56.6. Liquidity risk

The Bank’s comprehensive liquidity management system covers both immediate (intraday) and future (current, short-term as well as structural medium- and long-term) liquidity. Risk is managed by the Bank by building the statement of financial position and the financing structure reflected in the Bank’s financial statements including both balance and off-balance sheet items to ensure liquidity at any time, taking into consideration the profile of the Bank’s business, customer characteristics and behaviours as well as needs that may arise as a result of changes in the financial market. Additionally, the risk identification and measurement methods used by the Bank enable it to forecast future liquidity levels, also in stress conditions.

The Bank ensures separation and independence of its operations, risk management, control and reporting functions. In particular, transactions with contracting parties and customers are entered into by the business, confirmed and processed by Operations, immediate (intraday) and future liquidity is managed by ALM Treasury, daily supervision of the risk level and compliance with risk limits is the responsibility of the Risk Function, while supervisory liquidity measures are reported independently by the Finance Division.

The liquidity risk limits adopted by the Bank reduce its exposure to this type of risk. Risk is monitored and controlled based on documents adopted by resolutions of the Bank’s Management Board (risk measurement and monitoring policy and methodologies), developed in compliance with the guidelines formulated in Recommendation P of the Polish Financial Supervision Authority, the provisions of PFSA’s Resolution No. 386/2008 and European Commission Delegated Regulation 2018/60 of 13 July 2018 amending Commission Delegated Regulation (EU) 2015/61 of 10 October 2014. The Bank has an internal transfer pricing system in place, which reflects accurately the real financing cost for each asset and liability type, and the transfer pricing structure stimulates optimization of the statement of financial position, including diversification of the sources of funding, from the perspective of liquidity risk. LTD limits for each business line are an important additional component of that system, as they facilitate maintenance of a secure level of assets relative to liabilities, which is appropriate considering the characteristics of each line.

The level of liquidity risk appetite is determined by the Supervisory Board of the Bank and the risk management policy based on that appetite, including definition of general liquidity risk measures, is approved by the Management Board, whereas specific risk limits and their monitoring are the responsibility of ALCO. The Bank’s Management Board and Supervisory Board supervise the effectiveness of the liquidity risk management process based on periodic information and current reports.

In compliance with the requirements of PFSA’s Recommendation P, the Bank conducts numerous analyses verifying its ability to maintain liquidity in crisis situations. Stress tests cover comprehensive scenarios considering internal and system factors and combining different variants with possible interactions. Stress test results are taken into account in determining liquidity limits. The Bank has a comprehensive emergency plan in place. It comprises various scenarios along with action plans for liquidity crisis situations in the Bank and in the banking system as a whole. Stress test results are correlated with the emergency plan and reaching defined warning levels triggers the emergency plan.

The Bank uses external and internal risk measures. The internal measures include, among others: an analysis of trends and volatility of each source of funding relative to the loan portfolio (LTD), the contractual liquidity gap and the liquidity gap realigned based on behavioural factors along with mismatch structure limits defined on its basis, an analysis of surplus liquidity and the available sources of funding, an analysis of stability and concentration of the deposit base as well as a review of the structure of funds placed with the Bank by the major depositors by volume and maturity. Additionally, sales plans (covering loans and deposits) are monitored, by each business line, and simulation analyses are performed. Furthermore, the Bank analyses the costs of the deposit base with a view to optimizing the liquidity buffer and the use of such tools as the liquidity margin or pricing policy.

The external measures include supervisory long-term liquidity ratios introduced by PFSA’s Resolution No. 386/2008, which was in force before 30 June 2021, as well as liquidity coverage ratio (LCR), as defined in European Commission Delegated Regulation 2018/60 of 13 July 2018 amending Commission Delegated Regulation (EU) 2015/61 of 10 October 2014, and the net stable funding ratio (NSFR) determined in the Regulation No. 2019/876 of 20 May 2019 amending the Regulation (EU) No. 575/2013 of the European Parliament and of the Council and developed in line with the Commission Implementing Regulation (EU) No. 680/2014 and the Basel document on the NSFR.

The on-going supervision includes early warning tools, such as monthly reviews of additional liquidity requirements defined in the Commission Implementing Regulation (EU) No. 2016/313. In addition, the Bank conducts daily analyses of various liquidity indicators with warning levels defined in the Emergency Liquidity Plan. Theses allow, when warning levels are reached, to introduce remedial actions and restore the Bank’s safety in terms of liquidity.

In 2021, the Bank’s financial liquidity was maintained at a safe level. The Bank’s funds were sufficient for payment of all its liabilities upon maturity. The portfolio of the most liquid securities was maintained at a level, which was sufficient to offset a potential outflow of funds placed with the Bank by the major depositors in whole.

The year 2021 was a year of continuation of the COVID-19 pandemic situation. The activities of the ALMT Division focused on continuing the special monitoring of the Bank’s liquidity situation and ensuring the smooth management of settlements, clients’ access to cash. The Bank maintained on its portfolio the purchase of government bond issues and those issued by Bank Gospodarstwa Krajowego in support of pandemic control activities. Internal models and internal transfer prices were adjusted on an ongoing basis. The ALMT division coordinated with the business lines through regularly held meetings and consultations concerning the liquidity situation and customer behaviour.

As at the end of 2020, the Bank’s surplus liquidity was at the level of PLN 29.811 billion:

The liquidity surplus decreased compared to the end of 2020 mainly due to the reduction in the portfolio of liquid assets, which were sufficient to ensure that the Bank’s regulatory ratios were safe and well above the required level.

Throughout 2021, in particular as at 31 December 2021, the Bank complied with the requirements applicable to the supervisory measures.

In 2021, the Bank continued to optimize its financing sources, which aims to reduce unnecessary, and at the same time costly and unstable, excess funding. In 2021, the Bank maintained the level of medium- and long-term loans from the BNPP Group and its subsidiaries, including a subordinated loan from BNP Group in order to meet the MREL requirement.

The Bank’s sources of funding remained highly stable throughout 2021 at a similar level as in the previous year:

Inflows and outflows – expected under the agreements concluded by the Bank is presented as contractual liquidity gap*:

Compared to 2020, the contractual gap up to 1m increased, which is due on the one hand to the persistence of a very large portfolio of amounts due to customers in products such as current and savings accounts. However, the stability of customer funds is still very high (88% of the total balance, which is higher than in the previous year) with an average maturity of the stable parts of more than five years. At the end of 2021, off-balance sheet liabilities excluding derivatives amounted to PLN 45.204 trillion.

The Bank’s liquidity position continued to improve throughout the year. Due to the Covid-19 pandemic, interest in loans increased slightly during the summer months of 2021, but the reluctance to commit continued. In addition, the reduction in lending towards the end of the year was caused by rising inflation, interest rate increases (3 increases since September 2021) totalling 2.15% of increase in case of the reference rate. This also caused a slowdown in mortgage production towards the end of the year. Inflationary concerns, wage pressures as well as the planned significant increases in energy prices from 2022 also caused a slowed down loan production in the corporate segment.

Funds obtained from non-banking customers continue to be the primary source of financing.