Financial Sector (Collection of Data) (reporting standard) determination No. 2 of 2006 Reporting Standard ARS 112.1 Capital Adequacy On Balance Sheet Risk Weighting Schedule (Cth)
Financial Sector (Collection of Data) (reporting standard) determination No. 2 of 2006
Reporting standard ARS 112.1 Capital Adequacy - On Balance Sheet Risk Weighting Schedule
Financial Sector (Collection of Data) Act 2001
I, Charles Watts Littrell, a delegate of APRA, under paragraph 13(1)(a) of the Financial Sector (Collection of Data) Act 2001 (the Act) and subsection 33(3) of the Acts Interpretation Act 1901:
REVOKE the Reporting Standard ARS 112.1 (2005) Capital Adequacy - On Balance Sheet Risk Weighting Schedule; and
DETERMINE the Reporting standard ARS 112.1 Capital Adequacy - On Balance Sheet Risk Weighting Schedule in the form 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 to those financial sector entities on the later of 1 July 2006 and the date of registration on the Federal Register of Legislative Instruments.
Dated 26 June 2006
[signed]
Charles Littrell
Executive General Manager
Policy, Research and Statistics
Interpretation
In this Determination
APRA means the Australian Prudential Regulation Authority.
Schedule
Reporting standard ARS 112.1 Capital Adequacy - On Balance Sheet Risk Weighting Schedule comprises [insert number] pages commencing on the next page.
Reporting Standard ARS 112.1
Capital Adequacy – On-Balance Sheet Business Risk Weighting Schedule
Objective of this reporting standard
This reporting standard is made under section 13 of the Financial Sector (Collection of Data) Act 2001. It requires all authorised deposit-taking institutions 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 112.1 Capital Adequacy – On-Balance Sheet Business Risk Weighting Schedule 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 112 Capital Adequacy: Credit Risk and associated guidance notes.
Purpose
Data collected in Form ARF 112.1 Capital Adequacy – On-Balance Sheet Business Risk Weighting Schedule (Form ARF 112.1) is used by APRA for the purpose of prudential supervision including assessing compliance with Prudential Standard APS 112 Capital Adequacy: Credit Risk. It may also be used by the Reserve Bank of Australia and the Australian Bureau of Statistics.
Application
This reporting standard applies to all locally-incorporated authorised deposit-taking institutions (ADIs).
Information required
A locally-incorporated ADI must provide APRA with the information required by the version of Form ARF 112.1 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 112.1 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 in respect of 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 Assurance Standards Board 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 also 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
An ADI must report under the old reporting standard in respect of a transitional reporting period. For these purposes:
old reporting standard means the reporting standard revoked in the determination making this reporting standard (being the reporting standard which this reporting standard replaces).
transitional reporting period means a reporting period under the old reporting standard:
(a)which ended before the date of revocation of the old reporting standard; and
(b)in relation to which the ADI was required, under the old reporting standard, to report by a date on or after the date of revocation of the old reporting standard.
Interpretation - classifications of ADIs
In this reporting standard:
Accounting Standard AASB 127 means the accounting standard so made by the Australian Accounting Standards Board.
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 127) 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 127); and
(c)it is not itself a subsidiary (within the meaning of Accounting Standard AASB 127) 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 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 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 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 China (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)
Citigroup Pty Limited
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 UFJ, Ltd
Barclays Capital (the trading name of Barclays Bank plc)
BNP Paribas
Citibank N.A.
Credit Suisse
Deutsche Bank AG
HBOS Treasury Services plc
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
Alliance One Credit Union Ltd
AMP Employees' & Agents Credit Union Limited
Austral Credit Union Limited
Australian Central Credit Union Limited
Australian Country Credit Union Ltd (trading as Reliance Credit Union)
Australian Defence Credit Union Ltd
AWA Credit Union Limited
Bananacoast Community Credit Union Ltd
Bankstown City Credit Union Ltd
Berrima District Credit Union Ltd
Big Sky Credit Union Ltd
Blue Mountains and Riverlands Community Credit Union Ltd
Broadway Credit Union Ltd
Calare Credit Union Ltd
CAPE Credit Union Limited
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
Community Alliance Credit Union Limited
Community CPS Australia 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 Co-operative (ACT) Limited
Credit Union Australia Ltd
Credit Union Incitec Pivot Limited
Croatian Community Credit Union Limited
CSR and Rinker Employees Credit Union Limited
Dairy Farmers Credit Union Ltd
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 Option Credit Union Limited
First Pacific Credit Union Limited
Fitzroy & Carlton Community Credit 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
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
Melbourne University Credit Union Limited
Memberfirst Credit Union Limited
New England Credit Union Ltd
Newcom Colliery Employees' Credit Union Ltd
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
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
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
Railways Credit Union Limited
RegionalOne Credit Union Limited
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 Limited
Shell Employees' Credit Union Limited
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
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 (eg payments clearing) to member building societies and credit unions.
