ECB published a draft guideline, along with the frequently asked questions (FAQs), on the definition of the materiality threshold for credit obligations past due for less significant institutions. The definition will take the form of an ECB guideline addressed to national competent authorities to set a single materiality threshold for all less significant institutions within the Single Supervisory Mechanism (SSM), both for retail and non-retail exposures, irrespective of the method used for the calculation of capital requirements. The consultation period on the draft guideline ends on February 17, 2020.
The materiality threshold will comprise an absolute component and a relative component. The absolute component is expressed as a specific maximum amount for the sum of all amounts past due owed by an obligor. The relative component is expressed as a percentage reflecting the amount of the credit obligation past due in relation to the total amount of all on-balance sheet exposures to that obligor for the credit institution, the parent undertaking, or any of its subsidiaries. National competent authorities shall require less significant institutions to assess the materiality of a credit obligation past due against the following threshold, which comprises two components:
- A limit in terms of the sum of all amounts past due owed by the obligor to the credit institution, the parent undertaking of that credit institution or any of its subsidiaries, equal to EUR 100 for retail exposures and EUR 500 for exposures other than retail exposures
- A limit in terms of the amount of the credit obligation past due in relation to the total amount of all on-balance sheet exposures to that obligor for the credit institution, the parent undertaking or any of its subsidiaries, excluding equity exposures, equal to 1%
A default shall be deemed to have occurred when both of the limits, mentioned above, are exceeded for more than 90 consecutive days. The materiality threshold, defined for less significant institutions, was designed in alignment with the definition given by ECB for significant institutions in Regulation 2018/1845. It will ensure consistency in the way defaulted exposures are defined both among less significant institutions and across the SSM, thus increasing their comparability. The national competent authorities shall ensure that less significant institutions
- Notify them of the exact date on which they will commence applying the threshold for the assessment of the materiality of a credit obligation past due and that less significant institutions
- Apply such threshold no later than December 31, 2020
The guideline shall take effect on the day of its notification to the national competent authorities of the participating member states. The national competent authorities shall comply with the guideline no later than December 31, 2020.
Comment Due Date: February 17, 2020
Keywords: Europe, EU, Banking, CRR, Credit Risk, Materiality Threshold, Credit Obligations, Less Significant Institutions, SSM, Guideline, Regulation 2018/1845, ECB
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