65. Liquidity risk management

Liquidity risk management

Definition

The liquidity risk is defined as the lack of possibility to pay the debts on time due to the lack of liquid assets. Lack of liquidity may arise from inappropriate structure of the statement of financial position, mismatch of cash flows, not received payments from counterparties, sudden withdrawal of cash by clients or other market events.

The Group manages the financing risk, which takes into account the risk of loss of financing sources and the lack of opportunities to renew matured funding, or loss of access to new financing sources.

Management objective

Ensure the necessary level of the funds to pay present and future debts (also potential) on time, taking into account the nature of performed activities and requirements which may occur due to changes in market environment, by shaping the structure of statement of financial position and off-balance sheet liabilities.

Risk identification and measurement

The Group makes use of the following liquidity risk measures:

  • the contractual and adjusted liquidity gap in real terms,
  • liquidity reserve,
  • liquidity surplus,
  • ratio of stable funding to illiquid assets,
  • liquidity coverage ratio (LCR),
  • national supervisory liquidity measures (M1-M4),
  • measure of stability of deposit and loan portfolios,
  • stress-tests (liquidity stress-tests).

Control

Control over liquidity risk covers determining liquidity risk limits and thresholds tailored to the scale and complexity of the Group’s operations, in particular the strategic limit of tolerance to liquidity risk.

Forecasting and monitoring

The Group regularly monitors:

  • utilization level of strategic tolerance risk losses limit,
  • the degree of utilization of supervisory liquidity standards,
  • the degree of utilization of internal limits and threshold values relating to liquidity risk,
  • concentration of sources of financing,
  • early warning signals – monitoring their level is aimed at the early discovery of unfavourable events which could have a negative impact on the Group’s or the financial sector’s liquidity position (which, when exceeded, launch liquidity contingency plans).

The Group also performs cyclic forecasts of liquidity risk levels, in consideration of the current developments in the Group’s operations. Liquidity forecasts account mainly for the level of particular liquidity risk measures in conditions of realizing the Group’s statement of financial position forecasts and realizing selected stress-test scenarios.

Reporting

Liquidity reports are developed on a daily, weekly, monthly and quarterly basis and once a year an in-depth long-term liquidity analysis is conducted.

Management actions/ tools for risk management

The main tools for liquidity risk management in the Group are as follows:

  • procedures for liquidity risk management, in particular emergency plans,
  • limits and thresholds mitigating for short, medium and long-term liquidity risk,
  • national and European supervisory liquidity measures,
  • deposit, investment and derivative transactions, including structural currency transactions and transactions for sale or purchase of securities,
  • transactions ensuring long-term financing of the lending activities.

The Group policy concerning liquidity is based on keeping a portfolio of appropriate level of liquidity surplus through an increase in portfolio of liquid securities and stable sources of financing (stable deposit base, in particular). In liquidity risk management money market instruments, including NBP open market operations are also used.

Financial information

Liquidity gaps

Liquidity gaps presented below include the sum of Bank’s adjusted liquidity gap (adjusted in terms of the following: permanent balances on deposits of non-financial sector and their maturity, permanent balances on loans in current accounts for non-financial entities and their maturity and liquid securities and their maturity) and contractual liquidity gap of the other Group entities.

 a’vista0 - 1 months1 - 3 months3 - 6 months6 - 12 months12 - 24 months24 - 60 monthsover 60 months
31.12.2016
The Group- realigned periodic gap11 982.628 501.1493.1579.46 581.511 193.524 592.2(83 923.4)
The Group- realigned cumulative periodic gap11 982.640 483.640 976.741 556.248 137.759 331.283 923.4-
31.12.2015
The Group- realigned periodic gap13 974.619 405.6(346.9)3 590.97 972.08 034.712 600.3(65 231.2)
The Group- realigned cumulative periodic gap13 974.633 380.233 033.336 624.244 596.252 630.965 231.2-

In all time horizons, the Group’s cumulative adjusted liquidity gap in real terms , which has been determined as a sum of adjusted liquidity gap in real terms of the Bank and contractual liquidity gaps of the remaining Group entities, as at 31 December 2016 and as at 31 December 2015 was positive. This means a surplus of assets receivable over liabilities payable.

Liquidity reserve and liquidity surplus

Name of sensitivity measure31.12.201631.12.2015
Liquidity reserve up to 1 month * (in PLN billion)31.230.2
Liquidity surplus in a horizon of up to 30 days** (in PLN billion)13.014.5

* Liquidity reserve – gap between the most liquid assets and expected and potential liabilities which mature in a given period of time.

** Excess liquidity – excess liquidity determines the Bank’s ability to maintain liquidity on each day during the period called the ‘horizon of survival’ if predefined stress test scenarios occur.

Supervisory liquidity measures

Measure31.12.201631.12.2015
M124 46418 907
M21.891.65
M311.639.87
M41.191.15
LCR136.3% 131,5%

In the period from 31 December 2015 to 31 December 2016 ratios supervisory measures remained above the supervisory limits. LCR indicator shows the value for the Group in the table above.

