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Financial risk management | 12 Months Ended
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Dec. 31, 2021
Disclosure of nature and extent of risks arising from financial instruments [abstract] |
Financial risk management |
6 | Financial risk management
The Group’s financial risk management covers credit, market, liquidity and operational risks. Management activities are carried out by specific and specialized structures, according to policies, strategies and processes described for each of these risks with the objective of identifying and measuring possible impacts and solutions and ensuring the continuity and the quality of the Group’s business. The model adopted by the Group includes: Segregation of function; Specific structure for risk management; Defined management process; Decisions at various hierarchical levels; Clear norms and competence structure; Defined limits and margins; and Reference to best management practices. Risk management practices adopted by the Group are designed to be in line with the recommendations of Pillar III of the Basel Committee for both qualitative and quantitative aspects.
a. | Credit risk
The definition of credit risk includes, among others: Counterparty risk: possibility of a failure, by a given counterparty, to honor obligations regarding the settlement of transactions involving the trading of financial assets, including those related to the settlement of derivative financial instruments. Principal risk: possibility of disbursements to honor sureties, guarantees, co-obligations, credit commitments, or other such operations of a similar nature. Risk of intermediary: possibility of losses associated with a failure to comply with agreed financial obligations by an intermediary or a party to a covenant for loans and advances to customers. Concentration risk: possibility of credit losses arising from significant exposure to a borrower or counterparty, a risk factor, a group of borrowers or counterparties related through common characteristics. Credit risk management aims to identify, evaluate, control, mitigate and monitor risk exposure, to contribute to safeguarding the Group’s financial solidity and solvency and ensure alignment with shareholders´ interests. In order to ensure that the loan process is aligned with the strategic objectives, the Group establishes in its Credit Risk Policy: ●The evaluation of the ability to pay and likelihood of loss for each customer; ●The establishment of limits for transactions with individuals and legal entities; ●The definition of how credit shall be released to the customer; and ●The monitoring and tracking of portfolios subject to credit risk. The Group has a structured process in order to maintain the diversification of its portfolio regarding the concentration of the largest debtors per geographical region, segment and sector of activity. Mitigation of Exposure In order to maintain the exposures within the risk levels established by senior management, the Group adopts measures to mitigate credit risk. Exposure to credit risk is mitigated through the structuring of guarantees, adapting the risk level to be incurred to the characteristics of the collateral taken at the time of granting. Risk indicators are monitored on an on-going basis and proposal for alternatives forms of mitigation are assessed, whenever the exposure behavior to credit risk of any unit, region, product or segment requires it. Additionally credit risk mitigation takes place through product repositioning and adjusting operational processes or operation approval levels. In addition to the activities described above, goods pledged in guarantee are subject to a technical assessment / valuation at least once every twelve months. In the case of personal guarantees, an analysis of the financial and economic circumstances of the guarantor is made considering their other debts with third parties, including tax, social security and labor debt. Credit standards guide operational units and cover, among other aspects, the classification, requirement, selection, assessment, formalization, control and reinforcement of guarantees, aiming to ensure the adequacy and sufficiency of mitigating instruments throughout the cycle of the loan. In 2021 and 2020 there were no material changes to the nature of the credit risk exposures, how they arise or the Group’s objectives, policies and processes for managing them, although the Group continues to refine its internal risk management processes. Measurement The measurement of credit risk by the Group is carried out considering the following:
| ● | At the time that credit is granted, an assessment of a customer’s financial condition is undertaken through the application of qualitative and quantitative methods and using information collected from the market, in order to support the adequacy of the risk exposure being proposed;
| ● | The assessment is carried out at the counterparty level, considering information on guarantors where applicable. The exposure to the credit risk is also measured in extreme scenarios, using stress techniques and scenario analysis. The models applied to determine the rating of clients and loans are reviewed periodically in order to ensure they reflect the macroeconomic scenario and actual loss experience;
| ● | The aging of late payments in portfolios is monitored in order to identify trends or changes in the behavior of non-performing loans and allow the adoption of mitigating measures when required;
| ● | Expected credit loss reflects the risk level of loans and allows monitoring and control of the portfolio’s exposure level and the adoption of risk mitigation measures;
| ● | The expected credit loss is a forecast of the risk levels of the credit portfolio. Its calculation is based on the historical payment behavior and the distribution of the portfolio by product and risk level. This is a key input to the process of pricing loans and advances to customers; and
| ● | In addition to the monitoring and measurement of indicators under normal conditions, simulations of changes in business environment and economic scenario are also performed in order to predict the impact of such changes in levels of exposure to
|  | risks, provisions and balance of such portfolios and to support the process of reviewing the exposure limits and the credit risk policy.
