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CARIBBEAN DEVELOPMENT BANK ANNUAL REPORT 2017
CARIBBEAN DEVELOPMENT BANK
ORDINARY CAPITAL RESOURCES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2017 (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS, UNLESS OTHERWISE STATED)
NOTE 3 – RISK MANAGEMENT…continued Fair value of financial assets and liabilities…continued Financial instruments not measured at fair value The fair value measurement using valuation techniques for the Bank’s assets and liabilities which are not measured at fair value but for which fair value is disclosed are as follows: Carrying value Exchange rate movements Financial assets – loans and receivables Loans outstanding Financial liabilities – amortised cost Borrowings
Fair value
2017
2016
2017
2016
$1,060,082
$1,016,926
$935,188
$801,295
$691,549
$654,530
$828,040
$771,302
The fair value of both the loans outstanding and borrowings disclosed above is ranked as Level 2 in the fair value hierarchy. There is no active market for loans made by CDB's to its BMCs and therefore there are no quoted market prices which can be used to value such assets. The discounted cash flow method which is used to derive the fair value of the loans contains inputs in the form of a series of interest rates which reflect the tenor and the credit risk associated with the cash flows arising from the loans. Yield curves which are derived from observable market trades of US-dollar denominated bonds, issued by US-based financial institutions with credit-ratings similar to those assigned to CDB's BMCs, are deemed to be acceptable proxies for the yield curves required by the discounted cash flow valuation process. The credit ratings for BMCs which have been assigned ratings by international credit rating agencies are used in the cashflow analysis. Those BMCs without ratings from international agencies are assigned a default rating of "CCC". Capital Management CDB’s objectives when managing capital, which is a broader concept than “equity” on the face of the statement of financial position, are to: (i) Safeguard the Bank’s ability to continue as a going concern; and (ii) Maintain a strong capital base to support its development mandate. The Bank’s capital adequacy framework which is consistent with the guidelines developed by the Basel Committee takes into account the Bank’s total equity, which is defined as paid-up capital, retained earnings and reserves, less receivables from members, the effects of derivative adjustments and the General Banking Reserve. The goals of the Bank’s capital adequacy are to: (i) Ensure a reliable framework and methodology to determine the appropriate levels of economic capital that the Bank should carry; and (ii) Determine from time to time the appropriate changes in the level of economic capital that the Bank must have, based on changes in the risk profile of its credit exposures.