Changes from report parliamentary committee draft to plenary report

Added(a) the part of the exposure up to 55 % of the property value remaining after any senior or pari passu ranking liens not held by the institution have been deducted shall be assigned a risk weight of 20 %.

AddedFor the purposes of this point, where, in accordance with Article 124(7), the competent or designated authority, as applicable, has set a higher risk weight or a lower percentage of the property value than those referred to in this point, institutions shall use the risk weight and percentage set in accordance with Article 124(7).

Added(b) the remaining part of the exposure, if any, shall be treated as an exposure that is not secured by residential property, in the exposure class applicable to the counterparty.

Added2. An IPRE exposure or an exposure secured by a residential property that does not meet any of the conditions laid down in Article 124(2), point (a), points (i) to (iv), shall be assigned the higher between the risk weight set in accordance with the following Table 6aaa, and the risk weight set in accordance with Article 124(7):

AddedTable 6aaa

Added’

AddedBy way of derogation from the first subparagraph of this paragraph, institutions may apply the treatment referred to in paragraph 1 to exposures secured by residential property which is situated within the territory of a Member State, where the loss rates for such exposures published by the competent authorities of that Member State in accordance with Article 430a(3) do not exceed any of the following limits for losses aggregated across all institutions with such exposures existing in the previous year:

Added(a) the losses on the part of the exposures up to 55 % of the property value do not exceed 0,3 % of the total amount, across all those exposures, of credit obligations outstanding in that year.

AddedFor the purposes of this point, where, in accordance with Article 124(7), the competent or designated authority, as applicable, has set a lower percentage of the property value than the one referred to in this point, institutions shall use the percentage set in accordance with Article 124(7);

Added(b) the losses on the part of the exposures up to 100 % of the property value do not exceed 0,5 % of the total amount, across all these exposures, of credit obligations outstanding in that year.

Added2a. Institutions may apply the derogation referred to in the second subparagraph of paragraph 2 also in cases where competent authorities of a third country which apply supervisory and regulatory arrangements at least equivalent to those applied in the Union as decided in accordance with Article 107(4), publish corresponding loss rates for exposures secured by residential immovable property situated within the territory of their country or where a competent authority of a Member State publishes such information for a third country jurisdiction provided the availability of valid statistical data.’;

Added(46) Article 126 is replaced by the following:

Added‘Article 126 Exposures secured by mortgages on commercial immovable property

Added1. An exposure as referred to in Article 124(2), point (c)(i) shall be treated as follows:

Added(a) the part of the exposure up to 55 % of the property value reduced by any senior or pari passu ranking liens not held by the institution shall be assigned a risk weight of 60 %, unless that part of the exposure is subject to a higher risk weight or lower percentage of the property value where decided in accordance with Article 124(7);

Added(b) the remaining part of the exposure, if any, shall be treated as an exposure that is not secured by this immovable property.

AddedEBA shall assess the appropriateness of adjusting the treatment of exposures secured by mortgages on commercial property, including IPRE and non-IPRE exposures, taking into account the appropriateness of risk weights for exposures secured by mortgages on residential property laid out in the first subparagraph and the relative differences in risk and the recommendations of the ESRB on the vulnerabilities in the commercial real estate sector in the EU (ESRB/2022/9) and report to the Commission by 31 December 2027.

AddedOn the basis of that report and taking due account of the related internationally agreed standards developed by the BCBS, the Commission shall, where appropriate, submit to the European Parliament and to the Council a legislative proposal by 31 December 2028.

Added2. An exposure as referred to in Article 124(2), point (c)(ii) shall be assigned the higher between the risk weight set in accordance with Table 6c and the risk weight set in accordance with Article 124(7):

AddedTable 6c

AddedBy way of derogation from the first subparagraph of this paragraph, institutions may apply the treatment referred to in paragraph 1 to an exposure secured by a commercial property which is situated within the territory of a Member State, where the loss rates for such exposures published by the competent authorities of that Member State in accordance with Article 430a(3) do not exceed any of the following limits for losses aggregated across all such exposures existing in the previous year:

Added(a) the losses on the part of the exposures up to 55 % of the property value do not exceed 0,3 % of the total amount of credit obligations outstanding in that year.

AddedFor the purposes of this point, where, in accordance with Article 124(7), the competent or designated authority, as applicable, has set a lower percentage of the property value than the one referred to in this point, institutions shall use the percentage set in accordance with Article 124(7);

Added(b) the losses on the part of the exposures up to 100 % of the property value do not exceed 0,5 % of the total amount of credit obligations outstanding in that year.