Australian Settlements Limited
Credit Union Services Corporation (Australia) Limited
Indue Ltd
One ADI that provides general banking services which does not fall into the other categories.
Cairns Penny Savings & Loans Limited
Authorised Non-Operating Holding Companies
HBOS Australia Pty Ltd
Reporting Form ARF 112.1
Capital Adequacy – On-Balance Sheet Business Risk Weighting Schedule
Instruction Guide
This instruction guide is designed to assist in the completion of the On-Balance Sheet Business Risk Weighting Schedule form. In completing this form, reference should be made to Prudential Standard APS 112 Capital Adequacy: Credit Risk and the accompanying Guidance Notes.
This form sets out the means of calculating an authorised deposit-taking institution’s (ADI’s) total risk-weighted on balance sheet credit exposures at the stand-alone and consolidated banking group (‘the group’) level for capital adequacy purposes.
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.
[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 (APS 110).
Securitisation deconsolidation principle
Except where stated otherwise on this form, reporting entities must treat any securitisation program special purpose vehicles (SPVs) in which the ADI (or a member of its consolidated 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 and related Guidance Notes AGN 120.3 Purchase and Supply of Assets (including Securities Issued by SPVs) (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.
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 APS 110.
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 127 Consolidated and Separate Financial Statements 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;
non-financial (commercial) operations; and
special purpose vehicles whose assets have satisfied the clean sale requirements set down in AGN 120.3 (refer Securitisation deconsolidation principle).
Reporting period
This form is to be completed as at the last day of the stated reporting quarter. Locally incorporated banks and 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. 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).
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;2
2 Monetary items are defined to mean units of currency held and assets and liabilities to be received or paid in a fixed or determinable number of units of currency. Spot rate means the exchange rate for immediate delivery.
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;3
3 Examples of non-monetary items include amounts prepaid for goods and services (e.g. prepaid rent); goodwill; intangible assets; physical assets; and provisions that are to be settled by the delivery of a non-monetary asset.
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.
·Translation of financial reports should otherwise follow the requirements in AASB 121.
Scope
The risk-weighting process used for measuring an ADI’s (and the group’s) on balance sheet credit exposures covers all on balance sheet assets held by the ADI (and the group), except the following items which are specifically excluded:
(a)those assets or investments which are required to be deducted from Tier 1 or total capital as per Prudential Standard APS 111 Capital Adequacy: Measurement of Capital (APS 111);
(b)all debt and equity securities held in the trading book (the associated risk-weighted exposures are determined in accordance with Prudential Standard APS 113 Capital Adequacy: Market Risk (APS 113) and the accompanying Guidance Notes);
(c)all on balance sheet positions in commodities (the associated risk-weighted exposures are determined in accordance with APS 113 and the accompanying Guidance Notes); and
(d)on balance sheet unrealised gains on market related off balance sheet transactions (which are to be included in the calculation of an ADI’s (and the group’s) total risk-weighted off balance sheet credit exposures – refer Guidance Note AGN 112.2 Risk-Weighted Off-Balance Sheet Credit Exposures).
Risk-weighted on-balance sheet credit exposures
An ADI’s (and the group’s) total risk-weighted on balance sheet credit exposures equal the sum of the risk-weighted amount of each on balance sheet asset the ADI (and the group) holds.
The risk-weighted amount of an on balance sheet item is determined by multiplying its current book value (i.e. current outstanding amount including accrued interest or revaluations, and net of any specific provision or associated depreciation) by the relevant risk weight specified in the form.
Where an on balance sheet claim on a counterparty is secured against eligible collateral and/or guarantee recognised by APRA, the secured portion of the claim should be weighted according to the risk weight appropriate to the collateral and/or the guarantor. The unsecured portion of the claim must be weighted according to the risk weight applicable to the original counterparty.
