MIPRU 4.2E 1Use of external credit assessments

MIPRU 4.2E.1R

1For the calculation of risk weighted exposure amounts, a firm must use solicited credit assessments from ECAIs in the following manner:

  1. (1)

    consistently and in accordance with this section; and

  2. (2)

    not selectively.

1Treatment

MIPRU 4.2E.2R

A firm must nominate one or more eligible ECAIs to be used for the determination of risk weights to be assigned to on-balance sheet items.

MIPRU 4.2E.3R

A firm must only use a nominated ECAI's credit assessments that take into account all amounts of both principal and interest owed to it.

MIPRU 4.2E.4R

A firm which uses the credit assessments produced by a nominated ECAI must do so in a continuous and consistent way over time.

MIPRU 4.2E.5R

A firm which uses the credit assessments produced by a nominated ECAI for a certain exposure class must use those credit assessments consistently for all exposures belonging to that class.

MIPRU 4.2E.6R

If only one credit assessment is available from a nominated ECAI for a rated item, that credit assessment must be used to determine the risk weight for that item.

MIPRU 4.2E.7R

If two credit assessments are available from nominated ECAIs and the two correspond to different risk weights for a rated item, the higher risk weight must be applied.

MIPRU 4.2E.8R
  1. (1)

    If more than two credit assessments are available from nominated ECAIs for a rated item, the two assessments generating the two lowest risk weights must be referred to.

  2. (2)

    If the two lowest risk weights are different, the higher risk weight must be assigned.

  3. (3)

    If the two lowest risk weights are the same, that risk weight must be assigned.

Issuer and issue credit assessment

MIPRU 4.2E.9R

Where a credit assessment exists for a specific issuing programme or facility to which the item constituting the exposure belongs, this credit assessment must be used to determine the risk weight to be assigned to that item.

MIPRU 4.2E.10R

Where no directly applicable credit assessment exists for a certain item but a general credit assessment exists for the issuer, that general credit assessment must be used where it produces either of the following:

  1. (1)

    a higher risk weight than would otherwise be the case;

  2. (2)

    a lower risk weight and the exposure in question ranks as equally senior or senior in all respects to senior unsecured exposures of that issuer, as relevant.

MIPRU 4.2E.11R

Credit assessments for issuers within a group cannot be used as the credit assessment of another issuer within the same group.

Domestic and foreign currency items

MIPRU 4.2E.12R

A credit assessment that refers to an item denominated in the borrower's domestic currency cannot be used to derive a risk weight for another exposure on that same borrower that is denominated in a foreign currency.

Mapping of credit assessments of nominated ECAIs to credit quality steps

MIPRU 4.2E.13R

Exposures for which a credit assessment by a nominated ECAI is available must be assigned a credit quality step according to the table in MIPRU 4.2E.14 R.

MIPRU 4.2E.14R

Table: Exposures for which a credit assessment by a nominated ECAI is available

This table belongs to MIPRU 4.2E.13 R.

Credit Quality Step

1

2

3

4

5

6

Credit assessment

Fitch

AAA to AA-

A+ to A-

BBB+ to BBB-

BB+ to BB-

B+ to B-

CCC+ and below

Moody’s

Aaa to Aa3

A1 to A3

Baa1 to Baa3

Ba1 to Ba3

B1 to B3

Caa1 and below

S & P

AAA to AA-

A+ to A-

BBB+ to BBB-

BB+ to BB-

B+ to B-

CCC+ and below

DBRS

AAA to AAL

AH to AL

BBBH to BBBL

BBH to BBL

BH to BL

CCCH and below