• IBANK Division 8.4.B IBANK Division 8.4.B HQLA portfolio — makeup and value

    • IBANK 8.4.6 Requirement for HQLA portfolio — basic rules

      (1) An Islamic banking business firm must maintain an HQLA portfolio sufficient to meet its funding needs for at least 30 calendar days under severe liquidity stress.

      Note The value of the HQLA portfolio must bear a minimum ratio to the firm's outflows over the 30-calendar-day period. That minimum ratio is the liquidity coverage ratio or LCR — see rules 8.4.16 and 8.4.20.
      (2) The assets in the portfolio must be appropriately diversified in terms of type, issuer, currency and counterparty.
      (3) The firm must be able to meet its liquidity needs in each currency in which it has significant exposure. The portfolio must be similar in composition (in terms of the currencies in which the assets are denominated) to its liquidity needs.
      (4) For subrule (3), an Islamic banking business firm has significant exposure in a currency if 5% or more of the firm's total liabilities are denominated in the currency.
      Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

    • IBANK 8.4.7 HQLA portfolio — general operational requirements

      (1) An Islamic banking business firm's HQLA portfolio must be under the control of the specific function or functions charged with managing the firm's liquidity. That function must always have the authority, and must always be legally and operationally able, to monetise any asset in the portfolio.

      Guidance
      For the firm to be operationally able to monetise assets, the firm must have the necessary procedures and appropriate systems, and must have access to all the necessary information. The function must actually be able to monetise any of the assets within the standard settlement period for the asset class.
      (2) That control must be shown by:
      (a) maintaining the portfolio in a separate pool managed by the function solely as a source of contingent funds; or
      (b) showing that the function can monetise any asset in the portfolio at any time, and that the proceeds of doing so are available to the function throughout the following 30-calendar-day period, consistently with the firm's business and risk-management strategies.
      (3) The firm must monetise a representative part of the portfolio periodically (at least annually):
      (a) to test the firm's access to the market, the effectiveness of its processes for liquidation and the availability of the assets; and
      (b) to minimise the risk of giving a negative signal during a period of actual liquidity stress.
      Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

    • IBANK 8.4.8 What assets are HQLA

      (1) An asset is HQLA if it falls within any of rules 8.4.10 to 8.4.12, or is approved by the Regulatory Authority as HQLA under rule 8.4.13.

      Guidance
      Assets that fall within any of rules 8.4.10 to 8.4.12 are HQLA because such assets can be monetised easily and immediately with little or no loss of value.
      (2) An Islamic banking business firm must not include an asset in its HQLA portfolio if the asset is encumbered.
      Note For the meaning of encumbered, see rule 8.4.4 (2).
      (3) The firm must not include an asset in the portfolio if the firm could not, for any operational, legal, regulatory or other reason, monetise it at any time and receive the proceeds within 30 calendar days.

      Guidance
      1 For example, the firm should not include an asset if:
      •    the asset was hypothecated to the firm and the asset's beneficial owner has the right to withdraw it
      •    the sale of the asset without replacement would remove a hedge so as to create an open risk position in excess of the firm's internal risk limit.
      2 When considering whether to include a particular asset, a firm should take into account any possible delays in the settlement of a sale.
      3 Subrule (3) would not prevent assets received as collateral for Shari'acompliant hedging transactions from being included in the portfolio provided that:
      •    the assets are not segregated and are legally able to be re-hypothecated
      •    the firm records an appropriate outflow for the associated risks.
      Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

    • IBANK 8.4.9 IBANK 8.4.9 Classification of HQLA

      (1) HQLA are classified as either level 1 HQLA or level 2 HQLA. Level 1 HQLA are the highest-quality, most liquid assets, and level 2 HQLA are other high-quality liquid assets.
      (2) Level 2 HQLA are further classified as either level 2A HQLA or level 2B HQLA.
      Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

      • IBANK 8.4.9 Guidance

        All classes of HQLA (other than cash and Central Bank reserves) are Shari'acompliant marketable securities that are traded in large, deep and active repo or cash markets with a low level of concentration.

        Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

    • IBANK 8.4.10 Level 1 HQLA

      Level 1 HQLA consists of:

      (a) currency notes and coins;
      (b) reserves held with the Qatar Central Bank, to the extent that they are capable of being drawn down immediately during a period of liquidity stress;
      (c) sukuk and other Shari'a-compliant marketable securities that satisfy all of the following conditions:
      (i) they are issued or guaranteed by a sovereign, a central bank, a public sector entity, an MDB or the IILMC;
      (ii) they are assigned a risk weight of 0% under Part 4.4;
      (iii) they are not an obligation of a financial institution nor of a related party of a financial institution;
      (iv) they are traded in large, deep and active repo or cash markets with a low level of concentration;
      (v) they have a proven record as a reliable source of liquidity in the markets (repo or sale) even under stressed market conditions; and
      (d) sukuk and other Shari'a-compliant marketable securities that are not assigned a risk weight of 0% under Part 4.4, but:
      (i) meet the conditions in paragraphs (c) (iii), (iv) and (v); and
      (ii) are either:
      (A) sovereign or central bank securities issued in the domestic currency of either the jurisdiction in which the firm's liquidity risk is taken or the firm's home jurisdiction; or
      (B) sovereign or central bank securities issued in a foreign currency, up to the amount of the firm's stressed net cash outflows in that currency stemming from the firm's operations in the jurisdiction in which the firm's liquidity risk is taken.
      Note The Regulatory Authority may approve assets of other kinds as level 1 HQLA — see rule 8.4.13.
      Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

    • IBANK 8.4.11 Level 2A HQLA

      Level 2A HQLA consists of:

      (a) sukuk and other Shari'a-compliant marketable securities that represent claims on, or claims guaranteed by, a sovereign, a central bank, a public sector entity or an MDB, and meet all of the following conditions:
      (i) they are assigned a risk weight of 20% under Part 4.4;
      (ii) they are traded in large, deep and active repo or cash markets with a low level of concentration;
      (iii) they have a proven record as a reliable source of liquidity in the markets (repo or sale) even under stressed market conditions (that is, they showed no more than 10% decline in price (or 10 percentage points increase in haircut) over a 30-calendar-day period of significant liquidity stress);
      (iv) they are not an obligation of a financial institution nor of a related party of a financial institution; and
      (b) sukuk and other Shari'a-compliant marketable corporate securities (including Shari'a-compliant commercial paper) that meet all of the following conditions:
      (i) they are not an obligation of a financial institution nor of a related party of a financial institution;
      (ii) they are rated no lower than AA- (long-term) or A-1 (short-term) by Standard & Poor's (or the equivalent by another ECRA);
      (iii) they are traded in large, deep and active repo or cash markets with a low level of concentration;
      (iv) they have a proven record as a reliable source of liquidity in the markets (repo or sale) even under stressed market conditions (that is, they showed no more than 10% decline in price (or 10 percentage points increase in haircut) over a 30-calendar-day period of significant liquidity stress).

      Note The Regulatory Authority may approve assets of other kinds as level 2A HQLA — see rule 8.4.13.
      Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

    • IBANK 8.4.12 Level 2B HQLA

      Level 2B HQLA consists of:

      (a) sukuk and other Shari'a-compliant marketable securities that are backed by Shari'a-compliant residential mortgages, and meet all of the following conditions:
      (i) they were not issued by, and the underlying assets were not originated by, the firm itself or a related party of the firm;
      (ii) the underlying asset pool does not contain structured products;
      (iii) they are rated no lower than AA (long-term) or A-1 (shortterm) by Standard & Poor's (or the equivalent by another ECRA);
      (iv) the securitisations are subject to rules that require issuers to retain an interest in assets that they securitise;
      (v) they are traded in large, deep and active repo or cash markets with a low level of concentration;
      (vi) they have a proven record as a reliable source of liquidity in the markets (repo or sale) even under stressed market conditions (that is, they showed no more than 20% decline in price (or 20 percentage points increase in haircut) over a 30-calendar-day period of significant liquidity stress);
      (b) sukuk and other Shari'a-compliant marketable securities that do not fall within paragraph (a), and meet all of the following conditions:
      (i) they were not issued by a financial institution nor a related party of a financial institution;
      (ii) they are rated no lower than BBB- (long-term) or A-3 (short-term) by Standard & Poor's (or the equivalent by another ECRA);
      (iii) they are traded in large, deep and active repo or cash markets with a low level of concentration;
      (iv) they have a proven record as a reliable source of liquidity in the markets (repo or sale) even under stressed market conditions (that is, they showed no more than 20% decline in price (or 20 percentage points increase in haircut) over a 30-calendar-day period of significant liquidity stress);
      (c) Shari'a-compliant equity shares that meet all of the following conditions:
      (i) they were not issued by a financial institution nor a related party of a financial institution;
      (ii) they are exchange-traded and centrally cleared;
      (iii) they are a constituent of the QE Index or of an index that the Regulatory Authority accepts as a major stock index for the recognised exchange on which the shares are listed;
      (iv) they are denominated in the currency of the firm's home jurisdiction or the currency of the jurisdiction where the firm's liquidity risk is taken;
      (v) they are traded in large, deep and active repo or cash markets with a low level of concentration;
      (vi) they have a proven record as a reliable source of liquidity in the markets (repo or sale) even under stressed market conditions (that is, they showed no more than 40% decline in price (or 40 percentage points increase in haircut) over a 30-calendar-day period of significant liquidity stress);
      (d) sukuk and other Shari'a-compliant marketable securities that are issued by a sovereign or a central bank, are rated BBB+ to BBB- by an ECRA, and are not level 1 HQLA.
      Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

    • IBANK 8.4.13 Regulatory Authority approval of other types of HQLA

      (1) The Regulatory Authority may approve assets of types that do not fall within rules 8.4.10 to 8.4.12 as being eligible to be included in an Islamic banking business firm's HQLA portfolio to meet the firm's LCR requirement.
      (2) If the Authority approves assets under subrule (1), it must specify whether they are to be treated as level 1, level 2A or level 2B HQLA.
      Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

    • IBANK 8.4.14 Make-up of HQLA portfolio

      (1) The whole of an Islamic banking business firm's HQLA portfolio may be made up of level 1 HQLA.
      (2) In the portfolio the firm may include level 2 HQLA only up to the following limits:
      (a) level 2 HQLA (including both level 2A HQLA and level 2B HQLA) — no more than 40% of the total value of the portfolio;
      (b) level 2B HQLA — no more than 15% of the total value of the portfolio.
      (3) For calculating the total value of the portfolio and the percentages of its value made up of each category of HQLA, the value of an asset is taken to be its market value and is subject to the appropriate haircut set out in rule 8.4.15.
      (4) If an asset is involved in a transaction that matures within 30 calendar days and involves the exchange of HQLA:
      (a) the transaction may be treated as having been unwound; and
      (b) the asset may be included in the portfolio.
      (5) Only assets held or owned by the firm on the day of calculation may be included in the calculation, regardless of their residual maturity.
      (6) If an asset in the firm's portfolio that was formerly eligible as HQLA becomes ineligible (for example, because of a rating downgrade), the firm may continue to treat the asset as HQLA for a further 30 calendar days after it ceases to be eligible as HQLA, to allow the firm time to adjust its portfolio.
      Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

    • IBANK 8.4.15 Haircuts for assets in HQLA portfolio

      For calculating the value of an Islamic banking business firm's HQLA portfolio:

      (a) level 1 HQLA must be valued at their market value;
      (b) level 2A HQLA must be valued at 85% of their market value; and
      (c) level 2B HQLA must be valued at the following percentages of their market value:
      (i) sukuk and other Shari'a-compliant securities that are backed by Shari'a-compliant residential mortgages — 75%;
      (ii) other level 2B HQLA referred to in rule 8.4.12 — 50%;
      (iii) other assets approved by the Regulatory Authority as level 2B HQLA — the percentage that the Authority specifies.
      Inserted by QFCRA RM/2018-2 (as from 1st May 2018).