[et_pb_section fb_built=”1″ _builder_version=”4.22.2″ _module_preset=”default” background_color=”#0a203b” background_enable_image=”off” global_colors_info=”{}”][et_pb_row _builder_version=”4.22.2″ background_size=”initial” background_position=”top_left” background_repeat=”repeat” custom_width_px=”710px” global_colors_info=”{}”][et_pb_column type=”4_4″ _builder_version=”4.16″ background_position=”top_left” custom_padding=”|||” global_colors_info=”{}” custom_padding__hover=”|||”][et_pb_text admin_label=”Title” _builder_version=”4.22.2″ text_font=”|900|||||||” header_font=”||||||||” header_2_font=”Montserrat|700||on|||||” header_2_text_color=”rgba(199,156,62,0.59)” header_2_font_size=”23px” header_2_letter_spacing=”4px” header_2_line_height=”1.2em” header_6_font=”Lato|700|||||||” header_6_text_color=”#737a7a” header_6_font_size=”18px” header_6_letter_spacing=”1px” header_6_line_height=”1.8em” max_width=”600px” module_alignment=”left” custom_margin=”30px||30px||true|false” custom_padding=”|||” custom_padding_tablet=”|0vw||0vw||true” custom_padding_phone=”|||||false” custom_padding_last_edited=”off|desktop” animation_style=”slide” animation_direction=”bottom” animation_intensity_slide=”5%” hover_enabled=”0″ locked=”off” global_colors_info=”{}” sticky_enabled=”0″]<\/p>\n
[\/et_pb_text][et_pb_text _builder_version=”4.22.2″ text_font=”Lato||||||||” text_font_size=”18px” text_line_height=”1.8em” header_font=”Montserrat|700|||||||” header_font_size=”38px” header_line_height=”1.3em” header_2_font=”||||||||” max_width=”600px” module_alignment=”left” custom_margin=”30px||30px||true|false” custom_margin_last_edited=”off|desktop” custom_padding=”|||” custom_padding_tablet=”|0vw||0vw||true” custom_padding_phone=”|||||false” custom_padding_last_edited=”off|desktop” animation_style=”slide” animation_direction=”bottom” animation_intensity_slide=”5%” hover_enabled=”0″ header_font_size_tablet=”36px” header_font_size_phone=”” header_font_size_last_edited=”on|phone” locked=”off” global_colors_info=”{}” sticky_enabled=”0″]<\/p>\n
[\/et_pb_text][\/et_pb_column][\/et_pb_row][\/et_pb_section][et_pb_section fb_built=”1″ admin_label=”Split Section” _builder_version=”4.22.2″ background_color=”rgba(0,0,0,0.03)” custom_padding=”0px||0px|” animation_style=”fold” animation_direction=”bottom” animation_intensity_fold=”4%” global_colors_info=”{}”][et_pb_row use_custom_gutter=”on” gutter_width=”1″ make_equal=”on” module_class=” et_pb_row_fullwidth” _builder_version=”4.22.2″ background_size=”initial” background_position=”top_left” background_repeat=”repeat” width=”100%” width_tablet=”100%” width_phone=”100%” width_last_edited=”on|desktop” max_width=”100%” max_width_tablet=”100%” max_width_phone=”100%” max_width_last_edited=”on|desktop” custom_margin=”0px||0px|” custom_padding=”0px||0px|” make_fullwidth=”on” global_colors_info=”{}”][et_pb_column type=”4_4″ _builder_version=”4.22.2″ background_enable_image=”off” parallax=”on” custom_padding=”||||false|false” custom_padding_tablet=”||||false|false” custom_padding_phone=”||||false|false” custom_padding_last_edited=”on|phone” background_last_edited=”on|phone” parallax_phone=”on” global_colors_info=”{}” custom_padding__hover=”|||”][et_pb_code _builder_version=”4.22.2″ _module_preset=”default” custom_margin=”15px||15px|25px|false|false” global_colors_info=”{}”]Home<\/a><\/span><\/span>[\/et_pb_code][et_pb_cta button_url=”#” admin_label=”Feature 01″ _builder_version=”4.22.2″ header_font=”Montserrat|700|||||||” header_text_color=”#1f1f1f” header_font_size=”32px” header_line_height=”1.4em” body_font=”Lato||||||||” body_font_size=”18px” body_line_height=”1.8em” use_background_color=”off” custom_button=”on” button_text_size=”15px” button_text_color=”#ffffff” button_bg_color=”#d6a942″ button_border_width=”14px” button_border_color=”#d6a942″ button_border_radius=”25px” button_letter_spacing=”2″ button_font=”Lato|900||on|||||” button_icon=”$||divi||400″ text_orientation=”left” background_layout=”light” module_alignment=”left” custom_margin=”|25px||25px|false|true” custom_margin_tablet=”|273px||||” custom_margin_phone=”18vw|15px|18vw||true|false” custom_margin_last_edited=”on|phone” custom_padding=”|||” animation_style=”fold” animation_direction=”bottom” animation_intensity_fold=”15%” button_text_color_hover=”#6eba01″ button_border_color_hover=”#6eba01″ button_border_radius_hover=”0″ button_letter_spacing_hover=”2″ button_bg_color_hover=”rgba(0,0,0,0)” saved_tabs=”all” locked=”off” global_colors_info=”{}” button_text_size__hover_enabled=”off” button_one_text_size__hover_enabled=”off” button_two_text_size__hover_enabled=”off” button_text_color__hover_enabled=”on|hover” button_text_color__hover=”#FFFFFF” button_one_text_color__hover_enabled=”off” button_two_text_color__hover_enabled=”off” button_border_width__hover_enabled=”off” button_one_border_width__hover_enabled=”off” button_two_border_width__hover_enabled=”off” button_border_color__hover_enabled=”on|desktop” button_border_color__hover=”#d6a942″ button_one_border_color__hover_enabled=”off” button_two_border_color__hover_enabled=”off” button_border_radius__hover_enabled=”on|hover” button_border_radius__hover=”25px” button_one_border_radius__hover_enabled=”off” button_two_border_radius__hover_enabled=”off” button_letter_spacing__hover_enabled=”on” button_letter_spacing__hover=”2″ button_one_letter_spacing__hover_enabled=”off” button_two_letter_spacing__hover_enabled=”off” button_bg_color__hover_enabled=”on|hover” button_bg_color__hover=”#d6a942″ button_one_bg_color__hover_enabled=”off” button_two_bg_color__hover_enabled=”off” button_bg_enable_color__hover=”on”]<\/p>\n This is the first article <\/span>in<\/span> a series of articles that cover various aspects of the recent EBA banking package <\/span>publication<\/span>.\u00a0<\/span><\/span>\u00a0<\/span><\/p>\n The EU has witnessed multiple chains of banking sector reforms in the past 3 decades, especially as part of the<\/span> BCBS Basel reform<\/span><\/b><\/a>s<\/span><\/b><\/a> that outline various aspects of the banking system to make the sector more resilient, disciplined and structured. To further reinforce the<\/span> prudential supervision in the banking sector of the European Union, the European Banking Authority (EBA) has recently published the <\/span>EBA Roadmap on strengthening the prudential framework<\/span><\/b><\/a> that lays down the various amendments and the introduction of new components as a part of the banking package of the final phase of Basel 3, following a political agreement between the European Parliament and the Council of European Union on 27th June 2023.<\/span>\u00a0<\/span><\/p>\n \u00a0<\/span>This banking package consists of a comprehensive set of 140 mandates encompassing various risk categories, pertinent to the banking sector such as credit risk, market risk, operational risk, ESG risk, and Governance risk. Of these 140 mandates, the category of credit risk has witnessed the highest number of mandates (43 in total), which also includes amendments and introductions in the reporting template. It is understandable that taking such changes into account by the banks could be a cumbersome procedure, as it requires policy changes and applying these in structural changes to the reporting procedures for these banks. Due to the size of the changes, this requires constant coordination amongst the individual items in the reform.