Entire Section

  • PIB A9.4 PIB A9.4 The Net Stable Funding Ratio (NSFR)

    • PIB A9.4 Guidance

      1. An Authorised Firm's NSFR is the amount of Available Stable Funding (ASF) relative to the amount of Required Stable Funding (RSF). The NSFR should be at least 100% at all times (see PIB Rule 9.3.12). The NSFR is calculated under PIB Rule 9.3.12 using the following formula:
      NSFR = ASF x 100
      RSF
      2. For the purposes of the NSFR Requirement, an Authorised Firm's ASF and RSF are calibrated to reflect the presumed degree of stability of liabilities and liquidity of assets.
      3. This Appendix sets out how the ASF and RSF are to be calculated.
      Derived from DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

    • Available Stable Funding (ASF)

      • PIB A9.4.1 PIB A9.4.1

        (1) An Authorised Firm must calculate its ASF by:
        (a) assigning the carrying value of each liability and capital instrument to the applicable ASF Category set out in the table;
        (b) adjusting the carrying value of each liability and capital instrument by multiplying it by the applicable ASF Factor as set out in the table; and
        (c) adding together each adjusted carrying value.
        ASF Categories and associated ASF Factors
        ASF Factor
        Components of ASF Category
        100%
        (a) the total amount of regulatory capital, before the application of capital deductions, excluding the proportion of Tier 2 instruments with residual maturity of less than one year;
        (b) the total amount of any capital instrument not included in (a) that has an effective residual maturity of one year or more, but excluding any instruments with explicit or embedded options that, if exercised, would reduce the expected maturity to less than one year; and
        (c) the total amount of secured and unsecured borrowings and liabilities (including term deposits) with effective residual maturities of one year or more. Cash flows falling below the one-year horizon but arising from liabilities with a final maturity greater than one year do not qualify for the 100% ASF Factor.
        95%
        •  "stable" non-maturity (demand) deposits, term deposits and/or PSIAus with residual maturities of less than one year provided by retail and small business customers.
        90%
        •  "less stable" non-maturity (demand) deposits, term deposits and/or PSIAus with residual maturities of less than one year provided by retail and small business customers.
        50%
        (a) funding (secured and unsecured) with a residual maturity of less than one year provided by non-financial corporate customers;
        (b) operational deposits or operational accounts;
        (c) funding with residual maturity of less than one year from sovereigns, public sector enterprises (PSEs), and multilateral and national development banks;
        (d) other funding (secured and unsecured) not included in the categories above with residual maturity between six months to less than one year, including funding from Central Banks and financial institutions; and
        (e) funding with residual maturity of less than one year provided by non-financial corporate customers.
        0%
        (a) all other liabilities and equity categories not included in the above categories, including other funding with residual maturity of less than six months from Central Banks and financial institutions;
        (b) other liabilities without a stated maturity. This category may include short positions and open maturity positions. Two exceptions can be recognised for liabilities without a stated maturity:
        (i) deferred tax liabilities, which should be treated according to the nearest possible date on which such liabilities could be realised; and
        (ii) minority interest, which should be treated according to the term of the instrument, usually in perpetuity.
        These liabilities would then be assigned either a 100% ASF Factor, if the effective maturity is one year or greater, or 50%, if the effective maturity is between six months and less than one year;
        (c) NSFR derivative liabilities (net of NSFR derivative assets) if NSFR derivative liabilities are greater than NSFR derivative assets;
        (d) Net NSFR Shari'a compliant hedging liabilities (if NSFR Shari'a compliant hedging liabilities are greater than NSFR Shari'a compliant hedging assets); and
        (e) "trade date" payables arising from purchases of financial instruments, foreign currencies and commodities that:
        (i) are expected to settle within the standard settlement cycle or period that is customary for the relevant exchange or type of transaction; or
        (ii) have failed to, but are still expected to, settle.
        [Derived from] DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

        • PIB A9.4.1 Guidance

          1. An Authorised Firm's ASF represents the relative stability of its funding sources, including the contractual maturity of its liabilities and the differences in the propensity of different types of funding providers to withdraw their funding.
          2. The calibration of the ASF reflects the stability of liabilities, taking into account a number of factors:
          a. funding tenor – longer-term liabilities are assumed to be more stable than short-term liabilities; and
          b. funding type and counterparty – it is assumed that short-term deposits or PSIAus (i.e. maturing in less than one year) provided by retail customers and funding provided by small business customers are behaviourally more stable than wholesale funding of the same maturity from other counterparties.
          3. For ASF purposes, when determining the maturity of an equity or liability instrument, investors are assumed to redeem a call option at the earliest possible date. For funding with options exercisable at the firm's discretion, the DFSA will take into account reputational factors that may limit the firm's ability not to exercise the option. In particular, where the market expects certain liabilities to be redeemed before their legal final maturity date, the firm should assume such behaviour for the purpose of the NSFR Requirement and include these liabilities in the corresponding ASF Category. For long-dated liabilities, only the portion of cash flows falling at or beyond the six-month and one-year time horizons should be treated as having an effective residual maturity of six months or more and one year or more, respectively.
          4. Derivative liabilities are to be calculated first based on the replacement cost for derivative contracts (obtained by marking to market) where the contract has a negative value. When an eligible bilateral netting contract is in place that meets the conditions specified in the instructional guidelines for Form B300 set out in PRU Section 1.48, the replacement cost for the set of derivative exposures covered by the contract will be the net replacement cost.
          5. In calculating NSFR derivative liabilities, collateral posted in the form of variation margin in connection with derivative contracts, regardless of the asset type, must be deducted from the negative replacement cost amount.
          6. Carrying value is the amount at which a liability or equity instrument is recorded before the application of any regulatory deductions, filters or other adjustments.
          7. Regulatory capital consists of the sum of:
          a. T1 Capital (going-concern capital):
          i CET1; and
          ii AT1; and
          b. T2 Capital (gone-concern capital).
          8. The Guidance in paragraphs 4 to 6 and 12 to 15 after PIB Rule A9.2.15 should be used to determine whether a deposit or PSIAu is to be treated as "stable", "less stable" or "operational".
          Derived from DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]

