Interest Rate Risk in the Banking Book (IRRBB): Local Implementation

Banking Policy Department
Our Ref: B1/15C
B9/187C
S4/7C
14 December 2018
The Chief Executive
All Authorized Institutions
Dear Sir/Madam,
Interest Rate Risk in the Banking Book (IRRBB): Local Implementation I am writing to inform you that, following a comprehensive consultation process with the industry Associations, the Monetary Authority is issuing today a revised version of the Supervisory Policy Manual (SPM) IR-1 with an updated title “Interest Rate Risk in the Banking Book” better reflecting its nature, a new return “MA(BS)12A – Interest Rate Risk in the Banking Book” (IRRBB return), and a revised return “MA(BS)12B – Interest Rate Risk in the Banking Book (Supplementary Information)” that will replace the existing MA(BS)12(i) return. On-line access to the revised SPM module and these two new/revised returns is available on the HKMA’s public (http://www.hkma.gov.hk) and private (http://www.stet.iclnet.hk) websites. As specified in our circular to all Authorized Institutions (AIs) dated 31 August 2018, we have decided to generally exempt AIs incorporated outside Hong Kong from the local IRRBB framework in cases where the parent group of the AIs is not additionally represented in Hong Kong through any locally incorporated AI. These exempted AIs should continue to report their interest rate risk exposures through the existing return of “MA(BS)12 – Interest Rate Risk Exposures”, and are expected to manage their IRRBB together with their parent groups based on the IRRBB standards of their home jurisdictions and in accordance with the BCBS standards. Other AIs that are not exempted from the local IRRBB framework should be ready to measure and report IRRBB exposures using the new standardised framework through MA(BS)12A (and MA(BS)12B as the case may be) by 1 July 2019, with the first report based on data as of 30 June 2019.

2
If you have any questions on the new IRRBB standards or on the implementation of the local IRRBB framework, please feel free to contact Mr Jule Chong at 2878 1611 or jckchong@hkma.gov.hk. Yours faithfully, Daryl Ho Executive Director (Banking Policy) cc: The Chairperson, The Hong Kong Association of Banks The Chairman, The DTC Association FSTB (Attn: Ms Eureka Cheung)

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Enclosure 1 - Return of Interest Rate Risk in the Banking Book (Form MA(BS)12A)

JA SECRET Co. No. MM YY
CAT
(For Official Use Only) und e r t he B ankin g O rdin an c e RETURN OF INTEREST RATE RISK IN THE BANKING BOOK Position of *Local Office(s)/Local Offices and Overseas Branches/Consolidated Basis A s a t . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (last day of the month) Total number of selected currencies being reported (minimum 2): _________ *Delete where inapplicable. Overseas incorporated institutions are required to report the position of their Hong Kong office(s) on ly. Name of Authorized Institution Date of Submission T h e B a n k i n g O r d i n a n c e In fo rmation r eq u est ed in th is retu rn is r eq u ired u n d er s ect ion 6 3 (2 ) of th e Ban k in g Ord in an ce. Th e r etu rn sh ou ld b e su b mitted to th e M on etar y Au th orit y n ot lat er th an six week s aft er th e en d o f each q u arter en d in g 3 1 M arch , 3 0 June, 3 0 Sep temb er an d 3 1 Dec emb er, u n less oth er wis e ad vis ed b y th e M on etar y Au th o rit y. Note: This return is to be prepared in accordance with the completion instructions issued by the Monetary Authority. We c ertif y th at th is retu rn is , to th e b est o f ou r k n o wled g e an d b elief, c or r ect. Chief Accountant Chief Executive Name and telephone number of responsible person who may be contacted by the Monetary Authority in case of any query. Name Telephone Number M A( B S ) 1 2 A ( 6 / 2 0 1 9 )

Currency Code
(For Official Use Only)
Interest Rate Risk in the Banking Book (Form 1) Position of * Banking Book / Trading Book and Banking Book (Note (1)) Currency (Note (2)):____________________ Page ___ of ___

• Delete where inappropriate. (In HK$ Million or equivalent)
  INTEREST RATE-SENSITIVE ASSETS (Note (3))
  TIME BAND

1. Total interest rate-sensitive assets 2. Fixed rate assets 3. Floating rate assets 4. Managed rate assets
   a.
   Total b.
   Residential mortgage loans c.
   Total weighted average yield d.
   Weighted average yield
   (Residential mortgage loans) a.
   Total b.
   Residential mortgage loans c.
   Retail loans subject to prepayment risk d.
   Non-retail loans subject to prepayment risk a.
   Total b.
   Residential mortgage loans a.
   Total b.
   Residential mortgage loans
   2a+3a+4a 2b+3b+4b
   Next day or less (A) % %
   2 days to 1 month (B) % %
   1 to 3 months (C) % %
   3 to 6 months (D) % %
   6 to 9 months (E) % %
   9 to 12 months (F) % %
   1 to 1.5 years (G) % %
   1.5 to 2 years (H) % %
   2 to 3 years (I) % %
   3 to 4 years (J) % %
   4 to 5 years (K) % %
   5 to 6 years (L) % %
   6 to 7 years (M) % %
   7 to 8 years (N) % %
   8 to 9 years (O) % %
   9 to 10 years (P) % %
   10 to 15 years (Q) % %
   15 to 20 years (R) % %
   More than 20 years (S) % %
   Total interest rate-sensitive assets Total (A to S) Total interest rate-sensitive assets (book value) (T) Total non-interest rate-sensitive assets (book value) (U) Total assets (book value) Total (T to U) Notes:
   (1) Locally incorporated Authorized Institutions (AIs) subject to the market risk capital adequacy regime are required to report positions in the banking book only. Other locally incorporated AIs exempted from the market risk capital adequacy regime and overseas incorporated AIs required to complete MA(BS)12A have to report aggregate positions in the banking book and trading book. (2) Report interest rate risk exposures in major currencies as defined in the Completion Instructions, including at least Hong Kong dollar and US dollar (nil returns are required for these two currencies). Use the same return form for each currency. (3) Report items under different time bands based on the earliest interest repricing date as specified in the Completion Instructions.

Currency Code
(For Official Use Only)
Interest Rate Risk in the Banking Book (Form 2) Position of * Banking Book / Trading Book and Banking Book (Note (1)) Currency (Note (2)): __________________ Page ___ of ___

• Delete where inappropriate. (In HK$ Million or equivalent)
  INTEREST RATE-SENSITIVE LIABILITIES (Note (3)) TIME BAND

5. Total interest rate-sensitive liabilities 6. Fixed rate liabilities 7. Floating rate liabilities 8. Managed rate liabilities
   a.
   Total b.
   Deposits c.
   Total weighted average interest costs d.
   Weighted average interest costs
   (Deposits) a.
   Total b.
   Deposits c.
   Retail deposits subject to early redemption risk d.
   Non-retail liabilities subject to early redemption risk a.
   Total b.
   Deposits a.
   Total b.
   Deposits
   6a+7a+8a 6b+7b+8b
   Next day or less (A) % %
   2 days to 1 month (B) % %
   1 to 3 months (C) % %
   3 to 6 months (D) % %
   6 to 9 months (E) % %
   9 to 12 months (F) % %
   1 to 1.5 years (G) % %
   1.5 to 2 years (H) % %
   2 to 3 years (I) % %
   3 to 4 years (J) % %
   4 to 5 years (K) % %
   5 to 6 years (L) % %
   6 to 7 years (M) % %
   7 to 8 years (N) % %
   8 to 9 years (O) % %
   9 to 10 years (P) % %
   10 to 15 years (Q) % %
   15 to 20 years (R) % %
   More than 20 years (S) % %
   Total interest rate-sensitive liabilities Total (A to S) Total interest rate-sensitive liabilities (book value) (T) Total non-interest rate-sensitive liabilities (book value) (U)+(V) Equity capital (book value) (U) Others (book value) (V) Total liabilities (book value) Total (T to V) Notes:
   (1) Locally incorporated Authorized Institutions (AIs) subject to the market risk capital adequacy regime are required to report positions in the banking book only. Other locally incorporated AIs exempted from the market risk capital adequacy regime and overseas incorporated AIs required to complete MA(BS)12A have to report aggregate positions in the banking book and trading book. (2) Report interest rate risk exposures in major currencies as defined in the Completion Instructions, including at least Hong Kong dollar and US dollar (nil returns are required for these two currencies). Use the same return form for each currency. (3) Report items under different time bands based on the earliest interest repricing date as specified in the Completion Instructions.

Currency Code
(For Official Use Only)
Interest Rate Risk in the Banking Book (Form 3) Position of * Banking Book / Trading Book and Banking Book (Note (1)) Currency (Note (2)): __________________ Page ___ of ___

• Delete where inappropriate. (In HK$ Million or equivalent)
  OFF-BALANCE SHEET POSITIONS (Note (3))
  TIME BAND

9. Total 10. Forward foreign
   exchange contracts
10. Interest rate
    swaps
11. Cross currency
    swaps
12. Futures / FRAs 14. Options (Note

4. 15. Others
       a.
       Long b.
       Short a.
       Long b.
       Short a.
       Long b.
       Short a.
       Long b.
       Short a.
       Long b.
       Short a.
       Long b.
       Short a.
       Long b.
       Short
       10a+11a+12a+ 10b+11b+12b+
       13a+14a+15a 13b+14b+15b
       Next day or less (A)
       2 days to 1 month (B)
       1 to 3 months (C)
       3 to 6 months (D)
       6 to 9 months (E)
       9 to 12 months (F)
       1 to 1.5 years (G)
       1.5 to 2 years (H)
       2 to 3 years (I)
       3 to 4 years (J)
       4 to 5 years (K)
       5 to 6 years (L)
       6 to 7 years (M)
       7 to 8 years (N)
       8 to 9 years (O)
       9 to 10 years (P)
       10 to 15 years (Q)
       15 to 20 years (R)
       More than 20 years (S)
       Total Options (T)
       Total off-balance sheet positions Total (A to T) Notes:
       (1) Locally incorporated Authorized Institutions (AIs) subject to the market risk capital adequacy regime are required to report positions in the banking book only. Other locally incorporated AIs exempted from the market risk capital adequacy regime and overseas incorporated AIs required to complete MA(BS)12A have to report aggregate positions in the banking book and trading book. (2) Report interest rate risk exposures in major currencies as defined in the Completion Instructions, including at least Hong Kong dollar and US dollar (nil returns are required for these two currencies). Use the same return form for each currency. (3) Report items under different time bands based on the earliest interest repricing date as specified in the Completion Instructions. (4) Option contracts should be reported from the perspective of the option holder by using the delta equivalent value as outlined in paragraph 39 of the Completion Instructions

Currency Code
(For Official Use Only)
Interest Rate Risk in the Banking Book (Form 4) Position of * Banking Book / Trading Book and Banking Book (Note (1)) Currency (Note (2)): __________________ Page ___ of ___

• Delete where inappropriate. (In HK$ Million or equivalent)
  IMPACT / SCENARIO ANALYSIS
  TIME BAND

Net positions
17.
Earnings perspective
18.
Economic value perspective
19.
Basis risk a.
Excluding coupon cash flows b.
Including coupon cash flows a.
Time band mid￾point
(years) b.
Impact on earnings over the next 12 months
(parallel up) c.
Impact on earnings over the next
12 months
(parallel down) a.
Current
EVE b.
Impact on
EVE
(parallel up) c.
Impact on
EVE
(parallel down) d.
Impact on
EVE
(steepener) e.
Impact on
EVE
(flattener) f.
Impact on
EVE
(short rates up) g.
Impact on
EVE
(short rates down)
Period for which changes in interest rates last Scenario (i) All rates except for fixed and managed rates on interest rate￾sensitive assets are subject to the parallel up shock Scenario (ii) Managed rates on interest rate￾sensitive assets are subject to the parallel down shock while other rates remain unchanged 1a-5a +9a-9b Next day or less (A) 1 month 2 days to 1 month (B) 3 months 1 to 3 months (C) 0.1667 6 months 3 to 6 months (D) 0.375 12 months 6 to 9 months (E) 0.625 9 to 12 months (F) 0.875 1 to 1.5 years (G) 1.25
1.5 to 2 years (H) 1.75
2 to 3 years (I) 2.5
3 to 4 years (J) 3.5
4 to 5 years (K) 4.5
5 to 6 years (L) 5.5
6 to 7 years (M) 6.5
7 to 8 years (N) 7.5
8 to 9 years (O) 8.5
9 to 10 years (P) 9.5
10 to 15 years (Q) 12.5
15 to 20 years (R) 17.5
More than 20 years (S) 25
Options (Note 4) (T)
Total (A to T)
Tier 1 capital at reporting date (book value) (Note (3)) (U) Impact on EVE as % of Tier 1 capital (A to T) / (U) % % % % % % Total positions as % of total on-balance sheet interest rate-sensitive assets or liabilities, whichever is the larger, across all currencies (V) % Notes:
(1) Locally incorporated Authorized Institutions (AIs) subject to the market risk capital adequacy regime are required to report positions in the banking book only. Other locally incorporated AIs exempted from the market risk capital adequacy regime and overseas incorporated AIs required to complete MA(BS)12A have to report aggregate positions in the banking book and trading book. (2) Report interest rate risk exposures in major currencies as defined in the Completion Instructions, including at least Hong Kong dollar and US dollar (nil returns are required for these two currencies). Use the same return form for each currency. (3) Report the Tier 1 capital for all currencies. Overseas incorporated institutions should refer to the Tier 1 capital of their head office. (4) Report the net (fair) value of interest rate options and its changes as outlined in paragraph 43 of the Completion Instructions.

MA(BS)12A /P. 1 (12/2018)
Completion Instructions
Return of Interest Rate Risk in the Banking Book (IRRBB) (Form MA(BS)12A) Introduction

1. This return collects information on the interest rate risk exposures of Authorized
   Institutions (AIs) and will be used to help assess the potential impact of movements in interest rates on institutions’ earnings and economic value.
2. The Completion Instructions contain three sections. Section A describes the general
   reporting requirements. Section B provides definitions and clarification of certain items.
   Section C explains the specific reporting requirements for each item in the return form.
   Section A : General Instructions
3. All locally incorporated AIs as well as AIs incorporated outside Hong Kong that are not
   exempted from the local IRRBB framework 1 are required to complete this return showing their positions as at the last calendar day of each quarter and submit the return to the HKMA not later than six weeks after the end of each quarter. If the submission deadline falls on a public holiday, it will be deferred to the next working day. Locally incorporated institutions should complete the return both on a solo basis, reporting the combined positions of their local and overseas offices (if any), and on a consolidated basis (where applicable), following the scope of consolidation used for the purpose of Capital Adequacy Ratio (CAR) requirements as defined in the Banking (Capital) Rules. Overseas incorporated institutions that are not exempted from the local IRRBB framework are required to report the positions of their Hong Kong operations only.
4. This return captures both on- and off-balance sheet positions. Locally incorporated
   institutions subject to the market risk capital adequacy regime 2 (“non-exempted institutions”) are required to report positions of the banking book only. Other institutions, i.e. those locally incorporated and exempted from the market risk capital adequacy regime (“exempted institutions”) and overseas incorporated AIs that are not exempted from the local IRRBB framework, should report aggregate positions of the banking book and trading book.
5. The interest rate risk positions for each selected currency should be reported separately
   using the same four-page return form. Transactions denominated in gold or composite currencies such as the SDR should be reported as separate currencies. Onshore Renminbi (CNY) and offshore Renminbi (CNH) should be treated as separate currencies 3 . Institutions should report all these positions in aggregate on one return form. As a basic requirement, institutions should complete the return forms for at least two currencies,

1 Details of the exemption are set out in the circular to all AIs dated 31 August 2018. 2 The details of the market risk capital adequacy regime, including the de-minimis exemption criteria and other requirements relevant to exempted institutions, are set out in the Banking (Capital) Rules. 3 Institutions should treat assets or liabilities as denominated in CNH if the associated interest rates are priced (either directly or indirectly) based on offshore reference rates (such as CNH HIBOR), and vice versa.

