Liquidity Coverage Ratio Guidelines 2024

REGISTRAR OF FINANCIAL INSTITUTIONS

LIQUIDITY COVERAGE RATIO GUIDELINES BANK SUPERVISION DEPARTMENT DECEMBER, 2024

Table of Contents Part I – Preliminary ..................................................................................................................................... 3

1. Introduction......................................................................................................................................... 3
2. Mandate............................................................................................................................................... 3
3. Objective ............................................................................................................................................. 3
4. Scope of Application........................................................................................................................... 3
5. Definitions........................................................................................................................................... 3 Part II – Liquidity Coverage Ratio Framework .......................................................................................... 9
6. Liquidity Coverage Ratio.................................................................................................................... 9
7. Stock Of HQLA ................................................................................................................................ 10
8. Calculation And Composition Of HQLA ......................................................................................... 14
9. Total Net Cash Outflows................................................................................................................... 16

PART I – PRELIMINARY

1. INTRODUCTION 1.1 The ability of banking institutions to meet their obligations as they fall due is of great importance to maintaining a resilient banking system. Past experience has indicated that despite banking institutions having adequate capital levels, a banking sector may still face significant challenges to settle their obligations if liquidity is not prudently managed. 1.2 The Registrar of Financial Institutions (Registrar) has therefore developed these guidelines with a purpose to complement the Financial Services (Prudential Liquidity Requirements for Banks) Directive, 2018.
2. MANDATE 2.1 These guidelines are issued pursuant to Section 96 of the Financial Services Act 2010.
3. OBJECTIVE 3.1 The objective of these guidelines is to ensure that banking institutions: a) Maintain resilient short-term liquidity risk profiles with adequate unencumbered high-quality liquid assets to survive significant stress scenarios lasting for 30 days; and b) Effectively manage their liquidity positions to enable them meet all known obligations and commitments thereby promoting confidence in the banking sector.
4. SCOPE OF APPLICATION 4.1 These guidelines cover the computation of the Liquidity Coverage Ratio (LCR) for banking institutions.
5. DEFINITIONS 5.2 Beneficiary – refers to a legal entity that receives, or may become eligible to receive, benefits under will, insurance policy, retirement plan, annuity, trust, or other contract. 5.3 Cash management operation – refers to the provision of products and services intended to manage customers’ cash flows, assets and liabilities, and for the conduct of financial transactions necessary to the customer’s ongoing operations.

5.4 Clearing operation – refers to a service arrangement that enables customers to transfer funds (or securities) indirectly through direct participants in domestic settlement systems to final recipients. 5.5 Committed business facilities – are explicit contractual agreements or obligations to extend funds at a future date that are contractually irrevocable (i.e., “committed”) or conditionally revocable. 5.6 Correspondent banking – refers to arrangements under which one (1) bank (correspondent) holds deposits owned by other banks (respondents) and provides payment and other services in order to settle foreign currency transactions (e.g. nostro and vostro accounts used to settle transactions in a currency other than the domestic currency of the respondent bank for the provision of clearing and settlement of payments). 5.7 Current market value – refers to the value of liquid assets included in the stock of high￾quality liquid assets (HQLA), measured in accordance with mark-to-market valuation. 5.8 Custody operation – refers to the provision of safekeeping, reporting, 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. 5.9 Downgrade triggers – pertain to clauses or provisions in contracts governing derivatives and other transactions that require the posting of additional collateral, drawdown of contingent facilities, or early repayment of existing liabilities upon the bank’s downgrade by a recognized credit rating organization. 5.10 Financial corporates – refer to corporations, whether resident or non- resident, that are primarily engaged in financial intermediation or in auxiliary financial activities that are closely related to financial intermediation. These include non-bank financial institutions with quasi- banking functions, securities firms, and insurance companies, among others. 5.11 Financial stress – pertains to a condition where a banking institution cannot meet or has difficulty paying off its financial obligations as brought about by firm-specific and/or market-wide stress events. In such financial circumstance, the institution may be having difficulty accessing credit and financing facilities, and has no reasonable alternative other than to monetize its HQLA to the extent necessary to meet obligations such as but not limited to: a) Servicing of deposit withdrawals; b) Posting of additional collateral requirements;

c) Servicing of unscheduled drawdowns on committed but unused credit lines and business facilities that are extended to clients; d) In the interest of mitigating reputational risk, buying back of debt, extending of funds to honor non- contractual obligations, or accommodation of any unexpected liquidity demand from counterparty. 5.12 Haircut – refers to a percentage by which the market value of an asset is reduced. A haircut is applied by a collateral taker as a risk control measure to protect itself from losses resulting from decline in the market value of an asset in the event that it needs to liquidate said collateral. 5.13 High-quality liquid asset (HQLA) – refers to an asset that can be converted easily and immediately into cash at little or no loss of value in private markets to meet the banking institution’s liquidity needs for a 30-calendar day liquidity stress scenario. 5.14 Inflow/Outflow rates – pertain to the various percentages that are designed to reflect the observed behavior and characteristics of different assets, funding sources, obligations, and commitments during periods of liquidity stress. Inflow rates provide the assumption at which assets or contractual receivables are expected to flow in during times of stress. Outflow rates assume the level at which funding sources, obligations, and commitments are expected to run off or be drawn down during stress periods. 5.15 LCR- refers to a proportion of HQLA held by banking institutions to ensure their on￾going ability to meet short-term obligations. 5.16 LCR measurement date – refers to end-of-month date which serves as the reference date for the calculation of the LCR. 5.17 LCR period – refers to the thirty (30) - calendar day period following the LCR measurement date, which serves as the standard horizon for HQLA availability and for total net cash outflows calculation. 5.18 Liquidity market-based indicators – refer to criteria that provide guidance on specific assets that qualify as liquid and readily marketable within an asset class. These enable assessment of the fundamental attributes of an asset that are generally found to be determinants of liquidity (i.e., measure of asset characteristics), and the essential aspects of the broader market structure within which the asset is traded (i.e., measure of market liquidity). 5.19 Non-financial corporates – refer to corporations, whether resident or non- resident, whose principal activity is the production of goods or non-financial services.

