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OPEN JOINT STOCK COMPANY AMRAHBANK JOINT STOCK BANK
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OPEN JOINT STOCK COMPANY AMRAHBANK JOINT STOCK BANK NOTES TO THE FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 31 DECEMBER 2008 (in Azerbaijan Manats) 51
Weighted average effective interest rate Up to 1 month 1 month to 3 months 3 month to 1 year 1 year to 5 years Over 5 years Maturity undefined 31 December 2008 Total
Due to banks and other credit institutions 1.01%
290,443 563,352 2,504,710 2,197,318 78,078 - 5,633,901 Customer accounts 16.78%
2,387,742 2,349,372 11,992,890 11,309,394 -
- 28,039,398
Total interest bearing financial liabilities
2,678,185 2,912,724 14,497,600 13,506,712 78,078 - 33,673,299
Due to banks and other credit institutions
249,836 - -
- -
- 249,836
Customer accounts
8,707,953 - -
- -
- 8,707,953 Other financial liabilities
202,393 59,000 -
- -
- 261,393
11,838,367 2,971,724 14,497,600 13,506,712 78,078 - 42,892,481
Weighted average effective interest rate Up to 1 month 1 month to 3 months 3 month to 1 year 1 year to 5 years Over 5 years Maturity undefined 31 December 2007 Total FINANCIAL LIABILITIES
Due to banks and other credit institutions 6.00%
165,883 595,805 4,476,566 4,427,992 46,256 - 9,712,502 Customer accounts 16.83% 2,380,570 2,901,910 12,815,222 2,415,350 -
- 20,513,052
Total interest bearing financial liabilities
2,546,453 3,497,715 17,291,788 6,843,342 46,256 - 30,225,554
Due to banks and other credit institutions
20,020 - -
- -
- 20,020
Customer accounts
9,728,509 - -
- -
- 9,728,509 Other financial liabilities
33,879 - 144,497 - -
- 178,376
12,328,861 3,497,715 17,436,285 6,843,342 46,256 - 40,152,459
OPEN JOINT STOCK COMPANY AMRAHBANK JOINT STOCK BANK NOTES TO THE FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 31 DECEMBER 2008 (in Azerbaijan Manats) 52
Market Risk
Market risk covers interest rate risk, currency risk and other pricing risks to which the Bank is exposed. There have been no changes as to the way the Bank measures risk or to the risk it is exposed in 2008.
The ALMC also manages interest rate and market risks by matching the Bank’s interest rate position, which provides the Bank with a positive interest margin.
The Bank manages fair value interest rate risk through periodic estimation of potential losses that could arise from adverse changes in market conditions.
The following table presents a sensitivity analysis of interest rate risk, which has been determined based on “reasonably possible changes in the risk variable”. The level of these changes is determined by management and is contained within the risk reports provided to key management personnel.
Impact on profit before tax based on asset values as at 31 December 2008 and 31 December 2007: As at 31 December 2008 As at 31 December 2007 Interest rate +1% Interest rate -1% Interest rate +1% Interest rate -1% Financial assets:
Due from banks 10,000 (10,000) -
- Loans to customers 386,632 (386,632) 369,256 (369,256) Investments available-for-sale 55,630 (55,630) -
-
Financial liabilities:
Due to banks and other credit institutions (54,735) 54,735 (91,432) 91,432
Customer accounts (249,037) 249,037 (188,645) 188,645
Net impact on profit before tax 148,490 (148,490) 89,179 (89,179)
Impact on shareholders’ equity:
As at 31 December 2008 As at 31 December 2007 Interest rate +1% Interest rate -1% Interest rate +1% Interest rate -1% Financial assets:
Due from banks 7,800
(7,800) -
- Loans to customers 301,573 (301,573) 288,020 (288,020) Investments available-for-sale 43,391 (43,391) -
-
Financial liabilities:
Due to banks and other credit institutions (42,693) 42,693 (71,317) 71,317
Customer accounts (194,249) 194,249 (147,143) 147,143
Net impact on shareholders’ equity 115,822 (115,822) 69,560 (69,560) OPEN JOINT STOCK COMPANY AMRAHBANK JOINT STOCK BANK NOTES TO THE FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 31 DECEMBER 2008 (in Azerbaijan Manats) 53
Currency risk
Currency risk is defined as the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates. The Bank is exposed to the effects of fluctuations in the prevailing foreign currency exchange rates on its financial position and cash flows.
