Source document: https://docs-lawep.s3.us-east-2.amazonaws.com/1698847999562.pdf (New Zealand)
Reprint as at 1 May 2014 Deposit Takers (Credit Ratings, Capital Ratios, and Related Party Exposures) Regulations 2010 (SR 2010/167) Anand Satyanand, Governor-General Order in Council At Wellington this 21st day of June 2010 Present: His Excellency the Governor-General in Council Pursuant to sections 24, 33, 36, and 74 of the Non-bank Deposit Takers Act 2013, His Excellency the Governor-General, acting on the advice and with the consent of the Executive Council, and on the advice of the Minister of Finance given in accordance with a recommendation of the Reserve Bank of New Zealand made after consultation in accordance with section 76 and taking into account the principles in section 8 of that Act, makes the following regulations.
Enacting statement: amended, on 1 May 2014, by section 92(2) of the Non-bank Deposit Takers Act 2013 (2013 No 104).

Contents 1 2 Title Commencement Page 3 3 Note Changes authorised by subpart 2 of Part 2 of the Legislation Act 2012 have been made in this official reprint.

Note 4 at the end of this reprint provides a list of the amendments incorporated.

These regulations are administered by the Reserve Bank of New Zealand.
1 Deposit Takers (Credit Ratings, Capital Ratios, and Related Party Exposures) Regulations 2010 Reprinted as at 1 May 2014 Part 1 Preliminary provisions Interpretation Definition of related party [Revoked] All calculations to be on consolidated basis if deposit taker is member of borrowing group Part 2 Requirements relating to credit ratings Requirements for credit ratings Part 3 Requirements relating to maintenance of minimum capital ratio Overview Trust deed must include minimum capital ratio that deposit taker must maintain How to calculate capital ratio Calculation of capital How to calculate capital Calculation of risk-weighted amount for credit risk Calculation of risk-weighted amount for credit risk Calculation of risk-weighted amount for on-balance sheet exposures Classification of on-balance sheet exposures for purpose of determining applicable risk weight When assets may be classified as rated short-term or long-term claim How to determine applicable rating grade for purpose of classifying rated claims How to determine loan-to-valuation ratio for purpose of classifying residential mortgage loans and certain other loans How to determine loan-to-valuation ratio for purpose of classifying property development loans How to determine loan-to-valuation ratio for purpose of classifying loans secured over qualifying moveable machinery Requirements for transferred loans to be excluded from calculation of risk-weighted amount for on-balance sheet exposures
 Requirements for loans subject to sub-participations to be excluded from calculation of risk-weighted amount for on-balance sheet exposures Calculation of amount for market risk and operational risk 21 How to calculate amount for market risk and operational risk 2 3 6 6 7 7 8 8 8 10 10 11 11 12 12 13 13 14 15 16 Reprinted as at 1 May 2014 Deposit Takers (Credit Ratings, Capital Ratios, and Related Party Exposures) Regulations 2010 Part 1 r 3 Part 4 Restrictions on related party exposures 22 23 24 25 26 27 Overview Trust deed must include maximum limit on aggregate related party exposures of no more than 15% of capital How to calculate maximum limit ratio Identifying related party exposures Measuring related party exposures Measuring related party exposures that are market-related contracts 28 Revocation Part 5 Revocation Schedule Tables 1 to 3 Regulations 16 17 17 17 18 18 19 19 1 2 3 (1) Title These regulations are the Deposit Takers (Credit Ratings, Capital Ratios, and Related Party Exposures) Regulations 2010.
Commencement These regulations come into force on 1 December 2010.
Part 1 Preliminary provisions Interpretation In these regulations, unless the context otherwise requires,— Act means the Non-bank Deposit Takers Act 2013 asset sale with recourse, in relation to a deposit taker or guaranteeing subsid- iary, means an asset sale where, under the terms of the sale, the deposit taker or guaranteeing subsidiary has an obligation to assume or retain a risk in relation to the asset sold book value, in relation to an item, means— (a) (b) the amount shown for that item in the statement of financial position of a deposit taker; or in a calculation required to be made on a consolidated basis, the amount shown for that item in the consolidated statement of financial position for the borrowing group in accordance with regulation 5 3 Part 1 r 3 Deposit Takers (Credit Ratings, Capital Ratios, and Related Party Exposures) Regulations 2010 Reprinted as at 1 May 2014 consolidated basis means the basis set out in regulation 5 credit rating means a rating of a deposit taker’s creditworthiness that complies with section 23 of the Act deposit taker means a licensed NBDT as defined in the Act direct credit substitute, in relation