Minimum Capital Requirements for Credit Risk

For structures involving a special purpose entity (SPE), all of the SPE’s exposures related to the securitization are to be treated as exposures in the pool. Exposures related to the securitization that should be treated as exposures in the pool include assets in which the SPE may have invested, comprising reserve accounts, cash collateral accounts and claims against counterparties resulting from interest swaps or currency swaps. 105 Notwithstanding, the bank can exclude the SPE’s exposures from the pool for capital calculation purposes if the bank can demonstrate to SAMA that the risk does not affect its particular securitization exposure or that the risk is immaterial - for example, because it has been mitigated. 106 19.4 In the case of funded synthetic securitizations, any proceeds of the issuances of credit-linked notes or other funded obligations of the SPE that serve as collateral for the repayment of the securitization exposure in question, and for which the bank cannot demonstrate to SAMA that they are immaterial, have to be included in the calculation of K SA if the default risk of the collateral is subject to the tranched loss allocation. 107 19.5 In cases where a bank has set aside a specific provision or has a non- refundable purchase price discount on an exposure in the pool, K SA must be calculated using the gross amount of the exposure without the specific provision and/or non- refundable purchase price discount. 19.6 The variable W equals the ratio of the sum of the nominal amount of delinquent underlying exposures (as defined in paragraph 20.7 below) to the nominal amount of underlying exposures. 19.7 Delinquent underlying exposures are underlying exposures that are 90 days or more past due, subject to bankruptcy or insolvency proceedings, in the process of foreclosure, held as real estate owned, or in default, where default is defined within the securitization deal documents. 19.8 The inputs K SA and W are used as inputs to calculate K A , as follows: K A = (1 - W ) x K SA + 0.5 W 19.9 In case a bank does not know the delinquency status, as defined above, for no more than 5% of underlying exposures in the pool, the bank may still use the SEC-SA by adjusting its calculation of K A as follows: 19.10 If the bank does not know the delinquency status for more than 5%, the securitization exposure must be risk weighted at 1250%. 19.11 Capital requirements are calculated under the SEC-SA as follows, where KSSFA(KA) is the capital requirement per unit of the securitization exposure and the variables a, u, and l are defined as: (1) a = - (1/( p * K A )) (2) u = D- K A (3) l = max (4 - K A ; 0) 19.12 The supervisory parameter p in the context of the SEC-SA is set equal to 1 for a securitization exposure that is not a resecuritization exposure. 19.13 The risk weight assigned to a securitization exposure when applying the SEC-SA would be calculated as follows: (1) When D for a securitization exposure is less than or equal to K A , the exposure must be assigned a risk weight of 1250%. (2) When A for a securitization exposure is greater than or equal to K A , the risk weight of the exposure, expressed as a percentage, would equal KSSFA(K A ) times 12.5 (3) When A is less than K A and D is greater than K A , the applicable risk weight is a weighted average of 1250% and 12.5 times K SSFA(KA) according to the following formula: 19.14 The risk weight for market risk hedges such as currency or interest rate swaps will be inferred from a securitization exposure that is pari passu to the swaps or, if such an exposure does not exist, from the next subordinated tranche.