On 26 June 2020, the PRA updated its statement on the regulatory treatment of the UK Coronavirus Business Interruption Loan Scheme (CBILS) and the UK Coronavirus Large Business Interruption Loan Scheme (CLBILS).
The update provides clarification for firms using the:
- standardised approach for exposures to the obligor. The PRA explains that the portion of an exposure benefiting from the protection of a guarantee provided by the Secretary of State under the schemes is assigned the relevant sovereign risk weight prescribed by the standardised approach (the amount of guarantee recognised should be adjusted under relevant credit risk mitigation (CRM) provisions for any payment types excluded under the guarantees). The residual part of the exposure – that is the portion that does not benefit from the protection of a guarantee provided under these schemes – is assigned the standardised approach risk weight that would apply if the exposure were not guaranteed;
- IRB approach for exposures to the obligor and the standardised approach for exposures to the guarantor (under permanent partial use or rollout). The FCA explains that the portion of an exposure benefiting from the protection of a guarantee provided by the Secretary of State under the schemes is assigned the relevant sovereign risk weight prescribed by the standardised approach (the amount of guarantee recognised should be adjusted under relevant CRM provisions for any payment types excluded under the guarantees). The residual part of the exposure – that is the portion that does not benefit from the protection of a guarantee provided under these schemes – is risk weighted according to the relevant approved IRB approach as if the exposure were not guaranteed; and
- IRB approach for exposures to the obligor and the IRB approach for exposures to the guarantor. The FCA explains that firms should adopt an approach to reflect the effect of the guarantee provided by the Secretary of State that is consistent with their approved IRB models and their IRB permissions.
