Financial Strategy
WE ALWAYS PLAN THE SAFEST ROUTE

Risk management

CA Auto Bank‘s Treasury department coordinates funding and treasury operating activities for all companies in the group, in compliance with group Risk Management Policies. These policies, issued by the Board of Directors, establish its objectives, instruments and limits in:

• Interest rate risk
• Exchange rate risk
• Counterparty risk
• Liquidity risk

Interest rate risk management

Interest rate risk is related to the nature of the subsidiaries’ portfolios, which are mainly composed of fixed-rate assets-Retail Financing and Rental-while debt at the group level carries both floating and fixed rates. To manage this type of risk, we take action to protect the consolidated interest spread from the impacts of changes in interest rates by matching the maturity profile of liabilities (based on the interest rate recalculation date) with the maturity profile of the asset portfolio.

To this end, we use derivative contracts to hedge against the risks of rising interest rates and foreign exchange rates. To calculate interest rate risk exposure, these methodologies are followed:

• Reset Gap Analysis: identifies the difference between the amount of assets and liabilities with reset date in the same time range;
• Duration Analysis: analyzes the difference between the tenor of financial assets and liabilities based on the reset date.

To ensure compliance with the limits imposed by the Group’s Risk Management Policies, the Treasury department uses a combination of derivative instruments (of the Interest Rate Swap and Forward Rate Agreement type) for the purpose of appropriately modifying the mismatches shown above. Since the beginning of 2007, we have adopted the Fair Value Hedge approach. However, this hedge is not applied to derivative financial instruments entered into to hedge the indebtedness of companies active in the Rental sector, for which we continue to use the Cash Flow Edge approach.

Exchange rate risk management

Exchange rate risk concerns portfolios in currencies other than the euro and funded in euros.
Exposure to this type of risk arises from a currency mismatch between assets and liabilities and is measured as the net amount between assets and liabilities denominated in currencies other than the Euro. Derivative instruments, such as Cross Currency Swaps and Foreign Exchange Swaps, are used to hedge the exposure. Risk management policies require the hedging of exposure, so only hedging transactions are permitted.

Counterparty and liquidity risk management

Counterparty risk relates only to deposit and derivative transactions entered into with third-parties while liquidity risk is related to the refinancing of funding and the terms of such refinancing. We do not use hedging instruments for counterparty risks. The Company operates with adequate credit lines within stringent ratings and limits on amount and tenor of exposures, as outlined in Risk Management policies. Exposure to counterparty risk is minimized through the use of standard derivative contracts (ISDA) and very short-term liquidity investments, limiting operations to counterparties of primary standing and in possession of adequate ratings, again in accordance with the criteria defined by Risk Management policies.

As for liquidity risk management, our goal is to fully fund maturing assets for each time interval, while maintaining a substantial liquidity base through a combination of cash and credit lines.

As contractually required, the Group can count on the availability of financing from its banking partner Crédit Agricole Consumer Finance to cover its requirements, so that refinancing risk is substantially eliminated.

Finally, we would like to recall that CA Auto Bank will be subject to compliance with the Liquidity Coverage Ratio in the manner defined by current regulations.