Investor Presentaiton

MORGAN STANLEY BANK ASIA LIMITED NOTES TO THE FINANCIAL STATEMENTS Year ended 31 December 2020 24. FINANCIAL RISK MANAGEMENT (CONTINUED) Liquidity risk (continued) The primary goal of the Company's liquidity risk and funding management framework is to ensure that the Company has access to adequate funding across a wide range of market conditions and time horizons. The framework is designed to enable the Company to fulfil its financial obligations and support the execution of its business strategies. The following principles guide the Company's liquidity risk management framework: • • Sufficient liquid assets should be maintained to cover maturing liabilities and other planned and contingent outflows; Maturity profile of assets and liabilities should be aligned, with limited reliance on short-term funding; Source, counterparty, currency, region, and term of funding should be diversified; and Liquidity Stress Tests should anticipate, and account for, periods of limited access to funding. The core components of the Company's liquidity risk management framework that support our target liquidity profile, are the Required Liquidity Framework, Liquidity Stress Tests and Liquidity Resources (as defined below). Required Liquidity Framework The Required Liquidity Framework establishes the amount of liquidity the Company must hold in both normal and stressed environments to ensure that its financial condition and overall soundness is not adversely affected by an inability (or perceived inability) to meet its financial obligations in a timely manner. The Required Liquidity Framework considers the most constraining liquidity requirement to satisfy all regulatory and internal limits at a Morgan Stanley Group and legal entity level. Liquidity Stress Tests The Company uses Liquidity Stress Tests to model external and intercompany liquidity flows across multiple scenarios and a range of time horizons. These scenarios contain various combinations of idiosyncratic and systemic stress events of different severity and duration. The methodology, implementation, production and analysis of the Company's Liquidity Stress Tests are important components of the Required Liquidity Framework. Liquidity Stress Tests are produced for the Company, to capture specific cash requirements and cash availability. The Liquidity Stress Tests assume that a legal entity will use its own liquidity first to fund its obligations before drawing liquidity from its ultimate parent undertaking, Morgan Stanley. Morgan Stanley will support its subsidiaries and will not have access to subsidiaries' liquidity resources that are subject to any regulatory, legal or tax constraints. In addition to the assumptions underpinning the Liquidity Stress Tests, the Company takes into consideration the settlement risk related to intra-day settlement and clearing of securities and financing activities. At 31 December 2020 and 31 December 2019, the Company maintained sufficient liquidity to meet current and contingent funding obligations as modelled in its Liquidity Stress Tests. Liquidity Resources The Company maintains sufficient liquidity resources which consists of unencumbered highly liquid securities and cash deposits with banks (including central banks) ("Liquidity Resources") to meet regulatory requirements, cover daily funding needs and to meet strategic liquidity targets sized by the Required Liquidity Framework and Liquidity Stress Tests. The total amount of Liquidity Resources is actively managed by the Company considering the following components: unsecured debt maturity profile; balance sheet size and composition; funding needs in a stressed environment inclusive of contingent cash outflows; regulatory requirements; and collateral requirements. The amount of liquidity resources the Company holds is based on the Company's risk tolerance and is subject to change depending on market and firm-specific events. Unencumbered highly liquid securities consist netted trading assets, investment securities and securities received as collateral. 43

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