STATE COMMITTEE OF COMMUNICATIONS, INFORMATIZATION AND

TELECOMMUNICATION TECHNOLOGIES OF THE REPUBLIC OF

UZBEKISTAN

TASHKENT UNIVERSITY OF INFORMATION TECHNOLOGIES

To admit to protection

The head of the Department

_____________

«____» __________ 2014 y

Final Qualifying workOn the theme:

“WAYS TO REDUCE RISKS IN BANK’S ACTIVITY BY

THE EXAMPLE OF OJSC “ALOQABANK””

Graduate ________ Pak A.E. signature Supervisor ________ Makhkamov F.M. signature

Reviewer ________ Sakhapova R.R. signature Adviser ________ Ivanova I.S. signature

The adviser of S.V.A ________ Borisova E.A. signature

ТASHКЕNТ-2014

5

STATE COMMITTEE OF COMMUNICATIONS, INFORMATIZATION AND TELECOMMUNICATION TECHNOLOGIES OF THE REPUBLIC

OF UZBEKISTANTASHKENT UNIVERSITY OF INFORMATION TECHNOLOGIES

Faculty of “Economics and Management” “Economics” departmentDirection: 5340100 - Economics (on branches and spheres)

I CONFIRM The head of the Department____________

«____»_____________ 2014 year

TASK

for final qualifying work of student : Pak Anastasiya Eduardovna on the theme : “Ways to reduce risks in bank’s activity by the example of OJSC “ALOQABANK””1. The theme is confirmed by order on university from December 30th, 2013 № 13232. Term of delivery of finished work: 27.05.2014.

3. The initial data to work: President’s books, economics text-books, law and orders, other necessary documents, bank’s financial annual report.

4. Accountant is a content of written explanation: 1.Theoretical methodological bases of risk management in commercial banks. 2. The analysis of system management of bank risks in commercial bank. 3. Problems and ways to reduce bank risks in modern conditions. 4. Safety of vital activity.

5. The table of graph materials: Tables: 1.Classification of risks. 2. Internal estimated method of Bank. 3. Correlation of fixed quantitative limit with Bank’s realization. 4. Financial standards for Aloqabank for December 31st, 2013. 5. General analysis of currency risk of Bank. 6. Change of financial result. 7. General analysis of percentage risk of Bank. 8. Rate of interest. 9. Fulfillment of Bank’s liquidity in comparison with standard value. 10.Analysis of financial instruments by time to run.11. Liquidity of all banks of Uzbekistan.

Figures: 1.Classification of bank risks. 2. The process of risk management. 3. Breakdown of Credit portfolio on quality. 4. Dynamics of Credit portfolio structure. 5. Breakdown of Credit portfolio structure by types of providing. 6. Diversification of Credit portfolio structure by economy branches.7.Diversification of a credit portfolio structure by types of clients. 8. Diversification of Credit portfolio structure by terms and their compliance with term resources. 9. Consequences of hypodynamia.

6. The date of delivery of the task on 14th of January 2014.

Supervisor: ______________signature

Task was accepted: ___________ signature

6

7. The advisers of some parts of final work

The name of the sections Consultant

Signature, data

The task was given

The task was

received

1. Theoretical methodological bases of risk management in commercial banks

SupervisorMakhkamov F.M.

14.01.2014 14.01.2014

2. The analysis of system management of bank risks in commercial bank

SupervisorMakhkamov F.M.

14.02.2014 14.02.2014

3. Problems and ways to reduce bank risks in modern conditions

SupervisorMakhkamov F.M.

17.03.2014 17.03.2014

4. Safety of vital activity Supervisor

Borisova E.A.3.05.2014 3.05.2014

8. The schedule of performance of work

№ The names of diploma work’s parts Period of finishing

Supervisor (sign)

1. Theoretical methodological bases of risk management in commercial banks

14.02.2014

2. The analysis of system management of bank risks in commercial bank

17.03.2014

3. Problems and ways to reduce bank risks in modern conditions

18.04.2014

4. Safety of vital activity 20.05.2014

Graduate: ____________________ 2014 year ____ June

signature

Supervisor: ___________________ 2014 year ____ June signature

7

In the final qualifying work "Ways to reduce risks in bank’s activity" (by the

example of OJSC "Aloqabank") questions of the essence and classification of bank

risks, modern methods of bank risk management analyzes the management of

credit, liquidity and market risks in OJSC "Aloqabank", problems and reduce bank

risks, also issues of safety of vital activity were concerned.

В выпускной квалификационной работе “Пути снижения рисков в

банковской деятельности” (на примере ОАК “Алокабанк”) рассмотрены

вопросы сущности и классификации банковских рисков, современные

методы управления банковскими рисками, анализы управления кредитным,

ликвидным и рыночным рисками в ОАК “Алокабанк”е, пути и проблемы

снижения банковских рисков, а также вопросы безопасности

жизнедеятельности.

Ушбу битирув малакавий ишида «Банк фаолияти рискларни

қиқартириш йоллари» ( ОАК «Алоқабанк» мисолида) Банк рискларни

ассослари ва классификацияси, рисклар бошқарувини замонавий усуллари,

кредит бошқаруви, ликвид ва бозор рисклари анализ қилиб чиқилган, хамда

банк рискларини қисқартириш муамо ва йоллари, ва инсон хавсизлиги

саволари кориб чиқилган.

8

CONTENT:

INTRODUCTION …………………………………………………………..……5

Part I. TEORETICAL METHODOLOGICAL BASES OF

RISKMANAGEMENT IN COMMERCIAL BANKS

1.1. Conception, essence and typology of risks …………………………...…….8

1.2. Main types of risks of commercial bank ………………………………….13

1.3. Modern methods of risk management in commercial banks ……………...23

Part II. THE ANALYSIS OF SYSTEM MANAGEMENT OF BANK RISKS

IN COMMERCIAL BANK (BY THE EXAMPLE OF OJSC

“ALOQABANK”)

2.1. The analysis of credit risk management in bank ………………………….32

2.2. The analysis of market risk management in bank …………………….…..41

2.3. The analysis of liquid risk management in bank …………………….……45

Part III. PROBLEMS AND WAYS TO REDUCE BANK RISKS IN

MODERN CONDITIONS

3.1. Problems of management and ways to reduce bank risks in modern

conditions with a glance of foreign experience………………………….…52

3.2. Insurance of bank risks – basis of economic stability…………………..…61

Part IV. SAFETY OF VITAL ACTIVITY

4.1. Hypodynamia and it’s influence on person’s health………………………67

4.2. Protection against defeat by electric current ………………………………

71

CONCLUSION.………………………………………...……………………......76

9

BIBLIOGRAPHY………………………………………………………………..78

INTRODUCTION

Banking business throughout the world acts as one of the most important

sectors of the economy of any developed country. And economic development of

Uzbekistan in the banking and financial system plays an invaluable role.

Uzbekistan's banking system as a result of carried out under the leadership of

President Islam Karimov of reforms aimed at achieving high international rating

indicators and increasing financial stability of banks became the object of attention

of leading international financial institutions. As a high-tech, it is most susceptible

to changes, both at the macro and micro level. Practice shows that these changes

are related to the increasing internationalization of credit institutions and markets,

the improvement of banking legislation and modern computer technology,

increased competition, the emergence of the financial markets of new banking

products and services.

It should be noted that, in accordance with the decree of the President of the

Republic of Uzbekistan "On priorities for further reform and improve the stability

of the financial and banking system in 2011-2015 and achieving high international

rating indicators" of 26 November 2010 is set out specific activities and work is

underway to further development of the financial and banking system, strengthen

the financial stability of banks, improve the system of assessment of banks, in

accordance with international standards.

Actuality of the theme of the final qualifying work is risk is an element of

uncertainty that may affect the operations of a business entity or conducting any

economic transaction. So the bank cannot operate without risk, as well as cannot

be completely overcome any kind of risk. And since the purpose of the bank is to

maximize profits, he must pay great attention to the implementation of its

operations at the lowest possible risk. In order to avoid the bankruptcy of its 10

liquidation, to achieve and maintain a stable position in the banking market, banks

need to search for and apply effective methods and tools to manage these risks.

Specific risks that banks face more often will determine the results of their

activities. Consequently, while there are banks and banking operations will always

be relevant and meaningful management and reduction of bank risks and problems

associated with it.

At present, when economic and financial crisis have been starting almost all

spheres of a national economy, including the bank sphere in our country, questions

of stability, reliability, stability of banking system. are gained a large value the

large value.

The purpose of this final qualifying work is to analyze methods of

management and ways of reduce in bank risks. To allocate the most effective

methods of risks management, allowing maximum to reduce them, and also

possibility of their application in banking system of modern Uzbekistan.

For achievement of assigned goal is necessary to solve the following

problems:

1. To open concept, essence and typology of risks;

2. Show main types of risks in commercial bank;

3. To develop the modern methods of risks management, existing in

economic science;

4. To analyze credit, market, liquid risks of concrete commercial bank;

5. To reveal problems of bank risks management;

6. On the basis of studying of world experience to show ways of their

decrease.

Subject of researches of this final qualifying work is the analysis of the main

methods and ways of decrease risks in commercial bank.

Object of researches of this final qualifying work is activity of open joint

stock company "Aloqabank".

Methodological and theoretical basis of this work are works of domestic and

foreign economists in the field of banking.11

The final qualifying work is consists of the introduction, four heads, the

conclusion and bibliography. The essence, classification and methods of risks

management is considered in first chapter; the analysis of credit, liquid and market

risks of commercial bank is provided in the second part by the example of OJSC

"Aloqabank"; the problems and ways of decreasing risks of commercial banks in

modern conditions and insurance of bank risks are stated in the third part; safety of

vital activity is considered in the fourth part.

12

Part I. TEORETICAL METHODOLOGICAL BASES OF RISK

MANAGEMENT IN COMMERCIAL BANKS

1.1. Conception, essence and typology of risks

The concept "risk" has rather long world history, but various aspects of risk

have been the most actively started studying at the end of XIX - at the beginning of

the XX century.

The word "risk" has ancient roots — in translation from old Italian "risicare"

means "to venture".

The risk gets into all spheres of our activity, work and rest, everyday life are

interfaced to it. The concept of definition risk meets already in "The explanatory

dictionary of alive great Russian language" Dale V. I. where the risk is considered,

on the one hand, as "danger of anything", and on another hand as "random act

requiring courage, determination and enterprise in hope for happy outcome". A

similar definition is given by Ojegov S.I. in the dictionary of the Russian language:

"the possibility of danger" or "action at random in the hope of a happy outcome".

But both of these definitions can be attributed to a number of household. For

modern conditions the concept of "risk" requires deeper scientific substantiation.

The term of "risk" is inextricably linked to economical activities of human

and has been counted the same age as civilization exists.

It’s existence is connected with an inability in many cases with 100%

certainty to predict appearance of that or certain events that can’t depend on our

desires, actions and deeds. Despite of the fact that the risk is present in almost all

spheres of human activity, accurately formulate it’s definition is quite difficult.

In Webster's dictionary, "risk" is defined as a danger, a possibility of losses

or damage.

13

In general sense, risk means the possibility of occurrence of some adverse

events entailing the appearance of various kinds of losses (e.g., physical injury,

loss of property, damage from natural disasters etc.).

Risk is activity which directly related to overcoming uncertainty in the

situation of compulsory choice. In the process of business, it is possible to

quantitatively and qualitatively assess the likelihood of achieving predicted result,

failures and deviations from the target. The concept of "risk" includes the

following elements, the relationship of it is the essence of risk: the possibility of

deviation from the intended purpose for which is chosen alternative; the likelihood

of getting projected results; no confidence in achieving the intended purpose; the

possibility of material moral and other losses which are associated with carrying

out the selected alternative in the face of uncertainty. In the normal course of

business totality of different types of risk have been to deal with. They differ from

each other by time and place of occurrence, combined internal and external factors

affecting their level and, consequently, by the method of their analysis and

description’s method.

All kinds of risks have contact with each other, a change of any of them will

give later change most of the other risks.

From economic point of view, scientific economist M. Bakhramov examines

the conception of risk as the aggregate probability category. Risk is defined as the

probability of not profit earning compared with the predicted variant or appearance

of losses.

According to the meaning of Redhed K., Hughes S. in their book "Financial

Risk Management", "Risk is possibility of any adverse effects on the economic

situation of the company."

In the book of "Fundamentals of Management" by Meskon M., Albert M.,

Hedouri F.: "The risk is level of uncertainty in predicting the outcome."1

According to the meaning of Knight F.X. in his work of "Risk - uncertainty

and profit": "Risk - is the possibility of loss and uncertainty of winning".

1 Meskon M., Albert M., Hedouri F, “Fundamentals of management”, M.: Williams, 2008, - 150p.14

The essence of risk is the possibility of rejection of the result of the plan.

Moreover, rightly speaking about the risk of possible loss of benefits, i.e. indirect

(side) risk of financial loss (not receiving profit) as the result of the fact that an

event was not held or economic activity was stopped. If you look at the problem

more formally, then we can talk not only about the risk of loss, but also about the

risk of benefits (additional profit) as a deviation from the intended result can be in

a positive way.

Main characteristics of risk.

Economic nature. Risk is characterized as an economic category,

occupying a certain place in the system of economic concepts related to the

implementation of enterprise business process. It shows itself in the sphere of

economic activity of enterprise, directly associated with the formation of its profits

and is often characterized by the possible economic consequences in the

implementation of financial and economic activity.

Objectivity of manifestations. Risk is an objective phenomenon in

enterprise’s activity, i.e. accompanies all and all directions of its activity. Despite

of the fact that a number of parameters’ of risk depends on subjective management

decisions, the objective nature of it’s manifestations remains unchanged.

