1. a. The LCR consists of two components:
   HQLA (Shari’ah-compliant) as the numerator and net cash outflows over the next 30 days as the denominator, both in a stress scenario. The HQLA are the assets that can be easily and immediately converted into cash, with no or little loss of value, during a time of stress.
   The total net cash outflows will be calculated as the total expected cash outflows minus total expected cash inflows in the specified stress scenario for the subsequent 30 calendar days.
2. b. The formula for calculating LCR, therefore, is as follows:

1. c. Total expected cash inflows are calculated by multiplying the outstanding balances of various categories of contractual receivables by the rates at which they are expected to flow in under the specified scenario up to an aggregate cap of 75% of total expected cash outflows. There is a cap applied on total cash inflows in order to prevent IBs from relying solely on anticipated inflows to meet their liquidity requirements, and also to ensure a minimum level of HQLA holdings. Accordingly, the amount of inflows that can offset outflows is capped at 75% of total expected cash outflows. Therefore, by applying this cap, the IB is required to hold a minimum amount of stock of HQLA equal to 25% of the total net cash outflows.
2. d. 

   Total net cash outflows over the next 30 calendar days

   =

   Total gross expected cash outflows

   -

   Lesser of (total expected cash inflows; 75% of total expected cash outflows)

3. e. The LCR requirement is based on a scenario that entails a combination of idiosyncratic and market-wide shocks; nevertheless, IBs must develop its own scenarios based on liquidity stress testing of their portfolio. IBs must hold more HQLA if the results of their stress tests indicate that this is necessary. Such internal stress tests must incorporate longer time horizons than that mandated by this Standard. IB is expected to share the results of these additional stress tests with the Central Bank.

1. a.The HQLA are defined as assets unencumbered by liens and other restrictions on transfer which can be converted into cash easily and immediately, with little or no loss of value, including under the stress scenario.
2. b.HQLA are to be determined on the basis of the eligibility criteria for different categories of HQLA and must be subject to the limits applicable to each category. These eligibility criteria for HQLA and composition limits are intended to ensure that an IB’s HQLA stock provides it with the ability to generate liquidity in fairly short order, through sale or secured funding in a stress scenario. The assets are required to meet fundamental and market-related characteristics, particularly in terms of low risk, ease and certainty of valuation, and low volatility. HQLA is also eligible for intraday and overnight liquidity facilities offered by the Central Bank.
3. c.To be considered as HQLA, an asset must also have a low correlation with risky assets, an active and sizeable market, and low volatility. This requirement has to be fulfilled at all times, including during an underlying stress scenario. These factors assist the Central Bank to determine which assets qualify as HQLA. The Central Bank also will consider risk components of HQLA, such as liquidity risk, market risk, credit risk, and operational risk. For Shari’ah-compliant assets, the risk of Shari’ah non-compliance and associated reputational problems could significantly limit liquidity for these assets – both sale and interbank trading – in the secondary market.
4. d.HQLA (except Level 2B assets, as defined below) is eligible for use as collateral when seeking short- to medium-term liquidity facilities from the Central Bank.
5. e.To meet HQLA requirements, the assets must possess the following characteristics:

   i.Fundamental characteristics:
   The assets must be low risk, as reflected in the high credit rating of the issuer or the instruments. The assets must be easy to value, have a homogeneous and relatively simple structure, and not be subject to wrong-way (highly correlated) risk. Shari’ah compliance of the structure and contracts underlying the liquid assets is another critical criterion of HQLA for IBs. Ideally, the asset must be listed on a national, regional or international stock exchange to ensure that sufficient information on pricing and trading is available to the public.

   ii.Market-related characteristics
   The assets are expected to be liquefiable at any time. Thus, as far as possible, there must be historical evidence of market breadth and depth. This could be demonstrated by low bid–ask spreads, high trading volumes, and a large and diverse number of market participants. Availability of market-makers is another factor for consideration. The asset prices are expected to have remained relatively stable and be less prone to sharp price declines over time, including during stress conditions.
   Assets must be tested through sale or Shari’ah-compliant alternatives of repurchase (repo) transactions to ascertain whether the liquid assets meet the criteria of “high quality” and fulfil the fundamental and market-related characteristics mentioned above. It is required that the liquidity-generating capacity of HQLA remains unchanged in periods of severe idiosyncratic and market stress. Lower-quality assets typically fail to meet that test. It must be noted that, in severe market conditions, if IBs attempt to raise liquidity from lower-quality assets, this will lead to significantly discounted prices. This may not only worsen the market’s confidence in the Islamic Banks but also may generate mark-to-market losses for its similar assets and put pressure on its liquidity position. In these conditions, market liquidity for lower-quality assets is likely to disappear quickly.

1. a.Level 1 Assets:
   HQLA are divided into two main categories or levels: Level 1 and Level 2. Level 1 assets can constitute an unlimited share of the pool and are not normally subject to a haircut under the LCR.
2. b.Level 1 assets are limited to:
   1. a.Coins and Banknotes;
   2. b.Reserves and account balances held at the Central Bank;
   3. c.Central Bank’s Islamic CDs;
   4. d.Sukuk and other Shari’ah-compliant marketable securities issued or guaranteed by UAE Federal Government or Local Governments;
   5. e.Sukuk and other Shari’ah-compliant marketable securities issued or guaranteed by multilateral development banks (MDBs) which are assigned a 0% risk weight;
   6. f.Sukuk and other Shari’ah-compliant marketable securities issued by foreign sovereign or foreign central banks that have a 0% risk weight; and
   7. g.Sukuk and other Shari’ah-compliant marketable securities issued by UAE Public Sector Entities’ (PSE or GRE) that have a non-0% risk weight.
3. c.Those assets that are 0% risk weighted and unrated are unlikely to have the same depth of market as those that are rated above investment grade in a stress scenario. IBs must take this into account when assessing an asset’s suitability and a liquidity premium charged. In any case, 0% risk weighted assets that are not rated cannot exceed 25% of the total Level 1 HQLA.
4. d.Level 2A Assets:
   Level 2 assets compromise Level 2A and Level 2B assets as permitted by the Central Bank. Level 2A assets are limited to the following, subject to a 15% haircut applied to the current market value of each asset:
   1. a.Shari’ah-compliant marketable securities/Sukuk issued or guaranteed by sovereigns, central banks, PSEs, MDBs, which are assigned a 20% risk weight;
   2. b.Shari’ah-compliant securities (including Shari’ah-compliant commercial paper) and Sukuk that satisfy all of the following conditions:
      1. i.not issued by an IB /financial institution or any of its affiliated entities;
      2. ii.either: (a) have a long-term credit rating from a recognised external credit assessment institution (ECAI) of at least AA- or, in the absence of a long-term rating, a short-term rating equivalent in quality to the long-term rating; or (b) do not have a credit assessment by a recognised ECAI but are internally rated as having a probability of default corresponding to a credit rating of at least AA-.

