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LLB Annual Report 2022 de

Finance and risk management

Information checkedInformation unaudited Information geprüft Information ungeprüft Finance and risk management 

Accepting risk goes hand in hand with banking business. Sustainable and methodical finance and risk management is essential to ensure the risks remain calculable. Our integrated approach has proven itself.

Sustainable finance management and anticipatory risk management: we attach very great importance to these factors at all levels of the organisation. As part of an integrated approach, risk management at the LLB Group includes dealing with legal and compliance risks as well as information security. The competences for different areas of finance and risk management are bundled in the Group CFO division.

Expansion in line with ACT-26

The central task of the Group CFO division in to ensure growth, opportunities and risks are balanced. This includes the consistent implementation of rules and standards. A further expansion of finance and risk management is planned in line with the ACT-26 corporate strategy:

  • improvement in the efficiency of processes;
  • targeted strengthening of risk management;
  • scaling up of cyber defence;
  • expansion of data protection.

The Business Risk Management Department created in 2022 is responsible for the management of operational risks. This department encompasses the functions of information security, data protection, cyber defence and the internal control system.

Financial management

The aim of our financial management is to create transparency at all levels of management in order that costs and income can be managed in line with corporate strategy in an efficient and timely manner. The key instruments are medium-term planning, the annual budgeting process, the key performance indicators from the Group’s management information system, and the planning and management of capital and liquidity.

Financial management includes the preparation of the financial statements in accordance with local laws and International Financial Reporting Standards (IFRS), as well as regulatory reporting.

Risk management

The LLB Group has a prudent approach to risk, which is essential for protecting reputation, maintaining excellent financial strength and safeguarding sustainable profitability. Our risk management is based on risk policy and encompasses the systematic identification and assessment, reporting management and monitoring of credit risks, market risks, liquidity risks and operational risks, as well as asset liability management (ALM). The LLB Group applies an appropriate organisational and methodological framework for assessing and managing risk (see chapter “Risk management” in the financial section).

Combating money laundering and the financing of terrorist or criminal activities, as well as the minimising of regulatory risks, especially in cross-border business, are given the highest priority in the LLB Group as part of risk management.

Liquidity management

The LLB Group has in place robust strategies, policies, processes and systems that enable it to identify, measure, manage and monitor liquidity risk. The internal liquidity adequacy assessment process (ILAAP) is set down in internal regulations and guidelines and is reviewed annually (see chapter “Risk management” in the financial section). The reference figures relating to liquidity management are reported in the chapter “Regulatory disclosures”.

The Group Treasury manages the risks in the banking book that arise from banking activities, especially liquidity, interest rate and foreign currency risks.

Capital management

The LLB Group has in place sound, comprehensive and effective processes to assess and maintain an adequate equity capital on an ongoing basis. The internal capital adequacy assessment process (ICAAP) is a key risk management instrument. The ICAAP is documented in internal regulations and guidelines and is reviewed and revised annually on the basis of overall bank stress tests.

Solid equity base

A good equity capital base not only protects its reputation, but is also part of the financial management and credibility of a bank. Having a sufficiently high-quality equity base at all times is part of the LLB Group’s identity. Its financial strength shall remain, as far as possible, unaffected by fluctuations in the capital markets.

LLB is considered to be of systemic importance to the Liechtenstein economy and is subject to a regulatory minimum capital adequacy ratio of 13.7 per cent. We are targeting a tier 1 ratio of over 16 per cent as a strategic objective. The LLB’s capital ratio is reported in the chapter “Regulatory disclosures”.

Thanks to its solid equity base, which consists entirely of hard core capital, the LLB Group continues to enjoy a high level of financial stability and security. The comfortable capital situation provides it with plenty of scope to make acquisitions.

Rating confirms financial strength

Liechtensteinische Landesbank has a deposits rating of Aa2 from rating agency Moody’s. According to Moody’s, this means that it is one of the highest-rated banks in the world. It is among the top range of Liechtenstein and Swiss banks and ranks well above the average of European financial institutions. The rating underlines LLB’s stability and financial strength and is proof of our prudent finance and risk management.

Credit management

We support private individuals, companies, small businesses and public institutions in financing their plans for the future.

At CHF 12.9 billion, the lion’s share of loans made during the reporting year, namely  89.2 per cent (31.12.2021: 88.7 %), comprised loans secured by mortgages. We continued to successfully grow our market share of loans to clients. At the end of 2022, the volume of loans had increased to CHF 14.4 billion (31.12.2021: CHF 13.8 billion). We extend mortgages primarily in the market regions of Liechtenstein, north-eastern Switzerland and the region of Zurich.

