Question ID:
2021_6239
Legal Act:
Regulation (EU) No 575/2013 (CRR)
Topic:
Credit risk
Article:
166
Paragraph:
8 and 10
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations:
Not applicable
Article/Paragraph:
na
Disclose name of institution / entity:
No
Type of submitter:
Consultancy firm
Subject Matter:
Nature and treatment of off-balance financial leasing exposures (generated by the lag between the order of the asset and the rental starting date)
Question:

Should off-balance financial leasing exposures (generated by the lag between the order of the asset and the rental starting date) be considered as a “credit line” and hence fall into Article 166.8(d) of the CRR or as an “undrawn credit facility” and hence fall into Article 166.10?

Background on the question:

According to the euro bank lending survey No 179/ September 2016 published by the ECB, a credit line is defined as a product the borrower can use without reference to any drawing schedule: “A credit line is a facility with a stated maximum amount which an enterprise is entitled to borrow from a bank at any given time […]”.

For financial leasing products, the exposure appears off-balance between the moment the contract is signed, until the rental starting date. As soon as the client proceeds to the first leasing payment, the full exposure directly goes on-balance.

There is no possibility for the client to draw part or the full exposure at any given time. The timing of drawing corresponds to the moment the asset is delivered and the leasing payment starts. This resembles more to a single drawing of a committed facility than a credit line at the disposal of the client.

Hence, off-balance financial leasing exposures should not be considered as a credit line but as an undrawn credit facility.

Date of submission:
18/10/2021
Status:
Question under review
Answer prepared by:
Answer prepared by the EBA.
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