| |
| The group has committed itself to the implementation of the BCBS guidelines for liquidity risk
measurement standards and monitoring and the enhanced regulatory framework to be
established, as published in December 2009 and updated in December 2010. Investec
has been proactively reporting on these ratios internally according to the emerging Basel
definitions since February 2010. In some jurisdictions Investec already exceeds minimum
requirements of these standards, whilst in other geographies we have commenced with
strategies to shape our liquidity and funding profile where necessary, as we move towards
the compliance timeline. |
| The group
complies with the
Basel Committee
on Banking
Supervision's
Principles for
Sound Liquidity
Risk Management
and Supervision
(BCBS). |
|
|
Balance sheet risk description |
| Balance sheet risk management encompasses the independent monitoring and prudential
management of the financial risks relating to our asset and liability portfolios, comprising
market liquidity, funding, concentration and non-trading interest rate risks on balance sheet. |
| |
Balance sheet risk governance structure and risk mitigation |
Under delegated authority of the board, the group has established asset and liability
management committees (ALCO’s) within each core geography in which it operates, using
regional expertise and local market access as appropriate. The ALCO’s are mandated to
ensure independent supervision of liquidity risk and non-trading interest rate risk.
The size, materiality, complexity, maturity and depth of the market as well as access to stable
funds are all inputs considered when establishing the liquidity and non-trading interest rate
risk appetite for each geographic region. Specific statutory requirements may further dictate
special policies to be adopted in a region.
Detailed policies cover both domestic and foreign currency funds and set out sources and
amounts of funds necessary to ensure the continuation of our operations without undue
interruption. We aim to match-fund in currencies, other than the domestic currency, where it
is practical and efficient to do so and hedge any residual currency exchange risk arising from
deposit and loan banking activities. |
| Non-trading
interest rate risk
otherwise known
as interest rate
risk in the banking
book is the
impact on net
interest earnings
and sensitivity
to economic
value, as a result
of unexpected,
adverse
movements in
interest rates
arising from the
execution of our
core business
strategies and
the delivery of
products and
services to our
customers. |
|
|
| |
The group’s liquidity policy requires each geography to be self-funding so that there is no
reliance on inter-group lines either from or to other group entities. Branches and subsidiaries
have no responsibility for contributing to group liquidity.
The ALCO’s typically comprise the managing director, the head of risk, the head of the
Funding desk, economists, divisional heads, the Balance Sheet Risk Management team, the
treasurer, Private Bank representatives and any appropriate co-opted personnel. The ALCO’s
meet on a monthly basis to discuss and decide on strategies to mitigate any undesirable
liquidity and interest rate risk.
The group's central treasury function is mandated to actively manage the liquidity mismatch
and non-trading interest rate risk arising from our asset and liability portfolios. The treasurer is
required to exercise tight control of funding, liquidity, concentration and non-trading interest
rate risk within parameters defined by the board approved risk appetite policy. Most non-trading
interest rate risk and asset funding requirements are transferred from the originating
business to the treasury function.
The group's central treasury function directs pricing for all deposit products (including deposit
products offered to the private clients), establishes and maintains access to stable wholesale
funds with the appropriate tenor and pricing characteristics, internally administers funds
transfer pricing which ensures that the costs and risks of liquidity are clearly and transparently
attributed to business lines and are understood by business line management, and manages
liquid securities and collateral, thus providing for a controlled and flexible response to volatile
market conditions. The central treasury function is the sole interface to the wholesale market
for both cash and derivative transactions.
The Balance Sheet Risk Management team, based within group Risk Management, independently
identifies, quantifies and monitors risks, providing daily independent governance and oversight of the
central treasury activities and the execution of the bank's policy, continuously assessing the risks whilst
taking changes in market conditions into account. In carrying out its duties the balance sheet risk
management team monitors historical liquidity trends, tracks prospective on- and off-balance sheet
liquidity obligations, identifies and measures internal and external liquidity warning signals which permit
early detection of liquidity issues through daily liquidity reporting and scenario analysis which quantify
our positions, thus providing a comprehensive and consistent governance framework.
