Financial Sector (Collection of Data) (reporting standard) determination No. 22 of 2008 - ARS 221.0 - Large Exposures
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Australian-owned banks, foreign subsidiary banks and branches of foreign banks are asked to complete the form(s) in millions of Australian dollars rounded to one decimal place, and for other non-bank ADIs (including SCCIs), 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).
The general requirements of AASB 121 for translation are:
foreign currency monetary items outstanding at the reporting date must be translated at the spot rate at the reporting date;[3]
foreign currency non-monetary items that are measured at historical cost in a foreign currency must be translated using the exchange rate at the date of the transaction;[4]
foreign currency non-monetary items that are measured at fair value will be translated at the exchange rate at the date when fair value was determined.
Transactions arising under foreign currency derivative contracts at the reporting date must be prepared in accordance with AASB 139 Financial Instruments: Recognition and Measurement (AASB 139). However, those foreign currency derivatives that are not within the scope of AASB 139 (e.g. some foreign currency derivatives that are embedded in other contracts) remain within the scope of AASB 121.
For APRA purposes equity items must be translated using the foreign currency exchange rate at the date of investment or acquisition. Post acquisition changes in equity are required to be translated on the date of the movement.
As foreign currency derivatives are measured at fair value, the currency derivative contracts are translated at the spot rate at the reporting date.
Exchange differences should be recognised in profit and loss in the period which they arise. For foreign currency derivatives, the exchange differences would be recognised immediately in profit and loss if the hedging instrument is a fair value hedge. For derivatives used in a cash flow hedge, the exchange differences should be recognised directly in equity.
The ineffective portion of the exchange differences in all hedges would be recognised in profit and loss; and
translation of financial reports of foreign operations.
A foreign operation is defined in AASB 121 as meaning an entity that is a subsidiary, associate, joint venture or branch of a reporting entity, the activities of which are based or conducted in a country or currency other than those of the reporting entity.
Exchange differences relating to foreign currency monetary items that form part of the net investment of an entity in a foreign operation, must be recognised as a separate component of equity.
Part Unit of measurement - Financial Sector (Collection of Data) (reporting standard) determination No. 22 of 2008 - ARS 221.0 - Large Exposures - Unit of measurement | Zoe
Translation of financial reports should otherwise follow the requirements in AASB 121.
Basis of preparation
For the purposes of this form, unless specifically advised in the ‘Instruction Guide for Specific Items’, ADIs are to report all exposures gross. No netting is to be recognised even if the ADI has in place netting agreements that are in the form of a legally recognised right to net or set off items of assets and liabilities in accordance with AASB 139, AASB 132 Financial Instruments: Disclosure and Presentation and AASB 7 Financial Instruments: Disclosures .
Definitions
This section provides guidance on the interpretation of certain items used in this form.
Licensed ADI (Level 1)
This refers to the operations of the reporting ADI on a stand-alone basis.
Consolidated banking group (Level 2)
For large exposure purposes, this is defined in accordance with APS 110 and refers to an ADI and all its subsidiaries (other than non-consolidated subsidiaries).
Consolidation at Level 2 should be conducted in accordance with Australian accounting standards. This should cover the global operations of an ADI and its subsidiary entities, including other controlled banking entities, securities entities and other financial entities (e.g. finance companies, money market corporations, stockbrokers and leasing companies), except for entities involved in the following business activities:
(a) insurance businesses (including friendly societies and health funds);
(b) acting as manager, responsible entity, approved trustee, trustee or similar role in relation to funds management or the securitisation of assets; and
(c) non-financial (commercial) operations; and/or
(d) SPVs vehicles whose assets have satisfied the clean sale requirements set down in APS 120.
Exposures
An ADI’s exposures to a counterparty or a group of related counterparties at Level 1/Level 2 is the aggregate of all claims, commitments and contingent liabilities arising from on and off-balance sheet transactions (in both the banking and trading books) with the counterparty or group of related counterparties (refer to paragraph 7 in Prudential Standard APS 221 Large Exposures (APS 221)).
Note: Where credit risk is unequivocally transferred from a counterparty to a third party by an irrevocable letter of credit or a direct guarantee, the exposure is to be recorded against the third party.
