PRINCIPAL RISKS AND UNCERTAINTIES

NAMA is exposed to a wide variety of risks which have the potential to affect the financial and operational performance of the Agency. The NAMA Risk Management Policy that is approved by the Board has an integrated approach designed to ensure that all material classes of risk are identified so that business strategy and execution are aligned to minimise the risk to the achievement of NAMA's Strategic Plan. The Risk Management Framework establishes the processes to identify, assess, evaluate, measure, report and mitigate risk. NAMA has identified five principal risks and areas of major uncertainty (outlined below). The list is not intended to be exhaustive. Some risks which are unknown or not deemed to be material at this time may adversely affect NAMA and the achievement of its objectives.

1. Macro-economic and property risk

Risk that a domestic or international financial or macroeconomic shock causes an inability to meet contractual debt obligations (senior and subordinated debt) and impacts the fiscal path to debt sustainability. If the economic environment and property market in Ireland fails to fully and sustainably recover or the market in other locations in which NAMA has an exposure, principally the UK, deteriorates from present levels the actual cash flows from NAMA assets could be lower than currently projected.

2. Strategic risk

If the pace of deleveraging/disposals activity is incorrectly calibrated (i.e. it is too fast or too slow) NAMA will not achieve the Section 10 NAMA Act statutory requirement to obtain the "best achievable financial return for the State". The risk represents the potential opportunity cost of a sell versus hold decision for NAMA assets.

3. Human capital risk

If there is a material loss of human capital from NAMA, the Agency will not achieve its objectives. A failure to attract, motivate and retain staff with requisite experience and expertise would result in institutional corporate knowledge loss, capacity constraints on the delivery of assets for sale or potential lower asset realisation values.

4. Reputation risk

Risk that negative public, political or industry opinion may adversely impact NAMA's core business activities and financial prospects and undermine the Agency's ability to achieve its objectives. Negative opinions can be the result of actual or the perceived manner in which NAMA conducts its operations or from false or misleading claims relating to NAMA. NAMA's reputation could also be damaged if there was a loss of significant legal cases or an information security breach.

5. Liquidation of IBRC risks

Under the provisions of the IBRC Act 2013, the Minister may direct NAMA to acquire the unsold part of the IBRC portfolio from the IBRC SL. If NAMA were to acquire such loans, there is a possibility that the post-acquisition portfolio valuation due diligence could result in a 'day one' downward fair value adjustment of the portfolio which could have a significant financial impact on NAMA Group operations.

NAMA has robust risk processes to manage risk related to its business, to reduce the potential for significant unexpected losses and to minimise the impact of losses experienced in the normal course of business. Risks identified by management are prioritised according to probability and impact and the risk status. Management's response and control action plans are reviewed by the Risk Management Committee and the Board on a regular basis. Management is challenged to consider risks not already considered. NAMA's response strategies to each risk are designed to ensure that NAMA operates within defined risk tolerance by avoiding the risk, transferring the risk where possible, reducing the likelihood and/or impact of the risk or accepting the risk subject to ongoing review. The Risk Management Committee recommends to the Board the adoption of new policies or changes to existing policies, the adoption of hedging strategies to manage certain balance sheet risks and recommendations for the deleveraging of the balance sheet through bond redemptions in response to changing internal and external influences and circumstances.

The uncertainties surrounding the risks associated with the composition of the NAMA balance sheet and operational model continue to reduce as the strategy to steadily monetise the portfolio is implemented. Improvements in data quality and the provision of information through various new systems including a PMS and a new MIS enhanced the assessment, measurement and reporting of risk. Access to portfolio wide data and integration with mapping technology has enabled the strategic assessment of property risk concentrations and coordinated asset management and development initiatives to further enhance the value of NAMA assets.