MA(BS)12A /P. 2 (12/2018) showing their interest rate risk exposures arising from assets and liabilities denominated in Hong Kong dollars and in US dollars respectively (nil returns are required for these two currencies). Institutions which have significant positions in other currencies should report such positions on separate return forms (see paragraph 8 below). The total positions in non￾reported currencies could not exceed 10% of an institution’s total on-balance sheet interest rate-sensitive assets or liabilities, whichever is the larger, in all currencies 4 ,5 ,6 . The submitted forms should be sequentially numbered.
6. All the positions captured by this return should be slotted into the appropriate time bands
according to the earliest interest repricing date (see paragraph 11 below). Each time band includes its upper but not its lower limit, e.g. the “3 to 4 years” time band can be expressed as 3𝑦 < 𝑡 ≤ 4𝑦. For retail fixed rate loans subject to prepayment risk, retail term deposits subject to early redemption risk, and non-maturity deposits (NMDs), institutions should follow the steps in section 5.2 of the Supervisory Policy Manual (SPM) IR-1 “Interest Rate Risk in the Banking Book” to determine the repricing maturities.
7. Unless otherwise stated, notional values should be used for reporting purposes. Amounts
are to be shown to the nearest million, in Hong Kong dollars or Hong Kong dollar equivalent in the case of foreign currencies. The middle market T/T rates ruling as at the close of business on the reporting date should be adopted for conversion of foreign currencies to Hong Kong dollars.
Section B : Definitions and Clarification
8. An institution would be regarded as having a significant position in a currency (“major
currency”) if the sum of its on-balance sheet interest rate-sensitive assets or liabilities, whichever is the larger, in that currency together with its off-balance sheet positions (see paragraph 9 below) in the same currency is more than 5% of its total on-balance sheet interest rate-sensitive assets or liabilities, whichever is the larger, in all currencies6 .
9. The off-balance sheet positions are defined as the sum of the notional principal of each
interest rate-sensitive off-balance sheet contract that is to be included under items 10 to 15 of this return7 . For the avoidance of doubt, a foreign exchange contract which involves the simultaneous buying and selling of two currencies should be regarded as one contract under each of the currencies concerned while a single currency interest rate swap which involves both the receipt and payment of interest in the same currency is counted once in the relevant currency.

4
If an institution’s total positions in non-reported currencies exceed 10% of its total on-balance sheet interest rate-sensitive position (assets or liabilities, whichever is the larger) in all currencies, the institution should report these positions, starting from the largest, until the remaining positions in non-reported currencies fall below 10% of its total on-balance sheet interest rate-sensitive position in all currencies. 5 The 10% limit applies at both the solo level and consolidated level. 6 Positions in a given currency and total on-balance sheet interest rate-sensitive exposures include banking book positions only for non-exempted institutions. For exempted institutions and overseas incorporated institutions that are not exempted from the local IRRBB framework, both the banking book and trading book should be included. 7 Item 14 must be reported as the delta-adjusted notional value. See paragraph 39.

MA(BS)12A /P. 3 (12/2018)
10. All on-balance sheet interest rate-sensitive assets 8
and liabilities 9 are to be classified into fixed rate items, floating rate items and managed rate items. Fixed rate items are those assets and liabilities with interest rates fixed up to their final maturities. Floating rate items are those which will automatically be repriced at the next repricing date during the life of the items in accordance with movements in the relevant “reference rates” (e.g. HIBOR) and include those items for which the interest rates can be varied at the discretion of the counterparty (see also the definition of managed rate that follows). Managed rate items are those variable rate items for which there are no fixed repricing dates, and the interest rates can be adjusted at any time at the discretion of the reporting institution. These would include, for example, non-maturity deposits and mortgage loans priced on the prime rate.
11. In respect of different interest rate-sensitive assets and liabilities, the earliest interest
repricing date means:
(a) for fixed rate items, the maturity dates of the assets or liabilities concerned; in the case of retail fixed rate loans subject to prepayment risk 10 and retail term deposits subject to early redemption risk 11, institutions should follow the methodology in
section 5.2 of the SPM IR-1 “Interest Rate Risk in the Banking Book”;
(b) for floating rate items, the next repricing date of the assets and liabilities concerned; in the case of those items for which the interest rates can be varied at the discretion of the counterparty, the earliest date on which the interest rates could be repriced assuming that the reference rates on which the interest rates are based are adjusted on the business day immediately following the reporting date; and (c) for managed rate items, the earliest date on which it would be possible for the interest rates of the assets and liabilities concerned to be adjusted assuming that the reference rates (e.g. prime or standard savings rate) on which the interest rates are based are adjusted on the business day immediately following the reporting date. For non-maturity deposits 12, institutions also have the option to slot them into different time bands based on the methodology in section 5.2 of the SPM IR-1 “Interest Rate Risk in the Banking Book”.
12. For the purpose of this return, interest rate-sensitive assets and liabilities include those
which do not involve any formal payment of interest but the values of which are sensitive to interest rate movements. Typically, these include financial instruments which are sold at a discount such as Exchange Fund Bills and zero coupon bonds. They should be reported as fixed rate items according to residual maturity.
13. In respect of on-balance sheet interest rate-sensitive assets, institutions should report
under items 1b to 4b a breakdown of the amount of residential mortgage loans pertaining to those items. Residential mortgage loans are loans to professional and private individuals for the purchase of residential properties, as defined under item H5b of the

8
Interest rate-sensitive assets exclude assets that are deducted from Common Equity Tier 1 (CET1) capital, fixed assets such as real estate or intangible assets, and equity exposures. 9 Liabilities exclude CET1 capital under the Basel III framework. 10 These are fixed rate loan products where the economic cost of prepayments cannot be charged, or charged only for prepayments above a certain threshold, to the borrower. 11 These are term deposits that can be withdrawn early at the discretion of the customer. 12 These are deposits without a set maturity date that can be withdrawn at any time without advance notice. Non￾interest-bearing deposits (e.g. deposits in current accounts) are also included in non-maturity deposits.

MA(BS)12A /P. 4 (12/2018)
Quarterly Analysis of Loans and Advances and Provisions (Form MA(BS)2A). Institutions should also report under item 2c and 2d a breakdown of retail loans subject to prepayment risk and non-retail loans subject to prepayment risk, as defined in section
5.2 of the SPM IR-1 “Interest Rate Risk in the Banking Book”. Items 2b, 2c and 2d may
overlap and may not add up to the total (item 2a). In respect of on-balance sheet interest rate-sensitive liabilities, institutions should report under items 5b to 8b a breakdown of the amount of deposits pertaining to those items. Deposits are deposit liabilities due to non-bank customers, as defined under item 6 of Form MA(BS)1. Institutions should also report under item 6c and 6d a breakdown of retail deposits subject to early redemption risk and non-retail liabilities subject to early redemption risk, as defined in section 5.2 of the SPM IR-1 “Interest Rate Risk in the Banking Book”. Items 6b, 6c and 6d may overlap and may not add up to the total (item 6a).
14. In respect of assets or liabilities with embedded automatic interest rate options 13
, institutions should decompose them into embedded automatic interest rate options and underlying assets or liabilities. The embedded automatic interest rate options should be reported under off-balance sheet positions (see paragraph 39 below) and the underlying assets or liabilities should be slotted into the appropriate time bands according to their earliest interest repricing date (see paragraph 11 above).
15. Assets and liabilities which are repayable by instalments rather than by one lump sum at
maturity should be broken down into individual tranches and slotted into the appropriate time bands according to the repricing date of each tranche. For example, a fixed rate loan of HKD 100 million repayable by two semi-annual instalments of HKD 50 million each should be regarded as two separate loans, one repayable in six months and the other in one year, and slotted into the appropriate time bands according to their residual maturities. In the case of a floating rate loan of HKD 100 million repayable by two semi-annual instalments of HKD 50 million each, it should also be regarded as two separate loans and be slotted into the appropriate time bands according to the next repricing date of each tranche.
16. In the case of a managed rate mortgage loan, the entire amount of such loan, less the
amount of principal repayable before the earliest repricing date (see paragraph 11(c) above), should be reported in the appropriate time bands into which the repricing date falls. The principal amount repayable between the reporting date and the earliest repricing date should be slotted into the appropriate time bands according to the payment dates contracted for. For example, consider a mortgage loan of HKD 5 million that can be repriced in two months' time, and HKD 0.02 million of the principal amount is repayable between two days and one month. Then HKD 0.02 million should be reported in row (B) of item 4 and the balance of the loan (i.e. HKD 4.98 million) should be reported in row (C) of the same item.
17. For the purpose of this return, internal deals are transactions between units within the
relevant reporting scope (see paragraph 3 and 4 above) of the institution. Internal deals within the banking book should not be reported. For internal deals between the banking

13 These are explicitly embedded within the contractual terms of an otherwise standard financial instrument where the holder will almost certainly exercise the option if it is in his financial interest to do so. An example of a product with embedded automatic interest rate options is a floating rate mortgage loan with embedded caps and/or floors. Prepayment options on non-retail loans (see paragraph 19) and early redemption options on non￾retail deposits or bonds (see paragraph 26) should also be treated as embedded automatic interest rate options. Options embedded in mortgage loans subject to prime rate (managed rate) caps do not have to be decomposed.

MA(BS)12A /P. 5 (12/2018) book and the trading book, non-exempted institutions should report the banking book leg of the internal deal only if the trading book leg of the deal is recognised under the market risk capital framework in the Banking (Capital) Rules; exempted institutions and overseas incorporated AIs that are not exempted from the local IRRBB framework should not report such internal deals.
Section C : Specific Instructions
18. Item 1 rows (A) to (S) – Total interest rate-sensitive assets
Report the sum of items 2a, 3a and 4a under item 1a of the same row. Regarding residential mortgage loans, report the sum of items 2b, 3b and 4b under item 1b of the same row. Report the sum of items 1a and 1b for all time bands in Total (A to S) under the respective items. Report the weighted average yield of total interest rate-sensitive assets and residential mortgage loans under items 1c and 1d respectively of the same row. All the rates reported should be rounded to 2 decimal places. An example showing the method of calculation is given in Annex 1. Interest rates applicable at the reporting date should be used for the purpose of calculation.
19. Item 2 - Fixed rate assets
Fixed rate assets with no prepayment risk should be slotted into the appropriate time bands according to their residual maturities. Retail fixed rate loans subject to prepayment risk, as defined in section 5.2 of the SPM IR-1 “Interest Rate Risk in the Banking Book”, should be slotted into the appropriate time bands according to the methodology in that section. Where a non-retail loan is subject to prepayment risk, this should be treated as an asset with embedded automatic interest rate options according to paragraph 14.
20. Item 3 - Floating rate assets
These should be slotted into the appropriate time bands according to the next interest rate fixing date. Such assets include, for example, floating rate CDs/notes, and other loans which are automatically priced in accordance with movements in the relevant reference rates. During the period between the final repricing date and final maturity, these assets should continue to be reported as floating rate assets and slotted into the appropriate time bands according to their residual maturities.
21. Item 4 - Managed rate assets
These assets are those for which the interest rate does not change automatically in line with the movement in the reference rate but may be varied at the discretion of the reporting institution. Mortgage loans priced on prime are examples of managed rate assets. These assets should be slotted into the appropriate time bands according to the earliest date on which their interest rates can be adjusted assuming that the reference rate (e.g. prime) is adjusted on the business day immediately following the reporting date.

MA(BS)12A /P. 6 (12/2018)
The optionality in managed rate products, that is floating rate assets subject to prime rate (managed rate) caps, should not be treated as embedded automatic interest rate options. The following is the reporting procedure for floating rate assets subject to prime rate caps:
(i) report the asset as a managed rate asset if the prime rate cap is binding, and as a floating rate asset otherwise. The optionality can be ignored for the purpose of calculating the EVE impact. (ii) when reporting item 19 on basis risk, AIs should take into account the effect of the prime rate cap – see paragraph 44 for details.
22. Item 1 row (T) – Total interest rate-sensitive assets (book value)
Enter the aggregate book value of assets covered in item 1a rows (A) to (S).
23. Item 1 row (U) – Total non-interest rate-sensitive assets (book value)
Enter book value of positions. These include, for example, properties, shares, fixed assets and other receivables which are non-interest rate-sensitive. Properties and fixed assets should be reported net of depreciation. Any portion of interest rate-sensitive capital items (e.g. preference shares, contingent convertible bonds and subordinated debt) not deducted from CET1 capital should be reported under items 2a, 3a, or 4a as appropriate.
24. Item 1 Total (T to U) – Total assets (book value)
Report the sum of total interest rate-sensitive assets (book value) and non-interest rate￾sensitive assets (book value). The amount reported may not necessarily be the same as the amount of “Total liabilities (book value)” reported under item 5 Total (T to V).
25. Item 5 rows (A) to (S) – Total interest rate-sensitive liabilities
Report the sum of items 6a, 7a and 8a under item 5a of the same row. Regarding deposits, report the sum of items 6b, 7b and 8b under item 5b of the same row. Report the sum of items 5a and 5b for all time bands in Total (A to S) under the respective items. Report the weighted average costs of total interest rate-sensitive liabilities and deposits under items 5c and 5d respectively of the same row. All the rates reported should be rounded to 2 decimal places. An example showing the method of calculation is given in
Annex 1. Interest rates applicable at the reporting date should be used for the purpose of
calculation.
26. Item 6 - Fixed rate liabilities
These liabilities, such as fixed rate CDs, money market deposits and term deposits are to be slotted into the appropriate time bands according to their residual maturities provided they are not subject to early redemption risk. Retail term deposits subject to early redemption risk, as defined in section 5.2 of the SPM IR-1 “Interest Rate Risk in the Banking Book”, should be slotted into the appropriate time bands according to the methodology in that
section. Where a non-retail deposit or bond is subject to early redemption risk, this should
be treated as a liability with embedded automatic interest rate options according to paragraph 14.

MA(BS)12A /P. 7 (12/2018)
27. Item 7 - Floating rate liabilities
These liabilities should be slotted into the appropriate time bands according to the next interest rate fixing date. They include, for example, floating rate debt instruments issued by the reporting institution where the interest rate is adjusted automatically on the repricing date in accordance with movements in the relevant reference rates. As with floating rate assets, these liabilities should continue to be classified as floating rate liabilities according to their residual maturities during the period between the final repricing date and the maturity date.
28. Item 8 - Managed rate liabilities
Such liabilities include, for example, deposits for which interest rates can be adjusted at the discretion of the deposit-taking institution. They should be slotted into the appropriate time bands according to the earliest date on which their interest rates can be adjusted assuming that the reference rates (e.g. standard savings rates) are adjusted on the business day immediately following the reporting date. For non-maturity deposits, institutions also have the option to slot them into different time bands based on the methodology in section 5.2 of the SPM IR-1 “Interest Rate Risk in the Banking Book”.
29. Item 5 row (T) – Total interest rate-sensitive liabilities (book value)
Report the aggregate book value of liabilities covered in item 5a rows (A) to (S).
30. Item 5 row (U)+(V) – Total non-interest rate-sensitive liabilities (book value)
Report the sum of equity capital (book value) and other non-interest rate-sensitive liabilities (book value).
31. Item 5 row (U) – Equity capital (book value)
Report the book value. These include the capital, reserves (including retained earnings) and profit and loss accounts of the reporting institution. They should be reported in the base currency of the reporting institution or in the currency in which the capital is denominated. Interest rate-sensitive capital items (e.g. preference shares, contingent convertible bonds and subordinated debt) should be reported under items 6a, 7a or 8a as appropriate.
32. Item 5 row (V) - Others (book value)
Report the book value of other non-interest rate-sensitive liabilities. These include, for example, payables/liabilities which are non-interest rate-sensitive, and loan loss provisions etc. Non-remunerated deposits (e.g. deposits in some current accounts) should be reported as non-maturity deposits (i.e. managed rate liabilities) under interest-rate-sensitive liabilities. General provisions should be reported in the base currency of the reporting institution. Other provisions should be reported in the currency of the underlying assets.

