## 11. Interest Rate Risk Under Non Trading Accounts 

## A). Overview of risk management policies and procedures 

In regard to non trading accounts of the Group, most interest rate risk arises from the assets and liabilities held by Daiwa Next Bank, Ltd. 

Daiwa Next Bank, Ltd. complies with management rules of market risk and manages the risk of incurring losses from changes in the value of assets and liabilities or in the net incomes. 

Middle and back offices, which are independent from front office, are set, and it acts as a system of checks and balances. In addition, the ALM committee is periodically held and discussed regarding the management and operation of market and liquidity risks as well as the management of assets, liabilities, and capital efficiencies. 

## B). Overview of management’s method for measuring interest rate risk under non trading accounts 

i. Financial assets and liabilities (exclude financial assets and liabilities held by subsidiaries engaged in the banking business) 

Financial assets and liabilities that are resulted by interest rate risk are bonds and notes and long-term borrowings. The change in fair value is calculated under assumption of changes in interest rate for 10 basis points (0.1%). 

ii. Financial assets and liabilities held by subsidiaries engaged in the banking business 

For the financial assets and liabilities in the subsidiaries engaged in the banking business, market risk amount is mea- sured in a change of economic value used the 99th percentile of observed interest rate changes using a year holding period and 5 years of observations. It is used for quantitative analysis to manage risk of change in an interest rate. For calculating the amount of changes, the balances of the financial assets and liabilities are classified in each period. The changes of interest rate in each period are applied. 

