8. Off-balance sheet exposures8. Off-balance sheet exposures

8. Off-balance sheet exposures

This refers to items of assets or liabilities that are not recognised or recorded on the statement of financial position of the ADI/ELE (as appropriate) because they do not satisfy the asset or liability accounting recognition requirements e.g. contingent liabilities.

Instruction Guide for specific items

The form has the following reporting components:

• Part A: 10 Largest exposures to related entities
• Part B: 10 Largest exposures to ELE-eligible subsidiaries
• Part C: Exposures to head office, overseas branches, Australian and overseas subsidiaries

Part A: 10 Largest exposures to related entities

Part A is to be completed by all locally incorporated banks and locally-incorporated non-bank ADIs (including Specialist Credit Card Institutions (SCCIs)) on a Licensed ADI or Extended Licensed Entity (ELE) basis (where applicable). Report in this part on a net basis (explained in detail below) the ADI’s/ELE’s (as appropriate) 10 largest exposures to individual related entities.

The following instructions are applicable to Part A of this form.

Name of entity

Report in column 1 the names of the relevant individual related entities to which the ADI/ELE (as appropriate) has exposures to.

Category

Report in column 2 the category of the related entity reported in column 1 using the following abbreviations:

• ADI for related ADIs (including overseas based equivalents);
• OR for other regulated related entities (i.e. any related entity other than an ADI or overseas based equivalent directly regulated by APRA or by a foreign equivalent); and
• UR for unregulated related entities.

On-balance sheet exposures

Report all on-balance sheet exposures to the related entity noted in column 1. This includes all loans and advances to the related entity, equity investment in the related entity, and all other claims on the related entity. Any accrued interest associated with the exposure should also be included.

3.1. Equity investment

Report in column 3.1 the book value of equity investment in the related entity. Exclude any equity investment in the related entity that has been deducted from the ADI’s Level 1 (stand-alone) capital for capital adequacy purposes (see Prudential Standard APS 111 Capital Adequacy: Measurement of Capital).

3.2. Other

Report in column 3.2 the book value of all other on-balance sheet exposures to the related entity on a net basis. Net basis means net of exposures excluded under paragraphs 28(b)(ii)-(vi) in Prudential Standard APS 222 Associations with Related Entities, specifically:

• exposures deducted from the ADI’s Level 1 (stand-alone) capital for capital adequacy purposes (see Prudential Standard APS 111 Capital Adequacy: Measurement of Capital);
• exposures to the extent that they are secured by cash deposits (subject to satisfying the criteria set out in Attachment B to Guidance Note AGN 112.1 Risk-Weighted On-Balance Sheet Credit Exposures);
• exposures to the extent that they are guaranteed by governments, or secured by government securities (subject to satisfying the conditions set out in paragraphs 9, 12, 13, 14 and 15 of Guidance Note AGN 112.1 Risk-Weighted On-Balance Sheet Credit Exposures);
• exposures arising in the course of settlement of market-related contracts; and
• exposures to the extent that they have been written off or specifically provided for.

Off-balance sheet exposures

4.1. Non-market related

• This includes all commitments, whether revocable or not, which have been advised to the related entity reported in column 1 (see Attachment A to Guidance Note AGN 112.2 Risk-Weighted Off-Balance Sheet Credit Exposures for examples of these commitments). For Specialist Credit Card Institutions (SCCIs) that are involved in self-acquiring of credit card transactions, include any potential chargeback exposures to the related entity (merchant).
• Exclude internal limits that have not been formally advised to the related entity and may be cancelled at the ADI’s/ELE’s (as appropriate) discretion.
• Report in column 4.1 the value of all unused commitments to the related entity (do not apply credit conversion factors or risk weightings to the value) on a net basis (i.e. net of exposures excluded under paragraphs 28(b)(ii)-(vi) in Prudential Standard APS 222 Associations with Related Entities as detailed in point 3.2 above).
• SCCIs should use their own methodology in determining the amount of potential chargeback exposures to the related entity (e.g. this could be based on the SCCI’s historical trends of chargeback exposures to the related entity). Any funds held as performance bond from related entities for settling any outstanding liabilities to the reporting SCCI (e.g. reimbursement for merchant chargebacks) must be placed in a trust account with an ADI authorised to accept deposits to be eligible for netting purposes.
• Exposures arising from repos (i.e. sale and repurchase agreements) and reverse repos (i.e. purchase and resale agreements) of securities should be reported as exposures to the issuer of the securities and collateralised loans to the counterparty respectively.

