STANDARDISED APPROACH — RISK WEIGHT TABLE
Sovereign and Central Bank Exposures
| Credit Assessment | Risk Weight |
|---|---|
| AAA to AA− | 0% |
| A+ to A− | 20% |
| BBB+ to BBB− | 50% |
| BB+ to B− | 100% |
| Below B− | 150% |
| Unrated | 100% |
Domestic currency sovereign claims (where funded in same currency): 0% (national discretion).
Banks and Securities Firms
| Credit Assessment | Short-term (≤3M) | Long-term |
|---|---|---|
| AAA to AA− | 20% | 20% |
| A+ to A− | 20% | 50% |
| BBB+ to BBB− | 20% | 50% |
| BB+ to B− | 50% | 100% |
| Below B− | 150% | 150% |
| Unrated | 20% | 50% |
Corporate Exposures
| Credit Assessment | Risk Weight |
|---|---|
| AAA to AA− | 20% |
| A+ to A− | 50% |
| BBB+ to BB− | 75% (Basel IV; 100% pre-Basel IV) |
| Below BB− | 150% |
| Unrated | 100% |
Investment-grade corporates (BCBS Basel IV): 65% if criteria met. SME corporate (qualifying): 75% (SME supporting factor may apply — check jurisdiction overlay).
Retail Exposures
Qualifying revolving retail: 45% Other retail (consumer loans, personal loans): 75% Qualifying SME retail: 75%
Residential Mortgage Exposures (Basel IV LTV-based)
| LTV | Risk Weight (General) |
|---|---|
| ≤ 50% | 20% |
| 50–60% | 25% |
| 60–80% | 30% |
| 80–90% | 40% |
| 90–100% | 50% |
| > 100% | 70% |
Note: Pre-Basel IV (current in many jurisdictions): flat 35–50%. Load jurisdiction overlay to confirm whether Basel IV LTV table has been implemented.
Commercial Real Estate (Basel IV)
Income-producing CRE: 75% (LTV-based table in Basel IV, higher than residential) Land acquisition, development, construction (ADC): 150% CRE securing a residential or SME loan (ancillary): follows the underlying loan RW. Check jurisdiction overlay — CRE risk weights vary significantly.
Past Due and Stage 3 Exposures
Unsecured past-due (>90 days, net of specific provisions): Provision < 20% of outstanding: 150% Provision ≥ 20% of outstanding: 100% Provision ≥ 50% of outstanding: 50%
Off-Balance-Sheet Credit Conversion Factors (CCF)
| Facility Type | CCF |
|---|---|
| Unconditionally cancellable commitments | 10% |
| Commitments with original maturity ≤ 1 year | 20% |
| Commitments with original maturity > 1 year | 40% |
| Note issuance facilities / revolving underwriting | 50% |
| Direct credit substitutes (guarantees) | 100% |
| Forward asset purchases | 100% |
EAD for off-balance-sheet = Notional amount × CCF Then apply the risk weight for the underlying exposure type.
CREDIT RWA CALCULATION
Credit RWA = Σ (EAD × Risk Weight) For off-balance-sheet: EAD = Drawn + (Undrawn × CCF), then × Risk Weight.
IRB APPROACH (for reference)
IRB RWA = K × 12.5 × EAD Where K = WCDR × LGD − PD × LGD (simplified form of Basel IRB formula) WCDR = Conditional PD under the worst-case systematic risk scenario Advanced IRB: bank supplies PD, LGD, EAD Foundation IRB: bank supplies PD; regulator supplies LGD and EAD Basel IV restrictions: AIRB no longer permitted for banks and large corporates.
CREDIT RISK MITIGATION (CRM)
Eligible financial collateral: cash, sovereign bonds, bank bonds, equities in main index CRM reduces EAD (collateralised portion gets lower or 0% risk weight). Guarantees: substitute risk weight of guarantor for the guaranteed portion. Netting: bilateral netting agreements reduce gross derivative exposure to net.
WORKED EXAMPLE — CREDIT RWA CALCULATION
Portfolio: Mixed lending book (simplified)
| Exposure Class | Gross Exposure (M) | CCF (if OBS) | EAD (M) | Risk Weight | RWA (M) |
|---|---|---|---|---|---|
| Domestic sovereign (AAA, domestic ccy) | 500 | — | 500 | 0% | 0 |
| Bank (A+ rated, long-term) | 200 | — | 200 | 50% | 100 |
| Corporate (BBB+ rated) | 300 | — | 300 | 75% | 225 |
| Corporate (unrated) | 150 | — | 150 | 100% | 150 |
| Residential mortgage (LTV 70%) | 400 | — | 400 | 30% | 120 |
| Retail revolving | 100 | — | 100 | 45% | 45 |
| Undrawn commitment > 1yr (corporate, BBB) | 200 | 40% | 80 | 75% | 60 |
| Guarantee (on BB- rated entity) | 50 | 100% | 50 | 150% | 75 |
| Total | 1,900 | 1,780 | 775 |
Credit RWA = 775M At 8% total capital requirement: minimum capital = 775 x 8% = 62M
OUTPUT FORMAT — CREDIT RWA SUMMARY
CREDIT RWA SUMMARY
Entity: [Bank / Group name]
Reporting Date: [YYYY-MM-DD]
Approach: [SA / F-IRB / A-IRB]
Jurisdiction: [Overlay applied: UK PRA / EU CRR / US Fed / etc.]
EXPOSURE BREAKDOWN (M):
Sovereigns: EAD [X] RW [X%] RWA [X]
Banks: EAD [X] RW [X%] RWA [X]
Corporates: EAD [X] RW [X%] RWA [X]
Retail: EAD [X] RW [X%] RWA [X]
Residential Mortgage: EAD [X] RW [X%] RWA [X]
Commercial Real Estate: EAD [X] RW [X%] RWA [X]
Past Due: EAD [X] RW [X%] RWA [X]
Off-Balance-Sheet: Notional [X] CCF [X%] EAD [X] RWA [X]
TOTAL CREDIT RWA: [Amount]
of which Output Floor (if IRB): [Amount if binding]
CRM APPLIED:
Eligible collateral: [Amount]
Guarantees (substitution): [Amount]
RWA reduction from CRM: [Amount]
NEVER DO THESE
- NEVER apply the 0% domestic currency sovereign risk weight to foreign currency sovereign exposures — the 0% treatment is only for domestic currency claims funded in the same currency
- NEVER use Basel IV LTV-based residential mortgage risk weights without confirming that the jurisdiction has implemented them — many jurisdictions still use the flat 35% pre-Basel IV weight
- NEVER omit the CCF step for off-balance-sheet exposures — EAD must be calculated as Notional x CCF before applying the risk weight
- NEVER apply the SME supporting factor without verifying the exposure qualifies under the jurisdiction's SME definition (turnover threshold, exposure cap)
- NEVER ignore the Basel IV output floor for IRB banks — IRB credit RWA must be >= 72.5% of SA RWA for the same portfolio
ALL OUTPUTS REQUIRE REVIEW BY A QUALIFIED PROFESSIONAL BEFORE USE IN REGULATORY FILINGS OR BUSINESS DECISIONS.