Document ID: chunk:federal_register_of_legislation:F2024L01074:body:0:p53
Version: federal_register_of_legislation:F2024L01074
Segment Type: other
Provision Reference: 
Character Range: 144620–150101

determined.
 3.          The risk-bucketing process applied by an ADI must reflect the seller's underwriting practices and heterogeneity of its customers. Methods and data for estimating PD, LGD and expected long-run average loss rates must comply with the risk quantification standards for retail exposures detailed in Attachment D to this Prudential Standard.
 4.          To qualify for the top-down approach for default risk, the pools of receivables and overall lending relationship must be closely monitored and controlled by an ADI.

Attachment G - Supervisory slotting criteria

 1.              Slotting criteria for project finance exposures
                                                                                                                                                          Strong                                                                                                                                                                                     Good                                                                                                                                                                    Satisfactory                                                                                                                                                   Weak
Financial Strength
Market Conditions                                                                                                                                         There are few competing suppliers or there is a substantial and durable advantage in location, cost or technology. Demand is strong and growing.                                           There are few competing suppliers or there is a better than average location, cost or technology but this situation may not last. Demand is strong and stable.          The project has no advantage in location, cost or technology. Demand is adequate and stable.                                                                   The project has worse than average location, cost or technology. Demand is weak and declining.
Financial ratios (e.g. debt service coverage ratio (DSCR), loan life coverage ratio (LLCR), project life coverage ratio (PLCR) and debt-to-equity ratio)  The project has strong financial ratios considering the level of project risk and very robust economic assumptions.                                                                        The project has strong to acceptable financial ratios considering the level of project risk and robust project economic assumptions.                                    The project has standard financial ratios considering the level of project risk.                                                                               The project has aggressive financial ratios considering the level of project risk.
Stress analysis                                                                                                                                           The project can meet its financial obligations under sustained severely stressed economic or sectoral conditions.                                                                          The project can meet its financial obligations under stressed economic or sectoral conditions. The project is only likely to default under severe economic conditions.  The project is vulnerable to stresses that are not uncommon through an economic cycle and may default in a normal downturn.                                    The project is likely to default unless conditions improve soon.
Financial structure
Duration of the exposure compared to the duration of the project                                                                                          The useful life of the project significantly exceeds the tenor of the loan.                                                                                                                The useful life of the project exceeds the tenor of the loan.                                                                                                           The useful life of the project exceeds the tenor of the loan.                                                                                                  The useful life of the project may not exceed the tenor of the loan.
Amortisation schedule                                                                                                                                     Amortising debt.                                                                                                                                                                           Amortising debt.                                                                                                                                                        Amortising debt repayments with limited balloon payment.                                                                                                       Bullet payment or amortising debt with high balloon repayment.
Political and legal environment
Political risk, including transfer risk, considering project type and mitigants                                                                           The project has very low exposure; there are strong mitigation instruments, if needed.                                                                                                     The project has low exposure;