• IBANK Division 8.4.C IBANK Division 8.4.C Liquidity coverage ratio

    • IBANK Subdivision 8.4.C.1 IBANK Subdivision 8.4.C.1 Liquidity coverage ratio generally

      • IBANK 8.4.16 Liquidity coverage ratios required

        (1) Subject to rule 8.4.18, a liquidity risk group A Islamic banking business firm must maintain its LCR:
        (a) in the calendar year 2018 — at 90% or higher; and
        (b) in each subsequent calendar year — at 100% or higher.
        Note Rule 8.4.18 allows an Islamic banking business firm to monetise part of its HQLA portfolio during a period of liquidity stress.

        Guidance
        Rule 8.4.16 sets minimum levels and is not intended to limit the generality of the requirements in rule 8.4.6.
        (2) The requirement for the firm to maintain the LCR required by subrule (1) is called the firm's LCR requirement.

        Guidance
        An authorised firm must be continually aware of its LCR because of the requirements for the firm to maintain its LCR, and to report to the Regulatory Authority if the LCR falls below the firm's LCR requirement. How often the firm needs to calculate its LCR depends on the nature of the firm's business. Some relevant factors would be:
        •    how volatile the values of the firm's assets and exposures are
        •    how actively the firm trades.
        For the requirement to report if the firm's LCR falls below its LCR requirement, see rule 8.4.19.
        Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

      • IBANK 8.4.17 Adjustment of firms' LCR by Regulatory Authority

        The Regulatory Authority may, by written notice to an Islamic banking business firm, do any 1 or more of the following:

        (a) change the firm's LCR requirement;
        (b) change the method for calculating the LCR requirement, or the assumptions or parameters for the purposes of that calculation;
        (c) impose additional requirements based on the Authority's assessment of the firm's exposure to liquidity risk.
        Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

      • IBANK 8.4.18 Monetising HQLA during periods of liquidity stress

        During a period of liquidity stress, an Islamic banking business firm may monetise part of its HQLA portfolio, and may use the cash so generated to cover cash outflows. It may allow its LCR to fall below the level required by rule 8.4.16 to the extent necessary to deal with cash outflows during that period.

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

      • IBANK 8.4.19 IBANK 8.4.19 Obligation to notify Regulatory Authority if LCR requirement not met

        (1) An Islamic banking business firm must notify the Regulatory Authority in writing immediately (but within 3 business days) if the firm ceases to meet its LCR requirement (or becomes aware of circumstances that may result in its ceasing to meet that requirement).
        (2) In the notification the firm must clearly explain:
        (a) why it ceased to meet, or thinks it may cease to meet, the requirement;
        (b) when it expects to again be able to meet the requirement; and
        (c) what it has done, and will do, to ensure that it meets the requirement in future, or continues to meet it, as the case requires.
        Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

        • IBANK 8.4.19 Guidance

          An Islamic banking business firm that gives such a notification should discuss with the Regulatory Authority what further steps it should take to deal with the situation.

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

    • IBANK Subdivision 8.4.C.2 IBANK Subdivision 8.4.C.2 Calculating LCR

      • IBANK 8.4.20 IBANK 8.4.20 How to calculate LCR

        (1) An Islamic banking business firm's LCR is calculated by means of the following formula:

        where:
        TC30 is the firm's total net cash outflow over the next 30 calendar days (all outflows, or outflows in the relevant currency, as the case requires), calculated in accordance with rule 8.4.21.
        VP is the total value of the assets in the firm's HQLA portfolio, calculated in accordance with rule 8.4.15.

        Note For calculating the value of the portfolio, the market value of an asset in the portfolio is taken to be the asset's market value, subject to a haircut — see rule 8.4.15.

        (2) The firm must calculate its LCR both overall, and separately for each significant currency in which it has liabilities. A currency is significant for the firm if the firm's liabilities denominated in it amount to 5% or more of the firm's total liabilities.
        Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

        • IBANK 8.4.20 Guidance

          An Islamic banking business firm that is active in several currencies:

          •    should maintain an HQLA portfolio consistent with the distribution of its liquidity needs by currency
          •    should assess its aggregate foreign currency liquidity needs and determine an acceptable level of currency mismatches
          •    should separately analyse its strategy for each significant currency, considering possible constraints during a period of liquidity stress.
          Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

      • IBANK 8.4.21 How to calculate total net cash outflow over next 30 calendar days

        (1) On any day, an Islamic banking business firm's total net cash outflow over the next 30 calendar days is the difference between:
        (a) its total expected gross cash outflow over that 30-calendar-day period; and
        (b) the lesser of:
        (i) 75% of its total expected gross cash outflow over that period; and
        (ii) its total expected cash inflow over that period.

        Guidance
        Subrule (1) (b) ensures that, for the purposes of the calculation, the firm's cash inflow can never be greater than 75% of its total expected gross cash outflow.
        (2) For that calculation:
        (a) the firm's total expected gross cash outflow is to be calculated in accordance with Subdivisions 8.4.C.3 to 8.4.C.5; and
        (b) the firm's total expected cash inflow is to be calculated in accordance with Subdivisions 8.4.C.6 to 8.4.C.8.
        Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

    • IBANK Subdivision 8.4.C.3 IBANK Subdivision 8.4.C.3 Calculating total expected gross cash outflows — general

      • IBANK 8.4.22 How to calculate total expected gross cash outflow

        (1) Total expected gross cash outflow over a period is calculated by:
        (a) first, multiplying the outstanding balance of each category of liability or off-balance-sheet commitment by the rate at which it is expected to run off or be drawn down during the period; and
        (b) then, adding up the balances so calculated.

