[B2] Banks – off-balance sheet business

B2 BANKS – OFF-BALANCE SHEET BUSINESS

Data for the current quarter are preliminary and subject to minor revisions

These data are derived from returns submitted to the Australian Prudential Regulation Authority (APRA) by banks authorised under the Banking Act 1959. APRA assumed responsibility for the supervision and regulation of banks on 1 July 1998. Data prior to that date were submitted to the RBA.

Prior to March 2002, banks reported quarterly to APRA on the Off-balance Sheet Business Return. From that date until the end of 2007, banks reported quarterly on ARF 112.2: Capital Adequacy – Off-balance Sheet Business. Following the introduction of a new capital framework (Basel II) on 1 January 2008, the data between March 2008 and March 2011 were reported on either ARF 112.2: Capital Adequacy – Off-balance Sheet Business, ARF 112.2A: Standardised Credit Risk – Off-balance Sheet Exposures, or ARF 118.0: Off-balance Sheet Business, depending on whether the bank had been approved by APRA to use a Basel II advanced approach to credit risk. Following the revocation of Australian Prudential Standard APS150 on 30 June 2011, banks using the advanced approach to credit risk have been required to report data with reference to the Basel II framework. From June 2011, data are reported on ARF 112.2A: Standardised Credit Risk – Off-balance Sheet Exposures, ARF 118.0: Off-balance Sheet Business, or ARF 118.1: Other Off-balance Sheet Exposures, depending on whether the bank has been approved by APRA to use a Basel II advanced approach to credit risk. From March 2023 banks data are reported on ARS 112.0 Capital Adequency: Standardised Approach to Credit Risk – Off-balance Sheet Exposures, ARF 118.0: Off-balance Sheet Business, or ARS 113.0: Capital Adequacy: Internal Ratings-based Approach to Credit Risk, depending on whether the bank has been approved by APRA to use a Basel II advanced approach to credit risk. From March 2023, data from foreign branches are excluded as APRA has stopped collecting such data under ARS 112.0 and ARS 113.0.

‘Consolidated group’, for a locally incorporated bank, refers to the global operations of the bank and its subsidiaries, excluding those involved in insurance, funds management/trustee and non-financial business. For a foreign bank authorised to operate in Australia as a branch, the data relate to the operations of the branch only.

Figures are as at the last business day of the quarter and refer to the principal amount (face value) of the transaction.

From March 2002, banks are required to report separately activity in the banking and trading books for interest rate contracts, foreign exchange contracts, and other derivative contracts. Banking and trading book figures are added to produce the data reported in the table. Before March 2002, exposures were netted across the banking and trading books (except credit derivatives). This has necessitated a break in the series.

‘Direct credit substitutes’ covers any irrevocable obligations that carry the same credit risk as a direct extension of credit. This includes the issue of guarantees, confirmation of letters of credit, standby letters of credit serving as financial guarantees for loans, securities and any other financial liabilities, and certain bills endorsed under bill endorsement lines. ‘Direct credit substitutes’ does not include credit derivatives, which are shown separately. From March 2023, the scope of 'Direct Credit Subsititues' has been extended to capture Merchant Acquiring Exposures (MAE).

‘Trade- and performance-related items’ covers contingent liabilities arising from trade-related obligations secured against an underlying shipment of goods and any irrevocable obligations to make a payment to a third party if a counterparty fails to perform a contractual non-monetary obligation. This includes documentary letters of credit issued, acceptances on trade bills, shipping guarantees issued, issue of performance bonds, bid bonds, warranties, indemnities, standby letters of credit in relation to a non-monetary obligation of a counterparty under a particular transaction, and any other trade- and performance-related items.

‘Commitments and other non-market-related items’ includes lending of securities or posting of securities as collateral, assets sold with recourse, forward asset purchases, partly paid shares and securities, placements of forward deposits, underwriting facilities, standby lines of credit, redraw facilities, undrawn credit card facilities, and all other non-market-related off-balance sheet items. From March 2023 onwards, it also includes unsettled securities commodities and foreign exchange transactions accounted for at settlement date, intraday limits, modelled EAD, other off falance sheet items that are credit substitutes due to the introduction of new Prudential Standard APS 112 from APRA, which also changes the definition of commitment (see Attachement C in Prudential Standard APS 112 for details).

‘Interest rate contracts – OTC forwards’ covers single currency over-the-counter interest rate forwards including forward rate agreements.

‘Interest rate contracts – OTC swaps’ covers single currency over-the-counter interest rate swaps.

‘Interest rate contracts – Other’ covers other single currency over-the-counter and exchange-traded interest rate contracts including interest rate options written and purchased.

‘Foreign exchange contracts – OTC forwards’ covers over-the-counter foreign exchange forwards including foreign exchange forward contracts involving gold.

‘Foreign exchange contracts – OTC swaps’ covers over-the-counter foreign exchange swaps including cross currency interest rate swaps and foreign exchange swap contracts involving gold.

‘Foreign exchange contracts – Other’ covers other over-the-counter and exchange-traded foreign exchange contracts including other foreign exchange contracts involving gold.

‘Credit derivatives’ covers all credit derivatives contracts, both where protection is purchased and protection is sold. Banks were required to report credit derivatives exposure to APRA from June 2000 following a change to the Off-balance Sheet Business Return. This has necessitated a break in the series.

‘Other off-balance sheet business’ covers equity contracts including written and purchased options positions, derivatives based on gold and precious metals, base metals, energy and other commodities, and all other derivative activity.