Instructions on the Liquidity Coverage Ratio (LCR) - No. 5 of 2020

Central Bank of Jordan
Instructions on Liquidity Coverage Ratio
Liquidity Coverage Ratio (LCR)
No. (2020/5)

Table of Contents
First: Application and Scope .................................................................................................................... 3
Second: Requirements and Methodology for Calculating the Liquidity Coverage Ratio ....................... 4
Third: Denominator Components of the Liquidity Coverage Ratio ........................................................ 5
Fourth: Numerator Components of the Liquidity Coverage Ratio ......................................................... 10
A/ Fourth: Outgoing Cash Flows ............................................................................................................ 10
B/ Fourth: Incoming Cash Flows ........................................................................................................... 19
C/ Fourth: Other Incoming Cash Flows by Counterparty Categories ................................................... 21
D/ Fourth: Other Incoming Cash Flows ................................................................................................ 22
Fifth: General Provisions ........................................................................................................................ 23

First: Application and Scope

These instructions aim to enhance the management of short-term liquidity risks by ensuring that banks maintain an adequate stock of high-quality liquid assets that can be easily and quickly converted into cash to meet their liquidity needs within stress scenarios for a period of 30 days.

These instructions were issued pursuant to the provisions of Article 99 (b) and Article 42 (a) of the Banks Law No. 2000, and generally in conformity with the Basel Committee on Banking Supervision’s requirements for the Liquidity Coverage Ratio and its amendments.

1. These instructions apply to all licensed banks operating in the Kingdom, including branches of foreign banks, such that the Central Bank is provided with LCR models at the levels indicated below:

• The banking group, inclusive of branches and subsidiaries (both inside and outside the Kingdom).
• Branches in Jordan.

2. Mechanism for Harmonization of LCR Application:

• When applying the requirements contained in these instructions on a unified basis, assumptions for retail deposits and small business deposits are applied at subsidiaries and branches outside Jordan for small business and retail deposits, as specified in instructions issued by the relevant supervisory authorities.
• If subsidiaries and branches are in countries that do not apply instructions related to the LCR, the bank must apply the assumptions contained in these instructions, in accordance with Basel Committee guidelines.
• In the event of the existence of restrictions on the ability of banks to transfer surplus liquidity from branches and subsidiaries abroad to Jordan, such as currency conversion restrictions or minimum local usage requirements for those branches and subsidiaries, or in the event of the existence of restrictions on the ability of the Jordanian bank to support the liquidity of its branches and subsidiaries abroad, the bank must determine if there are contractual, regulatory, or legal restrictions preventing easy conversion of assets. The bank must ensure that only High-Quality Liquid Assets (HQLA) are included in the calculation at the banking group level. It must be documented that the bank has HQLA free from any restrictions at all times. When calculating the LCR on a unified basis, net outgoing cash flows from any owned subsidiary or branch are not taken into account if they exceed the surplus available to meet total liquidity needs at a unified level, in the presence of restrictions on accessing them.

Second: Requirements and Methodology for Calculating the Liquidity Coverage Ratio

1. The bank must maintain a level of unencumbered liquid assets sufficient to meet its liquidity requirements during the next 30 days under specified stress scenarios, as a minimum threshold. It is assumed that the bank can access those liquid assets to continue its operations for up to 30 days, and that the bank's management has taken appropriate measures to find necessary solutions in the event of a liquidity crisis.

2. The Liquidity Coverage Ratio is calculated according to the equation shown below:

3. Banks must maintain a minimum LCR of 100% of total liabilities in all currencies.

(1)

The bank is required to calculate the LCR for (2) significant currencies.

The levels considered as the minimum threshold for applying the LCR standard in these instructions are the unified level (Jordan and branches) and the level of the subsidiary.

4. In all cases where the ratio falls below the minimum threshold expected or determined by the bank, the bank must immediately inform the Central Bank and take corrective measures according to the approved contingency plan. This applies to the bank's management or the competent authority regarding the foreign bank branch.

5. The minimum threshold for prudential requirements for banks in these instructions represents the stress scenarios assumed for banks. These should be tailored to the size, complexity, and nature of the bank's activities to assess its liquidity position. In addition to maintaining the minimum threshold specified in these instructions, the bank should conduct internal stress tests covering the longest time periods covered by this ratio.

(1) The main currency of the country to which the foreign presence belongs.
(2) A currency is considered significant when the total of on-balance sheet and off-balance sheet liabilities/assets represented by that currency is more than 5% of the bank's total liabilities, or when the total of on-balance sheet and off-balance sheet liabilities/assets is significant in all currencies.

Third: Denominator Components of the Liquidity Coverage Ratio

1. Assets are generally considered High-Quality Liquid Assets (HQLA), including those compliant with Shariah rules for Islamic banks, if they can be easily and quickly converted into cash without incurring significant losses or any losses under stress conditions.

2. The bank must ensure the absence of operational restrictions that would prevent the timely liquidation of these assets during stress periods. The bank must also demonstrate its ability to use these high-quality liquid assets immediately as a source of liquidity (through sale in financial markets or repurchase markets) to bridge the gap between incoming and outgoing cash flows during stress periods. Banks must ensure the existence of appropriate internal policies and procedures that comply with the following operational requirements:

2.1. All HQLA must be "unencumbered." The term "unencumbered" means that the assets are not subject to any legal, regulatory, or contractual restrictions or other constraints that affect the bank's ability to sell or liquidate them. These assets must not be used as collateral for other assets, such as trading centers held by the bank, or as credit enhancement means, or to cover operational costs such as rent and salaries.

