Notes to the consolidated financial statements
47.2 Liquidity risk
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’s customers’ 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.
Maintaining an appropriate liquidity level requires determining an optimal balance between liquidity needs of the Bank, i.e. its demand for cash and the amount and cost of maintaining liquidity provisions which allow for generating cash surpluses. The objective of the Bank’s 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 acceptable for the Bank and in accordance with the risk appetite defined by the Supervisory Board and the liquidity risk tolerance specified by the Management 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 being the key source of funding for the Bank’s assets;
- undertaking initiatives aimed at maintaining the liquidity risk level within the accepted risk profile;
- maintaining supervisory liquidity measures 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.
The Bank’s Supervisory Board supervises compliance of the liquidity risk management policy with the financial strategy and plan and defines the liquidity risk appetite. The Management Board is responsible for organizing effective liquidity management and monitoring its efficiency. It also manages liquidity and determines tolerance for liquidity risk based on the assumed liquidity risk appetite and approves types and amounts of internal liquidity limits and thresholds for individual liquidity measures. The Asset-Liability Committee directly supervises the liquidity risk. It is also responsible for the Bank’s financing strategy, it approves the types and amounts of internal liquidity limit and thresholds, monitors supervisory liquidity measures on a daily basis, determines transfer rate adjustments in the internal fund system, directly supervises liquidity if an emergency plan is put into action. Risk and Capital Management Department is responsible for liquidity risk assessment and reporting. Liquidity risk management operations are managed in the Treasury Department for short-term liquidity and in the Controlling Department for medium-term and long-term liquidity.
Recommendation P issued by the Polish Financial Supervision Authority in March 2015 has entered into force as of 31 December 2015. Its objective was to align requirements for banks with international liquidity management practices, in particular with the guidelines set out by the Basel Committee on Banking Supervision and European supervisory institutions such as the Committee of European Banking Supervisors (CEBS), currently: European Banking Authority (EBA) and the European Systemic Risk Board (ESRB). The amended Recommendation P includes international guidelines and implementation of recommendations regarding in particular:
- determining the liquidity risk tolerance for banks;
- recognition of the full scope of liquidity risk types, including the risk of unexpected liquidity shortfall;
- ensuring continuous presence on selected key financing markets;
- diversification of liquid assets;
- stress tests and their functional relation with liquidity contingency plan;
- collateral management;
- maintaining excess liquidity (high quality liquid assets with no encumbrances);
- applying the mechanism of allocating costs and benefits resulting from various liquidity risks in the internal transfer pricing system;
- intraday liquidity management;
- disclosing information on bank liquidity risk.
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;
- structural limits;
- stress testing.
Liquidity risk motoring includes a number of stress tests. On a daily basis the Bank carries out standard stress tests for two periods (7 days and 1 month) and for three different scenarios (“bank run”, “market crisis” and “mixed scenario”), analyzed in the “severe” and "less severe" variants.
The following table presents the results of standard daily stress tests performed as at 31 December 2015, which have been mandatory in the Bank since 31 December 2015 and compliant with the requirements for credit institutions imposed by the amended Recommendation P. At the end of 2014 the Bank carried out standard stress tests based on different assumptions, hence their results are not comparable with those of 2015. Consequently, the data for 2014 are not presented.
Balance as at 31 December 2015 | Scenario | |||
---|---|---|---|---|
Time horizon | Variant | Bank run | Market crisis | Mixed scenario |
PLN’000 | PLN’000 | PLN’000 | ||
1 month | Severe | 215 879 | 529 633 | 306 310 |
Less severe | 477 677 | 740 941 | 622 594 | |
7 days | Severe | 358 237 | 577 812 | 459 536 |
Less severe | 669 844 | 839 971 | 642 657 | |
The “bank run” scenario is based on the loss of confidence in the Bank among market participants, which results in an outflow of customer funds including an increased amount of unsecured products not renewed by customers and an outflow of a portion of funds which contractual maturity falls outside the time horizon of the scenario. The amount of outflowing customer funds depends on the customer type, type of funds and type of product. The Bank assumes, for example, that funds deposited online and products with non-standard interest rates are more likely to be withdrawn.
