Qualitative information

A. General aspects, management procedures and measurement methods of the currency risk

Assumption of the currency risk, intended as a management tool that is potentially ideal for improving treasury performance, represents a speculative instrument and, thus, in principle, is not part of the group’s financial policy. The bank’s currency operations basically involve transactions in the name of, or on behalf of, customers and are normally correlated with the typical factoring activity. In this sense, the advances given to the customer are generally backed by deposits and/or loans from other banks in the same currency, thus eliminating the risk of losses connected to exchange rate fluctuations. In some cases, the cover is created using derivatives on loans.

A residual currency risk arises as a physiological consequence of mismatching between the customer’s use and the treasury’s procurement of a currency. Such mismatches are a result of the difficulty in forecasting the exact amount needed, with particular reference to cash flows from assigned debtors in respect of the customer’s financing expiry, together with the effect of interest on this financing.

The Treasury Department is committed on a daily basis to minimizing such differences, realigning the dimensions and frequency of positions in different currencies.

Assumption and management of the currency risk occurs respecting the limits and policies set by the Board of Directors and is governed by precise proxies fixing limits of autonomy for individual operators, together with particularly strict limits on the daily net position in currency.

The business functions that are designed to guarantee correct management of the currency risk are: the Treasury Department that directly manages funding and the bank’s exchange rate position, the Risk Management Office entrusted with the role of selecting the most effective risk indicators and monitoring asset and liability trends to ensure compliance with preset limits and, lastly, Top Management that has the responsibility of putting forward to the Board, on an annual basis, proposals regarding policies on lending and funding and the management of the currency risk, as well as suggesting opportune interventions during the year in order to ensure that activities are consistent with the risk policies approved by the bank.

With the aim of monitoring the currency risk, Top Management receives a summarised daily report on the treasury’s general position, which gives, amongst other information, the group’s position in terms of exchange rates, broken down by currency. The Integrated Treasury System (SIT) provides management and control, with suitable tools for monitoring and managing the currency risk. The currency risk position is also periodically reported upon to the bank’s Board of Directors by means of a quarterly so-called ‘Dashboard’ report prepared by the Risk Management Office for Top Management.

Expansion into the Polish market through the subsidiary, IFIS Finance Sp.Z o.o., does not change the above: assets held in zloty are financed through funding in the same currency.

With the purchase of this Polish subsidiary, Banca IFIS has assumed the currency risk represented by the initial investment in IFIS Finance Sp. Z o.o.’s share capital for an amount of 21.2 million Zloty and the ensuing share capital increase for an amount of 66.0 million Zloty.

During 2010 Banca IFIS bought a 10% equity investment in the share capital of the company India Factoring and Finance Solutions Private Limited, for a total of 100 million Indian rupees and a value of 1,591 thousand Euro at the historic exchange rate. In consideration of the size of this investment it was not considered necessary to arrange specific cover of the consequent exchange rate risk.

Quantitative information

1. Distribution of assets, liabilities and derivatives by currency

Items

Currency

US DOLLAR

POUND STERLING

JAPANESE YEN

CANADIAN DOLLAR

SWISS FRANC

OTHER CURRENCIES

A. Financial assets

17,064

246

-

-

-

26,207

A.1 Debts securities

 

 

 

 

 

 

A.2 Equity securities

 

 

 

 

 

 

A.3 Loans to banks

325

170

 

 

 

14,182

A.4 Loans to customers

16,739

76

 

 

 

12,025

A.5 Other financial assets

 

 

 

 

 

 

B. Other assets

 

 

 

 

 

6

C. Financial liabilities

16,703

56

20

-

147

51

C.1 Due to banks

16,684

55

20

 

147

14

C.2 Due to customers

19

1

 

 

 

37

C.3 Equity securities

 

 

 

 

 

 

C.4 Other financial liabilities

 

 

 

 

 

 

D. Other liabilities

1

2

1

 

3

243

E. Financial derivatives

-

-

-

-

-

-

- Options

-

-

-

-

-

-

+ long positions

 

 

 

 

 

 

+ short positions

 

 

 

 

 

 

- Other

-

-

-

-

-

-

+ long positions

 

 

 

 

 

-

+ short positions

 

 

 

 

 

 

Total assets

17,064

246

-

-

-

26,213

Total liabilities

16,704

58

21

-

150

294

Unbalance (+/-)

360

188

21

-

150

25,919