MORNBFI Vol. 1 - Planters Development Bank

APP. Q-4611.12.31Guaranty Corporation (HGC), and Trade andInvestment Development Corporation of thePhilippines (TIDCORP), which guaranteesare counter-guaranteed by the PhilippineNG receive zero percent (0%) risk weight.Maturity mismatch50. For collateralized transactions in thetrading book and guaranteed transactions,the credit risk mitigating effects of suchtransactions will still be recognized even ifa maturity mismatch occurs between thehedge and the underlying exposure, subjectto appropriate adjustments.51. For purposes of calculatingrisk-weighted assets, a maturity mismatchoccurs when the residual maturity of ahedge is less than that of the underlyingexposure.52. The maturity of the hedge and thematurity of the underlying exposure shouldboth be defined conservatively. For thehedge, embedded options which mayreduce the term of the hedge should betaken into account so that the shortestpossible effective maturity is used. Wherea call is at the discretion of the guarantor/protection seller, the maturity will alwaysbe at the first call date. If the call is at thediscretion of the protection buying bankbut the terms of the arrangement atorigination of the hedge contain a positiveincentive for the bank to call the transactionbefore contractual maturity, the remainingtime to the first call date will be deemed tobe the effective maturity. For example,where there is a step-up in cost inconjunction with a call feature or wherethe effective cost of cover increases overtime even if credit quality remains the sameor increases, the effective maturity will bethe remaining time to the first call. Theeffective maturity of the underlying, on theother hand, should be gauged as the longestremaining time before the counterparty isscheduled to fulfill its obligation, taking intoaccount any applicable grace period.53. Hedges with maturity mismatchesare only recognized when their originalmaturities are greater than or equal to oneyear. As a result, the maturity of hedges forexposures with original maturities of lessthan one (1) year must be matched to berecognized. In all cases, hedges will nolonger be recognized when they have aresidual maturity of three months or less.54. When there is a maturity mismatchwith recognized credit risk mitigants, thefollowing adjustment will be applied.Pa = P x (t – 0.25)/(T – 0.25)Where:Pa = value of the credit protectionP =adjusted for maturity mismatchcredit protection (e.g., collateralamount, guarantee amount)adjusted for any haircutst = min (T, residual maturity of thecredit protection arrangement)expressed in yearsT =min (5, residual maturity of theexposure) expressed in yearsC. Use of third party credit assessments55. The following third party creditassessment agencies are recognized by theBSP for regulatory capital purposes:International credit assessment agencies:a) Standard & Poor’s;b) Moody’s;c) Fitch Ratings; andd) Such other rating agencies as maybe approved by the Monetary Board.Domestic credit assessment agencies:a) PhilRatings; andb) Such other rating agencies as maybe approved by the Monetary Board.56. The tables below set out the mappingof ratings given by the recognized creditassessment agencies for purposes ofdetermining the appropriate risk weights:Manual of Regulations for Non-Bank Financial InstitutionsQ RegulationsAppendix Q-46 - Page 19