EBA · 2013_686 Final Q&A

Maturity (M) for short-term credit line contracts which are continuously rolled over.

Regulation
Regulation (EU) No 575/2013 (CRR)
Article
162, para. 2
Topic
Credit risk
Submitted by
Competent authority
Submitted
2013-12-20
Answered
2014-11-21
Answer provided by
ESAs (EBA, ESMA, EIOPA)
Browse ECB SSM Register → More Q&As on this regulation →

Question

This query regards the setting of the maturity parameter (M) for corporate exposures when applying the IRB approach. In this respect, we are referring to facilities subject to Article 162(2)(f) of Regulation (EU) No 575/2013 (CRR): “(f) for any other instrument than those mentioned in this paragraph or when an institution is not in a position to calculate M as set out in (a), M shall be the maximum remaining time (in years) that the obligor is permitted to take to fully discharge its contractual obligations, where M shall be at least 1 year;” Consider exposures where the credit contract stipulates a short-term contractual maturity (say 1 year). If an institution typically rolls over such facilities, possibly after rigorous, annual credit processes so that the de-facto maturity is greater than the contractual, should the institution then be allowed to apply the contract length as maturity?

Background

We currently allow institutions to use the contractual length for creditworthy customers while we require institutions to apply the maximum 5 year maturity for less creditworthy customers. However, the application of a 5 year maturity for less creditworthy customers is so far a Pillar 2 requirement. We are considering if it should be a Pillar 1 requirement.

Answer

No, Article 162(2)(f) of Regulation (EU) No 575/2013 is clear in requiring that "M shall be the maximum remaining time (in years) that the obligor is permitted to take to fully discharge its contractual obligations, where M shall be at least one year". This leaves no room for requiring institutions to determine M differently.  See further Q&A 2013 687 .

Original source: European Banking Authority, Q&A ID 2013_686

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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