70. Liquidity risk management

PKO Annual
Report Online

Liquidity risk is the risk of inability to settle liabilities as they become due because of the absence of liquid assets. The lack of liquidity may be due to the inappropriate structure of assets and liabilities, including off-balance sheet, a mismatch of cash flows, customers failing to settle their liabilities, a sudden withdrawal of funds by the customers or other market events.

The Group also manages the financing risk which takes into account the risk of losing the existing sources of financing and the inability to renew the required means of financing or the loss of access to new sources of financing.

To ensure the necessary level of funds needed to settle current and future liabilities (also potential ones) as they become due, taking into account the nature of the activities conducted and the needs which may arise due to changes in the market environment, by appropriately establishing the structure of balance sheet and off-balance sheet assets and liabilities.

The Group uses the following measures of the liquidity risk:

  • contractual and adjusted liquidity gap;
  • liquidity surplus;
  • liquidity reserve;
  • the ratio of stable funds to illiquid assets;
  • liquidity coverage ratio (LCR);
  • domestic supervisory liquidity measures (M3-M4);
  • measures of stability of the deposit and loan portfolios;
  • liquidity stress tests.

Control over the liquidity risk consists in 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.

The following measures are monitored by the Group on a regular basis:

  • utilization of the strategic limit of tolerance to liquidity risk;
  • utilization of regulatory liquidity standards;
  • utilization of internal limits and thresholds of liquidity risk;
  • concentration of the sources of financing;
  • early warning indicators – monitored for the early detection of unfavourable occurrences which may have a negative impact on the Group’s or the financial sector’s liquidity position (when exceeded, early warning indicators trigger liquidity contingency plans).

The Group also makes regular liquidity forecasts which take into account the current developments in the Group’s operations. Liquidity forecasts include primarily the levels of selected liquidity risk measures envisaged in the forecasts of the Group’s assets and liabilities and in selected stress test scenarios.

Liquidity reports are developed on a daily, weekly, monthly and quarterly basis and once a year, an in-depth long-term liquidity analysis is performed. The reports contain information on liquidity risk exposure and on the risk limits utilization. The reports are addressed mainly to: ALCO, RC, the Management Board, the Risk Committee and the Supervisory Board.

The main tools for liquidity risk management used by the Group are:

  • procedures for liquidity risk management, in particular contingency plans;
  • limits and thresholds to mitigate short-term, medium-term and long-term liquidity risk;
  • national and European supervisory liquidity standards;
  • deposit, investment and securities transactions and well as derivatives, including structural currency transactions and transactions for the sale or purchase of securities;
  • transactions ensuring long-term financing of the lending activities.

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

Financial information

Liquidity gap

The adjusted liquidity gap comprises a set of particular balance sheet and off-balance sheet categories in respect of their adjusted maturities. The liquidity gaps presented below represent the sum of adjusted liquidity gaps of the Bank (adjustments relate to, among other things, the Bank’s core deposits from non-financial entities and their maturities, overdrafts and credit cards and their maturities, and liquid securities and their maturities), PKO Bank Hipoteczny, PKO Leasing S.A., KREDOBANK S.A. and PKO Życie Towarzystwo Ubezpieczeń S.A., and the contractual liquidity gaps of the other Group companies.

on demand 0 – 1 month 1 – 3 months 3 – 6 months 6 – 12 months 12 – 24 months 24 – 60 months over 60 months
Adjusted periodic gap 6 920 70 393 (5 774) (4 210) (3 114) 3 468 18 210 (85 893)
Adjusted cumulative periodic gap 6 920 77 313 71 539 67 329 64 215 67 683 85 893
Adjusted periodic gap 11 355 30 783 (8 092) (7 285) (3 317) 5 024 18 205 (46 673)
Adjusted cumulative periodic gap 11 355 42 138 34 046 26 761 23 444 28 468 46 673                     –
1 brought to comparability with the data as at 31 December 2019.

In all time horizons, the adjusted cumulative liquidity gap of the Group, determined as the sum of the adjusted liquidity gaps of the Bank, PKO Bank Hipoteczny S.A., PKO Leasing S.A., KREDOBANK and PKO Życie Towarzystwo Ubezpieczeń S.A. and the contractual liquidity gaps of the other Group companies with respect to items of the statement of financial position, was positive both as at 31 December 2020 and 31 December 2019. This means a surplus of the assets receivable over the liabilities payable.

Supervisory liquidity measures

The following supervisory liquidity measures are regularly set and monitored at the Bank and the Group:

  • Liquidity Coverage Ratio (LCR) – defining the relation of high-quality liquid assets to net outflows in the 30-day horizon in stress conditions (supervisory measure specified in the CRR Regulation);
  • Net Stable Funding Ratio (NSFR) – a measure defining the relationship of items providing stable funding to items requiring stable funding;

The following supervisory liquidity measures are regularly set and monitored at the Bank:

  • M3 – non-liquid assets to own funds (national supervisory ratio);
  • M4 – non-liquid assets and assets with limited liquidity to own funds and stable external funds (national supervisory ratio).

M3 – coverage ratio of non-liquid assets to own funds 12,59 14,92
M4 – coverage ratio of non-liquid assets and liquidity-restricted assets with own funds and stable external funds 1,43 1,25
NSFR – net stable funding ratio 134,7% 123,1%
LCR – liquidity coverage ratio 227,6% 146,3%

In the period ended 31 December 2020 and 31 December 2019, liquidity measures remained above their respective supervisory limits. The LCR and NSFR ratios in the table refer to the Group, while the M3-M4 indicators refer to the Bank.

Core deposit base

As at 31 December 2020, the core deposit base constituted approx. 94.3% of all deposits placed with the Bank (excluding the interbank market), which represents an increase of approx. 0.5 p.p. compared with the end of 2019.

Structure of the sources of financing

Total deposits (excluding interbank market) 77,97% 76,44%
Interbank market deposits 0,66% 0,40%
Equity 11,07% 11,59%
Market financing 10,30% 11,57%
Total 100,00% 100,00%

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