Currency risk management

Definition

Currency risk is the risk of incurring losses due to unfavourable fluctuations in the exchange rate. The risk is generated by maintaining open currency positions in various foreign currencies.

Risk management objective

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.

Risk identification and measurement

The group uses the following measures of the currency risk: value-at-risk (VaR) and stress tests.

Risk control

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.

Risk forecasting and monitoring

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.

Reporting

Reports on currency risk are prepared on a daily, weekly, monthly and quarterly basis.

Management actions

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 daily loss on the currency market. 

Financial information

Sensitivity measures

The Bank's VaR and a stress-test analysis of the Bank’s exposure to currency risk, presented cumulatively for all currencies, are presented in the table below:

Foreign currency position

The Group’s foreign currency positions are presented in the table below:

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 Bank’s exposure to currency risk is low.

Currency structure