CHAPTER I General provisions. Section I Objective and definitions

Transcription

1 NATIONAL BANK OF ROMANIA NATIONAL SECURITIES COMMISSION Regulation NBR- NSC No.14/19/2006 on credit risk treatment using the standardised approach, for credit institutions and investment firms CHAPTER I General provisions Section I Objective and definitions Art.1 (1) The present regulation lays down the determination of the risk weighted exposure amounts according to the standardised approach in view of calculating the capital minimum requirements for credit risk. (2) Subject to Article 2, lett. (a) of the Regulation NBR NSC no.13/18/2006 regarding the calculation of the minimum capital requirements for credit institutions and investment firms, the present regulation shall apply to credit institutions and Romanian subsidiaries of credit institutions, foreign legal persons from third countries, for all credit risk exposures, except for those for which, according to the Regulation NBR- NSC No.15/20/2006 on credit risk treatment using the internal models based approach, for credit institutions and investment firms, a credit institution obtained the approval to use the internal rating models.

2 (3) The central bodies of credit cooperatives are in charge with the regulation of the general framework of credit cooperatives within the cooperative networks, in accordance with the present regulation. The issued regulations shall regard the provisions of this regulation concerning the calculation of the risk weighted exposure amounts, according to the standardised approach, in view of determining the minimum capital requirements for credit risk of the credit cooperatives and shall not set less restrictive requirements than the ones set out in this regulation. Within this meaning, the regulations issued by the central body of credit cooperatives shall be submitted for approval to the National Bank of Romania. (4) The present regulation shall apply accordingly to investment firms and to asset management companies which carry on the management of individual investment portfolios. In this regard, any reference to the National Bank of Romania shall be considered to be done to the National Securities Commission, on a case by case basis. (5) The present regulation shall apply at the individual and consolidated level, as the case may be, according to the provisions of Regulation NBR- NSC no.17/22/2006 regarding the consolidated supervision of credit institutions and investment firms. (6) Central bodies are responsible for applying this regulation at the cooperative network level. Article 2 (1) Within the meaning of the present regulation, the terms and expressions below have the following meaning: 1. central banks include the European Central Bank unless otherwise indicated;

3 2. External Credit Assessment Institution an entity which prepares credit assessments of other entities, other than an Export Credit Agency; 3. eligible External Credit Assessment Institution an external credit assessment institution whose ratings National Bank of Romania has stated that may be used by credit institutions to calculate the risk-weighted exposure amounts; 4. nominated External Credit Assessment Institution an eligible External Credit Assessment Institution whose ratings a credit institution has stated it will use to calculate the risk-weighted exposure amounts; 5. regulatory capital instruments securities issued by institutions that are part of their own funds, according to the regulation applicable to these institutions; 6. tangible assets shall have the meaning referred to in the applicable accounting regulation; 7. regularization accounts - shall have the meaning referred to in the applicable accounting regulation; 8. rating shall mean a credit assessment prepared by an external credit assessment institution which express the probability of default on part or all of a given debtor obligations; 9. exposure an asset or an off-balance sheet item, as referred to in the Annex; 10. public sector entities non-commercial administrative bodies responsible to central governments, regional governments or local authorities, or authorities that in the view of the competent authorities exercise the same responsibilities as regional and local authorities, or non-commercial undertakings owned by the central government that have explicit guarantee arrangements with the central government; this category

4 may include self administered bodies governed by law that are under public supervision; 11. small and medium-sized entities Romanian or foreign small and medium sized entities, that fulfil the criteria provided in this respect by Law 346/2004 on stimulating the establishment and development of small and medium-sized entities, as subsequently amended and supplemented, as well as any legal form of exercising a liberal profession which fulfil the criteria provided by the same law; 12. collective investment undertakings entities defined according to art.2, para. (1), pt. 20 of Law no. 297/2004 on capital market, as subsequently amended and supplemented; 13. repurchase transactions any transaction governed by an agreement falling within the definition of repo agreement and reverse repo provided by the Regulation NBR - NSC no. 22/27/2006 on capital adequacy of credit institutions and investment firms; 14. companies - any legal person or form of association for performing an economic activity or liberal profession, to which an exposure does not comply with the criteria set up for retail exposures; (2) Within the meaning of the present regulation, any reference to regional governments shall mean regional governments from other states. (3) The terms and expressions used in the present regulation have the meaning provided by the Government Emergency Ordinance no.99/2006 regarding credit institutions and capital adequacy. (4) The term and expression institutions and investment firms have the meaning provided by the Regulation NBR NSC no.13/18/2006 regarding

5 the calculation of the minimum capital requirements for credit institutions and investment firms. (5) The expression securities or commodities lending or borrowing transactions have the meaning provided by the Regulation NBR NSC no.22/27/2006 on capital adequacy of credit institutions and investment firms. (6) The expression group of connected clients have the meaning provided by the Regulation NBR - NSC no.16/21/2006 regarding large exposures of credit institutions and investment firms. (7) The term central counterparty have the meaning provided by the Regulation NBR- NSC no.20/25/2006 on the treatment of counterparty credit risk of derivative instruments, repurchase transactions, securities or commodities lending or borrowing transactions, long settlement transactions and margin lending transactions. SECTION 2 Determination of exposure values Article 3 (1) - Without prejudice to the provisions referred to in paragraph 3, the exposure value of an asset item shall be its balance-sheet value and the exposure value of an off-balance sheet item listed in the Annex Classification of the off-balance sheet items, shall be the following percentage of its value: 100% if it is a full-risk item, 50% if it is a mediumrisk item, 20% if it is a medium/low-risk item, 0% if it is a low-risk item.

