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Corporate Exposures

Corporate exposures are claims on companies that do not qualify as sovereigns, institutions, or retail. This includes large corporates, SMEs, and specialised lending.

Definition

Corporate exposures include:

Entity Type Description
Large corporates Companies with turnover > EUR 50m
Corporate SMEs Companies with turnover ≤ EUR 50m
Unincorporated businesses Partnerships, sole traders (non-retail)
Non-profit organisations Charities, associations
Special purpose vehicles SPVs not qualifying as specialised lending

SME Definition

An entity qualifies as an SME if:

Criterion Threshold (EUR) Threshold (GBP @ 0.88)
Annual turnover ≤ EUR 50m ≤ GBP 44m
OR Total assets ≤ EUR 43m ≤ GBP 37.84m 
def is_sme(counterparty):
    return (
        counterparty.annual_turnover <= 50_000_000 or  # EUR
        counterparty.total_assets <= 43_000_000         # EUR
    )

Risk Weights (SA)

Corporate risk weights range from 20% (CQS 1) to 150% (CQS 6), with 100% for unrated. Basel 3.1 reduces CQS 3 from 100% to 75%. PRA PS1/26 Art. 122(2) Table 6 retains CQS 5 at 150% (BCBS CRE20.42 reduced to 100%, but the PRA did not adopt this reduction). Basel 3.1 also introduces new sub-categories: investment grade (65%) and SME corporate (85%).

Basel 3.1 additionally introduces a short-term corporate ECAI table (Art. 122(3), Table 6A) for exposures with a specific short-term credit assessment: CQS 1 = 20%, CQS 2 = 50%, CQS 3 = 100%, Others = 150%. CRR has no equivalent short-term corporate table. This feature is not yet implemented in the calculator.

Details: See Key Differences — Corporate for the complete CRR vs Basel 3.1 comparison, new sub-categories, and Table 6A.

IRB Treatment

F-IRB uses supervisory LGD (45% senior, 75% subordinated) with PD floors of 0.03% (CRR) / 0.05% (Basel 3.1). SME corporates (turnover €5m–€50m) benefit from a correlation reduction of up to 4 percentage points.

Large Corporate Restriction

Under Basel 3.1, corporates with consolidated revenues > EUR 500m (GBP 440m) are restricted to F-IRB only. A-IRB is no longer permitted for these exposures.

Details: See IRB Approach for the full formula, correlation, maturity adjustment, and SME size adjustment details.

SME Supporting Factor (CRR Only)

Eligible SME corporates (turnover ≤ EUR 50m, not in default) receive a tiered RWA reduction: 0.7619 for the first ~GBP 2.2m of exposure, 0.85 for the remainder. This factor is removed under Basel 3.1.

Details: See Supporting Factors for the full eligibility criteria, calculation formula, and worked examples.

Calculation Examples

Example 1: Rated Large Corporate (SA)

Exposure: - £75m term loan to Tesco PLC - Rating: BBB (CQS 3) - Undrawn commitment: £25m

Calculation: 

# Drawn portion
EAD_drawn = £75,000,000

# Undrawn (50% CCF for committed facilities)
EAD_undrawn = £25,000,000 × 50% = £12,500,000

# Total EAD
EAD = £87,500,000

# Risk weight (CQS 3)
Risk_Weight = 75%

# RWA
RWA = £87,500,000 × 75% = £65,625,000

Example 2: SME with Supporting Factor (SA)

Exposure: - £8m loan to regional SME - Turnover: £30m (qualifies as SME) - Unrated (100% RW)

Calculation: 

# Base RWA
EAD = £8,000,000
Base_RWA = £8,000,000 × 100% = £8,000,000

# SME factor (tiered)
threshold = £2,200,000
factor = (2,200,000 × 0.7619 + 5,800,000 × 0.85) / 8,000,000
factor = (1,676,180 + 4,930,000) / 8,000,000 = 0.826

# Adjusted RWA (CRR)
Adjusted_RWA = £8,000,000 × 0.826 = £6,606,400

# Basel 3.1 (no factor)
B31_RWA = £8,000,000

Example 3: Corporate IRB

Exposure: - £50m corporate loan - Bank PD estimate: 0.75% - F-IRB (LGD = 45%) - Maturity: 4 years - Turnover: £100m (no SME adjustment)

Calculation: 

# Step 1: PD (above floor)
PD = 0.0075

# Step 2: Correlation
R = 0.12 × (1 - exp(-50 × 0.0075)) / (1 - exp(-50)) +
    0.24 × (1 - (1 - exp(-50 × 0.0075)) / (1 - exp(-50)))
R = 0.12 × 0.313 + 0.24 × 0.687 = 0.202

# Step 3: K calculation
K ≈ 0.0445  # From IRB formula

# Step 4: Maturity adjustment
b = (0.11852 - 0.05478 × ln(0.0075))^2 = 0.149
MA = (1 + (4 - 2.5) × 0.149) / (1 - 1.5 × 0.149) = 1.29

# Step 5: RWA (CRR)
RWA_CRR = 0.0445 × 12.5 × £50,000,000 × 1.29 × 1.06
RWA_CRR = £38,107,313

# Basel 3.1 (no scaling)
RWA_B31 = £35,950,295

Example 4: SME Corporate IRB

Exposure: - £15m loan - PD: 1.5% - F-IRB (LGD = 45%) - Maturity: 3 years - Turnover: £20m (SME)

Calculation: 

# SME correlation adjustment
S = 20
R_base = 0.179
adjustment = 0.04 × (1 - (20 - 5) / 45) = 0.027
R_sme = 0.179 - 0.027 = 0.152

# Results in lower K, lower RWA
# Plus SME Supporting Factor on final RWA (CRR)

Subordinated Debt

Instrument Type CRR Treatment Basel 3.1
Senior unsecured Standard corporate RW Standard
Subordinated debt Corporate RW + premium 150%
Mezzanine Corporate RW + premium 150%
Equity-like 150% 250%

CRM for Corporates

Eligible Collateral

Collateral Type SA F-IRB LGD
Cash ✅ 0%
Government bonds ✅ 0%
Corporate bonds ✅ Varies
Listed equity ✅ Varies
Real estate ✅ 35%
Receivables ✅ 35%
Other physical Limited 40%

Guarantees

Corporate exposures can benefit from guarantees by: - Sovereigns (0% if CQS 1) - Institutions (if better rated) - Parent companies (under conditions)

Regulatory References

Topic CRR Article BCBS CRE
Corporate definition Art. 122 CRE20.35-40
Risk weights Art. 122 CRE20.41-45
SME definition Art. 501(2) N/A
SME factor Art. 501 N/A
IRB corporate Art. 153 CRE31
Correlation Art. 153(3) CRE31.5

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