Question ID
2016_2560
Legal act
Regulation (EU) No 575/2013 (CRR)
Topic
Credit risk
Article
112, 147
Paragraph
2
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations
Not applicable
Article/Paragraph
none
Type of submitter
Competent authority
Subject matter
Splitting exposures
Question

In the case that an exposure has attributes that it can be assigned into various exposure classes, may it be divided into two exposure classes?

Background on the question

If an exposure is not fully (and completely?) secured by a mortgage on immovable property in the case of its classification in the standardised approach or if an exposure is not fully secured by real estate in one of the three retail sub-classes in the case of IRB approach, there is no clear rule, whether such an exposure should be kept in respective class/sub-class even if it does not fully meet the conditions for its assignment into such exposure (sub)class, or whether it should be considered unsecured and assigned into e.g. retail exposures class in the standardised approach or "Other" sub-class in the IRB approach or whether the exposure should be split into two parts so that only that part of the exposure which meets the definition is included in the respective (sub)class and the remaining unsecured part of the exposure is assigned otherwise. In the first and second case the exposure is kept undivided but it does not correspond with the definition, in the third case the partial exposures correspond with the definitions, but exposure is split.

By the way, how is the notion "fully and completely" defined?

Submission date
Final publishing date
Final answer

Splitting exposures and assigning the parts to different exposure classes is not allowed except where Regulation (EU) No 575/2013 (CRR) permits this. Articles 112 and 147(2) CRR are clear in requiring that each exposure shall be assigned to one of the exposure classes.

Yet there is an exception to the general rule of Article 112 CRR as envisaged in Article 124(1) CRR for exposures secured by mortgages on immovable properties to which the standardised approach for credit risk is applied that allows to split exposures under specific circumstances.

The conditions in Article 125(2) or 126(2) CRR, as applicable, need to be met for considering an exposure or any part of an exposure as fully and completely secured by mortgages on residential or commercial property.

No such exception exists for retail exposures secured by immovable property to which the IRB approach is applied.

Thus, in the context of the IRB, Article 154(3) CRR applies to the full amount of any retail exposures secured by immovable property, determined by the institution as belonging to a certain type of exposures secured on immovable property, even when those exposures are only partially secured.

Please see also Q&A 936 on the exposures secured by mortgage on residential property, Q&A 1214 on the recognition of real estate as commercial property and Q&A 2376 on exposures secured by mortgages on immovable property and Q&A 2599 on retail exposures secured by immovable property under the IRB approach.

 

NB: This Q&A has been amended on 18/11/2016 to include a reference to final Q&A 2599 (underlined) published on that date.

Status
Final Q&A
Answer prepared by
Answer prepared by the EBA.
Note to Q&A

Update 26.03.2021: This Q&A has been reviewed in the light of the changes introduced to Regulation (EU) No 575/2013 (CRR) and continues to be relevant.

Disclaimer

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