Central Bank of Jordan Instructions on the Net Stable Funding Ratio (NSFR) No. 10/2024

CENTRAL BANK OF JORDAN

Number: 10/1/1880 Date: 11/3/1446 AH Corresponding to: 10/9/2024 AD

Instructions on the Net Stable Funding Ratio (NSFR) No. (10/2024)

Greetings,

In the context of the Central Bank of Jordan's efforts to enhance liquidity risk management at banks and to complete the implementation of Basel III regulations in this field, it has been decided to issue these instructions, which shall be effective from 2024/10/1.

Please accept our highest regards,

Governor Dr. Adel Al-Sharkas

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Table of Contents

1. First: Legal Basis and Application
2. Second: Definitions and Minimum Requirements
   • Definition of Available Stable Funding
   • Definition of Required Stable Funding
3. Third: General Provisions
4. Appendices

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First: Legal Basis and Scope of Application

1. These instructions were issued pursuant to the provisions of Article (99/b) of Banking Law No. (28) of 2000 and its amendments, completing the implementation of Basel III reforms aimed at enhancing liquidity risk management at banks.

2. Consolidation Mechanism for the Purposes of Applying the Net Stable Funding Ratio Standard:

   • Regardless of the scope of application of the NSFR standard, the Bank must monitor and control the size of its exposure to liquidity risk and funding needs at the level of Jordan branches, foreign branches, and subsidiaries individually, and at the group level as a whole, taking into account the legal, operational, and regulatory constraints on the transferability of liquidity between banking group units, for the purposes of including them in the numerator and denominator of the Net Stable Funding Ratio (NSFR).
   • The definitions of the Net Stable Funding Ratio (NSFR) standard reflect those specified in the Liquidity Coverage Ratio (LCR) Instructions No. (2020/5) dated 2020/6/22, unless otherwise stated.

3. These instructions apply to all licensed banks operating in the Kingdom, including branches of foreign banks, such that the Bank provides the Central Bank with liquidity forms at the levels specified below:

   • The banking group inclusive of foreign branches and subsidiaries inside and outside the Kingdom.
   • Jordan and foreign branches.
   • Jordan branches.

Second: Definitions and Minimum Requirements

4. The Bank must maintain a stable funding structure commensurate with its on-balance sheet asset composition and off-balance sheet activities. This ratio aims to enhance liquidity risk management at banks by limiting reliance on short-term and unstable funding, thereby avoiding liquidity risks arising from banks' reliance on short-term funding sources from non-retail customers to finance their assets, thus enhancing the Bank's ability to respond to liquidity shocks when they occur.

5. The Net Stable Funding Ratio (NSFR) is defined as the ratio of total Available Stable Funding (ASF) to total Required Stable Funding (RSF), where the NSFR is calculated according to the equation shown below:

$$100% \le \frac{\text{Total Available Stable Funding (ASF)}}{\text{Total Required Stable Funding (RSF)}}$$

6. Banks must maintain an NSFR such that the ratio does not fall below (100%) in all circumstances in total currencies, at the (consolidated, Jordan and foreign branches, and Jordan branches) levels. The limits set forth in these instructions constitute the application criteria for the NSFR standard.

7. The Bank must monitor and evaluate its total foreign currency liquidity needs and manage liquidity risk, including those related to currency mismatches, and determine the acceptable gap, at the level of each currency individually, taking into account potential constraints and risks of sudden changes in foreign exchange rates, market liquidity, and the Bank's ability to convert surplus from one currency to another.

✓ Definition of Available Stable Funding

8. "Available Stable Funding" is defined as that portion of capital and liability items expected to represent reliable sources of funds for a period extending to one year.

9. The amount of Available Stable Funding is calculated based on the general characteristics of the relative stability of the Bank's funding sources, including the contractual maturity of obligations and differences in customer and funder behavior regarding withdrawal of funding. The value of Available Stable Funding is calculated by classifying capital and liability items into one of the five categories listed below, and listing them at their book value before applying any regulatory deductions or adjustments. Then, the value within each category is multiplied by the appropriate Stable Funding factor, such that the total Available Stable Funding is the sum of the weighted amounts.

10. The Stable Funding factor reflects the stability of liabilities through two factors: a. Funding Maturity: Generally, long-term obligations are assumed to be more stable than short-term obligations. b. Type of Funding Sources and Counterparty: According to the Available Stable Funding (ASF) standard, short-term deposits (maturing in less than one year) provided by retail customers are assumed to be more stable behaviorally than funding provided by other parties such as corporations with the same maturity.

