Financial Sector (Collection of Data) (reporting standard) determination No. 7 of 2006 Reporting Standard ARS 220.0 Impaired Facilities (Cth)
Financial Sector (Collection of Data) (reporting standard) determination No. 7 of 2006
Reporting standard ARS 220.0 Impaired Facilities
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 220.0 (2005) Impaired Facilities; and
DETERMINE the Reporting standard ARS 220.0 Impaired Facilities 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 220.0 Impaired Facilities comprises 41 pages commencing on the next page.
Reporting Standard ARS 220.0
Impaired Facilities
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, but excluding specialist credit card institutions that do not engage in issuing activities, to report to APRA, generally on a quarterly basis, in relation to their impaired assets.
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 220.0 Impaired Facilities designated for a ‘Licensed ADI’ and ‘Consolidated Group’ and the associated instructions (all of which are attached and form part of this reporting standard).
Purpose
Data collected in Form ARF 220.0 Impaired Facilities (Form ARF 220.0) is used by APRA for the purpose of prudential supervision. It may also be used by the Reserve Bank of Australia and the Australian Bureau of Statistics.
Application
This reporting standard applies to all authorised deposit-taking institutions (ADIs) other than specialist credit card institutions that do not engage in issuing activities.
Information required
An ADI (other than a specialist credit card institution that does not engage in issuing activities) must provide APRA with the information required by the version of Form ARF 220.0 designated for a ‘Licensed ADI’ for each reporting period.
An ADI (other than a specialist credit card institution that does not engage in issuing activities) 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 220.0 designated for a ‘Consolidated Group’ for each reporting period.
Forms and method of submission
The information required by this reporting standard must be given to APRA either:
(a)in electronic form, using one of the electronic submission mechanisms provided by the ‘Direct to APRA’ (also known as ‘D2A’) application; or
(b)manually completed on paper, which must be faxed or mailed to APRA’s head office.
Note: the Direct to APRA application software and paper forms may be obtained from APRA.
Reporting periods and due dates
Subject to paragraph 7, an ADI must provide the information required by this reporting standard for each quarter based on the financial year (within the meaning of the Corporations Act 2001) of the ADI.
APRA may, by notice in writing, change the reporting periods, or specified reporting periods, for a particular ADI, to require it to provide the information required by this reporting standard more frequently, or less frequently, having regard to:
(a)the particular circumstances of the ADI;
(b)the extent to which the information is required for the purposes of the prudential supervision of the ADI; and
(c)the requirements of the Reserve Bank of Australia or the Australian Bureau of Statistics.
The information required by this reporting standard must be provided to APRA by the following times:
(a)in the case of information required by paragraphs 3 and 4 from a locally-incorporated bank, 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 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) that engages in issuing activities or Cairns Penny Savings & Loans Limited – 15 business days after the end of the reporting period to which the information relates.
APRA may grant an ADI an extension of a due date in writing, in which case the new due date for the provision of the information will be the date on the notice of extension.
Quality control
The information provided by an ADI under this reporting standard (except for the information required under paragraph 4) must be the product of processes and controls that have been reviewed and tested by the external auditor of the ADI. AGS 1008 ‘Audit Implications of Prudential Reporting Requirements for Authorised Deposit-taking Institutions’, issued by the Auditing and Assurance Standards Board provides guidance on the scope and nature of the review and testing required from external auditors. This review and testing must be done on an annual basis or more frequently if necessary to enable the external auditor to form an opinion on the accuracy and reliability of the data.
All information provided by an ADI under this reporting standard must 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 – classification of ADIs
In this reporting standard:
Accounting Standard AASB 127 means the accounting standards 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 locally-incorporated.
