Exposures to Banks

To reflect transfer and convertibility risk under the SCRA, a risk-weight floor based on the risk weight applicable to exposures to the sovereign of the country where the bank counterparty is incorporated will be applied to the risk weight assigned to bank exposures. The sovereign floor applies when: i. The exposure is not in the local currency of the jurisdiction of incorporation of the debtor bank; and ii. For a borrowing booked in a branch of the debtor bank in a foreign jurisdiction, when the exposure is not in the local currency of the jurisdiction in which the branch operates. The sovereign floor will not apply to short-term (i.e. with a maturity below one year) self-liquidating, trade-related contingent items that arise from the movement of goods. 5 For internationally active banks, appropriate prudential standards (e.g. capital and liquidity requirements) and level of supervision should be in accordance with the Basel framework. 6 An exposure is rated from the perspective of a bank if the exposure is rated by a recognized “eligible credit assessment institution” (ECAI) which has been nominated by the bank (i.e. the bank has informed SAMA of its intention to use the ratings of such ECAI for regulatory purposes in a consistent manner paragraph 8.8 In other words, if an external rating exists but the credit rating agency is not a recognized ECAI by SAMA, or the rating has been issued by an ECAI which has not been nominated by the bank, the exposure would be considered as being unrated from the perspective of the bank 7 Implicit government support refers to the notion that the government would act to prevent bank creditors from incurring losses in the event of a bank default or bank distress. 8 This may include on-balance sheet exposures such as loans and off- balance sheet exposures such as self-liquidating trade-related contingent items. 9 This may include on-balance sheet exposures such as loans and off-balance sheet exposures such as self-liquidating trade-related contingent items.