ING Bank Śląski | Annual Report 2014


ING BANK ŚLĄSKIAnnual Report 2014

Liquidity Risk Management

ING Bank Śląski recognizes the process of stable liquidity risk management as one of the most important processes in the Bank. 

Liquidity and Funding  Risk is understood by Bank as the risk of not being able to meet at a reasonable price the cash obligations arising from on- and off-balance sheet positions. Bank maintains liquidity in such a way that the cash obligations of the bank can always be done by available funds, inflows from maturing transactions, available funding source at market prices and/or from the liquidation of marketable assets. 

To optimize its liquidity risk management, Bank has developed ING Bank Śląski Liquidity and Funding Risk Management Policy that intends to maximize liquidity access and minimize funding risk and costs. The policy describes general approach to liquidity risk management process in the Bank. The main objective of liquidity and funding risk management process is to maintain sufficient liquidity to ensure safe and sound operations under normal market circumstances and in times of crisis. 

The last review of INGBS Liquidity and Funding Risk Management Policy was done in 2014. There are also subject to reviewed and constant updates the following additional documents, detailing elements of liquidity and funding  risk management, in particular the principles of reporting and stress testing. Bank applied special attention to the review and update documentation relating to the contingency funding plan,due to the rapidly changing market condition, describing the expected actions taken by the Bank in order to reduce the negative effects of the crisis, it was presented assessment of potential selected sources of funding and the relationship between corrective actions.

Bank divided the liquidity risk into two groups: risks arising from external vs. bank-specific internal factors. The purpose of the Bank, is a conservative approach to liquidity risk management, which will safely survive the events specific to INGBS and the banking sector.

Liquidity (risk) management can be separated into several types depending on the term: operational liquidity risk, is focused on the current funding of the Bank’s positions and the management of the intraday positions and strategic liquidity management, is focused on ensuring that the structural (all tenors of payment) liquidity positions of the Bank are acceptable.

Taking into account the two aspects of the impact on the bank’s liquidity: the term and the behaviour of the clients, Bank distinguishes three types of liquidity risk: structural liquidity and funding risk, is understood by the Bank as a potentially negative impact on the Bank’s income due to a mismatch between expected maturities of the assets and liabilities of the Bank, as well as the risk of a lack of possibilities of refinancing in the future; customer behaviour liquidity and funding risk, is understood as a potentially negative impact on the Bank’s income due to liquidity options embedded in products offered by the Bank and stress liquidity and funding risk, is defined as the risk of the lack of the Bank's ability to meet its financial obligations, when they are required, due to the lack of an adequate level of available cash or the fact that they cannot be generated at any price an immediate insolvency of the Bank.

INGBS's risk and control structure is based on the three lines of defence model. The model is designed to provide stable and effective framework for risk management by defining and implementing three risk management “levels”, with distinct roles, responsibilities and oversight responsibilities.

The general approach to risk management and liquidity financing consists of a cycle of five recurrent activities: risk identification, risk assessment, risk control, monitoring and reporting. The risk identification is prepared through the organization of annual workshops to identify risks. Each identified risk must be assessed in order to determine the importance of the risk for the INGBS. Risk might be controlled by operations which reduce probability of risk materializing or action aimed to reduce of effects in case of risk materializing. The final action to reduce a risk is to stop action or service offering causing this risk (avoiding risk). One of the elements of risk control is set up of risk appetite. 

The important element of risk managing is continuous checking whether implemented risk control is executed. Regular control is to prove whether actions in scope of risk control are effective. Adequate reporting delivers to management information needed to risk management.

The formal limits are placed by regulators or the Bank on the various reported metrics. The acceptable level of funding and liquidity risk is determined in a two level system: acceptable risk level that is approved by the bank’s Supervisory Board and the limit system which is approved by the Bank’s Management Board. The Supervisory Board receives information on compliance with these metrics at least quarterly.

The levels of limits are based on strategic Bank goals, identified liquidity risk and principles set by regulators. All of these limits are taken into account during the planning process (in sum: realization of approved plans should not lead to excesses of limits). In most cases, limits have a “warning level” set above the minimum (or maximum) limit. Acceptable level of liquidity risk is determined and updated at least annually.

This set of limits is consistent with but more detailed than the limits in the high-level RAS, as described above  approved by Supervisory Board. 

Acceptable level of risk is guaranteed by monitoring of risk in different liquidity and funding  reports related to normal/regular activity of the Bank and also prepared in extreme/stress situations. Bank is monitoring the funding risk concentration, examination of external funding stability and internal liquidity buffer.

