| 4.4.1 | To ensure the transparency of individual ratings, banks should have clear and specific rating definitions, processes and criteria for assigning exposures to grades within a rating system. The rating definitions and criteria should be both plausible and intuitive, and have the ability to differentiate risk. In particular, the following requirements should be observed:
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| | • | The grade descriptions and criteria should be sufficiently detailed and specific to allow staff responsible for rating assignments to consistently assign the same grade to borrowers or facilities posing similar risk. This consistency should exist across lines of business, departments and geographic locations. If rating criteria and procedures differ for different types of borrowers or facilities, banks should monitor for possible inconsistency, and alter rating criteria to improve consistency when appropriate.
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| | • | Written rating definitions should be clear and detailed enough to allow independent third parties (e.g. SAMA, internal or external audit) to understand the rating assignments, replicate them and evaluate their appropriateness. The criteria should be consistent with a banks internal lending standards and its policies for handling troubled borrowers and facilities.
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| 4.4.2 | Banks should take into account all relevant and material information that are available to them when assigning ratings to borrowers and facilities1. Information should be current. The less information a bank has, the more conservative should be its rating assignments. An external rating can be the primary factor determining an internal rating assignment. However, the bank should ensure that other relevant information is also taken into account. Banks should refer to Annex A for the relevant factors in assigning borrower and facility ratings.
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| | SL exposures within the corporate asset class
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| 4.4.3 | Banks using the supervisory slotting criteria for SL exposures should assign these exposures to internal rating grades based on their own criteria, systems and processes, subject to compliance with the IRB requirements. The internal rating grades of these exposures should then be mapped into five supervisory rating categories. The general assessment factors and characteristics exhibited by exposures falling under each of the supervisory categories are provided Attachment.
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| | Banks should demonstrate that their mapping process has resulted in an alignment of grades consistent with the preponderance of the characteristics in the respective supervisory category. Banks should ensure that any overrides of their internal criteria do not render the mapping process ineffective.
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1 It could be difficult to address the qualitative considerations in a structured and consistent manner when assigning ratings to borrowers and facilities. In this regard, banks may choose to cite significant and specific points of comparison by describing how such qualitative considerations can affect the rating. For example, factors for consideration may include whether a borrower‘s financial statements have been audited or are merely compiled from its accounts or whether collateral has been independently valued. Formalizing the process would also be helpful in promoting consistency in determining risk grades. For example, a "risk rating analysis form" can provide a clear structure for identifying and addressing the relevant qualitative and quantitative factors for determining a risk rating, and document how grades are set.
