Her Excellency The Rt Hon Dame CINDY KIRO, gnzm, qso, Governor-General

Order in Council

At Wellington this 7th day of May 2024

Present:

Her Excellency the Governor-General in Council

This order is made under section 81 of the Banking (Prudential Supervision) Act 1989—

(a) on the advice and with the consent of the Executive Council; and

(b) on the advice of the Minister of Finance given in accordance with a recommendation of the Reserve Bank of New Zealand.

_________________________

Order

1. Title

This order is the Registered Bank Disclosure Statements (New Zealand Incorporated Registered Banks) Order 2014 Amendment Order 2024.

2. Commencement

This order comes into force on 30 June 2024.

3. Principal order

This order amends the Registered Bank Disclosure Statements (New Zealand Incorporated Registered Banks) Order 2014.

4. Clause 1 of Schedule 9 amended

(1) In the table in clause 1(2), after the row “Retained earnings (net of appropriations)”, insert:

(2) After clause 1(3)(c), insert:

“(ca) if there is no mutual capital instrument, the corresponding row may be omitted;”

5. Clause 3 of Schedule 9 amended

(1) In clause 3(1), replace “subclause (2)” with “subclauses (2), (4) and (5)”.

(2) In clause 3(2),—

(a) in each of the three tables, delete the column “Minimum Pillar 1 capital requirement”;

(b) in the table “Calculation of on-balance sheet exposures”,—

(i) in the rows “Residential mortgages not past due”, insert a row with a value of “20%” in the “Risk weight” column;

(ii) after the rows for “Other past due assets”, insert:

(iii) in the row “Other assets”, insert a row with a value of “20%” in the “Risk weight” column; and

(c) in the table “Calculation of off-balance sheet exposures”, after the row “Placement of forward deposits”, insert:

(3) After clause 3(3), insert:

“(4) The amount of the Credit Valuation Adjustment (CVA) capital charge, and the implied risk weighted exposure for the CVA.

(5) If the bank allocates the implied risk weighted exposure for the CVA across individual risk weighted exposures disclosed under clause 3, an explanation that the amounts disclosed, under subclause (4), are memo items.”

6 New clause 3A inserted in Schedule 9

After clause 3, insert:

“3A Qualifying Central Counterparty (QCCP) exposures

(1) The information in subclause (2)—

(a) in respect of the registered bank’s banking group; and

(b) derived in accordance with the conditions of registration relating to capital adequacy.

(2) The following information as at the reporting date:

Exposures arising from trades settled on Qualifying Central Counterparties (QCCPs)

(3) For the purpose of the disclosure required by subclause (2), the following amounts must be excluded from the table and disclosed as part of the risk weighted exposure to the relevant individual counterparty in accordance with clause 3:

(a) any trade exposure that the registered bank has to a clearing member of a QCCP, as a client of that clearing member, which is required for risk weighting purposes to be treated as a bilateral exposure to that clearing member;

(b) any collateral posted by the registered bank as a client of a QCCP member which is required to be risk weighted in the same way as a direct exposure to the QCCP member;

(c) any trade exposure that the registered bank has to a client bank which arises from a situation where the registered bank, as a member of a QCCP, clears trades for that client bank via the QCCP; and

(d) any exposures arising from trades cleared via a central counterparty that is not a QCCP.”

7 Clause 3 of Schedule 11 amended

In the table in clause 3(2), delete the column “Minimum capital requirement”.

8 Clause 5 of Schedule 11 amended

In the tables in clause 5(2), delete the column “Minimum Pillar 1 capital requirement”.

9 Clause 6 of Schedule 11 amended

In clause 6(2), replace the tables with:

“Credit risk exposures subject to the standardised approach

On-balance sheet exposures by separate risk weight

Other on-balance sheet exposures by average risk weight

Off-balance sheet exposures

Counterparty credit risk for counterparties subject to the standardised approach

”
10 New clause 6A inserted in Schedule 11

After clause 6, insert:

“6A Other counterparty credit risk exposures

(1) The information in subclauses (2), (4) and (5)—

(a) in respect of the registered bank’s banking group; and

(b) derived in accordance with the conditions of registration relating to capital adequacy.

(2) The following information as at the reporting date:

Exposures arising from trades settled on Qualifying Central Counterparties (QCCPs)

(3) For the purpose of the disclosure required by subclause (2), the following amounts must be excluded from the table and disclosed as part of the risk weighted asset for the relevant individual counterparty in accordance with clause 3 or 6 as applicable:

(a) any trade exposure that the registered bank has to a clearing member of a QCCP, as a client of that clearing member, which is required for risk weighting purposes to be treated as a bilateral exposure to that clearing member;

(b) any collateral posted by the registered bank as a client of a QCCP member which is required to be risk weighted in the same way as a direct exposure to the QCCP member;

(c) any trade exposure that the registered bank has to a client bank which arises from a situation where the registered bank, as a member of a QCCP, clears trades for that client bank via the QCCP; and

(d) any exposures arising from trades cleared on a central counterparty that is not a QCCP.

