(1) principle of legality. Credit risk mitigation tools should comply with national laws and regulations to ensure implementation.
(2) the principle of effectiveness. Credit risk mitigation tools should have complete procedures, compensatory ability and easy implementation.
(3) The principle of prudence. Commercial banks should consider the possible risk factors caused by the use of credit risk mitigation tools and conservatively estimate the effect of credit risk mitigation.
(4) the principle of consistency. Where a commercial bank adopts a self-estimated credit risk mitigation discount factor, it shall use the discount factor for all credit risk mitigation instruments that meet the requirements for using the discount factor.
(5) the principle of independence. There should be no substantial positive correlation between credit risk mitigation tools and debtor risk.
Legal basis: guidelines for the measurement of regulatory capital for credit risk mitigation of commercial banks.
Article 3 The term "credit risk mitigation" as mentioned in these Guidelines refers to the transfer or reduction of credit risk by commercial banks using qualified collateral, net settlement, guarantee and credit derivatives. Commercial banks use internal rating method to measure credit risk regulatory capital, and the credit risk mitigation function is reflected in the default probability and the decline of default loss or default risk exposure.
Article 4 The mitigation of credit risk shall follow the following principles:
(1) principle of legality. Credit risk mitigation tools should comply with national laws and regulations to ensure implementation.
(2) the principle of effectiveness. Credit risk mitigation tools should have complete procedures, compensatory ability and easy implementation.
(3) The principle of prudence. Commercial banks should consider the possible risk factors caused by the use of credit risk mitigation tools and conservatively estimate the effect of credit risk mitigation.
(4) the principle of consistency. Where a commercial bank adopts a self-estimated credit risk mitigation discount factor, it shall use the discount factor for all credit risk mitigation instruments that meet the requirements for using the discount factor.
(5) the principle of independence. There should be no substantial positive correlation between credit risk mitigation tools and debtor risk.
Article 5 General requirements for credit risk mitigation management:
(1) Commercial banks should conduct effective legal review to ensure that the confirmation and use of credit risk mitigation tools are based on clear and executable legal documents, and relevant legal documents are binding on all parties to the transaction.
(2) Commercial banks should clearly stipulate the coverage of credit risk mitigation in relevant agreements.
(3) Commercial banks cannot repeatedly consider the role of credit risk mitigation. Credit risk mitigation can only be reflected once in debtor rating, debt rating or default risk estimation.
(4) Commercial banks should conservatively estimate the correlation between credit risk mitigation tools and debtor risks, and comprehensively consider risk factors such as currency mismatch and maturity mismatch.
(5) The capital requirements of commercial banks after adopting credit risk mitigation should not be higher than the capital requirements of the same risk exposure without adopting credit risk mitigation.
(6) Commercial banks should formulate clear internal management systems, review and operation procedures, and establish corresponding information systems to ensure the effective play of credit risk mitigation tools.
(7) A commercial bank shall disclose the policies, procedures and functions of credit risk mitigation, main collateral types, valuation methods, guarantor types, counterparty types of credit derivatives and their credit status, risk concentration of credit risk mitigation tools, risk exposure covered by credit risk mitigation tools, etc.