1.3 Banking group – Liquidity risk

Qualitative information

A. Overview, management procedures and measurement methods of the liquidity risk

The liquidity risk refers to the possibility that the Group fails to service its debt obligations due to the inability to raise funds or sell enough assets on the market to address the financial deficit. The liquidity risk also refers to the inability to secure new adequate financial resources, in terms of amount and cost, to meet its operating needs and opportunities, hence forcing the Group to either slow down or stop its operations, or incur excessive funding costs in order to service its obligations, significantly affecting its profitability.

Financial resources are represented by equity, on-line funding from retail customers, and funding operations carried out both on the domestic and international interbank market and with the Eurosystem. Considering the composition of the Group’s assets, the kind of business it carries out, and the strategies the Board of Directors defined in order to limit factoring operations on trade receivables to short or very short terms (normally not exceeding 6 months, excluding receivables due from the Public Administration, with average collection periods usually up to 12 months), the liquidity risk for the Banca IFIS Group, under normal financial market conditions, is not particularly critical.

With reference to the Group’s operations concerning Distressed Retail Loans and the purchases of tax receivables arising from insolvency proceedings, the characteristics of the business model imply a high level of variability concerning both the amount collected and the date of actual collection. Therefore, the timely and careful management of cash flows is particularly important. Due to the limited amount of distressed retail loans as a proportion of the Banca IFIS Group’s total assets, the overall impact on the maturity matching of consolidated assets and liabilities can be deemed marginal. In order to ensure expected cash flows are correctly assessed, also with a view to correctly pricing the operations undertaken, the Group carefully monitors the trend in collections compared to expected flows.

The Banca IFIS Group has always secured financial resources more than adequate for its needs thanks to its wide and diverse interbank relationships, the market's positive response to its on-line funding source, the setting up of a portfolio eligible for Repo transactions, the refinancing operations with the Eurosystem (LTRO and TLTRO); and the type and quality of its assets.

During the period, the Bank pursued particularly prudent financial policies aimed at favouring funding stability This policy, which affects the economic efficiency of treasury management, in terms of the rate spread between interbank funding and lending, to guarantee certain and stable liquidity, is adequately supported by the profitability of the Group's operations.

At the moment, the available financial resources are adequate for current and future business volumes. Nonetheless, the Group is constantly striving to improve the state of its financial resources, in terms of both size and cost.

The Parent Company’s business functions responsible for ensuring that liquidity policies are properly implemented are: the Treasury Department, which directly manages liquidity; the Risk Management function, responsible for selecting the most appropriate risk indicators and monitoring them with reference to pre-set limits; and the Top Management, which every year shall make proposals to the Bank's Board of Directors regarding policies on funding and the management of liquidity risk, as well as suggest appropriate actions during the year in order to ensure that operations are conducted consistently with the risk policies approved by the Group.

More specifically, as part of current operations and based on indications from the Treasury Department, as well as assessments of lending trends, the Top Management establishes policies for financing operations with durations over 3 months, in order to support ordinary short-/very short-term treasury operations, as well as manage and monitor liquidity risk.

As for its own direct operations, the Bank adopted a model for analysing and monitoring present and future liquidity positions as an additional element systematically supporting the Top Management’s and the Board of Directors’ decisions concerning liquidity. The results of periodic analyses carried out under both normal and stress market conditions are reported directly to the Supervisory Body. In compliance with supervisory provisions, the Bank also has a Contingency Funding Plan aimed at protecting the banking Group from losses or threats arising from a potential liquidity crisis and guaranteeing business continuity even in the midst of a serious emergency arising from its own internal organisation and/or the market situation.

Furthermore, the Risk Management function periodically reports to the Bank’s Board of Directors on the liquidity risk position by means of a Dashboard prepared for the Bank’s management.

With reference to the Polish subsidiary, treasury operations are co-ordinated by Banca IFIS’s Treasury Department, in accordance with the Group’s policies. If needed, the Bank may intervene directly in the subsidiary’s favour.

As part of the continuous process of updating internal procedures, and taking into account the changes in the relevant prudential regulation, the Bank has implemented a Group liquidity risk governance and management system.

