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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 the ECB, financial institutions or invested in bonds. Triodos Bank has a strong liquidity position, 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 money and capital markets. Therefore, Triodos Bank’s liquidity and funding position has not been directly affected by the challenges the wholesale market has faced since the start of the financial crisis. Triodos Bank regularly assesses its liquidity position based on stress scenarios. The outcomes of these stress tests were satisfactory in 2012. Actions to be taken to manage our liquidity position in case of a future liquidity crisis are described in the Liquidity Contingency Plan.

On a weekly basis the detailed liquidity position at branch level is reported to the CFO. Every month the Asset and Liability Committee reports the liquidity ratios related to the 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 (NSF) ratio indicates the relation between available longer-term, stable funding and the required longer-term, stable funding resulting from the liquidity profiles of assets and off balance sheet items.

These ratios comply with the Basel III guidelines but are not yet made compulsory by supervisors. Early in 2013, the Basel Committee published information regarding changes to the LCR. The minimum LCR would be 60% in 2015 and increase by 10 percentage points per year to reach 100% in 2019. The published LCR figures of 2012 are not based on the changed LCR rules and are based on the formats and detailed rules regarding LCR from the Dutch Central Bank as per end of 2012. The Basel Committee has not published changes in NSFR methodology. Minimum NSFR standards will be set by 2018. However, given the importance of these two ratios for the resilience of the banking sector, 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

2012
Total
amount

2012
Weighted
amount

2011
Total
amount

2011
Weighted
amount

 

 

 

 

 

Stock of high quality liquid assets:

 

 

 

 

 

 

 

 

 

Total stock of high quality liquid assets

1,021

1,021

502

502

 

 

 

 

 

Total cash outflow

5,116

715

4,429

684

 

 

 

 

 

Total cash inflow

458

416

539

516

Cap on cash inflows

 

536

 

513

 

 

 

 

 

Net cash outflow

 

299

 

171

 

 

 

 

 

Liquidity Coverage Ratio

 

342%

 

294%

 

 

 

 

 

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

2012
Total
amount

2012
Weighted
amount

2011
Total
amount

2011
Weighted
amount

 

 

 

 

 

Total available stable funding

5,255

4,312

4,238

3,450

 

 

 

 

 

Total required stable funding

5,987

3,359

5,056

2,791

 

 

 

 

 

Net stable funding ratio

 

128%

 

124%

 

 

 

 

 

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