Question
For the purpose of the inclusion into institutions' Tier 2 capital and in the event of interim profits or year-end profits that have not been approved in accordance with Article 26(2) CRR (a.k.a. "interim GCRAs"), are the general credit risk adjustments (GCRAs) required to be immediately deducted from institutions' CET1 capital? Are "interim GCRAs" eligible as a Tier 2 capital regardless either the fulfilment of Article 26(2) of CRR, or without immediate reduction from CET1 capital?
Background on the question
Based on the title of the Article 1 of DA 183/2014, we assume that "interim GCRAs" used as a Tier 2 capital do not have to either be deducted from the institution’s Common Equity Tier 1 capital or be fulfilling Article 26(2) of the CRR.
Answer
General credit risk adjustments can only be included in Tier 2 items according to Article 62(c) of Regulation (EU) No 575/2013 (CRR) if the corresponding amount has reduced the Common Equity Tier 1 (CET1) of the institution. In case of interim or year-end profits which have not been included in accordance with Article 26(2) CRR, the corresponding amount should be immediately deducted from the CET1 in case the institution wants to count it as Tier 2 capital. See also Q&A 2016_2629 for the treatment of decreases of impairments in the calculation of the exposure value.