ING Bank Śląski | Annual Report 2014

ING BANK ŚLĄSKI

ING BANK ŚLĄSKIAnnual Report 2014

Market risk

General information

At ING Bank Śląski S.A. we apply a broad definition of market risk which takes into account (both at solo and consolidated level) sensitivity to changes to the market parameters and liquidity-related behaviours of clients, where:

  • Sensitivity encompasses both changes to the economic results and presentation in the relevant reports of financial results, changes to the extent whereto the statutory and economic capital requirements are covered, as well as Bank’s capacity to cover liabilities once they become due and payable,
  • Market rates cover FX rates, interest rates, real estate and securities prices, implied variability of FX rates and interest rates. The market parameters derive from market rates and they include elements such as variability and correlation,
  • Liquidity-related behaviour of clients covers the profile of Bank’s depositaries in terms of renewal and premature termination and profile of Bank’s debtors in terms of prepayments, past due repayments and default.

General approach to market risk management

The market risk management process at ING Bank Śląski S.A. includes: market risk identification, measurement, monitoring and reporting, both within the Bank itself and in its subsidiaries. Being independent from the Bank units generating market risk, the Market Risk Management Department provides the Supervisory Board Members, the Management Board Members, the ALCO Committee, the Financial Markets Division Management and the Treasury Department with market risk updates. An important advisory role in the market risk management process is performed by the Bank’s majority shareholder – ING Bank N.V.

The Market Risk Management Department is sub-divided into two sections:

  • The Trading Risk Management & FM Product Control Section which deals with risk generated by the Bank’s trading operations,
  • and the ALCO Management Section, concentrated on the Bank’s balance sheet and liquidity risk management.

The Bank books structure is based on intentions of concluded transactions and it reflects the types and areas of market risk existing at the Bank, which should be internally transferred and hedged. Notably, the structure of books includes the following purposes of the Bank’s activity:

  • Trading Book. In includes books of the Financial Markets Division area (FX, FX options and interest rate books). These books include items kept for short-term in order to sell them back or to obtain financial benefits due to current or expected in short-term changes to prices or items included for arbitrary purposes. Examples are own trading items, items resulting from servicing the client and/or market making.
  • Banking Book. In includes Commercial Banking Books and Treasury Department Banking Books. Commercial Banking Books are banking books of the retail and corporate divisions, including commercial deposits and loans. The risk embedded in these items is transferred to Treasury Department banking books by means of internal transactions, where it is further managed within the market risk limits adopted by the Bank.

Risk models

Risk models are adjusted to the profile, scale and complexity of market risk at ING Bank Śląski S.A. The models take into account both the current and planned scope of Bank’s activity. All models are periodically (at least once a year) reviewed (models’ assumptions in particular). The review includes back-testing.

Risk models cover:

  • VaR models – are applied to manage interest rate risk, FX risk and FX options risk,
  • ALM models including:
    • Liquidity models – regulatory and internal models applied in liquidity risk management (covering assets and liabilities),
    • Interest rate models – applied in interest rate risk management, including demand deposits replication.
    • Internal capital adequacy models – applied to the capital requirements calculation.

Detailed approach regarding models’ life cycle consist of the following elements:

  • Model development or change initiation,
  • Model development and testing,
  • Model prevalidation preceding its acceptance,
  • Model acceptance,
  • Model implementation,
  • Model implementation validation,
  • Model functioning and its monitoring,
  • Periodical validation.

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