PIB A4.12 PIB A4.12 The Simplified Approach for Category 2 and 3A Firms
This section applies only to an
Authorised Firmin Category2 or 3A for the purposes of PIB section 4.7.
Authorised Firmthat applies the Simplified Approachmust comply with the requirements of PIB chapter 4 with the variations as prescribed below:
Central Government and Central Bank Asset Class
PIB A4.12.4 PIB A4.12.4
Subject to Rules PIB A4.12.5 and PIB A4.12.6, an
Authorised Firmmust risk-weight any CR Exposurein the central government and Central Bankasset class on the basis of the consensus country risk scores of export credit agencies (referred to in this section as "ECA") participating in the OECD's "Arrangement on Officially Supported Export Credits" and in accordance with the table below.
Risk weights for the central government and
Central Bankasset class ECA Risk Scores 0–1 2 3 4 to 6 7 Risk Weights 0% 20% 50% 100% 150%
PIB A4.12.4 Guidance
The consensus country risk classification for the purpose of the "Arrangement on Officially Supported Export Credits" is published by the OECD. At the time of making of these
Rules, the classification was available on the OECD's website (http://www.oecd.org) in the Export Credit Arrangement web-page of the Trade Directorate.
Authorised Firmmust apply a 0% risk weight to any CR Exposureto any central government or any Central Bankof a GCC member country, which is denominated in the domestic currency, and funded in the domestic currency of that GCC member country.
CR Exposureto any other central government or Central Bankwhich is denominated and funded in the local currency of that jurisdiction, an Authorised Firmmay apply such risk weights as may be specified by the banking regulator of that jurisdiction.
Bank Asset class
Authorised Firmmust risk-weight any CR Exposurein the bank asset class on the basis of the consensus ECA country risk scores as referred to in PIB A4.12.4 for the jurisdictions in which they are incorporated, in accordance with the following table:
CRWs for the bank asset class
ECA Risk Scores 0–1 2 3 4 to 6 7 Risk Weights 20% 50% 100% 100% 150%
Corporate Asset Class
Authorised Firmmust apply a 100% risk weight to any CR Exposurein the corporate asset class.
Credit Risk Mitigation — Collateral
Authorised Firmmay only use the financial Collateral Simplified Approach(FCSA) in its treatment of recognised Collateralfor the purposes of calculating the Credit RWAfor its Exposuresbooked in its Non-Trading Book.
PIB A4.12.13(1) For an
Authorised Firmusing the FCSA, eligible financial Collateralcomprises:(a) cash (as well as certificates of deposit or other similar instruments issued by the Authorised Firm) on deposit with the Authorised Firm;(b) gold;(c) any debt securities issued by sovereigns (including a central government or Central Bank) of a jurisdiction that that has an ECA country risk score of 4 or better; and(d) any debt securities issued by a PSE that is treated as a sovereign and is of a jurisdiction that has an ECA country risk score of 4 or better.(2) Cash-funded credit-linked notesissued by an Authorised Firmagainst Exposuresin the Non-Trading Bookwhich fulfil the criteria for eligible Credit Derivativesmust be treated as cash collateralised transactions.(3) Cash, mentioned in (1)(a) includes cash on deposit, certificates of deposit or other similar instruments issued by the Authorised Firmthat are held as Collateralat a third-party bank in a non-custodial arrangement and that are pledged or assigned to the Authorised Firm. This is subject to the pledge or assignment being unconditional and irrevocable. Under the FCSA, the risk weight to be applied to the Exposurecovered by such Collateralmust be the risk weight of the third-party bank.
Credit Risk Mitigation — Guarantees
Authorised Firmmay recognise guarantees provided by the following eligible guarantors:(a) the Bankfor International Settlements, the International Monetary Fund, the European Central Bank, and the European Commission;(b) the MDBs referred to in PIB Rule 4.12.8;(c) PSEs; and(d) other entities eligible for a CRW of 20% or better and with a lower risk weight than the Counterparty.
For the purpose of calculating the risk weight of a guaranteed
Exposure, an Authorised Firmmust assign the guaranteed portion the risk weight of the eligible guarantors. The uncovered portion of the Exposuremust be assigned the risk weight of the underlying Counterparty.
Authorised Firmcan apply a 0% risk weight to any portions of Exposuresguaranteed by central governments or Central Banksof a GCC member country where the guarantee is denominated in the domestic currency of that country, and the Exposureis funded in that same domestic currency.
Authorised Firmmust treat any materiality thresholds on payments below which no payment will be made in the event of loss as retained First Loss Positionsand must deduct the full amount from its Capital Resources.