• LM-11 LM-11 Liquidity Coverage Ratio

    • LM-11.1 LM-11.1 General Requirements

      • LM-11.1.1

        The requirements of this section is applicable to all Bahraini conventional bank licensees.

        August 2018

      • LM-11.1.2

        Liquidity Coverage Ratio (LCR) has been developed to promote short-term resilience of a bank's liquidity risk profile. The LCR requirements aim to ensure that a bank has an adequate stock of unencumbered high quality liquidity assets (HQLA) that consists of assets that can be converted into cash immediately to meet its liquidity needs for a 30-calendar day stressed liquidity period. The stock of unencumbered HQLA should enable the bank to survive until day 30 of the stress scenario, by which time appropriate corrective actions would have been taken by management to find the necessary solutions to the liquidity crisis.

        August 2018

      • LM-11.1.3

        Bahraini conventional bank licensees must calculate LCR on a consolidated and on a "solo" basis by using the following formula:

                Stock of HQLA        
        Net cash outflows over the next 30 calendar days

        August 2018

      • LM-11.1.4

        Bahraini conventional bank licensees must meet the minimum LCR of not less than 100 percent on a daily basis.

        August 2018

      • LM-11.1.5

        When applying these requirements on a consolidated basis, the computations of LCR for branches and subsidiaries outside Bahrain must be as per the Rulebook requirements applied 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 bank operates.

        August 2018

      • LM-11.1.6

        In cases of restrictions or reasonable doubt about the capability of Bahraini conventional bank licensees with foreign branches and subsidiaries to transfer surplus liquidity from these branches and subsidiaries to the parent entity, the banks must exclude this surplus liquidity from the calculation of the LCR on a consolidated basis.

        August 2018

      • LM-11.1.7

        No excess liquidity should be recognized by a bank with overseas operations in its consolidated LCR. Thus, the eligible HQLA 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. Any surplus at the legal entity level can only be included in the consolidated stock if the assets would also be freely available to the consolidated (parent) entity in times of stress.

        August 2018

      • LM-11.1.8

        LCR in significant currencies: A currency is considered significant if the aggregate liabilities (both on and off-balance sheet) in that currency amount to 5 percent or more of the bank's aggregate liabilities (both on and off-balance sheet) in all currencies. Bahraini conventional bank licensees must monitor the LCR for each significant currency for the bank and its branches/subsidiaries, inside and outside Bahrain.

        August 2018

      • Frequency of Reporting

        • LM-11.1.9

          Bahraini conventional bank licensees are required to submit their "solo" LCR to the CBB within 7 calendar days following the month end, and their consolidated LCR within 14 calendar days following the month end (as required under Section BR-4.3).

          Amended: July 2019
          August 2018

        • LM-11.1.10

          In cases where the LCR falls, or is expected to fall, below 100 percent, Bahraini conventional bank licensees must immediately notify the CBB, report the reasons for the breach or potential breach and present a plan showing the measures they intend to take to restore the LCR ratio.

          August 2018

        • LM-11.1.11

          The stress scenarios assumed in these requirements must be viewed as a minimum supervisory requirement for Bahraini conventional bank licensees. Banks must construct their own scenarios proportionate to their size, business model and complexity of operations, to assess the level of liquidity they must hold over and above this minimum level. These Internal stress scenarios must incorporate time horizons longer than the one mandated by the requirements mentioned in this section.

          August 2018

        • LM-11.1.12

          Bahraini conventional bank licensees must disclose the information on the LCR concurrently with the publication of their quarterly and year-end financial statements. The LCR must be presented as simple averages of daily LCRs over the current and previous period.

          August 2018

    • LM-11.2 LM-11.2 High Quality Liquid Assets (HQLA)

      • The LCR Components and Operational Requirements

        • LM-11.2.1

          Bahraini conventional bank licensees must hold a stock of unencumbered HQLA to cover the total net cash outflows over a 30-day period under prescribed stress scenario outlined in the LCR requirements.

          August 2018

        • LM-11.2.2

          Assets qualify as HQLA if they can be easily and immediately converted into cash at little or no loss of value under stress circumstances.

