| (d) | Risk-weighted exposure |
| (i) | Unless specifically otherwise provided in this subregulation (13), in order to calculate its risk-weighted credit exposure, a bank that adopted the advanced IRB approach— |
| (i) | exposures to corporate institutions, sovereigns or banks calculate its own estimates of probability-of-default ("PD"), loss-given-default ("LGD"), exposure-at-default ("EAD") and effective maturity ("M") in respect of each relevant borrower grade or credit exposure, provided that the bank shall comply with the relevant minimum requirements specified in respect of the said risk components in subregulations (11)(b) and (11)(d) above and in this subregulation (13); |
| (ii) | retail exposures and purchased retail receivables calculate its own estimates of PD, LGD and EAD in respect of each relevant retail pool of exposures, provided that the bank shall comply with the relevant minimum requirements specified in respect of the said risk components in subregulations (11)(b) and (11)(d) above and in this subregulation (13); |
| (iii) | equity exposures apply the market-based approach or PD/LGD approach respectively specified in regulations 31(6)(b) and 31(6)(c), provided that the Registrar may direct the bank to use a particular approach; |
| (B) | shall apply the risk-weight functions and risk components in respect of the various exposure categories in accordance with the relevant requirements specified in this subregulation (13) read with subregulation (11)(d) above. |
| (ii) | Corporate, sovereign and bank exposures |
A bank that adopted the advanced IRB approach for the measurement of the bank's exposure to credit risk shall calculate its risk-weighted assets in respect of corporate, sovereign or bank exposures through the application of the relevant formulae and risk components specified in subregulation (11)(d)(ii) above, provided that—
| (A) | when the bank calculates the EAD amount of a particular exposure, the bank may use its own internally estimated credit-conversion factors in respect of the bank's off-balance-sheet exposures, provided that— |
| (i) | when the credit-conversion factor of the said off-balance-sheet exposure is equal to 100 per cent in terms of the provisions of the foundation IRB approach, the bank shall apply the said credit-conversion factor of 100 per cent; |
| (ii) | the bank shall comply with the relevant requirements relating to the use of own estimates of EAD specified in paragraph (b)(v)(D) above. |
| (B) | unless the Registrar granted an exemption from the requirement to calculate an effective maturity in respect of specified small domestic corporate borrowers, which exemption shall be granted only in exceptional cases and shall be subject to such conditions as may be specified in writing by the Registrar, in which case the bank shall apply to the said exempted corporate exposure an average maturity of 2,5 years, the bank shall calculate the effective maturity of each relevant exposure in accordance with the relevant requirements specified below: |
| (i) | In the case of an exposure with an original maturity of more than or equal to one year, which exposure has determinable cash flows, the effective maturity of the exposure shall be equal to the higher of— |
| (bb) | the remaining effective maturity of the exposure, which remaining effective maturity shall be calculated in years through the application of the formula specified below, provided that the calculated maturity shall be limited to five years. |
(d)(ii)(b)(i)(bb).png)
where:
| M | is the effective maturity of the exposure |
| CFt | is the cash flow, that is, principal, interest payments and fees, contractually payable by the obligor in period t |
When a bank is unable to calculate the effective maturity of the contracted payments in accordance with the formula specified above, the effective maturity shall be equal to the maximum remaining time, in years, available to the obligor to fully discharge its contractual obligation, that is, principal, interest and fees, in terms of the loan agreement.
| (ii) | In the case of an exposure with an original maturity of less than one year, other than exposures in terms of which an obligor obtains ongoing finance from the relevant bank, which first-mentioned exposure relates to issued or confirmed short-term self-liquidating letters of credit, a fully collateralised capital market transaction such as an OTC derivative transaction or a margin lending agreement, or a repo-style transaction such as a repurchase or resale agreement or a securities lending or borrowing transaction, the effective maturity of the exposure shall be equal to the higher of— |
| (bb) | the remaining effective maturity of the exposure, calculated in accordance with the formula and conditions specified in sub-item (i)(bb) above. |
Provided that—
| (i) | the relevant documentation of the said exposure or transaction shall make provision for daily remargining; |
| (ii) | the relevant documentation of the said exposure or transaction shall require daily revaluation; |
| (iii) | the relevant documentation of the said exposure or transaction shall make provision for the prompt liquidation or setoff of collateral in the event of default or failure to remargin; |
| (iv) | subject to such conditions as may be specified in writing by the Registrar, in addition to the transactions specified in this sub-item (ii), the Registrar may specify other exposures with an original maturity of less than one year that do not form part of a bank's ongoing financing of an obligor to be subject to the provision of this subitem (ii). |
| (iii) | In the case of derivative instruments subject to a master netting agreement, the bank shall use the notional amount of each transaction to calculate the weighted average maturity of the transactions, which weighted average maturity shall be used in respect of the explicit maturity adjustment, provided that the effective maturity of the relevant exposure shall be equal to the higher of— |
| (bb) | the remaining effective maturity of the exposure, |
provided that the calculated maturity shall be limited to five years.
