Question
The five year loss rates is calculated as the average of the one year loss rate as defined in column 210 of the same table. The one year loss rate only considers the credit risk adjustments and write offs which occur in the first year of default. Thus, the five year loss rate does not include changes in credit risk adjusments and write offs which occur after the first year of default. Is this correct?
Background on the question
Question for clarification.
Answer
For c220 of template C 103.00 of Annex IV of Draft ITS on Supervisory Reporting for Institutions for benchmarking the internal approaches (ITS on benchmarking) the loss ratio of the past five years is computed as exposure weighted average of the loss rates observed in the last 5 years. The loss rate is defined as the sum of credit risk adjustments and write-offs for the exposures that were classified as 'defaulted exposures' in the latest year (column 070 of template 9.2 of Annex 1 to Commission Implementing Regulation (EU) No 680/2014) divided by the amount of the observed new defaults in the last year (column 040 of template 9.2 of Annex 1 to Commission Implementing Regulation (EU) No 680/2014), hence the loss ratio of past five years does not include changes in credit risk adjustments and write offs that occur after the first year of default. 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.