Recently, Zanders' own Sander de Vries (Director and Head of Zanders’ Financial Risk Management Advisory Practice) and Nick Gage (Senior VP: FX Solutions at Kyriba) hosted a webinar. During the event, they outlined strategies for optimizing corporate treasury FX programs. The duo analysed risk-increasing events from recent years, identified potential challenges that 2025 may pose, and discussed how to address these issues with a strong risk management policy.

Analyzing 2024 Events 

The webinar began with a review of 2024's key financial events, particularly the Nikkei shock. During this period, the Japanese Yen experienced significant appreciation against the USD, driven by concerns over U.S. economic projections and overvalued tech stocks. This sharp rally in the JPY led to a wave of unwinding carry trades, forcing investors to sell assets, including stocks, to cover their positions. Additionally, western central banks continued their gradual reduction of interest rates throughout 2024, further influencing market dynamics. The webinar explored the correlation between these economic shocks and anticipated events, particularly their impact on EUR/USD rate fluctuations. By examining how past events shaped market volatility, risk managers can better prepare for potential future disruptions. 

Coincidentally, the webinar was held on November 5, 2024, the same day as the U.S. presidential election—a key topic of discussion among the hosts. The election outcome was expected to have a significant impact on markets, increasing both volatility and complexity for corporate risk managers. Shortly after the session, another Trump victory was announced, leading to a strengthening of the USD against the EUR, even as the Federal Reserve reduced interest rates further in the following days. In addition to the election, rising geopolitical tensions and ongoing reductions in base interest rates were highlighted as potential catalysts for heightened market volatility. 

Challenges and Opportunities in 2025 

By reflecting on past challenges and looking ahead, risk managers can optimize their policies to better mitigate market shocks while protecting P&L statements and balance sheets. Effective risk management begins with accurately identifying and measuring exposures. Without this foundation, FX risk management efforts often fail—commonly referred to as “Garbage In, Garbage Out.” A complete, measurable picture of exposures enables risk managers to select optimal responses and allocate resources efficiently. 

During the webinar, a poll revealed that gathering accurate exposure data is the biggest challenge in FX risk management. Common issues include fragmented system landscapes, incomplete data, and delays in data registration. Tools designed for FX risk planning and exposure analysis can address these gaps by verifying data accuracy and ensuring completeness. 

A sound financial risk management strategy considers three core drivers: 

1- External Factors: These include the ability to pass FX or commodity rate changes to customers and suppliers, as well as regulatory constraints faced by corporate treasuries. 

2- Business Characteristics: Shareholder expectations, business margins (high or low), financial leverage, and debt covenants shape this driver. 

3- Risk Management Parameters: These encompass a company’s risk-bearing capacity (how much risk it can absorb) and its risk appetite (how much risk it is willing to take). 

By incorporating these drivers into their approach, risk managers can design more effective and strategic responses, ensuring resilience in the face of uncertainty. 

Understanding these core risk drivers can enable risk managers to derive a more optimal response to their risk profile. To design an optimal hedging strategy, treasurers need to consider various risk responses, which include: 

• Risk Acceptance 

• Risk Transfer  

• Minimization of Risk  

• Avoidance of Risk  

• Hedging of Risk 

Treasury should serve as an advisory function, ensuring other departments contribute to mitigating risks across the organization. While creating an initial risk management policy is critical, continuous review is equally important to ensure the strategy delivers the desired results. To validate the effectiveness of a financial risk management (FRM) strategy, treasurers must regularly measure risks using tools like sensitivity analysis, scenario analysis, and at-risk analysis. 

• Sensitivity analysis and scenario analysis evaluate how market shifts could impact the portfolio, though they do not account for the probability of these shifts. 

• At-risk analysis combines the impact of changes with their likelihood, providing a more holistic view of risk. However, these models often rely on historical correlations and volatility data. During periods of sharp market movement, volatility assumptions may be overstated, which can undermine the reliability of results. 

We recommend a combined approach: use at-risk analysis to understand typical market conditions and scenario analysis to model the impact of worst-case scenarios on financial metrics. 