to a deposit taker or guaranteeing subsidia- ry,— (a) means an off-balance sheet exposure that carries the same credit risk to the deposit taker or guaranteeing subsidiary as a direct extension of credit by the deposit taker or guaranteeing subsidiary; and (b) includes (without limitation)— (i) (ii) (iii) a bill of exchange; and a letter of credit serving as a financial guarantee for a loan; and a guarantee of a financial obligation given by the deposit taker or guaranteeing subsidiary; but (c) does not include a loan commitment exchange rate contract has the meaning set out in regulation 27(3) forward asset purchase, in relation to a deposit taker or guaranteeing subsid- iary, means a commitment by the deposit taker or guaranteeing subsidiary to purchase on a specified future date a loan, security, or other asset from another party generally accepted accounting practice has
 the same meaning as in section 3 of the Financial Reporting Act 1993 holding company means a company that has subsidiaries; and a company is another company’s holding company if, but only if, that other company is its subsidiary independent valuer means a person who is not associated (whether directly or indirectly) with a person who has an interest in the property for which a valu- ation is made and who is— (a) (b) a registered valuer (as defined in section 2 of the Valuers Act 1948); or another person approved to provide valuation services by rules made under the Rating Valuations Act 1998 interest rate contract has the meaning set out in regulation 27(3) market-related contract has the meaning set out in regulation 27(3) ordinary shares means shares that— have full voting rights; and have no preferential or predetermined rights to distributions of capital or income; and (a) (b) 4 Reprinted as at 1 May 2014 Deposit Takers (Credit Ratings, Capital Ratios, and Related Party Exposures) Regulations 2010 Part 1 r 3 (c) are not redeemable within the meaning of section 68 of the Companies Act 1993 original maturity has the meaning set out in regulation 27(3) personal loan means a loan to an individual not exceeding $40,000 property development loan means a loan made for the purpose of financing the development of real property property valuation policy,— (a) in relation to a residential mortgage loan, property development loan, or other loan secured over land,
 buildings (including buildings that are not yet complete), or both, means a policy governing how property value is determined for a loan against that type of property that— (i) (ii) is approved by the deposit taker’s governing body; and includes guidance on the use of— (A) (B) a valuation produced by an independent valuer; and the purchase price of the property; and (b) in relation to a loan secured over qualifying moveable machinery, means a policy governing how the value of the security is determined that— (i)
 (ii) is approved by the deposit taker’s governing body; and includes guidance on the appropriate value of the security over the lifetime of the loan public sector entity means a local authority (as defined in section 5 of the Local Government (Rating) Act 2002) qualifying insured residential mortgage loan means a residential mortgage loan that is fully covered by lenders’ mortgage insurance provided by the Housing New Zealand Corporation qualifying moveable machinery— (a) has the same meaning as that given to motor vehicle by section 57 of the Personal Property Securities Act 1999; but (b) includes an aircraft qualifying mutual means— (a) (b) a co-operative company as defined in section 2 of the Co-operative Companies Act 1996: a credit union as defined in section 2 of the Friendly Societies and Credit Unions Act 1982 related party has the meaning set out in section 6 of the Act residential mortgage loan means a loan secured by a mortgage over a residen- tial property used primarily for residential purposes either by the mortgagor or by a tenant of the mortgagor 5 Part 1 r 4 Deposit Takers (Credit Ratings, Capital Ratios, and Related Party Exposures) Regulations 2010 Reprinted as at 1 May 2014 sub-participation has the meaning set out in regulation 20(2) (2) In these regulations, unless the context otherwise requires, a reference to a fi- nancial statement means a financial statement prepared in accordance with gen- erally accepted accounting practice.
(3) Any term or expression that is defined in the Act and used, but not defined, in these regulations has the same meaning as in the Act.

(4) Any term or expression that is used in these regulations, but not defined in the Act or these regulations, and that has a meaning according to generally accept- ed accounting practice has the same meaning in these regulations.

Regulation 3(1) Act: replaced, on 1 May 2014, by section 92(2) of the Non-bank Deposit Takers Act 2013 (2013 No 104).
Regulation 3(1) asset sale with recourse: amended, on 1 May 2014, by section 92(2) of the Non- bank Deposit Takers Act 2013 (2013 No 104).

