Credit Risk RWA Calculator

RWA Calculator Basel 2 Standardised Basel 3 Comparison

Credit risk, the risk of loss due to a borrower being unable to repay a debt in full or in part, accounts for the bulk of most banks’ risk-taking activities and regulatory capital requirements.There are two broad approaches to calculating RWAs for credit risk: the standardised approach (STD) Under this approach, supervisors set the risk weights that banks apply to their exposures to determine RWAs. and the internal ratings based approach (IRB). Under this approach Banks use their internal models to calculate risk-weighted assets.There are two main IRB approaches: Foundation IRB (F-IRB) and Advanced IRB (A-IRB).Source:BIS.org

Approach STD Advanced IRB

Customer Type Wholesale Retail

Firm Size of Corp SME in EUR (millions)

in EUR millions

Valid range is 0-1

LGD

Valid range is 0-1

Maturity

In Years > 0

Exposure Class

Country

External Rating

Options for Bank Claims Option 1

Option 2

Short Term Indicator:

AVC 1 1.25

Multiplier of 1.25 applied to correlation factor of Reg/Unreg Fin Institutions

EAD (Exposure at Default)

BEEL (Best Est of Expected Loss)

Valid range is 0-1

Results

Capital_req (K)	Correlation Factor (r)	RW (Post Scaling Factor 1.06)	RWA	Maturity Adj


Basel Approach	Customer Type	Firm Size	PD	LGD


Residual Maturity (K_Mat)	Exposure Class	AVC	EAD	BEEL

Results

Approach		Exposure Class		Origin Country		ECA Risk Score Country risk classification		External Rating		Risk Weight

Risk Weights under Standardised approach ,based on ECAIs (External Credit Assessment Institutions ) mapping of credit assesments to credit quality step ( CQS ) .
This is recognised under the Capital Requirements Regulations 2006 (SI 2006/3221) for the purposes of BIPRU 3 The Standardised Approach

Long term mapping

CQS	DBRS rating	S&P Rating	Moodys Rating	Fitch Rating	Sovereign	Corporate	PSE (soverign method)	Institutions ( unrated /Sovereign method)	Institutions ( rated & residual maturity > 3 months)	Institutions ( rated & residual maturity 3 months or less)
1	AAA to AAL	AAA to AA-	Aaa to Aa3	AAA to AA-	0%	20%	20%	20%	20%	20%
2	AH to AL	A+ to A-	A1 to A3	A+ to A-	20%	50%	50%	50%	50%	20%
3	BBBH to BBBL	BBB+ to BBB-	Baa1 to Baa3	BBB+ to BBB-	50%	100%	100%	100%	100%	20%
4	BBH to BBL	BB+ to BB	Ba1 to Ba3	BB+ to BB-	100%	100%	100%	100%	100%	50%
5	BH to BL	B+ to B-	B1 to B3	B+ to B-	100%	150%	100%	100%	100%	50%
6	CCCH and below	CCC+ and below	Caa1 and below	CCC+ and below	150%	150%	150%	150%	150%	150%

** PSE (Sovereign method) : For unrated PSE , use Sovereign's CQS to arrive at Risk Weight
** Unrated Institution : For unrated Institution , use Sovereign's CQS to arrive at Risk Weight

Short-term mapping

CQS	DBRS rating	S&P Rating	Moodys Rating	Fitch Rating	Risk Weight
1	R-1 (high), R-1 (middle), R-1 (low)	A-1+, A-1	P-1	F1+, F1	20%
2	R-2 (high), R-2 (middle), R-2 (low)	A-2	P-2	F2	50%
3	R3	A-3	P-3	F3	100%
4	R-4, R-5	B-1, B-2, B-3, C	NP	Below F3	150%

Collective investment undertakings (CIUs)

CQS	S&P Rating	Moodys Rating	Fitch Rating	Risk Weight
1	AAAf to AA-f	Aaa to Aa3	AAA to AA-	20%
2	A+f to A-f	A1 to A3	A+ to A-	50%
3	BBB+f to BBB-f	Baa1 to Baa3	BBB+ to BBB-	100%
4	BB+f to BB-f	Ba1 to Ba3	BB+ to BB-	100%
5	B+f to B-f	B1 to B3	B+ to B-	150%
6	CCC+f and below	Caa1 and below	CCC+ and below	150%