11. When determining the maturity date of obligations or equity instruments that include call options, the call option is assumed to occur at the earliest possible time according to expectations. Specifically, when expecting the recovery of obligations before their legal maturity date, the Bank must assume this occurrence for the purposes of calculating the Net Stable Funding Ratio and including these obligations in the appropriate Available Funding category. As for long-term obligations, only that portion of cash flows falling within six months, or from six months to one year, or from one year or more, shall be treated as having remaining maturities of six months, or from six months to one year, or one year or more.

Calculation of Derivatives / Liability Side

12. Derivatives and Sharia-compliant hedging contracts for Islamic banks are calculated on the liability side based on the Replacement Cost of derivative contracts (determined based on market value) if the contract value is negative, and in the presence of a bilateral netting agreement that meets the conditions specified in Appendix No. (1), such that the replacement cost for covered derivative exposures in the contract is the net replacement cost. When calculating derivatives/liability side for the purposes of the Net Stable Funding Ratio (NSFR), the collateral provided in the form of Variation Margin against derivative contracts is deducted from the negative value of the replacement cost, regardless of the asset type. To the extent that the Bank's accounting framework affects the balance sheet regarding a derivative contract, the asset associated with collateral recorded as Variation Margin, which was deducted from the replacement cost for the purposes of calculating Required Funding, should not be included in the calculation of Required Stable Funding (RSF) to avoid any double counting.

Liabilities and Capital Instruments Given an Available Stable Funding Factor of (100%)

13. This category includes the following: a. The total value of regulatory capital before regulatory deductions and according to Chapter Two of Regulatory Capital Instructions No. (2016/67) dated 2016/10/31 and Regulatory Capital Instructions according to the amended standard No. (15) issued by the Islamic Financial Services Board No. (2018/72) dated 2018/2/4 for Islamic banks, including Phase 1 provisions included in regulatory capital, except for the portion of Tier 2 instruments remaining with a maturity of less than one year. b. The total value of equity instruments not included in the previous item (a) which have an actual maturity date of one year or more, except for any instruments that include implicit or explicit options which may result in reducing the expected maturity period to less than one year. c. The total value of borrowing and liabilities (including time deposits and investment accounts for Islamic banks), secured and unsecured, with an actual remaining maturity of one year or more, including retail time deposits maturing after more than a year which incur penalties upon withdrawal. External cash flows occurring within a period of less than one year resulting from obligations with a final maturity of more than one year are not eligible for an Available Stable Funding factor of (100%).

Liabilities Related to Stable Funding Sources (95%)

14. This category includes "stable" deposits as defined in the Liquidity Coverage Ratio (LCR) Instructions No. (2020/5) dated 2020/6/22 within Item [Fourth/a/ (1), (14)], whether current and demand accounts and savings accounts with no maturity date and/or time deposits and joint investment accounts with a remaining maturity of less than one year provided by retail customers and small business customers as defined in Item (Fourth/a/1, 2/1) respectively from the Liquidity Coverage Ratio Instructions No. (2020/5) dated 2020/6/22.
    • This category also includes deposits provided by retail customers and small businesses with a remaining maturity of more than one year which do not incur penalties upon withdrawal.
    • In the event that the Bank cannot determine which retail deposits or Islamic bank investment accounts qualify as stable deposits according to the above definition, it must record those liabilities entirely under less stable liabilities.

Liabilities Related to Less Stable Funding Sources (90%)

15. This includes "less stable" deposits as defined in the Liquidity Coverage Ratio (LCR) Instructions No. (2020/5) dated 2020/6/22 within Item [Fourth/a/ 4/20], whether current and demand accounts or savings accounts with no maturity date and/or time deposits and joint investment accounts with a remaining maturity of less than one year provided by retail/small business customers as defined in Item (Fourth/a/1/1) and Item (Fourth/a/1/2/2) respectively from the Liquidity Coverage Ratio Instructions No. (2020/5) dated 2020/6/22. This category also includes time deposits provided by retail customers and small businesses with a remaining maturity of more than one year which do not incur penalties upon withdrawal.

