EBA Guidelines on modified duration adjustments for debt instruments under Article 340, paragraph 3, second subparagraph, of Regulation (EU) No 575/2013 (EBA/GL/2016/09 of 4 January 2017)

NBB_2017_09 – 6 March 2017 Circular – Page 1/2 Boulevard de Berlaimont 14 – BE-1000 Brussels tel. +32 2 221 38 12 – fax + 32 2 221 31 04 Company number: 0203.201.340 RPR Brussels www.nbb.be Circular Brussels, 6 March 2017 Reference: NBB_2017_09 your contact person:
Carmen Boschmans tel. +32 2 221 57 55 – fax +32 2 221 31 04 carmen.boschmans@nbb.be EBA Guidelines on modified duration adjustments for debt instruments under Article 340, paragraph 3, second subparagraph, of Regulation (EU) No 575/2013 (EBA/GL/2016/09 of 4 January 2017) Scope These guidelines are applicable to all credit institutions under Belgian law and to all investment firms under Belgian law that calculate own funds requirements for general interest rate risk under the standard approach in accordance with Article 340 of Regulation (EU) No 575/2013. Summary/Purpose This circular implements the European Banking Authority (EBA) guidelines of 4 January 2017 on modified duration adjustments for debt instruments under Article 340, paragraph 3, second subparagraph, of Regulation No 575/2013. Madam, Sir, This circular transposes into the Belgian prudential framework the European Banking Authority (EBA) guidelines of 4 January 2017 on modified duration adjustments for debt instruments. It includes in annex the complete French version of the text drafted by the EBA. This annex can also be consulted on the website of the National Bank of Belgium. The EBA guidelines explain how to apply adjustments to the calculation of the modified duration of debt instruments subject to prepayment risk for the purposes of own funds requirements for general interest rate risk under the standard approach in accordance with Article 340 of Regulation (EU) No 575/2013. The EBA guideline proposes two methods for calculating the adjusted modified duration: the first formula considers the debt instrument as a combination of an ordinary bond and an option, while the second method calculates the adjusted modified duration based on the price variation of the debt instrument subject to prepayment risk.

Circular – Page 2/2 NBB_2017_09 – 6 March 2017 The provisions of these guidelines will apply to the credit institutions and investment firms concerned from 1 March 2017. A copy of this circular is sent to the auditor(s), approved auditor(s) of your institution. Please accept, Madam, Sir, the assurance of my distinguished consideration. Jan Smets Governor
Annex: EBA Guidelines on modified duration adjustments for debt instruments under Article 340, paragraph 3, second subparagraph, of Regulation (EU) No 575/2013.