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  • Credit Risk
  • Market Risk
  • Liquidity Risk
  • Liquidity Risk

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

    Customers’ savings and deposits are attracted in order to finance Triodos Bank’s lending operations. The surplus is primarily placed with central banks, credit institutions or invested in deposits and bonds. Triodos Bank has a strong liquidity position and is funded almost entirely by equity and deposits from private customers and small and medium sized enterprises. As a result, Triodos Bank does not rely on funding from the wholesale money and capital markets.

    Risk Assessment

    A liquidity stress event has a low probability but can have a high impact. Scenario analysis (stress testing) is the tool to quantify Triodos Bank’s vulnerability to liquidity stress events. The Liquidity Contingency Plan and the Recovery Plan describe the main items that should be taken into account in managing the liquidity risk position of Triodos Bank in a ‘stressed situation’. This includes the indicators and triggers for this stressed situation. Triodos Bank regularly assesses its liquidity position based on stress scenarios. In 2015, the results of these stress tests were satisfactory.

    Internal Liquidity

    The Internal Liquidity Adequacy Assessment Process (ILAAP) assesses Triodos Bank’s liquidity adequacy and liquidity management during normal business activities and in times of stress. This process is performed at least once a year and is submitted to the Dutch Central Bank as part of the Supervisory Review and Evaluation Process. The ILAAP Report is an internal document. The goal of this report is to properly evaluate the liquidity and funding risks and Triodos Bank’s corresponding liquidity levels and the quality of the liquidity management.

    Risk mitigation

    The liquidity buffer is the source of funds in case of liquidity needs. It consists of investments with other banks and investments in deposits and bonds. The bond investments are divided into different liquidity classes. The optimal size and composition of the liquidity buffer is determined taking into account the risk appetite, balance sheet composition and expected development, strategic plans and short-term funding needs.

    Risk Monitoring

    On a daily basis the total liquidity position of Triodos Bank is monitored. On a weekly basis, the detailed liquidity position in total and at branch level is reported to the Chief Financial Officer. Every month the liquidity ratios are reported to the Asset and Liability Committee.

    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 liquidity stress scenario specified by supervisors.

    The Net Stable Funding Ratio (NSFR) indicates the relationship between available longer-term, stable funding and required longer-term, stable funding resulting from the liquidity profiles of assets and off balance sheet items. Minimum NSFR standards will be set by 2018.

    Asset encumbrance

    Assets can be differentiated between assets which are used to support funding or collateral needs (encumbered assets) and assets which are available for potential funding needs (unencumbered assets).

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    2015
    in thousands of EUR

    Carrying amount of encum­bered assets

    Fair value of encum­bered assets

    Carrying amount of unencum­bered assets

    Fair value of unencum­bered assets

     

     

     

     

     

     

     

     

     

     

    Assets

    76,631

     

    8,134,520

     

     

     

     

     

     

    Equity instruments

    65

    65

    Debt securities

    76,631

    80,546

    1,826,570

    1,920,998

    Other assets

     

    6,307,885

     

     

     

     

     

     

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    2014
    in thousands of EUR

    Carrying amount of encum­bered assets

    Fair value of encum­bered assets

    Carrying amount of unencum­bered assets

    Fair value of unencum­bered assets

     

     

     

     

     

     

     

     

     

     

    Assets

    131,750

     

    7,020,654

     

     

     

     

     

     

    Equity instruments

    4

    4

    Debt securities

    81,964

    87,202

    1,837,443

    1,940,203

    Other assets

    49,786

     

    5,183,207

     

     

     

     

     

     

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    2015
    in thousands of EUR

    Fair value of encumbered collateral received or own debt securities issued

    Fair value of collateral received or own debt securities issued available for encumbrance

     

     

     

     

     

     

    Collateral received by the reporting institution

     

     

     

    Equity instruments

    Debt securities

    Other collateral received

    Own debt securities issued other than own covered bonds or ABSs

     

     

     

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    2014
    in thousands of EUR

    Fair value of encumbered collateral received or own debt securities issued

    Fair value of collateral received or own debt securities issued available for encumbrance

     

     

     

     

     

     

    Collateral received by the reporting institution

     

     

     

    Equity instruments

    Debt securities

    Other collateral received

    Own debt securities issued other than own covered bonds or ABSs

     

     

     

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    2015
    in thousands of EUR

    Matching liabilities, contingent liabilities or securities lent

    Assets, collateral received and own debt securities issued other than covered bonds and ABSs encumbered

     

     

     

     

     

     

    Carrying amount of selected financial liabilities

    84,946

     

     

     

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    2014
    in thousands of EUR

    Matching liabilities, contingent liabilities or securities lent

    Assets, collateral received and own debt securities issued other than covered bonds and ABSs encumbered

     

     

     

     

     

     

    Carrying amount of selected financial liabilities

    90,657

     

     

     

    Liquidity coverage ratio

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    Amounts in millions of EUR

    2015
    Total
    amount

    2015
    Weighted
    amount

    2014
    Total
    amount

    2014
    Weighted
    amount

     

     

     

     

     

     

     

     

     

     

    Stock of high quality liquid assets:

     

     

     

     

     

     

     

     

     

    Total stock of high quality liquid assets

    1,664

    1,609

    1,708

    1,641

     

     

     

     

     

    Total cash outflow

    7,672

    1,093

    6,635

    698

     

     

     

     

     

    Total cash inflow

    1,057

    736

    501

    442

    Cap on cash inflows

     

    736

     

    523

     

     

     

     

     

    Net cash outflow

     

    357

     

    256

     

     

     

     

     

    Liquidity Coverage Ratio

     

    451%

     

    642%

     

     

     

     

     

    The Net cash outflow must be covered by the stock of High quality liquid assets, so the ratio must be at least 100%.

    Net Stable Funding Ratio

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    Amounts in millions of EUR

    2015
    Total
    amount

    2015
    Weighted
    amount

    2014
    Total
    amount

    2014
    Weighted
    amount

     

     

     

     

     

     

     

     

     

     

    Total available stable funding

    8,130

    7,113

    7,096

    6,219

     

     

     

     

     

    Total required stable funding

    8,953

    4,507

    7,778

    3,774

     

     

     

     

     

    Net stable funding ratio

     

    158%

     

    165%

     

     

     

     

     

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