SARB issued a Circular 4/2020 to provide clarity on interpretation and application of criteria related to exposures secured by residential mortgage bonds. Due to possible differences in the interpretation of provisions of regulation 23(8)(c), read with regulations 23(6)(b) and 23(6)(c) of the Regulations relating to banks (the Regulations) in respect of exposures secured by residential mortgage bonds, there may be inconsistencies in the capital calculations and reporting with regard to regulation 23(8)(c). For the purpose of regulation 23(8)(c), exposure shall be the sum of the on-balance sheet exposure and the off-balance sheet exposure after the application of relevant credit conversion factors.
Regulation 23(6)(b)(ii) of the Regulations specifically excludes residential mortgage loans, as specified in regulation 23(6)(c) of the Regulations, from the category of retail exposures to which a risk-weight of 75% is applied. Regulation 23(6)(c) refers to a “lending fully secured by a mortgage bond.” The circular also clarifies that this reference should be interpreted to include an individual and a legal person such as a trust or close corporation, where such exposure is, for example, supported by the personal surety of the beneficial owner of the residential property mortgaged.
Keywords: Middle East and Africa, South Africa, Banking, Securities, Residential Mortgage Backed Securities, Credit Risk, Basel, Regulatory Capital, SARB
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