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In Control Report and Responsibility Statement

The responsibilities of the Managing Board are anchored, among other regulations, in the principles of the Financial Supervision Act1. These responsibilities include not only compliance with the relevant legislation, but also the responsibility for the implementation of risk management and control systems that are intended to ensure reliable financial reporting and mitigate the risk that NIBC does not realise its operational and financial objectives. Throughout this process, the bank actively monitors its risk profile in response to changes in the marketplace and the economic environment.

 

1. Wet op het financiële toezicht (Wft), 12 October 2006.

 

Risk management and control framework

 

NIBC regards financial risk management as a core element of its business model. The bank has developed a risk management and control framework drawn from the principles set out in the Financial Supervision Act, which allows the Managing Board to carry out its risk management and risk control responsibilities. This framework is designed to fit the bank’s exposure and is focused on the control of identified risks inherent to the execution of NIBC’s business activities. For a detailed description of NIBC’s risks and how NIBC manages risk, see the separate Risk Management sections. The risk management and control framework is aligned with IFRS and is designed to meet Basel II requirements.

 

In its role as the party responsible for NIBC’s risk management and control framework, the Managing Board is supported by the business unit managers. The business unit managers individually provide an annual In Control Statement to the Managing Board, which is based on an ongoing in control process culminating with an annual risk and control self-assessment of their respective activities.

 

To achieve a risk level that is aligned with NIBC’s risk profile and appetite, the bank analyses strategic, financial, compliance and operational risks and evaluates potential responses. In evaluating the potential responses, both the likelihood and impact of the potential risk events are taken into consideration. Alternative control scenarios are analysed for risk-reducing capacity and impact. The control measures are reviewed annually by operational risk management as part of the in control process.

 

 

Specific events and action points 2009

The following events required the specific attention of the Managing Board in 2009:

  • The risks associated with the credit liquidity crisis continued to influence the decision taking of management at NIBC. Building on the successes of the previous year, the bank continued its programme of funding diversification by increasing online retail savings and by issuing bonds under the Dutch State’s Credit Guarantee Scheme for terms of three and five years. All these actions were carried out under prudent asset and liability management to further reduce potential fluctuations in NIBC’s liquidity requirements and to ensure adequate liquidity for the medium term;
  • The anticipated increase in risks associated with a worsening macroeconomic climate materialised within the bank’s customer base. By enhancing NIBC’s system of internal controls and its risk management process, management was able to mitigate the impact of these risks. A number of deteriorating credits were restructured, additional collateral was obtained and pricing and terms were improved;
  • The planned improvement actions to support commercial activities as well as actions to simplify and improve operational efficiency were realised. These improvements focused on the match between the requirements of the commercial business and operations on the one hand and capacity of the system and the efficiency of processing on the other. An additional benefit of these activities was an improvement in the quality of management information used to take commercial decisions. Further steps were taken to improve the maturity level of IT using the best practices framework for information technology (COBiT). IT has attained a COBiT maturity level of three (on a scale between one to five) based on a review of the general controls and application controls. At the same time, the maturity level of both operations and finance has been improved as a result of increased efficiency and performance of underlying systems. As a consequence of these operational improvements, NIBC is better placed to execute its business strategy; and
  • The online retail savings programme, NIBC Direct, remained a focus of management attention in 2009. This focus is primarily based on the important role of online retail saving in the bank’s liquidity diversification programme. While operations and processing have matured and the level of professionalism in the team further increased, risk control and monitoring will continue to be a management point of attention.

 

During 2009, the Managing Board discussed with the Supervisory Board the corporate strategy and the main risks of the business, the result of the assessment by the Managing Board of the design and effectiveness of the internal risk management and control systems, as well as any significant changes to these.

 

 

Planned improvements and attention areas 2010

In 2010, the management of risks associated with the weakness of the macroeconomic climate will continue to be a priority at NIBC. Against this backdrop, the bank will continue to maintain a high capital position. NIBC will continue to explore measures to further diversify sources of liquidity and further improve those already in place. These activities will be carried out under the prudent direction of asset and liability management to further reduce the potential fluctuations in the bank’s liquidity requirements. The weakness in the macroeconomic environment is expected to continue to affect NIBC’s customer base in the near future. As in 2009, the risks associated with these customers will require ongoing attention in 2010. However, NIBC’s risk management process and system of internal controls are expected to have a mitigating impact.

 

Planning for 2010 calls for increased commercial activity building on the successes of 2009. Maintaining sustainable profits will bring with it the need to seek a proper balance between commercial drive and the ability of the organisation’s systems and operations to effectively and efficiently meet these demands. The bank has an ongoing calendar of initiatives to further refine the quality of management information and augment an already robust risk assessment and approval process. Combined with these initiatives is a continued drive toward improved efficiency and system performance all leading to advances in the COBiT maturity level of IT and a deepening of the information security processes realised in 2009. All these improvements aim to ensure the smooth and efficient execution of NIBC’s business strategy within the bank’s risk and control framework.

 

 

Conclusion and responsibility statement

Within the current internal risk management and control system, certain high-risk events were identified by management in the course of 2009, and where required, corrective measures were taken. However, the measures to manage NIBC through a period of increased commercial activity in a weak macroeconomic climate as well as maintaining an adequate medium-term liquidity position will remain areas of attention in 2010.

 

The internal risk management and control systems based on a risk identification process combined with an established set of detective, preventative and repressive control measures provide reasonable assurance that the financial reporting does not contain errors of material importance and that the internal risk management and control systems regarding the financial reporting risks worked properly in the year under review.

 

In view of the above, the Managing Board believes that it is in compliance with the requirements of best practice II.1.4 and best practice II.1.5 of the Dutch Corporate Governance Code, taking into account the most recent best practice provisions in the proposed revised code.

 

In respect of Article 5:25c, Section 2 (c) (1 and 2) of the Financial Supervision Act, the members of the Managing Board of NIBC hereby confirm, to the best of their knowledge, that:

  • The consolidated financial statements 2009 give a true and fair view of the assets, liabilities, financial position and profit and loss of NIBC and its consolidated group companies;
  • The report of the Managing Board gives a true and fair view of the situation on the balance sheet date and developments during the financial year of NIBC and its consolidated group companies; and
  • The Annual Report 2009 describes the principal risks which NIBC faces.

 

 

The Hague, 8 March 2010

Managing Board

 

Jeroen Drost, Chairman, Chief Executive Officer

Kees van Dijkhuizen, Vice-Chairman, Chief Financial Officer

Rob ten Heggeler, Member

Jeroen van Hessen, Member

Jan Sijbrand, Member, Chief Risk Officer