Financial Sector (Collection of Data) (reporting standard) determination No. 3 of 2008 ARS 112.2 Standardised Credit Risk Off-balance Sheet Exposures/ARS 118.0 Off-balance Sheet Business (Cth)
Financial Sector (Collection of Data) (reporting standard) determination No. 3 of 2008
Reporting standard ARS 112.2 Standardised Credit Risk – Off-balance Sheet Exposures
Reporting standard ARS 118.0 Off-balance Sheet Business
Financial Sector (Collection of Data) Act 2001
I, Wayne Stephen Byres, a delegate of APRA, under paragraph 13(1)(a) of the Financial Sector (Collection of Data) Act 2001 (the Act) and subsection 33(3) of the Acts Interpretation Act 1901:
REVOKE Reporting Standard ARS 112.2 Capital Adequacy - Off Balance Sheet Business made by Financial Sector (Collection of Data) (reporting standard) determination No. 3 of 2006; and
DETERMINE Reporting Standard ARS 112.2 Standardised Credit Risk – Off-balance Sheet Exposures in the form set out in the Schedule, which applies to financial sector entities to the extent provided in paragraph 2 of the reporting standard; and
DETERMINE Reporting Standard ARS 118.0 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, and the revoked reporting standard shall cease to apply, on the later of 1 April 2008 and the date of registration of this instrument on the Federal Register of Legislative Instruments.
Dated 4th February 2008
[Signed]
Wayne Byres
Executive General Manager
Diversified Institutions Division
Interpretation
In this Determination
APRA means the Australian Prudential Regulation Authority.
Federal Register of Legislative Instruments means the register established under section 20 of the Legislative Instruments Act 2003.
Schedule
Reporting Standard ARS 112.2 Standardised Credit Risk – Off-balance Sheet Exposures comprises the 21 pages commencing on the following page.
Reporting Standard ARS 118.0 Off-balance Sheet Business which comprises the 18 pages commencing on the page immediately following Reporting Standard ARS 112.2 Standardised Credit Risk – Off-balance Sheet Exposures.
Reporting Standard ARS 112.2
Standardised Credit Risk – 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 overall requirements for the provision of information to APRA relating to an authorised deposit-taking institution’s off-balance sheet exposures. It should be read in conjunction with:
the versions of Form ARF 112.2A Standardised Credit Risk - Off-balance Sheet Exposures designated for an authorised deposit-taking institution reporting at Level 1 and Level 2, 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.
Purpose
Data collected in Form ARF 112.2A Standardised Credit Risk - Off-balance Sheet Exposures (ARF 112.2A) is used by APRA for the purpose of prudential supervision including assessing compliance with Prudential Standard APS 112 Capital Adequacy: Standardised Approach to Credit Risk (APS 112). 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) that satisfies both of the following requirements:
(a)it is applying the standardised approach to credit risk to all or part of its off-balance sheet exposures for capital adequacy purposes (refer to APS 112 or Prudential Standard APS 113 Capital Adequacy: Internal Ratings-based Approach to Credit Risk, as appropriate); and
(b)it is included in one of the classes of ADI to which this reporting standard applies, as set out in the table below.
Class of ADI Applicable Bank – Advanced or Applicant Advanced Yes Bank – Standardised Yes Branch of a Foreign Bank Yes Building Society Yes Credit Union Yes Specialist Credit Card Institution (SCCI) Yes Provider of Purchased Payment Facilities No Other ADI Yes
This reporting standard may also apply to the non-operating holding company (NOHC) of an ADI (refer to paragraph 4).
Information required
An ADI to which this reporting standard applies must provide APRA with the information required by the version of ARF 112.2A designated for an ADI at Level 1 for each reporting period.
If an ADI to which this reporting standard applies is part of a Level 2 group, the ADI must also provide APRA with the information required by the version of ARF 112.2A 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 in accordance with the table below. The right hand column of the table sets out the number of business days after the end of the reporting period to which the information relates, within which information must be submitted to APRA by an ADI in each of the classes set out in the same row in the left hand column.
Class of ADI Number of business days Bank – Advanced or Applicant Advanced 30 Bank – Standardised 20 Branch of a Foreign Bank 20 Building Society 15 Credit Union 15 Specialist Credit Card Institution (SCCI) 15 Provider of Purchased Payment Facilities Not applicable Other ADI[1] 20 [1] The definitions of ‘credit union’ and ‘other ADI’ in paragraph 16 of this reporting standard provide that Cairns Penny Savings and Loans Limited is to be treated in accordance with the reporting period requirements applicable to credit unions.
