Banks Act, 1990 (Act No. 94 of 1990)

Regulations

Regulations relating to Banks

Chapter II : Financial, Risk-based and other related Returns and Instructions, Directives and Interpretations relating to the completion thereof

23. Credit risk: monthly return

Directives and interpretations for completion of monthly return concerning credit risk (Form BA 200)

Subregulation (15) Counterparty credit risk and related matters

Subregulation (15)(d) Matters related to the calculation of the aggregate amount of required capital and reserve funds
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(d)Matters related to the calculation of the aggregate amount of required capital and reserve funds for counterparty credit risk and credit valuation adjustments

 

The aggregate amount of required capital and reserve funds related to a bank’s exposure to counterparty credit risk and CVA risk, that is, default risk and the risk of mark-to-market losses in respect of specified exposures, shall in the case of—

 

(i)a bank that obtained the approval of the Authority for the use of the internal model method for the measurement of the bank’s exposure to counterparty credit risk and the internal models approach for the measurement of specific risk as part of a bank’s exposure to market risk, be equal to the sum of—

 

(A)the higher of the relevant required amount of capital and reserve funds for default risk calculated in terms of the internal model method based on—
(i)current parameter calibrations for EAD; or
(ii)stressed parameter calibrations for EAD,

 

Provided that when a bank that obtained the approval of the Authority for the use of the IRB approach can demonstrate to the satisfaction of the Authority that in its VaR calculations made in terms of the relevant requirements specified in subregulation (19)(h)(i), the relevant specific VaR model incorporates the effects of rating migrations, the bank shall calculate the risk weights applied to its relevant OTC derivative exposures with the full maturity adjustment as a function of PD and M set equal to 1, provided that when the bank is unable to demonstrate the aforesaid to the satisfaction of the Authority, the bank shall apply the full maturity adjustment function, through the application of the formula specified below:

 

(1 - 1.5 x b)^-1 x (1 + (M - 2.5) x b)

 

where:

 

Mis the effective maturity; and

 

bis the maturity adjustment as a function of the PD,

 

as envisaged in subregulation (11)(d)(ii) read with the relevant requirements specified in subregulation (13)(d)(ii)(B)

 

and

 

(B)the relevant amount of required capital and reserve funds for CVA risk calculated in accordance with the relevant requirements specified in paragraph (b)(iv) above read with the relevant requirements specified in subregulation (19)(h) below;

 

(ii)a bank that obtained the approval of the Authority for the use of the internal model method for the measurement of the bank’s exposure to counterparty credit risk, but not for the use of the internal models approach for the measurement of specific risk as part of a bank’s exposure to market risk, be equal to the sum of—

 

(A)the higher of the relevant required amount of capital and reserve funds for default risk calculated in terms of the internal model method based on—
(i)current parameter calibrations for EAD; or
(ii)stressed parameter calibrations for EAD,

 

and

 

(B)the relevant amount of required capital and reserve funds for CVA risk calculated in accordance with the standardised approach specified in paragraph (c) above;

 

(iii)all banks other than the banks envisaged in subparagraphs (i) and (ii) above, be equal to the sum of—

 

(A)the relevant aggregate required amount for default risk calculated in accordance with the relevant requirements related to the said standardised approach for counterparty credit risk, for all relevant counterparties and instruments; and

 

(B)the relevant amount of required capital and reserve funds for CVA risk calculated in accordance with the standardised approach specified in paragraph (c) above.

 

[Regulation 23(15)(d) substituted by section 3(i) of Notice No. 1427, GG44048, dated 31 December 2020 - effective 1 January 2021]