Corporate Loan Using SDA & PC to Meet the 67% Minimum Coverage Requirement

Methods
1

Hello,
I have a question regarding to the 67% minimum coverage requirement for long-term corporate loans. I noticed that there’s an update for the Financial Institutions V2 (PILOT) version that the calculation has become more flexible to determine whether FIs have met the 67% minimum coverage requirement. However, it is stated in the notes that any Portfolio Coverage and/or Temperature Rating target(s) that are set on corporate loans must have 100% coverage within its target boundary.

My question is: does this update still allow FIs to set SDA targets within this 67% coverage (SDA targets loan value calculated with PC targets to meet the 67% requirement)?

For example, a FI has 10% corporate loan in cement sector, 20% loan in service sector, and the rest includes all other sector using PC method. Can I set SDA targets for cement and service sector, and set PC targets for all the rest?
OR
I can only set PC targets that include 100% corporate loan target boundary? (no SDA targets are allowed since SDA targets can’t meet the 67% coverage)

Please confirm which statement is correct, thank you!

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2

Under the FI Near-Term V2 pilot, a mix of target-setting methods can still be used (e.g., SDA targets for cement and service sector, and PC targets for other corporate loans). More generally, a Portfolio Coverage target does not need to cover an entire asset class - it may cover specific portions of an asset class as long as the target boundary is clear in the target language (e.g., XYZ sector within the corporate loan portfolio). The change here is that the target must cover 100% of the stated target boundary (100% of the XYZ sector within the corporate loan portfolio, and not e.g., 50% of the XYZ sector within the corporate loan portfolio).