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Mangementul lichiditatii bancare in perioada crizei financiare

- IULIE 2009 -

Blan (Boicescu) Roxana-Ionela 1


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World economy through a phase marked by increased tension, which he highlighted

some risks still loom in 2006: slowing economic growth and asset price correction. Since the

second half of 2007 the financial markets presents new features, marked by problems in the

high-risk mortgage lending in the U.S., the most obvious being sensitive to worsening of the

risk perception of investors and lower liquidity. Financial stability globally and faced with in

2008 against risk aversion and higher prices in raw materials, food and petrol.

Many consider that the current financial crisis has its roots in dramatically lowering the

cost of housing in the U.S. and credit market collapse in housing but root causes of financial

crisis are deep, such as macroeconomic and microeconomic in nature, so recent that the many

analysts. Cause deep financial crisis was abundant liquidity created by the major central banks

around the world (EDF, boj) and the desire of countries exporting oil and gas to limit currency

appreciation. Also, there was a suprasaturare with savings, driven by growing integration into

the global economy of countries (China, Southeast Asia in general), with high accumulation,

and redistribution of global wealth and income to exporters countries of goods (oil, gas, etc.)..

Abundant liquidity and suprasaturarea savings created by the resources available for investment,

including sophisticated financial instruments, not easily understood by some investors. Cause

deep financial crisis was abundant liquidity created by the major central banks around the world

(EDF, boj) and the desire of countries exporting oil and gas to limit currency appreciation. Also,

there was a suprasaturare with savings, driven by growing integration into the global economy

of countries (China, Southeast Asia in general), with high accumulation, and redistribution of

global wealth and income to exporters countries of goods (oil, gas, etc.).. Abundant liquidity

and suprasaturarea savings created by the resources available for investment, including

sophisticated financial instruments, not easily understood by some investors.

Given the fact that Romanian banks have exposure to financial problems at the origin of

the current international financial markets, the turmoil in those markets could affect the

financial stability of Romania indirectly on the real economy and the banking liquidity. Until

now, the external repercussions were limited as funding costs increase externe.Cursul Exchange

has serious implications on financial stability (as well as on macroeconomic stability): financing

of the banking sector is high, people and companies to borrow almost equal measure in the

national currency and foreign currency (in addition firms borrow extensively from the outside).

Currency volatility is high (compared to the volatility of currencies in the region) as explained

by the structural characteristics of the currency, which distinguished from other regional



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markets: the relatively small volume, maturity of operations is largely short term, share low

derivatives (held almost entirely by non-residents). This relatively high volatility of the

exchange rate, with its predominantly negative implications, can be reduced by developing

market currencies, but especially by strengthening policy coherence macroeconomice.Un shock

on the exchange rate or interest rate would affect the financial stability of moderate, but a shock

on liquidity may have more serious implications. Risks associated with the increased population

in 2007, but still be sustainable: the debt has continued to grow, and the unsecured loans, the

foreign currency position was reversed, financial liabilities exceeding assets financial people

became net borrower from the banking, credit dynamics of consumption are the highest (as a

share of total credit) and enjoy all the longer maturities, credit in foreign currency recorded the

highest rate. These traits and population trends of credit concerns justify the central bank to

limit the rate of growth of population and strengthening credit risk management.

Domestic macroeconomic developments have an important impact on the health of the

financial system. Vulnerability is the ninth economic contraction, whether in the first quarter of

this year and equals worsening financial position of companies and increasing unemployment,

with negative repercussions on the financial system great, especially on banks. On the other

hand, the current account deficit - which in previous years was a challenge for the banking

sector - decreased relatively quickly and thus affects less financial stability, especially if the

adjustment will not reduce investments and, in this way exports. Another challenge for the ninth

financial stability is the home banking sector itself: reducing access to finance internal (and

external) - a clear risk in recent months - may create serious constraints on the repayment of

debts of companies. The banking industry has continued to make good financial health

indicators in the positive range, being well-capitalized and financial results appreciably.