Exposure to Banks
Risk weights in jurisdictions where the ratings approach is permitted
External rating	AAA to AA–	A+ to A–	BBB+ to BBB–	BB+ to B–	Below B–	Unrated
Risk weight	20%	30%	50%	100%	150%	As per SCRA Grades
Short-term exposures
Risk weight	20%	20%	20%	50%	150%	As per SCRA Grades
Risk weights where the ratings approach is not permitted and for unrated exposures
SCRA Grade Based (Standardised Credit Risk Assessment Approach)		Grade A	Grade B	Grade C
Risk weight		40%^*	75%	150%
Short-term exposures		20%	50%	150%
* A risk weight of 30% may be applied if the exposure to the bank satisfies all of the criteria for Grade A classification and in addition the counterparty bank has (i) a CET1 ratio of 14% or above; and (ii) a Tier 1 leverage ratio of 5% or above

Exposure to Covered Bonds
Risk weights for rated covered bonds
External issue-specific rating		AAA to AA–	A+ to BBB–	BB+ to B–	Below B– Below B–
Risk weight		10%	20%	50%	100%
Risk weights for unrated covered bonds
Risk weight of issuing bank	20%	30%	40%	50%	75%	100%	150%
Risk weight	10%	15%	20%	25%	35%	50%	100%

Exposure to Corporates
Risk weights in jurisdictions where the ratings approach is permitted
External rating of counterparty	AAA to AA–	A+ to A–	BBB+ to BBB–	BB+ to BB-	Below BB-	Unrated
Risk weight	20%	50%	75%	100%	150%	100% or 85% if corporate SME
Risk weights where rating approach is not permitted
SCRA Grade Based (Standardised Credit Risk Assessment Approach)	Investment grade			All other
General corporate (non-SME)	65%^*			100%
SME general corporate	85%

Retail Exposures (excluding real estate)
	Regulatory retail (non-revolving)	Regulatory retail (revolving)		Other retail
	Regulatory retail (non-revolving)	Transactors	Revolvers	Other retail
Risk weight	75%	45%	75%	100%

Specialised Lending Exposure (Project Finance,Object Finance and Commodities Finance)
Exposure (excluding real estate)	Project finance	Object and commodity finance
Issue-specific ratings available and permitted	Same as for general corporate (see STD Corporates)
Rating not available or not permitted	130% pre-operational phase 100% operational phase 80% operational phase (high quality)	100%

Retail :Residential Real Estate exposures
LTV bands	Below 50%	50% to 60%	60% to 70%	70% to 80%	80% to 90%	90% to 100%	Above 100%	Criteria Not Met
General RRE
Whole loan approach RW	20%	25%	30%		40%	50%	70%	RW of counterparty
Loan-splitting approach^** RW	20%		RW fo Counterparty
Income-producing residential real estate (IPRRE)
Whole loan approach RW	30%	35%	45%		60%	75%	105%	150%
** Under the loan-splitting approach, a supervisory specified risk weight is applied to the portion of the exposure that is below 55% of the property value and the risk weight of the counterparty is applied to the remainder of the exposure. In cases where the criteria are not met, the risk weight of the counterparty is applied to the entire exposure

Commercial real estate (CRE) exposures
General CRE
Whole loan approach		LTV ≤ 60%		LTV > 60%		Criteria not met
Whole loan approach		Min (60%, RW of counterparty)		RW of counterparty		RW of counterparty
Loan-splitting approach^**		LTV ≤ 55%		LTV > 55%		Criteria not met
Loan-splitting approach^**		Min (60%, RW of counterparty)		RW of counterparty		RW of counterparty
Income-producing commercial real estate (IPCRE)
Whole loan approach	LTV ≤ 60%		60% < LTV ≤ 80%		LTV > 80%		Criteria not met
Whole loan approach	70%		90%		110%		150%
Land acquisition, development and construction (ADC) exposures
Loan to company/SPV	150%
Residential ADC loan	100%
** Under the loan-splitting approach, a supervisory specified risk weight is applied to the portion of the exposure that is below 55% of the property value and the risk weight of the counterparty is applied to the remainder of the exposure. In cases where the criteria are not met, the risk weight of the counterparty is applied to the entire exposure

Subordinated debt and equity (excluding amounts deducted)
	Subordinated debt and capital other than equities	Equity exposures to certain legislated programmes	Speculative unlisted equity		All other equity exposures
Risk weight	150%	100%	400%		250%

Credit conversion factors for off-balance sheet exposures
	UCCs	Commitments, except UCCs	NIFs and RUFs, and certain transactionrelated contingent items		ST self-liquidating trade letters of credit arising from the movement of goods		Direct credit substitutes and other off balance sheet exposures
CCF	10%	40%	50%		20%		100%

Corporate Exposures under IRB Approach
	Probability of default (PD)	Loss-given-default (LGD)		Exposure at default (EAD)
	Probability of default (PD)	Unsecured	Secured	Exposure at default (EAD)
Corporate	5 bp ^*	25%	Varying by collateral type: 0% financial 10% receivables 10% commercial or residential real estate 15% other physical	EAD subject to a floor that is the sum of (i) the onbalance sheet exposures; and (ii) 50% of the offbalance sheet exposure using the applicable Credit Conversion Factor (CCF) in the standardised approach
* 1bp or basis point = 1/100 of 1% or .01% or 0.0001 . 5bp = .0005

