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ING Bank Śląski S.A. Group has compiled the annual report in line with the best global practices of integrated reporting. To help readers use the interactive tools, we prepared a user guide with key features. We encourage you to watch a short animated video before reading the report.

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Integrated Annual Report
of ING Bank Śląski S.A. 2019

Market risk

The core objectives of credit risk management at ING Bank Śląski S.A. include: ensuring that awareness and understanding exists of the Bank's market risk exposure and that the exposure is adequately managed and falls within the approved limits when applicable.

Market risk is defined as a potential loss that may be suffered by the Bank in connection with unfavourable changes to market prices (such as profitability curves, FX rate, prices in capital markets), market parameters (volatility of market prices, correlation between price changes) and customer behaviour (e.g. loan prepayments).

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Policy of market risk management

The market risk management process at the Bank covers risk identification, measurement, monitoring and reporting. The Market Risk Management Department (DZRR) provides managers of the Financial Market Division and the Group Treasury, selected members of the Management Board and ALCO with regular risk reports. Additionally, ALCO, the Bank's Management Board and Supervisory Board are provided with periodic reports with the major measures of market risk. Employees of the Market Risk Management Department are qualified specialists and the independence of the department is assured by its separation from the risk generating units.

Credit risk management in the Bank also includes the Product Control function which assures correct pricing of products of the Financial Markets and the Group Treasury by monitoring the adequacy of pricing models and quality control of market data used to the evaluation and calculation of financial results. Decisions related to the pricing process such as: sources of market data used for valuation, calculation of provisions concerning market pricing models, are taken by the Parametrisation Committee which is composed of representatives of DZRR, the Financial Markets Division, the CFO Division, including the Group Treasury.

In the period under report, the market risk profile and the risk management methods were not materially changed.

Structure of the Bank’s books and methods of risk management

The Bank maintains the structure of its books relying on intentions which is translated into multiple processes, including market risk management. The book structure reflects the types of market risk that are anticipated and accepted in the Bank's areas and of the fact that market risk should be internally transferred/mitigated.

The books are grouped by an intention to maintain positions split into:

  • “trading” (positions taken in order to generate benefits in a short period of time due to market price fluctuations), and
  • “banking” (all other positions).

The overall structure of the Bank's books

The Banking Books are split into Banking Commercial Books and Banking Books of the Group Treasury. The Banking Commercial Books include books of the retail and corporate divisions containing deposits and commercial loans. The risks relating to those positions are transferred to:

  • banking books of the Group Treasury (for interest rate risk, base and liquidity risk), and
  • commercial books of the Financial Markets Division (for FX risk)

via internal transactions.

The process ensures that the banking commercial books do not retain any material economic market risk. However, as described in more detail further below, the short-term financial result in those books is sensitive to changes of market rates. The commercial activity of the subsidiary companies is included in the Bank’s commercial books.

The Banking Books of the Group Treasury are books used to manage:

  • the Bank's liquidity risk as a whole, and
  • interest rate risk in the banking book.

Maintenance of open positions is permissible within the approved market risk limits.

Trading Books are the books of the Financial Markets area: FX and interest rate books. The books embrace positions maintained for a short time in order:

  • to be resold, or
  • to obtain financial benefits on the current price fluctuations or expected within a short time,
  • or positions opened for arbitration purposes.

The open positions in the trading books are limited.

More information on the methods of the interest rate risk measurement were presented in the Consolidated Financial Statement of ING Bank Śląski S.A. Group for the year 2019.

Measurement of interest rate risk in the banking book

In its measurements of interest rate risk in its banking book, the Bank applies measures required by the European Banking Authority (EBA/GL/2018/02).

More information on the measuring the interest rate risk in the banking book were presented in the Consolidated Financial Statement of ING Bank Śląski S.A. Group for the year 2019.

Measurement of market risk in the trading book

The VaR measured by the Bank is compliant with the best market practices. In the calculation of VaR, the Bank applies the following assumptions:

  • one-day positions, 99% confidentiality level,
  • 260-day observation period.

More information on the market risk measurement in trading book were presented in the Consolidated Financial Statement of ING Bank Śląski S.A. Group for the year 2019.

Sensitivity of profit and equity to interest rate risk

The tables below present a review of the Bank's consolidated sensitivity to interest rate risk:

  • banking book – the changes observed in the measurements both for NII and EVE result primarily from two factors:
    • changes (growth) of product volumes, and
    • changes to model parameters applied to determine the economic value of product portfolios without maturity
  • market value of debt instruments classified HTC&S in the portfolio of the Group Treasury:
    • slight changes were observed to the sensitivity of the HTC&S portfolio versus the previous year. The portfolio BPV measure (short BPV position) has decreased from PLN 1.36 million to PLN 1.13 million.
The sensitivity of consolidated results to interest rate changes resulting from the banking book
Changes to economic results
with an amended curve
Changes to the reported financial results
with an amended curve
PLN million -2% 2% -2%
gradual
2%
gradual
2019 -503.9 -1,433.7 -115.5 15.8
2018 -1,104.0 -158.5 -76.3 3.9
The sensitivity of equity to changes of interest rates under HTC&S debt securities
Approximate change in the regulatory capital base with a curve shift
PLN million -2% -1% +1% +2%
2019 225,5 112,7 -112,7 -225,5
2018 221,0 110,5 -110,5 -221,0

Information regarding hedge accounting can be found in the “Market risk – Hedge accounting” section of the Annual Consolidated Financial Statements of the ING Bank Śląski S.A.Capital Group for 2019.

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