Funding & Liquidity

Funding & Liquidity

Funding Strategy

ADCB maintains a well-diversified funding structure to ensure that funding is available to meet all obligations in times of stress. Funding is raised through retail, wholesale and Treasury operations. Each of these businesses is required to self-fund all new loan growth. We also strive to maintain a large portion of our funding as sticky deposits.

To achieve our objectives, ADCB also maintains access to a variety of sources of wholesale funds in multiple currencies, including those available from money markets, repo markets and from term investors, across a variety of distribution channels and geographies. Our funding plan is presented to the Board every year for its approval and once approved it is managed by the Assets and Liabilities Committee to achieve the Bank's funding requirements.

Risk Management

A robust funding structure supports sound liquidity risk management. Liquidity risk is the risk that ADCB will be unable to meet payment obligations associated with financial liabilities when they fall due and to replenish the funds when they are withdrawn. Our approach is to ensure that the Bank will always have sufficient liquidity to meet all liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to our reputation.

The Assets and Liabilities Committee sets and monitors the liquidity ratio and regularly revises and calibrates our liquidity management policies to ensure that ADCB is in a position to meet all obligations as they fall due.

ADCB's liquidity-risk-management process is monitored by our Treasury function and includes:

  • monitoring of liquidity position on a daily, weekly and monthly basis. This entails forecasting of future cash inflows/outflows and ensuring that the Bank can meet the required outflows
  • regular liquidity stress-testing conducted under a variety of scenarios covering both normal and more severe market conditions with well-defined triggers and suggested actions
  • ensuring regular compliance with the liquidity ratios such as Advance to Stable Resources ratio stipulated by the Central Bank of UAE

We have set an internal ceiling on the Advance to Stable Resources ratio that should not be higher than 1:1 prescribed by the regulator between:

  • the amount of loans and advances together with the amount of inter-bank placements with a remaining life of more than three months
  • the amount of stable resource comprising free own funds with a remaining life of more than six months, stable customer deposits and stand-by liquidity facilities

The above definition is in line with the Central Bank of UAE definitions of the Advance to Deposits ratio.

ADCB's strategy is to maximise funding through customer deposits in addition to our wholesale funding activities. The Assets and Liabilities Committee continuously monitors the funding mix to minimise any concentration risk through capping the various funding sources.

Liquidity Framework

Our liquidity risk management framework includes tools like stress testing covering Bank-specific and general market or systemic risk factors. Stress scenarios are used to determine potential impact on the liquidity condition at the Bank under plausible stress scenarios and to determine the size of the liquidity buffer.

ADCB also maintains a contingency funding plan and communication strategy as part of our liquidity risk management framework. The contingency funding plan ensures that in times of stress, the Bank has access to diverse and reliable sources of funds.

ADCB manages liquidity risk embedded in funding sources by:

  • diversification of funding sources and balancing between long-term and short-term funding sources through borrowing under global medium-term notes issue programmes
  • monitoring the stickiness of the liability portfolio and rewarding business units for sticky deposits through a robust fund transfer pricing process, giving incentive to each business to maintain the right mix in the deposit book
  • maintaining a healthy mix of on-shore and off-shore liabilities in line with established thresholds
  • balancing funding from customer deposits and wholesale borrowings in line with target Loans to Deposit ratio
  • investing in various short-term or medium-term but highly marketable assets in line with Basel III guidelines for high-quality liquid assets, such as certificates of deposit with the Central Bank of UAE, investment-grade bonds that can be repurchased at short notice, etc.

Further, ADCB also has the following facilities from the Central Bank of UAE to manage our liquidity risk during critical times:

  • overdraft facility against cash reserves at an overnight rate at a spread of 150 basis points
  • overdraft facility beyond the cash reserves at an overnight spread of 300 basis points
  • repo facility against identified investments securities bonds for a maximum period of seven days on a renewable basis at an overnight rate with a spread of 100 basis points for certificates of deposit.

None of the above Central Bank facilities was ever utilised other than as part of a regular testing exercise.

Liquidity Risk Appetite

ADCB's liquidity risk appetite framework is approved by the Board. This is the level of liquidity risk that we choose to take in pursuit of our business objectives and in meeting our regulatory obligations. The risk appetite is determined using internal stress testing covering the combination of market-wide stress and ADCB-specific stress events. Under the combined stress scenario, we are required to maintain a contingent liquidity pool sufficient to meet 60 days of anticipated cash outflows.

Liquidity Pool

ADCB maintains strong and high-quality liquid assets in line with Basel III guidelines. These consist exclusively of unencumbered assets, representing resources immediately available to meet outflows in a stress scenario. The liquidity pool mainly consists of certificates of deposit with the Central Bank of UAE, investment-grade bonds that can be repurchased at short notice, etc. The size of the liquidity pool is determined by the size of the stress scenario cash outflows, ensuring that the Bank is able to meet obligations as they fall due even in the event of a sudden and potentially protracted increase in net cash outflows.


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