UBI Banca Group

different hypotheses for the elasticity of demand deposits.
On the basis of the periodic reports produced, the ALM and Funding Area of the Parent takes
appropriate action to prevent the limits and early warning thresholds from being exceeded.
Exposure to interest rate risk is measured by using gap analysis and sensitivity analysis models and
an assessment of impact on net interest income on all those financial instruments – assets and
liabilities – not included in the trading book in accordance with supervisory regulations.
Sensitivity analysis on economic value, which includes an estimate of the impacts resulting from
early repayment of mortgages and long term loans, is accompanied by an estimate of the variation in
net interest income. Both types of analysis are performed by hypothesising a shock of a parallel rise
in the yield curve of 100 basis points. The calculation of sensitivity on economic value is for items to
maturity only and is performed by including impacts resulting from the early repayment and
renegotiation of mortgages and loans. The analysis of the impact on net interest income is over a time
horizon of twelve months, with account taken of both the variation in the profit on demand items
(inclusive of viscosity phenomena) and that variation for items to held to maturity.
B. Fair value hedging
Specific and macro hedges were performed at Group level using financial derivative instruments, in
order to reduce exposure to adverse changes in fair value due to interest rate risk. More specifically
the following are hedged: fixed interest rate securities in the available for sale portfolio (specific
hedges) loans to ordinary customers on fixed and mixed interest rate schedules (macro-hedges),
mortgages with cap options (macro-hedges) and fixed rate bond and covered bond issues (specific
hedges).
The derivative contracts used are of the interest rate swap and interest rate cap type.
The hedging transactions entered into in 2011 were for the following:
AFS securities (specific hedges) amounting to approximately €150 million nominal;
“prefix” mortgages (macro-hedge) amounting to approximately €1.20 billion nominal;
covered bonds issues (specific hedges) amounting to €1.7 billion;
other fixed rate issues (specific hedges) amounting to approximately €8.3 billion.
Tests for effectiveness are performed prospectively when a hedge is first implemented and this is
generally followed by monthly retrospective tests.
Prospective effectiveness tests are performed by the Finance Area. Retrospective tests are performed
by the Risk Management Area, which keeps official records of effectiveness over time for each hedging
transaction.
C. Cash flow hedging
Details of cash flow hedges are reported in the financial statements of the UBI Group in relation to
issues of certificates of deposit denominated in Japanese currency (JPY), which are hedged by
domestic currency swaps (DCS).
422