Skip to main content
Back Custom print Text Only Rich Text Print

  • D. NSFR (Net Stable Funding Ratio)

    A more detailed description of the NSFR is contained in the BCBS document “Basel III: the net stable funding ratio” dated October 2014. If there is any ambiguity between this guidance manual and this document the BCBS document takes precedent. Banks are expected to meet the NSFR on an ongoing basis.

    1. 144) The NSFR standard is derived from the BCBS document ‘Basel III: the net stable funding ratio’ and will come into effect on 1 January 2018. There will no requirement to comply with the standard until that date although reporting will start beforehand and only for those banks who qualify for the LCR as their liquidity ratio will be affected. It is meant to compliment the LCR by limiting the cliff effects associated with a stacking up of liability maturities within a short period of time. It is designed to ensure that banks fund their activities with sufficiently stable sources of funding to mitigate the risk of future funding stress.
    2. 145) The NSFR is defined as the amount of available stable funding relative to the amount of required stable funding. This ratio should be equal to at least 100% on an ongoing basis.
    3. 146) Available stable funding’ is defined as the portion of capital and liabilities expected to be reliable over a 1 year time horizon. The amount of stable funding required is a function of the liquidity characteristics and residual maturities of the various assets held by an institution including off-balance sheet exposure
    4. 147) To simplify the NSFR is:

                        1

    • Definition of Available Stable Funding (ASF)

      1. 148) The ASF is determined by assigning weighted values to various funding sources depending on the nature of the source, its contractual maturity and the propensity of funding providers to withdraw their funding. This includes such things as call options and the ability of the bank to refuse the exercising of the call. Only those proportions of the cash flow actually maturing beyond the maturity thresholds as prescribed by the ratio can be included.
      2. 149) The cash flows for derivative contracts will be assessed at the replacement cost where the contract has a negative value. If a netting agreement exists then this can be taken into account and the netted position can be used. Collateral posted as variation margin can also be allowed for.
      3. 150) Liabilities and capital receiving a 100% ASF factor are:
        1. a) The total amount of regulatory capital excluding the proportion of Tier 2 instruments with a residual maturity of less than one year
        2. b) Any capital instrument not included in (a) that has an effective residual maturity of one year or more (excludes those with explicit or embedded option that negates this condition)
        3. c) The total amount of secured and unsecured borrowings and liabilities with effective residual maturities of one year or more.
      4. 151) Liabilities receiving a 95% ASF factor:
      5. These comprise ‘stable’ demand deposits as per the LCR (paragraphs 107 and 108) as well as retail term deposits as per the LCR with residual maturities of less than one year.
      6. 152) Liabilities receiving a 90% ASF factor
      7. These comprise ‘less stable’ demand deposits as defined in the LCR (paragraph 109) as well as retail term deposits as per the LCR with residual maturities of less than one year
      8. 153) Liabilities receiving a 50% ASF factor
        1. a) Funding (secured and unsecured) with a residual maturity of less than one year provided by non-financial corporate customers
        2. b) Operational deposits (as defined in the LCR paragraph 114)
        3. c) Funding with a residual maturity of less than one year from sovereigns, public sector entities and multilateral and development banks and
        4. d) Funding from other sources not included above with a residual maturity between 6 months and one year.
      9. 154) Liabilities receiving a 0% ASF factor

        These comprise everything else with a few technical exceptions including net derivative liabilities (refer BCBS document paragraph 25 and paragraph 149 above)

    • Definitions of Required Stable Funding (RSF)

