Basel Iii Disclosure 2019

Habib Bank AG Zurich Capital adequacy and liquidity disclosure requirements Disclosure as of 31 December 2019 Purely for ease of reading, the masculine form used in this document is intended to refer to both genders. This concolidated regulatory disclosure report is published in English only. Due to rounding, the numbers presented in this report may not add up precisely to the totals provided and percentages may not precisely reflect the absolute figures. Habib Bank AG Zurich Capital adequacy and liquidity disclosure requirements (consolidated) Habib Bank AG Zurich is providing this information as closure requirements set out in FINMA Circular 2016/1 of 31 December 2019 in accordance with the provisions "Disclosure - banks". of the Capital Adequacy Ordinance (CAO) and the dis- 1. Scope of consolidation Scope of consolidation for capital adequacy purposes The scope of consolidation for capital adequacy purposes consist of the following companies (hereafter referred to as "the Group"): • Habib Bank AG Zurich (hereafter referred to as "the Bank") • Habib Canadian Bank, Canada (100% ownership) • HBZ Bank Ltd., South Africa (100% ownership) • Habib Metropolitan Bank Ltd., Pakistan (51% ownership) • Habib Bank Zurich (Hong Kong) Ltd., Hong Kong (51% ownership) • Habib Bank Zurich Plc, United Kingdom (100% ownership) • Habib Metropolitan Financial Services Ltd., Pakistan (51% ownership) • Habib Metropolitan Modaraba Management Company Ltd., Pakistan (51% ownership) • First Habib Modaraba Ltd., Pakistan (5% ownership) • Habib Metro Modaraba, Pakistan (36% ownership) Scope and method of consolidation according to ticular risk class, defines who manages risk and who FINMA Circular 2015/1 "Accounting - Banks" performs independent risk control. The Group's method of capital consolidation follows the Risk organisation purchase method. The scope of consolidation according to FINMA Circular 2015/1 "Accounting - banks" The Board of Directors’ responsibilities are the follow- additionally includes the subsidiary HBZ Services ing: FZ-LLC, United Arab Emirates (100% ownership), • The Board of Directors is responsible for the strate- Habib Europe Limited, Isle of Man (100%), HBZ Serv- gic direction, supervision and control of the Group, ices (Private) Ltd., Pakistan (100%) and HBZ Services and for defining its overall risk tolerance by AG, Switzerland (100%). HBZ Services FZ-LLC, HBZ means of a risk appetite statement and overall risk Services AG and HBZ Services (Private) Ltd. act as limits; service providers for the Group and do not operate in • The Risk & Control Committee supports the Board the financial sector (please refer to the Annual Report of Directors in fulfilling its oversight responsibi- 2019, page 43). Habib Europe Limited (former Habib lities by providing guidance regarding risk gov- European Bank Ltd.) is in liquidation. ernance and the Group’s risk profile, including the regular review of major risk exposures and 2. Group risk principles overall risk limits; • The Audit Committee supports the Board of Risk & Control Framework Directors in fulfilling its oversight responsibilities by monitoring General Management’s approach The Group’s Risk & Control Framework is the corner- with respect to financial reporting, internal controls stone for risk management and control. It provides the and accounting. Additionally, the Audit Committee basis to identify, assess and effectively manage risks is responsible for ensuring independence and within the Group. Furthermore, the Risk & Control monitoring the performance of Group Internal Framework assigns the overall responsibility for a par- Audit and the external auditors. 1 Habib Bank AG Zurich On an operational level, the Group operates with a Internal controls three lines of defence model, whereby business and revenue generation, risk management oversight and Internal controls are processes and instruments used risk control are performed by functions independent of to monitor and control operational and other business one another. risks. In order to continuously enhance the Group’s internal control system and the effectiveness of con- Furthermore, a clear distinction is made between "risk trols, results of actual control processes are reviewed owners", "risk managers" and "risk controllers": and the outcome of the Group’s operational risk • Risk owners keep oversight and bear the overall management processes is taken into account. The or- responsibility for the management of specific risk ganisational units responsible for internal controls work classes or risk types; closely with other organisational units within the Group. • Risk managers focus on the monitoring and proac- tive management of risk. They initiate risk man- Credit risk agement measures and can