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The main goals of market risk management at ING Bank Śląski S.A. are to ensure that the Bank’sBank when capitalised means ING Bank Śląski S.A.Bank when capitalised means ING Bank Śląski S.A. exposure to market risk is understood and properly managed, and, if applicable, that the exposure is within approved limits.

The BankBank when capitalised means ING Bank Śląski S.A.Bank when capitalised means ING Bank Śląski S.A. defines market risk as the potential loss due to unfavourable changes in market prices (e.g. yield curves, FX rates, equity prices, etc.), market parameters (e.g. volatility of market prices and the correlation between moves in market prices) and customer behaviour (e.g. loan prepayments).

Market risk management process

The market risk management process within the BankBank when capitalised means ING Bank Śląski S.A.Bank when capitalised means ING Bank Śląski S.A. covers the identification, measurement, monitoring and reporting of risk. The Market Risk Management Department provides FM and Group Treasury Management, selected Management Board and ALCOAsset-Liabilities Committee.Asset-Liabilities Committee. Committee members with regular risk updates. Furthermore, the ALCOAsset-Liabilities Committee.Asset-Liabilities Committee., the Bank Management Board and Supervisory Board receive periodic updates with the most important market risk metrics. The MRM Department is staffed with trained specialists and the independence of this department is ensured by its separation from the Bank units which generate market risk.

The market risk management process at the BankBank when capitalised means ING Bank Śląski S.A.Bank when capitalised means ING Bank Śląski S.A. also covers the Product Control function which assures correctness of Financial Markets and Group Treasury products valuation by monitoring the correctness of valuation models and controlling the quality of market data used for valuation and calculation of a financial result. Decisions about issues related to the valuation process e.g. sources of market data used for valuation, pricing model provisions calculation, etc. are taken by the Parameterisation Committee which is composed of representatives from the MRM Department, Financial Markets Division, Group Treasury and Finance Division.

Bank’s book structure and risk measurement methods

The BankBank when capitalised means ING Bank Śląski S.A.Bank when capitalised means ING Bank Śląski S.A. maintains an intention-based book structure which drives many processes, including market risk management. The book structure reflects what kind of market risk is expected and acceptable in different parts of the BankBank when capitalised means ING Bank Śląski S.A.Bank when capitalised means ING Bank Śląski S.A. and where market risk should be internally transferred/hedged within the BankBank when capitalised means ING Bank Śląski S.A.Bank when capitalised means ING Bank Śląski S.A.. Books are categorized based on intention as:

  • trading books (positions taken in expectation of short-term financial gains from market movements), and
  • banking books (all other positions).

High-level structure of Bank'sBank when capitalised means ING Bank Śląski S.A.Bank when capitalised means ING Bank Śląski S.A. books

ing-infografika-bank-ENG ing-infografika-bank-ENG

Banking Books are further split into Commercial Banking Books and Group Treasury Banking Books. Commercial Banking Books are Retail and Wholesale Banking books containing commercial loans and deposits. The risk of those positions is transferred to:

  • Group Treasury Banking Books (for interest rate risk, basis risk and liquidity risk) and
  • trading books of the Financial Markets Division (for FX risk) via internal contracts.

The process ensures that the commercial banking books do not contain any material economic market risk. However, as described later in more detail, the short-term financial results of those books are sensitive to changes in market rates. The commercial activities of the subsidiaries belong to the commercial banking books.

The Group Treasury Banking Books serve to manage:

  • the liquidity risk of the BankBank when capitalised means ING Bank Śląski S.A.Bank when capitalised means ING Bank Śląski S.A. as a whole, and
  • the interest rate risk of the banking book.

Open positions are allowed within approved market risk limits.

Trading Books are books in the Financial Markets area: FX and interest rate trading books. These books include items held over a short period of time:

  • for resale, or
  • with the intent of benefiting from actual or expected short-term price movements, or
  • items to lock in arbitrage profits.

The open positions in 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 2018 on page 175.

Measuring the interest rate risk in the banking book

In measuring the interest rate risk of the banking book, the Bank applies the measures required by the regulations of the European Banking Authority (EBAEuropean Banking Authority.European Banking Authority./GL/2015/08).

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 2018 on page 177.

Market risk measurement in trading book

The BankBank when capitalised means ING Bank Śląski S.A.Bank when capitalised means ING Bank Śląski S.A. calculates VaR Value at Risk – the ratio which defines the anticipated maximum potential loss at certain probability.Value at Risk – the ratio which defines the anticipated maximum potential loss at certain probability. in line with the best market practice taking into account the following assumptions:

  • one-day position holding period, 99% confidence 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 2018 on page 178.

Sensitivity of the result and capital to the interest rate risk

The tables below present an overview of the Bank'sBank when capitalised means ING Bank Śląski S.A.Bank when capitalised means ING Bank Śląski S.A. consolidated sensitivity to the interest rate risk:

  • banking book – the changes observed in the measurement for both the NII and EVE measure result mainly from the two factors:
    • changes (increase) in product volumes, and
    • changes in model parameters used to determine the economic value of product portfolios without maturity.
  • market value of debt instruments classified as HtC&S in the Group Treasury portfolio:
    • slight changes in the sensitivity of the HtC&S portfolio were observed compared to the previous year. The BPV measure of the portfolio (BPV short position) went up from PLN 1.32 million to PLN 1.36 million.
The sensitivity of consolidated results to the interest rate movements resulting from the banking book
Change in the economic result for yield curve move Change in the reported financial result for yield curve move
PLN million -2% 2%

-2% gradual

2% gradual

2017 -607.1 230.7 -29.6 60.3
2018 -1,104.0 -158.5 -76.3 3.9
Sensitivity of own funds to interest rate changes due to HtC&S debt securities
Approximate change in regulatory capital base for yield curve move
PLN million -2% -1% 1% 2%
2017 159.5 80.1 -94.5 -190
2018 221 110.5 -110.5 -221

Summary

In the reporting period, the market risk profile and the method of managing this risk did not change significantly.

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