Risk man­age­ment of VP Bank Group

1. Overview

Effective capital, liquidity and risk management is an ­elementary prerequisite for the success and stability of a bank. VP Bank understands this term to mean the systematic process to identify, evaluate, manage and monitor the relevant risks as well as the steering of capital resources and liquidity necessary to assume risks and guarantee risk tolerance. The risk policy laid down by the Board of ­Directors of VP Bank Group constitutes the mandatory operating framework in this respect.

The risk policy contains an overarching framework as well as a risk strategy for each risk group (financial risks, ­operational risks, business risks). Described and clearly regulated therein are the specific goals and principles, organisational structures and processes, methods and instruments as well as target measures and limits. 

In Liechtenstein, the legal regulatory requirements governing risk management are set out primarily in the Banking Act (BankA) and the Banking Ordinance (BankO). In addition, the Capital Requirements Regulation (CRR) of the European Union was put into effect as of 1 February 2015. Together with the Capital Requirements Directive (CRD), the CRR constitutes the implementation of the currently valid Basel III Capital Accord in the European Union. In Liechtenstein, the CRD was enacted in the Banking Act and related Ordinance. VP Bank was classified by the Financial Market Authority Liechtenstein as a locally system-relevant bank and must possess in aggregate equity amounting to at least 13 per cent of its risk-weighted assets. As with regards to liquidity, since 1 January 2018 the Bank is required to maintain a Liquidity Coverage Ratio (LCR) of at least 100 per cent. Thanks to its solid equity basis, balance-sheet structure and comfortable liquidity position, VP Bank has constantly outperformed the regulatory requirements over the course of 2018. 

In addition to quantitative measures, qualitative requirements for identification, measurement, steering and monitoring of financial and operational risks are imposed. These are continually reviewed by VP Bank for on-going effectiveness and further development. 

 

Capital and balance-sheet structure management

The regulatory minimum capital ratio of 13 per cent of risk-weighted assets consists of an 8 per cent minimum as well as additional capital conservation and systemic risk buffers of 2.5 per cent each. Furthermore, Basel III provides for an anti-cyclical capital buffer which, however, was set at 0 per cent for 2018 by the Financial Market Authority Liechtenstein.

VP Bank has observed the equity requirements during 2018 at all times. Thanks to an exceedingly robust tier-1 ratio of 20.9 per cent as at the end of 2018, VP Bank continues to enjoy ample scope for assuming risks associated with its conduct of banking operations. Even after accounting for all risks there remains potential for corporate acquisitions through free equity resources. 

The Leverage Ratio (indebtedness ratio) of VP Bank amounted to 7.3 per cent at the end of 2018. Although the Financial Market Authority Liechtenstein has not yet formally established a requirement for a minimum ratio by end of 2018, VP Bank continues to disclose the Leverage Ratio in its disclosure report. 

As part of the management of equity resources and the balance-sheet structure, compliance with regulatory requirements and the coverage of its business needs is monitored on an on-going basis. Using an internal process to assess the adequacy of capital resources (Internal Capital Adequacy Assessment Process), possible adverse effects on the equity and liquidity position under stress situations are simulated and analysed. 

 

Liquidity management

Besides observing legal liquidity requirements and provisions, liquidity risks of the interbank business and credit-granting activities are monitored and managed using internal directives and limits. Maintaining sufficient liquidity at all times has utmost priority at VP Bank Group. This is assured with large cash and cash equivalent holdings as well as high-quality liquid assets (HQLA). VP Bank has observed the minimum regulatory liquidity requirements during 2018 at all times.

VP Bank Group’s comfortable liquidity position is reflected with a Liquidity Coverage Ratio (LCR) of 143 per cent as at 31 December 2018, and in compliance with the minimum regulatory requirement of 100 per cent.

With ILAAP (Internal Liquidity Adequacy Assessment Process), the Financial Market Authority imposes specific requirements concerning internal strategies and procedures to determine, manage and monitor liquidity risks. In 2018, the ILAAP was surveyed and assessed for the first time by the Financial Market Authority Liechtenstein using a specific questionnaire.

As part of its liquidity management process, VP Bank has established an emergency liquidity plan to ensure that VP Bank holds adequate liquidity in the event of a liquidity crisis. Early warning indicators are regularly reviewed to monitor and identify, on a timely basis, any deterioration in the liquidity situation. 

As part of liquidity management, compliance with regu­latory requirements and the coverage of business needs is subjected to on-going monitoring. Using stress tests, ­possible adverse scenarios are simulated and the impact on liquidity in stress situations analysed.

 

Credit risk

Due to the importance of the client lending business (CHF 6.2 billion as of 31 December 2018 or 50 per cent of total assets), management and monitoring of credit risks plays a central role at VP Bank. Credit risk management in the client lending business is governed – in addition to risk-policy regulations – by a set of rules for granting loans. In 2018, the volume of client loans increased by CHF 0.5 billion to CHF 6.2 billion whereas in the interbank business, the volumes fell by CHF 0.1 billion to CHF 0.8 billion. 

 

Market risk

Given the importance of the interest-margin business, management and monitoring of market risk on the balance sheet takes on particular importance. Here, VP Bank Group is primarily exposed to interest-rate, foreign-currency and equity price risks. While short term interest rates in the US Dollar continued to increase during 2018, the interest rate environment in Switzerland and Europe was characterised by negative interest rates. This presents major challenges for balance sheet management as it remains difficult to invest client deposits at adequate yields. 

 

Operational risks

VP Bank defines operational risk as potential losses incurred as a consequence of the inappropriateness or failure of internal processes, individuals, systems or as a result of external events. With risk assessments possible risk scenarios are identified, described and assessed. Operational risk is controlled in all organisational units of VP Bank by their respective executive management. Thanks to such uniform implementation, it is possible to provide meaningful reporting of operational risks in VP Bank Group on a quarterly basis to relevant stakeholders (Board of Directors, Group Executive Management and senior executives).

 

Further risks

In addition to the aforementioned risks, risk management of VP Bank Group covers strategy, business as well as ­reputational risk. Based on its business model and range of services, these risks are systematically analysed and reassessed on an on-going basis.

 

2. Principles underlying the risk policy

Risk management is predicated on the following ­principles:

 

Alignment of risk tolerance and risk appetite

Risk tolerance signifies the capacity of a bank to continue as a going concern or at least to fully satisfy the demands of investors and creditors, despite arising material losses. Risk appetite indicates the potential loss which the bank is prepared to bear without jeopardising the bank’s ability to continue as a going concern. As a strategic success factor, risk tolerance is to be maintained and enhanced by employing a suitable process to ensure an appropriate capital and liquidity base. 

 

Clearly defined powers of authority and ­responsibilities

Risk appetite is rendered operational with the aid of a comprehensive system of limits and implemented in an effective manner together with a clear set of guidelines. These guidelines govern the tasks, authorities and responsibilities of all functions and organisational units participating in the risk and capital management processes. 

 

Conscientious handling of risks

Strategic and operational decisions are taken with risks/returns considerations and aligned with the interests of stakeholders. Besides adhering to legal and regulatory provisions as well as observing principles governing business and ethical policies, VP Bank ensures that risks are appropriately understood, rewarded and the technical prerequisites to map them available. It avoids transactions with an unbalanced relationship of risks to returns, large risks and extreme risk concentrations which could jeopardise the ability of the Group to continue as a going concern.

 

Segregation of functions

Risk control and risk reporting to Group Executive ­Management and the Board of Directors are assured by a unit (Group Risk) which is independent of the functions involved in the management of risks. 

 

Transparency

The underlying principle of risk monitoring is a comprehensive, objective, timely and transparent disclosure of risks to Group Executive Management and the Board of Directors. 

 

3. Organisation of capital, liquidity and risk management

Classification of banking risks

The prerequisite for risk management and the management of equity resources of VP Bank is the identification of all significant risks and their aggregation to an overall bank risk position. Significant risks identified are based on the business model, related offerings of financial products and services of VP Bank.

The following table gives an overview over the risks to which VP Bank is exposed in its ordinary course of business. These are allocated to five risk groups – strategy, business, financial, operational and reputational risk.

Strategy risk encompasses the risk of a potential decline in profitability as a result of an inadequate corporate orientation in relation to the market environment (political, social, technological, ecological, legal) and can arise from an unsuitable strategic positioning or absence of effective counter-measures in case of changes.

Business risk describes the risk that the attractiveness of location-related factors recedes or the significance and/or weighting of individual business areas undergo change by virtue of external framework conditions. It also includes the risk that new product launches, market access or business processing are impeded or rendered impossible as a result of regulation or existing products, market access or business processing entail disproportionately high costs or are unprofitable. Finally, adverse developments may arise in connection with target markets as a result of political or geopolitical influences.

Financial risk is decisively assumed in order to generate revenues or to protect business policy interests. In this respect, liquidity risk comprises short-term liquidity and refinancing risk as well as market liquidity risk. Liquidity and refinancing risk expresses the danger that current and future payment obligations cannot be refinanced on the due date or to the full extent, not in the correct currency or not on customary market terms and conditions. Market liquidity risk includes cases where it is not possible, because of insufficient market liquidity, to liquidate or hedge positions subject to risk on a timely basis, to the desired extent and on acceptable conditions.

Market risks express the danger that possible economic losses in value in the banking and trading books arise from adverse changes in market prices (interest rates, currency rates, equity prices and commodities) or other price-influencing parameters such as volatility. 

Credit risk encompasses counterparty, country, concentration risk as well as residual risk deriving from the use of credit collateral (realisation or liquidation risk). Counterparty risk describes the danger of a financial loss which may arise if a counterparty of the bank cannot or does not wish to meet its contractual commitments in full or on the due date (default risk) or the credit-worthiness of the debtor has deteriorated (solvency risk). Country risk as a further expression of credit risk arises whenever political or economic conditions specific to a country diminish the value of an exposure abroad. Concentration risk encompasses potential losses accruing to the bank not through the debtor itself but as a result of an insufficient diversification of the credit portfolio. Realisation risk encompasses potential losses accruing to the bank as a result of an insufficient realisation of collateral.

Operational risk represents the danger of incurring losses arising from the inappropriateness or failure of internal procedures, individuals or systems or as a result of external events. These are to be avoided by appropriate controls and measures before they crystallise or, if that is not possible, be reduced to a level set by the bank. Operational risks may also arise in all organisational units whereas financial risks can only arise in risk-taking units. 

Reputational risk describes the risk that the confidence of employees, clients, shareholders, regulatory authorities and the public in general is weakened or the public image and/or reputation of the Bank is impaired as a result of other types of risk or through various events. It can also imply that the Bank suffers monetary losses and/or a decline in earnings as a result.

 

 

Duties, powers of authority and responsibilities

The diagram above shows the central tasks, competencies and responsibilities of those positions, organisational units and committees for the individual risk groups which are involved in the risk-management process. The imperative of the functional and organisational segregation of risk management and risk monitoring applies, thereby avoiding conflicts of interest between those units which assume risks and those which monitor them. The management, monitoring and verification of risks takes place over three lines of defence:

  1. 1st line of defence: risk management
  2. 2nd line of defence: risk monitoring
  3. 3rd line of defence: internal/external audit.

