New CSSF reporting for lenders in commercial real estate

With a view to sharpen its understanding of systemic risks in the commercial real estate (CRE) sector in Luxembourg, the Commission de Surveillance du Secteur Financier (CSSF) has introduced a new Circular 22/803 (Circular 22/803) setting out the framework for a new reporting obligation for lenders involved in CRE financing.

The introduction of Circular 22/803 follows the Recommendation of the European Systemic Risk Board of 21 March 2019 amending Recommendation ESRB/2016/14 on closing real estate data gaps (ESRB/2019/3). The data and indicators collected (ie on property type, location, type of loan, etc.) will give the CSSF an overview of exposures and market practices in the financing of the real estate market in Luxembourg and help target areas in need of macroprudential intervention. This will complement the data already collected by the CSSF under existing Circular 18/703 on the introduction of a semi-annual* reporting of borrower related residential real estate indicators.

Scope

Circular 22/803 is addressed to all credit institutions and to all branches of EU and non-EU credit institutions supervised by the CSSF, granting CRE loans.

For the purpose of this Circular 22/803, CRE means any income-producing real estate, either existing or under development, including rental housing or real estate used by the owners of the property for conducting their business, purpose or activity, either existing or under construction that is not classified as residential real estate and includes social housing.

Are considered as CRE loans:

• loans aimed at acquiring a CRE property (or set of CRE properties); and

• loans extended to a legal entity secured by a CRE property (or set of CRE properties).

The acquired CRE property or the CRE property used as a collateral can be located either in Luxembourg or abroad and covers everything from residential and retail space as well as offices, industrial buildings or other commercial property.

Credit institutions should complete the form and submit it to the CSSF when the computed CRE loans granted for the year preceding the submission date exceeds EUR 250 million. Where this threshold is not met, a report should still be submitted to the CSSF, in blank.

The Circular 22/803 provides detailed information with respect to the calculation of loan-to-value (LTV), interest-coverage-ratio (ICR) and debt-service coverage ratio (DSCR) and how these ratios will help assess the exposure and risk.

Calendar

In scope entities are expected to submit their report to the CSSF, for each year:

• by 15 April for all the new exposures that were issued between 1 July and 31 December of the previous year and for all outstanding exposures up until 31 December of the previous year; and

• by 15 October for all the new exposures between 1 January and 30 June of the same year and for all outstanding exposures up until 30 June of the same year,

using the form available on the CSSF website at the following link.

How can S&S assist you?

Our banking team at our Luxembourg office advise lenders and borrowers on both Luxembourg and cross-border, secured and unsecured, lending transactions, including real estate financing transaction. Combined to our regulatory work on the Luxembourg financial sector, we can assist you throughout your real estate financing deals including on any reporting obligation that may be triggered with the CSSF.

For further information, please do not hesitate to reach out.