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AfrAsia Bank Limited and its Group Entities
Annual Report 2015
page 96
COLLATERAL COVER
Where a claim on counterparty is secured against eligible collateral, the secured portion of the claim is weighted according to the risk weight
of the collateral and the unsecured portion against the risk weight of the counterparty. To mitigate counterparty risk, the Bank also requires
closeout netting agreements. This enables the Bank to net the positive and negative replacement values of contracts if the counterparty
defaults. The Bank’s policy is to promote the use of closeout netting agreements and mutual collateral management agreements with an
increasing number of products and counterparties in order to reduce counterparty risk.
As an indication, claims secured by cash which has been netted off against exposure are 3% of the asset book, whilst 1% of total asset book
was for claims on banks.
MARKET AND LIQUIDITY RISK
Asset And Liability Committee
The objective of the Asset and Liability Committee is to ensure that the Bank’s overall asset and liability structure and market risk including
liquidity, currency and interest rate risks are managed within the prudential limits and targets delegated by its Board Risk Committee and in
accordance with the Guidelines set by the Bank of Mauritius.
On a monthly basis, the Asset and Liability Committee (ALCO) reviews the risk ratios and limits for these areas wherein the Bank has exposure
together with sensitivity analysis/stress tests done to monitor impact of potential changes in interest rates or currency movements.
The Bank’s Board Risk Committee delegates the implementation and monitoring of the Bank’s ALCO strategy, policies and procedures to
management. ALCO, is composed of some of the Executive Committee members and meets at least once monthly to review the ALCO risk
ratios, financials and other relevant information.
A sub-committee of the ALCO is the Treasury Committee; the main purpose of which is to monitor on a weekly basis the Bank’s liquidity
position and decide on its investment in Government securities and bank placements.
Cash Security
3%
Tangible Assets
81%
Unsecured Loans
and Advances
15%
Claims on Bank
1%
RISK MANAGEMENT REPORT (CONTINUED)