financial and non-financial.

In this part I will discuss key risks that our company encounters and its risk management practices in relation to such main risk groups as financial and non-financial.
Financial Risks
Credit risk
Credit risk is defined as the degree of value fluctuations in debt derivatives and instruments due to changes in the underlying credit quality of counterparties and borrowers (Lopez et al. 2000). The credit risk management policy is aimed at increasing the competitive advantages of the company by expanding the range of products offered and customer base, reducing the level of realized credit risks, as well as optimizing the industry, product and regional structure of loan portfolios, moreover Sberbank has system for monitoring the quality of loans on regular basis which complies with requirements established Central Bank of Russia (Sberbank, 2017b).
Credit risk of Sberbank’s clients with regard to operations bearing credit risk are evaluated depending on the type of clients (Sberbank, 2018):
⦁ For microbusinesses and individuals, credit risk is assessed based on express analysis rating, client’s solvency rating, data from external sources at the disposal of our company and behavioral information.
⦁ For corporate clients including credit organizations, constituent entities of the Russian Federation, countries, municipalities, leasing and insurance companies, the evaluation is made on the basis of a credit rating system, as well as by building cash flow forecasting models or other material measures.
The following methods are applied by Sberbank in order to manage risks of its credit portfolio appropriately:
⦁ Diversification – investing in various assets in order to reduce risks;
⦁ Securitization – financing of certain assets through the issuance of securities;
⦁ Limitation – setting a limit or limitations on risks;
⦁ Creation of reserves to recover losses from credit operations of commercial banks.