Investor Presentaiton
SBERBANK
170 YEARS. BY YOUR SIDE
ANNUAL REPORT
RISK MANAGEMENT
2011
114
Λ
financial results
Physical liquidity risk is the risk that any amount expressed in any
currency may fall short of obligations imposed upon the Bank. The
key processes involved in managing physical liquidity risk include
the following:
Forecasting cash flows by type of currency in order to define the
amount of capital required to cover the liquidity gap;
Forecasting the structure of assets and liabilities based on sce-
nario analysis in order to ensure the required level of liquid assets
in the medium and long term;
Monitoring liquidity sources in order to evaluate the maximum
amount of capital the Group can raise from various sources de-
nominated in various currencies;
- Diversifying sources in terms of currency (based on maximum
amounts, costs and borrowing periods);
Conducting stress testing and developing action plans to recover
required liquidity in the event of adverse market conditions or
in a crisis.
Short-term physical liquidity risk management involves cash flow
forecasting and monitoring available liquidity sources. The Bank's
immediate liquidity needs are primarily ensured through direct re-
purchase agreements with foreign banks and the Bank of Russia. Mid-
to long-term liquidity is managed across Sberbank based on quarterly
funding plans. Trade finance, bond issuance and syndicated loans are
the main source for covering mid- to long-term funding requirements.
MARKET RISK
Market risk is defined as the risk that the Group may incur financial
losses as a result of adverse changes in foreign currency rates, equity
instrument prices, interest rates and precious metals prices. The key
objectives of market risk management include achieving the best bal-
ance of risk and return, minimising losses in adverse scenarios and
reducing the deviation of actual financial results from those projected.
The Bank classifies market risk as follows:
Interest rate risk relating to assets and liabilities exposed to interest
rate volatility - the risk of a decrease/increase in interest income/
expenses occurring because of yield curve changes resulting from
a mismatch of investment and borrowing maturities (interest rate
repricing).
-Market risk for trading positions, including:
1. Interest rate risk for the Group's debt securities portfolio. This
is the risk arising from an adverse change in the market value
of securities.
2. Equity risk. This is the risk arising from an adverse change in the
market value of equity instruments.
3. Currency risk. This is the risk arising from an adverse change
in foreign exchange rates and precious metals prices.
The Group uses the following techniques to assess its market risk
exposure:
Interest rate risk for non-trading positions is assessed using gap
analysis. Assets and liabilities with fixed interest rates are ar-
ranged according to their remaining contractual maturities;
those with flexible interest rates are arranged by time remaining
to re-pricing. Russian Ruble and foreign currency gaps are ana-
lysed separately. This involves analysing net profit sensitivity
to a 100 basis points increase/decrease.
Market risk for trading positions (interest rate risk for the debt
securities portfolio, equity and currency risk) is assessed based
on Value at Risk (VaR) methodology. The VaR that the Bank mea-
sures is an estimate, using a specified confidence level, of the
potential financial loss that it does not expect to exceed over
a certain time period. The Group measures VaR using the histori-
cal simulation method with a 99% confidence level for a 10-day
horizon. To monitor the level of market risk arising from trading
positions, the Bank also analyses its daily risk positions and their
sensitivity to changes in market indices.
To mitigate market risk, the following limits and restrictions are set
for transactions involving assets and liabilities:
― Interest rate risk for non-trading positions is mitigated using mar-
ginal interest rates on borrowed and invested corporate funds and
by setting limits on long-term lending amounts (the investment
instrument which entails the greatest risk).
― Market risk for trading positions: limits on investment amounts
and open positions, duration limits, sensitivity limits, stop-loss,
etc.
115
financial results
170 YEARS. IT'S JUST THE BEGINNING
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