Banks Act, 1990 (Act No. 94 of 1990)RegulationsRegulations relating to BanksChapter II : Financial, Risk-based and other related Returns and Instructions, Directives and Interpretations relating to the completion thereof23. Credit risk: monthly returnDirectives and interpretations for completion of monthly return concerning credit risk (Form BA 200)Subregulation (15) Counterparty credit risk exposure and matters related theretoSubregulation (15)(a) |
| (a) | Subject to the provisions of paragraph (b) and subregulation (16), for the measurement of a bank’s exposure amount or EAD, risk-weighted exposure and related required amount of capital and reserve funds in respect of instruments, contracts or transactions that expose the reporting bank to counterparty credit risk, the bank may— |
| (i) | at the discretion of the bank, use the standardised approach specified in subregulation (18) below, which standardised approach shall be available only for the measurement of the reporting bank’s exposure to counterparty credit risk arising from OTC derivative instruments, exchange-traded derivative instruments and long settlement transactions, irrespective of whether the said instruments, transactions, contracts or agreements are recorded in the reporting bank’s banking book or trading book, provided that— |
| (A) | the bank’s exposure to credit risk arising from securities financing transactions shall be calculated, among other things, in accordance with the relevant requirements specified in subregulations (8) and (9) of this regulation 23; |
| (B) | when the standardised approach for the measurement of the bank’s exposure to counterparty credit risk, in the Authority’s discretion, does not sufficiently capture the risk inherent in the bank’s relevant transactions, the Authority may require the bank to apply the standardised approach on a transaction-by-transaction basis, that is, without recognising any form or effect of netting; |
| (ii) | subject to the prior written approval of and such further conditions as may be specified in writing by the Authority, in addition to the requirements specified in subregulation (19) below, use the internal model method specified in the said subregulation (19), provided that— |
| (A) | a bank that obtained the approval of the Authority to adopt the internal model method shall only under exceptional circumstances or in respect of immaterial exposures be allowed to revert to the standardised approach for all or part of its exposure, provided that the bank shall in all cases demonstrate to the satisfaction of the Authority that the said reversion to the less sophisticated method does not lead to arbitrage in respect of the bank’s required amount of capital and reserve funds; |
| (B) | the internal model method may be applied by a bank that adopted the standardised approach or the IRB approach for the measurement of the bank’s other exposures to credit risk; |
| (C) | the internal model method shall be applied to all relevant exposures in a particular category of exposures that are subject to counterparty credit risk, except exposures that arise from long settlement transactions; |
| (D) | the internal model method may be applied to measure the bank’s exposure or EAD amount relating to— |
| (i) | only OTC derivative instruments; |
| (ii) | only securities financing transactions; or |
| (iii) | OTC derivative instruments and securities financing transactions, |
irrespective of whether the said transactions, contracts or agreements are recorded in the reporting bank’s banking book or trading book.
| (iii) | subject to the prior written approval of and such conditions as may be specified in writing by the Authority, use a combination of the aforementioned methods, provided that— |
| (A) | the said approval of the Authority shall be granted only in exceptional cases and only during the initial implementation period of the internal model method; |
| (B) | a bank that wishes to apply such a combination of methods shall together with its application to obtain the approval of the Authority to adopt the internal model method submit a plan to include all material counterparty exposures relating to a particular category of instruments or transactions in the said internal model method; |
| (C) | in respect of all OTC derivative transactions and all long settlement transactions in respect of which the reporting bank has not obtained approval from the Authority to use the internal model method, the bank shall apply the standardised approach for counterparty credit risk. |
[Regulation 23(15)(a) substituted by section 3(i) of Notice No. 1427, GG44048, dated 31 December 2020 - effective 1 January 2021]