Minimum loss coverage for non-performing exposures under Article 469a

Where the terms and conditions of an exposure which was originated prior to 26 April 2019 are modified in a way that increases the institution’s exposure to the obligor, are all exposures to the obligor that was originated prior to 26 April 2019 also considered as having been originated on the date of the modification and subject to the provisions on the minimum loss coverage for non-performing exposures?

According to subparagraph 1 of Article 469a, by way of derogation from point (m) Article 36(1), institutions shall not deduct the insufficient coverage for non-performing exposures from Common Equity Tier 1 items where the exposure was originated prior to 26 April 2019. However, according to subparagraph 2 of Article 469a, where the terms and conditions of an exposure which was originated prior to 26 April 2019 are modified by the institution in a way that increases the institution's exposure to the obligor, the exposure shall be considered as having been originated on the date when the modification applies and shall cease to be subject to the derogation provided for in the first subparagraph. Under subparagraph 2 of Article 469a, the exposure that shall be considered as having been originated on the date when the modification applies could be interpreted as all exposures to the obligor. This means that all exposures to the obligor, which were originated prior to 26 April 2019, will no longer be subject to the derogation provided for in subparagraph 1 of Article 469a when one of these exposures to the obligor is modified in a way that increases the institution’s exposure to the obligor. This is also consistent with institutions practice of assessing credit risk at the obligor level. If subparagraph 2 of Article 469a is interpreted as all exposures to the obligor rather than on the individual exposure level, this would result in more exposures which were originated prior to 26 April 2019 becoming subject to the provisions on the minimum loss coverage for non-performing exposures. However, due to the provisioning calendar embedded in provisions on the minimum loss coverage for non-performing exposures, the capital deduction from insufficient coverage for non-performing exposures would occur gradually at a later stage and not at once. This seems prudent and also align with facilitating a smooth transition to the new prudential backstop.  If subparagraph 2 of Article 469a is not interpreted as all exposures to the obligor but at the individual exposure level this would result in more exposures which were originated prior to 26 April 2019 not being subject to the provisions on the minimum loss coverage for non-performing exposures, which in contrast does not seem prudent.