53.Off-balance sheet items include commitments (including liquidity facilities), whether or not unconditionally cancellable, direct credit substitutes, acceptances, standby letters of credit and trade letters of credit. If the off-balance sheet item is treated as a derivative exposure per the bank’s relevant accounting standards, then the item must be measured as a derivative exposure for the purpose of the leverage ratio exposure measure.

54.For the purposes of the leverage ratio, off-balance sheet items will be converted into credit exposures by multiplying the committed but undrawn amount by a credit conversion factor (CCF).

55.A 100% CCF will be applied to the following items:

• •direct credit substitutes;
• •forward asset purchases, forward deposits and partly paid shares and securities, which represent commitments with certain drawdown;
• •the exposure amount associated with unsettled financial asset purchases (i.e. the commitment to pay) where regular-way unsettled trades are accounted for at settlement date. Banks may offset commitments to pay for unsettled purchases and cash to be received for unsettled sales provided that the following conditions are met:
  (i) the financial assets bought and sold that are associated with cash payables and receivables are fair valued through income and included in the bank’s regulatory trading book; and (ii) the transactions of the financial assets are settled on a delivery- versus-payment basis; and
• •Off-balance sheet items that are credit substitutes not explicitly included in any other category.

56.A 50% CCF will be applied to note issuance facilities and revolving underwriting facilities regardless of the maturity of the underlying facility.

57.A 50% CCF will be applied to certain transaction-related contingent items (e.g. performance bonds, bid bonds, warranties and standby letters of credit related to particular transactions).

58.A 40% CCF will be applied to commitments, regardless of the maturity of the underlying facility, unless they qualify for a lower CCF.

59.A 20% CCF will be applied to both the issuing and confirming banks of short-term (i.e. with a maturity below one year), self-liquidating trade letters of credit arising from the movement of goods.

60.A 10% CCF will be applied to commitments that are unconditionally cancellable at any time by the bank without prior notice, or that effectively provide for automatic cancellation due to deterioration in a borrower’s creditworthiness. As appropriate, the Central Bank may apply a higher CCF to certain commitments provided that constraints on a bank’s ability to cancel such commitments are observed.

61.Where there is an undertaking to provide a commitment on an off-balance-sheet item, banks are to apply the lower of the two applicable CCFs.

62.Off-balance sheet securitization exposures must be treated in accordance with the Central Bank’s requirements on securitizations as stated in applicable regulations and standards.

63.In addition, specific and general provisions set aside against off-balance sheet exposures that have decreased Tier 1 capital may be deducted from the credit exposure equivalent amount of those exposures (i.e. the exposure amount after the application of the relevant CCF). However, the resulting total off-balance-sheet equivalent amount for off-balance sheet exposures cannot be less than zero.