Market and Counterparty Risk

Less than 4% of the Institution's Basic Capital for Market and Counterparty Risk is assigned to business portfolios, favoring Capital for credit operations, as this is the Institution's main activity. At the end of December 2020, the capital requirement for said risks represents less than 12% of the Institution’s total capital requirement.

Market and Counterparty Risk is controlled for the portfolios operated within the Institution:

Money Desk

It is the leading portfolio and consists of debt securities repurchase agreements with terms shorter than three days. These, for the most part, are reviewable government securities with low exposure to Market and Counterparty Risk.

The Investment Regime, approved by the Board of Directors and the CAIR, determines the Market Risk profile. It has not presented changes in the last two years.

The composition of the portfolio was as follows, as of December 2020:

The risk positions have been kept within the authorized Market and Counterparty Risk Limits. Likewise, the portfolio has presented a favorable performance with profitability exceeding the institutional minimum.

Foreign Exchange

The Foreign exchange portfolio corresponds to foreign currency purchase and sale operations. The operation is subject to Risk Limits, and intake has been within the authorized levels. This business unit has generated sufficient profits to show profitability exceeding the institutional minimum. These are spot operations that do not incur counterparty risk.

Derivatives

This portfolio consists of swaps and rate and currency options sold to the Institution's clients to cover their Balance exposures to Risk factors, such as interest rates or exchange rates. To mitigate these operations exposure to Market Risk, the Institution contracts a hedge with high credit quality financial institutions with the same financial characteristics. The policy for hedge contracting has been in force since the beginning of operations, so the consolidated position has been fully compensated during the last five years. In view of the foregoing, the Market Risk of this portfolio is fully neutralized and falls within the established Risk Limits.

Regarding Counterparty Risk, operations are carried out only with eligible institutional clients with a credit line authorized by the corresponding authorities, whose guarantees must be sufficient and shared with the main credit that caused the rate or the exchange exposure.

Derivative instruments for Hedging Strategies involve low counterparty risk since:

Derivatives operations are carried out with First Tier Credit Risk Institutions that meet the counterparty eligibility and selection criteria.
Financial Institutions dispose of a line of credit authorized by the corresponding internal instances.
Daily margin calls are established, as per institutional policy, in the credit annex of the ISDA contract that is entered into with the counterparties.