63. Currency risk management
2019
Currency risk management
Currency risk is the risk of incurring losses due to unfavourable exchange rate fluctuations. The risk is generated by maintaining open currency positions in various foreign currencies.
To reduce the potential losses resulting from exchange rate fluctuations to an acceptable level by properly shaping the currency structure of balance sheet and off-balance sheet items.
The Group uses the following measures of currency risk: value-at-risk (VaR) and stress tests.
Control over currency risk consists in determining currency risk limits and thresholds tailored to the scale and complexity of the Group’s operations, in particular the strategic limit of tolerance to currency risk.
The following measures are monitored by the Group on a regular basis:
- the level of currency risk measures;
- utilization of the strategic limit of tolerance to currency risk;
- utilization of internal limits and thresholds of currency risk.
Reports on currency risk are prepared on a daily, weekly, monthly and quarterly basis.
The main tools for currency risk management used by the Group are:
- currency risk management procedures;
- currency risk limits and thresholds;
- defining allowable types of foreign currency transactions and the exchange rates used in such transactions.
The Group has set limits and thresholds for currency risk for, among other things, currency positions, Value at Risk calculated for a 10-day time horizon and loss from transactions on the currency market.
Financial information
Sensitivity measures
The FX VaR measure is the potential amount of loss that may occur in normal market conditions at a specific time (i.e. horizon) and with an assumed level of probability related to changes in foreign exchange rates.
Stress tests are used to estimate loss in an event of abrupt changes on the currency market which are not described by default using statistical measures.
The Bank’s FX VaR, in aggregate for all currencies, is presented in the table below:
| SENSITIVITY MEASURE | 31.12.2019 | 31.12.2018 |
|---|---|---|
| VaR for a 10-day time horizon at the confidence level of 99% (in PLN million)* | 9 | 4 |
*Taking into account the nature of the operations of other Group companies which generate material forex risk and the specific characteristics of the market in which they operate, the parent does not determine the consolidated VaR sensitivity measure. These companies use their own risk measures to manage their foreign exchange risk. KREDOBANK SA applies the 10-day VaR which amounted to PLN 0.1 million as at 31 December 2019 and to PLN 0.2 million as at 31 December 2018.
Foreign currency position
The Group’s foreign currency positions are presented in the table below:
| FOREIGN CURRENCY POSITION | 31.12.2019 | 31.12.2018 |
|---|---|---|
| EUR | (152) | (127) |
| CHF | (238) | (34) |
| Other (Globalna, Net) | 7 | 46 |
Currency positions (in addition to volatility of foreign exchange rates) are a key factor determining the level of currency risk to which the Group is exposed. The foreign currency positions is determined by all foreign currency transactions concluded, both in the statement of financial position and off-balance sheet transactions. The Group’s exposure to currency risk is low.
Financial assets and liabilities by currency
| CURRENCY STRUCTURE 31.12.2019 | Foreign currency translated into PLN | ||||||
|---|---|---|---|---|---|---|---|
| PLN | CHF | EUR | USD | UAH | Inne | Razem | |
| Cash and balances with Central Bank | 13 652 | 43 | 641 | 101 | 47 | 193 | 14 677 |
| Amounts due from banks | 755 | 53 | 1 797 | 994 | 191 | 302 | 4 092 |
| Hedging derivatives | 618 | 8 | 16 | 3 | – | – | 645 |
| Other derivative instruments | 2 499 | – | 231 | 64 | – | 1 | 2795 |
| Securities | 77 255 | – | 2 081 | 1 189 | 48 | – | 80 573 |
| – held for trading | 1 109 | – | 3 | – | – | – | 1 112 |
| – not held for trading, mandatorily measured at fair value through profit or loss | 1 807 | – | 148 | 244 | – | – | 2 199 |
