[F1ANNEX II U.K. REPORTING ON OWN FUNDS AND OWN FUNDS REQUIREMENTS

Textual Amendments

PART II: TEMPLATE RELATED INSTRUCTIONS U.K.

3. CREDIT RISK TEMPLATES U.K.

3.3. CREDIT AND COUNTERPARTY CREDIT RISKS AND FREE DELIVERIES: IRB APPROACH TO OWN FUNDS REQUIREMENTS (CR IRB) U.K.

3.3.3. C 08.01 – Credit and counterparty credit risks and free deliveries: IRB Approach to Capital Requirements (CR IRB 1) U.K.
3.3.3.1. Instructions concerning specific positions U.K.
ANNEX II Table 15: rows 1 - 35
[F1Columns Instructions
010
INTERNAL RATING SYSTEM/PD ASSIGNED TO THE OBLIGOR GRADE OR POOL (%)

The PD assigned to the obligor grade or pool to be reported shall be based on the provisions laid down in Article 180 CRR. For each individual grade or pool, the PD assigned to the specific obligor grade or pool shall be reported. For figures corresponding to an aggregation of obligor grades or pools (e.g. total exposures), the exposure weighted average of the PDs assigned to the obligor grades or pools included in the aggregation shall be provided. The exposure value (column 110) shall be used for the calculation of the exposure-weighted average PD.

For each individual grade or pool, the PD assigned to the specific obligor grade or pool shall be reported. All reported risk parameters shall be derived from the risk parameters used in the internal rating system approved by the respective competent authority.

It is neither intended nor desirable to have a supervisory master scale. If the reporting institution applies a unique rating system or is able to report in accordance with an internal master scale, that scale shall be used.

Otherwise, the different rating systems shall be merged and ordered in accordance with the following criteria: Obligor grades of the different rating systems shall be pooled and ordered from the lower PD assigned to each obligor grade to the higher. Where the institution uses a large number of grades or pools, a reduced number of grades or pools to be reported may be agreed with the competent authorities.

Institutions shall contact their competent authority in advance if they want to report a different number of grades in comparison with the internal number of grades.

For the purposes of weighting the average PD, the exposure value reported in column 110 shall be used. All exposures, including defaulted exposures, are to be considered for the the calculation of the exposure weighted average PD (e.g. for ‘ total exposure ’ ). Defaulted exposures shall be those assigned to the last rating grade/s with a PD of 100 %.

020
ORIGINAL EXPOSURE PRE-CONVERSION FACTORS

Institutions shall report the exposure value before taking into account any value adjustments, provisions, effects due to credit risk mitigation techniques or credit conversion factors.

The original exposure value shall be reported in accordance with Article 24 CRR and paragraphs 1, 2, 4, 5, 6 and 7 of Article 166 CRR.

The effect resulting from Article 166(3) CRR (effect of on balance sheet netting of loans and deposits) shall be reported separately as Funded Credit Protection and shall therefore not reduce the Original Exposure.

030
OF WHICH: LARGE FINANCIAL SECTOR ENTITIES AND UNREGULATED FINANCIAL ENTITIES

Breakdown of the original exposure pre-conversion factor for all exposures of entities referred to in Article 142(4) and (5) CRR subject to the higher correlation determined in accordance with Article 153(2) CRR.

040-080
CREDIT RISK MITIGATION (CRM) TECHNIQUES WITH SUBSTITUTION EFFECTS ON THE EXPOSURE

Credit risk mitigation as defined in point (57) of Article 4(1) CRR that reduce the credit risk of an exposure or exposures via the substitution of exposures as defined below in ‘ SUBSTITUTION OF THE EXPOSURE DUE TO CRM ’ .

040-050
UNFUNDED CREDIT PROTECTION

Unfunded credit protection as defined in point (59) of Article 4(1) CRR.

Collateral that has an effect on the exposure (e.g. used for credit risk mitigation techniques with substitution effects on the exposure) shall be capped at the exposure value.

040
GUARANTEES:

Where own estimates of LGD are not used, the Adjusted Value (G A ) as defined in Article 236(3) CRR shall be provided.

