Regulation on the Calculation of the Liquidity Coverage Ratio for Commercial Banks

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Date of creation: 2024-04-30

Approved

by the Resolution of the Board

of the National Bank

of the Kyrgyz Republic

dated December 27, 2019

No. 2019-P-12\68-4-(NPA)

REGULATION

"On the Calculation of the Liquidity Coverage Ratio for Commercial Banks"

(As amended by the Resolutions of the Board of the National Bank of the Kyrgyz Republic dated March 13, 2024 No. 2024-P-12/10-3-(NPA), April 12, 2024 No. 2024-P-12/17-3-(NPA))

Chapter 1. General Provisions

This Regulation establishes the procedure for calculating the liquidity coverage ratio. The liquidity coverage ratio is aimed at maintaining bank stability by ensuring they have a sufficient stock of high-quality liquid assets that can be easily and immediately converted into cash to meet their liquidity needs during a stress period lasting 30 calendar days.

The liquidity coverage ratio improves the bank's ability to withstand shocks arising from financial stress and is aimed at maintaining the short-term stability of the bank's liquidity risk profile under a significant stress scenario.

This Regulation applies to systemically significant banks (hereinafter referred to as "banks"), determined by quantitative indicators in accordance with the Regulation "On the Criteria for Systemicity of Commercial Banks and Non-Bank Financial and Credit Organizations," approved by the Resolution of the Board of the National Bank of the Kyrgyz Republic (hereinafter referred to as the "National Bank") dated June 8, 2017 No. 2017-P-12-12/23-9-(NPA).

Chapter 2. Measurement of Liquidity Level and Procedure for Calculating the Liquidity Coverage Ratio

§ 1. Liquidity Coverage Ratio

1. The liquidity coverage ratio is calculated as the ratio of high-quality liquid assets as of the calculation date to the total net expected cash outflow from the bank's operations over the 30 calendar days following the date of calculation of the liquidity coverage ratio.

2. The liquidity coverage ratio (LCR) is calculated using the following formula:

3. The liquidity level of banks is measured by calculating the LCR in all currencies in equivalent national currency (hereinafter referred to as LCR) and the LCR for each significant foreign currency.

4. A currency is considered "significant" for a bank if liabilities denominated in that currency account for at least 5% of the bank's total liabilities.

5. The LCR must be at least 100%.

6. The LCR and the LCR in a significant foreign currency are calculated daily (for each working/operational day).

7. Banks provide calculations of the LCR and the LCR in significant foreign currencies to the National Bank on a monthly basis as part of the periodic regulatory bank report for the reporting month.

8. The National Bank has the right to set a separate LCR value for a specific bank. In this case, the National Bank has the right to set a total LCR in national currency and an LCR in foreign currency for a group of banks or for a separate bank, as well as to change the cash outflow coefficients, cash inflow coefficients, and high-quality liquid asset weights specified in this Regulation.

§ 2. High-Quality Liquid Assets

9. For the purpose of calculating the LCR, high-quality liquid assets (HQLA) are recognized as assets meeting the following conditions:

1. are at the disposal of the bank and provide the opportunity for immediate receipt of cash through transactions with assets (sale, transfer under repurchase agreements as collateral for borrowed funds);

2. are not collateral for the bank's liabilities and do not include securities transferred under repurchase agreements executed on a recourse basis;

3. are owned by the bank, including securities obtained as part of transactions executed on a recourse basis (reverse repurchase agreements), or obtained as collateral for the fulfillment of obligations on placed funds and transactions with financial derivative instruments, in the absence of restrictions on the bank's rights to sell, transfer within repurchase agreements as collateral for borrowed funds before the due date for fulfilling obligations for their return.

Securities obtained by the bank to secure the fulfillment of obligations on placed funds, reverse repurchase agreements, or transactions with financial derivative instruments may be included in the HQLA calculation only if there is no possibility of a claim for their early return by the original seller or owner within the next 30 calendar days from the date of LCR calculation.

