REG - Nat Bank of Canada - MD&A - Part 1 <Origin Href="QuoteRef">NA.TO</Origin> - Part 5
29/10/2014 15:45
- Part 5: For the preceding part double click ID:nRSb1625Qd
126,787 81,265 45,522
(1) Bank-owned liquid assets include assets for which there are no legal or geographic restrictions.
(2) Securities received as collateral with respect to securities financing and derivative transactions and securities
purchased under reverse repurchase agreements and securities borrowed.
(3) In the normal course of its financing activities, the Bank pledges assets as collateral in accordance with
standard terms. Encumbered liquid assets include assets used to cover short sales, obligations related to securities sold
under repurchase agreements and securities loaned, guarantees related to security-backed loans and borrowings, collateral
related to derivative financial instrument transactions and asset-backed securities.
(4) The average is based on the sum of the end-of-period balances of the three months of the quarter divided by
three.
Summary of Encumbered and Unencumbered Assets
(millions of Canadian dollars) As at July 31, 2014
Encumbered assets(1) Unencumbered assets Total Encumbered assets as % of total assets
Pledged as collateral Other(2) Available as collateral Other(3)
Cash and deposits with financial institutions 56 940 4,916 − 5,912 0.5
Securities 22,509 − 31,063 1,193 54,765 11.3
Securities purchased under reverse repurchase
agreements and securities borrowed − 16,249 5,770 − 22,019 8.2
Loans, net of allowances 27,447 − 1,646 65,722 94,815 13.8
Customers' liability under acceptances − − − 8,584 8,584 −
Derivative financial instruments − − − 6,086 6,086 −
Due from clients, dealers and brokers − − − 935 935 −
Investments in associates and joint ventures − − − 677 677 −
Premises and equipment − − − 381 381 −
Goodwill − − − 1,271 1,271 −
Intangible assets − − − 1,039 1,039 −
Other assets − − − 2,338 2,338 −
Total 50,012 17,189 43,395 88,226 198,822 33.8
(millions of Canadian dollars) As at October 31, 2013(4)
Encumbered assets(1) Unencumbered assets Total Encumbered assets as % of total assets
Pledged as collateral Other(2) Available as collateral Other(3)
Cash and deposits with financial institutions 48 − 3,548 − 3,596 −
Securities 21,205 − 31,178 1,361 53,744 11.3
Securities purchased under reverse repurchase
agreements and securities borrowed − 18,909 2,540 − 21,449 10.0
Loans, net of allowances 20,266 − 620 67,498 88,384 10.8
Customers' liability under acceptances − − − 8,954 8,954 −
Derivative financial instruments − − − 5,904 5,904 −
Due from clients, dealers and brokers − − − 1,101 1,101 −
Investments in associates and joint ventures − − − 684 684 −
Premises and equipment − − − 404 404 −
Goodwill − − − 1,064 1,064 −
Intangible assets − − − 898 898 −
Other assets − − − 2,037 2,037 −
Total 41,519 18,909 37,886 89,905 188,219 32.1
(1) In the normal course of its financing activities, the Bank pledges assets as collateral in accordance with
standard terms. Encumbered assets include assets used to cover short sales, obligations related to securities sold under
repurchase agreements and securities loaned, guarantees related to security-backed loans and borrowings, collateral related
to derivative financial instrument transactions, asset-backed securities, residential mortgage loans securitized and
transferred under the Canada Mortgage Bond program, assets held in consolidated trusts supporting the Bank's funding
activities and mortgage loans transferred under covered bond programs.
(2) Other encumbered assets include assets for which there are restrictions and therefore cannot be used for
collateral or funding purposes as well as assets used to cover short sales.
(3) Other unencumbered assets are assets that cannot be used for collateral or funding purposes in their current
form. This category includes assets that are potentially eligible as funding program collateral (for example, Canada
Mortgage and Housing Corporation insured mortgages that can be securitized into mortgage-backed securities under the
National Housing Act (Canada)).
(4) Certain amounts have been adjusted to reflect changes in accounting standards. See Note 2 to the unaudited
interim condensed consolidated financial statements.
Funding Risk
Funding risk is defined as the risk to the Bank's ongoing ability to raise sufficient funds to finance actual or proposed
business activities on an unsecured or secured basis at an acceptable price. The Bank maintains a good balance of its
funding through appropriate diversification of its unsecured funding vehicles, securitization programs and secured funding.
The Bank also diversifies its funding by currency, geography and maturity. The funding management priority is to achieve an
optimal balance between the deposit liabilities of the Bank's retail networks, commercial and corporate deposits, secured
funding and unsecured funding. This brings optimal stability to its funding and reduces vulnerability to unpredictable
events.
Funding and liquidity levels remained sound and robust over the period and the Bank does not anticipate any event,
commitment or demand that will have a significant impact on its liquidity risk position.
The Bank's balance sheet is well diversified and aligned with its funding strategy. The core banking activities are funded
entirely through personal and commercial deposits and through securitization programs. Wholesale funding is invested in
cash and securities. The table below presents the remaining contractual maturities of the Bank's wholesale funding. The
information has been presented in accordance with the categories recommended by the EDTF for comparison purposes with other
banks.
