<Table 3-12>
Standards on the Calculation of Large Exposure Ratios
Chapter 1. General Provisions
1. (Purpose) The purpose of these standards is to prescribe matters necessary for the calculation of large exposure ratios (LEX) set forth in Article 26 of the Regulations.
2. (Terms and Definitions) The terms used herein shall be defined as follows:
(a) The term “group of connected counterparties” (hereinafter referred to as “group of counterparties”) means a group consisting of counterparties with a control relationship or economic interdependence such that, were one of the counterparties to fail, all of the counterparties would very likely fail.
(b) The term “control relationship” means a relationship where one of the counterparties, directly or indirectly, has control over the other(s). Cases falling under the criteria set forth in Chapter 2, Section 2 are deemed to have a control relationship.
(c) The term “economic interdependence” means a relationship where if one of the counterparties were to experience financial problems in funding or repayment difficulties, the others would also be likely to encounter funding or repayment difficulties. Cases falling under the criteria set forth in Chapter 2, Section 2 are deemed to have economic interdependence.
(d) The term “large exposure” means a case where the sum of all exposure values of a single counterparty or a group of counterparties is equal to or above 10% of the bank’s Tier 1 capital.
(e) The term “large exposure limit” means the maximum large exposure ratio (LEX) set forth in Article 26 or Article 26-2 of the Regulations.
(f) The term “covered bond” means a bond issued under the “Act on Issuance of Covered Bonds” or other equivalent domestic or foreign law, whose holder can exercise the right to repayment against the issuer, and the principal and interest of which shall be paid in preference to any other bond of a third party from any cover pool provided as collateral by the issuer.
(g) The term “central counterparty (CCP)” means a clearing house that interposes itself between counterparties to ensure the future performance of open contracts.
(h) The term “qualifying central counterparty (QCCP) means an entity that is licensed to operate as a CCP by the competent regulator subject to the observance of the CPSS-IOSCO Principles for Financial Market Infrastructures, jurisdiction, regulations, etc.
(i) The term “securities financing transactions” means transactions such as repurchase agreements, reverse repurchase agreements, securities lending and borrowing, and margin lending transactions.
(j) The term “counterparty credit risk (CCR)” means the risk that the counterparty to one or more transactions could default before the final settlement of the transaction(s).
(k) The term “risk-based capital requirements” means the regulations pursuant to <Table 3> “Standards on the Calculation of Capital Adequacy Ratios for Credit and Operational Risk-Weighted Assets” of the Detailed Regulations on Supervision of Banking Business (hereinafter referred to as “<Table 3> of the Detailed Regulations”) and <Table 3-2> “Standards on the Calculation of Capital Adequacy Ratios for Credit, Operational, and Market Risk-Weighted Assets” of the Detailed Regulations on Supervision of Banking Business (hereinafter referred to as “<Table 3-2> of the Detailed Regulations”).
(l) Any term not defined herein shall have the meaning assigned to it under <Table 3> of the Detailed Regulations and <Table 3-2> of the Detailed Regulations.
3. (Principles of Calculation) Unless otherwise prescribed in Chapter 2, large exposure ratios shall be calculated by applying methods consistent with risk-based capital requirements. In addition, banks shall establish and operate an appropriate system for large exposure calculation to enable adequate management of credit concentration risk.
Chapter 2. Large Exposure Ratio Calculation
Section 1. General Provisions
4. (Definition of Large Exposure Ratio) A large exposure ratio is defined as the value obtained by dividing the sum of the exposures of a single counterparty or a group of counterparties (numerator) by the bank’s Tier 1 capital (denominator).
5. (Scope of Consolidation) Large exposure ratios shall be calculated based on consolidated financial statements as defined in <Table 3> of the Detailed Regulations.
6. (Tier 1 Capital) The term “Tier 1 capital” is as defined in <Table 3> of the Detailed Regulations.
