2021-10-11

Prudential Authority Directive 6/2021 on Credit Risk Models for Project Finance Capital

The South African Prudential Authority issued Directive 6/2021 to standardize capital calculations for Internal Ratings-Based banks by mandating specific Probability of Default and Loss Given Default floors for project finance exposures. The directive establishes a 0.246 percent PD floor and variable LGD floors ranging from 15 to 20 percent depending on collateral type, while requiring bi-annual submission of deal-level portfolio data to ensure model consistency. These mandatory floors directly address historical model variability and subjective expert judgments, thereby reducing inconsistencies in risk-weighted asset measurements across the banking sector.

South Africa

South African Reserve Bank

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