Financial Sector (Collection of Data) (reporting standard) determination No. 23 of 2019
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These instructions are designed to assist in the completion of Reporting Form ARF 112.2A Standardised Credit Risk – Off-balance Sheet Exposures. This form captures an ADI’s off-balance sheet exposures under the standardised approach to credit risk. In completing this form, ADIs should refer to APS 112.
Terms highlighted in bold italics are defined in paragraph 17 of this Reporting Standard.
Reporting entity
This form must be completed at Level 1 and Level 2 by each ADI that:
(a) is applying the standardised approach to credit risk to all or part of the ADI’s off-balance sheet exposures for capital adequacy purposes (refer to APS 112 or APS 113); and
(b) is not a provider of purchased payment facilities or a Restricted ADI.
If an ADI is a subsidiary of an authorised NOHC, the report at Level 2 must be submitted by the ADI’s immediate parent NOHC.
A branch of a foreign bank is only required to complete column 1 Notional principal amount in all sections of this reporting form.
Application to an applicant IRB ADI
In the following cases an ADI (other than a branch of a foreign bank) must meet reporting requirements applicable to both an IRB ADI and a Standardised ADI:
(a) where the ADI is operating under the standardised approach to credit risk under APS 112, but has applied for IRB approval under APS 113; and
(b) where the ADI has received IRB approval under APS 113 in respect of most (but not all) of its operations, and has approval for partial use of the standardised approach under APS 112 for the remainder of its operations.
Such an ADI must report under ARF 112.2A (the form) as follows:
<table cellspacing="0" cellpadding="0" style="width:461.2pt; margin-bottom:0pt; border:0.75pt solid #000000; border-collapse:collapse"><tbody><tr><td style="width:144.9pt; border-right:0.75pt solid #000000; border-bottom:0.75pt solid #000000; padding-right:5.03pt; padding-left:5.03pt; vertical-align:top; background-color:#d9d9d9"><p class="BodyText1" style="margin-left:0pt; text-indent:0pt; text-align:left"><span style="font-weight:bold">Description of ADI</span></p></td><td style="width:293.95pt; border-left:0.75pt solid #000000; border-bottom:0.75pt solid #000000; padding-right:5.03pt; padding-left:5.03pt; vertical-align:top; background-color:#d9d9d9"><p class="BodyText1" style="margin-left:0pt; text-indent:0pt; text-align:left"><span style="font-weight:bold">Reporting requirement</span></p></td></tr><tr><td style="width:144.9pt; border-top:0.75pt solid #000000; border-right:0.75pt solid #000000; border-bottom:0.75pt solid #000000; padding-right:5.03pt; padding-left:5.03pt; vertical-align:top"><p style="text-align:justify"><span style="font-weight:bold; font-style:italic">ADI</span><span> is operating under APS 112 standardised approach, but has applied to adopt IRB approach for </span><span style="text-decoration:underline">all</span><span> its operations</span></p></td><td style="width:293.95pt; border-top:0.75pt solid #000000; border-left:0.75pt solid #000000; border-bottom:0.75pt solid #000000; padding-right:5.03pt; padding-left:5.03pt; vertical-align:top"><p class="BodyText1" style="margin-left:0pt; text-indent:0pt"><span>Report under the form (for purposes of calculating credit risk component of regulatory capital for all of its operations)</span></p></td></tr><tr><td rowspan="2" style="width:144.9pt; border-top:0.75pt solid #000000; border-right:0.75pt solid #000000; border-bottom:0.75pt solid #000000; padding-right:5.03pt; padding-left:5.03pt; vertical-align:top"><p class="BodyText1" style="margin-left:0pt; text-indent:0pt"><span style="font-weight:bold; font-style:italic">ADI</span><span> is operating under APS 112 standardised approach, but has applied to adopt IRB approach for </span><span style="text-decoration:underline">most (but not all)</span><span> of its operations (or </span><span style="font-weight:bold; font-style:italic">APRA</span><span> has indicated that it does not propose to grant IRB approval in respect of all of the </span><span style="font-weight:bold; font-style:italic">ADI’s</span><span> operations)</span></p></td><td style="width:293.95pt; border-top:0.75pt solid #000000; border-left:0.75pt solid #000000; border-bottom:0.75pt solid #000000; padding-right:5.03pt; padding-left:5.03pt; vertical-align:top"><p style="text-align:justify"><span>Report under the form (for purposes of calculating credit risk component of regulatory capital for all of its operations)</span></p></td></tr><tr><td style="width:293.95pt; border-top:0.75pt solid #000000; border-left:0.75pt solid #000000; border-bottom:0.75pt solid #000000; padding-right:5.03pt; padding-left:5.03pt; vertical-align:top"><p style="text-align:justify"><span>Separately report under the form in respect of assets that will remain under the standardised approach (i.e. partial use) after IRB approval given (for purposes of assessing prospective credit risk component of regulatory capital calculation after IRB approval (i.e. ‘parallel run’ of data)</span></p></td></tr><tr><td style="width:144.9pt; border-top:0.75pt solid #000000; border-right:0.75pt solid #000000; padding-right:5.03pt; padding-left:5.03pt; vertical-align:top"><p style="text-align:justify"><span style="font-weight:bold; font-style:italic">ADI</span><span> has IRB approval, but some operations remain under the standardised approach</span></p></td><td style="width:293.95pt; border-top:0.75pt solid #000000; border-left:0.75pt solid #000000; padding-right:5.03pt; padding-left:5.03pt; vertical-align:top"><p style="text-align:justify"><span>Report under the form in respect of operations that will remain under standardised approach (for purposes of calculating partial use credit risk component of regulatory capital)</span></p></td></tr></tbody></table>