Bank determines, at least once a year, the overall business strategy and resulting medium-term (3-year) financial plan together with the overall risk strategy, introduced by the Bank in 2014. An inherent element of the strategy is: funding plan which that provides effective diversification of funding sources and terms. ALCO actively manages the funding base and closely monitors sources of funding in order to verify compliance with the strategy and financing plan and identify potential risks associated with the financing. 

In accordance with the requirements set by regulators Bank introduced a stress testing program, which ensures that the stress tests are planned, designed, conducted and analysed to identify sources of potentially limited liquidity and to determine how to prevent such situations that the current exposure remained within the established limits. The Bank pays the special attention to stress test process and on a quarterly basis prepares scenario analysis and sensitivity analysis for  liquidity risk.

Bank stress tests performing includes: the correct methodology to carry out stress tests, reverse stress testing as a tool  for risk management in order to complete a series of stress tests undertaken, the scenario analysis as part of the stress tests. 

The testing across the Bank, including the various risks in order to obtain a complete and comprehensive picture of the risks existing in the Bank. One of the most imported processes of the management liquidity risk is the contingency funding plan. The Bank’s Contingency Funding Plan (CFP) serves to provide guidance as regards identifying a liquidity crisis and, in case such identification is made, as regards the actions to be taken to survive the crisis.  Scope of the CFP covers the entire business of the Bank. In the process of liquidity testing, an important element constitute specific scenarios for intraday liquidity and the intraday liquidity indicators and measures. The ALCO Committee and the Management Board are responsible for the items found in the area supervised by them. The Liquidity Crisis Team plays  the key role, in the situation of needing to execute(run) the CFP. 

According to the Polish Financial Supervision Authority Resolution no. 386/2008 and Recommendation S Bank prepares in-depth long term liquidity analysis with particular emphasis on mortgage loans. This analysis is showing level of risk connected with financing the long term mortgage loans.

The Bank runs an active policy of liquidity management within major currencies (PLN, EUR, USD, CHF and any other currencies which comprise at least 2.5% of total balance sheet of the Bank). For these currencies the measurement and limiting liquidity risk is carried out per currency; and the operational liquidity management is performed separately for each currency and to take account the currency in the risk transfer system.

BT is responsible for implementation intraday liquidity management system.  BT actively manage liquidity positions and risks of short-term (one-day and intraday) to meet payment and settlement obligations in a timely manner for regular operations and emergency / stress. In the Bank operates the risk transfer system, under which, the market risks, including the liquidity risk are transferred to the BT, where centrally manages risks using appropriate tools.

An important element of the Bank’s liquidity management is to maintain adequate liquidity buffer. The liquidity buffer presents the available liquidity necessary to cover the gap between cumulative outflows and inflows in a relatively short time. The liquidity buffer is crucial in times of crisis, when bank has in a short time to gain liquidity while the standard funding sources are unavailable or insufficient. 

Liquidity buffer is maintained as security prior to the implementation of various emergency scenarios, providing liquidity to meet additional needs that may arise at a certain time in exceptional circumstances, as well as under normal conditions.

The Polish Financial Supervision Authority regulation no. 386/2008 requires banks to calculate the 4 liquidity measures: short term liquidity gap (minimum: zero), short term liquidity ratio (minimum amount: 1.00), own funds to non-liquid assets ratio (minimum amount: 1.00) and own funds and core deposits to non-liquid and semi-liquid assets ratio (minimum amount: 1.00). The bank is obliged to monitor the ratios above on daily basis and keep these ratios with limits predefined in the FSA regulation. In 2014 the bank kept all liquidity measures over their minimum amounts. 

As of 31 December 2014 liquidity measures of Bank amounted as follows:

Liquidity measurement Minimum as at 31 Dec 2014 as at 31 Dec 2013
M1 Short term liquidity gap (in PLN million) 0.00 14,434.85 18,419.35
M2 Short term liquidity ratio 1.00 1.59 1.90
M3 Own Funds to Non-Liquid Assets Ratio 1.00 9.05 7.06
M4 Own Funds and Core Deposits to Non-Liquid and Semi-Liquid Assets Ratio 1.00 1.33 1.49

One of the key elements of the calculation of regulatory liquidity ratios is to study the stability of the deposit base through the calculation of the stable part of external funds. The analysis is based on internal statistical model. The model takes into account the following aspects: funding received from the major depositors, taking into account the distribution of changes, estimating volatility and scaling time, it take into account trends in long- and short-term, the impact of exchange rate volatility on the stability of the deposit base. The model subject to annual review, which includes a detailed analysis of the functioning of the model, an analysis of the assumptions and verification of historical (backtesting).

