CRR III and the property business: Removing the brake on new business

CRR III is causing a stir in the property sector, particularly regarding ADC and IPRE¹ exposures. Individual cases are already showing noticeable effects on capital ratios. For instance, a major cooperative bank reported a 90-basis-point decline in its total capital ratio in early February, partly as a result of the new ADC/IPRE classification logic with high initial risk weights. In this respect, CRR III is therefore having an impact on the practice of property financing.

However, it need not act as a brake on new business: institutions that classify, review and document precisely, actively manage key credit parameters and price RWA (risk-weighted assets) in line with the underlying risk can significantly limit capital tied up whilst retaining scope for growth.