Financial Statements 2011 - Investing In Africa

Notes To The Financial Statements (Continued)
As at 31 december 2011
4) Financial risk management objectives (continued)
Group risk management framework and governance structures (continued)
b) Liquidity and funding risk
Liquidity risk is the potential for loss to an institution arising from either its inability to meet its obligations when they fall
due or to fund increases in asset without incurring unacceptable costs or losses. Effective liquidity risk management is
essential in order to maintain the confidence of depositors and counterparties, and to enable our core business to continue
operating even under adverse liquidity circumstances.
Who manages liquidity and funding risk
The Assets and Liabilities Committee (ALCO), a management committee, is tasked with the responsibility of ensuring that
all foreseeable funding commitments and deposits withdrawals can be met when they fall due, and that the Group will not
encounter difficulties in meeting its obligations or financial liabilities as they fall due.
ALCO relies substantially on the Group’s Treasury Department to coordinate and ensure discipline across the Group and
business units, certify sufficient liquidity under both normal and stressed conditions, without incurring unacceptable losses
or risking damage to the Group’s reputation.
The Board Executive Committee has oversight over ALCOs activities through regular review of its minutes and significant
reports outlining current exposures against approved risk limits. These reports are also reviewed by the Board Risk
Management Committee on a quarterly basis. Liquidity policies / guidelines and limits are reviewed periodically, or as the
need arises.
How liquidity and funding risk is managed
I
Liquidity and funding management
The Group’s liquidity and funding policies require that it:
• Enters into lending contracts subject to availability of funds.
• Projects cash flows by major currencies and consider the level of liquid assets necessary in relation
thereto.
• Monitors liquidity ratios against internal and regulatory requirements and guidelines.
• Maintains an array of a diverse range of funding sources as back–up facilities.
• Monitors depositor concentration to avoid undue reliance on large individual depositors and ensure a
satisfactory funding mix.
• Invests in short term liquid instruments, which can easily be sold in the market when the need arises.
• Ensure investments in large cash outlay projects e.g property and equipment purchases are budgeted
for and carried out only when the Group has sufficient cash flows.
• Maintains liquidity and funding contingency plans. These plans and key risk indicators clearly identify
early stress conditions and describe actions to be taken in the event of difficulties arising from
systemic or other crisis while minimising adverse long-term implications.
II
Sources of funding
The Group’s major source of funding is customer deposits. To this end, the Group maintains a diversified and stable
funding base comprising of the core retail and corporate customers and wholesale banking clientele. The Group
places considerable importance on the stability of these deposits, which is achieved through the Group’s corporate,
institutional and retail banking activities and by maintaining depositor confidence in the Group’s business strategies
and financial strength. An analysis of concentrations within the customer deposits is as follows:
Bank
Group
2011 2010 2011 2010
% % % %
2 2 Co-operative societies 1 1
16 10 Insurance companies 16 10
10 14 Non profit institutions and individuals 12 14
72 74 Private enterprises 71 75
100 100 100 100
62 • NIC Bank Limited • Annual Report & Financial Statements 2011