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Basel Committee amends capital requirements for non-performing loan securitisations

Securitisations of non-performing loans to be subject to specific rules for calculation of capital requirements, to be implement by no later than 2023

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  • Proposal addresses a gap in the regulatory framework and was being developed before Covid-19
  • Non-performing loan securitisation exposures will be subject to 100% risk weight or higher, except for positions risk-weighted using external ratings-based approach

The Basel Committee on Banking Supervision published today the technical amendment Capital treatment of securitisations of non-performing loans. The rule, which the Committee started developing before the onset of the Covid-19 pandemic, closes a gap in the Basel framework by setting out prudent and risk sensitive capital requirements for non-performing loan securitisations.

The Committee consulted publicly on the technical amendment in June 2020. In contrast to the consultative proposal, the final rule permits banks to apply the external ratings-based approach to non-performing loans securitisation exposures, without the 100% risk weight floor. In addition, the final rule include discounts on tranche sales in the definition of discount incurred by the originating bank that factors in the capital requirements.

Committee jurisdictions agreed to implement the technical amendment by no later than January 2023. The Committee would like to thank all those who contributed time and effort to express their views during the consultation process.

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