      These assets must be:

      a) traded in a market characterised by a low level of concentration; and

      b) able to be regarded as a reliable source of liquidity at all times (i.e. maximum decline of price must not exceed volatility targets over a 30 day period during a relevant period of significant liquidity stress).

5. e.Level 2B Assets:
   The Level 2B assets are limited to the following:
   1. 1)Sukuk and other Shari’ah-compliant securities backed by commodity(ies) and other real asset(s) that satisfy all of the following conditions, subject to a 25% haircut:
      1. i.not issued by the IB, and the underlying assets have not been originated by, the IB itself or any of its affiliated entities;
      2. ii.have a long-term credit rating from a recognised ECAI of AA or higher, or in the absence of a long-term rating, a short-term rating equivalent in quality to the long-term rating;
      3. iii.being traded in a market characterised by a low level of concentration and being regarded as a reliable source of liquidity at all times – that is, a maximum decline of price must not exceed volatility targets over a 30 day period during a relevant period of significant liquidity stress; and
      4. iv.the underlying asset pool is restricted to Shari’ah-compliant (residential) mortgages and cannot contain structured products.
   2. 2)Sukuk and other Shari’ah-compliant securities that satisfy all of the following conditions may be included in Level 2B, subject to a 50% haircut:
      1. i.not issued by a financial institution or any of its affiliated entities;
      2. ii.either: (a) have a long-term credit rating from a recognised ECAI of between A+ and BBB- or, in the absence of a long-term rating, a short-term rating equivalent in quality to the long-term rating; or (b) do not have a credit assessment by a recognised ECAI and are internally rated as having a probability of default corresponding to a credit rating of between A+ and BBB-; and
      3. iii.being traded in a market characteried by a low level of concentration and being regarded as a reliable source of liquidity at all times – that is, a maximum decline in price not exceeding 20% or an increase in a haircut over a 30-day period not exceeding 20 percentage points during a relevant period of significant liquidity stress.
   3. 3)Shari’ah-compliant equity shares that satisfy all of the following conditions may be included in Level 2B, subject to a 50% haircut:
      1. i.not issued by a financial institution or any of its affiliated entities;
      2. ii.exchange traded and centrally cleared;
      3. iii.a constituent of the major stock index in the UAE or where the liquidity risk is taken, as decided by the Central Bank of the UAE where the index is located;
      4. iv.denominated in the UAE dirhams or in the currency of the jurisdiction where its liquidity risk is taken; and
      5. v.being traded in a capital market characterised by a low level of concentration and being regarded as a reliable source of liquidity at all times – that is, a maximum decline in share price not exceeding 40% or an increase in a haircut not exceeding 40 percentage points over a 30-day period during a relevant period of significant liquidity stress.
   4. 4)Other Shari’ah-compliant instruments or Sukuk that are widely recognised in the UAE may be included in Level 2B, subject to a minimum 50% haircut if they meet the following conditions:
      1. i.not issued by a financial institution or any of its affiliated entities; and
      2. ii.being traded in a market characterised by a low level of concentration and being regarded as a reliable source of liquidity at all times.
   5. 5)Sukuk and other Shari’ah-compliant marketable securities issued by sovereign or central banks rated BBB+ to BBB- that are not included in Level 1 assets may be included in Level 2B assets with a 50% haircut.
6. f.A cap will be applicable to the use of Level 2 assets, up to 40% of the total stock of HQLA, after the application of required haircuts. Specific to the Level 2B assets, the total assets under this category must comprise no more than 15% of the total stock of HQLA after the application of required haircuts and must be included within the overall 40% cap on Level 2 assets.
7. g.Given that the UAE Dirham is pegged to the US Dollar, for the sake of flexibility US$/AED currency mismatches can be offset. It must be noted though that it is required that liquid assets be held in the currency of the net outflow, including both the US$ and AED individually, and IBs are expected to comply where possible. However, net outflows in other GCC currencies pegged to the US$ that exceed 15% of the total LCR net outflows must be matched. Other pegged and free floating currencies must be matched if they exceed 10% of total net LCR outflows.
    

