Banking (prudential standard) determination No. 5 of 2006 - Prudential Standard APS 112 - Capital Adequacy: Credit Risk
Collateral and guaranteesCollateral and guarantees
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Collateral and guarantees
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Although the primary determinant of the risk weight of a particular on- or off-balance sheet transaction is the nature of the underlying counterparty, APRA recognises qualifying collateral (e.g. cash, securities issued by recognised entities and residential mortgages), guarantee arrangements that provide for direct, explicit, irrevocable and unequivocal recourse to the guarantors (refer AGN 112.1) and certain credit derivatives (refer AGN 112.4).
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An on- or off-balance sheet credit exposure secured against eligible collateral, a guarantee or qualifying credit derivative is assigned a lower risk weight based on the collateral, guarantor or credit derivative counterparty, rather than the counterparty to the transaction.