Scope of application

These guidelines apply to institutions, as defined in point 3 of Article 4(1) of Regulation (EU) No 575/2013. When the loan falls under the scope of Directive 2014/17/EU (the Mortgage Credit Directive, MCD), Section 5 applies to creditors, as defined in Article 4(2) of this directive, except for paragraph 93. When the loan falls under the scope of Directive 2008/48/EC (the Consumer Credit Directive, CCD), Section 5 applies to creditors, as defined in point (b) of Article 3 of that directive, except for paragraphs 93.

These guidelines apply to institutions’ internal governance arrangement and procedures in relation to credit-granting processes, and throughout the life cycle of credit facilities. Furthermore, these guidelines apply to the risk management practices, policies, processes and procedures for loan origination and monitoring of performing exposures, and their integration into the overall management and risk management frameworks.

Sections 4 and 8 apply in relation to all credit risk being taken by institutions, excluding debt securities, derivatives and securities financing transactions.

Sections 5 and 6 apply to loans to consumers, micro and small enterprises, and medium-sized and large enterprises. Sections 5 and 6 do not apply to loans and advances to credit institutions, investment firms, financial institutions, insurance and reinsurance undertakings, and central banks, and loans and advances to sovereigns, including central governments, regional and local authorities, and public sector entities. Sections 5 and 6 do not apply to forborne and non-performing loans.

Competent authorities may consider applying Sections 6 and 7 to creditors that fall within the scope of Directive 2014/17/EU and Directive 2008/48/EU and are not credit institutions.

When, in the context of real estate lending, a property has a mixed use, such as residential and commercial real estate (CRE), the property should be either classified in line with its dominant use or considered as separate properties, based on the area dedicated to each use. If such an assessment cannot be objectively performed (e.g. certain parts of the property may be available for common use by everybody), the property could be classified in line with its dominant use.

Competent authorities should ensure that institutions apply these guidelines on individual, sub-consolidated and consolidated bases, in accordance with Article 109 of Directive 2013/36/EU, unless competent authorities make use of the derogations, as defined in Article 21 and Article 109 of Directive 2013/36/EU. Competent authorities should also ensure that the institutions apply these guidelines at sub-consolidated and individual levels, in line with the consolidated-level group policies and practices, taking into account the characteristics of these institutions and their credit portfolios.