The ALMC controls currency risk by management of the open currency position on the estimated basis of fluctuations of different currencies and other macroeconomic indicators, which gives the Bank an opportunity to minimize losses from significant currency rates fluctuations toward its national currency. The Treasury Department performs daily monitoring of the Bank’s open currency position with the aim to match the requirements of national banks.
The Bank’s exposure to foreign currency exchange rate risk is presented in the table below:
USD USD 1 = AZN 0.8010
EUR 1 = AZN 1.1292
Cash and balances with the National Bank of the Republic of Azerbaijan 5,299,109 1,457,907 86,193 76,251 6,919,460 Due from banks 1,000,458 470,290 63,543 130,706 1,664,997 Loans to customers 36,020,086 3,083,219 296,757 -
39,400,062 Investments available-for -sale 5,762,993 -
- -
5,762,993 Other financial assets 212,783 171,109 - 25,588 409,480
48,295,429 5,182,525 446,493 232,545 54,156,992
Due to banks and other credit institutions 5,505,447 217,874 -
- 5,723,321 Customer accounts 20,450,005 12,594,911 534,703 32,012 33,611,631 Other financial liabilities 160,162 83,313 4,296 13,622 261,393
26,115,614 12,896,098 538,999 45,634 39,596,345
OPEN BALANCE SHEET POSITION 22,179,815 (7,713,573) (92,506) 186,911
OPEN JOINT STOCK COMPANY AMRAHBANK JOINT STOCK BANK NOTES TO THE FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 31 DECEMBER 2008 (in Azerbaijan Manats) 54
1 USD =
AZN 0.8453
1 EUR = AZN 1.2450
Cash and balances with the National Bank of the Republic of Azerbaijan 6,871,344 1,996,376 466,821 13,084 9,347,625 Due from banks -
608,089 3,496
8,179 619,764
Loans to customers 28,705,427 9,254,415 258,908 - 38,218,750 Investments available-for-sale 200,000 - -
- 200,000
Other financial assets 65,142 173,791 -
- 238,933
35,841,913 12,032,671 729,225 21,263 48,625,072
Due to banks and other credit institutions 4,768,887 4,394,347 -
- 9,163,234 Customer accounts 14,921,812 12,805,691 865,418 117 28,593,038 Other financial liabilities 168,758 7,749 1,869
- 178,376
19,859,457 17,207,787 867,287 117 37,934,648
OPEN BALANCE SHEET POSITION 15,982,456 (5,175,116) (138,062) 21,146
Currency risk sensitivity
The following table details the Bank’s sensitivity to a 10% increase and decrease in the USD and EUR against the AZN. 10% is the sensitivity rate used when reporting foreign currency risk internally to key management personnel and represents management’s assessment of the possible change in foreign currency exchange rates. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the end of the period for a 10% change in foreign currency rates. The sensitivity analysis includes external loans as well as loans to foreign operations within the Bank where the denomination of the loan is in a currency other than the currency of the lender or the borrower.
Impact on profit or loss (771,357) 771,357 (517,512) 517,512
Impact on profit or loss (9,251) 9,251
(13,806) 13,806
OPEN JOINT STOCK COMPANY AMRAHBANK JOINT STOCK BANK NOTES TO THE FINANCIAL STATEMENTS (Continued) FOR THE YEAR ENDED 31 DECEMBER 2008 (in Azerbaijan Manats) 55
Limitations of sensitivity analysis The above tables demonstrate the effect of a change in a key assumption while other assumptions remain unchanged. In reality, there is a correlation between the assumptions and other factors. It should also be noted that these sensitivities are non-linear, and larger or smaller impacts should not be interpolated or extrapolated from these results.
The sensitivity analyses do not take into consideration that the Bank’s assets and liabilities are actively managed. Additionally, the financial position of the Bank may vary at the time that any actual market movement occurs. For example, the Bank’s financial risk management strategy aims to manage the exposure to market fluctuations. As investment markets move past various trigger levels, management actions could include selling investments, changing investment portfolio allocation and taking other protective action. Consequently, the actual impact of a change in the assumptions may not have any impact on the liabilities, whereas assets are held at market value on the balance sheet. In these circumstances, the different measurement bases for liabilities and assets may lead to volatility in shareholder equity.
Other limitations in the above sensitivity analyses include the use of hypothetical market movements to demonstrate potential risk that only represent the Bank’s view of possible near-term market changes that cannot be predicted with any certainty; and the assumption that all interest rates move in an identical fashion.
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