Risk Areas and Mitigation Strategy

Considering the initial years of operation, the critical risks areas of the bank have been majorly categorized as:

  • Operational Risk arising from people, set processes and systems;
  • Credit and Investment Risk arising from the credit and investment portfolio, including market operations/ sector dynamics and individual project operations;
  • Partnership Risk stemming from partnering with creditors, third-parties, and investors across private and public sectors; and 
  • Market Risk covering currency fluctuations, interest rate variations and movement in equity/ commodity prices

The above risk sources could have monetary, reputational and organizational impacts (to varying degrees) to NIFRA and bank has well defined strategies in each area to safeguard the bank from these risks as detailed below:

Source of risk Risk Scenario Probability Potential Impact Mitigation Strategy
Operational NIFRA to attract or retain specialized talent for business functions Medium High: Organizational and Reputational
  • All executive positions have been filled and the bank is constantly seeking skilled infrastructure investment candidates
  • Engagement through “INFRA Excellence Center” and/or Supplement with contractors/ consultants on an interim basis till the positions are filled 
Operational Systems adversely affected impacting information flow  Low - Medium High: Organizational and Reputational
  • Implementation and constant monitoring of Board-approved IT policy
  • Employee awareness training for effective implementation
Investment Ensuring invested credit/investment assets to generate projected revenues Medium - High High: Monetary and Operational
  • Adhering to the strong credit appraisal process which includes thorough evaluation of the project components and includes review by risk teams followed by approvals by the senior management and board
  • Quarterly account monitoring (post fund disbursements) and identification of early warning signals for stress identification
Investment Portfolio concentration Low - Medium Medium: Monetary and Reputational
  • Adherence to directives set out by the central bank towards sectoral and single borrower exposures
  • Stringent review process and regular updates by the senior management, Board-Level Sub-Committees and board
Investment Force majeure event on an invested asset Medium High: Monetary Ensuring necessary covenants/ structures in the term sheet approved and signed with the project developers.
Investment Delays in project development and associated construction risk Medium - High High: Monetary and Operational
  • Ensuring necessary covenants/ structures in the term sheet approved and signed with the project developers.
  • Quarterly account monitoring and necessary site visits during construction period
Partnership Timely investment of the raised capital from investors Low - Medium High: Reputational Active engagement with various stakeholders such as private sector developers, other financiers and public sector authorities
Partnership Attracting Investors (private/ institutional) Medium Medium: Organizational and Reputational
  • Active engagement with various investor class
  • Ensuring sustainable bank operations to highlight NIFRA’s ability to deliver on prior commitments and expected returns
Market Unexpected changes (volatility and quantum) of interest rates or fluctuation in foreign exchange Medium High: Monetary and Operational
  • Implementation of MIS and analytical procedures for measurement and developing strategy approved and monitored by the board and senior management team, respectively
  • Matching Asset and Liability Tenor 
  • Effective operations of the treasury office and Asset Liability Management Committee to be ensured