A group of related counterparties
For the purposes of this form, an ADI must treat entities as related where there is:
(a) a linkage by cross-guarantees;
(b) common ownership or management;
(c) ability to control;
(d) financial interdependency; or
(e) other connections which, in the ADI's assessment, would lead it to regard facilities it has provided to the various entities as representing a common risk.
Note: Family members are not to be treated as connected where they have independent retail relationships with the ADI at Level 1/Level 2 (although the ADI can choose to treat such exposures as connected should it consider appropriate to do so).
On-balance sheet exposures
This refers to items of assets that are recognised or recorded on the statement of financial position of the ADI at Level 1/Level 2.
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 at Level 1/Level 2 because they do not satisfy the asset or liability accounting recognition requirements. Items that were treated as Off-Balance Sheet items for the purpose of this form, pre-International Financial Reporting Standards (IFRS), will continue to be treated as Off-Balance Sheet items, post-IFRS.
Liability exposures
This refers to deposits; other borrowings; bonds, notes and long-term borrowings; and loan capital as per ARF 320.0 Statement of Financial Position (Domestic Books) (ARF 320.0) or ARF 323.0 Statement of Financial Position (Licensed ADI) (ARF 323.0), as appropriate. Exclude tradeable security issues.
Specific instructions
Licensed ADI
The licensed ADI form has the following reporting components:
Section A: Large exposures for locally incorporated banks
Section A is to be completed by all locally incorporated banks. Report in this section on a net basis (explained in detail below) the bank’s 10 largest exposures to a counterparty or a group of related counterparties unrelated to the bank at Level 1 and all those exposures that exceed or equal to 10% of the bank’s Level 1 capital base (as reported in ARF 110.0 for the same quarter).[5]
Section B: Large exposures for non-bank ADIs
Section B is to be completed by all non-bank ADIs (including locally incorporated SCCIs). Report in this section on a net basis (explained in detail below) the ADI’s 10 largest exposures to a counterparty or a group of related counterparties unrelated to the ADI at Level 1 and all those exposures that exceed or equal to 5% of the ADI’s Level 1 capital base (as reported in ARF 110.0 for the same quarter)
Section C: Large exposures for foreign ADIs/SCCI branches
Section C is to be completed by all foreign ADIs, and SCCIs that operate as branches in Australia. Report in this section on a net basis (explained in detail below) the 20 largest exposures of the Australian branch to a counterparty or a group of related counterparties unrelated to the foreign ADI or SCCI.[6]
Section D: Large liability exposures
Section D is to be completed by ADIs that are not subject to scenario analysis under Prudential Standard APS 210 Liquidity on a stand-alone basis. Report in this section all liability exposures to a counterparty or a group of related counterparties that exceed 5% of the ADI’s total liabilities (as reported in ARF 320.0 or ARF 323.0 for the same quarter as appropriate).
These reporting components are individually explained in detail below.
Consolidated group
The consolidated group form has the following reporting components:
Section A: Large exposures for locally incorporated banks
Section A is to be completed by all locally incorporated banks. Report in this section on a net basis (explained in detail below) the bank’s 10 largest exposures to a counterparty or a group of related counterparties unrelated to the bank at Level 2 and all those exposures that exceed or equal to 10% of the bank’s Level 2 capital base (as reported in ARF 110.0 for the same quarter).
Section B: Large exposures for non-bank ADIs
Section B is to be completed by all non-bank ADIs (including locally incorporated SCCIs). Report in this section on a net basis (explained in detail below) the ADI’s 10 largest exposures to a counterparty or a group of related counterparties unrelated to the ADI at Level 2 and all those exposures that exceed or equal to 5% of the ADI’s Level 2 capital base (as reported in ARF 110.0 for the same quarter).
These reporting components are individually explained in detail below.
Section A: Large exposures for locally incorporated banks
Section B: Large exposures for non-bank ADIs
Instructions for Section A and Section B for both the Licensed ADI form and the consolidated group form are set out below.
Column 1. Counterparty
Report in column 1 the names of the relevant individual counterparties to which the ADI has exposures to at Level 1/Level 2 (as appropriate). In the case of exposures to a group of related counterparties, the ADI’s aggregate exposure to the relevant group should be reported as one exposure and shown in the name of the principal counterparty.
