saxo-bank-annual-report-2015

NOTES – RISK MANAGEMENT – SAXO BANK GROUP
LIQUIDITY RISK
Liquidity Requirements
Saxo Bank is required to meet and report current requirements for both Saxo Bank A/S and Saxo Bank Group.
Saxo Bank is required to fulfill liquidity requirements according to the CRR as well as the liquidity standards set out in the Danish Financial Business
Act. In addition, the Danish FSA has defined liquidity threshold values in the so-called Supervisory Diamond.
Current Minimum Requirements
The LCR-requirement means that banks are obligated to hold a buffer of liquid assets as a percentage of net cash outflows over a 30-day period.
The objective of the LCR framework is therefore to promote short-term resilience of a bank’s liquidity risk profile by ensuring that it has sufficient
high quality liquid assets (HQLA) to survive a significant stress scenario lasting for one month.
In Denmark, the LCR requirement is being phased-in gradually with 60% of the full requirement from October 2015, 70% from January 1st 2016,
80% in 2017 and 100% in 2018. The LCR provisions are further specified in a delegated act which sets detailed rules on the liquidity area hereunder
provisions for the composition and the diversification of the liquidity buffer.
The Group reports monthly LCR to the Danish FSA in accordance with Implementing Technical Standards and Regulatory Technical Standards
developed by The European Banking Authority. As of 31 December 2015, the Group´s reported LCR ratio was 105 % (2014: 85%) The Group is
highly liquid and holds a large portfolio of Level 1 assets hereunder cash at central banks and e.g. on 15 January 2015 (during the so called Swiss
event) the Group was able to fulfil the largest margin requirement in the Group’s history in a fast and timely manner The Group’s actual liquidity
situation however, is therefore not properly reflected in the current LCR regulation, which to a large extent is designed to regulate liquidity risk in
retail banks.
The Group is also subject to regulatory liquidity requirements according to the Danish Financial Business Act where the liquidity shall amount to no
less than:
• 15% of the debt exposures that, irrespective of possible payment conditions, are the liability of the Group to pay on demand or at notice of no
more than one month, and
• 10% of the total debt and guarantee exposures of the Group, less subordinated debt that may be included in calculations of the Total capital. In
addition to the above, the Supervisory Diamond includes 50% additional charge to the above mentioned standard.
The Group met the regulatory liquidity standards throughout the year 2015.
The regulatory liquidity requirement for the Group including the 50% additional surcharge was DKK 5.75 billion as of 31 December 2015 (2014:
DKK 5.25 billion). The Group’s liquidity as of 31 December 2015 to cover this was DKK 18.66 billion (2014: DKK 17.48 billion).
Further, the Danish FSA expects all Danish banks to hold a “funding-ratio” below 1. The “funding-ratio” is loans divided by the sum of deposits,
subordinated debt and equity.
The “funding-ratio” for the Group as of 31 December 2015 was 0.066 (2014: 0.075).
ILAAP requirement
From end of 2014 the Group has been obligated to hold liquidity of at least the current ILAAP level as determined by the Board of Directors. This
ILAAP level cannot be less than the current minimum regulatory standard. The ILAAP is performed based on guidelines issued by the Danish FSA.
The calculation of the ILAAP result is based on an internal process in which management assesses the liquidity risks, the overall liquidity management
and the funding risks. The Group has implemented liquidity stress testing based on the LCR and section 152 requirements. Stress tests are
conducted on a monthly basis. The Group continuously (on daily basis) monitors its liquidity and LCR level in order to ensure compliance with the
regulatory standards.
The Group operates with a liquidity buffer available at all times in the form of unencumbered, highly liquid securities and cash instruments to
address the estimated potential cash needs during a liquidity crisis. However, the Group acknowledges the value of flexibility and the balance
between the counterparty risks associated with holding cash during a liquidity crisis and the importance of having sufficient liquidity during the
initial phase of a liquidity crisis.
Additional information about the Group’s liquidity risk and ILAAP is disclosed in the Group’s Risk Report 2015 and is available at: www.saxobank.
com/investor-relations.
Funding Requirements and Assets Encumbrance
CRD IV and CRR require the Group to monitor and report a long-term Net Stable Funding Ratio (NSFR).
The aim of NSFR is to ensure that banks have an acceptable amount of stable funding to support their assets and activities over the medium term
(i.e. a one-year period). Currently, the Group is required to report and monitor NSFR. NSFR is planned to be a 100% requirement from 2018, but
the exact timing will be decided by the EU based on reports from EBA. In December 2015 the EBA recommended the introduction of the NSFRrequirement
in the EU to ensure an appropriate stable funding structure in relation to the degree of asset illiquidity, as the way of properly mitigating
funding risk in banks.
In addition to the funding ratio described above, the Group is also required to monitor, report and disclose Asset Encumbrance. This disclosure
shows the Group’s ability to provide liquidity based on the current balance sheet etc.
Asset Encumbrance end 2015 is disclosed in the Risk Report 2015 and is available at www.saxobank.com/investor-relations.
SAXO BANK · ANNUAL REPORT 2015 · 105