A. General aspects, management procedures and measurement methods of the liquidity risk

The liquidity risk refers to the possibility that the group is not able to maintain its payment commitments due to lack of funds or inability to sell enough assets on the market to meet its financing needs. The liquidity risk also refers to inability to obtain adequate financial resources, in terms of amount and cost, to face its operational needs and opportunities, hence forcing the group to slow down or stop development of its activity or sustain very steep funding costs in order to respect its payment commitments, with a significant negative influence on profitability levels.

The sources of finance are represented by capital, funding from customers (in particular the online Rendimax account), and funding undertaken on the domestic and international interbank market. Considering the group’s asset composition, the type of activity it carries out, and the strategies the Board of Directors has defined in order to limit operations on trade receivables to short or very short durations (as a rule not exceeding 6 months, with the exception of that with the Civil Service that can be up to 12 months), the liquidity risk for the Banca IFIS Group, in the face of current physiological conditions on financial markets, is not critical. Moreover, also during 2010, which saw continuing tensions on the finance markets, the Group continued to operate without a significant downside.

Thanks to: Banca IFIS’s wide and diverse interbank relationships with national and foreign counterparties; its securitisation programme which led to the generation of securities that are eligible with the Eurosystem and transferable on the collateralised interbank market (MIC); the extremely positive response to the new form of online funding through the Rendimax Savings Account; the setting up of a bond portfolio eligible with the ECB, transferable on the MIC or utilisable in repurchase financing agreements; and, lastly, the type and quality of Banca IFIS Group’s assets, the group has always had sufficient financial resources to satisfy its needs, albeit at marginally increasing costs. Over the year, the bank pursued particularly prudent financial policies aimed at favouring funding stability, providing itself with financial resources which are sometimes in excess of immediate operational needs and, as a result, firmly introduced itself on the interbank market as a stable lender, albeit short-term. This policy, which sacrifices economic efficiency in treasury management, in terms of different rates between interbank funds and commitments, in favour of certain and stable liquidity, is adequately supported by the revenue that the group obtains from its activity.

At the moment the available financial resources are more than adequate for the current and future business volumes. The Group is, nonetheless, constantly engaged in the balanced development of its own financial resources in terms of both their size and their cost.

The business functions that are designed to guarantee the correct application of liquidity policies are: the Treasury Department that directly manages liquidity, the Risk Management Office entrusted with the role of selecting the most effective risk indicators and monitoring asset and liability trends to ensure compliance with preset limits and, lastly, Top Management that has the responsibility of putting forward to the Board, on an annual basis, proposals regarding policies on lending and funding and the management of liquidity risks, as well as suggesting opportune interventions during the year in order to ensure that activities are consistent with the risk policies approved by the bank.

Furthermore, based on indications coming from the Treasury Department and assessments on the development of commitments, and in order to support ordinary short to very short-term treasury activities and manage and monitor liquidity risk trends, Top Management establishes policies on the assumption of lines of financing that exceed a 3-month duration.

Taking into consideration the particular trends on the financial market, the bank adopted a model for analysing and monitoring present and future liquidity positions, a further instrument systemically supporting Top Management’s and the Board of Directors’ decisions in terms of liquidity. The periodic results are reported directly to the Supervisory authorities, as far as concerns the regular functioning of financial markets and, in particular, that in stressed situations. In compliance with the supervisory instructions, the Bank also has a Contingency Funding Plan in order to safeguard the Group from harm or danger arising from a possible liquidity crisis and to guarantee business continuity even in the midst of a serious emergency arising from its own internal arrangements and/or the market situation.

The liquidity risk position is also periodically reported upon to the bank’s Board of Directors by means of a quarterly so-called ‘Dashboard’ report prepared by the Risk Management Office for Top Management.

With reference to subsidiaries, IFIS Finance’s treasury activity is co-ordinated, under group policies, by Banca IFIS’s Treasury Department. Naturally, where necessary, the bank may intervene directly in the subsidiary’s favour.