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21.
FINANCIAL RISK MANAGEMENT
Financial risk management comprises managing main risks that, by nature of its operations,
COFIDE faces, such as credit, market and liquidity risk.
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Credit risk:
it is generated by the possibility that a counterparty of the agreement of the
financial instrument or obliged third parties do not fulfill their contractual obligations due
to insolvency or to not being able to pay, and creates a financial loss to the counterpart. It
includes management of the counterparty risk, concentration risk, country risk and credit
risk derived from the exchange risk.
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Market risk:
it is generated by the possibility of losses in value of held positions, derived
from variations in market conditions. It generally includes the following type of risks:
exchange rate risk, risk of variations in fair value for interest rate, price, among others.
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Liquidity risk:
it is generated by the fact that COFIDE may not fulfill its payment
commitments given that it has incurred in losses for not fulfilling financing and
application requirements of funds that arise from discrepancies of cash flows.
A description of COFIDE’s management of such risks is explained below. COFIDE has a
specialized structure and organization for management, measurement systems and mitigation
and coverage processes of risks derived from financial instruments. COFIDE presents annual
comparative financial information as of December 31, 2015 and 2014 to the extent applicable:
(a)
Structure and organization of risk management
COFIDE has a structure of governance and management that allows it to properly articulate the
administration and control of financial risks.
(i)
Board of Directors
The Board of Directors of COFIDE is responsible for establishing the proper management
of risks and providing an internal environment that allows its proper development. The
Board of Directors is permanently informed about the degree of exposure of various risks
managed by COFIDE.
The Board of Directors has created several specialized committees in which it has
assigned specific functions in order to strengthen risk management and internal control.
(ii)
Risk Committee
Risk committee is a division created by the Board of Directors, responsible of pre-
approving policies and establishing procedures and methodologies for integral risk
management, as well as of the identification and administration of risks faced by COFIDE.
The committee meets biweekly and reports monthly to the Board of Directors all
significant matters discussed and agreements adopted in relation to risks management. The
Committee comprises a Director (who directs it), the chief executive officer, and the
officers from seven divisions of COFIDE, the head of the Internal Audit Unit (with voice,
but without vote), and the Chief Legal Officer (with voice, but without vote, who develops
secretary functions). In order to carry out its function, the Board of Directors functionally
supports on the risk division of COFIDE.