LMI Circular 93/104
Definition of a liquidity ratio to be observed by credit institutions
Audit questionnaire
1. External auditors’ notice
The present questionnaire shall be read in conjunction with the content of the long form audit report
of the entity.
Responses to the questionnaire reflect our findings resulting from procedures of an audit nature
which may vary according to individual circumstances and our professional judgment.
Our procedures were designed to provide a reasonable but not absolute level of assurance that the
information subject to our work is free of material misstatement.
2. Objective
The objective of this questionnaire is to establish whether the institution properly calculates the
liquidity ratio in compliance with LMI circular 93/104 and section 1.5 of Part IV of the Banking
Regulations.
Supervision of liquidity also applies to the Luxembourg branches of banks incorporated in another EU
European Economic Area member state, but does not apply to individual "Caisses rurales". However,
it does apply to the consolidated "Caisses rurales" including the "Caisse centrale".
The liquidity ratio requires that current liabilities of a credit institution should be covered at all times
by assets that may be deemed to be liquid. This ratio shall be maintained permanently, and on an
individual non consolidated basis at a minimum level of 30%. The CSSF nevertheless can ask the
credit institution to respect a higher or a lower ratio.
Liquidity supervision is not affected by the LMI Circular 96/125 on supervision of credit institutions
on a consolidated basis.
1
LMI Circular 93/104
Definition of a liquidity ratio to be observed by credit institutions
Audit questionnaire
3. Checking of ratio calculation at year-end
Page references given below are to the Banking Regulations - Recueuil des Instructions aux Banques
Part IV, 1.5 liquidity ratio)
Page no
93/104
5
Yes
Do the figures on the table 1.5 reconcile to table 1.1.
(respectively tables 6.1 & 4.1) and table 2.4.?
Ensure that the reconciliation has been done.
5
Are the footings and calculations of weighted amounts
arithmetically accurate?
Check the accuracy of the calculation.
Is the ratio calculated in the reporting currency?
Check the reporting currency.
Is the reporting of the ratio done before the 20th of the following
month?
Review procedures implemented
correspondence for any exceptions.
and
review
CSSF
6
Are all the assets included in the numerator of the ratio shown at
their net value, i.e. after value adjustments?
6
Are only loans and advances to credit institutions with a
remaining maturity equal to or of less than one year included in
the calculation of the liquidity ratio?
The aim of this provision is to exclude all long-term credits
which are generally covered by loan contracts, leaving only
short-term operations which are genuine money market
transactions?
2
No
N/A
Ref.
LMI Circular 93/104
Definition of a liquidity ratio to be observed by credit institutions
Audit questionnaire
3. Checking of ratio calculation at year-end (continued)
Page no
93/104
6
Yes
Have only transferable securities been taken into account for the
purposes of the calculation of the liquidity ratio?
For the sake of prudence and in order to discount the possibility
of a loss on forced sale, have the following safety margins been
applied:
- 10% for securities issued by public bodies (including treasury
bills and other eligible bills);
- 20% for other fixed income securities which fall within the
scope of the formula.
These rates must be applied to the net amount included under
assets, that is, at their gross amount less value adjustments.
6 and 7
Are transferable securities issued by public bodies or credit
institutions, that have been sold and repurchased, sold forward,
borrowed or form the underlying of an option written by the
bank, excluded from the liquid assets. This exclusion covers
items 30-010, 30-061, 30-081 and 30-100 of Table 2.4.
"Information on securities, participating interests and shares in
affiliated undertakings", Part III : "Special operations involving
securities"?
Are liabilities related to the aforementioned securities deducted
from the current liabilities?
7
Are fixed income securities and bills pledged excluded from
liquid assets?
Check if they are pledged – review documentation.
7
If the credit institution is valuing its fixed income securities
portfolio at mark-to-market, does it take them into account
consistently at their market value?
3
No
N/A
Ref.
LMI Circular 93/104
Definition of a liquidity ratio to be observed by credit institutions
Audit questionnaire
3. Checking of ratio calculation at year-end (continued)
Page no
93/104
7
Yes
Are only irrevocable and immediately accessible lines of credit
received taken into account?
Are only irrevocable lines of credit granted taken into account?
The items concerned are therefore lines 3-02.400 and 3-02.500
after deduction of lines 3-02.410 and 3-02.510 of Table 1.1."Statement of assets and liabilities and off balance sheet items"?
N/A
Is the liquidity ratio reviewed by the accounting or internal audit
department and the Management ?
This should be covered by appropriate procedures which
should be tested as part of our audit.
N/A
Are any issues concerning the liquidity ratio indicated in
correspondence with the CSSF?
Review the CSSF correspondence
4
No
N/A
Ref.