The following tables present the loans and advances to customers by credit risk rating grade where AA is the highest rating and HH the lowest. The Group considers customers with a rating of AA to C to be low risk and customers with a rating of D to HH to be high risk. ​
​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | 12/31/2021
Rating |  | Low Risk |  | High Risk |  | Total
Loans and advances to customers |  |  |  |  |  |
AA |  | 6,174,695 |  | — |  | 6,174,695
A |  | 8,879,596 |  | — |  | 8,879,596
B |  | 738,198 |  | — |  | 738,198
C |  | 769,900 |  | — |  | 769,900
D |  | — |  | 218,136 |  | 218,136
E |  | — |  | 100,651 |  | 100,651
F |  | — |  | 77,135 |  | 77,135
G |  | — |  | 82,443 |  | 82,443
H |  | — |  | 175,608 |  | 175,608
​ | ​ | ​ | ​ | ​ | ​ | ​
Total |  | 16,562,388 |  | 653,973 |  | 17,216,362
​
​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | 12/31/2020
Rating |  | Low Risk |  | High Risk |  | Total
Loans and advances to customers |  |  |  |  |  |
AA |  | 4,191,808 |  | — |  | 4,191,808
A |  | 3,795,674 |  | — |  | 3,795,674
B |  | 271,617 |  | — |  | 271,617
C |  | 271,500 |  | — |  | 271,500
D |  | — |  | 66,789 |  | 66,789
E |  | — |  | 43,607 |  | 43,607
F |  | — |  | 27,699 |  | 27,699
G |  | — |  | 26,325 |  | 26,325
H |  | — |  | 90,912 |  | 90,912
HH |  | — |  | 4,127 |  | 4,127
​ | ​ | ​ | ​ | ​ | ​ | ​
Total |  | 8,530,599 |  | 259,458 |  | 8,790,058
​ The following tables present the loans and advances to customers by product and risk: ​
​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | 12/31/2021
​ |  | Low Risk |  | High Risk |  | Total
Loans and advances to customers | ​ | ​ | ​ | ​ | ​ | ​
Payroll Card | ​ | 55,753 | ​ | 9,510 | ​ | 65,263
Credit Card |  | 4,335,866 |  | 462,452 |  | 4,798,318
Overdraft protection agreement |  | 2,663 |  | 10,199 |  | 12,862
Check Account |  | 1,255 |  | 31,979 |  | 33,234
Payroll loans and personal credit* |  | 3,315,747 |  | 152,177 |  | 3,467,924
Business loans |  | 2,962,937 |  | 54,221 |  | 3,017,158
Real Estate loans |  | 4,782,312 |  | 339,099 |  | 5,121,411
Rural loans |  | 700,192 |  | — |  | 700,192
​ |  | 16,156,725 |  | 1,059,637 |  | 17,216,362
Amounts due from financial institutions |  |  |  |  |  |
Amounts due from financial institutions |  | 2,051,862 |  | — |  | 2,051,862
​ |  | 2,051,862 |  | — |  | 2,051,862
​ | ​ | ​ | ​ | ​ | ​ | ​
Derivative financial instruments |  |  |  |  |  |
Swap |  | 66,545 |  | — |  | 66,545
​ |  | 66,545 |  | — |  | 66,545
​
​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | 12/31/2020
​ |  | Low Risk |  | High Risk |  | Total
​ | ​ | ​ | ​ | ​ | ​ | ​
Loans and advances to customers | ​ | ​ | ​ | ​ | ​ | ​
Payroll Card |  | 64,570 |  | 3,162 |  | 67,732
Credit Card |  | 1,793,872 |  | 110,770 |  | 1,904,643