        Note Rules 8.4.23 to 8.4.42 specify runoff rates for many kinds of cash outflow and give interpretative provisions. Those rules are based on Basel III LCR, IFSB—12 and IFSB GN 6. The interpretive provisions provide only minimal explanation of the reasons why particular kinds of outflow receive the runoff rates specified. For a fuller explanation, consult Basel III LCR (in particular, paragraphs 69–141), IFSB—12 and IFSB GN 6.
        (2) For that calculation, if profit is payable on the outstanding balance of a liability or off-balance-sheet commitment, any profit that is expected to be paid during the relevant period must be added to the balance.
        Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

    • IBANK Subdivision 8.4.C.4 IBANK Subdivision 8.4.C.4 Calculating total expected gross cash outflows — runoff rates for retail deposits, wholesale unsecured funding and secured funding

      • IBANK 8.4.23 Treatment of retail deposits generally

        (1) The runoff rates for retail deposits generally are as set out in table 8.4.23.
        (2) However, this rule does not apply to:
        (a) a PSIA (whether restricted or unrestricted) (see rule 8.4.24);
        (b) a deposit or PSIA that falls within rule 8.4.26; or
        (c) unsecured wholesale funding that falls within rule 8.4.27.

        Note Rule 8.4.25 allows the Regulatory Authority to direct that a higher runoff rate must be applied to deposits or PSIAs that would otherwise fall within rule 8.4.23 or 8.4.24 but have unusual features.
        (3) In the case of a deposit or PSIA that is pledged as security for a financing facility, this rule is subject to rule 8.4.28.

        Table 8.4.23 Retail deposits — runoff rates

        Kind of deposit Runoff rate (%)
        Retail demand deposits (other than CMT-based deposits), and term deposits with maturity of 30 calendar days or less:  
        •    stable deposits (see subrule (4)) covered by a Shari'a-compliant deposit insurance scheme that meets all of the additional criteria in subrule (7)
        3
        •    other stable deposits
        5
        •    less stable deposits (see subrules (8), (9))
        10
        CMT-based deposits from retail and small business customers 20

        Note 1 CMT-based deposits from non-financial corporates, sovereigns, central banks, MDBs and public sector entities are treated as unsecured wholesale funding — see rule 8.4.27 (16).

        Note 2 CMT-based deposits create particular liquidity risks:

        "In such transactions, the customer first buys a commodity and sells it to [an Islamic banking business firm] on a deferred payment basis at an agreed price with a profit margin. As the funds raised by [the firm] on the basis of CMT effectively require it to pay back the principal and agreed profit to the customer on maturity, the [firm] may be exposed to liquidity risk....If CMT-based funds, which are usually short-term in nature, are used by the [firm] to finance longer-term assets, a maturitymismatch will result. Such a mismatch may become acute if [the firm] has a high reliance on such deposits to fund its assets." (IFSB–12, paragraph 51).

        For the meaning of IFSB–12, see the note at the beginning of Part 8.4.

        (4) Stable deposits are deposits that are fully insured (see subrule (5)) (or are covered by a public guarantee that provides equivalent protection), and for which either of the following is true:
        (a) the depositor has other established relationships with the firm that make withdrawal highly unlikely;
        (b) the deposit is in a transactional account (for example, an account into which the depositor's salary is automatically deposited).
        (5) A deposit is fully insured if 100% of the deposit amount, up to the applicable deposit insurance limit, is covered by an effective (see subrule (6)) Shari'a-compliant deposit insurance scheme. Deposit balances up to the limit are treated as fully insured even if the depositor's balance is over the limit. However, any amount over the limit is to be treated as a less stable deposit.

        Guidance
        For example, if a depositor has a deposit of 150 that is covered by a deposit insurance scheme that has a limit of 100, so that the depositor would receive at least 100 from the scheme if the firm were unable to pay, then 100 would be considered fully insured and treated as a stable deposit, and 50 would be treated as a less stable deposit. However, if the scheme covered only a percentage of the deposit amount (for example, 90% of the deposit amount up to a limit of 100), the entire 150 deposit would be treated as a less stable deposit.
        (6) A Shari'a-compliant deposit insurance scheme is effective if all of the following are true:
        (a) the scheme guarantees that it can make payouts promptly;
        (b) its coverage is clearly defined;
        (c) the provider has formal legal powers to fulfil the scheme's mandate, and is operationally independent, transparent and accountable;
        (d) public awareness of the scheme is high.

        Guidance
        For Shari'a-compliant deposit insurance, see IFSB–12 paragraph 162, and IFSB GN 6, section 2.3.1.2, para 57.
        (7) The additional criteria (for a Shari'a-compliant deposit insurance scheme) mentioned in table 8.4.23 are the following:
        (a) the scheme is pre-funded by periodic levies on entities with insured deposits;
        (b) the scheme has access to additional funding in the event of a large call on its reserves (for example, an explicit and legally binding guarantee from its government, or a standing authority to borrow from its government);
        (c) depositors have access to insured deposits quickly if the scheme is called on.
        (8) A deposit that does not fall within subrule (4) is a less stable deposit.
        (9) If the firm cannot readily identify a term deposit as stable, it must treat the full amount of the deposit as less stable.
        (10) The firm may exclude, from total expected cash outflows, the cash outflow related to a term deposit with residual maturity, or a notice period for withdrawal, longer than 30 calendar days only if:
        (a) the depositor has no legal right to withdraw the deposit within the 30-calendar-day period; or
        (b) early withdrawal would result in a significant reduction of profit that is materially greater than the loss of profit for the period.
        (11) However, if the practice of the firm is to allow depositors to withdraw such deposits within the 30-calendar-day period without imposing the corresponding reduction of profit, each such deposit must be treated in full as a demand deposit unless the Regulatory Authority approves otherwise.
        Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

      • IBANK 8.4.24 Treatment of maturing PSIAs

        (1) The runoff rates for PSIAs that mature with the relevant 30-calendarday period are as set out in table 8.4.24.