Independent credit decisions

Within the LLB Group, credit competences are assigned according to the knowledge and experience of the decision-makers and the appropriate level and type of loan. With the exception of standard business transactions, the authority to grant credit lines lies with the back office, i.e. Group Credit Management and the superordinate Credit Committees. Credit decisions are thus made independently of market pressures and market targets. In this way, we are able to avoid conflicts of interest, and objectively and independently assess risks in individual cases.

High standards with lending

The LLB Group pursues a risk-conscious credit policy. It includes the differentiated and separate evaluation of loan applications, the conservative assessment of collateral values, the individual calculation of affordability, as well as compliance with standard equity requirements. The different control processes help us to reliably fulfil our performance mandate and to take proper consideration of risks (see chapter “Responsibilities for the economy, society and environment”).

In the case of real estate financing, we observe the provisions of the Liechtenstein Banking Law and the Ordinance concerning banks and securities firms, which govern risk management. For mortgage financing in Switzerland, we observe the minimum requirements specified by the Swiss Bankers Association (SBA) and approved by the Swiss Financial Markets Authority (FINMA). We also apply the EU guidelines on assessing, evaluating and processing mortgage secured loans. Since mid-2021, the guidelines of the European Banking Authority (EBA Guidelines on loan origination and monitoring) have therefore been applied to new lending.

Christoph Reich, CFO LLB Group

"At LLB, growth and risk management go hand in hand. The Group CFO division balances the opportunities and risks for the strategic development of the LLB Group."

Compliance risks

As part of the risk management of the LLB Group, the compliance organisation focuses not only on dealing with legal risks but also on three areas in particular:

  • Combating money laundering and financing of terrorism;
  • Implementing tax compliance within the framework of international agreements;
  • Complying with regulatory requirements and monitoring of employee transactions.

At the LLB Group, the compliance organisation is regarded as part of risk management. This is based on the internationally recognised three lines of defence model:

  • The first line of defence covers all functions that are involved in conducting day-to-day business operations and, as a rule, have results-based objectives.
  • The second line of defence – this includes the LLB Group’s compliance organisation – carries out, independently of the market and the results, monitoring and control functions, and is responsible for ensuring compliance with applicable internal and external regulations.
  • In the third line of defence, the internal audit ensures the effectiveness of the controls.

Combating money laundering and terrorist financing

The risks of money laundering and terrorist financing are addressed as part of a strict, IT-supported process when establishing new or monitoring existing business relationships. The monitoring of transactions is performed on a systematic and risk-oriented basis.

Besides activities in our domestic markets of Liechtenstein, Switzerland and Austria, we restrict our cross-border activities to markets that are strategically and economically significant to LLB. This means the markets of Germany and the rest of Western Europe, the growth markets of Central and Eastern Europe, as well as the Middle East.

The LLB Group’s internal regulations and training ensure that employees are regularly instructed about regulatory changes, sensitised to indications of possible money laundering, and know and comply with the regulations of the respective target country when engaging in cross-border activities.

Rules of conduct

We expect our corporate bodies and employees to comply with the applicable laws, regulations and guidelines, professional standards and our rules of conduct. This stipulates which transactions in financial instruments are not permitted for employees and corporate bodies. They also set out the general principles for employee transactions. How business relations are supported by employees and corporate bodies is also clearly regulated, as are the acceptance of inducements and the exercising of secondary employment.

Dealing with cyber risks

Protection against cyber attacks has a very high priority for the LLB Group and is ensured through IT systems and trained and aware employees. The principles and policies on information security are set out in directives that are binding throughout the Group. Our data is protected by robust processes and advanced systems. Specialists continually analyse new cyber threats and, depending on the risk, take appropriate defensive measures, In future, these analyses and defensive measures will be developed further by the LLB Group’s Cyber Defence Center. Targeted vulnerability management and penetration tests ensure a consistently high and appropriate level of security.

Internal control system

As an integral part of our Group-wide risk management, the internal control system (ICS) contributes to increasing risk transparency within the company by monitoring the risks in the relevant business processes through effective control processes. The LLB Group applies standards that are customary in the banking industry to this sub-system of risk management.

Business continuity management (BCM)

A crisis or catastrophe requires critical business decisions to be made, but cannot be done with the resources ordinarily available to management. Business continuity management (BCM) comes into play whenever preventative measures defined in the risk management process do not work and the level of damage from an event could assume a scale that threatens the existence of the company. It identifies business-critical processes within the whole LLB Group, establishes BCM crisis teams, draws up emergency plans and keeps senior management up to date with regular reports. This was most recently the case with the corona pandemic. Through the pandemic, the LLB Group’s BCM has been shown to be crisis-proof, efficient and comprehensive.