Capital Adequacy: Internal Ratings-based Approach to Credit Risk

Prudential Standard APS 113 Capital Adequacy: Internal Ratings-based Approach to Credit Risk Objective and key requirements of this Prudential Standard This Prudential Standard is directed at ensuring that an authorised deposit-taking institution (ADI) using the internal ratings-based (IRB) approach to credit risk adopts, and continues to meet on an on-going basis, the requirements necessary for use of the approach for regulatory capital purposes. An ADI that does not have approval from APRA to use the IRB approach to credit risk for regulatory capital purposes must use the standardised approach to credit risk (refer Prudential Standard APS 112 Capital Adequacy: Standardised Approach to Credit Risk). An ADI that has approval to use the IRB approach to credit risk must comply with this Prudential Standard and its IRB approval on a stand-alone (Level 1) basis and, where the ADI is a member of a consolidated banking group, on a consolidated banking group (Level 2) basis. This Prudential Standard forms part of a comprehensive set of standards dealing with capital adequacy. It should be read in conjunction with: Prudential Standard APS 110 Capital Adequacy; Prudential Standard APS 111 Capital Adequacy: Measurement of Capital; Prudential Standard APS 115 Capital Adequacy: Advanced Measurement Approach to Operational Risk; Prudential Standard APS 116 Capital Adequacy: Market Risk; Prudential Standard APS 117 Capital Adequacy: Interest Rate Risk in the Banking Book (to be released) and Prudential Standard APS 120 Securitisation (to be released). The key requirements of this Prudential Standard are: an ADI must assign its credit exposures to defined IRB asset classes; APS 113 1

subject to meeting minimum requirements, including disclosure requirements, an ADI that has received approval from APRA to use the IRB approach to credit risk may use its own internal estimates of certain credit risk components in determining the regulatory capital charge for exposures that fall within the corporate, sovereign, bank and retail IRB asset classes. The credit risk components include estimates of the probability of default, loss given default, exposure at default and effective maturity. For some exposures, the ADI will be required to use a supervisory estimate, as opposed to its own estimate, for one or more of the credit risk components. The ADI s credit risk components serve as inputs into the IRB risk-weight functions for each of those defined IRB asset classes; the IRB approach to credit risk is based upon measures of unexpected losses and expected losses. The IRB risk-weight functions for the corporate, sovereign, bank and retail IRB asset classes produce regulatory capital requirements for the UL component for each credit exposure that falls within those IRB asset classes. For EL, an ADI must compare the amount of eligible provisions with the total EL amounts for defaulted and non-defaulted exposures in the corporate, sovereign, bank and retail IRB asset classes. Where eligible provisions are not sufficient to cover the total EL amounts for those exposures, the deficiency is deducted from the ADI s capital. Where the total EL amount is less than the amount of eligible provisions for non-defaulted exposures, the difference may be recognised in Tier 2 capital subject to a defined limit; and there are assigned risk-weights for equity exposures, certain kinds of leases, fixed assets and all other claims. These risk-weights are based on APRA s broad judgement about the credit risk associated with those exposures and are assumed to represent UL only. All ADIs to which this Prudential Standard applies will be required to report, on a quarterly basis, their credit risk capital charge to APRA under the Financial Sector (Collection of Data) Act 2001. APS 113 2

Authority and application 1. This Prudential Standard is made under paragraphs 11AF(1) and 11AF(1AA) of the Banking Act 1959. 2. Further details on the requirements outlined below are contained in: (d) (e) (f) Guidance Note AGN 113.1 Internal Ratings-based Approach to Credit Risk: Minimum Requirements; Guidance Note AGN 113.2 Internal Ratings-based Approach to Credit Risk: Corporate, Sovereign and Bank Asset Classes; Guidance Note AGN 113.3 Internal Ratings-based Approach to Credit Risk: Retail Asset Class; Guidance Note AGN 113.4 Internal Ratings-based Approach to Credit Risk: Purchased Receivables; Guidance Note AGN 113.5 Internal Ratings-based Approach to Credit Risk: Other Assets and Claims; and Guidance Note AGN 113.6 Internal Ratings-based Approach to Credit Risk: Treatment of Expected Losses and Recognition of Eligible Provisions which form part of this Prudential Standard. 3. This Prudential Standard applies to an authorised deposit-taking institution (ADI) in relation to which APRA has, by instrument in writing, approved the use of the internal ratings-based (IRB) approach to credit risk for capital adequacy purposes (IRB approval). APRA may make an IRB approval in relation to an ADI, other than a foreign ADI. 1 The following provisions apply in relation to an IRB approval: an IRB approval may specify how the IRB approach is to apply in relation to the relevant ADI, including: (i) (ii) the time from which the IRB approach is first to apply to the ADI; whether the foundation IRB (FIRB) approach or the advanced IRB (AIRB) approach (refer paragraph 7) is to apply in respect to the corporate, sovereign or bank IRB asset classes, or to a sub-asset class within such a class; (iii) whether the ADI may adopt a phased rollout (refer paragraphs 13 to 17) of the IRB approach across the ADI or consolidated banking 1 Foreign ADIs (within the meaning of Division 1B of Part II of the Banking Act 1959) operating through branches in Australia are not subject to this Prudential Standard. APS 113 3

