Are positions with drawn amount without an underlying credit line (i.e. overdraft without credit line) within the scope of credit conversion factor estimation as per Article 166(8) CRR?
Article 166(8) of Regulation (EU) No 575/2013 (CRR) refers only to positions with committed but undrawn credit line, with no reference to the above mentioned cases.
The question arises since a condition for the estimation and application of conversion factor (Article 166(8) CRR) is the existence of a committed credit line and overdraft without credit line are not meeting this requirement.
Additionally, it is unclear whether overdrafts on top of existing credit lines should be considered while developing EAD model, given that the regulatory (as opposite to internally modelled) conversion factors cannot be greater than 1.
The exposure arising from an amount drawn without a pre-existent underlying credit line does not fall under the scope of application of Article 166(8) of Regulation (EU) No 575/2013 as amended (CRR).
In particular, in case the overdraft only refers to an amount, which is drawn in the absence of any committed credit line, there is no undrawn amount to be multiplied by a conversion factor.
However, the circumstance that the amount of a possible overdraft, permitted according to internal policies of the institution, has not been disclosed to the customer does not prevent this from being considered as a credit line. Furthermore, in case of institutions applying the IRB Approach by using their own estimates of credit conversion factors (CCF), if an institution systematically allows unauthorised drawings, this should be appropriately reflected in the estimates of conversion factors (for instance through a separate calibration segment).
However, any amount drawn exceeding the credit facility would be considered past due in accordance with Article 178(2)(a) and (b) CRR.