In order to maximize the value created for shareholders and to 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.
In the Group subsidiary Akbank, risk management is carried out 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 to carry out daily activities related to the prescribed risk management processes and risk limits. The Audit Board, Internal Control and Compliance Division and Risk Management Department, which report directly to the Board of Directors, carry out 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 developed and enhanced 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, and emergency plans are prepared. Various techniques to minimize risk are used to limit and to safeguard against the risks Bank is exposed to during the course of its operations.
At the non-financial services companies of Sabancı Group, risks are managed by designated risk management officers under the supervision of company Risk Committees that report to the Board of Directors. Group companies determine potential risks, and list them in order of probability and the size of the loss they might cause. Prioritized risks are monitored by each company’s management, Risk Committee and Board of Directors with periodic reporting. Risk management processes that include the measures to be taken are determined, and their implementation and results are monitored. At the Holding level, subsidiary financial, strategic, operational and compliance risks are also overseen and supervised by the relevant Strategic Business Unit and Finance department as well as the Compliance Management division.
Sabancı Group categorizes risks under these major headings:
Compliance Risks: Risks from legal penalties, and reputation loss and material damage that may arise in case of not complying with specified rules such as applicable laws, other legal regulations, code of ethics, The Company’s internal policies and directives, and the like. In order to support the Group subsidiaries to efficiently manage compliance risks within the determined framework, instructional activities are carried out by the Holding’s Compliance Management Department.
Financial Risks: Risks that may arise as a result of the Company’s financial position and preference. 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 will be caused by FX risk in cash management, using loans in foreign currency 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.
In order to efficiently manage the interest risk of the subsidiaries, interest rates of financial institutions are tracked and Group companies are directed to those institutions that provide the more reasonable rates. Besides bank lending, support is given at the Holding level to make use of corporate bond issuance.
To hedge against commodity price risks, Group companies either develop operational capabilities like dynamic pricing, or take other measures such as using operational or financial derivative instruments.
Strategic Risks: Structural risks 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 to be strategic risks.
At the Holding level, strategic risks are efficiently managed with a long term dynamic portfolio management approach. The main principle of Sabancı Holding’s portfolio management strategy is to focus on sectors where it is possible to create competitive advantage and to use equities in fast growing, highly profitable and sustainable businesses. Activities are carried out at the Holding level to diversify the portfolio according to such criteria as sectors, regions, customer profiles, technology, export, and the like.
Operational Risks: Risks that may arise due to the possibility of loss as a result of Company activities and/or possibility of losses stemming from: (i) fault and negligence caused as a result of failures in a company’s control systems; (ii) company management and personnel not acting properly in terms of time and circumstances; (iii) managerial faults; (iv) faults and failures in information technology systems.
With the activities of the Audit Group, Company processes and systems are controlled in order to determine and eliminate these risks.
Brand/Reputation Management Risks: These include: (i) Company losing value as a result of not managing its name and commercial brands efficiently; (ii) decreasing demand in a Company’s products and services because of damaged reputation caused by various incidents; (iii) 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 include: (i) false statements that do not comply with legislative requirements and reporting standards; (ii) not sharing sufficient information in the management reporting; (iii) not measuring and sharing key indicators effectively; (iv) deficiencies in the quality of the reports in terms of timing and detail. Reporting quality is monitored in the audits performed by the Audit Group and independent firms.
External Environment Risks: Risks based on external factors the Company cannot control through its operations and management processes, such as natural disasters; political and economic developments in 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 2016, 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 is that related to the Third Tariff period, spanning from 2016 to 2020, in the area of retail electric sales and distribution.
Hacı Ömer Sabancı Holding A.Ş. Board of Directors established the Early Risk Detection Committee with a resolution made on April 25, 2013 in order to implement the precautionary risk management in publicly traded companies approach stipulated by the Turkish Commercial Code and the Capital Markets Board. The Committee Chairman is the Independent Member of the Board of Directors Mr. Zekeriya Yıldırım; Committee members are Member of the Board of Directors Ms. Sevil Sabancı Sabancı and Consultant Mr. Mevlut Aydemir. The purpose of the Committee is: (i) to evaluate the early detection, determination of necessary measures, and management processes regarding strategic risks, operational risks, financial risks, compliance risks, reputation risks, reporting risks, external environment risks and all other types of risks that can jeopardize H.Ö. Sabancı Holding A.Ş.’s existence, development and continuity; and (ii) to inform the Board of Directors about these issues in order to make decisions accordingly. In line with its purpose, the Committee identifies and evaluates the risks Hacı Ömer Sabancı Holding A.Ş. is exposed to, monitors them via a reporting system and follows up the measures taken to counteract the risks. Furthermore, risks in subsidiaries’ business activities that can have impacts on the Holding’s consolidated financial statements and strategic targets are also monitored by the Holding’s Risk Committee. The Committee convened six times in 2016 and presented its evaluations for the information of the Board of Directors.