APRA published a letter to the authorized deposit-taking institutions outlining the regulatory capital treatment of their equity investments in the Australian Business Growth Fund (ABGF). APRA is adjusting its capital framework for authorized deposit-taking institutions to support the establishment of the ABGF. The ABGF is a joint initiative between the Australian government and financial investors to provide longer term equity funding to small and medium-size enterprises (SMEs). APRA supports the establishment of the fund as an initiative to enhance financing options for SMEs.
An authorized deposit-taking institution that invests in the ABGF will be able to apply a risk-weight of 250% to their investment. This compares to the current capital treatment of a full deduction from common equity tier 1 (CET1) capital for these investments. The inclusion of the Australian government as a founding shareholder in the ABGF supports APRA providing a special treatment, subject to prudential safeguards, for this investment compared to other equity investments.
To ensure that risks, to authorized deposit-taking institutions, of investing in the ABGF are contained, an authorized deposit-taking institution will only be able to invest up to 2% of its Level 1 CET1 Capital in the ABGF. Any additional equity investment beyond that amount will not be eligible for the 250% risk-weight and would be treated according to APRA’s usual prudential requirement of deduction from CET1 Capital. Where an authorized deposit-taking institution investor in the ABGF has an undrawn contractual commitment to invest in the ABGF, it may assign a 20% credit conversion factor to this commitment for capital adequacy purposes. An authorized deposit-taking institution must notify its Responsible Supervisor if it is participating in the ABGF.
Keywords: Asia Pacific, Australia, Banking, CET 1, Capital Framework, Regulatory Capital, Australian Business Growth Fund, Risk-Weighted Assets, Basel III, APRA
Previous ArticleAPRA Issues Letter on Capital Treatment of Residential Mortgages
EBA finalized the two sets of draft regulatory technical standards on the identification of material risk-takers and on the classes of instruments used for remuneration under the Investment Firms Directive (IFD).
EC published, in the Official Journal of the European Union, a notification that the European Court of Auditors (ECA) has published a special report on resolution planning in the Single Resolution Mechanism.
BoE published a scenario against which it will be stress testing banks in 2021, in addition to setting out the key elements of the 2021 stress test, guidance on the 2021 stress test, and the variable paths for the 2021 stress test.
PRA published a consultation paper (CP3/21) proposes rules regarding the timing of identity verification required for eligibility of depositor protection under the Financial Services Compensation Scheme (FSCS).
FSB published the work program for 2021, which reflects a strategic shift in priorities in the COVID-19 environment.
FCA announced that 50% firms have started using the new data collection platform RegData, which is slated to replace the existing platform known Gabriel.
Bundesbank published Version 5.0 of the derivation rules for completeness check at the form level, with respect to the data quality of the European harmonized reporting system.
FED finalized a rule that updates capital planning requirements to reflect the new framework from 2019 that sorts large banks into categories, with requirements that are tailored to the risks of each category.
ECB published results of the quarterly lending survey conducted on 143 banks in the euro area.
ESAs published the final draft implementing technical standards on reporting of intra-group transactions and risk concentration of financial conglomerates subject to the supplementary supervision in EU.