UBI Banca Group

The system for the management of liquidity risk defined by the Policy to Manage Financial Risks of
the UBI Banca Group and supplemented by the Contingency Funding Plan is based on a system of
early warning thresholds and limits consistent with the general principles on which liquidity
management within the Group is based.
More specifically, liquidity risk is managed by means of the measurement, monitoring and
management of the expected liquidity requirement, using a net liquidity balance model of analysis at
consolidated level, supplemented with stress tests designed to assess the Group’s ability to withstand
crisis scenarios characterised by an increasing level of severity.
The net liquidity balance is obtained from the daily liquidity ladder by comparing expected cash flow
projections with counterbalancing capacity over a time horizon of up to three months. The cumulative
sum of expected cash flows and of the counterbalancing capacity, for each time bucket, quantifies
liquidity risk measured under different stress scenarios.
The objectives of stress tests are to measure the vulnerability of the Group to exceptional but
plausible events and they provide a better assessment of exposure to liquidity risk, the systems for
mitigating and monitoring them and the length of the survival period under hypotheses of adverse
scenarios. The following risk factors that can alternatively affect the cumulative imbalance of cash
inflows and outflows or the liquidity reserve are considered in the definition of stress scenarios,
divided into base stress and internal scenarios:
• wholesale funding risk: shortage of unsecured and secured funding on the institutional market;
• retail funding risk: volatility of on demand liabilities relating to ordinary customers and
redemptions of own securities;
• off-balance sheet liquidity risk: use of margins available on irrevocable credit lines granted;
• market liquidity risk: fall in the value of securities which constitute a liquidity reserve and an
increase in the margins requested for positions in financial derivative instruments.
Monitoring the level of cover to meet expected liquidity requirements through an adequate reserve of
liquidity is accompanied by daily monitoring of exposure on the interbank market. Limits and early
warning thresholds are set for the two indicators mentioned and a contingency funding plan is
triggered if they are exceeded.
In compliance with supervisory provisions the system for the management of liquidity risk employed
by the Group also involves monitoring sources of funding both at consolidated and individual
company level, by using a system of indicators. In this respect specific thresholds are set both for the
maximum level of funding from institutional markets, considered more volatile under stress
conditions, and the minimum levels of cover for lending activity with funding from ordinary
customers or with medium to long-term funding from institutional customers.
Finally the management of structural balance is performed by using models which measure the
degree of stability of liabilities and the degree of liquidity of assets in order to mitigate risk associated
with the transformation of maturities within a tolerance threshold considered acceptable by the
Group. The model employed by the Group to monitor structural balance is designed to incorporate
the general lines currently being defined in the process to revise supervisory regulations for liquidity
risk with specific reference to medium to long-term indicators. Measurement of the degree of stability
of liabilities and the degree of liquidity of assets is based principally on criteria of residual life and on
the classification of the counterparties which contribute to the definition of the weightings of assets
and liabilities.
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