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 August 2018, NIB’s total liquidity amounted to EUR 11,073 million, of which EUR 4,542 million (41% of the total) was in short-term money market instruments, and EUR 6,531 million (59% of the total) was invested in bonds with longer maturities.

 

Counterparty risk class distribution

as of 31 August 2018
Counterparty risk class distribution
AAA 49.3%
AA+ 22.5%
AA 8.7%
AA- 14%
A+ 2.8%
A 1.9%
A- 0.7%
Sub IG 0.0

Liquidity buffer. Geographical distribution, in EUR million

As of 31 August 2018
DenmarkSwedenCanadaFinlandGermanyFranceNetherlandsSupranationalsOther EuropeNorwayOther
3569.133896242428.83595581866.98605019813.14164371727.76859839622.33224417551.41444929547.22269383471.22943675371.510590103.02004752
 
 

Asset and liability management 

During the first eight months of 2018, NIB's loan disbursements totalled EUR 2,367 million, and the Bank obtained EUR 6,162 million in new funding in 12 currencies. The EUR 4,542 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 August 2018, 83% of the liquidity was invested in accordance with the Basel III liquidity rules of being high-quality liquid assets (HQLA), and 87% 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 31 August 2018
Cash instruments. Distribution by instrument
Reverse repos* 73.9%
ECP/CP 11.6%
Deposits 12.3%
Cash accounts 2.1%
Bonds 0.1

* 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 6,531 million at the end of August 2018. 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 31 August 2018
Bond Group Bond instruments. Distribution by instrument
Covered bonds 38.8%
Financials 21.1%
Asset-backed securities 0.4%
Sovereign and sov. guaranteed agencies 21.8%
Non-sovereign public sector 17.8%