When own estimates of LGD are used in accordance with Article 183 CRR, the relevant value used in the internal model shall be reported.

Guarantees shall be reported in column 040 where the adjustment is not made in the LGD. Where the adjustment is made in the LGD, the amount of the guarantee shall be reported in column 150.

Regarding exposures subject to the double default treatment, the value of unfunded credit protection shall be reported in column 220.

050
CREDIT DERIVATIVES:

Where own estimates of LGD are not used, the Adjusted Value (G A ) as defined in Article 236(3) CRR shall be provided.

Where own estimates of LGD are used in accordance with Article 183 CRR, the relevant value used in the internal modelling shall be reported.

Where the adjustment is made in the LGD, the amount of the credit derivatives shall be reported in column 160.

Regarding exposures subject to the double default treatment, the value of unfunded credit protection shall be reported in column 220.

060
OTHER FUNDED CREDIT PROTECTION

Collateral that has an effect on the exposure (e.g. where used for credit risk mitigation techniques with substitution effects on the exposure) shall be capped at the exposure value.

Where own estimates of LGD are not used, Article 232 CRR shall be applied.

Where own estimates of LGD are used, those credit risk mitigation that complies with the conditions in Article 212 CRR shall be reported. The relevant value used in the internal model shall be reported.

The amount shall be reported in column 060 where the adjustment is not made in the LGD. Where an adjustment is made in the LGD, that amount shall be reported in column 170.

070-080
SUBSTITUTION OF THE EXPOSURE DUE TO CRM

Outflows shall correspond to the covered part of the original exposure pre-conversion factors, that is deducted from the obligor’s exposure class and, where relevant, obligor grade or pool, and subsequently assigned to the protection provider’s exposure class and, where relevant, obligor grade or pool. That amount shall be considered as an inflow into the protection provider’s exposure class and, where relevant, obligor grades or pools.

Inflows and outflows within the same exposure classes and, where relevant, obligor grades or pools, shall also be considered.

Exposures stemming from possible in- and outflows from and to other templates shall be taken into account.

090
EXPOSURE AFTER CRM SUBSTITUTION EFFECTS PRE-CONVERSION FACTORS

Exposure assigned in the corresponding obligor grade or pool and exposure class after taking into account outflows and inflows due to CRM techniques with substitution effects on the exposure.

100, 120
Of which: Off Balance Sheet Items

See CR-SA instructions

110
EXPOSURE VALUE

The exposure value determined in accordance with Article 166 CRR and the second sentence of Article 230(1) CRR shall be reported.

For the instruments referred to in Annex I, the credit conversion factors (paragraphs 8, 9 and 10 of Article 166 CRR), irrespective of the approach chosen by the institution, shall be applied.

For rows 040-060 (securities financing transactions, derivatives and long settlement transactions and exposures from contractual cross-product netting), subject to Chapter 6 of Title II of Part Three CRR, the Exposure Value shall be the same as the value for Counterparty Credit Risk calculated in accordance with Sections 3 to 7 of Chapter 6 of Title II of Part Three CRR. Those values shall be reported in this column and not column 130 ‘ Of which: arising from counterparty credit risk ’ .

130
Of which: Arising from counterparty Credit Risk

See CR SA instructions.

140
OF WHICH: LARGE FINANCIAL SECTOR ENTITIES AND UNREGULATED FINANCIAL ENTITIES

Breakdown of the exposure value for all exposures to entities referred to in Article 142(4) and (5) CRR subject to the higher correlation determined in accordance with Article 153(2) CRR.

150-210
CREDIT RISK MITIGATION TECHNIQUES TAKEN INTO ACCOUNT IN LGD ESTIMATES EXCLUDING DOUBLE DEFAULT TREATMENT

CRM techniques that have an impact on LGDs as a result of the application of the substitution effect of CRM techniques shall not be included in these columns.

Where own estimates of LGD are not used, Article 228(2), Article 230(1) and (2) and Article 231 CRR shall be taken into account.