7. (Exposure Calculation) Exposures for calculating large exposure ratios shall be determined in accordance with the method set forth in Chapter 2, Sections 3 through 6.
Section 2. Group of Counterparties
8. (Assessment of Counterparties) Banks shall assess whether there is a control relationship or economic interdependence between counterparties in order to establish the existence of a group of counterparties.
9. (Assessment of Control Relationships) Banks shall assess control relationships by considering the following criteria. However, a control relationship shall be automatically deemed to exist if a counterparty owns more than 50% of the voting rights of another counterparty:
(a) Control of multiple voting rights pursuant to an agreement with other shareholders;
(b) Power to determine the sales policy, financial policy, and other important management policies of another counterparty by exercising influence on senior management, auditors, etc.
(c) Power to appoint or dismiss a majority of the members of the board of directors or an equivalent decision-making body, audit committee, or other policy organization;
(d) Other cases where control is deemed to exist in accordance with the Korean International Financial Reporting Standards or where counterparties belong to the same business group pursuant to Article 2 of the Monopoly Regulation and Fair Trade Act.
10. (Assessment of Economic Interdependence) Banks shall assess economic interdependence by considering the following qualitative criteria based on the latest information available to identify whether a counterparty may be connected to another counterparty. In this regard, banks may formulate internal standards and procedures to assess economic interdependence in consideration of such factors as business size and importance. Banks shall establish standards that include an assessment of economic interdependence in all cases where the exposures of an individual counterparty exceeds 5% of Tier 1 capital:
(a) Where 50% or more of a counterparty’s annual gross receipts or expenditures are derived from transactions with another counterparty;
(b) Where a counterparty has fully or partly guaranteed the exposure of another counterparty, and the guarantor is likely to default if a claim occurs;
(c) Where a significant part of a counterparty’s output is sold to another counterparty that cannot be easily replaced by other customers;
(d) Where two or more counterparties have the same expected source of funds to repay liabilities to the bank and there is no other source of income from which the liabilities may be fully repaid;
(e) Where the financial difficulties of a counterparty are likely to cause another counterparty to experience financial difficulties or fail to repay liabilities;
(f) Where the insolvency or default of a counterparty is likely to be associated with the insolvency or default of another;
(g) Where two or more counterparties rely on the same source for the majority of their funding and, in the event of the common provider’s default, an alternative provider cannot be found and the funding problems of one counterparty are likely to spread to another counterparty.
11. (Exceptions to Decisions on Groups of Counterparties) Where a counterparty partly falls under the criteria set forth in 9. (Assessment of Control Relationships) and 10. (Assessment of Economic Interdependence), it may be deemed to not constitute a group of counterparties if so assessed by the bank:
(a) Where it can be explained that due to specific circumstances or corporate governance safeguards, the current control relationship does not necessarily result in the formation of a group of connected counterparties;
(b) Where it can be explained that a counterparty that is economically closely related to another counterparty may overcome financial difficulties, or the other counterparty's default, by finding alternative business partners or funding sources within an appropriate time period.
Section 3. Method of Exposure Calculation
12. (General Principles) Exposure values for large exposure calculation (hereinafter referred to as “regulated exposures”) shall be the same as the scope of exposures specified in the risk-based capital framework, and shall include both on- and off-balance sheet exposures in the banking or trading book and the exposures of instruments with counterparty credit risk.
13. (Treatment of Exposures Deducted from Capital) An exposure amount to a single counterparty that is deducted from Tier 1 capital when calculating the capital adequacy ratio for risk-weighted assets under <Table 3> of the Detailed Regulations shall not be added to other exposures to that counterparty.
14. (Banking Book On-Balance Sheet Non-Derivative Items) Exposures for banking book on-balance sheet items shall be the accounting value of assets less the allowance for substandard debts.
15. (Banking and Trading Book Over-the-Counter Derivatives, etc.) Exposure values for instruments that give rise to counterparty credit risk but are not securities financing transactions shall be calculated in accordance with the standardized approach for counterparty credit risk (SA-CCR) set forth in Chapter 7, Section 3, Sub-Section 2-2 of <Table 3> of the Detailed Regulations.
