Minimum Capital Requirements for Credit Risk

The exposure amount of the securitization exposure to the ABCP programme must be assigned to the risk weight in the SEC-ERBA appropriate to the credit rating equivalent assigned to the bank's exposure. 21.4 If a bank's internal assessment process is no longer considered adequate, SAMA may preclude the bank from applying the SEC-IAA to its ABCP exposures, both existing and newly originated, for determining the appropriate capital treatment until the bank has remedied the deficiencies. In this instance, the bank must revert to the SEC-SA described in 19.1 to 19.15 . 22. Securitization: Internal- Ratings-Based Approach No: 44047144 Date(g): 27/12/2022 | Date(h): 4/6/1444 Status: In-Force Internal Ratings-Based Approach (SEC-IRBA) 22.1 To calculate capital requirements for a securitization exposure to an internal ratings-based (IRB) pool, a bank must use the securitization internal ratings- based approach (SEC-IRBA) and the following bank-supplied inputs: the IRB capital charge had the underlying exposures not been securitized (K IRB ), the tranche attachment point (A), the tranche detachment point (D) and the supervisory parameter p, as defined below. Where the only difference between exposures to a transaction is related to maturity, A and D will be the same. Definition of KIRB 22.2 K IRB is the ratio of the following measures, expressed in decimal form (e.g. a capital charge equal to 15% of the pool would be expressed as 0.15): (1) The IRB capital requirement (including the expected loss portion and, where applicable, dilution risk as discussed in paragraphs 22.11 to 22.13 below) for the underlying exposures in the pool; to (2) The exposure amount of the pool (e.g. the sum of drawn amounts related to securitized exposures plus the exposure-at-default associated with undrawn commitments related to securitized exposures). 110 111 22.3 Notwithstanding the clarification in paragraphs 18.46 and 18.47 for mixed pools, 22.2 (1) must be calculated in accordance with applicable minimum IRB standards in chapters 10 to 16 as if the exposures in the pool were held directly by the bank. This calculation should reflect the effects of any credit risk mitigant that is applied on the underlying exposures (either individually or to the entire pool), and hence benefits all of the securitization exposures. 22.4 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 could include assets in which the SPE may have invested a reserve account, such as a cash collateral account or claims against counterparties resulting from interest swaps or currency swaps. 112 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 of the SPE's exposures is immaterial (for example, because it has been mitigated 113 ) or that it does not affect the bank's securitization exposure. 22.5 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 it is immaterial must be included in the calculation of K IRB if the default risk of the collateral is subject to the tranched loss allocation. 114