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 is locally-incorporated, it is taken to be a locally-incorporated bank for the purposes of this standard;
(b)if the ADI assumes or uses the expression ‘building society’ in relation to its financial business, and is locally-incorporated, it is taken to be a locally-incorporated building society for the purposes of this reporting standard;
(c)if the ADI assumes or uses the expression ‘credit union’, ‘credit society’ or ‘credit co-operative’ in relation to its financial business, and is locally-incorporated, it is taken to be a locally-incorporated credit union for the purposes of this reporting standard; and
(d)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, it is taken to be a 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, specialist credit card institution, or locally-incorporated special service provider for the purposes of this 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 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 220.0
Impaired Facilities
Instruction Guide
General directions and notes
Reporting entity
This form is to be completed by all authorised deposit-taking institutions (ADIs) (other than Specialist Credit Card Institutions (SCCIs) that engage only in credit card acquiring activities) on both a licensed ADI and consolidated ADI group basis (where applicable).
Foreign ADIs[1] and SCCIs operating through branches in Australia are required to complete this form for the Australian branch only.
[1] These instructions and any relevant form are to apply to the Bank of China as if its branch operations in Australia constituted a locally-incorporated bank. Accordingly: (a) the Bank of China is to undertake stand-alone or ‘Licensed ADI’ reporting in respect of the bank’s Australian branch operations, as if those operations constituted a locally-incorporated bank; and (b) ‘Consolidated Group’ reporting for Bank of China is to encompass (i) those branch operations (as if they constituted a locally-incorporated bank) and (ii) any locally-incorporated subsidiary of the Bank of China.
Licensed ADI
This refers to the operations of the reporting ADI on a stand-alone basis.
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 (APS 120) 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 (AGN 120.1). 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.
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 the ADI Prudential Standard APS 110 Capital Adequacy.
The basis of consolidation required in this form is in accordance with the prudential consolidated ADI group. The prudential consolidated group should also be determined in accordance with Australian accounting standards, notably AASB 127 Consolidated and Separate Financial Statements with the following modifications:
Include the following:
all controlled banking entities, securities entities and other financial entities (e.g. finance companies, money market corporations, stockbrokers and leasing companies).
Exclude subsidiary entities involved in the following business activities:
insurance businesses (including friendly societies and health funds);
acting as manager, responsible entity, approved trustee, trustee or similar role in relation to funds management or the securitisation of assets;
non-financial (commercial) operations; and
special purpose vehicles whose assets have satisfied the clean sale requirements set down in AGN 120.3 , see Securitisation Deconsolidation Principle below).
Reporting period
The 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;[2]
[2]Monetary items are defined to mean units of currency held and assets and liabilities to be received or paid in a fixed or determinable number of units of currency. Spot rate means the exchange rate for immediate delivery.
foreign currency non-monetary items that are measured at historical cost in a foreign currency must be translated using the exchange rate at the date of the transaction;[3]
[3] Examples of non-monetary items include amounts prepaid for goods and services (e.g. prepaid rent); goodwill; intangible assets; physical assets; and provisions that are to be settled by the delivery of a non-monetary asset.
foreign currency non-monetary items that are measured at fair value will be translated at the exchange rate at the date when fair value was determined.
Transactions arising under foreign currency derivative contracts at the reporting date must be prepared in accordance with AASB 139 Financial Instruments: Recognition and Measurement (AASB 139). However, those foreign currency derivatives that are not within the scope of AASB 139 (e.g. some foreign currency derivatives that are embedded in other contracts) remain within the scope of AASB 121.
For APRA purposes equity items must be translated using the foreign currency exchange rate at the date of investment or acquisition. Post acquisition changes in equity are required to be translated on the date of the movement.
As foreign currency derivatives are measured at fair value, the currency derivative contracts are translated at the spot rate at the reporting date.
Exchange differences should be recognised in profit and loss in the period which they arise. For foreign currency derivatives, the exchange differences would be recognised immediately in profit and loss if the hedging instrument is a fair value hedge. For derivatives used in a cash flow hedge, the exchange differences should be recognised directly in equity.
The ineffective portion of the exchange differences in all hedges would be recognised in profit and loss.
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.
Reporting basis
Parts 1A and 2A are to be completed on an “audited” basis while Parts 1B and 2B are to be completed on a “best endeavours” basis.
Guidance
Please refer to APS 220 Credit Quality (APS 220) and its associated Guidance Notes when completing this form.