16. (Securities Financing Transactions) Exposure values for securities financing transactions shall be calculated by applying the comprehensive approach with supervisory haircuts prescribed in Chapter 2, Section 6, Sub-Section 3 of <Table 3> of the Detailed Regulations.
17. (Off-Balance Sheet Items) Exposures for off-balance sheet items shall be calculated by applying the credit conversion factors set forth in Chapter 2, Section 4 of <Table 3> of the Detailed Rules to the contract amount associated with the transaction concerned, with a floor of 10%.
Section 4. Application of Credit Risk Mitigation Techniques
18. (Basic Principles) Banks shall apply to exposure calculations the eligible credit risk mitigation techniques used for risk-based capital requirements.
19. (Eligible Credit Risk Mitigation Techniques) Credit risk mitigation techniques shall be applied to unfunded credit protection (guarantees and credit derivatives) and financial collateral transactions that meet the eligibility criteria under the standardized approach set forth in Chapter 2, Section 6 of <Table 3> of the Detailed Rules. Other forms of collateral that are only eligible under the internal ratings-based approach (receivables, commercial and residential real estate, and other collateral) shall not be eligible for credit risk mitigation.
20. (Maturity Mismatches) If the residual maturity of a credit risk mitigant is less than the residual maturity of the exposure, credit risk mitigation techniques shall be applied in accordance with the following criteria:
(a) Credit risk mitigation techniques may only be applied when the original maturity of the credit risk mitigant is greater than or equal to one year, and its residual maturity is greater than or equal to three months;
(b) The credit risk mitigation amount shall be calculated by adjusting the maturity mismatch using the method prescribed in Chapter 2, Section 6, Sub-Section 7 of <Table 3> of the Detailed Regulations.
21.(On-Balance Sheet Netting) When there are legally enforceable netting arrangements for loans and deposits, the balance after netting in accordance with the requirements and methods set forth in Chapter 2, Section 6, Sub-Section 5 of <Table 3> of the Detailed Regulations may be recognized as exposure.
22. (Reduction of Exposure) Exposure to the original counterparty shall be reduced by the amount of the eligible credit risk mitigation technique. The amount of the reduction is as follows:
(a) The value of the portion protected by unfunded credit protection;
(b) The value of the portion of the claim collateralized by the market value of the financial collateral when using the simple approach pursuant to Chapter 2, Section 6, Sub-Section 4 of <Table 3> of the Detailed Regulations;
(c) The value of the collateral adjusted by applying supervisory haircuts when using the comprehensive approach pursuant to Chapter 2, Section 6, Sub-Section 3 of <Table 3> of the Detailed Regulations. However, internally modeled haircuts shall not be used;
(d) The value of the collateral as recognized in the calculation of the counterparty credit risk exposure value.
23. (Recognition of Exposures to Credit Risk Mitigation Providers) When exposure to the original counterparty is reduced by using an eligible credit risk mitigation technique, the same amount of reduction shall be recognized as an exposure to the credit risk mitigation provider. However, in the case of a credit default swap, the exposure shall be calculated as prescribed in 34.
Section 5. Exposures for Trading Book Positions
24. (Basic Principles) Banks shall add all exposures to a single counterparty arising in the trading book to banking book exposures to the same counterparty to calculate the total exposure to that counterparty.
25. (Scope of Regulation) The scope of regulated exposures shall include trading book exposures for bonds, equities, and other financial instruments associated with the default risk of the issuer, but shall not include any particular commodity or currency.
26. (Debt Instrument and Equity Exposures) The exposure value of debt instruments and equities shall be the accounting value of the exposure.
27. (Derivative Exposures) Exposures for swaps, futures, forwards, and credit derivatives shall be decomposed (Note1) into individual positions (legs) of the underlying assets in accordance with the market risk calculation method prescribed in <Table 3-2> of the Detailed Regulations. The exposure value shall be calculated for only the underlying that is included in the scope of regulated exposures.
