Liquidity Coverage Ratio (LCR)

Basic Circular No. 145 for Banks

We enclose, in connection with Basic Decision No. 12768 dated 8/3/2018 concerning the Liquidity Coverage Ratio (Liquidity Coverage Ratio), a copy of the...

Beirut, on 8 March 2018

Governor of Banque du Liban

Riad Salame

Basic Decision No. 12768

Liquidity Coverage Ratio

The Governor of Banque du Liban, Pursuant to the Monetary and Loan Law, particularly Articles 174 and 70 thereof, And relying on the international standards on the Liquidity Coverage Ratio issued by the Basel Committee, And pursuant to the decision of the Central Council of Banque du Liban taken in its meeting held on 21/2/2018, Decides as follows:

Article 1: Banks operating in Lebanon shall maintain a liquidity coverage ratio that reflects their own assessment of liquidity risks and is commensurate with the nature and characteristics of liquidity risks to which they may be exposed, such that it exceeds 100% in each major currency (Significant Currency as defined in item 1 of Article 4 below).

Article 2: The liquidity coverage ratio shall apply at the following two levels:

1. The individual financial statements (Lebanon branches) of the bank in Lebanon.
2. The individual financial statements of the foreign branch and other foreign subsidiaries directly owned.

Article 3: The liquidity coverage ratio shall be calculated for each major currency separately according to the following formula: Stock of High Quality Liquid Assets / Total Net Cash Outflows over the Next 30 Calendar Days * 100%

Article 4: For the purpose of calculating the aforementioned ratio, the following standards shall apply:

1. In addition to the Lebanese Lira, for banks operating in Lebanon, a major currency is any currency representing 5% or more of total liabilities. A major currency for any foreign subsidiary is any currency representing 5% or more of its total liabilities.
2. "Stock of High Quality Liquid Assets" (HQLA) refers to the sum of unencumbered assets meeting at least the following characteristics: a) Low risk. b) Easily and quickly liquidable at limited loss without significant impact on the bank's profitability and capital. c) Valued with certainty and ease based on clear criteria. d) Listed or traded in an active market. e) Low price volatility.
3. HQLA consists of Level 1 Assets and Level 2 Assets. Level 2 is divided into Level 2A and Level 2B as specified in the attached appendix, provided that: a) Level 2 HQLA in any major currency does not exceed 40% of total HQLA in that currency. b) Level 2B HQLA in any major currency does not exceed 15% of total HQLA in that currency, within the maximum limit specified in paragraph (a) of this item.
4. Included in HQLA: a) Mandatory reserves and mandatory placements at Banque du Liban. b) Mandatory placements of foreign subsidiaries at the host country's central bank.
5. "Total Net Cash Outflows" over 30 days represents the difference between total expected cash outflows and total expected cash inflows over the same period, with total expected cash inflows capped at 75% of total expected cash outflows. Total net cash outflows over the next 30 calendar days = Total expected cash outflows – Minimum {total expected cash inflows; 75% of total expected cash outflows}
6. If foreign currency government bonds accepted within HQLA are not subject to a 0% risk weight, when calculating capital adequacy ratios, they shall be included in this stock up to a limit not exceeding net cash outflows in that same foreign currency.
7. Appendix No. 1 shall be used to determine the components of HQLA, cash outflows, cash inflows, and relevant weighting factors.

Article 5: A Lebanese parent bank with subsidiaries in countries where the Liquidity Coverage Ratio is applied according to a calculation methodology different from the provisions of this decision may submit a request to Banque du Liban to obtain approval to adopt the calculation methodology applicable in the host country at the level of the foreign subsidiary, provided that the request is accompanied by the laws and calculation methodology approved in that country.

Article 6: The bank shall provide all necessary information to calculate the liquidity coverage ratio, designate responsible persons for providing this information, and establish appropriate systems to enable its calculation, monitoring periodically, and access at any time.

Article 7: Within the framework of liquidity situation management and analysis, banks shall:

1. Adopt additional scenarios for this ratio by applying multiple additional assumptions, including but not limited to: a) Calculating net cash outflows over 90 days instead of 30 days. b) Adopting higher weighting factors for expected cash outflows.
2. Develop necessary supplementary liquidity indicators and set internal ceilings to ensure sound management and monitoring of liquidity risks at each group unit and the group as a whole, emphasizing the self-sufficiency principle for each unit and limiting reliance on the parent bank.
3. Conduct stress tests and study their impact on adopted liquidity ratios, including but not limited to: a) A significant increase in deposit withdrawals. b) A sharp decrease in funding sources. c) Lack of reliance on the central bank even with available liquidity lines.

Article 8: The Risk Management Committee emanating from the Board of Directors shall monitor liquidity risks at the banking group level as a whole and discuss management reports on the development of liquidity situations.

Article 9: If the liquidity coverage ratio falls below the minimum specified in Article 1 in any major currency for the bank operating in Lebanon or its foreign subsidiary, the parent bank shall provide the Banking Supervision Committee with a letter of commitment to achieve the required minimum within a timeframe not exceeding one week from the date of such decline.

Article 10: Cooperative banks are exempt from applying the provisions of this decision.

Article 11: The Banking Supervision Committee shall issue implementing instructions for the provisions of this decision.

Article 12: This decision shall take effect immediately upon its issuance.

Article 13: This decision shall be published in the Official Gazette.