Probability of occurrence. It appears that the risk event may happen or may

not happen in the normal process of business enterprises’ activity. This probability

is determined by the degree of influence of both objective and subjective factors,

but the probabilistic nature of financial risk is a constant characteristic.

Uncertainty of effects. Consequences of the financial and economic activity

of operations depend on the type of risk and may fluctuate quite considerable

range. In other words, risk may be accompanied by both financial losses for the

company and it’s formation of the additional revenue. This risk characteristic is not

determination (not regularity in the appearance) of it’s financial results, primarily

the level of profitability of the operations.

Expected adverse of effects. While the consequences of risk manifestation

may be characterized as negative and positive indicators of financial and economic 15

activities, the risk in economic practice is characterized and measured by level of

possible adverse effects. This is due to the fact that a number of consequences of

risk determine the loss of not only income, but also the company's capital, which

leads it to bankruptcy (i.e. irreversible negative consequences for its activities).

Variability of level. Level of risk which is characteristic for a particular

operation or for certain activities of the company is not immutable. It changes over

time (depending on the duration of the operation, i.e. the factor of time has an

independent effect on the level of risk is manifested through liquidity of invested

funds, uncertainty movement lending rates in the financial market etc.) and under

the influence of other objective and subjective factors which are constant over

time.

Subjectivity of evaluation. Despite of the fact that risk as an economic

phenomenon has an objective nature, its performance indicator - the level of risk -

is subjective. This subjectivity (in equivalence of objective evaluation of this

phenomenon) is determined by different levels of completeness and accuracy of

the information base, financial managers’ qualifications, their experience in the

field of risk management and other factors.

An important factor in the creation of a risk management system is to

develop a risk classification.

Science-based risk classification allows to clearly identify the location of

each risk in their overall system. It creates opportunities for the effective use of

appropriate methods, techniques of risk management. As part of our course work

can not cover every classification of banking risks, so focus on the most common

ones. Depending on the scope or impact of bank risk, they are divided into external

and internal.

Set of authors agree that banking risks can be divided into three groups:

financial risks, risks and other functionality (external to the bank) risks. There are a

variety of classifications of risks that can generalize in the table1. Listed risk

classification interlinked.

16

Table 1

Classification of risks 2

Classification of risks Kinds of risks

By the time of occurrence:- Retrospective;- Current;- Perspective.

By the nature of dangers:- Anthropogenic;- Natural;- Mixed.

In the spheres of manifestation:

- Political;- Social;- Environmental;- Professional;- Commercial.

By the possibility of predicting:

- Projected;- Unpredictable;- Controlled;- Uncontrolled.

Source of appearance: - External;- Internal.

By the size of potential damage:

- Acceptable;- Critical;- Catastrophic.

By the financial consequences:

- The risk entailing only economic loss;- The risk of giving rise to loss of profits;- The risk of giving rise to economic loss and additional

revenues.By the complexity of research:

- Simple;- Difficult.

By the nature of manifestation in time:

- Permanent;- Temporary.

By the possibility of insurance:

- Insured;- Uninsured.

By the frequency of implementation:

- High;- Average;- Small.

Under the risks classification should understand their distribution into

separate groups according to certain criteria in order to achieve certain goals.

Scientifically based risk classification allows to clearly identifying the location of

each risk in their overall system. It creates opportunities for the effective use of

2 Lavrushin O.I., Banking. M.: Knorus, 2009, -15p.17

appropriate methods and techniques of risk management. Each risk corresponds to

its gaining of risk management3.

Due to the large variety of risks inherent in the industry for the development

of risk assessment methodology of decisions is necessary systematization and

classification of all kinds of risks specific to the industry, type of activity and the

particular situation.

1.2. The main risks of the commercial bank

Banking activity is exposed to a large number of risks. As besides business

function the bank has the function of public importance and guides of monetary

policy, so the knowledge, identification and control of banking risks are interest in

a large number of external stakeholders.

From the article №1 in the Law "About Banks and Banking Activity ": bank

is a legal entity which is a commercial organization and carrying out the following

set of activities defined as banking: taking deposits from individuals and legal

entities and the use of funds received for lending or investing at own risk; making

payments.

Bank as an economic enterprise can risk their capital, their profits, but not

the client's capital and its profits. Commerce Bank should act according to the

principle: everything for the customer. In the main idea, this means that the bank is

fully responsible for the customer provides his income.

Thus, we can conclude that an important component of the strategic

management of banking institutions is a strategy risks.

To understand the nature of business risk is fundamental relationship of risk

and profit. Adam Smith in "Inquiry into the Nature and Causes of the Wealth of

Nations" wrote that the achievement of even ordinary rate of profit always

associated with more or less risk. It is known that a profit entrepreneur is not

3 Granaturov V.M. " Economic risk: the nature, measurement methods, ways to reduce", M.: Business and Services, 2010, - 21p.

18

guaranteed reward for having contributed their time, effort and ability can be both

profits and losses.

Businessman shows willingness to take risks in the face of uncertainty as

well as the risk of loss exists the possibility of additional income. J. Schumpeter in

his book "The Theory of Economic Development" writes that if risks are not taken

into account in the management plan, then they become the source, on the one

hand, losses, and on the other - profits. You can select a solution containing less

risk, but it will be less and make a profit.4

According to the meaning of Dolan E.J., Campbell K., Campbell R. in the

book "Money, banking and monetary policy", the risk is regarded as a specific

feature of the implementation process of the banking product - transfer at time, for

a period of ownership and use of the loan fund infrastructure and services required

for the effective use of this part ".

In the works of native and foreign scientists are different definitions of

"bank risk".

In the financial - credit banking dictionary defines risk as the uncertainty

about future cash flows, the probability of loss or revenue shortfall compared with

the planned, presented in terms of value". "Bank risk means danger (opportunity)

of loss of the Bank of its resources, revenue or work extra costs as a result of

certain financial transactions ".

In the handbook of Babicheva Y.A.: "Bank risk - the probability that any

event occurs that would affect the profits or capital of the bank".5

According to Egorov V.A. bank risk is the danger of losing existing

property, or inability of the planned outcome.

Most accurately represents the first definition, but it does not take into

account the likelihood of unplanned cost increases during certain banking

operations.

Therefore, the most complete is the following definition of "bank risk":

4 Schumpeter J., "The Theory of Economic Development", M.: Directmedia Publishing, 2008, -257p.5 Babicheva Y.A., Handbook “Banking”, M.: Economy, 2008, - 128p.

19

Bank risk is uncertainty about future cash flows, the probability of loss or

revenue shortfall compared with planned or likelihood of unforeseen expenses

during certain banking transactions in value terms.

Thus, this definition can be identified such important components as

expenses, damages and losses. Consider them in detail:

- Costs. Banking activity is impossible without costs. Costs associated with

the banks need to pay the depositor interest, fees for loans purchased from other

financial institutions, allocation of funds to pay bank employees and other

operating expenses. In applying the concept of risk costs may occur in the

following forms: a change in the market situation has led to the need to increase

the interest paid on deposits; global credit deficit affected the increase of the

purchase price; increase staff salaries in other credit institutions has necessitated

the adoption of appropriate measures by the bank and so on.

- Losses. Losses, manifested in the form of revenue shortfall or excess of the

expenditure planned happen when there is insufficient analysis of the upcoming

operation, miscalculations, unfavorable circumstances or just the unpredictability

of the situation. The risk of such losses caused by unreasonable placement funds,

inaccurate assessment of market opportunities and threats, always threatens to turn

into a bank in serious trouble.

- Loss. Loss, understood as an unexpected reducing of bank profits, act

generalizing indicator of the risk inherent in the banking business. This figure

combines all of categories described above, and therefore the best characterized

risk.

Thus, the risk can be defined as the risk that the bank will incur losses, the

size of which is an indicator of the riskiness of the upcoming event and the quality

strategy of risk.

Risk is inherent in any operation, but it can be in different scales and

different offset. Consequently, the banking activity is important not to avoid risk at

all, but the management, foresight and reducing them to a minimum.

20

An important factor in the creation of a risk management system is to

develop a risk classification.

Science-based risk classification allows to clearly identify the location of

each risk in their overall system. It creates opportunities for the effective use of

appropriate methods, techniques of risk management. As part of my work it is

impossible to consider every classification of banking risks, so focus on the most

common ones.

Accordingly, risks are divided into:

- related to assets (credit, currency, market, settlement, leasing, factoring,

cash, the risk of a correspondent account, finance and investment, etc.);

- associated with liability management (risks of deposit and other deposit

operations on interbank loans);

- related to the quality management of the bank 's assets and liabilities;

- risk associated with the implementation of financial services (operational,

technological risks, innovation, strategic risks, accounting, administrative, risks of

abuse, safety).

By the nature of accounting bank risks are divided into risks on balance

sheet and off-balance sheet transactions. It is very often that the credit risk arising

from balance sheet transactions extends to off-balance-sheet activities, such as

bankruptcy of the company. Importance is proper accounting degree possible

losses from the same activity at the same time as passing on balance sheet and off-

balance sheet accounts.

Risks are open and closed by opportunity and risk management tools. Open

risks are not subject to regulation. Closed risks are managed through a policy of

diversification, that is by a wide redistribution of loans in small amounts awarded a

large number of clients, while maintaining the total operations of the bank;

adoption of certificates of deposit; insurance of loans and deposits, etc.

By the methods of calculating the risks can be integrated (shared) and

private. Comprehensive risk includes a assessment and prediction of the amount of

21

bank risk from its income. Private risk based on the creation of the scale factors of

risk of certain banking operations or groups.

Risks are divided into two types: pure and speculative. Pure risks imply the

possibility of loss or no results. Speculative risks are expressed in probability to get

both positive and negative results.

A great number of authors agree to the meaning that banking risks can be

divided into three groups: financial risks, functional risks and other (external to the

bank) risks. Classification of bank risk can be offered in the following figure 1.

Fgr.1. Classification of bank risks6

Thus, it is important to list the main elements underlying the classifications

of all banking risks:

- the type or form, a commercial bank;

- the scope and impact of bank risk;

- the composition of the bank's customers;6 Shevchuk D.A., “Banking”, M.: Read Group, 2011, -56p.

22

Other external risks

Risk of loss of bank reputation

Innovation risks

Strategic risks

Inability to pay of risks

Inflation risks

Currency risks

Interest rate risks

Market risks

Liquid risks

Credit risks

Bank risks

Other (external to the bank) risks

Financial risks Functional risks

Risk of unbalance of government control’s conditionsTechnological risks

Risks of operation costs

- the method of calculating risk;

- the degree of bank risk;

- the distribution of risk over time;

- taking into account the nature of the risk;

- the possibility of bank risk management;

- risk management tools.

The main types of risks in banking.

Credit risk. "In broad terms, the credit risk is the possibility of financial

losses due to counterparty primarily borrowers"7.Credit risk appears as on-balance

sheet and off-balance sheet obligations of counterparties. Credit risk can constitute

a violation of not only formal but also informal commitments partner, borrower or

issuer. It can lead to real and purely nominal losses.

Important components of credit risk are the risk of the industry, which “is

associated with uncertainty about the outlook for the industry of the borrower”, and

the country risk - the seat of the borrower. Last is a "foreign borrowers in lending

and due to the effect of risk factors related to the country in which the borrower".

Credit risk is present explicitly in lending, the formation of the securities

portfolio of interbank transactions, foreign exchange transactions, working with

guarantees and derivatives and securities dealer activities.

Liquidity risk. “Liquidity of the bank called its ability to meet the

requirements in a timely manner of its depositors and other creditors. Liquidity risk

is the risk arising from the fact that the bank may not be enough or too is liquid is

liquid .

Risk, lack of liquidity is the risk that the bank will not be able to meet its

obligations or it will require separate sale of bank assets on unfavorable terms.

Excessive liquidity risk is the risk that the bank's loss of income due to an excess

of highly liquid assets, and as a result, unnecessary financing low yielding assets

paid for by bank resources.”8

7 Zhukov E.F., “Bank and bank operations”, M.: " UNITY", 2004, -271p.8 Lavrushin O.I., “ Money, Credit , banks”, M.: Finance and Statistics , 2009, -157p.

23

Liquidity is a measure of the ability of the credit institution to satisfy not

only the current requirements of its creditors, but also the legitimate demands of

borrowers. The example of the latter is the bank's liabilities of open credit lines.

Liquidity affects the wrong decisions in lending, unanticipated changes in interest

rates or changes in the economy as a whole. Virtually every bank transaction

affects liquidity, but it is essential that in many respects the factors that determine

the bank's liquidity is outside its control.

Price risks. The term refers to a whole group of banking risks, which along

with the credit and liquidity risks of the underlying financial risks.

Price risks associated with the possibility of an unforeseen change in the

income or value of assets and liabilities. "Three key bank risks related to this group

are the risk of changes in interest rates, market and currency risks.

Interest rate risk is as for credit investments, as well as obligations.

Market risk is the risk of changes in market value of assets.

Currency risk is the case, if we are talking about the risk of price changes in

the assets and liabilities in foreign currency deposited ".

Currency risk and interest rate risk due to their paramount importance in the

banking industry generally isolated separately, and price risk include only the risks

associated with changes in the prices of other assets, primarily securities. In the

latter case we are not talking about a group of risk - price risk, and the risk of the

price in the singular, identical concepts market risk.

Risk of changes in interest rates. "Interest rate risk - is the risk that the

bank's profit negatively affects unforeseen changes in the general level of interest

rates". Interest rate risk arises as a result of their volatility and is a phenomenon

that is always present in a market economy. Interest rates on passive and active

operations, as well as to financial instruments differ. Thus between them there is a

clear relationship and interdependence that allows us to speak about the overall

structure of interest rates. For example, when deposit rates tend to decrease, falling

lending rates and direct borrowers.

