FI Analysis No 36: Has FI’s risk weight floor had an impact on banks’ CRE lending?

2022-04-28 | Reports Stability Bank

In this FI Analysis, we study how the risk weight floor has impacted the banks’ lending to CRE firms using detailed lending data. The aim is to analyse whether the risk weight floor impacted the banks’ interest margins and the risk in their lending. We also investigate how the volume of bank loans and bonds to CRE firms has changed before and after the introduction of the risk weight floor.

The risk weight floor so far seems to have had a limited effect on banks' lending to CRE firms. This is shown by a new FI analysis that analyses whether the risk weight floor has affected the banks' interest margin and the risk in lending.

In 2020, FI introduced an additional capital requirement on banks in the form of a risk weight floor for loans collateralised by commercial real estate (CRE). The aim of the floor was to increase the amount of capital banks hold for this specific type of exposure and thus their resilience to CRE-related credit losses.

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