KB prezent. angl - Komerční banka

030 ➔031
Report of the Board of Directors
Counterparty risk on capital market activities
In 2003, the Bank continued integrating risk management in the field of capital market activities into the SG Group model.
The assessment of counterparty risks posed by financial institutions is based on external and internal ratings. The counterparty
risk unit includes a specialised analysis team responsible for assessing the credit quality of the Bank’s financial institution
counterparties. Limits are granted based on these analyses.
The concept used by Komerční banka for assessments of counterparty exposure arising from derivative products is applied
throughout the SG Group. In order to unify risk measurement methods within the KB Financial Group, the scope of
monitoring and consolidation of counterparty risks was extended to Komerční Banka Bratislava in 2003. The calculation is
based on the "Current Average Risk" indicator, which allows for an evaluation of the replacement costs of a derivative product
in cases of counterparty default by calculating the average of the estimated potential exposures which are likely to occur
during the remaining life of the transaction. This indicator depends on current market parameters and the time to maturity.
Credit exposure arising from capital-market activities is monitored on a daily basis, separately from business units. The risk
monitoring system enables the Bank to track changes in exposure due to changes in market conditions. The front office
(dealing room) units are provided with information systems enabling them to check observance of exposure limits.
Authorisation must always be given before a transaction can be concluded with an external counterparty. Any breach of limits
is immediately reported to the relevant levels of the Bank’s management.
New market activities/products that are developed by the Bank are comprehensively analysed and assessed before their
launch.
Market Risk Management
Market risk is defined as a risk of loss arising from adverse market conditions. Komerční banka is exposed to the following
types of market risks: interest rate risk, foreign exchange risk, equity risk, credit spread risk and liquidity risk.
In 2003, the Bank’s market risk management continued to implement methods and standards of the Société Générale Group.
The main achievement was the extension of the scope of the Value at Risk calculation to incorporate Komerční banka
Bratislava. Since KB Bratislava is the only subsidiary authorised to take on market risk, all market risks within Komerční banka
Group are now covered by the VaR method.
Responsibility for market risk management at Komerční banka lies with the Market Risk unit. In order to ensure the
independence of risk management from business units, this unit reports directly to the member of Board of Directors in
charge of risk and to the Head of SG Group’s Market Risk. Market risk at KB is managed in compliance with the following
principles, which ultimately require the approval of the Board of Directors:
– all risks are systematically and regularly monitored and reported separately from business units,
– methods for measuring risk and control procedures are defined and approved by the management of the Market Risk unit
and SG Group’s Market Risk,
– limit applications are processed based on requests from operating units, within the global limits set by the Board of
Directors,
– all new market activities/products are comprehensively analysed and assessed before being launched,
– all regulatory requirements are fully respected.