    • Required Stable Funding (RSF)

      • PIB A9.4.2 PIB A9.4.2

        (1) An Authorised Firm must calculate its RSF by adding together:
        (a) the adjusted carrying values of its assets, calculated in accordance with (2); and
        (b) the adjusted carrying values of its off-balance sheet (OBS) Exposures (or potential liquidity Exposures), calculated in accordance with (3).
        (2) An Authorised Firm must calculate the adjusted carrying values of its respective assets by:
        (a) assigning the carrying value of each asset to the applicable RSF Category set out in Table 1 to this Rule;
        (b) adjusting the carrying value of each asset by multiplying it by the applicable RSF Factor set out in Table 1; and
        (c) adding together each adjusted carrying value.
        (3) An Authorised Firm must calculate the adjusted carrying values of its respective OBS Exposures (or potential liquidity Exposures) by:
        (a) assigning the carrying value of each Exposure to one of the OBS-RSF Categories set out in Table 2 to this Rule;
        (b) adjusting the carrying value of each asset by multiplying it by the applicable OBS-RSF Factor for that OBS-RSF Category, as set out in Table 2; and
        (c) adding together each adjusted carrying value.
        Table 1 - RSF Factors and Categories
        RSF Factor
        Components of RSF Category
        0%
        (a) coins and banknotes immediately available to meet obligations;
        (b) all Central Banks reserves (including required reserves and excess reserves);
        (c) all claims on Central Banks with residual maturities of less than six months; and
        (d) trade date receivables arising from sales of financial instruments, foreign currencies and commodities that:
        (i) are expected to settle within the standard settlement cycle or period that is customary for the relevant exchange or type of transaction; or
        (ii) have failed to, but are still expected to, settle.
        5% Unencumbered assets included in PIB Rule A9.2.6(2) (Level 1 HQLA), excluding assets receiving a 0% RSF Factor as specified above.
        10% Unencumbered loans to financial institutions with residual maturities of less than six months, if the loan is secured against Level 1 HQLA included in PIB Rule A9.2.6, and where the bank has the ability freely to hypothecate the received collateral for the life of the loan.
        15%

        All loans to financial institutions with a residual maturity of less than six months, other than those receiving a 10% RSF Factor as specified above.

        Unencumbered assets as defined in PIB Rule A9.2.7(2) (Level 2 HQLA).

        50%
        (a) unencumbered assets included in PIB Rule A9.2.8(2) (Level 2B HQLA), excluding any haircuts required under that Rule;
        (b) any HQLA as defined in PIB Rules A9.2.6 to A9.2.8 that are encumbered for a period of between six months and less than one year;
        (c) all loans to financial institutions and Central Banks with residual maturity of between six months and less than one year;
        (d) operational deposits, that is, deposits held at other financial institutions for operational purposes, that are subject to the 50% ASF Factor set out in the table in PIB Rule A9.4.1; and
        (e) all other non-HQLA not included in the above categories that have a residual maturity of less than one year, including loans to non-financial corporate clients, loans to retail customers (i.e. natural persons) and small business customers, and loans to sovereigns and PSEs.
        65%
        (a) unencumbered residential mortgages with a residual maturity of one year or more that would qualify for a 50% or lower risk weight under PIB Rule 4.12.17; and
        (b) other unencumbered loans not included in the above categories, excluding loans to financial institutions, with a residual maturity of one year or more that would qualify for a 50% or lower risk weight under PIB section 4.12 (Risk Weights).
        85%
        (a) cash, securities or other assets posted as initial margin for derivative contracts or Shari'a compliant hedging contracts and cash or other assets provided to contribute to the default fund of a Central Counterparty (CCP). Where securities or other assets posted as initial margin for derivative contracts would otherwise receive a higher RSF Factor, they should retain that higher factor;
        (b) other unencumbered performing loans that do not qualify for the 50% or lower risk weight under PIB section 4.12 and have residual maturities of one year or more, excluding loans to financial institutions.
        (c) unencumbered securities with a remaining maturity of one year or more and exchange-traded equities, that are not in default and do not qualify as HQLA; and
        (d) physical traded commodities, including gold.
        100%
        (a) all assets that are encumbered for a period of one year or more;
        (b) NSFR derivative assets (net of NSFR derivative liabilities) if NSFR derivative assets are greater than NSFR derivative liabilities;
        (c) NSFR Shari'a compliant hedging assets net of NSFR Shari'a compliant hedging liabilities if NSFR Shari'a compliant hedging assets are greater than NSFR Shari'a compliant hedging liabilities;
        (d) all other assets not included in the above categories, including non-performing loans, loans to financial institutions with a residual maturity of one year or more, non-exchange-traded equities, fixed assets, items deducted from regulatory capital, retained interest, insurance assets, subsidiary interests and defaulted securities;
        (e) 20% of derivative liabilities (i.e. negative replacement cost amounts), before deducting variation margin posted; and
        (f) 20% of Shari'a compliant hedging liabilities.

