EBA · 2023_6721 Final Q&A

COREP Large exposure, validation rule v_1678 related to POCI assets

Regulation
Regulation (EU) No 575/2013 (CRR)
Article
430
Topic
Supervisory reporting - Large Exposures
Submitted by
Credit institution
Submitted
2023-02-20
Answered
2023-10-06
Answer provided by
ESAs (EBA, ESMA, EIOPA)
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Question

In case of purchased or originated credit-impaired financial assets (POCI), it is possible that the value for positive 'value adjustments and provisions' exceeds the 'value of total original exposure' can be reported in COREP Large reports. However, DPM validation rule v_1678_m does not allow reporting of such cases.  Since it is possible to have positive impairments that exceed the total original exposure for the POCI assets, could the validation rule or its severity be modified in this respect?

Background

In case of POCI assets, impairment gains are possible according fo IFRS 9. Therefore, value adjustments and provisions (column 200 of C29) can in certain cases exceed the value of the total original exposure (column 050 of C29) in COREP Large Exposure report. Given that the DPM validation rule v_1678_m (Error: v_1678_m: {c050} >= abs({c200} + {c210}) does not allow the reporting of such cases, reports are rejected.

Answer

In accordance with Annex IX of Commission Implementing Regulation (EU) 2021/451, institutions shall report total original exposure in column 0050 of template C 29.00. That is, the exposure value without taking into account value adjustments and provisions, which shall be deducted in column 0200. In particular, purchased or originated credit-impaired (POCI) financial assets can imply a positive impairment as it is established in IFRS 9 5.5.14 (see also Q&A  2018_3876 ). Therefore, POCI exposures may have a positive amount reported in column 0200 higher than original exposure included in column 0050. In conclusion, validation rule v1678_m can be breached if exposure is a POCI and positive impairment is higher than original exposure. Therefore, severity of this validation rule will be amended to “Warning”.

Original source: European Banking Authority, Q&A ID 2023_6721

This Q&A is published by European Banking Authority and is non-binding. It does not constitute legal advice. Updated weekly from official ESA sources.

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