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Banking Rule Book
Text applicable on 1 Jan 2027Consolidated version of 1 Jan 2027Future dateUnofficial text · authentic on EBA (PDF) (opens in a new tab)

GL-SREP paragraph 125 — as applicable on 1 Jan 2027 (version of 1 Jan 2027)

6.2.1

General considerations

124.

When assessing the credit risk management framework, competent authorities should evaluate the compliance of the institution with the legal acts published separately on the EBA website as referred to in paragraph 12.

125.

Competent authorities should assess credit risk arising from all non-trading book exposures (including off balance sheet items). They should also assess the counterparty credit risk and the settlement risk that could fall under both non-trading and trading books. In order to perform such assessment, competent authorities should consider all the components that determine potential credit losses, and in particular:

a.

the probability of a credit event (i.e. default), or correlated credit events, that mainly concerns the borrowers and their ability to repay relevant obligations;

b.

the size of exposures subject to credit risk;

c.

the recovery rate of the credit exposures in the event of borrowers defaulting.

126.

Competent authorities should take into account the possibility that these components may deteriorate over time and worsen compared to expected outcomes.

127.

Competent authorities should assess the impact of ESG risks on the inherent credit risk as well as the adequacy of the credit risk controls related to ESG risks, giving priority to environmental risks. In particular, competent authorities should consider environmental transition and physical risks when carrying out the assessment of credit concentration risk and real estate risk, as well as when assessing credit risk in specific portfolios or exposure classes considered as materially exposed to environmental risks.

128.

In addition, competent authorities should also pay attention to consideration given to ML/TF risks within the context of the credit-granting process, including whether the institution has systems and controls in place to ensure funds used to repay loans are from legitimate sources.