Column 2. Category
Report in column 2 the category of the counterparty reported in column 1 using the following abbreviations:
G/CB/IO
Include:
Australian governments (Commonwealth, State, local) and foreign governments (central, state, local), Australian and foreign central banks, and other international organisations.
ADI
Include:
Australian ADIs and foreign equivalents (and their subsidiaries).
Note:
(1) Bills accepted by another ADI or foreign equivalent should be reported as an exposure to ADI.
(2) For foreign-owned locally incorporated ADIs (including SCCIs), report exposures to foreign (bank) parent(s) (including Australian and overseas branches), to the foreign parent’s overseas based subsidiaries and to their directly owned non-ADI entities operating in Australia in the memorandum items.
AO.
Include:
all other counterparties not classified above.
Column 3. On-balance sheet exposures
Include:
all loans and advances, holding of debt and equity securities, and all other claims on the counterparty or group of related counterparties reported in column 1. Any accrued income associated with the exposure should also be included (e.g. interest, dividends).
Report in column 3 the book value of all on-balance sheet exposures to the counterparty or group of related counterparties at Level 1/Level 2 (as appropriate) on a net basis. Net basis means net of exposures excluded under paragraphs 7(b)(i)-(vi) in APS 221, specifically:
exposures (e.g. claims or equity investments) deducted from the ADI’s Level 1/Level 2 capital (refer to 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 G to Prudential Standard APS 112 Capital Adequacy: Standardised Approach to Credit Risk (APS 112));
exposures to the extent that they are guaranteed by, or secured against securities issued by, governments or central banks (subject to satisfying the conditions set out in APS 112);
exposures arising in the course of settlement of market-related contracts;
exposures to an ADI required as part of a liquidity support arrangement that has been certified by APRA under section 11CB of the Banking Act 1959; and
exposures to the extent that they have been written off or specifically provided for.
Column 3.1 Loans (for Section B only)
Report in column 3.1 the book value of all loans and advances to the counterparty or group of related counterparties at Level 1/Level 2 (as appropriate) on a net basis. Include any accrued interest associated with the exposure.
Column 3.2 Other (for Section B only)
Report in column 3.2 the book value of all other on-balance sheet exposures (e.g. investment and liquidity exposures) to the counterparty or group of related counterparties at Level 1/Level 2 (as appropriate) on a net basis. Any accrued income associated with the exposure should also be included (e.g. interest, dividends).
Column 4. Off-balance sheet exposures
Column 4.1 Non-market related
Include:
all commitments, whether revocable or not, which have been advised to the counterparty or group of related counterparties reported in column 1 (refer to APS 112 for examples of these commitments). Any potential chargeback exposures to the counterparty or group of related counterparties (merchants) arising from credit card acquiring activities should also be included.
Exclude:
internal limits that have not been formally advised to the counterparty or group of related counterparties and may be cancelled at the ADI’s discretion at Level 1/Level 2 (as appropriate).
Report in column 4.1 the value of all unused commitments to the counterparty or group of related counterparties (do not apply credit conversion factors or risk weightings to the value) on a net basis (i.e. net of exposures excluded under paragraphs 7(b)(i)-(vi) in APS 221 as detailed in point 3 above).
ADIs that are engaged in credit card acquiring activities should use their own methodology in determining the amount of potential chargeback exposures to the counterparty (e.g. this could be based on the ADI’s historical trends of chargeback exposures to the counterparty). Any amount reported should be net of exposures excluded under paragraphs 7(b)(i)-(vi) in APS 221 as outlined in point 3 above. For SCCIs, any funds held as performance bond from merchants 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.
For large exposures reporting, credit derivatives should be reported in the same way as guarantees, irrespective of whether they are held in an ADI’s trading book or banking book. This means, where an ADI is deemed by the requirements set down in APS 112 as having purchased protection on an underlying exposure using a credit derivative, the exposure is to the protection seller of the credit derivative. Where an ADI has sold protection using a credit derivative, the exposure is to the reference entity underlying the credit derivative. In all cases, exposures are to be reported at their gross values, where gross value is the amount of the exposure as defined in APS 112. For credit derivatives in an ADI’s trading book, this requirement differs to APRA’s capital adequacy arrangements, which treat credit derivatives in the same way as market rate related transactions. The requirement is, however, consistent with how APRA requires other non-market rate related transactions to be incorporated into the large exposures reporting framework.