Note 1: For example, a future on stock X shall be decomposed into a long position in stock X and a short position in a risk-free interest rate in the respective currency, and an interest rate swap shall be decomposed into a long position in a fixed and a short position in a floating interest rate or vice versa.
28. (Credit Derivative Protection Selling) The exposure to a referenced name resulting from credit derivative protection sold by a bank shall be the amount due in the case that the referenced name experiences a credit event, minus the absolute value of the credit protection. Note 2: For credit linked notes, consideration shall be given to positions both in the bond of the note issuer and in the underlying referenced by the note.
Note 2: If the market value of the credit derivative is positive from the perspective of the protection seller, such a positive market value shall be added to the counterparty credit risk exposure of the protection seller to the protection buyer. Such a situation may occur if the present value of unpaid periodic premiums exceeds the absolute value of the credit protection.
29. (Options) Exposures for options shall be calculated based on the change in option prices that would result from a default of the respective underlying instrument, in accordance with the following criteria:
(a) The exposure value for a long call option shall be its market value and for a short put option shall be the strike price of the option minus its market value;
(b) In the case of short call or long put options, a default of the underlying would lead to a negative exposure instead of a loss and the exposure for a short call option shall be its market value and for a long put option shall be strike price of the option minus its market value;
(c) The positions calculated shall always be aggregated with the positions of other exposures and after aggregation, negative net exposures shall be adjusted to zero.
30. (Application of the Same Rules as Banking Books) Exposures values of banks’ investments shall be calculated by applying the same rules as for similar financial instruments in the banking book. Exposures for investments in a particular structure (Note 3) may be assigned to the structure itself, to the counterparties corresponding to each underlying asset, or to the unknown client in accordance with Chapter 2, Section 6, Item 3.
Note3: This shall include index positions, securitizations, hedge funds, and investment funds.
31. (Offsetting Long and Short Positions) Long and short positions in the same issue from the same counterparty may be offset in accordance with the following criteria. In such cases, the net position may be assigned as exposure to the counterparty:
(a) Banks may offset long and short positions in the same issue from the same counterparty (limited to cases where the issuer, coupon, currency, and maturity are identical);
(b) Positions in different issues from the same counterparty may be offset only when the short position is junior to the long position, or if the positions are of the same seniority;
(c) Positions hedged by credit derivatives may be recognized provided that both the hedging underlying asset and the hedged position meet the requirements in (b).
32. (Seniority) Securities may be allocated into buckets of degrees of seniority such as “equity,” “subordinated debt,” and “senior debt” to determine the relative seniority of positions. For those banks that find it excessively burdensome to allocate securities to different buckets based on relative seniority, they may recognize no offsetting of long and short positions in different issues relating to the same counterparty.
33. (Credit Derivative Protection Buying Position) For positions hedged by credit derivatives, any reduction in exposure to the original counterparty shall be treated as an exposure to the credit protection provider as stipulated in 23. However, an exception shall be made in the case of a credit default swap falling under 34.
34. (Treatment of Credit Default Swaps) When credit protection takes the form of a credit default swap and the credit protection provider or referenced entity is not a financial entity (Note 4), the exposure value to be assigned to the credit protection provider shall not be the amount by which the exposure to the original counterparty is reduced, but the counterparty credit risk exposure value calculated in accordance with 15.
Note 4: Financial entities comprise regulated financial institutions that are subject to Financial Supervisory Service inspections under Article 38 of the Act on the Establishment of Financial Services Commission and unregulated financial institutions that are legal entities whose main business includes financial services activities and that are not listed in the same Act. Foreign financial entities comprise regulated and unregulated financial institutions consistent with international norms.
35. (Netting across Books) Netting across long positions in the banking book and short positions in the trading book shall not be permitted.
