LIQUIDITY MANAGEMENT POLICY

CONTENTS
1. Introduction .......................................................................................................... 3
2. Purpose ................................................................................................................. 3
3. Policy objectives................................................................................................... 3
4. Trigger Points ....................................................................................................... 4
5. Funding Crisis Committee ................................................................................... 5
6. Responsibilities, Authorities and Delegated Authorities ..................................... 6
6.1 Liquidity risk management responsibilities and authorities of the ALM
Committee ............................................................................................................ 6
6.2 Delegated authority ............................................................................................ 7
7. Integrated Risk Management ............................................................................... 8
7.1 The Board of Directors ....................................................................................... 8
7.2 Head of Treasury ................................................................................................ 9
8. Contingency Action Plan ..................................................................................... 9
8.1 Impending Crisis – Phase 1 ................................................................................ 9
8.2 Crisis situation – Phase 2 ................................................................................. 10
9. Critical contact information ............................................................................... 14
10. Review ................................................................................................................ 15

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1. INTRODUCTION

Liquidity is crucial to the on-going viability of NBS Bank (the Bank) and any other
bank, as illiquidity can have dramatic and rapid adverse effects on even well
capitalized banks. Where a crisis develops in a bank as a result of other problems
such as deterioration in asset quality, the time available to the bank to address the
problem will be determined by its liquidity. Therefore, the measurement and
management of liquidity are amongst the most vital activities of banks.

The importance of liquidity transcends the individual bank, as a liquidity shortfall

in a single institution can have system-wide repercussions. Consequently, the
analysis of liquidity requires bank’s Managements to measure, not only the
liquidity positions of their banks, on an ongoing basis, but also to examine how
funding requirements are likely to evolve under crisis scenarios.

2. PURPOSE

To establish a framework for management of liquidity risk that will assure that the
bank will have sufficient liquidity resources to meet its legal obligations to meet the
requests of depositors to withdraw their funds from the bank and for loans from its
creditors in a timely way, and to provide funding to customers who have firm
commitments from the bank.

3. POLICY OBJECTIVES

- To assure that the bank has adequate liquidity resources to meet its liquidity
needs while, at the same time, avoiding, to the extent possible, an excess of
liquidity;

- To assure that the Asset and Liability Management Committee (ALCO/ALM

Committee) possesses an accurate assessment of the potential liquidity needs of
the bank;

- To assure that procedures are established for effective monitoring of the

liquidity condition of the bank, its branches, sub branches and any changes
therein;

- To assure that the liquidity policy is properly coordinated with other related
asset/liability policies of the bank;

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- To assure that guidance is provided on how liquidity resources are to be drawn
down to meet a funding need;

- To assure that the ALM Committee receives regular reports on the bank’s
liquidity condition and is informed immediately if any problems should arise;

- To assure that procedures are established for assessing, and modifying if

necessary, the “backup” sources of liquidity for the bank;

- To assure that the liquidity risk management policy, and the bank’s contingency
liquidity risk management policy, are compatible and reinforcing;

- To assure that administrative matters, such as staff training and back up

personnel for key liquidity management staff of the bank, are properly
addressed.

4. TRIGGER POINTS

Plan to be activated when two or more of the following conditions exist:

• Above 75% of the market shortages for seven successive days.

• Breach of the liquidity ratio by more than 50% for seven successive days.

• Inability to square off a deteriorating position on the market.

• Branch or unit experiences large and unusual withdrawals that are out of line
with normal requirements. In such cases it is important to identify reasons for
withdrawals, is it pricing or a reputational issue.

• Systemic risk affecting Malawi financial markets which will affect NBS Bank
as a result of normal sanctioned counterparty activity.

