35.2 Types of hedging strategies
35.2.1. Fair value hedges
Changes in the fair value measurement of financial instruments designated as hedged items are recognized, in the part related to the hedged risk, in the profit and loss account. The remaining part of changes in the carrying amount are recognized in accordance with the general rules applicable to a given class of financial instruments.
Changes in the fair value measurement of derivatives designated as hedges in hedge accounting are recognized in full in profit or loss, in the same line item where the effect of changes in the measurement of the hedged item are recognized.
Adjustment for hedged risk on the hedged interest item is amortized to profit and loss no later than at the moment when hedge accounting is discontinued.
The main identified potential sources of inefficiencies in fair value hedges include:
- impact of counterparty credit risk and own credit risk on the fair value of hedging transactions which is not reflected in the fair value of the hedged item;
- differences between the maturities of IRS transactions and the maturities of debt securities;
- differences in the level of interest coupons generated by the hedged item and hedging instruments.
Fair value hedge of fixed-coupon debt securities denominated in PLN, EUR and USD
Pekao hedges some of its interest rate risk associated with a change in the fair value of the hedged item caused by volatility of market interest rates through IRS transactions. This is the way to hedge the interest rate risk component arising from changes in the fair value of the hedged item caused only by volatility of market interest rates (WIBOR, EURIBOR, LIBOR USD). The hedged risk component was responsible in the past for a significant part of the changes in the fair value of the hedged item.
The table presents nominal values and interest rate of hedging instruments:
| Currency | 31 December 2021 Maturity |
31 December 2020 Maturity |
|||||||||
| Up to 3 months | Over 3 months up to 1 year | Over 1 year to 5 years | Over 5 years | Total | Up to 3 months | Over 3 months up to 1 year | Over 1 year to 5 years | Over 5 years | Total | ||
| Par value | PLN | - | - | 200 | - | 200 | 280 | - | - | 200 | 480 |
| Average interest rate of the fixed- rate part | - | - | 2,6 | - | 2,6 | 0,3 | - | - | 0,3 | 0,3 | |
| Par value | EUR | - | - | 699 | 287 | 986 | - | 346 | 309 | 681 | 1 336 |
| Average interest rate of the fixed- rate part | - | - | 0 | -0,1 | 0 | - | -0,1 | 0,8 | -0,2 | 0,1 | |
| Par value | USD | 102 | - | 701 | - | 803 | - | - | 631 | 112 | 743 |
| Average interest rate of the fixed- rate part | 3,7 | - | 1,4 | - | 1,7 | - | - | 2 | 0,2 | 1,8 | |
| Total | 102 | - | 1 600 | 287 | 1 989 | 280 | 346 | 940 | 993 | 2 559 | |
| Impact of the hedge relationship on the statement of financial position and the financial result | 31 December 2021 | 31 December 2020 | ||||
| Hedges of securities measured at | Total | Hedges of securities measured at | Total | |||
| amortized cost | fair value | amortized cost | fair value | |||
| Hedging instruments | ||||||
| Par value | 200 | 1 789 | 1 989 | 200 | 2 359 | 2 559 |
| Carrying amount – assets | 6 | - | 6 | - | - | - |
| Carrying amount – liabilities | - | 91 | 91 | 27 | 171 | 198 |
| Change in the fair value of the hedging instrument, on the basis of which hedge inefficiency is estimated | 33 | 68 | 101 | -11 | -34 | -45 |
| Hedge inefficiency amount recognized in the profit and loss account | 1 | 3 | 4 | - | -1 | -1 |
| Hedged items | ||||||
| Carrying amount – assets | 193 | 1 933 | 2 126 | 225 | 2 596 | 2 821 |
| Accumulated adjustment to fair value of the hedged item included in the carrying amount of the hedged item recognized in the balance sheet – assets | -7 | 111 | 104 | 25 | 188 | 213 |
| Change in value of the hedged item used as the basis for estimating hedge inefficiency | -32 | -65 | -97 | 11 | 34 | 45 |
| Accumulated adjustment to fair value of a hedged item remaining in the balance sheet, for those hedged items for which the balance sheet item is no longer adjusted to fair value | - | - | - | - | - | - |
Fair value hedge of fixed-coupon debt securities
Alior Bank hedges the risk of changes in the fair value through other comprehensive income of purchased fixed-rate debt securities measured at fair value through other comprehensive income or at amortized cost on account of changes in the interest rate swap curve. As part of this strategy Alior Bank establishes hedging relationships in which the fixed-coupon debt securities denominated in the given currency are the hedged instrument and interest rate swaps (IRS) in the same currency are the hedging instrument. Under this strategy Alior Bank hedges the risk following from changes in the interest rate swap curve (risk of volatility of market swap interest rates) excluding other effects changing the valuation (including asset swap spread).
