Disclosure and Reporting Requirements
Pillar 3 Disclosure Requirements Framework
Glossary
1. Introduction
Basel Committee on Banking Supervision issued a document on Basel III: Finalizing post-crisis reforms in December 2017. Which includes the revised disclosure requirements that aims to enhance transparency by setting the minimum requirements for market disclosures of information on the risk management practices and capital adequacy of banks. This will enable market participants to obtain key information on risk exposures, risk management framework, adequacy of regulatory capital of banks, reduces information asymmetry and helps promote comparability of banks' risk profiles within and across jurisdictions. In addition, banks' Pillar 3 disclosure will also facilitate supervisory monitoring while strengthening incentives for banks to implement robust risk management.
Among the key revisions to the Pillar 3 framework include disclosure requirements related to:
a) Credit risk, operational risk, the leverage ratio and credit valuation adjustment (CVA) risk;
b) Risk-weighted assets (RWAs) as calculated by the bank's internal models and according to the standardised approaches;
c) Disclosures related to the revised market risk framework
d) Overview of risk management framework, RWAs and key prudential metrics; and
e) Asset encumbrance; and
f) Capital distribution constraints
This framework is issued by SAMA in exercise of the authority vested in SAMA under the Central Bank Law issued via Royal Decree No. M/36 dated 11/04/1442H, and the Banking Control Law issued 01/01/1386H.
This framework supersedes all circulars/instructions/rules related to Pillar 3 Disclosure Requirements previously issued by SAMA.
2. Scope of Application
2.1 Disclosure requirements are an integral part of the Basel framework. Unless otherwise stated, the Tables and Templates are applicable to all domestic banks both on a consolidated basis, which include all branches and subsidiaries, and on a standalone basis.
2.2 This framework is not applicable to Foreign Banks Branches operating in the kingdom of Saudi Arabia.
2.3 Banks must assess the applicability of the disclosure requirements based on their specific compliance obligations.
3. Implementation Dates
3.1 Disclosure requirements will be effective on 01 January 2023.
3.2 Disclosure requirements are applicable for Pillar 3 reports related to fiscal periods that include or come after the specific calendar implementation date which means that the first set of templates/tables will cover data as at March 31, 2023.
4. Guiding Principles of Banks' Pillar 3 Disclosures
4.1 Banks should ensure compliance with the following guiding principles which aim to provide a firm foundation for achieving transparent, high-quality Pillar 3 risk disclosures that will enable users to better understand and compare a bank's business and its risks:
Principle 1: Disclosures should be clear
4.2 Disclosures should be presented in a form that is understandable to key stakeholders (eg investors, analysts, financial customers and others) and communicated through an accessible medium. Important messages should be highlighted and easy to find. Complex issues should be explained in simple language with important terms defined. Related risk information should be presented together.
Principle 2: Disclosures should be comprehensive
4.3 Disclosures should describe a bank's main activities and all significant risks, supported by relevant underlying data and information. Significant changes in risk exposures between reporting periods should be described, together with the appropriate response by management.
4.4 Disclosures should provide sufficient information in both qualitative and quantitative terms on a bank's processes and procedures for identifying, measuring and managing those risks. The level of detail of such disclosure should be proportionate to a bank's complexity.
4.5 Approaches to disclosure should be sufficiently flexible to reflect how senior management and the board of directors internally assess and manage risks and strategy, helping users to better understand a bank's risk tolerance/appetite.
Principle 3: Disclosures should be meaningful to users
4.6 Disclosures should highlight a bank's most significant current and emerging risks and how those risks are managed, including information that is likely to receive market attention. Where meaningful, linkages must be provided to line items on the balance sheet or the income statement. Disclosures that do not add value to users' understanding or do not communicate useful information should be avoided. Furthermore, information which is no longer meaningful or relevant to users should be removed.
Principle 4: Disclosures should be consistent over time
4.7 Disclosures should be consistent over time to enable key stakeholders to identify trends in a bank's risk profile across all significant aspects of its business. Additions, deletions and other important changes in disclosures from previous reports, including those arising from a bank's specific, regulatory or market developments, should be highlighted and explained.
Principle 5: Disclosures should be comparable across banks
4.8 The level of detail and the format of presentation of disclosures should enable key stakeholders to perform meaningful comparisons of business activities, prudential metrics, risks and risk management between banks and across jurisdictions.
5. Assurance of Pillar 3 Data
5.1 Banks must establish a formal board-approved disclosure policy for Pillar 3 information that sets out the internal controls and procedures for disclosure of such information. The key elements of this policy should be described in the year-end Pillar 3 report or cross-referenced to another location where they are available.
5.2 The board of directors and senior management are responsible for establishing and maintaining an effective internal control structure over the disclosure of financial information, including Pillar 3 disclosures. They must also ensure that appropriate review of the disclosures takes place. The information provided by banks under Pillar 3 must be subject, at a minimum, to the same level of internal review and internal control processes as the information provided by banks for their financial reporting (i.e. the level of assurance must be the same as for information provided within the management discussion and analysis part of the financial report).
5.3 One or more senior officers of a bank must attest in writing that all Pillar 3 disclosures have been prepared in accordance with the board-agreed internal control processes.
6. Reporting Location
6.1 Banks must publish their Pillar 3 report in a standalone document that provides a readily accessible source of prudential measures for users. The Pillar 3 report may be appended to, or form a discrete section of, a bank's financial reporting, but it must be easily identifiable to users. Signposting of disclosure requirements is permitted in certain circumstances, as set out in section 7.2. Banks must also make available on their websites an archive for 10 years retention period of Pillar 3 reports (quarterly, semi-annual and annual) relating to prior reporting periods.
6.2 Banks are required to submit a copy of the disclosures to SAMA via the following email address.
7. Presentation of the Disclosure Requirements
7.1 Templates and tables:
7.1.1 The disclosure requirements are presented either in the form of templates or tables. Templates must be completed with quantitative data in accordance with the definitions provided. Tables generally relate to qualitative requirements, but quantitative information is also required in some instances. Banks may choose the format they prefer when presenting the information requested in tables.
7.1.2 In line with Principle 3 in section 4.6, the information provided in the templates and tables should be meaningful to users. The disclosure requirements in this document that necessitate an assessment from banks are specifically identified. When preparing these individual tables and templates, banks will need to consider carefully how widely the disclosure requirement should apply. If a bank considers that the information requested in a template or table would not be meaningful to users, for example because the exposures and risk-weighted asset (RWA) amounts are deemed immaterial, it may choose not to disclose part or all of the information requested. In such circumstances, however, the bank will be required to explain in a narrative commentary why it considers such information not to be meaningful to users. It should describe the portfolios excluded from the disclosure requirement and the aggregate total RWA those portfolios represent.
7.1.3 For templates, the format is designated as either fixed or flexible:
a) Where the format of a template is described as fixed, banks must complete the fields in accordance with the instructions given. If a row/column is not considered to be relevant to a bank's activities or the required information would not be meaningful to users (eg immaterial from a quantitative perspective), the bank may delete the specific row/column from the template, but the numbering of the subsequent rows and columns must not be altered. Banks may add extra rows and extra columns to fixed format templates if they wish to provide additional detail to a disclosure requirement by adding sub-rows or columns, but the numbering of prescribed rows and columns in the template must not be altered.
b) Where the format of a template is described as flexible, banks may present the required information either in the format provided in this document or in one that better suits the bank. The format for the presentation of qualitative information in tables is not prescribed. Notwithstanding, banks should comply with the restrictions in presentation, should such restrictions be prescribed in the template (eg Template CCR5 in section 20). In addition, when a customised presentation of the information is used, the bank must provide information comparable with that required in the disclosure requirement (ie at a similar level of granularity as if the template/table were completed as presented in this document).
7.2 Signposting:
7.2.1 Banks may disclose in a document separate from their Pillar 3 report (eg in a bank's annual report or through published regulatory reporting) the templates/tables with a flexible format, and the fixed format templates where the criteria in section 7.2.2 are met. In such circumstances, the bank must signpost clearly in its Pillar 3 report where the disclosure requirements have been published. This signposting in the Pillar 3 report must include:
a) The title and number of the disclosure requirement;
b) The full name of the separate document in which the disclosure requirement has been published;
c) A web link, where relevant; and
d) The page and paragraph number of the separate document where the disclosure requirements can be located.
7.2.2 The disclosure requirements for templates with a fixed format may be disclosed by banks in a separate document other than the Pillar 3 report, provided all of the following criteria are met:
a) The information contained in the signposted document is equivalent in terms of presentation and content to that required in the fixed template and allows users to make meaningful comparison with information provided by banks disclosing the fixed format templates;
b) The information contained in the signposted document is based on the same scope of consolidation as the one used in the disclosure requirement;
c) The disclosure in the signposted document is mandatory; and
d) SAMA is responsible for ensuring the implementation of the Basel standards is subject to legal constraints in its ability to require the reporting of duplicative information.
7.2.3 Banks can only make use of signposting to another document if the level of assurance on the reliability of data in the separate document are equivalent to, or greater than, the internal assurance level required for the Pillar 3 report (see sections on reporting location and assurance above).
8. Frequency and Timing of Disclosures
8.1 The frequencies of disclosure as indicated in the disclosure templates and tables vary between quarterly, semiannual and annual reporting depending upon the nature of the specific disclosure requirement. Annexure 2 summarizes the frequency and timing of disclosures for each table.
8.2 A bank's Pillar 3 report must be published concurrently with its financial report for the corresponding period. If a Pillar 3 disclosure is required to be published for a period when a bank does not produce any financial report (eg semiannual), disclosures must be published as soon as practicable and the time lag must be no longer than the maximum period of 30 days for quarterly disclosures and 60 days for semiannually and annually disclosures from its regular financial reporting period-ends.
9. Retrospective Disclosures, Disclosure of Transitional Metrics and Reporting Periods
9.1 In templates which require the disclosure of data points for current and previous reporting periods, the disclosure of the data point for the previous period is not required when a metric for a new standard is reported for the first time unless this is explicitly stated in the disclosure requirement.
9.2 Unless otherwise specified in the disclosure templates, when a bank is under a transitional regime permitted by the standards, the transitional data should be reported unless the bank already complies with the fully loaded requirements. Banks should clearly state whether the figures disclosed are computed on a transitional or fully-loaded basis. Where applicable, banks under a transitional regime may separately disclose fully-loaded figures in addition to transitional metrics.
9.3 Unless otherwise specified in the disclosure templates, the data required for annual, semiannual and quarterly disclosures should be for the corresponding 12-month, six-month and three-month period, respectively.
10. Proprietary and Confidential Information
10.1 In exceptional cases, where disclosure of certain items required by Pillar 3 may reveal the position of a bank or contravene its legal obligations by making public information that is proprietary or confidential in nature, a bank does not need to disclose those specific items, but must disclose more general information about the subject matter of the requirement instead. It must also explain in the narrative commentary to the disclosure requirement the fact that the specific items of information have not been disclosed and the reasons for this.
11. Qualitative Narrative to Accompany the Disclosure Requirements
11.1 Banks should supplement the quantitative information provided in both fixed and flexible templates with a narrative commentary to explain at least any significant changes between reporting periods and any other issues that management considers to be of interest to market participants. The form taken by this additional narrative is at the bank's discretion.
11.2 Additional voluntary risk disclosures allow banks to present information relevant to their business model that may not be adequately captured by understand and analyse any figures provided. It must also be accompanied by a qualitative discussion. Any additional disclosure must comply with the five guiding principles above.
12. Overview of Risk Management, Key Prudential Metrics and RWA
12.1 The disclosure requirements under this section are:
12.1.1 Template KM1 - Key metrics (at consolidated level)
12.1.2 Template KM2 - Key metrics - total loss-absorbing capacity (TLAC) requirements (at resolution group level)
12.1.3 Table OVA - Bank risk management approach
12.1.4 Template OV1 - Overview of risk-weighted assets (RWA)
12.2 The disclosure requirements related to TLAC are not required to be completed by banks unless otherwise specified by SAMA.
12.3 Template KM1 provides users of Pillar 3 data with a time series set of key prudential metrics covering a bank’s available capital (including buffer requirements and ratios), its RWA, leverage ratio, Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR). As set out in circular No.391000029731 dated 15/03/1439 H, banks are required to publicly disclose whether they are applying a transitional arrangement for the impact of expected credit loss accounting on regulatory capital. If a transitional arrangement is applied, Template KM1 will provide users with information on the impact on the bank’s regulatory capital and leverage ratios compared to the bank’s “fully loaded” capital and leverage ratios had the transitional arrangement not been applied.
12.4 Template KM2 requires global systemically important banks (G-SIBs) to disclose key metrics on TLAC. Template KM2 becomes effective from the TLAC conformance date.
12.5 Table OVA provides information on a bank’s strategy and how senior management and the board of directors assess and manage risks.
12.6 Template OV1 provides an overview of total RWA forming the denominator of the risk-based capital requirements.
Template KM1: Key metrics (at consolidated group level) Purpose: To provide an overview of a bank’s prudential regulatory metrics. Scope of application: The template is mandatory for all banks. Content: Key prudential metrics related to risk-based capital ratios, leverage ratio and liquidity standards. Banks are required to disclose each metric’s value using the corresponding standard’s specifications for the reporting period-end (designated by T in the template below) as well as the four previous quarter-end figures (T–1 to T–4). All metrics are intended to reflect actual bank values for (T), with the exception of “fully loaded expected credit losses (ECL)” metrics, the leverage ratio (excluding the impact of any applicable temporary exemption of central bank reserves) and metrics designated as “pre-floor” which may not reflect actual values. Frequency: Quarterly. Format: Fixed. If banks wish to add rows to provide additional regulatory or financial metrics, they must provide definitions for these metrics and a full explanation of how the metrics are calculated (including the scope of consolidation and the regulatory capital used if relevant). The additional metrics must not replace the metrics in this disclosure requirement. Accompanying narrative: Banks are expected to supplement the template with a narrative commentary to explain any significant change in each metric’s value compared with previous quarters, including the key drivers of such changes (eg whether the changes are due to changes in the regulatory framework, group structure or business model).
Banks that apply transitional arrangement for ECL are expected to supplement the template with the key elements of the transition they use.a b c d e T T-1 T-2 2-3 T-4 Available capital (amounts) 1 Common Equity Tier 1 (CET1) 1a Fully loaded ECL accounting model 2 Tier 1 2a Fully loaded ECL accounting model Tier 1 3 Total capital 3a Fully loaded ECL accounting model total capital Risk-weighted assets (amounts) 4 Total risk-weighted assets (RWA) 4a Total risk-weighted assets (pre-floor) Risk-based capital ratios as a percentage of RWA 5 CET1 ratio (%) 5a Fully loaded ECL accounting model CET1 (%) 5b CET1 ratio (%) (pre-floor ratio) 6 Tier 1 ratio (%) 6a Fully loaded ECL accounting model Tier 1 ratio (%) 6b Tier 1 ratio (%) (pre-floor ratio) 7 Total capital ratio (%) 7a Fully loaded ECL accounting model total capital ratio (%) 7b Total capital ratio (%) (pre-floor ratio) Additional CET1 buffer requirements as a percentage of RWA 8 Capital conservation buffer requirement (2.5% from 2019) (%) 9 Countercyclical buffer requirement (%) 10 Bank G-SIB and/or D-SIB additional requirements (%) 11 Total of bank CET1 specific buffer requirements (%) (row 8 + row 9 + row 10) 12 CET1 available after meeting the bank’s minimum capital requirements (%) Basel III leverage ratio 13 Total Basel III leverage ratio exposure measure 14 Basel III leverage ratio (%) (including the impact of any applicable temporary exemption of central bank reserves) 14a Fully loaded ECL accounting model Basel III leverage ratio (including the impact of any applicable temporary exemption of central bank reserves) (%) 14b Basel III leverage ratio (%) (excluding the impact of any applicable temporary exemption of central bank reserves) 14c Basel III leverage ratio (%) (including the impact of any applicable temporary exemption of central bank reserves) incorporating mean values for SFT assets 14d Basel III leverage ratio (%) (excluding the impact of any applicable temporary exemption of central bank reserves) incorporating mean values for SFT assets Liquidity Coverage Ratio (LCR) 15 Total high-quality liquid assets (HQLA) 16 Total net cash outflow 17 LCR ratio (%) Net Stable Funding Ratio (NSFR) 18 Total available stable funding 19 Total required stable funding 20 NSFR ratio Instructions Row Number Explanation 4a For pre-floor total RWA, the disclosed amount should exclude any adjustment made to total RWA from the application of the capital floor. 5a, 6a, 7a, 14a For fully loaded ECL ratios (%) in rows 5a, 6a, 7a and 14a, the denominator (RWA, Basel III leverage ratio exposure measure) is also “Fully loaded ECL”, ie as if ECL transitional arrangements were not applied. 5b, 6b, 7b For pre-floor risk based ratios in rows 5b, 6b and 7b, the disclosed ratios should exclude the impact of the capital floor in the calculation of RWA. 12 CET1 available after meeting the bank’s minimum capital requirements (as a percentage of RWA): it may not necessarily be the difference between row 5 and the Basel III minimum CET1 requirement of 4.5% because CET1 capital may be used to meet the bank’s Tier 1 and/or total capital ratio requirements. See instructions to [CC1:68/a]. 13 Total Basel III leverage ratio exposure measure: The amounts may reflect period-end values or averages depending on local implementation. 15 Total HQLA: total adjusted value using simple averages of daily observations over the previous quarter (ie the average calculated over a period of, typically, 90 days). 16 Total net cash outflow: total adjusted value using simple averages of daily observations over the previous quarter (ie the average calculated over a period of, typically, 90 days). Linkages across templates
Amount in [KM1:1/a] is equal to [CC1:29/a]
Amount in [KM1:2/a] is equal to [CC1:45/a]
Amount in [KM1:3/a] is equal to [CC1:59/a]
Amount in [KM1:4/a] is equal to [CC1:60/a] and is equal to [OV1.29/a]
Amount in [KM1:4a/a] is equal to ([OV1.29/a] – [[OV1.28/a])
Amount in [KM1:5/a] is equal to [CC1:61/a]
Amount in [KM1:6/a] is equal to [CC1:62/a]
Amount in [KM1:7/a] is equal to [CC1:63/a]
Amount in [KM1:8/a] is equal to [CC1:65/a]
Amount in [KM1:9/a] is equal to [CC1:66/a]
Amount in [KM1:10/a] is equal to [CC1:67/a]
Amount in [KM1:12/a] is equal to [CC1:68/a]
Amount in [KM1:13/a] is equal to [LR2:24/a] (only if the same calculation basis is used)
Amount in [KM1:14/a] is equal to [LR2:25/a] (only if the same calculation basis is used)
Amount in [KM1:14b/a] is equal to [LR2:25a/a] (only if the same calculation basis is used)
Amount in [KM1:14c/a] is equal to [LR2:31/a]
Amount in [KM1:14d/a] is equal to [LR2:31a/a]
Amount in [KM1:15/a] is equal to [LIQ1:21/b]
Amount in [KM1:16/a] is equal to [LIQ1:22/b]
Amount in [KM1:17/a] is equal to [LIQ1:23/b]
Amount in [KM1:18/a] is equal to [LIQ2:14/e]
Amount in [KM1:19/a] is equal to [LIQ2:33/e]
Amount in [KM1:20/a] is equal to [LIQ2:34/e]Template KM2: Key metrics - TLAC requirements (at resolution group level) Purpose: Provide summary information about total loss-absorbing capacity (TLAC) available, and TLAC requirements applied, at resolution group level under the single point of entry and multiple point of entry (MPE) approaches. Scope of application: The template is mandatory for all resolution groups of G-SIBs. Content: Key prudential metrics related to TLAC. Banks are required to disclose the figure as of the end of the reporting period (designated by T in the template below) as well as the previous four quarter-ends (designed by T-1 to T-4 in the template below). When the banking group includes more than one resolution group (MPE approach), this template is to be reproduced for each resolution group. Frequency: Quarterly. Format: Fixed. Accompanying narrative: Banks are expected to supplement the template with a narrative commentary to explain any significant change over the reporting period and the key drivers of such changes. a b c d e T T-1 T-2 2-3 T-4 Resolution group 1 1 Total Loss Absorbing Capacity (TLAC) available 1a Fully loaded ECL accounting model TLAC available 2 Total RWA at the level of the resolution group 3 TLAC as a percentage of RWA (row1/row2) (%) 3a Fully loaded ECL accounting model TLAC as a percentage of fully loaded ECL accounting model RWA (%) 4 Leverage exposure measure at the level of the resolution group 5 TLAC as a percentage of leverage exposure measure (row1/row4) (%) 5a Fully loaded ECL accounting model TLAC as a percentage of fully loaded ECL accounting model leverage ratio exposure measure (%) 6a Does the subordination exemption in the antepenultimate paragraph of Section 11 of the FSB TLAC Term Sheet apply? 6b Does the subordination exemption in the penultimate paragraph of Section 11 of the FSB TLAC Term Sheet apply? 6c If the capped subordination exemption applies, the amount of funding issued that ranks pari passu with Excluded Liabilities and that is recognised as external TLAC, divided by funding issued that ranks pari passu with Excluded Liabilities and that would be recognised as external TLAC if no cap was applied (%) Linkages across templates
Amount in [KM2:1/a] is equal to [resolution group-level TLAC1:22/a]
Amount in [KM2:2/a] is equal to [resolution group-level TLAC1:23/a]
Aggregate amounts in [KM2:2/a] across all resolution groups will not necessarily equal or directly correspond to amount in [KM1:4/a]
Amount in [KM2:3/a] is equal to [resolution group-level TLAC1:25/a]
Amount in [KM2:4/a] is equal to [resolution group-level TLAC1:24/a]
Amount in [KM2:5/a] is equal to [resolution group-level TLAC1:26/a][KM2:6a/a] refers to the uncapped exemption in Section 11 of the FSB TLAC Term Sheet in which all liabilities excluded from TLAC specified in Section 10 are statutorily excluded from the scope of the bail-in tool and therefore cannot legally be written down or converted to equity in a bail-in resolution. Possible answers for [KM2:6a/a]: [Yes], [No].
[KM2:6b/a] refers to the capped exemption in Section 11 of the FSB TLAC Term Sheet where SAMA may, under exceptional circumstances specified in the applicable resolution law, exclude or partially exclude from bail-in all of the liabilities excluded from TLAC specified in Section 10, and where the relevant authorities have permitted liabilities that would otherwise be eligible to count as external TLAC but which rank alongside those excluded liabilities in the insolvency creditor hierarchy to contribute a quantum equivalent of up to 2.5% RWA (from 2019) or 3.5% RWA (from 2022. Possible answers for [KM2:6b/a]: [Yes], [No].
Amount in [KM2:6c/a] is equal to [resolution group-level TLAC1:14 divided by TLAC1:13]. This only needs to be completed if the answer to [KM2:6b] is [Yes]. Table OVA: Bank risk management approach Purpose: Description of the bank's strategy and how senior management and the board of directors assess and manage risks, enabling users to gain a clear understanding of the bank's risk tolerance/appetite in relation to its main activities and all significant risks. Scope of application: The template is mandatory for all banks. Content: Qualitative information. Frequency: Annual Format: Flexible Banks must describe their risk management objectives and policies, in particular: (a) How the business model determines and interacts with the overall risk profile (eg the key risks related to the business model and how each of these risks is reflected and described in the risk disclosures) and how the risk profile of the bank interacts with the risk tolerance approved by the board. (b) The risk governance structure: responsibilities attributed throughout the bank (eg oversight and delegation of authority; breakdown of responsibilities by type of risk, business unit etc); relationships between the structures involved in risk management processes (eg board of directors, executive management, separate risk committee, risk management structure, compliance function, internal audit function). (c) Channels to communicate, decline and enforce the risk culture within the bank (eg code of conduct; manuals containing operating limits or procedures to treat violations or breaches of risk thresholds; procedures to raise and share risk issues between business lines and risk functions). (d) The scope and main features of risk measurement systems. (e) Description of the process of risk information reporting provided to the board and senior management, in particular the scope and main content of reporting on risk exposure. (f) Qualitative information on stress testing (eg portfolios subject to stress testing, scenarios adopted and methodologies used, and use of stress testing in risk management). (g) The strategies and processes to manage, hedge and mitigate risks that arise from the bank's business model and the processes for monitoring the continuing effectiveness of hedges and mitigants. Template OV1: Overview of RWA Purpose: To provide an overview of total RWA forming the denominator of the risk-based capital requirements. Further breakdowns of RWA are presented in subsequent parts. Scope of application: The template is mandatory for all banks. Content: RWA and capital requirements under Pillar 1. Pillar 2 requirements should not be included. Frequency: Quarterly. Format: Fixed. Accompanying narrative: Banks are expected to identify and explain the drivers behind differences in reporting periods T and T-1 where these differences are significant.
When minimum capital requirements in column (c) do not correspond to 8% of RWA in column (a), banks must explain the adjustments made. If the bank uses the internal model method (IMM) for its equity exposures under the market-based approach, it must provide annually a description of the main characteristics of its internal model.a b c RWA Minimum capital requirements T T-1 T 1 Credit risk (excluding counterparty credit risk) 2 Of which: standardised approach (SA) 3 Of which: foundation internal ratings-based (F-IRB) approach 4 Of which: supervisory slotting approach 5 Of which: advanced internal ratings-based (A-IRB) approach 6 Counterparty credit risk (CCR) 7 Of which: standardised approach for counterparty credit risk 8 Of which: IMM 9 Of which: other CCR 10 Credit valuation adjustment (CVA) 11 Equity positions under the simple risk weight approach and the internal model method during the five-year linear phase-in period 12 Equity investments in funds - look-through approach 13 Equity investments in funds - mandate-based approach 14 Equity investments in funds - fall-back approach 15 Settlement risk 16 Securitisation exposures in banking book 17 Of which: securitisation IRB approach
(SEC-IRBA)18 Of which: securitisation external ratings-based approach
(SEC-ERBA), including internal assessment approach (IAA)19 Of which: securitisation standardised approach (SEC-SA) 20 Market risk 21 Of which: standardised approach (SA) 22 Of which: internal model approach (IMA) 23 Capital charge for switch between trading book and banking book 24 Operational risk 25 Amounts below the thresholds for deduction (subject to 250% risk weight) 26 Output floor applied 27 Floor adjustment (before application of transitional cap) 28 Floor adjustment (after application of transitional cap) 29 Total (1 + 6 + 10 + 11 + 12 + 13 + 14 + 15 + 16 + 20 + 23 + 24 + 25 + 28) Definitions and instructions
RWA: risk-weighted assets according to the Basel framework and as reported in accordance with the subsequent parts of this standard. Where the regulatory framework does not refer to RWA but directly to capital charges (eg for market risk and operational risk), banks should indicate the derived RWA number (ie by multiplying capital charge by 12.5).
RWA (T-1): risk-weighted assets as reported in the previous Pillar 3 report (ie at the end of the previous quarter). Minimum capital requirement T: Pillar 1 capital requirements at the reporting date. This will normally be RWA * 8% but may differ if a floor is applicable or adjustments (such as scaling factors) are applied at jurisdiction level. Row number Explanation 1 Credit risk (excluding counterparty credit risk): RWA and capital requirements according to the credit risk standard of the Basel framework (SCRE), with the exceptions of RWA and capital requirements related to: (i) counterparty credit risk (reported in row 6); (ii) equity positions (reported in row 11 to 14); (iii) settlement risk (reported in row 15); (iv) securitisation positions subject to the securitisation regulatory framework, including securitisation exposures in the banking book (reported in row 16); and (v) amounts below the thresholds for deduction (reported in row 25). 2 Of which: standardised approach: RWA and capital requirements according to the standardised approach to credit risk (as specified in SCRE5 to SCRE9). 3 and 5 Of which: (foundation/advanced) internal rating based approaches: RWA and capital requirements according to the F-IRB approach and/or A-IRB approach (as specified in SCRE10 to SCRE16 with the exception of SCRE13). 4 Of which: supervisory slotting approach: RWA and capital requirements according to the supervisory slotting approach (as specified in SCRE13). 6 to 9 Counterparty credit risk: RWA and capital charges according to the counterparty credit risk chapters of the Basel framework (SCCR3 to SCCR10). 10 Credit valuation adjustment: RWA and capital charge requirements according to SCCR11. 11 Equity positions under the simple risk weight approach and internal models method: the amounts in row 11 correspond to RWA where the bank applies the simple risk weight approach or the internal model method, which remain available during the five-year linear phase-in arrangement as specified in SCRE17.2. Equity positions under the PD/LGD approach during the five-year linear phase-in arrangement should be reported in row 3. Where the regulatory treatment of equities is in accordance with the standardised approach, the corresponding RWA are reported in Template CR4 and included in row 2 of this template. 12 Equity investments in funds - look-through approach: RWA and capital requirements calculated in accordance with SCRE24. 13 Equity investments in funds - mandate-based approach: RWA and capital requirements calculated in accordance with SCRE24. 14 Equity investments in funds - fall-back approach: RWA and capital requirements calculated in accordance with SCRE24. 15 Settlement risk: the amounts correspond to the requirements in SCRE25. 16 to 19 Securitisation exposures in banking book: the amounts correspond to capital requirements applicable to the securitisation exposures in the banking book. The RWA amounts must be derived from the capital requirements (which include the impact of the cap in accordance with SCRE18.50 to SCRE18.55, and do not systematically correspond to the RWA reported in Templates SEC3 and SEC4, which are before application of the cap). 20 Market risk: the amounts reported in row 20 correspond to the RWA and capital requirements in the market risk standard (MAR), with the exception of amounts that relate to CVA risk (as specified in SCCR11 and reported in row 10). They also include capital charges for securitisation positions booked in the trading book but exclude the counterparty credit risk capital charges (reported in row 6 of this template). The RWA for market risk correspond to the capital charge times 12.5. 21 Of which: standardised approach: RWA and capital requirements according to the market risk standardised approach, including capital requirements for securitisation positions booked in the trading book. 22 Of which: Internal Models Approach: RWA and capital requirements according to the market risk IMA. 23 Capital charge for switch between trading book and banking book: outstanding accumulated capital surcharge imposed on the bank in accordance with Basel Framework “Risk-based capital requirements” (Boundary between the banking book and trading book) 25.14 and 25.15, when the total capital charge (across banking book and trading book) of a bank is reduced as a result of the instruments being switched between the trading book and the banking book at the bank's discretion and after their original designation. The outstanding accumulated capital surcharge takes into account any adjustment due to run-off as the positions mature or expire, in a manner agreed with SAMA. 24 Operational risk: the amounts corresponding to the minimum capital requirements for operational risk as specified in the operational risk standard (SOPE). 25 Amounts below the thresholds for deduction (subject to 250% risk weight): the amounts correspond to items subject to a 250% risk weight according to SACAP4.4. They include significant investments in the capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation and below the threshold for deduction, after application of the 250% risk weight. 26 Output floor applied: the output floor (expressed as a percentage) applied by the bank in its computation of the floor adjustment value in rows 27 and 28. 27 Floor adjustment (before the application of transitional cap): the impact of the output floor before the application of the transitional cap, based on the output floor applied in row 26, in terms of the increase in RWA. 28 Floor adjustment (after the application of transitional cap): the impact of the output floor after the application of the transitional cap, based on the output floor applied in row 26, in terms of the increase in RWA. The figure disclosed in this row takes into account the transitional cap (if any) applied by SAMA, which will limit the increase in RWA to 25% of the bank's RWA before the application of the output floor. 29 The bank's total RWA. Linkages across templates
Amount in [OV1:2/a] is equal to [CR4:12/e]
Amount in [OV1:3/a] and [OV1:5/a] is equal to the sum of [CR6: Total (all portfolios)/i]
Amount in [OV1:6/a] is equal to the sum of CCR1:6/f+CCR8:1/b+CCR8:11/b]
Amount in [OV1:16/c] is equal to the sum of [SEC3:1/n + SEC3:1/o + SEC3:1/p + SEC3:1/q] + [SEC4:1/n + SEC4:1/o + SEC4:1/p + SEC4:1/q]
Amount in [OV1:21/c] is equal to [MR1:12/a]
Amount in [OV1:22/c] is equal to [MR2:12]13. Comparison of Modelled and Standardised RWA
13.1 This chapter covers disclosures on RWA calculated according to the full standardised approach as compared to the actual RWA at the risk level, and for credit risk at asset class and sub-asset class levels. The disclosure requirements related in this section are not required to be completed by banks unless SAMA approve the bank to use the IRB and/or IMA approach.
13.2 The disclosure requirements under this section are:
13.2.1 Template CMS1 - Comparison of modelled and standardised RWA at risk level
13.2.2 Template CMS2 - Comparison of modelled and standardised RWA for credit risk at asset class level
13.3 Template CMS1 provides the disclosure of RWA calculated according to the full standardised approach as compared to actual RWA at risk level. Template CMS2 further elaborates on the comparison between RWA computed under the standardised and the internally modelled approaches by focusing on RWA for credit risk at asset class and sub-asset class levels.
Template CMS1 – Comparison of modelled and standardised RWA at risk level Purpose: To compare full standardised risk-weighted assets (RWA) against modelled RWA for banks which have received SAMA’s approval to use internal models in accordance with the Basel framework. The disclosure also provides the full standardised RWA amount that is the base of the output floor as defined in Basel Framework “Risk-based capital requirements” (calculation of minimum risk-based capital requirements) as specified in the Output floor to be issued by SAMA. Scope of application: The template is mandatory for all banks using internal models. Content: RWA. Frequency: Quarterly. Format: Fixed. Accompanying narrative: Banks are expected to explain the main drivers of difference (eg asset class or sub-asset class of a particular risk category, key assumptions underlying parameter estimations, national implementation differences) between the internally modelled RWA disclosed that are used to calculate their capital ratios and RWA disclosed under the full standardised approach that would be used should the banks not be allowed to use internal models. Explanation should be specific and, where appropriate, might be supplemented with quantitative information. In particular, if the RWA for securitisation exposures in the banking book are a main driver of the difference, banks are expected to explain the extent to which they are using each of the three potential approaches (SEC-ERBA, SEC-SA and 1,250% risk weight) for calculating SA RWA for securitisation exposures. a b c d RWA RWA for modelled approaches banks which have received SAMA approval to use internal model RWA for portfolios where standardised approaches are used Total Actual RWA (a + b) (ie RWA which banks report as current requirements) RWA calculated using full standardised approach (ie RWA used in capital floor computation) 1 Credit risk (excluding counterparty credit risk) 2 Counterparty credit risk 3 Credit valuation adjustment 4 Securitisation exposures in the banking book 5 Market risk 6 Operational risk 7 Residual RWA 8 Tota Definitions and instructions
Rows:
Credit risk (excluding counterparty credit risk, credit valuation adjustments and securitisation exposures in the banking book)
(row 1):
Definition of standardised approach: The standardised approach for credit risk. When calculating the degree of credit risk mitigation, banks must use the simple approach or the comprehensive approach with standard supervisory haircuts. This also includes failed trades and non-delivery-versus-payment transactions as set out in SCRE25.
The prohibition on the use of the IRB approach for equity exposures will be subject to a five-year linear phase-in arrangement as specified in SCRE17.2. During the phase-in period, the risk weight for equity exposures used to calculate the RWA reported in column (a) will be the greater of: (i) the risk weight as calculated under the IRB approach, and (ii) the risk weight set for the linear phase-in arrangement under the standardised approach for credit risk
RWA for modelled approaches that banks have SAMA approval to use (cell 1/a): For exposures where the RWA is not computed based on the standardised approach described above (ie subject to the credit risk IRB approaches (Foundation Internal Ratings-Based (F-IRB), Advanced Internal Ratings-Based (AIRB) and supervisory slotting approaches of the credit risk framework). The row excludes all positions subject to SCRE18 to SCRE23, including securitisation exposures in the banking book (which are reported in row 4) and capital requirements relating to a counterparty credit risk charge, which are reported in row 2.
RWA for portfolios where standardised approaches are used (cell 1/b): RWA which result from applying the above-described standardised approach.
RWA for portfolios where standardised approaches are used (cell 1/b): RWA which result from applying the above-described standardised approach.
Total actual RWA (cell 1/c): The sum of cells 1/a and 1/b.
RWA calculated using full standardised approach (cell 1/d): RWA as would result from applying the above-described standardised approach to all exposures giving rise to the RWA reported in cell 1/c.
Counterparty credit risk (row 2):
Definition of standardised approach: To calculate the exposure for derivatives, banks must use the standardised approach for measuring counterparty credit risk (SA-CCR). The exposure amounts must then be multiplied by the relevant borrower risk weight using the standardised approach for credit risk to calculate RWA under the standardised approach for credit risk.
RWA for modelled approaches that banks have SAMA approval to use (cell 2/a): For exposures where the RWA is not computed based on the standardised approach described above.
RWA for portfolios where standardised approaches are used (cell 2/b): RWA which result from applying the above-described standardised approach.
Total actual RWA (cell 2/c): The sum of cells 2/a and 2/b.
RWA calculated using full standardised approach (cell 2/d): RWA as would result from applying the above-described standardised approach to all exposures giving rise to the RWA reported in cell 2/c.
Credit valuation adjustment (row 3):
Definition of standardised approach: The standardised approach for CVA (SA-CVA), the basic approach (BA-CVA) or 100% of a bank’s counterparty credit risk capital requirements (depending on which approach the bank uses for CVA risk).
Total actual RWA (cell 3/c) and RWA calculated using full standardised approach (cell 3/d): RWA according to the standardised approach described above.
Securitisation exposures in the banking book (row 4):
Definition of standardised approach: The external ratings-based approach (SEC-ERBA), the standardised approach (SEC-SA) or a risk weight of 1,250%.
RWA for modelled approaches that banks have SAMA approval to use (cell 4/a): For exposures where the RWA is computed based on the SEC-IRBA or SEC-IAA.
RWA for portfolios where standardised approaches are used (cell 4/b): RWA which result from applying the above-described standardised approach.
Total actual RWA (cell 4/c): The sum of cells 4/a and 4/b.
RWA calculated using full standardised approach (cell 4/d): RWA as would result from applying the above-described standardised approach to all exposures giving rise to the RWA reported in cell 4/c.
Market risk (row 5):
Definition of standardised approach: The standardised approach for market risk. The SEC-ERBA, SEC-SA or a risk weight of 1,250% must also be used when determining the default risk charge component for securitisations held in the trading book.
RWA for modelled approaches that banks have SAMA approval to use (cell 5/a): For exposures where the RWA is not computed based on the standardised approach described above.
RWA for portfolios where standardised approaches are used (cell 5/b): RWA which result from applying the above-described standardised approach.
Total actual RWA (cell 5/c): The sum of cells 5/a and 5/b.
RWA calculated using full standardised approach (cell 5/d): RWA as would result from applying the above-described standardised approach to all exposures giving rise to the RWA reported in cell 5/c.
Operational risk (row 6):
Definition of standardised approach: The standardised approach for operational risk.
Total actual RWA (cell 6/c) and RWA calculated using full standardised approach (cell 6/d): RWA according to the revised standardised approach for operational risk.
Residual RWA (row 7):
Total actual RWA (cell 7/c) and RWA calculated using full standardised approach (cell 7/d): RWA not captured within rows 1 to 6 (ie the RWA arising from equity investments in funds (rows 12 to 14 in Template OV1), settlement risk (row 15 in Template OV1), capital charge for switch between trading book and banking book (row 23 in Template OV1) and amounts below the thresholds for deduction (row 25 in Template OV1)).
Total (row 8):
RWA for modelled approaches that banks have SAMA approval to use (cell 8/a): The total sum of cells 1/a, 2/a, 4/a and 5/a.
RWA for portfolios where standardised approaches are used (cell 8/b): The total sum of cells 1/b, 2/b, 3/b, 4/b, 5/b, 6/b and 7/b.
Total actual RWA (cell 8/c): The bank’s total RWA before the output floor adjustment. The total sum of cells 1/c, 2/c, 3/c, 4/c, 5/c, 6/c and 7/c.
RWA calculated using full standardised approach (cell 8/d): The bank’s RWA that are the base of the output floor, as specified in the Output floor to be issued by SAMA (ie amount before multiplication by 72.5%). The total sum of cells 1/d, 2/d, 3/d, 4/d, 5/d, 6/d and 7/d. Disclosed numbers in rows 1 to 7 are calculated purely for comparison purposes and do not represent requirements under the Basel framework.
Linkages across templates
[CMS1: 1/c] is equal to [OV1:1/a]
[CMS1: 2/c] is equal to [OV1:6/a]
[CMS1:3/c] is equal to [OV1:10/a]
[CMS1: 4/c] is equal to [OV1:16/a]
[CMS1: 5/c] is equal to [OV1:20/a]
[CMS1:5/d] is equal to [MR2:12/a] multiplied by 12.5
[CMS1:6/c] is equal to [OV1:24/a]Template CMS2 – Comparison of modelled and standardised RWA for credit risk at asset class level Purpose: To compare risk-weighted assets (RWA) calculated according to the standardised approach (SA) for credit risk at the asset class level against the corresponding RWA figure calculated using the approaches (including both the standardised and IRB approach for credit risk and the supervisory slotting approach) that banks have SAMA approval to use in accordance with the Basel framework for credit risk. Scope of application: The template is mandatory for all banks using internal models for credit risk. Similar to row 1 of Template CMS1, it excludes counterparty credit risk, credit valuation adjustments and securitisation exposures in the banking book. Content: RWA. Frequency: Semiannual. Format: Fixed. The columns are fixed, but the portfolio breakdowns in the rows will be set by SAMA to reflect the exposure classes required under national implementation of IRB and SA. Banks are encouraged to add rows to show where significant differences occur. Accompanying narrative: Banks are expected to explain the main drivers of differences between the internally modelled amounts disclosed that are used to calculate their capital ratios and amounts disclosed should the banks apply the standardised approach. Where differences are attributable to mapping between IRB and SA, banks are encouraged to provide explanation and estimated materiality. a b c d RWA RWA for modelled approaches that banks have SAMA approval to use RWA for column (a) if re-computed using the standardised approach Total Actual RWA (ie RWA which banks report as current requirements) RWA calculated using full standardised approach (ie RWA used in the base of the output floor) 1 Sovereign Of which: categorised as MDB/PSE in SA 2 Banks and other financial institutions 3 Equity1 4 Purchased receivables 5 Corporates Of which: F-IRB is applied Of which: A-IRB is applied 6 Retail Of which: qualifying revolving retail Of which: other retail Of which: retail residential mortgages 7 Specialised lending Of which: income-producing real estate and high volatility commercial real estate 8 Others 9 Total Definitions and instructions
Columns:
RWA for modelled approaches that banks have SAMA approval to use (column (a)): Represents the portion of RWA according to the IRB approach for credit risk as specified in SCRE10 to SCRE16.
Corresponding standardised approach RWA for column (a) (column (b)): RWA equivalent as derived under the standardised approach.
Total actual RWA (column (c)): Represents the sum of the RWA for modelled approaches that banks have SAMA approval to use and the RWA under standardised approaches.
RWA calculated using full standardised approach (column (d)): Total RWA assuming the full standardised approach applied at asset class level.
Disclosed numbers for each asset class are calculated purely for comparison purposes and do not represent requirements under the Basel framework.Linkages across templates
[CMS2:9/a] is equal to [CMS1:1/a]
[CMS2:9/c] is equal to [CMS1:1/c]
[CMS2:9/d] is equal to [CMS1:1/d]
1 The prohibition on the use of the IRB approach for equity exposures will be subject to a five-year linear phase-in arrangement as specified in SCRE17.2. During the phase-in period, the risk weight for equity exposures (to be reported in column (a)) will be the greater of: (i) the risk weight as calculated under the IRB approach, and (ii) the risk weight set for the linear phase-in arrangement under the standardised approach for credit risk. Column (b) should reflect the corresponding RWA for these exposures based on the phased-in standardised approach. After the phase-in period, columns (a) and (b) for equity exposures should both be empty.
14. Composition of Capital and TLAC
14.1 The disclosures described in this chapter cover the composition of regulatory capital, the main features of regulatory capital instruments and, for global systemically important banks, the composition of total loss-absorbing capacity and the creditor hierarchies of material subgroups and resolution entities. The disclosure requirements related to TLAC only, are not required to be completed by banks unless otherwise specified by SAMA.
14.2 The disclosure requirements set out in this chapter are:
14.2.1 Table CCA - Main features of regulatory capital instruments and of other total loss-absorbing capacity (TLAC) - eligible instruments
14.2.2 Template CC1 - Composition of regulatory capital
14.2.3 Template CC2 - Reconciliation of regulatory capital to balance sheet
14.2.4 Template TLAC1 - TLAC composition for global systemically important banks (G-SIBs) (at resolution group level)
14.2.5 Template TLAC2 - Material subgroup entity - creditor ranking at legal entity level
14.2.6 Template TLAC3 - Resolution entity - creditor ranking at legal entity level
14.3 The following table and templates must be completed by all banks:
14.3.1 Table CCA details the main features of a bank's regulatory capital instruments and other TLAC-eligible instruments, where applicable. This table should be posted on a bank's website, with the web link referenced in the bank's Pillar 3 report to facilitate users' access to the required disclosure. Table CCA represents the minimum level of disclosure that banks are required to report in respect of each regulatory capital instrument and, where applicable, other TLAC-eligible instruments issued.2
14.3.2 Template CC1 details the composition of a bank's regulatory capital.
14.3.3 Template CC2 provides users of Pillar 3 data with a reconciliation between the scope of a bank's accounting consolidation, as per published financial statements, and the scope of its regulatory consolidation.
14.4 The following additional templates must be completed by banks which have been designated as G-SIBs:
14.4.1 Template TLAC1 provides details of the TLAC positions of G-SIB resolution groups. This disclosure requirement applies to all G-SIBs at the resolution group level. For single point of entry G-SIBs, there is only one resolution group. This means that they only need to complete Template TLAC1 once to report their TLAC positions.
14.4.2 Templates TLAC2 and TLAC3 present information on creditor rankings at the legal entity level for material subgroup entities (ie entities that are part of a material subgroup) which have issued internal TLAC to one or more resolution entities, and also for resolution entities. These templates provide information on the amount and residual maturity of TLAC and on the instruments issued by resolution entities and material subgroup entities that rank pari passu with, or junior to, TLAC instruments.
14.5 Templates TLAC1, TLAC2 and TLAC3 become effective from the TLAC conformance date.
14.6 Through the following three-step approach, all banks are required to show the link between the balance sheet in their published financial statements and the numbers disclosed in Template CC1:
14.6.1 Step 1: Disclose the reported balance sheet under the regulatory scope of consolidation in Template CC2. If the scopes of regulatory consolidation and accounting consolidation are identical for a particular banking group, banks should state in Template CC2 that there is no difference and move on to Step 2. Where the accounting and regulatory scopes of consolidation differ, banks are required to disclose the list of those legal entities that are included within the accounting scope of consolidation, but excluded from the regulatory scope of consolidation or, alternatively, any legal entities included in the regulatory consolidation that are not included in the accounting scope of consolidation. This will enable users of Pillar 3 data to consider any risks posed by unconsolidated subsidiaries. If some entities are included in both the regulatory and accounting scopes of consolidation, but the method of consolidation differs between these two scopes, banks are required to list the relevant legal entities separately and explain the differences in the consolidation methods. For each legal entity that is required to be disclosed in this requirement, a bank must also disclose the total assets and equity on the entity's balance sheet and a description of the entity's principal activities.
14.6.2 Step 2: Expand the lines of the balance sheet under the regulatory scope of consolidation in Template CC2 to display all of the components that are used in Template CC1. It should be noted that banks will only need to expand elements of the balance sheet to the extent necessary to determine the components that are used in Template CC1 (eg if all of the paid-in capital of the bank meets the requirements to be included in Common Equity Tier 1 (CET1) capital, the bank would not need to expand this line). The level of disclosure should be proportionate to the complexity of the bank's balance sheet and its capital structure.
14.6.3 Step 3: Map each of the components that are disclosed in Template CC2 in Step 2 to the composition of capital disclosure set out in Template CC1.
Table CCA - Main features of regulatory capital instruments and of other TLAC-eligible instruments Purpose: Provide a description of the main features of a bank's regulatory capital instruments and other TLAC-eligible instruments, as applicable, that are recognised as part of its capital base / TLAC resources. Scope of application: The template is mandatory for all banks. In addition to completing the template for all regulatory capital instruments, G-SIB resolution entities should complete the template (including lines 3a and 34a) for all other TLAC-eligible instruments that are recognised as external TLAC resources by the resolution entities, starting from the TLAC conformance date. Internal TLAC instruments and other senior debt instruments are not covered in this template. Content: Quantitative and qualitative information as required. Frequency: Table CCA should be posted on a bank's website. It should be updated whenever the bank issues or repays a capital instrument (or other TLAC-eligible instrument where applicable), and whenever there is a redemption, conversion/writedown or other material change in the nature of an existing instrument. Updates should, at a minimum, be made semiannually. Banks should include the web link in each Pillar 3 report to the issuances made over the previous period. Format: Flexible. Accompanying information: Banks are required to make available on their websites the full terms and conditions of all instruments included in regulatory capital and TLAC. a Quantitative / qualitative information 1 Issuer 2 Unique identifier (eg Committee on Uniform Security Identification Procedures (CUSIP), International Securities Identification Number (ISIN) or Bloomberg identifier for private placement) 3 Governing law(s) of the instrument 3a Means by which enforceability requirement of Section 13 of the TLAC Term Sheet is achieved (for other TLAC-eligible instruments governed by foreign law) 4 Transitional Basel III rules 5 Post-transitional Basel III rules 6 Eligible at solo/group/group and solo 7 Instrument type (refer to SACAP) 8 Amount recognised in regulatory capital (currency in millions, as of most recent reporting date) 9 Par value of instrument 10 Accounting classification 11 Original date of issuance 12 Perpetual or dated 13 Original maturity date 14 Issuer call subject to prior SAMA approval 15 Optional call date, contingent call dates and redemption amount 16 Subsequent call dates, if applicable Coupons / dividends 17 Fixed or floating dividend/coupon 18 Coupon rate and any related index 19 Existence of a dividend stopper 20 Fully discretionary, partially discretionary or mandatory 21 Existence of step-up or other incentive to redeem 22 Non-cumulative or cumulative 23 Convertible or non-convertible 24 If convertible, conversion trigger(s) 25 If convertible, fully or partially 26 If convertible, conversion rate 27 If convertible, mandatory or optional conversion 28 If convertible, specify instrument type convertible into 29 If convertible, specify issuer of instrument it converts into 30 Writedown feature 31 If writedown, writedown trigger(s) 32 If writedown, full or partial 33 If writedown, permanent or temporary 34 If temporary write-down, description of writeup mechanism 34a Type of subordination 35 Position in subordination hierarchy in liquidation (specify instrument type immediately senior to instrument in the insolvency creditor hierarchy of the legal entity concerned). 36 Non-compliant transitioned features 37 If yes, specify non-compliant features Instructions
Banks are required to complete the template for each outstanding regulatory capital instrument and, in the case of G-SIBs, TLAC-eligible instruments (banks should insert "NA" if the question is not applicable).
Banks are required to report each instrument, including common shares, in a separate column of the template, such that the completed Table CCA would provide a "main features report" that summarises all of the regulatory capital and TLAC-eligible instruments of the banking group. G-SIBs disclosing these instruments should group them under three sections (horizontally along the table) to indicate whether they are for meeting (i) only capital (but not TLAC) requirements; (ii) both capital and TLAC requirements; or (iii) only TLAC (but not capital) requirements.Row number Explanation Format / list of options (where relevant) 1 Identifies issuer legal entity. Free text 2 Unique identifier (eg CUSIP, ISIN or Bloomberg identifier for private placement). Free text 3 Specifies the governing law(s) of the instrument. Free text 3a Other TLAC-eligible instruments governed by foreign law (ie a law other than that of the home jurisdiction of a resolution entity) include a clause in the contractual provisions whereby investors expressly submit to, and provide consent to the application of, the use of resolution tools in relation to the instrument by the home authority notwithstanding any provision of foreign law to the contrary, unless there is equivalent binding statutory provision for cross-border recognition of resolution actions. Select "NA" where the governing law of the instrument is the same as that of the country of incorporation of the resolution entity. Disclosure: [Contractual] [Statutory] [NA] 4 Specifies the regulatory capital treatment during the Basel III transitional phase (ie the component of capital from which the instrument is being phased out). Disclosure: [Common Equity Tier 1] [Additional Tier 1] [Tier 2] 5 Specifies regulatory capital treatment under Basel III rules not taking into account transitional treatment. Disclosure: [Common Equity Tier 1] [Additional Tier 1] [Tier 2] [Ineligible] 6 Specifies the level(s) within the group at which the instrument is included in capital. Disclosure: [Solo] [Group] [Solo and Group] 7 Specifies instrument type, varying by jurisdiction. Helps provide more granular understanding of features, particularly during transition. Disclosure: refer to SACAP. 8 Specifies amount recognised in regulatory capital. Free text 9 Par value of instrument. Free text 10 Specifies accounting classification. Helps to assess loss-absorbency. Disclosure: [Shareholders' equity] [Liability - amortised cost] [Liability - fair value option] [Non-controlling interest in consolidated subsidiary] 11 Specifies date of issuance. Free text 12 Specifies whether dated or perpetual. Disclosure: [Perpetual] [Dated] 13 For dated instrument, specifies original maturity date (day, month and year). For perpetual instrument, enter "no maturity". Free text 14 Specifies whether there is an issuer call option. Disclosure: [Yes] [No] 15 For instrument with issuer call option, specifies: (i) the first date of call if the instrument has a call option on a specific date (day, month and year); (ii) the instrument has a tax and/or regulatory event call; and (iii) the redemption price. Free text 16 Specifies the existence and frequency of subsequent call dates, if applicable. Free text 17 Specifies whether the coupon/dividend is fixed over the life of the instrument, floating over the life of the instrument, currently fixed but will move to a floating rate in the future, or currently floating but will move to a fixed rate in the future. Disclosure: [Fixed], [Floating] [Fixed to floating], [Floating to fixed] 18 Specifies the coupon rate of the instrument and any related index that the coupon/dividend rate references. Free text 19 Specifies whether the non-payment of a coupon or dividend on the instrument prohibits the payment of dividends on common shares (ie whether there is a dividend-stopper). Disclosure: [Yes] [No] 20 Specifies whether the issuer has full, partial or no discretion over whether a coupon/dividend is paid. If the bank has full discretion to cancel coupon/dividend payments under all circumstances, it must select "fully discretionary" (including when there is a dividend-stopper that does not have the effect of preventing the bank from cancelling payments on the instrument). If there are conditions that must be met before payment can be cancelled (eg capital below a certain threshold), the bank must select "partially discretionary". If the bank is unable to cancel the payment outside of insolvency, the bank must select "mandatory". Disclosure: [Fully discretionary] [Partially discretionary] [Mandatory] 21 Specifies whether there is a step-up or other incentive to redeem. Disclosure: [Yes] [No] 22 Specifies whether dividends/coupons are cumulative or non-cumulative. Disclosure: [Non-cumulative] [Cumulative] 23 Specifies whether the instrument is convertible. Disclosure: [Convertible] [Nonconvertible] 24 Specifies the conditions under which the instrument will convert, including point of non-viability. Where one or more authorities have the ability to trigger conversion, the authorities should be listed. For each of the authorities it should be stated whether the legal basis for the authority to trigger conversion is provided by the terms of the contract of the instrument (a contractual approach) or statutory means (a statutory approach). Free text 25 For conversion trigger separately, specifies whether the instrument will: (i) always convert fully; (ii) may convert fully or partially; or (iii) will always convert partially. Free text referencing one of the options above 26 Specifies the rate of conversion into the more loss-absorbent instrument. Free text 27 For convertible instruments, specifies whether conversion is mandatory or optional. Disclosure: [Mandatory] [Optional] [NA] 28 For convertible instruments, specifies the instrument type it is convertible into. Disclosure: [Common Equity Tier 1] [Additional Tier 1] [Tier 2] [Other] 29 If convertible, specifies the issuer of the instrument into which it converts. Free text 30 Specifies whether there is a writedown feature. Disclosure: [Yes] [No] 31 Specifies the trigger at which writedown occurs, including point of non-viability. Where one or more authorities have the ability to trigger writedown, the authorities should be listed. For each of the authorities it should be stated whether the legal basis for the authority to trigger conversion is provided by the terms of the contract of the instrument (a contractual approach) or statutory means (a statutory approach). Free text 32 For each writedown trigger separately, specifies whether the instrument will: (i) always be written down fully; (ii) may be written down partially; or (iii) will always be written down partially. Free text referencing one of the options above 33 For writedown instruments, specifies whether writedown is permanent or temporary. Disclosure: [Permanent] [Temporary] [NA] 34 For instruments that have a temporary writedown, description of writeup mechanism. Free text 34a Type of subordination. Disclosure: [Structural] [Statutory] [Contractual] [Exemption from subordination] 35 Specifies instrument to which it is most immediately subordinate. Where applicable, banks should specify the column numbers of the instruments in the completed main features template to which the instrument is most immediately subordinate. In the case of structural subordination, "NA" should be entered. Free text 36 Specifies whether there are non-compliant features. Disclosure: [Yes] [No] 37 If there are non-compliant features, specifies which ones. Free text Template CC1 - Composition of regulatory capital Purpose: Provide a breakdown of the constituent elements of a bank's capital. Scope of application: The template is mandatory for all banks at the consolidated level. Content: Breakdown of regulatory capital according to the scope of regulatory consolidation Frequency: Semiannual. Format: Fixed. Accompanying narrative: Banks are expected to supplement the template with a narrative commentary to explain any significant changes over the reporting period and the key drivers of such change. a b Amounts Source based on reference numbers/letters of the balance sheet under the regulatory scope of consolidation Common Equity Tier 1 capital: instruments and reserves 1 Directly issued qualifying common share (and equivalent for non-joint stock companies) capital plus related stock surplus h 2 Retained earnings 3 Accumulated other comprehensive income (and other reserves) 4 Directly issued capital subject to phase-out from CET1 capital (only applicable to non-joint stock companies) 5 Common share capital issued by subsidiaries and held by third parties (amount allowed in group CET1 capital) 6 Common Equity Tier 1 capital before regulatory adjustments Common Equity Tier 1 capital: regulatory adjustments 7 Prudent valuation adjustments 8 Goodwill (net of related tax liability) a minus d 9 Other intangibles other than mortgage servicing rights (MSR) (net of related tax liability) b minus e 10 Deferred tax assets (DTA) that rely on future profitability, excluding those arising from temporary differences (net of related tax liability) 11 Cash flow hedge reserve 12 Shortfall of provisions to expected losses 13 Securitisation gain on sale (as set out in SACAP4.1.4) 14 Gains and losses due to changes in own credit risk on fair valued liabilities 15 Defined benefit pension fund net assets 16 Investments in own shares (if not already subtracted from paid-in capital on reported balance sheet) 17 Reciprocal cross-holdings in common equity 18 Investments in the capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation, where the bank does not own more than 10% of the issued share capital (amount above 10% threshold) 19 Significant investments in the common stock of banking, financial and insurance entities that are outside the scope of regulatory consolidation (amount above 10% threshold) 20 MSR (amount above 10% threshold) c minus f minus 10% threshold 21 DTA arising from temporary differences (amount above 10% threshold, net of related tax liability) 22 Amount exceeding the 15% threshold 23 Of which: significant investments in the common stock of financials 24 Of which: MSR 25 Of which: DTA arising from temporary differences 26 National specific regulatory adjustments 27 Regulatory adjustments applied to Common Equity Tier 1 capital due to insufficient Additional Tier 1 and Tier 2 capital to cover deductions 28 Total regulatory adjustments to Common Equity Tier 1 capital 29 Common Equity Tier 1 capital (CET1) Additional Tier 1 capital: instruments 30 Directly issued qualifying additional Tier 1 instruments plus related stock surplus i 31 Of which: classified as equity under applicable accounting standards 32 Of which: classified as liabilities under applicable accounting standards 33 Directly issued capital instruments subject to phase-out from additional Tier 1 capital 34 Additional Tier 1 instruments (and CET1 instruments not included in row 5) issued by subsidiaries and held by third parties (amount allowed in group additional Tier 1 capital) 35 Of which: instruments issued by subsidiaries subject to phase-out 36 Additional Tier 1 capital before regulatory adjustments Additional Tier 1 capital: regulatory adjustments 37 Investments in own additional Tier 1 instruments 38 Reciprocal cross-holdings in additional Tier 1 instruments 39 Investments in the capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation, where the bank does not own more than 10% of the issued common share capital of the entity (amount above 10% threshold) 40 Significant investments in the capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation 41 National specific regulatory adjustments 42 Regulatory adjustments applied to additional Tier 1 capital due to insufficient Tier 2 capital to cover deductions 43 Total regulatory adjustments to additional Tier 1 capital 44 Additional Tier 1 capital (AT1) 45 Tier 1 capital (T1 = CET1 + AT1) Tier 2 capital: instruments and provisions 46 Directly issued qualifying Tier 2 instruments plus related stock surplus 47 Directly issued capital instruments subject to phase-out from Tier 2 capital 48 Tier 2 instruments (and CET1 and AT1 instruments not included in rows 5 or 34) issued by subsidiaries and held by third parties (amount allowed in group Tier 2) 49 Of which: instruments issued by subsidiaries subject to phase-out 50 Provisions 51 Tier 2 capital before regulatory adjustments Tier 2 capital before regulatory adjustments 52 Investments in own Tier 2 instruments 53 Reciprocal cross-holdings in Tier 2 instruments and other TLAC liabilities 54 Investments in the capital and other TLAC liabilities of banking, financial and insurance entities that are outside the scope of regulatory consolidation, where the bank does not own more than 10% of the issued common share capital of the entity (amount above 10% threshold) 54a Investments in the other TLAC liabilities of banking, financial and insurance entities that are outside the scope of regulatory consolidation and where the bank does not own more than 10% of the issued common share capital of the entity: amount previously designated for the 5% threshold but that no longer meets the conditions (for G-SIBs only) 55 Significant investments in the capital and other TLAC liabilities of banking, financial and insurance entities that are outside the scope of regulatory consolidation (net of eligible short positions) 56 National specific regulatory adjustments 57 Total regulatory adjustments to Tier 2 capital 58 Tier 2 capital 59 Total regulatory capital (= Tier 1 + Tier2) 60 Total risk-weighted assets Capital adequacy ratios and buffers 61 Common Equity Tier 1 capital (as a percentage of risk-weighted assets) 62 Tier 1 capital (as a percentage of risk-weighted assets) 63 Total capital (as a percentage of risk-weighted assets) 64 Institution-specific buffer requirement (capital conservation buffer plus countercyclical buffer requirements plus higher loss absorbency requirement, expressed as a percentage of riskweighted assets) 65 Of which: capital conservation buffer requirement 66 Of which: bank-specific countercyclical buffer requirement 67 Of which: higher loss absorbency requirement 68 Common Equity Tier 1 capital (as a percentage of risk-weighted assets) available after meeting the bank's minimum capital requirements National minima (if different from Basel III) 69 National minimum Common Equity Tier 1 capital adequacy ratio (if different from Basel III minimum) 70 National minimum Tier 1 capital adequacy ratio (if different from Basel III minimum) 71 National minimum Total capital adequacy ratio (if different from Basel III minimum) Amounts below the thresholds for deduction (before risk-weighting) 72 Non-significant investments in the capital and other TLAC liabilities of other financial entities 73 Significant investments in the common stock of financial entities 74 MSR (net of related tax liability) 75 DTA arising from temporary differences (net of related tax liability) Applicable caps on the inclusion of provisions in Tier 2 capital 76 Provisions eligible for inclusion in Tier 2 capital in respect of exposures subject to standardised approach (prior to application of cap) 77 Cap on inclusion of provisions in Tier 2 capital under standardised approach 78 Provisions eligible for inclusion in Tier 2 capital in respect of exposures subject to internal ratingsbased approach (prior to application of cap) 79 Cap for inclusion of provisions in Tier 2 capital under internal ratings-based approach Capital instruments subject to phase-out arrangements (only applicable between 1 Jan 2018 and 1 Jan 2022) 80 Current cap on CET1 instruments subject to phase-out arrangements 81 Amount excluded from CET1 capital due to cap (excess over cap after redemptions and maturities) 82 Current cap on AT1 instruments subject to phase-out arrangements 83 Amount excluded from AT1 capital due to cap (excess over cap after redemptions and maturities) 84 Current cap on Tier 2 instruments subject to phase-out arrangements 85 Amount excluded from Tier 2 capital due to cap (excess over cap after redemptions and maturities) Instructions (i) Rows in italics will be deleted after all the ineligible capital instruments have been fully phased out (ie from 1 January 2022 onwards). (ii) The reconciliation requirements included in Template CC2 result in the decomposition of certain regulatory adjustments. For example, the disclosure template below includes the adjustment "Goodwill net of related tax liability". The reconciliation requirements will lead to the disclosure of both the goodwill component and the related tax liability component of this regulatory adjustment. (iii) Shading: - Each dark grey row introduces a new section detailing a certain component of regulatory capital. - Light grey rows with no thick border represent the sum cells in the relevant section. - Light grey rows with a thick border show the main components of regulatory capital and the capital adequacy ratios. Columns Source: Banks are required to complete column b to show the source of every major input, which is to be cross-referenced to the corresponding rows in Template CC2. Rows Set out in the following table is an explanation of each row of the template above. Regarding the regulatory adjustments, banks are required to report deductions from capital as positive numbers and additions to capital as negative numbers. For example, goodwill (row 8) should be reported as a positive number, as should gains due to the change in the own credit risk of the bank (row 14). However, losses due to the change in the own credit risk of the bank should be reported as a negative number as these are added back in the calculation of CET1 capital. Row number Explanation 1 Instruments issued by the parent company of the reporting group that meet all of the CET1 capital entry criteria set out in SACAP2.2.1. This should be equal to the sum of common stock (and related surplus only) and other instruments for non-joint stock companies, both of which must meet the common stock criteria. This should be net of treasury stock and other investments in own shares to the extent that these are already derecognised on the balance sheet under the relevant accounting standards. Other paid-in capital elements must be excluded. All minority interest must be excluded. 2 Retained earnings, prior to all regulatory adjustments. In accordance with SACAP2.2.1, this row should include interim profit and loss that has met any audit, verification or review procedures that SAMA has put in place. Dividends are to be removed in accordance with the applicable accounting standards, ie they should be removed from this row when they are removed from the balance sheet of the bank. 3 Accumulated other comprehensive income and other disclosed reserves, prior to all regulatory adjustments. 4 Directly issued capital instruments subject to phase-out from CET1 capital in accordance with the requirements of SACAP5.7. This is only applicable to non-joint stock companies. Banks structured as joint stock companies must report zero in this row. 5 Common share capital issued by subsidiaries and held by third parties. Only the amount that is eligible for inclusion in group CET1 capital should be reported here, as determined by the application of SACAP3.1 (see SACAP Annex #7 for an example of the calculation). 6 Sum of rows 1 to 5. 7 Prudent valuation adjustments according to the requirements of Basel Framework “prudent valuation guidance” (Adjustment to the current valuation of less liquid positions for regulatory capital purposes), taking into account the guidance set out in Supervisory guidance for assessing banks' financial instrument fair value practices, April 2009 (in particular Principle 10). 8 Goodwill net of related tax liability, as set out in SACAP4.1.1. 9 Other intangibles other than MSR (net of related tax liability), as set out in SACAP4.1.1. 10 DTA that rely on future profitability excluding those arising from temporary differences (net of related tax liability), as set out in SACAP4.1.2. 11 The element of the cash flow hedge reserve described in SACAP4.1.3. 12 Shortfall of provisions to expected losses as described in SACAP4.1.4. 13 Securitisation gain on sale (as set out in SACAP4.1.4). 14 Gains and losses due to changes in own credit risk on fair valued liabilities, as described in SACAP4.1.4. 15 Defined benefit pension fund net assets, the amount to be deducted as set out in SACAP4.1.5. 16 Investments in own shares (if not already subtracted from paid-in capital on reported balance sheet), as set out in SACAP4.1.6. 17 Reciprocal cross-holdings in common equity, as set out in SACAP4.1.7. 18 Investments in the capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation and where the bank does not own more than 10% of the issued share capital, net of eligible short positions and amount above 10% threshold. Amount to be deducted from CET1 capital calculated in accordance with SACAP4.2. 19 Significant investments in the common stock of banking, financial and insurance entities that are outside the scope of regulatory consolidation, net of eligible short positions and amount above 10% threshold. Amount to be deducted from CET1 capital calculated in accordance with SACAP4.3 to SACAP4.4. 20 MSR (amount above 10% threshold), amount to be deducted from CET1 capital in accordance with SACAP4.4. 21 DTA arising from temporary differences (amount above 10% threshold, net of related tax liability), amount to be deducted from CET1 capital in accordance with SACAP4.4. 22 Total amount by which the three threshold items exceed the 15% threshold, excluding amounts reported in rows 19-21, calculated in accordance with SACAP4.4. 23 The amount reported in row 22 that relates to significant investments in the common stock of financials. 24 The amount reported in row 22 that relates to MSR. 25 The amount reported in row 22 that relates to DTA arising from temporary differences. 26 Any national specific regulatory adjustments that SAMA requires to be applied to CET1 capital in addition to the Basel III minimum set of adjustments. Refer to SACAP for guidance. 27 Regulatory adjustments applied to CET1 capital due to insufficient AT1 capital to cover deductions. If the amount reported in row 43 exceeds the amount reported in row 36, the excess is to be reported here. 28 Total regulatory adjustments to CET1 capital, to be calculated as the sum of rows 7-22 plus rows 26-7. 29 CET1 capital, to be calculated as row 6 minus row 28. 30 Instruments issued by the parent company of the reporting group that meet all of the AT1 capital entry criteria set out in SACAP2.2.2 and any related stock surplus as set out in SACAP2.2.2. All instruments issued by subsidiaries of the consolidated group should be excluded from this row. This row may include AT1 capital issued by an SPV of the parent company only if it meets the requirements set out in SACAP3.3. 31 The amount in row 30 classified as equity under applicable accounting standards. 32 The amount in row 30 classified as liabilities under applicable accounting standards. 33 Directly issued capital instruments subject to phase-out from AT1 capital in accordance with the requirements of SACAP5.7. 34 AT1 instruments (and CET1 instruments not included in row 5) issued by subsidiaries and held by third parties, the amount allowed in group AT1 capital in accordance with SACAP3.2. 35 The amount reported in row 34 that relates to instruments subject to phase-out from AT1 capital in accordance with the requirements of SACAP5.7. 36 The sum of rows 30, 33 and 34. 37 Investments in own AT1 instruments, amount to be deducted from AT1 capital in accordance with SACAP4.1.6. 38 Reciprocal cross-holdings in AT1 instruments, amount to be deducted from AT1 capital in accordance with SACAP4.1.7. 39 Investments in the capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation and where the bank does not own more than 10% of the issued common share capital of the entity, net of eligible short positions and amount above 10% threshold. Amount to be deducted from AT1 capital calculated in accordance with SACAP4.2. 40 Significant investments in the capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation, net of eligible short positions. Amount to be deducted from AT1 capital in accordance with SACAP4.3. 41 Any national specific regulatory adjustments that SAMA requires to be applied to AT1 capital in addition to the Basel III minimum set of adjustments. Refer to SACAP for guidance. 42 Regulatory adjustments applied to AT1 capital due to insufficient Tier 2 capital to cover deductions. If the amount reported in row 57 exceeds the amount reported in row 51, the excess is to be reported here. 43 The sum of rows 37-42. 44 AT1 capital, to be calculated as row 36 minus row 43. 45 Tier 1 capital, to be calculated as row 29 plus row 44. 46 Instruments issued by the parent company of the reporting group that meet all of the Tier 2 capital criteria set out in SACAP2.2.3 and any related stock surplus as set out in SACAP2.2.3. All instruments issued by subsidiaries of the consolidated group should be excluded from this row. This row may include Tier 2 capital issued by an SPV of the parent company only if it meets the requirements set out in SACAP3.3 47 Directly issued capital instruments subject to phase-out from Tier 2 capital in accordance with the requirements of SACAP5.7. 48 Tier 2 instruments (and CET1 and AT1 instruments not included in rows 5 or 34) issued by subsidiaries and held by third parties (amount allowed in group Tier 2 capital), in accordance with SACAP3.3. 49 The amount reported in row 48 that relates to instruments subject to phase-out from Tier 2 capital in accordance with the requirements of SACAP5.7. 50 Provisions included in Tier 2 capital, calculated in accordance with SACAP2.2.3. 51 The sum of rows 46-8 and row 50. 52 Investments in own Tier 2 instruments, amount to be deducted from Tier 2 capital in accordance with SACAP4.1.6. 53 Reciprocal cross-holdings in Tier 2 capital instruments and other TLAC liabilities, amount to be deducted from Tier 2 capital in accordance with SACAP4.1.7. 54 Investments in the capital instruments and other TLAC liabilities of banking, financial and insurance entities that are outside the scope of regulatory consolidation, net of eligible short positions, where the bank does not own more than 10% of the issued common share capital of the entity: amount in excess of the 10% threshold that is to be deducted from Tier 2 capital in accordance with SACAP4.2. For non-G-SIBs, any amount reported in this row will reflect other TLAC liabilities not covered by the 5% threshold and that cannot be absorbed by the 10% threshold. For G-SIBs, the 5% threshold is subject to additional conditions; deductions in excess of the 5% threshold are reported instead in 54a. 54a (This row is for G-SIBs only.) Investments in other TLAC liabilities of banking, financial and insurance entities that are outside the scope of regulatory consolidation and where the bank does not own more than 10% of the issued common share capital of the entity, previously designated for the 5% threshold but no longer meeting the conditions under paragraph 80a of the TLAC holdings standard, measured on a gross long basis. The amount to be deducted will be the amount of other TLAC liabilities designated to the 5% threshold but not sold within 30 business days, no longer held in the trading book or now exceeding the 5% threshold (eg in the instance of decreasing CET1 capital). Note that, for G-SIBs, amounts designated to this threshold may not subsequently be moved to the 10% threshold. This row does not apply to non-G-SIBs, to whom these conditions on the use of the 5% threshold do not apply. 55 Significant investments in the capital and other TLAC liabilities of banking, financial and insurance entities that are outside the scope of regulatory consolidation (net of eligible short positions), amount to be deducted from Tier 2 capital in accordance with SACAP4.3. 56 Any national specific regulatory adjustments that SAMA requires to be applied to Tier 2 capital in addition to the Basel III minimum set of adjustments. Refer to SACAP for guidance. 57 The sum of rows 52-6. 58 Tier 2 capital, to be calculated as row 51 minus row 57. 59 Total capital, to be calculated as row 45 plus row 58. 60 Total risk-weighted assets of the reporting group. 61 CET1 capital adequacy ratio (as a percentage of risk-weighted assets), to be calculated as row 29 divided by row 60 (expressed as a percentage). 62 Tier 1 capital adequacy ratio (as a percentage of risk-weighted assets), to be calculated as row 45 divided by row 60 (expressed as a percentage). 63 Total capital adequacy ratio (as a percentage of risk-weighted assets), to be calculated as row 59 divided by row 60 (expressed as a percentage). 64 Bank-specific buffer requirement (capital conservation buffer plus countercyclical buffer requirements plus higher loss absorbency requirement, expressed as a percentage of risk-weighted assets). If an MPE G-SIB resolution entity is not subject to a buffer requirement at that scope of consolidation, then it should enter zero. 65 The amount in row 64 (expressed as a percentage of risk-weighted assets) that relates to the capital conservation buffer, ie banks will report 2.5% here. 66 The amount in row 64 (expressed as a percentage of risk-weighted assets) that relates to the bank-specific countercyclical buffer requirement. 67 The amount in row 64 (expressed as a percentage of risk-weighted assets) that relates to the bank's higher loss absorbency requirement, if applicable. 68 CET1 capital (as a percentage of risk-weighted assets) available after meeting the bank's minimum capital requirements. To be calculated as the CET1 capital adequacy ratio of the bank (row 61) less the ratio of RWA of any common equity used to meet the bank's minimum CET1, Tier 1 and Total capital requirements. For example, suppose a bank has 100 RWA, 10 CET1 capital, 1.5 additional Tier 1 capital and no Tier 2 capital. Since it does not have any Tier 2 capital, it will have to earmark its CET1 capital to meet the 8% minimum capital requirement. The net CET1 capital left to meet other requirements (which could include Pillar 2, buffers or TLAC requirements) will be 10 - 4.5 - 2 = 3.5. 69 National minimum CET1 capital adequacy ratio (if different from Basel III minimum). Refer to SACAP for guidance. 70 National minimum Tier 1 capital adequacy ratio (if different from Basel III minimum). Refer to SACAP for guidance. 71 National minimum Total capital adequacy ratio (if different from Basel III minimum). Refer to SACAP for guidance. 72 Investments in the capital instruments and other TLAC liabilities of banking, financial and insurance entities that are outside the scope of regulatory consolidation where the bank does not own more than 10% of the issued common share capital of the entity (in accordance with SACAP4.2. 73 Significant investments in the common stock of financial entities, the total amount of such holdings that are not reported in row 19 and row 23. 74 MSR, the total amount of such holdings that are not reported in row 20 and row 24. 75 DTA arising from temporary differences, the total amount of such holdings that are not reported in row 21 and row 25. 76 Provisions eligible for inclusion in Tier 2 capital in respect of exposures subject to standardised approach, calculated in accordance with SACAP2.2.3, prior to the application of the cap. 77 Cap on inclusion of provisions in Tier 2 capital under the standardised approach, calculated in accordance with SACAP2.2.3. 78 Provisions eligible for inclusion in Tier 2 capital in respect of exposures subject to the internal ratings-based approach, calculated in accordance with SACAP2.2.3, prior to the application of the cap. 79 Cap on inclusion of provisions in Tier 2 capital under the internal ratings-based approach, calculated in accordance with SACAP2.2.3. 80 Current cap on CET1 instruments subject to phase-out arrangements; see SACAP5.7. 81 Amount excluded from CET1 capital due to cap (excess over cap after redemptions and maturities); see SACAP5.7. 82 Current cap on AT1 instruments subject to phase-out arrangements; see SACAP5.7. 83 Amount excluded from AT1 capital due to cap (excess over cap after redemptions and maturities); see SACAP5.7. 84 Current cap on Tier 2 capital instruments subject to phase-out arrangements; see SACAP5.7. 85 Amount excluded from Tier 2 capital due to cap (excess over cap after redemptions and maturities); see SACAP5.7. Template CC2 - Reconciliation of regulatory capital to balance sheet Purpose: Enable users to identify the differences between the scope of accounting consolidation and the scope of regulatory consolidation, and to show the link between a bank's balance sheet in its published financial statements and the numbers that are used in the composition of capital disclosure template set out in Template CC1. Scope of application: The template is mandatory for all banks. Content: Carrying values (corresponding to the values reported in financial statements). Frequency: Semiannual. Format: Flexible (but the rows must align with the presentation of the bank's financial report). Accompanying narrative: Banks are expected to supplement the template with a narrative commentary to explain any significant changes in the expanded balance sheet items over the reporting period and the key drivers of such change. Narrative commentary to significant changes in other balance sheet items could be found in Table LIA. a b c Balance sheet as in published financial statements Under regulatory scope of consolidation Reference As at period-end As at period-end Assets Cash and balances at central banks Items in the course of collection from other banks Trading portfolio assets Financial assets designated at fair value Derivative financial instruments Loans and advances to banks Loans and advances to customers Reverse repurchase agreements and other similar secured lending Available for sale financial investments Current and deferred tax assets Prepayments, accrued income and other assets Investments in associates and joint ventures Goodwill and intangible assets Of which: goodwill a Of which: other intangibles (excluding MSR) b Of which: MSR c Property, plant and equipment Total assets Liabilities Deposits from banks Items in the course of collection due to other banks Customer accounts Repurchase agreements and other similar secured borrowing Trading portfolio liabilities Financial liabilities designated at fair value Derivative financial instruments Debt securities in issue Accruals, deferred income and other liabilities Current and deferred tax liabilities Of which: deferred tax liabilities (DTL) related to goodwill d Of which: DTL related to intangible assets (excluding MSR) e Of which: DTL related to MSR f Subordinated liabilities Provisions Retirement benefit liabilities Total liabilities Shareholders' equity Paid-in share capital Of which: amount eligible for CET1 capital h Of which: amount eligible for AT1 capital i Retained earnings Accumulated other comprehensive income Total shareholders' equity Columns
Banks are required to take their balance sheet in their published financial statements (numbers reported in column a above) and report the numbers when the regulatory scope of consolidation is applied (numbers reported in column b above)..
