Regarding to the Supervisory Benchmarking Process, Annex III, C 105.01:
When calculating the recovery rate of the foreclosure assets, should the recovery rate include a prediction for LGD for the recent defaults or only observed recoveries are expected?
For example, for clients just defaulted, observed recovery will be next to zero. Should we consider only the recoveries of the "already observed" period of time or should we include the recent years too?
On the other hand, for products with real collateral, should we include an estimation of the total LGD (considering this as the LGD until the asset is sold)?
The recovery rate reported in c090 of template C 105.01 of Annex III of the ITS on Supervisory Reporting for Institutions for benchmarking the internal approaches (ITS on benchmarking) has to be based on the recovery rate used for the LGD calibration, where observed recoveries as well as the estimations of recoveries for incomplete work out should be taken into account.
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