# Commission Delegated Regulation (EU) No 183/2014Show full title

Commission Delegated Regulation (EU) No 183/2014 of 20 December 2013 supplementing Regulation (EU) No 575/2013 of the European            Parliament and of the Council on prudential requirements for credit institutions and investment firms, with regard to regulatory            technical standards for specifying the calculation of specific and general credit risk adjustments (Text with EEA relevance)         

        - Previous
        - Next

U.K.

# Commission Delegated Regulation (EU) No 183/2014                     

# of 20 December 2013

# supplementing Regulation (EU) No 575/2013 of the European Parliament and of the Council on prudential requirements for credit                        institutions and investment firms, with regard to regulatory technical standards for specifying the calculation of specific                        and general credit risk adjustments                     

# (Text with EEA relevance)

THE EUROPEAN COMMISSION,

Having regard to the Treaty on the Functioning of the European Union,

Having regard to Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements                           for credit institutions and investment firms and amending Regulation (EU) No 648/2012(1), and in particular the third subparagraph of Article 110(4) thereof,                        

Whereas:

(1)Regulation (EU) No 575/2013 defines credit risk adjustments as the amount of general and specific loan loss provisions for                              credit risks that have been recognised in the financial statements of the institutions in accordance with the applicable accounting                              framework but does not lay down specific rules for determining what are specific and general credit risk adjustments.

(2)Rules should be provided in relation to the specification of the amounts that need to be included in the calculation of credit                              risk adjustments which reflect losses exclusively related to credit risk. The calculation of credit risk adjustments for determining                              the own funds requirements should be limited to amounts that have reduced the Common Equity Tier 1 (CET1) of the institution.

(3)Losses exclusively related to credit risk recognised under the applicable accounting framework in the current financial year                              should be recognised as credit risk adjustments provided that the institution recognises the effect in (CET1). This is relevant                              for situations where such impairment losses recorded in the course of a financial year occur, in spite of overall interim                              profits during the year or at year-end that are not approved in accordance with Article 26(2) of Regulation (EU) No 575/2013,                              and where their recognition as credit risk adjustments would result in an earlier impact on exposure values or on Tier 2 than                              on CET1. For interim losses as provided in Article 36(1) of Regulation (EU) No 575/2013 such an adjustment is not necessary                              to the extent that losses for the current financial year under that article are immediately deducted from CET1.

(4)Certain provisions of Regulation (EU) No 575/2013 relating to credit risk adjustments refer explicitly to off-balance sheet                              items. Where no such distinction is made, the relevant provisions apply to both on- and off-balance sheet items.

(5)Rules should be laid down to cover those losses exclusively related to credit risk that are recognised under the applicable                              accounting framework by which an institution’s Common Equity Tier 1 has been reduced. Those rules should cover impairments                              and value adjustments for financial assets or provisions for off-balance sheet items, to the extent that they reflect losses                              exclusively related to credit risk and provided they are recognised in the profit and loss account under the applicable accounting                              framework. To the extent that those losses relate to financial instruments valued at fair value, those rules should also cover                              amounts recognised as impairments under the applicable accounting frameworks, or similar adjustments made provided they reflect                              losses related to a deterioration or a worsening of an asset’s or an assets portfolio’s credit quality. It is not appropriate                              at this stage to regulate other amounts that are not an impairment of a financial instrument under the applicable accounting                              framework, or that do not reflect a concept of a similar nature, even if those changes could include a credit risk component.

(6)In order to ensure full coverage of the calculation it is necessary that any amount that is relevant for the purposes listed                              in the first subparagraph of Article 110(4) of Regulation (EU) No 575/2013 is assigned either to the calculation of general                              credit risk adjustments (General Credit Risk Adjustments) or that of specific credit risk adjustments (Specific Credit Risk                              Adjustments).

