UBI Banca Group

2.2 Interest rate risk and price risk – banking portfolio
Qualitative information
A. General aspects, management processes and methods of measurement of interest rate risk
and price risk
Interest rate risk consists of changes in interest rates which have the following effects:
• on net interest income and consequently on the profits of the bank (cash flow risk);
• on the net present value of assets and liabilities, which has an impact on the present value of
future cash flows (fair value risk).
The control and management of structural interest rate risk - fair value and cash flow – is performed
in a centralised manner by the Parent within the framework, defined annually, of the Policy to
Manage Financial Risks of the UBI Banca Group, which identifies measurement methods and models
and limits or early warning thresholds in relation to net interest income and the economic value of
the Group.
The Policy to Manage Financial Risks of the UBI Banca Group 2011 defines a system of limits on
exposure to interest rate risk based on indicators measured in a scenario of a +100 bp increase in
interest rates over a time horizon of twelve months. The Supervisory Board has set a limit on the
estimate of variation in net interest income at consolidated level, which must be > 0 and an early
warning threshold on sensitivity, which must be negative and remain within a range of 0% to 4% of
available financial resources 1 (taken with a negative sign). With regard to those limits, the
Management Board has set an early warning level on sensitivity of -€350 million. For economic value
sensitivity only, a policy of basic balance in terms of exposure to interest rate risk is defined at
individual company level, except for specific limits and early warning thresholds set for individual
companies and banks in the Group:
Banca Carime: limit -€50 million, early warning threshold -€40 million;
Centrobanca: limit -€20 million, early warning threshold -€15 million,
IW Bank: limit -€12 million at individual level, early warning threshold -€8.5 million in terms
of contribution to consolidated exposure, -€10 million at individual level.
The early warning threshold for the network banks with no specific exceptions is set at 1% of
individual supervisory capital. The early warning threshold for the product companies is -€5 million
with no specific exceptions.
Compliance with individual limits is pursued by Group member companies by means of hedging
derivative contracts entered into with the Parent. UBI Banca may then close the position with
counterparties outside the Group, acting in accordance with strategic policies and within the
consolidated limits set by the governing bodies.
Measurement, monitoring and reporting of interest rate risk exposure is performed at consolidated
and individual level by the Risk Management Area of the Parent, which performs the following on a
monthly basis:
• a sensitivity analysis designed to measure changes in the value of assets on the basis of
parallel shocks on interest rate levels for all the time buckets of the curve;
• a simulation of the impact on net interest income for the current year by means of a static gap
analysis (i.e. assuming that the positions remain constant during the period), considering
1 See Part F, section 1, point A of the Notes to the Consolidated Financial Statements for a definition of available
financial resources.
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