Part Instruction Guide - Financial Sector (Collection of Data) (reporting standard) determination No. 1 of 2006 - Reporting Standard ARS 110.0 - Capital Adequacy - Instruction Guide | Zoe
Financial Sector (Collection of Data) (reporting standard) determination No. 1 of 2006 - Reporting Standard ARS 110.0 - Capital Adequacy
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This form sets out the calculation of an authorised deposit-taking institution’s (ADI’s) regulatory capital and associated capital ratios at the stand-alone and consolidated banking group level. In completing this form, ADIs should refer to Prudential Standard APS 110 Capital Adequacy (APS 110) and Prudential Standard APS 111 Capital Adequacy: Measurement of Capital (APS 111) and their accompanying Guidance Notes.
General directions and notes
Reporting entity
This form is to be completed by all locally incorporated ADIs (including Specialist Credit Card Institutions (SCCIs)) on both a licensed ADI and consolidated ADI group basis (where applicable). Foreign ADIs[1] and SCCIs operating through branches in Australia are not required to complete this form.
Licensed ADI
Refers to the reporting ADI at Level 1 (i.e. the stand-alone level) defined in accordance with APS 110.
Consolidated ADI group
Refers to the consolidated group of the reporting ADI at Level 2 (i.e. the consolidated banking group level) defined in accordance with APS 110.
The basis of consolidation required in this form is in accordance with the prudential consolidated ADI group. The prudential consolidated ADI group should be determined in accordance with Australian accounting standards, notably AASB 127 Consolidated and Separate Financial Statements and AASB 3 Business Combinations (AASB 3) with the following modifications:
(1) Include the following:
all controlled banking entities, securities entities and other financial entities (e.g. finance companies, money market corporations, stockbrokers and leasing companies).
(2) Exclude controlled entities involved in the following business activities:
insurance businesses (including friendly societies and health funds);
acting as manager, responsible entity, approved trustee, trustee or similar role in relation to funds management or the securitisation of assets; and
non-financial (commercial) operations; and
special purpose vehicles (SPVs) to which assets have been transferred in accordance with APRA’s clean sale requirements set down in Guidance Note AGN 120.3 Purchase and Supply of Assets (AGN 120.3) regardless of whether they are consolidated for accounting purposes (refer Securitisation Deconsolidation Principle below).
Securitisation deconsolidation principle
(Applicable to licensed and consolidated ADI group).
Except where stated otherwise on this form, reporting entities must treat any securitisation program SPVs in which the ADI (or a member of its consolidated banking group) participates in accordance with APRA’s clean sale and separation requirements as non-consolidated independent third parties. As a result, for reporting purposes all assets, liabilities, revenues and expenses of these SPVs must be excluded from the ADI’s reported amounts. Where relevant, report on this form any exposure to or other transaction between the ADI and any such SPV as if such transaction was conducted with an independent third party, regardless of whether the SPV or its assets is consolidated for accounting purposes.
APRA’s clean sale and separation requirements are set out in APS 120 Funds Management and Securitisation (APS 120) and related Guidance Notes AGN 120.3 and AGN 120.1 Disclosure and Separation. Whenever the clean sale and separation requirements are not met, all the assets, liabilities, revenues and expenses of the SPV are to be consolidated with the ADI’s reported amounts.
Note: ADIs should consult APRA in case of doubt as to whether a subsidiary or controlled entity that engaged in non-financial operations should be consolidated at Level 2 for capital adequacy purposes.
Reporting period
The form is to be completed as at the last day of the stated reporting quarter. Locally incorporated banks and other ADIs (including Special Service Providers (SSPs)) should submit the completed form to APRA within 20 business days after the end of the relevant reporting quarter. Credit Unions, Cairns Penny Savings & Loans Limited, Building Societies and SCCIs should submit the completed form to APRA within 15 business days after the end of the relevant reporting quarter.
Unit of measurement
Banks are asked to complete the form in millions of Australian dollars rounded to one decimal place. Other ADIs (including SSPs), Building Societies, Credit Unions, SCCIs and Cairns Penny Savings & Loans Limited are asked to complete the form in whole Australian dollars (no decimal place).
Amounts denominated in foreign currency are to be converted to AUD in accordance with AASB 121 The Effects of Changes in Foreign Exchange Rates (AASB 121).
