EBA · 2013_417 Final Q&A

Conversion of the total amount owed to institution from national currency to EUR

Regulation
Regulation (EU) No 575/2013 (CRR)
Article
501, para. 2
Topic
Credit risk
Submitted by
Credit institution
Submitted
2013-10-22
Answered
2014-05-28
Answer provided by
ESAs (EBA, ESMA, EIOPA)
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Question

Which exchange rate should the institution use to convert the amount owed to institution (mentioned in Article 501 point 1)? Should it be converted to EUR each day with exchange rate from this day or should the exchange rate be fixed, for example from the day when the product was sold?

Background

When the currency of products sold to customers isn't EUR, each day the value of those products in EUR changes, while they have to be converted with a variable exchange rate . Year 2013 has shown in our country that in one year EUR can change its exchange rate by 30%. This can have material impact of the total amount owed to institutions as stated in Article 501. In one month the amount can exceed 1.5m EUR and in another does attributable to the exchange rate. This unpredictability can make banks less eager to use the SME supporting factor of 0.7619 and the impact on SME sector would be smaller.

Answer

Under Article 501(2)(c) of Regulation (EU) No. 575/2013 (CRR), the potential reduction in capital requirements is only available where the total amount owed does not exceed the EUR 1.5 million limit. This is an on-going condition and an institution must (i) be able to demonstrate its fulfilment to its competent authorities if and when requested, and (ii) report to competent authorities every three months their total SME exposures, on the basis of adequate current information. Where an exposure is denominated in a currency other than the Euro, an institution may calculate the euro equivalent using any appropriate set of exchange rates, updated with an appropriate frequency, provided its choice has no obvious bias and the approach used to choose the appropriate set of exchange rates is consistently applied. Consistent with regulatory reporting requirements, one such example of an appropriate exchange rate could be the relevant Euro spot exchange rate published on the European Central Bank's website.

Original source: European Banking Authority, Q&A ID 2013_417

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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