Banks: Prudential Authority Issues IRB Credit Risk Guidelines

Posted 02 July 2025 Written by Acts Online
Category Financial Sector

Brought to you by SA Legal Academy: The Prudential Authority has released updated guidelines detailing the internal ratings-based (IRB) approach for calculating minimum capital and reserve funds.

In terms of the Banks Act, No. 94 of 1990, the Prudential Authority (PA) has published guidelines for banks and controlling companies. These directives focus on the IRB approach, which is utilized by financial institutions to determine the minimum amount of capital and reserve funds required to mitigate credit risk exposure.

The PA specifies that these guidelines must be read in conjunction with the regulatory standards issued on 29 July 2022, which addressed specific matters related to a bank’s credit risk model. The current issuance aims to provide further clarity on the application of the IRB framework within the South African banking sector.

The guidelines and their accompanying executive summary cover the following regulatory areas:

  • The methodology for calculating minimum capital requirements under the IRB approach;
  • The maintenance of reserve funds relative to credit risk exposure; and
  • Compliance requirements for internal credit risk models.

What this means for you, your business, or your clients

  • For yourself: No direct individual obligations; impact is channelled through institutional compliance frameworks for professionals working within the banking sector.
  • For your business: Banks and controlling companies must review their internal ratings-based models to ensure they align with the PA’s updated requirements for capital adequacy and reserve fund calculations.
  • For your clients: Corporate and individual clients of financial institutions may experience shifts in credit assessment criteria or pricing as banks adjust their risk-weighted assets and capital reserves to meet these regulatory standards.

Originally published at https://legalacademy.co.za/news/read/banks-prudential-authority-issues-credit-risk-exposure-guidelines-internal-ratings-based-approach

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