1 Market risks
Market risk is the risk that arises from changes in interest rates, exchange rates and security prices in the financial and capital markets. A differentiation is made between market risks in the trading book and market risks in the banking book. The potential for losses exists primarily in the impairment of the value of an asset or the increase in the value of liabilities (market value perspective) as well as in secondary capacity in the diminution of current earnings or an increase in current expenditures (earnings perspective).
1.1 Market risk management
The LLB Group has in place a differentiated risk management and risk control system for market risks. The market risk control process comprises a sophisticated framework of rules involving the identification and the uniform valuation of market risk-relevant data as well as the control, monitoring and reporting of market risks.
Trading book
The trading book contains own positions in financial instruments which are held for short-term further sale or repurchase. These activities are closely associated with the needs of our clients for capital market products and are regarded as being supporting activities for our core business.
The LLB Group conducts relatively small scale trading book activities in accordance with Article 94 (1) CRR. A limits system is in operation to ensure compliance and is monitored by Group Risk Management. On account of the materiality, the trading book is no longer explained in detail.
Banking book
In general, the holdings in the banking book are employed to pursue long-term investment goals. These holdings include assets, liabilities, and off-balance sheet positions, which are the result, on the one hand, of classical banking business and, on the other, are held to earn revenue over their life.
Market risks with the banking book mainly involve interest rate fluctuation risk, exchange rate risk and equity price risk.
Interest rate fluctuation risk
This is regarded as the adverse effects of changes in market interest rates on capital resources or current earnings. The different interest maturity periods of claims and liabilities from balance sheet transactions and derivatives represent the most important basis.
Exchange rate risk
This relates to the risks arising in connection with the uncertainties regarding future exchange rate trends. The calculation of these risks takes into consideration all the positions entered into by the bank.
Equity price risk
This is understood to be the risk of losses due to adverse changes in the market prices of equities.
1.2 Valuation of market risks
Sensitivity analysis
In sensitivity analysis a risk factor is altered. Subsequently, the effects of the alteration of the risk factor on the portfolio concerned are estimated.
Value-at-risk
The value-at-risk concept measures the potential loss under normal market conditions over a given time interval.
Scenario analysis
While the value-at-risk concept supplies an indication of possible losses under normal market conditions, it cannot provide information about potential losses under extreme conditions. The aim of the scenario analyses of the LLB Group is to simulate the effects of normal and stress scenarios.
1.3 Distribution of market risks
Within the specified limit parameters, the individual group companies are at liberty to manage their interest rate risks as they wish. Interest rate swaps are employed mainly to control interest rate risks. Risks are restricted by means of value-at–risk models and sensitivity limits. In client business, currency risks are basically controlled by making investments or obtaining refinancing in matching currencies. The residual currency risk is restricted by means of sensitivity limits. Investments in equities are limited by the imposition of nominal limits.
1.4 Monitoring and reporting of market risks
Group Credit & Risk Management monitors the observance of market risk limits and is also responsible for reporting market risks.
1.5 Value-at-risk and sensitivities by risk categories
Value-at-risk
The value-at-risk is an estimate of the potential loss under normal market conditions and is calculated at the LLB Group on the basis of a confidence level of 99 percent and a holding period of twelve weeks.
Calculation is made based on historical value-at-risk.
Sensitivities
Interest rate sensitivity measures the market change on interest-rate-sensitive instruments for the LLB Group caused by a linear interest rate adjustment of + / – 100 basis points.
In contrast, currency sensitivity affects both interest rate sensitive and non-interest rate sensitive instruments. The sensitivity of instruments in foreign currencies is determined by multiplying the CHF market value by the assumed exchange rate fluctuation of + /–10 percent.
The equity price risks are measured assuming a price fluctuation of + /–10 percent on the equity market.
Effects on group net profit and equity
Exchange rate risk
The price gains resulting from the valuation of transactions and balances are booked to profit and loss. The price gains resulting from the transfer of the functional currency into the reporting currency are booked under other comprehensive income without affecting profit and loss.
Interest fluctuation risk
Within the scope of financial risk management, interest fluctuation risk in the balance sheet business of the LLB Group is primarily secured by means of interest rate swaps. The LLB Group recognises client loans in the balance sheet at amortised cost. This means that a change in the interest rate does not cause any change in the recognised amount and therefore to no significant recognition affecting profit and loss of the effects of interest rate fluctuation. To offset the value adjustments of interest rate hedging transactions, which are to be booked to profit and loss, the LLB Group introduced fair value hedge accounting at portfolio level for interest fluctuation risks from 1 October 2015 (see Accounting principles, point 2.8, Derivative financial instruments and hedge accounting).
