BANKS: PRUDENTIAL AUTHORITY ISSUES CREDIT RISK EXPOSURE GUIDELINES (INTERNAL RATINGS-BASED APPROACH)

BANKS: PRUDENTIAL AUTHORITY ISSUES CREDIT RISK EXPOSURE GUIDELINES (INTERNAL RATINGS-BASED APPROACH)

• 02 July 2025
• Financial Sector
• SA Legal Academy

The Prudential Authority has published guidelines on the internal ratings-based (IRB) approach used by some banks and holding companies to calculate the minimum capital and reserve funds required to cover their credit risk exposure.

According to an executive summary of the new guidelines, they also cover:

• several matters associated with changes introduced to the IRB approach as part of Basel III post-2007/09 crisis reforms
• the practical implications of certain regulations relating to the respective requirements of credit risk mitigation under the 1990 Banks Act, namely:
  • Regulation 23(12) [dealing with the foundation internal rating-based (FIRB) approach], and
  • Regulation 23(14) [dealing with the advanced internal rating-based (AIRB) approach], along with
• circumstances in which there is an overlap between the FIRB and AIRB approaches regarding the recognition of credit risk mitigation effects within and across the system.

The guidelines should be read in conjunction with those issued on 29 July 2022, dealing with matters related to a bank’s credit risk model.

• new guidelines
• July 2022 guidelines

Published by SA Legal Academy Policy Watch

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