In certain cases an ADI will be both a "bank – advanced or applicant advanced" and a "bank – standardised". The instructions associated with ARF 112.2A set out the relevant reporting requirements and timeframes in those circumstances.
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.
bank – advanced or applicant advanced means an Australian-owned bank or a foreign subsidiary bank that has APRA’s approval or is seeking APRA’s approval to use an internal ratings-based approach to credit risk and/or an advanced measurement approach to operational risk for capital adequacy purposes.
bank – standardised means an Australian-owned bank or a foreign subsidiary bank that uses the standardised approaches to credit risk and operational risk for capital adequacy purposes in respect of the whole of its operations.
branch of a foreign bank means a ‘foreign ADI’ as defined in section 5 of the Banking Act 1959, but does not include an SCCI that is a foreign ADI.
building society means a locally incorporated ADI that assumes or uses the expression ‘building society’ in relation to its banking business.
business days means ordinary business days, exclusive of Saturdays, Sundays and public holidays.
class of ADI means each of the following:
(i)bank – advanced or applicant advanced;
(ii)bank – standardised;
(iii)branch of a foreign bank;
(iv)building society;
(v)credit union;
(vi)other ADI;
(vii)provider of purchased payment facilities; and
(viii) a specialist credit card institution.
credit union means a locally incorporated ADI that assumes or uses the expression ‘credit union’ in relation to its banking business and, for the purposes of this reporting standard, includes Cairns Penny Savings and Loans Limited.
foreign subsidiary bank means a locally incorporated ADI in which a bank that is not locally incorporated has a stake of more than 15%.
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.
other ADI means an ADI that is not an Australian-owned bank, a branch of a foreign bank, a building society, a credit union, a foreign subsidiary bank, a provider of purchased payment facilities or a specialist credit card institution, but for the purposes of this reporting standard, does not include Cairns Penny Savings and Loans Limited.
provider of purchased payment facilities means an ADI that is subject to a condition on its authority under section 9 of the Banking Act 1959 confining the banking business that the ADI is authorised to carry on to providing purchased payment facilities.
reporting period means a period mentioned in paragraph 6 or, if applicable, paragraph 7.
specialist credit card institution means an ADI that is subject to a condition on its authority under section 9 of the Banking Act 1959 confining the banking business that the ADI is authorised to carry on to the activities of credit card acquiring and credit card issuing in any credit card scheme that was designated as a payment system under section 11 of the Payment Systems (Regulation) Act 1998 on 11 April 2001.
stake means a stake determined under the Financial Sector Shareholdings Act 1998, as if the only associates that were taken into account under paragraph (b) of subclause 10(1) of the Schedule to that Act were those set out in paragraphs (h), (j) and (l) of subclause 4(1).
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 112.2A
Standardised Credit Risk – Off-balance Sheet Exposures
Instruction Guide
This instruction guide is designed to assist in the completion of the Standardised Credit Risk - Off-balance Sheet Exposures form. This form captures the risk-weighted assets (RWA) relating to an authorised deposit-taking institution’s (ADI’s) off-balance sheet exposures under the standardised approach to credit risk. In completing this form, ADIs should refer to Prudential Standard APS 112 Capital Adequacy: Standardised Approach to Credit Risk (APS 112).
General directions and notes
Reporting entity
This form is to be completed at Level 1 and Level 2[2] by each ADI that satisfies both of the following requirements:
[2] Level 1 and Level 2 defined in accordance with Prudential Standard APS 110 Capital Adequacy.
(a)it is applying the standardised approach to credit risk to all or part of the ADI’s off-balance sheet exposures for capital adequacy purposes (refer to APS 112 or Prudential Standard APS 113 Capital Adequacy: Internal Ratings-based Approach to Credit Risk); and
(b)it is included in one of the classes of ADI to which this form applies, as set out in the table below.
| Class of ADI | Reporting required |
| Bank – Advanced or Applicant Advanced[3] | Yes |
| Bank – Standardised | Yes |
| Branch of a Foreign Bank | Yes[4] |
| Building Society | Yes |
| Credit Union | Yes |
| Specialist Credit Card Institution (SCCI) | Yes[5] |
| Provider of Purchased Payment Facilities | No |
| Other ADI | Yes |
[3] When an ADI is seeking APRA’s approval to use the internal ratings-based approach to credit risk and/or an advanced measurement approach to operational risk, and is therefore classified as a “Bank – Advanced or Applicant Advanced”, the ADI may concurrently be classified as a “Bank – Standardised”, and therefore also subject to the reporting requirements for a “Bank – Standardised” (refer to the section below on “Where both "Bank – Standardised" and "Bank – Advanced or Applicant Advanced" reporting requirements and timeframes apply to an ADI”).