At 31.12.2016, mortgage loans stood at CHF 9’986 million. The exchange rate risks applying to this portfolio are hedged at 13.6 percent through interest rate swaps
Equity price risk
The valuation is carried out at current market prices. The equity price risk resulting from the valuation at current market prices is reflected in the income statement and in other comprehensive income.
Download |
|
31.12.2016 |
31.12.2015 |
||||||||
---|---|---|---|---|---|---|---|---|---|---|
in CHF thousands |
Value-at-risk |
Sensitivity |
Value-at-risk |
Sensitivity |
||||||
|
||||||||||
Currency risk |
|
10'581 |
|
10'132 |
||||||
of which affecting net income |
|
6'505 |
|
56 |
||||||
of which not affecting net income |
|
4'076 |
|
10'076 |
||||||
|
|
|
|
|
||||||
Interest rate risk |
25'547 |
52'598 |
34'130 |
49'815 |
||||||
of which affecting net income |
|
20'716 |
|
24'424 |
||||||
of which not affecting net income |
|
31'882 |
|
25'391 |
||||||
|
|
|
|
|
||||||
Equity price risk * |
|
38'556 |
|
36'603 |
||||||
of which affecting net income |
|
29'315 |
|
36'603 |
||||||
of which not affecting net income |
|
9'241 |
|
0 |
Download |
|
31.12.2016 |
31.12.2015 |
||
---|---|---|---|---|
in CHF thousands |
Sensitivity |
Sensitivity |
||
Currency risk |
10'581 |
10'132 |
||
of which USD |
856 |
2'599 |
||
of which EUR |
8'593 |
6'802 |
||
of which others |
1'131 |
731 |
Enlarge table | Download |
Increase per 100 basis points in CHF thousands |
Within 1 month |
1 to 3 months |
3 to 12 months |
1 to 5 years |
Over 5 years |
Total |
||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
31.12.2015 |
|
|
|
|
|
|
||||||
CHF |
–7 |
–2'505 |
7'542 |
4'497 |
–47'309 |
–37'782 |
||||||
EUR |
–18 |
562 |
–3'352 |
–3'202 |
–396 |
–6'405 |
||||||
USD |
–18 |
561 |
–3'372 |
–3'499 |
–1'083 |
–7'411 |
||||||
Other currencies |
–3 |
82 |
–906 |
2'329 |
281 |
1'783 |
||||||
All currencies |
–47 |
–1'299 |
–88 |
125 |
–48'507 |
–49'815 |
||||||
|
|
|
|
|
|
|
||||||
31.12.2016 |
|
|
|
|
|
|
||||||
CHF |
–3 |
–2'993 |
8'212 |
6'324 |
–53'036 |
–41'495 |
||||||
EUR |
–8 |
240 |
–3'238 |
–1'063 |
–102 |
–4'171 |
||||||
USD |
–8 |
312 |
–2'267 |
–4'940 |
–207 |
–7'109 |
||||||
Other currencies |
–4 |
188 |
–70 |
63 |
0 |
176 |
||||||
All currencies |
–23 |
–2'253 |
2'638 |
384 |
–53'344 |
–52'598 |
1.6 Currency risks
Enlarge table | Download |
in CHF thousands |
CHF |
USD |
EUR |
Others |
Total |
|||||
---|---|---|---|---|---|---|---|---|---|---|
Assets |
|
|
|
|
|
|||||
Cash and balances with central banks |
2'537'454 |
857 |
20'955 |
706 |
2'559'972 |
|||||
Due from banks |
342'579 |
1'688'472 |
1'737'013 |
486'010 |
4'254'074 |
|||||
Loans |
10'210'865 |
512'381 |
233'625 |
34'619 |
10'991'490 |
|||||
Trading portfolio assets |
2'443 |
1 |
6 |
0 |
2'450 |
|||||
Derivative financial instruments |
59'930 |
17 |
895 |
1'171 |
62'013 |
|||||
Financial investments at fair value |
974'822 |
275'341 |
185'423 |
3'022 |
1'438'608 |
|||||
Investment in joint venture |
47 |
0 |
0 |
0 |
47 |
|||||
