In the definition of the retail exposures it states "...excluding exposures fully and completely secured on residential property collateral that have been assigned to the exposure class laid down in point (i) of Article 112..." of Regulation (EU) No. 575/2013 (CRR). Does this mean that exposures that are in default but fully secured on residential property (meeting all minimum requirements and limits) are not excluded?
E.g. for a group of connected customers, the on-balance sheet exposures (gross of value adjustments/impairments), i.e. total amount owed, are EUR €2.000.000 of which the amounts secured by residential property under Article 112(i) of CRR are EUR 1.200.000. Therefore, the amounts excluding residential real estate exposures under Article 112(i) would be EUR 800.000, hence classified as Retail. If for the same group of connected customers some of the exposures secured with residential real estate goes into default, for example EUR 300.000, does that mean that the customer exposures are no longer considered retail? (The exposures that would fall in Article 112(i) would decrease to EUR 900.000 and the amounts excluding residential real estate under Article 112(i) would be more than EUR 1m). The size and substance of the exposures do not change.
Where an exposure classified in the retail exposure class under Article 112(h) of Regulation (EU) No. 575/2013 (CRR) or exposures secured by mortgages on immovable property under Article 112(i) of the CRR goes into default, this shall be reclassified in the exposures in default class under Article 112(j) of the CRR.
Consequently, when such an exposure has been reassigned to the default class it will contribute to the EUR 1 million cap on the total amount owed to the institution and parent undertakings and its subsidiaries under
Article 123point (c) of the first subparagraph of Article 123 of Regulation (EU) 575/2013 (CRR).
Update 26.03.2021: This Q&A has been updated in the light of the changes introduced to Regulation (EU) No 575/2013 (CRR).