• 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).