Coverage of collateral or guarantees is generally determined by the market value of the collateral or the amount of the guarantee in relation to the amount of the actual exposure supported by the collateral or guarantee. Only collateral and/or guarantees actually posted may be used for determining risk weights. A commitment to provide collateral is not recognised as eligible collateral for risk weighting purposes.
An ADI should consult APRA if in doubt about how to determine the risk-weighted amount of a particular on balance sheet transaction.
Definitions
Eligible collateral and guarantees
Collateral
The only forms of collateral that APRA recognises for capital adequacy purposes are:
(a)cash deposits (including any rights of set-off on credit balances) subject to the conditions set out in Attachment B to Guidance Note AGN 112.1 Risk-Weighted On Balance Sheet Credit Exposures (AGN 112.1);
(b)securities issued by the Commonwealth, State and Territory governments (including State and Territory central borrowing authorities) in Australia; central and State governments in Organisation for Economic Co-operation and Development (OECD) countries; OECD central banks; international banking agencies and multilateral regional development banks; and
(c)residential mortgages subject to the criteria detailed in Attachment C to AGN 112.1.
The underlying collateral arrangements must provide for direct, explicit, irrevocable and unequivocal recourse to the collateral.
Claims secured or collateralised in other ways, for example, by insurance contracts, put options, forward sales contracts or agreements, bank paper, securities issued by public sector entities etc, are not considered to be covered by eligible collateral. Such claims must be weighted according to the risk weight applicable to the original counterparty.
Guarantees
The only guarantees that APRA recognises for capital adequacy purposes are:
(a)guarantees provided by the Commonwealth, State, Territory and local governments (including State and Territory central borrowing authorities) in Australia; central, State and local governments in OECD countries; public sector entities in Australia and OECD countries; OECD central banks and other OECD banks; ADIs in Australia; international banking agencies and multilateral regional development banks. Guarantees provided by non-OECD central governments and central banks, as well as non-OECD banks are recognised, to a limited extent, subject to the relevant conditions set out in this instruction guide (or refer Attachment A to AGN 112.1); and
(b)credit derivatives used for buying credit protection subject to the criteria set out in Guidance Note AGN 112.4 Treatment of Credit Derivatives in the Banking Book.
The guarantee must be issued formally and the underlying guarantee arrangements must provide for direct, explicit, irrevocable and unequivocal recourse to the guarantor.
Claims secured against indirect guarantees (e.g. guarantee of guarantee such as the Commonwealth’s guarantee of the entity which provides the guarantee) and letters of comfort do not qualify as eligible guarantees. Such claims must be weighted according to the risk weight applicable to the original counterparty.
State and Territory central borrowing authorities in Australia
The following are corporations established by State and Territory governments to provide finance for government authorities and to manage their surplus funds, which include:
New South Wales Treasury Corporation (NSW TCorp);
Treasury Corporation of Victoria (TCV);
Queensland Treasury Corporation (QTC);
South Australian Government Financing Authority (SAFA);
Western Australian Treasury Corporation (WATC);
Tasmanian Public Finance Corporation (Tas Corp);
Northern Territory Treasury Corporation (NT TCorp); and
ACT Treasury.
OECD countries
These include countries that have concluded special lending arrangements under the International Monetary Fund’s (IMF’s) General Arrangements to Borrow (Saudi Arabia at this stage), provided that they have not rescheduled their external debt, whether to official or private sector creditors, within the previous five years.
International banking agencies and multilateral regional development banks
These include, for example, the IMF, the International Bank for Reconstruction and Development, the Bank for International Settlements and the Asian Development Bank.
Overseas banks
These include financial institutions in a country which (i) have the power to accept deposits in the regular course of business; (ii) are supervised by the supervisor of banks or by state-based regulatory agencies; and (iii) are subject to the same prudential requirements as banks (including capital adequacy).
ADIs
ADIs are authorised deposit-taking institutions which have an authority under subsection 9(3) of the Banking Act 1959 to carry on banking business in Australia (refer APRA’s website for a complete list of ADIs). ADIs include:
Australian-owned banks;
foreign subsidiary banks;
branches of foreign banks;
credit unions, credit societies and credit co-operatives;
building societies;
SCCIs; and
other ADIs (e.g. Cairns Penny Savings & Loans Limited, former SSPs under the FI Scheme).