[4] A branch of a foreign bank is only required to partially complete this form, as detailed in the Reporting entity section.
[5] A specialist credit card institution operating through a branch in Australia is only required to partially complete this form, as detailed in the Reporting entity section.
If an 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.[6]
[6] Refer to paragraph 4 of Reporting Standard ARS 112.2 Standardised Credit Risk – Off-balance Sheet Exposures.
Branches of foreign banks and SCCIs operating through branches in Australia (i.e. are incorporated in an overseas jurisdiction) are only required to complete column 1 Notional principal amount in all sections of this reporting form.
Securitisation deconsolidation principle
Except as otherwise specified in these instructions, the following applies:
Where an ADI (or a member of its Level 2 consolidated group) participates in a securitisation that meets APRA’s operational requirements for regulatory capital relief under Prudential Standard APS 120 Securitisation (APS 120):
(a)special purpose vehicles (SPVs) holding securitised assets may be treated as non-consolidated independent third parties for regulatory reporting purposes, irrespective of whether the SPVs (or their assets) are consolidated for accounting purposes;
(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[7] that it retains or acquires and such exposures are to be reported in Form ARF 120.0 Standardised – Securitisation or Forms ARF 120.1A to ARF 120.1C IRB – Securitisation (as appropriate). The RWA relating to such securitisation exposures must also be reported in Form ARF 110.0 Capital Adequacy.
[7] Securitisation exposures are defined in accordance with APS 120.
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 112 or Prudential Standard APS 113 Capital Adequacy: Internal Ratings-based Approach to Credit Risk, 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). The table below sets out the number of business days after the end of the relevant reporting period, within which each class of ADI must submit data to APRA.
| Class of ADI | Number of business days |
| Bank – Advanced or Applicant Advanced | 30 |
| Bank – Standardised | 20 |
| Branch of a Foreign Bank | 20 |
| Building Society | 15 |
| Credit Union | 15 |
| Specialist Credit Card Institution (SCCI) | 15 |
| Provider of Purchased Payment Facilities | Not applicable |
| Other ADI[8] | 20 |
[8] Cairns Penny Savings and Loans Limited is to be treated in accordance with the reporting period requirements applicable to credit unions.
An immediate parent NOHC must submit data to APRA within the same timeframe as its subsidiary ADI.
Where both "Bank – Standardised" and "Bank – Advanced or Applicant Advanced" reporting requirements and timeframes apply to an ADI
In the following cases an Australian-owned bank or a foreign subsidiary bank must meet reporting requirements and timeframes applicable to both a “Bank – Advanced or Applicant Advanced” and a “Bank – Standardised”:
(a)where the ADI is operating under the standardised approach to credit risk under APS 112, but has applied for IRB approval under APS 113, in which case the ADI will be both a “Bank – Advanced or Applicant Advanced” and a “Bank – Standardised”; and
(b)where the ADI has received IRB approval under APS 113 in respect of most (but not all) of its operations, and has approval for partial use of the standardised approach under APS 112 for the remainder of its operations.
