(Jamaica) Limited - FirstCaribbean International Bank

notes to the Financial Statements
Year Ended 31 October 2009
(Expressed in Jamaican dollars unless otherwise indicated)
35. Financial Risk Management
(a)
Strategy in using financial instruments
By its nature the Group’s activities are principally related to the use of financial instruments. The Group accepts
deposits from customers at both fixed and floating rates and for various periods and seeks to earn above average
interest margins by investing these funds in high quality assets. The Group seeks to increase these margins by
consolidating short-term funds and lending for longer periods at higher rates whilst maintaining sufficient liquidity
to meet all claims that might fall due.
The Group also seeks to raise its interest margins by obtaining above average margins, net of provisions, through
lending to commercial and retail borrowers with a range of credit standing. Such exposures involve not just onbalance
sheet loans and advances but the Group also enters into guarantees and other commitments such as letters
of credit and performance and other bonds.
(b)
Credit risk
Credit risk primarily arises from direct lending activities, as well as from trading, investment and hedging activities.
Credit risk is defined as the risk of financial loss due to a borrower or counter party failing to meet its obligations in
accordance with agreed terms.
Process and Control
The Credit Risk Management Department (CRMD) is responsible for the provision of the Group’s adjudication,
oversight and management of credit risk within its portfolios, including the measurement, monitoring and control
of credit risk.
The CRMD’s credit risk approval authority flows from the Board of Directors and are further delegated to the
Chairman and the Chief Risk Officer (CRO). The department is guided by the Group’s Delegation of Authority
Policy. Delegation is based on exposure and risk level; where the credit decision relates to larger and or higher risk
transactions the Credit Committee (CC) is responsible for the final decision.
The Risk and Conduct Review Committee (R&CRC) is responsible for approving policy requirements and key risk
limits.
Credit Risk Limits
Credit limits are established for all loans (mortgages, personal and business & government) for the purposes
of diversification and managing concentration. These include limits for individual borrowers, groups of related
borrowers, industry sectors, and products or portfolios. The Group does not have excessive concentration in any
single borrower, or related group of borrowers, or industry sector.
Collateral
The Group employs a range of policies and practices to mitigate credit risk. The most traditional of these is the taking
of security for funds advanced, which is common practice. The Group implements guidelines on the acceptability
of specific classes of collateral or credit risk mitigation. The principal collateral types for loans and advances to
customers are:
• Mortgages over residential properties;
• Charges over business assets such as premises, inventory and accounts receivable;
• Charges over financial instruments such as debt securities and equities.
The Group’s credit risk management policies include requirements relating to collateral valuation and management,
including verification requirements and legal certainty. Valuations are updated periodically depending upon the
nature of the collateral. Management monitors the market value of collateral, requests additional collateral in
accordance with the underlying agreement during its periodic review of loan accounts in arrears. Policies are
in place to monitor the existence of undesirable concentration in the collateral supporting the Group’s credit
exposure.
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