New risk weight floors for bank loans to commercial properties

Following the announcement of the Swedish financial regulator, Finansinspektionen (FI), of the EC’s and the ESRB’s approval of its request to introduce new risk weight floors under Article 458 of the Capital Requirements Regulation (CRR) for corporate loans whose collaterals are commercial and residential properties (EventID 22315), FI has now published its final decision in this matter. Thereafter, the below noted new risk weight floors will apply from September 30, 2023:
– a risk weight floors of 35% for Swedish corporate loans secured by commercial properties and
– a risk weight floor of 25% for same loans secured by residential properties for those institutions using an internal rating-based approach to assess risk-weights on loans and subsequent capital requirements on such.
As FI emphasizes, the aim is to address the elevated systemic risks associated with the real estate sector in Sweden, particularly the increasing indebtness of real estate companies coupled with rising loan servicing costs due to relatively high interest rates.
Concurrently, FI will remove the current Pillar II risk weigh floors which are identical to the ones noted above.