Classification schema
The classification scheme used in ARF 220.0 Impaired Facilities (ARF 220.0) is consistent with the classification scheme used in ARF 320.0 Statement of Financial Position (Domestic Books) (ARF 320) and ARF 323.0 Statement of Financial Position (Licensed ADI) (ARF 323.0).
Resident/non-resident classification
An Australian resident is any individual, business or other organisation domiciled in Australia. Australian branches and Australian subsidiaries of foreign businesses are regarded as Australian residents.
A non-resident is any individual, business or other organisation domiciled overseas. Foreign branches and foreign subsidiaries of Australian businesses are regarded as non-residents.
Sector definitions
Households
This comprises individuals, or groups of individuals, resident in Australia whose dealings with other sectors are for personal or household purposes.
Exclude:
sole proprietors, partnerships, family trusts, and any other unincorporated enterprises owned by households (record as private unincorporated businesses).
Community service organisations (CSOs)
Include:
institutions financed mostly by members’ contributions, e.g. trade unions, professional societies, consumer associations, political parties, churches and religious societies, and social, cultural, recreational and sports clubs; and
charities and aid organisations financed by voluntary transfers.
Exclude:
CSOs and non-profit institutions controlled and mainly financed by government (record as other).
Non-financial corporations
This comprises private trading corporations and private unincorporated businesses.
Private trading corporations
Private trading corporations are those owned and controlled by the private sector whose main activity is producing goods or non-financial services for sale.
Include:
all resident private corporate trading enterprises, and non-profit institutions that are market producers of goods or non-financial services;
intra-group financiers (Financial Sector (Collection of Data) Act 2001 category I), retailers (Financial Sector (Collection of Data) Act 2001 category H) and parent companies with significant holdings of shares in private trading companies;
privately owned schools and hospitals;
any unincorporated unit that is a branch in Australia of a non-resident company and which is not included in the financial sector; and
any unincorporated business owned and operated by trading corporations (e.g. joint ventures).
Exclude:
unincorporated businesses, except for branches of non-resident companies and joint ventures or partnerships owned by corporations; and
non-resident enterprises.
Private unincorporated businesses
This comprises individuals acting as sole proprietors or in partnerships, for commercial or professional purposes. The major businesses to be included in this sub-sector are unincorporated farms, unincorporated retailers, unincorporated professional practices (medical, legal, dental, accounting, etc.), unincorporated businesses of tradesmen such as plumbers, carpenters, etc.
Financial corporations
ADIs
ADIs refers to corporations in relation to which an authority under subsection 9(3) is in force.
Include:
development banks; and
foreign banks licensed to operate in Australia under the Banking Act 1959.
Exclude:
merchant banks (record as Registered Financial Corporations (RFCs)); and
non-resident banks (record as non-resident counterparties).
RFCs
RFCs refers to corporations registered under the Financial Sector (Collection of Data) Act 2001 that are classified to Categories D through G and cash management trusts.
Include:
money market corporations (also referred to as "merchant banks") (D);
pastoral finance companies (E);
finance companies (F);
general financiers (G); and
cash management trusts.
A list of corporations registered under the Financial Sector (Collection of Data) Act 2001 and their classification are available on request.
Exclude:
intra group financiers and retailers registered under the Financial Sector (Collection of Data) Act 2001 Categories H and I (record as private trading corporations); and
other financial corporations registered under the Financial Sector (Collection of Data) Act 2001 Category J (record as other financial institutions).
Insurance corporations
The insurance corporations sector includes all corporations that provide insurance. Included are life, general, fire, accident, employer liability, household and consumer credit insurers and health insurance funds. These companies must be registered with APRA.
Include:
benefit fund friendly societies that are regulated under the Life Insurance Act 1995; and
Export Finance Insurance Corporation.
Exclude:
health benefit funds of friendly societies that are regulated under the National Health Act 1959.
Pension funds
The pension funds sub-sector includes all superannuation funds that are regarded as complying funds for the purposes of the Superannuation Industry Supervision Act 1993 and other autonomous funds established for the benefit of public sector employees. Superannuation funds with all of their assets invested with insurance offices are included.