Specific instructions
The following instructions are applicable to both the Licensed ADI form and the Consolidated Group form where relevant.
Section A: Level 1/Level 2 capital base
Tier 1 capital
1.1 Fundamental Tier 1 capital
Includes paid-up ordinary share capital, general reserves (excluding any General Reserve for Credit Losses), capital profits reserve, foreign currency translation reserve, retained earnings, current year’s earnings net of expected dividends, tax expenses and upfront fee income (refer APS 111) and minority interests.
Include only the proceeds of the issue that have been received by the issuer. Any partly paid issue is eligible only to the extent that it has been paid up.
1.1.2 General reserves
General reserves are created from the appropriation of profits and share premium by an ADI (or the group it heads) after the payment of all dividends and tax. These may include:
(a) reserves representing the offset to a charge to profit and loss of the ADI arising from equity-settled share-based payments (i.e. shares and or share options) granted to employees as part of their remuneration package (including any shares or share options granted to employees by way of bonus arrangements associated with their employment, and shares or share options granted to employees of an acquired institution in return for continued services). This is provided that:
(i) the shares or share options granted relate only to the ordinary shares of the ADI itself; and
(ii) there are no circumstances in which such remuneration (including bonuses) can be realised, in part or full, other than by way of the issue of ordinary shares of the ADI – i.e. there is no right for remuneration to be converted to a payment in another form (e.g. cash).
Any other reserves associated with share-based payments (refer Australian accounting standards AASB 2 Share-based Payment) should be excluded from both Tier 1 and Tier 2 capital; and
(b) cumulative unrealised gains or losses on hedges[3] offsetting gains or losses on reserves included in Tier 1 capital (e.g. movements in the currency value of foreign currency denominated hedging instruments which offset movements in foreign currency denominated items recognised in the foreign currency translation reserve).
Do not include in this item General Reserve for Credit Losses.
1.1.3 Capital profits reserve
Include realised gains on the disposal of revalued assets that have not been transferred from the asset revaluation reserve (ARR) to retained earnings.
1.1.4 Foreign currency translation reserve
Include the exchange rate differences arising on translation of assets and liabilities in accordance with AASB 121.
1.1.5 Retained earnings
Include the amount of retained earnings.
1.1.6 Current year’s earnings net of expected dividends and tax expenses
Report current year’s profits (or losses) after taking account of:
(a) negative goodwill;
(b) the unwinding of any discount on credit loss provisions;
(c) the proceeds from any dividend reinvestment plan pending the issuance of ordinary shares, as agreed with APRA; and
(d) expected dividends and tax expenses.
Current year earnings also include the full value of upfront fee income (e.g., application and loan fees) provided that:
(a) the fee income has either been received in cash or has been debited to a customer’s account or otherwise forms part of the upfront fees owed by a customer;
(b) outstanding amounts of fee income debited to customer accounts must be able to be claimed in full in the event of default by the customer, or capable of being sold as part of outstanding debts to a third party;
(c) the provider of the income has no recourse for repayment in part or full of any prepaid income;
(d) the customer is not able to cancel any fees debited to the customer’s account for which they were otherwise obliged to pay upfront; and
(e) there is no requirement for the provision of continuing additional services or products associated with the fee income concerned.
1.1.7 Minority interests (Level 2)
Include any minority interests in Tier 1 capital of subsidiaries on consolidation at Level 2.
1.1.8 Total Fundamental Tier 1 capital (Level 2) or 1.1.7 total Fundamental Tier 1 capital (Level 1)
The sum of the Fundamental Tier 1 capital items 1.1.1-1.1.6 for Level 1 or 1.1.1-1.1.7 for Level 2.
1.2 Residual Tier 1 capital
1.2.1 Non-innovative Residual Tier 1 capital instruments
Includes capital instruments that satisfy the relevant criteria set out in AGN 111.1 Tier 1 Capital at Level 1 or Level 2. Any amount in excess of the limit set out in APS 111 is reported as Upper Tier 2 capital, item 3.1.8. (refer APS 111).
1.2.2 Innovative Tier 1 capital instruments
Includes capital instruments that satisfy the relevant criteria set out in AGN 111.1 Tier 1 capital. Any amount in excess of the limit set out in APS 111 is reported as Upper Tier 2 capital, item 3.1.8. (See APS 111).
