Daily Foreign Exchange Exposure Monitoring Return Instructions

INSTRUCTION NOTES FOR THE COMPILATION OF THE
DAILY FOREIGN EXCHANGE EXPOSURE MONITORING RETURN AUGUST 2022

Bank of Uganda: Supervision Directorate 2022 Page 1 Introduction Measuring a bank's foreign exchange exposure is achieved in two successive steps: first the measurement of the exposure in each single currency, and then, the measurement of the overall foreign exchange exposure resulting from a mix of different positions in several foreign currencies. Calculation of Exposure or Net Open Position in a Single Currency The measurement of a bank's exposure in a single currency consists in determining if the bank has a long or a short open position in that particular currency, and how large this open position is. The open position in a currency is the sum of (a) the net spot position and (b) the net forward position. (a) Net spot position The spot position is simply the position which appears directly on the balance sheet. The net spot position is the difference between foreign currency assets and liabilities in a particular currency. This should include all accrued income and accrued expenses. (b) Net forward position This represents all amounts to be received less all amounts to be paid in the future in a particular currency as a result of foreign exchange transactions which have already taken place. These transactions which are recorded as off-balance sheet items shall include:
(i) spot transactions which are not yet settled; (ii) forward foreign exchange transactions; (iii) guarantees and similar commitments denominated in foreign currencies which are certain to be called upon and are likely to be irrecoverable. Calculation of Overall Foreign Exchange Exposure This involves measurement of risks inherent in a bank's mix of long and short positions in different currencies. Banks shall adopt the "shorthand method", which is

Bank of Uganda: Supervision Directorate 2022 Page 2 accepted internationally, for calculating the overall foreign exchange exposure or overall open position as follows:
(i) Calculate the net open position in each currency (as above).
(ii) Arrive at the sum of all the net short positions.
(iii) Arrive at the sum of all the net long positions.
Overall foreign exchange exposure or overall open position is the higher of (ii) and (iii). Reporting Instructions Banks shall submit a daily return to the Bank of Uganda as in the attached format (Annex I). The amounts reported shall be the foreign currency amounts recorded in the reporting bank's books as at the close of business on the reporting date, adjusted where possible for transactions not posted as at the reporting date. Structural positions, i.e., of a non-dealing nature in foreign currency capital assets and liabilities such as investments in subsidiaries, premises, loan capital, etc., that are of a fixed long-term nature, shall be excluded from the calculation of net open foreign currency position but shall be disclosed by way of footnotes to the return. No capital charge shall apply to positions related to items that are deducted from a bank’s capital when calculating its capital base, such as investments in non-consolidated subsidiaries, nor to other long￾term participations denominated in foreign currencies which are reported in the published accounts at historic cost. These shall also be treated as structural positions. Individual foreign currency details shall be given in the return for those currencies with a total long or a total short position of Shs.180 million or more. Currencies with positions of less than Shs.180 million may be combined and reported in the column "Others" of the return. Amounts reported for each foreign currency, including forward transactions, shall be translated into shillings at the mid-point of the buying and selling exchange rates applying at the close of business on the reporting date. The exchange rate used should be recorded in row IV (b) of the return.

Bank of Uganda: Supervision Directorate 2022 Page 3 Forward foreign exchange rates are different from the spot rates and take into account the respective levels of interest rates. The exposures should be measured by using the abovementioned spot indicative exchange rates rather than the forward rates. Completion and Submission of Daily Return (a) Completion of daily return Balance Sheet Items (rows I and II): these refer to foreign currency assets and liabilities recorded in the reporting bank's books including all foreign currency borrowings, deposits, loans, overdrafts, bills and investments. These include working balances, including notes and coin and funds lodged with overseas banks as at the reporting date. Where the working balances are overdrawn, the balances should appear in the liabilities
section.
Off-Balance Sheet Items (row III): these are foreign currency items such as forward contracts which entail an identifiable foreign currency commitment. Gross amounts of outstanding sale and purchase contracts are to be reported. (i) Undelivered Spot Purchases and Sales: foreign exchange deals are generally settled two business days after they are made. During these two days, the amount of the bought currency to be received and the amount of the sold currency to be delivered are recorded in off-balance sheet accounts. Undelivered spot transactions refer to all outstanding spot contracts written but not delivered. (ii) Forward Purchases and Sales: a forward transaction is defined as one contracted for receipt or delivery beyond two business days from the reporting date. Forward purchases and sales refer to the gross amounts of outstanding forwards, other than those to be delivered "within spot". (iii) Irrevocable Unfunded Commitments: These refer to letters of credit, acceptances, guarantees, performance bonds and similar commitments denominated in foreign currencies which are certain to be called upon and are not covered or funded by:
a) Margin deposits in the same currencies. The funds should be held by the reporting institution and a lien executed accordingly. The contingent liabilities should be reported net of the cash margins held. b) Counter guarantees

