Financial Sector (Collection of Data) determination No. 65 of 2005 Reporting Standard ARS 110.0 (2005) Capital Adequacy (Cth)

Financial Sector (Collection of Data) determination No. 65 of 2005

Reporting Standard ARS 110.0 (2005)

Financial Sector (Collection of Data) Act 2001

I, Wayne Stephen Byres, a delegate of APRA, under paragraph 13(1)(a) of the Financial Sector (Collection of Data) Act 2001 (‘the Act’) MAKE the reporting standard set out in the Schedule, which applies to the financial sector entities referred to in paragraph 2 of the reporting standard.
Under section 15 of the Act, I DECLARE that the reporting standard shall begin to apply those financial sector entities on the date of registration on the Federal Register of Legislative Instruments.
Dated 27 July 2005
[Signed]
Wayne Byres
Executive General Manager
Diversified Institutions Division
APRA
Interpretation

In this Notice

APRA means the Australian Prudential Regulation Authority.

Schedule

Reporting Standard ARS 110.0 (2005)

Capital Adequacy
Objective of this reporting standard
This reporting standard is made under section 13 of the Financial Sector (Collection of Data) Act 2001 (the Collection of Data Act). It requires all authorised deposit-taking institutions (ADIs) that are locally-incorporated to report to APRA, generally on a quarterly basis, in relation to their capital adequacy.
This reporting standard outlines the overall requirements for the provision of relevant information to APRA. It should be read in conjunction with:

the versions of Form ARF 110.0 Capital Adequacy (Form ARF 110.0) designated for a ‘Licensed ADI’ and ‘Consolidated Group’, and the associated instructions (all of which are attached and form part of this reporting standard); and
·Prudential Standard APS 110 Capital Adequacy and Prudential Standard APS 111 Capital Adequacy: Measurement of Capital and Guidance Notes AGN 110.1, AGN 110.2, AGN 110.3 and AGN 110.4.
Purpose

Data collected in Form ARF 110.0 is used by APRA for the purpose of prudential supervision, including assessing compliance with Prudential Standard APS 110 Capital Adequacy and Prudential Standard APS 111 Capital Adequacy: Measurement of Capital. It may also be used by the Reserve Bank of Australia and the Australian Bureau of Statistics.
Application and commencement
This reporting standard will apply, from the date of registration on the Federal Register of Legislative Instruments, to all locally-incorporated ADIs.
Information required
A locally-incorporated ADI must provide APRA with the information required by the version of Form ARF 110.0 designated for a ‘Licensed ADI’ for each reporting period.
A locally-incorporated ADI that is a highest parent entity in relation to a consolidated ADI group must also provide APRA with the information required by the version of Form ARF 110.0 designated for a ‘Consolidated Group’ for each reporting period.
Forms and method of submission
The information required by this reporting standard must be given to APRA either:
(a)in electronic form, using one of the electronic submission mechanisms provided by the ‘Direct to APRA’ (also known as ‘D2A’) application; or
(b)manually completed on paper, which must be faxed or mailed to APRA’s head office.
Note: the Direct to APRA application software and paper forms may be obtained from APRA.
Reporting periods and due dates
Subject to paragraph 7, a locally-incorporated ADI must provide the information required by this reporting standard for each quarter based on the financial year (within the meaning of the Corporations Act 2001) of the ADI.
APRA may, by notice in writing, change the reporting periods, or specified reporting periods, for a particular ADI, to require it to provide the information required by this reporting standard more frequently, or less frequently, having regard to:
(a)the particular circumstances of the ADI;
(b)the extent to which the information is required for the purposes of the prudential supervision of the ADI; and
(c)the requirements of the Reserve Bank of Australia or the Australian Bureau of Statistics.
The information required by this reporting standard must be provided to APRA by the following times:

(a) in the case of information required by paragraphs 3 and 4 from a locally-incorporated bank or locally-incorporated special service provider – 20 business days after the end of the reporting period to which the information relates; and
(b) in the case of information required by paragraphs 3 and 4 from a locally incorporated credit union, locally-incorporated building society, locally-incorporated specialist credit card institution or Cairns Penny Savings & Loans Limited – 15 business days after the end of the reporting period to which the information relates.