group and, if so, the way and the time by which that phased rollout is to proceed; (iv) whether particular non-significant business units, IRB asset classes or sub-asset classes may be exempted from the IRB approach (refer paragraph 18); (v) whether the supervisory slotting approach (refer AGN 113.2) is to apply to one or more of the specialised lending (SL) sub-asset classes (refer paragraphs 8, 24 and 25); (vi) whether the top-down approach (refer AGN 113.4) is to apply, or may be applied, in relation to default risk for purchased corporate receivables and, if so, whether the FIRB or AIRB approach (as specified in that Guidance Note) is to apply; (vii) whether any approval in a provision of this Prudential Standard (including in related Guidance Notes) may be taken to have been given; (viii) whether, having regard to the particular circumstances of the relevant ADI or its consolidated banking group, particular requirements of this Prudential Standard (including in related Guidance Notes) should be taken to be amended or adjusted in their application to the ADI or the consolidated banking group; or (ix) whether the IRB approval is to be subject to any conditions; subject to the terms of the IRB approval, the ADI subject of the approval must apply the IRB approach on: (i) (ii) a stand-alone (Level 1) basis; and a consolidated banking group (Level 2) basis; accordingly, a reference to an ADI (or ADIs) in this Prudential Standard shall (except where the context does not permit, and subject to the terms of the IRB approval) be taken as a reference to: (i) (ii) an ADI (or ADIs) on a Level 1 basis; and an ADI (or ADIs) on a Level 2 basis. Further details on how this Prudential Standard applies on a Level 1 and Level 2 basis are set out in Prudential Standard APS 110 Capital Adequacy; (d) (e) APRA may at any time vary an IRB approval (including in relation to a matter specified in sub-paragraphs 3 to above); and APRA may at any time revoke an IRB approval if APRA is satisfied that: APS 113 4

(i) (ii) the ADI is not meeting or maintaining the minimum requirements detailed in AGN 113.1 or the disclosure requirements detailed in XXX; or it is inappropriate, having regard to the particular circumstances of the ADI, for the IRB approval to remain in force. 4. An ADI that has approval to use the IRB approach to credit risk must, unless exempted in writing by APRA, use the advanced measurement approach to operational risk (refer Prudential Standard APS 115 Capital Adequacy: Advanced Measurement Approach to Operational Risk) and an internal risk measurement model for the purpose of determining the ADI s regulatory capital charge for interest rate risk in the banking book (refer Prudential Standard APS 117 Capital Adequacy: Interest Rate Risk in the Banking Book). Overview 5. An ADI seeking approval to adopt the IRB approach to credit risk for capital adequacy purposes must make an application to APRA based on the requirements in this Prudential Standard and associated Guidance Notes in a form determined from time to time by APRA. 6. An ADI that has received approval from APRA to use the IRB approach to credit risk may (subject to the relevant IRB approval) rely on its own internal estimates for some or all of the necessary credit risk components in determining the regulatory capital requirement for a given credit exposure. The credit risk components include measures of the probability of default (PD), loss given default (LGD), exposure at default (EAD) and effective maturity (M). 7. For the corporate, sovereign and bank IRB asset classes (defined in paragraphs 23, 26 and 27 respectively), there are two IRB approaches to credit risk: a FIRB approach and an AIRB approach. Under the FIRB approach, an ADI must (subject to the relevant IRB approval) provide its own estimates of PD and M and rely on supervisory estimates for the other credit risk components. Under the AIRB approach, an ADI must (subject to the relevant IRB approval) provide its own estimates of all of the credit risk components. Under both approaches, an ADI must use the relevant risk-weight function as detailed in AGN 113.2 for the purpose of deriving regulatory capital requirements for those IRB asset classes. 8. An IRB approval may provide that the FIRB or AIRB approach applies to corporate, sovereign and bank IRB asset classes except in relation to the four corporate sub-asset classes identified as SL in paragraphs 24 to 25. In that event, specific risk-weights associated with supervisory slotting categories must be used (refer AGN 113.2). 9. For the retail IRB asset class (as defined in paragraphs 28 to 30), an ADI must (subject to the relevant IRB approval) provide its own estimates of PD, LGD and EAD. There is no explicit maturity adjustment for the retail IRB asset class nor is there a distinction between a FIRB approach and an AIRB approach for this IRB asset class. The ADI must use the risk-weight function for each retail APS 113 5

