The intention behind Article 159 of Regulation (EU) No. 575/2013 (CRR) is to ensure that expected loss amounts calculated under the IRB approach are only deducted from own funds to the extent they have not already been reflected through either:
- general and specific credit risk provisions within in the financial statements, which are the starting point of the own funds calculation; or
- adjustments to these general and specific credit risk provisions, deducted from own funds according to Article 34 to meet prudent valuation requirements of Article 105 of the CRR.
It is therefore only Additional Value Adjustments deducted from own funds according to Article 34 of the CRR that should be included in this calculation.