MA(BS)12A /P. 8 (12/2018)
33. Item 5 Total (T to V) - Total liabilities (book value)
Report the sum of total interest rate-sensitive liabilities (book value) and non-interest rate-sensitive liabilities (book value). The amount reported may not necessarily be the same as the amount of “Total assets (book value)” reported under item 1 Total (T to U).
34. Item 9 – Total off-balance sheet positions
Report in item 9a, the sum of all long positions reported under items 10a to 15a of the same row. Report in item 9b, the sum of all short positions reported under items 10b to 15b of the same row.
35. Item 10 - Forward foreign exchange contracts
Forward foreign exchange contracts include unmatured spot contracts that are for value not more than two business days after the transactions are contracted. They should be reported in the relevant page of the return for the currencies concerned and should be slotted into the appropriate time bands according to the residual maturity of the individual contracts. For example, a five-month forward contract to sell Hong Kong dollars for US dollars should be slotted in the return for the Hong Kong currency as a short position under item 10b of row (D) and in the return for the US currency as a long position under item 10a of row (D).
36. Item 11 - Interest rate swaps
An interest rate swap contract obligates an institution to both receive and remit interest payments that are based on the notional amount of the swap contract. Depending on the contract, the institution may receive fixed rate and pay floating rate interest on the notional principal or vice versa. For example, an interest rate swap under which an institution is receiving floating rate interest and paying fixed rate would be treated as a long position in a floating rate instrument of maturity equivalent to the period until the next interest fixing date and a short position in a fixed rate instrument of maturity equivalent to the residual life of the swap. The two positions should then be slotted into the appropriate time bands according to their respective maturities.
37. Item 12 - Cross currency swaps
The reporting treatment of a cross currency swap is similar to that of an interest rate swap, except for the fact that its long and short positions should be reported in the relevant time bands of the currencies concerned.
38. Item 13 - Futures / Forward rate agreements (FRAs)
These should be treated in the same way as a combination of a long and a short position in government securities. The maturity of a future or an FRA would be the period until delivery or exercise of the contract, plus  where applicable  the life of the underlying instruments. For example, a long position in a June three-month interest rate future should be reported in April in the same way as a long position in a government security with a maturity of five months and a short position in a government security with a maturity of two months. Similarly, a seller of a 2 x 5 months FRA should report the transaction as a

MA(BS)12A /P. 9 (12/2018) long position in a government security with a maturity of five months and a short position in a government security with a maturity of two months. In respect of a futures contract, where a range of deliverable instruments may be delivered to fulfil the contract, the institution would be free to elect which deliverable security goes into the maturity ladder.
39. Item 14 - Options
Report option contracts that are related to interest rate instruments and currencies 14 . All bought and sold interest rate options should be reported. Embedded automatic interest rate options that have been decomposed (see paragraph 14) should also be reported here. Option contracts should be reported from the perspective of the option holder by using the delta equivalent value of these contracts, which is calculated by multiplying the principal value of the underlying by the delta or, in the case of options on debt instruments, the market value of such debt instruments by the delta. Such deltas are to be calculated according to the reporting institution's proprietary options pricing model. Bought options should be reported as a long position and sold options should be reported as a short position. Report the total value of options only, i.e. no need to slot cash flows into time bands, under item 14 row (T) Total Options.
40. Item 15 - Others
Report any other debt derivatives and off-balance sheet items the values of which are sensitive to changes in interest rates. This includes forward arrangements for fixed rate loans and fixed rate deposits which have been contracted but remain undrawn as at the reporting date. A forward loan should be reported as a long position at the time the loan matures and as a short position at the time when the loan is to be drawn. For forward deposits, the reporting method is the reverse. Institutions should also include fixed rate loan and fixed rate deposit commitments 15 under this item. Both retail and wholesale commitments should be included. Institutions should estimate the proportion of commitments that will be drawn down and the expected tenor, based on historical data and using a sound and prudent methodology. The estimated cash flows should be reported following the reporting method for forward arrangements for fixed rate loans and fixed rate deposits. Where securities are sold subject to a repurchase agreement, the terms of which transfer substantially all risks and rewards of ownership to the buyer, the transaction should be separately accounted for as an outright sale plus a commitment to repurchase. The securities sold under such an agreement should not be reported in this return but the commitment to repurchase should be reported as a forward purchase of the securities. Where securities are purchased subject to a resale agreement, the terms of which transfer substantially all risks and rewards of ownership to the reporting institution, the transaction should be separately accounted for as an outright purchase plus a

14 Currency options that are sensitive to interest rate movements in two currencies should be reported in the returns for both currencies. When calculating the value of the currency options under interest rate shock scenarios (paragraph 43), institutions only need to consider the direct impact of the new yield curve on the option value but not the indirect impact via changes in foreign exchange rates or the increase in implicit volatility. 15 These are commitments by banks to allow customers to draw down a loan or place a deposit at a fixed rate within a limited future period.

MA(BS)12A /P. 10 (12/2018) commitment to sell back. The securities purchased under such an agreement should be reported as an asset and the commitment to sell back as a forward sale of the securities.
41. Item 16 - Net positions
Item 16a (net positions excluding coupon cash flows) is the net amount of items 1a, 5a, 9a and 9b. Show figures in brackets to indicate a short position in any of the time bands. Item 16b (net positions including coupon cash flows) corresponds to item 16a plus any scheduled coupon cash flows 16 . For fixed rate positions, coupon payments should be slotted into the appropriate time bands according to their payment schedule until the contractual maturity 17. For floating and managed rate positions, coupon payments should be slotted into the appropriate time bands according to their payment schedules until the the next repricing date. Coupon cash flows on assets should be netted against coupon cash flows on liabilities if they are slotted into the same time band. Coupon cash flows from off-balance sheet positions should also be included 18 . Regarding commercial margins and other spread components, institutions have an explicit choice to either include or exclude them in the cash flows 19 . If an institution has chosen to include commercial margins and other spread components in the cash flows, the spread components must be slotted according to their payment schedule until the contractual maturity 20 , irrespective of whether the notional principal has been repriced or not, provided that the notional principal has not yet been repaid and that the spread components do not reprice. Coupon cash flows of non-maturity deposits that are slotted according to behavioural maturity should be slotted like fixed rate loans using (i) the overnight risk-free rate when slotting coupon payments excluding spread components; or (ii) the prevailing non-maturity overnight deposit rate when slotting coupon payments including spread components. The following example illustrates how coupon payments should be slotted for a floating rate loan with a notional amount of HKD 100 million. The loan expires after ten years and the interest rate is HIBOR+3% (payable annually). The current HIBOR rate (which in the example coincides with the risk-free rate) is 2% and the next repricing date is in one year’s time. When including spread components, the total coupon cash flow should be slotted before the next repricing date, and only spread components should be slotted after the next repricing date. When excluding spread components, only the risk-free rate before the next repricing date should be slotted. Coupon cash flows of managed rate positions that are slotted according to the earliest repricing date should be slotted like floating rate positions.

16 These include any interest payment on a tranche of principal that has not yet been repaid or repriced. 17 In the case of cash flows with optionality (see section 5.2 of the SPM IR-1 “Interest Rate Risk in the Banking Book”), the cash flows slotted to each time band should be adjusted to take into account the expected prepayment or early withdrawal behaviour. 18 For interest rate swaps, the coupon cash flows of the floating and fixed rate positions should be slotted in a similar manner to those of floating and fixed rate loans or deposits. For fixed rate loan or deposit commitments, coupon cash flows only need to be slotted when commercial margins and spread components are included. 19 The choice should be consistent across all positions and currencies of the institution. However, for derivative positions, institutions can assume there are no commercial margins and other spread components. 20 In the case of floating rate loans subject to prepayment risk, the spread components slotted to each time band should be adjusted to take into account the expected prepayment behaviour.

MA(BS)12A /P. 11 (12/2018)
Including spread components
Excluding spread components
Next day or less:
2 days to 1 month:
1 to 3 months:
3 to 6 months:
6 to 9 months:
9 to 12 months 5 2
1 to 1.5 years
1.5 to 2 years 3
2 to 3 years 3
3 to 4 years 3
4 to 5 years 3
5 to 6 years 3
6 to 7 years 3
7 to 8 years 3
8 to 9 years 3
9 to 10 years 3
10 to 15 years
15 to 20 years
More than 20 years
The following example illustrates how coupon payments should be slotted for a fixed rate loan with a notional amount of HKD 100 million. The loan is issued today and expires after ten years. The interest rate on the loan, payable annually, is 5%. The current 10-year risk￾free interest rate is 4%. When including spread components, the total coupon cash flow should be slotted for the remaining life of the loan. When excluding spread components, the corresponding risk-free rate from the yield curve at the time the loan was issued, with the same maturity as the original maturity of the loan, should be slotted for the remaining life of the loan.

MA(BS)12A /P. 12 (12/2018)
Including spread components
Excluding spread components
Next day or less:
2 days to 1 month:
1 to 3 months:
3 to 6 months:
6 to 9 months:
9 to 12 months 5 4
1 to 1.5 years
1.5 to 2 years 5 4
2 to 3 years 5 4
3 to 4 years 5 4
4 to 5 years 5 4
5 to 6 years 5 4
6 to 7 years 5 4
7 to 8 years 5 4
8 to 9 years 5 4
9 to 10 years 5 4
10 to 15 years
15 to 20 years
More than 20 years
42. Item 17 – Earnings perspective (impact / scenario analysis)
Institutions should calculate the impact of the parallel up and parallel down scenarios (see
section 5.3 of the SPM IR-1 “Interest Rate Risk in the Banking Book”) on the earnings of
the reporting institution in a period of 12 months. For a given currency 𝑐 and under scenario 𝑖, institutions should calculate the new net position (excluding coupon cash flows), as net positions under interest rate shock scenarios may vary depending on the way cash flows with optionality are slotted21 . The new net position 𝑁𝑖,𝑐 (𝑘) at each time band 𝑘 should be weighted by a time weight (𝑡𝑘 − 1) ∙ ∆𝑟𝑖,𝑐 (𝑘) , where ∆𝑟𝑖,𝑐 (𝑘) denotes the change in interest rates under scenario 𝑖 and 𝑡𝑘 denotes the mid-point of each time band (under item 17a). For example, for a parallel increase of 200 basis points across the yield curve, the time weights of individual time bands should be computed as follows 22 :

21 The net positions should be consistent with those used for economic value impact – see section 5.2 of the SPM IR-1 “Interest Rate Risk in the Banking Book”. Notable exceptions are products with embedded automatic interest rate options. Given that option positions are not slotted into individual time bands (see item 14), they are omitted for simplicity in the 1-year horizon investigated in the ΔNII calculation. AIs that wish embedded automatic interest rate options to be reflected in the ΔNII calculations have the option to adjust repricing cash flows. For example, if an AI has issued callable bonds, an interest rate shock scenario may lead the AI to call the bond. In this circumstance, the AI has the option to slot the bond on the next call date for the ΔNII calculation (as opposed to the contractual maturity date for the ΔEVE calculation). Note that AIs which choose to follow this option must do so consistently for their portfolios and over time. Also note that, in case the AI chooses to follow the option, all positions reported on Forms 1 to 3 of the IRRBB Return as well as item 16 should reflect those positions used by the AI for the calculation of the ΔEVE. 22 Institutions may also use 365 days to calculate the time weights.

MA(BS)12A /P. 13 (12/2018)
Next day or less: (
1
360 − 1) ∙ 2% = −1.994%
2 days to 1 month: (
15
360 − 1) ∙ 2% = −1.917%
1 to 3 months: (
60
360 − 1) ∙ 2% = −1.667%
3 to 6 months: (
135
360 − 1) ∙ 2% = −1.250%
6 to 9 months: (
225
360 − 1) ∙ 2% = −0.750%
9 to 12 months (
315
360 − 1) ∙ 2% = −0.250%
Report the weighted net position 𝑁𝑖,𝑐
(𝑘) ∙ (𝑡𝑘 − 1) ∙ ∆𝑟𝑖,𝑐
(𝑘) under items 17b and 17c of each time band. The total impact on earnings over the next 12 months should be calculated by summing the weighted positions in different time bands up to 12 months, as reported under item 17. The amounts reported, with short positions shown in brackets, should be rounded to the nearest HKD million without decimal place.
43. Item 18 – Economic value perspective (impact / scenario analysis)
Institutions should calculate the impact of the six interest rate shock scenarios (see section
5.3 of the SPM IR-1 “Interest Rate Risk in the Banking Book”) on economic value of
equity (EVE). For each given currency 𝑐 , the impact of the shock is calculated as follows:
 identify the current risk-free rate23, denoted by 𝑟0,𝑐 (𝑘), at the mid-point of each time band 𝑘;  report under item 18a the current EVE (𝐸0,𝑐 (𝑘)) for each time band 𝑘 (with mid￾point 𝑡𝑘 under item 17a), by multiplying the net position 𝐶𝐹0,𝑐 (𝑘) reported under item 16b by a continuously compounded discount factor24,25 . 𝐸0,𝑐 (𝑘) = 𝐶𝐹0,𝑐 (𝑘) ∙ 𝑒𝑥𝑝(−𝑟0,𝑐 (𝑘) ∙ 𝑡𝑘);  report in row (T) under item 18a the net value of interest rate options (the fair value of all option positions given the yield curve on the valuation date has to be calculated according to the reporting institution’s proprietary options pricing model).

23 This may be determined, for example, based on a secured interest rate swap curve. Institutions may include commercial margins and other spread components in the risk-free rate only if they have been included in the cash flows in item 16 (see paragraph 41). 24 For the purpose of calculating the EVE impact only, institutions also have the option to slot cash flows into time band mid-points (under item 17a) rather than time bands. This option requires splitting up notional repricing cash flows between two adjacent time band mid-points. Institutions using this option should re￾calculate the net positions on this basis and then discount them using the relevant interest rates. 25 For the purpose of calculating the EVE impact only, institutions may also discount each cash flow using the interest rate that corresponds exactly to the timing of the cash flow, rather than slotting them into time bands.

MA(BS)12A /P. 14 (12/2018)
 for each scenario 𝑖, identify the new interest rate 𝑟𝑖,𝑐 (𝑘) at the mid-point of each time band 𝑘, calculate the new net position 𝐶𝐹𝑖,𝑐 (𝑘) (as net positions under interest rate shock scenarios may vary depending on the way cash flows with optionality are slotted), and calculate the impact on EVE as ∆𝐸𝑖,𝑐 (𝑘) = 𝐸0,𝑐 (𝑘) − 𝐶𝐹𝑖,𝑐 (𝑘) ∙ 𝑒𝑥𝑝(−𝑟𝑖,𝑐 (𝑘) ∙ 𝑡𝑘);  report the amount (with short positions shown in brackets) under item 18b to 18g of each time band and round the amount to the nearest HKD million without decimal place;  calculate the net (fair) value of interest rate options 𝑉𝐴𝑂𝑖,𝑐 using the new yield curve under each interest rate shock scenario 𝑖, and assuming a relative increase in the implicit volatility of 25%;  report in row (T) under item 18b to 18g the interest rate option risk measure 𝐾𝐴𝑂𝑖,𝑐 under each scenario 𝑖, calculated as 𝐾𝐴𝑂𝑖,𝑐 = 𝑉𝐴𝑂0,𝑐 − 𝑉𝐴𝑂𝑖,𝑐 , where 𝑉𝐴𝑂0,𝑐 denotes the current net value of interest rate options (as reported in row (T) under item 18a);  report the sum of the positions in Total (A to T) under item 18; report zero if the sum is less than zero, i.e. ∆𝐸𝑖,𝑐 = 𝑚𝑎𝑥(0, ∑ ∆𝐸𝑖,𝑐 (𝑘) 𝑘 + 𝐾𝐴𝑂𝑖,𝑐);  report the Tier 1 capital of the institution at the reporting date in row (U) under item 18. The amount reported should be consistent with the amount of “Tier 1 Capital After Deductions” reported in the Form MA(BS)3. For overseas incorporated AIs that are not exempted from the local IRRBB framework, they should report the Tier 1 capital of their head office; and  express the impact on EVE as a percentage of Tier 1 capital under item 18.  report the total interest rate-sensitive position in the given currency as a percentage of total on-balance sheet interest rate-sensitive position across all currencies (as defined in paragraph 8), in row (V) under item 18.
44. Item 19 – Basis risk (impact / scenario analysis)
Impact on earnings of an institution due to basis risk is measured by the following two scenarios:
(i) all rates except for fixed and managed rates on interest rate-sensitive assets are subject to the parallel up shock; and (ii) managed rates on interest rate-sensitive assets are subject to the parallel down shock while other rates remain unchanged.

