• PRU 4.11 PRU 4.11 Credit Quality Grade and External Credit Assessments

    • Guidance

      This Section governs credit assessments of Exposures for the purpose of determining the CRW for Credit Risk (CR) Exposures as provided in Rule 4.8.3 and for securitisation (SE) Exposures as provided in Rule 4.8.4.

    • PRU 4.11.1

      An Authorised Person must assign a CR Exposure to a Credit Quality Grade based on the external credit assessment that is applicable to the CR Exposure in accordance with tables mapping the ratings from an ECAI to Credit Quality Grades, which will be published by the Regulator.

    • PRU 4.11.2

      CR Exposures with external credit assessments from external credit rating agencies that are not recognised by the Regulator in the tables mapping the ratings to the Credit Quality Grades must be assigned to the Credit Quality Grade associated with "unrated" Exposures.

    • PRU 4.11.3

      An Authorised Person must only use an external credit assessment which is accessible to the public. An Authorised Person may not use a credit assessment that is made available only to the parties to a transaction.

    • PRU 4.11.4

      An Authorised Person must only use external credit assessments by a recognised ECAI for the purposes of mapping the ratings from that ECAI to Credit Quality Grades. The Regulator may impose conditions on the use of such external credit assessments.

    • PRU 4.11.5 PRU 4.11.5

      An Authorised Person must use its chosen recognised external credit rating agencies and their external credit assessments consistently for each type of Exposure, for both risk weighting and risk management purposes. Where an Authorised Person has two external credit assessments which map into different Credit Quality Grades, it must assign the CR Exposure to the Credit Quality Grade associated with the higher risk weight. Where an Authorised Person has three or more external credit assessments which map into two or more different Credit Quality Grades, it must assign the CR Exposure to the Credit Quality Grade associated with the higher of the two lowest risk weights.

      • Guidance

        For illustration, if there are three external credit assessments mapping into Credit Quality Grades with risk weights of 0%, 20% and 50%, then the applicable risk weight is 20%. If the external credit assessments map into Credit Quality Grades with risk weights of 20%, 50% and 50%, then the applicable risk weight is 50%.

    • PRU 4.11.6

      An Authorised Person must not recognise the effects of CRM if such mitigation is already reflected in the issue-specific external credit assessment of the CR Exposure.

    • PRU 4.11.7

      Where a CR Exposure has an issue-specific external credit assessment from a recognised ECAI, an Authorised Person must use such assessment. Where a CR Exposure does not have an issue-specific external credit assessment, an Authorised Person must:

      (a) if there is an issue-specific external credit assessment for another Exposure to the same obligor, use the issue-specific assessment for the other Exposure only if the Exposure without an issue-specific assessment ranks pari passu with or is senior to the Exposure with the issue-specific assessment;
      (b) if the obligor has an Issuer external credit assessment, use the Issuer assessment of the obligor only if the Exposure without an issue-specific assessment ranks pari passu with or is senior to any unsecured claim that is not subordinated to any other claim on the obligor; or
      (c) in all other cases, apply a risk weight equal to the higher of the risk weight that is applicable to an unrated Exposure and the risk weight associated with the external credit assessment, if any, of the obligor or another Exposure to the same obligor.

    • PRU 4.11.8

      Where a CR Exposure is risk-weighted in accordance with Rules 4.11.7(a) or (b), an Authorised Person may use a domestic currency external credit assessment only if the CR Exposure is denominated in that domestic currency

    • PRU 4.11.9

      An Authorised Person may use an external credit assessment to risk weight a CR Exposure only if the external credit assessment has taken into account and reflects the entire amount of Credit Risk Exposure the Authorised Person has with regard to all payments owed to it.

    • PRU 4.11.10

      An Authorised Person must not use unsolicited external credit assessments to assign any CR Exposure to a Credit Quality Grade, unless:

      (a) it has assessed the quality of the unsolicited external credit assessments that it intends to use and is satisfied that these are comparable in performance with solicited external credit assessments and maintains relevant records and documents to be made available to the Regulator upon request; and
      (b) it uses unsolicited external credit assessments consistently for each type of Exposures, for both risk weighting and risk management purposes.