Property and equipment |
123'077 |
0 |
244 |
0 |
123'321 |
|||||
Investment property |
16'240 |
0 |
0 |
0 |
16'240 |
|||||
Goodwill and other intangible assets |
124'434 |
0 |
59 |
0 |
124'493 |
|||||
Current tax assets |
0 |
0 |
0 |
0 |
0 |
|||||
Deferred tax assets |
23'669 |
0 |
0 |
0 |
23'669 |
|||||
Accrued income and prepaid expenses |
33'024 |
7'518 |
5'155 |
230 |
45'927 |
|||||
Non-current assets held for sale |
0 |
0 |
0 |
0 |
0 |
|||||
Other assets |
1'456 |
210 |
3'877 |
22'277 |
27'820 |
|||||
Total assets reported in the balance sheet |
14'450'040 |
2'484'797 |
2'187'252 |
548'035 |
19'670'122 |
|||||
Delivery claims from forex spot, forex futures and forex options transactions |
2'701'115 |
2'458'905 |
2'108'035 |
743'473 |
8'011'528 |
|||||
Total assets |
17'151'155 |
4'943'702 |
4'295'287 |
1'291'508 |
27'681'651 |
|||||
|
|
|
|
|
|
|||||
Liabilities and equity |
|
|
|
|
|
|||||
Due to banks |
521'891 |
30'123 |
26'159 |
95'461 |
673'634 |
|||||
Due to customers |
10'382'867 |
2'538'094 |
2'184'990 |
521'097 |
15'627'049 |
|||||
Derivative financial instruments |
149'513 |
17 |
892 |
1'171 |
151'593 |
|||||
Debt issued |
1'199'568 |
0 |
13'676 |
0 |
1'213'244 |
|||||
Current tax liabilities |
6'172 |
0 |
0 |
0 |
6'172 |
|||||
Deferred tax liabilities |
21'617 |
0 |
0 |
0 |
21'617 |
|||||
Accrued expenses and deferred income |
18'244 |
4'618 |
4'840 |
189 |
27'891 |
|||||
Provisions |
25'354 |
0 |
0 |
0 |
25'354 |
|||||
Other liabilities |
143'263 |
5'414 |
14'355 |
1'192 |
164'224 |
|||||
Share capital |
154'000 |
0 |
0 |
0 |
154'000 |
|||||
Share premium |
25'785 |
0 |
0 |
0 |
25'785 |
|||||
Treasury shares |
–168'584 |
0 |
0 |
0 |
–168'584 |
|||||
Retained earnings |
1'709'205 |
0 |
0 |
0 |
1'709'205 |
|||||
Other reserves |
–63'849 |
0 |
0 |
0 |
–63'849 |
|||||
Non-controlling interests |
102'787 |
0 |
0 |
0 |
102'787 |
|||||
Liabilities and equity reported in the balance sheet |
14'227'833 |
2'578'266 |
2'244'912 |
619'110 |
19'670'122 |
|||||
Delivery liabilities from forex spot, forex futures and forex options transactions |
3'021'099 |
2'339'449 |
1'982'353 |
665'089 |
8'007'990 |
|||||
Total liabilities and equity |
17'248'932 |
4'917'715 |
4'227'265 |
1'284'199 |
27'678'111 |
|||||
|
|
|
|
|
|
|||||
Net position per currency |
–97'777 |
25'987 |
68'022 |
7'309 |
3'540 |
Enlarge table | Download |
in CHF thousands |
CHF |
USD |
EUR |
Others |
Total |
|||||
---|---|---|---|---|---|---|---|---|---|---|
Assets |
|
|
|
|
|
|||||
Cash and balances with central banks |
3'362'665 |
527 |
87'091 |
443 |
3'450'726 |
|||||
Due from banks |
350'834 |
1'042'206 |
1'236'917 |
484'904 |
3'114'861 |
|||||
Loans |
10'618'047 |
568'203 |
274'832 |
77'794 |
11'538'876 |
|||||
Trading portfolio assets |
3'612 |
164 |
5 |
0 |
3'781 |
|||||
Derivative financial instruments |
80'776 |
462 |
15 |
1'354 |
82'607 |
|||||
Financial investments at fair value |
966'071 |
323'351 |
145'001 |
4'195 |
1'438'618 |
|||||
Investment in joint venture |
47 |
0 |
0 |
0 |
47 |