The balance sheet risk function further performs scenario modelling and daily liquidity stress tests
designed to measure and manage the liquidity position such that payment obligations can be met
under a wide range of normal, company-specific and market-driven stress scenarios, in which the
rate and timing of deposit withdrawals and draw-downs on lending facilities are varied, and the ability
to access funding and to generate funds from asset portfolios is restricted. The parameters used in
the scenarios are regularly reviewed, taking into account changes in the business environments and
input from business units. The objective is to have sufficient liquidity, in an acute stress, to continue to
operate for a minimum period as detailed in the board approved risk appetite.
There is a regular internal audit of the balance sheet risk management function, the frequency of which
is determined by the independent audit committee.
The group operates an industry recognised third party system to identify, measure, manage and
monitor liquidity risk on both a current and forward-looking basis. The system is reconciled to the
bank's general ledger and audited by Internal Audit thereby ensuring integrity of the process.
Daily, weekly and monthly reports are independently produced showing bank activity, exposures and
key measures against thresholds and limits and are distributed to management, ALCO, the central
treasury function, ERRF, BRCC and the board.
Statutory reports are submitted to the relevant regulators in each jurisdiction within which we operate. |
| |
Non-trading interest rate risk description |
|
|
Non-trading interest rate risk otherwise known as interest rate risk in the banking book, is the impact on
net interest earnings and sensitivity to economic value, as a result of unexpected, adverse movements
in interest rates arising from the execution of our core business strategies and the delivery of products
and services to our customers.
Sources of banking-related risk exposures include potential adverse effect of volatility and changes in
interest rate levels, the shape of the yield curves, basis risk spreads, and optionality inherent in certain
products. These affect the interest rate margin realised between lending income and borrowing costs,
when applied to our rate sensitive asset and liability portfolios, which has a direct effect on future net
interest income and the economic value of equity. The mix of interest rate repricing characteristics is
influenced by the underlying financial needs of customers. |
| |
Management and measurement of non-trading interest rate risk |
| Non-trading interest rate risk in the banking book is a normal part of banking and arises from the
provision of retail and wholesale (non-trading) banking products and services. We are exposed to
repricing risk due to timing differences in the fixed rate maturity and floating rate repricing of bank
assets, liabilities and derivative positions. Additionally, we are exposed to yield curve and basis risk,
due to the difference in repricing characteristics of two floating-rate indices. We are not materially
exposed to optionality risk, as contract breakage penalties on fixed-rate advances specifically cover
this risk. The group considers the management of banking margin of vital importance, and our core
non-trading interest rate risk philosophy is reflected in day-to-day practices which encompass the
following: |
| • |
The group complies with the Basel Committee on Banking Supervision’s (BCBS) framework for
assessing banking book (non-trading) interest rate risk |
| • |
The management of interest rate risk in the banking book is centralised within Central Treasury and Central Treasury is mandated by the
board to actively manage the liquidity mismatch and non-trading interest rate risk arising from our asset and liability portfolios |
| • |
The treasurer is required to exercise tight control of funding, liquidity, concentration and non-trading interest rate risk within parameters
defined by the risk appetite policy |
| • |
Most non-trading interest rate risk and asset funding requirements are transferred from the originating business to Central Treasury |
| • |
The policy dictates that long term non-trading interest rate risk is materially eliminated |
| • |
Central Treasury directs pricing for all deposit products (including deposit products offered to private clients) |
| • |
Central Treasury maintains an internal funds transfer pricing system based on prevailing market rates which charges out the price of long-
and short-term funding to consumers of liquidity and provide long-term stable funding for our asset creation activity |
| • |
Central Treasury is the sole interface to the wholesale market for both cash and derivative transactions |
| • |
Daily management of interest rate risk by Central Treasury, subject to independent ALCO review |
| • |
Technical interest rate analysis and economic review of fundamental developments by geography and global trends |
| • |
Independent measurement and analysis of both traditional interest rate repricing mismatch and NPV sensitivity to changes in interest rate
risk factors, detailing the sources of interest rate exposure. |
|
| |
Non-trading interest rate risk is measured and managed both from a net interest margin perspective over a specified time horizon, and the
sensitivity of economic value of equity to hypothetical changes to market factors on the current values of financial assets and liabilities.
