Annual report 2011 - VTB

VTB BankNotes to the Consolidated Financial Statements – 31 December 2011 and 2010(in billions of Russian Roubles)38. Financial Risk Management (continued)Currency risk and VaR analysis (continued)The use of VaR has limitations because it is based on historical correlations and volatilities in market prices and assumesthat future price movements will follow a statistical distribution. Due to the fact that VaR relies heavily on historical data toprovide information and may not clearly predict the future changes and modifications of the risk factors, the probability oflarge market moves may be underestimated if changes in risk factors fail to align with the normal distribution assumption.Even though positions may change throughout the day, the VaR only represents the risk of the open currency positions atthe close of the reporting dates, and it does not account for any losses that may occur beyond the 99% confidence level.The use of ten-day holding period assumes as well that all positions can be liquidated or hedged in 10 business days. Inpractice, the actual effect on profit or loss before tax will differ from the VaR calculation and, in particular, the calculationdoes not provide a meaningful indication of profits and losses in stressed market conditions.The VaR model used by the Group is based on the historical simulation approach, which incorporates exchange ratesinterdependency. When calculating VaR the following parameters and assumptions were used:Currency exposures of the Group on the relevant reporting dates;Historical data on exchange rates for the last 2 years;99% confidence level;10 business days holding period.As at 31 December 2011 and 2010, the Group had the following exposures to currency risk, which include balancesheet positions and off-balance sheet foreign currency derivatives positions against RUR (open positions).Currency31 December2011Open positions31 December2010USD (27.1) (8.2)EUR 1.1 (2.4)GBP 4.2 0.2CHF (16.9) (1.5)JPY (0.8) –UAH 41.9 30.5GEL 2.7 2.5A98 2.4 –AMD 1.6 1.7AZN 0.9 0.9SGD 0.8 (0.2)SEK (0.7) –RSD 0.7 –CNY (0.6) 0.1TRY – 0.6BYR 0.5 1.1AOA 0.4 0.2HKD 0.3 –AUD (0.3) (0.9)NOK 0.2 –KZT (0.2) 0.4A99 (0.1) –Other 0.1 0.1Total 11.1 25.1As at 31 December 2011 and 2010, the Group had the following VaR for its foreign currency positions:31 December201131 December2010Open currency position 11.1 25.1Value at Risk 1.0 3.9The VaR figures above take into account all currencies with exposures over RUR 100 million.78