Liabilities Given an Available Stable Funding Factor of (50%)

16. This category includes all funding sources from deposits, loans, etc., as follows: a. Funding sources (secured and unsecured) with remaining maturities of less than one year provided by non-financial institutions. b. Funding sources with remaining maturities of less than one year provided by government entities, public sector institutions, national and multilateral development banks. c. This category also includes operational deposits as defined in the Liquidity Coverage Ratio Instructions No. (2020/5) dated 2020/6/22 in Item (Fourth/a/2/2). d. Funding sources (secured and unsecured) not included in the above categories with remaining maturities ranging from six months to less than one year, including funding provided by central banks and financial institutions.

Liabilities Given an Available Stable Funding Factor of (0%)

17. This category includes the following: a. All liabilities and other equity items not included in the categories mentioned above, including other financings with remaining maturities of less than six months provided by central banks and financial institutions. b. Other liabilities with no specific maturity date. This category includes short-term (uncovered) positions and positions with open maturity periods. Excluded from these liabilities with no specific maturity date are: - Deferred tax liabilities, which must be treated as the earliest time they are expected to be realized. - Minority interests, which must be treated according to the maturity of the instrument, which is usually permanent. - Regarding these exceptions, an Available Stable Funding factor of (100%) is applied if the actual maturity is one year or more, and if the actual maturity is between six months and less than one year, they are given an Available Stable Funding factor of (50%). c. Derivatives and Sharia-compliant hedging contracts for Islamic banks on the liability side after netting derivatives on the asset side if derivatives/hedging contracts on the liability side are greater than derivatives on the asset side, as stated in Paragraph (12) of the Instructions. d. Trade Date Payables for credit liabilities arising from the purchase of financial instruments, foreign currencies, and goods that: - Are expected to be settled within the ordinary settlement cycle or the usual period for the swap process or type of transaction. - Have not been successfully settled, but settlement is still expected.

✓ Definition of Required Stable Funding (RSF) for Assets and Off-Balance Sheet Exposures

18. The amount of Required Stable Funding to be allocated is determined based on the general characteristics of the liquidity risk aspects of the Bank's assets and off-balance sheet exposures. The value of Required Stable Funding is calculated by classifying the book value of the Bank's assets into one of the categories to be mentioned below, and multiplying the value within each category by the associated Required Stable Funding (RSF) factor, such that the total Required Stable Funding is the sum of the amounts weighted by funding factors.

19. For the purposes of calculating the Net Stable Funding Ratio, High-Quality Liquid Assets (HQLA) are defined as all High-Quality Liquid Assets according to the definition specified in the Liquidity Coverage Ratio (LCR) Instructions No. (2020/5) dated 2020/6/22, regardless of the operational requirements specified in the instructions and the maximum limits specified for Level 2/Category (A) and Level 2/Category (B) assets which limit the inclusion of some assets as HQLA when calculating the liquidity coverage ratio.

20. The factors used to calculate Required Stable Funding aim to estimate the value required to finance a specific asset as a result of the maturity of this asset or the inability to liquidate the asset or use it as collateral in secured borrowing operations within one year or without incurring high costs.

21. The Required Stable Funding factor for assets must be determined based on their remaining maturity or ease of liquidation. When determining the maturity of an instrument, it is assumed that customers may exercise any available options to extend the maturity of the asset. Reputation factors that may limit the Bank's ability not to exercise the option right must be taken into account. In particular, when the Bank expects to extend the maturity date of certain assets at their maturity, the Bank must take such behavior into account for the purposes of calculating the Net Stable Funding Ratio standard and including these assets in the appropriate Required Funding category corresponding to them.

22. As for loans that are amortizing or any similar claims, the portion of these loans maturing within one year can be treated within the category of maturities less than one year.

23. Banks must, for the purposes of calculating the value of Required Stable Funding: (1) Include financial instruments, foreign currencies, and goods for which a purchase order has been executed, even if these transactions are not reflected in the balance sheet. (2) Exclude financial instruments, foreign currencies, and goods for which a sale has been executed, even if these transactions are not reflected in the balance sheet. Provided that the following conditions are met:

    1. These transactions are not considered as derivatives or secured financing transactions in the Bank's balance sheet.
    2. The effect of these transactions is reflected in the Bank's balance sheet upon settlement.

