Risk description Risk description Key controls and risk mitigation Key controls and risk mitigation Market risk is the risk that the Group will suffer losses caused by changes in the market value of financial assets and liabilities resulting from changes in market prices or rates. The primary source of market risk for the Group is interest rate risk: the risk of losses the Group will incur as a result of an increase or a decrease in interest rates. The operations of the Group are subject to the risk of interest rate fluctuations, to the extent that there is a difference between the amount of interest-earning assets and interest-bearing liabilities that mature or reprice in specified periods. The effective management of market risk is essential to the maintenance of stable earnings, the preservation of capital resources and the achievement of the Group’s strategic objectives. Liquidity risk arises from differences in timing between cash inflows and outflows. Funding risk can occur where there is an over-reliance on a particular type of funding, a funding gap or a concentration of funding maturities. • Market risks are overseen by the Asset and Liability Committee (‘ALCO’) with delegation for day-to-day management given to Treasury. • Board–approved policy and prudential limits. • A product approval process incorporates the review of product terms and conditions from a market risk perspective, to ensure compliance with the existing risk appetite, policy and process. • Appropriate pricing for risk. • Monitoring of any gap or mismatch between risks arising from holding assets and liabilities. • Monitoring of net interest earnings at risk. • Scenario analysis. • Reporting to ALCO and the Risk Management Committee. • Day-to-day management of liquidity by Treasury. • Management of the mismatch between asset and liability maturities. • Funding strategy approved by the Board. • Maintenance of a diverse yet stable pool of potential funding sources. • Maintenance of sufficient liquidity buffers. • Contingency Funding Plan and Recovery Plan in place. • The Group seeks to increase its level of Green Bond issuance over time to support the increasing demand in green loans and leases. Liquidity and funding risk Market risk Risk Management Report Continued 64 CIM FINANCE ANNUAL REPORT
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