July 04, 2018

The Central Bank of Ireland published a consultation on the implementation of the Commission Delegated Regulation (EU) 2018/171 (of October 19, 2017) on materiality thresholds for credit obligations past due. This Delegated Regulation supplements Capital Requirements Regulation or CRR (EU Regulation No 575/2013) with regard to the regulatory technical standards on materiality thresholds for credit obligations past due. The consultation closes on August 15, 2018.

This consultation paper signals the proposed approach of the Central Bank of Ireland in relation to the setting of the threshold for the materiality of a credit obligation past due. Regulation 2018/171 specifies the conditions for setting the materiality threshold for retail and "other than retail" exposures. When establishing the materiality threshold pursuant to its tasks under the regulatory technical standards, the Central Bank of Ireland proposes to set the absolute and relative components of the materiality threshold as follows:

  • An absolute component—For retail exposures the materiality threshold shall be set at EUR 100. For all other exposures the threshold shall be set at EUR 500
  • A relative component set at a ratio of 1% of the amount of the credit obligation past due in relation to the total amount of all on-balance sheet exposures to that obligor of the institution, the parent undertaking of that institution or any of its subsidiaries, excluding equity exposures
  • Both the absolute and relative threshold will apply from December 31, 2020.

As per Article 178(2)(d) of the CRR, concerning the Default of an Obligor, the materiality of a credit obligation past due shall be assessed against a threshold, defined by the competent authorities. That threshold must reflect a reasonable level of risk. Under Article 178(6), EBA is required to specify the conditions according to which the competent authority shall set the threshold against which the materiality of a credit obligation past due shall be assessed for the purposes of identifying defaults of obligors or individual credit facilities under Article 178. The materiality threshold is applicable for institutions using both the standardized approach and internal ratings-based (IRB) approach for calculation of own funds requirements for credit risk. As is set forth in the regulatory technical standards, the materiality of past due credit obligations forms part of the definition of default in Article 178 (1) (b). In the case of the implementation of these regulatory standards, the Central Bank of Ireland, as national competent authority, has the responsibility for implementation with regard to the Less Significant Institutions within the European banking regulatory framework.

 

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Comment Due Date: August 15, 2018

Effective Date: December 31, 2020

Keywords: Europe, Ireland, Banking, Credit Risk, Credit Obligations, CRR, Materiality Threshold, Central Bank of Ireland

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