26.The supervisory formula used for the calculations within the SEC-SA has been calibrated by the BCBS to generate required capital under an assumed minimum 8% risk-based capital ratio. As a result, the appropriate conversion to risk-weighted assets for the SEC-SA generally requires multiplication of the computed capital ratio by a factor of 12.5 (the reciprocal of 8%) to produce the risk weight used within broader calculations of risk-based capital adequacy. This multiplication by 12.5 is reflected in the requirements as articulated in the Central Bank’s Securitisation Standards.

27.If the underlying pool of exposures receives a risk weight of 1250%, then paragraph 5 of the Introduction of the Standards for Capital Adequacy of banks in the UAE is applicable.

28.When applying the supervisory formula for the SEC-SA to structures involving an SPE, all of the SPE’s exposures related to the securitisation are to be treated as exposures in the pool. In particular, in the case of swaps other than credit derivatives, the exposure should include the positive current market value times the risk weight of the swap provider. However, under the Standards, a bank can exclude the exposures of the SPE from the pool for capital calculation purposes if the bank can demonstrate that the risk does not affect its particular securitisation exposure or that the risk is immaterial, for example because it has been mitigated. Certain market practices may eliminate or at least significantly reduce the potential risk from a default of a swap provider. Examples of such features could be:

1. •cash collateralization of the market value in combination with an agreement of prompt additional payments in case of an increase of the market value of the swap; or
2. •minimum credit quality of the swap provider with the obligation to post collateral or present an alternative swap provider without any costs for the SPE in the event of a credit deterioration on the part of the original swap provider.

If the bank is able to demonstrate that the risk is mitigated in this way, and that the exposures do not contribute materially to the risks faced by the bank as a holder of the securitisation exposure, the bank may exclude these exposures from the K_SA calculation.