2018_3952 IFRS 9 Transitional arrangements - Distinction between defaulted and non-defaulted exposures for the calculation provided for in Article 473a(5)

Question ID:

2018_3952

Legal Act:

Regulation (EU) No 575/2013 (CRR)

Topic:

Accounting and auditing

Article:

473a

Paragraph:

5(a)

COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations:

Not applicable

Article/Paragraph:

n.a.

Disclose name of institution / entity:

Type of submitter:

Competent authority

Subject Matter:

IFRS 9 Transitional arrangements - Distinction between defaulted and non-defaulted exposures for the calculation provided for in Article 473a(5)

Question:

Should an institution make the calculation in Article 473a(5)(a) of CRR separately for defaulted and non-defaulted exposures?

Background on the question:

Article 159 CRR requires that specific credit risk adjustments on exposures in default shall not be used to cover expected loss amounts on other exposures. However, Article 473a(5)(a) does not make any reference to Article 159 CRR and the text does not specify whether the calculation for the static component should consider this split.

Date of submission:

01/06/2018

Published as Final Q&A:

08/06/2018

Final Answer:

Recital 3 of Regulation (EU) 2017/2395 explains that the objective of the transitional arrangement is to mitigate potentially significant negative impacts on CET1 capital arising from the introduction of expected credit loss accounting. Impacts on CET1 capital that are due to regulatory requirements shall not be neutralized.

Article 473a(5)(a) of CRR does not refer explicitly to Article 159 of Regulation (EU) No 575/2013 (CRR). Article 159 CRR however explains the treatment of expected credit losses calculated “in accordance with Article 158 (5), (6) and (10)”. The paragraphs of Article 158 mentioned above are themselves referenced in the calculation Article 473a(5)(a) of Regulation (EU) 2017/2395. It is reasonable to expect therefore that the calculation should take into account the Article 159 CRR requirement that specific credit risk adjustments on exposures in default shall not be used to cover expected loss amounts on other exposures.

Consequently, the calculations described in Article 473a(5)(a) should be done separately for defaulted and non-defaulted exposures if an excess from defaulted exposures exists. In this case, A ^{_{2 IRB}} shall be the sum of any positive amounts resulting from the separate calculations for defaulted and non-defaulted assets.

Status:

Final Q&A

Answer prepared by:

Answer prepared by the EBA.

Note to Q&A:

~~Update 26.03.2021: This Q&A has not yet been reviewed by the EBA in the light of the changes introduced to Regulation (EU) No 575/2013 (CRR).~~

Update 28.10.2021: 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.