Financial Sector (Collection of Data) (reporting standard) determination No. 3 of 2006 Reporting Standard ARS 112.2 Capital Adequacy Off Balance Sheet Business (Cth)

Financial Sector (Collection of Data) (reporting standard) determination No. 3 of 2006

Reporting standard ARS 112.2 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 the Reporting Standard ARS 112.2 (2005) Capital Adequacy - Off Balance Sheet Business; and

·DETERMINE the Reporting standard ARS 112.2 Capital Adequacy - 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 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
APRA

Interpretation

In this Determination

APRA means the Australian Prudential Regulation Authority.

Schedule

Reporting standard ARS 112.2 Capital Adequacy - Off Balance Sheet Business comprises 44 pages commencing on the following page.

Reporting Standard ARS 112.2

Capital Adequacy - Off-Balance Sheet Business
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, including foreign authorised deposit-taking institutions operating in Australia through branch operations, 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 112.2 Capital Adequacy – Off-Balance Sheet Business 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 112.2 Capital Adequacy – Off-Balance Sheet Business (Form ARF 112.2) 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 and commencement
This reporting standard applies to all authorised deposit-taking institutions (ADIs).

Information required
An ADI must provide APRA with the information required by the version of Form ARF 112.2 designated for a ‘Licensed ADI’ for each reporting period.
An 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 112.2 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, locally-incorporated special service provider or foreign ADI (other than a specialist credit card institution) – 20 business days after the end of the reporting period to which the information relates; and
(b) in the case of the information required by paragraphs 3 and 4 from a locally incorporated credit union, locally-incorporated building society, specialist credit card institution (whether locally-incorporated or not) 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 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
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.
foreign ADI means an ADI that is not incorporated in Australia.
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 incorporated in Australia.
locally-incorporated bank means 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.

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 or 18, 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 112.2
Capital Adequacy – Off-Balance Sheet Business
Instruction Guide
This instruction guide is designed to assist in the compilation of an authorised deposit-taking institution’s (ADI’s) total risk weighted off-balance sheet credit exposures arising from the ADI’s off-balance sheet business for capital adequacy purposes. Off-balance sheet business is broadly categorised as being either market related or non-market related transactions (discussed in detail further below). In completing this form, reference should be made to Prudential Standard APS 112 Capital Adequacy: Credit Risk and the accompanying Guidance Notes AGN 112.1 Risk Weighted On - Balance Sheet Credit Exposures (AGN 112.1), AGN 112.2 Risk Weighted Off Balance Sheet Credit Exposures (AGN 112.2), AGN 112.3 Netting (AGN 112.3), AGN 112.4 Treatment of Credit Derivatives in the Banking Book, AGN 112.5 Worked Example of Calculation of Capital Ratio.
The first part of the form is the Statement of Derivative Activity for ADI’s banking and trading books. This part is for information purposes only. The second part of the form relates to Market Related Off-Balance Sheet Transactions for capital adequacy purposes, while the third part relates to Non-Market Related Off-Balance Sheet transactions for capital adequacy purposes.
The final part of the form relates to supplementary information on liquidity support facilities contracted by an ADI to supplement its liquidity management and the value of any charges granted over the assets of the ADI to secure this contingent funding.
General directions and notes
Reporting entity
This form is to be completed by all ADIs (including Specialist Credit Card Institutions (SCCIs)) on both a stand-alone and consolidated group basis (where applicable). Foreign ADIs and SCCIs operating through branches in Australia are required to complete this form for the Australian branch only and do not need to complete the following:
the second part of the form relating to Market Related Off-Balance Sheet Transactions (capital adequacy purposes); and
risk-weighted amounts in the third part of the form relating to Non-Market Related Off-Balance Sheet transactions.
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 Prudential Standard 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
SPVs 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, Foreign ADIs 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 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, and for other ADIs, 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;1
1 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;2
2 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.
Netting
An ADI may, for capital adequacy purposes, net off-balance sheet claims and obligations arising from market related contracts across both the banking and trading books with a single counterparty that are covered by eligible bilateral netting agreements (refer to AGN 112.3) for qualifying criteria and for details on how to calculate the credit equivalent amount of these contracts.) Netting should not be applied when reporting amounts within the Statement of Derivative Activity.
Definitions
Off-balance sheet
Off-balance sheet exposures are defined as exposures that need to be converted to a loan equivalent amount before they can be risk weighted. Items that were treated as off-balance sheet items for the purpose of this form pre-International Financial Reporting Standards (IFRS) will continue to be treated as off-balance sheet items post-IFRS.
Principal amount
This refers to the face value or gross amount of a given off-balance sheet transaction and not fair values. Absolute values should be reported and netting may only be applied as described above.
Fair value
The fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable and willing parties in an arm’s length transaction. The fair value should be able to be determined through observation of similar transactions, quoted market prices, independent valuations or if there is no readily observable market, through the ability to liquidate the investment or through assessing the net present value of future cash flows.
Record the aggregate fair (or market) value of the derivative exposure/position by summing the absolute fair value of each exposure, for each of the items listed.
For the purposes of valuing derivative exposures, for this form, fair value should represent an estimate of the amount, which could be expected to be received from the disposal of the derivative instrument in an orderly market, ignoring transaction costs. It is not necessarily related to the nominal value of the derivative.
Market value is defined for accounting purposes as a subset of fair value, where fair value means the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm's-length transaction, and is determined as follows:

the quoted market price in an active and liquid market (i.e. market value); or
when there is infrequent activity in a market, the market is not well established, small volumes are traded relative to the asset or liability to be valued, or a quoted market price is not available – an estimate of a price for the asset or liability in an active and liquid market.
Credit equivalent amount
Non-market related off-balance sheet transactions
The credit equivalent amount is calculated by multiplying the transaction’s principal amount by the relevant credit conversion factor as set out within the Specific Instructions section of this guide (or refer to Attachment A of AGN 112.2). The purpose of applying a credit conversion factor is to convert these off-balance sheet transactions that give rise to credit exposures into on-balance sheet credit equivalents. Credit derivative transactions in the banking book are classified as “non-market related off-balance sheet transactions”.
Market related off-balance sheet contracts
These include all market related contracts held in the banking and trading books that give rise to off-balance sheet credit risk. The credit equivalent amount of these contracts, whether held in the banking or trading book, must be determined by using the current exposure (or “mark-to-market”) method. However, for interest rate, foreign exchange and gold contracts held in the banking book, the original exposure (or “rule-of-thumb”) method may be used with APRA’s prior approval. Details on how to calculate the credit equivalent amount of these contracts under the two methods are set out in AGN 112.2. For market-related contracts covered by eligible bilateral netting agreements, refer to AGN 112.3 for details on how to calculate the credit equivalent amount of these contracts. Credit derivative transactions in the trading book are classified as “market related off-balance sheet transactions”.
Risk weighted amount
The risk weighted amount of a given off-balance sheet transaction that gives rise to credit exposure is calculated by multiplying the transaction’s credit equivalent amount by the risk weight (refer Attachment A of AGN 112.1) applicable to the counterparty or type of assets or where relevant, the eligible guarantor or collateral security as appropriate.
Where an off-balance sheet claim on a counterparty is secured against eligible collateral and/or guarantee recognised by APRA (refer AGN 112.1), the secured portion of the claim (i.e. the credit equivalent amount) 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 original counterparty.
The maximum risk weight that will be applied to the credit equivalent amount of an off-balance sheet credit exposure arising from a market related transaction (including netted market-related transactions) is 50%.
Trading book
Each ADI intending to operate a trading book will agree with APRA a trading book policy statement specifying which activities constitute trading and therefore belong in the trading book. An ADI’s trading book consists of positions in financial instruments, including derivative products and other off-balance sheet instruments, that:

