Supporting Factors¶

Supporting Factors are capital relief mechanisms under CRR that reduce RWA for qualifying exposures. These factors are removed under Basel 3.1.

Basel 3.1 Impact

Both the SME Supporting Factor and Infrastructure Factor are withdrawn from 1 January 2027 under Basel 3.1 (PRA PS1/26).

SME Supporting Factor¶

The SME Supporting Factor (Article 501 CRR) provides capital relief for exposures to Small and Medium Enterprises.

Eligibility Criteria¶

Criterion	Requirement
Counterparty	SME (turnover ≤ EUR 50m / ~GBP 43.7m)
Exposure class	Corporate, Retail, or Secured by Real Estate
Approach	SA or IRB
Exposure type	Not in default
Not buy-to-let	`is_buy_to_let = False` (BTL exposures excluded per CRR Art. 501)

Calculation¶

The factor is tiered based on total exposure to the counterparty:

threshold = EUR 2,500,000  # ~GBP 2,183,000

if total_exposure <= threshold:
    factor = 0.7619  # 23.81% reduction
else:
    factor = (threshold × 0.7619 + (total_exposure - threshold) × 0.85) / total_exposure

Factor Values¶

Total Exposure	Factor	RWA Reduction
≤ ~GBP 2.18m	0.7619	23.81%
GBP 3m	0.789	21.1%
GBP 5m	0.811	18.9%
GBP 10m	0.831	16.9%
GBP 25m	0.840	16.0%
GBP 50m	0.843	15.7%

Graphical Representation¶

Factor
1.00 |
     |
0.90 |
     |                    ....----------------
0.85 |                ....
     |            ....
0.80 |        ....
     |    ....
0.76 |....
     |___________________________________
     0     2.18m   5m    10m   25m   50m  Exposure

Calculation Example¶

Exposure: - SME corporate with turnover £30m - Total exposure: £8m - Base RWA: £6.4m (80% average RW)

SME Factor Calculation:

threshold = 2,183,000  # EUR 2.5m × 0.8732

# Tiered calculation
portion_1 = 2,183,000 × 0.7619 = 1,663,238
portion_2 = (8,000,000 - 2,183,000) × 0.85 = 4,944,450

total_weighted = 1,663,238 + 4,944,450 = 6,607,688
factor = 6,607,688 / 8,000,000 = 0.826

# Apply to RWA
Adjusted_RWA = 6,400,000 × 0.826 = £5,286,400

# Saving: £1,113,600 (17.4%)

SME Definition¶

An entity qualifies as an SME if: - Annual turnover ≤ EUR 50m (~GBP 43.7m), OR - Total assets ≤ EUR 43m (~GBP 37.6m)

Turnover Source: 1. Audited financial statements (preferred) 2. Management accounts 3. Tax returns 4. Estimated based on relationship data

Infrastructure Supporting Factor¶

The Infrastructure Supporting Factor (Article 501a CRR) provides capital relief for qualifying infrastructure project finance.

Eligibility Criteria¶

Criterion	Requirement
Exposure type	Project finance
Entity type	Project entity or High Quality Project Entity
Revenue	Predictable, predominantly EUR/GBP (or hedged)
Contracts	Robust contractual framework
Cash flows	Reliable debt service

Factor Value¶

A flat 0.75 factor (25% RWA reduction) applies to the entire exposure:

if is_qualifying_infrastructure:
    factor = 0.75
    Adjusted_RWA = RWA × 0.75

High Quality Project Entity (HQPE)¶

Additional criteria for maximum benefit:

Criterion	HQPE Requirement
Revenues	Highly predictable
Contractual framework	Comprehensive protection
Equity cushion	Adequate for risk
Operating risk	Limited or mitigated
Refinancing risk	Limited or covered

Qualifying Infrastructure¶

Category	Examples
Transport	Roads, railways, ports, airports
Energy	Power generation, transmission, distribution
Water	Treatment, distribution, drainage
Social	Hospitals, schools, housing
Communications	Telecoms, broadband

Non-Qualifying Examples¶

Exclusion	Reason
Speculative development	Cash flow uncertainty
Mining/extraction	Commodity price risk
Merchant power	Revenue volatility
Early-stage tech	Unproven technology

Calculation Example¶

Exposure: - Infrastructure project finance - Toll road concession - Base RWA: £15m (slotting category "Satisfactory", 115% RW) - Qualifies for infrastructure factor

