Liquidity Portfolio Management
The liquidity portfolio helps ensure the uninterrupted availability of funds to meet loan disbursements, debt servicing, and other cash requirements; provides a liquidity buffer in the event of financial stress; and contributes to ADB’s earning base. ADB’s Investment Authority governs ADB’s investments in liquid assets. The primary objective is to maintain the security and liquidity of the funds invested.
Liquid investments are held in government and government-related debt instruments, time deposits, and other unconditional obligations of banks and financial institutions. To a limited extent, they are also held in corporate bonds that are rated at least A–.
ADB's liquid investments consist of 17 currencies managed in portfolios specific to a designated purpose. The purpose of the working capital portfolios (operational and cash cushion portfolios) is to manage ADB's short-term cash flow requirements and to hold the proceeds of the borrowing transactions pending disbursement. The discretionary liquidity portfolio is funded by debt and is intended to provide flexibility in executing ADB's funding program over the medium-term to opportunistically permit borrowing ahead of cash-flow needs, and to bolster ADB access to short-term funding through continuous presence in the market. The core liquidity portfolio is invested to ensure that the primary objective of a liquidity buffer is met. The portfolio has been funded by equity, and the average duration of the major currencies in the portfolio was about 2.3 years at 31 December 2018.
The year-end balances of the portfolios and the returns on the liquidity portfolio in 2018 and 2017 are presented below:
Year-end balances and returns on liquidity portfolios
|Year-end Balance* (US$ Million)||Annualized Return on Liquity Portfolio** (%)|
|Amortized Cost||Fair Value|
|Core liquidity portfolio||19,746||19,674||1.6||1.8||1.3||1.6|
|Operational cash portfolio||2,651||5,590||0.6||2.0||0.6||2.0|
|Cash cushion portfolio||168||197||1.4||2.5||1.4||2.5|
|Discretionary liquidity portfolio||13,277||9,778||0.4***||0.4***||0.4***||0.4***|
|Ad hoc portfolio||619||287||2.2||2.6||2.2||3.3|
* Including securities purchased under resale arrangements, securities transferred under repurchase agreements, and investment-related swaps. The composition of the liquidity portfolio may shift from year to year as part of ongoing liquidity management.
** The amortized returns are based on income from investments and realized gains and losses reported in the Statement of Income and Expenses. The fair value return incorporate unrealized gains and losses that are reported as part of other comprehensive income loss and movements are dependent on prevailing market environment.
*** Spread over funding cost.