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Report BFA - Bankia 2014 / Risk managementStructural interest rate risk

Structural interest rate risk relates to potential losses in the event of adverse trends in market interest rates. Rate fluctuations affect both net interest income and equity. The intensity of the impact depends largely on different schedules of maturities and repricing of assets, liabilities and off-balance sheet transactions.

At the end of 2013, the institution worked hard to enhance management and control of structural interest rate and exchange rate risk by establishing the Structural Risks Unit and approving the Structural Interest Risk in the Banking Book Policy Manual. The associated metrics were developed in early 2014 and the institution monitored interest rate and exchange rate risk in the banking book on a monthly basis. Interest rate risk in the banking book is measured using a scenario approach and VaR. The scenario of shifts in the regulatory capital curve (parallel fluctuations of 200 basis points) was completed with a scenario extending the time horizon to two years (for net interest income sensitivity) and another analysing the slope of the curve.

The impact on own funds of the various structural risks in the fixed income portfolio is also measured using the VaR methodology. The VaR approach is completed with an analysis in an adverse scenario and another in a stressed scenario. In this way, all risks associated with the available-for-sale portfolio can be monitored.

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