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Annual Report 2015
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(4)
Liquidity risk
A.
Definition and sources of liquidity risk
The Bank and its subsidiaries define liquidity risk as the risk of financial loss to the Bank and its subsidiaries arising from default by any
companies of financial instruments on the payment obligations. For example, the companies are default on payment obligations, such as
withdrawals paid to depositors and loans repayment. Or, the company is unable to obtain funds within a certain period at reasonable cost
in response to increased demand for assets.
B.
Procedures for liquidity risk management and measurement of liquidity risk
The Bank and its subsidiaries are mainly engaged in industry related to finance. Therefore, the management for capital liquidity is very
important to the Bank and its subsidiaries. The objectives for liquidity risk management are to maintain reasonable liquidity based on
business development plans, ensure capability of daily payment obligations and meet business growth requirements with adequate high-
liquid assets and capability of raising funds from others in case of emergency.
The financial department of the Bank and its subsidiaries is responsible for daily capital liquidity management. According to the limits
authorized by the Board of (Managing) Directors, the Bank and its subsidiaries monitor the indexes of liquidity risk, execute capital
procurement trading and reports the conditions of capital liquidity to the management. The Bank and its subsidiaries also reports the
liquidity risk control to the Fund Management Committee, Asset & Liability and Risk Management Committee and the Board of
(Managing) Directors regularly, and performs regular liquidity stress-testing to ensure sufficient capital to meet the funding requirements
for increase in assets and payment obligations.
The Bank and its subsidiaries daily perform intensive control over capital sources and the period for fund gaps and liquidity risk
management. Future cash flows are estimated based on the financial liability contracts due date and expected cash collection date of
financial assets. The Bank and its subsidiaries also take into account the extent of practical utilization of capital in contingent liabilities
such as use of loan limits, guarantees and commitments.
Assets used to pay obligations and loan commitments including cash and cash equivalents, due from Central Bank and call loans to other
banks, financial assets at fair value through profit or loss, investments in bills and bonds under resale agreement, accounts receivable,
bills discounted and loans, available-for-sale financial assets, held-to-maturity financial assets, and other financial assets are held in
response to unexpected cash outflows.
The liquidity management policies of the Bank and its subsidiaries include:
(A)
Maintain the ability to perform all payment obligations immediately.
(B)
Maintain solid assets/liabilities structure to ensure medium and long-term liquidity safety.
(C)
Diversify capital sources and absorb stable core depositors to avoid depending on certain large-sum depositors or minor borrowers.
(D)
Avoid potential unknown loss risk which will increase capital cost and capital procurement pressure.
(E)
Conduct due date management to ensure that cash inflow is greater than cash outflow in short term.
(F)
Keep liquidity ratio.
(G)
Keep legal ratio for high-quality, high-liquidity assets.
(H)
Be aware of the liquidity, safety and diversity of financial instruments.
(I)
The Bank and its subsidiaries have capital emergency plans, which are reviewed regularly.
(J)
The overseas branches of the Bank must obey the regulations of ROC and the local supervisory authorities. Otherwise, they will be
penalized for violation of these regulations.
C.
Maturity date analysis for financial assets and liabilities held for liquidity risk management
The table below lists analysis for cash inflow and outflow of the financial assets and liabilities held by the Bank and its subsidiaries for
liquidity risk management based on the remaining period at the financial reporting date to the contractual maturity date.
（
Blank below
）