Liquidity – Basic terms (1/3)

Illiquidity, rather than poor asset quality, is the

immediate cause of most bank failures
(Robert Morris Associates)

Liquidity of a bank (or of any other company) = represents

its ability to meet proper obligations (short-term – cash or
payment) in a corresponding volume and time structure.
Liquidity = the ability of a bank to react upon demand on
the requests of depositors (generally creditors) to withdraw
their deposits (in cash or by an order).
Liquidity – Basic terms (2/3)
 Satisfactory liquidity is the ability to refinance liabilities at
or below market rates (or to be financed without excessive
costs).
 Liquidity risk is a probability of the situation when a bank
cannot meet its proper (both cash and payment) obligations
as they become due.
 Liquidity risk arises from different timing of cash flows of
assets and liabilities.
 Liquidity risk is closely related to interest rate risk and
therefore these two risks occur together in bank
management.
Liquidity – Basic terms (3/3)
Rate of Return

Liquidity Risk
Liquidity Risk (1/5)
A bank is facing two main liquidity risks of the balance
sheet:
a) Liability-side liquidity risk: the deposit drain or even
runs on banks, or a limited access to an inter-bank
market.
b) Asset-side liquidity risk: OBS activities appear on the
balance sheet.
In general, a bank can solve its liquidity problems either
through purchased liquidity management (e.g. raising funds
from inter-bank markets) or stored liquidity management
(e.g. a decrease in cash/liquid assets).
Liquidity Risk (2/5)
Purchased Liquidity - Increase in borrowed funds to
offset deposit outflow, e.g. Fed Funds, CDs or notes
1) Advantage: Balance Sheet remains the same size. Entire
adjustment takes place on liability side, maintaining the
asset amounts
2) Disadvantage: The new borrowed funds might be at a
higher interest rate than the original deposits, lowering
bank income/profits
Liquidity Risk (3/5)
Stored Liquidity – Decrease in Assets (cash,
reserves, loans, securities) to counteract
deposit outflow
1) Advantage: Bank can adjust to deposit outflow
internally, no need to go outside of the bank
2) Disadvantage: Effect on Net Income
Ilustrasi
 Assume there will be a deposit outflow of $2m from core
deposits, which pay 6%. Loans pay 8%, and new short-term
deposit money (subordinated debt is 7.5%).
 Stored Liquidity: Reduce loans by $2m to meet deposit outflow,
assume sale of loans at book value, no capital loss. Bank will lose
$2m, profit spread of 2% (8%-6%), for a loss of -$40,000
income.
 Purchased Liquidity: Bank will have to pay 7.5% on new funds to
replace 6% deposits, for a decrease in net income of -
1.5%(higher interest expense) x $2m = -$30,000.

In this case, purchased liquidity is the better option: -$30,000 vs.

-$40,000
Penyebab Liquidity Risk (4/5)
Liability Side
Reliance on demand deposits
 Core deposits
 Depository Institutions need to be able to predict the
distribution of net deposit drains :
o Seasonality effects in net withdrawal patterns
o Recent problem with low rates: finding suitable investment
opportunities for the large inflows
Managed by :
 Purchased liquidity management
 Stored liquidity management
Penyebab Liquidity Risk (5/5)
Asset Side
May be forced to liquidate assets too rapidly
Faster sale may require much lower price
Unexpected in flows of funds:
May result from OBS loan commitments
Stock market crash in early 2000s  $ into banks
Traditional approach: reserve asset management
Alternative: liability management
Mengukur Eksposur
Likuiditas
Sources and Uses of Liquidity (Net Liquidity Position)
Peer Group Ratio Comparisons
Liquidity Index
• Measures the potential discount of assets from their fair
market value, if they need to be sold immediately.
• The closer the Index is to 1, the lower the discount for quick
sale, and the higher the liquidity
Komitmen Kredit
SEBELUM
Kas 9 Deposits 70
Asset Lainnya 91 Pinjaman 10
Kewajiban Lainnya 20
100 100

SETELAH
Kas 9 Deposits 70
Asset Lainnya 96 Pinjaman 10
Kewajiban Lainnya 20
105 100
Menyesuaikan Neraca
PURCHASED LIQUIDITY MANAGEMENT
Kas 9 Deposits 70
Asset Lainnya 96 Pinjaman 15
Kewajiban Lainnya 20
105 105

STORED LIQUIDITY MANAGEMENT

Kas 4 Deposits 70
Asset Lainnya 96 Pinjaman 10
Kewajiban Lainnya 20
100 100
Posisi Likuiditas Bersih
Sumber Likuiditas
1 Total Asset Setara Kas 2.000
2 Limit Maksimum Dana Pinjaman 12.000
3 Kelebihan Cadangan Kas 500
Total 14.500

Penggunaan Likuiditas
1 Dana Pinjaman 6.000
2 Pinjaman Bank Sentral 1.000
Total 7.000

Likuiditas Bersih 7.500

Index Likuiditas
 Liquidity Index mengukur potensi kerugian yang dapat
diderita oleh sebuah bank dari penjualan asset secara cepat
atau tiba-tiba dibandingkan yang dapat diterima pada tingkat
harga yang wajar pada kondisi normal.
 Semakin besar perbedaan antara harga fire-sale (Pi) dan
harga wajar (P*), bank semakin tidak likuid.

𝐼=෍ 𝑤𝑖 𝑃𝑖 /𝑃𝑖∗
𝑖=1
Index Likuiditas
Contoh:
Sebuah bank memiliki dua asset: 50% di SBI-1bln dan 50% di
KPR. Jika bank tsb akan melikuidasi SBI hari ini maka ia akan
menerima $99 per $100 nominal. ($100 per $100 kalau pada
saat jatuh tempo). Jika yg dilikuidasi hari ini adalah KPR, maka
nilainya $85 per $100; dan jika likuidasi 1bln dari sekarang
nilainya $92 per $100.
𝑁

𝐼=෍ 𝑤𝑖 𝑃𝑖 /𝑃𝑖∗
𝑖=1
Index Likuiditas
𝑁

𝐼=෍ 𝑤𝑖 𝑃𝑖 /𝑃𝑖∗
𝑖=1
I=(1/2)[(.99/1)]+1/2[(,85/.92)] = 0,495 + 0,462 = 0,957

Jika KPR hanya menghasilkan $65 per $100 maka likuiditas

dalam sebulan adalah:
I=(1/2)[(.99/1)]+1/2[(,65/.92)] = 0,495 + 0,353 = 0,848
Mutual Funds
• Mutual funds (reksadana) menjual saham sebagai kewajiban
kepada investor dan menginvestasikan dana ke dalam obligasi
atau saham.
• Net Asset Value adalah Nilai Aktiva Bersih (NAB) adalah
nilai pasar dari asset reksadana dikurangi kewajiban akrual
dibagi jumlah saham dalam reksadana.
B A N K MUTUAL FUNDS
Assets Liabilities Assets Liabilities
Assets 90 Deposits 100 Assets 90 Shares 100
100 100
depositors shareholder
with $1 s with $1
deposits share
Mutual Funds
NAV = NAB = Value of Assets/Shares Outstanding

P = $90/100 = $0,9