Ahmed Adil
Partner, Risk & Islamic Financial Services,
Bahrain
24th January 2007
$$$
Rating
Agency
Servicer
SPV
Structures
Underwriter
Trustees
ABS
$$$
Credit
Enhancer
Investors
Mortgage
Issuing Bank
Perspective
Investing Bank
Perspective
or liquidation
Equity ?
of the issuer
Debt (Finance) ?
Obligation of issuer
No residual interest on assets and
up
Hybrid ?
Asset Backed
Security (ABS) ?
assets
PD / LGD Approach
Internal Models
Method
- Calculation of PD
- LGD assumed at 90%
RW = 300% for
publicly traded
equity
RW = 400% for
all other equity
- Minimum RW of 100%
- Maximum RW of 1250 %
Banks
AAA
AA-
to
A+ to
A-
BBB+
BBB-
0%
20 %
50 %
AAA to
AA-
A+ to
A-
BBB+
BBB-
to
BB+
B-
to
100 %
to
BB+
B-
to
Below B-
Unrated
150 %
100 %
Below
B-
Unrated
Option 1
20 %
50 %
100 %
100 %
150 %
100 %
Option 2
20 %
50 %
50 %
100 %
150 %
50 %
Corporates
AAA
AA-
to
20 %
A+
A-
to
50 %
BBB+
BB-
to
100 %
Below BB-
Unrated
150 %
100 %
AAA to
AA -
A + to
A-
BBB + to
BBB -
BB + to
BB -
B + and below /
unrated
Risk Weight
investors)
(for
20 %
50 %
100 %
350 %
Deduction (50 %
from Tier 1 and 50 %
from Tier 2)
Risk Weight
originators)
(for
20 %
50 %
100 %
Deduction
Deduction
A-1/P-1
A-2/P-2
A-3/P-3
20 %
50 %
100 %
Deduction
ECA (Short
category)\
Risk Weight
-term
rating
10
External or Inferred
Rating
Unrated Liquidity or
Credit Support ABCP
Ratings Based
Approach
Internal Assessment
Approach
Supervisory
Formula Approach
RWA calculated
through internal
assessment
methods
Capital charge
calculation through
a complex formula
RW given by
supervisor based
on ratings
(Deduction for
unrated)
Unrated Other
Exposure
11
True sale
Non consolidation
Bankruptcy remoteness
Security structures
Enforceability
Choice of law and enforcement of judgment
12
Ahmed Adil
Partner, Risk & Islamic Financial Services
Ernst & Young, Bahrain
P.O.Box 140
14th Floor, The Tower
Sheraton Commercial Complex
Manama, Bahrain
Phone: +973 17 535 455
Fax: +973 17 535 405
Email: ahmed.adil@bh.ey.com