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 2022 Maturity |
31 December 2021 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 | – | – | 200 | – | 200 |
| Average interest rate of the fixed-rate part | – | – | 7.2 | – | 7.2 | – | – | 2.6 | – | 2.6 | |
| Par value | EUR | 94 | – | 760 | 152 | 1,006 | – | – | 699 | 287 | 986 |
| Average interest rate of the fixed-rate part | 2.4 | – | 1.0 | 1.1 | 1.1 | – | – | 0.0 | (0.1) | 0.0 | |
| Par value | USD | – | – | – | – | – | 102 | – | 701 | – | 803 |
| Average interest rate of the fixed-rate part | – | – | – | – | – | 3.7 | – | 1.4 | – | 1.7 | |
| Total | 94 | – | 960 | 152 | 1,206 | 102 | – | 1,600 | 287 | 1,989 | |
| Impact of the hedge relationship on the statement of financial position and the financial result | 31 December 2022 | 31 December 2021 | ||||
| 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 | 1,006 | 1,206 | 200 | 1,789 | 1,989 |
| Carrying amount – assets | 22 | 67 | 89 | 6 | – | 6 |
| Carrying amount – liabilities | – | 5 | 5 | – | 91 | 91 |
| Change in the fair value of the hedging instrument, on the basis of which hedge inefficiency is estimated | 16 | 168 | 184 | 33 | 68 | 101 |
| Hedge inefficiency amount recognized in the profit and loss account | 1 | 3 | 4 | 1 | 3 | 4 |
| Hedged items | ||||||
| Carrying amount – assets | 178 | 967 | 1,145 | 193 | 1,933 | 2,126 |
| 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 | (22) | (58) | (80) | (7) | 111 | 104 |
| Change in value of the hedged item used as the basis for estimating hedge inefficiency | (15) | (165) | (180) | (32) | (65) | (97) |
| 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 | – | – | – | – | – | – |
Fair value hedge of fixed-coupon debt securities denominated in PLN and EUR
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 2022 Maturity |
31 December 2021 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 | – | – | 250 | – | 250 |
| Average interest rate of the fixedrate part | – | – | 0.2 | – | 0.2 | – | – | 0.2 | – | 0.2 | |
| Par value | EUR | – | – | 157 | – | 157 | – | – | 154 | – | 154 |
| Average interest rate of the fixedrate part | – | – | 0.7 | – | 0.7 | – | – | 0.7 | – | 0.7 | |
| Total | – | – | 407 | – | 407 | – | – | 404 | – | 404 | |
| Impact of the hedge relationship on the statement of financial position and the financial result | 31 December 2022 | 31 December 2021 | ||||
| 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 | 157 | 250 | 407 | 154 | 250 | 404 |
| Carrying amount – assets | 16 | 20 | 36 | 15 | 3 | 18 |
| Carrying amount – liabilities | – | – | – | – | – | – |
| Change in the fair value of the hedging instrument, on the basis of which hedge inefficiency is estimated | (2) | 16 | 14 | 17 | 4 | 21 |
| Hedge inefficiency amount recognized in the profit and loss account | (1) | – | (1) | (3) | 1 | (2) |
| Hedged items | ||||||
| Carrying amount – assets | 422 | 144 | 566 | 182 | 158 | 340 |
| 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 | (6) | – | (6) | (14) | – | (14) |
| Change in value of the hedged item used as the basis for estimating hedge inefficiency | 1 | (16) | (15) | (20) | (3) | (23) |
| 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 | – | – | – | – | – | – |