Calculation of Capital Requirements and Risk-Weighted Assets

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 . 18.49 When a bank provides implicit support to a securitization, it must, at a minimum, hold capital against all of the underlying exposures associated with the securitization transaction as if they had not been securitized. Additionally, banks would not be permitted to recognize in regulatory capital any gain on sale, in accordance with SAMA Circular No. 341000015689, Date: 19 December 2012 . 72 That is, splitting exposures into portions that overlap with another exposure held by the bank and other portions that do not overlap; and expanding exposures by assuming for capital purposes that obligations with respect to one of the overlapping exposures are larger than those established contractually. The latter could be done, for instance, by expanding either the trigger events to exercise the facility and/or the extent of the obligation.