Regulation 3(1) credit rating: amended, on 1 May 2014, by section 92(2) of the Non-bank Deposit Takers Act 2013 (2013 No 104).

Regulation 3(1) deposit taker: inserted, on 1 May 2014, by section 92(2) of the Non-bank Deposit Takers Act 2013 (2013 No 104).
Regulation 3(1) direct credit substitute: amended, on 1 May 2014, by section 92(2) of the Non-bank Deposit Takers Act 2013 (2013 No 104).

Regulation 3(1) direct credit substitute paragraph (a): amended, on 1 May 2014, by section 92(2) of the Non-bank Deposit Takers Act 2013 (2013 No 104).

Regulation 3(1) direct credit substitute paragraph (b)(iii): amended, on 1 May 2014, by section 92(2) of the Non-bank Deposit Takers Act 2013 (2013 No 104).
Regulation 3(1) forward asset purchase: amended, on 1 May 2014, by section 92(2) of the Non- bank Deposit Takers Act 2013 (2013 No 104).

Regulation 3(1) group member: repealed, on 1 May 2014, by section 92(2) of the Non-bank Deposit Takers Act 2013 (2013 No 104).

Regulation 3(1) holding company: inserted, on 1 May 2014, by section 92(2) of the Non-bank De- posit Takers Act 2013 (2013 No 104).
Regulation 3(1) related party: amended, on 1 May 2014, by section 92(2) of the Non-bank Deposit Takers Act 2013 (2013 No 104).

Regulation 3(1) substantial interest: repealed, on 1 May 2014, by section 92(2) of the Non-bank De- posit Takers Act 2013 (2013 No 104).

4 Definition of related party [Revoked] Regulation 4: revoked, on 1 May 2014, by section 92(2) of the Non-bank Deposit Takers Act 2013 (2013 No 104).
5 (1) All calculations to be on consolidated basis if deposit taker is member of borrowing group If a deposit taker is a member of a borrowing group, every calculation that these regulations require the deposit taker to make must be made on a consoli- dated basis for the deposit taker’s borrowing group.
(2) If a calculation is made on a consolidated basis for a borrowing group, then— 6 Reprinted as at 1 May 2014 Deposit Takers (Credit Ratings, Capital Ratios, and Related Party Exposures) Regulations 2010 Part 3 r 7 (a) (b) no member of that borrowing group is a related party of the relevant de- posit taker for the purposes of the calculation (despite the definition of related party); and the calculation is only required to be made on the consolidated basis spe- cified in subclause (1) (rather than on a solo basis for the deposit taker as well as on that consolidated basis).
Regulation 5(2)(a): amended, on 1 May 2014, by section 92(2) of the Non-bank Deposit Takers Act 2013 (2013 No 104).

Part 2 Requirements relating to credit ratings 6 Requirements for credit ratings For the purposes of section 23(1)(a) of the Act, the current rating of a deposit taker’s creditworthiness given by an approved rating agency must be a local currency (New Zealand dollar), long-term, issuer rating.
Regulation 6: amended, on 1 May 2014, by section 92(2) of the Non-bank Deposit Takers Act 2013 (2013 No 104).

Part 3 Requirements relating to maintenance of minimum capital ratio 7 (1) (2) Overview This regulation is intended only as a guide to the general scheme and effect of this Part.
The capital ratio of a deposit taker is the ratio of the deposit taker’s capital to an amount representing the degree of the following types of risk to which the deposit taker is exposed: (a) credit risk: (b) market risk: (c) operational risk.

(3) This Part sets out what a trust deed must include about the capital ratio (see regulation 8) and how the capital ratio must be calculated.
(4) Calculation of the capital ratio requires determination of— (a) (b) (c) the deposit taker’s capital (see regulation 10); and the deposit taker’s risk-weighted amount for credit risk (see regulation 11); and the deposit taker’s aggregate amount for market risk and operational risk (see regulation 21).
7 Part 3 r 8 Deposit Takers (Credit Ratings, Capital Ratios, and Related Party Exposures) Regulations 2010 Reprinted as at 1 May 2014 8 (1) (2) 9 (1) (2) (3) (4) 10 (1) Trust deed must include minimum capital ratio that deposit taker must maintain Every deposit taker and trustee must ensure that the trust deed includes the minimum capital ratio that the deposit taker must maintain.
The deposit taker and the trustee must ensure that the minimum capital ratio that is included in the trust deed is— (a) (b) not less than 8%, if the deposit taker has a credit rating; and not less than 10%, if the deposit taker does not have a credit rating.
How to calculate capital ratio The capital ratio must be calculated as the ratio, expressed as a percentage, of the deposit taker’s capital to the sum of— (a) (b) the deposit taker’s risk-weighted amount for credit risk, calculated in ac- cordance with regulation 11; and the deposit taker’s aggregate amount for market risk and operational risk, calculated in accordance with regulation 21.
The deposit taker’s capital, referred to in subclause (1), must be calculated in accordance with regulation 10 using book values as at the date of calculation.