1.2.3 Total Residual Tier 1 capital
The sum of Non-innovative Residual Tier 1 and Innovative Tier 1 capital instruments (items 1.2.1 – 1.2.2.) Any amount in excess of the limit set out in APS 111 is reported as Upper Tier 2 capital, item 3.1.8. (refer APS 111).
1.3 Gross Tier 1 capital
The sum of Fundamental Tier 1 capital and Residual Tier 1 capital.
Deductions from Tier 1 capital
Items required to be deducted from gross Tier 1 capital in accordance with APS 111.
2.1 Goodwill (Level 2)
Deduct goodwill (net of impairment) from Tier 1 capital at Level 2. Goodwill (determined in accordance with AASB 3) represents the excess of the cost of the business combination over the acquirer’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities.
2.2 Intangible component of investments in non-consolidated subsidiaries and other non-Level 2 entities (Level 2) or 2.2 Intangible component of investments in subsidiaries and other entities (Level 1)
This item includes intangible component of investments arising on an acquisition (net of impairment) (Refer AGN 111.4 Capital Deductions (AGN 111.4) and any changes in the intangible component of investments in subsidiaries and other entities (e.g. any excess of the reported market value of an interest in a subsidiary over the net amount of the subsidiary’s assets and liabilities, based on the subsidiary’s consolidated financial reports), that arises after or outside of acquisitions at Level 1 and Level 2 (refer APS 111).
2.3 Capitalised expenses
Refer to AGN 111.4 effective for required treatment of specific items below.
Detail separately:
2.3.1 Loan and lease origination fees and commissions paid to mortgage originators and brokers;
2.3.2 Securitisation establishment costs;
2.3.3 Costs associated with debt raisings/funding; and
2.3.4 Other capitalised expenses of a general nature
e.g. strategic business development initiatives.
2.4 Any other intangible assets not included above
Deduct any other intangible assets (net of adjustments to profit and loss reflecting amortisation and impairment)[4] not included above.
2.5 Deferred tax assets (DTA)
The amount of DTA (other than those amounts associated with “collective provisions” incorporated in “General Reserve for Credit Losses”) to be deducted from Tier 1 capital at Level 1 and Level 2 should be net of deferred tax liabilities (DTL) (except for DTL relating to defined-benefit superannuation plan surplus. See item 2.9. for an example). Where the DTL exceeds the amount of DTA, the deduction reported for this item is zero. (Refer AGN 111.)
2.6 Holdings of own Tier 1 capital instruments and any unused trading limit agreed with APRA
Refer to AGN 111.4.
2.7 Equity and other capital investments in non-consolidated captive lenders mortgage insurers (Level 2) or 2.7 equity and other capital investments in associated lenders mortgage insurers (Level 1)
Deduct all equity and other capital investments in captive lenders mortgage insurers at Level 1/Level 2 (These entities are not consolidated for capital adequacy purposes – see Guidance Note AGN 110.2 Non-consolidated Subsidiaries).
2.8 Equity investments in non-subsidiary entities exceeding prescribed limits
Deduct all equity investments in non-subsidiary entities at Level 1/Level 2 that are not operating in the field of finance, in excess of 0.25% of the ADI’s Level 2 gross Tier 1 capital for an individual investment or 5% of the ADI’s Level 2 gross Tier 1 capital in aggregate.
2.9 Surplus in any ADI-sponsored defined benefit superannuation plan
Report in item 2.9. the defined benefit superannuation plan surplus net of the DTL. For example:
Defined benefit surplus $100
Related DTL (30% tax rate) $ 30
Net impact on gross Tier 1 capital $ 70 Report in item 2.9.
Also remove the above DTL impact from item 2.5.
Surpluses and deficits may not be netted across employer-sponsored defined benefit superannuation plans (refer AGN 111.4).
2.10 Deficit in any ADI-sponsored defined benefit superannuation plan not already reflected in Tier 1 capital
If there are any gross aggregate deficits on individual plans, these should be deducted to the extent not already reflected in gross Tier 1 capital at Level 1 / Level 2. Surpluses and deficits may not be netted across employer-sponsored defined benefit superannuation plans (refer AGN 111.4). For example:
Defined benefit deficit $100
Related DTA (30% tax rate) $ 30 Report in item 2.5
Net impact on gross Tier 1 capital $ 70 Report in item 2.10 if not already reflected in gross Tier 1 capital
DTA relating to defined benefit superannuation plan deficit will be reported as part of item 2.5 as a Tier 1 capital deduction.
