Basel III: Post-Crisis Reforms

1 Basel III: Post-Crisis ReformsStandardised Approach for Credit RiskRevisions to the Existing Standardised ApproachNew Categories of Exposures Exposures to Banks Bankexposureswillberisk-weightedbasedone ithertheExternalCreditRiskAssessmentAppr oach(ECRA)orStandardisedCreditRiskAssess mentApproach(SCRA).BanksaretoapplyECRA whereregulatorsdoallowtheuseofexternalra tingsforregulatorypurposesandSCRA forregulatorsthatdon t. Exposures to Multilateral Development Banks (MDBs)For exposures that do not fulfil the eligibility criteria, risk weights are to be determined by either SCRA or ECRA. Exposures to CorporatesA more granular look-up table as well as a specific risk weight for small and medium-sized enterprises (SMEs) have been developed.

2 Retail Exposures (Excluding Real Estate) (QRRE) Residential Real Estate (RRE) and Commercial Real Estate (CRE) ,basedonmortgages Loan-to-Value(LTV)ratios,willreplacethep reviousflatriskweightsof35%and100%forRRE andCRErespectively. Exposures to Subordinated Debts and Equity A more granular risk weight treatment applies relative to the current flat risk weight. Exposures to Off-Balance Sheet Items CreditConversionFactors(CCFs)havebeenmad emorerisk-sensitivesuchasintroducingposi tiveCCFsforUnconditionallyCancellableCom mitments(UCCs). Exposure to Covered Bonds Rated covered bonds will be risk weighted based on issue specific rating while risk weights for unrated covered bonds will be inferred from the issuer s ECRA or SCRA risk weights.

3 Exposure to Project Finance, Object and Commodities Finance A new standalone treatment for specialised lending, a subcategory of the corporate exposure class. Land acquisition, development and construction (ADC) exposuresNew treatment for ADC financing, a subcategory of the real estate exposure class. ExposuresSubordinated debt and capital other than equitiesEquity exposures tocertain legislated programmesSpeculative Unlisted EquityAll Other Equity ExposuresRisk Weight150%100%400%250%Retail Exposures ExcludingReal EstateRegulatory Retail (Non-Revolving)Regulatory Retail (Revolving)Other RetailTransactorsRevolversRisk Weight75%45%75%100%Off Balance Sheet ExposuresUCCsCommitments except UCCsNote Issuanceand Revolving Underwriting FacilitiesCertain transaction-related contingent itemsShort term self-liquidating trade letters of creditDirect credit substitutes and other exposuresCCF10%40%50%50%20%100%ADC ExposuresRisk WeightLoan to Company / SPV150%Residential ADC Loan100%Capital BufferConservation BufferMinimum Capital RequirementCore Equity Tier 1 (CET 1)Tier 1 (T1)Total Capital (Tier 1 + Tier 2)20182020202120222023202420252026202720 191 January 2027 Output floor: January 2026 Output floor.

4 70%1 January 2025 Output floor: 65%1 January 2024 Output floor: 60%1 January 2023 Output floor: 55%1 January 2018 Full implementation of Leverage Ratio (Existing exposure definition)Focus: Capital Definitions, Capital Buffers and Liquidity RequirementsBasel lllFocus: Capital Requirements1 January 2022 Full implementation of: standardised approach for credit risk; IRB framework; CVA framework; operational risk framework; market risk framework (Fundamental Review of Trading Book); Ratio (revised exposure definition).Transitional implementationOutput floor: 50%Implementation TimelineExposuresto MDBsEligible CriteriaMetECRASCRARisk WeightRated/ UnratedRisk WeightAAA to AA-A+ to A-BBB+ to BBB-BB+ to B-Below B-UnratedRisk WeightGrade AGrade BGrade CBase0%Base20%30%50%100%150%50%Base50%Ex posuresto BanksECRASCRARisk WeightAAA to AA-A+ to A-BBB+ to BBB-BB+ to B-Below B-UnratedRisk WeightGrade AGrade BGrade CBase20%30%50%100%150%SCRABase40%* 30% if CET 1 14% and T1 LeverageRatio 5%75%150%Short term exposures20%50%Short termexposures20%50%Exposuresto Covered BondsRatedCovered BondsUnrated Covered BondsIssue-SpecificRatingAAA to AA -A + to BBB -BB + to B -Below B -Risk Weight of Issuing

5 Bank30%40%50%75%100%150%Risk Weight10%20%50%100%Risk Weight15%20%25%35%50%100%Exposuresto CorporatesECRASCRAE xternalRating of CounterpartyAAA to AA-A+ to A-BBB+ to BBB-BB+ to B-Below B-UnratedGradesInvestmentOthersRiskWeigh t20%50%75%100%150%100%or 85% if Corporate SMENon-SMEC orporate65%100%SME Corporate85%Exposures to Project, Object and Commodities FinanceECRASCRAE xternalRating of CounterpartyAAA to AA-A+ to A-BBB+ to BBB-BB+ to B-Below B-UnratedExposures (excluding real estate)Project FinanceObject and Commodity FinanceRiskWeight20%50%75%100%150%100%or 85% if CorporateSMERiskWeight130% pre-operationalphase100% operational phase80% operational phase (high quality)100%Residential Real Estate (RRE) ExposuresGeneral RRERiskWeightsLTV 50%50% < LTV 55%55% < LTV 60%60% < LTV 80%80% LTV 90%90% < LTV 100%LTV> 100%Criterianot metWhole LoanApproach20%25%25%30%40%50%70%Risk weightof counterpartyLoan-SplittingApproach20%Ris k weight (RW) of counterpartyIncome-ProducingResidential Real Estate (IPRRE)