If the deposit taker is part of a borrowing group, the capital ratio must be calcu- lated on a consolidated basis (see regulation 5).
If accounting standards require a securitisation special purpose vehicle to be consolidated for the purposes of group financial statements, the special purpose vehicle must be consolidated with the deposit taker or the borrowing group for the purposes of the calculations under this Part.
Calculation of capital How to calculate capital Capital must be calculated in accordance with the following formula: (2) In the formula in subclause (1), gross capital is— gross capital − deductions issued and fully paid-up ordinary shares: retained earnings: fully paid-up perpetual non-cumulative preference shares that meet the requirements in subclause (4), up to the limits set out in subclause (5): revenue and other reserves, including the following, but not including re- serves that are earmarked on account of any assessed likelihood of loss: (i) (ii) capital redemption reserves: other reserves that are created or increased by appropriations of retained earnings net of tax and dividends payable: (a) (b) (c) (d) 8 Reprinted as at 1 May 2014 Deposit Takers (Credit Ratings, Capital Ratios, and Related Party Exposures) Regulations 2010 Part 3 r 10 (iii) (iv) share premium reserves arising from the issue of ordinary shares: each of the following types of reserves that are reflected in the statement of financial position: (A) (B) (C) reserves arising from a revaluation of tangible fixed assets, including owner-occupied property: foreign currency translation reserves: reserves arising from the revaluation of investments: (e) minority interests.
(3) In the formula in subclause (1), deductions are— (a) (b) (c) (d) (e) goodwill and other intangible assets: future tax benefits and deferred tax assets: share capital in, and subordinated loans to, related parties: share capital in, and subordinated loans to, other financial institutions or holding companies of other financial institutions (whether held directly or indirectly): unrealised gains and losses on liabilities designated at fair value through profit and loss that arise from changes in the deposit taker’s or guaran- teeing subsidiary’s own credit risk: (f) any fair value gain that relates to a financial instrument where— (i) (ii) (iii) fair value is determined in whole or in part using a valuation tech- nique based on assumptions that are not supported by prices from observable current market transactions in the same instrument; or fair value is not based on observable market data; or fair value is based on prices in a market that is not active: (g) any surplus, net of any associated deferred tax liabilities, in any defined benefit superannuation fund sponsored by the deposit taker as employer.
(4) Perpetual non-cumulative preference shares may be included in capital if they meet the following requirements: (a) (b) the payment of dividends on shares is able to be withheld if the financial condition of the deposit taker or borrowing group would not support payment of those dividends; and dividends that are withheld in accordance with paragraph (a) are not cu- mulative; and (c) the dividend rate for the shares must be set— (i) (ii) as a fixed percentage rate; or as a fixed margin above a benchmark floating rate (for example, a bank bill rate); and (d) the shares are not— 9 Part 3 r 11 Deposit Takers (Credit Ratings, Capital Ratios, and Related Party Exposures) Regulations 2010 Reprinted as at 1 May 2014 (i) (ii) subject to any arrangement for resetting the dividend rate; or redeemable within the meaning of section 68 of the Companies Act 1993; or (iii) repayable or redeemable at the option of the holder.
(5) Perpetual non-cumulative preference shares without full voting rights may not constitute more than— (a) (b) 25% of capital, if a deposit taker is not a qualifying mutual; and 50% of capital, if a deposit taker is a qualifying mutual.