The “market crisis” scenario assumes limited available financing on wholesale markets and a drop in financial assets combined with an increased demand for cash among customers using contingent commitments of the Bank. Additionally, the scenario assumes FX restrictions, stress conditions for many currencies and limited availability of financing in the banking sector, which translates into outflowing funds of customers, who are unable to obtain credit financing in the sector.
“Mixed scenario” combines both scenarios in question. It assumes in particular the occurrence of the “market crisis" (systemic crisis) and extraordinarily difficult situation of the Bank accompanied by an increased outflow of customer funds.
Standard stress tests are complemented by sensitivity analyses, assessing the impact of changes in the assumptions on each scenario. Standard tests are also supplemented by historical stress tests, which enable monitoring risks in various timeframes (from a few days to one year) and in various stress levels. Additionally, the Group carries out quarterly reverse stress tests, which consist in determining significant adverse outcomes and then determining the related reasons and effects. At least annually the Bank carries out comprehensive internal stress tests to assess how the stressors will affect the financial condition, liquidity and equity in order to plan possible action steps mitigating the negative impact of the crisis scenarios.
Stress tests carried out in the Bank are applied to determine the Bank's demand for liquid assets in current operations and in financial plans, where the minimum amount of liquid assets is determined in line with projections based on stress test outcomes. Stress test results provide additional information on the Bank’s sensitivity to analyzed stressors and are used in the process of determining liquidity limits.
The Bank has also developed a set of Early Warning Signals to identify increased risks or weaknesses in the liquidity position or a potential increase in the demand for liquidity. Early Warning Signals identify adverse trends, enable risk assessment and identification of possible risk mitigants. Consequently, not only stress tests results but also changes in risks trigger application of contingency funding plans to mitigate liquidity risk.
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 2015, the Bank fulfilled the requirements concerning the minimum supervisory liquidity ratios as specified in the aforesaid Resolution.
Since October 2015 the Bank has been obliged to maintain minimum liquidity coverage ratio ("LCR”) under Commission Delegated Regulation (EU) 2015/61 of 10 October 2014 to supplement Regulation (EU) No 575/2013 of the European Parliament and the Council with regard to liquidity coverage requirement for credit institutions and in conjunction with Regulation of the European Parliament and of the Council (EU) no. 575/2013 of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending the Regulation (EU) no. 648/2012. Minimum LCR applicable to the Bank has been 60% as from 2015, 70% - from 1 January 2016, 80% - from 1 January 2017 and 100% from 1 January 2018.
As at 31 December 2015, liquidity ratios remained within the applicable liquidity risk limits. The following table presents supervisory liquidity measures as at 31 December 2015 and 31 December 2014.
Balance as at | Balance as at | Limit | |
---|---|---|---|
31 December 2015 | 31 December 2014 | ||
M1 (w tys. zł) | 520 331 | 694 826 | 0 |
M2 | 1,60 | 1,49 | 1 |
M3 | 4,85 | 4,74 | 1 |
M4 | 1,16 | 1,19 | 1 |
LCR | 131% | 138% | 60%* |
The Bank prepares the following cyclical reports on its exposure to liquidity risk:
- daily report for the Asset-Liability Committee, Management Board, Treasury Department and Controlling Department;
- monthly report for the Asset-Liability Committee 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 2015, the Bank’s portfolio of liquid assets was sufficient to deal with an actual crisis.
Excess liquidity defined in accordance with the amended Recommendation P:
Liquidity surplus | Balance as at | Balance as at |
---|---|---|
31 December 2015 | 31 December 2014 | |
PLN’000 | PLN’000 | |
General liquidity surplus | 1 194 944 | 1 888 088 |
Cash (non-operational) | 0 | 0 |
Current accounts in banks | 3 920 | 4 838 |
O/N deposits in banks | 0 | 0 |
Funds in the National Bank of Poland (in excess of the obligatory reserve) | 223 969 | 554 138 |
Treasury debt securities | 967 055 | 858 764 |
Debt securities of the National Bank of Poland | 0 | 470 348 |
Other debt securities | 0 | 0 |
Additional liquidity surplus | 62 095 | 26 667 |
Bank debt securities | 62 095 | 26 667 |
Other items | 0 | 0 |
Liquidity surplus | 1 257 039 | 1 914 755 |
Realigned liquidity gaps
The following table presents realigned liquidity gaps for the Group as at 31 December 2015 and 31 December 2014.