Permanent balances on deposits

As at 31 December 2016 the level of permanent balances on deposits constituted approx. 93.8% of all deposits in the Bank (excluding interbank market), which means an increase by approximately 0.3 p.p. as compared to the end of 2015.

Structure of the Bank's sources of financing

   

 31.12.201631.12.2015
Total deposits (excluding interbank market)76.50%75.96%
Interbank market deposits0.30%0.67%
Equity12.40%11.99%
Market financing10.80%11.38%
Total100.00%100.00%

The contractual cash flows of the Group’s liabilities excluding derivative financial instruments

The tables below show the contractual maturity analysis presenting the outstanding contractual maturity dates by individual categories of statement of financial position and off-balance sheet liabilities, excluding derivative financial instruments.

The amounts denominated in foreign currencies have been translated using the average NBP exchange rate as at 31 December 2016 and as at 31 December 2015. The amounts disclosed comprise non-discounted future cash flows, both in respect of principal and interest (if applicable), in accordance with the contract, for the entire period to the date of the liability's maturity. In situations where the party to whom the Group has a liability is able to select the settlement deadline, it has been assumed that the earliest date on which the Group is obliged to settle the liability shall be taken into account. In situations where the Group is obliged to settle the liabilities in instalments, each instalment is allocated to the earliest period in which the Group might be obligated to settle. In the case of liabilities where the instalment is not fixed, the terms binding as at the reporting date have been adopted.

Contractual flows of the Group’s liabilities as at 31 December 2016 and as at 31 December 2015 by maturity

Group's liabilities as of 31 December 2016 by maturityUp to 1 month1 - 3 months3 months - 1 year1 - 5 yearsOver 5 yearsContractual amountCarrying amount
Liabilities:
Amounts due to the Central Bank4.1----4.1 4.1
Amounts due to banks1 136.5126.2235.117 515.9-19 013.7 19 208.4
Amount due to customers135 960.119 168.435 333.813 862.98 296.3212 621.5 205 066.4
Debt securities in issue301.2948.42 487.44 148.07 814.615 699.6 14 493.2
Subordinated liabilities-33.046.0351.02 604.03 034.0 2 539.0
Other liabilities3 006.4136.4320.5329.2194.63 987.1 3 987.1
Off-balance sheet liabilities:     - 
granted financial13 608.45 858.813 705.811 233.46 432.750 839.1 -
granted guarantee265.6569.83 704.58 582.71 537.514 660.1 -
     
Group's liabilities as of 31 December 2015 by maturityUp to 1 month1 - 3 months3 months - 1 year1 - 5 yearsOver 5 yearsContractual amountCarrying amount
Liabilities:
Amounts due to the Central Bank4.2----4.2 4.2
Amounts due to banks1 907.80.137.4240.616 385.118 571.0 18 288.8
Amount due to customers126 532.321 867.534 840.310 564.66 191.7199 996.4 195 758.5
Debt securities in issue50.6152.32 771.63 058.74 492.410 525.6 9 432.9
Subordinated liabilities-33.044.2319.32 650.33 046.8 2 499.2
Other liabilities2 697.87.5302.2147.4201.33 356.2 3 356.2
Off-balance sheet liabilities:       
granted financial28 675.0814.83 898.23 102.46 269.742 760.2 -
granted guarantee1 415.31 604.02 456.49 783.61 294.716 554.1 -

The contractual cash flows related to derivative financial instruments

Derivative financial instruments settled in net amounts

Derivative financial instruments settled by the Group on a net basis include:

  • interest rate swaps (IRS),
  • Forward Rate Agreements (FRA),
  • Non Deliverable Forwards (NDF),
  • options.

The tables below show the contractual maturity analysis presenting the outstanding contractual maturity dates by individual categories of derivative financial instruments in respect of which the valuation as at the balance sheet date was negative (a liability).

The amounts denominated in foreign currencies have been translated using the average NBP exchange rate as at 31 December 2016 and as at 31 December 2015. In case of IRS transactions, non-discounted future net cash flows in respect of interest have been presented and in case of the remaining derivative instruments settled on a net basis, the amount of the valuation as at 31 December 2015 and as at 31 December 2014 respectively was adopted as the value of a cash flow.

31 December 2016Up to 1 month1-3 months3 months- 1 year1-5 yearsOver 5 yearsContractual amount
Derivative financial instruments - liabilities:      
- Interest Rate Swap (IRS) transactions(22.4)(16.1)(325.5)(769.5)(179.9)(1 313.4)
- other derivative instruments: options, FRA, NDF(110.0)(72.9)(624.4)(524.4)(0.2)(1 331.9)
     
31 December 2015Up to 1 month1-3 months3 months- 1 year1-5 yearsOver 5 yearsContractual amount
Derivative financial instruments - liabilities:      
- Interest Rate Swap (IRS) transactions(208.3)(263.3)(602.6)(1 625.7)(363.1)(3 063.0)
- other derivative instruments: options, FRA, NDF(153.8)(122.9)(507.3)(886.0)(0.3)(1 670.3)

Derivative financial instruments settled in gross amounts

Derivative financial instruments settled by the Bank on a gross basis include:

  • foreign currency swaps,
  • foreign currency forwards,
  • Cross Currency IRS (CIRS).