The table presents nominal values and interest rate of hedging instruments:
| Currency | 31 December 2021 Maturity |
31 December 2020 Maturity |
|||||||||
| Up to 3 months | Over 3 months up to 1 year | Over 1 year to 5 years | Over 5 years | Total | Up to 3 months | Over 3 months up to 1 year | Over 1 year to 5 years | Over 5 years | Total | ||
| Par value | PLN | - | - | 250 | - | 250 | - | 430 | 250 | - | 680 |
| Average interest rate of the fixed-rate part | - | - | 0,2 | - | 0,2 | - | 2,4 | 0,2 | - | 1,6 | |
| Par value | EUR | - | - | 154 | - | 154 | - | - | 46 | 108 | 154 |
| Average interest rate of the fixed-rate part | - | - | 0,7 | - | 0,7 | - | - | 0,7 | 0,7 | 0,7 | |
| Total | - | - | 404 | - | 404 | - | 430 | 296 | 108 | 834 | |
| Impact of the hedge relationship on the statement of financial position and the financial result | 31 December 2021 | 31 December 2020 | ||||
| Hedging of investment financial assets measured at | Total | Hedging of investment financial assets measured at | Total | |||
| amortized cost | fair value | amortized cost | fair value | |||
| Hedging instruments | ||||||
| Par value | 154 | 250 | 404 | 680 | 154 | 834 |
| Carrying amount – assets | 15 | 3 | 18 | - | - | - |
| Carrying amount – liabilities | - | - | - | 6 | 2 | 8 |
| Change in the fair value of the hedging instrument, on the basis of which hedge inefficiency is estimated | 17 | 4 | 21 | -2 | -1 | -3 |
| Hedge inefficiency amount recognized in the profit and loss account | -3 | 1 | -2 | 3 | 2 | 5 |
| Hedged items | ||||||
| Carrying amount – assets | 182 | 158 | 340 | 674 | 153 | 827 |
| Accumulated adjustment to fair value of the hedged item included in the carrying amount of the hedged item recognized in the statement of financial position – assets | -14 | - | -14 | 2 | - | 2 |
| Change in value of the hedged item used as the basis for estimating hedge inefficiency | -20 | -3 | -23 | 5 | 3 | 8 |
| Accumulated adjustment to fair value of a hedged item remaining in the statement of financial position, for those hedged items for which the balance sheet item is no longer adjusted to fair value | - | - | - | - | - | - |
35.2.2. Cash flow hedges
Cash flow hedge is a hedge of the exposure to volatility in cash flows that is attributable to a particular risk associated with a recognized asset or liability or a highly probable planned transaction and could affect profit or loss.
The result of measurement of the effective part of cash flow hedges is recognized in other comprehensive income. Ineffective part of the hedging is presented through profit or loss – in the profit and loss account in the “Net movement in fair value of assets and liabilities measured at fair value” item.
Where the interest rate risk and currency risk are hedged in credit and deposit portfolios, the approach to managing these portfolios allows new transactions to be added to the hedge relationship or transactions to be removed following repayment or transfer to non-performing items. As a result, the exposure of these portfolios to interest rate risk and currency risk changes constantly. Since the age structure of the portfolios changes frequently, the hedged items are designated dynamically and the hedging items are allowed to adjust to these changes.
In cash flow hedge relationships, the main identified potential sources of inefficiencies include:
- the impact of counterparty credit risk and own credit risk on the fair value of hedging instruments, i.e. interest rate swaps (IRSs), basis swaps and FX swaps, which is not reflected in the fair value of the hedged item,
- differences between the frequencies of restatement of hedging instruments and hedged loans and deposits.
35.2.2.1. Hedging of the portfolio of loan receivables from clients and variable-interest securities denominated in PLN
Pekao hedges its interest rate risks associated with the volatility of market reference rates (WIBOR) generated by the portfolio of loan receivables from clients and variable-interest securities denominated in PLN, by using interest rate swaps (IRS).