Such an ADI must report under ARF 112.2A (the form) as follows:
Description of ADI | Reporting requirement | Timeframes for lodgement |
| ADI is operating under Basel II[9] APS 112 standardised approach, but has applied to adopt IRB approach for all its operations | Report under the form (for purposes of calculating credit risk component of regulatory capital for all of its operations) | “Bank – Standardised” timeframe (within 20 business days) |
| ADI is operating under Basel II APS 112 standardised approach, but has applied to adopt IRB approach for most (but not all) of its operations (or APRA has indicated that it does not propose to grant IRB approval in respect of all of the ADI’s operations) | Report under the form (for purposes of calculating credit risk component of regulatory capital for all of its operations) | “Bank – Standardised” timeframe (within 20 business days) |
| Separately report under the form in respect of assets that will remain under the standardised approach (i.e. partial use) after IRB approval given (for purposes of assessing prospective credit risk component of regulatory capital calculation after IRB approval (i.e. “parallel run” of data) | “Bank – Advanced or Applicant Advanced” timeframe (within 30 business days) | |
| ADI has IRB approval, but some operations remain under Basel II standardised approach | Report under the form in respect of operations that will remain under standardised approach (for purposes of calculating partial use credit risk component of regulatory capital) | “Bank – Advanced or Applicant Advanced” timeframe (within 30 business days) |
[9] If an ADI is required to apply the Basel I capital adequacy standards pending APRA’s determination of an application made before 1 January 2008 for approval to use an internal ratings-based approach to credit risk and/or an advanced measurement approach to operational risk, the ADI must report under the Basel I capital reporting standards: refer to Reporting Standard ARS 150 Capital Adequacy: Basel II Transition (Advanced ADIs) and paragraph 14 of Prudential Standard APS 150 Capital Adequacy: Basel II Transition (Advanced ADIs).
These ADIs will also have certain reporting obligations under the ARF 113 series of reporting forms.
Unit of measurement
This form should be completed in Australian dollars (AUD) and in accordance with the units set out for each class of ADI in the table below.
| Class of ADI | Units |
| Bank – Advanced or Applicant Advanced | Millions of dollars rounded to one decimal place |
| Bank – Standardised | Millions of dollars rounded to one decimal place |
| Branch of a Foreign Bank | Millions of dollars rounded to one decimal place |
| Building Society | Whole dollars with no decimal place |
| Credit Union | Whole dollars with no decimal place |
| Specialist Credit Card Institution (SCCI) | Whole dollars with no decimal place |
| Provider of Purchased Payment Facilities | Not applicable |
| Other ADI | Whole dollars with no 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
The risk-weighting process used for measuring the off-balance sheet credit exposures of an ADI covers all or part of the ADI’s off-balance sheet exposures, including both market-related and non-market related transactions that are subject to the standardised approach to credit risk, except the following specifically excluded items:
(a)securitisation exposures, which are subject to the requirements of APS 120; and
(b)items subject to capital requirements under Prudential Standard APS 116 Capital Adequacy: Market Risk. However, the trading book exposures that expose the ADI to counterparty credit risk are to be included in this form.
Definitions
In this instruction guide and its corresponding reporting form (ARF 112.2A), 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. Items that were treated as off-balance sheet items for the purposes of this form prior to the adoption of the Australian equivalents of the International Financial Reporting Standards (AIFRS) will continue to be treated as off-balance sheet items in the post-AIFRS context.
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 4 (Section A) and 1 to 6 (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 conversion factor
A credit conversion factor (CCF) is the percentage value used to convert an off-balance sheet exposure into an on-balance sheet equivalent (i.e. the CEA). CCFs are generally pre-defined in the form and correspond to the CCFs detailed in Attachment B to APS 112 for non-market-related and market-related off-balance sheet exposures. Where CCFs have not been pre-defined in the form, the ADI does not need to report a CCF as more than one CCF may have been used in relation to that exposure type (see the section below for column 3 Credit equivalent amount).
Column 3. Potential future exposure (Section B only)
The potential future exposure amount is calculated by multiplying the notional principal amount of a market-related contract (regardless of whether the contract has a zero, positive or negative mark-to-market value) by the relevant CCF, as detailed in Attachment B to APS 112. It represents an “add-on” component to the current exposure amount and is used in the current exposure method to calculate the CEA of market-related off-balance sheet credit exposures.
Generally, the potential future exposure amount is a derived field in the form. In some cases, however, the amount must be entered by the ADI. The potential future exposure amount for some off-balance sheet exposure types may consist of several discrete exposures, each potentially attracting different CCFs. The ADI must, by reference to Attachment B to APS 112, determine the appropriate CCF(s) to be applied to the exposure(s) to calculate the potential future exposure amount for that off-balance sheet exposure type and report the total as a single potential future exposure amount.
Column 4. Current exposure (Section B only)
The current exposure amount for each type of market-related off-balance sheet exposure is the sum of the positive mark-to-market value (or replacement cost) of each individual contract within each classification.
Column 3. Credit equivalent amount (Column 5 in Section B)
A CEA is the on-balance sheet equivalent of an off-balance sheet exposure.
