In Control Report and Responsibility Statement

The responsibilities of the Managing Board are anchored among other regulations, in the principals of the Financial Supervision Act1. These responsibilities include not only compliance with the relevant legislation, but also the responsibility for the implementation of risk management and control systems that are intended to ensure reliable financial reporting and mitigate the risk that NIBC does not realise its operational and financial objectives. Throughout this process, the bank is actively monitoring its risk profile in response to changes in the market place and the economic environment.

 

1. Wet op het financiële toezicht (Wft), 12 October 2006.

 

 

 

Risk management and control framework

 

NIBC regards financial risk management as a core element of its business model. It has developed a risk management framework drawn from the principles set out in the Financial Supervision Act, which allows the Managing Board to carry out its risk management and risk control responsibilities. This framework is designed to fit NIBC’s exposure and is focused on the control of identified risks inherent to the execution of NIBC’s business activities. For a detailed description of NIBC’s risks and how NIBC manages risk, please refer to the Risk Management section. The framework is aligned with IFRS and is designed to meet Basel II requirements.

 

In its role as the party responsible for NIBC’s risk management and control framework, the Managing Board is supported by the business unit managers. The business unit managers individually provide an In Control Report to the Managing Board annually, which is based on semi-annual risk and control self-assessments of their respective activities.

 

To achieve a risk level that is aligned with NIBC’s risk profile and appetite, it analyses strategic, financial, compliance and operational risks and evaluates potential responses. In evaluating the potential responses, both the likelihood and impact of the potential risk events are taken into consideration. Alternative control scenarios are analysed for risk reducing capacity and impact. The control measures are reviewed semi-annually by operational risk management as part of the control self-assessment process.

 

 

Specific events and action points 2008

In 2008, the following events required the specific attention of the Managing Board:

  • In 2008, NIBC continued to be confronted with the stress placed on financial markets as the result of balance sheet weakening in financial institutions, de-leveraging and the fall of asset prices, as well as a macroeconomic environment characterised by weakening global growth. Balance sheet weakening of financial institutions has been further exacerbated by a decrease in the valuation of structured credit products and a dramatic drying up of market liquidity. To manage the risks emanating from the credit liquidity crisis, NIBC has taken a number of actions to raise capital and cut back assets to cope with the stress. These actions have included asset securitisation for collateralised funding, liquidity diversification, online retail savings (NIBC Direct), covered bonds, participation in the Dutch State’s Credit Guarantee Scheme, and the issue of equity by NIBC Holding. All of NIBC’s activities in 2008 have been directed toward not only preparing the organisation to be able to systematically manage the liquidity risk with which it continues to be confronted but also strengthening the organisation’s solvency position;
  • The year 2008 can be characterised as one of change and consolidation. As a consequence of resignations, NIBC appointed a new CEO and a new CRO. These appointments to the Managing Board combined with an ongoing evaluation of NIBC’s business model given the macroeconomic environment led to a realignment of activities and the organisation structure. In this process, the number of functional committees was reduced and the governance structure simplified. The business activities were repositioned and there was a return to businesses and products at which NIBC has been historically successful;
  • In 2008, NIBC launched its online retail savings programme, NIBC Direct. The new programme required NIBC to make adjustments to its internal policies and procedures while at the same time augmenting its payments and reporting system. A number of operations were outsourced to third parties. Given the nature of the product, the outsourcing of operations and the impact that a retail business has on the organisation, additional risk control and monitoring was implemented. The increased attention to the risks, controls and monitoring associated with the online retail savings programme will continue in 2009;
  • In 2008, strides were made in systems performance and stability of NIBC’s information technology system. Actions resulting in improvements in system performance and availability started in 2007 were completed in 2008. In the course of the year, problems with the electrical power at NIBC’s remote data processing centre and the instability of back-up functionality have been dealt with successfully. The bank-wide change management procedures introduced earlier have borne fruit and assisted in the observed performance improvements and stability of systems. Attention continues to be paid to these areas as well as information security improvements. NIBC has continued with its selective co-sourcing activities for specific functions within the ICT department. This has also contributed to system availability, and improved system and network performance; and
  • In 2008, data quality improvement continued to be given priority. While the data supporting financial accounting and NIBC’s Basel II reporting meets the joint requirements established in 2007 by Finance and Risk Management, emphasis has been placed on supporting the commercial and risk management processes with integrated and uniform data management. This is being achieved through the integration of actions taken and experience gained at the business unit level.

