Risk Management Department February 2006

1. Organizational Readiness and Basel II Implementation Risk Management Department February 2006

2. Ovidiu Bordeuţ, February 22, 2006 February 22, 2006 Changes brought by the Basel Accord Basel Accord: • changes the way banking is thought, from cluster oriented to integrated and complex thinking; • is about implementing good business practices at all hierarchical levels in banks; • is poorly structured (principles instead of rules).

3. Ovidiu Bordeuţ, February 22, 2006 February 22, 2006 Challenges of the Basel Accord Apart from its complexity and novelty, Basel Accord,requests: • Selling risk across organization; • Use risk identification & assessment in everyday work; • Close the feed-back loop with additional internal controls; • Embed change & experience, move to a self-learning organization; • Adapt to specific culture & needs, reach a balanced approach between adequate tools and organizational structure.

4. Ovidiu Bordeuţ, February 22, 2006 February 22, 2006 Challenges of the Basel Accord For organization itself, Basel brings: • Organizational and individual resistance; individuals and organizations tend to resist and reject change, they tend to maintain existing status. • High complexity and poor structuring (poor problem definition) bring additional resistance to change. • The more pervasive is the change, the tougher will be the resistance.

5. Ovidiu Bordeuţ, February 22, 2006 February 22, 2006 Adoption of the Basel Accord Basel adoption initial path is different in different organizations depending on the prior existence of a risk function within the organization but in time get to a common track (funnel evolution). “One size fits all” is replaced by “one path fits all”.

6. Ovidiu Bordeuţ, February 22, 2006 February 22, 2006 Commonalities in implementation • Irrespective of a prior existence of a risk function • Risk training & selling, feed-back provision, best practices coaching; • Deploy risk identification & assessment to front-end functions; • Empower/ delegate people (“own the business” principle); • Change to best practices & principles approach, greater responsibilities; • Solve problems of tomorrow, identify exposures to risk & embed experience.

7. Ovidiu Bordeuţ, February 22, 2006 February 22, 2006 Differences in implementation • New risk function • Create a risk culture & build a new perspective; • Implement a network perspective, opposed to a cluster one; • Prepare organization for risk software implementation; • Implement a self-learning approach & mentality; • Existing risk function • Change understanding from a business-blocking function; • Change an informative flow to an integrated/ circular one; • Change/ adapt existing software & habits of use; • Lower learning to front-end, central coordination & support;

8. Ovidiu Bordeuţ, February 22, 2006 February 22, 2006 Differences in implementation • New risk function • Change from centralized decisions to decision ownership; • Implement a proactive risk function and a complex information flow. • Existing risk function • Change from “command & control” to decision ownership; • Change from a reactive risk function to a proactive one, aimed at implementing business practices.

9. Ovidiu Bordeuţ, February 22, 2006 February 22, 2006 Risk implementation in Finansbank • Get explicit support from management; • Build coherent risk strategies, policies and procedures; • Sell risk management (Management Trainee & Basic Banking training, coaching and knowledge transfer); • Persuade stakeholders in adopting risk principles in everyday activity; • Provide risk information to as many stakeholders as possible;

10. Ovidiu Bordeuţ, February 22, 2006 February 22, 2006 Risk implementation in Finansbank • Work on multiple time horizons; • Work on all Basel pillars (incl. risk matters disclosure in annual reports); • Communicate (organization-wide) on implementation progress; • Provide feed-back on risk reports and actions; • Encourage and reward risk best practices adoption; • Build risk structures for all, at all levels; do not monopolize risk management. Its success depends on organization-wide adoption.

11. Ovidiu Bordeuţ, February 22, 2006 February 22, 2006 Thank you ! • Finansbank (Romania) S.A. • http://www.finansbank.ro/ • risk@finansbank.ro • office@finansbank.ro