36. (Net Short Position after Offsetting) When offsetting results in a net short position with a single counterparty, the exposure shall not be included in the scope of regulated exposures.
Section 6. Treatment of Special Exposures
Item 1. Exclusions from the Scope of Regulated Exposures
37. (Exempted Exposures) The following transactions shall be excluded from the scope of regulated exposures:
(a) The following exposures specified by the Governor of the Financial Supervisory Service in consideration of the criteria set forth by the Bank for International Settlements in Article 26 (1) 6 (a) of the Regulations:
(1) Exposures to sovereigns (central governments and central banks) to which a risk weight of 0% applies, domestic local governments, domestic and ･foreign public institutions, Bank for International Settlements, and International Bank for Reconstruction and Development (hereinafter referred to as “sovereigns, etc.”);
(2) Exposures guaranteed by sovereigns, etc. in (1) and exposures secured by financial instruments issued by the sovereigns, etc. However, this shall be limited to cases where the eligibility criteria for the recognition of credit risk mitigation are met;
(3) Intraday transaction exposures arising in relation to interbank payments;
(4) Clearing-related exposures to qualifying central counterparties;
(5) Intra-group exposures (Note 5);
Note 5: This refers to exposures to domestic and international financial holding companies (including parent banks) to which a regulated bank belongs and exposures to finance companies included in the scope of consolidated financial statements of the same financial holding companies (including parent banks) in accordance with International Financial Reporting Standards.
(b) Exposures to Article 26 (1) 6 (b) through (e) of the Regulations.
38. (Reporting on Exempted Exposures) Exempted exposures specified in 37 shall be subject to reporting obligations under 56. However, intraday interbank transactions shall not be subject to reporting.
39. (Connectedness with Exempted Counterparties) When two or more counterparties that are outside the scope of exemption are controlled by or economically dependent on a sovereign, etc. defined in 37 (b) (1) but are otherwise not connected, those counterparties shall not be deemed to constitute a group of connected counterparties.
40. (Third Party Credit Protection for Exempted Exposures) If an exposure to an exempted counterparty has been hedged by a credit derivative, the amount to which credit risk mitigation techniques are applied shall be recognized as an exposure to the counterparty providing the credit protection as prescribed in 23, notwithstanding the fact that the original exposure is exempted.
Item 2. Covered Bonds
41. (Basic Principles) A covered bond satisfying the conditions set out in 42 may be assigned an exposure value of at least 20% but less than 100% of the nominal value of the bank’s covered bond holding. Covered bonds that do not satisfy the conditions shall be assigned an exposure value of 100% of the nominal value of the bank's covered bond holding.
42. (Conditions for Easing the Exposure Calculation Criteria) For covered bonds that meet all eligibility and operational requirements pursuant to Article 2, Section 3, 35-2 of <Table 3> of the Detailed Regulations, the exposure value may be calculated by deducting the nominal amount of underlying assets from the nominal value of the covered bonds. However, the exposure amount after the deduction shall be no less than 20% of the nominal value of the bonds.
Item 3. Collective Investments, Securitizations, and Other Structures
43. (Basic Principles) When a bank has invested in a financial instrument through an entity with exposures to underlying assets, it shall use the latest information available to classify the counterparty and assign an exposure value in accordance with the method prescribed in 44. Such financial instruments shall include funds, securitizations, other structures with underlying assets (hereinafter referred to as “structures”).
44. (Method of Counterparty Recognition) Counterparties to structures shall be recognized in accordance with the following criteria:
(a) A bank may recognize a structure itself as a single counterparty if it can demonstrate that the exposure to each underlying asset of the structure results only from the investment in the structure and that the exposure amount calculated according to 46 is less than 0.25% of its Tier 1 capital (Note 6);
Note 6: This required test will be passed if the bank’s whole investment in a structure is below 0.25% of its Tier 1 capital.
