Risk Management

To maximize the value created for shareholders and ensure the sustainability of the Group, Sabancı Group set corporate risk management principles.

To maximize the value created for shareholders and ensure the sustainability of the Group, Sabancı Group companies manage potential deviations in strategic and financial targets in line with the Group’s risk-taking approach by using corporate risk management principles.

At Group subsidiary Akbank, risk management is conducted in conformity with Banking Regulation and Supervision Agency legislation, under the responsibility and supervision of the Bank’s Board of Directors. The Board fulfills its oversight responsibility via various committees, such as the Audit Committee, Executive Risk Committee and Credit Committee. The Bank’s risk-taking levels are determined by the risk limits that are approved by the Board of Directors. The Bank’s executive management is responsible to the Board of Directors for carrying out daily activities related to the prescribed risk management processes and risk limits. The Audit Board, Internal Control Department and Risk Management Department, which report directly to the Board of Directors, conduct their respective activities in coordination with the execution units. Nationally and internationally accepted risk models and parameters are used to detect, measure, and monitor risks at the Bank. Internal methods and models are continuously improved and developed to ensure effective risk management. Under extraordinary circumstances, different scenario assessments are made in order to analyze potential risks the Bank might be exposed to; emergency plans are prepared accordingly. A wide range of techniques to minimize risk are used to limit and safeguard against the Bank’s risk exposure.

At the non-financial services companies of Sabancı Group, risks are managed by designated risk management officers and company senior management responsible for risk management processes and activities. These efforts are under the supervision of the Board of Directors and company Risk Committees that report to the Board. Group companies determine potential risks that they may encounter. These risks are ranked according to the probability and the size of the damage that they might cause. Prioritized risks are monitored by each company’s management, the Early Risk Identification Committee and Board of Directors in the form of periodic reports. Risk management processes, which include measures to be taken, are determined; implementation and results are closely monitored. Financial, strategic, operational and compliance risks of subsidiaries are also overseen and supervised by the relevant Group President and Finance Group Department, as well as the Risk Management Unit at the Holding level.

Sabancı Group categorizes risks under these major headings:

Compliance Risks: This risk type includes legal penalties, reputation loss or material damage that may arise in case of not complying with applicable, rules or regulations, code of ethics, or a company’s internal policies and directives. To support Group subsidiaries in efficiently managing compliance risks within the determined framework, instructional activities are carried out by the Holding’s Compliance Management Department.

Financial Risks: This category includes risks that may arise as a result of a company’s financial position and preferences. Financial risks include those caused by loans, interest rates, FX rates, cash management, and commodity prices.

Within Sabancı Group, futures contracts are used against foreign currency exchange risk if necessary. Furthermore, in order to prevent any short term volatility that might be caused by FX risk in cash management, loans in foreign currency to be used for long-term investment projects and sectors where it is possible to make foreign currency revenue, or revenue indexed to foreign exchange is preferred. Moreover, our investments are divided into phases and extended over a period of time.

To efficiently manage interest risk of subsidiaries, interest rates of financial institutions are tracked. Group companies are directed to those institutions that provide the more reasonable rates. Besides bank borrowings, support is given at the Holding level to issue corporate bonds.

To hedge against commodity price risks, Group companies either develop operational capabilities, like dynamic pricing, or take other relevant measures, such as using operational or financial derivative instruments.

Strategic Risks: This risk group includes structural risks that may prevent a company from reaching its short, medium or long-term goals. Risks arising from planning, business model, business portfolio, corporate governance and market analysis are considered strategic risks.

At the Holding level, strategic risks are efficiently managed with a long-term dynamic portfolio management approach. Sabancı Holding’s portfolio management strategy is designed to focus on sectors where it is possible to create competitive advantage in highly profitable and sustainable businesses. Efforts are carried out at the Holding level to diversify the portfolio according to key criteria, such as sectors, regions, customer profiles, technology content, exports, and the like.

Operational Risks: This category comprises risks that may arise due to the possibility of loss as a result of company activities and/or possibility of losses stemming from fault and negligence caused as a result of failures in a company’s control systems. Operational risks also include company management and personnel not acting properly in terms of time and circumstances; managerial faults; faults and failures in information technology systems.

The Audit Group conducts control related activities of company processes and systems in order to determine and eliminate these risks.

Brand/Reputation Management Risks: This risk type includes a company losing value due to not managing its name and commercial brands effectively; decreasing demand in a company’s products and services because of damaged reputation stemming from various incidents; a company losing customers, profit and competitive strength. With a multi-discipline monitoring and management system, risks in the Group’s main assets, namely its brands and reputation, are monitored and managed by taking necessary actions.

Reporting Risks: These risks include false statements that do not comply with legal and regulatory requirements and reporting standards; not sharing sufficient information in management reporting; not measuring and sharing key indicators effectively; deficiencies in the quality of the reports in terms of timing and detail. Quality of reporting is monitored in the audits performed by the Audit Group and independent firms.

External Environment Risks: This category includes risks based on external factors the Company cannot control through its operations and management processes (e.g. natural disasters; political and economic developments within and outside the country; new decisions made by regulatory authorities in sectors where business activities are subject to public regulation; changes made in competition rules). While maximum measures are taken to eliminate risks, insurance coverage is also secured to cover risks under appropriate circumstances. In 2018, the Holding Risk Committee closely monitored legislative changes that may potentially shape the energy business, which has significant weighting in Sabancı Holding’s consolidated financials. One issue monitored in particular related to the Third Tariff period, spanning from 2016 to 2020, in the area of retail electric sales and distribution, as well as revisions in the regulatory backdrop for generation and trading.

Hacı Ömer Sabancı Holding’s Board of Directors established the Early Risk Identification Committee with a resolution dated April 25, 2013. The Committee was formed to ensure prudent risk management as stipulated by the Turkish Commercial Code and the Capital Markets Board for publicly traded companies. The Committee Chairman is Independent Board Member Mr. Mete Başol; Committee Members are Board Member Ms. Sevil Sabancı Sabancı and General Secretary Mr. Gökhan Eyigün. The Committee evaluates early detection, determines necessary measures, and establishes management processes related to strategic risks, operational risks, financial risks, compliance risks, reputation risks, external environment risks and all other types of risks that can jeopardize Sabancı Holding’s existence, development and continuity. The Committee identifies and evaluates the risks Hacı Ömer Sabancı Holding is exposed to, monitors them via a reporting system and follows up the measures taken to counteract the risks. Risks in subsidiaries’ business activities that can impact the Holding’s consolidated financial statements and strategic targets are also monitored by the Holding’s Risk Committee. The Committee convened six times in 2018 and presented its evaluations for the information of the Board of Directors.