Real Estate Exposure Class

It is expected that the material dependence condition, set out in paragraph 7.71 above, would predominantly apply to loans to corporates, MSMEs or SPVs, but is not restricted to those borrower types. As an example, a loan may be considered materially dependent if more than 50% of the income from the borrower used in the bank's assessment of its ability to service the loan is from cash flows generated by the residential property. 7.73 As exceptions to the definition contained in paragraph 7.71 above, the following types of regulatory real estate exposures are not classified as exposures that are materially dependent on cash flows generated by the property: 1. An exposure secured by a property that is the borrower’s primary residence; 2. An exposure secured by an income-producing residential housing unit, to an individual who has mortgaged less than two properties or housing units; 3. An exposure secured by residential real estate property to associations or cooperatives of individuals that are regulated under national law and exist with the only purpose of granting its members the use of a primary residence in the property securing the loans; and 4. An exposure secured by residential real estate property to public housing companies and not-for-profit associations regulated under national law that exist to serve social purposes and to offer tenants long-term housing. Risk weights for regulatory residential real estate exposures that are not materially dependent on cash flows generated by the property 7.74 For regulatory residential real estate exposures that are not materially dependent on cash flow generated by the property, the risk weight to be assigned to the total exposure amount will be determined based on the exposure’s LTV ratio in Table 9 below. The use of the risk weights in Table 9 is referred to as the “whole loan” approach. Whole loan approach risk weights for regulatory residential real estate exposures that are not materially dependent on cash flows generated by the property Table 9 Risk weight LTV ≤ 50% 50% < LTV ≤ 60% 60% < LTV ≤ 80% 80% < LT ≤ 90% 90% < LTV ≤ 100% LTV > 100% 20% 25% 30% 40% 50% 70%