Annual report and accounts 2009 (PDF) - Coventry Building Society

More documents

Recommendations

Info

NOTES TO THE ACCOUNTS(continued)40. FINANCIAL INSTRUMENTSUse of financial instrumentsThe risks of the organisation are managed on a Group basis and therefore all risk disclosures in this note have beenpresented on a consolidated basis. The term ‘Group’ is used in the remainder of this note to cover the activities of bothGroup and Society.Deposits are accepted from customers at both fixed and floating interest rates for various periods. The Group earns interestmargin on these deposits by investing in mortgages.The Group holds derivative financial instruments for the purposes of managing the risks associated with its various fixed andcapped rate assets and liabilities and its foreign currency transactions. In accordance with its treasury policy, and theBuilding Societies Act 1986, the Group holds derivative financial instruments only for risk management and not forspeculative or trading purposes.The Group’s policy is to manage its exposure to these risks within prudent limits. It does this through a combination ofmatching assets and liabilities with off-setting interest rate or exchange rate characteristics and by the use of derivativefinancial instruments such as interest rate swaps, forward rate agreements, interest rate options, cross currency interestrate swaps and foreign exchange contracts.The accounting policy for derivatives and hedge accounting is described in the Accounting Policies note.Control and monitoring proceduresThe ALCO sets limits over the use of derivative products for managing exposure to interest rates and foreign exchange rates,sets Group non-retail credit policy and regularly monitors and reviews exposures. The ALCO reports through the RiskManagement Committee to the board.The Credit Risk and Lending Committee sets Group retail credit policy and regularly monitors and reviews exposures in thisarea. The Credit Risk and Lending Committee reports through the Risk Management Committee to the board.The principal risks the Group faces are interest rate, credit, foreign currency and liquidity risk. Each risk, and the controlprocedures surrounding its management, are described in detail in the Risk Management Report and summarised below.Interest rate riskThe value of income arising from the Group’s assets and liabilities may change adversely as a result of changes in interestrates. This exposure is managed on a continuous basis, within prudent limits set by the board. It does this using acombination of derivative instruments and balance sheet structure by matching assets and liabilities with complementarycharacteristics. Given that the Group does not hold a trading book, the outright interest rate risk arises mainly from theALCO’s decision to invest the Group’s reserves according to a specified maturity profile.The Group evaluates the impact on margin of various interest rate scenarios to monitor interest rate risk. The Group usesbasis point sensitivity analysis to assess the change in the value of the Group’s balance sheet net worth against a 100 basispoint (1.0%) parallel shock to interest rates.Details of this sensitivity analysis are set out opposite. The limits around these scenarios have been set by the ALCO.64
40. FINANCIAL INSTRUMENTS (continued)The following table shows the impact on net worth through the reporting period:+100bps -100bps +100bps -100bps2009 2009 2008 2008£m £m £m £mImpact on equity reserves (39.8) 38.7 (14.6) 15.5Impact on profit and loss 5.4 (1.6) 2.1 (5.2)All exposures include investment of the Group’s reserves.Interest rate risk exposure to the potential impact of such shifts is maintained within an envelope of exposures over the nextfive years, consistent with the corporate plan approved by the board. The sensitivity on equity is calculated by re-measuringthe fair values of all available-for-sale assets for the effects of the assumed changes