Circular CSSF 25/899
Executive Summary
Circular CSSF 25/899 mandates the application of EBA Guidelines (EBA/GL/2025/03) on Acquisition, Development, and Construction (ADC) exposures to residential property under Article 126a of Regulation (EU) 575/2013 (CRR), specifying conditions for reducing the risk weight from 150% to 100% on qualifying exposures. This matters for Luxembourg credit institutions as it directly impacts capital requirements for real estate lending, promoting safer lending practices while aligning with Basel III standards via CRR3 implementation. #
What Changed
- Introduces precise definitions for CRR Article 126a(2) terms, enabling 100% risk weight (instead of 150%) for ADC exposures to residential property if conditions are met: at least 50% of total contracts as pre-sale/pre-lease agreements with substantial cash deposits (e.g., ≥10% of sale price for sales, ≥3x monthly lease for leases), or equivalent financing/sale-lease combos; plus obligor equity ≥25% of completed property value. - Mandates "sound standards for lending and credit monitoring" alongside these criteria. - Accounts for social housing/public not-for-profit lending specificities, with tailored rules for regulated entities serving long-term tenant housing. - Replaces prior "particularly high-risk exposure" class with dedicated ADC class under CRR3. #
What You Need To Do
- Review and classify ADC exposures against EBA-defined criteria (e
- Update internal policies, risk assessment models, and credit approval processes to incorporate "sound lending standards" and EBA specifications, including social housing carve-outs
- Recalculate capital requirements under standardized credit risk approach; report changes via CRR disclosures
- Maintain documentation proving compliance (e
- Institutions must "make every effort to comply" per EBA Regulation Article 16(3)
Key Dates
Compliance Impact
Urgency: High – Firms with significant ADC portfolios face immediate capital relief opportunities (50bp risk weight reduction) but risk non-compliance penalties if processes aren't updated by early 2026, especially post-CRR3 rollout; misclassification could inflate capital needs amid ongoing Basel implementation.
Who is Affected
Summary
Application of the Guidelines of the European Banking Authority on Acquisition, Development, and Construction (ADC) exposures to residential property under Article 126a of Regulation (EU) 575/2013 (EBA/GL/2025/03)