EBA publishes final RTS on specialised lending exposures

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EBA publishes final RTS on specialised lending exposures

The European Banking Authority (EBA) has published its final regulatory technical standards (RTS) on assigning risk weightings to specialised lending exposures.15 Jun 2016

Specialised lending describes loans made to bodies that have been set up specifically to buy and control physical assets, such as property. Under specialised lending the lender keeps some control over the assets and the income from them, and most of the repayment of the loan comes from that income.     

The EBA has published the RTS to harmonise the way that risk weightings are applied to these loans under an approach called 'supervisory slotting criteria'. Under European banking rules, all property loans are assigned to one of five categories, or slots, depending on how risky they are seen to be based on the underlying credit risk and the remaining maturity. This information is then used to calculate how much capital the institution must hold, as part of measures put in place to protect the European banking system.

In the RTS the EBA has defined four classes of specialised lending: project finance, real estate, object finance and commodities finance. For each of these, it has then specified assessment criteria, with different factors to take into account under each, it said.

If institutions follow these standards, they will be able to identify a category and a risk weight to assign to each exposure, the EBA said.

Firms may need extra time to implement this proposed framework, the EBA said, so it proposes that the final draft RTS should not apply until one year after their publication in the Official Journal of the EU.