6 The off-balance sheet items referred to in the first sentence of this paragraph shall be assigned to risk categories as indicated in the Annex. (2) - In the case of a credit institution using the Financial Collateral Comprehensive Method under the provisions of Chapter IV of the Regulation NBR NSC no.19/24/2006 on credit risk mitigation techniques used by credit institutions and investment firms, where an exposure takes the form of securities or commodities sold, posted or lent under a repurchase transaction or under a securities or commodities lending or borrowing transaction, and margin lending transactions the exposure value shall be increased by the volatility adjustment appropriate to such securities or commodities, according to the calculation methodology prescribed in art of the Regulation NBR NSC no.19/24/2006 on credit risk mitigation techniques used by credit institutions and investment firms. (3) - The exposure value of a derivative instrument listed in the Annex of Regulation NBR-NSC No.20/25/2006 on the treatment of counterparty credit risk of derivative instruments, repurchase transactions, securities or commodities lending or borrowing transactions, long settlement transactions and margin lending transactions shall be determined in accordance with one of the two methods referred to in the mentioned Regulation, with the effects of the contracts provided for in art.77 lett.(a) of the same Regulation and other netting agreements taken into account for the purposes of those methods. The exposure value of repurchase transactions, securities or commodities lending or borrowing transactions, long settlement transactions and margin lending transactions may be determined in accordance with the Regulation NBR-NSC No.20/25/2006 on the treatment of counterparty credit risk of

7 derivative instruments, repurchase transactions, securities or commodities lending or borrowing transactions, long settlement transactions and margin lending transactions or according to the Regulation NBR NSC no.19/24/2006 on credit risk mitigation techniques used by credit institutions and investment firms. (4) - Where an exposure is subject to funded credit protection, the exposure value applicable to that item may be modified in accordance with the Regulation NBR NSC no.19/24/2006 on credit risk mitigation techniques used by credit institution and investment firms. (5) - Notwithstanding paragraph 3, the exposure value of credit risk exposures outstanding, as determined by the competent authorities, with a central counterparty shall be determined in accordance with the provisions of art.8 of the Regulation NBR-NSC no.20/25/2006 on the treatment of counterparty credit risk of derivative instruments, repurchase transactions, securities or commodities lending or borrowing transactions, long settlement transactions and margin lending transactions, provided that the central counterparty's counterparty credit risk exposures with all participants in its arrangements are fully collateralised on a daily basis. SECTION 3 Assignment to exposure classes Article 4 (1) - In applying the provisions of the present regulation, each asset or offbalance sheet item shall be assigned to one of the following exposure classes:

8 (a) claims or contingent claims on central governments or central banks; (b) claims or contingent claims on regional governments or local authorities; (c) claims or contingent claims on administrative bodies and noncommercial undertakings; (d) claims or contingent claims on multilateral development banks; (e) claims or contingent claims on international organisations; (f) claims or contingent claims on institutions and financial institutions; (g) claims or contingent claims on corporates; (h) retail claims or contingent retail claims; (i) (j) (k) (l) claims or contingent claims secured on real estate property; past due items; items belonging to regulatory high-risk categories; claims in the form of covered bonds; (m) securitisation positions; (n) short-term claims on institutions and corporate; (o) claims in the form of collective investment undertakings; (p) other items. (2) - To be eligible for the retail exposure class referred to in point (h) of paragraph 1, an exposure shall meet the following conditions:

9 (a) the exposure shall be either to an individual person or persons, or to a small or medium sized entity; (b) the exposure takes the form of any of the following: revolving credits and lines of credit (including credit cards and overdrafts), consumer loans and leases (auto loans and leases, student and educational loans etc), small and medium sized entities facilities and commitments; claims or contingent claims secured by mortgages on residential real estate property for which the treatment provided for in art.35 applies, shall be excluded from the retail exposure class; (c) the exposure shall be one of a significant number of exposures with similar characteristics such that the risks associated with such lending are substantially reduced; therefore the total amount owed to the credit institution by the obligor client or group of connected clients shall not exceed 0.2% of the overall retail portfolio, (d) the total amount owed to the credit institution and parent undertakings and its subsidiaries, including any past due exposure, by the obligor client or group of connected clients, shall not, to the knowledge of the credit institution, exceed EUR 1 million. The credit institution shall take reasonable steps to acquire this knowledge. Securities shall not be eligible for the retail exposure class. (3) - The present value of retail minimum lease payments is eligible for the retail exposure class referred to on lett.h).

