La banque d'un monde qui change 2004 - BNP Paribas

2004 Review of Operations• the ALM Treasury/Investment Banking Committee,responsible for monitoring market risks related to Treasurytransactions, defining funding and liquidity managementpolicies, managing Group equity and structural currencyrisks.Liquidity ManagementThe Group’s cash needs are managed centrally by the ALMTreasury Department. The Treasury unit is responsible forinterbank refinancing and short-term debt issues (certificatesof deposit, commercial paper, etc.). The Asset/LiabilityManagement unit is in charge of senior and subordinatedfunding programmes (MTN, bonds, medium- and long-termdeposits, etc.), preferred stock issues and asset-backedsecurities issued on behalf of the specialised subsidiaries ofthe Retail Banking Division.The policy of diversifying financing sources and instrumentswas stepped up in 2004.Senior debt issues by BNP Paribas SA and Group subsidiariescarried out in 2004 totalled EUR 23.4 billion, an increase of59% over 2003.Excluding issues redeemable in advance by the issuer, longtermsenior debt issues came to EUR 12.3 billion, an increaseof 90% over the previous year. Issues redeemable in advanceby the issuer amounted to EUR 11.0 billion, up 34%.During the year, EUR 156 million in inflation-indexedsubordinated bonds were issued and placed with clients of theFrench Retail Banking Division.No new preferred stock issues were carried out during theyear, because the Group had ample regulatory capital. At31 December 2004, preferred stock totalled EUR 3.5 billion,unchanged from the year-earlier figure.Lastly, EUR 775 million (BNP Paribas share) were raisedthrough two securitisation operations carried out by UCI,the Spanish subsidiary of UCB. As of 31 December 2004,loans totalling EUR 5.5 billion (BNP Paribas share) had beenrefinanced through securitisations, compared with EUR 6.5billion at end-2003.The Group’s short- and medium-term liquidity position isregularly measured on a consolidated basis, by business lineand by currency.BNP Paribas complies with the overnight limits set for capitalmarkets transactions (fixed income, equities and currencytransactions) and the mismatch limits set for bankingtransactions with maturities of more than one year.The consolidated liquidity mismatch for positions beyond oneyear is measured based on contractual maturities (for loansand deposits, including undrawn confirmed customer lines ofcredit weighted at 30%), and on observed customer behaviour(for demand loans and deposits, passbook savings accounts,etc.). The mismatch for liability positions beyond one yearamounted to 21.3 % at 31 December 2004.Management of Interest Rate Risk on the Banking BookInterest rate risk on the commercial transactions of the Frenchand International Retail Banking business and the specialisedfinancing subsidiaries is managed on a centralised basis by theALM Treasury Department. Positions are transferred by meansof internal lending/borrowing transactions and swaps.Banking book interest rate gaps are measured each month,with embedded behavioural options translated into deltaequivalents.Maturities of outstanding assets are determined based on thecontractual characteristics of the transactions and historicalcustomer behaviour. For Retail Banking products, behaviouralmodels are based on historical data and econometric studies.The models deal with early repayments, regulated savingsaccounts and current accounts in credit and debit. Theoreticalmaturities of equity capital are determined according tointernal assumptions.Internal assumptions and models, which are regularly updatedand back-tested, are presented to the ALM/CommercialBanking Committee for approval.BNP Paribas’ structural interest rate risk is also measuredon a going-concern basis, incorporating dynamic changes inbalance sheet items. Due to the existence of partial or evenzero correlations between customer interest rates and marketrates, and the volume sensitivity caused by behaviouraloptions, rotation of balance sheet items generates a structuralsensitivity of revenues to interest rate changes.A specific option risk indicator is used to fine-tune hedgingstrategies.These three indicators are reviewed during monthly meetingsof the ALM/Commercial Banking Committee, and serve as the189BNP PARIBAS - ANNUAL REPORT 2004