18. Securitization: General Provisions

The maximum aggregated capital requirement for a bank's securitization exposures in the same transaction will be equal to K P * P. In order to apply a maximum capital charge to a bank's securitization exposure, a bank will need the following inputs: (1) The largest proportion of interest that the bank holds for each tranche of a given pool (P). In particular: (a) For a bank that has one or more securitization exposure(s) that reside in a single tranche of a given pool, P equals the proportion (expressed as a percentage) of securitization exposure(s) that the bank holds in that given tranche (calculated as the total nominal amount of the bank's securitization exposure(s) in the tranche) divided by the nominal amount of the tranche. (b) For a bank that has securitization exposures that reside in different tranches of a given securitization, P equals the maximum proportion of interest across tranches, where the proportion of interest for each of the different tranches should be calculated as described above. (2) Capital charge for underlying pool (KP): (a) For an IRB pool, K P equals K IRB as defined in 22.2 to 22.13 . (b) For an SA pool, K P equals K SA as defined in 19.2 to 19.5 . (c) For a mixed pool, K P equals the exposure-weighted average capital charge of the underlying pool using K SA for the proportion of the underlying pool for which the bank cannot calculate K IRB , and K IRB for the proportion of the underlying pool for which a bank can calculate K IRB 18.55 In applying the capital charge cap, the entire amount of any gain on sale and credit-enhancing interest-only strips arising from the securitization transaction must be deducted in accordance with SAMA Circular No. 341000015689, Date: 19 December 2012 . Treatment of Credit Risk Mitigation for Securitization Exposures 18.56 A bank may recognize credit protection purchased on a securitization exposure when calculating capital requirements subject to the following: (1) Collateral recognition is limited to that permitted under the credit risk mitigation framework – in particular, paragraph 9.34 when the bank applies the SEC-ERBA or SEC-SA, and paragraph 12.7 when the bank applies the SEC-IRBA. Collateral pledged by SPEs may be recognized; (2) Credit protection provided by the entities listed in paragraph 9.75 may berecognized. SPEs cannot be recognized as eligible guarantors; and (3) Where guarantees or credit derivatives fulfil the minimum operational conditions as specified in paragraphs 9.69 to 9.74 , banks can take account of such credit protection in calculating capital requirements for securitization exposures. 18.57 When a bank provides full (or pro rata) credit protection to a securitization exposure, the bank must calculate its capital requirements as if it directly holds the portion of the securitization exposure on which it has provided credit protection (in accordance with the definition of tranche maturity given in 18.22 and 18.23 ). 18.58 Provided that the conditions set out in 18.56 are met, the bank buying full (or pro rata) credit protection may recognize the credit risk mitigation on the securitization exposure in accordance with the CRM framework.