Calculation:

factor = 0.75

Adjusted_RWA = 15,000,000 × 0.75 = £11,250,000

# Saving: £3,750,000 (25%)

Interaction of Factors¶

SME + Infrastructure¶

Both factors can potentially apply:

# Corporate SME with infrastructure characteristics
if is_sme and is_qualifying_infrastructure:
    # Apply SME factor to corporate exposure
    # Infrastructure factor applies to project finance only
    # Generally mutually exclusive by exposure type

With CRM¶

Supporting factors apply after CRM:

# Order of operations
1. Apply CRM (reduce exposure/RW)
2. Calculate base RWA
3. Apply supporting factors

With IRB¶

Factors apply to IRB RWA before the 1.06 scaling:

# IRB with SME factor
RWA_base = K × 12.5 × EAD × MA
RWA_with_sme = RWA_base × SME_factor
RWA_final = RWA_with_sme × 1.06  # CRR scaling applied last

IRB SME Adjustment

For IRB, the SME size adjustment to correlation is separate from the SME Supporting Factor. Both can apply to the same exposure.

Implementation¶

Enabling Supporting Factors¶

from rwa_calc.contracts.config import CalculationConfig

# Enable both factors (CRR default)
config = CalculationConfig.crr(
    reporting_date=date(2026, 12, 31),
    apply_sme_supporting_factor=True,
    apply_infrastructure_factor=True
)

# Disable for comparison
config_no_factors = CalculationConfig.crr(
    reporting_date=date(2026, 12, 31),
    apply_sme_supporting_factor=False,
    apply_infrastructure_factor=False
)

Basel 3.1 Configuration¶

# Basel 3.1 - factors not available
config = CalculationConfig.basel_3_1(
    reporting_date=date(2027, 1, 1)
)

# apply_sme_supporting_factor is ignored
# apply_infrastructure_factor is ignored

Calculating Factors¶

from rwa_calc.engine.sa.supporting_factors import (
    SupportingFactorCalculator,
    create_supporting_factor_calculator,
)
from rwa_calc.contracts.config import CalculationConfig
from decimal import Decimal
from datetime import date

config = CalculationConfig.crr(reporting_date=date(2026, 12, 31))
calculator = create_supporting_factor_calculator()

# SME factor — uses config for EUR/GBP rate and thresholds
sme_factor = calculator.calculate_sme_factor(
    total_exposure=Decimal("8000000"),
    config=config,
)
# Returns ~0.826 for £8m exposure (tiered calculation)

EUR/GBP Conversion¶

Thresholds are defined in EUR and converted to GBP:

# Default rate (matches CalculationConfig.eur_gbp_rate)
EUR_GBP_RATE = 0.8732

# Thresholds
SME_TURNOVER_EUR = 50_000_000
SME_TURNOVER_GBP = 50_000_000 × 0.8732 ≈ 43_660_000

SME_EXPOSURE_EUR = 2_500_000
SME_EXPOSURE_GBP = 2_500_000 × 0.8732 ≈ 2_183_000

Configuring FX Rate¶

from decimal import Decimal
from rwa_calc.contracts.config import CalculationConfig

config = CalculationConfig.crr(
    reporting_date=date(2026, 12, 31),
    eur_gbp_rate=Decimal("0.85")  # Custom rate
)

Impact Analysis¶

Portfolio Impact¶

Portfolio Type	SME Factor Impact	Infra Factor Impact
SME-heavy	15-24% RWA reduction	N/A
Infrastructure	N/A	25% RWA reduction
Mixed	Weighted average	Weighted average

Basel 3.1 Transition¶

For portfolios heavily reliant on supporting factors:

# Estimate impact
CRR_RWA = base_rwa × sme_factor  # e.g., £8m × 0.83 = £6.64m
B31_RWA = base_rwa  # £8m (no factor)

Impact = B31_RWA - CRR_RWA  # £1.36m increase (20.5%)

Regulatory References¶

Topic	CRR Article
SME Supporting Factor	Art. 501 (CRR2)
SME definition	Art. 501(2)
Tiered calculation	Art. 501(1)
Infrastructure Factor	Art. 501a
HQPE definition	Art. 501a(1)

Next Steps¶

Framework Comparison - CRR vs Basel 3.1 impact
Configuration Guide - Enabling/disabling factors
IRB Approach - SME correlation adjustment