66. Other market risks

Commodity price risk management 

Definition - Commodity price risk is the risk of incurring a loss due to changes in commodity prices, generated by maintaining open positions on particular types of goods.

Management objective - The objective of commodity price risk management is to reduce potential losses resulting from changes in commodity prices to the acceptable level by shaping the appropriate structure of these items.

Risk identification and measurement - In respect of the measurement of the prices of commodities, information on the positions taken by the Group in particular commodities is utilized, and stress-test analyses are performed.

Control - Control of commodity prices covers determining respective limits and threshold levels tailored to the scale and complexity of the Group’s operations.

Forecasting and monitoring - In respect of the commodity price risk the Group regularly monitors, in particular: open commodity positions, results of stress-tests and the degree of utilization of external limits imposed on the risk.

Reporting - Reports on commodity price risks are developed on a daily, weekly, monthly and quarterly basis.

Management actions - Commodity price risk is managed by imposing limits on instruments generating the commodity price risk, monitoring their use and reporting the risk level. The effect of commodity price risk on the Group's financial position is immaterial.

Price risk of equity securities management 

Definition - The price risk of equity securities is the risk of incurring a loss due to changes in the prices of equity securities on the public market or stock exchange indices, generated by maintaining open positions in instruments sensitive to changes in these market parameters. The risk results from operations conducted as part of trading activities of the Brokerage House of PKO Bank Polski SA, investing activities and from other operations as part of banking activities generating a position in equity securities.

Management objective - Managing the price of risk equity securities is aimed at limiting possible losses due to changes in the prices of equity securities on the public market or stock exchange indices to acceptable level, by optimizing the positions taken in instruments sensitive to changes in these market parameters.

Risk identification and measurement - For the purpose of equity securities price risk management the Group utilizes:

  • analyses of stress tests, in consideration of changes in market prices of the base instrument and changes in its volatility,
  • information on the utilization of limits of positions taken in the equity securities portfolio.

Control - Control over equity securities risk covers determining equity securities risk limits and thresholds tailored to the scale and complexity of the Group’s operations.

Forecasting and monitoring - The Group regularly monitors the level of price risk of equity securities and the level of utilization of the limits on positions taken in the equity securities portfolio.

Reporting - Reports on the risk of equity securities are prepared on a monthly and quarterly basis.

Management actions - The risk is managed by imposing limits on the activities of the Brokerage House of PKO Bank Polski SA and by monitoring the utilization thereof. The effect of the price risk of equity securities on the financial position of the Group was assessed as immaterial. The positions taken in equity securities and index instruments are limited, and are not expected to increase significantly.

Other price risk

Taking into consideration other price risks, at the end of the year 2016, the Group was exposed to price risk of investment fund participation units in collective investment funds. Influence of this risk to the Group’s financial situation is immaterial.