Treatment of decreases of impairments in the calculation of the exposure value

In the context of published Q&A 2014_1087 how should a credit institution treat decreases of impairments, value adjustments or provisions (in case of reduced identified losses) recognised during the year, i.e. in the interim period, in the case where the competent authority has not given its permission to include the interim profit into the calculation of Common Equity Tier 1 capital, and the credit institution has not reflected the amounts with a corresponding "immediate reduction in Common Equity Tier 1 capital" although the changes in impairments, value adjustments or provisions for off-balance sheet items are reflected in interim profits or year-end profits?

According to Article 1 paragraph 1 second subparagraph of the Commission Delegated Regulation (EU) No 183/2014, in the event of interim profits or year-end profits that have not been approved in accordance with Article 26(2) of Regulation (EU) No 575/2013, impairments, value adjustments or provisions for off-balance sheet items which have been recognised during the financial year may be included in the calculation of general and specific credit risk adjustments if the respective amounts have been deducted from an institution's Common Equity Tier 1 capital (CET1), by way of a corresponding immediate reduction in CET1 capital for the determination of own funds. It is unclear how a credit institution should treat impairments, value adjustments or provisions incurred in the interim period, which are recognised in the income statement, but which are not reflected in the calculation of CET1, on account of the fact that the supervisory permission for inclusion of the interim profit was not given and the credit institution has not reflected the amounts by way of an "immediate reduction in Common Equity Tier 1 capital". This issue is especially important when a credit institution reduces the amount of impairments which have been identified in previous years or interim periods on a given exposure, because of reduced credit risk.