10 SECTION 4 Determination of risk-weighted exposure amounts Article 5 (1) - To calculate risk-weighted exposure amounts, risk weights shall be applied to all exposures, according to the provisions of Chapter II, unless deducted from own funds, in accordance with the provisions of the Regulation NBR-NSC no.18/23/2006 regarding own funds of credit institutions and investment firms. The application of risk weights shall be based on the exposure class to which the exposure is assigned and, to the extent specified in Chapter II, its credit quality. (2) - Credit quality may be determined by reference to the ratings of External Credit Assessment Institutions ("ECAIs") in accordance with the provisions of Articles 6 to 8 or the credit assessments of Export Credit Agencies as described in Chapter II, Section 1. (3) - The risk-weighted exposure amount shall be obtained by multiplying the exposure value by the risk weight specified or determined in accordance with this Chapter and Chapter II. (4) - Notwithstanding paragraph 1, where an exposure is subject to credit protection the risk weight applicable to that item may be modified in accordance with the provisions of the Regulation NBR NSC no.19/24/2006 on credit risk mitigation techniques used by credit institution and investment firms. (5) - Risk-weighted exposure amounts for securitised exposures shall be calculated in accordance with Regulation NBR NSC no.21/26/2006 on credit risk treatment regarding securitized exposures and securitisation positions.

11 (6) - Exposures the calculation of risk-weighted exposure amounts for which is not otherwise provided for under Chapter II shall be assigned a riskweight of 100%. SECTION 5 The use of external ratings Article 6 (1) - An external rating may be used to determine the risk weight of an exposure in accordance with Article 5 only if the ECAI which provides it has been recognized as eligible for those purposes by the National Bank of Romania. (2) - National Bank of Romania shall recognize an ECAI as eligible for the purposes of Article 5 only if it is satisfied that its assessment methodology complies with the requirements of objectivity, independence, ongoing review and transparency, and that the resulting ratings meet the requirements of credibility and transparency. For the purpose of recognizing an ECAI as eligible, National Bank of Romania shall take into account the technical criteria provided for in Chapter IV. (3) - If an ECAI has been recognized as eligible by the competent authorities of another Member State, National Bank of Romania may recognize that ECAI as eligible without carrying out its own evaluation process. (4) - National Bank of Romania shall make publicly available the procedure for the recognition process, and a list of the eligible ECAIs, recognized according to paragraphs (2) and (3).

12 Article 7 (1) - National Bank of Romania shall determine for each exposure class, taking into account the technical criteria set out in Chapter IV, with which of the credit quality steps set out in Chapter II the relevant ratings of an eligible ECAI are to be associated. Those determinations shall be objective and consistent. (2) - When the competent authorities of another Member State or the National Securities Commission have made a determination under paragraph 1, National Bank of Romania may recognize that determination without carrying out its own determination process. Article 8 (1) - The use of ECAI ratings for the calculation of a credit institution's risk-weighted exposure amounts shall be consistent and in accordance with Chapter III. Ratings shall not be selected with the intention of arbitrarily mitigate the capital requirement. (2) - Credit institutions shall use solicited ratings. However, with the permission of the National Bank of Romania, they may use unsolicited ratings, provided by eligible external credit assessment institutions, of their own initiative. The unsolicited ratings may be used provided that the technical criteria set up in Chapter IV of the present regulation are met.

13 Chapter II RISK WEIGHTS SECTION 1 Exposures to central governments and central banks 1.1 Treatment Article 9 (1) - Without prejudice to paragraphs 2 and 3, as well as to Articles 10 and 11, exposures to central governments and central banks shall be assigned a 100% risk weight. (2) - Subject to paragraph 3, exposures to central governments and central banks for which a rating provided by a nominated ECAI is available shall be assigned a risk weight according to Table 1, associated with the corresponding credit quality step according to the assignment performed by the National Bank of Romania in compliance with the provisions of Article 7. Table 1 Credit quality step Risk weight (%) (3) - Exposures to the European Central Bank shall be assigned a 0% risk weight. 1.2 Exposures in the national currency of the borrower Article 10

14 (1) - Exposures to Member States' central governments and central banks denominated and funded in the domestic currency of that central government and central bank shall be assigned a risk weight of 0%. (2) - When the competent authorities of a third country which, to the satisfaction of the National Bank of Romania, apply supervisory and regulatory arrangements at least equivalent to those applied in Romania, assign a risk weight which is lower than that indicated in Article 9 paragraphs 1 and 2 to exposures to their central government and central bank denominated and funded in the domestic currency, credit institutions may use for these exposures the risk weight settled by the respective competent authorities Use of credit assessments provided by Export Credit Agencies Article 11 (1) - Export Credit Agencies credit assessments for central governments shall be recognised by the National Bank of Romania if either of the following conditions is met: (a) it is a consensus risk score from Export Credit Agencies participating in the OECD "Arrangement on Guidelines for Officially Supported Export Credits"; b) the Export Credit Agency publishes its credit assessments, subscribes to the OECD agreed methodology, and the credit assessment is associated with one of the eight minimum export insurance premiums (MEIP) that the OECD agreed methodology establishes.