Overdraft protection agreement |  | 20,193 |  | — |  | 20,193
Checking Account overdraft |  | 10,660 |  | 3,572 |  | 14,232
Payroll loans and personal credit* |  | 1,510,962 |  | 40,437 |  | 1,551,399
Business loans |  | 1,580,682 |  | 2,186 |  | 1,582,868
Real Estate loans |  | 3,372,023 |  | 99,331 |  | 3,471,354
Rural loans |  | 177,637 |  | — |  | 177,637
​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | 8,530,599 |  | 259,458 |  | 8,790,058
Amounts due from financial institutions |  |  |  |  |  |
Amounts due from financial institutions |  | 502,369 |  | — |  | 502,369
​ |  | 502,369 |  | — |  | 502,369
​ | ​ | ​ | ​ | ​ | ​ | ​
Derivative financial instruments |  |  |  |  |  |
Swap |  | (56,758) |  | — |  | (56,758)
​ |  | (56,758) |  | — |  | (56,758)
​
(i) | Maximum exposure to credit risk:
​
​ | ​ | ​ | ​ | ​
​ |  | 12/31/2021 |  | 12/31/2020
Exposure to credit risk |  |  |  |
Balances of “Cash and cash equivalents” |  | 500,446 |  | 2,154,687
Amounts due from financial institutions |  | 2,051,862 |  | 502,369
Compulsory deposits at Banco Central do Brasil |  | 2,399,488 |  | 1,709,729
Derivative financial assets |  | 86,948 |  | 27,513
Loans and advances to customers |  | 17,216,362 |  | 8,790,058
Other financial assets |  | 12,757,687 |  | 5,812,622
Sub-total |  | 35,012,793 |  | 18,996,978
​ | ​ | ​ | ​ | ​
Financial guarantees provided |  | — |  | 127
Total exposure to credit risk |  | 35,012,793 |  | 18,997,105
​ The Group’s policies limit transactions to the amount of R$ 15 million for legal entities and 1% of the Regulatory capital for individuals. Loans and advances to customers exceeding such amounts must be approved by the Board of Directors.
(ii) | Description of guarantees
The financial instruments subject to credit risk are subject to careful assessment of credit prior to being contracted and disbursed and risk assessment is ongoing throughout the term of the instruments. Credit assessments are based on an understanding of each customer’s operational characteristics, their borrowing capacity and consider future cash flows as well as payment history, and any guarantees given. Loans and advances to customers, as shown in Note 11, are mainly represented by the following operations:
| ● | Working capital operations are guaranteed by receivables, promissory notes, sureties provided by their owners and occasionally by property or other tangible assets;
| ● | Payroll loans repayments are deducted directly from the borrowers’ pensions, annuities or salaries and settled directly by the entity responsible for making those payments (e.g. company or government body);
| ● | Personal loans and credit cards, generally, do not have guarantees; and
| ● | Real estate financing is collateralized by the real estate financed.
