SARB issued a directive (D2/2018) on the materiality threshold in respect of exposure to a foreign jurisdiction in applying jurisdictional reciprocity in the countercyclical capital buffer calculation. The directive is applicable to all banks, controlling companies, branches of foreign institutions, eligible institutions, and auditors of banks or controlling companies.
The directive requires banks to calculate, at least on a quarterly basis, the required CCyB by allocating exposures to the relevant jurisdictions, based on the following specified thresholds:
- When risk-weighted assets (RWAs) related to private sector credit exposures to a foreign jurisdiction amount to 2% or more of the total RWAs relating to private sector credit exposures of the bank, then those exposures are treated as foreign exposures and are allocated to that specific foreign jurisdiction when calculating CCyB requirements.
- When RWAs on private sector credit exposures to a foreign jurisdiction amount to less than 2% of total RWAs relating to private sector credit exposures, those exposures shall be treated as local (home jurisdiction) exposures for the calculating CCyB.
- When aggregate amount of all RWA on private sector credit exposures to foreign jurisdictions individually amounting to less than 2% of total RWAs relating to private sector credit exposures, amount to 10% or more of the total RWAs relating to private sector credit exposures of the bank, the bank must include in its calculation the CCyB add-on in respect of the three most signification foreign jurisdiction exposures where the foreign jurisdictions have a CCyB requirement in place.
The specified materiality thresholds shall be applied at a bank solo, consolidated bank, consolidated controlling company, and foreign entity level. In line with the BCBS document on consolidated and enhanced framework for Pillar 3 disclosure requirements dated March 2017, the methodology for geographical allocation used as well as the use of materiality thresholds must be disclosed by banks in Template CCyB1, as contained the document. Through this process, credit exposures to a private-sector entity located in any given jurisdiction will attract the same capital buffer requirement, irrespective of the location of banking providing the credit.
Keywords: Middle East and Africa, South Africa, Banking, CCyB, Reciprocity, Credit Exposures, Disclosures, SARB
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