Quantitative information

1. Distribution by residual contractual duration of financial assets and liabilities - Currency: Euro

Items/Durationon demandover 1 day up to 7 daysover 7 days up to 15 daysover 15 days up 1 monthover 1 month up to 3 monthsover 3 months up to 6 monthsover 6 months up to 1 yearover 1 year up to 5 yearsover 5 yearsIndefinite duration
Cash assets 1.156.847 166.751 167.347 350.952 781.046 1.400.975 1.108.694 3.125.298 92.152 18.516
A.1 Government securities - - 3.375 - 178.719 1.225.102 898.126 2.855.500 - -
A.2 Other debt securities - - - 4 3.016 3.014 519 5.466 - -
A.3 O.E.I.C. units - - - - - - - - - -
A.4 Loans to 1.156.847 166.751 163.972 350.948 599.311 172.859 210.049 264.332 92.152 18.516
- banks 106.552 128.250 3.744 7.046 - - - - - 18.516
- customers 1.050.295 38.501 160.228 343.902 599.311 172.859 210.049 264.332 92.152 -
Cash liabilities 683.835 3.750.640 70.761 129.303 2.193.288 319.146 305.728 352.431 3.310 -
B.1 Deposits and current accounts 683.835 67.737 70.761 129.303 1.686.035 319.146 305.728 232.814 3.310 -
- banks 9.338 13.940 8.620 8.633 825 - - - - -
- customers 674.497 53.797 62.141 120.670 1.685.210 319.146 305.728 232.814 3.310 -
B.2 Debt securities - - - - - - - - - -
B.3 Other liabilities - 3.682.903 - - 507.253 - - 119.617 - -
Off-balance-sheet transactions - - 2 - 6.590 - - - - -
C.1 Financial derivatives with exchange of underlying assets - - 2 - - - - - - -
- long positions - - 2 - - - - - - -
- short positions - - - - - - - - - -
C.2 Financial derivatives with exchange of underlying assets - - - - - - - - - -
- long positions - - - - - - - - - -
- short positions - - - - - - - - - -
C.2 Deposits and loans to be received - - - - - - - - - -
- long positions - - - - - - - - - -
- short positions - - - - - - - - - -
C.3 Irrevocable commitment to grant funds - - - - 6.590 - - - - -
- long positions - - - - 3.295 - - - - -
- short positions - - - - 3.295 - - - - -
C.5 Financial guarantees granted - - - - - - - - - -
C.6 Financial guarantees received - - - - - - - - - -
C.7 Credit derivatives with capital exchange - - - - - - - - - -
- long positions - - - - - - - - - -
- short positions - - - - - - - - - -
C.8 Credit derivatives without capital exchange - - - - - - - - - -
- long positions - - - - - - - - - -
- short positions - - - - - - - - - -
   

Self-securitisation operation IFIS Collection Service

On 13 October 2008, Banca IFIS, together with Securitisation Services S.p.A. as the Arranger, BNP Paribas S.p.A. as the Co-arranger and IFIS Collection Services S.r.l., a special purpose vehicle, initiated a revolving securitisation programme under which Banca IFIS would transfer, without recourse and as per Law 130/99, a portfolio of performing trade receivables due from account debtors the Bank previously acquired from its customers as part of its factoring operations.

The programme was intended to last five years and involved the transfer of a trade receivables portfolio due from account debtors, identifiable in block according to contractually defined eligibility criteria that are particularly strict and rigorous, in order to guarantee the positive performance of the factored portfolio.

Under the securitisation programme, the special purpose vehicle IFIS Collection Services S.r.l. had issued limited-recourse asset-backed securities for an initial par value of 328 million Euro, which Banca IFIS underwrote in full.

In October 2013, the revolving period of the securitisation came to an end. The amortisation period, during which the securities issued by the vehicle were reimbursed in full, ended on 24 February 2014, when the termination letters were signed. On the same day, the Bank bought back the portfolio of receivables sold to the vehicle and not collected.

Self-securitisation operation Il Giglio

On 25 January 2011, Toscana Finanza’s Board of Directors resolved to implement a securitisation programme for non-performing loans pursuant to Law 130 of 30 April 1999 in order to optimise the operational and economic management of part of its financial receivables portfolio.

The operation concerned non-performing banking loans identifiable in block and largely backed by mortgages for an overall par value of around 33,7 million Euro.

The special purpose vehicle, Giglio Srl, issued floating-rate asset-backed securities that were wholly underwritten by the merged company Toscana Finanza S.p.A., which was given a specific sub-servicing mandate for the collection and management of the receivables.

It should be noted that, pursuant to the terms and conditions of the operation, there is no substantial transfer of all the risks and rewards relating to the transferred assets (receivables). Therefore, and on the basis of international accounting standards (IAS/IFRS – Derecognition), the operation undertaken does not have any significant impact on the financial statements.

Exposure to high risk instruments – disclosure

Considering the goals it pursues and the technical aspects of the revolving securitisation of trade receivables described above, the Banca IFIS Group faces no exposure or risks arising from the trading or holding of structured credit products, whether carried out directly or through unconsolidated special purpose vehicles or entities. In particular, it is important to stress that the securitisation operations have not removed any risk from the Group’s total assets, since the derecognition requirements set by IAS 39 were not met. Meanwhile, the underwriting of the securities arising from the securitisation has not added any risk nor changed the presentation of the financial statements compared to that prior to said securitisation.

With reference to the Recommendation set out in the Report of the Financial Stability Forum of 7 April 2008, Appendix B, we can state that there are no exposures to instruments deemed highly risky by the market or implying a risk greater than previously expected.

 

Last updated on 2015-02-18