2020 Universal registration document and annual financial report - BNP PARIBAS410

5 risks and CaPital adequaCy Pillar 3

5

Securitisation in the banking book

RISK-WEIGHTED ASSETS

On 1 January 2019, the revised securitisation framework came into force with the application of Regulation (EU) No. 2017/2401 and Regulation (EU) No. 2017/2402. This framework provides for:

■ the creation of a specific status for programmes known as Simple, Transparent and Standardised, which comply with certain conditions:

■ the portfolio of underlying assets, which must be uniform in terms of asset type, may not include a re-securitisation position nor defaulting asset at origination,

■ the programme must be traditional and the payment of the interest for the securitisation positions must be based on standard benchmark interest rates,

■ investors must have sufficient information on the portfolio of underlying assets, specifically, information on the histories of defaults and losses,

Subject to eligibility in terms of applicable risk-weight and concentration of the underlying asset portfolio, these programmes may benefit from preferential weightings;

■ new approaches for the calculation of risk-weighted assets related to applicable securitisation positions according to the specificities of the underlying portfolio:

■ internal ratings-based approach (SEC-IRBA): the risk-weight applicable to the securitisation position depends on the one hand on the characteristics of the securitisation programme and on the other hand on the capital charge of the underlying portfolio calculated as credit risk,

■ standardised approach (SEC-SA): the risk-weight applicable to the securitisation position depends on the characteristics of the securitisation programme, the capital charge of the underlying portfolio calculated as credit risk and the proportion of assets in default in this portfolio,

■ external ratings-based approach (SEC-ERBA): the risk-weight applicable to the securitisation position is given directly by a

correspondence table defined in Regulation (EU) No 2017/2401, based on the external rating of the tranche, its subordination rank and its maturity. BNP Paribas uses the external ratings of the Standard & Poor s, Moody s, Fitch and DBRS rating agencies,

■ in other cases, Regulation (EU) No. 2017/2401 provides for the deduction of CET1 own funds.

As a reminder, a transition period was provided for from 1 January 2019 to 31 December 2019 during which the approaches for calculating weighted assets described in Regulation (EU) No. 575/2013 continued to apply for programmes initiated before 31 December 2018. The approaches for calculating risk-weighted assets described in Regulation No. 575/2013 are as follows:

■ standardised approach: the amount of risk-weighted assets is calculated by applying to the exposure at default, the weighting associated regulatorily with the external rating of the securitisation position, or in a very limited number of cases, by applying a weighting by transparency. For positions with a rating of B + or less or without an external rating, the rules provide for deduction from Common Equity Tier 1 capital;

■ IRBA approach: risk-weighted assets under the IRBA approach are calculated using one of the following methods:

■ for exposures with an external rating, the applicable risk-weight is directly given by the use of a concordance table provided by Regulation (EU) No. 575/2013,

■ for exposures with no external rating, when the Group is the originator or sponsor, the regulatory formula method may apply. The exposure risk weight is calculated using a formula defined in Regulation (EU) No. 575/2013, based on the internal credit rating of the underlying portfolio and the structuring of the transaction,

■ in other cases, the rules provide for the deduction of Common Equity Tier 1.