Financial Sector (Collection of Data) (reporting standard) determination No. 2 of 2011 ARS 118.1 Other Off-balance Sheet Business (Cth)
Financial Sector (Collection of Data) (reporting standard) determination No. 2 of 2011
Reporting standard ARS 118.1 Other Off-balance Sheet Business
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 Reporting Standard ARS 150 Capital Adequacy - Basel II Transition (Advanced ADIs), made by Financial Sector (Collection of Data) (reporting standard) determination No. 17 of 2008.
DETERMINE the Reporting Standard ARS 118.1 Other Off-balance Sheet Business 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 Reporting Standard ARS 118.1 Other Off-balance Sheet Business shall begin to apply to those financial sector entities on 30 June 2011.
Dated 21 June 2011
[signed]
_____________________
Charles Watts Littrell
Executive General Manager
Policy Research and Statistics
APRA
Interpretation
In this Determination
APRA means the Australian Prudential Regulation Authority.
Schedule
Reporting Standard ARS 118.1 Other Off-balance Sheet Business comprises 17 pages commencing on the following page.
Reporting Standard ARS 118.1
Other Off-balance Sheet Exposures
Objective of this reporting standard
This reporting standard is made under section 13 of the Financial Sector (Collection of Data) Act 2001.
This reporting standard outlines the requirements for the provision of information to APRA relating to specified off-balance sheet exposures of an authorised deposit-taking institutions that has approval to use an internal ratings-based approach to credit risk under Prudential Standard APS 113 Capital Adequacy: Internal Ratings-based Approach to Credit Risk (APS 113) (advanced ADI). It should be read in conjunction with:
Form ARF 118.1 Other Off-balance Sheet Exposures and the associated instructions (all of which are attached and form part of this reporting standard); and
Prudential Standard APS 112 Capital Adequacy: Standardised Approach to Credit Risk and APS 113.
Purpose
Data collected in Form ARF 118.1 Other Off-balance sheet exposures (ARF 118.1) is used by APRA for the purpose of prudential supervision, including assessing compliance with Prudential Standard APS 113 Capital Adequacy: Internal Ratings-based Approach to 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 an authorised deposit-taking institution (ADI) taking institutions that has approval to use an internal ratings-based approach to credit risk under Prudential Standard APS 113 Capital Adequacy: Internal Ratings-based Approach to Credit Risk (APS 113) (advanced ADI).
This reporting standard may also apply to the non-operating holding company (NOHC) of an advanced ADI (refer to paragraph 4).
Information required
An ADI to which this reporting standard applies must provide APRA with the information required by ARF 118.1 at Level 1 for each reporting period.
If an advanced ADI is part of a Level 2 group, the ADI must also provide APRA with the information required by ARF 118.1 designated for an ADI at Level 2 for each reporting period, unless the ADI is a subsidiary of an authorised NOHC. If the ADI is a subsidiary of an authorised NOHC, the ADI’s immediate parent NOHC must provide APRA with the information required by that form for each reporting period. In doing so, the immediate parent NOHC must comply with this reporting standard (other than paragraphs 3 and 10) as if it were the relevant ADI.
Forms and method of submission
The information required by this reporting standard must be given to APRA in electronic form, using one of the electronic submission mechanisms provided by the ‘Direct to APRA’ (also known as ‘D2A’) application.
Note: The Direct to APRA application software may be obtained from APRA.
Reporting periods and due dates
Subject to paragraph 7, an ADI to which this reporting standard applies 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 within 30 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 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
When 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.
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.
Note: For the avoidance of doubt, if an ADI was required to report under an old reporting standard, and the reporting documents were due before the date of revocation of the old reporting standard, the ADI is still required to provide any overdue reporting documents in accordance with the old reporting standard.
Interpretation
In this reporting standard:
ADI means an authorised deposit-taking institution within the meaning of the Banking Act 1959.
APRA means the Australian Prudential Regulation Authority established under the Australian Prudential Regulation Authority Act 1998.
Australian-owned bank means a locally incorporated ADI that assumes or uses the word ‘bank’ in relation to its banking business and is not a foreign subsidiary bank.
authorised NOHC has the meaning given in the Banking Act 1959.
business days means ordinary business days, exclusive of Saturdays, Sundays and public holidays.
immediate parent NOHC means an authorised NOHC, or a subsidiary of an authorised NOHC, that is an immediate parent NOHC within the meaning of paragraph 10(b) of Prudential Standard APS 110 Capital Adequacy (APS 110).
Level 1 has the meaning in APS 110.
Level 2 has the meaning in APS 110.
locally incorporated means incorporated in Australia or in a State or Territory of Australia, by or under a Commonwealth, State or Territory law.
reporting period means a period mentioned in paragraph 6 or, if applicable, paragraph 7.
subsidiary has the meaning in the Corporations Act 2001.
APRA may make a determination in writing that an individual ADI of one class of ADI is to be treated, for the purposes of this reporting standard, as though it was an ADI of another class of ADI.