To further enhance hedging strategies, some corporates are turning to advanced methods such as dynamic portfolio Value-at-Risk (VaR). This sophisticated approach improves risk simulation analysis by integrating constraints that maximize VaR reductions while minimizing hedging costs. It generates an efficient frontier of recommended hedges, offering the greatest risk reduction for a given cost. 

Dynamic portfolio VaR requires substantial computing power to process a large number of scenarios, allowing for optimized hedging strategies that balance cost and risk reduction. With continuous backtesting, this method provides a robust framework for managing risks in volatile and complex environments, making it a valuable tool for proactive treasury teams. 

Conclusion: Preparing for 2025 

2024 was a year that brought many challenges for risk managers. The market uncertainty resulting from many larger economic shocks, such as the U.S. Election and multiple geopolitical tensions made an efficient risk management policy more important than ever. Understanding your organization's risk appetite and bearing capacity enables the selection of the optimal risk response. Additionally, the use of methods such as dynamic portfolio VaR can promote your risk management practices to the next level. 2025 looks to create many challenges, where treasurers should stay vigilant and create robust risk management strategies to absorb any adverse shocks. How will you enhance your FX risk management approach in 2025?   

You can view the recording of the webinar here. Contact us if you have any questions.

Charities and non-profit organizations face distinct challenges when processing donations and payments across multiple countries. In this sector, the impact of currency exchange losses is not simply about the effect on an organization’s financial performance, there’s also the potential disruption to projects to consider when budgets are at risk. Zanders developed a ‘Budget at Risk’ model to help a non-profit client with worldwide operations to better forecast the potential impact of currency fluctuations on their operating budget. In this article, we explain the key features of this model and how it's helping our client to forecast the budget impact of currency fluctuations with confidence.

The client in question is a global non-profit financed primarily through individual contributions from donors all over the world. While monthly inflows and outflows are in 16 currencies, the organization’s global reserves are quantified in EUR. Consequently, their annual operating budget is highly impacted by foreign exchange rate changes. To manage this proactively demands an accurate forecasting and assessment of: 

• The offsetting effect of the inflows and outflows.  

• The diversification effect coming from the level of correlation between the currencies.  

With the business lacking in-house expertise to quantify these risk factors, they sought Zanders’ help to develop and implement a model that would allow them to regularly monitor and assess the potential budget impact of potential FX movements.

Developing the BaR method

Having already advised the organization on several advisory and risk management projects over the past decade, Zanders was well versed in the organization’s operations and the unique nature of the FX risk it faces. The objective behind developing Budget at Risk (BaR) was to create a model that could quantify the potential risk to the organization’s operating budget posed by fluctuations in foreign exchange rates.  

The BaR model uses the Monte Carlo method to simulate FX rates over a 12-month period. Simulations are based on the monthly returns on the FX rates, modelled by drawings from a multivariate normal distribution. This enables the quantification of the maximum expected negative FX impact on the company’s budget over the year period at a certain defined level of confidence (e.g., 95%). The model outcomes are presented as a EUR amount to enable direct comparison with the level of FX risk in the company’s global reserves (which provides the company’s ‘risk absorbing capacity’). When the BaR outcome falls outside the defined bandwidth of the FX risk reserve, it alerts the company to consider selective FX hedging decisions to bring the BaR back within the desired FX risk reserve level. 

The nature of the model 

The purpose of the BaR model isn’t to specify the maximum or guaranteed amount that will be lost. Instead, it provides an indication of the amount that could be lost in relation to the budgeted cash flows within a given period, at the specified confidence interval. To achieve this, the sensitivity of the model is calibrated by: 

• Modifying the confidence levels. This changes the sensitivity of the model to extreme scenarios. For example, the figure below illustrates the BaR for a 95% level of confidence and provides the 5% worst-case scenario. If a 99% confidence level was applied, it would provide the 1% worst (most extreme) case scenario.  

• Selecting different lengths of sample data. This allows the calculation of the correlation and volatility of currency pairs. The period length of the sample data helps to assess the sensitivity to current events that may affect the FX market. For example, a sample period of 6 months is much more sensitive to current events than a sample of 5 years.  

