Single Rulebook Q&A

Question ID: 2017_3173
Legal act : Regulation (EU) No 575/2013 (CRR) as amended
Topic : Credit risk
Article: 4
Paragraph: 1
Subparagraph: 79
COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable
Article/Paragraph : -
Type of submitter: Credit institution
Subject matter : Application of the definition of ‘speculative immovable property financing’ under the Standardised Approach
Question:

In case the borrower is the developer of a real estate project for which future contract agreements with future owners have been signed about the properties under development, would this exposure fall within the scope of the speculative immovable property financing?

Background on the question:
We seek clarification on the correct allocation of a considerable amount of our corporate loan portfolio under either the ‘exposures to corporates’ or the ‘exposures associated with particularly high risk’ (due to speculative immovable property financing definition). This latter alternative appears to be backed by the definition in Article 4(1) (79) CRR.
 
However, we doubt that those loans should be reallocated to ‘exposures associated with particularly high risk’ since we deem the nature of the term ‘speculative’ is not fulfilled in every case where the borrower (and the developer of the real estate project, in one) has signed future contract agreements with future owners about the selling of those properties (residential project are contracted of at least at 50% of the loan principal; commercial projects are contracted of at least at 100% of the loan principal).
Date of submission: 20/02/2017
Published as Final Q&A: 21/09/2018
EBA answer:
As clarified in Q&A 3131 according to Article 128(2)(d) CRR speculative immovable property financing as defined in Article 4(1)(79) CRR is included among the “exposures with particularly high risks”.
 
In case of an exposure towards the developer of a real estate project, where future contract agreements with future prospective owners of the properties under development have been signed, but where these agreements are not irrevocable, the exposure will meet the conditions described in Article 4(1)(79) CRR for being classified as speculative immovable property financing and, as a result, needs to be assigned to the class of “exposures associated with particularly high risk” according to Article 112(k) CRR. Consequently the 150% RW applies to the exposure towards the developer.
Status: Final Q&A
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