2011 Annual Report - Khaleeji Commercial Bank BSC

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KHALEEJI COMMERCIAL BANK BSC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2011 BD 000’s 31. RISK MANAGEMENT (continued) Market Risk (continued) Management of market risks The Bank separates its exposure to market risk between trading and non-trading portfolios. The Bank has no trading positions in equity or commodities and the main source of market risk for the Bank is its foreign exchange exposure and profit rate gap. The Bank does not do any trading in foreign exchange. The Bank does not engage in proprietary trading of foreign exchange derivatives. However, the Bank enters into Shari’a compliant foreign exchange risk management transactions to hedge economic risks to cover significant open positions under its risk management guidelines. All foreign exchange income / losses arising out of customer transactions and revaluation of statement of financial position assets and liabilities are booked by the treasury operations. The responsibility for monitoring and managing the related risks also rests with the Treasury department. Overall authority for market risk management is vested with ALCO. The RMD is responsible for the development of detailed risk management policies (subject to review and approval by appropriate approval authorities) and the Financial Control Department is responsible for the day-to-day review of their implementation. Exposure to profit rate risk-non-trading portfolios The principal risk to which non-trading portfolios are exposed is the risk of loss from fluctuations in the future cash flows or fair values of financial instrument because of a change in market profit rates. Profit rate risk is managed principally through monitoring profit rate gaps and by having pre-approved limits for repricing bands. The ALCO is the monitoring body for compliance with these limits and is assisted by the Bank’s Risk Management Department in its day-to-day monitoring activities. A summary of the Bank’s profit rate gap position at 31 December 2011 is as follows: 31 December 2011 Up to 3 - 6 6 months 1 - 3 More than Total 3 months months to 1 year years 3 years Assets Placements with financial institutions 76,787 - - - - 76,787 Financing assets 26,538 6,515 4,328 72,118 92,057 201,556 Assets acquired for leasing (including lease rentals receivable) 366 - - 1,745 11,547 13,658 Investments securities (sukuk) 4,067 8,221 3,664 3,110 2,610 21,672 Total profit rate sensitive assets 107,758 14,736 7,992 76,973 106,214 313,673 Liabilities and investment accounts Placements from financial institutions 45,435 - - - - 45,435 Placements from non-financial institutions and individuals 44,965 - 83 72 1,527 46,647 Customers’ current accounts 286 - - - - 286 Equity of investments account holders 128,269 24,601 42,467 30 - 195,367 Total profit rate sensitive liabilities and investment accounts 218,955 24,601 42,550 102 1,527 287,735 Profit rate gap (111,197) (9,865) (34,558) 76,871 104,687 25,938 74 Annual Report 2011
KHALEEJI COMMERCIAL BANK BSC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2011 BD 000’s 31. RISK MANAGEMENT (continued) Market Risk (continued) 31 December 2010 Up to 3 - 6 6 months 1 - 3 More than Total 3 months months to 1 year years 3 years Assets Placements with financial institutions 74,959 - - - - 74,959 Financing assets 39,360 27,390 2,882 88,961 44,617 203,210 Assets acquired for leasing (including lease rentals receivable) 4,042 2,504 - 79 1,355 7,980 Investments securities (sukuk) 7,082 4,141 - 4,713 1,625 17,561 Total profit rate sensitive assets 125,443 34,035 2,882 93,753 47,597 303,710 Liabilities and investment accounts Placements from financial institutions 65,917 - - - - 65,917 Placements from non-financial institutions and individuals 12,436 1,409 5,110 24 39 19,018 Customers’ current accounts 981 - - - - 981 Equity of investments account holders 154,804 27,714 15,113 220 369 198,220 Total profit rate sensitive liabilities and investment accounts 234,138 29,123 20,223 244 408 284,136 Profit rate gap (108,695) 4,912 (17,341) 93,509 47,189 19,574 The management of profit rate risk against profit rate gap limits is supplemented by monitoring the sensitivity of the Bank’s financial assets and liabilities to various standard and non-standard profit rate scenarios. Standard scenarios that are considered on a monthly basis include a 100 basis point parallel fall or rise across all yield curves and a 50 bp rise or fall of all yield curves. An analysis of the Bank’s sensitivity to an increase or decrease in market profit rates (assuming no asymmetrical movement in yield curves and a constant statement of financial position) is as follows: 100bp parallel 50bp increase / decrease increase / decrease At 31 December 2011 ± 257 ± 128 At 31 December 2010 ± 196 ± 98 Overall non-trading profit rate risk positions are managed by Treasury department, which uses short term investment securities, placement with banks and placement from banks to manage the overall position arising from the Bank’s non-trading activities. Consolidated Financial Statements 75
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2011 Annual Report - Khaleeji Commercial Bank BSC

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