15 (2) - Exposures for which a credit assessment by an Export Credit Agency is recognized for risk weighting purposes shall be assigned a risk weight according to Table 2. Table 2 MEIP Risk weight (%) SECTION 2 Exposures to regional governments or local authorities Article 12 (1) - Without prejudice to paragraph 3, as well as to Articles 13 and 14, exposures to regional governments and local authorities shall be assigned the treatment provided by art. 23 and 24 for exposures to institutions (2) - Local authorities from Romania shall mean local authorities as referred to in Law no. 273/2006 on public finance. (3) - Where the competent authorities of another Member State assign risk weights to exposures to their own regional governments and local authorities according to the rating of the central government in whose jurisdiction they are established, credit institutions may use for such exposures the applicable risk weights according to the regulations of that Member States. Article 13

16 (1) - Exposures to regional governments and local authorities shall be treated as exposures to the central government in whose jurisdiction they are established where there is no difference in credit risk between such exposures, because of the specific revenue-rising powers of the regional governments or local authorities and the existence of specific institutional arrangements the effect of which is to reduce their risk of default, up to the level of the central government s risk of default. (2) - The treatment provided by paragraph 1 applies to exposures to regional governments and local authorities from Romania and other Member States as referred to in the public lists drawn up for this purpose by the competent authorities of each country. Article 14 When competent authorities of a third country jurisdiction which, to the satisfaction of the National Bank of Romania, apply supervisory and regulatory arrangements at least equivalent to those applied in Romania, treat exposures to regional governments or local authorities as exposures to their central government, credit institutions may risk-weight exposures to such regional governments and local authorities in the same manner. Article 15 Exposures to churches and religious communities constituted in the form of a legal person under public law shall, in so far as they raise taxes in accordance with the applicable legislation, be treated as exposures to regional governments and local authorities. The provisions of Article 13 paragraph 1 shall not apply.

17 SECTION 3 Exposures to administrative bodies and non-commercial undertakings 3.1. Treatment Article 16 Without prejudice to Article 17, exposures to administrative bodies and non-commercial undertakings shall be assigned a 100% risk weight Public Sector Entities Article 17 (1) - Without prejudice to paragraphs 2 and 3, exposures to public sector entities shall be assigned a 100% risk weight. (2) - When the discretion to treat exposures to public-sector entities as exposures to institutions or as exposures to the central government in whose jurisdiction they are established is exercised by the competent authorities of another Member State, credit institutions may risk-weight exposures to such public-sector entities in the same manner. (3) - When competent authorities of a third country jurisdiction, which, to the satisfaction of the National Bank of Romania, apply supervisory and regulatory arrangements at least equivalent to those applied in Romania, treat exposures to public sector entities as exposures to institutions, credit institutions may risk weight exposures to such public sector entities in the same manner.

18 SECTION 4 Exposures to Multilateral Development Banks 4.1. Scope Article 18 For the purposes of the present regulation, the Inter-American Investment Corporation, the Black Sea Trade and Development Bank and the Central American Bank for Economic Integration are considered to be Multilateral Development Banks. 4.2 Treatment Article 19 (1) - Without prejudice to paragraphs 2 and 3, exposures to multilateral development banks shall be treated in the same manner as exposures to institutions in accordance with the provisions of Section 6.2. The treatment for short-term exposures as specified in Article 25, respectively Article 29 paragraph 1 shall not apply. (2) - Exposures to the following multilateral development banks shall be assigned a 0% risk weight: (a) (b) (c) (d) (e) the International Bank for Reconstruction and Development; the International Finance Corporation; the Inter-American Development Bank; the Asian Development Bank; the African Development Bank;

19 (f) the Council of Europe Development Bank (g) the Nordic Investment Bank; (h) the Caribbean Development Bank; (i) the European Bank for Reconstruction and Development; (j) the European Investment Bank; (k) the European Investment Fund; (l) the Multilateral Investment Guarantee Agency. (3) - A risk weight of 20% shall be assigned to the portion of unpaid capital subscribed to the European Investment Fund. SECTION 5 Exposures to international organisations Article 20 Exposures to the European Community, the International Monetary Fund and the Bank for International Settlements shall be assigned a 0% risk weight. SECTION 6 Exposures to institutions and financial institutions 6.1 Treatment Article 21 The risk weight for exposures to institutions shall be determined using the external credit assessment based method, according to the provisions of Articles 24 and 25. Article 22

