Page 119 - Annual Report 2022

57 Banka Kombëtare Tregtare Annual Report 2022

Banka Kombëtare Tregtare Sh.a.
Notes to the Consolidated Financial Statements for the year ended
31 December 2022 (Amounts in USD, unless otherwise stated)

5. Financial risk management (continued)
(c) Liquidity risk

Liquidity risk is the risk that the Bank will encounter difficulty in meeting obligations associated with its financial liabilities that
are settled by delivering cash or another financial asset. The purpose of Liquidity Risk Management (LRM) is to ensure, as far as
possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions,
without incurring unacceptable losses or risking damage to the Bank’s reputation. Bank’s LRM policy includes how the Bank
identifies, measures, monitors and control that risk.
Organization of LRM: Bank’s LRM Organization includes two different bodies in the monitoring and management of liquidity.
The involvement of different bodies helps provide clear allocation of the responsibility for monitoring/reporting and management
of Liquidity Risk. Day-to-day management of liquidity belongs to the Treasury Group but day-to-day monitoring of Liquidity risk
and compliance to the limits belongs to the Risk Management Group. The main purpose of the Risk Management Group, which
conducts daily overview of LRM reports, is to provide an early warning signal of liquidity risk to the senior management of the
Bank.
LRM Reports: Bank’s LRM policy includes sets of daily and monthly reports to be reviewed and monitored by Operational
& Market Risk Department. Daily reports include Maximum Cumulative Outflow table and Cumulative Assets and Liabilities
Breakdown table, which control respectively daily and monthly inflows/outflows of liquidity till 1-year maturity under “business
as usual” scenario. Monthly reports include stress testing liquidity breakdown tables, which control daily and monthly inflows/
outflows of liquidity under separate bank specific and market specific crisis scenarios till 3-months maturity.
The LRM approach of the Bank results in positive liquidity gaps for all time stages up to one year as at 31 December 2022. This
resulted mainly because of the following three assumptions:
• Using statistical method and historical data (derived since 2001), the actual LRM reports include analysis into the behavioural
re-investment pattern of deposits;
• Short term securities available for sale are considered liquid through the secured funding from Bank of Albania;
• Bank’s reserve requirements held with BoA are considered as non-liquid assets.
An analysis of the Bank’s expected timing of cash flows by simple remaining maturity is shown in the following tables.