National Bank of the Republic of Macedonia
23rd Annual BSCEE Conference, Ohrid, Macedonia15-17 June, 2010
Liquidity risk standards and measurement-Macedonian measures during and after the
crisis
Natasha AndreevaFinancial Stability, Banking Regulations and Methodology Department, Deputy Director
Decision on managing banks' liquidity risk adopted in December 2008 (previous regulation since 2003)
I. System of liquidity risk management
II. Maintaining an adequate liquidity level
III. Reporting to the National Bank of the Republic of Macedonia
3
Liquidity risk-Definition the risk of failing to provide sufficient funds to settle liabilities as they fall due, or to provide funds needed at much higher costs
4
I. System of liquidity risk management
Liquidity risk management-Definition Management of assets and liabilities in a manner that shall ensure timely and regular settlement of the liabilities, in normal or in extraordinary course of bank's operations
Should be compatible with the nature, the scope and the complexity of the financial activities the bank performs
5
I. System of liquidity risk management
Components:
1. Appropriate organizational structure
2. Internal control and audit
3. Information system
4. Stress-testing
5. Plan for liquidity risk management in extraordinary conditions
Written policy and procedures for implementation6
II. Maintaining an adequate liquidity level
1. Plan and monitor the inflows and outflows of funds
2. Maintain adequate maturity structure of its assets and liabilities
3. Monitor the sources of funds and their concentration
4. Maintain prescribed liquidity ratios and
5. Determine and monitor the internal liquidity ratios
7
Planning should include all types of current and future, expected inflows and outflows (deposits, loans, securities, borrowings, off-balance sheet items, and all other inflows/outflows with high level of certainty)
8
II.2.Establishing and maintaining adequate maturity structure
Matching the assets and liabilities maturities according to:
a. their contractual residual maturity
b. their expected residual maturity
9
II. Maintaining an adequate liquidity level
II.3. Monitoring the sources of funds and their concentration
Includes:• Regular contacts with largest depositors• Determining the level of stability of deposits• Monitoring the diversification of the sources of
funds• Monitoring trends in the total sources of funds
10
II. Maintaining an adequate liquidity levelII.4. Liquidity ratios
Calculated separately for positions in Denars and in foreign currency, for 30 days and for 180 days maturity
Minimal liquidity ratios
Assets with residual maturity up to … days ≥ 1
Liabilities with residual maturity up to … days
11
If a bank fails to maintain the liquidity ratios
=> submits to the National Bank a written explanation of the reasons that led to that and measures for compliance with the minimum level
The National Bank may impose measures
12
Assets: balances with the National Bank debt instruments issued by the National Bank other cash and cash equivalents securities or assets treated as eligible collateral
by the National Bank claims on other domestic and foreign banks
with maturity of up to 30 (180) days
13
loans, interests, fees, and other claims, classified in A and B maturing in the folowing 30 (180) days. Exposures that are prolonged twice or more are excluded
debt instruments held to maturity or available for sale in the forthcoming 30 (180) days
securities held for trading guarantees, letters of credit, and forward
transactions that are potential inflow in the forthcoming 30 (180) days
14
Excluded assets that are not freely at bank's disposal
(e.g. items used as pledge for other parties obligations, items used as collateral for banks obligations if the pledge and the obligation are with different maturities, items for which court dispute is underway, etc.)
15
Liabilities:
time deposits that mature within the forthcoming 30 (180) days
other liabilities that mature within the forthcoming 30 (180) days
15% (20%) of the approved overdrafts on transaction accounts and credit cards (off balance sheet)
16
forward transactions, uncovered letters of credit, irrevocable lines of credit, guarantees and other off-balance sheet items classified in risk categories C, D, and E, which mature in forthcoming 30 (180) days
transaction accounts and sight deposits in the amount that depend on the concentration level
17
Concentration level (20 largest depositors) of the transaction accounts and sight deposits:
The NBRM may prescribe different weights
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Concentration level
% of inclusion in the liquidity ratio (denominator)
up to 30 days up to 180 days
< 30% 30% 40%30% > 50% 35% 45%
>50% 40% 50%
II.5 Determining and monitoring the internal liquidity indicators
A bank should define:• internal liquidity indicator(s) for monitoring the
liquidity level and the exposure to liquidity risk, • to set appropriate ranges of these indicators • to define the method of measuring and monitoring the
internal liquidity indicators and • to determine time periods in which those indicators
will be complied with (on a daily, weekly, or monthly basis).
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Reporting liquidity ratios28.02.2009: First monthly report on liquidity ratios
Dynamic to reach liquidity ratio of 1• 1/24 of the difference determined as of Feb.28, 2009
between the minimum level of 1 and the initial amount of the liquidity ratio up to 30 days
• 1/60 of the difference determined as of Feb.28, 2009 between the minimum level of 1 and the initial amount of the liquidity ratio up to 180 days
20
Amendments on the Decision (in May 2009)
Placements in the National Bank instruments (except compulsory reserve in foreign currency) can be included in the calculation of the liquidity ratio up to 30 (180) days either in domestic currency or in foreign currency
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Effects of the measure = upward movements in liquidity
Liquid assets increasedLiquidity indicators improvedStress testing results improvedMinimal liquidity ratios Maturity structure improved (in domestic currency)
22
45000
50000
55000
60000
65000
70000
75000
80000
09.20
07
11.20
07
01.20
08
03.20
08
05.20
08
07.20
08
09.20
08
11.20
08
01.20
09
03.20
09
05.20
09
07.20
09
09.20
09
11.20
09
01.20
10
in mi
llion
of D
enar
s
Liquid assets
03.2009the dateafter the first report
23
Liquidity indicators
35,9%
23,0%25,7%
49,0%
32,4%37,5%
81,2%
52,2%
53,7%
15%
25%
35%
45%
55%
65%
75%
85%12
.200
7
01.2
008
02.2
008
03.2
008
04.2
008
05.2
008
06.2
008
07.2
008
08.2
008
09.2
008
10.2
008
11.2
008
12.2
008
01.2
009
02.2
009
03.2
009
04.2
009
05.2
009
06.2
009
07.2
009
08.2
009
09.2
009
10.2
009
11.2
009
12.2
009
Liquid assets / Total assets
Liquid assets / Short term liabilities
Liquid assets / Households deposits
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Stress testing results
over 100%5 banks
over 100%6 banks
0%
20%
40%
60%
80%
100%
120%
31.12.2008 31.12.2009 31.12.2008 31.12.2009
Share od the bigest depositors in total deposit base (on average)
Decreasing of liquid assets after simulation (in %)
individual bank
average for the banking system
25
Maturity structure
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-75000
-65000
-55000
-45000
-35000
-25000
-15000
-5000
5000
15000
up to 7 days
up to 1 month
up to 3 months
up to 6 months
up to 12 months
in m
illio
n of
Den
ars
Dec.2009 fx
Dec.2009 Denars
Dec.2008 fx
Dec.2008 Denars
Maturity up to 30 days
Liquidity ratios
Number of banks
Denars Foreign currency
Feb.2009
Dec.2009
Feb.2009
Dec.2009
>1 14 17 12 17
< 1 4 1 6 1
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Maturity up to 180 days
Liquidity ratios
Number of banks
Denars Foreign currency
Feb.2009
Dec.2009
Feb.2009
Dec.2009
>1 9 16 8 10
< 1 9 2 10 8
28
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