4 Liquidity Maintenance Ratio (LMR) Calculation

The LMR is a simplified form of the LCR for institutions designated as Category 2 by the Hong Kong Monetary Authority. It is a ratio of the amount of a category 2 institution’s liquefiable assets to the amount of the institution’s qualifying liabilities over a calendar month.

As prescribed by the HKMA, a Category 2 institution must maintain an LMR of not less than 25% on average in each calendar month.

This is a formula to calculate the LMR.

Where:

Total Liquefiable Assets is the Sum of all Liquefiable Assets (Post Haircut) minus the Deductions from Liquefiable Assets (Post Haircut).

Total Qualifying Liabilities is the Sum of all Qualifying liabilities (Post Haircut) minus the Deductions from Qualifiable Liabilities (Post Haircut).

Topics:

· Prerequisites for Ratio Calculation

· Ratio Constituents

· Pre-configured Regulatory LMR Scenario as per HKMA

Prerequisites for Ratio Calculation

This section lists the intermediate calculations and results required to calculate the LMR.

Topics:

· Net Due from Banks

· Credit Quality Grade

· Qualifying ECAI Rating

Net Due from Banks

This computation reflects the net amount to be received by the bank in question from other banks at an aggregate level. If this resulting amount is positive, it indicates that the bank is to receive amounts from other banks and is therefore treated as an Asset. If this resulting amount is negative, it indicates that the bank owes the amount to other banks and is therefore treated as a Liability.

The computation is done as follows:

Illustration - Computation of Net Due from Banks
Standard Product type	Standard Party Type (Counterparty)	Measure	Residual Maturity	Example 1	Net Due From Banks - Example1	Example 2	Net Due From Banks - Example 2
Liabilities of the Institution to other banks
Deposits	All Banks excluding Central Bank	EOP Balance	<=1 month	4000	1240	3000	-190
Borrowings		Fair Value		2300		1200
Line of Credit received		Drawn Amount		110		400
Securities Issued		Fair Value		3000		4000

Liabilities from banks to the Institution
Balances with banks	All Banks excluding Central Bank	EOP Balance	<=1 month	1000		1300
Non Marketable Debt Securities (Marketable Flag=No)		Fair Value		3500		4090
Loans		EOP Balance		6000		2920
Line of Credit		Drawn Amount		150		100

NOTE:

1. This computation is done at a Legal Entity - Currency level.

2. Net Due from Banks is the (Total Liabilities from banks to the institution minus the Total Liabilities of the institution to other banks) in a one-month calendar period.

Cap on Net Due from Banks

If Net due from banks is positive, a certain portion of this amount can be included in the Liquefiable Assets. This portion is limited to 40% of the Qualifying liabilities.

Illustration - Cap on Net Due from Banks
Computed Amount	Example 1	Comments- Example 1	Example 2	Comments- Example 2
Net Due from Banks	1240		-190	This sign signifies that the institution’s liabilities exceed its receivables from other banks.
Qualifying Liabilities	2000
Capped Net due from Banks	800	This amount goes to the Liquefiable assets and receives the appropriate factor.
Excess Net due from Banks	440	This amount goes to the Qualifying liabilities and receives the appropriate factor.

If Net due from Banks is negative, then it is only included in the denominator of LMR.

In Example 2:

Illustration - Cap on Net Due from Banks when Net due from Banks is negative
Institution's one month liabilities to banks	8600	This amount goes to the Qualifying Liabilities and receives the appropriate factor.
Banks' one month liabilities to the institution	8410	This amount goes to the Deductions from Qualifying Liabilities and receives the appropriate factor.

Credit Quality Grade

See Credit Quality Grade for details.

Qualifying ECAI Rating

For inclusion within the LMR, the grade/ratings of the issuer/guarantor/security should meet certain criteria. When these criteria are met, the Rating is deemed as Qualifying. The criteria are based mainly on the worst grade up to which the security can be included within the ratio. The criteria for an Issuer/Guarantor qualification and a Security rating qualification is specified in the following section.

The tables in this section list the criteria by which the security is Qualifying to be included in the LMR. For example: For a Security issued outside India, if the Grade is 1 or 2 in Long Term Ratings, then the security is Qualifying. This implies that Long Term Grade 3, 4, 5, and 6 are not qualifying.

The table which refers to an attribute called Qualifying rating, is marked Yes when either the Issue OR Issuer OR Guarantor is Qualifying

Topics:

· Qualifying Grade for a Security/Issue

· Qualifying Grade for an Issuer/Guarantor

· Qualifying ECAI Rating

Qualifying Grade for a Security/Issue

Security is deemed to be qualifying for the context of LMR (Qualifying ECAI Issue-specific rating is Yes) if it satisfies the criteria in the following table.

