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)Price riskThe Group is exposed to market risk of its securities portfolio, which is the risk of loss resulting from changes inmarket quotes of securities.The RD reports on a weekly basis to the ALCO on price risk exposures and VaR analysis. To mitigate price riskALCO sets exposure limits, VAR-limits and stop-loss limits for particular equity, transactions types and assets types.Exposure limits for particular debt securities are set by the Credit Committee.VTB measures its securities portfolio risk exposures using VaR measurement of risk. The basic assumptionsapplicable to the calculation of VaR for currency risk, as described above, are also applicable for the calculation ofVaR for securities portfolio market risk.Parameters for VaR calculation are following:look-back period – 1 year;holding period – 10 trading days; confidence level – 99%;method – historical simulation.Due to limited liquidity of the Russian market of corporate fixed income instruments (typical for emerging markets),historical quotes were chosen according to the following methodology.Original historical data is used for instruments with quotes history at least for 100 days and not more than10 successive days without quotes and the issue date of the instrument is as early as the reporting year.Quote history of proxy instruments are used to estimate the VaR for less liquid securities which do not meet thoserequirements. Proxy instrument should fulfill following criteria:proxy instrument should be the same type of financial instruments as original security;issuer country and industry of proxy instrument has to be the same as original security and credit rating shouldbe close to the original security rating;currencies of proxy instrument and original security have to coincide;the durations of the proxy instrument and the original one should be comparable.Approximately one fourth of the portfolio by volume was interchanged by proxy instruments for VaR evaluation.During 2011 the Bank enhanced its Risk valuation software through the implementation of Kamakura Risk Manager.Total Group’s VaR for 2011 with diversification amounts to RUR 19.0 billion (2010: RUR 11.9 billion).Financial assets at fair value through profit or loss31 December201131 December2010Debt securities 4.1 2.4Equity securities 14.3 9.7Commodities 3.0 –Portfolio of financial assets at fair value through profit or loss 14.6 12.1Financial assets available-for-sale31 December201131 December2010Debt securities 0.9 0.2Equity securities 5.6 0.5Portfolio of financial assets available-for-sale 5.0 0.579