Capitalization

Integral Risk Management

The objective of the Integral Risk Management process focuses on the identification, measurement, control, and disclosure of the different types of risks the Institution is exposed to (credit, balance, market, liquidity, non-discretionary and non-quantifiable), the preceding under regulations established in the General Provisions Applicable to Credit Institutions, issued by the National Banking and Securities Commission (CNBV), published in the Official Gazette of the Federation on December 2, 2005, and the best banking practices established by the Basel Committee.

The Institution’s Comprehensive Risk Management Committee (CAIR) reports directly to the Board of Directors (CD). It is composed of up of three external experts (two from the private sector and one representing Banco de México), the General Director, and the Head of the Comprehensive Risk Management Unit (UAIR).

The CAIR is in charge of authorizing and presenting the Desired Risk Profile to the Board of Directors, which defines and expresses the risk appetite that stems from the Strategic Plan, which establishes the strategic risk objectives to maintain the Institution’s capital adequacy financial sustainability.

Additionally, it approves the risk models that will be used to measure risks, the establishment of Risk Limits that will be applied in the management and control of risks, and the policies to marshal and guide the execution of the risk management process in the organization.

Capitalization

The Risk Management Framework is based on Strategic Capital Management principles, observing at all times the minimum regulatory levels, plus a safety margin defined and authorized by its CAIR and its CD, that ensure risk-taking based on the Institution’s capital adequacy and financial sustainability.

The UAIR defines the Institution’s Distributable Capital for each fiscal year, based on the capital formation policy and the institutional business plan. Once the distributable capital has been determined, capital is allocated at the Strategic Level in accordance with current policies and the risk profile. These limits are authorized by the CD and, finally, an allocation is made at the Tactical Level, which is authorized by the CAIR and informed the CD.

Capital limits consumption is monitored and periodically reported to the business areas and governing bodies. No overruns have been reported in the last year.

Strategic and tactical management of capital and risk intake control aim at keeping the Institution's CAR (Capital Adequacy Ratio) above the target levels defined by the CD. CAR behavior reflects the financial Institution’s soundness and sufficiency of capital to bear the risks assumed.

Risk appetite is expressed through the allocation of regulatory capital, credit risk having the highest intake. This confirms the fulfillment of the mandate assigned to the Institution. The observed growth of capital is the result of the Institution’s capital formation policy. The asset growth observed in recent years has been supported by the capital formation generated by the Institution.