6.1 This chapter sets out the methodology the PRA uses to inform the setting of a firm’s Pillar 2A capital requirement for single name, sector and geographical credit concentration risk in the banking and trading books.

Definition and scope of application

6.2 Credit concentration risk is the risk of losses arising as a result of concentrations of exposures due to imperfect diversification. This imperfect diversification can arise from the small size of a portfolio or a large number of exposures to specific obligors (single name concentration) or from imperfect diversification with respect to economic sectors or geographical regions.

6.3 For the purposes of the methodology specified below, only wholesale credit portfolios are considered for single name and sector concentration risk (excluding securitisation, intra-group exposures [Where the calculation is in respect of a ring-fenced body on a sub-consolidated basis, intragroup exposures to group entities not included in the sub-consolidation are treated as if they were exposures to third parties.] and non-performing loans). All credit portfolios other than residential mortgage portfolios on the standardised approach are considered for geographic concentration risk.

Methodology for assessing Pillar 2A capital for credit concentration risk