APRA may grant an ADI an extension of a due date in writing, in which case the new due date for the provision of the information will be the date on the notice of extension.
Quality control
The information provided by an ADI under this reporting standard (except for the information required under paragraph 4) must be the product of processes and controls that have been reviewed and tested by the external auditor of the ADI. AGS 1008 ‘Audit Implications of Prudential Reporting Requirements for Authorised Deposit-taking Institutions’, issued by the Auditing and Assurances Standards Board of the Australian Accounting Research Foundation, provides guidance on the scope and nature of the review and testing required from external auditors. This review and testing must be done on an annual basis or more frequently if necessary to enable the external auditor to form an opinion on the accuracy and reliability of the data.
All information provided by an ADI under this reporting standard must be subject to processes and controls developed by the ADI for the internal review and authorisation of that information. It is the responsibility of the board and senior management of the ADI to ensure that an appropriate set of policies and procedures for the authorisation of data submitted to APRA is in place.
Authorisation
If an ADI submits information under this reporting standard using the ‘Direct to APRA’ software, it will be necessary for an officer of the ADI to digitally sign, authorise and encrypt the relevant data. For this purpose, APRA’s certificate authority will issue ‘digital certificates’, for use with the software, to officers of the ADI who have authority from the ADI to transmit the data to APRA.
If information under this reporting standard is provided in paper form, it must be signed on the front page of the relevant completed form by either:

(a) the Principal Executive Officer of the ADI; or
(b) the Chief Financial Officer of the ADI (whatever his or her official title may be).
Minor alterations to forms and instructions

APRA may make minor variations to:

(a) a form that is part of this reporting standard, and the instructions to such a form, to correct technical, programming or logical errors, inconsistencies or anomalies; or
(b) the instructions to a form, to clarify their application to the form
without changing any substantive requirement in the form or instructions.

If APRA makes such a variation it must notify in writing each ADI that is required to report under this reporting standard.
Transitional
If the due date for lodgement in respect of a reporting period is a day after the date of registration of this reporting standard on the Federal Register of Legislative Instruments, an ADI must report under this reporting standard in respect of that reporting period (including where the reporting period ended before the date of registration).
Interpretation - classifications of ADIs
In this reporting standard:
Accounting Standard AASB 1024 means the accounting standard so designated made by the Australian Accounting Standards Board, being the accounting standard that applied in respect of reporting periods (within the meaning of the accounting standard) commencing immediately before 1 January 2005.
ADI means an authorised deposit-taking institution within the meaning of the Banking Act 1959.
ADI list means the attached ADI list.
building society means an ADI whose name appears under the heading ‘Building Societies’ in the ADI list.
consolidated ADI group means a group comprising:

(a)      an ADI that is a highest parent entity; and
(b)      each subsidiary (within the meaning of Accounting Standard AASB 1024) of that ADI, whether the subsidiary is locally-incorporated or not, other than a subsidiary that is excluded by the instructions attached to this standard.
credit union means an ADI whose name appears under the heading ‘Credit Unions’ in the ADI list.
highest parent entity means an ADI that satisfies all of the following conditions:
(a)      it is locally-incorporated;
(b)      it has at least one subsidiary (within the meaning of Accounting Standard AASB 1024); and
(c)      it is not itself a subsidiary (within the meaning of Accounting Standard AASB 1024) of an ADI that is locally-incorporated.
locally-incorporated means, subject to paragraph 18, incorporated in Australia.
locally-incorporated bank means, subject to paragraph 18, an ADI whose name appears under the heading ‘Australian-owned Banks’ or ‘Foreign Subsidiary Banks’ in the ADI list.
special service provider means an ADI whose name appears under the heading ‘Other ADIs’ in the ADI list (other than Cairns Penny Savings & Loans Limited).
specialist credit card institution means an ADI whose name appears under the heading ‘Specialist Credit Card Institutions (SCCIs)’ in the ADI list.

