Minimum Capital Requirements for Credit Risk

(which relate to the nature of the borrower and value of individual exposures) and all of the criteria set out in paragraph 10.20 (which relate to the size of the pool of exposures). 10.19 The criteria related to the nature of the borrower and value of the individual exposures are as follows: (1) Exposures to individuals - such as revolving credits and lines of credit (e.g. credit cards, overdrafts, or retail facilities secured by financial instruments) as well as personal term loans and leases (e.g. instalment loans, auto loans and leases, student and educational loans, personal finance, or other exposures with similar characteristics) – are generally eligible for retail treatment regardless of exposure size. (2) Where a loan is a residential mortgage (including first and subsequent liens, term loans and revolving home equity lines of credit) it is eligible for retail treatment regardless of exposure size so long as the credit is an exposure to an individual 51 . (3) Where loans are extended to MSMEs and managed as retail exposures they are eligible for retail treatment provided the total exposure of the banking group to a MSME borrower (on a consolidated basis where applicable) is less than SAR 4.46 million. MSMEs loans extended through or guaranteed by an individual are subject to the same exposure threshold. 10.20 The criteria related to the size of the pool of exposures are as follows: (1) The exposure must be one of a large pool of exposures, which are managed by the bank on a pooled basis. (2) Where a loan gives rise to a small business exposure below SAR 4 million, it may be treated as retail exposures if the bank treats such exposures in its internal risk management systems consistently over time and in the same manner as other retail exposures. This requires that such an exposure be originated in a similar manner to other retail exposures. Furthermore, it must not be managed individually in a way comparable to corporate exposures, but rather as part of a portfolio segment or pool of exposures with similar risk characteristics for purposes of risk assessment and quantification. However, this does not preclude retail exposures from being treated individually at some stages of the risk management process. The fact that an exposure is rated individually does not by itself deny the eligibility as a retail exposure. 10.21 Within the retail asset class category, banks are required to identify separately three sub-classes of exposures: (1) Residential mortgage loans, as defined above; (2) Qualifying revolving retail exposures, as defined in the following paragraph; and (3) All other retail exposures. Definition of qualifying revolving retail exposures