Central Bank of Libya

P.O. Box 11103 Telegraphic Address: Masraflibya - Tripoli - Libya

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Circular A.M.N. No. (2022/14) Date: 25 Jumada al-Awwal 1444 AH Corresponding to: 19 December 2022 AD

Administrative/No. B04

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To: Chairmen of Boards of Directors of Banks To: General Managers of Banks

Subject: Circulating Instructions for Calculating the Liquidity Coverage Ratio

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Based on the provisions of Law No. (1) of 2005 concerning Banks and its amendments, and in accordance with the proposals of the Basel Committee on Effective Banking Supervision, and in recognition of the initiation of applying Basel (3) standards, which paid special attention to the topic of liquidity risk management through the development of what is known as the Liquidity Coverage Ratio (LCR), to preserve the safety of the banking sector from liquidity risks and financial losses.

In addition to Circular A.M.N. (2022/7) regarding the establishment of a unit to follow up on the implementation of supervisory instructions issued by the Basel Committee on Banking Supervision.

Accordingly, we provide you with instructions for liquidity risk management and calculating the liquidity coverage ratio in accordance with the requirements and principles of the Basel (3) Committee on Banking Supervision, for their implementation, within the competencies of the unit for implementing Basel Committee on Banking Supervision instructions referred to in Circular A.M.N. (2022/7), and to provide us with the results achieved during the first quarter of 2023.

Peace be upon you...

Taji Mohammed Al-Issi Director of Banking and Currency Supervision Department

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Copy to:

• Mr. / Governor
• Mr. / Deputy Director of Banking and Currency Supervision Department
• Mr. / Deputy Director of Banking and Currency Supervision Department for On-site Supervision Affairs and other relevant matters
• Mr. / Deputy Director of Banking and Currency Supervision Department for Inspection Affairs
• Mr. / Deputy Director of Banking and Currency Supervision Department for Additional Liquidity Affairs
• Gentlemen / Directors of Compliance Departments in Banks (Civil)
• Gentlemen / Directors of Risk Management Departments in Banks

Basel Instructions

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www.cbl.gov.ly , swift code:CBLJLYLX , +218 21 444 1488 , Fax: +218 21 333 3591

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Central Bank of Libya

CENTRAL BANK OF LIBYA Banking and Currency Supervision Department

Liquidity Risk Management Instructions

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Special Instructions

for Liquidity Risk Management

The Basel Committee on Banking Supervision issued in January 2013 the standard for "Banking Reforms Tools" titled "Liquidity Coverage Ratio and Liquidity Risk Monitoring Tools" in its final form, aiming to enhance the resilience of the banking sector. This is considered one of the most critical issues that expose banks, as improper handling can affect a bank's ability to continue operations. The importance of effective management and hedging against these risks, by maintaining sufficient liquid assets and adequate capital against them, has increased in light of the global financial crisis and other crises faced by banks, as these risks had a significant negative impact on the financial positions of banks during these crises.

Liquidity is defined as a bank's ability to finance increases in assets and meet obligations when due without incurring losses. Therefore, efficient liquidity risk management helps ensure that a bank meets its cash obligations. Banks must implement effective internal governance and risk management practices, in addition to supervisory procedures to monitor any deficiencies in liquidity risk management. Consequently, adopting a comprehensive liquidity management policy is of utmost importance for banks, requiring clear and detailed strategies and practices that enable efficient and effective liquidity risk management.

Based on the "Core Principles for Effective Banking Supervision" issued by the Basel Committee, and the Basel (III) principles that paid special attention to this topic through the development of what is known as the Liquidity Coverage Ratio (LCR), which summarizes its consideration as a Stress Test that requires maintaining a minimum level of high-quality liquid assets. In an effort to develop the capabilities of Libyan banks in liquidity risk management, and in compliance with best practices in this field, banks operating in Libya are required to take the following measures:

First: Establishing and Developing a Mechanism for Liquidity Risk Management.

(1) The senior management of each bank must develop an appropriate policy for daily liquidity management, define its elements, and communicate it to the executive levels within the bank. This policy should include the following:

• Defining the minimum liquidity ratios for each currency the bank deals with.
• Defining the quality of liquid assets, and working to maintain the bank's financial strength and its ability to cope with emergencies and stressful factors.
• Defining the methods to be followed for managing liquidity in major currencies, and defining the countries with which transactions can be made.
• Defining the means that the bank can resort to in the event of temporary or long-term liquidity crises.

This requires the bank's general management and relevant personnel to be aware of the implications of other risks such as credit risk, market risk, political risk, and operational risk, on the bank's liquidity position and expected cash flows.

**(2) The bank's board of directors, through the risk committee, must approve the liquidity risk management policy developed by senior