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 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 contingent liabilities and commitments.

The Group’s policy concerning liquidity is based on keeping a portfolio of liquid securities and increasing stable sources of financing (stable deposits, in particular). In its liquidity risk management policy, also uses money market instruments, including NBP open market operations.

Measurement of the liquidity risk

The Group makes use of the following liquidity risk measures:

  • the contractual liquidity gap method and the liquidity gap in real terms,
  • liquidity reserve,
  • measure of stability of deposit and loan portfolios,
  • stress tests (liquidity stress tests).

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 other Group’s entities.

  a'vista 0 - 1
month
1 - 3
months
3 - 6
months
6 - 12
months
12 - 36
months
36 - 60
months
pow. 60
months
31.12.2011  
The Group - adjusted gap in real terms 7 299 484 12 094 029 (1 599 805) 1 399 996 (1 169 611) 10 276 571 16 150 066 (44 450 730)
The Group - cumulative adjusted gap in real terms 7 299 484 19 393 513 17 793 708 19 193 704 18 024 093 28 300 664 44 450 730 -
31.12.2010  
The Group - adjusted gap in real terms 3 207 473 14 102 549 (949 842) (106 638) 3 800 570 5 160 414 (1 014 208) (24 200 318)
The Group - cumulative adjusted gap in real terms 3 207 473 17 310 022 16 360 180 16 253 542 20 054 112 25 214 526 24 200 318 -

In all time horizons, the PKO Bank Polski SA Group’s cumulative adjusted liquidity gap* as at 31 December 2011 and 31 December 2010 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 2011 and 31 December 2010:

  31.12.2011 31.12.2010
Liquidity reserve up to 1 month* (in PLN million) 17 723 10 151

*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 2011 the level of permanent balances on deposits constituted approx. 94.8% of all deposits in the Bank (excluding interbank market), which means an decrease by approximately 0.4 pp. as compared to the end of 2010.

The chart below presents the structure of the Bank's sources of financing as at 31 December 2011 and as at 31 December 2010.

Structure of Bank's financing sources

The contractual flows of the Group’s liabilities excluding derivative financial instruments as at 31 December 2011 and 2010 respectively, by maturity.

The tables below show the contractual maturity analysis presenting the outstanding contractual maturity dates by individual categories of balance sheet and off-balance sheet liabilities, excluding derivative financial instruments as at 31 December 2011 and 2010 respectively.

The amounts denominated in foreign currencies have been translated using the average NBP exchange rate as at 31 December 2011 and 31 December 2010. The amounts disclosed comprise non-discounted 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 date 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 2011 by maturity


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The contractual flows related to derivative financial instruments as at 31 December 2011 and 2010 respectively, by maturity dates

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 2011 and as at 31 December 2010 respectively.

The amounts denominated in foreign currencies have been translated using the average NBP exchange rate as at 31 December 2011 and as at 31 December 2010. In the case of IRS transactions, non-discounted future net cash flows in respect of interest have been presented and in the case of the remaining derivative instruments settled on a net basis, the amount of the valuation as at 31 December 2011 and as at 31 December 2010 respectively was adopted as the value of cash flows.

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

31 December2011 Up to 1 month 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: (86 181) (446 346) (102 476) (519 508) (65 127) (1 219 638)
- derivative hedging instruments (720) (43 123) (125 667) (2 643) - (172 153)
- other derivative hedging instruments: options, FRA, NDF (13 321) (31 074) (63 496) (67 089) (3 424) (178 404)


31 December 2010 Up to 1 month 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: (105 205) (163 410) 2 734 (324 556) (37 553) (627 990)
- derivative hedging instruments (26 310) (33 432) 155 030 3 071 - 98 359
- other derivative hedging instruments: options, FRA, NDF (7 054) (16 545) (35 648) (8 188) - (67 435)

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 2011 and 2010 respectively.

The amounts denominated in foreign currencies have been translated using the average NBP rate as at 31 December 2011 and as at 31 December 2010. The amounts disclosed comprise non-discounted future cash flows, both in respect of principal and interest (if applicable).

In the table below cash flows from CIRS transactions which constitute cash flow hedges in respect of mortgage loans denominated in CHF and deposits negotiated in PLN are shown separately.