Criteria for Qualifying Grade for a Security/Issue
Issuer Domicile	Standard Party Type (Issuer OR Guarantor)	Credit Quality Grade Instrument (Processing)	Qualifying ECAI Issue Specific Rating
Other than India		1	Yes
		2	Yes
		1s	Yes
		2s	Yes
India	Other than Corporates	1	Yes
		2	Yes
		1s	Yes
		2s	Yes
India	Corporates	1	Yes
		2	Yes
		3	Yes
		1s	Yes
		2s	Yes
		3s	Yes

Qualifying Grade for an Issuer or Guarantor

An issuer or guarantor is deemed to be qualifying for the context of LMR (Qualifying ECAI Issuer rating is Yes) if it satisfies the criteria in the following table.

Criteria for Qualifying Grade for an Issuer or Guarantor
Issuer Domicile	Standard Party Type (Issuer OR Guarantor)	Credit Quality Grade Issuer/ Guarantor (Processing)	Qualifying ECAI Issuer Rating
Other than India		1	Yes
Other than India		2	Yes
India	Other than Corporates	1	Yes
India	Other than Corporates	2	Yes
India	Corporates	1	Yes
		2	Yes
		3	Yes

Qualifying ECAI Rating

An account is deemed to be qualifying for the context of LMR (Qualifying ECAI rating is Yes) if either its issuer or guarantor or the issue satisfies the criteria in the following table.

Illustration- Qualifying ECAI rating
Qualifying ECAI Issue Specific Rating	Qualifying ECAI Issuer/Guarantor Rating	Qualifying ECAI Rating (Derived)
Yes	Yes	Yes
Yes	No	Yes
No	Yes	Yes
No	No	No

Ratio Constituents

LMR is a ratio of assets over liabilities as prescribed in the HKMA guidelines. It considers certain assets and liabilities, referred to as liquefiable assets and qualifying liabilities.

This is a formula to calculate the LMR.

Where:

The Constituents of the ratio are identified through pre-configured business rules. See the Regulation Addressed through Business Rules section for details.

The haircuts applicable to each asset or liability are applied through pre-configured business assumptions. See the Regulation Addressed through Business Assumptions section for details.

Preconfigured Regulatory LMR Scenario as per HKMA

The list of preconfigured business assumptions and rules, as well as the corresponding reference to the regulatory requirement that it addresses, is provided in the following tables.

Topics:

· Regulation Addressed through Business Rules

· Regulation Addressed through Business Assumptions

Regulation Addressed through Business Rules

The application supports multiple pre-configured rules and scenarios based on HKMA specified scenario parameters. The list of preconfigured business rules and the corresponding reference to the regulatory requirement that it addresses are provided in the following section:

NOTE:

This section provides contextual information about the business rules. For more detailed information, see the OFS LRS application (UI).

This list contains only the Rules which directly correspond to regulatory references. For the complete set of Rules, T2T and Functions, detailed Processes, and Tasks used in HKMA LCR, see the Run Chart.

Preconfigured HKMA LMR Business Rules

Sl. No.	Rule Name	Rule Description	Regulatory Requirement Addressed	Regulatory Reference 1. HKMA Banking (Liquidity) Rules Capital 155 Sub leg Q 2. HKMA Capital Rules 155L

