Risk management is one of the important aspects of Adira Finance in ensuring the continuity of the Company’s business. The main goal of the implementation of risk management is to maintain and protect the Company by managing the risk of loss that may arise from a variety of activities as well as to maintain the level of risk in order to conform with the directives that have been defined.
The Company is constantly working to establish and develop a powerful risk culture, implement the Good Corporate Governance, preserve the values of compliance to the regulations, adequate infrastructure, and structured and healthy work processes.
Since long time, Adira Finance has adopted the “Implementation of Consolidated Risk Management for Banks which Perform Control on Subsidiary Companies”, which is implemented by Adira Finance in its capacity as a Subsidiary of PT Bank Danamon Indonesia Tbk (Bank Danamon Indonesia), as the controlling shareholder of the Company, referring to Bank of Indonesia Regulation No. 8/6 / PBI / 2006 dated 30th January 2006.
Therefore, in the implementation of the risk management, Adira Finance adopted a mechanism that relies on 4 (four) pillars of risk management as defined in the Bank of Indonesia Regulation No. 5/8 / PBI / 2003 concerning Implementation of Risk Management for Commercial Banks. The following is a description of its implementation :
Pillar I: Active Monitoring of the BOC and BOD
In carrying out its monitoring function, the Board of Commissioners and Board of Directors are assisted by the committee and the unit below it. Board of Commissioner is supported by the Audit Committee, Risk Management Committee and the Nomination and Remuneration Committee. While the Board of Directors is supported by the executive committees below it, which consist of Risk Management Committee, Credit Committee, Human Resources Committee, Asset and Liability Committee and Compliance Committee. In addition, the Board of Directors also has the responsibility for designing the internal audit system of the internal reporting process that includes thorough mechanism of standard operating procedures, reporting lines and accountability structures. In carrying out this responsibility, the Board of Directors is assisted by the Internal Audit Unit to provide accountability to the Audit Committee under the Board of Commissioners.
The general description of the existing monitoring structure in Adira Finance (where risk management is one of the important parts of the supervision carried out within the Company) can be seen from the chart below :
Those active monitoring are reflected from the annual business plan, which includes :
- Approve and evaluate the risk management policy periodically;
- Evaluate and approve the activities that need the approval of the Board of Commissioners or Board of Directors;
- Establish policies and risk management strategies including the establishment of the authority in granting limits as well as a review of the quality of the portfolio periodically;
- The presence of the Audit Committee and Risk Management Committee as an organ of the Board of Commissioners in carrying out its monitoring functions; and
- Establish a committee associated with the implementation of risk management, which is namely the Risk Management Committee.
Furthermore, the consolidation of the risk management framework with the Parent Company was organized in view of the presence of a representative of the Parent Company in the Board of Commissioners. The framework is also implemented through regular performance checks by the Parent Company to Adira Finance, regarding financial performance, monitoring accounting information systems, as well as the health levels and risk profile of the financial assets of the Company.
Pillar II: Policy and Limitation Implementation
The Company prepares policies related to risk management which are checked regularly and adjusted to the current business situation. The policy is translated into the Standard Operating Procedures and Internal Memo which are socialized to all employees. The Company also has policies regarding limitation of approval / authorization for both credit and non-credit transactions.
Risk management consolidation framework with the Parent Company was organized because the Company received approval from the Parent Company to propose new boundaries as well as the annual review process over the credit program. The Company receivables loss provisioning policy is also in line with the Parent Company’s provisioning policy in appropriate and complies with Bank of Indonesia’s Regulation (as regulator Parent Company).
Pillar III: Identification, Measurement, Monitoring and Management Information System
Adira Finance has the tools to identify, measure and monitor the risks, particularly credit risk and operational risk. From the beginning, the Company believes that risk control is a crucial issue in running the business. Therefore, various mechanisms which are right on target are to be developed with End-to-End approach, where risk control measure covers from the beginning to the end, from the selection of consumer profiles to filter consumers who deserve to get funds until the completion of the consumers’ obligations, as well as cover various major functions or the Company’s support. Now the Company already has a comprehensive instrument in controlling various risks, which are adapted to the seriousness of the impact that may occur on the sustainability of the Company’s business.
In conducting the identification and measurement of credit risk, the Company has a credit assessment and credit analysis instruments. As for operational risk, in addition to have a Risk Control Self-Assessment (RCSA), the Company also has mechanisms of (1) Fraud Management in which the Company arranges the strategy of preventive, detection, investigation & recovery, and deterrence; and (2) Business Continuity Management (BCM) which therefrom drafted a Business Continuity Plan (BCP), which is a documented framework for response and recovery to the critical activities within a working unit by a predetermined time period.
The company also has a mechanism for reporting and management information systems through regular meetings of the Audit and Risk Management Committee Adira Finance. In addition, the Company’s major information technology system (Ad1Sys) is capable of providing data / information quickly and accurately to the Management, Parent Company or other relevant third party.
Furthermore, the risk management consolidation framework with the Parent Company is achieved through the submission of the existing Company’s risk exposure regularly to the Risk Management Committee of the Parent Company, including the submission of periodic reports related to the aspects of compliance, legal and others to the Parent Company.
Pillar IV: Internal Control
In order to ensure weaknesses or irregularities to be detected quickly, in addition to keep using the instruments as mentioned above, the Company has other control mechanism that consists of 3 tiers, namely: (1) Superior; (2) Quality Assurance; and (3) Internal Audit Unit.
Tier 1 lies on the direct superior, in which each superior is expected to be able to do the filtering of the weaknesses or irregularities earliest. Tier 2 is on Quality Assurance (QA) Team which has a function to perform the checks periodically related to the compliance of any sections of the Company to the policies that have been issued to the relevant sections, especially the business network. Tier 3 is the Internal Audit Unit, which independently reports the process and the examination results based on sampling to the Board of Commissioners and the President Director. Accountabilities of the Internal Audit Unit include:
- Provide an assessment of the adequacy and effectiveness of all processes within the Company;
- Report significant issues related to the activities control processes within the Company, including potential improvements to those processes; and
- Coordination with other monitoring and control functions (risk management, compliance, legal and external audit).
Risk management consolidation framework with the Parent Company is also reflected by the implementation of a regular audit / Information Technology audit / integrated audit of the units in Adira Finance by the Internal Audit Working Unit (IAWU) of the Parent Company.