Figure 1 – BaR for a 95% level of confidence 

Adjusting these parameters makes it possible to calculate the decomposition of the BaR per currency for a specified confidence level and length of data sample. The visual outcome makes the currency that’s generating most risk quick and easy to identify. Finally, the diversification effect on the BaR is calculated to quantify the offsetting effect of inflows and outflows and the correlation between the currencies. 

Table 1 – Example BaR output per confidence level and length of data sample 

Pushing parameters 

The challenge with the simulation and the results generated is that many parameters influence the outcomes – such as changes in cash flows, volatility, or correlation. To provide as much clarity as possible on the underlying assumptions, the impact of each parameter on the results must be considered. Zanders achieves this firstly by decomposing the impact by: 

• Changing FX data to trigger a difference in the market volatility and correlation. 

• Altering the cash flows between the two assessment periods. 

Then, we look at each individual currency to better understand its impact on the total result. Finally, additional background checks are performed to ensure the accuracy of the results. 

This multi-layered modelling technique provides base cases that generate realistic predictions of the impact of specific rate changes on the business’ operating budget for the year ahead. Armed with this knowledge, we then work with the non-profit client to develop suitable hedging strategies to protect their funding. 

Leveraging Zanders’ expertise 

FX scenario modelling is a complex process requiring expertise in currency movements and risk – a combination of niche skills that are uncommon in the finance teams of most non-profit businesses. But for these organizations, where there can be significant currency exposure, taking a proactive, data-driven approach to managing FX risk is critical. Zanders brings extensive experience in supporting NGO, charity and non-profit clients with modelling currency risk in a multiple currency exposure environment and quantifying potential hedge cost reduction by shifting from currency hedge to portfolio hedge.  

For more information, visit our NGOs & Charities page here, or contact the authors of this case study, Pierre Wernert and Jaap Stolp.

In a world of persistent market and economic volatility, the Corporate Treasury function is increasingly taking on a more strategic role in navigating the uncertainties and driving corporate success.

Even in the most mature organizations, the involvement of the Treasury center in FX risk management often begins with collecting forecasted exposures from subsidiaries. However, to fundamentally enhance the performance of the FX risk management process, it is crucial to understand the nature of these FX exposures and their impacts on the upstream business processes where they originate.

Enabling this requires the optimization of the end-to-end FX hedging lifecycle, from subsidiary financial planning and analysis (FP&A) that identifies the exposure to Treasury hedging. Improvements in the exposure identification process and FX impact analytics necessitate the use of intelligent systems and closer cooperation between Treasury and business functions.

Traditional models

While the primary goal of local business units is to enhance the performance of their respective operations, fluctuating FX rates will always directly impact the overall financial results and, in many cases, obscure the true business performance of the entity. A common strategy to separate business performance from FX impacts is to use constant budgeting and planning rates for management reporting, where the FX impact is nullified. These budgeting and planning rates typically reflect the most likely hedged rates achieved by Treasury, considering the hedging policies and forecasted hedging horizons. However, this strategy can lead to unexpected shocks in financial reporting and obscure the impacts of FX exposure forecasting and hedging performance.

When these shocks occur, conclusions about their causes, such as over or under-hedging or unrealistic planning rates, can only be drawn through retrospective analysis of the results. Unfortunately, this analysis often comes too late to address the underlying issues.

The most common Treasury tools used to measure the accuracy of business forecasting are Forecast vs. Forecast and Actual vs. Forecast accuracy reporting. These tools help identify recurring trouble areas that may need improvement. However, while these metrics indicate where forecasting accuracy can be improved, they do not easily translate into a quantification of the predicted or actual financial impact required for business planning purposes.

End-to-End FX risk management in a Treasury 4.x environment

Finance transformation projects, paired with system centralization and standardization, may offer an opportunity to create better integration between Treasury and its business partners, bridging the information gap and providing better insight and early analysis of future FX results. Treasury systems data related to hedging performance, together with improved up-to-date exposure forecasting, can paint a clearer picture of the up-to-date performance against the plan.

