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2014 ANNUAL REPORT
21 Risk management
(continued)
21.4 Market risk
(continued)
21.4.1 Interest rate risk
Interest rate risk arises from the possibility that changes in interest rates will affect future cash flows or the fair values of financial
instruments. The Group has an Asset/Liability Committee which reviews on a monthly basis the non-credit and non-operational
risk for the Parent and each subsidiary. Asset and Liability management is a vital part of the risk management process of the
Group. The mandate of the Committee is to approve strategies for the management of the non-credit risks of the Group, including
interest rate, foreign exchange, liquidity and market risks.
The primary tools currently in use are gap analysis, interest rate sensitivity analysis and exposure limits for financial instruments.
The limits are defined in terms of amount, term, issuer, depositor and country. The Group is committed to refining and defining
these tools to be in line with international best practice.
The table below summarises the interest-rate exposure of the Group’s statement of financial position. Interest on financial
instruments classified as floating is repriced at intervals of less than one year while interest on financial instruments classified as
fixed is fixed until the maturity of the instrument.
An interest rate sensitivity analysis was performed to determine the impact on net profit and equity of a reasonable possible
change in the interest rates prevailing as at September 30, with all other variables held constant. The impact on net profit is the
effect of changes in interest rates on the floating interest rates of financial assets and liabilities. The impact on net unrealised
gains is the effect of changes in interest rates on the fair value of available-for-sale financial assets. This impact is illustrated on the
following table.
Impact on net profit
2014
2013
Change in
basis points
Increase
Decrease
Increase
Decrease
TT$ Instruments
+/- 50
40,375
(40,375)
33,413
(33,413)
US$ Instruments
+/- 50
12,699
(12,699)
14,500
(14,500)
BDS$ Instruments
+/- 50
7,896
(7,896)
8,428
(8,428)
Other currency Instruments
+/- 50
326
(326)
512
(512)
Impact on equity
2014
2013
Change in
basis points
Increase
Decrease
Increase
Decrease
TT$ Instruments
+/- 50
(45,251)
46,709
(48,690)
50,631
US$ Instruments
+/- 50
(54,543)
52,783
(45,523)
46,813
EC$ Instruments
+/- 25
(77)
78
(91)
93
BDS$ Instruments
+/- 50
(9,689)
10,096
(11,367)
11,833
Other currency Instruments
+/- 50
(820)
514
(984)
313
