Annual report 2004 (PDF, 4141 kB) - Unicredit Bank

market movements. The Board of Directors sets limits on the market risk limits, which are
monitored on a daily basis.
The Bank has started using “Value at Risk” (“VaR”) since the second half of 2003 as a tool
for estimating market risk of all open positions. The Board of Directors sets the limits of
maximum acceptable risk. The limits are monitored on a daily basis.
Daily VaR is considered to be an estimate of the potential loss with a 99% confidence level on
the assumption that the actual position will not be changed in the following working day. The
value of VaR is thus the value of loss, which the Bank can incur within one day and with a
99% probability the loss will not be higher than the VaR calculated. The Bank uses the
methodology based on historical simulation for the VaR calculation. The calculation is set up
in such a way, that a daily loss exceeding the VaR will not occur (on average) more
frequently than each 100 th working day. Daily revaluation of portfolios is compared to VaR
on a daily basis (so-called “back testing”) with the purpose of potential re-calibration of
parameters of the VaR model.
The Bank performs stress testing for main trading currencies (CZK, USD, EUR) on parallel
shift of the yield curve by 2%. The Bank also performs stress testing describing foreign
currency shocks, if exchange rates change by 3%.
(e)
Currency risk
The Bank takes on exposure to effects of fluctuations in the prevailing foreign currency
exchange rates on its financial position and cash flows. The Board of Directors sets limits on
the level of exposure by currency and in total for both overnight and intra-day positions,
which are monitored daily.
The VaR amount for foreign currency risk for all open foreign currency positions was
CZK 0,3 million as of 31 December 2004 (31 December 2003: CZK 1 million). The average
VaR amount for foreign currency risk for the period from 1 January 2004 to 31 December
2004 was CZK 1 million.
Comparative figures are not available.
The table below summarises the Bank’s exposure to foreign currency exchange rate risk
at 31 December 2004 and 2003. Included in the table are the Bank’s assets and liabilities at
carrying amounts, categorised by currency. The off-balance sheet gap represents
the difference between the notional amounts of foreign currency derivative financial
instruments, which are principally used to reduce the Bank’s exposure to currency
movements, and their fair values.
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