- September 5, 2024
- Posted by: admin
- Categories: Current News, Financial Sector Management
The Financial Markets Department of the Bank of Namibia is charged with the role of managing the foreign exchange reserves in a prudent manner. This entails executing its mandate within the approved risk tolerance limits of the Bank as defined in the reserves management policy. Risk budgeting provides a framework that guides an institution on how much risk can be taken to achieve its return objectives. It gives insight into how risk is allocated across investments and factors and therefore facilitates assessing the return per unit of risk of investments. At a granular level, it helps to assess the attractiveness of different investment opportunities in terms of assets, markets, and currencies. It is a good planning tool for reserves managers since it informs decisions on how to position the portfolios to improve performance and control portfolio risk. It is against this background that MEFMI conducted a training workshop on risk budgeting and management at the Central Bank of Namibia on 8 – 12April 2024 in Windhoek, Namibia.
The objectives of the training were to equip the staff with the concepts and tools for budgeting for financial risk for the total reserves portfolio using the mean variance optimization and risk parity frameworks, allocating risk budgets to each sub portfolio, monitoring, measuring, and evaluating financial risk. The concepts would ultimately enable them to formulate a risk budgeting framework.
The workshop was targeted at junior and mid-level staff in reserves management and risk management functions in the Front and Middle offices at the Bank. A total of 10 officials from the front and middle office attended the workshop, out of which 5 (50%) were female and 5 (50%) were male.
It is expected that participants will utilize the material, models and templates provided and the knowledge gained from the training workshop to review and improve their risk management framework and further formulate a risk budget for the reserves portfolio which will ultimately align their investment decisions to their medium to long-term risk and return investment objectives.