Real Estate Exposure Class

For regulatory commercial 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 in Table 11 below (which sets out a whole loan approach). The risk weight of the counterparty for the purposes of Table 11 below and 7.78 below is prescribed in paragraph 7.81. Whole loan approach risk weights for regulatory commercial real estate exposures that are not materially dependent on cash flows generated by the property Table 11 Risk weight LTV ≤ 60% LTV > 60% Min (60%, RW of counterparty) RW of counterparty 7.78 Banks may apply the “loan splitting” approach, as an alternative to the whole loan approach, for regulatory commercial real estate exposures that are not materially dependent on cash flows generated by the property. Under the loan splitting approach, the risk weight of 60% or the risk weight of the counterparty, whichever is lower, is applied to the part of the exposure up to 55% of the property value 30 , and the risk weight of the counterparty is applied to the residual exposure Risk weights for regulatory commercial real estate exposures that are materially dependent on cash flows generated by the property 7.79 For regulatory commercial real estate exposures that are materially dependent on cash flows generated by the property, the risk weight to be assigned to the total exposure amount will be determined based on the exposure’s LTV in Table 12 below. Whole loan approach risk weights for regulatory commercial real estate exposures that are materially dependent on cash flows generated by the property Table 12 Risk weight LTV ≤ 60% 60% < LTV ≤ 80% LTV > 80% 70% 90% 110% Definition of “other real estate” exposures and applicable risk weights 7.80 An “other real estate” exposure is an exposure within the real estate asset class that is not a regulatory real estate exposure (as defined in paragraph 7.63 above) and is not a land ADC exposure (as defined in paragraph 7.82 below). 7.81 Other real estate exposures are risk weighted as follows: 1. The risk weight of the counterparty is used for other real estate exposures that are not materially dependent on the cash flows generated by the property. For exposures to individuals the risk weight applied will be 75%. For exposures to SMEs, the risk weight applied will be 85%. For exposures to other counterparties, the risk weight applied is the risk weight that would be assigned to an unsecured exposure to that counterparty. 2. The risk weight of 150% is used for other real estate exposures that are materially dependent on the cash flows generated by the property. Definition of land acquisition, development and construction exposures and applicable risk weights 7.82 Land ADC exposures 31 refers to loans to companies or SPVs financing any of the land acquisition for development and construction purposes, or development and construction of any residential or commercial property. ADC exposures will be risk-weighted at 150%, unless they meet the criteria in paragraph 7.83. 7.83 ADC exposures to residential real estate may be risk weighted at 100%, provided that the following criteria are met: 1. prudential underwriting standards meet the requirements in paragraph