2.2. The bank must periodically and effectively liquidate a portion of these assets through REPO transactions or otherwise, to verify the effectiveness of the liquidation process and the ability to liquidate HQLA in the market.

2.3. Assets received in reverse repurchase transactions and securities financing transactions can be considered HQLA if they are legally available to the bank for its use, can be re-pledged, and are held by banks.

2.4. Assets that have been pledged, deposited, or allocated to the Central Bank or a public sector entity for the purpose of obtaining liquidity can be included among HQLA.

2.5. HQLA must be under the control of the bank's management responsible for liquidity management (Treasury Department), ensuring:

• The relevant department grants continuous validity, operational capability, and legal ability to liquidate any of these assets within a 30-day period.
• The relevant department has clear authority over the supervision of HQLA liquidity, as clearly stated in the bank's policies and procedures.

2.6. The bank may hedge market risks associated with HQLA. In calculating the market value of assets, the bank must take into account outgoing cash flows resulting from the hedging position, particularly in the event of early liquidation of the asset due to the sale of the hedge position.

3. Banks calculate HQLA held during the reporting period, regardless of maturity, dividing these assets into two categories: "Level 1" and "Level 2" assets. Level 1 assets can be included in full without a maximum limit. Level 2 assets are capped at 40% of the total HQLA (sum of Level 1 and Level 2).

4. Level 2 assets are divided into two categories:

• Level 2 Assets Category (A)
• Level 2 Assets Category (B)

5. Banks may include Level 2 assets as part of HQLA, up to a maximum of 15% of total HQLA, taking into account haircuts applied to these assets. This means that the total of Level 2 assets must not exceed 40% of the applicable ratio of Level 2 (A) and (B).

6. Maximum limits applied to Level 2 Assets (B) are calculated after applying haircuts. This includes considering short-term securities financing transactions and collateral swaps (Collateral Swap) maturing within 30 days.

7. The conditions specified in the following paragraphs must be met for Level 1 and Level 2 assets:

1.7 Level 1 Assets:

• Level 1 assets are included at fair value without any haircuts.
• Level 1 assets are limited to the following:
  a. Cash and coins. b. Balances held at the Central Bank.

(1) Includes the free balance comprising 35% of the mandatory cash reserve. Balances at the Central Bank include demand deposits. Deposits with a fixed term or overnight deposits that meet the following conditions are considered:

• Payable upon notice from the depositor to the bank.

• Explicitly payable contractually.

• Payable within 30 days.

• The bank can obtain financing based on them on an overnight or fixed-term basis.
  Other fixed-term deposits at the Central Bank do not qualify as HQLA.

  c. Instruments compliant with Shariah rules for Islamic banks, including Sukuk/debt instruments guaranteed or issued by governments, central banks, or public sector entities, or by the European Commission, the European Central Bank, the Bank for International Settlements, the International Monetary Fund, or development banks, provided they meet the following criteria:

  • Assigned a risk weight of 0% according to Capital Adequacy Instructions.
  • According to Basel III Capital Adequacy Instructions No. (67) dated 2016/10/31, and Amended Standard No. (15) issued by the Financial Services Board No. (72) dated 2018/72, dated 2018/2/4.
  • Traded in repurchase markets or financial markets.
  • Have a historical record proving they are a reliable source of liquidity in repurchase markets, even during difficult market conditions (sales).

  d. Instruments compliant with Shariah rules for Islamic banks, including Sukuk/debt instruments issued by the Hashemite Kingdom of Jordan Government or the Central Bank of Jordan, which are given a risk weight of 0% for the country in which the bank's liquidity risks arise, and are not mentioned above.

  e. Instruments compliant with Shariah rules for Islamic banks, including Sukuk/debt instruments issued by foreign governments or the Central Bank of Jordan, which do not exceed the net value of outgoing cash flows for the country in which the bank's operations and liquidity risks arise, and are given a risk weight of 0% according to the stress scenario resulting from the bank's operations, and are not mentioned above.

2.7 Level 2 Assets:

• Level 2 assets are capped at 40% of total HQLA, after applying specified haircut percentages to Level 1 and Level 2.

• A haircut of 15% is applied to the market value of Level 2 Assets (A):

  • Level 2 Assets (A) are limited to:
    a. Instruments compliant with Shariah rules for Islamic banks, including Sukuk/debt instruments guaranteed or issued by governments, central banks, or public sector entities, or by multi-party development banks, provided they meet the following criteria:
    • Assigned a risk weight of 20% according to Capital Adequacy Instructions.
    • According to Basel III Capital Adequacy Instructions No. (67) dated 2016/10/31, and Amended Standard No. (15) issued by the Financial Services Board No. (72) dated 2018/72, dated 2018/2/4.
    • Traded in repurchase markets or financial markets.
    • Have a historical record proving they are a reliable source of liquidity in repurchase markets, even during difficult market conditions (sales).
    • The maximum price decline does not exceed a 10% increase in haircuts over a 30-day period, or 10%, suitable for significant liquidity stress.
    • Excludes instruments issued by a bank, financial institution, or one of its subsidiaries.
    • Excludes instruments compliant with Shariah rules for Islamic banks, including Sukuk/debt instruments issued by a qualified financial institution/bank as a public sector entity according to Capital Adequacy Instructions, and according to Basel III Capital Adequacy Instructions No. (67) dated 2016/10/31, and Amended Standard No. (15) issued by the Financial Services Board No. (72) dated 2018/72, provided they meet all the above criteria, dated 2018/2/4.

