Liquidity risk

Liquidity risk refers to the risk that Triodos Bank is unable to fulfil its obligations to its customers at a particular point in time without incurring unacceptable losses.

Funds entrusted are attracted for Triodos Bank’s lending operations. The surplus is deposited with financial institutions or government (guaranteed) bonds. Triodos Bank is characterised by a high degree of liquidity, and is funded entirely by deposits from private customers and small and medium sized enterprises. As a result, Triodos Bank does not need to rely on funding from the wholesale market. Therefore, Triodos Bank’s liquidity was not affected by the challenges the wholesale market faced during the recent financial crisis for its funding. Triodos Bank regularly assesses its liquidity position based on stress scenarios. The outcomes of these stress tests were satisfactory. Actions to be taken to manage our liquidity position in case of a future liquidity crisis are described in a Liquidity Contingency Plan.

Every month, Triodos Bank’s liquidity position is monitored by the Asset and Liability Committee.

Intraday liquidity is monitored by the branches through cash flow forecasting. Each week their position is reported to Group Treasury and reported to the CFO. Limits are agreed by Triodos Bank’s Executive Board based on a proposal made by the Asset and Liability Committee.

The following tables set out the actual and required liquidity of the financial instruments held as at 31 December.

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2010
Amounts in thousands of EUR

Receivable
or payable
on demand

<= 3
months

<= 1
year

<= 5
years

> 5
years

Total

 

 

 

 

 

 

 

Actual liquidity and amounts receivable in the maturity calendar
(weighted amounts):

 

 

 

 

 

 

 

 

Cash

44,814

44,814

Banks

370,875

200,633

1,800

573,308

Loans

22,267

85,450

214,543

501,130

823,390

Interest-bearing securities

478,303

60,500

1,000

539,803

Derivatives

14,027

70,835

218,596

1,817

305,275

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

893,992

236,927

156,285

493,639

505,747

2,286,590

 

 

 

 

 

 

 

Required liquidity and amounts payable in the maturity calendar
(weighted amounts):

 

 

 

 

 

 

 

 

Banks

420

97

740

6,159

13,833

21,249

Funds entrusted

324,306

26,070

39,416

49,395

12,095

451,282

Other liabilities

3,308

3,308

Subordinated liabilities

22,800

22,800

Contingent liabilities

2,382

2,382

Irrevocable facilities

73,494

73,494

Derivatives

14,017

70,779

218,237

1,808

304,841

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

403,910

40,184

110,935

273,791

50,536

879,356

 

 

 

 

 

 

 

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2009
Amounts in thousands of EUR

Receivable
or payable
on demand

<= 3
months

<= 1
year

<= 5
years

> 5
years

Total

 

 

 

 

 

 

 

Actual liquidity and amounts receivable in the maturity calendar
(weighted amounts):

 

 

 

 

 

 

 

 

Cash

49,073

49,073

Banks

309,176

222,069

95,544

900

627,689

Loans

23,009

47,639

170,241

398,547

639,436

Interest-bearing securities

421,897

60,000

1,500

483,397

Derivatives

38,690

52,570

149,818

5,418

246,496

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

780,146

283,768

195,753

380,059

406,365

2,046,091

 

 

 

 

 

 

 

Required liquidity and amounts payable in the maturity calendar
(weighted amounts):

 

 

 

 

 

 

 

 

Banks

236

522

2,993

4,853

8,604

Funds entrusted

264,931

31,593

37,964

39,153

2,857

376,498

Other liabilities

1,977

1,977

Subordinated liabilities

22,800

22,800

Contingent liabilities

2,018

2,018

Irrevocable facilities

33,825

33,825

Derivatives

38,626

52,331

149,632

5,406

245,995

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

302,751

70,455

90,817

191,778

35,916

691,717

 

 

 

 

 

 

 

Notes:

The Interest-bearing securities, recognized as collateral by the European Central Bank (ECB eligible), are valued at fair value and reported as receivable on demand. Other interest-bearing securities are valued at redemption value and reported in the maturity calendar.

Derivatives are the amounts receivable or payable for currency forward contracts. Amounts in foreign currency are converted at the spot rate on the balance sheet date.

Amounts for actual liquidity and required liquidity are weighted in accordance with the reports to the Dutch Central Bank. The weights used are the following:

Actual liquidity

  • Cash: 100%;
  • Banks: 100% for demand deposits; 90% for fixed term deposits;
  • Loans: 0% for demand deposits; 40% for redemptions receivable;
  • Interest-bearing securities: 95% for ECB eligible bonds issued or guaranteed by governments; 90% for ECB eligible bonds issued by banks or other institutions; 100% for other bonds;
  • Derivatives: 100%.

