EBA · 2014_1241 Final Q&A

Leasing: Residual value risk

Regulation
Regulation (EU) No 575/2013 (CRR)
Article
134, para. 7
Topic
Credit risk
Submitted by
Individual
Submitted
2014-05-26
Answered
2015-03-06
Answer provided by
ESAs (EBA, ESMA, EIOPA)
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Question

In the calculation of the exposure value for residual value risk of leased assets, is the "residual value" that has to be multiplied with 1/t (a) the residual value on the date of calculation / the reporting date or (b) the estimated residual value at the end of the lease term?

Background

When the exposure is a residual value of leased assets, the risk weighted exposure amounts shall be calculated as follows: 1/t * 100 % * residual value, where t is the greater of 1 and the nearest number of whole years of the lease remaining.

Answer

Under Article 134(7) of Regulation (EU) No 575/2013 (CRR), when the exposure is a residual value of leased assets, this residual value is to be determined in accordance with the applicable accounting framework, according to Article 24(1). However, for the purposes of the calculation of the formula 1/t*100%*residual value, this should be the undiscounted estimated residual value at the end of the lease term which is reassessed periodically to ensure continued appropriateness.

Original source: European Banking Authority, Q&A ID 2014_1241

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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