1. a.Assets meeting the fundamental and market-related characteristics cannot automatically be recognised as HQLA. The assets are subject to operational requirements that are designed to ensure that the stock of HQLA is managed in such a way that an IB can, and is able to demonstrate that it can, immediately use the stock of assets as a source of contingent funds that is available to the IB to convert into cash through Shari’ah-compliant mechanisms – that is, outright sale or the use of Shari’ah-compliant alternatives to repurchase (repo) transactions – to fill funding gaps between cash inflows and outflows at any time during the 30-day stress period, with no restriction on the use of the liquidity generated. IBs may follow the internationally accepted operational requirements for the asset to be recognised as HQLA.
2. b.In particular, the assets must fulfil the following operational requirements:
   1. i.All assets included in HQLA must meet the requirement to be unencumbered, which means free of legal, regulatory, contractual or other restrictions on the ability of the IBs to liquidate, sell, transfer or assign the asset. However, assets which qualify as HQLA that have been pre-positioned or deposited with, or pledged to, the Central Bank or a PSE, but have not been used to generate liquidity, may be included in the stock.
   2. ii.The assets must be under the control of the IB’s liquidity risk management function. IBs may segregate the HQLA from other assets with the sole intent to use HQLA as a source of liquidity. IBs must undertake the necessary initiatives to ensure the assets are accessible to the market, to minimise the risk that they cannot be transferred and liquidated during a period of actual stress. To ensure the liquidity of the HQLA in a stress period, IBs must periodically liquidate a sample of HQLA to test their access to the market, the effectiveness of their processes of liquidation, and the availability of the assets.
   3. iii.IBs must mitigate market and rate of return risk associated with ownership of the stock of HQLA in accordance with the Shari’ah rules and principles. IBs must also consider the impact of early settlement on the mitigation technique, if applicable, as well as other risks that may occur due to such transactions. If an IB chooses to mitigate some underlying risk by hedging it in a Shari’ah-compliant manner, the IB must include in its total cash outflows those that would result from the termination of any specific hedging transaction against the HQLA.
   4. iv.Any surplus of HQLA held by a legal entity within a group can be included at the consolidated level only if those assets would also be freely available to the consolidated (parent) entity in times of stress.
   5. v.A bank must develop and implement procedures, systems and controls that enable it to determine the stock of HQLA in terms of composition and various characteristics. Such procedures and systems enable the IBs to:
      • •confirm the eligibility of an asset for inclusion as a HQLA;
      • •ensure that its HQLA are appropriately diversified across asset type, issuer, currency and other factors associated with liquidity risk;
      • •identify the location of HQLA; and
      • •confirm that the amounts of HQLA held in foreign markets are adequate to meet its LCR in those markets.
   6. vi.IBs must periodically monetise a representative proportion of the assets in its stock of HQLA through sale and Shari’ah-compliant alternatives of repurchase (repo) transactions in order to test its access to the market, the effectiveness of its processes for liquidation and the availability of the assets, and to minimise the risk of negative signaling during a period of actual stress.
3. c.The stock of HQLA must be well diversified within the asset classes (except for instruments issued by the sovereign government of the UAE or from the jurisdiction in which the IB operates, Central Bank reserves, Central Bank securities and cash). IB must therefore have policies and limits in place in order to avoid concentration with respect to asset types, issue and issuer types, and currency (consistent with the distribution of net cash outflows by currency) within asset classes.
4. d.IBs must endeavour to hold eligible liquid assets in the currencies that match the currencies of the net cash outflow. Liquid asset portfolios must be well diversified in terms of counterparties and tenor and held for the sole purpose of managing liquidity risk.
    

1. a.The term “total net cash outflows” is defined as the total expected cash outflows minus total expected cash inflows in the specified stress scenario for the subsequent 30 calendar days. Total expected cash outflows are calculated by multiplying the outstanding balances of various categories or types of liabilities and IA, and off-balance sheet (OBS) commitments by the rates at which they are expected to run off or be drawn down.
2. b.Total expected cash inflows are calculated by multiplying the outstanding balances of various categories of contractual receivables by the rates at which they are expected to flow in under the scenario up to an aggregate cap of 75% of total expected cash outflows.
3. c.To avoid double counting, for assets that are included as part of the stock of HQLA (i.e. the numerator of the LCR), the associated cash inflows cannot also be counted as cash inflows in calculating net cash outflows. Therefore, instruments that are utilised for intraday liquidity facilities must be excluded from the components of HQLA. Obligations arising from the assets will remain recorded as components of total net cash outflows.
    