The treatment of large exposures where protection is purchased requires some additional clarification in a couple of instances. Where an ADI has purchased protection using a credit derivative and the residual maturity of the credit derivative contract is less than the maturity of the underlying asset, the exposure is to the protection seller for the term of the credit derivative hedge and to the underlying exposure thereafter. Amongst other requirements, the credit derivative would need to have a residual maturity of at least one year to be regarded by APRA as a sufficient hedge. In the case of currency mismatches, that is, where the underlying exposure and the credit derivative hedge are denominated in different currencies, the proportion of the underlying exposure transferred to the protection seller will be determined by the current market exchange rate.
The following table summarises the treatment of credit derivatives for large exposures reporting purposes.
all exposures arising from off-balance sheet market related contracts with the counterparty or group of related counterparties reported in column 1 at Level 1/Level 2 as appropriate (refer to APS 112 for examples of these contracts).[A1]
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 7(b)(i)-(vi) in APS 221 large exposures as detailed in point 3 above). The credit equivalent amounts of these contracts are to be calculated in accordance with APS 112 where netting applies. Netting by novation and close-out netting are permissible for market related contracts provided all the requirements set out in APS 112 for bilateral netting are met. Multilateral netting and netting of exposures against offsetting positions held by a group of related counterparties are not recognised.
Column 5. Total exposures
Column 5.1 Amount
For Section A, this represents the total of column numbers 3, 4.1 and 4.2. For Section B, this represents the total of column numbers 3.1, 3.2, 4.1 and 4.2.
Column 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’ (2.1).
Memorandum items
2.2 Capital base of licensed ADI/consolidated group (where applicable)
Report the ADI’s capital base at Level 1 and Level 2 as appropriate for the reporting quarter (as shown in ARF 110.0 for the same reporting quarter).
2.3 Aggregate exposure to non-deposit-taking subsidiaries of unrelated ADIs (including foreign equivalents)
For any reported exposures to an unrelated ADI (including foreign equivalent) and its subsidiaries at Level 1 and Level 2 listed in column 1, report the ADI’s aggregate exposure to the unrelated ADI’s non-deposit-taking subsidiaries, if any, in the memorandum item. For example, if the ADI has reported aggregate exposure to an unrelated ADI and its subsidiaries of $10 million, of which $2 million is to the unrelated ADI’s non-deposit-taking subsidiaries, report the $2 million exposure in the memorandum item for additional information purposes.
2.4 Aggregate exposure to foreign parents and their subsidiaries
Report the aggregate exposure to foreign (bank) parent(s) (including Australian and overseas branches), the foreign parent’s overseas based subsidiaries and their directly owned non-ADI entities operating in Australia.[7]
2.5 Five largest merchants by sales volume (for Section B only)
For SCCIs that undertake credit card acquiring activities, report the five largest merchant customers in terms of aggregate transaction dollar value acquired by the reporting institution over the reporting quarter.
Section C: Large exposures for foreign ADIs/SCCI branches
Column 1. Counterparty
Report in column 1 the names of the relevant individual counterparties to which the Australian branch has exposures to. In the case of exposures to a group of related counterparties, the branch’s aggregate exposure to the relevant group should be reported as one exposure and shown in the name of the principal counterparty.
Column 2. Category
Report in column 2 the category of the counterparty reported in column 1 using the following abbreviations:
G/CB/IO
Include:
Australian governments (Commonwealth, State, local) and foreign governments (central, state, local), Australian and foreign central banks, and other international organisations.
ADI
Include:
Australian ADIs and foreign equivalents (and their subsidiaries).
Note: Bills accepted by another ADI or foreign equivalent should be reported as an exposure to ADI.
AO
Include:
all other counterparties not classified above.
Column 3. On-balance sheet exposures
Include:
all loans and advances, holding of debt and equity securities, and all other claims on the counterparty or group of related counterparties reported in column 1. Any accrued income associated with the exposure should also be included (e.g. interest, dividends).
