Currency risk represents the probability of exchange rate fluctuations affecting the Bank’s business.
The Bank’s assets and liabilities are denominated in multiple currencies. Currency risk arises when the amount of actual or expected foreign-currency denominated assets is more or less than liabilities denominated in the same currency. Asset/Liability Committee performs ongoing monitoring of currency positions in accordance with regulatory requirements and internal policies of the Bank.
Currency risk management represents control over open currency positions by currency for foreign currency denominated transactions, including trading transactions. The limits used as basis for managing the Bank’s currency risk exposure are set at a level consistent with limits and restrictions required by the National Bank of Ukraine.
To estimate the exposure to currency risk, the Bank applies statistic and mathematical models, such as VaR risk assessment methodology, stress testing, testing of VaR model based on historic data. To manage currency risk, Risk Management Department estimates based on the methodology for currency risk measurement potential future loss from fluctuations of the exchange rate that is driven by the level of the open position and changes in the exchange rate to Ukrainian hryvnia. Ongoing currency risk management is concentrated at the Treasury level. Where appropriate, the Bank also sets internal limits on currency risk, such as position limits, VaR limits, stop-loss limits and stop-out limits.