Analysis of the stress test indicates a good capacity to absorb the shocks of moderate. Two

vulnerabilities is pregnant in May, fueled by economic crisis and global financial: credit risk

and liquidity risk. Starting with the last period of 2008, recorded a further deterioration of

portfolio credit quality, reflecting in particular economic slowdown and currency depreciation

rate. Damage is not uniform on the banks, the biggest consemnnd higher levels of arrears and

doubtful loans. Despite a rapidly worsening credit portfolios in the last period, the overall

quality of these portfolios are covered favorably in a European context.

Central banks in countries of origin of the Romanian banking capital have injected

significant amounts in their financial systems in order to resume lending and money market



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functionality. These injections had different impact on the financial resources of the Romanian

subsidiary banks: some have been increases in equity and foreign liabilities, while in others the

situation was reverse.

Increased credit risk, which is likely to increase with maturities lungirea and

approaching maturity requires countering it with new initiatives to prudential regulation and

supervision, to strengthen risk management at banks and linking more closely the cost of credit

profile risk of various categories of borrowers.

Liquidity of Romanian banks, although declining, continues to be comfortable, and the

increased vulnerability resulting from interbank funding - the rapid growth and persistent for

some banks - has a low potential for systemic risk. However, developments on the interbank

market require careful monitoring. On the other hand, the increasing dependence of banks

financing increases vulnerability to the external liquidity. This vulnerability is assessed as low,

however, knowing that, for the most part, external financing of the Romanian banks comes from

parent banks. Until now, no Romanian bank has activated emergency plan as a result of turmoil

on the markets. But it must review and strengthening of these emergency plans to increase its

effectiveness.

Is well know that liquidity management is a key banking function and an integral part of

the asset liability management process. Most banking activity depends on a banks ability to

provide liquidity to its customers. The majority of financial transactions or commitments have

implications for a banks liquidity.

Liquidity is necessary for banks to compensate for expected and unexpected balance

sheet fluctuations and to provide funds for growth. This represents a bank ability to efficiently

accommodate the redemption of deposits and other liabilities and to cover funding increases in

the loan and investment portofolio. The liquidity price is a function of market conditions and the

markets perception of the inherent riskiness of the borrowing institution.

The source of deposits which supplies the funding adds to the volatility of funds, as

some creditors are more sensitive to market and credit events than others. Diversification of

funding sources and maturities enables a bank to avoid the vulnerability associated with the

concentration of funding from a single source. Thats why bank liquidity management policies

should comprise a risk management structure, a liquidity management and funding strategy, a

set of limits to liquidity risk exposures, and a set of procedures for liquidity planning under

alternative scenarios, including crisis situations.



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Asset-liability management, which involve the raising and utilisation of funds, lie at the

financial heart of a bank. Exactly, asset-liability management comprises strategic planning and

implementation and control processes that affect the volume, mix, maturity, interest rate

sensitivity, quality and liquidity of a banks assets and liabilities. This subject is further

discussed in Chapter 1, where are better exposed the balance sheet components. In addition, the

chapter illustrates the ways that the assets and the liabilities affect the bank profitability. The

asset structure is described on this chapter, including overall liquidity of assets, which are

nedded to accommodate expected and unexpected balance sheet fluctuations, cash and balances

with central bank, representing the holdings of highly liquid assets (a percentage of deposits is

normally required to be held in order to meet the central banks reserve requirements and serve

as a monetary policy tools), loans and advances to customers which are normally the most

significant component of a banks assets and other assets, often including the intangible assets.

