On 26 November 2020, the Basel Committee on Banking Supervision published a technical amendment ‘Capital treatment of securitisations of non-performing loans’. The technical amendment closes a gap in the Basel framework by setting out prudent and risk sensitive capital requirements for non-performing loan securitisations.
The Basel Committee has agreed to add the following elements to the securitisation standard in the Basel Framework, to be implemented by no later than 1 January 2023:
- An explicit definition of securitisations of non-performing loans.
- Removal of the option to use foundation internal risk-based parameters as inputs for the internal ratings-based approach (SEC-IRBA) for all securitisations of non-performing loans.
- Introduction of a 100% risk weight floor for exposures to securitisations of non-performing loans that are risk weighted under the SEC-IRBA or the standardised approach (SEC-SA).
- For the senior tranches of securitisations of non-performing loans where the non-refundable purchase price discount is equal to, or greater than, 50% of the securitised portfolio, the risk weight under SEC-IRBA or SEC-SA is 100%.
All other provisions of the current securitisation standard, including the use of external ratings based approach (SEC-ERBA) and the possibility of capping the capital requirement for exposures from the same transaction, will also apply to securitisations of non-performing loans. The technical amendment does not change any rule related to securitisations of performing loans.