Corporate, Sovereign and Bank Exposures

Effective from Dec 28 2022 - Dec 27 2022
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10.34	Under the foundation approach, banks must provide their own estimates of PD associated with each of their borrower grades, but must use supervisory estimates for the other relevant risk components. The other risk components are LGD, EAD and M⁵⁴.
10.35	Under the advanced approach, banks must calculate the effective maturity (M)⁵⁵ and provide their own estimates of PD, LGD and EAD.
10.36	There is an exception to this general rule for the five sub-classes of assets identified as SL.

The SL categories: PF, OF, CF, IPRE and HVCRE
10.37	Banks that do not meet the requirements for the estimation of PD under the corporate foundation approach for their SL exposures are required to map their internal risk grades to five supervisory categories, each of which is associated with a specific risk weight. This approach is termed the ‘supervisory slotting criteria approach’.
10.38	Banks that meet the requirements for the estimation of PD are able to use the foundation approach to corporate exposures to derive risk weights for all classes of SL exposures except HVCRE. SAMA may consider allowing banks meeting these requirements for HVCRE exposures to use a foundation approach that is similar in all respects to the corporate approach, with the exception of a separate risk-weight function as described in paragraph 11.11.
10.39	Banks that meet the requirements for the estimation of PD, LGD and EAD are able to use the advanced approach to corporate exposures to derive risk weights for all classes of SL exposures except HVCRE. SAMA may consider allowing banks meeting these requirements for HVCRE exposure are able to use an advanced approach that is similar in all respects to the corporate approach, with the exception of a separate risk-weight function as described in paragraph 11.11.

⁵⁴ As noted in paragraph 12.44 2012.44, SAMA may require banks using the foundation approach to calculate M using the definition provided in paragraphs 12.46 to 12.55.
⁵⁵ At the discretion of SAMA, certain domestic exposures may be exempt from the calculation of M (see paragraph 12.44).