On 18 Oct 2024, the HKMA announced immediate regulatory adjustments to facilitate SME financing and align with Basel III reforms, allowing AIs to adopt the new 85% risk weight for certain SME exposures ahead of the BCAR's 1 January 2025 implementation and removing the risk-weight floor for residential mortgages under the IRB approach. The HKMA will adopt an accommodative supervisory stance for SME risk weight adjustments while requiring separate reporting in capital adequacy returns.
This article was generated using SAMS, an AI technology by Timothy Loh LLP.
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SME Exposure Risk Weight Adjustments
On 18 Oct 2024, the HKMA announced immediate adjustments to regulatory capital calculations for SME exposures, allowing authorized institutions (AIs) to adopt the new 85% risk weight under the upcoming Basel III-compliant Banking (Capital) (Amendment) Rules 2023 (BCAR) ahead of its 1 January 2025 effective date. AIs may apply this risk weight to non-regulatory retail SME exposures currently risk-weighted at 100% under the existing Banking (Capital) Rules (BCR), and adopt the BCAR's new 'small business' definition for both 75% risk weight allocation (for regulatory retail SME exposures) and 85% risk weight application (for non-regulatory retail SME exposures). The HKMA will take an accommodative supervisory stance, refraining from prioritising reviews for AIs using these adjustments, in conjunction with the recently reduced Countercyclical Capital Buffer, to facilitate SME financing. SME exposures utilising these adjustments must be reported separately in item 20g of the MA(BS)3 return.
Residential Mortgage Risk Weight Floor Removal
On 18 Oct 2024, the HKMA confirmed the removal of the current risk-weight floor for residential mortgage loans under the Internal Ratings-Based (IRB) approach, effective immediately. This adjustment applies to residential mortgages secured on Hong Kong properties within the IRB subclasses 'residential mortgages to individuals' and 'residential mortgages to property-holding shell companies' (as defined under section 142 of the BCR). The change aligns with the Basel III final reform package's comprehensive output floor, eliminating the previous minimum risk weight requirement for these exposures. AIs using the IRB approach will receive direct notification of this arrangement.
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