 

The Board of Directors bears the overall responsibility for the management of equity resources, liquidity and risk management. It is its remit to establish and maintain ­suitable processes and an organisational structure as well as a system of internal control (ICS) for an effective and efficient management of equity resources, liquidity and risk, thereby ensuring the risk tolerance of the Bank. The Board of Directors lays down directives governing the risk policy and approves these. It monitors their implementation, sets the risk appetite on a Group level and establishes the target values and limits for the management of equity resources, liquidity and risk management. In assuming these tasks, the Board of Directors is assisted by the Risk Committee

Furthermore, the Board of Directors defines procedures regarding internal and external audit. It receives reports of the internal audit and the external auditors concerning extraordinary and significant events such as significant losses, serious disciplinary errors, litigation etc. In assuming this task, the Board of Directors is supported by the Audit Committee.

The Group Strategy & Digitalisation Committee (SDC) assists and advises the Board of Directors in the case of strategic issues and projects. It prepares strategy issues for the attention of the Board of Directors, explores in-depth strategic issues, ensures an on-going steering and management process in the area of strategy and reviews the strategy both periodically and on an ad-hoc basis. Furthermore, the Committee reviews the implementation of strategic measures.

Group Internal Audit is responsible for the function of internal audit within VP Bank Group. Organisationally, it forms an autonomous organisational unit which is independent of operations and is responsible for the periodic audit of structures and processes of relevance in connection with the risk policy as well as compliance therewith. 

Group Executive Management (GEM) is responsible for implementation and observance of the risk policy approved by the Board of Directors. Amongst its central tasks is to ensure the functional capability of the risk management process and the Internal Control System (ICS). Furthermore, it is responsible for the composition and assignment of duties, responsibilities and competencies of the Asset & Liability Committee, the allocation of objectives and limits to the individual Group subsidiaries as well as the group-wide management of strategy, business, financial, operational and reputational risk.

In its function as Group Risk Committee (GRC) which is the supreme body to monitor and steering the risks of VP Bank, Group Executive Management assumes respon­sibility implementing the risk strategy within the limits and targets set by the Board of Directors and Group Executive Management as well as dealing with overarching issues. 

Whilst complying with the relevant legal and regulatory provisions, the Asset & Liability Committee (ALCO) is responsible for the risk and return-oriented management of the balance sheet on the basis of the Economic Profit Model as well as for the steering of financial risks. It assesses the Group’s risk situation in the area of financial risks and initiates remedial steering measures, whenever necessary.

The Security Risk Committee (SRC) is the supreme security body of VP Bank which manages the operational implementation in the participating units by setting targets regarding the various security-related issues. It deals with all strategic security issues of VP Bank Group. This covers physical security, information security (incl. cyber security), business continuity management as well as the related awareness of the need for security and culture.

The Group Credit Committee (GCC) is, inter alia, respon­sible for monitoring credit risks at the level of the individual credit. This includes in particular dealing with credit applications within the scope of delegated competencies as well as the risk assessment of individual credits.

Group Treasury & Execution bears the responsibility for the day-to-day steering of financial risks within the target measures and limits laid down by the Board of Directors and Group Executive Management. This is done whilst taking into account the Group’s risk tolerance as well as complying with legal and regulatory prescriptions.

Group Credit is responsible for the monitoring process of credit exposures at an individual credit level with regard to collateral and limits. In addition, Group Credit ensures that credits are approved by the defined competence centres and regularly prepares credit reports for the attention of Group Executive Management.

The Chief Risk Officer (CRO) heads the risk management function. Within Group Executive Management, he/she is responsible for independent risk monitoring of VP Bank Group and the individual Group subsidiaries. This covers all risk groups with the exception of default risk at the level of the individual exposure. The CRO ensures that the existing legal, supervisory-law and internal bank provisions regarding risk management are complied with and new risk management provisions implemented. 

As an independent function for the centralised identifi­cation, evaluation (measurement and assessment) and monitoring (control and reporting) of the risk situation and risk tolerance of the Group, Group Risk supports the CRO in assuming his respective duties. 

 

Process to ensure risk tolerance

The primary objective of the Internal Capital Adequacy Assessment Process (ICAAP) is compliance with the regulatory capital-adequacy requirements and thus guaranteeing the ability to continue as a going concern. The risks of banking operations are to be borne by the freely available risk-coverage equity. The risk management process in VP Bank for all significant risks is designed to ensure risk tolerance.

Definition of risk strategies: The risk strategies by risk group (strategy risk, business risk, financial risk and operational risk) flow from the business strategy of VP Bank and set the framework for an efficient risk management of the respective risk types. The risk policy forms the basic structure and the regulatory framework for the individual risk strategies.

Determination of the risk coverage capacity and setting the risk appetite: The concept of risk tolerance of VP Bank Group distinguishes between a regulatory and a value-­oriented perspective. The findings from one perspective serves to validate and complement the other perspective and vice-versa. The determination of the freely available risk-coverage equity is made under both perspectives having regard to appropriate haircuts and risk buffers. Based on the freely available risk-coverage equity, the BoD sets limits and targets measures for a rolling risk horizon of one year. At least semi-annually, all significant risks and the available risk-covering equity are juxtaposed.

Risk identification (risk inventory): In the annual risk inventory to be undertaken as part of the review of the framework and risk strategies, it is ensured that all significant risks for the Group (both quantitative and qualitative) are identified. The analysis is made top-down and bottom-up on the basis of both quantitative and qualitative criteria, Significant risks are fully integrated into the risk-management cycle. Insignificant risks are reviewed and monitored at least annually within the scope of the risk inventory. As part of the risk inventory, potential risk concentrations in all significant risk types are evaluated.

Risk measurement and evaluation: Relevant for the assessment of risk tolerance from a regulatory viewpoint is the eligible equity as well as the regulatory committed capital. From a value-oriented point of view, the risk tolerance results from the net present value of the equity after deducting operating and risk costs as well as a buffer for other risks. The economically required capital from a value-­oriented point of view is measured uniformly using a confidence level of 99 per cent and a risk horizon of one year. In order to determine the economically required capital, all risk types of VP Bank classified as significant during the annual risk inventory are taken into account and possible unexpected losses in value considered. The economic risk assessment also includes risk types which are not covered by the regulatory capital-adequacy requirements for the Bank. To determine the economically required capital, all significant risks are aggregated to form an overall assessment. 

Assessment of risk tolerance: Risk tolerance is measured against the degree of utilisation of the economically required capital for all significant risks in relation to the free risk-coverage capacity as of the date of measurement. In this process, early-warning stages permit a timely change of direction in order not to endanger the continu­ation of the Bank as a going concern. Risk tolerance is considered as still intact as long as the degree of utilisation of the economically required capital (from a regulatory and value-oriented viewpoint) in relation to the free risk-­coverage capacity is under 100 per cent as of the date of measurement. 

Risk steering encompasses all measures on all organisational levels to actively influence the Bank’s risks identified as being significant. In this respect, the objective is the optimisation of the correlation of risks and returns within the limits and target measures set by the Board of Directors and Group Executive Management to ensure the risk tolerance of the Group whilst complying with legal and supervisory-law prescriptions. Risk steering takes place on both strategic and operating levels. 

Based upon the juxtapositon of risks and limits on one hand, as well as of regulatory and economically required capital and risk coverage capacity on the other, counter-measures are taken in case of a negative deviation.

Risk monitoring (control and reporting to GEM and BoD): Risk steering is accompanied by comprehensive risk monitoring, which is functionally and organisationally inde­pendent of risk steering. Risk monitoring covers control and reporting. As part of the control over financial risks, steering impulses are derived from a routine target to actual comparison. The target is constituted by the limits and target measures set, as well as from legal and super­visory-law prescriptions. For the review of the extent to which limits are exhausted (actual), early warning stages are deployed in addition, in order to take timely steering measures for any risks before they crystallise. 

As operational risks may arise as a result of internal control failures during current business activities, control over operational risks in all organisational units of VP Bank is undertaken by the respective executive management. 

In addition to financial and operational risks, reputational risks may include also business risks (including strategy risks). Business and any reputational risks arising are monitored by Group Executive Management. 

As part of reporting, results of monitoring are set forth in a reliable, regular, understandable and transparent manner. Reporting is made ex ante as an input for decisions and ex post for control purposes – in particular to analyse any deviation from budgeted values – as well as ad hoc in case of suddenly and unexpectedly occurring risks. 

The process of ensuring the risk tolerance of VP Bank Group is presented in the following diagram:

 

4. Disclosure of required equity

The required qualitative and quantitative information on capital adequacy, the strategies and procedures for risk management as well as on the risk situation of VP Bank are set forth in the Risk Report and the commentary on the consolidated financial statements. Over and above this, VP Bank Group has drawn up a Disclosure Report for the 2018 financial year. In this manner, the Bank fulfils the ­regulatory requirements of the Banking Ordinance (BankO) and the Banking Act (BankA).

The capital-adequacy and liquidity requirements for credit institutions in Liechtenstein are based on the Basel III rules as implemented in the European Union. As one of the three system-relevant banks in Liechtenstein, VP Bank is to fulfil the requirement of additional capital buffers.

  • VP Bank computes its required equity in accordance with the provisions of the CRR. In this context, the following approaches are applied: 
  • Standard approach for credit risks in accordance with Part 3 Section II Chapter 2 CRR
  • Basis indicator approach for operational risks in accordance with Part 3 Section III Chapter 2 CRR
  • Standard method for market risks in accordance with Part 3 Section IV Chapters 2-4 CRR
  • Standard method for CVA-risks in accordance with Art. 384 CRR
  • Comprehensive method for CRR risks to take account of financial collateral in accordance with Art. 223 CRR.

As with regards to strategy, business and reputational risk, no explicit regulatory capital adequacy requirements are stipulated in the CRR. 

As of 31 December 2018, the business activities of VP Bank Group required equity totalling CHF 586.3 million (prior year: CHF 493.9 million). This represents 13 per cent of the eligible assets of CHF 4,510.3 million (prior year: CHF 3,799.4 million). The excess of equity (based upon a requirement of 13.0 per cent) as at 31 December 2018 amounted to CHF 356.4 million (prior year: CHF 482.6 million). The tier-1 ratio of 20.9% (prior year: 25.7%) reflects the on-going extremely robust equity situation of VP Bank. In 2018, VP Bank Group used no hybrid capital under eligible equity and, in accordance with International Financial Reporting Standards (IFRS), netted no assets against liabilities (balance-sheet reduction).

 

The following table shows the capital-adequacy situation of the Group as of 31 December 2018.