1. a.IB shall calculate total cash outflows based on the categories of cash outflows as listed below. Each category consists of various types of liabilities or IA, which have their own run-off factors tied to their behavioral characteristics.
2. b.Treatment of IAs
   Income-earning deposits with IB, whether retail or wholesale, typically take the form of IA, which are categorised as follows:
   a) Restricted IA (RIA), and
   b) Unrestricted IA (UIA).
3. c.The applicable run-off factor for IA depends on the withdrawal rights of the IAH and whether they are retail or wholesale accounts. Whether the IA are reported on-or off-balance sheet is not relevant. In the case of RIA, IAH may or may not have the right to withdraw funds before the contractual maturity date. For RIA with no withdrawal rights prior to maturity, the IB managing the RIA is not exposed to run-off for LCR purposes, unless the contract maturity date falls within the next 30 days. Alternatively, IAH may have withdrawal rights subject to giving at least 30 days’ notice. In this case, also, the IBs managing these RIA is not exposed to run-off from them for LCR purposes (except for those accounts for which notice of withdrawal has been given and the withdrawal date falls within the next 30 days, or those which mature within the next 30 days). Only in the case of RIA from which the IAH may withdraw funds at less than 30 days’ notice without any “significant reduction of profit” is the IB exposed to run-off for LCR purposes. To be “significant”, a reduction of profit must be considerably more than a mere loss of accrued income. Where an IB offers such RIA, it would be expected to retain a proportion of HQLA in the relevant RIA fund in order to meet withdrawals, in which case the HQLA would be netted off the amount of the run-off in calculating the total net cash outflows. However, it must be noted that if an IB has voluntarily waived such restrictions and permitted withdrawals to be made at short notice (i.e. less than 30 days) without any significant reduction of profit, such restrictions will have to be ignored subsequently in determining the applicable run-off factor. The run-off factor applied to the RIA is based on the aforementioned minimum ratios. Where the funds of RIA are invested in assets with a liquid secondary market, such that under normal conditions the assets may be monetised rapidly in time to meet a demand for withdrawal, there is a risk that under stressed conditions it may not be possible to monetise the assets so readily. Hence, there is a potential exposure to a (net) run-off for LCR purposes. The amount of the run-off for LCR purposes must therefore be reduced only in respect of cash and HQLA held in the RIA fund.
4. d.For UIA, in some cases withdrawals will be permitted either on demand or at less than 30 days’ notice. The run-off factor applied to UIA depends on the contractual withdrawal rights of the IAH.
5. e.Retail Deposits and IAs
   Retail deposits are separated into stable and less stable deposits. Stable retail deposits receive 5% run off and less stable receive 10% run off.
6. f.Current retail deposits/IA are considered stable if:
   1. i.They are resident deposits and,
   2. ii.A relationship with the customer has been well established, for example the customer has been dealing with the bank for over 1 year; or
   3. iii.The customer uses the account for transactions such as salary being deposited in the account, paying bills and standing order payments.
7. g.Retail term deposits/IA which are maturing within the 30 day period are classified as stable if:
   1. i.They are resident deposits, and
   2. ii.A relationship with the customer has been well established, for example, the term deposit has a history of being rolled over at maturity with the IB, or the relationship has been established for over 1 year with the customer.
8. h.Deposits from small and medium sized entities (SMEs) can be treated as retail deposits (as per the clauses above), if their deposit amount is less than AED 20 Million.
9. i.Unsecured deposits from non-financial corporates – 40% run off for Non- operational and 25% run off for operational.
10. j.Unsecured Wholesale Funding
    Unsecured wholesale funding is defined as those liabilities and general obligations of the IBs that are raised from non-natural persons such as legal entities, including sole proprietorships and partnerships and are not collateralised by legal rights to specifically designated assets owned by the funding institution in the case of bankruptcy, insolvency, liquidation or resolution. The wholesale funding included in the LCR includes funding that is callable within the LCR’s horizon of 30 days or that has its earliest possible contractual maturity date situated within this horizon, as well as funding with an undetermined maturity. Wholesale funding that is callable by the funds provider subject to a contractually defined and binding notice period surpassing the 30-day horizon is not included.
11. k.The outflows to unsecured wholesale funding are further categorised into five categories. First are current and term accounts (less than 30 days’ maturity) provided by small business customers. As with the categorisation of retail deposits, these types of current and term accounts are further divided into stable and less stable deposits. Treatment of the current and term accounts provided by small business customers is also similar to the treatment of the retail deposits. Stable deposits are assigned a 5% run-off factor, while less stable deposits are assigned run-off factors based on the different buckets that are determined according to the risk profiles of each group, with a minimum run-off factor of 10%. As indicated above, in the case of IBs that do not practice “smoothing” of profit payouts to IAH, a higher run-off factor must be applied. Categorisation of the buckets and their run-off factors shall be similar to that of the buckets of less stable current and term accounts in the retail category.
12. l.The second category is operational accounts generated by clearing, custody and cash management activities. These deposits are defined as deposits placed by financial and non-financial customers in order to facilitate their access to and ability to use payment and settlement systems and otherwise make payments. These funds are assigned a 25% run-off factor. However, this factor is only applicable if the customer has a substantive dependency on the IBs and the deposit required for such activities, and meets the international definition and qualifying criteria for funds to be recognised as operational accounts.
13. m.In order to ensure consistent and effective implementation of operational accounts, one or more of the following criteria for determining the eligibility of any account as an operational account must be met:
    1. i.used for providing cash management, custody or clearing products only;
    2. ii.must be provided under a legally binding agreement to institutional customers;
    3. iii.termination of these accounts shall be subject to either a notice period of at least 30 days or a significant reduction of profit for closing these accounts; and
    4. iv.returns on these accounts are determined without giving any economic incentive to the customer to leave any excess funds in the accounts.
14. n.Any excess balances that could be withdrawn and would still leave enough funds to fulfil the clearing, custody and cash management activities do not qualify for the 25% factor. In other words, only that part of the deposit balance with the service provider that is proven to serve a customer’s operational needs can qualify as stable. Excess balances must be treated in the appropriate category for non-operational accounts. If the IB is unable to determine the amount of the excess balance, then the entire deposit must be assumed to be excess to requirements and, therefore, considered non-operational. The IB must determine the methodology for identifying excess deposits that are excluded from this treatment. This assessment must be conducted at a sufficiently granular level to adequately assess the risk of withdrawal in an idiosyncratic stress scenario.
15. o.The third category includes funds from an institutional network of cooperative IB. In some jurisdictions, there are IBs that act as “central institutions” or central service providers for lower-tier IBs, such as Islamic cooperatives. A 25% run-off rate can be applied by such an IBs to the amount of deposits member institutions place with it as their central institution or specialised central service provider that are placed (a) due to statutory minimum deposit requirements, and which are registered at regulatory authorities, or (b) in the context of common task-sharing and legal, statutory or contractual arrangements. As with other operational accounts, these deposits would receive a 0% inflow assumption for the IBs. Supervisory approval would be needed in each case to ensure that IBs utilising this treatment actually are the central institutions or central service providers (e.g. to a cooperative network).
16. p.The fourth category is unsecured wholesale funding provided by non-financial corporates and sovereigns, the Central Bank, MDBs and PSEs. A 40% run-off factor is applicable to funds from such sources that are not specifically held for operational purposes.
17. q.The last category is “other entities”. This category consists of all deposits and funding from other institutions including, among others, banks, IBs, securities firms, insurance or Islamic insurance (Takaful) companies, etc., fiduciaries and beneficiaries, conduits and special purpose vehicles, affiliated entities of the IBs, and any other entities that are not specifically held for operational purposes and are not included in the prior categories. The run-off factor for these funds is 100%.
18. r.Secured Funds
    Secured funding is defined as liabilities and general obligations with maturities of less than 30 days that are collateralised by legal rights to specifically designated assets owned by the counterparty in the case of bankruptcy, insolvency, liquidation or resolution. Various run-off factors are assigned to these funds, depending on the type of collateral. The secured funding transactions with a central bank counterparty or backed by Level 1 assets with any counterparty are assigned a 0% run-off factor. A 15% run-off factor is assigned to secured funding transactions backed by Level 2A assets with any counterparty.
19. s.Higher run-off factors are assigned to secured funding not backed by Level 1 or Level 2A assets. Secured funding transactions backed by assets that are neither Level 1 nor Level 2A, with domestic sovereign, MDBs or domestic PSEs as a counterparty, as well as secured funding backed by commodity or real assets eligible for inclusion in Level 2B, may receive 25% run-off factors. On the other hand, secured funding backed by other Level 2B assets and all other secured funding transactions that do not fall within the above categorisations shall be assigned 50% and 100% run-off factors, respectively.
20. t.For all other maturing transactions, the run-off factor is 100%, including transactions where IB has met customers’ short positions with its own long inventory. Table below summarises the applicable standards.
21. u.For all other maturing transactions, the run-off factor is 100%, including transactions where IB has met customers’ short positions with its own long inventory. Table below summarises the applicable standards.
22. Amount to Add to Cash Outflows:

     Additional Requirements:

1. v.Some instruments under this category could include Shari’ah-compliant hedging (Tahawwut) instruments, which are assigned a 100% run-off factor; undrawn credit and liquidity facilities to retail and small business customers, which are assigned a 5% run-off factor; undrawn financing facilities to non-financial corporates as well as sovereigns, central banks, PSEs and MDBs, which are assigned a 10% run-off factor for credit and a 30% run-off factor for liquidity; as well as other contractual obligations extended to financial institutions/IBs, which are assigned a 100% run-off factor.
2. w.Some instruments under this category could include Shari’ah-compliant hedging (Tahawwut) instruments, which are assigned a 100% run-off factor; undrawn credit and liquidity facilities to retail and small business customers, which are assigned a 5% run-off factor; undrawn financing facilities to non-financial corporates as well as sovereigns, central banks, PSEs and MDBs, which are assigned a 10% run-off factor for credit and a 30% run-off factor for liquidity; as well as other contractual obligations extended to financial institutions/IBs, which are assigned a 100% run-off factor.
3. x.Shari’ah-compliant Interbank Contracts
   The instruments traded in the conventional interbank market are usually short-term and liquid in nature, and their maturities range from one day up to a year. The trading is wholesale and mostly conducted over the counter. An Islamic interbank money market would essentially perform similar functions with the exception that the instruments used must comply with Shari’ah principles. Widely used Shari’ah-compliant instruments used by IBs for interbank liquidity management are based on Mudarabah, commodity Murabahah or Wakalah arrangements. All these contracts are structured as unsecured wholesale funding. The run-off rate applied to these transactions, maturing in the next 30 calendar days, is 100%.
    

1. a.Cash Inflows – 100% in the normal course of business inflows with a cap of 75% of outflows
2. b.When considering its cash inflows, an IB must include only contractual inflows from outstanding exposures that are fully performing and for which the IB has no reason to expect a default within the 30-day time horizon. Contingent inflows (such as returns on profit-sharing instruments) are not included in total net cash inflows. IB need to monitor the concentration of expected inflows across wholesale counterparties. In order to prevent IB from placing too much reliance on expected inflows to meet their liquidity requirement, and to ensure a minimum level of HQLA holdings, the amount of inflows that can offset outflows is capped at 75% of total expected cash outflows as defined in this standard.
3. c.The first category of cash inflows is secured financing, including Shari’ah-compliant alternatives to reverse repos and securities borrowing. Unless stated otherwise, the run-off rates mentioned in the following can be applied.
4. d.IB must assume that the maturity of financing secured by Level 1 assets will be rolled over and will not give rise to any cash inflows. Therefore, an inflow factor of 0% will be applied to this kind of transaction. Maturing financing secured by Level 2 assets will lead to cash inflows equivalent to the relevant haircut for the specific assets. For instance, a 15% inflow factor is assigned if the transaction is secured by Level 2A assets; and an inflow factor of 25–50% is assigned if it is secured by Level 2B assets. IB is assumed not to roll over maturing secured financing covered by non-HQLA assets, and can assume that it will receive back 100% of the cash related to those agreements (i.e. an inflow factor of 100%).
5. e.The second category of IB cash inflows is committed facilities. No financing facilities, liquidity facilities or other contingent funding facilities that the IB holds at other institutions for its own purposes will be assumed to be drawn. Such facilities receive a 0% inflow rate, meaning that this scenario does not consider inflows from committed financing or liquidity facilities.
6. f.The third category of cash inflows is inflows from various counterparties, for which the inflow rate is determined by the type of counterparty. This category of inflows takes into account cash inflows from either secured or unsecured transactions from various counterparties, which are categorised as: (a) retail customers and small business customers and (b) wholesale inflows, including non-financial corporates, as well as financial institutions/IBs and other entities. The inflow rate will be determined based on the type of counterparty. Non-financial wholesale counterparties, as well as retail customers, may be assigned a 50% inflow factor, while financial institutions/IBs and central bank counterparties may be assigned a 100% inflow factor.
7. g.Inflows from financing that have no specific maturity (i.e. have undefined or open maturity) must not be included. Therefore, no assumptions must be applied as to when maturity of such financing would occur. An exception to this would be minimum payments of principal, fee or profit associated with an open maturity financing, provided that such payments are contractually due within 30 days. These minimum payment amounts must be captured as inflows, at the rates prescribed in (d), to these transactions.
8. h.Inflows from securities maturing within 30 days that are not included in the stock of HQLA must be placed in the same category as inflows from financial institutions (i.e. 100% inflow). IBs may also recognise in this category inflows from the release of balances held in segregated accounts in accordance with regulatory requirements for the protection of customer trading assets, provided that these segregated balances are maintained in HQLA. These inflows must be calculated in line with the treatment of other related outflows and inflows covered in this standard. Level 1 and Level 2 securities maturing within 30 days must be included in the stock of HQLA rather than being counted as inflows, provided that they meet all operational and definitional requirements.
9. i.Deposits held at other IBs for operational purposes which fall under the category of operational accounts are assumed to stay at the counterparties. Thus, no inflows can be counted for these funds (0% inflow rate). The same treatment applies for deposits held at the centralised institution in a cooperative banking network, as such funds are assumed to stay at the centralised institution.
10. j.The last category is other cash inflows – that is, inflows that are not categorised under the above categories. This category includes Shari’ah-compliant hedging to which an inflow rate of 100% is assigned. Cash inflows related to non-financial revenues, however, are not taken into account in the calculation of the net cash outflows for the purposes of the LCR.
     

