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 for Triodos Bank’s lending operations. The surplus is placed with financial institutions or invested in bonds. Triodos Bank keeps a high degree of liquidity, 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 market. Therefore, Triodos Bank’s liquidity and funding position has not been directly affected by the challenges the wholesale market faced since the financial crisis. Triodos Bank regularly assesses its liquidity position based on stress scenarios. The outcomes of these stress tests were satisfactory. Actions to be taken to manage our liquidity position in case of a future liquidity crisis are described in the Liquidity Contingency Plan.

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. The observation period for LCR started in 2011 and the minimum standard will be set by 2015. The observation period for NSFR starts in 2012 and the minimum standard 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. In 2011, we started using the formats and detailed rules regarding LCR and NSFR from the Dutch Central Bank. The 2010 figures are recalculated for comparison reasons.

Liquidity Coverage Ratio

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Amounts in millions EUR

2011
Total
amount

2011
Weighted
amount

2010
Total
amount

2010
Weighted
amount

 

 

 

 

 

Stock of high quality liquid assets:

 

 

 

 

 

 

 

 

 

Total stock of high quality liquid assets

502

502

457

455

 

 

 

 

 

Total cash outflow

4,429

684

3,728

672

 

 

 

 

 

Total cash inflow

539

516

537

513

Cap on cash inflows

 

513

 

504

 

 

 

 

 

Net cash outflow

 

171

 

168

 

 

 

 

 

Liquidity Coverage Ratio

 

294%

 

270%

 

 

 

 

 

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 EUR

2011
Total
amount

2011
Weighted
amount

2010
Total
amount

2010
Weighted
amount

 

 

 

 

 

Total available stable funding

4,238

3,450

3,434

2,689

 

 

 

 

 

Total required stable funding

5,056

2,791

4,287

2,183

 

 

 

 

 

Net Stable Funding Ratio

 

124%

 

123%

 

 

 

 

 

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