NLB Group
Liquidity and funding
Liquidity and funding
Liquidity
The NLB Group has available primary and
secondary liquidity reserves to cover liabilities.
Primary liquidity reserves must be available very
soon following the realization of a stress test
scenario (immediately, i.e. within one week). This
is the ability to generate and secure rapidly
realizable and highly liquid assets in the short
term. The majority of primary liquidity reserves is
represented by cash, funds on settlement
accounts at central banks and sight and shortterm
funds at other banks. The Bank's secondary
liquidity reserves are of exceptional importance in
meeting liquidity needs and complying with
regulations governing this area. These mainly
comprise prime debt securities issued by EU
countries and eligible for ECB transactions, while
one third of secondary liquidity reserves are
accounted for by loans that meet ECB eligibility
criteria in full. ECB eligible loans are loans secured
by a government guarantee and loans to
government agencies.
The Group also gives a great deal attention to the
monitoring and compliance of structural liquidity
indicators, which indicate the appropriate
maturity and structure of sources of funding in
connection with the credit portfolio. A more
detailed overview of the Group's structural
liquidity is facilitated by liquidity gaps and their
short-, medium- and long-term projections of
relevant cash flows. The NLB Group's sources of
funding are appropriately diversified in the
current conditions, and ensure an appropriate proportion of long-term sources of funding with
respect to its credit portfolio.
The debt securities portfolio of the banking book
is used simultaneously for providing secondary
liquidity, stabilizing the interest margin and
managing the NLB Group’s interest-rate risk.
Conservative principles of operations are applied
in managing the portfolio, particularly with
respect to issuers’ ratings and portfolio duration.
The framework for managing the securities of the
banking book is the Policy for Managing Debt
Securities in the Banking Book, which clearly
defines the objectives and characteristics of the
portfolio of securities of the banking book. The
majority of the portfolio is comprised of prime
debt securities. As at December 31, 2010, the
portfolio was comprised of 80.4% of
government securities, 12.6% of governmentgranted
bank bonds, 0.7% of bonds from
multilateral institutions and 6.3% of bank and
corporate bonds. The largest proportion of
securities is accounted for by Slovenian
government securities (31.2%), followed by
French securities (11.8%), Belgian securities
(10.3%), Dutch securities (10.3%), Austrian
securities (6.2%), German government securities
(3.8%) and non-government securities with a
Republic of Slovenia guarantee (10.8%).
Funding
The year 2010 was again characterized by high
volatility and a lack of confidence and
unpredictability on the financial markets, primarily
owing to the fiscal crisis and problems in the
banking sector in Portugal, Ireland, Italy, Greece
and Spain. The market was mainly open to the
largest and regular issuers, well known to
investors. Issuers from weaker economies and
those less known to investors faced considerably
more difficulties in accessing new sources of
funding. Despite the adverse conditions on the
financial markets, yields were down slightly on
average in 2010 compared with the previous year.
The volume of trading on the bond market was
down slightly with respect to 2009. While the
market is characterized by an increased lack of
confidence and little appetite for risk, investors
primarily seek safer investments such as covered
bonds (secured instruments). This form of debt
accounts for more than 45% of all bank bonds
issued in 2010. The second most important
instrument for securing long-term funding were
unsecured "senior" bonds. However, the volume
of such issues was down in relative terms on the
previous year. There was a partial recovery in the
asset-backed securities market in 2010, while
banks issued government-backed instruments in
exceptional cases.
The syndicated loan market remained relatively
closed, similar to 2009. Borrowing opportunities
were very limited, and transactions were
executed on the basis of cooperation with key
partner banks. Nevertheless, the volume of
transactions was up slightly on 2009. Primarily
Turkish and Russian banks were active as
borrowers on this market.
Deposits from non-banking sector represented
the highest proportion of the NLB Group's funding as at December 31, 2010, accounting
for 63.2% of all sources. The proportion of
funding accounted for by deposits from nonbanking
sector was up 0.8 percentage points on
2009, while the proportion of borrowings raised
was down 1.3 percentage points to stand at
19.0% at the end of 2010. The dynamic
demonstrated by both categories with regard to
total funding indicates a shift to deposits from
non-banking sector as a source of funding. The
proportion of funding accounted for by nonsubordinated
debt securities and subordinated
instruments stood at 11.0% and 5.5%,
respectively, at the end of 2010 at the NLB
Group level, while the proportion of deposits
from banks stood at 1.4%.
Despite the extremely demanding conditions
affecting the financial markets, NLB was the first
bank in Slovenia to raise a new syndicated loan
in 2010, in the amount of EUR 440 million with a
maturity of three years. The transaction,
organized by a consortium of 11 foreign banks,
was aimed at refinancing and financing the NLB
Groups operations.
In 2010, NLB also completed the issue of 7-year
NLB26 bonds with an annual coupon rate of
6.25%. Proceeds of more than EUR 61.4 million,
raised through the Bank's business network, were
included in Tier II capital. The Bank offered all
interested parties a new investment opportunity,
while identifying an alternative method for raising
capital. The bonds were listed on the securities
market of the Ljubljana Stock Exchange after the
conclusion of the public offering.
The NLB Group has worked for several years with
multilateral financial institutions and
development banks in securing sources of
funding. In 2010, NLB raised funds at SID banka,
the European Investment Bank (EIB) and at KfW
in the total amount of EUR 256 million (EUR 176
million at SID banka, EUR 30 million at the EIB
and EUR 50 million at KfW).NLB used the funds
raised through credit lines at multilateral financial
institutions and development banks to finance
more than 420 projects in Slovenia in 2010. The
funds were primarily used to purchase property,
plant and equipment, land, intangible assets and
operating assets.
Multilateral financial institutions, in particular the
International Finance Corporation (IFC), the
European Fund for Southeast Europe (EFSE) and
SID banka, played a key role in financing Group
companies in 2010. In an effort to harmonize the
NLB Group, all borrowings by Group members
on the international financial markets were
centralized through NLB, which as parent bank
coordinated and advised companies in their
international on these markets.
Borrowings by NLB Group companies on the
international financial markets reached EUR 67
million in 2010, broken down as follows: EUR 25
million from the IFB, EUR 17 million from SID
banka and EUR 25 million from the EFSE. Funds
raised through credit lines were used to finance
SMEs. In the scope of borrowing from the EFSE,
a subordinated loan in the amount of EUR 5
million was raised to improve the capital
adequacy of NLB Montenegrobanka.
Group companies borrowed a total of EUR 217
million from commercial banks in 2010. Of the
aforementioned amount, EUR 44 million in new
funding was secured at commercial banks for
NLB Group companies, while existing loans in the
amount of EUR 173 million were rolled over in
agreement with creditor banks.
Short-term bilateral loans from commercial banks
represent the majority of sources of funding,
together with credit lines from multilateral
financial institutions for the financing of SMEs.
Annual Report 2010