1. a.There are two components of the NSFR:
   • -available stable funding (ASF); and
   • -required stable funding (RSF).

   The NSFR is defined as the ratio of the amount of available amount of stable funding to the amount of required stable funding. This ratio must be equal to at least 100% on an ongoing basis. Available stable funding is defined as the portion of those types and amounts of equity and liability financing expected to be reliable sources of funds over a one-year time horizon. Required stable funding is based on the liquidity characteristics and residual maturities of the various kinds of assets held by IBs as well as those included in its OBS exposures.

2. b.    $$$$
3. c.The amount of ASF is composed of the total amount of an IB’s (1) capital, (2) UIA with a maturity equal to or greater than one year, (3) liabilities or Sukuk issued with effective or remaining maturities of one year or greater, and (4) that portion of “stable” deposits and/or UIA with maturities of less than one year that would be expected to stay with the IB. On the other hand, the amount of RSF is measured using supervisory assumptions about the broad characteristics of the liquidity risk profiles of an IB’s assets and OBS exposures. A certain RSF factor is assigned to each asset type, with those assets deemed to be more liquid receiving a lower RSF factor and therefore requiring less stable funding.
4. d.The ASF and RSF are based on a presumed degree of stability of liabilities and liquidity characteristics of assets under the extended stress conditions, respectively. On the liability side (ASF), funding tenor and funding type and counterparty are two dimensions that must be taken into account. For example, longer-term liabilities are assumed to be more stable than short-term liabilities, and deposits or UIA from retail and small business customers are more stable than wholesale funding with the same maturity. Mostly, IBs rely on deposits and UIA provided by retail customers. These deposits and UIA are behaviorally more stable than other types of deposit. However, on the asset side (RSF), resilient credit creation, IBs behaviour, asset tenor, asset quality and liquidity value are the criteria for the appropriate amount of required stable funding. There is trade-off between these criteria. The difficulties for the IBS are lack of HQLA, unavailability of a Shari’ah-compliant repo mechanism to securitise and trade, and the absence of a secondary market.

Available Stable Funding

1. e.The amount of available stable funding (ASF) is calculated by multiplying the carrying values of funding side items by the applicable ASF factors which are based on the broad characteristics of the relative stability of an IB’s funding sources, including the contractual maturity of its liabilities and the differences in the propensity of different types of funding providers to withdraw their funding. Five categories are mentioned in this standard, IBs must first assign the carrying value of an IB’s capital and liabilities to one of the five categories as presented below. The amount assigned to each category is then multiplied by an ASF factor, and the total ASF is the sum of the weighted amounts. Carrying value represents the amount at which a liability or equity instrument is recorded before the application of any regulatory deductions, filters or other adjustments.
2. f.When determining the maturity of an equity-based or liability instrument, investors are assumed to redeem a call option at the earliest possible date in Shari’ah-compliant ways. For funding with options exercisable at the IB’s discretion, the reputational factors that may limit an IB’s ability not to exercise the option, must be taken into account. In particular, where the market expects certain liabilities to be redeemed before their legal final maturity date, IBs must assume such behaviour for the purpose of the NSFR and include these liabilities in the corresponding ASF category. For long-dated liabilities, only the portion of cash flows falling at or beyond the six-month and one-year time horizons must be treated as having an effective residual maturity of six months or more and one year or more, respectively.
3. g.RIA do not count as ASF, but retail UIA may fall into one of the categories mentioned below mostly receiving ASF factors in the 100%, the 95% or the 90% category. Sukuk issued with an effective maturity of one year or more would also qualify for a 100% ASF.
4. h.The first category of ASF is the liabilities and capital instruments receiving a 100% ASF factor. This category comprises:
   1. i.the total amount of regulatory capital, before the application of capital deductions, excluding the proportion of Tier 2 instruments with residual maturity of less than one year;
   2. ii.the total amount of any capital instrument not included in (a) that has an effective residual maturity of one year or more, but excluding any instruments with explicit or embedded options that, if exercised, would reduce the expected maturity to less than one year; and
   3. iii.the total amount of secured and unsecured funding and liabilities (including deposits and/or UIA) with effective residual maturities of one year or more. Cash flows falling below the one-year horizon but arising from liabilities with a final maturity greater than one year do not qualify for the 100% ASF factor.
5. i.The second category is the liabilities receiving a 95% ASF factor. This category comprises “stable” deposits and/or UIA with residual maturities of less than one year provided by retail and small business customers.
6. j.The third category is the liabilities of IB receiving a 90% ASF factor. It comprises “less stable” deposits and/or UIA with residual maturities of less than one year provided by retail and small business customers.
7. k.The fourth category is the liabilities receiving a 50% ASF factor which comprises:
   1. i.funding (secured and unsecured) with a residual maturity of less than one year provided by non-financial corporate customers;
   2. ii.operational accounts;
   3. iii.funding with residual maturity of less than one year from sovereigns, public sector entities (PSEs), and multilateral and national development banks; and
   4. iv.other funding (secured and unsecured) not included in the categories above with residual maturity between six months and less than one year, including funding from central banks and financial institutions.
8. l.The last category is the liabilities receiving a 0% ASF which are:
   1. i.all other liabilities and equity categories not included in the above categories, including other funding with residual maturity of less than six months from central banks and financial institutions;
   2. ii.other liabilities without a stated maturity. Two exceptions can be recognised for liabilities without a stated maturity:
      1. a.first, deferred tax liabilities, which must be treated according to the nearest possible date on which such liabilities could be realised; and
      2. b.second, minority interest, which must be treated according to the term of the instrument, usually in perpetuity.