          August 2018

        • LM-11.2.3

          Bahraini conventional bank licensees must ensure that no operational impediments exist that can prevent timely monetisation of HQLA during a stress period. Banks also have to demonstrate that they can immediately use the stock of HQLA as a source of available liquidity that can be converted into cash (either through outright sale or repo) to fill funding gaps between cash inflows and outflows at any time during stress periods.

          August 2018

        • LM-11.2.4

          The stock of HQLA must be well diversified within the asset classes themselves (except for sovereign debt of Bahrain, central bank reserves, central bank debt securities and cash). Bahraini conventional bank licensees must 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.

          August 2018

        • LM-11.2.5

          Bahraini conventional bank licensees must ensure that they have internal policies and measures in place, in line with the following operational requirements:

          (a) Banks must periodically monetise a representative proportion of the assets in its stock of HQLA through outright sale or repos, in order to test access to the market, the effectiveness of its process of monetisation, and to minimise the risk of negative signalling during a period of actual stress;
          (b) All assets in the stock must be unencumbered, meaning free of legal, regulatory, contractual or other restrictions on the ability of the bank to liquidate, sell or transfer these assets;
          (c) Assets received in reverse repos and securities financing transactions that are held at the bank, which have not been rehypothecated, and which are legally available for the bank's use, can be considered as part of the stock of HQLA;
          (e) Assets which qualify for HQLA that have been deposited with the central bank but have not been used to generate liquidity may also be included in the stock of HQLA; and
          (f) A bank must exclude from the stock those assets that, although meeting with the definition of 'unencumbered', the bank would not have the operational capability to monetise them for whatever reasons;
          (g) The bank must have a policy in place that identifies legal entities, geographical locations, currencies and specific custodial or bank accounts where HQLA are held;
          (h) The bank must identify whether there are any regulatory, legal or accounting impediments to the transfer of these assets to the banking group level, and only include within its stock of HQLA the assets that are freely transferable;
          (i) The bank must exclude from the stock of HQLA, those assets where there are impediments to sale, such as large fire-sale discounts;
          (j) Banks must not include, in the stock of HQLA, any assets, or liquidity generated from assets, they have received under right of hypothecation, if the beneficial owner has the contractual right to withdraw those assets during the 30-day stress period;
          (k) Banks must include within the stock of HQLA the assets held during the reporting period, irrespective of the residual maturity of these assets. The two categories of assets that can be included in the stock of HQLA are 'Level 1' and 'Level 2'. Level 1 assets can be included without any limit, whereas Level 2 assets can only comprise up to 40 percent of total HQLA;
          (l) Level 2 assets are divided into two categories; level 2A and level 2B, according to the qualifying conditions identified in these requirements;
          (m) As part of level 2, banks may include level 2B assets up to 15 percent of total HQLA. However, level 2 assets must not exceed a cap of 40 percent of total HQLA assets;
          (n) The cap on level 2 and level 2B assets must be determined after the application of required haircuts and after taking into account the unwinding of short-term securities financing transactions maturing within 30 calendar days that involve the exchange of HQLA; and
          (o) Banks must ensure that they maintain appropriate systems and policies to control and monitor potential risks, such as market and credit risk which the banks may face while maintaining these assets.
          August 2018

        • LM-11.2.6

          The composition of HQLA is as follows:

          Level 1 Assets

          Level 1 assets comprise of an unlimited share of the total pool and are not subject to haircuts.

          Level 1 assets are limited to:

          (i) Coins and banknotes;
          (ii) Assets with central banks in countries in which the LCR is being calculated, including cash reserves, to the extent that the CBB allows banks to draw-down these assets in times of stress;
          (iii) Debt securities/Sukuk issued by Government of Bahrain or Gulf Cooperation Council (GCC) countries;
          (iv) Debt securities/Sukuk issued or guaranteed by sovereigns, central banks, PSEs, the International Monetary Fund ('IMF'), the Bank for International Settlements ('BIS'), the Islamic Development Bank ('IDB') or its subsidiaries, the European Central Bank ('ECB') and European Commission ('EC'), or Multilateral Development Banks ('MDB') satisfying the following conditions:
          a) Assigned a 0 percent risk weight as shown in Appendix A;
          b) Traded in large, deep and active repo or cash markets and characterized by a low level of concentration;
          c) Have a proven track record of reliable liquidity in the cash or repo market even during stressed market conditions;
          d) Not an obligation of a financial institution or any of its subsidiaries.
          (v) Where the sovereign has a non-0 percent risk weight, debt securities/Sukuk issued in domestic currency by the sovereign or central bank of the country in which the liquidity risk is being taken, or in the bank's home country; and
          (vi) Where the sovereign has a non-0 percent risk weight, debt securities/Sukuk in foreign currencies issued by the sovereign or central bank up to the amount of the bank's stressed net cash outflows in that specific foreign currency arising from the bank's operations in that jurisdiction.

