Article 1(1) of Regulation (EU) No 183/2014 (RTS on the calculation of credit risk adjustments) clarifies that "the amounts required to be included in the calculation of general and specific credit risk adjustments by an institution shall be equal to all amounts by which an institution's Common Equity Tier 1 capital has been reduced in order to reflect losses exclusively related to credit risk according to the applicable accounting framework and recognised as such in the profit or loss account, irrespective of whether they result from impairments, value adjustments or provisions for off-balance sheet items."

Article 159 of the CRR requires the total expected loss amounts calculated in accordance with Article 158 (5), (6) and (10) to be subtracted from the general and specific credit risk adjustments in accordance with Article 110, and additional value adjustments in accordance with Articles 34 and 105 110 and other own funds reductions related to these exposures except for the deductions made in accordance with point (m) Article 36(1).

The specific case submitted relates to a loan in the banking book for a which a write-off has been recorded. Annex V, Part 2 paragraphs 49 and 50 of Regulation (EU) No 680/2014 (ITS on Supervisory Reporting) clarifies that write-offs are the amount of principal and past due interest of any debt instrument that an institution is no longer recognising because they are considered uncollectible, and that they can be caused both by reductions of the carrying amount of financial assets recognised directly in profit or loss as well as by reductions in the amounts of the allowance accounts for credit losses taken against the carrying amount of financial assets.

Such a partial write-off does not constitute impairment, irrespective of the method (specific loan loss provision or direct reduction of the carrying amount) chosen to book impairment in the financial statements of the asset because any amounts written-back following a derecognition will not impact the carrying amount of the financial asset (unlike a reversal of impairment losses). 

For the reason set out in the two paragraphs above, a partial write-off would not be included in the calculation of general and specific credit risk adjustments. However, as per Article 166 of the CRR, the calculation of the expected loss amount for the application of Articles 158 and 159 of the CRR would be based on the exposure value gross of value adjustments but net of write-offs. According to Article 62(d) of the CRR, only where the difference calculated according to Article 159 is positive, gross of tax effects, is such a difference to be included in Tier 2 capital, but only up to 0,6 % of risk-weighted exposure amounts.