According with the obligations and principles set out in the Regulation of the European Parliament and of the Council (EU) No 575/2013, the Bank calculates regulatory liquidity measures: short-term liquidity measure (LCR - Covered Liquidity Ratio), the liquidity coverage ratio aimed at ensuring that the bank has the appropriate the level of liquid assets of high quality that will cover the liquidity needs within 30 calendar days of stress and long-term liquidity measures (NSFR - Net stable funding ratio), stable funding ratio designed to ensure a minimum level of funding available in the medium and long term. Bank reports the size of the liquidity measures to the regulator, respectively, monthly and quarterly. In accordance with the provisions of the Ordinance of the liquidity coverage requirement will be implemented in stages, starting from 2015 (60%). The target level of 100% will be introduced from 1 January 2018. 

As  of 31 December 2014 liquidity measures of Bank amounted as follows:

Liquidity measurement Minimum as at 31 Dec 2014 as at 31 Dec 2013
LCR Liquidity coverage ratio 60% 168% n/a
NSFR Net Stable funding ratio n/a* 114% n/a

*) In keeping with the Regulation of the European Parliament and of the Council (EU) 575/2013, the target net stable funding ratio (NSFR) was not defined.

It is worthwhile to expand on the internally-defined reports as this gives good insight into the Bank’s approach to measuring and managing risk. The Bank models the liquidity profile of both assets & liabilities to reflect the real customer behaviour. The analysis is done based on mixed approach i.e. analysis of historic data and expert approach.
One of the internal liquidity reports is the structural liquidity report. This liquidity gap represents the gap at time intervals between assets and liabilities of the Bank on properly functioning market. The report is used to monitor and manage mid-and long-term liquidity positions. It serves as a support in the process of planning and financing of the balance sheet, also indicates any significant need for future financing.

This report is an additional scenario for the current balance sheet in normal market conditions. It does not include any additional balance growth forecasts. However, it takes into account typical customer behavior observed in previous periods. For instance, cash flows for mortgage loans include prepayments, while cash flows for savings accounts and current accounts are allocated taking into account the liquidity characteristics.

Structural liquidity report (in PLN milion) 
end of 2014
  1-6 months 7-12 months 1-5 years 6-10 years 11-15 years over 15 years
Direct gap 15,298.3 1,972.9 -3,559.1 -12,963.2 3,628.7 -4,377.6
Cumulative gap 15,298.3 17,271.2 13,712.1 748.9 4,377.6 0.0


end of 2013
  1-6 months 7-12 months 1-5 years 6-10 years 11-15 years over 15 years
Direct gap 18,081.7 -2,962.9 -12,038.7 -997.4 3,078.0 -5,160.8
Cumulative gap 18,081.7 15,118.9 3,080.2 2,082.8 5,160.8 0.0

Funding structure

The main resource of funding in Bank are client deposits (retail and corporate). The bank monitors the funding structure observing diversification by type of products, client segments, currencies, type of funding, concentration of big ticket deposits. The Bank funding structure is well diversified. Please find below the funding structure as of the end of 2014 and 2013 with the split between direct and reciprocal funding.

Direct funding (in PLN million)
  31-Dec-14 31-Dec-13
General customer type direct funding percentage share direct funding percentage share
Banks 1,851 2% 1,234 2%
Corporate clients 24,610 29% 23,424 30%
Retail clients 50,137 58% 43,607 57%
Own Issued Bonds 865 1% 565 1%
Equity 8,591 10% 8,036 10%


Reciprocal funding (in PLN million)
  31-Dec-14 31-Dec-13
General customer type reciprocal funding percentage share reciprocal funding percentage share
Banks 13,714 98% 11,234 87%
Corporate clients 330 2% 1,629 13%
Retail clients 0 0% 0 0%

As regards the Capital Group of ING Bank Śląski S.A. the Bank’s approach to the liquidity risk management, the liquidity characteristics of the specific balance sheet items with difficult liquidity-related standing, are calculated in line with the regulatory reporting requirements for the liquidity risk of the Dutch Central Bank. In order to measure the Group’s liquidity risk there are set obligatory limits for the weekly and monthly liquidity gap for capital group and separately for the subsidiaries as well. 

