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)
c) Liquidity risk (continued)
The previous table shows the undiscounted cash flows of CBK’s financial liabilities on the basis
of their earliest possible contractual maturity. To manage the liquidity risk arising from financial
liabilities, CBK holds liquid assets comprising cash and cash equivalents, current accounts,
deposit accounts and treasury bills for which there is an active and liquid market.
Volatility in the global and Kosovo financial markets
The global financial and economic crisis has resulted in, among other things, a lower level of
capital market funding, and lower liquidity levels across the banking sector, central bank interest
rate cuts to help borrowers, government capital injection, higher interbank saving rates and volatility
in stock markets. Further adverse developments resulting from the crisis might result in negative
implications on the financial and liquidity position of CBK.
d) Market risks
Market risk is the risk that changes in market prices, such as interest rate, equity prices, foreign
exchange rates and credit spreads (not relating to changes in the obligor’s / issuer’s credit
standing) will affect CBK’s income or the value of its holdings of financial instruments. The
objective of market risk management is to manage and control market risk exposures within
acceptable parameters, while optimizing the return on risk.
Management of market risks
CBK’s operations are subject to the risk of interest rate fluctuations to the extent that interestearning
assets and interest-bearing liabilities mature or reprice at different times or in differing
amounts. In the case of floating rate assets and liabilities, there is exposure to basis risk, which is
the difference in repricing characteristics of the various floating rate indices.
Risk management activities are aimed at optimising net interest income, given market interest rate
levels consistent with CBK’s operations strategies. CBK’s exposure to market risk is related only to
non-trading portfolios.
Exposure to interest rate risk non-trading portfolios
One of the principal risks to which non-trading portfolios are exposed is a change in market
interest rates causing a reduction in future cash flows for variable-rate financial assets or a decline
in the fair values of fixed-rate financial assets. Interest rate risk is managed principally through
monitoring interest rate gaps and by having pre-approved limits for repricing bands. The Investment
Committee is the monitoring body for compliance with these limits. A summary of CBK’s interest
rate gap position on non-trading portfolios is as follows:
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