Required liquidity

  • Banks: 100% for demand deposits; 90% for fixed term deposits;
  • Funds entrusted: 10% for savings accounts without fixed term; 20% for fixed term savings accounts; 20% for other funds entrusted without fixed term; 40% for other funds entrusted with fixed term;
  • Other liabilities: 20%;
  • Subordinated liabilities: 100%;
  • Contingent liabilities: 5% or 10%, depending on the nature of the issued guarantee;
  • Irrevocable facilities: 10%;
  • Derivatives: 100%.

In 2010 two new liquidity ratios have been announced in the light of the new Basel III requirements:

  • The Liquidity Coverage Ratio (LCR): to ensure an adequate level of unencumbered, high-quality assets that can be converted into cash to meet liquidity needs over a 30-day time horizon under an acute liquidity stress scenario specified by supervisors.
  • The Net Stable Funding Ratio (NSFR): to ensure an adequate level of medium and long-term funding of the assets and activities of banks over a one-year time horizon.

These ratios are not yet made compulsory by supervisors. The observation period for LCR starts in 2011 and the minimum standard will be set by 2015. The observation period for NSFR starts in 2012 and the minimum standard will be set by 2018. However, given the importance of these two ratios Triodos Bank already includes these indicators in its internal reporting and measurement of liquidity risk.

Liquidity coverage ratio

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Amounts in millions of EUR

Risk
weights

2010
Total
amount

2010
Risk
weighted
amount

2009
Total
amount

2009
Risk
weighted
amount

 

 

 

 

 

 

Stock of high quality liquid assets:

 

 

 

 

 

Central Bank reserves

100%

45

45

49

49

Government bonds

100%

442

442

382

382

 

 

 

 

 

 

 

 

 

 

 

 

Total stock of high quality liquid assets

 

 

487

 

431

 

 

 

 

 

 

Cash outflows:

 

 

 

 

 

Deposits from non-financial institutions

10%

2,388

238

1,966

197

Deposits from financial institutions

100%

119

119

135

135

Fixed term deposits maturing within one month

10%

35

3

59

6

Undrawn committed credit and liquidity facilities non-financial institutions

5%

735

37

338

17

Undrawn committed credit and liquidity facilities financial institutions

100%

75

75

39

39

 

 

 

 

 

 

 

 

 

 

 

 

Total cash outflow

 

 

472

 

394

 

 

 

 

 

 

Cash inflows:

 

 

 

 

 

Loan payments of fully performing loans

100%

37

37

34

34

Maturing deposits

100%

133

133

196

196

Sight (including overnight deposits)

100%

304

304

248

248

 

 

 

 

 

 

 

 

 

 

 

 

Total cash inflow

 

 

474

 

478

 

 

 

 

 

 

 

 

 

 

 

 

Net cash outflow

 

 

–2

 

–84

 

 

 

 

 

 

 

 

 

 

 

 

Liquidity Coverage Ratio

 

Negative

Negative

 

 

 

 

 

 

The Liquidity Coverage Ratio must be more than 100%. This means that Net cash outflow is covered by High quality liquid assets. A negative outcome of the Liquidity Coverage Ratio means that the total cash outflow is already covered by total cash inflow.

Net Stable Funding Ratio

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Amounts in millions of EUR

Risk
weights

2010
Total
amount

2010
Risk
weighted
amount

2009
Total
amount

2009
Risk
weighted
amount

 

 

 

 

 

 

Available stable funding

 

 

 

 

 

Equity

100%

362

362

318

318

Liabilities > 1 year

100%

319

319

217

217

Deposits from non-financial institutions

80%

2,388

1,910

1,966

1,573

Fixed term deposits < 1 year

80%

238

191

285

228

 

 

 

 

 

 

 

 

 

 

 

 

Total available stable funding

 

 

2,782

 

2,336

 

 

 

 

 

 

Required stable funding

 

 

 

 

 

Government bonds with a rating of at least AA

5%

370

19

293

15

ECB eligible bonds with a rating of at least AA

20%

15

3

Loans to non-financial corporate clients having a residual maturity of less than 1 year

50%

224

112

157

78

All other assets

100%

2,168

2,168

1,744

1,744

Undrawn committed credit and liquidity facilities

5%

810

40

378

19

 

 

 

 

 

 

 

 

 

 

 

 

Total required stable funding

 

 

2,339

 

1,859

 

 

 

 

 

 

Net stable funding ratio

 

 

119%

 

126%

 

 

 

 

 

 

The Net Stable Funding Ratio must be more than 100%. This means that the available stable funding covers the required stable funding.

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