Notes to the consolidated financial statements

47b. Liquidity risk

Download note 47b in XLS

Liquidity risk is the risk of the Group’s losing the capacity to pay its liabilities on a timely basis due to an unfavorable structure of its assets and liabilities. Liquidity risk may arise from a cash flow mismatch, sudden withdrawal of deposits, concentration of funding sources and the credit portfolio, inadequate level of liquid assets, limited liquidity of assets, the Bank and the Group’s clients’ default on their obligations or other unexpected developments in the financial market.

The Group’s liquidity risk is managed at the level of the Bank as the liquidity risk assumed by the subsidiaries is immaterial considering the nature of their business.

The objective of liquidity risk management is to balance proceeds and payments of funds under on- and off-balance sheet transactions in order to ensure cost-effective funding sources, generating of cash surpluses and their appropriate use. The Bank builds the structure of its assets and liabilities so as to ensure the achievement of defined financial ratios with the liquidity risk level accepted by the Bank and in accordance with the risk appetite defined by the Supervisory Board.

The following principles are followed by the Bank in the liquidity risk management process:

• maintaining an acceptable liquidity level based on an appropriate portfolio of liquid assets;
• stable funds are the key source of funding for the Bank’s assets;
• undertaking initiatives aimed at maintaining the liquidity risk level within the accepted risk profile;
• supervisory liquidity measures are maintained above the defined limits.

Liquidity risk management in the Bank is based on written policies and procedures defining the methods of identification, measurement, monitoring, limiting and reporting of liquidity risk. The regulations determine also the scope of competencies assigned to each unit of the Bank in the liquidity risk management process.

In order to ensure high standards of liquidity risk management, compliant with best banking practices, at least once a year the Bank reviews and verifies the policies and procedures, including internal liquidity limits.

In order to determine the liquidity risk level, the Bank uses a number of measurement and assessment methods, such as:

• contractual and actual liquidity gap method;
• deposit base stability and concentration check;
• surplus of liquid assets over unstable liabilities;
• stress analyses.

With a view to mitigating the liquidity risk, the Bank uses liquidity limits and thresholds for selected measures, including liquidity ratios or the mismatch between accumulated actual cash flows generated by assets and liabilities in individual time ranges.

Pursuant to Resolution No. 386/2008 of the Polish Financial Supervision Authority of 17 December 2008 on liquidity requirements for banks (as amended), the Bank monitors and complies with requirements concerning supervisory liquidity ratios. In 2013, the Bank fulfilled the requirements concerning the minimum supervisory liquidity ratios as specified in the aforesaid Resolution.
As at 31 December 2013, liquidity ratios remained within the applicable liquidity risk limits. The following table presents supervisory liquidity measures as at 31 December 2013 and 31 December 2012.

	Balance as at 31 December 2013	Balance as at 31 December 2012 (restated)	Limit
M1	447,457	702,417	0
M2	1.31	1.48	1.00
M3	2.88	4.17	1.00
M4	1.13	1.19	1.00

The Bank prepares the following cyclical reports on its exposure to liquidity risk:

• daily report for the ALCO, Management Board and Treasury Department;
• monthly report for the ALCO and the Management Board;
• quarterly report for the Supervisory and Management Board.

The Bank has defined contingency plans to address sudden changes in the deposit base. An analysis of immediately available funding sources shows that in case of a sudden liquidity drop, the Bank is able to obtain sufficient funds without the need to implement its contingency plans. As at 31 December 2013, the Bank’s portfolio of liquid assets was sufficient to deal with an actual crisis.
The following table presents actual liquidity gaps for the Group as at 31 December 2013 and 31 December 2012.

