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Annual
Report 2022

46.4. Market risk

The Group is exposed in its operations to market risk and other types of risk caused by changing market risk parameters.

Market risk is the risk of deteriorating financial result or capital of the Group resulting from market changes. The main factors of market risk are as follows:

  • interest rates,
  • foreign exchange rates,
  • stock prices,
  • commodity prices.

The Group established a market risk management system, providing structural, organizational and methodological frames for the purpose of shaping the structure of balance and off-balance items to assure the achievement of strategic goals.

The main objective of market risk management is to optimize financial results so as to assure the implementation of financial goals of the Group while keeping the exposure to market risk within the risk appetite defined through risk limits approved by the Management Board and the Supervisory Board.

The organization of the market risk management process is based on a three-tier control system, established in compliance with the best international banking practices and recommendations from banking supervision. The process of market risk management and procedures regulating it have been developed taking into consideration the split into trading and banking books.

Market risk of the trading book

The Group’s management of market risk of the trading book aims at optimizing the financial results and assuring the highest possible quality of customer service in reference to the market accessibility (market making) while staying within the limits of risk approved by the Management Board and the Supervisory Board.

The main tool for market risk of the trading book measurement is Value at Risk model (VaR). This value corresponds to the level of a one-day loss, which will be exceeded with the probability not greater than 1%. VaR value is calculated with historical simulation method based on 2 years of historical observations of market risk factors’ dynamics. The set of factors used when calculating VaR consists of all significant market factors that are taken into account for valuation of financial instruments, excluding specific credit risk of an issuer and counterparty. Estimating the impact of changes in market factors on the present value of a given portfolio is performed under the full revaluation (which is a difference between the value of the portfolio after the adjustments in market parameters’ levels by historically observed changes of the parameters and the present value of the portfolio). For such a set of probable changes in the portfolio value (distribution), VaR is defined to be equal to 1% quantile.

The model is subject to continuous, statistical verification by comparing the VaR values to actual and revaluated performance figures. Results of analyses carried out in 2022 and 2021 confirmed the adequacy of the model applied.

The table below presents the market risk exposure of the trading portfolio of the Group measured by Value at Risk as at 31 December 2022 and as at 31 December 2021.

31.12.2022 MINIMUM VALUE AVERAGE VALUE MAXIMUM VALUE
foreign currency exchange risk 32 14 153 1 338
interest rate riskj 3 296 1 680 3 038 6 031
Trading portfolio 3 258 1 719 3 092 5 807
31.12.2021 MINIMUM VALUE AVERAGE VALUE MAXIMUM VALUE
foreign currency exchange risk 409 13 75 433
interest rate risk 2 306 801 2 155 4 072
Trading portfolio 2 331 810 2 190 3 892

Interest rate risk of the banking book

In managing the interest rate risk of the banking book the Group aims at hedging the economic value of capital and achieving the planned interest result within the accepted limits. The financial position of the Group in relation to changing interest rates is monitored through the interest rate gap (repricing gap), duration analysis, sensitivity analysis, stress testing and VaR. The interest rate risk of the banking book measurement is generally carried out on a monthly basis.

In 2022, the Bank’s low interest rates and high banking sector liquidity had a significant impact on the level of the Bank’s exposure to interest rate risk and the amount of net interest income. The Bank secures the economic value of capital and the income stream by concluding IRS transactions on an appropriate scale and by purchasing fixed-coupon bonds.

The table below presents the sensitivity levels of the contractual interest income (NII) to the interest rate change by 100 b.p. and of economic value of the Bank’s equity (EVE) to the interest rate change by 200 b.p. (standard regulatory shock excluding the risk profile of own funds) for the end of December 2022 and December 2021.

SENSITIVITY IN % (*)) 31.12.2022 31.12.2021
NII -3.85 -7.51
EVE -5.75 -6.31
(*) The risk profile of own funds is taken into account in estimating the sensitivity of the economic value of equity for the purposes of internal analyses.

Currency risk

Currency risk management is performed simultaneously for the trading and the banking book. The objective of currency risk management is to maintain the currency profile of statement of financial position and off-balance items within the internal limits.

The tables below present the Group’s currency structure of selected financial assets and financial liabilities.

