EBA · 2013_257 Archive

Calculation of capital requirements for SME under Article 501 of CRR

Regulation
Regulation (EU) No 575/2013 (CRR)
Article
501, para. 1
Topic
Credit risk
Submitted by
Credit institution
Submitted
2013-09-17
Answer provided by
ESAs (EBA, ESMA, EIOPA)
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Question

How should the capital requirements be calculated for SME exposures according to Article 501 of Regulation (EU) No 575/2013 (CRR)? In essence we are asking if the risk weighted assets for qualifying SMEs should be reduced or only the capital requirements for qualifying SMEs.

Background

In Article 501(1) of CRR it states "Capital requirements for credit risk on exposures to SMEs shall be multiplied by the factor 0,7619". We are seeking clarification on the exact meaning of this statement as there could be at least two interpretations: 1) The institution should calculate risk weighted assets normally, then calculate the capital requirements normally (by multiplying the risk weighted assets by 0,08 etc.) and then multiply the capital requirement by the factor 0,7619 thereby getting to the reduced capital requirement for SMEs. or 2) The institution should calculate risk weighted assets for the qualifying SME portfolio normally, then multiply the risk weighted assets with the SME reduction factor of 0,7619 and then use the new reduced risk weighted assets in order to calculate the capital requirements normally. Of course both of these methods should only be used for the SME exposures which qualify for the SME capital requirement deduction.

Answer

Capital requirements for credit risk refers to the risk-weighted exposure amounts set out in Article 92(3)(a) of Regulation (EU) No 575/2013 (CRR). Institutions should therefore calculate risk weighted exposure amounts for their qualifying SME exposures and then multiply these by the factor specified in Article 501(1) of the CRR (0,7619). The reduced amount of risk weighted exposure amount should then be used in the calculation according to Article 92(3)(a) of the CRR. The final draft ITS on Supervisory Reporting provides guidance on how each of these figures should be reported under both the Standardised and IRB Approaches for Credit Risk. It should be noted, however, that this final draft ITS may still be subject to changes before it is formally adopted and published in the Official Journal of the European Union.

Original source: European Banking Authority, Q&A ID 2013_257

This Q&A is published by European Banking Authority and is non-binding. It does not constitute legal advice. Updated weekly from official ESA sources.

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