Minimum Capital Requirements for Credit Risk

All of the following criteria must be satisfied for a sub-portfolio to be treated as a qualifying revolving retail exposure (QRRE). These criteria must be applied at a sub-portfolio level consistent with the bank’s segmentation of its retail activities generally. Segmentation at the national or country level (or below) should be the general rule. (1) The exposures are revolving, unsecured, and uncommitted (both contractually and in practice). In this context, revolving exposures are defined as those where customers’ outstanding balances are permitted to fluctuate based on their decisions to borrow and repay, up to a limit established by the bank. (2) The exposures are to individuals. (3) The maximum exposure to a single individual in the sub-portfolio is SAR 400,000 or less. (4) Because the asset correlation assumptions for the QRRE risk-weight function are markedly below those for the other retail risk-weight function at low PD values, banks must demonstrate that the use of the QRRE risk-weight function is constrained to portfolios that have exhibited low volatility of loss rates, relative to their average level of loss rates, especially within the low PD bands. (5) Data on loss rates for the sub-portfolio must be retained in order to allow analysis of the volatility of loss rates. (6) The supervisor must concur that treatment as a qualifying revolving retail exposure is consistent with the underlying risk characteristics of the sub-portfolio. 10.23 The QRRE sub-class is split into exposures to transactors and revolvers. A QRRE transactor is an exposure to an obligor that meets the definition set out in paragraph 7.56 . That is, the exposure is to an obligor in relation to a facility such as credit card or charge card where the balance has been repaid in full at each scheduled repayment date for the previous 12 months, or the exposure is in relation to an overdraft facility if there have been no drawdowns over the previous 12 months. All exposures that are not QRRE transactors are QRRE revolvers, including QRRE exposures with less than 12 months of repayment history. 51 SAMA may exclude from the retail residential mortgage sub-asset class loans to individuals that have mortgaged no more than two properties or housing units, and treat such loans as corporate exposures. Definition of Equity Exposures 10.24 This asset class covers exposures to equities as defined in paragraphs 7.47 to 7.49 . Definition of Eligible Purchased Receivables 10.25 Eligible purchased receivables are divided into retail and corporate receivables as defined below. Retail receivables 10.26 Purchased retail receivables, provided the purchasing bank complies with the IRB rules for retail exposures, are eligible for the top-down approach as permitted within the existing standards for retail exposures. The bank must also apply the minimum operational requirements as set in chapters 14 and 16 . Corporate receivables 10.27 In general, for purchased corporate receivables, banks are expected to assess the default risk of individual obligors as specified in paragraphs 11.3 to 11.12 consistent with the treatment of other corporate exposures. However, the topdown approach may be used, provided that the purchasing bank’s programme for corporate receivables complies with both the criteria for eligible receivables and the minimum operational requirements of this approach. The use of the topdown purchased receivables treatment is limited to situations where it would be an undue burden on a bank to be subjected to the minimum requirements for the IRB approach to corporate exposures that would otherwise apply. Primarily, it is intended for receivables that are purchased for inclusion in asset-backed securitization structures, but banks may also use this approach, with the approval of SAMA, for appropriate on-balance sheet exposures that share the same features.