Monitoring lending business, particularly large exposures and loans of €1.0 million or more

Lending business traditionally plays a predominant role in an institution's development, but it is concurrently one of the main sources of banking risks. Besides limiting the business volume by requiring institutions to back counterparty risks with eligible own funds pursuant to CRR, the German Banking Act and CRR contain specific provisions concerning lending business.

Pursuant to Article 394 of CRR and section 14 of the German Banking Act, institutions are required to report their large exposures and loans of €1.0 million or more to the Bundesbank on a quarterly basis. Quantity data reports may be submitted in the Bundesbank’s ExtraNet system or entered via the reporting platform. Master data on individual borrowers and borrower units or groups of connected clients must be submitted using the reporting formats pursuant to Annexes 2 to 6 of the Regulation governing large exposures and loans of €1.0 million or more (Grosskredit- und Millionenkreditverordnung).

The key provision is the limitation of a single large exposure to 25% of Tier 1 capital. Large exposures are loans to one borrower or a group of connected clients, which achieve or exceed the minimum 10% of Tier 1 capital. The Bundesbank monitors compliance with the large exposure limits as well as the risk spread of an institution's large exposures. These provide banking supervisors with valuable information on the amounts and sector-specific concentration of institutions' risk from lending business.

Loans of €1.0 million or more to an individual borrower or a single borrower unit have to be reported to the Bundesbank. Its credit register collates all such reports, computes the total indebtedness of an individual borrower or a single borrower unit and then notifies the reporting institutions of the total amount of indebtedness of their borrowers.

This information is used for the Bundesbank's own analyses (eg where there is a danger of firms becoming insolvent), including global evaluations aimed at identifying potential risks to the stability of the overall financial system. In addition, the information serves as a data pool both for the credit institutions involved and for banking supervisors and is important as a source of information for both sides.