Cap­i­tal-ad­e­quacy com­pu­ta­tion (Basel III)

in CHF 1,000

Core cap­i­tal

Paid-in cap­i­tal

Dis­closed re­serves

Group net in­come

De­duc­tion for trea­sury shares

De­duc­tion for div­i­dends as per pro­posal of Board of Di­rec­tors

De­duc­tion for good­will and in­tan­gi­ble as­sets

Other ad­just­ments

El­i­gi­ble core cap­i­tal (tier 1)

El­i­gi­ble core cap­i­tal (ad­justed)

Credit risk (in ac­cor­dance with Liecht­en­stein stan­dard ap­proach)

thereof price risk re­gard­ing eq­uity se­cu­ri­ties in the bank­ing book

Mar­ket risk (in ac­cor­dance with Liecht­en­stein stan­dard ap­proach)

Op­er­a­tional risk (in ac­cor­dance with ba­sic in­di­ca­tor ap­proach)

Credit Value Ad­just­ment (CVA)

To­tal re­quired eq­uity

Cap­i­tal buffer

To­tal re­quired eq­uity in­clud­ing cap­i­tal buffer

 

CET1 eq­uity ra­tio

Tier 1 ra­tio

Over­all eq­uity ra­tio

 

To­tal risk-weighted as­sets

 

Re­turn on in­vest­ment (net in­come / av­er­age bal­ance sheet to­tal)

Cap­i­tal-ad­e­quacy com­pu­ta­tion (Basel III)

in CHF 1,000

31.12.2018

31.12.2017

Core cap­i­tal

 

 

Paid-in cap­i­tal

66,154

66,154

Dis­closed re­serves

949,220

926,519

Group net in­come

54,717

65,770

De­duc­tion for trea­sury shares

–65,807

–47,889

De­duc­tion for div­i­dends as per pro­posal of Board of Di­rec­tors

–36,385

–36,385

De­duc­tion for good­will and in­tan­gi­ble as­sets

–48,749

–31,660

Other ad­just­ments

23,633

34,044

El­i­gi­ble core cap­i­tal (tier 1)

942,783

976,553

El­i­gi­ble core cap­i­tal (ad­justed)

942,783

976,553

Credit risk (in ac­cor­dance with Liecht­en­stein stan­dard ap­proach)

299,785

238,765

thereof price risk re­gard­ing eq­uity se­cu­ri­ties in the bank­ing book

4,098

4,798

Mar­ket risk (in ac­cor­dance with Liecht­en­stein stan­dard ap­proach)

17,163

15,977

Op­er­a­tional risk (in ac­cor­dance with ba­sic in­di­ca­tor ap­proach)

43,136

48,712

Credit Value Ad­just­ment (CVA)

742

499

To­tal re­quired eq­uity

360,826

303,953

Cap­i­tal buffer

225,516

189,971

To­tal re­quired eq­uity in­clud­ing cap­i­tal buffer

586,342

493,924

 

 

 

CET1 eq­uity ra­tio

20.9 %

25.7 %

Tier 1 ra­tio

20.9 %

25.7 %

Over­all eq­uity ra­tio

20.9 %

25.7 %

 

 

 

To­tal risk-weighted as­sets

4,510,319

3,799,412

 

 

 

Re­turn on in­vest­ment (net in­come / av­er­age bal­ance sheet to­tal)

0.4 %

0.5 %

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5. Financial risks

Whilst complying with the relevant legal and supervisory-law provisions, the monitoring and steering of financial risks is based upon internal bank target measures and limits relating to volumes and sensitivities. Scenario analyses and stress tests demonstrate in addition the effect of events which were not or not sufficiently taken into consideration within the scope of ordinary risk evaluation.

In this respect, the Board of Directors lays down strategic guard rails within which risk management is undertaken. The identification, measurement, steering and monitoring of all relevant risks is handled at the operating level. Group Executive Management is responsible for the implementation and observance of the risk strategy for financial risks as approved by the Board of Directors. 

 

Market risks

Market risks arise as a result of positions being entered into in debt securities, equity shares and other securities under financial investments, foreign currencies, precious metals and in related derivatives, arising both from activities for clients as well as for consolidated Group companies whose functional currency is denominated in a foreign currency. 

Interest-rate risk in VP Bank’s balance sheet constitutes a significant component of market risk. It arises primarily because of differing maturities of asset and liability positions. The maturity-structure table shows the assets and liabilities of VP Bank, analysed by sight positions, cancel­lable positions and those with differing maturities (cf. appendix 35). Asset and liability positions of VP Bank denominated in foreign currencies are of importance to determine the foreign-currency risk. An overview, analysed by currency, is to be found in appendix 34 (cf. balance sheet by currency). 

The Bank employs a comprehensive set of methods and indicators for the monitoring and management of market risks. In this respect, the value-at-risk approach has established itself as the standard method to measure general market risk. The value-at-risk for market risks quantifies the negative deviation, expressed in Swiss francs, from the value of all positions exposed to market risk as of the date of the evaluation. The value-at-risk indicator is computed on a Group-wide basis with the aid of historic simulation. In this process, the historical movements in market data over a period of at least five years are used in order to measure all positions subject to market risk. The projected loss is valid for a holding period of one year and will not be exceeded with a probability of 99 per cent. To compute the value-at-risk for interest-rate risk, fixed interest-bearing positions are mapped with the interest lock-up period and variable interest positions using an internal replication model. 

The market risk value-at-risk of VP Bank Group at 31 December 2018 amounted to CHF 154.7 million (prior year: CHF 122.4 million). 

The following table shows the value-at-risk (on a monthly basis) analysed by types of risk and the market value-at-risk computed over all risk categories. The computation of average, highest, lowest values by risk type and aggregate values is based on a separate year-on-year perspective; the aggregate value thus does not necessarily equate to the sum of the respective individual values by risk type.

 

Mar­ket-Value-at-Risk
(value at end of month)

in CHF mil­lion

2018

Year-end

Av­er­age

High­est value

Low­est Value

 

2017

Year-end

Av­er­age

High­est value

Low­est Value

Mar­ket-Value-at-Risk
(value at end of month)

in CHF mil­lion

To­tal

In­ter­est-
rate risk

Eq­uity
price and
com­mod­ity
risk

Cur­rency
risk

2018

 

 

 

 

Year-end

154.7

82.9

35.9

35.9

Av­er­age

143.4

78.6

33.1

31.8

High­est value

154.7

83.3

36.2

35.9

Low­est Value

119.0

69.2

19.5

30.3

 

 

 

 

 

2017

 

 

 

 

Year-end

122.4

69.9

17.6

34.9

Av­er­age

123.0

70.2

17.4

35.4

High­est value

128.1

73.2

19.7

38.5

Low­est Value

117.7

67.6

15.6

32.3

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As the maximum losses arising from extreme market ­situations cannot be determined with the value-at-risk approach, the market risk analysis is supplemented by stress tests. Such tests render possible an estimate of the effects on the net present value of equity of extreme ­market fluctuations in the risk factors. In this manner, the fluctuations in net present value of all balance-sheet ­positions and derivatives in the area of market risks are computed with the aid of sensitivity indicators based on synthetically produced market movements (parallel shift, ­rotation or inclination changes in interest-rate curves, exchange-rate fluctuations by a multiple of their implicit volatility, slump in equity share prices).

The following table exemplifies the results of the key rate duration process. First, the present values of all asset and liability positions as well as derivative financial instruments are determined. The interest rates of the relevant interest-­rate curves in each maturity band and per currency are then increased by one per cent (+100 basis points). The respective movements represent the gain or loss of the present value resulting from the shift in the interest-rate curve. Negative values point to an excess of assets, ­positive values to an excess of liabilities in the maturity band.

 

Key rate du­ra­tion pro­file per 100 ba­sis in­crease

in CHF 1,000

31.12.2018

CHF

EUR

USD

Other cur­ren­cies

To­tal

 

31.12.2017

CHF

EUR

USD

Other cur­ren­cies

To­tal

Key rate du­ra­tion pro­file per 100 ba­sis in­crease

in CHF 1,000

within
1 month

1 to 3
months

3 to 12
months

1 to 5
years

over
5 years

To­tal

31.12.2018

 

 

 

 

 

 

CHF

1,197

1,439

1,262

–22,036

–19,677

–37,815

EUR

909

–194

1,019

–12,259

–14,436

–24,961

USD

769

–464

–464

–13,434

–3,552

–17,145

Other cur­ren­cies

142

–54

442

1,583

0

2,113

To­tal

3,017

727

2,259

–46,146

–37,665

–77,808

 

 

 

 

 

 

 

31.12.2017

 

 

 

 

 

 

CHF

1,100

1,851

1,179

–20,815

–16,657

–33,342

EUR

910

–62

242

–10,871

–15,043

–24,824

USD

508

–643

2,154

–10,551

–2,110

–10,642

Other cur­ren­cies

230

–85

747

1,963

–87

2,768

To­tal

2,748

1,061

4,322

–40,274

–33,897

–66,040

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In the table on the right the effects of a negative movement in the principal currencies on consolidated net income and shareholders’ equity are set out. Responsible for the underlying fluctuation of the Swiss franc against the euro and the US dollar is the implicit volatility as of 31.12.2018 and 31.12.2017, respectively. 

 

Move­ments in sig­nif­i­cant for­eign cur­ren­cies

Cur­rency

2018

EUR

USD

 

2017

EUR

USD

Move­ments in sig­nif­i­cant for­eign cur­ren­cies

Cur­rency

Vari­ance
in %

Ef­fect on
net in­come
in CHF 1,000

Ef­fect on
eq­uity
in CHF 1,000

2018

 

 

 

EUR

–6

–2,924 

USD

–8

–8,097 

–4,115 

 

 

 

 

2017

 

 

 

EUR

–6

–3,516 

USD

–8

–7,252 

–8,346 

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The impact of a possible downturn in equity markets of 10, 20 and 30 per cent, respectively, on consolidated net income and equity is illustrated by the following table.

 

Move­ment in rel­e­vant eq­uity share mar­kets

Vari­ance

2018

–10 %

–20 %

–30 %

 

2017

–10 %

–20 %

–30 %

Move­ment in rel­e­vant eq­uity share mar­kets

Vari­ance

Ef­fect on
net in­come
in CHF 1,000

Ef­fect on
eq­uity
in CHF 1,000

2018

 

 

–10 %

–8,090 

–5,114 

–20 %

–16,180 

–10,227 

–30 %

–24,271 

–15,341 

 

 

 

2017

 

 

–10 %

–5,855 

–859 

–20 %

–11,710 

–1,717 

–30 %

–17,566 

–2,576 

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For risk steering purposes, derivative financial instruments are entered into exclusively in the banking book and serve to hedge equity price, interest-rate and currency risks in the banking book. Eligible derivatives for this purpose are laid down in the Risk Policy.

VP Bank refinances its medium- to long-term client loans and its nostro positions in interest-bearing debt securities primarily with short-term client deposits and is thus subject to interest rate risk. Rising interest rates have an adverse impact on the net present value of fixed interest-bearing credits and increase refinancing costs. As part of its Asset & Liability Management, interest rate swaps measured at fair value are deployed to hedge this risk. VP Bank applies fair-value hedge accounting under IFRS in order to record the offsetting effect of changes in value of the hedged credit transactions on the balance sheet. For this purpose, a portion of the underlying transactions (fixed-interest credits) are linked to the hedging transactions (payer swaps) through hedging relationships. In the event of fair-value changes caused by interest-rate changes, the carrying value of the respective underlying transactions are adjusted and the gains/losses taken to income.

Because the unsettled fixed-interest positions are transformed into variable interest rate positions through transacting payer swaps, a close economic relationship between the underlying and hedging transactions exists in relation to the hedged risk. Therefore, the hedging relationship between the designated amount of the underlying transactions and the designated amount of the hedging instruments (hedge ratio) is set on a one-to-one basis. A hedging relationship is efficient and/or effective whenever the movements in the value of the underlying and hedging transactions induced by interest rate changes offset each other. Ineffectiveness is a result primarily of deviations in duration e.g. as a result of differing interest rates, timing of interest payments or differing maturities.

The initial efficiency of a hedging relationship is reassessed with a prospective effectiveness test. For this ­purpose, future changes in the fair value of the underlying and hedging transactions are simulated based upon scenarios and subjected to a regression analysis. Effectiveness is assessed on the basis of the results of the analysis. Repeated reviews take place during the duration of the hedging relationship.

VP Bank has hedged its own financial investments against currency fluctuations in the main currencies through the conclusion of foreign currency forward contracts. In principle, no currency risks should arise from client activities; residual unsettled foreign currency positions are closed out in the foreign currency spot market. Group Trading & Execution is responsible for the management of foreign currency risks arising from client activities. 

