Page 115 - 86395_CCB - 2024 Annual Report (web)

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£’000 2024 Credit rating (minimum) 2023 Credit rating
Cash and balances at central banks 292,850 P1/Aa3 302,473 P1/Aa3
Deposits at other banks 12,139 P1/A1 10,420 P1/A1

Debt securities held as part of HQLA 65,137 P2/Baa1 47,409 P1/Aaa
Derivatives held for risk management purposes (149) P1/A1 (652) P1/A1

The Bank’s loans and advances to banks and debt (e.g., a negative media comment) and market‑
securities Credit Risk is managed through a series of related events (e.g. prolonged market illiquidity,
policies and procedures including: reduced fundability of currencies, natural disasters
or other catastrophes).
– Cash placements – Credit Risk of counterparties
is controlled through the counterparty The Bank’s key Liquidity Risk management drivers
placements policy, which limits the maximum include the following items:
exposure by entity where the Bank can place – Deposit Funding Risk
cash deposits.
The Deposit Funding Risk is the primary Liquidity
– Debt securities – As part of the Bank’s liquidity Risk driver for the Bank. This could occur if there
buffer, it holds a portfolio of debt securities. The was a concern by depositors over the current or
Bank’s internal Asset and Liability Management future credit worthiness of the Bank. The Bank
Policy sets limits on the value and type of mitigates this risk with a high proportion of its
exposures within which the Bank’s Treasury deposits being protected by the UK Government’s
function operate.
Financial Services Compensation Scheme
– Derivatives – Credit Risk on derivatives is (FSCS) and by having a diversified mix of deposit
controlled through a policy of only entering into accounts with varying maturity profiles.
contracts with a limited number of UK credit – Pipeline loan commitments
institutions, with a credit rating of at least BAA
(using Moody’s long‑term rating) at inception. The Bank needs to maintain liquidity to cover
In addition, the derivatives are collateralised the outstanding pipeline of loan offers. Although
removing any Credit Risk. certain pipeline offers may not be legally binding,
the failure to adhere to an expression of intent
• Liquidity Risk
to finance a loan brings reputation risk, therefore
Liquidity Risk is the risk of being unable to fund liquidity is held for such pipeline offers.
assets and meet obligations as they fall due without – Contingency funding plan
incurring unacceptable losses.
The Bank is required to maintain a Resolution,
The Bank’s Board of Directors sets the Bank’s Recovery and Liquidity Funding Contingency Plan
strategy for managing Liquidity Risk and delegates documents by its Regulator, the PRA. The plans
responsibility for oversight of the implementation involve a two‑stage process, covering preventive
of this policy to the Assets & Liabilities Committee measures and corrective measures to be invoked
(ALCO). ALCO manages the Bank’s liquidity policies when a potential or actual risk to the Bank’s
and procedures mandated by the Executive liquidity or capital position arises from either an
Committee. The Bank’s liquidity position is internal or external event. The plans set out what
monitored on a day‑to‑day basis and a summary actions the Bank would take to ensure it complies
report, including any exceptions and remedial action with the liquidity adequacy rules and operate
taken, is provided to Management daily.
within its Risk Appetite and limits set by the Board.
The Bank’s approach to managing liquidity is to – Sterling Monetary Framework facilities
ensure, as far as possible, that it will always have
sufficient liquidity to meet its liabilities when they The Bank is a participant in the Bank of England’s
fall due, under both normal and stressed conditions, Sterling Monetary Framework facilities. The
without incurring unacceptable losses, or risking Bank drew £78m of funding in the form of cash
damage to the Bank’s reputation. under the Bank of England’s TFSME Scheme
(Term Funding Scheme with additional incentives
The Bank maintains a portfolio of short‑term for SME) in September 2021. It has to date
liquid assets, largely made up of short‑term liquid repaid £23m with the remainder repayable by
investment securities, loans and advances to September 2025.
banks and other inter‑bank facilities, to ensure that
sufficient liquidity is maintained. The Bank continues to pre‑position eligible loan
collateral with the Bank of England to enable it to
Regular liquidity stress testing is conducted across access, if required, the Bank of England’s Sterling
a variety of scenarios covering both normal and Monetary Framework facilities, including the
more severe market conditions. The scenarios are Discount Window Facility (DWF).
developed considering both Bank‑specific events