Interest rate risk in the banking book

Modelling the behaviour of products divided into business lines allows to select their stable and unstable part, reacting in different ways to changes in interest rates.

The following basic types of interest rate risk analyses (for the overall portfolio and divided by currencies) are defined in the policy on interest rate risk adopted by the Bank:

• a mismatch between the repricing dates of assets and liabilities („gapping”), for the banking book;
• sensitivity of interest income to defined – expected and crisis (stressed) – scenarios for shifting interest rate curves, assuming various interest rate curve scenario (EaR);
• the amount of interest income under defined scenarios for the change of interest rate curves (NII);
• sensitivity due to different reference rates (basic risk);

• average investment length of capital and non-interest bearing current accounts (structural elements);
• sensitivity of fair value to a parallel shift of interest rate curves by 1 basis point, and to a shift of interest rate curves by 1 basis point at a selected nodal point of the curve;
• sensitivity of fair value measured as the nominal value of the annual transaction (item) with identical sensitivity -One Year Equivalent (OYE);
• change in fair value of capital with defined scenarios for changing interest rate curves.

The aforementioned analyses are the essential component of the system used for mitigating the interest rate risk in the banking book. The analyses are performed for the relevant portfolios on a daily, monthly or quarterly basis, depending on the type of analysis and the portfolio. Additionally, the Bank conducts sensitivity analyses for its banking book, where the changes in interest rates are more considerable than those typically observed (stress tests).

The table below presents the cumulative interest rate gap for the banking portfolio as at 31 December 2019. Utilisation of set limits is below the maximum values.

The average length of capital investment and non-interest bearing current accounts as at 31 December 2019 was 4.5 years.

The sensitivity of interest income at interest rate curves shifts by + 50bp as at 30 June 2019 is presented in the table below:

The supervisory test of the Bank’s equity economic sensitivity (change in the fair value of the Bank’s assets and liabilities, excluding own funds, under the assumed changes in interest rate curves) is presented in the table below (in terms of amounts and percentages):