Non-market-related off-balance sheet transactions
In relation to a non-market-related off-balance sheet transaction, CEA is calculated by multiplying the notional principal amount of a particular transaction by the relevant CCF.
Generally, the CEA is a derived field in the form. In some cases, however, the CEA must be entered by the ADI. The CEA for some off-balance sheet exposure types may consist of several discrete exposures, each potentially attracting different CCFs. The ADI must, by reference to Attachment B to APS 112, determine the appropriate CCF(s) to be applied to the exposure(s) to calculate the CEA for that off-balance sheet exposure type and report the total as a single CEA.
Credit derivative transactions in the banking book are classified as non-market-related off-balance sheet transactions.
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. Refer to Attachment B to APS 112 for details of how to calculate CEAs for various types of transactions under the current exposure method.
Credit derivative transactions in the trading book are classified as market-related off-balance sheet transactions.
Column 4. RWA (Column 6 in Section B)
The RWA amount of a given off-balance sheet transaction that gives rise to credit exposure is calculated by multiplying the CEA of a transaction by the risk-weight applicable to the counterparty or type of assets (refer to Attachment A to APS 112). Where a transaction is secured by eligible collateral or there is an eligible guarantee, credit derivative or netting arrangement in place, the ADI may use the credit risk mitigation (CRM) techniques, detailed in Attachments F, G, H and I to APS 112, to reduce the capital requirement of that exposure.
Generally, the RWA is a derived field in the form. In some cases, however, the amount must be entered by the ADI. The RWA amount for some off-balance sheet exposure types may consist of several discrete exposures, each potentially attracting different risk-weights. The ADI must, by reference to Attachment A to APS 112, determine the appropriate risk-weight(s) to be applied to the exposure(s) to calculate the RWA for that off-balance sheet exposure type and report the total as a single RWA amount.
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 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 1.1.2 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 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 in the capital calculation regardless of whether or not they contain “material adverse change” clauses or any other provisions that are intended to relieve an ADI of its obligations under certain conditions.
1.12All other non-market-related off-balance sheet transactions
Include any other non-market related off-balance sheet transactions that give rise to credit risk but are not specifically identified in Attachment B to APS 112. For any such transaction, an ADI must consult APRA on the appropriate CCF to be used for calculating the CEA of that particular transaction for capital adequacy purposes (refer to Attachment B to APS 112).
1.13Total non-market-related off-balance sheet risk-weighted credit exposures
Derived field calculated as the sum of the RWA 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:
(a)interest rate contracts;
(b)foreign exchange and gold contracts;
(c)equity contracts;
(d)precious metal contracts (other than gold);
(e)other commodity contracts (other than precious metals); and
(f)other market-related contracts.
2.1.4 Contracts with residual maturity > 1 year that are subject to a CCF floor
For contracts that are structured to settle outstanding exposures following specified payment dates and where the terms are reset such that the mark-to-market value of the contract is zero on these specified dates, the residual maturity should be set equal to the time until the next reset date. In the case of interest rate contracts with these features with a remaining maturity of more than one year, the CCF to be applied is subject to a floor of 0.5 per cent even if there are reset dates of a shorter maturity. Such interest rate contracts are to be reported in this item.
2.1.5, 2.2.4, 2.3.4, 2.4.4, 2.5.4 & 2.6.4 Contracts with multiple exchanges of principal
For contracts with multiple exchanges of principal, the CCFs are to be multiplied by the number of remaining payments (i.e. exchanges of principal) still to be made under the contract.
2.1.6, 2.2.5, 2.3.5, 2.4.5, 2.5.5 & 2.6.5 Counterparty credit risk
An ADI must use the potential future exposure add-on factors in the calculation of the counterparty credit risk charge for single name credit default swaps and single name total-rate-of-return swaps in the trading book, as detailed in Attachment B to APS 112.
2.7 Total market-related off-balance sheet risk-weighted credit exposures
Derived field calculated as the sum of the RWA for all of the different transaction types in section B of this form.
Section C: Total off-balance sheet risk-weighted credit exposures (non-market-related and market-related)
Total off-balance sheet risk-weighted credit exposures
Derived field calculated as the sum of the RWA for all of the different transaction types in sections A and B of this form.
Reporting Standard ARS 118.0
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.
