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 (18) Calculation of counterparty credit exposure or EAD in terms of the standardised approach

Subregulation (18)(d) Matters relating to credit conversion factors
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(d)Matters relating to credit conversion factors

 

In respect of the net risk position relating to a specific hedging set, a bank that adopted the standardised method for the measurement of the bank's exposure to counterparty credit risk shall in the case of—

 

(i)a net risk position arising from a debt instrument or reference debt instrument apply a credit conversion factor of—

 

(A)0.6 percent when the risk position relates to a debt instrument or reference debt instrument of high specific risk;

 

(B)0.3 percent when the risk position relates to a reference debt instrument that underlies a credit-default swap, which instrument is of low specific risk;

 

(C)0.2 percent when the risk position relates to a net position other than a position envisaged in item (A) or (B) above.

 

(ii)underlying financial instruments other than debt instruments, and in respect of foreign exchange rates, apply the credit conversion factors specified in table 20 below:

 

Table 20

Exchange

rates

Gold

Equity

Precious

metals

(excluding

gold)

Electric

power

Other

commodities

(excluding

precious metals)

2.5%

5.0%

7.0%

8.5%

4%

10.0%

 

(iii)underlying instruments of OTC derivative instruments, which instruments are not included in any one of the categories specified in subparagraph (i) or (ii) above, apply to the relevant notional equivalent amount a credit conversion factor of 10 per cent, provided that the reporting bank shall assign the said instrument to a separate individual hedging set in respect of each relevant category of underlying instrument.