4. simplicity and reliability of valuation;

5. the asset must have an active market where it is characterized by low bid-ask spreads, large trading volumes, and a large and diverse number of market participants, which reduces market concentration.

10. HQLA consist of Level 1 liquid assets, as well as Level 2A and Level 2B liquid assets, which are components of Level 2 liquid assets.

11. Level 1 and Level 2 HQLA must meet the conditions established in paragraph 9 of this Regulation.

12. Level 1 Assets:

The following assets are recognized as Level 1 HQLA:

1. cash in the bank in national and foreign currencies, as well as refined standard bars issued by the National Bank;

2. funds held in correspondent and other accounts at the National Bank (excluding the minimum established threshold level of mandatory reserves as of the calculation date);

3. funds in correspondent accounts at commercial banks having a long-term credit rating of at least "A-" assigned by the Standard & Poor's rating agency, or an equivalent rating assigned by one of the rating agencies Japan Credit Rating Agency (JCR), Fitch Ratings, Dominion Bond Rating Service (DBRS), Moody's Investors Service, and other rating agencies corresponding to the criteria established in paragraph 3 of the Regulation "On Economic Norms and Requirements Mandatory for Compliance by Commercial Banks of the Kyrgyz Republic";

4. securities issued by the Cabinet of Ministers of the Kyrgyz Republic and the National Bank of the Kyrgyz Republic, including securities guaranteed by the Cabinet of Ministers of the Kyrgyz Republic and the National Bank of the Kyrgyz Republic;

5. securities of foreign governments and central banks of foreign states, international financial organizations, including securities guaranteed by them and meeting each of the following conditions:

a) issuers have a long-term sovereign credit rating of at least "AA-" assigned by the Standard & Poor's rating agency, or an equivalent rating assigned by one of the rating agencies Japan Credit Rating Agency (JCR), Fitch Ratings, Dominion Bond Rating Service (DBRS), Moody's Investors Service, and other rating agencies corresponding to the criteria established in paragraph 3 of the Regulation "On Economic Norms and Requirements Mandatory for Compliance by Commercial Banks of the Kyrgyz Republic";

b) banks do not have obligations to foreign governments and central banks of foreign states, international financial organizations, or affiliated organizations.

(As amended by the Resolution of the Board of the National Bank of the Kyrgyz Republic dated April 12, 2024 No. 2024-P-12/17-3-(NPA))

13. Level 1 assets are included in the LCR calculation in full.

14. Level 2A Assets:

Level 2A assets are calculated at fair (market) value with the application of a discount factor of 15%.

The following assets are recognized as Level 2A HQLA:

1. securities issued by foreign governments and central banks of foreign states, international financial organizations, or guaranteed by them, having a long-term sovereign credit rating of at least "A-" assigned by the Standard & Poor's rating agency, or an equivalent rating assigned by one of the rating agencies Japan Credit Rating Agency (JCR), Fitch Ratings, Dominion Bond Rating Service (DBRS), Moody's Investors Service, and other rating agencies corresponding to the criteria established in paragraph 3 of the Regulation "On Economic Norms and Requirements Mandatory for Compliance by Commercial Banks of the Kyrgyz Republic," whose issuers are not affiliated organizations relative to the bank;

2. securities whose issuers are not affiliated organizations relative to the bank, having a long-term credit rating of at least "AA-" assigned by the Standard & Poor's rating agency, or an equivalent rating assigned by one of the rating agencies Japan Credit Rating Agency (JCR), Fitch Ratings, Dominion Bond Rating Service (DBRS), Moody's Investors Service, and other rating agencies corresponding to the criteria established in paragraph 3 of the Regulation "On Economic Norms and Requirements Mandatory for Compliance by Commercial Banks of the Kyrgyz Republic."

(As amended by the Resolution of the Board of the National Bank of the Kyrgyz Republic dated April 12, 2024 No. 2024-P-12/17-3-(NPA))

15. Level 2B Assets:

Level 2B assets are calculated at fair (market) value with the application of a discount factor of 50%.