This reporting standard outlines the overall requirements for the provision of information to APRA relating to an authorised deposit-taking institution’s off-balance sheet exposures. It should be read in conjunction with:
the versions of Form ARF 118.0 Off-balance Sheet Business designated for an authorised deposit-taking institution reporting at Level 1 and Level 2, 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 or Prudential Standard APS 113 Capital Adequacy: Internal Ratings-based Approach to Credit Risk, as appropriate.
Purpose
Data collected in Form ARF 118.0 Off-balance sheet business (ARF 118.0) is used by APRA for the purpose of prudential supervision, including assessing compliance with Prudential Standard APS 112 Capital Adequacy: Standardised Approach to Credit Risk or Prudential Standard APS 113 Capital Adequacy: Internal Ratings-based Approach to Credit Risk, as appropriate. 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) that is included in one of the classes of ADI to which this reporting standard applies, as set out in the table below.
Class of ADI Applicable Bank – Advanced or Applicant Advanced Yes Bank – Standardised Yes Branch of a Foreign Bank Yes Building Society Yes Credit Union Yes Specialist Credit Card Institution (SCCI) Yes Provider of Purchased Payment Facilities No Other ADI Yes
This reporting standard may also apply to the non-operating holding company (NOHC) of an ADI (refer to paragraph 4).
Information required
An ADI to which this reporting standard applies that is a bank – advanced or applicant advanced, bank – standardised, building society, credit union, SCCI, or other ADI must provide APRA with the information required by the version of ARF 118.0 designated for an ADI at Level 1 for each reporting period. An ADI that is a branch of a foreign bank or an SCCI operating through a branch in Australia (i.e. is incorporated in an overseas jurisdiction) must provide APRA with the information required by the version of ARF 118.0 designated for an ADI at Level 1 for each reporting period in relation to the Australian branch only.
If an ADI to which this reporting standard applies that is a bank – advanced or applicant advanced, bank – standardised, building society, credit union, SCCI (other than an SCCI operating through a branch in Australia), or other ADI, is part of a Level 2 group, the ADI must also provide APRA with the information required by the version of ARF 118.0 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:
(d)the particular circumstances of the ADI;
(e)the extent to which the information is required for the purposes of the prudential supervision of the ADI; and
(f)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 in accordance with the table below. The right hand column of the table sets out the number of business days after the end of the reporting period to which the information relates, within which information must be submitted to APRA by an ADI in each of the classes set out in the same row in the left hand column.
Class of ADI Number of business days Bank – Advanced or Applicant Advanced 30 Bank – Standardised 20 Branch of a Foreign Bank 20 Building Society 15 Credit Union 15 Specialist Credit Card Institution (SCCI) 15 Provider of Purchased Payment Facilities Not applicable Other ADI[10] 20 [10] The definitions of ‘credit union’ and ‘other ADI’ in paragraph 16 of this reporting standard provide that Cairns Penny Savings and Loans Limited is to be treated in accordance with the reporting period requirements applicable to credit unions.
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:
(c)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
(d)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:
(c)which ended before the date of revocation of the old reporting standard; and
(d)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.
bank – advanced or applicant advanced means an Australian-owned bank or a foreign subsidiary bank that has APRA’s approval or is seeking APRA’s approval to use an internal ratings-based approach to credit risk and/or an advanced measurement approach to operational risk for capital adequacy purposes.
bank – standardised means an Australian-owned bank or a foreign subsidiary bank that uses the standardised approaches to credit risk and/or an advanced measurement approach to operational risk for capital adequacy purposes in respect of the whole of its operations.
branch of a foreign bank means a ‘foreign ADI’ as defined in section 5 of the Banking Act 1959, but does not include an SCCI that is a foreign ADI.
building society means a locally incorporated ADI that assumes or uses the expression ‘building society’ in relation to its banking business.
business days means ordinary business days, exclusive of Saturdays, Sundays and public holidays.
class of ADI means each of the following:
(i)bank – advanced or applicant advanced;
(ii)bank – standardised;
(iii)branch of a foreign bank;
(iv)building society;
(v)credit union;
(vi)other ADI;
(vii)provider of purchased payment facilities; and
(viii) a specialist credit card institution.
credit union means a locally incorporated ADI that assumes or uses the expression ‘credit union’ in relation to its banking business and, for the purposes of this reporting standard, includes Cairns Penny Savings and Loans Limited.
foreign subsidiary bank means a locally incorporated ADI in which a bank that is not locally incorporated has a stake of more than 15%.
