Question ID
2018_3923
Legal act
Regulation (EU) No 575/2013 (CRR)
Topic
Accounting and auditing
Article
473a
Paragraph
2
Subparagraph
b(ii)
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations
Not applicable
Article/Paragraph
Art.473a(2)(b)(ii) of Reg. (EU)2017/2395 amending Reg. (EU)575/2013(CRR)
Type of submitter
Competent authority
Subject matter
IFRS 9 Transitional arrangements - Calculation of the amount available for CET1 add-back
Question

Should off-balance sheet exposures not be included in the calculation of the amount of CET1 add-back?

Background on the question

Pursuant to Article 473a(2)(b)(ii) of Regulation (EU) 2017/2395 amending Regulation (EU) No 575/2013 (CRR) :” the total amount of impairment losses on financial assets classified as loans and receivables, held-to-maturity investments and available-for-sale financial assets, as defined in paragraph 9 of IAS 39, other than equity instruments and units or shares in collective investment undertakings, determined in accordance with paragraphs 63, 64, 65, 67, 68 and 70 of IAS 39 as set out in the Annex to Regulation (EC) No 1126/2008 as of 31 December 2017 or the day before the date of initial application of IFRS 9”.

Does this mean that the impact of adopting IFRS9 ECL model for off-balance exposures shall be disregarded for the purpose of calculating the amount available for CET1 add-back? Meaning that we should concentrate only on the impairment deltas on “assets” without considering impairment deltas on off-balance credit risk exposures?

Submission date
Final publishing date
Final answer

In accordance with Article 473a(2)(b) of Regulation (EU) No 575/2013 (CRR) inserted by Regulation (EU) 2017/2395 amending the CRR, institutions shall calculate the day 1 static impact of the IFRS 9 provisioning requirements as the greater of zero and (i) reduced by (ii) (both calculated on an after-tax basis):

(i) the sum of the 12-month expected credit losses (IFRS 9.5.5.5) and the lifetime expected credit losses (IFRS 9.5.5.3) as of 1 January 2018 (or date of initial application of IFRS 9);

(ii) the total amount of impairment losses on financial assets classified as loans and receivables, held-to-maturity investments and available-for-sale financial assets (other than equity instruments and units or shares in collective investment undertakings) determined in accordance with paragraphs 63, 64, 65, 67, 68 and 70 of IAS 39 as of 31 December 2017 (or day before date of initial application of IFRS 9).

In (i) above, expected credit losses refer to all those exposures within the scope of IFRS 9, which may include on-balance items (financial assets) and off-balance items (loan commitments and financial guarantees).

However, point (ii) only covers IAS 39-impairment losses that relate to three categories of financial assets (loans and receivables, held-to-maturity investments and available-for-sale financial assets), “as defined in IAS 39.9”. From the total amount of impairment for these financial assets, equity instruments and units or shares in collective investments undertakings are excluded from the calculation as determined in Article 473a(2)(b)(ii). No reference to off–balance sheet items is included in the legal text.

For this reason, the amount of provisions for off-balance sheet items recognised under IAS 37 before 1 January 2018 (of first date of IFRS 9 application) should not be considered for the purpose of Article 473a(2)(b)(ii). This means that the amount to be added back to CET 1 capital is not only the increase in provisions for off-balance sheet exposures due to IFRS 9, but the absolute amount of provisions for such exposures according to IFRS 9.

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

Update 26.03.2021: This Q&A has not yet been reviewed by the EBA in the light of the changes introduced to Regulation (EU) No 575/2013 (CRR).

Update 28.10.2021: 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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