Balance as at | Up to 1 month | From 1 month to 3 months |
From 3 months to 6 months |
From 6 months to 1 year |
From 1 year to 5 years |
Over 5 years |
---|---|---|---|---|---|---|
31 December 2015 | ||||||
PLN’000 | PLN’000 | PLN’000 | PLN’000 | PLN’000 | PLN’000 | |
Total on-balance sheet assets | 1 342 562 | 258 419 | 361 249 | 610 610 | 2 677 533 | 3 183 901 |
Total on-balance sheet liabilities | 615 658 | 251 060 | 254 226 | 539 085 | 3 939 032 | 1 648 998 |
Realigned balance sheet gap | 726 904 | 7 359 | 107 023 | 71 525 | (1 261 499) | 1 534 904 |
Accumulated balance sheet gap | 726 904 | 734 263 | 841 286 | 912 811 | (348 688) | 1 186 215 |
Accumulated balance sheet gap | 20 934 | 8 113 | 7 395 | 18 111 | 2 375 | 0 |
Total realigned gap | 705 970 | (754) | 99 628 | 53 414 | (1 263 874) | 1 534 904 |
Total accumulated gap | 705 970 | 705 216 | 804 844 | 858 258 | (405 616) | 1 129 287 |
Balance as at | Up to 1 month | From 1 month to 3 months |
From 3 months to 6 months |
From 6 months to 1 year |
From 1 year to 5 years |
Over 5 years |
---|---|---|---|---|---|---|
31 December 2014 | ||||||
PLN’000 | PLN’000 | PLN’000 | PLN’000 | PLN’000 | PLN’000 | |
Total on-balance sheet assets | 2 032 264 | 225 522 | 366 798 | 597 000 | 2 544 562 | 3 177 303 |
Total on-balance sheet liabilities | 1 108 379 | 342 328 | 347 236 | 503 134 | 3 984 141 | 1 517 897 |
Realigned balance sheet gap | 923 885 | (116 806) | 19 562 | 93 866 | (1 439 579) | 1 659 406 |
Accumulated balance sheet gap | 923 885 | 807 079 | 826 641 | 920 507 | (519 072) | 1 140 334 |
Off-balance sheet liabilities | 17 889 | 8 386 | 3 648 | 14 174 | 356 | 0 |
Total realigned gap | 905 996 | (125 192) | 15 914 | 79 692 | (1 439 935) | 1 659 406 |
Total accumulated gap | 905 996 | 780 804 | 796 718 | 876 410 | (563 525) | 1 095 881 |
Group’s financial assets and liabilities by maturity based on contractual non-discounted payments
The following tables presents the Group’s financial assets and liabilities by maturity based on contractual non-discounted payments, as at 31 December 2015 and 31 December 2014:
Balance as at | Up to 1 month, inclusive | From 1 to 3 months | From 3 months to 1 year | Total up to 1 year |
From 1 year to 5 years |
Over 5 years | Total over 1 year |
With unspecified maturity | Total |
---|---|---|---|---|---|---|---|---|---|
31 December 2015 | |||||||||
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 | 426 875 | 0 | 0 | 426 875 | 0 | 0 | 0 | 0 | 426 875 |
Receivables from other banks | 5 155 | 0 | 0 | 5 155 | 40 191 | 0 | 40 191 | 0 | 45 346 |
Receivables from securities purchased under reverse repo and buy-sell-back agreements | 19 794 | 0 | 0 | 19 794 | 0 | 0 | 0 | 0 | 19 794 |
Financial assets held for trading | 0 | 0 | 0 | 0 | 603 | 0 | 603 | 0 | 603 |
Hedging instruments | 0 | 0 | 0 | 0 | 1 140 | 0 | 1 140 | 0 | 1 140 |
Loans and advances granted to customers | 91 086 | 102 648 | 382 304 | 576 038 | 1 504 579 | 3 096 723 | 4 601 302 | 135 542 | 5 312 882 |
