59. Liquidity risk management

The liquidity risk is defined as the lack of possibility to pay the debts on time due to the lack of liquid assets. Lack of liquidity may arise from inappropriate structure of statement of financial position, misfit of cash flows, not received payments from contractors, sudden withdrawal of cash by clients or other market events.

The objective of liquidity risk management is to ensure the necessary level of funds to pay present and future debts (also potential) on time, taking into account the nature of performed activities and requirements which may occur due to changes in market environment, by shaping the structure of statement of financial position and off-balance sheet liabilities.

As a part of liquidity risk management the Bank manages the financing risk, which takes into account the risk of loss of financing sources and the lack of opportunities to renew matured funding, or loss of access to new financing sources.

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

59.1 Measurement of the liquidity risk

The Capital Group makes use of the following liquidity risk measures:

  • the contractual and adjusted liquidity gap in real terms,
  • liquidity reserve,
  • liquidity surplus,
  • ratio of stable funding to illiquid assets, liquidity coverage ratio (LCR),
  • national supervisory liquidity measures (M1-M4),
  • measure of stability of deposit and loan portfolios,
  • stress-tests (liquidity stress-tests).

59.2 Forecasting and monitoring of liquidity risk

Liquidity gaps presented below include the sum of Bank’s adjusted liquidity gap (adjusted in terms of the following: permanent balances on deposits of non-financial sector and their maturity, permanent balances on loans in current accounts for non-financial entities and their maturity and liquid securities and their maturity) and contractual liquidity gap of the other Group entities.

  a’vista 0-1 month 1-3 months 3-6 months 6-12 monts 12-24 months 24-60 months over 60 months
31.12.2015
The Group
- Adjusted periodic gap
      13 974 617       19 405 644          (346 858)         3 590 950         7 972 011         8 034 672       12 600 252     (65 231 288)
The Group
- Adjusted cumulative periodic gap
      13 974 617       33 380 261       33 033 403       36 624 353       44 596 364       52 631 036       65 231 288                      -  
31.12.2014
The Group
- Adjusted periodic gap
      12 733 729       13 357 476            536 836         1 309 410         1 088 394       11 977 076       13 281 695     (54 284 616)
The Group
- Adjusted cumulative periodic gap
      12 733 729       26 091 205       26 628 041       27 937 451       29 025 845       41 002 921       54 284 616                      -  

In all time horizons, the Group’s cumulative adjusted liquidity gap in real terms , which has been determined as a sum of adjusted liquidity gap in real terms of the Bank and contractual liquidity gaps of the remaining Group entities, as at 31 December 2015 and as at 31 December 2014 was positive. This means a surplus of assets receivable over liabilities payable.

The table below presents liquidity reserve of the Bank as at 31 December 2015 and as at 31 December 2014:

Name of sensitivity measure 31.12.2015 31.12.2014
Liquidity reserve up to 1 month* (in PLN million)                30 186 21 075

*Liquidity reserve equals the gap between the most liquid assets and expected and potential liabilities which mature in a given period of time.

As at 31 December 2015 the minimum level of liquidity surplus in the horizon to 30 days amounted to PLN 14 411 million. A measure of liquidity surplus determines the ability of the Bank to cover liquidity needs in a given period of survival in an implementation-defined stress scenarios.

The following table shows the supervisory liquidity measures of the Bank as at 31 December 2015 and as at 31 December 2014.

Measure 31.12.2015 31.12.2014
M1 18 907 15 859
M2 1,65 1,65
M3 9,87 7,01
M4 1,15 1,16
LCR  131,5% 125%

In the period from 31 December 2014 to 31 December 2015 ratios supervisory measures remained above the supervisory limits. LCR indicator shows the value for the Group in the table above.

As at 31 December 2015 the level of permanent balances on deposits constituted approx. 93.6% of all deposits in the Bank (excluding interbank market), which means an decrease by approximately 1.1 pp. as compared to the end of 2014.

The table below presents the structure of the Group's sources of financing as at 31 December 2015 and as at 31 December 2014.

  31.12.2015 31.12.2014
Total deposits (excluding interbank market) 75,96% 75,04%
Interbank market deposits 0,67% 0,20%
Equity 11,99% 10,57%
Financing from the market 11,38% 14,19%
Total 100,00% 100,00%

59.3 The contractual cash flows of the Bank’s liabilities excluding derivative financial instruments as at 31 December 2015 and as at 31 December 2014 respectively, by maturity

The tables below show the contractual maturity analysis presenting the outstanding contractual maturity dates by individual categories of statement of financial position and off-balance sheet liabilities, excluding derivative financial instruments as at 31 December 2015 and as at 31 December 2014 respectively.

