RISK MANAGEMENT POLICIES, PROCESSES AND TOOLS Our Risk Management framework is supported by processes and tools that are used together to manage risk across CWB. We design risk management processes to support CWB’s overall size, level of complexity and risk profile. Risk management processes and tools are regularly reviewed and updated to ensure consistency with risk-taking activities, and relevance to the business and our strategic execution. Policies and Limits To support effective communication, implementation, and governance of our Risk Management framework, GRM and other corporate teams, as the second line of defence, codify processes and operational requirements in comprehensive risk management policies, standards, frameworks, and protocols. The first line of defence implements these into directives and procedures. Such first and second line governance documentation promotes the application of a consistent approach to manage risk exposures across CWB. All risk policies are developed by the second line and approved by the Board of Directors, or one of its committees, on a defined regular basis. Underlying risk management standards and protocols are approved by executive management in accordance with our corporate policy framework. Limits govern and control risk-taking activities within our risk appetite and tolerances established by senior management and approved by the Board of Directors. Limits establish accountability throughout the risk-taking process and the level or conditions under which transactions may be approved. Risk Measurement The measurement of risk is a key component of our Risk Management framework. We use a variety of techniques to support our quantitative risk measurement activities, including models, stress testing, and scenario and sensitivity analysis. The measurement methodologies may apply to a group of risks or a single risk type and are supported by an assessment of qualitative factors to ensure the level of risks are within our risk appetite. We employ models for a number of risk measurement and management processes, including the determination of credit risk-ratings, pricing decisions, financial reporting, informed decision-making and stress testing. The use of models is subject to a strong governance framework that covers all stages of the model life cycle, including development, independent pre-implementation review, approval and ongoing vetting and validation to ensure models remain fit for use. The development, design, independent review and testing, and approval of models is subject to formal policies. Stress Testing Stress testing is a risk management method that assesses the potential effects on our financial results and financial position, including capital and liquidity positions, of a series of specified changes in risk factors, corresponding to severe but plausible events. We conduct stress testing of relevant risk metrics on a regular basis to enable the identification and monitoring of potential vulnerabilities. Stress testing occurs at both the enterprise-wide level and individual risk level to allow for the assessment of the potential impact on our earnings, capital and liquidity resulting from significant changes in market conditions, the credit environment, funding demands, or other risk factors. The results from stress testing help inform our risk appetite and related limits, contingency planning, and appropriate capital and liquidity levels. Periodic sensitivity testing also ensures that we continue to operate within risk limits. Our enterprise-wide stress tests evaluate key balance sheet, profitability, capital, leverage, and liquidity impacts arising from risk exposures and changes in earnings. The results are used by senior management and the Board of Directors to understand our performance drivers under stress, and review stressed capital, leverage, and liquidity ratios against regulatory thresholds and internal limits. The results are also incorporated into our ICAAP and capital planning process. Input from across CWB is integrated to develop an enterprise-wide view of the impacts of stress scenarios, including both operating and oversight functions. Enterprise-wide stress testing during fiscal 2023 focused on the analysis of the impact to regulatory capital ratios under multiple stress scenarios with varying pessimistic forecast conditions. This testing supported our assessment of the adequacy of our capital and liquidity, and the resiliency of our earnings. Ongoing stress testing and scenario analyses within specific areas, such as liquidity risk, interest rate risk, and loan loss provisioning, supplement and support our enterprise-wide analyses. Risk Monitoring and Reporting Risk transparency, monitoring and reporting are critical components of our Risk Management framework that allow senior management, committees and the Board of Directors to manage risk and provide oversight. We continuously monitor our risk exposures to ensure business activities are operating within Board approved limits or guidelines as defined by our Risk Appetite framework. GRM monitors our risk profile to ensure the overall level of risk remains within specified risk limits. Early warning indicators are reported to the Executive Risk Committee and the Board Risk Committee, along with proposed actions to reduce the level of risk to ensure we remain within the approved risk appetite. Risk reporting includes an overview of the key risks that we currently face, along with associated metrics, and highlights our most significant risks to provide senior management, committees and the Board of Directors with timely, actionable and forward-looking information. This reporting includes materials to facilitate assessment of these risks relative to our risk appetite and the relevant limits. RISK UNIVERSE - REPORT ON PRINCIPAL RISKS We pursue opportunities and the associated risks that are aligned with our strategic direction and are expected to create sustainable long-term value for shareholders and other stakeholders. While our operations are exposed to numerous types of risk, certain risks, identified as principal risks, have the greatest potential to materially impact our operations and financial performance. These risks materially comprise CWB’s risk universe, as defined as part of our Risk Management framework. A Risk Register is maintained to facilitate the assessment of the level of inherent risk, control effectiveness and residual risk in support of the management of our principal risks within our risk appetite. Our principal risks include the following:
Legal and Regulatory Risk
Liquidity and Funding Risk
Operational Risk
Business and Strategic Risk
Reputation Risk
Market Risk
Capital Risk
Credit Risk
46 | CWB Financial Group 2023 Annual Report
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