The Group is subject to a variety of risks and uncertainties in the normal course of its business activities. The principal business risks and uncertainties include general macro-economic conditions. The precise impact or probability of these risks cannot be predicted with certainty and many of them lie outside the Group's control. The Board has ultimate responsibility for the governance of all risk taking activity and has established a framework to manage risk throughout the Group.

In addition to general risks mentioned above, specific risks arise from the use of financial instruments. The principal risk categories identified and managed by the Group in its day-to-day business are credit risk, liquidity and funding risk, market risk and operational risk.

Asset and liability management

The management of NAMA's assets and liabilities is achieved through the implementation of strategies which have been approved by the Board. Day-to-day management is carried out by the NAMA Treasury team with transactions executed on NAMA's behalf by the NTMA.

As a result of acquiring loans and derivatives, NAMA is exposed to currency and interest rate risks. Foreign currency risk arises at the point of loan acquisition when EUR-denominated securities are issued as consideration for loan assets in GBP or other currencies, thereby creating an asset/liability currency mismatch for NAMA. NAMA also faces ongoing currency risks after loan acquisition as non-euro facilities are drawn, repaid or rescheduled and assets are disposed. NAMA is also exposed to interest rate risk on acquired loans and derivatives. The current and expected performance of a loan or derivative is a key driver in the assessment of the interest rate risk to be managed.

The Risk Management Committee and the Board have adopted a prudential liquidity policy which incorporates ongoing liquidity stress-testing and the maintenance of a minimum liquidity buffer or cash reserve. This buffer is kept under review in line with overall asset and liability management strategy.

Under Section 50 of the Act, NAMA may borrow such sums of money as are required for the performance of its functions under the Act. A short-term Euro Commercial Paper (ECP) programme was established in 2010 and preliminary work was carried out in preparation for the establishment of a Euro Medium-Term Note (MTN) Programme in 2010. However, given the net positive cash flow from NAMA activities, no issuance took place since the program was established in 2010.

Risk Oversight and Governance

Risk Management Committee

The Risk Management Committee, a subcommittee of the Board, oversees risk management and compliance throughout the Group. It reviews, on behalf of the Board, the key risks inherent in the business and ensures that an adequate risk management framework is in place to manage the Group's risk profile and its material exposures.

Audit Committee

The Audit Committee seeks to ensure compliance with financial reporting requirements. It reports to the Board on the effectiveness of control processes operating throughout the Group. It reports on the independence and integrity of the external and internal audit processes, the effectiveness of NAMA's internal control system, the processes in place for monitoring the compliance of the loan service providers with their contractual obligations to NAMA and compliance with relevant legal, regulatory and taxation requirements by NAMA.

Credit Committee

The Credit Committee is responsible for making credit decisions within its delegated authority from the Board. These include inter alia the approval of debtor asset management / debt reduction strategies, advancement of new money, approval of asset / loan disposals, the setting and approval of repayment terms, property management decisions and decisions to take enforcement action where necessary. The Credit Committee also makes recommendations to the Board in relation to specific credit requests where authority rests with the Board. It is also responsible for evaluating Credit and Risk policies for ultimate Board approval and will provide an oversight role in terms of substantial credit decisions made below the delegated authority level of the Credit Committee. Finally, the Credit Committee reviews management information prepared by the Asset Recovery and Asset Management functions in respect of the NAMA portfolio.

Audit and Risk – Chief Financial Officer (CFO) Division

The Audit and Risk unit is part of the CFO division of NAMA and is responsible for the co-ordination and monitoring of internal and external audit and risk. The unit supports the NAMA CFO to ensure that NAMA operates within the Board approved risk limits and tolerances. Audit and Risk is also responsible for the design and implementation of the NAMA Risk Management Framework. The unit provides an independent assessment and challenge of the adequacy of the control environment, it coordinates the internal and external audit activities across NAMA, Participating Institutions and Master Servicer and monitors and reports to the Audit Committee and Board the progress in addressing actions highlighted in audit findings.

Treasury – CFO Division

The Treasury unit has primary responsibility for managing market risk, liquidity and funding risk. Credit risk is dealt with in detail in Note 23.

NTMA Risk unit

The NTMA Risk unit provides market risk support to the Group. Furthermore the management of the Group's counterparty credit risk on market related transactions (derivatives and cash deposits), in line with the Board's policy, has also been delegated to the NTMA.

22.1 Market risk

Market risk is the risk of a potential loss in the income or net worth of the Group arising from changes in interest rates, exchange rates or other market prices.

Market risks arise from open positions in interest rate and currency products, all of which are exposed to general and specific market movements, and changes in the level of volatility of market rates or prices such as interest rates, credit spreads and foreign exchange rates. The Group is exposed to market risk on its loans and receivables, securities and derivative positions. While the Group has in place a comprehensive set of risk management procedures to mitigate and control the impact of movements in interest rates, foreign exchange rates and other market risks to which it is exposed, it is difficult to predict accurately changes in economic or market conditions or to anticipate the precise effects that such changes could have on the Group.

