Structure and Organization of the Integral Risk Management Function
Bancomext operates a Financial Model based on financial sustainability supported by a Corporate Governance structure, which aims to bring viability to the Institution in the medium and long term. This model has the purpose of raising capital to boost growth and comply with business and mandate objectives under conditions of normality and with an anti-cyclical role in crises.
It relies on a solid Corporate Governance structure, an adequate risk management strategy fully complying with regulatory and banking practices and a financial discipline that builds investor confidence.
Applicable Regulations
In accordance with the guidelines issued by the National Banking and Securities Commission through the General Provisions Applicable to Credit Institutions (Single Circular), the Board of Directors of Bancomext established the Integral Risk Management Committee (CAIR) in order to manage the risks to which the Institution is exposed and ensure that the performance of the operations conform to the Desired Risk Profile, to the Integral Risk Management Framework, and the Risk Exposure Limits previously approved by the aforementioned Board.
Also, to carry out its mandate, the CAIR relies on the specialized Integral Risk Management unit (UAIR), whose functions are vested on the Directorate of Risk Management (DAR). The DAR is independent of the risk-taking areas (Front Office) and control areas (Back Office); its purpose is to identify, measure, monitor and report the risks of the operation faced by the Institution, whether said risks are recorded on or off the balance sheet, including, where appropriate, the risks faced by its Financial Subsidiaries.
Within the Bancomext Comprehensive Risk Management Process, governing bodies have various functions and responsibilities, complemented by the involvement of consultants and external experts. The interaction between them and with other control areas is illustrated in the following diagram.
Risk Classification
In general terms, and in accordance with the prudential Provisions concerning risk management, the risks to which any banking entity is subject are classified in two broad categories: Quantifiable and Non-Quantifiable Risks.
Bancomext desired Risk Profile
The Desired Risk Profile (PRD) aims to measure, monitor, and control the different types of risk to which the Institution is exposed, ensuring solid measures that allow limiting the Institution's appetite for risk. The desired Risk Profile is supported by the Framework for Integral Risk Management (MAIR) and aligned with the Institutional Strategic Plan.
Strategic guidelines
- 2013-2018 Strategic Plan Guidelines.
- The desired Risk Profile is aligned with the goals of the Strategic Plan.
- In the Strategic Planning exercise for 2018, the portfolio growth goals were set at 9.9% for 2018.
- Strategic Risk Guidelines.
- The Net Capital was strengthened with the issuance of the Subordinated Note T2. In August 2016, it was strengthened with a Complementary Capital (CC) of 700 Million Dollars. Given the temporary benefit of the Subordinate Note, the Board of Directors authorized the Capital Adequacy Ratio (CAR) Minimum Prudential Levels in order to maintain a "safety margin".
- The Minimum Regulatory Levels of Basic Capital Adequacy Ratio (BCAR) and Net Capital Adequacy Ratio (NCAR) were met in 2018.
Variable | Norm Definition | Level Observed | Preliminaty Level | Minimum Prudential Level | Minimum Regulatory Level | ||
1st Qtr. 2018 | 2nd Qtr. 2018 | 3rd Qtr. 2018 | 4th Qtr. 2018 | ||||
ICAP CB | Bassic Capital (CB) ----------------------------------- Assets at Risk | 12.4% | 11.9% | 12.2% | 12.9% | 9.5% | 8.5% |
ICAP CN | Net Capital (CB+CC) --------------------------------------- Assets at Risk | 18.2% | 17.9% | 18.0% | 18.8% | 12.0% | 10.5% |
Desired Risk Profile Model
The Board of Directors of BANCOMEXT is in charge of approving, at least once a year, the Desired Risk Profile, the Risk Exposure Limits, and the Risk Tolerance Levels. The Director-General proposes to the Comprehensive Risk Management Committee (CAIR) the Desired Risk Profile for the Institution, and the CAIR verifies compliance with the Profile, Risk Exposure Limits and Acceptable Risk Tolerance Levels by type of quantifiable risk.
Monitoring the Desired Risk Profile
Common Risk Concentration
- The Prudential Limit for the Private Sector was authorized at 230 Million Dollars in 2017. This internal limit represents 15.1% of the Basic Capital as of December 2018.
- The limit is periodically reviewed for possible capital and/or Capital Adequacy Ratio (CAR) reductions due to adverse causes in the economic and financial variables.
Bancomext satisfactorily meets all strategic risk objectives, in normal and adverse scenarios:
Status of Strategic Risk Objectives
Type of Risk | Indicator | Threshold | Observed Level Dec - 2018 |
Overall Risk | CAR on NET Capital (ICAPCN) | >12.0% |  |
CAR or Basic Capital (ICAPCB) | >9.5% | | |
| Profit before taxes / Assets Subject to Total Risk | >1.0% | | |
| Basic Capital / Total Assets (Leverage Ratio) | >=3.5% | | |
Credit Risk | Private Sector Portfolio Risk Indicator (IRB Methodology) | R5 | |
| Credit Risk Value of the Private Sector Portfolio / Capital Assigned to the Private Sector Portfolio | <85% | | |
| Distributed Capital Assigned for Credit Risk | >80% | | |
| Portfolio Concentration of the Private Sector Portfolio (Gini index) | <75% | | |
| Portfolio of each Strategic Sector of the Private Sector Portfolio / Portfolio of the Private Sector Portfolio | <30% | | |
| Number of times the Basic Capital of the 20 Major Exhibitions in the Private sector Portfolio | <3.0 | | |
Maket Risk | Market Position / Investment by Instrument Type | Market ------------------ >=70% Reviewable Issuer ------------- >= 70% Govem | |
| Economic Efficiency of Derivative Instruments for Coverage Purposes | 80% - 125% | | |
| Funding Risk / Financial Margin | <15% | | |
Operational Risk | Map of Frequencies and Economic Impacts | Tolerance Level Quadrant 5 | |
| Results Of External and Internal Audits | Compliance with regulatory requirements and market practices | |
Bancomext’s Integral Risk Profile
Bancomext’s Comprehensive Risk Profile discloses the current status of the main risks faced by the Institution. The Risk Management Department establishes objectives, guidelines, and policies to implement adequate integral risk management.
Likewise, to ensure that risk management acts as a decision-making support tool, models and methodologies are established that allow measuring, monitoring, and controlling the different types of risk to which the Institution is exposed. These risk measures must also contribute to the definition of business strategies and support the operation’s decision-making.
Capitalization
Capitalization Level BANCOMEXT has made good use of its capital in credits issued during the period 2012-2018.
Available Capital Available capital and yearly net income for 2018 are sufficient to meet the Growth Goals set in the Business Plan.