Attachment C — Off-balance sheet commitmAttachment C — Off-balance sheet commitments

Attachment C – Off-balance sheet commitments

1. A commitment is any arrangement that has been offered by the ADI and accepted by the borrower to extend credit, purchase assets or issue credit substitutes. It includes SFTs.

2. A commitment includes any arrangement that can be unconditionally cancelled by the ADI at any time without prior notice to the borrower. It also includes any such arrangement that can be cancelled by the ADI if conditions set out in the facility documentation are not met, including conditions that must be met by the borrower or third parties (conditions precedent) prior to any initial or subsequent drawdown under the arrangement.

3. Where an ADI enters into an arrangement that meets all of the following conditions, it may be excluded from the definition of commitment:

   1. the ADI receives no fees or commissions to establish or maintain the arrangement;[13]
   2. the borrower is required to apply to the ADI for the initial and each subsequent drawdown;
   3. the ADI has full authority, regardless of the fulfilment by the borrower of the conditions set out in the facility documentation, over the execution of each drawdown;[14]
   4. the ADI’s decision on the execution of each drawdown is made only after assessing the creditworthiness of the borrower immediately prior to drawdown. This assessment of creditworthiness must be undertaken by an independent party and, at a minimum, include confirmation of the borrower’s good credit standing and that no material adverse information has arisen subsequent to the limit approval or the most recent credit review that would affect the borrower’s creditworthiness;[15] and
   5. the borrower is a corporate counterparty that is closely monitored on an ongoing basis, and is not an SME retail borrower.

4. In respect of margin lending, the committed amount is the maximum amount that the borrower can draw down based on the terms of the loan (such as the notional credit limit and the maximum allowable LVR) and the value of the security underlying the loan. However, if an ADI does not adjust the credit limit before a drawdown in response to a decline in security value, then the ADI must use the original amount in the loan contract that is independent of the security value.

5. Where a commitment exists, an ADI must multiply the committed but undrawn amount of the exposure by the relevant CCF in Table 17, and then risk-weight the exposure according to the relevant requirements set out in Attachments A, B and D to this Prudential Standard.