3.5.
Market risk
In
its
operations,
the
Bank
is
exposed
to
market
risk,
which
is
defined
as
a
risk
resulting
from
unfavourable
change
of
the
current
valuation
of
financial
instruments
in
the
Bank’s
portfolios
due
to
changes
of
the
market risk factors, in particular:
■
interest rates,
■
foreign exchange rates,
■
stock share prices and indices,
■
implied volatilities of relevant options,
■
credit
spreads
(to
the
extent
reflecting
market
fluctuations
of
debt
instruments
prices,
reflecting
credit
spread
for
corporate
bonds,
and
spread
between
government
yield
curve
and
swap
curve
–
for government bonds).
In
terms
of
the
banking
book,
the
Bank
distinguishes
the
interest
rate
risk,
which
is
defined
as
the
risk
of
an
adverse
change
in
both
the
current
valuation
of
the
banking
book
position
and
the
net
interest
income
as a result of changes in interest rates.
3.5.1.
Organisation of risk management
In
the
process
of
organisation
of
the
market
risk
management,
the
Bank
follows
requirements
resulting
from
the
law
and
supervisory
recommendations,
in
particular
the
PFSA
Recommendations
(among
others
A, C, G and I) and the EBA guidelines, concerning market risk management.
The
fundamental
principle
applied
in
the
organisation
of
the
market
risk
management
in
mBank
is
the
separation
of
the
market
risk
control
and
monitoring
functions
from
the
functions
related
to
opening
and
keeping open market risk positions.
3.5.2.
Tools and measures
For
the
purpose
of
internal
management,
the
Bank
quantifies
exposure
to
market
risk,
both
for
banking
and trading book, by measuring:
■
the Value at Risk (VaR),
■
expected loss under condition that this loss exceeds Value at Risk (ES – Expected Shortfall),
■
the Value at Risk in stressed conditions (Stressed VaR),
■
economic capital to cover market risk,
■
stress tests scenario values,
■
portfolio
sensitivities
to
changes
of
market
prices
or
market
parameters
(IR
BPV
–
Interest
Rate
Basis Point Value, CS BPV – Credit Spread Basis Point Value).
The
Bank
allocates
market
risk
to
positions
in
the
banking
book,
irrespective
of
the
method
of
presentation
of
the
financial
result
on
those
positions
used
for
financial
accounting
purposes.
Market
risk
measures
for
interest rate positions in the banking books are determined on the basis of Net Present Value (NPV).
The
Bank
monitors
market
risk
on
a
daily
basis.
For
selected
risk
measures,
the
measurement
is
conducted
on a weekly basis (Stressed VaR, CS BPV by rating classes) or monthly (economic capital).
For
the
banking
book,
the
Bank
also
uses
the
following
measures
(described
in
more
detail
in
the
chapter
on interest rate risk):
■
sensitivity of the economic value of equity (delta EVE),
■
sensitivity of net interest income (delta NII),
■
sensitivity of net interest income with changes in fair valuation (EaR),
■
repricing gap.
The
Value
at
Risk
(VaR)
is
calculated
for
each
risk
factor
using
the
historical
method
for
a
1-day
and
a 10-day
holding
period
and
a
95%,
97.5%
and
99%
confidence
level,
assuming
a
static
portfolio.
In
this
method, historical data concerning risk factors for last 254 business days are taken into consideration.
The
expected
loss
under
condition
that
it
exceeds
Value
at
Risk
(ES)
is
calculated
on
the
basis
of
VaR
calculation as the average of six worst losses.
The
Value
at
Risk
in
stressed
conditions
is
a
measure
of
the
potential
portfolio
loss
under
adverse
market
conditions
that
deviate
from
typical
market
behaviour.
The
calculation
is
analogous
to
the
Value
at
Risk
calculation,
the
only
difference
being
the
period
of
occurrence
of
stressed
conditions,
which
is
determined
on
the
basis
of
series
of
Value
at
Risk
based
on
12-month
window
of
risk
factors
changes
since
second
half
of 2021.
The
economic
capital
for
market
risk
is
a
capital
to
cover
losses
in
the
course
of
one
year
coming
from
changes
in
valuation
of
financial
instruments
which
built
the
Bank’s
portfolios
and
resulting
from
changes
of prices and values of market parameters.