sub-asset class as detailed in AGN 113.3 for the purpose of deriving regulatory capital requirements for the retail IRB asset class. 10. The treatment of purchased receivables 2 straddles two IRB asset classes: corporate and retail (refer AGN 113.4). For both corporate and retail purchased receivables, an ADI will be required to hold regulatory capital for both default risk and risk dilution risk (refer paragraph 22 of AGN 113.4). 11. With the exception of the exposures referred to in paragraph 12, the IRB approach to credit risk is based on measures of unexpected losses (UL) and expected losses (EL). The IRB risk-weight functions produce regulatory capital requirements for UL. For EL, an ADI must compare the amount of total eligible provisions, as defined in paragraph 5 of AGN 113.6, with the total EL amount, as defined in paragraphs 3 to 4 of that same Guidance Note. Where total eligible provisions are not sufficient to cover the total EL amounts for defaulted and non-defaulted exposures, the deficiency must be deducted 50 per cent from Tier 1 capital and 50 per cent from Tier 2 capital of the ADI. Where the total EL amount is less than the total amount of eligible provisions for non-defaulted exposures, the ADI may recognise the difference in Tier 2 capital up to a maximum of 0.6 per cent of total credit risk-weighted assets of the ADI. 12. For equity exposures, certain kinds of leases, fixed assets and all other claims, the regulatory capital requirement is based on assigned risk-weights that reflect APRA s broad judgement about the credit risk associated with those exposures (refer AGN 113.5). The risk-weights for these exposures are assumed to represent UL as EL is assumed to be zero. Adoption of the IRB approach across IRB asset classes 13. Once the IRB approach begins to apply to an ADI for a particular IRB asset or sub-asset class, the ADI will generally be required to extend the IRB approach across the entire consolidated banking group. APRA recognises, however, that for many ADIs, it may not be practicable to implement the IRB approach across all material IRB asset classes and business units at the same time. This may be the case, for instance, where an ADI moves from the standardised approach to credit risk (refer Prudential Standard APS 112 Capital Adequacy: Standardised Approach to Credit Risk) to the IRB approach, undertakes new activity through a new business unit or line or where the ADI has acquired new business through merger or acquisition. 14. Subject to approval by APRA, an ADI may adopt a phased rollout of the IRB approach across the consolidated banking group. 15. A phased rollout may include (but need not be limited to): 2 Purchased receivables refers to a pool of receivables that have been purchased by an ADI from another entity. APS 113 6