Added2a. Institutions may apply the derogation referred to in the second subparagraph of paragraph 2 also in cases where competent authorities of a third country jurisdiction, which apply supervisory and regulatory arrangements at least equivalent to those applied in the Union as decided in accordance with Article 107(4), publish corresponding loss rates for exposures secured by commercial immovable property situated within the territory of their country. Where a competent authority of a third country jurisdiction does not publish corresponding loss rates for exposures secured by commercial immovable property situated within the territory of their country, EBA may publish such information for a third country jurisdiction, provided that valid statistical data, that is statistically representative of the corresponding commercial real estate market, is available.’;

Added(47) a new Article 126a is inserted:

Added‘Article 126a Land acquisition, development and construction exposures

Added1. An ADC exposure shall be assigned a risk weight of 150 %.

Added2. ADC exposures to residential property, however, may be risk weighted at 100 %, provided that▌, the institution applies sound origination and monitoring standards which meet the requirements of Articles 74 and 79 of Directive 2013/36/EU and where at least one of the following conditions is met:

Added(a) legally binding pre-sale or pre-lease contracts, for which the purchaser or tenant has made a substantial cash deposit which is subject to forfeiture if the contract is terminated or where the financing is ensured in an equivalent manner, amount to a significant portion of total contracts;

Added(b) the obligor has substantial equity at risk, which is represented as an appropriate amount of obligor-contributed equity to the residential property's appraised value upon completion.

Added3. EBA shall by [OP please insert date = 1 year after entry into force] issue guidelines specifying the terms "substantial cash deposits", “appropriate amount of obligor-contributed equity”, "significant portion of total contracts", and "substantial equity at risk, and what can be considered “financing in an equivalent manner".

AddedThose guidelines shall be adopted in accordance with Article 16 of Regulation (EU) No 1093/2010.

Added(48) Article 127 is amended as follows:

Added(a) in paragraph (1), the following subparagraph is added:

Added‘For the purposes of calculating the sum of specific credit risk adjustments referred to in this paragraph, institutions shall include in the calculation any positive difference between▌ the amount owed by the obligor on that exposure and▌ the sum of:

Added(i) the additional own funds reduction if that exposure were written off fully; and

Added(ii) any already existing own funds reductions related to that exposure.’

Added(b) paragraph 2 is replaced by the following:

Added‘2. For the purposes of determining the secured part of a defaulted exposure, collateral and guarantees shall be eligible for credit risk mitigation purposes in accordance with Chapter 4.’;

Added(c) paragraphs 3 is replaced by the following:

Added‘3. The exposure value remaining after specific credit risk adjustments of non-IPRE exposures secured by residential or commercial immovable property in accordance with Article 125 and 126, respectively, shall be assigned a risk weight of 100 % if a default has occurred in accordance with Article 178.’;

Added(d) paragraph 4 is deleted;

Added(49) Article 128 is replaced by the following:

Added‘Article 128 Subordinated debt exposures

Added1. The following exposures shall be treated as subordinated debt exposures:

Added(a) debt exposures which are subordinated to claims of other ordinary unsecured creditors;

Added(b) own funds instruments to the extent that those instruments are not considered as equity exposures in accordance with Article 133(1); and

Added(c) liabilities instruments that meet the conditions set out in Article 72b.

Added2. Subordinated debt exposures shall be assigned a risk weight of 150 %, unless those subordinated debt exposures are required to be deducted in accordance with Part Two of this Regulation.’;

Added(50) Article 129 is amended as follows:

Added(a) in paragraph 3, the following subparagraph is added:

Added‘ By way of derogation from the first subparagraph, for the purposes of valuing immovable property, the competent authorities designated pursuant to Article 18(2) of Directive (EU) 2019/2162 may allow that property to be valued at or at less than the market value, or in those Member States that have laid down rigorous criteria for the assessment of the mortgage lending value in statutory or regulatory provisions, the mortgage lending value of that property without applying the limits set out in Article 208(3), point (b).’

Added(b) paragraph 4, subparagraph 1 is replaced by the following:

Added’4. Covered bonds for which a directly applicable credit assessment by a nominated ECAI is available shall be assigned a risk weight in accordance with Table 6a which corresponds to the credit assessment of the ECAI in accordance with Article 136.’;

Added(c) paragraph 5 is replaced by the following:

Added5. Covered bonds for which a directly applicable credit assessment by a nominated ECAI is not available shall be assigned a risk weight on the basis of the risk weight assigned to senior unsecured exposures to the institution which issues them. The following correspondence between risk weights shall apply:

Added(a) if the exposures to the institution are assigned a risk weight of 20 %, the covered bond shall be assigned a risk weight of 10 %;

Added(aa) if the exposures to the institution are assigned a risk weight of 30 %, the covered bond shall be assigned a risk weight of 15 %;

Added(ab) if the exposures to the institution are assigned a risk weight of 40 %, the covered bond shall be assigned a risk weight of 20 %;