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For the second time now, the ING Bank Śląski S.A. Group has compiled the annual report in line with the best global practices of integrated reporting. To help readers use the interactive tools, we prepared a user guide with key features. We encourage you to watch a short animated video before reading the report.

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ING Bank Śląski recognizes the process of stable liquidity and funding risk management as one of the most important processes at the Bank.

Liquidity and funding risk is understood by the Bank as the risk of inability to meet, at a reasonable price, cash liabilities under balance sheet and off-balance sheet items. The Bank maintains liquidity so that its cash liabilities could be paid at all times from the available funds and inflows from maturing transactions, available funding sources at market prices and/or from sale of marketable assets.

Effective management of liquidity and funding risk is a foundation for building trust of Bank clients and shareholders. It is aimed at ensuring stable functioning of the Bank and sustainable (sound) development in regular market conditions as well as at ensuring stable functioning when in stress (Lehman Brothers case, for example).
Anna Kobiela
Market Risk Management Senior Specialist

Risk management process

In order to optimize the liquidity and funding risk management process, the Bank has developed the ING Bank Śląski S.A. Liquidity and Funding Risk Management Policy which aims to describe the rules assuring adequate funding sources and minimization of risk and funding costs. The policy describes a general approach to liquidity and funding risk management process at the Bank. The primary objective of the funding and liquidity risk management process is to keep adequate liquidity to ensure safe and sound Bank’s operations under normal and stress market conditions.

The policy results from the business risk management strategy (including strategy of liquidity and funding risk management) approved by the Supervisory Board. In particular, it reflects the risk appetite set in that strategy and approved by the Supervisory Board.

Additionally, the Bank compiles the ILAAP report. It presents key measures and figures on the Bank’s liquidity profile in a comprehensive and coherent way. It takes account of the strategy, the funding plan and Bank’s risk tolerance. The results of the report are approved by the Management and Supervisory Boards.

General approach to funding and liquidity risk management consists of the cycle of five repetitive actions: 1) risk identification, 2) risk assessment, 3) risk control, 4) risk monitoring and 5) reporting.

The Bank operates an active policy of liquidity management for major currencies. For these currencies, liquidity risk is measured and limited per currency and operational liquidity is managed separately for each currency to capture them in the risk transfer system.

Intraday liquidity is actively managed by the Treasury Department. In that process, the position and short-term liquidity risk are manged (one-day and intraday). It has been designed to meet payment and settlement obligations in a timely manner in normal times as well as in extraordinary/stress situations.

The Bank has the risk transfer system in which market risks, including liquidity risk, are transferred to the Treasury Department. Using proper tooling, it manages risks in a centralised manner through the system of limits adopted at the Bank.

Types of risk

The Bank splits the liquidity risk into two groups:

  • liquidity risk arising from external factors and
  • risk of internal factors associated with a given bank.

The Bank aims at having a conservative approach towards liquidity risk management which will enable it to safely survive the events specific to ING Bank Śląski S.A. and related to the whole banking sector.

In terms of the time horizon, the Bank splits the liquidity risk into:

  • operational – focused on current financing of the Bank’s position and intraday day liquidity management,
  • strategic – focused on ensuring that structural (all maturity dates) liquidity positions of the Bank are at acceptable levels.

Taking account of the time and client behaviour (two aspects having impact on the Bank’s liquidity), the Bank distinguishes three types of funding and liquidity risk:

  • structural – understood as a potentially negative impact on the Bank’s income due to a mismatch between expected maturities of the assets and liabilities of the Bank as well as the risk that refinancing will not be possible in the future,
  • related to customer behaviour – understood as a potentially negative impact on the Bank’s income due to liquidity options embedded into products offered by the Bank, and
  • related to stress conditions – understood as the risk of the Bank’s inability to meet its financial obligations when they are due and payable resulting from the inadequate level of available funds or the fact that they cannot be generated at any price which results in an immediate insolvency of the Bank.