(4) The amount of the Credit Valuation Adjustment (CVA) capital charge, and the implied risk weighted exposure for the CVA.

(5) If the bank allocates the implied risk weighted exposure for the CVA across individual risk weighted assets disclosed under clauses 3, 5 and 6, an explanation that the amounts disclosed, under subclause (4), are memo items.”

11 Clause 8 of Schedule 11 amended

In the table in clause 8(2),—

(a) delete the column “Minimum Pillar 1 capital requirement”; and

(b) after the heading row, insert:

12 New clause 8A inserted in Schedule 11

After clause 8, insert:

“8A Explanation of the standardised floor

(1) The information in subclauses (2) to (4)—

(a) in respect of the registered bank’s banking group; and

(b) derived in accordance with the conditions of registration relating to capital adequacy.

(2) The following information at the reporting date:

Impact of the standardised floor on total credit risk RWAs

(3) An explanation of how the standardised floor applies to the calculation of total risk weighted assets for credit risk.

(4) If applicable, an explanation of the nature and amount of each credit risk supervisory adjustment.

(5) For the purpose of the disclosure required by subclause (2)—

(a) total IRB and supervisory slotting risk weighted exposures calculated for compliance purposes refers to the total risk weighted assets that the registered bank calculates using either an accredited IRB model or the supervisory slotting approach for specialised corporate lending, including any applicable scalar;

(b) “risk weighted assets recalculated using the standardised approach” has the same meaning as “standardised equivalent RWAs” in Part C of BPR130: Credit Risk RWAs Overview;

(c) the row “Credit risk supervisory adjustment” is required if the Reserve Bank has, by means of conditions of registration, imposed any overlay on the risk weighted assets that the registered bank calculates using one or more of its IRB models, and must show the aggregate amount of any such overlays;

(d) the row “Subtotal” must show, if applicable, the sum of the amounts referred to in paragraphs (a) and (c); and

(e) “RWAs for standardised exposures” refers to the total risk weighted assets that the registered bank calculates for credit risk exposures that are not covered by paragraph (a) which, to avoid doubt, corresponds to all risk weighted assets required to be disclosed under clauses 6, 6A and 8.”

13 Clause 14 of Schedule 11 amended

(1) In the table in clause 14(2), delete the row “Supervisory adjustment”.

(2) Replace clause 14(3) with:

“(3) For the purpose of the disclosure required by subclause (2), the bank must provide an explanation of how the amounts disclosed in the table incorporate each supervisory adjustment or overlay (if any) that the Reserve Bank has imposed on the bank’s capital ratio calculations by means of conditions of registration.”

14 New clauses 17A to 17C inserted in Schedule 11

After clause 17, insert:

“17A Standardised equivalents of IRB risk weighted assets

(1) The information in subclause (2) in respect of the registered bank’s banking group.

(2) The following information as at the reporting date:

Credit risk: standardised equivalents of IRB risk weighted assets

(3) For the purpose of the disclosure required by subclause (2):

(a) the bank must disclose the same IRB exposure classes that it uses for the breakdown of IRB risk weighted assets under clause 3;

(b) for each IRB exposure class,—

(i) the value for “Exposure under the IRB approach” is the aggregate amount shown for that exposure class in the column “Exposure amounts” required to be disclosed under clause 3;

(ii) the value for “IRB risk weighted assets” is the aggregate amount shown for that exposure class in the column “Risk weighted assets” required to be disclosed under clause 3;

(c) in the row “Specialised lending subject to the slotting approach”:

(i) the value for “Exposure under the IRB approach” is the sum of the amounts required to be disclosed under clause 5 for “Total exposures after credit risk mitigation” in the on-balance sheet exposures table and “EAD” in the off-balance sheet exposures table; and

(ii) the value for “IRB risk weighted assets” is the sum of the amounts required to be disclosed under clause 5 for risk weighted assets in the on-balance sheet exposures table and the off-balance sheet exposures table;

(d) the column “Equivalent exposure under the standardised approach” must show for each row the aggregate on-balance sheet exposures and credit equivalent amounts for off-balance sheet exposures, for all exposures falling within the respective IRB exposure class or supervisory slotting, calculated in accordance with the standardised risk weighting approach in BPR131: Standardised Credit Risk RWAs; and

(e) the column “Standardised equivalents of risk weighted assets” must show for each row the aggregate risk weighted assets for all exposures falling within the respective IRB exposure class or supervisory slotting, calculated in accordance with the standardised risk weighting approach in BPR131: Standardised Credit Risk RWAs.”