Superannuation funds and approved deposit funds (ADFs) are established to provide benefits for their members on retirement, resignation, death or disablement. Superannuation funds and ADFs usually take the legal form of trust funds.
Include:
Pooled Superannuation Trusts;
public sector superannuation funds (including SIS-exempt funds);
private sector superannuation funds;
ADFs; and
superannuation funds established by life insurance companies.
Exclude:
retirement savings accounts.
Other financial institutions
The other financial institutions sector includes all financial institutions not recorded in the above financial corporations categories.
Include:
financial auxiliaries such as fund managers as principal, stock brokers and insurance brokers;
securitisers;
mortgage, fixed interest and equity unit trusts;
economic development corporations owned by governments;
co-operative housing societies;
other financial corporations registered under the Financial Sector (Collection of Data) Act 2001 Category J;
investment companies; and
common funds including cash common funds.
Exclude:
cash management trusts (record as RFC); and
property and trading trusts (record as private trading corporations).
Other
This comprises all other entities not classified as households, CSOs, non-financial corporations, and financial corporations.
Scope
The form covers the full range of problem exposures, which ADIs hold, and is not limited to problem loans.
In measuring off balance sheet credit exposures the following measurement policies should be adopted:
Include under balances outstanding for the appropriate impaired asset category (i.e. non-accrual or restructured items), the following:
·Any direct credit substitutes (e.g. guarantees, letters of credit, credit derivatives and endorsed bills of exchange as described in the ADI Off Balance Sheet Business Form). For example, where an ADI has guaranteed the financial obligations of a client, and there is reasonable doubt about the ultimate collectability of principal or interest, which the ADI has a contractual obligation to pay under the guarantee, it should be included in the appropriate impaired asset category.
·Any commitments, as described in the ADI Off Balance Sheet Business Form. For example, where there is reasonable doubt about the ultimate collectability of principal and interest relating to such commitments, or a provision established, then the balance of the outstanding commitment should be included in the appropriate impaired asset category.
·The credit equivalent amounts of market related off balance sheet transactions in the ADI Off Balance Sheet Business Form, which meet the definitions of impaired facilities. The credit equivalent amount must be calculated using the current exposure or mark-to-market method unless another method has been approved in advance by APRA. Potential credit add‑ons should reflect the nature of the individual exposure involved. Derivative transaction exposures should be revalued regularly so as to maintain reasonably current assessments of the extent of credit risk attaching to those transactions.
When reporting the extent of specific provisions raised against all off balance sheet credit exposures, include those recorded in the notes to ADIs' published financial statements as "other liabilities".
Unless otherwise instructed report:
·outstanding balances net of interest and other income not taken to profit, and net of any amounts written off;
·all items without any adjustment for credit conversion factors (except for market related off balance sheet transactions), risk weights, provisions, and/or collateral arrangements; and
·amounts net of offsetting balances available under legally eligible netting arrangements as outlined in Guidance Note AGN 112.3 Netting.
Separately report amounts, where requested, recorded on Australian and overseas books. Guidance on the meaning of “on Australian and overseas books” is provided in the Instruction Guide ARF 320.0.
Specific instructions
Part 1A – Impaired facilities
Impaired facilities are defined (refer APS 220) as those items for which the ultimate collectability of principal and interest is compromised. Impaired facilities include all problem facilities, off-balance sheet exposures and assets brought on to an ADI’s balance sheet through enforcement of security provisions. They do not include any assets that have been accepted for regulatory purposes as having been cleanly sold for the purposes of AGN 120.3.
Where a facility to a customer or group of related customers is impaired, all other exposures to that customer/group should be aggregated and classified as impaired, subject to exceptions in AGN 220.1 Impaired Facility Definitions (AGN 220.1).
APRA’s prudential standard on credit quality requires ADIs to classify their impaired facilities as (1) non accrual items, (2) restructured items or (3) other assets acquired through security enforcement (including other real estate owned)
Non-accrual items
For the purposes of this return, non-accrual items are those impaired facilities where estimates of future interest income are zero.
