- Question ID:
- Legal Act:
- Regulation (EU) No 575/2013 (CRR)
- Credit risk
- COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations:
- Not applicable
- Disclose name of institution / entity:
- Type of submitter:
- Subject Matter:
- Treatment of retail exposures secured by property under IRB
How should institutions treat a retail exposure for an SME that has a minor property collateral (and thus it is partly secured by immovable property) but the purpose of this loan is not property/mortgage finance?
Are the correlation coefficient prescribed in Article 154(3) and the minimum LGD requirement in Article 164(4) applicable for the full exposure?
- Background on the question:
CRR article 154(3): For retail exposures secured by immovable property collateral a coefficient of correlation R of 0,15 shall replace the figure produced by the correlation formula in paragraph 1.
Article 164(4): The exposure weighted average LGD for all retail exposures secured by residential property and not benefiting from guarantees from central governments shall not be lower than 10%.
The exposure weighted average LGD for all retail exposures secured by commercial immovable property and not benefiting from guarantees from central governments shall not be lower than 15%.
- Date of submission:
- Published as Final Q&A:
- Final Answer:
The specific coefficient of correlation according to Article 154(3) of Regulation (EU) No 575/2013 (CRR) and the floor for the exposure-weighted average LGD according to Article 164(4) CRR are applicable to any retail exposures secured by immovable property recognised as collateral, regardless of the ratio of the value of collateral to the exposure or of the purpose of the loan.
Unlike Articles 124 to 126 CRR for the standardised approach, Article 154(3) CRR does not refer to exposures or parts of exposures "fully" or "fully and completely" secured by immovable property.
- 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.