In template C 103.00 ”Details on exposures in High Default Portfolio”, column 230 and 240, it is demanded the RWA* and RWA**. For those purposes, we need to calculate a PD* and PD**. Our question is about how PD* must be estimated. In this sense we have read the specifications and we need more clarifications or be sure our understanding is correct.
We have two ways:
The instructions for c250 to c280 of template C 103.00 in Annex IV of the Draft ITS on Supervisory Reporting for Institutions for benchmarking the internal approaches (ITS on benchmarking) require the hypothetical PD* to be determined at rating grade level. Consequently the PD assigned to each specific obligor grade or pool shall be considered for supervisory reporting purposes
shall be considered, regardless of the underlying rating system. In particular, the average PD and average default rate shall be used as proposed under option 2 (n referring to the number of obligors in the benchmark portfolio one year before the reference date). In general, the same rating scale as reported in the Template C 08.02 of Annex I of Regulation (EU) No 680/2014 - ITS on Supervisory Reporting of institutions (ITS on reporting) shall be used. DISCLAIMER: The present Q&A on Supervisory reporting is provisional. It will be reviewed after the Implementing Regulation is in force and published in the Official Journal. The text of the Implementing Regulation may differ from the text of the draft ITS to which this Q&A refers.
Update 26.03.2021: This Q&A has been updated in the light of the most recent amendments to the ITS 2016/2070 on Supervisory Benchmarking.