Notes to the consolidated financial statements
46.2 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 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 have been adopted for 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 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 (ALCO) 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.
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 2016 and 31 December 2015 and compliant with the requirements for credit institutions imposed by the amended Recommendation P.
Balance as at | Scenario type | |||
---|---|---|---|---|
31 December 2016 | ||||
Time horizon | Scenario | Bank run | Market crisis | Combined |
PLN’000 | PLN’000 | PLN’000 | ||
1 month | Severe | 310 798 | 657 508 | 447 512 |
Less severe | 578 532 | 817 888 | 709 972 | |
7 days | Severe | 532 565 | 733 938 | 626 098 |
Less severe | 851 674 | 979 360 | 790 338 |
Balance as at | Scenario type | |||
---|---|---|---|---|
31 December 2015 | ||||
Time horizon | Scenario | Bank run | Market crisis | Combined |
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 2016, 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 2016, liquidity ratios remained within the valid risk limits. The following table presents supervisory liquidity measures as at 31 December 2016 and 31 December 2015.
Balance as at | Balance as at | Limit | |
---|---|---|---|
31 December 2016 | 31 December 2015 | ||
M1 (PLN’000) | 885 293 | 520 331 | 0 |
M2 | 2,48 | 1,60 | 1 |
M3 | 4,13 | 4,85 | 1 |
M4 | 1,18 | 1,16 | 1 |
LCR | 148% | 131% |
70%* |
* The minimum supervisory requirement was 60% in the period from 1 October 2015 to 31 December 2015.
The Bank prepares the following cyclical reports on its exposure to liquidity risk:
- daily report for the ALCO, Management Board, Treasury Department and Controlling 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 2016, 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 2016 | 31 December 2015 | |
PLN’000 | PLN’000 | |
General liquidity surplus | 1 248 135 | 1 194 944 |
Current accounts in banks | 4 569 | 3 920 |
Funds in the National Bank of Poland (in excess of the obligatory reserve) | (142 611) | 223 969 |
Treasury debt securities | 1 295 049 | 967 055 |
Debt securities of the National Bank of Poland | 91 128 | 0 |
Additional liquidity surplus | 17 542 | 62 095 |
Bank debt securities | 17 542 | 62 095 |
Liquidity surplus | 1 265 677 | 1 257 039 |
Realigned liquidity gaps
The following table presents realigned liquidity gaps for the Group as at 31 December 2016 and 31 December 2015.
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 2016 | ||||||
PLN’000 | PLN’000 | PLN’000 | PLN’000 | PLN’000 | PLN’000 | |
Total on-balance sheet assets | 1 395 066 | 243 959 | 336 799 | 607 205 | 2 679 431 | 3 108 046 |
Total on-balance sheet liabilities | 517 159 | 286 061 | 287 381 | 406 901 | 3 906 989 | 1 717 182 |
Realigned balance sheet gap | 877 907 | (42 102) | 49 418 | 200 304 | (1 227 558) | 1 390 864 |
Accumulated balance sheet gap | 877 907 | 835 805 | 885 223 | 1 085 527 | (142 031) | 1 248 833 |
Off-balance sheet liabilities | 15 893 | 12 000 | 7 099 | 13 014 | 14 442 | 0 |
Total realigned gap | 862 014 | (54 102) | 42 319 | 187 290 | (1 242 000) | 1 390 864 |
Total accumulated gap | 862 014 | 807 912 | 850 231 | 1 037 521 | (204 479) | 1 186 385 |
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) | 1 534 903 |
Accumulated balance sheet gap | 726 904 | 734 263 | 841 286 | 912 811 | (348 688) | 1 186 215 |
Off-balance sheet liabilities | 20 934 | 8 113 | 7 395 | 18 111 | 2 375 | 0 |
Total realigned gap | 705 970 | (754) | 99 628 | 53 414 | (1 263 874) | 1 534 903 |
Total accumulated gap | 705 970 | 705 216 | 804 844 | 858 258 | (405 616) | 1 129 287 |
Group’s financial assets and liabilities by maturity based on contractual non-discounted payments
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 undetermined maturity | Total |
---|---|---|---|---|---|---|---|---|---|
31 December 2016 | |||||||||
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 | 65 365 | 0 | 0 | 65 365 | 0 | 0 | 0 | 0 | 65 365 |
Receivables from other banks | 5 702 | 0 | 10 036 | 15 738 | 30 160 | 0 | 30 160 | 0 | 45 898 |
