Introduction

According to the recommendations of regulatory agencies and international, as well as best practices, policy was outlined management of liquidity risk Sofisa, which defines the guidelines of the institution, regarding the subject matter of the report, the nature of unit that he will respond and their procedures, roles and responsibilities.

Definition

Liquidity risk is the possibility of the institution not be able to honor its financial commitments efficiently expected and unexpected current and future without affecting your daily operations and focus without significant losses. It is also the possibility of failing to negotiate the price of market position, due to the large size relative to the volume usually transacted or by reason of any interruption of the market.

Liquidity risk can be decomposed into:

  • Cash flow’s liquidity risk: the possibility of the occurrence of mismatches between payments and receipts which affect the institution‘s ability to pay;
  • Market liquidity risk: refers to losses expected and unexpected arising from the settlement:
    • Position of significant participation in the market;
    • Agreed settlement strategy;
    • Characteristics of operation;
    • Loss of value of the assets that make up the liquidity.

Finally, we define liquidity management as a set of processes that aim to ensure the institution‘s ability to pay, considering the financial planning, risk limits and optimization of available resources.

Structure and Responsibilities

To ensure the implementation of policies and procedures used to measure and control liquidity, there is the distribution of powers between the units directly involved in this control.

  • Board of Directors: evaluates and decides annually on adjustments or maintenance of policies and strategies, technological options, and the reports of monitoring and management of liquidity risk. Evaluates the liquidity situation, compared to the results of the institution.
  • Director of Liquidity Risk: elaborates the liquidity strategy that defines a general approach to be followed by the institution in its liquidity management. Establishes procedures, parameters, and proposes limits to collective bodies. Establishes contingency plan containing strategies for managing liquidity crisis.
  • Superintendent of Treasury: regularly checks the liquidity position of the institution and monitors events and internal and external factors that may exert some influence on the level of liquidity of the institution. Periodically checks the strategies, policies and procedures for managing the liquidity level of the institution.
  • Management of Liquidity Risk: responsible for control activities limits and sending information to regulatory authorities.
  • Units of Systems Development Management: must provide data and tools for calculation of risk exposure, maintaining system documentation updated to control liquidity and supervision for those involved in the process of risk management.
  • Internal Audit: checks the compliance and consistency of policy and procedures for determining and controlling liquidity Sofisa.

Monitoring

Aiming to ensure the institution‘s ability to pay, the Sofisa has structure to track their financial positions, enabling rapid information flow observed when alert conditions – defined from established parameters (liquidity indicators) – and allowing the High Management decides timely manner for possible activation of the contingency plan for liquidity.

The liquidity indicators are monitored by Risk Management, and is responsible for detecting the extrapolation of the limits.

The limits pertaining to the following control methods must be defined and constantly updated:

  • Cash – level of maximum alert (“red”);
  • Cash – level 1 care (“yellow light”);
  • Depositors – concentration;
  • CBD with daily liquidity;
  • Application of the cash – concentration;
  • Working capital – mismatch;
  • Liquidity coverage ratio (LCR);
  • Highest degree of leverage;
  • Cash on deposit;
  • Customers – concentration;
  • Capital Adequacy Ratio.

When the combination of these indicators proves unfavorable, or when the situation shows that there is an imbalance of these indicators, the liquidity contingency plan should be put in action.

Management and Controls

Sofisa’s liquidity risk management aims at:

  • Maintain and document the criteria established for the structure and control of liquidity risk;
  • Conducting liquidity stress tests, forwarding them to the Superintendent of the Treasury and Chief Financial Officer, to the results to be analyzed by the collegiate body of the institution;
  • prepare and submit to regulatory agencies the information they required, such as the Statement of Liquidity Risk, the Liquidity Coverage Ratio and Liquidity Ratio of Long Term;
  • Daily monitoring the positions of Sofisa front the liquidity risk assumed;

Management Improvement

Sofisa search constantly enhance their management of liquidity risk by investing in its structure, management and control tools, training, integration of units, process analysis and elaboration of reports elaboration.