      These liabilities would then be assigned either a 100% ASF factor if the effective maturity is one year or greater, or 50% if the effective maturity is between six months and less than one year

   3. iii.net NSFR Shari’ah-compliant hedging liabilities, and
   4. iv.“trade date” payables arising from purchases of financial instruments, foreign currencies and commodities that
      1. a.are expected to settle within the standard settlement cycle or period that is customary for the relevant exchange or type of transaction, or
      2. b.have failed to, but are still expected to, settle.
9. m.Calculation of Shari’ah-compliant Hedging Liability Amounts
   Shari’ah-compliant hedging liabilities (e.g. Islamic swaps) are calculated first based on the replacement cost for the Shari’ah-compliant hedging contracts (obtained by marking to market), where the contract has a negative value. When an eligible bilateral netting contract is in place, the replacement cost for the set of Shari’ah-compliant hedging exposures covered by the contract will be the net replacement cost.
10. n.In calculating NSFR Shari’ah-compliant hedging liabilities, collateral posted in the form of variation margin that follows Shari’ah principles in connection with Shari’ah-compliant hedging contracts as in the TMA contract, regardless of the asset type, must be deducted from the negative replacement cost amount
11. o.Required Stable Funding
    The amount of required stable funding (RSF) is calculated by multiplying the carrying values of assets and OBS exposures by the applicable RSF factors which are based on the broad characteristics of liquidity risk profile of an IB’s assets and OBS exposures. Eight categories are mentioned in this standard, IBs must first assign the carrying values of an IB’s assets to one of eight categories as presented below. The amount assigned to each category is then multiplied by an RSF factor. The total RSF is the sum of the weighted amounts of each asset category and the amount of OBS activity (or potential liquidity exposure) multiplied by its associated RSF factor.
12. p.The RSF factors assigned to various types of assets are intended to approximate the amount of a particular asset that would have to be funded, either because it will be rolled over, or because it could not be monetized through sale or used as collateral in a secured financing transaction over the course of one year without significant expense.
13. q.Asset categorisation to the various types of RSF is based on their residual maturity or liquidity value. When determining the maturity of an instrument, investors must be assumed to exercise any option to extend maturity. For assets with options exercisable at the IB’s discretion, reputational factors that may limit IB’s ability not to exercise the option must be taken into account. In particular, where the market expects certain assets to be extended in their maturity, IBs must assume such behaviour for the purpose of the NSFR and include these assets in the corresponding RSF category.
14. r.For purposes of determining its RSF, an IB must: (a) include financial instruments, foreign currencies and commodities for which a purchase order has been executed; and (b) exclude financial instruments, foreign currencies and commodities for which a sales order has been executed, even if such transactions have not been reflected in the balance sheet under a settlement-date accounting model, provided that (i) such transactions are not reflected as Shari’ah-compliant hedging contracts or secured financing transactions in the IB’s balance sheet, and (ii) the effects of such transactions will be reflected in the IB’s balance sheet when settled.
15. s.The first category is the assets assigned a 0% RSF factor and comprises:
    1. i.coins and banknotes immediately available to meet obligations;
    2. ii.all central bank reserves (including required reserves and excess reserves);
    3. iii.all claims on central banks with residual maturities of less than six months; and
    4. iv.“trade date” receivables arising from sales of Shari’ah-compliant financial instruments, foreign currencies and commodities that (i) are expected to settle within the standard settlement cycle or period that is customary for the relevant exchange or type of transaction, or (ii) have failed to, but are still expected to, settle.
16. t.The second category is the assets assigned a 5% RSF factor and comprises unencumbered Level 1 assets, excluding assets receiving a 0% RSF as specified above, and including: Sukuk and other Shari’ah-compliant marketable securities issued or guaranteed by sovereigns, central banks, public sector entities (PSEs), multilateral development banks (MDBs) or relevant international organisations which are assigned a 0% risk weight.
17. u.The third category is the assets assigned a 10% RSF factor which consist of the unencumbered financings to financial institutions with residual maturities of less than six months, where the financing is secured against Level 1 assets.
18. v.The fourth category is the assets assigned a 15% RSF factor which comprise:
    1. i.unencumbered Level 2A assets, including: (i) Sukuk and other Shari’ah-compliant marketable securities issued or guaranteed by sovereigns, central banks, PSEs, MDBs or relevant international organisations, which are assigned a 20% risk weight based on standardized approach as implemented in the UAE; and (ii) corporate Sukuk with a credit rating equal or equivalent to at least AA–; and
    2. ii.all other unencumbered financings to financial institutions with residual maturities of less than six months not included in the second category.
19. w.The fifth category is the assets assigned a 50% RSF factor which comprise:
    1. i.unencumbered Level 2B assets as defined and subject to the conditions set forth in paragraph 31, including: (i) Sukuk and other Shari’ah-compliant securities backed by commodity(ies) and other real asset(s) with a credit rating of at least AA; (ii) corporate Sukuk and other Shari’ah-compliant securities with a credit rating of between A+ and BBB–; and (iii) Shari’ah-compliant equity shares not issued by financial institutions or their affiliates;
    2. ii.any HQLA as defined in the LCR that are uncumbered for a period of between six months and less than one year;
    3. iii.all financings to financial institutions and central banks with a residual maturity of between six months and less than one year; and
    4. iv.deposits or UIA held at other financial institutions for operational purposes that are subject to the 50% ASF factor;
    5. v.all other non-HQLA not included in the above categories that have a residual maturity of less than one year, including financing to non-financial corporate clients, financings to retail customers (ie natural persons) and small business customers, and financings to sovereigns and PSEs.
20. x.The sixth category is the assets assigned a 65% RSF factor which comprise:
    1. i.unencumbered residential real estate financing with a residual maturity of one year or more that would qualify for a 35% or lower risk weight based on standardized approach as implemented in the UAE; and
    2. ii.other unencumbered financing not included in the above categories, excluding financing to financial institutions, with a residual maturity of one year or more that would qualify for a 35% or lower risk weight based on standardized approach as implemented in the UAE.
21. y.The seventh category is the assets assigned an 85% RSF factor which comprise:
    1. i.cash, securities or other assets posted as initial margin for Shari’ah-compliant hedging contracts and cash or other assets provided to contribute to the default fund of a central counterparty;
    2. ii.other unencumbered Sukuk and other Shari’ah-compliant securities with a remaining maturity of one year or more and Shari’ah-compliant equity shares, that are not in default and do not qualify as HQLA according to the LCR;
    3. iii.other unencumbered performing financing assets that do not qualify for the 35% or lower risk weight based on standardized approach as implemented in the UAE and have residual maturities of one year or more, excluding financing to financial institutions;
    4. iv.physical traded commodities
22. z.The last category is the assets assigned a 100% RSF factor, which comprise:
    1. i.all assets that are encumbered for a period of one year or more;
    2. ii.net NSFR Shari’ah-compliant hedging assets as calculated according to this standard
    3. iii.all other assets not included in the above categories, including non-performing financing, financing to financial institutions with a residual maturity of one year or more, non-exchange-traded Shari’ah-compliant equities, fixed assets, items deducted from regulatory capital, insurance assets, and defaulted Shari’ah-compliant securities; and
    4. ii.20% of Shari’ah-compliant hedging liabilities (i.e. negative replacement cost amounts) as calculated according to this standard (before deducting variation margin posted).