Also, on this chapter is explained the liabilities structure with influences on the bank

profitability. The liabilities structure include, evidently, liabilities (the bussines of banking is

traditionally based on the concept of low margins and high leverage; consequently, a special

feature of a bank balance sheet is its low capital-to-liabilities ratio, which would normally be

unacceptable to any other business outside the financial services industry), interbank funding

comprises amounts due to other banks and credit institutions, deposits, which usually constitue

the largest proportion of a bank total liabilities, borrowings from the central bank which may

also appear among the banks liability the most frequent reason for borrowing from the

central bank is that changes have occurred in the volume of required reserve as a result of

fluctuations in deposits, the capital of a bank which may be available to protect creditors

against losses that may be incurred by managing risks imprudently and, also, like qa part of

liabilities structure provisions.

The second chapter focuses on bank liquidity, the concept, risk and fluctuation

management. We know that in day to day operations, the management liquidity is tipically

achieved through the management of a bank assets. The amount of liquid or of readily

marketable assets that a bank should hold depends on the stability of its deposit structure and

the potential for rapidand qualitativ loan portofolio expansion.

On chapter 3 we discuss about the methodology for calculating the indicators of

liquidity. The main idea is the correlation of residual maturity of assets and liabilities of banks.



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As well as we know banks are obliged to have procedures for monitoring and limiting the risk

of liquidity to meet the requirements of the standard central bank on banks' liquidity.

Risk management should be an integral part of day to day activties of each and every

line manager in a bank, in order to ascertain that risk management systems are properly applied

and that procedures are duly followed. Bankers pay a great deal of attenion to the message that

is revealed by ratio analysis.

On the chapter 4 are presented the objectives strategies in banking liquidity and the

principles of managing the liquidity crisis and action plans.

The management of liquidity crises relate mainly to:

identify the causes that have generated it;

the establishment of a crisis committee with specific duties and powers of decision ;

seeking rapid elimination of outbreaks of crisis where it is feasible (for systemic crises

is practically impossible to achieve by a financial-banking);

ensure a consistent cash (where the dynamic analysis of Gap and simulations made for

special circumstances have been made correctly, and limits were observed and

monitored permanently, the institution will have opportunities to overcome the crisis) is

to ensure liquidity both the sale of liquid assets, and obtaining large quantities of cash,

very important element in the economies in which cash is holding an important share of

aggregate M1;

ensuring all service calls to customers (at avoiding the possible appointments for other

days);

image to maintain solid financial institution;

preparation for the implementation of action plans post-crisis .

Adverse effect of slowing economic activity, increasing inflation and currency

depreciation has been felt acutely in the last part of 2008 and the first months of this year, a

significant deterioration in portfolio credit quality of banks. Thus, although the volume of

outstanding loans and questionable for non-customers (calculated as the net value and gross

value) continues to record relatively low weightings in the portfolio of loans related to this

segment of customers, the pace of depreciation alert to these indicators has become concern.



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Credit quality analysis, performed by groups of banks based on asset size, reveals that during

the period December 2008 - March 2009, loans from major banks have balance recorded the

most pronounced damage (proportion of doubtful loans outstanding and the customer, the

value , increased from 0.23% to 0.70% in the related loan portfolio), loans for small banks have

been moderate worsening (from 0.58% to 0.81 percent), while quality loans granted by banks

medium seems to have improved (to the contract from 0.62 to 0.52% in the period under

review). An evaluation of the quality of lending population shows a significant increase in 2008,

the arrears of more than 30 days, with approximately 28% in the number of individuals and

about 70% of the volume of these restane24 compared with data reported for the previous year.

Although the largest share is held by arrears in lei (75% of the total arrears of more than 30

days), the most pronounced growth was recorded in arrears for loans in euro (respectively 175

percent, compared with growth of 50% related in arrears billion) from July 2008 and, more

pronounced during November-December 2008. However, arrears greater than 30 days were in

December 2008, only 1% of the loans granted to individuals, up 0.2 percentage points compared

with the existing situation at the end of 2007. During the year 2008 has been a deterioration in

credit quality portfolio to non-bank customers, it was stressed in the first months of this year.

