Annual Report 2010 03 August 2011 - Banka Qendrore e ...

Central Bank of the Republic of Kosovo
Notes to the financial Statement
(in thousands of EUR, unless otherwise stated)
4. Financial risk management (continued)
Risk management framework (continued)
CBK’s risk management policies are established to identify and analyze the risks faced by CBK,
to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk
management policies and systems are reviewed regularly to reflect changes in market conditions,
products and services offered. CBK, through its training and management standards and
procedures, aims to develop a disciplined and constructive control environment, in which all
employees understand their roles and obligations.
CBK’s Audit Committee is responsible for monitoring compliance with CBK’s risk management
policies and procedures, and for reviewing the adequacy of the risk management framework in
relation to the risks faced by CBK. CBK’s Audit Committee is assisted in these functions by the
Internal Audit Directorate. Internal audit undertakes both regular and ad-hoc reviews of risk
management controls and procedures, the results of which are reported through the Inspector
General to the Audit Committee.
b) Credit risk
Credit risk is the risk of financial loss to CBK if a counterparty to a financial instrument fails to
meet its contractual obligations, and arises principally from CBK’s investments in debt securities
and deposits in other banks.
Management of credit risk
i. Investments and exposure to other banks
CBK limits its exposure to credit risk by investing only in debt securities issued by the
governments of EU countries and having deposits with foreign banks whose short term liabilities
are rated in one of the two highest categories by internationally recognized credit rating agencies.
Given the high credit ratings, management does not expect any counterparty to fail to meet its
obligations.
ii. Exposure to credit risk
The maximum exposure to credit risk as at 31 December 2010 and 31 December 2009 is presented
by the carrying amount of its cash on hand, current accounts with non-resident banks, treasury
bills and deposit accounts with non-resident banks. For details on the exposures see Notes 7, 8, 9
and 10.
None of CBK’s exposures are past due or impaired. There are no changes in the credit risk
management policies from previous years. CBK does not hold any collateral or other credit
enhancements against its exposure to credit risk.
c) Liquidity risk
Liquidity risk is the risk that CBK will encounter difficulty in meeting obligations from its
financial liabilities.
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