PRU-EPRS 1.24 PRU-EPRS 1.24 Instructional Guidelines — Form B120 — Geographical Distribution of Assets and Liabilities
Form B120 is intended to capture the information regarding geographical distribution of assets and liabilities of an
Authorised Firmat the end of the reporting period.
This form is applicable to
Authorised Firmscategorised under prudential categories 1, 2, 3A, 3B, 3C5.
The information reported covers claims, other
Exposures, and liabilities booked by the Authorised Firmat the DIFCoffice and its branches. The level of consolidation for this return should be the same as that for the balance sheet. The positions of the subsidiaries carrying out the Financial Servicesof Accepting Depositsand Providing Creditare to be consolidated into this return.
Structure of the form in EPRS
The form is split into three linked forms, namely, Part I — Claims Immediate Borrower Basis, Part II — Other and Part III — Liabilities.
In Part I — Claims Immediate Borrower Basis information regarding all the claims and other
Exposuresare to be entered.
In the second linked form (Part II — Other) mainly the information regarding the risk transfers i.e. claims on immediate borrowers that can be reallocated to the country sector where the final risk lies, i.e., the entity of ultimate risk is to be reported by way of outward and inward risk transfers.
The third linked form (Part III — Liabilities) captures the information regarding the geographical distribution of various liabilities of an
Note: A comprehensive list of countries has been provided within the
EPRSsystem. Therefore, for providing country wise breakdown of the amounts right click on the row 'Country Code' in each of the linked forms and select the necessary countries from the list that would appear.Derived from GM5/2007 (Made 16th December 2007). [VER1/12-07]
PRU-EPRS 1.24 Instructional Guidelines1. The residency of
Counterpartieson both an immediate borrower and ultimate risk basis is to be reported.2. All claims and other Exposuresare to be reported gross of any provisions for impairment. Accrued interest is to be excluded from all parts of the return. Exclude all gold and silver balances, foreign coin, foreign government or bank notes, net debit or credit items in transit vis-à-vis third parties and amounts reported as insurance-related assets and liabilities.3. Claims, other Exposures, and liabilities are to be initially classified on a geographical basis according to the mailing address of the Counterparty, unless the Authorised Firmis aware that the residential status of the Counterpartyis different from their mailing address.
Risk transfers4. Information on claims on immediate borrowers that can be reallocated to the country sector where the final risk lies, i.e., the entity of ultimate risk, is to be reported by way of outward and inward risk transfers.5. In line with the risk reallocation principle for measuring country
Exposurerecommended by the Basel Committee on Banking Supervision, the country of ultimate risk or where the final risk lies is defined as the country in which the guarantor of a financial claim resides or the country in which the head office of a legally dependent branch is located.6. Claims on separately capitalized subsidiaries can only be considered as being guaranteed by the head office if the parent has provided an explicit guarantee. Collateral may be considered as an indicator of where the final risk lies to the extent that it is recognized as a risk mitigant under the Basel Capital Accord. The following is a list of eligible collateral:a. cash on deposit with the lending bank including certificates of deposit or comparable instruments issued by the lending bank;b. gold;c. debt securities rated by a recognised external credit assessment institution where these are:i. rated at least BB- when issued by sovereigns and public sector entities ("PSEs") that are treated as sovereigns by the national supervisor;ii. rated at least BBB- when issued by other issuers (including banks and securities firms); oriii. rated at least A2 / P3;d. debt securities not rated by a recognised external credit assessment institution where these are:i. issued by a bank;ii. listed on a regulated exchange;iii. qualify as senior debt;iv. all other rated issues of the same seniority by the issuing bank are rated at least BBB- or A3 / P3 by a recognized external credit assessment institution;v. the bank holding the securities as collateral has no information to suggest that the issue justifies a rating below BBB- or A3 / P3 (as applicable); andvi. the supervisor is sufficiently confident about the market liquidity of the security;e. equities that are included in a main index;f. equities that are not included in a main index but are listed on a regulated exchange; andg. Domestic or Foreign Fundswhere:i. a price for the Unitsis publicly quoted daily; andii. the Fundis limited to investing in the instruments listed in this section.7. If credit Derivativesare used to cover the Counterpartyrisk of financial claims in the banking book, the country of ultimate risk of these positions is defined as the country in which the Counterpartyto the credit derivative contract resides. However, credit Derivatives, such as credit default swaps and total return swaps, that belong to the trading book of the protection buying reporting bank should only be reported under the "Derivatives" category, and all other credit Derivativesshould be reported as "guarantees" by the protection seller (see guarantees and other unused credit commitments below).
Reporting of Credit
Derivatives Buy protection Sell protection Banking book Risk transfers Guarantees Trading book Derivatives Guarantees8. In the case of security holdings, such as credit-linked notes and other collateralised debt obligations and asset-backed securities, a "look-through" approach should be adopted and the country of ultimate risk is defined as the country where the debtor of the underlying credit, security or Derivativecontract resides.9. Note that inward and outward risk transfers are used to report transfer of risk from one sector to another sector, even when the country of the immediate borrower and the country of ultimate risk are the same. Where banks are unable to allocate outward risk by country because the protection has been purchased to cover a group, e.g., an industry Exposure, banks are to use a reasonable weighted-average allocation formula, eg. weighted-average based on total claims of the group. Amounts involved in such allocations should be insignificant.
