Under Article 501 CRR, risk-weighted exposure amounts for non-defaulted exposures to SMEs may be adjusted where the conditions of Article 501 are met.

Following CRR III, Article 501(2)(b) CRR defines an SME by reference to Article 5, point (9), CRR (annual turnover criterion), rather than by direct reference to Commission Recommendation 2003/361/EC.

Article 501(2)(a) CRR limits the supporting factor to exposures assigned to the exposure classes referred to in Article 112, points (g), (h) or (i) CRR (corporates, retail, or secured by mortgages on immovable property), or to the corresponding IRB exposure classes.

A public sector entity (PSE) is defined in Article 4(1), point (8), CRR as a non-commercial administrative body / non-commercial undertaking. Exposures to PSEs are assigned, under the standardised approach, to the exposure class referred to in Article 112, point (c) CRR, and are therefore outside Article 501(2)(a) CRR.

However, where an exposure to a PSE is secured by residential immovable property, it may, under the standardised approach (including for the purposes of the output floor under Article 92(3)–(5) CRR), be assigned to the exposure class “secured by mortgages on immovable property” in Article 112, point (i) CRR.

In that case, two readings appear possible:

1. Exposure-class reading: Once the exposure is assigned to Article 112, point (i), Article 501(2)(a) is met; if the obligor’s annual turnover also meets Article 5, point (9), the SME supporting factor applies, even though the obligor is a PSE.
2. Obligor-nature reading: A PSE within Article 4(1), point (8), is by nature outside the notion of an SME. Assignment to Article 112, point (i) because of collateral does not change the nature of the obligor. Reclassification therefore does not create SME eligibility. This reading is also consistent with the continued reference, in recent EBA Q&As (e.g. 2026_7724, referring to 2021_6301), to Commission Recommendation 2003/361/EC when assessing SME status, and with the fact that Article 501 is structured around corporate/retail SME obligors, not PSEs.