Funding & Liquidity

Funding & Liquidity

Funding Strategy

ADCB maintains a well-diversified funding structure to ensure that funding is available to meet all obligations in times of stress. Funding is raised through retail, wholesale and treasury operations.

The primary source of ADCB's funding has historically been from customer deposits, many of which are time and demand deposits. To achieve the objective of diversifying its source of funds, ADCB also maintains access to a variety of sources of wholesale funds in multiple currencies, including those available from money markets, repo markets, bilateral or syndicated loans and from international bond markets, across a variety of distribution channels and geographies. ADCB's funding plan is presented annually to the Board for approval.

Risk Management

A robust funding structure supports sound liquidity risk management. Liquidity risk is the risk that ADCB will be unable to meet payment obligations associated with financial liabilities when they fall due and/or to replenish funds when they are withdrawn. ADCB's approach is to ensure that the Bank will always have sufficient liquidity to meet all liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to its reputation.

The Assets and Liabilities Committee sets and monitors the liquidity ratio and regularly revises and calibrates the bank's liquidity management policies to ensure that ADCB is in a position to meet all obligations as they fall due.

ADCB's liquidity management process is managed by Treasury, and monitored by an independent market risk control function, responsibilities include:

  • Monitoring of liquidity position on a daily, weekly and monthly basis. This entails forecasting of future cash inflows/outflows and ensuring that the bank can meet the required outflows
  • Conducting regular liquidity stress-testing under a variety of scenarios covering both normal and more severe market conditions with well-defined triggers and suggested actions
  • Ensuring regular compliance with the liquidity ratios, such as the LCR (Liquidity coverage ratio), stipulated by the Central Bank in accordance with its phased introduction of the Basel III framework in the UAE and internally approved management triggers for liquidity risk
  • Conducting regular enterprise-wide liquidity stress tests which estimate liquidity requirements under idiosyncratic and systemic stress conditions. The enterprise wide stress tests incorporate diverse liquidity triggers like currency de-peg, failure of a major local bank, credit rating downgrades, in addition to regular stress cash flow analysis

Treasury is upgrading its systems to the latest version of Moody's Assets and Liabilities Management software "RiskConfidence". RiskConfidence will enable ADCB to produce a comprehensive suite of daily management reports used to dynamically monitor the bank's liquidity, interest rate and foreign exchange risks. In addition, various scenario analysis can be undertaken to optimise the bank's balance sheet, whilst highlighting impact to profitability during times of stress.

ADCB's strategy is to continue to grow customer liabilities to support customer lending activities and to strategically target Capital Markets to support broader balance sheet objectives. The Assets and Liabilities Committee and the Board continuously monitors the funding mix to minimise any concentration risk through capping of the various funding sources.

Liquidity Framework

In accordance with the Central Bank's gradual introduction of the Basel III framework in the UAE and related Central Bank guidelines, ADCB manages its liquidity position through compliance with the Liquidity Coverage Ratio (LCR). ADCB has also set up the framework to calculate Net Stable Funding Ratio (NSFR), which is calculated as a percentage of available stable funding to required stable funding. ADCB monitors NSFR as a measure of long term liquidity stress in advance of its formal implementation in the UAE.

As part of its requirements to report its liquidity position to the Central Bank in compliance with the LCR, ADCB manages its internal liquidity through regular internal 30-day LCR stress tests. The Assets and Liabilities Committee and the Board monitor compliance to these ratios internally on an ongoing basis. Additionally, ADCB's treasury division invests in various short‐term or medium-term, highly marketable assets in line with Basel III guidelines for High Quality Liquid Assets (such as certificates of deposit held with the Central Bank and investment grade bonds).

Tools for liquidity management

ADCB, through its treasury department, ensures that it has access to diverse sources of funding, ranging from local customer deposits from both its retail and corporate customers, to long term funding such as debt securities and subordinated liabilities.

ADCB's treasury department manages liquidity risk and asset-liability mismatches by:

  • Diversification of funding sources and balancing between long-term and short-term funding sources through borrowing under global medium-term notes issue programmes
  • Monitoring the stickiness of the liability portfolio and rewarding business units for sticky deposits through a robust fund transfer pricing process, giving incentive to each business to maintain the right mix in the deposit book
  • Maintaining a healthy mix of on-shore and off-shore liabilities in line with established thresholds
  • Investing in various short-term or medium-term but highly marketable assets in line with Basel III guidelines for high-quality liquid assets, such as certificates of deposit with the Central Bank of UAE, investment-grade bonds that can be repurchased at short notice, etc.

Further, ADCB also has the following facilities from the Central Bank of UAE to manage our liquidity risk during critical times:

  • Overdraft facility against cash reserves at an overnight rate at a spread of 150 basis points
  • Overdraft facility beyond the cash reserves at an overnight spread of 300 basis points
  • Repo facility against identified investments securities bonds for a maximum period of seven days on a renewable basis at an overnight rate with a spread of 100 basis points for certificates of deposit

ADCB also has access to the Interim Marginal Lending Facility (the "IMLF") initiated by the Central Bank with effect from 15 April 2014. Under the IMLF, ADCB can borrow from the Central Bank by posting eligible collateral. ADCB periodically tests the IMLF with the Central Bank for its operational readiness. The above Central Bank facilities were never utilised other than as part of a regular testing exercise.

Liquidity Risk Appetite

ADCB's risk appetite framework is approved by the Board. ADCB maintains a granular risk appetite policy based on several quantitative and qualitative metrics. ADCB has a leading risk management team and continues to improve its risk management function, corporate governance and transparency through regular reviews of its risk policies and procedures. To manage such risks, ADCB has implemented a more robust risk framework, including an upgrade of its risk systems. Risk management is also being carried out through ongoing proactive remedial management, tightening of credit criteria and education of staff in order to create a coherent bank-wide credit culture.

Liquidity Pool

ADCB maintains a liquid assets portfolio as part of its compliance with the regulatory requirements of the Central Bank. Its investment strategy focuses on investments, which:

  • Do not compromise ADCB's short to medium term liquidity positions;
  • Are in line with Central Bank and Basel III guidelines for HQLAs; and
  • Satisfy ADCB's low risk appetite but generate an attractive return on capital

As part of its LCR liquidity reporting and compliance, ADCB's Treasury division invests in various short‐term or medium-term, highly marketable assets in line with Basel III guidelines for High Quality Liquid Assets (such as certificates of deposit held with the Central Bank and investment grade bonds).


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