• Rapid asset growth, especially when funded with potentially volatile liabilities.
• Growing concentrations in assets or liabilities.
• Increases in currency mismatches.
• Decrease of weighted average maturity of liabilities.
• Repeated incidents of positions approaching or breaching internal or regulatory
limits.
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• Negative trends or heightened risk associated with a particular product line,
such as rising delinquencies.
• Significant deterioration in the bank’s earnings, asset quality, and overall
financial condition.
• Negative publicity.
• Credit rating downgrade.
• Stock price declines or rising debt costs.
• Widening debt or credit-default-swap spreads.
• Rising wholesale or retail funding costs.
• Counterparties that begin requesting or request additional collateral for credit
exposures or that resist entering into new transactions.
• Correspondent banks that eliminate or decrease their credit lines.
• Increasing retail deposit outflows.

5. FUNDING CRISIS COMMITTEE

Funding Crisis Committee will be formed and will comprise of the CEO, Head of
Treasury, Head of Finance, Head of Credit and the Head of Risk.

Any funding difficulties will be examined by the Committee and, depending on the
circumstances and their severity, the following courses of action may inter alia be
considered:

Extend liability maturities where possible;

Adjust borrowing guidelines;

Contact/assure large depositors;

Attempt to reinstate the bank’s name in the market, if it is perceived that the
liquidity crisis has been caused by such;

Contact the Reserve Bank of Malawi;

Realise/repo liquid assets;

Curtail uncommitted advances/loans;

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Limit asset growth;

Sell part of portfolio, e.g. loan book/staff mortgages;

Request funding from Shareholders.

6. RESPONSIBILITIES, AUTHORITIES AND DELEGATED

AUTHORITIES

6.1 Liquidity risk management responsibilities and authorities of the ALM

Committee

- To establish and review the bank’s liquidity risk management policy.

- To assure that the liquidity risk management policy is coordinated and properly
integrated with other ALM Committee policies for the bank.

- To set targets and ranges for key balance sheet or income statement ratios to
assure that the needed liquidity capacity of the bank is maintained at all times,
while providing sufficient flexibility to enable the bank to address short term
fluctuations in liquidity pressures.

- To provide general guidance on the sequence to be followed in drawing on the

bank’s liquidity sources to meet the liquidity drain.

- To establish and change policy for interest rates paid on deposits or charged on
loans.

- To promulgate a contingency liquidity plan and establish the capability to guide

and closely monitor the bank’s staff performance if it is ever activated.

- To establish internal controls for liquidity risk management and conduct reviews
of findings of internal auditors and examiners relative to these controls.

In order to adequately carry out its’ duties, the ALM Committee should meet at
least four times a year.

Additional roles and responsibilities for the Committee should be guided by the
Assets and Liabilities Terms of Reference.

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6.2 Delegated authority

Authority is delegated to the Treasury Department under the direction of the Head
of Treasury, to carry out the following activities and functions. Departments at the
branches of the Bank should carry out the functions specified and report results to
their Head. The International Trade Manager should carry out these functions for
the bank’s foreign currency exposure and report the results to the Head of Treasury:

- Day to day management of the bank’s reserve/clearing balance, assuring that the
balance at all times complies with the requirements of the RBM and whilst
avoiding balances that are substantially above these requirements.
- Manage target liquidity reserves to cover daily funding needs and meet strategic
liquidity targets. Liquidity reserves should be diversified (cash deposits with
banks and securities).

- Efforts to anticipate transactions that can place a substantial impact on the

reserve/ clearing account balance by consulting with the Branches of the Bank
and to plan for dealing with anomalies noted.

- Decisions on the general order for drawing down resources to meet temporary
liquidity pressures, consistent with the ALM Committee’s general guidance.

- Monitor market conditions and report any unusual developments to the ALM
Committee.

- Periodically make a fundamental assessment of the ability to meet liquidity

pressures the bank may face under different scenarios and report results and
recommendations to ALM Committee.

- Periodically assess the adequacy and dependability of backup liquidity

arrangements, considering the resources that can be tapped, certainty of doing
that, and whether additional resources are required, and report results and
recommendations to ALM Committee.

- Maintain liquidity ratios within ranges specified by the ALM Committee and
promptly report any deviation from these ranges to the ALM Committee.