 

Liquidity risks

Liquidity risks may arise through contractual mismatches between the in- and outflows of liquidity in the individual maturity bands. Any arising differences demonstrate how much liquidity the bank must eventually procure in each maturity band should there be an outflow of all volumes at the earliest possible time. Furthermore, refinancing concentrations may lead to a liquidity risk if they are of significant extent that a massive withdrawal of the related funds could trigger liquidity problems. 

Liquidity risks are monitored and managed using internal targets and limits for interbank and client-related business – whilst complying with the legal liquidity norms and provisions regarding risk concentrations on both asset and liability side.

As at the end of 2018, a lower limit of 100 per cent for the Liquidity Coverage Ratio (LCR) applies. With a value of 143 per cent for the LCR at the end of 2018, VP Bank presents a very comfortable liquidity situation.

For short-term maturity bands, the Bank refinances itself to a significant degree with sight balances from clients. The maturity structure of assets and liabilities is set out in appendix 35.

VP Bank could further rapidly procure liquidity on a secured basis through its access to the Eurex repo market. The risk of an extraordinary, nevertheless plausible event which will take place with a very small probability can be measured with stress tests. In this manner, VP Bank can take all applicable counter-measures on a timely basis and set limits where necessary. 

 

Credit risks

Credit risks arise from all transactions for which payment obligations of third parties in favour of the bank exist or can arise. Credit risks accrue to VP Bank from client lending activities and the money-market business, including bank guarantees, correspondent and metal accounts, the reverse repo business, the Bank’s own portfolio of securities, securities lending and borrowing, collateral management as well as OTC derivative trades. 

Risk concentrations can arise through inadequate diversification of the credit portfolio. Such concentrations can constitute exposures from borrowers which are domiciled in the same countries or regions, are active in the same industry segment or possess similar collateral. Concentrations can lead to the credit-worthiness of borrowers being impacted by the same economic, political or other factors. Risk concentrations are closely monitored by VP Bank as well as being controlled with corresponding limits and operational controls.

As of 31 December 2018, total credit exposures amounted to CHF 9.6 billion without considering collateral (31 December 2017: CHF 8.9 billion). The table on the right shows the exposures for on- and off-balance sheet ­positions.

Credit ex­po­sures

in CHF 1,000

On-bal­ance-sheet as­sets

Re­ceiv­ables aris­ing from money mar­ket pa­pers

Due from banks

Due from cus­tomers

Pub­lic-law en­ter­prises

Trad­ing port­fo­lios

De­riv­a­tive fi­nan­cial in­stru­ments

Fi­nan­cial in­stru­ments at fair value

Fi­nan­cial in­stru­ments mea­sured at amor­tised cost

To­tal

 

Off-bal­ance-sheet trans­ac­tions

Con­tin­gent li­a­bil­i­ties

Ir­rev­o­ca­ble fa­cil­i­ties granted

To­tal

Credit ex­po­sures

in CHF 1,000

31.12.2018

31.12.2017

On-bal­ance-sheet as­sets

 

 

Re­ceiv­ables aris­ing from money mar­ket pa­pers

67,407

20,279

Due from banks

771,107

892,620

Due from cus­tomers

6,195,833

5,647,091

Pub­lic-law en­ter­prises

493

487

Trad­ing port­fo­lios

 

 

De­riv­a­tive fi­nan­cial in­stru­ments

42,164

29,457

Fi­nan­cial in­stru­ments at fair value

112,678

133,661

Fi­nan­cial in­stru­ments mea­sured at amor­tised cost

2,389,521

2,171,837

To­tal

9,579,203

8,895,432

 

 

 

Off-bal­ance-sheet trans­ac­tions

 

 

Con­tin­gent li­a­bil­i­ties

207,207

128,846

Ir­rev­o­ca­ble fa­cil­i­ties granted

93,898

58,056

To­tal

301,105

186,902

Download Excel

 

The following tables show the split of the aggregate credit exposures of CHF 9.6 billion (31 December 2017: CHF 8.9 ­billion) by counterparty, collateral, risk-weighting classes and domicile.

Credit ex­po­sures by coun­ter­party

in CHF 1,000

On-bal­ance-sheet as­sets as of 31.12.2018

Re­ceiv­ables aris­ing from money mar­ket pa­pers

Due from banks

Due from cus­tomers

Pub­lic-law en­ter­prises

Trad­ing port­fo­lios

De­riv­a­tive fi­nan­cial in­stru­ments

Fi­nan­cial in­stru­ments at fair value

Fi­nan­cial in­stru­ments mea­sured at amor­tised cost

To­tal

 

Off-bal­ance-sheet trans­ac­tions as of 31.12.2018

Con­tin­gent li­a­bil­i­ties

Ir­rev­o­ca­ble fa­cil­i­ties granted

To­tal

Credit ex­po­sures by coun­ter­party

in CHF 1,000

Cen­tral
gov­ern­ments
and
cen­tral banks

Banks
and
se­cu­ri­ties
deal­ers

Other
in­sti­tu­tions

Cor­po­rates

Pri­vate
cus­tomers
and small
en­ter­prises

Other
po­si­tions

To­tal

On-bal­ance-sheet as­sets as of 31.12.2018

 

 

 

 

 

 

 

Re­ceiv­ables aris­ing from money mar­ket pa­pers

66,407

 

 

1,000

 

 

67,407

Due from banks

 

771,107

 

 

 

 

771,107

Due from cus­tomers

3,071

22,120

312,855

1,766,980

4,090,258

549

6,195,833

Pub­lic-law en­ter­prises

 

 

493

 

 

 

493

Trad­ing port­fo­lios

 

 

 

 

 

 

0

De­riv­a­tive fi­nan­cial in­stru­ments

 

11,434

819

9,428

20,461

22

42,164

Fi­nan­cial in­stru­ments at fair value

8,889

28,004

22,500

53,275

 

9

112,678

Fi­nan­cial in­stru­ments mea­sured at amor­tised cost

380,537

593,205

344,834

1,070,945

 

 

2,389,521

To­tal

458,905

1,425,870

681,502

2,901,627

4,110,719

581

9,579,203

 

 

 

 

 

 

 

 

Off-bal­ance-sheet trans­ac­tions as of 31.12.2018

 

 

 

 

 

 

 

Con­tin­gent li­a­bil­i­ties

 

56,688

176

120,028

30,315

 

207,207

Ir­rev­o­ca­ble fa­cil­i­ties granted

 

 

1,984

30,910

48,916

12,088

93,898

To­tal

0

56,688

2,160

150,938

79,231

12,088

301,105

Download Excel

On-bal­ance-sheet as­sets as of 31.12.2017

Re­ceiv­ables aris­ing from money mar­ket pa­pers

Due from banks

Due from cus­tomers

Pub­lic-law en­ter­prises

Trad­ing port­fo­lios

De­riv­a­tive fi­nan­cial in­stru­ments

Fi­nan­cial in­stru­ments at fair value

Fi­nan­cial in­stru­ments mea­sured at amor­tised cost

To­tal

 

Off-bal­ance-sheet trans­ac­tions as of 31.12.2017

Con­tin­gent li­a­bil­i­ties

Ir­rev­o­ca­ble fa­cil­i­ties granted

To­tal

On-bal­ance-sheet as­sets as of 31.12.2017

 

 

 

 

 

 

 

Re­ceiv­ables aris­ing from money mar­ket pa­pers

20,279

 

 

 

 

 

20,279

Due from banks

 

892,467

153

 

 

 

892,620

Due from cus­tomers

5,902

13,173

78,854

2,174,247

3,374,367

548

5,647,091

Pub­lic-law en­ter­prises

 

 

487

 

 

 

487

Trad­ing port­fo­lios

 

 

 

 

 

 

0

De­riv­a­tive fi­nan­cial in­stru­ments

 

4,492

4,889

2,927

6,663

10,486

29,457

Fi­nan­cial in­stru­ments at fair value

6,632

51,908

40,166

34,946

 

9

133,661

Fi­nan­cial in­stru­ments mea­sured at amor­tised cost

488,080

576,385

382,424

718,746

 

6,202

2,171,837

To­tal

520,893

1,538,425

506,973

2,930,866

3,381,030

17,245

8,895,432

 

 

 

 

 

 

 

 

Off-bal­ance-sheet trans­ac­tions as of 31.12.2017

 

 

 

 

 

 

 

Con­tin­gent li­a­bil­i­ties

12

59,838

747

29,887

18,638

19,724

128,846

Ir­rev­o­ca­ble fa­cil­i­ties granted

 

59

1,666

38,124

18,207

 

58,056

To­tal

12

59,897

2,413

68,011

36,845

19,724

186,902

Download Excel

 

The following table shows credit exposures according to collateral. Receivables from clients are granted by default on a secured basis. This area primarily includes the mortgage business in Switzerland and Liechtenstein, the lombard credit business as well as a small number of special credits. Receivables from banks as well as financial instruments are granted, as a rule, on an unsecured basis. 

Primarily residential properties and mixed or commercial objects in Switzerland and Liechtenstein serve as security in the mortgage-loan business. To value and manage mortgage collateral, the prescriptions of the Liechtenstein Capital-Adequacy Ordinance apply. Lombard credits are granted, by default, against pledges on liquid and diversified securities port­folios. In addition, life-assurance policies can be used as security. Pre-defined minimum requirements apply for the issuers of such policies. Each issuer is to be approved in advance.

The qualitative requirements on collateral as well as the eligible collateral values by type of collateral are set internally. Collateralisation policies have not varied significantly since the prior year. Risk concentrations within collateral can be avoided through a prudent credit policy. The standard collateralisation of credit exposures and conservative collateral limits lead to a significant reduction in the expected credit loss (ECL) particularly in the area of mortgage and lombard credits. 

Credit ex­po­sures by col­lat­eral

in CHF 1,000

On-bal­ance-sheet as­sets as of 31.12.2018

Re­ceiv­ables aris­ing from money mar­ket pa­pers

Due from banks

Due from cus­tomers

Pub­lic-law en­ter­prises

Trad­ing port­fo­lios

De­riv­a­tive fi­nan­cial in­stru­ments

Fi­nan­cial in­stru­ments at fair value

Fi­nan­cial in­stru­ments mea­sured at amor­tised cost

To­tal

 

Off-bal­ance-sheet trans­ac­tions as of 31.12.2018

Con­tin­gent li­a­bil­i­ties

Ir­rev­o­ca­ble fa­cil­i­ties granted

To­tal

Credit ex­po­sures by col­lat­eral

in CHF 1,000

Se­cured by recog­nised
fi­nan­cial col­lat­eral

Not se­cured by recog­nised
fi­nan­cial col­lat­eral

To­tal

On-bal­ance-sheet as­sets as of 31.12.2018

 

 

 

Re­ceiv­ables aris­ing from money mar­ket pa­pers

 

67,407

67,407

Due from banks

 

771,107

771,107

Due from cus­tomers

5,698,639

497,194

6,195,833

Pub­lic-law en­ter­prises

 

493

493

Trad­ing port­fo­lios

 

 

0

De­riv­a­tive fi­nan­cial in­stru­ments

25,125

17,039

42,164

Fi­nan­cial in­stru­ments at fair value

 

112,678

112,678

Fi­nan­cial in­stru­ments mea­sured at amor­tised cost

 

2,389,521

2,389,521

To­tal

5,723,764

3,855,439

9,579,203

 

 

 

0

Off-bal­ance-sheet trans­ac­tions as of 31.12.2018

 

 

 