 

During 2008, the Managing Board discussed with the Supervisory Board the corporate strategy and the main risks of the business, the result of the assessment by the Managing Board of the design and effectiveness of the internal risk management and control systems, as well as any significant change thereto. 

 

 

Planned improvements and attention areas 2009

  • In 2009, the management of the risks associated with the ongoing credit liquidity crisis will continue to be a priority for NIBC. NIBC will continue its program of liquidity diversification, internal securitisations to serve as collateral for secured funding, online retail savings and participation in the Dutch State’s Credit Guarantee Scheme. These diversification activities will be carried out under prudent asset and liability management to further reduce potential fluctuations in its liquidity requirements. While NIBC will continue to systematically manage the liquidity risk in 2009, the impact of a weakening macroeconomic environment is expected to affect NIBC’s customer base. The risks associated with potential deteriorating credit and investment portfolios will require special attention in 2009. However, NIBC’s system of internal controls and risk management process are expected to have a mitigating effect;
  • The effects of the changes and organisation consolidation that took place in 2008 will continue to be areas of attention in 2009. The effects of these changes and consolidation will become visible in the planned improvement actions to support commercial activities and in the actions to simplify and improve operational efficiency. Initiatives have been started to balance system and processing efficiency with the requirements of the commercial business and operations. In this process, attention will be paid to improving the quality of management information to support commercial decision taking. Applications and associated processes will be reviewed. The improvements and attention areas are expected to lead to improved efficiency and performance as well as further improvement in the maturity level of operations/ICT and finance, while at the same time giving the organisation the opportunity to excel in executing its business strategy; and
  • The online retail savings programme, NIBC Direct, will continue to be important in 2009. Given the nature of the product and its role in the liquidity diversification planning, the risk control and monitoring framework will continue to be a special point of attention.

 

 

Conclusion and Responsibility Statement

Within the current internal risk management and control system, certain high risk events were identified by management in the course of 2008, and where required, corrective measures were taken. However, the measures required to manage NIBC through the credit liquidity crisis and the continued attention on consolidation and repositioning of the organisation will remain areas of attention in 2009.

 

The internal risk management and control systems provide reasonable assurance that the financial reporting does not contain any errors of material importance and that the risk management and control systems regarding the financial reporting risks worked properly in the year under review.

 

In view of the above, the Managing Board believes that it is in compliance with the requirements of the best practice provision II.1.4 of the Code taking into account the recommendations of the Corporate Governance Code Monitoring Committee on the application thereof.

 

In respect of Article 5:25c, Section 2 (c) (1 and 2) of the Financial Supervision Act, the members of the Managing Board of NIBC hereby confirm, to the best of their knowledge, that:

  • The annual Financial Statements give a true and fair view of the assets, liabilities, financial position and profit or loss of NIBC and its consolidated group companies;
  • The report of the Managing Board gives a true and fair view of the situation on the balance sheet date and the developments during the financial year of NIBC and its consolidated group companies; and
  • The annual report describes the principal risks which NIBC faces.

 

 

The Hague, 8 April 2009

Managing Board

 

Jeroen Drost, Chairman, Chief Executive Officer

Jan van Nieuwenhuizen, Vice-Chairman

Kees van Dijkhuizen, Chief Financial Officer

Jan Sijbrand, Chief Risk Officer