        Table 8.4.24 Maturing PSIAs — runoff rates

        Item Kind of PSIA Runoff rate (%)
        1 Restricted PSIAs:  
         
        •    stable (covered by a Shari'a-compliant deposit insurance scheme that meets all of the additional criteria in rule 8.4.23 (7))
        3
         
        •    other stable (according to the criteria in rule 8.4.23 (4))
        5
         
        •    less stable
        10
        2 Unrestricted PSIAs:  
         
        •    stable (covered by a Shari'a-compliant deposit insurance scheme that meets all of the additional criteria in rule 8.4.23 (7))
        3
         
        •    other stable (according to the criteria in rule 8.4.23 (4))
        5
         
        •    less stable
        10
        (2) If a firm cannot readily identify a PSIA as stable in accordance with the criteria in rule 8.4.23 (4), it must treat the full amount of the PSIA as less stable. A PSIA of which the returns are not subject to treated as less stable.
        (3) The firm may exclude from total expected cash outflows the cash outflows related to PSIAs with residual maturity, or a notice period for withdrawal, longer than 30 calendar days only if:
        (a) the IAH concerned has no legal right to withdraw the PSIA within the 30-calendar-day period; or
        (b) early withdrawal would result in a significant reduction of profit that is materially greater than the loss of profit for the period.
        (4) However, if the practice of the firm is to allow IAHs to withdraw such PSIAs within the 30-calendar-day period without imposing the corresponding reduction of profit, each such PSIA must be treated in full as a demand deposit unless the Regulatory Authority approves otherwise.
        Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

      • IBANK 8.4.25 Treatment of deposits and PSIAs with unusual features

        Despite anything in rule 8.4.23 or 8.4.24, the Regulatory Authority may direct that a higher run-off rate must be applied to a deposit or PSIA, or a class of deposits or PSIAs, that falls within either of those rules but presents unusual features.

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

      • IBANK 8.4.26 Treatment of deposits and PSIAs not in Qatari riyals, and deposits by non-residents of Qatar

        (1) This rule applies to:
        (a) deposits by, and PSIAs held by, residents of Qatar, not denominated in Qatari riyals; and
        (b) deposits by, and PSIAs held by, non-residents of Qatar, regardless of the currency of denomination.
        (2) The run-off rate for deposits and PSIAs to which this rule applies is the rate that the Regulatory Authority directs.
        Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

      • IBANK 8.4.27 Treatment of unsecured wholesale funding

        (1) The runoff rates for unsecured wholesale funding are as set out in table 8.4.27.
        (2) In the case of a deposit or PSIA that is pledged as security for a financing facility, this rule is subject to rule 8.4.28.
        (3) Wholesale funding consists of liabilities and general obligations, raised from legal entities, of which any 1 or more of the following is true:
        (a) the funding is callable within 30 calendar days;
        (b) the funding has its earliest possible contractual maturity date within 30 calendar days (for example, a maturing term deposit or an unsecured debt security); or
        (c) the funding has an undetermined maturity.

        Guidance
        Wholesale funding includes funding that the provider has the option of withdrawing within the 30-calendar-day period (but not funding that is callable by the funds provider subject to a contractually defined and binding notice period longer than 30 calendar days).
        (4) Unsecured wholesale funding is wholesale funding that is not collateralised by legal rights to specifically designated assets. Unsecured wholesale funding does not include obligations related to Shari'a-compliant hedging contracts.

        Table 8.4.27 Unsecured wholesale funding — runoff rates

        Item Kind of funding Runoff rate (%)
        1 Demand and term deposits (other than operational deposits), with maturity of 30 calendar days or less, provided by small business customers:  
         
        •    stable deposits (see subrule (5))
        5
         
        •    less stable deposits (see subrule (5))
        10
        2 Operational deposits (see subrules (6)–(11)) (including CMT-based deposits):  
         
        •    any part covered by Shari'a-compliant deposit insurance
        5
         
        •   otherwise
        25
        3 Unsecured wholesale funding from cooperative banks in an institutional network (qualifying deposits with the central institution) (see subrules (12)–(14)) 25
        4 Unsecured wholesale funding provided by non-financial corporates, and sovereigns, central banks, MDBs, and public sector enterprises (see subrule (15)):  
         
        •    if the entire amount is fully covered by Shari'a-compliant deposit insurance
        20
         
        •    otherwise
        40
        5 CMT-based deposits (other than operational deposits) from non-financial corporates, sovereigns, central banks, MDBs and public sector entities:  
         
        •    if the entire amount is fully covered by Shari'a-compliant deposit insurance
        20
         
        •    otherwise
        40
        6 CMT-based deposits (other than operational deposits) from financial institutions 100
        7 Unsecured wholesale funding provided by other legal entity customers (see subrules (16)–(19)) 100

        Note For an explanation of the particular treatment of CMT-based deposits, see note 2 following table 8.4.23.

