63. Currency risk management

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 the currency risk: value-at-risk (VaR) and stress tests.

Control over currency risk consists of 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 reports contain information on liquidity risk exposure and on the risk limits utilization. The reports are addressed mainly to: ALCO, RC, the Management Board, the Risk Committee and the Supervisory Board.

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.

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 on the currency market.

Financial information

Sensitivity measures

The FX VaR measure is a potential value 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 the event of abrupt changes on the currency market which are not described using statistical measures by default.

The Bank’s FX VaR, in aggregate for all currencies, is presented in the table below:

Export to Excel
NAME OF SENSITIVITY MEASURE 31.12.2023 31.12.2022
VaR for a 10-day time horizon at a confidence level of 99% (in PLN million)1 3 128
1 Taking into account the nature of the operation of the other Group companies which generate material currency risk and the specific characteristics of the market in which they operate, the Group does not determine the consolidated VaR sensitivity measure. Such companies use their own risk measures to manage their interest rate risk. KREDOBANK SA applies the 10-day VaR which amounted to PLN 0.3 million as at 31 December 2023 and to PLN 0.2 million as at 31 December 2022.

Foreign currency position

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

Export to Excel
FOREIGN CURRENCY POSITION1 31.12.2023 31.12.2022
EUR (59) (206)
CHF 15 (1,625)
Other (Global, Net) (20) 3
1 The positions do not include structural positions in UAH (PLN 602.2 million), for which the Bank obtained approval from the PFSA to exclude them from the calculation of the currency positions, not affecting the Bank’s profit or loss.

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 are determined by all foreign currency transactions concluded, both in the statement of financial position and off-balance sheet transactions, with the exception of structural positions in UAH (PLN 602.2 million), for which the Bank obtained approval from the PFSA to exclude them from the calculation of the currency positions.

Previous
Next