24

The more developed financial market mechanism, so this pattern is more

pronounced;

The more the complicated financial market and competition grows, the more

important aspect of bank financial management becomes risk of changes in interest

rates.

Thus, like any bank liquidity risk is exposed to changes in interest rates.

Basis risk. Mark out also basis risk. In contrast, the risk of changes in

interest rates it is not associated with a change in the general level of interest rates,

and with shifts in the structure of interest rates. In other words, it is due to the

emergence of asymmetry in the motion of individual interest rates.

Currency risk. Foreign exchange risk arises when forming assets and

bringing livelihoods in currencies of foreign countries. Currency risk is due to

several factors, among which only a part is due to the action of normal market

forces. To a large extent on the exchange rate may affect the trend of economic

development and political issues, starting with changes in currency regulation

policy to the extent of social tensions.

Many authors identify three components of the currency risk:

- foreign exchange risk - the risk of depreciation of investments in foreign

currency due to an unanticipated change in the exchange rate.

- conversion risk associated with limitations in the providence of exchange.

- open currency position risk arising in the case of non-compliance in terms

of foreign exchange assets of the bank and its foreign currency obligations.

Other authors refer to currency risk: the risk of exchange rate fluctuations,

the risk of conversion, commercial risks, conversion, translation risk, the risk of

forfeiting and technological risk. In turn, the conversion risks include the risk of

open currency position, risk transfer and risk of the transaction.

"In terms of credit risk currency risk could lead to a liquidity crisis or

become a factor in the credit risk of the borrower. Currency risk is present in all

and off balance sheet transactions in foreign currencies. However, the credit

institution may slightly affect the risk factors themselves, and hence it can only 25

protect their interests, time determining risk and limit their potential

consequences"9

Technological risks include risks of failure of technology operations (risk of

failure of the computer system, loss of documents due to lack of storage and iron

cabinets, system failure SWIFT, an error in the system concept, disparate

investment, cost of lost or damaged computer equipment, or loss of electronic

measurement system audit or logical control, vulnerability of computer fraud,

destruction or disappearance of computer data).

The risks of transfer include:

- the lack of currency;

- liquidity risk foreign trade and investment, the balance of payments;

- repudiation;

- failure to comply with obligations in the future;

- revision of the contract;

- revision of the plan;

- change in the value of foreign currency assets and liabilities in national

currency.

Market risk. Market risk arises from the possible impact of market factors

affecting the value of assets, liabilities and off-balance sheet items. In some cases,

the term "market risk" is equated with the notion of "price risk". This occurs when

an equal with price risk group indicates terms currency risk and interest rate risk,

and then the main component of price risk is market risk. With this approach to the

classification of the terms "market risk" and "price risk" are synonymous. The

accuracy of determination of market risk is also affected by applicable accounting

rules.

Security risks consist of common security risks of the bank, internal and fire

safety.

Risks of innovation consist of project risks (risk unique projects within the

banking risk, market risk or portfolio), a selective risk (the risk of a wrong choice

9Lavrushin O.I., Banking. M.: Knorus, 2009, -157p. 26

of innovation), a temporary risk (wrong timing for innovation), risks of lack of

funds, risk of changes in legislation to cancel the new bank activity.

"Strategic risks - this risk of not achieving the planned profit as a result of

exceeding the acceptable risk, the risk of a wrong choice and incorrect assessment

of the size and the degree of risk, the risk of a wrong decision of the bank (for

example, the risk of repeated prolongation of the same loan), the risks of an

incorrect definition of the timing of operations, lack of control over the bank's

losses, financial losses wrong, wrong choice of risk management methods (eg, the

bank guarantee instead of the legal entity registration of the pledge agreement), etc.

All of them with certain positions characterize the quality of bank management".10

Accounting risks include risks of losing money because of improper or

untimely charges, damage the bank's reputation in the eyes of third parties, as well

as the risk of fraud due to the large number of uncontrolled transactions, easy

access to bookkeeping and the simplified scheme.

Administrative risks usually associated with the loss of payment and other

documents. "Administrative risks are closely linked to the risk of bank abuses that

are associated with currency speculation, speculation securities regulation in loans

and interest rates in order to "push" on the client, the opportunity to influence the

financial condition of his client, in violation of credit and contractual relations by

Bank with the deliberate purpose of conspiracy, false expertise and consulting

projects with the intent of theft, embezzlement, fraud."11

The so-called competitive risks for banks related to the possibility of bank

mergers and nonbanks, the appearance of new types of banking operations and

transactions, lowering the cost of services to other banks, increased requirements

for the quality of banking services, ease of new banking institutions, complexity of

the procedure of bank failures.

Organizational risks include:

- the lack of qualified personnel;

- the absence or lack of commercial and financial information, etc.10 Babicheva Y.A., Banking: a handbook, M.: Economics, 2006, - 124p.11 Egorov V.A. The risk management system in the bank, M.: Finances, 2008, -112p.

27

With all the variety offered by different classifications and approaches

across a variety of risks should focus on "Core Principles for Effective Banking

Supervision", developed by the Basel Committee on Banking Supervision

published in September 1997 in an advisory letter, which are allocated according to

the following key risks:

- credit risk;

- country and transfer risk;

- market risk;

- interest rate risk;

- liquidity risk;

- operational risk;

- legal risk;

- reputational risk.

1.3. Modern methods of risk management in commercial banks

Because of the specificity of the banking business, as noted above, the risk

for the bank is the phenomenon of compulsory and indispensable. So you need to

talk not about avoiding risk at all, but about anticipation and reducing it to a

minimum level, that is, until such bank when the risk is manageable.

Financial markets are very complicated, unstable, high-tech environment. So

banking is directly linked with a variety of risks, and the practice and methodology

of monitoring and banking risk management is the most critical for banking.

One of the main strategic objectives of the bank is ensuring optimum

between profitability and risk. Strategy associated with high risk operations,

resulting in losses, lower liquidity. Conversely, if the profitability is below the

market level, the bank begins to experience difficulty in attracting resources,

requiring a certain level of costs etc. Consequently, the bank is advantageous to

operate at optimum of competing processes, i.e. with an optimal level of

profitability and capital adequacy.28

Risk Management is synthetic scientific discipline that studies the impact of

various human activities random events that cause physical and material damage.

Would be more accurate to talk about risk management, not as science, but

as a methodology, which has its own set of terms, classification, unified approach

to the analysis of various risks.

Risk Management is a multi-stage process, which aims to reduce or

compensate for the object upon the occurrence of adverse events. It is important to

understand that the minimization of damage and risk reduction - not adequate

concepts. Secondly means either a reduction of possible damage or decrease the

probability of occurrence of adverse events. At the same time, there are a variety of

financial management mechanisms, such as insurance, which provide

compensation for the damage without affecting either its size or the probability of

occurrence.

Risk management is one of the functions of the bank's management and is

based on certain principles, which include:

- awareness of risk acceptance (must consciously take risks for profit, as the

risk - it is an objective phenomenon, inherent in most operations);

- controllability taken risks (risk portfolio should include only those that are

amenable to neutralization process control);

- comparability of the level of exposure to the level of profitability of

operations (in the course of business should be only those types of risks , the level

of which does not exceed the corresponding level of expected profitability of

operations);

- comparability of the level of exposure to the financial possibilities of the

bank;

- cost of risk management (costs to neutralize the risk should not exceed the

amount of possible losses on it);

- consideration of the time factor in risk management (providing the

necessary additional level of profitability from operations with a long period and

the existence of a wide range of associated risks, to build the capacity to neutralize 29

the negative effects of such transactions in accordance with the criterion of

efficiency of risk management);

- consideration of the possibility of risk transfer (transfer of risk in case of

financial difficulties to neutralize their negative effects).

In view of these principles, the policy of risk management is created.

Formation of the risk management policy provides for consistent implementation

of the following steps depicted in figure 2.

Fgr .2. The process of risk management12

Risk identification is recognition phase of risk, identifying the likelihood of

loss, their causes, factors and circumstances arise. Identification of risks

(qualitative component) defines all the risks inherent in the system under study.

The main thing here is not to miss important points and describe in detail all

significant risks. At the stage of identification revealed the contents of risk, its

components. The sources and amounts of information needed for the study of risk

are identified, also methods of data collection and processing.

Risk assessment is calculation of the size of potential losses (quantitative

component). At the stage of the risk assessment determines the magnitude of 12 Baldin K.V., Risk management, M.: Yuniti-Dana, 2012, - 47p.

30

potential losses in absolute terms in the implementation of a particular type of risk

in a particular financial instrument. Due to the impossibility of taking into account

all factors is probabilistic risk assessment (estimated) character. Its calculation is

based on statistical, computational and analytical methods and techniques of expert

assessments, and the value depends on the confidence level is received. For

different types of risk calculation methods of risk assessments differ significantly.

Identification and risk assessment are closely linked, and it is not always

possible to divide them into separate parts of the overall process. Furthermore, the

analysis is often in two opposite directions is on the evaluation to the identification

and vice versa.

Risk management. It is choosing a strategy and method of influence on

risks in order to minimize potential damage in the future and its subsequent

implementation. Typically, each type of risk allows two or three traditional ways to

reduce it. Therefore, there is the problem of assessing the comparative

effectiveness of methods to influence the risk of choosing the best of them. The

comparison can be based on various criteria, including economic.

Control. It is the final stage of risk management. At this stage, the

correction results of the implementation of the chosen strategy, taking into account

new information. Control is to obtain information from the managers of the loss

occurred and the measures taken to minimize them. It can be expressed in the new

facts that change the level of risk, the transfer of this information the insurance

company, monitor the effectiveness of security systems etc.

During the implementation of banking risk management methods in practice,

the most common are:

- the establishment of intra- standards and limits;

- diversification;

- the formation of an adequate level of reserves to cover losses;

- hedging;

- insurance;

- self-insurance; 31

- quality management.

Establishing standards and limits implies restrictions on the value of

financial transactions carried out by the bank, and subsequent monitoring of its

execution. This method is used to avoid a dangerous concentration of credit risk

and market risk and maintain liquidity at the desired level.

Limits are set on certain types of assets or liabilities on the basis of approved

methodologies for assessing the financial condition of the counterparty and market

risk on bank operations. Thus, the value of the limit reflects the bank's ability to

take on some risk. The main types of limits are:

- limits on counterparty (defines the structure and volume of transactions, in

which the risks associated with a given counterparty acceptable to the bank);

- limits on the loan product (to limit the scope of the product sum of cash

which the counterparty could generate over the life of the product);

- exposure limits (limiting the amount of risk on the bank's operations

groups).

Monitoring compliance with limits is implemented through the complex

procedures of all entities involved in the implementation under limited operations.

Diversification is the distribution of assets and liabilities of the various

components, both at the level of financial instruments and their components in

order to reduce risk.

The basis of the method is based on a portfolio approach, which involves the

perception of the bank's assets and liabilities as a whole elements - portfolio with

the characteristics of risk and return, effectively to optimize the parameters of

banking risks.

The main forms of diversification of banking risks are as follows:

- diversification of portfolio securities (portfolio formation of specific

structure reflects the needs of the bank, on the one hand, to obtain interest on

invested capital, and on the other hand, the provision of capital gains due to the

increase in the market value of securities subject to an acceptable risk);

32

- diversification of the loan portfolio (lending smaller amounts to more

customers while maintaining total lending);

- diversification of bank currency basket (forming a basket of currencies

using multiple currencies in order to reduce losses in the event of one of the

devaluation of currencies);

- diversification of funding sources (attracting deposits, interbank loans in

smaller amounts and placement of securities of more investors to reduce the

likelihood of sufficient withdrawal).

Creation of reserves for covering losses allows to cover the risk for the

bank's own funds set aside earlier.

The effective application of this method, the bank determines the optimal

size of the reserve, that is, a value it, which would have been minimal, but at the

same time sufficient to cover possible losses. Thus, banks are using quantitative

and qualitative methods estimate the probability of loss on its operations and based

on an assessment of potential losses take a decision on the reserve.

According to the law (242), banks are required to establish reserves for

possible losses on all banking transactions for which there is a risk of loss:

- credit operations;

- securities transactions;

- leasing operations;

- other investment operations.

This measure is aimed at ensuring stable conditions for banks and financial

activity avoids fluctuations in profit margins due to the write-off of losses. The

growth of reserve increases costs (reduces capital), and a decrease in the reserve,

on the contrary, increases income (capital).

A method of limiting losses by setting limits Stop loss limits the amount of

losses defined quantity when it is exceeded the position should be closed

automatically. If you do not apply these restrictions, the loss can be increased to

critical levels.

33

Hedging. In order to protect the capital against unexpected changes and

force majeure introduced the concept of hedging. Hedging is an activity which

seeks to protect the capital against possible risks in the future. The essence of

hedging is in the overall asset and liability management to minimize the risks.

Thus, hedging is used to reduce the risk of losses resulting from changes in market

factors (prices of financial instruments, foreign exchange rates, interest rates) by

using different tools.

In fact, hedging means creating counterclaims and liabilities of transactions

with securities, currencies or real assets. At the conclusion of futures contracts and

options hedging is a form of insurance rates and profit from unwanted changes,

resulting in sharp fluctuations can be smoothed. Very often for hedge large

exposures used credit derivatives.

Derivatives allow the investor to "resell" the credit risk of their portfolio

without selling direct obligations of the borrower, and the buying and selling

contracts entitling them to receive certain payments from a third party in the event

of deterioration in the credit status of the borrower. The third party is acting as a

reinsurance company, a kind of guarantor of the risk to be covered by the terms of

the derivative instrument. When properly used credit derivatives to reduce the risk

of the loan portfolio of the investor.