Financial assets held for trading |
0 | 0 | 0 | 0 | 695 | 0 | 695 | 0 | 695 |
Financial hedges | 0 | 0 | 1 146 | 1 146 | 0 | 0 | 0 | 0 | 1 146 |
Loans and advances granted to clients | 103 653 | 89 867 | 379 738 | 573 258 | 1 519 915 | 2 919 666 | 4 439 581 | 141 500 | 5 154 339 |
Investments in financial assets: | 92 988 | 0 | 284 765 | 377 753 | 1 054 479 | 28 306 | 1 082 785 | 4 019 | 1 464 557 |
- available for sale | 92 988 | 0 | 274 668 | 367 656 | 775 705 | 28 306 | 804 011 | 4 019 | 1 175 686 |
- held to maturity | 0 | 0 | 10 097 | 10 097 | 278 774 | 0 | 278 774 | 0 | 288 871 |
Other assets | 37 549 | 385 | 5 919 | 43 853 | 2 530 | 0 | 2 530 | 66 | 46 449 |
Total assets | 305 257 | 90 252 | 681 604 | 1 077 113 | 2 607 779 | 2 947 972 | 5 555 751 | 145 585 | 6 778 449 |
Originated off-balance sheet liabilities | 10 114 | 5 587 | 73 686 | 89 387 | 18 433 | 0 | 18 433 | 86 984 | 194 804 |
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 undetermined maturity | Total |
---|---|---|---|---|---|---|---|---|---|
31 December 2016 | |||||||||
Liabilities | PLN’000 | PLN’000 | PLN’000 | PLN’000 | PLN’000 | PLN’000 | PLN’000 | PLN’000 | PLN’000 |
Liabilities to the Central Bank | 2 | 0 | 0 | 2 | 0 | 0 | 0 | 0 | 2 |
Liabilities to other banks | 21 856 | 0 | 0 | 21 856 | 0 | 0 | 0 | 0 | 21 856 |
Liabilities from securities sold under repo and sell-buy-back agreements | 1 040 | 0 | 0 | 1 040 | 0 | 0 | 0 | 0 | 1 040 |
Financial liabilities held for trading | 205 | 0 | 0 | 205 | 0 | 0 | 0 | 0 | 205 |
Financial hedges | 0 | 0 | 0 | 0 | 932 | 0 | 932 | 0 | 932 |
Liabilities to clients | 494 979 | 464 933 | 713 338 | 1 673 250 | 564 690 | 6 153 | 570 843 | 3 518 921 | 5 763 014 |
Liabilities arising from issue of debt securities | 0 | 0 | 913 | 913 | 354 728 | 0 | 354 728 | 0 | 355 641 |
Subordinated liabilities | 0 | 0 | 0 | 0 | 0 | 142 818 | 142 818 | 0 | 142 818 |
Other liabilities | 107 835 | 463 | 404 | 108 702 | 382 | 285 | 667 | 0 | 109 369 |
Total liabilities | 625 917 | 465 396 | 714 655 | 1 805 968 | 920 732 | 149 256 | 1 069 988 | 3 518 921 | 6 394 877 |
Received off-balance sheet liabilities | 1 964 | 178 | 2 561 | 4 703 | 7 125 | 0 | 7 125 | 0 | 11 828 |
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 undetermined 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 |
Financial hedges | 0 | 0 | 0 | 0 | 1 140 | 0 | 1 140 | 0 | 1 140 |
Loans and advances granted to clients | 91 086 | 102 648 | 382 304 | 576 038 | 1 504 579 | 3 096 723 | 4 601 302 | 135 542 | 5 312 882 |
Investments in financial assets: | 0 | 35 154 | 204 815 | 239 969 | 953 859 | 39 395 | 993 254 | 14 814 | 1 248 037 |
- available for sale | 0 | 0 | 86 655 | 86 655 | 662 483 | 39 395 | 701 878 | 14 814 | 803 347 |
- held to maturity | 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 |
Originated off-balance sheet liabilities | 5 270 | 8 351 | 47 177 | 60 798 | 78 590 | 0 | 78 590 | 111 788 | 251 176 |
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 undetermined 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 clients | 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 |
Received off-balance sheet liabilities | 27 | 0 | 5 027 | 5 054 | 7 637 | 0 | 7 637 | 0 | 12 691 |
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 2016 and 31 December 2015.
Balance as at | Balance as at | |||
---|---|---|---|---|
31 December 2016 | Structure | 31 December 2015 | Structure | |
PLN’000 | % | PLN’000 | % | |
Client liabilities excluding funds of Poczta Polska and the Group* | 5 710 211 | 82% | 5 551 668 | 77% |
Equity | 523 442 | 8% | 542 485 | 8% |
Liquid bonds* | 355 000 | 5% | 502 850 | 7% |
Subordinated debt* | 143 000 | 2% | 140 340 | 2% |
Other liabilities | 114 404 | 2% | 84 893 | 1% |
Liabilities of Poczta Polska and its Capital Group* | 86 205 | 1% | 217 901 | 3% |
NBP and other banks* | 3 059 | 0% | 18 500 | 0% |
Repo transactions | 1 245 | 0% | 154 393 | 2% |
Balance sheet total | 6 936 566 | 100% | 7 213 030 | 100% |
* capital amount excluding interest accrued, commissions settled with the ESP method, other liabilities and provisions, which have been presented under “Other liabilities”