MORNBFI Vol. 1 - Planters Development Bank

APP. Q-4611.12.31charges, as will the posting of securities inconnection with a derivative exposure orother borrowing.Banking book32. Where banks take eligible collateral,as listed in paragraph 34, and satisfies therequirements under paragraphs 27 to 31,they are allowed to apply the risk weight ofthe collateral to the collateralized portionof the credit exposure (equivalent to the fairmarket value of recognized collateral),subject to a floor of twenty percent (20%).The twenty percent (20%) floor shall notapply and a zero percent (0%) risk weightcan be applied when the exposure and thecollateral are denominated in the samecurrency, and either:a) The collateral is cash as defined inparagraph 34.a; orb) The collateral is a sovereign debtsecurity eligible for zero percent (0%) riskweight, or a Php-denominated debtobligation issued by the Philippine NG orthe BSP, which fair market value has beendiscounted by twenty percent (20%).33. For collateral to be recognized,however, the collateral must be pledged forat least the life of the exposure and it mustbe marked to market and revalued with aminimum frequency of every six (6) months.34. The following are the eligiblecollateral instruments:a) Cash (as well as certificates ofdeposit or comparable instruments issuedby the lending bank) on deposit with thebank which is incurring the counterpartyexposure;b) Gold;c) Debt obligations issued by thePhilippine NG or the BSP;d) Debt securities issued by centralgovernments and central banks (and PSEstreated as sovereigns) of foreign countriesas well as MDBs with at least investmentgrade external credit ratings;e) Other debt securities with externalcredit ratings of at least BBB- or itsequivalent;f) Unrated senior debt securitiesissued by banks with an issuer rating of atleast BBB- or its equivalent, or with otherdebt issues of the same seniority with a ratingof at least BBB- or its equivalent;g) Equities included in the main indexof an organized exchange; andh) Investments in Unit InvestmentTrust Funds (UITF) and the Asian BondFund 2 (ABF2) duly approved by the BSP.Trading book35. A credit risk capital requirementshould also be applied to banks’counterparty exposures in the trading book(e.g., repo-style transactions, OTCderivatives contracts). Where banks takeeligible collateral for these trading booktransactions, as listed in paragraph 34, andsatisfies the requirements under paragraphs27 to 31, they are to compute for the creditrisk capital requirement according to thefollowing paragraphs: Provided, That, forrepo-style transactions in the trading book,all instruments which are included in thetrading book may be used as eligiblecollateral.36. For collateralized transactions in thetrading book, the exposure amount after riskmitigation is calculated as follows:E* = max {0, [E x (1 + H e ) – C x (1 – H c –H fx )]}Where:E* = the exposure value after riskmitigationE = the current value of the exposureH e = haircut appropriate to the exposureC = the current value of the collateralreceivedH c =H fx =haircut appropriate to the collateralhaircut appropriate for currencymismatch between the collateralQ RegulationsAppendix Q-46 - Page 16Manual of Regulations for Non-Bank Financial Institutions