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    ECB Guideline on Materiality Threshold for Credit Obligations Past Due

    July 08, 2020

    ECB published a guideline (2020/97), in the Official Journal of European Union, on the definition of materiality threshold for credit obligations past due for less significant institutions. The guideline specifies how national supervisors shall exercise—in relation to the less significant institutions—their discretion with regard to the threshold for assessing the materiality of credit obligations past due, irrespective of the method used for the calculation of the risk-weighted exposure amounts. The guideline shall take effect on the day of its notification to national competent authorities of the participating member states. The national competent authorities shall comply with this guideline no later than December 31, 2020. In addition, a corrigendum to the ECB Regulation 2018/1845, on threshold for assessing the materiality of credit obligations past due, has been published in the Official Journal of European Union.

    For the purpose of Article 178(2)(d) of the Capital Requirements Regulation (CRR or 575/2013), national competent authorities shall require less significant institutions to assess the materiality of a credit obligation past due against the threshold, that 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 the limits, mentioned above, have been exceeded for more than 90 consecutive days. The new guideline for less significant banks is aligned with the threshold defined in the ECB Regulation 2018/1845 for significant banks. The alignment of the materiality threshold for credit obligations past due for all banks, regardless of whether they are supervised directly by ECB or by national supervisors, contributes to the consistent application of supervisory standards to both significant and less significant credit institutions. The national competent authorities shall ensure that less significant institutions apply such threshold no later than December 31, 2020. The national competent authorities shall also 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. 

    ECB had published, in January 2020, the draft guideline on definition of materiality threshold for credit obligations past due for less significant institutions. The consultation period on the draft guideline had ended in February 2020.

     

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    Keywords: Europe, EU, Banking, CRR, Credit Risk, Materiality Threshold, Credit Obligations, Less Significant Institutions, Regulation 2018/1845, Guideline 2020/97, ECB

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