Document ID: chunk:federal_register_of_legislation:F2024L01074:body:0:p21
Version: federal_register_of_legislation:F2024L01074
Segment Type: other
Provision Reference: 
Character Range: 57199–60209

specified in Table 6 must be applied where an exposure is fully secured (i.e. the value of collateral after applying the haircuts specified in Table 5 exceeds the value of the exposure).
 2.          The LGD floor for a partially secured exposure must be calculated as the exposure-weighted average of the LGD floor for the unsecured portion and the LGD floor for the secured portion. The following formula must be used for this purpose:
    where:
        * LGDU floor and LGDS floor are the floor values for unsecured and fully secured exposures as specified in Table 6.
        * The other terms are as defined in paragraphs 14 and 16 of this Attachment.

Retail exposures
 1.          For retail exposures, the LGD for each exposure that is used as an input to the risk-weight function and the calculation of EL must not be less than the floors detailed in Table 7. However, the floor does not apply to the best estimate of EL for defaulted exposures.

            1.              LGD floors for retail exposures
Exposure type                              LGD
                                           (%)
Retail residential mortgage                10
Other secured
    Financial collateral                   0
    Receivables                            10
    Commercial or residential real estate  10
    Other physical collateral              15
    All other collateral                   30
Unsecured
    QRR                                    50
    All other unsecured                    30

 1.          The LGD floors for secured exposures specified in Table 7 must be applied where an exposure is fully secured (i.e. the value of collateral after applying the haircuts specified in Table 5 exceeds the value of the exposure).
 2.          The LGD floor for a partially secured retail exposure must be calculated according to the formula set out in paragraph 21 of this Attachment, aside from the LGD floor for a retail residential mortgage exposure, which is fixed irrespective of the level of collateral provided.
 3.          An ADI that has approval to use its own estimates of LGD for retail residential mortgage exposures must not take into account recoveries from LMI when deriving those LGD estimates. The ADI may instead recognise the risk-mitigating effect of LMI by applying a 20 per cent reduction to its LGD estimates (subject to the floor specified in Table 7) for exposures with a loan-to-valuation ratio, as defined in APS 112, of greater than 80 per cent that have LMI cover.
 4.          An ADI that is not approved to use its own estimates of LGD for retail residential mortgage exposures or SME retail exposures secured by residential real estate must apply a 20 per cent LGD floor in place of the floor specified in Table 7.

Exposure at default estimates
 1.          EAD in respect of each exposure (both on-balance sheet and off-balance sheet) must be measured without deducting any provisions for, and partial write-offs of, that exposure.

On-balance sheet exposures
 1.