MA(BS)12A /P. 15 (12/2018)
The impact on earnings is calculated under item 19 by assuming that the changes in interest rates last for different periods of time (one month, three months, six months and 12 months) under both scenarios. Both on- and off-balance sheet positions should be included. The calculation is similar to that under the earnings perspective (see paragraph 42 above) except that different types of interest rates are subject to different changes. Nevertheless, for floating rate assets that are subject to prime rate (managed rate) caps, they should be re-classified as managed rate assets if the cap becomes binding under scenario (i) for the purpose of calculating the impact on earnings due to basis risk. For example, assume an institution has a HKD 1 billion floating rate mortgage loan priced at HIBOR+200bps, to be repriced in 2 months, subject to a prime rate cap. The current HIBOR rate is 0.5% and the prime rate is at 4%. Under scenario (i), the prime rate cap on the mortgage loan would become binding. Assuming the scenario lasts for 3 months (assuming that all positions are repriced at the mid-point of each time band), the impact on earnings is an increase of HKD 1.25 million, calculated as:
1000 ∙
(60 − 90)
360
∙ (min[4%, 0.5% + 2% + 2%] − 0.5% − 2%) = −1.25 Under scenario (ii), if an institution has total managed rate assets of HKD 50 million and HKD 950 million respectively in the second (2 days to 1 month) and the third (1 to 3 months) time bands, a drop of 200 basis points in managed rates for three months (assuming 90 days) would reduce interest income from the assets by approximately HKD 1.791 million during the period. The computation (assuming that all positions are repriced at the mid-point of each time band) is as follows:
Time Band Time Weight Position Impact on earnings (for a drop of 90 days) HKD million HKD million Next day or less: (1 − 90) 360 ∙ −2% = 0.49 0 0 2 days to 1 month: (15 − 90) 360 ∙ −2% = 0.417% 50 0.208 1 to 3 months: (60 − 90) 360 ∙ −2% = 0.167% 950 1.583 3 to 6 months: NA 0 NA 6 to 12 months: NA 0 NA Total = 1.791 Hong Kong Monetary Authority December 2018

MA(BS)12A /P. 16 (12/2018)
Annex 1
Computation of weighted average yield / weighted average interest costs The following is an example showing the method of calculating the weighted average yield / interest costs: (Please note that the rates used are for illustration only. Reporting institutions should use the actual rates that are applicable to their interest rate-sensitive assets and liabilities.) Items 1a, 1b / Items 5a, 5b Amount reported Of which Row (A) 100 20 are priced at 2% per month and 80 are priced at 8% per annum Row (B) 350 200 are priced at 10% and 150 are priced at 9% per annum Row (C) 50 50 are priced at 12% per annum Row (D) 0 Row (E) 0 Row (F) 0 Row (G) 0 Row (H) 0 Row (I) 500 200 are priced at 13% and 300 are priced at 14% per annum Row (J) 0 Row (K) 0 Row (L) 0 Row (M) 0 Row (N) 0 Row (O) 0 Row (P) 0 Row (Q) 0 Row (R) 0 Row (S) 0 Total (A to S) 1000 Weighted average yield / interest costs to be reported in items 1c, 1d / items 5c, 5d are calculated as follows:
(i) for row (A)
(20 × ((1 + 2%)
12 − 1) + 80 × 8%) ÷ 100 × 100% = 11.20%
(ii) for row (B)
(200 × 10% + 150 × 9%) ÷ 350 × 100% = 9.57%
(iii) for row (C)
(50 × 12%) ÷ 50 × 100% = 12.00%
(iv) for row (I)
(200 × 13% + 300 × 14%) ÷ 500 × 100% = 13.60%

---

Enclosure 2 - Return of Interest Rate Risk in the Banking Book (Supplementary Information) (Form MA(BS)12B)

JB SECRET Co. No. MM YY
CAT
(For Official Use Only) und e r t he B ankin g O rdin an c e RETURN OF INTEREST RATE RISK IN THE BANKING BOOK (SUPPLEMENTARY INFORMATION) Position of *Local Office(s)/Local Offices and Overseas Branches A s a t . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (last day of the month) *Delete where inapplicable. Overseas incorporated institutions are required to report the position of their Hong Kong office(s) only. Name of Authorized Institution Date of Submission T h e B a n k i n g O r d i n a n c e In fo rmation r eq u est ed in th is retu rn is r eq u ired u n d er s ect ion 6 3 (2 ) of th e Ban k in g Ord in an ce. Th e r etu rn sh ou ld b e su b mitted to th e M on eta r y Au th orit y n ot later t h an 1 4 d ays a fter th e last d a y o f each calen d ar mon th , u n les s oth er wis e ad vi sed b y th e M on etar y Au th orit y. Note: This return is to be prepared in accordance with the completion instruction s issued by the Monetary Authority. We c ertif y th at th is retu rn is , to th e b est o f ou r k n o wled g e an d b elief, c or r ect. Chief Accountant Chief Executive Name and telephone number of responsible person who may be contacted by the Monetary Authority in case of any query. Name Telephone Number M A( B S ) 1 2 B ( 6 / 2 0 1 9 )

Interest Rate Risk in the Banking Book (Supplementary Information) Position of * Banking Book / Trading Book and Banking Book Currency: Hong Kong Dollar

• Delete where inappropriate. (In HK$ Million)
  INTEREST RATE-SENSITIVE LIABILITIES (Note (1))

1. Total interest rate-sensitive liabilities
   TIME BAND a.
   Total b.
   Deposits c.
   Total weighted average interest costs d.
   Weighted average interest costs
   (Deposits)
   Next day or less (A) % %
   2 to 7 days (B) % %
   8 days to 1 month (C) % %
   1 to 3 months (D) % %
   3 to 6 months (E) % %
   6 to 12 months (F) % %
   1 to 2 years (G) % %
   2 to 3 years (H) % %
   3 to 4 years (I) % %
   4 to 5 years (J) % %
   5 to 7 years (K) % %
   7 to 10 years (L) % %
   10 to 15 years (M) % %
   15 to 20 years (N) % %
   More than 20 years (O) % %
   Total interest rate-sensitive liabilities Total (A to O) % % Total interest rate-sensitive liabilities (book value) (P) Total non-interest rate-sensitive liabilities (book value) (Q)+(R) Equity capital (book value) (Q) Others (book value) (R) Total liabilities (book value) Total (P to R) Note:
   (1) Authorized institutions can choose to report either detailed statistics or the aggregate figures. Please refer to item 14 of Specific Instructions under Section C of the Completion Instructions for details. MA(BS)12B

MA(BS)12B /P. 1 (12/2018)
Completion Instructions
Return of Interest Rate Risk in the Banking Book (IRRBB) (Supplementary Information) (Form MA(BS)12B) Introduction

1. This return collects supplementary information on the weighted average interest costs of
   interest rate-sensitive liabilities denominated in Hong Kong dollars of authorized institutions on a monthly basis.
2. The information collected from this return will be used for the compilation of the monthly
   composite interest rate for Hong Kong, which aims to provide an overall picture of the average interest cost of funds in the banking sector, and its changes over time.
3. The Completion Instructions contain three sections. Section A describes the general
   reporting requirements. Section B provides definitions and clarification of certain items.
   Section C explains the specific reporting requirements for each item in the return form.
   Section A : General Instructions
4. Selected Authorized Institutions (AIs) 1
   are required to complete this return showing their positions as at the last calendar day of each month and submit the return to the HKMA not later than 14 days after the end of each month. If the submission deadline falls on a public holiday, it will be deferred to the next working day. Locally incorporated institutions should complete the return on a solo basis. They may choose to report, consistently, either the positions of their local offices or the combined positions of their local and overseas offices. Overseas incorporated institutions are required to report the positions of their Hong Kong operations only.
5. This return captures on-balance sheet liabilities. Locally incorporated institutions subject
   to the market risk capital adequacy regime 2
   (“non-exempted institutions”) are required to report positions of the banking book only. Other institutions, i.e. those locally incorporated and exempted from the market risk capital adequacy regime (“exempted institutions”) and overseas incorporated AIs not exempted from the local IRRBB framework, should report aggregate positions of the banking book and trading book.
6. All the positions captured by this return should be slotted into the appropriate time bands
   according to the earliest interest repricing date (see paragraph 8 below).
7. Unless otherwise stated, notional values should be used for reporting purposes. Amounts
   are to be shown to the nearest million, in Hong Kong dollars.

1
IRRBB-Reporting AIs (see paragraph 4.4.1 in SPM IR-1 “Interest Rate Risk in the Banking Book” Version 2 of 14 December 2018) that before June 2019 were required to report MA(BS)12(i) are automatically included. Other IRRBB-Reporting AIs may be included by notification. 2 The details of the market risk capital adequacy regime, including the de-minimis exemption criteria and other requirements relevant to exempted institutions, are set out in the Banking (Capital) Rules.

MA(BS)12B /P. 2 (12/2018)
Section B : Definitions and Clarification
8. In respect of different interest rate-sensitive liabilities, the earliest interest repricing date is
used according to the instructions in paragraph 11 of the Completion Instructions of Form MA(BS)12A. The methodology for slotting of cash flows should be consistent between this return and Form MA(BS)12A.
9. For the purpose of this return, interest rate-sensitive liabilities include those which do not
involve any formal payment of interest but the values of which are sensitive to interest rate movements. Typically, these include financial instruments which are sold at a discount such as Exchange Fund Bills and zero coupon bonds.
10. Institutions should report under item 1b the amount of deposits. Deposits are deposit
liabilities due to non-bank customers, as defined under item 6 of the Return of Assets and Liabilities (Form MA(BS)1).
11. In respect of liabilities with embedded options, institutions should decompose them into
embedded options and underlying liabilities according to the instructions in paragraph 14 of the Completion Instructions of Form MA(BS)12A. The underlying liabilities should be slotted into the appropriate time bands according to their earliest interest repricing date (see paragraph 8 above). The embedded options should not be reported.
12. Liabilities which are repayable by instalments rather than by one lump sum at maturity
should be broken down into individual tranches and slotted into the appropriate time bands according to the repricing date of each tranche.
13. For the purpose of this return, internal deals are transactions between units within the
relevant reporting scope (see paragraphs 4 and 5 above) of the institution. Internal deals within the banking book should not be reported. The reporting method for internal deals should be consistent between this return and Form MA(BS)12A.
Section C : Specific Instructions
14. Item 1 rows (A) to (O) and row Total (A to O) – Total interest rate-sensitive liabilities
Report items 1a and 1b for all time bands in row (A) to row (O) and row Total (A to O) under the respective items. Report the weighted average costs of total interest rate-sensitive liabilities and deposits under items 1c and 1d respectively of the same row for rows (A) to (O). All the rates reported should be rounded to 2 decimal places. An example showing the method of calculation is given at Annex 1. Interest rates applicable at the reporting date should be used for the purpose of calculation. The institution does not need to report items 1c and 1d for row Total (A to O). Alternatively, the institution may choose to report the total notional value of items 1a and 1b for row Total (A to O) and the total weighted average costs for all interest rate-sensitive liabilities and the weighted average costs of deposits of items 1c and 1d respectively for row Total (A to O), instead of reporting the figures of items 1a, 1b, 1c and 1d for rows (A) to (O).

MA(BS)12B /P. 3 (12/2018)
15. Item 1 row (P) - Total interest rate-sensitive liabilities (book value)
Enter the aggregate book value of liabilities covered in item 1a rows (A) to (O).
16. Item 1 row (Q)+(R) – Total non-interest rate-sensitive liabilities (book value)
Report the sum of equity capital and other non-interest rate-sensitive liabilities in book value.
17. Item 1 row (Q) – Equity capital (book value)
These include the capital, reserves (including retained earnings) and profit and loss accounts of the reporting institution and should be reported in the same manner as the reporting of these items in Form MA(BS)12A. Interest rate-sensitive capital items (e.g. preference shares and subordinated debts) should be reported under interest rate-sensitive liabilities as appropriate.
18. Item 1 row (R) - Others (book value)
These include, for example, payables/liabilities which are non-interest rate-sensitive, and loan loss provisions etc. Non-remunerated deposits (e.g. deposits in some current accounts) should be reported as non-maturity deposits under interest rate-sensitive liabilities, in the same manner as the reporting of these items in Form MA(BS)12A. General provisions and other provisions should be reported in the same manner as the reporting of these items in Form MA(BS)12A.
19. Item 1 Total (P to R) - Total liabilities (book value)
Report the sum of total interest rate-sensitive and non-interest rate-sensitive liabilities (book values). Locally incorporated and exempted institutions without overseas branches and overseas incorporated AIs not exempted from the local IRRBB framework should note that the amounts reported under this item, in respect of the positions for Hong Kong dollars, should be consistent with the sum of the amounts of “Total liabilities” and “Provisions” reported under the relevant columns of item 11 and item 24 of Form MA(BS)1 respectively. Hong Kong Monetary Authority December 2018

MA(BS)12B /P. 4 (12/2018)
Annex 1
Computation of weighted average interest costs The following is an example showing the method of calculating the weighted average interest costs:
(Please note that the rates used are for illustration only. Reporting institutions should use the actual rates that are applicable to their interest rate-sensitive liabilities.) Items 1a, 1b Amount reported Of which Row (A) 100 20 are priced at 2% per month and 80 are priced at 8% per annum Row (B) 350 200 are priced at 10% and 150 are priced at 9% per annum Row (C) 50 50 are priced at 12% per annum Row (D) 0 Row (E) 0 Row (F) 0 Row (G) 0 Row (H) 0 Row (I) 500 200 are priced at 13% and 300 are priced at 14% per annum Row (J) 0 Row (K) 0 Row (L) 0 Row (M) 0 Row (N) 0 Row (O) 0 Total (A to O) 1000 Weighted average interest costs to be reported in items 1c and 1d are calculated as follows:
(i) for row (A)
(20 × ((1 + 2%)
12 − 1) + 80 × 8%) ÷ 100 × 100% = 11.76%
(ii) for row (B)
(200 × 10% + 150 × 9%) ÷ 350 × 100% = 9.57%
(iii) for row (C)
(50 × 12%) ÷ 50 × 100% = 12.00%
(iv) for row (I)
(200 × 13% + 300 × 14%) ÷ 500 × 100% = 13.60%
(v) for row Total (A to O)
(20 × ((1 + 2%)
12 − 1) + 80 × 8% + 200 × 10% + 150 × 9% + 50 × 12% + 200 × 13% + 300 × 14%) ÷ 1000 × 100% = 11.93%

---

Enclosure 3 - Revised Return of Interest Rate Risk Exposures (Form MA(BS)12)

J Co. No. M M Y Y CAT
(For Official Use Only)
SECRET under the Banking Ordinance

RETURN OF INTEREST RATE RISK EXPOSURES

Position of *Local Office(s) /Local Offices and Overseas Branches
As at .............................................
(l ast day of the quarter)
Total number of selected currencies being reported (minimum 2):
*Delete where inapplicable. Overseas incorporated institutions are required to report the position of their Hong Kong office(s) only. The Banking Ordinance Infor mation requested in this return is required under section 63(2) of the Banking Ordinance. The return should be submitted to the Monetary Authority not later than one month after the end of each quarter ending 31 March, 30 June, 30 September and 31 December, unless ot herwise advised by the Monetary Authority. Note: This return is to be prepared in accordance with the completion instructions issued by the Monetary Authority. We certify that this return is, to the best of our knowledge and belief, correct. Chief Accountant Chief Executive Name and telephone number of responsible person who may be contacted by the Monetary Authority in case of any query. Name Telephone Number MA (BS)12(Rev. 12/2003)

Currency Code
(For Official Use Only)
Interest Rate Risk Exposures
Position of * Banking Book / Trading Book and Banking Book (Note (1)) Currency (Note (2)): Page of

• Delete where inappropriate. (In HK$ Million or equivalent)
  INTEREST BEARING ASSETS (Note (3))
  TIME BAND

1. Total interest bearing assets 2. Fixed rate assets 3. Variable rate assets 4. Managed rate assets
   a.
   Total
   2a+3a+4a b.
   Residential mortgage loans
   2b+3b+4b c.
   Total weighted average yield d.
   Weighted average yield
   (Residential mortgage loans) a.
   Total b.
   Residential mortgage loans a.
   Total b.
   Residential mortgage loans a.
   Total b.
   Residential mortgage loans
   Next day or less (A) % %
   2 to 7 days (B) % %
   8 days to 1 month (C) % %
   1 to 3 months (D) % %
   3 to 6 months (E) % %
   6 to 12 months (F) % %
   1 to 2 years (G) % %
   2 to 3 years (H) % %
   3 to 4 years (I) % %
   4 to 5 years (J) % %
   5 to 7 years (K) % %
   7 to 10 years (L) % %
   10 to 15 years (M) % %
   15 to 20 years (N) % %
   More than 20 years (O) % %
   Total book value Total (A to O)
   Non-interest bearing assets (P)
   Total assets Total (A to P)
   Notes:
   (1) � Locally incorporated authorized institutions subject to the market risk capital adequacy regime are required to report positions in the banking book only. Other locally incorporated institutions exempted from the market risk capital adequacy regime and overseas incorporated institutions are required to report aggregate positions in the banking book and trading book. (2) � Report interest rate risk exposures in major currencies as defined in the Completion Instructions, including at least Hong Kong dollar and US dollar (nil returns are required for these two currencies). Use the same return form for each currency. (3) � Report items under different time bands based on the earliest interest repricing date as specified in the Completion Instructions. Subject to the HKMA's approval, reporting based on behavioural maturity may be allowed for authorized institutions that can meet the criteria set out in the Completion Instructions.