5.20 Operational deposit – refers to a deposit account maintained by a wholesale or corporate customer for the primary purpose of obtaining a specific operational service from the banking institution as an independent third-party intermediary, agent or administrator. 5.21 Operational service – refers to any of the following contractual services performed by the banking institution related to clearing, cash management operations, and custody (but excluding correspondent banking or brokering activities), which effectively facilitate the customers’ access and ability to use payment and settlement systems and otherwise make payments: a) Clearing i. Overnight financing and maintenance of post-settlement balances; ii. Transmission, reconciliation, and confirmation of payment orders; iii. Intraday overdraft; iv. Determination of intraday and final settlement positions; b) Cash Management i. Payment remittance; ii. Collection and aggregation of funds; iii. Payroll administration and control over disbursement of funds; iv. Administration of payments and cash flows related to the safekeeping of investment assets, not including the purchase or sale of assets; c) Custody i. Settlement of securities transactions; ii. Client subscriptions and redemptions; iii. Processing of collateral; iv. Transfer of contractual payments, including collection and payment of dividends and other income from financial assets under custodianship; and v. Escrow, funds transfer, stock transfer, and agency services, including payment and settlement services (excluding correspondent banking), payment of fees, taxes, and other expenses 5.22 Other contingent funding obligations – refer to either contractual or non-contractual contingent funding obligations (excluding lending commitments) that are contingent upon a credit or other event that is not always related to the liquidity events simulated in the LCR stress scenario, but may nevertheless have the potential, especially out of reputation risk considerations, to cause significant liquidity drains to the banking

institution in times of stress. Non-contractual contingent funding obligations are funding liabilities that are: a) associated with the issuance or sponsorship of products (including structured financial instruments) or provision of services that may require the funding support or extension of funds by the banking institution in times of stress; or b) embedded in financial products and instruments sold, sponsored, marketed or originated by the banking institution that might prompt the institution to repurchase said products and instruments from a customer in order to satisfy or manage the customer’s reasonable expectations about the liquidity and marketability of the product or instrument. Failure to do so would likely cause material reputational damage to the institution or otherwise impair its ongoing viability. 5.23 Rehypothecation and/or re-use of collateral – Rehypothecation refers to the right of financial intermediaries to sell, pledge, invest, or perform transactions with the client assets they hold, thereby allowing them to obtain funding using said client collateral. Re￾use of collateral, on the other hand, usually covers a broader context where securities delivered in one transaction are used to collateralize another transaction, including own trades, borrowings or short sellings. The terms rehypothecation and re-use of securities are used interchangeably in this guideline. 5.24 Retail deposits – refer to deposit liabilities raised by the banking institution from individual clients including sole proprietorships and partnerships, and those classified as micro and small enterprises (hereinafter called retail clients). 5.25 Securities financing transactions (SFTs) – these involve repurchase (repos), and reverse repurchase (reverse repos) agreements, securities lending and borrowing, or margin lending transactions, where the value of the transactions depends on market valuations and the transactions are often subject to margin agreements. 5.26 Secured funding – refers to any liability and general obligation arising from securities transaction that is covered by collateral in the form of duly constituted mortgage, pledge, or lien on specifically designated asset owned by the banking institution or its related party that gives the counterparty priority over said asset in case of bankruptcy, insolvency, liquidation, or resolution. This consists of repos, collateral swaps, collateral lending to customers to cover short positions and other similar secured funding arrangements. Forward repos and forward collateral swaps that start previous to and mature within the LCR horizon are included in this category. 5.27 Secured lending – refers to any securities transaction that is subject to a legally binding agreement that gives rise to a cash obligation of a counterparty to a banking institution

that is secured under applicable law by a lien on specifically designated asset owned by the counterparty or by its related party, which gives the institution, as holder of the lien, priority over said asset in the event the counterparty enters into bankruptcy, insolvency, liquidation, receivership, resolution, or similar proceeding. This will include reverse repos, margin loans, and securities borrowing transactions. Forward reverse repos and forward collateral swaps that start previous to and mature within the LCR horizon are included in this category. 5.28 Special purpose entity (SPE) – refers to a corporation, trust, or other entity organized for a specific purpose, the activities of which are limited to those appropriate to accomplish the purpose of the SPE, and the structure of which is intended to isolate the SPE from the credit risk of an originator or seller of exposures. SPEs are commonly used as financing vehicles in which exposures are sold to a trust or similar entity in exchange for cash or other assets funded by debt issued by the trust. 5.29 Total expected cash inflows – pertain to the various types of contractual receivables which outstanding balances as of the LCR measurement date are multiplied by relevant inflow rates. The total inflow amounts are capped at seventy-five percent (75%) of aggregated total expected cash outflows. 5.30 Total expected cash outflows – pertain to the various on- and off-balance sheet funding sources and commitments which outstanding balances as of the LCR measurement date are multiplied by relevant outflow rates. The outflow amounts are aggregated to determine the total expected cash outflows. 5.31 Total net cash outflows – pertains to the sum of the total expected outflow amounts less the sum of the total expected inflow amounts, with the inflow amounts limited to seventy-five percent (75%) of outflow amounts. The calculated amount makes up the denominator of the LCR. 5.32 Trust and other fiduciaries – refer to a legal entity or to a specifically designated business unit that is authorized to administer, hold or manage assets for the use or on behalf of a third party. 5.33 Unencumbered – means free of legal, regulatory, tax, accounting, contractual or other impediments or practical restrictions on the ability of banking institutions to liquidate, sell, transfer, or assign the asset. Liquid assets may also be considered unencumbered if they have been pre-positioned or deposited with, or pledged to, the Reserve Bank of Malawi, or clearing and settlement system. 5.34 Unsecured wholesale funding – refers to liabilities and general obligations of the banking institution to wholesale clients that are not collateralized by legal rights to specifically designated assets owned by the institutions or their related parties. This

includes unsecured loans and advances, unsecured notes, bonds and other debt securities, and other unsecured funding obligations. 5.35 Wholesale deposits – refer to deposit liabilities raised by banking institutions from legal entities (excluding sole proprietorships and partnerships and those entities classified as micro and small enterprises) (hereinafter called wholesale clients). PART II – LIQUIDITY COVERAGE RATIO FRAMEWORK All banking institutions shall adopt Liquidity Coverage Ratio (LCR) as part of their liquidity risk management. 6.0 LIQUIDITY COVERAGE RATIO 6.1 LCR aims to promote short-term resilience of the liquidity risk profile of banking institutions by ensuring the availability of sufficient HQLA to survive a significant idiosyncratic and systemic stress scenario lasting 30 calendar days. 6.2 LCR has two components: a) Value of the stock of HQLA in stressed conditions; and b) Total net cash outflows, calculated according to the scenario parameters outlined in the guidelines. 6.3 Under normal situation, the minimum value of LCR shall not be lower than 100.0 percent on an ongoing basis, and shall be met in Malawi Kwacha. Nonetheless banking institutions are expected to meet their liquidity needs in each currency and maintain HQLA consistent with the distribution of their liquidity needs by currency. Stock of HQLA ≥ 100% Total net cash outflows over the next 30 calendar days 6.4 The institution should maintain a consistent categorization of a given entity/counterparty across all HQLA, outflow and inflow categories. 6.5 Banking institutions must maintain a reliable Management Information System (MIS) that has the ability to calculate liquidity positions on a day-to-day basis, regardless of the frequency of mandatory reporting to RBM. 6.6 The MIS shall capture, at a minimum, specific information related to the institution’s available unencumbered assets and collaterals, cash flows, and certain market and liquidity indicators prescribed in this guideline. It must have the ability to deliver granular and time- sensitive information particularly during periods of stress.