While some principles may remain the same, such as using planning and budgeting rates to isolate the business performance for analysis, the expected FX impacts at a business level can equally be analyzed and accounted for as part of the regular FP&A processes, answering questions such as:

• What is the expected impact of over- or under-hedging on the P&L?
• What is the expected impact from late hedging of exposures?
• What is the expected impact from misaligned budgeting and planning rates compared to the achieved hedging rates?

The Zanders Whitepaper, "Treasury 4.x – The Age of Productivity, Performance, and Steering," outlines the enablers for Treasury to fulfill its strategic potential, identifying Productivity, Performance, and Steering as key areas of focus.

In the area of Performance, the benefits of enhanced insights and up-to-date metrics for forecasting the P&L impacts of FX are clear. Early identification of expected FX impacts in the FP&A processes provides both time and opportunity to respond to risks sooner. Improved insights into the causes of FX impacts offer direction on where issues should be addressed. The outcome should be enhanced predictability of the overall financial results.

In addition to increased Performance, there are additional benefits in clearer accountability for the results. In the three questions above, the first two address timely forecasting accuracy, while the third pertains to the Treasury team's ability to achieve the rates set by the organization. With transparent accountability for the FX impact, Treasury gains an additional tool to steer the organization toward improved budgeting processes and create KPIs to ensure effective strategy implementation. This provides a valuable addition to the commonly used forecast vs. forecast exposure analysis, as the FX impacts resulting from that performance can be easily identified.

Conclusion

Although FP&A processes are crucial for clear strategic decision-making around business operations and financial planning, the FX impact—potentially a significant driver of financial results—is not commonly monitored with the same extent and detail as business operations metrics.

Improving the FX analytics of these processes can largely bridge the information gap between business performance and financial performance. This also allows Treasury to be utilized as a more engaged business partner to the rest of the operations in the prediction and explanation of FX impact, while providing strategic direction on how these impacts can be minimized, both globally and at local operations levels.

Implementing such an end-to-end process may be intimidating, but data and technology improvements embraced in the context of finance transformation projects may open the door to exploring these ideas. With cooperation between Treasury and the business, a true end-to-end FX risk management process may be within reach.

One of the walls in its Amsterdam headquarters shows the evolution of the Philips business. Philips’ roots lie in Eindhoven, where, in 1891 Gerard Philips started producing light bulbs in an empty factory building. When he was later joined by his research-oriented brother Anton, the firm enjoyed its first major business stimulus. Through vertical operation, with their own factories and dependent suppliers, they took their first big steps towards success.

Continuing to develop through the production of radios and TVs, followed by Philishave electrical razors and inventions such as the Compact Cassette and the Compact Disc as new audio media, the company then expanded into professional products, such as medical equipment, studio mixers and computers. Today, Royal Philips is a diversified technology company that focuses on innovation in the healthcare sector.

Currency risks

The internal structure of this multinational comprises two axes, the business groups and the markets. The business groups are organized into product types: medical equipment, lighting and domestic appliances – along with variations on these themes. The business groups develop and produce the products and distribute them to their international markets where the products are sold. Together, in a matrix, these two form what’s known as the business-markets combination. Commercial employees (‘the business’) and financial managers (‘finance business partners’) are active in both axes and it’s their joint responsibility to ensure that a healthy and successful business can develop and thrive.

We are active in over 100 countries and we process EUR 100 billion in internal payments every year, so, clearly, we are highly exposed to currency risks.

Gabriel van de Luitgaarden, Senior VP, Head of Financial Risk & Pensions Management at Philips.

In the logistics, financial stream from factories to markets, all manner of invoices are sent back and forth and, eventually, money from customers flows through the market to the Treasury. Hedging currency risks is expensive and prevention is always better than cure, he muses: “If you don’t properly understand what the risk is and what effect it will have, there’s not a lot you can effectively do about it. But by quantifying risks you can get a handle on them and decide whether you want to take any action. You have to consider aspects such as what will happen to EBITA if you do nothing, how much lower will it be if you hedge, and how much will it all cost? It’s all about how much risk you are prepared to accept.”