Currency Code
(For Official Use Only)
Interest Rate Risk Exposures
Position of * Banking Book / Trading Book and Banking Book (Note (1)) Currency (Note (2)): Page of

• Delete where inappropriate. (In HK$ Million or equivalent)
  INTEREST BEARING LIABILITIES (Note (3))
  TIME BAND

5. Total interest bearing liabilities 6. Fixed rate liabilities 7. Variable rate liabilities 8. Managed rate liabilities
   a.
   Total
   6a+7a+8a b.
   Deposits
   6b+7b+8b c.
   Total weighted average interest costs d.
   Weighted average interest costs
   (Deposits) a.
   Total b.
   Deposits a.
   Total b.
   Deposits a.
   Total b.
   Deposits
   Next day or less (A) % %
   2 to 7 days (B) % %
   8 days to 1 month (C) % %
   1 to 3 months (D) % %
   3 to 6 months (E) % %
   6 to 12 months (F) % %
   1 to 2 years (G) % %
   2 to 3 years (H) % %
   3 to 4 years (I) % %
   4 to 5 years (J) % %
   5 to 7 years (K) % %
   7 to 10 years (L) % %
   10 to 15 years (M) % %
   15 to 20 years (N) % %
   More than 20 years (O) % %
   Total book value Total (A to O)
   Non-interest bearing liabilities (P)+(Q)
   Equity capital (P)
   Others (Q)
   Total liabilities Total (A to Q)
   Notes:
   (1) � Locally incorporated authorized institutions subject to the market risk capital adequacy regime are required to report positions in the banking book only. Other locally incorporated institutions exempted from the market risk capital adequacy regime and overseas incorporated institutions are required to report aggregate positions in the banking book and trading book. (2) � Report interest rate risk exposures in major currencies as defined in the Completion Instructions, including at least Hong Kong dollar and US dollar (nil returns are required for these two currencies). Use the same return form for each currency. (3) � Report items under different time bands based on the earliest interest repricing date as specified in the Completion Instructions. Subject to the HKMA's approval, reporting based on behavioural maturity may be allowed for authorized institutions that can meet the criteria set out in the Completion Instructions.

Currency Code
(For Official Use Only)
Interest Rate Risk Exposures
Position of * Banking Book / Trading Book and Banking Book (Note (1)) Currency (Note (2)): Page of

• Delete where inappropriate. (In HK$ Million or equivalent)
  OFF-BALANCE SHEET POSITIONS (Note (3))
  TIME BAND

9. Total 10. Forward foreign
   exchange contracts
10. Interest rate
    swaps
11. Cross currency
    swaps
12. Futures / FRAs 14. Options 15. Others
    a.
    Long
    10a+11a+12a+
    13a+14a+15a b.
    Short
    10b+11b+12b+
    13b+14b+15b a.
    Long b.
    Short a.
    Long b.
    Short a.
    Long b.
    Short a.
    Long b.
    Short a.
    Long b.
    Short a.
    Long b.
    Short
    Next day or less (A)
    2 to 7 days (B)
    8 days to 1 month (C)
    1 to 3 months (D)
    3 to 6 months (E)
    6 to 12 months (F)
    1 to 2 years (G)
    2 to 3 years (H)
    3 to 4 years (I)
    4 to 5 years (J)
    5 to 7 years (K)
    7 to 10 years (L)
    10 to 15 years (M)
    15 to 20 years (N)
    More than 20 years (O)
    Total off-balance sheet positions Total (A to O) Notes:
    (1) � Locally incorporated authorized institutions subject to the market risk capital adequacy regime are required to report positions in the banking book only. Other locally incorporated institutions exempted from the market risk capital adequacy regime and overseas incorporated institutions are required to report aggregate positions in the banking book and trading book. (2) � Report interest rate risk exposures in major currencies as defined in the Completion Instructions, including at least Hong Kong dollar and US dollar (nil returns are required for these two currencies). Use the same return form for each currency. (3) � Report items under different time bands based on the earliest interest repricing date as specified in the Completion Instructions. Subject to the HKMA's approval, reporting based on behavioural maturity may be allowed for authorized institutions that can meet the criteria set out in the Completion Instructions.

Currency Code
(For Official Use Only)
Interest Rate Risk Exposures
Position of * Banking Book / Trading Book and Banking Book (Note (1)) Currency (Note (2)): Page of

• Delete where inappropriate. (In HK$ Million or equivalent)
  IMPACT / SCENARIO ANALYSIS
  TIME BAND

Net positions
1a-5a
+9a-9b
17.
Earnings perspective
18.
Economic value perspective
19.
Basis risk (for both on- and off-balance sheet positions) a.
Time weight on earnings b.
Impact on earnings over the next 12 months if interest rates rise by 200 basis points (rounded to the nearest HK$ Million) 16 x 17a a. Weighting factor for standardised interest rate shock b. Impact on economic value if interest rates rise by 200 basis points (rounded to the nearest HK$ Million) 16 x 18a Period for which changes in interest rates last Impact on earnings Scenario (i) All rates except for fixed and managed rates on interest bearing assets rise by 200 basis points (rounded to the nearest HK$ Million) Scenario (ii) Managed rates on interest bearing assets drop by 200 basis points while other rates remain unchanged (rounded to the nearest HK$ Million) Next day or less (A) 1.997% 0.00% 1 month 2 to 7 days (B) 1.975% 0.02% 3 months 8 days to 1 month (C) 1.896% 0.10% 6 months 1 to 3 months (D) 1.667% 0.32% 12 months 3 to 6 months (E) 1.250% 0.72% 6 to 12 months (F) 0.500% 1.43% 1 to 2 years (G) 2.77% 2 to 3 years (H) 4.49% 3 to 4 years (I) 6.14% 4 to 5 years (J) 7.71% 5 to 7 years (K) 10.15% 7 to 10 years (L) 13.26% 10 to 15 years (M) 17.84% 15 to 20 years (N) 22.43% More than 20 years (O) 26.03% Total (A to F) Total (A to O) Total capital base at reporting date (Note (3)) (P) Impact on economic value as % of total capital base [Total (A to O)] / (P) % Notes:
(1) Locally incorporated authorized institutions subject to the market risk capital adequacy regime are required to report positions in the banking book only. Other locally incorporated institutions exempted from the market risk capital adequacy regime and overseas incorporated institutions are required to report aggregate positions in the banking book and trading book. (2) Report interest rate risk exposures in major currencies as defined in the Completion Instructions, including at least Hong Kong dollar and US dollar (nil returns are required for these two currencies). Use the same return form for each currency. (3) Report the total capital base for all currencies. Overseas incorporated institutions should refer to the total capital base of their head office.

MA(BS)12 /P. 1 (Rev. 12/2018)
Completion Instructions
Return of Interest Rate Risk Exposures (Form MA(BS)12) Introduction

1. This return collects information on the interest rate risk exposures of authorized institutions
   and will be used to help assess the potential impact of movements in interest rates on institutions’ earnings and economic value.
2. The Completion Instructions contain three sections. Section A describes the general
   reporting requirements. Section B provides definitions and clarification of certain items.
   Section C explains the specific reporting requirements for each item in the return form,
   with an illustration at Annex 1.
   Section A : General Instructions
3. All authorized institutions (AIs) that are exempted from the local IRRBB framework1

are required to complete this return showing their positions of their Hong Kong operations as at the last calendar day of each quarter and submit the return to the HKMA not later than one month after the end of each quarter. If the submission deadline falls on a public holiday, it will be deferred to the next working day.
4. This return captures both on- and off-balance sheet positions. Overseas incorporated
AIs that are exempted from the local IRRBB framework should report aggregate positions of the banking book and trading book.
5. The interest rate risk positions for each selected currency should be reported separately
using the same four-page return form. Transactions denominated in gold or composite currencies such as the SDR should be reported as separate currencies. Positions in the Euro and the national currencies, if any, of the Euro-participating countries are to be treated as positions in the Euro. Institutions should report all these positions in aggregate on one return form. As a basic requirement, institutions should complete at least two return forms, showing their interest rate risk exposures arising from assets and liabilities denominated in Hong Kong dollars and in US dollars respectively (nil returns are required for these two currencies). Institutions which have significant positions in other currencies should report such positions on separate return forms (see paragraph 8 below). The submitted forms should be sequentially numbered.
6. All the positions captured by this return should be slotted into the appropriate time bands
according to the earliest interest repricing date (see paragraph 11 below). Institutions that meet the criteria set out in Annex 2 may, subject to the HKMA’s approval, slot their positions into different time bands based on their estimation of the respective behavioural maturity. Institutions are allowed to phase in the use of behavioural maturity on a product-by-product basis. 1 Details of the IRRBB exemption are set out in the circular to all AIs dated 31 August 2018.

MA(BS)12 /P. 2 (Rev. 12/2018)
7. Unless otherwise stated, book value should be used for reporting purposes. Amounts are to
be shown to the nearest million, in Hong Kong dollars or Hong Kong dollar equivalent in the case of foreign currencies. The middle market T/T rates ruling as at the close of business on the reporting date should be adopted for conversion of foreign currencies to Hong Kong dollars.
Section B : Definitions and Clarification
8. An institution would be regarded as having a significant position in a currency if the sum of
its on-balance sheet assets or liabilities, whichever is the larger, in that currency and its off-balance sheet positions (see paragraph 9 below) in the same currency is more than 5% of its total on-balance sheet assets in all currencies (i.e. total amount of “Total assets” reported under item 23 of the Return of Assets and Liabilities (Form MA(BS)1) or item 22 of the Combined Return of Assets and Liabilities (Form MA(BS)1B), as the case may be).
9. The off-balance sheet positions are defined as the sum of the notional principal of each off￾balance sheet contract that is to be included under items 10 to 15 of this return. For the
avoidance of doubt, a foreign exchange contract which involves the simultaneous buying and selling of two currencies should be regarded as one contract under each of the currencies concerned while a single currency interest rate swap which involves both the receipt and payment of interest in the same currency is counted once in the relevant currency.
10. All on-balance sheet interest bearing assets and liabilities are to be classified into fixed rate
items, variable rate items and managed rate items. Fixed rate items are those assets and liabilities with interest rates fixed up to their final maturities. Variable rate items are those which will automatically be repriced at the next repricing date during the life of the items in accordance with movements in the relevant “reference rates” (such as HIBOR) and include those items for which the interest rates can be varied at the discretion of the counterparty (see also the definition of managed rate that follows). Managed rate items are those variable rate items for which there are no fixed repricing dates and the interest rates can be adjusted at any time at the discretion of the reporting institution. These would include, for example, savings deposits and mortgage loans.
11. In respect of different interest bearing assets and liabilities, the earliest interest repricing date
means:
(a) for fixed rate items, the maturity dates of the assets or liabilities concerned; (b) for variable rate items, the next repricing date of the assets and liabilities concerned; in the case of those items for which the interest rates can be varied at the discretion of the counterparty, the earliest date, based on past experience, on which the interest rates would be repriced assuming that the reference rates on which the interest rates are based are adjusted on the business day immediately following the reporting date; and (c) for managed rate items, the earliest date on which it would be possible for the interest rates of the assets and liabilities concerned to be adjusted assuming that the reference rates (e.g. prime or standard savings rate) on which the interest rates are based are adjusted on the business day immediately following the reporting date.

MA(BS)12 /P. 3 (Rev. 12/2018)
12. For the purpose of this return, interest bearing assets and liabilities include those which do
not involve any formal payment of interest but the values of which are sensitive to interest rate movements. Typically, these include financial instruments which are sold at a discount such as Exchange Fund Bills and zero coupon bonds. They should be reported as fixed rate items according to residual maturity.
13. In respect of on-balance sheet interest bearing assets, institutions should report under
items 1b to 4b a breakdown of the amount of residential mortgage loans pertaining to those items. Residential mortgage loans are loans to professional and private individuals for the purchase of residential properties, as defined under item H5b of the Quarterly Analysis of Loans and Advances and Provisions (Form MA(BS)2A). In respect of on￾balance sheet interest bearing liabilities, institutions should report under items 5b to 8b a breakdown of the amount of deposits pertaining to those items. Deposits are deposit liabilities due to non-bank customers, as defined under item 6 of Form MA(BS)1.
14. In respect of assets or liabilities with embedded options, institutions should decompose
them into embedded options and underlying assets or liabilities. The embedded options should be reported under off-balance sheet positions (see paragraphs 37-38 below) and the underlying assets or liabilities should be slotted into the appropriate time bands according to their earliest interest repricing date (see paragraph 11 above). In the case of assets or liabilities with an early redemption option (by either the reporting institution or its counterparty), and the institutions concerned cannot decompose them into the embedded option and underlying assets or liabilities, the reporting may be based on the institution’s expectation of whether an early redemption will occur. Such assets or liabilities should then be slotted into the appropriate time bands according to their earliest interest rate repricing date or the redemption date, whichever is the earlier.
15. Assets and liabilities which are repayable by instalments rather than by one lump sum at
maturity should be broken down into individual tranches and slotted into the appropriate time bands according to the repricing date of each tranche. For example, a fixed rate loan of HKD 100 million repayable by two semi-annual instalments of HKD 50 million each should be regarded as two separate loans, one repayable in six months and the other one year, and slotted into the appropriate time bands according to their residual maturities. In the case of a variable rate loan of HKD 100 million repayable by two semi-annual instalments of HKD 50 million each, it should also be regarded as two separate loans and be slotted into the appropriate time bands according to the next repricing date of each tranche.
16. In the case of a managed rate mortgage loan, the entire amount of such loan, less the amount
of principal repayable before the earliest repricing date (see paragraph 11(c) above), should be reported in the appropriate time bands into which the repricing date falls. The principal amount repayable between the reporting date and the earliest repricing date should be slotted into the appropriate time bands according to the payment dates contracted for. For example, if a mortgage loan of HKD 5 million can be repriced in two months’ time, the principal amount repayable between eight days and one month (say HKD 0.02 million) should be reported in row (C) of item 4 and the balance of the loan (i.e. HKD 4.98 million) should be reported in row (D) of the same item.
17. Institutions which have the practice of raising internal deals to record positions passed
from one unit to another (e.g. Money Market Department to Foreign Exchange Department) within the same institution should not report these internal deals. However, this rule does not apply to an institution incorporated overseas that is exempted from the

MA(BS)12 /P. 4 (Rev. 12/2018) local IRRBB framework, if the deals in question were executed between the institution’s Hong Kong office and its overseas head office or branches.
Section C : Specific Instructions
18. Item 1 rows (A) to (O) – Total interest bearing assets
Report the sum of items 2a, 3a and 4a under item 1a of the same row. Regarding residential mortgage loans, report the sum of items 2b, 3b and 4b under item 1b of the same row. Report the sum of items 1a and 1b for all time bands in Total (A to O) under the respective items. Report the weighted average yield of total interest bearing assets and residential mortgage loans under items 1c and 1d respectively of the same row. All the rates reported should be rounded to 2 decimal places. An example showing the method of calculation is given at Annex 3. Interest rates applicable at the reporting date should be used for the purpose of calculation.
19. Item 2 - Fixed rate assets
These assets, such as fixed rate CDs or fixed rate term loans, should be slotted into the appropriate time bands according to their residual maturities.
20. Item 3 - Variable rate assets
These should be slotted into the appropriate time bands according to the next interest rate fixing date. Such assets include, for example, floating rate CDs/notes, and other loans which are automatically priced in accordance with movements in the relevant reference rates. During the period between the final repricing date and final maturity, these assets should continue to be reported as variable rate assets and slotted into the appropriate time bands according to their residual maturities.
21. Item 4 - Managed rate assets
These assets are those for which the interest rate does not change automatically in line with the movement in the reference rate but may be varied at the discretion of the reporting institution. Mortgage loans priced on prime are examples of managed rate assets. These assets should be slotted into the appropriate time bands according to the earliest date on which their interest rates can be adjusted assuming that the reference rate (e.g. prime) is adjusted on the business day immediately following the reporting date.
22. Item 1 row (P) – Non-interest bearing assets
These include, for example, properties, shares, fixed assets and other receivables which are non-interest bearing. Non-accruing assets on which interest is being placed in suspense or interest accrual has ceased should also be included. Properties and fixed assets should be reported net of depreciation.

