— Investor Relations — Risk Management — Liquidity risk
Liquidity risk
Liquidity risk is the risk of losses due to inability of the Bank to fulfill its obligations in full extent. Liquidity risk arises as a result of misbalance in Bank’s assets and liabilities (including the case of untimely fulfillment of financial liabilities by one or several counterparties of the credit organization) and/or unforeseen necessity of immediate and one-off fulfillment by the Bank of its financial liabilities.
The Bank has developed a “Policy on management and estimation of liquidity” determining the basic concepts, purposes and methods of management, methods of estimation and distribution of duties in the area of liquidity management in the Bank. Management Board of the Bank carries out overall management of the process and partially delegates its responsibilities to the Assets and Liabilities Management Committee (ALCO).
The Bank maintains liquidity level, which sufficient to meet all the requirements of the Bank of Russia. First of all it relates to the standards of instant, current and long-term liquidity stipulated by the Instruction dated January 16,
The management of liquidity risk is carried out by the way of coordinating maturities of the Bank’s assets and liabilities, as well as maintaining the required level of highly liquid assets and a certain volume of liquid securities
The Bank seeks to maintain a stable funding base comprising primarily amounts due to other banks, corporate and retail customer deposits and debt securities and invest the funds in diversified portfolios of liquid assets, in order to be able to respond quickly and smoothly to unforeseen liquidity requirements.
The Treasury receives information about the liquidity profile of the financial assets and liabilities. The Treasury then provides for an adequate portfolio of short-term liquid assets, largely made up of short-term liquid trading securities, deposits with banks and other inter-bank facilities, to ensure that sufficient liquidity is maintained within the Bank as a whole.
The daily liquidity position is monitored and regular liquidity stress testing under a variety of scenarios covering both normal and more severe market conditions is performed by the Treasury Department.
Management believes that in spite of a substantial portion of customers accounts being on demand, diversification of these deposits by number and type of depositors, and the past experience of the Bank would indicate that these customer accounts provide a long-term and stable source of funding for the Bank. The matching and/or controlled mismatching of the maturities and interest rates of assets and liabilities is fundamental to the management of the Bank. It is unusual for banks ever to be completely matched since business transacted is often of an uncertain term and of different types. An unmatched position potentially enhances profitability, but can also increase the risk of losses. The maturities of assets and liabilities and the ability to replace, at an acceptable cost, interest-bearing liabilities as they mature, are important factors in assessing the liquidity of the Bank and its exposure to changes in interest and exchange rates.