Page 185 - RFHL ANNUAL REPORT 2025 ONLINE_NEW

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22 Risk management (continued)
22.4 Market risk (continued)

22.4.1 Interest rate risk
Interest rate risk arises from the possibility that changes in interest rates will affect future cash flows or the fair
values of financial instruments. The Group has an ALCO which reviews on a monthly basis the non-credit and
non-operational risk for the Parent and each subsidiary. Asset and Liability management is a vital part of the risk
management process of the Group. The mandate of the Committee is to approve strategies for the management
of the non-credit risks of the Group, including interest rate, foreign exchange, liquidity and market risks.

The primary tools currently in use are gap analysis, interest rate sensitivity analysis and exposure limits for financial
instruments. The limits are defined in terms of amount, term, issuer, depositor and country. The Group is committed
to refining and defining these tools to be in line with international best practice.

Interest on financial instruments classified as floating is repriced at intervals of less than one year while interest on
financial instruments classified as fixed is fixed until the maturity of the instrument.

An interest rate sensitivity analysis was performed to determine the impact on net profit of a reasonably possible
change in the interest rates prevailing as at September 30, with all other variables held constant. The impact on
net profit is the effect of changes in interest rates on the floating interest rates of financial assets and liabilities. This
impact is illustrated on the following table:

Impact on net profit
Change in 2025 2024
basis points Increase Decrease Increase Decrease

TT$ Instruments +/- 50 90 (90) 73 (73)
US$ Instruments +/- 50 42 (42) 39 (39)
KYD$ Instruments +/- 50 14 (14) 14 (14)
Other Currency Instruments +/- 50 9 (9) (4) 4

22.4.2 Currency risk
Currency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange
rates. The Group’s exposure to the effects of fluctuations in foreign currency exchange rates arises mainly from
its investments and overseas subsidiaries and associates. The Group’s policy is to match the initial net foreign
currency investment with funding in the same currency. The Group also monitors its foreign currency position for
both overnight and intra-day transactions.

Changes in foreign exchange rates affect the Group’s earnings and equity through differences on the re-translation
of the net assets and related funding of overseas subsidiaries and associates, from the respective local currency
to Trinidad and Tobago dollars (TTD). Gains or losses on foreign currency investment in subsidiary and associated
undertakings are recognised in reserves. Gains or losses on related foreign currency funding are recognised in the
Consolidated statement of income.

The principal currencies of the Group’s subsidiary and associated company investments are TTD, United States
dollars (USD), Guyana dollars (GYD), Eastern Caribbean dollars (XCD), Barbados dollars (BDS), Ghana cedi (GHS),
Suriname dollars (SRD) and Cayman Island dollars (KYD).