Content Options

MIPRU 4.2A Credit risk capital requirement

Application

MIPRU 4.2A.1R

Purpose

MIPRU 4.2A.2G

MIPRU 4.2A sets out how a firm should calculate its credit risk capital requirement.

33
MIPRU 4.2A.3G

A firm may use credit risk mitigation to reduce the credit risk associated with an exposure. The firm 3should refer to MIPRU 4.2C3 to determine the effect of credit risk mitigation on its 3 risk weighted exposure amounts.

33

Calculation of credit risk capital requirement3

MIPRU 4.2A.4R

The credit risk capital requirement 3of a firm is 8% of the total of its risk weighted exposure amounts for exposures that:

3
  1. (1)

    are on its balance sheet; and

  2. (2)

    derive from:

    1. (a)

      a loan entered into; or

    2. (b)

      a securitisation position originated; or

    3. (c)

      a fund 3position entered into;

      3

    on or after 26 April 2014; and

  3. (3)

    have not been deducted from the firm's capital resources under MIPRU 4.4.4 R or MIPRU 4.2BA;

calculated in accordance with MIPRU 4.2A.

MIPRU 4.2A.4AR

Loans, securitisation positions and fund positions entered into before 26 April 2014 are excluded from the credit risk capital requirement calculation.

MIPRU 4.2A.5R

Any arrangements entered into on or after 26 April 20142 which increase the amount of a loan already advanced or change the security to a loan already advanced or change the contractual terms (other than if the firm is exercising forbearance) of a loan already advanced will be subject to the credit risk capital requirement under MIPRU 4.2A.4R (2)(a) provided that, where the arrangements only increase the amount of a loan already advanced, such requirement shall only apply to the amount of such increase.

MIPRU 4.2A.5AG

The arrangements excluded from the credit risk capital requirement3 include:

3
  1. (1)

    a loan acquired by a firm on or 3after 26 April 2014 if that loan was made before 26 April 2014;

  2. (2)

    arrangements made as a result of forbearance procedures, including:

    1. (a)

      a change in the basis of interest payments from variable to fixed rate; or

    2. (b)

      a change from a repayment mortgage to interest only; or

    3. (c)

      the capitalisation of interest which increases the principal outstanding, where there is no element of new borrowing.

MIPRU 4.2A.5BG

3A firm may exclude loans or home reversion plans entered into before 26 April 2014 where they meet the conditions in MIPRU 4.2.14 R, applied in accordance with MIPRU 4.2.15 E to MIPRU 4.2.17 E.

MIPRU 4.2A.6R

Unless a rule requires otherwise, the 3 exposure value of an asset or liability held on the balance sheet of a firm 3must be its balance sheet value.

33

Exposure classes3

MIPRU 4.2A.6AR

3A firm must assign each exposure to one of the following exposure classes:

  1. (1)

    loans or contingent loans secured on real estate property;

  2. (2)

    other loans;

  3. (3)

    securitisation positions;

  4. (4)

    exposures in the form of funds; or

  5. (5)

    past due items.

Risk weights

MIPRU 4.2A.9R

For the purposes of applying a risk weight, the exposure value must be multiplied by the risk weight determined in accordance with MIPRU 4.2A.10 R, MIPRU 4.2A.10A R, MIPRU 4.2A.10B R, 3MIPRU 4.2A.11 R, MIPRU 4.2A.12 R or 3MIPRU 4.2A.17 R, unless it is deducted from capital resources under MIPRU 4.4.4 R or MIPRU 4.2BA3.

MIPRU 4.2A.10R

To calculate risk weighted exposure amounts on exposures secured by mortgages on residential property, risk weights must be applied to all such exposures, in accordance with MIPRU 4.2F.4 R to MIPRU 4.2F.10 G3.

33
MIPRU 4.2A.10AR

3To calculate risk weighted exposure amount on exposures secured by mortgages on commercial property, risk weights must be applied to all such exposures in accordance with MIPRU 4.2F.37 R.

MIPRU 4.2A.10BR

3To calculate risk weighted exposure amounts on other loans, risk weights must be applied to all such exposures in accordance with MIPRU 4.2F.38 R.

MIPRU 4.2A.11R

To calculate risk weighted exposure amounts on exposures in funds3, risk weights must be applied to all such exposures, in accordance with MIPRU 4.2F.39 R to MIPRU 4.2F.49 R3.

333
MIPRU 4.2A.12R

To calculate risk weighted exposure amounts 3for securitised exposures, risk weights3 must be calculated in accordance with 3MIPRU 4.2BA (Securitisation)3.

3
MIPRU 4.2A.17R

A firm must apply MIPRU 4.2F.50 R to MIPRU 4.2F.55 R to all past due items3

3
MIPRU 4.2A.17AR
  1. (1)

    3The application of risk weights must be based on the exposure class to which the exposure is assigned and, to the extent specified in MIPRU 4.2BA and MIPRU 4.2F (Exposures and risk weights), its credit quality.

  2. (2)

    Credit quality must be determined by reference to solicited credit assessments of eligible ECAIs where these are available, in accordance with MIPRU 4.2E (Use of external credit assessments).

MIPRU 4.2A.17BR

3Where an exposure is subject to credit risk mitigation, the risk weighted exposure amount applicable to that item may be modified in accordance with MIPRU 4.2C (Credit risk mitigation).