For the purposes of this reporting standard, Bank of China is taken to be a locally-incorporated ADI and a locally-incorporated bank.
If an ADI is not in the ADI list, then:

(a)      if the ADI assumes or uses the word ‘bank’ in relation to its financial business, and it is locally-incorporated, it is taken to be a locally-incorporated bank for the purposes of this reporting standard;
(b)     if the ADI assumes or uses the expression ‘building society’ in relation to its financial business, and it is locally-incorporated, it is taken to be a locally-incorporated building society for the purposes of this reporting standard;
(c)      if the ADI assumes or uses the expression ‘credit union’, ‘credit society’ or ‘credit co-operative’ in relation to its financial business, and it is locally-incorporated, it is taken to be a locally-incorporated credit union for the purposes of this reporting standard; and
(d) if the ADI engages in credit card issuing or credit card acquiring, or both, and does not otherwise carry on banking business within the meaning of section 5 of the Banking Act 1959, and is locally-incorporated, it is taken to be a locally-incorporated specialist credit card institution for the purposes of this reporting standard.

APRA may in writing determine that an ADI is taken to be a locally-incorporated bank, locally-incorporated building society, locally-incorporated credit union, locally-incorporated special service provider or locally-incorporated specialist credit card institution for the purposes of this reporting standard (even if, under paragraph 17, 18 or 19, it comes within a different classification).

Interpretation - other definitions
In this reporting standard:
business days means ordinary business days, exclusive of Saturdays, Sundays and public holidays.
Principal Executive Officer means the principal executive officer of the ADI for the time being, by whatever name called, and whether or not he or she is a member of the governing board of the entity.
reporting period means a reporting period under paragraph 6 or, if applicable, paragraph 7.