are held for short-term resale;
are taken on by the ADI with the intention of benefiting in the short-term from actual and/or expected differences between their buying and selling prices, or from other price or interest rate variations;
arise from broking and market making; or
are taken in order to hedge other elements of the trading book.
Whether a transaction should be included in an ADI’s trading book depends on the intent with which the transaction was undertaken. Positions may be considered as being held with a trading intent if:
they are marked-to-market on a daily basis as part of the internal risk management processes. APRA recognises that good risk management practices may dictate that some non-traded positions are marked-to-market on a regular basis – such positions need not necessarily be included in the trading book;
the position-takers have autonomy in entering into transactions (in marketable instruments) within predetermined limits; or
the positions satisfy any other criteria which the ADI applies to the composition of its trading book on a consistent basis.
Banking book
The banking book consists of all business not included in the trading book. This includes derivatives used to hedge financial assets and financial liabilities (in existence or anticipated to be acquired or funded) that are not included in the trading book.
Specific instructions
Section A: Statement of Derivative Activity
The Statement of Derivative Activity is for information purposes. It is not directly used for the calculation of credit equivalent amounts for market-related transactions as it does not allow for those contracts covered by eligible bilateral netting agreements. It should be noted that “non-market related” information is requested relating to credit derivatives in the banking book.
ADIs should report all derivative activity within the banking and trading books in the principal amount and fair value columns. Netting as described above should not be applied.
While not intended as an exhaustive list, derivative instruments may include the following.
Column 1: Interest rate contracts
Include:
single currency interest rate swaps;
basis swaps;
forward rate agreements;
interest rate futures;
interest rate options purchased; and
any other instruments of a similar nature.
Column 2: Foreign exchange contracts (including contracts involving gold)
Include:
cross currency swaps (including cross currency interest rate swaps);
forward foreign exchange contracts;
currency futures;
currency options purchased;
hedge contracts; and
any other instruments of a similar nature.
Outstanding spot transactions should be treated as forward foreign exchange contracts.
Column 3: Equity contracts
Include:
swaps;
forwards;
futures;
purchased options/warrants; and
similar derivative contracts based on individual equities or equity indices.
Column 4: Other derivative contracts
Include:
swaps;
forwards;
purchased options;
similar derivative contracts based on precious metals such as gold, silver, platinum and palladium;
energy contracts;
agricultural contracts;
base metals (such as aluminium, copper and zinc);
other non-precious metal commodity contracts; and
and any contracts covering other items, that give rise to credit risk.
This category also includes all credit derivatives in the banking and trading book (see section on Reporting of credit derivatives below).
ADIs may refer to APRA where they are unclear as to which category is appropriate for a particular derivative when reporting the principal amount and fair value of that derivative.
Note: ADIs should not generally enter into contracts at off-market prices. This includes historical rate rollovers on foreign exchange contracts. If any contracts are undertaken at off-market prices, ADIs should contact APRA to discuss the reasons for such actions and to agree the capital (and other prudential) treatment of these transactions. APRA will need to be persuaded as to the need for dealing at off-market rates. As a starting point, where an ADI deals at off-market rates, the whole of that transaction is no longer subject to the maximum risk weight applied to an off-balance sheet market-related contract with a corporate counterparty, and will receive, unless otherwise agreed with APRA, a 100% risk weight.
Section B: Market-related off-balance sheet transactions
In this section, ADIs are to report, for capital adequacy purposes, the principal amount and credit equivalent amount of market-related off-balance transactions in the trading and banking books. Credit equivalent is to be calculated separately for interest rate contracts, foreign exchange contracts, equity contracts, other contracts and credit derivatives in the trading book (see section on Reporting of credit derivatives below).
An ADI may net claims and obligations arising from market-related contracts across both the banking and trading books with a single counterparty if covered by eligible bilateral netting agreements (refer to AGN 112.3 for details on how to calculate the credit equivalent amount of these contracts).
Report only those contracts that give rise to off-balance sheet credit exposures in the credit equivalent amount column. ADIs may refer to APRA where they are unclear as to which category is appropriate for a particular market-related transaction when calculating the credit equivalent amount of that transaction for capital adequacy purposes.
Exemption from capital weighting is permitted for:
foreign exchange (except gold) contracts that have an original maturity of 14 calendar days or less; and
instruments traded on futures and options exchanges that are subject to daily mark-to-market and margin payments.
Market risk charge of market-related contracts held in the trading book will be captured under the Market Risk Form.
Section C: Non-market-related off-balance sheet transactions
Report all non-market related off-balance sheet transactions that give rise to credit exposures.
The categories of non-market related off-balance sheet transactions and their accompanying credit conversion factors are as follows:

1.1 Direct credit substitutes - 100%
Any irrevocable off-balance sheet obligations that carry the same credit risk as a direct extension of credit, such as an undertaking to make a payment to a third party in the event that a counterparty fails to meet a financial obligation, or an undertaking to a counterparty to acquire a potential claim on another party in the event of default by that party, constitutes a direct credit substitute (i.e. the risk of loss depends on the creditworthiness of the counterparty or the party on that a potential claim is acquired).
Include:

potential credit exposures arising from the issue of guarantees and credit derivatives (credit derivatives in the banking book where protection is sold – see section on Reporting of credit derivatives below);
confirmation of letters of credit;
issue of standby letters of credit serving as financial guarantees for loans, securities and any other financial liabilities; and
and bills endorsed under bill endorsement lines (but are not accepted by, or have the prior endorsement of, another ADI).

