CA-15.4.6

For the purpose of the leverage ratio, OBS items must be converted into credit exposure equivalents through the use of credit conversion factors (CCFs).

CA-15.4.7

For the purpose of Paragraph CA-15.4.6, commitments include any contractual arrangement that has been offered by the bank and accepted by the client to extend credit, purchase assets or issue credit substitutes.

CA-15.4.8

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) receive a CCF of 100%.

CA-15.4.9

The exposure amount associated with unsettled financial asset purchases where regular-way unsettled trades are accounted for at settlement date, a 100% CCF applies.

CA-15.4.10

Forward asset purchases, forward deposits and partly paid shares and securities, which represent commitments with certain drawdown, will receive a CCF of 100%.

CA-15.4.11

The following transaction-related contingent items — performance bonds, bid bonds, warranties and standby letters of credit related to particular transactions, receive a CCF of 50%.

CA-15.4.12

Note issuance facilities (NIFs), and revolving underwriting facilities (RUFs) receive a CCF of 50%.

CA-15.4.13

A 40% CCF will be applied to commitments, regardless of the maturity of the underlying facility, unless they qualify for a lower CCF.

CA-15.4.14

A 20% CCF will be applied to both the issuing and confirming banks of short-term³⁸ self-liquidating trade letters of credit arising from the movement of goods (e.g. documentary credits collateralised by the underlying shipment).

³⁸ That is, with a maturity below one year. For further details see Basel Committee on Banking Supervision, Treatment of trade finance under the Basel capital framework, October 2011, www.bis.org/publ/bcbs205.pdf.

CA-15.4.15

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.

CA-15.4.16

The CBB shall evaluate various factors in the jurisdiction, which may constrain banks' ability to cancel the commitment in practice, and consider applying a higher CCF to certain commitments as appropriate.

CA-15.4.17

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.³⁹

³⁹ 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 to issue direct credit substitutes, a 10% CCF will be applied (instead of a 100% CCF).

CA-15.4.18

All off-balance sheet securitisation exposures, except an eligible liquidity facility or an eligible servicer cash advance facility as set out in Paragraphs CA-6.4.18 and CA-6.4.20 of this Module, receive a CCF of 100% conversion factor. All eligible liquidity facilities receive a CCF of 50%. Undrawn servicer cash advances or facilities that are unconditionally cancellable without prior notice are eligible for a 10% CCF.