The calculation of the risk-weighted securitised exposure amount under the Standardised Approach

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1 The calculation of the risk-weighted securitised exposure amount under the Standardised Approach Annex 17 I. Definition of terms The following definitions shall apply for the purposes of this Annex: a) Liquidity facility means a securitised exposure implied by a contractual arrangement to provide cash to overcome mismatch in cash flows to the investors, b) Excess spread means servicing and management fees as well as other fees and income associated with securitised exposures, net of expenses and charges, c) An asset-backed commercial paper programme means a securitisation programme that predominantly issues securities with an original maturity of one year or less, II. Standardised Approach for the calculation of the risk-weighted securitised exposure When calculating the risk-weighted securitised or re-securitised exposure, the liable entity that uses the Standardised Approach shall proceed as follows: 1. The securitised exposure amount is multiplied by a risk weight determined in accordance with Table 1. Table 1 Credit quality step (only for external rating other all other credit quality steps than shortterm) Risk weight for 20 % 50 % 100 % 350 % 1250 % securitised exposure not constituting resecuritisation Risk weight for resecuritised exposure 40 % 100 % 225 % 650 % 1250 % 2. Unrated securitised positions are assigned a risk weight of 1250%, unless they are positions pursuant to paragraphs 4 to 8. The Originator and the sponsor 3. The aggregate value of the risk-weighted securitised exposures resulting from the securitised positions of the originator or the sponsor is limited by the risk-weighted exposure amounts that would be determined by the originator or the sponsor had the exposures not been securitised.

2 Unrated positions 4. If the liable entity at all times knows the composition of the pool of underlying exposures, it determines the values of risk-weighted securitised exposures for unrated positions by multiplying each securitised exposure by the risk weight and the concentration coefficient, taking into account that a) the risk weight equals to the weighted average of risk weights in the pool of underlying exposures arrived at according to the Standardised Approach, as if such exposures had not been securitised, b) the concentration coefficient equals to a fraction with its numerator being equal to the sum of all nominal amounts for all tranches and its denominator being equal to the sum of the nominal amounts of the tranche in which the liable entity holds a position and all pari passu or junior tranches. c) The product of the risk weight and the concentration coefficient shall not exceed 1250% and fall below the risk weight of the closest senior rated position. Asset-backed commercial paper programme 5. For an asset-backed commercial paper programme (hereinafter the ABCP programme ), the liable entity assigns the higher of the following risk weights to the position: 100% or the highest risk weight that would be assigned to any underlying exposure in the securitised position, if the following conditions are met: a) the securitised position is economically in the second loss or a better position within the given securitisation and the first loss position provides sufficient credit enhancement, b) the associated credit risk is the equivalent of investment grade, c) the liable entity holding this position does not retain or provide the first loss position within the given securitisation. Unrated liquidity facilities 6. For unrated liquidity facilities meeting the criteria for eligible liquidity facilities, the exposure amount is determined by multiplying the nominal amount of the liquidity facility by a conversion factor. The liable entity assigns the highest risk weight belonging to any underlying exposure covered by the relevant facility to such an adjusted amount. The eligible liquidity facility criteria are as follows: a) the facility documentation must clearly identify and limit circumstances under which the relevant facility may be drawn, b) the facility shall not be used as a credit support to cover losses that are known prior to a draw, in particular to provide liquidity for exposures that are in default at the time of the draw or to purchase assets for a price higher than the market value. c) the facility shall not be used as a permanent or regular source of financing for the relevant securitisation,

3 d) repayments of the relevant facility shall not be subordinated to the receivables of investors, except that these are receivables from interest rate and foreign exchange derivatives and are paid duly and in time. e) the liquidity facility cannot be drawn after all applicable credit enhancements have been exhausted, f) the facility documentation contains a provision that 1. automatically reduces the amount that can be drawn by the amount of exposures in default, 2. terminates the facility if the underlying pool of exposures consists of externally rated exposures and the average quality of the underlying exposures falls below investment grade. 7. For the purpose of the application of paragraph 6, a 50% conversion factor shall be used. 8. A cash advance facility is assigned a 0% conversion factor, if a) the eligible liquidity facility criteria are met, b) the liable entity is entitled to cancel this facility without prior notice c) the reimbursement of such a facility is senior to all other claims resulting from securitised exposures. Revolving exposures with an early amortisation provision 9. When revolving exposures with an early amortisation provision are securitised, the originator determines the risk-weighted exposure amount in respect of both the originator s interest and the investor s interest. 10. For securitisation structures wherein the underlying pool comprises also other than revolving exposures, the early amortisation outlined below is applied only to that portion of the underlying pool containing revolving exposures. 11. The notional amount of the underlying exposures sold for securitisation is separated into two parts in a ratio, in which the cash flows generated by the principal, interest and other payments resulting from the underlying exposures are divided between the originator and the investors. The originator s interest is the exposure amount attached to the notional part of the underlying exposures determined by the ratio between the cash flows that are not designed for the holders of the securitised positions and the total cash flows. The originator s interest may only be recognised if it is subordinated to the investor s interest. The investor s interest is the exposure amount attached to the remaining notional part of the underlying exposures. 12. The originator s interest is not deemed to be a securitised position and is treated as if the exposures had not been securitised for the purpose of calculating risk-weighted exposure amounts. 13. Securitisation types that are not deemed to be the securitisation of revolving exposures with an early amortisation provision and, consequently, the originator is not required to calculate the additional amount of risk-weighted securitised exposures, are as follows:

