Question
Art 125(2)((d) splits the secured part of a exposure secured by mortgages on immovable in a part with an LTV ratio lower than 80%, to which the 35 % risk weight is assigned, and a remaining part. The remaining part has an LTV ratio between 80% and 100% and gets the same treatment as the unsecured part. But should it still be considered a secured part of the exposure under art 112(i)?
Background on the question
Art 124 (1) and Q&A 2016_2560 clearly stipulate that exposures secured by mortgages on immovable properties to which the standardised approach for credit risk is applied should be split in a secured by immovable property part and an unsecured part based on the market value of the property. Furthermore Art 125(2)((d) splits the secured part of the exposure in a part with an LTV ratio lower than 80%, to which the 35 % risk weight is assigned, and a remaining part. The remaining part has an LTV ratio between 80% and 100% and gets the same treatment as the unsecured part. The credit risk treatment of all three parts of the exposure is clear. Our question is in which SA exposure class (CRR Art 112) the exposure amount with an LTV ratio between 80% and 100% should be reported in the COREP? Example: The exposure is eligible for the retail exposure class under Article 123 of the CRR Exposure amount: EUR 105 Market value of the property: EUR 100 LTV ratio < 80%; EUR 80; risk weight 35%; CRR art 112(i) exposure class secured by mortgages on immovable properties 100% > LTV ratio; EUR 5; risk weight 75%; CRR art 112(h) retail exposures 80% < LTV ratio < 100%: EUR 20; risk weight 75%; secured (CRR art 112(i) exposure class secured by mortgages on immovable properties), or unsecured (CRR art 112(h) retail exposures)? We ask this question in light of the upcoming implementation of the CRR3 proposal where the loan splitting approach is retained, while the calibration is adjusted in line with the Basel III standards whereby the secured part of the exposure up to 55% of the property value receives a risk weight of 20%.
Answer
This question has been rejected because the issue it deals with is already explained or addressed in Article 124(1) of Regulation (EU) No 575/2013 as amended by Regulation (EU) 2019/876 (Capital Requirements Regulation or CRR2), as pursuant to this Article the fully secured part of the exposure is part of the exposure class 'exposures secured by mortgages immovable property'. This is also explained inQ&A 1713. For further information on the purpose of this tool and on how to submit questions, please see 'Additional background and guidance for asking questions'.