Technical Amendment From The BCBS On Capital Treatment Of Non Performing Loans And External Ratings

LONDON, UNITED KINGDOM, December 17, 2020 / — An update to the technical amendment published by the Basel Committee on Banking Supervision (BCBS) in June 2020 was released on 26 November, setting out capital requirements for non performing loan securitisations and specifically addressing external ratings.

In the accompanying PR, BCBS states,
“The Committee consulted publicly on the technical amendment in June 2020. In contrast to the consultative proposal, the final rule allow banks to apply the external ratings-based approach to non-performing loans securitisation exposures, without the 100% risk weight floor. In addition, the final rule refines the definition of discount incurred by the originating bank that factors in the capital requirements.”

Philip Walsh, ARC Ratings’ CRO responded “We welcome this clarification which removes the confusion inherent in the June 2020 release which indirectly implied that rated NPL securitisations, in being subject to a 100 per cent risk floor, were treated differently to securitisations of performing assets, specifically lower risk weights for more highly rated tranches.”

The final Technical Standards are now expected to be published by no later than 1 January, 2023.

ARC Ratings’ European Non-Performing Loans (NPLs) Rating Criteria.

Referenced Links (external)
BCBS Technical Amendment
BIS PR to accompany BCBS Technical Amendment

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Key Contact:
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Note that ARC Ratings is not a legal, tax or financial adviser, and only provides a credit opinion of the rated securities. For example, a rating does not cover a potential change in laws nor can it be regarded as an audit. Moreover, ARC Ratings is not a party to the transaction documents. Users of our credit ratings should familiarise themselves with the transaction documents / mechanics and should form their own views in this respect. They should not rely on ARC Ratings for legal, tax or financial advice, and are encouraged to contact the relevant advisers.

ARC Ratings, S.A. is registered as a Credit Rating Agency (CRA) by the European Securities and Markets Authority (ESMA), within the scope of the REGULATION (EC) Nº 1060/2009 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL, of 16 September, and recognised as External Credit Assessment Institution (ECAI).

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