Liquidity risk

Liquidity risk is the risk that insufficient funds are available to meet financial commitments. FMO's policy is to have matched funding, that is the tenor of its funding is matched to its assets, in order to reduce liquidity risk. The liquidity policy is based on a three pillar approach. This policy ensures: (i) that the maturity mismatch is limited to €500 million (cash outflow) per bucket and that the refinancing risk is limited to €250 million per bucket; (ii) that FMO has sufficient cash, liquidity buffers and access to emergency lines to survive a stress period, where the funding market is totally closed for 6 months and; (iii) that FMO's funding sources are well diversified in terms of geography and instrument type. The policy is managed by a model which places forecasted cash flows into time buckets. The net cash flows per bucket are tested against the limits.

FMO traditionally has a conservative liquidity policy and funding strategy that is well suited to the business it does. Stress tests are conducted on FMO's liquidity position at least once a month to ensure this conservative position is maintained. In the case of a crisis there are various sources of emergency liquidity available. FMO's first buffer for liquidity is its bond portfolio. This can be used as collateral to obtain short-term loans from the ECB. Secondly a committed facility from a highly rated bank is available.

The liquidity position is well within FMO's limits and even under various stress tests the liquidity position is still within limits. Nevertheless liquidity remains a key point for the ALCO, Risk Management and Treasury. A continuous review is performed on the liquidity position, FMO's assumptions, internal expectations and external market conditions to ensure that FMO's liquidity overview remains relevant and accurate.

The following table shows the categorization of the balance sheet per maturity bucket. For those instruments that have a fixed cash flow schedule, undiscounted cash flows are shown, including interest cash flows. For all other instruments the balance sheet amounts are shown. Expected cash flows resulting from irrevocable facilities being drawn are not included in the liquidity gap. In the aforementioned stress scenario the irrevocable facilities are included.

Categorization of the balance sheet per maturity bucket

At December 31, 2011

< 3 months

3-12 months

1-5 years

>5 years

Maturity undefined

Total

Assets

Banks

42,114

-

-

-

-

42,114

Short-term deposits

482,883

-

-

-

15,750

498,633

Derivative financial instruments

-900

21,571

259,194

63,722

-

343,587

Loans to the private sector

104,392

368,810

1,733,578

737,735

-

2,944,515

Loans guaranteed by the State

6,022

10,549

53,665

4,084

-

74,320

Equity investments

-

-

-

-

753,366

753,366

Investments in associates

-

-

-

-

42,073

42,073

Interest-bearing securities

50,857

89,864

479,456

109,535

-

729,712

Tangible fixed assets

-

-

-

-

9,383

9,383

Deferred income tax assets

-

-

-

-

3,682

3,682

Current income tax receivables

4,560

-

-

-

-

4,560

Other receivables

32,896

-

-

-

-

32,896

Accrued income

82,116

-

-

-

-

82,116

Total assets

804,940

490,794

2,525,893

915,076

824,254

5,560,957

Liabilities and shareholders' equity

Short-term credits

20,780

243,493

-

-

296,880

561,153

Derivative financial instruments

-967

9,491

65,073

3,263

-

76,860

Debt securities

3,459

24,595

1,318,998

-

-

1,347,052

Debentures and notes

62,564

179,428

961,070

214,457

-

1,417,519

Other liabilities

-

-

-

-

14,188

14,188

Current accounts with State funds and other programs

624

-

-

-

-

624

Wage tax liabilities

1,846

-

-

-

-

1,846

Deferred income tax liabilities

-

-

-

-

4,501

4,501

Accrued liabilities

55,099

-

-

-

-

55,099

Provisions

-

-

-

-

16,193

16,193

Shareholders' equity

-

-

-

-

1,664,590

1,664,590

Total liabilities and shareholders' equity

143,405

457,007

2,345,141

217,720

1,996,352

5,159,625

Liquidity gap 2011

661,535

33,787

180,752

697,356

-1,172,098

401,332

At December 31, 2010

< 3 months

3-12 months

1-5 years

>5 years

Maturity undefined

Total

Total assets

597,158

466,976

2,340,809

820,399

703,066

4,928,408

Total liabilities and shareholders' equity

159,970

278,002

1,858,552

369,270

1,794,204

4,459,998

Liquidity gap 2010

437,188

188,974

482,257

451,129

-1,091,138

468,410

The tables below are based on the final availability date of the contingent liabilities and irrevocable facilities.

Contractual maturity of contingent liabilities and irrevocable facilities

At December 31, 2011

< 3 months

3-12 months

1-5 years

>5 years

Maturity undefined

Total

Contingent liabilities

36,515

-14,340

3,721

6,186

-

32,082

Irrevocable facilities

145,371

249,442

403,666

390,277

-

1,188,756

Total off-balance1)

181,886

235,102

407,387

396,463

-

1,220,838

At December 31, 2010

< 3 months

3-12 months

1-5 years

>5 years

Maturity undefined

Total

Contingent liabilities2)

60,126

1,390

2,576

19,146

-

83,238

Irrevocable facilities2)

145,840

307,461

290,051

393,564

-

1,136,918

Total off-balance1)

205,966

308,851

292,627

412,710

-

1,220,156

1) FMO expects that not all of these off-balance items will be drawn before expiry. For contingent liabilities, guarantees provided are netted for guarantees received from third parties.
2) Adjusted for comparison purposes (based on final availability date instead of maturity date).