Market risk

Market risk is defined as the risk that the Group may incur financial losses as a result of adverse changes in foreign currency rates, equity instrument prices, interest rates and precious metals prices. The key objectives of market risk management include achieving the best balance of risk and return, minimising losses in adverse scenarios and reducing the deviation of actual financial results from those projected.

The Bank classifies market risk as follows:

  • Interest rate risk relating to assets and liabilities exposed to interest rate volatility - the risk of a decrease/increase in interest income/ expenses occurring because of yield curve changes resulting from a mismatch of investment and borrowing maturities (interest rate repricing).
  • Market risk for trading positions, including:
  1. Interest rate risk for the Group’s debt securities portfolio. This is the risk arising from an adverse change in the market value of securities.
  2. Equity risk. This is the risk arising from an adverse change in the market value of equity instruments.
  3. Currency risk. This is the risk arising from an adverse change in foreign exchange rates and precious metals prices.

The Group uses the following techniques to assess its market risk exposure:

  • Interest rate risk for non-trading positions is assessed using gap analysis. Assets and liabilities with fixed interest rates are arranged according to their remaining contractual maturities; those with flexible interest rates are arranged by time remaining to re-pricing. Russian Ruble and foreign currency gaps are analysed separately. This involves analysing net profit sensitivity to a 100 basis points increase/decrease.
  • Market risk for trading positions (interest rate risk for the debt securities portfolio, equity and currency risk) is assessed based on Value at Risk (VaR) methodology. The VaR that the Bank measures is an estimate, using a specified confidence level, of the potential financial loss that it does not expect to exceed over a certain time period. The Group measures VaR using the historical simulation method with a 99% confidence level for a 10-day horizon. To monitor the level of market risk arising from trading positions, the Bank also analyses its daily risk positions and their sensitivity to changes in market indices.

To mitigate market risk, the following limits and restrictions are set for transactions involving assets and liabilities:

  • Interest rate risk for non-trading positions is mitigated using marginal interest rates on borrowed and invested corporate funds and by setting limits on long-term lending amounts (the investment instrument which entails the greatest risk).
  • Market risk for trading positions: limits on investment amounts and open positions, duration limits, sensitivity limits, stop-loss, etc.


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