Regulation 10(3)(e): amended, on 1 May 2014, by section 92(2) of the Non-bank Deposit Takers Act 2013 (2013 No 104).
Calculation of risk-weighted amount for credit risk 11 Calculation of risk-weighted amount for credit risk A deposit taker must calculate its risk-weighted amount for credit risk by ag- gregating— (a) (b) its risk-weighted amount for on-balance sheet exposures, calculated in accordance with regulation 12; and the following off-balance sheet exposures, measured as the principal or notional principal amount of the exposure as at the date of calculation, risk-weighted at 100%: (i) (ii) direct credit substitutes: asset sales with recourse: (iii) forward asset purchases.
12 (1) Calculation of risk-weighted amount for on-balance sheet exposures To calculate its risk-weighted amount for on-balance sheet exposures, a deposit taker must— (a) classify each on-balance sheet asset into its appropriate class in table 1 of the Schedule in accordance with regulations 13 to 20,— (i) (ii) including any transferred loan, unless that loan meets the require- ments for exclusion set out in regulation 19; and including any loan or part of a loan in respect of which there is a sub-participation, unless that sub-participation meets the require- ments for exclusion set out in regulation 20; but (iii) excluding any asset that must be deducted from the deposit taker’s capital under regulation 10; and (b) multiply the book value of each asset as at the date of calculation (mea- sured net of any allowances for impairment loss and unearned income) 10 Reprinted as at 1 May 2014 Deposit Takers (Credit Ratings, Capital Ratios, and Related Party Exposures) Regulations 2010 Part 3 r 14 by the risk weight that applies to that class of asset set out in table 1 of the Schedule; and (c) aggregate the resulting amounts.
(2) However, if the asset is a loan for which the deposit taker holds a deposit as security, the deposit taker may deduct the deposit from the book value of the loan before carrying out the multiplication under subclause (1)(b) if there is a written contractual agreement between the deposit taker and the depositor that provides that the deposit taker has direct, unconditional, and irrevocable re- course to the deposit security.
13 (1) Classification of on-balance sheet exposures for purpose of determining applicable risk weight The deposit taker must classify each on-balance sheet asset according to the first numbered class into which it falls in the first column of table 1 of the Schedule.

(2) However, if a loan is made against more than 1 form of security, it must be classified into the numbered class that refers to one of those forms of security and that has the highest risk weight.
14 When assets may be classified as rated short-term or long-term claim (1) An asset may only be classified as— (a) (b) a rated short-term claim if there is a short-term credit assessment of that claim and the credit assessment meets the requirements in subclause (3); and a rated long-term claim if there is a long-term credit assessment of that claim or a credit assessment of the issuer or the counterparty and the credit assessment meets the requirements in subclause (3).
(2) However, in the case of a subordinated claim,— (a) (b) subclause (1)(b) does not apply; and the asset may only be classified as a rated long-term claim if there is a long-term credit assessment of that claim and the credit assessment meets the requirements in subclause (3).

(3) The credit assessment must— (a) (b) be solicited from, and issued by, an approved rating agency; and be paid for by the issuer or rated counterparty or a commercial associate of the issuer or rated counterparty.
(4) For the purposes of subclause (3)(b), a person is a commercial associate in re- lation to the issuer or rated counterparty if— (a) the person and the issuer or rated counterparty are in the same group of companies; or 11 Part 3 r 15 Deposit Takers (Credit Ratings, Capital Ratios, and Related Party Exposures) Regulations 2010 Reprinted as at 1 May 2014 (b) the person and the issuer or rated counterparty are directly or indirectly under the control of the same persons.
(5) In subclause (4)(a), group of companies means a holding company and its subsidiaries.

Regulation 14(5): amended, on 1 May 2014, by section 92(2) of the Non-bank Deposit Takers Act 2013 (2013 No 104).
15 (1) (2) (3) 16 (1) How to determine applicable rating grade for purpose of classifying rated claims For the purpose of classifying a rated short-term claim, the rating grade that ap- plies to the claim is the rating grade that corresponds to the rating agency’s as- sessment according to table 2 of the Schedule.
For the purpose of classifying a rated long-term claim, the rating grade that ap- plies to the claim is the rating grade that corresponds to the rating agency’s credit assessment according to table 3 of the Schedule.