change the risk profile; • Risk controllers independently monitor and assess Credit risk arises from the possibility that a counterparty risk as well as highlight deviations from target risk (i.e. private and corporate clients, financial institutions parameters and non-compliance with policies. as well as issuers or sovereigns) does not fulfil contractual obligations or the credit quality deteriorates. In or- Risk management principles der to manage potential default risk and other prevailing credit risks as effectively as possible, it is divided into The following general principles are applied to the following risk types: client credit risk, issuer credit maintain an appropriate balance between risk and risk, counterparty credit risk, country risk (including return to: cross-border / transfer risk), settlement risk and credit • Assure the financial strength of the Group by moni- concentration risk. toring the risk exposures and avoiding potential risk concentrations at individual exposure levels, The Group Credit Management Committee is responsi- at specific portfolio levels and at an aggregate ble for credit risks and credit decisions, which may be Group-wide level across all risk types; delegated to the respective Country Credit Management • Protect the reputation through a sound risk cul- Committees. The Group manages its credit risk within ture characterised by a holistic and integrated view a conservative framework by evaluating the creditwor- of risk, performance and reward, and through full thiness of the borrowing counterparties, setting appro- compliance with the Group’s standards and princi- priate credit limits and obtaining collateral as deemed ples; necessary. For each collateral type a minimum haircut • Systematically identify, classify and measure risks is defined in order to account for the volatility in market applying best practice; values according to the nature and liquidity of the col- • Thereby a Group risk assessment is performed, lateral. More than 41% of the Group’s credit exposure which encompasses all risk classes and subse- is secured by property and only 11% is unsecured. quently allows Management to focus on signifi- cant risk exposures; The Group’s credit risk appetite is defined and moni- • Ensure management accountability, whereby busi- tored through a comprehensive system of credit limits. ness line management owns all risks assumed and is responsible for the active management of all The Group has its own rating system for corporate risk exposures to ensure that risk and return are clients. Each credit is assessed as to the borrower’s balanced; creditworthiness, collateral coverage and collat- • Set up independent risk control functions or units, eral quality, as well as the underlying transaction ra- which monitor the effectiveness of risk management tionale, business potential and any additional risk miti- and oversee risk-taking activities; gations. Personal credits are usually only granted on a • Disclose risks to the Board of Directors, regula- fully collateralised basis. Collateral coverage is monitors and other stakeholders in a comprehensive tored on a regular basis and according to the prevailing and transparent manner. market conditions. 2 Habib Bank AG Zurich An adequate and clear segregation of duties is estab- more than 5% of the Group’s total deposits. Excess li- lished among the various organisational units involved quidity is held as bank placements or financial invest- in the acquisition of credit business, the analysis and ments. The latter primarily consist of bond portfolios of approval of a credit request, and the subsequent admin- sovereign issuers or other issuers of high quality. istration. The contractual maturities of the Group’s financial as- Bank counterparties, issuers and sovereigns are ana- sets exceed the contractual maturities of the financial lysed according to their financial performance and their liabilities. However, when determining maturity gaps, external rating. Over 65% of the credit exposure to fi- the stickiness of deposits or economic maturities needs nancial institutions is of investment grade quality and to be considered, which significantly reduces the con- the remaining 35% consists mainly of short-term trade tractual gaps. Furthermore, individual client groups in finance exposure in emerging markets, to which the different countries will not act in the same way and at Group has close links, and monitors the portfolio with the same time. a set of country limits. In general, the Group is exposed to potential larger Regarding non-performing loans, the Group is in a deposit outflows and sudden adverse market develop- comfortable position. After taking the collateral at ments. Therefore, related scenarios have been analysed market value

Load more