If there are rows in the balance sheet under the regulatory scope of consolidation that are not present in the published financial statements, banks are required to add these and give a value of zero in column a.
If a bank's scope of accounting consolidation and its scope of regulatory consolidation are exactly the same, columns a and b should be merged and this fact should be clearly disclosed.
Rows
Similar to Template LI1, the rows in the above template should follow the balance sheet presentation used by the bank in its financial statements, on which basis the bank is required to expand the balance sheet to identify all the items that are disclosed in Template CC1. Set out above (ie items a to i) are some examples of items that may need to be expanded for a particular banking group. Disclosure should be proportionate to the complexity of the bank's balance sheet. Each item must be given a reference number/letter in column c that is used as cross-reference to column b of Template CC1.
Linkages across templates
(i) The amounts in columns a and b in Template CC2 before balance sheet expansion (ie before Step 2) should be identical to columns a and b in Template LI1. (ii) Each expanded item is to be cross-referenced to the corresponding items in Template CC1. Template TLAC1: TLAC composition for G-SIBs (at resolution group level) Purpose: Provide details of the composition of a G-SIB's TLAC. Scope of application: This template is mandatory for all G-SIBs. It should be completed at the level of each resolution group within a G-SIB. Content: Carrying values (corresponding to the values reported in financial statements). Frequency: Semiannual. Format: Fixed. Accompanying narrative: G-SIBs are expected to supplement the template with a narrative commentary to explain any significant changes over the reporting period and the key drivers of any such change(s). Qualitative narrative on the G-SIB resolution strategy, including the approach (SPE or multiple point of entry (MPE)) and structure to which the resolution measures are applied, may be included to help understand the templates. a Amounts Regulatory capital elements of TLAC and adjustments 1 Common Equity Tier 1 (CET1) capital 2 Additional Tier 1 (AT1) capital before TLAC adjustments 3 AT1 capital ineligible as TLAC as issued out of subsidiaries to third parties 4 Other adjustments 5 AT1 instruments eligible under the TLAC framework 6 Tier 2 capital before TLAC adjustments 7 Amortised portion of Tier 2 instruments where remaining maturity > 1 year 8 Tier 2 capital ineligible as TLAC as issued out of subsidiaries to third parties 9 Other adjustments 10 Tier 2 instruments eligible under the TLAC framework 11 TLAC arising from regulatory capital Non-regulatory capital elements of TLAC 12 External TLAC instruments issued directly by the bank and subordinated to excluded liabilities 13 External TLAC instruments issued directly by the bank which are not subordinated to excluded liabilities but meet all other TLAC Term Sheet requirements 14 Of which: amount eligible as TLAC after application of the caps 15 External TLAC instruments issued by funding vehicles prior to 1 January 2022 16 Eligible ex ante commitments to recapitalise a G-SIB in resolution 17 TLAC arising from non-regulatory capital instruments before adjustments Non-regulatory capital elements of TLAC: adjustments 18 TLAC before deductions 19 Deductions of exposures between MPE resolution groups that correspond to items eligible for TLAC (not applicable to single point of entry G-SIBs) 20 Deduction of investments in own other TLAC liabilities 21 Other adjustments to TLAC 22 TLAC after deductions Risk-weighted assets (RWA) and leverage exposure measure for TLAC purposes 23 Total RWA adjusted as permitted under the TLAC regime 24 Leverage exposure measure TLAC ratios and buffers 25 TLAC (as a percentage of RWA adjusted as permitted under the TLAC regime) 26 TLAC (as a percentage of leverage exposure) 27 CET1 (as a percentage of RWA) available after meeting the resolution group's minimum capital and TLAC requirements 28 Bank-specific buffer requirement (capital conservation buffer plus countercyclical buffer requirements plus higher loss absorbency requirement, expressed as a percentage of RWA) 29 Of which: capital conservation buffer requirement 30 Of which: bank-specific countercyclical buffer requirement 31 Of which: higher loss-absorbency requirement Instructions For SPE G-SIBs, where the resolution group is the same as the regulatory scope of consolidation for Basel III regulatory capital, those rows that refer to regulatory capital before adjustments coincide with information provided under Template CC1. For MPE G-SIBs, information is provided for each resolution group. Aggregation of capital and total RWA for capital purposes across resolution groups will not necessarily equal or directly correspond to values reported for regulatory capital and RWA under Template CC1. The TLAC position related to the regulatory capital of the resolution group shall include only capital instruments issued by entities belonging to the resolution group. Similarly, the TLAC position is based on the RWA (adjusted as permitted under Section 3 of the TLAC Term Sheet) and leverage ratio exposure measures calculated at the level of the resolution group. Regarding the shading: - Each dark grey row introduces a new section detailing a certain component of TLAC. - The light grey rows with no thick border represent the sum cells in the relevant section. - The light grey rows with a thick border show the main components of TLAC. The following table explains each row of the above template. Regarding the regulatory adjustments, banks are required to report deductions from capital or TLAC as positive numbers and additions to capital or TLAC as negative numbers. For example, the amortised portion of Tier 2 where remaining maturity is greater than one year (row 7) should be reported as a negative number (as it adds back in the calculation of Tier 2 instruments eligible as TLAC), while Tier 2 capital ineligible as TLAC (row 8) should be reported as a positive number. Row number Explanation 1 CET1 capital of the resolution group, calculated in line with the Basel III and TLAC frameworks. 2 AT 1 capital. This row will provide information on the AT1 capital of the resolution group, calculated in line with the SACAP standard and the TLAC framework. 3 AT1 instruments issued out of subsidiaries to third parties that are ineligible as TLAC. According to Section 8c of the TLAC Term Sheet, such instruments could be recognised to meet minimum TLAC until 31 December 2021. An amount (equal to that reported in row 34 in Template CC1) should thus be reported only starting from 1 January 2022. 4 Other elements of AT1 capital that are ineligible as TLAC (excluding those already incorporated in row 3). 5 AT1 instruments eligible under the TLAC framework, to be calculated as row 2 minus rows 3 and 4. 6 Tier 2 capital of the resolution group, calculated in line with the Basel III and TLAC frameworks. 7 Amortised portion of Tier 2 instruments where remaining maturity is greater than one year. This row recognises that as long as the remaining maturity of a Tier 2 instrument is above the one-year residual maturity requirement of the TLAC Term Sheet, the full amount may be included in TLAC, even if the instrument is partially derecognised in regulatory capital via the requirement to amortise the instrument in the five years before maturity. Only the amount not recognised in regulatory capital but meeting all TLAC eligibility criteria should be reported in this row. 8 Tier 2 instruments issued out of subsidiaries to third parties that are ineligible as TLAC. According to Section 8c of the TLAC Term Sheet, such instruments could be recognised to meet minimum TLAC until 31 December 2021. An amount (equal to that reported in row 48 of Template CC1) should thus be reported only starting from 1 January 2022. 9 Other elements of Tier 2 capital that are ineligible as TLAC (excluding those that are already incorporated in row 8). 10 Tier 2 instruments eligible under the TLAC framework, to be calculated as: row 6 + row 7 - row 8 - row 9. 11 TLAC arising from regulatory capital, to be calculated as: row 1 + row 5 + row 10. 12 External TLAC instruments issued directly by the resolution entity and subordinated to excluded liabilities. The amount reported in this row must meet the subordination requirements set out in points (a) to (c) of Section 11 of the TLAC Term Sheet, or be exempt from the requirement by meeting the conditions set out in points (i) to (iv) of the same section. 13 External TLAC instruments issued directly by the resolution entity that are not subordinated to Excluded Liabilities but meet the other TLAC Term Sheet requirements. The amount reported in this row should be those subject to recognition as a result of the application of the penultimate and antepenultimate paragraphs of Section 11 of the TLAC Term Sheet. The full amounts should be reported in this row, ie without applying the 2.5% and 3.5% caps set out the penultimate paragraph. 14 The amount reported in row 13 above after the application of the 2.5% and 3.5% caps set out in the penultimate paragraph of Section 11 of the TLAC Term Sheet. 15 External TLAC instrument issued by a funding vehicle prior to 1 January 2022. Amounts issued after 1 January 2022 are not eligible as TLAC and should not be reported here. 16 Eligible ex ante commitments to recapitalise a G-SIB in resolution, subject to the conditions set out in the second paragraph of Section 7 of the TLAC Term Sheet. 17 Non-regulatory capital elements of TLAC before adjustments. To be calculated as: row 12 + row 14 + row 15 + row 16. 18 TLAC before adjustments. To be calculated as: row 11 + row 17. 19 Deductions of exposures between MPE G-SIB resolution groups that correspond to items eligible for TLAC (not applicable for SPE GSIBs). All amounts reported in this row should correspond to deductions applied after the appropriate adjustments agreed by the crisis management group (CMG) (following the penultimate paragraph of Section 3 of the TLAC Term Sheet, the CMG shall discuss and, where appropriate and consistent with the resolution strategy, agree on the allocation of the deduction). 20 Deductions of investments in own other TLAC liabilities; amount to be deducted from TLAC resources in accordance with SACAP4.1.6. 21 Other adjustments to TLAC. 22 TLAC of the resolution group (as the case may be) after deductions. To be calculated as: row 18 - row 19 - row 20 - row 21. 23 Total RWA of the resolution group under the TLAC regime. For SPE G-SIBs, this information is based on the consolidated figure, so the amount reported in this row will coincide with that in row 60 of Template CC1. 24 Leverage exposure measure of the resolution group (denominator of leverage ratio). 25 TLAC ratio (as a percentage of RWA for TLAC purposes), to be calculated as row 22 divided by row 23. 26 TLAC ratio (as a percentage of leverage exposure measure), to be calculated as row 22 divided by row 24. 27 CET1 capital (as a percentage of RWA) available after meeting the resolution group's minimum capital requirements and TLAC requirement. To be calculated as the CET1 capital adequacy ratio, less any common equity (as a percentage of RWA) used to meet CET1, Tier 1, and Total minimum capital and TLAC requirements. For example, suppose a resolution group (that is subject to regulatory capital requirements) has 100 RWA, 10 CET1 capital, 1.5 AT1 capital, no Tier 2 capital and 9 non-regulatory capital TLAC-eligible instruments. The resolution group will have to earmark its CET1 capital to meet the 8% minimum capital requirement and 18% minimum TLAC requirement. The net CET1 capital left to meet other requirements (which could include Pillar 2 or buffers) will be 10 - 4.5 - 2 - 1 = 2.5. 28 Bank-specific buffer requirement (capital conservation buffer plus countercyclical buffer requirements plus G-SIB buffer requirement, expressed as a percentage of RWA). Calculated as the sum of: (i) the G-SIB's capital conservation buffer; (ii) the G-SIB's specific countercyclical buffer requirement calculated in accordance with SACAP; and (iii) the higher loss-absorbency requirement as set out in SACAP. Not applicable to individual resolution groups of an MPE G-SIB, unless the relevant authority imposes buffer requirements at the level of consolidation and requires such disclosure. 29 The amount in row 28 (expressed as a percentage of RWA) that relates to the capital conservation buffer), ie G-SIBs will report 2.5% here. Not applicable to individual resolution groups of an MPE G-SIB, unless otherwise required by the relevant authority. 30 The amount in row 28 (expressed as a percentage of RWA) that relates to the G-SIB's specific countercyclical buffer requirement. Not applicable to individual resolution groups of an MPE G-SIB, unless otherwise required by the relevant authority. 31 The amount in row 28 (expressed as a percentage of RWA) that relates to the higher loss-absorbency requirement. Not applicable to individual resolution groups of an MPE G-SIB, unless otherwise required by the relevant authority. Template TLAC2 - Material subgroup entity - creditor ranking at legal entity level Purpose: Provide creditors with information regarding their ranking in the liabilities structure of a material subgroup entity (ie an entity that is part of a material subgroup) which has issued internal TLAC to a G-SIB resolution entity. Scope of application: The template is mandatory for all G-SIBs. It is to be completed in respect of every material subgroup entity within each resolution group of a G-SIB, as defined by the FSB TLAC Term Sheet, on a legal entity basis. G-SIBs should group the templates according to the resolution group to which the material subgroup entities belong (whose positions are represented in the templates) belong, in a manner that makes it clear to which resolution entity they have exposures. Content: Nominal values. Frequency: Semiannual. Format: Fixed (number and description of each column under "Creditor ranking" depending on the liabilities structure of a material subgroup entity). Accompanying narrative: Where appropriate, banks should provide bank- or jurisdiction-specific information relating to credit hierarchies. Creditor ranking Sum of 1 to n 1 1 2 2 - n n (most junior) (most junior) (most senior) (most senior) 1 Is the resolution entity the creditor/investor? (yes or no) - 2 Description of creditor ranking (free text) 3 Total capital and liabilities net of credit risk mitigation - 4 Subset of row 3 that are excluded liabilities - 5 Total capital and liabilities less excluded liabilities (row 3 minus row 4) - 6 Subset of row 5 that are eligible as TLAC - 7 Subset of row 6 with 1 year ≤ residual maturity < 2 years - 8 Subset of row 6 with 2 years ≤ residual maturity < 5 years - 9 Subset of row 6 with 5 years ≤ residual maturity < 10 years - 10 Subset of row 6 with residual maturity ≥ 10 years, but excluded perpetual securities - 11 Subset of row 6 that is perpetual securities Template TLAC3 - Resolution entity - creditor ranking at legal entity level Purpose: Provide creditors with information regarding their ranking in the liabilities structure of each G-SIB resolution entity. Scope of application: The template is to be completed in respect of every resolution entity within the G-SIB, as defined by the TLAC standard, on a legal entity basis. Content: Nominal values. Frequency: Semiannual. Format: Fixed (number and description of each column under "Creditor ranking" depending on the liabilities structure of a resolution entity). Accompanying narrative: Where appropriate, banks should provide bank- or jurisdiction-specific information relating to credit hierarchies. Creditor ranking Sum of 1 to n 1 2 - n (most senior) (most senior) 1 Description of creditor ranking (free text) 2 Total capital and liabilities net of credit risk mitigation - 3 Subset of row 2 that are excluded liabilities - 4 Total capital and liabilities less excluded liabilities (row 2 minus row 3) - 5 Subset of row 4 that are potentially eligible as TLAC - 6 Subset of row 5 with 1 year ≤ residual maturity < 2 years - 7 Subset of row 5 with 2 years ≤ residual maturity < 5 years - 8 Subset of row 5 with 5 years ≤ residual maturity < 10 years - 9 Subset of row 5 with residual maturity ≥ 10 years, but excluding perpetual securities - 10 Subset of row 5 that is perpetual securities - Definitions and instructions
This template is the same as Template TLAC 2 except that no information is collected regarding exposures to the resolution entity (since the template describes the resolution entity itself). This means that there will only be one column for each layer of the creditor hierarchy.
Row 5 represents the subset of the amounts reported in row 4 that are TLAC-eligible according to the FSB TLAC Term Sheet (eg those that have a residual maturity of at least one year, are unsecured and if redeemable are not redeemable without SAMA approval). For the purposes of reporting this amount, the 2.5% cap (3.5% from 2022) on the exemption from the subordination requirement under the penultimate paragraph of Section 11 of the TLAC Term Sheet should be disapplied. That is, amounts that are ineligible solely as a result of the 2.5% cap (3.5%) should be included in full in row 5 together with amounts that are receiving recognition as TLAC. See also the second paragraph in Section 7 of the FSB TLAC Term Sheet.
2 In this context, “other TLAC-eligible instruments” are instruments other than regulatory capital instruments issued by G-SIBs that meet the TLAC eligibility criteria.
15. Capital Distribution Constraints
15.1 The disclosure requirement under this section is: Template CDC - Capital distribution constraints.
15.2 Template CDC provides the common equity tier 1 (CET1) capital ratios that would trigger capital distribution constraints. This disclosure extends to leverage ratio in the case of G-SIBs.
Template CDC: Capital distribution constraints Purpose: To provide disclosure of the capital ratio(s) below which capital distribution constraints are triggered as required under the Basel framework (i.e. risk-based, leverage, etc.) to allow meaningful assessment by market participants of the likelihood of capital distributions becoming restricted. Scope of application The table is mandatory for banks. Where applicable, the template may include additional rows to accommodate other national requirements that could trigger capital distribution constraints. Content: Quantitative information. Includes the CET1 capital ratio that would trigger capital distribution constraints when taking into account (i) CET1 capital that banks must maintain to meet the minimum CET1 capital ratio, applicable risk based buffer requirements (i.e. capital conservation buffer, G-SIB surcharge and countercyclical capital buffer) and Pillar 2 capital requirements (if CET1 capital is required); (ii) CET1 capital that banks must maintain to meet the minimum regulatory capital ratios and any CET1 capital used to meet Tier 1 capital, total capital and TLAC3 requirements, applicable risk-based buffer requirements (i.e. capital conservation buffer, G-SIB surcharge and countercyclical capital buffer) and Pillar 2 capital requirements (if CET1 capital is required); and (iii) the leverage ratio inclusive of leverage ratio buffer requirement. Frequency: Annual. Format: Fixed. Accompanying narrative: In cases where capital distribution constraints have been imposed, banks should describe the constraints imposed. In addition, banks shall provide a link to the SAMA’s website, where the characteristics governing capital distribution constraints are set out (eg stacking hierarchy of buffers, relevant time frame between breach of buffer and application of constraints, definition of earnings and distributable profits used to calculate restrictions). Further, banks may choose to provide any additional information they consider to be relevant for understanding the stated figures. a b CET1 capital ratio that would trigger capital distribution constraints (%) Current CET1 capital ratio (%) 1 CET1 minimum requirement plus Basel III buffers (not taking into account CET1 capital used to meet other minimum regulatory capital/ TLAC ratios) 2 CET1 capital plus Basel III buffers (taking into account CET1 capital used to meet other minimum regulatory capital/ TLAC ratios) Leverage ratio that would trigger capital distribution constraints (%) Current leverage ratio (%) 3 [Applicable only for G-SIBs] Leverage ratio Instructions Row Number Explanation 1 CET1 minimum plus Basel III buffers (not taking into account CET1 capital used to meet other minimum regulatory capital/TLAC ratios): CET1 capital ratio which would trigger capital distribution constraints, should the bank’s CET1 capital ratio fall below this level. The ratio takes into account only CET1 capital that banks must maintain to meet the minimum CET1 capital ratio (4.5%), applicable risk-based buffer requirements (i.e. capital conservation buffer (2.5%), G-SIB surcharge and countercyclical capital buffer) and Pillar 2 capital requirements (if CET1 capital is required). The ratio does not take into account instances where the bank has used its CET1 capital to meet its other minimum regulatory ratios (i.e. Tier 1 capital, total capital and/or TLAC requirements), which could increase the CET1 capital ratio which the bank has to meet in order to prevent capital distribution constraints from being triggered. 2 CET1 minimum plus Basel III buffers (taking into account CET1 capital used to meet other minimum regulatory capital/TLAC ratios): CET1 capital ratio which would trigger capital distribution constraints, should the bank’s CET1 capital ratio fall below this level. The ratio takes into account CET1 capital that banks must maintain to meet the minimum regulatory ratios (ie CET1, Tier 1, total capital requirements and TLAC requirements), applicable risk-based buffer requirements (i.e. capital conservation buffer (2.5%), G-SIB surcharge and countercyclical capital buffer) and Pillar 2 capital requirements (if CET1 capital is required). 3 Leverage ratio: Leverage ratio which would trigger capital distribution constraints, should the bank’s leverage ratio fall below this level. Linkages across templates
Amount in [CDC:1/b] is equal to [KM1:5/a]
Amount in [CDC:3/b] is equal to [KM1:14/a]
3 SACAP9.1 (B) states that Common Equity Tier 1 must first be used to meet the minimum capital and TLAC requirements if necessary (including the 6% Tier 1, 8% total capital and 18% TLAC requirements), before the remainder can contribute to the capital conservation buffer.
16. Links Between Financial Statements and Regulatory Exposures
16.1 This chapter describes requirements for banks to disclose reconciliations between elements of the calculation of regulatory capital to audited financial statements.
16.2 The disclosure requirements set out in this chapter are:
16.2.1 Table LIA - Explanations of differences between accounting and regulatory exposure amounts
16.2.2 Template LI1 - Differences between accounting and regulatory scopes of consolidation and mapping of financial statement categories with regulatory risk categories
16.2.3 Template LI2 - Main sources of differences between regulatory exposure amounts and carrying values in financial statements
16.2.4 Template PV1 - Prudent valuation adjustments (PVAs)
16.3 Table LIA provides qualitative explanations on the differences observed between accounting carrying value (as defined in Template LI1) and amounts considered for regulatory purposes (as defined in Template LI2) under each framework.
Table LIA: Explanations of differences between accounting and regulatory exposure amounts Purpose: Provide qualitative explanations on the differences observed between accounting carrying value (as defined in Template LI1) and amounts considered for regulatory purposes (as defined in Template LI2) under each framework. Scope of application: The template is mandatory for all banks. Content: Qualitative information. Frequency: Annual. Format: Flexible. Banks must explain the origins of the differences between accounting amounts, as reported in financial statements amounts and regulatory exposure amounts, as displayed in Templates LI1 and LI2. (a) Banks must explain the origins of any significant differences between the amounts in columns (a) and (b) in Template LI1. (b) Banks must explain the origins of differences between carrying values and amounts considered for regulatory purposes shown in Template LI2. (c) In accordance with the implementation of the guidance on prudent valuation (see Basel Framework “prudent valuation guidance”), banks must describe systems and controls to ensure that the valuation estimates are prudent and reliable. Disclosure must include: • Valuation methodologies, including an explanation of how far mark-to-market and mark-to-model methodologies are used. • Description of the independent price verification process. • Procedures for valuation adjustments or reserves (including a description of the process and the methodology for valuing trading positions by type of instrument). (d) Banks with insurance subsidiaries must disclose: • The national regulatory approach used with respect to insurance entities in determining a bank's reported capital positions (ie deduction of investments in insurance subsidiaries or alternative approaches, as discussed in Basel Framework “Scope and definitions” Banking, securities and other financial subsidiaries (Insurance entities); and • Any surplus capital in insurance subsidiaries recognized when calculating the bank's capital adequacy (see Basel Framework “Scope and definitions” Banking, securities and other financial subsidiaries (Insurance entities). Template LI1: Differences between accounting and regulatory scopes of consolidation and mapping of financial statement categories with regulatory risk categories Purpose: Columns (a) and (b) enable users to identify the differences between the scope of accounting consolidation and the scope of regulatory consolidation; and columns (c)-(g) break down how the amounts reported in banks' financial statements (rows) correspond to regulatory risk categories. Scope of application: The template is mandatory for all banks. Content: Carrying values (corresponding to the values reported in financial statements). Frequency: Annual. Format: Flexible (but the rows must align with the presentation of the bank's financial report). Accompanying narrative: See Table LIA. Banks are expected to provide qualitative explanation on items that are subject to regulatory capital charges in more than one risk category. a b c d e f g Carrying values as reported in published financial statements Carrying values under scope of regulatory consolidation Carrying values of items: Subject to credit risk framework Subject to counterparty credit risk framework Subject to the securitization framework Subject to the market risk framework Not subject to capital requirements or subject to deduction from capital Assets Cash and balances at central banks Items in the course of collection from other banks Trading portfolio assets Financial assets designated at fair value Derivative financial instruments Loans and advances to banks Loans and advances to customers Reverse repurchase agreements and other similar secured lending Available for sale financial investments -. Total assets Liabilities Deposits from banks Items in the course of collection due to other banks Customer accounts Repurchase agreements and other similar secured borrowings Trading portfolio liabilities Financial liabilities designated at fair value Derivative financial instruments -. Total liabilities Instructions
Rows
The rows must strictly follow the balance sheet presentation used by the bank in its financial reporting.
Columns
If a bank's scope of accounting consolidation and its scope of regulatory consolidation are exactly the same, columns (a) and (b) should be merged.
The breakdown of regulatory categories (c) to (f) corresponds to the breakdown prescribed in the rest of SDIS, ie column (c) corresponds to the carrying values of items other than off-balance sheet items reported in section 19 column (d) corresponds to the carrying values of items other than off-balance sheet items reported in section 20, column (e) corresponds to carrying values of items in the banking book other than off-balance sheet items reported in section 21 and column (f) corresponds to the carrying values of items other than off-balance sheet items reported in section 22.
Column (g) includes amounts not subject to capital requirements according to the Basel framework or subject to deductions from regulatory capital.
Note: Where a single item attracts capital charges according to more than one risk category framework, it should be reported in all columns that it attracts a capital charge. As a consequence, the sum of amounts in columns (c) to (g) may not equal the amounts in column (b) as some items may be subject to regulatory capital charges in more than one risk category.
For example, derivative assets/liabilities held in the regulatory trading book may relate to both column (d) and column (f). In such circumstances, the sum of the values in columns (c)-(g) would not equal to that in column (b). When amounts disclosed in two or more different columns are material and result in a difference between column (b) and the sum of columns (c)-(g), the reasons for this difference should be explained by banks in the accompanying narrative. Template LI2: Main sources of differences between regulatory exposure amounts and carrying values in financial statements Purpose: Provide information on the main sources of differences (other than due to different scopes of consolidation which are shown in Template LI1) between the financial statements' carrying value amounts and the exposure amounts used for regulatory purposes. Scope of application: The template is mandatory for all banks. Content: Carrying values that correspond to values reported in financial statements but according to the scope of regulatory consolidation (rows 1-3) and amounts considered for regulatory exposure purposes (row 10). Frequency: Annual. Format: Flexible. Row headings shown below are provided for illustrative purposes only and should be adapted by the bank to describe the most meaningful drivers for differences between its financial statement carrying values and the amounts considered for regulatory purposes. Accompanying narrative: See Table LIA a b c d e Total Items subject to: Credit risk framework Securitization framework Counterparty credit risk framework Market risk framework 1 Asset carrying value amount under scope of regulatory consolidation (as per Template LI1) 2 Liabilities carrying value amount under regulatory scope of consolidation (as per Template LI1) 3 Total net amount under regulatory scope of consolidation (Row 1 - Row 2) 4 Off-balance sheet amounts 5 Differences in valuations 6 Differences due to different netting rules, other than those already included in row 2 7 Differences due to consideration of provisions 8 Differences due to prudential filters 9 ⁞ 10 Exposure amounts considered for regulatory purposes Instructions
Amounts in rows 1 and 2, columns (b)-(e) correspond to the amounts in columns (c)-(f) of Template LI1.
Row 1 of Template LI2 includes only assets that are risk-weighted under the Basel framework, while row 2 includes liabilities that are considered for the application of the risk weighting requirements, either as short positions, trading or derivative liabilities, or through the application of the netting rules to calculate the net position of assets to be risk-weighted. These liabilities are not included in column (g) in Template LI1. Assets that are risk weighted under the Basel framework include assets that are not deducted from capital because they are under the applicable thresholds or due to the netting with liabilities.
Off-balance sheet amounts include off-balance sheet original exposure in column (a) and the amounts subject to regulatory framework, after application of the credit conversion factors (CCFs) where relevant in columns (b)-(d).
Column (a) is not necessarily equal to the sum of columns (b)-(e) due to assets being risk-weighted more than once (see Template LI1). In addition, exposure values used for risk weighting may differ under each risk framework depending on whether standardized approaches or internal models are used in the computation of this exposure value. Therefore, for any type of risk framework, the exposure values under different regulatory approaches can be presented separately in each of the columns if a separate presentation eases the reconciliation of the exposure values for banks.
The breakdown of columns in regulatory risk categories (b)-(e) corresponds to the breakdown prescribed in the rest of the document, ie column (b) credit risk corresponds to the exposures reported in section 19, column (c) corresponds to the exposures reported in section 21, column (d) corresponds to exposures reported in section 20, and column (e) corresponds to the exposures reported in section 22.
Differences due to consideration of provisions: The exposure values under row 1 are the carrying amounts and hence net of provisions (ie specific and general provisions, as set out in SACAP2.2.3). Nevertheless, exposures under the foundation internal ratings-based (F-IRB) and advanced internal ratings-based (A-IRB) approaches are risk-weighted gross of provisions. Row 7 therefore is the re-inclusion of general and specific provisions in the carrying amount of exposures in the F-IRB and A-IRB approaches so that the carrying amount of those exposures is reconciled with their regulatory exposure value. Row 7 may also include the elements qualifying as general provisions that may have been deducted from the carrying amount of exposures under the standardized approach and that therefore need to be reintegrated in the regulatory exposure value of those exposures. Any differences between the accounting impairment and the regulatory provisions under the Basel framework that have an impact on the exposure amounts considered for regulatory purposes should also be included in row 7.
Exposure amounts considered for regulatory purposes: The expression designates the aggregate amount considered as a starting point of the RWA calculation for each of the risk categories. Under the credit risk framework this should correspond either to the exposure amount applied in the standardized approach for credit risk (see SCRE5) or to the exposures at default (EAD) in the IRB approach for credit risk (see SCRE12.29); securitization exposures should be defined as in the securitization framework (see SCRE18.4 and SCRE18.5); and counterparty credit exposures are defined as the EAD considered for counterparty credit risk purposes (see SCCR5).
Linkages across templates
Template LI2 is focused on assets in the regulatory scope of consolidation that are subject to the regulatory framework. Therefore, column (g) in Template LI1, which includes the elements of the balance sheet that are not subject to the regulatory framework, is not included in Template LI2. The following linkage holds: column (a) in Template LI2 = column (b) in Template LI1 - column (g) in Template LI1. Template PV1: Prudent valuation adjustments (PVAs) Purpose: Provide a breakdown of the constituent elements of a bank's PVAs according to the requirements of Basel Framework “prudent valuation guidance”, taking into account SAMA’s circular No. 301000000768 on Supervisory guidance for assessing banks' financial instrument fair value practices, July 2009. Scope of application: The template is mandatory for all banks which record PVAs. Content: PVAs for all assets measured at fair value (marked to market or marked to model) and for which PVAs are required. Assets can be non-derivative or derivative instruments. Frequency: Annual. Format: Fixed. The row number cannot be altered. Rows which are not applicable to the reporting bank should be filled with "0" and the reason why they are not applicable should be explained in the accompanying narrative. Accompanying narrative: Banks are expected to supplement the template with a narrative commentary to explain any significant changes over the reporting period and the key drivers of such changes. In particular, banks are expected to detail "Other adjustments", where significant, and to define them when they are not listed in the Basel framework. Banks are also expected to explain the types of financial instruments for which the highest amounts of PVAs are observed. a b c d e f g h Equity Interest rates Foreign exchange Credit Commodities Total Of which: in the trading book Of which: in the banking book 1 Closeout uncertainty, of which: 2 Mid-market value 3 Closeout cost 4 Concentration 5 Early termination 6 Model risk 7 Operational risk 8 Investing and funding costs 9 Unearned credit spreads 10 Future administrative costs 11 Other 12 Total adjustment Definitions and instructions Row Number Explanation 3 Closeout cost: PVAs required to take account of the valuation uncertainty to adjust for the fact that the position level valuations calculated do not reflect an exit price for the position or portfolio (for example, where such valuations are calibrated to a mid-market price). 4 Concentration: PVAs over and above market price and closeout costs that would be required to get to a prudent exit price for positions that are larger than the size of positions for which the valuation has been calculated (i.e. cases where the aggregate position held by the bank is larger than normal traded volume or larger than the position sizes on which observable quotes or trades that are used to calibrate the price or inputs used by the core valuation model are based). 5 Early termination: PVAs to take into account the potential losses arising from contractual or non-contractual early terminations of customer trades that are not reflected in the valuation. 6 Model risk: PVAs to take into account valuation model risk which arises due to: (i) the potential existence of a range of different models or model calibrations which are used by users of Pillar 3 data; (ii) the lack of a firm exit price for the specific product being valued; (iii) the use of an incorrect valuation methodology; (iv) the risk of using unobservable and possibly incorrect calibration parameters; or (v) the fact that market or product factors are not captured by the core valuation model. 7 Operational risk: PVAs to take into account the potential losses that may be incurred as a result of operational risk related to valuation processes. 8 Investing and funding costs: PVAs to reflect the valuation uncertainty in the funding costs that other users of Pillar 3 data would factor into the exit price for a position or portfolio. It includes funding valuation adjustments on derivatives exposures. 9 Unearned credit spreads: PVAs to take account of the valuation uncertainty in the adjustment necessary to include the current value of expected losses due to counterparty default on derivative positions, including the valuation uncertainty on CVA. 10 Future administrative costs: PVAs to take into account the administrative costs and future hedging costs over the expected life of the exposures for which a direct exit price is not applied for the closeout costs. This valuation adjustment has to include the operational costs arising from hedging, administration and settlement of contracts in the portfolio. The future administrative costs are incurred by the portfolio or position but are not reflected in the core valuation model or the prices used to calibrate inputs to that model. 11 Other: "Other" PVAs which are required to take into account factors that will influence the exit price but which do not fall in any of the categories listed in Basel Framework “prudent valuation guidance” (Introduction). These should be described by banks in the narrative commentary that supports the disclosure. Linkages across templates
[PV1:12/f] is equal to [CC1:7/a]17- Asset Encumbrance
17.1 The disclosure requirement under this section is: Template ENC - Asset encumbrance.
17.2 Template ENC provides information on the encumbered and unencumbered assets of a bank.
17.3 The definition of “encumbered assets” in Template ENC is different to that under LCR30 for on-balance sheet assets. Specifically, the definition of “encumbered assets” in Template ENC excludes the aspect of asset monetization. Under Template ENC, “encumbered assets” are assets that the bank is restricted or prevented from liquidating, selling, transferring or assigning, due to regulatory, contractual or other limitations.
Template ENC: Asset encumbrance Purpose: To provide the amount of encumbered and unencumbered assets. Scope of application The template is mandatory for all banks. Content: Carrying amount for encumbered and unencumbered assets on the balance sheet using period-end values. Banks must use the specific definition of “encumbered assets” set out in the instructions below in making the disclosure. The scope of consolidation for the purposes of this disclosure requirement should be a bank’s regulatory scope of consolidation, but including its securitization exposures. Frequency: Semiannual. Format: Fixed. Banks should always complete columns (a), (b) and (c). Banks should group any assets used in central bank facilities with other encumbered and unencumbered assets, as appropriate. Accompanying narrative: Banks are expected to supplement the template with a narrative commentary to explain (i) any significant change in the amount of encumbered and unencumbered assets from the previous disclosure; (ii) as applicable, any definition of the amounts of encumbered and/or unencumbered assets broken down by types of transaction/category; and (iii) any other relevant information necessary to understand the context of the disclosed figures. a b c Encumbered assets Unencumbered assets Total The assets on the balance sheet would be disaggregated; there can be as much disaggregation as desired Definitions
The definitions are specific to this template and are not applicable for other parts of the Basel framework.
Encumbered assets: Encumbered assets are assets that the bank is restricted or prevented from liquidating, selling, transferring or assigning due to legal, regulatory, contractual or other limitations. The definition of “encumbered assets” in Template ENC is different than that under the Liquidity Coverage Ratio for on-balance sheet assets. Specifically, the definition of “encumbered assets” in Template ENC excludes the aspect of asset monetization. For an unencumbered asset to qualify as high-quality liquid assets, the LCR requires a bank to have the ability to monetize that asset during the stress period such that the bank can meet net cash outflows.
Unencumbered assets: Unencumbered assets are assets which do not meet the definition of encumbered.
Instructions
Total (in column (c)): Sum of encumbered and unencumbered assets. The scope of consolidation for the purposes of this disclosure requirement should be based on a bank’s regulatory scope of consolidation, but including its securitization exposures. 18. Remuneration
18.1 The disclosures described in this chapter provide information on a bank's remuneration policy, the fixed and variable remuneration awarded during the financial year, details of any special payments made, and information on a bank's total outstanding deferred and retained remuneration.
18.2 The disclosure requirements under this section are:
18.2.1 Table REMA - Remuneration policy
18.2.2 Template REM1 - Remuneration awarded during financial year
18.2.3 Template REM2 - Special payments
18.2.4 Template REM3 - Deferred remuneration
18.3 Table REMA provides information on a bank's remuneration policy as well as key features of the remuneration system.
18.4 Templates REM1, REM2 and REM3 provide information on a bank's fixed and variable remuneration awarded during the financial year, details of any special payments made, and information on a bank's total outstanding deferred and retained remuneration, respectively.
18.5 The disclosure requirements should be published annually. When it is not possible for the remuneration disclosures to be made at the same time as the publication of a bank's annual report, the disclosures should be made as soon as possible thereafter.
Table REMA: Remuneration policy Purpose: Describe the bank's remuneration policy as well as key features of the remuneration system to allow meaningful assessments by users of Pillar 3 data of banks' compensation practices. Scope of application: The table is mandatory for all banks. Content: Qualitative information. Frequency: Annual Format: Flexible. Banks must describe the main elements of their remuneration system and how they develop this system. In particular, the following elements, where relevant, should be described: Qualitative disclosures (a) Information relating to the bodies that oversee remuneration. Disclosures should include:
• Name, composition and mandate of the main body overseeing remuneration. • External consultants whose advice has been sought, the body by which they were commissioned, and in what areas of the remuneration process. • A description of the scope of the bank's remuneration policy (eg by regions, business lines), including the extent to which it is applicable to foreign subsidiaries and branches. • A description of the types of employees considered as material risk-takers and as senior managers.
(b) Information relating to the design and structure of remuneration processes. Disclosures should include:
• An overview of the key features and objectives of remuneration policy. • Whether the remuneration committee reviewed the firm's remuneration policy during the past year, and if so, an overview of any changes that were made, the reasons for those changes and their impact on remuneration. • A discussion of how the bank ensures that risk and compliance employees are remunerated independently of the businesses they oversee.
(c) Description of the ways in which current and future risks are taken into account in the remuneration processes. Disclosures should include an overview of the key risks, their measurement and how these measures affect remuneration.
(d) Description of the ways in which the bank seeks to link performance during a performance measurement period with levels of remuneration. Disclosures should include:
• An overview of main performance metrics for bank, top-level business lines and individuals. • A discussion of how amounts of individual remuneration are linked to bank-wide and individual performance. • A discussion of the measures the bank will in general implement to adjust remuneration in the event that performance metrics are weak, including the bank's criteria for determining "weak" performance metrics.
(e) Description of the ways in which the bank seeks to adjust remuneration to take account of longer-term performance. Disclosures should include:
• A discussion of the bank's policy on deferral and vesting of variable remuneration and, if the fraction of variable remuneration that is deferred differs across employees or groups of employees, a description of the factors that determine the fraction and their relative importance. • A discussion of the bank's policy and criteria for adjusting deferred remuneration before vesting and after vesting through clawback arrangements, subject to the relevant laws in Saudi Arabia.
(f) Description of the different forms of variable remuneration that the bank utilizes and the rationale for using these different forms. Disclosures should include:
• An overview of the forms of variable remuneration offered (ie cash, shares and share-linked instruments and other forms). • A discussion of the use of the different forms of variable remuneration and, if the mix of different forms of variable remuneration differs across employees or groups of employees), a description the factors that determine the mix and their relative importance. Template REM1: Remuneration awarded during the financial year Purpose: Provide quantitative information on remuneration for the financial year. Scope of application: The template is mandatory for all banks. Content: Quantitative information. Frequency: Annual Format: Flexible. Accompanying narrative: Banks may supplement the template with a narrative commentary to explain any significant movements over the reporting period and the key drivers of such movements. a b Remuneration amount Senior management, as defined in SAMA circular No.42081293 date 21/11/1442H Other material risktakers 1 Fixed remuneration Number of employees 2 Total fixed remuneration (rows 3 + 5 + 7) 3 Of which: cash-based 4 Of which: deferred 5 Of which: shares or other share-linked instruments 6 Of which: deferred 7 Of which: other forms 8 Of which: deferred 9 Variable remuneration Number of employees 10 Total variable remuneration (rows 11 + 13 + 15) 11 Of which: cash-based 12 Of which: deferred 13 Of which: shares or other share-linked instruments 14 Of which: deferred 15 Of which: other forms 16 Of which: deferred 17
Total remuneration (rows 2 + 10)
Definitions and instructions
Senior management and other material risk-takers categories in columns (a) and (b) must correspond to the type of employees described in Table REMA.
Other forms of remuneration in rows 7 and 15 must be described in Table REMA and, if needed, in the accompanying narrative. Template REM2: Special payments Purpose: Provide quantitative information on special payments for the financial year. Scope of application: The template is mandatory for all banks. Content: Quantitative information. Frequency: Annual. Format: Flexible. Accompanying narrative: Banks may supplement the template with a narrative commentary to explain any significant movements over the reporting period and the key drivers of such movements.
Special payments Guaranteed bonuses Sign-on awards Severance payments Number of employees Total amount Number of employees Total amount Number of employees Total amount Senior management Other material risk-takers Definitions and instructions
Senior management and other material risk-takers categories in rows 1 and 2 must correspond to the type of employees described in Table REMA.
Guaranteed bonuses are payments of guaranteed bonuses during the financial year.
Sign-on awards are payments allocated to employees upon recruitment during the financial year.
Severance payments are payments allocated to employees dismissed during the financial year. Template REM3: Deferred remuneration Purpose: Provide quantitative information on deferred and retained remuneration. Scope of application: The template is mandatory for all banks. Content: Quantitative information. Frequency: Annual. Format: Flexible. Accompanying narrative: Banks may supplement the template with a narrative commentary to explain any significant movements over the reporting period and the key drivers of such movements.
a b c d e Deferred and retained remuneration Total amount of outstanding deferred remuneration Of which:
total amount of outstanding deferred and retained remuneration exposed to ex post explicit and/or implicit adjustmentTotal amount of amendment during the year due to ex post explicit adjustments Total amount of amendment during the year due to ex post implicit adjustments Total amount of deferred remuneration paid out in the financial year Senior management
Cash
Shares
Cash-linked instruments
Other
Other material risk-takers
Cash
Shares
Cash-linked instruments
Other
Total
Definitions
Outstanding exposed to ex post explicit adjustment: Part of the deferred and retained remuneration that is subject to direct adjustment clauses (for instance, subject to malus, clawbacks or similar reversal or downward revaluations of awards).
Outstanding exposed to ex post implicit adjustment: Part of the deferred and retained remuneration that is subject to adjustment clauses that could change the remuneration, due to the fact that they are linked to the performance of other indicators (for instance, fluctuation in the value of shares performance or performance units).
In columns (a) and (b), the amounts at reporting date (cumulated over the last years) are expected. In columns (c)-(e), movements during the financial year are expected. While columns (c) and (d) show the movements specifically related to column (b), column (e) shows payments that have affected column (a). 19. Credit Risk
plement the template with a narrative commentary to explain any significant change over the reporting period and the key drivers of such changes. Banks should describe the sequence in which CCFs, provisioning and credit risk mitigation
HVCRE: high-volatility commercial real estate.
19.1 The scope of section 19 includes items subject to risk-weighted assets (RWA) for credit risk as defined in Basel Framework “Risk-based capital requirements” (Calculation of Minimum risk-based capital requirements) 20.6(1), i.e. excluding:
19.1.1 All positions subject to the securitization regulatory framework, including those that are included in the banking book for regulatory purposes, which are reported in section 21.
19.1.2 Capital requirements relating to counterparty credit risk, which are reported in section 20.General information about credit risk:
19.2 The disclosure requirements under this section are:
19.2.1 General information about credit risk:
a. Table CRA - General qualitative information about credit risk
b. Template CR1 - Credit quality of assets
c. Template CR2 - Changes in stock of defaulted loans and debt securities
d. Table CRB - Additional disclosure related to the credit quality of assets
e. Table CRB-A - Additional disclosure related to prudential treatment of problem assets
19.2.2 Credit risk mitigation:
f. Table CRC - Qualitative disclosure related to credit risk mitigation techniques
g. Template CR3 - Credit risk mitigation techniques - overview
19.2.3 Credit risk under standardized approach:
h. Table CRD - Qualitative disclosure on banks' use of external credit ratings under the standardised approach for credit risk
i. Template CR4 - Standardised approach - Credit risk exposure and credit risk mitigation effects
j. Template CR5 - Standardised approach - Exposures by asset classes and risk weights
19.2.4 Credit risk under internal risk-based approaches. The disclosure requirements related in this section are not required to be completed by banks unless SAMA approve the bank to use the IRB approach.
k. Table CRE - Qualitative disclosure related to internal ratings-based (IRB) models
l. Template CR6 - IRB - Credit risk exposures by portfolio and probability of default (PD) range
m. Template CR7 - IRB - Effect on RWA of credit derivatives used as credit risk mitigation (CRM) techniques
n. Template CR8 - RWA flow statements of credit risk exposures under IRB
o. Template CR9 - IRB - Backtesting of PD per portfolio
p. Template CR10 - IRB (specialised lending and equities under the simple risk weight method)456789
Table CRA: General qualitative information about credit risk Purpose: Describe the main characteristics and elements of credit risk management (business model and credit risk profile, organization and functions involved in credit risk management, risk management reporting). Scope of application: The table is mandatory for all banks. Content: Qualitative information. Frequency: Annual. Format: Flexible. Banks must describe their risk management objectives and policies for credit risk, focusing in particular on:
(a) How the business model translates into the components of the bank's credit risk profile (b) Criteria and approach used for defining credit risk management policy and for setting credit risk limits (c) Structure and organization of the credit risk management and control function (d) Relationships between the credit risk management, risk control, compliance and internal audit functions (e) Scope and main content of the reporting on credit risk exposure and on the credit risk management function to the executive management and to the board of directors Template CR1: Credit quality of assets Purpose: Provide a comprehensive picture of the credit quality of a bank's (on- and off-balance sheet) assets. Scope of application: The template is mandatory for all banks. Columns d, e and f are only applicable for banks that have adopted an ECL accounting model. Content: Carrying values (corresponding to the accounting values reported in financial statements but according to the scope of regulatory consolidation). Frequency: Semiannual. Format: Fixed. Accompanying narrative: Banks must include their definition of default in an accompanying narrative. a b c d e f g Gross carrying values of Allowances/impairments Of which ECL accounting provisions for credit losses on SA exposures Of which ECL accounting provisions for credit losses on IRB exposures Net values (a+b-c) Defaulted exposures Non-defaulted exposures Allocated in regulatory category of Specific Allocated in regulatory category of General 1 Loans 2 Debt Securities 3 Off-balance sheet exposures 4 Total Definitions Gross carrying values: on- and off-balance sheet items that give rise to a credit risk exposure according to the Basel framework. On-balance sheet items include loans and debt securities. Off-balance sheet items must be measured according to the following criteria: (a) guarantees given - the maximum amount that the bank would have to pay if the guarantee were called. The amount must be gross of any credit conversion factor (CCF) or credit risk mitigation (CRM) techniques. (b) Irrevocable loan commitments - total amount that the bank has committed to lend. The amount must be gross of any CCF or CRM techniques. Revocable loan commitments must not be included. The gross value is the accounting value before any allowance/impairments but after considering write-offs. Banks must not take into account any credit risk mitigation technique.
Write-offs for the purpose of this template are related to a direct reduction of the carrying amount when the entity has no reasonable expectations of recovery.
Defaulted exposures: banks should use the definition of default that they also use for regulatory purposes. Banks must provide this definition of default in the accompanying narrative. For a bank using the standardized approach for credit risk, the default exposures in Templates CR1 and CR2 should correspond to exposures that are "past due for more than 90 days", as stated in SCRE7.96.
Non-defaulted exposures: any exposure not meeting the above definition of default.
Allowances/impairments: are those that are considered "credit-impaired" in the meaning of IFRS 9 Appendix A. Accounting provisions for credit losses: total amount of provisions, made via an allowance against impaired and not impaired exposures according to the applicable accounting framework. For example, when the accounting framework is IFRS 9, "impaired exposures" are those that are considered "credit-impaired" in the meaning of IFRS 9 Appendix A. When the accounting framework is US GAAP, "impaired exposures" are those exposures for which credit losses are measured under ASC Topic 326 and for which the bank has recorded a partial write-off/write-down.
Banks must fill in column d to f in accordance with the categorization of accounting provisions distinguishing those meeting the conditions to be categorized in general provisions, as defined in SACAP2.2.3, and those that are categorized as specific provisions. This categorization must be consistent with information provided in Table CRB. Net values: Total gross value less allowances/impairments.
Debt securities: Debt securities exclude equity investments subject to the credit risk framework. However, banks may add a row between rows 2 and 3 for "other investment" (if needed) and explain in the accompanying narrative.
Linkages across templates Amount in [CR1:1/g] is equal to the sum [CR3:1/a] + [CR3:1/b]. Amount in [CR1:2/g] is equal to the sum [CR3:2/a] + [CR3:2/b]. Amount in [CR1:4/a] is equal to [CR2:6/a], only when (i) there is zero defaulted off-balance sheet exposure or SAMA has exercised its discretion to include off-balance sheet exposures in Template CR2. Table CR2: Changes in stock of defaulted loans and debt securities Purpose: Identify the changes in a bank's stock of defaulted exposures, the flows between non-defaulted and defaulted exposure categories and reductions in the stock of defaulted exposures due to write-offs. Scope of application: The template is mandatory for all banks. Content: Carrying values. Frequency: Semiannual. Format: Fixed. Accompanying narrative: Banks should explain the drivers of any significant changes in the amounts of defaulted exposures from the previous reporting period and any significant movement between defaulted and non-defaulted loans.
Banks should disclose in their accompanying narrative whether defaulted exposures include off-balance sheet items.a 1 Defaulted loans and debt securities at end of the previous reporting period 2 Loans and debt securities that have defaulted since the last reporting period 3 Returned to non-defaulted status 4 Amounts written off 5 Other changes 6 Defaulted loans and debt securities at end of the reporting period
(1+2-3-4+5)Definitions
Defaulted exposure: such exposures must be reported net of write-offs and gross of (ie ignoring) allowances/impairments. For a bank using the standardised approach for credit risk, the default exposures in Templates CR1 and CR2 should correspond to exposures that are "past due for more than 90 days", as stated in SCRE7.96.
Loans and debt securities that have defaulted since the last reporting period: refers to any loan or debt securities that became marked as defaulted during the reporting period.
Return to non-defaulted status: refers to loans or debt securities that returned to non-default status during the reporting period.
Amounts written off: both total and partial write-offs.
Other changes: balancing items that are necessary to enable total to reconcile. Table CRB: Additional disclosure related to the credit quality of assets Purpose: Supplement the quantitative templates with information on the credit quality of a bank's assets. Scope of application: The table is mandatory for all banks. Content: Additional qualitative and quantitative information (carrying values). Frequency: Annual. Format: Flexible. Banks must provide the following disclosures:
Qualitative disclosures (a) The scope and definitions of "past due" and "impaired" exposures used for accounting purposes and the differences, if any, between the definition of past due and default for accounting and regulatory purposes. When the accounting framework is IFRS 9, "impaired exposures" are those that are considered "credit-impaired" in the meaning of IFRS 9 Appendix A. (b) The extent of past-due exposures (more than 90 days) that are not considered to be impaired and the reasons for this. (c) Description of methods used for determining accounting provisions for credit losses. In addition, banks that have adopted an ECL accounting model must provide information on the rationale for categorisation of ECL accounting provisions in general and specific categories for standardised approach exposures. (d) The bank's own definition of a restructured exposure. Banks should disclose the definition of restructured exposures they use (which may be a definition from the local accounting or regulatory framework). Quantitative disclosures (e) Breakdown of exposures by geographical areas, industry and residual maturity. (f) Amounts of impaired exposures (according to the definition used by the bank for accounting purposes) and related accounting provisions, broken down by geographical areas and industry. (g) Ageing analysis of accounting past-due exposures. (h) Breakdown of restructured exposures between impaired and not impaired exposures. Table CRB-A – Additional disclosure related to prudential treatment of problem assets Purpose: To supplement the quantitative templates with additional information related to non-performing exposures and forbearance. Scope of application: The table is mandatory for banks. Content: Qualitative and quantitative information (carrying values corresponding to the accounting values reported in financial statements but according to the regulatory scope of consolidation) Frequency: Annual. Format: Flexible. Banks must provide the following disclosures:
Qualitative disclosures a) The bank's own definition of non-performing exposures. The bank should specify in particular if it is using the definition provided in the guidelines on prudential treatment of problem assets (hereafter in this table referred to as SAMA's Rules on Management of Problem No. 41033343, January 2020. And provide a discussion on the implementation of its definition, including the materiality threshold used to categorise exposures as past due, the exit criteria of the non-performing category (providing information on a probation period, if relevant), together with any useful information for users’ understanding of this categorisation. This would include a discussion of any differences or unique processes for the categorisation of corporate and retail loans. b) The bank's own definition of a forborne exposure. The bank should specify in particular if it is using the definition provided in the Guidelines and provide a discussion on the implementation of its definition, including the exit criteria of the restructured or forborne category (providing information on the probation period, if relevant), together with any useful information for users’ understanding of this categorisation. This would include a discussion of any differences or unique processes for the catagorisation of corporate and retail loans.4 Quantitative disclosures c) Gross carrying value of total performing as well as non-performing exposures, broken down first by debt securities, loans and off-balance sheet exposures. Loans should be further broken down by corporate and retail exposures. Non-performing exposures should in addition be split into (i) defaulted exposures and/or impaired exposures;5 (ii) exposures that are not defaulted/impaired exposures but are more than 90 days past due; and (iii) other exposures where there is evidence that full repayment is unlikely without the bank's realisation of collateral (which would include exposures that are not defaulted/impaired and are not more than 90 days past due but for which payment is unlikely without the bank's realisation of collateral, even if the exposures are not past due).
Value adjustments and provisions6 or non-performing exposures should also be disclosed.d) Gross carrying values of restructured/forborne exposures broken down first by debt securities, loans and off-balance sheet exposures. Loans should be further broken down by corporate and retail exposures to enable an understanding of material differences in the level of risk among different portfolios (eg retail exposures secured by real estate/mortages, revolving exposures, SMEs, other retail). Exposures should, in addition, be split into performing and non-performing, and impaired and not impaired exposures.
Value adjustments and provisions for non-performing exposures should also be disclosed.
