December 22, 2017

EBA issued an advice to EC on the appropriateness of continuing to apply the 180 day past due (DPD) exemption for material exposures. Based on an analysis of data submitted by the institutions still using the 180 DPD criterion, EBA recommends that this exemption be disallowed and all institutions should consequently rely on the 90 DPD regime for all exposures. The opinion is based on the findings from the EBA report on the 180 DPD criterion and these findings have beeen presented as an annex to this opinion.

EBA found that only a limited number of institutions in the EU make use of the 180 DPD criterion. EBA analyzed the impact of removing the 180 DPD criterion for these institutions on risk-weighted exposure amounts and capital ratios. The results indicate an average relative change in risk exposure amounts of nearly +1.61% and an average expected decrease in the capital ratio of 0.37 percentage points, although with variation across the analyzed institutions. EBA recommends to the EC to disallow the application of the 180 DPD criterion, in light of the widespread use of the 90 DPD criterion in the EU, the limited use of the 180 DPD criterion, the variability in risk-weights caused by the 180 DPD criterion, and the forthcoming changes in the accounting framework. However, EBA recommends that an appropriate transitional period should be provided to allow the institutions using the 180 DPD to adjust to the 90 DPD regime.

Article 506 of the CRR had mandated EBA to deliver a report by December 31, 2017 on the impact of replacing the 180 DPD criterion, as currently allowed under point (b) in Article 178(1) CRR, with 90 DPD, along with an assessment of the appropriateness of continued application of the 180 DPD criterion.

 

Related Link: Press Release

 

Keywords: Europe, Banking, DPD Criterion, CRR, Material Exposures, EC, EBA

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