MIPRU 4.2A Credit risk capital requirement

This section applies to a firm carrying on any home financing connected to regulated mortgage contracts or home financing and home financing administration connected to regulated mortgage contracts see MIPRU 4.2.23 R.

The credit risk capital requirement of a firm is 8% of the total of its risk weighted exposure amounts for exposures that:

1. (1)

   are on its balance sheet; and

2. (2)

   derive from:

   1. (a)

      a loan entered into; or

   2. (b)

      a securitisation position originated; or

   3. (c)

      a fund position entered into;

   on or after 26 April 2014; and

3. (3)

   have not been deducted from the firm's capital resources under MIPRU 4.4.4 R or MIPRU 4.2BA;

calculated in accordance with MIPRU 4.2A.

Loans, securitisation positions and fund positions entered into before 26 April 2014 are excluded from the credit risk capital requirement calculation.

Any arrangements entered into on or after 26 April 2014 which increase the amount of a loan already advanced or change the security to a loan already advanced or change the contractual terms (other than if the firm is exercising forbearance) of a loan already advanced will be subject to the credit risk capital requirement under MIPRU 4.2A.4R (2)(a) provided that, where the arrangements only increase the amount of a loan already advanced, such requirement shall only apply to the amount of such increase.

Unless a rule requires otherwise, the exposure value of an asset or liability held on the balance sheet of a firm must be its balance sheet value.

A firm must assign each exposure to one of the following exposure classes:

1. (1)

   loans or contingent loans secured on real estate property;

2. (2)

   other loans;

3. (3)

   securitisation positions;

4. (4)

   exposures in the form of funds; or

5. (5)

   past due items.

For the purposes of applying a risk weight, the exposure value must be multiplied by the risk weight determined in accordance with MIPRU 4.2A.10 R, MIPRU 4.2A.10A R, MIPRU 4.2A.10B R, MIPRU 4.2A.11 R, MIPRU 4.2A.12 R or MIPRU 4.2A.17 R, unless it is deducted from capital resources under MIPRU 4.4.4 R or MIPRU 4.2BA.

To calculate risk weighted exposure amounts on exposures secured by mortgages on residential property, risk weights must be applied to all such exposures, in accordance with MIPRU 4.2F.4 R to MIPRU 4.2F.10 G.

To calculate risk weighted exposure amount on exposures secured by mortgages on commercial property, risk weights must be applied to all such exposures in accordance with MIPRU 4.2F.37 R.

To calculate risk weighted exposure amounts on other loans, risk weights must be applied to all such exposures in accordance with MIPRU 4.2F.38 R.

To calculate risk weighted exposure amounts on exposures in funds, risk weights must be applied to all such exposures, in accordance with MIPRU 4.2F.39 R to MIPRU 4.2F.49 R.

To calculate risk weighted exposure amounts for securitised exposures, risk weights must be calculated in accordance with MIPRU 4.2BA (Securitisation).

A firm must apply MIPRU 4.2F.50 R to MIPRU 4.2F.55 R to all past due items

1. (1)

   The application of risk weights must be based on the exposure class to which the exposure is assigned and, to the extent specified in MIPRU 4.2BA and MIPRU 4.2F (Exposures and risk weights), its credit quality.

2. (2)

   Credit quality must be determined by reference to solicited credit assessments of eligible ECAIs where these are available, in accordance with MIPRU 4.2E (Use of external credit assessments).

Where an exposure is subject to credit risk mitigation, the risk weighted exposure amount applicable to that item may be modified in accordance with MIPRU 4.2C (Credit risk mitigation).