ECCB 2014-2015 Annual Report and Statement of Accounts

EASTERN CARIBBEAN CENTRAL BANK

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (expressed in Eastern Caribbean dollars) March 31, 2015

2.

Summary of significant accounting policies …continued

u) Foreign reserve assets

Under Article 24 (2) of the Eastern Caribbean Central Bank Agreement Act 1983, the Bank is required to maintain a reserve of external assets not less than 60% of its notes and coins in circulation, and other demand liabilities. The percentage of foreign reserve assets to demand liabilities at March 31, 2015 was 96.52% (2014: 95.68%).

v) Commemorative coins

The nominal value of commemorative coins sold is excluded from the balance of ‘Notes and Coins in circulation’ while the net proceeds from sales are included in the consolidated statement of income or loss.

w) Taxation In accordance with Article 50 (8) (a) of the Eastern Caribbean Central Bank Agreement Act 1983, the Bank’s income is exempt from any form of taxation. The Bank’s subsidiary, CALMS Limited is also exempt from any form of taxation. In accordance with Section 5 sub-section (1) and (2) of the Eastern Caribbean Home Mortgage Bank (“ECHMB”) Agreement Act, 1994 the ECHMB is exempt from stamp duties and corporation tax. The Bank’s other associated company, the Eastern Caribbean Securities Exchange Limited (“ECSE”), is exempt from corporation and other taxes. By letter dated May 27, 2003, ECSE was granted a ten-year (10) tax holiday from corporation and other taxes. On May 24, 2012, the Company applied for a further ten-year (10) tax holiday. In the opinion of the Director of ECSE, there should be no hindrance to the approval of this exemption.

3.

Financial risk management

a) Introduction and overview

By its nature, the Bank’s activities are principally related to the use of financial instruments. The strategy for using these financial instruments is embedded in the mission of the Bank to maintain the stability of the Eastern Caribbean Dollar and the integrity of the banking system in order to facilitate the balanced growth and development of member states. The activities of the Bank require the analysis, evaluation, acceptance and management of some degree of risk or combination of risks. These risks arise primarily through the Bank’s execution of its reserve management function and the provision of banking services to governments and commercial banks. The Bank’s aim is therefore to achieve an appropriate balance between risk and the objectives of its reserve management function which are; i) preservation of capital, ii) meeting liquidity requirements and iii) realizing a satisfactory return. It also seeks to minimise potential adverse effects on the Bank’s financial performance. 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.

69

ECCB ANNUAL REPORT 2014/2015