66. Interest rate risk management
2018
Interest rate risk management
Interest rate risk is a risk of losses being incurred on the Group’s balance sheet and off-balance sheet items sensitive to interest rate fluctuations, as a result of changes in the market interest rates.
To reduce the potential losses resulting from market interest rate fluctuations to an acceptable level by properly shaping the structure of balance sheet and off-balance sheet items.
The Group uses the following measures of interest rate risk: interest income sensitivity, economic value sensitivity, value at risk (VaR), stress tests and repricing gaps.
Control over interest rate risk consists in determining the interest rate risk limits and thresholds tailored to the scale and complexity of the Group’s operations, in particular the strategic limit of tolerance to interest rate risk.
The following measures are monitored by the Group on a regular basis:
- the levels of interest rate risk measures,
- utilization of the strategic limit of tolerance to interest risk,
- utilization of internal limits and thresholds of interest rate risk.
Reports on interest rate risk are prepared on a daily, weekly, monthly and quarterly basis.
The main tools for interest rate risk management used by the Group are: interest rate risk management procedures, interest rate risk limits and thresholds.
The Group established limits and thresholds for interest rate risk comprising, among other things, of the following: interest income sensitivity, sensitivity of the economic value and losses.
Financial information
Repricing gap
The repricing gap shows the difference between the present value of assets and liabilities exposed to interest rate risk which are repriced in a given time range, with the items recognized on the transaction date.
| Repricing gap | 0-1 month |
1-3 months |
3-6 months |
6-12 months |
1-2 years | 2-5 years | >5 years | Total |
| PLN (in PLN million) | 31.12.2018 | |||||||
| The Group – Periodic gap | 35 437 | 34 318 | (7 192) | (5 271) | (2 920) | (27 607) | 4 954 | 31 719 |
| The Group – Cumulative gap | 35 437 | 69 755 | 62 563 | 57 292 | 54 372 | 26 765 | 31 719 | – |
| PLN (in PLN million) | 31.12.2017 | |||||||
| The Group – Periodic gap | 53 418 | 37 380 | (12 316) | (14 757) | (14 560) | (27 570) | 4 247 | 25 842 |
| The Group – Cumulative gap | 53 418 | 90 798 | 78 482 | 63 725 | 49 165 | 21 595 | 25 842 | – |
| Repricing gap | 0-1 month |
1-3 months |
3-6 months |
6-12 months |
1-2 years | 2-5 years | >5 years | Total |
| USD (in USD million) | 31.12.2018 | |||||||
| The Group – Periodic gap | 1 158 | (780) | (168) | (235) | (104) | (98) | 1 | (226) |
| The Group – Cumulative gap | 1 158 | 378 | 210 | (25) | (129) | (227) | (226) | – |
| USD (in USD million) | 31.12.2017 | |||||||
| The Group – Periodic gap | 841 | (347) | (445) | (84) | 12 | (109) | 1 | (131) |
| The Group – Cumulative gap | 841 | 494 | 49 | (35) | (23) | (132) | (131) | – |
| Repricing gap | 0-1 month |
1-3 months |
3-6 months |
6-12 months |
1-2 years | 2-5 years | >5 years | Total |
| EUR (in EUR million) | 31.12.2018 | |||||||
| The Group – Periodic gap | 2 181 | (1 664) | (86) | (251) | (228) | (70) | (17) | (135) |
| The Group – Cumulative gap | 2 181 | 517 | 431 | 180 | (48) | (118) | (135) | – |
| EUR (in EUR million) | 31.12.2017 | |||||||
| The Group – Periodic gap | 3 866 | (1 794) | (803) | (548) | (888) | 141 | 18 | (8) |
| The Group – Cumulative gap | 3 866 | 2 072 | 1 269 | 721 | (167) | (26) | (8) | – |
| Repricing gap | 0-1 month |
1-3 months |
3-6 months |
6-12 months |
1-2 years | 2-5 years | >5 years | Total |
| CHF (mln CHF) | 31.12.2018 | |||||||
| The Group – Periodic gap | (730) | 1 092 | 78 | (15) | (3) | (124) | – | 298 |
| The Group – Cumulative gap | (730) | 362 | 440 | 425 | 422 | 298 | 298 | – |
| CHF (mln CHF) | 31.12.2017 | |||||||
| The Group – Periodic gap | 289 | 866 | 75 | (83) | (216) | (2) | (590) | 339 |
| The Group – Cumulative gap | 289 | 1 155 | 1 230 | 1 147 | 931 | 929 | 339 | – |
As at the end of 2018 and 2017, the Group had a positive cumulative gap in PLN in all the time horizons.
The table below presents an analysis of securities issued by the State Treasury and NBP by period to repricing as at the end of 31 December 2018 and 31 December 2017.
| Repricing gap | up to 1 year | 1-5 years | >5 years | Total |
|---|---|---|---|---|
| (in PLN million) | ||||
| 31.12.2018 | 26 076 | 15 320 | 4 185 | 45 581 |
| 31.12.2017 | 25 574 | 10 831 | 4 206 | 40 611 |
Sensitivity measures
The PKO Bank Polski SA Group’s exposure to interest rate risk remained within the adopted limits as at 31 December 2018 and 31 December 2017. The Group was mainly exposed to PLN interest rate risk. Among all the stress tests performed by the Group which involve a parallel shift of interest rate curves, the most unfavourable for the Group was the scenario of a parallel shift of interest rate curves in PLN.
Interest rate risk generated by the Group companies did not materially affect the interest rate risk of the entire Group and therefore did not change its risk profile significantly.
The Bank’s VaR and a stress-test analysis of the Group’s exposure to interest rate risk are presented in the table below:
| Sensitivity measure | 31.12.2018 | 31.12.2017 |
|---|---|---|
| VaR for a 10-day time horizon at a confidence level of 99% (in PLN million)1 | 241 | 301 |
| Parallel shift of interest rate curves by 200 b.p. (in PLN million) (stress-test)2 | 1 611 | 2 150 |
1 Taking into account the nature of the operation of the other Group companies which generate material interest rate risk and the specific characteristics of the market in which they operate, the Group does not determine the consolidated VaR sensitivity measure. Such companies use their own risk measures to manage their interest rate risk. KREDOBANK SA applies the 10-day VaR for interest rates in the main currencies; as at 31 December 2018 it amounted to approx. PLN 12 million and as at 31 December 2017, to approx. PLN 10 million.
2 The table presents the value of the most adverse stress-test scenario: a shift of interest rate curves in particular currencies by 200 b.p. upwards and by 200 b.p. downwards.