| Currency | 31 December 2021 Maturity |
31 December 2020 Maturity |
|||||||||
| Up to 3 months | Over 3 months up to 1 year | Over 1 year to 5 years | Over 5 years | Total | Up to 3 months | Over 3 months up to 1 year | Over 1 year to 5 years | Over 5 years | Total | ||
| Par value | PLN | - | 1 000 | 16 703 | 6 120 | 23 823 | - | - | 12 337 | 3 355 | 15 692 |
| Average interest rate of the fixed-rate part | - | 1,7 | 1,6 | 2 | 1,7 | - | - | 1,9 | 0,8 | 1,7 | |
| Impact of the hedge relationship on the statement of financial position and the financial result | 31 December 2021 | 31 December 2020 |
| Hedging instruments | ||
| Par value | 23 823 | 15 692 |
| Carrying amount – assets | - | 767 |
| Carrying amount – liabilities | 1 403 | 2 |
| Change in the fair value of the hedging instrument, on the basis of which hedge inefficiency is estimated | -2 191 | 475 |
| Profit or loss arising out of net position hedge, captured in a separate line item of other comprehensive income | - | - |
| Hedge inefficiency amount recognized in the profit and loss account | -14 | 8 |
| Amount transferred from cash flow hedge accounting capital to the profit and loss account as reclassification adjustment | - | - |
| Hedged items | ||
| Amount equal to the change in the fair value of a hypothetical derivative representing the hedged item, which forms the basis for estimating hedge inefficiency in the period | 2 196 | -467 |
| Balance of the hedge accounting capital item for relations, for which hedge accounting will be continued after the end of the reporting period | -1 508 | 669 |
| Balance remaining in the hedge accounting capital item for those relations, to which hedge accounting is no longer applied | - | - |
35.2.2.2. Hedging of the deposit portfolio in the Polish zloty and in the Euro
Pekao hedges its interest rate risk associated with the volatility of market reference rates (WIBOR, EURIBOR) generated by the portfolios of deposits denominated in the Polish zloty and the Euro, which are economically equivalent to a long-term liability with variable interest rate, by using interest rate swaps (IRS).
| Currency | 31 December 2021 Maturity |
31 December 2020 Maturity |
|||||||||
| Up to 3 months | Over 3 months up to 1 year | Over 1 year to 5 years | Over 5 years | Total | Up to 3 months | Over 3 months up to 1 year | Over 1 year to 5 years | Over 5 years | Total | ||
| Par value | PLN | - | 90 | 113 | 231 | 434 | - | 85 | 168 | 266 | 519 |
| Average interest rate of the fixed-rate part | - | 1,4 | 1,2 | 1,4 | 1,3 | - | 0,3 | 0,3 | 0,7 | 0,5 | |
| Par value | EUR | - | - | - | - | - | - | 636 | - | - | 636 |
| Average interest rate of the fixed-rate part | - | - | - | - | - | - | -0,5 | - | - | -0,5 | |
| Impact of the hedge relationship on the statement of financial position and the financial result | 31 December 2021 | 31 December 2020 |
| Hedging instruments | ||
| Par value | 434 | 1 155 |
| Carrying amount – assets | 9 | 7 |
| Carrying amount – liabilities | 6 | 48 |
| Change in the fair value of the hedging instrument, on the basis of which hedge inefficiency is estimated | 43 | -15 |
| Profit or loss arising out of net position hedge, captured in a separate line item of other comprehensive income | - | - |
| Hedge inefficiency amount recognized in the profit and loss account | - | - |
| Amount transferred from cash flow hedge accounting capital to the profit and loss account as reclassification adjustment | - | - |
| Hedged items | ||
| Amount equal to the change in the fair value of a hypothetical derivative representing the hedged item, which forms the basis for estimating hedge inefficiency in the period | -43 | 15 |
| Balance of the hedge accounting capital item for relations, for which hedge accounting will be continued after the end of the reporting period | 6 | -37 |
| Balance remaining in the hedge accounting capital item for those relations, to which hedge accounting is no longer applied | - | - |
35.2.2.3. Hedging for a variable interest rate loan portfolio in Swiss francs and a deposit portfolio in Polish zloty
Pekao hedges its exposure to interest rate risk associated with the volatility of market reference rates (WIBOR, LIBOR CHF) and its exposure to currency risk generated by portfolios of variable interest rate loans denominated in Swiss francs and deposits in Polish zloty, which are economically equivalent to long-term variable interest rate liabilities, by using cross currency basis swaps. CIRS transactions are decomposed into a component hedging the asset portfolio and a component hedging the liability portfolio.
