Page 18 - Pillar 3 Disclosure
P. 18















7. Counterparty Credit Risk



The Society has exposures to banks and building Societies in its treasury portfolio. These exposures are held purely for liquidity purposes. 

Treasury activity is tightly controlled with policy limits and approved counterparties included in the Treasury Management Policy. Senior 

management monitor limits on a daily basis and ALCO monitors treasury activity monthly.




The Society has nominated Fitch as its external credit assessment institution. Fitch’s ratings are applied to Society non-cash liquidity exposures in 

order to establish the risk-weighted value of those exposures for capital adequacy purposes.




Risk-weighted asset values under the standardised approach are calculated by reference to six credit quality steps under BIPRU 3, dependent 

upon whether they are exposures for up to three months or longer. Table 6 maps the Society's applications of Fitch’s ratings to BIPRU credit 

quality steps together with the risk weightings applicable according to counterparty type.




As is demonstrated from the Fitch ratings attached to each credit quality step, step 1 represents the highest credit quality and step 6, the lowest.



Table 6

Matrix of risk weightings by credit quality step and Fitch ratings


Credit quality step
1
2
3
4
5
6
Un-rated

Fitch’s long-term ratings
AAA to A+ to A-
BBB+ to BB+ to B+ to B-
<= CCC+
-

AA-
BBB-
BB-


Fitch’s short-term ratings
F1+, F1
F2
F3
< F3
-
-
-

Corporates
20%
50%
100%
100%
150%
150%
-

Institutions (UK formed)
20%
50%
100%
100%
100%
150%
-

Institutions (over 3 months)
20%
50%
50%
100%
100%
150%
50%


Institutions (to 3 months)
20%
50%
100%
150%
150%
150%
20%

Sovereign
0%
20%
50%
100%
100%
150%
-




The Society’s unrated exposures are restricted to unrated UK building societies and unrated bank subsidiaries of rated parent banks which have 

the same risk-weighting as credit quality step 2 institutions and are considered by the Society to be of high standing.












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