In its operations the Group uses derivative financial instruments for risk management purposes related to the Group’s operations. The Group most often uses the following derivative instruments: IRS, CIRS, FX Swap, options, commodity swaps, FRA, Forwards and Futures. Derivative financial instruments are stated at fair value from the transaction date. Every derivative with positive fair value is shown under “Other derivative financial instruments” as an asset, and if the fair value is negative – as a liability.
The Group recognizes changes to the fair value measurement of derivative instruments which are not classified as hedging instruments and the gain/(loss) on the settlement of those instruments in the net gain/(loss) on financial instruments measured at fair value through profit or loss or net foreign exchange gains/(losses), depending on the type of derivative.
The fair value of derivative instruments other than options is designated using the measurement methods that base on discounted cash flows which may be obtained from a given financial instrument. The measurement techniques for financial instruments other than options are based on yield curves constructed on the basis of available market data (deposit rates on the interbank market, quotations of IRS transactions). Options are valued using option pricing models. The variables and assumptions used in a valuation include, where available, data derived from observable markets.
The fair value of derivative instruments accounts for DVA (debit value adjustment), and CVA (credit value adjustment). The process of calculating CVA and DVA adjustments covers methods of designating the counterparty’s or the Group’s credit risk spread (e.g. the market based measurement based on liquid quotations of prices of debt instruments issued by the counterparty, the implicated spread from Credit Default Swap contracts), estimating the probability of the counterparty’s or the Group’s default and the recovery rate, as well as the calculation of CVA and DVA adjustments.
OTHER DERIVATIVE INSTRUMENTS – BY TYPE | 31.12.2019 | 31.12.2018 | ||
---|---|---|---|---|
Assets | Liabilities | Assets | Liabilities | |
IRS | 1 523 | 1 624 | 1 178 | 1 832 |
CIRS | 151 | 145 | 156 | 153 |
FX Swap | 217 | 186 | 115 | 43 |
Opcje | 312 | 336 | 262 | 268 |
Commodity swap | 287 | 283 | 85 | 83 |
FRA | 1 | 1 | 3 | 2 |
Forward | 304 | 348 | 108 | 274 |
Futures | – | 1 | – | – |
Total | 2 795 | 2 924 | 1 907 | 2 655 |
The Group made simulations aimed at determining the possible impact of the changes in the yield curve on the valuation of transactions.
ESTIMATED CHANGE IN VALUATION FOLLOWING A PARALLEL SHIFT IN YIELD CURVES: | 31.12.2019 | 31.12.2018 | ||
---|---|---|---|---|
+50 bp scenario | -50 bp scenario | +50 bp scenario | -50 bp scenario | |
IRS | (182) | 183 | (145) | 147 |
CIRS | (219) | 222 | (253) | 259 |
other instruments | (2) | 2 | 3 | (3) |
Total | (403) | 407 | (395) | 403 |
31.12.2019 | 31.12.2018 | |
---|---|---|
CVA and CDA adjustments | (9) | – |