LIQUIDTTY RISEK nh nh Hà Hà HH KH ĐH khe 19 1 SEVYERALMETHODS OF MEASURING LIQUIDIT Y nen HH nknrkke 19
The coefficient method nh nh HH Hà HH HT KH HT TH kếp 19
The liquidity ratio measures a bank's capacity to cover short-term payment obligations using its liquid assets It assesses the accessibility of the bank's cash and easily convertible assets While the ratio evaluates asset liquidity, it does not consider the liquidity of the bank's capital, which may also impact its ability to meet financial obligations.
Liquid assets/Customer deposits: This ratio measures the bank's ability to easily convert assets into cash to meet its short-term payment obligations
Gross LDR (Loans/Deposits): The ratio measures the abundance of liquidity; the higher the ratio, the better the bank has optimized its capital mobilization So the lower the index, the better
CASA - Demand deposit/ Customer deposit: The pressure on the bank to raise long-term capital to meet its lending needs will decrease as this ratio rises.
Liquidity measurement method based on the term "“unbalanced"- Net Liquidity Gap
The liquidity gap is analyzed using data published in the financial report of banks
To calculate the Net liquidity gap (NLG), it is necessary to collect data maturity-wise for both assets and liabilities which are segmented according to the maturity as stated in annual reports
A positive total liquidity gap indicates that the bank has enough assets to cover its liabilities for that maturity bucket, whereas a negative net liquidity gap indicates that the abilities for that maturity bucket outweigh the assets.
ANALYSIS OFGROSS LDR AT AN BINH COMMERCIAL JOINT STOCK BANK
Over3 Upto3 Uptol From From From Over5 Total th th th 1 3 1 months months months over over over years iy month to month to year to 5 VND million
VND VND VND million million million > ™OMthS 12 years million vnp months wip
VND million million million ASSETS
Cash on hand, gold, silver and gemstones 485.554
Balances with and loans to other credit 1635223 5.049.88 institutions - gross 5 3
Capital contributions, long- term investments - gross 116.936
Deposits and borrowings from other credit institutions
Funds for finance, entrusted investments and entrusted loans
Source: Consolidated financial statements of ABBank 2021 Table 2 ABBank's criteria for evaluating liquidity
(based on average data on financial statements at the end of 2021 and the end of 30/06/2022)
4 Short-term loans/Net loans 582%
Short-term loan-to-deposit ratio (Gross LDR) has a negative impact on liquidity at
The mobilization of capital plays a crucial role in bank liquidity When short-term capital dominates, banks allocate a greater portion for credit activities, resulting in reduced liquidity and a higher dependency on volatile funding sources This practice elevates liquidity risk for banks, especially if lending based on short-term capital remains significant.
Bank liquidity is an important indicator of a bank's financial health A negative Total Liquidity Gap (TLG) means that a bank has insufficient assets to meet its liabilities, indicating potential financial stress Evidence from the NLG data classified by maturity shows that banks with NLG up to 1 month, from over 1 to 3 months, and from over 3 to 12 months had negative TLG values of (13,220,720), (4,539,858), and (5,438,470) respectively These negative TLG values suggest that these banks faced liquidity challenges and may have struggled to meet their short-term obligations during those periods.
25 of the same maturity limit or that its liabilities exceed its assets for the maturity limit That particular term, means that the bank may face nsks arising from lack of liquidity
Excessive liquidity, while ensuring operational efficiency, can hinder performance by limiting investment opportunities By prioritizing liquidity, ABBank may miss out on potential profits due to the trade-off between short-term security and long-term returns.
CURRENCY RISK MANAGEMENITT ch Hà Hà Hà HH Hà Hà Han gkệt 24 1 CURRENCY RISK MODEL nh nh HH Hi HH HT TH TH KH tt ky 24
VaR definition ồ -.4 aaaaa 4a 24
The VaR of a portfolio or asset represents how much loss is likely to occur over a given time period with a given confidence level
The VaR method calculates on the basis of probability theory and mathematical statistics, the advantage of this method is that it quantifies the level of risk, providing managers with a number that reflects the risk of financial loss may occur due to unpredictable market fluctuations Determining VaR will help policymakers have a more accurate view of the risk level, better manage market activities, and investors and financial institutions to estimate the risk of loss their financial resources, thereby providing a reasonable level of investment and reserve
The VaR of the portfolio (or of an asset) with period k (time unit) and confidence (1- a)100% is the @ percentile of the function F*(x) The symbol is VaR(k, ô) and the negative sign of VaR represents the loss (loss).
So we have Pr(P&L(k) < VaR(k, a)) =a From that, deducing the meaning of VaR(k, a) investors holding portfolio P after period k, with confidence (1-a)100%, can lose an amount equal to |VaR(k) ,a)| under normal market conditions
In the face of unpredictable market volatility, nsk management is more important than ever The risk measurement by VaR model is being used most commonly by administrators Estimating VaR has many approaches and each method has its own advantages and disadvantages, scope of use, and certain application methods But in general, risk management by estimating VaR has partly helped banks or administrators see the risks that may be encountered, from which they can have appropriate management and investment methods in accordance with the size and investment method of the bank’s operation
There are 2 common method of estimating VaR: Estimating VaR using the empirical distribution method, Estimating VaR using the normal distribution method
1.1.1 Estimating VaR using the empirical distribution method
The distribution of the yield series over the forecast period is similar to the sample period, the yield distribution can use the empirical percentile for the yield rt to calculate the VaR Let rl,r2, m be the portfolio's return series over the sample period
The sample order statistics are the values sorted in ascending order Symbol: r(1)