Liquidity risk

The objective of liquidity risk management is to ensure and maintain the Group’s ability to meet both current, as well as future funding requirements taking into account costs of funding.

Liquidity risk reflects the possibility of incurring significant losses as a result of deteriorated financing conditions (financing risk) and/or of the sale of assets for less than their market value (market liquidity risk) to meet the needs for funding arising from the Group’s obligations.

There were no exposures to liquidity risk at a subsidiary level, because the Bank manages liquidity risk centrally. Both the financing requirements and any liquidity surplus of subsidiaries are managed by transactions with the Bank, unless specific market transactions are previously decided and agreed. The Treasury Department is responsible for the day-to-day management of the Group’s liquidity position in accordance with the adopted rules and procedures taking into account goals defined by the Management Board and the Capital, Assets and Liabilities Committee.

Consequently, the large, diversified and stable funding from retail, corporate and public sector Clients remains the main source of financing of the Group. At the end of 2016 total Clients’ deposits of the Group reached the level of PLN 55.9 billion. The growth of the deposits were driven mostly by funds of individuals, of which the share in total Client’s deposits grow to approx. 71.0% at the end of December 2016 from 67.4% at the end of December 2015. The increasing share of funds from individuals had a positive impact on the Group’s liquidity and supported the compliance of the supervisory measures.

Concentration of the deposits base, based on the share of top 5 and 20 depositors, at the end of 2016  amounted respectively to 4.1 % and 7.2 % (in December 2015 it was respectively 3.7 % and 7.4 %). The level of deposit concentration is regularly monitored and did not have any negative impact on the stability of the deposit base in 2016. In case of significant increase of the share of the largest depositors, the additional funds from the depositors are not treated as stable. Despite of that, in order to prevent deposit base fluctuations, the Group maintains the reserves of liquid assets in the form of securities portfolio.

The deposit base is supplemented by the deposits from financial institutions and other money market operations. The source of medium-term funding remains also medium-term loans, subordinated debt and own bonds issue.

During 2016 the Bank continued to explore the possibility of raising additional funding from loans from financial institutions, bond issues and bank’s securities in order to diversify the source of funding. In February 2016, a 5-year loan from the EBRD in the amount of EUR 50.0 million was disbursed (signed in December 2015). The total balance sheet value of medium-term loans from financial institutions at the end of 2016 amounted to PLN 898 million (at the end of December 2015 it was PLN 830 million).  In 2016 the Bank issued PLN 118 million of 3-year bank’s securities whereas Millennium Leasing issued 5 series of 2-year bonds in nominal amount of PLN 124 million. At the end of December 2016 the total nominal value of bonds and bank’s securities issued by the Group (placed in both institutional and individual investors) amounted to PLN 1 316 million (PLN 1 139 million in nominal value in December 2015).

In 2016 the increase of the deposits from Customers at the faster pace than loans, allowed Group to maintain Loan-to-Deposit ratio well below 100%. This ratio, including own issues sold to individuals and sell-buy back transactions with customers, decreased at the end of December 2016 and was equal to 84% (comparing to level of 88% as of end of December 2015). The Group continue the policy of investing the liquidity surplus in the portfolio of liquid assets, especially in the debt securities with low specific risk (Polish Government Bonds, Treasury and NBP Bills) of which the share in total debt securities amounted to 99% at the end of December 2016.  During 2016 this portfolio grew by 23% from PLN 14.0 billion at the end of December 2015 (21% of total assets) to approx. PLN 17.3 billion at the end of December 2016 (25% of total assets). Those assets are characterized with high liquidity and can be easily used as a collateral or sold without material loss on its value. The portfolio, supplemented by the cash and exposures to the National Bank of Poland, is treated as the Group’s liquidity reserve, which can overcome crisis situations.

The Group manages FX liquidity through the use of FX-denominated bilateral loans as well as subordinated debt, Cross Currency Swap and FX Swap transactions. The swaps portfolio is diversified in term of counterparties and maturity dates. For the majority of counterparties the Group has signed a Credit Support Annex to the master agreements. As a result, in case of unfavourable changes of FX rates (PLN depreciation), the Group is obliged to place deposits as a collateral with counterparties in order to secure the settlement of derivative instruments in the future, and in case of favourable FX rates changes (PLN appreciation) receives deposits as a collateral from the counterparties. In none of signed ISDA Schedules and Credit Support Annex (both international and domestic) there exists a relationship between level of the Bank’s ratings and parameters of collateral. The potential downgrade of any of the ratings will not have impact on method of calculation and collateral exchange.

The Group assesses the possibility of unfavourable changes of FX rates (especially CHF and EUR, which causes increase of liquidity needs), analyses the impact on liquidity risk and reflects this risk in the liquidity plans.



Liquidity risk evaluation measures +

The estimation of the Group’s liquidity risk is carried out with the use of both measures defined by the supervisory authorities and internally, for which exposure limits were established.

The evolution of the Group’s liquidity position in short-term horizons (up to 3 months) is tested daily on the basis of two internally defined indicators: immediate liquidity and quarterly liquidity. Both such indicators measure the maximum borrowing requirement, which could arise on a particular day, taking into consideration the cash-flow projections for spot date and period of 3 months, respectively. Additionally, the liquid asset portfolio is calculated on the daily basis.

These figures are compared with the exposure limits in force and reported daily to the areas responsible for the management and control of the liquidity risk in the Group. During 2016, all internal liquidity indicators were well above minimum limits. In 3Q 2016, the internal limits were revised. The revision of the limits took into account the size of the consolidated own funds, current and expected balance sheet structure, historical consumption limits, as well as current market conditions. The new limits are effective from 1st October 2016.


