In accordance with Article 127, point 1 of the CRR, the unsecured part of any item (…) defaulted in accordance with Article 178 shall be assigned a risk weight of:

a) 150 %, where the sum of specific credit risk adjustments (…) is less than 20 % of the unsecured part of the exposure value if those specific credit risk adjustments and deductions were not applied;

b) 100 %, where the sum of the specific credit risk adjustments (…) is no less than 20 % of the unsecured part of the exposure value if those specific credit risk adjustments and deductions were not applied.

Article 127 refers to “exposure value”. “Exposure value” is defined in Article 111, point 1.

For off-balance sheet items, Article 111 point 1 states that exposure value is the value calculated taking into consideration the appropriate credit conversion factor: “exposure value of an off-balance sheet item (…) shall be the following percentage of its nominal value (…)”.

In the CRR, when credit conversion factors shall be applied in different manner, this is clearly emphasized, for example in article 223(4a): “the exposure value of an off-balance sheet item listed in Annex I shall be 100 % of its value rather than the exposure value indicated in Article 111(1)”.

For example:

gross balance value of unsecured part of the exposure = 100

gross off-balance value of unsecured part of the exposure = 60

CCF = 20%

specific credit risk adjustments = 30

In this example:

1) exposure value for the purpose of Article 127, point 1 of the CRR should be calculated as 100+60*20%=112, percentage of specific credit risk adjustments as 30/112=26,8% and risk weight is equal 100%

or

2) exposure value for the purpose of Article 127, point 1 of the CRR should be calculated as 100+60=160, percentage of specific credit risk adjustments as 30/160=18,8% and risk weight is equal 150%?

In the answer to Q&A 2015_1918, phrase “gross exposure value” is used: "For the purposes of Article 127(1) of Regulation (EU) No 575/2013 (CRR), in the case of exposures in default which are secured by immovable properties, the unsecured part of such exposure is the difference between the gross exposure value and the part(s) of the exposure fully and completely secured by mortgages on immovable property (...)”. Since in the answer to Q&A 2015_1918 does not have a direct reference to Art 111 point 1, it is not clear whether the “gross exposure value” shall be the value before or after applying CCF in case of exposures that have both balance and off-balance sheet part.