2014_1241 Leasing: Residual value risk | European Banking Authority

Question ID:: 2014_1241
Legal Act:: Regulation (EU) No 575/2013 (CRR)
Topic:: Credit risk
Article:: 134
Paragraph:: 7
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations:: Not applicable
Article/Paragraph:: n/a
Disclose name of institution / entity:: No
Type of submitter:: Individual
Subject Matter:: Leasing: Residual value risk
Question:: In the calculation of the exposure value for residual value risk of leased assets, is the "residual value" that has to be multiplied with 1/t (a) the residual value on the date of calculation / the reporting date or (b) the estimated residual value at the end of the lease term?
Background on the question:: When the exposure is a residual value of leased assets, the risk weighted exposure amounts shall be calculated as follows: 1/t * 100 % * residual value, where t is the greater of 1 and the nearest number of whole years of the lease remaining.
Date of submission:: 26/05/2014
Published as Final Q&A:: 06/03/2015
Final Answer:: Under Article 134(7) of Regulation (EU) No 575/2013 (CRR), when the exposure is a residual value of leased assets, this residual value is to be determined in accordance with the applicable accounting framework, according to Article 24(1). However, for the purposes of the calculation of the formula 1/t*100%*residual value, this should be the undiscounted estimated residual value at the end of the lease term which is reassessed periodically to ensure continued appropriateness.
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.