The Group applies the following hedging strategies:
19.1. Hedges against fluctuations in cash flows from mortgage loans in CHF and negotiated term deposits in PLN, resulting from the risk of fluctuations in interest rates and in foreign exchange rates, using CIRS transactions
Description of hedge relationship - elimination of the risk of cash flow fluctuations generated by floating interest rate loans denominated in CHF and negotiated term deposits in PLN resulting from fluctuations in reference interest rates in CHF and PLN, and changes in foreign exchange rates CHF/PLN during the hedged period.
Hedged risk - currency risk and interest rate risk.
Hedging instrument - CIRS transactions where the Group pays coupons based on 3M CHF LIBOR, and receives coupons based on 3M WIBOR on the nominal value defined in CHF and PLN respectively.
Hedged position - the portfolio of floating interest rate mortgage loans denominated in CHF and the portfolio of short-term negotiated term deposits, including renewals in the future (high probability of occurrence). The Group designated the hedged position according to the regulations of IAS 39.AG.99C as adopted by the European Union.
Periods in which cash flows are expected and in which they should have an impact on the result - January 2014 to October 2026.
19.2. Hedges against fluctuations in cash flows from floating interest rate loans in PLN, resulting from the risk of fluctuations in interest rates, using IRS transactions
Description of hedge relationship - elimination of the risk of cash flow fluctuations generated by floating interest rate PLN loan portfolio resulting from the interest rate risk in the period covered by the hedge.
Hedged risk - interest rate risk.
Hedging instrument - IRS transactions where the Group pays coupons based on floating 3M WIBOR rate, and receives coupons based on a fixed rate on the nominal value for which they were concluded.
Hedged position - the portfolio of loans in PLN indexed to the floating 3M WIBOR rate.
Periods in which cash flows are expected and in which they should have an impact on the result - January 2014 to March 2016.
19.3. Hedges against fluctuations in cash flows from floating interest rate loans in EUR, resulting from the risk of fluctuations in interest rates, using IRS transactions.
Description of hedge relationship - elimination of the risk of cash flow fluctuations generated by floating interest rate EUR loan portfolio resulting from the interest rate risk in the period covered by the hedge.
Hedged risk - Interest rate risk.
Hedging instrument - IRS transactions where the Bank pays coupons based on floating 3M EURIBOR rate, and receives coupons based on
a fixed rate on the nominal value for which they were concluded.
Hedged position - The portfolio of loans in EUR indexed to the floating EURIBOR rate.
Periods in which cash flows are expected and in which they should have an impact on the result - January 2014 to June 2016.
19.4. Hedges against fluctuations in cash flows from floating interest rate loans in CHF, resulting from the risk of fluctuations in interest rates, using IRS transactions.
Description of hedge relationship - elimination of the risk of cash flow fluctuations generated by floating interest rate CHF loan portfolio resulting from the interest rate risk in the period covered by the hedge.
Hedged risk - interest rate risk.
Hedging instrument - IRS transactions where the Bank pays coupons based on floating 3M CHF LIBOR rate, and receives coupons based on a fixed rate on the nominal value for which they were concluded.
Hedged position - The portfolio of loans in CHF indexed to the floating 3M CHF LIBOR rate.
Periods in which cash flows are expected and in which they should have an impact on the result - January 2014 to July 2016.
19.5. Hedges against fluctuations in cash flows from floating interest rate loans in foreign currencies, resulting from the risk of fluctuations in interest rates and from foreign exchange rate risk, and hedges against fluctuations in cash flows from fixed interest rate financial liability in foreign currencies, resulting from foreign exchange rate risk , using CIRS transactions
Description of hedge relationship - elimination of the risk of cash flow fluctuations of floating interest rate loans in foreign currencies, resulting from the risk of fluctuations in interest rates and from foreign exchange rate risk, and elimination of the risk of cash flow fluctuations of fixed interest rate financial liability in foreign currency, resulting from foreign exchange rate risk, using CIRS transactions.
Hedged risk - currency risk and interest rate risk.
Hedging instrument - CIRS transactions where the Bank pays coupons based on floating 3M CHF LIBOR rate, and receives coupons based on a fixed USD rate on the nominal value for which they were concluded.
Hedged position - the portfolio of floating interest rate mortgage loans denominated in CHF and fixed interest rate financial liability denominated in USD.
Periods in which cash flows are expected and in which they should have an impact on the financial result - January 2014 to September 2022.
As at 31 December 2013 and as at 31 December 2012, the Group did not use the fair value hedge.
All types of hedging relationships applied by the Group are cash flow hedge accounting (macro cash flow hedge).