2.11 Net unrealised fair value gains/(losses) from changes in the ADI’s own creditworthiness
Deduct/(add back) any unrealised fair value gains/(losses) included in gross Tier 1 capital arising from changes in the reporting ADI’s own creditworthiness (e.g. reduction in fair value of the ADI’s outstanding debt due to change in credit rating) at Level 1/Level 2.
2.12 Net unrealised gains/(losses) on effective cash flow hedges
Deduct any cumulative unrealised gains/(losses) on effective cash flow hedges reflected in retained earnings or reserves included in Tier 1 capital which do not offset gains or losses on reserves included in Tier 1 capital at Level 1/Level 2.
2.13 Other Tier 1 capital deductions as advised by APRA
Include any other Tier 1 capital deductions (refer APS 111), such as:
Revaluation movements of assets not held for trading purposes and passed through profit and loss
Deduct any revaluation of assets (including investment property) not held for trading purposes and passed through the profit and loss unless the revaluations are specifically permitted to be included in Tier 1 capital for the purposes of APS 111.
Amounts relating to General Reserve for Credit Losses not already charged against retained earnings
Deduct any amounts relating to the General Reserve for Credit Losses (net of any associated DTA) which have not already been charged against retained earnings.
Net fair value gains/(losses) relating to illiquid instruments
Deduct any fair value gains and add back any fair value losses relating to illiquid instruments[5] that are not eligible for inclusion in Tier 1 capital in accordance with APS 111 at Level 1/Level 2.
Net fair value gains/(losses) relating to loans and receivables
Deduct any fair value gains and add back any fair value losses relating to loans and receivables that are not eligible for inclusion in Tier 1 capital in accordance with APS 111 at Level 1/Level 2.
Portion of current year earnings or retained earnings which represents the ADI’s share of undistributed profit or loss of an associate/joint venture
Deduct any portion of current year earnings or retained earnings which represents any amount deriving from the ADI’s share of undistributed profit or loss in an associate/joint venture, under equity accounting. This amount should be included in Upper Tier 2 capital item 3.1.2.
Any negative movement over the amount of the respective revaluation reserves to the extent not already accounted for in current year earnings or retained earnings
If there is a deficit in the respective ARR that is:
(a) a result of negative movements; and
(b) not already accounted for in current year earnings or retained earnings;
deduct the deficit from Tier 1 capital.
Any impairment of an asset to the extent not already taken into account in profit and loss
For assets that do not have a corresponding ARR in Upper Tier 2 capital, deduct any impairment to the extent not already taken into account in profit and loss.
Any amounts included in revaluation reserves that would otherwise have been included in Tier 1 capital
Deduct any amounts included in revaluation reserves in Upper Tier 2 capital that would otherwise be included in Tier 1 capital.
Others
Any other deductions as advised by APRA.
2.14 Reduce amount of deductions by:
2.14.1 Other adjustments approved by APRA
Include any additions to Tier 1 capital or reduction in deductions that have been approved by APRA, including transition amounts affecting Tier 1 capital at Level 1/Level 2.
2.15 Total deductions from Tier 1 capital
Sum of deductions from Tier 1 capital items 2.1-2.13 less total amount of adjustments 2.14.1.
2.16 Eligible Tier 1 capital (net Tier 1 capital)
Eligible Tier 1 capital is equivalent to net Tier 1 capital as defined in APS 111: gross Tier 1 capital less total deductions from Tier 1 capital.
Eligible Tier 1 capital must constitute at least 50% of required capital base (refer APS 111).
Tier 2 capital
3.1 Upper Tier 2 capital
Include all items defined in APS 111 eligible for inclusion in Upper Tier 2 capital.
3.1.1 ARR
The amount recognised must be net of any fair value gains and losses and any gains or losses on hedges offsetting revaluations included in reserves.
Where a particular asset belongs to a class of assets for which ARR are included in Upper Tier 2 capital and the asset has been identified as impaired and losses arise, the losses may be offset against any existing revaluations of the asset or class of revalued assets.
