Calculation of unsecured and secured parts of past due items – Standardised approach

For the purposes of Article 127(1) of Regulation (EU) No 575/2013 (CRR), in the case of exposures in default which are secured by immovable properties, the unsecured part of such exposure is the difference between the gross exposure value and the part(s) of the exposure fully and completely secured by mortgages on immovable property determined in accordance with Articles 124, 125(2) and 126(2) CRR, as applicable. In addition, the unsecured part of an exposure in default (represented by Portion D (40) in the example above) does not include exposures secured by other eligible collaterals or guarantees that fulfil the criteria of Part Three, Title II, Chapter 4 of the CRR. Hence, per the example, supposing that 30 is the fully and completely secured part of the exposure determined according to Articles 124 and 125(2) CRR (which is less than 80 % of the market value or mortgage lending value), as applicable, this would result in an unsecured exposure equal to 100 – 30– 10(eligible cash collateral) = 60 (not taking into account specific credit risk adjustments). Accordingly, the prudential treatment of such exposures in default would be: -  The unsecured part (i.e. exposure value 60-9 = 51) should be subject to a risk weight equal to 150%, as the ratio between the provisions and the unsecured exposure (9/60) is lower than 20%; - The part fully and completely secured by mortgages on immovable property (30) should be subject to a risk weight equal to 100% according to Article 127(3) (in case of exposures secured by residential immovable property) or 127(4) (in case of exposures secured by commercial immovable property); - The part secured by cash collateral should be deducted from the exposure value, or assigned a risk weight of 0%, in accordance with Article 111(3) and Part Three, Title II, Chapter 4, depending on the method which the institution uses (Financial Collateral Simple Method or Financial Collateral Comprehensive Method).