Annual Financial Statements 2020

94 ANNEXURE CRISK AND CAPITAL MANAGEMENT CREDIT RISK CONTINUED RISKS Credit Funding and liquidity Market Operational STANDARD BANK NAMIBIA LIMITED 95 Annual financial statements 2020 20191 Corporate Sovereign Bank Retail Retail mortgage Other retail Total Add: Financial assets not exposed to credit risk Less: Impairments for loans and advances Less: Unrecognised off balance sheet items Total exposure Represented by: Cash and balances with central banks Derivative assets Trading assets Pledged assets Financial investments Loans and advances Other financial assets² Total Collateral coverage - Total collateral 50 to 100% N$'000 Total Exposure N$'000 Unsecured N$'000 Secured N$'000 1 to 50% N$'000 5 306 753 2 474 949 2 831 804 2 831 804 2 219 070 2 219 070 2 219 070 3 859 216 3 859 216 3 859 216 21 955 143 3 978 375 17 976 768 4 365 181 13 011 587 13 611 587 13 611 587 13 011 587 8 343 556 3 978 375 4 365 181 4 365 181 33 340 182 6 453 324 26 886 858 4 365 181 21 921 677 7 653 917 (598 599) (6 478 757) 33 916 743 1 512 374 149 910 268 177 580 098 3 982 837 26 262 826 1 160 521 33 916 743 1 Certain prior year amounts have been updated for consistency with current year presentation. 2 Other financial assets are included. in other assets in the statement of financial position. Funding and liquidity risk Definition Liquidity risk is defined as the risk that an entity, although solvent, cannot maintain or generate sufficient cash resources to meet its payment obligations in full as they fall due, or can only do so at materially disadvantageous terms. Approach to managing liquidity risk The nature of the company's banking and trading activities gives rise to continuous exposure to liquidity risk. Liquidity risk may arise where counterparties, who provide the company with short-term funding, withdraw or do not roll over that funding, or normally liquid assets become illiquid as a result of a generalised disruption in asset markets. The company manages liquidity in accordance with applicable regulations and within the company's risk appetite framework. The company's liquidity risk management governance framework supports the measurement and management of liquidity across both the corporate and retail sectors to ensure that payment obligations can be met by the company's legal entities, under both normal and stressed conditions. Liquidity risk management ensures that the company has the appropriate amount, diversification and tenor of funding and liquidity to support its asset base at all times. The company manages liquidity risk as three interrelated pillars, which are aligned to the Basel III liquidity requirements. We maintain a prudent approach to liquidity management in accordance with the applicable laws and regulations. Appropriate liquidity buffers were held in excess of the minimum prudential liquid asset requirements as prescribed by the regulator. Proactive liquidity management in line with group liquidity standards ensured that, despite volatile and constrained liquidity environments at the onset of the Covid-19 pandemic, adequate liquidity was maintained to fully support balance sheet strategies. This has been achieved through continuous engagements between treasury and capital management, risk and business units in which the liquidity risk with respect to on- and off- balance sheet positions was carefully monitored. At the same time consideration has been provided to the adequacy of contingent funding, ensuring sufficiency to accommodate unexpected liquidity demands. The group continues to leverage the extensive deposit franchises across the portfolio to ensure that it has the appropriate amount, tenor and diversification of funding to support its current and forecast asset base while minimising cost of funding. The company manages its liquidity through an internal behavioural profiling of its portfolios. Through this mechanism, the company continuously ensure that it has sufficient marketable assets available in its portfolio to meet the outflow demand in both business as usual as well as stress circumstances. Structural liquidity risk management Structural requirements With actual cash flows typically varying significantly from the contractual position, behavioural profiling is applied to assets, liabilities and off-balance sheet commitments with an indeterminable maturity or drawdown period, as well as to certain liquid assets. Behavioural profiling assigns probable maturities based on historical customer behaviour. This is used to identify significant additional sources of structural liquidity in the form of liquid assets and core deposits, such as current and savings accounts, which exhibit stable behaviour despite being repayable on demand or at short notice. Structural liquidity mismatch analyses are performed regularly to anticipate the mismatch between payment profiles of balance sheet items, in order to highlight potential risks within the company's defined liquidity risk thresholds. Limits are set internally to restrict the cumulative liquidity mismatch between expected inflows and outflows of funds in different time buckets. These mismatches are monitored on a regular basis with active management intervention if potential limit breaches are evidenced. The behaviourally adjusted cumulative liquidity mismatch remains within the company's liquidity risk appetite. In order to ensure ongoing compliance with statutory and internal risk management guidelines, certain short-term assets are profiled as long dated.

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