12.2.2. Liquidity risk

mBank organises liquidity risk management processes in line with the principles and requirements defined in PFSA Resolution No. 258/2011 of 4 October 2011, PFSA Resolution No. 386/2008 of 17 December 2008 on establishing liquidity measures binding on banks, and best practice, in particular PFSA recommendations on liquidity risk management (Recommendation P).

Tools and measures

In its operations, mBank is exposed to liquidity risk, i.e., the risk of being unable to honour its payment obligations, arising from the Bank’s balance-sheet and off-balance-sheet positions, on terms advantageous to the Bank and at a reasonable price.

In terms of its sources, liquidity risk may result from internal factors (reputation risk resulting for instance in excessive withdrawal of cash by Bank clients, materialisation of credit risk) and external factors (turbulences and crises on the financial markets, country risk, turbulences in the operation of clearing systems).

For this purpose, the Bank has defined a set of liquidity risk measures and a system of limits and warning thresholds which protect the Bank’s liquidity in the event of unfavourable internal or external conditions. Independent measurement, monitoring and controlling of liquidity risk is performed daily by the Financial Markets Risk Department. The main measures used in liquidity risk management of the Bank include ANL (Available Net Liquidity), the regulatory measures (M1, M2, M3, M4), and LCR and NSFR for analysis only. ANL reflects the projected future cash flow gap of assets, liabilities and off-balance-sheet commitments of the Bank, which represents potential risk of being unable to meet liabilities within a specific time horizon and under a certain scenario. ANL cash flow projections are based on crisis scenarios which include excessive withdrawal of cash by the Bank’s clients and being unable to liquidate some assets due to an external crisis.

In 2014, mBank continued to harmonise with the CRR requirements for LCR and NSFR liquidity measures. The implementation work was completed when the LCR/NSFR calculation methodology was approved by the Financial Markets Risk Committee in March 2014. Since 31 March 2014, LCR has been calculated according to CRR and reported to the National Bank of Poland.

Strategy

The liquidity strategy is pursued by active management of the balance sheet structure and future cash flows as well as maintenance of liquidity reserves adequate to liquidity needs depending on the activity of the Bank and the current market situation as well as funding needs of the Group subsidiaries.

The Bank manages liquidity risk at two levels: strategic (within committees of the Bank) and operational (Treasury Department).

Liquidity risk limiting covers supervisory and internal measures.

The first category includes four liquidity measures determined by the Polish Financial Supervision Authority: M1, M2, M3 and M4, as well as liquidity measures required by the CRD IV/CRR: LCR (Liquidity Coverage Ratio) and NSFR (Net Stable Funding Ratio).

The liquidity risk internal limit system is based mainly on defining acceptable gaps for ANL tenors in specific time horizons and for different liquidity risk profiles (for all currencies in aggregate converted to PLN) and for specific foreign currencies.

The Bank has introduced a centralized approach to the Group’s funding management in order to increase the efficiency of liquidity resources used. According to its principles, the mBank Hipoteczny acquires additional financing on the market by issuance of mortgage bonds and from mBank, while mLeasing and other subsidiaries acquire almost entire financing from mBank. Financing of subsidiaries is done via the Treasury Department.

Centralized approach to the financing of the Group subsidiaries enables to ensure better timely matching of the funding and the uniform treatment of particular subsidiaries within the unified system of transactional rates.

Measuring mBank’s liquidity risk

The liquidity of mBank remained safe in 2014, as reflected in the high surplus of liquid assets over short-term liabilities in the ANL tenors and in the regulatory measures.

The table below presents the ANL gap for tenors up to 1M and 1Y in 2014 as well as the regulatory measures M1, M2 and LCR:

 

 

Measure*

2014

31.12.2014

average

max

min

ANL 1M

11,169

7,104

13,052

1,142

ANL 1Y

11,180

8,183

13,389

3,939

M1

12,302

9,039

15,006

4,993

M2

1.52

1.36

1.70

1.16

LCR**

149%

134%

149%

114%

(*) – ANL and M1 are shown in PLN million. M2  is a relative measure presented as decimals.

(**) – LCR statistics cover the period from March 31 2014 (the LCR calculation methodology was amended as of the end of March 2014).

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The reported minimum ANL gap was a short-term observation resulting mainly from a sudden outflow of cash deposited by a financial client.

The long-term coverage measures (M3, M4) were stable and safe, above the minimum set by the regulator at 1. In particular, M3 ranged from 4.61 to 6.05 and M4 ranged from 1.19 to 1.33 in 2014. LCR remained safe, well above 100%.

Measuring the Group’s liquidity risk

The Group’s liquidity risk measurement includes mBank Hipoteczny, mLeasing and, as of August 1, 2014, also Dom Maklerski mBanku. mBank monitors liquidity risk of the subsidiaries in the ANL tenors so as to protect liquidity also at Group level in the event of adverse events (crises).

The Group’s liquidity was safe in 2014, as reflected in the high surplus of liquid assets over short-term liabilities in the ANL tenors calculated at Group level.

The table below presents the ANL gap for tenors up to 1M and 1Y at Group level:

 

 

PLN million

2014

31.12.2014

average

max

min

ANL 1M

12,783

7,967

14,457

1,492

ANL 1Y

12,717

9,109

14,918

4,701

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