The ADI list
Australian-owned Banks

Adelaide Bank Limited
AMP Bank Limited
Australia and New Zealand Banking Group Limited
Bank of Queensland Limited
Bendigo Bank Limited
Commonwealth Bank of Australia
Commonwealth Development Bank of Australia Limited (a subsidiary of Commonwealth Bank of Australia)
Elders Rural Bank Limited
Macquarie Bank Limited
Members Equity Bank Pty Limited
National Australia Bank Limited
St George Bank Limited
Suncorp-Metway Limited
Westpac Banking Corporation
Foreign Subsidiary Banks
Arab Bank Australia Limited
Bank of Cyprus Australia Pty Limited
BankWest (the trading name of Bank of Western Australia Limited, a foreign subsidiary bank following its sale to Bank of Scotland in December 1995)
Citibank Pty Limited (a subsidiary of Citibank N.A.)
HSBC Bank Australia Limited
ING Bank (Australia) Limited
Investec Bank (Australia) Limited
Laiki Bank (Australia) Limited
NM Rothschild & Sons (Australia) Limited
Rabobank Australia Limited (a subsidiary of Rabobank Nederland from October 1994)
Branches of Foreign Banks
ABN AMRO Bank N.V.
Bank of America, National Association
Bank of China (subject to depositor protection provisions of the Banking Act 1959)
Bank of Tokyo-Mitsubishi, Ltd
Barclays Capital (the trading name of Barclays Bank plc)
BNP Paribas
Citibank N.A.
Credit Suisse
Deutsche Bank AG
HSBC Bank plc
ING Bank NV
JPMorgan Chase Bank, National Association
Mizuho Corporate Bank, Ltd
Oversea-Chinese Banking Corporation Limited
Rabobank Nederland (the trading name of Co-operative Central Raiffeisen-Boerenleenbank B.A.)
Royal Bank of Canada
Société Générale
Standard Chartered Bank
State Bank of India
State Street Bank and Trust Company
The International Commercial Bank of China
The Royal Bank of Scotland Plc
The Toronto-Dominion Bank
Taiwan Business Bank
UBS AG
United Overseas Bank Limited
WestLB AG
Building Societies
ABS Building Society Ltd
B & E Ltd
Greater Building Society Ltd
Heritage Building Society Limited
Home Building Society Ltd
Hume Building Society Ltd
IMB Ltd
Lifeplan Australia Building Society Limited
Mackay Permanent Building Society Ltd
Maitland Mutual Building Society Limited
Newcastle Permanent Building Society Ltd
Pioneer Permanent Building Society Limited
The Rock Building Society Limited
Wide Bay Australia Ltd
Credit Unions
Amcor Credit Co-operative Limited
AMP Employees' & Agents Credit Union Limited
Austral Credit Union Limited
Australian Central Credit Union Limited
Australian Defence Credit Union Ltd
Australian National Credit Union Limited
AWA Credit Union Limited
Bananacoast Community Credit Union Ltd
Bankstown City Credit Union Ltd
Berrima District Credit Union Ltd
Big River Credit Union Ltd
Big Sky Credit Union Ltd
Blue Mountains and Riverlands Community Credit Union Ltd
Broadway Credit Union Ltd
Calare Credit Union Ltd
Capital Credit Union Ltd
Capricornia Credit Union Ltd
Carboy (SA) Credit Union Limited
Central Murray Credit Union Limited
Central West Credit Union Limited
Circle Credit Co-operative Limited
Coastline Credit Union Limited
Collie Miners Credit Union Ltd
Combined Australian Petroleum Employees' Credit Union Ltd
Community Alliance Credit Union Limited
Community First Credit Union Limited
Companion Credit Union Limited
Comtax Credit Union Limited
Connect Credit Union of Tasmania Limited
Country First Credit Union Ltd
CPS Credit Union (SA) Ltd
CPS Credit Union Co-operative (ACT) Limited
Credit Union Australia Ltd
Credit Union Home Loans Australia Limited
Credit Union Incitec Pivot Limited
Croatian Community Credit Union Limited
CSR and Rinker Employees Credit Union Limited
Dairy Farmers Credit Union Ltd
Dana Employees Credit Union
Defence Force Credit Union Limited
Discovery Credit Union Ltd
Dnister Ukrainian Credit Co-operative Limited
ELCOM Credit Union Ltd
Electricity Credit Union Ltd
Encompass Credit Union Limited
Ericsson Employees Credit Co-operative Limited
Esso Employees' Credit Union Ltd
Eurobodalla Credit Union Ltd
Family First Credit Union Limited
Fire Brigades Employees' Credit Union Limited
Fire Service Credit Union Limited
Firefighters & Affiliates Credit Co-operative Limited
First Pacific Credit Union Limited
Fitzroy & Carlton Community Credit Co-operative Limited
Flying Horse Credit Union Co-operative Limited
Ford Co-operative Credit Society Limited
Gateway Credit Union Ltd
Geelong & District Credit Co-operative Society Limited
GMH (Employees) Q.W.L. Credit Co-operative Limited
Goldfields Credit Union Ltd
Gosford City Credit Union Ltd
Goulburn Murray Credit Union Co-operative Limited
H.M.C. Staff Credit Union Ltd
Heritage Isle Credit Union Limited
Hibernian Credit Union Limited
Holiday Coast Credit Union Ltd
Horizon Credit Union Ltd
Hoverla Ukrainian Credit Co-operative Ltd
Hunter Mutual Limited
Hunter United Employees' Credit Union Limited
Industries Mutual Credit Union Limited
Intech Credit Union Limited
Island State Credit Union Ltd
Karpaty Ukrainian Credit Union Limited
La Trobe Country Credit Co-operative Limited
La Trobe University Credit Union Co-operative Limited
Laboratories Credit Union Ltd
Latvian Australian Credit Co-operative Society Limited
Lithuanian Co-operative Society (Talka) Limited
Lysaght Credit Union Ltd
M.S.B. Credit Union Limited
MacArthur Credit Union Ltd
Macaulay Community Credit Co-operative Limited
Macquarie Credit Union Limited
Maleny and District Community Credit Union Limited
Manly Warringah Credit Union Ltd
Maritime Workers of Australia Credit Union Ltd
Maroondah Credit Union Ltd
MECU Limited
Media Credit Union Queensland Ltd
Melbourne University Credit Union Limited
Memberfirst Credit Union Limited
N.R.M.A. Employees' Credit Union Ltd
NACOS Credit Union Limited
New England Credit Union Ltd
Newcom Colliery Employees' Credit Union Ltd
North East Credit Union Co-operative Limited
Northern Inland Credit Union Ltd
Nova Credit Union Limited
NSW Teachers Credit Union Ltd
Old Gold Credit Union Co-operative Limited
Orana Credit Union Ltd
Orange Credit Union Limited
Phoenix (NSW) Credit Union Ltd
Pinnacle Credit Union Limited
Plenty Credit Co-operative Limited
Police & Nurses Credit Society Limited
Police Association Credit Co-operative Limited
Police Credit Union Limited
Polish Community Credit Union Ltd
Power Credit Union Limited
Powerstate Credit Union Ltd
Prospect Credit Union Limited
Pulse Credit Union Limited
Qantas Staff Credit Union Limited
Queensland Community Credit Union Limited
Queensland Country Credit Union Ltd
Queensland Police Credit Union Limited
Queensland Professional Credit Union Ltd
Queensland Teachers' Credit Union Limited
Queenslanders Credit Union Limited
RACV Credit Union Limited
Railways Credit Union Limited
Randwick Credit Union Limited
RegionalOne Credit Union Limited
Reliance Credit Union Ltd
Resources Credit Union Limited
RTA Staff Credit Union Limited
Satisfac Direct Credit Union Limited
Savings and Loans Credit Union (S.A.) Ltd
Security Credit Union Ltd
Select Credit Union Ltd
Service One Credit Union Ltd
SGE Credit Union Ltd
Shell Employees' Credit Union Limited
Shoalhaven Paper Mill Employee's Credit Union Ltd
South West Slopes Credit Union Ltd
Southern Cross Credit Union Limited
South-West Credit Union Co-operative Limited
St Mary's Swan Hill Co-operative Credit Society Limited
St Patrick's Mentone Co-operative Credit Society Limited
Statewest Credit Society Limited
Sutherland Credit Union Ltd
Sutherland Shire Council Employees' Credit Union Ltd
Sydney Credit Union Ltd
TAB Credit Union Limited
Tartan Credit Union Ltd
The Broken Hill Community Credit Union Ltd
The Gympie Credit Union Ltd
The Police Department Employees' Credit Union Limited
The Summerland Credit Union Limited
The TAFE and Community Credit Union Limited
The University Credit Society Limited
Traditional Credit Union Limited
TransComm Credit Co-operative Limited
Uni Credit Union Ltd
United Credit Union Limited
Victoria Teachers Credit Union Limited
Wagga Mutual Credit Union Ltd
Warwick Credit Union Ltd
WAW Credit Union Co-operative Limited
Westax Credit Society Ltd
Western City Credit Union Ltd
Woolworths/Safeway Employees' Credit Co-operative Limited
Wyong Council Credit Union Ltd
Yennora Credit Union Ltd
Specialist Credit Card Institutions (SCCIs)
Foreign-owned SCCIs
GE Capital Finance Australia
GE Finance Australasia Pty Ltd
Locally Incorporated SCCIs
MoneySwitch Limited
Other ADIs
These companies are run by industry bodies and provide services (e.g. payments clearing) to member building societies and credit unions.

