WHY THIS ISSUE IS SIGNIFICANT

The Intesa Sanpaolo Group attaches great importance to risk management and control as conditions to ensure reliable and sustainable value creation in a context of controlled risk.

Intesa Sanpaolo has a moderate risk profile in which capital adequacy, a sound liquidity position and a strong reputation are the key factors to protecting its current and prospective profitability.

The risk management strategy aims to achieve a complete and consistent view of risks, given both the macroeconomic scenario and the Group’s risk profile, by fostering a culture of risk-awareness and enhancing the transparent and accurate representation of the risk level of the Group’s activities. Such management also includes measurement of the social and environmental variables in lending activities, particularly when the customers’ business projects are implemented in developing countries, for which local regulations do not offer suitable safeguarding clauses, and in “sensitive” sectors, i.e. those for which the external output generated has a greater probability of negative social and environmental impact on the community.

With regard to employees, risk monitoring includes a health and safety management system, as well as commitment to protect and safeguard employees and customers by taking action to prevent the risk of robbery at branches and to manage employees in emergency situations.

 

How it is managed
Departments/Functions in charge
2015 Results

The Group has implemented specific processes and responsibilities to understand and manage risks in such a way as to ensure long-term soundness and going concern assumptions, extending the benefits to its employees, customers and investors.

The Group sets out these general principles in policies, limits and criteria applied to the various risk categories and business areas with specific risk tolerance sub-thresholds, in a comprehensive framework of governance and control procedures.

The main risk-acceptance strategies are summarised in the Group’s Risk Appetite Framework (RAF), proposed by the Management Board and approved by Supervisory Board. The RAF, introduced in 2011 to ensure that risk-acceptance activities remain in line with shareholders’ expectations, is established by taking account of the Intesa Sanpaolo Group’s risk position and the economic situation.

The definition of the Risk Appetite Framework and the resulting operating limits for the main specific risks, the use of risk measurement instruments in loan management and operational risk control processes, and the assessment of capital adequacy within the Group represent fundamental milestones in the risk strategy, defined by the Supervisory Board and the Management Board along the Group’s entire decision-making chain, down to the single business units and single desks.

The Supervisory Board relies on the activities of, among others, the Internal Control Committee and the Risk Committee. The Management Board relies on the action of, among others, the Group Risk Governance Committee. Both Corporate Bodies receive support from the Chief Risk Officer, who is a member of the Management Board and reports directly to the Chief Executive Officer.

The Corporate Social Responsibility Unit participated in the social and environmental risk assessment processes for loans covered by the scope of application of the Equator Principles.

The usual close oversight of the risk-acceptance strategies summarised in the Group’s Risk Appetite Framework (RAF) was maintained. On the occasion of its annual update, a specific RAF on credit risk (Credit Risk Appetite) was introduced. In line with the provisions contained in the Supervisory Regulations, the control and management processes designed to allow proper ex ante assessment of any transactions that are potentially relevant in terms of risk profile and that could have a significant effect on the Group's stability (Most Significant Transactions) were further implemented. In view of a changing economic scenario, the Bank has taken steps to implement latest generation rating models, dedicated to Italian businesses, to measure the sector and competitive variables.

The monitoring of environmental and social risks in project finance continued with screening activities according to the "Equator Principles" and the training activities provided to colleagues in charge of the application of the new Operating Guidelines for the implementation of the Principles.

As regards reputational risks, in July 2015 the Reputational Risk Office was set up, as part of the Enterprise Risk Management Department; such a structure is in charge of ensuring a structured monitoring of reputational risk also through the integration and enhancement of the contributions made by the corporate functions monitoring corporate reputation.

The Bank continued to work on the constant monitoring of the health and safety of employees, workplaces, risk warnings, accidents, incidents as well as the annual risk reduction plan. The assessment of work-related stress was updated with reference to the branches operating with extended working hours. People's physical security management continued with the systematic prevention of risks and mitigation of vulnerabilities, as well as activities for upgrading and innovating the technological security measures, the creation of information tools for the development of a culture of integrated security and publication of operating procedures.

Performance indicators and objectives achieved

Indicators 2015 results
Definition of systematic monitoring to manage Most Significant Transactions (MSTs) A dedicated unit was set up for the purposes of providing a preliminary opinion on the consistency of each proposed transaction with the desired risk profile and the Group Guidelines for the governance of Most Significant Transactions were issued.
Breakdown of Group RAF limits on Divisions and Subsidiaries with a high contribution to risks and/or specific local features. RAF limits defined as specific to Banca IMI, Intesa Sanpaolo Vita and the International Subsidiary Banks
Projects subject to the Equator Principles screening and relative percentage of total project financing 19 projects worth 1.7 billion euro, equal to 14.9% of the loans granted for project finance activities (equal to approx. 11.4 bn)
Definition of systematic monitoring of reputational risk management and mitigation Set up the Reputational Risk office within the scope of the Enterprise Risk Management Department; issued the Guidelines for the governance of the Group's reputational risks
Investments in training on Health and Safety issues in Italy/No. of internal accidents (Italy) € 604,000 / 211 accidents (217 in 2014)
Investments in personnel training on aspects of prevention and management of the risk of robbery / Number of robberies €109,062 / robberies have gone down by 56% since 2013.
There were 54 in 2015