Currency risk is the risk of incurring losses due to exchange rate changes. Generated by maintaining open currency positions in a given foreign currencies.
The objective of managing the currency risk is to reduce potential losses arising from exchange rate changes to an acceptable level by shaping the currency structure of statement of financial position and off-balance sheet items.
The Group measures currency risk using the Value at Risk (VaR) model and stress tests.
Methods of currency risk management in the Group’s subsidiaries are defined by internal regulations implemented by these entities. The regulations are developed by entities, for which currency risk measurement tools obtain a significant value, after consultation with the Bank and taking into account recommendations issued to the entities by the Bank.
VaR and stress tests of the Group’s exposure to the currency risk
| Name of sensitivity measure | 31.12.2013 | 31.12.2012 |
|---|---|---|
| VaR for a 10-day time horizon with a confidence level of 99% threshold * | 2,443 | 628 |
| Change in FX rates by 20% (stress test)** | 21,428 | 3,869 |
* Due to the nature of the activities carried out by the other Group entities generating significant currency risk as well as the specific nature of the market on which they operate, the Bank does not calculate consolidated VaR. These companies apply their own risk measures in the currency risk management. KREDOBANK SA uses the 10-day VaR, which amounted to approx. PLN 906 thousand as at 31 December 2013 and approx. PLN 614 thousand as at 31 December 2012.
** The table presents the value of the most adverse stress test of the scenarios: PLN appreciation by 20% and PLN depreciation by 20%.
The level of currency risk was low both as at 31 December 2013 and as at 31 December 2012.
The Group’s currency position for particular currencies
| Currencies | Currency position as at 31.12.2013 | Currency position as at 31.12.2012 |
|---|---|---|
| EUR | 13,010 | (11,933) |
| USD | 79,507 | (8,277) |
| CHF | 6,526 | (20,127) |
| GBP | 3,673 | 4,611 |
| Other (global net) | 6,020 | 12,395 |