          Level 2 Assets

          Level 2 assets are subject to a 40 percent cap of the overall stock of HQLA assets after haircuts have been applied.

          A. Level 2A assets

          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;
          (i) Debt securities/Sukuk issued or guaranteed by sovereigns, central banks, PSEs or multilateral development banks that satisfy all the following conditions:
          a. Assigned a 20 percent risk weight, as per Appendix A;
          b. Traded in large deep and active repo or cash markets and characterised by low level of concentration;
          c. Have a proven track record of reliable source of liquidity in the markets (sale or repo) even during stressed market conditions (i.e. maximum price decline not exceeding 10 percent or the increase in haircut not exceeding 10 percent over a 30-day period during a relevant significant stress period); and
          d. Not an obligation of a financial institution, or any of its affiliated entities.
          (ii) Debt securities (including commercial paper)/Sukuk that can be monetised, and covered bonds that satisfy all of the following conditions:
          a. Not issued by a financial institution or any of its affiliated entities;
          b. In the case of covered bonds, not issued by the bank itself or any of its affiliated entities;
          c. Either have a long-term credit rating from a recognized external credit assessment institution ('ECAI') of at least AA-or, in the absence of a long term rating, a short-term rating equivalent in quality to the long-term rating;
          d. Traded in large, deep and active cash or repo markets and characterized by a low level of concentration; and
          e. Have a proven track record of reliable liquidity in the markets, even during stressed market conditions (i.e. maximum price decline not exceeding 10 percent, or the increase in haircut not exceeding 10 percent over a 30-day period during a relevant period of significant liquidity stress).
          B. Level 2B assets

          Level 2B assets are limited to the following;
          (i) Debt securities (including commercial paper)/Sukuk issued by non-financial institutions, subject to a 50 percent haircut, that satisfy all of the following conditions:
          a. Debt securities/Sukuk issued by non-financial institutions, or one of their subsidiaries, and have a long-term credit rating between A+ and BBB- or equivalent, or in the absence of a long-term rating, a short-term rating equivalent to the long-term rating;
          b. Traded in large deep and active repo, or cash markets characterized by a low level of concentration; and
          c. Have a proven track record as a reliable source of liquidity in the markets even during stressed market conditions (i.e. maximum price decline not exceeding 20 percent. or the increase in haircut not exceeding 20 percent over a 30-day period during a relevant period of significant liquidity stress);
          (ii) Common equity shares subject to a 50 percent haircut that satisfy all of the following conditions:
          a. Not issued by a financial institution or any of its affiliated entities;
          b. Exchange traded and centrally cleared;
          c. A constituent of the major stock index in the home jurisdiction or where the liquidity risk is being taken;
          d. Denominated in BHD, USD or in the currency of the jurisdiction where the liquidity risk is being taken;
          e. Traded in large, deep and active repo or cash markets characterized by a low level of concentration; and
          f. Have a proven track record as a reliable source of liquidity in the markets, even during stressed market conditions (i.e. maximum price decline of not exceeding 40 percent, or increase in haircut not exceeding 40 percent over a 30-day period during a relevant period of significant liquidity stress).

          Appendix A provides the calculation of the caps and haircuts.

          August 2018

        • LM-11.2.7

          If a bank wishes to include other assets under level 2B assets, prior approval must be obtained from the CBB.

          August 2018

        • LM-11.2.8

          Bahraini conventional bank licensees must demonstrate their ability to monitor the concentration of the assets in their stock of HQLA, and they must have adequate policies in place for monitoring asset concentration and granular distribution.