Definitions
Gross carrying values: on- and off-balance sheet items that give rise to a credit risk exposure according to the finalised Basel III framework. On-balance sheet items include loans and debt securities. Off-balance sheet items must be measured according to the following criteria: a) Guarantees given – the maximum amount that the bank would have to pay if the guarantee were called. The amount must be gross of any credit conversion factor (CCF) or credit risk mitigation (CRM) techniques.
b) Irrevocable loan commitments – the total amount that the bank has committed to lend. The amount must be gross of any CCF or CRM techniques. Revocable loan commitments must not be included. The gross value is the accounting value before any allowance/impairments but after considering write-offs. Banks must not take into account any CRM technique. Table CRC: Qualitative disclosure related to credit risk mitigation techniques Purpose: Provide qualitative information on the mitigation of credit risk. Scope of application: The table is mandatory for all banks. Content: Qualitative information. Frequency: Annual. Format: Flexible. Banks must disclose:
(a) Core features of policies and processes for, and an indication of the extent to which the bank makes use of, on- and off-balance sheet netting. (b) Core features of policies and processes for collateral evaluation and management. (c) Information about market or credit risk concentrations under the credit risk mitigation instruments used (ie by guarantor type, collateral and credit derivative providers).
Banks should disclose a meaningful breakdown of their credit derivative providers, and set the level of granularity of this breakdown in accordance with section 10. For instance, banks are not required to identify their derivative counterparties nominally if the name of the counterparty is considered to be confidential information. Instead, the credit derivative exposure can be broken down by rating class or by type of counterparty (eg banks, other financial institutions, non-financial institutions).
Table CR3: Credit risk mitigation techniques - overview Purpose: Disclose the extent of use of credit risk mitigation techniques. Scope of application: The table is mandatory for all banks. Content: Carrying values. Banks must include all CRM techniques used to reduce capital requirements and disclose all secured exposures, irrespective of whether the standardised or IRB approach is used for RWA calculation.
Please refer to section 28.3 for an illustration on how the template should be completed.Frequency: Semiannual. Format: Fixed. Where banks are unable to categorise exposures secured by collateral, financial guarantees or credit derivative into "loans" and "debt securities", they can either (i) merge two corresponding cells, or (ii) divide the amount by the pro-rata weight of gross carrying values; they must explain which method they have used. Accompanying narrative: Banks are expected to supplement the template with a narrative commentary to explain any significant changes over the reporting period and the key drivers of such changes.
a b c d e Exposures unsecured: carrying amount Exposures to be secured Exposures secured by collateral Exposures secured by financial guarantees Exposures secured by credit derivatives 1 Loans 2 Debt securities 3 Total 4 Of which defaulted Definitions
Exposures unsecured- carrying amount: carrying amount of exposures (net of allowances/impairments) that do not benefit from a credit risk mitigation technique.
Exposures to be secured: carrying amount of exposures which have at least one credit risk mitigation mechanism (collateral, financial guarantees, credit derivatives) associated with them. The allocation of the carrying amount of multi-secured exposures to their different credit risk mitigation mechanisms is made by order of priority, starting with the credit risk mitigation mechanism expected to be called first in the event of loss, and within the limits of the carrying amount of the secured exposures.
Exposures secured by collateral: carrying amount of exposures (net of allowances/impairments) partly or totally secured by collateral. In case an exposure is secured by collateral and other credit risk mitigation mechanism(s), the carrying amount of the exposures secured by collateral is the remaining share of the exposure secured by collateral after consideration of the shares of the exposure already secured by other mitigation mechanisms expected to be called beforehand in the event of a loss, without considering over collateralisation.
Exposures secured by financial guarantees: carrying amount of exposures (net of allowances/impairments) partly or totally secured by financial guarantees. In case an exposure is secured by financial guarantees and other credit risk mitigation mechanism, the carrying amount of the exposure secured by financial guarantees is the remaining share of the exposure secured by financial guarantees after consideration of the shares of the exposure already secured by other mitigation mechanisms expected to be called beforehand in the event of a loss, without considering over collateralisation. Table CRD: Qualitative disclosure on banks' use of external credit ratings under the standardised approach for credit risk Purpose: Supplement the information on a bank's use of the standardised approach with qualitative data on the use of external ratings. Scope of application: The table is mandatory for all banks that: (a) use the credit risk standardised approach (or the simplified standardised approach); and (b) make use of external credit ratings for their RWA calculation.
In order to provide meaningful information to users, the bank may choose not to disclose the information requested in the table if the exposures and RWA amounts are negligible. It is however required to explain why it considers the information not to be meaningful to users, including a description of the portfolios concerned and the aggregate total RWA these portfolios represent.
Content: Qualitative information. Frequency: Annual. Format: Flexible. A. For portfolios that are risk-weighted under the standardised approach for credit risk, banks must disclose the following information:
(a) Names of the external credit assessment institutions (ECAIs); (b) The asset classes for which each ECAI is used; (c) A description of the process used to transfer the issuer to issue credit ratings onto comparable assets in the banking book (see SCRE8.16 to SCRE8.18); and (d) The alignment of the alphanumerical scale of each agency used with risk buckets (as per SAMA circular No. B.C.S 242, issued April 11, 2007). Template CR4: Standardised approach – credit risk exposure and credit risk mitigation (CRM) effects Purpose: To illustrate the effect of CRM (comprehensive and simple approach) on capital requirement calculations under the standardised approach for credit risk. RWA density provides a synthetic metric on the riskiness of each portfolio. Scope of application: The template is mandatory for banks using the standardised approach for credit risk.
Subject to SAMA approval of the immateriality of the asset class, banks that intend to adopt a phased rollout of the IRB approach may apply the standardised approach to certain asset classes. In circumstances where exposures and RWA amounts subject to the standardised approach may be considered to be negligible, and disclosure of this information to users would not provide any meaningful information, the bank may choose not to disclose the template for the exposures treated under the standardised approach. The bank must, however, explain why it considers the information not to be meaningful to users. The explanation must include a description of the exposures included in the respective portfolios and the aggregate total of RWA from such exposures.Content: Regulatory exposure amounts Frequency: Semiannual. Format: Fixed. The columns and rows cannot be altered unless SAMA make policy changes to the asset classes as defined under the finalised Basel III framework. Accompanying narrative: Banks are expected to supplement the template with a narrative commentary to explain any significant change over the reporting period and the key drivers of such changes. Banks should describe the sequence in which CCFs, provisioning and credit risk mitigation measures are applied. a b c d e f Exposures before CCF and CRM Exposures post-CCF and postCRM RWA and RWA density Asset classes On-balance sheet amount Off-balance sheet amount On-balance sheet amount Off-balance sheet amount RWA RWA density 1 Sovereigns and their central banks 2 Non-central government public sector entities 3 Multilateral development banks 4 Banks Of which: securities firms and other financial institutions 5 Covered bonds 6 Corporates Of which: securities firms and other financial institutions Of which: specialised lending 7 Subordinated debt, equity and other capital 8 Retail MSMEs 9 Real estate Of which: general RR Of which: IPRRE Of which: general CRE Of which: IPCR Of which: land acquisition, development and construction 10 Defaulted exposures 11 Other assets 12 Total Definitions
Rows:
General residential real estate (General RRE): refers to regulatory residential real estate exposures that are not materially dependent on cash flows generated by the property as set out in SCRE7.74 and SCRE7.75, and any residential real estate exposures covered by SCRE7.81.
Income-producing residential real estate (IPRRE): refers to regulatory residential real estate exposures that are materially dependent on cash flows generated by the property as set out in SCRE7.76, and any residential real estate exposures covered by SCRE7.81.
General commercial real estate (General CRE): refers to regulatory commercial real estate exposures that are not materially dependent on cash flows generated by the property as set out in SCRE7.77 and SCRE7.78, and any commercial real estate exposures covered by SCRE7.81.
Income-producing commercial real estate (IPCRE): refers to regulatory commercial real estate exposures that are materially dependent on cash flows generated by the property as set out in SCRE7.79 and any commercial real estate exposures covered by SCRE7.81.
Land acquisition, development and construction: refers to exposures subject to the risk weights set out SCRE7.82 and SCRE7.83.
Other assets: refers to assets subject to specific risk weight as set out in SCRE7.102.
Columns:
Exposures before credit conversion factors (CCF) and CRM - On-balance sheet amount: Banks must disclose the regulatory exposure amount (net of specific provisions, including partial write-offs) under the regulatory scope of consolidation gross of (ie before taking into account) the effect of CRM techniques.
Exposures before CCF and CRM - Off-balance sheet amount: Banks must disclose the exposure value, gross of CCFs and the effect of CRM techniques under the regulatory scope of consolidation.
Exposures post-CCF and post-CRM: This is the amount to which the capital requirements are applied. It is a net credit equivalent amount, after CRM techniques and CCF have been applied.
RWA density: Total risk-weighted assets/exposures post-CCF and post-CRM (ie column (e) / (column (c) + column (d))), expressed as a percentage.
Linkages across templates:
Amount in [CR4:12/c] + [CR4:12/d] is equal to amount in [CR5: Exposure amounts and CCFs applied to off-balance sheet exposures, categorised based on risk bucket of converted exposures 11/d]. Template CR5: Standardised approach - exposures by asset classes and risk weights Purpose: To present the breakdown of credit risk exposures under the standardised approach by asset class and risk weight (corresponding to the riskiness attributed to the exposure according to standardised approach). Scope of application: The template is mandatory for banks using the standardised approach.
Subject to SAMA approval of the immateriality of the asset class, banks that intend to adopt a phased rollout of the internal ratings-based (IRB) approach may apply the standardised approach to certain asset classes. In circumstances where exposures and RWA amounts subject to the standardised approach may be considered to be negligible, and disclosure of this information would not provide any meaningful information to users, the bank may choose not to disclose the template for the exposures treated under the standardised approach. The bank must, however, explain why it considers the information not to be meaningful to users. The explanation must include a description of the exposures included in the respective portfolios and the aggregate total of RWA from such exposures.
Content: Regulatory exposure amounts. Frequency: Semiannual. Format: Fixed. The columns and rows cannot be altered unless SAMA make policy changes to the asset classes as defined under the finalised Basel III framework. Accompanying narrative: Banks are expected to supplement the template with a narrative commentary to explain any significant change over the reporting period and the key drivers of such changes. Banks should describe the sequence in which CCFs, provisioning and credit risk mitigation measures are applied. 1 0% 20% 50% 100% 150% Other Total credit exposure amount (post-CCF and post-CRM) Sovereigns and their central banks 2 20% 50% 100% 150% Other Total credit exposure amount (post-CCF and post-CRM) Non-central government public sector entities 3 0% 20% 30% 50% 100% 150% Other Total credit exposure amount (post-CCF and post-CRM) Multilateral development banks 4 20% 30% 40% 50% 75% 100% 150% Other Total credit exposure amount (post-CCF and post-CRM) Banks Of which: securities firms and other financial institutions 5 10% 15% 50% 20% 25% 50% 100% Other Total credit exposure amount (post-CCF and post-CRM) Covered bonds 6 20% 50% 65% 75% 80% 85% 100% 130% 150% Other Total credit exposure amount (post-CCF and post-CRM) Corporates/including corporate SMEs Of which: securities firms and other financial institutions Of which: specialised lending 7 100% 150% 250%7 400%7 Other Total credit exposure amount (post-CCF and post-CRM) Subordinated debt, equity and other capital8 8 45% 75% 100% Other Total credit exposure amount (post-CCF and post-CRM) Retail MSMEs9 9 0 % 20 % 25 % 30 % 35 % 40 % 45 % 50 % 60 % 65 % 70 % 75 % 85 % 90 % 100 % 105 % 110 % 150 % Others Total credit exposure amount (post-CCF and postCRM) Real estate Of which: general RRE Of which: no loan splitting applied Of which: loan splitting applied (secured) Of which: loan splitting applied (unsecured) Of which: IPRRE Of which: general CRE Of which: no loan splitting applied Of which: loan splitting applied (secured) Of which: loan splitting applied (unsecured) Of which: IPCRE Of which: land acquisition, development and construction 10 50% 100% 150% Other Total credit exposure amount (post-CCF and post-CRM) Defaulted exposures 11 0% 20% 100% 1250% Other Total credit exposure amount (post-CCF and post-CRM) Other assets Exposure amounts and CCFs applied to off-balance sheet exposures, categorised based on risk bucket of converted exposures Risk weight a b cd On-balance sheet exposure Off-balance sheet exposure (pre-CCF) Weighted average CCF*Exposure (post-CCF and post-CRM) 1 Less than 40% 2 40-70% 3 75% 4 85% 5 90-100% 6 105-130% 7 150% 8 250% 9 400% 10 1,250% 11 Total exposures * Weighting is based on off-balance sheet exposure (pre-CCF). Definitions
Loan splitting: refers to the approaches set out in SCRE7.75 and SCRE7.78.
Total credit exposure amount (post-CCF and post-CRM): the amount used for the capital requirements calculation (for both on- and off-balance sheet amounts), therefore net of specific provisions (including partial write-offs) and after CRM techniques and CCF have been applied but before the application of the relevant risk weights.
Defaulted exposures: correspond to the unsecured portion of any loan past due for more than 90 days or represent an exposure to a defaulted borrower, as defined in SCRE7.96.
Other assets: refers to assets subject to specific risk weighting as set out in SCRE7.102. Template CRE: Qualitative disclosure related to IRB models Purpose: Provide additional information on IRB models used to compute RWA. Scope of application: he table is mandatory for banks using A-IRB or F-IRB approaches for some or all of their exposures.
To provide meaningful information to users, the bank must describe the main characteristics of the models used at the group-wide level (according to the scope of regulatory consolidation) and explain how the scope of models described was determined. The commentary must include the percentage of RWA covered by the models for each of the bank's regulatory portfolios.Content: Qualitative information. Frequency: Annual. Format: Flexible. Banks must provide the following information on their use of IRB models:
(a) nternal model development, controls and changes: role of the functions involved in the development, approval and subsequent changes of the credit risk models (b) Relationships between risk management function and internal audit function and procedure to ensure the independence of the function in charge of the review of the models from the functions responsible for the development of the models. (c) Scope and main content of the reporting related to credit risk models. (d) Scope of the supervisor's acceptance of approach.
The "scope of the supervisor's acceptance of approach" refers to the scope of internal models approved by SAMA in terms of entities within the group (if applicable), portfolios and exposure classes, with a breakdown between foundation IRB (F-IRB) and advanced IRB (A-IRB), if applicable.
(e) For each of the portfolios, the bank must indicate the part of EAD within the group (in percentage of total EAD) covered by standardised, F-IRB and A-IRB approach and the part of portfolios that are involved in a roll-out plan. (f) The number of key models used with respect to each portfolio, with a brief discussion of the main differences among the models within the same portfolios. (g) Description of the main characteristics of the approved models:
(i) definitions, methods and data for estimation and validation of PD (eg how PDs are estimated for low default portfolios; if there are regulatory floors; the drivers for differences observed between PD and actual default rates at least for the last three periods);and where applicable:
(ii) LGD (eg methods to calculate downturn LGD; how LGDs are estimated for low default portfolio; the time lapse between the default event and the closure of the exposure);
(iii) credit conversion factors, including assumptions employed in the derivation of these variables;Template CR6: IRB - Credit risk exposures by portfolio and PD range Purpose: Provide main parameters used for the calculation of capital requirements for IRB models. The purpose of disclosing these parameters is to enhance the transparency of banks' RWA calculations and the reliability of regulatory measures. Scope of application: The template is mandatory for banks using either the F-IRB or the A-IRB approach for some or all of their exposures. Content: Columns (a) and (b) are based on accounting carrying values and columns (c) to (l) are regulatory values. All are based on the scope of regulatory consolidation. Frequency: Semiannual. Format: Fixed. Accompanying narrative: Banks are expected to supplement the template with a narrative to explain the effect of credit derivatives on RWAs. PD scale a b c d e f g h i j k l Original on-balance sheet gross exposure Off-balance sheet exposures pre CCF Average CCF EAD post CRM and post-CCF Average PD Number of obligors Average LGD Average maturity RWA RWA density EL Provisions Portfolio X 0.00 to <0.15 0.15 to <0.25 0.25 to <0.50 0.50 to <0.75 0.75 to <2.50 2.50 to <10.00 10.00 to
<100.00
100.00 (Default) Sub-total Total (all portfolios) Definitions
Rows
Portfolio X includes the following prudential portfolios for the FIRB approach: (i) Sovereign; (ii) Banks; (iii) Corporate; (iv) Corporate - Specialised Lending; (v) Purchased receivables, and the following prudential portfolios for the AIRB approach: (i) Sovereign; (ii) Banks; (iii) Corporate; (iv) Corporate - Specialised Lending; (v) Retail - qualifying revolving (QRRE); (vi) Retail - Residential mortgage exposures; (vii) Retail - SME; (viii) Other retail exposures; (ix) Purchased receivables. Information on F-IRB and A-IRB portfolios, respectively, must be reported in two separate templates.
Default: The data on defaulted exposures may be further broken down according to SAMA’s definitions for categories of defaulted exposures.
Columns
PD scale: Exposures shall be broken down according to the PD scale used in the template instead of the PD scale used by banks in their RWA calculation. Banks must map the PD scale they use in the RWA calculations into the PD scale provided in the template.
Original on-balance sheet gross exposure: amount of the on-balance sheet exposure gross of accounting provisions (before taking into account the effect of credit risk mitigation techniques).
Off-balance sheet exposure pre conversion factor: exposure value without taking into account value adjustments and provisions, conversion factors and the effect of credit risk mitigation techniques.
Average CCF: EAD post-conversion factor for off-balance sheet exposure to total off-balance sheet exposure preconversion factor.
EAD post-CRM: the amount relevant for the capital requirements calculation.
Number of obligors: corresponds to the number of individual PDs in this band. Approximation (round number) is acceptable.
Average PD: obligor grade PD weighted by EAD.
Average LGD: the obligor grade LGD weighted by EAD. The LGD must be net of any CRM effect.
Average maturity: the obligor maturity in years weighted by EAD; this parameter needs to be filled in only when it is used for the RWA calculation.
RWA density: Total risk-weighted assets to EAD post-CRM.
EL: the expected losses as calculated according to SCRE13.8 to SCRE13.12 and SCRE15.2 to SCRE15.3.
Provisions: provisions calculated according to SCRE15.4. Template CR7: IRB - Effect on RWA of credit derivatives used as CRM techniques Purpose: Illustrate the effect of credit derivatives on the IRB approach capital requirements' calculations. The pre-credit derivatives RWA before taking account of credit derivatives mitigation effect has been selected to assess the impact of credit derivatives on RWA. This is irrespective of how the CRM technique feeds into the RWA calculation. Scope of application: The template is mandatory for banks using the A-IRB and/or F-IRB approaches for some or all of their exposures. Content: Risk-weighted assets (subject to credit risk treatment). Frequency: Semiannual. Format: Fixed. Accompanying narrative: Banks should supplement the template with a narrative commentary to explain the effect of credit derivatives on the bank's RWAs. a b Pre-credit derivatives RWA Actual RWA 1 Sovereign - F-IRB 2 Sovereign - A-IRB 3 Banks - F-IRB 4 Banks - A-IRB 5 Corporate - F-IRB 6 Corporate - A-IRB 7 Specialised lending - F-IRB 8 Specialised lending - A-IRB 9 Retail - qualifying revolving (QRRE) 10 Retail - residential mortgage exposures 11 Retail -MSMEs 12 Other retail exposures 13 Equity - F-IRB 14 Equity - A-IRB 15 Purchased receivables - F-IRB 16 Purchased receivables - A-IRB 17 Total
Pre-credit derivatives RWA: hypothetical RWA calculated assuming the absence of recognition of the credit derivative as a CRM technique.Actual RWA: RWA calculated taking into account the CRM technique impact of the credit derivative.
Template CR8: RWA flow statements of credit risk exposures under IRB Purpose: Present a flow statement explaining variations in the credit RWA determined under an IRB approach. Scope of application: The template is mandatory for banks using the A-IRB and/or F-IRB approaches. Content: Risk-weighted assets corresponding to credit risk only (counterparty credit risk excluded). Changes in RWA amounts over the reporting period for each of the key drivers should be based on a bank's reasonable estimation of the figure. Frequency: Quarterly. Format: Fixed. Columns and rows 1 and 9 cannot be altered. Banks may add additional rows between rows 7 and 8 to disclose additional elements that contribute significantly to RWA variations. Accompanying narrative: Banks should supplement the template with a narrative commentary to explain any significant change over the reporting period and the key drivers of such changes. a RWA amounts 1 RWA as at end of previous reporting period 2 Asset size 3 Asset quality 4 Model updates 5 Methodology and policy 6 Acquisitions and disposals 7 Foreign exchange movements 8 Other 9 RWA as at end of reporting period Asset size: organic changes in book size and composition (including origination of new businesses and maturing loans) but excluding changes in book size due to acquisitions and disposal of entities.
Asset quality: changes in the assessed quality of the bank's assets due to changes in borrower risk, such as rating grade migration or similar effects.
Model updates: changes due to model implementation, changes in model scope, or any changes intended to address model weaknesses.
Methodology and policy: changes due to methodological changes in calculations driven by regulatory policy changes, including both revisions to existing regulations and new regulations.
Acquisitions and disposals: changes in book sizes due to acquisitions and disposal of entities.
Foreign exchange movements: changes driven by market movements such as foreign exchange movements.
Other: this category must be used to capture changes that cannot be attributed to any other category. Banks should add additional rows between rows 7 and 8 to disclose other material drivers of RWA movements over the reporting period. Template CR9: IRB - Backtesting of probability of default (PD) per portfolio Purpose: Provide backtesting data to validate the reliability of PD calculations. In particular, the template compares the PD used in IRB capital calculations with the effective default rates of bank obligors. A minimum five-year average annual default rate is required to compare the PD with a "more stable" default rate, although a bank may use a longer historical period that is consistent with its actual risk management practices. Scope of application: he template is mandatory for banks using the A-IRB and/or F-IRB approaches. Where a bank makes use of a F-IRB approach for certain exposures and an A-IRB approach for others, it must disclose two separate sets of portfolio breakdown in separate templates.
To provide meaningful information to users on the backtesting of their internal models through this template, the bank must include in this template the key models used at the group-wide level (according to the scope of regulatory consolidation) and explain how the scope of models described was determined. The commentary must include the percentage of RWA covered by the models for which backtesting results are shown here for each of the bank's regulatory portfolios.
The models to be disclosed refer to any model, or combination of models, approved SAMA, for the generation of the PD used for calculating capital requirements under the IRB approach. This may include the model that is used to assign a risk rating to an obligor, and/or the model that calibrates the internal ratings to the PD scale.
Content: Modelling parameters used in IRB calculation. Frequency: Annual. Format: Flexible. Accompanying narrative: Banks are expected to supplement the template with a narrative commentary to explain any significant changes over the reporting period and the key drivers of such changes. Banks may wish to supplement the template when disclosing the amount of exposure and the number of obligors whose defaulted exposures have been cured in the year. a b c d e f g h i Portfolio X* PD Range External rating equivalent Weighted average PD Arithmetic average PD by obligors Number of obligors Defaulted obligors in the year of which: new defaulted obligors in the year Average historical annual default rate End of previous year End of the year * The dimension Portfolio X includes the following prudential portfolios for the F-IRB approach:
(i) Sovereign; (ii) Banks; (iii) Corporate; (iv) Corporate - Specialised lending; (v) Purchased receivables, and the following prudential portfolios for the A-IRB approach:
(i) Sovereign; (ii) Banks; (iii) Corporate; (iv) Corporate - Specialised Lending; (v) Retail - QRRE; (vi) Retail - Residential mortgage exposures; (vii) Retail - SME; (viii) Other retail exposures; (ix) Purchased receivables.
External rating equivalent: refers to external ratings that may be available for retail borrowers. This may, for instance, be the case for small or mediumsized entities (SMEs) that fit the requirements to be included in the retail portfolios which could have an external rating, or a credit score or a range of credit scores provided by a consumer credit bureau. One column has to be filled in for each rating agency authorised for prudential purposes in the jurisdictions where the bank operates. However, where such external ratings are not available, they need not be provided.
Weighted average PD: the same as reported in Template CR6. These are the estimated PDs assigned by the internal model authorised under the IRB approaches. The PD values are EAD-weighted and the "weight" is the EAD at the beginning of the period.
Arithmetic average PD by obligors: PD within range by number of obligor within the range. The average PD by obligors is the simple average: Arithmetic average PD = sum of PDs of all accounts (transactions) / number of accounts.
Number of obligors: two sets of information are required: (i) the number of obligors at the end of the previous year; (ii) the number of obligors at the end of the year subject to reporting;
Defaulted obligors in the year: number of defaulted obligors during the year; of which: new obligors defaulted in the year: number of obligors having defaulted during the last 12-month period that were not funded at the end of the previous financial year;
Average historical annual default rate: the five-year average of the annual default rate (obligors at the beginning of each year that are defaulted during that year/total obligor hold at the beginning of the year) is a minimum. The bank may use a longer historical period that is consistent with the bank's actual risk management practices. The disclosed average historical annual default rate disclosed should be before the application of the margin of conservatism. Template CR10: IRB (specialised lending under the slotting approach) Purpose: To provide quantitative disclosures of banks’ specialised lending exposures using the supervisory slotting approach. Scope of application: The template is mandatory for banks using the supervisory slotting approach. The breakdown by regulatory categories included in the template is indicative, as the data included in the template are provided by banks according to applicable domestic regulation. Content: Carrying values, exposure amounts and RWA Frequency: Semiannual. Format: Flexible. Accompanying narrative: Banks are expected to supplement the template with a narrative commentary to explain any significant changes over the reporting period and the key drivers of such changes. Specialised lending Other than HVCRE Regulatory categories Residual maturity On-balance sheet amount Off-balance sheet amount RW Exposure amount RWA Expected losses PF OF CF IPRE Total Strong Less than 2.5 years 50% Equal to or more than 2.5 years 70% Good Less than 2.5 years 70% Equal to or more than 2.5 years 90% Satisfactory 115% Weak 250% Default - Total HVCRE Regulatory categories Residual maturity On-balance sheet amount Off-balance sheet amount RW Exposure amount RWA Expected losses Strong Less than 2.5 years 70% Equal to or more than 2.5 years 95% Good Less than 2.5 years 95% Equal to or more than 2.5 years 120% Satisfactory 140% Weak 250% Default - Total Definitions
HVCRE: high-volatility commercial real estate. On-balance sheet amount: banks must disclose the amount of exposure (net of allowances and write-offs) under the regulatory scope of consolidation. Off-balance sheet amount: banks must disclose the exposure value without taking into account conversion factors and the effect of credit risk mitigation techniques. Exposure amount: the amount relevant for the capital requirement’s calculation, therefore after CRM techniques and CCF have been applied. Expected losses: amount of expected losses calculated according to SCRE13.8 to SCRE13.12. PF: project finance.PF: project finance. OF: object finance. CF: commodities finance. IPRRE: income-producing residential real estate. 4 Banks are allowed to (i) merge row (d) of Table CRB with row (b) of Table CRB-A and (ii) merge row (h) of Table CRB with row (d) of Table CRB-A if and only if the bank uses a common definition for restructured and forborne exposures. The bank should clarify in the disclosure that they are applying a common definition for restructured and forborne exposures. In such case, the bank should also specify in the accompanying narrative that it uses a common definition for restructured exposures and forborne exposures that therefore, information disclosed regarding requirements of row (b) and row (d) of Table CRB-A have been merged with the row (d) and row (h) of Table CRB, respectively.
5 When the accounting framework is IFRS 9, “impaired exposures” are those that are considered “credit- impaired” in the meaning of IFRS 9 Appendix A.
6 Please refer to paragraph 33 of the Guidelines, where it is stated: “these value adjustments and provisions refer to both the allowance for credit losses and direct reductions of the outstanding of an exposure to reflect a decline in the counterparty's creditworthiness”. For banks not applying the Guidelines, please refer to the definition of accounting provisions included in Template CR1, which is in line with paragraph 33 of the Guidelines.
7 The prohibition on the use of the IRB approach for equity exposures will be subject to a five-year linear phase-in arrangement from 1 January 2022 (please see SCRE17.1 and SCRE17.2). During this phase-in period, the risk weight for equity exposures will be the greater of: (i) the risk weight as calculated under the IRB approach, and (ii) the risk weight set for the linear phase-in arrangement under the standardised approach for credit risk. Alternatively, SAMA may require banks to apply the fully phased-in standardised approach treatment from the date of implementation of this standard. Accordingly, for disclosure purposes, banks that continue to apply the IRB approach during the phase-in period should report their equity exposures in either the 250% or the 400% column, according to whether the respective equity exposures are speculative unlisted equities or all other equities.
8 For disclosure purposes, banks that use the standardised approach for credit risk during the transitional period should report their equity exposures according to whether they would be classified as “other equity holdings” (250%) or “speculative unlisted equity” (400%). Risk weights disclosed for “speculative unlisted equity exposures” and “other equity holdings” should reflect the actual risk weights applied to these exposures in a particular year (please refer to the respective transitional arrangements set out in SCRE17.1)
9 Defined as per SAMA circular No.381000094106 dated 06/09/1438.20. Counterparty Credit Risk
20.1 This section includes all exposures in the banking book and trading book that are subject to a counterparty credit risk charge, including the charges applied to exposures to central counterparties (CCPs).10
20.2 The disclosure requirements under this section are:
20.2.1 Table CCRA - Qualitative disclosure related to CCR
20.2.2 Template CCR1 - Analysis of CCR exposures by approach
20.2.3 Template CCR3 - Standardised approach - CCR exposures by regulatory portfolio and risk weights
20.2.4 Template CCR4 - IRB - CCR exposures by portfolio and probability-of- default (PD) scale
20.2.5 Template CCR5 - Composition of collateral for CCR exposures
20.2.6 Template CCR6 - Credit derivatives exposures
20.2.7 Template CCR7 - RWA flow statements of CCR exposures under the internal models method (IMM)
20.2.8 Template CCR8 - Exposures to central counterparties
Table CCRA: Qualitative disclosure related to CCR Purpose: Describe the main characteristics of counterparty credit risk management (eg operating limits, use of guarantees and other credit risk mitigation (CRM) techniques, impacts of own credit downgrading). Scope of application: The table is mandatory for all banks. Content: Qualitative information. Frequency: Annual. Format: Flexible.
Banks must provide risk management objectives and policies related to counterparty credit risk, including:(a) The method used to assign the operating limits defined in terms of internal capital for counterparty credit exposures and for CCP exposures; (b) Policies relating to guarantees and other risk mitigants and assessments concerning counterparty risk, including exposures towards CCPs; (c) Policies with respect to wrong-way risk exposures; (d) The impact in terms of the amount of collateral that the bank would be required to provide given a credit rating downgrade. Template CCR1: Analysis of CCR exposures by approach Purpose: Provide a comprehensive view of the methods used to calculate counterparty credit risk regulatory requirements and the main parameters used within each method. Scope of application: The template is mandatory for all banks. Content: Regulatory exposures, RWA and parameters used for RWA calculations for all exposures subject to the counterparty credit risk framework (excluding CVA charges or exposures cleared through a CCP). Frequency: Semiannual. Format: Fixed. Accompanying narrative: Banks are expected to supplement the template with a narrative commentary to explain any significant changes over the reporting period and the key drivers of such changes. a b c d e f Replacement cost Potential future exposure Effective EPE Alpha used for computing regulatory EAD EAD post- CRM RWA 1 SA-CCR (for derivatives) 1.4 2 Internal Model Method (for derivatives and SFTs) 3 Simple Approach for credit risk mitigation (for SFTs) 4 Comprehensive Approach for credit risk mitigation (for SFTs) 5 Value-at-risk (VaR) for SFTs 6 Total
DefinitionsSA-CCR (for derivatives): Banks should report SA-CCR in row 1.
Replacement Cost (RC): For trades that are not subject to margining requirements, the RC is the loss that would occur if a counterparty were to default and was closed out of its transactions immediately. For margined trades, it is the loss that would occur if a counterparty were to default at present or at a future date, assuming that the closeout and replacement of transactions occur instantaneously. However, closeout of a trade upon a counterparty default may not be instantaneous. The replacement cost under the standardised approach for measuring counterparty credit risk exposures is described in SCCR6.
Potential Future Exposure is any potential increase in exposure between the present and up to the end of the margin period of risk. The potential future exposure for the standardised approach is described in SCCR3.
Effective Expected Positive Exposure (EPE) is the weighted average over time of the effective expected exposure over the first year, or, if all the contracts in the netting set mature before one year, over the time period of the longest-maturity contract in the netting set where the weights are the proportion that an individual expected exposure represents of the entire time interval (see SCCR3).
EAD post-CRM: exposure at default. This refers to the amount relevant for the capital requirements calculation having applied CRM techniques, credit valuation adjustments according to SCCR5.10 and specific wrong-way adjustments (see SCCR7). Template CCR3: Standardised approach - CCR exposures by regulatory portfolio and risk weights Purpose: Provide a breakdown of counterparty credit risk exposures calculated according to the standardised approach: by portfolio (type of counterparties) and by risk weight (riskiness attributed according to standardised approach). Scope of application: The template is mandatory for all banks using the credit risk standardised approach to compute RWA for counterparty credit risk exposures, irrespective of the CCR approach used to determine exposure at default.
If a bank deems that the information requested in this template is not meaningful to users because the exposures and RWA amounts are negligible, the bank may choose not to disclose the template. The bank is, however, required to explain in a narrative commentary why it considers the information not to be meaningful to users, including a description of the exposures in the portfolios concerned and the aggregate total of RWAs amount from such exposures. Content: Credit exposure amounts. Frequency: Semiannual. Format: Fixed. Accompanying narrative: Banks are expected to supplement the template with a narrative commentary to explain any significant changes over the reporting period and the key drivers of such changes.
a b c d e f g h i Risk weight*→ 0% 10% 20% 50% 75% 100% 150% Others Total credit exposure Regulatory portfolio*↓ Sovereigns Non-central government public sector entities Multilateral development banks Banks Securities firms Corporates Regulatory retail portfolios Other assets Total
*The breakdown by risk weight and regulatory portfolio included in the template is for illustrative purposes. Banks may complete the template with the breakdown of asset classes according to the local implementation of the Basel framework.
Total credit exposure: the amount relevant for the capital requirements calculation, having applied CRM techniques. Other assets: the amount excludes exposures to CCPs, which are reported in Template CCR8. Template CCR4: IRB - CCR exposures by portfolio and PD scale Purpose: Provide all relevant parameters used for the calculation of counterparty credit risk capital requirements for IRB models. Scope of application: The template is mandatory for banks using an advanced IRB (A-IRB) or foundation IRB (F-IRB) approach to compute RWA for counterparty credit risk exposures, whatever CCR approach is used to determine exposure at default. Where a bank makes use of an FIRB approach for certain exposures and an AIRB approach for others, it must disclose two separate sets of portfolio breakdown in two separate templates.
To provide meaningful information, the bank must include in this template the key models used at the group-wide level (according to the scope of regulatory consolidation) and explain how the scope of models described in this template was determined. The commentary must include the percentage of RWAs covered by the models shown here for each of the bank's regulatory portfolios. Content: RWA and parameters used in RWA calculations for exposures subject to the counterparty credit risk framework (excluding CVA charges or exposures cleared through a CCP) and where the credit risk approach used to compute RWA is an IRB approach. Frequency: Semiannual. Format: Fixed. Columns and PD scales in the rows are fixed. However, the portfolio breakdown shown in the rows will be set by SAMA to reflect the exposure categories required under local implementations of IRB approaches. Accompanying narrative: Banks are expected to supplement the template with a narrative commentary to explain any significant changes over the reporting period and the key drivers of such changes.
PD scale a b c d e f g EAD post-CRM average PD Number of obligors Average LGD Average maturity RWA RWA density Portfolio X 0.00 to <0.15 0.15 to <0.25 0.25 to <0.50 0.50 to <0.75 0.75 to <2.50 2.50 to <10.00 10.00 to <100.00 100.00 (Default) Sub-total Total (sum of portfolios)
Definitions
Rows Portfolio X refers to the following prudential portfolios for the FIRB approach: (i) Sovereign; (ii) Banks; (iii) Corporate; and the following prudential portfolios for the AIRB approach: (i) Sovereign; (ii) Banks; (iii) Corporate. The information on FIRB and AIRB portfolios must be reported in separate templates. Default: The data on defaulted exposures may be further broken down according to a SAMA's definitions for categories of defaulted exposures.
Columns PD scale: Exposures shall be broken down according to the PD scale used in the template instead of the PD scale used by banks in their RWA calculation. Banks must map the PD scale they use in the RWA calculations to the PD scale provided in the template; EAD post-CRM: exposure at default. The amount relevant for the capital requirements calculation, having applied the CCR approach and CRM techniques, but gross of accounting provisions; Number of obligors: corresponds to the number of individual PDs in this band. Approximation (round number) is acceptable; Average PD: obligor grade PD weighted by EAD; Average loss-given-default (LGD): the obligor grade LGD weighted by EAD. The LGD must be net of any CRM effect; Average maturity: the obligor maturity weighted by EAD; RWA density: Total RWA to EAD post-CRM. Template CCR5: Composition of collateral for CCR exposure Purpose: Provide a breakdown of all types of collateral posted or received by banks to support or reduce the counterparty credit risk exposures related to derivative transactions or to SFTs, including transactions cleared through a CCP. Scope of application: The template is mandatory for all banks. Content: Carrying values of collateral used in derivative transactions or SFTs, whether or not the transactions are cleared through a CCP and whether or not the collateral is posted to a CCP. Please refer to section 29.1 for an illustration on how the template should be completed. Frequency: Semiannual. Format: Flexible (the columns cannot be altered but the rows are flexible). Accompanying narrative: Banks are expected to supplement the template with a narrative commentary to explain any significant changes over the reporting period and the key drivers of such changes.
a b c d e f Collateral used in derivative transactions Collateral used in SFTs Fair value of collateral received Fair value of posted collateral Fair value of collateral received Fair value of posted collateral Segregated Unsegregated Segregated Unsegregated Cash - domestic currency Cash - other currencies Domestic sovereign debt Other sovereign debt Government agency debt Corporate bonds Equity securities Other collateral Total
DefinitionsCollateral used is defined as referring to both legs of the transaction. Example: a bank transfers securities to a third party, and the third party in turn posts collateral to the bank. The bank reports both legs of the transaction. The collateral received is reported in column (e), while the collateral posted by the bank is reported in column (f). The fair value of collateral received or posted must be after any haircut. This means the value of collateral received will be reduced by the haircut (ie C(1 - Hs)) and collateral posted will be increased after the haircut (ie E(1 + Hs)).
Segregated refers to collateral which is held in a bankruptcy-remote manner according to the description included in SCCR8.18 to SCCR8.23.
Unsegregated refers to collateral that is not held in a bankruptcy-remote manner.
Domestic sovereign debt refers to the sovereign debt of the jurisdiction of incorporation of the bank, or, when disclosures are made on a consolidated basis, the jurisdiction of incorporation of the parent company.
Domestic currency refers to items of collateral that are denominated in the bank's (consolidated) reporting currency and not the transaction currency. Template CCR6: Credit derivatives exposures Purpose: Illustrate the extent of a bank's exposures to credit derivative transactions broken down between derivatives bought or sold. Scope of application: This template is mandatory for all banks. Content: Notional derivative amounts (before any netting) and fair values. Frequency: Semiannual. Format: Flexible (the columns are fixed but the rows are flexible). Accompanying narrative: Banks are expected to supplement the template with a narrative commentary to explain any significant changes over the reporting period and the key drivers of such changes.
a b Protection bought Protection sold Notionals Single-name credit default swaps Index credit default swaps Total return swaps Credit options Other credit derivatives Total notionals Fair values Positive fair value (asset) Negative fair value (liability) Template CCR7: RWA flow statements of CCR exposures under Internal Model Method (IMM) Purpose: Present a flow statement explaining changes in counterparty credit risk RWA determined under the Internal Model Method for counterparty credit risk (derivatives and SFTs). Scope of application: The template is mandatory for all banks using the IMM for measuring exposure at default of exposures subject to the counterparty credit risk framework, irrespective of the credit risk approach used to compute RWA from exposures at default. Content: Risk-weighted assets corresponding to counterparty credit risk (credit risk shown in Template CR8 is excluded). Changes in RWA amounts over the reporting period for each of the key drivers should be based on a bank's reasonable estimation of the figure. Frequency: Quarterly. Format: Fixed. Columns and rows 1 and 9 are fixed. Banks may add additional rows between rows 7 and 8 to disclose additional elements that contribute to RWA variations. Accompanying narrative: Banks are expected to supplement the template with a narrative commentary to explain any significant change over the reporting period and the key drivers of such changes.
a Amounts 1 RWA as at end of previous reporting period 2 Asset size 3 Credit quality of counterparties 4 Model updates (IMM only) 5 Methodology and policy (IMM only) 6 Acquisitions and disposals 7 Foreign exchange movements 8 Other 9 RWA as at end of current reporting period
Asset size: organic changes in book size and composition (including origination of new businesses and maturing exposures) but excluding changes in book size due to acquisitions and disposal of entities.
Credit quality of counterparties: changes in the assessed quality of the bank's counterparties as measured under the credit risk framework, whatever approach the bank uses. This row also includes potential changes due to IRB models when the bank uses an IRB approach.
Model updates: changes due to model implementation, changes in model scope, or any changes intended to address model weaknesses. This row addresses only changes in the IMM model.
Methodology and policy: changes due to methodological changes in calculations driven by regulatory policy changes, such as new regulations (only in the IMM model).
Acquisitions and disposals: changes in book sizes due to acquisitions and disposal of entities.
Foreign exchange movements: changes driven by changes in FX rates.
Other: this category is intended to be used to capture changes that cannot be attributed to the above categories. Banks should add additional rows between rows 7 and 8 to disclose other material drivers of RWA movements over the reporting period. Template CCR8: Exposures to central counterparties Purpose: Provide a comprehensive picture of the bank's exposures to central counterparties. In particular, the template includes all types of exposures (due to operations, margins, contributions to default funds) and related capital requirements. Scope of application: The template is mandatory for all banks. Content: Exposures at default and risk-weighted assets corresponding to exposures to central counterparties. Frequency: Semiannual. Format: Fixed. Banks are requested to provide a breakdown of the exposures by central counterparties (qualifying, as defined below, or not qualifying). Accompanying narrative: Banks are expected to supplement the template with a narrative commentary to explain any significant changes over the reporting period and the key drivers of such changes.
a b EAD (post-CRM) RWA 1 Exposures to QCCPs (total) 2 Exposures for trades at QCCPs (excluding initial margin and default fund contributions); of which 3 (i) OTC derivatives 4 (ii) Exchange-traded derivatives 5 (iii) Securities financing transactions 6 (iv) Netting sets where cross-product netting has been approved 7 Segregated initial margin 8 Non-segregated initial margin 9 Pre-funded default fund contributions 10 Unfunded default fund contributions 11 Exposures to non-QCCPs (total) 12 Exposures for trades at non-QCCPs (excluding initial margin and default fund contributions); of which 13 (i) OTC derivatives 14 (ii) Exchange-traded derivatives 15 (iii) Securities financing transactions 16 (iv) Netting sets where cross-product netting has been approved 17 Segregated initial margin 18 Non-segregated initial margin 19 Pre-funded default fund contributions 20 Unfunded default fund contributions
Definitions
Exposures to central counterparties: This includes any trades where the economic effect is equivalent to having a trade with the CCP (eg a direct clearing member acting as an agent or a principal in a client-cleared trade). These trades are described in SCCR8.7 to SCCR8.23.
EAD post-CRM: exposure at default. The amount relevant for the capital requirements calculation, having applied CRM techniques, credit valuation adjustments according to SCCR5.10 and specific wrong-way adjustments (see SCCR7). A qualifying central counterparty (QCCP) is an entity that is licensed to operate as a CCP (including a licence granted by way of confirming an exemption), and is permitted by the appropriate regulator/overseer to operate as such with respect to the products offered. This is subject to the provision that the CCP is based and prudentially supervised in a jurisdiction where the relevant regulator/overseer has established, and publicly indicated, that it applies to the CCP on an ongoing basis, domestic rules and regulations that are consistent with the Committee on Payments and Market Infrastructures and International Organization of Securities Commissions' Principles for Financial Market Infrastructures. See SCCR8 for the comprehensive definition and associated criteria.
Initial margin means a clearing member's or client's funded collateral posted to the CCP to mitigate the potential future credit exposure of the CCP to the clearing member arising from the possible future change in the value of their transactions. For the purposes of this template, initial margin does not include contributions to a CCP for mutualised loss-sharing arrangements (ie in cases where a CCP uses initial margin to mutualise losses among the clearing members, it will be treated as a default fund exposure).
Prefunded default fund contributions are prefunded clearing member contributions towards, or underwriting of, a CCP's mutualised loss-sharing arrangements.
Unfunded default fund contributions are unfunded clearing member contributions towards, or underwriting of, a CCP's mutualised loss-sharing arrangements. If a bank is not a clearing member but a client of a clearing member, it should include its exposures to unfunded default fund contributions if applicable. Otherwise, banks should leave this row empty and explain the reason in the accompanying narrative.
Segregated refers to collateral which is held in a bankruptcy-remote manner according to the description included in SCCR8.18 to SCCR8.23.
Unsegregated refers to collateral that is not held in a bankruptcy-remote manner. 10 The relevant sections of the Basel framework are in SCCR3 to SCCR9 and SCCR11.
21. Securitisation
21.1 This chapter describes the disclosure requirements applying to securitisation exposures.
21.2 The scope of this section:11
21.2.1 Covers all securitisation exposures12 in Table SECA and in templates SEC1 and SEC2;
21.2.2 Focuses on banking book securitisation exposures subject to capital charges according to the securitisation framework in templates SEC3 and SEC4; and
21.2.3 Excludes capital charges related to securitisation positions in the trading book that are reported in section 22.
21.3 Only securitisation exposures that the bank treats under the securitisation framework (SCRE18 to SCRE22) are disclosed in templates SEC3 and SEC4. For banks acting as originators, this implies that the criteria for risk transfer recognition as described in SCRE18.24 to SCRE18.29 are met. Conversely, all securitisation exposures, including those that do not meet the risk transfer recognition criteria, are reported in templates SEC1 and SEC2. As a result, templates SEC1 and SEC2 may include exposures that are subject to capital requirements according to both the credit risk and market risk frameworks and that are also included in other parts of the Pillar 3 report. The purpose is to provide a comprehensive view of banks' securitisation activities. There is no double counting of capital requirements as templates SEC3 and SEC4 are limited to exposures subject to the securitisation framework.
21.4 The disclosure requirements under this section are:
21.4.1 Table SECA - Qualitative disclosure requirements related to securitisation exposures
21.4.2 Template SEC1 - Securitisation exposures in the banking book
21.4.3 Template SEC2 - Securitisation exposures in the trading book
21.4.4 Template SEC3 - Securitisation exposures in the banking book and associated regulatory capital requirements - bank acting as originator or as sponsor
21.4.5 Template SEC4 - Securitisation exposures in the banking book and associated capital requirements - bank acting as investor
Table SECA: Qualitative disclosure requirements related to securitisation exposures Purpose: Provide qualitative information on a bank's strategy and risk management with respect to its securitisation activities. Scope of application: The table is mandatory for all banks with securitisation exposures. Content: Qualitative information. Frequency: Annually. Format: Flexible. Qualitative disclosures (A) Banks must describe their risk management objectives and policies for securitisation activities and main features of these activities according to the framework below. If a bank holds securitisation positions reflected both in the regulatory banking book and in the regulatory trading book, the bank must describe each of the following points by distinguishing activities in each of the regulatory books. (a) The bank's objectives in relation to securitisation and re-securitisation activity, including the extent to which these activities transfer credit risk of the underlying securitised exposures away from the bank to other entities, the type of risks assumed and the types of risks retained. (b) The bank must provide a list of:
● special purpose entities (SPEs) where the bank acts as sponsor (but not as an originator such as an Asset Backed Commercial Paper (ABCP) conduit), indicating whether the bank consolidates the SPEs into its scope of regulatory consolidation. A bank would generally be considered a "sponsor" if it, in fact or in substance, manages or advises the programme, places securities into the market, or provides liquidity and/or credit enhancements. The programme may include, for example, ABCP conduit programmes and structured investment vehicles. ● affiliated entities (i) that the bank manages or advises and (ii) that invest either in the securitisation exposures that the bank has securitised or in SPEs that the bank sponsors. ● a list of entities to which the bank provides implicit support and the associated capital impact for each of them (as required in SCRE18.14 and SCRE18.49
.(c) Summary of the bank's accounting policies for securitisation activities. Where relevant, banks are expected to distinguish securitisation exposures from re-securitisation exposures. (d) If applicable, the names of external credit assessment institution (ECAIs) used for securitisations and the types of securitisation exposure for which each agency is used. (e) If applicable, describe the process for implementing the Basel internal assessment approach (IAA). The description should include:
● structure of the internal assessment process and relation between internal assessment and external ratings, including information on ECAIs as referenced in item (d) of this table. ● control mechanisms for the internal assessment process including discussion of independence, accountability, and internal assessment process review. ● the exposure type to which the internal assessment process is applied; and stress factors used for determining credit enhancement levels, by exposure type. For example, credit cards, home equity, auto, and securitisation exposures detailed by underlying exposure type and security type (eg residential mortgage-backed securities, commercial mortgage-backed securities, asset-backed securities, collateralised debt obligations) etc.
(f) Banks must describe the use of internal assessment other than for SEC-IAA capital purposes. Template SEC1: Securitisation exposures in the banking book Purpose: Present a bank's securitisation exposures in its banking book. Scope of application: The template is mandatory for all banks with securitisation exposures in the banking book. Content: Carrying values. In this template, securitisation exposures include securitisation exposures even where criteria for recognition of risk transference are not met. Refer to SAMA circular No.371000112753 date 28/10/1437H on Simple, Transparent and Comparable (STC). Frequency: Semiannually. Format: Flexible. Banks may in particular modify the breakdown and order proposed in rows if another breakdown (eg whether or not criteria for recognition of risk transference are met) would be more appropriate to reflect their activities. Originating and sponsoring activities may be presented together. Accompanying narrative: Banks are expected to supplement the template with a narrative commentary to explain any significant changes over the reporting period and the key drivers of such changes. a b c d e f g h i j k l Bank acts as originator Bank acts as sponsor Banks acts as investor Traditional Of which simple, transparent and comparable (STC) Synthetic Sub- total Traditional Of which STC Synthetic Sub- total Traditional Of which STC Synthetic Sub- total 1 Retail (total) - of which 2 residential mortgage 3 credit card 4 other retail exposures 5 re-securitisation 6 Wholesale (total) - of which 7 loans to corporates 8 commercial mortgage 9 lease and receivables 10 other wholesale 11 re-securitisation Definitions (i) When the "bank acts as originator" the securitisation exposures are the retained positions, even where not eligible for the securitisation framework due to the absence of significant and effective risk transfer (which may be presented separately). (ii) When "the bank acts as sponsor", the securitisation exposures include exposures to commercial paper conduits to which the bank provides programme-wide enhancements, liquidity and other facilities. Where the bank acts both as originator and sponsor, it must avoid double-counting. In this regard, the bank can merge the two columns of "bank acts as originator" and "bank acts as sponsor" and use "bank acts as originator/sponsor" columns. (iii) Securitisation exposures when "the bank acts as an investor" are the investment positions purchased in third-party deals. Synthetic transactions: if the bank has purchased protection it must report the net exposure amounts to which it is exposed under columns originator/sponsor (ie the amount that is not secured). If the bank has sold protection, the exposure amount of the credit protection must be reported in the "investor" column. Re-securitisation: all securitisation exposures related to re-securitisation must be completed in rows "re-securitisation", and not in the preceding rows (by type of underlying asset) which contain only securitisation exposures other than re-securitisation. Template SEC2: Securitisation exposures in the trading book Purpose: Present a bank's securitisation exposures in its trading book. Scope of application: The template is mandatory for all banks with securitisation exposures in the trading book. In this template, securitisation exposures include securitisation exposures even where criteria for recognition of risk transference are not met. Content: Carrying values. Frequency: Semiannually. Format: Flexible. Banks may in particular modify the breakdown and order proposed in rows if another breakdown (eg whether or not criteria for recognition of risk transference are met) would be more appropriate to reflect their activities. Originating and sponsoring activities may be presented together. Accompanying narrative: Banks are expected to supplement the template with a narrative commentary to explain any significant changes over the reporting period and the key drivers of such changes.
a b c d e f g h i j k l Bank acts as originator Bank acts as sponsor Banks acts as investor Traditional Of which STC Synthetic Sub- total Traditional Of which STC Synthetic Sub- total Traditional Of which STC Synthetic Sub- total 1 Retail (total) - of which 2 residential mortgage 3 credit card 4 other retail exposures 5 re-securitisation 6 Wholesale (total) - of which 7 loans to corporates 8 commercial mortgage 9 lease and receivables 10 other wholesale 11 re-securitisation Definitions
(i) When the "bank acts as originator" the securitisation exposures are the retained positions, even where not eligible to the securitisation framework due to absence of significant and effective risk transfer (which may be presented separately).
(ii) When "the bank acts as sponsor", the securitisation exposures include exposures to commercial paper conduits to which the bank provides programme-wide enhancements, liquidity and other facilities. Where the bank acts both as originator and sponsor, it must avoid double-counting. In this regard, the bank can merge two columns of "bank acts as originator" and "bank acts as sponsor" and use "bank acts as originator/sponsor" columns.
(iii) Securitisation exposures when "the bank acts as an investor" are the investment positions purchased in third-party deals. Synthetic transactions: if the bank has purchased protection it must report the net exposure amounts to which it is exposed under columns originator/sponsor (ie the amount that is not secured). If the bank has sold protection, the exposure amount of the credit protection must be reported in the "investor" column.
Re-securitisation: all securitisation exposures related to re-securitisation must be completed in rows "re-securitisation", and not in the preceding rows (by type of underlying asset) which contain only securitisation exposures other than re-securitisation. Template SEC3: Securitisation exposures in the banking book and associated regulatory capital requirements - bank acting as originator or as sponsor Purpose: Present securitisation exposures in the banking book when the bank acts as originator or sponsor and the associated capital requirements. Scope of application: The template is mandatory for all banks with securitisation exposures as sponsor or originator. Content: Exposure amounts, risk-weighted assets and capital requirements. This template contains originator or sponsor exposures that are treated under the securitisation framework. Frequency: Semiannual. Format: Fixed. Accompanying narrative: Banks are expected to supplement the template with a narrative commentary to explain any significant changes over the reporting period and the key drivers of such changes.
a b c d e f g h i j k l m n o p q Exposure values (by risk weight bands) Exposure values (by regulatory approach) RWA (by regulatory approach) Capital charge after cap ≤20% >20% to 50% >50% to 100% >100% to <1250% RW 1250% SEC-IRBA SEC- ERBA and SEC-IAA SEC- SA 1250% SEC-IRBA SEC-ERBA and SEC-IAA SEC- SA 1250% SEC-IRBA SEC-ERBA and SEC-IAA SEC- SA 1250% 1 Total exposures 2 Traditional securitisation 3 Of which securitisation 4 Of which retail underlying 5 Of which STC 6 Of which wholesale 7 Of which STC 8 Of which re- securitisation 9 Synthetic securitisation 10 Of which securitisation 11 Of which retail underlying 12 Of which wholesale 13 Of which re- securitisation Definitions Columns (a) to (e) are defined in relation to regulatory risk weights. Columns (f) to (q) correspond to regulatory approach used. "1250%" covers securitisation exposures to which none of the approaches laid out in SCRE18.42 to SCRE18.48 can be applied. Capital charge after cap will refer to capital charge after application of the cap as described in SCRE18.50 to SCRE18.55. Template SEC4: Securitisation exposures in the banking book and associated capital requirements - bank acting as investor Purpose: Present securitisation exposures in the banking book where the bank acts as investor and the associated capital requirements. Scope of application: The template is mandatory for all banks having securitisation exposures as investor. Content: Exposure amounts, risk-weighted assets and capital requirements. This template contains investor exposures that are treated under the securitisation framework. Frequency: Semiannual. Format: Fixed. Accompanying narrative: Banks are expected to supplement the template with a narrative commentary to explain any significant changes over the reporting period and the key drivers of such changes.
a b c d e f g h i j k l m n o p q Exposure values (by risk weight bands) Exposure values (by regulatory approach) RWA (by regulatory approach) Capital charge after cap ≤20% >20% to 50% >50% to 100% >100% to <1250% 1250% SEC-IRBA SEC-ERBA and SEC-IAA SEC- SA 1250% SEC- IRBA SEC-ERBA and SEC-IAA SEC- SA 1250% SEC- IRBA SEC-ERBA and SEC-IAA SEC- SA 1250% 1 Total exposures 2 Traditional securitisation 3 Of which securitisation 4 Of which retail underlying 5 Of which STC 6 Of which wholesale 7 Of which STC 8 Of which re- securitisation 9 Synthetic securitisation 10 Of which securitisation 11 Of which retail underlying 12 Of which wholesale 13 Of which re- securitisation Definitions
Columns (a) to (e) are defined in relation to regulatory risk weights.
Columns (f) to (q) correspond to regulatory approach used. "1250%" covers securitisation exposures to which none of the approaches laid out in SCRE18.42 to SCRE18.48 can be applied
Capital charge after cap will refer to capital charge after application of the cap as described in SCRE18.50 to SCRE18.55. 11 Unless stated otherwise, all terms used in section 21 are used consistently with the definitions in SCRE18.
12 Securitisation refers to the definition of what constitutes a securitisation under the Basel framework. Securitisation exposures correspond to securitisation exposures as defined in the Basel framework. According to this framework, securitisation exposures can include, but are not restricted to, the following: asset-backed securities, mortgage-backed securities, credit enhancements, liquidity facilities, interest rate or currency swaps, credit derivatives and tranched cover as described in SCRE9. Reserve accounts, such as cash collateral accounts, recorded as an asset by the originating bank must also be treated as securitisation exposures. Securitisation exposures refer to retained or purchased exposures and not to underlying pools.22. Market Risk
22.1 The market risk section includes the market risk capital requirements calculated for trading book and banking book exposures that are subject to market risk capital requirements in SMAR2 to SMAR13. It also includes capital requirements for securitisation positions held in the trading book. However, it excludes the counterparty credit risk capital requirements that apply to the same exposures, which are reported in section 20.
22.2 The disclosure requirements under this section are:
22.2.1 General information about market risk:
a. Table MRA - General qualitative disclosure requirements related to market risk under the standardised approach
b. Template MR1 - Market risk under the standardised approach
22.2.2 Market risk under the internal models approach (IMA). The disclosure requirements related in this section are not required to be completed by banks unless SAMA approves the bank to use the IMA approach.
a. Table MRB - Qualitative disclosures for banks using the IMA
b. Template MR2 - Market risk IMA per risk type
22.2.3 Market risk under the simplified standardised approach (SSA)
a. Template MR3 - Market risk under the simplified standardised approach
22.2.1 General information about market risk:
Table MRA: General qualitative disclosure requirements related to market risk Purpose: Provide a description of the risk management objectives and policies for market risk as defined in SMAR3.1. Scope of application: The table is mandatory for all banks that are subject to the market risk framework. Content: Quantitative information. Frequency: Annual. Format: Flexible.
Banks must describe their risk management objectives and policies for market risk according to the framework as follows:
(a)
Strategies and processes of the bank, which must include an explanation and/or a description of:
•
The bank's strategic objectives in undertaking trading activities, as well as the processes implemented to identify, measure, monitor and control the bank's market risks, including policies for hedging risk and the strategies/processes for monitoring the continuing effectiveness of hedges.• Policies for determining whether a position is designated as trading, including the definition of stale positions and the risk management policies for monitoring those positions. In addition, banks should describe cases where instruments are assigned to the trading or banking book contrary to the general presumptions of their instrument category and the market and gross fair value of such cases, as well as cases where instruments have been moved from one book to the other since the last reporting period, including the gross fair value of such cases and the reason for the move. • Description of internal risk transfer activities, including the types of internal risk transfer desk (SMAR5)
(b)
The structure and organisation of the market risk management function, including a description of the market risk governance structure established to implement the strategies and processes of the bank discussed in row (a) above.(c) The scope and nature of risk reporting and/or measurement systems.
Table MR1: Market risk under the standardised approachPurpose: Provide the components of the capital requirements under the standardised approach for market risk. Scope of application: The template is mandatory for banks having part or all of their market risk capital requirements measured according to the standardised approach. For banks that use the internal models approach (IMA), the standardised approach capital requirement in this template must be calculated based on the portfolios in trading desks that do not use the IMA (ie trading desks that are not deemed eligible to use the IMA per the terms of SMAR10.4). Content: Capital requirements (as defined in SMAR6 to SMAR9). Frequency: Semiannual. Format: Fixed. Additional rows can be added for the breakdown of other risks. Accompanying narrative: Banks are expected to supplement the template with a narrative commentary to explain any significant change over the reporting period and the key drivers of such changes. In particular, the narrative should inform about changes in the scope of application, including changes due to trading desks for which capital requirements are calculated using the standardised approach. a Capital requirement in standardised approach 1 General interest rate risk 2 Equity risk 3 Commodity risk 4 Foreign exchange risk 5 Credit spread risk - non-securitisations 6 Credit spread risk - securitisations (non-correlation trading portfolio) 7 Credit spread risk - securitisation (correlation trading portfolio) 8 Default risk - non-securitisations 9 Default risk - securitisations (non-correlation trading portfolio) 10 Default risk - securitisations (correlation trading portfolio) 11 Residual risk add-on 12 Total
Linkages across templates
[MR1 12/a] is equal to [OV1 21/c] 22.2.2 Market risk under the internal models approach (IMA):
Table MRB: Qualitative disclosures for banks using the IMA Purpose: Provide the scope, main characteristics and key modelling choices of the different models used for the capital requirement computation of market risks using the IMA. Scope of application: The table is mandatory for all banks using the IMA to calculate the market risk capital requirements. To provide meaningful information to users on a bank’s use of internal models, the bank must describe the main characteristics of the models used at the group-wide level (according to the scope of regulatory consolidation) and explain the extent to which they represent all the models used at the group-wide level. The commentary must include the percentage of capital requirements covered by the models described for each of the regulatory models (expected shortfall (ES), default risk capital (DRC) requirement and stressed expected shortfall (SES) for non-modellable risk factors (NMRFs)). Content: Quantitative information. Frequency: Annual. Format: Flexible.
(A)
Banks must provide a general description of the trading desk structure (as defined in SMAR4) and types of instruments included in the IMA trading desks.
(B)
For ES models, banks must provide the following information:
(a)
A description of trading desks covered by the ES models. Where applicable, banks must also describe the main trading desks not included in ES regulatory calculations (due to lack of historical data or model constraints) and treated under other measures (such as specific treatments allowed in some jurisdictions).(b) The soundness criteria on which the internal capital adequacy assessment is based (eg forward-looking stress testing) and a description of the methodologies used to achieve a capital adequacy assessment that is consistent with the soundness standards. (c) A general description of the ES model(s). For example, banks may describe whether the model(s) is (are) based on historical simulation, Monte Carlo simulations or other appropriate analytical methods and the observation period for ES based on stressed observations (ESR,S). (d) The frequency by which model data is updated. (e) A description of the ES calculation based on current and stressed observations. For example, banks should describe the reduced set of risk factors used to calibrate the period of stress the share of the variations in the full ES that is explained by the reduced set of risk factors, and the observation period used to identify the most stressful 12 months.
(C)
SES
(a)
A general description of each methodology used to achieve a capital assessment for categories of NMRFs that is consistent with the required soundness standard.
(D)
Banks using internal models to determine the DRC must provide the following information:
(a)
A general description of the methodology: Information about the characteristics and scope of the value-at-risk (VaR) and whether different models are used for different exposure classes. For example, banks may describe the range of probability of default (PD) by obligors on the different types of positions, the approaches used to correct market-implied PDs as applicable, the treatment of netting, basis risk between long and short exposures of different obligors, mismatch between a position and its hedge and concentrations that can arise within and across product classes during stressed conditions.(b) The methodology used to achieve a capital assessment that is consistent with both the required soundness standard and SMAR13.18 to SMAR13.39.
(E)
Validation of models and modelling processes
(a)
The approaches used in the validation of the models and modelling processes, describing general approaches used and the types of assumptions and benchmarks on which they rely.Table MR2: Market risk for banks using the IMA Purpose: Provide the components of the capital requirement under the IMA for market risk. Scope of application: The template is mandatory for banks using the IMA for part or all of their market risk for regulatory capital calculations. Content: Capital requirement calculation (as defined in SMAR13) at the group-wide level (according to the scope of regulatory consolidation). Frequency: Quarterly. Format: Fixed. Accompanying narrative: Banks must report the components of their total capital requirement that are included for their most recent measure and the components that are included for their average of the previous 60 days for ES, IMCC and SES, and 12 weeks for DRC. Banks must also provide a comparison of VaR estimates with actual gains/losses experienced by the bank, with analysis of important “outliers” in backtest results. Banks are also expected to include the corresponding figures at the previous quarter in this template and explain any significant changes in the current figures in the narrative section. a b c d e f g At the current quarter At the previous quarter Risk measure: for previous 60 days / 12 weeks: Number of backtesting exceptions Risk measure: for previous 60 days / 12 weeks Most recent Average High Low VaR measure 99.0% Most recent Average 1 Unconstrained expected shortfall 2 ES for the regulatory risk classes General interest rate risk 3 Equity risk 4 Commodity risk 5 Foreign exchange risk 6 Credit spread risk 7 Constrained expected shortfall 8 IMCC (0.5*Unconstrained ES+0.5*constrained risk class ES) 9 Capital requirement for non-modellable risk factors; SES 10 Default risk capital requirement 11 Capital surcharge for amber trading desks 12 Capital requirements for green and amber trading desks (including capital surcharge) 13 Total SA capital requirements for trading desks ineligible to use the IMA as reported in MR1 (CU) 14 Difference in capital requirements under the IMA and SA for green and amber trading desks 15 SA capital requirement for all trading desks (including those subject to IMA) 16 Total market risk capital requirement: min(12+13; 15)+max(0, 14) Definitions and instructions
Row Number Explanation 1 Unconstrained expected shortfall: Expected shortfall (ES) as defined in SMAR13.1 to SMAR13.12, calculated without supervisory constraints on cross-risk factor correlations. 7 Constrained expected shortfall: ES as defined in SMAR13.1 to SMAR13.12, calculated in accordance with SMAR13.14. The constrained ES disclosed should be the sum of partial expected shortfall capital requirements (ie all other risk factors should be held constant) for the range of broad regulatory risk factor classes (interest rate risk, equity risk, foreign exchange risk, commodity risk and credit spread risk). 9 Capital requirement for non-modellable risk factors: aggregate regulatory capital measure calculated in accordance with SMAR13.16 and SMAR13.17, for risk factors in model-eligible trading desks that are deemed non-modellable in accordance with SMAR10.4. 10 Default risk capital (DRC) requirement: in accordance with SMAR13.18, measure of the default risk of trading book positions, except those subject to standardised capital requirements. This covers, inter alia, sovereign exposures (including those denominated in the sovereign's domestic currency), equity positions and defaulted debt positions. 11 Capital surcharge for amber trading desks: capital surcharge for eligible trading desks that is in the P&L attribution test “amber zone”, calculated in accordance with SMAR13.45. 12 Subtotal for green and amber trading desks: (CA+DRC) + Capital surcharge, in accordance with SMAR13.41 to SMAR13.43; SMAR13.22; and SMAR13.45. Row 12= max[8/a+9/a; multiplier*8/b+9/b]+max[10/a; 10/b]+11. 13 Total SA capital requirements for trading desks ineligible to use the IMA (CU): standardised approach (SA) capital requirements for trading desks that are either out of scope for model approval or that have been deemed ineligible to use the IMA, corresponding to the total capital requirement under the SA as reported in row 12 of Template MR1. 14 Difference in capital requirements under the IMA and SA for green and amber trading desks: capital requirements for green and amber trading desks under the IMA (IMAG,A) – capital requirements for green and amber trading desks under SA (SAG,A) in accordance with SMAR13.45). 15 SA capital requirement for all trading desks (including those subject to the IMA): the most recent standardised approach capital requirement for all instruments across all trading desks, regardless of whether those trading desks are eligible for the IMA, as set out in SMAR13.43 and SMAR3.10(1). 16 Total market risk capital requirement: the total capital requirement is calculated as set out in SMAR13.43
Linkages across templates
[MR2:16 minus MR2:13] is equal to [OV1 22/c]
[MR2:16 minus MR2:13] x 12.5 is equal to [CMS1 5/a] (The linkage to “Template CMS1: Comparison of modelled and standardised RWA at risk level” will not hold if a bank using the standardised approach for market risk also uses SEC-IRBA and/or SEC-IAA when determining the default risk charge component for securitisations held in the trading book.)