The following assets are recognized as Level 2B HQLA:

1. securities issued by foreign governments and central banks of foreign states, international financial organizations, or guaranteed by them and having a long-term sovereign credit rating of at least "BBB-" assigned by the Standard & Poor's rating agency, or an equivalent rating assigned by one of the rating agencies Japan Credit Rating Agency (JCR), Fitch Ratings, Dominion Bond Rating Service (DBRS), Moody's Investors Service, and other rating agencies corresponding to the criteria established in paragraph 3 of the Regulation "On Economic Norms and Requirements Mandatory for Compliance by Commercial Banks of the Kyrgyz Republic";

2. securities whose issuers are not financial organizations or affiliated organizations, having a long-term credit rating from "A+" to "A-" assigned by the Standard & Poor's rating agency, or an equivalent rating assigned by one of the rating agencies Japan Credit Rating Agency (JCR), Fitch Ratings, Dominion Bond Rating Service (DBRS), Moody's Investors Service, and other rating agencies corresponding to the criteria established in paragraph 3 of the Regulation "On Economic Norms and Requirements Mandatory for Compliance by Commercial Banks of the Kyrgyz Republic";

3. ordinary shares of a company that are freely traded on international stock exchanges, excluding ordinary shares issued by the bank itself or any subsidiary of the bank.

(As amended by the Resolution of the Board of the National Bank of the Kyrgyz Republic dated April 12, 2024 No. 2024-P-12/17-3-(NPA))

16. The share of Level 2 HQLA must not exceed 40% of the total amount of HQLA. If the share of Level 2 HQLA exceeds 40% of the total HQLA, then Level 2 HQLA are included in the HQLA composition in an amount not exceeding 40% of the HQLA, after applying the necessary discount factor.

17. The share of Level 2B HQLA must not exceed 15% of the total amount of HQLA after applying the necessary discount factor.

18. In the event that acceptable HQLA becomes unacceptable in accordance with the conditions in paragraph 9 of this Regulation, as well as as a result of attachment or downgrade of the rating assigned by international rating agencies, the bank may count (hold) such assets as part of HQLA for an additional 30 calendar days. This condition will provide the bank with additional time to adjust the volume of HQLA as necessary or replace the asset.

19. The bank's HQLA included in the LCR calculation cannot be collateral for the bank's liabilities, must not be pledged to the National Bank, and must not be subject to restrictions by the National Bank, state bodies, contractual obligations, or other conditions limiting the bank's ability to liquidate, sell, transfer, or assign the asset.

§ 3. Net Expected Cash Outflow and Its Calculation

20. Net expected cash outflow is determined as total expected cash outflow minus total expected cash inflow.

The total amount of expected inflow that can compensate for expected outflow must not exceed 75% of the total expected cash outflow, which must be calculated in accordance with this Regulation.

21. Net expected cash outflow is calculated using the following formula:

NECO = TCO - Min (TCI; TCO x 0.75);

NECO – net expected cash outflow over the next 30 calendar days;

TCO – expected cash outflow;

TCI – expected cash inflow (not more than 75% of total cash outflow).

22. A bank is not entitled to count liquid assets twice in the LCR calculation. In the event that any amount of a liquid asset is included in the HQLA stock (which is the numerator), the expected cash inflow associated with this liquid asset must not be counted as part of the total expected cash inflow (which is part of the denominator).

Cash outflow is calculated as total expected cash outflow by applying outflow coefficients to balances of various categories and types of liabilities and off-balance sheet obligations, the fulfillment of which by the bank is expected within the calendar month (within 30 calendar days) following the date of LCR calculation.

Expected cash outflow includes obligations to individuals, individual entrepreneurs, legal entities, on borrowed funds, the repayment of which is secured by bank assets or without such security, on financial derivative instruments, contingent liabilities, and other contractual obligations, as well as other expected additional cash outflows.

