RSF is the minimum amount of stable funding an ADI is required to hold and is a function of the liquidity characteristics and residual maturities of the various assets held by an ADI including off-balance sheet (OBS) exposures.
An ADI must calculate its RSF as follows:
assign the ADI’s assets, at carrying value, and OBS exposures to the relevant RSF category (refer to paragraphs 29 to 37 of this Attachment);
multiply the amount assigned to each asset category and OBS exposure (or potential liquidity exposure) by the corresponding RSF factor; and
An ADI must allocate assets to the appropriate RSF factor based on the asset’s residual maturity or liquidity value as detailed in this attachment.
For the purposes of determining its RSF, an ADI must include financial instruments, foreign currencies and commodities for which a purchase order has been executed. An ADI may exclude financial instruments, foreign currencies and commodities for which a sales order has been executed, even if such transactions are not reflected in the ADI’s balance sheet under a settlement-date accounting model provided that (i) such transactions are not reflected as derivatives or secured financing transactions on the ADI’s balance sheet and (ii) the effects of such transactions will be reflected in the ADI’s balance sheet when settled.
Maturity of assets
To determine the maturity of an asset, an ADI must, for the purposes of the NSFR, assume the maturity date as being the latest possible date at which the asset may mature. An ADI must assume that for an asset with an option to extend maturity, the option will be exercised.
Where an asset does not have a defined maturity or the maturity is subject to periodic review, an ADI must, for NSFR purposes, classify the asset as having a residual maturity of greater than or equal to one year and assign the relevant RSF factor on this basis.
For an amortising loan, or a loan with minimum contractual payments, that portion that falls due within the one-year time horizon may be included in the less than one year residual maturity category.
Encumbered assets
Assets on an ADI’s balance sheet that are encumbered[21] for one year or more must be assigned a 100 per cent RSF factor. Assets encumbered for a period of between six months and less than one year that would, if unencumbered, receive an RSF factor lower than or equal to 50 per cent must be assigned a 50 per cent RSF factor. Assets encumbered for between six months and less than one year that would, if unencumbered, receive an RSF factor higher than 50 per cent must be assigned the higher RSF factor. Where assets have less than six months remaining in the encumbrance period, the same RSF factor is applied as that for an equivalent asset that is unencumbered.
Where an asset is encumbered for exceptional[22] central bank liquidity operations, the asset may be given a lower RSF factor if approval is sought from APRA and APRA agrees to the lower RSF factor.
Secured financing transactions
For the purposes of determining its NSFR, an ADI must exclude from its assets amount, securities borrowed in securities financing transactions (for example, reverse repos and collateral swaps) where the ADI does not retain beneficial ownership of the securities. Conversely, an ADI must include securities lent in securities financing transactions where the ADI retains beneficial ownership. An ADI must not include securities received through collateral swaps if those securities do not appear on the ADI’s balance sheet. If an ADI has encumbered securities in repos or other securities financing transactions, but retains beneficial ownership and the assets remain on the ADI’s balance sheet, the ADI must allocate the security to the appropriate RSF category.
An ADI may net securities financing transactions with a single counterparty when calculating its NSFR, provided that the netting conditions set out in paragraph 38 of Attachment D of Prudential Standard APS 110 Capital Adequacy (APS 110) are met.
Calculation of derivative asset amounts
An ADI must calculate the value of derivative assets based on the replacement cost for derivative contracts (obtained by marking-to-market) where the contract has a positive value. When an eligible bilateral netting agreement is in place that meets the conditions in paragraphs 9 to 11 of Attachment H of APS 112 and paragraphs 8 and 9 of the annex of the Basel III leverage ratio framework and disclosure requirements,[23] the replacement cost for the set of derivative exposures covered by the contract must be calculated as the net replacement cost.
When calculating NSFR derivative assets, collateral received in connection with derivative contracts must not offset the positive replacement cost amount, regardless of whether or not netting is permitted under an ADI’s operational accounting or risk-based framework, unless it is received in the form of a cash variation margin and meets the conditions specified in paragraph 23 of Attachment D to APS 110 and is in the same currency as the currency of settlement[24] of the derivative contract. Any remaining balance sheet liability associated with variation margin received that does not meet the criteria above or initial margin received must not offset derivative assets and must be assigned a zero per cent ASF factor.
Assets assigned a zero per cent RSF factor
An ADI must assign a zero per cent RSF factor to the following assets:
notes and coins immediately available to meet obligations;
all claims on central banks with a residual maturity of less than six months; and
trade date receivables arising from the sale of financial instruments, foreign currencies and commodities that (i) are expected to settle within the standard settlement cycle or period for the relevant exchange or type of transaction or (ii) have failed to, but are still expected to, settle.
Assets assigned a five per cent RSF factor
An ADI must assign a five per cent RSF factor to the following assets. They include unencumbered HQLA1 assets, but exclude assets receiving a zero per cent RSF factor as specified in paragraph 29 of this Attachment:
marketable securities representing claims on or claims guaranteed by sovereigns, central banks, PSEs, the BIS, the IMF, the ECB and EU or MDBs and that are assigned a zero per cent risk weight under Attachment B of APS 112; and
certain non-zero per cent risk-weighted sovereign or central bank debt securities as specified in paragraphs 9(d) and (e) of Attachment A.
Assets assigned a 10 per cent RSF factor
An ADI must assign a 10 per cent RSF factor to unencumbered loans to financial institutions with a residual maturity of less than six months, where the loan is secured against HQLA1 assets as defined in paragraph 9 of Attachment A, provided the ADI has the ability to freely rehypothecate the received collateral for the life of the loan.
