Document ID: chunk:federal_register_of_legislation:F2024L01074:body:0:p17
Version: federal_register_of_legislation:F2024L01074
Segment Type: other
Provision Reference: 
Character Range: 44950–48770

an exposure is guaranteed by a sovereign, and the guarantee meets the requirements set out in Attachment E to this Prudential Standard, the floors that apply to the risk components do not apply to the portion of the exposure that is covered by the sovereign guarantee.

Probability of default estimates
 1.              Subject to the exceptions set out in paragraphs 4 and 5 of this Attachment, PD is the greater of the PD estimate associated with the internal borrower grade or pool to which an exposure is assigned and 0.05 per cent.
 2.              For QRR exposures, PD is the greater of:
        1.           the PD estimate associated with the internal borrower grade or pool to which an exposure is assigned; and
        2.           0.1 per cent for QRR revolvers or 0.05 per cent for QRR transactors.
 3.              For sovereign exposures, PD is the PD estimate associated with the internal borrower grade to which an exposure is assigned.
 4.              An ADI must assign a 100 per cent PD to defaulted exposures.

Loss given default estimates
 1.              LGD estimates must be measured as a percentage of EAD.

Senior unsecured exposures and senior exposures secured by ineligible collateral under the FIRB approach
 1.              Subject to the exceptions set out in paragraphs 9 to 11 of this Attachment, an ADI that uses the FIRB approach must assign a 50 per cent LGD to all senior exposures that are not secured by eligible collateral. For this purpose, eligible collateral is collateral that meets the minimum requirements detailed in Attachment E to this Prudential Standard.
 2.              Where an ADI uses the FIRB approach, it may assign lower LGD estimates to eligible senior exposures to sovereign counterparties, which are not secured by eligible collateral, using the ratings of external credit assessment institutions (ECAIs). Where the ECAI is S&P Global Ratings, Moody's or Fitch Ratings, ratings and the relevant LGD must be mapped in accordance with Table 3. Where a sovereign exposure has multiple ECAI ratings that correspond to multiple credit rating grades, the ADI must apply the requirements detailed in paragraph 6 of Attachment F to APS 112. The ADI must apply the due diligence requirements in Attachment F of APS 112 when using the ratings of ECAIs.

 1.               LGD estimates for eligible sovereign exposures
                                                                                                                 S&P Global Ratings  Moody's  Fitch Ratings  LGD
                                                                                                                                                             (%)
Exposure to the Bank for International Settlements, the International Monetary Fund and the World Bank Group[7]  5
                                                                                                                 AAA                 Aaa      AAA
Credit rating grade of sovereign exposure                                                                        AA+                 Aa1      AA+
                                                                                                                 AA                  Aa2      AA
                                                                                                                 AA-                 Aa3      AA-
A+                                                                                                               A1                  A+       25
A                                                                                                                A2                  A
Unrated exposure to an Australian local council

 1.          An ADI that uses the FIRB approach may assign a 25 per cent LGD to senior exposures