Market Risk Management
NCC is exposed to interest rate risk related to securities and financial derivatives sensitive to interest rate fluctuations, and to trades with derivative sensitive to interest rate fluctuations as shown in Table 7 below:
NCC’s Exposure to Market Risk as of 01.01.2021, RUB thousand
Interest Rate Risk
Overall Interest Rate Risk
Specific Interest Rate Risk
Securities Market Risk
Interest Rate Risk, % of Capital
As of 01.01.2021, the interest rate risk amounted to 19.79% of the (equity) capital of NCC (as of 01.01.2020: 16.43%).
NCC was not exposed to the securities market risk as NCC’s portfolio did not contain any equity securities. FX risk arose from adverse fluctuations of exchange rates. As of 01.01.2021, open positions in foreign currencies and precious metals exceeded 2% of the (equity) capital, with respect thereto, in compliance with Bank of Russia Regulation No. 511-P ‘On the Procedure for the Calculation of Market Risk by Credit Institutions’, the exchange rate risk was not included in calculation of the exposure to market risk (as of 01.01.2020 they were less than 2% of the capital, NCC was not sensitive to the FX risk). During 2020, the exposure to market risk was not considered by NCC as the one giving rise to any potential losses that would impair NCC’s financial sustainability.
Managing Interest Rate Risk in the Banking Book
NCC manages its interest rate risk in the banking book as part of the market risk management. The interest rate risk in the banking book is assessed on the basis of review of amount and structure of the balance sheet and off-balance sheet claims and liabilities in the banking book.
Throughout 2020, the interest rate risk in the banking book remained within the acceptable range of values approved by NCC Executive Board.
Liquidity Risk Management
The liquidity management is aimed at ensuring NCC’s ability to perform its obligations timely and in full, both in normal and extreme market conditions without incurring inacceptable losses or reputational risk.
Liquidity state is assessed on the monthly basis by means of liquidity gap-analysis (analysis of assets and liabilities by maturities) and calculation of liquidity shortage (excess) and liquidity shortage (excess) ratio (on an accrual basis) by maturities, taking into account the refinancing instruments.
Monthly monitoring of the liquidity ratios showed that in 2020 there was no shortage of liquidity for all maturities, as shown in the Chart below:
Operational Risk Management
NCC’s operational risk management framework is a part of its overall risk management framework. Its functioning is intended to ensure that NCC is capable to exist as a going concern and secure smooth operation of its own frameworks, systems and processes and critical services. The efficiency of functioning of the operational risk management framework is supported by its multilevel structure, including distinct distribution of powers and functions among the relevant subdivisions, committees, and management bodies in compliance with the world management practices. The operational risk management framework is based on the recommendations of the Bank of Russia, the Basel Committee on Banking Supervision, and CPMI-IOSCO.
In September 2020, for improvement and development of activities related to management of this risk type by NCC, the Operational Risks and Business Continuity Department was created.
The operational risk management process comprises the following key stages:
- collecting data on the operational risk events (ORE) occurred at NCC through accumulation of information in the operational risk events database using the approved algorithm;
- identifying potential operational risks by means of self-assessment procedures;
- analyzing and assessing the identified operational risks;
- determining measures to remedy the consequences of specific ORE and measures to minimize occurrence thereof in the future;
- informing the management bodies of the events and level of operational risk (monthly or promptly upon occurrence of material OREs) and controlling their implementation of the measures to mitigate the operational risk for any occurred OREs on a quarterly basis;
- reporting on OREs by NCC as CCP filed to the Bank of Russia on a periodic (monthly) basis;
In 2020, dynamics of operational risk events with medium degree of impact remained at the level of average values of previous years. During the reporting period, no operational risk events with high degree of impact were recorded. NCC’s basic operational processes continued to show strong business continuity.
NCC regularly analyzes its key processes, which results are used to introduce new technologies, which mitigate its operational risk. Upon launch of new products and services, NCC carries out a comprehensive multifactor analysis of the project, including operational risk assessment. An independent external audit of the information security management system is carried out on a regular basis.