Securitisation deconsolidation principle
Except as otherwise specified in these instructions, the following applies:
Where an ADI (or a member of its Level 2 consolidated group) participates in a securitisation that meets APRA’s operational requirements for regulatory capital relief under Prudential Standard APS 120 Securitisation (APS 120):
(a) special purpose vehicles (SPVs) holding securitised assets may be treated as non-consolidated independent third parties for regulatory reporting purposes, irrespective of whether the SPVs (or their assets) are consolidated for accounting purposes; and
(b) the assets, liabilities, revenues and expenses of the relevant SPVs may be excluded from the ADI’s reported amounts in APRA’s regulatory reporting returns.
Where an ADI (or a member of its Level 2 consolidated group) participates in a securitisation that does not meet APRA’s operational requirements for regulatory capital relief under APS 120, or the ADI undertakes a funding-only securitisation or synthetic securitisation, such assets are to be reported as on-balance sheet in APRA’s regulatory reporting returns.
Reporting basis and units of measurement
Report all items on ARF 112.2A in accordance with Australian Accounting Standards unless otherwise specified.
Items on ARF 112.2A must be completed as at the last day of the stated reporting period (i.e. the relevant quarter).
All items must be reported in Australian dollars (AUD) and in millions of dollars rounded to one decimal place for an ADI reporting category B and whole dollars with no decimal place for an ADI reporting category A.
An immediate parent NOHC must complete this form in AUD and in accordance with the same units as its subsidiary ADI.
Amounts denominated in foreign currency must be converted to AUD in accordance with AASB 121 The Effects of Changes in Foreign Exchange Rates.
Scope
The risk-weighting process used for measuring the off-balance sheet credit exposures of an ADI covers all or part of the ADI’s off-balance sheet exposures, including both market-related and non-market related transactions that are subject to the standardised approach to credit risk, except the following specifically excluded items:
(a) securitisation exposures, which are subject to the requirements of APS 120; and
(b) items subject to capital requirements under Prudential Standard APS 116 Capital Adequacy: Market Risk. However, the trading book exposures that expose the ADI to counterparty credit risk must be included in this form.
Specific instructions
Column 1
Report the notional principal amount. Absolute values should be reported.
Column 2
Report the CCF. CCFs are generally pre-defined in the form and correspond to the CCFs detailed in Attachment B of APS 112 for non-market-related and market-related off-balance sheet exposures. Where CCFs have not been pre-defined in the form, the ADI does not need to report a CCF as more than one CCF may have been used in relation to that exposure type (see the section below for column 3).
Column 3
Report the CEA.In relation to a non-market-related off-balance sheet transaction, CEA is calculated by multiplying the notional principal amount of a particular transaction by the relevant CCF.Generally, the CEA is a derived field in the form. In some cases, however, the CEA must be entered by the ADI. The CEA for some off-balance sheet exposure types may consist of several discrete exposures, each potentially attracting different CCFs. The ADI must, by reference to Attachment B of APS 112, determine the appropriate CCF(s) to be applied to the exposure(s) to calculate the CEA for that off-balance sheet exposure type and report the total as a single CEA.Credit derivative transactions in the banking book are classified as non-market-related off-balance sheet transactions.
Column 4
Report the RWE.The RWE amount for some off-balance sheet exposure types may consist of several discrete exposures, each potentially attracting different risk-weights. The ADI must, by reference to Attachment A of APS 112, determine the appropriate risk-weight(s) to be applied to the exposure(s) to calculate the RWE for that off-balance sheet exposure type and report the total as a single RWE amount.
Refer to Attachment B of APS 112 and Prudential Practice Guide APG 112 Standardised Approach to Credit Risk (APG 112) for further details of the definitions of the following non-market related transactions.
Item 1.1
Include:(a) potential credit exposures arising from the issue of guarantees and credit derivatives;(b) confirmation of letters of credit;(c) issue of standby letters of credit serving as financial guarantees for loans, securities and any other financial liabilities;(d) bills endorsed under bill endorsement lines; and(e) any other direct credit substitutes.