          August 2018

    • LM-11.3 LM-11.3 Cash Outflows

      • LM-11.3.1

        Net cash outflow is defined as the total expected cash outflows, minus total expected cash inflows in the 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 OBS commitments with the run-off rates, as shown in these requirements. 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, up to an aggregate cap of 75 percent of total expected cash outflows. (See Appendix A)

        August 2018

      • LM-11.3.2

        If an asset is included as part of the stock of HQLA (i.e. the numerator), the associated cash inflows cannot also be counted as cash inflows (i.e. the denominator).

        August 2018

      • Outflows

        • LM-11.3.3

          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 include demand deposits, saving accounts and term deposits.

          August 2018

        • LM-11.3.4

          Retail deposits are divided into 'stable' and 'less stable' categories as described below:

          A. Stable Deposits

          Stable deposits are subject to a run-off rate of 3%. Stable deposits must meet the following conditions:
          i. Fully insured6 under a deposit insurance scheme; and
          ii. Meets either of the following 2 conditions (a) or (b):
          a) The depositors have other established relationships with the bank that make deposit withdrawal highly unlikely. An established relationship is deemed to exist between the depositor and the bank, if:
          •   The bank has an active contractual relationship with the depositor of at least 12 months duration;
          •   The depositor has a borrowing relationship with the bank for residential loans or other long term loans; or
          •   The depositor has a minimum number of active products, other than loans, with the bank;
          Or
          b) The deposits are in transactional accounts (e.g. accounts where salaries are automatically deposited).
          B. Less Stable Deposits
          (i) Cash outflows related to retail term deposits with a residual maturity or withdrawal notice period greater than 30 days will be excluded from the 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 greater than the loss of profits payable on the deposit;
          (ii) The CBB may, at its discretion, apply run-off rates on these deposits if there are concerns that depositors might withdraw their deposits in the same manner as demand deposits during either normal or stress times, or if there are concerns that banks may have to repay such deposits early in stressed times for reputational reasons;
          (iii) If a bank is unable to readily identify which retail deposits would qualify as 'stable' according to the definition provided above, it must place the full amount in the 'less stable' category; and
          (iv) Run-off rates shall be applied to less stable deposits as outlined in Appendix A.

          6 6 'Fully insured' means that 100 percent of the deposit amount is covered by an effective deposit insurance scheme. Deposit balances up to the deposit insurance limit can be treated as "fully insured". 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 BD 150,000 that is covered by a deposit insurance scheme, which has a limit of BD 100,000, where the depositor would receive at least BD 100,000 from the deposit insurance scheme if the bank were unable to pay, then BD 100,000 would be considered "fully insured" and treated as stable deposits, while BD 50,000 would be treated as less stable deposits.

          6 An established relationship is deemed to exist between the depositor and the bank, if:

          •   The bank has an active contractual relationship with the depositor of at least 12 months duration; or
          •   The depositor has a borrowing relationship with the bank for residential loans or other long term loans; or

          The depositor has a minimum number of active products, other than loans, with the bank.

          August 2018

      • Unsecured Wholesale Funding

        • LM-11.3.5

          Unsecured wholesale funding is defined as those liabilities due to non-naturalised persons (i.e. legal entities, including sole proprietorships) and are not collateralized by legal rights to specifically designated assets owned by the bank in the case of bankruptcy, insolvency, liquidation or resolution. Obligations related to derivative contracts are excluded from this definition.

          August 2018

        • LM-11.3.6

          Bahraini conventional bank licensees must include all funding which 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 must also include funding with options that are exercisable at the investor's discretion within the 30-day calendar day horizon. For funding with options exercisable at the bank's discretion where there is a possibility of not exercising the option (e.g. for reputational reasons), banks must include these liabilities as outflows.

          August 2018

        • LM-11.3.7

          Wholesale funding that is callable by the funds provider subject to a contractually defined and binding notice period exceeding 30 days must not be included in the calculation of the LCR.

          August 2018

        • LM-11.3.8

          For the purpose of the LCR, deposits and unsecured wholesale funding are to be categorized as below (please see Appendix A).