Hedge effectiveness is verified through the use of prospective and retrospective effectiveness tests. Tests are performed monthly.
In the third quarter of 2013, due to the lack of fulfilment of the retrospective effectiveness test, the Group ceased to apply hedge accounting for one of hedging relationships of the strategy ‘Hedges against fluctuations in cash flows from mortgage loans in CHF and negotiated term deposits in PLN, resulting from the risk of fluctuations in interest rates and in foreign exchange rates, using CIRS transactions’.
Cash flow hedges
The fair value of derivative instruments constituting cash flow hedges related to the interest rate and / or foreign exchange rate as at 31 December 2013 and as at 31 December 2012:
| Type of instrument: | Carrying amount/fair value | |||
|---|---|---|---|---|
| 31.12.2013 | 31.12.2012 | |||
| Assets | Liabilities | Assets | Liabilities | |
| IRS | 229,630 | 630 | 256,223 | 54 |
| CIRS | 132,009 | 414,174 | 241,907 | 224,319 |
| Total | 361,639 | 414,804 | 498,130 | 224,373 |
The nominal value of hedging instruments by maturity
| Type of instrument: | Nominal value as at 31 December 2013 | |||||
|---|---|---|---|---|---|---|
| up to 1 month | 1 - 3 months | 3 months - 1 year | 1 - 5 years | Over 5 years | Total | |
| IRS PLN fixed - float | 1,600,000 | 570,000 | 1,400,000 | 6,114,000 | - | 9,684,000 |
| IRS EUR fixed – float: | ||||||
| translated into PLN | - | - | - | 1,957,478 | - | 1,957,478 |
| EUR (original currency) | - | - | - | 472,000 | - | 472,000 |
| IRS CHF fixed – float: | ||||||
| translated into PLN | - | - | - | 845,400 | - | 845,400 |
| CHF (original currency) | - | - | - | 250,000 | 250,000 | |
| CIRS float CHF/float PLN | ||||||
| float PLN | 170,080 | 678,010 | 855,508 | 6,708,684 | 1,831,815 | 10,244,097 |
| float CHF | 50,000 | 200,000 | 250,000 | 2,020,000 | 525,000 | 3,045,000 |
| CIRS fixed CHF/float CHF | ||||||
| fixed USD | - | - | - | - | 750,000 | 750,000 |
| float CHF | - | - | - | - | 695,419 | 695,419 |
| Type of instrument: | Nominal value as at 31 December 2012 | |||||
|---|---|---|---|---|---|---|
| up to 1 month | 1 - 3 months | 3 months - 1 year | 1 - 5 years | Over 5 years | Total | |
| IRS PLN fixed - float | 1,150,000 | 60,000 | 1,816,000 | 360,000 | - | 3,386,000 |
| IRS EUR fixed – float: | ||||||
| translated into PLN | - | - | - | 1,929,630 | - | 1,929,630 |
| EUR (original currency) | - | - | - | 472,000 | - | 472,000 |
| IRS CHF fixed – float: | ||||||
| translated into PLN | - | - | - | 846,700 | - | 846,700 |
| CHF (original currency) | - | - | - | 250,000 | - | 250,000 |
| CIRS float CHF/float PLN | ||||||
| float PLN | - | 1,196,440 | 5,095,105 | 8,084,755 | 2,010,240 | 16,386,540 |
| float CHF | - | 350,000 | 1,500,000 | 2,425,000 | 575,000 | 4,850,000 |
The nominal values were translated using the average NBP rate as at 31 December 2013 and as at 31 December 2012 respectively.
| Other comprehensive income as regards cash flow hedges | 31.12.2013 | 31.12.2012 |
|---|---|---|
| Other comprehensive income at the beginning of the period, gross | 64,073 | 447,142 |
| Gains/losses transferred to other comprehensive income in the period | 122,138 | 913,761 |
| Amount transferred from other comprehensive income to the income statement in the period, of which: | (341,264) | (1,296,830) |
| - interest income | (454,278) | (870,450) |
| - net foreign exchange gains | 113,014 | (426,380) |
| Accumulated other comprehensive income at the end of the period, gross | (155,053) | 64,073 |
| Tax effect | 29,460 | (12,174) |
| Accumulated other comprehensive income at the end of the period, net | (125,593) | 51,899 |
| Ineffective part of cash flow hedges recognised in the income statement | 24,333 | 7,938 |
| Effect on other comprehensive income in the period, gross | (219,126) | (383,069) |
| Deferred tax on cash flow hedges | 41,634 | 72,783 |
| Effect on other comprehensive income in the period, net | (177,492) | (310,286) |