Economic value measures have the advantage that all future cash flows are considered and therefore can highlight risk beyond the earnings
horizon. The aim is to protect and enhance net interest income and economic value in accordance with the board approved risk appetite. The
standard tools that are used to measure the sensitivity of earnings to changes in interest rates are the repricing gap which provides a basic
representation of the balance sheet structure, this allows for the detection of interest rate risk by concentration of repricing, net interest income
sensitivity which measures the change in accruals expected over the specified horizon in response to a shift in the yield curve, and economic
value sensitivity and stress testing to macroeconomic movement or changes which measures the interest risk implicit change in net worth as
a result of a change in interest rates on the current values of financial assets and liabilities.
Technical interest rate analysis and economic review of fundamental developments are used to estimate a set of forward-looking interest rate
scenarios incorporating movements in the yield curve level and shape by geography taking global trends into account. This combination of
measures provides senior management (and the ALCOs) with an assessment of the financial impact of identified rate changes on potential
future net interest income and sensitivity to changes in economic value. This is consistent with the standardised interest rate measurement
recommended by the Basel II framework for assessing banking book (non-trading) interest rate risk.
Operationally, non-trading interest rate risk is transferred within pre-defined guidelines from the originating business to the central treasury
function and aggregated or netted. The Central Treasury then implements appropriate balance sheet strategies to achieve a cost-effective
source of funding and mitigates any residual undesirable risk where possible, by changing the composition of the banking group's discretionary
liquid asset portfolio or through derivative transactions which transfer the risk into the trading books within the Capital Markets division to be
traded with the external market. Any resultant interest rate position is managed under the market risk limits. The Central Treasury mandate
allows for tactically responding to market opportunities which may arise during changing interest rate cycles.
Our risk appetite policy requires that interest rate risk arising from fixed interest loans risk is transferred from the originating business to the
central treasury function by match-funding. In turn, Central Treasury hedges all fixed rate assets with a term of more than one year on a deal-by-deal basis to within three-months repricing with the use of variable vs. fixed interest rate swaps. The market for these vanilla swaps is deep,
with the result that such hedging is efficient. Likewise, the central treasury function hedges all fixed rate deposits with a term of more than one
year to within three-months repricing. Limits exist to ensure there is no undesired risk retained within any business or product area. |
| |
Interest rate sensitivity gap |
| The tables below show our non-trading interest rate mismatch. These exposures affect the interest rate margin realised between lending
