BANK 3.4.20 Other off-balance-sheet exposures

(1) When a banking business firm calculates its total exposure measure, it must include all off-balance-sheet items (for example, letters of credit, guarantees, commitments that are cancellable (either conditionally or unconditionally) and liquidity facilities).
(2) If the firm is the sponsor or originator of a securitisation, securitised assets that are de-recognised from the firm's balance-sheet are not to be taken into account.
(3) To calculate its other off-balance-sheet exposures, the firm must apply the applicable credit conversion factor (CCF) set out in table 3.4.20 to the gross notional amount of the exposure.
(4) For an undertaking to provide a commitment on an off-balance-sheet item, the firm must apply the lower of the 2 applicable CCFs.

Table 3.4.20 CCFs for other off-balance-sheet exposures

Item Exposure CCF
1 Commitments (other than securitisation liquidity facilities) with an original maturity of up to 1 year 20%
2 Commitments (other than securitisation liquidity facilities) with an original maturity of over 1 year 50%
3 Commitments that are unconditionally cancellable at any time without notice, or that effectively provide for automatic cancellation if the borrower's creditworthiness deteriorates 10%
4 Direct credit substitutes (for example, general guarantees of indebtedness (including standby letters of credit serving as financial guarantees for loans and securities) and acceptances (including endorsements with the character of acceptances)) 100%
5 Forward asset purchases, forward deposits and partly-paid shares and securities that represent commitments with certain drawdown 100%
6 Certain contract-related contingent items (for example, performance bonds, bid bonds, warranties and standby letters of credit related to particular contracts) 50%
7 Note issuance facilities and revolving underwriting facilities 50%
8 Short-term self-liquidating trade letters of credit arising from the movement of goods (for example, documentary credits collateralised by the underlying shipment) 20% (for both issuing and confirming firms)
9 Off-balance-sheet securitisation exposures (except an eligible liquidity facility or an eligible servicer cash advance facility) 100%
10 Eligible liquidity facilities and eligible servicer cash advance facilities 50%
11 Liquidity facilities and servicer cash advance facilities (if undrawn and able to be unconditionally cancelled without notice) 10%
(5) For items 9 and 10 in table 3.4.20, an eligible liquidity facility or eligible servicer cash advance facility is one that complies with all of the following conditions:
(a) the extent of the facility is expressly stated in a written agreement, and there is no explicit or implied recourse to the firm beyond the specified contractual obligations;
(b) the facility is provided on an arm's-length basis, is subject to the firm's normal credit approval and review processes and is transacted on market terms and conditions;
(c) the facility is limited to a specified amount;
(d) either the facility has a fixed termination date, or both of the following are true:
(i) the facility ends at the earlier of:
(A) the scheduled maturity of the securitisation; and
(B) the date on which the securitisation winds up;
(ii) the firm has the right, at its absolute discretion, to withdraw from the commitment at any time after a reasonable period of notice;
(e) subject to reasonable qualifications, the SPE and investors concerned have the express right to select another party to provide the facility;
(f) the facility is documented in a manner that clearly separates it from any other facility or service provided by the firm, so that the firm's obligations under the facility stand alone;
(g) the facility documentation clearly identifies and limits the circumstances under which it may be drawn;
(h) drawdowns under the facility are limited to the total of:
(i) the amount that is likely to be fully repaid from the liquidation of the underlying exposures; and
(ii) any credit enhancements provided by parties other than the originator;
(i) the facility does not cover any losses incurred in a pool before a drawdown under the facility;
(j) in the case of a liquidity facility, it is not structured in a way that results in significant continuous drawdown;
(k) the facility is subject to an asset quality test that precludes it from being drawn to cover credit risk exposures that are in default;
(l) in the case of a liquidity facility, if the facility is required to fund externally rated securities, it can only be used to fund securities that are rated investment grade by an ECRA at the time of funding;
(m) the facility cannot be drawn after all applicable credit enhancements from which it would benefit have been exhausted;
(n) repayments of draws on the facility:
(i) are not subordinated to investors' claims (other than claims in relation to interest rate or currency derivative contracts, fees or other such payments), and
(ii) are not subject to waiver or deferral.

Explanatory note

This amendment inserts a new Part 3.4 dealing with leverage ratio in place of the present placeholder text.

Inserted by QFCRA RM/2019-6 (as from 1st January 2020).