Focus on risk weights: EBA consults on new RTS adjustments for real estate collateralized exposures

With the publication of the consultation paper EBA/CP/2025/06 on April 30, 2025, the European Banking Authority (EBA) is taking the next step towards the regulatory adjustment of the risk weight assessment for exposures secured by real estate. The changes primarily concern the alignment with the terminology and structural requirements introduced as part of CRRIII. From the perspective of CURENTIS AG, it is crucial that banks and credit institutions recognize the implications for risk management and regulatory reporting at an early stage and integrate them into their strategies.

Background: Objective of the RTS amendment

In accordance with Article 124(11) CRR, the EBA is obliged to formulate regulatory technical standards (RTS) that specify the assessment criteria for the appropriateness of risk weights for exposures secured by real estate. These RTS relate in particular to the standardized approach for credit risk. The focus is on:

• The harmonization of the measurement of historical losses and
• the systematic assessment of expected losses on the basis of market and macroeconomic developments.

The previous RTS under Delegated Regulation (EU) 2023/206 remain essentially unchanged - only the legal references and terminology are adapted to CRRIII.

Valuation criteria for risk weights - what remains, what changes?

The key message of the consultation paper is that the existing assessment factors for evaluating the appropriateness of risk weightings remain in place. These include, among others:

• Historical loss data in accordance with Art. 430a CRR.
• Forward-looking indicators such as:
  • Real estate price volatility
  • Supply/demand ratios
  • Financing structures of the real estate markets

What is new, however, is merely the adjustment to the changed legal situation as a result of CRRIII, in particular:

• Conversion from "Minimum LGD Values" to "LGD Input Floor Values".
• Correction of regulatory references to Articles 124 and 164 of the CRR.

For credit institutions, this does not mean any change in practical application, but it does mean a necessary review and possible adjustment of internal guidelines and systems to ensure regulatory compliance.

Differentiation from higher-risk exposures - ADC & IPRE

The RTS do not expand the content with regard to special risky segments:

• Exposures in connection with income-producing real estate (IPRE), the repayment of which is largely dependent on the cash flow of the property, continue to be excluded from the privileged risk weighting.
• For land acquisition, development and construction (ADC) exposures, a flat risk weighting factor of 150% will apply in future - with the exception of certain residential developments (100% RW), which will be further specified in future EBA guidelines.

These exposures do not fall within the scope of Article 125/126 CRR and are therefore not affected by this RTS.

Implications for banks and recommendations for action

Although the focus is on the formal nature of the amendments, the following measures are required for institutions with exposures secured by real estate:

• Review of internal risk models and data sources for conformity with the updated terms ("LGD input floor values") and regulatory references.
• Ensuring the traceability of historical loss data in accordance with COREP requirements.
• Examination of whether the macroeconomic assumptions and real economic indicators used for the loss expectation valuation continue to meet the RTS criteria.

Conclusion and outlook

In the view of CURENTIS AG, the RTS revision presented by the EBA is an important step towards regulatory clarification and standardization. Even if the substance remains the same, the consultation process (until May 30, 2025) offers an opportunity for credit institutions to get involved in the discussion and address potential country-specific requirements at an early stage.

With the finalization of the RTS by January 2026 at the latest, adjustments to the risk management systems and compliance documentation are to be expected. Our recommendation: Start assessing the internal impact now and ensure that your processes are already aligned with CRRIII.

About the Author:

Jonathan Hantel has been a Senior Consultant at CURENTIS AG since 2023. He has many years of experience in the areas of risk management and regulatory reporting as well as the common software solutions. His banking focus is on regulatory reporting and the analysis and implementation of regulatory requirements.