Insurance. The essence of this method of management is to decrease the

Bank's participation in damages due to the transfer of the insurance company

(insurer) liable to incur risk. Application of this method of risk management at the

bank is justified in the following cases:

- if the probability of the risk, i.e., the appearance of the damage is low, but

the size of the possible damage is large enough. Regardless of homogeneity or

heterogeneity of risk and risk count (or mass unit), it is advisable to use security.

However, if the risks are homogeneous and there are many, the bank can manage

based not insurance and self-insurance, when the insurance funds formed within

the company. In this case, due to the homogeneous mass risks, creating an

insurance pool becomes justified. If the risks are not uniform, then, regardless of 34

the amount (mass or individual), the use of insurance is particularly justified - in

view of the heterogeneity of risks and possible heavy losses the bank will not be

able to secure financial stability based insurance;

- if the probability of the risk, i.e., the appearance of damage is high, but a

small amount of possible damage. Insurance is justified if the risks are

homogeneous or heterogeneous, and a lot of them. Of course, due to the small size

of the potential damage, the bank may leave them at home, but the mass of such

risks can lead to significant damage, so the use of insurance in this case is more

preferable. In the case where the risks and homogeneous are mass, the bank can

manage them based insurance.

Insurance is a contractual transfer of risk, as this uncertainty of loss is

transferred to the insurance pool. Insurance is particularly necessary in the

presence of catastrophic risks. In most cases, it is the basis of risk management

programs, especially as it is sometimes necessary to conduct by law (compulsory

insurance). Self-insurance is a kind of insurance. The term "self-insurance" in the

literature used in different ways - as a method of taking a risk to themselves, and as

a form of insurance. The essence of the method of risk management is to establish

their own insurance funds available to cover losses.

Self-insurance differs from the risk-taking over the fact that he works with a

large number of homogeneous risks. As with insurance, in order to accurately

predict the amount of loss, the method provides for self- concentration of a large

number of homogeneous risks. However, unlike insurance insurance reserves are

within the same business unit, usually industrial or industrial- financial group.

Self-insurance involves the creation of financial mechanisms to pre-generate

funds to finance the resulting losses. Self-insurance as a method of risk

management allows you to:

- strengthen incentives for preventive measures;

- to improve the procedure indemnity;

- to increase the company's profitability by investing collected insurance

reserves within the group.35

Quality Management is one of the most modern methods of risk

management. It is the ability to upscale bank managers to solve problems before

they become serious difficulties for the bank. Thus, the basis of quality

management is the availability of classroom control.

Thus, in banking risk is present when performing virtually all operations, is

inextricably linked to income, the receipt of which, ultimately, is the main purpose

of banking. Obviously, the size of the expected income of the bank and the level of

risk related: as a rule, the higher the risk, the larger the expected revenues

Therefore, the risk management process requires not just minimize risks and

optimize them, i.e. select a level of risk at which the combination of risk and

expected revenues from the sale of banking products and services would be the

most rational.

Part II. THE ANALYSIS OF SYSTEM MANAGEMENT OF BANK RISKS

IN COMMERCIAL BANK (BY THE EXAMPLE OF OJSC

“ALOQABANK”)

2.1. The analysis of credit risk management in bank36

The risk management function within the Bank is carried out in respect of

financial risks, operational risks and legal risks. Financial risk comprises market

risk (including currency risk, interest rate risk and other price risk), credit risk and

liquidity risk. The primary objectives of the financial risk management function are

to establish risk limits, and then ensure that exposure t risks stays within these

limits. The operational and legal risk management functions are intended to ensure

proper functioning of internal policies and procedures, in order to minimize

operational and legal risks.

The Bank takes on exposure to credit risk which is the risk that one party to

a financial instrument will cause a financial loss for the other party by failing to

discharge an obligation. Exposure to credit risk arises as a result of the Bank’s

lending and other transactions with counterparties giving rise to financial assets.

The main elements of credit risk management are: analysis of the financial

condition of borrowers and counterparties, providing credit, limiting operations,

redundancy, diversification and monitoring of borrowers.

Exposure to credit risk is managed through regular analysis of the ability of

borrowers and potential borrowers to meet interest and capital repayment

obligations and by changing these lending limits where appropriate. The Bank's

clients are divided into five groups of valuation. Bank internal rating scale reflects

the degree of default probabilities defined for each rating group. This means that,

in principle, when the evaluations of the likelihood of default risks are moved from

one group to another.

Clients of the Bank are segmented into five rating classes. The Bank’s rating

scale, which is shown below, reflects the range of default probabilities defined for

each rating class. This means that, in principle, exposures migrate between

classes as the assessment of their probability of default changes.

Table 2

Internal estimated method of Bank13

13 According to the financial statements “Aloqabank” by IAS37

Good 1

Timely repayment of these loans is not in doubt. The borrower is a financially stable company, which has an adequate capital level, high level profitability and sufficient cash flow to meet its all existing obligations, including present debt. When estimating the reputation of the borrower such factors as the history of previous repayments, marketability of collateral (movable and immovable property guarantee) are taken into consideration.

Standard 2

“Standard” loans are those loans, which are secured with a reliable source of secondary repayment (guarantee or collateral). On the whole, the financial situation of borrower is stable, but some unfavorable circumstances or tendencies are present, which raise doubts on the ability of the borrower to repay the loan on time. “Good” loans with insufficient information in the credit file or missed information on collateral could be also classified as “standard” loans.

Substandard 3

Substandard loans have obvious deficiencies, which make for doubtful repayment of the loan on the conditions, envisaged by the initial agreement. As for “substandard” loans, the primary source of repayment is not sufficient and the Bank has to seek additional loan repayment sources, which in case of non- repayment is a sale of collateral.

Doubtful 4

Doubtful loans are those loans, which have all the weaknesses inherent in those classified as “substandard” with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values highly questionable and improbable.

Loss 5

Loans classified as “loss” are considered to be uncollectible and have such little value that their continuance as bankable assets of the Bank is not warranted. This classification does not mean that the loans have absolutely no chance of recovery, but rather means that it is not practical or desirable to defer writing off these basically worthless assets even though partial recovery may be effected in the future and the Bank should make efforts on liquidation such debts through selling collateral or should apply all forces for its repayment.

The Bank manages, limits and controls concentrations of credit risk

wherever they are identified − in particular, to individual counterparties and

groups, and to industries. The Bank structures the levels of credit risk it undertakes

by placing limits on the amount of risk accepted in relation to one borrower, or

groups of borrowers, and to geographical and industry segments. Such risks are

38

monitored on a revolving basis and subject to an annual or more frequent review,

when considered necessary. Limits on the level of credit risk by product, industry

sector and by country are approved quarterly by the Bank Council.

Speaking concerning credit risk management in commercial bank, first of

all, management of a credit portfolio of bank as it represents set of the main objects

subject to credit risk is meant.

The credit portfolio represents set of requirements of Bank on the credit

products, reflected in balance sheet accounts of Bank, and also the following off-

balance requirements – guarantees and letters of credit, i.e. set of all credit

operations performed by bank for the purpose of profit earning.

The analysis of borrowers of Bank is provided in a credit portfolio in figure

3.

Fgr.3. Breakdown of the Credit portfolio on quality

for 01.01.2014 (billion Uzbek sum)14

The chart shows that borrowers of Bank are financial and steady in

percentage a ratio they occupy 98%, and only 2% make all other categories the

borrower. Therefore, the risk of bank is minimized and constitutes only 2%.

It is given below dynamics of a credit portfolio for the last five years in

figure 4.

14 On the basis of data provided in financial statements OJSC "Aloqabank" for 201439

Fgr.4. Dynamics of a credit portfolio(billion Uzbek sum; % growth in comparison with last year)15

Dynamics of a credit portfolio shows that every year the number of

borrowers’ growths, big jump is observed in 2011 in comparison with other years.

In a percentage ratio constitutes 188.8%. After 2011 growth proceeds and 2013

constitutes 488.9 billion bags.

Providing. The Bank employs a range of policies and practices to mitigate

credit risk. The most traditional of these is the taking of security for funds

advances, which is common practice. The Bank implements guidelines on the

acceptability of specific classes of collateral or credit risk mitigation.

Collateral before being accepted by the Bank is thoroughly analyzed and

physically verified, where applicable. Collateral held as security for financial

assets other than loans and advances is determined by the nature of the instrument.

Debt securities, treasury and other eligible bills are generally unsecured.

The Bank is eligible to lend to customers via blank (unsecured) loans for the

period not exceeding 1 year. The principal collateral types for loans and advances

as well as finance lease receivables are:

- cash deposits;15 On the basis of data provided in financial statements OJSC "Aloqabank" for 2009-2014

40

- motor vehicle;

- inventory;

- letter of surety;

- residential house;

- equipment;

- building;

- other assets.

The analysis of a credit portfolio by types of providing is provided in the

form of figure 5.

Fgr.5. Breakdown of Credit portfolio by types of providing

for 01.01.2014 (billion Uzbek sum)16

The diagram shows that most of the loans, namely, 51.31% preferred to give

the bank as collateral for real estate, because property is stable Bole bail for

inflation, does not lose its value.

An important element of credit risk management is to establish a

quantitative limit the provision of total credit to one borrower. Limit is

determined by the magnitude of the alleged risks associated with lending to the

client. However, the establishment of such quantitative restrictions does not

exclude credit risk, but only reduces the amount of possible negative

16 On the basis of data provided in financial statements OJSC "Aloqabank" for 201441

consequences. Limits can be regional, sectored, and at the rate of operational

breakeven.

The Bank established a number of credit committees which are responsible

for approving credit limits for individual borrowers:

- Board of Directors reviews and approves credit limits exceeding 3,000 of

Minimum Monthly Wage (“MMW”) which as at 31 December 2013 was UZS

96,105.

- The Credit Committee of Head office reviews and approves loan limits

from 1,500 to 3,000 of MMW.

- The credit committees of branches reviews and approves limits up to 1,500

of MMW.

Loan applications, along with financial analysis of loan applicant which

includes liquidity, profitability, interest coverage and debt service coverage ratios,

originated by the relevant client relationship managers are passed on to the Credit

Committee for approval of credit limit.

Establishing quantitative limit is represented in table 3.

The table shows that all limits are followed and no one loan does not exceed

the set limit.

Development of internal system of the limits providing diversification of a

credit portfolio on terms, industries, subjects of crediting, to types of loan, the

territories and other essential factors.

Table 3

Correlation of fixed quantitative limit with Bank’s realization17

Index Normative value

In fact for 01.01.14 Deviation

The maximum exposure to a single borrower or group of related borrowers ≤ 25,0% 15,4% 9,6%

17 On the basis of data provided in financial statements OJSC "Aloqabank" for 201442

Unsecured loans ≤ 5,0% 0,0% 5%

Maximum risk exposure for all large loans ≤ 800,0% 65,7% 734,7%

Amount of loans to one insider, or a group of related persons ≤ 25,0% 15,2% 9,8%

Unsecured loans ≤ 5,0% 0,0% 5%

The aggregate amount of loans granted by the bank all insiders ≤ 100,0% 36,4% 63,6%

Entering of prohibitions and restrictions on the categories of the credits

which aren't conforming to standards of credit policy.

Establishment of limits provides diversification of credit activities of bank.

To be effective, limits shall be quite tough, reflect all amount of transactions with

the borrower, considered both on balance sheet, and on off-balance accounts and

shan't be adjusted, even taking into account the importance of the client for bank.

Below represent diversification of loan portfolio by industries in figure 6.

The diagram shows that most of the loan portfolio of loans for the

production of 32.5%, and a smaller portion are loans for transportation,

construction, communication and others. Bank prefers to lend to production. Since

production read more stable and of policy. State support for this activity, as it gives

most people jobs. Entrepreneurship in Feret production is considered the most

stable.

43

Fgr.6. Diversification of Credit portfolio by economy branches for 01.01.2014

(billion Uzbek sum)18

Below shows the diversification of the loan portfolio by type of customer in

figure 7.

Fgr.7. Diversification of a credit portfolio structure by types of clients

for 01.01.2014 (billion Uzbek sum)19

18 On the basis of data provided in financial statements OJSC "Aloqabank" for 201419 On the basis of data provided in financial statements OJSC "Aloqabank" for 2014

44

Diversification of the loan portfolio by type of customers shows that the

bank prefers to lend to the private and non-state enterprises, it is about 2/3 of the

total portfolio. Smallest portion occupy individual entrepreneurs.

Counter the negative effects of credit risk to help the creation and use of

reserves for possible loan losses. However, the order of use of this provision only

writing off bad and / or recognized uncollectible debt creates the need to create

other more flexible funding sources adverse effects of credit risk. As such may be a

minimum balance of funds of the credit institution. Value of this parameter can be

determined by the bank itself, depending on the nature of its activities, risk and

policy control them. This "reserve" increases the stability of credit institutions to

risk the consequences.

Creating a system of monitoring of credit risk in real-time is using special

computer programs for accounting and analysis.

Such a system involves regular monitoring of all transactions subject to

credit risk calculation and evaluation of the size of potential losses. It is mandatory

control. Its main objectives are: implementation of quality assessment of individual

loans and loan portfolio as a whole; development of proposals for limits of credit

risk; improving the way planning and lending operations.

Current examination includes checking:

- compliance with loan quality standards;

- correct completion of all documents;

- execution timing of payments by the borrower;

- targeted use of credit;

- preservation of collateral.

The monitoring system also involves a retrospective analysis of credit and

management of credit risk, which allows you to identify errors, and make

recommendations to optimize risk management in the future, to assess the

effectiveness of management.