If there are different credit assessments for a particular claim, the credit assess- ment that must be used is the credit assessment that results in the higher (less favourable) rating grade according to table 2 or 3 of the Schedule (as applic- able).
How to determine loan-to-valuation ratio for purpose of classifying residential mortgage loans and certain other loans For the purpose of classifying a residential mortgage loan or other loan secured by first mortgage over land, buildings, or both (to avoid doubt, not including a property development loan, see regulation 17), the loan-to-valuation ratio must be calculated using the formula— (2) In the formula in subclause (1), loan value,— (loan value ÷ property value) × 100 (a) in relation to a residential mortgage loan, is the total amount of— (i) (ii) all claims secured by way of first mortgage over the residential property; and subsequent claims of the deposit taker or guaranteeing subsidia- ries (if the deposit taker is part of a borrowing group) that are se- cured over the residential property: (b) in relation to other loans secured by first mortgage over land, buildings, or both, is the total amount of— (i) (ii) all claims secured by way of first mortgage over the land, build- ings, or both; and subsequent claims of the deposit taker or guaranteeing subsidia- ries (if the deposit taker is part of a borrowing group) that are se- cured over the same land, buildings, or both.
12 Reprinted as at 1 May 2014 Deposit Takers (Credit Ratings, Capital Ratios, and Related Party Exposures) Regulations 2010 Part 3 r 18 (3) In the formula in subclause (1), property value,— (a) (b) in relation to a residential mortgage loan, is the value of the residential property determined under a deposit taker’s property valuation policy: in relation to other loans secured by first mortgage over land, buildings, or both, is the value of the land, buildings, or both, determined under a deposit taker’s property valuation policy.
Regulation 16(2)(a)(ii): amended, on 1 May 2014, by section 92(2) of the Non-bank Deposit Takers Act 2013 (2013 No 104).