[MR2:13] x 12.5 is equal to [CMS1 5/b] (The linkage to “Template CMS1: Comparison of modelled and standardised RWA at risk level” will not hold if a bank using the standardised approach for market risk also uses SEC-IRBA and/or SEC-IAA when determining the default risk charge component for securitisations held in the trading book.)
[MR2:16] x 12.5 is equal to [CMS1 5/c]
[MR2:15] x 12.5 is equal to [CMS1 5/d] (The linkage to “Template CMS1: Comparison of modelled and standardised RWA at risk level” will not hold if an AI using the standardised approach for market risk also uses SEC-IRBA and/or SEC-IAA when determining the default risk charge component for securitisations held in the trading book.)
22.2.3 Market risk under the simplified standardised approach (SSA)Table MR3: Market risk under the simplified standardised approach Purpose: Provide the components of the capital requirement under the simplified standardised approach for market risk. Scope of application: The template is mandatory for banks that use the simplified standardised approach to determine market risk capital requirements. Content: Capital requirement (as defined in SMAR14 of the market risk framework). Frequency: Semiannual. Format: Fixed. Additional rows can be added for the breakdown of other risks. Accompanying narrative: a b c d Outright products Options Simplified approach Delta-plus method Scenario approach 1 Interest rate risk 2 Equity risk 3 Commodity risk 4 RWA at end of day previous current quarter 5 Securitisation 6 Total Definitions and instructions
Row Number Explanation 5 Securitisation: specific capital requirement under SMAR14.14 a Outright products: positions in products that are not optional. This includes the capital requirement under SMAR14.3 to SMAR14.40 (interest rate risk); the capital requirement under SMAR14.41 to SMAR14.52 (equity risk); the capital requirement under SMAR14.63 to SMAR14.73 (commodities risk); and the capital requirement under SMAR14.53 to SMAR14.62 (FX risk). b Options under the simplified approach: capital requirements for option risks (non-delta risks) under SMAR14.76 from debt instruments, equity instruments, commodities instruments and foreign exchange instruments. c Options under the delta-plus method: capital requirements for option risks (non-delta risks) under SMAR14.77 to SMAR14.80 from debt instruments, equity instruments, commodities instruments and foreign exchange instruments. d Options under the scenario approach: capital requirements for option risks (non-delta risks) under SMAR14.81 to SMAR14.86 from debt instruments, equity instruments, commodities instruments and foreign exchange instruments. 23. Credit Valuation Adjustment Risk
23.1 The disclosure requirements related in this section are required to be completed by banks when the materiality threshold stated on SAMA's Revised Risk-based Capital Charge for Counterparty Credit Risk (CCR) issued as part of its adoption of Basel III post-crisis final reforms, paragraph (11.9) is satisfied.
23.2 The disclosure requirements under this section are:
23.2.1 General information about CVA risk:
a. Table CVAA - General qualitative disclosure requirements related to CVA
23.2.2 CVA risk under the basic approach (BA-CVA):
a. Template CVA1 - The reduced basic approach for CVA (BA-CVA)
b. Template CVA2 - The full basic approach for CVA (BA-CVA)
23.2.3 CVA risk under the standardised approach (SA-CVA).
a. Table CVAB - Qualitative disclosures for banks using the SA-CVA
b. Template CVA3 - The standardised approach for CVA (SA-CVA)
c. Template CVA4 - RWA flow statements of CVA risk exposures under SA-CVA
23.2.1 General information about CVA risk:
Table CVAA: General qualitative disclosure requirements related to CVA Purpose: To provide a description of the risk management objectives and policies for CVA risk. Scope of application: The table is mandatory for all banks that are subject to CVA capital requirements, including banks which are qualified and have elected to set its capital requirement for CVA at 100% of its counterparty credit risk charge. Content: Quantitative information. Frequency: Annual. Format: Flexible.
Banks must describe their risk management objectives and policies for CVA risk as follows:
(a) An explanation and/or a description of the bank’s processes implemented to identify, measure, monitor and control the bank’s CVA risks, including policies for hedging CVA risk and the processes for monitoring the continuing effectiveness of hedges. (b) Whether the bank is eligible and has chosen to set its capital requirement for CVA at 100% of the bank's capital requirement for counterparty credit risk as applicable under SMAR14.
23.2.1 CVA risk under the basic approach (BA-CVA):
Template CVA1: The reduced basic approach for CVA (BA-CVA) Purpose: To provide the components used for the computation of RWA under the reduced BA-CVA for CVA risk. Scope of application: The template is mandatory for banks having part or all of their RWA for CVA risk measured according to the reduced BACVA. The template should be completed with only the amounts obtained from the netting sets which are under the reduced BA-CVA. Content: RWA. Frequency: Semiannual. Format: Fixed. Accompanying narrative: Banks must describe the types of hedge they use even if they are not taken into account under the reduced BA-CVA. a b Components BA-CVA RWA 1 Aggregation of systematic components of CVA risk 2 Aggregation of idiosyncratic components of CVA risk 3 Total
Definitions and instructions
Row Number Explanation 1 Aggregation of systematic components of CVA risk: RWA under perfect correlation assumption (Σc SCVA c)as per SCCR11.14. 2 Aggregation of idiosyncratic components of CVA risk: RWA under zero correlation assumption (sqrt(∑c SCVAc 2 )) as per SCCR11.14. 3 Total: Kreduced as per SCCR11.14 multiplied by 12.5.
Linkages across templates
[CVA1:3/b] is equal to [OV1:10/a] if the bank only uses the reduced BA-CVA for all CVA risk exposures. Template CVA2: The full basic approach for CVA (BA-CVA) Purpose: To provide the components used for the computation of RWA under the full BA-CVA for CVA risk. Scope of application: The template is mandatory for banks having part or all of their RWA for CVA risk measured according to the full version of the BA-CVA. The template should be fulfilled with only the amounts obtained from the netting sets which are under the full BA-CVA. Content: RWA. Frequency: Semiannual. Format: Fixed. Additional rows can be inserted for the breakdown of other risks. a BA-CVA RWA 1 K Reduced 2 K Hedged 3 Total
Definitions and instructions
Row Number Explanation 1 K Reduced: Kreduced as per SCCR11.14. 2 K Hedged: Khedged as per SCCR11.21. 3 Total: Kfull as per SCCR11.20 multiplied by 12.5.
Linkages across templates:
[CVA2:3/a] is equal to [OV1:10/a] if the bank only uses the full BA-CVA for all CVA risk exposures. 23.2.1 CVA risk under the standardised approach (SA-CVA):
Table CVAB: Qualitative disclosures for banks using the SA-CVA Purpose: To provide the main characteristics of the bank's CVA risk management framework. Scope of application: The table is mandatory for all banks using the SA-CVA to calculate their RWA for CVA risk. Content: Qualitative information. Frequency: Annual. Format: Flexible.
Banks must provide the following information on their CVA risk management framework:
(a) A description of the bank's CVA risk management framework. (b) A description of how senior management is involved in the CVA risk management framework. (c) An overview of the governance of the CVA risk management framework (eg documentation, independent control unit, independent review, independence of the data acquisition from the lines of business). Template CVA3: The standardised approach for CVA (SA-CVA) Purpose: To provide the components used for the computation of RWA under the SA-CVA for CVA risk. Scope of application: The template is mandatory for banks having part or all of their RWA for CVA risk measured according to the SA-CVA. Content: RWA. Frequency: Semiannual. Format: Fixed. Additional rows can be inserted for the breakdown of other risks. a b SA-CVA RWA Number of counterparties 1 Interest rate risk 2 Foreign exchange risk 3 Reference credit spread risk 4 Equity risk 5 Commodity risk 6 Counterparty credit spread risk 7 Total (sum of rows 1 to 6)
Linkages across templates
[CVA3:7/a] is equal to [OV1:10/a] if the bank only uses the SA-CVA for all CVA risk exposures. Template CVA4: RWA flow statements of CVA risk exposures under SA-CVA Purpose: Flow statement explaining variations in RWA for CVA risk determined under the SA-CVA. Scope of application: The template is mandatory for banks using the SA-CVA. Content: RWA for CVA risk. Changes in RWA amounts over the reporting period for each of the key drivers should be based on a bank's reasonable estimation of the figure. Frequency: Quarterly. Format: Fixed. Accompanying narrative: Banks are expected to supplement the template with a narrative commentary to explain any significant changes over the reporting period and the key drivers of such changes. Factors behind changes could include movements in risk levels, scope changes (eg movement of netting sets between SA-CVA and BA-CVA), acquisition and disposal of business/product lines or entities or foreign currency translation movements. a 1 Total RWA for CVA at previous quarter-end 2 Total RWA for CVA at end of reporting period
Linkages across templates
[CVA4:1/a] is equal to [OV1:10/b]
[CVA4:2/a] is equal to [OV1:10/a] 24. Operational Risk
24.1 The disclosure requirements under this section are:
24.1.1 Table ORA - General qualitative information on a bank's operational risk framework
24.1.2 Template OR1 - Historical losses
24.1.3 Template OR2 - Business indicator and subcomponents
24.1.4 Template OR3 - Minimum required operational risk capital
Table ORA: General qualitative information on a bank’s operational risk framework Purpose: To describe the main characteristics and elements of a bank’s operational risk management framework. Scope of application: The table is mandatory for all banks Content: Qualitative information. Frequency: Annual. Format: Flexible. Banks must describe
a)
Their policies, frameworks and guidelines for the management of operational risk.b) The structure and organisation of their operational risk management and control function. c) Their operational risk measurement system (ie the systems and data used to measure operational risk in order to estimate the operational risk capital charge). d) The scope and main context of their reporting framework on operational risk to executive management and to the board of directors. e) The risk mitigation and risk transfer used in the management of operational risk. This includes mitigation by policy (such as the policies on risk culture, risk appetite, and outsourcing), by divesting from high-risk businesses, and by the establishment of controls. The remaining exposure can then be absorbed by the bank or transferred. For instance, the impact of operational losses can be mitigated with insurance.
Template OR1: Historical lossesPurpose: To disclose aggregate operational losses incurred over the past 10 years, based on the accounting date of the incurred losses. This disclosure informs the operational risk capital calculation. The general principle on retrospective disclosure set out in section 8.2 does not apply for this template. From the implementation date of the template onwards, disclosure of all prior periods is required, unless firms have been permitted by SAMA to use fewer years in their capital calculation on a transitional basis. Scope of application: The table is mandatory for: (i) all banks that are in the second or third business indicator (BI) bucket, regardless of whether SAMA has exercised the national discretion to set the internal loss multiplier (ILM) equal to one; and (ii) all banks in the first BI bucket which have received SAMA approval to include internal loss data to calculate their operational risk capital requirements. Content: Qualitative information. Frequency: Annual. Format: Fixed. Accompanying narrative: Banks are expected to supplement the template with narrative commentary explaining the rationale in aggregate, for new loss exclusions since the previous disclosure. Banks should disclose any other material information, in aggregate, that would help inform users as to its historical losses or its recoveries, with the exception of confidential and proprietary information, including information about legal reserves. a b c d e f g h i j k T T-1 T-2 T-3 t-4 t-5 t-6 t-7 t-8 t-9 Ten-year average Using 44,600 SAR threshold 1 Total amount of operational losses net of recoveries (no exclusions) 2 Total number of operational risk losses 3 Total amount of excluded operational risk losses 4 Total number of exclusions 5 Total amount of operational losses net of recoveries and net of excluded losses Using 446,000 SAR threshold 6 Total amount of operational losses net of recoveries (no exclusions) 7 Total number of operational risk losses 8 Total amount of excluded operational risk losses 9 Total number of exclusions 10 Total amount of operational losses net of recoveries and net of excluded losses Details of operational risk capital calculation 11 Are losses used to calculate the ILM (yes/no)? 12 If “no” in row 11, is the exclusion of internal loss data due to non-compliance with the minimum loss data standards (yes/no)? 13 Loss event threshold: 44,600 SAR or 446,000 SAR for the operational risk capital calculation if applicable
Definitions
Row 1: Based on a loss event threshold of 44,600 SAR, the total loss amount net of recoveries resulting from loss events above the loss event threshold for each of the last 10 reporting periods. Losses excluded from the operational risk capital calculation must still be included in this row.
Row 2: Based on a loss event threshold of 44,600 SAR, the total net loss amounts above the loss threshold excluded (eg due to divestitures) for each of the last 10 reporting periods.
Row 3: Based on a loss event threshold of 44,600 SAR, the total number of operational risk losses.
Row 4: Based on a loss event threshold of 44,600 SAR, the total number of exclusions.
Row 5: Based on a loss event threshold of 44,600 SAR, the total amount or operational risk losses net of recoveries and excluded losses.
Row 6: Based on a loss event threshold of 446,000 SAR, the total loss amount net of recoveries resulting from loss events above the loss event threshold for each of the last 10 reporting periods. Losses excluded from the operational risk capital calculation must still be included in this row.
Row 7: Based on a loss event threshold of 446,000 SAR, the total net loss amounts above the loss threshold excluded (eg due to divestitures) for each of the last 10 reporting periods.
Row 8: Based on a loss event threshold of 446,000 SAR, the total number of operational risk losses.
Row 9: Based on a loss event threshold of 446,000 SAR, the total number of exclusions.
Row 10: Based on a loss event threshold of 446,000 SAR, the total amount or operational risk losses net of recoveries and excluded losses.
Row 11: Indicate whether the bank uses operational risk losses to calculate the ILM. Banks using ILM=1 due to national discretion should answer no.
Row 12: Indicate whether internal loss data are not used in the ILM calculation due to non-compliance with the minimum loss data standards as referred to by SOPE7.4.1 and SOPE7.4.2. The application of any resulting multipliers must be disclosed in row 2 of Template OR3 and accompanied by a narrative.
Row 13: The loss event threshold used in the actual operational risk capital calculation (ie 44,600 SAR or 446,000 SAR) if applicable.
Columns: For rows 1 to 10, T denotes the end of the annual reporting period, T–1 the previous year-end, etc. Column (k) refers to the average annual losses net of recoveries and excluded losses over 10 years.
Notes:
Loss amounts and the associated recoveries should be reported in the year in which they were recorded in financial statements Template OR2: Business Indicator and subcomponents Purpose: To disclose the business indicator (BI) and its subcomponents, which inform the operational risk capital calculation. The general principle on retrospectiveظ disclosure set out in section 8.2 does not apply for this template. From the implementation date of this template onwards, disclosure of all prior periods is required. Scope of application: The table is mandatory for all banks. Content: Qualitative information. Frequency: Annual. Format: Fixed. Accompanying narrative: Banks are expected to supplement the template with narrative commentary to explain any significant changes over the reporting period and the key drivers of such changes. Additional narrative is required for those banks that have received SAMA approval to exclude divested activities from the calculation of the BI. a b c BI and its subcomponents T T-1 T-2 1 Interest, lease and dividend component 1a Interest and lease income 1b Interest and lease expense 1c Interest earning assets 1d Dividend income 2 Services component 2a Fee and commission income 2b Fee and commission expense 2c Other operating income 2d Other operating expense 3 Financial component 3a Net P&L on the trading boo 3b Net P&L on the banking boo 4 BI 5 Business indicator component (BIC)
Disclosure on BI:
a 6a BI gross of excluded divested activities 6b Reduction in BI due to excluded divested activities
Definitions
Row 1: The interest, leases and dividend component (ILDC) = Min [Abs (Interest income – Interest expense); 2.25%* Interest-earning assets] + Dividend income. In the formula, all the terms are calculated as the average over three years: T, T–1 and T–2.
The interest-earning assets (balance sheet item) are the total gross outstanding loans, advances, interest-bearing securities (including government bonds) and lease assets measured at the end of each financial year.
Row 1a: Interest income from all financial assets and other interest income (includes interest income from financial and operating leases and profits from leased assets).
Row 1b: Interest expenses from all financial liabilities and other interest expenses (includes interest expense from financial and operating leases, losses, depreciation and impairment of operating leased assets)
Row 1c: Total gross outstanding loans, advances, interest-bearing securities (including government bonds) and lease assets measured at the end of each financial year.
Row 1d: Dividend income from investments in stocks and funds not consolidated in the bank’s financial statements, including dividend income from nonconsolidated subsidiaries, associates and joint ventures.
Row 2: Service component (SC) = Max (Fee and commission income; Fee and commission expense) + Max (Other operating income; Other operating expense). In the formula, all the terms are calculated as the average over three years: T, T–1 and T–2.
Row 2a: Income received from providing advice and services. Includes income received by the bank as an outsourcer of financial services.
Row 2b: Expenses paid for receiving advice and services. Includes outsourcing fees paid by the bank for the supply of financial services, but not outsourcing fees paid for the supply of non-financial services (eg logistical, IT, human resources).
Row 2c: Income from ordinary banking operations not included in other BI items but of a similar nature (income from operating leases should be excluded).
Row 2d: Expenses and losses from ordinary banking operations not included in other BI items but of a similar nature and from operational loss events (expenses from operating leases should be excluded)
Row 3: Financial component (FC) = Abs (Net P&L Trading Book) + Abs (Net P&L Banking Book). In the formula, all the terms are calculated as the average over three years: T, T–1 and T–2.
Row 3a: This comprises (i) net profit/loss on trading assets and trading liabilities (derivatives, debt securities, equity securities, loans and advances, short positions, other assets and liabilities); (ii) net profit/loss from hedge accounting; and (iii) net profit/loss from exchange differences.
Row 3b: This comprises (i) net profit/loss on financial assets and liabilities measured at fair value through profit and loss; (ii) realised gains/losses on financial assets and liabilities not measured at fair value through profit and loss (loans and advances, assets available for sale, assets held to maturity, financial liabilities measured at amortised cost); (iii) net profit/loss from hedge accounting; and (iv) net profit/loss from exchange differences.
Row 4: The BI is the sum of the three components: ILDC, SC and FC.
Row 5: Calculated by multiplying the BI by a set of regulatory determined marginal coefficients or percentages specified in section SOPE7.1.
Disclosure on BI should be reported by banks that have received SAMA approval to excluded divested activities from the calculation of the BI.
Row 6a: The BI reported in this row includes divested activities.
Row 6b: Difference between BI gross of divested activities (row 6a) and BI net of divested activities (row 4).
Columns: T denotes the end of the annual reporting period, T–1 the previous year-end, etc.
Linkages across templates
[OR2:5/a] is equal to [OR3:1/a] Template OR3: Minimum required operational risk capital Purpose: To disclose operational risk regulatory capital requirements. Scope of application: The table is mandatory for all banks. Content: Qualitative information. Frequency: Annual. Format: Fixed. a 1 Business indicator component (BIC) 2 Internal loss multiplier (ILM) 3 Minimum required operational risk capital (ORC) 4 Operational risk RWA
Definitions
Row 1: The BIC used for calculating minimum regulatory capital requirements for operational risk.
Row 2: The ILM used for calculating minimum regulatory capital requirements for operational risk (refer to SOPE7.3.4)
Row 3: Minimum Pillar 1 operational risk capital requirements. For banks using operational risk losses to calculate the ILM, this should correspond to the BIC times the ILM. For banks not using operational risk losses to calculate the ILM, this corresponds to the BIC.
Row 4: Converts the minimum Pillar 1 operational risk capital requirement into RWA. 25. Interest Rate Risk in the Banking Book
25.1 The disclosure requirements set out in this chapter are:
25.1.1 Table IRRBBA - Interest rate risk in the banking book (IRRBB) risk management objective and policies
25.1.2 Template IRRBB1 - Quantitative information on IRRBB
25.2 Table IRRBBA provides information on a bank's IRRBB risk management objective and policy. Template IRRBB1 provides quantitative IRRBB information, including the impact of interest rate shocks on their change in economic value of equity and net interest income, computed based on a set of prescribed interest rate shock scenarios.
25.3 Banks must disclose the measured changes in economic value of equity (ΔEVE) and changes in net interest income (ΔNII) under the prescribed interest rate shock scenarios set out in Basel Framework “Supervisory review process” (Interest rate risk in the banking book). In disclosing Table IRRBBA and Template IRRBB1, banks should use their own internal measurement system (IMS) to calculate the IRRBB exposure values refer to SAMA circular No. 381000040243 date 12/04/1438H on Interest Rating Risk in The Banking Book (IRRBB). Basel Framework “Supervisory review process” (Interest rate risk in the banking book) provides a standardised framework that banks may adopt as their IMS. In addition to quantitative disclosure, banks should provide sufficient qualitative information and supporting detail to enable the market and wider public to:
25.3.1 Monitor the sensitivity of the bank's economic value and earnings to changes in interest rates;
25.3.2 Understand the primary assumptions underlying the measurement produced by the bank's IMS; and
25.3.3 Have an insight into the bank's overall IRRBB objective and IRRBB management.
25.4 For the disclosure of ΔEVE:
25.4.1 Banks should exclude their own equity from the computation of the exposure level;
25.4.2 Banks should include all cash flows from all interest rate-sensitive assets, liabilities and off-balance sheet items in the banking book in the computation of their exposure.13 Banks should disclose whether they have excluded or included commercial margins and other spread components in their cash flows;
25.4.3 Cash flows should be discounted using either a risk-free rate or a risk-free rate including commercial margins and other spread components (only if the bank has included commercial margins and other spread components in its cash flows).14 Banks should disclose whether they have discounted their cash flows using a risk-free rate or a risk-free rate including commercial margins and other spread components; and
25.4.4 ΔEVE should be computed with the assumption of a run-off balance sheet, where existing banking book positions amortise and are not replaced by any new business.
25.5 In addition to the required disclosures in Table IRRBBA and Template IRRBB1, banks are encouraged to make voluntary disclosures of information on internal measures of IRRBB that would assist the market in interpreting the mandatory disclosure numbers. Table IRRBBA - IRRBB risk management objectives and policies Purpose: Provide a description of the risk management objectives and policies concerning IRRBB. Scope of application: Mandatory for all banks within the scope of application set out in Basel Framework “Supervisory review process” (Interest rate risk in the banking book). Content: Qualitative and quantitative information. Quantitative information is based on the daily or monthly average of the year or on the data as at the reporting date. Frequency: Annual. Format: Flexible. Qualitative disclosure a A description of how the bank defines IRRBB for purposes of risk control and measurement. b A description of the bank's overall IRRBB management and mitigation strategies. Examples are: monitoring of economic value of equity (EVE) and net interest income (NII) in relation to established limits, hedging practices, conduct of stress testing, outcome analysis, the role of independent audit, the role and practices of the asset and liability management committee, the bank's practices to ensure appropriate model validation, and timely updates in response to changing market conditions. c The periodicity of the calculation of the bank's IRRBB measures, and a description of the specific measures that the bank uses to gauge its sensitivity to IRRBB. d A description of the interest rate shock and stress scenarios that the bank uses to estimate changes in the economic value and in earnings. e Where significant modelling assumptions used in the bank's internal measurement systems (IMS) (ie the EVE metric generated by the bank for purposes other than disclosure, eg for internal assessment of capital adequacy) are different from the modelling assumptions prescribed for the disclosure in Template IRRBB1, the bank should provide a description of those assumptions and their directional implications and explain its rationale for making those assumptions (eg historical data, published research, management judgment and analysis). f A high-level description of how the bank hedges its IRRBB, as well as the associated accounting treatment. g A high-level description of key modelling and parametric assumptions used in calculating ΔEVE and ΔNII in Template IRRBB1, which includes:
- For ∆EVE, whether commercial margins and other spread components have been included in the cash flows used in the computation and discount rate used.
- How the average repricing maturity of non-maturity deposits has been determined (including any unique product characteristics that affect assessment of repricing behaviour).
- The methodology used to estimate the prepayment rates of customer loans, and/or the early withdrawal rates for time deposits, and other significant assumptions.
- Any other assumptions (including for instruments with behavioural optionalities that have been excluded) that have a material impact on the disclosed ΔEVE and ΔNII in Template IRRBB1, including an explanation of why these are material.
- Any methods of aggregation across currencies and any significant interest rate correlations between different currencies.
h (Optional) Any other information which the bank wishes to disclose regarding its interpretation of the significance and sensitivity of the IRRBB measures disclosed and/or an explanation of any significant variations in the level of the reported IRRBB since previous disclosures. Quantitative disclosures 1 Average repricing maturity assigned to non-maturity deposits (NMDs). 2 Longest repricing maturity assigned to NMDs. Template IRRBB1 - Quantitative information on IRRBB Purpose: Provide information on the bank's changes in economic value of equity and net interest income under each of the prescribed interest rate shock scenarios. Scope of application: Mandatory for all banks within the scope of application set out in Basel Framework “Supervisory review process” (Interest rate risk in the banking book) Content: Quantitative information. Frequency: Annual Format: Fixed. Accompanying narrative: Commentary on the significance of the reported values and an explanation of any material changes since the previous reporting period.
In reporting currency ΔEVE ΔNII Period T T-1 T T-1 Parallel up Parallel down Steepener Flattener Short rate up Short rate down Maximum Period T T-1 Tier 1 capital Definitions
For each of the supervisory prescribed interest rate shock scenarios, the bank must report for the current period and for the previous period:
(i) the change in the economic value of equity based on its IMS, using a run-off balance sheet and an instantaneous shock or based on the result of the standardised framework set on Basel Framework “Supervisory review process” (Interest rate risk in the banking book) refer to SAMA circular No. 381000040243 date 12/04/1438H on Interest Rating Risk in The Banking Book (IRRBB), and SAMA circular No. 321000027835 date 14/12/1432H on Enhancements to the ICAAP Document at end of 2011; and (ii) the change in projected NII over a forward-looking rolling 12-month period compared with the bank's own best estimate 12-month projections, using a constant balance sheet assumption and an instantaneous shock. 13 Interest rate-sensitive assets are assets which are not deducted from Common Equity Tier 1 capital and which exclude (i) fixed assets such as real estate or intangible assets as well as (ii) equity exposures in the banking book.
14 The discounting factors must be representative of a risk-free zero coupon rate. An example of an acceptable yield curve is a secured interest rate swap curve.26. Macroprudential Supervisory Measures
26.1 The disclosure requirements set out in this chapter are:
26.1.1 Template GSIB1 - Disclosure of global systemically important bank (G- SIB) indicators
26.1.2 Template CCyB1 - Geographical distribution of credit exposures used in the calculation of the bank-specific countercyclical capital buffer requirement
26.2 Template GSIB1 provides users of Pillar 3 data with details of the indicators used to assess how a G-SIB has been determined. Template GSIB1 is not required to be completed by banks unless SAMA identify the bank as G-SIB.
26.3 Template CCyB1 provides details of the calculation of a bank's countercyclical capital buffer, including details of the geographical breakdown of the bank's private sector credit exposures. Template GSIB1 - Disclosure of G-SIB indicators Purpose: Provide an overview of the indicators that feed into the Committee's methodology for assessing the systemic importance of global banks. Scope of application: The template is mandatory for banks which in the previous year have either been classified as G-SIBs, have a leverage ratio exposure measure exceeding EUR 200 billion or were included in the assessment sample by supervisory judgment (see Basel Framework “Scope and definitions” Global systemically important Banks).
For G-SIB assessment purposes, the applicable leverage ratio exposure measure definition is contained in the SLEV.
For application of this threshold, banks should use the applicable exchange rate information provided on the Basel Committee website at www.bis.org/bcbs/gsib/ . The disclosure itself is made in the bank's own currency.Content: At least the 12 indicators used in the assessment methodology of the G-SIB framework (see Basel Framework “Scope and definitions” Global systemically important Banks). Frequency: Annual. Format: Flexible. Accompanying narrative: Banks should indicate the annual reference date of the information reported as well as the date of first public disclosure. Banks should include a web link to the disclosure of the previous G-SIB assessment exercise.
Banks may supplement the template with a narrative commentary to explain any relevant qualitative characteristic deemed necessary for understanding the quantitative data. This information may include explanations about the use of estimates with a short explanation as regards the method used, mergers or modifications of the legal structure of the entity subjected to the reported data, the bucket to which the bank was allocated and changes in higher loss absorbency requirements, or reference to the Basel Committee website for data on denominators, cutoff scores and buckets.
Regardless of whether Template GSIB1 is included in the annual Pillar 3 report, a bank's annual Pillar 3 report as well as all the interim Pillar 3 reports should include a reference to the website where current and previous disclosures of Template GSIB1 can be found.
Category Individual indicator Values 1 Cross-jurisdictional activity Cross-jurisdictional claims 2 Cross-jurisdictional liabilities 3 Size Total exposures 4 Interconnectedness Intra-financial system assets 5 Intra-financial system liabilities 6 Securities outstanding 7 Substitutability/ Financial institution infrastructure Assets under custody 8 Payment activity 9 Underwritten transactions in debt and equity markets 10 Complexity Notional amount of over-the-counter derivatives 11 Level 3 assets 12 Trading and available for sale securities Definitions and instructions
The template must be completed according to the instructions and definitions for the corresponding rows in force at the disclosure's reference date, which is based on the Committee's G-SIB identification exercise.Template CCyB1 - Geographical distribution of credit exposures used in the calculation of the bank-specific countercyclical capital buffer requirement Purpose: Provide an overview of the geographical distribution of private sector credit exposures relevant for the calculation of the bank's countercyclical capital buffer. Scope of application: The template is mandatory for all banks subject to a countercyclical capital buffer requirement based on the jurisdictions in which they have private sector credit exposures subject to a countercyclical capital buffer requirement compliant with the Basel standards. Only banks with exposures to jurisdictions in which the countercyclical capital buffer rate is higher than zero should disclose this template. Content: Private sector credit exposures and other relevant inputs necessary for the computation of the bank-specific countercyclical capital buffer rate. Frequency: Semiannual. Format: Flexible. Columns and rows might be added or removed to fit with the domestic implementation of the countercyclical capital buffer and thereby provide information on any variables necessary for its computation. A column or a row may be removed if the information is not relevant to the domestic implementation of the countercyclical capital buffer framework. Accompanying narrative: For the purposes of the countercyclical capital buffer, banks should use, where possible, exposures on an "ultimate risk" basis. They should disclose the methodology of geographical allocation used, and explain the jurisdictions or types of exposures for which the ultimate risk method is not used as a basis for allocation. The allocation of exposures to jurisdictions should be made taking into consideration the clarifications provided by Basel Framework “Risk-based capital requirements” (Buffers above the regulatory minimum). Information about the drivers for changes in the exposure amounts and the applicable jurisdiction-specific rates should be summarised.
a b c d e Geographical breakdown Countercyclical capital buffer rate Exposure values and/or risk-weighted assets (RWA) used in the computation of the countercyclical capital buffer Bank-specific countercyclical capital buffer rate Countercyclical capital buffer amount Exposure values RWA (Home) Country 1 Country 2 Country 3 ⋮ Country N Sum Total Definitions and instructions
Unless otherwise provided for in the domestic implementation of the countercyclical capital buffer framework, private sector credit exposures relevant for the calculation of the countercyclical capital buffer (relevant private sector credit exposures) refer to exposures to private sector counterparties which attract a credit risk capital charge in the banking book, and the risk-weighted equivalent trading book capital charges for specific risk, the incremental risk charge and securitisation. Interbank exposures and exposures to the public sector are excluded, but non-bank financial sector exposures are included.
Country: Country in which the bank has relevant private sector credit exposures, and which has set a countercyclical capital buffer rate greater than zero that was applicable during the reporting period covered by the template.
Sum: Sum of private sector credit exposures or RWA for private sector credit exposures, respectively, in jurisdictions with a non-zero countercyclical capital buffer rate.Total: Total of private sector credit exposures or RWA for private sector credit exposures, respectively, across all jurisdictions to which the bank is exposed, including jurisdictions with no countercyclical capital buffer rate or with a countercyclical capital buffer rate set at zero, and value of the bank-specific countercyclical capital buffer rate and resulting countercyclical capital buffer amount.
Countercyclical capital buffer rate: Countercyclical capital buffer rate set by SAMA in question and in force during the period covered by the template or, where applicable, the higher countercyclical capital buffer rate set for the country in question by SAMA. Countercyclical capital buffer rates that were set by SAMA, but are not yet applicable in the country in question at the disclosure reference date (pre-announced rates) must not be reported.
Total exposure value: If applicable, total private sector credit exposures across all jurisdictions to which the bank is exposed, including jurisdictions with no countercyclical capital buffer rate or with a countercyclical capital buffer rate set at zero.
Total RWA: If applicable, total value of RWA for relevant private sector credit exposures, across all jurisdictions to which the bank is exposed, including jurisdictions with no countercyclical capital buffer rate or with a countercyclical capital buffer rate set at zero.
Bank-specific countercyclical capital buffer rate: Countercyclical capital buffer that varies between zero and 2.5% or, where appropriate, above 2.5% of total RWA calculated in accordance with SACAP9.2 (B) and (C) as a weighted average of the countercyclical capital buffer rates that are being applied in jurisdictions where the relevant credit exposures of the bank are located and reported in rows 1 to N. This figure (ie the bank-specific countercyclical capital buffer rate) may not be deduced from the figures reported in this template as private sector credit exposures in jurisdictions that do not have a countercyclical capital buffer rate, which form part of the equation for calculating the figure, are not required to be reported in this template.
Countercyclical capital buffer amount: Amount of Common Equity Tier 1 capital held to meet the countercyclical capital buffer requirement determined in accordance with SACAP9.2 (B) and (C).
Linkages across templates
[CCyB1:Total/d] is equal to [KM1:9/a] for the semiannual disclosure of KM1, and [KM1:9/b] for the quarterly disclosure of KM1
[CCyB1:Total/d] is equal to [CC1:66/a] (for all banks) or [TLAC1:30/a] (for G-SIBs)27. Leverage Ratio
27.1 The disclosure requirements set out in this chapter are:
27.1.1 Template LR1 - Summary comparison of accounting assets vs leverage ratio exposure measure
27.1.2 Template LR2 - Leverage ratio common disclosure template
27.2 Template LR1 provides a reconciliation of a bank's total assets as published in its financial statements to the leverage ratio exposure measure, and Template LR2 provides a breakdown of the components of the leverage ratio exposure measure. Template LR1- Summary comparison of accounting assets vs leverage ratio exposure measure Purpose: To reconcile the total assets in the published financial statements with the leverage ratio exposure measure. Scope of application: The table is mandatory for all banks. Content: Quantitative information. The leverage ratio standard of the Basel framework (SLEV) follows the same scope of regulatory consolidation as used for the risk-based capital requirements standard Basel Framework “Risk-based capital requirements”). Disclosures should be reported on a quarter- end basis. However, banks may, subject to approval from or due to requirements specified by SAMA, use more frequent calculations (eg daily or monthly averaging). Banks are required to include the basis for their disclosures (eg quarter-end, daily averaging or monthly averaging, or a combination thereof). Frequency: Quarterly. Format: Fixed. Accompanying narrative: Banks are required to disclose and detail the source of material differences between their total balance sheet assets, as reported in their financial statements, and their leverage ratio exposure measure. a 1 Total consolidated assets as per published financial statements 2 Adjustment for investments in banking, financial, insurance or commercial entities that are consolidated for accounting purposes but outside the scope of regulatory consolidation 3 Adjustment for securitised exposures that meet the operational requirements for the recognition of risk transference 4 Adjustments for temporary exemption of central bank reserves (if applicable) 5 Adjustment for fiduciary assets recognised on the balance sheet pursuant to the operative accounting framework but excluded from the leverage ratio exposure measure 6 Adjustments for regular-way purchases and sales of financial assets subject to trade date accounting 7 Adjustments for eligible cash pooling transactions 8 Adjustments for derivative financial instruments 9 Adjustment for securities financing transactions (ie repurchase agreements and similar secured lending) 10 Adjustment for off-balance sheet items (ie conversion to credit equivalent amounts of off-balance sheet exposures) 11 Adjustments for prudent valuation adjustments and specific and general provisions which have reduced Tier 1 capital 12 Other adjustments 13 Leverage ratio exposure measure Definitions and instructions
Row Number Explanation 1 The bank's total consolidated assets as per published financial statements. 2 Where a banking, financial, insurance or commercial entity is outside the regulatory scope of consolidation, only the amount of the investment in the capital of that entity (ie only the carrying value of the investment, as opposed to the underlying assets and other exposures of the investee) shall be included in the leverage ratio exposure measure. However, investments in those entities that are deducted from the bank's CET1 capital or from Additional Tier 1 capital in accordance with SACAP4.3 to SACAP4.4 may also be deducted from the leverage ratio exposure measure. As these adjustments reduce the total leverage ratio exposure measure, they shall be reported as a negative amount. 3 This row shows the reduction of the leverage ratio exposure measure due to the exclusion of securitised exposures that meet the operational requirements for the recognition of risk transference according SCRE18.24. As these adjustments reduce the total leverage ratio exposure measure, they shall be reported as a negative amount. 4 Adjustments related to the temporary exclusion of central bank reserves from the leverage ratio exposure measure, if enacted by SAMA to facilitate the implementation of monetary policies as per SLEV6.6. As these adjustments reduce the total leverage ratio exposure measure, they shall be reported as a negative amount. 5 This row shows the reduction of the consolidated assets for fiduciary assets that are recognised on the bank's balance sheet pursuant to the operative accounting framework and which meet the de-recognition criteria of IAS 39 / IFRS 9 or the IFRS 10 de-consolidation criteria. As these adjustments reduce the total leverage ratio exposure measure, they shall be reported as a negative amount. 6 Adjustments for regular-way purchases and sales of financial assets subject to trade date accounting. The adjustment reflects (i) the reverse- out of any offsetting between cash receivables for unsettled sales and cash payables for unsettled purchases of financial assets that may be recognised under the applicable accounting framework, and (ii) the offset between those cash receivables and cash payables that are eligible per the criteria specified in SLEV7.1.4 (i), (ii). If this adjustment leads to an increase in exposure, it shall be reported as a positive amount. If this adjustment leads to a decrease in exposure, it shall be reported as a negative amount. 7 Adjustments for eligible cash-pooling transactions. The adjustment is the difference between the accounting value of cash-pooling transactions and the treatments specified in SLEV7.1.5. If this adjustment leads to an increase in exposure, it shall be reported as a positive amount. If this adjustment leads to a decrease in exposure, it shall be reported as a negative amount. 8 Adjustments related to derivative financial instruments. The adjustment is the difference between the accounting value of the derivatives recognised as assets and the leverage ratio exposure value as determined by application of SLEV7.2.1 to SLEV7.2.2 ((i) to (v)) and SLEV7.2.3 to SLEV7.2.15. If this adjustment leads to an increase in exposure, institutions shall disclose this as a positive amount. If this adjustment leads to a decrease in exposure, institutions shall disclose this as a negative amount. 9 Adjustments related to Securities Financing Transactions (SFTs) (ie repurchase agreements and other similar secured lending). The adjustment is the difference between the accounting value of the SFTs recognised as assets and the leverage ratio exposure value as determined by application of SLEV7.3.1, SLEV7.3.3 and SLEV7.3.4 to SLEV7.3.5. If this adjustment leads to an increase in the exposure, institutions shall disclose this as a positive amount. If this adjustment leads to a decrease in exposure, institutions shall disclose this as a negative amount. 10 The credit equivalent amount of off-balance sheet items determined by applying the relevant credit conversion factors to the nominal value of the off-balance sheet item, as specified in SLEV7.4.2. (iii), (iv), and SLEV7.4.3 (x) As these amounts increase the total leverage ratio exposure measure, they shall be reported as a positive amount. 11 Adjustments for prudent valuation adjustments and specific and general provisions that have reduced Tier 1 capital. This adjustment reduces the leverage ratio exposure measure by the amount of prudent valuation adjustments and by the amount of specific and general provisions that have reduced Tier 1 capital as determined by SLEV6.2 and SLEV7.1.2 and SLEV7.4.2 (iv), respectively. This adjustment shall be reported as a negative amount. 12 Any other adjustments. If these adjustments lead to an increase in the exposure, institutions shall report this as a positive amount. If these adjustments lead to a decrease in exposure, the institutions shall disclose this as a negative amount. 13 The leverage ratio exposure, which should be the sum of the previous items. Linkages across templates[LR1:13/a] is equal to [LR2:24/a] (depending on basis of calculation)
Template LR2- Leverage ratio common disclosure templatePurpose: To provide a detailed breakdown of the components of the leverage ratio denominator, as well as information on the actual leverage ratio, minimum requirements and buffers. Scope of application: The table is mandatory for all banks. Content: Quantitative information. Disclosures should be on a quarter-end basis except where explicitly noted in the instructions for certain rows. However, banks may, subject to approval from or due to requirements specified by SAMA, use more frequent calculations (eg daily or monthly averaging). Banks are required to include the frequency of calculation for their disclosures (eg quarter-end, daily averaging or monthly averaging, or a combination thereof). Frequency: Quarterly. Format: Fixed. Accompanying narrative: Banks must describe the key factors that have had a material impact on the leverage ratio for this reporting period compared with the previous reporting period. Banks must also describe the key factors that explain any material differences between the amounts of securities financing transactions (SFTs) that are included in the bank's Pillar 1 leverage ratio exposure measure and the mean values of SFTs that are disclosed in row 28.
a b T T-1 On-balance sheet exposures 1 On-balance sheet exposures (excluding derivatives and securities financing transactions (SFTs), but including collateral) 2 Gross-up for derivatives collateral provided where deducted from balance sheet assets pursuant to the operative accounting framework 3 (Deductions of receivable assets for cash variation margin provided in derivatives transactions) 4 (Adjustment for securities received under securities financing transactions that are recognised as an asset) 5 (Specific and general provisions associated with on-balance sheet exposures that are deducted from Basel III Tier 1 capital) 6 (Asset amounts deducted in determining Basel III Tier 1 capital and regulatory adjustments) 7 Total on-balance sheet exposures (excluding derivatives and SFTs) (sum of rows 1 to 6) Derivative exposures 8 Replacement cost associated with all derivatives transactions (where applicable net of eligible cash variation margin and/or with bilateral netting) 9 Add-on amounts for potential future exposure associated with all derivatives transactions 10 (Exempted central counterparty (CCP) leg of client-cleared trade exposures) 11 Adjusted effective notional amount of written credit derivatives 12 (Adjusted effective notional offsets and add-on deductions for written credit derivatives) 13 Total derivative exposures (sum of rows 8 to 12) Securities financing transaction exposures 14 Gross SFT assets (with no recognition of netting), after adjustment for sale accounting transactions 15 (Netted amounts of cash payables and cash receivables of gross SFT assets) 16 Counterparty credit risk exposure for SFT assets 17 Agent transaction exposures 18 Total securities financing transaction exposures (sum of rows 14 to 17) Other off-balance sheet exposures 19 Off-balance sheet exposure at gross notional amount 20 (Adjustments for conversion to credit equivalent amounts) 21 (Specific and general provisions associated with off-balance sheet exposures deducted in determining Tier 1 capital) 22 Off-balance sheet items (sum of rows 19 to 21) Capital and total exposures 23 Tier 1 capital 24 Total exposures (sum of rows 7, 13, 18 and 22) Leverage ratio 25 Leverage ratio (including the impact of any applicable temporary exemption of central bank reserves) 25a Leverage ratio (excluding the impact of any applicable temporary exemption of central bank reserves) 26 National minimum leverage ratio requirement 27 Applicable leverage buffers Disclosures of mean values 28 Mean value of gross SFT assets, after adjustment for sale accounting transactions and netted of amounts of associated cash payables and cash receivables 29 Quarter-end value of gross SFT assets, after adjustment for sale accounting transactions and netted of amounts of associated cash payables and cash receivables 30 Total exposures (including the impact of any applicable temporary exemption of central bank reserves) incorporating mean values from row 28 of gross SFT assets (after adjustment for sale accounting transactions and netted of amounts of associated cash payables and cash receivables) 30a Total exposures (excluding the impact of any applicable temporary exemption of central bank reserves) incorporating mean values from row 28 of gross SFT assets (after adjustment for sale accounting transactions and netted of amounts of associated cash payables and cash receivables) 31 Basel III leverage ratio (including the impact of any applicable temporary exemption of central bank reserves) incorporating mean values from row 28 of gross SFT assets (after adjustment for sale accounting transactions and netted of amounts of associated cash payables and cash receivables) 31a Basel III leverage ratio (excluding the impact of any applicable temporary exemption of central bank reserves) incorporating mean values from row 28 of gross SFT assets (after adjustment for sale accounting transactions and netted of amounts of associated cash payables and cash receivables) Definitions and instructionsSFTs: transactions such as repurchase agreements, reverse repurchase agreements, securities lending and borrowing, and margin lending transactions, where the value of the transactions depends on market valuations and the transactions are often subject to margin agreements.Capital measure: The capital measure for the leverage ratio is the Tier 1 capital of the risk-based capital framework as defined in the definition of capital standard (SACAP) taking account of the transitional arrangements.Row Number Explanation 1 Banks must include all balance sheet assets in their exposure measure, including on balance sheet derivatives collateral and collateral for SFTs, with the exception of on balance sheet derivative and SFT assets that are included in rows 8 to 18. Derivatives and SFTs collateral refer to either collateral received or collateral provided (or any associated receivable asset) accounted as a balance sheet asset. Amounts are to be reported in accordance with SLEV7.1.1 to SLEV7.1.4 and, where applicable, SLEV6.4 and SLEV6.6. 2 Grossed-up amount of any collateral provided in relation to derivative exposures where the provision of that collateral has reduced the value of the balance sheet assets under the bank's operative accounting framework, in accordance with SLEV7.2.3(ii). 3 Deductions of receivable assets in the amount of the cash variation margin provided in derivatives transactions where the posting of cash variation margin has resulted in the recognition of a receivable asset under the bank's operative accounting framework. As the adjustments in this row reduce the exposure measure, they shall be reported as negative figures. 4 Adjustment for securities received under a securities financing transaction where the bank has recognised the securities as an asset on its balance sheet. These amounts are to be excluded from the exposure measure in accordance with SLEV7.3.3(i).As the adjustments in this row reduce the exposure measure, they shall be reported as negative figures.5 Amounts of general and specific provisions that are deducted from Tier 1 capital which may be deducted from the exposure measure in accordance with SLEV7.1.2.As the adjustments in this row reduce the exposure measure, they shall be reported as negative figures.6 All other balance sheet asset amounts deducted from Tier 1 capital and other regulatory adjustments associated with on-balance sheet assets as specified in SLEV6.2.As the adjustments in this row reduce the exposure measure, they shall be reported as negative figures.7 Sum of rows 1 to 6. 8 Replacement cost (RC) associated with all derivatives transactions (including exposures resulting from direct transactions between a client and a CCP where the bank guarantees the performance of its clients' derivative trade exposures to the CCP). Where applicable, this amount should be net of cash variation margin received (as set out in SLEV7.2.4(ii), and with bilateral netting (as set out in SLEV7.2.2(vi) to (vii). This amount should be reported with the 1.4 alpha factor applied as specified in SLEV7.2.2 (ii) and (v) 9 Add-on amount for the potential future exposure (PFE) of all derivative exposures calculated in accordance with SLEV7.2.2 (ii) and (v). This amount should be reported with the 1.4 alpha factor applied as specified in SLEV7.2.2 (ii) and (v). 10 Trade exposures associated with the CCP leg of derivatives transactions resulting from client-cleared transactions or which the clearing member, based on the contractual arrangements with the client, is not obligated to reimburse the client in respect of any losses suffered due to changes in the value of its transactions in the event that a qualifying central counterparty (QCCP) defaults.
As the adjustments in this row reduce the exposure measure, they shall be reported as negative figures.11 The effective notional amount of written credit derivatives which may be reduced by the total amount of negative changes in fair value amounts that have been incorporated into the calculation of Tier 1 capital with respect to written credit derivatives according to SLEV7.2.9. 12 This row comprises:- The amount by which the notional amount of a written credit derivative is reduced by a purchased credit derivative on the same reference name according to SLEV7.2.9.
- The deduction of add-on amounts for PFE in relation to written credit derivatives determined in accordance with SLEV7.2.15.
As the adjustments in this row reduce the exposure measure, they shall be reported as negative figures.13 Sum of rows 8 to 12. 14 The gross amount of SFT assets without recognition of netting, other than novation with QCCPs, determined in accordance with SLEV7.3.3, adjusted for any sales accounting transactions in accordance with SLEV7.3.4. 15 The cash payables and cash receivables of gross SFT assets with netting determined in accordance with SLEV7.3.3(i)(b). As these adjustments reduce the exposure measure, they shall be reported as negative figures. 16 The amount of the counterparty credit risk add-on for SFTs determined in accordance with SLEV7.3.3(ii). 17 The amount for which the bank acting as an agent in a SFT has provided an indemnity or guarantee determined in accordance with SLEV7.3.5. 18 Sum of rows 14 to 17. 19 Total off-balance sheet exposure amounts (excluding off-balance sheet exposure amounts associated with SFT and derivative transactions) on a gross notional basis, before any adjustment for credit conversion factors (CCFs). 20 Reduction in gross amount of off-balance sheet exposures due to the application of CCFs as specified in SLEV7.4.3(iv) to (x). As these adjustments reduce the exposure measure, they shall be reported as negative figures. 21 Amounts of specific and general provisions associated with off-balance sheet exposures that are deducted from Tier 1 capital, the absolute value of which is not to exceed the sum of rows 19 and 20. As these adjustments reduce the exposure measure, they shall be reported as negative figures. 22 Sum of rows 19 to 21. 23 The amount of Tier 1 capital of the risk-based capital framework as defined in the definition of capital standard (SACAP) taking account of the transitional arrangements. 24 Sum of rows 7, 13, 18 and 22. 25 The leverage ratio is defined as the Tier 1 capital measure divided by the exposure measure, with this ratio expressed as a percentage. 25a If a bank's leverage ratio exposure measure is subject to a temporary exemption of central bank reserves, this ratio is defined as the Tier 1 capital measure divided by the sum of the exposure measure and the amount of the central bank reserves exemption, with this ratio expressed as a percentage.
If the bank's leverage ratio exposure measure is not subject to a temporary exemption of central bank reserves, this ratio will be identical to the ratio reported in row 25.26 The minimum leverage ratio requirement applicable to the bank. 27 Total applicable leverage buffers. To include the G-SIB leverage ratio buffer requirement and any other applicable buffers. 28 Mean of the sums of rows 14 and 15, based on the sums calculated as of each day of the reporting quarter 29 If rows 14 and 15 are based on quarter-end values, this amount is the sum of rows 14 and 15.
If rows 14 and 15 are based on averaged values, this amount is the sum of quarter-end values corresponding to the content of rows 14 and 15.30 Total exposure measure (including the impact of any applicable temporary exemption of central bank reserves), using mean values calculated as of each day of the reporting quarter for the amounts of the exposure measure associated with gross SFT assets (after adjustment for sale accounting transactions and netted of amounts of associated cash payables and cash receivables). 30a Total exposure measure (excluding the impact of any applicable temporary exemption of central bank reserves), using mean values calculated as of each day of the reporting quarter for the amounts of the exposure measure associated with gross SFT assets (after adjustment for sale accounting transactions and netted of amounts of associated cash payables and cash receivables). If the bank's leverage ratio exposure measure is not subject to a temporary exemption of central bank reserves, this value will be identical to the value reported in row 30. 31 Tier 1 capital measure divided by the exposure measure (including the impact of any applicable temporary exemption of central bank reserves), using mean values calculated as of each day of the reporting quarter for the amounts of the exposure measure associated with gross SFT assets (after adjustment for sale accounting transactions and netted of amounts of associated cash payables and cash receivables). 31a Tier 1 capital measure divided by the exposure measure (excluding the impact of any applicable temporary exemption of central bank reserves), using mean values calculated as of each day of the reporting quarter for the amounts of the exposure measure associated with gross SFT assets (after adjustment for sale accounting transactions and netted of amounts of associated cash payables and cash receivables). If the bank's leverage ratio exposure measure is not subject to a temporary exemption of central bank reserves, this ratio will be identical to the ratio reported in row 31.
Linkages across templates (valid only if the relevant rows are all disclosed on a quarter-end basis) [LR2:23/a] is equal to [KM1:2/a]
[LR2:24/a] is equal to [KM1:13/a]
[LR2:25/a] is equal to [KM1:14/a]
[LR2:25a/a] is equal to [KM1:14b/a]
[LR2:31/a] is equal to [KM1:14c/a]
[LR2:31a/a] is equal to [KM1:14d/a]28. Liquidity
28.1 The disclosure requirements set out in this chapter are:
28.1.1 Table LIQA - Liquidity risk management
28.1.2 Template LIQ1 - Liquidity coverage ratio (LCR)
28.1.3 Template LIQ2 - Net stable funding ratio (NSFR)
28.2 Table LIQA provides information on a bank's liquidity risk management framework which it considers relevant to its business model and liquidity risk profile, organisation and functions involved in liquidity risk management. Template LIQ1 presents a breakdown of a bank's cash outflows and cash inflows, as well as its available high-quality liquid assets under its LCR. Template LIQ2 provides details of a bank's NSFR and selected details of its NSFR components. Table LIQA - Liquidity risk management Purpose: Enable users of Pillar 3 data to make an informed judgment about the soundness of a bank's liquidity risk management framework and liquidity position. Scope of application: The table is mandatory for all banks. Content: Qualitative and quantitative information. Frequency: Annual. Format: Flexible. Banks may choose the relevant information to be provided depending upon their business models and liquidity risk profiles, organisation and functions involved in liquidity risk management.
Below are examples of elements that banks may choose to describe, where relevant:
Qualitative disclosures (a) Governance of liquidity risk management, including: risk tolerance; structure and responsibilities for liquidity risk management; internal liquidity reporting; and communication of liquidity risk strategy, policies and practices across business lines and with the board of directors. (b) Funding strategy, including policies on diversification in the sources and tenor of funding, and whether the funding strategy is centralised or decentralised. (c) Liquidity risk mitigation techniques. (d) An explanation of how stress testing is used. (e) An outline of the bank's contingency funding plans. Quantitative disclosures (f) Customised measurement tools or metrics that assess the structure of the bank's balance sheet or that project cash flows and future liquidity positions, taking into account off-balance sheet risks which are specific to that bank. (g) Concentration limits on collateral pools and sources of funding (both products and counterparties). (h) Liquidity exposures and funding needs at the level of individual legal entities, foreign branches and subsidiaries, taking into account legal, regulatory and operational limitations on the transferability of liquidity. (i) Balance sheet and off-balance sheet items broken down into maturity buckets and the resultant liquidity gaps.
Template LIQ1: Liquidity Coverage Ratio (LCR)Purpose: Present the breakdown of a bank's cash outflows and cash inflows, as well as its available high-quality liquid assets (HQLA), as measured and defined according to the LCR standard. Scope of application: The template is mandatory for all banks. Content: Data must be presented as simple averages of daily observations over the previous quarter (ie the average calculated over a period of, typically, 90 days) in the local currency. Frequency: Quarterly. Format: Fixed. Accompanying narrative: Banks must publish the number of data points used in calculating the average figures in the template.
In addition, a bank should provide sufficient qualitative discussion to facilitate users' understanding of its LCR calculation. For example, where significant to the LCR, banks could discuss:
- the main drivers of their LCR results and the evolution of the contribution of inputs to the LCR's calculation over time;
- intra-period changes as well as changes over time;
- the composition of HQLA;
- concentration of funding sources;
- currency mismatch in the LCR; and
- other inflows and outflows in the LCR calculation that are not captured in the LCR common template but which the institution considers to be relevant for its liquidity profile.
a b Total unweighted value
(average)Total weighted value
(average)High-quality liquid assets 1 Total HQLA Cash outflows 2 Retail deposits and deposits from small business customers, of which: 3 Stable deposits 4 Less stable deposits 5 Unsecured wholesale funding, of which: 6 Operational deposits (all counterparties) and deposits in networks of cooperative banks 7 Non-operational deposits (all counterparties) 8 Unsecured debt 9 Secured wholesale funding 10 Additional requirements, of which: 11 Outflows related to derivative exposures and other collateral requirements 12 Outflows related to loss of funding on debt products 13 Credit and liquidity facilities 14 Other contractual funding obligations 15 Other contingent funding obligations 16 TOTAL CASH OUTFLOWS Cash inflows 17 Secured lending (eg reverse repos) 18 Inflows from fully performing exposures 19 Other cash inflows 20 TOTAL CASH INFLOWS Total adjusted value 21 Total HQLA 22 Total net cash outflows 23 Liquidity Coverage Ratio (%) General explanations
Figures entered in the template must be averages of the observations of individual line items over the financial reporting period (ie the average of components and the average LCR over the most recent three months of daily positions, irrespective of the financial reporting schedule). The averages are calculated after the application of any haircuts, inflow and outflow rates and caps, where applicable. For example:
where T equals the number of observations in period Qi.
Weighted figures of HQLA (row 1, third column) must be calculated after the application of the respective haircuts but before the application of any caps on Level 2B and Level 2 assets. Unweighted inflows and outflows (rows 2-8, 11-15 and 17-20, second column) must be calculated as outstanding balances. Weighted inflows and outflows (rows 2-20, third column) must be calculated after the application of the inflow and outflow rates.
Adjusted figures of HQLA (row 21, third column) must be calculated after the application of both (i) haircuts and (ii) any applicable caps (ie cap on Level 2B and Level 2 assets). Adjusted figures of net cash outflows (row 22, third column) must be calculated after the application of both (i) inflow and outflow rates and (ii) any applicable cap (ie cap on inflows).
The LCR (row 23) must be calculated as the average of observations of the LCR:
Not all reported figures will sum exactly, particularly in the denominator of the LCR. For example, "total net cash outflows" (row 22) may not be exactly equal to "total cash outflows" minus "total cash inflows" (row 16 minus row 20) if the cap on inflows is binding. Similarly, the disclosed LCR may not be equal to an LCR computed on the basis on the average values of the set of line items disclosed in the template.
Definitions and instructions:
Columns
Unweighted values must be calculated as outstanding balances maturing or callable within 30 days (for inflows and outflows).
Weighted values must be calculated after the application of respective haircuts (for HQLA) or inflow and outflow rates (for inflows and outflows).
Adjusted values must be calculated after the application of both (i) haircuts and inflow and outflow rates and (ii) any applicable caps (ie cap on Level 2B and Level 2 assets for HQLA and cap on inflows).
Row number Explanation Relevant paragraph(s) of SLCR, refer to Illustrative Summary of the Amended LCR for the Factors of each item. 1 Sum of all eligible HQLA, as defined in the standard, before the application of any limits, excluding assets that do not meet the operational requirements, and including, where applicable, assets qualifying under alternative liquidity approaches. SLCR28 to SLCR48, SLCR55, SLCR58 to SLCR62, SLCR57 2 Retail deposits and deposits from small business customers are the sum of stable deposits, less stable deposits and any other funding sourced from (i) natural persons and/or (ii) small business customers (as defined by SCRE10.18 and SCRE10.19). SLCR73 to SLCR84, SLCR89 to SLCR92 3 Stable deposits include deposits placed with a bank by a natural person and unsecured wholesale funding provided by small business customers, defined as "stable" in the standard. SLCR73 to SLCR78, SLCR89 to SLCR90 4 Less stable deposits include deposits placed with a bank by a natural person and unsecured wholesale funding provided by small business customers, not defined as "stable" in the standard. SLCR73 and SLCR74, SLCR79 to SLCR81, SLCR89 to SLCR90 5 Unsecured wholesale funding is defined as those liabilities and general obligations from customers other than natural persons and small business customers that are not collateralised. SLCR93 to SLCR111 6 Operational deposits include deposits from bank clients with a substantive dependency on the bank where deposits are required for certain activities (ie clearing, custody or cash management activities). Deposits in institutional networks of cooperative banks include deposits of member institutions with the central institution or specialised central service providers. SLCR93 to SLCR106 7 Non-operational deposits are all other unsecured wholesale deposits, both insured and uninsured SLCR107 to SLCR109 8 Unsecured debt includes all notes, bonds and other debt securities issued by the bank, regardless of the holder, unless the bond is sold exclusively in the retail market and held in retail accounts. SLCR110 9 Secured wholesale funding is defined as all collateralised liabilities and general obligations. SLCR112 to SLCR114 10 Additional requirements include other off-balance sheet liabilities or obligations SLCR112 and SLCR Attachment#2 row 228 to 238. 11 Outflows related to derivative exposures and other collateral requirements include expected contractual derivatives cash flows on a net basis. These outflows also include increased liquidity needs related to: downgrade triggers embedded in financing transactions, derivative and other contracts; the potential for valuation changes on posted collateral securing derivatives and other transactions; excess non-segregated collateral held at the bank that could contractually be called at any time; contractually required collateral on transactions for which the counterparty has not yet demanded that the collateral be posted; contracts that allow collateral substitution to non-HQLA assets; and market valuation changes on derivatives or other transactions. SLCR112 to SLCR Attachment#2 row 221 12 Outflows related to loss of funding on secured debt products include loss of funding on: asset-backed securities, covered bonds and other structured financing instruments; and asset-backed commercial paper, conduits, securities investment vehicles and other such financing facilities. SLCR Attachment#2 row 222 and 223. 13 Credit and liquidity facilities include drawdowns on committed (contractually irrevocable) or conditionally revocable credit and liquidity facilities. The currently undrawn portion of these facilities is calculated net of any eligible HQLA if the HQLA have already been posted as collateral to secure the facilities or that are contractually obliged to be posted when the counterparty draws down the facility. SLCR page 64 to SLCR Attachment#2 row 228 to 238. 14 Other contractual funding obligations include contractual obligations to extend funds within a 30-day period and other contractual cash outflows not previously captured under the standard. SLCR Attachment#2 row 240, 241, and 265. 15 Other contingent funding obligations, as defined in the standard. SLCR Attachment#2 page 69 to 71. 16 Total cash outflows: sum of rows 2-15. 17 Secured lending includes all maturing reverse repurchase and securities borrowing agreements. SLCR Attachment#2 a) page 71 to 72. 18 Inflows from fully performing exposures include both secured and unsecured loans or other payments that are fully performing and contractually due within 30 calendar days from retail and small business customers, other wholesale customers, operational deposits and deposits held at the centralised institution in a cooperative banking network. SLCR Attachment#2 row 301, 303, 306, and 307. 19 Other cash inflows include derivatives cash inflows and other contractual cash inflows. SLCR Attachment#2 row 316, to 317. 20 Total cash inflows: sum of rows 17-19 21 Total HQLA (after the application of any cap on Level 2B and Level 2 assets). SLCR28 to SLCR46, SLCR47 to SLCR annex 1(4), SLCR49 to SLCR54 22 Total net cash outflows (after the application of any cap on cash inflows). SLCR69 23 Liquidity Coverage Ratio (after the application of any cap on Level 2B and Level 2 assets and caps on cash inflows). SLCR22 Template LIQ2: Net Stable Funding Ratio (NSFR) Purpose: Provide details of a bank's NSFR and selected details of its NSFR components. Scope of application: The template is mandatory for all banks. Content: Data must be presented as quarter-end observations in the local currency. Frequency: Semiannual (but including two data sets covering the latest and the previous quarter-ends). Format: Fixed. Accompanying narrative: Banks should provide a sufficient qualitative discussion on the NSFR to facilitate an understanding of the results and the accompanying data. For example, where significant, banks could discuss:
(a) drivers of their NSFR results and the reasons for intra-period changes as well as the changes over time (eg changes in strategies, funding structure, circumstances); and (b) composition of the bank's interdependent assets and liabilities (as defined in SNSF8) and to what extent these transactions are interrelated. a b c d e (In currency amount) Unweighted value by residual maturity Weighted value No maturity < 6 months 6 months to < 1 year ≥ 1 year Available stable funding (ASF) item 1 Capital: 2 Regulatory capital 3 Other capital instruments 4 Retail deposits and deposits from small business customers: 5 Stable deposits 6 Less stable deposits 7 Wholesale funding: 8 Operational deposits 9 Other wholesale funding 10 Liabilities with matching interdependent assets 11 Other liabilities: 12 NSFR derivative liabilities 13 All other liabilities and equity not included in the above categories 14 Total ASF Required stable funding (RSF) item 15 Total NSFR high-quality liquid assets (HQLA) 16 Deposits held at other financial institutions for operational purposes 17 Performing loans and securities: 18 Performing loans to financial institutions secured by Level 1 HQLA 19 Performing loans to financial institutions secured by non-Level 1 HQLA and unsecured performing loans to financial institutions 20 Performing loans to non-financial corporate clients, loans to retail and small business customers, and loans to sovereigns, central banks and PSEs, of which: 21 With a risk weight of less than or equal to 35% under the Basel II standardised approach for credit risk 22 Performing residential mortgages, of which: 23 With a risk weight of less than or equal to 35% under the Basel II standardised approach for credit risk 24 Securities that are not in default and do not qualify as HQLA, including exchange-traded equities 25 Assets with matching interdependent liabilities 26 Other assets: 27 Physical traded commodities, including gold 28 Assets posted as initial margin for derivative contracts and contributions to default funds of central counterparties 29 NSFR derivative assets 30 NSFR derivative liabilities before deduction of variation margin posted 31 All other assets not included in the above categories 32 Off-balance sheet items 33 Total RSF 34 Net Stable Funding Ratio (%) General instructions for completion of the NSFR disclosure template
Rows in the template are set and compulsory for all banks. Key points to note about the common template are:
- Dark grey rows introduce a section of the NSFR template.
- Light grey rows represent a broad subcomponent category of the NSFR in the relevant section.
- Unshaded rows represent a subcomponent within the major categories under ASF and RSF items. As an exception, rows 21 and 23 are
- subcomponents of rows 20 and 22, respectively. Row 17 is the sum of rows 18, 19, 20, 22 and 24.
- No data should be entered for the cross-hatched cells.
- Figures entered in the template should be the quarter-end observations of individual line items.
- Figures entered for each RSF line item should include both unencumbered and encumbered amounts.
- Figures entered in unweighted columns are to be assigned on the basis of residual maturity and in accordance with SNSF5.
Items to be reported in the "no maturity" time bucket do not have a stated maturity. These may include, but are not limited to, items such as capital with perpetual maturity, non-maturity deposits, short positions, open maturity positions, non-HQLA equities and physical traded commodities.
Explanation of each row of the common disclosure template Row number Explanation Relevant paragraph(s) of SNSF 1 Capital is the sum of rows 2 and 3. 2 Regulatory capital before the application of capital deductions, as defined in SACAP2.1.
Capital instruments reported should meet all requirements outlined in SACAP2 and should only include amounts after transitional arrangements in SACAP5 have expired under fully implemented Basel III standards (ie as in 2022).SNSF6: - Receiving a 100% ASF (a).
- Receiving a 50% ASF (d).
- Receiving a 0% ASF (a).3 Total amount of any capital instruments not included in row 2. SNSF6: - Receiving a 100% ASF (b).
- Receiving a 50% ASF (d).