4 a) Securitisation of revolving exposures where the investor remains fully exposed to future draws by obligors and is not entitled to return the underlying facilities to the originator even after an early amortisation event has occurred, or b) securitisation where any early amortisation provision is solely triggered by events not related to the repayment of the underlying exposures or the deteriorating performance of the originator, such as material changes in tax laws or regulations. 14. The total amount of the risk-weighted securitised revolving exposures with an early amortisation provision is limited by the greater of: a) the amount of risk-weighted securitised exposures retained by the originator, or b) the risk-weighted exposure amount that would apply had the exposures not been securitised. 15. Net gains from the capitalisation of future income from a securitisation transaction by which the original capital is reduced (Tier 1) are not included in the maximum amount of securitised revolving exposures pursuant to the above paragraph. 16. When calculating the risk-weighted revolving exposures with an early amortisation provision, the originator will multiply its interest by the relevant conversion factor pursuant to Table 3 herein and the risk weight equal to the weighted average of the risk weights for the underlying exposures had the exposures not been securitised. 17. An early amortisation provision is considered controlled, when all of the following criteria are fulfilled: a) the originator has an appropriate plan in place to ensure that it has sufficient capital and liquidity available in the event of an early amortisation, b) throughout the duration of the transaction there is the same pro rata sharing based on the originators and the investors relative shares of all the payments, profits or losses and recoveries resulting from the underlying exposures determined at a single date or a number of dates each month, c) the amortisation period is set to be sufficient for at least 90% of the total underlying exposures representing both the investor s and the originator s interest at the beginning of the early amortisation period to have been repaid or recognised as in default, d) the speed of repayment is not more rapid than would be allowed by straight-line amortisation over the period set out in criterion c). 18. For securitisation with an early amortisation provision, where a) retail exposures are securitised, b) such exposures are uncommitted and unconditionally cancellable without prior notice, and c) early amortisation is triggered by the excess spread falling below a preset level, the originator must compare the three-month average excess spread level with the level at which excess spread is required to be trapped. 19. In cases where such a transaction does not require excess spread to be trapped, the trapping is deemed to be 4.5% above the early amortisation triggering level. 20. For securitisation with an early amortisation provision, where

5 a) retail exposures are securitised, b) such exposures are uncommitted and unconditionally cancellable without prior notice, and c) early amortisation is triggered by a quantitative indicator other than the threemonth average excess spread, the Czech National Bank may permit the liable entity to apply a treatment in respect of a particular securitisation similar to the procedure pursuant to paragraphs 18 and 19. If the Czech National Bank intends to permit such a treatment, it will notify all the competent authorities of the Member States and will take into account their opinion. The Czech National Bank shall disclose the result of such consultations and conclusions made. Securitisation subject to a controlled early amortisation provision conversion factor Table 3 subject to a noncontrolled early amortisation provision conversion factor of revolving exposures pursuant to paragraph 18 3-month average excess spread is % of the trapping or more 0 % 0 % is less than %% to 100% of the 1 % 5 % trapping is less than 100% to 75% of the trapping 2 % 15 % is less than 75% to 50% of the trapping 10 % 50 % is less than 50% to 25% of the trapping 20 % 100 % is less than 25% of the trapping 40 % 100 % other revolving exposures 90 % 100 % Credit risk mitigation techniques 21. If funded or unfunded credit protection is provided directly for a given securitised position, this protection may be reflected in the calculation of risk-weighted securitised exposures according to credit risk mitigation techniques pursuant to Article 102 to 107 and Annexes 15 and 16 of the Decree. Reduction in risk-weighted exposure amounts 22. The liable entity may, as an alternative, deduct the securitised exposure amount in respect of which a risk weight of 1250% is assigned from its capital, rather than assign this risk weight and calculate the risk-weighted securitised exposure amount. The eligible funded credit protection may be reflected in the exposure amount. 23. If the liable entity makes use of the alternative procedure pursuant to paragraph 22, it will reduce the limit set in paragraph 3 accordingly.