Investment assets available for sale | 0 | 0 | 86 655 | 86 655 | 662 483 | 39 395 | 701 878 | 14 814 | 803 347 |
Investment assets available for sale | 0 | 35 154 | 118 160 | 153 314 | 291 376 | 0 | 291 376 | 0 | 444 690 |
Other assets | 28 407 | 68 | 7 290 | 35 765 | 2 362 | 0 | 2 362 | 62 | 38 189 |
Total assets | 571 317 | 137 870 | 594 409 | 1 303 596 | 2 502 734 | 3 136 118 | 5 638 852 | 150 418 | 7 092 866 |
Received off-balance sheet liabilities | 27 | 0 | 5 027 | 5 054 | 7 637 | 0 | 7 637 | 0 | 12 691 |
Balance as at | Up to 1 month, inclusive | From 1 to 3 months | From 3 months to 1 year | Total up to 1 year |
From 1 year to 5 years |
Over 5 years | Total over 1 year |
With unspecified maturity | Total |
---|---|---|---|---|---|---|---|---|---|
31 December 2015 | |||||||||
Liabilities | PLN’000 | PLN’000 | PLN’000 | PLN’000 | PLN’000 | PLN’000 | PLN’000 | PLN’000 | PLN’000 |
Liabilities to the Central Bank | 10 | 0 | 0 | 10 | 0 | 0 | 0 | 0 | 10 |
Liabilities to other banks | 34 440 | 0 | 0 | 34 440 | 0 | 0 | 0 | 0 | 34 440 |
Liabilities from securities sold under repo and sell-buy-back agreements | 154 017 | 0 | 0 | 154 017 | 0 | 0 | 0 | 0 | 154 017 |
Financial liabilities held for trading | 377 | 0 | 0 | 377 | 0 | 0 | 0 | 0 | 377 |
Liabilities to customers | 668 986 | 507 054 | 918 081 | 2 094 121 | 483 638 | 6 122 | 489 760 | 3 158 496 | 5 742 377 |
Liabilities arising from issue of debt securities | 0 | 0 | 148 903 | 148 903 | 354 597 | 0 | 354 597 | 0 | 503 500 |
Subordinated liabilities | 1 260 | 0 | 608 | 1 868 | 0 | 140 019 | 140 019 | 0 | 141 887 |
Other liabilities | 76 441 | 13 200 | 448 | 90 089 | 73 | 171 | 244 | 0 | 90 333 |
Total liabilities | 935 531 | 520 254 | 1 068 040 | 2 523 825 | 838 308 | 146 312 | 984 620 | 3 158 496 | 6 666 941 |
Originated off-balance sheet liabilities | 5 270 | 8 351 | 47 177 | 60 798 | 54 576 | 0 | 54 576 | 111 788 | 227 162 |
Balance as at | Up to 1 month, inclusive | From 1 to 3 months | From 3 months to 1 year | Total up to 1 year |
From 1 year to 5 years |
Over 5 years | Total over 1 year |
With unspecified maturity | Total |
---|---|---|---|---|---|---|---|---|---|
31 December 2014 | |||||||||
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 | 757 643 | 0 | 0 | 757 643 | 0 | 0 | 0 | 0 | 757 643 |
Receivables from other banks | 6 451 | 0 | 10 004 | 16 455 | 64 639 | 77 175 | 141 814 | 0 | 158 269 |
Financial assets held for trading | 1 336 | 0 | 0 | 1 336 | 0 | 0 | 0 | 0 | 1 336 |
Loans and advances granted to customers | 88 663 | 91 010 | 377 408 | 557 081 | 1 354 549 | 3 122 273 | 4 476 822 | 117 874 | 5 151 777 |
Investment assets available for sale | 479 947 | 0 | 91 491 | 571 438 | 520 235 | 8 866 | 529 101 | 8 | 1 100 547 |
Investments in financial assets held to maturity | 4 996 | 9 957 | 214 905 | 229 858 | 178 233 | 10 628 | 188 861 | 0 | 418 719 |
Other assets | 26 329 | 180 | 2 695 | 29 204 | 4 | 0 | 4 | 66 | 29 274 |
Total assets | 1 365 365 | 101 147 | 696 503 | 2 163 015 | 2 117 660 | 3 218 942 | 5 336 602 | 117 948 | 7 617 565 |