The portfolio of securities at FVOCI and amortized cost consists primarily of federal government bonds, considered to have a low credit risk. Repossessed collateral is generally sold at public auctions, free of any charges or encumbrances with no warranty or guarantee. ​ Guarantees on real estate loans The tables below presents the credit exposure of real estate loans by loan-to-value (LTV) ratio. LTV is calculated as the proportion of the gross value of the loan or the value of the outstanding loans to the value of collateral. The gross value of the loans excludes any provision for impairment and the value of the guarantee is its adjusted value – adjusted for changes in real estate price indexes: ​
​ | ​ | ​ | ​ | ​
​ |  | 12/31/2021 |  | 12/31/2020
​ | ​ | ​ | ​ | ​
Lower than 30 % |  | 582,421 |  | 467,960
31 – 50 % |  | 1,584,454 |  | 1,291,130
51 – 70 % |  | 2,116,015 |  | 1,314,740
71 – 90 % |  | 756,870 |  | 370,357
Higher than 90 % |  | 81,651 |  | 27,167
​ |  | 5,121,411 |  | 3,471,354
​
(iii) | Concentration of the portfolio of loans and advances to customers:
The concentration of the portfolio of loans and advances by product is as follows: ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | 12/31/2021 | ​ | 12/31/2020 |
​ | ​ | Balance | ​ | % | ​ | Balance | ​ | % |
Private Sector |  | ​ |  | ​ |  | ​ |  | ​ | ​
Payroll Card |  | 65,263 |  | 0.38 | % | 67,732 |  | 0.77 | %
Credit Card |  | 4,798,318 |  | 27.85 | % | 1,904,643 |  | 21.67 | %
Overdraft Protection Agreement |  | 12,862 |  | 0.07 | % | 20,193 |  | 0.23 | %
Check Account overdraft |  | 33,234 |  | 0.19 | % | 14,232 |  | 0.16 | %
Payroll loans and personal credit |  | 3,467,924 |  | 20.14 | % | 1,551,399 |  | 17.65 | %
Business loans |  | 3,017,158 |  | 17.52 | % | 1,582,868 |  | 18.01 | %
Real Estate loans |  | 5,121,411 |  | 29.75 | % | 3,471,354 |  | 39.49 | %
Rural loans |  | 700,192 |  | 4.07 | % | 177,637 |  | 2.02 | %
Total Portfolio |  | 17,216,362 |  | 100 | % | 8,790,058 |  | 100 | %
​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | 12/31/2021 | ​ | 12/31/2020 |
​ |  | ​ |  | % on Loans |  | ​ |  | % on Loans |
​ | ​ | ​ | ​ | and advances | ​ | ​ | ​ | and advances |
​ | ​ | Balance | ​ | to customers | ​ | Balance | ​ | to customers |
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Largest debtor |  | 274,262 |  | 1.59 | % | 144,821 |  | 1.65 | %
Total of the 20 largest debtors |  | 2,034,977 |  | 11.82 | % | 2,145,985 |  | 24.41 | %
Total of the 50 largest debtors |  | 2,627,038 |  | 15.26 | % | 1,695,446 |  | 19.29 | %
Total of the 100 largest debtors |  | 3,138,861 |  | 18.23 | % | 2,157,462 |  | 24.54 | %
​ The breakdown of loans and advances to customers by maturity is as follows: ​
​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | 12/31/2021
​ |  | To fall due |  | Overdue |  | Total
Installments to fall due |  | ​ |  | ​ |  | ​
Overdue by fewer than 15 days and to fall due within 90 days |  | 2,849,136 |  | — |  | 2,849,136
To fall due between 91 and 360 days |  | 3,868,156 |  | — |  | 3,868,156
To fall due in more than 360 days |  | 8,732,081 |  | — |  | 8,732,081
Total to fall due |  | 15,449,373 |  | — |  | 15,449,373
​ | ​ | ​ | ​ | ​ | ​ | ​
Overdue installments |  |  |  |  |  |
Overdue by 15 days or more |  | — |  | 1,766,989 |  | 1,766,989
Total overdue |  | — |  | 1,766,989 |  | 1,766,989
​ | ​ | ​ | ​ | ​ | ​ | ​
Total Portfolio |  | 15,449,373 |  | 1,766,989 |  | 17,216,362
​
​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | 12/31/2020
​ |  | To fall due |  | Overdue |  | Total
Installments to fall due |  |  |  |  |  |
Overdue by fewer than 15 days and to fall due within 90 days |  | 2,593,572 |  | — |  | 2,593,572
To fall due between 91 and 360 days |  | 1,357,068 |  | — |  | 1,357,068
To fall due in more than 360 days |  | 4,637,604 |  | — |  | 4,637,604
Total to fall due |  | 8,588,244 |  | — |  | 8,588,244
​ | ​ | ​ | ​ | ​ | ​ | ​
Overdue installments |  |  |  |  |  |
Overdue by 15 days or more |  | — |  | 201,814 |  | 201,814
