| (5) | Calculation of credit risk exposure: standardised approach |
Subject to the relevant provisions of regulation 38(2) and subregulation (20), a bank that adopted the standardised approach for the measurement of the bank's exposure to credit risk—
| (a) | shall calculate its exposure to credit risk, at the discretion of the bank, either in accordance with Method 1, as set out in subregulations (6) and (7), or Method 2, as set out in subregulations (8) and (9); |
| (b) | shall in a consistent manner, in accordance with the relevant requirements specified below, and in terms of the bank's internal risk management process, apply the ratings or assessments issued by an eligible external credit assessment institution of the bank's choice, or export credit agency, to calculate the bank's risk exposure in terms of the relevant provisions contained in these Regulations, that is, the bank shall not "cherry pick" ratings or assessments issued by different external credit assessment institutions, arbitrarily change the use of eligible external credit assessment institutions or apply ratings or assessments for purposes of these Regulations differently from the bank's internal risk management process. |
When a bank has a choice between—
| (A) | two assessments issued by eligible external credit assessment institutions, which assessments relate to different risk weighting categories, the higher of the two risk weights shall apply; |
| (B) | three or more assessments issued by eligible external credit assessment institutions, which assessments relate to different risk weighting categories, the higher of the lowest two risk weights shall apply. |
| (ii) | Issuer versus issue assessment |
| (A) | When a bank invests in— |
| (i) | an instrument with an issue-specific assessment, the risk weighting of the instrument shall be based on the said specific assessment; |
| (ii) | an unrated instrument issued by an obligor, which obligor is assigned— |
| (aa) | a high-quality credit assessment, that is, an assessment that results in a lower risk weight than the risk weight normally applied to an unrated position, the bank may assign the lower risk weight to the said unrated position, provided that— |
| (i) | the claim in respect of that unrated position shall rank pari passu or senior to the claims to which the issuer assessment relates; |
| (ii) | when the unrated position ranks junior to the claims to which the issuer assessment relates, the bank shall assign to the said position a risk weight relating to unrated positions. |
| (bb) | a low-quality assessment, that is, an assessment that results in a higher risk weight than the risk weight normally applied to an unrated position, the bank shall assign to the said unrated position the said higher risk weight if that unrated instrument ranks pari passu or is subordinated to either the relevant senior unsecured issuer assessment or exposure assessment. |
Provided that in all cases, irrespective whether the bank relies on an issuer or issue-specific assessment, the bank shall ensure that the relevant assessment takes into account and reflects the aggregate amount of credit exposure in respect of all amounts due, that is, the relevant principal amount and any related interest.
| (B) | A bank shall in no case use an external assessment relating to a particular entity within a corporate group to risk weight other entities within the same group. |
| (iii) | Foreign currency and domestic currency assessments |
When a bank assigns a risk weight to an unrated position based on the rating of an equivalent exposure to that borrower to which an issuer rating is assigned, the bank—
| (A) | shall use that borrower's foreign-currency rating in respect of exposure denominated in foreign currency; |
| (B) | shall use that borrower's domestic-currency rating in respect of exposure denominated in domestic currency. |
| (iv) | Short term versus long term assessments |
| (A) | Unless specifically otherwise provided in these Regulations, for the measurement of a bank's exposure to credit risk, a short-term credit assessment— |
| (i) | shall be deemed to be issue-specific, that is, the assessment shall be used only to derive risk weights for claims arising from a rated facility; |
[Regulation 23(5)(b)(iv)(A)(i) substituted
| (ii) | shall in no event be used to support a risk weight for an unrated long-term claim; |
| (iii) | shall be used only for short-term claims relating to banks and corporate institutions, such as a particular issuance of commercial paper, |
[Regulation 23(5)(b)(iv)(A)(iii) substituted by regulation 6(b) of Notice No. 297, GG 40002, dated 20 May 2016]
Provided that when a short-term rated facility is assigned a risk weight of 50 per cent, an unrated short-term claim shall not be assigned a risk weight lower than 100 per cent.
[Proviso to regulation 23(5)(b)(iv)(A) inserted by regulation 6(c) of Notice No. 297, GG 40002, dated 20 May 2016]
| (B) | Subject to the provisions of subregulation (6) or (8) below, when a short-term facility of a particular issuer is assigned a risk weight of 150 per cent based on the facility's credit assessment, all unrated claims of the said issuer, whether long-term or short-term, shall be assigned a risk weight of 150 per cent. |
A bank shall not without the prior written approval of the Registrar or otherwise than in accordance with conditions approved in writing by the Registrar make use of unsolicited ratings issued by an external credit assessment institution.
| (c) | shall duly assess all relevant credit exposures, regardless of whether the said exposures are rated or unrated, to determine whether the risk weights applied to the said exposures in terms of the provisions of subregulations (6) to (9) are appropriate, based on the respective exposures' inherent risk, provided that, when the bank determines that the inherent risk of an exposure, particularly if the exposure is unrated, is significantly higher than that implied by the risk weight to which it is assigned, the bank shall consider the higher degree of credit risk in the evaluation of its overall capital adequacy; |
| (d) | shall comply with the relevant requirements specified in subregulations (6) to (9) below. |