6 Risk WeightsLTV 50%50% < LTV 60%60% < LTV 80%80% < LTV 90%90% < LTV 100%LTV> 100%Criterianot metWhole LoanApproach30%35%45%60%75%105%150%Comme rcial Real Estate (CRE) ExposuresGeneralCREI ncome-Producing Commercial Real Estate (IPCRE)Risk WeightLTV 55%55% < LTV 60%LTV > 60%Criterianot metRisk WeightLTV 60%60% < LTV 80%LTV > 80%Criterianot metWhole LoanApproachMin(60%, RW of counterparty)RWof counterpartyRWof counterpartyWhole LoanApproach70%90%110%150%Loan-Splitting ApproachMin(60%, RW of counterparty)RWof counterpartyInternal Rating-Based Approach for Credit RiskRevisioninthe Scope of Internal Ratings-Based (IRB) ApproachesExposureBaselIIBasel III: Post CrisisReformsLarge and Mid-Sized Corporates ( Consolidated revenues > 500 Million ) AdvancedIRB (A-IRB), Foundation IRB (F-IRB), Standardised Approach (SA) F-IRB SABanks and Other Financial Institutions A-IRB F-IRB SA F-IRB SAEquities Various IRBA pproaches SASpecification of Input FloorsSupervisory Specified Parameters in the F-IRB Approach Additional EnhancementSecured Exposures Non-financialcollateral:LGDreducedandhai rcutsincreased Financialcollateral:Haircutsrevisedtobem oregranularUnsecured Exposures Non-financialcorporates.

7 LGDreducedto40% Banks,SecuritiesFirmsandOtherFinancialIn stitutions:LGDretainedat45% ,currentlyappliedtorisk-weightedassets(R WAs)determinedbytheIRBapproachtocreditri sk, of Default (PD)Loss Given Default (LGD)Exposure at Default (EAD)UnsecuredSecuredCorporate5 bps25%By collateral type: 0% financial 10% receivables 10% CRE/RRE 15% other physicalSumof (i)onbalancesheetexposures;and(ii)50%ofo ffbalancesheetexposureusingapplicableCCF sinSARetailMortgages5 bpsN/A5%QRRET ransactors5 bps50%N/AQRRE Revolvers10 bps50%N/AOther Retail5 bps30%By collateral type: 0% financial 10% receivables 10% CRE/RRE 15% other physicalRevised Standardised ApproachUsing elements from the former standardised measurement method, the Sensitivities based method builds on the elements and expandthe use of delta, vegaand curvature risk to factor sensitivities.

8 The standardised approach capital charge is the sum of the sensitivities Based Method capital charge, default risk charge and residual add :RiskFactorLevelCalculatetheweightednets ensitivity(WSk)acrossallinstrumentstothe irrespectiveriskfactork. = where skis the net sensitivity and RWkis the corresponding risk weightCalculatethecurvatureriskchargefor curvatureriskfactork. = ( )+ ( ) ( ) + ( ) where: iisaninstrumentsubjecttocurvaturerisksas sociatedwithriskfactork; xkisthecurrentlevelofriskfactork; i(xk)isthepriceofinstrumentidependingont hecurrentlevelofriskfactork; ( )+and ( ) bothdenotethepriceofinstrumentiafterxkis shiftedupwardanddownward; ( )istheriskweightforcurvatureriskfactorkf orinstrumenti; :BucketLevelComputeriskpositionforbucket b,Kb,byaggregatingweightedsensitivitiesw ithineachbucketusingthecorrespondingpres cribedcorrelation kl.

9 = 2+ Aggregate the curvature risk exposure within each bucket using the corresponding correlation kl. = 0, ,02+ ( , )where (CVRk,CVRl)= 0 if CVRkand CVRlboth have negative signs and (CVRk,CVRl)= 1 in other casesStep3:RiskClassLevelRiskchargeisdet erminedfromriskpositionsaggregatedbetwee nbucketswithineachriskclassusingthecorre spondingcorrelations bc. = 2+ where = for all risk factors in bucket b and = for all risk factors in bucket cIfriskchargeisanimaginarynumber,SbandSc arecomputedusinganalternativespecificati on. = min , , , = min , , Aggregatethecurvatureriskpositionsacross bucketwithineachriskclassusingthecorresp ondingcorrelations bc.

10 = 2+ ( , )where = for all risk factors in bucket b and = for all risk factors in bucket cIfriskchargeisanimaginarynumber,SbandSc arecomputedusinganalternativespecificati on. = min , , , = min , , Sensitivities Based MethodClassification of instrument into risk class and risk factorDelta RiskAriskmeasurebasedonsensitivitiesofab ank stradingbooktoregulatorydeltariskfactors .+Vega RiskAriskmeasure(forinstrumentswithoptio nality)basedonsensitivitiestovegariskfac torstobeusedasinputstoasimilaraggregatio nformulaasforDeltarisk.+Curvature RiskAriskmeasure(forinstrumentswithoptio nality),capturingtheincrementalrisknotca pturedbythedeltariskofpricechangesinthev alueofanoption, Risk Charge (DRC)The standardised DRC as a whole is calibrated to the credit risk treatment in the banking book to reduce the potential discrepancy in capital requirements for similar risk exposures across the banking book and trading bo