Total overdue |  | — |  | 201,814 |  | 201,814
​ | ​ | ​ | ​ | ​ | ​ | ​
Total Portfolio |  | 8,588,244 |  | 201,814 |  | 8,790,058
​
b. | Liquidity risk
Liquidity risk is the possibility that the Group is not able to efficiently meet its expected or unexpected obligations, including those resulting from binding guarantees, without incurring significant losses. This also includes the possibility of the Group not being able to negotiate a sale of an asset at market price due to its volume in relation to the volume normally transacted or due to any discontinuity in the market. The liquidity risk management structure is segregated and works proactively with the aim of monitoring and preventing any breach of limits on liquidity ratios. The monitoring of liquidity risk encompasses the entire flow of receipts and payments for the Group so that risk mitigating actions may be implemented. This monitoring is carried out primarily by the Assets and Liabilities Committee and the Risk and Capital Management Committee. These committees evaluate liquidity risk information that is available in the Group’s systems, such as: Top 10 investors; Mismatch between assets and liabilities; Net Funding;Liquidity limits;Maturity forecast; Stress tests based on internally defined scenarios; Liquidity contingency plans;Monitoring of asset and liability concentrations; Monitoring of Liquidity Ratio and funding renewal rates; and Reports with information on positions held by Inter and its subsidiaries. In 2021 and 2020 there were no material changes to the nature of the liquidity risk exposures, how they arise or the Group’s objectives, policies and processes for managing them, although the Group continues to refine its internal risk management processes. The responsibilities of the Liquidity Risk Management Framework are distributed between different committees and hierarchical levels, including: Board of Directors, Asset and Liability Committee (ALC), Officer in charge of Risk Management, Superintendent of Compliance, Risk Management and Internal Controls and Risk Coordination. These consider the internal and external factors affecting the liquidity of the Group, and a detailed daily monitoring of incoming and outgoing movements of loans and advances to customers, time deposits, Agribusiness Credit Bills (LCA), Real Estate Secured Bonds (LCI), Guaranteed Real Estate Letters (LIG) and demand deposits is performed. Time deposits are analyzed according to the concentration, maturities, renewals, repurchases and new funding.
(i) | Liquidity ratios
Inter performs a Short-, Medium- and Long-term liquidity ratio analysis, calculated based on the ratio between liquid assets and net outflows during each period. The Liquidity Coverage Ratio (LCR) is the ratio of liquid assets to cash outflows in a standardized stress scenario for a period of 30 days, and the findings are interpreted as follows: ​
​ | ​ | ​ | ​
Interpretation of LCR with regard to minimum |  | Situation |
​ | ​ | ​ | ​
LCR below 3.00 times | ​ | Critical | ​
LCR above 2.99 and below 5.00 times | ​ | Satisfactory | ​
LCR above 4.99 and below 8.00 times | ​ | Comfortable | ​
LCR above 7.99 | ​ | Excess liquidity | ​
​
(ii) | Analysis of financial instruments by remaining contractual term
The table below presents the projected future realizable value of the Group’s financial assets and liabilities by contractual term: ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | 12/31/2021
​ |  | Explanatory |  | ​ |  | 3 months to 1 |  | ​ |  | ​
​ | ​ | note | ​ | Up to 3 months | ​ | year | ​ | Above 1 year | ​ | Total
Financial assets | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Cash and cash equivalents |  | 8 |  | 500,446 |  | — |  | — |  | 500,446
Compulsory deposits at Banco Central do Brasil |  | 10b |  | 2,399,488 |  | — |  | — |  | 2,399,488
Amounts due from financial institutions |  | 10 |  | 2,051,862 |  | — |  | — |  | 2,051,862
Securities |  | 12 |  | 474,509 |  | 203,451 |  | 12,079,727 |  | 12,757,687
