EBA issues Opinion to the Norwegian Ministry of Finance on a measure adjusting the risk weight for commercial immovable property

The European Banking Authority (EBA) today published an Opinion following notification by the Norwegian Ministry of Finance of its intention to amend the risk weights for exposures secured by mortgages on commercial immovable property. The measure aims to limit risks associated with commercial immovable property. Based on the information provided, the EBA does not object to the risk weight adjustment.

With the application of this measure, the Norwegian Ministry of Finance sets a risk weight of 100% for exposures secured by commercial immovable property and 75% for exposures secured by commercial immovable property meeting the requirements for inclusion in the retail category. The default risk weight of 50% under the standardised method for exposures which are fully and completely secured by mortgages on commercial immovable property (article 126 CRR) does not reflect the actual risk of these exposures.

In its Opinion, the EBA acknowledges the concerns of the Ministry of Finance of Norway regarding the financial stability risks stemming from commercial immovable property and the uncertainty in the macroeconomic environment in general. In its Opinion, the EBA welcomes the steps taken by Norwegian authorities to collect additional data and provide a better understanding of the agricultural immovable properties and related collateralised loans. The EBA encourages further analysis of the sector to fill the missing gaps and assess other sectors to ensure that the applied risk weights adequately reflect the actual risks related to the targeted exposures.

The proposed measure includes a carve-out for exposures secured by agricultural immovable property, which are not considered residential immovable property, and are therefore subject to the risk weight set out in article 126(1) CRR. According to the notification, the sector "agriculture, forestries and fisheries (excl. fish farming)" is among the sectors with the lowest historical losses. Therefore, the higher risk weight of 100% set for exposures secured by commercial property would not be needed.

Legal basis

On 25 April 2024, the European Banking Authority (EBA) received a notification from the European Systemic Risk Board (ESRB) on the intention of the Ministry of Finance of Norway to apply a measure in accordance with Article 124(2) of Regulation (EU) No 575/2013 of the European Parliament and of the Council (Capital Requirements Regulation, CRR). In accordance with the third subparagraph of Article 124(2) of the CRR, as incorporated into the EEA Agreement and adapted by Joint Decision No 079/20193 within one month of receiving notification from the designated or competent authority entrusted with the national application of Article 124 CRR, the EBA is required to provide its Opinion to the EFTA State concerned.