The tables below show the contractual maturity analysis, presenting the outstanding contractual maturity dates by individual categories of derivative financial instruments (inflows and outflows) in respect of which valuation the balance sheet date was negative (a liability). The amounts denominated in foreign currencies have been translated using the average NBP exchange rate as at 31 December 2016 and as at 31 December 2015. The amounts disclosed comprise non-discounted future cash flows, both in respect of principal and interest (if applicable).

31 December 2016Up to 1 month1 - 3 months3 months - 1 year1 - 5 yearsOver 5 yearsContractual amount
       
- outflows(7 030.1)(2 243.3)(4 699.8)(3 089.5)(40.5)(17 103.2)
- inflows8 057.72 593.34 944.09 907.8141.725 644.5
 
31 December 2015Up to 1 month1 - 3 months3 months - 1 year1 - 5 yearsOver 5 yearsContractual amount
       
- outflows(6 078.1)(1 991.9)(2 657.2)(3 522.8)(507.6)(14 757.6)
- inflows6 027.81 676.52 983.29 679.81 336.021 703.3

Short-term and long-term assets and liabilities

The Group classifies an asset as short-term when:

  • it expects to realize the asset or intends to sell or consume it in the course of the normal operating cycle,
  • is in possession of the asset primarily for the purpose of trading,
  • it expects that the asset will be realized within twelve months after the reporting period or
  • the asset is cash or a cash equivalent (as defined in IAS 7) unless it is restricted from being exchanged or used to settle a liability for at least twelve months from the end of reporting period.

All other assets of the unit are classified as long-term assets.

The Group classifies a liability as short-term when:

  • it expect that it will be settled in the normal operating cycle,
  • it holds the liability for the purpose of trading,
  • its maturity is within twelve months from the end of the reporting period,
  • the entity does not have an unconditional right to defer settlement of the liability for at least twelve months after the reporting period.

All other liabilities are classified as long-term liabilities.

31.12.2016Short-termLong-termImpairment allowancesTotal carrying amount
Cash and balances with the Central Bank13 325.1--13 325.1
Amounts due from banks5 333.112.5(0.2)5 345.4
Trading assets326.4--326.4
Derivative financial instruments997.61 903.0-2 900.6
Financial instruments designated upon initial recognition at fair value through profit and loss10 993.42 943.8-13 937.2
Loans and advances to customers48 221.7160 387.5(8 002.7)200 606.5
Investment securities available for sale1 924.135 095.7(344.2)36 675.6
Investment securities held to maturity97.5368.1-465.6
Inventories284.7-(24.8)259.9
Other assets5 510.86 884.8(665.2)11 730.4
     
Total assets87 014.4207 595.4(9 037.1)285 572.7
     
Amounts due to the Central Bank4.1--4.1
Amounts due to banks3 562.215 646.2-19 208.4
Derivate financial instruments1 627.82 570.1-4 197.9
Amounts due to customers186 904.718 161.7-205 066.4
Liabilities related to insurance activities161.42 782.2-2 943.6
Debt securities in issue3 704.910 788.3-14 493.2
Subordinated liabilities-2 539.0-2 539.0
Other liabilities3 945.8605.7-4 551.5
     
Total liabilities 199 910.9 53 093.2 - 253 004.1
Equity-32 568.6-32 568.6
Total liabilities and equity 199 910.9 85 661.8 - 285 572.7
     
31.12.2015Short-termLong-termImpairment allowancesTotal carrying amount
Cash and balances with the Central Bank13 743.9--13 743.9
Amounts due from banks4 553.4-(0.4)4 553.0
Trading assets783.2--783.2
Derivative financial instruments1 400.12 947.2-4 347.3
Financial instruments designated upon initial recognition at fair value through profit and loss12 268.22 885.9-15 154.1
Loans and advances to customers49 020.4149 680.5(8 287.2)190 413.7
Investment securities available for sale1 154.627 287.4(132.5)28 309.5
Securities held to maturity185.325.0-210.3
Inventories172.6265.5(37.2)400.9
Other assets3 866.95 760.5(603.4)9 024.0
     
Total assets 87 148.6 188 852.0 (9 060.7) 266 939.9
     
Amounts due to the Central Bank4.2--4.2
Amounts due to banks4 062.814 226.0-18 288.8
Derivate financial instruments1 185.03 439.8-4 624.8
Amounts due to customers182 754.313 004.2-195 758.5
Liabilities related to insurance activities120.42 280.1-2 400.5
Debt securities in issue3 107.16 325.8-9 432.9
Subordinated liabilities-2 499.2-2 499.2
Other liabilities3 255.0411.1-3 666.1
     
Total liabilities 194 488.8 42 186.2 - 236 675.0
Equity-30 264.9-30 264.9
Total liabilities and equity 194 488.8 72 451.1 - 266 939.9