7 LIQUIDITY RISK
DBS’liquidityriskarisesfromitsobligationstohonourwithdrawalsofdeposits,repaymentsofborrowedfundsatmaturity,and commitmentstoitscustomerstoextendloans.
Weseektomanageourliquidityinamannerthatensuresthatourliquidityobligationswouldcontinuetobehonouredundernormal aswellasadversecircumstances.
7.1 Liquidity Risk Management at DBS Liquidity Management and Funding Strategy
DBSstrivestodevelopadiversiiedfundingbasewithaccesstofundingsourcesacrossretailandwholesalechannels.TheGroup’sfunding strategyisanchoredonstrengtheningourcoredepositfranchise,whichconstituted91oftotalfundingsourcesasat31December2014.
Strongandsustainablegrowthofourcustomerdepositbaseinretail,wealthmanagement,corporateandinstitutionalsegmentsacrossthe marketsthatweoperatein,iskeytoextendingourlong-termfundingadvantage.
Liabilities and Equity Assets
Others LoansandAdvances
toCustomers BankandCorporate
Securities DuefromBanks
Government SecuritiesandT-bills
CashandBalances withCentralBanks
TotalEquity OtherLiabilities
Subordinated TermDebts
OtherDebt Securities
Depositsand Balancesfrom
Customers DuetoBanks
LoanDeposit Ratio87
9 8
7 7
62 72
7 10
9 4
4 1
CustomerDeposits WholesaleFunding
OtherDebtSecurities CommercialPapers
SeniorMediumTermNotes NegotiableCertiicatesofDeposits
Funding Sources SGD million Wholesale Funding Breakdown SGD million
5000 10000
15000 20000
25000 30000
2014
50000 100000
150000 200000
250000 300000
350000
91
9 7
93 17
3 5
34 46
53
24 18
2014 2013
2013
Tocomplementcoredeposits,DBShasalsofocusedonbroadeningouraccesstowholesalefunding.Thishasbeenachievedbyactively engagingandgrowingadiversiiedglobalbaseofhighqualityinvestors.Issuanceofmediumtermnotes,commercialpapers,negotiable
certiicateofdepositsandotherdebtsecuritiesasasecondarysourceoffunding,enablesgreaterlexibilityandeficiencyinliquidity management.2014sawgrowthinwholesalefundingandarebalancingofthewholesalefundingmixfromshorter-termcommercial
paperstomediumtermnotes.
Thediagramsbelowshowourassetfundingstructureasat31December2014.
G O
VER N
A N
C E
POLICIES RISK METHODOLOGIES
PROCESSES, SYSTEMS AND REPORTS
Approach to Liquidity Risk Management
DBS’ framework for liquidity risk management comprises the following building blocks:
POLICIES TheLiquidityRiskFrameworksetsoutouroverallapproachtowards
liquidityriskmanagement.TheFrameworkdescribestherangeof strategiesemployedbyDBStomanageitsliquidity.Theseinclude
maintaininganadequatecounterbalancingcapacitycomprising liquidassets,thecapacitytoborrowfromthemoneymarketsas
wellasformsofmanagerialinterventionsthatimproveliquidityto addresspotentialcashlowshortfallsandmaintainingdiversiied
sourcesofliquidity.Intheeventofapotentialoractualcrisis,DBS hasinplaceasetofliquiditycontingencyandrecoveryplansto
ensurethatdecisiveactionsaretakentoensureDBSmaintains adequateliquidity.
TheCoreLiquidityRiskPolicyestablishesbaselinestandards forliquidityriskmanagementwithinDBS.Policiesandguidance
documentscommunicatethebasestandardsanddetailed requirementsthroughoutDBSandenhanceourabilitytomanage
liquidityrisk.
RISK METHODOLOGIES Theprimarymeasureusedtomanageliquiditywithinthetolerance
deinedbytheBoardisthecashlowmaturitymismatchanalysis.The analysisisperformedonaregularbasisundernormalandadverse
scenarios,andassessestheadequacyofthecounterbalancing capacitytofundormitigateanycashlowshortfallsthatmayoccur
asforecastedinthecashlowmovementsacrosssuccessivetime bands.ToensurethatliquidityismanagedinlinewiththeRisk
Appetite,coreparametersunderpinningtheperformanceofthe analysis,suchasthetypesofscenarios,thesurvivalperiodandthe
minimumlevelofliquidassets,arepre-speciiedformonitoringand controlonagroup-widebasis.Anyoccurrencesofforecasted
shortfallsthatcannotbecoveredbythecounterbalancingcapacity wouldbeescalatedtotherelevantcommitteesfordeliberation
andactions.