Example10. The following example demonstrates a risk transfer. A borrower in country XXX borrows USD $1 million from a bank and the repayment of that loan is guaranteed by another entity in country YYY. For the purposes of risk transfer, this
Transactionwould be reported as follows: Country Name Loans Outward Risk Transfer Inward Risk Transfer XXX 1000 1000 YYY 100011. The data in line 1 tell us that the bank has a $1 million claim on a borrower located in country XXX, and this claim is guaranteed by a resident of another country. Line 2 data tell us that the residents of country YYY have provided an unconditional credit commitment for the claims the bank has on the residents of another country. Note that the total of the "Outward Risk Transfer" column and the "Inward Risk Transfer" column (columns 3 and 4 in the above example) will be the same.12. The following equation illustrates how to derive claims on an ultimate risk basis:
Total Claims (Immediate Borrower Basis) -
Outward Risk Transfer+ Inward Risk Transfer= Total Claims(Ultimate Risk Basis)
Authorised Firmsare to provide data on financial claims (i.e., positive market values) resulting from Derivativecontracts, independent of whether they are booked as on- or off-balance sheet items. The data should be reported on an ultimate risk basis, i.e., the positions should be allocated to the country where the final risk lies. The data would, therefore, mainly comprise forwards, swaps and options relating to foreign exchange, interest rate, equity, commodity and credit Derivativecontracts. As previously indicated, credit Derivativesthat are used to cover for the Counterparty risk of financial claims in the banking book should be reported as "risk transfers" and not as Derivatives.14. The following items are common OTC Derivativeinstruments:
Forward contracts15. Forward contracts represent agreements for delayed delivery of financial instruments or commodities in which the buyer agrees to purchase and the seller agrees to deliver, at a specified future date, a specified instrument or commodity at a specified price or yield. Forward contracts are not traded on organised exchanges and their contractual terms are not standardised. Forward contracts that are to be reported are those that have been entered into by the reporting bank and are outstanding (i.e., open contracts) as at the reporting date. Contracts are outstanding (i.e., open) until they have been cancelled by acquisition or delivery of the underlying financial instrument or commodity or settled in cash.
Swaps16. Swaps are
Transactionsin which two parties agree to exchange payment streams based on a specified notional amount for a specified period.
OTC options17. Option contracts convey either the right or the obligation, depending upon whether the reporting institution is the purchaser or the writer, respectively, to buy or sell a financial instrument or commodity at a specified price up to a specified future date. OTC option contracts include all option contracts not traded on an organized exchange. These include: swaptions, i.e., options to enter into a swap contract, and contracts known as caps, floors, collars, and corridors. Options such as call features embedded in loan, securities and other on-balance-sheet assets are not to be included. Sold options are not considered a financial claim and therefore are not to be included under
Guarantees and Other Unused Credit Commitments18. Data should be supplied on
Exposuresto the reporting bank via guarantees and unused credit commitments other than guarantees. These are to be reported on an ultimate risk basis, i.e., the positions allocated to the country where the final risk lies. Both types of data should be reported to the extent that they represent the unutilised portion of both binding contractual obligations and any other irrevocable commitments. Performance bonds and other forms of guarantee should only be reported if, in the event of the contingency occurring, the resulting claims would have an impact on total balance sheet claims.19. "Guarantees" are contingent liabilities arising from an irrevocable obligation to pay to a third-party beneficiary when a Clientfails to perform some contractual obligation. They include secured, bid and performance bonds, warranties and indemnities, confirmed documentary credits, irrevocable and standby letters of credit, acceptances and endorsements. Guarantees also include the contingent liabilities of the protection seller of credit Derivativecontracts.20. "Other unused credit commitments" are arrangements that irrevocably obligate an institution, at a Client'srequest, to extend credit in the form of loans, participation in loans, lease financing receivables, mortgages, overdrafts or other loan substitutes or commitments to extend credit in the form of the purchase of loans, securities or other assets. Normally commitments involve a written contract or agreement and some form of consideration, such as a commitment fee.
First linked form — Part I — Claims — Immediate Borrower Basis
Item Instructional Guidelines Country Code For the relevant Exposure, enter the country code found on the List of Country Codes. Deposits Report Depositswith banks or official monetary institutions according to the location of the office where the Depositis held. Securities Report short term and long term securities and equities. Short term securities are those with an initial term of less than 1 year. Loans Report loans at book value gross of provisions for impairment. Distribution of claims by residual term to maturity The maturity should reflect amortisation periods or final maturity dates rather than interest adjustments or rollover dates. Instalment loans should be allocated to the periods in which instalment payments are made. Demand loans should be classified as claims with a maturity of less than one year. Equities should be reported as unallocated.
Second linked form — Part II — Other
Item Instructional Guidelines Outward Risk Transfer Report the amounts which are guaranteed or assured through some type of commitment by a party in another country or by another sector in the same country. Inward Risk Transfer Report the amount of any guarantees and other types of credit commitments made by residents of other countries or by another sector in the same country. Total Claims ultimate risk basis Report the total "claims — immediate borrower basis" less "outward risk transfers" plus "inward risk transfers". Other Exposures ultimate risk basis Report separate amounts for guarantees, Derivativesand other as previously defined.
Third linked form — Part III — Liabilities
Item Instructional Guidelines Official Monetary Institutions Report Depositspayable to official monetary institutions. Other Banks Report Depositspayable to other banks. Other Liabilities Report any other liabilities.Derived from GM5/2007 (Made 16th December 2007). [VER1/12-07]