Österreichische Volksbanken-Aktiengesellschaft ... - Volksbank AG

pals’ investments, including those of an environmental nature, the management of the environmental
support schemes of the federal government (by Kommunalkredit Public Consulting
GmbH), treasury operations, (international) project management and international consulting
projects. The services include financing public sector infrastructure investments (in
Austria, Switzerland, the member states of the European Union, and some other selected
countries in CEE), treasury management, local government leasing, public sector consulting
and the management of the environmental support schemes of the Republic of Austria and
the Umwelt- und Wasserwirtschaftsfonds (environment and water management fund).
Kommunalkredit also provides fund management services as a public-sector trustee.
Niederösterreichische Landesbank-Hypothekenbank AG is responsible for issuing mortgage
and public sector bonds, as well as tax-privileged (lower tax rate) housing bonds (Wohnbauanleihen)
and reinvesting these funds in housing and public sector loans.
Risk management
Risk report
VBAG has undertaken the required organisational precautions in order to meet the need for
modern risk management. A clear distinction is made between the banking business and the
evaluation, measurement and monitoring of risks.
In 2006 the creation of risk reporting took place informing the management board about the
risk situation in the VBAG Group at regular intervals.This report envisages the description
of all types of currently measurable risks which are classified as relevant. These risks comprise
credit risk, market risk, interest rate risk, liquidity risk and operational risk.
Market risk
Within the VBAG Group, the independent market risk management department, which is
part of the risk and holding management division, is in charge of controlling and monitoring
the risks arising from treasury operations. Apart from the preparation of daily risk and earnings
reports and the definition of the limit structure on the basis of the economic capital
made available by the Management Board and the monitoring of limits, the department's
main tasks comprise the administration of front-office systems, collateral management, the
further development of risk systems and methods and the monitoring of market risk and
counterparty limits.
Daily estimates of the potential losses that could result from unfavourable market developments
constitute the core element in risk monitoring. These value at risk calculations are
made using the historical simulation method on the basis of the internationally recognised
KVaR+ software. These calculations are based on a confidence interval of 99 per cent. and
a holding period of one day.
In December 2004, the FMA approved the model devised by VBAG for calculating own
funds requirements for covering trading book market risks. The value at risk calculations
are carried out to assess the general position risk in interest based instruments, the foreign
exchange and gold position risk, the general position risk in equities and the commodities
risk up to one per cent of the creditable own funds. On the basis of the positive results of
the examination of the model, a multiplier of three was fixed for calculating VBAG’s own
funds.
The daily limit for the value at risk ("VaR") of the trading book on a confidence interval of
99 per cent. and a holding period of one day is EUR 5.7 million with an average utilisation
ratio of around 30 per cent.
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