31 December 2011 Up to 1 month 1 - 3 months 3 months - 1 year 1 - 5 years Over 5 years Contractual value
Derivative financial instruments:
- - outflows, of which: (4 648 404) (1 171 801) (2 714 512) (8 556 597) (293 894) (17 385 208)
- derivative hedging instruments (107) (79) (1 283 493) (5 831 422) (181 665) (7 296 766)
- inflows, of which: 4 757 021 1 259 677 2 905 469 8 381 329 308 220 17 611 716
- derivative hedging instruments 13 780 8 815 1 297 074 5 424 579 178 425 6 922 673


31 December 2010 Up to 1 month 1 - 3 months 3 months - 1 year 1 - 5 years Over 5 years Contractual value
Derivative financial instruments:
- outflows, of which: (4 769 951) (1 117 732) (2 671 901) (11 263 845) (1 003 961) (20 827 390)
- derivative hedging instruments (2 774) (160 404) (1 329 956) (9 662 916) (986 358) (12 142 408)
- inflows, of which: 4 785 673 1 209 276 2 928 744 11 794 926 972 125 21 690 744
- derivative hedging instruments 56 848 193 084 1 515 203 9 789 602 943 602 12 498 339

Current and non-current assets and liabilities as at 31 December 2011

  Short-term Long-term Impairment allowances Total carrying amount
Assets
Cash and balances with the central bank 9 142 168 - - 9 142 168
Amounts due from banks 2 425 344  3 695  (32 812) 2 396 227
Financial assets held for trading 638 321 672 768 - 1 311 089
Derivative financial instruments 1 304 726 1 760 007 - 3 064 733
Financial assets designated upon initial recognition at fair value through profit and loss 11 666 896 800 305 - 12 467 201
Loans and advances to customers 37 349 343 109 943 394 (5 658 243) 141 634 494
Investment securities available for sale 2 116 703 12 297 136 (20 563) 14 393 276
Inventories 493 481 106 453 (33 088) 566 846
Other assets 1 626 436 4 563 001 (417 434) 5 772 003
TOTAL ASSETS 66 763 418  130 146 759  (6 162 140) 190 748 037
Liabilities        
Amounts due to the central bank 3 454 - - 3 454
Amounts due to other banks 5 513 385  725 779 - 6 239 164
Derivate financial instruments 883 657 1 761 624 - 2 645 281
Amounts due to customers 141 686 933 4 786 964 - 146 473 897
Debt securities in issue 3 160 479 4 611 300 - 7 771 779
Subordinated liabilities - 1 614 377 - 1 614 377
Other liabilities 3 096 173 81 928 - 3 178 101
TOTAL LIABILITIES 154 344 081 13 581 972 - 167 926 053
EQUITY - 22 821 984 - 22 821 984
SUMA TOTAL LIABILITIES AND EQUITY 154 344 081 36 403 956 - 190 748 037

Current and non-current assets and liabilities as at 31 December 2010

  Short-term Long-term Impairment allowances Total carrying amount
Assets
Cash and balances with the central bank 6 182 412 - - 6 182 412
Amounts due from banks 2 324 738 11 219 (28 925) 2 307 032
Trading assets 873 046 630 603 - 1 503 649
Derivative financial instruments 652 640 1 066 445 - 1 719 085
Financial assets designated upon initial recognition at fair value through profit and loss 8 533 646 2 224 685 - 10 758 331
Loans and advances to customers 25 865 842 109 658 947 (4 856 670) 130 668 119
Investment securities available for sale 3 614 202 6 627 107 (21 909) 10 219 400
Inventories 356 639 208 494 (34 858) 530 275
Other assets 1 517 897 4 644 073 (389 772) 5 772 198
TOTAL ASSETS 49 921 062 125 071 573 (5 332 134) 169 660 501
Liabilities
Amounts due to the central bank 3 370 - - 3 370
Amounts due to banks 1 856 924 3 376 951 - 5 233 875
Derivative financial instruments 843 518 1 561 277 - 2 404 795
Amounts due to customers 124 025 037 8 956 178 - 132 981 215
Debt securities in issue 134 490 3 164 377 - 3 298 867
Subordinated liabilities - 1 611 779 - 1 611 779
Other liabilities 2 008 051 758 981 - 2 767 032
TOTAL LIABILITIES 128 871 390 19 429 543 - 148 300 933
EQUITY - 21 359 568 - 21 359 568
TOTAL LIABILITIES AND EQUITY 128 871 390 40 789 111 - 169 660 501

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. Reports are prepared mainly for RC, ALCO the Bank’s Management Board and the Bank’s Supervisory Board.

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 the entities of the PKO Bank Polski SA Group have accepted limits and thresholds for liquidity risk. The limits and thresholds were set for both current liquidity measures and medium and long-term liquidity measures.

Methods of liquidity risk management in the entities of the Group are defined by internal regulations implemented by the Group’s 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.