Question ID
2016_2599
Legal act
Regulation (EU) No 575/2013 (CRR)
Topic
Credit risk
Article
154
Paragraph
3
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations
Not applicable
Article/Paragraph
-
Type of submitter
Individual
Subject matter
Treatment of retail exposures secured by property under IRB
Question
How should institutions treat a retail exposure for an SME that has a minor property collateral (and thus it is partly secured by immovable property) but the purpose of this loan is not property/mortgage finance? Are the correlation coefficient prescribed in Article 154(3) and the minimum LGD requirement in Article 164(4) applicable for the full exposure?
Background on the question

CRR article 154(3): For retail exposures secured by immovable property collateral a coefficient of correlation R of 0,15 shall replace the figure produced by the correlation formula in paragraph 1.

Article 164(4): The exposure weighted average LGD for all retail exposures secured by residential property and not benefiting from guarantees from central governments shall not be lower than 10%.

The exposure weighted average LGD for all retail exposures secured by commercial immovable property and not benefiting from guarantees from central governments shall not be lower than 15%.

Submission date
Final publishing date
Final answer
The specific coefficient of correlation according to Article 154(3) of Regulation (EU) No 575/2013 (CRR) and the floor for the exposure-weighted average LGD according to Article 164(4) CRR are applicable to any retail exposures secured by immovable property recognised as collateral, regardless of the ratio of the value of collateral to the exposure or of the purpose of the loan. Unlike Articles 124 to 126 CRR for the standardised approach, Article 154(3) CRR does not refer to exposures or parts of exposures "fully" or "fully and completely" secured by immovable property. Please see also Q&A 2016_2560.
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

The Q&A refers to the provisions in force on the day of their publication. The EBA does not systematically review published Q&As following the amendment of legislative acts. Users of the Q&A tool should therefore check the date of publication of the Q&A and whether the provisions referred to in the answer remain the same.