- Receiving a 0% ASF (a).4 Retail deposits and deposits from small business customers, as defined in the SLCR73-82 and SLCR89-92, are the sum of row 5 and 6. 5 Stable deposits comprise "stable" (as defined in SLCR75 to SLCR78) non-maturity (demand) deposits and/or term deposits provided by retail and small business customers. SNSF6: - Receiving a100% ASF (c).
- Receiving a 95% ASF.6 Less stable deposits comprise "less stable" (as defined in SLCR79 to SLCR81) non-maturity (demand) deposits and/or term deposits provided by retail and small business customers. SNSF6: - Receiving a 100% ASF (c).
- Receiving a 90% ASF.7 Wholesale funding is the sum of rows 8 and 9. 8 Operational deposits: as defined in SLCR93 to SLCR104, including deposits in institutional networks of cooperative banks. SNSF6: - Receiving a 100% ASF (c).
- Receiving a 50% ASF (b).
- Receiving a 0% ASF (a).
- Including footnote 17.9 Other wholesale funding includes funding (secured and unsecured) provided by non-financial corporate customer, sovereigns, public sector entities (PSEs), multilateral and national development banks, central banks and financial institutions. SNSF6: - Receiving a 100% ASF (c).
- Receiving a 50% ASF (a).
- Receiving a 50% ASF (c).
- Receiving a 50% ASF (d).
- Receiving a 0% ASF (a).10 Liabilities with matching interdependent assets. SNSF8 11 Other liabilities are the sum of rows 12 and 13. 12 In the unweighted cells, report NSFR derivatives liabilities as calculated according to NSFR paragraphs 19 and 20. There is no need to differentiate by maturities.
[The weighted value under NSFR derivative liabilities is cross-hatched given that it will be zero after the 0% ASF is applied.]SNSF5(A), SNSF6: - Receiving a 0% ASF (c). 13 All other liabilities and equity not included in above categories. SNSF6: - Receiving a 0% ASF (a).
- Receiving a 0% ASF (b).
- Receiving a 0% ASF (d).14 Total available stable funding (ASF) is the sum of all weighted values in rows 1, 4, 7, 10 and 11. 15 Total HQLA as defined in SLCR45, SLCR50] to SLCR54, SLCR55, SLCR63, SLCR65, SLCR58, SLCR62, SLCR67, (encumbered and unencumbered), without regard to LCR operational requirements and LCR caps on Level 2 and Level 2B assets that might otherwise limit the ability of some HQLA to be included as eligible in calculation of the LCR:
ncumbered assets including assets backing securities or covered bonds. (b)Unencumbered means free of legal, regulatory, contractual or other restrictions on the ability of the bank to liquidate, sell, transfer or assign the asset.SNSF Footnote 9, SNSF7: - Assigned a 0% ASF (a).
- Assigned a 0% ASF (b).
- Assigned a 5% ASF.
- Assigned a 15% ASF (a).
- Assigned a 50% ASF (a).
- Assigned a 50% ASF (b).
- Assigned a 85% ASF (a).
- Assigned a 100% ASF (a).16 Deposits held at other financial institutions for operational purposes as defined in SLCR93 to SLCR104. SNSF7: - Assigned a 50% ASF (d). 17 Performing loans and securities are the sum of rows 18, 19, 20, 22 and 24. 18 Performing loans to financial institutions secured by Level 1 HQLA, as defined in the SLCR50(c) to SLCR50(e). SNSF7: - Assigned a 10% ASF.
- Assigned a 50% ASF (c).
- Assigned a 100% ASF (c).19 Performing loans to financial institutions secured by non-Level 1 HQLA and unsecured performing loans to financial institutions. SNSF7: - Assigned a 50% ASF (b).
- Assigned a 50% ASF (c).
- Assigned a 100% ASF (c).20 Performing loans to non-financial corporate clients, loans to retail and small business customers, and loans to sovereigns, central banks and PSEs. SNSF7: - Assigned a 0% ASF (c).
- Assigned a 50% ASF (d).
- Assigned a 65% ASF (b).
- Assigned a 85% ASF (b).
- Assigned a 65% ASF (a).21 Performing loans to non-financial corporate clients, loans to retail and small business customers, and loans to sovereigns, central banks and PSEs with risk weight of less than or equal to 35% under the Standardised Approach. SNSF7: - Assigned a 0% ASF (c).
- Assigned a 50% ASF (d).
- Assigned a 65% ASF (b).
- Assigned a 100% ASF (a).22 Performing residential mortgages. SNSF7: - Assigned a 50% ASF (e).
- Assigned a 65% ASF (a).
- Assigned a 85% ASF (b).
- Assigned a 100% ASF (a).23 Performing residential mortgages with risk weight of less than or equal to 35% under the Standardised Approach. SNSF7: - Assigned a 50% ASF (e).
- Assigned a 65% ASF (a). - Assigned a 100% ASF (a).24 Securities that are not in default and do not qualify as HQLA including exchange-traded equities. SNSF7: - Assigned a 50% ASF (e).
- Assigned a 85% ASF (c).
- Assigned a 100% ASF (a).25 Assets with matching interdependent liabilities. SNSF8 26 Other assets are the sum of rows 27-31. 27 Physical traded commodities, including gold. SNSF7: - Assigned a 85% ASF (d) 28 Cash, securities or other assets posted as initial margin for derivative contracts and contributions to default funds of central counterparties. SNSF7: - Assigned a 50% ASF (a) 29 In the unweighted cell, report NSFR derivative assets, as calculated according to SNSF5 (B) “Calculation of derivative asset amounts”. There is no need to differentiate by maturities.
In the weighted cell, if NSFR derivative assets are greater than NSFR derivative liabilities, (as calculated according to SNSF5 (A) “Calculation of derivative liability amounts”, report the positive difference between NSFR derivative assets and NSFR derivative liabilities.SNSF5 (B) “Calculation of derivative asset amounts” and SNSF7: - Assigned a 100% ASF (b). 30 In the unweighted cell, report derivative liabilities as calculated according to SNSF5 (A) “Calculation of derivative liability amounts”, ie before deducting variation margin posted. There is no need to differentiate by maturities.
In the weighted cell, report 20% of derivatives liabilities' unweighted value (subject to 100% RSF).SNSF5 (A) “Calculation of derivative liability amounts” and SNSF7: - Assigned a 100% ASF (d). 31 All other assets not included in the above categories. SNSF7: - Assigned a 0% ASF (d).
- Assigned a 100% ASF (c).32 Off-balance sheet items. SNSF9 33 Total RSF is the sum of all weighted value in rows 15, 16, 17, 25, 26 and 32. 34 Net Stable Funding Ratio (%), as stated SNSF SNSF4 29. Worked Examples
Interpretation of the effective date - illustration
29.1 The following table illustrates the application of paragraph section 3.2 by specifying the first applicable fiscal period for disclosure requirements according to their frequency, using as example a bank with a fiscal year coinciding with the calendar year (case 1), a bank with a fiscal year ending in October of the same calendar year (case 2), and a bank with a fiscal year ending in March of the following calendar year (case 3).
29.1.1 Banks with fiscal year from 1 January to 31 December:
a. The first fiscal quarter subject to quarterly disclosure requirements with an "effective as of" date of 1 January of a given year will be the first fiscal quarter, ending in 31 March of that calendar year. The first fiscal quarter subject to quarterly disclosure requirements with an "effective as of" date of 31 December of a given year will be the fourth fiscal quarter, ending in 31 December of that calendar year.
b. The first fiscal semester subject to semi-annual disclosure requirements with an "effective as of" date of 1 January of a given year will be the first fiscal semester, ending in 31 June of that calendar year. The first fiscal semester subject to semiannual disclosure requirements with an "effective as of" date of 31 December of a given year will be the second fiscal semester, ending in 31 December of that calendar year.
c. The first fiscal year subject to annual disclosure requirements with an "effective as of" date of 1 January of a given year will be the fiscal year starting in 1 January of that calendar year. The first fiscal year subject to annual disclosure requirements with an "effective as of" date of 31 December of a given year will be the fiscal year ending in that same 31 December of that calendar year.
29.1.2 Banks with fiscal year from 1 November of the previous calendar year to 31 October:
a. The first fiscal quarter subject to quarterly disclosure requirements with an "effective as of" date of 1 January of a given year will be the first fiscal quarter, ending in 31 January of that calendar year. The first fiscal quarter subject to quarterly disclosure requirements with an "effective as of" date of 31 December of a given year will be the first fiscal quarter, ending in 31 January of the following calendar year.
b. The first fiscal semester subject to semiannual disclosure requirements with an "effective as of" date of 1 January of a given year will be the first fiscal semester, ending in 31 April of that calendar year. The first fiscal semester subject to semiannual disclosure requirements with an "effective as of" date of 31 December of a given year will be the first fiscal semester, ending in 31 April of the following calendar year.
c. The first fiscal year subject to annual disclosure requirements with an "effective as of" date of 1 January of a given year will be the fiscal year starting in 1 November of the previous calendar year. The first fiscal year subject to annual disclosure requirements with an "effective as of" date of 31 December of a given year will be the fiscal year ending in 31 October of the following calendar year.
29.1.3 Banks with fiscal year from 1 April to 31 March of the next calendar year:
a. The first fiscal quarter subject to quarterly disclosure requirements with an "effective as of" date of 1 January of a given year will be the fourth fiscal quarter, ending in 31 March of that calendar year. The first fiscal quarter subject to quarterly disclosure requirements with an "effective as of" date of 31 December of a given year will be the third fiscal quarter, ending in 31 December of that calendar year.
b. The first fiscal semester subject to semiannual disclosure requirements with an "effective as of" date of 1 January of a given year will be the second fiscal semester, ending in 31 March of that calendar year. The first fiscal semester subject to semiannual disclosure requirements with an "effective as of" date of 31 December of a given year will be the second fiscal semester, ending in 31 March of the following calendar year.
c. The first fiscal year subject to annual disclosure requirements with an "effective as of" date of 1 January of a given year will be the fiscal year starting in 1 April of the previous calendar year. The first fiscal year subject to annual disclosure requirements with an "effective as of" date of 31 December of a given year will be the fiscal year ending in 31 March of the following calendar year.
Template CR3 – illustration
29.2 The following scenarios illustrate how Template CR3 should be completed.
a b c d e Unsecured exposures: carrying amount Exposures to be secured Exposures secured by collateral Exposures secured by financial guarantees Exposures secured by credit derivatives (i) One secured loan of 100 with collateral of 120 (after haircut) and guarantees of 50 (after haircut), if bank expects that guarantee would be extinguished first 0 100 50 50 0 (ii) One secured loan of 100 with collateral of 120 (after haircut) and guarantees of 50 (after haircut), if bank expects that collateral would be extinguished first 0 100 100 0 0 (iii) Secured exposure of 100 partially secured: 50 by collateral (after haircut), 30 by financial guarantee (after haircut), none by credit derivatives 0 100 50 30 0 (iv) One unsecured loan of 20 and one secured loan of 80. The secured loan is over-collateralised: 60 by collateral (after haircut), 90 by guarantee (after haircut), none by credit derivatives. If bank expects that collateral would be extinguished first. 20 80 60 20 0 (v) One unsecured loan of 20 and one secured loan of 80. The secured loan is under-collaterised: 50 by collateral (after haircut), 20 by guarantee (after haircut), none by credit derivatives. 20 80 50 20 0
Definitions
Exposures unsecured- carrying amount: carrying amount of exposures (net of allowances/impairments) that do not benefit from a credit risk mitigation technique.
Exposures to be secured: carrying amount of exposures which have at least one credit risk mitigation mechanism (collateral, financial guarantees, credit derivatives) associated with them. The allocation of the carrying amount of multi-secured exposures to their different credit risk mitigation mechanisms is made by order of priority, starting with the credit risk mitigation mechanism expected to be called first in the event of loss, and within the limits of the carrying amount of the secured exposures.
Exposures secured by collateral: carrying amount of exposures (net of allowances/impairments) partly or totally secured by collateral. In case an exposure is secured by collateral and other credit risk mitigation mechanism(s), the carrying amount of the exposures secured by collateral is the remaining share of the exposure secured by collateral after consideration of the shares of the exposure already secured by other mitigation mechanisms expected to be called beforehand in the event of a loss, without considering overcollateralisation.
Exposures secured by financial guarantees: carrying amount of exposures (net of allowances/impairments) partly or totally secured by financial guarantees. In case an exposure is secured by financial guarantees and other credit risk mitigation mechanism, the carrying amount of the exposure secured by financial guarantees is the remaining share of the exposure secured by financial guarantees after consideration of the shares of the exposure already secured by other mitigation mechanisms expected to be called beforehand in the event of a loss, without considering overcollateralisation.
Exposures secured by credit derivatives: carrying amount of exposures (net of allowances/impairments) partly or totally secured by credit derivatives. In case an exposure is secured by credit derivatives and other credit risk mitigation mechanism(s), the carrying amount of the exposure secured by credit derivatives is the remaining share of the exposure secured by credit derivatives after consideration of the shares of the exposure already secured by other mitigation mechanisms expected to be called beforehand in the event of a loss, without considering overcollateralisation.
Template CCR5 - illustration
29.3 The case below illustrates the cash and security legs of two securities lending transactions in Template CCR5:
29.3.1 Repo on foreign sovereign debt with 50 SAR cash received and 55 SAR collateral posted
29.3.2 Reverse repo on domestic sovereign debt with 80 SAR cash paid and 90 SAR collateral received
e f Collateral used in securities financing transactions (SFTs) Fair value of collateral received Fair value of posted collateral Cash - domestic currency 80 Cash - other currencies 50 Domestic sovereign debt 90 Other sovereign debt 55 - Total 140 135
Template MR2 - illustration
29.4 The paragraphs below describe the relevant provisions for components of IMA capital requirement calculations.
29.4.1 The aggregate capital requirement for approved and eligible trading desks (TDs) (IMAG,A) according to SMAR13.43 is defined as: CA + DRC + Capital surcharge.
29.4.2 According to SMAR13.41 CA is defined as:
29.4.3
According to SMAR13.22 DRC is defined as the greater of: (1) the average of the DRC requirement model measures over the previous 12 weeks; or (2) the most recent DRC requirement model measure.
29.4.4 According to SMAR13.45 Capital surcharge: is calculated as the difference between the aggregated standardised capital charges (SAG,A) and the aggregated internal models-based capital charges (IMA G,A = CA + DRC) multiplied by a factor k. k and SAG,A are only recent while IMAG,A is average or recent -> Surcharge is average or recent.
Example: illustration of the correct specification for row 12 in template MR2
29.5 Applying the formulae set out in SMAR13.22, SMAR13.41, SMAR13.43, and SMAR13.45 (marked in blue below), the relevant components for CA [either most recent (8+9) or average 1.5*8 +9] and DRC should take the respectively greater value of the “most recent” and “average” (marked in red). This results in the green and amber trading desks total capital requirements (including capital surcharge) of 485.
a b Template MR2 Most recent Average 8 IMCC 100 130 *1.5 9 SES 130 100 (CA = max [IMCCt-1+SESt-1; mc*IMCCavg+SESavg] (230) (295) 10 DRC 100 90 11 Capital surcharge for amber TD 90 12 Capital requirements for green and amber TDs (including capital surcharge) max[a=(8+9);b=(multiplier*8+9)]+max[a=10; b=10]+ 11485 13 SA Capital requirements for TD ineligible to use IMA CU 20 30. Annexure 1: Frequently Asked Questions (FAQ)
Article # Question Answer Overview of risk management, key prudential metrics and RWA 12 For counterparty credit risk (CCR) (rows 6-9), the split requested is by the exposure at default (EAD) methodology classification used to determine exposure levels rather than the risk- weighted asset (RWA) methodology classification used to determine risk weights. This contradicts the presentation for credit risk (rows 1–5) and securitisation (rows 16-19). Should line items be added (where necessary) to reconcile the disclosure to the total RWA? Template OV1 does not request CCR to be split by risk weighting methodology, but by EAD methodology. Nevertheless, banks should add extra rows, as appropriate, to split the exposures by risk weighting methodology*, in order to facilitate the reconciliation with the RWA changes in Template CCR7.
* RWA and capital requirements under the Standardised Approach for credit risk weighting are to be subdivided in the standardised approach for counterparty credit risk (SA-CCR) and the internal models method (IMM), and the same for RWA and capital requirements under the internal ratings-based (IRB) approach for credit risk weighting.Composition of capital TLAC 14 For the disclosure requirements under section 14 in the event a bank restates its prior year accounting balance sheet, does the bank restate the archived prior year reconciliation templates? The requirement to keep an archive of a minimum period also applies to the reconciliation template. As such, any prospective/retrospective restatement of the balance sheet would require similar amendments to be reflected in the reconciliation templates within the archive with a clear indication that such a revision has been made. Links between financial statements and regulatory exposures 16 In Template LI1, are assets deducted from regulatory capital in accordance with Basel III (eg goodwill and intangible assets) disclosed in column (g)? Elements which are deducted from a bank's regulatory capital (eg goodwill and intangible assets and deferred tax assets) should be included in column (g), taking into consideration the different thresholds that apply where relevant. Assets should be disclosed for the amount that is actually deducted from capital. Some examples are shown below:
- Goodwill and intangible assets: the amount to be disclosed in column (g) is the amount of any goodwill or intangibles,* including any goodwill included in the valuation of significant investments in the capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation. The amount disclosed in the assets rows is net of any associated deferred tax liability which would be extinguished if the intangible assets become impaired or derecognised under the relevant accounting standards. The associated deferred tax liability is also to be disclosed in the liabilities rows of column (g).
- Deferred tax assets: for all types of deferred tax assets to be deducted from own funds, the amount to be disclosed in column (g) is net of associated deferred tax liabilities that are eligible for netting. The associated deferred tax liabilities are to be disclosed in the liabilities rows of column (g). For deferred tax assets, for which the deduction is subject to a threshold, the amount disclosed in column (g) in the assets rows is the amount, net of any eligible deferred tax liability, above the threshold. The associated deferred tax liabilities are also to be disclosed in the liabilities rows of column (g).
- Defined benefit pension fund assets: the amount disclosed is net of any deferred tax liabilities which would be extinguished if the asset should become impaired or derecognised under the relevant accounting standards. These deferred tax liabilities are also to be disclosed in the liabilities rows of column (g).
- Investments in own shares (treasury stock) or own instruments of regulatory capital: when investments in own shares or own instruments of regulatory capital are not already derecognised under the relevant accounting standards, the deducted amount disclosed is net of short positions in the same underlying exposure or in the same underlying index allowed to be netted under the Basel framework. These short positions are also to be disclosed in the liabilities rows of column (g).
* Under SACAP4.1.1, subject to SAMA approval, IFRS definition of intangible assets to determine which assets are classified as intangible and are thus required to be deducted.In Template LI1, are exposures required to be 1,250% risk-weighted to be disclosed in column (g)? 1,250% risk-weighted exposures should be disclosed in the relevant credit risk or securitisation risk templates. Template LI1: Considering that the risk weighting framework bears on assets rather than liabilities, should all the liabilities be disclosed in column (g)? Should in any case deferred tax liabilities and defined benefit pension fund liabilities be included in column (g)? The liabilities disclosed in column (g) are all liabilities under the regulatory scope of consolidation, except for the following, which are disclosed in columns (c), (d), (e) and (f) as applicable: liabilities that are included in the determination of the exposure values in the market risk or the counterparty credit risk framework; and liabilities that are eligible under the Basel netting rules. What is the difference in Template LI2 between the required disclosure in row 2 (Liabilities carrying value amount under regulatory scope of consolidation) and row 6 (Differences due to different netting rules, other than those already included in row 2). Row 2 refers to balance sheet netting, while row 6 refers to incremental netting in application of the Basel rules (when not already covered by balance sheet netting). The netting rules under the Basel framework are different from the rules under the applicable accounting frameworks. The incremental netting in row 6 could represent an additional deduction from the net exposure value before application of the Basel netting rules (when those rules lead to more netting than the balance sheet netting in row 2) or a gross-up of the net exposure value when the off-balance sheet netting operated in row 2 is broader than what the Basel netting rules allow. How does the disclosure in Template LI2, in particular row 3 (total net amount under regulatory scope of consolidated) relate to accounting equity? The netting between assets and liabilities in Template LI2 does not lead to accounting equity under a regulatory scope of consolidation being disclosed in row 3. Assets and liabilities included in rows 1 and 2 are limited to those assets and liabilities that are taken into consideration in the regulatory framework. Other assets and liabilities not considered in the regulatory framework are to be disclosed in column (g) in Template LI1 and are consequently excluded from rows 1 and 2 of Template LI2. For Template LI2, how would the entry in row 10 (exposure amounts considered for regulatory purpose) differ from the balance sheet values under a regulatory scope of consolidation? Is it correct that there would be no differences to be explained, given that market risk does not have exposure values and the linkage for the other risk categories does not apply? In general, under a regulatory scope of consolidation, the accounting carrying amount and the regulatory exposure value would vary due to the incidence of off-balance sheet elements, provisions, and different netting and measurement rules. Under market risk, the regulatory exposure value will also differ from the accounting carrying amount. Differences could be due to off- balance sheet items, netting rules and different measurement rules of market risk positions via prudent valuation (as opposed to fair valuation in the applicable accounting framework). Credit risk 19 How should the disclosure be made in Template CR3, in an example where a loan has multiple types of credit risk mitigation and is overcollateralised (eg a loan of 100 with land collateral of 120 as well as guarantees of 50)? When an exposure benefits from multiple types of credit risk mitigation mechanisms, the exposure value should be allocated to each mechanism by order of priority based on the credit risk mitigation mechanism which banks would apply in the event of loss. Disclosure should be limited to the value of the exposure (ie the amount of overcollateralisation does not need to be disclosed in the table). If the bank wishes to disclose information regarding the over-collateralisation, it may do so in the accompanying narrative. Refer to example in section 28.3. What are the values to be ascribed to collateral, guarantees and credit derivatives in Template CR3? Banks should disclose the amount of credit risk mitigation calculated according to the regulatory framework, including both the costs to sell and of haircut. Where should exposures to central counterparties (CCPs) be included? Exposures for trades, initial margins and default fund contributions are included in Template CCR8. Exposures stemming from loans to CCPs excluding initial margins and default fund contributions should be included within the credit risk framework considering the CCP as an asset class item. These loans should be included in the exposure class where the national implementation of the Basel framework allows exposures to CCPs to be included. In Template CR7, what is the required disclosure if an exposure is only partially hedged by a credit derivative? For instance, consider a loan with nominal exposure of 100 SAR, risk weight of 150% and therefore RWA of 150 SAR. The bank buys a credit default swap with a 30 SAR nominal amount, and the risk weight of the protection provider is 50%. Which values should be entered in columns (a) and (b)? Under the IRB approach, credit derivatives are recognised as CRM techniques for the F-IRB and A-IRB. In both cases, banks can reflect the risk mitigating effect of credit derivatives on an exposure by adjusting their PD or loss-given-default (LGD). Banks should disclose in column (a), the RWA of an exposure secured by a credit derivative calculated without reflecting the risk mitigating effect of credit derivatives (in the example, banks would disclose 150 SAR). In column (b), the RWA of the same exposure calculated reflecting the risk mitigating effect of credit derivatives (in the example, banks would disclose 30*50% + 70*150% = 120) should be disclosed. Is the “weighted average PD” in column (d) of Template CR9 to be calculated based on the formula ∑(PDί *EADί)/(∑EADί)? “Weighted” means exposure at default (EAD)-weighted. For this purpose, the formula in the question is correct since the data will be comparable to those reported in column (i). How should “defaulted obligors” be defined, for the purpose of Template CR9? For column (f) (number of obligors), please clarify how “obligors” are defined from a retail perspective. Should “end of the previous year” include only non-defaulted accounts at the beginning of the year, or both defaulted and non-defaulted accounts? Should “end of the year” include all active accounts at the end of the year? For column (g) (defaulted obligors in the year), please clarify whether it is related to accounts that defaulted during the year or from inception. The definition of obligors or retail obligors is the same as for other obligors; any individual person or persons, or a small or medium- sized entity. Furthermore, where banks apply the “transaction approach”, each transaction shall be considered as a single obligor. A defaulted obligor is an obligor that meets the conditions set out in SCRE16.67 to SCRE16.74.
For column (f), the “end of the previous year” includes non- defaulted accounts at the beginning of the year of reference for disclosure. The “end of the year” includes all the non-defaulted accounts related to obligors already included in the “end of the previous year” plus all the new obligors acquired during the year of reference for disclosure which did not go into default during the year. Banks have discretion as to whether to include obligors who left during the year within the “end of the year” number.
For column (g), “defaulted obligors” includes: (i) obligors not in default at the beginning of the year who went into default during the year; and (ii) new obligors acquired during the year– through origination or purchase of loans, debt securities or off-balance sheet commitments – that were not in default, but which went into default during the year. Obligors under (ii) are also separately disclosed in column (h). The PD or PD range to be included in columns (d) and (e) is the one assigned at the beginning of the period for obligors that are not in default at the beginning of the period.What considerations can institutions reference when disclosing a model performance test (backtesting) when the test is not aligned to the year- end disclosure timetable? The frequency of the disclosure is not linked to the timing of the bank's backtesting. The annual disclosure frequency does not require a timetable of model backtesting that is calibrated on a calendar year basis. When the backtesting reference period is not calibrated on a calendar year basis, but on another time interval (for instance, a 12- month interval), “year” as used in columns (f), (g) and (h) of Template CR9 means “over the period used for the backtesting of a model”. Banks must, however, disclose the time horizon (observation period /timetable) they use for their backtesting. Counterparty credit risk 20 The “purpose” of Template CCR5 asks for a breakdown of all types of collateral posted or received. The content section, however, asks for collateral used. These numbers differ as certain transactions are over-collateralised (ie >100% of exposure) and therefore not all collateral would be used for risk mitigation. Should the template include all collateral posted/received or just collateral that is applied? The numbers reported in Template CCR5 should be the total collateral posted/received (ie not limited to the collateral that is applied/used for risk mitigation). The purpose of the template is to provide a view on the collateral posted/received rather than the value accounted for within the regulatory computation. If the bank wishes to disclose the collateral eligible for credit mitigation, it may do so using an accompanying narrative. Template CCR7 refers to an RWA flow on internal models method (IMM) exposures. Row 4 (Model updates – IMM only) and row 5 (Methodology and policy – IMM only) are specifically to include only model and methodology/policy changes relating to the IMM exposures model. Where in the template would changes to the internal-ratings based (IRB) models that result in changes in risk weights for positions under the IMM be reported? Template CCR7 is consistent with Template OV1, which requests a split by exposure at default (EAD) methodology and not by risk weighting methodology. Banks are recommended to add rows to report any changes relating to risk weighting methodology if they deem them useful. The row breakdown is flexible and intends to depict all the significant drivers of changes for the risk-weighted assets (RWA) under counterparty credit risk. Specific rows should be inserted when changes to the IRB model result in changes to the RWA of instruments under counterparty credit risk whose exposure value is determined based on the IMM. Securitisation 21 Template SEC1 requires the disclosure of “carrying values”. Is there a direct link between columns (d), (h) and (l) of Template SEC1 and column (e) of Template LI1? Reconciliation is not possible when Template SEC1 presents securitisation exposures within and outside the securitisation framework together. However, when banks choose to disclose Template SEC1 and SEC2 separately for securitisation exposures within the securitisation framework and outside that framework, the following reconciliation is possible: the sum of on-balance sheet assets and liabilities included in columns (d), (h) and (l) of Template SEC1 is equal to the amounts disclosed in column (e) of Template LI1. Should institutions disclose RWA before or after the application of the cap? RWA figures disclosed in Templates SEC3 and SEC4 should be before application of the cap, as it is useful for users to compare exposures and risk-weighted assets (RWA) before application of the cap. Columns (a)–(m) in Templates SEC3 and SEC4 should be reported prior to application of the cap, while columns (n)–(q) should be reported after application of the cap. RWA after application of the cap are disclosed in Template OV1. 31. Annexure 2: Frequency and Timing of Disclosures
Section Template Applicability Format Frequency Fixed Flexible Quarterly Semiannual Annual Overview of risk management, key prudential metrics and RWA KM1 Applicable √ √ KM2 Not required to be completed by the bank unless otherwise specified by SAMA. √ √ OVA Applicable √ √ OV1 √ √ Comparison of modelled and standardised RWA CMS1 Not required to be completed by the bank unless SAMA approve the bank to use the IRB or IMA approach. √ √ CMS2 √ √ Composition of capital and TLAC CCA Applicable √ √ CC1 √ √ CC2 √ √ TLAC1 Not required to be completed by the bank unless otherwise specified by SAMA. √ √ TLAC2 √ √ TLAC3 √ √ Capital distribution constraints CDC Applicable √ √ Links between financial statements and regulatory exposures LIA Applicable √ √ LI1 √ √ LI2 √ √ PV1 √ √ Asset encumbrance ENC Applicable √ √ Remuneration REMA Applicable √ √ REM1 √ √ REM2 √ √ REM3 √ √ Credit risk CRA Applicable √ √ CR1 √ √ CR2 √ √ CRB √ √ CRB_A √ √ CRC √ √ CR3 √ √ CRD √ √ CR4 √ √ CR5 √ √ CRE Not required to be completed by the bank unless SAMA approve the bank to use the IRB approach. √ √ CR6 √ √ CR7 √ √ CR8 √ √ CR9 √ √ CR10 √ √ Counterparty credit risk CCRA Applicable √ √ CCR1 √ √ CCR3 √ √ CCR4 Not required to be completed by the bank unless SAMA approve the bank to use the IRB or IMM approach. √ √ CCR5 Applicable √ √ CCR6 √ √ CCR7 Not required to be completed by the bank unless SAMA approve the bank to use the IRB or IMM approach. √ √ CCR8 Applicable √ √ Securitisation SECA Applicable √ √ SEC1 √ √ SEC2 √ √ SEC3 √ √ SEC4 √ √ Market Risk MRA Applicable √ √ MR1 √ √ MRB Not required to be completed by the bank unless SAMA approve the bank to use the IMA approach. √ √ MR2 √ √ MR3 √ √ Credit valuation adjustment risk CVAA The disclosure requirements related in this section are required to be completed by the bank when the materiality threshold stated on SAMA's Revised Risk-based Capital Charge for Counterparty Credit Risk (CCR) issued as part of its adoption of Basel III post-crisis final reforms, paragraph (11.9) is satisfied. √ √ CVA1 √ √ CVA2 √ √ CVAB √ √ CVA3 √ √ CVA4 √ √ Operational risk ORA Applicable √ √ OR1 √ √ OR2 √ √ OR3 √ √ Interest rate risk in the banking book IRRBBA Applicable √ √ IRRBB1 √ √ Macroprudential supervisory measures GSIB1 Not required to be completed by the bank unless SAMA identify the bank as G-SIB. √ √ CCYB1 Applicable √ √ Leverage ratio LR1 Applicable √ √ LR2 √ √ Liquidity LIQA √ √ LIQ1 √ √ LIQ2 √ √ Trade Repository Reporting and Risk Mitigation Requirements for Over-the-Counter (OTC) Derivatives Contracts
No: 42056371 Date(g): 23/3/2021 | Date(h): 10/8/1442 Status: In-Force Refer to the Trade Repository Reporting and Risk Mitigation Requirements for Over-the-Counter (OTC) Derivatives Contracts issued by SAMA under Circular No. 67/16278, dated 13/03/1441H.
We inform you of the update to the Trade Repository Reporting and Risk Mitigation Requirements for Over-the-Counter (OTC) Derivatives Contracts. The updated requirements are attached, and SAMA emphasizes that all banks must comply with them starting from the 01/06/2021G.
1. Introduction
1. These Requirements are issued by Saudi Central Bank (SAMA) in exercise of the powers vested upon it under its Law issued by the Royal Decree No. (M/36) on 11-04-1442H, and the Banking Control Law issued by the Royal Decree No. (M/5) on 22-02-1386H, and the rules for Enforcing its Provisions issued by Ministerial Decision No. 3/2149 on 14-10-1406H.
2. These requirements are divided into two Sections;
3. Section A sets out the requirements for the reporting of over-the-counter (OTC) derivative transactions to the SAMA authorized Trade Repository (TR) Operator.
4. Section B requires banks, which enter into non-centrally cleared OTC derivative transactions to implement specified risk mitigation requirements. These risk mitigation requirements will apply to a bank, which is a contracting party to OTC derivative transactions that are not centrally cleared, irrespective of the bank’s outstanding notional amount of non-centrally cleared OTC derivatives or whether or not the transaction is executed for hedging purposes. OTC derivatives, which are centrally cleared, either directly or indirectly, are not subject to the risk mitigation requirements. Indirect clearing is an arrangement whereby a bank provides client-clearing services by clearing a client’s OTC derivative transactions through another clearing intermediary.
5. These updated requirements shall supersede SAMA circular No. 16278/67 dated 13-03-1441AH. The changes from the previous version are underlined. Reporting requirements for Equity, Credit and Commodity along with the updated requirements will take effect by June 1st 2021.
2. Section A
2.1 Trade Reporting Requirements for Over-the-Counter (OTC) Derivatives Contracts
2.1.1 Application
6. The reporting requirements are applicable to all banks in the Kingdom of Saudi Arabia (KSA) with OTC derivative transactions.
2.1.2 Scope of Reporting
7. OTC derivative transactions that fall within the scope of “reportable transactions” described in paragraph 8 to 12 below are required to be reported to the SAMA authorised Trade Repository Operator.
8. Reportable transactions are derivative transactions that meet the following criteria:
a. The transaction is traded over the counter cleared or non-cleared (i.e. exchange traded transactions are excluded) or is novated from an OTC transaction to a central counterparty (CCP);
b. The transactions are an interest rate derivative, a foreign exchange (FX) derivative, an equity derivative, a credit derivative and a commodity derivative supported by the SAMA authorised Trade Repository;
c. The transaction is conducted by a counterparty which is a licensed bank in Kingdom of Saudi Arabia (KSA) (in the case of a locally incorporated bank) or a KSA branch (in the case of a foreign bank) or by its financial subsidiaries or branches (including SPVs).
d. The other counterparty to the transaction is:
i. A licensed bank in KSA (in the case of a locally incorporated bank) or a KSA branch (in the case of a foreign bank);
ii. A foreign financial counterparty;
iii. A KSA or a foreign non-financial counterparty; or
iv. A CCP if the transaction is novated from an OTC transaction to a CCP.
9. If a reportable transaction is, for example, entered into between a KSA branch bank X and the USA Head Office of bank Y, Bank X falls within paragraph 8(c) while Bank Y falls within paragraph 8(d). The transaction is reportable by Bank X but not by Bank Y. If however the transaction is booked in KSA branch of bank Y, reporting obligation rules must be applied to determine the reporting counterparty as per the single sided reporting obligation approach as mentioned in APPENDIX C.
10. The transactions referred to in paragraph 8(c) above include those that are booked in KSA office/branch of a licensed bank as a result of transfer of booking (i.e. through novation) of contracts entered into with external parties by the head office or overseas branches of the bank. If such novated transactions are reportable (i.e. the criteria set out in paragraph 8 above are also met after novation), the reporting bank should report the external counterparty (another licensed bank) who has originally entered into contract with the bank, instead of the office/branch from which the contract is transferred, as its counterparty to the transaction.
11. Reportable transactions do not include interbranch transactions (except those that fall within paragraph 9 above) and interbranch transactions (e.g. transactions between different desks of the treasury function). An interbranch transaction refers to a principal-to-principal transaction (or a back-to-back transaction) conducted between different branches of the same bank, including any transaction undertaken to transfer the risk of the transaction (or portfolio transactions) from one branch to another.
12. For the avoidance of doubt, reportable transactions:
A. Exclude “spot” FX transactions, which refer in this context to FX transactions that are settled via an actual delivery of the relevant currencies within two business days;
B. Exclude, from the perspective of a reporting bank, those transactions booked in its local or overseas subsidiaries (unless those subsidiaries are licensed banks and reporting criteria set out in these requirements are met, where in such case, they need to report to KSA TR regardless of their location);
C. Include, in the case of reportable transactions which are novated for central clearing, those new transactions entered into by reporting banks with CCPs ; and
D. Exclude, transactions in which any of the following institutions participate as counterparty:
i. The Government of the Kingdom of Saudi Arabia (those risk weighted at zero under the capital adequacy rules).
ii. SAMA
iii. The Saudi Stock Exchange
iv. The Saudi Depository Center
v. A Supranational Authority
vi. Multilateral Development Banks
2.1.3 Manner of Reporting
13. All reporting banks are required to directly report to the SAMA authorised TR Operator. Banks are not allowed to report through agents or outsource their reporting requirements to third party service providers.
14. All reporting banks are required to enter into a reporting service agreement with SAMA authorised TR Operator.
15. The reporting service agreement signed by each reporting bank with SAMA authorised TR Operator must contain a clause providing consent for the bank for the reporting of trade data to the SAMA authorised TR Operator by its counterparties. This consent is essential to alleviate any potential concern on data confidentiality from bank counterparties, which may need to report trade data to the SAMA authorised TR Operator relating to other counterparties that do not themselves have any such reporting obligation under the reporting requirements.
16. Since reporting has to be made to the SAMA authorised TR Operator by electronic means, reporting banks are required to set up systems linkages and conduct user tests with the SAMA authorised TR Operator. Reporting banks must complete the user tests to the satisfaction of the SAMA authorised TR Operator before they will be accepted for reporting.
17. The SAMA authorised TR Operator has designed specific templates for reporting the details of the reportable transactions. A reporting bank is required to complete all the fields in the templates, which primarily relate to the economic terms of a transaction and information essential for administrative purposes. A list of fields on the templates for reporting transactional data is attached as APPENDIX A.
18. Reporting to the SAMA authorised TR Operator is compulsory:
A. When a reportable transaction is executed by a reporting bank for the first time; and
B. Whenever there are subsequent reportable business events until the transaction is fully terminated (which includes termination due to novation). A list of reportable events is set out in APPENDIX B for reference.
19. A reporting bank may report changes in the economic details of a reportable transaction by submitting amendments to update the transaction records of the SAMA authorised TR Operator. Alternatively, the bank may update the records of the SAMA authorised TR Operator by submitting specific templates designated for reporting individual business events (APPENDIX B).
20. Reportable business events shall be reported by adopting a life cycle approach. Under the life cycle approach, each business event will be reported according to the T+1 reporting timeline referred to in paragraph 22 below.
21. After an original trade is novated for central clearing, the reporting bank should report the open trade as an early termination business events and open a new one with the reference to the old trade identifier in the field “Linked UTI” (table 3 item 47) as specified in the APPENDIX B
2.1.4 Timing of Reporting
22. The reporting bank will have to ensure that it reports to the SAMA authorised TR Operator reportable transactions (including where appropriate any subsequent business events) before 23:59:59 of the next business day (T+1). For the purpose of these reporting requirements, Fridays and Saturdays and general KSA holidays do not count as business days.
23. Reporting is not required if a reportable transaction that has yet to be reported to the SAMA authorized TR is cancelled or fully terminated within the T+1 reporting timeline. This, however, does not apply to the cancellation or full termination of a transaction for the sake of subjecting the transaction to central clearing. In such cases, the original reportable transaction pending central clearing (and the business events arising from the central clearing) should be reported according to the T+1 timeline, unless the transaction is cancelled or fully terminated before it is reported to the SAMA authorized TR Operator with T+1 timeline.
2.1.5 Reporting Error Amendments
24. Guidance on reporting error amendment can be found in APPENDIX B.
2.1.6 Keeping of Records
25. A reporting bank must keep records that enable the reporting bank to demonstrate it has complied with these requirements.
26. A reporting bank must keep the records for a period of at least ten (10) years from the date the record is made or amended.
2.1.7 Technical Support
27. The SAMA authorised TR Operator will provide the reporting banks with technical reporting guidelines/manual for its systems/reporting tools. All enquiries relating to technical support should be directed to the SAMA authorised TR Operator.
3. Section B
3.1 Risk Mitigation Requirements for Non-Centrally Cleared Over-the-Counter (OTC) Derivative Contracts
3.1.1 Trading Relationship Documentation
1. The trading relationship documentation should:
a) Provide legal certainty for non-centrally cleared over-the-counter derivatives contracts;
b) Include all material rights and obligations of counterparties concerning their trading relationship with regard to non-centrally cleared over-the-counter derivatives contracts. Such rights and obligations of the counterparties may be incorporated by reference to other documents in which they are specified; and
c) Be executed in writing or through other equivalent non-rewritable, nonerasable electronic means (without prejudice to subparagraph (b) above).
2. The material rights and obligations referred to in paragraph 1(b), where relevant, may include:
a) Payment obligation;
b) Netting of payments;
c) Events of default or other termination events (For instance, any rights to early termination)
d) Calculation and any netting of obligations upon termination;
e) Transfer of rights and obligations;
f) Governing law;
g) Processes for confirmations, valuation, portfolio reconciliation and dispute resolution; and
h) Matters related to credit support arrangements (e.g. initial and variation margin requirements, types of assets that may be used for satisfying such margin requirements and any asset valuation haircuts, investment and rehypothecation terms for assets posted to satisfy such margin requirements, guarantees and custodial arrangements for margin assets such as whether margin assets are to be segregated with a third party custodian).
3. The retention period for trading relationship documentation should be a minimum of ten (10) years after the termination, maturity or assignment of any non-centrally cleared over-the-counter derivatives contracts.
3.1.2 Trade Confirmation
4. Banks are required to confirm the material terms of a non-centrally cleared over-the- counter derivatives transaction as soon as practicable after execution of the transaction, including a new transaction resulting from novation. Banks are also required to adopt policies and procedures to confirm material changes to the legal terms of, or rights and obligations under, the non-centrally cleared over-the-counter derivatives contract, such as those relating to termination prior to scheduled maturity date, assignment, amendment or extinguishing of rights or obligations.
5. The material terms confirmed should include terms necessary to promote legal certainty to the non-centrally cleared over-the-counter derivatives transaction, including incorporating by reference, the trading relationship documentation or any other documents that govern or otherwise form part of the trading relationship documentation.
6. The confirmation should be executed in writing through:
A. Non-rewritable, non-erasable automated methods where it is reasonably practicable for the bank to do so;
B. Manual means; or
C. Other non-rewritable, non-erasable electronic means (such as email).
7. Banks are required to implement appropriate policies and procedures to ensure a two-way confirmation is executed with a counterparty (financial and non-financial).
8. For non-centrally cleared over-the-counter derivatives transactions concluded after the bank’s dealing system cut off time, or with a counterparty located in a different time zone, banks are required to execute the confirmation as soon as practicable.
3.1.3 Valuation
9. Banks are required to agree with their counterparties the process for determining the values of the non-centrally cleared over-the-counter derivatives transactions in a predictable and objective manner. The process should cover the entire duration of the non-centrally cleared over the-counter derivatives transaction, at any time from the execution of the contract to the termination, maturity, or expiration thereof. All agreements on valuation process should be documented in the trading relationship documentation or trade confirmation and may include matters such as the approach to valuation, the key parameters and the data sources for such parameters.
10. The valuation determinations should be based on economically similar transactions or other objective criteria. Banks should be able to compute the valuation internally and be able to corroborate any valuations done by their counterparts or third parties. Where a bank uses a proprietary valuation model, it must use a model employing valuation methodologies with mainstream acceptance. If new methodologies are used, these should have a sound theoretical basis and the bank will need to justify their use, e.g. by showing that the new methodology addresses a limitation of an existing methodology or improves the reliability of the valuation.
11. Banks are required to perform periodic review of the agreed upon valuation process to take into account any changes in market conditions. Where changes are made as a result of the review, the relevant documentation must be updated to reflect such changes.
12. Banks are required to agree on and document:
A. The alternative process or approach by which the bank and its counterparty will determine the value of a non-centrally cleared over-the counter derivatives transaction in the event of the unavailability, or other failure, of any inputs required to value the transaction;
B. Any changes or procedures for modifying the valuation process at any time so long as the agreements remain consistent with the applicable law; and
C. How a dispute on valuation, if it arises, should be resolved.
3.1.4 Portfolio Reconciliation
13. Banks are required to include in their policies and procedures –
A. The process or method for portfolio reconciliation that it has agreed with its financial counterparties; and
B. The process or method that reflects its efforts to conduct portfolio reconciliation with its non-financial counterparties, e.g. by providing, on a periodic basis, a non-financial counterparty with a statement on the material terms and valuations of the non-centrally cleared over-the-counter derivatives contracts entered into with that non-financial counterparty.
14. The process or method of portfolio reconciliation should be designed to ensure an accurate record of the material terms and valuations of the non-centrally cleared over- the-counter derivatives contracts, and identify and resolve discrepancies in the material terms and valuations in a timely manner with the counterparty.
15. Banks are required to determine the scope and frequency of portfolio reconciliation with a counterparty, taking into account the risk exposure profile, size, volatility and number of non-centrally cleared over-the-counter derivatives transactions which the bank has with that counterparty. Portfolio reconciliation should be carried out more frequently where the bank has a higher number of outstanding transactions with its counterparty.
16. Banks are required to establish and implement policies and procedures to ensure that the material terms are exchanged and valuations (including variation margin) are reconciled with counterparties, at regular intervals. The frequency of portfolio reconciliation with each counterparty should be commensurate with the counterparty’s risk exposure profile and the number of outstanding transactions.
3.1.5 Portfolio Compression
17. Banks are required to consider factors such as the risk exposure profile, size, volatility and number of outstanding transactions in assessing whether to conduct a portfolio compression with one or more counterparties. Banks are required to establish and implement policies and procedures to regularly assess and engage in portfolio compression as appropriate in respect of non-centrally cleared OTC derivative portfolios. This should be proportionate to the level of exposure or activity of the bank.
3.1.6 Dispute Resolution
18. Banks are required to agree and document with their counterparties the mechanism or process for determining when discrepancies in material terms or valuations should be considered disputes and how such disputes should be resolved as soon as practicable.
19. Material disputes should be escalated to senior management and the Board of the bank. There should be clear criteria used by the bank to determine when a dispute is considered material.
20. Banks are required to promptly report to SAMA material disputes (as determined by the bank in 19 above) which remains unresolved beyond 15 business days.
3.1.7 Governance
21. The policies and procedures governing trading relationship documentation, trade confirmation, valuation, portfolio reconciliation, portfolio compression, and dispute resolution should be approved by the board of directors or its delegated authority, and be subject to periodic independent review.
Appendix A
1) Counterparty data
Table Item Section Field Details to be reported Format 1
1
Parties to the contract
Reporting Counterparty ID
Unique code identifying the reporting counterparty of the contract.
ISO 17442 Legal Entity Identifier (LEI) 20 alphanumerical character code.
1
2
Parties to the contract
ID of the other Counterparty
Unique code identifying the other counterparty of the contract.
This field shall be filled from the perspective of the reporting counterparty. In case of a private individual a client code shall be used in a consistent manner.
ISO 17442 Legal Entity Identifier (LEI) 20 alphanumerical character code.CLC = Client code (up to 100 alphanumerical digits, spaces allowed):
- For local natural persons (including foreigners residents in KSA): CLC- National Identification Number (NIN). Example: CLC-4046403927
- For foreign natural persons: CLC- ISO 3166 - 2 character country code + Applicable national ID number. Example: CLC-ES53085141M
-For Corporate Customer in KSA without LEI: “CLC-”+ country code as per ISO 3166 + Commercial registration number+ “CR”. Example: CLC-US123456789CR
1
3
Parties to the contract
Country of the other Counterparty
The code of country where the registered office of the other counterparty is located or country of residence in case that the other counterparty is a natural person.
ISO 3166 - 2 character country code.
1
4
Parties to the contract
Corporate sector of the reporting counterparty
Nature of the reporting counterparty's company activities.
If the Reporting Counterparty is a Financial Counterparty, this field shall contain all necessary codes included in the Taxonomy for Financial Counterparties and applying to that Counterparty.Where more than one activity can be reported, only one code shall be populated using the one of the activity that weights most in relation to the company´s global turnover.
Taxonomy for Financial Counterparties :B = Banks
K =Authorized person
L = Legal Persons engaged in the business of extending credit (mortgage lending companies and Auto Lease companies)
I = Insurance companies
F = Finance companies
A = Affiliate of any of the above
1
5
Parties to the contract
Nature of the reporting counterparty
Indicate if the reporting counterparty is a financial or a non-financial counterparty.
F = Financial Counterparty
N = Non financial counterparty (this value is not valid until the reporting obligation is extended to non- financial counterparties)
1
6
Parties to the contract
Reporting counterparty broker ID
In the case a broker (as defined in article 32 of Royal Decree (M/30) Capital Market Law of the Kingdom of Saudi Arabia) acts as intermediary for the reporting counterparty without becoming a counterparty himself, the reporting counterparty shall identify this broker by a unique code.
ISO 17442 Legal Entity Identifier (LEI) 20 alphanumerical character code
1
7
Parties to the contract
Other counterparty broker ID
In the case a broker (as defined in article 32 of Royal Decree (M/30) Capital Market Law of the Kingdom of Saudi Arabia) acts as intermediary for the other counterparty without becoming a counterparty himself, the reporting counterparty shall identify this broker by a unique code.
ISO 17442 Legal Entity Identifier (LEI) 20 alphanumerical character code
1
8
Parties to the contract
Clearing member ID of the reporting counterparty
In the case where the derivative contract is cleared and the reporting counterparty is not a clearing member itself, the clearing member through which the derivative contract is cleared shall be identified in this field by a unique code.
ISO 17442 Legal Entity Identifier (LEI) 20 alphanumerical character code
1
9
Parties to the contract
Clearing member ID of the other counterparty
In the case where the derivative contract is cleared and the other counterparty is not a clearing member itself, the clearing member through which the derivative contract is cleared shall be identified in this field by a unique code.
ISO 17442 Legal Entity Identifier (LEI) 20 alphanumerical character code
1
10
Parties to the contract
Beneficiary ID 1
The party subject to the rights and obligations arising from the contract for counterparty 1.
Where the transaction is executed via a structure, such as a trust or fund, representing a number of beneficiaries, the beneficiary should be identified as that structure.
Where the beneficiary of the contract is not a counterparty to this contract, the reporting counterparty has to identify this beneficiary by an unique code or, in case of a private individuals, by a client code used in a consistent manner as assigned by the legal entity used by the private individual.
In the case where the entity is acting as a principal, this field must be left blank. Otherwise, if it is acting as an agent, this field must be populated.
ISO 17442 Legal Entity Identifier (LEI) 20 alphanumerical character code.CLC = Client code (up to 100 alphanumerical digits, spaces allowed):
- For local natural persons (including foreigners residents in KSA): CLC- National Identification Number (NIN). Example: CLC-4046403927
- For foreign natural persons: CLC- ISO 3166 - 2 character country code + Applicable national ID number. Example: CLC-ES53085141M
1
11
Parties to the contract
Beneficiary ID 2
The party subject to the rights and obligations arising from the contract for counterparty 2.
Where the transaction is executed via a structure, such as a trust or fund, representing a number of beneficiaries, the beneficiary should be identified as that structure.
Where the beneficiary of the contract is not a counterparty to this contract, the reporting counterparty has to identify this beneficiary by an unique code or, in case of a private individuals, by a client code used in a consistent manner as assigned by the legal entity used by the private individual.
In the case where the entity is acting as a principal, this field must be left blank. Otherwise, if it is acting as an agent, this field must be populated.
ISO 17442 Legal Entity Identifier (LEI) 20 alphanumerical character code.CLC = Client code (up to 100 alphanumerical digits, spaces allowed):
- For local natural persons (including foreigners residents in KSA): CLC- National Identification Number (NIN). Example: CLC-4046403927
- For foreign natural persons: CLC- ISO 3166 - 2 character country code + Applicable national ID number. Example: CLC-ES53085141M
1
12
Parties to the contract
Trading capacity of the reporting counterparty
Identifies whether the reporting counterparty has concluded the contract as principal on own account (on own behalf or behalf of a client) or as agent for the account of and on behalf of a client.
P = Principal
A = Agent
1
13
Parties to the contract
Trading capacity of the other counterparty
Identifies whether the other counterparty has concluded the contract as principal on own account (on own behalf or behalf of a client) or as agent for the account of and on behalf of a client.
P = Principal
A = Agent
1
14
Parties to the contract
Counterparty side
Identifies whether the reporting counterparty is a buyer or a seller.
B = Buyer
S = Seller
1
15
Parties to the contract
Value of contract
Mark to market valuation of the contract, or mark to model valuation where applicable.
Up to 20 numerical characters including up to 5 decimals.
The decimal mark is not counted as a numerical character. If populated, it shall be represented by a dot.
The negative symbol, if populated, is not counted as a numerical character.
1
16
Parties to the contract
Currency of the value
The currency used for the valuation of the contract
ISO 4217 Currency Code, 3 alphabetical characters
1
17
Parties to the contract
Valuation timestamp
Date and time of the last valuation. For mark-to-market valuation the date and time of publishing of reference prices shall be reported.
ISO 8601 date in the UTC time format YYYY-MM-DDThh:mm:ssZ
1
18
Parties to the contract
Valuation type
Indicate whether valuation was performed mark to market, mark to model.
M = Mark-to-market O = Mark-to-model
2)
Common data
Table Item Section Field Details to be reported Format 2
1
Section 2a - Contract type
Instrument type
Each reported contract shall be classified according to its type
CD = Financial contracts for difference
FR = Forward rate agreements
FU = Futures
FW = Forwards
OP = Option
SB = Spreadbet
SW = Swap
ST = Swaption
OT = Other
2
2
Section 2a - Contract type
Asset class
Each reported contract shall be classified according to the asset class it is based on
CO = Commodity and emission allowances
CR = Credit
CU = Currency
EQ = Equity
IR = Interest Rate
2
3
Section 2b – Contract information
Product classification type
The type of relevant product classification
C = CFI
U = UPI (Once made available by the authorized UPI service provider)Until UPI is made available by the authorized UPI service provider this field shall only be populated with the value “C" (1 alphabetical character).
2
4
Section 2b – Contract information
Product classification
Applicable product classification code: CFI or UPI. Until UPI is made available by the authorized UPI service provider this field shall always be populated with CFI.
When dealing with hybrid options, exotic products or any other OTC derivative with different components, the basic one (i.e. the component which weights more in the derivative) must be taken into account for CFI population purposes.
In case of waad OTC derivatives, the CFI must be determined on the assumption that the buyer is binding to the contract and the contract will be settled.
ISO 10692 CFI, 6 characters alphabetical code
UPI format will be as per the required format by the Authorized UPI service provider
2
5
Section 2b – Contract information
Product identification type
The type of relevant product identification
Specify the applicable identification:• I = For products for which an ISO 6166 ISIN code is available
• U = UPI
• N = Not available for products for which an ISIN is not available
2
6
Section 2b – Contract information
Product identification
The product shall be identified through ISIN or UPI when the OTC derivative is not identified by an ISIN
For product identifier type I: ISO 6166 ISIN 12 character alphanumerical codeFor product identifier type U: UPI code (format to be defined once UPI is made available by the authorized UPI service provider)For product identifier type N: Blank
2
7
Section 2b – Contract information
Underlying identification type
The type of relevant underlying identifier
I = ISIN
C = CFI
U = UPI
B = Basket
X = Index
N = Not available
2
8
Section 2b – Contract information
Underlying identification
The direct underlying shall be identified by using a unique identification for this underlying based on its type.For derivatives which underlying is a currency (foreign exchange rate), in the absence of an endorsed UPI, the underlying currency must be indicated under the notional currency.In case of baskets composed, among others, of financial instruments traded in a trading venue, only financial instruments traded in a trading venue with a valid ISIN shall be specified.
For underlying identification type I: ISO 6166 ISIN 12 character alphanumerical codeFor underlying identification type C: ISO 10692 CFI 6 character alphanumerical codeFor underlying identification type U: UPIFor underlying identification type B: all individual components identification through ISO 6166 ISIN Identifiers of individual components shall be separated with a dash “-“. In any other case, this field shall be populated NA.For underlying identification type X: ISO 6166 ISIN if available, otherwise full name of the index as assigned by the index provider.For underlying identification type N: Blank
2
9
Section 2b – Contract information
Country of the underlying
The code of country where the underlying is located
ISO 3166 - 2 character country code.
2
10
Section 2b – Contract information
Complex trade component ID
Identifier, internal to the reporting firm, to identify and link all the reports related to the same derivative structured product composed of a combination of derivative contracts. The code must be unique at the level of the counterparty to the group of transaction reports resulting from the derivative contract. Field applicable only where a firm executes a derivative contract composed of two or more derivative contracts and where this contract cannot be adequately reported in a single report.
An alphanumeric field up to 35 characters.
2
11
Section 2b – Contract information
Notional currency 1
The currency of the notional amount.
In the case of an interest rate or currency derivative contract, this will be the notional currency of leg 1.
ISO 4217 Currency Code, 3 alphabetical characters
2
12
Section 2b – Contract information
Notional currency 2
The other currency of the notional amount. In the case of an interest rate or currency derivative contract, this will be the notional currency of leg 2.
ISO 4217 Currency Code, 3 alphabetical characters
2
13
Section 2b – Contract information
Deliverable currency
The currency to be delivered
ISO 4217 Currency Code, 3 alphabetical characters
2
14
Section 2c - Details on the transaction
Internal unique trade ID
Until a global Unique transaction identifier (UTI) is available, an internal unique trade identifier code shall be generated. This means that only one trade identifier should be applicable to every single OTC derivative contract that is reported to SATR and that the same trade identifier is not used for any other derivative contract, even in transactions between local obliged entities and foreign (non-Saudi) counterparties. In this respect, certain rules must be defined in order to determine the entity responsible of generating this unique trade identifier (hereinafter, the generating entity).
In general terms, the generating entity will be the reporting counterparty in accordance with the rules defined in section Business Rules of this document.
Up to 52 alphanumerical character code using exclusively upper-case alphabetical characters (A-Z) and digits (0-9), four special characters are allowed, the special characters not being allowed at the beginning or at the end of the code. No spaces allowed. There is no requirement to pad out Internal unique trade ID values to make them 52 characters long.This trade id will be a concatenation of the following:
• The characters ‘E02’.
• The (20 character) Legal Entity Identifier of the generating entity.
• A unique code generated by the generating entity.
2
15
Section 2c - Details on the transaction
Unique trade ID
The UTI ID could be the same as the "Internal unique trade id" except in those trades in which the other counterparty is an international counterparty or counterparties agree that it shall be the other counterparty the UTI generating entity. In this respect, when such transactions are centrally cleared through a CCP (also under indirect clearing agreements reached with a clearing house member) or when they are electronically confirmed, counterparties can agree that the CCP (or when applicable the clearing member through which the transaction is cleared) or the electronic platform through which the trade is confirmed become the unique trade identifier generating entity.In these cases the international generating entity shall communicate the unique trade identifier to the reporting counterparty in a timely manner so that the latter is able to meet its reporting obligation.If the international generating entity informs the "Unique trade ID" before the reporting deadline, this field shall be populated with the ID informed by the international generating entity. On the contrary, if the international generating entity does not inform the "Unique trade ID" before the T+1 deadline, this field can be left blank until the "Unique trade ID is informed". In such cases, once the ID is informed, a Modification report must be submitted by the reporting counterparty in order to populate the "Unique trade id" informed by the international generating entity.
Up to 52 alphanumerical character code using exclusively upper-case alphabetical characters (A-Z) and digits (0-9). No spaces allowed. There is no requirement to pad out Internal unique trade ID values to make them 52 characters long.
2
16
Section 2c - Details on the transaction
Price / rate
The price per derivative excluding, where applicable, commission and accrued interest
Up to 20 numerical characters including up to 5 decimals.
The decimal mark is not counted as a numerical character. If populated, it shall be represented by a dot.
The negative symbol, if populated, is not counted as a numerical character.
In case the price is reported in percent values, it should be expressed as percentage where 100% is represented as “100” "999999999999999.99999" is accepted when the actual value is not available.
2
17
Section 2c - Details on the transaction
Price notation
The manner in which the price is expressed
U = Units/Monetary amount
P = Percentage
Y = Yield/Decimal
X = Not applicable
2
18
Section 2c - Details on the transaction
Currency of price
The currency in which the Price / rate is denominated
ISO 4217 Currency Code, 3 alphabetic characters
2
19
Section 2c - Details on the transaction
Notional
The reference amount from which contractual payments are determined. In case of partial terminations, amortizations and in case of contracts where the notional, due to the characteristics of the contract, varies over time, it shall reflect the remaining notional after the change took place.
Up to 20 numerical characters including up to 5 decimals.
The decimal mark is not counted as a numerical character. If populated, it shall be represented by a dot.
2
20
Section 2c - Details on the transaction
Price multiplier
The number of units of the financial instrument which are contained in a trading lot; for example, the number of derivatives represented by the contract
Up to 20 numerical characters including up to 5 decimals.
The decimal mark is not counted as a numerical character. If populated, it shall be represented by a dot.
2
21
Section 2c - Details on the transaction
Quantity
Number of contracts included in the report. For spread bets, the quantity shall be the monetary value agreed per point movement in the direct underlying financial instrument.
Up to 20 numerical characters including up to 5 decimals.
The decimal mark is not counted as a numerical character. If populated, it shall be represented by a dot.
2
22
Section 2c - Details on the transaction
Up-front payment
Amount of any up-front payment the reporting counterparty made or received
Up to 20 numerical characters including up to 5 decimals.
The negative symbol to be used to indicate that the payment was made, not received.
The decimal mark is not counted as a numerical character. If populated, it shall be represented by a dot.
The negative symbol, if populated, is not counted as a numerical character.
2
23
Section 2c - Details on the transaction
Delivery type
Indicates whether the contract is settled physically or in cash
C = Cash
P = Physical
O = Optional for counterparty or when determined by a third party
2
24
Section 2c - Details on the transaction
Execution timestamp
Date and time when the contract was initially executed, resulting in the generation of a new trade id.
ISO 8601 date in the UTC time format YYYY-MM-DDThh:mm:ssZ
2
25
Section 2c - Details on the transaction
Effective date
Unadjusted date when obligations under the contract come into effect.
ISO 8601 date in the format YYYY- MM-DD
2
26
Section 2c - Details on the transaction
Expiration date
Original date of expiry of the reported contract.
An early termination shall not be reported in this field.
ISO 8601 date in the format YYYY- MM-DD
2
27
Section 2c - Details on the transaction
Early termination date
Termination date in the case of an early termination of the reported contract.
ISO 8601 date in the format YYYY- MM-DD
2
28
Section 2c - Details on the transaction
Settlement date
Date of settlement of the underlying. Date, as per the contract, by which all transfer of cash or assets should take place and the counterparties should no longer have any outstanding obligations to each other under that contract
If more than one, further fields may be used.
ISO 8601 date in the format YYYY- MM-DD
This field is repeatable.
2
29
Section 2c - Details on the transaction
Master Agreement type
Reference to any master agreement, if existent (e.g. ISDA Master Agreement; Master Power Purchase and Sale Agreement; International ForEx Master Agreement; European Master Agreement or any local Master Agreements).
Free Text, field of up to 50 characters, identifying the name of the Master Agreement used, if any. If no Master agreement exists, this field shall be left blank.
2
30
Section 2c - Details on the transaction
Master Agreement version
Reference to the year of the master agreement version used for the reported trade, if applicable (e.g. 1992, 2002, etc.)
ISO 8601 date in the format YYYY
2
31
Section 2d - Risk mitigation / Reporting
Confirmation timestamp
Date and time of the confirmation.
ISO 8601 date in the UTC time format YYYY-MM-DDThh:mm:ssZ
2
32
Section 2d - Risk mitigation / Reporting
Confirmation means
Whether the contract was electronically confirmed, non-electronically confirmed or remains unconfirmed
Y = Non-electronically confirmed
N = Non-confirmed
E = Electronically confirmed
2
33
Section 2e - Clearing
Cleared
Indicates, whether the transaction has been cleared in a CCP or not.
Y = Yes
N = No
2
34
Section 2e - Clearing
Clearing timestamp
Time and date when clearing took place
ISO 8601 date in the UTC time format YYYY-MM-DDThh:mm:ssZ
2
35
Section 2e - Clearing
CCP
In the case of a contract that has been cleared, the unique code for the CCP that has cleared the contract.
ISO 17442 Legal Entity Identifier (LEI)
20 alphanumerical character code.
2
36
Section 2e - Clearing
Intragroup
Indicates whether the counterparty to the contract is an intragroup entity.
Y = Yes
N = No
2
37
Section 2f - Interest Rates
Fixed rate of leg 1
An indication of the fixed rate leg 1 used, if applicable+
Up to 10 numerical characters including up to 5 decimals expressed as percentage where 100% is represented as “100”.
The decimal mark is not counted as a numerical character. If populated, it shall be represented by a dot.
The negative symbol, if populated, is not counted as a numerical character.
2
38
Section 2f - Interest Rates
Fixed rate of leg 2
An indication of the fixed rate leg 2 used, if applicable
Up to 10 numerical characters including up to 5 decimals expressed as percentage where 100% is represented as “100”.
The decimal mark is not counted as a numerical character. If populated, it shall be represented by a dot.
The negative symbol, if populated, is not counted as a numerical character.
2
39
Section 2f - Interest Rates
Fixed rate day count leg 1
For leg 1 of the transaction, where applicable: day count convention (often also referred to as day count fraction or day count basis or day count method) that determines how interest payments are calculated. It is used to compute the year fraction of the calculation period, and indicates the number of days in the calculation period divided by the number of days in the year.
ISO 20022 Interest Calculation/day Count Basis.
The following values will be admitted: A001 to A020 and NARR.
2
40
Section 2f - Interest Rates
Fixed rate day count leg 2
For leg 2 of the transaction, where applicable: day count convention (often also referred to as day count fraction or day count basis or day count method) that determines how interest payments are calculated. It is used to compute the year fraction of the calculation period, and indicates the number of days in the calculation period divided by the number of days in the year.
ISO 20022 Interest Calculation/day Count Basis.
The following values will be admitted: A001 to A020 and NARR.