In order to monitor credit risk exposures, weekly reports are produced by the

credit department’s officers based on a structured analysis focusing on the 45

customer’s business and financial performance, which includes overdue balances,

disbursements and repayments, outstanding balances and maturity of loan and as

well as grade of loan and collateral. Any significant exposures against

customers with deteriorating creditworthiness are reported to and reviewed by the

management daily. Management monitors and follows up past due balances.

2.2. The analysis of market risk management in bank

The Bank takes on exposure to market risks. Market risks arise from open

positions in interest rate, currency and equity products, all of which are exposed to

general and specific market movements. The Bank manages its market risk

through risk-based limits established by the Bank Supervisory Board on the value

of risk that may be accepted. The risk-based limits are subject to review by the

Bank Council on a quarterly basis. Overall Bank’s position is split between

Corporate and Retail banking positions. The exposure of Corporate and Retail

banking operations to market risk is managed through the system of limits

monitored by the Treasury Department on a daily basis. However, the use of this

approach does not prevent losses outside of these limits in the event of more

significant market movements.

There are three standard forms of market risks:

1. Currency risk. The Bank takes on exposure to the effect of fluctuations

in the prevailing foreign currency exchange rates on its financial position and cash

flows. In respect of currency risk, the Council sets limits on the level of exposure

by currency and in total for both overnight and intra-day positions, which are

monitored daily. The Bank’s Treasury Department measures its currency risk by

matching financial assets and liabilities denominated in same currency and

analyses effect of actual annual appreciation/depreciation of that currency against

Uzbekistan Sums to the profit and loss of the Bank.

The Bank measures its currency risk by:

46

- net position on each currency should not exceed 10 percent of Bank’s total

equity;

- total net position on all currencies should not exceed 20 percent of Bank’s

total equity.

The table below shows financial standards by CB in comparison with

Aloqabank (table 4)

Table 4

Financial standards for Aloqa Bank for December 31st, 201320

Index Normative value

Aloqabank Deviation

Exposure of currency risk (% Of regulatory capital)

Open currency position in any foreign currency ≤ 10,0% 9,43% 0,57%

The total value of open currency positions ≤ 20,0% 13,64% 6,36%

The table shows that the Bank complied with all regulatory values.

The table below summaries the Bank’s exposure to foreign currency

exchange rate risk at the balance sheet date (table 5):

Table 5

General analysis of currency risk of Bank for reporting date21

In thousands of Uzbekistan Sum

Monetary financial assets

Monetary financial liabilities

Net balance sheet position

2013UZSUS DollarsEurosSwiss francsOther

553,594,77351,499,3215,383,3096,681,385

554,109

(525,434,191)(33,751,527)(5,235,290)

-(1,992,027)

28,160,58217,747,794

148,0196,681,385

(1,437,918)Total 617,712,897 (566,413,035) 51,299,8622012UZSUS DollarsEurosSwiss francsOther

479,977,97067,510,9073,270,5712,742,043

184,902

(459,397,080)(59,703,664)(3,159,609)

(520,612)(172,019)

20,580,8907,807,243

110,9622,221,431

12,883Total 553,686,393 (522,952,984) 30,733,409

20 On the basis of data provided in financial statements OJSC "Aloqabank" for 201321 On the basis of data provided in financial statements OJSC "Aloqabank" for 2013

47

The above analysis includes only monetary assets and liabilities. Non-

monetary assets are not considered to give rise to any material currency risk.

The following table 6 presents sensitivities of profit and loss to reasonably

possible changes in exchange rates applied at the balance sheet date, with all other

variables held constant:

Table 6

Change of financial result22

In thousands of Uzbekistan Sum At 31 December 2013Impact on profit or loss

At 31 December 2012Impact on profit or loss

US Dollars strengthening by 10.3% (2012: 10.5%)US Dollars weakening by 10.3% (2012: 10.5%)EUR strengthening by 11.9% (2012: 12%)EUR weakening by 11.9% (2012: 12%)SFr strengthening by 13.1% (2012: 13%)SFr weakening by 13.1% (2012: 13%)

1,774,779

(1,774,779)

17,644

(17,644)874,237

(874,237)

748,957

(748,957)

6,605

(6,605)312,504

(312,504)

The exposure was calculated only for monetary balances denominated in

currencies other than the functional currency of the Bank. Impact on equity would

be the same as impact on statement of comprehensive income.

Interest rate risk. The Bank takes on exposure to the effects of fluctuations

in the prevailing levels of market interest rates on its financial position and cash

flows. Interest margins may increase as a result of such changes but may reduce or

create losses in the event that unexpected movements arise. Management monitors

on a daily basis and sets limits on the level of mismatch of interest rate reprising

that may be undertaken.

The table 7 below summaries the Bank’s exposure to interest rate risks. The

table presents the aggregated amounts of the Bank’s financial assets and liabilities

at carrying amounts, categorized by the earlier of contractual interest reprising or

maturity dates.

Table 722 On the basis of data provided in financial statements OJSC "Aloqabank" for 2013

48

General analysis of percentage risk of Bank23

In thousands of Uzbekistan Sum

Demand and less than 1 month

From 1 to 6 months

From 6 to 12 months

Over 12 months Total

31 December 2013Total financial assetsTotal financial liabilities

125,363,275

(277,941,833)

35,724,563

(83,264,260)

67,790,435

(95,671,506)

388,834,624

(109,535,436)

617,712,897

(566,413,035)

Net interest sensitivity gap at 31 December 2013 (152,578,558) (47,539,697) (27,881,071) 279,299,188 51,299,862

31 December 2012Total financial assetsTotal financial liabilities

179,074,180

(301,491,072)

83,446,904

(152,669,510)

73,772,250

(51,097,225)

221,557,959

(17,695,177)

557,851,293

(522,952,984)

Net interest sensitivity gap at 31 December 2012

(122,416,892) (69,222,606) 22,675,025 203,862,782 34,898,309

The Bank is not exposed to the effects of fluctuations in the prevailing levels

of market interest rates on its financial position and cash flows as the interest rate

on the Bank’s only financial liability with floating interest rate is represented by

the long-term borrowing from China Development Bank. Refer to Note 20 for

details of long-term borrowing from China Development Bank.

At 31 December 2013, if interest rates at that date had been 200 basis points

lower (2012: 200 basis points lower) with all other variables held constant, profit

for the year would have been UZS 585,149 thousand (2012: UZS 129,570

thousand) lower, mainly as a result of lower interest expense on variable interest

liabilities.

If interest rates at that date had been 200 basis points higher (2012: 200 basis

points lower) with all other variables held constant, profit for the year would have

been UZS 585,149 thousand (2012: UZS 129,570 thousand) higher, mainly as a

result of lower interest expense on variable interest liabilities.

23 On the basis of data provided in financial statements OJSC "Aloqabank" for 201349

The Bank monitors interest rates for its financial instruments. The table 8

below summarizes interest rates based on reports reviewed by key management

personnel:

Table 8

Rate of interest24

2013 2012In % p.a. UZS USD UZS USD

Assets Cash and cash equivalents Due from other banks Loans and advances to customersFinance leas e receivables Investment securities held to maturity

0-0.02%7%-12%

3%-27%7%-16%

12%

0%- LIBOR-0.6%LIBOR -0.6%

8%-12%4%

-

0-0.02%12%

3%-24%3%-24%

--

3.6%-12%3.6%-12%

LiabilitiesDue to other banks Customer accounts (weighted average)Debt securities in issue Other borrowed funds

5-11%16%12%

1.5%-3%

---

LIBOR +1.5%

5-12%16%12%

6-12%

----

Other price risk. The Bank is exposed to prepayment risk through

providing loans, including mortgages, which give the borrower the right to early

repay the loans. The Bank’s current year profit or loss and equity at the current

balance sheet date would not have been significantly impacted by changes in

prepayment rates because such loans are carried at amortized cost and the

prepayment right is at or close to the amortized cost of the loans and advances to

customers. The Bank has no significant exposure to equity price risk.

2.3. The analysis of liquid risk management in bank

Liquidity risk is defined as the risk that an entity will encounter difficulty in

meeting obligations associated with financial liabilities. The Bank is exposed to

daily calls on its available cash resources from overnight deposits, current

accounts, maturing deposits, loan draw downs, guarantees and from margin and

other calls on cash settled derivative instruments. The Bank does not maintain cash

resources to meet all of these needs as experience shows that a minimum level of 24 On the basis of data provided in financial statements OJSC "Aloqabank" for 2013

50

reinvestment of maturing funds can be predicted with a high level of certainty.

Liquidity risk is managed by the Resources Management Committee of the Bank.

The Bank seeks to maintain a stable funding base comprising primarily

amounts due to other banks, corporate and retail customer deposits and invest the

funds in inter-bank placements of liquid assets, in order to be able to respond

quickly and smoothly to unforeseen liquidity requirements.

The liquidity management of the Bank requires considering the level of

liquid assets necessary to settle obligations as they fall due; maintaining access to a

range of funding sources; maintaining funding contingency plans and monitoring

balance sheet liquidity ratios against regulatory requirements. The Bank calculates

liquidity ratios on a monthly basis in accordance with the requirement of the

Central Bank of Uzbekistan. These ratios are (ratios are calculated using figures

based on National Accounting Standards):

- Current ratio (not to be less than 0.30), which is calculated as the ratio of

liquid assets to liabilities payable on demand; the ratio was 0.49 at 31 December

2013 (31 December 2012:0.52).

Current ratio (R):

where CA - current assets;

CL - current demand liabilities and liabilities maturing within 30 days. The

minimum value of the standard is 30%.

Current assets include: cash on hand, to obtain from banks (30 days), the

securities of up to 1 year, other marketable securities, loans with a maturity of 30

days.

Current liabilities include: demand deposits, savings and time deposits with

maturities of 30 days for payment of the NBU and other banks, other deposits of

customers, other obligations.

51

Below is a table 9 of liquidity of Aloqabank in comparison with normative

value of NBU.

Table 9

Fulfillment of Bank’s liquidity in comparison with standard value25

Index Normative value Aloqabank

LiquidityCurrent assets as% of liabilities payable on demand and expiry date to 30 days ≥ 30,0% 48,8%

Required reserves deposited in CBU (% of deposits of legal persons):- Demand deposits and short-term ≥ 15,0% 16,6%- Deposits with a maturity of 1 year to 3 years ≥ 12,0% 12,0%- Deposits with a maturity of more than 3 years ≥ 10,5% 0%

The table shows that the Bank complied with the inequality of current assets,

the standard value in Aloqabank is 48,8% ≥ 30,0%. Required reserves deposited

CBU correspond inequality normative values, except for deposits of more than 3

years, which is 0% <10.5%.

The Treasury Department receives information about the liquidity profile of

the financial assets and liabilities. The Treasury Department then provides for an

adequate portfolio of short-term liquid assets, largely made up of short-term liquid

trading securities, deposits with banks and other inter-bank facilities, to ensure that

sufficient liquidity is maintained within the Bank as a whole.

The daily liquidity position is monitored and regular liquidity stress testing

under a variety of scenarios covering both normal and more severe market

conditions is performed by the Treasury Department.

The table 10 below shows liabilities at 31 December 2013 by their

remaining contractual maturity. The amounts disclosed in the maturity table are

the contractual undiscounted cash flows. These undiscounted cash flows differ

from the amount included in the statement of financial position because the

statement of financial position amount is based on discounted cash flows.

25 On the basis of data provided in financial statements OJSC "Aloqabank" for 201352

When the amount payable is not fixed, the amount disclosed is determined

by reference to the conditions existing at the reporting date. Foreign currency

payments are translated using the spot exchange rate at the statement of financial

position date.

The table 10 below analyzes financial instruments by maturity, excluding

discount on December 31, 2013.

Table 10

Analysis of financial instruments by time to run26

In thousands of Uzbekistan Sum

Demad and less than 1 month

From 1 to 6 months

From 6 to 12 months

Over 12 months Total

LiabilitiesDue to other banksCustomer accountsDebt securities in is sueOther borrowed funds Other financial liabilities Guarantees is suedIm port letter of creditUndrawn credit lines

3,644,370274,894,519

482,466315,089

1,754,410344,310742,336

6,114,050

40,317,76551,438,000

591,7814,780,445

---6,974,7978,773,451

---

13,284,09091,094,493

725,9184,675,516

---2,382,702

46,293---

37,308,26573,397,60314,529,863

5,006,552-

951,788--

94,554,490490,824,615

16,330,02814,777,602

1,754,41010,653,597

9,562,0806,114,050

Total potential future payments for financial

obligations288,291,550 112,876,239 112,209,012 131,194,071 644,570,872

The figure 8 below shows the diversification of the loan portfolio by

maturity and their compliance with the terms of the resources.

Te graph shows four categories of loans: up to 1 month, for the period from

1 to 6 months, for the period from 6 to 12 months, over 1 year. The figure shows

that the lower line shows the resources of the bank, and the top row are the credit

investments that the Bank shall submit to the above stated period.

26 On the basis of data provided in financial statements OJSC "Aloqabank" for 201353

Fgr. 8. Diversification of Credit portfolio structure by terms and its compliance with term resources for 01.01.2014 (billion Uzbek sum)

Analyzing the figure, we can conclude that the loans granted to banks for up

to 1 month, is the risk for the bank, as investors have contributed to the amount of

291.7 billion sums, and the bank will return the treasure only 171 billion sums, and

it is a risk for the bank, that in time it cannot fulfill its obligations. But at the

expense of other contributions in the three other categories of loans, it is seen that

all of its obligations the bank is able to perform on time and the bank's ability

exceed liabilities to depositors. Therefore, the risk for the bank for up to 1 month is

covered by other categories of deposits.

