Market risk is defined as the risk of loss incurred as a result of unfavourable changes in interest or currency exchange rates. The CEB hedges itself against these risks to reduce interest rate risks and minimise foreign exchange risks.
Interest rate risk: The Bank manages its interest rate risk position throughout the balance sheet with the aim of optimising the balance sheet structure, stabilising and enhancing its net interest income consistent with the risk appetite, benefiting from market opportunities, while maintaining its financial solidity and profitability in all market circumstances. The CEB’s strategy is to maintain a sustainable revenue profile as well as to limit the volatility of the Bank’s economic value. The Bank uses derivative products, only for hedging purposes and takes recourse to natural hedges whenever possible. The Bank ensures that its interest rate risk tolerance is transposed into robust and comprehensive risk indicators and supported by adequate limits.
Currency exchange rate risk: The Bank aims at minimising foreign exchange risk and maintaining very limited open positions in foreign currencies. The residual risk arising from gains or losses in currencies other than the euro is measured daily and managed through a set of thresholds and limits. The net open position per currency is limited to the equivalent of € 1 million.