(7)In relation to the identification of the amounts that can be included in the calculation of Specific Credit Risk Adjustments,                              the only criterion provided by Regulation (EU) No 575/2013 is that Specific Credit Risk Adjustments are not eligible for inclusion                              into Tier 2 capital under the Standardised Approach for credit risk, according to Article 62(c) of Regulation (EU) No 575/2013.                              Therefore, the distinction of amounts to be included in the calculation of Specific Credit Risk Adjustments or General Credit                              Risk Adjustments needs to be done consistently with the criteria for identifying what can be included in Tier 2 capital

(8)Regulation (EU) No 575/2013 implements the internationally-agreed standards of the Basel Committee on Banking Supervision                              third International Regulatory Framework for banks(2) (hereinafter referred to as ‘Basel III’). Therefore, the appropriate rules on credit risk adjustments should also be consistent                              with the Basel framework which provides that one of the criteria for the distinction between General Credit Risk Adjustments                              and Specific Credit Risk Adjustments has to be that general provisions or general loan-loss reserves are ‘freely available                              to meet losses which subsequently materialise’. According to Basel III, provisions or loan-loss reserves held against future,                              presently unidentified losses are freely available to meet losses stemming from credit risk which subsequently materialise                              and therefore qualify for inclusion within Tier 2 capital. In addition, amounts included in the calculation of General Credit                              Risk Adjustments should be fully available, with regards to timing and amount, to meet such losses, at least on a gone-concern                              basis where capital is able to absorb losses in insolvency prior to depositors losing any money.

(9)It should be possible to apply the rules in this field irrespective of the applicable accounting framework. However, to enable                              institutions to distinguish between Specific Credit Risk Adjustments and General Credit Risk Adjustments in a common way,                              criteria for treatment of credit risk losses within an applicable accounting framework for each type of credit risk adjustment                              should be provided. Whereas the treatment of losses exclusively related to credit risk recognised under applicable accounting                              frameworks depends on the fulfilment of those criteria, the large majority of those amounts should normally be classified                              as Specific Credit Risk Adjustments given the restrictive nature of the criteria for General Credit Risk Adjustments.

(10)International accounting standards are subject to revision which could necessitate changes to the criteria for distinguishing                              between Specific Credit Risk Adjustments and General Credit Risk Adjustments. In the light of ongoing discussions, particularly                              with regard to impairment models, it would seem premature to anticipate that model in credit risk adjustment criteria.

(11)Regulation (EU) No 575/2013 requires the identification of the Specific Credit Risk Adjustments for a single exposure. It                              is therefore necessary to decide how to treat Specific Credit Risk Adjustments that reflect losses related to the credit risk                              of a whole group of exposures. Further, it is necessary to decide for which exposures in the group and to what extent the                              Specific Credit Risk Adjustments should be recognised. The assignment of portions of this amount resulting from such Specific                              Credit Risk Adjustments to the exposures in the group has to be done proportionally to the risk-weighted exposure amounts.                              For this purpose, the exposure values should be determined without taking into account any Specific Credit Risk Adjustments.

(12)For the purpose of the determination of default under point (b) of Article 178(3) of Regulation (EU) No 575/2013, it is necessary                              to include only Specific Credit Risk Adjustments which are made individually for a single exposure or a single obligor, and                              not to include Specific Credit Risk Adjustments made for whole groups of exposures. Specific Credit Risk Adjustments made                              for whole groups of exposures do not identify obligors of exposures belonging to such groups for which a default event is                              considered to have occurred. In particular, the existence of Specific Credit Risk Adjustments for a group of exposures is                              not sufficient reason to conclude that default events have occurred for each of the obligor or exposures belonging to this                              group.

(13)It is necessary for institutions to be able to demonstrate how the criteria for distinguishing between Specific Credit Risk                              Adjustments and General Credit Risk Adjustments are used in the context of the applicable accounting framework. Therefore,                              institutions should document that process.

(14)This Regulation is based on the draft regulatory technical standards submitted by the European Banking Authority to the Commission.

