Arab Banking B S C : Regulatory Liquidity Disclosures​​ - 30 Sep 20203

Regulatory Liquidity Disclosures

30 September 2023

Bank ABC (Arab Banking Corporation B.S.C.)

Regulatory Liquidity Disclosures

Introduction

In June 2019, the Central Bank of Bahrain (CBB) issued the regulations to banks operating in Bahrain on the reporting of the Liquidity Coverage Ratio (LCR) as part of the Basel III reforms.

The main objective of the Liquidity Coverage Ratio (LCR) is to promote the short-term resilience of the liquidity risk profile of banks by ensuring that they have sufficient level of high-quality liquid assets (HQLA) to cover net outflows and survive a significant stress scenario lasting for a period of up to 30 calendar days. Under the requirements, the Bank is required to maintain an LCR requirement of at least 100% on a daily basis.

HQLA eligible securities, fall into three categories: Level 1, Level 2A, and Level 2B liquid assets. Level 1 liquid assets, which are of the highest quality and deemed the most liquid is subject to no or little discount (or haircuts) to their market value and may be largely used without limit in the liquidity buffer. Level 2A and 2B securities are recognised as being relatively stable and reliable sources of liquidity, but not to the same extent as Level 1 assets. LCR rules therefore set a 40 per cent composition cap on the combined amount of Level 2A and Level 2B securities that firms may hold in their total eligible liquidity buffer. Level 2B liquid assets, which are considered less liquid and more volatile than Level 2A liquid assets, are subject to large and varying haircuts and may not exceed 15 per cent of the total eligible HQLA.

Bank ABC Group's HQLA comprised primarily "Level 1" securities (92%) with the Central Bank of Bahrain (CBB) and the sovereign and central banks of countries where the Bank has branches and subsidiaries, and also include highly rated corporate debt issuances.

Outflows & Inflows

Expected outflows are generally calculated as a percentage outflow of on-balance sheet items (e.g. funding received) and off-balance sheet commitments (e.g. credit and liquidity lines) made by firms. The % of outflow varies typically by counterparties per the liquidity rules.

Expected inflows are also generally calculated as a percentage inflow on-balance sheet items and include inflows (e.g. from corporate or retail loans) that will be repaid within 30 days. To ensure a minimum level of liquid asset holdings, and to prevent firms from relying solely on anticipated inflows to meet their liquidity coverage ratio, the prescribed amount of inflows that can offset outflows is capped at 75 per cent of total expected outflows.

The cash-outflows were driven primarily by unsecured wholesale funding and inter-bank borrowings.

The Bank utilises internal Risk Appetite Statement thresholds ("RAS") which act as early warning indicators and safeguards to ensure LCR is maintained above the regulatory minimum requirements at all times.

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Bank ABC (Arab Banking Corporation B.S.C.)

Regulatory Liquidity Disclosures

Quantitative Disclosure

The Group continued to maintain a strong average LCR position over the reporting period with a prudent surplus to both Board approved risk appetite and regulatory requirements. The Group's average LCR was 311% in the third quarter of 2023 (compared to June 2023: 276%) driven by stable HQLA holdings and lower net cash outflows, reflecting the Group's focus on high-quality liquid assets across our units and aligned with overall growth in the Group's balance sheet and external liquidity environment. Bank ABC also holds adequate liquidity across all its footprint to meet all local prudential LCR requirements, where applicable.

Liquidity Coverage Ratio (LCR) for the quarter ended 30th September 2023 (continued)

Quantitative Disclosure (continued)

				All figures in US$ '000
		30 September 23	30 June 23
		Total	Total	Total	Total
		unweighted	weighted	unweighted	weighted
		value	value	value	value
		(average)**	(average)**	(average)**	(average)**
High-quality liquid assets
1	Total HQLA		4,843		4,866
Cash outflows
2	Retail deposits and deposits from small
	business customers, of which:
3	Stable deposits
4	Less stable deposits	1,291	129	1,267	127
5	Unsecured wholesale funding, of which:
6	Operational deposits (all counterparties) and	213	53	314	78
deposits in networks of cooperative banks
7	Non-operational deposits (all counterparties)	7,776	4,262	7,499	4,237
8	Unsecured debt	-	-	-	-
9	Secured wholesale funding		59		25
10	Additional requirements, of which:
11	Outflows related to derivative exposures and other	26	26	1	1
collateral requirements
12	Outflows related to loss of funding on debt	-	-	-	-
	products
13	Credit and liquidity facilities	288	29	209	22
14	Other contractual funding obligations	280	280	273	273
15	Other contingent funding obligations	1,285	64	1,530	76
16	Total Cash Outflows		4,903		4,839
Cash inflows
17	Secured lending (eg. reverse repos)	1,120	23	811	11
18	Inflows from fully performing exposures	3,998	2,879	3,795	2,798
19	Other cash inflows	443	443	267	267
20	Total Cash Inflows	5,561	3,345	4,873	3,075
	Cap on cash inflows	75%	3,677	75%	3,629
	Total cash inflows after applying the cap		3,345		3,075
			Total		Total
			adjusted		adjusted
			value		value
21	Total HQLA		4,843		4,866
22	Total net cash outflows		1,558		1,764
23	Liquidity Coverage Ratio (%) Average		311%		276%

• In accordance with the CBB liquidity module, LCR presented above is a simple average of daily LCR of all working days during Q3 2023 and Q2 2023 respectively.
  The Consolidated Group LCR ratio as at 30 September 2023 was 247% (30th June 2023: 317%).
  Bank ABC acquired Blom Bank Egypt effective 11th August 2021. Whilst the integration is taking place, figures of the acquired entity has been considered based on their local regulatory submission.

