(1) Institutions shall ensure that -

(a) credit-granting is based on sound and well-defined criteria and that the process for approving, amending, renewing and re-financing credits is clearly established,

(b) subject to paragraph (2), they have internal methodologies that enable them to assess the credit risk of exposures to individual obligors, securities or securitisation positions and credit risk at the portfolio level,

(c) the ongoing administration and monitoring of the various credit riskbearing portfolios and exposures, including for identifying and managing problem credits and for making adequate value adjustments and provisions, is operated through effective systems, and

(d) diversification of credit portfolios is adequate having regard to the target markets and overall credit strategy of the institution concerned.

(2) Internal methodologies referred to in paragraph (1)(b) shall, in particular, not rely solely or mechanistically on external credit ratings.

(3) Where own funds requirements are based on -

(a) a rating by an external credit assessment institution, or

(b) the fact that an exposure is unrated,