income and borrowing costs assuming no management intervention. |
| |
| UK and Europe – interest rate sensitivity as at 31 March 2011 |
| £’million |
Not
> 3
months |
> 3
months
but < 6
months |
> 6
months
but < 1
year |
> 1 year
but < 5
years |
> 5
years |
Non-rate |
Total
non-trading |
| Cash and short-term funds – banks |
1 535 |
3 |
– |
– |
– |
24 |
1 562 |
| Investment/trading assets |
1 780 |
50 |
24 |
63 |
797 |
294 |
3 008 |
| Securitised assets |
3 677 |
– |
1 |
– |
– |
1 |
3 679 |
| Advances |
7 264 |
365 |
109 |
269 |
103 |
5 |
8 115 |
| Other assets |
– |
– |
– |
199 |
– |
1 440 |
1 639 |
| Assets |
14 256 |
418 |
134 |
531 |
900 |
1 764 |
18 003 |
| Deposits – banks |
(1 436) |
(49) |
(41) |
(60) |
– |
– |
(1 586) |
| Deposits – non-banks |
(7 238) |
(146) |
(1 271) |
(102) |
(51) |
(5) |
(8 813) |
| Negotiable paper |
(554) |
(5) |
(306) |
(70) |
(26) |
– |
(961) |
| Securitised liabilities |
(217) |
(7) |
(23) |
– |
– |
(109) |
(356) |
| Investment/trading liabilities |
(3 174) |
– |
– |
– |
– |
– |
(3 174) |
| Subordinated liabilities |
(65) |
– |
– |
(53) |
(503) |
(49) |
(670) |
| Other liabilities |
– |
– |
– |
(24) |
– |
(991) |
(1 015) |
| Liabilities |
(12 684) |
(207) |
(1 641) |
(309) |
(580) |
(1 154) |
(16 575) |
| Intercompany loans |
5 |
– |
34 |
41 |
– |
(11) |
69 |
| Shareholders’ funds |
– |
– |
– |
– |
– |
(1 616) |
(1 616) |
| Balance sheet |
1 577 |
211 |
(1 473) |
263 |
320 |
(1 017) |
(119) |
| Off-balance sheet |
(188) |
(342) |
1 210 |
(316) |
(332) |
304 |
336 |
| Repricing gap |
1 389 |
(131) |
(263) |
(53) |
(12) |
(713) |
217 |
| Cumulative repricing gap |
1 389 |
1 258 |
995 |
942 |
930 |
217 |
– |
|
| |
| South Africa – interest rate sensitivity as at 31 March 2011 |
| R’million |
Not
> 3
months |
> 3
months
but < 6
months |
> 6
months
but < 1
year |
> 1 year
but < 5
years |
> 5
years |
Non-rate |
Total
non-trading |
| Cash and short-term funds – banks |
5 176 |
483 |
– |
– |
– |
6 779 |
12 438 |
| Cash and short-term funds – non-banks |
5 829 |
– |
– |
– |
– |
– |
5 829 |
| Investment/trading assets and statutory liquids |
35 958 |
7 996 |
2 464 |
6 850 |
3 553 |
14 682 |
71 503 |
| Securitised assets |
7 425 |
26 |
21 |
124 |
23 |
667 |
8 286 |
| Advances |
101 147 |
649 |
1 744 |
7 671 |
3 108 |
915 |
115 234 |
| Other assets |
– |
– |
– |
– |
– |
5 820 |
5 820 |
| Assets |
155 535 |
9 154 |
4 229 |
14 645 |
6 684 |
28 863 |
219 110 |
| Deposits – banks |
(10 806) |
(30) |
– |
(120) |
– |
– |
(10 956) |
| Deposits – non-banks |
(133 574) |
(8 893) |
(7 555) |
(2 502) |
(630) |
(998) |
(154 152) |
| Negotiable paper |
(4 016) |
(90) |
(936) |
(50) |
(49) |
– |
(5 141) |
| Securitised liabilities |
(6 753) |
– |
– |
(218) |
– |
(582) |
(7 553) |
| Investment/trading liabilities |
(4 885) |
– |
– |
– |
– |
(3 028) |
(7 913) |
| Subordinated liabilities |
(2 791) |
– |
(1 688) |
(2 187) |
(200) |
– |
(6 866) |
| Other liabilities |
– |
– |
– |
– |
– |
(7 238) |
(7 238) |
| Liabilities |
(162 825) |
(9 013) |
(10 179) |
(5 077) |
(879) |
(11 846) |
(199 819) |
| Intercompany loans |
3 547 |
(58) |
(425) |
(1 335) |
– |
(580) |
1 149 |
| Shareholders’ funds |
(3 193) |
– |
– |
– |
(871) |
(16 649) |
(20 713) |
| Balance sheet |