Australian Settlements Limited
Credit Union Services Corporation (Australia) Limited
Creditlink Services Limited
One ADI that provides general banking services which does not fall into the other categories.
Cairns Penny Savings & Loans Limited

Reporting Form ARF 110.0
Capital Adequacy
Instruction Guide
The Capital Adequacy form sets out the means of calculating an ADI’s capital ratios at the stand-alone and consolidated banking group level. In completing this form, reference should be made to Prudential Standard APS 110 Capital Adequacy and Prudential Standard APS 111 Capital Adequacy: Measurement of Capital and their accompanying Guidance Notes.
General directions and notes
Reporting entity
The Capital Adequacy 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.
[1]For the purpose of this reporting form, foreign ADI has the meaning given in Division IB of Part II of the Banking Act 1959 (accordingly, Bank of China is not to be treated as a foreign ADI).
Licensed ADI
This refers to the operations of the reporting ADI at Level 1 (i.e. the stand-alone level) defined in accordance with Prudential Standard APS 110 Capital Adequacy.
Consolidated ADI group
This refers to the consolidated group of the reporting ADI at Level 2 (i.e. the consolidated banking group level) defined in accordance with Prudential Standard APS 110 Capital Adequacy.
The basis of consolidation required in this form is in accordance with the prudential Consolidated ADI Group. The prudential consolidated group should also be determined in accordance with Australian accounting standards, notably AASB 1024 ‘Consolidated Accounts’ with the following modifications:

Include the following:

all controlled banking entities, securities entities and other financial entities (e.g. finance companies, money market corporations, stockbrokers and leasing companies).

