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Financial risks that the CBRT may be exposed to due to its operations are composed of credit, market and liquidity risks and are managed in cooperation with business units. A great portion of credit, market and liquidity risks that the CBRT is exposed to due to its operations emerge in the course of fulfilling legal duties such as implementing monetary and exchange rate policies, managing foreign exchange reserves, and providing certain banking services to the banking sector and the government. Financial risks that the CBRT encounters while implementing monetary and exchange rate policies in its capacity as the monetary authority are a consequence of the policy targets chosen. On the other hand, financial risks related to the FX reserve management result from investment preferences. Meanwhile, the CBRT manages FX reserves within investment criteria defined in the CBRT Law No. 1211 and within objectives and limits set by the benchmark portfolio and endeavors to minimize such risks by managing them in a conservative manner.
The credit risk that the CBRT is exposed to originates mainly from investment transactions conducted in FX reserve management, open market operations (OMO), Interbank Money Market (IMM) transactions and transactions of intraday liquidity facility provided to banks as part of monetary policy practices. The CBRT’s credit risk arising from monetary and exchange rate policy-related transactions was managed by collateralizing the whole amount of transactions, including a specified amount of margin, with securities of very high credit worthiness that can also be traded on secondary markets and asking for additional collateral. Moreover, for some transactions, on the other hand, the payment-after-collection method is adopted and the risk exposure is largely minimized.
The CBRT’s management of international reserves has a three-tier hierarchical structure. Firstly, investment transactions are limited to prominent international financial institutions and borrowers with high credit quality that meet the credit rating requirements set by regulations. Secondly, with a view to controlling all credit risks arising from the transactions, the total credit risk limits that can be allocated to the institutions with which transactions are made are limited to a certain proportion of the manageable reserve. Finally, credit risk limits are allocated to each selected institution using basic and financial analysis methods. Accordingly, compliance with the limits defined by the benchmark portfolio was monitored and reported to the senior management.
In management of reserves, market risk can be encountered due to exchange rate, interest rate and price fluctuations in international markets. Meanwhile, liquidity risk stems from the probability of incurring loss when meeting sudden and unprecedented FX liquidity needs. Accordingly, compliance with the limits set by the benchmark portfolio was monitored and reported to the senior management.
Other than the FX reserve management, those risks on the CBRT’s balance sheet pertaining to credit, market and liquidity were also measured, monitored and reported.
Under the operational risk management, operational risk factors of processes at the CBRT are assessed and reported in collaboration with business units. Meanwhile, operational risk incidents during the implementation of processes are registered in incident record reports. Accordingly, risk assessment activities continued in 2022, and corrective and preventive action plans were monitored regarding the detected risks through risk assessments and incident records.
Lastly, the compliance of the CBRT with the national and international standards and legal regulations regarding the prevention of laundering proceeds of crime and financing of terrorism has been ensured, and the compliance activities have been carried out in order to prevent risks that may be exposed in this regard.
