Large exposures are those funded and unfunded outstandings and committed unused limits (less provisions, cash collaterals, bank guarantees and Federal Government guarantee) which a bank allows to a single borrower or his group which in total equal to or exceed 10% of the bank’s capital base. Any exposure beyond this percentage must be incurred in accordance with these regulations and guidelines. Suitable adjustments are allowed for exempted exposures as described in Para 2.11 and for computation of CCF in respect of contingent exposures.

Large exposure limits refer to the level of maximum exposure which a bank may allow to a single borrower or his group. These limits are specified in the Table contained in Article (2) of Circular 32/2013.

In accordance with Basel framework, exposure values are derived for individual risk categories such as banking book on balance sheet non-derivative assets, banking book “traditional” off-balance sheet commitments (applying CCF), positions in the trading books (excluding options), options in the trading book, and counter-party credit risk from derivatives, securities financingtransactions, and long settlement transactions across both banking and trading books.

A single borrower shall mean any single natural or juridical person.

A group or related borrowers shall mean:

- two or more natural or juridical persons who unless shown otherwise, constitute a single risk because one of them, directly or indirectly, has control over the other or others, or can exercise a controlling influence over the other or others in making financial and operating decisions;

or

- two or more natural or juridical persons between whom there is no relationship of control but who are to be regarded as constituting a single risk because they are so interrelated that, if one of them were to experience financial problems, the other or all of the others would be likely to encounter repayment difficulties such as failing to honour an obligation in a timely manner or in full.

The Central Bank reserves the right to determine individual exposures as connected.

Control or controlling influence shall mean the relationship between a parent company and a subsidiary, where the parent holds a minimum of 50% of the subsidiary’s share capital or has control over it via, for example, the composition of the board of directors, or via a similar relationship between any natural or juridical person or company.

A Government Related Entity (GRE) that is profitable and can service its debt obligations from its own resources/ operations, without need for any implicit or explicit government support and holds a rating of not less than BBB- (or equivalent) from one of the top three rating agencies can be treated as a single obligor or "stand-alone entity" for the purpose of large exposure limits.

In the context of these regulations, a principal shareholder shall mean any natural or juridical person, single or related as defined in section 1.3 above, holding 5% or more of a bank’s voting share capital.

The capital base of a bank is the same as that used for capital adequacy purposes, as defined in the Central Bank’s Circular No 27/2009 and calculated in accordance with Basel II.

Unfunded exposures may be adjusted for CCF in accordance with Basel II (Refer to Annexure B-3 for details).

If a bank holds 20% to 50% share capital of another institution, it is classified as ‘affiliate’ and if it holds 50% or more, it is classified as ‘subsidiary’. However, if the parent company has majority control over the voting power of the board of that company, it should also be classified as a subsidiary.