1	LRM - HKMA LMR - Issuer Party Rating Classification - Grade 1	This rule updates the grade skey for the issuer based on the issuer type, issuer domicile and issuer rating as Grade 1.	This set of Rules updates the Credit Quality grade of the instrument, based on the issuer. This is done along with Grades 1 to 6. Grade 1 being the highest quality credit grade.	Capital Rules - Schedule 6
2	LRM - HKMA LMR - Issuer Party Rating Classification - Grade 2	This rule updates the grade skey for the issuer based on the issuer type, issuer domicile and issuer rating as Grade 2.
3	LRM - HKMA LMR - Issuer Party Rating Classification - Grade 3	This rule updates the grade skey for the issuer based on the issuer type, issuer domicile and issuer rating as Grade 3.
4	LRM - HKMA LMR - Issuer Party Rating Classification - Grade 4	This rule updates the grade skey for the issuer based on the issuer type, issuer domicile and issuer rating as Grade 4.
5	LRM - HKMA LMR - Issuer Party Rating Classification - Grade 5	This rule updates the grade skey for the issuer based on the issuer type, issuer domicile and issuer rating as Grade 5.
6	LRM - HKMA LMR - Issuer Party Rating Classification - Grade 6	This rule updates the grade skey for the issuer based on the issuer type, issuer domicile and issuer rating as Grade 6.
7	LRM - HKMA LMR - Guarantor Party Rating Classification - Grade 1	This rule updates the grade skey for the guarantor based on the guarantor type, guarantor domicile and guarantor rating as Grade 1.	This set of Rules updates the Credit Quality grade of the instrument, based on the Guarantor. This is done along with Grades 1 to 6. Grade 1 being the highest quality credit grade.	Capital Rules - Schedule 6
8	LRM - HKMA LMR - Guarantor Party Rating Classification - Grade 2	This rule updates the grade skey for the guarantor based on the guarantor type, guarantor domicile and guarantor rating as Grade 2.
9	LRM - HKMA LMR - Guarantor Party Rating Classification - Grade 3	This rule updates the grade skey for the guarantor based on the guarantor type, guarantor domicile and guarantor rating as Grade 3.
10	LRM - HKMA LMR - Guarantor Party Rating Classification - Grade 4	This rule updates the grade skey for the guarantor based on the guarantor type, guarantor domicile and guarantor rating as Grade 4.
11	LRM - HKMA LMR - Guarantor Party Rating Classification - Grade 5	This rule updates the grade skey for the guarantor based on the guarantor type, guarantor domicile and guarantor rating as Grade 5.
12	LRM - HKMA LMR - Guarantor Party Rating Classification - Grade 6	This rule updates the grade skey for the guarantor based on the guarantor type, guarantor domicile and guarantor rating as Grade 6.
13	LRM - LMR - Qualifying Issuer Score	This rule classifies the Issuer rating grade score as qualifying as per the HKMA guidelines.	The HKMA guidelines set out the expectations for a 'Qualifying' issuer or guarantor or issue. For example, an issue (security) is qualifying if it has a credit quality grade of 1 or 2. This set of Rules recognize other such qualifying criteria and identify such accounts as qualifying, in accordance with LMR guidelines.	Liquidity Rules - Schedule 5
14	LRM - LMR - Qualifying Guarantor Score	This rule classifies the Guarantor rating grade score as qualifying as per the HKMA guidelines.
15	LRM - LMR - Qualifying Issuer Instrument Score	This rule updates the qualifying Issuer Instrument score based on credit quality grade as per the HKMA guidelines.
16	LRM - LMR - Qualifying Guarantor Instrument Score	This rule updates the qualifying Issue score based on credit quality grade as per the HKMA guidelines.
17	LRM - LMR - Qualifying ECAI Rating	This rule classifies the qualifying ECAI score based on qualifying issue score and qualifying party score as per the HKMA guidelines.
18	LRM - HKMA LMR - Liquefiable Asset - Cash , Central Bank Reserves and Gold	This rule reclassifies cash, central bank reserves, and Gold as a Liquefiable asset in accordance with the criteria required for Liquidity Maintenance Ratio as specified by HKMA.	This set of Rules identifies the accounts which are eligible to be counted under 'Liquefiable assets' as per the LMR guidelines.	Liquidity Rules Schedule 5, Table A (1)
19	LRM - HKMA LMR - Securities issued by Sovereigns,Central Bank and PSE domiciled in Hong Kong	This rule reclassifies Securities issued by Sovereigns, Central Bank, and PSE domiciled in Hong Kong, in accordance with the criteria specified by HKMA LMR.		Liquidity Rules Schedule 5, Table A (6.a.(i))
20	LRM - HKMA LMR - Securities guaranteed by Sovereigns, Central Bank and PSE domiciled in Hong Kong	This rule reclassifies Securities guaranteed by Sovereigns, Central Bank, and PSE domiciled in Hong Kong, in accordance with the criteria specified by HKMA LMR.		Liquidity Rules Schedule 5, Table A (6.a.(i))
21	LRM - HKMA LMR - Export Bills and Residential Mortgage Loans	This rule reclassifies the Export Bills drawn under Letters of Credit and Residential Mortgage Loans as Liquefiable assets, in accordance with the criteria specified by HKMA LMR.		Liquidity Rules Schedule 5, Table A (6.f) Schedule 5, Table A (7)