Con­tin­gent li­a­bil­i­ties

202,170

5,037

207,207

Ir­rev­o­ca­ble fa­cil­i­ties granted

16,975

76,923

93,898

To­tal

219,145

81,960

301,105

Download Excel

On-bal­ance-sheet as­sets as of 31.12.2017

Re­ceiv­ables aris­ing from money mar­ket pa­pers

Due from banks

Due from cus­tomers

Pub­lic-law en­ter­prises

Trad­ing port­fo­lios

De­riv­a­tive fi­nan­cial in­stru­ments

Fi­nan­cial in­stru­ments at fair value

Fi­nan­cial in­stru­ments mea­sured at amor­tised cost

To­tal

 

Off-bal­ance-sheet trans­ac­tions as of 31.12.2017

Con­tin­gent li­a­bil­i­ties

Ir­rev­o­ca­ble fa­cil­i­ties granted

To­tal

On-bal­ance-sheet as­sets as of 31.12.2017

 

 

 

Re­ceiv­ables aris­ing from money mar­ket pa­pers

 

20,279

20,279

Due from banks

 

892,620

892,620

Due from cus­tomers

5,261,477

385,614

5,647,091

Pub­lic-law en­ter­prises

 

487

487

Trad­ing port­fo­lios

 

 

0

De­riv­a­tive fi­nan­cial in­stru­ments

14,408

15,049

29,457

Fi­nan­cial in­stru­ments at fair value

 

133,661

133,661

Fi­nan­cial in­stru­ments mea­sured at amor­tised cost

 

2,171,837

2,171,837

To­tal

5,275,885

3,619,547

8,895,432

 

 

 

 

Off-bal­ance-sheet trans­ac­tions as of 31.12.2017

 

 

 

Con­tin­gent li­a­bil­i­ties

116,552

12,294

128,846

Ir­rev­o­ca­ble fa­cil­i­ties granted

12,985

45,071

58,056

To­tal

129,537

57,365

186,902

Download Excel

 

In case of amounts due from banks, money-market paper and nostro positions in interest-bearing securities, the valuation is based on external credit ratings. The following tables show the individual on- and off-balance-sheet positions according to rating classes, risk-weighting classes and country of domicile.

Credit ex­po­sures by risk-weight­ing classes

in CHF 1,000

On-bal­ance-sheet as­sets as of 31.12.2018

Re­ceiv­ables aris­ing from money mar­ket pa­pers

Due from banks

Due from cus­tomers

De­riv­a­tive fi­nan­cial in­stru­ments

Fi­nan­cial in­stru­ments

To­tal 

 

Off-bal­ance-sheet trans­ac­tions as of 31.12.2018

Con­tin­gent li­a­bil­i­ties

Ir­rev­o­ca­ble fa­cil­i­ties granted

To­tal 

 

On-bal­ance-sheet as­sets as of 31.12.2017

Re­ceiv­ables aris­ing from money mar­ket pa­pers

Due from banks

Due from cus­tomers

De­riv­a­tive fi­nan­cial in­stru­ments

Fi­nan­cial in­stru­ments

To­tal 

 

Off-bal­ance-sheet trans­ac­tions as of 31.12.2017

Con­tin­gent li­a­bil­i­ties

Ir­rev­o­ca­ble fa­cil­i­ties granted

To­tal 

Credit ex­po­sures by risk-weight­ing classes

in CHF 1,000

0 %

10 %

20 %

35 %

50 %

75 %

100 %

150 %

To­tal

On-bal­ance-sheet as­sets as of 31.12.2018

 

 

 

 

 

 

 

 

 

Re­ceiv­ables aris­ing from money mar­ket pa­pers

19,674

 

46,733

 

 

 

1,000

 

67,407

Due from banks

179,505

 

564,777

 

26,796

 

29

 

771,107

Due from cus­tomers

2,711,487

 

39,827

2,032,767

803,498

21,568

578,449

8,730

6,196,326

De­riv­a­tive fi­nan­cial in­stru­ments

21,592

 

7,254

 

3,427

6

9,884

 

42,164

Fi­nan­cial in­stru­ments

599,650

 

995,028

 

579,785

 

327,736

 

2,502,199

To­tal 

3,531,908

0

1,653,620

2,032,767

1,413,505

21,574

917,099

8,730

9,579,203

 

 

 

 

 

 

 

 

 

 

Off-bal­ance-sheet trans­ac­tions as of 31.12.2018

 

 

 

 

 

 

 

 

 

Con­tin­gent li­a­bil­i­ties

65,252

 

573

 

917

779

139,687

 

207,207

Ir­rev­o­ca­ble fa­cil­i­ties granted

 

 

1,984

500

 

1,895

89,519

 

93,898

To­tal 

65,252

0

2,557

500

917

2,674

229,206

0

301,105

 

 

 

 

 

 

 

 

 

 

On-bal­ance-sheet as­sets as of 31.12.2017

 

 

 

 

 

 

 

 

 

Re­ceiv­ables aris­ing from money mar­ket pa­pers

15,262

 

5,017

 

 

 

 

 

20,279

Due from banks

395,074

 

497,546

 

 

 

 

 

892,620

Due from cus­tomers

2,179,688

 

10,493

2,014,649

871,556

18,458

536,488

16,246

5,647,578

De­riv­a­tive fi­nan­cial in­stru­ments

19,089

 

584

 

155

533

9,097

 

29,458

Fi­nan­cial in­stru­ments

727,458

 

1,009,396

 

437,002

 

131,642

 

2,305,498

To­tal 

3,336,571

0

1,523,036

2,014,649

1,308,713

18,991

677,227

16,246

8,895,432

 

 

 

 

 

 

 

 

 

 

Off-bal­ance-sheet trans­ac­tions as of 31.12.2017

 

 

 

 

 

 

 

 

 

Con­tin­gent li­a­bil­i­ties

70,918

 

465

 

8,332

229

48,902

 

128,846

Ir­rev­o­ca­ble fa­cil­i­ties granted

7,364

 

1,666

140

 

324

48,562

 

58,056

To­tal 

78,282

0

2,131

140

8,332

553

97,464

0

186,902

Download Excel

 

Credit ex­po­sures by coun­try of domi­cile

in CHF 1,000

On-bal­ance-sheet as­sets as of 31.12.2018

Re­ceiv­ables aris­ing from money mar­ket pa­pers

Due from banks

Due from cus­tomers

Pub­lic-law en­ter­prises

Trad­ing port­fo­lios

De­riv­a­tive fi­nan­cial in­stru­ments

Fi­nan­cial in­stru­ments at fair value

Fi­nan­cial in­stru­ments mea­sured
at amor­tised cost

To­tal

 

Off-bal­ance-sheet trans­ac­tions as of 31.12.2018

Con­tin­gent li­a­bil­i­ties

Ir­rev­o­ca­ble fa­cil­i­ties granted

To­tal

 

On-bal­ance-sheet as­sets as of 31.12.2017

Re­ceiv­ables aris­ing from money mar­ket pa­pers

Due from banks

Due from cus­tomers

Pub­lic-law en­ter­prises

Trad­ing port­fo­lios

De­riv­a­tive fi­nan­cial in­stru­ments

Fi­nan­cial in­stru­ments at fair value

Fi­nan­cial in­stru­ments mea­sured
at amor­tised cost

To­tal

 

Off-bal­ance-sheet trans­ac­tions as of 31.12.2017

Con­tin­gent li­a­bil­i­ties

Ir­rev­o­ca­ble fa­cil­i­ties granted

To­tal

Credit ex­po­sures by coun­try of domi­cile

in CHF 1,000

Liecht­en­stein 
and Switzer­land

Eu­rope

North
Amer­ica
1

South
Amer­ica

Asia

Other

To­tal

On-bal­ance-sheet as­sets as of 31.12.2018

 

 

 

 

 

 

 

Re­ceiv­ables aris­ing from money mar­ket pa­pers

1,000

 

19,674

 

46,733

 

67,407

Due from banks

583,419

153,043

6,089

 

27,709

848

771,107

Due from cus­tomers

3,692,992

1,066,474

770,882

15,570

558,379

91,536

6,195,833

Pub­lic-law en­ter­prises

 

 

493

 

 

 

493

Trad­ing port­fo­lios

 

 

 

 

 

 

0

De­riv­a­tive fi­nan­cial in­stru­ments

13,891

10,223

3,921

151

13,708

271

42,164

Fi­nan­cial in­stru­ments at fair value

 

77,153

29,085

 

6,440

 

112,678

Fi­nan­cial in­stru­ments mea­sured
at amor­tised cost

326,919

977,641

915,540

10,967

109,207

49,248

2,389,521

To­tal

4,618,222

2,284,533

1,745,682

26,687

762,176

141,903

9,579,203

 

 

 

 

 

 

 

 

Off-bal­ance-sheet trans­ac­tions as of 31.12.2018

 

 

 

 

 

 

 

Con­tin­gent li­a­bil­i­ties

116,572

13,132

67,087

5,224

3,059

2,132

207,207

Ir­rev­o­ca­ble fa­cil­i­ties granted

60,480

10,981

22,361

 

75

 

93,898

To­tal

177,053

24,113

89,449

5,224

3,134

2,132

301,105

 

 

 

 

 

 

 

 

On-bal­ance-sheet as­sets as of 31.12.2017

 

 

 

 

 

 

 

Re­ceiv­ables aris­ing from money mar­ket pa­pers

 

5,017

 

 

15,262

 

20,279

Due from banks

710,717

172,241

4,702

 

4,205

755

892,620

Due from cus­tomers

3,582,294

811,664

693,347

50,630

432,542

76,614

5,647,091

Pub­lic-law en­ter­prises

 

 

487

 

 

 

487

Trad­ing port­fo­lios

 

 

 

 

 

 

0

De­riv­a­tive fi­nan­cial in­stru­ments

14,390

8,467

5,326

218

375

681

29,457

Fi­nan­cial in­stru­ments at fair value

 

118,810

10,578

 

3,555

718

133,661

Fi­nan­cial in­stru­ments mea­sured
at amor­tised cost

222,295

998,695

834,238

12,017

60,016

44,576

2,171,837

To­tal

4,529,696

2,114,894

1,548,678

62,865

515,955

123,344

8,895,432

 

 

 

 

 

 

 

 

Off-bal­ance-sheet trans­ac­tions as of 31.12.2017

 

 

 

 

 

 

 

Con­tin­gent li­a­bil­i­ties

91,251

20,998

7,486

5,788

1,341

1,982

128,846

Ir­rev­o­ca­ble fa­cil­i­ties granted

28,802

1,279

27,901

 

74

 

58,056

To­tal

120,053

22,277

35,387

5,788

1,415

1,982

186,902

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  1. 1

 

Within the scope of the client lending business, loans are granted on a regional and international basis to private and commercial clients. The focus remains on the private client business with a volume of CHF 3.2 billion of mortgage credits (31 December 2017: CHF 3.3 billion). From a regional perspective, VP Bank conducts the majority of its business in the Principality of Liechtenstein and in the Eastern part of Switzerland. Given the broad diversification of exposures, there are no risk concentrations by industry or segment.

The ten largest single exposures account for 13 per cent of total credit exposures (31 December 2017: 14 per cent). Exposures to banks relate to institutions with a high credit capacity (investment grade rating) and registered office in an OECD country.

In addition to the Risk Policy rules, the credit granting rules constitute the binding framework regulating client lending activities. Set out therein are not only the general guidelines governing credit granting and conditions for the conclusion of credit business but also the decision makers and the corresponding bandwidths within the framework of which credits may be approved (rules on powers of authority).