The Group's senior debt securities are denominated in euro, while a significant proportion of the Group's acquired assets are denominated in GBP and US dollars. As a consequence, the Group has made extensive use of foreign currency derivatives to manage the currency profile of its assets and liabilities. Similarly, interest rate swaps are used to manage mismatches in the Group's interest rate profile.

22.2 Market risk management

Objective

The Group has in place effective systems and methodologies for the identification and measurement of market risks in its statement of financial position. These risks are then managed within strict limits and in the context of a conservative risk appetite that is consistent with the NAMA legislation.

Policies

The management of market risk within the Group is governed by market risk policies approved by the Risk Management Committee and the Board. The Board approves overall market risk tolerance and delegates the lower level limit setting to the Risk Management Committee. The management of the Group's key market risks (such as interest rate and foreign exchange risk) is centralised within the Group's Treasury unit. NAMA's Audit and Risk unit provides oversight and is responsible for the monitoring of the limit framework within the context of limits approved by the Risk Management Committee and Board. Market risk support is provided by the NTMA Risk unit.

Risk mitigation

Risk mitigation involves the matching of asset and liability risk positions to the maximum extent practicable, and the use of derivatives to manage cash flow timing mismatch and interest rate sensitivity within the approved limit structure. The Group's Balance Sheet policies are designed to ensure a rigorous system of control is in place which includes prescribing a specific range of approved products and limits that cover all of the risk sensitivities associated with approved products.

The Group provides monthly reporting to the Risk Management Committee with detailed analysis of all significant risk positions and compliance with risk limits. In addition to market risk position limits, stress testing is used to gauge the impact on the Group's position of a range of extreme market scenarios. Scenario based stress tests and long run historic simulations (going back to the 1990s) on current positions are used to assess and manage market risk.

The Risk Management Committee reviews, approves and makes recommendations concerning the market risk profile and limits across the Group. In addition, a Market Risk Management Group, comprising senior managers from the NAMA CFO Division and the NTMA Risk unit meets regularly to review the market risk position and ensure compliance with the decisions of the Board and the Risk Management Committee. The weekly report produced by the NTMA Risk unit includes detailed analysis of all significant risk positions and compliance with risk limits.

22.3 Market risk measurement

22.3.1 Interest rate risk

The Group acquired fixed and variable rate loans from the Participating Institutions, as well as derivatives that were used to convert (for debtors) variable rate loans to fixed rate loans. In addition, the Group has issued floating rate securities and has entered into derivative transactions to manage mismatches in its asset and liability profile. The Group employs risk sensitivities, risk factor stress testing and scenario analysis to monitor and manage interest rate risk. Risk sensitivities are calculated by measuring an upward parallel shift in the yield curve to assess the impact of interest rate movements.

Information provided by the sensitivity analysis does not necessarily represent the actual change in fair value that the Group would incur under normal market conditions because, due to practical limitations, all variables other than the specific market risk factors are held constant.

The following tables summarise the Group's and the Agency's time-bucketed (defined by the earlier of contractual re-pricing or maturity date) exposure to interest rate re-set risk. It sets out, by time bucket, the assets and liabilities which face interest rate re-setting.

Financial instruments are shown at nominal amounts. These tables take account of hedging instruments which have the effect of significantly reducing interest rate sensitivity.

Interest rate risk Group 31 December 2013	0-6 months €'000	Greater than 6 months €'000	Non-interest bearing €'000	Total €'000
Financial assets
Cash and cash equivalents	3,453,236	-	-	3,453,236
Cash placed as collateral with the NTMA	802,000			802,000
Financial assets available for sale	145,138	-	-	145,138
Loans and receivables	31,313,699	-	-	31,313,699
Amounts due from Participating Institutions	-	-	78,447	78,447
Investments in equity instruments	-	-	6,373	6,373
Other assets	-	-	23,755	23,755
Total financial assets exposed to interest rate re-set	35,714,073	-	108,575	35,822,648
Liabilities
Amounts due to Participating Institutions	24,676	-	-	24,676
Senior debt securities in issue	34,618,000	-	-	34,618,000
Derivative financial instruments
– NAMA	(12,450,000)	(8,680,000)	-	(21,130,000)
– NARL	(1,900,000)	-	-	(1,900,000)
Other liabilities	-	-	172,594	172,594
Tax payable	-	-	407	407
Total financial liabilities exposed to interest rate re-set	20,292,676	(8,680,000)	173,001	11,785,677

