68. Liquidity risk management

The liquidity gaps presented below represent the sum of adjusted liquidity gaps of the Bank (adjustments relate to, among other things, the Bank’s core deposits from non-financial entities and their maturities, core overdrafts of non-financial entities and their maturities, and liquid securities and their maturities), PKO Bank Hipoteczny, PKO Leasing SA, KREDOBANK SA and PKO Życie Towarzystwo Ubezpieczeń SA, and the contractual liquidity gaps of the other Group companies.

In all time horizons, the adjusted cumulative liquidity gap of the Group, determined as the sum of the adjusted liquidity gaps of the Bank, PKO Bank Hipoteczny, PKO Leasing SA, KREDOBANK and PKO Życie Towarzystwo Ubezpieczeń SA and the contractual liquidity gaps of the other Group companies, was positive both as at 31 December 2018 and 31 December 2017. This means that the Group has a surplus of the assets receivable over the liabilities payable.

In the periods ended 31 December 2018 and 31 December 2017, liquidity measures remained above their respective supervisory limits. The LCR and NSFR ratios in the table refer to the Group, while the M3–M4 indicators refer to the Bank.

As at 31 December 2018, the core deposit base constituted approx. 93,9% of all deposits placed with the Bank (excluding the interbank market), which represents a decrease of approx. 0,3 p.p. Compared with the end of 2017.

The tables below show the contractual maturity analysis presenting the outstanding contractual maturity dates by individual categories of the statement of financial position and off-balance sheet liabilities, excluding derivative financial instruments.

The amounts denominated in foreign currencies have been translated using the average NBP exchange rate as at 31 December 2018 and as at 31 December 2017. The amounts disclosed comprise non-discounted future cash flows, both in respect of principal and interest (if applicable), in accordance with the contract, for the entire period to the date of the liability’s maturity. Where the party to whom the Group has a liability is able to select the settlement deadline, it has been assumed that the earliest date on which the Group is obliged to settle the liability will be taken into account. Where the Group is obliged to settle the liabilities in instalments, each instalment is allocated to the earliest period in which the Group might be obligated to settle. In the case of liabilities where instalment amounts are not fixed, the terms binding as at the reporting date have been adopted.

Contractual flows of the Group’s liabilities as at 31 December 2018 and as at 31 December 2017 by maturity.

Derivative financial instruments settled by the Group on a net basis include:

• interest rate swaps (IRS),
• Forward Rate Agreements (FRA),
• Non Deliverable Forwards (NDF,
• options.

The tables below show the contractual maturity analysis presenting the outstanding contractual maturity dates by individual categories of derivative financial instruments in respect of which the valuation as at the balance sheet date was negative (a liability).

The amounts denominated in foreign currencies have been translated using the average NBP exchange rate as at 31 December 2018 and as at 31 December 2017. In the case of IRS transactions, non-discounted future net cash flows in respect of interest have been presented and in the case of the remaining derivative instruments settled on a net basis, the amount of the valuation as at 31 December 2018 and as at 31 December 2017 respectively was adopted as the cash flow amount.

Derivative financial instruments settled by the Bank on a gross basis include:

• foreign currency swaps,
• foreign currency forwards,
• Cross Currency IRS (CIRS).

The tables below show the contractual maturity analysis, presenting the outstanding contractual maturity dates by individual categories of derivative financial instruments (inflows and outflows) in respect of which valuation the balance sheet date was negative (a liability). The amounts denominated in foreign currencies have been translated using the average NBP exchange rate as at 31 December 2018 and as at 31 December 2017. The amounts disclosed comprise non-discounted future cash flows, both in respect of principal and interest (if applicable).

The Group classifies an asset as short-term when:

• it expects to realize the asset or intends to sell or consume it in the course of the normal operating cycle;
• it holds the asset primarily for the purpose of trading;
• it expects that the asset will be realized within twelve months after the reporting period, or
• the asset is cash or a cash equivalent, unless it is restricted from being exchanged or used to settle a liability for at least twelve months from the end of reporting period.

All other assets are classified as long-term.

The Group classifies a liability as short-term when:

• it expect that the liability will be settled in the normal operating cycle;
• it holds the liability primarily for the purpose of trading;
• the liability matures within twelve months of the end of the reporting period, or
• the entity does not have an unconditional right to defer settlement of the liability for at least twelve months after the reporting period.

All other liabilities are classified as non-current.