Liquidity risk means the risk that the Group or a member of the Group will be unable to finance its activities, i.e., to ensure asset growth and settle liabilities as they become due without incurring losses in an amount that would threaten the financial stability of the Group and/or a member of the Group.
VTB Group-level liquidity risk management
Liquidity risk management involves a set of measures used to manage the Group’s assets and liabilities with the aim of maintaining the Group’s ability to meet its obligations while ensuring an optimal balance between the level of liquidity risk and the profitability of the Group’s operations.
The VTB Group Management Committee and Assets and Liabilities Management Committee and VTB Bank’s Treasury Department and the Market Risk Division of the Integrated Risk Management Department all play a role in the Group’s liquidity risk management process.
The VTB Group Management Committee:
- determines the Group’s general policy in the area of liquidity risk management;
- sets limits and triggers for VTB Group’s liquidity risk appetite;
- reviews reports on the status of VTB Group’s liquidity risk as part of reports on Group risks.
The Group Assets and Liabilities Management Committee:
- approves the Regulation on the Procedure for Managing Liquidity Risk in the Group;
- approves the Group's liquidity risk assessment methodology;
- monitors the Group’s liquidity;
- decides on measures related to the management of the Group’s assets and liabilities with the aim of ensuring the required level of liquidity and growth of the Group’s assets.
Liquidity management is applied at the Group level based on bylaws approved by the Group’s Management Committee. Within the Group, liquidity management is based on the following principles:
- Each bank/company within the Group manages its own liquidity on a separate basis in order to meet its obligations and comply with the requirements of the national regulator and the recommendations of VTB Bank;
- VTB Bank manages the Group’s liquidity by centrally controlling and managing the key measures taken by the Group.
Methods for controlling and reducing the Group’s liquidity risk include:
- monitoring compliance with the established appetite for liquidity risk;
- monitoring compliance with the regulatory limit set by the Bank of Russia for the short-term liquidity of a banking group.
VTB Bank-level liquidity risk management
Liquidity risk management involves a set of measures used to manage the Bank’s assets and liabilities with the aim of maintaining the Bank’s ability to meet its obligations while ensuring an optimal balance between the level of liquidity risk and profitability of the Bank’s operations.
The Bank has current and forecast liquidity risk management in place.
Managing current liquidity entails short-term forecasting and management of cash flows in respect of currencies and terms (time frames) so that the Bank can ensure that it will meet its obligations, complete settlements on behalf of its customers and fund ongoing operations.
Current liquidity management is carried out by the Treasury Department based on a real-time (intraday) determination of the Bank’s current payment position and forecast future payment position, taking into account the payments schedule and other scenarios.
The objective in forecast liquidity management is to develop and implement instruments to manage assets and liabilities to support the Bank’s instant funding capability, and to plan increases in its asset portfolio by optimising the ratio of liquid assets and profitability.
The Bank achieves this by making long-term liquidity forecasts and by adhering to internal liquidity standards (standards for liquid and highly liquid assets and the liquidity standard for the treasury securities portfolio), as formulated by the Assets and Liabilities Management Committee. The liquidity accounting standards of the Bank of Russia are also applied when carrying out forecast liquidity management.
Each forecast includes receivables and payments according to the contractual terms for operations, while also taking into account the following:
- Planned transactions;
- Possible extension of clients’ funds (deposits and promissory notes);
- Possible outflows of unstable “on-demand” capital (clients’ settlement and current accounts, as well as Loro accounts).
In addition, the Risk Department (since 20 November 2018, the Integrated Risk Management Department) conducts stress testing to assess risk factors that can have an impact on the Bank’s liquidity forecast. Liquidity gaps are closed through new borrowings and the renewal of existing deposits. The Group’s medium-term liquidity is managed by attracting interbank loans and customer deposits, repo transactions and secured loans from the Bank of Russia. The currency structure of liquidity is managed by conducting “conversion swap” transactions.
A significant proportion of VTB Group’s liabilities is represented by customer deposits (deposits, promissory notes, current accounts of corporate and retail customers), resources from the Bank of Russia and interbank deposits.
Although a considerable portion of customer liabilities are short-term deposits and “on-demand” accounts, the diversification of these liabilities and VTB’s past experience indicate that these liabilities are consistently refinanced by customers, and they are, for the most part, a stable source of funding. The stable element of short-term customer liabilities is determined for various currencies using a statistical trend analysis of the cumulative balances of these accounts over time.
Money-market instruments (interbank loans and deposits, repurchase agreements) are used to control short-term liquidity, and are not considered as a source of funding for long-term assets.
Methods for controlling and reducing liquidity risk include:
- Monitoring compliance with established internal limits and regulations, including appetite for liquidity risk;
- Analysing liquidity risk using a set of quantitative and qualitative indicators;
- Implementing forecasting, situational modelling and stress testing of the Bank’s liquidity;
- Monitoring calculated gaps taking into account the scenario analysis of the Bank’s liquidity for various time periods to identify disparities between receivables and payments;
- Identifying and analysing the impact of internal and external factors on the Bank’s liquidity, and the forecast for changes;
- Adopting and implementing solutions for management of assets and/or liabilities of the Bank to maintain liquidity risk at a level that complies with internal and regulatory liquidity ratios;
- Developing a detailed plan of action for mobilisation of liquid assets by the Bank in the event of insufficient liquidity;
- Ensuring compliance with the Bank of Russia’s mandatory liquidity ratios by monitoring actual and forecast values of intra-bank maximum permissible indicators for mandatory ratios.