Annual Financial Statements 2011 of Bank Austria

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Notes to the Financial Statements of UniCredit Bank Austria AG 4.32. Market risk Market risk management at UniCredit Bank Austria AG encompasses the identification, measurement, monitoring and management of all market risks resulting from the banking business. The processes and methods used for measuring risk, defining and reviewing limits and for trading activities have been summarised in the Financial Markets Rulebook, which is available via the Intranet. 31 Dec. 2011 Derivatives by residual life (EUR) Up to 1 year From 1 to 5 years Over 5 years Total Trading book 12,651,277,454 20,830,420,993 16,940,310,088 50,422,008,535 Financial derivative contracts on debt securities and interest rates 4,752,914,006 19,034,607,923 15,017,813,380 38,805,335,309 Financial derivative contracts on equity securities and share indices 0 0 24,520,084 24,520,084 Financial derivative contracts on exchange rates and gold 7,664,654,811 982,803,897 1,541,176,625 10,188,635,334 Financial derivative contracts on other underlying assets 233,708,637 6,609,172 0 240,317,810 Credit derivative contracts 0 806,400,000 356,800,000 1,163,200,000 Banking book 36,435,794,698 59,611,008,129 37,952,362,646 133,999,165,473 Financial derivative contracts on debt securities and interest rates 30,752,799,216 43,408,499,680 29,243,186,250 103,404,485,146 Financial derivative contracts on equity securities and share indices 0 384,805,174 36,560,000 421,365,174 Financial derivative contracts on exchange rates and gold 5,677,995,482 15,482,018,354 8,662,616,396 29,822,630,232 Financial derivative contracts on other underlying assets 0 196,684,921 0 196,684,921 Credit derivative contracts 5,000,000 139,000,000 10,000,000 154,000,000 Total 49,087,072,152 80,441,429,122 54,892,672,735 184,421,174,009 31 Dec. 2010 Derivatives by residual life (EUR) Up to 1 year From 1 to 5 years Over 5 years Total Trading book 19,571,472,607 22,485,026,117 19,071,234,092 61,127,732,816 Financial derivative contracts on debt securities and interest rates 3,798,746,974 18,996,217,501 17,671,595,135 40,466,559,610 Financial derivative contracts on equity securities and share indices 94,995,000 291,000,000 198,949,052 584,944,052 Financial derivative contracts on exchange rates and gold 14,836,816,120 2,052,415,261 823,089,905 17,712,321,287 Financial derivative contracts on other underlying assets 144,540,512 200,393,355 0 344,933,867 Credit derivative contracts 696,374,000 945,000,000 377,600,000 2,018,974,000 Banking book 64,439,594,853 44,230,963,420 50,429,357,577 159,099,915,850 Financial derivative contracts on debt securities and interest rates 58,993,216,764 32,751,905,231 40,024,323,464 131,769,445,459 Financial derivative contracts on equity securities and share indices 0 0 0 0 Financial derivative contracts on exchange rates and gold 5,446,378,089 11,479,058,189 10,405,034,113 27,330,470,391 Financial derivative contracts on other underlying assets 0 0 0 0 Total 84,011,067,460 66,715,989,537 69,500,591,669 220,227,648,666 UniCredit Bank Austria AG uses uniform Group-wide risk management procedures. These procedures provide aggregate data and make available the major risk parameters for the various trading operations at least once a day. Besides Value at Risk (VaR; for internal risk measurement on the basis of a one-day holding period and a confidence interval of 99%), other factors of equal importance are stress-oriented volume and position limits. Additional elements of the limit system are loss-warning level limits and sensitivityspecific and option-specific limits used for trading and positioning in non-linear products. Bank Austria – Annual Financial Statements 2011 228
Notes to the Financial Statements of UniCredit Bank Austria AG In the second quarter of 2011, UniCredit Bank Austria AG was granted permission by the Austrian supervisory authority to replace the risk model ("NoRISK") developed by the bank itself, which has been used for many years, with the new IMOD model used within the entire UniCredit Group. This switch constituted a significant change of model in accordance with Section 21e of the Austrian Banking Act. The new model is based on historical simulation with a 500-day market data time window for scenario generation. It is currently used on a uniform basis by many UniCredit Group subsidiaries. The model is applied by Market Risk within UniCredit Bank Austria AG and is being further developed in cooperation with the UniCredit holding company. The conditions imposed by the college of supervisors (Italy, Germany, Austria) in the course of the approval process for the new model were largely fulfilled in 2011. Moreover, in 2011 an application was filed with the regulators (BoI and FMA) for permission to use the models developed in UniCredit Group to comply with the new CRD 3 rules for the trading book which have been applicable since December 2011. This applies in particular to the stressed VaR and IRC (incremental risk charge), while CRM (comprehensive risk measure) is not applicable to UniCredit Bank Austria AG for lack of credit-tranche holdings in the trading book. The relevant reviews in Bank Austria were completed by the Austrian supervisory authority with a positive outcome in 2011. Approval for use of the new models was given as at year-end 2011. As at 30 December 2011, VaR at UniCredit Bank Austria AG for the respective risk categories was as follows (calculated on the basis of the new model): (in EUR) Exchange rate risk, overall -1,321,717.24 Equity position risk, trading book 0.00 Equity position risk, banking book -11,408,788.71 Interest rate position risk, trading and banking books -6,372,392.61 Credit spread risk (VaR limit scope) -32,968,618.29 Overall market risk (VaR limit scope) -43,300,668.00 Overall market risk arising from the above components -55,831,924.84 The above figures are based on the new internal Group-wide model. For the purpose of determining capital requirements, the new model has been used since April 2011. The parameters used in this context 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 EUR 43.9 m. The following capital requirements result for UniCredit Bank Austria AG in connection with S-VaR and IRC: EUR 67.0 m for S-VaR and EUR 21.4 m for IRC. Within the Bank Austria Group, the reliability and accuracy of the internal model is monitored by daily backtesting, comparing the VaR amounts with the actually observed fluctuations in market parameters and in the total value of the trading books. In 2011, there was no negative backtesting excess. The results of backtesting have thus confirmed the accuracy and reliability of the model. The multiplier of of 3.5 therefore remains unchanged. Value-at-risk calculations are complemented by various stress scenarios to identify the potential effects of stressful market conditions on the Group’s earnings. The assumptions made under such stress scenarios include extreme market movements and a dramatic deterioration in market liquidity. Market risks resulting from the general balance sheet structure and the positioning of asset-liability management are additionally determined and regularly analysed by means of simulations of net interest income volatility. In addition to the business volume at the reporting date, these simulations are based on various interest rate scenarios, assumptions regarding new business, demand behaviour and general developments affecting margins in those market segments which are of greatest importance to UniCredit Bank Austria AG. Modelling over the projection period provides indications of trends in net interest income and enables the bank to identify risks at an early stage and to take appropriate measures. In addition to calculating VaR for trading activities, the bank uses the Value-at-Risk method for measuring market risk in the banking book. Bank Austria – Annual Financial Statements 2011 229
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Bank Austria at a Glance Income sta
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