  b. Instruments compliant with Shariah rules for Islamic banks, including Sukuk/debt instruments, including covered bonds (1) and commercial paper (2) issued by companies, provided they meet the following criteria:

  • In the case of Sukuk or debt instruments compliant with Shariah rules for Islamic banks, they must not be issued by the bank itself or any of its subsidiaries.
  • Covered bonds must not be issued by the bank itself or any of its subsidiaries.
  • Have a long-term credit rating of at least AA- from an external credit rating agency qualified according to Capital Adequacy Instructions.
  • According to Basel III Capital Adequacy Instructions No. (67) dated 2016/10/31, and Amended Standard No. (15) issued by the Financial Services Board No. (72) dated 2018/72, dated 2018/2/4.
  • In the absence of a long-term credit rating, they must have a short-term credit rating equivalent in quality to the long-term credit rating.
  • Traded in repurchase markets or financial markets.
  • Have a historical record proving they are a reliable source of liquidity in repurchase markets, even during difficult market conditions (sales).
  • The maximum price decline does not exceed a 10% increase in haircuts over a 30-day period, or 10%, suitable for significant liquidity stress.

  c. Bonds issued by the Jordanian Mortgage Finance Company.

• Level 2 Assets (B) are limited to the following:
  a. Instruments compliant with Shariah rules for Islamic banks, including Sukuk/debt instruments issued by non-financial institutions, after applying a 50% haircut, provided they meet the following criteria:

  • Must be Sukuk/debt instruments issued by a bank, financial institution, or one of its subsidiaries.
  • In the absence of an equivalent, they must have a long-term credit rating between A+ and BBB-.
  • In the absence of a long-term credit rating, they must have a short-term credit rating equivalent in quality to the long-term credit rating.
  • Traded in repurchase markets or financial markets.
  • Have a historical record proving they are a reliable source of liquidity in repurchase markets, even during difficult market conditions (sales).
  • The maximum price decline does not exceed a 20% increase in haircuts over a 30-day period, or 20%, suitable for significant liquidity stress.

  b. Contributions in share capital of companies compliant with Shariah rules for Islamic banks, meeting the following criteria after applying a 50% haircut:

  • Must not be issued by a bank, financial institution, or one of its subsidiaries.
  • Traded within the scope of an official market and centrally cleared.
  • Form part of a main share index in Jordan or in the country where the bank's liquidity risks arise.
  • Listed in the currency of the country where the bank's liquidity risks arise or in Jordanian Dinar.
  • Traded in repurchase markets or financial markets.
  • Have a historical record proving they are a reliable source of liquidity in repurchase markets, even during difficult market conditions (sales).
  • The maximum price decline does not exceed a 40% increase in haircuts over a 30-day period, or 40%, suitable for significant liquidity stress.

  c. Banks may include other assets in Level 2 (B) at their discretion, subject to prior approval from the Central Bank of Jordan.

(1) Commercial paper includes debt instruments issued by companies (excluding subordinated debt).
(2) Covered bonds are bonds issued by a bank or institution and owned by holders, subject to the Public Control Law. The proceeds from the issuance of these bonds must be invested in assets that comply with the law to cover the claims related to the bonds. In the event of the issuer's failure, the bonds remain valid throughout their duration, and the proceeds are used in a priority manner to compensate the principal amount and accrued interest (for Islamic banks).

Fourth: Numerator Components of the Liquidity Coverage Ratio

The net outgoing cash flows are calculated as the total expected outgoing cash flows minus the total expected incoming cash flows during the next 30 days. The total expected outgoing cash flows are calculated by multiplying the balances of various categories of on-balance sheet and off-balance sheet liabilities by the cash flow rates specified in these instructions. The total expected incoming cash flows are calculated by multiplying the balances of various categories of on-balance sheet and off-balance sheet liabilities by the expected incoming cash flow rates for each contractual maturity category. The total expected incoming cash flows must not exceed 75% of the total expected outgoing cash flows.

If an asset included in the numerator (HQLA) is also included in the denominator as part of incoming cash flows, the related incoming cash flows for that asset must not be included in the denominator.

A/ Fourth: Outgoing Cash Flows

1. Retail Deposits:
   1.1. Retail deposits are deposits and investment accounts placed with a bank by individuals, natural persons, and partnerships before being placed by companies and legal entities. Retail deposits include demand deposits, savings deposits, and time deposits, except for those specified in paragraphs below (2.1) and (3.1) for Islamic banks' investment accounts.

2.1. For outgoing cash flows related to time retail deposits and those with a remaining maturity of more than 30 days, they are excluded from the total expected outgoing cash flows if there is no contractual agreement giving the depositor the right to withdraw from the investment account and retail deposits within 30 days, or in the event of Islamic retail deposits or LCR-related deposits where penalties are imposed in the event of withdrawal.

3.1. The Central Bank of Jordan may apply outflow rates for deposits specified in paragraph (2.1) up to [0%] or above, in the event of a risk of withdrawal by depositors or the existence of similar demand deposits for Islamic banks' investment accounts, to avoid reputational risk and the likelihood of the bank agreeing to the client's withdrawal before maturity.