(6 936) |
83 |
(6 375) |
8 233 |
4 934 |
(212) |
(273) |
| Off-balance sheet |
13 330 |
(837) |
2 360 |
(10 278) |
(4 302) |
– |
273 |
| Repricing gap |
6 394 |
(754) |
(4 015) |
(2 045) |
632 |
(212) |
– |
| Cumulative repricing gap |
6 394 |
5 640 |
1 625 |
(420) |
212 |
– |
– |
|
| |
| Australia - interest rate sensitivity as at 31 March 2011 |
| A$’million |
Not
> 3
months |
> 3
months
but < 6
months |
> 6
months
but < 1
year |
> 1 year
but < 5
years |
> 5
years |
Non-rate |
Total
non-trading |
| Cash and short-term funds – banks |
391 |
– |
– |
– |
– |
– |
391 |
| Investment/trading assets |
1 083 |
2 |
– |
193 |
– |
39 |
1 317 |
| Securitised assets |
183 |
64 |
103 |
390 |
9 |
– |
749 |
| Advances |
2 162 |
42 |
67 |
245 |
8 |
30 |
2 554 |
| Other assets |
– |
– |
– |
– |
– |
339 |
339 |
| Assets |
3 819 |
108 |
170 |
828 |
17 |
408 |
5 350 |
| Deposits – non-banks |
(1 558) |
(393) |
(132) |
(89) |
(12) |
(27) |
(2 211) |
| Negotiable paper |
(658) |
(4) |
(231) |
(650) |
– |
(3) |
(1 546) |
| Securitised liabilities |
(732) |
– |
– |
– |
– |
– |
(732) |
| Subordinated loans |
(71) |
– |
– |
– |
– |
– |
(71) |
| Other liabilities |
– |
– |
– |
– |
– |
(105) |
(105) |
| Liabilities |
(3 019) |
(397) |
(363) |
(739) |
(12) |
(135) |
(4 665) |
| Intercompany loans |
(20) |
– |
– |
(1) |
– |
20 |
(1) |
| Shareholders’ funds |
|
|
|
|
|
(684) |
(684) |
| Balance sheet |
780 |
(289) |
(193) |
88 |
5 |
(391) |
– |
| Off-balance sheet |
60 |
(24) |
138 |
(158) |
(7) |
(9) |
– |
| Repricing gap |
840 |
(313) |
(55) |
(70) |
(2) |
(400) |
– |
| Cumulative repricing gap |
840 |
527 |
472 |
402 |
400 |
– |
– |
|
| |
Economic value sensitivity as at 31 March 2011 |
| As discussed previously our preference for monitoring and measuring non-trading interest rate risk is economic value sensitivity. The tables
below reflect our economic value sensitivity to a 2% parallel shift in interest rates assuming no management intervention. The numbers
represent the change to mainly net interest income should such a hypothetical scenario arise. This sensitivity effect does not have a significant
direct impact to equity. |
| |
| UK and Europe |
| |
Sensitivity to the following interest rates
(expressed in original currencies) |
|
| ’million |
GBP |
USD |
EUR |
AUD |
ZAR |
Other (GBP) |
All (GBP) |
| 200bp down |
(10.0) |
0.1 |
(1.3) |
– |
– |
0.1 |
(11.0) |
| 200bp up |
10.0 |
(0.1) |
1.3 |
– |
– |
(0.1) |
11.0 |
|
| |
| South Africa |
| |
Sensitivity to the following interest rates
(expressed in original currencies) |
|
| ’million |
ZAR |
GBP |
USD |
EUR |
AUD |
Other (ZAR) |
All (ZAR) |
| 200bp down |
(184.6) |
0.1 |
1.5 |
– |
0.9 |
– |
(166.8) |
| 200bp up |
174.8 |
(0.2) |
(2.1) |
(0.1) |
(0.7) |
– |
152.4 |
|
| |
| Australia |
| ’million |
AUD |
| 200bp down |
(1.75) |
| 200bp up |
1.75 |
|
| |
Liquidity risk |
Liquidity risk description |
|
|
Liquidity risk is the risk that we have insufficient capacity to fund increases in assets, or are unable to meet our payment obligations as they fall
due, without incurring unacceptable losses. This includes repaying depositors or maturing wholesale debt. This risk is inherent in all banking
operations and can be impacted by a range of institution-specific and marketwide events.
