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MARKET RISK MANAGEMENT
In the context of unstable external environment, which affects the monetary and credit system as a whole, the Bank management put more emphasis on market risks. Market risks are managed with the help of limitation system, selected hedging methods, assessment of potential consequences.
Interest Risk Management
Unfavorable fluctuations of interest rates on the market expose the Bank to interest risk as a result of mismatch of assets and liabilities sensitive to interest rate fluctuations.
To the end of reduction in interest risk, the Bank employs an integrated risk management system, which is based on:
forecasting interest rate fluctuation trends
studying of dynamics of the spread between borrowing and lending rates
identifying gaps between maturities of the assets and liabilities sensitive to interest rate fluctuations at various time intervals
identifying a ratio between assets and liabilities sensitive to interest rate fluctuations and gap-to-net-assets ratio
establishing an interest rate limit for the Bank capital
control over gaps between maturities of the assets and liabilities sensitive to interest rate fluctuations on the weekly basis
control over net interest margin
comparing interest risk with the bank profit
creation of stress models
pursuing the Bank's balanced interest policy, which is based on formation of loan interest rates accounting for a borrower's liabilities costs and rating as well as transaction risk
monthly review of interest rates on active and passive bank operations taking into consideration market positions of rival banks
management of assets and liabilities yield curve by maturity periods.
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Findings of interest rate assessment and analysis are submitted to the Credit Committee and CALM meetings twice a week. CALM is responsible for decisions of making changes to interest policy of the Bank and corporate interest risk limits. Decisions to change interest rates are subject to CALM approval and are communicated to all regional units by relevant orders and directives. CALM continuously monitors and reviews interest rates by currencies, maturity periods and product types (bank assets and liabilities).
Back office of the Head Bank is responsible for daily control over compliance of actual interest rates with those established within the bank. They are controlled by the bank system in general.
To increase "flexibility" of balance to interest risk, fixed-rate (loan, deposit) contracts provide for the possibility to review interest rates in the event of material rate fluctuations on the market or discount rate modification.
The Bank executives understand that interest risk may not be completely neutralized. Therefore, the Bank management considers interest risk management in the context of risk minimization within the framework of support to and maintenance of the Bank liquidity.
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