(1) Inflow/Outflow ratios represent the withdrawal ratios under stress conditions for different asset and liability categories. These ratios represent the expected withdrawal ratios of liabilities. When calculating outgoing cash flows, these ratios represent the volume of expected incoming cash flows achievable under specified stress scenarios. When calculating incoming cash flows, these ratios represent the expected inflow rates.

Net Outgoing Cash Flows over a 30-day period = Total Expected Outgoing Cash Flows - Total Expected Incoming Cash Flows (minimum between 75% of Total Expected Outgoing Cash Flows and Total Expected Incoming Cash Flows).

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Note: The provided text ends abruptly at the formula explanation. The translation reflects the content provided up to that point.

Less than "stable" deposits: Investment bank and retail deposits are divided into the following categories, and different cash outflow rates are applied to each category, with a minimum of "stable".

1.4.1 Stable deposits are defined as follows:

(1) Deposits covered by a deposit insurance scheme, where:

• There are no relationships between the depositor and the bank that would potentially make deposit withdrawals large in scale.
• Deposits are in accounts such as those where salaries are deposited (transactions accounts).

For Islamic banks, the calculation of deposit insurance coverage is not subject to the condition that the deposit insurance institution involves the institution in its operations. A cash outflow rate of 15% is applied as an option to stable deposits.

All other deposits that do not meet these criteria are treated as less than stable deposits.

It is worth noting that the existence of a deposit insurance program is not sufficient for investment bank or retail deposits to be considered stable if they do not meet both of the above-mentioned conditions.

If an employee registers deposits with the Islamic investment banks and accounts as stable deposits, the bank must not identify any of these deposits as stable unless they are fully covered by the deposit insurance limit.

1.4.2 A cash outflow rate is applied to less than stable deposits as follows:

Deposit Size	Cash Outflow Rate for Investment Bank and Retail Deposits (Local Currency - Islamic Banks)	Cash Outflow Rate for Investment Bank and Retail Deposits (Foreign Currency - Islamic Banks)
Less than or equal to AED 50,000	20%	25%
More than AED 50,000 up to AED 100,000	25%	30%
More than AED 100,000 up to AED 500,000	30%	35%
More than AED 500,000	35%	40%

(1) "Fully insured" means that the deposit value is covered up to 100% of the deposit insurance limit. Deposits are treated as "fully insured" if they meet either of the two conditions mentioned above and are subject to a cash outflow rate of 15%.

(2) This includes any options related to the ability to withdraw funds before the contractual maturity date, including requests for funds by the fund provider.

(3) Aggregated on a per-customer basis.

2. Uninsured deposits from non-retail customers of Islamic investment banks and accounts.

1.2 This category includes deposits and liabilities of individuals (including legal persons), such as deposits owned by the bank in the event of liquidation or bankruptcy, or under contractual agreement (insured and uninsured). This includes obligations related to derivatives contracts, hedging contracts, and contracts compliant with Shariah rules. These deposits and liabilities apply to the concept of retail deposits in Islamic banks, as per paragraphs (2.1) and (3.1) above.

2.2 For the purpose of calculating the Liquidity Coverage Ratio, deposits from non-retail customers of Islamic investment banks and accounts are divided into the categories specified in paragraph (1.2.2), with regard to the yield rates (funding sources sensitivity to the bank's credit rating and financial health) as follows:

1.2.2 Uninsured deposits from non-retail customers of Islamic investment banks and accounts:

• This category includes deposits from "Small Projects" (other than small project customers). "Small Projects" are defined for the purposes of these instructions as entities that have the same characteristics as retail accounts according to the capital adequacy instructions, and according to Instruction No. (2016/67) under Basel III, and according to Instruction No. (2018/72) issued by the Financial Services Board (amended by Instruction No. 2018/2/4). If the bank is unable to meet the conditions in the definition, the total aggregated deposits of the customer must be at least AED 250,000 to be included in this category.
• The following cash outflow rates are applied to these deposits:

Deposit Type	Cash Outflow Rate for Investment Bank and Retail Deposits (Local Currency - Islamic Banks)	Cash Outflow Rate for Investment Bank and Retail Deposits (Foreign Currency - Islamic Banks)
Less than or equal to AED 50,000	20%	25%
More than AED 50,000 up to AED 100,000	25%	30%
More than AED 100,000 up to AED 500,000	30%	35%
More than AED 500,000	35%	40%

• Term Deposits of Islamic investment banks and accounts for small project customers are treated the same as term deposits for retail customers, according to what is shown above in paragraph (1.4.1).

