Risk Management
Article Index
Risk Management
Operational Risk
Credit Risk Management
Market Risk Management
Foreign Exchange Risk Management
Liquidity Risk Management
Supervisory Review

Liquidity Risk Management

Liquidity is crucial to the ongoing viability of any financial institution. The capital positions can have a telling effect on institution’s ability to obtain liquidity, especially in a crisis. NIBL has adequate systems for measuring, monitoring and controlling liquidity risk. We evaluate the adequacy of capital given their own liquidity profile and the liquidity of the markets in which they operate. WE also make use of stress testing to determine their liquidity needs and the adequacy of capital. The objective of liquidity management is to ensure that bank has sufficient funds to meet its contractual and regulatory financial obligations at all times. Liquidity risk is the probability of loss arising from a situation where (1) there will not be enough cash and/or cash equivalents to meet the needs of depositors and borrowers, (2) sale of illiquid assets will yield less than their fair value, or (3) illiquid assets will not be sold at the desired time due to lack of buyers. Liquidity risk relates to the ability of the Bank to maintain sufficient liquid assets at reasonable cost to meet its financial obligations as and when they fall due. Liquidity risk' arises from situations in which a party interested in trading an asset cannot do it because nobody in the market wants to tradethat asset. Liquidity risk becomes particularly important to parties who are about to hold or currently hold an asset, since it affects their ability to trade.

The bank’s liquidity policy is to ensure that all contractual commitments can be met by readily available sources of funding. In addition, liquid assets are maintained in relation to cash flows to provide further sources of funding in the event of a crisis. The bank also has excellent access to financial markets to ensure the availability of funds.{mospagebreak title=Monitoring and Reporting}  Monitoring and Reporting
The bank has established an adequate system for monitoring and reporting risk exposures and assessing how the bank’s changing risk profile affects the need for capital. The bank’s senior management or board of directors receives on a regular basis reports on the bank’s risk profile and capital needs.

These reports allow senior management to:
Evaluate the level and trend of material risks and their effect on capital levels;

  • Evaluate the sensitivity and reasonableness of key assumptions used in the capital assessment measurement system;
  • Determine that the bank holds sufficient capital against the various risks and is in compliance with established capital adequacy goals; and
  • Assess its future capital requirements based on the bank’s reported risk profile and make necessary adjustments to the bank’s strategic plan accordingly.

NIBL conducts periodic reviews of its risk management process to ensure its integrity, accuracy, and reasonableness. Key areas that are reviewed include:

  • Appropriateness of the bank’s capital assessment process given the nature, scope and complexity of its activities;
  • Identification of large exposures and risk concentrations;
  • Accuracy and completeness of data inputs into the bank’s assessment process;
  • Reasonableness and validity of scenarios used in the assessment process; and
  • Stress testing and analysis of assumptions and inputs.


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