ECCB 2022-2023 Annual Report and Financial Statements

Eastern Caribbean Central Bank Notes to the Financial Statements For the year ended 31 March 2023 (Expressed in Eastern Caribbean dollars)

3. Financial risk management

a) Introduction and overview

Risk is inherent in the Bank’s activities but it is managed through a process of ongoing identification, measurement and monitoring, subject to risk limits and other controls. By its nature, the Bank’s activities are principally related to the use of financial instruments. The Bank has exposure to the following risks from its use of financial instruments:

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Credit risk Market risk Liquidity risk Operational risk

The strategy for using 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. In executing its duties as a central bank, there are significant inherent risks, which the Bank faces, both at the macro and micro levels of its operations. These risks arise primarily through the Bank’s execution of its r eserve management function, the provision of banking services to governments and commercial banks and from the broad areas of monetary policy, financial sector stability, management of the payment system and the daily operational tasks undertaken to support these functions. 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. The Bank also seeks to minimise potential adverse effects on the Bank’s financial performance.

Risk Management Structure

The Bank’s risk m anagement 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 Bank’s Board of Directors has overall responsibility for the establishment of the Bank’s risk management framework. The Board has established committees for managing and monitoring risks.

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