\u00a0<\/span>\u00a0<\/span><\/p>\n \u00a0<\/span>Credit risk has been methodically segmented into four distinct phases for the implementation of these mandates:<\/span>\u00a0<\/span>\u00a0<\/span><\/p>\n \u00a0<\/span>With the introduction of the concept of an <\/span>output floor<\/span><\/a> as <\/span>a bridge between the Standardised Approach and the IRB Approach<\/span><\/b>, the reporting requirements for the banks under the new EBA reporting framework have undergone a substantial change in multiple areas of credit and counterparty risk sections. This output floor shall be calculated and matched against IRB exposure classes, including the ones recently included such as the exposures from Corporate Purchase Receivables, Corporate Specialised Lending, Retail qualifying revolving, retail purchase receivables, subordinated debt exposures, etc. In addition, the Standardised – Total Risk Exposure Amount (S-TREA) shall be calculated and reported for the exposures arising out of securitisations. This change is also applicable for reporting information on securitisations under the <\/span>SEC Details Approach<\/span><\/b>. The output floor itself will be gradually introduced from 1 January 2025 over a period of 5 years. In practice, this means that the a<\/span>bovementioned multiplier will gradually increase over this period, from a starting value of 50% to its final value of 72.5%.\u00a0<\/span>\u00a0<\/span><\/p>\n \u00a0<\/span>The reporting of the exposures associated with the mortgages on immovable property has gone through multiple changes in reporting of the total exposures in both the Standardised and Internal Ratings Based Approach as part of the credit and counterparty risk. In the current reporting template as part of Basel 3.1, the exposures related to mortgages on the immovable residential and commercial property have been moved to the memorandum items.\u00a0<\/span>\u00a0<\/span><\/p>\n On the other hand, the exposures related to the mortgages on immovable property in the IRB Approach has been further deconstructed into a granular pool based on their Income Producing nature (IPRE), whether they are <\/span>secured or unsecured by collateral<\/span><\/b>, and whether they are residential or commercial. In addition to the mortgages on immovable property as part of the overall exposures related to the Infrastructure Sector, the category of exposures to Acquisition, Development, and Construction (ADC) as well as the Large Corporates has also been included to calculate the total exposures, hence the risk weights as part of the IRB Approach to the capital requirements.<\/span> This further goes on to demonstrate that the transparency demanded by the regulators with respect to exposures in Infrastructure Sector in the banks\u2019 own credit risk models (CR IRB) has further increased.<\/span>\u00a0<\/span><\/p>\n As part of Basel 4, the securitisation framework has undergone a major change. Firstly, the introduction of <\/span>Simple, Transparent, and Standardised (STS)<\/span><\/a> criteria by the European Union to simplify the securities transaction for the market investors, hence reducing the risks for the investors as well as reducing capital requirements for these transactions. Furthermore, a <\/span>consultation paper<\/span><\/a> on the amendment was released in April 2023. The primary motive of this consultation paper was to set a consistent interpretation of the terms Simple, Transparent, and Standardised, so that their understanding does not differ among the entities such as originators, original lenders, securitisation special purpose entities, etc. However, the outcome of consultation for this paper is still under discussion.<\/span>\u00a0<\/span><\/p>\n\u00a0<\/h3>\n
Credit Risk Mandates: Phases of implementation<\/h3>\n
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EBA Credit Risk Measurement and Reporting: What has changed?<\/h3>\n
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Output floor: Major extension to the IRB Approach<\/h4>\n
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Exposures from Mortgages on Immovable Property<\/h3>\n
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Securitisations Framework<\/h3>\n