20 (1) - Without prejudice to the other provisions of Articles 21-30, exposures to financial institutions authorized and supervised by the competent authorities responsible for the authorization and supervision of credit institutions and subject to prudential requirements equivalent to those applied to credit institutions shall be risk-weighted as exposures to institutions. (2) Exposures to financial institutions that do not fulfill the provisions of paragraph (1) shall be risk-weighted as exposures to corporates. Article 23 Exposures to institutions, for which a rating provided by a nominated ECAI is not available, shall be assigned the risk weight applied to exposures to the central government of the jurisdiction in which the institution is incorporated or the risk weight determined according to section 6.2., whichever is the higher Determination of the risk weight based on the external credit assessment method Article 24 (1) - Exposures to institutions with an original effective maturity of more than three months for which a rating provided by a nominated ECAI is available shall be assigned a risk weight according to Table 3, associated with the corresponding credit quality step, according to the assignment performed by the National Bank of Romania, in compliance with the provisions of Article 7.

21 Table 3 Credit quality step Risk weight (%) (2) - Without prejudice to provisions of Article 23, for exposures provided for by paragraph (1), for which a rating provided by a nominated ECAI is not available, shall be assigned a risk weight of 50%. 6.3 The general treatment for short term exposures Article 25 (1) - Exposures to institutions with an original effective maturity of three months or less, for which a rating provided by a nominated ECAI is available shall be assigned a risk weight according to Table 4, associated with the corresponding credit quality step, according to the assignment performed by the National Bank of Romania, in compliance with the provisions of Article 7. Table 4 Credit quality step Risk weight (%) (2) - Without prejudice to the provisions of Article 23, for exposures provided for by paragraph (1), for which a rating provided by a nominated ECAI is not available, shall be assigned a risk weight of 20%. 6.4 Interaction with short-term ratings Article 26

22 If there is no short-term ratings, the general treatment for short term exposures as specified in Article 25 paragraph (1), shall apply to all exposures of up to three months residual maturity. Article 27 If there is a short-term rating and such a rating determines the application of a more favourable or identical risk weight than the use of the general treatment for short-term exposures, as specified in Article 25 paragraph 1, then the short-term rating shall be used for that specific exposure only. Other short-term exposures shall follow the general treatment for short-term exposures, as specified in Article 25 paragraph (1). Article 28 If there is a short-term rating and such a rating determines a less favourable risk weight than the use of the general treatment for short-term exposures, as specified in Article 25 paragraph (1), then the general treatment for shortterm exposures referred to in Article 25 paragraph (1) shall not be used and all unrated short-term claims shall be assigned the same risk weight as that applied by the specific short-term rating. 6.5 Short-term exposures in the national currency of the borrower Article 29 (1) - Exposures to institutions of a residual maturity of 3 months or less denominated and funded in the national currency of the borrower shall be assigned a risk weight that is one category less favourable than the risk

23 weight, as described in Article 10, assigned to exposures to its central government. (2) - No exposures of a residual maturity of 3 months or less denominated and funded in the national currency of the borrower shall be assigned a risk weight less than 20%. 6.6 Investments in regulatory capital instruments Article 30 Investments in equity or regulatory capital instruments issued by institutions shall be risk weighted at 100%, unless deducted from the own funds. 6.7 Minimum reserves required by the European Central Bank Article 31 Where an exposure to an institution is in the form of minimum reserves required by the European Central Bank or by the central bank of a Member State to be held by the credit institution, this exposure may be assigned the risk weight that would be assigned to exposures to the central bank of the Member State in question provided: a) the reserves are held in accordance with Regulation (EC) No 1745/2003 of the European Central Bank of 12 September 2003 on the application of minimum reserves or a subsequent replacement regulation or in accordance with national requirements in all material respects equivalent to that Regulation; and

24 b) in the event of the bankruptcy or insolvency of the institution where the reserves are held, the reserves are fully repaid to the credit institution in a timely manner and are not made available to meet other liabilities of the institution. SECTION 7 Exposures to corporates Article 32 (1) - Exposures to corporates, for which a rating provided by a nominated ECAI is available, shall be assigned a risk weight according to Table 5, associated with the corresponding credit quality step, according to the assignment performed by the National Bank of Romania, in compliance with the provisions of Article 7. Table 5 Credit quality step Risk weight (%) (2) - Exposures to corporates, for which such a rating provided by a nominated ECAI is not available, shall be assigned a 100% risk weight or the risk weight of the central government of the jurisdiction in which the corporate is set up, whichever is higher. SECTION 8 Retail exposures Article 33 Exposures that comply with the criteria listed in Article 4 par.2 shall be assigned a risk weight of 75%.