        (5) In table 8.4.27, stable deposit and less stable deposit have the same respective meanings as in rule 8.4.23. However, a PSIA of which the returns are not subject to smoothing (by, for example, the use of a PER or an IRR) must be treated as a less stable deposit.
        (6) Operational deposits are deposits placed or left with the firm by a customer to facilitate the customer's access to, and ability to use, payment and settlement systems and otherwise make payments for the purposes of clearing, custody or cash management services that meet all of the following criteria:
        (a) the customer is reliant on the firm to perform the services as an independent third party intermediary;

        Guidance
        This condition would not be met if the firm were aware that the customer had adequate back-up arrangements.
        (b) the services are provided under a legally binding agreement;
        (c) the termination of the agreement is subject to:
        (i) a notice period of 30 calendar days or more; or
        (ii) significant costs (such as transaction costs, costs related to information technology, or early termination or legal costs) that must be borne by the customer if the deposit is moved before the end of 30 calendar days.

        Guidance
        1 Clearing is a service that enables customers to transfer funds (or securities) indirectly through direct participants in domestic settlement systems to final recipients. Such services are limited to the following activities:
        •    transmission, reconciliation and confirmation of payment orders
        •    daylight overdraft, overnight financing and maintenance of postsettlement balances
        •    determination of intra-day and final settlement positions.
        2 Custody is the provision of safekeeping, reporting and processing of assets, or the facilitation of the operational and administrative elements of related activities on behalf of customers in the process of their transacting and retaining financial assets. Such services are limited to the settlement of securities transactions, the transfer of contractual payments, the processing of collateral, and the provision of custody-related cash management services.
        3 Custody also includes the receipt of dividends and other income and client subscriptions and redemptions, and extends to asset and corporate trust servicing, treasury, escrow, funds transfer, stock transfer and agency services, (including payment and settlement services, but not correspondent banking), and depository receipts.
        4 Cash management is the provision of cash management and related services to customers — that is, services provided to a customer to manage its cash flows, assets and liabilities, and conduct financial transactions necessary to its operations. Such services are limited to payment remittance, collection and aggregation of funds, payroll administration, and control over the disbursement of funds.
        5 Correspondent banking is an arrangement under which a bank holds deposits owned by other banks, and provides payment and other services to settle foreign currency transactions.
        (7) The firm may treat a deposit as an operational deposit only if the deposit meets all of the following requirements:
        (a) it is a by-product of the underlying services provided by the firm;
        (b) it is not offered by the firm in the wholesale market for the sole purpose of offering profit income;
        (c) it is held in a specifically-designated account;
        (d) it is priced so as not to give customers an economic incentive to leave excess funds in the account.
        (8) Excess balances that could be withdrawn without jeopardising those clearing, custody or cash management activities are not to be treated as operational deposits.
        (9) The firm must determine how to identify such excess balances. If the firm is unable to identify how much of a deposit is an excess balance, the firm must assume that the entire deposit is excess and therefore not operational.

        Guidance
        The identification should be sufficiently granular to adequately assess the risk of withdrawal in an idiosyncratic stress situation. The method should take into account relevant factors such as the likelihood that wholesale customers have above-average balances in advance of specific payment needs, and should consider appropriate indicators (for example, ratios of account balances to payment or settlement volumes or to assets under custody) to identify customers that are not actively managing account balances efficiently.
        (10) A deposit that arises out of correspondent banking, or from the provision of prime brokerage services, is not to be treated as an operational deposit.

        Guidance
        Prime brokerage services is a package of services offered to large active investors, particularly institutional hedge funds. The services usually include:
        •    clearing, settlement and custody
        •    consolidated reporting
        •    financing (margin, repo or synthetic)
        •    securities lending
        •    capital introduction
        •    risk analytics.
        (11) Any part of an operational deposit that is fully covered by Shari'a compliant deposit insurance may be treated as a stable retail deposit.
        (12) An institutional network of cooperative banks is a group of legally separate banks with a statutory framework of cooperation with a common strategic focus and brand, in which certain functions are performed by a central institution or a specialised service provider.
        (13) A qualifying deposit is a deposit by a member institution with the central institution or specialised central service provider:
        (a) because of statutory minimum deposit requirements; or
        (b) in the context of common task-sharing and legal, statutory or contractual arrangements (but only if both the depositor and the bank that receives the deposit participate in the network's scheme of mutual protection against illiquidity and insolvency).
        (14) The following are not qualifying deposits:
        (a) deposits resulting from correspondent banking activities;
        (b) deposits placed at the central institution or a specialised service provider for any reason other than those set out in subrule (13);
        (c) deposits for the operational purposes of clearing, custody, or cash management.
        (15) Unsecured wholesale funding provided by non-financial corporates and sovereigns, central banks, MDBs, and public sector enterprises comprises all deposits and other extensions of unsecured funding (other than those specifically for operational purposes) from:
        (a) non-financial corporate customers (except small business customers); and
        (b) domestic and foreign customers that are sovereigns, central banks, MDBs and public sector enterprises.
        (16) Unsecured wholesale funding provided by other legal entity customers consists of deposits and other funding (other than operational deposits) not falling within subrules (1) to (15), such as funding provided by:
        (a) another financial institution; or
        (b) a related party of the firm.
        (17) All sukuk issued by the firm are to be treated as unsecured wholesale funding provided by other legal entity customers regardless of the holder.
        (18) However, securities that are sold exclusively in the retail market and held in retail accounts (or small business customer accounts), may be treated in the appropriate retail or small business customer deposit category. For securities to be treated in that way, there must be limitations preventing them being bought and held other than by retail or small business customers.
        (19) Customers' cash balances arising from the provision of prime brokerage services must be treated as separate from any balances required to be segregated under a statutory client protection regime, and must not be netted against other customer exposures. Such offsetting balances held in segregated accounts are to be treated as inflows and must not be counted as HQLA.
        Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

