Market risks arise from potential changes of risk factors, which may lead to a reduction of the market value of the financial position subject to these parameters. The invidual market risks distinguished are the interest rate risk, the foreign exchange risk and the share price risk. The market risks in the OeKB Group only affect positions of the banking book, no trading book is kept.
The assessment of the risks is based on the value at risk concept to estimate possible maximum losses. In addition, the interest rate and foreign exchange sensitivity ratios are determined; the effects of extreme market developments are calculated using stress tests.
Foreign exchange risks arise above all in connection with long-term and short-term financing facilities in the Export Financing Scheme. These risks are hedged by an exchange rate guarantee of the Republic of Austria pursuant to the 1981 Export Financing Guarantees Act and derivative financial transactions (currency swaps).
Hedging
Derivative financial instruments are used to control market risks. They consist in interest rate swaps and interest rate / currency swaps traded over the counter and used as hedging instruments for own issues. Instead of hedge accounting in accordance with IAS 39, these financial liabilities are classified as at fair value through profit and loss (FVTPL) to avoid an accounting mismatch. As a result, the fluctuations in value of individual derivatives and liabilities are directly recognised in the income statement.