3.1. General information

Location of risk management disclosures

mBank Group’s risk management disclosures for 2014 are included in the Annual Report of the Group and in the Disclosures regarding capital adequacy. The table below presents reference to disclosures regarding various aspects of risk management within the abovementioned documents.

Disclosures regarding capital adequacy of mBank S.A. Group as at 31 December 2014 and Management Board Report are not the part of mBank S.A. Group Consolidated Financial Statements.

 

Type of risk

Information

Location of information for 2014

Annual Report of mBank Group

Disclosures regarding capital adequacy

Management Board Report

Consolidated Financial Statements

General information

Location of risk management disclosures

-

p. 39

p. 3

Glossary of terms

-

p. 41

-

Risk management in mBank Group in 2014 – external environment

Key risk measures in 2014

-

-

p. 25

Key external determinants

-

p. 42

-

New regulatory standards

-

p. 44

p. 23

Principles of risk management

Division of responsibilities in the risk management process

-

p. 44

-

Risk management culture

-

p. 49

-

Documentation of risk management process

-

p. 50

-

ICAAP/Risk profile

-

p. 52

p. 24

Risk appetite

-

p. 53

-

Stress tests

-

p. 54

p. 24

Capital planning

-

p. 54

p. 6

Credit risk

Credit risk strategy

p. 114

-

-

Credit risk management tools

p. 116

-

-

Collaterals accepted

-

p. 60

p. 36

Rating system

-

p. 62

-

Monitoring and validation of models

-

p. 63

-

Quality of the portfolio

p. 117

-

p. 43

Forbearance policy

-

p. 67

-

Counterparty risk that arises from derivative transactions

-

p. 70

-

Concentration risk

-

p. 72

p. 40

Market risk

Market risk strategy

-

p. 74

-

Tools and measures

p. 118

p. 75

-

Measurement and limiting market risk

p. 121

p. 75

-

Interest rate risk in the banking book

p. 121

p. 78

-

Currency risk

-

p. 77

p. 26

Liquidity risk and funding

Liquidity risk management

p. 122

p. 81

-

Tools and measures

p. 121

p. 81

-

Measurement of liquidity risk

p. 123

p. 81

-

Funding sources

-

p. 82

-

Operational risk

Tools and measures

p. 124

p. 86

p. 49

Operational losses

-

p. 86

p. 50

Other risks

Business risk

-

p. 86

-

Model risk

-

p. 87

-

Reputational risk

-

p. 87

-

Capital risk

-

p. 88

-

Insurance risk

-

p. 88

-

Capital adequacy

 

p. 124

p. 166

p. 6

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Glossary of terms

Add-on – estimated future potential exposure

Collateral – asset that is to be paid or received depending on the current valuation of the derivatives portfolio to mitigate potential credit risk in the future. Currently the main collateral asset is cash.

CCF (Credit Conversion Factor) – level of off-balance sheet items converted to balance sheet items at the date of default.

Common Equity Tier 1 Capital Ratio (CET1 ratio) – shall mean the Common Equity Tier 1 Capital expressed as a percentage of the Total Risk Exposure Amount (TREA).

Coverage ratio of non-liquid assets and limited liquidity assets with own funds and stable external funds (measure M4) - the ratio defined in KNF Resolution No. 386/2008 of 17 December 2008 on establishing liquidity measures binding on banks, calculated as a ratio of own funds diminished by sum of capital requirement on market risk, sum of capital requirement on delivery settlement, counterparty risk and stable external funds to sum of limited liquidity assets and non-liquidity assets.

CRD IV - Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms, amending Directive 2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC (Capital Requirements Directive IV).

CRR - Regulation (EU) No. 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No 648/2012 (Capital Requirements Regulation).

EAD (Exposure at Default) – value of exposure in case of default.

Earnings at risk (EaR) - a potential decrease in the annual interest income within 12 months assuming defined change of market interest rates scenarios, fixed volume and structure of balance and off-balance portfolio and unchanged interest rate structure of particular position, therein interest margin.

Economic capital (EC) – shall mean the amount of capital required to cover all the components, specified in the Bank’s internal regulations, estimated by the Bank at the assumed confidence level over a one-year time horizon. The economic capital consists of:

  • economic capital to cover credit risk,
  • economic capital to cover market risk,
  • economic capital to cover operational risk,
  • economic capital to cover business risk.

EL – Expected Loss in case of default.

ICAAP – Internal Capital Adequacy Assessment Process.

Internal capital (IC) – shall mean the amount of capital estimated by the Bank required to cover all material risks identified in the Group’s activity within the risk inventory process. Internal capital is the sum of economic capital and capital necessary to cover other risks (including hard to quantify risks).

LCR (Liquidity Coverage Ratio) - a relation of liquid assets of the liquidity buffer to the expected net outflows within 30 calendar days.

Leverage ratio – shall mean the relation of Tier 1 Capital to the institution’s total exposure measure, understood as the sum of the exposure values of all assets and off-balance sheet items not deducted, when determining the Tier 1 capital.

LGD (Loss Given Default) – loss resulting from the default.

LtV (Loan to Value) – the ratio of the loan value to the property market value.

NSFR (Net Stable Funding Ratio) – a relation of own funds and stable liabilities ensuring stable financing to illiquid assets and receivables requiring stable financing.

PD – Probability of Default.

Ratio of coverage of non-liquidity assets with own funds (measure M3) - the ratio defined in KNF Resolution No. 386/2008 of 17 December 2008 on establishing liquidity measures binding on banks, calculated as a ratio of own funds diminished by sum of capital requirement on market risk to sum of non-liquidity assets.

RBC (Risk Bearing Capacity) – shall mean the relations of Risk Coverage Potential (RCP) to the internal capital – internal measure.

RCP (Risk Coverage Potential) - shall mean the amount of own funds adjusted by specific correcting items, in accordance with respective internal regulations in mBank – internal measure.

Short-term liquidity factor (measure M2) - the ratio defined in KNF Resolution No. 386/2008 of 17 December 2008 on establishing liquidity measures binding on banks, calculated as a ratio of primary and supplementary liquidity reserves to unstable external funds.

Short-term liquidity gap (measure M1) – the ratio defined in KNF Resolution No. 386/2008 of 17 December 2008 on establishing liquidity measures binding on banks, calculated as a sum of primary and supplementary liquidity reserves diminished by unstable external funds.

Tier 1 Capital Ratio (T1 ratio) – shall mean the Tier 1 Capital expressed as a percentage of the Total Risk Exposure Amount (TREA).

Total Capital Ratio (TCR) – shall mean the own funds expressed as a percentage of the Total Risk Exposure Amount (TREA).

Total Risk Exposure Amount (TREA) – shall mean the sum of risk-weighted exposure amount for credit and counterparty credit risk as well as the sum of own funds requirements for other risks multiplied by 12.5, where other own funds requirements cover:

  • Market risk,
  • Operational risk,
  • Other risks, eg. credit valuation adjustment risk, large exposures in the trading book, etc.

Value at risk (VaR) – a measure of potential loss of market value (of financial instrument, portfolio, institution) to which the financial instrument, portfolio, institution is exposed over defined period of time at a given confidence level under normal market conditions.