Financial and
ESG report 2020

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.

In 2020, the COVID-19 pandemic had an impact on global financial markets resulting in depreciation of Polish Zloty, limited confidence among market participants through lower possibilities of financing as well as a temporary, sharp decline in activity on the treasury securities market. Despite COVID-19’s implications observed in the market mentioned above, the Bank did not observe any threat to its liquidity position due to the spread of COVID-19. The Group continued to be characterized by solid liquidity position.

In 2020, in consequences of the increase of the loans at the faster pace than deposits from Customers, the Group’s Loan-to-Deposit ratio also increased and was equalled to 91% at the end of December 2020 (comparing to level of 86% as of end of December 2019). Apart from the increase, the Group kept its Loan-to-Deposit ratio well below 100% in line with its risk appetite defined for 2020.

The liquid assets portfolio, that is portfolio of government debt securities, supplemented by the cash and exposures to the National Bank of Poland, is treated as the Group’s liquidity reserve, which will overcome crisis situations. At the end of 2020, the share of Polish government securities (including NBP Bills) in total securities portfolio amounted to 98% and allowed to reach the level of approx. PLN 18.4 billion (19% of total assets), whereas at the end of December 2019 was at the level of approx. PLN 22.5 billion (23% of total assets).

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 2020 total Clients’ deposits of the Group reached the level of PLN 81.5 billion. The deposit base constituted mainly funds of individuals Clients, of which the share in total Client’s deposits equalled to approx. 75.9% at the end of December 2020 (75.0% at the end of December 2019). The high share of funds from individuals had a positive impact on the Group’s liquidity and supported the compliance and further grows of the supervisory liquidity measures.

Concentration of the deposits base, based on the share of top 5 and top 20 depositors, at the end of 2020 amounted respectively to 2.8% and 4.8 % (in December 2019 it was respectively 2.3% and 4.9%). The level of deposit concentration is regularly monitored and did not have any negative impact on the stability of the deposit base in 2020. 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, own bonds issue and bank’s securities.

During 2020 no new bonds and bank’s securities were issued within the Group, and no new loans were taken from financial institutions. The total balance sheet value of medium-term loans from financial institutions at the end of 2020 amounted to PLN 517.3 million (at the end of December 2019 it was PLN 1 166.1 million). The decrease of the total amount of the medium-term loans from financial institutions was mainly connected with final repayment of 3 year, senior unsecured loan of 80 million EUR from Industrial and Commercial Bank of China (Europe) S.A., Branch in Poland (ICBC Europe) as well as voluntary prepayment of two tranches in total amount of EUR 45 million of loan in original amount of EUR 100 million granted to the Millennium Leasing by the European Investment Bank (EIB) in 2018.

At the end of December 2020 the total balance sheet value of bonds and bank’s securities issued by the Group (without subordinated bonds) amounted to PLN 558.6 million (PLN 1 183.2 million in nominal value in December 2019). This amount also includes 4-year bonds originally issued by the Euro Bank S.A. (nominal value of PLN 250 million), maturing on 1st December 2021. In 2020, the Group bought back its own debt securities with a nominal value of PLN 626.9 million. In 2020, the Bank redeemed bank securities with a nominal value of PLN 221.2 million and in April 2020, in line with the maturity date, 3-year bonds of series T with a nominal value of PLN 300 million and Millennium Leasing redeemed bonds with a nominal value of PLN 105.7 million.

The Group manages FX liquidity through the use of FX-denominated bilateral loans as well as 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.

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 is tested daily on the basis of liquid asset portfolio, Central Bank’s eligible collateral for standard monetary operation and two internally defined indicators: immediate liquidity and quarterly liquidity. The last two 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.

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 as well as presented in monthly and/or quarterly basis to the Bank’s Management Board and Supervisory Board.

During 2020, above mentioned internal liquidity indicators were well above minimum limits. The liquidity risk limits are revised at least once a year in order to take into account, inter alia, the change of the size of the consolidated own funds, current and expected balance sheet structure, historical limits’ consumption, as well as current market conditions and supervisory requirements. The current limits in place have been valid since 1st January 2020 and will be replaced by revised limits on 1st January 2021.

According to the Regulation of European Parliament and Council no 575/2013 on prudential requirements for credit institutions and investment firms (CRR), the Group is calculating the liquidity coverage requirement (LCR). The regulatory minimum of 100% for LCR valid in 2020 was compiled by the Group (as of the end of December 2020 the LCR reached the level of 161%). 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. In 2020, the Group complied also with supervisory measures imposed by KNF Resolution 386/2008 as well as regularly calculated net stable funding requirement (NSFR). In each of the quarter, the NSFR was above planned supervisory minimum of 100% (supervisory minimum will be valid in June 2021).

