Central Bank of Libya

P.O. Box 1103 Telegram Address: LibyaBank - Tripoli - Libya

Circular No. (2023/02) Date: 09 Jumaad al-Akhir 1444 AH Corresponding to: 02 January 2023 AD

Reference: L.R.M.N 804

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

Subject: Circular on Instructions for Calculating the Net Stable Funding Ratio (NSFR)

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In continuation of Circular No. R.M.N No. (2022/14) dated 19 December 2022 regarding the calculation of the Liquidity Coverage Ratio (LCR), and in accordance with the proposals of the Basel Committee on Banking Supervision, and to complete the requirements for the implementation of Basel III standards, we hereby attach to you the instructions for calculating the Net Stable Funding Ratio, in accordance with the requirements and principles of the Basel III Committee on Banking Supervision. This is to commence implementation within the jurisdiction of the unit implementing the instructions of the Basel Committee on Banking Supervision referred to in Circular R.M.N No. (2022/7), and to submit the results achieved to us during the first quarter of 2023.

Peace be upon you,

Tajji Muhammad Issa Director of Banking and Currency Supervision Department

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Copy to:

• The Governor
• The Deputy Director of the Banking and Supervision Department
• The Deputy Director of the Banking Supervision Department for Office Supervision and Compliance Monitoring
• The Deputy Director of the Banking and Supervision Department for Inspection Affairs
• The Deputy Director of the Banking and Supervision Department for Islamic Banking Affairs
• The Directors of Compliance Departments in Banks (Follow-up)
• The Directors of Risk Departments in Banks

Basel Instructions

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

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Banking and Currency Supervision Department

Instructions for Calculating the Net Stable Funding Ratio

Net Stable Funding Ratio

The Net Stable Funding Ratio standard aims to enhance liquidity management at banks, requiring banks to maintain more stable funding sources for on-balance sheet assets and off-balance sheet activities and to address gaps in funding sources that could lead to liquidity erosion. This ratio represents the relationship between Available Stable Funding (numerator) and Required Stable Funding (denominator) and works to address mismatches in long-term funding structures by using stable long-term funding sources for a period of at least one year. This is to meet the liabilities side requirements of the balance sheet in terms of investments and borrowing, as well as including off-balance sheet items in both Available and Required Stable Funding (numerator and denominator) according to certain funding factors. This ratio must not be less than 100% on a permanent basis. The calculation of this ratio follows the following formula:

[ \text{Net Stable Funding Ratio} = \frac{\text{Total Available Stable Funding}}{\text{Total Required Stable Funding}} \geq 100 ]

Components of Net Stable Funding:

Total Available Stable Funding (Numerator):

The value of Available Stable Funding is measured based on the stability of the bank's funding sources. The value of Available Stable Funding is calculated by classifying the capital base and liabilities into one of the categories listed below, and assigning weighting factors to each category, taking into account the remaining maturity of those sources and the probability of withdrawal.

The components of Available Stable Funding and their corresponding weighting factors are detailed below:

1- Liabilities and Equity (Weighting Factor 100%)

a- Capital Base:

• Tier 1 Capital before deductions, minus items not considered such as reserves for revaluation of available-for-sale financial investments and foreign currency revaluation reserves if they are negative.
• Tier 2 Capital before exclusions, minus Tier 2 instruments with a remaining maturity of less than one year (such as loans, subordinated deposits, and hybrid financial instruments).

b- Other Capital Instruments:

• Instruments with a maturity of one year or more, with no explicit or implicit option that would reduce the expected maturity to less than one year.
• Capital instruments (such as subordinated loans/deposits) with a remaining maturity of more than one year, other than those included in the Capital Base.

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Banking and Currency Supervision Department

• The portion not included in the impairment allowance for loans, facilities, and contingent organized liabilities within Tier 2 of the Capital Base.
• All reserve balances not added, including other reserve balances (such as positive foreign currency revaluation reserves and others, if any).
• Other liabilities, deposits, and loans recorded for the bank (secured and unsecured) with a remaining maturity of one year or more, which include customer deposits, facilities and deposits due from banks, funding granted to the bank represented by, for example, loans, captive bonds, or captive certificates of deposit, and any other liabilities with a remaining maturity of one year or more (including directed tax liabilities with a remaining maturity of one year or more).

-2 Deposits of Individuals and Micro, Small, and Medium Enterprises (Weighting Factors 95% and 90%):

This includes deposits of natural persons and deposits of micro, small, and medium enterprises that have no maturity date (such as demand deposits, savings deposits, letters of credit coverage), time deposits and notices, savings certificates, and lump-sum deposits with a remaining maturity of less than one year. These deposits are divided into:

• a- Stable deposits with a weighting factor of 95%.
• b- Less stable deposits with a weighting factor of 90%.

