AASB 130 - Disclosure in the Financial Statements of Banks and Similar Financial Institutions - July 2004
Maturities of Assets and LiabilitiesMaturities of Assets and Liabilities
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Maturities of Assets and Liabilities
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A bank shall disclose an analysis of assets and liabilities into relevant maturity groupings based on the remaining period at the reporting date to the contractual maturity date.
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The matching and controlled mismatching of the maturities and interest rates of assets and liabilities is fundamental to the management of a bank. It is unusual for banks ever to be completely matched since business transacted is often of uncertain term and of different types. An unmatched position potentially enhances profitability but can also increase the risk of losses.
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The maturities of assets and liabilities and the ability to replace, at an acceptable cost, interest-bearing liabilities as they mature, are important factors in assessing the liquidity of a bank and its exposure to changes in interest rates and exchange rates. In order to provide information that is relevant for the assessment of its liquidity, a bank discloses, as a minimum, an analysis of assets and liabilities into relevant maturity groupings.
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The maturity groupings applied to individual assets and liabilities differ between banks and in their appropriateness to particular assets and liabilities. Examples of periods used include the following:
(a) up to 1 month;
(b) from 1 month to 3 months;
(c) from 3 months to 1 year;
(d) from 1 year to 5 years; and
(e) from 5 years and over.
Frequently the periods are combined, for example, in the case of loans and advances, by grouping those under one year and those over one year. When repayment is spread over a period of time, each instalment is allocated to the period in which it is contractually agreed or expected to be paid or received.
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It is essential that the maturity periods adopted by a bank are the same for assets and liabilities. This makes clear the extent to which the maturities are matched and the consequent dependence of the bank on other sources of liquidity.
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Maturities could be expressed in terms of:
(a) the remaining period to the repayment date;
(b) the original period to the repayment date; or
(c) the remaining period to the next date at which interest rates may be changed.
The analysis of assets and liabilities by their remaining periods to the repayment dates provides the best basis to evaluate the liquidity of a bank. A bank may also disclose repayment maturities based on the original period to the repayment date in order to provide information about its funding and business strategy. In addition, a bank may disclose maturity groupings based on the remaining period to the next date at which interest rates may be changed in order to demonstrate its exposure to interest rate risks. Management may also provide, in its commentary on the financial statements, information about interest rate exposure and about the way it manages and controls such exposures.