Risk weight multiplier for certain exposures with currency mismatch

1. For exposures originated after 1 January 2023, an ADI must apply a 1.5 times multiplier to the applicable risk weight for any unhedged retail or residential property exposure to individuals, where the lending currency differs from the currency of the borrower’s source of income.
2. An unhedged exposure is an exposure to a borrower that has no natural or financial hedge against the foreign exchange risk resulting from the currency mismatch between the currency of the borrower’s income and the currency of the loan. A natural hedge exists where the borrower receives foreign currency income that matches the currency of a given loan. A financial hedge generally includes a legal contract with a financial institution. For the purpose of the application of the multiplier, an ADI may only treat an exposure as hedged where the natural or financial hedge covers at least 90 per cent of the loan repayment amount.