Risk undertaking is essential part of the banking activity, but in order to maintain it in acceptable levels, taking in mind the double constraint - profitability against asset quality, it needs to be systematically managed.

Hence, risk management is essential and dynamic process encompassing:

• Identification of the types of risk, to which the bank is exposed (credit risk, market risk, liquidity risk, operational risk, etc.) and the correlations between them;

• Risk assessment – evaluation of potential losses and their occurrence probabilities, using mathematical-statistical methods and scenario analyses, the complexity of which requires the utilization of specialized software;

• Risk limitation – developing and applying a system of limits in accordance to the risk appetite of the bank;

• Assessment of the capital adequacy and planning the necessary capital in respect to the projected development of the different portfolios and the overall economic situation;

• Application of the Basel standards through the development of internal rating models for risk assessment.