Exclude subsidiary 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.
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 Special Service Providers 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 Specialist Credit Card Institutions (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. Special Service Providers, 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 1012 ‘Foreign Currency Translation’.
The general requirements of AASB 1012 for translation are:

Foreign currency monetary items outstanding at the reporting date must be translated at the spot rate at the reporting date.
Other items outstanding at the reporting date must not be retranslated subsequent to initial recognition of the transaction.
Monetary items are defined to mean money held and assets and liabilities that are to be received or paid in fixed or determinable amounts of money.
Monetary items arising under foreign currency derivative contracts at the reporting date must be translated as follows:

Where the exchange rate is fixed in the contract, at that fixed exchange rate; and
Where the exchange rate varies, at the spot rate at the reporting date.

Specific instructions
The following instructions are applicable to both the Capital Adequacy (Licensed ADI) form and the Capital Adequacy (Consolidated Group) form (where relevant).
Section A: Capital base
For capital instruments issued at a discount or in a partly paid form, only the net proceeds of such an issue are counted as capital.

Tier 1 capital
Capital profits reserve
Include realised gains on the disposal of revalued assets that have not been transferred from the Asset Revaluation Reserve to Retained Earnings.
Foreign currency translation reserve
Include the exchange rate differences arising on translation of assets and liabilities in accordance with AASB 1012.
Current year’s earnings net of expected dividends and tax expenses
Report current year’s profits (or losses) net of estimated tax obligations and dividend payments (after adjustment for any dividend reinvestment plan) at Level 1/Level 2 (as appropriate).
Minority interests in Tier 1 capital of subsidiaries
Include any minority interests in Tier 1 capital of subsidiaries on consolidation at Level 2.
Non-cumulative irredeemable preference shares
To be eligible for inclusion in Tier 1 capital at Level 1/Level 2 (as appropriate), these shares must satisfy the criteria set out in Guidance Note AGN 111.1 Tier 1 Capital.
Innovative Tier 1 capital instruments approved by APRA
Include capital instruments (other than ordinary shares and non-cumulative irredeemable preference shares) that APRA has agreed to count as part of Tier 1 capital at Level 1/Level 2 (as appropriate).
Note: A capital instrument is not eligible for inclusion in Tier 1 capital (before deductions), whether at Level 1 or Level 2, to the extent that its inclusion will result in the aggregate amount of non-cumulative irredeemable preference shares and innovative Tier 1 capital instruments exceeding 25% of the sum of all the other Tier 1 capital components. Any excess amounts ineligible for inclusion as Tier 1 capital as a result of this limit are to be included in Upper Tier 2 capital.
Deductions from Tier 1 capital
Goodwill
Deduct goodwill paid on equity investments in subsidiaries on consolidation at Level 2. Goodwill (determined in accordance with AASB 1013 ‘Accounting for Goodwill’) represents the excess of the cost of acquisition over the fair value of the net tangible assets of the acquired entity at the time of acquisition.
Intangible component of investments in subsidiaries and other entities
Deduct the intangible component of investments (e.g. purchased goodwill) in subsidiaries and other entities at Level 1 (see paragraph 2 in Guidance Note AGN 111.4 Capital Deductions).
Intangible component of investments in non-consolidated subsidiaries and other non-Level 2 entities
Deduct the intangible component of investments (e.g. purchased goodwill) in non-consolidated subsidiaries (see Guidance Note AGN 110.2 Non-consolidated Subsidiaries) and other entities that do not form part of the consolidated banking group at Level 2 (see paragraphs 2 and 3 in Guidance Note AGN 111.4 Capital Deductions).
Other intangible assets
Deduct all other intangible assets at Level 1/Level 2 (as appropriate). Exclude hardware and software costs.
Refer paragraph 5 Guidance Note AGN 111.4 Capital Deductions effective 1 July 2004 for required treatment of specific items below:
Detail separately:

