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96
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.
b)
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.