REVIEW OF RISK MANAGEMENT PRINCILES

The purpose of IIB’s asset, liability and risk management system is the reduction of potential losses from risks inherent in banking operations. IIB’s risk management strategy aims to minimise uncertainties leading to potential losses and maintain stability of IIB’s business and financial condition regardless of changes in the banking and financial markets.

IIB manages risk in an integrated manner, evaluating it in terms of the correlation of the overall risk level and IIB’s capital. IIB’s risk management and control systems are based on the requirements of the CBR and the recommendations of the Basle Committee on Banking Supervision. As IIB’s business grows and diversifies, it modifies its risk management policies and techniques in accordance with the growth and diversification of its business.

The Management Board approves IIB’s general risk management strategy. IIB’s Asset and Liability Management Committee (“ALCO”) sets IIB’s asset, liability and risk management policy in line with its business strategy and makes necessary corrections in light of IIB’s financial and market position. The ALCO also sets target asset and liability allocations and exposure limits for various banking operations, determines the optimal allocation of IIB’s funds, and establishes lending and funding policies, including base and target interest rates for various types of loans and deposits, based on their maturity and purpose.

IIB’s Credit Committee (“CC”), Risk Management Department and Credit Department (the “Credit Department”) carry out risk management functions in respect of credit, liquidity, interest rate, currency and market risks, and, along with IIB’s Internal Control Division (“ICD”), operational risk. The CC coordinates IIB’s credit policy, establishes lending policies and procedures and criteria for problem loans, approves loans and guarantees for all corporate clients, sets lending limits within the exposure limit parameters set by the ALCO and approves new credit products. The Risk Management Department assesses IIB’s risk levels, manages IIB’s liquidity, analyses the risks and profitability of the current and planned banking operations, reviews compliance with and effectiveness of exposure limits, monitors financial and securities markets, prepares liquidity, asset and liability management and profitability reports for the ALCO and the Management Board and assesses risks of transactions that IIB does not engage in on a regular basis. IIB’s departments in charge of operational control and accounting (known as the back office departments) also assist with risk management.

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