8.1.1.2 Calculation of Net Cash Outflows

The net cash outflows are computed after applying the scenario specified by the user, as a set of business assumptions, to the contractual cash flows. The process of computing the net cash outflows is provided below:

1. Calculation of Total Cash Inflows

   The application applies the business assumptions, specified on products involving cash inflows, selected as part of the Run. The regulatory assumptions specified in section Regulations Addressed through Business Assumptions are pre-defined and packaged as part of the out-of-the-box Run to determine the inflows over the liquidity horizon. The business assumption adjusted cash inflows occurring over the liquidity horizon are summed up to obtain the total cash inflow. These include inflows from earning assets such as loans, assets that are not eligible for inclusion in the stock of HQLA, derivatives inflows and so on, held specific for a UA fund.

2. Calculation of Total Cash Outflows

   The application applies the business assumptions, specified on products involving cash outflows, selected as part of the Run. The regulatory assumptions specified in section Regulations Addressed through Business Assumptions are pre-defined and packaged as part of the out-of-the-box Run to determine the outflows over the liquidity horizon. The business assumption adjusted cash outflows occurring over the liquidity horizon are summed up to obtain the total cash outflow. These include outflows from liabilities, derivatives outflows, outflows due to changes in financial conditions such as ratings downgrade and valuation changes and so on, held specific for a UA fund.

3. Calculation of Net Cash Outflow

   The total net cash outflows is defined as the total expected cash outflows minus total expected cash inflows for the LCR horizon i.e. subsequent 30 calendar days. Total expected cash outflows are calculated by multiplying the outstanding balances of various categories or types of liabilities and off-balance sheet commitments by the rates at which they are expected to run off or be drawn down. Total expected cash inflows are calculated by multiplying the outstanding balances of various categories of contractual receivables by the rates at which they are expected to flow in up to an aggregate cap of 75% of total expected cash outflows. This requires that a bank must maintain a minimum amount of stock of HQLA equal to 25% of the total cash outflows.

   Net cash outflow is computed as follows:

   Figure 7-1 Net cash outflow

   
   

   

   
   
   Banks will not be permitted to double count items, i.e. if an asset is included as part of the “stock of HQLA” (i.e. the numerator), the associated cash inflows cannot also be counted as cash inflows (i.e. part of the denominator). Where there is potential that an item could be counted in multiple outflow categories, (e.g. committed liquidity facilities granted to cover debt maturing within the 30 calendar day period), a bank only has to assume up to the maximum contractual outflow for that product.

   Note:

   The inflow and outflow rates as prescribed by BNM for the purpose of computing LCR are pre-defined within the application and ready to be used. Users are also allowed to define bank specific inflow and outflow rates and apply them to the contractual cash flows in order to view the stock of HQLA, net cash outflows and LCR across multiple scenarios.