22	LRM - HKMA LMR - Securities from Banks and state governments	This rule reclassifies Securities from Banks (central Banks excluded) and State Governments not domiciled in Hong Kong, in accordance with the criteria specified by HKMA LMR.		Schedule 5, Table A (6.b)
23	LRM - HKMA LMR - Asset Backed Securities and Other Securities	This rule reclassifies Asset-Backed Securities, Residential Mortgage-Backed Securities, and other Securities as Liquefiable Asset in accordance with the criteria specified by HKMA LMR.		Liquidity Rules Schedule 5, Table A (6.g)
24	HKMA LMR - Securities issued by other Government entities maturing within 1 year	This rule reclassifies Securities, maturing within 1 year, issued by Sovereigns, Central Bank, and PSE domiciled in Other Countries, in accordance with the criteria specified by HKMA LMR.		Liquidity Rules Schedule 5, Table A (6.b)
25	HKMA LMR - Securities issued by other Government entities maturing beyond 1 year	This rule reclassifies Securities, maturing beyond 1 year, issued by Sovereigns, Central Bank, and PSE domiciled in Other Countries, in accordance with the criteria specified by HKMA LMR.		Liquidity Rules Schedule 5, Table A (6.b)
26	HKMA LMR - Securities guaranteed by other Government entities maturing within 1 year	This rule reclassifies Securities, maturing within 1 year, guaranteed by Sovereigns, Central Bank, and PSE domiciled in Other Countries, in accordance with the criteria specified by HKMA LMR.		Liquidity Rules Schedule 5, Table A (6.b)
27	HKMA LMR - Securities guaranteed by other Government entities maturing beyond 1 year	This rule reclassifies Securities, maturing beyond 1 year, guaranteed by Sovereigns, Central Bank, and PSE domiciled in Other Countries, in accordance with the criteria specified by HKMA LMR.		Liquidity Rules Schedule 5, Table A (6.b)
28	LRM - HKMA LMR - Qualifying Liabilities for Central Banks	This rule updates the F_QUALIFYING_LIABILITY_FLAG flag in the fsi_lrm_liabilities table for all the central bank parties.	This set of Rules identifies the accounts which are eligible to be counted under 'Qualifying liabilities' as per the LMR guidelines.	Liquidity Rules Schedule 5, Table C (1)
29	LRM - HKMA LMR - Qualifying Liabilities for Other than Banks	This rule updates the F_QUALIFYING_LIABILITY_FLAG flag in the fsi_lrm_liabilities table for all the parties other than the central bank and banks.		Liquidity Rules Schedule 5, Table C (2)
30	HKMA LMR - Reporting Line - Deductions from Liquefiable Assets	This rule assigns the repline skey for the accounts that are applicable for deductions from the stock of Liquefiable Asset as per the HKMA LMR guidelines.	These Rules identify deductions applicable to the Numerator and denominator of the LMR.	Liquidity Rules Schedule 5, Table B (1)
31	HKMA LMR - Reporting Line - Deductions from Qualifying Liabilities	This rule assigns the repline skey for the accounts that are applicable for deductions from the stock of Qualifying Liabilities as per the HKMA LMR guidelines.		Liquidity Rules Schedule 5, Table D
32	LRM - HKMA LMR - Capped and Excess Net Due Amount Calculation	This rule computes the Capped Net due Amount and Excess Net due amount and updates in the FCT_LRM_LE_SUMMARY table. If 'Net due from banks' is positive, a certain portion of this amount can be included in the Liquefiable Assets. This portion is capped to 40% of the Qualifying liabilities. After capping what amount is left from Net Due is considered as Excess Net due from Banks.	This Rule identifies the Net Due from Banks, excess net due from banks, and capped amount to be included in the calculation of Liquidity Maintenance Ratio.	Liquidity Rules Part 8, Paragraphs 43, 48
33	LRM - HKMA LMR - Total Liquefiable Asset and Total Qualifiable Liability Amount Calculation	This rule computes the liquefiable asset amount post deductions, qualifying liability amount post deductions and updates in the FCT_LRM_LE_SUMMARY table.	This Rule sums up all accounts under liquefiable assets and all accounts under qualifying liabilities as a final step before LMR computation.	Liquidity Rules Part 8 Paragraphs 44 to 47

Regulation Addressed through Business Assumptions

The application supports multiple pre-configured assumptions based on HKMA specified scenario parameters. The list of pre-configured business assumptions and the corresponding reference to the regulatory requirement that it addresses is provided in the following section:

Preconfigured HKMA LMR Business Assumptions
Sl. No.	Assumption Name	Assumption Description	Regulatory Requirement Addressed	Regulatory Reference 1. HKMA Banking (Liquidity) Rules Capital 155 Sub leg Q 2. BIS BCBS 238- Basel iii - LCR and Liquidity Risk Monitoring Tools
1	LMR - Asset Haircut Assignment	This assumption defines the haircuts applicable for Liquefiable Assets.	This set of assumptions defines the regulatory haircuts for the constituents of the Liquidity Maintenance Ratio.	Schedule 5, Table A
2	LMR - Liability Haircut Assignment	This assumption defines the haircuts applicable for Qualifying Liability.		Schedule 5 Table C and D