Specialised Lending¶

Specialised Lending exposures are those where repayment depends primarily on the cash flows generated by the financed assets rather than the independent capacity of the borrower. These exposures receive special treatment under both SA and IRB frameworks.

Overview¶

Specialised lending categories:

Slotting Approach¶

The Slotting Approach maps exposures to supervisory categories based on qualitative criteria, rather than estimating PD:

flowchart LR
    A[Exposure] --> B[Assess Criteria]
    B --> C{Map to Category}
    C --> D[Strong]
    C --> E[Good]
    C --> F[Satisfactory]
    C --> G[Weak]
    C --> H[Default]
    D --> I[Risk Weight]
    E --> I
    F --> I
    G --> I
    H --> J[RW = 0%]

Slotting Categories¶

Assessment Criteria¶

Each exposure is assessed against supervisory criteria:

Project Finance Criteria¶

IPRE Criteria¶

Risk Weights¶

CRR Risk Weights¶

Under CRR Art. 153(5), risk weights are differentiated by HVCRE status and remaining maturity:

Non-HVCRE (PF, OF, CF, IPRE):

HVCRE:

Basel 3.1 Risk Weights¶

Basel 3.1 replaces the maturity-based split with three distinct tables:

Defaulted Exposures¶

Defaulted specialised lending exposures receive a 0% risk weight (RWA = 0). Expected loss treatment is handled separately via the provisions and EL comparison framework (see Provisions).

Calculation Example¶

Exposure: - IPRE loan, £20m - LTV: 65% - DSCR: 1.25x - Prime location - Strong tenant - Category assessment: Good - Non-HVCRE, maturity >= 2.5 years

CRR Calculation:

# Category: Good, Non-HVCRE, >= 2.5yr
Risk_Weight = 90%

# RWA
RWA = EAD × Risk_Weight
RWA = £20,000,000 × 90%
RWA = £18,000,000

Basel 3.1 Calculation:

# Standard (Operational) Good = 90% (same as CRR >= 2.5yr)
RWA = £20,000,000 × 90%
RWA = £18,000,000

SA Alternative¶

Specialised lending can also be treated under SA when the slotting approach is not used:

When to use SA vs Slotting:

Implementation¶

Slotting Calculator¶

from rwa_calc.engine.slotting.calculator import SlottingCalculator
from rwa_calc.contracts.config import CalculationConfig

calculator = SlottingCalculator()

# calculate() takes a CRMAdjustedBundle and returns LazyFrameResult
result = calculator.calculate(
    data=crm_adjusted_bundle,
    config=CalculationConfig.crr(reporting_date=date(2026, 12, 31))
)

# result.frame is a LazyFrame, result.errors is list[CalculationError]
rwa_df = result.frame.collect()

For single-exposure calculations, build a single-row LazyFrame and call calculate_branch():

import polars as pl

df = pl.DataFrame({
    "exposure_reference": ["EX1"],
    "ead": [20_000_000.0],
    "slotting_category": ["good"],
    "is_hvcre": [False],
    "is_short_maturity": [False],
    "is_pre_operational": [False],
}).lazy()

result = calculator.calculate_branch(
    df, CalculationConfig.crr(reporting_date=date(2026, 12, 31))
).collect().to_dicts()[0]
# result["rwa"] -> 18_000_000.0

Risk Weight Lookup¶

from rwa_calc.data.tables.crr_slotting import lookup_slotting_rw
from rwa_calc.domain.enums import SlottingCategory

# Non-HVCRE, standard maturity (>= 2.5yr)
rw = lookup_slotting_rw(category=SlottingCategory.GOOD)
# Returns: Decimal('0.90')

# HVCRE
rw = lookup_slotting_rw(category=SlottingCategory.GOOD, is_hvcre=True)
# Returns: Decimal('1.20')

# Short maturity (< 2.5yr)
rw = lookup_slotting_rw(category=SlottingCategory.STRONG, is_short_maturity=True)
# Returns: Decimal('0.50')

Project Finance Detail¶

Pre-Operational Phase¶

Project is in construction or commissioning: - Construction risk present - Cash flows not yet established - Higher risk weights under Basel 3.1

Operational Phase¶

Project is generating cash flows: - Construction complete - Revenue stream established - Standard slotting weights apply

Phase Transition¶

# Basel 3.1 applies different weights for PF pre-operational
if framework == "BASEL_3_1" and lending_type == "PROJECT_FINANCE":
    if phase == "pre_operational":
        # Use higher pre-op weights
        weights = {"strong": 0.80, "good": 1.00, "satisfactory": 1.20, "weak": 3.50}
    else:
        # Use standard operational weights
        weights = {"strong": 0.70, "good": 0.90, "satisfactory": 1.15, "weak": 2.50}

HVCRE Treatment¶

High Volatility Commercial Real Estate receives higher risk weights due to: - Speculative development - No established cash flows - Higher correlation to economic cycles

HVCRE Criteria: - CRE development or land acquisition - Repayment from future sale or refinancing - Uncertain outcome

Risk Weight Comparison:

Supporting Factors¶

Infrastructure project finance may qualify for the 0.75 infrastructure supporting factor under CRR (Art. 501a). This factor is applied by the SupportingFactorCalculator after slotting risk weights are determined, not within the slotting engine itself.

See Supporting Factors for eligibility criteria and application details.

Regulatory References¶

Next Steps¶

• Credit Risk Mitigation - CRM for specialised lending
• Supporting Factors - Infrastructure factor details