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.
other ADI means an ADI that is not an Australian-owned bank, a branch of a foreign bank, a building society, a credit union, a foreign subsidiary bank, a provider of purchased payment facilities or a specialist credit card institution, but for the purposes of this reporting standard does not include Cairns Penny Savings and Loans Limited.
provider of purchased payment facilities means an ADI that is subject to a condition on its authority under section 9 of the Banking Act 1959 confining the banking business that the ADI is authorised to carry on to providing purchased payment facilities.
reporting period means a period mentioned in paragraph 6 or, if applicable, paragraph 7.
specialist credit card institution means an ADI that is subject to a condition on its authority under section 9 of the Banking Act 1959 confining the banking business that the ADI is authorised to carry on to the activities of credit card acquiring and credit card issuing in any credit card scheme that was designated as a payment system under section 11 of the Payment Systems (Regulation) Act 1998 on 11 April 2001.
stake means a stake determined under the Financial Sector Shareholdings Act 1998, as if the only associates that were taken into account under paragraph (b) of subclause 10(1) of the Schedule to that Act were those set out in paragraphs (h), (j) and (l) of subclause 4(1).
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 118.0
Off-balance Sheet Business
Instruction Guide
This instruction guide is designed to assist in the completion of the Off-balance Sheet Business form. This form collects information on an authorised deposit-taking institution’s (ADI’s) off-balance sheet business relating to:
(a)derivative activities in the ADI’s trading and banking books; and
(b)liquidity support facilities contracted by the ADI to supplement its liquidity management and the value of any charges granted over the assets of the ADI to secure these contingent liabilities.
The information collected in this form is not used for the calculation of regulatory capital relating to an ADI’s off-balance sheet business.
In completing this form, ADIs should refer to Prudential Standard APS 112 Capital Adequacy: Standardised Approach to Credit Risk (APS 112) or Prudential Standard APS 113 Capital Adequacy: Internal Ratings-based Approach to Credit Risk (APS 113), as appropriate.
General directions and notes
Reporting entity
This form is to be completed at Level 1 and Level 2[11] by each ADI (subject to the paragraph following the table) that is included in one of the classes of ADI to which this form applies, as set out in the table below:
[11] Level 1 and Level 2 are defined in accordance with Prudential Standard APS 110 Capital Adequacy.
| Class of ADI | Reporting required |
| Bank – Advanced or Applicant Advanced[12] | Yes |
| Bank – Standardised | Yes |
| Branch of a Foreign Bank | Yes[13] |
| Building Society | Yes |
| Credit Union | Yes |
| Specialist Credit Card Institution (SCCI) | Yes[14] |
| Provider of Purchased Payment Facilities | No |
| Other ADI | Yes |
[12] When an ADI is seeking APRA’s approval to use the internal ratings-based approach to credit risk and/or an advanced measurement approach to operational risk, and is therefore classified as a “Bank – Advanced or Applicant Advanced”, the ADI may concurrently be classified as a “Bank – Standardised”. In this case, the ADI must comply with the requirements and timeframes for a “Bank – Advanced or Applicant Advanced”.
[13] A branch of a foreign bank is required to complete this form for the Australian branch only.
[14] A specialist credit card institution operating through a branch in Australia is required to complete this form for the Australian branch only.
If an 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.[15]
[15] Refer to paragraph 4 of Reporting Standard ARS 118.0 Off-balance Sheet Business.
Securitisation deconsolidation principle
Except as otherwise specified in these instructions, the following applies:
Where an ADI (or a member of its Level 2 consolidated group) participates in a securitisation that meets APRA’s operational requirements for regulatory capital relief under Prudential Standard APS 120 Securitisation (APS 120):
(d)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;
(e)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
(f)the underlying exposures (i.e. the pool) under such a securitisation may be excluded from the calculation of the regulatory capital (refer to APS 120). However, the ADI must still hold regulatory capital for the securitisation exposures[16] that it retains or acquires and such exposures are to be reported in Form ARF 120.0 Standardised – Securitisation or Forms ARF 120.1A to ARF 120.1C IRB – Securitisation (as appropriate). The RWA relating to such securitisation exposures must also be reported in Form ARF 110.0 Capital Adequacy.
[16] Securitisation exposures are defined in accordance with APS 120.
