2018 Registration document and annual fi nancial report - BNP PARIBAS402
5 RISKS AND CAPITAL ADEQUACY PILLAR 3
5
Market risk
➤ TABLE 76 : VALUE AT RISK (1-DAY, 99%) [Audited]
In millions of euros
Year to 31 Dec. 2018 Year to 31 Dec. 2017
Minimum(**) Average Maximum(**) Last measure Average Last measure
Interest rate risk 13 17 28 20 17 16
Credit risk 9 11 20 10 13 11
Foreign exchange risk 4 7 12 9 10 6
Equity price risk 9 15 31 17 13 12
Commodity price risk 2 4 9 6 4 3
Netting effect(*) (30) (32) (31) (28)
TOTAL VALUE AT RISK 18 25 37 30 26 20
(*) Note that the minimum and maximum fi gures shown above for the various risk types are computed on a standalone basis (i.e. independently from each other as well as the total VaR). While the minimum or maximum for each risk type may not necessarily be observed on the same date, minimum/ maximum Netting Effects are not considered relevant.
(**) For minima and maxima, total VaR cannot be read as the sum of VaR by risk type.
VaR (1 day, 99%) remained at a low level throughout 2018 with a slight increase at the end of the year due to the impact of increased market volatility and market movements on the Group s market risk profi le (see Figure 10 hereafter).
Backtesting the VaR
Risk continuously tests the accuracy of its internal model through a variety of techniques, including in particular a regular comparison over a long-term horizon between actual daily losses on capital market transactions and one-day VaR.
This backtesting consists of making a comparison between the daily global trading book VaR and the actual result. In accordance with the regulation, BNP Paribas supplements this actual backtesting method with a comparison between the daily VaR and the hypothetical result generated by the trading book, which is also known as hypothetical backtesting . The hypothetical result includes all components of the actual result, except the intra-day revenues, fees and commissions. A backtesting event is declared when a real or hypothetical loss exceeds the daily VaR amount. The confi dence interval selected for calculating daily VaR is 99%, which in theory means the observation of two to three events per year.
The number of events is calculated at least quarterly and is equal to the highest of the number of excesses for the hypothetical and actual variations in the portfolio value.
In 2018, fi ve hypothetical backtesting events were recorded at Group level (no actual backtesting event was observed):
■ 1 February 2018: this hypothetical loss was due to an increase in volatility in fi nancial markets resulting from the combined effect of the disclosure of employment fi gures in the United States and the anticipation of the increase of United States Federal reserve s leading rates;
■ 7 February 2018: this hypothetical loss in equity derivative portfolios in Europe and the United States, occurred in the context of a sudden fall of indices and a spike in volatility caused by the announcement by the United States Federal Reserve of its intention to accelerate its schedule of interest rate increases;
■ 15 August 2018: this hypothetical loss occurred in the context of political tensions between the United States and Turkey as well as trade tensions between the United States and China, resulting in the sharp depreciation of the Turkish lira and the Chinese yuan;
■ 19 November 2018: this hypothetical loss, primarily related to the commodity derivatives activities, occurred in the context of a drop in the price of oil and a sharp rise in volatility, due to fears of a slowdown in global growth;
■ 10 December 2018: this hypothetical loss resulted from the combined effect of market movements which led to cumulative losses within different business lines of the Bank (without actually exceeding the authorised level of the businesses concerned).
Evolution of the VaR (1-day, 99%) [Audited]
The VaR set out below are calculated from an internal model, which uses parameters that comply with regulations in place. They correspond to measurements taken into account within the framework of monitoring market limits. They are based on a one-day time horizon and a 99% confi dence interval.
In 2018, total average VaR for BNP Paribas was EUR 25 million (with a minimum of EUR 18 million and a maximum of EUR 37 million), after taking into account the -EUR 30 million netting effect between the different types of risks. These amounts break down as follows:
