Workshop O v erview

transcript

A project implemented by:

A project funded by the European Union

1. Introduction

1.1 Introduction of participants

1.2 Workshop objective

2. Definitions

2.1 Cash management

2.2 Cash-flow forecast

2.3 Liquidity management

3. Risk management

3.1 Risk management framework

4. Risk/reserve management

4.1 Logical framework of the reserve requirements

4.2 The level of the reserves

4.3 Reserve curves

Workshop Objective:

Learn about liquidity management

(cash forcasting and management)

in theory and practice!

2.1 Cash management is a daily task aiming to ensure that sufficient liquidity is available for solving daily liquidity needs.

2.2 Cash-flow forecast or cash flow management is a key aspect of the financial management of a business, planning its future cash requirements to avoid a crisis of liquidity.

2. 3 Liquidity management is used as a general term, which includes both cash management and cash-flow forecast, i.e. all the activities aiming to ensure the availability of sufficient liquidity.

Ensuring cash is available to meet commitments

Overriding objective – other objectives must be subject to it

Economising on cash within government Saving costs

Managing effectively the government’s aggregate short term cash-flow Cash deficits and surpluses Reducing risk

What is the difference between the short term plan and long term plans?

What is the difference between the budget plan and cash-flow plan?

What is the difference in the cash-flow plan of a financial insitution and the Treasury?

How can we get realistic cash-flow plans from the Bis?

Which institutions to concentrate on ?

How often should you ask for data ?

Item/period 1 2 3 4….29 30 31 Febr.

Marc April

May …. Dec.

Major items

- - Total Outstanding items

- - Total outstanding items

Grand total

Cash-flow concept

Requirements to the updating

Roll-over plan

Responsibilites on preparation and control

Responsibilites on analysis

DATA CONSISTENCY AND ACCURACY

The higher the quality of the information

• The lower the costs

• The smaller the risk

Do we want to have absolutely correct data each minute

for cash forecast/ cash management purposes ?

Short term

Ensure liqudity

Hedge risk and mitigate risk

Long term

Mitigate risks

Avoid cyclical peaks

Risk management is the identification, assessment, and prioritization of risks followed by coordinated and economical application of resources to minimize, monitor, and control the risks.

Basel principles

Market risk

Operational risk

Liquidity risk (or funding risk)

Tasks concerning the development of a risk management framework

Identification, assessment and prioritization of risks

identification of risk categories

risk analysis related responsibilities

definition of triggers (when action is to be done)

Identification of tools available for risk handlingPrecondition: risk identification, preliminary risk prioritization

Tools are to be differentiated according to their purpose of usage and impact, as

applied for the handling of short- term, or long-term risks

having their impact short- or longer term.

Risk monitoring and risk control –Responsibilities are dedicated concerning: risk watching

preparation of recommendations on risk handling

approval of recommendations

recommendation implementation

implementation impact monitoring and reporting.

RESERVES

As protection tools

As indicators for risk management purposes (Basel)

The volume of the necessary reserves depends mainly on:

the volume of the assets to be protected the volatility of the markets and market behaviour and specialitiesthe reliability of the forecasts the time necessary from the recognition to the decision making and for the implementation of actionstools available for the implementation of actionstime needed from the activation of the corrective actions to exercise their impact.

Practice of the OECD countries

Albanian current reserves

Budget related contingencies and reserves

Stand-by facility for liquidity management purposes kept at BoA

Recommended initial reserves

salaries (paid by the Treasury for the Central and Local Government employees)

social aid and contribution, unemployment benefits utility fees.

Minimum and maximum level

Minimum 2 weeks

Maximum 4 weeks

PRACTISE I

PRACTISE II

International practice

Recommended for Albania

Gap analysis workshop exercise

Item/period 0-30 days

31-60 61-90

91-180

180-365

366-2 years

2-5 years

5-7 years

7-10 years

10-years

+ Income

-Expenditures

CUMULATIVGAP

Item/period 0-30 31-60

61-90 91-180 180-365

+Income

-Expenditures

CUMULATIVE Gap

Min. reserve requirements (RR)

Max. RR

Gap - min.RR

Gap –max. RR

61-90 91-180 180-365

+Income 10

-Expenditures

CUMULATIVE Gap

Max. RR

Gap - min.RR

Gap –max. RR

61-90 91-180 180-365

+Income 10

-Expenditures

CUMULATIVE Gap

Max. RR

Gap - min.RR

Gap –max. RR

61-90 91-180 180-365

+Income 10

-Expenditures

CUMULATIVE Gap

Max. RR

Gap - min.RR

Gap –max. RR

Draw the curve

Indicate the tools to be applied

Questions & Answers

Conclusion

Thank You!

Workshop O v erview

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