2.2.2Market Risk Market risk is defined as the potential loss due to changes in the price of market parameters. The main parameters are interest rates, foreign exchange (FX) rates, equity and commodity prices. For risk management purposes, the Bank has established various market risk policies, which set standards and guidelines for market risk management. The business units designated with the responsibility for market risk management accomplish this task under the standards set in the policies, while Market Risk Management independently monitors the bank-wide market risk. The Bank controls the actual market risk exposures by setting limits within the Bank’s risk appetite approved by the Board of Directors. The significant market risks are as follows: 2.2.2.1 Foreign Exchange Risk Foreign Exchange Risk means the potential loss of earnings and/or shareholder value of the Bank resulting from changes in foreign exchange rates arising from on- or off-balance-sheet exposures in the Trading or Banking Books. The losses may arise from changes in the valuation of foreign currency positions, including losses from foreign exchange trading transactions, or translations from one currency to another. The Bank’s Global Markets and Transaction Banking department (1st Line of Defence) is responsible for managing foreign exchange positions of the Bank’s Trading Book. In addition, Market Risk Management (2nd Line of Defence) puts in place a framework of market risk management measures. These measures are designed to minimize any excessive risk from unfavourable changes in market conditions which may adversely affect the prices or returns on the Bank’s trading portfolios related to foreign currencies, with strict limits on: 1. Delta: Defined as the rate of change of the position value with respect to changes in the price of underlying asset. 2. Gamma - Defined as the rate of change of the delta with respect to changes in the price of the underlying asset. 3. Vega - Defined as the rate of change of the option value with respect to the volatility of the underlying asset. Within these limits, Global Markets and Transaction Banking is responsible for trading and managing the portfolio and optimizing the return on the funds invested. Adherence to the limits is monitored by Market Risk Management. 2.2.2.2 Interest Rate Risk Interest rate movements directly affect the Bank’s earnings or economic value. Interest rate risk management is undertaken in accordance with the policy framework as approved by the Bank’s Board of Directors, by establishing and monitoring various risk curbing limits such as Earnings-at-Risk limit, Economic Value of Equity. The ALCO is delegated by the Board of Directors to oversee the firm-wide structural interest rate risk to stay within the Bank’s aggregated interest rate risk limit. 105 Form 56-1 One Report 2021
RkJQdWJsaXNoZXIy ODEyMzQ3