NEDBANK CAPITAl - Nedbank Group Limited

isk and BALANCE SHEET management reportThe table below highlights the group’s and bank’s exposure to IRRBB measured for normal and stressed interest rate changes:2009RmNedbankLimitedOther groupcompaniesNedbankGroupNoteNet interest income sensitivity 11% instantaneous decline in interest rates (444) (140) (584)2% instantaneous decline in interest rates (887) (281) (1 168)Linear path space 2Lognormal interest rate sensitivity (273)Basis interest rate risk sensitivity 30,25% narrowing of prime/call differential (168) (51) (219)Economic value of equity sensitivity 41% instantaneous decline in interest rates (225)2% instantaneous decline in interest rates (461)Stress testingNet interest income sensitivityInstantaneous stress shock 5 (1 996)Linear path space 2Absolute-return interest rate sensitivity (1 386)Notes1 Net interest income sensitivity, as currently modelled, exhibits very little convexity. In certain cases the comparative figures have been estimatedassuming a linear risk relationship to the interest rate moves.2 Linear path space is a stochastic method used to generate random interest rate paths. These paths are then modelled and a probabilistic impactof interest rate changes on NII is derived. The ‘Lognormal interest rate sensitivity’ uses two years of interest rate movements to derive interest ratevolatility. The stress scenario ‘Absolute-return interest rate sensitivity’ is based on the volatility of interest rates over nine years.3 Basis interest rate risk sensitivity is quantified using a narrowing in the prime/call interest rate differential of 0,25% and is an indication of thesensitivity of the margin to a squeeze in short-term interest rates.4 Economic value of equity sensitivity is calculated as the net present value of asset cashflows less the net present value of liability cashflows.5 The instantaneous stress shock is derived from the principles espoused in the Basel Committee paper Principles for the Management and Supervisionof Interest Rate Risk.Foreign currency translation risk in the banking bookForeign currency translation risk arises as a result of Nedbank Group’s investments in foreign companies that have issued foreignequity. This foreign equity is translated into rand for domestic reporting purposes, recording a profit where the rand exchange rate hasdeteriorated between periods and a loss where the rand exchange rate has strengthened between periods.Foreign currency translation risk remains relatively low and currently aligns with an appropriate offshore capital structure. Risk limits arebased on the expected level of currency-sensitive foreign capital and the exposure was approximately US$241 million at year-end.Offshore capital split by functional currencyUS dollar equivalent ($ millions) Total$mEquityForexsensitiveNon-forexsensitive2009 2008US dollar 108 108 108 88Pound sterling 113 113 113 94Swiss franc 13 13 13 6Malawi kwatcha 7 7 7 5Other 436 436 391Total 241 241 436 677 584174NEDBANK GROUP ANNUAL REPORT 2009