2
41
Section 2f - Interest Rates
Fixed rate payment frequency leg 1 –time period
Time period describing frequency of payments for the fixed rate leg 1, if applicable
Time period describing how often the counterparties exchange payments, whereby the following abbreviations apply:
Y = Year
S = Semester
Q = Quarter
M = Month
W = Week
D = Day
A = Ad hoc which applies when payments are irregular
T = payment at term
2
42
Section 2f - Interest Rates
Fixed rate payment frequency leg 2 – time period
Time period describing frequency of payments for the fixed rate leg 2, if applicable
Time period describing how often the counterparties exchange payments, whereby the following abbreviations apply:
Y = Year
S = Semester
Q = Quarterly
M = Month
W = Week
D = Day
A = Ad hoc which applies when payments are irregular
T = payment at term
2
43
Section 2f - Interest Rates
Floating rate payment frequency leg 1 – time period
Time period describing frequency of payments for the floating rate leg 1, if applicable
Time period describing how often the counterparties exchange payments, whereby the following abbreviations apply:
Y = Year
S = Semester
Q = Quarter
M = Month
W = Week
D = Day
A = Ad hoc which applies when payments are irregular
T = payment at term
2
44
Section 2f - Interest Rates
Floating rate payment frequency leg 2 – time period
Time period describing frequency of payments for the floating rate leg 2, if applicable
Time period describing how often the counterparties exchange payments, whereby the following abbreviations apply:
Y = Year
S = Semester
Q = Quarterly
M = Month
W = Week
D = Day
A = Ad hoc which applies when payments are irregular
T = payment at term
2
45
Section 2f - Interest Rates
Floating rate reset frequency leg 1 – time period
Time period describing frequency of floating rate leg 1 resets, if applicable
Time period describing how often the leg 1 floating rate resets, whereby the following abbreviations apply:
Y = Year
S = Semester
Q = Quarter
M = Month
W = Week
D = Day
A = Ad hoc which applies when payments are irregular
2
46
Section 2f - Interest Rates
Floating rate reset frequency leg 2- time period
Time period of frequency of floating rate leg 2 resets, if applicable
Time period describing how often the leg 2 floating rate resets, whereby the following abbreviations apply:
Y = Year
S = Semester
Q = Quarterly
M = Month
W = Week
D = Day
A = Ad hoc which applies when payments are irregular
2
47
Section 2f - Interest Rates
Floating rate of leg 1
An indication of the interest rates used which are reset at predetermined intervals by reference to a market reference rate, if applicable
The name of the floating rate index
‘EONA’ - EONIA
‘EONS’ - EONIA SWAP
‘EURI’ - EURIBOR
‘EUUS’ – EURODOLLAR
‘EUCH’ - EuroSwiss
‘GCFR’ - GCF REPO
‘ISDA’ - ISDAFIX
’LIBI’ - LIBID
‘LIBO’ - LIBOR
‘MAAA’ – Muni AAA
‘PFAN’ - Pfandbriefe
‘TIBO’ - TIBOR
‘STBO’ - STIBOR
‘BBSW’ - BBSW
‘JIBA’ - JIBAR
‘BUBO’ - BUBOR
‘CDOR’ - CDOR
‘CIBO’ - CIBOR
‘MOSP’ - MOSPRIM
‘NIBO’ - NIBOR
‘PRBO’ - PRIBOR
‘SAIB’ - SAIBOR
‘TLBO’ - TELBOR
‘WIBO’ – WIBOR
‘TREA’ – Treasury
‘SWAP’ – SWAP
‘FUSW’ – Future SWAP
Or up to 25 alphanumerical characters if the reference rate is not included in the above list
2
48
Section 2f - Interest Rates
Floating rate of leg 2
An indication of the interest rates used which are reset at predetermined intervals by reference to a market reference rate, if applicable
The name of the floating rate index
‘EONA’ - EONIA
‘EONS’ - EONIA SWAP
‘EURI’ - EURIBOR
‘EUUS’ – EURODOLLAR
‘EUCH’ - EuroSwiss
‘GCFR’ - GCF REPO
‘ISDA’ - ISDAFIX
’LIBI’ - LIBID
‘LIBO’ - LIBOR
‘MAAA’ – Muni AAA
‘PFAN’ - Pfandbriefe
‘TIBO’ - TIBOR
‘STBO’ - STIBOR
‘BBSW’ - BBSW
‘JIBA’ - JIBAR
‘BUBO’ - BUBOR
‘CDOR’ - CDOR
‘CIBO’ - CIBOR
‘MOSP’ - MOSPRIM
‘NIBO’ - NIBOR
‘PRBO’ - PRIBOR
‘SAIB’ - SAIBOR
‘TLBO’ - TELBOR
‘WIBO’ – WIBOR
‘TREA’ – Treasury
‘SWAP’ – SWAP
‘FUSW’ – Future SWAP
Or up to 25 alphanumerical characters if the reference rate is not included in the above list
2
49
Section 2g – Foreign Exchange
Delivery currency 2
The cross currency, if different from the currency of delivery
ISO 4217 Currency Code, 3 alphabetical character code
2
50
Section 2g – Foreign Exchange
Exchange rate 1
The exchange rate as of the date and time when the contract was concluded. It shall be expressed as a price of base currency in the quoted currency. In the example 0.9426 USD/EUR, USD is the unit currency and EUR is the quoted currency; USD 1 = EUR 0.9426.
Up to 10 numerical digits including decimals.
The decimal mark is not counted as a numerical character. If populated, it shall be represented by a dot.
The negative symbol, if populated, is not counted as a numerical character.
2
51
Section 2g – Foreign Exchange
Forward exchange rate
Forward exchange rate as agreed between the counterparties in the contractual agreement It shall be expressed as a price of base currency in the quoted currency. In the example 0.9426 USD/EUR, USD is the unit currency and EUR is the quoted currency; USD 1 = EUR 0.9426.
Up to 10 numerical digits including decimals.
The decimal mark is not counted as a numerical character. If populated, it shall be represented by a dot.
The negative symbol, if populated, is not counted as a numerical character.
2
52
Section 2g – Foreign Exchange
Exchange rate basis
Currency pair and order in which the exchange rate is denominated, expressed as unit currency/quoted currency. In the example 0.9426 USD/EUR, USD is the unit currency and EUR is the quoted currency, USD 1 = EUR 0.9426.
Two ISO 4217 currency codes separated by “/”. First currency code shall indicate the base currency, and the second currency code shall indicate the quote currency.
2
53
Section 2k - Modifications to the contract
Action type
Whether the report contains:
— a derivative contract for the first time, in which case it will be identified as ‘new’;
— a modification to the terms or details of a previously reported derivative contract, but not a correction of a report, in which case it will be identified as ‘modify’. This includes an update to a previous report that is showing a position in order to reflect new trades included in that position.;
— a cancellation of a wrongly submitted entire report in case the contract never came into existence or it was reported to a Trade Repository by mistake, in which case, it will be identified as ‘error’;
— an early termination of an existing contract, in which case it will be identified as ‘early termination’;
— a previously submitted report contains erroneous data fields, in which case the report correcting the erroneous data fields of the previous report shall be identified as ‘correction’;
— a compression of the reported contract, in which case it will be identified as ‘compression’;
— an update of a contract valuation or collateral, in which case it will be identified as ‘valuation update’;
N = New
M = Modify
E = Error
C = Early Termination
R = Correction
Z = Compression
V = Valuation update
3)
Evolutive Field - Common Data
Table Item Section Field Details to be reported Format 3
1
Parties to the contract - Collateral
Collateralisation
Indicate whether a collateral agreement between the counterparties exists.
U = uncollateralised
PC = partially collateralised
OC = one way collateralised
FC = fully collateralised
3
2
Parties to the contract - Collateral
Collateral portfolio
Whether the collateralisation was performed on a portfolio basis.
Portfolio means the collateral calculated on the basis of net positions resulting from a set of contracts, rather than per trade.
Y = Yes
N = No
3
3
Parties to the contract - Collateral
Collateral portfolio code
If collateral is reported on a portfolio basis, the portfolio should be identified by a unique code determined by the reporting counterparty
Up to 52 alphanumerical characters including four special characters : ". - _."
Special characters are not allowed at the beginning and at the end of the code. No space allowed.
3
4
Parties to the contract - Collateral
Initial margin posted
Value of the initial margin posted by the reporting counterparty to the other counterparty.
Where initial margin is posted on a portfolio basis, this field should include the overall value of initial margin posted for the portfolio.
Up to 20 numerical characters including up to 5 decimals.
The decimal mark is not counted as a numerical character. If populated, it shall be represented by a dot.
3
5
Parties to the contract - Collateral
Currency of the initial margin posted
Specify the currency of the initial margin posted
ISO 4217 Currency Code, 3 alphabetical characters
3
6
Parties to the contract - Collateral
Variation margin posted
Value of the variation margin posted, including cash settled, by the reporting counterparty to the other counterparty. Where variation margin is posted on a portfolio basis, this field should include the overall value of variation margin posted for the portfolio.
Up to 20 numerical characters including up to 5 decimals.
The decimal mark is not counted as a numerical character. If populated, it shall be represented by a dot.
3
7
Parties to the contract - Collateral
Currency of the variation margins posted
Specify the currency of variation margin posted
ISO 4217 Currency Code, 3 alphabetical characters
3
8
Parties to the contract - Collateral
Initial margin received
Value of the initial margin received by the reporting counterparty from the other counterparty.
Where initial margin is received on a portfolio basis, this field should include the overall value of initial margin received for the portfolio.
Up to 20 numerical characters including up to 5 decimals.
The decimal mark is not counted as a numerical character. If populated, it shall be represented by a dot.
3
9
Parties to the contract - Collateral
Currency of the initial margin received
Specify the currency of the initial margin received
ISO 4217 Currency Code, 3 alphabetical characters
3
10
Parties to the contract - Collateral
Variation margin received
Value of the variation margin received, including cash settled, by the reporting counterparty from the other counterparty. Where variation margin is received on a portfolio basis, this field should include the overall value of variation margin received for the portfolio.
Up to 20 numerical characters including up to 5 decimals.
The decimal mark is not counted as a numerical character. If populated, it shall be represented by a dot.
3
11
Parties to the contract - Collateral
Currency of the variation margins received
Specify the currency of the variation margin received
ISO 4217 Currency Code, 3 alphabetical characters
3
12
Parties to the contract - Collateral
Excess collateral posted
Value of collateral posted in excess of the required collateral
Up to 20 numerical characters including up to 5 decimals.
The decimal mark is not counted as a numerical character. If populated, it shall be represented by a dot.
3
13
Parties to the contract - Collateral
Currency of the excess collateral posted
Specify the currency of the excess collateral posted
ISO 4217 Currency Code, 3 alphabetical characters
3
14
Parties to the contract - Collateral
Excess collateral received
Value of collateral received in excess of the required collateral
Up to 20 numerical characters including up to 5 decimals.
The decimal mark is not counted as a numerical character. If populated, it shall be represented by a dot.
3
15
Parties to the contract - Collateral
Currency of the excess collateral received
Specify the currency of the excess collateral received
ISO 4217 Currency Code, 3 alphabetical characters
3
16
Section 2c - Details on the transaction
Venue of execution
The venue of execution of the derivative contract shall be identified by a unique code for this venue.
Where a contract was concluded OTC and the respective instrument is admitted to trading or traded on a trading venue, MIC code ‘ XOFF’ shall be used.
Where a contract was concluded OTC and the respective instrument is not admitted to trading or traded on a trading venue, MIC code ‘XXXX’ shall be used.
ISO 10383 Market Identifier Code (MIC), 4 alphanumerical characters
3
17
Section 2c - Details on the transaction
Compression
Identify whether the contract results from a compression operation as defined in Article 3.1.5 of the Trade Repository (TR) Reporting & Risk Mitigation Requirements for Over-The-Counter (OTC) Derivatives Contracts Rules
Y = a new contract arising from compression
N = contract does not result from compression
T = contract results from a novation
3
18
Section 2c - Details on the transaction
Notional Unitary Notation
The unit in which the notional is expressed
U = Units amount
H = Hundreds
T = Thousands
M = Millions
3
19
Parties to the contract
Valuation Unitary Notation
The unit in which the notional is expressed
U = Units amount
H = Hundreds
T = Thousands
M = Millions
3
20
Section 2f - Interest Rates
Floating rate reference period leg 1 – time period
Time period describing the reference period for the floating rate of leg 1
Time period describing reference period of the floating rate of leg 1, whereby the following abbreviations apply:
Y = Year
S = Semester
Q = Quarterly
M = Month
W = Week
D = Day
3
21
Section 2f - Interest Rates
Floating rate reference period leg 2 – time period
Time period describing the reference period for the floating rate of leg 2
Time period describing reference period of the floating rate of leg 2, whereby the following abbreviations apply:
Y = Year
S = Semester
Q = Quarterly
M = Month
W = Week
D = Day
3
22
Section 2i - Options
Option type
Indication as to whether the derivative contract is a call (right to purchase a specific underlying asset) or a put (right to sell a specific underlying asset) or whether it cannot be determined whether it is a call or a put at the time of execution of the derivative contract.
In case of swaptions it shall be:
- “Put”, in case of receiver swaption, in which the buyer has the right to enter into a swap as a fixed-rate receiver.
-“Call”, in case of payer swaption, in which the buyer has the right to enter into a swap as a fixed-rate payer. In case of Caps and Floors it shall be:
-“Put”, in case of a Floor.
-“Call”, in case of a Cap.
P = Put
C = Call
3
23
Section 2i - Options
Option exercise style
Indicates whether the option may be exercised only at a fixed date (European, and Asian style), a series of pre-specified dates (Bermudan) or at any time during the life of the contract (American style)
A = American
B = Bermudan
E = European
S = Asian
More than one value is allowed
3
24
Section 2i - Options
Strike price (cap/floor rate)
The strike price of the option.
Up to 20 numerical characters including up to 5 decimals.
The decimal mark is not counted as a numerical character. If populated, it shall be represented by a dot.
The negative symbol, if populated, is not counted as a numerical character.
Where the strike price is reported in percent values, it should be expressed as percentage where 100% is represented as “100”
3
25
Section 2i - Options
Strike price notation
The manner in which the strike price is expressed
U = Units/Monetary amount
P = Percentage
Y = Yield/Decimal
X = Not applicable
3
26
Section 2i - Options
Maturity date of the underlying
In case of swaptions, maturity date of the underlying swap
ISO 8601 date in the format
YYYY-MM-DD
3
27
Section 2h - Commodities and emission allowances (General)
Commodity base
Indicates the type of commodity underlying the contract
AG = Agricultural
EN = Energy
FR = Freights
ME = Metals
IN = Index
EV = Environmental
EX = Exotic
OT = Other
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Section 2h - Commodities and emission allowances (General)
Commodity details
Details of the particular commodity beyond field 65
Agricultural
GO = Grains oilseeds
DA = Dairy
LI = Livestock
FO = Forestry
SO = Softs
SF = Seafood
OT = Other
Energy
OI = Oil
NG = Natural gas
CO = Coal
EL = Electricity
IE = Inter-energy
OT = Other
Freights
DR = Dry
WT = Wet
OT = Other
Metals
PR = Precious
NP = Non-precious
Environmental
WE = Weather
EM = Emissions
OT = Other
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29
Section 2j – Credit derivatives
Seniority
Information on the seniority in case of contract on index or on a single name entity
SNDB = Senior, such as Senior Unsecured Debt
(Corporate/Financial), Foreign Currency Sovereign Debt (Government),
SBOD = Subordinated, such as Subordinated or Lower Tier 2 Debt (Banks), Junior Subordinated or Upper Tier 2 Debt (Banks),
OTHR = Other, such as Preference Shares or Tier 1 Capital (Banks) or other credit derivatives
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30
Section 2j – Credit derivatives
Reference entity
Identification of the underlying reference entity (issuer of the debt that uderlines a credit derivative)
ISO 3166 - 2 character country code or
ISO 17442 Legal Entity Identifier (LEI) 20 alphanumerical character code
or
For Corporate Customer in KSA without LEI: “CLC-”+ country code as per ISO 3166 + Commercial registration number+ “CR”.
Example: CLC-SA123456789CR
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31
Section 2j – Credit derivatives
Frequency of payment
The frequency of payment of the interest rate or coupon
Time period describing how often the interest rate or coupon is settle, whereby the following abbreviations apply:
Y = Year
S = Semester
Q = Quarterly
M = Month
W = Week
D = Day
A = Ad hoc which applies when payments are irregular
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32
Section 2j – Credit derivatives
The calculation basis
The calculation basis of the interest rate
Numerator/Denominator where both, Numerator and Denominator are numerical characters or alphabetic expression ‘Actual’, e.g. 30/360 or Actual/365
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33
Section 2j – Credit derivatives
Series
The series number of the composition of the index if applicable
Integer field up to 5 characters
3
34
Section 2j – Credit derivatives
Version
A new version of a series is issued if one of the constituents defaults and the index has to be re-weighted to account for the new number of total constituents within the index
Integer field up to 5 characters
3
35
Section 2j – Credit derivatives
Index factor
The factor to apply to the Notional (Field 20) to adjust it to all the previous credit events in that Index series.
The figure varies between 0 and 100.
Up to 10 numerical characters including up to 5 decimals.
The decimal mark is not counted as a numerical character. If populated, it shall be represented by a dot.
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36
Section 2j – Credit derivatives
Tranche
Indication whether a derivative contract is tranched.
T= Tranched
U=Untranched
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37
Section 2j – Credit derivatives
Attachment point
The point at which losses in the pool will attach to a particular tranche
Up to 10 numerical characters including up to 5 decimals expressed as a decimal fraction between 0 and 1.
The decimal mark is not counted as a numerical character. If populated, it shall be represented by a dot.
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38
Section 2j – Credit derivatives
Detachment point
The point beyond which losses do not affect the particular tranche
Up to 10 numerical characters including up to 5 decimals expressed as a decimal fraction between 0 and 1.
The decimal mark is not counted as a numerical character. If populated, it shall be represented by a dot.
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39
Section 2f - Interest Rates
Fixed rate payment frequency leg 1 – multiplier
Multiplier of the time period describing frequency of payments for the fixed rate leg 1, if applicable
Integer multiplier of the time period describing how often the counterparties exchange payments. Up to 3 numerical characters.
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40
Section 2f - Interest Rates
Fixed rate payment frequency leg 2 - multiplier
Multiplier of the time period describing frequency of payments for the fixed rate leg 2, if applicable
Integer multiplier of the time period describing how often the counterparties exchange payments. Up to 3 numerical characters.
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41
Section 2f - Interest Rates
Floating rate payment frequency leg 1 – multiplier
Multiplier of the time period describing frequency of payments for the floating rate leg 1, if applicable
Integer multiplier of the time period describing how often the counterparties exchange payments. Up to 3 numerical characters.
3
42
Section 2f - Interest Rates
Floating rate payment frequency leg 2 – multiplier
Multiplier of the time period describing frequency of payments for the floating rate leg 2, if applicable
Integer multiplier of the time period describing how often the counterparties exchange payments. Up to 3 numerical characters.
3
43
Section 2f - Interest Rates
Floating rate reset frequency leg 1 - multiplier
Multiplier of the time period describing frequency of floating rate leg 1 resets, if applicable
Integer multiplier of the time period describing how often the counterparties reset the floating rate.
Up to 3 numerical characters.
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44
Section 2f - Interest Rates
Floating rate reset frequency leg 2 - multiplier
Multiplier of the time period describing frequency of floating rate leg 2 resets, if applicable
Integer multiplier of the time period describing how often the counterparties reset the floating rate.
Up to 3 numerical characters.
3
45
Section 2f - Interest Rates
Floating rate reference period leg 1 – multiplier
Multiplier of the time period describing the reference period for the floating rate of leg 1
Integer multiplier of the time period describing the reference period.
Up to 3 numerical characters.
3
46
Section 2f - Interest Rates
Floating rate reference period leg 2 – multiplier
Multiplier of the time period describing the reference period for the floating rate of leg 2
Integer multiplier of the time period describing the reference period.
Up to 3 numerical characters.
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47
Section 2b – Contract information
Linked UTI
Identifier to link the related UTI from a novation or a compression of the contract.
Up to 52 alphanumerical character code using exclusively alphabetical characters (A-z) and digits (0-9), including four special characters, the special characters not being allowed at the beginning or at the end of the code. No spaces allowed. There is no requirement to pad out Internal unique trade ID values to make them 52 characters long.This trade id will be a concatenation of the following:
• The characters ‘E02’.
• The (20 character) Legal Entity Identifier of the generating entity.
• A unique code generated by the generating entity.
Appendix B
List of reportable life cycle events for OTC derivative transactions:
Action type
Description
New (N)
A derivative contract is entered into for the first time.
Modify (M)
A modification to the terms or details of a previously reported derivative contract, but not a correction of a report. Modifications can only affect new trades.
Error (E)
A cancellation of a wrongly submitted entire report in case, among others, the contract never came into existence or was submitted by mistake by a non-obliged counterparty.
Early Termination (C)
An early termination of an existing contract.
Correction (R)
A previously submitted report contains erroneous data fields, in which case the report correcting the erroneous data fields of the previous report.
Valuation update (V)
A daily update of a contract valuation.
Compression (Z)
A compression of the reported contract.
Depending on the action type that is reported and populated in table 2: item 52 “Action type”, fields may have adopted any of the following status:
• Mandatory (M): the field is strictly required and validations of format and content are applied.
• Conditionally mandatory (C): the field is required if the specific conditions set out in the validation rules are met. Format and content validations are applied as well.
• Potential (P): the field shall be populated if applicable depending on the transaction characteristics or to the reported life cycle event (for modifications and or corrections all fields, except those that are mandatory regardless the reported life cycle event, could potentially be modified or corrected and therefore populated). Only format and content validations are applied when the field is populated.
• Not relevant (-): the field shall be left blank.
List of life cycle events reporting scenarios for OTC derivative transactions:
1. Submission of a new trade with no available “Unique trade ID” generated by the international generating entity
In cases of a transaction between a KSA Bank and a foreign counterparty, if at the regulatory deadline to submit a new trade (T+1), table 2 item 15 “Unique trade ID” is not informed by the international generating entity, the field can be provisionally left blank. In such cases, once the Trade ID is informed, a Modification report (table 2 item 53 “Action type” populated with “M”) must be submitted by the reporting counterparty in order to populate the "Unique trade ID" informed by the international generating entity.
2. Modifications to the terms of a contract
When both counterparties agree to modify any of the terms of an OTC derivative contract, the reporting counterparty shall submit a modification report (table 2 item 53 “Action type” populated with the value “M”) in which, besides additional applicable validation rules described in this document, table 2 item 14 “Internal unique trade ID” shall be populated with a code that is fully coincident with a previously reported “Internal unique trade ID”. The “Internal unique trade ID” cannot be subject to modification.
In cases where the aim of the modification is to turn blank a previously populated field, the field in question shall be populated with the value “null”.
3. Novations
For reporting purposes, in cases of novations to the original report relating to the existing derivative, the reporting counterparty should send a termination report (table 2 item 53“Action type” populated with the value “C”). The reporting counterparty should then send a new report with table 2 item 53 “Action type” populated with the value “N” relating to the new derivative contract arisen from the novation.
This is applicable to trades that are novated for the purpose of clearing a certain trade in a CCP. In such case, the original trade (pre-novation) shall be reported in T+1 with table 2 item 53 “Action type” populated with the value “N” and once it is novated the reporting counterparty should send a termination report (table 2 item 53 “Action type” populated with the value “C”) and submit a new report with table 2 item 53 “Action type” populated with the value “N” relating to the new derivative contract arisen from the novation. In the case that the novation takes place before T+1, the reporting counterparty shall only submit a single report (post-novation) with table 2 item 53 “Action type” populated with the value “N” and table 1 item 2 “ID of the other Counterparty” populated with the LEI of the CCP.
4. Detection of an error in an already submitted report
If the reporting counterparty (or the other counterparty upon communication to the reporting counterparty) detects that a report (no matter its nature or “Action type”) was submitted by error, the reporting counterparty is required to submit an error report (table 2 item 53 “Action type” populated with the value “E”) in order to eliminate the erroneous report. besides mandatory fields described in the first bullet of this paragraph, table 2 item 14 “Internal unique trade ID” shall be populated with a code that is fully coincident with a previously reported “Internal unique trade ID”.
5. Submission of an early termination report
In the case that a trade ends before reaching its original maturity date, the reporting counterparty shall submit an early termination report (table 2 item 53 “Action type” populated with value C”). Besides mandatory fields described in bullet 1 of this paragraph, table 2 item 27 “Early termination date” shall be populated. Furthermore, table 2 item 14 “Internal unique trade ID” shall be populated with a code that is fully coincident with a previously reported “Internal unique trade ID”. The “Internal unique trade ID” cannot be subject to correction.
6. Notional increase or decrease
For reporting purposes, in the event of an increase or decrease in the notional amount of an existing contract (partial termination but not fully close-out), the reporting counterparty shall submit a modification report (table 2 item 53 “Action type” populated with the value “M”) modifying the “Notional” (table 2 item 19).
7. Correction of a previously submitted report
If the reporting counterparty (or the other counterparty upon communication to the reporting counterparty) detects an incorrectly reported field, the reporting counterparty shall submit a correction report (table 2: item 53 “Action type” populated with the value “R”) in which, besides additional applicable validation rules described in this document, Table 2 item 14 “Internal unique trade ID” shall be populated with a code that is fully coincident with a previously reported “Internal unique trade ID”. Only mandatory and the corrected fields shall be populated.
8. Valuation update
Valuation update reports shall be submitted on a daily basis. Besides additional applicable validation rules described throughout this document, Table 2 item 14 “Internal unique trade ID” shall be populated with a code that is fully coincident with a previously reported “Internal unique trade ID”.
9. FX Overnight trades
FX spot (D+2) and FX overnight trades (D+1) are not considered OTC derivatives, so they are not required to be reported.
10. Backloading requirement for reporting entities
In order to meet regulatory needs and to reduce the substantial and costly adjustments that reporting entities need to make to comply with the backloading requirement, OTC derivatives transactions on Equity, Credit and Commodity asset classes that are still outstanding as of the effective date (June 1st 2021), will need to be submitted through new reports (table 2 item 53 “Action type” populated with value “N”). For Backloading purposes, reporting Bank must also report transactions which matured between January 1st 2021 and May 31st 2021. Reporting must be completed by the effective date.
After the submission of each new report, the updated valuation of the contract (table 2 item 53 “Action type” populated with value “V”) should start to be reported on a daily basis as well. See applicable rules described in the “Scope of Reporting” in this document in order to identify the counterparty of the transaction that is subject to the reporting-backloading obligation for each legacy trade.
OTC derivatives transactions on Equity, Credit and Commodity asset classes whose maturity date had been reached before December 31st 2020, will not be subject to the backloading obligation.
11. Reporting of Waad OTC derivatives
"Arbun" derivatives should be identified and reported like a call/put option.
Any Waad OTC derivative must be reported to SATR on the agreement date as a Forward, informing about the expected “effective date”, “settlement date” and “expiration date”. If the transaction is not to be settled an early termination (“C”) event must be reported as soon as the reporting counterparty is certain of it. If the transaction is finally settled but with a different “effective date”, ”settlement date” or “expiration date” or any other previously reported field, a modification (“M”) event must be reported.
Appendix C
The following rules are required to be defined in order to identify the counterparty that is subject to the reporting obligation in the different types of transactions to be reported:
• Local financial counterparty vs Local non-financial counterparty: Under the assumption that one of the counterparties is categorized as a non-financial counterparty, the financial counterparty of the transaction shall be responsible of submitting the transaction report.
• Local financial counterparty vs International financial counterparty / Qualified Non - financial counterparty: Under the assumption that the other counterparty is an international financial counterparty or international qualified non-financial counterparty, the local financial counterparty shall be subject to the local reporting obligation. The international counterparty will report to its competent authority depending on its home jurisdiction requirements.
• Local financial counterparty vs CCP: If a transaction is novated from an OTC transaction to a CCP, the local financial counterparty shall be subject to the local reporting obligation, provided that the original transaction was reportable.
• Local financial counterparty vs Local financial counterparty: Under the assumption that both counterparties are categorized as financial counterparties established in Saudi Arabia, both of them will be responsible of submitting its own report, in which it should properly be identified one counterparty as the seller and the other as the buyer in accordance to what is reflected in the OTC derivative contract agreed between both counterparties or otherwise in accordance to the agreement reached between counterparties at the moment of execution of the trade. In the event that both counterparties identify themselves as the seller of the transaction and assuming that both reports are submitted with the same Internal Unique Trade ID (Table 2 Item 14), the TR will not accept the second report received from one of the counterparties and will submit to this entity an error, in which it will be indicated that the report has already been submitted by another counterparty.
• In intragroup transactions the reporting entity will always be the obliged entity unless both intragroup counterparties are obliged in which case the aforementioned rules would be applicable.
Basel III: The Liquidity Coverage Ratio and Liquidity Risk Monitoring Tools - BCBS
List of Abbreviations
ABCP Asset-backed commercial paper
ALA Alternative Liquidity Approaches
CD Certificate of deposit
CDS Credit default swap
CFP Contingency Funding Plan
CP Commercial paper
ECAI External credit assessment institution
HQLA High quality liquid assets
IRB Internal ratings-based
LCR Liquidity Coverage Ratio
LTV Loan to Value Ratio
NSFR Net Stable Funding Ratio
OBS Off-balance sheet
PD Probability of default
PSE Public sector entity
RMBS Residential mortgage backed securities
SIV Structured investment vehicle
SPE Special purpose entity
Introduction
1. This document presents one of the Basel Committee’s1 key reforms to develop a more resilient banking sector: the Liquidity Coverage Ratio (LCR). The objective of the LCR is to promote the short-term resilience of the liquidity risk profile of banks. It does this by ensuring that banks have an adequate stock of unencumbered high-quality liquid assets (HQLA) that can be converted easily and immediately in private markets into cash to meet their liquidity needs for a 30 calendar day liquidity stress scenario. The LCR will improve the banking sector’s ability to absorb shocks arising from financial and economic stress, whatever the source, thus reducing the risk of spillover from the financial sector to the real economy. This document sets out the LCR standard and timelines for its implementation.
2. During the early “liquidity phase” of the financial crisis that began in 2007, many banks – despite adequate capital levels – still experienced difficulties because they did not manage their liquidity in a prudent manner. The crisis drove home the importance of liquidity to the proper functioning of financial markets and the banking sector. Prior to the crisis, asset markets were buoyant and funding was readily available at low cost. The rapid reversal in market conditions illustrated how quickly liquidity can evaporate, and that illiquidity can last for an extended period of time. The banking system came under severe stress, which necessitated central bank action to support both the functioning of money markets and, in some cases, individual institutions.
3. The difficulties experienced by some banks were due to lapses in basic principles of liquidity risk management. In response, as the foundation of its liquidity framework, the Committee in 2008 published Principles for Sound Liquidity Risk Management and Supervision (“Sound Principles”).2 The Sound Principles provide detailed guidance on the risk management and supervision of funding liquidity risk and should help promote better risk management in this critical area, but only if there is full implementation by banks and supervisors. As such, the Committee will continue to monitor the implementation by supervisors to ensure that banks adhere to these fundamental principles.
4. 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 bank’s liquidity risk profile by ensuring that it has sufficient HQLA to survive a significant stress scenario lasting for one month. The Committee developed the LCR to achieve this objective. The second objective is to promote resilience over a longer time horizon by creating additional incentives for banks to fund their activities with more stable sources of funding on an ongoing basis. The Net Stable Funding Ratio (NSFR), which is not covered by this document, supplements the LCR and has a time horizon of one year. It has been developed to provide a sustainable maturity structure of assets and liabilities.
5. These two standards are comprised mainly of specific parameters which are internationally “harmonised” with prescribed values. Certain parameters, however, contain elements of national discretion to reflect jurisdiction-specific conditions. In these cases, the parameters should be transparent and clearly outlined in the regulations of each jurisdiction to provide clarity both within the jurisdiction and internationally.
6. It should be stressed that the LCR standard establishes a minimum level of liquidity for internationally active banks. Banks are expected to meet this standard as well as adhere to the Sound Principles. Consistent with the Committee’s capital adequacy standards, national authorities may require higher minimum levels of liquidity. In particular, supervisors should be mindful that the assumptions within the LCR may not capture all market conditions or all periods of stress. Supervisors are therefore free to require additional levels of liquidity to be held, if they deem the LCR does not adequately reflect the liquidity risks that their banks face.
7. Given that the LCR is, on its own, insufficient to measure all dimensions of a bank’s liquidity profile, the Committee has also developed a set of monitoring tools to further strengthen and promote global consistency in liquidity risk supervision. These tools are supplementary to the LCR and are to be used for ongoing monitoring of the liquidity risk exposures of banks, and in communicating these exposures among home and host supervisors.
8. The Committee is introducing phase-in arrangements to implement the LCR to help ensure that the banking sector can meet the standard through reasonable measures, while still supporting lending to the economy.
9. The Committee remains firmly of the view that the LCR is an essential component of the set of reforms introduced by Basel III and, when implemented, will help deliver a more robust and resilient banking system. However, the Committee has also been mindful of the implications of the standard for financial markets, credit extension and economic growth, and of introducing the LCR at a time of ongoing strains in some banking systems. It has therefore decided to provide for a phased introduction of the LCR, in a manner similar to that of the Basel III capital adequacy requirements.
10. Specifically, the LCR will be introduced as planned on 1 January 2015, but the minimum requirement will be set at 60% and rise in equal annual steps to reach 100% on 1 January 2019. This graduated approach, coupled with the revisions made to the 2010 publication of the liquidity standards,3 are designed to ensure that the LCR can be introduced without material disruption to the orderly strengthening of banking systems or the ongoing financing of economic activity.
1 January 2015 1 January 2016 1 January 2017 1 January 2018 1 January 2019 Minimum LCR 60% 70% 80% 90% 100% 11. The Committee also reaffirms its view that, during periods of stress, it would be entirely appropriate for banks to use their stock of HQLA, thereby falling below the minimum. Supervisors will subsequently assess this situation and will give guidance on usability according to circumstances. Furthermore, individual countries that are receiving financial support for macroeconomic and structural reform purposes may choose a different implementation schedule for their national banking systems, consistent with the design of their broader economic restructuring programme.
12. The Committee is currently reviewing the NSFR, which continues to be subject to an observation period and remains subject to review to address any unintended consequences. It remains the Committee’s intention that the NSFR, including any revisions, will become a minimum standard by 1 January 2018.
13. This document is organised as follows:
• Part 1 defines the LCR for internationally active banks and deals with application issues.
• Part 2 presents a set of monitoring tools to be used by banks and supervisors in their monitoring of liquidity risks.
1 The Basel Committee on Banking Supervision consists of senior representatives of bank supervisory authorities and central banks from Argentina, Australia, Belgium, Brazil, Canada, China, France, Germany, Hong Kong SAR, India, Indonesia, Italy, Japan, Korea, Luxembourg, Mexico, the Netherlands, Russia, Saudi Arabia, Singapore, South Africa, Spain, Sweden, Switzerland, Turkey, the United Kingdom and the United States. It usually meets at the Bank for International Settlements (BIS) in Basel, Switzerland, where its permanent Secretariat is located.
2 The Sound Principles are available at The BIS Website.
3 The 2010 publication is available at The BIS Website.Part 1: The Liquidity Coverage Ratio
14. The Committee has developed the LCR to promote the short-term resilience of the liquidity risk profile of banks by ensuring that they have sufficient HQLA to survive a significant stress scenario lasting 30 calendar days.
15. The LCR should be a key component of the supervisory approach to liquidity risk, but must be supplemented by detailed supervisory assessments of other aspects of the bank’s liquidity risk management framework in line with the Sound Principles, the use of the monitoring tools included in Part 2, and, in due course, the NSFR. In addition, supervisors may require an individual bank to adopt more stringent standards or parameters to reflect its liquidity risk profile and the supervisor’s assessment of its compliance with the Sound Principles.
I. Objective of the LCR and Use of HQLA
16. This standard aims to ensure that a bank has an adequate stock of unencumbered HQLA that consists of cash or assets that can be converted into cash at little or no loss of value in private markets, to meet its liquidity needs for a 30 calendar day liquidity stress scenario. At a minimum, the stock of unencumbered HQLA should enable the bank to survive until Day 30 of the stress scenario, by which time it is assumed that appropriate corrective actions can be taken by management and supervisors, or that the bank can be resolved in an orderly way. Furthermore, it gives the central bank additional time to take appropriate measures, should they be regarded as necessary. As noted in the Sound Principles, given the uncertain timing of outflows and inflows, banks are also expected to be aware of any potential mismatches within the 30-day period and ensure that sufficient HQLA are available to meet any cash flow gaps throughout the period.
17. The LCR builds on traditional liquidity “coverage ratio” methodologies used internally by banks to assess exposure to contingent liquidity events. The total net cash outflows for the scenario are to be calculated for 30 calendar days into the future. The standard requires that, absent a situation of financial stress, the value of the ratio be no lower than 100%4 (ie the stock of HQLA should at least equal total net cash outflows) on an ongoing basis because the stock of unencumbered HQLA is intended to serve as a defence against the potential onset of liquidity stress. During a period of financial stress, however, banks may use their stock of HQLA, thereby falling below 100%, as maintaining the LCR at 100% under such circumstances could produce undue negative effects on the bank and other market participants. Supervisors will subsequently assess this situation and will adjust their response flexibly according to the circumstances.
18. In particular, supervisory decisions regarding a bank’s use of its HQLA should be guided by consideration of the core objective and definition of the LCR. Supervisors should exercise judgement in their assessment and account not only for prevailing macro financial conditions, but also consider forward-looking assessments of macroeconomic and financial conditions. In determining a response, supervisors should be aware that some actions could be procyclical if applied in circumstances of market-wide stress. Supervisors should seek to take these considerations into account on a consistent basis across jurisdictions.
(a) Supervisors should assess conditions at an early stage, and take actions if deemed necessary, to address potential liquidity risk.
(b) Supervisors should allow for differentiated responses to a reported LCR below 100%. Any potential supervisory response should be proportionate with the drivers, magnitude, duration and frequency of the reported shortfall.
(c) Supervisors should assess a number of firm- and market-specific factors in determining the appropriate response as well as other considerations related to both domestic and global frameworks and conditions. Potential considerations include, but are not limited to:
(i) The reason(s) that the LCR fell below 100%. This includes use of the stock of HQLA, an inability to roll over funding or large unexpected draws on contingent obligations. In addition, the reasons may relate to overall credit, funding and market conditions, including liquidity in credit, asset and funding markets, affecting individual banks or all institutions, regardless of their own condition;
(ii) The extent to which the reported decline in the LCR is due to a firm-specific or market-wide shock;
(iii) A bank’s overall health and risk profile, including activities, positions with respect to other supervisory requirements, internal risk systems, controls and other management processes, among others;
(iv) The magnitude, duration and frequency of the reported decline of HQLA;
(v) The potential for contagion to the financial system and additional restricted flow of credit or reduced market liquidity due to actions to maintain an LCR of 100%;
(vi) The availability of other sources of contingent funding such as central bank funding,5 or other actions by prudential authorities.
(d) Supervisors should have a range of tools at their disposal to address a reported LCR below 100%. Banks may use their stock of HQLA in both idiosyncratic and systemic stress events, although the supervisory response may differ between the two.
(i) At a minimum, a bank should present an assessment of its liquidity position, including the factors that contributed to its LCR falling below 100%, the measures that have been and will be taken and the expectations on the potential length of the situation. Enhanced reporting to supervisors should be commensurate with the duration of the shortfall.
(ii) If appropriate, supervisors could also require actions by a bank to reduce its exposure to liquidity risk, strengthen its overall liquidity risk management, or improve its contingency funding plan.
(iii) However, in a situation of sufficiently severe system-wide stress, effects on the entire financial system should be considered. Potential measures to restore liquidity levels should be discussed, and should be executed over a period of time considered appropriate to prevent additional stress on the bank and on the financial system as a whole.
(e) Supervisors’ responses should be consistent with the overall approach to the prudential framework.
4 The 100% threshold is the minimum requirement absent a period of financial stress, and after the phase-in arrangements are complete. References to 100% may be adjusted for any phase-in arrangements in force.
5 The Sound Principles require that a bank develop a Contingency Funding Plan (CFP) that clearly sets out strategies for addressing liquidity shortfalls, both firm-specific and market-wide situations of stress. A CFP should, among other things, “reflect central bank lending programmes and collateral requirements, including facilities that form part of normal liquidity management operations (eg the availability of seasonal credit).”II. Definition of the LCR
19. The scenario for this standard entails a combined idiosyncratic and market-wide shock that would result in:
(a) the run-off of a proportion of retail deposits;
(b) a partial loss of unsecured wholesale funding capacity;
(c) a partial loss of secured, short-term financing with certain collateral and counterparties;
(d) additional contractual outflows that would arise from a downgrade in the bank’s public credit rating by up to and including three notches, including collateral posting requirements;
(e) increases in market volatilities that impact the quality of collateral or potential future exposure of derivative positions and thus require larger collateral haircuts or additional collateral, or lead to other liquidity needs;
(f) unscheduled draws on committed but unused credit and liquidity facilities that the bank has provided to its clients; and
(g) the potential need for the bank to buy back debt or honour non-contractual obligations in the interest of mitigating reputational risk.
20. In summary, the stress scenario specified incorporates many of the shocks experienced during the crisis that started in 2007 into one significant stress scenario for which a bank would need sufficient liquidity on hand to survive for up to 30 calendar days.
21. This stress test should be viewed as a minimum supervisory requirement for banks. Banks are expected to conduct their own stress tests to assess the level of liquidity they should hold beyond this minimum, and construct their own scenarios that could cause difficulties for their specific business activities. Such internal stress tests should incorporate longer time horizons than the one mandated by this standard. Banks are expected to share the results of these additional stress tests with supervisors.
22. The LCR has two components:
(a) Value of the stock of HQLA in stressed conditions; and
(b) Total net cash outflows, calculated according to the scenario parameters outlined below.
Stock of HQLA ≥ 100% Total net cash outflows over the next 30 calendar days A. Stock of HQLA
23. The numerator of the LCR is the “stock of HQLA”. Under the standard, banks must hold a stock of unencumbered HQLA to cover the total net cash outflows (as defined below) over a 30-day period under the prescribed stress scenario. In order to qualify as “HQLA”, assets should be liquid in markets during a time of stress and, ideally, be central bank eligible. The following sets out the characteristics that such assets should generally possess and the operational requirements that they should satisfy.6
6 Refer to the sections on “Definition of HQLA” and “Operational requirements” for the characteristics that an asset must meet to be part of the stock of HQLA and the definition of “unencumbered” respectively.
1. Characteristics of HQLA
24. Assets are considered to be HQLA if they can be easily and immediately converted into cash at little or no loss of value. The liquidity of an asset depends on the underlying stress scenario, the volume to be monetised and the timeframe considered. Nevertheless, there are certain assets that are more likely to generate funds without incurring large discounts in sale or repurchase agreement (repo) markets due to fire-sales even in times of stress. This section outlines the factors that influence whether or not the market for an asset can be relied upon to raise liquidity when considered in the context of possible stresses. These factors should assist supervisors in determining which assets, despite meeting the criteria from paragraphs 49 to 54, are not sufficiently liquid in private markets to be included in the stock of HQLA.
(i) Fundamental Characteristics
• Low risk: assets that are less risky tend to have higher liquidity. High credit standing of the issuer and a low degree of subordination increase an asset’s liquidity. Low duration,7 low legal risk, low inflation risk and denomination in a convertible currency with low foreign exchange risk all enhance an asset’s liquidity.
• Ease and certainty of valuation: an asset’s liquidity increases if market participants are more likely to agree on its valuation. Assets with more standardised, homogenous and simple structures tend to be more fungible, promoting liquidity. The pricing formula of a high-quality liquid asset must be easy to calculate and not depend on strong assumptions. The inputs into the pricing formula must also be publicly available. In practice, this should rule out the inclusion of most structured or exotic products.
• Low correlation with risky assets: the stock of HQLA should not be subject to wrong-way (highly correlated) risk. For example, assets issued by financial institutions are more likely to be illiquid in times of liquidity stress in the banking sector.
• Listed on a developed and recognised exchange: being listed increases an asset’s transparency.
7 Duration measures the price sensitivity of a fixed income security to changes in interest rate.
(ii) Market-Related Characteristics
• Active and sizable market: the asset should have active outright sale or repo markets at all times. This means that:
- There should be historical evidence of market breadth and market depth. This could be demonstrated by low bid-ask spreads, high trading volumes, and a large and diverse number of market participants. Diversity of market participants reduces market concentration and increases the reliability of the liquidity in the market.
- There should be robust market infrastructure in place. The presence of multiple committed market makers increases liquidity as quotes will most likely be available for buying or selling HQLA.
• Low volatility: Assets whose prices remain relatively stable and are less prone to sharp price declines over time will have a lower probability of triggering forced sales to meet liquidity requirements. Volatility of traded prices and spreads are simple proxy measures of market volatility. There should be historical evidence of relative stability of market terms (eg prices and haircuts) and volumes during stressed periods.
• Flight to quality: historically, the market has shown tendencies to move into these types of assets in a systemic crisis. The correlation between proxies of market liquidity and banking system stress is one simple measure that could be used.
25. As outlined by these characteristics, the test of whether liquid assets are of “high quality” is that, by way of sale or repo, their liquidity-generating capacity is assumed to remain intact even in periods of severe idiosyncratic and market stress. Lower quality assets typically fail to meet that test. An attempt by a bank to raise liquidity from lower quality assets under conditions of severe market stress would entail acceptance of a large fire-sale discount or haircut to compensate for high market risk. That may not only erode the market’s confidence in the bank, but would also generate mark-to-market losses for banks holding similar instruments and add to the pressure on their liquidity position, thus encouraging further fire sales and declines in prices and market liquidity. In these circumstances, private market liquidity for such instruments is likely to disappear quickly.
26. HQLA (except Level 2B assets as defined below) should ideally be eligible at central banks8 for intraday liquidity needs and overnight liquidity facilities. In the past, central banks have provided a further backstop to the supply of banking system liquidity under conditions of severe stress. Central bank eligibility should thus provide additional confidence that banks are holding assets that could be used in events of severe stress without damaging the broader financial system. That in turn would raise confidence in the safety and soundness of liquidity risk management in the banking system.
27. It should be noted however, that central bank eligibility does not by itself constitute the basis for the categorisation of an asset as HQLA.
8 In most jurisdictions, HQLA should be central bank eligible in addition to being liquid in markets during stressed periods. In jurisdictions where central bank eligibility is limited to an extremely narrow list of assets, a supervisor may allow unencumbered, non-central bank eligible assets that meet the qualifying criteria for Level 1 or Level 2 assets to count as part of the stock (see Definition of HQLA beginning from paragraph 45).
2. Operational Requirements
28. All assets in the stock of HQLA are subject to the following operational requirements. The purpose of the operational requirements is to recognise that not all assets outlined in paragraphs 49-54 that meet the asset class, risk-weighting and credit-rating criteria should be eligible for the stock as there are other operational restrictions on the availability of HQLA that can prevent timely monetisation during a stress period.
29. These operational requirements are designed to ensure that the stock of HQLA is managed in such a way that the bank can, and is able to demonstrate that it can, immediately use the stock of assets as a source of contingent funds that is available for the bank to convert into cash through outright sale or repo, to fill funding gaps between cash inflows and outflows at any time during the 30-day stress period, with no restriction on the use of the liquidity generated.
30. A bank should periodically monetise a representative proportion of the assets in the stock through repo or outright sale, in order to test its access to the market, the effectiveness of its processes for monetisation, the availability of the assets, and to minimise the risk of negative signalling during a period of actual stress.
31. All assets in the stock should be unencumbered. “Unencumbered” means free of legal, regulatory, contractual or other restrictions on the ability of the bank to liquidate, sell, transfer, or assign the asset. An asset in the stock should not be pledged (either explicitly or implicitly) to secure, collateralise or credit-enhance any transaction, nor be designated to cover operational costs (such as rents and salaries). Assets received in reverse repo and securities financing transactions that are held at the bank, have not been rehypothecated, and are legally and contractually available for the bank's use can be considered as part of the stock of HQLA. In addition, assets which qualify for the stock of HQLA that have been pre-positioned or deposited with, or pledged to, the central bank or a public sector entity (PSE) but have not been used to generate liquidity may be included in the stock.9
32. A bank should exclude from the stock those assets that, although meeting the definition of “unencumbered” specified in paragraph 31, the bank would not have the operational capability to monetise to meet outflows during the stress period. Operational capability to monetise assets requires having procedures and appropriate systems in place, including providing the function identified in paragraph 33 with access to all necessary information to execute monetisation of any asset at any time. Monetisation of the asset must be executable, from an operational perspective, in the standard settlement period for the asset class in the relevant jurisdiction.
33. The stock should be under the control of the function charged with managing the liquidity of the bank (eg the treasurer), meaning the function has the continuous authority, and legal and operational capability, to monetise any asset in the stock. Control must be evidenced either by maintaining assets in a separate pool managed by the function with the sole intent for use as a source of contingent funds, or by demonstrating that the function can monetise the asset at any point in the 30-day stress period and that the proceeds of doing so are available to the function throughout the 30-day stress period without directly conflicting with a stated business or risk management strategy. For example, an asset should not be included in the stock if the sale of that asset, without replacement throughout the 30-day period, would remove a hedge that would create an open risk position in excess of internal limits.
34. A bank is permitted to hedge the market risk associated with ownership of the stock of HQLA and still include the assets in the stock. If it chooses to hedge the market risk, the bank should take into account (in the market value applied to each asset) the cash outflow that would arise if the hedge were to be closed out early (in the event of the asset being sold).
35. In accordance with Principle 9 of the Sound Principles a bank “should monitor the legal entity and physical location where collateral is held and how it may be mobilised in a timely manner”. Specifically, it should have a policy in place that identifies legal entities, geographical locations, currencies and specific custodial or bank accounts where HQLA are held. In addition, the bank should determine whether any such assets should be excluded for operational reasons and therefore, have the ability to determine the composition of its stock on a daily basis.
36. As noted in paragraphs 171 and 172, qualifying HQLA that are held to meet statutory liquidity requirements at the legal entity or sub-consolidated level (where applicable) may only be included in the stock at the consolidated level to the extent that the related risks (as measured by the legal entity’s or sub-consolidated group’s net cash outflows in the LCR) are also reflected in the consolidated LCR. Any surplus of HQLA held at the legal entity can only be included in the consolidated stock if those assets would also be freely available to the consolidated (parent) entity in times of stress.
37. In assessing whether assets are freely transferable for regulatory purposes, banks should be aware that assets may not be freely available to the consolidated entity due to regulatory, legal, tax, accounting or other impediments. Assets held in legal entities without market access should only be included to the extent that they can be freely transferred to other entities that could monetise the assets.
38. In certain jurisdictions, large, deep and active repo markets do not exist for eligible asset classes, and therefore such assets are likely to be monetised through outright sale. In these circumstances, a bank should exclude from the stock of HQLA those assets where there are impediments to sale, such as large fire-sale discounts which would cause it to breach minimum solvency requirements, or requirements to hold such assets, including, but not limited to, statutory minimum inventory requirements for market making.
39. Banks should not include in the stock of HQLA any assets, or liquidity generated from assets, they have received under right of rehypothecation, if the beneficial owner has the contractual right to withdraw those assets during the 30-day stress period.10
40. Assets received as collateral for derivatives transactions that are not segregated and are legally able to be rehypothecated may be included in the stock of HQLA provided that the bank records an appropriate outflow for the associated risks as set out in paragraph 116.
41. As stated in Principle 8 of the Sound Principles, a bank should actively manage its intraday liquidity positions and risks to meet payment and settlement obligations on a timely basis under both normal and stressed conditions and thus contribute to the smooth functioning of payment and settlement systems. Banks and regulators should be aware that the LCR stress scenario does not cover expected or unexpected intraday liquidity needs.
42. While the LCR is expected to be met and reported in a single currency, banks are expected to be able to meet their liquidity needs in each currency and maintain HQLA consistent with the distribution of their liquidity needs by currency. The bank should be able to use the stock to generate liquidity in the currency and jurisdiction in which the net cash outflows arise. As such, the LCR by currency is expected to be monitored and reported to allow the bank and its supervisor to track any potential currency mismatch issues that could arise, as outlined in Part 2. In managing foreign exchange liquidity risk, the bank should take into account the risk that its ability to swap currencies and access the relevant foreign exchange markets may erode rapidly under stressed conditions. It should be aware that sudden, adverse exchange rate movements could sharply widen existing mismatched positions and alter the effectiveness of any foreign exchange hedges in place.
43. In order to mitigate cliff effects that could arise, if an eligible liquid asset became ineligible (eg due to rating downgrade), a bank is permitted to keep such assets in its stock of liquid assets for an additional 30 calendar days. This would allow the bank additional time to adjust its stock as needed or replace the asset.
9 If a bank has deposited, pre-positioned or pledged Level 1, Level 2 and other assets in a collateral pool and no specific securities are assigned as collateral for any transactions, it may assume that assets are encumbered in order of increasing liquidity value in the LCR, ie assets ineligible for the stock of HQLA are assigned first, followed by Level 2B assets, then Level 2A and finally Level 1. This determination must be made in compliance with any requirements, such as concentration or diversification, of the central bank or PSE.
10 Refer to paragraph 146 for the appropriate treatment if the contractual withdrawal of such assets would lead to a short position (eg because the bank had used the assets in longer-term securities financing transactions).3. Diversification of the Stock of HQLA
44. The stock of HQLA should be well diversified within the asset classes themselves (except for sovereign debt of the bank’s home jurisdiction or from the jurisdiction in which the bank operates; central bank reserves; central bank debt securities; and cash). Although some asset classes are more likely to remain liquid irrespective of circumstances, ex-ante it is not possible to know with certainty which specific assets within each asset class might be subject to shocks ex-post. Banks should therefore have policies and limits in place in order to avoid concentration with respect to asset types, issue and issuer types, and currency (consistent with the distribution of net cash outflows by currency) within asset classes.
4. Definition of HQLA
45. The stock of HQLA should comprise assets with the characteristics outlined in paragraphs 24-27. This section describes the type of assets that meet these characteristics and can therefore be included in the stock.
46. There are two categories of assets that can be included in the stock. Assets to be included in each category are those that the bank is holding on the first day of the stress period, irrespective of their residual maturity. “Level 1” assets can be included without limit, while “Level 2” assets can only comprise up to 40% of the stock.
47. Supervisors may also choose to include within Level 2 an additional class of assets (Level 2B assets - see paragraph 53 below). If included, these assets should comprise no more than 15% of the total stock of HQLA. They must also be included within the overall 40% cap on Level 2 assets.
48. The 40% cap on Level 2 assets and the 15% cap on Level 2B assets should be determined after the application of required haircuts, and after taking into account the unwind of short-term securities financing transactions and collateral swap transactions maturing within 30 calendar days that involve the exchange of HQLA. In this context, short term transactions are transactions with a maturity date up to and including 30 calendar days. The details of the calculation methodology are provided in Annex 1.
(i) Level 1 Assets
49. Level 1 assets can comprise an unlimited share of the pool and are not subject to a haircut under the LCR.11 However, national supervisors may wish to require haircuts for Level 1 securities based on, among other things, their duration, credit and liquidity risk, and typical repo haircuts.
50. Level 1 assets are limited to:
(a) coins and banknotes;
(b) central bank reserves (including required reserves),12 to the extent that the central bank policies allow them to be drawn down in times of stress;13
(c) marketable securities representing claims on or guaranteed by sovereigns, central banks, PSEs, the Bank for International Settlements, the International Monetary Fund, the European Central Bank and European Community, or multilateral development banks,14 and satisfying all of the following conditions:
• assigned a 0% risk-weight under the Basel II Standardised Approach for credit risk;15
• traded in large, deep and active repo or cash markets characterised by a low level of concentration;
• have a proven record as a reliable source of liquidity in the markets (repo or sale) even during stressed market conditions; and
• not an obligation of a financial institution or any of its affiliated entities.16
(d) where the sovereign has a non-0% risk weight, sovereign or central bank debt securities issued in domestic currencies by the sovereign or central bank in the country in which the liquidity risk is being taken or in the bank’s home country; and
(e) where the sovereign has a non-0% risk weight, domestic sovereign or central bank debt securities issued in foreign currencies are eligible up to the amount of the bank’s stressed net cash outflows in that specific foreign currency stemming from the bank’s operations in the jurisdiction where the bank’s liquidity risk is being taken.
11 For purpose of calculating the LCR, Level 1 assets in the stock of HQLA should be measured at an amount no greater than their current market value.
12 In this context, central bank reserves would include banks’ overnight deposits with the central bank, and term deposits with the central bank that: (i) are explicitly and contractually repayable on notice from the depositing bank; or (ii) that constitute a loan against which the bank can borrow on a term basis or on an overnight but automatically renewable basis (only where the bank has an existing deposit with the relevant central bank). Other term deposits with central banks are not eligible for the stock of HQLA; however, if the term expires within 30 days, the term deposit could be considered as an inflow per paragraph 154.
13 Local supervisors should discuss and agree with the relevant central bank the extent to which central bank reserves should count towards the stock of liquid assets, ie the extent to which reserves are able to be drawn down in times of stress.
14 The Basel III liquidity framework follows the categorisation of market participants applied in the Basel II Framework, unless otherwise specified.
15 Paragraph 50(c) includes only marketable securities that qualify for Basel II paragraph 53. When a 0% risk-weight has been assigned at national discretion according to the provision in paragraph 54 of the Basel II Standardised Approach, the treatment should follow paragraph 50(d) or 50(e).
16 This requires that the holder of the security must not have recourse to the financial institution or any of the financial institution's affiliated entities. In practice, this means that securities, such as government-guaranteed issuance during the financial crisis, which remain liabilities of the financial institution, would not qualify for the stock of HQLA. The only exception is when the bank also qualifies as a PSE under the Basel II Framework where securities issued by the bank could qualify for Level 1 assets if all necessary conditions are satisfied.(ii) Level 2 Assets
51. Level 2 assets (comprising Level 2A assets and any Level 2B assets permitted by the supervisor) can be included in the stock of HQLA, subject to the requirement that they comprise no more than 40% of the overall stock after haircuts have been applied. The method for calculating the cap on Level 2 assets and the cap on Level 2B assets is set out in paragraph 48 and Annex 1.
52. A 15% haircut is applied to the current market value of each Level 2A asset held in the stock of HQLA. Level 2A assets are limited to the following:
(a) Marketable securities representing claims on or guaranteed by sovereigns, central banks, PSEs or multilateral development banks that satisfy all of the following conditions:17
• assigned a 20% risk weight under the Basel II Standardised Approach for credit risk;
• traded in large, deep and active repo or cash markets characterised by a low level of concentration;
• have a proven record as a reliable source of liquidity in the markets (repo or sale) even during stressed market conditions (ie maximum decline of price not exceeding 10% or increase in haircut not exceeding 10 percentage points over a 30-day period during a relevant period of significant liquidity stress); and
• not an obligation of a financial institution or any of its affiliated entities.18
(b) Corporate debt securities (including commercial paper)19 and covered bonds20 that satisfy all of the following conditions:
• in the case of corporate debt securities: not issued by a financial institution or any of its affiliated entities;
• in the case of covered bonds: not issued by the bank itself or any of its affiliated entities;
• either (i) have a long-term credit rating from a recognised external credit assessment institution (ECAI) of at least AA-21 or in the absence of a long term rating, a short-term rating equivalent in quality to the long-term rating; or (ii) do not have a credit assessment by a recognised ECAI but are internally rated as having a probability of default (PD) corresponding to a credit rating of at least AA-;
• traded in large, deep and active repo or cash markets characterised by a low level of concentration; and
• have a proven record as a reliable source of liquidity in the markets (repo or sale) even during stressed market conditions: ie maximum decline of price or increase in haircut over a 30-day period during a relevant period of significant liquidity stress not exceeding 10%.
17 Paragraphs 50(d) and (e) may overlap with paragraph 52(a) in terms of sovereign and central bank securities with a 20% risk weight. In such a case, the assets can be assigned to the Level 1 category according to Paragraph 50(d) or (e), as appropriate.
18 Refer to footnote 16.
19 Corporate debt securities (including commercial paper) in this respect include only plain-vanilla assets whose valuation is readily available based on standard methods and does not depend on private knowledge, ie these do not include complex structured products or subordinated debt.
20 Covered bonds are bonds issued and owned by a bank or mortgage institution and are subject by law to special public supervision designed to protect bond holders. Proceeds deriving from the issue of these bonds must be invested in conformity with the law in assets which, during the whole period of the validity of the bonds, are capable of covering claims attached to the bonds and which, in the event of the failure of the issuer, would be used on a priority basis for the reimbursement of the principal and payment of the accrued interest.
21 In the event of split ratings, the applicable rating should be determined according to the method used in Basel II’s standardised approach for credit risk. Local rating scales (rather than international ratings) of a supervisor-approved ECAI that meet the eligibility criteria outlined in paragraph 91 of the Basel II Capital Framework can be recognised if corporate debt securities or covered bonds are held by a bank for local currency liquidity needs arising from its operations in that local jurisdiction. This also applies to Level 2B assets.(iii) Level 2B Assets
53. Certain additional assets (Level 2B assets) may be included in Level 2 at the discretion of national authorities. In choosing to include these assets in Level 2 for the purpose of the LCR, supervisors are expected to ensure that such assets fully comply with the qualifying criteria.22 Supervisors are also expected to ensure that banks have appropriate systems and measures to monitor and control the potential risks (eg credit and market risks) that banks could be exposed to in holding these assets.
54. A larger haircut is applied to the current market value of each Level 2B asset held in the stock of HQLA. Level 2B assets are limited to the following:
(a) Residential mortgage backed securities (RMBS) that satisfy all of the following conditions may be included in Level 2B, subject to a 25% haircut:
• not issued by, and the underlying assets have not been originated by the bank itself or any of its affiliated entities;
• have a long-term credit rating from a recognised ECAI of AA or higher, or in the absence of a long term rating, a short-term rating equivalent in quality to the long-term rating;
• traded in large, deep and active repo or cash markets characterised by a low level of concentration;
• have a proven record as a reliable source of liquidity in the markets (repo or sale) even during stressed market conditions, ie a maximum decline of price not exceeding 20% or increase in haircut over a 30-day period not exceeding 20 percentage points during a relevant period of significant liquidity stress;
• the underlying asset pool is restricted to residential mortgages and cannot contain structured products;
• the underlying mortgages are “full recourse’’ loans (ie in the case of foreclosure the mortgage owner remains liable for any shortfall in sales proceeds from the property) and have a maximum loan-to-value ratio (LTV) of 80% on average at issuance; and
• the securitisations are subject to “risk retention” regulations which require issuers to retain an interest in the assets they securitise.
(b) Corporate debt securities (including commercial paper)23 that satisfy all of the following conditions may be included in Level 2B, subject to a 50% haircut:
• not issued by a financial institution or any of its affiliated entities;
• either (i) have a long-term credit rating from a recognised ECAI between A+ and BBB- or in the absence of a long term rating, a short-term rating equivalent in quality to the long-term rating; or (ii) do not have a credit assessment by a recognised ECAI and are internally rated as having a PD corresponding to a credit rating of between A+ and BBB-;
• traded in large, deep and active repo or cash markets characterised by a low level of concentration; and
• have a proven record as a reliable source of liquidity in the markets (repo or sale) even during stressed market conditions, ie a maximum decline of price not exceeding 20% or increase in haircut over a 30-day period not exceeding 20 percentage points during a relevant period of significant liquidity stress.
(c) Common equity shares that satisfy all of the following conditions may be included in Level 2B, subject to a 50% haircut:
• not issued by a financial institution or any of its affiliated entities;
• exchange traded and centrally cleared;
• a constituent of the major stock index in the home jurisdiction or where the liquidity risk is taken, as decided by the supervisor in the jurisdiction where the index is located;
• denominated in the domestic currency of a bank’s home jurisdiction or in the currency of the jurisdiction where a bank’s liquidity risk is taken;
• traded in large, deep and active repo or cash markets characterised by a low level of concentration; and
• have a proven record as a reliable source of liquidity in the markets (repo or sale) even during stressed market conditions, ie a maximum decline of share price not exceeding 40% or increase in haircut not exceeding 40 percentage points over a 30-day period during a relevant period of significant liquidity.
22 As with all aspects of the framework, compliance with these criteria will be assessed as part of peer reviews undertaken under the Committee’s Regulatory Consistency Assessment Programme.
23 Refer to footnote 19.(iv) Treatment for Jurisdictions with Insufficient HQLA
(a) Assessment of Eligibility for Alternative Liquidity Approaches (ALA)
55. Some jurisdictions may have an insufficient supply of Level 1 assets (or both Level 1 and Level 2 assets24) in their domestic currency to meet the aggregate demand of banks with significant exposures in this currency. To address this situation, the Committee has developed alternative treatments for holdings in the stock of HQLA, which are expected to apply to a limited number of currencies and jurisdictions. Eligibility for such alternative treatment will be judged on the basis of the qualifying criteria set out in Annex 2 and will be determined through an independent peer review process overseen by the Committee. The purpose of this process is to ensure that the alternative treatments are only used when there is a true shortfall in HQLA in the domestic currency relative to the needs in that currency.25
56. To qualify for the alternative treatment, a jurisdiction should be able to demonstrate that:
• there is an insufficient supply of HQLA in its domestic currency, taking into account all relevant factors affecting the supply of, and demand for, such HQLA;26
• the insufficiency is caused by long-term structural constraints that cannot be resolved within the medium term;
• it has the capacity, through any mechanism or control in place, to limit or mitigate the risk that the alternative treatment cannot work as expected; and
• it is committed to observing the obligations relating to supervisory monitoring, disclosure, and periodic self-assessment and independent peer review of its eligibility for alternative treatment.
All of the above criteria have to be met to qualify for the alternative treatment.
57. Irrespective of whether a jurisdiction seeking ALA treatment will adopt the phase-in arrangement set out in paragraph 10 for implementing the LCR, the eligibility for that jurisdiction to adopt ALA treatment will be based on a fully implemented LCR standard (ie 100% requirement).
24 Insufficiency in Level 2 assets alone does not qualify for the alternative treatment.
25 For member states of a monetary union with a common currency, that common currency is considered the “domestic currency”.
26 The assessment of insufficiency is only required to take into account the Level 2B assets if the national authority chooses to include them within HQLA. In particular, if certain Level 2B assets are not included in the stock of HQLA in a given jurisdiction, then the assessment of insufficiency in that jurisdiction does not need to include the stock of Level 2B assets that are available in that jurisdiction.(b) Potential Options for Alternative Treatment
58. Option 1 – Contractual committed liquidity facilities from the relevant central bank, with a fee: For currencies that do not have sufficient HQLA, as determined by reference to the qualifying principles and criteria, Option 1 would allow banks to access contractual committed liquidity facilities provided by the relevant central bank (ie relevant given the currency in question) for a fee. These facilities should not be confused with regular central bank standing arrangements. In particular, these facilities are contractual arrangements between the central bank and the commercial bank with a maturity date which, at a minimum, falls outside the 30-day LCR window. Further, the contract must be irrevocable prior to maturity and involve no ex-post credit decision by the central bank. Such facilities are only permissible if there is also a fee for the facility which is charged regardless of the amount, if any, drawn down against that facility and the fee is set so that banks which claim the facility line to meet the LCR, and banks which do not, have similar financial incentives to reduce their exposure to liquidity risk. That is, the fee should be set so that the net yield on the assets used to secure the facility should not be higher than the net yield on a representative portfolio of Level 1 and Level 2 assets, after adjusting for any material differences in credit risk. A jurisdiction seeking to adopt Option 1 should justify in the independent peer review that the fee is suitably set in a manner as prescribed in this paragraph.
59. Option 2 – Foreign currency HQLA to cover domestic currency liquidity needs: For currencies that do not have sufficient HQLA, as determined by reference to the qualifying principles and criteria, Option 2 would allow supervisors to permit banks that evidence a shortfall of HQLA in the domestic currency (which would match the currency of the underlying risks) to hold HQLA in a currency that does not match the currency of the associated liquidity risk, provided that the resulting currency mismatch positions are justifiable and controlled within limits agreed by their supervisors. Supervisors should restrict such positions within levels consistent with the bank’s foreign exchange risk management capacity and needs, and ensure that such positions relate to currencies that are freely and reliably convertible, are effectively managed by the bank, and would not pose undue risk to its financial strength. In managing those positions, the bank should take into account the risks that its ability to swap currencies, and its access to the relevant foreign exchange markets, may erode rapidly under stressed conditions. It should also take into account that sudden, adverse exchange rate movements could sharply widen existing mismatch positions and alter the effectiveness of any foreign exchange hedges in place.
60. To account for foreign exchange risk associated with foreign currency HQLA used to cover liquidity needs in the domestic currency, such liquid assets should be subject to a minimum haircut of 8% for major currencies that are active in global foreign exchange markets.27 For other currencies, jurisdictions should increase the haircut to an appropriate level on the basis of historical (monthly) exchange rate volatilities between the currency pair over an extended period of time.28 If the domestic currency is formally pegged to another currency under an effective mechanism, the haircut for the pegged currency can be lowered to a level that reflects the limited exchange rate risk under the peg arrangement. To qualify for this treatment, the jurisdiction concerned should demonstrate in the independent peer review the effectiveness of its currency peg mechanism and assess the long-term prospect of keeping the peg.
