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LGD adjustment for massive disposals.

Article 500, first paragraph, point (c) of the Regulation (EU) 2013/575 as amended by Regulation (EU) 2019/876 provides for a 20% threshold to qualify disposal operation as “massive”. This question seeks clarification on how to compute the threshold.

Legal act: Regulation (EU) No 575/2013 (CRR)

COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

ID: 2019_4824 | Topic: Credit risk | Date of submission: 09/07/2019 | Date of publication: 12/03/2021

Adjustment for massive disposals

Regarding the interpretation of Article 500(1) of the Regulation (EU) 2019/876 amending Regulation (EU) No 575/2013 (hereafter “Regulation (EU) No 575/2013 as amended”), do we understand it correctly that:“the average estimated LGDs for comparable exposures in default that have not been finally liquidated” should be derived by applying the estimation method for incomplete recovery processes, which is required under Article 181(1)(a) Regulation (EU) No 575/2013 and further explained in paragraphs 158 and 159 of EBA/GL/2017/16, to the disposed assets as of the date just before the disposal;“the average realised LGDs including on the basis of the losses realised due to the massive disposals” should be the average observed LGD for all disposed exposures based on the economic loss of each exposure, taking into account the disposal price as well as material discount effects and material direct and indirect costs associated with collecting on the instrument in line with Article 5(2) of Regulation (EU) No 575/2013the adjustment based on Article 500 for all disposed exposures cannot lead to an estimate of average losses for the disposed assets that is lower than the estimated LGD calculated under point (a) above?

Legal act: Regulation (EU) No 575/2013 (CRR)

COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable

ID: 2019_4819 | Topic: Credit risk | Date of submission: 05/07/2019 | Date of publication: 12/03/2021