Pledged Assets

24. Pledged assets are treated as follows:
    1. Assets pledged on the balance sheet for a period of one year or more receive a Required Stable Funding factor of (100%).
    2. Assets pledged for a period ranging from six months to less than one year are treated as follows: a. A Required Stable Funding factor of (50%) is applied if these assets are subject to a factor of (50%) or less if they were not pledged. b. If these assets are subject to a Required Stable Funding factor greater than (50%) if they were not pledged, the same Required Stable Funding factor is applied.
    3. If less than six months remain in the life of the asset pledge, the same Required Stable Funding factor that applies to other unpledged assets of the same type is applied.
    4. In the case of assets pledged to the Central Bank of Jordan for exceptional liquidity operations (emergency liquidity) in stress situations, the zero% Required Funding factor or the factor that would be applied if these assets were not pledged, whichever is greater, is applied.

Secured Financing Transactions

25. For secured financing transactions, including securities financing transactions, the Bank must:
    1. Include securities lent or borrowed in transactions (such as reverse repos and collateral swaps) in Required Stable Funding if the Bank retains ownership and includes them in its balance sheet; otherwise, they are not included in the Required Stable Funding categories.
    2. If the Bank has pledged assets within repos or other securities financing transactions while retaining ownership of these securities and including these assets in the Bank's balance sheet, these securities are included in the appropriate Required Stable Funding category.
    3. Securities financing transactions with a single counterparty can be measured on a net basis for the purposes of calculating the Net Stable Funding Ratio standard provided that:
       • The transactions have the same final settlement date.
       • The right to net the amount due from the counterparty with the amount due to the same counterparty is legally enforceable in the normal course of business and in cases of Default, Insolvency, and Bankruptcy.
       • Settlement is net or simultaneous, and settlement is through the same payment and settlement system that allows netting of settlement amounts in a single amount.

Calculation of Derivatives Amounts on the Asset Side

26. Derivatives and Sharia-compliant hedging contracts for Islamic banks are calculated on the asset side first based on the replacement cost of derivative/hedging contracts (determined based on market value) where the contract has a positive value. When there is an eligible bilateral netting agreement that meets the conditions specified in Appendix No. (1), the replacement cost for derivative exposures covered by the contract is the net replacement cost.

27. When calculating derivatives on the asset side for the purposes of the Net Stable Funding Ratio standard, collateral received for derivatives and Sharia-compliant hedging contracts for Islamic banks is not used to offset the positive replacement cost amount, regardless of whether netting is permitted under the Bank's accounting framework or the risk-based framework. This is except in the case of receiving collateral in the form of cash Variation Margin and subject to meeting all conditions specified in Appendix No. (2).

Furthermore, no liabilities associated with received Variation Margin that does not meet the conditions mentioned above or with received Initial Margin are used to offset derivatives on the asset side, and a zero% Available Stable Funding factor is applied.

Assets Given a Required Stable Funding Factor of (0%)

28. This category includes the following: a. Currency notes and coins. b. (35%) of the mandatory cash reserve in Jordanian Dinar. c. All claims on central banks with remaining maturities of less than six months. d. Trade Date Receivables arising from sales of financial instruments, foreign currencies, and goods that: 1. Are expected to be settled within the ordinary settlement cycle or the period associated with the swap process. 2. Have not been successfully settled, but settlement is still expected.

Assets Given a Required Stable Funding Factor of (5%)

29. This category includes unencumbered High-Quality Liquid Assets of Level 1 according to their definition in the Liquidity Coverage Ratio Instructions No. (2020/5) dated 2020/6/22, except for assets given a Required Stable Funding Factor of (0%) as shown above, including the following:
    1. Debt instruments and Sharia-compliant Sukuk that are liquid and issued or guaranteed by governments, central banks, public sector institutions, the International Monetary Fund, the Bank for International Settlements, the European Central Bank, the European Commission, or development banks, which are given a risk weight of (0%) according to Regulatory Capital Instructions according to Basel III standard No. (2016/67) dated 2016/10/31 and according to Regulatory Capital Instructions according to the amended standard No. (15) issued by the Islamic Financial Services Board No. (2018/72) dated 2018/2/4.
    2. Debt instruments and Sharia-compliant Sukuk that are liquid and issued in local currency by the government (including the Hashemite Kingdom of Jordan government) or central banks (including the Central Bank of Jordan), except for claims on central banks with a maturity of less than six months (which are given a zero Required Stable factor), in the country where the Bank's liquidity risk arises, for countries/entities given a risk weight of (0%) according to the instructions referred to in Item (1) of this paragraph.
    3. Debt instruments and Sharia-compliant Sukuk that are liquid and issued in foreign currency by the government (including the Hashemite Kingdom of Jordan government) or central banks (including the Central Bank of Jordan), except for claims on central banks with a maturity of less than six months, for countries/entities given a risk weight of (0%) according to the instructions referred to in Item (1) of this paragraph.

