Document ID: chunk:federal_register_of_legislation:F2024L01074:body:0:p51
Version: federal_register_of_legislation:F2024L01074
Segment Type: other
Provision Reference: 
Character Range: 139139–142109

does not automatically disqualify an ADI from adopting a top-down approach provided the cash flows from the purchased corporate receivables are the primary source of ultimate repayment.
 4.              Under the top-down approach, an ADI must segment pools of purchased corporate receivables into homogenous buckets. The risk weight for default risk must be determined using the risk-weight function for corporate exposures as detailed in Attachment A to this Prudential Standard.[16]
 5.          An ADI must estimate PD and LGD for each of the homogenous segmented pools of purchased corporate receivables in accordance with its IRB approval for corporate exposures. The ADI must also calculate:
        1.           EAD as the amount outstanding for each segmented pool less the capital requirement for dilution risk for each segmented pool prior to CRM or, for a revolving purchase facility, the sum of the current amount of receivables purchased plus 40 per cent of any undrawn purchase commitments less the capital requirement for dilution risk prior to CRM; and
        2.           M for drawn amounts as equal to the segmented pools' exposure-weighted average maturity. This same value of M must also be used for any undrawn amounts to which the ADI is committed under a purchased receivables facility, provided that the facility contains covenants, early amortisation triggers or other features that protect the purchasing ADI against a significant deterioration in the quality of the future receivables it is required to purchase over the facility's term. In the absence of such protection, the M for undrawn amounts must be calculated as the sum of:
                1.             the longest-dated potential receivable under the purchase agreement; and
                2.          the remaining maturity of the purchase facility.

Risk-weighted assets for dilution risk
 1.          Unless a purchasing ADI can demonstrate to APRA that dilution risk is immaterial, it must hold capital for dilution risk for purchased corporate and retail receivables.
 2.          An ADI must calculate the capital requirement for dilution risk for purchased receivables, at either the level of the segmented pool or the individual receivables making up a pool, using the corporate risk-weight function. PD must be set equal to the estimate of the expected long-run average annual loss rate (expressed as a percentage of the exposure amount, i.e. the total EAD owed to the ADI by all obligors in the relevant pool of receivables) and LGD must be set to 100 per cent.
 3.          An ADI may utilise internal or external reference data to estimate an expected long-run average annual loss rate for dilution risk. These estimates must be calculated on a stand-alone basis without regard to any assumption of recourse or guarantees from the seller or other parties.
 4.          An appropriate maturity must be used when determining the capital requirement for dilution risk.