An ADI may assign an RSF factor of 10 per cent to:
CLF-eligible third-party debt securities, other jurisdictions’ ALA and assets recognised as eligible liquid assets by a host supervisor that APRA allows to be included in the numerator of the LCR. The 10 per cent RSF factor may only be applied to the lower of the carrying value of the assets and the amount of the CLF that may be included in the numerator of the ADI’s LCR as allowed for under this Prudential Standard; and
self-securitised assets, eligible as CLF collateral. The maximum amount eligible for the 10 per cent RSF factor is the ADI’s CLF less eligible third-party debt securities held as collateral for the CLF.
Assets assigned a 15 per cent RSF factor
An ADI must assign a 15 per cent RSF factor to the following assets:
unencumbered HQLA2A assets as defined in paragraph 10 of Attachment A; and
all other unencumbered loans to financial institutions with a residual maturity of less than six months not included in paragraph 31 of this Attachment.
Assets assigned a 50 per cent RSF factor
An ADI must assign a 50 per cent RSF factor to the following assets:
unencumbered HQLA2B assets as defined in paragraph 12 of Attachment A;
any HQLA as defined in Attachment A that are encumbered for a period of between six months and less than one year;
all loans to financial institutions and central banks with a residual maturity of between six months and less than one year;
operational deposits held at other ADIs that are subject to a 50 per cent ASF factor in paragraph 14(b) of this Attachment;
Australian equities, other than financial institutions or associated entities (as defined in section 50AAA of the Corporations Act 2001), that trade on the Australian Securities Exchange (ASX) and form part of the S&P/ASX200 stock index; and
all other non-HQLA not included in the above categories that have a residual maturity of less than one year, including loans to non-financial corporate clients, loans to retail customers (i.e. natural persons) and SME customers and loans to sovereigns and PSEs.
Assets assigned a 65 per cent RSF factor
An ADI must assign a 65 per cent RSF factor to the following assets:
unencumbered standard residential property loans to an individual (that is, a natural person) or individuals with a residual maturity of one year or more and a loan-to-valuation ratio of 80 per cent or below, as defined under APS 112; and
other unencumbered loans not included in the above categories, excluding loans to financial institutions, with a residual maturity of one year or more that are subject to or would qualify for a 35 per cent or lower risk weight under APS 112.
Assets assigned an 85 per cent RSF factor
An ADI must assign an 85 per cent RSF factor to the following assets:
cash, securities or other assets, whether on- or off-balance sheet, posted as an initial margin for derivative contracts and cash or other assets provided to contribute to the default fund of a central counterparty (CCP).[26] Where securities or other assets posted as an initial margin for derivative contracts would otherwise receive a higher RSF factor, they must be assigned the higher factor;
other unencumbered performing loans that do not qualify under paragraph 35 of this Attachment that have residual maturities of one year or more, excluding loans to financial institutions; [27]
unencumbered securities with a remaining maturity of one year or more and exchange-traded equities, that are not in default and do not qualify as HQLA; and
physical traded commodities, including gold.
Assets assigned a 100 per cent RSF factor
An ADI must assign a 100 per cent RSF factor to the following assets:
all assets that are encumbered for a period of one year or more;[28]
NSFR derivative assets calculated in accordance with paragraphs 27 and 28 of this Attachment net of NSFR derivative liabilities calculated in accordance with paragraphs 9 and 10 of this Attachment, if NSFR derivative assets are greater than NSFR derivative liabilities;[29]
all other assets not included in the above categories, including non-performing loans, loans to financial institutions with a residual maturity of one year or more, non-exchange-traded equities, fixed assets, items deducted from regulatory capital (as defined in APS 111), retained interest, insurance assets, subsidiary interests and defaulted securities; and
20 per cent of derivative liabilities (i.e. negative replacement cost amounts) as calculated according to paragraph 9 of this Attachment (before deducting any variation margin posted).
Interdependent assets and liabilities
APRA may determine that certain asset and liability items, on the basis of contractual arrangements, are interdependent such that the liability cannot fall due while the asset remains on the balance sheet, the principal payment flows from the asset cannot be used other than for repaying the liability, and the liability cannot be used to fund other assets.
For the purposes of paragraph 38, APRA will only make a determination, on a case-by-case basis, in exceptional circumstances. As part of any determination, an ADI must, at a minimum, be able to demonstrate that the criteria in paragraph 40 are met in full.
If APRA determines asset and liability items to be interdependent in accordance with paragraph 38 of this Attachment then APRA may, at its discretion, adjust the RSF and ASF factors relating to those asset and liability items to zero per cent, subject to the following criteria:
the individual interdependent asset and liability items are clearly identifiable;
the maturity and principal amount of both the liability and its interdependent asset are the same;
the ADI is acting solely as a pass-through unit to channel the funding received (the interdependent liability) into the corresponding interdependent asset; and
the counterparties for each pair of interdependent liabilities and assets are not the same.
Off-balance sheet exposures
An ADI must apply the RSF factor to the RSF category in Table 1 for the OBS exposure categories in the Table.
Table 1 – OBS exposure categories
RSF factor (%)
RSF category
5
Irrevocable and conditionally revocable credit and liquidity facilities to any client
1
Unconditionally revocable credit and liquidity facilities
An ADI must apply an RSF factor of 100 per cent to trade finance-related obligations and guarantees and letters of credit unrelated to trade finance obligations using the actual net outflows for these obligations in the most recent 12-month period.