Minimum Capital Requirements for Credit Risk

To calculate K IRB , the treatment for eligible purchased receivables described in paragraphs 10.25 to 10.29, 14.2 to 14.7 , 16.106, 16.108, 16.112 to 16.120 may be used, with the particularities specified in 22.7 to 22.9, if, according to IRB minimum requirements: (1) For non-retail assets, it would be an undue burden on a bank to assess the default risk of individual obligors; and (2) For retail assets, a bank is unable to primarily rely on internal data. 22.7 22.6 above applies to any securitized exposure, not just purchased receivables. For this purpose, "eligible purchased receivables" should be understood as referring to any securitized exposure for which the conditions of paragraph 22.6 are met, and "eligible purchased corporate receivables" should be understood as referring to any securitized non-retail exposure. All other IRB minimum requirements must be met by the bank. 22.8 SAMA may deny the use of a top-down approach, as defined in 14.8 (1) , for eligible purchased receivables for securitized exposures depending on the bank's compliance with minimum requirements. 22.9 The requirements to use a top-down approach for the eligible purchased receivables are generally unchanged when applied to securitizations except in the following cases: (1) The requirement in paragraph 10.30 for the bank to have a claim on all proceeds from the pool of receivables or a pro-rata interest in the proceeds does not apply. Instead, the bank must have a claim on all proceeds from the pool of securitized exposures that have been allocated to the bank's exposure in the securitization in accordance with the terms of the related securitization documentation; (2) In paragraph 16.113 , the purchasing bank should be interpreted as the bank calculating K IRB ; (3) In paragraphs 16.115 to 16.120 "a bank" should be read as "the bank estimating probability of default, loss-given-default (LGD) or expected loss for the securitized exposures"; and (4) If the bank calculating K IRB cannot itself meet the requirements in paragraphs 16.115 to 16.119 , it must instead ensure that it meets these requirements through a party to the securitization acting for and in the interest of the investors in the securitization, in accordance with the terms of the related securitization documents. Specifically, requirements for effective control and ownership must be met for all proceeds from the pool of securitized exposures that have been allocated to the bank's exposure to the securitization. Further, in paragraph 16.117 (1) , the relevant eligibility criteria and advancing policies are those of the securitization, not those of the bank calculating K IRB . 22.10 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, the quantities defined in paragraphs 22.2 (1) and 22.2 (2) must be calculated using the gross amount of the exposure without the specific provision and/or non- refundable purchase price discount. 22.11 Dilution risk in a securitization must be recognized if it is not immaterial, as demonstrated by the bank to SAMA (see paragraph 14.8), whereby the provisions of paragraphs 22.2 to 22.5 shall apply. 22.12 Where default and dilution risk are treated in an aggregate manner (e.g. an identical reserve or overcollateralization is available to cover losses for both risks), in order to calculate capital requirements for the securitization exposure, a bank must determine KIRB for dilution risk and default risk, respectively, and combine them into a single KIRB prior to applying the SEC-IRBA.