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National Bank of the Republic of Macedonia 23 rd Annual BSCEE Conference, Ohrid, Macedonia 15-17 June, 2010. Liquidity risk standards and measurement-Macedonian measures during and after the crisis. Natasha Andreeva
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National Bank of the Republic of Macedonia 23rd Annual BSCEE Conference, Ohrid, Macedonia 15-17 June, 2010
Liquidity risk standards and measurement-Macedonian measures during and after the crisis Natasha Andreeva Financial 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
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
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
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 implementation
II. Maintaining an adequate liquidity level • Plan and monitor the inflows and outflows of funds • Maintain adequate maturity structure of its assets and liabilities • Monitor the sources of funds and their concentration • Maintain prescribed liquidity ratios and • Determine and monitor the internal liquidity ratios
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)
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
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
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 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
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
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
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.)
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)
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
Concentration level (20 largest depositors) of the transaction accounts and sight deposits: The NBRM may prescribe different weights
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).
Reporting liquidity ratios 28.02.2009: First monthly report on liquidity ratios Dynamic to reach liquidity ratio of 1 • 1/24of 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
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
Effects of the measure = upward movements in liquidity • Liquid assets increased • Liquidity indicators improved • Stress testing results improved • Minimal liquidity ratios • Maturity structure improved (in domestic currency)
Thank you!! AndreevaNat@nbrm.gov.mk
