Would a private individual client need to be regarded as "non retail" if the original exposure is above EUR 1 million (line EUR 2m) or could he stay in the "Retail" exposures class if his EAD is below EUR 1million (EAD close to zero) or the drawn amount is below euro 1m (drawn amount below EUR1m)?
Clarity would be appreciated for both the standardised and IRB approach.
An example could be a private individual client having a line EUR 2 million (original exposures), where he has drawn EUR 0.9 million and liquid collateral after haircut of EUR 1.9 million (e.g. collateral in liquid securities (lombard loans)). The client does not have any property and is not default.
A clear answer is necessary in order to allow for appropriate handing when moving private individual clients above EUR 1m to the corporate exposure class.
Article 123(c) of Regulation (EU) No. 575/2013 (CRR) refers to "the total amount owed" to the institution to assign exposures to the retail exposure class. Therefore only the drawn amount needs to be considered when checking if the EUR 1 million limit is complied with. This is consistent with answer provided to Q&A 416 and Q&A 707. Then, provided that all other conditions of Article 123 of the CRR are met, the exposure as a whole including its undrawn part can qualify as a retail exposure.
Regarding collaterals, Article 123(c) of the CRR states that 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 should be excluded when assessing the EUR 1 million limit. Other collaterals should not be taken into account.
In the above example, the total amount owed to institution is the EUR 0.9 million drawn part, thus the whole EUR 2 million exposure qualifies as retail exposure provided that all other conditions of Article 123 of the CRR are met.
Regarding the IRB approach, according to Article 147(5)(a) of the CRR exposures to one or more natural persons are eligible to retail classification whatever the amount of the exposure or the amount owed to institution is, provided that the other criteria set out in article 147(5) are met.
The EUR 1 million threshold applies only for exposures to an SME to be eligible for the retail exposure class. In this case the part of exposure secured on residential property collateral shall be deducted from the total amount owed to the institution for the purpose of assessing whether this exceeds EUR 1 million.
Update 16.09.2021: This Q&A has been updated in the light of the changes – applying from 28.06.2021 – introduced to Regulation (EU) No 575/2013 (CRR).