This consultation paper aims to amend the regulatory technical standards regarding the assessment of the appropriateness of risk weights and minimum loss given default (LGD) values for exposures secured by real estate. The EBA invites comments on its proposals, emphasizing the need for clear justifications and evidence to support the views expressed. Responses must be submitted by May 30, 2025, and may be published…
This document is a consultation paper published by the European Banking Authority (EBA) in April 2025. It concerns the amendment of the Regulatory Technical Standards (RTS) delegated under Article 124(11) of Regulation (EU) No 575/2013 (CRR), amended by CRR3 (Regulation (EU) 2024/1623). The scope covers the factors to be considered by designated national authorities in assessing the adequacy of preferential risk weights for exposures secured by real estate under the standardized credit risk approach, as well as the conditions to assess the adequacy of minimum loss given default (LGD) values for these exposures. The document comprises 17 pages and is addressed to national authorities, financial institutions, and stakeholders concerned with prudential banking regulation in Europe (p. 1-2).
The document presents a proposal to amend the existing RTS, adopted in 2023 under Delegated Regulation (EU) 2023/206, to align legal references with the changes introduced by CRR3. The EBA, mandated by Article 124(11) of the CRR, has analyzed the impact of the new provisions of CRR3 on real estate exposures under the standardized credit risk approach. It concludes that the factors to be considered by national authorities in the assessment of preferential risk weights should remain unchanged, as the CRR3 amendments concern either exposures outside the scope of Articles 125 and 126 or the recalibration of risk weights, without affecting the evaluation factors. The proposed RTS draft therefore retains the factors defined in the 2023 delegated regulation, adjusting only the legal references to reflect the new terminology, notably the change from "minimum LGD values" to "LGD entry floor values" at the individual exposure level. This maintenance ensures regulatory consistency and continuity in macroprudential supervision. The final report is expected by 10 January 2026 (p. 4).
The document responds to the mandate given to the EBA by Article 124(11) of the CRR, which requires designated national authorities to annually assess the adequacy of risk weights for exposures secured by real estate, based on historical losses and forward-looking developments in the real estate market. CRR2 had already mandated the EBA to define the factors to be considered, notably through harmonized reporting requirements (COREP) and macroprudential criteria. With the entry into force of CRR3, which introduces significant changes in the classification and treatment of real estate exposures (notably for acquisition, development, and construction loans), it is necessary to examine whether these changes affect the factors to be considered in the risk weight assessment. The objective is to ensure harmonization, convergence, and legal clarity in the application of macroprudential measures, while taking into account regulatory developments and national specificities (p. 5-8).
1. Factors to consider for risk weight assessment:
- National authorities must assess historical losses based on harmonized reporting data (Article 430a CRR) for residential and commercial exposures.
- The assessment includes a forward-looking projection of real estate market developments over a horizon of at least one year, up to three years.
- Considered factors include real estate price volatility, structural characteristics of national markets, supply and demand, risks specific to real estate exposures, as well as macroeconomic variables influencing borrower solvency.
- In case of high uncertainty, a prudential margin must be applied.
- Existing national macroprudential measures (e.g., loan-to-value limits, debt-to-income) must be taken into account.
- Factors may be specific to certain real estate segments or regions (p. 5-6, 12).
2. Treatment of specific exposures under CRR3:
- Exposures dependent on cash flows generated by real estate (Income-Producing Real Estate) not meeting the conditions of Article 124(2)(a)(ii) CRR3 are not eligible for preferential risk weights and thus outside the RTS scope.
- Loans related to acquisition, development, and construction (ADC) benefit from dedicated treatment with a risk weight of 150%, except under specific conditions for a preferential rate of 100%.
- The loan-splitting approach and the whole-loan approach based on exposure-to-value (ETV) ratio are maintained without modification of evaluation factors.
- These developments do not imply changes to the factors to be considered in the RTS (p. 6-8).
3. Terminological and regulatory alignment:
- The term "minimum LGD values" is replaced by "LGD entry floor values" at the individual exposure level, in accordance with CRR3.
- Legal references in Delegated Regulation 2023/206 are updated to reflect these changes.
- This harmonization aims to ensure consistency between risk weight assessments and LGD parameter evaluations within the macroprudential framework (p. 8-13).
4. Consultation and regulatory process:
- The EBA invites stakeholders to comment on the proposal before 30 May 2025.
- The final report must be submitted to the European Commission before 10 January 2026.
- The cost-benefit analysis concludes that the changes are formal and do not entail additional impact (p. 3, 15-17).
Findings:
- CRR3 introduces significant changes in the treatment of real estate exposures, notably increased risk differentiation by exposure type (ADC exposures, Income-Producing Real Estate).
- The existing RTS, adopted in 2023, define a harmonized framework for the assessment of risk weights and minimum LGD values.
- National authorities must consider historical and forward-looking factors, as well as national macroprudential measures.
Assumptions:
- CRR3 changes do not require modification of the factors to be considered for preferential risk weight assessment, as they concern out-of-scope exposures or risk weight calibration.
- The current framework is robust and appropriate, according to feedback from competent authorities.
Interpretations:
- Maintaining existing factors guarantees continuity and consistency in macroprudential supervision.
- Terminological alignment improves legal clarity and facilitates uniform application of rules.
Uncertainties:
- Future developments in real estate markets and systemic risks may require further adjustments.
- The impact of new weighting approaches on financial stability remains to be monitored (p. 4-8, 15-16).
The EBA recommends maintaining unchanged the factors to be considered by national authorities in assessing the adequacy of preferential risk weights for exposures secured by real estate under the standardized approach, in accordance with Article 1 of Delegated Regulation (EU) 2023/206. Only legal references are updated to align with CRR3 amendments, notably the terminology change from "minimum LGD values" to "LGD entry floor values" at the individual exposure level. This approach aims to ensure regulatory consistency, legal clarity, and continuity in macroprudential supervision. The document calls for public consultation until 30 May 2025, before submission of the final report to the European Commission scheduled for 10 January 2026. No substantial changes are proposed due to the robustness of the current framework and the short application period of Delegated Regulation 2023/206 (p. 4, 15-17).
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