2.2.2 Operational deposits resulting from clearing, custody, and cash management activities:

• Certain banking activities require deposits and settlements from customers to cover payments. A cash outflow rate of 25% is applied to these deposits. In cases where the customer has a significant dependence on the bank, the bank may determine that these deposits are required for these activities. The Central Bank of Jordan may allow the bank to use this rate in specific cases, such as a limited number of customers, among other cases.
• The activities qualifying for the 25% rate are those that meet all of the following conditions:
  • The bank acts as an independent third-party intermediary in providing these services, and the customer's dependence on the bank is not significant. This condition is not met if the bank had knowledge of alternative arrangements for the customer for a period of 30 days.
  • These services are provided within binding agreements with customers.
  • Termination of these agreements requires prior notice of not less than 30 days, and the customer bears the cost of withdrawing the operational deposit 30 days in advance.
• Qualifying operational deposits resulting from these activities include:
  • Deposits required to cover services provided by the bank, not deposits offered in the market, for the purpose of yield (interest) for the bank as an independent entity.
  • Deposits held in accounts for these purposes, which are priced on this basis, without giving the customer any financial incentives.
• Balances exceeding the amounts required to cover activities related to clearing, custody, and cash management do not qualify for the 25% cash outflow rate. Only the stable deposit portion of such balances is treated as stable. The excess balance is treated as less than stable. In cases where the bank is unable to determine the appropriate category of non-operational deposits, the excess balance is considered a fully insured deposit.
• Banks must develop appropriate methodologies to determine excess balances in accounts. These methodologies must be applied to exclude these deposits from treatment as shown above, and must take into account several factors, such as the presence of balances with customers exceeding their average payments before making certain payments.
• The cash inflow rate for these deposits is 0%, as these deposits are not available to the bank for use to settle any obligations, and thus are not available for operational customer activities.
• If a deposit arises from transactions with correspondent banks:
  (1) It is treated as non-operational for the purpose of determining the outflow rate, as it is primarily for brokerage services.
• The bank can treat the portion of operational deposits resulting from clearing activities that are fully insured with the same cash outflow rate as stable retail deposits (15%).
• It is worth noting that the activities mentioned above are divided into operational deposits depending on the extent to which this activity qualifies as operational deposits, based on the customer's actual dependence on the bank and the practices applied:
  • "Clearing activities" refer to services provided by the bank to the customer to convert cash, and to transfer financial instruments to final beneficiaries through clearing and settlement systems. These services include, for example, transfers, checks, and settlements.
  • "Custody activities" refer to services related to assets on behalf of the client. These services are limited to settlement operations of financial instruments, such as bonds and shares, and other funds, including collection of dividends and profits, guarantees, and payments, including agency services and payment services, excluding transactions with banks.
  • "Cash management activities" refer to services and products provided to customers for managing cash flows, assets, and liabilities, and financial transactions. These services are limited to payment transfers, collection, and consolidation of funds, payroll management, and payment control.

3.2.2 Uninsured deposits from non-retail customers of Islamic investment banks and accounts:

• This category includes all deposits from non-financial institutions, governments, central banks, development institutions, and banks, as well as other deposits from Islamic investment banks and accounts (excluding those classified as small projects). Operational purposes are specifically defined as mentioned above. The cash outflow rate for these deposits is 40%. A cash outflow rate of 20% is applied to fully insured deposits.

(1) Correspondent banking refers to arrangements under which the bank holds deposits owned by the other bank. These transactions are settled in foreign currencies, such as Nostro and Vostro accounts. They involve payment services and settlement for the other bank, and transactions in currencies other than the local currency of the other bank. They are primarily for brokerage services, including large investor services, specifically financing and hedging, and usually include institutional hedging funds, repurchase agreements, or margin purchases.

4.2.2 Other companies:

• This category includes all deposits from other institutions, including banks, financial institutions, securities firms, insurance companies, trustees, beneficiaries, and private purpose companies and establishments (subsidiaries).
• The cash outflow rate for this category is 100% for the bank.
• All financial instruments, including bonds and sukuk, issued by the bank within this category are weighted at 100% for outflows, regardless of the holder. This includes retail accounts, small project accounts (as per paragraph 1.2.2 above), which are treated as retail or small project deposits, whichever is more appropriate, provided there are no restrictions preventing customers from holding or purchasing these instruments.
• Cash balances of customers resulting from primary brokerage services are treated independently of any other balances subject to customer protection programs. No offsetting with other exposures to the customer should be done for the purposes of this standard.

3. Secured Funding:
   1.3 Secured funding refers to specific assets legally owned by the bank before the application of (Run-off Rates). These rates are applied to secured obligations in cases of liquidation, insolvency, or bankruptcy.

2.3 The following table includes the cash outflow rates applied to secured obligations, including short-term customer positions maturing within 30 days, and those without a specific contractual maturity date:

Secured Funding Categories	Cash Outflow Rate for Secured Funding Transactions (%)
Secured obligations collateralized by first-tier assets or where the counterparty is a central bank	0%
Secured obligations collateralized by second-tier assets (A) or where the counterparty is a government entity, public sector institution, or a development bank with a risk weight of less than or equal to 20%	15%
Secured obligations collateralized by other second-tier assets (B) or where the counterparty is not a government entity, public sector institution, or development bank	25%
All other secured obligations not mentioned above	50%
	100%

(1) The definition of fiduciary person (trustee) refers to a person who exercises supervision and monitoring of investment management to ensure compliance with the investment objectives and goals stipulated in the investment agreement signed between the client and the investment manager.

(2) The definition of beneficiaries in this context refers to a legal entity that receives or is entitled to receive benefits under a pension or retirement plan, insurance policy, or will.

(3) This category includes cash outflows from deposits, other debt instruments, and obligations of subsidiaries of the bank. It includes deposits or operational relationships with a subsidiary company of a non-financial institution.