Note: ADIs do not include merchant banks in Australia.
Specific instructions (for selected items)
Category I – Cash items
Item 1
Include:
all notes and coins held irrespective of country of issue.
Item 2
Include:
balances held in the Exchange Settlement Account with the Reserve Bank of Australia (RBA). Report all other claims on the RBA under item 17 of Category IV.
Item 3
Include:
claims to the extent that they are secured against eligible cash collateral (refer Attachment B to AGN 112.1 for qualifying criteria).
Item 4
Include:
gold bullion liabilities include gold borrowings, gold futures and forward sales of gold. Gold held in safe custody for other institutions or customers should not be reported. Gold held on an unallocated basis by another party, though backed by gold liabilities, is weighted as a claim on the counterparty unless a lower risk weight is approved by APRA.
Item 5
Include:
claims collateralised by gold to the extent that the underlying claim being collateralised is denominated in gold.
Item 6
Include:
the amount of cheques, drafts and other items drawn on other ADIs or overseas banks that are payable immediately upon presentation and that are in the process of collection. Include overnight settlement balances relating to Clearing House and Austraclear transactions.
Category II – Claims on Australian & foreign governments
Include:
all claims held in the banking book on, or claims to the extent that they are guaranteed by or secured against securities issued by, specified entities under this category. All claims held in the trading book (e.g. securities issued by these entities) are treated in accordance with APS 113 and the accompanying Guidance Notes.
Category III – Claims on public sector entities & public trading enterprises
Item 13
Include:
all claims on, or claims to the extent that they are guaranteed by, public sector entities (except those which have corporate status and operate on a commercial basis) in Australia.
Reporting ADIs may refer to APRA in case of doubt.
Item 14
Include:
all claims on public trading enterprises in Australia that have corporate status and operate on a commercial basis (notably in significant competition with private sector enterprises).
Reporting ADIs may refer to APRA in case of doubt.
Category IV – Claims on central banks, international banking agencies, regional development banks, ADIs in Australia and overseas banks
Include:
all claims held in the banking book on, or claims to the extent that they are guaranteed by or secured against securities issued by, specified entities under this category. All claims held in the trading book (e.g. securities issued by these entities) are treated in accordance with APS 113 and the accompanying Guidance Notes.
For items 22 to 26, claims held in the banking book exclude investments in equity and debt capital instruments of other ADIs or overseas banks (including their subsidiaries) which are not consolidated for capital adequacy purposes. Such investments are deducted from total capital (instead of applying a risk weight) as per APS 111.
Item 22
Include:
claims on, or claims guaranteed by, overseas branches of locally incorporated ADIs.
Item 23
Include:
claims on, or claims guaranteed by, their branches in all countries.
Item 24
Include:
claims on, or claims guaranteed by, their branches in all countries.
A bank incorporated in the Asia-Pacific region wishing to be afforded this treatment must apply to APRA. APRA is willing to consider, on a case-by-case basis, assigning claims on, or claims guaranteed by, non-OECD banks from the Asia-Pacific area the same risk weight as claims on, or claims guaranteed by, OECD banks provided the bank is of high international standing and the parent country has a supervisory framework and standards equivalent to that applied in Australia.
Item 25
Include:
claims on, or claims guaranteed by, their branches in all countries.
Item 26
Include:
claims on their branches in all countries.
Claims guaranteed by these non-OECD banks (and their branches in all countries) with a residual maturity exceeding one year are weighted according to the risk weight applicable to the original counterparty.
Category V – Claims secured against residential mortgages
Item 27
Refer Attachment C to AGN 112.1 for definition of eligible residential mortgages.
Category VI – Other assets & claims
Item 29
Include:
personal and corporate loans;
commercial and industrial loans;
leasing finance and bill acceptances drawn by private sector counterparties;
all other property loans (including loans secured against commercial property), holdings of corporate debt securities and shares in the banking book (claims held in the trading book are treated in accordance with APS 113 and the accompanying Guidance Notes) and claims on other financial institutions.
Item 32
Include:
investments in associates/joint ventures at Level 1 / Level 2.
Please also refer to instructions for ARF 110.0 Capital Adequacy Item 3.1.2. for an example of investment in associates/joint ventures.
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