MA(BS)12 /P. 5 (Rev. 12/2018)
23. Item 1 Total (A to P) – Total assets
Report the sum of total interest bearing and non-interest bearing assets. The amount reported may not necessarily be the same as the amount of “Total liabilities” reported under item 5 Total (A to Q). Overseas incorporated institutions that are exempted from the local IRRBB framework should note that the amounts reported under this item, in respect of the positions for Hong Kong dollars and US dollars, should be consistent with the amount of “Total assets” reported under the relevant columns of item 23 of Form MA(BS)1.
24. Item 5 rows (A) to (O) – Total interest bearing liabilities
Report the sum of items 6a, 7a and 8a under item 5a of the same row. Regarding deposits, report the sum of items 6b, 7b and 8b under item 5b of the same row. Report the sum of items 5a and 5b for all time bands in Total (A to O) under the respective items. Report the weighted average costs of total interest bearing liabilities and deposits under items 5c and 5d respectively of the same row. All the rates reported should be rounded to 2 decimal places. An example showing the method of calculation is given at Annex 3. Interest rates applicable at the reporting date should be used for the purpose of calculation.

25. Item 6 - Fixed rate liabilities
    These liabilities, such as fixed rate CDs, money market deposits and term deposits are to be slotted into the appropriate time bands according to their residual maturities.
26. Item 7 - Variable rate liabilities
    These liabilities should be slotted into the appropriate time bands according to the next interest rate fixing date. They include, for example, floating rate debt instruments issued by the reporting institution where the interest rate is adjusted automatically on the repricing date in accordance with movements in the relevant reference rates. As with variable rate assets, these liabilities should continue to be classified as variable rate liabilities according to their residual maturities during the period between the final repricing date and the maturity date.
27. Item 8 - Managed rate liabilities
    Such liabilities include, for example, deposits for which interest rates can be adjusted at the discretion of the deposit-taking institution. They should be slotted into the appropriate time bands according to the earliest date on which their interest rates can be adjusted assuming that the reference rates (e.g. standard savings rates) are adjusted on the business day immediately following the reporting date.
28. Item 5 (P)+(Q) – Non-interest bearing liabilities
    Report the sum of equity capital and others.

MA(BS)12 /P. 6 (Rev. 12/2018)
29. Item 5 row (P) – Equity capital
These include the capital, reserves (including retained earnings) and profit and loss accounts of the reporting institution. They should be reported in the base currency of the reporting institution or in the currency in which the capital is denominated. Interest-bearing capital items (e.g. preference shares and subordinated debts) should be reported under items 6a, 7a or 8a as appropriate.
30. Item 5 row (Q) - Others
These include, for example, deposits in current accounts and other payables / liabilities which are non-interest bearing, and loan loss provisions etc. General provisions should be reported in the base currency of the reporting institution. Other provisions should be reported in the currency of the underlying assets.
31. Item 5 Total (A to Q) - Total liabilities
Report the sum of total interest bearing and non-interest bearing liabilities. The amount reported may not necessarily be the same as the amount of “Total assets” reported under item 1 Total (A to P). Overseas incorporated institutions that are exempted from the local IRRBB framework should note that the amounts reported under this item, in respect of the positions for Hong Kong dollars and US dollars, should be consistent with the sum of the amounts of “Total liabilities” and “Provisions” reported under the relevant columns of item 11 and item 24 of Form MA(BS)1 respectively.
32. Item 9 – Total off-balance sheet positions
Report in item 9a, the sum of all long positions reported under items 10a to 15a of the same row. Report in item 9b, the sum of all short positions reported under items 10b to 15b of the same row.
33. Item 10 - Forward foreign exchange contracts
Forward foreign exchange contracts include unmatured spot contracts that are for value not more than two business days after the transactions are contracted. They should be reported in the relevant page of the return for the currencies concerned and should be slotted into the appropriate time bands according to the residual maturity of the individual contracts. For example, a five-month forward contract to sell Hong Kong dollars for US dollars should be slotted in the return for the Hong Kong currency as a short position under item 10b of row (E) and in the return for the US currency as a long position under item 10a of row (E).
34. Item 11 - Interest rate swaps
An interest rate swap contract obligates an institution to both receive and remit interest payments that are based on the notional amount of the swap contract. Depending on the contract, the institution may receive fixed rate and pay floating rate interest on the notional principal or vice versa. For example, an interest rate swap under which an institution is receiving floating rate interest and paying fixed rate would be treated as a long position in a

MA(BS)12 /P. 7 (Rev. 12/2018) floating rate instrument of maturity equivalent to the period until the next interest fixing date and a short position in a fixed rate instrument of maturity equivalent to the residual life of the swap. The two positions should then be slotted into the appropriate time bands according to their respective maturities.
35. Item 12 - Cross currency swaps
The reporting treatment of a cross currency swap is similar to that of an interest rate swap, except for the fact that its long and short positions should be reported in the relevant time bands of the currencies concerned.
36. Item 13 - Futures / Forward rate agreements (FRAs)
These should be treated in the same way as a combination of a long and a short position in government securities. The maturity of a future or an FRA would be the period until delivery or exercise of the contract, plus − where applicable − the life of the underlying instruments. For example, a long position in a June three-month interest rate future should be reported in April in the same way as a long position in a government security with a maturity of five months and a short position in a government security with a maturity of two months. Similarly, a seller of a 2 x 5 months FRA should report the transaction as a long position in a government security with a maturity of five months and a short position in a government security with a maturity of two months. In respect of a futures contract, where a range of deliverable instruments may be delivered to fulfil the contract, the institution would be free to elect which deliverable security goes into the maturity ladder.
37. Item 14 - Options
Report option contracts that are related to interest rate instruments and currencies. Option contracts should be reported by using the delta equivalent value of these contracts, which is calculated by multiplying the principal value of the underlying by the delta or, in the case of options on debt instruments, the market value of such debt instruments by the delta. (Such deltas are to be calculated according to the reporting institution’s proprietary options pricing model.) In slotting deltas into the time bands, a two-legged approach should be used as for other derivatives - one entry at the time the underlying contract takes effect and the other at the time the underlying contract matures. For instance, a bought call option on a June three-month interest rate future would in April be considered, on the basis of its “delta” equivalent value, to be a long position with a maturity of five months and a short position with a maturity of two months. A written option would be similarly included as a long position with a maturity of two months and a short position with a maturity of five months. The two-legged approach also applies to reporting positions of interest rate swaptions. For example, a bought swaption of receiving (paying) fixed rate with an option maturity of two months and an underlying interest rate swap of three years is reported as a long (short) position with a maturity of three years and two months and a short (long) position with a maturity of two months. Similarly, a written swaption of receiving (paying) fixed rate with an option maturity of two months and an underlying interest rate swap of three years is reported as a short (long) position with a maturity of three years and two months and a long (short) position with a maturity of two months. The amounts of the positions are the deltas

MA(BS)12 /P. 8 (Rev. 12/2018) of the notional amount of the underlying interest rate swap in respect of the type of the swaption. In the case of an option that gives rise to foreign currency exposures (e.g. currency option), the delta equivalent value of both the long and short positions should be reported in the time band corresponding to the exercise date of the contract. Report a long position in respect of the currency that the institution intends to take and a short position of the currency that the institution intends to deliver. An institution purchasing options to a limited extent for the purposes of hedging may report only those option contracts that are in-the-money. Instead of reporting their delta equivalent values, it may report the notional value of the option contracts in rows (A) to (O) using the two-legged approach as mentioned above. As the methods of reporting some option instruments (e.g. digital options and barrier options) are rather complicated, institutions with such transactions should discuss with the HKMA the reporting method concerned.
38. Item 15 - Others
Report, by using the two-legged approach, any other debt derivatives and off-balance sheet items the values of which are sensitive to changes in interest rates. This include forward arrangements for fixed rate loans and fixed rate deposits which have been contracted but remain undrawn as at the reporting date. A forward loan should be reported as a long position at the time the loan matures and as a short position at the time when the loan is to be drawn. For forward deposits, the reporting method is the reverse. Where securities are sold subject to a repurchase agreement, the terms of which transfer substantially all risks and rewards of ownership to the buyer, the transaction should be separately accounted for as an outright sale plus a commitment to repurchase. The securities sold under such an agreement should not be reported in this return but the commitment to repurchase should be reported as a forward purchase of the securities. Where the price for the commitment to repurchase has not been determined, the fair value (i.e. current market price) as of the reporting date should be used. Where securities are purchased subject to a resale agreement, the terms of which transfer substantially all risks and rewards of ownership to the reporting institution, the transaction should be separately accounted for as an outright purchase plus a commitment to sell back. The securities purchased under such an agreement should be reported as an asset and the commitment to sell back as a forward sale of the securities. Where the price for the commitment to sell back has not been determined, the fair value (i.e. current market price) as of the reporting date should be used.
39. Item 16 - Net positions
This is the net amount of items 1a, 5a, 9a and 9b. Show figures in brackets to indicate a short position in any of the time bands.

MA(BS)12 /P. 9 (Rev. 12/2018)
40. Item 17 – Earnings perspective (impact / scenario analysis)
The time weight on earnings under item 17a is used to measure the impact of an interest rate increase of 200 basis points on the earnings of the reporting institution in a period of 12 months. For example, if an institution has a positive position of $10 million in the fourth (1 to 3 months) time band, an increase in interest rates of 200 basis points would produce additional interest income of approximately $166,667 ($10,000,000 x 2% x 10/12) during the 12-month period. This assumes that all positions are repriced at the mid-point of each time band. The time weights of individual time bands are thus computed as follows:
Next day or less: (364.5 / 365) x 2% = 1.997%
2 to 7 days: (360.5 / 365) x 2% = 1.975%
8 days to 1 month: (346 / 365) x 2% = 1.896%
1 to 3 months: (10 / 12) x 2% = 1.667%
3 to 6 months: (7.5 / 12) x 2% = 1.250%
6 to 12 months: (3 / 12) x 2% = 0.500%
The total impact on earnings over the next 12 months should be calculated by summing the weighted positions in different time bands up to 12 months, as computed by multiplying the net position in each time band reported under item 16 by the corresponding time weight specified under item 17a. The amounts reported, with short positions shown in brackets, should be rounded to the nearest HKD million without decimal place.
41. Item 18 – Economic value perspective (impact / scenario analysis)
The HKMA applies a standardised 200-basis-point parallel rate shock to institutions’ interest rate risk exposures to measure the economic value impact of the shock. The impact of the shock is calculated as follows:

• multiply the net position reported under item 16 by the corresponding weighting
  factor2 under item 18a to obtain a weighted position in each time band;
• report the amount (with short positions shown in brackets) under item 18b of each
  time band and round the amount to the nearest HKD million without decimal place;
• report the sum of the weighted positions of all time bands in Total (A to O) under
  item 18b;
• report the total capital base of the overseas incorporated institution’s head
  office at the reporting date in row (P) under item 18b; and
• express the impact on economic value as a percentage of total capital base under
  item 18b.
  2 Adopted from the Basel Committee’s consultative paper on “Principles for the Management and Supervision of Interest Rate Risk” issued in January 2001, the weighting factors are designed to reflect the sensitivity of positions in different time bands to an assumed parallel shift of 200 basis points throughout the time spectrum. The factors are based on a proxy of modified duration of positions situated at the middle of each time band and yielding 5%, and have been found to be in line with the term structure of Hong Kong dollar interest rates.

MA(BS)12 /P. 10 (Rev. 12/2018)
42. Item 19 – Basis risk (impact / scenario analysis)
Impact on earnings of an institution due to basis risk is measured by the following two scenarios:
(i) all rates except for fixed and managed rates on interest bearing assets rise by 200 basis points; and (ii) managed rates on interest bearing assets drop by 200 basis points while other rates remain unchanged. The impact on earnings is calculated under item 19 by assuming that the changes in interest rates last for different periods of time (one month, three months, six months and 12 months) under both scenarios. The calculation is similar to that under the earnings perspective (see item 17 above) except that different types of interest rates are subject to different changes. For example, if an institution has total managed rate assets of $50 million and $950 million respectively in the second (2 to 7 days) and the fourth (1 to 3 months) time bands, a drop of 200 basis points in managed rates for three months (assuming 90 days) would reduce interest income from the assets by approximately HKD 1.817 million during the period. The computation (assuming that all positions are repriced at the mid-point of each time band) is as follows:
Time Band Time Weight Position Impact on earnings (for a drop of 90 days) HKD million HKD million Next day or less: (89.5 / 365) x -2% = -0.490% 0 0 2 to 7 days: (85.5 / 365) x -2% = -0.468% 50 -0.234 8 days to 1 month: (71 / 365) x -2% = -0.389% 0 0 1 to 3 months: (1 / 12) x -2% = -0.167% 950 -1.583 3 to 6 months: NA 0 NA 6 to 12 months: NA 0 NA Total = -1.817 Hong Kong Monetary Authority December 2018

Annex 1
EXAMPLE BANK (non-exempted institution) Position as at Day 0 (The following on- and off-balance sheet items in the banking book will be shown in pages 1 to 8 of the sample return forms that follow.) A. BALANCE SHEET Ref Particulars HKD USD Total ASSETS (a) 5-month fixed rate loans 300 300 (b) 2-year fixed rate loans 500 500 (c) 1-year fixed rate mortgage loans 200 200 (d) 4-month fixed rate mortgage loans 100 100 (e) 2-month variable rate loans 400 400 (f) 15-year fixed rate bonds 200 200 (g) 3-month fixed rate loans 250 250 (h) Other non-interest bearing assets 180 180 (i) 3-year fixed rate mortgage loans 800 800 (j) 20-year managed rate mortgage loans 1000 1000

(to be repriced in 2 months’ time and

5% repayable within 7 days)

3180 750 3930
LIABILITIES
(aa) 5-month fixed rate deposits 300 300
(bb) 2-year variable rate deposits (to be 500 500 repriced in 3 months’ time) (cc) 1-year fixed rate deposits 200 200 (dd) 10-month fixed rate deposits 100 100 (ee) 18-month fixed rate deposits 400 400 (ff) 2-month fixed rate deposits 200 200 (gg) 6-month fixed rate deposits 250 250 (hh) Capital 180 180 (ii) 4-year fixed rate CDs 400 400 800 (jj) Savings deposits 1000 1000 2880 1050 3930 MA(BS)12 /P. 11 (Rev. 12/2018)

B. OFF-BALANCE SHEET POSITIONS

Ref. Type Notional Particulars
Principal
(a)/(aa) Forward FX contracts 300 Buy HKD sell USD in 5 months’ time.
(b)/(bb) Interest Rate Swaps 500 Final maturity of the HKD interest rate swap is 2 years. The bank pays fixed and receives floating rate. The floating rate is to be repriced in 3 months’ time. (c)/(cc) Currency Swaps 200 This being a 1-year HKD/USD swap. During the life of the swap, the bank pays HKD interest and receives USD interest. At maturity, the bank pays the principal in HKD and receives the principal in USD. (d)/(dd) Interest Rate Futures 100 The bank takes a long position in a 6 month interest rate future contract delivery of which will take effect in 4

months’ time.