      • IBANK 8.4.28 Treatment of deposits and PSIAs pledged as security

        (1) This rule applies to a deposit or PSIA that is pledged as security for a financing facility if:
        (a) the facility will not mature or be settled within the relevant 30-calendar-day period; and
        (b) the pledge is subject to a legally enforceable contract under which the deposit cannot be withdrawn before the facility is fully settled or repaid.
        (2) If no part of the facility has been drawn, the runoff rate is the higher of:
        (a) the rate that would apply under rule 8.4.23 or 8.4.27 (as the case requires); and
        (b) a rate equal to the rate applicable to the facility under rule 8.4.39.
        (3) However, if some part of the facility has been drawn, only that part of the deposit or PSIA in excess of the outstanding balance of the facility is to be counted. The applicable runoff rate is the rate that applies under rule 8.4.23 or 8.4.27 (as the case requires).
        Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

      • IBANK 8.4.29 Treatment of maturing secured funding

        (1) The runoff rates for secured funding that matures within the relevant 30-calendar-day period are as set out in table 8.4.29.
        (2) Secured funding is an Islamic banking business firm's liabilities and general obligations collateralised by the grant of legal rights to specific assets owned by the firm.

        Guidance
        This scenario assumes that the firm has lost its secured funding on short-term financing transactions. In this scenario, the firm could continue to transact securities financing transactions only if the transactions were backed by HQLA or were with the firm's domestic sovereign, public sector enterprise or central bank.

        Table 8.4.29 Maturing secured funding — runoff rates

          Kind of funding Runoff rate (%)
        1 Backed by level 1 HQLA 0
        2 Backed by level 2A HQLA 15
        3 Backed by assets that are not level 1 HQLA or level 2A HQLA, and the counterparty is any of the following:
        •    a domestic sovereign;
        •    an MDB
        •    a domestic public sector enterprise that has a risk-weight of 20% or lower
        25
        4 Backed by Shari'a-compliant residential-mortgage-backed securities that are eligible as level 2B HQLA 25
        5 Backed by other level 2B HQLA 50
        6 All other maturing secured funding 100
        (3) Collateral swaps, and any other transactions of a similar form, are to be treated as repo or reverse repo agreements. Collateral lent to the firm's customers to effect short positions is to be treated as secured funding.
        (4) The firm must apply the factors to all outstanding secured funding transactions with maturities within 30 calendar days, including customer short positions that do not have a specified contractual maturity.
        (5) The amount of outflow is the amount of funds raised through the transaction, and not the value of the underlying collateral.
        Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

    • IBANK Subdivision 8.4.C.5 IBANK Subdivision 8.4.C.5 Calculating total expected gross cash outflows — runoff rates for other funding

      • IBANK 8.4.30 Treatment of net Shari'a-compliant hedging cash outflows

        (1) The runoff rate for net Shari'a-compliant hedging cash outflows is 100%.
        (2) The firm must calculate those outflows in accordance with its usual valuation methods. The outflows may be calculated on a net basis by counterparty (that is, inflows offsetting outflows) only if a valid master netting agreement exists.
        (3) From the calculation, the firm must exclude liquidity needs that would result from increased collateral needs because of falls in the value of collateral lodged or market value movements.

        Note For how to treat such liquidity needs, see rules 8.4.32 and 8.4.36.
        (4) The firm must assume that an option will be exercised if it is in the money.
        (5) If Shari'a-compliant hedging payments are collateralised by HQLA, the cash outflows are to be calculated net of any corresponding cash or collateral inflows that would result, all other things being equal, from contractual obligations to lodge cash or collateral with the firm.
        (6) However, subrule (5) applies only if, after the collateral were received, the firm would be legally entitled and operationally able to re-hypothecate it.
        Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

      • IBANK 8.4.31 Treatment of increased liquidity needs related to downgrade triggers

        (1) The runoff rate for increased liquidity needs related to downgrade triggers in financing transactions, Shari'a-compliant hedging instruments and other contracts is 100% of the amount of collateral that the firm would be required to lodge for, or the contractual cash outflow associated with, any downgrade up to and including a 3-notch downgrade.

        Guidance
        A downgrade trigger is a contractual condition that requires an Islamic banking business firm to lodge additional collateral, draw down a contingent facility or repay existing liabilities early if an ECRA downgrades the firm. Contracts governing Shari'a-compliant hedging instruments and other transactions often have such conditions. The scenario therefore requires a firm to assume that for each contract that contains downgrade triggers, 100% of the additional collateral or cash outflow will have to be lodged for a downgrade up to and including a 3-notch downgrade of the firm's long-term credit rating.
        (2) The firm must assume that a downgrade trigger linked to the firm's short-term rating will be triggered at the corresponding long-term rating.
        Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

      • IBANK 8.4.32 IBANK 8.4.32 Treatment of increased liquidity needs related to possible valuation changes on lodged collateral

        The runoff rate for increased liquidity needs related to possible valuation changes on collateral lodged by an Islamic banking business firm to secure Shari'a-compliant hedging instruments and other transactions is 20% of the value of any lodged collateral that is not level 1 HQLA (net of collateral received on a counterparty basis, if the collateral received is not subject to restrictions on re-use or rehypothecation).