Derivative Financial Instruments |  | 9 |  | 86,948 |  | — |  | — |  | 86,948
Loans and advances to customers |  | 11 |  | 4,616,124 |  | 3,868,156 |  | 8,732,082 |  | 17,216,362
Other assets |  | 17 |  | 687,336 |  | 28,012 |  | 77,387 |  | 792,735
Total financial assets |  | ​ |  | 10,816,713 |  | 4,099,619 |  | 20,889,196 |  | 35,805,528
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Financial liabilities |  |  |  |  |  |  |  |  |  |
Liabilities with financial institutions |  | 18 |  | 5,306,020 |  | 35,444 |  | — |  | 5,341,464
Liabilities with customers |  | 19 |  | 11,360,378 |  | 6,956,400 |  | 16,765 |  | 18,333,543
Securities issued |  | 20 |  | 112,591 |  | 3,349,639 |  | 109,863 |  | 3,572,093
Derivative financial instruments liabilities |  | 9 |  | — |  | 29,452 |  | 37,093 |  | 66,545
Borrowing and onlending |  | 21 |  | 99 |  | 1,087 |  | 23,886 |  | 25,071
Other liabilities |  | 24 |  | 374,327 |  | 134,744 |  | 108,277 |  | 617,349
Total financial liabilities |  | ​ |  | 17,153,415 |  | 10,506,766 |  | 295,884 |  | 27,956,065
​ ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | 12/31/2020
​ |  | Explanatory |  | Up to 3 |  | 3 months |  | Above 1 year |  | Total
​ | ​ | note | ​ | months | ​ | to 1 year | ​ | ​ | ​ | ​
Financial assets |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | 8 |  | 2,154,687 |  | — |  | — |  | 2,154,687
Compulsory deposits at Banco Central do Brasil |  | 10b |  | 502,369 |  | — |  | — |  | 502,369
Amounts due from financial institutions |  | 10 |  | 1,207,383 |  | 502,346 |  | — |  | 1,709,729
Securities |  | 12 |  | 196,927 |  | 161,356 |  | 5,454,339 |  | 5,812,622
Derivative Financial Instruments |  | 9 |  | 6,510 |  | 21,003 |  | — |  | 27,513
Loans and advances to customers |  | 11 |  | 2,795,385 |  | 1,357,068 |  | 4,637,605 |  | 8,790,058
Other assets |  | 17 |  | 409,465 |  | 27,373 |  | 81,844 |  | 518,681
Total financial assets |  | ​ | ​ | 7,272,726 |  | 2,069,146 |  | 10,173,788 |  | 19,515,660
Financial liabilities |  |  |  |  |  |  |  |  |  |
Liabilities with financial institutions |  | 18 |  | 1,706,681 |  | 50,232 |  | — |  | 1,756,913
Liabilities with customers |  | 19 |  | 7,550,562 |  | 607,077 |  | 4,278,993 |  | 12,436,632
Securities issued |  | 20 |  | 80,924 |  | 505,572 |  | 1,142,940 |  | 1,729,436
Derivative financial instruments liabilities |  | 9 |  | — |  | 20,767 |  | 35,991 |  | 56,758
Borrowing and onlending |  | 21 |  | 104 |  | 1,145 |  | 26,156 |  | 27,405
Other liabilities |  | 24 |  | 475,420 |  | — |  | — |  | 475,420
Total financial liabilities |  | ​ | ​ | (9,813,691) |  | (1,184,793) |  | (5,484,079) |  | (16,482,563)
​
c. | Market risk
Market risk is the possibility of losses due to changes in stock prices, interest rates, exchange rates, price indexes and commodity prices. In essence, market risk is the risk arising from movements in the markets to which Inter has exposure. Price indexes are also treated as a risk factor. Market risk is controlled by an area independent of the business units, which is responsible for the daily activities: (i) measuring and assessing risk, (ii) monitoring stress scenarios, limits and alerts, (iii) applying, analyzing and stress testing scenarios, (iv) reporting risk to the individuals responsible in the business units, in compliance with internal governance, (v) monitoring the measures needed to adjust positions and/or risk levels. In general, the market risk positions are controlled by models such as (i) delta EVE - Economic Value of Equity ; (ii) delta NII - Net Interest Income ; (iii) DV01 - delta variation risk and (iv) value at risk, as well analyzed (and monitored) by the Asset and Liability Committee.
| ● | ∆EVE (Delta Economic Value of Equity) is defined as the difference between the present value of the sum of repricing flows of instruments in a base scenario, and the present value of the sum of repricing flows of the same instruments in an interest-rate shocked scenario.
