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Financial and capital market Commission of the interest rate risk management interest rate risk and maturity composition for the preparation of the review of the rules approved by the financial and capital market Commission of the Council of 16 July 2004 decision No 159 (pr. Nr. 26, 5. p.) J. Brazovsk, financial and capital market Commission Vice-Chairman General questions 1.1. "interest rate risk management interest rate risk and maturity composition for the preparation of the review of the rules" (hereinafter-the rules) based on article 8 of the law of credit institutions, the first paragraph and article 50 of the financial and capital market Commission of law article 6, paragraph 1 of article 7, first paragraph, 1. point and paragraph 2 of article 17 and taking into account the Basel Committee on banking supervision "of the interest rate risk management and supervisory principles". 1.2. provisions are binding on the Republic of Latvia registered banks (hereinafter – the bank).
1.3. Provisions of financial and capital market Commission (hereinafter the Commission) ' recommendations for internal control system "requirements and defines the minimum requirements for a bank and trade portfolio in the balance sheet and off-balance-sheet items in the inherent interest rate risk management, as well as the interest rate risk of reporting maturity composition and submission policy. 1.4. the terms used in the rules: 1.4.1. interest rate risk: interest rate changes the possible adverse impact on the bank's earnings and economic value of the bank; 1.4.2. interest rate risk the sources (causes): 18.104.22.168. price changes in risk (repricing risk) – the ability to suffer losses, changes in interest rates and the differences the assets, liabilities and off-balance-sheet positions remaining timeless, 22.214.171.124. yield curve risk (yield curve risk) – the ability to suffer unexpected losses of yield curve changes slope (slope) and contour (shape), 126.96.36.199. base (basis risk) risk – the chance to suffer losses when interest rates financial instruments with the same deadlines for review but different base rates (such as assets, liabilities-RIGIBOR Latvian Bank refinancing interest rate). the check risk 188.8.131.52 (optionality risk) – the ability to suffer losses when a financial instrument directly (options) or indirectly (loans with early repayment option, deposits on request URu.tml.) provides for bank client choice; 1.4.3. against interest rate changes in sensitive assets, liabilities, off-balance-sheet positions – assets, liabilities, off-balance-sheet positions, with a market value changes are dependent on changes in interest rates; 1.4.4. residual maturity – time of the last day of the reporting period to the end of the contract or the date on which in accordance with the provisions of the Treaty or the refund rate to be revised; 1.4.5. the economic value of the bank – bank of future net cash flows present value determined by discounting the future cash flows with the current market interest rate; 1.4.6. the use of other terms comply with the Bank of Latvia Board of 12.07.2001. decision No 88/7 approved "monthly credit balance report and preparation of the terms of the annex" and Commission Council decision No 106 14.05.2004. approved "banks and investment brokerage company the capital adequacy calculation rules for the use of the term".
2. Interest rate risk management the Bank develop 2.1. interest rate risk management policies and procedures that meet the size of the bank operations (business) volume, diversity and complexity, and determined by: 2.1.1. interest rate risk the internal limits (for example, by currency, products), as well as the action of an internal limit in the event of failure; 2.1.2. interest rate risk measurement methodologies that cover significant to the bank interest rate risk sources and assess interest rate changes impact on bank earnings and economic value; 2.1.3. stress test, if applicable, the frequency and the procedure, including the possible development of scenario assumptions (such as unexpected changes in the General level of interest rates, changes in mutual relations between the base rates, changes in the yield curve inclination and shape, changes in leadership in the liquidity of the financial markets URu.tml.); 2.1.4. the conditions under which the bank may incur significant loss due to the risk of interest rates (for example, if the interest rate risk related losses of more than 20 percent of the bank's own capital), assumptions and a possible plan of action. 2.2. the Bank shall regularly assess the interest rate risk of the bank separately for the trading book and the banking book, and both together. 2.3. the Bank shall regularly assess the risk of interest rates in each currency in which the bank conducted a significant volume of transactions. 2.4. Interest rate risk is used to measure the size of one or different methods, t.sk. the difference analysis (gap analysis), duration (duration) method, simulation techniques (simulation approaches), referred to the Basel Committee on banking supervision developed in "interest risk management and supervisory principles" (http://www.bis.org/publ/bcbs108.pdf). 2.5. the Bank shall evaluate new products and services of potential interest rate inherent risk and approved by the risk management and control procedures before the related products or services. 2.6. the Bank, which is subject to consolidated supervision, ensure effective interest rate risk management the group consolidation in General.
3. Interest rate risk the maturity composition of review 3.1. Bank shall prepare "interest rate risk the maturity composition of review" (? report) under UPDK 0651196 form (annex 1). 3.2. the Bank, of which the surveillance is carried out on the basis of the consolidated financial statements, the report shall be based on the individual financial statements of the bank. 3.3. the report against changes in interest rates sensitive assets, liabilities and off-balance-sheet position group corresponding to the remaining maturity. Assets and liabilities, which the bank may at any time unilaterally to change interest rates, are shown in the report according to the remaining period to the minimum interest rate for possible review. 3.4. the assets and liabilities, which is not a specific deadline or due date may differ from the contractual deadline, presented according to estimates, which are based on the bank's experience and is economically justified. 3.5. the assets, which created special provisions for unsecured debts, presented according to the residual value. 3.6. Derivatives are presented simultaneously as long as the off-balance-sheet positions and short off-balance-sheet items. 3.7. If the currency of the purchase and sales contract of presence (spot) is used to record the settlement date accounting (settlement date accounting), such a contract be included in the respective amounts receivable asset position and the amounts payable? the respective obligations of the position. 3.8. Against interest rate changes to sensitive assets and liabilities maturity composition assessed by calculating the interest risk and interest risk the net positions of the common position: 3.8.1. interest risk the net position is determined as the difference between the interest rate changes to sensitive assets, which included long and off-balance-sheet items liabilities, which added to short off-balance-sheet positions in each maturity group; 3.8.2. the common position of the interest risk is defined as the difference between the interest rate changes to sensitive assets and liabilities in ascending order of the period (such as the percentage of total risk position with a maturity of up to three months, calculated as the sum of the net positions of interest risk in intervals of up to one month and interest risk the net position between one to three months). 3.9. The impact on net interest income of the year, interest rates (apart from the initial period) up about 1 percent (or 100 basis points), is calculated as follows (see example in Appendix 2): 3.9.1. the maturity band interest risk net position multiplied by time (expressed in fractions of a year), in which the respective net position (the difference) will be open, (assuming that the interest rate changes take place in the middle of the period), and multiplied by 1 percent (or 100 basis points); 3.9.2. the total impact on annual interest income in determining the amount for each maturity band and one year calculated (profit or loss).
4. Review of the procedure for the preparation and submission
4.1. the Bank shall prepare a report on the State of the review on 31 March, 30 June, 30 September and 31 December in each currency in which the active or passive size exceeds 5 percent of the balance sheet total, as well as a whole in all currencies. 4.2. the report, which has been prepared in General in all currencies under UPDK 0651196 form (annex 1) shall be submitted to the Commission until the accounting period following the 15th of the month. 4.3. Statements, which are prepared in separate currencies under UPDK 0651196 form (annex 1), prepares to report for the period following the 15th of the month, and after five days at the request of the Commission. 4.4. If the Commission finds that the bank submitted reports prepared in error, it is notified by e-mail the report to the applicant. If the Commission has not stated otherwise, the report must be submitted not later than on the working day following notification of the existence of the error from the Commission. 4.5. the first report must be provided to the Commission on the status of the 2004 December 31.
Annex 1 Annex 2 impact on the net annual interest income calculation example
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