CP10 (Full Document) - European Banking Authority

institutions to be able to identify and consolidate groups of
connected clients and to aggregate relevant exposures of each group
of connected clients, in particular for any SME. This identification and
aggregation need to be performed across all retail sub­exposure
classes in a given institution.
156. Consultation with the industry indicates that not all institutions are
currently capable of satisfying this requirement. Institutions should
take reasonable steps to identify and aggregate exposures,
including, but not limited to, the following:
· Minimum thresholds on individual exposures could be introduced,
meaning that only if an individual exposure is above a certain
minimum amount the institution must actually check whether the
aggregate exposure to the group of connected clients exceeds the
EUR 1 million threshold.
· If exposures cannot be aggregated automatically, institutions
should at least ask their clients about the size of other exposures
in order to determine whether the total exposure exceeds the
EUR 1 million threshold.
157. When loans are being amortized and the outstanding balance owed is
less than EUR 1 million, no automatic assignment to the retail
exposure class should be applied. In this case, the requirements of
Article 86(4)(b) to (d) become paramount.
158. If a parent institution has subsidiaries that are direct creditors to a
group of connected clients, the parent is required only to inform
them of the result of its examination of the aggregate exposure. The
subsidiaries will not necessarily receive information about the other
exposures to this client. It is sufficient that the parent communicate
whether this client must be assigned to the retail or to the corporate
exposure class.
159. Institutions shall demonstrate that exposures in the retail exposure
class are treated differently – meaning less individually – than
exposures in the corporate exposure class (see Article 86(4)(c)). For
this purpose, the credit process can be divided into the following
components: marketing and sales activities, rating process, rating
system, credit decision, Credit Risk Mitigation methods, monitoring,
early warning systems, and workout/recovery process. As long as an
institution can demonstrate that any of these components differ
clearly, this requirement can be regarded as met.
160. Differences in the rating systems and in the recovery process used
by the institution can provide strong evidence that the criterion is
fulfilled. Syndicated loans should not be treated as retail, as the
syndication of a loan is itself a strong form of ‘individual’ loan
management.
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