Assets Given a Required Stable Funding Factor of (10%)

30. This category includes unencumbered loans and deposits provided to financial institutions with remaining maturities of less than six months, if the loans are secured by Level 1 High-Quality Liquid Assets as shown in the Liquidity Coverage Ratio Instructions No. (2020/5) dated 2020/6/22 and the Bank has the ability to rehypothecate the received collateral throughout the loan period.

Assets Given a Required Stable Funding Factor of (15%)

31. This category includes the following: a. Unencumbered Level 2/Category (A) High-Quality Liquid Assets according to the conditions stated in Paragraph (2,7) of the Liquidity Coverage Ratio Instructions No. (2020/5) dated 2020/6/22, including: - Debt instruments and Sharia-compliant Sukuk that are liquid and issued or guaranteed by governments, public sector institutions, or multilateral development banks, given a risk weight of (20%) according to Regulatory Capital Instructions according to Basel III standard No. (2016/67) dated 2016/10/31 and according to Regulatory Capital Instructions according to the amended standard No. (15) issued by the Islamic Financial Services Board No. (2018/72) dated 2018/2/4. - Debt instruments and Sharia-compliant Sukuk that are liquid (including commercial paper) and covered bonds issued by companies with a long-term credit rating of (AA-) or equivalent as a minimum. b. Bonds issued by the Jordanian Mortgage Refinancing Company. c. Unencumbered loans/financing and deposits provided to financial institutions with remaining maturities of less than six months, not included in the previous paragraph regarding assets given a Required Stable Funding Factor of (10%).

Assets Given a Required Stable Funding Factor of (50%)

32. This category includes the following: a. Unencumbered High-Quality Liquid Assets for inclusion in Level 2/Category (B) according to the conditions stated in Paragraph (2,7) of the Liquidity Coverage Ratio Instructions No. (2020/5) dated 2020/6/22, including the following: - Debt instruments and Sharia-compliant Sukuk (including commercial paper) and covered bonds issued by companies with a long-term credit rating between +A and -BBB or equivalent. - Equity contributions (shares) in the capital of companies and those compliant with Sharia provisions for Islamic banks issued by entities other than financial institutions or their subsidiaries, which are traded on the stock exchange. b. Any High-Quality Liquid Assets and those compliant with Sharia provisions for Islamic banks as shown in the Liquidity Coverage Ratio Instructions No. (2020/5) dated 2020/6/22 and pledged for a period between six months and less than one year. c. All loans/financing and deposits provided to financial institutions and the central bank with maturities between six months and less than one year. d. Deposits with other financial institutions for operational purposes as shown in the Liquidity Coverage Ratio Instructions No. (2020/5) dated 2020/6/22 Item (Fourth/2,2/2), to which an Available Stable factor of (50%) is applied as shown in Paragraph (16/c) of these Instructions. e. All other assets [non-High-Quality Liquid Assets] and those compliant with Sharia provisions which have not been included in the previous categories and have maturities of less than one year, including loans to non-financial institutions, loans granted to retail customers and small business customers, and loans granted to the government and public sector institutions.

Assets Given a Required Stable Funding Factor of (65%)

33. This category includes the following:
    1. Unencumbered residential loans (which the Bank has not pledged to another party) and those compliant with Sharia provisions for Islamic banks with remaining maturities of one year or more, which are subject to a risk weight of (35%) or less according to Regulatory Capital Instructions according to Basel III standard No. (2016/67) dated 2016/10/31 and according to Regulatory Capital Instructions according to the amended standard No. (15) issued by the Islamic Financial Services Board No. (2018/72) dated 2018/2/4.
    2. Other unencumbered loans and deposits (which the Bank has not pledged to another party) not included in the above categories (except loans provided to financial institutions) with remaining maturities of one year or more or with no maturity date, which are subject to a risk weight of (35%) or less according to Regulatory Capital Instructions according to Basel III standard No. (2016/67) dated 2016/10/31 and according to Regulatory Capital Instructions according to the amended standard No. (15) issued by the Islamic Financial Services Board No. (2018/72) dated 2018/2/4.

