Eligibility of Sovereign Guarantee for which Permanent Partial Use Applies against IRB Exposure

If the institutions have received permission to use of the Standardised Approach for exposures to the guarantor pursuant to Articles 148 and 150 of Regulation (EU) No 575/2013 as amended (CRR) , including the ones meeting the conditions set out in Article 214 CRR, they may recognise the effect of the guarantee by applying the provisions of Chapter 4 that are applicable for the Standardised Approach and which, therefore, exclude the requirements of Article 201(2) of the CRR to have a guarantor internally rated by the institution. In accordance with Article 108(2) CRR, institutions may use credit risk mitigation in accordance with Part Three, Title II, Chapter 3 of the CRR for exposures to which institutions apply the IRB Approach by using their own estimates of LGD and conversion factors. Article 183(4) CRR clarifies that where the institution has received permission to apply the Standardised Approach for exposures to the guarantor pursuant to Articles 148 and 150, institutions may recognise the unfunded credit protection (UFCP) in accordance with the requirements of Chapter 4 (the risk-weighted exposure amounts of the guaranteed part of the exposure are calculated based on the Standardised Approach). In accordance with Article 108(1) CRR, institutions may use credit risk mitigation in accordance with Part Three, Title II, Chapter 4 of the CRR for exposures to which institutions apply the IRB Approach without using their own estimates of LGD and conversion factors or apply the Standardised Approach. In accordance with the first subparagraph of Article 201(2) CRR, a guarantor shall be internally rated by the institution in accordance with the provisions set out in Section 6 of Part Three, Title II, Chapter 3 of the CRR to be eligible as a provider of unfunded credit protection where institutions calculate risk-weighted exposures amounts and expected loss amounts under the IRB Approach for the portion of an exposure that is covered by such unfunded credit protection. Where the institutions have received permission for permanent partial use of the Standardised Approach in line with Article 150(1) CRR for exposures to a counterparty, including the ones meeting the conditions set out in Article 214 CRR, and that counterparty is a protection provider for an exposure subject to the IRB Approach without the use of own LGD estimates and conversion factors, for the guaranteed part of the exposure, institutions may recognise the unfunded credit protection in accordance with the requirements of Chapter 4 as applicable under the Standardised Approach. This follows from the first subparagraph of Article 201(2) CRR. Therefore, in this case, the provisions in Chapter 4 that are applicable to the Standardised Approach should be applied to the guaranteed part of the exposure while the unguaranteed part of the exposure should be risk-weighted in accordance with provisions laid down in Chapter 3.