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Queen City Development Bank
RISK MANAGEMENT

     Banking is about taking risks. Vital to a bank’s success is its proper understanding of the risks it takes and its ability to manage these well for the bank’s growth and development.
     Queen City Development Bank has implemented an effective approach of risk management that is able to identity, measure, monitor, and mitigate its risk exposures on the different types of risks, among which include credit, market, interest rate, liquidity and foreign currency risks.

Credit Risk

     Credit risk is the risk to earnings, or capital from the possibility that a borrower or counterparty will fail to perform on an obligation.
     For Queenbank, there are two (2) issues concerned with regard to Credit Risk. First is the over concentration of credit exposure to certain sector or industry, while the second is the risk of possible loan defaults.
     To address the first issue, the bank initiated the creation and development of new consumer product lines as an alternative for marketing officers and branch heads to disperse credit concentration to certain industry sectors. Likewise, awareness of the over- concentration of credit to commercial loans has been conveyed to marketing officers so that lending on these areas would be moderated.
     As regards the second issue, the Bank is exposed to credit risk arising from loan default of its clients with a maximum exposure equal to the carrying amount of their loans. As a mitigating factor, stringent policy has been implemented in loan granting such that the Bank grants credit only with recognized, creditworthy clients. The Bank transacts only with clients which have demonstrated financial soundness for the past five years. 98.34% of the Bank’s total loan portfolio is granted on a secured basis while only 1.66% is granted on unsecured or clean basis.

Market Risk

     The risk of loss, immediate or over time, due to adverse fluctuations in the price or market value of instruments, products, and transactions in the bank’s overall portfolio (whether on or off balance sheet) is market risk. These are influenced by foreign and domestic interest rates, foreign exchange rates and GOP growth.
     The Bank has adopted a conservative stance with regard to investments such that the bulk of the excess funds are invested in overnight lending with the Bangko Sentral ng Pilipinas (BSP - Treasury), short-term peso and dollar placements in local banks and in non-risk government securities. In 2004, the evaluation and approval function of investments were taken up, and deliberated by the Asset and Liability Committee (ALCO).

Interest Rate Risk

     This risk has been identified on mismatches on maturities. To manage this risk, the Bank has pushed longer-termed Time Deposit Products with maturities of 90 days to 1 year. To minimize mismatches, the bank accredits itself with various financial institutions, namely: the Bangko Sentral ng Pilipinas (BSP), the Small Medium Enterprise Credit (SMEC) and the Small Business Corporation (SBC). Terms on the promissory notes of loan accounts are matched with the terms of funds secured from these funding institutions. The Bank has also embarked on a capital build-up program where funds derived can be augmented when called for.

Liquidity Risk

     Liquidity risk is the risk to earnings or capital arising from the Bank’s inability to make a timely payment on its financial obligations to customers. The Banks objective is to strike a balance between liquidity and profitability in managing this type of risk.
     The Bank has formed its ALCO and other risk committees specifically for the purpose of monitoring short term and medium term cash inflows and cash outflow. The ALCO meets regularly to tackle liquidity risk, interest rate risk, foreign exchange, maturity matching, credit and compliance. This also means that the ALCO (Asset and Liability Committee) considers projections of all cash inflow and outflows, and future requirements brought by economic and political projections. The Bank also has accreditation with SMEC and BSP Rediscounting windows that could be tapped when liquidity problems may occur.

Foreign Currency Risk

      Foreign currency risk exposure has been identified in risk management. The Bank has imposed that FCDU transactions are limited to deposit taking operations only. Furthermore, the Bank has also consistently complied with the 100% asset cover for its foreign currency liabilities.