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NOTESTOTHEFINANCIALSTATEMENTS
31 DECEMBER 2013
37. FINANCIAL RISK MANAGEMENT POLICIES (CONT’D)
Liquidity risk management
Approach and risk strategy
The inability to create liquidity would cause serious repercussion to the Group and the Bank in terms of its reputation and
even its continued existence. In view of this, the Group and the Bank pay particular attention to liquidity risk management
approach and strategy.
The objective of liquidity risk management is to ensure the availability of sufficient liquidity to honour all financial obligations
and able to meet any stressful events. The Group’s and the Bank’s liquidity risk management strategies involve:
• Establish appropriate policies to oversee the management of liquidity risk of the Group and the Bank;
• Establish prudent liquidity risk limits to ensure the Group and the Bank maintain a safe level of asset liquidity; and
•
Develop contingency funding plans to manage the Group’s and the Bank’s funding requirement during liquidity crisis.
Risk identification
There are two types of liquidity risk i.e. funding liquidity risk and market liquidity risk. Funding liquidity risk refers to the
potential inability of the Group and the Bank to meet its funding requirements arising from cash flow mismatches at a
reasonable cost. Market liquidity risk refers to the Group’s and the Bank’s potential inability to liquidate positions quickly
and in sufficient volumes, at a reasonable price.
Measurement
Liquidity is measured by the Group’s and the Bank’s ability to efficiently and economically accommodate decrease in
deposits/funding (such as funds obtained from the Government) and other purchased liabilities and to fund increases in
assets to ensure continued growth of the Group and the Bank.
The Group and the Bank maintain large capital base, sufficient liquid assets, diversified funding sources, and regularly
accesses the long-standing relationship with traditional fund providers. These processes are subject to regular reviews to
ensure adequacy and appropriateness.
In addition, the Group’s and the Bank’s liquidity position are monitored and managed through structural liquidity indicators,
such as loan to purchase funds and offshore revolving funds utilisation rate ratios to maintain an optimal funding mix and
asset composition.
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EXIM Bank Annual Report 2013