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Liquidity risk

Liquidity risk is a risk that the bank may not be sufficiently liquidated or too liquidated. Liquidity risk is the risk that the bank will not be able to meet its obligations in a timely manner or will require the sale of individual bank assets on unfavourable terms. Risk of excess liquidity is the risk of loss of bank income due to excess of highly liquid assets, but few or no income assets and, as a result, unjustified financing of low-income assets from attracted resources.

Risk of liquidity loss is related to the bank 's inability to fulfill its obligations under payments within the specified time frame, to quickly turn its assets into a monetary form for making payments on deposits.

Liquidity risk, on the one hand, is closely related to the mismatch of assets and liabilities (i.e., the use of short unstable liabilities for medium-term or long-term active operations), and, on the other hand, the loss of the ability (due to the general market conditions or the deterioration of the bank 's image) to attract resources to meet current liabilities.

The level of liquidity risk is influenced by various factors, among them:

  • the quality of the bank 's assets (if there is a significant amount of non-performing and non-recoverable assets in the bank 's portfolio, which are not provided with sufficient reserves or own funds, the bank will lose liquidity due to the need to fund such assets with attracted resources);
  • diversification of assets;
  • the bank 's interest policy and overall profitability of its operations (constant excess of the bank 's expenses over its revenues can lead to loss of liquidity);
  • The amount of currency and interest rate risks that may result in impairment or insufficient return on operating assets;
  • stability of bank liabilities;
  • Consistency of time to attract resources and place them in active operations;
  • The bank 's image, enabling it to quickly raise third-party loans if necessary.

Liquidity risk is closely linked to credit, market, interest and currency risks. For example, credit risk impairs the bank 's liquidity, as it leads to a imbalance in the balance of assets and liabilities in terms of terms and amounts; And market, currency and interest rate risks can cause a decrease in the value of the bank 's assets or increase the value of liabilities.