| Currency | 31 December 2021 Maturity |
31 December 2020 Maturity |
|||||||||
| Up to 3 months | Over 3 months up to 1 year | Over 1 year to 5 years | Over 5 years | Total | Up to 3 months | Over 3 months up to 1 year | Over 1 year to 5 years | Over 5 years | Total | ||
| Par value | CHF/PLN | - | 222 | 1 748 | 445 | 2 415 | - | 299 | 1 279 | 1 036 | 2 614 |
| Par value | EUR/PLN | 285 | 345 | 1 223 | - | 1 853 | - | - | - | - | - |
| Impact of the hedge relationship on the statement of financial position and the financial result | 31 December 2021 | 31 December 2020 |
| Hedging instruments | ||
| Par value | 4 268 | 2 614 |
| Carrying amount – assets | - | - |
| Carrying amount – liabilities | 690 | 561 |
| Change in the fair value of the hedging instrument, on the basis of which hedge inefficiency is estimated | 5 | 14 |
| Profit or loss arising out of net position hedge, captured in a separate line item of other comprehensive income | - | - |
| Hedge inefficiency amount recognized in the profit and loss account | 1 | - |
| Amount transferred from cash flow hedge accounting capital to the profit and loss account as reclassification adjustment | - | - |
| Hedged items | ||
| Amount equal to the change in the fair value of a hypothetical derivative representing the hedged item, which forms the basis for estimating hedge inefficiency in the period | -11 | -17 |
| Balance of the hedge accounting capital item for relations, for which hedge accounting will be continued after the end of the reporting period | -35 | -39 |
| Balance remaining in the hedge accounting capital item for those relations, to which hedge accounting is no longer applied | - | - |
35.2.2.4. Hedging of a portfolio of variable interest rate loans in EUR and term and negotiated deposits in USD
Pekao hedges its exposure to interest rate risk associated with the volatility of market reference rates (EURIBOR, LIBO USD) and its exposure to currency risk generated by portfolios of variable interest rate loans denominated in the Euro and term and negotiated deposits in the American dollar, which are economically equivalent to long-term variable interest rate liabilities, by using FX swaps.
| Currency | 31 December 2021 Maturity |
31 December 2020 Maturity |
|||||||||
| Up to 3 months | Over 3 months up to 1 year | Over 1 year to 5 years | Over 5 years | Total | Up to 3 months | Over 3 months up to 1 year | Over 1 year to 5 years | Over 5 years | Total | ||
| Par value | EUR/PLN | 6 569 | 2 690 | - | - | 9 259 | 6 494 | 3 115 | 461 | - | 10 070 |
| Average rate | 4,6 | 4,7 | - | - | 4,6 | 4,5 | 4,6 | 4,6 | 4,5 | ||
| Par value | EUR/USD | 235 | 207 | - | - | 442 | 2 323 | 1 361 | - | - | 3 684 |
| Average rate | 1,1 | 1,1 | - | - | 1,1 | 1,2 | 1,2 | - | - | 1,2 | |
| Par value | USD/PLN | - | 102 | - | - | 102 | 324 | 132 | - | - | 456 |
| Average rate | - | 3,7 | - | - | 3,7 | 3,7 | 3,8 | - | - | 3,7 | |
| Impact of the hedge relationship on the statement of financial position and the financial result | 31 December 2021 | 31 December 2020 |
| Hedging instruments | ||
| Par value | 9 803 | 14 210 |
| Carrying amount – assets | 63 | 5 |
| Carrying amount – liabilities | 31 | 264 |
| Change in the fair value of the hedging instrument, on the basis of which hedge inefficiency is estimated | -13 | -1 |
| Profit or loss arising out of net position hedge, captured in a separate line item of other comprehensive income | - | - |
| Hedge inefficiency amount recognized in the profit and loss account | - | - |
| Amount transferred from cash flow hedge accounting capital to the profit and loss account as reclassification adjustment | - | - |
| Hedged items | ||
| Amount equal to the change in the fair value of a hypothetical derivative representing the hedged item, which forms the basis for estimating hedge inefficiency in the period | 13 | 1 |
| Balance of the hedge accounting capital item for relations, for which hedge accounting will be continued after the end of the reporting period | -12 | 1 |
| Balance remaining in the hedge accounting capital item for those relations, to which hedge accounting is no longer applied | - | - |
35.2.2.5. Hedging of a portfolio of variable interest rate loans and subordinated bonds
Alior Bank hedges its interest rate risk associated with the volatility of market reference rates (WIBOR) generated by the portfolio of loans and subordinated bonds denominated in the Polish zloty, by using interest rate swaps (IRS).
