Liquidity risk management

 

NIBC defines liquidity risk as the inability of the company to fund its assets and meet its obligations as they become due, at acceptable cost.

 

One of the cornerstones of NIBC’s liquidity risk management framework is to maintain a comfortable liquidity position. The current credit and liquidity crisis made liquidity risk management even more important. NIBC was able to maintain a sound liquidity position in the difficult times of 2008 and 2009 due to the prudent and conservative liquidity and funding policy in the past, as well as by diversifying funding sources. The expansion of the online retail savings programme NIBC Direct, as well as medium-term note issues using the Dutch State’s Credit Guarantee Scheme, were the major funding initiatives undertaken in 2009. In addition, NIBC was able to maintain the collateralised funding capacity that creates additional liquidity buffers.

 

 

Stress scenario

Based on projections prepared by the business units and reviewed by Risk Management, and the current asset and liability maturity profiles, a liquidity stress test is prepared and presented once every two weeks to the ALCO, in order to create continuous monitoring of the liquidity position. Note 56 to the consolidated financial statements provides more details on the assumptions behind the stress test.

 

Graphs 24 and 25 show the strong liquidity buffer in the stress scenario at year-end 2009 and year-end 2008. Although this analysis focuses on the next 12 months, the liquidity buffer in the liquidity stress test remains positive for longer periods.

 

The available liquidity, as presented in graphs 24 and 25, is comprised of:

• A projected pool of cash plus collateralised funding capacity, minus a buffer for intraday payments and potential CSA collateral cash outflows, at each month-end;
• A reduction to the available pool created by maturing liabilities and other projected outflows (e.g. from new business); and
• An increase in the available pool created by maturing assets and a conservative estimate of retail funding proceeds in 2010.

Graph 24 Stress scenario, short-term analysis, 31 December 2009

Graph 25 Stress scenario, short-term analysis, 31 December 2008

 

 

A comparison of the forecast 12-month liquidity stress test at 31 December 2008 with the forecast test at 31 December 2009 shows that the outcome of the stress test after 12 months is positive in both years. Furthermore, the liquidity measures taken in 2009, as explained below, resulted in a better liquidity position at the end of 2009 than it had been forecast at the end of 2008.

 

At the end of 2009, a large buffer of cash and collateralised funding capacity is available to cover the expiring funding in 2010. Due to the additional government-guaranteed issues in 2009 and higher than expected new retail savings proceeds, the realised liquidity buffer at the end of 2009 turned out to be higher than expected at the beginning of 2009. In 2010 the liquidity buffer of NIBC is expected to remain at a comfortably high level.

 

In addition to the 12-month liquidity stress analysis above, NIBC also conducts a liquidity analysis over a period of 36 months once every two weeks. This analysis assumes a possible growth in the size of the books in combination with funding initiatives as, for example, certain forms of secured funding. The analysis assumes no issuance of wholesale unsecured funding. The outcome of this 36-month liquidity analysis shows again a positive buffer throughout the period.

 

 

Funding

NIBC further diversified its funding base by the initiatives mentioned earlier. An overview of the Funding portfolio at 31 December 2009 and 31 December 2008 is shown in graphs 26 and 27. Note that the numbers of total funding for both years exclude funding from external securitisations.

Graph 26 Breakdown of total Funding portfolio, 31 December 2009 (EUR 18,150 million)

Graph 27 Breakdown of total Funding portfolio, 31 December 2008 (EUR 16,115 million)