Currencies fluctuate in relation to one another and this strongly influences a multinational’s earnings and financial reporting. “We deal with risk management every day,” says Van de Luitgaarden. “But the people who work in the business very rarely do so. They see it as a specialism, but that’s not really the case. People in the business should be much more involved with it, asking themselves what is acceptable and what should I do about it?”

Argentinian toothbrushes

Philips initiated a project to define a new FX policy and hedging strategy for currency risks. Above all, it had to give the people in the business much more insight into the impact that fluctuations in exchange rates have on their performance, and show them how important it is for them to understand and manage currency risks.

“In many multinationals the business part thinks that the Treasury will just hedge currency risks, despite the fact that these currency fluctuations cannot simply be neutralized,” says Zanders consultant Lisette Overmars, who was involved in the project. “You can manage it all, but eventually you’ll need to come up with other solutions.”

Van de Luitgaarden adds: “That’s why we explained to the business that we can provide more insight into the risks and buy them time through hedging, but we cannot completely protect them. There’s no magic formula that can shield you from the effects of currency fluctuations.”

This bespoke form of hedging is primarily directed at countries whose currencies typically lose value, sometimes suddenly performing really well, but eventually losing value relative to harder currencies like the euro and the dollar. “That’s because emerging market economies are less solid,” says Van de Luitgaarden. “There is often high inflation and less political stability. If you don’t do anything about the prices in the respective countries, than the fact that their currencies lose value against the euro will progressively erode your income. There are extreme cases where we can lose 30 to 40 per cent in value in a year, which cannot be remedied by hedging. In such cases you have no option but to constantly increase your product prices.” It means, for example, that the price of a toothbrush in Argentina can suddenly rise by 10 per cent from one month to the next. “But not everyone in the business does this, which is why education plays such an important role in the project; it has to be visible. For many people the effect that currencies have on results was far from clear. We therefore developed an FX model to make the currency footprint visible. It shows us which currencies our EBITA is derived from and the extent of our various exposures. Thanks to this new policy we can make EBITA more predictable and less volatile, although we still cannot completely cover the risks.”

The real risk management is mainly to be found in the market; for example, where can you best procure in order to reduce your susceptibility to currency risks? Van de Luitgaarden says: “Take Japan, for example, where we are huge in medical equipment, representing substantial income in Japanese yen. But we don’t spend anything there because we don’t buy there. Three years ago the Bank of Japan began to devaluate the yen to stimulate the country’s economy, and this had huge repercussions for us. A 20 per cent drop in the value of such a currency results in our sales and profit also falling by 20 per cent – that’s just how it works. And if you don’t do anything about it, the situation won’t change. In addition to short-term hedging, to reduce your vulnerability to such currency fluctuations you need to consider procuring more in yen, or even opening a factory in Japan.”

More consistency and efficiency

The old way of working, centered on a policy set up about 18 years ago, was based on a Philips that was both organized very differently and was much bigger than it is today. Van de Luitgaarden continues: “Back then we had 12 product divisions but our performance, in particular, was managed differently. Every factory had its own P&L account and budget. If a factory was exposed to currency risks it had to reduce them itself and if any hedging was necessary that too had to be done by the factory in question. Now we measure our performance at a higher level, via the business-markets combinations. The factory’s P&L is now less important – it’s about the result of the group as a whole. The exposures that you hedge are therefore the ones that affect the result of the group. It’s much more efficient. If you're in a ‘long position’ in a particular currency, you sell it, in a single transaction. In the past this was done factory-by-factory, in several transactions. Given the tens of thousands of transactions that we used to do, this now represents a huge efficiency boost. The spread is no longer paid multiple times by buying and selling the same currency. We hedge currencies in the same way. We’re looking for risk reduction, so it makes little sense if everyone follows their own policy – it has to be done consistently. That’s actually more important than the net group exposure.

It's a combination of the two: hedging at group level and the highly consistent application of our hedging policy. That has an enormous  impact on the risk reduction that’s achievable.”