Loan and lease origination fees and commissions paid to mortgage originators and brokers;
Securitisation establishment costs;
Costs associated with debt raisings/fundings; and
Other capitalised expenses of a general nature e.g. strategic business development initiatives.
Other intangible assets:
Show other intangible assets not reported above e.g. brand names, contractual rights not Goodwill, hardware and software costs.
Future income tax benefits
The amount of future income tax benefits (other than those associated with general provisions for doubtful debts) to be deducted from Tier 1 capital at Level 1 and Level 2 should be net of any provision for deferred income tax liabilities. Where the provision for deferred income tax liabilities exceeds the amount of future income tax benefits, the excess cannot be added to Tier 1 capital (i.e. the net deduction is zero).
Holdings of own Tier 1 capital instruments and any unused trading limit agreed with APRA
See paragraph 4 in Guidance Note AGN 111.4 Capital Deductions.
Equity and other capital investments in associated lenders mortgage insurers (Level 1)
Equity and other capital investments in non-consolidated captive lenders mortgage insurers (Level 2)
Deduct all equity and other capital investments in captive lenders mortgage insurers at Level 1/Level 2 (as appropriate). (These entities are not consolidated for capital adequacy purposes – see Guidance Note AGN 110.2 Non-consolidated Subsidiaries). 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).
Equity investments in non-subsidiary entities exceeding prescribed limits
Deduct all equity investments in non-subsidiary entities at Level 1/Level 2 (as appropriate) that are not operating in the field of finance in excess of 0.25% of the ADI’s Level 2 Tier 1 capital for an individual investment or 5% of the ADI’s Level 2 Tier 1 capital in aggregate.
Eligible Tier 1 capital
Sum all the Tier 1 capital components less all specified deductions from Tier 1 capital. Eligible Tier 1 capital must constitute at least 50% of the ADI’s capital base, both at Level 1 and Level 2 (except in the formative years of mutually owned ADIs as approved by APRA).

Tier 2 capital

2.1 Upper Tier 2 capital
Asset revaluation reserves
To be eligible for inclusion in Upper Tier 2 capital at Level 1 and Level 2, reserves arising from the revaluation of premises and securities must satisfy the conditions set out in Guidance Note AGN 111.2 Tier 2 Capital.
General provisions for doubtful debts
The amount of general provisions for doubtful debts to be included in Upper Tier 2 capital at Level 1 and Level 2 should be net of any associated future income tax benefits on a gross basis, and is limited to a maximum of 1.25% of total risk-weighted exposures (see Guidance Note AGN 110.4 Risk-based Capital Adequacy Framework for definition).
The amount of provisions included must be created against future, presently unidentified losses and must be freely available to meet any losses that may subsequently materialise. Any general provisions created against specific or identified losses and against identified deterioration in the value of particular assets, whether individual or grouped, foreign or domestic, are not eligible for inclusion in Upper Tier 2 capital.
Cumulative irredeemable preference shares
Mandatory convertible notes and similar capital instruments
Perpetual subordinated debt
These are hybrid capital instruments, which combine certain characteristics of equity capital and debt. To be eligible as Upper Tier 2 capital at Level 1 and Level 2, these instruments must satisfy the criteria set out in Guidance Note AGN 111.2 Tier 2 Capital.
Deductions from Upper Tier 2 capital
Holdings of own Upper Tier 2 capital instruments and any unused trading limit agreed with APRA
See paragraph 4 in Guidance Note AGN 111.4 Capital Deductions.
Eligible Upper Tier 2 capital
Sum all the Upper Tier 2 capital components less any deductions from Upper Tier 2 capital.
2.2 Lower Tier 2 capital
Term subordinated debt
Limited life redeemable preference shares
Other Lower Tier 2 capital instruments approved by APRA
To be eligible as Lower Tier 2 capital at Level 1 and Level 2, these instruments must satisfy the criteria set out in Guidance Note AGN 111.2 Tier 2 Capital.
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%