31 December 2013	Up to 1 month, inclusive	Above 1 month and up to 3 months, inclusive	Above 3 months and up to 6 months, inclusive	Above 6 months to and up to 1 year, inclusive	Above one year and up to 5 years, inclusive	Above 5 years
	PLN ‘000	PLN ‘000	PLN ‘000	PLN ‘000	PLN ‘000	PLN ‘000
Total on-balance sheet assets	1,934,268	235,420	325,237	579,081	2,748,359	3,524,105
Total on-balance sheet liabilities	1,255,727	374,258	407,852	771,628	3,456,149	1,403,468
Actual balance sheet gap	678,541	(138,838)	(82,615)	(192,547)	(707,790)	2,120,637
Accumulated balance sheet gap	678,541	539,703	457,088	264,541	(443,249)	1,677,388
Off-balance sheet liabilities	30,629	27,933	12,197	17,190	23,399	0
Total actual gap	647,912	(166,771)	(94,812)	(209,737)	(731,189)	2,120,637
Total accumulated gap	647,912	481,141	386,329	176,592	(554,597)	1,566,040

 

31 December 2012 (restated)	Up to 1 month, inclusive	Above 1 month and up to 3 months, inclusive	Above 3 months and up to 6 months, inclusive	Above 6 months to and up to 1 year, inclusive	Above one year and up to 5 years, inclusive	Above 5 years
	PLN ‘000	PLN ‘000	PLN ‘000	PLN ‘000	PLN ‘000	PLN ‘000
Total on-balance sheet assets	2,331,955	209,453	269,531	508,343	2,248,010	3,175,923
Total on-balance sheet liabilities	1,384,221	377,181	370,030	548,966	3,696,633	1,467,006
Actual balance sheet gap	947,734	(167,728)	(100,499)	(40,623)	(1,448,623)	1,708,917
Accumulated balance sheet gap	947,734	780,006	679,507	638,884	(809,739)	899,178
Off-balance sheet liabilities	27,897	3,684	7,080	15,625	3,652	0
Total actual gap	919,837	(171,412)	(107,579)	(56,248)	(1,452,275)	1,708,917
Total accumulated gap	919,837	748,425	640,846	584,598	(867,677)	841,240

 

The Group’s financial assets and liabilities by maturity based on contractual non-discounted payments, as at 31 December 2013 and 31 December 2012:

Balance as at 31 December 2013	Up to 1 month, inclusive	Above 1 month and up to 3 months, inclusive	Above 3 months and up to 1 year, inclusive	Below 12 months, total	Above 1 year and up to 5 years, inclusive	Above 5 years	Above 12 months, total	With unspecified maturity	Total
Assets	PLN ‘000	PLN ‘000	PLN ‘000	PLN ‘000	PLN ‘000	PLN ‘000	PLN ‘000	PLN ‘000	PLN ‘000
Cash in hand and deposits with the Central Bank	327,242	0	0	327,242	0	0	0	0	327,242
Receivables from other banks	6,147	0	181	6,328	10,000	20,001	30,001	0	36,329
Financial assets held for trading	1,369	0	0	1,369	0	0	0	0	1,369
Loans and advances granted to clients	92,682	96,644	387,644	576,970	1,363,562	3,023,725	4,387,287	91,455	5,055,712
Investment securities available for sale	839,825	0	212,630	1,052,455	327,620	74,935	402,555	8	1,455,018
Investment securities held to maturity	4,996	9,942	54,153	69,091	317,927	0	317,927	0	387,018
Property, plant and equipment	0	0	0	0	0	0	0	44,666	44,666
Intangible assets	0	0	0	0	0	0	0	30,215	30,215
Current income tax receivables	0	0	0	0	0	0	0	98	98
Net deferred tax asset	0	0	0	0	0	0	0	18,004	18,004
Other assets	22,190	193	4,613	26,996	5	0	5	73	27,074
Total assets	1,294,451	106,779	659,221	2,060,451	2,019,114	3,118,661	5,137,775	184,519	7,382,745
Received off-balance sheet liabilities	1,653	0	53,600	55,253	51,265	0	51,265	0	106,518

 

