Article 501(1) states that E* in the formula for the computation of the SME supporting factor shall be either the total amount owed by the group of connected clients of the SME as far as it is not secured by residential property collateral (point a), or – in case the beforementioned definition results in a value of zero – it shall be the amount secured by residential property collateral excluded from the calculation described in point a (point b).

First, it is not quite clear, if the definition in point b per se includes off-balance-sheet items, as on the one hand it refers to “contingent claims” and on the other hand it refers to the amount excluded from point a, which itself is based on the amount owed by the client and a contingent claim is not owed in the present.

Further, situations may arise, where the amount defined in point a as well as the amount defined in point b are equal to zero, for example if the exposure towards an SME consists of an undrawn line only and there is no residential real estate collateral. As the division by zero is undefined for real numbers, it is not possible to calculate RWEA* for those cases. It is thus not clear, if the SME supporting factor may be applied to such cases, and if so, how it shall be derived.

Regarding the following example, it seems inconsistently not to use an SME supporting factor at all:

In case an SME has a revolving credit as a working capital facility with a credit limit of EUR 3,000,000.00 and there is no mortgage involved, if the credit line is drawn in the amount of EUR 2,000,000.00, an SME supporting factor of 0.7619 is applicable, as E* amounts to EUR 2,000,000.00.
If at another point in time, there are no funds drawn under this credit line, both the definitions of E* in points a, and b of Article 501(1) result in a value of zero, as described above. However, to us it is counterintuitive and inconsistent over time, not to use a supporting factor just because there are by chance no funds drawn at a certain reporting reference date.

If the SME supporting factor is applicable at both points in time in the example above, there is still the problem of identifying E*, when no funds are drawn. Using the whole nominal amount of the credit line would result in an SME supporting factor of about 0.7766. In this case, the SME supporting factor would be higher, if there are no funds drawn, than if there was a single euro cent drawn (or an amount up to EUR 2,500,000.00).