Your access and use of SAMA Regulatory Rulebook and its content is considered as an acceptance and approval of commitment by you without any limitation or condition to the following:
SAMA Regulatory Rulebook is a platform that aims to assist the regulated entities to access SAMA regulatory content adeptly and efficiently.
SAMA Regulatory Rulebook is still on its development and soft launch stage. SAMA is not liable for its contents and does not warrant or represent that (the Services related to the platform, information or material presented in the platform) is displayed free of any inaccuracies, omissions, or errors (“Faults”). SAMA accepts no liability for any loss, claim or damage resulting from any use of the platform, and any decisions made, or actions taken based on the information contained in or generated by the platform.
SAMA Regulatory Rulebook has no legal effect and it does not aim to amend or revoke any legal provisions. The Rulebook still Contains some documents under review, including translated versions. Therefore, SAMA Regulatory content circulated through SAMA official channels remains in force.
Without prejudice to the terms of use of SAMA website Hereby, you acknowledge that any illegal, unauthorized use and/or any breach of any of these provisions may result in legal actions against you.
Effective from Jan 01 2023 - Dec 31 2022 To view other versions open the versions tab on the right
Finance companies should have documented and well tested methodologies for measuring liquidity risk which are updated on regular basis to reflect changing market conditions. For measuring liquidity risk, a finance company may use a range of measurement techniques, time horizons and levels of granularity.
A finance company should be able to measure and forecast its future cash flows arising from all of its positions, whether on-or off-balance sheet, over a range of time horizons in order to assess its exposure to changes in cash flows and liquidity needs over time, considering the composition of its balance sheet. These time horizons range from weekly and monthly for short-term liquidity assessments, up to one year for medium-term, and over one year for longer-term assessments.
Finance companies should use an appropriate method to calculate the net funding requirement. Companies may use cash-flow mismatch or maturity gap for calculating the net funding requirement, which is based on an estimation of the amount and timing of future cash flows with respect to contractual or expected maturity. The calculation of net funding requirements involves the construction of a maturity ladder to analyze prospective cash flows based on assumptions of the future behavior of assets, liabilities and off-balance sheet items and then the calculation of a cumulative net excess or deficit in funding at a series of points in time. The negative maturity gaps or deficits indicate the level of liquidity a company would possibly need to raise in each of the time bands if all outflows occurred at the earliest possible date.
In order to ensure the reliability of the forecasting process, finance companies should implement appropriate internal controls on data aggregation and processing including validation and plausibility checks. Finance companies should also ensure that the assumptions it makes are practical, realistic and properly documented. The validations and back-testing results should be properly documented and communicated to senior management.
Finance companies should set limits for controlling liquidity risk exposure and ensure that they do not have a level of outflows which cannot be funded in the market, taking account of their risk tolerance and historical record. Depending upon their size, nature of operations and business model, finance companies may set internal limits on funding concentrations, discrete or cumulative cash flow mismatches or gaps over time horizons and stress scenarios, cash flow coverage, liquidity buffers, cost of funding, liquid assets ratio, counterparty exposures and undrawn commitments, etc.
Finance companies using originate-to-distribute business models, relying on securitization markets as a source of continual funding, should also consider setting limits on the size of their loan inventory pipeline, since securitization markets may become unreliable during stressed periods.
