Minimum Capital Requirements for Credit Risk

In making the assessment for the revenue threshold in paragraph 10.32, the amounts must be as reported in the audited financial statements of the corporates or, for corporates that are part of consolidated groups, their consolidated groups (according to the accounting standard applicable to the ultimate parent of the consolidated group). The figures must be based on the average amounts calculated over the prior three years, or on the latest amounts updated every three years by the bank. Corporate, Sovereign and Bank Exposures 10.34 Under the foundation approach, banks must provide their own estimates of PD associated with each of their borrower grades, but must use supervisory estimates for the other relevant risk components. The other risk components are LGD, EAD and M 54 . 10.35 Under the advanced approach, banks must calculate the effective maturity (M) 55 and provide their own estimates of PD, LGD and EAD. 10.36 There is an exception to this general rule for the five sub-classes of assets identified as SL. The SL categories: PF, OF, CF, IPRE and HVCRE 10.37 Banks that do not meet the requirements for the estimation of PD under the corporate foundation approach for their SL exposures are required to map their internal risk grades to five supervisory categories, each of which is associated with a specific risk weight. This approach is termed the ‘supervisory slotting criteria approach’. 10.38 Banks that meet the requirements for the estimation of PD are able to use the foundation approach to corporate exposures to derive risk weights for all classes of SL exposures except HVCRE. SAMA may consider allowing banks meeting these requirements for HVCRE exposures to use a foundation approach that is similar in all respects to the corporate approach, with the exception of a separate risk-weight function as described in paragraph 11.11 . 10.39 Banks that meet the requirements for the estimation of PD, LGD and EAD are able to use the advanced approach to corporate exposures to derive risk weights for all classes of SL exposures except HVCRE. SAMA may consider allowing banks meeting these requirements for HVCRE exposure are able to use an advanced approach that is similar in all respects to the corporate approach, with the exception of a separate risk-weight function as described in paragraph 11.11 . 54 As noted in paragraph 12.44 2012.44, SAMA may require banks using the foundation approach to calculate M using the definition provided in paragraphs 12.46 to 12.55 . 55 At the discretion of SAMA, certain domestic exposures may be exempt from the calculation of M (see paragraph 12.44 ). Retail Exposures 10.40 For retail exposures, banks must provide their own estimates of PD, LGD and EAD. There is no foundation approach for this asset class. Equity Exposures 10.41 All equity exposures are subject to the approach set out in paragraph 7.50 of the standardized approach for credit risk, with the exception of equity investments in funds that are subject to the requirements set out in chapter 24 . Eligible Purchased Receivables 10.42 The treatment potentially straddles two asset classes. For eligible corporate receivables, both a foundation and advanced approach are available subject to certain operational requirements being met. As noted in paragraph 10.27 , for corporate purchased receivables, banks are in general expected to assess the default risk of individual obligors. The bank may use the A-IRB treatment for purchased corporate receivables ( paragraphs 14.6 to 14.7 ) only for exposures to individual corporate obligors that are eligible for the A-IRB approach according to paragraphs 10.32 and 10.33 . Otherwise, the F-IRB treatment for purchased corporate receivables should be used. For eligible retail receivables, as with the retail asset class, only the A-IRB approach is available. Adoption of the IRB Approach for Asset Classes