Interest rate risk Group 31 December 2012	0-6 months €'000	Greater than 6 months €'000	Non-interest bearing €'000	Total €'000
Financial assets
Cash and cash equivalents	2,235,822	-	-	2,235,822
Cash placed as collateral with the NTMA	1,150,000	-	-	1,150,000
Financial assets available for sale	257,932	-	-	257,932
Loans and receivables	22,776,262	-	-	22,776,262
Amounts due from Participating Institutions	-	-	78,953	78,953
Other assets	-	-	33,490	33,490
Total financial assets exposed to interest rate re-set	26,420,016	-	112,443	26,532,459
Liabilities
Amounts due to Participating Institutions	36,423	-	-	36,423
Senior debt securities in issue	25,440,000	-	-	25,440,000
Derivative financial instruments	(14,300,000)	(3,800,000)	-	(18,100,000)
Other liabilities	-	-	169,557	169,557
Tax payable	-	-	1,627	1,627
Total financial liabilities exposed to interest rate re-set	11,176,423	(3,800,000)	171,184	7,547,607

Interest rate risk Agency 2013	0-6 months €'000	Non-interest bearing €'000	Total €'000
Financial assets
Cash and cash equivalents	1,152	-	1,152
Other assets	-	5,961	5,961
Total financial assets exposed to interest rate re-set	1,152	5,961	7,113
Liabilities
Interest bearing loans and borrowings	53,513	-	53,513
Other liabilities	-	7,178	7,178
Total financial liabilities exposed to interest rate re-set	53,513	7,178	60,691

Interest rate risk Agency 2012	0-6 months €'000	Non-interest bearing €'000	Total €'000
Financial assets
Cash and cash equivalents	1,268	-	1,268
Other assets	-	9,306	9,306
Total financial assets exposed to interest rate re-set	1,268	9,306	10,574
Liabilities
Interest bearing loans and borrowings	53,320	-	53,320
Other liabilities	-	10,027	10,027
Total financial liabilities exposed to interest rate re-set	53,320	10,027	63,347

Interest rate risk sensitivity

The following table represents the interest rate sensitivity arising from a 50 basis point (bp) increase or decrease in interest rates across the curve, subject to a minimum interest rate of 0%. This risk is measured as the net present value (NPV) impact, on the statement of financial position, of that change in interest rates. This analysis shifts all interest rates for each currency and each maturity simultaneously by the same amount.

The interest rates for each currency are set as at 31 December 2013. The figures take account of the effect of hedging instruments, loans and receivables and securities issued.

Interest rate sensitivity analysis – a 50bp move across the interest rate curve

	2013		2012
NAMA Group (excluding NARL)	+50bp €'000	-50bp €'000	+50bp €'000	-50bp €'000
EUR	180,677	(185,447)	201,242	(205,637)
GBP	(1,218)	1,623	(18,177)	19,625
USD	(146)	146	(391)	392
Other	(104)	104	-	-

	2013		2012
NARL	+50bp €'000	-50bp €'000	+50bp €'000	-50bp €'000
EUR	37,257	(37,956)

The interest rate sensitivities are not symmetric due to a number of factors including the shape of the yield curve and the maturity profile of the portfolio.

22.3.2 Foreign exchange risk

As part of the acquisition of loans and derivatives from the Participating Institutions, the Group acquired a number of loans and receivables denominated in foreign currency, principally in GBP. As a result, the Group is exposed to the effects of fluctuations in foreign currency exchange rates, on its financial position and cash flows. The Group monitors on a regular basis the level of exposure by currency and has entered into hedges to mitigate these risks.

The following table summarises the Group's exposure to foreign currency risk at 31 December 2013. Included in the table are the Group's assets and liabilities at carrying amounts, categorised by currency. These tables take account of hedging instruments which have the effect of significantly reducing currency risk.

Group 2013	USD €'000	GBP €'000	Other €'000	Total €'000
Assets
Cash and cash equivalents	9,288	45,590	2,937	57,815
Loans and receivables	138,265	5,655,355	99,422	5,893,042
Derivative financial instruments	(145,022)	(5,475,686)	(101,698)	(5,722,406)
Total assets exposed to currency risk	2,531	225,259	661	228,451

Group 2012	USD €'000	GBP €'000	Other €'000	Total €'000
Assets
Cash and cash equivalents	12,224	53,246	2,181	67,651
Loans and receivables	275,850	6,836,515	123,675	7,236,040
Derivative financial instruments	(257,914)	(5,848,164)	(111,578)	(6,217,656)
Other assets	-	5,657	-	5,657
Amounts due from Participating Institutions	-	5,905	-	5,905
Total assets exposed to currency risk	30,160	1,053,159	14,278	1,097,597
Liabilities
Amounts due to Participating Institutions	-	(1,459)	-	(1,459)
Total liabilities exposed to currency risk	-	(1,459)	-	(1,459)
Net assets exposed to currency risk	30,160	1,051,700	14,278	1,096,138

All the Agency's assets and liabilities are stated in euro. Therefore the Agency has no exposure to foreign currency risk.