Sub-Section 2

Subject to the application of the specific treatments laid down in paragraphs 2, 3 and 4, the risk weighted exposure amounts for exposures to corporates, institutions and central governments and central banks shall be calculated according to the following formulae: Risk – weighted exposure amount = RW · exposure value where the risk weight RW is defined as if PD = 0, RW shall be 0; if PD = 1, i.e., for defaulted exposures: where institutions apply the LGD values set out in Article 161(1), RW shall be 0; where institutions use own estimates of LGDs, RW shall be RW = max 0,12.5 · (LGD – EL_(BE)); where the expected loss best estimate (hereinafter referred to as 'EL_(BE)') shall be the institution's best estimate of expected loss for the defaulted exposure in accordance with Article 181(1)(h); if 0 < PD < 1 RW = (LGD · N((1 / 1 – R) · G(PD) + (R / 1 – R) · G(0.999)) – LGD · PD) · (1 + (M – 2,5) · b / 1 – 1,5 · b) · 12,5 · 1,06 where: N(x)= the cumulative distribution function for a standard normal random variable (i.e. the probability that a normal random variable with mean zero and variance of one is less than or equal to x); G(Z)= denotes the inverse cumulative distribution function for a standard normal random variable (i.e. the value x such that N(x) = z) R= denotes the coefficient of correlation, is defined as R = 0.12 · (1 – e^(– 50 · PD) / 1 – e^(– 50)) + 0.24 · (1 – (1 – e^(– 50 · PD) / 1 – e^(– 50))) b= the maturity adjustment factor, which is defined as b = (0.11852 – 0.05478 · ln(PD))^(2). For all exposures to large financial sector entities, the co-efficient of correlation of paragraph 1(iii) is multiplied by 1,25. For all exposures to unregulated financial entities, the coefficients of correlation set out in paragraph 1(iii) and paragraph 4, as relevant, are multiplied by 1,25. The risk weighted exposure amount for each exposure which meets the requirements set out in Articles 202 and 217 may be adjusted according to the following formula: Risk – weighted exposure amount = RW · exposure value · (0.15 + 160 · PD_(pp)) where: PD_(pp)= PD of the protection provider. RW shall be calculated using the relevant risk weight formula set out in point 1 for the exposure, the PD of the obligor and the LGD of a comparable direct exposure to the protection provider. The maturity factor (b) shall be calculated using the lower of the PD of the protection provider and the PD of the obligor. For exposures to companies where the total annual sales for the consolidated group of which the firm is a part is less than EUR 50 million, institutions may use the following correlation formula in paragraph 1 (iii) for the calculation of risk weights for corporate exposures. In this formula S is expressed as total annual sales in millions of Euros with EUR 5 million ≤ S ≤ EUR 50 million. Reported sales of less than EUR 5 million shall be treated as if they were equivalent to EUR 5 million. For purchased receivables the total annual sales shall be the weighted average by individual exposures of the pool. R = 0.12 · (1 – e^(– 50 · PD) / 1 – e^(– 50)) + 0.24 · (1 – (1 – e^(– 50 · PD) / 1 – e^(– 50))) – 0.04 · (1 – (minmax5,S,50 – 5 / 45)) Institutions shall substitute total assets of the consolidated group for total annual sales when total annual sales are not a meaningful indicator of firm size and total assets are a more meaningful indicator than total annual sales. For specialised lending exposures in respect of which an institution is not able to estimate PDs or the institutions' PD estimates do not meet the requirements set out in Section 6, the institution shall assign risk weights to these exposures according to Table 1, as follows: Table 1 Remaining Maturity Category 1 Category 2 Category 3 Category 4 Category 5 Less than 2,5 years 50 % 70 % 115 % 250 % 0 % Equal or more than 2,5 years 70 % 90 % 115 % 250 % 0 % In assigning risk weights to specialised lending exposures institutions shall take into account the following factors: financial strength, political and legal environment, transaction and/or asset characteristics, strength of the sponsor and developer, including any public private partnership income stream, and security package. For their purchased corporate receivables institutions shall comply with the requirements set out in Article 184. For purchased corporate receivables that comply in addition with the conditions set out in Article 154(5), and where it would be unduly burdensome for an institution to use the risk quantification standards for corporate exposures as set out in Section 6 for these receivables, the risk quantification standards for retail exposures as set out in Section 6 may be used. For purchased corporate receivables, refundable purchase discounts, collateral or partial guarantees that provide first-loss protection for default losses, dilution losses, or both, may be treated as first-loss positions under the IRB securitisation framework. Where an institution provides credit protection for a number of exposures under terms that the nth default among the exposures shall trigger payment and that this credit event shall terminate the contract, if the product has an external credit assessment from an ECAI the risk weights set out in Chapter 5 shall be