Item 1.2
Include:(a) issue of performance bonds;(b) bid bonds;(c) warranties;(d) indemnities; and(e) standby letters of credit in relation to a non-monetary obligation of a counterparty under a particular transaction.
Item 1.3
Include:(a) documentary letters of credit issued;(b) acceptances on trade bills;(c) shipping guarantees issued; and(d) any other trade-related contingencies.
Include any asset sales (to the extent that such assets are not included on-balance sheet) by an ADI where the holder of the asset is entitled to ‘put’ the asset back to the ADI within an agreed period or under certain prescribed circumstances, e.g. deterioration in the value or credit quality of the asset concerned.These transactions are risk-weighted according to the type of assets or the issuer of securities (as appropriate) and not according to the counterparty with whom the transaction is made, where the credit risk associated with the underlying asset which has been sold (temporarily with recourse) or purchased, remains with the ADI.
Item 1.6
Include:(a) commitments to purchase at a specified future date and on pre-arranged terms; and(b) a loan, security or other asset from another party, including written put options on specified assets with the character of a credit enhancement.Exclude written put options expressed in terms of market rates for currencies or financial instruments bearing no credit risk.
Item 1.7
Include:(a) any amounts owing on the uncalled portion of partly paid shares; and(b) securities held by an ADI that represent commitments with certain drawdown by the issuer at a future date.
Item 1.8
Include any amounts relating to placements of forward deposits. Placements of forward deposits include any agreement between an ADI and another party whereby the ADI will place a deposit at an agreed rate of interest with that party at a predetermined future date.
Item 1.9
Include any note issuance and underwriting facilities. These involve arrangements whereby a borrower may drawdown funds up to a prescribed limit over a predefined period by making repeated note issues to the market and where, should the issue prove unable to be placed in the market, the unplaced amount is to be taken up or funds made available by an ADI being committed as an underwriter of the facility.
Item 1.10
Include any other credit derivatives used by the ADI for acquiring credit risk exposure that are not already included in item 1.1.2 Credit derivatives – sold protection in the banking book.
Item 1.11
The guidance in this section is applicable to the following items:(a) 1.11.1 Commitments with certain drawdown;(b) 1.11.2 Commitments with an original maturity of one year or less;(c) 1.11.3 Commitments with an original maturity of over one year;(d) 1.11.4 Commitments that can be unconditionally cancelled at any time without notice; and(e) 1.11.5 Irrevocable standby commitments provided under APRA approved industry support arrangements.Where the non-market-related off-balance sheet transaction is an undrawn or partially undrawn facility, the ADI is to include the maximum unused portion of the commitment that could be drawn during the remaining period to maturity for the calculation of the CEA. Any drawn portion of a commitment forms part of an ADI’s on-balance sheet credit exposure.With regard to irrevocable commitments to provide off-balance sheet facilities, the original maturity will be measured from the commencement of the commitment up until the time the associated facility expires. For example, an irrevocable commitment, with an original maturity of six months, to provide finance with a nine-month term, is deemed to have an original maturity of 15 months.Irrevocable commitments to provide off-balance sheet facilities are to be assigned the lower of the two applicable CCFs. For example, an irrevocable commitment with an original maturity of six months to provide a guarantee in support of a counterparty for a period of nine months attracts the 50% CCF applicable to the commitment, as opposed to the 100% CCF applicable to the guarantee.Undrawn balances of revolving facilities (e.g. credit cards, overdrafts) are to be reported in item 1.11.4 Commitments that can be unconditionally cancelled at any time without notice.All commitments are to be included in the capital calculation regardless of whether or not they contain ‘material adverse change’ clauses or any other provisions that are intended to relieve an ADI of its obligations under certain conditions.
Item 1.12
Include any other non-market-related off-balance sheet transactions that give rise to credit risk but are not specifically identified in Attachment B of APS 112. For any such transaction, an ADI must consult APRA on the appropriate CCF to be used for calculating the CEA of that particular transaction for capital adequacy purposes (refer to Attachment B of APS 112).
Item 1.13
Derived field calculated as the sum of the CEA (column 3) and the RWE (column 4) for all of the different transaction types in section A of this form.
For a Standardised ADI, report the total RWE for market-related off-balance sheet credit exposures (including default risk RWE, trade exposure RWE and default fund RWE) plus 12.5 times the sum of CVA capital charge and default fund capital charge, all determined in accordance with APS 180.For an IRB ADI approved for ‘partial use’ in accordance with APS 113, report the total RWE for market-related off-balance sheet non-IRB credit exposures (including non-IRB default risk RWE, trade exposure RWE and default fund RWE) plus 12.5 times the sum of CVA capital charge and default fund capital charge, all determined in accordance with APS 180.
Section C: Total off-balance sheet risk-weighted credit exposures (non-market-related and market-related)
Item 3
Derived field calculated as the sum of the RWE (column 4) for all of the different transaction types in sections A and B of this form.