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PRU 2.2.23 Instructional guidelines for form PIB 12 — Geographical Distribution of Assets and Liabilities

Instructional Guidelines

1 Authorised Firms in prudential categories 1 and 5 are required to complete this form to measure its country risk transfers. All entries should be converted from the relevant currency to dollars at the closing spot mid price on the reporting date.
2 The information reported covers claims, other exposures, and liabilities booked by the Authorised Firm at the DIFC office 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 Services of Accepting Deposits and Providing Credit are to be consolidated into this return.
3 The residency of counterparties on both an immediate borrower and ultimate risk basis is to be reported with the corresponding three digit country code provided in the List of Country Codes.
4 All claims and other exposures are 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.
5 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 Firm is aware that the resident status of the counterparty is different from their mailing address.

Risk transfers

6 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.
7 In line with the risk reallocation principle for measuring country exposure recommended 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.
8 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); or
iii. 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); and
vi. 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; and
g Domestic or Foreign Funds where:
i. a price for the Units is publicly quoted daily; and
ii. the Fund is limited to investing in the instruments listed in this section
9 If credit derivatives are used to cover the counterparty risk of financial claims in the banking book, the country of ultimate risk of these positions is defined as the country in which the counterparty to 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 derivatives should 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 Guarantees
10 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 derivative contract resides.
11 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.

Example:

12 The following example demonstrates a risk transfer. A borrower in country XXX borrows USD $1 million bank and the repayment of that loan is guaranteed by another entity in country YYY. For purposes of risk transfer, this transaction would be reported as follows:

Country Code Loans Outward Risk Transfer Inward Risk Transfer
XXX 1000 1000  
YYY     1000
13 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.
14 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)

Derivatives

15 Authorised Firms are to provide data on financial claims (i.e., positive market values) resulting from derivative contracts, 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 derivative contracts. As previously indicated, credit derivatives that 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.
16 The following items are common OTC derivative instruments:
a. Forward contracts: 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 are to be reported 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.
b. Swaps: Swaps are transactions in which two parties agree to exchange payment streams based on a specified notional amount for a specified period.
c. OTC options: 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 derivatives.

Guarantees and Other Unused Credit Commitments

17 Data must be supplied on exposures to 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. A more detailed definition of guarantees and other credit commitments and a non-exhaustive list of typical instruments that qualify as guarantees and other credit commitments is provided below.
18 "Guarantees" are contingent liabilities arising from an irrevocable obligation to pay to a third-party beneficiary when a client fails 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 derivative contracts.
19 "Other unused credit commitments" are arrangements that irrevocably obligate an institution, at a client's request, 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. This definition is identical to that used in the capital adequacy return. Include customers' liability under acceptances (Assets 13 of the month-end balance sheet). Do not include such items as letters of awareness or intent, comfort letters, or similar documents.

Specific Guidance

Item No Item Guidance
12.1 Country Code For the relevant exposure, enter the country code found on the List of Country Codes.
Deposits Report deposits with banks or official monetary institutions according to the location of the office where the deposit is 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.


Item No Item Guidance
12.2 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, derivatives and other as previously defined.


Item No Item Guidance
12.3 Official Monetary Institutions Report deposits payable to official monetary institutions.
Other Banks Report deposits payable to other banks.
Other Liabilities Report any other liabilities.

