Capital requirements deduction for credit risk on exposures to SMEs

In accordance with Article 501(2)(a) the SME supporting factor applies only to the listed classes of “retail”, “corporates” and “secured by mortgages” exposures.   Under the Standardised Approach “Exposures associated with particularly high risk" constitute a separate exposures class according to Article 112(k) CRR. This exposure class does not belong to any of the classes which Article 501(2)(a) CRR refers to. Therefore, under the Standardised Approach the reduced capital requirements for credit risk on exposures to SMEs according to Article 501 CRR cannot be applied to exposures associated with particularly high risk. Under the IRB Approach exposures, which under the Standardised Approach would be assigned to either the “secured by mortgages on immovable property” or the “associated with particularly high risk” class, are not included in a separate exposure class and shall be assigned to one of the exposure classes under Article 147(2) CRR and, in case of an exposure towards an SME, under either letter (c) or (d). Therefore, an exposure towards a corporate meeting the definition of “speculative immovable property financing” may qualify for the application of the SME supporting factor under the IRB, provided that all the other relevant criteria in Article 501(2) CRR are met. Nevertheless, according to Article 501 (2)(a) (1) CRR exposures assigned to any of the IRB exposure classes which are in default shall be excluded from the application of the SME Supporting factor.