Assets Given a Required Stable Funding Factor of (85%)

34. This category includes the following: a. Cash, securities, and other assets provided as Initial Margin for derivative contracts, as well as Sharia-compliant hedging contracts for Islamic banks, and cash or other assets contributed to the Default Fund of a Central Counterparty. If other assets provided as Initial Margin for derivative contracts have a higher required stable funding factor, the higher factor shall be applied. b. Other non-performing (unpledged) loans (which the bank has not pledged to another party) subject to a risk weight of more than (35%) according to Capital Adequacy Instructions under Basel III Standard No. (2016/67) dated 2016/10/31 and according to Capital Adequacy Instructions under Amended Standard No. (15) issued by the Islamic Financial Services Board No. (2018/72) dated 2018/2/4, with maturities of one year or more or no maturity date, excluding loans provided to financial institutions. c. Securities, Sukuk, and other Sharia-compliant financial instruments that are unpledged (which the bank has not pledged to another party), which have maturities of one year or more, and shares traded within the scope of the regulated market, provided that: 1) The issuers of these instruments are not in default. 2) These instruments are not eligible as High-Quality Liquid Assets according to Liquidity Coverage Ratio Instructions No. (2020/5) dated 2020/6/22. d. Traded commodities, including gold.

Assets Given a Required Stable Funding Factor of (100%)

35. This category includes the following: a. All pledged assets for a period of one year or more. b. Derivatives and Sharia-compliant hedging contracts on the asset side after netting with derivatives and Sharia-compliant hedging contracts on the liability side, if the derivatives and hedging contracts on the asset side are greater than those on the liability side for the purpose of calculating the Net Stable Funding Ratio and as stated in paragraphs (26) and (27) of these Instructions. c. Assets with no specified maturity date that were not included in items (a) and (b) of this Article, including reverse repurchase agreements with no specified maturity date unless the bank can prove that such agreements will mature in less than one year. d. All other assets not included in the previous categories, including non-performing loans, loans provided to financial institutions with maturities of one year or more, shares not traded within a regulated market, fixed assets, deductions from regulatory capital, assets of subsidiary insurance companies, and defaulted securities. e. (65%) of the mandatory reserve in Jordanian Dinar and the full mandatory reserve in foreign currencies. f. (20%) of derivatives on the liability side (i.e., negative replacement cost amounts) (before deducting Variation Margin).

Off-Balance Sheet Exposures

36. Off-balance sheet exposures are classified based on whether the commitments are Credit Facilities, Liquidity Facilities, or other Contingent Funding Obligations. The table below summarizes the components of each category of off-balance sheet exposures and the associated required stable funding factors.

Components of Required Stable Funding Categories	Required Stable Funding Factor
Unconditional and conditionally cancellable credit and liquidity facilities granted to any customer.	5% of the undrawn amount
Other potential contingent funding obligations, including instruments such as: <br> - Unconditional and cancellable "non-binding" credit and liquidity facilities <br> - Trade financing commitments (including guarantees and letters of credit) <br> - Guarantees and letters of credit not related to trade financing commitments. <br> - Non-contractual commitments such as: <br> 1. Potential calls for repurchase of debt or related to Securities Investment Vehicles and other similar financing instruments. <br> 2. Structured Products expected by customers to be marketable, such as Adjustable Rate Notes and Variable Rate Demand Notes <br> 3. Managed Funds marketed with the aim of maintaining a stable net asset value per unit of these funds.	5%

