2011 Annual Report - Khaleeji Commercial Bank BSC

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)
Exposure to foreign exchange risk
Currency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates. The
Group had the following significant net exposures denominated in foreign currency as of 31 December:
2011 2010
BHD
BHD
Equivalent Equivalent
Sterling Pounds 1,477 2,695
Euros 5,860 5,787
US Dollars* 89,140 78,539
Kuwaiti Dinars 3,083 2,941
Other GCC Currencies* 8,363 30,577
Indian Rupee 7 60
Australian Dollars 4,730 4,703
(*) The exposure in US dollars and other GCC currencies does not create any foreign exchange risk for the Bank since Bahraini
Dinars and other GCC currencies are effectively pegged to the US Dollars.
The management of foreign exchange risk against net exposure limits is supplemented by monitoring the sensitivity of the
Bank’s financial assets and liabilities to various foreign exchange scenarios. Standard scenarios that are considered on a monthly
basis include a 5% plus/minus increase in exchange rates, for currencies other than US Dollars, other GCC currencies.
An analysis of the Bank’s sensitivity to an increase or decrease in foreign exchange rates (assuming all other variables, primarily
profit rates, remain constant) is as follows:
2011 2010
BHD
BHD
Equivalent Equivalent
Sterling Pounds ±74 ±135
Kuwaiti Dinars ±154 ±147
Euros ±293 ±289
Indian Rupees ±0.35 ±3
Australian Dollars ±237 ±235
Exposure to other price risks-non-trading portfolios
Credit spread risk on debt securities is subject to regular monitoring by RMD, but is not currently significant in relation to the
overall results and financial position of the Bank.
The Group’s unquoted equity securities carried at cost are exposed to risk of changes in equity values. Refer to note 21 for
significant estimates and judgments in relation to impairment assessment of unquoted equity investments carried at cost.
The Group manages exposure to other price risks by actively monitoring the performance of the equity securities. The
performance assessment is performed on a quarterly basis and is reported to the Board Investment Committee.
OPERATIONAL RISK
Operational risk is the risk of loss arising from systems and control failures, fraud and human errors, which can result in
financial and reputation loss, and legal and regulatory consequences. The Bank manages operational risk through appropriate
controls, instituting segregation of duties and internal checks and balances, including internal audit and compliance. The Risk
Management Department is in charge of identifying, monitoring and managing operational risk in the bank. The Bank already
has an approved policy for doing this and all required organisational and physical infrastructure are in place.
76
Annual Report 2011