6.7 During a period of stress, institutions are expected to use their pool of liquid assets, thereby temporarily falling below the minimum requirement. In such cases the institution shall present an assessment of its liquidity position including the factors that contributed to its LCR falling below 100.0 percent, the measures that have been and will be taken; and the expectations on the potential length of the situation. The Registrar shall assess the situation and provide guidance on usability according to circumstance. 7.0 STOCK OF HQLA 7.1 Characteristics of HQLA 7.1.1 Assets are considered to be HQLA if they can be easily and immediately converted into cash in private markets at little or no loss of value, or be central bank eligible. The liquidity of an asset depends on the underlying stress scenario, the volume to be monetized and the timeframe considered. Nevertheless, there are certain assets that are more likely to generate funds without incurring large discounts in sale or repurchase agreement (repo) markets due to fire-sales even in times of stress. 7.1.2 The following are characteristics that influence whether an asset should be included in the stock of HQLA: - a) Fundamental characteristics i. Low risk: assets that are less risky tend to have higher liquidity. An asset’s liquidity can increase as a result of high credit standing of the issuer and a low degree of subordination. Further, liquidity can be enhanced by low duration, low legal risk, low inflation risk and denomination in a convertible currency with low foreign exchange risk. ii. Ease and certainty of valuation: an asset’s liquidity increases if market participants are more likely to agree on its valuation. Assets with more standardized, homogenous and simple structures tend to be more fungible, promoting liquidity. The pricing formula of assets must be easy to calculate and not depend on strong assumptions. The inputs into the pricing formula must also be publicly available. iii. Low correlation with risky assets: the stock of HQLA should not be subject to wrong-way (highly correlated) risk. For example, assets issued by financial institutions are more likely to be illiquid in times of liquidity stress in the banking sector. iv. Listed on a developed and recognized exchange: being listed increases an asset’s transparency.

b) Market-related characteristics i. Active and sizable market: assets have active outright sale or repo markets at all times. This means that: • There is historical evidence of market breadth and depth. This could be demonstrated by narrow bid-ask spreads, high trading volumes, and a large and diverse number of market participants. • There is robust market infrastructure in place. ii. Low volatility: Assets whose prices remain relatively stable and are less prone to sharp price declines over time will have a lower probability of triggering forced sales to meet liquidity requirements. There should be historical evidence of relative stability of market terms (e.g. prices and haircuts) and volumes during stressed periods. Volatility of traded prices and spreads are simple proxy measures of market volatility. iii. Flight to quality: historically, the market has shown tendencies to move into these types of assets in a systemic crisis. The correlation between proxies of market liquidity and banking system stress is one simple measure that could be used. 7.2 Operational Requirements 7.2.1 Not all assets considered to be liquid and readily-marketable are immediately eligible for the stock of HQLA as there are other operational restrictions that can prevent timely monetization during a stress period. The immediate availability of the liquid assets for monetization in times of stress as well as the unrestricted use of the funds generated from outright sale or secured borrowing of said assets must also be established in order for the liquid assets to be appropriately considered as HQLA. 7.2.2 The following operational requirements are designed to ensure that the stock of HQLA is managed in a way that banking institutions can, and are able to demonstrate its immediate use as a source of contingent funds that is available to convert into cash through outright sale or repo, to fill funding gaps between cash inflows and outflows at any time during the thirty (30)-day stress period, with no restriction on the use of the liquidity generated: a) Encumbrance and transferability of the liquid assets i. The liquid asset must be unencumbered. It should neither be pledged, explicitly or implicitly, to secure, collateralize, or credit-enhance any transaction.

ii. No operational constraint that may impede the monetization of the liquid asset must be attached to it, such as, but not limited to: • Whether the monetization of the asset would directly conflict with another business or risk management strategy of the institution. For example, an asset should not be included in the stock if the sale of that asset, without replacement throughout the thirty (30)-day period, would remove a hedge that would create an open risk position to the institution in excess of internal limits; • Potential differences in financial market conventions in other jurisdictions, where applicable (e.g., settlement period, processing time, etc.) that affect timely monetization of the asset; and • Whether the asset is internally designated to cover operational costs (e.g., rents, salaries, facility maintenance, etc.). iii. The liquid asset received, such as those in SFTs or as collateral for derivatives transaction that is not segregated, must not have been rehypothecated and is legally and contractually available for the institution’s use. iv. Assets or liquidity generated from said assets, which have been received under right of rehypothecation or under brokering agreements, shall be excluded from the institution’s stock of HQLA if the beneficial owner has the contractual right to withdraw those assets during the LCR period. b) Capability to monetize HQLA i. The institution must implement policies, procedures and appropriate systems that establish the proper authority and operational capacity of a liquidity management function (e.g., the treasurer) to monetize any HQLA at any point in the thirty (30)-day stress period. To ensure effective monetization from an operational perspective, the said function must have: • Continuous authority to invoke the institution’s contingency funding plan when deemed necessary; • Access to all necessary information to execute monetization of any HQLA; • Control to any HQLA at any time. Control must be evidenced either by maintaining the assets in a separate pool managed by the

function with the sole intent for use as a source of contingent funds, or by demonstrating that the function can monetize the asset at any point in the thirty (30)-day stress period; and • Access and control over the monetization proceeds such that the funds will be available to the function throughout the thirty (30)- day stress period without directly conflicting with another business or risk management strategy of the institution. ii. The institution, as led by the liquidity management function, must demonstrate its operational capability to monetize the HQLA, through repo or outright sale to the market, by: • Implementing policies that set out the approach to periodic monetization of its HQLA, which are consistent with existing regulatory standards and accounting principles; • Establishing and maintaining appropriate procedures and systems to monetize any of the institution’s HQLA at any time in accordance with the relevant standard settlement periods and procedures for the asset class; and • Periodically monetizing a sample of HQLA in order for the institution to test its access to the market, effectiveness of its processes for monetization, availability of the assets, and to minimize the risk of negative signaling during a period of actual stress. Such periodic monetization may be carried out through the ordinary business activities of the institution or be done without reference to its day-to-day liquidity needs depending on the liquidity profile exhibited by the HQLA. The asset must be monetized in varying amounts, at varying durations in case of repos, and in various related trading or financing markets in which the institution has access to. The cumulative effect of said periodic monetization over any twelve (12) month period must reasonably reflect a representative proportion of the minimum required HQLA, including with respect to asset type, maturity, and counterparty characteristics.

