18. Securitization: General Provisions

To arrive at an overlap, a bank may, for the purposes of calculating capital requirements, split or expand 72 its exposures. For example, a liquidity facility may not be contractually required to cover defaulted assets or may not fund an ABCP programme in certain circumstances. For capital purposes, such a situation would not be regarded as an overlap to the notes issued by that ABCP conduit. However, the bank may calculate risk-weighted assets for the liquidity facility as if it were expanded (either in order to cover defaulted assets or in terms of trigger events) to preclude all losses on the notes. In such a case, the bank would only need to calculate capital requirements on the liquidity facility. 18.40 Overlap could also be recognized between relevant capital charges for exposures in the trading book and capital charges for exposures in the banking book, provided that the bank is able to calculate and compare the capital charges for the relevant exposures. 18.41 Securitization exposures will be treated differently depending on the type of underlying exposures and/or on the type of information available to the bank. Securitization exposures to which none of the approaches laid out in 18.42 to 18.48 can be applied must be assigned a 1250% risk weight. 18.42 A bank must use the Securitization Internal ratings-based approach (SEC-IRBA) as described in chapter 22 for a securitization exposure of an IRB pool as defined in 18.15 , unless otherwise determined by SAMA. 18.43 If a bank cannot use the SEC-IRBA, it must use the Securitization External Ratings-Based Approach (SEC-ERBA) as described in 20.1 to 20.7 for a securitization exposure to an SA pool as defined in 18.17 provided that (1) The bank is located in a jurisdiction that permits use of the SEC-ERBA and (2) The exposure has an external credit assessment that meets the operational requirements for an external credit assessment in paragraph 20.8 , or there is an inferred rating that meets the operational requirements for inferred ratings in 20.9 and 20.10 . 18.44 A bank operating in Saudi Arabia that permit to use the SEC-ERBA may use an Internal Assessment Approach (SEC-IAA) as described in 21.1 to 21.4 for an unrated securitization exposure (e.g. liquidity facilities and credit enhancements) to an SA pool within an ABCP programme. In order to use an SEC-IAA, a bank must have SAMA approval to use the IRB approach for non- securitization exposures. A bank should consult with SAMA on whether and when it can apply the IAA to its securitization exposures, especially where the bank can apply the IRB for some, but not all, underlying exposures. 18.45 A bank that cannot use the SEC-ERBA or an SEC-IAA for its exposure to an SA pool may use the Standardized Approach (SEC-SA) as described in 19.1 to 19.15 . 18.46 Securitization exposures of mixed pools: where a bank can calculate K IRB on at least 95% of the underlying exposure amounts of a securitization, the bank must apply the SEC-IRBA calculating the capital charge for the underlying pool as follows, where d is the percentage of the exposure amount of underlying exposures for which the bank can calculate K IRB over the exposure amount of all underlying exposures; and K IRB and K SA are as defined in 22.2 to 22.5 and 19.2 to 19.4 , respectively: Capital charge for mixed pool = d x K IRB + (1- d) x K SA 18.47 Where the bank cannot calculate KIRB on at least 95% of the underlying exposures, the bank must use the hierarchy for securitization exposures of SA pools as set out in 18.43 to 18.45. 18.48 For resecuritization exposures, banks must apply the SEC-SA, with the adjustments in paragraph 19.16 . For exposures to securitizations of nonperforming loans as defined in paragraph 23.1 , banks must apply the framework with the adjustments laid out in Securitization of non-performing loans in chapter 23 .