Hong Kong Regulations

BANKING (DISCLOSURE) RULES - SECT 77

Credit risk: specific disclosures

(1) Where an authorized institution does not exclusively use the IRB approach
to calculate its credit risk for non-securitization exposures

(and has any of its non-securitization exposures the subject of an exemption
under section 12(2)(a) of the Capital Rules), the institution shall disclose a
description of the nature of the exposures within each IRB class which are
subject to the separately disclosed IRB calculation approach, as specified in
section 147 of the Capital Rules, used by the institution.

(2) An authorized institution shall disclose an explanation and review of—

   (a)  the structure of its rating systems and the relationship between
        internal ratings and external ratings;

   (b)  the use of internal estimates by the institution other than for the
        calculation of the institution's regulatory capital under the use of
        the IRB approach;

   (c)  the process it uses for managing and recognizing credit risk
        mitigation; and

   (d)  the control mechanisms it uses for its rating systems

(including a description of the independence and accountability of the rating
process, and the ratings system reviews).

(3) Subject to subsections (4) and (5), an authorized institution shall
disclose a description of its internal ratings process separately for each IRB
class or IRB subclass comprising—

   (a)  corporate (including small-and-medium sized corporates, specialized
        lending, and purchased corporate receivables), sovereign and bank
        exposures;

   (b)  equity exposures if the institution uses the PD/LGD approach for
        equity exposures booked in its banking book;

   (c)  residential mortgages to individuals and property-holding shell
        companies (including purchased retail receivables if applicable);

   (d)  qualifying revolving retail exposures (including purchased retail
        receivables if applicable); and

   (e)  other retail exposures to individuals and small business retail
        exposures (including purchased retail receivables if applicable).

(4) An authorized institution shall ensure that the description required to be
disclosed by it pursuant to subsection (3) of an IRB class or IRB subclass
referred to in that subsection includes—

   (a)  the type of exposure which falls within the IRB class or IRB subclass,
        as the case may be;

   (b)  for exposures which fall within subsection (3)(a) or (b)—

        (i)    a description of the definitions of the variables, methods and
               data for estimation and validation of the PD, LGD and EAD; and

        (ii)   a description of the assumptions employed in the derivation of
               the variables referred to in subparagraph (i) except for— (A)
               the LGD and EAD related disclosures which do not apply in the
               case of an authorized institution which uses the foundation IRB
               approach; and (B) the LGD and EAD related disclosures which do
               not apply to equity exposures; and

   (c)  for exposures which fall within subsection (3)(c), (d) or (e)—

        (i)    a description of the definitions of the variables, methods and
               data for the estimation and validation of the PD, LGD and EAD;
               and

        (ii)   a description of the assumptions employed in the derivation of
               the variables referred to in subparagraph (i).

(5) For the purposes of subsections (3) and (4), an authorized institution
shall distinguish between qualifying revolving retail exposures and other
retail exposures to individuals and small business retail exposures unless—

   (a)  those IRB subclasses are insignificant in size relative to the overall
        credit exposures of the institution; and

   (b)  the risk profiles of those IRB subclasses are so similar that to make
        that distinction would not assist in understanding the risk profile of
        the institution's retail businesses.

(6) An authorized institution shall disclose a description of—

   (a)  the approaches it uses for determining specific provisions and
        collective provisions; and

   (b)  the statistical methods it uses for the purposes of those approaches.