Please refer to AGN 220.1 for more details.
Performance
The return asks ADIs to separately report those non‑accrual items that are subject to no (or immaterial), partial or full performance. APRA’s intention is to better understand the nature of items that ADIs might report as non‑accrual and to enable it to assess the potential impact on the ADI’s overall performance.
No performance – report those exposures on which the ADI is not receiving any material payments. This category should also capture exposures on which an ADI is receiving only sporadic payments.
Partial performance – report those exposures on which the ADI is receiving partial payments relative to the required contractual obligations. Where partial performance is disclosed, ADIs should be able to identify a threshold of performance that defines this category. While it is not APRA’s intention to specify a minimum, the threshold chosen by the ADI should be sufficient to provide a meaningful distinction from the previous category (no performance).
Full performance – report those exposures on which full payments are being received, but which have been placed on a non-accrual basis for another reason. That is, because some reasonable doubt exists about ultimate collectability of the exposure, a specific provision has been raised, or write down taken or some other reasons has prompted this action.
Non‑accrual items – with and without provisions
ADIs should separately report those facilities classified as non‑accrual against which specific provisions have been created and those non‑accrual items against which no specific provision is held. For those ADIs applying the prescribed provisioning methodology described in Guidance Note AGN 220.3 Prescribed Provisioning (AGN 220.3) and reported in terms of ARF 220.3 Prescribed Provisioning, provisions so created are regarded as specific in nature and should be reported as such on ARF 220.0.
Restructured items
A restructured item is defined as one in which the original contractual terms have been modified to provide for concessions of interest or principal for reasons related to the financial difficulties of a customer rendering the facility non-commercial to the ADI. In considering whether a facility is non-commercial, an ADI needs to consider whether it would extend credit on similar terms and conditions to a new borrower exhibiting similar risk characteristics. A formal (written) agreement must exist between the ADI and borrower before a facility can be classified restructured.
It is APRA’s general expectation that restructured facilities will not represent a substantial part of an ADI’s total assets.
Restructured items – with and without provisions
Restructured items should be split into those against which there are no specific provisions held and those with provisions that have arisen as part of the restructuring arrangement. The value of specific provisions held against the latter should also be reported. Report only those specific provisions raised prior to, or at the time of, the restructuring. If specific provisions are raised subsequent to the restructuring, the facility should be classified as non‑accrual. The category of restructured with specific provision is primarily designed to address those few instances where ADIs, in employing their problem asset management strategies, create a specific provision ahead of virtually certain write‑off. Please refer to AGN 220.1 for more details.
It is APRA’s general expectation that the extent of facilities reported in this category will be minor and unlikely to continue to be reported in this category for a long period of time.
Other real estate owned (OREO)
OREO is defined as real estate acquired by an ADI in full or partial settlement of a loan or similar facility through enforcement of security arrangements. This category excludes real estate acquired for occupation by ADI staff, and property controlled under “mortgagee in possession” rights. Please refer to AGN 220.1 for more details.
Report holdings of OREO at fair value. The assets should continue to be reported until the ADI has disposed of the holding.
Other assets acquired through security enforcement
This category covers assets, other than real estate assets, acquired by an ADI in full or partial settlement of a loan or similar facility through enforcement of security arrangements (e.g. debt-for-equity swaps). Report the value of other assets acquired through security enforcement at fair value after taking into account any appropriate discount factor attributable to uncertain market liquidity conditions. This latter point reflects the likely lack of demand for the asset that has resulted in the ADI holding the asset as a consequence of its exposure recovery activity. Continue to report these assets until they have been sold or the entire exposure is written off.
New impaired facilities
Report the value of exposures newly classified as impaired during the quarter.
Specific provisions
As noted above, report the amount of specific provisions held against the relevant categories for non‑accrual items, restructured items, OREO and other assets acquired through security enforcement.
