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 (19) Calculation of counterparty credit exposure in terms of the internal model method

Subregulation (19)(c) Matters relating to effective maturity
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(c)Matters relating to effective maturity

 

A bank that obtained the approval of the Registrar to adopt the internal model method for the measurement of the bank's exposure to counterparty credit risk shall in the case of—

 

(i)a netting set in respect of which the original maturity of the longest-dated contract contained in the said netting set is equal to or exceeds one year, calculate the effective maturity of the relevant exposure through the application of the formula specified below, instead of the formula specified in subregulation (13)(d)(ii)(B), provided that subject to the prior written approval of and such conditions as may be specified in writing by the Registrar, a bank that uses an internal model, amongst other things, to calculate a one-sided credit valuation adjustment relating to its counterparty credit exposure may apply the effective credit duration estimated by the bank in respect of the said exposure instead of the effective maturity calculated in accordance with the formula specified below:

 

23(19)(c)(i)

 

where:

 

Mis the effective maturity, which effective maturity shall be subject to a maximum of five years

 

dfkis the risk-free discount factor relating to future time period tk

 

(ii)a netting set in respect of which all contracts have an original maturity of less than one year, other than any short-term exposure as envisaged in subparagraph (iii) below, calculate the effective maturity of the relevant exposure in accordance with the formula and requirements specified in subregulation (13)(d)(ii)(B), provided that the bank shall in respect of the said exposures apply a maturity floor equal to one year;

 

(iii)any short-term exposure calculate the effective maturity of the relevant exposure in accordance with the formula and requirements specified in subregulation (13)(d)(ii)(B)(ii).