• Question ID: 2020/0013
• Date of publication: 31/01/2020
• Subject matter: General clarifications
• AnaCredit Manual: Part II
• Data attribute: Purpose

Question

Changes are made to the reporting instructions regarding the data attribute “purpose” as a result of the decision of the General Board of the European Systemic Risk Board from 21 March 2019 on the sources of data on indicators related to the financing of commercial and residential real estate. Specifically, with a view to ensuring maximum adherence with the needs of the ESRB, it is necessary to adjust existing instructions concerning the classification into the category “debt financing” under the AnaCredit data attribute “purpose” to prevent a reallocation of a significant portion of loans to commercial real estate to “debt financing”. In order to allow sufficient time for implementation, the new instructions should be adopted by reporting agents by no later than 31 December 2020.

Answer

On 21 March 2019 the General Board of the European Systemic Risk Board (ESRB) adopted Recommendation ESRB/2019/3 amending Recommendation ESRB/2016/14 on closing real estate data gaps. While it is acknowledged that AnaCredit cannot be relied on alone to fulfil the data needs of national macroprudential authorities, in this Recommendation the definitions of commercial real estate and of residential real estate in Recommendation ESRB/2016/14 are aligned more closely with the broader definitions used in AnaCredit (which are derived from the CRR) in order to facilitate the required financial stability analyses and allow for full comparability across countries.

Notably, in order to identify ESRB commercial real estate (CRE) loans using AnaCredit, two data attributes are of key importance: “type of protection” to identify loans secured by CRE and “purpose” to identify loans aimed at financing CRE. However, with a view to ensuring maximum adherence with the needs of the ESRB, existing instructions concerning the classification into the category “debt financing” under the AnaCredit data attribute “purpose” need to be adjusted so that a reallocation of a significant portion of CRE loans to “debt financing” can be prevented.

Specifically, the provisions in the AnaCredit Regulation that the value “debt financing” also includes “debt refinancing” are significantly generalised in Section 3.4.14 in Part II of the Reporting Manual to the effect that an extension of “an expiring credit agreement […] to gain access to more favourable financing conditions, such as lower interest rates” triggers a reclassification of a CRE loan to a loan aimed at debt financing.

Against this background, the clarifications provided in Section 3.4.14 in Part II of the Reporting Manual concerning the value “debt financing” are replaced with the following ones.

The purpose of financing is determined at the inception of a loan and modifications in financing conditions (for example, if at any time the debtor and the creditor agree to change the provisions of the loan) or changes in circumstances (for example, default by the debtor) do not in principle give rise to a new purpose of the loan under AnaCredit. Instead, in the case of contractual changes in the provisions of the loan (for example resulting in lower interest rates), it is clarified that such a change qualifies as a renegotiation for commercial reasons and is marked accordingly in the data attribute “status of forbearance and renegotiation”, which is intended to capture all modifications of the instrument’s terms and conditions, irrespective of whether or not the modifications meet the forbearance criteria (see Section 3.4.14 in Part II of the Reporting Manual).

Moreover, if at any time the creditor and the debtor agree to renew the loan for commercial reasons to the effect that a new loan agreement is concluded, the purpose of the new loan is the same as the purpose of the replaced loan. In the same vein, when a new loan is issued for the mere purpose of replacing an expiring credit agreement, the purpose of the new loan is the same as it was at origination of the expiring loan.

Conversely, the value “debt financing” is used to indicate that a new loan is granted as part of a refinancing transaction where several instruments, originally granted by the same creditor for various purposes, are consolidated. Existing loans might be refinanced to consolidate other loan(s) so as to take advantage of a better interest rate or to improve the situation of distressed debtors.

Please also note that, in the case of totally refinanced debt, the old repaid loans cease to be reported (after they are fully redeemed without incurring a loss). In the case of partially refinanced debt, the part of the old loans that are still outstanding continues to be reported, under the original purpose for which they were granted, with the data attribute “status of forbearance and renegotiation” reflecting accordingly whether the replacement of loan occurs under financial distress and forbearance measures (see Section 5.4.12 in Part II of the Reporting Manual).

As a consequence, in the case of an expiring loan originally extended for the purpose of purchasing commercial property or investing in commercial property, when the expiring credit agreement is extended (a change in the legal final maturity date can only be effected by a change in the contract), the changes do not result in a different classification of the purpose of the loan – it is still “CRE purchase” as determined at the inception of the loan, even if the provisions of the loan are changed to gain access to more favourable financing conditions, such as lower interest rates, as long as the revised agreement is not regarded as a new agreement resulting in a new instrument reportable to AnaCredit.

Given the need for a lead-in time for reporting agents to adjust their reporting systems, the new AnaCredit instructions are considered to apply by no later than 31 December 2020, which is by when national macroprudential authorities will have informed the ESRB about the implementation of ESRB Recommendation. The changes to the instructions do not require revisions of past data to be sent to AnaCredit