Latest NSFR developments and implications

Latest NSFR developments and implications

By Sridhar Aiyangar, Group Head Balance Sheet and Liquidity Management, Bank ABC.

Sridhar, can you please tell the Risk Insights readers a little bit about yourself, your experiences and what your current professional focus is?

Senior Banker with significant experience in Treasury, Financial Markets, Risk Management and Finance with large MNC Banks. Currently, Group Head of Balance Sheet & Liquidity Management with a leading regional bank in the Middle East. Current focus on Balance Sheet Planning and Optimisation, Capital and Liquidity management with focus on improving capital efficiency and funding diversity.

At the Liquidity Risk Management Forum in June, you will be presenting on ‘Exploring latest NSFR developments and implications on business models, balance sheet and strategy’. Why is this a key talking point in the industry right now and what can risk professionals gain from this insight?

NSFR brings in an additional element of cost of doing business and hence will impact the RAROC, besides adding another metric from a liquidity risk management standpoint.

What implications have the latest NSFR developments had on business models? How can organisations overcome these?

As noted in the earlier comment, NSFR will add another element of cost as Banks will need to source additional funding of the right type to maintain the ratio.  This may lead to a greater competition for Retail/SME deposits as they get a favourable treatment under NSFR. This may also necessitate a range of other actions such as review of customer pricing, controlled growth of certain types of assets etc.

Without giving too much away, can you provide an over of the impact the latest NSFR developments have had on long term funding and deposits?

The impact of NSFR is likely to be more pronounced for wholesale funded banks.  Retail Banks will have sufficient headroom as their funding base is from sources that have a high ASF factor.

This may potentially lead to an increase in the overall funding cost for wholesale banks ranging and the scale of this will depend on their Balance Sheet mix and tenor profile.

 

What, in your opinion does the future hold for liquidity risk professionals, and how can they keep up with the increasing change?

Liquidity risk management has increased in its complexity multi fold with intra-day risks, LCR, NSFR, Asset liability mismatches, IRRBB etc. arising from changes to regulations as well as payments technology that enables stratight through processing.

Risk professionals need to continue to enhance their skills both on the technical front and technology front.


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