Received off-balance sheet liabilities | 1 307 | 0 | 51 800 | 53 107 | 21 619 | 0 | 21 619 | 0 | 74 726 |
Balance as at | Up to 1 month, inclusive | From 1 to 3 months | From 3 months to 1 year | Total up to 1 year |
From 1 year to 5 years |
Over 5 years | Total over 1 year |
With unspecified maturity | Total |
---|---|---|---|---|---|---|---|---|---|
31 December 2014 | |||||||||
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 | 4 020 | 0 | 0 | 4 020 | 0 | 0 | 0 | 0 | 4 020 |
Liabilities from securities sold under repo and sell-buy-back agreements | 173 381 | 4 320 | 0 | 177 701 | 0 | 0 | 0 | 0 | 177 701 |
Financial liabilities held for trading | 94 | 0 | 0 | 94 | 0 | 0 | 0 | 0 | 94 |
Liabilities to customers | 1 528 984 | 856 373 | 820 963 | 3 206 320 | 370 285 | 6 843 | 377 128 | 2 908 575 | 6 492 023 |
Liabilities arising from issue of debt securities | 0 | 232 | 826 | 1 058 | 357 198 | 0 | 357 198 | 0 | 358 256 |
Subordinated liabilities | 0 | 0 | 0 | 0 | 0 | 142 090 | 142 090 | 0 | 142 090 |
Other liabilities | 86 902 | 10 364 | 648 | 97 914 | 86 | 201 | 287 | 1 165 | 99 366 |
Total liabilities | 1 793 392 | 871 289 | 822 437 | 3 487 118 | 727 569 | 149 134 | 876 703 | 2 909 740 | 7 273 561 |
Originated off-balance sheet liabilities | 151 911 | 8 475 | 71 930 | 232 316 | 22 033 | 0 | 22 033 | 0 | 254 349 |
Acquisition of funds
To ensure liquidity sufficient to ensure secure growth, the Bank acquires funds through:
- development of the deposit portfolio in the consumer segment, constituting the key source of funding;
- institutional deposits used as an additional source of funding.
Moreover, depending on the market situation and the demand for deposit products, the Bank may consider issuing short-term bonds.
The Bank also secures long-term financing to improve long-term liquidity through:
- development of the long-term deposit portfolio in the consumer segment;
- issue of long-term treasury bonds.
To ensure optimal alignment of the term structure of the sources of financing with the structure of assets held, the Bank takes into account liquidity measures specified by supervisory bodies and internal liquidity limits when taking decisions on fund acquisition.
The sources of financing are structured to match the lending needs. The following table presents the sources of financing as at 31 December 2015 and 31 December 2014.
Balance as at | Balance as at | |||
---|---|---|---|---|
31 grudnia 2015 | Structure | 31 grudnia 2014 | Structure | |
PLN’000 | % | PLN’000 | % | |
Liabilities – banks and financial institutions | 34 450 | 0% | 4 031 | 0% |
Liabilities - individuals | 4 444 874 | 62% | 4 650 326 | 60% |
Liabilities – corporations | 1 247 743 | 17% | 1 783 872 | 23% |
Liabilities – state budget entities | 49 760 | 1% | 57 825 | 1% |
Liabilities arising from issue of treasury securities | 503 500 | 7% | 358 256 | 5% |
Other equity and liabilities | 932 703 | 13% | 864 717 | 11% |
Balance sheet total |