Purchase of assets from SPVsPurchase of assets from SPVs

Purchase of assets from SPVs

17. An ADI may purchase assets from a SPV, whether or not the assets were originally supplied by the ADI. The assets purchased may be risk weighted according to Prudential Standard APS 112 Capital Adequacy: Credit Risk, where:

(a) the purchase is conducted at arm’s length, on market terms and conditions (including price/fee) and is subject to the ADI’s normal credit approval and review processes;

(b) the ADI has no pre-existing obligation to undertake the purchase;

(c) the purchase is completed within six months from the time when the ADI commits to the purchase;

(d) the total value of assets purchased, and held on the books of the ADI, represents less than 10 per cent of the maximum value of assets held by the SPV. Where an ADI seeks to repurchase assets above this level, the acquisition will be subject to APRA’s prior approval and will be assessed on a case-by-case basis. This provision does not apply to acquisitions in the normal course of the ADI’s trading operations, for example, trading government securities or banks bills; and

(e) non-performing assets are purchased:

(i) the assets must be marked-to-market for financial and regulatory reporting purposes; and

(ii) the ADI is able to demonstrate that the assets are acquired at a fair market price that fully reflects the non-performing status of the assets and the presence of any credit enhancement(s) by an independent party.[15]

Where any of these conditions are not met, the purchase should be regarded as a credit enhancement (refer AGN 120.2).

18. Where APRA assesses that an ADI’s purchase of assets implies that it is supporting investments in a SPV beyond any legal obligation, the ADI will be required to hold capital against all the securities issued by the SPV.