Financial Sector (Collection of Data) determination No. 66 of 2005 - Reporting Standard ARS 112.1 (2005) - Capital Adequacy - On-Balance Sheet Business Risk Weighting Schedule
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An ADI’s (and the group’s) total risk-weighted on balance sheet credit exposures equal the sum of the risk-weighted amount of each on balance sheet asset the ADI (and the group) holds.
The risk-weighted amount of an on balance sheet item is determined by multiplying its current book value (i.e. current outstanding amount including accrued interest or revaluations, and net of any specific provision or associated depreciation) by the relevant risk weight specified in the form.
Where an on balance sheet claim on a counterparty is secured against eligible collateral and/or guarantee recognised by APRA, the secured portion of the claim should be weighted according to the risk weight appropriate to the collateral and/or the guarantor. The unsecured portion of the claim must be weighted according to the risk weight applicable to the original counterparty.
Coverage of collateral or guarantees is generally determined by the market value of the collateral or the amount of the guarantee in relation to the amount of the actual exposure supported by the collateral or guarantee. Only collateral and/or guarantees actually posted may be used for determining risk weights. A commitment to provide collateral is not recognised as eligible collateral for risk weighting purposes.
An ADI should consult APRA if in doubt about how to determine the risk-weighted amount of a particular on balance sheet transaction.
Definitions
Eligible collateral and guarantees
Collateral
The only forms of collateral that APRA recognises for capital adequacy purposes are:
(a) cash deposits (including any rights of set-off on credit balances) subject to the conditions set out in Attachment B to Guidance Note AGN 112.1 Risk-Weighted On Balance Sheet Credit Exposures;
(b) securities issued by the Commonwealth, State and Territory Governments (including State and Territory central borrowing authorities) in Australia; central and state governments in OECD countries; OECD central banks; international banking agencies and multilateral regional development banks; and
(c) residential mortgages subject to the criteria detailed in Attachment C to Guidance Note AGN 112.1 Risk-Weighted On Balance Sheet Credit Exposures.
The underlying collateral arrangements must provide for direct, explicit, irrevocable and unequivocal recourse to the collateral.
Claims secured or collateralised in other ways, for example, by insurance contracts, put options, forward sales contracts or agreements, bank paper, securities issued by public sector entities etc, are not considered to be covered by eligible collateral. Such claims must be weighted according to the risk weight applicable to the original counterparty.
Guarantees
The only guarantees that APRA recognises for capital adequacy purposes are:
(a) guarantees provided by the Commonwealth, state, territory and local governments (including state and territory central borrowing authorities) in Australia; central, state and local governments in OECD countries; public sector entities in Australia and OECD countries; OECD central banks and other OECD banks; ADIs in Australia; international banking agencies and multilateral regional development banks. Guarantees provided by non-OECD central governments and central banks, as well as non-OECD banks are recognised, to a limited extent, subject to the relevant conditions set out in this instruction guide (or refer Attachment A to Guidance Note AGN 112.1 Risk-Weighted On-Balance Sheet Credit Exposures); and
(b) credit derivatives used for buying credit protection subject to the criteria set out in Guidance Note AGN 112.4 Treatment of Credit Derivatives in the Banking Book.
The guarantee must be issued formally and the underlying guarantee arrangements must provide for direct, explicit, irrevocable and unequivocal recourse to the guarantor.
Claims secured against indirect guarantees (e.g. guarantee of guarantee such as the Commonwealth’s guarantee of the entity which provides the guarantee) and letters of comfort do not qualify as eligible guarantees. Such claims must be weighted according to the risk weight applicable to the original counterparty.
State and territory central borrowing authorities in Australia
These are corporations established by state and territory governments to provide finance for government authorities and to manage their surplus funds, which include:
New South Wales Treasury Corporation (NSW TCorp);
Treasury Corporation of Victoria (TCV);
Queensland Treasury Corporation (QTC);
South Australian Government Financing Authority (SAFA);
Western Australian Treasury Corporation (WATC);
Tasmanian Public Finance Corporation (Tas Corp);
Northern Territory Treasury Corporation (NT TCorp); and
ACT Treasury.
OECD countries
These include countries that have concluded special lending arrangements under the IMF’s General Arrangements to Borrow (Saudi Arabia at this stage), provided that they have not rescheduled their external debt, whether to official or private sector creditors, within the previous five years.
International banking agencies and multilateral regional development banks
These include, for example, the IMF, the International Bank for Reconstruction and Development, the Bank for International Settlements and the Asian Development Bank.
Overseas banks
These include financial institutions in a country which (i) have the power to accept deposits in the regular course of business; (ii) are supervised by the supervisor of banks or by state-based regulatory agencies; and (iii) are subject to the same prudential requirements as banks (including capital adequacy).
ADIs
ADIs are authorised deposit-taking institutions which have an authority under subsection 9(3) of the Banking Act 1959 to carry on banking business in Australia (refer APRA’s website http://www.apra.gov.au/Societies/ADIs.htm for a complete list of ADIs). ADIs include:
Australian-owned Banks;
Foreign Subsidiary Banks;
Branches of Foreign Banks;
Credit Unions, Credit Societies and Credit Co-operatives;
Building Societies;
Specialist Credit Card Institutions (SCCIs); and
Other ADIs (e.g. Cairns Penny Savings & Loans Limited, former special service providers under the FI Scheme).