- Carry out responsibilities defined in the liquidity contingency plan.

- Establish and maintain effective management information systems.

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- Assure that all staff is adequately trained and that staff members in key positions
are backed up by qualified staff members.

- Assess the degree of diversity of credit and deposit sources and the strength of
relationships the bank has with these sources.

- Assure that lines of credit from each specified source are frequently tested.

- In consultation with ALM Committee Chairman, manage public disclosure so

that the bank’s true financial position is properly presented.

- Prepare monthly reports of bank’s liquidity risk exposure for the ALM
Committee.

- Develop recommendations for necessary policy changes and refer them to the
ALM Committee for action.

- When providing collateral to secure contracts, use less liquid assets when
possible in order to conserve assets that are more liquid for emergency
conditions.

7. Integrated Risk Management

7.1 The Board of Directors

- Approves the strategy and significant policies related to the management of

funding liquidity risk under both normal and stressed conditions.

- Reviews and approves policies including liquidity risk assumptions and

adequacy of the ALMA system annually;

- Formally identifies key funding liquidity limits and approval levels, as well as
those authorities delegated to senior management committees or those
executives accountable for approving detailed strategies, goals, procedures,
limits, and exceptions.

- Ensures that senior management takes necessary steps to appropriately manage,

measure, monitor, and control Funding Liquidity Risk in an integrated manner

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 with other closely associated risks to facilitate enterprise-wide risk-management
solutions.

7.2 Head of Treasury

- Regularly informs the Board of the funding liquidity position of the Bank
(metrics, indicators, and outlooks);

- Immediately notifies the Board if there are any material changes in the firm’s
current or prospective funding liquidity positions.

- Establishes and implements a process for identifying, measuring, monitoring

and controlling liquidity risk.

8. Contingency Action Plan

Stressed liquidity is defined as a condition that arises from a sudden deterioration

of the perceived safety and credibility of the Bank, resulting in substantial
withdrawal of funds by depositors. The following action plans have been
established in order to manage a stressed liquidity situation:

8.1 Impending Crisis – Phase 1

A. Phase 1 – Team

- Chief Executive Officer

- Deputy Chief Executive Officer
- Head of Treasury
- Dealing Manager
- Chief Finance Officer
- Head of Risk
- Head of Credit
- Head of Corporate and Institutional Banking
- Head of Personal and Business Banking
-
B. Action Points Responsibility
1.1 Investigate the underlying cause of the crisis: Head of Treasury
to establish Deputy CEO
- timing of the crisis CEO
- duration of the crisis
- remedial action to avoid the crisis
- agree any external/internal communications

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 statement, etc

Advise all Divisional Heads of the crisis and CEO

cancel leave commitments of key personnel

Review liquid and market assets portfolio Head of Treasury

by maturity and prepare a liquidation strategy Dealing Manager

Brief Dealers on responses to market Head of Treasury

Enquiries

1.2 Liquidate any long forex positions and switch Head of Treasury
to local currency position

1.3 Maintain presence in the interbank market Head of Treasury

by borrowing longer and shortening lending
to overnight/overdraft Dealing Manager

1.4 Organise the Funding Crisis Committee to Head of Treasury

Meet as frequently as the crisis dictates.

1.6 Contact Group Finance Director, MD, Share CEO

holders to solicit support Head of Treasury

8.2 Crisis situation – Phase 2

A. Phase 2 – Team

- Chief Executive Officer

- Deputy Chief Executive Officer
- Head of Treasury
- Dealing Manager
- Chief Finance Officer
- Head of Risk
- Head of Credit
- Head of Corporate and Institutional Banking
- Head of Personal and Business Banking

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 B. Action Points Responsibility

1.1 Communication

2.1.1 Convene Emergency ALCO meeting

to review the crisis, agree content of CEO
any external/internal messages and Head of Treasury
delegate tasks

