V. Appendix: Computation of Exposures with Credit Risk Mitigation Effects

C 52/2017 STA يسري تنفيذه من تاريخ 1/4/2021

Bank A repos out cash of AED 1000 to a corporate with an external rating of AA. The corporate provides collateral in the form of debt securities issued by a bank with an external rating of AA. The debt securities have a remaining maturity of 7 years and a market value of AED 990.

Minimum holding period for various products
Transaction type	Minimum holding period	Condition
Repo-style transaction	5 Business days	Daily remargining
Other capital market transactions	10 Business days	Daily remargining
Secured lending	20 Business days	Daily revaluation

The haircut for the transaction with other than 10 business days minimum holding period, as indicated above, will have to be adjusted by scaling up or down the haircut for 10 business days as per the formula given below:

Variables	Details of the Variables	Supervisory haircuts	Scaling factor	Adjusted haircuts
He	Haircut appropriate to the underlying exposure	Exposure in the form of cash, supervisory haircut 0%	0	Not applicable
Hc	Haircut appropriate to the Collateral	Debt securities issued by a bank supervisory haircut 8%	0.71	Supervisory haircut (8%)* Scaling factor (0.71 )= 6%
Hfx	Haircut appropriate for Currency Mismatch	No Currency Mismatch	0	Not applicable

The exposure amount after risk mitigation is calculated as follows:

Variables	*E= max {0, [E x (1 + He) – C x (1 – Hc – Hfx)]}**	Value
E*	Net credit exposure (i.e. exposure value after CRM)	69.4
E	Principal Amount, which is net of specific provisions, if any For off-balance sheet, it is the credit equivalent amount	1000
He	Haircut appropriate to the underlying exposure (cash)	0
C	Value of the collateral before CRM	990
Hc	Haircut appropriate to the Collateral	6%
Hfx	Haircut appropriate for Currency Mismatch	0

Risk weighted asset for the exposure = (69.40 * 50% (AA)) = 34.70

(Exposure * Risk weight)