2.4. Risk management and overview of the internal control system When it comes to the operations of KredEx as a financial institution, reliability is essential. Therefore, the efficient functioning of risk management as well as the internal control system forms the basis for our successful operation. We have established relevant procedures for risk management, which are updated and amended as necessary. As a core tool, we use the four-eyes principle where the precondition to every significant financial transaction is the approval of the performer as well as that of another person with the relevant competence.
Principles of risk management at KredEx are as follows ― The taken risk and the collected fee are in proportion to one another; ― The risks are sufficiently spread out, with the loss from a single risk not being too large in comparison with the capital; ― All risks that have not been re-insured are covered with sufficient capital and provisions. A core objective of risk management is to possess adequate information for service price formation. This includes estimating the volume and loss potential of each service and other circumstances influencing the total net gain. For that, we assess and classify every risk based on the probability of realisation and the accompanying loss amount. The goal of risk dispersion is to avoid the accumulation of similar risks and reduce the unfavourable impact on the financial results of KredEx that would be caused by the realisation of a single risk factor that has a significant effect. In order to avoid jeopardising the sustainability of operations, KredEx has established a principle that if the realisation of a single risk or a group of risks significantly depends to a large extent on single events or processes, the effect of this risk or the group of risks must form a limited part of the total solvency margin of KredEx.
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Annual Report 2020
Generally, the amount of such an effect should not exceed 20% of net assets. Thereby, the division of risks helps to ensure a sufficient number of successful projects in the portfolio in order to guarantee the earning of the income necessary for achievement of the goals established in the strategy of KredEx. To cover regular and predictable losses, sufficient provisions are formed and reinsurance is used for the risks taken. Net assets are used to cover the Foundation’s extraordinary losses, due to which risk taking is also limited by required solvency margins. According to the Support of Enterprise and State Loan Guarantees Act, upon the granting of guarantees for enterprise loans, the minimum limit of own funds shall be 10% of the net asset value of the valid guarantees, but not less than EUR 2 million. Upon the granting of guarantees for housing loans, the minimum limit of own funds shall be 8% of the net asset value of the valid guarantees, but not less than EUR 2 million. The internal minimum limit of own funds of the Foundation is 13% and 9.6%, respectively. A separate internal minimum limit of own funds (25%) has been established for extraordinary guarantees of enterprise loans, the granting of which began in 2020. As at the end of 2020, both the internal and regulative requirements on own funds have been fulfilled with sufficient margins. To ensure the impartiality and efficiency of the internal control system, we select the internal audit service provider based on the principles established in the Public Procurement Act. Qualified internal auditors periodically examine the areas of KredEx’s activities, and submit summaries of the course and results of the audit to the Supervisory Board. The internal audit reports are an input for the Management Board for improving the internal control system. At the beginning of 2019, the Supervisory Board confirmed AS PricewaterhouseCoopers as the internal audit provider for the years 2019–2021. The use of structural and other external funds by KredEx is also inspected and audited annually by the Ministry of Finance as well as the Ministry of Economic Affairs and Communications.
From the beginning of its operations, the annual accounts issued by KredEx have been audited annually by an internationally recognised auditing firm. So far, they have approved all reports without reservations.