Annual Report - Ahli United Bank

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Annual Report - Ahli United Bank

4. MARKET RISK (continued)- the use of a confidence level, by definition, does not take into account losses that might occur beyond the applied level ofconfidence; and- VaR is calculated on the basis of exposures outstanding at the close of business and therefore does not necessarily reflect intra-dayexposures.The VaR for the Group was as followsAverage Minimum MaximumUS$ ’000 US$ ’000 US$ ’000As at 31 December 2009 463 191 1,817TABLE - 16 CAPITAL REQUIREMENT FOR COMPONENTS OF MARKET RISKCapital Maximum Minimumrequirement value valueUS$ ’000 US$ ’000 US$ ’000Interest rate risk 10,646 10,646 5,749Equity position risk 30 1,409 30Foreign exchange risk 32,913 33,441 32,475Options 1 133 -TOTAL MARKET RISK CAPITAL REQUIREMENTBEFORE PROPORTIONATE AGGREGATION OF ASSOCIATES43,590 45,628 38,254Add : Proportionate aggregation 6,959 8,491 4,524TOTAL MARKET RISK CAPITAL REQUIREMENT(STANDARDISED APPROACH)50,549 54,119 42,778Interest Rate Risk (non-trading)Interest rate risk is the risk that the earnings or capital of the Group, or its ability to meet business objectives, will be adversely affectedby movements in interest rates. Accepting this risk is a normal part of banking and can be an important source of profitability andshareholder value. Changes in interest rates can affect a bank’s earnings by changing its net interest income and the level of otherinterest sensitive income and operating expenses. Changes in interest rates also affect the underlying value of the Group’s assets,liabilities and off-balance sheet instruments because the present value of future cash flows and / or the cash flows themselves changewhen interest rates change. The Bank employs a risk management process that maintains interest rate risk within prudent levels.The Board recognises that it has responsibility for understanding the nature and the level of interest rate risk taken by the Bank, andhas defined a risk framework pertaining to the management of non trading Interest Rate Risk and has identified lines of authority andresponsibility for managing interest rate risk exposures.The Board has delegated the responsibility for the management of interest rate risk to the Group Asset and Liability Committee(GALCO). GALCO is responsible for setting and monitoring the interest rate risk strategy of the Group, for the implementation of theInterest Rate Risk framework and ensuring that the management process is in place to maintain interest rate risk within prudent levels.GALCO reviews the Interest Rate Risk framework annually and submits recommendations for changes to the Executive Committee andBoard as applicable.AUB Annual Report 2009119

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