(e)/(ee) Forward Rate Agreements 400 The bank writes a 2 against 18 forward rate agreement on HKD interest rates.

(f)/(ff) Put options 200* An option has been bought to sell the USD straight bond which is now held by the bank and which will mature in 15 years’ time. The option may be exercised in 2 months’ time. (g)/(gg) Call options 250* A call option on 3-month US Treasury Bill has been bought. The option may be exercised in 3 months’ time. (* Delta equivalent values.) MA(BS)12 /P. 12 (Rev. 12/2018)

Currency Code
(For Official Use Only)
Interest Rate Risk Exposures
Position of * Banking Book / Trading Book and Banking Book (Note (1)) Currency (Note (2)): HONG KONG DOLLAR Page 1 of 8

• Delete where inappropriate. (In HK$ Million or equivalent)
  INTEREST BEARING ASSETS (Note (3))
  TIME BAND

1. Total interest bearing assets 2. Fixed rate assets 3. Variable rate assets 4. Managed rate assets
   2a+3a+4a a.
   Total
   2b+3b+4b b.
   Residential mortgage loans c.
   Total weighted average yield d.
   Weighted average yield
   (Residential mortgage loans) a.
   Total b.
   Residential mortgage loans a.
   Total b.
   Residential mortgage loans a.
   Total b.
   Residential mortgage loans
   Next day or less (A) % %
   2 to 7 days (B) 50 50 % % (j) 50 (j) 50
   8 days to 1 month (C) % %
   1 to 3 months (D) 1,350 950 % % (e) 400 (j) 950 (j) 950 3 to 6 months (E) 100 100 % % (d) 100 (d) 100 6 to 12 months (F) 200 200 % % (c) 200 (c) 200 1 to 2 years (G) 500 % % (b) 500 2 to 3 years (H) 800 800 % % (i) 800 (i) 800 3 to 4 years (I) % % 4 to 5 years (J) % % 5 to 7 years (K) % % 7 to 10 years (L) % % 10 to 15 years (M) % % 15 to 20 years (N) % % More than 20 years (O) % % Total book value Total (A to O) 3,000 2,100 1,600 1,100 400 1,000 1,000 Non-interest bearing assets (P) (h) 180 Total assets Total (A to P) 3,180 Notes:
   (1) Locally incorporated authorized institutions subject to the market risk capital adequacy regime are required to report positions in the banking book only. Other locally incorporated institutions exempted from the market risk capital adequacy regime and overseas incorporated institutions are required to report aggregate positions in the banking book and trading book. (2) Report interest rate risk exposures in major currencies as defined in the Completion Instructions, including at least Hong Kong dollar and US dollar (nil returns are required for these two currencies). Use the same return form for each currency. (3) Report items under different time bands based on the earliest interest repricing date as specified in the Completion Instructions. Subject to the HKMA's approval, reporting based on behavioural maturity may be allowed for authorized institutions that can meet the criteria set out in the Completion Instructions. MA(BS)12 /P. 13 (Rev. 12/2018)

Currency Code
(For Official Use Only)
Interest Rate Risk Exposures
Position of * Banking Book / Trading Book and Banking Book (Note (1)) Currency (Note (2)): HONG KONG DOLLAR Page 2 of 8

• Delete where inappropriate. (In HK$ Million or equivalent)
  INTEREST BEARING LIABILITIES (Note (3))
  TIME BAND

5. Total interest bearing liabilities 6. Fixed rate liabilities 7. Variable rate liabilities 8. Managed rate liabilities
   6a+7a+8a a.
   Total
   6b+7b+8b b.
   Deposits c.
   Total weighted average interest costs d.
   Weighted average interest costs
   (Deposits) a.
   Total b.
   Deposits a.
   Total b.
   Deposits a.
   Total b.
   Deposits
   Next day or less (A) 1,000 1,000 % % (jj) 1000 (jj) 1000 2 to 7 days (B) % % 8 days to 1 month (C) % % 1 to 3 months (D) 500 500 % % (bb) 500 (bb) 500 3 to 6 months (E) 300 300 % % (aa) 300 (aa) 300 6 to 12 months (F) 100 100 % % (dd) 100 (dd) 100 1 to 2 years (G) 400 400 % % (ee) 400 (ee) 400 2 to 3 years (H) % % 3 to 4 years (I) 400 400 % % (ii) 400 (ii) 400 4 to 5 years (J) % % 5 to 7 years (K) % % 7 to 10 years (L) % % 10 to 15 years (M) % % 15 to 20 years (N) % % More than 20 years (O) % % Total book value Total (A to O) 2,700 2,700 1,200 1,200 500 500 1,000 1,000 Non-interest bearing liabilities (P)+(Q) 180 Equity capital (P) (hh) 180 Others (Q) Total liabilities Total (A to Q) 2,880 Notes:
   (1) Locally incorporated authorized institutions subject to the market risk capital adequacy regime are required to report positions in the banking book only. Other locally incorporated institutions exempted from the market risk capital adequacy regime and overseas incorporated institutions are required to report aggregate positions in the banking book and trading book. (2) Report interest rate risk exposures in major currencies as defined in the Completion Instructions, including at least Hong Kong dollar and US dollar (nil returns are required for these two currencies). Use the same return form for each currency. (3) Report items under different time bands based on the earliest interest repricing date as specified in the Completion Instructions. Subject to the HKMA's approval, reporting based on behavioural maturity may be allowed for authorized institutions that can meet the criteria set out in the Completion Instructions. MA(BS)12 /P. 14 (Rev. 12/2018)

Currency Code
(For Official Use Only)
Interest Rate Risk Exposures
Position of * Banking Book / Trading Book and Banking Book (Note (1)) Currency (Note (2)): HONG KONG DOLLAR Page 3 of 8

• Delete where inappropriate. (In HK$ Million or equivalent)
  OFF-BALANCE SHEET POSITIONS (Note (3))
  TIME BAND

9. Total 10. Forward foreign
   exchange contracts
10. Interest rate
    swaps
11. Cross currency
    swaps
12. Futures / FRAs 14. Options 15. Others
    10a+11a+12a+
    13a+14a+15a a.
    Long
    10b+11b+12b+
    13b+14b+15b b.
    Short a.
    Long b.
    Short a.
    Long b.
    Short a.
    Long b.
    Short a.
    Long b.
    Short a.
    Long b.
    Short a.
    Long b.
    Short
    Next day or less (A)
    2 to 7 days (B)
    8 days to 1 month (C)
    1 to 3 months (D) 500 400 (b) 500 (ee) 400
    3 to 6 months (E) 300 100 (a) 300 (dd) 100
    6 to 12 months (F) 100 200 (cc) 200 (d) 100
    1 to 2 years (G) 400 500 (bb) 500 (e) 400
    2 to 3 years (H)
    3 to 4 years (I)
    4 to 5 years (J)
    5 to 7 years (K)
    7 to 10 years (L)
    10 to 15 years (M)
    15 to 20 years (N)
    More than 20 years (O)
    Total off-balance sheet positions Total (A to O) 1,300 1,200 300 500 500 200 500 500 Notes:
    (1) Locally incorporated authorized institutions subject to the market risk capital adequacy regime are required to report positions in the banking book only. Other locally incorporated institutions exempted from the market risk capital adequacy regime and overseas incorporated institutions are required to report aggregate positions in the banking book and trading book. (2) Report interest rate risk exposures in major currencies as defined in the Completion Instructions, including at least Hong Kong dollar and US dollar (nil returns are required for these two currencies). Use the same return form for each currency. (3) Report items under different time bands based on the earliest interest repricing date as specified in the Completion Instructions. Subject to the HKMA's approval, reporting based on behavioural maturity may be allowed for authorized institutions that can meet the criteria set out in the Completion Instructions. MA(BS)12 /P. 15 (Rev. 12/2018)

MA(BS)12 /P. 16 (Rev. 12/2018)
Currency Code Currency Code
(For Official Use Only) (For Official Use Only) Interest Rate Risk Exposures Position of * Banking Book / Trading Book and Banking Book (Note (1))
Page 3 of 8 Currency (Note (2)): HONG KONG DOLLAR Page 4 of 8

• Delete where inappropriate. (In HK$ Million or equivalent)
  Scenario (i)
  All rates except for fixed and managed rates on interest bearing assets rise by 200 basis points Scenario (ii) Managed rates on interest bearing assets drop by 200 basis points while other rates remain unchanged 1a-5a +9a-9b (rounded to the nearest HK$ Million) 16 x 17a (rounded to the nearest HK$ Million) 16 x 18a (rounded to the nearest HK$ Million) (rounded to the nearest HK$ Million) Next day or less (A) (1,000) 1.997% (20) 0.00% 0 1 month (2) (0) 2 to 7 days (B) 50 1.975% 1 0.02% 0 3 months (5) (2) 8 days to 1 month (C) 0 1.896% 0 0.10% 0 6 months (10) (7) 1 to 3 months (D) 950 1.667% 16 0.32% 3 12 months (22) (17) 3 to 6 months (E) 0 1.250% 0 0.72% 0 6 to 12 months (F) 0 0.500% 0 1.43% 0 1 to 2 years (G) 0 2.77% 0 2 to 3 years (H) 800 4.49% 36 3 to 4 years (I) (400) 6.14% (25) 4 to 5 years (J) 0 7.71% 0 5 to 7 years (K) 0 10.15% 0 7 to 10 years (L) 0 13.26% 0 10 to 15 years (M) 0 17.84% 0 15 to 20 years (N) 0 22.43% 0 More than 20 years (O) 0 26.03% 0 Total (A to F) (3) Total (A to O) 14 Total capital base at reporting date (Note (3)) (P) 180 Impact on economic value as % of total capital base [Total (A to O)] / (P) 7.78% Notes:
  (1)
  (2)
  (3)
  IMPACT / SCENARIO ANALYSIS

Net positions
TIME BAND a.
Time weight on earnings b.
Impact on earnings over the next 12 months if interest rates rise by 200 basis points a. Weighting factor for standardised interest rate shock b. Impact on economic value if interest rates rise by 200 basis points Period for which changes in interest rates last Impact on earnings 19. Basis risk (for both on- and off-balance sheet positions) 17. Earnings perspective 18. Economic value perspective Report the total capital base for all currencies. Overseas incorporated institutions should refer to the total capital base of their head office. Locally incorporated authorized institutions subject to the market risk capital adequacy regime are required to report positions in the banking book only. Other locally incorporated institutions exempted from the market risk capital adequacy regime and overseas incorporated institutions are required to report aggregate positions in the banking book and trading book. Report interest rate risk exposures in major currencies as defined in the Completion Instructions, including at least Hong Kong dollar and US dollar (nil returns are required for these two currencies). Use the same return form for each currency.

Currency Code
(For Official Use Only)
Interest Rate Risk Exposures
Position of * Banking Book / Trading Book and Banking Book (Note (1)) Currency (Note (2)): U. S. DOLLAR Page 5 of 8

• Delete where inappropriate. (In HK$ Million or equivalent)
  INTEREST BEARING ASSETS (Note (3))
  TIME BAND

1. Total interest bearing assets 2. Fixed rate assets 3. Variable rate assets 4. Managed rate assets
   2a+3a+4a a.
   Total
   2b+3b+4b b.
   Residential mortgage loans c.
   Total weighted average yield d.
   Weighted average yield
   (Residential mortgage loans) a.
   Total b.
   Residential mortgage loans a.
   Total b.
   Residential mortgage loans a.
   Total b.
   Residential mortgage loans
   Next day or less (A) % %
   2 to 7 days (B) % %
   8 days to 1 month (C) % %
   1 to 3 months (D) 250 % % (g) 250
   3 to 6 months (E) 300 % % (a) 300
   6 to 12 months (F) % %
   1 to 2 years (G) % %
   2 to 3 years (H) % %
   3 to 4 years (I) % %
   4 to 5 years (J) % %
   5 to 7 years (K) % %
   7 to 10 years (L) % %
   10 to 15 years (M) 200 % % (f) 200
   15 to 20 years (N) % %
   More than 20 years (O) % %
   Total book value Total (A to O) 750 0 750
   Non-interest bearing assets (P)
   Total assets Total (A to P) 750
   Notes:
   (1) Locally incorporated authorized institutions subject to the market risk capital adequacy regime are required to report positions in the banking book only. Other locally incorporated institutions exempted from the market risk capital adequacy regime and overseas incorporated institutions are required to report aggregate positions in the banking book and trading book. (2) Report interest rate risk exposures in major currencies as defined in the Completion Instructions, including at least Hong Kong dollar and US dollar (nil returns are required for these two currencies). Use the same return form for each currency. (3) Report items under different time bands based on the earliest interest repricing date as specified in the Completion Instructions. Subject to the HKMA's approval, reporting based on behavioural maturity may be allowed for authorized institutions that can meet the criteria set out in the Completion Instructions. MA(BS)12 /P. 17 (Rev. 12/2018)

Currency Code
(For Official Use Only)
Interest Rate Risk Exposures
Position of * Banking Book / Trading Book and Banking Book (Note (1)) Currency (Note (2)): U. S. DOLLAR Page 6 of 8

• Delete where inappropriate. (In HK$ Million or equivalent)
  INTEREST BEARING LIABILITIES (Note (3))
  TIME BAND

5. Total interest bearing liabilities 6. Fixed rate liabilities 7. Variable rate liabilities 8. Managed rate liabilities
   6a+7a+8a a.
   Total
   6b+7b+8b b.
   Deposits c.
   Total weighted average interest costs d.
   Weighted average interest costs
   (Deposits) a.
   Total b.
   Deposits a.
   Total b.
   Deposits a.
   Total b.
   Deposits
   Next day or less (A) % %
   2 to 7 days (B) % %
   8 days to 1 month (C) % %
   1 to 3 months (D) 200 200 % % (ff) 200 (ff) 200 3 to 6 months (E) 250 250 % % (gg) 250 (gg) 250 6 to 12 months (F) 200 200 % % (cc) 200 (cc) 200 1 to 2 years (G) % % 2 to 3 years (H) % % 3 to 4 years (I) 400 400 % % (ii) 400 (ii) 400 4 to 5 years (J) % % 5 to 7 years (K) % % 7 to 10 years (L) % % 10 to 15 years (M) % % 15 to 20 years (N) % % More than 20 years (O) % % Total book value Total (A to O) 1,050 Non-interest bearing liabilities (P)+(Q) Equity capital (P) Others (Q) Total liabilities Total (A to Q) 1,050 Notes:
   (1) Locally incorporated authorized institutions subject to the market risk capital adequacy regime are required to report positions in the banking book only. Other locally incorporated institutions exempted from the market risk capital adequacy regime and overseas incorporated institutions are required to report aggregate positions in the banking book and trading book. (2) Report interest rate risk exposures in major currencies as defined in the Completion Instructions, including at least Hong Kong dollar and US dollar (nil returns are required for these two currencies). Use the same return form for each currency. (3) Report items under different time bands based on the earliest interest repricing date as specified in the Completion Instructions. Subject to the HKMA's approval, reporting based on behavioural maturity may be allowed for authorized institutions that can meet the criteria set out in the Completion Instructions. MA(BS)12 /P. 18 (Rev. 12/2018)