iii. The institution must implement policies and procedures and maintain systems that monitor the current market value, as well as the composition of the stock of HQLA as to: • Identification by legal entity, location, currency, custodial account, or other relevant identifying factors; • Appropriate diversification within asset classes (except for cash, government securities, and accounts with RBM) by asset type, counterparty, issuer, currency, borrowing capacity, or other factors associated with the liquidity risk of the assets; and • Continuous qualification as eligible HQLA. 8.0 CALCULATION AND COMPOSITION OF HQLA 8.1 There are two categories of assets included in the stock of HQLA which must be held by the institution on the first day of the thirty (30)-day stress test period namely: Level 1 and Level 2 Assets. 8.2 Level 1 assets constitute the highest quality liquid assets and shall be included without limit. These shall not be subject to any haircut and include, but not limited to the following asset classes: a) notes and coins; b) Main account balances with the Reserve Bank of Malawi c) Treasury Bills; d) Reverse repos with RBM e) Treasury Bonds maturing within 12 months; f) Marketable securities representing claims on or guaranteed by Multilateral Development Banks (MDBs), central government departments or ministries (e.g. MRA, Immigration, Roads Fund Administration), parastatals or statutory corporations, that are assigned with a 0 % risk weight under the RBM credit risk guidelines, and are not an obligation by an institution or any of an institution’s affiliated entities; and g) Treasury notes maturing within a year. 8.3 Level 2 assets can only comprise up to forty percent (40%) of the stock of HQLA. 8.4 Calculation of the stock of HQLA, specifically the forty percent (40%) cap on Level 2 assets, must consider the required haircuts, as applicable, and the assumed unwinding of all short-term SFTs and collateral swap transactions maturing within thirty (30) calendar days that involve the exchange of HQLA.

8.5 The specific individual assets within an asset class that would be considered as liquid and readily marketable, shall be determined in accordance with the liquidity metrics. However, the designation of these specific individual assets as HQLA is not fixed and absolute as the liquidity characteristics and/or the liquidity derived from these assets that qualify them under this criterion may change over time. 8.7 Assets included in the stock of HQLA should be measured at their current market value. However, in case the institution hedges the market risk associated with the eligible HQLA, the current market value of the HQLA must be reduced by the outflow amount that would arise if the hedge were to be closed out early (in the event of the asset being sold). 8.8 Specific haircuts shall be applied to each Level 2 asset held in the stock. Level 2 assets are limited to the following asset classes: Table1: Level 2 Assets Level 2 Assets Haircut a. Marketable securities representing claims on or guaranteed by Multilateral Development Banks (MDBs), PSEs, sovereigns and central banks of foreign countries, that are assigned with a 20 % risk weight under the RBM credit risk guidelines. 15% Cheques in course of collection 15% Balances with banks in Malawi 15% Balances with banks abroad 15% b. Eligible corporate debt securities (including commercial papers) issued by private entities but are not issued by a financial institution or any of its affiliated entities. 50% A security must meet the following metrics to be eligible as a Level 2 Asset: a) The security is traded in the secondary market with an ample number of market participants on both the buying and selling side of transactions; and b) There is a means to obtain market information on a security (i.e., bid, ask and done price). For all securities, information on trade volume should also be available.

9.0 TOTAL NET CASH OUTFLOWS 9.1 The total net cash outflows, which should include interests and installments that are expected to be received and paid during the 30-day LCR period, are calculated as follows: Total net cash outflows over the next thirty (30) calendar days = Total expected cash outflows – Min {total expected cash inflows; seventy-five percent (75%) of the total expected cash outflows} 9.2 The banking institution is not allowed to double count items in the calculation of the LCR. If a liquid asset is included as part of the stock of HQLA (which is the numerator), the cash inflows associated with that liquid asset should no longer count as part of the total expected cash inflows (which is part of the denominator). 9.3 Where there is potential that a liability or obligation could be counted in multiple outflow categories (e.g., committed business facilities granted to cover debt maturing within the thirty (30)-calendar day period), only such liability or obligation that will yield the maximum amount of expected cash outflow must be included in the calculation of total expected cash outflows, except when a specific outflow treatment is clearly prescribed herein. 9.4 Cash flows arising from purchase/ sale of non-HQLA that are executed but not yet settled at the LCR measurement date shall count towards other cash outflows/ inflows. Outflows and inflows of HQLA- type assets that are or will be excluded from the institution’s stock of HQLA due to operational requirements are treated like outflows or inflows of non￾HQLA. 9.5 In calculating cash outflows and inflows, if considered to mature within the LCR period, the institution shall make the most conservative assumptions for determining the maturity or transaction date for an instrument or transaction: a) In general, the maturity of an instrument or obligation that would result in an outflow amount must be assumed to occur on the earliest possible contractual maturity date or the earliest possible date the obligation could be fulfilled; while the maturity of an instrument or transaction that would result in an inflow amount must be assumed to occur on the latest possible contractual maturity date or the latest possible date the transaction could occur; b) With respect to any option that would modify the maturity date, either explicit or embedded in the instrument or transaction, the institution shall assume that the option would be exercised at the earliest possible date in case of an outflow, and at the latest possible date in case of an inflow. In the event of an actual financial stress, however, the institution shall be allowed not to exercise the option and to