The amounts denominated in foreign currencies have been translated using the average NBP exchange rate as at 31 December 2015 and as at 31 December 2014. The amounts disclosed comprise non-discounted cash future flows, both in respect of principal and interest (if applicable), in accordance with the contract, for the entire period to the date of the liability's maturity. In situations where the party to whom the Group has a liability is able to select the settlement deadline, it has been assumed that the earliest date on which the Group is obliged to settle the liability shall be taken into account. In situations where the Group is obliged to settle the liabilities in instalments, each instalment is allocated to the earliest period in which the Group might be obligated to settle. In the case of liabilities where the instalment is not fixed, the terms binding as at the reporting date have been adopted.

Contractual flows of the Group’s liabilities as at 31 December 2015 by maturity

  Up to 1 monnth 1-3 months 3 months- 1 year 1-5 years Over 5 years Contractual value Carrying amount
Liabilities:
Amounts due to the central bank                   4 219                        -                          -                          -                          -                     4 219                   4 219
Amounts due to banks            1 907 773                        84                 37 391               240 666          16 385 062          18 570 976          18 288 797
Amount due to customers        126 532 268          21 867 506          34 840 333          10 564 580            6 191 736        199 996 423        195 758 461
Debt securities in issue                 50 604               152 260            2 771 573            3 058 729            4 492 463          10 525 629            9 432 973
Subordinated liabilities                        -                   32 982                 44 239               319 264            2 650 337            3 046 822            2 499 163
Other liabilities            2 697 791                   7 504               302 176               147 397               201 302            3 356 170            3 356 170
Off-balance sheet financial liabilities – granted          28 675 009               814 785            3 898 211            3 102 454            6 269 702          42 760 161                        -  
Off-balance sheet guarantee liabilities – granted            1 415 342            1 604 025            2 456 421            9 783 593            1 294 716          16 554 097                        -  

Contractual flows of the Group’s liabilities as at 31 December 2014 by maturity

  Up to 1 monnth 1-3 months 3 months- 1 year 1-5 years Over 5 years Contractual value Carrying amount
Liabilities:
Amounts due to the central bank                   4 427                        -                          -                          -                          -                     4 427                   4 427
Amounts due to banks            2 044 255               178 596            1 847 485            1 208 177          15 113 128          20 391 641          19 394 482
Amount due to customers        109 773 316          12 560 306          35 033 627          16 953 648            2 099 152        176 420 049        174 386 766
Debt securities in issue                 50 613               832 749            5 523 147            3 993 876            4 233 507          14 633 892          13 300 610
Subordinated liabilities                        -                   39 123                 48 666               327 788            2 648 527            3 064 104            2 413 985
Other liabilities            2 228 619                 86 910               475 902                 98 546                 64 626            2 954 603            2 954 603
Off-balance sheet financial liabilities – granted          23 514 918               968 602            4 820 338            3 946 353            5 129 776          38 379 987                        -  
Off-balance sheet guarantee liabilities – granted               225 396            1 336 294            2 557 886            9 124 116            2 074 309          15 318 001                        -  

59.4 The contractual cash flows related to derivative financial instruments as at 31 December 2015 and as at 31 December 2014 respectively, by maturity

Derivative financial instruments settled in net amounts

Derivative financial instruments settled by the Group on a net basis include:

  • interest rate swaps (IRS),
  • Forward Rate Agreements (FRA),
  • Non Deliverable Forwards (NDF),
  • options.

The tables below show the contractual maturity analysis presenting the outstanding contractual maturity dates by individual categories of derivative financial instruments in respect of which the balance sheet date valuation was negative (a liability) as at 31 December 2015 and as at 31 December 2014 respectively.

The amounts denominated in foreign currencies have been translated using the average NBP exchange rate as at 31 December 2015 and as at 31 December 2014. In case of IRS transactions, non-discounted future net cash flows in respect of interest have been presented and in case of the remaining derivative instruments settled on a net basis, the amount of the valuation as at 31 December 2015 and as at 31 December 2014 respectively was adopted as the value of a cash flow.

Moreover, the cash flows from IRS transactions which constitute cash flow hedges in respect of loans with variable interest rates are shown separately in the table.