24. Obligations to Individuals and Individual Entrepreneurs

Obligations to individuals and individual entrepreneurs include obligations on bank accounts, bank deposit accounts (deposits), including metal accounts.

Deposits (deposits) serving as collateral for loans (guarantees) issued by the bank are included in the calculation in accordance with the maturity date of the loan (guarantee).

25. For the purpose of calculating expected cash outflow, deposits (deposits) of individuals and individual entrepreneurs are classified as stable and less stable.

The bank assigns a cash outflow coefficient of 5% to stable deposits (deposits).

"Stable deposits" must be understood as deposits of individuals and individual entrepreneurs guaranteed to the extent established by the Law of the Kyrgyz Republic "On the Protection of Bank Deposits (Deposits)."

26. The portion of a deposit (deposit) of an individual or individual entrepreneur exceeding the amount guaranteed by the Law of the Kyrgyz Republic "On the Protection of Bank Deposits (Deposits)" must be considered as a "less stable deposit," and a cash outflow coefficient of 10% applies to such deposits.

27. Obligations to Legal Entities

Obligations to legal entities include current accounts and borrowed deposits (deposits) of legal entities.

Deposits (deposits) of legal entities consist of operational and non-operational deposits (deposits).

28. Operational deposits (deposits) are deposits placed by legal entities and necessary for conducting their operational activities, related to clearing, storage, or cash management operations.

Operational deposits and current accounts are included in the calculation of expected outflows with a coefficient of 25%.

29. Operational deposits (deposits) must meet the following conditions:

1. the interest rate on deposits does not exceed the weighted average interest rate on demand deposits of legal entities. In addition, deposits are not placed for the purpose of earning interest income;

2. deposits (deposits) placed in the bank are held in separate accounts.

30. In this case, to classify deposits as operational deposits, the bank must ensure the fulfillment of one of the following criteria:

1. providing clearing services, as well as storage and cash management services for the client based on a bank deposit (deposit) agreement;

2. the agreement must contain a provision according to which the client, upon closing or terminating the agreement, must notify the bank in writing at least 30 (calendar) days in advance.

31. Non-operational deposits (deposits) are

deposits (deposits) of legal entities (excluding financial and credit organizations) placed for the storage and accumulation of funds and not intended for settlements with third parties. The bank assigns the following cash outflow coefficients:

Depositors

Cash Outflow Coefficient, %

Deposits (deposits) of the Cabinet of Ministers of the Kyrgyz Republic, local authorities (local self-government), state authorities and structures of the state sector of foreign states, international financial organizations

40

Deposits (deposits) of legal entities (excluding financial and credit organizations)

40

Deposits (deposits) of other organizations not included in the previous categories

100

(As amended by the Resolution of the Board of the National Bank of the Kyrgyz Republic dated March 13, 2024 No. 2024-P-12/10-3-(NPA))

32. Deposits (deposits) and other borrowed funds of affiliated persons and persons related to the bank are included in the LCR calculation with a cash outflow coefficient of 100%.

33. The bank includes funds in correspondent accounts at correspondent banks in the expected cash outflow sum with a cash outflow coefficient of 100%.

34. The bank must set a cash outflow coefficient of 100% for all categories of deposits (deposits) and other borrowed funds without collateral from banks, financial and credit organizations, organizations carrying out securities operations, insurance companies, pension funds, special purpose entities (providing brokerage services, asset management services, and other financial services as an intermediary), and other organizations not included in the previous categories.

35. Borrowed Funds Secured by Bank Assets and Unsecured

Borrowed funds whose repayment is secured by bank assets include bank obligations secured by high-quality liquid assets and other bank assets.

36. The bank calculates the outflow amount for borrowed funds based on the transaction, not the value of the collateral.

37. The bank applies the following coefficients to all payable transactions for borrowed funds secured by bank assets with maturities within 30 calendar days:

Categories of Payable Transactions for Borrowed Funds Secured by Bank Assets with Upcoming Maturities

Cash Outflow Coefficient, %

Obligations secured by Level 1 HQLA

0

Obligations to the National Bank

0

Obligations secured by Level 2A HQLA

15

Obligations secured by Level 2B HQLA

50

All other secured financing transactions with upcoming maturities not specified in the corresponding categories above

100

38. Unsecured loans and borrowings of the bank obtained from legal entities and/or international financial organizations are included in the expected cash outflow with coefficients in accordance with paragraphs 31 and 32 of this Regulation.

