Option 2 is the preferred option. Under option 1 the relative materiality threshold becomes not relevant for (total) credit obligations beyond 10 EUR (retail) and 25 EUR (non-retail) when the upper materiality thresholds as outlined in the Draft RTS are used. Especially, in the case of non-retail exposures, the relative threshold would become almost irrelevant (please see Figure 1 in the atatched document).
However, the sole use of only one of these thresholds would lead to small overdue amounts becoming “material” due to the relative threshold (e.g., 30 EUR in case of a 1500 EUR retail consumer loan).
Yes. However, rating system specific exceptions should still be possible, subject to supervisory approval. Additionally, DB is unclear why the Draft RTS defines these as maximum levels but still allows for national discretion.
There are substantial implementation efforts that would be required. Please see Annex I section “Transitional period / Implementation efforts” for details. The length of time required is a result of four main factors.
• Whether the amount overdue is already available in data bases and systems used for RWA calculations as well as credit risk parameter and model recalibrations, or whether a tactical solution to determine this amount will be allowed by supervisory authorities. As stated above in Annex I, not all of the data will be initially available in the requisite form needed. This will require reengineering the interfaces and systems for example in the RWA calculation, credit risk parameters and model recalibrations. A retroactive adjustment of historical default and non-default data would be difficult and in some instances might not be possible.
• To meet the need to adjust default and loss data history to meet the draft RTS requirements.
• To work though the credit risk parameters and models that need to be validated and recalibrated to meet the requirements.
• The intensity and timelines of the supervisory approval process.
Yes we agree with these aspects. As stated above, for banks operating under IRBA a change in the existing materiality thresholds has a significant impact and therefore the process of implementing necessary adjustments relating to the IT systems, processes, credit risk parameter settings and rating models is costly and time intensive.
A longer time period would be needed to assess the expected impact. This time period as well as the impact depends on the first three factors stated under Q3: data availability in the requisite form needed, necessity of historical data adjustments, and the number of credit risk parameters and models to be validated and recalibrated.