31 December 2015 Up to 1 monnth 1-3 months 3 months- 1 year 1-5 years Over 5 years Contractual value
Derivative financial instruments - liabilities:            
- Interest Rate Swap (IRS) transactions,
of which::
            (208 295)             (263 283)             (602 581)          (1 625 707)             (363 137)          (3 063 003)
     - derivative hedging instruments                        -                          -                          -                          -                          -                          -  
- other derivative hedging instruments: options, FRA, NDF             (153 840)             (122 865)             (507 263)             (886 046)                    (378)          (1 670 392)

31 December 2014 Up to 1 monnth 1-3 months 3 months- 1 year 1-5 years Over 5 years Contractual value
Derivative financial instruments - liabilities:            
- Interest Rate Swap (IRS) transactions,
of which::
                (4 881)                   5 559               732 845          (2 446 745)             (547 072)          (2 260 294)
     - derivative hedging instruments                        -                          -                          -                          -                          -                          -  
- other derivative hedging instruments: options, FRA, NDF             (179 655)             (464 273)             (425 585)             (291 679)                        -            (1 361 192)

Derivative financial instruments settled in gross amounts

Derivative financial instruments settled by the Group on a gross basis include:

  • foreign currency swaps,
  • foreign currency forwards,
  • Cross Currency IRS (CIRS).

The tables below show the contractual maturity analysis, presenting the outstanding contractual maturity dates by individual categories of derivative financial instruments (inflows and outflows) in respect of which the balance sheet date valuation was negative (a liability) as at 31 December 2015 and as at 31 December 2014 respectively. The amounts denominated in foreign currencies have been translated using the average NBP exchange rate as at 31 December 2015 and as at 31 December 2014. The amounts disclosed comprise non-discounted future cash flows, both in respect of principal and interest (if applicable).

In the table cash flows from CIRS transactions which constitute cash flow hedges in respect of mortgage loans denominated in CHF, deposits negotiated in PLN and liabilities at a fixed rate in USD are shown separately.

31 December 2015 Up to 1 monnth 1-3 months 3 months- 1 year 1-5 years Over 5 years Contractual value
Derivative financial instruments:            
- outflows, of which:          (6 078 096)          (1 991 900)          (2 657 157)          (3 522 829)             (507 563)        (14 757 545)
     - derivative hedging instruments             (150 112)                 (1 223)             (103 682)          (1 457 241)             (300 000)          (2 012 258)
- inflows, of which:            6 027 821            1 676 483            2 983 153            9 679 829            1 336 019          21 703 305
     - derivative hedging instruments               488 385                 18 211               426 621            5 554 128            1 074 968            7 562 313

31 December 2014 Up to 1 monnth 1-3 months 3 months- 1 year 1-5 years Over 5 years Contractual value
Derivative financial instruments:            
- outflows, of which:          (5 566 617)          (4 810 958)          (6 306 363)          (3 288 097)             (793 347)        (20 765 382)
     - derivative hedging instruments             (350 815)             (274 035)          (3 427 633)          (1 260 840)             (777 279)          (6 090 602)
- inflows, of which:            5 811 258            1 627 944            7 801 094            7 415 672            2 796 292          25 452 260
     - derivative hedging instruments               552 181                 18 010            4 792 330            4 623 608            2 738 845          12 724 974

59.5 Current and non-current assets and liabilities

The Group classifies an asset as current (short-term) when:

  • It expects to realize the asset, or intenders to sell or consume it in the course of the normal operating cycle,
  • Is in possession of the asset primarily for the purpose of trading,
  • It expects that the asset will be realized within twelve months after the reporting period or
  • The asset is cash or a cash equivalent (as defined in IAS 7) unless it is restricted from being exchanged or used to settle a liability for at least twelve months from the end of reporting period.

All other assets of the unit are classified as non-current assets (long-term)

The Group classifies a liability as current when:

  • it expect that it will be settled in the normal operating cycle,
  • it holds the liability for the purpose of trading ,
  • it is due within twelve months after the reporting period or
  • the entity does not have an unconditional right to defer settlement of the liability for at least twelve months after the reporting period.

All other liabilities are classified as long-term liabilities.

