Reinforcing KBank’s secure and reliable services with proactive risk management culture. Maintaining KBank’s financial sturdiness with international-standard security and fraud prevention systems. Preparing to use AI for enhanced efficiency in tracking cyber threats. Focusing on credit risk management in social and environmental project financing in 2020.
Mr. Predee Daochai, KBank President, said that while technological change offers people greater convenience in access to services and constantly speeds the pace of business, risks never sleep too, triggering concerns among bank customers in three issues: security, accuracy and trustworthiness.
To steer KBank to achieve the goal of empowering every customer’s life and business, the key lies in risk management, reinforcing KBank’s strengths and easing customers’ concerns so that they are ready to confidently step ahead with KBank. KBank has made headway in adopting proactive risk management along with fine-tuning our strategies to align with ever-changing business contexts and cover all business risks.
KBank’s risk classification and risk management guidelines meet the required standards, and they are based on three major principles, as follows:
1) Fundamental risk management, based on banking services. Financial institutions in all eras in the past had to cope with risks stemming from eroding consumer confidence, which led to bank runs. Some banks also had to cope with liquidity risk, which left them unable to repay creditors, leading to payment default, or risks arising from operational errors, fraud and theft, leaving them with massive losses.
To brace for such risks, KBank has adopted a set of financial security measures, with the aim of maintaining our financial health and customers’ deposits and investments. One of those measures is to steadily maintain our capital and liquidity at levels above the regulatory requirements. Currently, KBank’s capital adequacy ratio (CAR) is at 19.62 percent, accounting for 171 percent of the regulatory requirement, while our liquidity coverage ratio (LCR) is at 188 percent of the regulatory requirement.
In addition, we have carried out stress tests on economic scenarios and new regulations while also devising and testing our contingency plans for the supervision of our capital and liquidity on a regular basis. We have also bolstered our capacities in data analytics and management to better understand our customers and their risks.
Moreover, KBank attaches importance to security in conducting transactions with our customers and service provision that offers them the most satisfying experience. As part of this endeavor, we have installed both transaction and application fraud monitoring systems, as well as an internal fraud monitoring system, worth over 500 million Baht.
Installation of the transaction fraud monitoring system was completed in 2017. As a result, our fraud-to-sales ratio has steadily improved and remains the lowest compared to our peers and the national average. As a testament to this effort, KBank won the VISA Champion Security Award (Southeast Asia) in 2019.
2) Management of emerging risks arising from digital transformation. Risks that KBank has to cope with include those stemming from service instability, cyber risk, and data protection and privacy risk. The objective of managing such risks is to ensure that our service provision is the most frictionless, convenient and secure.
As “People” are the most common source of risks yet also a vital force in helping prevent risks, KBank has, therefore, introduced operations to brace for risks arising from digital transformation, based on the following:
Security Standards: KBank ensures that our operations concerning cyber security and customer data privacy meet the required international security standards.
Employees: A Cyber DNA project has been introduced, with the aim of ensuring that our employees recognize risks arising from cyber threats and data leakage.
Customers: A Cyber Awareness Campaign has been implemented to encourage our customers to exercise caution towards risks of the digital era.
Third-party risk management: Operational guidelines and processes have been introduced to ensure that our service users and business partners have the required international standards to cope with cyber and privacy risks.
Moreover, in 2020, KBank plans to place cyber security and customer data privacy as our top priority and use AI and machine learning to track cyber crime and cyber risk.
3) Environment, Social and Governance Risk Management (ESG Credit Assessment): KBank aims to be a good global citizen which makes a positive contribution and brings sustainable values to society and the country. KBank operates our business based on the foundation of being a Bank of Sustainability by attaching importance to our responsibility towards the environment and society under good corporate governance and appropriate risk management.
For example, KBank has determined the exclusion list for our credit underwritings to ensure that we will not support projects that create adverse effects to the society, environment and KBank’s reputation. KBank has promoted positive impact financing by granting financial support to businesses based on the consideration of their environmental and social impact, as follows:
Renewable energy project financing includes loans approved for projects involved in solar power, biomass energy, waste-to-energy, etc. In 2019, KBank granted over 6.30 billion Baht to support these projects with a combined capacity of more than 800 megawatts. KBank aims to capture a 15 percent share in terms of capacity (megawatts) of the domestic market according to the Alternative Energy Development Plan of Thailand.
Energy and environmental project financing includes loans to support the installation of green power such as solar rooftops, building renovation for energy conservation, promotion of energy efficiency in the workplace, etc. In 2019, after approving more than 2.0 billion Baht of loans in 2019, KBank plans to approve 2.4 billion Baht of energy and environmental project financing in 2020.
Social project financing is aimed at helping people have access to basic social services, such as projects to promote access to necessary services for retirees, the Employment Generation Program to support SMEs and micro businesses in the community, and franchise loans to provide financial access to aspiring entrepreneurs. In 2019, KBank approved more than 7.6 billion Baht of loans under this category. KBank plans to approve 7.73 billion Baht of such loans in 2020.
KBank has issued 100 million USD of Sustainability Bonds since 2018 and plans to issue more in the future. Moreover, KBank invested 1,841 million Baht in green bonds in 2019, and plans to invest an additional 300-500 million Baht in 2020.
Mr. Predee added that KBank’s strengths in risk management lie in our focus on integrating risk management as part of our risk culture and building sound risk management discipline in all decision-making and operational processes so that they are deeply engrained as KBank’s culture. This is because risks never sleep, and we must be constantly awake to manage risks.
All of our endeavors are intended to offer the most convenient services for our customers, who can be assured of the security of their assets and data, as well as transaction accuracy, because KBank has risk management that meets their diverse needs, enabling KBank to maintain our strengths, together with our credibility, while also empowering our customers to lead their lives and operate their businesses without worry.