Document ID: chunk:federal_register_of_legislation:F2024L01074:body:0:p52
Version: federal_register_of_legislation:F2024L01074
Segment Type: other
Provision Reference: 
Character Range: 141843–144906

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. If an ADI can demonstrate to APRA that dilution risk is appropriately monitored and managed so as to be resolved within one year of acquisition of the purchased receivables, APRA may grant an approval allowing the ADI to base its calculations on a one-year maturity assumption.

Treatment of purchase price discount for receivables
 1.          Where a portion of any purchase price discount is refundable to the seller, the refundable amount must be treated as first-loss protection under APS 120. Non-refundable purchase price discounts for purchased receivables do not affect the Regulatory Capital calculation.
 2.          When collateral or partial guarantees obtained on purchased receivables provide first-loss protection covering default losses, dilution losses, or both, they must be recognised as first-loss protection under APS 120.

Recognition of credit risk mitigation
 1.          An ADI may recognise a guarantee for purchased receivables where the guarantee meets the requirements in Attachment E to this Prudential Standard. If the guarantee covers:
        1.           a pool's default risk and dilution risk, the ADI may substitute the risk weight for an exposure to the guarantor in place of the relevant pool's total risk weight for default and dilution risks;
        2.           only one of either default risk or dilution risk, the ADI may substitute the risk weight for an exposure to the guarantor in place of the relevant pool's risk weight for the corresponding risk. The capital requirement for the non-guaranteed component must then be added; and
        3.           only a portion of the default or dilution risk of a relevant pool, the uncovered portion must be treated using the rules for proportional or tranched cover detailed in APS 112.

Requirements specific to estimating probability of default, loss given default and expected loss for qualifying purchased receivables
 1.          The minimum requirements for risk quantification detailed in paragraphs 19 to 21 of this Attachment must be satisfied in order to apply the top-down approach for:
        1.           default risk (in relation to purchased corporate receivables); or
        2.           dilution risk (in relation to purchased corporate or retail receivables).
 2.          An ADI must group purchased receivables into sufficiently homogeneous segmented pools so that accurate and consistent estimates of PD and LGD for default risk and expected long-run average loss rates for dilution risk can be 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