Central Bank of Bahrain

Reserve Management Policy

Overview of Reserve Management Policy

The CBB aims at managing its foreign reserves professionally in order to achieve a high return. However, profit-maximization is not the sole objective of the CBB's investment policy. The key objectives of the CBB investment policy are:

• High level of liquidity

• Preservation of capital

• High aggregate portfolio quality

• Appropriate risk/return portfolio

• Maintaining the parity of the Bahraini dinar

The CBB's foreign reserves are divided into various portfolios according to purpose and type of investment instruments. A set of Investment Guidelines guides the investment mandate for each portfolio. The Investment Guidelines allow for investing the reserves in a broad range of assets.

In order to ensure that sufficient liquidity is always available to the CBB to meet the projected demand for USD, a part of the foreign reserves is placed in a liquidity portfolio consisting of USD deposits with commercial banks, both inside and outside Bahrain. Other portfolios consist of short, medium and long term debt securities of high credit standards, such as US treasury bills and bonds, euro bonds, mortgage backed securities, asset backed securities and corporate bonds.

The CBB manages the liquidity portfolio and some other portfolios internally, while some of the fixed income portfolios are managed by external asset managers. The 'Investment Guidelines' applying to the externally managed portfolios are the same as those applying to the corresponding portfolios managed internally. The CBB selects its external asset managers according to the following criteria:

• Leadership in the asset management business.

• Strong historical performance record in managing portfolios similar to the CBB's portfolios.

Reserve Management Committee

The CBB has established a Reserve Management Committee (RMC) which is responsible for the strategic direction of the foreign reserve management. The RMC is also responsible for monitoring that the portfolios are managed in accordance with the key objectives and the respective Investment Guidelines. The RMC meets on a monthly basis in order to discuss and analyse the performance of the portfolios and to set the investment objectives for the next month.
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