Currency Code
(For Official Use Only)
Interest Rate Risk Exposures
Position of * Banking Book / Trading Book and Banking Book (Note (1)) Currency (Note (2)): U. S. DOLLAR Page 7 of 8

• Delete where inappropriate. (In HK$ Million or equivalent)
  OFF-BALANCE SHEET POSITIONS (Note (3))
  TIME BAND

9. Total 10. Forward foreign
   exchange contracts
10. Interest rate
    swaps
11. Cross currency
    swaps
12. Futures / FRAs 14. Options 15. Others
    10a+11a+12a+
    13a+14a+15a a.
    Long
    10b+11b+12b+
    13b+14b+15b b.
    Short a.
    Long b.
    Short a.
    Long b.
    Short a.
    Long b.
    Short a.
    Long b.
    Short a.
    Long b.
    Short a.
    Long b.
    Short
    Next day or less (A)
    2 to 7 days (B)
    8 days to 1 month (C)
    1 to 3 months (D) 200 250 (f) 200 (gg) 250
    3 to 6 months (E) 250 300 (aa) 300 (g) 250
    6 to 12 months (F) 200 (c) 200
    1 to 2 years (G)
    2 to 3 years (H)
    3 to 4 years (I)
    4 to 5 years (J)
    5 to 7 years (K)
    7 to 10 years (L)
    10 to 15 years (M) 200 (ff) 200
    15 to 20 years (N)
    More than 20 years (O)
    Total off-balance sheet positions Total (A to O) 650 750 300 200 450 450 Notes:
    (1) Locally incorporated authorized institutions subject to the market risk capital adequacy regime are required to report positions in the banking book only. Other locally incorporated institutions exempted from the market risk capital adequacy regime and overseas incorporated institutions are required to report aggregate positions in the banking book and trading book. (2) Report interest rate risk exposures in major currencies as defined in the Completion Instructions, including at least Hong Kong dollar and US dollar (nil returns are required for these two currencies). Use the same return form for each currency. (3) Report items under different time bands based on the earliest interest repricing date as specified in the Completion Instructions. Subject to the HKMA's approval, reporting based on behavioural maturity may be allowed for authorized institutions that can meet the criteria set out in the Completion Instructions. MA(BS)12 /P. 19 (Rev. 12/2018)

Currency Code
(For Official Use Only)
Interest Rate Risk Exposures
Position of * Banking Book / Trading Book and Banking Book (Note (1)) Currency (Note (2)): U. S. DOLLAR Page 8 of 8

• Delete where inappropriate. (In HK$ Million or equivalent)
  IMPACT / SCENARIO ANALYSIS
  TIME BAND 1a-5a
  +9a-9b

Net positions
17.
Earnings perspective
18.
Economic value perspective
19.
Basis risk (for both on- and off-balance sheet positions) a.
Time weight on earnings
(rounded to the nearest HK$ Million)
16 x 17a b.
Impact on earnings over the next 12 months if interest rates rise by 200 basis points a. Weighting factor for standardised interest rate shock (rounded to the nearest HK$ Million) 16 x 18a b. Impact on economic value if interest rates rise by 200 basis points Period for which changes in interest rates last Impact on earnings Scenario (i) All rates except for fixed and managed rates on interest bearing assets rise by 200 basis points (rounded to the nearest HK$ Million) Scenario (ii) Managed rates on interest bearing assets drop by 200 basis points while other rates remain unchanged (rounded to the nearest HK$ Million) Next day or less (A) 0 1.997% 0 0.00% 0 1 month 2 to 7 days (B) 0 1.975% 0 0.02% 0 3 months (0) 8 days to 1 month (C) 0 1.896% 0 0.10% 0 6 months (2) 1 to 3 months (D) 0 1.667% 0 0.32% 0 12 months (8) 3 to 6 months (E) 0 1.250% 0 0.72% 0 6 to 12 months (F) 0 0.500% 0 1.43% 0 1 to 2 years (G) 0 2.77% 0 2 to 3 years (H) 0 4.49% 0 3 to 4 years (I) (400) 6.14% (25) 4 to 5 years (J) 0 7.71% 0 5 to 7 years (K) 0 10.15% 0 7 to 10 years (L) 0 13.26% 0 10 to 15 years (M) 0 17.84% 0 15 to 20 years (N) 0 22.43% 0 More than 20 years (O) 0 26.03% 0 Total (A to F) 0 Total (A to O) (25) Total capital base at reporting date (Note (3)) (P) 180 Impact on economic value as % of total capital base [Total (A to O)] / (P) -13.89% Notes:
(1) Locally incorporated authorized institutions subject to the market risk capital adequacy regime are required to report positions in the banking book only. Other locally incorporated institutions exempted from the market risk capital adequacy regime and overseas incorporated institutions are required to report aggregate positions in the banking book and trading book. (2) Report interest rate risk exposures in major currencies as defined in the Completion Instructions, including at least Hong Kong dollar and US dollar (nil returns are required for these two currencies). Use the same return form for each currency. (3) Report the total capital base for all currencies. Overseas incorporated institutions should refer to the total capital base of their head office. MA(BS)12 /P. 20 (Rev. 12/2018)

MA(BS)12 /P. 21 (Rev. 12/2018)
Annex 2
Use of behavioural maturity for reporting interest rate risks This Annex sets out the minimum criteria that authorized institutions are required to meet in order to use behavioural maturity for reporting interest rate risks in the Return of Interest Rate Risk Exposures (Form MA(BS)12). The HKMA may request additional information on those positions where the behavioural maturity is different from the contractual maturity. It may also review the institutions’ internal processes and assumptions for determining the behavioural maturity of interest rate risk positions in their portfolios. The following are the minimum criteria for using behavioural maturity in the reporting of interest rate risks:

1. An institution’s assumptions need to be consistent and reasonable for each interest rate
   scenario used. For example, assumptions about mortgage prepayments should vary with the rate scenario and reflect a customer’s economic incentives to prepay the mortgage in that interest rate (or market mortgage rate) environment.
2. An institution should avoid selecting assumptions that are arbitrary and not verified by
   experience and performance. Typical information sources that can be used to help formulate assumptions include:

• historical trend econometric or statistical analysis of past portfolio and individual
  account behaviour in response to past interest rate movement. Such analysis is particularly useful for assessing the likely behaviour of non-maturing deposits, which can be influenced by bank-specific factors such as the profile of customers and local market conditions;
• bank- or vendor- developed prepayment models to generate mortgage-related cash flows;
• managerial and business unit input about business and pricing strategies, since planned
  changes to business or repricing strategies could affect the behaviour of future cash flows of positions with uncertain maturities.

3. The length of the underlying historical observation period used for the analyses and models
   must be at least one year.
4. Senior management should ensure that key assumptions are evaluated at least annually for
   reasonableness. Market conditions, competitive environments and strategies that change over time would cause assumptions to lose their validity. For example, if the institution’s competitive market has changed such that customers now face lower transaction costs for refinancing their residential mortgages, prepayments may be triggered by smaller reductions in market mortgage rate than in the past.
5. An institution’s key assumptions and their impact should be reviewed by the Board of
   Directors, or a committee thereof, at least annually. The review of key assumptions should include an assessment of the impact of those assumptions on the institution’s measured exposure. This type of assessment can be done by performing “what-if” or sensitivity analyses that examine what the institution’s exposure would be under a different set of

MA(BS)12 /P. 22 (Rev. 12/2018) assumptions. By conducting such analyses, management can determine which assumptions are most critical and deserve more frequent monitoring or more rigorous methods to ensure their reasonableness. These analyses also serve as a type of stress test that can help management ensure that the institution’s safety and soundness would not be impaired if future events vary from management’s expectations.
6. The types of analyses underlying key assumptions should be documented. Such documents,
which usually briefly describe the types of analyses, facilitate the periodic review of assumptions. It also helps ensure that more than one person in the institution understands how assumptions are derived. The details of that documentation should be consistent with the significance of the risk and complexity of analysis. For a small institution, the documentation typically will include an analysis of historical account behaviour and comments about pricing strategies, competitor considerations, and relevant economic factors. Larger institutions often use more rigorous and statistically based analyses.

MA(BS)12 /P. 23 (Rev. 12/2018)
Annex 3
Computation of weighted average yield / weighted average interest costs The following is an example showing the method of calculating the weighted average yield / interest costs: (Please note that the rates used are for illustration only. Reporting institutions should use the actual rates that are applicable to their interest bearing assets and liabilities.) Items 1a, 1b / Items 5a, 5b Amount reported Of which Row (A) 100 20 are priced at 2% per month and 80 are priced at 8% per annum Row (B) 350 200 are priced at 10% and 150 are priced at 9% per annum Row (C) 50 50 are priced at 12% per annum Row (D) 0 Row (E) 0 Row (F) 0 Row (G) 0 Row (H) 0 Row (I) 500 200 are priced at 13% and 300 are priced at 14% per annum Row (J) 0 Row (K) 0 Row (L) 0 Row (M) 0 Row (N) 0 Row (O) 0 Total (A to O) 1000 Weighted average yield / interest costs to be reported in items 1c, 1d / items 5c, 5d are calculated as follows:
(i) for row (A)
(20 x 2% x 12 + 80 x 8%) ÷ 100 x 100% = 11.20% (ii) for row (B) (200 x 10% + 150 x 9%) ÷ 350 x 100% = 9.57% (iii) for row (C) (50 x 12%) ÷ 50 x 100% = 12.00% (iv) for row (I) (200 x 13%+ 300 x 14%) ÷500 x 100% = 13.60%

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Enclosure 4 - IRRBB FAQ

V.1, 14 December 2018
Interest Rate Risk in the Banking Book – Frequently asked questions The HKMA has received a number of questions related to the new local framework for Interest Rate Risk in the Banking Book (IRRBB) which is based on the IRRBB Standards issued by the Basel Committee on Banking Supervision (BCBS) in April 2016. To help ensure a consistent implementation of this new framework, the HKMA provides a set of answers to frequently asked questions (FAQs), which may be updated over time. Item Question Answer 1 Can an AI whose local/overseas subsidiaries are insignificant in terms of the size of total assets and liabilities exclude these from the consolidated IRRBB return? It is possible to exempt certain insignificant subsidiaries from the scope of the consolidated IRRBB return. An AI can contact its supervisor to apply for such an exemption, provided that the aggregate notional positions (the interest-rate sensitive positions on the assets or liabilities side of the balance sheet, whichever is larger, plus off-balance sheet interest rate-sensitive positions) of all the relevant subsidiary entities do not account for more than 5% of its total consolidated notional interest rate-sensitive positions on the assets or liabilities side of its balance sheet, whichever is larger. The HKMA will consider approval on a case-by-case basis, having regard to the specific circumstances of the applicant AI. An AI that has been granted such exemptions would potentially be considered as an outlier if its IRRBB exposure exceeds 14% of its Tier 1 capital. 2 Which products are in scope for the IRRBB framework? Are credit card receivables, nostro and vostro accounts in scope? All products not excluded in paragraph 10 of the IRRBB Return Completion Instructions are in scope. Products in scope therefore include credit card receivables, nostro and vostro accounts. 3 Does the HKMA waive the The BCBS standards do not feature materiality thresholds. Therefore AIs must assess all interest

need to address optionality for products that are not material to the overall IRRBB profile of the AI? rate-sensitive assets and liabilities to monitor and report their interest rate risk. 4 How should AIs treat the optionality in managed rate products like prime rate loans? The following is the reporting procedure for floating rate mortgages subject to prime rate caps:

1. report the mortgage as a managed rate asset if the prime rate cap is binding, and as a floating
   rate asset otherwise. The optionality can be ignored for the purpose of calculating the EVE impact.
2. when reporting the basis risk section (item 19 on the IRRBB return), AIs should take into
   account the effect of the prime rate cap – see the Completion Instructions of the IRRBB return for details. 5 What is the time span of data that needs to be used for behavioural analysis of NMDs? For behavioural modelling of NMDs, AIs should always use 10 years of data if such data exist in their systems. An AI should notify its supervisors if the relevant data available to an AI extend to a period of less than 10 years but equal to or greater than 7 years. Such an AI should continuously extend its relevant database to cover at least 10 years and use all existing data to model NMDs in the interim period. An AI should contact its supervisors for approval if the data available to an AI extend to a period of less than 7 years and the AI intends to use such data for identifying core deposits. In considering granting the approval or not, the HKMA will assess whether the relevant assumptions and results adopted by the AI are prudent, including for example, whether the AI can demonstrate that its assumptions and results are similar to those of peer AIs which have sufficient data history and

similar firm-specific characteristics of expected customer behaviour, and that the assumptions and results are sufficiently realistic under stress scenarios. The AI should continuously extend its relevant database to cover at least 10 years. 6 How does the interest rate floor, used for the ΔEVE and ΔNII calculations, affect interest rate shocks? Application of the −2% floor slightly differs between assets and liabilities: On the asset side the risk-free rate is floored at −2%. AIs taking spreads into account add this spread to the floored risk-free rate. On the liability side the sum of the risk free rate plus the negative spread (if taken into account) is floored at −2%. This approach is reflected in paragraph 5.3.2 of the SPM. For example, if the risk-free yield in the time bucket ‘Next day or less’ before the parallel downward shock is −0.1%, then applying the formula from paragraph 5.3.2 of the SPM results in a post-shock interest rate of −2%. That is, the floored shock in the time bucket ‘Next day or less’ is −1.9%. 7 How should AIs investigate Credit Spread Risk in the Banking Book (CSRBB) within the IRRBB framework and which products are in scope for CSRBB? In line with Section 1.4 in the Annex of the BCBS standards on IRRBB, in particular Figure 1 on p. 34, AIs must assess CSRBB for items at fair value, that is, for example, debt securities. It is the AI’s responsibility to develop a suitable methodology for CSRBB. 8 Does the HKMA provide yield curves used in the IRRBB framework? How can AIs construct the yield curve used in the IRRBB framework? The HKMA does not provide AIs with risk-free yield curves because these differ by currency and tend to change over time. It is the responsibility of AIs to construct appropriate yield curves based on the market conditions of individual currencies. 9 Can on- and offshore Renminbi There still can be significant divergence between CNH and CNY interest rates, as could be observed

be treated as a single currency in the IRR reporting template? in the last couple of years, and therefore CNH and CNY should be reported separately for the time being. 10 At which frequency does the HKMA expect AIs to measure and monitor IRRBB? AIs should measure their IRRBB at least quarterly and monitor their IRRBB exposure on a continuous basis. Whether an AI needs to measure its IRRBB more frequently (on an ongoing basis, or specifically after certain events) will depend on the information it gathers from the continuous monitoring process (e.g. whether the information has any material impact on the AI’s IRRBB) and the buffer between the IRRBB exposures and the AI’s internal IRRBB exposure limit. To ensure internal control and regulatory supervision are not undermined, AIs are expected not to engage in ‘window dressing’, i.e. lowering their quarter-end interest rate exposures temporarily in a systematic manner. 11 Do net positions used for ΔEVE calculations have to be the same as net positions used for ΔNII calculations? Are zero coupon bonds and credit card receivables in scope for the ΔNII calculations? In general, net positions for EVE and NII calculations should be coherent. For the cases of zero coupon bonds and credit card receivables, these products are in scope for the ΔNII calculations. Including them reflects scenario-induced changes in accrued interest rate income or fee-generated income. However, notable exceptions include products with embedded optionality. An optional treatment for such products is outlined in paragraph 42 of the IRRBB Return Instructions. 12 How are spreads defined for IRRBB purposes? Spreads are defined as the difference between the contractual interest rate and the risk-free rate. AIs cannot use other rates, such as an internal funding rate, for spread-stripping purposes. 13 How are non-performing loans Non-performing loans (net of provisions) must be included as interest rate-sensitive assets.

treated under the new IRRBB framework?