EBA欧洲银行-EBA-Opinion-on-measures-in-accordance-with-Article-458-28EBA-Op-2019-0429_8页_340kb

EBA Opinion on Article 458 CRR Measures

Core Content

The European Banking Authority (EBA) has issued an opinion on a proposed measure by the Central Bank of Estonia (Eesti Pank) under Article 458 of Regulation (EU) No 575/2013 (CRR). The measure involves setting a minimum exposure-weighted average risk weight of 15% for retail mortgage exposures in Estonian credit institutions using the Internal Ratings Based (IRB) approach. The EBA was required to provide this opinion within one month of receiving the notification from Eesti Pank, in accordance with the EBA Founding Regulation and the CRR.

Main Points of the Measure

• Objective: To enhance the resilience of Estonian banks by ensuring they hold sufficient own funds to cover systemic risks in the residential real estate market.
• Scope: Applies to retail exposures secured by mortgages on immovable property in Estonia.
• Impact: The measure would increase the aggregate risk-weighted exposure of IRB banks by EUR 140 million (2.2%), and decrease the CET1 ratio by approximately 0.8 percentage points.
• Duration: The measure is intended to be in effect for 2 years, after which it may be reviewed.
• Entry into Force: The minimum level would take effect in the third quarter of 2019.

Key Information and Rationale

• Macroprudential Context: The measure is based on a macroeconomic stress test simulating a severe downturn (20% GDP drop, 50% house price decline, 20% unemployment rise). The estimated loan loss ratio under this shock is 1.4%, which would justify a 16% average risk weight, but the floor was set at 15% due to the current economic environment and confidence intervals.
• Concentration Risk: Estonian IRB banks hold 75% of the housing loan market and 80% of new housing loans in 2018. These banks account for over 99% of retail mortgage exposures in Estonia.
• Economic Sensitivity: The Estonian banking sector is highly sensitive to real estate developments, with housing loans representing 29% of total assets and 41% of total loans in 2018. This share is significantly higher than the EU average.
• Capital Buffers: IRB banks hold CET1 ratios above the required level (39.2% at the end of 2018), so no new capital is expected to be raised.

EBA's Assessment

• Support for Resilience: The EBA supports measures that enhance the resilience of the banking sector against macroeconomic shocks.
• Lack of Sufficient Evidence: However, the EBA finds the evidence provided by Eesti Pank insufficient to justify the use of Article 458 for this measure. It argues that the proposed risk-weight floor may not be the most appropriate tool to address the identified risks.
• Comparability Concerns: The EBA notes that adjusting risk weights may reduce comparability between institutions and could lead to double counting of risks and capital requirements.
• Pre-emptive Nature: The measure is pre-emptive, aiming to limit further reductions in risk weights, but it may be seen as adjusting internal models rather than addressing systemic risk directly.
• Level Playing Field: The EBA acknowledges the level playing field objective but notes that this is not a valid justification for using macroprudential instruments.

Alternative Measures Considered

• Article 124 of CRR: Does not apply to IRB banks.
• Article 164 of CRR: Powers are reserved for competent authorities (ECB/SSM), not Eesti Pank.
• Articles 101, 103, 104, 105, 133 and 136 of CRD: Not applicable due to the nature of the measure and its reliance on stress test calibration.
• Countercyclical and Systemic Risk Buffers: These cannot be applied to specific subsectors like residential real estate.

Conclusion

The EBA acknowledges the concerns raised by Eesti Pank regarding the build-up of risk in the residential real estate sector and the concentration of risk in the banking sector. However, it does not fully support the use of Article 458 for this measure, citing insufficient evidence of systemic risk intensity and concerns about comparability and double counting. The EBA recommends that Eesti Pank monitor developments in the property market and reassess the measure in light of the TRIM exercise and the potential implementation of Basel III output floors. The EBA may revise its opinion if requested by the European Commission.

This opinion will be published on the EBA's website.