The value of stable and less stable deposits is calculated according to the standard deviation method from the average deposits of individuals and micro, small, and medium enterprises over the previous 3 years.

-3 Liabilities with a Weighting Factor of 50%:

• a- Operational deposits resulting from the bank's activities (clearing, custody, and cash management activities), represented by demand deposits for all financial and non-financial entities (excluding deposits listed in item 2).
• b- Secured and unsecured funding with remaining maturities of less than one year provided by non-financial institutions/companies.
• c- Funding granted (deposits, loans, facilities) by Libyan and foreign sovereign entities, public bodies, and multilateral development banks with a remaining maturity of less than one year.
• d- Funding granted (deposits, loans, facilities) by the Central Bank of Libya, banks, and other financial institutions with a remaining maturity ranging between 6 months and less than one year.
• e- Other funding sources with a remaining maturity ranging between 6 months and less than one year (such as issued certificates of deposit and captive debt instruments), as well as "deferred tax liabilities" with a remaining maturity ranging between 6 months and less than one year.

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Banking and Currency Supervision Department

-4 Liabilities with a Weighting Factor of 0%:

• a- Funding granted (deposits, loans, facilities) by the Central Bank, banks, and other financial institutions with a remaining maturity of less than 6 months.
• b- Other funding sources with a remaining maturity of less than 6 months (such as treasury bill sale transactions with a commitment to repurchase, issued certificates of deposit, and captive debt instruments), as well as "deferred tax liabilities" with a remaining maturity of less than 6 months.
• c- Net value of derivatives transactions: Calculated based on replacement cost using the prevailing market value method (Marking to Market) if the replacement cost for derivatives on the liability side is greater than on the asset side.
• d- Other liabilities with no maturity date.

Total Required Stable Funding (Denominator):

The measurement of Total Required Stable Funding depends on the nature of liquidity risks the bank is exposed to in the deployment of funds into assets and off-balance sheet items. The value of Required Stable Funding is calculated by classifying assets and off-balance sheet items into different categories as shown below, then weighting the balance of each category with a specific factor up to the maturity date of those assets or their liquidity. Appropriate factors are used for assets according to the remaining maturity. Assets with high liquidity take lower weighting factors compared to other assets that require more stable funding.

General Rules:

• a- Secured Funding Transactions:

In the event the bank engages in secured funding transactions with financial instruments such as "Treasury bill purchase transactions with a commitment to resell," the following must be done when calculating the value of Required Stable Funding:

• Exclude financial instruments if the bank does not have beneficial ownership.
• Include financial instruments in the appropriate asset categories listed below if the bank retains beneficial ownership.

The bank must not add any financial instruments obtained from such transactions if those securities do not appear on its balance sheet.

• When the bank pledges its financial instruments as a result of transactions such as "Treasury bill sale transactions with a commitment to repurchase" and the bank has beneficial ownership and those instruments are included in its balance sheet, the bank must include those instruments in the appropriate categories.

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Banking and Currency Supervision Department

b- Weighting Factor for Pledged Assets:

• Assets pledged for one year or more take a weighting factor of 100%.
• Assets pledged for a period ranging between 6 months and less than one year take the weighting factor given to the same asset if unpledged, at least. The weighting factor given to the pledged asset must be less than 50%.
• Assets pledged for less than 6 months take the same weighting factor given to those assets if unpledged.

The components of Required Stable Funding and their corresponding weighting factors are detailed below:

1- Assets with a Weighting Factor of 60%:

a- Cash: Includes total cash balance such as cash in vault, cash in transit, foreign currencies, and purchased travel checks.

b- Reserve balances at the Central Bank of Libya, including the legal reserve and reserve surplus, if any.

c- All deposits at the Central Bank of Libya with maturity dates of less than 6 months.

2- Assets with a Weighting Factor of 65%:

Includes Level 1 High-Quality Liquid Assets mentioned in the numerator of the Liquidity Coverage Ratio (LCR), excluding assets listed in item a above. These are as follows:

a- Debt instruments issued by the Libyan Government and the Central Bank of Libya in local currency: Includes treasury instruments, including special bills for purchase transactions with a commitment to resell (Reverse Repo), and exchange instruments, including treasury bills for sale transactions with a commitment to repurchase (Repo), as well as government bonds and any other debt instruments issued by those entities and traded in secondary markets with a maturity date of less than 6 months.

b- Tradable debt instruments representing claims or secured by sovereign entities, such as central banks, the Bank for International Settlements, the International Monetary Fund, and the European Central Bank. Provided they meet the following conditions:

(1) Assigned a risk weight of 0%, according to the Basel II standards for calculating credit risk.