Security held against non-accrual items
Report separately the total value of security held against non-accrual items depending upon whether specific provisions are held or not (items R00913 and R00914 respectively). Should any security held exceed the outstanding balance of an individual non-accrual item the excess should be excluded.
Security held against restructured items
Report separately the total value of security held against restructured items depending upon whether specific provisions are held or not (items R00915 and R00916 respectively). Should any security held exceed the outstanding balance of an individual restructured item the excess should be excluded.
Interest/income received
ADIs are asked to report interest, fees, etc. actually received during the quarter from borrowers/counterparties in relation to those exposures classified as impaired (non‑accrual, restructured and assets acquired through security enforcement).
In some cases, ADIs may deem to have received income if there has been a debit to some form of working account. However, in order for this income to be recognised for the purposes of this return, the working account must:
not be established for the sole purpose of meeting interest obligations;
remain within approved limits; and
exhibit the character of a working account implying that the account balance will fluctuate and not result in interest being continuously capitalised.
ADIs should calculate the effective interest rate being earned on restructured items by reference to the principal outstanding following restructuring (i.e. after taking into account write-offs, provisions that arise as part of the restructuring arrangement or repayments in the form of assets or equity). A restructured facility must be earning a rate of interest that is equal to or greater than the ADI’s average cost of funds at the date of the restructuring. If this is not the case, the facility should be classified as non-accrual.
Report the value of income brought to account during the quarter from assets acquired through security enforcement (including other real estate owned). Any income received should be reported net of identifiable expenses (apart from funding costs) incurred in generating such income. Where, in aggregate, expenses exceed income received, report a negative balance.
Interest/income forgone
For all categories of impaired facilities, report all interest/income foregone during the quarter. Interest/income foregone is defined as the difference between what the ADI would have received had the exposure performed as contracted and that interest/income actually received. ADIs are asked to report the extent of interest/income foregone on non‑accrual and restructured items for the relevant quarter covered by the return.
Part 1B – Impaired facilities
Part 1B classifies the total balance of impaired facilities by sector.
Part 2A – Past due items
As items that are 90 days past due but well-secured[4] represent a higher degree of risk than facilities meeting contractual arrangements, APRA requires ADIs to separately report these items. A facility subject to a regular repayment schedule is regarded as “90 days past due” when: (a) at least 90 calendar days have elapsed since the due date of a contractual payment which has not been met in full; and (b) the total amount outside contractual arrangements is equivalent to at least 90 days worth of contractual payments. Such a facility is regarded as well-secured when the ADI judges that the fair value of associated security is sufficient to ensure that the ADI will recover the entire amount owing. By way of example, and assuming monthly repayment installments, if a contractual payment was made on 30 March, the facility is past due when the payment on 30 April is not made. Assuming no further payments and monthly installments, the facility should be classified as 90 days past due on 30 July. ADIs will note that this represents 120 days since a payment was made but the equivalent of 90 days worth of contractual payments being past due.
[4]A “well-secured” exposure is defined as one that is 90 days past due for which the ADI judges that the fair value of associated security, discounted to allow for reasonable realisation costs, is sufficient to cover payment of principal and any accrued interest.
An item ceases to be classified as past due when arrears have been reduced so that the exposure is no longer 90 days past due.
In the case of facilities that do not have a preset repayment schedule (e.g. overdrafts and revolving credit facilities), 90 days past due refers to the period where facilities have remained continuously outside approved arrangements but are well-secured.
The return asks ADIs to separately report those exposures that are individually managed and those that are managed on a portfolio basis.
Individually managed facilities
These are troublesome exposures that are managed on a transaction basis and typically subject to individual review. As discussed below, ADIs should separately report those facilities 90 days past due but well-secured in terms of different credit products common in the Australian financial system. That is, separately report these troublesome exposures as revolving credit, credit cards, housing loans, term loans, lease financing or other loans.
Portfolio managed facilities
Exposures managed on a portfolio basis are typically homogenous and often approved and managed using statistical management techniques. Portfolio managed exposures are often not subject to formal regular review other than in cases where payments are behind agreed repayment schedules or indebtedness is outside approved limits.
