OREANDA-NEWS. March 18, 2011. Earlier, ICBC announced the successful implementation of its independently developed global market risk management system in the Bank. The system, the first in the country independently developed by a Chinese bank and successfully implemented, marks the beginning of other banks in China to set up similar system, and one major achievement of ICBC in the quantitative management of market risk. Industry insiders comment that the successful implementation of the system helps drive the risk management and control of ICBC to a new milestone and find a new way for banks in China to be independent on the innovation in market risk management, reported the press-centre of ICBC.

Market risk mainly refers to the risk of loss to a bank's business, in-balance sheet or off-balance sheet, as a result of the unfavorable changes in the interest rates, foreign exchange rates, stock prices and commodity prices. During the 2008's financial crisis around the world, it was exactly the market risk that rendered the major international banks badly hit. With the continued globalization of the world economy and financial market, and China's reform in RMB exchange rate regime and progress of interest rate marketization, market risk is now an important type of risk affecting the domestic commercial banks, demanding higher requirement to commercial banks on risk management.

As related, ICBC's market risk management system has three large databases for parameter data, transaction data and market data. The system, once in production, measures and monitors the market risks on the transaction accounts, financial services and products. Daily functions of the system cover the measurement and management of market risk: Value at Risk (VaR), stress testing, return checking, limit management, capital calculation and risk reporting. The system achieves the goal of managing market risk in all branches and enhances the market risk management in ICBC significantly.

As related by an executive with ICBC, ICBC bought market risk management system from an outside party before this new system in production. To a certain extent, the old system helps improve ICBC's quantitative market risk management. However, as business moving on and higher management requirement, it is difficult to get the core technology from outside party's system, and it turns out to be a technology constraint for ICBC to improve its market risk management. Hence, beginning from 2008, ICBC focuses on the future and takes bold steps to start the project to develop its own system without any domestic precedent to follow. The goal is to build a top-of-the-class market risk management scheme and make an active attempt in this area.

In more than two years of efforts ICBC has been successful in independently developing its own system by combining methodology, system development and team-building. Through independent development, the first point is that ICBC sets up its own methodology for market risk measurement covering primary products, standard derivative products, complex derivative products, and moves gradually to set up own pricing valuation model, a significant boost to ICBC's capability in pricing and valuation on financial products. The other point is to totally break off reliance on the system and model bought from outside parties through unified market risk data management and measurement system independently developed. Upgrade to the system and optimization on the model will be on-going in line with the progress of financial services and changes in the risk trend. Moreover, during this process, ICBC has accumulated a vast number of risk management technologies and IT development experience, and built a team of very professional staffs.

The implementation of New Capital Accord is the main line for ICBC to step up its efforts to improve risk management capability, said the ICBC executive. In the next step, ICBC will leverage its strong technical strength to forge ahead with determination to improve risk management in all branches by continual efforts on the risk management, risk quantification management.