61. Haircuts for foreign currency HQLA used under Option 2 would apply only to HQLA in excess of a threshold specified by supervisors which is not greater than 25%.29 This is to accommodate a certain level of currency mismatch that may commonly exist among banks in their ordinary course of business.
62. Option 3 – Additional use of Level 2 assets with a higher haircut: This option addresses currencies for which there are insufficient Level 1 assets, as determined by reference to the qualifying principles and criteria, but where there are sufficient Level 2A assets. In this case, supervisors may choose to allow banks that evidence a shortfall of HQLA in the domestic currency (to match the currency of the liquidity risk incurred) to hold additional Level 2A assets in the stock. These additional Level 2A assets would be subject to a minimum haircut of 20%, ie 5% higher than the 15% haircut applicable to Level 2A assets that are included in the 40% cap. The higher haircut is used to cover any additional price and market liquidity risks arising from increased holdings of Level 2A assets beyond the 40% cap, and to provide a disincentive for banks to use this option based on yield considerations.30 Supervisors have the obligation to conduct an analysis to assess whether the additional haircut is sufficient for Level 2A assets in their markets, and should increase the haircut if this is warranted to achieve the purpose for which it is intended. Supervisors should explain and justify the outcome of the analysis (including the level of increase in the haircut, if applicable) during the independent peer review assessment process. Any Level 2B assets held by the bank would remain subject to the cap of 15%, regardless of the amount of other Level 2 assets held.
27 These refer to currencies that exhibit significant and active market turnover in the global foreign currency market (eg the average market turnover of the currency as a percentage of the global foreign currency market turnover over a ten-year period is not lower than 10%).
28 As an illustration, the exchange rate volatility data used for deriving the FX haircut may be based on the 30- day moving FX price volatility data (mean + 3 standard deviations) of the currency pair over a ten-year period, adjusted to align with the 30-day time horizon of the LCR.
29 The threshold for applying the haircut under Option 2 refers to the amount of foreign currency HQLA used to cover liquidity needs in the domestic currency as a percentage of total net cash outflows in the domestic currency. Hence under a threshold of 25%, a bank using Option 2 will only need to apply the haircut to that portion of foreign currency HQLA in excess of 25% that are used to cover liquidity needs in the domestic currency.
30 For example, a situation to avoid is that the opportunity cost of holding a portfolio that benefits from this option would be lower than the opportunity cost of holding a theoretical compliant portfolio of Level 1 and Level 2 assets, after adjusting for any material differences in credit risk.(c) Maximum Level of Usage of Options for Alternative Treatment
63. The usage of any of the above options would be constrained by a limit specified by supervisors in jurisdictions whose currency is eligible for the alternative treatment. The limit should be expressed in terms of the maximum amount of HQLA associated with the use of the options (whether individually or in combination) that a bank is allowed to include in its LCR, as a percentage of the total amount of HQLA the bank is required to hold in the currency concerned.31 HQLA associated with the options refer to: (i) in the case of Option 1, the amount of committed liquidity facilities granted by the relevant central bank; (ii) in the case of Option 2, the amount of foreign currency HQLA used to cover the shortfall of HQLA in the domestic currency; and (iii) in the case of Option 3, the amount of Level 2 assets held (including those within the 40% cap).
64. If, for example, the maximum level of usage of the options is set at 80%, it means that a bank adopting the options, either individually or in combination, would only be allowed to include HQLA associated with the options (after applying any relevant haircut) up to 80% of the required amount of HQLA in the relevant currency.32 Thus, at least 20% of the HQLA requirement will have to be met by Level 1 assets in the relevant currency. The maximum usage of the options is of course further constrained by the bank’s actual shortfall of HQLA in the currency concerned.
65. The appropriateness of the maximum level of usage of the options allowed by a supervisor will be evaluated in the independent peer review process. The level set should be consistent with the projected size of the HQLA gap faced by banks subject to the LCR in the currency concerned, taking into account all relevant factors that may affect the size of the gap over time. The supervisor should explain how this level is derived, and justify why this is supported by the insufficiency of HQLA in the banking system. Where a relatively high level of usage of the options is allowed by the supervisor (eg over 80%), the suitability of this level will come under closer scrutiny in the independent peer review.
31 The required amount of HQLA in the domestic currency includes any regulatory buffer (ie above the 100% LCR standard) that the supervisor may reasonably impose on the bank concerned based on its liquidity risk profile.
32 As an example, if a bank has used Option 1 and Option 3 to the extent that it has been granted an Option 1 facility of 10%, and held Level 2 assets of 55% after haircut (both in terms of the required amount of HQLA in the domestic currency), the HQLA associated with the use of these two options amount to 65% (ie 10%+55%), which is still within the 80% level. The total amount of alternative HQLA used is 25% (ie 10% + 15% (additional Level 2A assets used)).(d) Supervisory Obligations and Requirements
66. A jurisdiction with insufficient HQLA must, among other things, fulfil the following obligations (the detailed requirements are set out in Annex 2):
• Supervisory monitoring: There should be a clearly documented supervisory framework for overseeing and controlling the usage of the options by its banks, and for monitoring their compliance with the relevant requirements applicable to their use of the options;
• Disclosure framework: The jurisdiction should disclose its framework for applying the options to its banks (whether on its website or through other means). The disclosure should enable other national supervisors and stakeholders to gain a sufficient understanding of its compliance with the qualifying principles and criteria and the manner in which it supervises the use of the options by its banks;
• Periodic self-assessment of eligibility for alternative treatment: The jurisdiction should perform a self-assessment of its eligibility for alternative treatment every five years after it has adopted the options, and disclose the results to other national supervisors and stakeholders.
67. Supervisors in jurisdictions with insufficient HQLA should devise rules and requirements governing the use of the options by their banks, having regard to the guiding principles set out below. (Annex 3 includes additional guidance on banks’ usage of ALA.)
• Principle 1: Supervisors should ensure that banks’ use of the options is not simply an economic choice that maximises the profits of the bank through the selection of alternative HQLA based primarily on yield considerations. The liquidity characteristics of an alternative HQLA portfolio must be considered to be more important than its net yield.
• Principle 2: Supervisors should ensure that the use of the options is constrained, both for all banks with exposures in the relevant currency and on a bank-by-bank basis.
• Principle 3: Supervisors should ensure that banks have, to the extent practicable, taken reasonable steps to use Level 1 and Level 2 assets and reduce their overall level of liquidity risk to improve the LCR, before the alternative treatment can be applied.
• Principle 4: Supervisors should have a mechanism for restraining the usage of the options to mitigate risks of non-performance of the alternative HQLA.
(v) Treatment for Shari’ah Compliant Banks
68. Shari’ah compliant banks face a religious prohibition on holding certain types of assets, such as interest-bearing debt securities. Even in jurisdictions that have a sufficient supply of HQLA, an insurmountable impediment to the ability of Shari’ah compliant banks to meet the LCR requirement may still exist. In such cases, national supervisors in jurisdictions in which Shari’ah compliant banks operate have the discretion to define Shari’ah compliant financial products (such as Sukuk) as alternative HQLA applicable to such banks only, subject to such conditions or haircuts that the supervisors may require. It should be noted that the intention of this treatment is not to allow Shari’ah compliant banks to hold fewer HQLA. The minimum LCR standard, calculated based on alternative HQLA (post-haircut) recognised as HQLA for these banks, should not be lower than the minimum LCR standard applicable to other banks in the jurisdiction concerned. National supervisors applying such treatment for Shari’ah compliant banks should comply with supervisory monitoring and disclosure obligations similar to those set out in paragraph 66 above.
B. Total Net Cash Outflows
69. The term total net cash outflows33 is defined as the total expected cash outflows minus total expected cash inflows in the specified stress scenario for the subsequent 30 calendar days. Total expected cash outflows are calculated by multiplying the outstanding balances of various categories or types of liabilities and off-balance sheet commitments by the rates at which they are expected to run off or be drawn down. Total expected cash inflows are calculated by multiplying the outstanding balances of various categories of contractual receivables by the rates at which they are expected to flow in under the scenario up to an aggregate cap of 75% of total expected cash outflows.
Total net cash outflows over the next 30 calendar days = Total expected cash outflows – Min {total expected cash inflows; 75% of total expected cash outflows} 70. While most roll-off rates, draw-down rates and similar factors are harmonised across jurisdictions as outlined in this standard, a few parameters are to be determined by supervisory authorities at the national level. Where this is the case, the parameters should be transparent and made publicly available.
71. Annex 4 provides a summary of the factors that are applied to each category.
72. Banks will not be permitted to double count items, ie if an asset is included as part of the “stock of HQLA” (ie the numerator), the associated cash inflows cannot also be counted as cash inflows (ie part of the denominator). Where there is potential that an item could be counted in multiple outflow categories, (eg committed liquidity facilities granted to cover debt maturing within the 30 calendar day period), a bank only has to assume up to the maximum contractual outflow for that product.
33 Where applicable, cash inflows and outflows should include interest that is expected to be received and paid during the 30-day time horizon.
1. Cash Outflows
(i) Retail Deposit Run-Off
73. Retail deposits are defined as deposits placed with a bank by a natural person. Deposits from legal entities, sole proprietorships or partnerships are captured in wholesale deposit categories. Retail deposits subject to the LCR include demand deposits and term deposits, unless otherwise excluded under the criteria set out in paragraphs 82 and 83.
74. These retail deposits are divided into “stable” and “less stable” portions of funds as described below, with minimum run-off rates listed for each category. The run-off rates for retail deposits are minimum floors, with higher run-off rates established by individual jurisdictions as appropriate to capture depositor behaviour in a period of stress in each jurisdiction.
(a) Stable Deposits (Run-Off Rate = 3% and Higher)
75. Stable deposits, which usually receive a run-off factor of 5%, are the amount of the deposits that are fully insured34 by an effective deposit insurance scheme or by a public guarantee that provides equivalent protection and where:
• the depositors have other established relationships with the bank that make deposit withdrawal highly unlikely; or
• the deposits are in transactional accounts (eg accounts where salaries are automatically deposited).
76. For the purposes of this standard, an “effective deposit insurance scheme” refers to a scheme (i) that guarantees that it has the ability to make prompt payouts, (ii) for which the coverage is clearly defined and (iii) of which public awareness is high. The deposit insurer in an effective deposit insurance scheme has formal legal powers to fulfil its mandate and is operationally independent, transparent and accountable. A jurisdiction with an explicit and legally binding sovereign deposit guarantee that effectively functions as deposit insurance can be regarded as having an effective deposit insurance scheme.
77. The presence of deposit insurance alone is not sufficient to consider a deposit “stable”.
78. Jurisdictions may choose to apply a run-off rate of 3% to stable deposits in their jurisdiction, if they meet the above stable deposit criteria and the following additional criteria for deposit insurance schemes:35
• the insurance scheme is based on a system of prefunding via the periodic collection of levies on banks with insured deposits;36
• the scheme has adequate means of ensuring ready access to additional funding in the event of a large call on its reserves, eg an explicit and legally binding guarantee from the government, or a standing authority to borrow from the government; and
• access to insured deposits is available to depositors in a short period of time once the deposit insurance scheme is triggered.37
Jurisdictions applying the 3% run-off rate to stable deposits with deposit insurance arrangements that meet the above criteria should be able to provide evidence of run-off rates for stable deposits within the banking system below 3% during any periods of stress experienced that are consistent with the conditions within the LCR.
34 “Fully insured” means that 100% of the deposit amount, up to the deposit insurance limit, is covered by an effective deposit insurance scheme. Deposit balances up to the deposit insurance limit can be treated as “fully insured” even if a depositor has a balance in excess of the deposit insurance limit. However, any amount in excess of the deposit insurance limit is to be treated as “less stable”. For example, if a depositor has a deposit of 150 that is covered by a deposit insurance scheme, which has a limit of 100, where the depositor would receive at least 100 from the deposit insurance scheme if the financial institution were unable to pay, then 100 would be considered “fully insured” and treated as stable deposits while 50 would be treated as less stable deposits. However if the deposit insurance scheme only covered a percentage of the funds from the first currency unit (eg 90% of the deposit amount up to a limit of 100) then the entire 150 deposit would be less stable.
35 The Financial Stability Board has asked the International Association of Deposit Insurers (IADI), in conjunction with the Basel Committee and other relevant bodies where appropriate, to update its Core Principles and other guidance to better reflect leading practices. The criteria in this paragraph will therefore be reviewed by the Committee once the work by IADI has been completed.
36 The requirement for periodic collection of levies from banks does not preclude that deposit insurance schemes may, on occasion, provide for contribution holidays due to the scheme being well-funded at a given point in time.
37 This period of time would typically be expected to be no more than 7 business days.(b) Less Stable Deposits (Run-Off Rates = 10% and Higher)
79. Supervisory authorities are expected to develop additional buckets with higher run-off rates as necessary to apply to buckets of potentially less stable retail deposits in their jurisdictions, with a minimum run-off rate of 10%. These jurisdiction-specific run-off rates should be clearly outlined and publicly transparent. Buckets of less stable deposits could include deposits that are not fully covered by an effective deposit insurance scheme or sovereign deposit guarantee, high-value deposits, deposits from sophisticated or high net worth individuals, deposits that can be withdrawn quickly (eg internet deposits) and foreign currency deposits, as determined by each jurisdiction.
80. If a bank is not able to readily identify which retail deposits would qualify as “stable” according to the above definition (eg the bank cannot determine which deposits are covered by an effective deposit insurance scheme or a sovereign deposit guarantee), it should place the full amount in the “less stable” buckets as established by its supervisor.
81. Foreign currency retail deposits are deposits denominated in any other currency than the domestic currency in a jurisdiction in which the bank operates. Supervisors will determine the run-off factor that banks in their jurisdiction should use for foreign currency deposits. Foreign currency deposits will be considered as “less stable” if there is a reason to believe that such deposits are more volatile than domestic currency deposits. Factors affecting the volatility of foreign currency deposits include the type and sophistication of the depositors, and the nature of such deposits (eg whether the deposits are linked to business needs in the same currency, or whether the deposits are placed in a search for yield).
82. Cash outflows related to retail term deposits with a residual maturity or withdrawal notice period of greater than 30 days will be excluded from total expected cash outflows if the depositor has no legal right to withdraw deposits within the 30-day horizon of the LCR, or if early withdrawal results in a significant penalty that is materially greater than the loss of interest.38
83. If a bank allows a depositor to withdraw such deposits without applying the corresponding penalty, or despite a clause that says the depositor has no legal right to withdraw, the entire category of these funds would then have to be treated as demand deposits (ie regardless of the remaining term, the deposits would be subject to the deposit run-off rates as specified in paragraphs 74-81). Supervisors in each jurisdiction may choose to outline exceptional circumstances that would qualify as hardship, under which the exceptional term deposit could be withdrawn by the depositor without changing the treatment of the entire pool of deposits.
84. Notwithstanding the above, supervisors may also opt to treat retail term deposits that meet the qualifications set out in paragraph 82 with a higher than 0% run-off rate, if they clearly state the treatment that applies for their jurisdiction and apply this treatment in a similar fashion across banks in their jurisdiction. Such reasons could include, but are not limited to, supervisory concerns that depositors would withdraw term deposits in a similar fashion as retail demand deposits during either normal or stress times, concern that banks may repay such deposits early in stressed times for reputational reasons, or the presence of unintended incentives on banks to impose material penalties on consumers if deposits are withdrawn early. In these cases supervisors would assess a higher run-off against all or some of such deposits.
38 If a portion of the term deposit can be withdrawn without incurring such a penalty, only that portion should be treated as a demand deposit. The remaining balance of the deposit should be treated as a term deposit.
(ii) Unsecured Wholesale Funding Run-Off
85. For the purposes of the LCR, "unsecured wholesale funding” is defined as those liabilities and general obligations that are raised from non-natural persons (ie legal entities, including sole proprietorships and partnerships) and are not collateralised by legal rights to specifically designated assets owned by the borrowing institution in the case of bankruptcy, insolvency, liquidation or resolution. Obligations related to derivative contracts are explicitly excluded from this definition.
86. The wholesale funding included in the LCR is defined as all funding that is callable within the LCR’s horizon of 30 days or that has its earliest possible contractual maturity date situated within this horizon (such as maturing term deposits and unsecured debt securities) as well as funding with an undetermined maturity. This should include all funding with options that are exercisable at the investor’s discretion within the 30 calendar day horizon. For funding with options exercisable at the bank’s discretion, supervisors should take into account reputational factors that may limit a bank's ability not to exercise the option.39 In particular, where the market expects certain liabilities to be redeemed before their legal final maturity date, banks and supervisors should assume such behaviour for the purpose of the LCR and include these liabilities as outflows.
87. Wholesale funding that is callable40 by the funds provider subject to a contractually defined and binding notice period surpassing the 30-day horizon is not included.
88. For the purposes of the LCR, unsecured wholesale funding is to be categorised as detailed below, based on the assumed sensitivity of the funds providers to the rate offered and the credit quality and solvency of the borrowing bank. This is determined by the type of funds providers and their level of sophistication, as well as their operational relationships with the bank. The run-off rates for the scenario are listed for each category.
39 This could reflect a case where a bank may imply that it is under liquidity stress if it did not exercise an option on its own funding.
40 This takes into account any embedded options linked to the funds provider’s ability to call the funding before contractual maturity.(a) Unsecured Wholesale Funding Provided by Small Business Customers: 5%, 10% and Higher
89. Unsecured wholesale funding provided by small business customers is treated the same way as retail deposits for the purposes of this standard, effectively distinguishing between a "stable" portion of funding provided by small business customers and different buckets of less stable funding defined by each jurisdiction. The same bucket definitions and associated run-off factors apply as for retail deposits.
90. This category consists of deposits and other extensions of funds made by non-financial small business customers. “Small business customers” are defined in line with the definition of loans extended to small businesses in paragraph 231 of the Basel II framework that are managed as retail exposures and are generally considered as having similar liquidity risk characteristics to retail accounts provided the total aggregated funding41 raised from one small business customer is less than €1 million (on a consolidated basis where applicable).
91. Where a bank does not have any exposure to a small business customer that would enable it to use the definition under paragraph 231 of the Basel II Framework, the bank may include such a deposit in this category provided that the total aggregate funding raised from the customer is less than €1 million (on a consolidated basis where applicable) and the deposit is managed as a retail deposit. This means that the bank treats such deposits in its internal risk management systems consistently over time and in the same manner as other retail deposits, and that the deposits are not individually managed in a way comparable to larger corporate deposits.
92. Term deposits from small business customers should be treated in accordance with the treatment for term retail deposits as outlined in paragraph 82, 83, and 84.
41 “Aggregated funding” means the gross amount (ie not netting any form of credit extended to the legal entity) of all forms of funding (eg deposits or debt securities or similar derivative exposure for which the counterparty is known to be a small business customer). In addition, applying the limit on a consolidated basis means that where one or more small business customers are affiliated with each other, they may be considered as a single creditor such that the limit is applied to the total funding received by the bank from this group of customers.
(b) Operational Deposits Generated by Clearing, Custody and Cash Management Activities: 25%
93. Certain activities lead to financial and non-financial customers needing to place, or leave, deposits with a bank in order to facilitate their access and ability to use payment and settlement systems and otherwise make payments. These funds may receive a 25% run-off factor only if the customer has a substantive dependency with the bank and the deposit is required for such activities. Supervisory approval would have to be given to ensure that banks utilising this treatment actually are conducting these operational activities at the level indicated. Supervisors may choose not to permit banks to utilise the operational deposit runoff rates in cases where, for example, a significant portion of operational deposits are provided by a small proportion of customers (ie concentration risk).
94. Qualifying activities in this context refer to clearing, custody or cash management activities that meet the following criteria:
• The customer is reliant on the bank to perform these services as an independent third party intermediary in order to fulfil its normal banking activities over the next 30 days. For example, this condition would not be met if the bank is aware that the customer has adequate back-up arrangements.
• These services must be provided under a legally binding agreement to institutional customers.
• The termination of such agreements shall be subject either to a notice period of at least 30 days or significant switching costs (such as those related to transaction, information technology, early termination or legal costs) to be borne by the customer if the operational deposits are moved before 30 days.
95. Qualifying operational deposits generated by such an activity are ones where:
• The deposits are by-products of the underlying services provided by the banking organisation and not sought out in the wholesale market in the sole interest of offering interest income.
• The deposits are held in specifically designated accounts and priced without giving an economic incentive to the customer (not limited to paying market interest rates) to leave any excess funds on these accounts. In the case that interest rates in a jurisdiction are close to zero, it would be expected that such accounts are non-interest bearing. Banks should be particularly aware that during prolonged periods of low interest rates, excess balances (as defined below) could be significant.
96. Any excess balances that could be withdrawn and would still leave enough funds to fulfil these clearing, custody and cash management activities do not qualify for the 25% factor. In other words, only that part of the deposit balance with the service provider that is proven to serve a customer’s operational needs can qualify as stable. Excess balances should be treated in the appropriate category for non-operational deposits. If banks are unable to determine the amount of the excess balance, then the entire deposit should be assumed to be excess to requirements and, therefore, considered non-operational.
97. Banks must determine the methodology for identifying excess deposits that are excluded from this treatment. This assessment should be conducted at a sufficiently granular level to adequately assess the risk of withdrawal in an idiosyncratic stress. The methodology should take into account relevant factors such as the likelihood that wholesale customers have above average balances in advance of specific payment needs, and consider appropriate indicators (eg ratios of account balances to payment or settlement volumes or to assets under custody) to identify those customers that are not actively managing account balances efficiently.
98. Operational deposits would receive a 0% inflow assumption for the depositing bank given that these deposits are required for operational reasons, and are therefore not available to the depositing bank to repay other outflows.
99. Notwithstanding these operational categories, if the deposit under consideration arises out of correspondent banking or from the provision of prime brokerage services, it will be treated as if there were no operational activity for the purpose of determining run-off factors.42
100. The following paragraphs describe the types of activities that may generate operational deposits. A bank should assess whether the presence of such an activity does indeed generate an operational deposit as not all such activities qualify due to differences in customer dependency, activity and practices.
101. A clearing relationship, in this context, refers to a service arrangement that enables customers to transfer funds (or securities) indirectly through direct participants in domestic settlement systems to final recipients. Such services are limited to the following activities: transmission, reconciliation and confirmation of payment orders; daylight overdraft, overnight financing and maintenance of post-settlement balances; and determination of intra-day and final settlement positions.
102. A custody relationship, in this context, refers to the provision of safekeeping, reporting, processing of assets or the facilitation of the operational and administrative elements of related activities on behalf of customers in the process of their transacting and retaining financial assets. Such services are limited to the settlement of securities transactions, the transfer of contractual payments, the processing of collateral, and the provision of custody related cash management services. Also included are the receipt of dividends and other income, client subscriptions and redemptions. Custodial services can furthermore extend to asset and corporate trust servicing, treasury, escrow, funds transfer, stock transfer and agency services, including payment and settlement services (excluding correspondent banking), and depository receipts.
103. A cash management relationship, in this context, refers to the provision of cash management and related services to customers. Cash management services, in this context, refers to those products and services provided to a customer to manage its cash flows, assets and liabilities, and conduct financial transactions necessary to the customer’s ongoing operations. Such services are limited to payment remittance, collection and aggregation of funds, payroll administration, and control over the disbursement of funds.
104. The portion of the operational deposits generated by clearing, custody and cash management activities that is fully covered by deposit insurance can receive the same treatment as “stable” retail deposits
42 Correspondent banking refers to arrangements under which one bank (correspondent) holds deposits owned by other banks (respondents) and provides payment and other services in order to settle foreign currency transactions (eg so-called nostro and vostro accounts used to settle transactions in a currency other than the domestic currency of the respondent bank for the provision of clearing and settlement of payments). Prime brokerage is a package of services offered to large active investors, particularly institutional hedge funds. These services usually include: clearing, settlement and custody; consolidated reporting; financing (margin, repo or synthetic); securities lending; capital introduction; and risk analytics.
(c) Treatment of Deposits in Institutional Networks of Cooperative Banks: 25% or 100%
105. An institutional network of cooperative (or otherwise named) banks is a group of legally autonomous banks with a statutory framework of cooperation with common strategic focus and brand where specific functions are performed by central institutions or specialised service providers. A 25% run-off rate can be given to the amount of deposits of member institutions with the central institution or specialised central service providers that are placed (a) due to statutory minimum deposit requirements, which are registered at regulators or (b) in the context of common task sharing and legal, statutory or contractual arrangements so long as both the bank that has received the monies and the bank that has deposited participate in the same institutional network’s mutual protection scheme against illiquidity and insolvency of its members. As with other operational deposits, these deposits would receive a 0% inflow assumption for the depositing bank, as these funds are considered to remain with the centralised institution.
106. Supervisory approval would have to be given to ensure that banks utilising this treatment actually are the central institution or a central service provider of such a cooperative (or otherwise named) network. Correspondent banking activities would not be included in this treatment and would receive a 100% outflow treatment, as would funds placed at the central institutions or specialised service providers for any other reason other than those outlined in (a) and (b) in the paragraph above, or for operational functions of clearing, custody, or cash management as outlined in paragraphs 101-103.
(d) Unsecured Wholesale Funding Provided by Non-Financial Corporates and Sovereigns, Central Banks, Multilateral Development Banks, and PSEs: 20% or 40%
107. This category comprises all deposits and other extensions of unsecured funding from non-financial corporate customers (that are not categorised as small business customers) and (both domestic and foreign) sovereign, central bank, multilateral development bank, and PSE customers that are not specifically held for operational purposes (as defined above). The run-off factor for these funds is 40%, unless the criteria in paragraph 108 are met.
108. Unsecured wholesale funding provided by non-financial corporate customers, sovereigns, central banks, multilateral development banks, and PSEs without operational relationships can receive a 20% run-off factor if the entire amount of the deposit is fully covered by an effective deposit insurance scheme or by a public guarantee that provides equivalent protection.
(e) Unsecured Wholesale Funding Provided by Other Legal Entity Customers: 100%
109. This category consists of all deposits and other funding from other institutions (including banks, securities firms, insurance companies, etc), fiduciaries,43 beneficiaries,44 conduits and special purpose vehicles, affiliated entities of the bank45 and other entities that are not specifically held for operational purposes (as defined above) and not included in the prior three categories. The run-off factor for these funds is 100%.
110. All notes, bonds and other debt securities issued by the bank are included in this category regardless of the holder, unless the bond is sold exclusively in the retail market and held in retail accounts (including small business customer accounts treated as retail per paragraphs 89-91), in which case the instruments can be treated in the appropriate retail or small business customer deposit category. To be treated in this manner, it is not sufficient that the debt instruments are specifically designed and marketed to retail or small business customers. Rather there should be limitations placed such that those instruments cannot be bought and held by parties other than retail or small business customers.
111. Customer cash balances arising from the provision of prime brokerage services, including but not limited to the cash arising from prime brokerage services as identified in paragraph 99, should be considered separate from any required segregated balances related to client protection regimes imposed by national regulations, and should not be netted against other customer exposures included in this standard. These offsetting balances held in segregated accounts are treated as inflows in paragraph 154 and should be excluded from the stock of HQLA.
43 Fiduciary is defined in this context as a legal entity that is authorised to manage assets on behalf of a third party. Fiduciaries include asset management entities such as pension funds and other collective investment vehicles.
44 Beneficiary is defined in this context as a legal entity that receives, or may become eligible to receive, benefits under a will, insurance policy, retirement plan, annuity, trust, or other contract.
45 Outflows on unsecured wholesale funding from affiliated entities of the bank are included in this category unless the funding is part of an operational relationship, a deposit in an institutional network of cooperative banks or the affiliated entity of a non-financial corporate.(iii) Secured Funding Run-Off
112. For the purposes of this standard, “secured funding” is defined as those liabilities and general obligations that are collateralised by legal rights to specifically designated assets owned by the borrowing institution in the case of bankruptcy, insolvency, liquidation or resolution.
113. Loss of secured funding on short-term financing transactions: In this scenario, the ability to continue to transact repurchase, reverse repurchase and other securities financing transactions is limited to transactions backed by HQLA or with the bank’s domestic sovereign, PSE or central bank.46 Collateral swaps should be treated as repurchase or reverse repurchase agreements, as should any other transaction with a similar form. Additionally, collateral lent to the bank’s customers to effect short positions47 should be treated as a form of secured funding. For the scenario, a bank should apply the following factors to all outstanding secured funding transactions with maturities within the 30 calendar day stress horizon, including customer short positions that do not have a specified contractual maturity. The amount of outflow is calculated based on the amount of funds raised through the transaction, and not the value of the underlying collateral.
114. Due to the high-quality of Level 1 assets, no reduction in funding availability against these assets is assumed to occur. Moreover, no reduction in funding availability is expected for any maturing secured funding transactions with the bank’s domestic central bank. A reduction in funding availability will be assigned to maturing transactions backed by Level 2 assets equivalent to the required haircuts. A 25% factor is applied for maturing secured funding transactions with the bank’s domestic sovereign, multilateral development banks, or domestic PSEs that have a 20% or lower risk weight, when the transactions are backed by assets other than Level 1 or Level 2A assets, in recognition that these entities are unlikely to withdraw secured funding from banks in a time of market-wide stress. This, however, gives credit only for outstanding secured funding transactions, and not for unused collateral or merely the capacity to borrow.
115. For all other maturing transactions the run-off factor is 100%, including transactions where a bank has satisfied customers’ short positions with its own long inventory. The table below summarises the applicable standards:
Categories for outstanding maturing secured funding transactions Amount to add to cash outflows • Backed by Level 1 assets or with central banks. 0% • Backed by Level 2A assets. 15% • Secured funding transactions with domestic sovereign, PSEs or multilateral development banks that are not backed by Level 1 or 2A assets. PSEs that receive this treatment are limited to those that have a risk weight of 20% or lower. 25% • Backed by RMBS eligible for inclusion in Level 2B • Backed by other Level 2B assets 50% • All others 100% 46 In this context, PSEs that receive this treatment should be limited to those that are 20% risk weighted or better, and “domestic” can be defined as a jurisdiction where a bank is legally incorporated.
47 A customer short position in this context describes a transaction where a bank’s customer sells a security it does not own, and the bank subsequently obtains the same security from internal or external sources to make delivery into the sale. Internal sources include the bank’s own inventory of collateral as well as rehypothecatable collateral held in other customer margin accounts. External sources include collateral obtained through a securities borrowing, reverse repo, or like transaction.
(iv) Additional Requirements
116. Derivatives cash outflows: the sum of all net cash outflows should receive a 100% factor. Banks should calculate, in accordance with their existing valuation methodologies, expected contractual derivative cash inflows and outflows. Cash flows may be calculated on a net basis (ie inflows can offset outflows) by counterparty, only where a valid master netting agreement exists. Banks should exclude from such calculations those liquidity requirements that would result from increased collateral needs due to market value movements or falls in value of collateral posted.48 Options should be assumed to be exercised when they are ‘in the money’ to the option buyer.
117. Where derivative payments are collateralised by HQLA, cash outflows should be calculated net of any corresponding cash or collateral inflows that would result, all other things being equal, from contractual obligations for cash or collateral to be provided to the bank, if the bank is legally entitled and operationally capable to re-use the collateral in new cash raising transactions once the collateral is received. This is in line with the principle that banks should not double count liquidity inflows and outflows.
118. Increased liquidity needs related to downgrade triggers embedded in financing transactions, derivatives and other contracts: (100% of the amount of collateral that would be posted for, or contractual cash outflows associated with, any downgrade up to and including a 3-notch downgrade). Often, contracts governing derivatives and other transactions have clauses that require the posting of additional collateral, drawdown of contingent facilities, or early repayment of existing liabilities upon the bank’s downgrade by a recognised credit rating organisation. The scenario therefore requires that for each contract in which “downgrade triggers” exist, the bank assumes that 100% of this additional collateral or cash outflow will have to be posted for any downgrade up to and including a 3-notch downgrade of the bank’s long-term credit rating. Triggers linked to a bank’s short-term rating should be assumed to be triggered at the corresponding long-term rating in accordance with published ratings criteria. The impact of the downgrade should consider impacts on all types of margin collateral and contractual triggers which change rehypothecation rights for non-segregated collateral.
119. Increased liquidity needs related to the potential for valuation changes on posted collateral securing derivative and other transactions: (20% of the value of non-Level 1 posted collateral). Observation of market practices indicates that most counterparties to derivatives transactions typically are required to secure the mark-to-market valuation of their positions and that this is predominantly done using cash or sovereign, central bank, multilateral development banks, or PSE debt securities with a 0% risk weight under the Basel II standardised approach. When these Level 1 liquid asset securities are posted as collateral, the framework will not require that an additional stock of HQLA be maintained for potential valuation changes. If however, counterparties are securing mark-to-market exposures with other forms of collateral, to cover the potential loss of market value on those securities, 20% of the value of all such posted collateral, net of collateral received on a counterparty basis (provided that the collateral received is not subject to restrictions on reuse or rehypothecation) will be added to the stock of required HQLA by the bank posting such collateral. This 20% will be calculated based on the notional amount required to be posted as collateral after any other haircuts have been applied that may be applicable to the collateral category. Any collateral that is in a segregated margin account can only be used to offset outflows that are associated with payments that are eligible to be offset from that same account.
120. Increased liquidity needs related to excess non-segregated collateral held by the bank that could contractually be called at any time by the counterparty: 100% of the non-segregated collateral that could contractually be recalled by the counterparty because the collateral is in excess of the counterparty’s current collateral requirements.
121. Increased liquidity needs related to contractually required collateral on transactions for which the counterparty has not yet demanded the collateral be posted: 100% of the collateral that is contractually due but where the counterparty has not yet demanded the posting of such collateral.
122. Increased liquidity needs related to contracts that allow collateral substitution to non-HQLA assets: 100% of the amount of HQLA collateral that can be substituted for non-HQLA assets without the bank’s consent that have been received to secure transactions that have not been segregated.
123. Increased liquidity needs related to market valuation changes on derivative or other transactions: As market practice requires collateralisation of mark-to-market exposures on derivative and other transactions, banks face potentially substantial liquidity risk exposures to these valuation changes. Inflows and outflows of transactions executed under the same master netting agreement can be treated on a net basis. Any outflow generated by increased needs related to market valuation changes should be included in the LCR calculated by identifying the largest absolute net 30-day collateral flow realised during the preceding 24 months. The absolute net collateral flow is based on both realised outflows and inflows. Supervisors may adjust the treatment flexibly according to circumstances.
124. Loss of funding on asset-backed securities,49 covered bonds and other structured financing instruments: The scenario assumes the outflow of 100% of the funding transaction maturing within the 30-day period, when these instruments are issued by the bank itself (as this assumes that the re-financing market will not exist).
125. Loss of funding on asset-backed commercial paper, conduits, securities investment vehicles and other such financing facilities: (100% of maturing amount and 100% of returnable assets). Banks having structured financing facilities that include the issuance of short-term debt instruments, such as asset backed commercial paper, should fully consider the potential liquidity risk arising from these structures. These risks include, but are not limited to, (i) the inability to refinance maturing debt, and (ii) the existence of derivatives or derivative-like components contractually written into the documentation associated with the structure that would allow the “return” of assets in a financing arrangement, or that require the original asset transferor to provide liquidity, effectively ending the financing arrangement (“liquidity puts”) within the 30-day period. Where the structured financing activities of a bank are conducted through a special purpose entity50 (such as a special purpose vehicle, conduit or structured investment vehicle - SIV), the bank should, in determining the HQLA requirements, look through to the maturity of the debt instruments issued by the entity and any embedded options in financing arrangements that may potentially trigger the “return” of assets or the need for liquidity, irrespective of whether or not the SPV is consolidated.
Potential Risk Element HQLA Required Debt maturing within the calculation period
Embedded options in financing arrangements that allow for the return of assets or potential liquidity support
100% of maturing amount
100% of the amount of assets that could potentially be returned, or the liquidity required
126. Drawdowns on committed credit and liquidity facilities: For the purpose of the standard, credit and liquidity facilities are defined as explicit contractual agreements or obligations to extend funds at a future date to retail or wholesale counterparties. For the purpose of the standard, these facilities only include contractually irrevocable (“committed”) or conditionally revocable agreements to extend funds in the future. Unconditionally revocable facilities that are unconditionally cancellable by the bank (in particular, those without a precondition of a material change in the credit condition of the borrower) are excluded from this section and included in “Other Contingent Funding Liabilities”. These off- balance sheet facilities or funding commitments can have long or short-term maturities, with short-term facilities frequently renewing or automatically rolling-over. In a stressed environment, it will likely be difficult for customers drawing on facilities of any maturity, even short-term maturities, to be able to quickly pay back the borrowings. Therefore, for purposes of this standard, all facilities that are assumed to be drawn (as outlined in the paragraphs below) will remain outstanding at the amounts assigned throughout the duration of the test, regardless of maturity.
127. For the purposes of this standard, the currently undrawn portion of these facilities is calculated net of any HQLA eligible for the stock of HQLA, if the HQLA have already been posted as collateral by the counterparty to secure the facilities or that are contractually obliged to be posted when the counterparty will draw down the facility (eg a liquidity facility structured as a repo facility), if the bank is legally entitled and operationally capable to re-use the collateral in new cash raising transactions once the facility is drawn, and there is no undue correlation between the probability of drawing the facility and the market value of the collateral. The collateral can be netted against the outstanding amount of the facility to the extent that this collateral is not already counted in the stock of HQLA, in line with the principle in paragraph 72 that items cannot be double-counted in the standard.
128. A liquidity facility is defined as any committed, undrawn back-up facility that would be utilised to refinance the debt obligations of a customer in situations where such a customer is unable to rollover that debt in financial markets (eg pursuant to a commercial paper programme, secured financing transactions, obligations to redeem units, etc). For the purpose of this standard, the amount of the commitment to be treated as a liquidity facility is the amount of the currently outstanding debt issued by the customer (or proportionate share, if a syndicated facility) maturing within a 30 day period that is backstopped by the facility. The portion of a liquidity facility that is backing debt that does not mature within the 30-day window is excluded from the scope of the definition of a facility. Any additional capacity of the facility (ie the remaining commitment) would be treated as a committed credit facility with its associated drawdown rate as specified in paragraph 131. General working capital facilities for corporate entities (eg revolving credit facilities in place for general corporate or working capital purposes) will not be classified as liquidity facilities, but as credit facilities.
129. Notwithstanding the above, any facilities provided to hedge funds, money market funds and special purpose funding vehicles, for example SPEs (as defined in paragraph 125) or conduits, or other vehicles used to finance the banks own assets, should be captured in their entirety as a liquidity facility to other legal entities.
130. For that portion of financing programs that are captured in paragraphs 124 and 125 (ie are maturing or have liquidity puts that may be exercised in the 30-day horizon), banks that are providers of associated liquidity facilities do not need to double count the maturing financing instrument and the liquidity facility for consolidated programs.
131. Any contractual loan drawdowns from committed facilities51 and estimated drawdowns from revocable facilities within the 30-day period should be fully reflected as outflows.
(a) Committed credit and liquidity facilities to retail and small business customers: Banks should assume a 5% drawdown of the undrawn portion of these facilities.
(b) Committed credit facilities to non-financial corporates, sovereigns and central banks, PSEs and multilateral development banks: Banks should assume a 10% drawdown of the undrawn portion of these credit facilities.
(c) Committed liquidity facilities to non-financial corporates, sovereigns and central banks, PSEs, and multilateral development banks: Banks should assume a 30% drawdown of the undrawn portion of these liquidity facilities.
(d) Committed credit and liquidity facilities extended to banks subject to prudential supervision: Banks should assume a 40% drawdown of the undrawn portion of these facilities.
(e) Committed credit facilities to other financial institutions including securities firms, insurance companies, fiduciaries,52 and beneficiaries53 Banks should assume a 40% drawdown of the undrawn portion of these credit facilities.
(f) Committed liquidity facilities to other financial institutions including securities firms, insurance companies, fiduciaries, and beneficiaries: Banks should assume a 100% drawdown of the undrawn portion of these liquidity facilities.
(g) Committed credit and liquidity facilities to other legal entities (including SPEs (as defined on paragraph 125), conduits and special purpose vehicles,54 and other entities not included in the prior categories): Banks should assume a 100% drawdown of the undrawn portion of these facilities.
132. Contractual obligations to extend funds within a 30-day period. Any contractual lending obligations to financial institutions not captured elsewhere in this standard should be captured here at a 100% outflow rate.
133. If the total of all contractual obligations to extend funds to retail and non-financial corporate clients within the next 30 calendar days (not captured in the prior categories) exceeds 50% of the total contractual inflows due in the next 30 calendar days from these clients, the difference should be reported as a 100% outflow.
134. Other contingent funding obligations: (run-off rates at national discretion). National supervisors will work with supervised institutions in their jurisdictions to determine the liquidity risk impact of these contingent liabilities and the resulting stock of HQLA that should accordingly be maintained. Supervisors should disclose the run-off rates they assign to each category publicly.
135. These contingent funding obligations may be either contractual or non-contractual and are not lending commitments. Non-contractual contingent funding obligations include associations with, or sponsorship of, products sold or services provided that may require the support or extension of funds in the future under stressed conditions. Non-contractual obligations may be embedded in financial products and instruments sold, sponsored, or originated by the institution that can give rise to unplanned balance sheet growth arising from support given for reputational risk considerations. These include products and instruments for which the customer or holder has specific expectations regarding the liquidity and marketability of the product or instrument and for which failure to satisfy customer expectations in a commercially reasonable manner would likely cause material reputational damage to the institution or otherwise impair ongoing viability.
136. Some of these contingent funding obligations are explicitly contingent upon a credit or other event that is not always related to the liquidity events simulated in the stress scenario, but may nevertheless have the potential to cause significant liquidity drains in times of stress. For this standard, each supervisor and bank should consider which of these “other contingent funding obligations” may materialise under the assumed stress events. The potential liquidity exposures to these contingent funding obligations are to be treated as a nationally determined behavioural assumption where it is up to the supervisor to determine whether and to what extent these contingent outflows are to be included in the LCR. All identified contractual and non-contractual contingent liabilities and their assumptions should be reported, along with their related triggers. Supervisors and banks should, at a minimum, use historical behaviour in determining appropriate outflows.
137. Non contractual contingent funding obligations related to potential liquidity draws from joint ventures or minority investments in entities, which are not consolidated per paragraph 164 should be captured where there is the expectation that the bank will be the main liquidity provider when the entity is in need of liquidity. The amount included should be calculated in accordance with the methodology agreed by the bank’s supervisor.
138. In the case of contingent funding obligations stemming from trade finance instruments, national authorities can apply a relatively low run-off rate (eg 5% or less). Trade finance instruments consist of trade-related obligations directly underpinned by the movement of goods or the provision of services, such as:
• documentary trade letters of credit, documentary and clean collection, import bills, and export bills; and
• guarantees directly related to trade finance obligations, such as shipping guarantees.
139. Lending commitments, such as direct import or export financing for non-financial corporate firms, are excluded from this treatment and banks will apply the draw-down rates specified in paragraph 131.
140. National authorities should determine the run-off rates for the other contingent funding obligations listed below in accordance with paragraph 134. Other contingent funding obligations include products and instruments such as:
• unconditionally revocable "uncommitted" credit and liquidity facilities;
• guarantees and letters of credit unrelated to trade finance obligations (as described in paragraph 138);
• non-contractual obligations such as:
- potential requests for debt repurchases of the bank's own debt or that of related conduits, securities investment vehicles and other such financing facilities;
- structured products where customers anticipate ready marketability, such as adjustable rate notes and variable rate demand notes (VRDNs); and
- managed funds that are marketed with the objective of maintaining a stable value such as money market mutual funds or other types of stable value collective investment funds etc.
• For issuers with an affiliated dealer or market maker, there may be a need to include an amount of the outstanding debt securities (unsecured and secured, term as well as short-term) having maturities greater than 30 calendar days, to cover the potential repurchase of such outstanding securities.
• Non contractual obligations where customer short positions are covered by other customers’ collateral: A minimum 50% run-off factor of the contingent obligations should be applied where banks have internally matched client assets against other clients’ short positions where the collateral does not qualify as Level 1 or Level 2, and the bank may be obligated to find additional sources of funding for these positions in the event of client withdrawals.
141. Other contractual cash outflows: (100%). Any other contractual cash outflows within the next 30 calendar days should be captured in this standard, such as outflows to cover unsecured collateral borrowings, uncovered short positions, dividends or contractual interest payments, with explanation given as to what comprises this bucket. Outflows related to operating costs, however, are not included in this standard.
48 These risks are captured in paragraphs 119 and 123, respectively.
49 To the extent that sponsored conduits/SPVs are required to be consolidated under liquidity requirements, their assets and liabilities will be taken into account. Supervisors need to be aware of other possible sources of liquidity risk beyond that arising from debt maturing within 30 days.
50 A special purpose entity (SPE) is defined in the Basel II Framework (paragraph 552) as a corporation, trust, or other entity organised for a specific purpose, the activities of which are limited to those appropriate to accomplish the purpose of the SPE, and the structure of which is intended to isolate the SPE from the credit risk of an originator or seller of exposures. SPEs are commonly used as financing vehicles in which exposures are sold to a trust or similar entity in exchange for cash or other assets funded by debt issued by the trust.
51 Committed facilities refer to those which are irrevocable.
52 Refer to footnote 43 for definition.
53 Refer to footnote 44 for definition.
54 The potential liquidity risks associated with the bank's own structured financing facilities should be treated according to paragraphs 124 and 125 of this document (100% of maturing amount and 100% of returnable assets are included as outflows).2. Cash Inflows
142. When considering its available cash inflows, the bank should only include contractual inflows (including interest payments) from outstanding exposures that are fully performing and for which the bank has no reason to expect a default within the 30-day time horizon. Contingent inflows are not included in total net cash inflows.
143. Banks and supervisors need to monitor the concentration of expected inflows across wholesale counterparties in the context of banks’ liquidity management in order to ensure that their liquidity position is not overly dependent on the arrival of expected inflows from one or a limited number of wholesale counterparties.
144. Cap on total inflows: In order to prevent banks from relying solely on anticipated inflows to meet their liquidity requirement, and also to ensure a minimum level of HQLA holdings, the amount of inflows that can offset outflows is capped at 75% of total expected cash outflows as calculated in the standard. This requires that a bank must maintain a minimum amount of stock of HQLA equal to 25% of the total cash outflows.
(i) Secured Lending, Including Reverse Repos and Securities Borrowing
145. A bank should assume that maturing reverse repurchase or securities borrowing agreements secured by Level 1 assets will be rolled-over and will not give rise to any cash inflows (0%). Maturing reverse repurchase or securities lending agreements secured by Level 2 HQLA will lead to cash inflows equivalent to the relevant haircut for the specific assets. A bank is assumed not to roll-over maturing reverse repurchase or securities borrowing agreements secured by non-HQLA assets, and can assume to receive back 100% of the cash related to those agreements. Collateralised loans extended to customers for the purpose of taking leveraged trading positions (“margin loans”) should also be considered as a form of secured lending; however, for this scenario banks may recognise no more than 50% of contractual inflows from maturing margin loans made against non-HQLA collateral. This treatment is in line with the assumptions outlined for secured funding in the outflows section.
146. As an exception to paragraph 145, if the collateral obtained through reverse repo, securities borrowing, or collateral swaps, which matures within the 30-day horizon, is re-used (ie rehypothecated) and is used to cover short positions that could be extended beyond 30 days, a bank should assume that such reverse repo or securities borrowing arrangements will be rolled-over and will not give rise to any cash inflows (0%), reflecting its need to continue to cover the short position or to re-purchase the relevant securities. Short positions include both instances where in its ‘matched book’ the bank sold short a security outright as part of a trading or hedging strategy and instances where the bank is short a security in the ‘matched’ repo book (ie it has borrowed a security for a given period and lent the security out for a longer period).
Maturing secured lending transactions backed by the following asset category: Inflow rate (if collateral is not used to cover short positions): Inflow rate (if collateral is used to cover short positions): Level 1 assets 0% 0% Level 2A assets 15% 0% Level 2B assets Eligible RMBS 25% 0% Other Level 2B assets 50% 0% Margin lending backed by all other collateral 50% 0% Other collateral 100% 0% 147. In the case of a bank’s short positions, if the short position is being covered by an unsecured security borrowing, the bank should assume the unsecured security borrowing of collateral from financial market participants would run-off in full, leading to a 100% outflow of either cash or HQLA to secure the borrowing, or cash to close out the short position by buying back the security. This should be recorded as a 100% other contractual outflow according to paragraph 141. If, however, the bank’s short position is being covered by a collateralised securities financing transaction, the bank should assume the short position will be maintained throughout the 30-day period and receive a 0% outflow.
148. Despite the roll-over assumptions in paragraphs 145 and 146, a bank should manage its collateral such that it is able to fulfil obligations to return collateral whenever the counterparty decides not to roll-over any reverse repo or securities lending transaction.55 This is especially the case for non-HQLA collateral, since such outflows are not captured in the LCR framework. Supervisors should monitor the bank's collateral management.
55 This is in line with Principle 9 of the Sound Principles.
(ii) Committed Facilities
149. No credit facilities, liquidity facilities or other contingent funding facilities that the bank holds at other institutions for its own purposes are assumed to be able to be drawn. Such facilities receive a 0% inflow rate, meaning that this scenario does not consider inflows from committed credit or liquidity facilities. This is to reduce the contagion risk of liquidity shortages at one bank causing shortages at other banks and to reflect the risk that other banks may not be in a position to honour credit facilities, or may decide to incur the legal and reputational risk involved in not honouring the commitment, in order to conserve their own liquidity or reduce their exposure to that bank.
(iii) Other Inflows by Counterparty
150. For all other types of transactions, either secured or unsecured, the inflow rate will be determined by counterparty. In order to reflect the need for a bank to conduct ongoing loan origination/roll-over with different types of counterparties, even during a time of stress, a set of limits on contractual inflows by counterparty type is applied.
151. When considering loan payments, the bank should only include inflows from fully performing loans. Further, inflows should only be taken at the latest possible date, based on the contractual rights available to counterparties. For revolving credit facilities, this assumes that the existing loan is rolled over and that any remaining balances are treated in the same way as a committed facility according to paragraph 131.
152. Inflows from loans that have no specific maturity (ie have non-defined or open maturity) should not be included; therefore, no assumptions should be applied as to when maturity of such loans would occur. An exception to this would be minimum payments of principal, fee or interest associated with an open maturity loan, provided that such payments are contractually due within 30 days. These minimum payment amounts should be captured as inflows at the rates prescribed in paragraphs 153 and 154.
(a) Retail and Small Business Customer Inflows
153. This scenario assumes that banks will receive all payments (including interest payments and instalments) from retail and small business customers that are fully performing and contractually due within a 30-day horizon. At the same time, however, banks are assumed to continue to extend loans to retail and small business customers, at a rate of 50% of contractual inflows. This results in a net inflow number of 50% of the contractual amount.
(b) Other Wholesale Inflows
154. This scenario assumes that banks will receive all payments (including interest payments and instalments) from wholesale customers that are fully performing and contractually due within the 30-day horizon. In addition, banks are assumed to continue to extend loans to wholesale clients, at a rate of 0% of inflows for financial institutions and central banks, and 50% for all others, including non-financial corporates, sovereigns, multilateral development banks, and PSEs. This will result in an inflow percentage of:
• 100% for financial institution and central bank counterparties; and
• 50% for non-financial wholesale counterparties.
155. Inflows from securities maturing within 30 days not included in the stock of HQLA should be treated in the same category as inflows from financial institutions (ie 100% inflow). Banks may also recognise in this category inflows from the release of balances held in segregated accounts in accordance with regulatory requirements for the protection of customer trading assets, provided that these segregated balances are maintained in HQLA. This inflow should be calculated in line with the treatment of other related outflows and inflows covered in this standard. Level 1 and Level 2 securities maturing within 30 days should be included in the stock of liquid assets, provided that they meet all operational and definitional requirements, as laid out in paragraphs 28-54.
156. Operational deposits: Deposits held at other financial institutions for operational purposes, as outlined in paragraphs 93-103, such as for clearing, custody, and cash management purposes, are assumed to stay at those institutions, and no inflows can be counted for these funds – ie they will receive a 0% inflow rate, as noted in paragraph 98.
157. The same treatment applies for deposits held at the centralised institution in a cooperative banking network, that are assumed to stay at the centralised institution as outlined in paragraphs 105 and 106; in other words, the depositing bank should not count any inflow for these funds – ie they will receive a 0% inflow rate.
(iv) Other Cash Inflows
158. Derivatives cash inflows: the sum of all net cash inflows should receive a 100% inflow factor. The amounts of derivatives cash inflows and outflows should be calculated in accordance with the methodology described in paragraph 116.
159. Where derivatives are collateralised by HQLA, cash inflows should be calculated net of any corresponding cash or contractual collateral outflows that would result, all other things being equal, from contractual obligations for cash or collateral to be posted by the bank, given these contractual obligations would reduce the stock of HQLA. This is in accordance with the principle that banks should not double-count liquidity inflows or outflows.
160. Other contractual cash inflows: Other contractual cash inflows should be captured here, with explanation given to what comprises this bucket. Inflow percentages should be determined as appropriate for each type of inflow by supervisors in each jurisdiction. Cash inflows related to non-financial revenues are not taken into account in the calculation of the net cash outflows for the purposes of this standard.
III. Application Issues for the LCR
161. This section outlines a number of issues related to the application of the LCR. These issues include the frequency with which banks calculate and report the LCR, the scope of application of the LCR (whether they apply at group or entity level and to foreign bank branches) and the aggregation of currencies within the LCR.
A. Frequency of Calculation and Reporting
162. The LCR should be used on an ongoing basis to help monitor and control liquidity risk. The LCR should be reported to supervisors at least monthly, with the operational capacity to increase the frequency to weekly or even daily in stressed situations at the discretion of the supervisor. The time lag in reporting should be as short as feasible and ideally should not surpass two weeks.
163. Banks are expected to inform supervisors of their LCR and their liquidity profile on an ongoing basis. Banks should also notify supervisors immediately if their LCR has fallen, or is expected to fall, below 100%.
B. Scope of Application
164. The application of the requirements in this document follow the existing scope of application set out in Part I (Scope of Application) of the Basel II Framework.56 The LCR standard and monitoring tools should be applied to all internationally active banks on a consolidated basis, but may be used for other banks and on any subset of entities of internationally active banks as well to ensure greater consistency and a level playing field between domestic and cross-border banks. The LCR standard and monitoring tools should be applied consistently wherever they are applied.
165. National supervisors should determine which investments in banking, securities and financial entities of a banking group that are not consolidated per paragraph 164 should be considered significant, taking into account the liquidity impact of such investments on the group under the LCR standard. Normally, a non-controlling investment (eg a joint-venture or minority-owned entity) can be regarded as significant if the banking group will be the main liquidity provider of such investment in times of stress (for example, when the other shareholders are non-banks or where the bank is operationally involved in the day-to-day management and monitoring of the entity’s liquidity risk). National supervisors should agree with each relevant bank on a case-by-case basis on an appropriate methodology for how to quantify such potential liquidity draws, in particular, those arising from the need to support the investment in times of stress out of reputational concerns for the purpose of calculating the LCR standard. To the extent that such liquidity draws are not included elsewhere, they should be treated under “Other contingent funding obligations”, as described in paragraph 137.
166. Regardless of the scope of application of the LCR, in keeping with Principle 6 as outlined in the Sound Principles, a bank should actively monitor and control liquidity risk exposures and funding needs at the level of individual legal entities, foreign branches and subsidiaries, and the group as a whole, taking into account legal, regulatory and operational limitations to the transferability of liquidity.
167. To ensure consistency in applying the consolidated LCR across jurisdictions, further information is provided below on two application issues.
1. Differences in Home / Host Liquidity Requirements
168. While most of the parameters in the LCR are internationally “harmonised”, national differences in liquidity treatment may occur in those items subject to national discretion (eg deposit run-off rates, contingent funding obligations, market valuation changes on derivative transactions, etc) and where more stringent parameters are adopted by some supervisors.
169. When calculating the LCR on a consolidated basis, a cross-border banking group should apply the liquidity parameters adopted in the home jurisdiction to all legal entities being consolidated except for the treatment of retail / small business deposits that should follow the relevant parameters adopted in host jurisdictions in which the entities (branch or subsidiary) operate. This approach will enable the stressed liquidity needs of legal entities of the group (including branches of those entities) operating in host jurisdictions to be more suitably reflected, given that deposit run-off rates in host jurisdictions are more influenced by jurisdiction-specific factors such as the type and effectiveness of deposit insurance schemes in place and the behaviour of local depositors.
170. Home requirements for retail and small business deposits should apply to the relevant legal entities (including branches of those entities) operating in host jurisdictions if: (i) there are no host requirements for retail and small business deposits in the particular jurisdictions; (ii) those entities operate in host jurisdictions that have not implemented the LCR; or (iii) the home supervisor decides that home requirements should be used that are stricter than the host requirements.
2. Treatment of Liquidity Transfer Restrictions
171. As noted in paragraph 36, as a general principle, no excess liquidity should be recognised by a cross-border banking group in its consolidated LCR if there is reasonable doubt about the availability of such liquidity. Liquidity transfer restrictions (eg ring-fencing measures, non-convertibility of local currency, foreign exchange controls, etc) in jurisdictions in which a banking group operates will affect the availability of liquidity by inhibiting the transfer of HQLA and fund flows within the group. The consolidated LCR should reflect such restrictions in a manner consistent with paragraph 36. For example, the eligible HQLA that are held by a legal entity being consolidated to meet its local LCR requirements (where applicable) can be included in the consolidated LCR to the extent that such HQLA are used to cover the total net cash outflows of that entity, notwithstanding that the assets are subject to liquidity transfer restrictions. If the HQLA held in excess of the total net cash outflows are not transferable, such surplus liquidity should be excluded from the standard.
172. For practical reasons, the liquidity transfer restrictions to be accounted for in the consolidated ratio are confined to existing restrictions imposed under applicable laws, regulations and supervisory requirements.57 A banking group should have processes in place to capture all liquidity transfer restrictions to the extent practicable, and to monitor the rules and regulations in the jurisdictions in which the group operates and assess their liquidity implications for the group as a whole.
SAMA is aware that Saudi banks with overseas branches and subsidiaries have to meet LCR requirements of their host jurisdictions. However, these requirements concerning haircuts on level 1 HQLA or related repo facility may not be totally in sync with SAMA requirements. Consequently in view of the section as stated below:
Scope Of Application (paragraphs 164 to 172) of the Basel III: The Liquidity Coverage Ratio and liquidity risk monitoring tool dated January 2013
Note: SAMA would like Saudi banks to apply the more conservative treatment of the rules of SAMA or host jurisdiction for level 1 HQLA and its repo facility for the purpose of consolidated LCR calculation.
57 There are a number of factors that can impede cross-border liquidity flows of a banking group, many of which are beyond the control of the group and some of these restrictions may not be clearly incorporated into law or may become visible only in times of stress.
C. Currencies
173. As outlined in paragraph 42, while the LCR is expected to be met on a consolidated basis and reported in a common currency, supervisors and banks should also be aware of the liquidity needs in each significant currency. As indicated in the LCR, the currencies of the stock of HQLA should be similar in composition to the operational needs of the bank. Banks and supervisors cannot assume that currencies will remain transferable and convertible in a stress period, even for currencies that in normal times are freely transferable and highly convertible.
Part 2: Monitoring Tools
174. In addition to the LCR outlined in Part 1 to be used as a standard, this section outlines metrics to be used as consistent monitoring tools. These metrics capture specific information related to a bank’s cash flows, balance sheet structure, available unencumbered collateral and certain market indicators.
175. These metrics, together with the LCR standard, provide the cornerstone of information that aid supervisors in assessing the liquidity risk of a bank. In addition, supervisors may need to supplement this framework by using additional tools and metrics tailored to help capture elements of liquidity risk specific to their jurisdictions. In utilising these metrics, supervisors should take action when potential liquidity difficulties are signalled through a negative trend in the metrics, or when a deteriorating liquidity position is identified, or when the absolute result of the metric identifies a current or potential liquidity problem. Examples of actions that supervisors can take are outlined in the Committee’s Sound Principles (paragraphs 141-143).
176. The metrics discussed in this section include the following:
I. Contractual maturity mismatch;
II. Concentration of funding;
III. Available unencumbered assets;
IV. LCR by significant currency; and
V. Market-related monitoring tools
I. Contractual Maturity Mismatch
A. Objective
177. The contractual maturity mismatch profile identifies the gaps between the contractual inflows and outflows of liquidity for defined time bands. These maturity gaps indicate how much liquidity a bank would potentially need to raise in each of these time bands if all outflows occurred at the earliest possible date. This metric provides insight into the extent to which the bank relies on maturity transformation under its current contracts.
B. Definition and Practical Application of the Metric
Contractual cash and security inflows and outflows from all on- and off-balance sheet items, mapped to defined time bands based on their respective maturities. 178. A bank should report contractual cash and security flows in the relevant time bands based on their residual contractual maturity. Supervisors in each jurisdiction will determine the specific template, including required time bands, by which data must be reported. Supervisors should define the time buckets so as to be able to understand the bank’s cash flow position. Possibilities include requesting the cash flow mismatch to be constructed for the overnight, 7 day, 14 day, 1, 2, 3, 6 and 9 months, 1, 2, 3, 5 and beyond 5 years buckets. Instruments that have no specific maturity (non-defined or open maturity) should be reported separately, with details on the instruments, and with no assumptions applied as to when maturity occurs. Information on possible cash flows arising from derivatives such as interest rate swaps and options should also be included to the extent that their contractual maturities are relevant to the understanding of the cash flows.
179. At a minimum, the data collected from the contractual maturity mismatch should provide data on the categories outlined in the LCR. Some additional accounting (non-dated) information such as capital or non-performing loans may need to be reported separately.
1. Contractual Cashflow Assumptions
180. No rollover of existing liabilities is assumed to take place. For assets, the bank is assumed not to enter into any new contracts.
181. Contingent liability exposures that would require a change in the state of the world (such as contracts with triggers based on a change in prices of financial instruments or a downgrade in the bank's credit rating) need to be detailed, grouped by what would trigger the liability, with the respective exposures clearly identified.
182. A bank should record all securities flows. This will allow supervisors to monitor securities movements that mirror corresponding cash flows as well as the contractual maturity of collateral swaps and any uncollateralised stock lending/borrowing where stock movements occur without any corresponding cash flows.
183. A bank should report separately the customer collateral received that the bank is permitted to rehypothecate as well as the amount of such collateral that is rehypothecated at each reporting date. This also will highlight instances when the bank is generating mismatches in the borrowing and lending of customer collateral.
C. Utilisation of the Metric
184. Banks will provide the raw data to the supervisors, with no assumptions included in the data. Standardised contractual data submission by banks enables supervisors to build a market-wide view and identify market outliers vis-à-vis liquidity.
185. Given that the metric is based solely on contractual maturities with no behavioural assumptions, the data will not reflect actual future forecasted flows under the current, or future, strategy or plans, ie, under a going-concern view. Also, contractual maturity mismatches do not capture outflows that a bank may make in order to protect its franchise, even where contractually there is no obligation to do so. For analysis, supervisors can apply their own assumptions to reflect alternative behavioural responses in reviewing maturity gaps.
186. As outlined in the Sound Principles, banks should also conduct their own maturity mismatch analyses, based on going-concern behavioural assumptions of the inflows and outflows of funds in both normal situations and under stress. These analyses should be based on strategic and business plans and should be shared and discussed with supervisors, and the data provided in the contractual maturity mismatch should be utilised as a basis of comparison. When firms are contemplating material changes to their business models, it is crucial for supervisors to request projected mismatch reports as part of an assessment of impact of such changes to prudential supervision. Examples of such changes include potential major acquisitions or mergers or the launch of new products that have not yet been contractually entered into. In assessing such data supervisors need to be mindful of assumptions underpinning the projected mismatches and whether they are prudent.
187. A bank should be able to indicate how it plans to bridge any identified gaps in its internally generated maturity mismatches and explain why the assumptions applied differ from the contractual terms. The supervisor should challenge these explanations and assess the feasibility of the bank’s funding plans.
II. Concentration of Funding
A. Objective
188. This metric is meant to identify those sources of wholesale funding that are of such significance that withdrawal of this funding could trigger liquidity problems. The metric thus encourages the diversification of funding sources recommended in the Committee’s Sound Principles.
B. Definition and Practical Application of the Metric
A. Funding liabilities sourced from each significant counterparty as a % of total liabilities
B. Funding liabilities sourced from each significant product/instrument as a % of total liabilities
C. List of asset and liability amounts by significant currency
1. Calculation of the Metric
189. The numerator for A and B is determined by examining funding concentrations by counterparty or type of instrument/product. Banks and supervisors should monitor both the absolute percentage of the funding exposure, as well as significant increases in concentrations.
(i) Significant Counterparties
190. The numerator for counterparties is calculated by aggregating the total of all types of liabilities to a single counterparty or group of connected or affiliated counterparties, as well as all other direct borrowings, both secured and unsecured, which the bank can determine arise from the same counterparty58 (such as for overnight commercial paper / certificate of deposit (CP/CD) funding).
191. A “significant counterparty” is defined as a single counterparty or group of connected or affiliated counterparties accounting in aggregate for more than 1% of the bank's total balance sheet, although in some cases there may be other defining characteristics based on the funding profile of the bank. A group of connected counterparties is, in this context, defined in the same way as in the “Large Exposure” regulation of the host country in the case of consolidated reporting for solvency purposes. Intra-group deposits and deposits from related parties should be identified specifically under this metric, regardless of whether the metric is being calculated at a legal entity or group level, due to the potential limitations to intra-group transactions in stressed conditions.
58 For some funding sources, such as debt issues that are transferable across counterparties (such as CP/CD funding dated longer than overnight, etc), it is not always possible to identify the counterparty holding the debt.
(ii) Significant Instruments / Products
192. The numerator for type of instrument/product should be calculated for each individually significant funding instrument/product, as well as by calculating groups of similar types of instruments/products.
193. A “significant instrument/product” is defined as a single instrument/product or group of similar instruments/products that in aggregate amount to more than 1% of the bank's total balance sheet.
(iii) Significant Currencies
194. In order to capture the amount of structural currency mismatch in a bank’s assets and liabilities, banks are required to provide a list of the amount of assets and liabilities in each significant currency.
195. A currency is considered “significant” if the aggregate liabilities denominated in that currency amount to 5% or more of the bank's total liabilities.
(iv) Time Buckets
196. The above metrics should be reported separately for the time horizons of less than one month, 1-3 months, 3-6 months, 6-12 months, and for longer than 12 months.
C. Utilisation of the Metric
197. In utilising this metric to determine the extent of funding concentration to a certain counterparty, both the bank and supervisors must recognise that currently it is not possible to identify the actual funding counterparty for many types of debt.59 The actual concentration of funding sources, therefore, could likely be higher than this metric indicates. The list of significant counterparties could change frequently, particularly during a crisis. Supervisors should consider the potential for herding behaviour on the part of funding counterparties in the case of an institution-specific problem. In addition, under market-wide stress, multiple funding counterparties and the bank itself may experience concurrent liquidity pressures, making it difficult to sustain funding, even if sources appear well diversified.
