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interest-rate and currency positions, and uses credit derivatives to protect its credit risk
positions against credit rating fluctuations. Asset/liability management ensures the appropriate
maturity structure of interest-bearing balance sheet positions. The bank also
performs exchange rate management in respect of equity positions in foreign currency.
The total volume of derivative instruments declined from € 842 bn at the end of 2004 to
€ 663 bn at the end of 2005. Interest rate derivatives, especially interest rate swaps,
forward foreign exchange outright transactions and swaps as well as cross-currency
swaps again accounted for the largest proportion of total volume. Trading volume within
these categories declined, mainly because of a shift in BA-CA’s strategy away from active
market making in derivatives. This change is to be seen in the context of the banking
group’s overall activities in the market. On the other hand, growth was recorded in equity
and equity-index instruments, which increased by € 1,021 m, and in credit derivatives.
Bank Austria Creditanstalt made more intensive use of these transactions for hedging
banking book positions.
For the purposes of portfolio and risk management, counterparty risk of OTC derivatives is
taken into account with the respective positive market value and an add-on depending on
the product, currency and maturity. Add-ons applied in internal credit risk management for
the potential future exposure are based on the current market volatility relative to the
remaining period to maturity of the transaction as well as on additional considerations with
respect to stress events. Given the underlying confidence interval of 97.5 %, these add-ons
are in most cases clearly above the relevant levels pursuant to the Austrian Banking Act.
Line utilisation for derivatives business is available online in WSS (“Wallstreet”), the
central treasury system, on a largely Group-wide basis. For smaller units not connected
to the central system, separate lines are allocated and monitored. Group-wide compliance
with lines approved in the credit process is thus ensured at any time.
Bank Austria Creditanstalt additionally limits the credit risk arising from its derivatives
business through strict use of master agreements, the definition and ongoing monitoring
of documentation standards by legal experts, and through collateral agreements and
break clauses. In combination with the very good average credit rating of our business
partners in the derivatives business, management takes proper account of default risk
despite a significant increase in business volume.
Risk report 167