          A. Unsecured Wholesale Funding Provided by Small Business Customers
          (i) This category includes deposits and other funds provided by small business customers (other than financial institutions). For the purpose of these requirements, small business customer deposits are defined as deposits which have the same characteristics of retail accounts, provided that total aggregate funding raised from one small business customer is less than BHD 500,000 (on a consolidated basis where applicable); and
          (ii) Term deposits provided by small business customers are treated the same way as retail deposits.
          B. Operational Deposits Generated by Clearing, Custody and Cash Management Activities
          (i) Certain banking activities that 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 percent run-off factor, only if the customer has a substantive dependency with the bank and the deposit is required for such activities. Banks must seek the CBB's prior approval on such accounts and the CBB may choose not to allow the banks to use operational deposit run-off rates in certain cases;
          (ii) Qualifying activities in this context refer to clearing, custody or cash management activities that meet the following criteria;
          a. The customer is reliant on the bank to perform these services as an independent third-party intermediary over the next 30 days. For example, this condition would not be met if the customer has alternative back-up arrangements;
          b. These services must be provided under a legally binding agreement; and
          c. The termination of such arrangements shall be subject either to a notice period of at least 30 days, or significant switching costs to be borne by the customer if the operational deposits are moved before 30 days.
          (iii) Qualifying operational deposits generated by such activities are ones where:
          a. The deposits are held in specifically designated accounts and priced without giving an economic incentive to the customer for maintaining such deposits; and
          b. The deposits are by-products of the underlying services and not solicited in bulk in the wholesale market.
          (iv) Any excess balances that could be withdrawn, leaving enough funds to fulfil the clearing, custody and cash management activities, do not qualify for the 25 percent run-off rate. Only that portion of the deposit which is proven to meet the customer's needs can qualify as stable. Excess balances must be treated in the category for non-operational deposits;
          (v) Banks must determine methodology for identifying excess balances in operational accounts;
          (vi) If the deposit arises out of correspondent banking, or from the provision of prime brokerage services, it will be treated as if there were no operational activities for the purpose of determining run-off factors; and
          (vii) That 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 and, as such, can be subject to the 5 percent runoff rate factor.
          C. Unsecured Wholesale Funding Provided by Non-financial Corporates and Sovereigns, Central Banks, Multilateral Development Banks and PSEs

          This category comprises all deposits and other extensions of unsecured funding from non-financial corporate customers (that are not categorized as small business customers) and both domestic and foreign sovereign, central bank, multilateral development bank and PSE, Bahrain's Social Insurance Organization and GCC, Public Investment Funds (PIFs)7 that are not held for operational purposes. The run-off factor for these funds is 40 percent and, in cases where the deposit is fully insured, the run-off factor shall be 20 percent.
          D. Unsecured Wholesale Funding Provided by Other Legal Entity Customers
          (i) This category comprise all deposits and other funding from other institutions (including banks, securities firms, insurance companies, etc.), fiduciaries, beneficiaries, special purpose vehicles, affiliated entities of the bank and other entities that are not specifically held for operational purposes and included in the prior categories. The run-off factor for these funds is 100 percent:
          (ii) 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, as per LM-11.3.8A) in which the instruments can be treated in the appropriate retail or small business customer deposit category. To be treated as such, it is not sufficient that the debt instruments are specifically designed and marketed to retail or small business customers, but rather there must be limitations placed such that those instruments cannot be bought and held by parties other than retail or small business customers; and
          (iii) Customer cash balances arising from the provision of prime brokerage services must be considered separate from any balances related to client protection regimes imposed by the regulatory authorities, and must not be netted against other customer exposures included in this Module.