|||||
Property and equipment |
124'409 |
0 |
561 |
0 |
124'970 |
|||||
Investment property |
16'018 |
0 |
0 |
0 |
16'018 |
|||||
Goodwill and other intangible assets |
118'403 |
0 |
29 |
0 |
118'432 |
|||||
Current tax assets |
1'205 |
0 |
0 |
0 |
1'205 |
|||||
Deferred tax assets |
18'809 |
0 |
0 |
0 |
18'809 |
|||||
Accrued income and prepaid expenses |
23'402 |
4'663 |
4'223 |
279 |
32'567 |
|||||
Non-current assets held for sale |
845 |
0 |
0 |
0 |
845 |
|||||
Other assets |
3'152 |
12 |
267 |
12'336 |
15'767 |
|||||
Total assets reported in the balance sheet |
15'688'295 |
1'939'588 |
1'748'941 |
581'304 |
19'958'129 |
|||||
Delivery claims from forex spot, forex futures and forex options transactions |
2'418'568 |
3'023'018 |
2'292'267 |
909'190 |
8'643'043 |
|||||
Total assets |
18'106'863 |
4'962'606 |
4'041'208 |
1'490'494 |
28'601'172 |
|||||
|
|
|
|
|
|
|||||
Liabilities and equity |
|
|
|
|
|
|||||
Due to banks |
515'203 |
11'970 |
70'724 |
25'035 |
622'932 |
|||||
Due to customers |
10'608'453 |
2'595'748 |
2'062'784 |
593'480 |
15'860'465 |
|||||
Derivative financial instruments |
161'208 |
462 |
15 |
291 |
161'976 |
|||||
Debt issued |
1'218'479 |
0 |
9'556 |
0 |
1'228'035 |
|||||
Current tax liabilities |
10'398 |
0 |
0 |
0 |
10'398 |
|||||
Deferred tax liabilities |
13'745 |
0 |
0 |
0 |
13'745 |
|||||
Accrued expenses and deferred income |
18'127 |
5'360 |
2'548 |
192 |
26'227 |
|||||
Provisions |
51'071 |
0 |
0 |
0 |
51'071 |
|||||
Other liabilities |
164'105 |
2'816 |
8'937 |
1'047 |
176'905 |
|||||
Share capital |
154'000 |
0 |
0 |
0 |
154'000 |
|||||
Share premium |
24'968 |
0 |
0 |
0 |
24'968 |
|||||
Treasury shares |
–167'045 |
0 |
0 |
0 |
–167'045 |
|||||
Retained earnings |
1'758'816 |
0 |
0 |
0 |
1'758'816 |
|||||
Other reserves |
–74'511 |
0 |
0 |
0 |
–74'511 |
|||||
Non-controlling interests |
110'146 |
0 |
0 |
0 |
110'146 |
|||||
Liabilities and equity reported in the balance sheet |
14'567'164 |
2'616'356 |
2'154'564 |
620'045 |
19'958'129 |
|||||
Delivery liabilities from forex spot, forex futures and forex options transactions |
3'644'920 |
2'337'690 |
1'800'714 |
859'135 |
8'642'459 |
|||||
Total liabilities and equity |
18'212'084 |
4'954'046 |
3'955'278 |
1'479'180 |
28'600'587 |
|||||
|
|
|
|
|
|
|||||
Net position per currency |
–105'221 |
8'561 |
85'930 |
11'315 |
585 |
1.7 Interest rate repricing balance sheet
Enlarge table | Download |
in CHF thousands |
Within 1 month |
1 to 3 months |
3 to 12 months |
1 to 5 years |
Over 5 years |
Total |
||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
31.12.2015 |
|
|
|
|
|
|
||||||
Financial assets |
|
|
|
|
|
|
||||||
Cash and balances with central banks |
2'559'972 |
0 |
0 |
0 |
0 |
2'559'972 |
||||||
Due from banks |
2'443'001 |
472'688 |
1'165'230 |
100'000 |
0 |
4'180'919 |
||||||
Loans |
1'576'050 |
1'998'215 |
1'188'700 |
4'532'461 |
1'688'483 |
10'983'909 |
||||||
Trading portfolio assets |
0 |
0 |
0 |
870 |
1'600 |
2'470 |
||||||
Financial investments |
11'884 |
82'277 |
