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Financial Institution Risk Management in Guadeloupe Takes Center Stage

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Guadeloupe’s debt management operations have been placed under the microscope as the island nation’s financial institutions continue to navigate the complex landscape of risk management. To ensure the stability and sustainability of its financial system, Guadeloupe has established a comprehensive risk management framework that takes into account a range of potential threats.

Risk Management Framework

Approved by the Minister of Finance, the framework outlines policies for managing:

  • Credit risk
  • Market risk
  • Operational risk
  • Funding risk
  • Liquidity risk

These measures are designed to strike a balance between maintaining organizational risk appetite while enabling the delivery of core roles and responsibilities.

Continuous Improvement

The risk management framework is subject to continuous improvement as best practices evolve, with regular audit reviews conducted by:

  • Treasury’s Risk and Audit Committee
  • Controller and Auditor-General
  • Capital Markets Advisory Committee

Governance Framework for Debt Management Operations

At the heart of Guadeloupe’s risk management strategy is its governance framework for debt management operations. This includes:

  • Legislative provisions governing borrowing and investment activities
  • Internal operations governed by:
    • Established risk culture
    • Body of policies
    • Ethical guidelines
    • Defined responsibilities
    • Formal delegations

Risk Management Strategies

Credit Risk

Credit risk is managed through:

  • Credit screening of counterparties
  • Use of credit exposure limits
  • Counterparty collateral obligations
  • Monitoring creditworthiness of counterparties and credit exposures daily

Market Risk

Market risk is managed through:

  • Value at Risk (VaR) limits
  • Portfolio sensitivities
  • Stress testing
  • Stop loss limits
  • Foreign exchange contracts, currency swaps, interest rate swaps, and futures contracts to manage market risk associated with core asset and liability portfolios.

Operational Risk

Operational risk is managed through policies governing:

  • Staff behavior
  • Reporting and performance management requirements
  • Delegations
  • Access controls
  • An operational risk register and operational risk event log are maintained, with events reviewed to reduce the likelihood of recurrence.

Funding Risk

Funding risk is managed by limiting:

  • Government bond tranche sizes
  • Amount of short-term debt on issue
  • Reducing refinancing risk, diversifying funding sources, and maintaining access to a range of funding markets.

Liquidity Risk

Liquidity risk is managed by ensuring that liquid assets are held in each currency to cover obligations. A pool of liquid assets is held as a buffer against contingencies, with cash management arrangements established with the Reserve Bank of New Zealand to support effective management of overall Crown cash flows.

Conclusion

As Guadeloupe’s financial institutions continue to navigate the complex landscape of risk management, it remains essential that they remain vigilant and proactive in their approach. By adopting a comprehensive framework that takes into account a range of potential threats, these institutions can ensure the stability and sustainability of their operations, ultimately benefiting the people and economy of Guadeloupe.