If an ARR included in Upper Tier 2 capital is negative after adjustment for revaluations of assets included in the reserve, losses due to impairment of assets covered by the reserve and any gains or losses on hedges offsetting revaluations of assets included in the reserve, the amount of deficit in the reserve must be reported as a deduction from Tier 1 capital.
3.1.1.1 Owner-occupied property and investment property
3.1.1.2 Quoted readily marketable securities (designated as available for sale)
To be eligible for inclusion in Upper Tier 2 capital at Level 1 and Level 2, reserves arising from the revaluation of property (owner-occupied and investment property readily available to be sold)[6] and quoted readily marketable securities must satisfy the conditions set out in AGN 111.2 Tier 2 Capital (AGN 111.2). The amount of these reserves to be included in Upper Tier 2 is limited to 45% of pre-tax revaluation reserves and is net of fair value gains and losses and any fair value gains or losses on hedges offsetting revaluations included in reserves. (refer APS 111).
3.1.2 Eligible component of investments in associates/joint ventures/non-consolidated subsidiaries (Level 2) or 3.1.2. Eligible component of investments in associates/joint ventures/subsidiaries (Level 1)
To be eligible for inclusion in Upper Tier 2 capital at Level 1 and Level 2, reserves arising from the changes in value of the investments must satisfy the conditions set out in AGN 111.2. The amount recognised must be net of fair value gains and losses and any gains or losses on hedges offsetting revaluations of investments. For example:
Investment in associate at Year 0 $100
Share of profits in associate in Year 1 $ 15
Share of associate’s ARR in Year 1 $ 5
Report in Item 3.1.2. of ARF 110.0 $9 [i.e. 45% of $(15+5)]
Report in Item 32 of ARF 112.1 $109 [i.e. $100 + $9]
Note that any intangible component of investments will be deducted from Tier 1 capital. (Refer items 2.1 and 2.2).
Please also refer to specific capital rules in APS 111 covering deductions of investments in subsidiaries, deductions of equity investments in non-subsidiary entities that are not operating in the field of finance and deductions of equity and other capital investments in ADIs or equivalent overseas deposit-taking institutions (and their subsidiaries).
3.1.3 General Reserve for Credit Losses
The amount of General Reserve for Credit Losses (See APS 220 Credit Quality (APS 220) for definition of General Reserves for Credit Losses) to be included in Upper Tier 2 capital at Level 1 and Level 2 should be net of any associated DTA, and is limited to a maximum of 1.25% of total risk-weighted exposures (See AGN 110.4 Risk-based Capital Adequacy Framework for definition).
3.1.4 Perpetual cumulative preference shares
3.1.5 Mandatory convertible notes
3.1.6 Perpetual subordinated debt
3.1.7 Other Upper Tier 2 capital instruments
To be eligible as Upper Tier 2 capital at Level 1 and Level 2, these instruments must be perpetual and cumulative in nature and they must satisfy the criteria set out in AGN 111.2.
Item 3.1.7 includes shares issued after 1992 by way of a fully paid bonus issue arising from capitalisation of property revaluation reserves.
3.1.8 Excess Tier 1 capital instruments
Report any excess amounts of Residual Tier 1 capital ineligible for inclusion in Tier 1 capital due to APRA’s prescribed limit (refer APS 111).
3.1.9 Total Upper Tier 2 capital
The sum of Upper Tier 2 capital items 3.1.1-3.1.8.
3.1.10 Adjustments to Upper Tier 2 capital
Include other amounts required to be added to or deducted from Upper Tier 2 capital.
3.1.10.1 Net unrealised gains/(losses) on effective cash flow hedges
Deduct any cumulative unrealised gains and add back any unrealised losses on effective cash flow hedges which do not offset gains or losses on reserves included in Upper Tier 2 capital at Level 1 / Level 2.
3.1.10.2 Other adjustments approved by APRA
Include any additions or deductions to Upper Tier 2 capital that have been approved by APRA, including transition amounts affecting Upper Tier 2 capital at Level 1 / Level 2.
3.1.11 Deductions from Upper Tier 2 capital
3.1.11.1 Holdings of own Upper Tier 2 capital instruments and any unused trading limit agreed with APRA
Refer AGN 111.4.
