Response to consultation on Guidelines on technical aspects of the management of interest rate risk

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Question 1: Are the definitions sufficiently clear? If not, please provide concrete suggestions and justify your answer.

NA

Question 2: Are the guidelines in section 4.1. regarding the general provisions sufficiently clear? If not, please provide concrete suggestions.

It is clear.

Question 3: Do you agree that cash flows from non-performing exposures (NPEs) should be net of provisions and treated as general interest rate sensitive instruments whose modelling should reflect expected cash flows and their timing for the purpose of EV and earnings measures? If not, please provide concrete suggestions and justify your answer.

Yes, I agree. You show net position in your books and you have to refinance this position, this is the interest rate sensitive part. Nevertheless in case of small instutions modelling these positions is not effective on cost-benefit basis. EBA should ensure choice for small banks and elaborate standard figures for these positions (e.g. based on type of the exposure, credit rating, etc.)

Question 4: Are the guidelines in section 4.2. regarding the capital identification, calculation, and allocation sufficiently clear? If not, please provide concrete suggestions and justify your answer.

In paragraph 26 the guideline requires instutions factor the impact of shock and stress scenarios on positions priced with different interest rate indices (basis risk). How can we measure this impact? EBA should elaborate a standard calculation method for this purpose.

Question 5: Do you agree with the list of elements to be considered for the internal capital allocation in respect of IRRBB to earnings in paragraph 30? If not, please provide concrete suggestions and justify your answer.

I do not agree internal capital allocation in respect of IRRBB to earnings at all. We allocate extra capital to our overall stress-test reasult which take into account P&L effects as well. In that case we would take the potential risk into consideration in a duplicated way.

Question 6: Are the guidelines in section 4.3. regarding the governance sufficiently clear? If not, please provide concrete suggestions and justify your answer.

In a normal business model the effect of commercial margins to overall IRRBB position is insignificant, so prescribing adequate methodology on internal treatment of commercial margins causes extra burden for small instutions without real gain.

Question 7: Are the guidelines in section 4.4. regarding the measurement sufficiently clear? If not, please provide concrete suggestions and justify your answer.

In a normal business model the effect of commercial margins to overall IRRBB position is insignificant, so including commercial margins in earning measures causes extra burden for small instutions without real gain.

Question 8: Do you consider the comparison between EV metrics calculated using contractual terms for NMDs with the EV metrics calculated with behavioural modelled assumptions sensible and practical? Please justify your answer.

NA

Question 9: Are the guidelines in section 4.5. regarding the supervisory outlier test sufficiently clear? If not, please provide concrete suggestions and justify your answer.

It is clear.

Question 10: Is the proportionality adequately reflected in the guidelines, in particular in relation to the transitional period for SREP category 3 and 4 institutions and the frequency of calculation for the additional outlier test under paragraph 112?

15% of the instution's Tier 1 capital is the real bottleneck, why does EBA keep 20% of the institution's own funds as limit as well? What is the difference between the two obligations: the instution should inform the competent authority immeadiately" or "the instution should inform the competent authority"?"

Question 11: If relevant, do you manage interest rate risk arising from pension obligations and pension plans assets within the IRRBB framework or do you cover it within another risk category (e.g. within market risk separately from IRRBB, etc.)?

NA

Question 12: Which treatment of commercial margins cash flows do you consider conceptually most correct in EV metric, when discounting with risk free rate curve: a) including commercial margins cash flows or b) excluding commercial margins cash flows? Please justify your answer.

Excluding commercial margins. In a normal business model the effect of commercial margins to overall IRRBB position is insignificant. Nevertheless higher commercial margins means higher risk in cashflows (loss, timing).

Question 13: Are your internal systems flexible enough to exclude margins for the purpose of calculating EV measures for the supervisory outlier test? If not, what would be the cost to adapt your systems (high, medium, low)? Please elaborate your answer.

The banking core systems are not so flexible, so it would cause extra cost for instutions.

Question 14: Do you consider the level of the proposed linear lower bound as described in paragraph 113 (k) appropriate? If not, please provide concrete suggestions and justify your answer.

NA

Question 15: Do you consider the minimum threshold for material currencies included into the supervisory outlier test (5% for individual currency and minimum 90% of the total non-trading book assets or liabilities) sufficient to measure IRRBB in term of EVE? If not, please provide concrete suggestions and justify your answer.

It is OK.

Question 16: When aggregating changes to EVE in the supervisory outlier test, does the disregarding of positive changes to EVE have a material impact on the calculation of the supervisory outlier test?

It could be material and this rule punish those instutions who has 'positive' risk.

Name of organisation

Sberbank of Hungary