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  • LM-1 LM-1 Minimum Liquidity Requirements

    • LM-1.1 LM-1.1 General Requirements

      • LM-1.1.1

        Licensees must maintain on a continuing basis an appropriate mix of high quality liquid assets in order to meet their obligations when they fall due and to address any liquidity needs and unexpected cash flow required for funding needs.

        January 2014

      • LM-1.1.2

        To address the requirements of Paragraph LM-1.1.1, a minimum amount of liquid assets must be maintained by the licensee. The minimum level of liquid assets is determined by the minimum stock liquidity ratio (See Section LM-1.2) and maturity mismatch ratios (See Section LM-1.3) that must be complied with by the licensee.

        January 2014

      • LM-1.1.3

        Licensees must ensure that at all times they maintain the minimum stock liquidity ratio and maturity mismatch ratios outlined in Paragraph LM-1.1.2. In the event that the licensee does not comply with these ratios, it must notify the CBB by no later than the following business day of the actual level of the ratios. When providing such notification, the licensee must:

        (a) Provide to the CBB, within one week of the non-compliance, a written action plan setting out how the licensee proposes to restore its ratios to the required minimum level and describe the systems and controls that have been put in place to prevent any future non-compliance of the minimum ratios;
        (b) Report to the CBB, on a weekly basis or on another timely basis as required by the CBB, the average stock liquidity ratio until such time as it reaches 30%; and
        (c) Report to the CBB on a monthly basis or on another timely basis as required by the CBB, the negative cumulative maturity mismatch ratios until such time as the 3-month maturity does not exceed 15% and the 6-month maturity band does not exceed 20%.
        January 2014

    • LM-1.2 LM-1.2 Stock Liquidity Ratio

      • LM-1.2.1

        Licensees must maintain a minimum stock liquidity ratio of 25% on a monthly basis. Such ratio is to be calculated for Bahrain operations only.

        Amended: July 2014
        January 2014

      • LM-1.2.2

        The CBB may require licensees to maintain an average stock liquidity ratio in excess of the 25% minimum required under Paragraph LM-1.2.1, should it have concerns regarding the licensee's liquidity and/or financial position.

        January 2014

      • LM-1.2.3

        The stock liquidity ratio, expressed as a percentage, must be calculated on each business day and is the ratio of the sum of the licensee's liquid assets, net of deductions required under Paragraph LM-1.2.6, divided by the sum of qualifying liabilities.

        January 2014

      • LM-1.2.4

        The average stock liquidity ratio for a calendar month is calculated by dividing the sum of the daily stock liquidity ratio calculated in accordance with Paragraph LM-1.2.3 at the close of business on each working day during a month by the number of business days during that month.

        January 2014

      • Liquid Assets

        • LM-1.2.5

          For purposes of Paragraph LM-1.2.3, liquid assets are defined as:

          (a) Cash and unencumbered current accounts with financial institutions;
          (b) Placements with financial institutions maturing within one month;
          (c) Exchange traded financial instruments;
          (d) GCC government securities;
          (e) Other sovereign bonds and bills up to one year maturity, carrying a minimum rating of AA-; and
          (f) Accounts receivable due within one month.
          January 2014

        • LM-1.2.6

          The liquid assets noted under Paragraph LM-1.2.5 must also meet the following requirements to be included in the calculation of the stock liquidity ratio. They must be:

          (a) Free from encumbrances; and
          (b) Freely available and payable.
          January 2014

      • Qualifying Liabilities

        • LM-1.2.7

          For purposes of Paragraph LM-1.2.3, qualifying liabilities are defined as:

          (a) Liabilities due within one month; and
          (b) Irrevocable commitments to provide funds within one month.
          January 2014

        • LM-1.2.8

          For purposes of Subparagraph LM-1.2.7 (b), irrevocable commitments include facilities:

          (a) With a known date of drawdown within one month; and
          (b) Without a known date of drawdown but carrying a notice period of within one month (including where the drawdown is on demand, i.e. requiring no notice period) except where conditions attached to the drawdown cannot be met in practice within one month.
          January 2014

        • LM-1.2.9

          Potential commitments relating to credit card facilities, which may be cancelled at any time are excluded from qualifying liabilities.

          January 2014

    • LM-1.3 LM-1.3 Maturity Mismatch Ratios

      • LM-1.3.1

        Licensees must maintain positive cumulative maturity mismatch ratios for 3-month and 6-month maturity bands. Where negative cumulative maturity mismatch ratios occur, the negative cumulative maturity mismatch ratios, as a percentage of total liabilities, must not exceed 20% for a 3-month maturity band and 25% for a 6-month maturity band. These ratios are to be calculated on a unconsolidated basis.

        January 2014

      • LM-1.3.2

        A mismatch occurs when differences exist between the receipts from cash inflows (assets) and cash outflows (liabilities). A positive mismatch is one where the expected cash inflow, generated by revenues and assets, exceeds the expected cash outflow, from the payment of expenses and liabilities. A negative mismatch occurs when the expected inflow of cash is less than the expected outflow of funds. The amount of the mismatch is measured in cash.

        January 2014

      • LM-1.3.3

        In measuring maturity bands, cash inflows from assets and cash outflows from liabilities are slotted into time bands. The maturities used are based on a worst case scenario. Specifically, cash inflows are included based on their latest maturity and cash outflows are based on their earliest maturity.

        January 2014

      • LM-1.3.4

        A net mismatch figure is obtained by subtracting cash outflows from cash inflows for each time band. Mismatches are then calculated on a net cumulative basis.

        January 2014

      • LM-1.3.5

        The maturity mismatch ratio is calculated using the net cumulative mismatch figure obtained under Paragraph LM-1.3.4 as a percentage of total liabilities.

        January 2014