1.2 Performance-related contingencies - 50%
Contingent liabilities that involve an irrevocable obligation to pay a third party in the event that a counterparty fails to fulfill or perform a contractual non-monetary obligation, such as delivery of goods by a specified date, etc (i.e. the risk of loss depends on a future event that is not directly related to the creditworthiness of the counterparty involved).
Include:

issue of performance bond;
bid bonds;
warranties;
indemnities; and
standby letters of credit in relation to a non-monetary obligation of a counterparty under a particular transaction.

1.3 Trade-related contingencies - 20%
Contingent liabilities arising from trade-related obligations that are secured against an underlying shipment of goods.
Include:

documentary letters of credit issued;
acceptances on trade bills;
shipping guarantees issued; and
any other trade-related contingencies.

1.4    Sale & repurchase agreements (“Repos”) – 100%
This relates to arrangements whereby an ADI sells a loan, security or other asset to another party with a commitment to repurchase the asset at an agreed price on an agreed future date.3 Any assets acquired by an ADI under reverse repos (i.e. purchase and resale agreements) are to be treated as collateralised loans to the counterparty.4
3           These transactions are risk weighted according to the type of assets or the issuer of securities and not according to the counterparty with whom the transaction is made, where the credit risk associated with the underlying asset that has been sold (temporarily under a repo or with recourse) or purchased, remains with the ADI.
4           The appropriate risk weight to be applied to a reverse repo transaction is determined on the basis of the counterparty to the transaction or the underlying asset if it is an eligible collateral security (refer Guidance Note AGN 112.1 Risk-Weighted On-Balance Sheet Credit Exposures).
1.5    Assets sold with recourse - 100%
Include:

any asset sales (to the extent that such assets are not included in on-balance sheet) by an ADI where the holder of the asset is entitled to “put” the asset back to the ADI within an agreed period or under certain prescribed circumstances, e.g. deterioration in the value or credit quality of the asset concerned.5
5 Refer footnote 4.

1.6 Forward asset purchases - 100%
Include:

commitments to purchase at a future date and on pre-arranged terms; and
a loan, security or other asset from another party, including written put options on specified assets with the character of a credit enhancement.6
6 Refer footnote 4.
Where an ADI purchasing the asset has an unequivocal right to substitute cash settlement in place of accepting delivery of the asset, and the price on settlement is calculated with reference to a general market price indicator (and not to the financial condition of any specific entity), the purchase may be treated as a market-related off-balance sheet transaction.
Written put options expressed in terms of market rates for currencies or financial instruments bearing no credit risk are excluded from risk assets.

1.7 Partly paid shares and securities - 100%
Include:

any amounts owing on the uncalled portion of partly paid shares; and
securities held by an ADI, that represent commitments with certain draw down by the issuer at a future date.7
7 Refer footnote 4.

1.8    Placements of forward deposits - 100%
This relates to 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.
1.9    Note issuance and revolving underwriting facilities - 50%
This involves arrangements whereby a borrower may draw down 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.
1.10    Other commitments
1.10.1.   Commitments with certainty of drawdown – 100%
1.10.2.   Commitments (e.g. undrawn formal standby facilities and credit lines, balances available for withdrawal under redraw facilities on term loans) with a residual maturity of:

1 year or less - 0%.
over 1 year - 50%.

1.10.3.   Commitments that can be unconditionally revoked at any time without notice (e.g. undrawn overdraft and credit card facilities providing that any outstanding unused balance is subject to review at least annually) - 0%
1.10.4.   Irrevocable standby commitments provided under APRA’s approved industry support arrangements - 0%
The amount of undrawn commitment to be included in calculating an ADI’s off-balance sheet non-market-related credit exposures is the maximum unused portion of the commitment that could be drawn during the remaining period to maturity. The drawn portion of a commitment forms part of an ADI’s on-balance sheet credit exposure.
Irrevocable commitments to provide off-balance sheet facilities should be assigned credit conversion factors appropriate to the underlying facilities. For example, an irrevocable commitment for six months to provide a guarantee in support of a counterparty attracts the 100% credit conversion factor applicable to the guarantee.
The residual maturity of an undrawn commitment is the time remaining until the commitment will be completely extinguished by being terminated or maturing, or can be unconditionally cancelled by an ADI or be fully drawn. With regard to irrevocable commitments to provide off-balance sheet facilities, the residual maturity is the period up until the associated facility expires. For example, an irrevocable commitment with a remaining maturity of 6 months to provide a commitment to provide finance with a 9-month term is deemed to have a residual maturity of 15 months.
All commitments are to be included in the capital adequacy ratio calculation regardless of whether or not they contain “material adverse change” clauses or any other provisions that are intended to relieve an ADI of its obligations under certain conditions.
1.11    For any non-market related off-balance sheet transactions that give rise to credit risk but are not specifically identified above, an ADI should consult APRA on the appropriate credit conversion factor to be used for calculating the credit equivalent amount of that particular transaction for capital adequacy purposes.
Reporting of credit derivatives
Credit derivatives are to be reported as specified above. Below is a summary of all instances within this form that involves the reporting of credit derivatives.