“17B Standardised equivalent capital ratios

(1) The information in subclauses (2) and (3)—

(a) in respect of the registered bank’s banking group; and

(b) derived in accordance with the conditions of registration relating to capital adequacy.

(2) The following information as at the reporting date:

Standardised equivalent capital ratios

(3) An explanation of how the “Standardised equivalent total RWAs” and “Standardised equivalent capital amount” figures relate to the corresponding values that the registered bank calculates for compliance purposes.

(4) For the purpose of the disclosure required by subclause (2),—

(a) “Standardised equivalent capital amount” refers to the amount that the bank would have in the respective category of capital if it were not accredited to use the IRB approach;

(b) “Standardised equivalent total RWAs” refers to the sum of the following amounts:

(i) standardised equivalent RWAs as defined in Part C of BPR130: Credit Risk RWAs Overview, being the bank’s total IRB and supervisory slotting risk weighted assets recalculated using the standardised approach;

(ii) risk weighted assets for credit risk exposures that are not covered by subparagraph (i) which, to avoid doubt, corresponds to all risk weighted assets required to be disclosed under clauses 6, 6A and 8;

(iii) implied risk weighted exposure for operational risk; and

(iv) implied risk weighted exposure for market risk.

(c) “Ratio” refers to the amount of the respective category of capital as a percentage of “Standardised equivalent total RWAs”.”

“17C Historical comparison with standardised capital ratios and risk weights

(1) The information in subclause (2) in respect of the registered bank’s banking group for the reporting date and for all previous full-year reporting dates (if any) which were—

(a) on or after 30 June 2024; and

(b) at most 4 years before the reporting date.

(2) The information required for each date specified under subclause (1) is:

(a) total capital ratio;

(b) total capital ratio recalculated as if the bank were not an IRB bank;

(c) actual average risk weight for all modelled credit risk exposures, which must be calculated as a ratio in which:

(i) the numerator is the total risk weighted assets for all exposures that are subject to the IRB modelling approach or the supervisory slotting approach, including any applicable scalar; and

(ii) the denominator is the total EAD for all exposures covered by subparagraph (i);

(d) standardised equivalent average risk weight for all modelled credit risk exposures, which must be calculated as a ratio in which:

(i) the numerator is the total risk weighted assets for all exposures referred to in paragraph (c)(i), recalculated as if the bank were a standardised bank; and

(ii) the denominator is the total on-balance sheet exposures and credit equivalent amounts for all exposures referred to in paragraph (c)(i), defined in accordance with the standardised risk weighting approach in BPR131: Standardised Credit Risk RWAs.

(3) An explanation of what each row of the table represents.”

15 Clause 2 of Schedule 14 amended

In clause 2(2), delete “(of a non-capital nature and net of individual credit impairment allowances)”.

16 Clause 6 of Schedule 14 amended

Replace clause 6(2) with:

“(2) If any part of the calculation has been undertaken on a bilateral net basis, the following information in respect of aggregate credit exposure to connected persons as at the balance date, and in respect of peak end-of-day aggregate credit exposure to connected persons over the full year accounting period—

(a) the gross amount, as a percentage of tier one capital, before any netting has taken place; and

(b) the amount, as a percentage of tier one capital, that has been netted off in determining the net exposure.”

17 Clause 7 of Schedule 14 amended

(1) Replace the heading of clause 7 with “Unfunded contingent credit protection provided by connected persons”.

(2) In clause 7, replace “risk lay-off arrangements” with “unfunded contingent credit protection arrangements provided by any connected persons”.

18 Clause 8 of Schedule 14 replaced

Replace clause 8 with:

“8 Loss allowance for credit-impaired credit exposures to connected persons

A statement of the aggregate amount of the registered bank’s banking group’s loss allowance for credit exposures to connected persons that are credit-impaired at the reporting date.”

19 Clause 8A of Schedule 14 revoked

Revoke clause 8A.

RACHEL HAYWARD, Clerk of the Executive Council.

Explanatory Note

This note is not part of the order, but is intended to indicate its general effect.

This order comes into force on 30 June 2024. It amends the Registered Bank Disclosure Statements (New Zealand Incorporated Registered Banks) Order 2014. The main purpose of this order is to implement “dual reporting” by the banks that are accredited to use their own internal ratings-based models to calculate capital requirements for credit risk. The purpose of dual reporting is to improve transparency around these banks’ credit risk models. It requires them to disclose their actual capital requirements using their internal models, alongside the non-modelled equivalent capital requirements (under the “standardised approach” used by other banks). The order also adds additional disclosure relating to counterparty credit risk arising from derivative contracts and makes minor consequential amendments arising from changes in the capital adequacy and connected exposures policies.

This order is administered by the Reserve Bank of New Zealand.