Guidelines on the Internal Liquidity Adequacy Assessment Plan (ILAAP)

Liquidity Risk Appetite In this section, banks should describe their liquidity risk appetite, how it was devised, approved, monitored and reported, and how it is communicated throughout the bank. Banks should, at a minimum, cover the following key areas: i. A full and clear articulation of the bank’s liquidity risk appetite and a discussion of why the risk appetite is appropriate. ii. A discussion on how the bank’s liquidity risk appetite is used to define and assess liquidity levels and limits, including, at minimum, the following: - An outline of all relevant liquidity risk management limits as derived from the risk appetite and a discussion of how the limits support the risk appetite. - Limits for each of the liquidity risk drivers the bank assesses. Given that not all limits will necessarily be quantitative; some may be qualitative and describe subjective risk metrics. - A brief outlining the bank’s risk appetite and liquidity risk limits, I.e. monitoring limits on periodic dates used for reporting of the Liquidity Coverage Ratio (LCR), Net Stable Funding Ratio (NSFR), Loan to Deposit Ratio (LDR) and SAMA Liquidity Ratio and a demonstration of how the liquidity limits are reflected in SAMA’s returns. - A brief outlining the limits and positions against limits under “normal” and “stressed” liquidity environments, with a full and complete discussion of positions against limits. 6.2 Disclosure of Liquidity Requirements This section should provide a distinction from the bank's perspective of the following liquidity measures indicating their purpose, minimum requirements and other attributes: i. Regulatory Liquidity requirements under LCR , NSFR , LDR , and SAMA Liquidity Ratio. ii. Liquidity requirements internally specified by Treasurer based on limits. 6.3 Funding Strategy This section should provide full details of a bank’s three-year funding strategy, with more detail on the first 12-18 months of the funding strategy. The following requirements should be met: i. The strategy should be approved by the Board Directors or its delegated authority. ii. The strategy should demonstrate how it will support the projected business activities in both business as usual and stress, implementing any required improvements in the funding profile and evidencing that the risk appetite and key metrics will not be breached by the planned changes. iii. Risks to the plan should be discussed. iv. Where a funding strategy is new, implementation procedures should be detailed. v. The funding risk strategy and appetite, and the profile, both the sources and uses should be described. Banks should analyse the stability of the liabilities within the funding profile and the circumstances in which they could become unstable. This could include market shifts such as changes in collateral values, excessive maturity mismatch, inappropriate levels of asset encumbrance, concentrations (including single or connected counterparties, or currencies). Banks are also required to analyse market access and current or future threats to this access, including the impact of any short-term liquidity stresses or negative news.