3.1.12. Eligible Upper Tier 2 capital
Item 3.1.9, total Upper Tier 2 capital less item 3.1.10.1 Net unrealised gains/(losses) on effective cash flow hedges plus item 3.1.10.2. Other adjustments approved by APRA less item 3.1.11.1. Holdings of own upper tier 2 capital instruments and any unused trading limit agreed with APRA
3.2 Lower Tier 2 capital
Includes items defined in APS 111 eligible for inclusion in Lower Tier 2 capital.
3.2.1 Term subordinated debt
3.2.2 Limited life redeemable preference shares
3.2.3 Other Lower Tier 2 capital instruments
To be eligible as Lower Tier 2 capital at Level 1 and Level 2, these instruments must satisfy the criteria set out in AGN 111.2.
The amount of an instrument eligible for inclusion in Lower Tier 2 capital at Level 1 and Level 2 is to be amortised on a straight line basis at a rate of 20% per annum over the last 4 years to maturity as follows:
Years to maturity
Amount eligible for inclusion in Lower Tier 2 Capital
More than 4
100%
Less than and including 4 but more than 3
80%
Less than and including 3 but more than 2
60%
Less than and including 2 but more than 1
40%
Less than and including 1
20%
3.2.4 Total Lower Tier 2 capital
The sum of Lower Tier 2 capital items 3.2.1-3.2.3.
3.2.5 Adjustments to Lower Tier 2 capital
3.2.5.1 Other adjustments approved by APRA
Include any additions to or deductions from Lower Tier 2 capital that have been approved by APRA, including transition amounts affecting Lower Tier 2 capital at Level 1 / Level 2.
3.2.6 Deductions from Lower Tier 2 capital
3.2.6.1 Holdings of own Lower Tier 2 capital instruments and any unused trading limit agreed with APRA
Refer AGN 111.4.
3.2.7 Eligible Lower Tier 2 capital
The sum of item 3.2.4 total Lower Tier 2 capital and item 3.2.5.1. Other adjustments approved by APRA less item 3.2.6.1. Holdings of own Lower Tier 2 capital instruments and any unused trading limit agreed with APRA. The amount of Eligible Lower Tier 2 capital is limited to a maximum of 50% of Eligible Tier 1 capital.
3.3 Eligible Tier 2 capital
The sum of item 3.1.12 eligible Upper Tier 2 capital item plus item 3.2.7 Eligible Lower Tier 2 capital. The amount of eligible Tier 2 capital is limited to a maximum of 100 per cent of eligible Tier 1 capital.
Deductions from total capital
This section includes deductions required to be taken from the sum of total eligible Tier 1 and Tier 2 capital in accordance with APS 111.
4.1 Equity and other capital investments in other ADIs and equivalent overseas deposit-taking institutions (and their subsidiaries)
Deduct equity and other capital investments in other ADIs or equivalent overseas deposit-taking institutions (and their subsidiaries) at Level 1 and Level 2 except where:
(a) that other ADI or equivalent overseas deposit-taking institution is wholly owned or effectively controlled (whether directly or indirectly) by the reporting ADI, and has been consolidated with the reporting ADI at Level 2 for capital adequacy purposes; or
(b) the capital instruments of the other ADI or equivalent overseas deposit-taking institution are held for trading purposes, in which case they are to be included in the reporting ADI’s total risk-weighted exposures at Level 1 and Level 2 in accordance with Prudential Standard APS 113 Capital Adequacy: Market Risk (APS 113).
4.2 Equity and other capital investments in holding companies of ADIs (and equivalent entities overseas)
Deduct equity and other capital investments in holding companies of ADIs or equivalent entities overseas at Level 1/Level 2, unless these are held for trading purposes in which case they are to be included in the ADI’s total risk-weighted exposures at the respective level in accordance with APS 113.
4.3 Equity and other capital investments in non-consolidated subsidiaries and controlled entities (Level 2)
Deduct equity and other capital investments in non-consolidated subsidiaries or controlled entities (other than captive lenders mortgage insurers) after any intangible component of the investment is deducted from Tier 1 capital at Level 2 (refer AGN 110.2 Non-consolidated Subsidiaries and AGN 111.4). This deduction does not apply to a subsidiary holding company where it acts as a holding company for investments only in subsidiary ADIs or equivalent overseas deposit-taking institutions. (Refer APS 111.)
