Maturity method

88. In the maturity method, long or short positions in debt securities (and in other sources of interest rate exposures such as derivative instruments) are allocated to the time bands in table F 2 (and then to the zones in table F 3) based on the residual maturity of the instrument and the interest rate of coupon payments. A Bank must allocate:

(a) positions in fixed-rate instruments according to their residual term to maturity; and

(b) positions in floating-rate instruments according to the residual term to the next re-pricing date.

89. The Bank may offset:

(a) long and short positions (whether actual or notional) in identical instruments with exactly the same issuer, coupon, currency and maturity; and

(b) matched swaps, forward contracts, futures and forward rate agreements that satisfy the criteria for matching derivative positions detailed later in this section F.

90. The steps to calculate the general risk capital charge are:

Step 1: Weight the positions in each time band by the risk factor corresponding to those positions in table F2.

Table F2 Time Bands and risk factors

column 1 item	column 2 time band	column 3 risk factor %	column 4 assumed changes in yield %
1	1 month or less	0.00	1.00
2	more than 1 and up to 3 months	0.20	1.00
3	more than 3 and up to 6 months	0.40	1.00
4	more than 6 and up to 12 months	0.70	1.00
5	more than 1 and up to 2 years	1.25	0.90
6	more than 2 and up to 3 years	1.75	0.80
7	more than 3 and up to 4 years	2.25	0.75
8	more than 4 and up to 5 years	2.75	0.75
9	more than 5 and up to 7 years	3.25	0.70
10	more than 7 and up to 10 years	3.75	0.65
11	more than 10 and up to 15 years	4.50	0.60
12	more than 15 years and up to 20 years	5.25	0.60
13	more than 20 years	6.00	0.60

Step2:              Offset the weighted long and short positions within each time band.

Example:          If the sum of the weighted long positions in a time band is USD 100 million and the sum of the weighted short positions in the band is USD 90 million, you offset the positions to come up with a matched position of USD 90 million and unmatched position of USD 10 million.

Step 3:              For each time band, apply a 10% capital charge (vertical disallowance) on the matched position calculated in step 2.

Example:          Continuing on from the example in step 2, apply the 10% on the QR90 million matched position to come up with a QR9 million vertical disallowance for the time band.

Step 4:              For the unmatched positions calculated in step 2, carry out 2 further rounds of offsetting using the zones (made up of time bands) in table F3 and apply the appropriate capital charge, as follows:

(a)first between the remaining unmatched positions within each of 3 zones and subject to a charge (expressed as a percentage) as follows:

(i)matched weighted positions within zone 1 x 40%;

(ii)matched weighted positions within zone 2 x 30%;

(iii)matched weighted positions within zone 3 x 30%;

(b)subsequently between the remaining unmatched positions across the three different zones (in the order set out below) and subject to a capital charge as follows:

(i)matched weighted positions between zones 1 and 2 x 40%;

(ii)matched weighted positions between zones 2 and 3 x 40%;

(iii)matched weighted positions between zones 1 and 3 x 100%.

Step 5: The absolute value of the net amount remaining is the net position.

Table F 3 Zones for coupons

column 1 item	column 2 zone	column 3 time bands
1	zone 1	1– 1 month 2– 3 months 3 – 6 months 6 – 12 months
2	zone 2	1– 2 years 2– 3 years 3– 4 years
3	zone 3	4 – 5 years 5 – 7 years 7 – 10 years
		10 – 15 years 15 – 20 years more than 20 years

Step 6:     Calculate the horizontal allowance by adding the charges from paragraphs (a) and (b) of step 4.

Step 7:     Calculate the general risk capital charge as the sum of:

(a) the net position calculated from steps 1 to 4;

(b) the vertical disallowance from step 3;

(c) the horizontal disallowance from steps 4 and 5; and

(d) the net charge for positions in options, where appropriate, calculated in accordance with the guidelines on options risk in this BPG.