adoption of the IRB approach, in accordance with a specified timetable, across IRB asset classes (or in the case of the retail IRB asset class, across individual sub-asset classes) within a particular business unit; adoption of the IRB approach, in accordance with a specified timetable, across business units in the same banking group; and moving from the FIRB approach to the AIRB approach, in accordance with a specified timetable, for certain credit risk components. However, when an ADI adopts the IRB approach for an IRB asset or sub-asset class within a particular business unit, it will be required to apply that IRB approach to all exposures in that IRB asset or sub-asset class within that business unit. 16. APRA s approval of a phased rollout may provide for the ADI to use the supervisory slotting approach for one or more of the SL sub-asset classes and move to the FIRB or AIRB approach for other SL sub-asset classes within the corporate IRB asset class. 17. An ADI that is permitted to adopt a phased rollout of the IRB approach must have an implementation plan in place specifying to what extent and when the ADI intends to rollout its intended IRB approach across significant asset or subasset classes and business units over time (refer paragraph 18). The plan needs to be provided to and approved by APRA before APRA gives the ADI an IRB approval. During the rollout period, no capital relief will be granted for intragroup transactions which reduce the ADI s aggregate capital requirement by transferring credit risk among entities on the standardised approach to credit risk (refer APS 112), FIRB approach and AIRB approach. This includes, but is not limited to, asset sales and cross guarantees. 18. Subject to approval by APRA, some exposures in non-significant business units, IRB asset classes or sub-asset classes that are immaterial in terms of size and perceived risk profile, may be exempted from the IRB approach for regulatory capital purposes. Regulatory capital requirements for such business units, IRB asset classes or sub-asset classes will be determined according to APS 112 and, if considered necessary by APRA, may be subject to additional regulatory capital requirements. 19. When an ADI has obtained approval to use the IRB approach for regulatory capital purposes, it must continue to employ that IRB approach on an on-going basis (unless the approval is revoked). A return, at the ADI s request, to the standardised approach to credit risk (or the FIRB approach where the ADI has approval to use the AIRB approach) will generally only be permitted in exceptional circumstances. APS 113 7

IRB asset classes 20. Under the IRB approach to credit risk, an ADI must categorise banking book exposures 3 into six broad IRB asset classes: corporate, sovereign, bank, retail, equity and a residual class that includes certain kinds of leases, fixed assets and all other claims. 21. Within the corporate IRB asset class, four sub-asset classes of SL are separately identified (refer paragraph 25). Within the retail IRB asset class, there are three separate sub-asset classes (refer paragraph 30). 22. The classification of credit exposures under the IRB approach is broadly consistent with established ADI practice. However, an ADI may adopt a different system of classification in its internal risk management and measurement systems. The ADI must apply the appropriate treatment (under this Prudential Standard and the terms of its IRB approval) to each credit exposure for the purpose of deriving its minimum regulatory capital requirement. The ADI must ensure that its methodology for assigning credit exposures to different IRB asset classes complies with this Prudential Standard and the IRB approval and is consistent over time. Corporate IRB asset class 23. A corporate credit exposure is defined as a credit obligation 4 of a corporation, partnership or proprietorship and any other credit exposure that does not meet the criteria of any other defined IRB asset class. 24. The corporate IRB asset class includes (but is not limited to) four sub-asset classes of SL. Credit exposures in each of these sub-asset classes possess all of the following characteristics, either in legal form or economic substance: (d) the exposure is typically to an entity (often a special purpose entity (SPE)) which was created specifically to finance and/or operate specific assets; apart from the income that it receives from the asset(s) being financed, the borrowing entity has little or no other material assets or activities and therefore has little or no independent capacity to repay the obligation; the terms of the obligation give the ADI a substantial degree of control over the asset(s) and the income that it generates; and as a result of the factors to above, the primary source of repayment of the obligation is the income generated by the asset(s) rather than the independent capacity of a broader commercial enterprise. 25. The four sub-asset classes of SL are defined as: 3 All claims held in the trading book are treated in accordance with Prudential Standard APS 116 Capital Adequacy: Market Risk. 4 A credit obligation is defined as (to be defined). APS 113 8

project finance (PF): a method of funding in which an ADI looks primarily to the revenues generated by a single project as both the source of repayment and as security for the exposure. This type of financing is usually for large complex installations that may include, for example, power plants, chemical processing plants, mines, transportation infrastructure, environment and telecommunications infrastructure. PF may take the form of financing of the construction of a new installation or refinancing an existing installation, with or without improvements. In such transactions, the ADI is usually paid solely, or almost exclusively, out of the money generated by the contracts for the facility s output. The obligor is usually an SPE that is not permitted to perform any function other than developing, owning and operating the installation. The consequence is that repayment depends primarily on the project s cash flow and on the value of the project s assets. In contrast, if repayment of the exposure depends primarily on a well-established, diversified, contractually obligated end-user for repayment, it is considered an exposure to that end-user and would generally be treated as a corporate exposure; object finance (OF): a method of funding the acquisition of specific assets (e.g. ships, aircrafts, satellites, rail stock and motor vehicle fleets) where the repayment of the exposure is dependent on the cash flows generated by the specific assets that have been financed and pledged or assigned to the ADI. A primary source of these cash flows might be rental or lease contracts with one or several third parties. In contrast, if the exposure is to a obligor whose financial condition and debt-servicing capacity enables it to repay the debt without undue reliance on the specifically pledged or assigned assets, the exposure would generally be treated as a corporate exposure; commodities finance (CF): refers to structured short-term lending to finance reserves, inventories or receivables of commodities (e.g. crude oil, metals or crops) where the exposure will be repaid from the proceeds of the sale of the commodity and the obligor has no independent repayment capacity. This is the case when the obligor has no other activities or material assets on its balance sheet. The structured nature of the financing would be designed to compensate for the credit quality of the obligor. The ADI s rating of the exposure would generally reflect its selfliquidating nature and the ADI s capacity to structure the transaction rather than the credit quality of the obligor. APRA considers this type of lending is distinguishable from exposures financing the reserves, inventories or receivables of other more diversified corporate obligors as the ADI would be able to rate the credit quality of the latter type of obligors based on their broader on-going operations. In such cases, the value of the commodity serves as a risk mitigant rather than as the primary source of repayment and the exposure would generally be treated as a corporate exposure; and APS 113 9