Thus, compared to an annual increase of 33% of the portfolio of loans related non-bank

customers in December 2008, the pace of growth in the volume of credits in categories

"substandard, doubtful and loss (unadjusted exposure) was much faster (67 percent, 92% and

130 percent respectively). Moreover, in March 2009, the pace of deterioration of credit quality

has accelerated (credits in categories mentioned have recorded a growth rate of 10 percent, and

44% respectively 47% compared to December 2008, under the conditions an increase in total

loan portfolio of only 1%.

Loans are often considered to be nonperforming when principal or interest on them is

due and left unpaid for 90 days or more.Loan classification and provisioning entails much more

than simply looking at amounts overdue. The borrowers cash flow and overall ability to repay

amounts owing are significantly more important than whether the loan is overdue or not. For

financial reporting purposes, the principal balance outstanfing, rather than deliquent payments,

is used to identify a nonperforming loan portofolio. The nonperforming loan portofolio is an

indication of the quality of the total portofolio and ultimatly that of a banks lending decision.

Loans loss provisions are expenses related to the credit risk inherent in granting loans

and advances. Provisions are made to compensate for the impaired value of the related loan



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principal and interest due. This category may include write-offs and recoveries, like amounts

recovered on loans previously written-off, or this may be shown as a separate line in the income

statement.

When assessed within the context of nonperforming loans, the aggregate level of

provisions indicates the capacity of a bank to effectively accommodate credit risk. The analyses

of a nonperforming loan portofolio should determine a number of aspects, like aging of past-due

loans, including principal and interest, by more than 30, 90, 180 and 360 days, the reasons for

the deterioration of the loan portofolio quality, the provisions levels be considered to determine

the bank capacity to withstand loan defaults and the impact on profit and loss accounts to

determine exactly how the bank will be affected by the deterioration of asset quality.

In their wish to maximize their profits, banks tend to expand credit neneleapt.

This expansion may lead to inability to honor the obligations that the bank and therefore has

lower confidence in bank customers or even the entire banking system if financial problems

spreads to other banks.

By managing assets is to actually ensure liquidity. Structure of assets should be such that

the outputs of funds does not require adjustments in liabilities. Liquidity of assets depends on

the ease with which they can turn into cash flow. Liquidity of liabilities is more difficult to

determine compared with the assets. Conceptually, is the difference between the maximum

amount that the bank can attract and the amount of resources raised in a specific time.

Banks can not afford to hold to a higher asset that can not be processed very quickly and

without cash. This need for liquidity but is inconsistent with the overall objective of the bank:

profit. Often the most profitable investments, with the greatest interest are the least liquid (cash

not make any profit, but the same amount of money invested in medium or long term can bring

significant income bank).

From 2008 the yield on deposits became positive population savings. Until spring 2008,

the rate of inflation, not always lower the interest rate offered by banks on deposits, and

currency appreciation have not encouraged people to save. However, the volume of deposits in

lei and foreign currency increased. Financial crisis has significantly increased the importance of

internal resources. As a result, banks began to offer attractive interest rates on deposits,

amounting in some cases even to 20% of deposits in lei, to attract public savings. Currency

depreciation made in foreign investment and to be profitable. Savings in lei and the upward

trend resumed after being interrupted by moment of panic in October 2008, when the



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withdrawals of deposits from the banking sector were considerable: 4.7 billion in one month

(October 2008). Percentage, the amount represented a reduction of 3.5 percent of the volume of

deposits. For the first time (the last 4 years) the population had net outflows of deposits. This

shows that the negative effect on the volume of deposits was induced in particular by the

population as a measure for personal liquidity crisis of the banking system. Most likely, the real

yields on deposits in lei and foreign currency will be reduced following the decisions to reduce

interest rates on deposits, but the effect on saving do not think that will be major.

Tightening standards and terms of credit involves more difficult access to bank

financing. The advance is required prospective borrowers to become higher level of

indebtedness and accepted by banks is declining. Factors mentioned induce an increase in

savings, because the contribution that should help borrowers is increasing.

