EASTERN CARIBBEAN CENTRAL BANK
ECCB
ANNUAL REPORT 2014/2015
86
3.
Financial risk management
…continued
e) Liquidity risk
Liquidity risk is the risk that the Bank is unable to provide adequate liquidity support for the financial system to
meet its payment obligations associated with its financial liabilities when they fall due and to replace funds when
they are withdrawn. This would result in the Bank’s failure to maintain monetary and financial stability. The Bank
is exposed to daily calls on its available cash resources from overnight deposits, current accounts and maturing
deposits. Liquidity is a key criterion in determining the composition of the Bank’s foreign reserves portfolio.
The liquidity tranche is closely monitored in accordance with a cash flow management policy. Additionally, there
is consistent monitoring and checking for compliance with approved portfolio diversification, asset allocation and
asset quality.
The liquidity management process forms part of the Bank’s wider mandate for reserve management and is
carried out in accordance with approved guidelines by the Reserve Management Committee and monitored by
management. The liquidity tranche is comprised of highly marketable assets that can easily be liquidated to meet
unexpected demands. The process entails the following:
Daily monitoring of balances on the Bank’s call accounts to ensure that adequate funds are available to
meet current and future requirements.
Projections of cash inflows and outflows based on historical trends.
Laddering of money market instruments in the liquidity tranche to ensure that adequate funds are available
to meet current liquidity needs.
Assets held to manage liquidity risk include balances with other central banks, balances with foreign
banks, money market instruments and money at call, financial assets held for trading, available-for-sale -
foreign investment securities, balances with local banks and due from local banks. At the reporting date,
the Bank held $3,927,143,331 (2014: $3,481,140,100) of these instruments that are expected to readily
generate cash inflows.
The maturities of assets and liabilities and the ability to replace, at an acceptable cost, interest-bearing liabilities
as they mature, are important factors in assessing the liquidity of the Bank and its exposure to changes in interest
rates and exchange rates.
The table below analyses assets and liabilities of the Bank into relevant maturity groupings based on the remaining
period at the reporting date to the contractual maturity date. The resulting liquidity gap does not pose any
significant risk to the Bank. Based on the nature of the financial liabilities which principally comprise of bankers
current accounts (note 16) and is categorized in the up to 1 month grouping, payouts to commercial banks in the
short term are unlikely as these commercial banks are required to maintain with the Bank a reserve equivalent to
6% of their total deposit liabilities.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(expressed in Eastern Caribbean dollars)
March 31, 2015
