Different reporting practices with respect to credit facilities may imply that inflows become too large in some cases. To avoid this, we seek clarification with respect to the treatment of inflows from credit facilities in the LCR.

According to Article 32 in Delegated Regulation (EU) 2015/61 an inflow from credit facilities may arise if:

1. A credit facility becomes due, cf. Article 32; and
2.There is a contractual payment of interests related to the facility, cf. Article 32.
Question 1: In the case at hand, the legal contracts behind credit facilities between a credit institution and a banking customer state that customers are obliged to repay their debt in connection to a credit facility to the credit institution at contractually set dates. This can be an expiry date for the facility or a renegotiation date. However, it is common practice to prolong credit facilities for a longer period in time, if customers wish to do so. Furthermore, it might not be reasonable to expect that the costumer can pay their debt at these dates. This implies that despite contractually set dates at which the facilities become due, there is no repayment of debt from most facilities to credit institutions. However, some credit institutions report inflows from prolonged credit facilities even though there is no actual debt repayment. Furthermore, some facilities both have a contractual date of termination and a “renegotiation date” at which the terms of the facility are renegotiable. That is, we have identified the following reporting practices:
- Case A: Some institutions estimate inflows based on contractual termination dates and report an inflow even if the contract is expected to be prolonged.
- Case B: Some institutions also include estimated inflows based on contractual “renegotiation dates” and report an inflow on these even if the contract is expected to be prolonged.
- Case C: Some institutions estimate inflows based on actual expected repayments (in cash) of debt from credit facilities. If credit facilities are expected to be prolonged when they become due (case A and B above), should institutions report an inflow? Should institutions only report inflows from credit facilities if they expect there to be debt repayments in cash (case C above)?

Question 2: The legal contracts behind credit facilities between a credit institution and a banking customer can state that customers are obliged to pay interest to the credit institution, which would imply inflows in the LCR. Interest payments in cash will give rise to inflows in the LCR, cf. Article 32 LCR DA. If interest payments take another form, would it also give rise to inflows in the LCR? For instance, could institutions report inflows from interest payments on facilities, which take place by increasing the total drawn amount on the credit facility, e.g. there is no interest payment in cash to the credit institution?