Regulation 16(2)(b)(ii): amended, on 1 May 2014, by section 92(2) of the Non-bank Deposit Takers Act 2013 (2013 No 104).
17 (1) How to determine loan-to-valuation ratio for purpose of classifying property development loans For the purpose of classifying a property development loan, the loan-to-valu- ation ratio must be calculated using the formula— (loan value ÷ present value of the property) × 100 (2) In the formula in subclause (1),— (a) loan value is the total amount of— (i) (ii) all claims secured by way of first mortgage over the land, build- ings, or both; and subsequent claims of the deposit taker or guaranteeing subsidia- ries (if the deposit taker is part of a borrowing group) that are se- cured over the same land, buildings, or both: (b) present value of the property is calculated using the formula— value × (1 − time to maturity × 0.12) (3) In the formula in subclause (2)(b),— (a) (b) value is the net realisable value of the land and buildings at completion as determined by an independent valuer in accordance with the deposit taker’s property valuation policy: time to maturity is the expected time to maturity of the credit exposure, in years (including part-years, expressed as a decimal), as at the date of calculation.
Regulation 17(2)(a)(ii): amended, on 1 May 2014, by section 92(2) of the Non-bank Deposit Takers Act 2013 (2013 No 104).
18 (1) How to determine loan-to-valuation ratio for purpose of classifying loans secured over qualifying moveable machinery For the purpose of classifying a first ranking loan secured over qualifying moveable machinery in respect of which a financing statement has been regis- tered and perfected under the Personal Property Securities Act 1999, the loan- to-valuation ratio must be calculated using the formula— 13 Part 3 r 19 Deposit Takers (Credit Ratings, Capital Ratios, and Related Party Exposures) Regulations 2010 Reprinted as at 1 May 2014 (2) In the formula in subclause (1),— (loan value ÷ property value) × 100 (a) (b) loan value is the total amount of the first ranking loan secured over the qualifying moveable machinery: property value is the value of the qualifying moveable machinery deter- mined under the deposit taker’s property valuation policy.
19 Requirements for transferred loans to be excluded from calculation of risk-weighted amount for on-balance sheet exposures (1) A deposit taker may only exclude a transferred loan from the calculation of its amount for risk-weighted on-balance sheet exposures under regulation 12 if the transfer meets the following requirements: (a) (b) (c) (d) (e) (f) (g) (h) the loan is transferred by novation or assignment; and the transfer does not contravene the terms and conditions of the under- lying loan agreement and all necessary consents have been obtained; and the seller has no residual beneficial interest in the principal amount of the loan (or that part which has been transferred), and the buyer has no formal recourse to the seller for losses; and the seller has no obligation to repurchase the loan, or any part of it, at any time; and the seller has given notice to the buyer that it is under no obligation to repurchase the loan or support any losses suffered by the buyer, and the buyer has provided written acknowledgement of the absence of those ob- ligations; and the documented terms of the transfer are such that if the loan is resched- uled or renegotiated, the buyer, and not the seller, will be subject to the rescheduled or renegotiated terms; and if payments are routed through the seller, the seller is under no obliga- tion to remit funds to the buyer unless and until they are received from the borrower; and if the buyer is subject to a trust arrangement, the trustees of that trust are independent of the seller or companies related to the seller both during and after the sale negotiations; and (i) a clean transfer within the meaning of subclause (2) is achieved.
(2) A clean transfer is achieved if, as a result of the transfer, the deposit taker or guaranteeing subsidiary (as applicable)— (a) (b) would incur no loss (of interest or principal) in the event of non-per- formance by the borrower; and reasonably believes that it is not, in any circumstances, required to sup- port the loan.
14 Reprinted as at 1 May 2014 Deposit Takers (Credit Ratings, Capital Ratios, and Related Party Exposures) Regulations 2010 Part 3 r 20 Regulation 19(2): amended, on 1 May 2014, by section 92(2) of the Non-bank Deposit Takers Act 2013 (2013 No 104).
20 Requirements for loans subject to sub-participations to be excluded from calculation of risk-weighted amount for on-balance sheet exposures (1) A deposit taker may only exclude a loan, or any part of a loan, in respect of which the deposit taker (or guaranteeing subsidiary, as applicable) has entered into a sub-participation from the calculation of its risk-weighted amount for on- balance sheet exposures under regulation 12 if the following requirements are met: (a) (b) (c) (d) (e) there are no terms or conditions in the underlying loan agreement that would prevent the deposit taker or guaranteeing subsidiary from entering into the sub-participation and all necessary consents have been obtained; and the deposit taker or guaranteeing subsidiary, whether under the terms of the sub-participation agreement or any other agreement or arrange- ment,— (i) (ii) is not under an obligation to assume all or any part of the risk of the sub-participant under the sub-participation in any circumstan- ces; and has no liability for any losses suffered by the sub-participant under the sub-participation as a result of default by the borrower under the underlying loan agreement; and the sub-participant must have given written acknowledgement to the de- posit taker or guaranteeing subsidiary, confirming the matters in para- graph (b); and the deposit taker or guaranteeing subsidiary is not under an obligation to repay any amount to the sub-participant unless and until an equivalent amount is received by the deposit taker or guaranteeing subsidiary under the underlying loan agreement, including if payments under the under- lying loan agreement are rescheduled; and if the sub-participation does not apply to the whole of the underlying loan, the parts of the loan that are subject to the sub-participation must rank equally with the parts of the loan that are not subject to the sub-par- ticipation in the event of default by the borrower.
(2) In this regulation, sub-participation means a transaction in which a person (the sub-participant) places a deposit with the deposit taker or the guarantee- ing subsidiary (A) in the amount of its participation in respect of a loan (the underlying loan) by A to a third party (the borrower) on terms under which A’s obligation to repay the sub-participant depends on the borrower repaying A under the underlying loan agreement; and sub-participation agreement has a corresponding meaning.
15 Part 3 r 21 Deposit Takers (Credit Ratings, Capital Ratios, and Related Party Exposures) Regulations 2010 Reprinted as at 1 May 2014 Regulation 20(1): amended, on 1 May 2014, by section 92(2) of the Non-bank Deposit Takers Act 2013 (2013 No 104).

Regulation 20(1)(a): amended, on 1 May 2014, by section 92(2) of the Non-bank Deposit Takers Act 2013 (2013 No 104).

Regulation 20(1)(b): amended, on 1 May 2014, by section 92(2) of the Non-bank Deposit Takers Act 2013 (2013 No 104).
Regulation 20(1)(c): amended, on 1 May 2014, by section 92(2) of the Non-bank Deposit Takers Act 2013 (2013 No 104).

Regulation 20(1)(d): amended, on 1 May 2014, by section 92(2) of the Non-bank Deposit Takers Act 2013 (2013 No 104).

