On 23 June 2020, the Basel Committee on Banking Supervision (Basel Committee) published a technical amendment, ‘Capital treatment of securitisations of non-performing loans’.
The technical amendment establishes a 100% risk weight for certain senior tranches of non-performing loan securitisations. The risk weight applicable to the other positions are determined by the existing hierarchy of approaches, in conjunction with a 100% risk weight floor and a ban on the use of certain inputs for capital requirements.
The Basel Committee is introducing this technical amendment on the basis that securitisations of non-performing loans have particular features that distinguish them from securitisations of performing assets. These differences have implications for the calibration of risk weights in the securitisation framework. The current Basel Committee securitisation standard was designed and calibrated using a range of securitisation transactions, all of which involved performing assets, reflecting the predominance of such securitisations in the market. Recent observations on securitisations in which the securitised portfolio consists mostly of non-performing loans have shed light on potential mis-calibration of the risk weights applicable to these transactions under the Basel III securitisation framework.
The deadline for comments on the technical amendment is 23 August 2020.