Normative value set by the Central Bank is 30%. Today in Uzbekistan and

there are 27 banks. All banks today operate standard value.

Below is a summary table 11 of all the liquidity banks in Uzbekistan for

01.01.2013 and 01.01.2014. Also a difference for the current year was showed.

The table shows that Saderat Bank is the most liquid bank. Compared to all

the banks, he's one of the few increases in the positive direction indicator.

54

Table 11

Liquidity of all banks of Uzbekistan27

№ Name of the bank For 01.01.2013

For 01.01.2014

Difference between the periods

(+;-) %

1 Saderat 135,5% 170,0% 34,5% 125,5%

2 Sanoatqurilish bank 81,2% 102,1% 20,9% 125,7%

3 Asia Alians bank 105,4% 102,0% -3,4% 96,8%

4 UT bank 114,0% 97,0% -17,0% 85,1%

5 KDB Bank Uzbekistan 98,8% 92,6% -6,2% 93,7%

6 National bank 80,0% 84,7% 4,7% 105,9%

7 Davr bank 96,0% 83,3% -12,7% 86,8%

8 Xamkor bank 90,6% 82,8% -7,8% 91,4%

9 Ipak Yuli bank 82,7% 82,0% -0,7% 99,2%

10 Ipoteka bank 77,9% 76,0% -1,9% 97,6%

11 Orient Finans bank 98,4% 70,5% -27,9% 71,6%

12 Turkiston bank 82,0% 69,5% -12,5% 84,8%

13 Qishloq qurilish bank 73,9% 60,7% -13,2% 82,1%

14 Invest Finans bank 73,6% 60,7% -12,9% 82,5%

15 Asaka bank 72,8% 57,4% -15,4% 78,8%

16 Xalq bank 67,8% 57,0% -10,8% 84,1%

17 Capital bank 48,9% 56,1% 7,2% 114,7%

18 Hi-tech bank 57,4% 55,1% -2,3% 96,0%

19 Microcredit bank 67,1% 54,9% -12,2% 81,8%

20 Trust bank 70,7% 54,7% -16,0% 77,4%

21 Universal bank 51,5% 50,5% -1,0% 98,1%

22 Aloqabank 52,9% 48,8% -4,1% 92,2%

23 Amirbank 49,9% 44,5% -5,4% 89,2%

24 Agrobank 34,1% 42,7% 8,6% 125,2%

25 Turon bank 60,5% 42,0% -18,5% 69,4%

26 Ravnak bank 85,9% 41,9% -44,0% 48,8%

27 Savdogar bank 39,0% 40,7% 1,7% 104,4%

  Average % 75,9% 69,6% -6,2% 91,8%

27 On the basis of data provided by Axbor Rating 55

The table shows that all banks comply with the requirements of the

normative value CBU liquidity. Normative value is 30%, the table shows that each

bank is liquid. Aloqabank occupies 22nd place. In comparison with the 2013 year,

the standard value of the bank's liquidity decreased by 4.1%. But despite of the

reducing standard value is higher for 18.8% than the set CB.

56

Part III. PROBLEMS AND WAYS TO REDUCE BANK RISKS IN

MODERN CONDITIONS

3.1. Problems of management and ways to reduce bank risks in modern

conditions with a glance of foreign experience

Risk management problem for commercial banks in terms of improvement

of quality and offers banking products, involving banks in the international

banking system are of particular importance and urgency. High risks cause mistrust

not only from domestic customers, but also from foreign, and thereby reduced

investments in the banking sector of Uzbekistan. Many problems of Uzbek banks

are associated with high risk, because of Uzbekistan's banking system cannot be

developed at the appropriate level.

Today risk factors do risks indefinitely large and changing, it is extremely

difficult to manage risks. So the complication of the banking business and the

emergence of new banking risks stimulated awareness that approach to banking

supervision does not meet current market conditions. Operations of modern Uzbek

banks are often extremely complex and quite difficult to track and control. Banking

supervisors are increasingly moving away from traditional monitoring state banks.

Therefore, they alone cannot ensure the stability of the banking system.

Uzbek banks need for building a comprehensive risk management system

that takes into account all peculiarities of Uzbek banking system. The basis of this

system is the position of risk manager, who would govern all the possible risks of

the bank.

System optimization of banking risks is an integral part of risk management

and serves as a base for planning banking, cash flow management and banking

risks.

In recent years, the organization of economic activities of businesses is

characterized by the introduction of a risk management system. It applies to all

segments of the national economy: banks, businesses, organizations, providing a

variety of services, etc. The essence of risk management can be characterized as 57

follows: “risk management - focused search and organization of work to reduce the

risk, and the art of getting revenue increases in uncertainty. The purpose of risk

management is to maximize profit at the optimum, the permissible value of the

ratio of profits and business risks. The most common methods of risk management

are: business diversification, improvement of market research, risk insurance,

improvement of personnel management and financial incentives for employees, the

protection of information about the activities, commercial and banking secrecy,

etc.”28

Uzbek banks asset quality remains vulnerable. This is one of the main

reasons why the credit ratings of Uzbek banks are quite low. Along with the

growth of the actual physical changes occur in lending structure of the loan

portfolio and the emergence of new borrowers who do not have reliable credit

history, resulting in increased credit risk. Most stable part of the clientele of banks,

usually presented related companies. And independent clientele developed

relatively recently and in many cases have not yet been tested by the crisis.

A striking example is the development of retail lending, which is just

beginning to gain momentum in Uzbekistan. Volume of reserves created is not

sufficient to cover the value of overdue loans. Reserves are created by Uzbek

standards do not consider the financial situation of the borrower. In the face of

declining interest rates and increasing competition there is doubt in the ability of

banks to charge adequate risk premium. With regard to net interest income, in

many banks it does not cover operating costs.

Thus, the relationship between different types of risk, both within an

individual bank, and across the banking system increased and become more

complex. All the problems of the banking risk management related to the

fragmentation of the banking system of Uzbekistan.

The risk management strategy in a commercial bank should be based on an

integrated structure consisting of duties and responsibilities that come down from

the Board level down to the operational levels, covering all aspects of risk, in 28 Gruening H., Brajovic Bratanovich C.,Analysis of banking risks. System of corporate governance and financial risk management, M.: All The World, 2007,- 334 p.

58

particular, market, credit and liquidity risk, operational, legal risks, and risks

associated with the reputation of the bank and with the staff. This structure

includes the Board itself as the ultimate responsible body, committees, risk

management department, as well as various support departments and control. They

all have clearly defined responsibilities and accountability.

One of the main ways to reduce the risk of default on a loan is careful

selection of potential borrowers.

Bank under the credit policy should develop methods for assessing the

quality of potential borrowers using all sorts of techniques for analyzing the

financial situation of clients and statistical models.

An example of such a "classification model" can serve as Zeta model,

developed by a group of American economists and used by banks in the credit

analysis. The model is designed to estimate the probability of bankruptcy of the

company. Value of the key parameter «Z» is determined by an equation whose

variables reflect some of the key characteristics of the analyzed company - its

liquidity, capital turnover rate, etc. If this ratio exceeds the company a certain

threshold, the firm will be credited to the category of reliable, if the resulting

coefficient below the critical value, then according to the model of the company's

financial position precarious and give credit to her is not recommended.

Using this approach, the American economist Altman proposed an equation

to estimate the probability of bankruptcy, contact the bank for a loan. He used five

variables:

    X1 - the ratio of working capital to total assets of the company;

    X2 - the ratio of retained earnings to total assets;

    X3 - the ratio of operating income (before interest and taxes) to total

assets;

    X4 - the ratio of the market value of the company's shares to the total

amount of debt;

    X5 - the ratio of sales to total assets.

Altman linear model or equation Z-rated, as follows:59

Z = 1,2 X1 + 1,4 X2 + 3,3 X3 + 0,6 X4 + 1,0 X5.

To calculate the numerical model parameters Altman applied the method of

multiple discriminated analysis. Classification "rule" derived using the equation

reads:

- if the value of Z is less than 2,675, the company should be attributed to the

group of potential bankrupts;

- if the value of Z is greater than 2,675, the company in the short term does

not threaten bankruptcy.

If the value Z from 1.81 to 2.99 model does not work, this interval is the

"area of ignorance."

Assessment model of commercial loans was offered by the American

economist Chesser, if a customer expects the conditions of the loan. By "non-

fulfillment of conditions" is meant not only the outstanding loans, but also any

other abnormalities that make a loan to the lender is less profitable than was

originally envisaged. The model includes six variables:

    X1 - the ratio of cash and marketable securities to total assets;

    X2 - the ratio of net sales to the amount of cash and marketable securities;

    X3 - earnings before interest and tax to total assets;

    X4 - total debt to total assets;

    X5 - fixed assets to equity;

    X6 - working capital to net sales.

Metrics model are as follows:

Y = -2,0434 - 5,24 X1 + 0,0053 X2 - 6,6507 X3 + 4,4009 X4 - 0,0791 X5 -

0,1020 X6.

Variable Y, which is a linear combination of independent variables used in

the following formula to estimate the probability of any breach of contract P:

P = 1 / (1 + e - Y), where e = 2.71828.

The model by Chesser to assess the likelihood of default of the contract, the

following criteria:

60

- if P> 0.50, the borrower should be attributed to the group, which does not

fulfill the conditions of the contract;

- if P <0.50 should be assigned to a group of reliable borrower.

Risk assessment - one of the main directions of the preliminary work for the

successful operation and minimize risk.

Risk assessment is the definition of quantitative or qualitative value method

(degree) risks. Thus, to assess the degree of risk is used a quantitative and

qualitative analysis. Qualitative analysis is an analysis of the sources and potential

risk areas, its determinants. Therefore, qualitative analysis is based on the clear

separation factors, which list specific to each type of bank risk. An example of

qualitative analysis is the analysis of the loan portfolio.

Historical simulation is a simulation method. Seeking profit and loss

distribution is empirically.

Pre-cost portfolio instruments should be presented as a function of market

risk factors, i.e. basic prices and interest rates, which affect the value of the

portfolio. The current portfolio is exposed to changes in the values of real market

risk factors that have been observed in the past, such as the last n periods. For this

construction n sets of hypothetical values of market factors on the basis of their

current values and percentage changes for the last n periods. Thus, the hypothetical

values are based on real data, but not identical to them.

Based on these sets of values of hypothetical market factors are calculated

values of n hypothetical portfolio value. Comparison of these values with the

current value of the portfolio allows you to find n values of profits and losses due

to changes in market factors. The values obtained are also hypothetical, since the

portfolio could have a different composition for the last n periods.

The last step is building the empirical probability distribution of profits and

losses resulting from changes in value of the portfolio, and determining the value

at risk.

Monte-Carlo simulation refers to methods of simulation and therefore has

a number of similarities with the method of historical simulation.61

The main difference is that in the Monte Carlo simulation is not performed

using actual observed values of market factors. Instead of it statistical distribution

(normal or t-distribution) is chosen, which are generated on the basis of thousands

or tens of thousands of sets of values of hypothetical market factors. The values

obtained are used to calculate values of profits and losses due to changes in

portfolio value.

 At the last stage a distribution of profits and losses of the portfolio is

determined by the quantity and value at risk. Selection of methods of calculating

VaR will be determined by the composition and structure of the portfolio, the

availability of statistical data and software, computing power and other factors.

Stress testing - is one of the analytical tools designed to provide an estimate

of the potential loss of credit institutions in the event of a possible recession in the

economy.

Stress testing can be defined as the potential impact on the financial situation

of the credit institution specified number of changes in the risk factors, which

correspond to exceptional but plausible events. Under stress testing credit

institution should consider a number of factors that can cause extraordinary losses

in the portfolio of assets or ultimately complicate the management of its risks.

These factors include various components of market, credit and liquidity risks.

Stress testing involves components of both quantitative and qualitative

analysis. Quantitative analysis is primarily aimed at the identification of possible

fluctuations of main macroeconomic indicators and assess of their impact on the

various components of the bank's assets. Using the methods of quantitative

analysis determines the probability of stress scenarios, which may be subject to

credit institutions. Qualitative analysis is punctuated by two main problems of

stress testing:

1). Assessing the ability of the credit organization to compensate for

possible large losses;

62

2). Define a set of actions that must be taken by the credit institution to

reduce risk and preserve capital. Among the main steps in the organization of

stress testing are the following:

- initially checking is performed timely information on which stress testing;

- after making the necessary database provided a detailed analysis of the

loan portfolios and trading, risk identification, which is most prone to the credit

institution;

- further analyzes the current dynamics of risk factors by determining the

change in their values at specified time intervals. In this case, payment may be

taken as the difference between the maximum and minimum values of the factor

within a given period of time, and the difference values at the beginning and end of

the period. In the future, depending on the purpose of analysis in the calculations

or the average or maximum value of risk factor modification is used. Under stress

testing can be analyzed the impact on the financial situation of the credit institution

as a single or multiple risk factors (e.g., growth and decline index by 10%, rising

and falling exchange rates of 6% for the major currencies and 20% for other IT .

etc.). Most are available for regular monitoring of the single-factor model.

However, the effectiveness of such models is significantly lower, since in case of

crisis, there are usually multiple simultaneous changes in risk factors. When stress

testing credit organizations consider the asset portfolio as a whole, since the

detection of the risks inherent in its individual elements can be properly evaluated

the risks specific to the asset portfolio as a whole. Also important is the stress

testing of individual components or credit trading portfolio. Manual credit

institution must monitor the refinement of stress tests to better reflect the current

state and development prospects of the credit institution (for example, in terms of

overcoming the credit organization into new market segments, or the introduction

of new banking products); assess the possibility of increasing or reducing the risk

in the future. Criteria for assessing the degree of risk can be both general and

specific to individual types of risk. Most developed in the economic literature of

credit risk assessment criteria, which are known as the rule of "Five C": the 63

reputation of the borrower, the ability to borrow funds, ability to earn money to

repay the debt in the normal course of business, the capital of the borrower, loan

collateral, the terms of the credit transaction, control (compliance operation

legislation and standards).