25 SECTION 9 Exposures secured by real estate property Article 34 Without prejudice to the provisions of Articles 35-45, exposures fully secured by real estate property shall be assigned a risk weight of 100% 9.1 Exposures secured by mortgages on residential property Article 35 Exposures or any part of an exposure fully and completely secured, to the satisfaction of the National Bank of Romania, by first mortgages on residential property which is or shall be occupied or let by the owner, shall be assigned a risk weight of 35%. Article 36 Exposures fully and completely secured, to the satisfaction of the National Bank of Romania, by shares in Finnish residential housing companies, operating in accordance with the Finnish Housing Company Act of 1991 or subsequent equivalent legislation, in respect of residential property which is or shall be occupied or let by the owner, shall be assigned a risk weight of 35%. Article 37

26 Exposures to a tenant under a property leasing transaction concerning residential property under which the credit institution is the lesser and the tenant has an option to purchase, shall be assigned a risk weight of 35% provided that the National Bank of Romania is satisfied that the exposure of the credit institution is fully and completely secured by its ownership of the property. Article 38 For the purposes of Articles 35-37, besides fulfilling the requirements provided by the mentioned articles, credit institutions shall meet the following conditions: a) the value of the property does not materially depend upon the credit quality of the obligor. This requirement does not preclude situations where purely macro-economic factors affect both the value of the property and the performance of the borrower; b) the risk of the borrower does not materially depend upon the performance of the underlying property or project, but rather on the underlying capacity of the borrower to repay the debt from other sources. As such, the monthly payment obligation, including principal and interest, resulting from the loan secured by residential property, shall not exceed 15% of the cash flows generated by that property; c) the minimum requirements for the recognition as eligible of real estate collateral provided by Article 41 of the Regulation NBR NSC no.19/24/2006 on credit risk mitigation techniques used by credit institutions and investment firms, as well as the valuation rules for real estate collateral provided for by Article 121 of the above mentioned regulation, are met;

27 d) the exposure value represent at least 75% of the value of the property. Article 39 Where the competent authorities of another Member State exercise the discretion to assign the risk weight of 35% to exposures fully and completely secured by first mortgages on residential property, which is situated within the territory of that Member State, without fulfilling the condition provided by Article 38 lett.b), credit institutions from Romania may assign a risk weight of 35% to such exposures Exposures secured by mortgages on commercial real estate from other Member States Article 40 Exposures or any part of an exposure fully and completely secured, to the satisfaction of National Bank of Romania, by first mortgages on commercial real estate situated within the territory of another Member State, for which, according to that Member State regulation, may be assigned a 50% riskweight, credit institutions may assign the same treatment (the 50% risk weight) to such exposures. Article 41 Exposures fully and completely secured, to the satisfaction of the National Bank of Romania, by shares in Finnish housing companies, operating in accordance with the Finnish Housing Company Act of 1991 or subsequent

28 equivalent legislation, in respect of commercial real estate, shall be assigned the 50% risk weight. Article 42 Exposures related to property leasing transactions concerning commercial real estate situated within the territory of another Member State, under which the credit institution is the lessor and the tenant has an option to purchase, for which the applicable regulations of that Member State provide for the 50% risk weight, credit institutions may apply the same treatment (the 50% risk weight) to such exposures. Article 43 The application of Articles is subject to the following conditions: a) the value of the property must not materially depend upon the credit quality of the obligor. This requirement does not preclude situations where purely macro-economic factors affect both the value of the property and the performance of the borrower; b) the risk of the borrower must not materially depend upon the performance of the underlying property or project, but rather on the underlying capacity of the borrower to repay the debt from other sources. As such, the monthly payment obligation, including principal and interest, resulting from the loan secured by commercial property, shall not exceed 15% of the cash flows generated by that property; c) the minimum requirements for the recognition as eligible of real estate collateral provided by Article 41 of the Regulation NBR NSC no.19/24/2006 on credit risk mitigation techniques used by credit institutions

29 and investment firms, as well as the valuation rules for real estate collateral provided for by Article 121 of the above mentioned regulation, are met. Article 44 (1) - The 50% risk weight provided by Articles shall apply to the part of the exposure that does not exceed one of the following limits: (a) 50% of the market value of the property in question, or (b) 50% of the market value of the property or 60% of the mortgage lending value, whichever is lower, for those Member States that have laid down rigorous criteria for the assessment of the mortgage lending value in statutory or regulatory provisions. (2) - A 100 % risk weigh shall be assigned to the part of the loan that exceeds the limits set out in paragraph (1). Article 45 Where the competent authorities of another Member State exercise the discretion to assign the risk weight of 50% to exposures fully and completely secured by first mortgages on commercial property, which is situated within the territory of that Member State, without fulfilling the condition provided by Article 43 lett.b), credit institutions from Romania may apply the same treatment (risk weight of 50%) to such exposures.

30 SECTION 10 Past due items Article 46 Without prejudice to the provisions contained in Articles 47-49, the unsecured part of any item that is past due for more than 90 days and which is above 5% of the exposure value, shall be assigned a risk weight of: a) 150%, if value adjustments are less than 20% of the unsecured part of the exposure gross of value adjustments; and b) 100%, if value adjustments are no less than 20% of the unsecured part of the exposure gross of value adjustments. Article 47 For the purpose of defining the secured part of the past due item, eligible collateral and guarantees shall be those eligible for credit risk mitigation purposes. Article 48 Exposures indicated in Articles shall be assigned a risk weight of 100% net of value adjustments if they are past due for more than 90 days. If value adjustments are no less than 20% of the exposure gross of value adjustments, the risk weight to be assigned to the remainder of the exposure may be reduced to 50%. Article 49 Exposures indicated in Article shall be assigned a risk weight of 100% if they are past due for more than 90 days.