| – measured at fair value through other comprehensive income; | 61 287 | – | 1 584 | 888 | 48 | – | 63807 |
| – measured at amortized cost | 13 052 | – | 346 | 57 | – | – | 13 455 |
| Loans and advances to customers | 188 882 | 21 229 | 17 522 | 1 821 | 1 501 | 479 | 231 434 |
| – not held for trading, mandatorily measured at fair value through profit or loss | 8 286 | – | – | – | – | – | 8 286 |
| – measured at amortized cost | 180 596 | 21 229 | 17 522 | 1 821 | 1 501 | 479 | 231 148 |
| Other financial assets | 2 482 | – | 78 | 20 | 8 | 36 | 2,624 |
| Total financial assets | 286 143 | 21 333 | 22 366 | 4 192 | 1 795 | 1 011 | 336 840 |
| Amounts due to banks | 1 481 | 9 | 583 | 259 | 11 | 542 | 2 885 |
| – measured at fair value through profit or loss | 317 | – | – | – | – | – | 317 |
| – measured at amortized cost | 1 164 | 9 | 583 | 259 | 11 | 542 | 2 568 |
| Hedging derivatives | 581 | – | 7 | 1 | – | – | 589 |
| Other derivative instruments | 2 590 | – | 240 | 94 | – | – | 2 924 |
| Amounts due to customers | 227 343 | 537 | 18 669 | 7 896 | 1 476 | 2 278 | 258 199 |
| – measured at fair value through profit or loss | 45 | – | – | – | – | – | 45 |
| – measured at amortized cost | 227 298 | 537 | 18 669 | 7 896 | 1 476 | 2 278 | 258 154 |
| Liabilities in respect of securities in issue | 10 430 | 1 569 | 15 262 | 3 842 | 45 | – | 31 148 |
| measured at fair value through profit or loss | – | – | – | – | – | – | – |
| Subordinated liabilities | 2 730 | – | – | – | – | – | 2 730 |
| Total financial liabilities | 2 998 | 1 | 415 | 77 | 65 | 44 | 3 600 |
| Provisions for financial liabilities and guarantees granted | 217 | 2 | 34 | 13 | 2 | 1 | 269 |
| Total financial liabilities | 248 370 | 2 118 | 35 210 | 12 182 | 1 599 | 2 865 | 302 344 |
| Financial liabilities and guarantees granted | 56 564 | 136 | 5 466 | 4 083 | 270 | 359 | 66 878 |
| CURRENCY STRUCTURE 31.12.2018 |
Foreign currency translated into PLN | ||||||
|---|---|---|---|---|---|---|---|
| PLN | CHF | EUR | USD | UAH | Inne | Razem | |
| Cash and balances with Central Bank | 21 663 | 68 | 726 | 166 | 35 | 267 | 22 925 |
| Amounts due from banks | 1 664 | 7 | 2 870 | 2 208 | 103 | 809 | 7 661 |
| Hedging derivatives | 649 | 7 | 2 | – | – | – | 658 |
| Other derivative instruments | 1 715 | – | 144 | 48 | – | – | 1 907 |
| Securities | 62 796 | – | 684 | 561 | 72 | 1 | 64 114 |
| – held for trading | 230 | – | 5 | – | – | – | 235 |
| – not held for trading, mandatorily measured at fair value through profit or loss | 2 448 | – | 188 | 212 | – | – | 2 848 |
| – measured at fair value through other comprehensive income; | 52 113 | – | 63 | 309 | 72 | 1 | 52 558 |
| – measured at amortized cost | 8 005 | – | 428 | 40 | – | – | 8 473 |
| Loans and advances to customers | 172 374 | 23 221 | 16 043 | 2 112 | 1 028 | 144 | 214 912 |
| – not held for trading, mandatorily measured at fair value through profit or loss | 1 106 | – | – | – | – | – | 1 106 |
| – measured at amortized cost | 171 268 | 23 211 | 16 043 | 2 112 | 1 028 | 144 | 213 806 |
| Other financial assets | 2 723 | – | 66 | 20 | – | 16 | 2 825 |
| Suma aktywów finansowych | 263 584 | 23 293 | 20 535 | 5 115 | 1 238 | 1 237 | 315 002 |
| Amounts due to the Central Bank | 7 | – | – | – | – | – | 7 |
| Amounts due to banks | 1 129 | 7 | 588 | 263 | 10 | 4 | 2 001 |
| Hedging derivatives | 464 | – | 7 | – | – | – | 471 |
| Other derivative instruments | 2 458 | – | 163 | 33 | – | 1 | 2 655 |
| Amounts due to customers | 215 720 | 1 919 | 15 127 | 7 262 | 1 034 | 1 754 | 242 816 |
| Liabilities in respect of securities in issue | 8 644 | 1 527 | 14 603 | 3 812 | 41 | – | 28 627 |
| Subordinated liabilities | 2 731 | – | – | – | – | – | 2 731 |
| Total financial liabilities | 1906 | 13 | 337 | 65 | 21 | 22 | 2 364 |
| Provisions for financial liabilities and guarantees granted | 169 | 2 | 54 | 1 | – | 1 | 227 |
| Total financial liabilities | 233 228 | 3 468 | 30 879 | 11 436 | 1 106 | 1 782 | 281 899 |
| Financial liabilities and guarantees granted | 50 798 | 150 | 5 804 | 2 601 | 238 | 221 | 59 812 |