Beirut, on 8 March 2018

Governor of Banque du Liban

Riad Salame

Appendix No. 1 Liquidity Coverage Ratio - Applied Weighting Factors on Components

Component / Maturity	Weighting Factor / Haircut
A. High Quality Liquid Assets (HQLA)
Level 1 Assets
All maturities	100%
Non-mandatory placements at BDL or host central bank (local & foreign currencies, incl. CDs)	100%
Government treasury bonds (local & foreign currencies issued by Lebanese govt or host govt)	100%
Financial instruments with 0% risk weight per Basel II Standardized Approach issued by governments, central banks, regional bodies, or guaranteed by them	100%
Level 2A Assets
Financial instruments with 20% risk weight per Basel II issued by governments, central banks, regional bodies, or guaranteed by them	85%
Non-financial sector debt securities rated AA- and above	85%
Level 2B Assets
Non-financial sector debt securities rated BBB- to A+	50%
Ordinary shares of non-financial sector	50%
B. Cash Outflows
Retail Deposits
Retail deposits maturing in 30 days or less	15%
High Net Worth Individuals (Resident) maturing in 30 days or less	15%
Other deposits (Resident) maturing in 30 days or less	10%
High Net Worth Individuals (Non-Resident) maturing in 30 days or less	20%
Other deposits (Non-Resident) maturing in 30 days or less	15%
Retail deposits maturing in more than 30 days	2%
Unsecured Wholesale Funding
SME deposits maturing in 30 days or less	10%
SME deposits maturing in more than 30 days	2%
Large non-financial corporate deposits (Resident) maturing in 30 days or less	40%
Large non-financial corporate deposits (Non-Resident) maturing in 30 days or less	40%
Central banks & regional bodies financing maturing in 30 days or less	40%
Other financial institutions (incl. insurance) financing maturing in 30 days or less	40%
Operational bank & institution deposits maturing in 30 days or less	25%
Non-operational bank & institution deposits & loans maturing in 30 days or less	100%
Deposits from credit agreements maturing in 30 days or less	100%
Deposits from collective investment entities maturing in 30 days or less	100%
Issued debt securities maturing in 30 days or less	100%
Issued CDs maturing in 30 days or less	100%
Other issued debt instruments maturing in 30 days or less	100%
Issued secured loans & debt securities maturing in 30 days or less	100%
Dated preferred shares maturing in 30 days or less	100%
Secured Funding
Transactions with BDL maturing in 30 days or less	0%
Secured by Level 1 HQLA	0%
Secured by Level 2A HQLA	0%
Secured by Level 2B HQLA	0%
Secured by non-eligible HQLA	0%
Transactions with non-BDL parties secured by Level 1 HQLA	0%
Transactions with non-BDL parties secured by Level 2A HQLA	15%
Transactions with non-BDL parties secured by Level 2B HQLA (from sovereign entities, regional bodies, or MDBs)	25%
Transactions with non-BDL parties secured by Level 2B HQLA (from other parties)	50%
Transactions with non-BDL parties secured by non-eligible HQLA	100%
Additional Requirements
Cash outflows from derivatives transactions	100%
Additional liquidity that may be requested in specific cases	100%
Undrawn committed credit & liquidity lines (Retail customers)	5%
Undrawn committed credit & liquidity lines (SMEs)	5%
Undrawn committed credit & liquidity lines (Non-financial corporates)	10%
Undrawn committed credit & liquidity lines (Banks)	40%
Undrawn committed credit & liquidity lines (Other financial institutions)	40%
Undrawn committed credit & liquidity lines (Other institutions)	100%
Potential Payment Obligations & Contractual Commitments
Uncommitted facilities approved for clients	5%
Guarantees	5%
Letters of credit	5%
Other specialized trade financing instruments	5%
Potential non-contractual payment obligations	5%
Other contractual commitments	100%
C. Cash Inflows
Secured Lending (Reverse Repo & Securities Borrowing)
If collateral not used to cover other bank transactions:
Collateral: Level 1 HQLA eligible financial assets (≤30 days)	0%
Collateral: Level 2A HQLA eligible financial assets (≤30 days)	15%
Collateral: Level 2B HQLA eligible financial assets (≤30 days)	50%
Margin loans against non-HQLA (≤30 days)	50%
Other lending with correspondents against non-HQLA (≤30 days)	100%
If collateral used to cover other bank transactions:
Collateral: Level 1 HQLA eligible financial assets (≤30 days)	0%
Collateral: Level 2A HQLA eligible financial assets (≤30 days)	0%
Collateral: Level 2B HQLA eligible financial assets (≤30 days)	0%
Margin loans against non-HQLA (≤30 days)	0%
Other lending with correspondents against non-HQLA (≤30 days)	0%
Other Cash Inflows (by Counterparty)
Contractual inflows maturing within 30 days (productive only):
Retail loans (≤30 days)	50%
SME loans (≤30 days)	50%
Corporate loans (≤30 days)	50%
Central banks (≤30 days)	100%
Financial institutions & banks - Non-operating placements (≤30 days)	100%
Financial institutions & banks - Operating placements (≤30 days)	0%
Other parties (≤30 days)	50%
Other Cash Inflows
Cash inflows from derivatives transactions (≤30 days)	100%
Contractual cash inflows from debt instruments maturing within 30 days (not in HQLA) (≤30 days)	100%
Other contractual cash inflows (≤30 days)	100%