Current Liquidity indicators PLN million

Immediate liquidity ratio
(m PLN)*
Quarterly liquidity ratio
(m PLN)*
Central Bank Collateral / Total Deposits (%)** Liquid assets Portfolio
(m PLN)***
LCR (%)
Indicator 17 235 17 289 21% 18 250 161%

(% of total assets)

21% 21% 21%
Minimum limit 10% 10% 15% 12 000 100%



Immediate liquidity ratio
(m PLN)*
Quarterly liquidity ratio
(m PLN)*
Central Bank Collateral / Total Deposits (%)** Liquid assets Portfolio (m PLN)*** LCR (%)
Indicator 18 795 18 795 n.a.- 22 795 171%
Minimum limit 957 (1 596) n.a.- 12 000 100%
* -Immediate and Quarterly Liquidity Indicator: The value of the liquidity buffer available for discount with the Central Bank minus the net outflows (projected for the next 3 working days for Immediate Liquidity Indicator and for the next 3 months for Quarterly Liquidity Indicator in all convertible currencies).
** -Central Bank Collateral / Total Deposits: The ratio between the value after haircuts of the eligible collateral for European Central Banks and the total deposits. This ratio is calculated based on the face amount of the referred products.
*** -Liquid Assets Portfolio: The sum of cash, exposure to Central Bank (the surplus above the required obligatory reserve) and Polish Government debt securities, NBP-Bills and due from banks with maturity up to 1 month. The debt securities portfolio is reduced by NBP haircut for repo transactions and 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.

Additionally the Group employs an internal structural liquidity analysis based on cumulative, behaviour 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 December 2020, liquidity gaps were maintained positive, however in period between 7 days and 1 month cumulated liquidity gap temporary exceeded established minimum limit (conservatively set at 12% of Group’s total assets) and reached 93% of its level. Hence, exceeding the limits for the liquidity gap should not be equated with any liquidity risk. The lowering of liquidity gaps was temporary and was the result of decrease of liquid assets, due to considerable outflow of deposits from corporate and financial customers at the end of year. The results of cumulative, behaviour liquidity gaps (normal conditions) are presented in tables below.

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 27 740 7 286 12 584 9 874 13 861 38 160
Adjusted balance liabilities 13 075 4 649 8 351 6 358 9 321 59 142
Balance-Sheet Gap 14 665 2 637 4 233 3 516 4 539 (20 982)
Cumulative Balance-Sheet Gap 14 665 17 303 21 536 25 052 29 591 8 609
Adjusted off-balance assets 82 53 75 70 23 2
Adjusted off-balance liabilities (1 400) (49) (83) (65) (35) (4)
Off-Balance Sheet Gap (1 318) 4 (8) 5 (12) (2)
Total Gap 13 347 2 641 4 225 3 521 4 528 (20 984)
Total Cumulative Gap 13 347 15 989 20 214 23 735 28 263 7 278

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 33 558 6 884 11 756 9 705 12 790 36 047
Adjusted balance liabilities 11 067 4 415 8 205 6 494 9 393 63 202
Balance-Sheet Gap 22 491 2 469 3 551 3 211 3 397 (27 155)
Cumulative Balance-Sheet Gap 22 491 24 960 28 511 31 722 35 119 7 965
Adjusted off-balance assets 216 249 80 37 32 4
Adjusted off-balance liabilities (1 435) (71) (87) (39) (48) (8)
Off-Balance Sheet Gap (1 219) 178 (7) (2) (15) (4)
Total Gap 21 272 2 647 3 545 3 209 3 382 (27 159)
Total Cumulative Gap 21 272 23 919 27 464 30 673 34 055 6 896

The Group has developed a liquidity risk management tool defining sensitivity analysis and stress scenarios (idiosyncratic, systemic and combination of both). For the purpose of stress tests, 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.

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. Additionally, stress test results are used for setting thresholds for early warning signals, which aim is to identify upcoming liquidity problems and to indicate to the Management Board the eventual necessity of launching Liquidity Contingency Plan.

As of December 2020, the results of the stress test analysis demonstrated that the most severe is combined scenario (joined idiosyncratic and systemic shocks) of which the survival period is below 4 months, however still above the limit of 3 months.

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 2020 the Liquidity Contingency Plan was tested and revised in order to guarantee that it is operationally robust. The Plan also adapted revised warning thresholds for early warning indicators, taking into account scenarios and stress test results. The revised Plan was approved by the Supervisory Board in October 2020.

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