The interest rate risk is a risk of incurring losses on the Bank's statement of financial position and off-balance sheet items sensitive to interest rate fluctuations, as a result of changes in the interest rates on the market.
The objective of interest rate risk management is to mitigate the risk of potential losses arising from market interest rate changes to an acceptable level by shaping the structure of statement of financial position and off-balance sheet items.
In the process of interest rate risk management, the Group uses, in particular, the Value at Risk (VaR) model, interest income sensitivity measure, stress tests and a repricing gap.
The Group established limits and thresholds for interest rate risk comprising the following: price sensitivity, interest income sensitivity, limits and threshold for losses and limits on instruments sensitive to interest rate fluctuations.
Methods of interest rate risk management in the Group’s subsidiaries are defined by internal regulations implemented by those entities which are characterised by significant values of interest rate risk measure outcomes. These regulations are developed after consultation with the Bank and include recommendations issued by the Bank for the Group entities.
As at 31 December 2013 and 31 December 2012, the exposure of the PKO Bank Polski SA Group to the interest rate risk comprised mainly of the exposure of the Bank. Interest rate risk generated by the Group entities with regard to PLN, EUR and CHF did not have a significant effect on the interest rate risk of the entire Group and therefore did not significantly affect its risk profile. Interest rate risk with regard to USD was significantly altered by exposure of the Group entities, in which the most significant exposure concerned KREDOBANK SA.
VaR of PKO Bank Polski SA and stress tests analysis of the Group's exposure to the interest rate 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* | 54,930 | 64,451 |
| Parallel movement of the interest rate curves by 200 b.p. (stress test)** | 495,858 | 270,818 |
* Due to the nature of the activities carried out by the other Group entities generating significant interest rate risk as well as the specific nature of the market on which they operate, the Group does not calculate consolidated VaR. These companies apply their own risk measures in the interest rate risk management. KREDOBANK SA uses the 10-day interest rate VaR for the main currencies, which amounted to approx. PLN 10 686 thousand as at 31 December 2013 and PLN 14 287 thousand as at 31 December 2012.
** The table presents the value of the most adverse stress test of the scenarios: movement of interest rate curves by 200 b.p. up and by 200 b.p. down.
As at 31 December 2013 the Bank’s interest rate VaR for a 10-day time horizon (10-day VaR) amounted to PLN 54 930 thousand, which accounted for approximately 0.27% of the Bank’s own funds. As at 31 December 2012, VaR for the Bank amounted to PLN 64 451 thousand, which accounted for approximately 0.33% of the Bank’s own funds (value of the funds calculated in accordance with regulations on calculation of the capital adequacy ratio).