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

        • IBANK 8.4.32 Guidance

          Most counterparties to Shari'a-compliant hedging transactions are required to secure the mark-to-market valuation of their positions. If level 1 HQLA are lodged as collateral, no additional stock of HQLA need be maintained for possible valuation changes. However, if the firm secures such an exposure with other collateral, 20% of the value of such lodged collateral will be added to the firm's required stock of HQLA to cover the possible loss of market value on the collateral.

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

      • IBANK 8.4.33 Treatment of increased liquidity needs related to excess non-segregated collateral

        The runoff rate for increased liquidity needs related to excess nonsegregated collateral that is held by an Islamic banking business firm, and could contractually be recalled at any time by a counterparty, is 100% of the value of the excess collateral.

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

      • IBANK 8.4.34 Treatment of increased liquidity needs related to contractually-required collateral when counterparty has not yet demanded that collateral be lodged

        The runoff rate for increased liquidity needs related to contractuallyrequired collateral, due from an Islamic banking business firm on transactions for which the counterparty has not yet demanded that the collateral be lodged, is 100% of the value of the collateral that is contractually due.

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

      • IBANK 8.4.35 Treatment of increased liquidity needs related to contracts that allow substitution of non-HQLA collateral

        (1) This rule applies to the following kinds of transaction:
        (a) transactions where:
        (i) an Islamic banking business firm holds HQLA collateral;
        (ii) the counterparty has the right to substitute non-HQLA collateral for some or all of the HQLA collateral without the firm's consent; and
        (iii) the collateral is not segregated;
        (b) transactions where:
        (i) an Islamic banking business firm has the right to receive HQLA collateral;
        (ii) the counterparty has the right to deliver non-HQLA collateral instead of some or all of the HQLA collateral without the firm's consent; and
        (iii) the collateral is not segregated.
        (2) The runoff rate for increased liquidity needs related to such a transaction is 100% of the value of HQLA collateral for which non- HQLA collateral can be substituted or delivered, as the case requires.
        Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

      • IBANK 8.4.36 Treatment of increased liquidity needs related to market valuation changes on Shari'a-compliant hedging instruments

        (1) The runoff rate for increased liquidity needs related to market valuation changes on Shari'a-compliant hedging instruments is 100% of the largest absolute net collateral flow (based on both realised outflows and inflows) in a 30-calendar-day period during the previous 24 months.

        Guidance
        Market practice requires collateralisation of mark-to-market exposures on Shari'acompliant hedging instruments. Islamic banking business firms face potentially substantial liquidity risk exposures to changes in the market valuation of such instruments.
        (2) Inflows and outflows of transactions executed under the same master netting agreement may be treated on a net basis.
        Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

      • IBANK 8.4.37 IBANK 8.4.37 Treatment of loss of funding on maturing asset-backed securities and other structured financing instruments

        The runoff rate for loss of funding on asset-backed securities and other structured financing instruments that mature within the relevant 30-calendar-day period is 100% of the maturing amount.

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

        • IBANK 8.4.37 Guidance

          The scenario assumes that there is no refinancing market for the maturing instruments.

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

      • IBANK 8.4.38 IBANK 8.4.38 Treatment of loss of funding on maturing asset-backed commercial paper, conduits, structured investment vehicles etc

        The runoff rate for loss of funding on asset-backed commercial paper, conduits, structured investment vehicles and other similar financing arrangements that mature within the relevant 30-calendar-day period is 100% of the total of:

        (a) the maturing amount;
        (b) if the arrangement allows assets to be returned within that period — the value of the returnable assets; and
        (c) if under the arrangement the firm could be obliged to provide liquidity within that period — the total amount of liquidity that the firm could be obliged to provide.
        Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

        • IBANK 8.4.38 Guidance

          Islamic banking business firms that use asset-backed commercial paper, conduits, structured investment vehicles and other similar financing arrangements should fully consider the associated liquidity risk. The risks include:

          •    being unable to refinance maturing debt
          •    Shari'a-compliant hedging instruments that would allow the return of assets, or require the firm to provide liquidity, within the 30-calendar-day period.

          If the firm's structured financing activities are carried out through a special purpose entity (such as a conduit or structured investment vehicle), the firm should, in determining its HQLA requirements, look through to the maturity of the instruments issued by the entity and any embedded options in financing arrangements that could trigger the return of assets or the need for liquidity, regardless of whether the entity is consolidated.

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

      • IBANK 8.4.39 Treatment of drawdowns on committed financing and liquidity facilities

        (1) The runoff rates for drawdowns on committed financing and liquidity facilities are as set out in table 8.4.39.
        (2) A financing facility is a Shari'a-compliant contractual agreement or obligation to extend funds in the future to a retail or wholesale counterparty. For this rule, a facility that is unconditionally revocable is not a financing facility.

        Note Unconditionally revocable facilities (in particular, those without a precondition of a material change in the borrower's credit condition) are included in contingent funding obligations (see rule 8.4.41).
        (3) A liquidity facility is an irrevocable, undrawn financing facility that would be used to refinance the debt obligations of a customer if the customer were unable to roll over the obligations in financial markets.