Headwinds and tailwinds

The project was launched in September 2014 and the new FX policy went live in November 2015. Given that it involved the whole organization, which was used to doing things the way they’d been done for the past 18 years, it was a formidable challenge to make the necessary changes. Moreover, three weeks after the start of the project it was announced that the company was to be split into the lighting division (Lighting Solutions) and a combination of the Healthcare and Consumer Lifestyle divisions (Royal Philips). The organization’s focus, particularly at the IT and Treasury departments, was then obviously on the impending split. It affected much more than just the business; it also had repercussions for Tax – which had to be paid in 100 countries – and Accounting and how it would all be technically processed in the books with the use of hedge accounting. All-in-all, it was a sea change.

“Its implementation was indeed quite overwhelming,” concedes Van de Luitgaarden. “It was complex material for which there were no ready-made solutions. We were dealing with people in the business who did not fully understand the situation; they only took into account what they did themselves and didn’t look at the bigger picture. This sometimes made it difficult to explain. Take, for example, a factory in the UK making mother & child-care products.

A high exchange rate of the pound against the euro at the time decimated profitability because procurement and manufacturing costs just kept on rising. But looking at Philips as a whole, the rise in the value of the pound was a good thing; we earned more pounds than we spent. We didn’t have to buy pounds to cover costs; we sold pounds to cover our sales. But try explaining that to the UK factory – at the end of the day currencies influence bonus targets. Sometimes you have a tailwind and at other times a headwind.” Last year was a good year for those who sold in dollars; which rose against the euro. “Thanks to the dollar being so much stronger, our sales in 2015 were EUR 2 billion higher, which is an awful lot on a total of 24 billion. That’s something to take into account, because it was certainly a windfall. This new way of looking at things needs time.”

What else has Zanders done for Philips?

• Treasury management: the extrication of treasury operations and the setting up of new treasury functions for Philips’ former television business (TP Vision) and the lifestyle entertainment business (WOOX Innovations).
• Risk management: the development of a new commodity price risk management framework.

Do you want to know more about risk management for corporations? Contact us.

Six years ago, in the middle of the challenging days of a new-born financial crisis, Anadolubank Nederland N.V. entered the Dutch market. Looking back, the bank didn’t seem to suffer much from those challenges and managed to grow steadily. However, during that process, it became clear that the bank needed to bring its risk management framework to the next, higher level.

The parent bank, Anadolubank A.S., was established in Turkey in 1996. Nowadays it is a well-known middle-sized bank with 2,100 employees, providing credits for small and medium-sized businesses. On entering the Dutch market in 2008, the bank had a challenging start but its results steadily improved and it expanded from 15 to 35 employees. The growth meant that more and more projects needed to be managed while banking regulations were intensified.
“We didn’t have all the expertise readily available to deal with the latest developments,” says Nuriye Plotkin, managing director with responsibility for risk management at Anadolubank. “Larger banks have invested heavily and therefore have more mature risk management frameworks.” For the implementation of a comprehensive risk management framework, the bank was looking for more advice and support.

Three phases

In late 2012, we invited six different parties to be interviewed about their ideas and to get an impression of their approach. We chose Zanders because it was clear that they knew the Dutch market and regulation very well, while showing a good understanding of the specific risk aspects of our bank – so this met our needs.

Nuriye Plotkin, managing director with responsibility for risk management at Anadolubank.

As a result, in January 2013, the ‘Risk Management Review’ project was initiated, covering three consecutive phases. In the first phase, completed in March, Zanders performed a scan of the risk management framework. The detailed review of the existing situation resulted in a number of recommendations for further improvements. “It showed exactly what we were missing,” says Mrs. Plotkin. The completion of the second phase provided a risk governance and policy update, which was approved by both the bank’s management board and supervisory board. The main objective of the third phase, which started in July 2013, was to improve and implement the risk models and corresponding risk reports. A practical approach was adopted that dealt with the most relevant items, in line with current best market practices and took into account the limited size of, and capacity within, Anadolubank.

