Updated 26/11/2024
In force

Initial Legal Act
Amendments
Search within this legal act
CRR ToolDelegated Regulation 2023/206
Article 2

Article 2 - Conditions to be taken into account for the assessment of the appropriateness of the minimum LGD values for exposures secured by immovable property

Article 2

Conditions to be taken into account for the assessment of the appropriateness of the minimum LGD values for exposures secured by immovable property

1.   When assessing the appropriateness of the minimum LGD values in accordance with Article 164(6) of Regulation (EU) No 575/2013, the authorities designated in accordance with paragraph 5 of that Article shall, when performing the systemic risk assessment on the basis of macroeconomic imbalances affecting LGD estimates beyond the economic cycle, have regard to all of the following conditions:

(a)

demand and supply conditions of real estate markets, and dynamics in real estate prices, including, where relevant and where a robust estimation is available, the degree of overvaluation or undervaluation of real estate prices;

(b)

conditions that affect drivers of LGD estimates, including, where relevant:

(i)

changes in the length and in the effectiveness of the process for pursuing recoveries, due to changes in the recovery procedures;

(ii)

changes in the frequency of the return of obligors or individual credit facilities to non-defaulted status, due to changes in unemployment rates, or changes in household or corporate debt levels;

(iii)

interest rates;

(c)

other conditions that indirectly affect the value of collateral taken into account in LGD estimates, including, where relevant, loan-to-value (LTV) ratios, cross collateralisation, and other common forms of credit protection relevant to retail exposures secured by immovable property in the Member State concerned.

2.   For the purposes of paragraph 1, the authorities designated in accordance with Article 164(5) of Regulation (EU) No 575/2013 shall have regard to all of the following:

(a)

whether the macroeconomic imbalances are related to an economic downturn and hence are considered in the downturn LGD estimation for the exposures concerned;

(b)

other macroprudential measures in force that already address the identified systemic risks affecting the adequacy of minimum LGD values, including the following measures in national law designed to enhance the resilience of the financial system:

(i)

loan-to-value limits;

(ii)

debt-to-income limits;

(iii)

debt-service-to-income limits;

(iv)

other instruments addressing lending standards;

(c)

the degree of uncertainty around the evolution of immovable property markets and their price volatility;

(d)

national specificities exclusively related to the real estate market and its financing, including public and private guarantee schemes, tax deductibility and public support in the form of recourse regimes and social safety nets;

(e)

where relevant and available, benchmarking comparisons of LGD estimates across credit institutions or Member States for comparable portfolios, comparable risk levels and comparable facilities secured by immovable property pledged as collateral.