Other capital investments include debt capital instruments held and provision of any credit support of a capital nature (e.g. provision of a first loss guarantee).
4.4 Credit support of a capital nature provided to other entities outside the consolidated banking group at Level 2 (Level 2) or 4.3 credit support of a capital nature provided to other entities (Level 1)
Deduct any credit support of a capital nature provided to any entities (including non-related) at Level 1 or to entities that do not form part of the consolidated banking group at Level 2. This includes provision of a first loss guarantee, including any undertakings by the ADI to absorb designated first level of losses on claims supported by it. (First loss facilities associated with funds management and the securitisation of assets should be deducted in accordance with the requirements set out in APS 120.)
4.5 Non-repayable loans advanced by the ADI under APRA’s certified industry support arrangements (Level 2) or 4.4 non-repayable loans advanced by the ADI under APRA’s certified industry support arrangements (Level 1)
Deduct any non-repayable loans advanced by the reporting ADI to another ADI under APRA’s certified industry support arrangements at both Level 1 and Level 2.
4.6 Other capital deductions as advised by APRA (Level 2) or 4.5 other capital deductions as advised by APRA (Level 1)
Include other deductions from total capital advised by APRA.
4.7 Total deductions from total capital (Level 2) or 4.6 total deductions from total capital (Level 1)
Sum all deductions from total capital at Level 1 and Level 2.
Level 1 capital base or 5 Level 2 capital base
The sum of eligible Tier 1 and Tier 2 capital less deductions from total capital.
Memo item
6.1 Total General Reserve for Credit Losses net of associated DTA
Report the total amount of General Reserve for Credit Losses net of any associated DTA. These amounts should be reported irrespective of whether they are included in the capital base. (Refer APS 220.)
Note: The total General Reserve for Credit Losses reported under this memo item is not limited to 1.25 per cent of total risk-weighted exposures.
Section B: Risk profile
Credit risk category
This section allocates balance sheet amounts and the credit equivalent amounts of off-balance sheet business at Level 1 and Level 2 to individual credit risk-weight categories.
Column 1.1
Classifies the gross amounts of balance sheet assets (i.e. the principal amounts of on-balance sheet assets after adjustment for any accrued interest, revaluations, depreciation and specific provisions as appropriate) into risk weight categories, based on the nature of counterparty or the underlying collateral or guarantor where the balance sheet assets are secured against eligible collateral or guarantee recognised by APRA (see AGN 112.1 Risk-Weighted On-Balance Sheet Credit Exposures).
Column 1.2
Equals the reported figure in Column 1 multiplied by the applicable risk weight.
Column 2.1
Classifies the credit equivalent amounts (CEAs) of off-balance sheet business (including both market and non-market related transactions) into risk weight categories, based on the nature of the counterparty or the underlying collateral or guarantor where the CEAs of the off-balance sheet business are secured against eligible collateral or guarantee recognised by APRA (see AGN 112.2 Risk-Weighted Off-Balance Sheet Credit Exposures).
Column 2.2
Equals the reported figure in Column 2.1 multiplied by the applicable risk weight.
For each risk category, Column 3 equals the sum of Column 1.2 and Column 2.2.
Total credit risk
Is the sum of the assessed credit risk exposures (both on- and off-balance sheet).
Market risk charge
This item captures the market risk charge (for both specific and general market risk) as reported in Form ARF 113.0 Market Risk and is determined in accordance with the APS 113. For capital adequacy purposes, the reported amount must be adjusted by multiplying it by a constant factor of 12.5 (i.e. the reciprocal of the minimum capital ratio of 8%) to obtain an equivalent risk-weighted exposure. The resulting figure is then added to the total risk-weighted on and off balance sheet credit exposures, to derive the total risk-weighted exposures (i.e. the denominator of the capital ratio).
Other charges as required by APRA
Include other capital charges required by APRA. They should be converted to a measure consistent with other risk-weighted exposures.
Section C: Risk ratio
Capital adequacy ratio
This is calculated by dividing capital base by total risk-weighted exposures (i.e. the amount of capital base reported in Section A divided by the sum of total credit risk exposure, market risk charge and other charges as required by APRA reported in Section B).