Where own estimates of LGD are used:

  • Regarding unfunded credit protection, for exposures to central governments, central banks, institutions and corporates, Article 161(3) CRR shall be taken into account. For retail exposures, Article 164(2) CRR shall be taken into account.

  • Regarding funded credit protection, the collateral shall be taken into account in the LGD estimates in accordance with points (e) and (f) of Article 181(1) CRR.

150
GUARANTEES

See instructions to column 040.

160
CREDIT DERIVATIVES

See instructions to column 050.

170
OWN ESTIMATES OF LGDS ARE USED: OTHER FUNDED CREDIT PROTECTION

The relevant value used in the internal modelling of the institution.

Those credit risk mitigants that comply with the criteria in Article 212 CRR.

180
ELIGIBLE FINANCIAL COLLATERAL

For trading book operations, financial instruments and commodities eligible for trading book exposures in accordance with points (c) to (f) of Article 299(2) CRR shall be included. Credit linked notes and on -balance sheet netting in accordance with Section 4 of Chapter 4 of Title II of Part Three CRR shall be treated as cash collateral.

Where own estimates of LGD are not used, values shall be determined in accordance with paragraphs 1 to 4 of Article 193 and Article 194(1) CRR. The adjusted value (Cvam) as set out in Article 223(2) CRR shall be reported.

Where own estimates of LGD are used, the financial collateral shall be taken into account in the LGD estimates in accordance with points (e) and (f) of Article 181(1) CRR. The amount to be reported shall be the estimated market value of the collateral.

190-210
OTHER ELIGIBLE COLLATERAL

Where own estimates of LGD are not used, values shall be determined in accordance with paragraphs 1 to 8 of Article 199 CRR and Article 229 CRR.

Where own estimates of LGD are used, other collateral shall be taken into account in the LGD estimates in accordance with points (e) and (f) of Article 181(1) CRR.

190
REAL ESTATE

Where own estimates of LGD are not used, values shall be determined in accordance with paragraphs 2, 3 and 4 of Article 199 CRR and shall be reported in this column. Leasing of real estate property shall also be included (see Article 199(7) CRR). See also Article 229 CRR.

Where own estimates of LGD are used, the amount to be reported shall be the estimated market value.

200
OTHER PHYSICAL COLLATERAL

Where own estimates of LGD are not used, values shall be determined in accordance with paragraphs 6 and 8 of Article 199 CRR and shall be reported in this column. Leasing of property different from real estate shall also be included (see Article 199(7) CRR). See also Article 229(3) CRR.

Where own estimates of LGD are used, the amount to be reported shall be the estimated market value of collateral.

210
RECEIVABLES

Where own estimates of LGD are not used, values shall be determined in accordance with Articles 199(5) and 229(2) CRR and shall be reported in this column.

Where own estimates of LGD are used, the amount to be reported shall be the estimated market value of collateral.

220
SUBJECT TO DOUBLE DEFAULT TREATMENT: UNFUNDED CREDIT PROTECTION

Guarantees and credit derivatives covering exposures subject to the double default treatment taking into account Article 202 and Article 217(1) CRR. See also columns 040 ‘ Guarantees ’ and 050 ‘ Credit derivatives ’ .

230
EXPOSURE WEIGHTED AVERAGE LGD (%)

All the impact of CRM techniques on LGD values as specified in Chapters 3 and 4 of Title II of Part Three CRR shall be considered. In- case of exposures subject to the double default treatment, the LGD to be reported shall correspond to the LGD selected in accordance with Article 161(4) CRR.

For defaulted exposures, point (h) of Article 181(1) CRR shall be taken into account.

The exposure value referred to in column 110 shall be used for the calculation of the exposure-weighted averages.

All effects shall be considered (so the floor applicable to mortgages shall be included in the reporting).

For institutions applying the IRB Approach but not using their own estimates of LGD, the risk mitigation effects of financial collateral shall be reflected in E*, the fully adjusted value of the exposure, and then reflected in LGD* as referred to in Article 228(2) CRR.

The exposure weighted average LGD associated to each PD ‘ obligor grade or pool ’ shall result from the average of the prudential LGDs, assigned to the exposures of that PD grade/pool, weighted by the respective exposure value of column 110.

