Definition of Retail Exposures

Effective from Dec 28 2022 - Dec 31 2022
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10.18	An exposure is categorized as a retail exposure if it meets all of the criteria set out in paragraph 10.19 (which relate to the nature of the borrower and value of individual exposures) and all of the criteria set out in paragraph 10.20 (which relate to the size of the pool of exposures).
10.19	The criteria related to the nature of the borrower and value of the individual exposures are as follows:
	(1)	Exposures to individuals - such as revolving credits and lines of credit (e.g. credit cards, overdrafts, or retail facilities secured by financial instruments) as well as personal term loans and leases (e.g. instalment loans, auto loans and leases, student and educational loans, personal finance, or other exposures with similar characteristics) – are generally eligible for retail treatment regardless of exposure size.
	(2)	Where a loan is a residential mortgage (including first and subsequent liens, term loans and revolving home equity lines of credit) it is eligible for retail treatment regardless of exposure size so long as the credit is an exposure to an individual⁵¹.
	(3)	Where loans are extended to MSMEs and managed as retail exposures they are eligible for retail treatment provided the total exposure of the banking group to a MSME borrower (on a consolidated basis where applicable) is less than SAR 4.46 million. MSMEs loans extended through or guaranteed by an individual are subject to the same exposure threshold.
10.20	The criteria related to the size of the pool of exposures are as follows:
	(1)	The exposure must be one of a large pool of exposures, which are managed by the bank on a pooled basis.
	(2)	Where a loan gives rise to a small business exposure below SAR 4 million, it may be treated as retail exposures if the bank treats such exposures in its internal risk management systems consistently over time and in the same manner as other retail exposures. This requires that such an exposure be originated in a similar manner to other retail exposures. Furthermore, it must not be managed individually in a way comparable to corporate exposures, but rather as part of a portfolio segment or pool of exposures with similar risk characteristics for purposes of risk assessment and quantification. However, this does not preclude retail exposures from being treated individually at some stages of the risk management process. The fact that an exposure is rated individually does not by itself deny the eligibility as a retail exposure.
10.21	Within the retail asset class category, banks are required to identify separately three sub-classes of exposures:
	(1)	Residential mortgage loans, as defined above;
	(2)	Qualifying revolving retail exposures, as defined in the following paragraph; and
	(3)	All other retail exposures.

Definition of qualifying revolving retail exposures
10.22	All of the following criteria must be satisfied for a sub-portfolio to be treated as a qualifying revolving retail exposure (QRRE). These criteria must be applied at a sub-portfolio level consistent with the bank’s segmentation of its retail activities generally. Segmentation at the national or country level (or below) should be the general rule.
	(1)	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 the bank.
	(2)	The exposures are to individuals.
	(3)	The maximum exposure to a single individual in the sub-portfolio is SAR 400,000 or less.
	(4)	Because the asset correlation assumptions for the QRRE risk-weight function are markedly below those for the other retail risk-weight function at low PD values, banks must 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.
	(5)	Data on loss rates for the sub-portfolio must be retained in order to allow analysis of the volatility of loss rates.
	(6)	The supervisor must concur that treatment as a qualifying revolving retail exposure is consistent with the underlying risk characteristics of the sub-portfolio.
10.23	The QRRE sub-class is split into exposures to transactors and revolvers. A QRRE transactor is an exposure to an obligor that meets the definition set out in paragraph 7.56. That is, the exposure is to an obligor in relation to a facility such as credit card or charge card where the balance has been repaid in full at each scheduled repayment date for the previous 12 months, or the exposure is in relation to an overdraft facility if there have been no drawdowns over the previous 12 months. All exposures that are not QRRE transactors are QRRE revolvers, including QRRE exposures with less than 12 months of repayment history.

⁵¹ SAMA may exclude from the retail residential mortgage sub-asset class loans to individuals that have mortgaged no more than two properties or housing units, and treat such loans as corporate exposures.