Credit derivatives in the trading book where protection is purchased
This should be reported in two parts of this form: first, under the "Statement of Derivative Activity - Trading Book” in the row titled “Credit derivatives – Bought protection" (information purposes); and, second, under "Market-Related Off-Balance Sheet Transactions” in the row titled “Credit derivatives – bought protection in the trading book” (capital adequacy purposes). The principal amounts of these items should only differ if netting is applied for capital adequacy purposes as described above.
Credit derivatives in the trading book where protection is sold
This should be reported in two parts of this form: first, under the "Statement of Derivative Activity - Trading Book” in the row titled “Credit derivatives - Sold protection" (information purposes); and, second, under "Market-Related Off-Balance Sheet Transactions” in the row titled “Credit derivatives – sold protection in the trading book" (capital adequacy purposes). The principal amounts of these items should only differ if netting is applied for capital adequacy purposes as described above.
Credit derivatives in the banking book where protection is purchased
This should be reported under "Statement of Derivative Activity - Banking Book” in the row titled “Credit derivatives - Bought protection". This is for information purposes only and is not used in the calculation of capital. This item should not be reported in any other part of this form as no capital is held against credit derivatives in the banking book where protection is purchased.
Credit derivatives in the banking book where protection is sold
This should be reported in two parts of this form: first, under "Statement of Derivative Activity - Banking Book” in the row titled “Credit derivatives - Sold protection" (information purposes); and, second, under "Non-Market Related Off-Balance Sheet Transactions” in the row titled “Credit derivatives - sold protection in the banking book” (capital adequacy purposes). Seeing that credit derivatives in the banking book are classified as non-market related transactions and hence do not qualify for netting (capital adequacy purposes), the principal amounts of these items should be identical.
Section D: Other off-balance sheet transactions
Off-balance sheet liquidity support facilities

Off-balance sheet liquidity support facilities
This section captures information on liquidity support facilities contracted by the ADI to supplement its liquidity management practices.
Column 1: Approved balance available
Include:

the total approved balance of the facility.
Column 2: Undrawn balance available
Include:
the balance of the facility that has not been used or drawn down by the ADI at the reporting date.

1.1. Standby facilities
These facilities are approved and committed to the ADI. These generally require written notice by the ADI to trigger draw down (access to the funds).
1.1.1 Facilities with same day draw down
Include:

those standby facilities that can be drawn down (funds accessed) on the same day that notice is given by the ADI of its intention to draw down on the standby facility.

1.1.2 Facilities with two-five day draw down
Include:

those standby facilities that can be drawn down (funds accessed) within two-five days after notice is given by the ADI of its intention to draw down on the standby facility (i.e. a two-five day waiting period).

1.1.3 Facilities with greater than five days draw down
Include:

those standby facilities that can be drawn down (funds accessed) five days after notice is given by the ADI of its intention to draw down on the standby facility (i.e. a five day waiting period).

1.2.   Bill acceptance/discount facilities
These are another form of liquidity/funding. The funding is provided to the ADI by a facility that discounts bills (e.g. bank accepted bills). Principle and interest (discount) owing on the bill is repaid or ‘rolled over’ by the ADI on maturity of the bill.
1.3.   Letter of credit facilities
This is an irrevocable and unconditional undertaking by an ADI to repay principle and interest of a loan in the event of default.
1.4.   Overdrafts
These are accounts that may be overdrawn up to limits agreed to with an ADI.
1.5.   Other liquidity support facilities
All other off-balance sheet liquidity support facilities contracted for the ADIs use that are not included in the categories above.
1.6.1 Facilities with related entities
Report liquidity support facilities that are provided by related entities.

Value of charge/security that has been granted over assets of the ADI

2.1 Fixed charge
A fixed charge is a form of security provided to the lender relating to a specific asset or assets. A fixed charge will generally limit the ability of the ADI to deal with those assets (i.e. investment securities).
2.2 Floating charge
This is a charge where the creditor’s charge or claim is not lodged over a particular asset, but is fixed on a specific asset or assets only if the default occurs. This process is called crystallisation of the charge. A floating charge leaves the debtor free to buy, sell and vary the assets until such time the charge is crystallised.