This metric measures the sensibility of banking book to strong changes in interest rates.
| ● | ∆NII (Delta Net Interest Income) is defined as the difference between the result of financial intermediation of instruments in a base scenario, and the result of financial intermediation of the same instruments in an interest-rate shocked scenario.
| ● | Sensitivity (DV01 – Delta Variation Risk): impact on the market value of cash flows when a 1 basis point change is applied to current interest rates or on the index rates.
| ● | Value at Risk (VaR): a statistical metric that quantifies the maximum potential economic loss expected in normal market conditions, considering a defined holding period and confidence interval. The VaR calculation is considering a parametric model with 99% of confidence level and holding period of 21 days. The volatility is calculated considering Exponential Weighted Moving Average model with a lambda of 0,94 to 252 workdays.
The Group segregates its market risk exposures, including derivative financial instruments, as follows:
| 1) | Trading Book: basically composed of operations contracted with the intention of trading or intended to hedge account; and
| 2) | Banking Book: basically composed of operations contracted with the intention of being held until their maturities.
The market risk of Trading Book, considering the VaR model, is presented in the following table: ​
​ | ​ | ​ | ​ | ​
R$Thousand |  | 2021 |  | 2020
Risk Factor | ​ | 21 days - holding period
Price index coupons |  | 4,882 |  | 4,262
Pre fixed interest rate |  | 83 |  | 6,319
Foreign currency coupons |  | — |  | 365
Exchange rates |  | 80 |  | 2,014
Shares prices |  | 1,599 |  | 4,056
Others |  | — |  | 22,845
SubTotal |  | 6,645 |  | 39,861
Diversification effects (correlation) |  | 1,758 |  | 17,939
Value-at-Risk |  | 4,887 |  | 21,921
​ The market risk of Banking Book, calculated by the VaR model, is presented in the following table: ​
​ | ​ | ​ | ​ | ​
R$Thousand |  | 2021 |  | 2020
Risk Factor | ​ | 21 days - holding period
Price index coupons |  | 364,502 |  | 169,917
Pre fixed interest rate |  | 49,577 |  | 20,345
Interest rate coupons |  | 36,555 |  | 1,631
Share Price |  | 1,412 |  | 20,345
SubTotal |  | 452,045 |  | 191,893
Diversification effects (correlation) |  | 84,587 |  | 18,491
Value-at-Risk |  | 367,458 |  | 173,402
​ Sensitivity analysis The Group performs the sensitivity analysis by market risk factors considered relevant. The largest losses, by risk factor, in each of the scenarios were presented with an impact on profit or loss, providing a view of the exposure by risk factor of the Group in exceptional scenarios. The following table presents the estimated impact of three possible scenarios on the fair value of the Group’s market risk exposures: Scenario I: Probable situation which reflects the perception of the Group’s management in relation to the scenario with the highest probability of occurrence considering macroeconomic factors and market information observed in the period. Premise used: Increase or decrease of 1 basis point in the rates of each risk factor – the numbers presented represent the largest loss per risk factor and do not consider correlation. ​ Scenario II: Projects a possible variation of 25 percent in the rates of each risk factor. The numbers presented represent the largest loss per risk factor and do not consider correlation. Scenario III: Project a remote variation of 50 percent in the rates of each risk factor. The numbers presented represent the largest loss per risk factor and do not consider correlation. ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Exposures | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | 12/31/2021
Banking and Trading Portfolios | ​ | Scenarios
​ | ​ | ​ | ​ | variation rate | ​ | ​ | ​ | variation rate | ​ | ​ | ​ | variation rate | ​ | ​
Risk factors |  | Risk of variation in: |  | scenario I |  | scenario I |  | scenario II |  | scenario II |  | scenario III |  | scenario III
IPCA Coupon |  | Price index coupons |  | increase |  | (3,045) |  | increase |  | (378) |  | increase |  | (658,147)
IGP-M Coupon |  | Price index coupons |  | increase |  | (42) |  | increase |  | (6) |  | increase |  | (10,118)
Fixed |  | Fixed interest rates |  | decrease |  | (334) |  | decrease |  | (183) |  | decrease |  | (551,209)
TR Coupon |  | Interest rate coupons |  | increase |  | (813) |  | increase |  | (23) |  | increase |  | (226,744)