You can select criteria for the evaluation of other types of risk:

- interest rate risk: the impact of the movement of interest on active and

passive operations on the financial results of the bank, the duration of operation

payback from interest income, the degree of sensitivity of assets and liabilities to

changes in interest rates in this period;

- operational risk: the impact of the quality of staff on the results of the bank;

mistake’s degree in the transactions associated with the organization and

technology of the production process in the bank; the influence of external factors

on the mistaken decisions;

- liquidity risk: the quality of the assets and liabilities, matching of assets

and liabilities on the amount, timing, and extent of liquidity demand.

Allowable size of various types of risks must be fixed through standards

(limits and performance standards), reflected in the document on the bank's policy

for the coming period.

Risk Monitoring - a process of regular analysis of risk factors with respect to

his views and decisions aimed at minimizing the risk while maintaining the

required level of profitability.

Risk monitoring process includes: allocation of responsibilities for risk

monitoring, identification of benchmarking system (basic and advanced), methods

of risk management.

Responsibilities for monitoring risks are distributed among the functional

divisions of the bank, its specialized committees, departments of internal control,

audit and analysis, treasury or other collective management of the bank, its

managers. Functional divisions of the bank are responsible for managing business

risks, and committees and Integrated Units - fundamental risk.

64

 Circle benchmarks include financial ratios, limits on transactions, the

portfolio of assets and liabilities and their segments, standards for bank

counterparties (e.g., borrowers, issuers, securities, banking partners).

Regulation is a set of methods designed to protect the bank from risk.

These methods can be divided into four groups:

1) methods of prevention;

2) methods of risk transfer;

3) methods of risk allocation;

4) methods of risk absorption.

The methods of risk management are:

- the establishment of reserves for loan losses in accordance with the views

of the Bank's operations, how to use these reserves;

- procedures for covering losses equity of the bank;

- determination of the scale of different types of margin (interest, mortgage

etc.) based on the degree of risk;

- control over the quality of the loan portfolio;

- monitoring of critical parameters in the context of species at risk;

- diversification of operations based on risk factors;

- operations with derivative financial instruments;

-motivation business units and personnel associated with the risky operations

of the bank;

- pricing (interest rates, commissions) to risk;

- setting limits on risky operations;

 -the sale of assets;

- hedging of individual risks.

International and domestic experience of commercial lending institutions

allows us to formulate principles of interbank risk management system:

1) complexity, i.e. single management structure for all types of risk;

2) differentiation, i.e. the specific content of individual elements of the

system in relation to the types of banking risks;65

3) the unity of the knowledge base;

4) coordination of the management of different risks.

To create an effective risk management system must:

1) based on the above principles of the system in the management of intra

documents formulate strategy and management tasks;

2) establish the principles for the identification, assessment and diagnosis of

risk as a basis for the formulation of priority strategies and objectives to ensure a

balanced protection of the interests of all persons related to the bank;

3) to use these principles as a basis for the creation of the most important

management control procedures, including the creation of an organizational

structure, training delegation instruments, as well as technical specifications;

4) establish procedures to ensure accountability, self-evaluation and results

of operations in accordance with the principles of risk management control

systems, use these procedures as factors improve the management process;

5) focusing on the above-mentioned principles and procedures should

develop a mechanism for monitoring and feedback in order to ensure the quality of

procedures to assess and verify compliance.

3.2. Insurance of bank risks – basis of economic stability

The main activity and source of income for the majority of banks is lending

business and consumer loans.

The banks have permanent credit risk, simply speaking, is the risks

associated with the complete or partial failure to return the money to the bank, and

these risks are present throughout the crediting period, regardless of the client's

solvency at the time of obtaining a loan, as the situation in the financial market

today does not have sufficient stability.

Insurance risk is essentially a transfer of certain risks insurance company.

66

Credit insurance - the so-called protection against borrower default - at the

moment is considered perhaps one of the most common in the developed insurance

markets of view of financial risks.

Insurance can be used for protection against credit risk and to minimize it.

When insuring the risk of loan default creditor bank is insured. The object of

insurance acts responsibility of the borrower (or groups) to return the amount

received from the bank loan, including all accrued interest and other charges due,

limited time periods. Simply put, at default by the borrower (a group of borrowers)

its credit obligations to the lender, the insurance company compensates the bank

for all losses. The rate of interest on default indemnity obligations varies fifty -

ninety percent of the amount of all outstanding liabilities (including interest due on

the loan).

Compulsory insurance reimbursement percentage stipulated in the

preliminary approval of the insurance contract. After all, it will depend on the

value of the insurance rate (premium), which subsequently transfers the insurer. It

is also possible the risk of loan default insurance, in which the indemnity covers

one hundred percent of the loan funds, but excluding accrued interest due the credit

agreement.

As a rule, credit insurance is a contract of insurance, which guarantees

repayment to the lender in the event of insolvency of the debtor. Typically, credit

insurance is defined as a means aimed at reducing or eliminating the credit risk of

the loan provider. In other words, this type of insurance company is able to protect

the creditor of all the risks associated with the insolvency of the debtor or her in

the event of non-payment of debt by the borrower for any other reason. Thus,

credit insurance plays a crucial role in the financial management of the company,

protecting the financial interests of the seller or lender. Especially that the concept

of credit conceals much broader meaning than just providing funds on a returnable

basis. This term also includes all possible risks associated with the insolvency of

any of the parties to the transaction after the transaction. In particular this applies

67

the provision of or delay in payment of installments on transactions involving the

sale of goods or services.

As practice shows, the more developed the market, the more developed it

credit insurance. This is primarily due to the fact that the service providing

company-seller buyer credit is one of the ways to survive the seller in a fiercely

competitive market, where the choice of a supplier of goods or services to the

buyer pays great attention to the conditions of payment for the transaction.

Naturally, providing goods on credit, the seller puts itself at risk of default by the

buyer. In this situation, the losses are incurred by the lender due to non-payment of

bills paid by the insurance company.

Head of the enterprise, it is important to understand that credit insurance has

its alternatives. This is primarily an irrevocable letter of credit, factoring and

advance. Thus, released by the bank or by irrevocable letter of credit is a letter

addressed to another company, which provides an indication of the customer to

pay, named in the letter, a certain amount of money on certain conditions. In this

irrevocable letter of credit cannot be closed by the person discovering it, without

the consent of the borrower. Such schemes are often used in trade during the

import and export calculations. For example, the exporting company can open a

letter of credit from a local bank foreign importer in an amount equal to the value

of the goods. In this case the payment is made after shipment, after the presentation

of shipping documents. However, the head of the company should be aware that

the use of letters of credit leads to a significant increase in costs for the buyer,

especially for small and medium businesses. In this case, completely are frozen

assets of the acquiring company. Factoring, or purchase debt obligations to the

manufacturing company with assuming responsibilities for their recovery and the

risk of default - is also quite an expensive service, as inevitably leads to

discounting of debt. But speaking about alternative credit insurance schemes, it is

necessary to remember that these schemes are characterized by instability, less

developed markets.

68

In Uzbekistan, credit insurance is only in the very beginning of

development, although many domestic companies have long practiced this type of

insurance scheme. But as a rule, this applies only to companies engaged in various

commercial transactions, such as transactions related to export-import supplies. It

should be noted that insurers in these cases were mostly not the Uzbek companies

and their foreign partners.

It should be noted, insurance banking risks - this is not a private affair of the

bank as a credit institution at risk, especially not their means, and the contributions

of its customers.

Insurance of bank capital in full is impossible. Since this is usually in bank a

special reserve fund is created.

While especially important for a particular bank deposits are selectively

insured.

In some countries, banks have to procure general banking policy.

This comprehensive insurance of depositors certainly helps boost the bank's

reputation and attract new deposits and investments.

In addition, many countries have long been popular policies BBB (Bankers

Blanket Bond). European and American banks are actively buying the so-called

policy of BBB (Bankers Blanket Bond) - a comprehensive insurance policy for

banking risks. It combines several different in essence products that minimize the

risks of almost all banks. Insurers, occupying a leading position in this particular

form of insurance underwriters are Lloyd's of London.

What cover the liabilities of banks on complex insurance:

- disloyalty bank staff. All banks are exposed to losses due to the fault of the

staff. Frauds are perpetrated not computers, and people. There are many ways by

which employees can cause material damage to the bank, for example, they may be

complicit in the robbery may conduct fraudulent transactions with loans, giving

them, for example, fictitious persons or conducting fraudulent transactions to the

electronic transfer of money. Under disloyalty staff within BBB refers to the illegal

acts of fraud with employees for personal gain. From what specific actions disloyal 69

staff will insure you, stipulated directly in the negotiations preceding the issuance

of the insurance policy. At the conclusion of insurance contracts may require the

insurer client compliance with the minimum necessary security measures to

prevent loss, and here the work on risk assessment and determination of the

necessary security measures to prevent possible losses connected surveyor.

Usually, a standard set of security measures to prevent the onset of losses includes

internal audit, as well as the implementation of the double-checking the conduct of

financial transactions;

- property situated in the premises of the bank. In this case, coverage for

losses are provided incurred by the bank as a result of the loss of property located

within its premises. The term "property" within the BBB understood, in fact, all

types of movable property, the most important part, which is money;

- cash in transit. In this case, insurers allocate two kinds of carriers of cash:

the first kind - is when the carrier acts as the bank itself, and the second - when the

carrier serves as a firm specializing in the implementation of the transport of

goods. In the latter case usually carried liability insurance, but the bank has the

discretion to enter into a separate insurance contract providing for the payment of

that part of the losses that are not covered under the insurance carrier's liability;

- losses incurred by the Bank in operations on forged documents. Objects

coverage in this case fall into two main groups: the first group - a fake checks and

similar to them on purpose financial documents; second group - a valuable fake

paper.

- losses incurred by the Bank in making the currency, which was later

recognized as false. Standard view coverage for this type of insurance covers the

official currency of the country in which the bank operates, but at the request of the

bank amount of coverage can be extended;

- standard package for comprehensive insurance banks also includes

additional types of coatings, such as office equipment, works of art, personal safes

and many other objects. Related insurance policies are issued on request.

70

To take on such risks insurance, the insurer must, first of all, for a thorough

assessment (Survey). To do this, head of the bank to admit to "their territory" is an

unknown man from the insurance company or surveyor firms that "all will

inquire," to investigate the efficiency of security systems, and as the property itself

(of course, this is the least "painful" procedure) and financial information and even

computer networks.

In short, one side will be admitted to the sensitive information will begin to

analyze it in detail, and, worst of all, capture it all on paper. Do bankers obvious

concern arises: where this is the surveyor transmit the data, as will use the

information the insurance company or its partner reinsurer. Therefore, full

insurance of financial institutions is only possible when setting the maximum trust

relationship between the insurer and the bank. And it's real or within the same

financial group, or a long evolutionary path, when in the first year only the

standard insured risks in the second coverage is expanding and so on.

Apparently, this practice is the most convenient for both parties: the

insurance company and premiums are rising, and rising insurance culture, and a

few years later, when the relationship of wary-official finally develop into a trust

will be fully covered all the possible risks of the bank.

71

Part IV. SAFETY OF VITAL ACTIVITY

4.1. Hypodynamia and it’s influence on person’s health

Even in ancient times, it was observed that physical activity contributes to a

strong and enduring human and immobility leads to a decrease in efficiency,

disease and obesity. All this is due to metabolic disorders. Reducing the energy

metabolism-related changes in the intensity of oxidation and decay of organic

substances leads to disruption of the biosynthesis as well as to changes in calcium

metabolism in the body. Consequently, in the bone profound changes are

undergoing. First of all, they begin to lose calcium. This leads to the fact that the

bone becomes loose less durable. Calcium enters the bloodstream, is deposited on

the walls of blood vessels, they sclerosis, i.e. impregnated with calcium, lose

elasticity and made brittle. Blood's ability to clot increases dramatically. There is a

risk of blood clots (thrombi) in the vessels. High content of calcium in blood

contributes to the formation of kidney stones.

Lack of muscular load reduces the intensity of energy metabolism, which

affects the skeletal and cardiac muscles. Furthermore, a small amount of nerve

impulses coming from the working muscles, reduces the tonus of the nervous

system, previously acquired skills lost without forming new. All this is very

negative impact on health. It should also consider the following. Sedentary

lifestyle leads to the fact that the cartilage gradually becomes less elastic and loses

flexibility. This may lead to decrease in the amplitude of respiratory movements

and loss of flexibility of the body. But particularly strong from low mobility or

immobility affected joints.

Character movement in the joint is determined by its structure. In the knee

joint can only leg flexion and extension, and hip movements can take place in all

directions. However, the amplitude of motion depends on the workout. In case of

insufficient mobility ligaments lose elasticity. In the cavity of a joint motion

allocated insufficient synovial fluid acts as a lubricant. All this complicates the

work of the joint.72

Insufficient load affects the blood circulation in the joint. As a result, food is

broken bone, the formation of auricular cartilage that covers the head and the

acetabulum articulated bones, and the bone goes wrong that leads to various

diseases. But it is not limited thereto. Circulatory disturbance may result in uneven

bone growth, causing loosening of the seal and some other areas. Shape of the

bones as a result of this could be wrong, and lose joint mobility.

Hypodynamia - a weakness of muscle tissue that occurs due to the

extremely low physical activity. Modern man have access to all the benefits of

civilization: cars, shops at every turn, a sedentary job, internet. All this, of course,

good, but the problem is that the human body for a sedentary lifestyle - like death.