Liquidity risk is further broken down into: |
| • |
Funding liquidity: which relates to the risk that the bank will be unable to meet current and/or future cash flow or collateral requirements
without adversely affecting the normal course of business, its financial position or its reputation |
| • |
Market liquidity: which relates to the risk that the bank may be unable to trade in specific markets or that it may only be able to do so with
difficulty due to market disruptions or a lack of market liquidity. |
|
| |
| Sources of liquidity risk include unforeseen withdrawals of deposits, restricted access to new funding with appropriate maturity and interest
rate characteristics, inability to liquidate a marketable asset in a timely manner with minimal risk of capital loss, unpredicted customer non-payment
of loan obligations and a sudden increased demand for loans in the absence of corresponding funding inflows of appropriate maturity. |
| |
Management and measurement of liquidity risk |
| Cohesive liquidity management is vital for protecting our depositors, preserving market confidence, safeguarding our reputation and ensuring
sustainable growth with established funding sources. Through active liquidity management, we seek to preserve stable, reliable and cost
effective sources of funding. Inadequate liquidity can bring about the untimely demise of any financial institution. As such, the group considers
ongoing access to appropriate liquidity for all its operations to be of paramount importance, and our core liquidity philosophy is reflected in
day-to-day practices which encompass the following: |
| • |
Our liquidity management processes encompass principles set out by the regulatory authorities in each jurisdiction, namely the FSA,
SARB, the Bank of Mauritius and APRA |
| • |
The group complies with the BCBS Principles for Sound Liquidity Risk Management and Supervision |
| • |
The group has committed itself to implementation of the BCBS guidelines for liquidity risk measurement standards and monitoring and the
enhanced regulatory framework to be established, as published in December 2009 and updated in December 2010 |
| • |
The risk appetite is clearly defined |
| • |
Each geographic entity must have its own board approved policies with respect to liquidity risk management |
| • |
Each geographic entity must be self sufficient from a funding and liquidity stand point so that there is no reliance on intergroup lines either
from or to other group entities |
| • |
Branches and subsidiaries have no responsibility for contributing to group liquidity |
| • |
We maintain a liquidity buffer in the form of unencumbered, cash, government, or rated securities (typically eligible for repurchase with
the central bank), and near cash well in excess of the statutory requirements as protection against unexpected disruptions in cash flows |
| • |
Funding is diversified with respect to currency, term, product, client type and counterparty to ensure a satisfactory overall funding mix |
| • |
We monitor and evaluate each banking entity's maturity ladder and funding gap (cashflow maturity mismatch) on a 'liquidation', 'going
concern' and 'stress' basis |
| • |
Daily liquidity stress tests are carried out to measure and manage the liquidity position such that payment obligations can be met under a
wide range of normal and unlikely but plausible stressed scenarios, in which the rate and timing of deposit withdrawals and drawdowns
on lending facilities are varied, and the ability to access funding and to generate funds from asset portfolios is restricted. The objective is
to have sufficient liquidity, in an acute stress, to continue to operate for a minimum period as detailed in the board approved risk appetite |
| • |
Our liquidity risk parameters reflect a range of liquidity stress assumptions which are reviewed regularly and updated as needed. These
stress factors go well beyond our experience during the height of the recent financial crisis |
| • |
The Balance Sheet Risk Management team independently monitors key daily funding metrics and liquidity ratios to assess potential risks
to the liquidity position, which further act as early warning indicators |
| • |
The group centrally manages access to funds in the market through the Central Treasury divisions |
| • |
Maintenance of sustainable, prudent liquidity resources takes precedence over profitability |
| • |
Each major banking entity maintains an internal funds transfer pricing system based on prevailing market rates. The central treasury
function charges out the price of long- and short-term funding to internal consumers of liquidity, which ensures that the costs, benefits,
and risks of liquidity are clearly and transparently attributed to business lines and are understood by business line management. The funds
transfer pricing methodology is designed to signal the right incentive to our lending business |
| • |
The group maintains adequate contingency funding plans. |
|
| |
Management uses assumptions-based planning and scenario modelling that considers market conditions, prevailing interest rates, and
projected balance sheet growth, to estimate future funding and liquidity needs, whilst taking the desired nature and profile of liabilities into
account. These metrics are used to develop our funding strategy and measure and manage the execution thereof. The funding plan details the
proportion of our external assets which are funded by customer liabilities, unsecured wholesale debt, equity and loan capital thus maintaining
an appropriate mix of term funding and strong balance sheet liquidity ratios within approved risk limits. This ensures the smooth management
of the day-to-day liquidity position within conservative parameters and further validates that, in the event of either a firm-specific or general
market event, we are able to generate sufficient liquidity to withstand short-term liquidity stress or market disruptions.