         

        Table 2 - OBS-RSF Factors and Categories
        OBS-RSF Factor
        Components of OBS-RSF Category
        3% Trade finance related obligations (including guarantees and letters of credit).
        5%
        (a) irrevocable and conditionally revocable credit and liquidity facilities to any client; and
        (b) unconditionally revocable credit and liquidity facilities.
        10%
        (a) the following non-contractual obligations:
        (i) structured products where customers anticipate marketability, such as adjustable rate notes and variable rate notes; and
        (ii) managed funds that are marketed with the objective of maintaining a stable value; and
        (b) guarantees and letters of credit unrelated to trade finance obligations.
        100%

        The following non-contractual obligations:

        (a) potential requests for debt repurchases of the bank's own debt or that of related conduits, securities investment vehicles and other such financing facilities; and
        (b) other non-contractual obligations not mentioned above.

         

        Derived from DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]
        [Added] DFSA RMI270/2020 (Made 26th February 2020). [VER36/04-20]

        • PIB A9.4.2 Guidance

          1. An Authorised Firm's RSF represents the liquidity risk profile of its assets and OBS Exposures (or potential liquidity Exposures).
          2. When determining its RSF, an Authorised Firm should:
          a. include financial instruments, foreign currencies and commodities for which a purchase order has been executed; and
          b. exclude financial instruments, foreign currencies and commodities for which a sales order has been executed, even if such transactions have not been reflected in the balance sheet under a settlement-date accounting model, provided that:
          i. the transactions are not reflected as derivatives or secured financing transactions in the firm's balance sheet; and
          ii. the effects of such transactions will be reflected in the firm's balance sheet when settled.
          3. For secured funding arrangements, use of balance sheet and accounting treatments should generally result in a firm excluding, from their assets, securities which they have borrowed in securities financing transactions (such as reverse repos and collateral swaps) where they do not have beneficial ownership. In contrast, a firm should include securities they have lent in securities financing transactions where they retain beneficial ownership. A firm should also not include any securities they have received through collateral swaps if those securities do not appear on their balance sheet. Where a firm has encumbered securities in repos or other securities financing transactions, but has retained beneficial ownership and those assets remain on its balance sheet, the firm should allocate such securities to the appropriate RSF Category.
          4. SFT with a single counterparty should be measured net when calculating the NSFR, provided that the netting conditions set out in PIB Rules 4.9.13 to 4.9.20 are met.
          5. Derivative assets are calculated first based on the replacement cost for derivative contracts (obtained by marking to market) where the contract has a positive value. When an eligible bilateral netting contract is in place that meets the conditions as specified in the instructional guidelines for Form B300 set out in PRU Section 1.48, the replacement cost for the set of derivative exposures covered by the contract will be the net replacement cost.
          6. Shari'a compliant hedging liabilities (e.g. Islamic swaps) are calculated first based on the replacement cost for the Shari'a compliant hedging contracts (obtained by marking to market), such as ISDA/IIFM Tahawwut Master Agreement (TMA), where the contract has a negative value. When an eligible bilateral netting contract is in place, the replacement cost for the set of Shari'a compliant hedging exposures covered by the contract will be the net replacement cost.
          7. In calculating NSFR derivative assets, collateral received in connection with derivative contracts should not offset the positive replacement cost amount, regardless of whether or not netting is permitted under the firm's operative accounting or risk-based framework, unless it is received in the form of cash variation margin and meets the conditions as specified in the instructional guidelines for Form B300 set out in PRU section 1.48. Any remaining balance sheet liability associated with: (a) variation margin received that does not meet the criteria above; or (b) initial margin received; may not offset derivative assets and should be assigned a 0% ASF Factor.
          8. In calculating NSFR Shari'a compliant hedging liabilities, collateral posted in the form of variation margin that follows Shari'a principles in connection with Shari'a compliant hedging contracts as in the TMA contract, regardless of the asset type, must be deducted from the negative replacement cost amount.
          Derived from DFSA RM209/2017 (Made 25th October 2017). [VER30/01-18]