4. Other Cash Outflows:
   1.4 Net cash outflows resulting from derivatives and hedging contracts compliant with Shariah rules are subject to a cash outflow rate of 100% for Islamic banks. Contractual and non-contractual cash inflows and outflows arising from derivatives and hedging contracts compliant with Shariah rules can be calculated according to the valuation methods adopted by Islamic banks. Netting of cash inflows against cash outflows is only possible if there is a valid main netting agreement at the level of a single counterparty. Banks are not required to increase liquidity requirements due to changes in the market value of collateral. When calculating these cash flows, it must be assumed that options are exercised "In the Money" (economic benefit) before the option buyer. The decrease in the value of provided collateral or the increase in required collateral due to changes in market value must be accounted for.

2.4 If payments for derivatives and hedging contracts compliant with Shariah rules are covered by high-quality liquid assets, the net cash outflows arising from provided collateral on derivatives or any cash inflows are calculated on the basis that the bank had the operational ability to provide cash or collateral to the bank. To avoid double counting in the calculation of cash flows, the reuse of collateral to generate new cash flows is avoided. An example of this is the cash collateral held by the bank with other parties for derivatives.

3.4 The following cash outflow rates are applied in the cases below:

• Liquidity requirements related to derivatives and hedging contracts compliant with Shariah rules, and any other contracts resulting from a credit rating downgrade, must be reviewed in detail by banks. In the event of a credit rating downgrade for the bank, these contracts may require early repayment or additional collateral. A cash outflow rate of 100% is applied to the value of collateral up to 3 grades of credit rating downgrade. This applies to the additional requirements for these contracts or cash outflows.
• A cash outflow rate of 20% is applied to cover the probability of change in the value of collateral provided by the bank in derivatives and hedging contracts compliant with Shariah rules, and other transactions, except for first-tier assets. This applies to collateral provided between the two parties in bilateral derivatives contracts, which can be netted. For these purposes, the cash outflow rate is calculated without restrictions on reuse. An example of this is the decrease in value of first-tier assets due to the fluctuation in value of other assets considered as collateral for derivatives.
• A cash outflow rate of 100% is applied to collateral that can be requested by the counterparty at any time in the event of an increase in the required collateral value to cover listed derivatives contracts.
• A cash outflow rate of 100% is applied to the value of required collateral contractually requested by the counterparty after the request.
• A cash outflow rate of 100% is applied to the value of collateral provided by the bank in the event of the possibility of replacing these collateral with non-first-tier assets without the bank's approval.

4.4 A cash outflow rate of 100% is applied to Covered Bonds, Securitization Instruments (Asset-Backed Securities), and Structured Financing Instruments compliant with Shariah rules issued by Islamic banks, maturing within a period of 30 days, assuming the bank cannot refinance.

5.4 A cash outflow rate of 100% is applied to payments due within a period of 30 days for Asset-Backed Commercial Paper and other similar financing instruments (Securities Investment Vehicles). This applies in cases where assets can be withdrawn or financing is needed. This applies when there are contracts similar to derivatives and hedging contracts compliant with Shariah rules, or structures within these facilities that allow for the withdrawal of a portion of the assets provided within these structures, or the specific asset within them. An example is bonds that allow for the withdrawal of the purchased bond in exchange for a request for financing (refinancing).

5. Drawdowns on Committed Credit and Liquidity Facilities:
   1.5 These include commitments (irrevocable) or cancellable commitments, and other potential future financing commitments without conditions for cancellation. Liquidity or other facilities with conditions for cancellation are not included for the purposes of these instructions.

2.4 When calculating the value of the facilities mentioned in the previous paragraph, a deduction is made for any high-quality liquid assets provided by the customer as collateral or to commit to the customer as collateral. It is assumed that the bank has the ability to use the provided assets as collateral, and there is a relationship between the value of the high-quality liquid assets included as collateral and the ability to draw down these facilities. In these cases, the value of assets provided as collateral is deducted from the high-quality liquid assets, unless they are high-quality liquid assets according to these instructions.

3.5 For the purposes of these instructions, listed liquidity facilities represent the unused (undrawn) amount. If the customer is unable to renew this debt in the financial markets, the amount equal to the existing customer debt maturing within 30 days is taken for the calculation of the Liquidity Coverage Ratio. The portion of the debt not maturing during this period is excluded from this treatment. Facilities provided to companies to enhance capital are considered liquidity facilities, not credit facilities. Any undrawn amounts are considered credit facilities.

4.5 Any facilities provided to finance the assets of the same bank, such as private purpose companies or hedging funds, are fully considered as liquidity ceilings. Any other financing structures or facilities financed by the same bank are also considered liquidity ceilings.

5.5 The following cash outflow rates are applied to irrevocable and cancellable liquidity and credit facilities as follows:

• 5% of the undrawn amount of irrevocable and liquidity credit facilities provided to retail customers and small projects, to be withdrawn within a period of 30 days under cancellable conditions.
• 10% of the undrawn amount of irrevocable credit facilities provided to non-financial institutions, governments, central banks, development institutions, and public sector banks.
• 30% of the undrawn amount of irrevocable liquidity facilities provided to non-financial institutions, governments, central banks, development institutions, and public sector banks.
• 40% of the undrawn amount of irrevocable and liquidity credit facilities provided to banks.
• 40% of the undrawn amount of irrevocable credit facilities provided to other financial institutions, including securities firms, insurance companies, trustees, and beneficiaries.
• 100% of the undrawn amount of irrevocable liquidity facilities provided to other financial institutions, including securities firms, insurance companies, trustees, and beneficiaries.
• 100% of the undrawn amount of irrevocable and liquidity credit facilities provided to other companies, including private purpose establishments and companies (within the previous categories).

