Risk Management
Article Index
Risk Management
Operational Risk
Credit Risk Management
Market Risk Management
Foreign Exchange Risk Management
Liquidity Risk Management
Supervisory Review


Market Risk Management

Market risk is defined as the risk of losses in onbalance sheet and off-balance sheet positions arising from adverse movements in market prices. The major constituents of market risks are:

a. The risks pertaining to interest rate related instruments;
b. Foreign exchange risk (including gold positions) throughout the bank; and
c. The risks pertaining to investment in equities and commodities.

Market risk is also the uncertainty in the future value of the bank’s on-balance sheet and off-balance sheet financial items resulting from interest rates, foreign currency, equity, and commodity risks. The Asset Liability Management Committee (ALCO) serves as the primary oversight and decision making body that provides strategic directions for the bank’s management of market risk. The key elements in the market risk management framework are principles and policies, risk limits and risk measures. The prescribed approach for the computation of capital charge for market risk is very simple and thus may not be directly aligned with the magnitude of risk. Likewise, the approach only incorporates risks arising out of adverse movements in exchange rates while ignoring other forms of risks like interest rate risk and equity risks. NIBL has taken measures to address these various forms of risk and at the same time perform stress tests to evaluate the adequacy of capital using internal models for the measurement
of market risk.

Important Risk Management measures of the bank to address Market Risk includes:

  • A pro-active Asset Liability Management Committee (ALCO) that meets on a weekly basis.
  • Review of ALCO decisions by top Management and Board of Directors.
  • Conduction of gap analysis, timely re-pricing of products and hedging of exposures.
  • Risk management via forward contracts, swaps and currency options.
  • Daily monitoring of Credit to Deposit (CD) ration.
  • Maintaining the Liquid Assets Ratio with a contingency buffer.
  • Constant monitoring of dealer, broker counterparty, transaction, product and currency exposure limits.
  • Regular monitoring of competitor behavior and building competitor intelligence.
  • Maintaining strong relationship with correspondent banks.
  • Enhancing fee based income to reduce dependence on fund based income.
  • Non-engagement in large scale transactions on a speculative basis.
  • Separation of front and back offices at the Treasury department.




 

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