In principle, the exposures in the private client and commercial business must be covered by the collateral value of the security (collateral less a deduction for risk). Counterparty risks in the loan business are governed by limits which restrict the level of exposure depending on credit-worthiness, industry segment, collateral and risk domicile of the client. VP Bank employs an internal rating procedure to evaluate credit-worthiness. Deviations from credit granting principles (exceptions to policy) are dealt with as part of the credit risk management process depending on the specific risk of the transaction.

VP Bank enters into both secured and unsecured positions in the interbank business. Unsecured positions result frommoney market activities (including bank guarantees, correspondent and metal accounts), secured positions arising from the reverse repo business, securities & lending acti­vities, collateral management as well as OTC derivative transactions. Repo deposits are fully secured and the collateral received serves as a reliable source of liquidity in a crisis situation. Hence, counterparty risk and also liquidity risk is reduced with reverse-repo transactions. 

Counterparty risks in the interbank business may only be entered into in approved countries and with approved counterparties. A comprehensive system of limits contains the level of exposure depending on the duration, rating, risk domicile and collateral of the counterparty. In this regard, VP Bank uses for banks the ratings of the two rating agencies, Standard & Poor’s and Moody’s. OTC derivative transactions may only be concluded with counterparties with whom a netting contract has been agreed. 

Credit risks are managed and monitored on both individual client level and portfolio level. At the portfolio level, VP Bank uses expected and unexpected credit loss estimates to monitor and measure credit risk. The expected credit loss calculates a loss per credit portfolio which may be anticipated within one year, based on historical loss

data and estimated default probabilities. Unexpected credit loss measures the deviation of the actual loss based on a confidence level of 99 per cent over a risk horizon of one year.

During the past financial year, VP Bank has further reduced the volume of credit derivatives in its own portfolio. The following table shows the contract volume of credit derivatives by type of product.

Credit de­riv­a­tives (con­tract vol­ume)

in CHF 1,000

Col­lat­er­alised debt oblig­a­tions

To­tal

Credit de­riv­a­tives (con­tract vol­ume)

in CHF 1,000

Providers of
col­lat­eral as of
31.12.2018

Providers of
col­lat­eral as of
31.12.2017

Col­lat­er­alised debt oblig­a­tions

9

9

To­tal

9

9

Download Excel

 

The following table shows impaired and non-performing receivables, as well as specific valuation allowances, by domicile.

Im­paired, non-per­form­ing and val­u­a­tion-ad­justed credit ex­po­sures by coun­try of domi­cile

in CHF 1,000

31.12.2018

Liecht­en­stein and Switzer­land

Eu­rope

North Amer­ica

South Amer­ica

Asia

Other

To­tal 

 

31.12.2017

Liecht­en­stein and Switzer­land

Eu­rope

North Amer­ica

South Amer­ica

Asia

Other

To­tal 

Im­paired, non-per­form­ing and val­u­a­tion-ad­justed credit ex­po­sures by coun­try of domi­cile

in CHF 1,000

Im­paired re­ceiv­ables
sub­ject to de­fault
risk (gross amount)

Over­due re­ceiv­ables
(gross amount)

In­di­vid­ual value
ad­just­ments

31.12.2018

 

 

 

Liecht­en­stein and Switzer­land

25,224

16,473

7,950

Eu­rope

15,817

9,072

15,684

North Amer­ica

19,155

 

9,390

South Amer­ica

 

 

 

Asia

 

 

 

Other

 

470

 

To­tal 

60,196

26,015

33,024

 

 

 

 

31.12.2017

 

 

 

Liecht­en­stein and Switzer­land

67,092

38,877

16,537

Eu­rope

12,803

6,749

12,684

North Amer­ica

34,695

14,193

12,323

South Amer­ica

 

 

 

Asia

 

 

 

Other

 

 

 

To­tal 

114,590

59,819

41,544

Download Excel

 

Non-in­ter­est-bear­ing re­ceiv­ables ac­cord­ing to re­main­ing du­ra­tion

in CHF 1,000

To­tal re­port­ing pe­riod 2018

To­tal re­port­ing pe­riod 2017

Non-in­ter­est-bear­ing re­ceiv­ables ac­cord­ing to re­main­ing du­ra­tion

in CHF 1,000

Due within
3 months

Due within
3 to 6 months

Due within
6 to 12 months

Due af­ter
12 months

To­tal

To­tal re­port­ing pe­riod 2018

24,658

 

 

1,357

26,015

To­tal re­port­ing pe­riod 2017

45,627

12,836

 

1,356

59,819

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Country risk

Country risks arise whenever political or economic conditions specific to a country impinge on the value of an exposure abroad. Monitoring and management of country risk employs volume limits which restrict the respective aggregate exposures per country rating (Standard & Poor’s and Moody’s). All on- and off-balance sheet receivables are considered in this process; positions in the Principality of Liechtenstein and Switzerland do not fall under this country limit rule. The risk domicile of an exposure is the basis for recognising country risk. In case of secured exposures the location of collateral is used to determine the risk domicile.

The following table shows the split of credit exposures by country rating. Non-rated country exposures are mostly exposures from local business activities (receivables secured by mortgage) of VP Bank (BVI) Limited. 

 

Coun­try ex­po­sures ac­cord­ing to rat­ing

in %

AAA

AA

A

BBB – B

CCC – C

Not Rated

To­tal

Coun­try ex­po­sures ac­cord­ing to rat­ing

in %

31.12.2018

31.12.2017

AAA

86.5

88.6

AA

8.8

7.9

A

2.3

1.4

BBB – B

0.7

0.5

CCC – C

0.1

0.0

Not Rated

1.6

1.6

To­tal

100.0

100.0

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IFRS 9 Impairment

The conversion to IFRS 9 Impairment results in the need to disclose information in table form which is set out on the following pages.

 

Credit ex­po­sures by rat­ing classes

in CHF 1,000

 

Cash and cash equiv­a­lents

In­vest­ment Grade

Very Low credit risk

Low credit risk

Mod­er­ate credit risk 

Non In­vest­ment Grade

De­fault

Gross Car­ry­ing amount

Loss al­lowance

Car­ry­ing amount

 

 

Re­ceiv­ables aris­ing from money mar­ket pa­pers

In­vest­ment Grade

Very Low credit risk

Low credit risk

Mod­er­ate credit risk 

Non In­vest­ment Grade

De­fault

Gross Car­ry­ing amount

Loss al­lowance

Car­ry­ing amount

Credit ex­po­sures by rat­ing classes

 

 

 

 

 

in CHF 1,000

 

Car­ry­ing amount of the be­low fi­nan­cial posi­ton
 
 

 

Rat­ing
(Stan­dard &
Poor's or
Equiv­a­lent)

Stage 1

Stage 2

Stage 3

To­tal
31.12.2018

Cash and cash equiv­a­lents

 

 

 

 

 

In­vest­ment Grade

 

 

 

 

 

Very Low credit risk

AAA

2,507,690

 

 

2,507,690

Low credit risk

AA+, AA, AA-, A+, A, A-

 

 

 

0

Mod­er­ate credit risk 

BBB+, BBB, BBB-

 

 

 

0

Non In­vest­ment Grade

BB+, BB, BB-,
B+, B, B-,
CCC+, CCC,
CCC-, CC, C

 

 

 

0

De­fault

D

 

 

 

0

Gross Car­ry­ing amount

 

2,507,690

0

0

2,507,690

Loss al­lowance

 

–133

 

 

–133

Car­ry­ing amount

 

2,507,557

0

0

2,507,557

 

 

 

 

 

 

 

 

 

 

 

 

Re­ceiv­ables aris­ing from money mar­ket pa­pers

 

 

 

 

In­vest­ment Grade

 

 

 

 

 

Very Low credit risk

AAA

46,741

 

 

46,741

Low credit risk

AA+, AA, AA-, A+, A, A-

19,677

 

 

19,677

Mod­er­ate credit risk 

BBB+, BBB, BBB-

1,000

 

 

1,000

Non In­vest­ment Grade

BB+, BB, BB-,
B+, B, B-,
CCC+, CCC,
CCC-, CC, C

 

 

 

0

De­fault

D

 

 

 

0

Gross Car­ry­ing amount

 

67,418

0

0

67,418

Loss al­lowance

 

–11

 

 

–11

Car­ry­ing amount

 

67,407

0

0

67,407

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Due from banks

In­vest­ment Grade

Very Low credit risk

Low credit risk

Mod­er­ate credit risk 

Non In­vest­ment Grade

De­fault

Gross Car­ry­ing amount

Loss al­lowance

Car­ry­ing amount

 

 

Due from cus­tomers

Low credit risk

Mod­er­ate credit risk 

High Credit Risk

Doubt­ful

De­fault

Gross Car­ry­ing amount

Loss al­lowance

Car­ry­ing amount

Due from banks

 

 

 

 

In­vest­ment Grade

 

 

 

 

 

Very Low credit risk

AAA

72,952

 

 

72,952

Low credit risk

AA+, AA, AA-, A+, A, A-

458,518

 

 

458,518

Mod­er­ate credit risk 

BBB+, BBB, BBB-

22,311

 

 

22,311

Non In­vest­ment Grade

BB+, BB, BB-,
B+, B, B-,
CCC+, CCC,
CCC-, CC, C

35,031

663

 

35,694

De­fault

D

 

 

 

0

Gross Car­ry­ing amount

 

588,812

663

0

589,475

Loss al­lowance

 

–92

 

 

–92

Car­ry­ing amount

 

588,720

663

0

589,383

 

 

 

 

 

 

 

 

 

 

 

 

Due from cus­tomers

 

 

 

 

Low credit risk

 

6,067,109

 

 

6,067,109

Mod­er­ate credit risk 

 

 

112,467

 

112,467

High Credit Risk

 

 

 

32,099

32,099

Doubt­ful

 

 

 

6,213

6,213

De­fault

 

 

 

22,474

22,474

Gross Car­ry­ing amount

 

6,067,109

112,467

60,786

6,240,362

Loss al­lowance

 

–545

–10,467

–33,024

–44,036

Car­ry­ing amount

 

6,066,564

102,000

27,762

6,196,326

Download Excel

 

 

Fi­nan­cial in­stru­ments mea­sured at amor­tised cost

In­vest­ment Grade

Very Low credit risk

Low credit risk

Mod­er­ate credit risk 

Non In­vest­ment Grade

De­fault

Gross Car­ry­ing amount

Loss al­lowance

Car­ry­ing amount

 

 

 

 

 

 

Fi­nan­cial in­stru­ments mea­sured at amor­tised cost

 

 

 

 

In­vest­ment Grade

 

 

 

 

 

Very Low credit risk

AAA

550,732

 

 

550,732

Low credit risk

AA+, AA, AA-, A+, A, A-

1,602,338

 

 

1,602,338

Mod­er­ate credit risk 

BBB+, BBB, BBB-

237,809

 

 

237,809

Non In­vest­ment Grade

BB+, BB, BB-,
B+, B, B-,
CCC+, CCC,
CCC-, CC, C

 

 

 

0

De­fault

D

 

 

 

0

Gross Car­ry­ing amount

 

2,390,879

0

0

2,390,879

Loss al­lowance

 

–1,358

 

 

–1,358

Car­ry­ing amount

 

2,389,521

0

0

2,389,521

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Ex­po­sure to credit risk on loan com­mit­ments and fi­nan­cial guar­an­tee con­tracts

 

Low credit risk

Mod­er­ate credit risk 

High Credit Risk

Doubt­ful

De­fault

Gross Car­ry­ing amount

Loss al­lowance

Car­ry­ing amount

Ex­po­sure to credit risk on loan com­mit­ments and fi­nan­cial guar­an­tee con­tracts

 

 

 

 

 

 

 

 

 

Low credit risk

23

 

 

23

Mod­er­ate credit risk 

 

 

 

0

High Credit Risk

287,573

181

 

287,754

Doubt­ful

 

 

 

0

De­fault

 

 

 

0

Gross Car­ry­ing amount

287,596

181

0

287,777

Loss al­lowance

–30

–1

 

–31

Car­ry­ing amount

287,566

180

0

287,746

Download Excel

 

In­for­ma­tion about amounts aris­ing from ex­pected credit losses

in CHF 1,000

 

Re­ceiv­ables aris­ing from money mar­ket pa­pers

01 Jan­u­ary 2018

New fi­nan­cial as­sets orig­i­nated or pur­chased

Trans­fers

to stage 1

to stage 2

to stage 3

Net re­mea­sure­ment of loss al­lowance

Fi­nan­cial as­sets dere­cog­nised dur­ing pe­riod (not writ­ten off) i.e., re­pay­ments, mod­i­fi­ca­tions, sales, etc. 

