27 Nov 2020
Liquidity management
The Bank's target is to ensure a sufficient level of liquidity to be able to continue disbursing new loans and fulfil all its payment obligations for at least one year ahead, without additional new funding. The survival horizon takes into account a severe stress scenario in markets. There are also separate requirements for three-month cash flows, as well as the quality of the securities investments in terms of credit rating, central bank eligibility and classification as high-quality liquid assets (HQLA).
Liquidity buffer
The minimum size of the liquidity buffer depends on outgoing and incoming cash flow levels during the survival horizon. The stress scenario assumes the acceleration of outflows and the disruption of inflows, as well as adverse market developments that affect the value of securities in the liquidity buffer and derivatives. The liquidity buffer consists of cash, money market instruments and securities, and it has the target survival horizon of one year.
At the end of September 2020, NIB’s total liquidity amounted to EUR 12,963 million, of which EUR 5,390 million (42% of the total) was in short-term money market instruments, and EUR 7,574 million (58% of the total) was invested in bonds with longer maturities.
Counterparty risk class distribution
as of 30 September 2020
| Counterparty risk class distribution | |
| AAA | 54% |
| AA+ | 19% |
| AA | 10% |
| AA- | 10% |
| A+ | 5% |
| A | 2% |
| A- | 1% |
| Sub IG | 0% |
Liquidity buffer. Geographical distribution, in EUR million
as of 30 September 2020
| Denmark | Sweden | Finland | Germany | Norway | Other Europe | France | Canada | Supranationals | Netherlands | Other | |
| 4,228.9 | 1,707.80 | 1,342.09 | 1,157.99 | 927.40 | 873.83 | 830.16 | 800.94 | 704.43 | 246.43 | 133.69 |
Asset and liability management
During the period January to September 2020, NIB's loan disbursements totalled EUR 3,482 million, and the Bank obtained EUR 6,946 million in new funding in twelve currencies. The EUR 5,390 million held in the short-term money market is used to manage the Bank's daily payment obligations. The instrument distribution is shown in the graph below.
The liquidity investments are limited by the counterparty and market risk framework that applies to Treasury operations.
Along with the counterparty and market risk framework, Treasury’s liquidity investments follow guidelines that will ensure the assets remain liquid even under stressed market conditions. At the end of September 2020, 86% of the liquidity was invested in accordance with the Basel III liquidity rules of being high-quality liquid assets (HQLA), and 90% of the liquidity was eligible as repo collateral in one or several central banks. NIB does not have direct access to central bank repos, but can repo its bond securities via intermediating banks.
Money market instruments. Distribution by instrument
as of 30 September 2020
| Cash instruments. Distribution by instrument | |
| Reverse repos* | 60% |
| Deposits | 9% |
| ECP/CP | 29% |
| Cash accounts | 2% |
| Bonds | 0% |
* Reverse repos are repurchase agreements in which a bond is received as collateral for a cash deposit.
Portfolio management
The Portfolio Management unit manages the bond security portfolios. The market value of these portfolios amounted to EUR 7,540 million at the end of September 2020. The securities are held on both amortised cost and fair value bases, and include both floating-rate and fixed-coupon instruments. The instrument distribution of the portfolio can be seen in the graph below.
Bond instruments. Distribution by instruments
as of 30 September 2020
| Bond Group | Bond instruments. Distribution by instrument |
| Covered bonds | 39% |
| Sovereign and sov. guaranteed agencies | 25% |
| Financials | 17% |
| Public sector | 17% |
| Asset-backed securities | 0% |
| Corporate | 2% |
