Page 118 - 2021 ANNUAL REPORT draft

Exposure to Interest Rate Risk – Trading and Non-Trading Portfolios

The principal risk to which non-trading portfolios are exposed is the risk of loss from fluctuations in the future
cash flows or fair values of financial instruments because of a change in market interest rates. Interest rate
risk is managed principally through monitoring interest rate gaps and by having pre-approved limits for re-
pricing bands. The ALMAC is the monitoring body for compliance with these limits and is assisted by Risk
Management in its day-to-day monitoring activities. A summary of the Bank's interest rate gap position on
trading and non-trading portfolios is as follows:

The Bank makes use of limit monitoring, earnings-at risk gap analyses and scenario analyses to measure
and control the market risks exposures within its trading and banking books.
The bank also performs regular stress tests on its banking trading books. In performing this, the bank
ensures there are quantitative criteria in building the scenarios. The bank determines the effect of changes
in funding sources and uses on the bank's liquidity. The key potential risks the bank was exposed to from
these instruments were foreign exchange risk and interest rate risk (price risk, basis risk). However, all
potential risk exposures in the course of the year were successfully mitigated as mentioned above.
The management of interest rate risk against interest rate gap limits is supplemented by monitoring the
sensitivity of the Bank's financial assets and liabilities to various scenarios. Credit spread risk (not relating
to changes in the obligor/issuer's credit standing) on debt securities held by the Bank and equity price risk
is subject to regular monitoring by Bank Management Risk committee, but is not currently significant in
relation to the overall results and financial position of the Bank.

Interest rate movements affect reported equity in the following ways:

• Retained earnings arising from increase or decrease in net interest income and the fair value
changes reported in profit or loss.

• Fair value reserves arising form increase or decrease in fair value of FVOCI financial instruments
reported directly in other comprehensive income.

Overall non-trading interest rate risk positions are managed by Treasury, which uses Debt instruments,
advances to banks and deposits from banks to manage the overall position arising from the Bank's
nontrading activities.

Operational Risk

Guaranty Trust Bank defines Operational Risk management (OpRisk) as “the direct/indirect risk of loss
resulting from inadequate and/or failed internal process, people and systems or from external events”. This
definition requires the review and monitoring of all strategies and initiatives deployed in its people
management, process engineering and re-engineering, technology investment and deployment,
management of all regulatory responsibilities and response to external threats. To ensure a holistic
framework is implemented, Operational Risk Management also monitors Strategic and reputational risk
from a broad perspective.
The following practices, tools and methodologies have been implemented for this purpose:

• Risk and Control Self Assessments (RCSAs)

118 | P a g e
Guaranty Trust Bank (Gambia) Limited Financial Statements December 2021