6. Contingency Funding Plan
We have developed a detailed contingency funding plan to integrate liquidity risk control into our comprehensive risk management strategy and
to enhance the quantitative aspects of our liquidity risk control procedures. As a part of our Contingency Funding Plan (CFP), we have developed an approach for analyzing and quantifying the impact of any liquidity crisis. This allows us
to estimate the likely impact of both Nomura-specific and market-wide events; and specifies the immediate action to be taken to mitigate any risk. The CFP lists details of key internal and external parties to be contacted and the processes by which
information is to be disseminated. This has been developed at a legal entity level in order to capture specific cash requirements at the local levelit assumes that our parent company does not have access to cash that may be trapped at a
subsidiary level due to regulatory, legal or tax constraints. We periodically test the effectiveness of our funding plans for different Nomura-specific and market-wide events. We also have access to central banks including, but not exclusively, the
Bank of Japan, which provide financing against various types of securities. These operations are accessed in the normal course of business and are an important tool in mitigating contingent risk from market disruptions.
Liquidity Regulatory Framework
In 2008,
the Basel Committee published Principles for Sound Liquidity Risk Management and Supervision. To complement these principles, the Committee has further strengthened its liquidity framework by developing two minimum standards for funding
liquidity. These standards have been developed to achieve two separate but complementary objectives.
The first objective is to promote
short-term resilience of a financial institutions liquidity risk profile by ensuring that it has sufficient high-quality liquid assets to survive a significant stress scenario lasting for 30 days. The Committee developed the Liquidity Coverage
Ratio (LCR) to achieve this objective.
The second objective is to promote resilience over a longer time horizon by creating
additional incentives for financial institutions to fund their activities with more stable sources of funding on an ongoing basis. The Net Stable Funding Ratio (NSFR) has a time horizon of one year and has been developed to provide a
sustainable maturity structure of assets and liabilities.
These two standards are comprised mainly of specific parameters which are
internationally harmonized with prescribed values. Certain parameters, however, contain elements of national discretion to reflect jurisdiction-specific conditions.
In Japan, the regulatory notice on the LCR, based on the international agreement issued by the Basel Committee with necessary national
revisions, was published by Financial Services Agency. The notices have been implemented since the end of March 2015 with
phased-in
minimum standards. Average of Nomuras LCRs for the three months ended
June 30, 2019 was 188.4%, and Nomura was compliant with requirements of the above notices. As for the NSFR, it is not yet implemented in Japan.
Cash
Flows
Cash, cash equivalents, restricted cash and restricted cash equivalents
balance as of June 30, 2018 and as of
June 30, 2019 were ¥2,463.2 billion and ¥2,623.2 billion, respectively. Cash flows from operating activities for the three months ended June 30, 2018 were outflows of ¥86.2 billion due primarily to an increase in
Securities purchased under agreements to resell, net of securities sold under agreements to repurchase
and the comparable period in 2019 were inflows of ¥123.3 billion due primarily to a decrease in
Securities purchased under
agreements to resell, net of securities sold under agreements to repurchase
. Cash flows from investing activities for the three months ended June 30, 2018 were inflows of ¥12.8 billion due primarily to
Proceeds from sales of
office buildings, land, equipment and facilities
and the comparable period in 2019 were inflows of ¥46.7 billion due primarily to
Decrease in loans receivable at banks, net
. Cash flows from financing activities for the three
months ended June 30, 2018 were inflows of ¥139.6 due primarily to an increase in
Long-term borrowings
and the comparable period in 2019 were outflows of ¥206.6 billion due primarily to a decrease in
Deposits received at
banks, net.
Balance Sheet and Financial Leverage
Total assets as of June 30, 2019, were ¥42,532.6 billion, an increase of ¥1,563.2 billion compared with
¥40,969.4 billion as of March 31, 2019, primarily due to increases in
Trading assets
. Total liabilities as of June 30, 2019, were ¥39,805.7 billion, an increase of ¥1,517.1 billion compared with
¥38,288.6 billion as of March 31, 2019, primarily due to an increase in
Securities sold under agreements to repurchase
. NHI shareholders equity as of June 30, 2019, was ¥2,662.7 billion, an increase of
¥31.7 billion compared with ¥2,631.1 billion as of March 31, 2019, primarily due to an increase in
Retained earnings.
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