        Guidance
        General working capital facilities for corporate borrowers (for example, revolving financing facilities for general corporate or working capital purposes) are to be treated as financing facilities.

        Table 8.4.39 Drawdowns on committed financing and liquidity facilities — runoff rates

        Item Kind of facility Runoff rate (%)
        1 Financing and liquidity facilities provided to retail and small business customers 5
        2 Financing facilities provided to nonfinancial corporates, sovereigns, central banks, MDBs, and public sector enterprises 10
        3 Liquidity facilities provided to nonfinancial corporates, sovereigns, central banks, MDBs, and public sector enterprises (see subrule (7)) 30
        4 Financing and liquidity facilities provided to banks that are subject to prudential supervision (see subrule (7)) 40
        5 Financing facilities provided to other financial institutions 40
        6 Liquidity facilities provided to other financial institutions (see subrule (7)) 100
        7 Financing and liquidity facilities provided to legal entities of any other kind (see subrule (7)) 100
        (4) For a facility, the relevant runoff rate is to be applied to the undrawn part of it.
        (5) The undrawn portion of a financing facility or liquidity facility is to be calculated net of any HQLA lodged or to be lodged as collateral if:
        (a) the HQLA have al been lodged, or the counterparty is contractually required to lodge them when drawing down the facility;
        (b) the firm is legally entitled and operationally able to rehypothecate the collateral in new cash-raising transactions once the facility is drawn down; and
        (c) there is no undue correlation between the probability of drawing down the facility and the market value of the collateral.
        (6) The firm may net the collateral against the outstanding amount of the facility to the extent that the collateral is not al counted in the firm's HQLA portfolio.
        (7) The amount of a liquidity facility is to be taken as the amount of outstanding debt issued by the customer concerned (or a proportionate share of a syndicated facility) that matures within the relevant 30-calendar-day period and is backstopped by the facility. Any additional capacity of the facility is to be treated as a committed financing facility.
        (8) The firm must treat a facility provided to a hedge fund, money market fund or SPE, or an entity used to finance the firm's own assets, in its entirety as a liquidity facility to a financial institution.
        Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

      • IBANK 8.4.40 Treatment of other contractual obligations to extend funds within 30 calendar days

        (1) The runoff rate for other contractual obligations to extend funds within 30 calendar days is 100%.
        (2) Other contractual obligations to extend funds within 30 calendar days covers all contractual obligations to extend funds within 30 calendar days that do not fall within rules 8.4.23 to 8.4.39.
        (3) The runoff rate of 100% is to be applied to:
        (a) for obligations owed to financial institutions — the whole amount of such obligations; and
        (b) for obligations owed to customers that are not financial institutions — the difference between:
        (i) the total amount of the obligations; and
        (ii) 50% of the contractual inflows from those customers over the relevant 30-calendar-day period.
        Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

      • IBANK 8.4.41 Treatment of other contingent funding obligations

        (1) The runoff rates for other contingent funding obligations are as set out in table 8.4.41.
        (2) Contingent funding obligations covers obligations arising from guarantees, letters of credit, unconditionally revocable financing and liquidity facilities, outstanding debt securities with remaining maturity of more than 30 calendar days, and trade finance (see subrule (3)). It also covers non-contractual obligations, including obligations arising from any of the following:
        (a) potential liquidity draws from joint ventures or minority investments in entities;
        (b) debt-buy-back requests (including related conduits);
        (c) structured products;
        (d) managed funds;
        (e) the use of customers' collateral to cover other customers' short positions.

        Table 8.4.41 Contingent funding obligations — runoff rates

        Item Kind of obligation Runoff rate (%)
        1 Unconditionally revocable uncommitted financing and liquidity facilities 5
        2 Non-contractual obligations related to potential liquidity drawdowns from joint ventures or minority investments in entities 100
        3 Trade-finance-related obligations (including letters of guarantee and letters of credit) (see subrules (3) and (4)) 5
        4 Guarantees and letters of credit not related to trade finance obligations 5
        5 Sukuk (more than 30 calendar days maturity) 5
        6 Non-contractual obligations where customer short positions are covered by other customers' collateral 50
        7 Any other non-contractual obligations not captured above (such as expected returns on profit-sharing accounts) 5
        (3) Trade finance means trade-related obligations directly related to the movement of goods or the provision of services, such as the following:
        (a) documentary trade letters of credit, documentary collection and clean collection, import bills, and export bills;
        (b) guarantees directly related to trade finance obligations, such as shipping guarantees.
        (4) However, lending commitments, such as direct import or export financing for non-financial corporate entities, are to be treated as committed financing facilities (see rule 8.4.39).
        Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

      • IBANK 8.4.42 Treatment of other contractual cash outflows

        (1) The runoff rate to be applied to other contractual cash outflows is 100%.
        (2) Other contractual cash outflows includes outflows to cover unsecured collateral borrowings and uncovered short positions, and outflows to cover dividends and contractual profit payments, but does not include outflows related to operating costs.
        Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

    • IBANK Subdivision 8.4.C.6 IBANK Subdivision 8.4.C.6 Calculating total expected cash inflow

      • IBANK 8.4.43 How to calculate total expected cash inflow

        (1) Total expected cash inflow over a period is calculated by, for each contracted cash inflow over the period, multiplying it by the applicable inflow rate (giving the adjusted inflow), and then taking the total of all the adjusted inflows over the period.

