Page 221 - ACCESS BANK ANNUAL REPORTS_eBook

customers’ activities. The risk is managed by local treasury undue exposure and the Market Risk Management Group
functions, subject to modest risk limits and other controls. ensures that these limits and triggers are adhered to by the
Bank. The following limits currently exist;
SENSITIVITY ANALYSIS AND STRESS TESTING
Fixed income and FX Open Position Limits (OPL): The
Sensitivity analysis and stress testing are risk measurement Bank, in keeping with the prudency concept, sets its policy
techniques that help us ensure that the risks the Bank takes limit for Open Position at a level lower than the maximum
remain within our risk appetite and that our level of capital OPL approved by the regulatory authority. In setting the in-
remains adequate. Sensitivity analysis involves varying a ternal OPL, the following considerations are imperative:
single factor (e.g. a model input or specific assumption) to
assess the impact on various risk measures. • The Regulatory OPL;
• The Bank’s tolerance and appetite for FX risk;
Stress testing generally involves consideration of the simul- • The size and depth of the FX market in Nigeria;
taneous movements in a number of risk factors. It is used to • The degree of volatility of traded currencies; and
measure the level of potential unexpected losses for Credit, • The Bank’s desired positioning in the relevant FX
Market (both trading and non-trading), Operational and Li- market with requirements for international
quidity Risks. business support.

Under potential adverse conditions, stress testing plays an Interbank placement and takings Limit: In line with the
important role in supporting overall capital management Bank’s drive to be a top liquidity provider in the financial
and adequacy assessment processes. Our enterprise-wide market, stringent controls have been set to ensure that
stress testing programme utilizes stress scenarios featur- any takings from interbank are preceded by proper autho-
ing a range of severities based on unlikely but possible ad- rization, to reduce the risks that come with huge interbank
verse market and economic events. These common stress borrowing.
scenarios are evaluated across the organization, and results
are integrated to develop an enterprise-wide view of the Management Action Trigger (MAT): This establishes de-
impacts on our financial results and capital requirements. cision points to confirm the Board of Directors’ tolerance
This programme uses macro-economic projections and for accepting trading risk losses on a cumulative basis. MAT
applies them as stress impacts on the organization viz-a- therefore, takes into account actual cumulative profit/loss
viz the various risk types. as well as potential losses and the loss tolerance is defined
as a percentage of Gross Earnings.
TRADING PORTFOLIO
The measurement and control techniques used to mea- Stop Loss Limit: This limit sets a maximum tolerable un-
sure and control traded market risk (interest rate and for- realized profit/loss to date which will trigger the closing of
eign exchange risk) include daily valuation of positions, limit a position in order to avoid any further loss based on exist-
monitoring, gap analysis, sensitivity analysis, Value at Risk, ing exposures. Positions are liquidated uniformly when stop
tail risk, stress testing, e.t.c. loss limits are breached.

Dealer Limits: This limit sets a maximum transaction limit
by a dealer. It is based on experience and knowledge.
Mark to
Market Value-at-Risk Limit: The normal VaR of the portfolio will be
the Naira loss that will be exceeded 1% of the time over a
one day horizon. The VaR limits are linked to the Bank’s risk
Sensitivity/ Measuring VaR appetite and Treasury’ Budget. To quantify the risk appetite
scenario Traded with respect to trading intentions we set the VaR LIMIT as a
Analysis Market percentage of this value.
Risk
These risk limits are set and reviewed at least annually to
control Access Bank’s trading activities in line with the de-
Limits Stress fined risk appetite of the Group. Criteria for setting risk
Test limits include relevant market analysis, market liquidity and
business strategy. Trading risk limits are set at an aggregate,
risk category and lower levels and are expressed in terms
of VaR. This is further supported by a comprehensive set of
LIMITS non-VaR limits, including foreign exchange position limits,
Specific limits and triggers (regulatory and in-house) have stop loss limits and Management Action Triggers. Appro-
been set across the various market risk areas to prevent priate performance triggers are also used as part of the risk

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Annual Report & Accounts 2017