Reporting Form ARF 118.1
Other Off-balance Sheet Exposures
Instruction Guide
This instruction guide is designed to assist the completion of the Other Off-balance Sheet Exposures form. This form captures the off-balance sheet exposures for ADIs that have approval to use an internal ratings-based approach to credit risk under Prudential Standard APS 113 Capital Adequacy: Internal Ratings-based Approach to Credit Risk (APS 113) (advanced ADIs). In completing this form, advanced ADIs should refer to Prudential Standard APS 112 Capital Adequacy: Standardised Approach to Credit Risk (APS 112) for further details of the definitions.
General directions and notes
Reporting entity
This form is to be completed at Level 1 and Level 2[1] by advanced ADIs only.
If an advanced ADI is a subsidiary of an authorised non-operating holding company (NOHC), the report at Level 2 is to be provided by the ADI’s immediate parent NOHC.[2]
Securitisation deconsolidation principle
Except as otherwise specified in these instructions, the following applies:
Where an advanced 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;
(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; and
(c)the underlying exposures (i.e. the pool) under such a securitisation may be excluded from the calculation of the ADI’s regulatory capital (refer to APS 120). However, the ADI must still hold regulatory capital for the securitisation exposures[3] that it retains or acquires and such exposures are to be reported in Forms ARF 120.1A to ARF 120.1C IRB – Securitisation (as appropriate).
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 elects to treat the securitised assets as on-balance sheet assets under APS 113, such exposures are to be reported as on-balance sheet assets in APRA’s regulatory reporting returns. In addition, these exposures must also be reported as a part of the ADI’s total securitised assets within Form ARF 120.2 Securitisation – Supplementary Items.
Reporting period and timeframes for lodgement
The form is to be completed as at the last day of the stated reporting period (i.e. the relevant quarter). Advanced ADIs have 30 business days after the end of the relevant quarter to submit data to APRA.
An immediate parent NOHC must submit data to APRA within the same timeframe as its subsidiary ADI.
Advanced ADIs must report under ARF 118.1 all exposures for which the ADI adopts an advanced approach for its capital calculation. All other exposures that are measured under the standardised approach are to be reported in ARF 112.2A.
Advanced ADIs will continue to have certain reporting obligations under the ARF 112.2A and ARF 113 series of reporting forms.
Unit of measurement
This form should be completed in Australian dollars (AUD) and in millions of dollars rounded to one decimal place.
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 are to be converted to AUD in accordance with AASB 121 The Effects of Changes in Foreign Exchange Rates.
Scope
Advanced ADIs are required to report the non-market and market related off-balance sheet credit exposures of the ADI that are subject to the Internal Ratings-based (IRB) approach to credit risk.
Definitions
In this instruction guide and its corresponding reporting form (ARF 118.1), the following expressions have the defined meanings as set out below:
Off-balance sheet exposures
Off-balance sheet exposures are exposures that need to be converted to a credit equivalent amount (CEA) before they can be risk-weighted. Prior to the adoption of International Financial Reporting Standards (IFRS) for reporting periods beginning on or after 1 January 2005 some items, e.g. derivatives for accounting purposes, were treated as off-balance sheet. After the adoption of IFRS some of these items for accounting purposes were brought on-balance sheet. For the purposes of this APRA reporting form continue to report items that were off-balance sheet before the adoption of IFRS as off-balance sheet.
Netting
Netting refers to the process under a netting agreement of combining all relevant outstanding transactions between two counterparties and reducing them to a single net sum for a party to either pay or receive (refer to Attachment I to APS 112).
Specific instructions (for selected items)
Guidance on columns 1 to 2 (Section A) and (Section B)
Column 1. Notional principal amount
The notional principal amount is the face value or gross amount of a given off-balance sheet transaction and not the fair value. Absolute values should be reported.
Column 2. Credit equivalent amount (CEA)
A CEA is the on-balance sheet equivalent of an off-balance sheet exposure. Advanced ADIs are required to manually input the total CEA for each off-balance sheet exposure type listed in sections A and B of this form.
Non-market-related off-balance sheet transactions
In relation to a non-market-related off-balance sheet transaction, the CEA is calculated by multiplying the notional principal amount of a particular transaction by the relevant credit conversion factor (CCF), according to which internal ratings-based approach is used – either foundation or advanced.
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 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.
Market-related off-balance sheet transactions
These include all market-related transactions held in the banking and trading books that give rise to off-balance sheet credit risk. The CEA of these transactions, whether held in the banking or trading book, must be determined by using the current exposure method.
Credit derivative transactions in the trading book are classified as market-related off-balance sheet transactions.
Section A: Non-market-related off-balance sheet credit exposures
Refer to Attachment B to 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.
1.1Direct credit substitutes
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.
1.2Performance-related contingencies
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.
1.3Trade-related contingencies
Include:
(a)documentary letters of credit issued;
(b)acceptances on trade bills;
(c)shipping guarantees issued; and
(d)any other trade-related contingencies.
