Question
Is it correct that the default rate and the loss rate for each rating grade has to be calculated based on the defaults of assets which belonged to the respective rating grade one year before the reference date (see description of c190), whereas the exposure value (110), LGD (130) , RWA (170) etc. have to be reported for the reference date? Would it not be more reasonable to report the default rate and the loss rate for the year after the reference date?
Background on the question
Realised default rate and loss rate of the previous year is not meaningful if it is compared to the prediction for the following year. Thus the realised default rate and loss rate should be based on the same time period for that the forward looking estimation is performed in order to meaningful judge about the validity of the estimates.
Answer
The Rating in c050 of template C103.00 of Annex III of Draft ITS on Supervisory Reporting for Institutions for benchmarking the internal approaches (ITS on benchmarking) shall only be reported if requested in Annex I otherwise it shall be left blank. As a consequence, for High-default portfolio data as of 31 December 2015 no information at rating grade level is requested. The default rate is defined as the observed new defaults for the last year (c040 of template C 09.02 of Annex I of Regulation (EU) No 680/2014 - ITS on reporting), in the respective rating grade, divided by the amount of the non-defaulted assets existing one year before the reference date (the difference between c010 and c030 of template C 09.02 of Annex I of the ITS on reporting), in the same rating grade. The information to be provided for the exposure value (c110), the LGD (c130), RWA (c170) and similar have to be reported for the reference date. DISCLAIMER: The present Q&A on Supervisory reporting is provisional. It will be reviewed after the Implementing Regulation is in force and published in the Official Journal, which may differ from the text of the draft ITS to which this Q&A relates.