Structure and organization of the risk management process

The structure of risk and control at the Bank is based on the Three Lines of Defence Model. The model is designed to ensure a stable and effective framework for risk management by defining and implementing three risk management “levels” with distinct roles, responsibilities and oversight responsibilities.

Business management at the Bank. The heads of particular business units bear the primary responsibility for the actions, operations, compliance with norms and effective risk control affecting the particular business unit. The business management participate in the process of liquidity and funding risk management at all levels of organization.

Risk and finance management functions. The risk management functions and finance management functions, if applicable, are performed through:

  • development of policies, standards and guidance for their particular risk areas,
  • coordination, supervision and control of the actions taken by the first line of defence within the scope of assigned tasks and the management, control and reporting risks generated by the first line of defence,
  • escalating/vetoing of the business unit’s activities that could possibly generate risks unacceptable for the Bank.

Internal Audit Department. The Internal Audit Department is responsible for ensuring independent assessment and opinion on:

  • the design and effectiveness of internal controls of the risks resulting from the Bank’s activity,
  • the design and effectiveness of risk management performed by the first and second line of defence.

Business management at the Bank. The heads of particular business units bear the primary responsibility for the actions, operations, compliance with norms and effective risk control affecting the particular business unit. The business management participate in the process of liquidity and funding risk management at all levels of organization.

Risk and finance management functions. The risk management functions and finance management functions, if applicable, are performed through:

  • development of policies, standards and guidance for their particular risk areas,
  • coordination, supervision and control of the actions taken by the first line of defence within the scope of assigned tasks and the management, control and reporting risks generated by the first line of defence,
  • escalating/vetoing of the business unit’s activities that could possibly generate risks unacceptable for the Bank.

Internal Audit Department. The Internal Audit Department is responsible for ensuring independent assessment and opinion on:

  • the design and effectiveness of internal controls of the risks resulting from the Bank’s activity,
  • the design and effectiveness of risk management performed by the first and second line of defence.

The particular role in the funding and liquidity risk management process is fulfilled by the Bank Management Board and Assets and Liabilities Committee (ALCO).

  • formulating the strategy for funding and liquidity risk, a target liquidity position, its funding methods and the liquidity risk profile,
  • establishing the acceptable level of risk (risk appetite), liquidity risk tolerance and submitting it for the Supervisory Board approval,
  • approving the liquidity and funding risk management policy and significant amendments thereto, in particular, the limits tailored to the overall acceptable level of risk approved by the Supervisory Board,
  • ensuring allocation of adequate human and IT resources within the Bank to implement the policy.
  • implementing the Bank’s liquidity and funding risk strategy,
  • managing the liquidity buffer under the relevant policies and limits approved by the Bank Management Board, operational actions in this area are delegated to the Treasury Department,
  • supervising and monitoring the level of liquidity risk as well as the structure of the financing in the Bank’s balance sheet,
  • monthly review of the short-term, medium-term, and long-term liquidity profile (strategic liquidity positions) presented in regulatory and internal reports,
  • implementing the limits within the accepted risk appetite (approved by the Bank Management Board), approval of the assumptions for the reports and models,
  • reviewing any proposed changes to this Policy and forwarding positively-advised changes to the Bank Management Board.

Risk management framework

Liquidity and funding risk management framework includes all relevant methods of daily, short-term, medium-term and long-term liquidity and funding risk management. It includes the following key elements:

  • limits system and liquidity risk measurement,
  • monitoring the funding sources and concentration risk,
  • liquidity reserves management,
  • intraday liquidity management,
  • collateral positions management, and
  • stress tests and contingency plans.

More information on the risk management framework were presented in 2017 Consolidated Financial Statement of ING Bank Śląski S.A. Group on page 170.

Summary

In the reported period the liquidity and funding risk profile and the way of managing this risk did not change in a significant way. In terms of risk measurement, the changes resulted from regulators’ guidelines including PFSA and EBA.

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