| 7.4.1 | OBS items include commitments (including liquidity facilities), whether or not unconditionally cancellable, direct credit substitutes, acceptances, standby letters of credit and trade letters of credit.
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| 7.4.2 | Treatment of OBS items for inclusion in the Leverage ratio exposure measure should be as follows:
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| | (i) | The standardized approach for credit risk as it applies to individual claims and the standardized approach for counterparty credit risk (SA-CCR) as well as treatments unique to the Leverage ratio framework.
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| | (ii) | If the OBS item is treated as a derivative exposure per the bank's relevant accounting standard, then the item must be measured as a derivative exposure for the purpose of the Leverage ratio exposure measure. In this case, the bank does not need to apply the OBS item treatment to the exposure.
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| | (iii) | OBS items are converted under the standardized approach for credit risk into credit exposure equivalents through the use of credit conversion factors (CCFs) as mentioned in the latest risk-based capital framework adopted by SAMA. For the purpose of determining the exposure amount of OBS items for the Leverage ratio, the CCFs set out in Paragraph 7.4.3 from (iv) to (x) must be applied to the notional amount.
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| | (iv) | Specific and general provisions set aside against OBS exposures that have decreased regulatory capital may be deducted from the credit exposure equivalent amount of those exposures (ie the exposure amount after the application of the relevant CCF). However, the resulting total off-balance sheet equivalent amount for OBS exposures cannot be less than zero.
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| 7.4.3 | Calculation of off balance sheet items should be as follows:
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| | (i) | For the purposes of the Leverage ratio, OBS items will be converted into credit exposures by multiplying the committed but undrawn amount by a credit conversion factor (CCF).
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| | (ii) | Commitment means any contractual arrangement that has been offered by the bank and accepted by the client to extend credit, purchase assets or issue credit substitutes. It includes the following:
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| | | a. | Any arrangement that can be unconditionally cancelled by the bank at any time without prior notice to the obligor.
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| | | b. | Any arrangement that can be cancelled by the bank if the obligor fails to meet conditions set out in the facility document, including conditions that must be met by the obligor prior to any initial or subsequent drawdown arrangement.
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| | (iii) | Certain arrangements that meets the following requirements can be exempted from the definition of commitments after obtaining SAMA prior approval:
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| | | a. | The bank receives no fees or commissions to establish or maintain the arrangements;
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| | | b. | The client is required to apply to the bank for the initial and each subsequent drawdown;
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| | | c. | The bank has full authority, regardless of the fulfilment by the client of the conditions set out in the facility documentation, over the execution of each drawdown; and
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| | | d. | The bank's decision on the execution of each drawdown is only made after assessing the creditworthiness of the client immediately prior to drawdown. Exempted arrangements that meet the above criteria are confined to certain arrangements for corporates and SMEs21, where counterparties are closely monitored on an ongoing basis).
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| | (iv) | A 100% CCF will be applied to the following items:
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| | | a. | Direct credit substitutes, e.g. general guarantees of indebtedness (including standby letters of credit serving as financial guarantees for loans and securities) and acceptances (including endorsements with the character of acceptances).
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| | | b. | Forward asset purchases, forward forward deposits and partly paid shares and securities, which represent commitments with certain drawdown.
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| | | c. | The exposure amount associated with unsettled financial asset purchases (i.e. the commitment to pay) where regular-way unsettled trades are accounted for at settlement date. Banks may offset commitments to pay for unsettled purchases and cash to be received for unsettled sales provided that the following conditions are met:
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| | | | ■ | the financial assets bought and sold that are associated with cash payables and receivables are fair valued through income and included in the bank's regulatory trading book as specified in Boundary between the banking book and the trading book in the Minimum Capital Requirement for Market Risk issued by SAMA paragraph 5.1 to 5.13; and
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| | | | ■ | The transactions of the financial assets are settled on a DVP basis.
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| | | d. | Off-balance sheet items that are credit substitutes not explicitly included in any other category.
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| | (v) | A 50% CCF will be applied to the following :
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| | | a. | Note issuance facilities (NIFs) and revolving underwriting facilities (RUFs) regardless of the maturity of the underlying facility.
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| | | b. | To certain transaction-related contingent items (e.g. performance bonds, bid bonds, warranties and standby letters of credit related to particular transactions).
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| | (vi) | A 40% CCF will be applied to commitments, regardless of the maturity of the underlying facility, unless they qualify for a lower CCF.
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| | (vii) | A 20% CCF will be applied to both the issuing and confirming banks of short-term(Less than a year) self-liquidating trade letters of credit arising from the movement of goods (e.g. documentary credits collateralized by the underlying shipment).
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| | (viii) | A 10% CCF will be applied to commitments that are unconditionally cancellable at any time by the bank without prior notice, or that effectively provide for automatic cancellation due to deterioration in a borrower's creditworthiness.
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| | (ix) | Where there is an undertaking to provide a commitment on an off-balance sheet item, banks are to apply the lower of the two applicable CCFs. For example, if a bank has a commitment to open short-term self-liquidating trade letters of credit arising from the movement of goods, a 20% CCF will be applied (instead of a 40% CCF); and if a bank has an unconditionally cancellable commitment described in 7.92 in the Minimum Capital Requirements for Credit Risk issued by SAMA to issue direct credit substitutes, a 10% CCF will be applied (instead of a 100% CCF).
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| | (x) | OBS securitization exposures must be treated as per paragraph 18.20 in the Minimum Capital Requirements for Credit Risk issued by SAMA.
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