Mega Bank Annual Report 2017

27 Annual Report 2017 -27- Item Content „ Risk Management Department sets stress scenario for specific event crisis for individual organizations or overall market environmental crisis. When setting stress scenarios, it takes into consideration the impact on intraday liquidity position due to liquidity risks, collateral multiplier effect, and breach of contract by customer or counterparty due to liquidity shortage. Stress tests shall be conducted regularly, and the results submitted to the Asset & Liability Management Committee and the Board of Directors. B. Organization of Liquidity Risk Management 1. The Board of Directors is the Bank ’ s highest supervisory unit for liquidity risk, and is in charge of the approval of risk strategies and limits. 2. Treasury Department is the executive unit for managing liquidity risk. 3. Risk Management Department is the supervising unit responsible for monitoring all risk limits and reviewing the appropriateness of the implementation procedures by the implementing units on a regular basis. It shall, on a regular basis, report the monitoring results of the liquidity risk to the Fund Management Committee, the Asset & Liability Management Committee and the Board of Directors. C. Scope and Characteristics of Liquidity Risk Reporting and Measurement 1. The main purpose of the Bank ’ s liquidity risk report is to estimate the impact of various businesses ’ future cash flow on the Bank ’ s capital movement, and control the cash flow gap or ratio under a tolerable risk limit. 2. When the liquidity indicator reaches an alert level, the Risk Management Department shall immediately report to the Chairman of the Fund Management Committee, and report at the meeting of the Fund Management Committee. 3. When the level for activating contingency plan is reached, the Risk Management Department shall immediately request the Chairman of the Fund Management Committee to convene a special meeting to review the liquidity contingency plan and implement it upon approval by the President. 4. Upon approval of the plan, the Treasury Department shall immediately implement liquidity contingency plan and the Risk Management Department shall request overseas branches to cooperate according to the plan, so as to fill the funding gap. 5. The Bank conducts stress test regularly and analyzes test results from the perspective of cash flow, liquidity position, repayment ability, etc. If the test results are not up to expectation, and if the liquidity gap is mild, adjust the fund structure as a response measure within stipulated time. In case of high liquidity gap or difficulty in raising short-term funds in the market, activate fund emergency contingency plan to reduce the impact of liquidity risk. D. Liquidity Risk Hedging or Mitigation Policy, and Strategies and Procedures for Monitoring the Continuing Effectiveness of Hedging and Mitigation Instruments In response to liquidity crisis such as abnormal deposit withdrawal, huge drain of funds, other serious shortage of liquidity, etc., the Bank has formulated “Operational Directions for Contingency Funding Plan” to fill the funding gap, reduce liquidity risk, maintain normal operation of the entire Bank and the goal of sustainable operation.