applied. If the product is not rated by an ECAI, the risk weights of the exposures included in the basket will be aggregated, excluding n-1 exposures where the sum of the expected loss amount multiplied by 12,5 and the risk weighted exposure amount shall not exceed the nominal amount of the protection provided by the credit derivative multiplied by 12,5. The n-1 exposures to be excluded from the aggregation shall be determined on the basis that they shall include those exposures each of which produces a lower risk-weighted exposure amount than the risk-weighted exposure amount of any of the exposures included in the aggregation. A 1250 % risk weight shall apply to positions in a basket for which an institution cannot determine the risk-weight under the IRB Approach. EBA shall develop draft regulatory technical standards to specify how institutions shall take into account the factors referred to the second subparagraph of paragraph 5 when assigning risk weights to specialised lending exposures. EBA shall submit those draft regulatory technical standards to the Commission by 31 December 2014. Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1093/2010. The risk-weighted exposure amounts for retail exposures shall be calculated according to the following formulae: Risk – weighted exposure amount = RW · exposure value where the risk weight RW is defined as follows: if PD = 1, i.e., for defaulted exposures, RW shall be RW = max 0,12.5 · (LGD – EL_(BE)); where EL_(BE) shall be the institution's best estimate of expected loss for the defaulted exposure in accordance with Article 181(1)(h); if 0 < PD < 1, i.e., for any possible value for PD other than under (i) RW = (LGD · N((1 / 1 – R) · G(PD) + (R / 1 – R) · G(0.999)) – LGD · PD) · 12,5 · 1,06 where: N(x)= the cumulative distribution function for a standard normal random variable (i.e. the probability that a normal random variable with mean zero and variance of one is less than or equal to x); G(Z)= the inverse cumulative distribution function for a standard normal random variable (i.e. the value x such that N(x) = z); R= the coefficient of correlation defined as R = 0.03 · (1 – e^(– 35 · PD) / 1 – e^(– 35)) + 0.16 · (1 – (1 – e^(– 35 · PD) / 1 – e^(– 35))) The risk weighted exposure amount for each exposure to an SME as referred to in Article 147(5) which meets the requirements set out in Articles 202 and 217 may be calculated in accordance with Article 153(3). For retail exposures secured by immovable property collateral a coefficient of correlation R of 0,15 shall replace the figure produced by the correlation formula in paragraph 1. For qualifying revolving retail exposures in accordance with points (a) to (e), a coefficient of correlation R of 0,04 shall replace the figure produced by the correlation formula in paragraph 1. Exposures shall qualify as qualifying revolving retail exposures if they meet the following conditions: the exposures are to individuals; the exposures are revolving, unsecured, and to the extent they are not drawn immediately and unconditionally, cancellable by the institution. In this context revolving exposures are defined as those where customers' outstanding balances are permitted to fluctuate based on their decisions to borrow and repay, up to a limit established by the institution. Undrawn commitments may be considered as unconditionally cancellable if the terms permit the institution to cancel them to the full extent allowable under consumer protection and related legislation; the maximum exposure to a single individual in the sub-portfolio is EUR 100000 or less; the use of the correlation of this paragraph is limited to portfolios that have exhibited low volatility of loss rates, relative to their average level of loss rates, especially within the low PD bands; the treatment as a qualifying revolving retail exposure shall be consistent with the underlying risk characteristics of the sub-portfolio. By way of derogation from point (b), the requirement to be unsecured does not apply in respect of collateralised credit facilities linked to a wage account. In this case amounts recovered from the collateral shall not be taken into account in the LGD estimate. Competent authorities shall review the relative volatility of loss rates across the qualifying revolving retail sub-portfolios, as well the aggregate qualifying revolving retail portfolio, and shall share information on the typical characteristics of qualifying revolving retail loss rates across Member States. To be eligible for the retail treatment, purchased receivables shall comply with the requirements set out in Article 184 and the following conditions: the institution has purchased the receivables from unrelated, third party sellers, and its exposure to the obligor of the receivable does not include any exposures that are directly or indirectly originated by the institution itself; the purchased receivables shall be generated on an arm's-length basis between the seller and the obligor. As such, inter-company accounts receivables and receivables subject to contra-accounts between firms that buy and sell to each other are ineligible; the purchasing institution has a claim on all proceeds from the purchased receivables or a pro-rata interest