Article 9
Fixed rate loans that are subject to the risk of early repayment
1.
Institutions shall consider fixed rate loans to retail customers as subject to the risk of early repayment where the borrower is able to repay part or all of the outstanding principal before the contractually agreed repayment date or the contractual maturity date of the principal either:
(a)
without bearing the economic costs for such repayment; or
(b)
bearing the economic costs only above a prepayment threshold.
2.
Institutions shall, for the non-trading book positions referred to in paragraphs 1 and 7, estimate the baseline annual conditional prepayment rate per currency, in a way that is consistent over time and appropriate for an average prepayment rate. Institutions shall estimate that average prepayment rate separately for each portfolio of homogeneous non-trading book positions and under the prevailing term structure of interest rates, based on all available internal observations.
For the purposes of the first subparagraph, institutions may set the prepayment rate at 0 where the total of both the fixed rate loans referred to in paragraph 1 and of the fixed rate assets referred to in paragraph 7 is less than 5 % of the non-trading book positions that are accounted for as assets in accordance with the applicable accounting framework.
3.
Institutions shall adjust the conditional prepayment rate estimated in accordance with paragraph 2 as follows:
(a)
in scenarios that prescribe an increase in interest rates as referred to in Article 4, points (a)(i), (b)(ii), and (c)(i), institutions shall multiply the conditional prepayment rate by 0,8;
(b)
in scenarios that prescribe a decrease in interest rates as referred to in Article 4, points (a)(ii), (b)(i), and (c)(ii), institutions shall multiply the conditional prepayment rate by 1,2.
4.
For each repricing time bucket as referred to in point 1 of the Annex, institutions shall estimate the expected amount of prepaid loans per repricing time bucket as the product of:
(a)
the outstanding amount of the fixed rate loans referred to in paragraph 1 of a certain homogeneous product type denominated in a certain currency;
(b)
the conditional prepayment rate determined in accordance with paragraph 2, multiplied by the length of the applicable repricing time bucket referred to in point 2 of the Annex and adjusted in accordance with paragraph 3.
For the purposes of point (a), institutions shall not regard amounts matured or prepaid at a time earlier than the lower limit of the repricing time bucket as outstanding amounts.
5.
Institutions shall allocate the prepaid amount of the fixed rate loans referred to in paragraph 1, including penalty fees on the prepaid amount that retail customers pay in the applicable scenario, to the relevant repricing time buckets referred to in point 1 of the Annex. Institutions shall allocate any part of the notional repricing cash flows of those fixed rate loans that they do not expect to be prepaid to the relevant repricing time buckets referred to in point 1 of the Annex on the basis of the contractual repayment schedule for the duration of contractual maturity of those loans.
6.
Institutions shall treat fixed rate loans to wholesale customers, where the borrower is able to prepay part or all of the outstanding principal before the contractually agreed repayment date or the contractual maturity date of the principal, in accordance with Articles 6 and 13.
7.
Where the institution is exposed to assets in the form of securities with underlying instruments in the form of fixed rate loans as referred to in paragraph 1 (‘fixed rate assets’), and the issuer of those fixed rate assets has no obligation to replace the fixed rate loans in the case of their early repayment, that institution shall apply a look-through approach and shall evaluate the non-trading book positions in those assets in accordance with paragraph 1, irrespective of whether the counterparty of that institution is a wholesale or retail customer.