Changes in mod­els/​risk pa­ra­me­ters

Amounts writ­ten off

For­eign ex­change and other ad­just­ments 

31 De­cem­ber 2018

 

 

Due from banks

01 Jan­u­ary 2018

New fi­nan­cial as­sets orig­i­nated or pur­chased

Trans­fers

to stage 1

to stage 2

to stage 3

Net re­mea­sure­ment of loss al­lowance

Fi­nan­cial as­sets dere­cog­nised dur­ing pe­riod (not writ­ten off) i.e., re­pay­ments, mod­i­fi­ca­tions, sales, etc. 

Changes in mod­els/​risk pa­ra­me­ters

Amounts writ­ten off

For­eign ex­change and other ad­just­ments 

31 De­cem­ber 2018

 

In­for­ma­tion about amounts aris­ing from ex­pected credit losses

in CHF 1,000

Ex­pected credit loss of the be­low fi­nan­cial posi­ton
 

 

Stage 1

Stage 2

Stage 3

To­tal
2018

Re­ceiv­ables aris­ing from money mar­ket pa­pers

 

 

 

 

01 Jan­u­ary 2018

4

 

 

4

New fi­nan­cial as­sets orig­i­nated or pur­chased

11

 

 

11

Trans­fers

 

 

 

0

to stage 1

 

 

 

0

to stage 2

 

 

 

0

to stage 3

 

 

 

0

Net re­mea­sure­ment of loss al­lowance

 

 

 

0

Fi­nan­cial as­sets dere­cog­nised dur­ing pe­riod (not writ­ten off) i.e., re­pay­ments, mod­i­fi­ca­tions, sales, etc. 

–4

 

 

–4

Changes in mod­els/​risk pa­ra­me­ters

 

 

 

0

Amounts writ­ten off

 

 

 

0

For­eign ex­change and other ad­just­ments 

 

 

 

0

31 De­cem­ber 2018

11

0

0

11

 

 

 

 

 

 

 

 

 

 

Due from banks

 

 

 

 

01 Jan­u­ary 2018

22

 

 

22

New fi­nan­cial as­sets orig­i­nated or pur­chased

18

 

 

18

Trans­fers

 

 

 

0

to stage 1

 

 

 

0

to stage 2

 

 

 

0

to stage 3

 

 

 

0

Net re­mea­sure­ment of loss al­lowance

 

 

 

0

Fi­nan­cial as­sets dere­cog­nised dur­ing pe­riod (not writ­ten off) i.e., re­pay­ments, mod­i­fi­ca­tions, sales, etc. 

–9

 

 

–9

Changes in mod­els/​risk pa­ra­me­ters

 

 

 

0

Amounts writ­ten off

 

 

 

0

For­eign ex­change and other ad­just­ments 

61

 

 

61

31 De­cem­ber 2018

92

0

0

92

 

 

 

 

 

Download Excel

Due from cus­tomers - mort­gage loans

01 Jan­u­ary 2018

New fi­nan­cial as­sets orig­i­nated or pur­chased

Trans­fers

to stage 1

to stage 2

to stage 3

Net re­mea­sure­ment of loss al­lowance

Fi­nan­cial as­sets dere­cog­nised dur­ing pe­riod (not writ­ten off) i.e., re­pay­ments, mod­i­fi­ca­tions, sales, etc. 

Changes in mod­els/​risk pa­ra­me­ters

Amounts writ­ten off

For­eign ex­change and other ad­just­ments 

31 De­cem­ber 2018

 

 

Due from cus­tomers - lom­bard loans

01 Jan­u­ary 2018

New fi­nan­cial as­sets orig­i­nated or pur­chased

Trans­fers

to stage 1

to stage 2

to stage 3

Net re­mea­sure­ment of loss al­lowance

Fi­nan­cial as­sets dere­cog­nised dur­ing pe­riod (not writ­ten off) i.e., re­pay­ments, mod­i­fi­ca­tions, sales, etc. 

Changes in mod­els/​risk pa­ra­me­ters

Amounts writ­ten off

For­eign ex­change and other ad­just­ments 

31 De­cem­ber 2018

 

 

Due from cus­tomers - other loans

01 Jan­u­ary 2018

New fi­nan­cial as­sets orig­i­nated or pur­chased

Trans­fers

to stage 1

to stage 2

to stage 3

Net re­mea­sure­ment of loss al­lowance

Fi­nan­cial as­sets dere­cog­nised dur­ing pe­riod (not writ­ten off) i.e., re­pay­ments, mod­i­fi­ca­tions, sales, etc. 

Changes in mod­els/​risk pa­ra­me­ters

Amounts writ­ten off

For­eign ex­change and other ad­just­ments 

31 De­cem­ber 2018

Due from cus­tomers - mort­gage loans

 

 

 

 

01 Jan­u­ary 2018

107

16,132

21,553

37,792

New fi­nan­cial as­sets orig­i­nated or pur­chased

10

419

 

429

Trans­fers

 

 

 

0

to stage 1

229

 

–229

0

to stage 2

 

257

–257

0

to stage 3

 

 

 

0

Net re­mea­sure­ment of loss al­lowance

–238

–8,142

–7,283

–15,663

Fi­nan­cial as­sets dere­cog­nised dur­ing pe­riod (not writ­ten off) i.e., re­pay­ments, mod­i­fi­ca­tions, sales, etc. 

–67

–2,076

–4,591

–6,734

Changes in mod­els/​risk pa­ra­me­ters

 

 

 

0

Amounts writ­ten off

 

 

 

0

For­eign ex­change and other ad­just­ments 

20

–61

61

20

31 De­cem­ber 2018

61

6,529

9,254

15,844

 

 

 

 

 

 

 

 

 

 

Due from cus­tomers - lom­bard loans

 

 

 

 

01 Jan­u­ary 2018

501

4,537

18,430

23,468

New fi­nan­cial as­sets orig­i­nated or pur­chased

208

3,864

 

4,072

Trans­fers

 

 

 

0

to stage 1

 

 

 

0

to stage 2

 

 

 

0

to stage 3

 

 

 

0

Net re­mea­sure­ment of loss al­lowance

–55

1

476

422

Fi­nan­cial as­sets dere­cog­nised dur­ing pe­riod (not writ­ten off) i.e., re­pay­ments, mod­i­fi­ca­tions, sales, etc. 

–414

–4,469

 

–4,883

Changes in mod­els/​risk pa­ra­me­ters

 

 

 

0

Amounts writ­ten off

 

 

–1,476

–1,476

For­eign ex­change and other ad­just­ments 

1

 

232

233

31 De­cem­ber 2018

241

3,933

17,662

21,836

 

 

 

 

 

 

 

 

 

 

Due from cus­tomers - other loans

 

 

 

 

01 Jan­u­ary 2018

203

4

1,561

1,768

New fi­nan­cial as­sets orig­i­nated or pur­chased

168

4

 

172

Trans­fers

 

 

 

0

to stage 1

1

–1

 

0

to stage 2

 

 

 

0

to stage 3

 

 

 

0

Net re­mea­sure­ment of loss al­lowance

–3

–1

4,604

4,600

Fi­nan­cial as­sets dere­cog­nised dur­ing pe­riod (not writ­ten off) i.e., re­pay­ments, mod­i­fi­ca­tions, sales, etc. 

–107

–2

–25

–134

Changes in mod­els/​risk pa­ra­me­ters

 

 

 

0

Amounts writ­ten off

 

 

–60

–60

For­eign ex­change and other ad­just­ments 

–19

1

28

10

31 De­cem­ber 2018

243

5

6,108

6,356

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Fi­nan­cial in­stru­ments - mea­sured at amor­tised cost

01 Jan­u­ary 2018

New fi­nan­cial as­sets orig­i­nated or pur­chased

Trans­fers

to stage 1

to stage 2

to stage 3

Net re­mea­sure­ment of loss al­lowance

Fi­nan­cial as­sets dere­cog­nised dur­ing pe­riod (not writ­ten off) i.e., re­pay­ments, mod­i­fi­ca­tions, sales, etc. 

Changes in mod­els/​risk pa­ra­me­ters

Amounts writ­ten off

For­eign ex­change and other ad­just­ments 

31 De­cem­ber 2018

 

 

 

 

 

Fi­nan­cial in­stru­ments - mea­sured at amor­tised cost

 

 

 

 

01 Jan­u­ary 2018

1,202

 

 

1,202

New fi­nan­cial as­sets orig­i­nated or pur­chased

496

 

 

496

Trans­fers

 

 

 

0

to stage 1

 

 

 

0

to stage 2

 

 

 

0

to stage 3

 

 

 

0

Net re­mea­sure­ment of loss al­lowance

–96

 

 

–96

Fi­nan­cial as­sets dere­cog­nised dur­ing pe­riod (not writ­ten off) i.e., re­pay­ments, mod­i­fi­ca­tions, sales, etc. 

–243

 

 

–243

Changes in mod­els/​risk pa­ra­me­ters

 

 

 

0

Amounts writ­ten off

 

 

 

0

For­eign ex­change and other ad­just­ments 

–1

 

 

–1

31 De­cem­ber 2018

1,358

0

0

1,358

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Cash and cash equiv­a­lents (in CHF 1,000)

01 Jan­u­ary 2018

Net re­mea­sur­ment of loss al­lowance

New fi­nan­cial as­sets orig­i­nated or pur­chased

For­eign ex­change and other move­ments

31 De­cem­ber 2018

 

 

Ex­po­sure to credit risk on loan com­mit­ments and fi­nan­cial guar­an­tee con­tracts

01 Jan­u­ary 2018

Net re­mea­sur­ment of loss al­lowance

Fi­nan­cial as­sets dere­cog­nised dur­ing pe­riod (not writ­ten off) i.e., re­pay­ments, mod­i­fi­ca­tions, sales, etc. 

New fi­nan­cial as­sets orig­i­nated or pur­chased

For­eign ex­change and other move­ments

31 De­cem­ber 2018

Cash and cash equiv­a­lents (in CHF 1,000)

 

 

 

 

01 Jan­u­ary 2018

168

 

 

168

Net re­mea­sur­ment of loss al­lowance

–37

 

 

–37

New fi­nan­cial as­sets orig­i­nated or pur­chased

1

 

 

1

For­eign ex­change and other move­ments

1

 

 

1

31 De­cem­ber 2018

133

0

0

133

 

 

 

 

 

 

 

 

 

 

Ex­po­sure to credit risk on loan com­mit­ments and fi­nan­cial guar­an­tee con­tracts

 

 

 

 

01 Jan­u­ary 2018

9

4

 

13

Net re­mea­sur­ment of loss al­lowance

–1

 

 

–1

Fi­nan­cial as­sets dere­cog­nised dur­ing pe­riod (not writ­ten off) i.e., re­pay­ments, mod­i­fi­ca­tions, sales, etc. 