Below there are presented the weekly and monthly liquidity gaps at the consolidated level.

Liquidity risk  (in PLN million)
end of 2014
Area as at 31 Dec 2014 Average Min Max
1 week gap 13,842.2 12,222.9 11,069.5 13,842.2
1 month gap 8,461.6 7,475.8 6,291.6 8,461.6


end of 2013
Area as at 31 Dec 2013 Average Min Max
1 week gap 14,040.5 15,527.6 13,839.4 16,711.4
1 month gap 9,852.0 10,658.8 9,463.6 11,531.8

A maturity analysis for financial liabilities by remaining contractual maturities

The below table presents the financial liabilities by other contractual maturities – counting from the reporting date. The amounts include future interest payments. In the case of contingent liabilities extended, the earliest possible date for payment of the aforesaid liabilities by the Group was taken into consideration when making the maturity analysis.

end of 2014
(in PLN million)
  up to 1 month 1-3 months 3 - 12 months 1-5 years over 5 years
- Liabilities due to other banks 3,727.1 126.5 549.7 1,547.3 219.3
- Financial liabilities measured at fair value through profit and loss 56.9 0.0 133.5 595.4 131.6
- Liabilities due to customers 70,632.3 1,982.9 3,361.9 417.6 80.4
- Liabilities due to customers under repo transactions 29.7 0.0 0.0 0.0 0.0
- Liabilities due to issue of debt securities 0.0 0.0 25.1 932.0 0.0
- Contingent liabilities granted 23,802.6 0.0 0.0 0.0 0.0


end of 2013
​(in PLN million)
  up to 1 month 1-3 months 3 - 12 months 1-5 years over 5 years
- Liabilities due to other banks 2,102.8 59.0 406.1 1,388.3 720.9
- Financial liabilities measured at fair value through profit and loss 613.4 0.0 45.3 339.8 236.0
- Liabilities due to customers 62,019.5 2,063.0 2,626.3 807.4 90.4
- Liabilities due to customers under repo transactions 433.5 0.0 0.0 0.0 0.0
- Liabilities due to issue of debt securities 0.0 0.0 20.3 625.9 0.0
- Contingent liabilities granted 19,046.8 0.0 0.0 0.0 0.0

Maturity analysis of derivatives by contractual payment dates

The below tables present maturity analysis of derivatives with negative valuation as at the reporting date. The analysis is based on other contractual maturities.

Derivatives settled in net amounts

Derivatives settled net by the Group include the IRS, FRA and FX Forward NDF transactions as well as options. For IRS transactions, the below data reflect the undiscounted interest future cash flows; for other transactions, their valuation as at 31 December 2014 and 31 December 2013 respectively was taken as the cash flow amount.

end of 2014
(in PLN million)
  up to 1 month 1-3 months 3 - 12 months 1-5 years over 5 years
- Interest Rate Swap, of which: -87.0 -282.0 -662.2 -2233.7 -858.5
  - hedging transactions in the hedge accounting -63.5 -106.0 -262.0 -1114.2 -470.9
- other derivatives -11.6 -8.9 -56.1 -37.2 -0.2
end of 2013
  up to 1 month 1-3 months 3 - 12 months 1-5 years over 5 years
- Interest Rate Swap, of which: -112.0 -202.2 -495.2 -1718.6 -454.4
  - hedging transactions in the hedge accounting -43.3 -72.4 -171.5 -936.2 -284.9
- other derivatives -4.6 -11.7 -34.1 -16.8 -1.0
Derivatives settled in gross amounts

Derivatives settled gross by the Group include the FX Swap, FX Forward and CIRS transactions. The below data reflect the undiscounted contractual cash outflows and inflows on notes and for CIRS transactions – on interest as at 31 December 2014 and 31 December 2013 respectively.

end of 2014
(in PLN million)
  up to 1 month 1-3 months 3 - 12 months 1-5 years over 5 years
- outflows -2,275.0 -2,635.0 -2,454.8 -1,688.8 -339.3
- inflows 2,200.3 2,573.5 2,377.9 1,744.9 353.5


end of 2013
​(in PLN million)
  up to 1 month 1-3 months 3 - 12 months 1-5 years over 5 years
- outflows -2,092.3 -1,503.6 -2,086.8 -1,308.4 -68.5
- inflows 2,077.4 1,458.2 1,988.4 1,357.8 64.1


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