MORNBFI Vol. 1 - Planters Development Bank

APP. Q-4611.12.31Credit ratings of debt Credit ratings of debt Credit ratings of debt Unadjustedsecurities/derivatives securities/derivatives securities/derivatives specificissued by sovereigns 1 issued by MDBs issued by other entities risk weightPhp-denominated debt securities/derivatives issued by the Philippine NG and BSP 0.00%LGU Bonds covered by Deed of Assignment of Internal Revenue Allotment and guaranteedby LGU Guarantee Corporation 4.00%AAA to AA- AAA 0.00%A+ to BBB- AA+ to BBB- AAA to BBB-Residual maturity < Residual maturity < Residual maturity < 0.25%6 months 6 months 6 monthsResidual maturity > Residual maturity > Residual maturity >6 months, < 24 months 6 months, < 24 months 6 months, < 24 months 1.00%Residual maturity > Residual maturity > Residual maturity >24 months 24 months 24 months 1.60%All other debt securities/derivatives 8.00%10. Foreign currency denominated debtsecurities/derivatives issued by thePhilippine NG and BSP 2 shall berisk-weighted according to the table above:Provided, That only one-third (1/3) of theapplicable risk weight shall be applied from01 July 2007, two-thirds (2/3) from 01January 2008, and the full risk weight from01 January 2009.11. A security, which is the subject of arepo-style transaction, shall be treated as ifit were still owned by the seller/lender ofthe security, i.e., to be reported by the seller/lender.12. In addition to capital charge forspecific and general market risk, a credit riskcapital charge should be applied to banks’counterparty exposures in repo-styletransactions and OTC derivatives contracts.The computation of the credit risk capitalcharge for counterparty exposures arisingfrom trading book positions are discussedin paragraphs 35 to 41 of Part III.B.(As amended by Circular No. 605 dated 05 March 2008)C. Measurement of risk-weighted assets13. Market risk-weighted assets aredetermined by multiplying the market riskcapital charge by ten (10) [i.e., the reciprocalof the minimum capital ratio of ten percent(10%)].Part VII. Operational risk-weightedassetsA. Definition of operational risk1. Operational risk is defined as therisk of loss resulting from inadequate orfailed internal processes, people andsystems or from external events. Thisdefinition includes legal risk, but excludesstrategic and reputational risk.2. Banks should be guided by theBasel Committee on Banking Supervision’srecommendations on Sound Practices for theManagement and Supervision ofOperational Risk (February 2003). The samemay be downloaded from the BIS website(www.bis.org).B. Measurement of capital charge3. In computing for the operationalrisk capital charge, Banks may use eitherthe basic indicator approach or thestandardized approach.4. Under the basic indicator approach,banks must hold capital for operational riskequal to fifteen percent (15%) of the average1The notations follow the rating symbols used by Standard & Poor’s. The mapping of ratings of all recognized external ratingagencies is in Part III.C. For purposes of this framework, debt securities/derivatives issued by sovereigns include foreigncurrency denominated debt securities/derivatives issued by the Philippine NG.2Warrants paired with ROP Global Bonds shall be exempted from capital charge for market risk only to the extent of bank'sholdings of bonds paired with warrants equivalent to not more than fifty (50%) of total qualifying capital, as defined underPart II of this Appendix.Q RegulationsAppendix Q-46 - Page 36Manual of Regulations for Non-Bank Financial Institutions