      1. 155) The amount of required stable funding is measured based on the broad characteristics of the liquidity risk profile of an institutions assets and OBS exposures. The calculation first assigns a carrying value of the asset to the prescribed categories and then multiplies this by the required RSF factor. The total RSF is the sum of the weighted amounts for both on and off balance sheet exposures.
      2. 156) The rationale behind the RSF factors is that they approximate the amount of a particular asset that would have to be funded, either because it will (or is likely to be) rolled over and could not be monetized either by sale or as collateral, over the course of one year without significant expense. These amounts have to be supported by stable funding.
      3. 157) Assets are allocated to the appropriate RSF factor based on their residual maturity or liquidity value. Residual maturity has to take into account any options either explicit or implied that may extend the maturity of the asset (or OBS exposure). Amortized loans can be adjusted for that portion falling due within the one year time horizon.
      4. 158) Encumbered assets are assessed as per the period they are encumbered for at the highest applicable RSF factor if that period is greater than 6 months. Where the encumbrance period is less that 6 months the factor will be the same as unencumbered assets.
      5. 159) Banks should exclude from their assets securities which they have borrowed in financing transactions such as reverse repos and collateral swaps where they do not have beneficial ownership. Banks should include securities they have lent where they retain beneficial ownership. Securities received through collateral swaps should not be included if they do not appear on the balance sheet. Generally, if the bank retains beneficial ownership and the security appears on the balance sheet it should be assigned a RSF factor.
      6. 160) Netting can be accommodated provided there is a valid netting agreement. Likewise cash collateral can be taken into account.
      7. 161) Derivative assets are firstly based on replacement cost where the contract has a positive value.
      8. 162) Assets assigned a 0% RSF factor
        1. a) Coins and bank notes
        2. b) Central Bank Reserves
        3. c) All claims on Central Banks with residual maturities of less than 6 months
        4. d) ‘trade date receivables’ as per BCBS document paragraph 30 and 36 (d)
      9. 163) Assets assigned a 5% RSF factor
        1. a) Unencumbered Level 1 high quality liquid assets as defined in the LCR excluding those receiving a 0% RSF as above
        2. b) Marketable securities representing claims or guaranteed by those entities prescribed a 0% risk weight by the Basel II standardized approach for credit risk.
      10. 164) Assets assigned a 10% RSF factor
        1. a) Unencumbered loans to financial institutions with residual maturities of less than 6 months where the loan is secured against Level 1 assets as defined by the LCR and where the bank can freely use the collateral for the life of the loan.
      11. 165) Assets assigned a 15% RSF factor
        1. a) Unencumbered Level 2A assets as defined in the LCR
        2. b) All other unencumbered loans to financial institutions with residual maturities of less than 6 months not included in 164
      12. 166) Assets assigned a 50% RSF factor
        1. a) Unencumbered Level 2B assets as per the LCR (when allowed)
        2. b) HQLA (as per the LCR) that are unencumbered for a period of between six months and one year
        3. c) Loans to financial institutions and central banks with a residual maturity of between six months and one year
        4. d) Deposits held at other financial institutions for operational purposes
        5. e) All other assets not included in the above categories that have a residual maturity of less than one year including loans to non-financial corporate clients, retail and SME loans as well as loans to sovereigns and PSEs. (GREs included).
        6. f) Overdrafts that are core are to be assessed on a case by case basis and will be assumed to have a maturity greater than one year.
      13. 167) Assets assigned a 65% RSF factor
        1. a) Unencumbered residential mortgages with a residual maturity of one year or more providing they qualify for a 35% or lower risk weight under Basel II standardized approach for credit risk.
        2. 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 35% or lower risk weight under Basel II standardized approach.
      14. 168) Assets assigned an 85% RSF factor
        1. a) Cash, securities or other assets posted as initial margin for derivative contracts or assets provided to contribute to the default fund of a central counterparty.
        2. b) Other unencumbered performing loans that do not qualify for the 35% or lower risk weight requirements in 167) and have residual maturities of one year or more, excluding loans to financial institutions
        3. c) Unencumbered securities with a remaining maturity of one year or more as well as exchange traded equities that are not in default and do not qualify as HQLA under the LCR.
        4. d) Physical traded commodities such as gold
      15. 169) Assets assigned a 100% RSF factor
        1. a) All assets that are encumbered for a period of one year or more
        2. b) NSFR derivative assets as calculated subject to paragraph 160 and 161 net of NSFR derivative liabilities calculated as per paragraph 149, if the NSFR derivatives assets are greater than liabilities.
        3. c) All other assets not included in the above categories including non-performing loans, loans to FIs with a residual maturity of one year or more, non-exchange traded equities, fixed assets, items deducted from regulatory capital, subsidiary interests and defaulted securities
        4. d) 20% of derivative liabilities as calculated according to paragraph 149

    • Off-Balance Sheet Exposures

      1. 170) 5% RSF factor of the currently undrawn portion
        1. a) Irrevocable and conditionally revocable credit and liquidity facilities for any client
        2. b) Trade finance related obligations (including guarantees and letters of credit)
      2. 171) 10% RSF factor
        1. a) Non-contractual obligations such as potential requests for debt repurchases of the banks own debt, structured products where the bank has to maintain liquidity and managed funds where there is a commitment to maintain stability
      3. 172) 20% RSF factor
        1. a) Guarantees and letters of credit unrelated to trade finance obligations