development and introduction of strategic risk management principles rests with the Supervisory Board in line with its powers as set forth by the Bank’s charter.

The Bank organizes a system of protective measures to prevent third-person actions towards engaging Bank employees in unlawful activity.

In order to carry out effective analysis and make decisions on minimization of strategic risks, the Bank, in accordance with the spheres of its activity, develops and maintains an analytical database on losses sustained as a result of strategic risks. The database reflects information on the proportion of losses, their causes and methods of reimbursement, and information about increased risk factors.

The Bank monitors all information in the public domain about the Bank and its managers in order to assess its impact on its business reputation. The Bank also makes a legal assessment of such information.

The subdivisions involved in the system of strategic risk management are as follows:
- Supervisory Board;
- Chairman of the Board and his deputies;
- Collegiate executive bodies (Board of Directors, Committees, etc.);
- Risk management department;
- Security department;
- Human Resources department;
- Control Compliance group;
- Other subdivisions of the Bank.