(b) A bank shall use the look-through approach to structures to identify those underlying assets in which 0.25% or more of its Tier 1 capital has been invested, and shall identify the counterparty corresponding to each underlying asset and add the underlying exposures to any other direct or indirect exposure to the same counterparty. However, when calculating the exposure to an individual structure, underlying assets in which less than 0.25% of Tier 1 capital has been invested may be recognized as exposure to the structure itself;
(c) When the look-through approach cannot be used, the structure itself may be recognized as the counterparty of the exposure only if the exposure to the structure is less than 0.25% of the bank's Tier 1 capital. However, if the exposure is 0.25% or more of the bank’s Tier 1 capital, the total exposure amount shall be recognized as exposure to the unknown client. All unknown exposures shall be aggregated and deemed a single counterparty (the unknown client), to which the largest exposure limit shall apply.
45. (Prohibition of Diversification for Circumvention Purposes) A bank shall be able to demonstrate that it has not circumvented regulations by investing less than 0.25% of its Tier 1 capital in several structures with identical underlying assets.
46. (Calculation of Exposure to Underlying Assets) A bank’s exposure to underlying assets shall be calculated in accordance with the following criteria:
(a) When a bank has invested in a fund or other structure where investors have equal priority, the exposure to a single counterparty shall be the pro rata share that the bank holds in the structure multiplied by the value of the underlying asset in the structure;
(b) When a bank has invested in a structure where investors do not have equal priority, the exposure to a single counterparty shall be measured (Note 7) for each tranche within the structure as follows, assuming a pro rata distribution of losses among investors in a single tranche:
Note 7: When a bank has invested with seniority in a securitization including underlying asset A: Exposure to underlying asset A = (Bank’s senior investments/Total senior amount) × MIN (Total amount of A included in underlying portfolio of assets, total senior amount)
(1) Select the lower value of the tranche in which the bank invests and the nominal value of each underlying asset included in the underlying portfolio of assets;
(2) Multiply the value determined in (a) by the pro rata share of the bank’s investment in the tranche.
(c) If the look-through approach is not applied, the exposure amount shall be calculated as the nominal amount invested in the structure.
47. (Identification and Aggregation of Additional Risks) Apart from exposures to structures, banks shall identify third parties (Note 8) that may constitute an additional risk factor inherent in a structure itself rather than in the underlying assets, and calculate the large exposure:
Note 8: Third parties subject to additional risk identification may include the originator, fund manager, liquidity provider, and credit protection provider.
(a) Investments in structures with a common additional risk factor shall be connected to form a group of connected counterparties;
(b) Banks may add their exposure to a structure with an additional risk factor to other exposures (such as a loan) it has to the third party that has been identified as the same additional risk factor, depending on a case-by-case consideration of the features of the structure and the role of the third party;
(c) If there are multiple third parties subject to additional risk identification, the exposure to the structures shall be assigned to each of the third parties;
(d) The requirements in 44 (c) for recognizing a structural risk inherent in the structure instead of the risk stemming from the underlying exposures shall be independent of the results of the assessment of additional risk factors.
Item 4. Exposures to Central Counterparties
48. (Exposures to Qualifying Central Counterparties) Banks’ exposures to qualified central counterparties relating to clearing activities shall be excluded from the scope of regulated exposures.
49. (Exposures to Non-Qualifying Central Counterparties) Exposures to non-qualifying central counterparties shall be measured as the sum of clearing exposures in 51 and non-clearing exposures in 53, and must comply with the limit of 25% of Tier 1 capital.
50. (Exclusion from Groups of Counterparties) The concept of connected counterparties prescribed in 8 through 11 shall not apply to exposures to central counterparties relating to clearing activities.
51. (Clearing Exposures) Banks shall identify exposures to a central counterparty related to clearing activities and sum them together as follows:
(a) Trade exposure: Shall be calculated according to the type of exposure (Note 9) prescribed herein;
Note 9: For example, the SA-CCR shall be used to calculate derivative exposures.