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 112 or 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. The table below sets out the number of business days after the end of the relevant reporting period, within which each class of ADI must submit data to APRA.
| Class of ADI | Number of business days |
| Bank – Advanced or Applicant Advanced | 30 |
| Bank – Standardised | 20 |
| Branch of a Foreign Bank | 20 |
| Building Society | 15 |
| Credit Union | 15 |
| Specialist Credit Card Institution (SCCI) | 15 |
| Provider of Purchased Payment Facilities | Not applicable |
| Other ADI[17] | 20 |
[17] Cairns Penny Savings and Loans Limited is to be treated in accordance with the reporting period requirements applicable to credit unions.
An immediate parent NOHC must submit data to APRA within the same timeframe as its subsidiary ADI.
Unit of measurement
This form should be completed in Australian dollars (AUD) and in accordance with the units set out for each class of ADI in the table below.
| Class of ADI | Units |
| Bank – Advanced or Applicant Advanced | Millions of dollars rounded to one decimal place |
| Bank – Standardised | Millions of dollars rounded to one decimal place |
| Branch of a Foreign Bank | Millions of dollars rounded to one decimal place |
| Building Society | Whole dollars with no decimal place |
| Credit Union | Whole dollars with no decimal place |
| Specialist Credit Card Institution (SCCI) | Whole dollars with no decimal place |
| Provider of Purchased Payment Facilities | Not applicable |
| Other ADI | Whole dollars with no 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.
Definitions
In this instruction guide and its corresponding reporting form (ARF 118.0), the following expressions have the defined meanings as set out below:
Principal amount
The principal amount refers to the face value or gross amount of a given off-balance sheet transaction and not the fair value. Absolute values should be reported. Netting, as defined in APS 112, should not be applied.
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.
Trading book
An ADI that wishes to operate a trading book must submit a trading book policy statement to APRA for approval that specifies those activities that belong in the trading book (refer to Prudential Standard APS 116 Capital Adequacy: Market Risk for details).
Banking book
The banking book covers all business not included in the trading book.
Specific instructions
Section A: Statement of Derivative Activity
The statement of derivative activity is collected for information purposes. The information in this section is not directly used for the calculation of an ADI’s credit equivalent amounts for market-related off-balance sheet transactions as it does not allow for the contracts covered by eligible bilateral netting agreements (refer to APS 112 for the definition of eligible bilateral netting agreements). The regulatory capital relating to the ADI’s market-related off-balance sheet transactions is captured in Reporting Form ARF 112.2 Standardised Credit Risk – Off-balance Sheet Exposures or in the relevant ARF 113 Internal Ratings-based Approach to Credit Risk series of forms, depending on the approach an ADI is applying to the calculation of its credit risk regulatory capital.
An ADI should report all derivative activity within its trading and banking books, without taking into account netting, as defined in APS 112. ADIs may consult with 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.
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
any contracts covering other items, that give rise to credit risk.
This category also includes all credit derivatives in the banking and trading book.
Section B: Off-balance sheet liquidity support facilities
The information collected in this section of the form is not included in the calculation of an ADI’s regulatory capital.
Off-balance sheet liquidity support facilities contracted by the ADI
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.
1.1Standby facilities
These facilities are approved and committed to the ADI. Generally, an ADI is required to provide written notice to trigger draw down (access to the funds) on these facilities.
1.1.1Facilities 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.
1.1.2Facilities with 2-5 day draw down
Include those standby facilities that can be drawn down (funds accessed) within two to five days after notice is given by the ADI of its intention to draw down on the standby facility (i.e. a two to five day waiting period).
1.1.3Facilities with greater than 5 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).
1.2Bill 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). Principal and interest (discount) owing on the bill is repaid or ‘rolled over’ by the ADI on maturity of the bill.
1.3Letter of credit facilities
This is an irrevocable and unconditional undertaking by an ADI to repay principal and interest of a loan in the event of default.
1.4Overdrafts
These are accounts that may be overdrawn up to limits agreed to with an ADI.
1.5Other liquidity support facilities
Include all other off-balance sheet liquidity support facilities contracted for the ADI’s use that are not included in the categories above.
1.6.1Facilities with related entities
Include liquidity support facilities that are provided to the ADI by its related entities.
Value of charge/security that has been granted over assets of the ADI
2.1Fixed 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).
2.2Floating 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 as the charge is crystallised.
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