In the Name of Allah, the Most Gracious, the Most Merciful

Saudi Central Bank

Main Center

Banking Policy Department

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Reference No.: 381000065740
Date: 1438/06/20
Specification:
Attachments:

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Circular

To:

Your Excellencies / Managing Directors and General Managers
Greetings,

Subject: Adjusting the Loss Given Default (LGD) Rate for the Corporate Sector from 60% to 50%.

I refer to the Institution's Circular No. 5318 dated January 18, 2012, which includes a guidance note regarding the Internal Ratings-Based (IRB) approach and the mechanism for calculating credit risk weights under this approach.

The Institution has monitored default rates among banks, reports from the Saudi Credit Bureau regarding corporate LGD, as well as various surveys conducted in accordance with IFRS 9 accounting standard and Basel applications. Accordingly, it has decided to adjust the rate and amend Paragraph No. 29 (Page 7) of the aforementioned Institution's Circular as follows:

"Use higher of LGD floor at 50% for unsecured senior corporate exposures or bank’s calculated real LGD with a maximum cap at 60% for non-defaulted cases. For defaulted cases, use the bank’s real LGD."

Banks are required to apply this when calculating Pillar 2 under the Internal Capital Adequacy Assessment Process (ICAAP) document, and when calculating Pillar 1 if banks plan to apply to the Institution for transition to the Foundation Internal Ratings-Based (F-IRB) approach for credit risk. Please note that this change takes effect as of April 1, 2017.

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Yours sincerely,

Ahmed bin Abdullah Al-Sheikh
Deputy Governor for Supervision

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Distribution Scope: Banks operating in the Kingdom
P.O. Box 2992, Riyadh 11179, Postal Address: Markaziyah, Telefax 404400, Phone 4132000, Fax 4767414