(2) Traded in large and effective repurchase markets or financial markets.

(3) Have a proven track record as a reliable source of liquidity in (repurchase or sale) markets even during stressed market conditions.

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Banking and Currency Supervision Department

3- Assets with a Weighting Factor of 10%:

Facilities and formats granted to banks and financial institutions with a remaining maturity of less than 6 months, ensuring assets included in Level 1 in the numerator of the "Liquidity Coverage Ratio."

4- Assets with a Weighting Factor of 15%:

a. Unsecured loans to financial institutions with maturity dates of less than 6 months. Included in Level 2 (a) of the numerator of the Liquidity Coverage Ratio, meeting all conditions for those assets referred to within the Liquidity Coverage Ratio, including the following:

(1) Debt instruments with a risk weight of less than 20% issued or secured by sovereign entities such as governments and central banks, and multilateral evaluation bodies.

(2) Debt instruments issued by public bodies, banks, financial and non-financial institutions, and structured bonds.

b. High-Quality Liquid Assets pledged for less than 6 months.

c. Facilities granted to banks and financial institutions maturing within 6 months, other than those included in item 3 within the category of assets with a weighting factor of 10%.

5- Assets with a Weighting Factor of 50%:

a. Unsecured assets included in Level 2 (b) of the numerator of the Liquidity Coverage Ratio (LCR), meeting all conditions for those assets referred to within the Liquidity Coverage Ratio, including the following:

• Debt instruments issued by governments or central banks with a risk weight of more than 20% according to the credit rating of the debtor entity.

• Debt instruments issued by banks, financial institutions, and non-financial institutions classified with a credit rating lower than (AA-), meaning the credit rating in this case for the debtor entity is lower than (AA-).

• Owned and traded shares in financial markets and registered at fair value.

b. High-Quality Liquid Assets pledged for a period ranging between 6 months and less than one year.

c. Facilities and formats granted to the Central Bank of Libya, banks, and other financial institutions, and deposits granted to those entities with a maturity date between 6 months and less than one year.

d. Deposits with banks and other financial institutions for operational purposes, represented by all current account balances at banks (other than the Central Bank of Libya) and demand deposits at other financial institutions.

e. Loans and formats including commercial papers designated for companies, travel, sovereign entities, public bodies, and micro, small, and medium enterprises with a remaining maturity of less than one year.

f. Secured facilities with residential real estate with a remaining maturity of less than one year and secured by a mortgage for residential purposes, not commercial purposes, according to the standard approach.

g. Other assets other than High-Quality Liquid Assets with a remaining maturity of less than one year, including:

• Debt instruments issued that do not meet one of the conditions for High-Quality Liquid Assets (Level 1 and Level 2), whether traded or untraded.
• Debt instruments issued by financial institutions, whether traded or untraded.
• Unsecured High-Quality Liquid Assets.
• Any other assets with a remaining maturity of less than one year.

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Banking and Currency Supervision Department

-6 Assets with a Weighting Factor of 65%:

a. Secured loans with commercial papers discounted and a maturity period of one year or more, which give a risk weight of 35% or less according to the standard approach for credit risk.

b. Unsecured organized loans not mentioned in the items above, except those granted to financial institutions with a maturity date of one year or more and a risk weight of 35% or less according to the standard approach for credit risk.

-7 Assets with a Weighting Factor of 85%:

a. Secured organized loans with a remaining maturity of one year or more and fully secured by a mortgage for residential purposes, not commercial, according to the standard approach for credit risk.

b. Other organized loans (including discounted commercial papers) with a remaining maturity of one year or more, (excluding those granted to banks and financial institutions), which give a risk weight higher than 35% according to the standard approach for credit risk.

c. Debt instruments with a remaining maturity of one year or more (whether traded or untraded), as well as shares traded in financial markets, not meeting one of the conditions for High-Quality Liquid Assets.

-8 Assets with a Weighting Factor of 100%:

a. All assets pledged for one year or more.

b. Loans and facilities granted to the Central Bank of Libya, banks, and other financial institutions, and deposits granted to those entities with a remaining maturity of one year or more.

c. Net value of derivatives transactions: Calculated based on replacement cost according to the prevailing market value method (Market to Marking) if the replacement cost for derivatives on the asset side is greater than on the liability side.

d. Other assets not included in the previous items, such as:

• Unorganized loans (after deducting impairment loss allowance - if any).