Stresstestingisperformedmainlyunderthecashlowmaturity mismatchanalysis,andcoversadversescenariosinvolvingshocks
thataregeneralmarketandorname-speciicinnaturetoassess vulnerabilitywhenrun-offsinliabilitiesincrease,rolloversofassets
andorliquidityassetsbuffersreduce.Inaddition,ad-hocstresstests areperformedaspartofourrecoveryplanningandICAAPexercises.
Liquidityriskcontrolmeasures,suchasliquidity-relatedratios andbalancesheetanalysis,arecomplementarytoolstothe
cashlowmaturitymismatchanalysisandareperformedregularly toobtaindeeperinsightsandinercontrolovertheliquidity
proileacrosslocations.
PleaserefertoNote30totheFinancialStatementsonpage152 formoredetailsofourwholesalefundingsourcesandNote42.1
onpage175forthecontractualmaturityproileofourassets andliabilities.
Withincreasingdiversiicationoffundingsources,optimisingthe mismatchinfunddeploymentagainstsourceswithrespectto
pricing,size,currencyandtenorremainschallenging.Tothis end,wherepracticableandtransferablewithoutlossinvalue,
DBSactivelymakesuseoftheswapmarketsintheconversion offundsacrosscurrenciestodeploysurplusfundsacrosslocations.
Astheswapsaretypicallyshorterincontractualmaturitythan thedeploymentinloans,weareexposedtopotentialcashlow
mismatchesarisingfromtheriskthatcounterpartiesmaynot rollovermaturingswapswithustosupportthecontinualfunding
ofloans.Thisriskismitigatedbythesettingoftriggersonthe amountofswapstransactedwiththemarketandconservative
assumptionsonthecashlowtreatmentofswapsunderthe behaviouralproilingofDBS’cashlowmaturitygapanalysis
seeSection7.2onpage110.
Overseasentitiesareencouragedbutnotrequiredtocentralise majorityoftheirborrowinganddeploymentoffundswithHead
Ofice,takingintoaccounttherelevantregulatoryrestrictionswhile maintainingacommensuratelevelofpresenceandparticipationin
thelocalfundingmarkets.Theseintra-groupfundingtransactions arepricedonanarm’slengthbasiswithreferencetoprevailing
marketratesandparameterssetwithintheGroupFundsTransfer Pricingpolicy.
DuringDBS’annualbudgetandplanningprocess,eachoverseas locationconductsanin-depthreviewontheirprojectedloanand
depositgrowthaswellastheirnetfundingandliquidityproilefor thenextyear.TheconsolidatedGroupfundingandliquidityproiles
arereviewedandrevisedasnecessarybyseniormanagement.Each overseaslocationisrequiredtoprovidejustiicationifHeadOfice
fundingsupportisrequired.
TheGroupAssetsandLiabilitiesCommitteeandrespectiveLocation AssetsandLiabilitiesCommitteeregularlyreviewbalancesheet
composition,growthinloansanddeposits,utilisationofwholesale funding,momentuminbusinessactivities,marketcompetition,
economicoutlook,marketconditionsandotherfactorsthatmay affectliquidityinthecontinualreinementofDBS’fundingstrategy.
PROCESSES, SYSTEMS AND REPORTS Robustinternalcontrolprocessesandsystemsunderlietheoverallapproachtoidentifying,measuring,aggregating,controllingand
monitoringliquidityriskacrossDBS.In2014,wecompletedthedevelopmentofanin-houseintegrateddataplatformthatserves toaggregaterelevantsourcedatainacompleteandaccuratemannerthatfacilitatestimelyandgranularreportingofliquidityriskfor
internalandregulatorypurposes.
Theday-to-dayliquidityriskmonitoring,controlreportingandanalysisaremanagedbytheRMGMarketandLiquidityRiskunit–an independentliquidityriskmanagementfunctionthatreportstotheCRO.Thisgroupcomprisesriskcontrol,riskanalytics,production
andreportingteams.
7.2 Liquidity Risk in 2014