Page 155 - Suncorp_Review

Suncorp Group Limited Annual Report 2010/11 153

(c) Non-traded interest risk

Net interest earnings sensitivity

The Bank measures the risk to the net interest earnings over the next 12 months from a change in interest rates on at least a monthly basis. A simulation model is used to combine underlying fnancial position data with assumptions about new business and expected repricing behaviour to calculate the Bank’s net interest income at risk. The analysis is generally based on contractual repricing information.

The scenario analysis below shows the potential percentage change in net interest earnings in the ensuing 12 month period based on a 1% parallel shock in the yield curve.

BANKING

Change in net interest earnings p.a. 2011 2010 % %

Banking non-traded interest rate risk exposure scenario analysis based on 1% parallel shock in the yield curve

Exposure at end of fnancial year 1.34 0.32 Average monthly exposure during the fnancial year 1.60 1.04 High month exposure during the fnancial year 2.13 2.28 Low month exposure during the fnancial year 0.92 –

Present value sensitivity

As a measure of longer term sensitivity, the Bank measures the present value sensitivity of its statement of fnancial position which represents the present value of the net interest income at risk of all known cash fows in the future. A pre-defned adverse interest rate shock is applied to the market curve and the statement of fnancial position is revalued. The difference between the present value of the statement of fnancial position using the market curve and the shocked curve shows the sensitivity of the present value of the statement of fnancial position to the pre-defned shock.

The following table indicates the potential adverse change in present value sensitivity of the Bank’s statement of fnancial position. The change is based on an adverse 1% shock.

BANKING

Change in net interest income p.a. 2011 2010 $m $m

Banking non-traded interest rate risk exposure – sensitivity of present value of net interest income from statement of fnancial position based on adverse 1% shock

Exposure at end of fnancial year 10 22 Average monthly exposure during the fnancial year 9 27 High month exposure during the fnancial year 13 60 Low month exposure during the fnancial year 2 3