4.2. Market related

Include all exposures arising from off-balance sheet market related contracts with the related entity reported in column 1 (see Guidance Note AGN 112.2 Risk-Weighted Off-Balance Sheet Credit Exposures for examples of these contracts).

Report in column 4.2 the credit equivalent amounts of all market related contracts on a net basis (i.e. net of exposures excluded under paragraphs 28(b)(ii)-(vi) in Prudential Standard APS 222 Associations with Related Entities as detailed in point 3.2 above). The credit equivalent amounts of these contracts are to be calculated in accordance with Guidance Note AGN 112.2 Risk-Weighted Off-Balance Sheet Credit Exposures or Guidance Note AGN 112.3 Netting where netting applies. Netting by novation and close-out netting are permissible for market related contracts provided all the requirements set out in Guidance Note AGN 112.3 Netting for bilateral netting are met.

Total exposures

5.1. Amount

This represents the total of column numbers 3.1, 3.2, 4.1 and 4.2.

5.2. As % of capital base

This represents the value reported for column 5.1 divided by the ADI’s capital base as reported in ‘Memorandum items’ (i).

Memorandum items

(i) Capital base of Licensed ADI

Report the ADI’s capital base at Level 1 for the reporting quarter (as shown in ARF 110.0 Capital Adequacy (Licensed ADI) for the same reporting quarter).

(ii) Aggregate exposure to all related ADIs (including overseas based equivalents)

Report the ADI’s/ELE’s (as appropriate) aggregate exposure to all related ADIs and related overseas based equivalents on a net basis (i.e. net of exposures excluded under paragraphs 28(b)(ii)-(vi) in Prudential Standard APS 222 Associations with Related Entities as detailed in points 3.1 and 3.2 above).

(iii) Aggregate exposure to all related entities other than related ADIs and related overseas based equivalents

Report the ADI’s/ELE’s (as appropriate) aggregate exposure to all related entities other than related ADIs and related overseas based equivalents on a net basis (i.e. net of exposures excluded under paragraphs 28(b)(ii)-(vi) in Prudential Standard APS 222 Associations with Related Entities as detailed in points 3.1 and 3.2 above).

Part B: 10 Largest exposures to ELE-eligible subsidiaries

Part B is to be completed by all locally incorporated banks and locally-incorporated non-bank ADIs (including Specialist Credit Card Institutions (SCCIs)) that have APRA-approved ELE-eligible subsidiaries. Report in this part on a net basis (explained in detail below) the ADI’s 10 largest exposures to individual subsidiaries that form part of the ADI’s ELE (i.e. 10 largest exposures to ELE-eligible subsidiaries).

The following instructions are applicable to Part B of this form.

1. Name of entity

Report in column 1 the names of the relevant individual ELE-eligible subsidiaries to which the ADI has exposures to.

2. On-balance sheet exposures

Report all on-balance sheet exposures to the subsidiary noted in column 1. This includes all loans and advances to the subsidiary, equity investment in the subsidiary, and all other claims on the subsidiary. Any accrued interest associated with the exposure should also be included.

2.1. Equity investment

Report in column 2.1 the book value of equity investment in the subsidiary. Exclude any equity investment in the subsidiary that has been deducted from the ADI’s Level 1 (stand-alone) capital for capital adequacy purposes (see Prudential Standard APS 111 Capital Adequacy: Measurement of Capital).

2.2. Other

Report in column 2.2 the book value of all other on-balance sheet exposures to the subsidiary on a net basis. Net basis means net of the following exposures:

• exposures deducted from the ADI’s Level 1 (stand-alone) capital for capital adequacy purposes (see Prudential Standard APS 111 Capital Adequacy: Measurement of Capital);
• exposures to the extent that they are secured by cash deposits (subject to satisfying the criteria set out in Attachment B to Guidance Note AGN 112.1 Risk-Weighted On-Balance Sheet Credit Exposures);
• exposures to the extent that they are guaranteed by governments, or secured by government securities (subject to satisfying the conditions set out in paragraphs 9, 12, 13, 14 and 15 of Guidance Note AGN 112.1 Risk-Weighted On-Balance Sheet Credit Exposures);
• exposures arising in the course of settlement of market-related contracts; and
• exposures to the extent that they have been written off or specifically provided for.