(15)The European Banking Authority has conducted open public consultations on the draft regulatory technical standards on which                              this Regulation is based, analysed the potential related costs and benefits, in accordance with Article 10 of Regulation (EU)                              No 1093/2010 of the European Parliament and of the Council(3), and requested the opinion of the Banking Stakeholder Group established in accordance with Article 37 of Regulation (EU)                              No 1093/2010,

HAS ADOPTED THIS REGULATION:

## Article 1U.K.Identification of General and Specific Credit Risk Adjustments for the purposes of Articles 111, 159, 166, 167, 168, 178,                        246 and 266 of Regulation (EU) No 575/2013

1.For the purposes of this Regulation, the amounts required to be included in the calculation of general and specific credit                        risk adjustments by an institution shall be equal to all amounts by which an institution’s Common Equity Tier 1 capital has                        been reduced in order to reflect losses exclusively related to credit risk according to the applicable accounting framework                        and recognised as such in the profit or loss account, irrespective of whether they result from impairments, value adjustments                        or provisions for off-balance sheet items.                  

Any amounts resulting pursuant to the first subparagraph which have been recognised during the financial year, may only be                     included in the calculation of general and specific credit risk adjustments if the respective amounts have been deducted from                     an institution’s Common Equity Tier 1 capital, either in accordance with Article 36(1) of Regulation (EU) No 575/2013, or,                     in the event of interim profits or year-end profits that have not been approved in accordance with Article 26(2) of that Regulation,                     by way of a corresponding immediate reduction in Common Equity Tier 1 capital for the determination of own funds.                  

2.The amounts referred to in paragraph 1 shall be included in the calculation of general credit risk adjustments by the institution                        (General Credit Risk Adjustments) where they fulfil both of the following criteria:                  

(a)they are freely and fully available, as regards to timing and amount, to meet credit risk losses that have not yet materialised;                  

(b)they reflect credit risk losses for a group of exposures for which the institution has currently no evidence that a loss event                        has occurred.                  

3.All other amounts referred to in paragraph 1 shall be included in the calculation of specific credit risk adjustments (Specific                        Credit Risk Adjustments).                  

4.Subject to meeting the criteria of Paragraph 2, the institution shall include the following losses in the calculation of General                        Credit Risk Adjustments:                  

(a)losses recognised to cover higher average portfolio loss experience over the last years although there is currently no evidence                        of loss events supporting these loss level observed in the past;                  

(b)losses for which the institution is not aware of a credit deterioration for a group of exposures but where some degree of                        non-payment is statistically probable based on past experience.                  

5.The institution shall always include the following losses in the calculation of Specific Credit Risk Adjustments referred                        to in Paragraph 3:                  

(a)losses recognised in the profit or loss account for instruments measured at fair value that represent credit risk impairment                        under the applicable accounting framework;                  

(b)losses as a result of current or past events affecting a significant individual exposure or exposures that are not individually                        significant which are individually or collectively assessed;                  

(c)losses for which historical experience, adjusted on the basis of current observable data, indicates that the loss has occurred                        but the institution is not yet aware which individual exposure has suffered these losses.                  

## Article 2U.K.Assigning Specific Credit Risk Adjustments for a group of exposures to the exposures within the group

1.Where a Specific Credit Risk Adjustment reflects losses related to the credit risk of a group of exposures, institutions shall                        assign that Specific Credit Risk Adjustment to all single exposures of that group proportionally to the risk-weighted exposure                        amounts. For that purpose, the exposure values shall be determined without taking into account any Specific Credit Risk Adjustments.                  

2.For the treatment of expected loss amounts referred to in Article 159 of Regulation (EU) No 575/2013 for a group of non-defaulted                        exposures, institutions shall not be required to assign a Specific Credit Risk Adjustment to the single exposures of the group.                  

