1.3 Banking group – Liquidity risk

Qualitative information

A. General aspects, 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, and receivables due from Local Administrations, with average collection periods up to 24 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, 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/Duration on demand over 1 day up to 7 days over 7 days up to 15 days over 15 days up 1 month over 1 month up to 3 months over 3 months up to 6 months over 6 months up to 1 year over 1 year up to 5 years over 5 years Indefinite duration
Cash assets 1.532.352 75.034 107.807 367.549 810.453 283.864 842.849 2.736.300 78.172 14.446
A.1 Government securities - - - - 15.184 51.726 721.875 2.390.032 - -
A.2 Other debt securities - - - - - - 5.004 - - -
A.3 O.E.I.C. units - - - - - - - - - -
A.4 Loans to 1.532.352 75.034 107.807 367.549 795.269 232.138 115.970 346.268 78.172 14.446
- banks 75.897 - - - - - - - - 14.446
- customers 1.456.455 75.034 107.807 367.549 795.269 232.138 115.970 346.268 78.172 -
Cash liabilities 819.395 2.331.776 157.262 522.051 1.439.717 218.089 271.506 446.937 3.140 -
B.1 Deposits and current accounts 819.214 52.789 157.262 137.814 1.439.695 218.052 264.674 324.864 - -
- banks 60.887 10.478 91.360 25.074 7.006 - - - - -
- customers 758.327 42.311 65.902 112.740 1.432.689 218.052 264.674 324.864 - -
B.2 Debt securities - - - - - - - - - -
B.3 Other liabilities 181 2.278.987 - 384.237 22 37 6.832 122.073 3.140 -
Off-balance-sheet transactions - - 3.674 28.500 8.000 - - - - -
C.1 Financial derivatives with exchange of underlying assets - - - 28.500 8.000 - - - - -
- long positions - - - 28.500 - - - - - -
- short positions - - - - 8.000 - - - - -
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 - - 3.674 - - - - - - -
- long positions - - 3.674 - - - - - - -
- short positions - - - - - - - - - -
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 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 SPV 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).

Exposure to high risk instruments – disclosure

Considering the goals it pursues and the technical aspects of the securitisation 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 has 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 assets involved in the securitisation in the financial statements compared to that already in place. 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.