Annual Financial Statements 2011 of Bank Austria

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Consolidated Financial Statements in accordance with IFRSs E – Risk report (CoNTINuED) The chart below shows the backtesting results for the regulatory trading book, on the basis of clean hypothetical backtesting. Backtesting results for the regulatory trading book, 2011 (€ m) 20 15 10 5 0 –5 –10 –15 –20 Jan. 11 Feb. 11 March 11 April 11 May 11 June 11 July 11 Aug. 11 Sept. 11 Oct. 11 Nov. 11 Dec. 11 IMOD-VaR mirrored Hyp P&L new IMOD-VaR Since April 2011, the new model has been used for the purposes of calculating capital requirements. The relevant parameters are a 10-day holding period, a confidence level of 99% and a multiplier of 3.5. As at 30 December 2011, the capital requirement was € 61.4 m. The following capital requirements result for the Bank Austria Group in connection with “stressed VaR” (S-VaR) and “incremental risk charge” (IRC): € 159.4 m for S-VaR and € 88.0 m for IRC. Market risk management in CEE Bank Austria · Annual Financial Statements 2011 20000000 15000000 10000000 5000000 0 -5000000 -10000000 -15000000 -20000000 At Bank Austria, market risk management covers the activities in Vienna and the positions at the 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 “IMOD” 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; moreover all units also have technical access to the central market risk platform. The replacement of the previous internal model “NoRISK” by IMOD, a Group application, also requires formal approval of the system by the banking supervisory authorities in the major CEE countries. The approval process for the Czech Republic, Slovakia and Hungary will be implemented by 2013; the other relevant banking subsidiaries will undergo the approval process for the risk model from 2014 onwards. Analyses of position structure and balance sheet structure are available to all banks in the Group via “ALMRisk”, a Group-wide web tool. Liquidity monitoring is also based on this instrument. The web application “ERCONIS” records the daily business results of treasury activities in CEE. In line with a total-return 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 banking 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 banking 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 banking subsidiaries. 142
Consolidated Financial Statements in accordance with IFRSs E – Risk report (CoNTINuED) Value at Risk of banks in CEE (€ m) year–eNd 2011 figures aVerage Var 2011 Var miNimum fx Var ir Var spread Var Bulgaria –3.4 –3.3 0.0 –2.4 –2.2 Baltics –0.7 –0.5 0.0 –0.5 0.0 Czech Republic –5.8 –6.7 –0.1 –0.3 –6.2 Croatia (incl. Bosnia) –2.2 –1.8 –0.1 –1.6 –0.6 Hungary –2.2 –2.0 –1.8 0.0 –0.7 Kazakhstan –3.7 –2.5 –0.1 –2.5 –0.1 Romania –3.6 –3.5 0.0 –0.7 –3.2 Russia –8.5 –5.0 –0.4 –4.1 –3.3 Serbia –1.2 –1.0 –0.1 –1.0 0.0 Slovakia –1.6 –2.1 0.0 0.0 –2.0 Slovenia –2.8 –3.5 0.0 –0.3 –1.9 Turkey –34.3 –37.3 –0.3 –15.5 –42.5 Ukraine –8.2 –6.3 –2.8 –6.4 –0.8 cee –40.8 –41.5 –3.4 –21.1 –57.9 The new IMOD methodology based on historical simulation has been used for internal risk control since January 2011. After a higher value-at-risk exposure at the beginning of the year, the figure remained at a stable level from January onwards, with a limit utilisation of about 30% even during the period of strain in financial markets. At the end of 2011, value at risk of all CEE banks was about € 42 m (limit: € 125 m), with open interest rate positions in the banking books and credit-spread positions of securities still accounting for the largest risk contributions. Management of balance sheet structure The matched funds transfer pricing system applied throughout the Group and the principle of causation applied in attributing credit risk, market risk and liquidity risk enable the bank to determine contribution margins from customer transactions in the bank’s business divisions. The risk committees of the bank ensure that the bank’s overall liquidity and interest rate gap structure is optimised, with the results from interest maturity transformation being reflected in the Corporate & Investment Banking Division. Factors taken into account in this context include the costs of compensation for assuming interest rate risk, liquidity costs and country risk costs associated with foreign currency financing at CEE banking subsidiaries. These funding costs burden lending business in Austria and CEE and have remained at a high level on account of the persistent government debt crisis. Products for which the material interest-rate and capital maturity is not defined, such as variable-rate sight and savings deposits, are modelled in r espect of investment period and interest rate sensitivity by means of analyses of historical time series, and taken into account in the bank’s overall risk position. Interest rate sensitivities are determined and taken into account in hedging activities, which results in a positive contribution to profits from customer business. To assess its balance-sheet and profit structure, the bank uses the Value-at-Risk approach, complemented by a scenario analysis covering subsequent quarters and years. The bank thus also follows the Basel 2 recommendation concerning the simulation of future net interest income under different interest rate scenarios (“earnings perspective”). In the earnings perspective analysis, simulations of the future development of net interest income and of the market value of the banking book are generally based on assumptions regarding volume and margin developments under different interest rate scenarios. Parallel interest rate shocks as well as inversions and low-interest-rate scenarios can be analysed to identify their possible impact on the bank’s net interest income and the bank’s value. The analyses performed at year-end 2011 show that a further interest rate decline in all currencies, from an already low level, would have the strongest impact on the bank’s net interest income. This is a typical feature of commercial banks, given the interest rate remanence on the liabilities side of banks’ balance sheets (sight deposits, equity). But the emergence of inflationary trends suggests that this scenario is highly unrealistic. The Basel 2 rules require the measurement at Group level of “interest rate risk in the banking book” in relation to the bank’s capital by comparing a change in the market value of the banking book after a 2% interest rate shock with the bank’s net capital resources. In the event that such an interest rate shock absorbs more than 20% of a bank’s net capital resources, the bank supervisory authority could require the bank to take measures to reduce risk. A 2% interest rate shock would absorb about 5% of the Group’s net capital resources; this calculation also includes the current investment of equity capital as an open risk position. This means that the figure for Bank Austria is far below the outlier level of 20%. Bank Austria · Annual Financial Statements 2011 143
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