The EACB welcomes the opportunity to comment on the draft EBA RTS specifying the types of factors to be considered for the assessment of appropriateness of risk weights under Article 124 (4) CRR, and the conditions to be taken into account for the assessment of appropriateness of minimum LGD values under Article 164 (8) CRR.
As a general comment, we believe that caution needs to be exercised when looking at new loans vs the stock. We understand that the EBA mandate in CRR applies to all loans categorized by objective criteria, and that the macroprudential considerations would affect the whole book. Having regard to the EBA mandate, which refers to either the current or future financial stability, we advocate for an approach allowing authorities to consider in their assessment on adequacy (or not) of risk weights also whether the stock may remain subject to the risk weights according to Art 125 (2) or 126 (2) or the applicable risk weight at the time of adjustment according to Art 124 (2) CRR. In fact, it should be noted that property values associated to older loans are likely to have risen in a “natural” manner and not due to macroeconomic imbalances or market overheating, while the outstanding amount of the loans decreased.
We believe that unwarranted increases in risk weights or LGDs should be avoided. Indeed, as mentioned, legacy exposures might be disproportionately affected as their value could be seen as overvalued simply because mortgage loans are concluded with a duration of several decades. Over the time, the collateralization of the exposure will increase as the credit claims is reduced due to repayment and the value of the immovable property will typically be increased.
We encourage the EBA to refine the analysis and take into due consideration this aspect within the text of the