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Banking and Currency Supervision Department

• Organized financial investments in untraded shares, managed portfolio balances for third parties, investment fund documents, and capital allocated to investment funds, and certificates of deposit (excluding those issued by sovereign entities and the Central Bank of Libya), and investments in subsidiaries and affiliates.
• Intangible assets (except any item taken into consideration within the Capital Base (Own Fund)).
• Deferred tax assets.
• Fixed assets (after deducting both the impairment loss allowance and the accumulated depreciation of fixed assets).
• Other assets.

-9 Off-Balance Sheet Items:

This category consists of contingent liabilities and commitments as follows:

Categories with a Weighting Factor of 5%:

• Liquidity limits granted by the bank, the unused portion of non-cancellable credit facilities.
• Letters of guarantee and documentary import and export credits, enhanced - net after deducting cash coverage.

Categories with a Weighting Factor of 0%:

• Any other contingent liabilities or commitments.

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Net Stable Funding Ratio Calculation Net Stable Funding Ratio

| Type | Total | Weighted Value | Weighted Value | Weighted Value | Weighted Value | Weighted Value | Operational Status | Operational Status | Operational Status | Operational Status | Operational Status | Operational Status | Operational Status | Operational Status | Operational Status | Operational Status | Operational Status | Operational Status | Operational Status | Operational Status |

b- Total Required Stable Funding:

	0%	Assets with Weighting Factor 0% 6
	0%	Food 6.1
	0%	Reserve balances at the Central Bank of Libya 6.2
	0%	Balances at the Central Bank of Libya 6.3
	5%	Assets with Weighting Factor 5% 7
	5%	Tradable debt instruments in financial markets with risk weight 0%
	5%	Issued or secured by an external central authority
	5%	Issued or secured by international banks and institutions
	5%	Tradable debt instruments pledged by sovereign entities or the Central Bank of Libya (foreign shares) 7.2
	5%	Tradable debt instruments issued by environmental sovereign entities 7.3
	5%	In foreign currency
	10%	Assets with Weighting Factor 10% 8
		Loans and facilities granted to banks and financial institutions 8.1
	15%	Assets with Weighting Factor 15% 9
	15%	New issuance with bonds (a) from the version of the liquidity coverage ratio 9.1
	15%	Tradable debt instruments in financial markets with risk weight 20% 9.1.1
	15%	Issued or secured by sovereign entities
	15%	Issued or secured by foreign central banks
	15%	Issued or secured by listed multilateral banks
	15%	Direct debt instruments from public bodies, non-financial companies 9.1.2
	15%	Closed bonds 9.1.3
	15%	Financial assets with a time horizon of less than 6 months 9.1.4
		Loans and facilities granted to banks and financial institutions at those entities 9.2
	50%	Assets with Weighting Factor 50% 10
	50%	New issuance with bonds (b) from the version of the liquidity coverage ratio 10.1
	50%	Debt instruments issued by governments or central banks
	50%	Debt instruments issued by banks, financial institutions, and creditor factors
	50%	Traded shares and due securities and client trading paid
	50%	High-Quality Liquid Assets prepared for a period ranging between 6 months and less than one year 10.2
		Link to other banks and financial institutions such as land liabilities 10.3

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	50%	Loans and facilities granted to non-financial companies, individuals, and sovereign entities and public bodies 10.4
	50%	Tradable and traded debt instruments with bonds (b) from the version of the liquidity coverage ratio 10.5
	50%	Organized loan for small organizations and communities based on participation in local projects 10.6
	65%	Assets with Weighting Factor 65% 11
	65%	Organized loans secured by criminal methods 11.1
	85%	Organized loan for subsidiary units of subsidiary institutions that were not formed in the budget intelligence reliance 11.2
	85%	Assets with Weighting Factor 85% 12
	85%	Organized loan for large organizations with speech gadi for quantitative purposes 12.1
	85%	Organized loan for other organizations 12.2
	100%	Debt instruments whether traded or untraded/Important 12.3
	100%	All assets preserved for one year or more 13
	100%	Loans and facilities granted to the Central Bank of Libya and other projects and financial practices 13.1
	100%	Net value of property debts 13.2
	100%	Other assets not included in the previous items 13.3
	5%	Off-balance sheet items 14
	5%	Liens granted by the bank 14.1
	5%	Guarantee properties 14.2
		Considerations of bonds based on classified classification 14.3
		Total Required Stable Funding (b) 15
		Net Stable Funding Ratio (b)/(a) 16

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