List of Country Codes

Country Country Code
Afghanistan 648
Albania 515
Algeria 702
American Samoa 832
Andorra 403
Angola 704
Anguilla 274
Antarctica 834
Antigua and Barbuda 207
Argentina 303
Armenia 647
Aruba 208
Australia 812
Austria 437
Azerbaijan 649
Bahamas 209
Bahrain 604
Bangladesh 650
Barbados 212
Belarus 517
Belgium 406
Belize 307
Benin (formerly Dahomey) 724
Bermuda 215
Bhutan, Kingdom of 652
Bolivia 311
Bosnia-Hercegovina 519
Botswana 706
Brazil 315
British Indian Ocean Territory 710
British Virgin Islands 218
Brunei 654
Bulgaria 521
Burkina Faso 802
Burundi 708
Cambodia 664
Cameroon Republic 712
Canada 146
Cape Verde Islands 714
Cayman Islands 221
Central African Republic 716
Chad 718
Chile 319
China, People's Republic of 640
Christmas Island 840
Cocos (Keeling) Islands 814
Colombia 323
Comoros Islands 720
Congo, Democratic Republic of (formerly Zaire) 804
Congo, People's Republic of 722
Cook Islands 826
Costa Rica 327
Côte d'Ivoire 742
Croatia 525
Cuba 224
Cyprus 481
Czech Republic 526
Denmark 409
Djibouti (formerly French Afars & Issas) 730
Dominica 227
Dominican Republic 230
Ecuador 331
Egypt 608
El Salvador 335
Equatorial Guinea 726
Eritrea 727
Estonia 529
Ethiopia 728
Falkland Islands 233
Faroe Islands 479
Fiji 842
Finland 441
France 412
French Guiana 339
French Polynesia 844
Gabon 732
Gambia 734
Georgia 657
Germany 415
Ghana 736
Gibraltar 485
Greece 445
Greenland 480
Grenada 236
Guadeloupe 239
Guam 848
Guatemala 343
Guernsey 486
Guinea 738
Guinea-Bisseau 740
Guyana 347
Haiti 242
Heard and MacDonald Islands 816
Honduras 351
Hong Kong 658
Hungary 539
Iceland 449
India 660
Indonesia 662
Iran 610
Iraq 612
Ireland 418
Isle of Man 487
Israel 614
Italy 421
Jamaica 248
Japan 135
Jersey 488
Johnston Island 850
Jordan, Hashemite Kingdom of 616
Kazakhstan 665
Kenya 744
Kiribati (Canton and Enderbury, Gilbert Island, Phoenix Islands, Line Islands) 846
Korea, Democratic People's Republic of (north) 642
Korea, Republic of (south) 666
Kuwait, State of 618
Kyrgyzstan 667
Laos 668
Latvia 540
Lebanon 620
Lesotho 746
Liberia 748
Libya, Arab Republic of 622
Liechtenstein 453
Lithuania 541
Luxembourg 424
Macau 670
Macedonia 542
Madagascar (Malagasy Republic) 750
Malawi 752
Malaysia 672
Maldives, Republic of 674
Mali 754
Malta 489
Marshall Islands 872
Martinique 257
Mauritania 756
Mauritius 758
Mexico 355
Micronesia 874
Midway Island 852
Moldova 543
Monaco 427
Mongolia 644
Montserrat 260
Morocco 760
Mozambique 762
Myanmar (formerly Burma) 656
Namibia 764
Nauru 818
Nepal, Kingdom of 676
Netherlands 430
Netherlands Antilles 263
New Caledonia 854
New Zealand 824
Nicaragua 359
Niger 766
Nigeria 768
Niue Island 828
Norfolk Island 820
Norway 457
Oman 626
Pacific Islands (Trust Territory) 858
Pakistan 678
Palau 876
Palestinian Territory 627
Panama 363
Panama Canal Zone 367
Papua New Guinea 822
Paraguay 371
Peru 375
Philippines 680
Pitcairn Islands 860
Poland 545
Portugal 461
Puerto Rico 202
Qatar 628
Reunion Islands 770
Romania 551
Russian Federation 553
Rwanda 774
Samoa 870
San Marino 491
Sao Tomé and Principe 778
Saudi Arabia 630
Senegal 780
Serbia and Montenegro 554
Seychelles 782
Sierra Leone 784
Sikkim 684
Singapore 686
Slovak Republic 552
Slovenia 555
Solomon Islands 836
Somalia 786
South Africa 701
Spain 465
Sri Lanka 688
St. Helena 776
St. Kitts-Nevis 272
St. Lucia 275
St. Pierre and Miquelon 278
St. Vincent 281
Sudan 790
Suriname 379
Swaziland 792
Sweden 469
Switzerland 473
Syria 632
Taiwan 690
Tajikistan 691
Tanzania 794
Thailand 692
Timor Leste 682
Togo 796
Tokelau or Union Islands 830
Tonga 862
Trinidad and Tobago 287
Tunisia 798
Turkey 477
Turkmenistan 693
Turks and Caicos Islands 290
Tuvalu 838
U.S. Miscellaneous 864
U.S. Virgin Islands 205
Uganda 800
Ukraine 556
United Arab Emirates 634
United Kingdom 124
United States 110
Uruguay 383
Uzbekistan 695
Vanuatu (formerly New Hebridges) 856
Vatican 433
Venezuela 387
Vietnam 646
Wake Island 866
Wallis and Futuna Islands 868
Western Sahara 788
Yemen, Republic of 636
Zambia 806
Zimbabwe (formerly Rhodesia) 772