TlB Annual Report 2009 - Triodos Bank

alance sheet and profit and loss are
denominated in gbp. Open foreign currency
positions during 2009 have always been close
to zero. The foreign exchange rate risk is
monitored monthly in the Asset and Liability
Committee. Limits are agreed by Triodos Bank’s
Executive Board based on a proposal made by
the Risk Management Department.
The Interest Rate Risk is the risk that the value
of assets and liabilities is negatively affected by
interest rate changes in the financial markets.
This risk is inherent to the banking business.
The interest rate risk mainly arises from the fact
that there are differences in fixed-rate interest
periods for assets and liabilities.
Every month, Triodos Bank’s interest rate risk
position is monitored and assessed by the Asset
and Liability Committee. The interest rate risk
is managed using a system of guidelines and
limits and by performing various interest rate
scenarios integrated in the interest rate risk
model. Limits are agreed by Triodos Bank’s
Executive Board based on a proposal made by
the Risk Management Department. Triodos
Bank uses two key indicators to measure the
interest rate risk. The first is a short term
indicator, the Earnings at Risk (the change of
interest earnings over 12 months in case of an
interest shock of 2%). The second is a long
term indicator, the Economic Value of Equity at
Risk. The Economic Value of Equity is the
difference between the net present value of the
cash flows of all assets and liabilities. The
Economic Value of Equity at Risk is the change
of value of the Economic Value of Equity in
case of an interest rate shock of 2%. The value
of the indicators for interest Earnings at Risk
and the Economic Value of Equity at Risk
according to various interest rate scenarios at
31 December 2009, are presented in the table
below.
These calculations include a number of
assump tions with respect to current account
and savings deposits that have no contractual
fixed term period. The following assumptions
are made in our savings model:
• Savings deposits ≥ eur 50,000 and gbp savings
deposits decrease in a straight line for one year
• Savings deposits < eur 50,000 decrease in a
straight line over four years
• Euro current accounts credit balances with a
interest rate percentage of < 0.5% decrease in a
straight line over four years
• Other current account credits have an interest
rate period of one month.
A mixture of long and short-term market
interest rates is used for the calculation of
saving deposits interest rates. Interest rates on
the current account are in line with short-term
market rates.
The aforementioned assumptions are initially
based on qualitative grounds, a so-called expert
opinion. To improve the substantiation of the
assumption, a quantitative assessment of the
interest sensitivity of our saving accounts was
executed in most branches. The findings of this
assessment will be used to optimise the savings
model that is used as input for the interest rate
model in 2010. Besides that, a high level risk
assessment compared our savings and interest
rate risk model with industry best practices.
Indicators Earnings at Risk and Economic Value of Equity at Risk at 31 December 2009, determined per currency
in millions of EUR
Indicator Rising interest rate
(+200 bp)
Decreasing interest rate
(-200 bp)
EUR Earnings at Risk 1 year 5.5 ( 9%) -2.5 (-4%)
GBP Earnings at Risk 1 year 2.3 (28%) -0.5 (-6%)
All currencies Earnings at Risk 1 year 7.8 (11%) -3.0 (-4%)
EUR Economic Value of Equity at Risk -37.9 (-11%) 60.0 (17%)
GBP Economic Value of Equity at Risk 0.1 (2%) 2.1 (64%)
All currencies Economic Value of Equity at Risk -37.8 (-11%) 62.1 (17%)
bp = basis points
TRIODOS BANK - ANNUAL REPORT 2009 57