1.4Lending of securities or posting of securities as collateral
Include:
(a)repurchase/reverse repurchase agreements; and
(b)securities lending/borrowing transactions.
1.5Assets sold with recourse
Include any asset sales (to the extent that such assets are not included on-balance sheet) by an advanced 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.
1.6Forward asset purchases
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.
1.7Partly paid shares and securities
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.
1.8Placements of forward deposits
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.
1.9Note issuance and underwriting facilities
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.
1.10Credit derivatives used for acquiring credit risk exposure
Include any other credit derivatives used by the ADI for acquiring credit risk exposure that are not already included in item 2.2.2 Credit derivatives – sold protection in the banking book.
1.11Other commitments
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 advanced 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 per cent CCF applicable to the commitment, as opposed to the 100 per cent 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 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.
1.13Total non-market-related off-balance sheet business
Notional principal amount
Report the total notional principal amounts for all of the different transaction types in section A of this form.
Credit equivalent amount
Report the total credit equivalent amounts for all of the different transaction types in section A of this form.
Section B: Market-related off-balance sheet credit exposures
The CEA of an off-balance sheet market-related transaction, whether held in the banking or trading book, must be determined using the current exposure method, in accordance with the requirements of Attachment B to APS 112.
An ADI may net off-balance sheet claims and obligations arising from market-related contracts across both the banking and trading books, arising from contracts with a single counterparty, where the relevant obligations are covered by eligible bilateral netting arrangements (refer to Attachment I to APS 112).
Refer to APG 112 for definitions of the following types of market-related off-balance sheet transactions:
2. Derivatives
Derivatives are defined in accordance with AASB 139 Financial Instruments: Recognition and Measurement.
2.1Exchange-traded and Over-The-Counter Derivatives
2.1.1Total interest rate contracts;
Report the total value, as at the reporting date, of interest rate derivative contracts, classified and measured in accordance with Australian accounting standards.
Report this item regardless of whether favourable or unfavourable to the reporting entity.
2.1.2Total foreign exchange and gold contracts;
Report the total value, as at the reporting date, of both foreign exchange and gold derivative contracts, classified and measured in accordance with Australian accounting standards.
Report this item regardless of whether favourable or unfavourable to the reporting entity.
2.1.3Total equity contracts;
Report the total value, as at the reporting date, of equity contracts held, classified and measured in accordance with Australian accounting standards.
Report this item regardless of whether favourable or unfavourable to the reporting entity.
2.1.4Total precious metal contracts (other than gold);
Report the total value, as at the reporting date, of precious metal (other than gold) contracts, classified and measured in accordance with Australian accounting standards.
Report this item regardless of whether favourable or unfavourable to the reporting entity.
2.1.5Total other commodity contracts (other than precious metals); and
Report the total value, as at the reporting date, of commodity contracts (other than precious metal contracts), classified and measured in accordance with Australian accounting standards.
Report this item regardless of whether favourable or unfavourable to the reporting entity.
2.1.7Total market-related off-balance sheet business
Notional principal amount
Report the total notional principal amounts for all of the exchange-traded and over-the-counter derivatives.
Credit equivalent amount
Report the total credit equivalent amounts for all of the exchange-traded and over-the-counter derivatives.
2.2 Credit Derivatives – Trading Book Only
2.2.1 Credit derivatives – bought protection in the trading book;
Report the value, as at the reporting date, of bought credit derivative contracts, classified and measured in accordance with Australian accounting standards.
A bought credit derivative is a credit derivative that has been purchased by an entity. These bought/long positions are reported gross of sold/written positions; and are financial assets of the reporting entity.
2.2.2 Credit derivatives – sold protection in the trading book
Report the value, as at the reporting date, of sold credit derivative contracts, classified and measured in accordance with Australian accounting standards.
A sold credit derivative is a credit derivative that has been sold, or written, by an entity. These sold/written positions are reported gross of bought/long positions; and are financial liabilities of the reporting entity.
Report credit derivatives where protection is bought or sold in the trading book.
Section C: Memo Items
3 On and Off Balance Sheet Exposures
3.1 On-balance sheet - gross amount
Report the carrying amount of on-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).
3.2 On-balance sheet credit RWA
Report the sum of all on-balance sheet credit risk weighted assets.
3.3 Off-balance sheet - credit equivalent amount
Report the CEAs of off-balance sheet business (including both market and non-market related transactions).
3.4 Off-balance sheet credit RWA
Report the sum of all off-balance sheet credit risk weighted assets.
3.5 Securitisation – gross amount
Report the amount of securitisation exposure determined for credit risk purposes in accordance with relevant prudential standards.
3.6 Securitisation credit RWA
The total amount of RWA related to the ADI’s securitisation exposures.
Level 1 and Level 2 defined in accordance with Prudential Standard APS 110 Capital Adequacy.
Refer to paragraph 4 of Reporting Standard ARS 112.2 Standardised Credit Risk – Off-balance Sheet Exposures.
Securitisation exposures are defined in accordance with APS 120.
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