2012 Annual Report & Financial Statements - UBA Plc

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Market risk profile
The Group’s risk profile changes as the Group expands across geographies, taking into consideration the worldwide market turbulence, additional
foreign exchange risks alongside interest rate risks open up in different countries where UBA operates. Other areas within market risk exposures
include UBA subsidiaries within Nigeria that take-on equity positions as well as UBA Treasury which has the responsibility for managing the
Group’s risk taking positions and harmonising the operations of various countries. The main objective of market risk management is not only to
manage measure and control market risk exposures but also to ensure that the Group carries out its affairs within acceptable parameters and in
line with the market risk appetite. Market risk achieves the above stated objective, through a mix of quantitative and statistical controls.
Market risk governance
The Board through (Board Risk Management Committee, BRMC) is responsible for the overall governance of market risk as well as defining the
terms of reference and delegating responsibilities to both the GRMC and GALCO. GALCO has Group oversight and is charged with ensuring
that market risks are managed homogeneously in all areas of operation. Further to the above, oversight of market risk is vested in BRMC,
GALCO (Group Asset and Liability Committee) and the Finance & General Purpose Committee (F& GPC) while the day to day management rests
with the Executive Director, Risks and Non-Bank Subsidiaries. The Group Market Risk is not only responsible for the development of detailed
risk management policies but is also involved in the day-to-day review of their implementation. These risk management policies are usually
validated/approved by BRMC, GALCO or the full Board in accordance with the approval guidelines.
Market risk measurement
Market risk management in UBA relies on quantitative measures of risks, all of which aim to capture the variation of given target variable
generated by uncertainty in market conditions. Measures used are a mix of “Volume methods”, which base risk exposures on absolute positions
such as portfolio size, and newer methods of risk measurement which measures value. The “value measures” are used for standardising results
across products and countries as well as measuring financial risks in day-to-day business.
Market risk limits
UBA takes propriety trading positions in foreign exchange, money market and bonds, primarily in the Nigerian financial market. Market risk limits
are based on recommendations by GALCO and approved by the Board, as may be required. Transaction size and portfolio volume limits are in
place for each trading portfolios from the first quarter of 2009. UBA Group uses VaR limits for total market risk and specific foreign exchange,
interest rate, equity and other price risks. The overall structure of VaR limits is subject to review and approval by GALCO. VaR limits are allocated
to trading portfolios, and is measured daily for the actively traded portfolios. These reports are consolidated for review by GALCO. We believe that
market risk is most effectively managed through a combination of VaR, Gap Analysis and volume limits (open position limit) and not VaR limits
only due to some of the limitation of VaR. These limitations include:
– A 10-day holding period assumes that it is possible to hedge or dispose of positions within that period. This may not be the case for certain
highly illiquid assets or in situations in which there are severe general market illiquidity.