Does Article 208(3)(a) CRR require institutions to monitor property values of all commercial properties on a yearly basis, regardless of whether they can qualify as eligible collateral for credit risk mitigation?
The requirements on monitoring of property values and on property valuation, as set out in Article 208(3)(a) CRR, set requirements for a minimum yearly update of property values for commercial property for it to qualify as eligible collateral.
We find unclear which is the scope of Article 208 CRR. Article 208 CRR lists requirements that must be met for immovable property to be considered eligible collateral. The requirements apply to both residential and commercial properties.
Q&A 1214 clarifies that commercial immovable property encompasses any property that is not residential. Given the eligibility requirements for commercial immovable properties to qualify as credit risk mitigations it is clear that some types of commercial properties do not qualify, e.g. properties only applicable for a specific type of use. Therefore, exposures secured by mortgages on such non-eligible commercial property are assigned risk weights according to the counterparty involved and are not treated as exposures secured by mortgage on immovable property (under the standardised approach).
Given that properties do not meet said qualifications there is a doubt whether an institution is still required to follow the requirements in Article 208, especially the requirements laid down in paragraph (3) regarding monitoring of property values, to comply to the Regulation.
Article 208 of Regulation (EU) No 575/2013 as amended (CRR) is clear in the sense that it sets the eligibility requirements for immovable property collateral to qualify as a form of funded credit protection (FCP). In particular, Article 208(3)(a) CRR clarifies that if the value of the commercial immovable property is not monitored at minimum once a year then such collateral is not an eligible form of FCP.
More generally, if an immovable property does not meet one of the FCP eligibility requirements, all other requirements to be an eligible form of FCP are not relevant for this immovable property.