​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Exposures | ​ | ​ | ​ |  | ​ |  | ​ |  | ​ |  | ​ |  | ​ | 12/31/2020
Banking and Trading Portfolios | ​ | Scenarios
​ | ​ | ​ | ​ | variation rate | ​ | ​ | ​ | variation rate | ​ | ​ | ​ | variation rate | ​ | ​
Risk factors |  | Risk of variation in: |  | scenario I |  | scenario I |  | scenario II |  | scenario II |  | scenario III |  | scenario III
IPCA Coupon | ​ | Price index coupons | ​ | increase | ​ | (3,267) | ​ | increase | ​ | (233) | ​ | increase | ​ | (44,207)
IGP-M Coupon |  | Price index coupons |  | increase |  | (83) |  | increase |  | (8) |  | increase |  | (15,804)
Fixed |  | Fixed interest rates |  | increase |  | (162) |  | increase |  | (30) |  | increase |  | (56,739)
TR Coupon |  | Interest rate coupons |  | increase |  | (34) |  | increase |  | (5) |  | increase |  | (9,801)
​ The results of the sensitivity analysis of trading and banking portfolios are shown in the following table:
d. | Operational risk
Operational Risk Management aims to identify, assess and monitor risks. Policy Operational risk is defined as the possibility of losses resulting from failure, deficiency or inadequacy of internal processes, people and systems, or from external events. The Group has processes which aim to identify and, if possible, mitigate operational risks arising in its activities, minimizing the operational risks that are inherent to its business, complexity of products, services, activities, processes and systems Among the operational risk events, there are:
| ● | Internal frauds;
| ● | External frauds;
| ● | Labor demands and deficient safety at the working place;
| ● | Inadequate practices related to clients, products and services;
| ● | Damages to physical assets owned or used by the Group;
| ● | Interruption of the activities;
| ● | Failures in information technology systems; and
| ● | Failures in execution, fulfillment of deadlines and management of the activities.
For the purposes of Operational Risk minimum capital allocation (RWAopad portion), the Group adopted the Basic Indicator (BIA) methodology for its management. Phases of the Management Process Qualitative Evaluation The qualitative assessment uses a scale which considers measures for probability and impact, taking into account the vulnerabilities and threats that, combined, determine the level of risk exposure to each event. Identification and verification is performed by in-person monitoring, interviews and workshops with the managers and employees from all operational areas, business partners and business units. The identified risks are categorized and organized by risk factors. Quantitative Evaluation In the quantitative assessment of operational risk, the Group maintains an internal database fed by various sources of information. This contains descriptions and details of operational losses. In the quantitative assessment, information from external sources deemed reliable and relevant to the businesses of the Group may also be used. Monitoring An effective risk management process requires a communication and review structure that ensures the correct, effective and timely identification and assessment of the risks. In addition, it also seeks to assure that controls and responses to these risks are implemented. Control tests and regular audits intended to verify compliance with applicable policies and standards are performed. The monitoring and review process seeks to verify whether:
| ● | The adopted measures have achieved the intended results;
| ● | The procedures adopted and the information gathered to perform the assessment were appropriate;
| ● | Higher levels of knowledge may have contributed to make better decisions; and
| ● | There is an effective possibility of obtaining information for future assessments.

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- Definition The disclosure of information that enables users of financial statements to evaluate the nature and extent of risks arising from financial instruments to which the entity is exposed. [Refer: Financial instruments, class [member]] + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Name IFRS -Number 7 -IssueDate 2021-01-01 -Paragraph 31 -URI http://eifrs.ifrs.org/eifrs/xifrs-link?type=IFRS&num=7&code=ifrs-tx-2021-en-r&anchor=para_31&doctype=Standard -URIDate 2021-03-24 + Details
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