          7 Only deposits from GCC PIFs where the PIF is a controller of the bank must be included under this classification.

          August 2018

      • Secured Funding

        • LM-11.3.9

          Secured funding is defined as those liabilities and general obligations that are collateralised by legal rights to specifically designated assets owned by the bank in the case of bankruptcy, insolvency, liquidation or resolution. The amount of outflow is calculated based on the amount of funds raised through the transaction, and not the value of the underlying collateral. The table below summarises the applicable factors:

          Categories for outstanding maturing secured Amount to add to cash flows %
          Backed by Level 1 assets or with central banks 0%
          Bank by Level 2A assets 15%
          •   Secured funding transactions with domestic sovereign, PSE or multilateral development bank that are not backed by Level 1 or 2 assets
          •   Backed by RMBS eligible for inclusion in Level 2B
          25%
          Backed by other Level 2B assets 50%
          All other transactions 100%
          August 2018

      • Other Cash Outflows

        • LM-11.3.10

          Additional items and their runoff rates as follows:

          A. Derivatives cash outflows:
          (i) The sum of all net cash outflows will receive a 100 percent factor. Banks must calculate, in accordance with their existing valuation methodologies, expected contractual derivative cash inflows and outflows. Cash flows must be calculated on a net basis (i.e. inflows can offset outflows) by counterparty, only where a valid master netting agreement exists. The banks must 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. Options must be assumed to be exercised when they are in the money to the option buyer;
          (ii) Where derivative payments are collateralized by HQLA, cash outflows must be calculated net of any corresponding cash inflows arising from collateral received for derivatives, or that would result from contractual obligations for cash or collateral to be provided to the bank, if the bank is entitled to re-use the collateral in new transactions; and
          (iii) Below run-off rates apply in the following cases:
          a. Increased liquidity needs related to downgrade triggers embedded in financing transactions, derivatives and other contracts. Banks must review those contracts in detail and identify the clauses that require the posting of additional collateral or early repayment upon the ratings downgrades, by and up to three notches. A 100 percent run-off rate will be applied to the amount of collateral that would be posted for, or contractual cash outflows associated with, the credit rating downgrades;
          b. Increased liquidity needs related to the changes in the market value of the bank's posted collateral. A run-off rate of 20 percent must apply to cover the possibility of changes in value of the collateral posted by the bank in the derivatives contract, as well as other transactions. This rate must apply to all collateral, excluding level 1 assets after offsetting the collateral posted by the same counterparty, which can be used again without any restrictions. This rate will be calculated based on the notional amount of the asset after any other applicable haircuts;
          c. A run-off rate of 100 percent will apply to non-segregated collateral that could contractually be recalled by the counterparty because the collateral is in excess of the counterparty's current collateral requirements;
          d. A run-off rate of 100 percent will apply to the collateral that is contractually due, but where the counterparty has not yet demanded the posting of such collateral;
          e. A run-off rate of 100 percent will apply to the amount of HQLA collateral that can be substituted for non-HQLA assets without the bank's consent; and
          f. Banks must calculate the liquidity needs to face potentially substantial liquidity risk exposures, to valuation changes of derivative contracts. This must be calculated by identifying the largest absolute net 30-day collateral flow realized during the preceding 24 months. The net flows of collateral must be calculated by offsetting the collateral inflows and outflows. This must be executed using the same Master Netting Agreement ('MNA')
          B. Asset Backed Securities, Covered Bonds and Other Structured Financing Instruments

          Such transactions are subject to a run-off rate of 100 percent of the funding transaction maturing within the 30-day period, when these instruments are issued by the bank itself (assuming that the refinancing market will not exist).
          C. Asset-backed Commercial Paper, Securities Investment Vehicles and Other Financing Facilities

          A run-off rate of 100 percent must apply to the payments due within a 30-day period. In cases where assets are returnable, a run-off rate of 100 percent must apply to the returned assets when there are derivatives, or derivative-like components, contractually mentioned in the agreements for the structure, allowing the 'return' of assets in a financing arrangement (assuming that the refinancing market will not exist).
          D. Asset-backed Commercial Paper, Securities Investment Vehicles and Other Financing Facilities

          A run-off rate of 100 percent must apply to the payments due within a 30-day period. In cases where assets are returnable, a run-off rate of 100 percent must apply to the returned assets when there are derivatives, or derivative-like components, contractually mentioned in the agreements for the structure, allowing the 'return' of assets in a financing arrangement (assuming that the refinancing market will not exist).
          E. Drawdowns on Committed Credit and Liquidity Facilities

