FirstCaribbean International Bank Limited

Management’s Discussion and Analysis
External Revenues
Economic profits of $93.0 million decreased from the
prior year by $50 million as a result of the decline
in external revenues and an increase in loan losses
marginally offset by lower interest expenses.
Administration
The Administration segment includes Finance, HR, Risk,
Technology & Operations, Treasury, and other units,
which support the business segments. The revenues and
expenses of the functional groups are generally allocated
to the business segments. The administration segment
retains earnings on excess capital and the offset to capital
charges allocated to the business segments.
Treasury manages the interest rate, foreign exchange
and liquidity risk of the Group. In addition, Treasury
conducts foreign exchange and other derivative
transactions on behalf of Bank clients. Securities and cash
placements are normally held within the Treasury unit
included in the Administration segment.
Management of Risk
FirstCaribbean assumes a variety of risks in its ordinary
business activities. Risk is defined as any event that
could: damage the core earnings capacity of the Group;
increase earnings or cashflow volatility; reduce capital;
threaten business reputation or viability; and/or breach
regulatory or legal obligations.
The Bank’s approach to risk management is based
on sound banking principles and a robust governance
structure. Risk is managed within tolerance levels
established by our management committees and approved
by the Board of Directors and its committees (the Board).
This is achieved through a comprehensive framework of
measurement, monitoring and control policies, procedures
and processes. The Bank’s risk management policies and
procedures are designed to identify and analyse these risks,
to set appropriate risk limits, and to monitor and enhance
risk management practices to reflect changes in markets,
products and evolving best practice. Further information
on credit, market and liquidity risks within the Bank can be
found in note 34 to the consolidated financial statements.
Primary responsibility for the management of risk lies with
line management in our various individual businesses. The
risk management department, which reports to the Chief
Risk Officer, develops risk policies and procedures and
provides independent oversight and analysis through
its six centrally-based teams - credit risk, market risk,
receivables management, compliance, risk and controls
and operational risk.
Representatives from the risk teams interact with the
senior leadership of each business unit in order to identify
and manage risks in the respective businesses. This approach
is supported by comprehensive enterprise reporting.
Credit Risk
Credit risk is the risk a customer or counterparty will be
unable or unwilling to meet a commitment that it has
entered into and that the pledged security does not cover
the customer’s liabilities in the event of a default. The
credit risks in FirstCaribbean arise primarily from lending
activities to customers but is also present in certain bonds,
guarantees and securities held by the Bank.
Credit risk is managed and controlled on the basis
of established credit processes and policies operating
within a framework of delegated authorities. In addition
to approving the Group’s key credit policies and setting
credit risk appetites and tolerances, the Risk and Conduct
Review Committee of the Board also delegates credit
approval limits to the Credit Committee of the Bank. The
Credit Committee is chaired by the Chief Risk Officer who
also delegates lending authority to individual members
of the credit risk management department and also to
front line lenders. There is appropriate segregation of
duties between customer facing functions responsible
for originating and managing exposures, the credit risk
management function responsible for credit adjudication
and oversight and the operations function responsible for
disbursing loans and safekeeping security.
Credit grading, scoring and monitoring systems
facilitate the early identification and management of
deterioration in loan quality. The credit management
process is underpinned by an independent system of
credit review by credit conformance teams. Delinquent
facilities are subject to separate and additional oversight
by the receivables management team. Classification is
automated and operates strictly in line with regulatory
and accounting standards. Credit provisions are
independently calculated in accordance with International
Financial Reporting Standards for statutory reporting and
in accordance with the Financial Institutions Act to meet
regulatory requirements.
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