Clarifications on HDP benchmarking exercise instructions, templates and portfolios

Question

1) Definition of HDPs (C103, Annex II) A clear indication of the definition of SME - CORPORATE and SME - RETAIL Portfolios (Column 020) is not provided in the instructions. Are they to be defined according to the CRR rules? Specifically, SMEs are the counterparties with Total annual sales for the consolidated group < 50 mln € and which are considered for RWA calculation according the specific formulation as of Art.153 (4). This may include also cases in which the Institution “shall substitute total assets of the consolidated group for total annual sales when annual sales are not a meaningful indicator of the firm size and total assets are a more meaningful indicator than total annual sales”   2) Weighting of default rates Does the EBA expect banks to compute the “default rate past 5 year” as the as the exposure weighted average of the default rates observed in the last 5 years?   3) Clusters without exposures For the exercise, some clusters might come up without any exposures. How should firms deal with them? Report them anyway with 0 values or simply not report? Moreover, if not as confirmed during the previous exercises, how should firms consider the general instruction “Institutions shall submit data only for those counterparties where an actual exposure or a valid rating exists”? (Annex IV Part 1)   4) Calculation of RWA* and RWA** The calculation of PD*/PD** thus RWA*/RWA** is due for each entity reporting a COREP. Therefore, some regional institutions (related to a parent institution) with low materiality are concerned by reporting the RWA*/RWA** values. However, these small institutions could show a low volume of defaults (sometimes equal to zero). Can these institutions be exempted from reporting RWA*/RWA** when their IRB approval takes place in the same country   5) EL Models Are institutions exempted from reporting EL models in the template Annex III C 105.01 (where institutions apply Article 160-2(a) CRR)?

European Banking Authority · Accepted Answer

1) Definition of HDPs Column 020 of template C 103.00 of Annex I just includes Portfolio names which are specified in the later columns. For the correct definition of exposure class c040 of template C 103.00 of Annex II is relevant. The legal reference for c040 of template C 103.00 of Annex I of Draft ITS on Supervisory Reporting for Institutions for benchmarking the internal approaches (ITS on benchmarking) is provided in Annex II of ITS on benchmarking: “Paragraph 78 of Annex 2 of Commission Implementing Regulation (EU) No 680/2014” (ITS on Supervisory Reporting) which defines the breakdown of the IRB template. Due to amendments of the ITS on Supervisory Reporting, the correct reference would be Paragraph 77 of Annex II of the ITS on Supervisory Reporting. However, the SME definition applied for the purposes of reporting according to the ITS on benchmarking shall still be the same one which is used by institutions for the purposes of the ITS on Supervisory Reporting, namely for the assignment of exposures to the (sub)exposure classes defined in paragraph 77 (formerly paragraph 78) of Annex II of the ITS on supervisory reporting.   2) Weighting of default rates The “Default rate past 5 years” in c200 of template C 103.00 of Annex III of ITS on benchmarking has to be calculated in line with the instructions in c200 of template C 103.00 of Annex IV of ITS on benchmarking which requires “ the exposure-weighted average of the default rates observed in the last 5 years ” which means an exposure-weighted average of five 1-year-default rates. The default rate to be used for calculating RWA** in c240 of template C 103.00 of Annex III is in contrast a case-weighted default rate of the 5 latest years for the rating grades, calculated as the average of five 1-year default rates.   3) Clusters without exposures In general portfolios of template C 103.00 respectively C 102.00 of Annex I of ITS on benchmarking should be excluded from the reported portfolios in template C 103.00 respectively C 102.00 of Annex III in case that a bank has no obligor and therefore no exposure in this portfolio. Cells in template C 103.00 respectively C 102.00 of Annex III with value 0 for portfolios with obligors (i.e. where obligors with valid rating exist, but no exposure to them) should contain the value 0 instead of blank or NULL.   4) Calculation of RWA* and RWA** According to Article 1 of the ITS on benchmarking, an institution referred to in Article 78 (1) of Directive 2013/36/EU shall submit data in accordance with the provisions of the ITS on benchmarking both on individual and consolidated basis. In the absence of a materiality threshold both in Article 1 of the ITS on benchmarking and the Annexes I to IV of it, no exemption from reporting and thus also from calculation of RWA* and RWA** applies.   5) EL Models The different kinds of models that are in focus of ITS on benchmarking are specified in c030 of template C 105.01 of Annex IV. Therefore EL-models are excluded from reporting.   DISCLAIMER: The present Q&A on Supervisory reporting is provisional. It will be reviewed after the Implementing Regulation is in force and published in the Official Journal. The text of the Implementing Regulation may differ from the text of the draft ITS to which this Q&A refers.

Clarifications on HDP benchmarking exercise instructions, templates and portfolios

Question

Background

Answer

Similar Q&As

More Q&As on this topic