          These facilities include contractually irrevocable ('committed') or conditionally revocable agreements to extend funds. Unconditionally revocable facilities that are unconditionally cancellable are excluded from this section and included in 'Other Contingent Funding Liabilities' section for the purpose of the following requirements:
          (i) When calculating the facilities mentioned in the preceding paragraph, the currently undrawn portion of these facilities is the calculated net of any HQLA if the HQLA have already been posted as collateral by the counterparty to secure the facilities, or are contractually obliged to be posted when the counterparty will draw down the facility if the bank is entitled to re-use the collateral and there is no undue correlation between the probability of drawing the facility and the market value of the collateral. In such cases, the assets posted as collateral can be netted to the extent that this collateral is not already counted in the stock of HQLA, as per these requirements;
          (ii) For the purpose of these requirements, a liquidity facility is defined as any committed, undrawn (unused) backup facility that would be utilized to refinance the debt obligations of a customer in situations where such a customer is unable to rollover that debt in financial markets. To calculate the LCR, an amount equivalent to the currently outstanding debt issued by the customer maturing within a 30-day period is taken, while excluding the portion of the backing debt within this period. General working capital facilities for corporate entities will not be classified as liquidity facilities, but as credit facilities. Any other undrawn facilities will be classified as credit facilities; and
          (iii) Any facilities provided to hedge funds and special purpose funding vehicles or other vehicles used to finance the banks own assets, must be captured in their entirety as a liquidity facility, to other legal entities.
          F. Contractual Obligations To Extend Funds Within a 30-day Period

          Any contractual lending obligations to financial institutions not captured elsewhere in the requirements must be captured here at a 100 percent run-off rate.


          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 percent of the total contractual inflows due in the next 30 calendar days from these clients, the difference must be reported as a 100 percent outflow (i.e. the excess above 50 percent of the total inflow of these clients within a period of 30 days).
          G. Other Contingent Funding Obligations

          The table below shows the cash outflow run-off rates for other contingent funding obligations:

          Table: Run-off rates for Other Contingent Funding Obligations

          Type of Contingent Funding Run-off Rates (%)
          Revocable and unconditional financing and liquidity facilities 'uncommitted'. 5%
          Non-contractual contingent funding obligations related to potential liquidity draws from joint venture or minority investments in entities. 5%
          Obligations related to trade financing (including letters of guarantee and letters of credit). 5%
          Guarantees and letters of credit unrelated to trade finance obligations. 5%
          Non-contractual commitments related to customers' short positions covered by other customers' collateral. 50%
          Outstanding debt securities/Sukuk (more than 30 days maturity). 5%
          Any other non-contractual obligations not captured above. 5%
          (i) Lending commitments, such as direct import or export financing for non-financial corporate firms are excluded from this treatment and banks will apply the run-off rates specified in Appendix A; and
          (ii) A 100 percent run-off rate must apply for any other contractual cash outflows within the next 30 calendar days, not captured above, other than operational expenses (which are not covered by this Module).
          August 2018

    • LM-11.4 LM-11.4 Cash Inflows

      • LM-11.4.1

        When considering its available cash inflows, the bank must only include contractual inflows 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.

        August 2018

      • LM-11.4.2

        Bahraini conventional bank licensees need to monitor the concentration of expected inflows across wholesale counterparties in the context of the banks' liquidity risk management, in order to ensure that liquidity position is not overly dependent on the arrival of expected inflows from one or a limited number of wholesale counterparties.

        August 2018

      • LM-11.4.3

        The amount of inflows that can offset outflows is capped at 75 percent of the total expected cash outflows, as calculated in the Module for the purpose of calculating the net cash outflows.

        August 2018

      • A. Secured Lending, Including Reverse Repos and Securities Borrowing

        • LM-11.4.4

          A bank must assume that maturing financing transactions secured by level 1 assets will be rolled-over and will not give rise to any cash inflows; as a result, an inflow factor of 0 percent will be applied to this kind of transaction. While maturing financing transactions 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 secured financing transactions which have been secured by non-HQLA assets, and can assume receiving back 100 percent of the cash related to those agreements (i.e. an inflow factor of 100 percent).

          August 2018

        • LM-11.4.5

          Maturing secured lending transactions backed by different asset categories will receive different factors provided that the collateral obtained through reverse repo, or securities borrowing which matures within the 30-day horizon, is not used to cover short positions.