Indeed, the very nature inherent that we have a lot and move actively.

On the other hand, do not think that if you do it every day for 50 pushups or

100 times the rock press, the body that will be enough. The fact is that when the

muscles are constantly working in the same mode, perform the same actions every

day (say, every day you climb the 12 foot floor), this limitation of motion also

eventually lead to inactivity.

How to recognize hypodynamia?

1. If your muscles are often cut enough, then, on the idea of nature,

"unnecessary" organs atrophy. Of course, it takes time, so as soon as you notice

that the simple action (for example, to walk two blocks), cause you have shortness

of breath and pain in the legs, you need to sound the alarm - lack of exercise is

near! Indeed, lack of exercise and health are inextricably linked.

2. If your weight is constantly growing, it means that the body does not

receive the necessary physical activity. And calories are stocking them for

muscular exercise, instead turn into fat. At the same time slows down the

metabolism, and forms of "spread out" even faster.

3. Constantly pulls you to the fridge, though, apparently, dinner was not so

long ago? You'd be surprised, but it is also an indirect sign of inactivity. The fact is

that when a person moves a lot, the fats are broken and released into the

bloodstream, maintaining it at the desired level of sugar. Therefore, you will not 73

feel hunger and want to eat as much as the body needs for normal functioning. If

the motion is small, the blood sugar drops rapidly as a result of weaker people and

tries to compensate for the lack of forces through the absorption of fatty and sugary

foods.

Hypodinamia and its consequences. Throughout the life of a person is

influenced by a variety of factors external and internal environment. Their ones are

huge amount. However, despite the large number of all of these factors can be

ranked in order of importance. For health the World Health Organization did it. Of

the 200 selected major factors that have the most significant influence on a person,

the first four places are occupied by physical inactivity (lack of exercise), poor diet

(and, above all, overweight), bad habits (alcohol, drugs and other substances) and

unfavorable ecological setting.

Fgr. 9. Consequences of hypodynamia29

The existing education system not only helps to improve the health of

students, but often requires a tremendous amount of movement for their

29 Novikov VS, "Do not forget about your muscles", M.: "Knowledge", 2007, -38p.74

development, not less than 50-60% of the time in the mode of the day should be

allocated to physical activity.

 However, the need to move from the independent movement of students

satisfied only by 8-20%.

The figure 9 shows the consequences of hypodinamia.

Numerous studies show that the current system of physical education and the

program does not contribute to the harmonious development of children and

adolescents in need of improvement, new solutions, optimal impact of all forms,

tools and methods in order to preserve and promote the health of students.

For diseases associated with hypokinesia include cardiovascular,

neurological, gastrointestinal disorders, bone, muscle and cartilage changes, etc.

How to deal with physical inactivity?

As you can see, the impact of physical inactivity on the man hard enough

and detrimental to him. But deal with it can and should be. The main enemies of

hypodinamia are a variety of regular exercises. The fact that the charge is needed

every day and walking, you've probably already guessed. But there is another

effective remedy for this disease - isometric exercises (also called "pocket"). These

exercises are convenient in that they are almost invisible to outsiders, but because

they can be done anywhere. Moreover, they are based on strong muscle tension,

and repeating them only once a day, you can be sure that the necessary muscular

load is obtained. So here they are:

- stretch your arms, rest half-bent fingers into the table. Strong breath, exhale

gently, but firmly push his fingers on the table. Push need about 5-6 seconds, then

relax. After resting for 30 seconds, do the exercise again.

- slip your hands under the table and back of the hand with a force push the

desk up. Need to push for 5-6 seconds, half a minute to repeat.

- hands clasped behind his neck, try to bend it forward, while resisting all the

muscles of the neck. "Fight" 10 seconds, 30 seconds, repeat.

- sit in a chair, hold his legs and feet, straining, squeeze the legs as much as

possible. Compress to 10 seconds every half minute.75

- link brush outstretched arms into the lock, and without bending the arms,

try to unlock them. After half a minute rest, repeat.

As you can see, the prevention of physical inactivity is quite simple, and

following these simple recommendations, you will soon be able to say goodbye to

this ailment.

4.2. Protection against defeat by electric current

To ensure electrical safety in accordance with the Regulations for Electrical

use the following methods:

Ensuring unavailability, fencing and lock the live parts. These funds are

used to protect against accidental exposure to the danger zone or man to touch

electrical parts current-carrying. Height of fences in hazardous areas installations

on the premises, shall be not less than 1.7 m, and in open areas at least 2 m lock is

a device that allows a certain order or disable current-carrying parts, thereby

eliminating the possibility of Hit man in the danger zone. Electrical interlocking is

used to automatically disconnect the electrical door unlocking, removing fences

and other similar works in which offers access to live parts under voltage, as well

as the approach of man to the danger zone.

Application of low voltage (<42 VDC). Low voltage (less than 42V) is

used for hand tools, portable and local lighting in any indoor and outdoor use. It is

also used in areas with high risk and dangerous to power lighting fixtures local

stationary if they are located at a height of less than 2.5 m Circulated in applying

voltage 36 V, and in closed metal containers should apply a voltage not exceeding

12 V.

Electrical separation of networks on land via an isolating transformer.

Electrical separation of networks through a special isolation transformer, which

separates the network with earthed neutral or isolated from the network section of

the supply of electrical receivers. The connection between the power network and

the receiver via the magnetic field, the network portion of the receiver and the

receiver itself does not bind to the ground. Isolation transformer is a special 76

transformer ratio equal to unity, a voltage not exceeding 380 V, with high

reliability design and insulation. Power from the transformer is allowed no more

than one receiver with a current not exceeding 15 A.

Protective grounding equipment enclosures. Ground is a connection with

the earth with dead metal parts of electrical equipment through the metal parts

being laid in the ground and called grounding, and parts sandwiched between

grounding and electrical enclosures, called grounding conductors. Conductors and

earth electrodes are usually made of low carbon steel, called colloquially iron.

Grounding is intended to eliminate the risk of electric shock to persons in

contact with dead parts under voltage. This is achieved by reducing the limits to

safe touch and step due to the low resistance grounding. Scope of protective

grounding are AC and DC isolated neutral voltage source or transformer.

For grounding may be used parts of existing structures, which are called

natural grounding:

- metal and concrete structures of buildings and structures that are in contact

with the ground;

- metal pipes laid in the ground, except for piping of flammable liquids and

gases;

- lead sheath cables laid in the ground;

- wells casings, etc.

Cutout network in no more than 0.2 seconds when a shock hazard.

Protective cutout device (RCD) consists of a sensor that responds to changes in

controlled quantities and executive body that disables the corresponding portion of

the network.

The sensing element can respond to potential housing, ground fault current,

voltage and zero sequence current operating current. As the switches can be used

contactors, magnetic starters, circuit breakers with shunt trip, special switches for

RCD.

Appointment RCD - Protection against electric shock by disabling ET when

a danger earthed equipment or directly at the touch current-carrying parts man.77

RCD used in ET 1000V isolated or earthed neutral as the main or additional

hardware protection method, if security cannot be achieved by the use of ground or

neutralization or if ground or vanishing cannot be performed for some reason.

RCD necessary for the control of isolation and disconnection EI while

reducing insulation in the EC for special purposes, such as in underground mines

(leakage relay).

An example is the RCD protective disconnect device type ZOUP-25 for

disable and enable three-phase power at a voltage of 380 V and a current of 25 A

in systems with earthed neutral, as well as to protect people at the touch of live

parts or equipment enclosures, be energized.

The vanishing of the housing of the electric networks with earthed

neutral. The vanishing - it's a deliberate electrical connection with zero protective

conductor. Current protections are fuses or circuit snout (switches) installed before

energy consumers for protection against short-circuit currents.

The vanishing used in electrical circuits voltage up to 1000V earthed.

Vanishing subject to the same metal design with dead parts of electrical equipment

which are subject to the protective earth (building machines and apparatus,

transformers, tanks, etc.)

Equipotential electrical enclosures. As you know, the touch voltage or step

is obtained when there is a potential difference between the base on which a man

stands and equipment housings, which he can relate to, or between the legs. If you

connect through additional electrodes and conductors places of possible touch the

human body, there is no potential difference and the associated risk.

Equipotential electrical towers and related structures and grounds by the

device loop earthing electrodes which are arranged around a building or structure

with a grounded or neutralization equipment. Inside the loop earthing under floor

space or pad laid horizontal longitudinal and transverse electrodes, the electrodes

are connected by welding circuit. In the presence of vanishing loop joins the

neutral wire.

78

Equipotential equipment enclosures and structures adjoining structures and

carried all the buildings to the network or the vanishing ground.

Potential equalization is used as additional technical way to protect the

presence of vanishing or grounding in areas with high risk or particularly

dangerous.

Application of equipotential is necessarily in livestock buildings.

Equipotential device is carried on the project.

Application of the protective means. Protective devices called appliances,

devices, portable and transportable devices and devices, as well as parts of devices,

appliances and devices that serve to protect personnel working on electrical

systems, electric shock.

By appointment power protection means are divided into:

- insulating;

- protecting;

- auxiliary.

Isolation protection for isolating a person from electrical live parts in

tension, as well as from the ground (hull), if a person is simultaneously touch the

electrical grounding and electrical parts. According to the degree of reliability they

are divided into basic and advanced.

The main insulating protective equipment in installations up to 1000V

voltage include:

1. Insulating gloves;

2. Pliers to change the fuses and current measuring;

3. Hand tools with insulated handles;

4. Pointers voltage.

In electrical voltages above 1000V main remedies are:

1. Isolating and measuring rod;

2. Clamp meter and voltage testers;

3. Isolation removable platforms and stairs.

Additional include:79

1. Dielectric overshoes;

2. Bots;

3. Mats;

4. Isolation stand on porcelain insulators.

Protecting devices are intended for temporary fencing live parts under

voltage. These include shields, barriers, fences - cells, as well as temporary

portable ground which make it impossible for a disabled appearance voltage

equipment.

Ancillary remedies designed to protect personnel from accidentally falling

from a height (safety belts, claws insuring ropes), goggles, gloves, cloth and

canvas suits, etc.

80

CONCLUSION

This final qualifying work is devoted to the actual issue ways to reduce the

risk of bank commercial bank.

In this work analyzes the theory of bank risks, defined risk management

practices are considered a risk management and ways to reduce them. Under risk is

the possible danger of loss arising from the specifics of certain natural phenomena

and activities of human society. Commercial risks are the risk of loss during the

financial and economic activity. Taking risks is the basis of banking. Banks are

successful when they adopt reasonable risks to control and are within their

financial capabilities and expertise. Banks tend to get the most profit. But this

desire is limited to the possibility of incurring losses. Banking and risk means the

probability that the actual profit of the bank is less than the planned expected. The

higher the expected return, the higher the risk.

Effective management of risk should address a range of problems - from

tracking (monitoring) the risk to its valuation. Each bank should think about

minimizing their risks. It is necessary for its survival. Minimizing risk - it is a

struggle for the reduction of losses, otherwise known as risk management. This

process includes: prediction of risks, identification of the likely size and impact the

development and implementation of measures to prevent or minimize the

associated losses.

The most common specific risk management practices include the following

methods: setting standards and limits intra diversification, forming a sufficient

level of reserves to cover losses, hedging, insurance, self-management and quality.

This way for the management of credit institutions at the present stage it is

important construction and risk management systems in the framework of their

choice of management practices appropriate to the nature and scope of activities of

credit institutions.

In this paper analyzes of credit, market and liquidity risks OSJC"ALOQA

BANK" for 2013-2014 years.81

The analysis shows that most of the risk is credit risk, it is about 72% of the

loans of the total assets of the bank. The analysis showed that the activities of the

OJSC "ALOQA BANK" credit risk is very small and is about 2%. When

considering the liquidity and market risks all their coefficients are within the

standards for commercial banks that characterize the positive work in the area of

the OJSC "ALOQA BANK."

In this work suggests ways to reduce risks through foreign experience. In

particular, it is recommended to use the estimate of the loan portfolio: stress

testing, historical simulation, Monte-Carlo simulation. Insurance is suggested as a

method to reduce risks, especially using insurance policy BBB.

In the last chapter contains theory inactivity and its influence on human

health and the protection of persons from electrical shock.

As a result of the measures expected to be significant increase reliability and

attractiveness of the bank, and as a result, and improve the reputation of the

banking market. This largely increases the number of both large and small credit

investments by businesses and individuals, and that led to the growth of the bank's

profits.

82

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1. Law of the Republic of Uzbekistan from 25.04.1996, N 216-I "About Banks

and Banking Activity"

2. Law of the Republic of Uzbekistan from 21.12.1995, N 154-I “About

Central Bank”. Amended 29.08.98 N 681-I, 15.04.1999 N 772-I, 15.12.2000

N 175-II, 13.12.2002 N 447-II.

3. Law of the Republic of Uzbekistan from 30.08.2003, N 530-II "About

banking secrecy"

4. Law of the Republic of Uzbekistan from 17.12.2012 N 339-LRU "The

private banking and financial institutions and Guarantees"

5. Law of the Republic of Uzbekistan from 04.04.2006, N 30-LRU "Protection

of information automated banking system"

6. Law of the Republic of Uzbekistan from 24.04.2003 N 474-II “About

Bankruptcy”

7. Presidential Decree "About measures on improvement of joint-stock

commercial bank" from 2.12.1998, N 10-11

8. Presidential Decree "About the formation of the National Banking Council"

from 15.11.2002, N 3162-PD

9. Presidential Decree "About measures to encourage improve the

capitalization of commercial banks" from 19.12.2006 N -3831-PD

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