Note: ADIs DO NOT include merchant banks in Australia.
Specific instructions
Category I – cash items
Item 1.
Report all notes and coins held irrespective of country of issue.
Item 2.
Report balances held in the Exchange Settlement Account with the Reserve Bank of Australia (RBA). Report all other claims on the RBA under item 17 of Category IV.
Item 3.
Report claims to the extent that they are secured against eligible cash collateral (refer Attachment B to Guidance Note AGN 112.1 Risk-Weighted On Balance Sheet Credit Exposures for qualifying criteria).
Item 4.
Gold bullion liabilities include gold borrowings, gold futures and forward sales of gold. Gold held in safe custody for other institutions or customers should not be reported. Gold held on an unallocated basis by another party, though backed by gold liabilities, is weighted as a claim on the counterparty unless a lower risk weight is approved by APRA.
Item 5.
Report claims collateralised by gold to the extent that the underlying claim being collateralised is denominated in gold.
Item 6.
Report the amount of cheques, drafts and other items drawn on other ADIs or overseas banks that are payable immediately upon presentation and that are in the process of collection. Include overnight settlement balances relating to Clearing House and Austraclear transactions.
Category II – Claims on Australian & foreign governments
For the purposes of this category, report all claims held in the banking book on, or claims to the extent that they are guaranteed by or secured against securities issued by, specified entities under this category. All claims held in the trading book (e.g. securities issued by these entities) are treated in accordance with Prudential Standard APS 113 Capital Adequacy: Market Risk and the accompanying Guidance Notes.
Category III – Claims on public sector entities & public trading enterprises
Item 13.
Report all claims on, or claims to the extent that they are guaranteed by, public sector entities (except those which have corporate status and operate on a commercial basis) in Australia. Reporting ADIs may refer to APRA in case of doubt.
Item 14.
Report all claims on public trading enterprises in Australia that have corporate status and operate on a commercial basis (notably in significant competition with private sector enterprises). Reporting ADIs may refer to APRA in case of doubt.
Category IV – Claims on central banks, international banking agencies, regional development banks, ADIs in Australia and overseas banks
For the purposes of this category, report all claims held in the banking book on, or claims to the extent that they are guaranteed by or secured against securities issued by, specified entities under this category. All claims held in the trading book (e.g. securities issued by these entities) are treated in accordance with Prudential Standard APS 113 Capital Adequacy: Market Risk and the accompanying Guidance Notes.
For items 22 to 26, claims held in the banking book exclude investments in equity and debt capital instruments of other ADIs or overseas banks (including their subsidiaries) which are not consolidated for capital adequacy purposes. Such investments are deducted from total capital (instead of applying a risk weight) as per Prudential Standard APS 111 Capital Adequacy: Measurement of Capital.
Item 22.
These include claims on, or claims guaranteed by, overseas branches of locally incorporated ADIs.
Item 23.
These include claims on, or claims guaranteed by, their branches in all countries.
Item 24.
These include claims on, or claims guaranteed by, their branches in all countries. A bank incorporated in the Asia-Pacific region wishing to be afforded this treatment must apply to APRA. APRA is willing to consider, on a case-by-case basis, assigning claims on, or claims guaranteed by, non-OECD banks from the Asia-Pacific area the same risk weight as claims on, or claims guaranteed by, OECD banks provided the bank is of high international standing and the parent country has a supervisory framework and standards equivalent to that applied in Australia.
Item 25.
These include claims on, or claims guaranteed by, their branches in all countries.
Item 26.
These include claims on their branches in all countries. Claims guaranteed by these non-OECD banks (and their branches in all countries) with a residual maturity exceeding one year are weighted according to the risk weight applicable to the original counterparty.
Category V – Claims secured against residential mortgages
Item 27.
Refer Attachment C to Guidance Note AGN 112.1 Risk-Weighted On-Balance Sheet Credit Exposures for definition of eligible residential mortgages.
Category VI – Other assets & claims
Item 29.
These include, for examples, personal and corporate loans, commercial and industrial loans, leasing finance and bill acceptances drawn by private sector counterparties, all other property loans (including loans secured against commercial property), holdings of corporate debt securities and shares in the banking book (claims held in the trading book are treated in accordance with Prudential Standard APS 113 Capital Adequacy: Market Risk and the accompanying Guidance Notes) and claims on other financial institutions.
Note on References to Accounting Standards
This Note is about references in these instructions to an accounting standard or accounting standards, e.g. where the instructions say that something must be done in accordance with a particular AASB or international accounting standard, or must be done in accordance with the accounting standards (however described) generally.
Where you see such a reference, you must read it as meaning the version of the accounting standard, or versions of the accounting standards, applying to reporting periods (within the meaning of the accounting standards) beginning immediately before 1 January 2005.
Accordingly, the new AASB standards for 2005 are not to be applied.
Similarly, a reference to principles or conventions (however described) governing an accounting procedure or treatment shall be taken to refer to principles or conventions applicable in relation to reporting periods (within the meaning of the accounting standards) that began immediately before 1 January 2005.