Proposal for new risk weight floors for bank loans to commercial properties

The commercial real estate sector constitutes large risks 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 problems and insolvencies in commercial real estate firms can entail credit losses for banks and this can affect financial stability. FI therefore assess 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 proposed 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 commercial 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 proposed measure. The measure is applicable to banks that have permission to use the Internal Ratings Based (IRB) approach.

The change is proposed to enter into force on 30 September 2023.

Responses to FI's proposal can be sent by e-mail to finansinspektionen@fi.se. Please note that the deadline for the submission of comments is 26 April 2023.

For questions on the proposal please contact Sara Ehnlund Martinussen on tel. 08-408 984 09 or e-mail sara.ehnlundmartinussen@fi.se.