in the proceeds; and the portfolio of purchased receivables is sufficiently diversified. For purchased receivables, refundable purchase discounts, collateral or partial guarantees that provide first-loss protection for default losses, dilution losses, or both, may be treated as first-loss positions under the IRB securitisation framework. For hybrid pools of purchased retail receivables where purchasing institutions cannot separate exposures secured by immovable property collateral and qualifying revolving retail exposures from other retail exposures, the retail risk weight function producing the highest capital requirements for those exposures shall apply. Institutions shall determine their risk-weighted exposure amounts for equity exposures, excluding those deducted in accordance with Part Two or subject to a 250 % risk weight in accordance with Article 48, in accordance with the approaches set out in paragraphs 2, 3 and 4 of this Article. An institution may apply different approaches to different equity portfolios where the institution itself uses different approaches for internal risk management purposes. Where an institution uses different approaches, the choice of the PD / LGD approach or the internal models approach shall be made consistently, including over time and with the approach used for the internal risk management of the relevant equity exposure, and shall not be determined by regulatory arbitrage considerations. Institutions may treat equity exposures to ancillary services undertakings according to the treatment of other non credit- obligation assets. Under the Simple risk weight approach, the risk weighted exposure amount shall be calculated according to the formula: Risk – weighted exposure amount = RW * exposure value, where: Risk weight (RW)= 190 % for private equity exposures in sufficiently diversified portfolios. Risk weight (RW)= 290 % for exchange traded equity exposures. Risk weight (RW)= 370 % for all other equity exposures. Short cash positions and derivative instruments held in the non-trading book are permitted to offset long positions in the same individual stocks provided that these instruments have been explicitly designated as hedges of specific equity exposures and that they provide a hedge for at least another year. Other short positions are to be treated as if they are long positions with the relevant risk weight assigned to the absolute value of each position. In the context of maturity mismatched positions, the method is that for corporate exposures as set out in Article 162(5). Institutions may recognise unfunded credit protection obtained on an equity exposure in accordance with the methods set out in Chapter 4. Under the PD/LGD approach, risk weighted exposure amounts shall be calculated according to the formulas in Article 153(1). If institutions do not have sufficient information to use the definition of default set out in Article 178, a scaling factor of 1,5 shall be assigned to the risk weights. At the individual exposure level the sum of the expected loss amount multiplied by 12,5 and the risk weighted exposure amount shall not exceed the exposure value multiplied by 12,5. Institutions may recognise unfunded credit protection obtained on an equity exposure in accordance with the methods set out in Chapter 4. This shall be subject to an LGD of 90 % on the exposure to the provider of the hedge. For private equity exposures in sufficiently diversified portfolios an LGD of 65 % may be used. For these purposes M shall be five years. Under the internal models approach, the risk weighted exposure amount shall be the potential loss on the institution's equity exposures as derived using internal value-at-risk models subject to the 99th percentile, one-tailed confidence interval of the difference between quarterly returns and an appropriate risk-free rate computed over a long-term sample period, multiplied by 12,5. The risk weighted exposure amounts at the equity portfolio level shall not be less than the total of the sums of the following: the risk weighted exposure amounts required under the PD/LGD Approach; and the corresponding expected loss amounts multiplied by 12,5. The amounts referred to in point (a) and (b) shall be calculated on the basis of the PD values set out in Article 165(1) and the corresponding LGD values set out in Article 165(2). Institutions may recognise unfunded credit protection obtained on an equity position. The risk weighted exposure amounts for other non credit-obligation assets shall be calculated according to the following formula: Risk – weighted exposure amount = 100 % · exposure value, except for: cash in hand and equivalent cash items as well as gold bullion held in own vault or on an allocated basis to the extent backed by bullion liabilities, in which case a 0 % risk-weight shall be assigned; when the exposure is a residual value of leased assets in which case it shall be calculated as follows: (1 / t) · 100 % · exposure value where t is the greater of 1 and the nearest number of whole years of the lease remaining.

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Source: EUR-Lex (Cellar) · retrieved 2026-09-25 · Text as adopted (Official Journal); later amendments are not incorporated in this text.