Interest rate risk coverage: applying the new EBA standards

Bucharest 06 September 2019

Trainer: Ionut Popa

Details

The new European definition of bank risk requires a reclassification of its components from the classic components of risk: credit, market in a form required as a result of the last financial recession. In this way, the IRRBB, the credit risk margin for non-portfolio activities (en: credit spread risk from non- trading book activities, CSRBB). These two new components arose as a result of the growing share of foreign currency instruments in the portfolio of credit institutions in Europe. Moreover, the importance of this risk element also stems from the over 80% cumulative market share of large financial groups, which have banks in most European countries, especially in Central and Eastern Europe.
Therefore, the European Banking Authority (EBA) regulated these two risks by imposing a standard on credit institutions across the continent, classifying the need to determine a capital requirement to cover these risks according to the size of each bank, portfolio instruments, dividing maturity bands of products affected by the evolution of interest rate risk, etc. Thus, EBA issued an EBA / GL / 2018/02 Interest Rate Risk Management Guideline dated 19 July 2018 and practical application at European level starting in 2019. In Romania, the National Bank of Romania considered the first amendments to the Regulation of the National Bank of Romania no. 5/2013 on prudential requirements for credit institutions based on European directives and has imposed new reporting for system banks since the second quarter of this year.
Starting from the previous description, the program offered by the Institute of Financial Studies is meant to inform and answer the questions of the risk managers from the Romanian financial institutions regarding the correct implementation of EBA / GL / 2018/02. The main component of the program is to present the main rules imposed by EBA, especially on the new regulations in conjunction with the updates proposed by the NBR on Regulation no. 5/2013. Moreover, the benefit of those who will participate is given by the case study that simulates a calculation of interest rate risk coverage for a fictitious bank that follows a structure similar to the Romanian entities in terms of portfolio structure , time horizon, etc.

Target group

The target group of the program is represented by managers of the risk departments in financial institutions in Romania, but also the people under their subordination with the purpose of calculating the capital requirement to cover credit risk, or, where appropriate, to cover the risk rate interest. Equally interesting are those who report to the NBR the results obtained, if they are different from the ones mentioned above. The practical nature of the program provides the ability to understand all the flow of actions from the time of data extraction to reporting.

Course objectives

At the end of the program, participants will be able to:
1. Know in detail the EBA regulations on interest rate risk and the rules imposed by the NBR by identifying the main changes in EBA / GL / 2018/02;
2. Correctly respond to three specimens provided by the trainer based on the elements presented in the theoretical part of the course;
3. understand the two main EVE and NII calculation methods based on the case study provided by the trainer;
4. a distinction between the products considered for the IRRBB calculation and those exempted on the basis of examples provided;
5. know the way of applying the optionals according to the characteristics of the virtual bank analyzed in the case study.

Subjects

Presentation of the history of interest rate risk regulation
The main changes made by EBA / GL / 2018/02
Categorization of credit institutions
Required scenarios under EBA regulations
Calculation methods applied in the IRRBB calculation
Dividing instruments into maturity bands and calculated risk types
Options used in the IRBBB calculation according to EBA / GL / 2018/02
Presentation of an IRRBB calculation framework implementation
Presentation of the case study and identification of the main elements considered in the IRRBB calculation
Making IRRBB Virtual Bank Calculation

Trainer

Ionut Pop has a 5 year experience in personal and professional training and holds an accredited NAC trainer certificate since 2014. Since 2015 he has been Associate Professor of the Faculty of Finance, Insurance, Banks and Stock Exchanges of the Bucharest Academy of Economic Studies be the banking sector, capital markets, international monetary financial relations, or the modeling of the financial decision. With an experience in the BIG 4, he has so far implemented over six projects for credit institutions in Romania, two of which are in the IRRBB calculation, using the latest regulatory standards in the field.