31 December 2015

  Short-term  Long-term Impairment
allowances
Total carrying
amount
 
Cash and balances with the central bank                 13 743 864                               -                                 -                   13 743 864
Amounts due from banks                   4 553 377                               -                             (405)                   4 552 972
Trading assets                      783 199                               -                                 -                        783 199
Derivative financial instruments                   1 400 127                   2 947 142                               -                     4 347 269
Financial instruments designated upon initial recognition
at fair value through profit and loss
                12 268 151                   2 885 949                               -                   15 154 100
Loans and advances to customers                 49 020 379               149 680 538                 (8 287 209)               190 413 708
Investment securities available for sale                   1 154 566                 27 287 439                    (132 490)                 28 309 515
Securities held to maturity                      185 331                        24 999                               -                        210 330
Inventories                      172 632                      265 568                      (37 252)                      400 948
Other assets                   3 866 869                   5 760 556                    (603 411)                   9 024 014
Total assets                 87 148 495               188 852 191                 (9 060 767)               266 939 919
         
Amounts due to the central bank                          4 219                               -                                 -                            4 219
Amounts due to banks                   4 062 803                 14 225 994                               -                   18 288 797
Derivative financial instruments                   1 185 033                   3 439 734                               -                     4 624 767
Amounts due to customers               182 754 339                 13 004 122                               -                 195 758 461
Liabilities due to insurance operations                      120 433                   2 280 060                               -                     2 400 493
Debt securities in issue                   3 107 121                   6 325 852                               -                     9 432 973
Subordinated liabilities                               -                     2 499 163                               -                     2 499 163
Other liabilities                   3 254 968                      411 165                               -                     3 666 133
Total liabilities               194 488 916                 42 186 090                               -                 236 675 006
Equity                               -                   30 264 913                               -                   30 264 913
Total liabilities and equity               194 488 916                 72 451 003                               -                 266 939 919

31 December 2014

  Short-term  Long-term Impairment
allowances
Total carrying
amount
 
Cash and balances with the central bank                 11 738 371                               -                                 -                   11 738 371
Amounts due from banks                   2 280 467                      206 330                           (111)                   2 486 686
Trading assets                   1 924 426                               -                                 -                     1 924 426
Derivative financial instruments                   1 139 752                   4 355 070                               -                     5 494 822
Financial instruments designated upon initial recognition
at fair value through profit and loss
                13 540 447                   2 182 701                               -                   15 723 148
Loans and advances to customers                 40 440 580               147 079 281                 (8 022 477)               179 497 384
Investment securities available for sale                   2 124 032                 20 284 562                    (129 369)                 22 279 225
Securities held to maturity                      141 157                        92 201                               -                        233 358
Inventories                      167 880                               -                        (29 164)                      138 716
Other assets                   3 568 896                   6 122 405                    (506 848)                   9 184 453
Total assets                 77 066 008               180 322 550                 (8 687 969)               248 700 589
         
Amounts due to the central bank                          4 427                               -                                 -                            4 427
Amounts due to banks                   4 831 387                 14 563 095                               -                   19 394 482
Derivative financial instruments                   1 307 642                   4 237 499                               -                     5 545 141
Amounts due to customers               161 167 443                 13 219 323                               -                 174 386 766
Liabilities due to insurance operations                      175 936                   2 503 786                               -                     2 679 722
Debt securities in issue                   6 506 131                   6 794 479                               -                   13 300 610
Subordinated liabilities                               -                     2 413 985                               -                     2 413 985
Other liabilities                   3 162 267                      197 638                               -                     3 359 905
Total liabilities               177 155 233                 43 929 805                               -                 221 085 038
Equity                               -                   27 615 551                               -                   27 615 551
Total liabilities and equity               177 155 233                 71 545 356                               -                 248 700 589

59.6 Reporting of the liquidity risk

The Bank prepares daily, weekly, monthly, and quarterly reports addressing liquidity risk. The quarterly reports are also applicable to the Group. Reports present the information on liquidity risk exposure and usages of available limits regarding the risk.

59.7 Management decisions concerning liquidity risk

The main tools for liquidity risk management in the PKO Bank Polski SA Group are as follows

  • procedures for liquidity risk management, in particular emergency plans,
  • limits and thresholds mitigating liquidity risk,
  • deposit, investment and derivative transactions, including structural currency transactions and transactions for sale or purchase of securities,
  • transactions ensuring long-term financing of Bank’s lending activities.

To ensure an adequate liquidity level, the Bank and subsidiaries of the PKO Bank Polski SA Group have accepted limits and thresholds for liquidity risk. The limits and thresholds were set for current liquidity measures , medium and long-term liquidity measures.

Methods of liquidity risk management in subsidiaries of the Group are defined by internal regulations implemented by the Group entities which are characterised by high levels of liquidity risk measure outcomes.

These regulations are developed after consultation with the Bank and take into account recommendations issued by the Bank to the entities.