(b) Initial margin segregated from central counterparty credit risk: The exposure shall not be calculated;
(c) Initial margin not segregated from central counterparty credit risk: Nominal amount of the initial margin
(d) Prefunded default contributions: Nominal amount of the contribution;
(e) Unfunded default contributions: The exposure shall not be calculated;
(f) Equity stakes: Nominal amount of the equity. However, if equity stakes are deducted from Tier 1 capital, such exposures shall be excluded in accordance with 13.
52. (Exposure to Clearing Services) Banks shall determine the counterparty to which exposures shall be assigned as prescribed in Chapter 7, Section 5 of <Table 3> of the Detailed Regulations regarding transactions where the bank is a clearing member or a client of a clearing member (clearing customer).
53. (Non-Clearing Exposures) Exposures that are not directly related to the clearing services of the central counterparty, such as funding facilities, credit facilities, and guarantees, shall be calculated in the same manner as exposures to other counterparties and aggregated.
Chapter 3. Exceptional Breaches of the Limit
54. (Exceptional Breaches of the Limit) The large exposure limit may be exceeded in the event of any one of the following:
(a) Where the limit has been unavoidably exceeded due to interbank transactions to stabilize the financial market in a crisis situation;
(b) A breach of the limit due to reasons specified in Article 35 (1) 1 or 2 of the Banking Act (however, for the Korea Development Bank, this shall refer to a breach of the limit due to reasons specified in Article 31 (1) of the Enforcement Decree of the Korea Development Bank Act);
55. (Rectifying Breaches of the Limit) Where a bank has exceeded the large exposure limit, it shall rectify the breach as soon as possible. However, a breach due to reasons specified in Article 35 (1) 2 of the Banking Act (for the Korea Development Bank, this shall refer to a breach due to reasons specified in Article 31 (1) 3 of the Enforcement Decree of the Korea Development Bank Act) shall be rectified within one year of the day of the breach, and exposures that have been approved by the Financial Services Commission under Article 35 (2) of the Banking Act and Article 31 (2) of the Enforcement Decree of the Korea Development Act shall be rectified within the approved period.
Chapter 4. Reporting obligations
56. (Regular Reporting) Banks shall report the following matters as at the end of every quarter to the Governor of the Financial Supervisory Service through a business report within two months of the end of every quarter:
(a) All exposures where the sum of exposures to a counterparty or a group of counterparties computed without applying credit risk mitigation techniques is equal to or above 10% of the bank’s Tier 1 capital;
(b) All exposures where the sum of exposures to a counterparty or a group of counterparties computed by applying credit risk mitigation techniques is equal to or above 10% of the bank’s Tier 1 capital;
(c) The largest 20 exposures to a counterparty or group of counterparties, irrespective of the values of these exposures relative to the bank’s Tier 1 capital;
(d) All exempted exposures with values equal to or above 10% of the bank’s Tier 1 capital.
57. (Reporting on Breaches of the Limit) Where a bank has exceeded or expects to exceed the large exposure limit (including cases where the limit is exceeded or expected to be exceeded due to exceptional circumstances described in 54), it shall immediately report to the Governor of the Financial Supervisory Service as follows:
(a) The report shall contain a breakdown of, and reasons for, the breach and a rectification plan including exposure reduction and Tier 1 capital expansion, etc., and specific report items and methods shall be in accordance with the <Supplementary Form> or <Attached Form>;
(b) A bank that has reported a breach of the large exposure limit shall submit a report on the quarterly implementation status of the reported rectification plan to the Governor of the Financial Supervisory Service within 20 days of the month following the end of each quarter.
58. (Supervisory Measures) The Governor of the Financial Supervisory Service may request a modification of the rectification plan after considering such matters as the breakdown of and reasons for the breach of each bank, feasibility of the rectification plan, and implementation performance relative to the plan. Where a bank’s breach reporting is deemed inadequate, the Governor of the Financial Supervisory Service may improve the internal control system or take other necessary supervisory measures.