2.1.2 Inform the Reserve Bank of crisis and

proposed remedial action if deemed CEO
necessary Head of Treasury

2.1.3 Inform NICO Group Finance Director, CEO

of the crisis and proposed remedial action Head of Treasury

2.1.4 Brief Dealers Head of Treasury

2.1.5 Brief Corporate and Branch Managers Head of Corporate

Banking
DCEO

2.2 Assessment and Action

2.2.1 Confirm the liquid and market asset CEO

portfolio for initial selective Head of Treasury
liquidation. Treasury Dealer

2.2.2 Assess the level of interbank

borrowing capacity and raise funds
to meet liquidity from the most Head of Treasury
reliable sources. Treasury Dealer

2.2.3 Issue NCD’s to secure, as close to

market rates, a spread of funding up
to 30 days to complement interbank Head of Treasury
raisings. Treasury Dealer

2.2.4 Take full advantage of any FX long

position, and switch to local kwacha position
taking into consideration the state of the
local forex market and limiting constraints. Head of Treasury
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 2.2.5 Assess exposures to other financial institutions/
Reassure them to avoid run of their deposits.
Avoid/manage being arbitraged by these Head of Treasury
Institutions. Head of Risk &
Compliance

2.2.6 Borrow from the Reserve Bank as a lender

of last resort. Consider taking maximum Head of Treasury
period possible. Avoid maximum penal rates. Treasury Dealer

2.2.7 Monitor closely withdrawal patterns, under Head of CIB

Report to Treasury. DCEO
Head of Treasury
Head of PBB
Head of Operations

2.2.8 Do not approve early redemption of time Head of Treasury

Deposits without specific approval of the Dealing Manager
CEO. Head of CIB
Head of PBB
Branch Managers

2.2.9 Assess overdraft and loan demand and Head of CIB

resist any requests for excesses. Head of PBB
Head of Credit

2.2.10 Assess overall Advances portfolio and Head of Credit

activate plans to contract/recall/seek early Head of CIB
repayment from customers. Head of PBB

2.2.11 Assess all commitments that have been

drawn and require approval of CEO,
Head of Risk and Internal Audit, Head of Head of Credit
Corporate Banking, Branch Managers
and Head of Credit

2.2.12 Assess the conversion potential of over- Head of CIB

drafts to Bankers Acceptances for Head of Treasury
onward selling to improve liquidity. Dealing Manager
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 2.2.13 Assess accounts payable and ensure that
payments are spread evenly over several CFO
days.

2.2.14 Approach Reserve Bank and request for

release of statutory reserves or endeavour
to obtain relief of unutilised concessional
facilities by obtaining them as local funding. Head of Treasury

2.2.15 Establish the level of cash requirements of

Branches and manage cash levels to Head of Treasury
complement the stress conditions. Consider Head of PBB
maximum cash withdrawals for customers. DCEO

2.2.16 Ask NICO group to inject liquidity CEO

Head of Treasury

2.2.17 Approach Reserve Bank for a 30 day Fx Swap Head of Treasury

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9. CRITICAL CONTACT INFORMATION
Contact Work Home
Telephone Tel/Mobile
1. Management Team
- Act CEO 01 01
Gilford Kadzakumanja
- DCEO 01

- Head of Treasury 01 876 519 08 205 350

Lusekelo Kaoloka 09 788 888
- Act CFO 01 01
Dumisani Chatima 09
- Head of PBB
Stanly Mkwamba
- Head of CIB
Aubrey Chalera
- Head of Risk
Bena Nkhoma
- Dealers
Kondwani Pwerepwere
Eliza Nyirenda
01 01
09
01 09

01 876 222
01 876 519
2. Central Bank
- Governor
Charles Chuka 01 770 600
- Deputy Governor- Economic Services 09 967 028
Dr. Naomi Ngwira 01 770 600 08 837 286
- Other Treasury personnel
Mbane Ngwira

3. Group Finance Director-NICO Holdings

- Deputy Manging Director
Vizenge Kumwenda
- Managing Director
Felix Mlusu

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