3.Where a Specific Credit Risk Adjustment relates to a group of exposures the credit risk own funds requirements of which are                        calculated partially under the Standardised Approach and partially under the Internal Ratings Based Approach, the institution                        shall assign that Specific Credit Risk Adjustment to the group of exposures covered by each of the Approaches proportionally                        to the risk weighted exposure amounts of the group before applying the actions referred to in paragraphs 1 and 2. For that                        purpose, the exposure values shall be determined without taking into account any Specific Credit Risk Adjustments.                  

4.When assigning the Specific Credit Risk Adjustments to exposures, institutions shall ensure that the same portion is not assigned                        twice to different exposures.                  

## Article 3U.K.Calculation credit risk adjustments for the purpose of determining the exposure value according to Articles 111, 166, 167,                        168, 246 and 266 of Regulation (EU) No 575/2013

For the purposes of determining the exposure value according to Articles 111, 166 to168, 246 and 266 of Regulation (EU) No                     575/2013, institutions shall calculate Specific Credit Risk Adjustments related to an exposure as the amounts of Specific                     Credit Risk Adjustments for that single exposure, or as the amounts of Specific Credit Risk Adjustments that the institution                     has assigned to that exposure according to Article 2.                  

## Article 4U.K.Calculation of general and specific credit risk adjustments for the purposes of the treatment of expected loss amounts according                        to Article 159 of Regulation (EU) No 575/2013

1.For the purposes of the treatment of expected loss amounts according to Article 159 of Regulation (EU) No 575/2013, the institution                        shall calculate the total General Credit Risk Adjustments related to the exposures included in the treatment of expected loss                        amounts as the sum of those amounts, identified as General Credit Risk Adjustments according to Article 1 of this Regulation,                        that the institution has assigned pursuant to Article 110(3) of Regulation (EU) No 575/2013.                  

2.For the purposes of the treatment of expected loss amounts according to Article 159 of Regulation (EU) No 575/2013, the calculation                        of total Specific Credit Risk Adjustments related to the exposures included in the treatment of expected loss amounts shall                        be the sum of the amounts of points (a) and (b), excluding exposures in default:                  

(a)amounts identified as Specific Credit Risk Adjustments according to Article 1 which are related to the credit risk of a single                        exposure;                  

(b)amounts identified as Specific Credit Risk Adjustments according to Article 1 which are related to the credit risk of a group                        of exposures and which have been assigned according to Article 2.                  

3.The total Specific Credit Risk Adjustments related to an exposure in default shall be calculated as the sum of all amounts                        of Specific Credit Risk Adjustments for that single exposure, or as the amounts of Specific Credit Risk Adjustments that the                        institution has assigned to that exposure according to Article 2.                  

## Article 5U.K.Calculation of Specific Credit Risk Adjustments for own funds requirements for the purposes of the determination of default                        according to Article 178 of Regulation (EU) No 575/2013

For the purposes of determining default according to Article 178 of Regulation (EU) No 575/2013, Specific Credit Risk Adjustments                     shall be calculated as the amounts of Specific Credit Risk Adjustments related to the credit risk of a single exposure or                     single obligor.                  

## Article 6U.K.Documentation

Institutions shall document the identification and calculation of General Credit Risk Adjustments and Specific Credit Risk                     Adjustments.                  

## Article 7U.K.Entry into force

This Regulation shall enter into force on the twentieth day following that of its publication in the *Official Journal of the European Union*.                  

This Regulation shall be binding in its entirety and directly applicable in all Member States.

Done at Brussels, 20 December 2013.

*For the Commission*                            

*The President*                            

José Manuel Barroso                            

1

OJ L 176, 27.6.2013, p. 1.                           

2

http://www.bis.org/publ/bcbs189_dec2010.pdf

3

Regulation (EU) No 1093/2010 of the European Parliament and of the Council of 24 November 2010 establishing a European Supervisory                              Authority (European Banking Authority), amending Decision No 716/2009/EC and repealing Commission Decision 2009/78/EC (OJ L 331, 15.12.2010, p. 12).