Question ID
2013_257
Legal act
Regulation (EU) No 575/2013 (CRR)
Topic
Credit risk
Article
501
Paragraph
1
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations
Not applicable
Article/Paragraph
N/A
Type of submitter
Credit institution
Subject matter
Calculation of capital requirements for SME under Article 501 of CRR
Question

How should the capital requirements be calculated for SME exposures according to Article 501 of Regulation (EU) No 575/2013 (CRR)? In essence we are asking if the risk weighted assets for qualifying SMEs should be reduced or only the capital requirements for qualifying SMEs.

Background on the question

In Article 501(1) of CRR it states "Capital requirements for credit risk on exposures to SMEs shall be multiplied by the factor 0,7619". We are seeking clarification on the exact meaning of this statement as there could be at least two interpretations: 1) The institution should calculate risk weighted assets normally, then calculate the capital requirements normally (by multiplying the risk weighted assets by 0,08 etc.) and then multiply the capital requirement by the factor 0,7619 thereby getting to the reduced capital requirement for SMEs. or 2) The institution should calculate risk weighted assets for the qualifying SME portfolio normally, then multiply the risk weighted assets with the SME reduction factor of 0,7619 and then use the new reduced risk weighted assets in order to calculate the capital requirements normally. Of course both of these methods should only be used for the SME exposures which qualify for the SME capital requirement deduction.

Submission date
Final answer

Capital requirements for credit risk refers to the risk-weighted exposure amounts set out in Article 92(3)(a) of Regulation (EU) No 575/2013 (CRR). Institutions should therefore calculate risk weighted exposure amounts for their qualifying SME exposures and then multiply these by the factor specified in Article 501(1) of the CRR (0,7619). The reduced amount of risk weighted exposure amount should then be used in the calculation according to Article 92(3)(a) of the CRR. The final draft ITS on Supervisory Reporting provides guidance on how each of these figures should be reported under both the Standardised and IRB Approaches for Credit Risk. It should be noted, however, that this final draft ITS may still be subject to changes before it is formally adopted and published in the Official Journal of the European Union.

Status
Archive
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 archived as the issue it deals with has been clarified in Article 501 of Regulation (EU) No 575/2013 (CRR), applicable from 28.06.2021.