| (iv) | In the case of transactions falling within the ambit of subitem (ii) above, that is, transactions with an original maturity of less than one year that, for example, relate to a fully collateralised capital market transaction or repo-style transaction, which transaction or exposure is subject to a master netting agreement, the bank shall apply the notional amount of each transaction in order to determine the weighted average maturity of the relevant transactions, which weighted average maturity shall be used in respect of the required explicit maturity adjustment, provided that— |
| (aa) | in respect of the relevant transaction type and said average, the bank shall apply a floor equal to the minimum holding period specified in subregulation (9) (b) (xiv)(A); |
| (bb) | when more than one transaction type is contained in the said master netting agreement, the bank shall apply to the said average a floor equal to the highest relevant holding period specified in subregulation (9)(b)(xiv)(A). |
| (v) | In the case of other exposures, that is, exposures not subject to an explicit maturity adjustment, the bank shall assign to the said exposure an effective maturity of 2,5 years unless the exposure is subject to further commitment, that is, a repurchase or resale agreement, in which case the bank shall assign to the said exposure an effective maturity of six months. |
| (A) | Subject to the provisions of items (B) and (C) below, a bank shall calculate its risk-weighted exposure in respect of specialised lending in accordance with the relevant requirements relating to corporate exposure specified in subparagraph (ii) above, provided that the bank shall comply with the relevant requirements for the estimation of PD, LGD and EAD specified in subregulation (11)(b)(vi)(A) and in paragraphs (b)(v)(C) and (b)(v)(D) above; |
| (B) | In the case of exposures relating to high-volatility commercial real estate, a bank shall apply the asset correlation formula specified below instead of the asset correlation formula that would otherwise apply to corporate exposure. |
R = 0.12 x (1 - EXP (-50 x PD)) / (1 - EXP (-50)) + 0.30 x [1 - (1 - EXP(-50 x PD))/(1 - EXP(-50))]
| (i) | a bank is unable to comply with the prescribed requirements in order to estimate the PD ratio, LGD ratio and EAD amount in terms of the advanced approach for corporate exposure; or |
| (ii) | the Registrar directs a bank to map its internal risk grades to the risk grades specified in subregulation (11)(d)(iii)(C) above, |
the bank shall map its internal risk grades in accordance with the relevant requirements specified in subregulation (11)(d)(iii)(C) above, provided that when the bank is unable to comply with the prescribed requirements in order to estimate the LGD ratio and EAD amount in respect of exposure relating to high-volatility commercial real estate in terms of the advanced approach for corporate exposure, the bank shall use the relevant estimates specified in writing by the Registrar in respect of the LGD ratio and EAD amount relating to corporate exposure.
A bank that adopted the advanced IRB approach for the measurement of the bank's exposure to credit risk shall calculate its risk-weighted assets in respect of retail exposures through the application of the relevant formulae and risk components specified in subregulation (11)(d)(iv) above.
A bank shall calculate its risk-weighted exposure in respect of equity investments in accordance with the relevant requirements of this subregulation (13) read with the relevant requirements specified in subregulation (11)(d)(v) above and regulation 31, provided that no investment in a significant minority or majority owned or controlled commercial entity, which investment amounts to less than 15 per cent of the sum of the bank's issued common equity tier 1 capital and reserve funds, additional tier 1 capital and reserve funds and tier 2 capital and reserve funds, as reported in items 41, 65 and 78 of the form BA 700, shall be assigned a risk weight lower than 100 per cent;
| (vi) | Purchased corporate receivables |
A bank shall calculate its risk-weighted exposure in respect of purchased corporate receivables through the application of the relevant formulae and risk components specified in subregulation (11)(d)(ii) relating to corporate exposure, provided that—
| (A) | the risk weights shall be determined by using the bank's own estimates of PD and LGD as inputs to the corporate risk-weight function; |
| (i) | an exposure other than a revolving facility, the EAD amount shall be equal to the EAD amount determined by the bank, minus the capital requirement relating to the risk of dilution; |
| (ii) | a revolving facility the EAD amount shall be equal to the amount of the purchased receivable plus 75 per cent of any undrawn purchased commitments minus the capital requirement relating to the risk of dilution, that is, in respect of undrawn purchased commitments, the bank shall not use its own estimate of the EAD amount; |
| (C) | when the purchasing bank is able to estimate in a reliable manner the pool's default-weighted average loss rates given default or average PD, the bank may estimate the other risk component based on an estimate of the expected long-run loss rate, that is, the bank may use an appropriate PD estimate to infer the longrun default-weighted average loss rate given default or use a long-run default-weighted average loss rate given default to infer the appropriate PD ratio, provided that— |
| (i) | the LGD ratio used in order to calculate the bank's risk exposure shall in no case be lower than the long-run default-weighted average loss rate given default; |
| (ii) | the bank shall comply with the relevant requirements specified in paragraph (b)(v)(C) above relating to LGD estimates. |
| (D) | the effective maturity in respect of purchased corporate receivables— |
| (i) | shall in the case of drawn amounts, be equal to the pool's exposure-weighted average effective maturity, calculated in accordance with the relevant provisions of paragraph (d)(ii)(B) above; |
| (ii) | shall in the case of undrawn amounts in respect of a committed purchased facility, be the same value as for drawn amounts provided that the facility shall contain effective covenants, early amortisation triggers or other features that protect the bank against a significant deterioration in the quality of the future receivables that the bank is required to purchase; |
| (iii) | shall in all other cases of undrawn amounts, be equal to the sum of the longest dated potential receivable in terms of the purchase agreement and the remaining maturity of the purchase facility. |
| (vii) | Purchased retail receivables |
A bank that adopted the advanced IRB approach for the measurement of the bank's exposure to credit risk shall calculate its risk-weighted assets in respect of purchased retail receivables through the application of the relevant formulae and risk components specified in subregulation (11)(d)(vi) read with the relevant provisions of subregulation (11)(d)(iv) above.
| (viii) | Securitisation or resecuritisation exposures |
A bank shall calculate its risk-weighted assets in respect of a securitisation scheme or resecuritisation exposure in accordance with the relevant requirements specified in subregulations (11)(e) to (11)(p).