treat the original maturity date of the instrument or transaction as the maturity for purpose of computing the LCR: Provided, that the decision not to exercise the option would not subject the instrument to any legal or reputational risk; c) If an option to adjust the maturity date is subject to a notice period, the institution must determine, for cash outflows, the earliest possible contractual maturity date regardless of the notice period; and for cash inflows, the latest possible contractual maturity date based on the borrower using the entire notice period; d) In the absence of a specific maturity date, i.e., there is no defined maturity or is an open maturity, the institution must consider the instrument or transaction to mature within the LCR period for cash outflows calculation; and after the LCR period for cash inflows calculation. 9.6 Cash Outflows 9.6.1 When the institution, at LCR measurement date and in accordance with trade rules or market conventions, has specifically pre-positioned or deposited cash or any asset with a clearing and settlement system or with another financial institution to cover an obligation or settle a transaction that is set to mature within the LCR period, the cash outflow related to the obligation or transaction shall be excluded from cash outflow calculation: Provided, however, that the cash or any asset pre- positioned or deposited is neither treated as cash inflow nor counted in the stock of HQLA. 9.6.2 Funds subject to special arrangements whereby cash balances are cleared and transferred into a main account, other than those maintained within the bank, at the end of each day or within the LCR period shall automatically receive a 100% outflow rate. 9.7 Deposits 9.7.1 Regardless of maturity, all deposits, unless otherwise excluded under the cases specified in the succeeding paragraph, shall be included in the calculation of total expected cash outflows. These accounts are categorized either as retail or wholesale, with wholesale accounts classified as either operational or non-operational, with different outflow rates assigned accordingly. To capture the relative volatility of a deposit account during a period of stress, the outflow rates for retail deposits are calibrated on a per-account basis. Wholesale operational and non-operational deposits, on the other hand, receive outflow rates that are based on the established operational relationship of the depositor with the institution. 9.7.2 A deposit account with residual maturity or withdrawal notice period of greater than thirty (30) calendar days may be excluded from the calculation of the total expected cash outflows under the following circumstances:

a) The deposit is contractually pledged to the institution as collateral to secure a credit facility or loan, where: i. the loan will not mature or be settled during the LCR period; and ii. the pledge or hold-out arrangement is subject to a legally enforceable contract disallowing withdrawal of the deposit before the loan is fully settled or repaid. Said exclusion, however, does not apply to a deposit which is pledged against an undrawn facility, in which case the higher expected cash outflow between the undrawn facility or the pledged deposit shall be used; or b) The depositor has no contractual or legal discretion to withdraw said deposit or pre- terminate the account within the thirty (30)-day horizon of the LCR (e.g., negotiable certificates of time deposits). 9.8 Retail deposits: 5%, 10% or 15% run-off rate 9.8.1 Retail deposits shall be assigned with specific run-off rates depending on the outstanding balance per account: Outstanding Balance Per Account Run-off Rate K1,000,000 and below 5% Above K1,000,000 to K10,000,000 10% Over K10,000,000 15% 9.9 Unsecured Wholesale funding: Operational deposits: 30% run-off rate 9.9.1 Operational deposits, which are maintained by wholesale customers to avail the operational services offered by the bank, shall receive a thirty percent (30%) outflow rate. 9.9.2 All current and savings accounts (CASA) shall automatically be categorized as operational deposits considering that said accounts are generally characterized by the following: a) The customer is reliant on the institution as an independent third party that provides the operational service that will fulfill the customer’s normal business operation, rendering it unlikely for the customer to transfer its banking activity to another institution within thirty (30) days; b) The funds held in this account are utilized for the operational needs of the customer and no excess balance is assumed to be retained for the purpose of

earning interest, or any economic incentive (i.e., rewards, rebates, reduction of fees or charges for other bank services, etc.) from the institution; and c) The operational service is usually governed by a legally binding written agreement, which can only be terminated by the customer either by giving prior notice of at least thirty (30) days or by paying significant switching costs (such as those related to transaction, information technology, early termination or legal costs) if the operational deposit is withdrawn before thirty (30) days. 9.9.3 Deposits received specifically for clearing and settlement of foreign exchange transactions shall be classified as operational accounts. These accounts are deemed to be maintained with the settlement/depository institution solely for effecting credits and debits arising from foreign exchange transactions, without having to go through a correspondent bank in the country where the foreign currency to be settled originated. 9.10 Unsecured Wholesale deposits: Non-Operational deposits: 20%, 40% or 100% run-off rate 9.10.1 The institution shall apply a run-off rate of twenty percent (20%) on portion of term and other deposits of wholesale clients not classified as operational and is fully insured by the Deposit Insurance Corporation (DIC). The institution shall apply a run-off rate of one hundred percent (100%) on the portion that is uninsured. Otherwise, said accounts shall be assigned with the following run-off rates: Outstanding Balance Per Account Run-off Rate Public Sector Entities (PSEs); RBM; central government departments and ministries, sovereigns, central banks and PSEs of foreign countries; MDBs 40% Non-financial corporates 40% Other entities not included in the prior categories 100% 9.10.2 Irrespective of outstanding balance, the term and other non-operational deposits provided by banks, financial corporates, trust and other fiduciaries, beneficiaries, conduits and special purpose vehicles (SPVs), and by affiliated entities of the bank shall receive a 100% run-off rate at all times. 9.11 Deposits received under correspondent banking and brokering services agreements 9.11.1 The criterion for an operational deposit where the client has a substantive dependency on the continued operation of the deposit account, which serves as a practical impediment to closing or moving such account to another bank, is not consistently the case with correspondent banking and brokering services activities. Thus, deposits arising from correspondent banking and brokering services will be treated as wholesale non-operational deposit accounts.

9.11.2 Customer cash balances arising from the provision of brokering services should be considered separate from any required segregated accounts related to client protection regimes, and should not be netted against other customer exposures included in this LCR guideline. 9.12 Unsecured wholesale funding 9.12.1 The expected cash outflow that will be calculated for other unsecured wholesale funding shall generally comprise of: a) Any obligation or instrument issued by the banking institution that is not eligible as capital, and hence, treated as borrowings which the institution expects to fulfill within the LCR period; b) All unsecured wholesale funding that is callable, or has an earliest contractual maturity date within the next thirty (30) calendar days; and c) Unsecured wholesale funding with undetermined maturity. 9.12.2 A range of outflow rates is assigned to this wholesale fund depending on the assumed stability of funding in times of stress, i.e., in consideration of the sensitivity of the fund providers to the rate offered, credit quality, solvency of the borrowing banking institution, the type of wholesale client and their level of sophistication. However, this category excludes: a) Debt instruments issued by the banking institution exclusively in the retail market, such that those instruments cannot be bought and held by parties other than retail clients, which shall be treated appropriately under the retail funding category; and b) Liabilities and obligations related to derivative contracts, which outflow calculation shall be taken up under the derivatives contracts category. 9.12.3 Unsecured wholesale funding provided by the Malawi Government, PSEs, RBM; sovereigns, central banks, PSEs of foreign countries; MDBs and by non-financial corporates: 40% outflow rate The institution shall apply a cash outflow rate of forty percent (40%) on all unsecured funds received from the above-mentioned entities. 9.12.4 Unsecured wholesale funding from banks, financial corporates and from other wholesale clients: 100% outflow rate Unsecured funding provided by banks, financial corporates, trust and other fiduciaries, beneficiaries, conduits and SPVs, affiliated entities of the bank, and other entities not included in the prior category shall receive a 100% outflow factor. 9.13 Secured funding 9.13.1 The cash outflow on secured funding shall be calculated based on the amount of funds raised through the transaction and not on the value of the underlying collateral. In case of collateral swaps or collateral lending transactions, the outflow amount shall be based on the current market value of the asset received. 9.13.2 The outflow rates to be applied to outstanding secured funding transactions maturing within the thirty (30)-calendar day period shall depend on the quality of the underlying collateral and/or the counterparty, as follows:

Underlying Collateral and/or Counterparty Outflow Rate Level 1 assets OR funding provided by RBM 0% Level 2 assets with 15% haircut 15% Non-HQLA and funding provided by the Malawi Government or by PSEs that are assigned with 20% credit risk weight or lower, or by MDBs 25% Backed by other Level 2 assets with 50% haircut 50% All other maturing secured funding transactions not specified in the prior categories 100% 9.14 Derivative contracts 9.14.1 The bank shall calculate the expected contractual derivative cash inflows and outflows in accordance with existing valuation methodologies. A 100% outflow factor shall be assigned to the sum of all cash outflows arising from derivative contracts maturing or expected to be pre-determined within the LCR period. 9.14.2 Expected derivative cash flows shall be reported on gross amounts, i.e., the derivative contractual payments that the bank will make or deliver to a specific counterparty shall be included in the derivative cash outflow amount, and the derivative contractual payments that the bank will receive from that counterparty shall be included in the derivative cash inflow amount, without any netting and subject to the LCR cap on total inflows. However, for contracts that inherently require net settlement (e.g., non-deliverable forward foreign exchange contract), the expected derivative cash flows shall be reported on a net basis. 9.14.3 Where derivative payments are collateralized by HQLA, the cash outflows shall be calculated net of any corresponding cash payment or collateral inflows that would result, all other things being equal, from contractual obligations for cash payment or collateral to be posted to the institution: Provided, that the institution will be legally entitled and operationally capable to re-use the collateral in new cash raising transactions once the collateral is received. This is in line with the principle that banking institutions should not double count liquidity inflows and outflows. 9.14.4 In case of “in the money” options, said options shall be assumed to be exercised when they are “in the money” to the option buyer. Hence, any expected cash flows from contractual derivatives that are “in the money” (to the option buyer) shall count towards derivative cash flows in the LCR. 9.14.5 Additional cash outflows for liquidity requirements resulting from contingent obligations embedded in derivative contracts, if any, shall be included in the calculation of total expected cash outflows, with outflow rates assigned as follows:

a) Potential valuation changes on posted collateral securing derivative and other transactions: 20% outflow rate When the mark-to-market exposure of a derivative position of the bank is secured by non-Level 1 HQLA, an additional outflow equivalent to twenty percent (20%) of the value of such posted collateral, net of collateral received on a counterparty basis: Provided, that the collateral received is not subject to restrictions on re-use or rehypothecation, shall be included in the calculation of total expected cash outflows. This twenty percent (20%) shall be calculated based on the amount required to be posted as collateral after applying the relevant haircut prescribed for Level 2 assets and as agreed for non-HQLA assets. Any collateral that is in a segregated margin account can only be used to offset outflows that are associated with payments that are eligible to be offset from that same account. b) Market valuation changes on derivative or other transactions: 100% outflow rate As a bank faces potentially substantial liquidity risk exposures to the valuation changes of collaterals posted by the bank on its derivatives and other transactions, the increased liquidity needed to cover these market valuation changes should be included in the LCR. Using the historical look-back approach, the collateral outflows shall be based on the fluctuations in the total current market value amount of collaterals posted for all derivatives for each day within consecutive periods of thirty (30) days. The amount of additional expected cash outflows shall be equal to the largest difference between the highest and the lowest amount of accumulated collateral posted during any thirty (30)-day period in the last twenty four (24) months preceding the date of the LCR calculation. The collateral amounts pledged towards the bank shall not be taken into account. c) Downgrade triggers embedded in financing transactions, derivatives and other contracts: 100% outflow rate For a contract where downgrade trigger exists, the bank shall assume that 100% of the additional collateral or contractual cash outflow required in the contract will have to be posted or funded for any downgrade up to and including a 3-notch downgrade of the bank’s long-term credit rating. Triggers linked to a bank’s short-term rating should be assumed to be triggered at the corresponding long￾term rating in accordance with published ratings criteria. The bank should assess the impact of the downgrade on all types of margin collateral and contractual triggers which may change rehypothecation rights for non- segregated collateral. d) Excess non-segregated collateral held by the bank: 100% outflow rate An additional 100% cash outflow based on the market value of the collateral held must be calculated as part of the total expected cash outflows in cases where the bank holds a collateral that: i. Can be contractually called at any time by the counterparty because the collateral posted exceeds the counterparty’s current collateral requirement under the contract; ii. Is not segregated from the bank’s other assets such that it cannot be rehypothecated; and

iii. Is not already excluded as eligible HQLA by the bank. e) Contractually required collateral which are not yet posted: 100% outflow rate For a collateral that is contractually due but the posting of which is not yet demanded by the counterparty, the bank shall increase the total expected cash outflows by an amount equivalent to 100% of the market value of the collateral. f) Collateral substitution to non-HQLA or lower-quality HQLA: 100% outflow rate When a contract for a transaction that has not been segregated allows the received HQLA collateral to be substituted for other collateral without the consent of the bank, an additional 100% outflow shall be included in the calculation of the total expected cash outflows. If the potential substitute collateral is a non-HQLA, the outflow amount shall be based on the market value of the received HQLA collateral after applying the respective haircut in the LCR (i.e., in the case of Level 2 assets). For substitution for other HQLA collateral of a lower liquidity value, an outflow amounting to the market value of the received collateral multiplied by the difference between the haircuts of the received collateral and the potential substitute collateral should be applied. 9.15 Loss of funding from structured financing instruments (SFIs) 9.15.1 Asset-backed securities and other SFIs allowed under existing regulations: 100% outflow rate Under the assumption that the funding required to refinance the bank- issued SFIs will not be available, the bank shall assign a 100% outflow rate to the total outstanding amount of these instruments maturing within the thirty (30)-day period. 9.15.2 Asset-backed commercial paper, conduits, securities investment vehicles (SIVs) and other such financing facilities allowed under existing regulations: 100% outflow rates To take account of the potential liquidity risks pertaining to the bank’s own structured financing facilities that include the issuance of short-term asset-backed commercial paper, the bank shall assume that its ability to refinance the outstanding maturing instrument will be uncertain and shall include in the calculation of expected cash outflows 100% of the amount of the maturing debt. 9.15.3 In cases where the documentation associated with the financing arrangement contractually includes derivatives or derivative-like components that allow the “return” of assets, or that require the banking institution (as original asset transferor) to provide liquidity, effectively ending the financing arrangement (liquidity puts) within the thirty (30)-day period, the institution shall increase its expected cash outflows by another 100% based on the amount of assets that could potentially be returned, or on the liquidity required.