Current Liquidity indicators PLN million
Immediate liquidity ratio* Quarterly liquidity ratio* Liquid assets for coverage of sources of financing volatility**
Exposure 14 131 14 113 16 950
Minimum limit 900 (2 249) 8 000



Immediate liquidity ratio* Quarterly liquidity ratio* Liquid assets for coverage of sources of financing volatility**
Exposure 10 369 9 093 12 900
Minimum limit (790) (3 160) 2 000

*Immediate and Quarterly Liquidity Indicator: The sum of cash flows in spot date or during the next 3 months respecitively, Nostro Balance (the algebraic sum for all currencies reduced by obligatory reserve) and Highly Liquid Assets.

**Liquid Assets Portfolio: The sum of Polish Goverenment debt securities, NBP-Bills and due from banks (up to 1 month). The debt securities portfolio is reduced by securities encumbered for non liquidity purposes.

The Group monitors liquidity on the basis of internal liquidity measures, taking into account in particular the impact of FX rates on the liquidity situation.

According to the Regulation of European Parlament and Council no 575/2013 on prudential requirements for credit insitutions and investment firms (CRR), the Group is calculating the liquidity coverage requirement (LCR). The regulatory minimum of 70% for LCR valid in 2016 was complied by the Group (as of the end of December 2016 the LCR reached the level of 124%). The measure is calculated daily and has been reported on the monthly basis to NBP since March 2014. Internally, the LCR is estimated daily and reported to the areas responsible for the management and control of the liquidity risk in the Group.

Additionally the Group employs an internal structural liquidity analysis based on cumulative liquidity gaps calculated on a real basis (i.e. assuming the probability of cash flow occurrence). The safe level adopted by the Group for the ratio of liquidity shortfall is established for each time bucket below 5 years.

In 2016 liquidity gaps were maintained at levels significantly above the safe limits.

The Group has developed a liquidity risk management tool defining stress scenarios under which liquidity gaps are calculated on a real basis assuming a conservative approach to the assessment of probability of cash flow occurrence (among others taking into account a reduction of deposits, delays of loans repayment, deteriorated liquidity of the secondary securities market, the highest cost of funding – the assumption of the worst observed margins on deposits in the Bank, parallel shift of the yield curve and PLN depreciation).


Adjusted Liquidity Gap (PLN million) up to 6M 6M to 12M 1Y to 2Y 2Y to 3Y 3Y to 5Y over 5Y
Adjusted balance assets 24 096 4 745 6 501 6 224 7 840 27 032
Adjusted balance liabilities 9 719 3 299 4 997 3 742 6 407 44 551
Balance-Sheet Gap 14 378 1 446 1 504 2 482 1 433 (17 519)
Cumulative Balance-Sheet Gap 14 378 15 823 17 327 19 809 21 242 3 723
Adjusted off-balance assets 133 71 115 88 542 15
Adjusted off-balance liabilities (1 040) (83) (121) (107) (113) (35)
Off-Balance Sheet Gap (907) (12) (6) (19) 429 (20)
Total Gap 13 471 1 434 1 498 2 463 1 862 (17 539)
Total Cumulative Gap 13 471 14 905 16 403 18 866 20 728 3 189


Adjusted Liquidity Gap (PLN million) up to 6M 6M to 12M 1Y to 2Y 2Y to 3Y 3Y to 5Y over 5Y
Adjusted balance assets 26 811 4 830 6 343 5 683 7 323 27 177
Adjusted balance liabilities 10 092 3 505 6 217 4 845 6 769 42 767
Balance-Sheet Gap 16 719 1 325 127 838 555 (15 590)
Cumulative Balance-Sheet Gap 16 719 18 045 18 171 19 010 19 564 3 974
Adjusted off-balance assets 146 113 165 123 433 53
Adjusted off-balance liabilities (920) (92) (120) (93) (139) (50)
Off-Balance Sheet Gap (774) 21 45 30 294 3
Total Gap 15 945 1 346 172 868 848 (15 588)
Total Cumulative Gap 15 945 17 291 17 463 18 331 19 180 3 592


Stress tests are performed at least quarterly, to determine the Group’s liquidity-risk profile, to ensure that the Group is in a position to fulfil its obligations in the event of a liquidity crisis and to update the liquidity contingency plan and management decisions.

The results of the stress test analysis demonstrated that the liquidity indicators will be maintained above the established limits.

The information regarding the liquidity risk management, including the utilization of the established limits for internal and supervisory measures, is reported monthly to the Capital, Assets and Liabilities Committee and quarterly to the Management Board and Supervisory Board.

The process of the Group’s planning and budgeting covers the preparation of the Liquidity Plan in order to make sure that the growth of business will be supported by an appropriate liquidity financing structure and supervisory requirements in terms of quantitative liquidity measures will be met.

The Group has also emergency procedures for situations of increased liquidity risk – the Liquidity Contingency Plan (contingency plan in case the Group’s financial liquidity deteriorates).  The Liquidity Contingency Plan establishes the concepts, priorities, responsibilities and specific measures to be taken in the event of a liquidity crisis. The Liquidity Contingency Plan is revised at least once a year. In 2016 the Liquidity Contingency Plan was tested and revised in order to guarantee that it is operationally robust as well as it complies with provisions of the amended Recommendation P. The revised Plan was approved by the Supervisory Board in December 2016.

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