Market risk

Market risk is the possibility of incurring losses as a result of changes in the market prices of on- and off-balance-sheet positions of the trading portfolio. Bankinter measures value at risk using the historical VaR methodology using one-year data and a 95% confidence interval.

An asset portfolio's value at risk (VaR) is the estimated maximum potential loss that could be incurred for a specific time horizon with a particular confidence level. Given the instability in recent years, Bankinter maintained the VaR limits from the previous year. 

The following chart details the VaR values of the trading positions at 2016 year-end.

Moreover, the VaR of the portfolio positions of the subsidiary Línea Directa Aseguradora are monitored on a monthly basis using historical simulation methodologies. The VaR of the Línea Directa Aseguradora portfolio at 31 December was 2.10 billion euros. The risk that may be incurred by the subsidiary Bankinter Luxembourg is also monitored. Using this same methodology, the VaR was estimated at 0.06 million euros.

Stress testing, or analysis of adverse scenarios, is a test complementary to the VaR. 

Stress test estimates quantify the potential loss that extreme changes in risk factors could cause to the portfolio's value. The scenarios are obtained based on analysing the behaviour of these risk factors (interest rates, stock markets, exchange rates, credit spreads and volatility) under historic conditions, simulating their impact on the portfolio. The changes observed in relevant historic crises are also simulated.

The following table details the estimated data of the stress tests on the Bank's trading positions at the end of 2016, performed under a scenario of extreme changes in the different risk variables.

If the same scenarios are applied to the positions of the Línea Directa Aseguradora and Bankinter Luxembourg portfolios at the end of the year, the stress would reach 42.26 million euros and 0.75 million euros, respectively.