Liquidity risk

The liquidity risk is a risk of the lack of possibility to pay the debts on time due to the lack of liquid assets. Lack of liquidity may arise from inadequate structure of balance sheet, mismatch of cash flows, not received payments from counterparties, 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 balance sheet 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.

To ensure an adequate liquidity level, the Bank and subsidiaries of the PKO Bank Polski SA Group implemented limits and thresholds for short, medium and long-term liquidity risk.

Methods of liquidity risk management in the subsidiaries of the Group are defined by internal regulations implemented by the entities which are characterised by the significant value of liquidity risk measures.

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

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

Liquidity reserve of PKO Bank Polski SA (in PLN million)

Name of sensitivity measure 31.12.2015 31.12.2014
Liquidity reserve up to 1 month* 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 excess determines the ability of the Bank to cover liquidity needs in a given period of time in an implementation-defined stress scenarios.

In 2015, the Bank worked to adapt to the requirements of the amended by the Financial Supervision Commission Recommendation P - they relate to

the introduction of measures of excess liquidity, which measures the ability of the Bank to maintain liquidity on each day during the period called the "horizon of survival" in extreme conditions,

the introduction of early warning indicators, which are aimed at early detection of adverse events that may have a negative impact on the liquidity situation of the Bank or the financial sector,

modification used in the Bank's transfer pricing system - in terms of the requirements contained in the Recommendation.

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

Regulatory liquidity ratios of PKO Bank Polski SA (in PLN million)

Supervisory liquidity measures 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% 125,0%

In the period from 31 December 2014 to 31 December 2015 the value of national indicators of supervisory measures remained above the supervisory limits. Indicated in the table, the LCR indicator shows the value for the Group.

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 a decrease by approximately 1.1 p.p. as compared to the end of 2014.