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Third: General Provisions

37. Banks must maintain the minimum Net Stable Funding Ratio requirements continuously and provide the Central Bank with liquidity forms as follows:
    • The Central Bank is provided with liquidity forms at the level of the banking group, Jordan branches, and foreign branches on a quarterly basis, to be received by us no later than the fifteenth day of the month following the required quarter.
    • The Central Bank is provided with liquidity forms immediately in the event that the Net Stable Funding Ratio falls below 105%, whether at the level of the banking group, Jordan branches, or foreign branches, and we are provided with calculation forms at all required levels.
    • The bank must include the approved liquidity risk management policy by the bank's board of directors or the competent authority regarding the foreign bank branch corrective measures for cases where this ratio falls below the prescribed minimum or the bank expects this decrease to occur, and in both cases, the Central Bank must be notified immediately.
38. Banks must put in place the necessary policies and procedures to apply this standard alongside other liquidity management requirements and work on developing the necessary systems and mechanisms to apply these instructions, ensuring comprehensiveness and accuracy of the calculation process, and ensuring achievement of the qualitative requirements set forth in Liquidity Coverage Ratio (LCR) Instructions No. (2020/5) dated 2020/6/22.
39. The stress test scenario arising from the Net Stable Funding Ratio must be considered within the minimum supervisory requirements, and every bank must conduct its own stress tests as part of its liquidity risk management process to identify risk factors that may lead to drastic fluctuations in liquidity positions. Accordingly, banks must be able to assess the liquidity levels to be maintained, which may be higher than the minimum regulatory requirements due to risks specific to each bank.
40. The bank must also conduct its own analysis of contractual maturity mismatch, also known as liquidity gap analysis, for time bands covering at least the short and medium term, based on behavioral assumptions regarding incoming and outgoing cash flows in normal and stressed conditions. The bank must be able at any time to provide the Central Bank with data related to the measurement of contractual maturity mismatch upon request.
41. Banks are committed to disclosing the Net Stable Funding Ratio standard at the level of Jordan branches and the banking group within semi-annual and final financial statements on a comparative basis starting from financial statements as of December 31, 2024.
42. Disclosure of the value of items before and after applying available and required stable funding factors is required.
43. Reference to the Central Bank should be made in cases not covered by these Instructions.
44. Those concerned must read the banks' inquiries and answers attached to these Instructions to ensure proper application and understanding of the provisions of these Instructions.
45. The application of Liquidity Instructions according to the Maturity Ladder No. (2008/41) dated 2008/6/23 and Liquidity Instructions according to the Maturity Ladder for Islamic Banks No. (2008/43) dated 2008/8/31 is repealed.

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Appendix No. (1) Bilateral Netting Agreements

Exposures/transactions resulting from futures contracts, swap contracts, option contracts, or any other similar derivative contracts with the same counterparty may be subject to netting treatment according to the following requirements: a. The bank is allowed to perform netting on its transactions with a counterparty, such that the bank's obligations towards the counterparty in a certain currency and on a specific maturity date can be combined and replaced with a single amount resulting from aggregating all obligations. b. The bank is also allowed to perform netting on its transactions in case there are any other bilateral netting agreements, provided that such agreements have a valid legal form of bilateral netting agreements.

In both cases above, the following conditions must be met:- ✓ The netting contract or agreement with the counterparty enables the bank to receive or pay a single amount representing the net receivables owed to or by the bank with the counterparty, which represents the net sum of Mark-to-Market values of all transactions with the counterparty, in the event of the counterparty's failure due to default or bankruptcy or any other similar circumstances. ✓ There is complete and clear documentation of the legal opinions and references relied upon by the bank to ensure that competent courts and any other administrative authorities will recognize the netted exposure amount, according to: - The law of the country where the counterparty and the branch performing the netting are registered; if the netting is between a foreign branch and the counterparty, it is also subject to the law of the jurisdiction where the branch is located. - Special laws governing the relevant transactions. - Special laws covering any netting agreements related to the relevant transactions. ✓ The bank has approved procedures ensuring the continued legal status of netting arrangements under continuous review in light of any potential changes in relevant laws.

c. In the case of agreements with Walk Away Clauses that the counterparty can cancel, they are not taken into account for the purposes of the Net Stable Funding Ratio standard.

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Appendix No. (2) Treatment of Cash Variation Margin

Banks may use the cash portion of the Variation Margin received to reduce the replacement cost in the event that the cash variation margin provided is included as an asset according to the accounting policy in the bank, provided the following conditions are met:

1. For transactions not settled/netted through a Qualified Central Counterparty (QCCP), the cash received by the beneficiary counterparty (receiver) is not segregated from the cash portion of the variation margin.
2. Variation margin is calculated and exchanged on a daily basis based on market valuation (market prices) of derivative positions as well as Sharia-compliant hedging contracts.
3. Cash variation margin is received with the same settlement as derivatives and Sharia-compliant hedging contracts, such as the settlement currency of the derivative contract.
4. The mutual variation margin is sufficient to cover the full exposure of derivatives and Sharia-compliant hedging contracts (calculated according to market prices).
5. The variation margin and derivatives and Sharia-compliant hedging contracts are covered by a single master netting agreement between counterparties in derivatives and Sharia-compliant hedging contracts and are legally applicable.

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