9.15.4 Where the structured financing activities of the banking institution are conducted through a special purpose entity (such as a special purpose vehicle, conduit or structured investment vehicle), the institution should look through to the maturity of the debt instruments issued by the entity and to any embedded options in financing arrangements that may potentially trigger the “return” of assets or the need for liquidity, irrespective of whether or not the SPV is consolidated. 9.16 Drawdowns on committed business facilities 9.16.1 Committed business facilities shall include: (a) Committed credit and liquidity facilities to retail and small business customers with an assumed run-off rate of 5% of the undrawn portion of these facilities; (b) Committed liquidity facilities to non-financial corporates, sovereigns and central banks, PSEs, and multilateral development banks with an assumed run-off rate of 30% of the undrawn portion of these liquidity facilities. (c) Committed liquidity facilities extended to banks subject to prudential supervision with an assumed run-off rate of 40% of the undrawn portion of these facilities. (d) Committed liquidity facilities to other financial institutions including securities firms, insurance companies, fiduciaries, and beneficiaries with an assumed run-off rate of 100% of the undrawn portion of these liquidity facilities. (e) Committed liquidity facilities to other legal entities (including SPEs, conduits and special purpose vehicles and other entities not included in the prior categories) with an assumed run off-rate of 100% of the undrawn portion of these facilities. 9.16.2 For purpose of expected cash outflows calculation, all committed obligations that are assumed to be drawn will remain outstanding at the amounts assigned throughout the duration of the stress test, regardless of maturity. The currently undrawn portion of each committed obligation shall be calculated net of HQLA collateral, if any: provided: a) The bank is legally entitled and operationally capable to re-use the collateral in new cash raising transactions once the facility is drawn; and b) There is no undue correlation between the probability of drawing the facility and the market value of the collateral. The collateral can be netted against the outstanding amount of the committed obligation to the extent that this collateral is not already counted in the stock of HQLA.

9.16.3 To calculate the expected cash outflows, the bank shall assume the amount of contractual loan drawdowns from irrevocable committed obligations and the estimated drawdowns from conditionally revocable obligations within the thirty (30)-day period using the following drawdown rates against the undrawn portion of these committed obligations: Counterparties Drawdown Rate Retail clients, including credit cards 5% Malawi Government; PSEs; sovereigns, central banks, PSEs of foreign countries; MDBs 30% Non-financial corporates 30% Banks subject to prudential supervision 40% Financial corporates, trust and other fiduciaries, beneficiaries, SPEs conduits and SPVs (excluding bank’s own structured financing facilities) 100% Other entities not included in the prior categories 100% 9.17 Other contractual obligations within a thirty (30)-day period 9.17.1 The banking institution shall calculate additional 100% cash outflows on each of the following contractual obligation to extend funds within the next thirty (30) calendar days: a. Any contractual lending obligations to financial institutions not captured elsewhere in this guideline; b. If the total of all contractual obligations to extend funds to retail and non￾financial corporates within the next thirty (30) calendar days (not captured in the prior categories) exceeds fifty percent (50%) of the total contractual inflows due in the next thirty (30) calendar days from these clients, the difference should be reported as a 100% outflow; c. Forward reverse repos (with a binding obligation to accept) that start within and mature beyond the LCR period, where the cash outflow should be netted against the market value of the collateral received after deducting the applicable haircuts; d. In case of forward collateral swaps, the net amount between the market values of the assets extended and received after deducting the haircuts applied to the respective assets in the LCR counts towards “other contractual outflows” or “other contractual inflows” depending on which amount is higher;

e. Any other contractual cash outflows such as outflows to cover unsecured collateral borrowings, uncovered short positions, dividends or contractual interest payments, with explanation given as to what comprises this bucket. In case, however, the institution’s short position is being covered by a collateralized securities financing transaction, the institution should assume the short position will be maintained throughout the thirty (30)- day period and thus, will receive a 0% outflow rate. 9.17.2 Contractual obligations by the institution related to operating costs (such as rents, salaries, utilities, and other similar payments) are not included in the calculation of LCR. 9.18 Other contingent funding obligations 9.18.1 These include products and instruments for which the client or holder has specific expectations regarding the liquidity and marketability of the product or instrument and for which failure to satisfy client expectations in a commercially reasonable manner would likely cause material reputational damage to the banking institution or otherwise impair ongoing viability. 9.18.2 Other contingent funding obligations referred to in this category shall consist, among others, of the following: a. Guarantees issued related to trade finance obligations directly underpinned by the movement of goods and/or the provision of services; b. Unconditionally revocable “uncommitted” credit lines and business facilities; c. Joint ventures or minority investments in entities which are not consolidated for financial reporting purposes but there is expectation that the institution will be the main liquidity provider when the entity is in need of funding; and d. Non-contractual contingent funding obligations related to: i. debt repurchases of the institution’s own debt or that of related conduits, SIVs and other such financing facilities; ii. structured products where customers anticipate ready marketability; iii. managed funds such as money market funds and other types of collective investment funds that are marketed by the institution with the objective of maintaining stable value; and iv. outstanding debt securities (unsecured and secured, term as well as short-term) having maturities greater than thirty (30) calendar days, where the institution (or its affiliated entity) is the issuer, the market maker or the dealer, or has acted as an originator, sponsor,

