Hong Kong Regulations

BANKING (CAPITAL) RULES - SECT 69

Application of ECAI ratings

(1) An authorized institution shall, in complying with the requirements under
any subsection of section 55, 57, 59, 60, 61 or 62 in
relation to an exposure (referred to in subsection (2) as "concerned exposure
A") of the institution consisting of a debt obligation issued or undertaken by
any person or, for the purposes of section 62, consisting of an interest in a
collective investment scheme, where the debt obligation, or
collective investment scheme, as the case may be, has one or more than one
ECAI issue specific rating assigned to it, determine the rating to be used in
accordance with subsection (2).

(2) An authorized institution shall, in complying with the requirements under
subsection (1) in relation to concerned exposure A—

   (a)  if the exposure has only one ECAI issue specific rating, use that
        rating;

   (b)  if the exposure has 2 or more ECAI issue specific ratings the use of
        which by the institution would result in the allocation by the
        institution of different risk-weights to the exposure, use any one of
        those ratings except the one or more of those ratings which would
        result in the allocation by the institution of the lowest of those
        different risk-weights.

(3) Subject to subsections (5) and (8), where—

   (a)  an exposure (however described) of an authorized institution which
        falls within any subsection of section 55, 57, 59, 60 or 61 does not
        have an ECAI issue specific rating;

   (b)  the person to whom the institution has the exposure has a
        long-term ECAI issue specific rating assigned to a debt obligation
        issued or undertaken by the person; and

   (c)  the person to whom the institution has the exposure does not have an
        ECAI issuer rating, the institution shall, in complying with the
        requirements under that subsection of section 55, 57, 59, 60 or 61, as
        the case may be, in relation to the exposure, use the
        long-term ECAI issue specific rating referred to in paragraph (b) in
        relation to the exposure subject to the condition that, if the use of
        that long-term ECAI issue specific rating by the institution would
        result in the allocation by the institution of a risk-weight to the
        exposure which would be lower than the risk-weight allocated by the
        institution to the exposure on the basis that the person has neither
        an ECAI issuer rating nor an ECAI issue specific rating assigned to a
        debt obligation issued or undertaken by the person, the exposure must
        rank equally with, or senior in respect of payment or repayment to,
        the debt obligation referred to in paragraph (b).

(4) Subject to subsections (5) and (8), where—

   (a)  an exposure (however described) of an authorized institution which
        falls within any subsection of section 55, 57, 59, 60 or 61 does not
        have an ECAI issue specific rating;

   (b)  the person to whom the institution has the exposure has an ECAI 
        issuer rating; and

   (c)  the person to whom the institution has the exposure does not have a
        long-term ECAI issue specific rating assigned to a debt obligation
        issued or undertaken by the person, the institution shall, in
        complying with the requirements under that subsection of section 55,
        57, 59, 60 or 61, as the case may be, in relation to the exposure, use
        the ECAI issuer rating referred to in paragraph (b) in relation to the
        exposure subject to the condition that, if the use of that
        ECAI issuer rating by the institution would result in the allocation
        by the institution of a risk-weight to the exposure which would be
        lower than the risk-weight allocated by the institution to the
        exposure on the basis that the person has neither an
        ECAI issuer rating nor an ECAI issue specific rating assigned to a
        debt obligation issued or undertaken by the person—

   (d)  that ECAI issuer rating must only be applicable to unsecured exposures
        to the person as an issuer which are not subordinated to other
        exposures to that person; and

   (e)  the exposure to the person must not be subordinated to other exposures
        to the person as an issuer.

(5) An authorized institution shall, in determining pursuant to subsection (3)
or (4) the risk-weight for an exposure which falls within paragraph (a) of
that subsection (referred to in this subsection as

"concerned exposure B") based on one or more ECAI issue specific ratings of
another debt obligation issued or undertaken by the person to whom the
institution has concerned exposure B (referred to in this subsection as

"reference exposure"), or based on one or more ECAI issuer ratings of that
person (referred to in this subsection as "issuer")—

   (a)  if the reference exposure has only one ECAI issue specific  rating, or
        the issuer has only one ECAI issuer rating, as the case may be, use
        that rating;

   (b)  if the reference exposure has 2 or more ECAI issue specific  ratings,
        or the issuer has 2 or more ECAI issuer ratings, as the case may be,
        the use of which by the institution would result in the allocation by
        the institution of different risk-weights to concerned exposure B, use
        any one of those ratings except the one or more of those ratings which
        would result in the allocation by the institution of the lowest of
        those different risk-weights.

(6) Subject to subsections (7) and (8), where—

   (a)  an exposure (however described) of an authorized institution which
        falls within any subsection of section 55, 57, 59, 60 or 61 does not
        have an ECAI issue specific rating;

   (b)  the person to whom the institution has the exposure has—

        (i)    an ECAI issuer rating; and

        (ii)   a long-term ECAI issue specific rating assigned to a debt
               obligation issued or undertaken by the person; and

   (c)  the use, in accordance with subsection (3) or (4), of the ECAI 
        issuer rating and the ECAI issue specific rating referred to in
        paragraph

   (b)  by the institution would result in the allocation by the institution
        of 2 different risk-weights to the exposure, the institution may, in
        complying with the requirements under that subsection of section 55,
        57, 59, 60 or 61, as the case may be, in relation to the exposure,
        allocate the lower of the 2 risk-weights to the exposure.

(7) An authorized institution—

   (a)  shall, in determining pursuant to subsection (6) the risk-weight for
        an exposure which falls within paragraph (a) of that
subsection (referred to in this subsection as "concerned exposure C") based on
one or more ECAI issue specific ratings of another debt obligation issued or
undertaken by the person against whom the institution
has concerned exposure C (referred to in this subsection as "reference
exposure"), and one or more ECAI issuer ratings of that person—

        (i)    apply subsection (5) to the ECAI issue specific rating or ECAI 
               issue specific ratings, as the case may be, to determine the
               issue specific rating to be used; and

        (ii)   apply subsection (5) to the ECAI issuer rating or ECAI issuer 
               ratings, as the case may be, to determine the issuer rating to
               be used; and

   (b)  may, if the risk-weight allocated by the institution to the issue
        specific rating determined pursuant to paragraph (a)(i) is different
        from the risk-weight allocated by the institution to the issuer rating
        determined pursuant to paragraph (a)(ii), allocate the lower of the 2
        risk-weights to concerned exposure C.

(8) The operation of subsections (1) and (2) is subject to the operation of
section 59(11), and the operation of subsections (3), (4),

(5), (6) and (7) is subject to the operation of sections 59(10) and (11),
60(8) and (9) and 61(8) and (9).

(9) Where an authorized institution allocates a risk-weight to an exposure of
the institution pursuant to subsection (3), (4), (5), (6) or

(7)—

   (a)  subject to paragraph (b), the institution shall—

        (i)    use ECAI ratings applicable to foreign currency, if available,
               to the extent that the exposure is denominated in foreign
               currency; and

        (ii)   use ECAI ratings applicable to local currency, if available, to
               the extent that the exposure is denominated in local currency;

   (b)  the institution may use the obligor's ECAI rating applicable to the
        obligor's local currency, if available, for the purposes of—

        (i)    risk-weighting an exposure arising pursuant to the
               institution's participation in an exposure created by a
               multilateral development bank which is denominated in another
               currency; or

        (ii)   risk-weighting an exposure denominated in another currency to
               the extent that the exposure is guaranteed by a multilateral
               development bank against the risk of the obligor not being able
               to repay the exposure to the institution due to
               exchange controls of the country in which the obligor is
               located.