Article 5
Definitions specific to capital requirements for credit risk
For the purposes of Part Three, Title II, the following definitions shall apply:
(1)
‘exposure’ means an asset or off-balance sheet item;
(2)
(3)
‘expected loss’ or ‘EL’ means the ratio, related to a single facility, of the amount expected to be lost on an exposure from any of the following:
(a)
a potential default of an obligor over a one-year period to the amount outstanding at default;
(b)
a potential dilution event over a one-year period to the amount outstanding at the date of occurrence of the dilution event;
(4)
‘credit obligation’ means any obligation arising from a credit contract, including principal, accrued interest and fees, owed by an obligor;
(5)
‘credit exposure’ means any on- or off -balance-sheet item, that results, or may result, in a credit obligation;
(6)
‘facility’ or ‘credit facility’ means a credit exposure arising from a contract or a set of contracts between an obligor and an institution;
(7)
‘margin of conservatism’ means an add-on incorporated in risk parameter estimates to account for the expected range of estimation errors stemming from identified deficiencies in data, methods, models, and changes to underwriting standards, risk appetite, collection and recovery policies and any other source of additional uncertainty, as well as from general estimation error;
(8)
‘appropriate adjustment’ means the impact on risk parameter estimates resulting from the application of methodologies within the estimation of risk parameters to correct the identified deficiencies in data and in estimation methods, and to account for changes to underwriting standards, risk appetite, collection and recovery policies and any other source of additional uncertainty, to the extent possible in order to avoid biases in risk parameter estimates;
(9)
‘small and medium-sized enterprise’ or ‘SME’ means a company, enterprise or undertaking which, according to its most recent consolidated accounts, has an annual turnover not exceeding EUR 50 000 000 ;
(10)
‘commitment’ means any contractual arrangement that an institution offers to a client, and is accepted by that client, to extend credit, purchase assets or issue credit substitutes; and any such arrangement that can be unconditionally cancelled by an institution at any time without prior notice to an obligor or any arrangement that can be cancelled by an institution where an obligor fails to meet the conditions set out in the facility documentation, including conditions that are required to be met by the obligor prior to any initial or subsequent drawdown under the arrangement, unless contractual arrangements meet all of the following conditions:
(a)
contractual arrangements where the institution receives no fees or commissions to establish or maintain those contractual arrangements;
(b)
contractual arrangements where the client is required to apply to the institution for the initial and each subsequent drawdown under those contractual arrangements;
(c)
contractual arrangements where the institution has full authority, regardless of the fulfilment by the client of the conditions set out in the contractual arrangement documentation, over the execution of each drawdown;
(d)
the contractual arrangements allow the institution to assess the creditworthiness of the client immediately prior to deciding on the execution of each drawdown and the institution has implemented and applies internal procedures that ensure that such an assessment is being made before the execution of each drawdown;
(e)
contractual arrangements that are offered to a corporate entity, including an SME, that is closely monitored on an ongoing basis;
(11)
‘unconditionally cancellable commitment’ means any commitment the terms of which permit the institution to cancel that commitment to the full extent allowable under consumer protection and related legal acts, where applicable, at any time without prior notice to the obligor or that effectively provide for automatic cancellation due to a deterioration in a borrower’s creditworthiness.