(millions of Canadian dollars) As at July 31, 2014(1)
1 month or less Over 1month to3 months Over 3 months to6 months Over 6months to12 months Subtotal1 year or less Over 1year to2 years Over 2 years Total
Deposits from banks(2) 3,809 1,086 − 25 4,920 35 64 5,019
Certificates of deposit and commercial paper(3) 1,667 300 1,314 3,834 7,115 3,604 981 11,700
Asset-backed commercial paper − − − − − − − −
Senior unsecured medium-term notes(4) 100 1,085 1,318 2,469 4,972 2,579 4,200 11,751
Senior unsecured structured notes − 71 126 31 228 − 670 898
Covered bonds and asset-backed securities
Mortgage securitization 15 275 339 771 1,400 2,137 12,839 16,376
Covered bonds − − − − − − 5,091 5,091
Securitization of credit card receivables − − − 880 880 400 − 1,280
Subordinated liabilities(5) − − 354 − 354 518 1,013 1,885
Other − − − − − − − −
5,591 2,817 3,451 8,010 19,869 9,273 24,858 54,000
Of which:
Secured funding 15 275 339 1,651 2,280 2,537 17,930 22,747
Unsecured funding 5,576 2,542 3,112 6,359 17,589 6,736 6,928 31,253
As at July 31, 2014 5,591 2,817 3,451 8,010 19,869 9,273 24,858 54,000
As at October 31, 2013 3,863 3,368 2,257 2,808 12,296 11,641 21,570 45,507
(1) Bankers' acceptances are not included in this table.
(2) Deposits from banks correspond to all institutional term deposits made by financial institutions such as banks,
broker-dealers, pension funds, trusts and other institutions.
(3) Includes bearer deposit notes.
(4) Certificates of deposit denominated in euros are included in senior unsecured medium-term notes.
(5) Subordinated debt is presented in this table but the Bank does not consider it as part of its wholesale funding.
As part of a comprehensive liquidity management framework, the Bank regularly reviews its contracts that stipulate that
additional collateral could be required in the event of a downgrade of the Bank's credit rating. The Bank's liquidity
position management already incorporates additional collateral requirements in the event of a one-notch to three-notch
downgrade. The table below presents the additional collateral requirements in the event of a one-, two- or three-notch
credit rating downgrade.
(millions of Canadian dollars) As at July 31, 2014
One-notchdowngrade Two-notchdowngrade Three-notchdowngrade
Derivatives(1) 10 41 150
(1) Contractual requirements related to agreements known as Credit Support Annexes.
Residual Contractual Maturities of Balance Sheet Items and Off-Balance-Sheet Commitments
The following tables present balance sheet items and off-balance-sheet commitments by residual contractual maturity as at
July 31, 2014 with comparative figures as at October 31, 2013. The information gathered from this maturity analysis is a
component of liquidity and funding management. However, this maturity profile does not represent how the Bank manages its
interest rate risk nor its liquidity risk and funding needs. The Bank considers factors other than contractual maturity in
the assessment of liquid assets or in determining expected future cash flows.
In the normal course of business, the Bank enters into various off-balance-sheet commitments. The credit instruments used
to meet the funding needs of its clients represent the maximum amount of additional credit the Bank could be obligated to
extend if the commitments were fully drawn.
The Bank also has minimum future commitments under leases for premises as well as for other contracts, mainly contracts for
outsourced IT services. Most of the lease commitments are related to operating leases.
(millions of Canadian dollars) As at July 31, 2014
1 month Over 1month to3 months Over 3 months to 6 months Over 6 months to 9 months Over 9 months to 12 months Over 1 year to 2 years Over 2 years to 5 years Over 5 years No specified maturity Total
or less
ASSETS
Cash and deposits
with financial institutions 4,304 212 − − − − − − 1,396 5,912
Securities
At fair value through
profit or loss 209 502 1,102 606 2,239 5,167 7,839 7,283 20,685 45,632
Available-for-sale 79 87 167 − 270 368 3,850 3,904 408 9,133
288 589 1,269 606 2,509 5,535 11,689 11,187 21,093 54,765
Securities purchased under
reverse repurchase
agreements and
securities borrowed 9,478 3,936 4,506 195 251 222 1,014 − 2,417 22,019
Loans and acceptances (1)
Residential mortgage 1,013 1,126 1,726 1,710 2,902 9,042 20,328 556 260 38,663
Personal and credit card 241 329 530 597 788 2,317 5,686 1,566 17,268 29,322
Business and government 5,771 1,831 1,584 1,229 1,134 1,648 3,596 1,000 9,630 27,423
Customers' liability under
acceptances 7,327 1,195 62 − − − − − − 8,584
Allowances for credit losses (593) (593)
14,352 4,481 3,902 3,536 4,824 13,007 29,610 3,122 26,565 103,399
Other
Derivative financial instruments 261 320 382 193 138 800 1,164 2,828 − 6,086
Due from clients, dealers
and brokers(1) 935 935
Investments in associates and
joint ventures 677 677
Premises and equipment 381 381
Goodwill 1,271 1,271
Intangible assets 1,039 1,039
Other assets 129 43 197 59 302 40 45 154 1,369 2,338
390 363 579 252 440 840 1,209 2,982 5,672 12,727
28,812 9,581 10,256 4,589 8,024 19,604 43,522 17,291 57,143 198,822
(1) Amounts collectible on demand are considered to have no specified maturity.
(millions of Canadian dollars) As at July 31, 2014
1 month or less Over 1 month to Over 3 months to Over 6 months to 9 Over 9 Over 1 year to Over 2 years to 5 Over 5 years Nospecified maturity Total
3 months 6 months months 2 years years
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