198. In interpreting this metric, one must recognise that the existence of bilateral funding transactions may affect the strength of commercial ties and the amount of the net outflow.60
199. These metrics do not indicate how difficult it would be to replace funding from any given source.
200. To capture potential foreign exchange risks, the comparison of the amount of assets and liabilities by currency will provide supervisors with a baseline for discussions with the banks about how they manage any currency mismatches through swaps, forwards, etc. It is meant to provide a base for further discussions with the bank rather than to provide a snapshot view of the potential risk.
59 For some funding sources, such as debt issues that are transferable across counterparties (such as CP/CD funding dated longer than overnight, etc), it is not always possible to identify the counterparty holding the debt.
60 Eg where the monitored institution also extends funding or has large unused credit lines outstanding to the “significant counterparty”.III. Available Unencumbered Assets
A. Objective
201. These metrics provide supervisors with data on the quantity and key characteristics, including currency denomination and location, of banks’ available unencumbered assets. These assets have the potential to be used as collateral to raise additional HQLA or secured funding in secondary markets or are eligible at central banks and as such may potentially be additional sources of liquidity for the bank.
B. Definition and Practical Application of the Metric
Available unencumbered assets that are marketable as collateral in secondary markets
and
Available unencumbered assets that are eligible for central banks’ standing facilities
202. A bank is to report the amount, type and location of available unencumbered assets that could serve as collateral for secured borrowing in secondary markets at prearranged or current haircuts at reasonable costs.
203. Likewise, a bank should report the amount, type and location of available unencumbered assets that are eligible for secured financing with relevant central banks at prearranged (if available) or current haircuts at reasonable costs, for standing facilities only (ie excluding emergency assistance arrangements). This would include collateral that has already been accepted at the central bank but remains unused. For assets to be counted in this metric, the bank must have already put in place the operational procedures that would be needed to monetise the collateral.
204. A bank should report separately the customer collateral received that the bank is permitted to deliver or re-pledge, as well as the part of such collateral that it is delivering or re-pledging at each reporting date.
205. In addition to providing the total amounts available, a bank should report these items categorised by significant currency. A currency is considered “significant” if the aggregate stock of available unencumbered collateral denominated in that currency amounts 5% or more of the associated total amount of available unencumbered collateral (for secondary markets or central banks).
206. In addition, a bank must report the estimated haircut that the secondary market or relevant central bank would require for each asset. In the case of the latter, a bank would be expected to reference, under business as usual, the haircut required by the central bank that it would normally access (which likely involves matching funding currency – eg ECB for euro-denominated funding, Bank of Japan for yen funding, etc).
207. As a second step after reporting the relevant haircuts, a bank should report the expected monetised value of the collateral (rather than the notional amount) and where the assets are actually held, in terms of the location of the assets and what business lines have access to those assets.
C. Utilisation of the Metric
208. These metrics are useful for examining the potential for a bank to generate an additional source of HQLA or secured funding. They will provide a standardised measure of the extent to which the LCR can be quickly replenished after a liquidity shock either via raising funds in private markets or utilising central bank standing facilities. The metrics do not, however, capture potential changes in counterparties’ haircuts and lending policies that could occur under either a systemic or idiosyncratic event and could provide false comfort that the estimated monetised value of available unencumbered collateral is greater than it would be when it is most needed. Supervisors should keep in mind that these metrics do not compare available unencumbered assets to the amount of outstanding secured funding or any other balance sheet scaling factor. To gain a more complete picture, the information generated by these metrics should be complemented with the maturity mismatch metric and other balance sheet data.
IV. LCR by Significant Currency
A. Objective
209. While the LCR is required to be met in one single currency, in order to better capture potential currency mismatches, banks and supervisors should also monitor the LCR in significant currencies. This will allow the bank and the supervisor to track potential currency mismatch issues that could arise.
B. Definition and Practical Application of the Metric
Foreign Currency LCR = Stock of HQLA in each significant currency / Total net cash outflows over a 30-day time period in each significant currency
(Note: Amount of total net foreign exchange cash outflows should be net of foreign exchange hedges)
210. The definition of the stock of high-quality foreign exchange assets and total net foreign exchange cash outflows should mirror those of the LCR for common currencies.61
211. A currency is considered “significant” if the aggregate liabilities denominated in that currency amount to 5% or more of the bank's total liabilities.
212. As the foreign currency LCR is not a standard but a monitoring tool, it does not have an internationally defined minimum required threshold. Nonetheless, supervisors in each jurisdiction could set minimum monitoring ratios for the foreign exchange LCR, below which a supervisor should be alerted. In this case, the ratio at which supervisors should be alerted would depend on the stress assumption. Supervisors should evaluate banks’ ability to raise funds in foreign currency markets and the ability to transfer a liquidity surplus from one currency to another and across jurisdictions and legal entities. Therefore, the ratio should be higher for currencies in which the supervisors evaluate a bank’s ability to raise funds in foreign currency markets or the ability to transfer a liquidity surplus from one currency to another and across jurisdictions and legal entities to be limited.
61 Cash flows from assets, liabilities and off-balance sheet items will be computed in the currency that the counterparties are obliged to deliver to settle the contract, independent of the currency to which the contract is indexed (or "linked"), or the currency whose fluctuation it is intended to hedge.
C. Utilisation of the Metric
213. This metric is meant to allow the bank and supervisor to track potential currency mismatch issues that could arise in a time of stress.
V Market-Related Monitoring Tools
A. Objective
214. High frequency market data with little or no time lag can be used as early warning indicators in monitoring potential liquidity difficulties at banks.
B. Definition and Practical Application of the Metric
215. While there are many types of data available in the market, supervisors can monitor data at the following levels to focus on potential liquidity difficulties:
1. Market-wide information
2. Information on the financial sector
3. Bank-specific information
1. Market-Wide Information
216. Supervisors can monitor information both on the absolute level and direction of major markets and consider their potential impact on the financial sector and the specific bank. Market-wide information is also crucial when evaluating assumptions behind a bank’s funding plan.
217. Valuable market information to monitor includes, but is not limited to, equity prices (ie overall stock markets and sub-indices in various jurisdictions relevant to the activities of the supervised banks), debt markets (money markets, medium-term notes, long term debt, derivatives, government bond markets, credit default spread indices, etc); foreign exchange markets, commodities markets, and indices related to specific products, such as for certain securitised products (eg the ABX).
2. Information on the Financial Sector
218. To track whether the financial sector as a whole is mirroring broader market movements or is experiencing difficulties, information to be monitored includes equity and debt market information for the financial sector broadly and for specific subsets of the financial sector, including indices.
3. Bank-Specific Information
219. To monitor whether the market is losing confidence in a particular institution or has identified risks at an institution, it is useful to collect information on equity prices, CDS spreads, money-market trading prices, the situation of roll-overs and prices for various lengths of funding, the price/yield of bank debenture or subordinated debt in the secondary market.
C. Utilisation of the Metric/Data
220. Information such as equity prices and credit spreads are readily available. However, the accurate interpretation of such information is important. For instance, the same CDS spread in numerical terms may not necessarily imply the same risk across markets due to market-specific conditions such as low market liquidity. Also, when considering the liquidity impact of changes in certain data points, the reaction of other market participants to such information can be different, as various liquidity providers may emphasise different types of data.
Annex 1: Calculation of the Cap on Level 2 Assets with Regard to Short-Term Securities Financing Transactions
1. This annex seeks to clarify the appropriate method for the calculation of the cap on Level 2 (including Level 2B) assets with regard to short-term securities financing transactions.
2. As stated in paragraph 36, the calculation of the 40% cap on Level 2 assets should take into account the impact on the stock of HQLA of the amounts of Level 1 and Level 2 assets involved in secured funding,62 secured lending63 and collateral swap transactions maturing within 30 calendar days. The maximum amount of adjusted Level 2 assets in the stock of HQLA is equal to two-thirds of the adjusted amount of Level 1 assets after haircuts have been applied. The calculation of the 40% cap on Level 2 assets will take into account any reduction in eligible Level 2B assets on account of the 15% cap on Level 2B assets.64
3. Further, the calculation of the 15% cap on Level 2B assets should take into account the impact on the stock of HQLA of the amounts of HQLA assets involved in secured funding, secured lending and collateral swap transactions maturing within 30 calendar days. The maximum amount of adjusted Level 2B assets in the stock of HQLA is equal to 15/85 of the sum of the adjusted amounts of Level 1 and Level 2 assets, or, in cases where the 40% cap is binding, up to a maximum of 1/4 of the adjusted amount of Level 1 assets, both after haircuts have been applied.
4. The adjusted amount of Level 1 assets is defined as the amount of Level 1 assets that would result after unwinding those short-term secured funding, secured lending and collateral swap transactions involving the exchange of any HQLA for any Level 1 assets (including cash) that meet, or would meet if held unencumbered, the operational requirements for HQLA set out in paragraphs 28 to 40. The adjusted amount of Level 2A assets is defined as the amount of Level 2A assets that would result after unwinding those short-term secured funding, secured lending and collateral swap transactions involving the exchange of any HQLA for any Level 2A assets that meet, or would meet if held unencumbered, the operational requirements for HQLA set out in paragraphs 28 to 40. The adjusted amount of Level 2B assets is defined as the amount of Level 2B assets that would result after unwinding those short-term secured funding, secured lending and collateral swap transactions involving the exchange of any HQLA for any Level 2B assets that meet, or would meet if held unencumbered, the operational requirements for HQLA set out in paragraphs 28 to 40. In this context, short-term transactions are transactions with a maturity date up to and including 30 calendar days. Relevant haircuts would be applied prior to calculation of the respective caps.
5. The formula for the calculation of the stock of HQLA is as follows:
Stock of HQLA = Level 1 + Level 2A + Level 2B – Adjustment for 15% cap – Adjustment for 40% cap
Where:
Adjustment for 15% cap = Max (Adjusted Level 2B – 15/85*(Adjusted Level 1 + Adjusted Level 2A), Adjusted Level 2B - 15/60*Adjusted Level 1, 0)
Adjustment for 40% cap = Max ((Adjusted Level 2A + Adjusted Level 2B – Adjustment for 15% cap) - 2/3*Adjusted Level 1 assets, 0)
6. Alternatively, the formula can be expressed as:
Stock of HQLA = Level 1 + Level 2A + Level 2B – Max ((Adjusted Level 2A+Adjusted Level 2B) – 2/3*Adjusted Level 1, Adjusted Level 2B – 15/85*(Adjusted Level 1 + Adjusted Level 2A), 0)
62 See definition in paragraph 112.
63 See definition in paragraph 145.
64 When determining the calculation of the 15% and 40% caps, supervisors may, as an additional requirement, separately consider the size of the pool of Level 2 and Level 2B assets on an unadjusted basis.Annex 2: Principles for Assessing Eligibility for Alternative Liquidity Approaches (ALA)
1. This Annex presents a set of principles and criteria for assessing whether a currency is eligible for alternative treatment under the LCR (hereinafter referred to as the “Principles”). All of the Principles have to be satisfied in order to qualify for alternative treatment. Supplementary guidance is provided to elaborate on how a jurisdiction seeking alternative treatment should demonstrate its compliance with the Principles, including any supporting information (qualitative and quantitative) to justify its case. The Principles will be the main source of reference upon which self-assessments or independent peer reviews should be based. Unless otherwise specified, all references in the Principles are to the liquidity standard.
2. The Principles may not, in all cases, be able to capture specific circumstances or unique factors affecting individual jurisdictions in respect of the issue of insufficiency in HQLA. Hence, a jurisdiction will not be precluded from providing any additional information or explaining any other factor that is relevant to its compliance with the Principles, even though such information or factor may not be specified in the Principles.
3. Where a jurisdiction uses estimations or projections to support its case, the rationale and basis for those estimations or projections should be clearly set out. In order to support its case and facilitate independent peer review, the jurisdiction should provide information, to the extent possible, covering a long enough time series (eg three to five years depending on data availability).
Principle 1
The use of alternative treatment under the LCR is only available to the domestic currency of a jurisdiction which can demonstrate and justify that an issue of insufficiency in HQLA denominated in that currency genuinely exists, taking into account all relevant factors affecting the supply of, and demand for, such HQLA.
4. In order to qualify for alternative treatment, the jurisdiction must be able to demonstrate that there is “a true shortfall in HQLA in the domestic currency as relates to the needs in that currency” (see paragraph 55). The jurisdiction must demonstrate this with due regard to the three criteria set out below.
Criterion (a): The supply of HQLA in the domestic currency of the jurisdiction is insufficient, in terms of Level 1 assets only or both Level 1 and Level 2 assets, to meet the aggregate demand for such assets from banks operating in that currency. The jurisdiction must be able to provide adequate information (quantitative and otherwise) to demonstrate this.
5. This criterion requires the jurisdiction to provide sufficient information to demonstrate the insufficiency of HQLA in its domestic currency. This insufficiency must principally reflect a shortage in Level 1 assets, although Level 2 assets may also be insufficient in some jurisdictions.
6. To illustrate that a currency does not have sufficient HQLA, the jurisdiction will need to provide all relevant information and data that have a bearing on the size of the HQLA gap faced by banks operating in that currency that are subject to LCR requirements (“LCR banks”). These should, to the extent practicable, include the following information:
(i) Supply of HQLA
The jurisdiction should provide the current and projected stock of HQLA denominated in its currency, including:
• the supply of Level 1 and Level 2 assets broken down by asset classes;
• the amounts outstanding for the last three to five years; and
• the projected amounts for the next three to five years.
The jurisdiction may provide any other information in support of its stock and projection of HQLA. Should the jurisdiction feel that the true nature of the supply of HQLA cannot be simply reflected by the numbers provided, it should provide further information to sufficiently explain the case.
To avoid doubt, if the jurisdiction is a member of a monetary union operating under a single currency, debt or other assets issued in other members of the union in that currency is considered available for all jurisdictions in that union (see paragraph 55). Hence, the jurisdiction should take into account the availability of such assets which qualify as HQLA in its analysis.
(ii) Market for HQLA
The jurisdiction should provide a detailed analysis of the nature of the market for the above assets. Information relating to the market liquidity of the assets would be of particular importance. The jurisdiction should present its views on the liquidity of the HQLA based on the information presented.
Details of the primary market for the above assets should be provided, including:
• the channel and method of issuance;
• the issuers;
• the past issue tenor, denomination and issue size for the last three to five years; and
• the projected issue tenor, denomination and issue size for the next three to five years.
Details of the secondary market for the above assets should also be provided, including:
• the trading size and activity;
• types of market participants; and
• the size and activity of its repo market.
Where possible, the jurisdiction should provide an estimate of the amount of the above assets (Level 1 and Level 2) required to be in free circulation for them to remain genuinely liquid, as well as any justification for these figures.
(iii) Demand for HQLA by LCR banks
The jurisdiction should provide:
• the number of LCR banks under its purview;
• the current demand (ie net 30-day cash outflows) for HQLA by these LCR banks65 for meeting the LCR or other requirements (eg collateral for intraday repo);
• the projected demand for the next three to five years based on banks’ business growth and strategy; and
• an estimate of the percentage of total HQLA already in the hands of banks.
The jurisdiction should provide commentaries on cash flow projections where appropriate to improve their persuasiveness. The projections should take into account observed behavioural changes of the LCR banks and any other factors that may result in a reduction of their 30-day cash outflows.
(iv) Demand for HQLA by other entities
There are other potential holders of Level 1 and Level 2 assets that are not subject to the LCR, but will likely take up, or hold onto, a part of the outstanding stock of HQLA. These include:
• banks, branches of banks, and other deposit-taking institutions which conduct bank-like activity (such as building societies and credit unions) in the jurisdiction but are not subject to the LCR;
• other financial institutions which are normally subject to prudential supervision, such as investment or securities firms, insurance or reinsurance companies, pension/superannuation funds, mortgage funds, and money market funds; and
• other significant investors which have demonstrated a track record of strategic ”buy and hold” purchases which can be presumed to be price insensitive. This would include foreign sovereigns, foreign central banks and foreign sovereign /quasi-sovereign funds, but not hedge funds or other private investment management vehicles.
The jurisdiction may provide information on the demand for Level 1 and Level 2 assets by the above HQLA holders in support of its application. Historical demand for such assets by these holders is not sufficient. The alternate holders of HQLA must at least exhibit the following qualities:
• Price inelastic: the holders of HQLA are unlikely to switch to alternate assets unless there is a significant change in the price of these assets.
• Proven to be stable: the demand for HQLA by the holders should remain stable over the next three years as they require these assets to meet specific purposes, such as asset-liability matching or other regulatory requirements.
7. The jurisdiction should be able to come up with a reasonable estimate of the HQLA gap faced by its LCR banks (current and over the next three to five years), based on credible information. In deriving the HQLA gap, the jurisdiction should first compare (i) the total outstanding stock of its HQLA in domestic currency with (ii) the total liquidity needs of its LCR banks in domestic currency. The jurisdiction should then explain the method of deriving the high quality liquid asset gap, taking into account all relevant factors, including those set out in criterion (b), which may affect the size of the gap. A detailed analysis of the calculations should be provided (eg in the form of a template), explaining any adjustments to supply and demand and justifications for such adjustments.66 The jurisdiction should demonstrate that the method of defining insufficiency is appropriate for its circumstances, and that it can truly reflect the HQLA gap faced by LCR banks in the currency.
Criterion (b): The determination of insufficiency in HQLA by the jurisdiction under criterion (a) should address all major factors relevant to the issue. These include, but are not limited to, the expected supply of HQLA in the medium term (eg three to five years), the extent to which the banking sector can and should run less liquidity risk, and the competing demand from banks and non-bank investors for holding HQLA for similar or other purposes.
8. This criterion builds on the information provided by the jurisdiction under criterion (a), and requires the jurisdiction to further explain the manner in which the insufficiency issue is determined, by listing all major factors that affect the HQLA gap faced by its LCR banks under criterion (a). There should be a commentary for each of the factors, explaining why the factor is relevant, the impact of the factor on the HQLA gap, and how such impact is incorporated into the analysis of insufficiency in HQLA. The jurisdiction should be able to demonstrate that it has adequately considered all relevant factors, including those that may improve the HQLA gap, so as to ascertain that the insufficiency issue is fairly stated.
9. On the supply of HQLA, there should be due consideration of the extent to which the insufficiency issue may be alleviated by estimated medium term supply of such assets, as well as the factors restricting the availability of HQLA to LCR banks. In the case of government debt, relevant information on availability can be reflected, for example, from the size and nature of other users of government debt in the jurisdiction; holdings of government debt which seldom appear in the traded markets; and the amount of government debt in free circulation for the assets to remain truly liquid.
10. On the demand of HQLA, there should be due consideration of the potential liquidity needs of the banking sector, taking into account the scope for banks to reduce their liquidity risk (and hence their demand for HQLA) and the extent to which banks can satisfy their demand through the repo market (rather than through outright purchase of HQLA). Other needs for maintaining HQLA (eg for intraday repo purposes) may also increase banks’ demand for such assets.
11. The jurisdiction should also include any other factors not mentioned above that are relevant to its case.
Criterion (c): The issue of insufficiency in HQLA faced by the jurisdiction is caused by structural, policy and other constraints that cannot be resolved within the medium term (eg three to five years). Such constraints may relate to the fiscal or budget policies of the jurisdiction, the infrastructural development of its capital markets, the structure of its monetary system and operations (eg the currency board arrangements for jurisdictions with pegged exchange rates), or other jurisdiction-specific factors leading to the shortage or imbalance in the supply of HQLA available to the banking sector.
12. This criterion is to establish that the insufficiency issue is caused by constraints that are not temporary in nature. The jurisdiction should provide a list of such constraints, explain the nature of the constraints and how the insufficiency issue is affected by the constraints, as well as whether there is any prospect of change in the constraints (eg measures taken to address the constraints) in the next three to five years. To demonstrate the significance of the constraints, the jurisdiction should support the analysis with appropriate quantitative information.
13. A jurisdiction may have fiscal or budget constraints that limit its ability or need to raise debt. To support this, the following information should, at a minimum, be provided:
(i) Fiscal position for the past ten years: Consistent fiscal surpluses (eg at least six out of the past ten years or at least two out of the past three years)67 can be an indication that the jurisdiction does not need to raise debt (or a lot of debt). On the contrary, it is unlikely that jurisdictions with persistent deficits (eg at least six out of the past ten years) will have a shortage in government debt issued.
(ii) Fiscal position as % of GDP (ten-year average): This is another way of looking at the fiscal position. A positive ten-year average will likely suggest that the need for debt issuance is low. Similarly, a negative ten-year average will suggest otherwise.
(iii) Issue of government / central bank debt in the past ten years and the reasons for such issue (eg for market operations / setting the yield curve, etc.). This is to assess the level of, and consistency in, debt issuance.
14. The jurisdiction should also provide the ratio of its government debt to total banking assets denominated in domestic currency (for the past three to five years) to facilitate trend analysis of the government debt position versus a proxy indicator for banking activity (ie total banking assets), as well as comparison of the position across jurisdictions (including those that may not have the insufficiency issue). While this ratio alone cannot give any conclusive view about the insufficiency issue, a relatively low ratio (eg below 20%) may support the case if the jurisdiction also performs similarly under other indicators.
15. A jurisdiction may have an under-developed capital market that has resulted in limited availability of corporate / covered bonds to satisfy market demand. Information to be provided includes the causes of this situation, measures that are being taken to develop the market, the expected effect of such measures, and other relevant statistics showing the state of the market.
16. There may also be other structural issues affecting the monetary system and operations. For example, the currency board arrangements for jurisdictions with pegged exchange rates could potentially constrain the issue of central bank debt and cause uncertainty or volatility in the availability of such debt to the banking sector. The jurisdiction should explain such arrangements and their effects on the supply of central bank debt (supported by relevant historical data in the past three to five years).
Principle 2
A jurisdiction which intends to adopt one or more of the options for alternative treatment must be capable of limiting the uncertainty of performance, or mitigating the risks of non-performance, of the option(s) concerned.
17. This Principle assesses whether and how the jurisdiction can mitigate the risks arising from the adoption of any of the options, based on the requirements set out in the three criteria mentioned below. The assessment will also include whether the jurisdiction’s approach to adopting the options is in line with the alternative treatment set out in the Basel III liquidity framework (see paragraphs 55 to 62).
18. To start with, the jurisdiction should explain its policy towards the adoption of the options, including which of the options will be used and the estimated (and maximum allowable) extent of usage by the banking sector. The jurisdiction is also expected to justify the appropriateness of the maximum level of usage of the options to its banking system, having regard to the relevant guidance set out in the Basel III liquidity framework (see paragraphs 63 to 65).
Criterion (a): For Option 1 (ie the provision of contractual committed liquidity facilities from the relevant central bank at a fee), the jurisdiction must have the economic strength to support the committed liquidity facilities granted by its central bank. To ensure this, the jurisdiction should have a process in place to control the aggregate of such facilities within a level that can be measured and managed by it.
19. A jurisdiction intending to adopt Option 1 must demonstrate that it has the economic and financial capacity to support the committed liquidity facilities that will be granted to its banks.68 The jurisdiction should, for example, have a strong credit rating (such as AA-69) or be able to provide other evidence of financial strength, with no adverse developments (eg a looming crisis) that may heavily impinge on the domestic economy in the near term.
20. The jurisdiction should also demonstrate that it has a process in place to control the aggregate facilities granted under Option 1 within a level that is appropriate for its local circumstances. For example, the jurisdiction may limit the amount of Option 1 commitments to a certain level of its GDP and justify why this level is suitable for its banking system. The process should also cater for situations where the aggregate facilities are approaching the limit, or have indeed breached, the limit, as well as how the limit interplays with other restrictions for using the options (eg maximum level of usage for all options combined).
21. To facilitate assessment of compliance with requirements in paragraph 58, the jurisdiction should provide all relevant details associated with the extension of the committed facility, covering:
(i) the commitment fee (including the basis on which it is charged,70 the method of calculation71 and the frequency of re-calculating or varying the fee). The jurisdiction should, in particular, demonstrate that the calculation of the commitment fee is in line with the conceptual framework set out in paragraph 58.
(ii) the types of collateral acceptable to the central bank for securing the facility and respective collateral margins or haircuts required;
(iii) the legal terms of the facility (including whether it covers a fixed term or is renewable or evergreen, the notice of drawdown, whether the contract will be irrevocable prior to maturity,72 and whether there will be restrictions on a bank’s ability to draw down on the facility);73
(iv) the criteria for allowing individual banks to use Option 1;
(v) disclosure policies (ie whether the level of the commitment fee and the amount of committed facilities granted will be disclosed, either by the banks or by the central bank); and
(vi) the projected size of committed liquidity facilities that may be granted under Option 1 (versus the projected size of total net cash outflows in the domestic currency for Option 1 banks) for each of the next three to five years and the basis of projection.
Criterion (b): For Option 2 (ie use of foreign currency HQLA to cover domestic currency liquidity needs), the jurisdiction must have a mechanism in place that can keep under control the foreign exchange risk of the holdings of its banks in foreign currency HQLA.
22. A jurisdiction intending to adopt Option 2 should demonstrate that it has a mechanism in place to control the foreign exchange risk arising from banks’ holdings in foreign currency HQLA under this Option. This is because such foreign currency asset holdings to cover domestic currency liquidity needs may be exposed to the risk of decline in the liquidity value of those foreign currency assets should exchange rates move adversely when the assets are converted into the domestic currency, especially in times of stress.
23. This control mechanism should, at a minimum, cover the following elements:
(i) The jurisdiction should ensure that the use of Option 2 is confined only to foreign currencies that can provide a reliable source of liquidity in the domestic currency in case of need. In this regard, the jurisdiction should specify the currencies (and broad types of HQLA denominated in those currencies74) allowable under this option, based on prudent criteria. The suitability of the currencies should be reviewed whenever significant changes in the external environment warrant a review.
(ii) The selection of currencies should, at a minimum, take into account the following aspects:
• the currency is freely transferable and convertible into the domestic currency;
• the currency is liquid and active in the relevant foreign exchange market (the methodology and basis of assessment should be provided);
• the currency does not exhibit significant historical exchange rate volatility against the domestic currency;75 and
• in the case of a currency which is pegged to the domestic currency, there is a formal mechanism in place for maintaining the peg rate (relevant information about the mechanism and past ten-year statistics on exchange rate volatility of the currency pair showing the effectiveness of the peg arrangement should be provided).
The jurisdiction should explain why each of the allowable currencies is selected, including an analysis of the historical exchange rate volatility, and turnover size in the foreign exchange market, of the currency pair (based on statistics for each of the past three to five years). In case a currency is selected for other reasons,76 the justifications should be clearly stated to support its inclusion for Option 2 purposes.
(iii) HQLA in the allowable currencies used for Option 2 purposes should be subject to haircuts as prescribed under this framework (ie at least 8% for major currencies77). The jurisdiction should set a higher haircut for other currencies where the exchange rate volatility against the domestic currency is much higher, based on a methodology that compares the historical (monthly) exchange rate volatilities between the currency pair concerned over an extended period of time.
Where the allowable currency is formally pegged to the domestic currency, a lower haircut can be used to reflect limited exchange rate risk under the peg arrangement. To qualify for this treatment, the jurisdiction should demonstrate the effectiveness of its currency peg mechanism and the long-term prospect of keeping the peg.
Where a threshold for applying the haircut under Option 2 is adopted (see paragraph 61), the level of the threshold should not be more than 25%.
(iv) Regular information should be collected from banks in respect of their holding of allowable foreign currency HQLA for LCR purposes to enable supervisory assessment of the foreign exchange risk associated with banks’ holdings of such assets, both individually and in aggregate.
(v) There should be an effective means to control the foreign exchange risk assumed by banks. The control mechanism, and how it is to be applied to banks, should be elaborated. In particular,
• there should be prescribed criteria for allowing individual banks to use Option 2;
• the approach to assessing whether the estimated holdings of foreign currency HQLA by individual banks using Option 2 are consistent with their foreign exchange risk management capacity (re paragraph 59) should be explained; and
• there should be a system for setting currency mismatch limits to control banks’ maximum foreign currency exposures under Option 2.
Criterion (c): For Option 3 (ie use of Level 2A assets beyond the 40% cap with a higher haircut), the jurisdiction must only allow Level 2 assets that are of a quality (credit and liquidity) comparable to that for Level 1 assets in its currency to be used under this option. The jurisdiction should be able to provide quantitative and qualitative evidence to substantiate this.
24. With the adoption of Option 3, the increase in holdings of Level 2A assets within the banking sector (to substitute for Level 1 assets which are of higher quality but in shortage) may give rise to additional price and market liquidity risks, especially in times of stress when concentrated asset holdings have to be liquidated. In order to mitigate this risk, the jurisdiction intending to adopt Option 3 should ensure that only Level 2A assets that are of comparable quality to Level 1 assets in the domestic currency are allowed to be used under this option (ie to exceed the 40% cap). Level 2B assets should remain subject to the 15% cap. The jurisdiction should demonstrate how this can be achieved in its supervisory framework, having regard to the following aspects:
(i) the adoption of higher qualifying standards for additional Level 2A assets. Apart from fulfilling all the qualifying criteria for Level 2A assets, additional requirements should be imposed. For example, the minimum credit rating of these additional Level 2A assets should be AA or AA+ instead of AA-, and other qualitative and quantitative criteria could be made more stringent. These assets may also be required to be central bank eligible. This will provide a backstop for ensuring the liquidity value of the assets; and
(ii) the inclusion of a prudent diversification requirement for banks using Option 3. Banks should be required to allocate its portfolio of Level 2 assets among different issuers and asset classes to the extent feasible in a given national market. The jurisdiction should illustrate how this diversification requirement is to be applied to banks.
25. The jurisdiction should provide statistical evidence to substantiate that Level 2A assets (used under Option 3) and Level 1 assets in the domestic currency are generally of comparable quality in terms of the maximum decline in price during a relevant period of significant liquidity stress in the past.
26. To facilitate assessment, the jurisdiction should also provide all relevant details associated with the use of Option 3, including:
(i) the standards and criteria for allowing individual banks to use Option 3;
(ii) the system for monitoring banks’ additional Level 2A asset holding under Option 3 to ensure that they can observe the higher requirements;
(iii) the application of higher haircuts to additional Level 2A assets (and whether this is in line with paragraph 62);78 and
(iv) the existence of any restriction on the use of Level 2A assets (ie to what extent banks will be allowed to hold such assets as a percentage of their liquid asset stock).
Principle 3
A jurisdiction which intends to adopt one or more of the options for alternative treatment must be committed to observing all of the obligations set out below.
27. This Principle requires a jurisdiction intending to adopt any of the options to indicate expressly the jurisdiction’s commitment to observing the obligations relating to supervisory monitoring, disclosure, periodic self-assessment, and independent peer review of its eligibility for adopting the options, as set out in the criteria below. Whether these commitments are fulfilled in practice should be assessed in subsequent periodic self-assessments and, where necessary, in subsequent independent peer reviews.
Criterion (a): The jurisdiction must maintain a supervisory monitoring system to ensure that its banks comply with the rules and requirements relevant to their usage of the options, including any associated haircuts, limits or restrictions.
28. The jurisdiction should demonstrate that it has a clearly documented framework for monitoring the usage of the options by its banks as well as their compliance with the relevant rules and requirements applicable to them under the supervisory framework. In particular, the jurisdiction should have a system to ensure that the rules governing banks’ usage of the options are met, and that the usage of the options within the banking system can be monitored and controlled. To achieve this, the framework should be able to address the aspects mentioned below.
Supervisory requirements
29. The jurisdiction should set out clearly the requirements that banks should meet in order to use the options to comply with the LCR. The requirements may differ depending on the option to be used as well as jurisdiction-specific considerations. The scope of these requirements will generally cover the following areas:
(i) Rules governing banks’ usage of the options
The jurisdiction should devise the supervisory requirements governing banks’ usage of the options, having regard to the guidance set out in Annex 3. Any bank-specific requirements should be clearly communicated to the affected banks.
(ii) Minimum amount of Level 1 asset holdings
Banks using the options should be informed of the minimum amount of Level 1 assets that they are required to hold in the relevant currency. The jurisdiction is expected to set a minimum level for banks in the jurisdiction. This should complement the requirement under (iii) below.
(iii) Maximum amount of usage of the options
In order to control the usage of the options within the banking system, banks should be informed of any supervisory restriction applicable to them in terms of the maximum amount of alternative HQLA (under each or all of the options) they are allowed to hold. For example, if the maximum usage level is 70%, a bank should maintain at least 30% of its high quality liquid asset stock in Level 1 assets in the relevant currency.
The maximum level of usage of the options set by the jurisdiction should be consistent with the calculations and projections used to support its compliance with Principle 1 and Principle 2.
(iv) Relevant haircuts for using the options
The jurisdiction may apply additional haircuts to banks that use the options to limit the uncertainty of performance, or mitigate the risks of non-performance, of the options used (see Principle 2). These should be clearly communicated to the affected banks.
For example, a jurisdiction that relies heavily on Option 3 may observe that a large amount of Level 2A assets will be held by banks to fulfil their LCR needs, thereby increasing the market liquidity risk of these assets. This may necessitate increasing the Option 3 haircut for banks that rely heavily on these Level 2A assets.
(v) Any other restrictions
The jurisdiction may choose to apply further restrictions to banks that use the options, which must be clearly communicated to them.
Reporting requirements
30. The jurisdiction should demonstrate that through its data collection framework (eg as part of regular banking returns), sufficient data can be obtained from its banks to ascertain compliance with the supervisory requirements as communicated to the banks. The jurisdiction should determine the reporting requirements, including the types of data and information required, the manner and frequency of reporting, and how the data and information collected will be used.
Monitoring approach
31. The jurisdiction should also indicate how it intends to monitor banks’ compliance with the relevant rules and requirements. This may be performed through a combination of off-site analysis of information collected, prudential interviews with banks and on-site examinations as necessary. For example, an on-site review may be necessary to determine the quality of a bank’s foreign exchange risk management in order to assess the extent which the bank should be allowed to use Option 2 to satisfy its LCR requirements.
Supervisory toolkit and powers
32. The jurisdiction should demonstrate that it has sufficient supervisory powers and tools at its disposal to ensure compliance with the requirements governing banks’ usage of the options. These will include tools for assessing compliance with specific requirements (eg foreign exchange risk management under Option 2 and price risk management under Option 3) as well as general measures and powers available to impose penalties should banks fail to comply with the requirements applicable to them. The jurisdiction should also demonstrate that it has sufficient powers to direct banks to comply with the general rules and/or specific requirements imposed on them. Examples of such measures are the power to issue directives to the banks, restriction of financial activities, financial penalties, increase of Pillar 2 capital, etc.
33. The jurisdiction should also be prepared to restrict a bank from using the options should it fail to comply with the relevant requirements.
Criterion (b): The jurisdiction must document and update its approach to adopting an alternative treatment, and make that explicit and transparent to other national supervisors. The approach should address how it complies with the applicable criteria, limits and obligations set out in the qualifying principles, including the determination of insufficiency in HQLA and other key aspects of its framework for alternative treatment.
34. The jurisdiction should demonstrate that it has a clearly documented framework that will be disclosed (whether on its website or through other means) upon the adoption of the options for alternative treatment. The document should contain clear and transparent information that will enable other national supervisors and stakeholders to gain a sufficient understanding of its compliance with the qualifying principles for adoption of the options and the manner in which it supervises the use of the options by its banks.
35. The disclosure should cover, at a minimum, the following:
(i) Assessment of insufficiency in HQLA: the jurisdiction’s self-assessment of insufficiency in HQLA in the domestic currency, including relevant data about the supply of, and demand for, HQLA, and major factors (eg structural, cyclical or jurisdiction-specific) influencing the supply and demand. This assessment should correspond with the self-assessment required under criterion 3(c) below;
(ii) Supervisory framework for adoption of alternative treatment: the jurisdiction’s approach to applying the alternative treatment, including the option(s) allowed to be used by banks, any guidelines, requirements and restrictions associated with the use of such option(s) by banks, and approach to monitoring banks’ compliance with them;
(iii) Option 1-related information: if Option 1 will be adopted, the terms of the committed liquidity facility, including the maturity of the facility, the commitment fee charged (and the approach adopted for setting the fee), securities eligible as collateral for the facility (and margins required), and other terms, including any restrictions on banks’ usage of this option;
(iv) Option 2-related information: if Option 2 will be adopted, the foreign currencies (and types of securities under those currencies) allowed to be used, haircuts applicable to the foreign currency HQLA, and any restrictions on banks’ usage of this option;
(v) Option 3-related information: if Option 3 will be adopted, the Level 2A assets allowed to be used in excess of the 40% cap (and the associated criteria), haircuts applicable to Level 2A assets (within and above the 40% cap), and any restrictions on banks’ usage of this option.
36. The jurisdiction should update the disclosed information whenever there are changes to the information (eg updated self-assessment of insufficiency in HQLA performed).
Criterion (c): The jurisdiction must review periodically the determination of insufficiency in HQLA at intervals not exceeding five years, and disclose the results of review and any consequential changes to other national supervisors and stakeholders.
37. The jurisdiction should perform a review of its eligibility for alternative treatment every five years after it has adopted the options. The primary purpose of this review is to determine that there remains an issue of insufficiency in HQLA in the jurisdiction. The review should be in the form of a self-assessment of the jurisdiction’s compliance with each of the Principles set out in this Annex.
38. The jurisdiction should have a credible process for conducting the self-assessment, and should provide sufficient information and analysis to support the self-assessment. The results of the self-assessment should be disclosed (on its website or through other means) and accessible by other national supervisors and stakeholders.
39. Where the self-assessment reflects that the issue of insufficiency in HQLA no longer exists, the jurisdiction should devise a plan for transition to the standard HQLA treatment under the LCR and notify the Basel Committee accordingly. If the issue of insufficiency remains but weaknesses in the jurisdiction’s relevant supervisory framework are identified from the self-assessment, the jurisdiction should disclose its plan to address those weaknesses within a reasonable period.
40. If the jurisdiction is aware of circumstances (eg relating to fiscal conditions, market infrastructure or availability of liquidity, etc.) that have radically changed to an extent that may render the issue of insufficiency in HQLA no longer relevant to the jurisdiction, it will be expected to conduct a self-assessment promptly (ie without waiting until the next self-assessment is due) and notify the Basel Committee of the result as soon as practicable. The Basel Committee may similarly request the jurisdiction to conduct a self-assessment ahead of schedule if the Committee is aware of changes that will significantly affect the jurisdiction’s eligibility for alternative treatment.
Criterion (d): The jurisdiction must permit an independent peer review of its framework for alternative treatment to be conducted as part of the Basel Committee’s work programme and address the comments made.
41. The Basel Committee will oversee the independent peer review process for determining the eligibility of its member jurisdictions to adopt alternative treatment. Hence, any member jurisdiction of the Committee that intends to adopt the options for alternative treatment will permit an independent peer review of its eligibility to be performed, based on a self-assessment report prepared by the jurisdiction to demonstrate its compliance with the Principles. The independent peer review will be conducted in accordance with paragraphs 55 to 56 of the Basel III liquidity framework. The jurisdiction will also permit follow-up review to be conducted as necessary.
42. The jurisdiction will be expected to adopt a proactive attitude to responding to the outcome of the peer review and comments made.
65 Use QIS data wherever possible. Supervisors should be collecting data on LCR from 1 January 2012.
66 For HQLA that are subject to caps or haircuts (eg Level 2 assets), the effects of such constraints should be accounted for.
67 Some deficits during economic downturns need to be catered for. Moreover, the recent surplus/deficit situation is relevant for assessment.
68 This is to enhance market confidence rather than to query the jurisdiction’s ability to honour its commitments.
69 This is the minimum sovereign rating that qualifies for a 0% risk weight under the Basel II Standardised Approach for credit risk.
70 Paragraph 58 requires the fee to be charged regardless of the amount, if any, drawn down against the facility.
71 Paragraph 58 presents the conceptual framework for setting the fee.
72 Paragraph 58 requires the maturity date to at least fall outside the 30-day LCR window and the contract to be irrevocable prior to maturity.
73 Paragraph 58 requires the contract not to involve any ex-post credit decision by the central bank.
74 For example, clarification may be necessary in cases where only central government debt will be allowed, or Level 1 securities issued by multilateral development banks in some currencies will be allowed.
75 This is relative to the exchange rate volatilities between the domestic currency and other foreign currencies with which the domestic currency is traded.
76 For example, the central banks of the two currencies concerned may have entered into special foreign exchange swap agreements that facilitate the flow of liquidity between the currencies.
77 These currencies refer to those that exhibit significant and active market turnover in the global foreign currency market (eg the average market turnover of the currency as a percentage of the global foreign currency market turnover over a ten-year period is not lower than 10%).
78 Under paragraph 62, a minimum higher haircut of 20% should be applied to additional Level 2A assets used under this option. The jurisdiction should conduct an analysis to assess whether the 20% haircut is sufficient for Level 2A assets in its market, and should increase the haircut to an appropriate level if this is warranted in order to achieve the purpose of the haircut. The relevant analysis should be provided for independent peer review during which the jurisdiction should explain and justify the outcome of its analysis.Annex 3: Guidance on Standards Governing Banks’ Usage of the Options for Alternative Liquidity Approaches (ALA) Under LCR
1. The following general and specific rules governing banks’ usage of the options are for the guidance of supervisors in developing relevant standards for their banks:
1. General Rules
(i) A bank that needs to use an alternative treatment to meet its LCR must report its level of usage to the bank supervisor on a regular basis.
2. A bank is required to keep its supervisor informed of its usage of the options so as to enable the supervisor to manage the aggregate usage of the options in the jurisdiction and to monitor, where necessary, that banks using such options observe the relevant supervisory requirements.
3. While bank-by-bank approval by the supervisor is not required for use of the ALA options, this will not preclude individual supervisors from considering specific approval for banks to use the options should this be warranted based on their jurisdiction-specific circumstances. For example, use of Option 1 will typically require central bank approval of the committed facility.
(ii) A bank should not use an alternative treatment to meet its LCR more than its actual need as reflected by the shortfall of eligible HQLA to cover its HQLA requirements in the relevant currency.
4. A bank that needs to use the options should not be allowed to use such options above the level required to meet its LCR (including any reasonable buffer above the 100% standard that may be imposed by the supervisor). Banks may wish to do so for a number of reasons. For example, they may want to have an additional liquidity facility in anticipation of tight market conditions. However, supervisors may consider whether this should be accommodated. Supervisors should also have a process (eg through periodic reviews) for ensuring that the alternative HQLA held by banks are not excessive compared with their actual need. In addition, banks should not intentionally replace its stock of Level 1 or Level 2 assets with ineligible HQLA to create a larger liquidity shortfall for economic reasons or otherwise.
(iii) A bank must demonstrate that it has taken reasonable steps to use Level 1 and Level 2 assets and reduce the amount of liquidity risk (as measured by reducing net cash outflows in the LCR) to improve its LCR, before applying an alternative treatment.
5. Holding a HQLA portfolio is not the only way to mitigate a bank’s liquidity risk. A bank must show that it has taken concrete steps to improve its LCR before it applies an alternative treatment. For example, a bank could improve the matching of its assets and liabilities, attract stable funding sources, or reduce its longer term assets. Banks should not treat the use of the options simply as an economic choice.
(iv) A bank must use Level 1 assets to a level that is consistent with the availability of the assets in the market. The minimum level will be set by the bank supervisor for compliance.
6. In order to ensure that banks’ usage of the options is not out of line with the availability of Level 1 assets within the jurisdiction, the bank supervisor may set a minimum level of Level 1 assets to be held by each bank that is consistent with the availability of Level 1 assets in the market. A bank must then ensure that it is able to hold and maintain Level 1 assets not less than the minimum level when applying the options.
II. Specific Standards for Option 2
(v) A bank using Option 2 must demonstrate that its foreign exchange risk management system is able to measure, monitor and control the foreign exchange risk resulting from the currency-mismatched HQLA positions. In addition, the bank must show that it can reasonably convert the currency-mismatched HQLA to liquidity in the domestic currency when required, particularly in a stress scenario.
7. To mitigate the risk that excessive currency mismatch may interfere with the objectives of the framework, the bank supervisor should only allow banks that are able to measure, monitor and control the foreign exchange risk arising from the currency mismatched HQLA positions to use this option. As the HQLA that are eligible under Option 2 can be denominated in different foreign currencies, banks must assess the convertibility of those foreign currencies in a stress scenario. As participants in the foreign exchange market, they are in the best position to assess the depth of the foreign exchange swap or spot market for converting those assets to the required liquidity in the domestic currency in times of stress. The supervisor is also expected to restrict the currencies of the assets that are eligible under Option 2 to those that have been historically proven to be convertible into the domestic currency in times of stress.
III. Specific Standards for Option 3
(vi) A bank using Option 3 must be able to manage the price risk associated with the additional Level 2A assets. At a minimum, they must be able to conduct stress tests to ascertain that the value of its stock of HQLA remains sufficient to support its LCR during a market-wide stress event. The bank should take a higher haircut (ie higher than the supervisor-imposed Option 3 haircut) on the value of the Level 2A assets if the stress test results suggest that they should do so.
8. As the quality of Level 2A assets is lower than that for Level 1 assets, increasing its composition would increase the price risk and hence the volatility of the bank’s stock of HQLA. To mitigate the uncertainty of performance of this option, banks are required to show that the values of the assets under stress are sufficient. They must, therefore, be able to conduct stress tests to this effect. If there is evidence to suggest that the stress parameters are more severe than the haircuts set by bank supervisors, the bank should adopt the more prudent parameters and consequently increase HQLA as necessary.
(vii) A bank using Option 3 must show that it can reasonably liquidate the additional Level 2A assets in a stress scenario.
9. With additional reliance on Level 2A assets, it is essential to ensure that the market for these assets has sufficient depth. This standard can be implemented in several ways. The supervisor can:
• require Level 2A assets that can be allowed to exceed the 40% cap to meet higher qualifying criteria (eg minimum credit rating of AA+ or AA instead of AA-, central bank eligible, etc.);
• set a limit on the minimum issue size of the Level 2A assets which qualifies for use under this option;
• set a limit on the bank’s maximum holding as a percentage of the issue size of the qualifying Level 2A asset;
• set a limit on the maximum bid-ask spread, minimum volume, or minimum turnover of the qualifying Level 2A asset; and
• any other criteria appropriate for the jurisdiction.
These requirements should be more severe than the requirements associated with Level 2 assets within the 40% cap. This is because the increased reliance on Level 2A assets would increase its concentration risk on an aggregate level, thus affecting its market liquidity.
Annex 4: Illustrative Summary of the LCR
(percentages are factors to be multiplied by the total amount of each item)
Item Factor Stock of HQLA A. Level 1 assets: • Coins and bank notes 100% • Qualifying marketable securities from sovereigns, central banks, PSEs, and multilateral development banks • Qualifying central bank reserves • Domestic sovereign or central bank debt for non-0% risk-weighted sovereigns B. Level 2 assets (maximum of 40% of HQLA): Level 2A assets • Sovereign, central bank, multilateral development banks, and PSE assets qualifying for 20% risk weighting 85% • Qualifying corporate debt securities rated AA- or higher • Qualifying covered bonds rated AA- or higher Level 2B assets (maximum of 15% of HQLA) • Qualifying RMBS 75% • Qualifying corporate debt securities rated between A+ and BBB- 50% • Qualifying common equity shares 50% Total value of stock of HQLA Cash Outflows A. Retail deposits: Demand deposits and term deposits (less than 30 days maturity) • Stable deposits (deposit insurance scheme meets additional criteria) 3% • Stable deposits 5% • Less stable retail deposits 10% Term deposits with residual maturity greater than 30 days 0% B. Unsecured wholesale funding: Demand and term deposits (less than 30 days maturity) provided by small business customers:
• Stable deposits 5% • Less stable deposits 10% Operational deposits generated by clearing, custody and cash management activities 25% • Portion covered by deposit insurance 5% Cooperative banks in an institutional network (qualifying deposits with the centralised institution) 25% Non-financial corporates, sovereigns, central banks, multilateral development banks, and PSEs 40% • If the entire amount fully covered by deposit insurance scheme 20% Other legal entity customers 100% C. Secured funding: • Secured funding transactions with a central bank counterparty or backed by Level 1 assets with any counterparty. 0% • Secured funding transactions backed by Level 2A assets, with any counterparty 15% • Secured funding transactions backed by non-Level 1 or non-Level 2A assets, with domestic sovereigns, multilateral development banks, or domestic PSEs as a counterparty 25% • Backed by RMBS eligible for inclusion in Level 2B 25% • Backed by other Level 2B assets 50% • All other secured funding transactions 100% D. Additional requirements: Liquidity needs (eg collateral calls) related to financing transactions, derivatives and other contracts 3 notch downgrade Market valuation changes on derivatives transactions (largest absolute net 30-day collateral flows realised during the preceding 24 months) Look back approach Valuation changes on non-Level 1 posted collateral securing derivatives 20% Excess collateral held by a bank related to derivative transactions that could contractually be called at any time by its counterparty 100% Liquidity needs related to collateral contractually due from the reporting bank on derivatives transactions 100% Increased liquidity needs related to derivative transactions that allow collateral substitution to non-HQLA assets 100% ABCP, SIVs, conduits, SPVs, etc: • Liabilities from maturing ABCP, SIVs, SPVs, etc (applied to maturing amounts and returnable assets) 100% • Asset Backed Securities (including covered bonds) applied to maturing amounts. 100% Currently undrawn committed credit and liquidity facilities provided to: • retail and small business clients 5% • non-financial corporates, sovereigns and central banks, multilateral development banks, and PSEs 10% for credit
30% for liquidity• banks subject to prudential supervision 40% • other financial institutions (include securities firms, insurance companies) 40% for credit
100% for liquidity• other legal entity customers, credit and liquidity facilities 100% Other contingent funding liabilities (such as guarantees, letters of credit, revocable credit and liquidity facilities, etc) National discretion • Trade finance 0-5% • Customer short positions covered by other customers’ collateral 50% Any additional contractual outflows 100% Net derivative cash outflows 100% Any other contractual cash outflows 100% Total cash outflows Cash Inflows Maturing secured lending transactions backed by the following collateral: Level 1 assets 0% Level 2A assets 15% Level 2B assets • Eligible RMBS 25% • Other assets 50% Margin lending backed by all other collateral 50% All other assets 100% Credit or liquidity facilities provided to the reporting bank 0% Operational deposits held at other financial institutions (include deposits held at centralised institution of network of co-operative banks) 0% Other inflows by counterparty: • Amounts to be received from retail counterparties 50% • Amounts to be received from non-financial wholesale counterparties, from transactions other than those listed in above inflow categories 50% • Amounts to be received from financial institutions and central banks, from transactions other than those listed in above inflow categories. 100% Net derivative cash inflows 100% Other contractual cash inflows National discretion Total cash inflows Total net cash outflows = Total cash outflows minus min [total cash inflows, 75% of gross outflows] LCR = Stock of HQLA / Total net cash outflows Interest Rates on Assets and Liabilities Reporting Guidelines
No: 420092840000 Date(g): 6/10/2020 | Date(h): 19/2/1442 Status: In-Force With reference to SAMA Circular No. 391000006126 dated 18/01/1439 H and Circular No. 33788/67 dated 30/05/1440 H, which issued the Prudential Reporting Form for commissions on deposits, loans, bonds and other instruments.
we would like to inform you that it has been decided to update the instructions and forms of the Return on Assets and Liabilities (attached) which cancel and replace the guidelines and forms issued under the two circulars referred to above. SAMA emphasizes the obligation of all banks to submit the report to SAMA on a quarterly basis and within thirty days from the end of each quarter, and to be certified by the Chief Financial Officer (CFO) of the bank.
For your information, and to be implemented starting from the fourth quarter of 2020 G.
General
The objective of these guidelines is to facilitate the preparation of the reports on Assets and Liabilities Interest Rates.
These Guidelines shall supersede Saudi Arabian Monetary Authority (SAMA) Guidance note for Quarterly Prudential Returns on Loans and Deposits Commissions issued vide SAMA circular no. 33788/67 dated 30/05/1440H. The changes from the previous version are underlined.
Scope and Submission
All banks operating in Saudi Arabia including foreign banks’ branches must submit the reports to SAMA quarterly within 30 calendar days following the quarter end. Reports should be completed at a domestic level only, and must be signed off by the Chief Finance Officer (CFO) before submission to SAMA.
The report should be submitted in excel format via Email.
Reporting Guidance
Banks should comply with the following in completing the report related to Assets and Liabilities interest rates:
A. Assets and Liabilities Weighted Average (W.A) rates and balances should be submitted as following:
• Template (1) - by Product:
Categorization based on product type for example: loans, investments, placement with SAMA, bonds and deposits.
• Template (2) - by Sector:
Categorization based on the International Standard Industrial Classification (ISIC4).
• Template (3) - by Type Sharia-compliant or Conventional:
Categorization based on the bank’s classification of each product Sharia- compliant or conventional.
B. Assets and liabilities W.A Rates , Balances and Maturity should be reported as follows:
• W.A Rates:
Include annual contractual rates on Assets and Liabilities outstanding at the end of the quarter.
• Balances:
Current Quarter Balance: Includes balance sheet exposure amount booked during the quarter and still outstanding at the quarter end.
Outstanding Balance: Includes total outstanding balances at the end of the quarter including the current quarter balance.
• Maturity:
Includes contractual maturity used to populate the Current Quarter W.A rates and Outstanding W.A rates columns. The movement between buckets is not allowed.
Banks should calculate the W.A rate as described in Annexure -1.
C. All classifications of Assets and Liabilities are mutually exclusive.
D. Benchmark rates must be included in the rate calculation based on booking value.
E. For example: SAIBOR rate on booking date + 3% per annum.
F. Local and Foreign Currency Balance amount should be reported/calculated in SAR 000's and W.A rates in percentage terms.
G. All data for calculating the W.A rate should be related to M1 Domestic (Resident by Local and Foreign Currency) as described in Annexure- 2.
Reporting Categories
A. Assets: Accrued Rates Receivable.
1. Loans to Governments and Quasi Government
Loans to all Sovereign Governments and Quasi Government. An example guidance list in Annexure - 3.
2. Loans to Financial Institutions (Excluding Banks)
Loans to Insurance companies, Finance companies. Authorized Persons, Exchange companies and any other financial institution excluding Banks.
3. Loans to Corporates
3.1 Public Non- Financial Corporates:
Loans to commercial entities in which the Saudi Government or Entities Connected with Saudi Government owns (directly or indirectly) 50% or more of shareholdings. An example guidance list in Annexure - 3.
3.2 Large Corporates, 3.3 Medium, 3.4 Small and 3.5 Micro Enterprises:
Defined as per SAMA circular No.381000064902 dated 16/06/1438 or any subsequent definition by SAMA.
3.6 Kafalah Guaranteed Loans:
Loan to enterprises guaranteed by Kafalah fund and must be excluded from being reported in Medium, Small and Micro Enterprises rows.
3.7 Commercial Real Estate:
Commercial mortgage or commercial real estate loan to finance a commercial real estate asset. These must be excluded from being reported in Large Corporates, Medium, Small and Micro Enterprises Loans rows.
3.8 Other Businesses:
Includes any other loans not already classified in above categories.
4. Retail Loans
4.1 Consumer Loans:
Loans to individuals and households, granted on the following basis:
• Granted by the creditor to a borrower as a secondary activity for the borrower, i.e. outside the scope of the borrower's principal commercial or professional activity. It would generally include personal loans, overdraft facilities, car loans, payment card loans, etc.
• To finance purchase of goods and services for consumption and other such requirements of individuals as identified above e.g. to purchase furniture, household items, home improvement, vacations, education, etc.
4.2 Credit Cards:
Outstanding credit card balances. W.A rate must reported based on contractual Annual Percentage Rate (APR) for this category.
4.3 Mortgages or Housing Loans:
Mortgage or Housing loan to finance a real estate asset. These must be excluded from being reported in Consumer Loans rows.
4.4 Other Loans:
Any other loan not already classified in above categories.
5. Loans to Banks
5.1 Interbank Loans:
Bank-to-bank loan placement in the Money Market only.
5.2 Vostro and Nostro Accounts:
NOSTRO and VOSTRO accounts with debit balances.
5.3 Other banks Loans:
Any other loan between banks not already classified in the above category such as secured loans between banks.
6. Investments
Investments in T-Bills (SAMA Bills and other T-bills), Bonds, fixed and floating rate securities issued by Government and quasi government, corporate, banks and other financial institutions and other counterparties.
7. Placements with SAMA
Reverse repo placements with SAMA.
B. Liabilities: Accrued Rates Payable.
8. By Product Type
8.1 Demand Deposits:
Represent non-special commission bearing customer deposits that have no maturity and can be withdrawn without prior notice. These deposits also include current accounts. If a bank does not pay any commission rate on the demand deposits, the balance should be calculated with 0% rate.
8.2 Saving Deposits:
Represent non-checking special commission bearing customer deposits with no defined maturity.
8.3 Time Deposits:
Represent special commissions bearing customer deposits with a defined maturity.
8.4 Other Deposits:
Any other deposits not already classified in the above category such as Repos, Swaps transaction with SAMA and other.
9. By Counterparties
9.1 Deposits from Government and Quasi Government, 9.2 Deposits from SAMA, 9.3 Deposits from Financial Institutions (Excluding Banks), 9.4 Deposits from Corporates (excluding MSMEs), 9.5 Deposits from MSMEs and 9.6 Deposits from Retail customers:
Total Deposits by Product Type (Total Balances and W.A rates) should equal to Total Deposits by Counterparties (Total Balances and W.A rates).
10. Margin Deposits
Including all deposits received in relation to transaction in exchanges.
11. Bonds and Debt Securities:
Issued by banks
12. Deposits from Banks
12.1 Interbank deposits:
Deposit received from other banks in the Money Market only.
12.2 Vostro and Nostro Accounts:
NOSTRO and VOSTRO accounts with credit balances.
12.3 Other Deposits:
Any other deposits between banks not already classified in the above category such as Repos.
Annexure - 1: Example of Calculating Weighted Average Rates
Below is an example of computing the weighted average rate for a given period end balance amount of SAR 360 Million.
1 2 3=(1*2) Rates Balance in 000’s Rates multiplied by Balance 0% 30,000 - 1% 50,000 500 2% 60,000 1,200 4% 80,000 3,200 5% 90,000 4,500 8% 20,000 1,600 10% 30,000 3,000 Total 360,000 14,000 WA Rates=(3/2)*100 (14000/360000)*100 Weighted Average Rate 3.89% Annexure - 2: Validation Table
The Table explains each item on the interest rates report on assets and liabilities and its Match in M1. Also it indicates in which template each item would be reported.
• Assets
Item from Interest Rates on Assets report M1 match Template(1) Template(2)* Template(3) 1. Loans to Governments & Quasi Government 9. Credit Facilities (9.12, 9.22 and 9.32 Govt. & Quasi-Govt.) excluding public non-financial corporates √ √ √ 2. Loans to Financial Institutions (Excluding Banks) 6. Due From Other Financial Institutions √ √ √ 3. Loans to Corporates 9. Credit Facilities ( 9.11,9.21 and 9.31 Private) including Public non-financial corporates √ √ √ 4. Retail Loans 9. Credit Facilities (9.11,9.21 and 9.31 Private) √ √ √ 5.Loans to Banks 4. Due From Commercial Banks
5. Due From Specialized Banks
8. Due From OBU's√ √ √ 6. Investments 10.1 Marketable Securities
10.2 Govt. Bonds & Govt. Gteed Bonds
10.312 Trading
10.322 Investments√ √ 7. Placements with SAMA 2.6 Others √ √ Notes:
* Assets on Template (2) should be allocated based on the sector.• Liabilities
Item from Interest Rates on Liabilities report M1 match Template(1) Template(2)** Template(3) 8. Total Deposits (By Product Type) 15. Due to SAMA*
21. Govt. & Quasi-Govt. Deposits and 22. Private Sector Deposits√ √ √ 9. Total Deposits (By Counterparties) 15. Due to SAMA
18. Due to Other Financial Institutions
21. Govt. & Quasi-Govt. Deposits and 22. Private Sector Deposits√ √ √ 10. Margin Deposits 23. Marginal Cash-Deposits √ 11. Bonds/ debt securities Issued by Banks 28. Subordinated Loans √ √ 12. Deposits from Banks 16. Due to Commercial Banks
17. Due to Specialized Banks
20. Due To OBU’s√ √ √ Notes:
*Due to SAMA are not included in Template (2).** Liabilities on Template (2) should be allocated based on the sector.
Annexure - 3: Examples of Governments and Quasi Government and Public Non-Financial Corporates
• Governments and Quasi Government :
- Government Universities
- Ministries
- Municipalities
- Government Authorities
- General Organization for Social Insurance (GOSI)
- Social Development Bank
- Public Investment Fund (PIF)
• Public Non- Financial Corporates:
- SABIC- Saudi Arabian Basic Industries
- Saudi Arabian Airlines
- Saudi Arabian Minings (Ma'aden)
- Saudi Electricity Corporations
- Saudi Telecom Company
Central Bank
INTEREST RATES ON ASSETS AND LIABILITIES (V3)
By Product
Current Quarter WA rates Total current amount on Balance Sheet (SAR 000‘s) Outstanding WA Rates Total outstanding amount on Balance Sheet (SAR 000‘s) Local Currency Foreign Currency Total Local Currency Foreign Currency Total Local Currency Foreign Currency Total Local Currency Foreign Currency Total Assets 1. Loans to Governments & Quasi Government - - 2. Loans to Financial Institutions (Excluding Banks) - - 3. Loans to Corporates - - - - - - 3.1 Public Non Financial Corporates - - 3.2 Large Corporates - - 3.3 Medium Enterprises - - 3.4 Small Enterprises - - 3.5 Micro Enterprises - - 3.6 Kafalah Guaranteed Loans - - 3.7 Commercial real estate - - 3.8 Other Businesses - - 4. Retail Loans - - - - - - 4.1 Consumer Loans - - 4.2 Credit Cards - - 4.3 Mortgages or Housing loans - - 4.4 Other Loans - - 5.Loans to Banks - - - - - - 5.1 Inter Bank Loans - - - - - - 5.1.1 Overnight - - 5.1.2 Upto 1 week - - 5.1.3 week to 1 month - - 5.1.4 1 month to 3 months - - 5.1.5 3 months to 6 months - - 5.1.6 6 months to 12 months - - 5.1.7 Over 1 year - - 5.2 Vostro and Nostro Accounts - - 5.3 Other Banks loans - - 6. Investments - - - - - - 6.1 Tbills - - - - - - 6.1.1 SAMA Bills - - 6.1.2 Other Bills - - 6.2 Government bonds and Govt guaranteed bonds - - 6.3 Non Government bonds - - 7. Placements with SAMA - - Liabilities 8. Total Deposits (By Product Type) - - - - - - 8.1 Demand Deposits (including Shariah compliant) - - 8.2 Savings Deposits (including Shariah compliant) - - 8.3 Time Deposits (including Shanah compliant) - - - - - - 8.3.1 Less than 1 month - - 8.3.2 1 - 3 months - - 8.3.3 3 - 6 months - - 8.3.4 6 - 12 months - - 8.3.5 1 year - 2 years - - 8.3.6 2 years - 3 years - - 8.3.7 Over 3 years - - 8.4 Other Deposits - - 9. Total Deposits (By Counterparties) - - - - - - 9.1 Deposits from Government & Quasi Government - - 9.2 Deposits from SAMA - - 9.3 Deposits from Financial Institutions (excluding Banks) - - 9.4 Deposits from Corporates (excluding MSMEs) - - 9.5 Deposits from MSMEs - - 9.6 Deposits from Retail customers - - 10. Margin deposits - - 11. Bonds/ Debt securities - - - - 11.1 Less than 1 year - - 11.2 1-5 years - - 11.3 Over 5 years - - 12. Deposits from Banks - - - - - - 12.1 Inter Bank Deposits - - - - - - 12.1 Overnight - - 12.2 Upto 1 week - - 12.3 1 week to 1 month - - 12.4 1 month to 3 months - - 12.5 3 months to 6 months - - 12.6 6 months to 12 months - - 12.7 Over 1 year - - 12.2 Vostro and Nostro Accounts - - 12.3 Other Deposits - - * Weighted AverageCentral Bank
INTEREST RATES ON ASSETS AND LIABILITIES (V3)
By Sector
Sectors Current Quarter WA rates Total current amount on Balance Sheet (SAR 000‘s) Outstanding WA Rates Total outstanding amount on Balance Sheet (SAR 000‘s) Local Currency Foreign Currency Total Local Currency Foreign Currency Total Local Currency Foreign Currency Total Local Currency Foreign Currency Total Assets 1. Agriculture, forestry and Fishing - - 2. Mining and Quarrying - - 3. Manufacturing - - 4. Electricity, gas, steam and air conditioning supply - - 5. Water supply, sewerage, waste management and remediation activities - - 6. Construction - - 7. Wholesale and retail trade, repair of motor vehicles and motorcycles - - 8. Transportation and storage - - 9. Accommodation and food service activities - - 10. Information and communication - - 11. Financial and insurance activities - - 12. Real estate activities - - 13. Professional, scientific and technical activities - - 14. Administrative and support service activities - - 15. Public administration and defense, compulsory social security - - 16. Education - - 17. Human health and social work activities - - 18. Arts, entertainment and recreation - - 19. Activities of extraterritorial organizations and bodies - - 20. Household (Personal) - - 21. Other Activities - - Liabilities 1. Agriculture, forestry and Fishing - - 2. Mining and Quarrying - - 3. Manufacturing - - 4. Electricity, gas. steam and air conditioning supply - - 5. Water supply, sewerage, waste management and remediation activities - - 6. Construction - - 7. Wholesale and retail trade, repair of motor vehicles and motorcycles - - 8. Transportation and storage - - 9. Accommodation and food service activities - - 10. Information and communication - - 11. Financial and insurance activities - - 12. Real estate activities - - 13. Professional, scientific and technical activities - - 14. Administrative and support service activities - - 15. Public administration and defense, compulsory social security - - 16. Education - - 17. Human health and social work activities - - 18. Arts, entertainment and recreation - - 19. Activities of extraterritorial organizations and bodies - - 20. Household (Personal) - - 21. Other Activities - - Central Bank
INTEREST RATES ON ASSETS AND LIABILITIES (V3)
By Type
Current Quarter WA rates Total current amount on Balance Sheet (SAR 000‘s) Outstanding WA Rates Total outstanding amount on Balance Sheet (SAR 000‘s) Local Currency Foreign Currency Total Local Currency Foreign Currency Total Local Currency Foreign Currency Total Local Currency Foreign Currency Total Assets Loans to Governments & Quasi Government - - - - - - Sharia-compliant - - Conventional - - 2. Loans to Financial Institutions (Excluding Banks) - - - - - - Sharia-compliant - - Conventional - - 3. Loans to Corporates - - - - - - Sharia-compliant - - Conventional - - 4. Retail Loans - - - - - - Sharia-compliant - - Conventional - - 5. Loans to Banks - - - - - - Sharia-compliant - - Conventional - - 6. Investments - - - - - - Sharia-compliant - - Conventional - - 7. Placements with SAMA - - - - - - Sharia-compliant - - Conventional - - Liabilities 8. Total Deposits (By Type) - - - - - - Demand Deposits - - - - - - Sharia-compliant - - Conventional - - Savings Deposits - - - - - - Sharia-compliant - - Conventional - - Time Deposits - - - - - - Sharia-compliant - - Conventional - - Other Deposits - - - - - - Sharia-compliant - - Conventional - - 9. Bonds/ debt securities Issued by Banks - - - - - - Sharia-compliant - - Conventional - - 10. Bank Deposits - - - - - - Sharia-compliant - - Conventional - -