        Note Rules 8.4.44 to 8.4.48 specify inflow rates for many kinds of cash inflow, and give any necessary interpretative provisions. Those rules are based on Basel III LCR, IFSB–12 and IFSB GN 6. The interpretive provisions include only minimal explanation of why a particular kind of inflow receives the rate specified. For a fuller explanation, consult Basel III LCR (in particular, paragraphs 142–160), IFSB–12 and IFSB GN 6.

        Guidance
        An inflow rate does not represent an assumption about the risk of a default — instead, it represents the likelihood that the relevant obligation will be rolled over (so that the firm does not actually receive the cash) or that no cash will be received for some other reason. (The possibility of default is excluded by rule 8.4.43 (2) (a), which allows only inflows from performing exposures to be included.) Inflows for which an inflow rate of 0% is specified are effectively treated as not being receivable.
        (2) When an Islamic banking business firm is calculating its cash inflows:
        (a) it may include a contractual inflow from an exposure only if the exposure is classified under rule 4.3.3 as performing, and there is no reason to expect a default within the relevant period;

        Note In rule 4.3.3, the category performing excludes exposures classified as special mention.
        (b) it must not include any contingent inflow; and

        Guidance for subrule (2) (b)
        Contingent inflow would include expected returns on profit-sharing instruments.
        (c) it must not include any inflow that would be received from an asset in the firm's HQLA portfolio.

        Guidance for subrule (2) (c)
        In a stressed situation, the assets in the firm's HQLA portfolio would al have been monetised. That is the purpose of those assets — to be monetised to provide liquidity. Consequently, in a scenario of liquidity stress, the contracted cash inflows from them would no longer be available to the firm.

        Note When a firm calculates its total net cash outflows over a period for the purpose of calculating its LCR, it cannot include cash inflows over 75% of its total gross cash outflows over the period — see rule 8.4.21 (1) (b).
        (3) The firm may include, in cash inflows during a period, profit payments that it expects to receive during the period.
        Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

    • IBANK Subdivision 8.4.C.7 IBANK Subdivision 8.4.C.7 Calculating total expected cash inflows — inflow rates for secured lending and committed facilities

      • IBANK 8.4.44 Treatment of maturing secured lending

        The inflow rates for secured lending that matures during the relevant 30-calendar-day period are as set out in table 8.4.44.

        Table 8.4.44 Maturing secured lending — inflow rates

        Item Source of inflow Inflow rate (%)
            if collateral not rehypothecated if collateral rehypothecated
        1 Maturing secured lending transactions (including margin lending) backed by:    
         
        •    level 1 HQLA
        0 0
         
        •    level 2A HQLA
        15 0
         
        •    level 2B HQLA that are Shari'a-compliant residential-mortgage-backed securities
        25 0
         
        •    other level 2B HQLA
        50 0
        2 Maturing margin lending backed by any other collateral 50 0
        3 Maturing secured lending (other than margin lending) backed by collateral that is not HQLA 100 0

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

      • IBANK 8.4.45 Treatment of financing and liquidity facilities

        (1) The inflow rate for financing facilities and liquidity facilities provided to the firm is 0%.
        (2) Financing facility and liquidity facility have the same respective meanings as in rule 8.4.39.
        Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

    • IBANK Subdivision 8.4.C.8 IBANK Subdivision 8.4.C.8 Calculating total expected cash inflows — inflow rates for other cash inflows

      • IBANK 8.4.46 Treatment of operational deposits

        (1) The inflow rate for operational deposits by the firm held at other financial institutions (including deposits held at the centralised institution of a network of co-operative banks) is 0%.
        (2) Operational deposit has the same meaning as in rule 8.4.27 (6).
        Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

      • IBANK 8.4.47 Treatment of net Shari'a-compliant hedging cash inflows

        (1) The inflow rate for net Shari'a-compliant hedging cash inflows is 100%.
        (2) The firm must calculate those inflows in accordance with its usual valuation methods. The inflows may be calculated on a net basis by counterparty (that is, inflows offset outflows) only if a valid master netting agreement exists.
        (3) From the calculation, the firm must exclude liquidity needs that would result from increased collateral needs because of market value movements or falls in the value of collateral lodged.
        (4) The firm must assume that an option will be exercised if it is in the money to the buyer.
        (5) If Shari'a-compliant hedging cash inflows are collateralised by HQLA, the inflows are to be calculated net of any corresponding cash or collateral outflows that would result from contractual obligations for the firm to lodge cash or collateral.
        (6) However, subrule (5) applies only if, after the collateral were received, the firm would be legally entitled and operationally able to re-hypothecate it.
        Inserted by QFCRA RM/2018-2 (as from 1st May 2018).

      • IBANK 8.4.48 Treatment of other contractual inflows

        (1) The inflow rates for other contractual inflows are as set out in table 8.4.48.

        Table 8.4.48 Other contractual inflows — inflow rates

        Item Source of inflow Inflow rate (%)
        1 Amounts to be received from retail counterparties 50
        2 Amounts to be received from non-financial wholesale counterparties 50
        3 Amounts to be received from financial institutions and central banks 100
        4 Other contractual cash inflows 100
        (2) The firm must assume that inflows will be received at the latest possible date, based on the contractual rights available to counterparties.
        (3) The following inflows are not to be included:
        (a) inflows (except for minimum payments of principal, fee or profit) from loans that have no specific maturity;
        (b) inflows related to non-financial revenues.
        Inserted by QFCRA RM/2018-2 (as from 1st May 2018).