marketing or selling agent, to cover the potential repurchase of such outstanding securities. 9.18.3 To account for the potential liquidity exposure to these contingent liabilities, a minimum of three percent (3%) drawdown based on the contracted amount, on the undrawn portion of the facility, or on the value of the fund or debt instruments, whichever is applicable, shall be calculated as additional expected cash outflows. However, when there is reasonable expectation based on the institution’s assessment that the contingent outflow will materialize within the LCR period, thereby rendering it necessary to provide funding support or to extend funds; or the RBM has determined the institution’s systems and processes for identifying, measuring and monitoring contingent funding risks to be inadequate and ineffective in assessing the related risks that could potentially materialize, the full amount of the contingent funding obligation will receive a 100% outflow rate. 9.18.4 For non-contractual obligations where customer short positions are covered by other customers’ collateral that are not qualified as HQLA, a fifty percent (50%) run- off factor of the contingent obligations shall be calculated in the total cash outflows under the assumption that the institution may be obligated to find additional sources of funding for these positions in the event of client withdrawals. 9.18.5 To estimate the potential liquidity demand associated with these contingent funding obligations, the institution must have a robust framework (i.e., procedures, systems and tools) that at a minimum, allows assessment of contingent funding risks, as follows: a. Identify the nature of the contingent obligation and credit worthiness of the counterparty, as well as the exposures to business and geographical sectors, as counterparties in the same sectors may be affected by stress at the same time; b. Measure the normal level of cash outflows arising from the relevant off￾balance sheet instruments under routine conditions and then estimate the scope of increase in these outflows during periods of stress; c. Analyze the liquidity trigger events and the changes to underlying risk factors (e.g., changes in economic variables or conditions, credit rating downgrades, country risk issues, specific market disruptions and the alteration of contracts by governing legal, accounting, or tax systems and other similar changes) that would result to liquidity draws on these off￾balance sheet positions. This analysis should include appropriate assumptions on the behavior of both the bank and its counterparties. 9.19 Cash inflows

9.19.1 Cap on total inflows. In order to prevent banking institutions from relying solely on anticipated inflows to meet their liquidity requirement when there is a possibility that a portion of expected cash inflows may become unavailable in a short-term stressed environment, the amount of inflows that can offset outflows is capped at seventy-five (75%) of total expected cash outflows. This requires that at a minimum, at least one- quarter of the total expected cash outflow amount should be covered by HQLA. 9.19.2 When considering available cash inflows, the institution should only include inflows (including interest payments and installments) from outstanding exposures that are contractually due within the LCR period, and are fully performing and for which the institution has no reason to expect a default within the LCR period. 9.19.3 The following shall not be counted as cash inflows: a) Market value of assets that already qualify in the stock of HQLA; b) Deposits held at other financial institutions for operational purposes, such as for clearing, custody, and cash management purposes, including funds provided for clearing and settlement of foreign exchange transactions. These deposits are necessary for operational reasons, and are therefore not available to the depositing institution to repay other outflows. c) Payments from loans, receivables and other assets that are 30 days and above in arrears, or that the institution has reason to expect will become non-performing exposure within the LCR period; d) Potential or contingent inflows from committed credit lines, business or other funding facilities that the institution holds at other institutions for its own purposes; e) Amounts related to non-financial revenues; and f) Amounts payable to the institution with respect to any transaction that has no specific contractual maturity date, i.e., no defined maturity or is open maturity, or that matures after the LCR period. 9.20 Secured lending, including reverse repos, securities borrowings and committed facilities 9.20.1 For secured lending maturing within the LCR period, the institution shall calculate the expected cash inflow using the following inflow rates applied to the outstanding amount of the secured lending transaction: Maturing Secured Lending Transactions Backed by the Following Asset Category Inflow Rate Level 1 assets 0%

Level 2 assets with 15% haircut 15% Level 2 assets with 50% Haircut 50% Margin lending backed by all other collateral 50% All other collaterals 100% 9.20.2 If the collateral obtained through reverse repos (non-central bank), securities borrowing, or collateral swap, which matures within the LCR period, is re-used (i.e., rehypothecated) and is used to cover short positions that could be extended beyond thirty (30) days, the institution should assume that such reverse repo or securities borrowing arrangements will be rolled-over. To reflect the need to continue to cover the short position or to re-purchase the relevant securities, no cash inflow will be expected, hence a 0% inflow rate. 9.21 Loans, receivables and other credit facilities by counterparty 9.21.1 The institution shall be assumed to continue to extend and roll-over loans and other credits to clients, either secured or unsecured, at a certain level even during times of stress. In this view, all payments (including interest payments and installments) shall be assumed to be received by the institution at a net inflow rate, as follows: Counterparties Inflow Rate Retail clients 50% Malawi Government; PSEs; sovereigns, central banks, PSEs of foreign countries; MDBs 50% Non-financial corporates 50% Banks; financial corporates; trusts and other fiduciaries; beneficiaries; and RBM; 100% Other entities not included in the prior categories 100% No credit facilities, liquidity facilities or other contingent funding facilities that the bank holds at other institutions for its own purposes are assumed to be able to be drawn. Such facilities receive a 0% inflow rate, meaning that this scenario does not consider inflows from committed credit or liquidity facilities. This is to reduce the contagion risk of liquidity shortages at one bank causing shortages at other banks and to reflect the risk that other banks may not be in a position to honor credit facilities, or may decide to incur the legal and reputational risk involved in

not honoring the commitment, in order to conserve their own liquidity or reduce their exposure to that bank. 9.21.2 For revolving credit facilities, the institution shall assume that the existing loan or financing is rolled over and that no principal or interest payment shall be received from the counterparty. However, in similar arrangements where the institution is not under obligation to extend credit and/or the institution reserves the right to revoke or withdraw the agreement and the facility in its sole and absolute discretion at any time, the principal and interest payments for the loan shall be assumed to be received by the institution at the foregoing net inflow rates. 9.21.3 In case of loans with no specific maturity, the institution shall include as cash inflows, at the rates prescribed above, the minimum payments of principal, fee or interest associated with the open maturity loan, provided, that such payments are contractually due within the LCR period. 9.22 Other cash inflows 9.22.1 The following instruments or transactions maturing within the LCR period shall receive a 100% inflow percentage: a. Deposits held at other financial institutions for non-operational purposes; b. Deposits pledged against an undrawn credit line or business facility; c. Cash balances arising from the provision of brokering services and similar arrangements; d. Cash balances released from segregated accounts held for the protection of customer trading assets, provided, that these segregated balances are maintained in HQLA; e. Cash inflows associated with non- HQLA, as well with HQLA-type assets that are or will be excluded from the institution’s stock of HQLA due to operational requirement; f. Forward repos that start within and mature beyond the LCR period, where the cash inflow should be netted against the market value of the collateral extended after deducting the applicable haircuts; and g. The sum of all cash inflows from derivatives transactions.

For further enquiries please contact: The Director Bank Supervision Reserve Bank of Malawi P. O. Box 565 Blantyre Tel: +265 (0) 111 820 299/444 Fax: 265 (0) 822 118 Email: basu@rbm.mw