Question ID:
2017_3650
Legal Act:
Regulation (EU) No 575/2013 (CRR) as amended
Topic:
Credit risk
Article:
166
Paragraph:
8
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations:
Not applicable
Article/Paragraph:
Not applicable
Disclose name of institution / entity:
No
Type of submitter:
Credit institution
Subject Matter:
Scope of conversion factor estimation and application
Question:

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?

Background on the question:

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.

Date of submission:
29/12/2017
Published as Final Q&A:
24/07/2020
EBA Answer:

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.

See also Q&A 3246 on the classification of credit lines under the off-balance sheet items, Q&A 2663 on the meaning of credit lines and Q&A 1263 on the use of own estimates of conversion factors.

Status:
Final Q&A