in interest rates, and the impact on theincome statement arises from the assumed changes in the interest rate relating to floating rate assets and liabilities. Thetotal sensitivity is based on the assumption that there are parallel shifts in the yield curve. In the table above, the valuesrepresent the positive and negative impacts on equity and profit and loss faced by the Society due to the effect of a rate shock.Other interest rate risk exposures, such as basis risk (the risk of loss arising from changes in the relationship betweeninterest rates which have similar but not identical characteristics – such as LIBOR and Bank of England Base Rate) andprepayment risk (the risk of loss arising from early repayment of fixed rate mortgages and loans) are also monitored.The following table sets out the carrying amount of the Group’s financial instruments that are exposed to interest rate riskand the expected interest reset date of those instruments.More than More Morethree than six thanThree months months one year More Nonmonthsless than less than less than than interestAt 31 December 2009 or less six months one year five years five years bearing Total£m £m £m £m £m £m £mAssetsLiquid assets 2,341 460 274 610 452 28 4,165Loans and advances to customers 8,715 592 491 3,777 478 22 14,075Fixed assets - - - - - 35 35Other assets and adjustments - - - - - 127 127Total assets 11,056 1,052 765 4,387 930 212 18,402Liabilities and equityShares (8,789) (56) (790) (3,473) - (111) (13,219)Deposits, amounts owed tocustomers and debt securities (3,106) (162) (58) (526) (350) (12) (4,214)Other liabilities and adjustments - - - - - (153) (153)Subordinated liabilities - - - - (71) - (71)Subscribed capital - - - - (161) - (161)Reserves - - - - - (584) (584)Total liabilities and equity (11,895) (218) (848) (3,999) (582) (860) (18,402)Derivative financial instruments 913 (590) 147 (454) 25 (41) -Interest rate sensitivity gap 74 244 64 (66) 373 (689) -65
Page 1 and 2:
ANNUAL REPORT & ACCOUNTS 2009
Page 3:
ChairmanDavid HardingDeputy Chairma
Page 11 and 12:
DIRECTORS’ REPORTBUSINESS OBJECTI
Page 13 and 14:
Financial performanceThe Society ac
Page 15 and 16: ASSETSThe assets of the Group incre
Page 17 and 18: KEY PERFORMANCE INDICATORSNET MORTG
Page 19 and 20: Remuneration CommitteeConsisting of
Page 21 and 22: RISK MANAGEMENT REPORTPRINCIPAL RIS
Page 23 and 24: CORPORATE GOVERNANCEThe board is ac
Page 25 and 26: APPOINTMENTS TO THE BOARDThe appoin
Page 27 and 28: DIRECTORS’ REMUNERATION REPORTINT
Page 29 and 30: STATEMENT OF DIRECTORS’RESPONSIBI
Page 31 and 32: OPINIONIn our opinion:the Annual Ac
Page 33 and 34: BALANCE SHEETSas at 31 December 200
Page 35 and 36: CASH FLOW STATEMENTSfor the year en
Page 37 and 38: Improvements to IFRSThe improvement
Page 39 and 40: FINANCIAL LIABILITIESFinancial liab
Page 41 and 42: PENSION COSTSThe Society operates b
Page 43 and 44: Loan impairment and other provision
Page 45 and 46: 7. OTHER OPERATING INCOMEGroup Soci
Page 47 and 48: 11. DIRECTORS’ EMOLUMENTS (contin
Page 49 and 50: 12. PENSION SCHEME (continued)2009
Page 51 and 52: 13. IMPAIRMENT PROVISIONS ON LOANS
Page 53 and 54: 14. PROVISION FOR FSCS LEVIESAll de
Page 55 and 56: 20. DEBT SECURITIESGroup Society Gr
Page 57 and 58: 21. DERIVATIVES AND OTHER FINANCIAL
Page 59 and 60: 24. INTANGIBLE FIXED ASSETSGroup So
Page 61 and 62: 26. DEFERRED TAXDeferred tax assets
Page 63 and 64: 32. OTHER LIABILITIESGroup Society
Page 65: 38. FINANCIAL COMMITMENTSGroup Soci
Page 69 and 70: 40. FINANCIAL INSTRUMENTS (continue
Page 75 and 76: 41. RELATED PARTY TRANSACTIONSULTIM
Page 77 and 78: 42. NOTES TO THE CASH FLOW STATEMEN
Page 79 and 80: 2. OTHER PERCENTAGES2009 2008% %As
Page 81 and 82: 3. INFORMATION RELATING TO DIRECTOR
Page 84: www.thecoventry.co.ukCoventry Build
show all

Annual report and accounts 2009 (PDF) - Coventry Building Society

You also want an ePaper? Increase the reach of your titles

Delete template?

Save as template?