(d) income-producing real estate (IPRE): a method of providing funding for real estate (such as office buildings to let, retail space, multi-family residential buildings, industrial or warehouse space and hotels) where the prospects for repayment and recovery of the exposure depend primarily on the cash flows generated by the asset. The primary source of these cash flows would generally be lease or rental payments or the sale of the asset. The obligor may, but need not necessarily be, an SPE, an operating company focused on real estate construction or holdings or an operating company with sources of revenue other than real estate. The distinguishing characteristic of IPRE versus other corporate exposures that are collateralised by real estate is the strong positive correlation between the prospects for repayment of the exposure and the prospects for recovery in the event of default, with both depending primarily on the cash flows generated by the property. Sovereign IRB asset class 26. The sovereign IRB asset class is defined as credit exposures to the counterparties detailed in paragraphs 2, 5, 6 and 8 of Attachment A to Guidance Note AGN 112.1 Standardised Approach to Credit Risk: Risk-weighted Onbalance Sheet Credit Exposures. Exposures to the institutions detailed in footnote 5 to paragraph 9 of that same Attachment are also included in the sovereign IRB asset class. Bank IRB asset class 27. The bank IRB asset class is defined as credit exposures to the counterparties detailed in paragraphs 7, 9, 10 and 11 of Attachment A to AGN 112.1. Retail IRB asset class 28. An exposure is categorised as a retail exposure if it is extended to an individual (that is, a natural person) or individuals and is part of a large pool of exposures that are managed by an ADI on a pooled basis. The ADI may also include certain other exposures, as detailed in paragraph 29 below, in the retail IRB asset class. 29. Small-business exposures, whether or not extended to an individual, may be treated as retail exposures if an ADI treats such exposures in its internal risk management systems in the same manner as other retail exposures consistently over time. This requires that such exposures are originated in a similar manner to other retail exposures. Furthermore, the exposure must not be managed individually in a way that is comparable to corporate exposures but rather as part of a portfolio segment or pool of exposures with similar risk characteristics for purposes of risk assessment and quantification. This does not preclude these exposures from being managed individually at some stages of the risk management process. To be regarded as a retail exposure, the total exposure of the ADI consolidated banking group to a small-business obligor or group of connected obligors must be less than $1 million. Small-business loans extended APS 113 10

through, or guaranteed by, an individual are subject to the same exposure threshold. 30. Within the retail IRB asset class, an ADI is required to identify three separate sub-asset classes of exposures: exposures that are partly or fully secured by residential properties; qualifying revolving retail (QRR): the following criteria must be satisfied for a sub-portfolio to be included in the QRR sub-asset class: (i) (ii) the exposures are revolving, unsecured and unconditionally cancellable (both contractually and in practice) by the ADI 5. In this context, revolving exposures are defined as those where customers outstanding balances are permitted to fluctuate based on their decisions to borrow and repay, up to a limit established by the ADI; the exposures are to individuals and not explicitly for business purposes; (iii) the maximum exposure of an individual account in the sub-portfolio is $100,000; (iv) the ADI must demonstrate that the use of the QRR risk-weight function is limited to exposures that have exhibited, in comparison with other types of lending products, low loss rate volatility relative to the average level of loss rates (especially within low PD bands). APRA will review the relative volatility of loss rates across relevant QRR sub-portfolios, as well as the aggregate of the QRR sub-asset class; (v) data on loss rates for the relevant QRR sub-portfolios and the QRR sub-asset class must be retained in order to allow analysis of the volatility of loss rates; and (vi) the ADI is able to demonstrate to APRA that treatment of an exposure as a QRR exposure is consistent with the underlying risk characteristics of the sub-asset class; and all other retail exposures. 5 Exposures may be considered unconditionally cancellable if the terms of the contract permit the ADI to cancel at anytime any existing credit lines or limits provided to a customer at the ADI s discretion, and demand immediate repayment for any outstanding balance to the full extent allowable under consumer protection and related legislation. APS 113 11

