PD-1.3.25
Past version: Effective from 01 Apr 2008 to 30 Sep 2010
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Banks must make the following disclosures for portfolios which are subject to the FIRB approach:
a) For banks that have partly, but not fully adopted the FIRB approach, a description of the nature of exposures within each portfolio that are subject to the standardised approach and of management's plans and timing for migrating exposures to full implementation of the FIRB approach;
b) FIRB banks must disclose the date of, and conditions relating to, acceptance by the CBB of the FIRB approach.
c) FIRB banks must explain and review the following items:
• Structure of the internal rating system and the relation between any internal and external ratings;
• The use of internal estimates other than for FIRB purposes;
• The process for managing and recognising credit risk mitigation; and
• Control mechanisms for the rating system including discussion of independence, accountability and rating systems review.
d) FIRB banks must describe the internal ratings process for each of the six distinct portfolios below. The description should include the types of exposures in each portfolio, the definitions, methods and data for the estimation of PD, and a description of any deviations from the reference definition of default, including the broad segments of the portfolio(s) affected by such deviations:
• Corporate (including SMEs, specialised lending and purchased corporate receivables), Sovereign and Bank;
• Equities
• Related Parties (e.g. shareholders, Directors, managers);
• Residential mortgages;
• Qualifying revolving retail (e.g. credit cards);
• Other retail.
e) For each portfolio, except retail, (as defined in (d) above) all locally incorporated banks subject to the FIRB approach must present the following information (across all applicable PD grades including default) to allow for a meaningful differentiation of credit risk:
• Total exposures (for corporate, sovereign and bank, this means outstanding loans and EAD on undrawn commitments, whereas for equities this means just the outstanding amount);
• Exposure-weighted average risk weight.
• For exposures which are subject to the supervisory risk weights in FIRB (e.g. HVCRE, any SL products subject to the regulatory slotting criteria), banks must show the aggregate outstanding amount in each risk bucket.
f) FIRB Banks must disclose actual incurred losses (e.g. write-offs and specific impairment provisions) in the preceding period for each portfolio (as defined in (d) above) and how this differs from past experience. This should include a discussion of the factors that impacted on the loss experience in the preceding period — for example, has the bank experienced higher than average default rates, or higher than average LGDs and EADs?
g) All locally incorporated FIRB banks must disclose estimates against outcomes over a longer period. At a minimum, this disclosure should include information on estimates of losses against actual losses in each portfolio (as defined in (d) above) over a period sufficient to allow for a meaningful assessment of the performance of the internal ratings processes for each portfolio. Where appropriate banks may wish to decompose this to provide analysis of PD. This requirement to disclose estimates against outcomes becomes mandatory from year-end 2010.
April 2008