Deductions from Lower Tier 2 capital
Holdings of own Lower Tier 2 capital instruments and any unused trading limit agreed with APRA
See paragraph 4 in Guidance Note AGN 111.4 Capital Deductions.
Eligible Lower Tier 2 capital
Sum all the Lower Tier 2 capital components (net of amortisation) less any deductions from Lower Tier 2 capital. Eligible Lower Tier 2 capital at Level 1 and Level 2 is limited to a maximum of 50% of the ADI’s eligible Tier 1 capital at the respective level (except in the formative years of mutually owned ADIs as approved by APRA).
Eligible Tier 2 capital
This is the sum of eligible Upper and Lower Tier 2 capital at Level 1 and Level 2 as appropriate. Eligible Tier 2 capital at Level 1 and Level 2 is limited to a maximum of 100% of the ADI’s eligible Tier 1 capital at the respective level (except in the formative years of mutually owned ADIs as approved by APRA).

Total capital
This is the sum of eligible Tier 1 and Tier 2 capital at Level 1 and Level 2 as appropriate.

3.1    Deductions from total capital
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 as appropriate, 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)       that other ADI’s or equivalent overseas deposit-taking institution’s capital instruments 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 as appropriate in accordance with Prudential Standard APS 113 Capital Adequacy: Market Risk.
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).
Equity and other capital investments in authorised non-operating holding companies of ADIs
Deduct equity and other capital investments in authorised non-operating holding companies of ADIs at Level 1/Level 2 (as appropriate), 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 Prudential Standard APS 113 Capital Adequacy: Market Risk.
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).
Equity and other capital investments in non-consolidated subsidiaries and controlled entities
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 (see Guidance Note AGN 110.2 Non-consolidated Subsidiaries and paragraphs 2 and 3 in Guidance Note AGN 111.4 Capital Deductions).
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).
Credit support of a capital nature provided to other entities (Level 1)
Credit support of a capital nature provided to other non-Level 2 entities (Level 2)
Deduct any credit support of a capital nature provided to other entities at Level 1 or to other entities that do not form part of the consolidated banking group at Level 2 as appropriate, such as 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 Prudential Standard APS 120 Funds Management & Securitisation).
Non-repayable loans advanced by the ADI under APRA’s certified industry support arrangements
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.

Total capital deductions
Sum all deductions from total capital at Level 1 and Level 2 as appropriate.

Capital base
This is equal to total capital less total capital deductions at Level 1 and Level 2 as appropriate.
Memo item

5.1. Total general provisions for doubtful debts
Report the total amount of general provisions for doubtful debts net of any associated future income tax benefits on a gross basis. General provisions should be reported irrespective of whether they are included in the capital base.
Note: The total general provisions for doubtful debts reported in the memo item should not be limited to 1.25 per cent of total risk-weighted exposures.
The amount of provisions included must be created against future, presently unidentified losses and must be freely available to meet any losses that may subsequently materialise. Any general provisions created against specific or identified losses and against identified deterioration in the value of particular assets, whether individual or grouped, foreign or domestic, should not be recorded.
Section B: Risk profile
This section allocates balance sheet amounts and the credit equivalent amounts of off-balance sheet business at Level 1 and Level 2 as appropriate 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 Guidance Note 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 Guidance Note AGN 112.1 Risk-Weighted Off-Balance Sheet Credit Exposures).
Column 2.2. equals the reported figure in Column 3 multiplied by the applicable risk weight.
For each risk category, Column 3 equals the sum of Column 1.2 and Column 2.2.
1.5. Total credit risk is the sum of the assessed credit risk exposures (both on- and off-balance sheet).

Market risk charge (for both specific and general market risk) as reported in ARF 113.0 Market Risk is determined in accordance with Prudential Standard APS 113 Capital Adequacy: Market Risk. 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 should only be reported if agreed to by APRA.
Section C: Risk ratio
Capital adequacy ratio
This is calculated by dividing eligible 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 exposures, market risk charge and other charges as required by APRA reported in Section B).
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.

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%