31 SECTION 11 Items belonging to regulatory high-risk categories Article 50 Exposures associated with particularly high risks shall be assigned a risk weight of 150%. At least, the following categories of exposures shall be considered of high-risk: a) exposures from investments in venture capital firms and private equity investments; b) exposures to entities for which a rating is not available for the time being, but to which a risk weight of 150% was assigned, due to a prior poor rating; c) other exposures which, in the view of the National Bank of Romania, are associated with high-risks. Article 51 Non past due items to which, according to Article 50, the risk weight of 150% should apply and for which value adjustments have been established, shall be assigned a risk weight of: (a) 100%, if value adjustments are no less than 20% of the exposure value gross of value adjustments; and (b) 50%, if value adjustments are no less than 50% of the exposure value gross of value adjustments.

32 SECTION 12 Exposures in the form of covered bonds Article 52 (1) - "Covered bonds", shall mean bonds as defined in Article 159 paragraph 6 of the National Securities Commission Regulation no.15/2004 on authorising and functioning of asset management companies, collective investment undertakings and depositors, which was adopted by Order of the president of the National Securities Commission no.67/2004 as subsequently amended by Order of the president of the National Securities Commission no.13/2005, and collateralised by any of the following eligible assets: a) exposures to or guaranteed by central governments, central banks, public sector entities, regional governments and local authorities in the EU; b) exposures to or guaranteed by non-eu central governments, non- EU central banks, multilateral development banks, international organisations that qualify for the credit quality step 1 as set out in the present Regulation, and exposures to or guaranteed by non-eu public sector entities, non-eu regional governments and non-eu local authorities that are risk weighted as exposures to institutions or central governments and central banks according to Articles 17, 12 or 13 and that qualify for the credit quality step 1 as set out in the present Regulation, and exposures in the sense of this paragraph that qualify as a minimum for the credit quality step 2, provided that they do not exceed 20% of the nominal amount of outstanding covered bonds of issuing institutions;

33 c) exposures to institutions that qualify for the credit quality step 1 as set out in the present regulation. The total exposure of this kind shall not exceed 15% of the nominal amount of outstanding covered bonds of the issuing credit institution. Exposures caused by transmission and management of payments of the obligors of loans secured by real estate to the holders of covered bonds, or exposures caused by transmission and management of liquidation proceeds in respect of loans secured by real estate to the holders of covered bonds shall not be comprised by the 15% limit. Exposures to institutions in the EU with a maturity not exceeding 100 days shall not be comprised by the step 1 requirement but those institutions must as a minimum qualify for credit quality step 2 as set out in the present regulation d) loans secured by residential real estate or shares in Finnish residential housing companies as referred to in Article 36 up to the lesser of the principal amount of the liens that are combined with any prior liens and 80% of the value of the pledged properties or by senior units issued by French Funds Communs de Créances or by equivalent securitisation entities governed by the laws of a Member State securitising residential real estate exposures provided that at least 90% of the assets of such Funds Communs de Créances or of equivalent securitisation entities governed by the laws of a Member State are composed of mortgages that are combined with any prior liens up to the lesser of the principal amounts due under the units, the principal amounts of the liens, and 80% of the value of the pledged properties and the units

34 qualify for the credit quality step 1 as set out in the present Regulation where such units do not exceed 20% of the nominal amount of the outstanding issue. Exposures caused by transmission and management of payments of the obligors of loans secured by pledged properties of the senior units or debt securities, or exposures caused by transmission and management of liquidation proceeds in respect of loans secured by pledged properties of the senior units or debt securities shall not be comprised in calculating the 90% limit; e) loans secured by commercial real estate or shares in Finnish housing companies as referred to in Article 41 up to the lesser of the principal amount of the liens that are combined with any prior liens and 60% of the value of the pledged properties or by senior units issued by French Funds Communs de Créances or by equivalent securitisation entities governed by the laws of a Member State securitising commercial real estate exposures provided that, at least, 90% of the assets of such Funds Communes de Cranes or of equivalent securitisation entities governed by the laws of a Member State are composed of mortgages that are combined with any prior liens up to the lesser of the principal amounts due under the units, the principal amounts of the liens, and 60% of the value of the pledged properties and the units qualify for the credit quality step 1 as set out in the present Regulation where such units do not exceed 20% of the nominal amount of the outstanding issue. The National Bank of Romania may recognise loans secured by commercial real estate as eligible where the Loan to Value ratio of