Where own estimates of LGD are applied, Article 175 and paragraphs 1 and 2 of Article 181 CRR shall be taken into account.

In case of exposures subject to the double default treatment, the LGD to be reported shall correspond to the LGD selected in accordance with Article 161(4) CRR.

The calculation of the exposure weighted average LGD shall be derived from the risk parameters really used in the internal rating system approved by the respective competent authority.

Data shall not be reported for specialised lending exposures referred to in Article 153(5).

Exposures and the respective LGDs for large regulated financial sector entities and unregulated financial entities shall not be included in the calculation of column 230, but only be included in the calculation of column 240.

240
EXPOSURE WEIGHTED AVERAGE LGD (%) FOR LARGE FINANCIAL SECTOR ENTITIES AND UNREGULATED FINANCIAL ENTITIES

Exposure weighted average LGD (%) for all exposures to large financial sector entities as defined in Article 142(4) CRR and to unregulated financial sector entities as defined in Article 142(5) CRR subject to the higher correlation determined in accordance with Article 153(2) CRR.

250
EXPOSURE-WEIGHTED AVERAGE MATURITY VALUE (DAYS)

The value reported shall be determined in accordance with Article 162 CRR. The exposure value (column 110) shall be used for the calculation of the exposure-weighted averages. The average maturity shall be reported in days.

This data shall not be reported for the exposure values for which the maturity is not an element in the calculation of risk weighted exposure amounts. That means that this column shall not be filled in for the exposure class ‘ retail ’ .

255
RISK WEIGHTED EXPOSURE AMOUNT PRE SME-SUPPORTING FACTOR

For central governments and central banks, corporate and institutions, see paragraphs 1 and 3 of Article 153 CRR. For retail, see Article 154(1) CRR.

The SME-supporting factor referred to in Article 501(1) CRR shall not be taken into account.

260
RISK WEIGHTED EXPOSURE AMOUNT AFTER SME-SUPPORTING FACTOR

For central governments and central banks, corporate and institutions, see paragraphs 1 and 3 of Article 153 CRR. For retail, see Article 154(1) CRR.

The SME-supporting factor referred to in Article 501(1) CRR shall be taken into account.

270
OF WHICH: LARGE FINANCIAL SECTOR ENTITIES AND UNREGULATED FINANCIAL ENTITIES

Breakdown of the risk weighted exposure amount after SME supporting factor for all exposures to large financial sectors entities as defined in Article 142(4) CRR and to unregulated financial sector entities as defined in Article 142(5) CRR, subject to the higher correlation determined in accordance with Article 153(2) CRR.

280
EXPECTED LOSS AMOUNT

For the definition of Expected Loss, see Article 5(3) CRR and, for the calculation of expected loss amounts, see Article 158 CRR. The expected loss amount to be reported shall be based on the risk parameters really used in the internal rating system approved by the respective competent authority.

290
(-) VALUE ADJUSTMENTS AND PROVISIONS

Value Adjustments as well as specific and general credit risk adjustments in accordance with Article 159 CRR shall be reported. General credit risk adjustments shall be reported by assigning the amount pro rata on the basis of the expected loss of the different obligor grades.

300
NUMBER OF OBLIGORS

Paragraphs 1 and 2 of Article 172 CRR.

For all exposure classes, with the exception of the exposure class retail and the cases mentioned in the second sentence of point (e) of Article 172(1) CRR, the institution shall report the number of legal entities/obligors which were separately rated, regardless of the number of different loans or exposures granted.

Within the exposure class retail, or if separate exposures to the same obligor are assigned to different obligor grades in accordance with the second sentence of point (e) of Article 172(1) CRR in other exposure classes, the institution shall report the number of exposures which were separately assigned to a certain rating grade or pool. In case Article 172(2) CRR applies, an obligor may be considered in more than one grade.

As this column deals with an element of the structure of the rating systems, it relates to the original exposures pre-conversion factor assigned to each obligor grade or pool without taking into account the effect of CRM techniques (in particular redistribution effects).]