CM-4.2 CM-4.2 The measure of exposure
CM-4.2.1
The measure of exposure reflects the maximum loss should a counterparty fail, or loss that may be experienced due to non-repayment of facilities granted. Consistent with this, an exposure encompasses the amount at risk arising from a bank's:
(a) Claims on a counterparty including actual claims, and potential claims which would arise from the drawing down in full of undrawn advised facilities (whether revocable or irrevocable, conditional or unconditional) which the bank has committed itself to provide, and claims which the bank has committed itself to purchase or underwrite;(b) Contingent liabilities arising in the normal course of business, and those contingent liabilities which would arise from the drawing down in full of undrawn advised facilities (whether revocable or irrevocable, conditional or unconditional) which the bank has committed itself to provide; and(c) Other assets (whether on balance sheet or restricted investment accounts), which constitute a claim for the bank and its customers and which are not included in (a) or (b) above. In particular, exposures where the bank itself is not exposed, but is committing client funds such as restricted investment accounts are included here.CM-4.2.2
As a general rule, exposures should be reported on a gross basis (i.e. no offset). However, debit balances on accounts may be offset against credit balances where they relate to the same customer or to corporate customers in the same business group if:
(a) a legally enforceable right of set off exists in all cases (as confirmed by an independent legal opinion addressed to the bank) in respect of the recognised amounts, and(b) the bank intends either to settle on a net basis, or to realise the debit balances and settle the credit balances simultaneously.For a group facility, a full cross guarantee structure must also exist (i.e. full multilateral guarantees must be in place between all the companies within the group).
CM-4.2.3
Large exposures are calculated using the sum of the nominal amounts before the application of the risk weighting and credit conversion factors for:
(a) on balance sheet claims;(b) guarantees and other contingent claims; and(c) potential claims in the case of undrawn facilities.CM-4.2.4
In case of syndicated facilities, the nominal amount would include only the bank's share of the syndication (financed by unrestricted investment accounts and bank's own funds) and any amounts for which binding commitments from other financial institutions are not available. Where a binding commitment is available, that amount would be excluded in calculation of the large exposures. See section CM-4.5 for exemptions.
CM-4.2.5
For the purpose of large exposures, balance sheet claims involving assets acquired to be leased under Ijarah Muntahia Bittamleek should be reflected as an exposure against the lessee. Further, Murabaha contracts where assets are held for resale, under a binding promise, such exposure should be reflected as an exposure to the counterparty which has signed the binding promise. Potential claims in the case of Istisna'a contracts should include the total amount expected to be paid to al-Sani (the seller) and shown as an exposure to al-Mustasni (ultimate buyer).
CM-4.2.6
A bank's exposure arising from securities' trading operations is calculated as its net long position in a particular security. A bank's "net position" in a security refers to its commitments to buy that security together with its current holding of the same security, less its commitments to sell such a security.