35 60% is exceeded up to a maximum level of 70% if the value of the total assets pledged as collateral for the covered bonds exceed the nominal amount outstanding on the covered bond by at least 10%, and the bondholders' claim meets the legal certainty requirements set out in the Regulation NBR NSC no.19/24/2006 on credit risk mitigation techniques used by credit institutions and investment firms. The bondholders' claim must take priority over all other claims on the collateral. Exposures caused by transmission and management of payments of the obligors of loans secured by pledged properties of the senior units or debt securities, or exposures caused by transmission and management of liquidation proceeds in respect of loans secured by pledged properties of the senior units or debt securities shall not be comprised in calculating the 90% limit; or (f) loans secured by ships where only liens that are combined with any prior liens within 60% of the value of the pledged ships. (2) - For the purposes of this Article, "collateralised" includes situations where the assets as described in paragraphs (a) - (f) are exclusively dedicated in law to the protection of the bond-holders against losses. (3) - Until 31 December 2010 the 20% limit for senior units issued by French Funds Communes de Cranes or by equivalent securitisation entities as specified in paragraphs (d) and (e) does not apply, provided that those senior units have a rating provided by a nominated ECAI which is the most favourable category of rating in respect of covered bonds. (4) - Until 31 December 2010 the figure of 60% indicated in paragraph (f) can be replaced with a figure of 70%.

36 Article 53 Credit institutions shall for real estate collateralising covered bonds meet the minimum requirements for the recognition as eligible of real estate collateral provided by Article 41 of the Regulation NBR NSC no.19/24/2006 on credit risk mitigation techniques used by credit institutions and investment firms as well as the valuation rules for real estate collateral provided for by Article 121 of the above mentioned regulation. Article 54 Notwithstanding Articles 52-53, covered bonds provided by Article 52 paragraph 1, issued before 31 December 2007 are also eligible for the treatment referred to in Article 55, until their maturity. Article 55 Covered bonds shall be assigned a risk weight on the basis of the risk weight assigned to senior unsecured exposures to the credit institution which issues them. The following correspondence between risk weights shall apply: a) if the exposures to the institution are assigned a risk weight of 20%, the covered bond shall be assigned a risk weight of 10%; (b) if the exposures to the institution are assigned a risk weight of 50%, the covered bond shall be assigned a risk weight of 20%; (c) if the exposures to the institution are assigned a risk weight of 100%, the covered bond shall be assigned a risk weight of 50%; and (d) if the exposures to the institution are assigned a risk weight of 150%, the covered bond shall be assigned a risk weight of 100%.

37 SECTION 13 Items representing securitization positions Article 56 Risk weight exposure amounts for securitisation positions shall be determined in accordance with the provisions of the Regulation NBR-NSC No.21/26/2006 on credit risk treatment regarding securitized exposures and securitisation positions. SECTION 14 Short-term exposures to institutions and corporates Article 57 Short-term exposures to an institution or corporate for which a rating provided by a nominated ECAI is available shall be assigned a risk weight according to Table 6 associated with the corresponding credit quality step, according to the assignment performed by the National Bank of Romania, in compliance with the provisions of Article 7. Table 6 Credit Quality Step Risk weight (%) SECTION 15 Exposures in the form of collective investment undertakings (CIUs) Article 58

38 Without prejudice to the provisions of Articles 59-65, exposures in collective investment undertakings (CIUs) shall be assigned a risk weight of 100%. Article 59 Exposures in the form of CIUs for which a rating provided by a nominated ECAI is available shall be assigned a risk weight according to Table 7, associated with the corresponding credit quality step, according to the assignment performed by the National Bank of Romania, in compliance with the provisions of Article 7. Table 7 Credit quality step Risk weight (%) Article 60 (1) - Where the National Bank of Romania considers that a position in a CIU is associated with particularly high risks, that position shall be assigned a risk weight of 150%. (2) A CIU is considered to be of high risk if at least two of the conditions bellow are met: (a) it is constitute by privately attracting financial resources from the investors; (b) it addresses only qualified investors; (c) the investment policy is made by the management body, without being subject to any investment limit enforced by the capital market legislation; (d) it is self-administered.

39 (3) In assessing the risk of a CIU, the National Bank of Romania may take into consideration additional conditions, other then those provided by paragraph (2). Article 61 Credit institutions may determine the risk weight for a CIU as set out in Articles 63-65, if the following eligibility criteria are met: (a) the CIU is managed by a company which is subject to supervision in another Member State or, subject to approval of the National Bank of Romania, if: (i) the CIU is managed by a company which is subject to supervision that is equivalent to that laid down in Romania; (ii) cooperation between the competent authorities from Romania and the competent authority responsible with the supervision of the CIUs from that third country is sufficiently ensured; (b) the CIU's prospectus or equivalent document includes information related to: (i) the categories of assets in which the CIU is authorised to invest; (ii) if investment limits apply, the relative limits and the methodologies to calculate them; (c) the business of the CIU is reported on at least an annual basis to enable an assessment to be made of the assets and liabilities, income and operations over the reporting period.