          August 2018

        • LM-11.4.6

          If the collateral obtained through reverse repo or securities borrowing matures within the 30-day horizon, and is re-used to cover short positions that could be extended beyond 30 days, a bank must assume that the reverse repo or securities borrowing arrangements will be rolled-over and will not give rise to any cash inflow (0 percent).

          August 2018

        • LM-11.4.7

          In the case of a bank's short positions, if the short position is being covered by an unsecured security borrowing, the bank must assign a 100 percent outflow of either cash or HQLA to secure the borrowing, or cash to close out the short position by buying back the security. This must be assigned a 100% run-off rate under the other contractual cash outflows described in LM-11.3.10(F). However, if the bank's short position is being covered by a collateralized securities financing transaction, the bank must assume the short position will be maintained throughout the 30-day period and receive a 0 percent outflow.

          August 2018

      • B. Committed Facilities

        • LM-11.4.8

          No cash inflows are assumed from credit facilities or liquidity facilities that the bank holds at other institutions for its own purposes. As such, these transactions must receive a 0 percent cash inflow rate, meaning that this scenario does not consider inflows from committed credit or liquidity facilities.

          August 2018

      • C. Other Inflows by Counterparty

        • LM-11.4.9

          For all other types of transactions, either secured or unsecured, the bank must apply inflow rates according to the counterparty category, as explained in the following paragraphs.

          August 2018

        • LM-11.4.10

          When considering loan payments, the bank must only include inflows from fully performing loans. For revolving credit facilities, this assumes that the existing loans are rolled-over and that any remaining balances (undrawn) are treated in the same way as a committed facility according to LM-11.3.10(E).

          August 2018

        • LM-11.4.11

          Inflows from loans that have no specific maturity (i.e. have non-defined or open maturity) must not be included; therefore, no assumptions must be applied as to when maturity of such loans would occur. An exception to this would be minimum payments of principal, commission or interest associated with an open maturity financing transactions, provided that such payments are contractually due within 30 days. These minimum payment amounts must be captured as inflows at the rates prescribed in the paragraphs below (articles a. and b.).

          August 2018

        • LM-11.4.12

          Bahraini conventional bank licensees must apply the below rates to the cash inflows maturing within 30 calendar days by counterparty:

          a. Cash inflows from retail customers and small business customers: 50 percent of the contractual amount.
          b. Other wholesale inflows:
          i. 100 percent for financial institutions and central bank counterparties; and
          ii. 50 percent for non-financial wholesale counterparties.
          c. Operational deposits: Deposits held at other financial institutions for operational purposes will receive a 0 percent inflow rate.
          August 2018

        • LM-11.4.13

          Inflows from securities maturing within 30 days not included in the stock of HQLA must be treated in the same category as inflows from financial institutions (i.e. 100 percent inflow). Bahraini conventional bank licensees may also recognize 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. Liquid assets from level 1 and level 2 securities maturing within 30 days must be included as HQLA, provided that they meet all operational and definitional requirements, as laid out in LM-11.2.

          August 2018

      • D. Other Cash Inflows

        • LM-11.4.14

          Derivatives cash inflows: The sum of all net cash inflows must receive a 100 percent inflows factor. The amounts of derivative cash inflows and outflows must be calculated in accordance with the methodology described in LM-11.3.10(A) Sub Paragraph.(i).

          August 2018

        • LM-11.4.15

          Where derivative contracts are collateralized by HQLA, cash inflows must be calculated net of any corresponding cash or contractual outflows that would result, all other things being equal, from contractual obligations for cash or collateral to be posed by the bank, given these contractual obligations would reduce the stock of HQLA. This is in accordance with the principle that banks must not double-count liquidity inflows or outflows.

          August 2018

        • LM-11.4.16

          Other contractual cash inflows: Other contractual cash inflows must be captured here, with an explanation given as to what this bucket comprises of; they must receive a 100 percent inflow rate. Cash inflows related to cash flows which are not pertinent to the bank's primary activities are not taken into account in the calculation of the net cash outflows for the purposes of calculating the LCR.

          August 2018