31.12.2022 PLN EUR USD CHF OTHER TOTAL
ASSETS
Cash and due from Central Bank 9 654 041 2 506 507 819 155 208 102 248 529 13 436 334
Loans and advances to banks 2 905 493 1 434 327 133 650 20 874 184 269 4 678 613
Loans and advances to customers 127 329 503 29 037 139 1 221 421 636 879 496 048 158 720 990
Debt securities 68 463 038 5 604 224 5 701 067 79 768 329
LIABILITIES
Amounts due to Central Bank 4 317 750 4 055 974 121 873 93 578 5 221 8 594 396
Amounts due to other banks 874 591 874 591
Financial liabilities held for trading 171 961 869 24 168 721 12 260 804 686 293 1 669 403 210 747 090
Amounts due to customers 10 065 111 272 374 10 337 485
Debt securities issued 2 789 132 2 789 132
31.12.2021 PLN EUR USD CHF OTHER TOTAL
ASSETS
Cash and due from Central Bank 2 956 881 741 412 497 453 177 751 323 123 4 696 620
Loans and advances to banks 1 658 574 1 317 583 92 405 13 332 246 193 3 328 087
Loans and advances to customers 131 134 058 23 900 745 1 110 942 2 542 682 540 329 159 228 756
Debt securities 57 388 961 1 890 924 7 450 113 66 729 998
LIABILITIES
Amounts due to Central Bank
Amounts due to other banks 5 169 502 3 271 246 18 459 107 407 8 855 8 575 469
Financial liabilities held for trading 639 733 639 733
Amounts due to customers 163 916 316 19 797 451 9 352 635 528 892 1 566 649 195 161 943
Debt securities issued 4 564 367 790 988 5 355 355
Subordinated liabilities 2 761 474 2 761 474

The tables below present the Group’s foreign currency risk profile measured by Value at Risk and currency position.

Value at Risk

CURRENCY 31.12.2022 31.12.2021
Total currencies (*) 3 460 732
(*) VaR presented in “Currencies total’ is VaR constitutes the Bank's total exposure to currency risk. The value of the VaR measure is determined using the same method as for market risk in the trading book, i.e. the historical simulation method based on a 2-year history of observation of the dynamics of market risk factors, with a 99% confidence level, which reflects the level of a one-day loss that may be exceeded with a probability of no more than 1%. By default, the historical simulation method takes into account correlation relationships between currencies

Currency position

31.12.2022 BALANCE SHEET OPERATIONS OFF-BALANCE SHEET OPERATIONS- DERIVATIVES NET POSITION
ASSETS LIABILITIES LONG POSITION SHORT POSITION
EUR 42 738 064 32 562 480 18 990 007 29 179 385 -13 794
USD 8 370 804 12 684 301 12 833 731 8 502 441 17 793
CHF 1 030 978 844 495 2 987 908 3 181 198 -6 807
GBP 334 704 1 280 639 983 535 37 313 287
NOK 283 290 67 897 24 218 239 119 492
SEK 64 985 82 652 42 758 25 227 -136
CAD 20 508 82 980 65 687 3 349 -134
CZK 49 677 46 313 273 804 276 058 1 110
RON 57 511 17 061 456 374 495 843 981
CNY 10 311 21 056 949 162 941 929 -3 512
HUF 48 006 16 920 77 674 108 433 327
Other currencies 69 988 74 394 64 546 60 651 -511
Total 53 078 826 47 781 188 37 749 404 43 050 946 -3 904
31.12.2021 BALANCE SHEET OPERATIONS OFF-BALANCE SHEET OPERATIONS- DERIVATIVES
ASSETS LIABILITIES LONG POSITION SHORT POSITION NET POSITION
EUR 30 600 095 26 904 921 23 686 721 27 365 640 16 255
USD 9 557 499 9 675 647 8 151 754 7 986 501 47 105
CHF 2 790 085 646 075 1 292 040 3 432 811 3 239
GBP 381 213 1 164 222 824 835 39 707 2 119
NOK 309 595 69 547 3 810 243 324 534
SEK 82 692 93 263 21 740 11 066 103
CAD 47 538 73 851 29 296 2 713 270
DKK 44 844 28 647 7 702 24 039 -140
CZK 40 875 30 127 320 348 327 500 3 596
RON 26 910 16 286 256 645 271 019 -3 750
CNY 135 717 31 846 617 757 721 252 376
HRK 839 1 703 128 240 127 123 253
HUF 4 965 28 886 352 172 328 232 19
Other currencies 43 837 50 292 87 759 80 089 1 215
TOTAL 44 066 704 38 815 313 35 780 819 40 961 016 71 194

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