| | General
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| 2.5.1 | For an exposure to be categorized as retail, it should satisfy two general criteria:
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| | • | The borrower is an individual or a small business that meets a specified exposure threshold (see paragraphs 2.5.3 and 2.5.4 below); and
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| | • | The exposure should be one of a large pool of exposures, which are managed by banks on a pooled or portfolio basis1 (see paragraph 2.5.5 below).
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| 2.5.2 | Within the retail asset class, banks are required to identify separately three subclasses of exposures:
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| | • | Exposures secured by residential properties (see paragraphs 2.5.5 to 2.5.6 below);
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| | • | Qualifying Revolving Retail Exposures (QRRE) - (see paragraph 2.5.9 below); and
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| | • | All other retail exposures.
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| | Exposures to individuals
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| 2.5.3 | Exposures to individuals are generally eligible for retail treatment regardless of exposure size. Such exposures include residential mortgage loans, revolving credits and lines of credit (e.g. credit cards, overdrafts, and retail facilities secured by financial instruments) as well as personal term loans (e.g. installment loans, auto loans, personal finance, and other exposures with similar characteristics).
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| | Small business enterprise
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| 2.5.4 | Loans extended to small businesses enterprise and managed as retail exposures are eligible for retail treatment provided the total exposure (On and Off) items of the banking group2 to a small business borrower (on a consolidated basis where applicable3) is less than 5 million Saudi Riyal. Small business loans extended through or guaranteed by an individual are subject to the same exposure threshold.
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| | Exposures secured by residential properties
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| 2.5.5 | Residential mortgage loans are eligible for retail treatment regardless of exposure size so long as the credit is extended to an individual and the property is or will be occupied by the borrower, or rented.
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| 2.5.6 | Other exposures secured by residential properties that do not satisfy the above requirements should be classified as other retail or corporate exposures, as appropriate.
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| | Qualifying Revolving Retail Exposures (“QRRE”)
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| 2.5.7 | A Bank may regard a sub-portfolio of its retail exposures (which should be consistent with the Banks segmentation of retail activities generally) as QRRE, subject to the following criteria being met:
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| | • | The exposures are revolving, unsecured, and uncommitted (both contractually and in practice). In this context, revolving exposures are defined as those where customers’ outstanding balances are permitted to fluctuate based on their decisions to borrow and repay, up to a limit established by banks;
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| | • | The exposures are to individuals;
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| | • | The maximum exposure to a single individual in the sub-portfolio is SR. 5 million or less;
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| | • | Because the asset correlation assumptions for the QRRE risk-weight function are markedly below those for the other retail risk-weight functions at low PD values, banks should demonstrate that the use of the QRRE risk-weight function is constrained to portfolios that have exhibited low volatility of loss rates, relative to their average level of loss rates, especially within the low PD bands. SAMA will, for monitoring purposes, review the relative volatility of loss rates across the QRRE sub-portfolios of banks;
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| | • | Data on loss rates for the QRRE sub-portfolio should be retained in order to allow analysis of the volatility of loss rates; and
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| | • | Treatment as QRRE is consistent with the underlying risk characteristics of the sub-portfolio.
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1 SAMA does not intend to set the minimum number of retail exposures in a portfolio. Banks should establish their internal policies to ensure the granularity and homogeneity of their retail exposures. Also refer to the Standardized Approach.
2 The banking group should, at a minimum, cover all entities within the group that are subject to the capital adequacy regime in Saudi Arabia.
3 The basis of consolidation should follow that used by a bank for its risk management purposes, provided that exposures to the sole proprietors or partners within the borrowing group are included in the consolidation.
