3. Treatment of EL and Provisions
CA-5.7.11
As specified in paragraph CA-2.1.5 (e), banks using the IRB approach must compare the total amount of total eligible provisions (as defined in paragraph CA-5.7.7) with the total EL amount as calculated within the IRB approach (as defined in paragraph CA-5.7.2).
Apr 08CA-5.7.12
Where the calculated EL amount is lower than the provisions of the bank, CBB will consider whether the EL fully reflects the conditions in the market in which it operates before allowing the difference to be included in Tier 2 capital. If specific provisions exceed the EL amount on defaulted assets this assessment also needs to be made before using the difference to offset the EL amount on non-defaulted assets.
Apr 08CA-5.7.13
The EL amount for equity exposures under the PD/LGD approach is deducted 50% from Tier 1 and 50% from Tier 2. Provisions or write-offs for equity exposures under the PD/LGD approach will not be used in the EL-provision calculation. The treatment of EL and provisions related to securitisation exposures is outlined in paragraph CA-6.4.4.
Apr 08
