Annual Financial Statements 2008 of Bank Austria

Management Report of UniCredit Bank Austria AG
comparative amount if the banking book position of the subsidiaries
is included in the calculation.
The results of the internal model based on VaR (1 day, confidence
interval of 99 per cent) in 2008 moved between EUR 36.6 m and
EUR 167.4 m for the Bank Austria Group. The average Total Return
VaR was EUR 65.1 m, significantly higher than the comparative
figure for the previous year (EUR 35.2 m) although the positions
were reduced in terms of sensitivity. The average VaR in the trading
book in 2008 only rose to a level of EUR 21.2 m (from EUR 12.3 m
in the previous year). As in previous years, the risk report includes
the non-trading driven equity positions of the bank's investment
books and the hedge-fund positions. Credit spread risk and interest
rate risk account for most of the total risk of the Bank Austria
Group. Since January 2007, commodity risk has only been
assumed in the Bank Austria Group on a back-to-back basis.
In addition to VaR, risk positions of the Bank Austria Group are
limited through volume limits. As part of daily risk reporting, detailed
"Trader Reports" are prepared for a large number of portfolios, with
updated and historical information made available to all risk-takers
and the responsible senior management via the Intranet. The
comprehensive statistical data on VaR made available in addition to
limit-relevant 99 per cent quantile figures include the average of
scenario results beyond the 99 per cent quantile mark, providing an
indication of the magnitude of events for which the probability of
occurrence is very low. In addition to limit-relevant overall simulation
runs, the results of about 30 partial simulation runs are recorded
daily in the risk database. Partial simulation runs simulate specific
risk classes while keeping others constant. The combination of
portfolios and partial simulation runs enables the bank to analyse all
major risk components on a daily basis and over time.
Significant interest rate positions continue to be held in KZT, TRY,
HRK and RUB, reflecting the size of our subsidiaries; most of the
related interest rate sensitivity is in the banking book (not in the
trading book). The USD position is also related to the banking book
position of our banking subsidiaries. In 2008, the EUR interest rate
position was held at a low level compared with previous years.
Among the other highly developed markets, only the CHF position is
of major significance.
By analogy to the detailed presentation of basis point positions in
the interest rate sector, daily reporting presents details of credit
spread by curve and maturity band (the bank currently uses more
than 550 credit spread curves for its risk calculations).
Measured by the total basis-point value, the Bank Austria Group’s
credit spread position in 2008 moved between EUR 6 m and EUR 9
m and was thus lower than the relevant levels in the previous year.
In 2008, the average credit spread position in corporates and
financials was reduced. Treasury-near instruments now account for
the largest part of the credit spread positions.
Bank Austria has invested in hedge funds through its subsidiary
UniCredit Bank Cayman Islands Ltd., Cayman Islands, since 1999;
the name of the company was changed to Alpine Cayman Islands
Ltd. on 21 January 2009. While the focus is on market-neutral and
event-driven strategies and leverage is comparatively low, the
financial crisis had a negative impact on results of the hedge funds
in 2008. Measured by the stress test, the risk contribution is now of
low significance, even on dramatic stress assumptions. A further
reduction of these positions is planned for the coming financial year.
Information on the amount of market risks of UniCredit Bank Austria
AG is contained in the notes to the financial statements.
Market risk management in CEE
At Bank Austria, market risk management covers the activities in
Vienna and the positions at the bank's subsidiaries, especially in
Central and Eastern Europe. These subsidiaries have local risk
management units with a reporting line to Risk Management in
UniCredit Bank Austria AG. Uniform processes, methods, rules and
limit systems ensure consistent group-wide risk management
adjusted to local market conditions.
The "NoRISK" risk model has been implemented locally at major
units (Czech Republic, Slovakia, Hungary, Croatia, Bulgaria,
Russia, Turkey), and a daily risk report is made available to the
other units. The web application "ERCONIS" records the daily
business results of treasury activities in CEE. In line with a totalreturn
approach, measurements of the performance of subsidiaries
include income generated by the subsidiaries and the valuation
results of the banking book.
To avoid risk concentrations in the market risk position, especially in
tight market conditions, Bank Austria has implemented at its
subsidiaries Value-at-Risk limits and position limits for exchange
rate risk, interest rate risk and equity risk, which are monitored
daily. The monitoring of income trends at subsidiaries by means of
stop-loss limits provides an early indication of any accumulation of
position losses.
The timely and continuous analysis of market risk and income is the
basis for integrated risk-return management of treasury units at
subsidiaries.
Liquidity risk
In line with Group standards, the Bank Austria Group deals with
liquidity risk as a central risk in banking business by introducing and
monitoring short-term and medium-term liquidity requirements
(warning level). In this context the liquidity situation for the next few
days and months and also for longer periods is analysed against a
standard scenario and stress scenarios. Methods and procedures of
liquidity analysis, analyses of the degree of liquidity of customer
positions, management responsibilities and reporting lines in this
area have been laid down in the liquidity policy, which is also
applicable at Bank Austria's CEE units and includes a contingency
plan in the event of a liquidity crisis.
In medium-term and long-term liquidity management, liquidity
inflows over 1 year and over 5 years must cover a minimum of 90
per cent of expected liquidity outflows during these periods. This
warning level must be observed at Group level and for each banking
subsidiary. At Bank Austria Group level, the relevant figures as at
year-end 2008 were 0.98 for >1 year and 0.96 for >5 years.
Bank Austria - Annual Financial Statements 2008 143