Question ID:
2013_354
Legal Act:
Regulation (EU) No 575/2013 (CRR)
Topic:
Credit risk
Article:
159
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations:
Not applicable
Article/Paragraph:
N/A
Disclose name of institution / entity:
No
Type of submitter:
Credit institution
Subject Matter:
Discounts on balance sheet exposures purchased when not in default
Question:

In Regulation (EU) No 575/2013 (CRR) Article 159 it states: "......Discounts on balance sheet exposures purchased when in default in accordance with Article 166(1) shall be treated in the same manner as specific credit risk adjustments." In respect of this how should one treat discounts on purchased exposures that were not in default at the time of purchase and discounts that were not calculated on single exposure level, but instead calculated on a whole portfolio of exposures which are not in default.

Background on the question:

See above.

Date of submission:
08/10/2013
Published as Final Q&A:
11/04/2014
Final Answer:

Article 159 of Regulation (EU) 575/2013 (CRR) does not provide for a treatment of discounts on balance sheet exposures purchased when not in default in the same manner as specific credit risk adjustments.

Furthermore, according to Article 1 of the RTS on the specification of the calculation of specific and general credit risk adjustments in accordance with Article 110(4) of the CRR, such discounts do not qualify as credit risk adjustments.

Hence, such discounts are not allowed to be included in the calculation according to Article 159 of the CRR.

However, according to Article 166(1) of the CRR, if the discount on these exposures purchased is reflected in the balance sheet, the discount should also be reflected in the exposure value.

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

Update 26.03.2021: This Q&A has been reviewed in the light of the changes introduced to Regulation (EU) No 575/2013 (CRR) and continues to be relevant.

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