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Banks Act, 1990 (Act No. 94 of 1990)

Regulations

Regulations relating to Banks

Chapter II : Financial, Risk-based and other related Returns and Instructions, Directives and Interpretations relating to the completion thereof

23. Credit risk: monthly return

Directives and interpretations for completion of monthly return concerning credit risk (Form BA 200)

Subregulation (8) Method 2: Calculation of credit risk exposure in terms of the standardised approach

 

(8) Method 2: Calculation of credit risk exposure in terms of the standardised approach

 

Unless specifically otherwise provided, a bank that adopted the standardised approach for the measurement of the bank's exposure to credit risk in respect of positions held in the bank's banking book shall risk weight its exposures, net of any relevant credit impairment, in accordance with the relevant requirements specified below:

 

(a) In the case of exposures to sovereigns, central banks, public-sector entities, banks, securities firms and corporate exposures, in accordance with the relevant provisions of table 8 below:

 

Table 8

Claim in respect of—

Credit assessment issued by eligible institutions 1

AAA to

AA-

A+ to A-

BBB+

to BBB-

BB+ to B-

Below

B-

Unrated

Sovereigns (including the Central Bank of that particular country)

Export Credit Agencies: risk scores 1

0-1

2

3

4 to 6

7

0%

20%

50%

100%

150%

100%

Public-sector entities

20%

50%

50%

100%

150%

50%

Banks 2, 4

20%

50%

50%

100%

150%

50%

Securities firms 2, 4, 5

20%

50%

50%

100%

150%

50%

Banks: short-term claims 3, 4

20%

20%

20%

50%

150%

20%

Securities firms: short-term

claims 3, 4, 5

20%

20%

20%

50%

150%

20%

Corporate

entities 6, 7, 8

AAA TO

AA-

A+ to A-

BBB+

to BBB-

Below BB-

20%

50%

100%

150%

100%

Banks and corporate entities

Short-term credit assessment 1, 4, 9

A-1/P-1

A-2/P-2

A-3/P-3

Other

20%

50%

100%

150%
1. The notations used in this table relate to the ratings used by a particular credit assessment institution. The use of the rating scale of a particular credit assessment institution does not mean that any preference is given to a particular credit assessment institution. The assessments/ rating scales of other external credit assessment institutions or, in certain cases, Export Credit Agencies ("ECAs"), recognised as eligible institutions in South Africa, may have been used instead.
2. With the exception of short-term self-liquidating letters of credit, no claim on an unrated bank shall be assigned a risk weighting lower than the risk weighting assigned to a claim on the central government of the country in which the bank is incorporated.
3. Claims with an original maturity of three months or less, excluding a claim which is renewed or rolled, resulting in an effective maturity of more than three months.

[Footnote 3 substituted by regulation 6(j) of Notice No. 297, GG 40002, dated 20 May 2016]

4. Refer to subregulation (5)(b)(iv). Only relates to exposures when no specific short-term assessment was issued.
5. Provided that such a firm is subject to comparable supervisory and regulatory arrangements than banks in the RSA, including, in particular, risk-based capital requirements and regulation and supervision on a consolidated basis. Otherwise a securities firm shall be regarded as a corporate entity.
6. Including entities conducting insurance business.
7. No claim in respect of an unrated corporate exposure shall be assigned a risk weight lower than the risk weight assigned to a claim on the central government of the country in which the corporate entity is incorporated.
8. Provided that no significant investment in a minority or majority owned or controlled commercial entity, which investment amounts to less than 15 per cent of the sum of a bank's issued tier 1 and tier 2 capital and reserve funds, as reported in items 41, 65 and 78 of the form BA 700, shall be assigned a risk weight of less than 100 per cent
9. Refer to subregulation (5)(b)(iv). Only relates to claims against banks and corporate entities.

 

(b) In the case of an exposure that meets the criteria specified in subregulation (6)(b), which exposure shall be regarded as forming part of the bank's retail portfolio, excluding any exposure that is overdue, at a risk weight of 75 per cent.

 

(c) In the case of lending fully secured by mortgage on an occupied urban residential dwelling or occupied individual sectional title dwelling, when the exposure is not overdue and to the extent that the capital amount outstanding—
(i) does not exceed 80 per cent of the current market value of the mortgaged property, at a risk weight of 35 per cent;
(ii) exceeds 80 per cent but is less than 100 per cent of the current market value of the mortgaged property, at a risk weight of 75 per cent;
(iii) is equal to or exceeds 100 per cent of the current market value of the mortgaged property, at a risk weight of 100 per cent,

 

For example, when a bank granted and paid out a loan of R1 050 000 to a borrower, which loan is fully secured by mortgage on an occupied urban residential dwelling, the current market value of which urban residential dwelling is equal to R1 million, the bank shall risk weight the loan as follows:

(i) R800 000 at 35 per cent;
(ii) R199 999 at 75 per cent; and
(iii) R 50 001 at 100 per cent.

 

For the purposes of this paragraph (c), the terms occupied, urban and dwelling shall have the same meaning as set out in subregulation (6)(c) above.

 

(d) In the case of lending fully secured by mortgage on commercial real estate, at a risk weight of 100 per cent;

 

(e) In the case of exposures, other than exposures secured by a mortgage bond on residential property as envisaged in paragraph (c), which exposures are overdue for more than 90 days—
(i) the unsecured portion of the exposure shall be risk weighted as follows:
(A) 150 per cent when the specific credit impairment in respect of the outstanding amount of the exposure is less than 20 per cent;
(B) 100 per cent when the specific credit impairment in respect of the outstanding amount of the exposure is equal to or more than 20 per cent;
(C) 50 per cent when the specific credit impairment in respect of the outstanding amount of the exposure is equal to or more than 50 per cent.
(ii) the secured portion of the exposure shall be risk weighted at 100 per cent, provided that the bank obtained adequate eligible collateral and raised a credit impairment equal to or higher than 15 per cent of the outstanding exposure.

 

(f) In the case of a loan that is fully secured by a mortgage bond on an occupied urban residential dwelling or occupied individual sectional title dwelling, as envisaged in paragraph (c), when the exposure is overdue for more than 90 days—
(i) at a risk weight of 100 per cent when the specific credit impairment in respect of the loan is less than 20 per cent of the outstanding amount;
(ii) at a risk weight of 50 per cent when the specific credit impairment in respect of the loan is equal to or higher than 20 per cent of the outstanding amount.

 

(g) Unless specifically otherwise provided, all off-balance-sheet exposures in accordance with the provisions of subregulation (6)(g) above.

 

(h) In the case of any securitisation or resecuritisation exposure, in accordance with the relevant requirements specified in subregulation (6)(h) above;

 

(i) In the case of all unsettled securities or derivative contracts subject to counterparty risk, in accordance with the relevant requirements specified in subregulations (15) to (19).

 

(j) Unless specifically otherwise provided in this subregulation (8), in the case of all other relevant exposures, in accordance with the relevant provisions of subregulation (6)(j).