Article 121
Exposures to unrated institutions
1.
Exposures to institutions for which a credit assessment by a nominated ECAI is not available shall be assigned to one of the following grades:
(a)
where all of the following conditions are met, exposures to institutions shall be assigned to Grade A:
(i)
the institution has adequate capacity to meet its financial commitments, including repayments of principal and interest, in a timely manner, for the projected life of the assets or exposures and irrespective of economic cycles and business conditions;
(ii)
the institution meets or exceeds the requirement laid down in Article 92(1) of this Regulation, taking into account Article 458(2), points (d)(i) and (vi), and Article 459, point (a), of this Regulation where applicable, the specific own funds requirements referred to in Article 104 of Directive 2013/36/EU, the combined buffer requirement defined in Article 128, point (6), of Directive 2013/36/EU, or any equivalent and additional local supervisory or regulatory requirements in third countries insofar as those requirements are published and are to be met by Common Equity Tier 1 capital, Tier 1 capital or own funds, as applicable;
(iii)
information about whether the requirements referred to in point (ii) of this point are met or exceeded by the institution is publicly disclosed or otherwise made available to the lending institution;
(iv)
the assessment performed by the lending institution in accordance with Article 79 of Directive 2013/36/EU has not revealed that the institution does not meet the conditions set out in points (i) and (ii) of this point;
(b)
where all of the following conditions are met and at least one of the conditions in point (a) of this paragraph is not met, exposures to institutions shall be assigned to Grade B:
(i)
the institution is subject to substantial credit risk, including repayment capacities that are dependent on stable or favourable economic or business conditions;
(ii)
the institution meets or exceeds the requirement laid down in Article 92(1) of this Regulation, taking into account Article 458(2), point (d)(i), and Article 459, point (a), of this Regulation, where applicable, the specific own funds requirements referred to in Article 104 of Directive 2013/36/EU, or any equivalent and additional local supervisory or regulatory requirements in third countries insofar as those requirements are published and are to be met by Common Equity Tier 1 capital, Tier 1 capital or own funds, as applicable;
(iii)
information about whether the requirements referred to in point (ii) of this point are met or exceeded by the institution is publicly disclosed or otherwise made available to the lending institution;
(iv)
the assessment performed by the lending institution in accordance with Article 79 of Directive 2013/36/EU has not revealed that the institution does not meet the conditions set out in points (i) and (ii) of this point.
(c)
where exposures to institutions are not assigned to Grade A or B, or where any of the following conditions is met, exposures to institutions shall be assigned to Grade C:
(i)
the institution has material default risks and limited margins of safety;
(ii)
adverse business, financial or economic conditions are very likely to lead, or have led, to the institution’s inability to meet its financial commitments;
(iii)
where audited financial statements are required by law for the institution, the external auditor has issued an adverse audit opinion or has expressed substantial doubt about the institution’s ability to continue as a going concern in its audited financial statements or audited reports within the previous 12 months.
For the purposes of the first subparagraph, point (b)(ii), of this paragraph, equivalent and additional local supervisory or regulatory requirements shall not include capital buffers equivalent to those defined in Article 128 of Directive 2013/36/EU.
2.
For exposures to financial institutions that are treated as exposures to institutions in accordance with Article 119(5), for the purpose of assessing whether the conditions set out in paragraph 1, points (a)(ii) and (b)(ii), of this Article are met by those financial institutions, institutions shall assess whether those financial institutions meet or exceed any comparable prudential requirements.
3.
Exposures assigned to Grade A, B or C in accordance with paragraph 1 shall be assigned a risk weight as follows:
(a)
exposures assigned to Grade A, B or C which meet any of the following conditions shall be assigned a risk weight for short-term exposures in accordance with Table 1:
(i)
the exposure has an original maturity of three months or less;
(ii)
the exposure has an original maturity of six months or less and arises from the movement of goods across national borders;
(b)
exposures assigned to Grade A which are not short term shall be assigned a risk weight of 30 % where all of the following conditions are met:
(i)
the exposure does not meet any of the conditions set out in point (a);
(ii)
the institution’s Common Equity Tier 1 capital ratio is equal to or higher than 14 %;
(iii)
the institution’s leverage ratio is equal to or higher than 5 %;
(c)
exposures assigned to Grade A, B or C that do not meet the conditions set out in point (a) or (b) shall be assigned a risk weight in accordance with Table 1.
Where an exposure to an institution is not denominated in the domestic currency of the jurisdiction of incorporation of that institution, or where that institution has booked the credit obligation in a branch in a different jurisdiction and the exposure is not in the domestic currency of the jurisdiction in which the branch operates, the risk weight assigned in accordance with point (a), (b) or (c), to exposures other than those with a maturity of one year or less stemming from self-liquidating, trade-related contingent items that arise from the movement of goods across national borders shall not be lower than the risk weight of an exposure to the central government of the country where the institution is incorporated.
Table 1
|
Credit risk assessment |
Grade A |
Grade B |
Grade C |
|
Risk weight for short-term exposures |
20 % |
50 % |
150 % |
|
Risk weight |
40 % |
75 % |
150 % |