Question ID
2015_2481
Legal act
Directive 2013/36/EU (CRD)
Topic
Supervisory reporting - Supervisory Benchmarking
Article
78
Paragraph
2
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations
Draft ITS on Supervisory Reporting of Institutions (for benchmarking the internal approaches)
Article/Paragraph
Annex III, C 103.00, c230 / c240
Type of submitter
Credit institution
Subject matter
Calculation of PD* and PD**
Question

The formula provided for calculating PD* is based on a Normal approximation of the binomial confidence interval.

  1. The approximation formula is based on a case weighted approach. Should the formula be applied using the exposure weighted default rate as defined in the final draft RTS/ITS or can a case weighted default rate be used?
  2. RWA* and RWA** shall be calculated per rating grade. However, rating grade is not a segmentation criterion. How should be dealt with this?
  3. How should the default rate per rating grade be calculated? Should the rating grade of the year prior to the default be used? How should customers who are not in the portfolio the previous year be dealt with?
  4. In calculation of PD**, how the value “n” (i.e. the number of exposures non defaulted at the beginning of the period) has to be calculated?
Background on the question

Additional details are useful to guarantee a homogeneous calculation of PD* and PD**

Submission date
Final answer
  1. A case-weighted approach shall be used as defined in the instructions on columns 230 and 240 of template C 103.00 of Annex III of the Draft ITS on Supervisory Reporting for Institutions for benchmarking the internal approaches (ITS on benchmarking).

 

  1. The calculation of PD* and PD** shall be performed at rating grade level. These values shall then be used for the calculation of RWA* and RWA** which are required at portfolio level. See also Q&A 2016_2782.

 

  1. According to Q&A 2015_2297, the default rate as reported in c190 of Template C 103.00 of Annex IV of the ITS on benchmarking shall be calculates as the observed new defaults for the last year divided by the amount of the non-defaulted assets existing exactly one year before the reference date. For the calculation of the default rate at rating grade level, the rating assigned exactly one year before the reference date is relevant, i.e. a change of rating after that date is disregarded. Equally, only the obligors / exposures being part of the portfolio as of one year before the reference date shall be considered, not obligors / exposures included afterwards.

 

  1. According to the instruction on the calculation of RWA** (column 240 of template C 103.00 of the ITS on benchmarking), for the purposes of the calculation of PD**, “n” shall be the number of non-defaulted debtors at the beginning of the period.

 

DISCLAIMER:

The present Q&A on Supervisory reporting is provisional. It will be reviewed after the Implementing Regulation is in force and published in the Official Journal. The text of the Implementing Regulation may differ from the text of the draft ITS to which this Q&A refers.

Status
Archive
Answer prepared by
Answer prepared by the EBA.
Note to Q&A

Update 26.03.2021: This Q&A has been archived in the light of the most recent amendments to the ITS 2016/2070 on Supervisory Benchmarking.