LM-2.5.11
While certain cash flows can be projected based on contractual maturities, some may need to be estimated based on certain assumptions. In these circumstances, banks should make realistic assumptions (with a reasonable degree of prudence) to reflect the characteristics of their businesses and products, as well as economic and market conditions. For example, banks may take into account the following factors in setting the assumptions for cash flow projection:
(a) Expected future growth or contractions in the balance sheet;
(b) The proportion of maturing assets and liabilities that banks reasonably expect to roll-over or renew;
(c) The quality and proportion of liquid assets or other marketable securities that can be used as collateral to obtain secured funding;
(d) The behaviour of assets and liabilities with no clearly specified maturity dates, such as repayment of overdrafts and demand deposits as well as sticky deposits;
(e) The potential cash flows arising from off-balance sheet activities, e.g., drawdown under loan commitments and contingent liabilities (including all potential draws from contractual or non-contractual commitments);
(f) The behaviour of cash flows under different service delivery channels (e.g. branches vs e-banking channels);
(g) The convertibility of foreign currencies;
(h) The lead time required for the monetization of marketable debt securities; and
(i) Access to wholesale markets, standby facilities and intragroup funding.
August 2018