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Bank ABC (Arab Banking Corporation B.S.C.)

Regulatory Liquidity Disclosures

Introduction

In August 2018, the Central Bank of Bahrain (CBB) issued the regulations to banks operating in Bahrain on the reporting of the Net Stable Funding Ratio (NSFR) effective 31 December 2019. The purpose of this disclosure is to provide the information pursuant to CBB's Liquidity Risk Management module LM 12.5 "General Disclosure Requirements".

The NSFR is a balance sheet metric which requires institutions to maintain a stable funding profile in relation to the characteristics of their assets and off-balance sheet activities over a one-year horizon. It is the ratio between the amount of available stable funding (ASF) and the amount of required stable funding (RSF). ASF factors are applied to balance sheet liabilities and capital, based on their perceived stability and the amount of stable funding they provide. Likewise, RSF factors are applied to assets and off-balance sheet exposures according to the amount of stable funding they require. As per the CBB liquidity disclosure requirement, the Consolidated NSFR is to be published on a quarterly basis. At the last reporting date, the Group NSFR remained above 100 per cent.

The Bank utilises internal Risk Appetite Statement thresholds ("RAS") which act as early warning indicators and safeguards to ensure NSFR is maintained above the regulatory minimum requirements.

Quantitative Disclosure

At 30 September 2023, the Consolidated Group NSFR was stable at 122% (June 2023 : 123%), well above the regulatory minimum. Available Stable Funding at Group level as of 30 September

2023 was around US$ 20.9 billion (June 23: US$ 20.6 billion) as against US$ 17.1 billion (June 23: US$ 16.7 billion) of Required Stable Funding.

The drivers of available stable funding include Bank ABC's robust capital base, substantial and reliable wholesale funding from customers and a retail deposits in MENA units. Required stable funding include financing various customers including non-financial corporates, sovereigns, PSE's

• financial institutions and retail and small business customers. Bank ABC's HQLA requires minimal funding mainly due to the significant component of Level 1 assets in the portfolio.

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Bank ABC (Arab Banking Corporation B.S.C.)

Regulatory Liquidity Disclosures

Quantitative Disclosure (continued)

										All figures in US$ '000
			30 September 23					30 June 23
		Unweighted Values (i.e. before applying relevant		Unweighted Values (i.e. before applying
			factors)				relevant factors)
				Over		Total			Over		Total
					weighted				weighted
		No specified	Less than	6 months	Over one	No specified	Less than	6 months	Over one
		value	value
		and less	and less
		maturity	6 months	year		maturity	6 months	year
		than one		than one
				year					year
Available Stable Funding (ASF):
2	Regulatory Capital	4,141				4,141	4,088				4,088
3	Other Capital Instruments	463			325	788	475			330	805
4	Retail deposits and deposits from small business customers:
5	Stable deposits			74		70			74		70
6	Less stable deposits		1,843	354	372	2,349		1,764	438	266	2,248
7	Wholesale funding:
8	Operational deposits
9	Other wholesale funding		19,125	4,517	7,783	13,526		18,275	5,233	7,588	13,386
10	Other liabilities:
11	NSFR derivative liabilities		-					-
12	All other liabilities not included in the above categories		1,507			-		1,414			-
13	Total ASF					20,874					20,598
Required Stable Funding (RSF):
14	Total NSFR high-quality liquid assets (HQLA)	11,594	670	-	-	767	10,149	865	-	-	613
15	Deposits held at other financial institutions for operational purposes	-	-	-	-	-	-	-	-	-	-
16	Performing loans and securities:
17	Performing loans to financial institutions secured by Level 1 HQLA	-	-	-	-	-	-	-	-	-	-
18	Performing loans to financial institutions secured by non-level 1 HQLA and unsecured performing loans to	-	3,882	1,027	757	1,809	-	3,344	1,258	663	1,760
	financial institutions
19	Performing loans to non- financial corporate clients, loans to retail and small business customers, and		6,834	2,643	5,587	9,487		7,430	1,966	5,905	9,718
	loans to sovereigns, central banks and PSEs, of which:
20	- With a risk weight of less than or equal to 35% as per the CBB Capital Adequacy Ratio guidelines	-	-	-	168	109	-	-	-	179	116
21	Performing residential mortgages, of which:	-	-	-	-	-	-	-	-	-	-
22	With a risk weight of less than or equal to 35% under the CBB Capital Adequacy Ratio Guidelines	-	-	-	-	-	-	-	-	-	-
23	Securities that are not in default and do not qualify as HQLA, including exchange-traded equities	-	517	205	1,141	1,331	-	477	354	1,162	1,403
24	Other assets:
25	Physical traded commodities, including gold
26	Assets posted as initial margin for derivative contracts and contributions to default funds of CCPs
27	NSFR derivative assets		221			221		174			174
28	NSFR derivative liabilities before deduction of variation margin posted		-			-		-			-
29	All other assets not included in the above categories	1,832	368	6	2,594	2,862	2,910	469	198	2,074	2,491
30	OBS items		9,349			467		9,273			464
31	Total RSF					17,053					16,738
32	NSFR (%)					122%					123%

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