Hong Kong Regulations

BANKING (CAPITAL) RULES - SECT 81

Calculation of risk-weighted amount of exposures taking into account credit risk mitigation effect of recognized collateral under simple approach

Division 6—Use of recognized collateral in credit risk mitigation:
simple approach

(1) Where an authorized institution uses the simple approach in its treatment
of recognized collateral, the institution shall, in respect of an exposure of
the institution to which the collateral relates—

   (a)  subject to subsections (2), (3) and (4), allocate to the credit 
        protection covered portion of the exposure the risk-weight of the
        collateral; and

   (b)  allocate to the credit protection uncovered portion of the exposure
        the risk-weight of the exposure.

(2) Where recognized collateral consists of collateral—

   (a)  which falls within section 79(a), (b) or (c);

   (b)  which is held at a third-party bank in a non-custodial arrangement;
        and

   (c)  which is unconditionally and irrevocably pledged or assigned to an
        authorized institution, the institution shall allocate to the
        credit protection covered portion of the exposure the
        attributed risk-weight of the third-party bank.

(3) Where—

   (a)  an exposure is a past due exposure; and

   (b)  the recognized collateral provided in respect of the exposure is real
        property, an authorized institution shall allocate a risk-weight of
        100% to the credit protection covered portion.

(4) Where recognized collateral is real property, an authorized institution
shall, for the purposes of making a substitution pursuant to subsection
(1)(a), reduce the current market value of the real property by—

   (a)  10% in the case of residential property;

   (b)  20% in the case of any other real property.