confidence - Investing In Africa

Management Discussions & AnalysisOperation Review (cont’d)exposures to the Central Bank and has set up more conservative internal limitsin order to mitigate foreign exchange risk. The foreign exchange exposures arereported on a daily basis and open positions are marked to market daily. TheBank also uses a simple Value-at-Risk (VAR) approach to measure the potentialloss arising out of foreign exchange movement and VAR on the Bank’s(Mauritius Operations) foreign exchange trading positions for the year to 30June 2005 was:Table 3 - VARJune 30 Lowest Highest AverageMRU INDIA MRU INDIA MRU INDIA MRU INDIA2005 (MR M) 0.48 0.06 0.31 0.06 3.18 1.25 1.51 0.562004 (MR M) 2.63 0.76 0.22 0.08 4.10 1.73 1.29 0.722003 (MR M) 0.77 0.59 0.41 0.12 3.58 1.00 1.66 0.44Liquidity RiskLiquidity risk is concerned with ensuring that the Bank has enough cash onhand or in the pipeline to meet current and future demands. The Treasurer isresponsible to manage the liquidity in the Bank and the Middle Office reportsdaily on the cash ratio. Liquidity gap limits are monitored by the ALM SupportTeam in the Risk Management Unit and reported monthly to the ALM Forum.Each month, three different scenarios of liquidity gap are reported to ALM:-84• Scenario 1: Cumulative Gap calculated without taking into considerationcommitments by the Bank• Scenario 2: Most likely scenario where only core commitments are taken intoaccount• Scenario 3: Worst case scenario where 100% of the commitments areassumed to have been drawnThe Group’s Liquid assets as at 30 June 2005 represented 38% of total assets(2004: 32%). Liquid assets include cash, balance with central bank & banksand traded liquid securities. SBM adhered to the prudential limits set by theBoard and Central Bank.