Equity IRB asset class 31. Equity exposures include both direct and indirect ownership interests 6, whether voting or non-voting, in the assets and income of a commercial enterprise or financial institution and holdings of units in unit trusts that are not deducted pursuant to Prudential Standard APS 111 Capital Adequacy: Measurement of Capital. Equity exposures are defined on the basis of economic substance of the instrument and includes instruments that meet all of the following criteria: the instrument is irredeemable in that the return of invested funds can be achieved only by the sale of the investment or sale of the rights to the investment or by the liquidation of the issuer; the instrument does not embody an obligation on the part of the issuer; and the instrument conveys a residual claim on the assets or income of the issuer. 32. Additionally any of the following instruments must be categorised as an equity exposure: an instrument with the same structure as those permitted as Tier 1 capital for an ADI; and an instrument that embodies an obligation on the part of the issuer and meets any of the following conditions: (i) (ii) the issuer may defer indefinitely the settlement of the obligation; the obligation requires (or permits at the issuer s discretion) settlement by issuance of a fixed number of the issuer s equity shares; (iii) the obligation requires (or permits at the issuer s discretion) settlement by issuance of a variable number of the issuer s equity shares and (ceteris paribus) any change in the value of the obligation is attributable to, comparable to, and in the same direction as, the change in the value of a fixed number of the issuer s equity shares; 7 or 6 Indirect equity interests include holdings of derivative instruments tied to equity interests and holdings in corporations, partnerships, limited liability companies or other types of entities that issue ownership interests and are engaged principally in the business of investing in equity instruments. 7 For certain obligations that require or permit settlement by issuance of a variable number of the issuer s equity shares, the change in the monetary value of the obligation is equal to the change in the fair value of a fixed number of equity shares multiplied by a specified factor. Those obligations meet the conditions of sub-paragraph 32(iii) if both the factor and the referenced number of shares are fixed. For example, an issuer may be required to settle an obligation by issuing shares with a value equal to three times the appreciation in the fair value of 1,000 equity shares. That APS 113 12

(iv) the ADI holding the instrument has the option to require that the obligation be settled in equity shares unless in the case of a traded instrument, the ADI has demonstrated that the instrument trades more like debt of the issuer, or in the case of non-traded instruments, the ADI has demonstrated that the instrument should be treated as a debt position. In these cases, the ADI may decompose the risks for regulatory capital purposes, subject to approval from APRA. 33. Debt obligations and other securities, derivatives or other instruments structured with the intent of conveying the economic substance of equity ownership are to be treated as equity exposures for IRB purposes. 8 This may include options and warrants on equities and short positions in equity securities. In addition, if a debt instrument is convertible into equity at the option of an ADI, it should be deemed equity upon conversion. If such a debt is convertible at the option of the issuer or automatically by the terms of the instrument, it should be categorised as equity from inception. 34. Instruments with a return directly linked to equities should be characterised as equity investments. Subject to approval by APRA, the ADI may exclude these instruments from the equity IRB asset class where they are directly hedged by an equity holding such that the position does not expose the ADI to material equity risk. 35. Equity instruments that are structured with the intent of conveying the economic substance of debt holdings and securitisation exposures are not to be treated as equity holdings. Reporting requirements 36. An ADI using the IRB approach to credit risk will be required to provide APRA each quarter (or more frequently, if required by APRA) with reports on its credit risk capital charge calculations under the Financial Sector (Collection of Data) Act 2001. obligation is considered to be the same as an obligation that requires settlement by issuance of shares equal to the appreciation in the fair value of 3,000 equity shares. 8 Equities that are recorded as a loan but arise from a debt/equity swap made as part of the orderly realisation or restructuring of the debt are included in the definition of equity holdings. APS 113 13