6. Contractual Obligations to Extend Funds within a 30-Day Period:
   6.5 A cash outflow rate of 100% is applied to any contractual obligation to provide credit facilities to non-financial institutions (other than any other clause in these instructions).

7.5 If the total of all facilities (credit and liquidity facilities and contractual obligations) exceeds 50% of the total inflows from these customers maturing within a period of 30 days, the difference applies at a cash outflow rate of 100%.

6. Other Contingent Funding Obligations:
   1.6 A cash outflow rate of 5% is applied to cancellable and non-binding liquidity and credit facilities, referred to as "non-binding conditional".

2.6 A cash outflow rate of 5% is applied to obligations related to trade financing operations, including guarantees, import and export letters of credit, and acceptances, such as shipping guarantees.

3.6 A cash outflow rate of 5% is applied to non-obligations related to trade financing operations, including guarantees, letters of credit, and acceptances.

4.6 A cash outflow rate of 50% is applied to obligations covering exposed positions, such as customer accounts without collateral from other high-quality assets.

5.6 A cash outflow rate of 5% is applied to any non-contractual obligations not covered by these instructions (above).

6.6 Lending commitments, such as direct financing for export or import to non-financial institutions, are excluded. Banks apply the cash outflow rates shown in paragraph (5.5) above.

7. A cash outflow rate of 100% is applied to any contractual cash outflows maturing within a period of 30 days. This includes cash maturities not covered above, such as operational expenses other than those covered by this standard, like interest payments on liabilities, or distributions, or short-term exposed positions, or non-secured loans to cover outflows, or central bank categories. The bank must clarify the components of this category.

B. Cash Inflows:

1. Banks must only include contractual cash inflows when calculating cash inflows. This includes performing (regular and active) inflows, such as payments of interest and yields on outstanding exposures of Islamic banks, which the bank is certain to collect within the next 30 days. Potential cash inflows resulting from non-recurring operations are included in the net inflows.

2. Banks must monitor concentration in cash inflows from non-retail customers. This is within the framework of continuous concentration ratios in these inflows and counterparties. This is to manage liquidity risk.

3. The amount of inflows that can offset outflows is determined to be no more than 75% of outflows. This requires maintaining a minimum stock of High-Quality Liquid Assets (HQLA) equivalent to at least 25% of the total expected net cash outflows.

4. Secured lending, including reverse repos (Secured Lending), securities borrowing (Securities Borrowing), and reverse repos of financial instruments compliant with Shariah rules for Islamic banks, are collateralized by assets.

1.4 Reverse Repo (Re-purchase agreements)

If renewal is assumed, the borrowing of financial securities against fully secured assets is calculated at the First Level. If not, it is calculated at 0% (Zero).

For reverse repo operations, the net cash inflows are calculated as the value of the collateral (Haircuts) minus the financial securities borrowed or lent against them, relative to the Second Level assets.

For any reverse repo operations involving financial securities lent or borrowed, it is assumed that they are not renewed; therefore, the net cash inflows are recorded in full at their maturity date.

Transactions involving secured lending are subject to the reverse repo operations. In the absence of collateral usage, the covered positions for the inflow rates are as follows:

• First Level assets: 0%
• Second Level assets (Category A): 15%
• Second Level assets (Category B): 50%
• Other secured assets: 50%
• Other collateral (Margin Lending): 100%

In cases where collateral usage is renewed during reverse repo operations, the bank must assume that financial securities borrowed or lent may mature within a 30-day period. If the reverse repo operation continues for more than 30 days, the bank must assume that any financial securities borrowed will not be renewed, resulting in 0% net cash inflows.

Regarding the bank's short positions, in the case of being uncovered by borrowing, the bank must allocate 100% of the outflows from financial securities, either through cash or quality liquid assets to close the short position. This is recorded as other contractual outflows at 100%.

Conversely, if the bank's short positions are covered by financial securities financing, as per paragraph 7.6, the bank must apply an inflow rate of 0%.

5. Committed Facilities

No net cash inflows are assumed for credit limits and liquidity facilities provided by the bank to financial institutions or banks for their own purposes. The inflow rate for these transactions is 0%.

Fourth/Other Inflows by Counterparty

For all other transactions, whether secured or unsecured, the bank must apply the following inflow rates by counterparty categories:

1. Performing Loans: The bank must consider net cash inflows from loans. For revolving credit facilities, it is assumed that only the current loan is performing. For any transaction using the same method as committed facilities (undrawn balances), it is treated as per item 5.5.
2. Loans without a specified maturity: Net cash inflows from loans without a specified maturity date are not included. Consequently, no assumptions apply regarding the timing of these maturities. This excludes the minimum amount of principal payments for loans to banks. This threshold is recorded during the Islamic period, provided these payments are contractually due within 30 days. The ratios specified in paragraphs 1.3 and 2.3 below are applied to these payments as inflows.
3. Net cash inflows from other counterparties: Banks must apply the following rates to net cash inflows from other counterparties maturing within 30 days:
   • From retail and SME customers: 50% of the contractual amount.
   • From other wholesale counterparties (Other Wholesale Inflows): 100% from banks and other financial institutions.
   • From other counterparties: 50% from non-financial institutions, government, and development banks.
4. Operational Deposits: Deposits held at other financial institutions for operational purposes (clearing, custody, and management) are subject to an inflow rate of 0%.
5. Financial securities maturing within 30 days: These are not included in net cash inflows. Securities of High-Quality Liquid Assets (HQLA) from banks and other financial institutions are treated with the same coefficient as net cash inflows. Any net cash inflows from other financial institutions are included within this category at an inflow rate of 100%.

