Sberbank - Annual Report 2010 - Liquidity Risk

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# Liquidity Risk

Management of mid- and long-term liquidity within the Group is centralised. Subsidiary banks’ funding needs are recorded in their corresponding business plans. Sberbank maintains the liquidity of all Group entities, acting as a single source of cross-border financing and raising funds on the global financial markets for further allocation to subsidiaries in accordance with their funding needs. Immediate liquidity management within the Group is decentralised. Subsidiary banks independently determine their current asset and liability structures which best fit their individual goals and objectives and is consistent with local regulators’ requirements.

Decentralised immediate liquidity management, coupled with coordinative actions to manage mid- and long-term liquidity, significantly improve the Group’s borrowing position on global financial markets and contribute to the efficient use of temporarily free funds.

Sberbank’s liquidity risk management policy is based on the classification of assets and liabilities by their residual expected maturity (which may differ materially from the contractual maturities of certain instruments), while assuming that all losses arising from any potential write-offs should be offset by expected proceeds at all times. The Bank classifies liquidity risk as follows:

Statutory liquidity risk is the risk of possible failure to meet the statutory liquidity ratios established by the Bank of Russia (N3 or N4). The Bank prepares weekly liquidity ratio forecasts, which are monitored for compliance with both regulatory restrictions and the more conservative internal limits set by the Bank. Throughout 2010, the Bank’s liquidity ratios were significantly better than the statutory requirements.

|  | 31 December 2010, %
--- | --- | ---
Liquidity ratios | CBR threshold, % | 31 December 2010, % | 31 December 2009, %
Н2 | More than 15 | 80.6 | 82.5
Н3 | More than 50 | 103.0 | 114.4
Н4 | Less than 120 | 78.0 | 73.8

Physical liquidity risk is the risk that any amount expressed in any currency falls short of obligations imposed upon the Bank. Short-term physical liquidity risk management involves cash flow forecasting and monitoring available liquidity sources. The Bank’s immediate liquidity needs are primarily ensured through direct repurchase agreements with foreign banks and the Central Bank of Russia.

Mid- to long-term liquidity is managed across Sberbank based on quarterly funding plans. These plans consider a historical analysis of current asset and liability trends, include various development scenarios for the nearest future, analyse various aspects of liquidity risk and describe compensatory measures to be implemented in the case of potential transgressions. Trade finance, bond issuance and syndicated loans are the main source for covering mid- to long-term funding requirements.

The year 2010 saw a steady inflow of rouble-denominated funds from customers. The liquidity accumulated during the year was used for lending and securities purchase transactions; in May it was allocated to repaying the subordinated loan granted by the Central Bank of Russia. Direct repurchase and trade finance transactions with foreign banks, borrowings on global capital markets under the MTN programme and the syndicated loan provided the required foreign currency-denominated funds for active operations. This improved the Bank’s foreign currency lending position, with a number of major loans being granted to corporate borrowers.

- Credit Risk
- Liquidity Risk
- Market Risk
- Operational Risk

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