ECCB 2016/2017 Annual Report

ECCB ANNUAL REPORT 2016/2017

EASTERN CARIBBEAN CENTRAL BANK

NOTES TO THE FINANCIAL STATEMENTS

(expressed in Eastern Caribbean dollars)

March 31, 2017

Eastern Caribbean Central Bank

Notes to the Financial Statements

March 31, 2017

(expressed in Eastern Caribbean dollars)

3. Financial risk management

…continued

a) Introduction and overview

…continued

The Bank’s risk management policies are designed to identify and analyse these risks, to set

appropriate risk limits and controls, and to monitor the risks and adherence to limits by means of

reliable and up-to-date information systems. The Bank regularly reviews its risk management

policies and systems to reflect changes in markets, products and emerging best practices.

In addition, the Bank, through its training and management standards and procedures, aims to

develop a disciplined and constructive control environment, in which all employees understand

their role and obligations.

The management of the Bank has the responsibility to ensure that efficient and effective risk

management mechanisms are in place including reporting to various executive committees. Key to

the management of risk within the context of the reserve management function is the reserve

management fram

ework which embodies the Bank’s risk tolerance.

Included in this framework are the investment guidelines which establish the parameters within

which the reserve management function is executed. The provision of banking services is governed

by policy decisions of the Board of Directors.

The Board approves the written policies for overall risk management as well as specific policies

relating to the reserve management function. In September 2016, the Bank appointed a Chief Risk

Officer (CRO) with responsibility for designing and implementing an Enterprise Risk Management

Framework to enhance its risk management function as well as providing an independent review

and oversight of bank-wide risk management activities. The CRO reports on risk matters to the

Executive Committee and the Board Audit and Risk Committee. In addition, the CRO is

responsible for the independent review of risk management and the controls environment, the

results of which are reported to the Board Audit and Risk Committee.

The principal types of risks inherent in the Bank’s reserv

e management activities are credit risk,

liquidity risk, market risk, operational risk and Strategic risk. Market risk includes currency risk,

fair value interest rate risk, cash flow interest rate risk and other price risk.

Credit risk

The Bank takes on exposure to credit risk which is the risk that a counterparty will cause a

financial loss to the Bank by failing to discharge an obligation. The Bank is exposed to credit risk

primarily on account of its reserve management activities. These exposures arise mainly through

investments in debt securities of international governments and agencies and domestic

governments; and through lending to governments and commercial banks. Credit risk is important

to the Bank’s business; management therefore carefully m

anages its exposure to credit risk.