Técnica Asociación de Palabras (Segunda serie)

market risk

Market risk is the danger of losses related to unfavourable fluctuations in market prices, in our case related to positions and activities in the interest rate, currency and stock markets.

the board has adopted limits on the bank’s interest rate risk. the limits apply to the bank, including the newly acquired consumer loan portfolio. the limit on interest rate risk for the next twelve months is 500 nok million years. there is also a limit on longer term interest rate risk, with a limit of 100 nok million years per additional year, up to a total of no more than 200 nok million years. the bank’s maximum exposure to interest rate risk is therefore 700 nok million years. this means that if the bank has the maximum permitted exposure, the maximum loss that it will incur in the event of a 1 percent change in interest rates is nok 7 million. Current interest rate risk is reported monthly to the board of directors. periods of fixed interest on the bank’s assets and liabilities, arising from fixed rate loan products, also constitute a market risk, and are covered by the limits set out above.

the bank measures market risk using Value at risk analyses in the bank’s total risk model. at 31 december 2009 the capital requirement for interest rate risk was nok 2 million.

Gjensidige bank is not exposed to currency or equity risk. Gjensidige bank is not exposed to pillar 1 market risk as the bank does not have a trading portfolio. note 22 shows the time to repricing for Gjensidige bank’s fixed- rate products.

oPerational risk

by operational risk we mean the risk of losses due to human error, external actions or failing or inadequate systems, procedures and processes. We are establishing an incident database for assessing, recording and measuring operational problems.

the bank’s total risk model is used to calculate the financial capital needed to cover the bank’s operational risk, estimated for the confidence level currently adopted, which is 99.95 percent.

liQUiditY risk

liquidity risk is the risk that the bank will be unable to fulfil its obligations and/ or finance an increase in assets without significant additional cost, either because it has to realise losses on the sale of assets or because it has to make use of unusually expensive financing.

We distinguish between two types of liquidity risk:

1. the bank’s credit rating is downgraded as a result of high losses, but it still able to obtain financing through financial markets

2. the bank is unable to obtain financing due to high losses

provisions for the first type of liquidity risk are estimated in the total risk model. liquidity risk as a result of losses leading to a credit rating down- grade is defined as a charge to equity through higher financing costs. the liquidity risk arising from the potential inability to obtain financing can be dealt with by having sufficient liquid assets to meet maturing obligations.

requirements relating to the deposit/loan ratio, maturity structure and liquidity buffer are calculated on the basis of stress tests that look at the probability and impact of funding difficulties in a recession scenario. these calculations look at a relatively short-term horizon.

the board has set limits on the proportion of the bank’s liabilities that can mature within given time periods, and goals for long-term liquidity indicators. the bank shall have available a liquidity buffer consisting of short-term deposits, liquid securities and/ or committed credit facilities which, in the event of an acute shortage of liquidity in the market, gives it sufficient time to implement necessary measures.

the liquidity buffer shall cover the sum total of: a) 100% of funding requirements in the first month b) 75 % of funding requirements in the second month c) 50 % of funding requirements in the third and fourth months d) 25 % of funding requirements in the fifth and six months e) an unexpected 9 % fall in deposits in relation to the most recently

published interim financial statements

based on this, the required liquidity buffer at 31 december 2009 was nok 988 million, whilst the actual liquidity buffer was nok 1908 million. note 27 provides a complete maturity analysis.

stress tests have also been carried out to assess the bank’s need for a liquidity buffer based on future recession and credit crisis scenarios. concentration risk

Concentration risk is the risk of losses arising from lending a high proportion of your capital to individual entities or limited geographic regions or industries. Concentration risk is managed through the bank’s risk management frameworks, and is measured and reviewed through annual stress tests/ credit scenario analyses.

at 31 december 2009 the portfolio was well diversified geographically, with the highest proportion of outstanding loans in the most heavily populated parts of norway. the biggest single loan is for approx. nok 8.9 million. the sum of the 10 biggest loans is nok 68.6 million. BUsiness risk

business risk is the risk of unexpected fluctuations in income for other reasons than credit risk, market risk and operational risk. this risk can arise in various business or product segments, and may be related to changes in the economic climate and/ or changes in customer behaviour, for example due to changes in reputation and strategic misjudgements.

the bank has a separate statistical model that calculates the financial capital required to cover business risk, based on the bank’s budgets and forecasts.

comPliance risk

Compliance risk is defined as the risk that the bank will incur government sanctions, financial losses or loss or reputation as a result of failure to comply with laws, regulations and standards.

the bank has established a compliance function to identify, assess, advise on, monitor and report compliance risk and any breaches of relevant regulations.

each year, all managers have to confirm that the activities of their units comply with relevant regulations, and that compliance risk has been assessed. this is done in conjunction with reporting the results of the annual risk assessments in accordance with the regulations on risk Management and internal Controls.

consolidated 2009 more than Perpetual

figures in nok ’000s 1 month 1-3 months 3-12 months 1-5 years 5 years loans total

debt to credit institutions 2,829 14,798 556,163 573,789

deposits from/ debt to customers 6,550,442 6,550,442

debt incurred through the issue of securities 117,217 403,752 1,963,217 2,130,514 4,614,700

deferred tax

tax payable

other liabilities 76,143 76,143

provisions 12,537 12,537

loan offers and unused credit facilities 2,578,001 2,578,001

derivatives – gross outflows * 2,314 3,925 33,042 47,175 86,456

total liabilities 9,324,117 410,507 2,011,057 2,733,852 12,537 14,492,069

*) derivatives – gross inflows 380 47,348 64,608 112,336

Financial derivatives – net outflows

(negative figure implies net inflow) 1,934 3,925 (14,306) (17,433) 25,880

consolidated 2008 more than Perpetual

figures in nok ’000s 1 month 1-3 months 3-12 months 1-5 years 5 years loans total

debt to credit institutions

deposits from/ debt to customers 6,131,371 6,131,371

debt incurred through the issue of securities 150,361 101,439 6,340 938,223 1,196,363

derivatives

deferred tax

tax payable

other liabilities 37,162 37,162

provisions 952 952

loan offers and unused credit facilities 150,215 442,932 593,147

total liabilities 6,469,109 544,371 6,340 938,223 952 7,958,995

Parent comPanY 2009 more than Perpetual

figures in nok ’000s 1 month 1-3 months 3-12 months 1-5 years 5 years loans total

debt to credit institutions 55,039 2,829 14,798 556,163 628,828

deposits from/ debt to customers 6,550,441 6,550,441

debt incurred through the issue of securities 117,217 403,752 1,963,217 2,130,514 4,614,700

tax payable

other liabilities 71,035 71,035

provisions 12,537 12,537

loan offers and unused credit facilities 2,312,358 2,312,358

derivatives – gross outflows * 2,314 3,925 33,042 47,175 86,456

total liabilities 9,108,404 410,507 2,011,057 2,733,852 12,537 14,276,356

*) derivatives – gross inflows 380 47,348 64,608 112,336

Financial derivatives – net outflows

(negative figure implies net inflow) 1,934 3,925 (14,306) (17,433) 25,880

Parent comPanY 2008 more than Perpetual

figures in nok ’000s 1 month 1-3 months 3-12 months 1-5 years 5 years loans total

debt to credit institutions

deposits from/ debt to customers 6,131,371 6,131,371

debt incurred through the issue of securities 150,361 101,439 6,340 938,223 1,196,363

derivatives

tax payable

other liabilities 37,162 37,162

provisions 952 952

loan offers and unused credit facilities 150,215 442,932 593,147

total liabilities 6,469,109 544,371 6,340 938,223 952 7,958,995