Report in column 3 the book value of all on-balance sheet exposures to the counterparty or group of related counterparties 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 APS 112);
exposures to the extent that they are guaranteed by, or secured against securities issued by, governments or central banks (subject to satisfying the conditions set out in APS 112);
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.
Column 4. Off-balance sheet exposures
Column 4.1 Non-market-related
Include:
all commitments, whether revocable or not, which have been advised to the counterparty or group of related counterparties reported in column 1 (refer to APS 112 for examples of these commitments). Any potential chargeback exposures to the counterparty or group of related counterparties (merchants) arising from credit card acquiring activities should also be included.
Exclude:
internal limits that have not been formally advised to the counterparty or group of related counterparties and may be cancelled at the branch’s discretion.
Report in column 4.1 the value of all unused commitments to the counterparty or group of related counterparties (do not apply credit conversion factors or risk weightings to the value) on a net basis (i.e. net of exposures detailed in point 3 above).
Foreign ADIs and SCCI branches that are engaged in credit card acquiring activities should use their own methodology in determining the amount of potential chargeback exposures to the counterparty (e.g. this could be based on the branch’s historical trends of chargeback exposures to the counterparty). Any amount reported should be net of exposures detailed in point 3 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.
For large exposures reporting, credit derivatives should be reported in the same way as guarantees, irrespective of whether they are held in an ADI’s trading book or banking book. This means, where an ADI is deemed by the requirements set down in APS 112 as having purchased protection on an underlying exposure using a credit derivative, the exposure is to the protection seller of the credit derivative. Where an ADI has sold protection using a credit derivative, the exposure is to the reference entity underlying the credit derivative. In all cases, exposures are to be reported at their gross values, where gross value is the amount of the exposure as defined in APS 112. For credit derivatives in an ADI’s trading book, this requirement differs to APRA’s capital adequacy arrangements, which treat credit derivatives in the same way as market rate related transactions. The requirement is, however, consistent with how APRA requires other non-market rate related transactions to be incorporated into the large exposures reporting framework.
The treatment of large exposures where protection is purchased requires some additional clarification in a couple of instances. Where an ADI has purchased protection using a credit derivative and the residual maturity of the credit derivative contract is less than the maturity of the underlying asset, the exposure is to the protection seller for the term of the credit derivative hedge and to the underlying exposure thereafter. Amongst other requirements, the credit derivative would need to have a residual maturity of at least one year to be regarded by APRA as a sufficient hedge. In the case of currency mismatches, that is, where the underlying exposure and the credit derivative hedge are denominated in different currencies, the proportion of the underlying exposure transferred to the protection seller will be determined by the current market exchange rate.
The following table summarises the treatment of credit derivatives for large exposures reporting purposes.
all exposures arising from off-balance sheet market related contracts with the counterparty or group of related counterparties reported in column 1 (refer to APS 112 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 detailed in point 3 above). The credit equivalent amounts of these contracts are to be calculated in accordance with APS 112 where netting applies. Netting by novation and close-out netting are permissible for market related contracts provided all the requirements set out in APS 112 for bilateral netting are met. Multilateral netting and netting of exposures against offsetting positions held by a group of related counterparties are not recognised.
Column 5. Total exposures
This represents the total of column numbers 3, 4.1 and 4.2.
Memorandum item
2.1 Five largest merchants by sales volume
For SCCI branches that undertake credit card acquiring activities, report the five largest merchant customers in terms of aggregate transaction dollar value acquired by the reporting institution over the reporting quarter.
Section D: Large liability exposures
Column 1. Counterparty
Report in column 1 the names of the relevant individual counterparties or group of related counterparties to which the ADI has liability exposure concentration. In the case of exposures to a group of related counterparties, the ADI’s aggregate exposure to the relevant group should be reported as one exposure and shown in the name of the principal counterparty.
Column 2. Deposits
Include:
total deposits held for the counterparty or group of related counterparties reported in column 1. Deposits are defined as per ARF 320.0 or ARF 323.0 as appropriate.
Exclude:
tradeable security issues.
Column 3. Other borrowings, bonds, notes and long-term borrowings, and loan capital
Include:
total “Other borrowings”, “Bonds, notes and long-term borrowings”, and “Loan capital” (defined as per ARF 320.0 or ARF 323.0 as appropriate) due to the counterparty or group of related counterparties reported in column 1.