annual financial statements - Nedbank Group Limited

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liquidity risk limits are approved by Alco and submitted to the
Board for ratification. By monitoring the maturity profile of the
current balance sheet as well as its expected future structure Alco is
proactively monitoring this risk and is able to manage any potential
mismatches in accordance with best banking practice.
the group manages its liquidity by managing the liquidity of those
components of the balance sheet over which it has direct control. the
controllable components consist of:
In the shorter term:
• the size and composition of the liquid asset and prudential asset
portfolios;
• the size and maturity structure of the professional funding
portfolio; and
• maintaining an effective liquidity buffer consisting of high quality
liquefiable money market instruments.
In the medium term:
• by encouraging business units to broaden the depositor base
(especially retail type deposits) and to increase the group’s share
of transactional banking balances (current and savings accounts).
in the longer term:
• the management of its operations generally to ensure that there
are no unexpected large losses which could give rise to liquidity
stress;
• ongoing management of relationships with major sources of
liquidity;
• only accepting a prudent level of risk and neutralising all excess
risks in all portfolios where possible;
• diversification of the depositor base wherever possible; and
• developing the group’s franchise to improve both its reputation
and customer spread.
A comprehensive liquidity risk management reporting system is in
place, which includes:
• daily reporting to executive and senior management of the
Bank’s liquidity risk position as well as reasons for any significant
changes in the liquidity risk position;
• ongoing monthly reporting of the liquidity risk and funding
structure of the Bank including significant shifts in the liquidity
risk and explanations thereof; and
• analysis of the long-term changes in the liquidity risk and funding
structure of the Bank with explanations and plans to rectify any
adverse change in the composition of deposits.
the group furthermore reports to nedbank group limited Alco on a
monthly basis the liquidity risk limit utilisation and an assessment of
the liquidity risk conditions.
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the Bank of namibia via a determination requires the Bank to
maintain a statutory liquidity based on liabilities to the public reduced
by monies on lend to other namibian banks. A portion of this buffer
takes the form of an interest-free deposit with the Bank of namibia.
to accommodate daily liquidity flows and in order to participate
at the Bank of namibia repurchase window, a surplus buffer stock
position of namibian government gilts is held. this also supports the
intra-day clearing requirements of the national payment system.
the Bank also holds an additional liquidity buffer at all times. this
buffer may take the form of any combination of the following:
• surplus liquid assets in excess of those needed for normal intraday
and statutory requirements;
• loans to other clearing banks in namibia;
• any other immediately liquefiable instrument with the approval
of Alco; and
• the liquidity buffer will be reviewed and confirmed at monthly
Alco meetings.
A liquidity risk contingency plan is in place, which includes procedures
to be followed and communication required when the plan is triggered.
market risk in the trading book
market risk is the risk that the fair value or future cash flows of a
financial instrument will fluctuate because of changes in the market
prices. market risk comprises three types of risk: currency risk, interest
rate risk and concentration risk. the group is exposed to both currency
and interest rate risk.
Interest rate risk
interest rate risk is the risk that the fair value or future cash flows of
a financial instrument will fluctuate because of changes in market
interest rates.
Interest rate risk management
the group has identified the following four sources of interest rate
risk to which the group is exposed:
Change in the level of interest rates
this is the risk associated with a general decline or increase in the
level of interest rates. All interest rates will move by approximately
the same amount – the so-called “parallel shift” in interest rates.
Change in the slope of the yield curve
under this risk there is a change in a certain class of interest rates.
for example all short-term rates might change without any change
to long-term rates.
Basis or margin risk
this is the risk that interest rates with the same or similar tenors do
not move by the same amount. An example would be a change in
short-term interest rates but no change in the prime rate.