169'640 |
673'097 |
116'489 |
1'053'386 |
||||||
Total financial assets |
6'590'906 |
2'553'181 |
2'523'570 |
5'306'428 |
1'806'572 |
18'780'657 |
||||||
Derivative financial instruments |
140'000 |
401'000 |
863'482 |
40'000 |
0 |
1'444'482 |
||||||
Total |
6'730'906 |
2'954'181 |
3'387'052 |
5'346'428 |
1'806'572 |
20'225'139 |
||||||
|
|
|
|
|
|
|
||||||
Financial liabilities |
|
|
|
|
|
|
||||||
Due to banks |
358'566 |
70'065 |
195'000 |
50'000 |
0 |
673'631 |
||||||
Due to customers |
7'196'897 |
1'135'714 |
2'694'698 |
4'510'137 |
0 |
15'537'446 |
||||||
Debt issued |
8'803 |
17'270 |
156'300 |
624'402 |
406'470 |
1'213'244 |
||||||
Total financial liabilities |
7'564'266 |
1'223'049 |
3'045'998 |
5'184'538 |
406'470 |
17'424'321 |
||||||
Derivative financial instruments |
20'000 |
5'000 |
153'482 |
556'000 |
710'000 |
1'444'482 |
||||||
Total |
7'584'266 |
1'228'049 |
3'199'480 |
5'740'538 |
1'116'470 |
18'868'803 |
||||||
|
|
|
|
|
|
|
||||||
Interest rate repricing exposure |
–853'360 |
1'726'132 |
187'572 |
–394'110 |
690'102 |
1'356'336 |
||||||
|
|
|
|
|
|
|
||||||
31.12.2016 |
|
|
|
|
|
|
||||||
Financial assets |
|
|
|
|
|
|
||||||
Cash and balances with central banks |
3'450'726 |
0 |
0 |
0 |
0 |
3'450'726 |
||||||
Due from banks |
1'490'128 |
412'424 |
1'112'328 |
0 |
0 |
3'014'881 |
||||||
Loans |
1'803'964 |
2'122'006 |
1'344'164 |
4'599'144 |
1'632'364 |
11'501'642 |
||||||
Trading portfolio assets |
0 |
0 |
0 |
1'368 |
2'530 |
3'898 |
||||||
Financial investments |
19'490 |
42'397 |
140'269 |
738'151 |
76'176 |
1'016'483 |
||||||
Total financial assets |
6'764'308 |
2'576'827 |
2'596'762 |
5'338'662 |
1'711'070 |
18'987'630 |
||||||
Derivative financial instruments |
120'000 |
416'000 |
810'000 |
15'000 |
0 |
1'361'000 |
||||||
Total |
6'884'308 |
2'992'827 |
3'406'762 |
5'353'662 |
1'711'070 |
20'348'630 |
||||||
|
|
|
|
|
|
|
||||||
Financial liabilities |
|
|
|
|
|
|
||||||
Due to banks |
267'217 |
35'000 |
240'000 |
80'000 |
0 |
622'217 |
||||||
Due to customers |
7'126'131 |
1'325'260 |
2'854'055 |
4'417'172 |
30'029 |
15'752'647 |
||||||
Debt issued |
6'980 |
16'478 |
198'571 |
606'041 |
395'890 |
1'223'960 |
||||||
Total financial liabilities |
7'400'328 |
1'376'738 |
3'292'627 |
5'103'212 |
425'919 |
17'598'824 |
||||||
Derivative financial instruments |
0 |
15'000 |
170'000 |
556'000 |
620'000 |
1'361'000 |
||||||
Total |
7'400'328 |
1'391'738 |
3'462'627 |
5'659'212 |
1'045'919 |
18'959'824 |
||||||
|
|
|
|
|
|
|
||||||
Interest rate repricing exposure |
–516'020 |
1'601'089 |
–55'865 |
–305'550 |
665'151 |
1'388'806 |
In the interest rate repricing balance sheet excess assets, equity and liability are calculated using fixed-interest rate and derivative positions in the balance sheet and broken down interest commitments of financial assets and liabilities (nominal) into cycle times. The positions within an unspecified duration of interest rate repricing are allocated to the corresponding cycle times on the basis of a replication.