Date: November 2017 INTERNAL - EXTERNAL

Regulations: What is changing? How does this impact Global Trade?

2

What Is Happening With Credit Risk – Likely Final Rules

INTERNAL - External

Asset Class

Existing Approach

Proposed Approach

Likely Final Rules

Banks + FI

Internal Ratings Based

Approach (IRBA)

Standardised

IRBF

Corporate Assets > Eur 50 bln

IRBA, IRBF, Standardised

Standardised

Asset Threshold Increased to

Eur100bln IRBF

Corporate Assets ≤ Eur 50 bln

Revenues > Eur 200 mln

IRBA, IRBF, Standardised

IRBF

Revenue Threshold Increased

to Eur ? Remains on IRBF

Corporate Assets ≤ Eur 50 bln

Revenues < Eur 200 mln

IRBA, IRBF, Standardised

IRBA

Revenue Threshold Increased

to Eur ? Remains on IRBA

Commodity Lending

IRBA, IRBF, Slotting, Standardised

Slotting, Standardised IRBA, IRBF Pending Finalisation of

Granular Slotting Approach

* Source: Basel Committee Publications Based on IIF/AFME Proposals

3

What Is Happening With Credit Risk – Likely Final Rules

INTERNAL - External

Risk Parameter

Existing Treatment

Proposed Treatment

Likely Final Rules

Probability of default

(PD)

3bps

5bps

5bps

Loss-given-default (LGD) Unsecured

No Floor

25%

25%

Loss-given-default

(LGD) Secured

Collateral Financial : 0%

Receivables : 35% Commercial Real

Estate (CRE) : 35%

Collateral Financial : 0%

Receivables : 15% CRE : 15%

Other Physical: 20%

Collateral Financial : 0%

Receivables : 15% CRE : 15%

Other Physical: 20%

Loss-Given Default (LGD) • Floors applicable only to IRBA

• Increase in haircuts for non-financial collateral

• Decrease in LGDs for non-financial collateral

• Removal of required minimum collateral

4

What Is Happening With Credit Risk – Likely Final Rules

INTERNAL - External

Risk Parameter

Existing Treatment

Proposed Treatment

Likely Final Rules

Exposed-At-Default (EAD) :

Credit Conversion Factor (CCF)

IRBF : 20 / 50 / 100%

IRBA : Modelled values

IRBF : No Change

IRBA : Floored at 50% Using STD Approach CCF

Removal of 0% CCF

IRBF: ? IRBA: ?

Maturity (M)

IRBF : 2.5 years

(National Discretion to Waive)

IRBF : No Change

IRBF: No Change (National Discretion to wave)

Maturity (M)

IRBA : Based on Transaction tenor + cashflows. Subject to

a cap 5 years

IRBA : Based on facility review date

Residual Maturity?

5

What is Happening with the Standardised Approach

INTERNAL - External

External rating of counterparty AAA to AA- A+ to A- BBB+ to BBB- BB+ to B- Below B-

Base Risk Weight 20% 50% 50% 100% 150%

Risk Weight for short term exposure 20% 20% 20% 50% 150%

Bank Exposures External Credit Risk Assessment Approach (ECRA)

Standardised Credit Risk Assessment Approach (SCRA) Credit Risk Assessment of

counterparty Grade A Grade B Grade C

Base Risk Weight 50% 100% 150%

Risk Weight for short term exposure 20% 50% 150%

Base Risk Weight Multilateral Development Bank’s (MDB) External rating of

counterparty AAA to AA- A+ to A- BBB+ to BBB- BB+ to BB- Below BB- Unrated

Base Risk Weight 20% 50% 50% 100% 150% 50%

6

What is Happening with the Standardised Approach

INTERNAL - External

External rating of counterparty AAA to AA- A+ to A- BBB+ to BBB- BB+ to BB- Below BB- Unrated*

Base Risk Weight 20% 50% 100% 100% 150% 100%

Corporate Exposures External Credit Risk Assessment Approach (ECRA)

Specialised lending

Risk Weight

Commodities Finance 120%

Project Finance (Pre-operational phase) 150%

Project Finance (Operational phase) 100%

Land acquisition / Development 150%

Loan to Value Ratio (LTV)

Commercial Real Estate Finance

LTV ≤ 60% 60% < LTV ≤ 80% LTV > 80%

80% 100% 130%

• In jurisdictions where there are no external ratings, base risk weight is 100% • Small + Medium Enterprises (SME): 85% Risk Weight (Turnover less than 50mln)

7

Capital Floor

INTERNAL - External

• Ensure level of capital across the banking system does not fall below a certain level

• Mitigate model risk and measurement error stemming from internally modelled approaches

• Enhance comparability of capital outcomes across banks

Key questions to be addressed

• Is the floor applied to each major risk category - credit , market and operational risk • Alternatively is it a floor based on aggregate RWA’s

• Risk category based floors do not allow offsetting across risk types: Market, Credit, Operational

• What level will the capital floor be set at ?