Interest rate risk

Interest rate risk is the risk of potential loss due to adverse movements in interest rates. Interest rate risk within FMO stems from the following products: loans, funding instruments, bonds/deposits, derivatives and money market funds. FMO manages its interest position through the Price Value per Basis Point (PVBP). The PVBP expresses the impact on the fair value of the financial instruments by a basis point change in yield.

FMO's policy with regard to interest rate risk is to match funding within set boundaries: to match interest rate characteristics for assets, liabilities and derivatives per currency, and per remaining term as much as possible; and to generate stable income on FMO's capital by investing in fixed bonds and loans.

The following table summarizes the interest re-pricing characteristics for FMO's assets and liabilities. Included in the table are FMO's assets and liabilities at carrying values, categorized by the earlier of contractual re-pricing or maturity dates.

Interest re-pricing characteristics

At December 31, 2011

< 3 months

3-12 months

1-5 years

> 5 years

Non-interest-bearing

Total

Assets

Banks

42,114

-

-

-

-

42,114

Short-term deposits

464,176

34,611

-

-

-

498,787

Derivative financial instruments1)

-965,010

-421,198

1,496,919

208,812

14,539

334,062

Loans to the private sector

1,011,585

913,539

242,975

354,013

-

2,522,112

Loans guaranteed by the State

-

3,336

42,791

16,423

-

62,550

Equity investments

-

-

-

-

753,366

753,366

Investments in associates

-

-

-

-

42,073

42,073

Interest-bearing securities

44,952

74,438

439,289

112,899

-

671,578

Tangible fixed assets

-

-

-

-

9,383

9,383

Deferred income tax assets

-

-

-

-

3,682

3,682

Current income tax receivables

-

-

-

-

4,560

4,560

Other receivables

-

-

-

-

32,896

32,896

Accrued income

-

-

-

-

82,116

82,116

Total assets

597,817

604,726

2,221,974

692,147

942,615

5,059,279

Liabilities and shareholders' equity

Short-term credits

317,660

240,000

-

-

-

557,660

Derivative financial instruments1)

-414,553

214,513

240,814

25,264

-

66,038

Debt securities

8,293

-

14,136

-

-

22,429

Debentures and notes

510,577

341,519

1,595,552

208,463

-

2,656,111

Other liabilities

-

-

-

-

14,188

14,188

Current accounts with State funds and other programs

-

-

-

-

624

624

Wage tax liabilities

-

-

-

-

1,846

1,846

Deferred income tax liabilities

-

-

-

-

4,501

4,501

Accrued liabilities

-

-

-

-

55,099

55,099

Provisions

-

-

-

-

16,193

16,193

Shareholders' equity

-

-

-

-

1,664,590

1,664,590

Total liabilities and shareholders' equity

421,977

796,032

1,850,502

233,727

1,757,041

5,059,279

Interest sensitivity gap 2011

175,840

-191,306

371,472

458,420

-814,426

-

1) Fair value of individual components (e.g. individual swap legs) of derivative financial instruments is allocated to the relevant interest re-pricing category.

At December 31, 2010

< 3 months

3-12 months

1-5 years

> 5 years

Non-interest-bearing

Total

Total assets

550,567

285,889

1,848,638

810,831

809,137

4,305,062

Total liabilities and shareholders' equity

503,101

409,875

1,418,836

356,476

1,616,774

4,305,062

Interest sensitivity gap 2010

47,466

-123,986

429,802

454,355

-807,637

-

Sensitivity of interest income and shareholders' equity to changes in interest rates

At December 31, 2011

Sensitivity of net interest income1)

Sensitivity of shareholders' equity

< 3 months

3-12 months

1-5 years

> 5 years

Total

Increase of 100 basis points

-155

1,187

989

-6,879

-4,208

-8,911

Decrease of 100 basis points

155

-1,187

-989

6,879

4,208

8,911

 

At December 31, 2010

Sensitivity of net interest income1)

Sensitivity of shareholders' equity

< 3 months

3-12 months

1-5 years

> 5 years

Total

Increase of 100 basis points

-765

669

1,889

-7,721

-8,871

-14,033

Decrease of 100 basis points

765

-669

-1,889

7,721

8,871

14,033

 

1)The sensitivity of net interest income is based on the floating rate financial assets and liabilities held at year-end, including the effect of hedging instruments. The interest rate sensitivities set are illustrative only and employ simplified scenarios. It should be noted that the effects may not be linear (convexity not included) and therefore the results cannot be extrapolated. The sensitivities do not incorporate actions that could be taken by management to mitigate the effect of the interest rate movements, nor second-round effects.



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