Retail Exposures under IRB Approach
Retail Exposure Class	Probability of default (PD)	Loss-given-default (LGD)		Exposure at default (EAD)
Retail Exposure Class	Probability of default (PD)	Unsecured	Secured	Exposure at default (EAD)
Mortgages	5bp ^*	N/A	5%	EAD subject to a floor that is the sum of (i) the onbalance sheet exposures; and (ii) 50% of the offbalance sheet exposure using the applicable Credit Conversion Factor (CCF) in the standardised approach
QRRE Transactors	5bp ^*	50%	N/A
QRRE Revolvers	10 bp ^*	50%	N/A
Other Retail	5bp ^*	30%	Varying by collateral type: 0% financial 10% receivables 10% commercial or residential real estate 15% other physical
* 1bp or basis point = 1/100 of 1% or .01% or 0.0001 . 5bp = .0005 10bp = .01% or 0.001

Comparison

*** Errors and Omissions Disclaimer

The information given by the RWA Calculator is for general guidance on matters of interest only. Even if the Company ( techranger.com ) takes every precaution to insure that the calculation is both current and accurate, errors can occur.
Plus, given the changing nature of laws, rules and regulations, there may be omissions or inaccuracies in the information contained on the Caculator.The Company is not responsible for any errors or omissions, or for the results obtained from the use of this information.

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Some details about RWA calculation

RWA : Risk Weighted Asset

EAD : Exposure at Default

PD : Probability of default

LGD : Loss-given-default

Derivation of RWA is dependent on estimates of the PD, LGD, EAD and, in some cases, effective maturity (M), for a given exposure.

For Exposures Not in default ,formula for deriving RWA (Risk Weighted Asset) is as shown below ,
rwa calculation parameters

For a Defaulted exposure/Past Due Exposure ,that is where PD=1 or as a percentage PD=100%,The capital requirement (K) is equal to the greater of zero and the difference between its LGD and the bank’s best estimate of expected loss (BEEL). The risk-weighted asset amount for the defaulted exposure is the product of K, 12.5, and the EAD

K = max(0,LGD-BEEL)

RWA = K *12.5 * EAD

AVC ( Asset Value Correlation) , that is , a multiplier of 1.25 is applied to the correlation parameter of all exposures to financial institutions meeting the following criteria:

Regulated financial institutions whose total assets are greater than or equal to US $100 billion.A regulated financial institution is defined as a parent and its subsidiaries where any substantial legal entity in the consolidated group is supervised by a regulator and its asset size is determined using the most recent audited financial statement.

Unregulated financial institutions, regardless of size. Unregulated financial institutions are, for the purposes of this paragraph, legal entities whose main business includes: the management of financial assets, lending, factoring,leasing, provision of credit enhancements, securitisation, investments,financial custody, central counterparty services, proprietary trading and other financial services activities identified by supervisors.

Firm-size adjustment for small or medium-sized entities (Coporate SMEs)

A firm-size adjustment (ie 0.04 x (1 – (S – 5) / 45)) is made to the corporate risk weight formula for exposures to SME borrowers. S is expressed as total annual sales in millions of euros with values of S falling in the range of equal to or less than €50 million or greater than or equal to €5 million. Reported sales of less than €5 million will be treated as if they were equivalent to €5 million for the purposes of the firm-size adjustment for SME borrowers.

avc multiplier Corporate sme correlation

Retail Exposures

Retail residential mortgage (RRE) exposures that are not in default and are secured or partly secured by residential mortgages, risk weights will be assigned based on the following formula:

Qualifying revolving retail exposures (QRRE) exposures that are not in default , risk weights will be assigned based on the following formula:

Other retail exposures exposures that are not in default, risk weights are assigned based on the following function, which allows correlation to vary with PD:

The Basel Committee on Banking Supervision (BCBS)
Basel III: international regulatory framework for banks

REUTERS : Explainer
What is the 'Basel III endgame' and why are banks worked up about it?

Council of the EU : Press release
Banking sector: Provisional agreement reached on the implementation of Basel III reforms

Investopedia
How Will New Capital Requirement Rules Ensure Bank Stability?

The European Banking Authority (EBA)
Implementing Basel III in Europe

The Federal Deposit Insurance Corporation (FDIC)
An Update on Emerging Issues in Banking

The Reserve Bank of India
Master Circular – Basel III Capital Regulations

credit risk rwa calculator rwacalculator

Results

Results