| Currency | 31 December 2021 Maturity |
31 December 2020 Maturity |
|||||||||
| Up to 3 months | Over 3 months up to 1 year | Over 1 year to 5 years | Over 5 years | Total | Up to 3 months | Over 3 months up to 1 year | Over 1 year to 5 years | Over 5 years | Total | ||
| Par value | PLN | 600 | 4 375 | 17 172 | - | 22 147 | 1 091 | 1 366 | 15 167 | - | 17 624 |
| Average interest rate of the fixed-rate part | 2,2 | 0,5 | 1,3 | - | 1,2 | 2,2 | 2,1 | 1 | - | 1,2 | |
| Par value | EUR | - | - | 543 | - | 543 | - | - | 46 | - | 46 |
| Average interest rate of the fixed-rate part | - | - | -0,3 | - | -0,3 | - | - | -0,1 | - | -0,1 | |
| Impact of the hedge relationship on the statement of financial position and the financial result | 31 December 2021 | 31 December 2020 |
| Hedging instruments | ||
| Par value | 22 690 | 17 670 |
| Carrying amount – assets | 21 | 335 |
| Carrying amount – liabilities | 1 082 | 78 |
| Change in the fair value of the hedging instrument, on the basis of which hedge inefficiency is estimated | -891 | 188 |
| Profit or loss arising out of net position hedge, captured in a separate line item of other comprehensive income | -1 200 | 223 |
| Hedge inefficiency amount recognized in the profit and loss account | -3 | - |
| Amount transferred from cash flow hedge accounting capital to the profit and loss account as reclassification adjustment | -110 | -80 |
| Hedged items | ||
| Amount equal to the change in the fair value of a hypothetical derivative representing the hedged item, which forms the basis for estimating hedge inefficiency in the period | 939 | -185 |
| Balance of the hedge accounting capital item for relations, for which hedge accounting will be continued after the end of the reporting period | -1 117 | 192 |
| Balance remaining in the hedge accounting capital item for those relations, to which hedge accounting is no longer applied | - | - |
35.2.2.6. Hedging of a portfolio of fixed-rate bonds denominated in EUR, USD or GBP
PZU hedges foreign currency cash flows generated by the portfolios of fixed-rate bonds denominated in EUR, USD or GBP using cross-currency interest rate swaps (CIRS). This way it hedges the foreign exchange risk component associated with the volatility of exchange rates.
| Currency | 31 December 2021 Maturity |
31 December 2020 Maturity |
|||||||||
| Up to 3 months | Over 3 months up to 1 year | Over 1 year to 5 years | Over 5 years | Total | Up to 3 months | Over 3 months up to 1 year | Over 1 year to 5 years | Over 5 years | Total | ||
| Par value | EUR/PLN | - | - | 734 | 373 | 1 107 | - | - | 443 | 663 | 1 106 |
| Average rate | - | - | 4,3 | 4,3 | 4,3 | - | - | 4,3 | 4,3 | 4,3 | |
| Par value | USD/PLN | - | - | 445 | - | 445 | - | - | 285 | 160 | 445 |
| Average rate | - | - | 3,8 | - | 3,8 | - | - | 3,8 | 3,9 | 3,8 | |
| Par value | GBP/PLN | - | - | 350 | 211 | 561 | - | - | 77 | 508 | 585 |
| Average rate | - | - | 5,0 | 5,0 | 5,0 | - | - | 4,8 | 5,0 | 5,0 | |
| Impact of the hedge relationship on the statement of financial position and the financial result | 31 December 2021 | 31 December 2020 |
| Hedging instruments | ||
| Par value | 2 113 | 2 136 |
| Carrying amount – assets | - | 4 |
| Carrying amount – liabilities | 332 | 40 |
| Change in the fair value of the hedging instrument, on the basis of which hedge inefficiency is estimated | -296 | -57 |
| Profit or loss arising out of net position hedge, captured in a separate line item of other comprehensive income | -226 | 43 |
| Hedge inefficiency amount recognized in the profit and loss account | - | - |
| Amount transferred from cash flow hedge accounting capital to the profit and loss account as reclassification adjustment | -70 | -100 |
| Hedged items | ||
| Amount equal to the change in the fair value of a hypothetical derivative representing the hedged item, which forms the basis for estimating hedge inefficiency in the period | 296 | 58 |
| Balance of the hedge accounting capital item for relations, for which hedge accounting will be continued after the end of the reporting period | -169 | 57 |
| Balance remaining in the hedge accounting capital item for those relations, to which hedge accounting is no longer applied | - | - |
35.2.2.7. Movement in the revaluation reserve and non-controlling interests resulting from the measurement of the hedging derivatives in hedge accounting
| Revaluation reserve and non-controlling interests resulting from the measurement of the hedging derivatives in hedge accounting | 31 December 2021 | 31 December 2020 |
| Beginning of the period | 843 | 190 |
| Profits or losses resulting from hedging – recognized in other comprehensive income | -3 678 | 653 |
| Interest rate risk | -3 443 | 596 |
| Interest rate risk and currency risk | -235 | 57 |
| End of the period | -2 835 | 843 |