Balance as at 31 December 2013	Up to 1 month, inclusive	Above 1 month and up to 3 months, inclusive	Above 3 months and up to 1 year, inclusive	Below 12 months, total	Above 1 year and up to 5 years, inclusive	Above 5 years	Above 12 months, total	With unspecified maturity	Total
Liabilities	PLN ‘000	PLN ‘000	PLN ‘000	PLN ‘000	PLN ‘000	PLN ‘000	PLN ‘000	PLN ‘000	PLN ‘000
Liabilities to the Central Bank	11	0	0	11	0	0	0	0	11
Liabilities to other banks	21,673	20,089	0	41,762	0	0	0	0	41,762
Liabilities arising from sold securities (repo)	49,610	0	0	49,610	0	0	0	0	49,610
Financial liabilities held for trading	17	0	0	17	0	0	0	0	17
Liabilities to clients	1,662,387	650,141	726,704	3,039,232	313,948	437	314,385	2,876,961	6,230,578
Provisions	0	1,371	1,342	2,713	235	471	706		3,419
Income tax liabilities	0	0	0	0	0	0	0	3,138	3,138
Other liabilities	79,078	7,557	1,490	88,125	73	168	241	4 55	88,821
Liabilities arising from issue of debt securities	34,204	0	249,543	283,747	147,850	0	147,850	0	431,597
Subordinated liabilities	0	0	0	0	43,036	98,991	142,027	0	142,027
Total liabilities	1,846,980	679,158	979,079	3,505,217	505,142	100,067	605,209	2,880,554	6,990,980
Originated off-balance sheet liabilities	11,913	23,850	124,893	160,656	121,765	0	121,765	131,249	413,670

 

Balance as at 31 December 2012 (restated)	Up to 1 month, inclusive	Above 1 month and up to 3 months, inclusive	Above 3 months and up to 1 year, inclusive	Below 12 months, total	Above 1 year and up to 5 years, inclusive	Above 5 years	Above 12 months, total	With unspecified maturity	Total
Assets	PLN ‘000	PLN ‘000	PLN ‘000	PLN ‘000	PLN ‘000	PLN ‘000	PLN ‘000	PLN ‘000	PLN ‘000
Cash in hand and deposits with the Central Bank	934,743	0	0	934,743	0	0	0	0	934,743
Receivables from other banks	9,610	0	0	9,610	0	20,239	20,239	0	29,849
Financial assets held for trading	7 66	0	0	766	0	0	0	0	766
Loans and advances granted to clients	75,449	77,542	456,814	609,805	1,205,223	2,707,398	3,912,621	77,119	4,599,545
Investment securities available for sale	219,775	0	655,230	875,005	176,711	9,501	186,212	8	1,061,225
Investment securities held to maturity	0	0	20,214	20,214	372,548	0	372,548	0	392,762
Property, plant and equipment	0	0	0	0	0	0	0	44,213	44,213
Intangible assets	0	0	0	0	0	0	0	27,339	27,339
Current income tax receivables	0	0	0	0	0	0	0	61	61
Deferred tax asset	0	0	0	0	0	0	0	14,871	14,871
Other assets	11,723	0	3,552	15,275	4	0	4	0	15,279
Total assets	1,252,066	77,542	1,135,810	2,465,418	1,754,486	2,737,138	4,491,624	163,611	7,120,653
Received off-balance sheet liabilities	4,888	40,886	0	45,774	50,000	0	50,000	0	95,774

 

Balance as at 31 December 2012 (restated)	Up to 1 month, inclusive	Above 1 month and up to 3 months, inclusive	Above 3 months and up to 1 year, inclusive	Below 12 months, total	Above 1 year and up to 5 years, inclusive	Above 5 years	Above 12 months, total	With unspecified maturity	Total
	PLN ‘000	PLN ‘000	PLN ‘000	PLN ‘000	PLN ‘000	PLN ‘000	PLN ‘000	PLN ‘000	PLN ‘000
Liabilities
Liabilities to the Central Bank	6	0	0	6	0	0	0	0	6
Liabilities to other banks	2,824	0	0	2,824	0	0	0	0	2,824
Financial liabilities held for trading	14	3	0	17	0	0	0	0	17
Liabilities to clients	1,642,968	409,580	1,238,312	3,290,860	360,160	420	360,580	2,666,509	6,317,949
Provisions	0	0	1,007	1,007	2,564	424	2,988	0	3,995
Income tax liabilities	7,826	0	0	7,826	0	0	0	0	7,826
Other liabilities	71,855	3,205	1,799	76,859	375	159	534	0	77,393
Liabilities arising from issue of debt securities	6,560	0	0	6,560	199,722	0	199,722	0	206,282
Subordinated liabilities	0	0	0	0	43,030	99,861	142,891	0	142,891
Total liabilities	1,732,053	412,788	1,241,118	3,385,959	605,851	100,864	706,715	2,666,509	6,759,183
Originated off-balance sheet liabilities	14,265	28,261	71,055	113,581	10,623	0	10,623	125,964	250,168