“For instance, a model was developed that forecasts future cash flows for various purposes, such as interest rate and liquidity risk analysis, including the expected behavior of our savings portfolios,” Mrs. Plotkin says. Charles Zondag, executive consultant at Zanders, adds: “Many elements played a role in the project. As a small bank, you need to be flexible; continuously balancing between the importance and consequences of relevant topics, in order to make the right decisions.”

This last phase of the project was completed in November 2013. During the entire project, Zanders partner Jaap Karelse was impressed by the way Anadolubank worked.

A small but fast-growing company like Anadolubank has to deal with a lot of challenges. Regulators, the parent company, and customers all demand fast follow-up to their requests. But everyone at Anadolubank was so dedicated and worked incredibly hard – it was really impressive to see.

Jaap Karelse, Partner at Zanders.

Comprehensive

The bank’s steering committee continuously monitored and evaluated the project and took appropriate steps where necessary. The project team members, consisting of both Anadolubank employees and Zanders consultants, met on a bi-weekly basis to discuss the progress of the various deliverables, identify action points, and update the planning. “We are a small, new bank with new people entering the organization throughout the year. So you have to set clear standards. And this project helped us to do so,” Mrs. Plotkin emphasizes.

Anadolubank’s Lütfi Öztürker, who was responsible for all credit risk activities within the project, agrees: “In the past, the bank primarily relied on its banking experience. Now we have a written framework with guidelines for our day-to-day credit risk management operations. If you have a problem or a specific risk issue, we know how to best handle it. It’s clearer for everybody in the organization now.”

His colleague Ersoy Erturk adds: “As we mentioned in the beginning, the financial sector has been the most influenced by the volatile conditions of the financial crisis. In order to promote confidence among financial institution stakeholders – including regulators, supervisors, and shareholders – the bank must endorse strong risk management within their organization. This project was embraced by all team members. In our experience, behind the success of the project we have both a top-down and a bottom-up approach – risk management is mandated and supported from senior management, and each team member is empowered to speak up and take action.”

Turkish differences

“Risk management is a very deep and wide field of expertise,” adds Efsun Degertekin, risk manager at Anadolubank. “It is not easy to implement a framework into a growing organization that can deal with many changing elements in regulation and the current market.”
Besides that, the Dutch business differs from the Turkish one, adds Mrs. Plotkin. Both the parent bank and Dutch subsidiary have corporate clients. Mr. Öztürker points out: “In terms of credit assessment, both banks are conservative. But in the Netherlands, we work with larger international corporates sensitive to interest rates, while our parent bank prefers small- and medium-sized enterprises.” According to Mr. Öztürker, the main issue is the difference in regulation. “For a foreign bank in the Netherlands, that is a challenge. You have to adapt your strategies in a short period because of the different regulations. For the Turkish head office, however, this also brings useful know-how.”

Conservative approach

What about competition with other Turkish banks? Mrs. Plotkin notes: “Anadolubank’s principal strategy is to continue healthy growth in each line of business and capitalize on the growth potential of the Dutch market.” The bank achieved this growth while maintaining its conservative credit approval processes although in the corporate lending business the competition is high.
“Anadolubank has adopted a different but prudent and conservative lending approach since establishment,” Mr. Öztürker adds. “Risk management is primarily associated with the flexibility of organizational structures. Reacting in different ways and responding quickly in spite of changing conditions is a flexible approach. And both banks, parent and Anadolubank N.V., have a conservative approach but adaptive capacity.”

Future steps

For Anadolubank, 2014 will have additional challenges, says Mrs. Plotkin. “We plan to improve the reporting system. We received more feedback than we expected from Zanders. We learned a lot during the project.”
Mr. Öztürker adds: “It was a time issue to finish all items, but we managed it. And we now have the necessary know-how to scope all remaining items.”

What are Anadolubank’s plans for the next five years? Mrs. Plotkin explains: “First, we get started in the right direction and we need to stay on track. Our objective is to maintain a dynamic risk management framework to ensure we profoundly address regulatory challenges and the changing economic environment.”