Market risk is controlled primarily through a series of limits, whether set internally by management in the context of the market environment and business strategy and/or set by regulators.
In setting limits, the Bank takes into consideration factors such as market volatility, product liquidity and accommodation of client business and management experience.
The Bank maintains different levels of limits:
- Dealers’ limits:
- Dealers operate within limits approved and are tightly monitored by Back Office
- Dealers request for sign-off from approved signatories ahead of a deal that triggers their dealing limits
- Exposure is determined according to the nature of the contract and its maturity
- Dealers can only transact in products that have been approved by Board Risk Committee
- Product limits are tightly monitored at the Treasury Back Office
Forex Exposure limits
- FX exposure is monitored daily and a report is sent to the Bank of Mauritius every day
- Overall currency exposure may not exceed 15% of Tier 1 Capital and single currency limit is set at 10% of Tier 1 Capital
Liquidity risk is the risk of not being able to meet cash flow requirements when they fall due and at a reasonable price.
The Bank’s Net Funding Ratio (‘NFR’) analysis requires the building of a maturity ladder to determine any fund excess or shortage at selected maturity dates on a day-to-day basis and on a much longer period. The Bank has, in this respect, prudently set its NFR Gap in line with the new guidelines on Liquidity Risk Management issued by the Bank of Mauritius. No excess is recorded as at 30 June 2014.
The liquidity ratio assesses the extent to which assets can be readily converted into cash or cash substitutes to meet financial obligations. AfrAsia Bank Limited’s liquidity ratio reflects a strong liquidity position, adequate to absorb the impact of a stressed liquidity and funding environment. The table below shows the month end liquidity ratio maintained during the financial year ended 30 June 2014 against the limit approved by the Board Risk Committee.