Annual Report: - Gorenjska banka

The Bank has a defined absolute limit with fixed boundaries for the entire foreign currency position,
where long and short foreign currency positions are netted. Long and short positions include gross
balance items decreased by the impairments that will probably bring loss, off-balance sheet items
of potential obligations, which the Bank will in fact have to pay for including the derivative instrument
items (above all futures contracts). The level of joint open foreign currency position limit is decided
by the management.
The Bank has also defined limits of individual foreign currency open positions. Open positions for
particular foreign currencies are determined in the same way as the joint open foreign currency
position. The level of open foreign currency positions limit is determined by the management.
The Bank has closed foreign exchange positions, so the sensitivity to currency risk is negligible. The
value of the VaR is calculated for the exposures in the following currencies: USD, CHF, GBP and GBP
(for which a limit for total exposure amounts to EUR 100 thousand per currency – the limit for other
currencies amount to EUR 50 thousand ). The calculation of VaR value is based on the requirements
of Basel standards (99 percent confidence interval, observation period of 250 working days, a 10-day
holding period) and is based on historical simulation method. As of 31 December 2011 VaR value is
EUR 3 thousand (2010: EUR 1 thousand).
4.2.2. Interest rate risk
The Bank’s interest rate risk is manifested as the interest rate change exposure risk on the Bank’s
net interest rate income and as the interest rate change to fair value of derivative instruments with
a fixed interest rate exposure risk. Due to the changing of the current value of future cash flow from
the Bank’s funds, financing sources liabilities and off-balance sheet positions, interest rate changes
at the same time also influence the Bank’s capital economical value. However, some derivative
instruments, such as capital investments, are not directly exposed to the interest rate risk.
Interest rate risk arises from interest rate sensitive assets with different maturities and repricing
dates and different interest rate variability dynamics from financing sources liabilities. The Bank
controls and monitors interest rate risk exposure on the basis of interest rate gap methodology and
extreme situations test regarding different interest rate movements scenarios. The Bank performs
stress testing for interest rate risk for shift of yield curve by 100 basis points for impact on net
interest income and for shift for 200 basis points for impact on economic value of the Bank’s capital,
which is in line with recommendations of Banking Supervision Committee at Bank for international
settlements (BIS).
The aim of interest rate risk control is to minimize net interest margin fluctuations due to interest
rate market volatility. The Bank’s interest rate risk exposure is monitored and controlled on the basis
of interest rate gap methodology. The reports contain the interest rate sensitivity analysis according
to individual periods of time, and include interest rate sensitive balance and off-balance sheet items
that are controlled separately according to the interest rate type and period of time with regard
to their maturity or the new date of interest rate determination. In order to monitor the interest
rate changes sensitivity, the Bank uses techniques designed to track market values and interest
rate incomes (by measuring interest rate income sensitivity). The Management Board stipulates
the boundaries of acceptable interest rate gaps according to individual periods of time that are
monitored regularly.
84
Gorenjska banka, d. d., Kranj
Annual Report 2011
Financial Report