Annual Report 2019
Central Bank of the Republic of Armenia
Notes to the 2019 consolidated financial statements
30. Risk management (continued)
Currency risk
Currency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates.
The Board sets the clear principles of currency allocation, whereas the Investment Committee determines and revises
the actual weights of respective currencies.
The following tables present sensitivities of profit or loss and equity to reasonably possible changes in exchange rates
applied at the end of the reporting period relative to the Armenian Dram with all other variables held constant:
2019
2018
In thousands of Armenian Drams
Increase in
currency rate in %
Increase/
(decrease) of
profit and equity
Increase in
currency rate in %
Increase/
(decrease) of
profit and equity
Currency
USD
3.00%
18,882,379
3.50%
18,192,069
EUR
6.50%
11,089,753
8.00%
9,350,778
GBP
9.00%
3,316,392
10.00%
3,570,141
JPY
6.50%
1,034,228
7.00%
1,489,656
RUB
SDR
13.00%
50,093
15.00%
5.00%
(7,957,065)
6.00%
56,940
(11,007,547)
2019
2018
In thousands of Armenian Drams
Decrease in
currency rate in %
Increase/
(decrease) of
profit and equity
Decrease in
currency rate in %
Increase/
(decrease) of
profit and equity
Currency
USD
-3.00%
(18,882,379)
-3.50%
(18,192,069)
EUR
-6.50%
(11,089,753)
-8.00%
(9,350,778)
GBP
-9.00%
(3,316,392)
-10.00%
(3,570,141)
JPY
-6.50%
(1,034,228)
-7.00%
(1,489,656)
RUB
-13.00%
SDR
-5.00%
(50,093)
7,957,065
-15.00%
-6.00%
(56,940)
11,007,547
The expected change in the exchange rates was determined by the Group by analysing annual standard deviations
based on the historical market data of respective exchange rates.
The currency composition of reserves is defined for each liquidity tranche, aiming to hedge the factors underlying the
creation of each tranche. Currently Armenia's foreign public debt is the main foreign currency demand driving factor. As a
result, the currency composition of the reserves mainly mirrors the currency composition of debt. Currency composition
for short term liquidity tranche is affected by the composition of the flows generated from foreign trade as well as possible
intervention needs and current payments. The currency composition is subject of revision at least semi-annually.
Operating risk - control over subsidiaries
As disclosed in Note 2, the Bank has equity investments in a number of subsidiaries that are engaged in financial sector
development and infrastructure activities. The purpose of such investments was to support development of the Armenian
financial sector to ensure stability and normal activity of the financial system of the Republic of Armenia which is one of
the objectives of the Bank as prescribed by the Law.
The control over subsidiaries' activities is exercised by the Bank through the following:
►
Participation in the shareholders' meetings;
Appointment of subsidiaries' management (Boards of Directors of each of subsidiaries are appointed by the
shareholders and Boards of Directors appoint Executive Directors in the each of subsidiaries);
Regular analysis of performance of subsidiaries through review of their financial information at least on an annual
basis including review of results of external audit of the financial statements of subsidiaries;
Performing analysis of subsidiaries' further development strategy including development of the divestment
strategy, where appropriate;
Review of subsidiaries' activities within the scope of the Bank's Internal Audit work which is determined based on
risk assessment results.
In 2015 the Bank has adopted a policy of activation of discussions with possible potential institutional investors regarding
the disposal of its investments in the subsidiaries of the Bank.
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