The Bank takes active steps to identify and limit the risks to which it is exposed in the context of its activities. In order to do so, the asset-liability management department has the task of monitoring and controlling the interest rate, foreign exchange and liquidity risks both on and off balance sheet. Furthermore, this department also checks that the limits on outstandings, fixed by counterparty and by product within the framework of the Bank's financial activities, are complied with.


The Bank can be exposed to interest rate risk as a result of a mismatch in the types of interest rate that may exist between the assets (deposits, securities, and loans) and the liabilities (borrowings). In this context, the Bank turns to derivatives as hedging for this type of risk, principally through micro-hedging operations. Interest rate risk is regularly monitored by the ALM Committee so as to limit any possible impact on the Bank's results.


Similarly, the foreign exchange rate risk can result from a disparity between the currencies used in the assets and in the liabilities. The financial risk management department is responsible for eliminating any foreign exchange rate risk that may occur in the course of the Bank's everyday activity, using, where necessary, either cash exchange transactions or derivatives.


Since the Bank uses the international capital markets to finance its activities, it is potentially exposed to the risk of capital scarcity. In order to protect itself against market volatility and to be able to ensure continuity in its mission without suffering from the fluctuations of the capital markets, the Bank has established a 50% minimum liquidity ratio. This means that the Bank always has sufficient liquid assets to cover at least 50% of its net financing requirements over three years, with these net requirements including the stock of approved projects and the additional liquidity requirement equal to the risk of default for the same period. Consequently, the Bank structurally shows an over-targeted liquidity situation.


The framework within which the Bank may make use of derivatives, approved by the Administrative Council in 1996 and reconfirmed in 2000, establishes the following principles:
- the Bank is an end user of derivatives in order to hedge its risks
- the maximum nominal value authorised on derivatives shall not exceed twice the balance sheet total
- for all OTC transactions, a framework contract must be drawn up prior to any operation
- the counterparties in these operations must be the object of a pre-established limit and show a sufficient level of financial soundness. For transactions with a maturity of over five years, the counterparty must have a minimum AA rating or have signed a CSA (Credit Support Annex) collateral agreement with the CEB.