3. Off-balance sheet exposures

3.1. Non-market related

• This includes all commitments, whether revocable or not, which have been advised to the subsidiary reported in column 1 (see Attachment A to Guidance Note AGN 112.2 Risk-Weighted Off-Balance Sheet Credit Exposures for examples of these commitments).
• Exclude internal limits that have not been formally advised to the subsidiary and may be cancelled at the ADI’s discretion.
• Report in column 3.1 the value of all unused commitments to the subsidiary (do not apply credit conversion factors or risk weightings to the value) on a net basis (i.e. net of exposures detailed in point 2.2 above).

3.2. Market related

Include all exposures arising from off-balance sheet market related contracts with the subsidiary reported in column 1 (see Guidance Note AGN 112.2 Risk-Weighted Off-Balance Sheet Credit Exposures for examples of these contracts).

Report in column 3.2 the credit equivalent amounts of all market related contracts on a net basis (i.e. net of exposures detailed in point 2.2 above). The credit equivalent amounts of these contracts are to be calculated in accordance with Guidance Note AGN 112.2 Risk-Weighted Off-Balance Sheet Credit Exposures or Guidance Note AGN 112.3 Netting where netting applies. Netting by novation and close-out netting are permissible for market related contracts provided all the requirements set out in Guidance Note AGN 112.3 Netting for bilateral netting are met.

4. Total exposures

This represents the total of column numbers 2.1, 2.2, 3.1 and 3.2.

5. Memorandum item

Aggregate exposure to all ELE-eligible subsidiaries

Report the ADI’s aggregate exposure to all ELE-eligible subsidiaries on a net basis (i.e. net of exposures detailed in points 2.1 and 2.2 above).

Part C: Exposures to head office, overseas branches, Australian and overseas subsidiaries

Part C is to be completed by all foreign ADIs and Specialist Credit Card Institutions (SCCIs) that operate as branches in Australia. Report in this part on a net basis (explained in detail below) exposures of the Australian branch to head office, to individual overseas branches, as well as to individual Australian and overseas subsidiaries of parent.

The following instructions are applicable to Part C of this form.

1. Name of entity

Report in column 1 the name of the entity to which the Australian branch has exposures to.

2. On-balance sheet exposures

This includes all loans and advances and all other claims on the entity noted in column 1. Any accrued interest associated with the exposure should also be included.

Report in column 2 the book value of all on-balance sheet exposures to the entity on a net basis. Net basis means net of the following exposures:

• exposures to the extent that they are secured by cash deposits (subject to satisfying the criteria set out in Attachment B to Guidance Note AGN 112.1 Risk-Weighted On-Balance Sheet Credit Exposures);
• exposures to the extent that they are guaranteed by governments, or secured by government securities (subject to satisfying the conditions set out in paragraphs 9, 12, 13, 14 and 15 of Guidance Note AGN 112.1 Risk-Weighted On-Balance Sheet Credit Exposures);
• exposures arising in the course of settlement of market-related contracts; and
• exposures to the extent that they have been written off or specifically provided for.

3. Off-balance sheet exposures

3.1. Non-market related

• This includes all commitments, whether revocable or not, which have been advised to the entity reported in column 1 (see Attachment A to Guidance Note AGN 112.2 Risk-Weighted Off-Balance Sheet Credit Exposures for examples of these commitments).
• Exclude internal limits that have not been formally advised to the entity and may be cancelled at the branch’s discretion.
• Report in column 3.1 the value of all unused commitments to the entity (do not apply credit conversion factors or risk weightings to the value) on a net basis (i.e. net of exposures detailed in point 2 above).
• Exposures arising from repos (i.e. sale and repurchase agreements) and reverse repos (i.e. purchase and resale agreements) of securities should be reported as exposures to the issuer of the securities and collateralised loans to the counterparty respectively.

3.2. Market related

Include all exposures arising from off-balance sheet market related contracts with the entity reported in column 1 (see Guidance Note AGN 112.2 Risk-Weighted Off-Balance Sheet Credit Exposures for examples of these contracts).

Report in column 3.2 the credit equivalent amounts of all market related contracts on a net basis (i.e. net of exposures detailed in point 2 above). The credit equivalent amounts of these contracts are to be calculated in accordance with Guidance Note AGN 112.2 Risk-Weighted Off-Balance Sheet Credit Exposures or Guidance Note AGN 112.3 Netting where netting applies. Netting by novation and close-out netting are permissible for market related contracts provided all the requirements set out in Guidance Note AGN 112.3 Netting for bilateral netting are met.

4. Total exposures

This represents the total of column numbers 2, 3.1 and 3.2.

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.