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We request EBA’s clarification on the application of Article 402 CRR to exposures fully secured by commercial property classified as IPRE under CRR III, but risk‑weighted as non‑IPRE in accordance with the exemption defined in Article 126(2) because the property meets the national conditions applicable in Sweden (the so‑called “hard test”). Specifically: 2.1 Eligibility for Article 402 when collateral is IPRE by classification Does the collateral’s IPRE classification affect eligibility for the Article 402 exposure value reduction, specifically for large exposures where the risk-weighting due to the exemption in Article 126(2) is treated as non-IPRE due to national conditions in Sweden (the so-called “hard test”) 2.2 Treatment under Swedish national conditions In cases where national authorities allow commercial IPRE collateral to be risk-weighted as non-IPRE under Article 126(2) (Swedish hard test), can the bank apply the Article 402 reduction, assuming all CRM requirements under Articles 399, 208, and 229 are satisfied? In other words: Does Article 402 eligibility follow the risk-weighting treatment under Article 126.2, or does it follow the classification of the collateral under CRR III?

A Swedish credit institution intends to calculate its exposure value to a client in accordance with the large exposures framework set out in Part Four of the CRR. The client has provided collateral in the form of a commercial property classified as income-producing real estate (IPRE) under the revised CRR III terminology for commercial real estate exposures. Under Article 399 CRR, credit risk mitigation (CRM) may be taken into account when calculating exposures for large exposure purposes, and Article 402 specifies cases where exposures fully secured by residential or commercial property may be reduced in the exposure value calculation—subject to certain conditions, including those in Articles 124–126 and relevant CRM criteria. It is unclear whether the exposure value reduction under Article 402 should be determined based on the CRR III IPRE classification of the collateral or on the applicable risk-weighting under Articles 125–126.