Workshop O v erview

1. IPA 2008 Project:Support and Expansion of the Albanian Treasury System (SETS)Date: 10-11October 2012Liquidity Management Workshop

2. Workshop Overview • 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. Workshop Overview • 3. Risk management • 3.1 Risk management framework • 4. Risk/reserve management • 4.1Logical framework of the reserve requirements • 4.2The level of the reserves • 4.3Reserve curves

4. Workshop Overview • 5. Gapanalysis • 5.1 Gapanalysis– international • 5.2 Gapanalysis– recommended • 5.3 Gapanalysis – let’s dotogether • 5.4 Gapanalysis – Group no. 1. • 5.5 Gapanalysis – Group no. 2. • 5.6Exercise results & conclusions

5. 1. Introduction • Workshop Objective: • Learn about liquidity management • (cash forcasting and management) • in theory and practice!

6. 2.Definitions • 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.

7. 2.1 Objectives of Cash management Ensuring cash is availabletomeetcommitments Overridingobjective – otherobjectives must be subjecttoit • Economisingon cash withingovernment • Saving costs • Managingeffectivelythegovernment’s aggregateshortterm cash-flow • Cash deficits and surpluses • Reducingrisk

8. 2.2Cash-flow forecast • What is thedifferencebetweentheshorttermplan and longtermplans? • What is thedifferencebetweenthebudgetplan and cash-flow plan? • What is thedifferenceinthe cash-flow plan of a financialinsitution and theTreasury?

9. 2.2Cash-flow forecast • Howcanwegetrealistic cash-flow plansfromtheBis? • Whichinstitutionstoconcentrateon ? • Howoftenshouldyouaskfordata ?

10. 2.2 Cash-flow forecast

11. 2.2Cash-flow concept, requirements • Cash-flow concept • Requirementstotheupdating • Roll-over plan • Responsibilitesonpreparation and control • Responsibilitesonanalysis

12. 2.2Cash-flow concept, requirements • DATA CONSISTENCY AND ACCURACY • The higherthequality of theinformation • The lowerthecosts • The smallertherisk • Dowewanttohaveabsolutelycorrectdataeach minute • for cash forecast/ cash management purposes?

13. 2.3 Liquidity management shortterm and longtermobjectives • Shortterm • Ensureliqudity • Hedgerisk and mitigaterisk • Long term • Mitigaterisks • Avoidcyclicalpeaks

14. 3. Risk management • 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)

15. 3.1Risk management framework 1. • 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)

16. 3.1Risk management framework 2. • Identification of tools available for risk handling • Precondition: 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.

17. 3.1Risk management framework 3. • 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.

18. 4. Risk/reserve management RESERVES • As protection tools • As indicators for risk management purposes (Basel)

19. 4.1Logical framework of the reserve requirements 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 specialities • the reliability of the forecasts • the time necessary from the recognition to the decision making and for the implementation of actions • tools available for the implementation of actions • time needed from the activation of the corrective actions to exercise their impact.

20. 4.2The level of the reserves • Practice of the OECD countries • Albaniancurrentreserves • Budget related contingencies and reserves • Stand-by facility for liquidity management purposes kept at BoA

21. 4.2The level of thereserves cont. • Recommendedinitialreserves • 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

22. 4.3Reservecurves 1.

23. 4.3Reservecurves 2.

24. 4.3Reservecurves 3. • PRACTISE I

25. 4.3Reservecurves 4. • PRACTISE II

26. 5. Gapanalysis • International practice • Recommended for Albania • Gap analysis workshop exercise • Q&A

27. 5.1 Gapanalysis - international

28. 5.2Gapanalysis - recommended

29. 5.3 Gapanalysis – let’s dotogether

30. 5.4 Gapanalysis – Group no. 1.

31. 5.5Gapanalysis – Group no. 2.

32. 5.6 Exercise Results & Conclusions • Draw the curve • Indicate the tools to be applied • Questions &Answers • Conclusion

33. Thank You!