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credit risk rwa calculator rwacalculator




Credit Risk RWA Calculator



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    
Customer Type    
Firm Size of Corp SME in EUR (millions)  

in EUR millions

PD  

Valid range is 0-1

LGD  

Valid range is 0-1

Maturity  

In Years > 0

Exposure Class
Exposure Class
Country
External Rating
External Rating
Options for Bank Claims     

AVC        

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%

x

  


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

x

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%

x

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%

x

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

x

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%

x

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

x

Commercial real estate (CRE) exposures
General CRE
Whole loan approach LTV ≤ 60% LTV > 60% Criteria not met
Min (60%, RW of counterparty) RW of counterparty RW of counterparty
Loan-splitting approach** LTV ≤ 55% LTV > 55% Criteria not met
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
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

x

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%

x

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%

x

Corporate Exposures under IRB Approach
Probability of default (PD) Loss-given-default (LGD) Exposure at default (EAD)
Unsecured Secured
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

x

Retail Exposures under IRB Approach
Retail Exposure Class Probability of default (PD) Loss-given-default (LGD) Exposure at default (EAD)
Unsecured Secured
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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  • 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.

    avc multiplier formula

  • 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:


      rre rwa correlation
      

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

      qrre rwa correlation
      

    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:


      other retail rwa correlation




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