In this case, if the contract contains a condition that termination of the contract is possible no earlier than 30 calendar days after notice to the bank, such loans and borrowings are included in the expected cash outflow in accordance with the maturity date within 30 calendar days.

39. Financial Derivative Instruments

For transactions with financial derivative instruments, the expected cash outflow includes the amount of excess of obligations over claims with a cash outflow coefficient of 100%. In the event that claims exceed obligations on transactions with derivative instruments, the excess amount is included in the expected cash inflow with an inflow coefficient of 100%.

40. Contingent Liabilities on Credit Lines

Contingent liabilities on credit lines are considered any irrevocable (i.e., "binding") or conditionally revocable agreements on the provision of funds in the future, which may be demanded by customers within 30 calendar days.

41. The bank applies the following coefficients to binding credit lines:

Counterparty

Cash Outflow Coefficient, %

Credit lines for individuals, individual entrepreneurs

5

Credit lines for legal entities (excluding financial and credit organizations)

10

Credit lines of the Cabinet of Ministers of the Kyrgyz Republic and authorities of the Kyrgyz Republic, international financial organizations

10

Credit lines of commercial banks

40

Credit lines of financial and credit organizations

40

Other

100

(As amended by the Resolution of the Board of the National Bank of the Kyrgyz Republic dated April 12, 2024 No. 2024-P-12/17-3-(NPA))

42. Other Contingent Liabilities

The bank calculates the expected cash outflow for other contingent liabilities in accordance with the following cash outflow coefficients:

Category

Cash Outflow Coefficient, %

Unconditionally revocable (non-binding) credit lines

0

Contingent liabilities for financing related to trade financing

3 – trade financing obligations

Guarantees and letters of credit not related to trade financing obligations

10 – amount of guarantees and letters of credit

43. Other Contractual Obligations

The bank sets a cash outflow coefficient of 100% for contractual obligations and any other obligations for which no cash outflow coefficient is established, and cash outflow is expected within the next 30 calendar days.

44. The bank does not include in the cash outflow sum outflows related to operating expenses.

§ 4. Net Cash Inflow and Its Calculation

45. Loans

The bank includes funds from provided loans in the calculation of expected cash inflow only for flows provided for by contracts (including interest payments) within the next 30 calendar days from the date of LCR calculation, excluding loans with overdue debt.

46. Cash Inflow Coefficients for Counterparty Loans are determined as follows:

Counterparty

Cash Inflow Coefficient, %

Loans to individuals, individual entrepreneurs

50

Loans to legal entities (excluding financial and credit organizations)

50

Loans to the Cabinet of Ministers of the Kyrgyz Republic and authorities of the Kyrgyz Republic, international financial organizations

50

Loans to commercial banks and financial and credit organizations

100

(As amended by the Resolution of the Board of the National Bank of the Kyrgyz Republic dated April 12, 2024 No. 2024-P-12/17-3-(NPA))

47. With respect to revolving credit lines, the bank must assume that the term of the existing credit tranche may be extended and no cash inflow from loans is expected from the counterparty. The remaining part of the unused credit line is calculated in accordance with paragraph 41 of this Regulation.

48. Secured Loans, Including Reverse Repos and Securities

The bank must calculate the expected cash inflow for loans secured by high-quality liquid assets and transactions executed on a recourse basis with securities, with maturities within 30 calendar days, using the following inflow coefficients:

Secured Lending Transactions with Upcoming Maturities Secured by the Following Categories of Assets

Cash Inflow Coefficient, %

Level 1 Assets

0

Level 2A Assets

15

Level 2B Assets

50