Unforeseen liquidity needs, being caused by random events are virtually impossible to

predict. Bank must be prepared at any time to cope with these problems. Most banks shall

establish a plan that applies to cover liquidity needs in emergency situations. Bank may,

however, to monitor potential recall and be aware of the type and magnitude of any seasonal

templates that can ruin the balance unexpectedly, may:

1. periodically connect to large depositors to assess the likelihood that any of these

customers and to reinvest the funds in other ways;

2. must have information on the interest rate elasticity of demand to customers for each

source of funds (each type of deposit). If interest rate increases, many new funds will be

attracted?

3. must determine if / how macroeconomic changes can have an impact on withdrawal

of deposits from the bank.

The lack of liquidity is not in the sense that would be possible to obtain liquidity, but its

price, the cost of obtaining them.

To limit the losses that may occur in these situations and to provide additional security

to clients, National Bank of Romania requires all commercial banks holding a minimum level of

cash reserves (cash). This minimum amount should be determined after a very careful analysis

of all factors taken into account since setting a too high liquidity would entail a restraint of

funds that could otherwise be used to grant credit.

The reserve bank does not provide less than the security deposit. Therefore, in addition

to limiting the multiplication of credit through the establishment of reserves banks, the NBR



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and the hypostasis of lender of last resort of banks with financial problems. Also the Guarantee

Fund of Deposits ensure that bank customers amounts to a certain limit (currently 10,000 EUR)

will be returned in case of bankruptcy of the bank which provided the warehouse.

A bank is considered that if liquidity is immediate access, at reasonable cost, the

necessary funds. This means that the bank has either amounts or they can be obtained by

borrowing or selling assets. For banks to ensure liquidity needs during certain periods resorting

to launching new banking products or special conditions for the formation of deposits.

Increasing interest rates on deposits could encourage savings, but can not change now,

the financial behavior of the population, who prefer to be more indebted than to save.

According to NBR data, the population has changed from net creditor banks in the debtor.

Strategy to increase the interest on deposits, banks adopted, due largely scumpirii

external sources of funding, expensive due to high volatility of international financial markets,

growth rates and short-term liquidity crisis.

Efectele contextului macroeconomic nefavorabil sunt reflectate i de ponderea

creantelor restante i ndoielnice (valoare net) n total active bancare i n capitaluri proprii ,

care a nregistrat o dublare n perioada 2007 2008 (pn la 0,31 % i respectiv 3,38 la sut),

urmat de o nou dublare n primele trei luni ale anului curent (pn la 0,52 % i, respectiv, 5,95

la sut). Dei ritmul de deteriorare a calitii portofoliului de credite este deosebit de alert i

reclam o monitorizare extrem de atent att din partea bncilor, ct i din partea autoritii de

supraveghere, volumul restanelor se menine nc la un nivel relativ redus.

Credits are often considered to be bad when the capital or the interest on past due and

unpaid for 90 days or more. Classification and provisioning of loans involving more than a

simple look at the amounts outstanding. Cash flows and general customer ability to repay the

amounts owed are more important than whether the loans are outstanding or not. For financial

reporting, the main existing balance, not necessarily paid, is used to identify a portfolio of bad

loans.

When assessed in the context neperfomante credits, the cumulative provisions of the

Bank indicates ability to cope effectively credit risk. Analysis of bad loans portfolio must cover

a range of issues, such as length of loans outstanding, including capital and interest over 30, 90,

180 and 360 days, causes damage to the portfolio of loans that can help identify possible

measures that would could be undertaken by the bank to counter a trend, the impact on the

profit and loss to determine exactly how the bank will be affected by the deterioration of bank



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assets. Upward trend of the indicators of credit risk 1 rate risk and credit 2 continued in 2008

and the first three months of this year (up to 8.1% and 15% at end-March 2009) which requires

more attention in the management of risk.


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