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  • 10. Requirements for Recognition of Leasing

    • CA-5.8.133

      Leases other than those that expose the bank to residual value risk (see paragraph CA-5.8.134) will be accorded the same treatment as exposures collateralised by the same type of collateral. The minimum requirements for the collateral type must be met (CRE/RRE or other collateral). In addition, the bank must also meet the following standards:

      (a) Robust risk management on the part of the lessor with respect to the location of the asset, the use to which it is put, its age, and planned obsolescence;
      (b) A robust legal framework establishing the lessor's legal ownership of the asset and its ability to exercise its rights as owner in a timely fashion; and
      (c) The difference between the rate of depreciation of the physical asset and the rate of amortisation of the lease payments must not be so large as to overstate the CRM attributed to the leased assets.
      Apr 08

    • CA-5.8.134

      Leases that expose the bank to residual value risk will be treated in the following manner. Residual value risk is the bank's exposure to potential loss due to the fair value of the equipment declining below its residual estimate at lease inception:

      (a) The discounted lease payment stream will receive a risk weight appropriate for the lessee's financial strength (PD) and CBB's or own-estimate of LGD, which ever is appropriate: and
      (b) The residual value will be risk-weighted at 100%.
      Amended: April 2011
      Apr 08