PIB 4.11 PIB 4.11 Credit Quality Grade and External Credit Assessments
PIB 4.11 Guidance
This section governs credit assessments of
Exposuresfor the purpose of determining the CRW for Credit Risk(CR) Exposuresas provided in PIB Rule 4.8.3 and for securitisation (SE) Exposuresas provided in PIB Rule 4.8.4.
Authorised Firmmust assign a CR Exposureto a Credit Quality Gradebased on the external credit assessment that is applicable to the CR Exposurein accordance with tables mapping the ratings from an ECAIto Credit Quality Grades, which will be published by the DFSA.
Authorised Firmmust only use an external credit assessment which is accessible to the public. An Authorised Firmmay not use a credit assessment that is made available only to the parties to a transaction.
Authorised Firmmust only use external credit assessments by a recognised ECAI. The DFSAmay impose conditions on the use of such external credit assessments.
PIB 4.11.4 PIB 4.11.4
Authorised Firmmust use its chosen recognised external credit rating agencies and their external credit assessments consistently for each type of Exposure, for both risk weighting and risk management purposes. Where an Authorised Firmhas two external credit assessments which map into different Credit Quality Grades, it must assign the CR Exposureto the Credit Quality Gradeassociated with the higher risk weight. Where an Authorised Firmhas three or more external credit assessments which map into two or more different Credit Quality Grades, it must assign the CR Exposureto the Credit Quality Gradeassociated with the higher of the two lowest risk weights.
PIB 4.11.4 Guidance
For illustration, if there are three external credit assessments mapping into
Credit Quality Gradeswith risk weights of 0%, 20% and 50%, then the applicable risk weight is 20%. If the external credit assessments map into Credit Quality Gradeswith risk weights of 20%, 50% and 50%, then the applicable risk weight is 50%.
Authorised Firmmust not recognise the effects of Credit Riskmitigation if such mitigation is al reflected in the issue-specific external credit assessment of the CR Exposure.
CR Exposurehas an issue-specific external credit assessment from a recognised ECAI, an Authorised Firmmust use such assessment. Where a CR Exposuredoes not have an issue-specific external credit assessment, an Authorised Firmmust:(a) if there is an issue-specific external credit assessment for another Exposureto the same obligor, use the issue-specific assessment for the other Exposureonly if the Exposurewithout an issue-specific assessment ranks pari passu with or is senior to the Exposurewith the issue-specific assessment;(b) if the obligor has an Issuerexternal credit assessment, use the Issuerassessment of the obligor only if the Exposurewithout an issue-specific assessment ranks pari passu with or is senior to any unsecured claim that is not subordinated to any other claim on the obligor; or(c) in all other cases, apply a risk weight equal to the higher of the risk weight that is applicable to an unrated Exposureand the risk weight associated with the external credit assessment, if any, of the obligor or another Exposureto the same obligor.
CR Exposureis risk-weighted in accordance with PIB Rule 4.11.6(a) or (b), an Authorised Firmmay use a domestic currency external credit assessment only if the CR Exposureis denominated in that domestic currency.
Authorised Firmmay use an external credit assessment to risk weight a CR Exposureonly if the external credit assessment has taken into account and reflects the entire amount of Credit Risk Exposurethe Authorised Firmhas with regard to all payments owed to it.
Authorised Firmmust not use unsolicited external credit assessments to assign any CR Exposureto a Credit Quality Grade, unless:(a) it has assessed the quality of the unsolicited external credit assessments that it intends to use and is satisfied that these are comparable in performance with solicited external credit assessments and maintains relevant records and documents to be made available to the DFSAupon request; and(b) it uses unsolicited external credit assessments consistently for each type of Exposures, for both risk weighting and risk management purposes.