Question ID
2016_3012
Legal act
Regulation (EU) No 575/2013 (CRR)
Topic
Credit risk
Article
501
Paragraph
2
Subparagraph
a
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations
Not applicable
Article/Paragraph
N/A
Type of submitter
Credit institution
Subject matter
Capital requirements deduction for credit risk on exposures to SMEs
Question

Further to Q&A 2135 and Q&A 2268, can the capital requirement deduction (SME factor) be applied for speculative immovable property financing (Corporates) if conditions determined in Article 501(1) and (2) of Regulation No 575/2013 (CRR) are met?

Background on the question

Exposures listed in CRR 128(2)(c) - Speculative immovable property financing - should receive a 150% risk weighting.

The original aim of the special SME factor is to support SME lending by decreasing the capital requirement of credit institutions through the application of a supporting factor equal to 0.7619.

Article 147(8) identifies specialized lending as a sub-class of the corporate exposures. Exposures under CRR 128(2)(c) can also be special purpose vehicles (special lending classes) and these exposures can also meet the SME criteria.

 

 

Submission date
Final publishing date
Final answer

In accordance with Article 501(2)(a) the SME supporting factor applies only to the listed classes of “retail”, “corporates” and “secured by mortgages” exposures.  

Under the Standardised Approach “Exposures associated with particularly high risk" constitute a separate exposures class according to Article 112(k) CRR. This exposure class does not belong to any of the classes which Article 501(2)(a) CRR refers to. Therefore, under the Standardised Approach the reduced capital requirements for credit risk on exposures to SMEs according to Article 501 CRR cannot be applied to exposures associated with particularly high risk.

Under the IRB Approach exposures, which under the Standardised Approach would be assigned to either the “secured by mortgages on immovable property” or the “associated with particularly high risk” class, are not included in a separate exposure class and shall be assigned to one of the exposure classes under Article 147(2) CRR and, in case of an exposure towards an SME, under either letter (c) or (d). Therefore, an exposure towards a corporate meeting the definition of “speculative immovable property financing” may qualify for the application of the SME supporting factor under the IRB, provided that all the other relevant criteria in Article 501(2) CRR are met.

Nevertheless, according to Article 501(2)(a)(1) CRR exposures assigned to any of the IRB exposure classes which are in default shall be excluded from the application of the SME Supporting factor. 

Status
Final Q&A
Answer prepared by
Answer prepared by the EBA.
Note to Q&A

Update 26.03.2021: This Q&A has not yet been reviewed by the EBA in the light of the changes introduced to Regulation (EU) No 575/2013 (CRR).

Update 28.10.2021: This Q&A has been amended in light of the change(s) in Article 501 to Regulation (EU) No 575/2013 (CRR), applicable from 27.06.2020.

Disclaimer

The Q&A refers to the provisions in force on the day of their publication. The EBA does not systematically review published Q&As following the amendment of legislative acts. Users of the Q&A tool should therefore check the date of publication of the Q&A and whether the provisions referred to in the answer remain the same.