The mapping of Credit Assessments by ECAIs
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| 8.6 | SAMA will be assigning eligible ECAIs’ ratings to the risk weights available under the standardized risk weighting framework, i.e. deciding which rating categories correspond to which risk weights.
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| 8.7 | Banks can use the following mapping of ECAIs’ ratings. This mapping will be subject to review by SAMA as appropriate and banks will be informed accordingly.
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| SAMA | S&P | Moody's | Fitch | | 1 | AAA | Aaa | AAA | | AA+ | Aa1 | AA+ | | AA | Aa2 | AA | | AA- | Aa3 | AA- | | 2 | A+ | A1 | A+ | | A | A2 | A | | A- | A3 | A- | | 3 | BBB+ | Baa1 | BBB+ | | BBB | Baa2 | BBB | | BBB- | Baa3 | BBB- | | 4 | BB+ | Ba1 | BB+ | | BB | Ba2 | BB | | BB- | Ba3 | BB- | | B+ | B1 | B+ | | B | B2 | B | | B- | B3 | B- | | 5 | CCC+ | Caa1 | CCC+ | | CCC | Caa2 | CCC | | CCC- | Caa3 | CCC- | | CC | Ca | CC | | C | C | C | | D | | D | | 6 | Unrated | Unrated | Unrated |
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| 8.8 | Banks must use the chosen ECAIs and their ratings consistently for all types of exposure where they have been recognized by SAMA as an eligible ECAI, for both risk-weighting and risk management purposes. Banks are not allowed to “cherry-pick” the ratings provided by different ECAIs and to arbitrarily change the use of ECAIs.
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| 8.9 | Banks must use the global rating scale provided by the ECAIs consistently for all types of exposures, the use of national rating scales is subject to mapping to the global rating.
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Multiple external ratings
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| 8.10 | If there is only one rating by an ECAI chosen by a bank for a particular exposure, that rating should be used to determine the risk weight of the exposure.
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| 8.11 | If there are two ratings by ECAIs chosen by a bank that map into different risk weights, the higher risk weight will be applied.
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| 8.12 | If there are three or more ratings with different risk weights, the two ratings that correspond to the lowest risk weights should be referred to. If these give rise to the same risk weight, that risk weight should be applied. If different, the higher risk weight should be applied.
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Determination of whether an exposure is rated: Issue-specific and issuer ratings
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| 8.13 | Where a bank invests in a particular issue that has an issue-specific rating, the risk weight of the exposure will be based on this rating. Where the bank’s exposure is not an investment in a specific rated issue, the following general principles apply.
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| | (1) | In circumstances where the borrower has a specific rating for an issued debt – but the bank’s exposure is not an investment in this particular debt – a high-quality credit rating (one which maps into a risk weight lower than that which applies to an unrated exposure) on that specific debt may only be applied to the bank’s unrated exposure if this exposure ranks in all respects pari passu or senior to the exposure with a rating. If not, the external rating cannot be used and the unassessed exposure will receive the risk weight for unrated exposures.
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| | (2) | In circumstances where the borrower has an issuer rating, this rating typically applies to senior unsecured exposures to that issuer. Consequently, only senior exposures to that issuer will benefit from a high-quality issuer rating. Other unassessed exposures of a highly rated issuer will be treated as unrated. If either the issuer or a single issue has a low-quality rating (mapping into a risk weight equal to or higher than that which applies to unrated exposures), an unassessed exposure to the same counterparty that ranks pari passu or is subordinated to either the senior unsecured issuer rating or the exposure with a low-quality rating will be assigned the same risk weight as is applicable to the low-quality rating.
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| | (3) | In circumstances where the issuer has a specific high-quality rating (one which maps into a lower risk weight) that only applies to a limited class of liabilities (such as a deposit rating or a counterparty risk rating), this may only be used in respect of exposures that fall within that class.
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| 8.14 | Whether the bank intends to rely on an issuer- or an issue-specific rating, the rating must take into account and reflect the entire amount of credit risk exposure the bank has with regard to all payments owed to it. For example, if a bank is owed both principal and interest, the rating must fully take into account and reflect the credit risk associated with repayment of both principal and interest.
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| 8.15 | In order to avoid any double-counting of credit enhancement factors, no supervisory recognition of credit risk mitigation techniques will be taken into account if the credit enhancement is already reflected in the issue specific rating (see paragraph 9.5).
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Domestic currency and foreign currency ratings
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| 8.16 | Where exposures are risk-weighted based on the rating of an equivalent exposure to that borrower, the general rule is that foreign currency ratings would be used for exposures in foreign currency. Domestic currency ratings, if separate, would only be used to risk-weight exposures denominated in the domestic currency36.
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Short-term/long-term ratings
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| 8.17 | For risk-weighting purposes, short-term ratings are deemed to be issue-specific. They can only be used to derive risk weights for exposures arising from the rated facility. They cannot be generalized to other short-term exposures, except under the conditions in paragraph 8.19. In no event can a short-term rating be used to support a risk weight for an unrated long-term exposure. Short-term ratings may only be used for short-term exposures against banks and corporates. Table 1337 38 below provides a framework for banks’ exposures to specific short-term facilities, such as a particular issuance of commercial paper:
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| Risk weight table for specific short-term ratings | Table 13 | | External rating | A-1/P-1 | A-2/P-2 | A-3/P-3 | Others | | Risk weight | 20% | 50% | 100% | 150% |
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| 8.18 | If a short-term rated facility attracts a 50% risk-weight, unrated short-term exposures cannot attract a risk weight lower than 100%. If an issuer has a short-term facility with an external rating that warrants a risk weight of 150%, all unrated exposures, whether long-term or short-term, should also receive a 150% risk weight, unless the bank uses recognized credit risk mitigation techniques for such exposures.
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| 8.19 | In cases where short-term ratings are available, the following interaction with the general preferential treatment for short-term exposures to banks as described in paragraph 7.15 will apply:
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| | (1) | The general preferential treatment for short-term exposures applies to all exposures to banks of up to three months original maturity when there is no specific short-term exposure rating.
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| | (2) | When there is a short-term rating and such a rating maps into a risk weight that is more favorable (i.e. lower) or identical to that derived from the general preferential treatment, the short-term rating should be used for the specific exposure only. Other short-term exposures would benefit from the general preferential treatment.
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| | (3) | When a specific short-term rating for a short term exposure to a bank maps into a less favorable (higher) risk weight, the general short-term preferential treatment for interbank exposures cannot be used. All unrated short-term exposures should receive the same risk weighting as that implied by the specific short-term rating.
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| 8.20 | When a short-term rating is to be used, the institution making the assessment needs to meet all of the eligibility criteria for recognizing ECAIs, as described in paragraph 8.3, in terms of its short-term ratings.
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