Guidelines on the methodology for estimating and applying CCFs under CRR

In July 2025, the European Banking Authority (EBA) published a consultation paper on draft Guidelines for estimating and applying credit conversion factors (CCFs) under the internal ratings-based (IRB) approach, aiming to harmonize supervisory practices across institutions.

Guidelines on the methodology for estimating and applying CCFs under CRR

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Executive summary

The EBA’s Draft Guidelines build on existing regulatory frameworks and aim to clarify the estimation of CCFs under the IRB approach, focusing on undrawn revolving commitments.

The document introduces a dedicated methodology for calculating realised CCFs based on historical drawdown patterns and outlines specific approaches for exposures in default and during economic downturns. It also sets out expectations regarding data quality, model deficiencies and the use of expert judgment.

The Guidelines are currently under consultation and not yet binding. Feedback can be submitted until 15 October 2025. The final version of the Guidelines is expected to be published by the end of 2025 or early 2026.

Main content

• Framework for estimating and applying CCFs. The IRB CCF shall only be applied to undrawn revolving commitments, assigning a single CCF per transaction. Exposures that have been revolving in the 12 months prior to default are eligible. The estimate must be based on the institution´s own historical data and there must be consistency between calculation and application. Expert judgment may be used if justified and documented.
• Data requirements. Institutions must ensure the quality and representativeness of the data, justify exclusions and assessrelevant errors. The reference data set (RDS) must include the minimum necessary information, such as limits, forgiveness, additional provisions and line-level data. The CCF calculation must consider additional provisions and product changes for both retail and non-retail portfolios.
• Risk differentiation. The model must consider all relevant operational, customer and environmental risk drivers. Extreme CCFs must be analyzed and segmentation validated through out-of-time (OOT) and out-of-sample (OOS) tests. The homogeneity of risk pools must also be ensured through comparative analysis and concentration analysis.
• Risk quantification. The Long Run CCF must be calculated using all available internal data, including closed processes, and adjusted for open processes using a simple or modelled approach. Calibration must be verified with additional analysis at the pool or segment level.
• CCFs for exposures in default. Where additional provisions are expected, an in-default CCF must be estimated for both retail and non-retail portfolios. Simplified or model-based approaches are permitted, and the estimate should reflect conditions over a downturn period.
• Treatment of deficiencies and the margin of conservatism (MoC). In cases of limited data or low representativeness, a conservative CCF of 100% is permitted, if justified. The MoC must be quantified by deficiency category (A, B and C) at segment level, always be greater than zero and reflect the additional uncertainty arising from the adjustments. In addition, the obligation to document, periodically review and define a remediation plan to reduce the MoC over time through improvements in data and methodology is reinforced.
• Downturn CCF estimates. The downturn CCF estimate follows an approach aligned with the LGD downturn guidelines, applying similar principles in segmentation and definition of the downturn period. It must be compared with a benchmark based on the years with the highest observed provisions and will be used if it is more conservative than the Long Run CCF, incorporating MoC. Three methods are permitted: observed impact, estimated impact or, in the absence of data, a minimum estimate with MoC and a supplement of 15 percentage points on the Long Run CCF. If there are several downturn periods, the most conservative one shall be applied. 
• Application of risk parameters. Consistency is required throughout the CCF usage cycle, including updates and additional conservatism where appropriate. Expert judgment should be controlled and limited. Estimates should be used for both capital and management purposes, with periodic review, traceability and corrective action where necessary.

Download the technical note on the Guidelines on the methodology for estimating and applying CCFs under CRR available in English and Spanish.