Question ID
2019_4559
Legal act
Regulation (EU) No 575/2013 (CRR)
Topic
Credit risk
Article
4
Paragraph
1
Subparagraph
49
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations
Not applicable
Article/Paragraph
n/a
Type of submitter
Credit institution
Subject matter
Speculative immovable property financing definition with respect to debt-for-asset swaps
Question

In the case described below, in individual level of reporting, should exposures to the SPVs be treated as "Speculative Immovable Property Financing" and be risk weighted at 150% under Article 128 of the CRR, or should they be RW at 100% which reflects the RW of the property included in the Consolidated level of reporting (intercompany balances are eliminated and the asset remaining in the consolidated balance sheet is the property held for sale)?

Background on the question

Article 4(1)(79) of the CRR states that "Speculative Immovable Property financing" means loans for the purposes of the acquisition of or development or construction on land in relation to immovable property or of an in relation to such property with the intention of reselling for profit.

A Bank that has an extension of its banking activities proceeds with Debt-for-Asset Swaps (DFAS) and creates separate legal entities (SPVs) to carry these assets until they are sold. By doing this in the SPV's balance sheet an asset (property) and a liability (loan from the Bank) is created. At the same time in the Bank's books there is a loan to the SPV shown as an asset. In the Bank's books, the loan was given out not for property financing with the intention of reselling for a profit, but with the intention of cutting its losses.

 

Article 4(1) point 49 of the CRR statement "with the intention of reselling for a profit" in conjunction with the true risk underlying these loans i.e. the property held by the Bank at consolidated level for sale.

The intention of the bank is not to buy properties and sell them for a profit but to cut the losses as part of its de-risk and deleveraging actions.

Submission date
Rejected publishing date
Rationale for rejection

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Status
Rejected question