–2

–3

 

–5

New fi­nan­cial as­sets orig­i­nated or pur­chased

5

 

 

5

For­eign ex­change and other move­ments

19

 

 

19

31 De­cem­ber 2018

30

1

0

31

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The following table shows the effect on valuation allowances of significant changes in the gross carrying values of financial instruments.

Vol­ume re­duc­tion cen­tral banks, money mar­ket in­stru­ments and banks by CHF 1.168 mil­lion

Vol­ume in­crease of bonds amc/​oci by CHF 218 mil­lion

Vol­ume in­crease of cus­tomer loans by CHF 549 mil­lion

Im­pact of changes in vol­umes on loss al­lowances

Re­assess­ment of mort­gage claims of VP Bank (BVI) Ltd

Re­assess­ment of other cus­tomer loans with spe­cific al­lowances

Im­pact of changes in the credit risk of cus­tomer loans

Other ef­fects

To­tal

Vol­ume re­duc­tion cen­tral banks, money mar­ket in­stru­ments and banks by CHF 1.168 mil­lion

–21

 

 

–21

Vol­ume in­crease of bonds amc/​oci by CHF 218 mil­lion

157

 

 

157

Vol­ume in­crease of cus­tomer loans by CHF 549 mil­lion

86

 

 

86

Im­pact of changes in vol­umes on loss al­lowances

222

0

0

222

Re­assess­ment of mort­gage claims of VP Bank (BVI) Ltd

10

–10,148

–3,337

–13,475

Re­assess­ment of other cus­tomer loans with spe­cific al­lowances

3

 

–584

–581

Im­pact of changes in the credit risk of cus­tomer loans

13

–10,148

–3,921

–14,056

Other ef­fects

–330

 

 

–330

To­tal

–95

–10,148

–3,921

–14,164

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The following table provides disclosures on assets which were modified and at the same time have a stage 2 and 3 valuation allowance.

In­for­ma­tion about the na­ture and ef­fect of mod­i­fi­ca­tions on the mea­sure­ment of pro­vi­sion for doubt­ful debts (Stage 2 and 3)
in CHF 1,000

Fi­nan­cial as­sets mod­i­fied dur­ing the pe­riod

Amor­tised cost be­fore mod­i­fi­ca­tion

Net mod­i­fi­ca­ton loss

Fi­nan­cial as­sets mod­i­fied since ini­tial recog­ni­tion

Gross car­ry­ing amount at 31 De­cem­ber of fi­nan­cial as­sets for which loss al­lowance has changed from stage 2 or stage 3 to stage 1 dur­ing the pe­riod

In­for­ma­tion about the na­ture and ef­fect of mod­i­fi­ca­tions on the mea­sure­ment of pro­vi­sion for doubt­ful debts (Stage 2 and 3)
in CHF 1,000

To­tal
2018

Fi­nan­cial as­sets mod­i­fied dur­ing the pe­riod

 

Amor­tised cost be­fore mod­i­fi­ca­tion

0

Net mod­i­fi­ca­ton loss

0

Fi­nan­cial as­sets mod­i­fied since ini­tial recog­ni­tion

 

Gross car­ry­ing amount at 31 De­cem­ber of fi­nan­cial as­sets for which loss al­lowance has changed from stage 2 or stage 3 to stage 1 dur­ing the pe­riod

68,560

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Tran­si­tion of IAS 39/​37 to IFRS 9 Im­pair­ment

in CHF 1,000

 

Bal­ance at the be­gin­ning of the fi­nan­cial year

Ad­just­ment IFRS 9 ECL

Amounts writ­ten off on loans / util­i­sa­tion in ac­cor­dance with pur­pose

Cre­ation of val­u­a­tion al­lowances and pro­vi­sions for credit risks

Re­lease of val­u­a­tion al­lowances and pro­vi­sions for credit risks

For­eign-cur­rency trans­la­tion dif­fer­ences and other ad­just­ments

Bal­ance at the end of the fi­nan­cial year

 

Tran­si­tion of IAS 39/​37 to IFRS 9 Im­pair­ment

in CHF 1,000

2018

2018

2017

2017

 

In­di­vid­ual
(Stage 3)

ECL
(Stage 1 and 2)

In­di­vid­ual

Lump-sum
IAS 37/​39

Bal­ance at the be­gin­ning of the fi­nan­cial year

41,544

25,083

36,535

26,617

Ad­just­ment IFRS 9 ECL

 

–2,051

 

 

Amounts writ­ten off on loans / util­i­sa­tion in ac­cor­dance with pur­pose

–6,557

 

–870

 

Cre­ation of val­u­a­tion al­lowances and pro­vi­sions for credit risks

10,650

3,526

12,285

2,421

Re­lease of val­u­a­tion al­lowances and pro­vi­sions for credit risks

–12,612

–14,104

–6,412

–3,951

For­eign-cur­rency trans­la­tion dif­fer­ences and other ad­just­ments

–1

152

6

–4

Bal­ance at the end of the fi­nan­cial year

33,024

12,606

41,544

25,083

 

 

 

 

 

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The portfolio-based valuation allowances as of 31.12.2017 were released, without impact on income, over the equity caption “profit reserves”. The new ECL valuation allowance was recorded, without impact on income, over the equity caption “profit reserves”.

The following table shows the impact of IFRS 9 valuation allowances on the balance sheet. Under IAS 39/37, VP Bank Group had already general valuation allowances (prior-year comparatives).

 

in CHF 1,000

As­sets

Cash and cash equiv­a­lents

Re­ceiv­ables aris­ing from money mar­ket pa­pers

Due from banks

Due from cus­tomers

Trad­ing port­fo­lios

De­riv­a­tive fi­nan­cial in­stru­ments

Fi­nan­cial in­stru­ments at fair value

Fi­nan­cial in­stru­ments mea­sured at amor­tised cost

Im­pact on as­sets

 

Pro­vi­sions

Im­pact on li­a­bil­i­ties

in CHF 1,000

01.01.2018

31.12.2017

Vari­ance

As­sets

 

 

 

Cash and cash equiv­a­lents

168

0

168

Re­ceiv­ables aris­ing from money mar­ket pa­pers

4

0

4

Due from banks

22

1,066

–1,044

Due from cus­tomers

63,180

65,561

–2,381

Trad­ing port­fo­lios

0

0

0

De­riv­a­tive fi­nan­cial in­stru­ments

0

0

0

Fi­nan­cial in­stru­ments at fair value

0

0

0

Fi­nan­cial in­stru­ments mea­sured at amor­tised cost

1,202

0

1,202

Im­pact on as­sets

64,576

66,627

–2,051

 

 

 

 

Pro­vi­sions

14

276

–262

Im­pact on li­a­bil­i­ties

14

276

–262

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in CHF 1,000

 

Cash and cash equiv­a­lents

Re­ceiv­ables aris­ing from money mar­ket pa­pers

Due from banks

Due from cus­tomers

Fi­nan­cial in­stru­ments mea­sured at amor­tised cost

Ex­po­sure to credit risk on loan com­mit­ments and fi­nan­cial guar­an­tee con­tracts

in CHF 1,000

2018

2017

 

Gross amount

ECL
(IFRS 9)

Car­ry­ing amount

Gross amount

Im­pair­ment
(IAS 37/​39)

Car­ry­ing amount

Cash and cash equiv­a­lents

2,521,409

–133

2,521,276

3,614,578

 

3,614,578

Re­ceiv­ables aris­ing from money mar­ket pa­pers

67,418

–11

67,407

20,279

 

20,279

Due from banks

771,199

–92

771,107

893,686

–1,066

892,620

Due from cus­tomers

6,240,362

–44,036

6,196,326

5,713,139

–65,561

5,647,578

Fi­nan­cial in­stru­ments mea­sured at amor­tised cost

2,390,879

–1,358

2,389,521

2,171,837

 

2,171,837

Ex­po­sure to credit risk on loan com­mit­ments and fi­nan­cial guar­an­tee con­tracts

301,105

–31

301,074

186,902

–276

186,626

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6. Operational risks

Whilst financial risks are assumed consciously in order to earn revenues, operational risk should be avoided by suit­able controls and measures or, should this not be possible, be reduced to a level set by the Bank. 

The causes for operational risks are multiple. Individuals make mistakes, IT systems fail, or business processes are inoperative. It is therefore necessary to determine the factors which trigger important risk events and their impact in order to contain them with suitable preventive measures. 

The management of operational risks is understood in VP Bank to be an integral cross-divisional function which is to be implemented on a uniform Group-wide basis over all business units and processes. 

The following methods are deployed:

The internal control system of VP Bank encompasses all process-integrated and process-independent measures, functions and controls which assure the orderly conduct of business operations.

In order to recognise potential losses on a timely basis and in order to ensure that enough time for the planning and realisation of counter-measures still remains, early-­warning indicators are deployed.

Significant loss occurrences are systematically recorded and evaluated centrally. The findings from the collection of loss data flow directly into the risk-management ­process.

The central unit Group Risk is responsible for the Group-wide implementation, monitoring and further development of the risk-management methods deployed and bears specialist responsibility for the related IT application. 

The risk factors leading to operational risks are assessed within the framework of periodic risk assessments. Group Executive Management decides, on the basis of these assessments, on the appropriate course of action. 

Each executive is responsible for the identification and evaluation of operational risks in their respective domains as well as for the definition and performance of key controls and measures to contain risk. This responsibility may not be delegated.

Knowledge and experience are exchanged within the Group to ensure a coordinated approach. Thanks to a uniform implementation, it is possible to provide the relevant stakeholders (Board of Directors, Group Executive Management and senior management executives) with a meaningful quarterly status report on operational risks within VP Bank Group.

Business Continuity Management (BCM), as a further important sub-area, is systematically pursued by VP Bank with expert and specialised knowledge along the lines of the ISO norm 22301:2012. The basis thereof is the BCM strategy which has been implemented by Group Executive Management and reviewed on an on-going basis for effectiveness and accuracy. Operationally critical processes are reviewed in detail, discussed and, where necessary, documented with a clear course of action whenever risks crystallise. The organisation necessary for crisis management is in place and its members are routinely trained and instructed. 

 

7. Business risk

Business risk results on one hand from unexpected changes in market and underlying conditions with an adverse effect on profitability or equity. On the other, they indicate the danger of unexpected losses resulting from management decisions regarding the business policy orientation of the Group (strategic risk). The Group Executive Management is responsible for managing business risk. Such risk is analysed by Group Executive Management taking into consideration the external banking sector environment as well as the internal situation of the company. Top-down scenarios are derived, and corresponding measures developed, the implementation of which are assigned to the responsible body and/or organisational units (top-down process).

 

8. Reputational risk

Reputational risk includes the risk that the confidence of employees, clients, shareholders, regulatory authorities and the public in general is weakened or the public image and/or reputation of the Bank is impaired as a result of other types of risk or through various events.

In addition to financial and operational risks, reputational risks may also include business risks (including strategy risk). These risks can lead to losses of assets and/or declines in earnings.

Business risks and any reputational risks are monitored by Group Executive Management.