Segregated Accounts: According to the liquidation of balances held in segregated accounts, these regulatory balances must be held for the benefit of trading clients. Securities and financial assets of the First and Second Levels of HQLA are included within the category of High-Quality Liquid Assets, provided that all HQLA requirements specified in paragraphs 1 to 8 of this document are met.

Fourth/Other Inflows

1. Net cash inflows arising from derivatives and hedging contracts compliant with Islamic Sharia: For Islamic banks, net cash inflows from derivatives are subject to an inflow rate of 100%, calculated according to the method specified in paragraph 1.4, item 4.
2. Derivatives and hedging contracts compliant with Islamic Sharia for Islamic banks: If net cash inflows from derivatives are calculated net of any outflows, the bank is contractually obligated to provide collateral or cash. To avoid double counting, contractual obligations that lead to a decrease in the total amount of High-Quality Liquid Assets are not included in the calculation of net cash inflows (inflows or outflows).
3. Other contractual cash flows: Other contractual cash flows are included in the disclosure of other net cash inflows and are subject to an inflow rate of 100%. When calculating, inflows related to the bank's core activity are not considered. For the purpose of calculating the liquidity coverage ratio, net outflows are not considered.

General Provisions

1. Banks must maintain a minimum liquidity coverage ratio on a continuous basis, providing models to the Central Bank as follows:
2. If the ratio is less than 120%, the Central Bank must be provided with weekly liquidity models at the Jordan branches level, accompanied by a statement showing daily values calculated for this purpose.
3. If the ratio is 120% or more, the Central Bank must be provided with monthly liquidity models at the banking group level, covering all days of the month/week.
4. Banks must submit liquidity models at the banking group level to the Central Bank. Stress test scenarios considering situations resulting from the liquidity coverage ratio being within minimum limits must be conducted as part of the bank's risk management process. Each bank must conduct specific stress tests to identify risk factors that could lead to fundamental fluctuations in liquidity positions. Banks must be able to evaluate the required liquidity levels, which may be higher than the minimum limits, resulting from each bank's specific risks.
5. Banks must provide the Jordanian Central Bank with the liquidity coverage ratio for Jordan branches. The requirements apply during a trial period starting from July 31, 2020. It is assumed that banks have taken all necessary procedures to calculate the ratio specified in these instructions by the end of each month. The instructions become mandatory for banks starting from January 1, 2021.
6. Banks must disclose the liquidity coverage criterion in their semi-annual and annual financial statements, comparing them with the average number of operating days in Jordan for each month-end of the banking group and the average of all Jordan branches. The data for Jordan branches must be as of June 30, 2021.
7. Disclosure is made of the values of items before and after applying inflow rates, and the total amount of High-Quality Liquid Assets. Disclosures include the maximum limits for Category B / Second Level assets, after applying any haircuts, and the maximum net outflows after applying the inflow rate for the second level.
8. Banks must provide the Central Bank with a report on unencumbered assets with their semi-annual and annual financial statements. The report must be based on the bank's status at the end of the period covered, including assets that can be included in High-Quality Liquid Assets or used as collateral, and policies and operational procedures at the bank ensuring that only assets can be included that allow for liquidation management for the above purposes at an appropriate cost without obstacles.
9. Banks must provide the Central Bank with a deposit concentration report with their semi-annual and annual financial statements. The report must be based on the bank's status at the end of the period covered, including deposits from customers representing more than 25% of the bank's total assets or 1% of the total customer deposits. The bank must include customer deposits in the report such that deposits are aggregated at the level of each customer.
10. Reference to the Central Bank is made for cases not covered within these instructions.

Qualitative Requirements

In addition to complying with the quantitative requirements in these instructions, banks must comply with the following qualitative requirements, which include governance structures and risk management frameworks within the bank, in accordance with the following minimum liquidity standards:

1. Banks must have approved general strategic policies by the Board of Directors / Management, reflecting the regional banks' policies. These risk management systems must be documented with sufficient procedures to effectively manage liquidity risk, including appropriate time horizons for monitoring, measuring, and controlling liquidity risks.
2. The work requires the adoption of specific methodologies for applying the instructions, including policies and procedures. The Central Bank will clearly evaluate the appropriateness of these policies and methodologies.
3. The bank must determine acceptable liquidity risk levels consistent with the general financial strategy, verifying its funding capacities and distribution of business lines, and approving them by the Board of Management.
4. The bank must prepare a financial emergency plan, approved by the Board of Management or / Management, outlining the policies followed to address liquidity crises, including measures the bank will take to address the decrease in the liquidity coverage ratio within a clear time frame.
5. The policies followed in the bank regarding the pledging of assets must specify the method of pledging assets, including determining procedures and controls for distinguishing between pledged and unpledged assets, and identifying all risks associated with pledging those assets.
6. The bank's systems must enable the extraction of daily reports on liquidity adequacy presented to senior management. These systems must contain at least specific information related to unpledged assets, cash, and flows.
7. Banks continue to comply with the legal liquidity ratios specified in Instruction No. (37) dated 11/11/2007. The work continues under the Liquidity Instructions No. (41) dated 6/23/2008.