Bank of Uganda: Supervision Directorate 2022 Page 4 If guarantees issued by the bank are secured with counter guarantees, they are reported net. In order for the counter guarantee to be considered for offsetting the exposure, the following conditions should be met:
– The Counter Guarantee should cover the entire amount of the Guarantee. – It should be in the same currency and have the at least, the same tenor as the guarantee. – It should be issued either by the World Bank, other Multilateral lending agencies or a financial institution acceptable to the Central Bank, with a minimum credit rating of A. (iv) Other Off-Balance Sheet Items: this refers to items which involve foreign currency exposures which are not included elsewhere on the return, for example, unconditional commitments to lend in foreign currency, currency futures, currency options, etc. Net Open Position (row IV): this is calculated by subtracting Total Foreign Currency Liabilities from Total Foreign Currency Assets (on and off balance sheet items). A positive result indicates an overbought position (+) and a negative result an oversold position (-). The "Others" entry for currencies not individually specified should be divided to show the total for those currencies with net long positions and the total for those with net short positions. Overall Foreign Exchange Exposure or Overall Open Position (row V): this is the higher of (a) the sum of all the net short positions and (b) the sum of all the net long positions after converting each foreign currency exposure into its shilling equivalent. Overall Foreign Exchange Exposure or Overall Open Position as a Percentage of Core Capital: this is calculated by dividing the Overall Foreign Exchange Exposure or Overall Open Position by the reporting bank’s latest Core Capital as computed for the purpose of the quarterly risk-weighted capital adequacy ratio. (b) Contingent Liabilities Worksheet Banks should disclose in this worksheet, any contingent liabilities which should have been included in the computation of foreign exchange exposure but have been offset against either cash margins or Counter Guarantees.

Bank of Uganda: Supervision Directorate 2022 Page 5 i) Name of Customer – Indicate the name of the customer to whom the bank has issued an off balance sheet facility classified in this category. ii) Facility type and currency – Indicate the type of instrument issued in this facility as either Letters of Credit, Guarantees, Performance Bonds or Other commitments. The currency of the instrument should be indicated as either USD, GBP, JPY, EUR, TZS, KES, ZAR, DKK, CAD, INR, CHF, AED, AUD, CNY, BIF, RWF, SDD, CDF or Other. iii) Amount – this refers to the total amount of the contingent liability facility extended to the customer and not just the 20% required for computation of foreign exchange exposure. iv) Maturity date – this is the date on which the contingent liability facility will expire. v) Cash margin – if the facility has been offset against cash indicate the total amount of cash held by the bank against this instrument (not just the 20%). vi) Currency (cash) – banks should indicate here the currency in which the cash margins are held. vii)Counter Guarantee amount – indicate the amount of the Counter Guarantees held against the instrument reported. viii) C/Guarantee Maturity date – this refers to the maturity date of the Counter Guarantee. ix) Counter Guarantee Currency – refers to the currency in which the Counter Guarantee is denominated. x) Counter Guarantee Issuer – Indicate the name of the entity which has issued the Counter guarantee. xi) Issuer Credit rating – this refers to the credit rating of the Issuer of the Counter Guarantee. c) Submission of daily return The daily return in the format given in Annexure I should be submitted through the Bank Supervision Application (BSA) before 11.00 a.m. on the business day following the day to which the Return relates.

Daily Foreign Currency Exposure

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Authorized Dealer Bank

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Date
(In Thousands)
SINGLE CURRENCY EXPOSURE
Overall
Exposure
US$ UK YEN EURO TShs KShs ZAR DKK INR CAD CHF SDD AED AUD CNY BIF RWF CDF I FOREIGN EXCHANGE ASSETS (+) (a) Currency on hand (b) Due from banks abroad (Nostro) (c) Cheques and items in transit (d) Loans and Advances (e) Accrued Interest receivable (f) Other assets II FOREIGN EXCHANGE LIABILITIES (-) (a) Due to banks abroad (b) Foreign currency deposits (c) Loans payable (d) Accrued interest payable (e) Other liabilities III OFF-BALANCE SHEET (a) Undelivered spot purchases (+) (b) Undelivered spot sales (-) (c) Forward purchase (+) (d) Forward sales (-) e) Options, swaps, derivatives (+)/(-) f) Contingent liabilities (- ) (at 20% of recorded value)

• Letters of Credit
• Guarantees
• Performance
  Bonds
• Other

Bank of Uganda: Supervision Directorate 2022 Page 1 commitments (g) Other Commitments IV FOREIGN EXCHANGE POSITION (a) Net Long(+)/Short(-) Position in FX Currency (b) Exchange Rate in Shillings (Mid Rate) (c) Net Position in Shillings V FOREX POSITION LIMIT (a) Total Net Long Position (+) (b) Total Net Short Position (-) (c) OVERALL EXPOSURE (higher of V( a) & ( b) (d) Exposure Limit (25% of core capital) Core capital is Shs ……. (e) EXCESS OVER LIMIT

Bank of Uganda: Supervision Directorate 2022 Page 2 Contingent Liabilities Worksheet Name of Customer Facility Type and Currency Amount Maturity Date Cash Margin Currency (Cash Margin) Counter Guarantee Amount C/Guarantee Maturity Date Counter Guarantee Currency Counter Guarantee Issuer Counter Guarantee Credit Rating CERTIFIED CORRECT: _______________________ _______________________ NAME AND SIGNATURE POSITION