Introduction

Introduction

Guidance

(1) This Chapter addresses the regulatory requirements in respect of managing the Liquidity Risk exposures of a Bank. Liquidity risk is the risk that a Bank may not be able to meet its financial obligations as they fall due. Among all the prudential risks faced by a Bank, Liquidity Risk is highly related to group risk in that a Bank that is a member of a group could be called on to make good on commitments and guarantees in favour of the other members of its group, whether financial or non-financial members.

(2) This Chapter includes requirements that a Bank:

• (a) implement a comprehensive Liquidity Risk management framework to manage, measure and monitor Liquidity Risk commensurate with the nature, scale and complexity of its operations;
• (b) adopt prudent practices in managing Liquidity Risk;
• (c) have adequate sources of stable long-term funding;
• (d) have sufficient resources and funding to withstand severe liquidity stress; and
• (e) maintain an adequate level of liquidity, according to the norms, methodologies, standards and guidance provided in the BPG issued by the AFSA.

(3) The detailed requirements specifying the calculation methodologies, parameters, metrics and formulae in respect of the primary liquidity requirements outlined in this Chapter are provided in the Banking Prudential Guideline (BPG) issued by the AFSA. The BPG also provides detailed guidance on calculation methodologies, formulae, parameters and norms involved in calculation of quantitative liquidity requirements like the Liquidity Coverage Ratio (LCR) and the Net Stable Funding Ratio (NSFR). It is suggested that this Chapter of the BBR, be read in conjunction with Chapter 9 of the BPG issued by the AFSA, to facilitate understanding of the regulatory requirements and compliance with them.