• 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).