The quantitative risk data relating to interest rate risk required by IFRS 7 is presented in the form of a sensitivity analysis. This method determines the effects of hypothetical changes in market interest rates on interest income, interest expense and equity as at the reporting date. The following assumptions are used as a basis for the sensitivity analysis:
Primary variable-rate financial instruments are subject to interest rate risk and must therefore be included in the sensitivity analysis. Primary variable-rate financial instruments that were transformed into fixed-income financial instruments using cash flow hedges are not included. Changes in market interest rates for derivative financial instruments used as a cash flow hedge affect equity by changing fair values and must therefore be included in the sensitivity analysis. Fixed-income financial instruments measured at amortised cost are not subject to interest rate risk.
Designated fair value hedges of interest rate risk are not included in the analysis because the interest-related changes in fair value of the hedged item and the hedging transaction almost fully offset each other in profit or loss for the period. Only the variable portion of the hedging instrument affects net finance costs/net financial income and must be included in the sensitivity analysis.
If the market interest rate level as at 31 December 2010 had been 100 basis points higher, net financial income would have decreased by €4 million (previous year: increased by €6 million). A market interest rate level 100 basis points lower would have had the opposite effect. A change in the market interest rate level by 100 basis points would affect the fair values of the interest rate derivatives recognised in equity. A rise in interest rates in this financial year would not have increased equity (previous year: €24 million), nor would a reduction have reduced equity (previous year: €30 million). The significant decrease in sensitivity is attributable to the early settlement of an interest rate swap that had been accounted for as a cash flow hedge in the previous year.
As in the previous year, most of the risks arising from commodity price fluctuations, in particular fluctuating prices for kerosene and marine diesel fuels, were passed on to customers via operating measures. In addition, a small number of commodity swaps for diesel were used to control residual risks. The notional amount of commodity swaps was €42 million (previous year: €16 million) with a fair value of €5 million (previous year: €1 million).
IFRS 7 requires the disclosure of a sensitivity analysis, presenting the effects of hypothetical commodity price changes on profit or loss and equity. Changes in commodity prices would affect the fair value of the derivatives used to hedge highly probable forecast commodity purchases (cash flow hedges) and the hedging reserve in equity. Since all commodity price derivatives are accounted for as cash flow hedges, changes to the commodity prices would affect equity, but not profit or loss.
A 10% increase in the commodity prices underlying the derivatives as at the balance sheet date would have increased fair values and hence equity by €5 million (previous year: €1 million). A corresponding decline in commodity prices would have had the opposite effect.
Balance sheet risks associated with changes in share prices arise for the Group from the derivative financial instruments on the Deutsche Postbank AG shares held by Deutsche Post AG entered into under the Amendment Agreement Regarding the Acquisition of Shares in Deutsche Postbank AG. In addition to a forward on 60 million Deutsche Postbank shares, put and call options on 26,417,432 shares were agreed. The contractual partner in both cases is Deutsche Bank AG.
The fair value of the forward was €1,653 million as at 31 December 2010 (previous year: €0 million). The forward was not capitalised at 31 December 2009, in accordance with the exemption provided in IAS 39.2 (g). The net fair value of the options was €736 million as at 31 December 2010 (previous year: €647 million). Changes in the fair value of the forward and the options are included in net finance costs/net financial income until the instruments are exercised or expire. Had the fair value of Postbank shares been 10% lower as at 31 December 2010, the net fair value of the share price derivatives would have increased by €180 million, generating additional income of €180 million (previous year: €60 million from the Postbank share options only) in net financial income. An increase in Postbank shares would have had the opposite effect and would have resulted in a charge to net financial income.
If, based on the quoted exchange price of Deutsche Postbank shares, the fair value falls below the carrying amount of the equity investment, a write-down is recognised. It is reversed up to the amount of amortised cost in accordance with the equity method, should the share price increase.