CHANGES IN THE FUNDING PORTFOLIO
The funding portfolio declined by 109 million in 2002.
Funds raised on the capital market declined by 67 million,
being the balance of 120 million of new borrowings and
€187 million of repayments, while the volume of money
market borrowings fell by 42 million on a net basis.
Interest rate swaps representing a notional amount of
€435 million were concluded during 2002 for the purposes
of interest rate management.
RISK MANAGEMENT
A key objective of FGH Bank is to achieve an acceptable risk
profile for its core business. The bank's policy is therefore
geared to ensuring that there is careful monitoring and
control of risks on an ongoing basis.
Risk management consists of a package of effective control
measures and a number of reporting systems. These include
monitoring of compliance with procedures and reliable
management information systems. The bank's policy and
systems are constantly being adjusted to reflect changes in
conditions and to meet the requirements and objectives of
the supervisory authorities.
CREDIT RISK POLICY
The key objective of FGH Bank's credit risk policy is to
maintain the quality of the loan portfolio and to prevent an
inappropriate concentration of credit risk. Risks are
controlled by strict application of the bank's credit risk
policy by the credit committee, and by granting credit
approval authority to various levels within the organisation.
REAL ESTATE MARKET RISKS
The financing of real estate projects entails exposure to
market risks. In summary, these risks are that changes in
external market conditions will have an adverse effect on
the letting and sale of properties, with the resulting risk of
lower proceeds for the owners of these properties. The
Valuation Research Department of FGH Bank monitors
developments in market conditions closely, making use of
detailed data files containing information about letting
transactions, changes in supply and plans for new
developments in the commercial real estate market. In
addition, the department is currently working on a new
model, which will simulate forecast trends. Regular internal
and external reports are produced on market trends,
including the annual FGH Real Estate Report, in which the
bank examines trends in the various sectors of the real estate
market and also outlines its views on current market
conditions and makes short-term forecasts.
BALANCE SHEET MANAGEMENT
The bank's Asset and Liability Committee (ALCO) is
responsible for managing the balance sheet. ALCO draws up
guidelines for the management of interest rate, market and
liquidity risks and monitors compliance with these guidelines.
Interest rate risk and the effect of fluctuations in market
interest rates are measured using a number of methods,
including value-at-risk analysis, gap analysis and duration
analysis, which together provide a good picture of the bank's
interest rate risk.
CURRENCY RISKS
The bank's policy is not to take positions.
OPERATIONAL RISKS
Operational risks are minimized by a system of internal
controls that includes procedures and process descriptions.
Such risks include losses resulting from the malfunction of
management information systems, inadequate transaction
processing or settlement, and fraudulent and/or
unauthorized acts by members of staff or third parties.
LEGAL RISKS
FGH Bank seeks to minimize legal risks by using standard
agreements. The bank aims to prevent the risk of claims by
customers by maintaining a high-quality service and this is
achieved by measures such as proper training of its staff and
by regular reviews of its documentation by in-house and
external legal and fiscal experts.
COMPLIANCE
The bank has implemented various compliance procedures,
one of the purposes of which is to implement legislation
and regulations aimed at protecting the bank's integrity.
This legislation includes the Disclosure of Unusual
Transactions (Financial Services! Act [Wet Melding
Ongebruikelijke Transacties] and the Identification
(Financial Services) Act [Wet Identificatie Dienstverlening],
During the year under review, the bank also dedicated
considerable resources to implementing new regulations,
such as the Regulation on Organisation and Control issued
by De Nederlandsche Bank, and the regulations on insider
trading.
PERSONNEL AND ORGANISATION
During the year under review, the total number of
employees fell from 176 (full-time equivalents 169,2) at the
end of 2001 to 160 (full-time equivalents 151,2) at the end of
2002. This decline is partly attributable to improvements in
efficiency realized during the preceding two years.
The promotion of staff involvement in FGH Bank and of the
quality of its staff remains a key priority for the bank.
One of the results of the change in the Working Conditions
Service has been more rapid and effective control of
absenteeism, which has been assisted by measures such as
the introduction of the Gatekeeper Act [Wet Poortwachter].
As a result, absenteeism fell sharply in 2002.