We target a diversified funding base, avoiding undue concentrations by investor type, maturity, market source, instrument and currency. This demonstrates our ability to generate funding from a broad range of sources in a variety of geographic locations, which enhances financial flexibility and limits dependence on any one source so as to ensure a satisfactory overall funding mix.
We acknowledge the importance of our private client base as the principal source of stable and well diversified funding for our Private Bank risk assets. We continue to develop products to attract and service the investment needs of our Private Bank client base. Although the contractual repayments of many Private Bank customer accounts are on demand or at short notice, in practice such accounts remain a stable source of funds. Our Private Bank continued to successfully raise private client deposits despite competitive pressures with total deposits increasing by 5.9% from 1 April 2010 to £12.5 billion at 31 March 2011. We have also introduced a number of innovative retail deposit initiatives within our Capital Markets division and these continued to experience strong inflows during the financial year. Our total retail customer deposit base increased by 11.4% from 1 April 2010 to £24.4 billion at 31 March 2011. On average our fixed and notice customer deposits have amounted to approximately 71% and 85% of total deposits since April 2006 for Investec Limited and Investec plc respectively, thereby displaying a strong ‘stickiness’ and willingness to reinvest by our retail customers.
Entities within the group actively participate in global financial markets and our relationship is continuously enhanced through regular investor presentations internationally. We have instituted various offshore syndicated loan programmes to broaden and diversify term-funding in supplementary markets and currencies, enhancing the proven capacity to borrow in the money markets. Decisions on the timing and tenor of accessing these markets are based on relative costs, general market conditions, prospective views of balance sheet growth and a targeted liquidity profile.
We engage in transactions that involve the use of both special purpose entities and asset securitisation structures. Securitisation represents a relatively modest proportion of our current funding profile, but provides additional flexibility and source of liquidity. These entities form part of the consolidated group balance sheet as reported. Our funding and liquidity capacity is not reliant on these entities to any material extent and we do not rely on these vehicles for funding in the normal course of business. |
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As mentioned above, we hold a liquidity buffer in the form of unencumbered readily available, high quality liquid assets, typically in the form of government or rated securities eligible for repurchase with the central bank, and near cash well in excess of the statutory requirements as protection against unexpected disruptions in cash flows. Investec remains a net liquidity provider to the interbank market, placing significantly more funds with other banks than our short-term interbank borrowings. These portfolios are managed within limits and, apart from acting as a buffer under going concern conditions, also form an integral part of the broader liquidity generation strategy in the unlikely event of a liquidity crunch. We do not rely on interbank deposits to fund term lending. From 1 April 2010 to 31 March 2011 average cash and near cash balances over the period amounted to £9.7 billion (£3.6 billion in UK and Europe; R56.0 billion in South Africa and A$1.7 billion in Australia).
The group does not rely on committed funding lines for protection against unforeseen interruptions to cash flow. We are currently unaware of any circumstances that could significantly detract from our ability to raise funding appropriate to our needs.
Each banking entity within the group maintains a contingency funding plan to, as far as possible, protect stakeholder interests and maintain market confidence in order to ensure a positive outcome in the event of a liquidity crisis. The liquidity contingency plans outline extensive early warning indicators and clear and decisive crisis response strategies. Early warning indicators span bank specific and systemic crises. Crisis response strategies address roles and responsibilities, composition of decision making bodies involved in liquidity crisis management, internal and external communications including public relations, sources of liquidity, avenues available to access additional liquidity, as well as supplementary information requirements. This plan helps to ensure that cash flow estimates and commitments can be met in the event of general market disruption or adverse bank specific events, while minimising detrimental long-term implications for the business. |
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Total Investec group cash and near cash trend |
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Investec plc (UK, Europe and Australia) cash and near cash trend |
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Investec Limited (Southern Africa) cash and near cash trend |
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An analysis of cash and near cash |
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Bank and non-bank depositor concentration by type |
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