1. aa.Encumbered Assets
   Assets on the balance sheet that are encumbered for one year or more receive a 100% RSF factor. Assets encumbered for a period of between six months and less than one year that would, if unencumbered, receive an RSF factor lower than or equal to 50% receive a 50% RSF factor. Assets encumbered for between six months and less than one year that would, if unencumbered, receive an RSF factor higher than 50% retain that higher RSF factor. Where assets have less than six months remaining in the encumbrance period, those assets may receive the same RSF factor as an equivalent asset that is unencumbered.
2. bb.Secured Financing Transactions
   For secured funding arrangements, use of balance sheet and accounting treatments must generally result in IBs excluding, from their assets, Shari’ah-compliant securities which they have used in securities financing transactions where they do not have beneficial ownership. Where IBs have encumbered securities in Shari’ah-compliant repos or other securities financing transactions, but have retained beneficial ownership and those assets remain on the IBs’ balance sheet, the IB must allocate such securities to the appropriate RSF category.
3. cc.Securities financing transactions with a single counterparty may be measured net when calculating the NSFR only where a valid netting agreement exists or when the inflow and outflow occurs within the same business day.
4. dd.Calculation of Shari’ah-compliant Hedging Asset Amounts
   Shari’ah-compliant hedging assets (e.g. Islamic swaps) are calculated first based on the replacement cost for the Shari’ah-compliant hedging contracts (obtained by marking to market), where the contract has a positive value. When an eligible bilateral netting contract is in place, the replacement cost for the set of Shari’ah-compliant hedging exposures covered by the contract will be the net replacement cost.
5. ee.In calculating NSFR Shari’ah-compliant hedging assets, collateral received in connection with Shari’ah-compliant hedging contracts may not offset the positive replacement cost amount, regardless of whether or not netting is permitted under the IB’s operative accounting or risk-based framework, unless it is received in the form of cash variation margin. Any remaining balance sheet liability associated with initial margin received may not offset Shari’ah-compliant hedging assets and must be assigned a 0% ASF factor.
6. ff.Interdependent Assets and Liabilities
   Central Bank in limited circumstances may determine whether certain asset and liability items, on the basis of contractual arrangements, are interdependent such that the liability cannot fall due while the asset remains on the balance sheet, the principal payment flows from the asset cannot be used for something other than repaying the liability, and the liability cannot be used to fund other assets. For interdependent items, supervisors may adjust RSF and ASF factors so that they are both 0%, subject to the following criteria:
   a) The individual interdependent asset and liability items must be clearly identifiable.
   b) The maturity and principal amount of both the liability and its interdependent asset must be the same.
   c) The bank is acting solely as a pass-through unit to channel the funding received (the interdependent liability) into the corresponding interdependent asset.
   d) The counterparties for each pair of interdependent liabilities and assets must not be the same.
7. gg.Off-balance Sheet Exposures (OBS)
   Off-balance sheet exposures also attract RSF factors. Many potential OBS liquidity exposures require little direct or immediate funding but can lead to significant liquidity drains over a longer time horizon. The NSFR assigns an RSF factor to various OBS activities in order to ensure that Islamic Bank hold stable funding for the portion of OBS exposures that may be expected to require funding within a one-year horizon.
8. hh.Consistent with the LCR, the NSFR identified OBS exposure categories based broadly on whether the commitment is a credit or liquidity facility or some other contingent funding obligation.