Any past due facilities managed on a portfolio basis can be excluded from the definition of impaired facilities and remain on an accrual basis until the dollar value of contractual payments is up to 180 days past due (i.e. six months worth of repayments). The commencement of the 180 days is to take place from the date on which the contractual payment of principal and/or interest is not met. Once the dollar amount of past due amounts represent 180 days of contractual payments, an ADI should decide whether it is prepared to subject the accounts to individual review or to write them off. If the ADI chooses to conduct individual reviews, then the facilities can remain on an accrual basis if the ADI is satisfied that the facility is well-secured. Where the facility is not well-secured, the ADI should immediately create an appropriate specific provision and move the facility to a non-accrual basis.
ADIs managing facilities on a portfolio basis should report the total value of facilities 90 days past due but less than 180 days past due. As for individually managed facilities, ADIs should separately report in terms of loan type. For all category of loan product sought, distinguish between those exposures that are recorded on Australian or overseas books.
To provide APRA with a basis upon which to gauge the degree of delinquency in facilities managed on a portfolio basis, ADIs should separately report the total portfolio size in terms of the individual credit product type specified below. APRA also asks those ADIs managing facilities on a portfolio basis to indicate the extent of portfolio-related provisions that have been created with respect to those facilities that are less than 90 days past due.
Revolving credit
A revolving credit is a credit facility that is typically approved for a given period of time but does not have a fixed repayment schedule.
Report the total outstanding balance of loans of a revolving credit nature that fall within the definition of the relevant category of past due reporting. Exclude loans to Australian householders for the purpose of housing (e.g. equity lines of credit secured by residential property). Facilities of this nature should be reported under “Housing loans”.
Credit cards
Credit cards are a common consumer credit arrangement that allows the consumer the option of borrowing against a pre‑approved line of credit. They are typically unsecured.
Report the total outstanding balance of credit card facilities that are outside contractual arrangements for more than 90 consecutive days but are well-secured under the heading “Individually managed facilities”. Any credit card facility that is not well-secured but is outside contractual arrangements for more than 90 consecutive days should be classified as non‑accrual unless it is managed as part of a portfolio as described in paragraph 4 of AGN 220.1.
Report the total outstanding balance of credit card facilities that are managed on a portfolio basis but are more than 90 days past due and less than 180 days past due.
Housing loans
For the purpose of this return, housing loans are those facilities, both amortising and line of credit that are primarily secured by a registered mortgage over a residential property. They may be for any purpose including the construction, purchase of dwellings for owner occupation or investment or commercial ventures. ADIs should note that this definition differs from that used in the Statement of Financial Condition Reports (ARF 322.0 Exposures to Related Entities and ARF 323.0).
Report the total outstanding balance of housing loans that are past due in accordance with whether facilities are managed on an individual or portfolio basis.
Term loans
Report the total outstanding balance of loans that have a fixed term and are past due in terms of the above guidance. Exclude loans to householders for the purpose of housing.
Lease financing
Leasing finance is a method of financing the acquisition of an asset (e.g. motor vehicle or business equipment) by the user under which the ADI buys the asset from a third party and leases it to the user in return for lease rental payments. A component of the lease rental payment relates to interest and another component to the reduction of principal.
Report the total outstanding balance of lease financing that is outside contractual arrangements in line with the preceding guidance.
Other loans
Report the total outstanding balance of loans that satisfy the preceding criteria with respect to being 90 days past due or more that cannot be readily classified in the other credit product types.
Facilities for which a prescribed provision is raised
All facilities against which an ADI is required to raise a prescribed provision in terms of AGN 220.3 will need to be recognised as a non‑accrual item for the purposes of this return and in its financial accounts. ADIs applying the prescribed provisioning methodology should be particularly alert to those Category Four Facilities that are irregular for more than 14 days. Facilities in this category must be reported as non‑accrual from the date that the prescribed provision is struck (i.e. once the facility is irregular for more than 14 days).
Part 2B – Past due items
Part 2B classifies the total amount of past due items by sector.
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