New risk weight floors for bank loans to commercial properties

The commercial real estate sector constitutes a considerable risk for the financial sector. The sector is large, cyclically sensitive, and closely connected to the financial system. In addition, the indebtedness in the sector is high and Swedish banks have large exposures to the sector. Payment default and insolvency in commercial real estate firms can entail credit losses for banks and this can affect the financial stability. FI therefore finds that there is a need for a macroprudential measure, in the form of risk weight floors according to article 458 in the CRR, to handle these risks.

The introduction of risk weight floors according to article 458 in the CRR entails that the current Pillar 2 risk weight floors for exposures secured by commercial real estate will be removed.

The levels of the risk weight floors are 35 percent average risk weight for Swedish corporate exposures secured by commercial properties and 25 percent average risk weight for Swedish corporate exposures secured by residential properties. These are the same levels as the current risk weight floors and hence, the capital requirement in nominal terms will remain relatively unchanged as a result of the measure. The measure is applicable to banks that have permission to use the Internal Ratings Based (IRB) approach.

The change will enter into force on 30 September 2023.