Response to consultation on draft Regulatory Technical Standards on materiality threshold of credit obligation past due
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However, we believe that for portfolios characterised by a large number of individual files, such as retail portfolios, the threshold should be easy to implement due to the burden represented by the numerous checks. Therefore, for such cases banks may have the option to fix absolute thresholds, in the spirit of the RTS and of the internal risk management processes of the institution.
Banks have to base their recalibration of risk parameters upon a five year data period. It would be extremely burdensome or possibly impossible for some of them to search through the mass data of their transactions from 2010 on to identify past due periods according to the new materiality thresholds. All accounts of a costumer must be included and checked against the advised limit at that day.
Furthermore, even if a bank had overcome those difficulties the purely statistical recalculation would not provide a correct picture. Banks have implemented procedures to remind customers being in danger to breach their limit. These procedures cannot be simulated in retrospect and data cannot be adjusted to the changed criteria.
Supervisory authorities have to accept the recalibrated risk parameters before a bank is allowed to use them. Because banks cannot control the necessary time for supervisory review and approval the transition period should refer to the date of application by the bank and a preliminary approval should be stipulated until the definite decision. Otherwise a bank would have to step back to the standardised approach when the authorities don’t manage to work through all concurrent applications in time.
Q2. Do you agree with the proposed maximum levels of the thresholds?
We agree on the maximum level of the absolute threshold, but suggest raising the maximum amount of the relative threshold. The maximum 2% threshold is very restrictive and would not identify real default cases. We consider it appropriate that it is raised to 4% of the total amount of all credit obligations of the borrower.However, we believe that for portfolios characterised by a large number of individual files, such as retail portfolios, the threshold should be easy to implement due to the burden represented by the numerous checks. Therefore, for such cases banks may have the option to fix absolute thresholds, in the spirit of the RTS and of the internal risk management processes of the institution.
Q3. How much time is necessary to implement the threshold set by the competent authority according to this proposed draft RTS? Given current practices, what is the scope of work required to achieve compliance?
We regard as the shortest realistic time horizon to implement such changes in 7 years.Banks have to base their recalibration of risk parameters upon a five year data period. It would be extremely burdensome or possibly impossible for some of them to search through the mass data of their transactions from 2010 on to identify past due periods according to the new materiality thresholds. All accounts of a costumer must be included and checked against the advised limit at that day.
Furthermore, even if a bank had overcome those difficulties the purely statistical recalculation would not provide a correct picture. Banks have implemented procedures to remind customers being in danger to breach their limit. These procedures cannot be simulated in retrospect and data cannot be adjusted to the changed criteria.
Supervisory authorities have to accept the recalibrated risk parameters before a bank is allowed to use them. Because banks cannot control the necessary time for supervisory review and approval the transition period should refer to the date of application by the bank and a preliminary approval should be stipulated until the definite decision. Otherwise a bank would have to step back to the standardised approach when the authorities don’t manage to work through all concurrent applications in time.