Regulation 20(2): amended, on 1 May 2014, by section 92(2) of the Non-bank Deposit Takers Act 2013 (2013 No 104).
Calculation of amount for market risk and operational risk 21 How to calculate amount for market risk and operational risk A deposit taker must calculate its aggregate amount for market risk and oper- ational risk by applying the book value for its total assets as at the date of cal- culation and its risk-weighted amount for credit risk, calculated in accordance with regulation 11, in the following formula: [(total assets + deposit takers’ risk-weighted amount for credit risk) ÷ 2] × 0.175 Part 4 Restrictions on related party exposures 22 (1) (2) (3) Overview This regulation is intended only as a guide to the general scheme and effect of this Part.
The limit on related party exposures is a limit, expressed as a ratio, on the ex- posures that a deposit taker may have to related parties, relative to the deposit taker’s capital base.
The limit applies to all exposures to related parties, in aggregate (and is not a limit on exposures to individual related parties), and, if the deposit taker is part of a borrowing group,— (a) applies to exposures to related parties of all members of the borrowing group (by virtue of the definition of related party); and (b) is relative to the capital of that borrowing group.
(4) This Part sets out what a trust deed must include about the maximum limit on related party exposures (see regulation 23) and how the maximum limit must be calculated.
16 Reprinted as at 1 May 2014 Deposit Takers (Credit Ratings, Capital Ratios, and Related Party Exposures) Regulations 2010 Part 4 r 25 23 (1) (2) Trust deed must include maximum limit on aggregate related party exposures of no more than 15% of capital Every deposit taker and trustee must ensure that the trust deed includes a maxi- mum limit on aggregate exposures to related parties that the deposit taker must not exceed.
The maximum limit must be fixed by agreement between the deposit taker and the trustee (but see section 79 of the Act for provisions that apply if there is no agreement).

(3) The maximum limit must be expressed as a ratio that— (a) must be calculated in accordance with regulation 24; and (b) must not exceed 15%.

Regulation 23(2): amended, on 1 May 2014, by section 92(2) of the Non-bank Deposit Takers Act 2013 (2013 No 104).
24 How to calculate maximum limit ratio (1) A deposit taker must calculate the maximum limit (and measure whether or not it is exceeding that maximum limit) by— (a) determining the amount of the aggregate exposures as follows: (i) identifying the exposures as set out in regulation 25; and (ii) measuring those exposures as set out in regulations 26 and 27; and (iii) adding together all of those exposures; and (b) determining the amount of capital under regulation 10, using the book values most recently reported to the trustee; and (c) applying those amounts in the following formula: (aggregate exposures ÷ capital) × 100 (2) (3) 25 (1) If the deposit taker is part of a borrowing group, both the aggregate exposures and the capital must be calculated on a consolidated basis (see regulation 5).
If accounting standards require a securitisation special purpose vehicle to be consolidated for the purposes of group financial statements, the special purpose vehicle must be consolidated with the deposit taker or the borrowing group for the purposes of the calculations under this Part.
Identifying related party exposures The deposit taker must identify, for the purposes of regulation 24(1)(a)(i), all actual, potential, or contingent exposures to loss for the deposit taker (or a guaranteeing subsidiary) under a contract or arrangement if a related party fails to discharge its obligations (whether or not the related party is a counterparty to the contract or arrangement).
(2) In identifying those exposures, the deposit taker must— 17 Part 4 r 26 Deposit Takers (Credit Ratings, Capital Ratios, and Related Party Exposures) Regulations 2010 Reprinted as at 1 May 2014 (a) include those not recorded in the statement of financial position (for ex- ample, commitments, contingencies, stand-by lines, letters of credit); and (b) exclude those that are share capital or subordinated loans.
Regulation 25(1): amended, on 1 May 2014, by section 92(2) of the Non-bank Deposit Takers Act 2013 (2013 No 104).
26 Measuring related party exposures (1) An exposure identified under regulation 25 (other than a market-related con- tract) must then be measured on the following basis: (a) (b) if it is included in the statement of financial position, the exposure is the book value most recently reported to the trustee: if it is not included in the statement of financial position, the exposure is the maximum loss that the deposit taker (or guaranteeing subsidiary) would incur, as at the date of calculation, as a result of the related party failing to discharge its obligations.
(2) In each case, however, the exposure must be measured net of allowances for impairment loss and without taking into account any credit risk mitigation ar- rangements.

Regulation 26(1)(b): amended, on 1 May 2014, by section 92(2) of the Non-bank Deposit Takers Act 2013 (2013 No 104).
27 Measuring related party exposures that are market-related contracts (1) (2) If an exposure identified under regulation 25 is a market-related contract, the exposure must be measured as the notional principal amount of the contract, as at the date of calculation, multiplied by the credit conversion factor that applies under subclauses (2) and (3).
The credit conversion factor must be determined under the following table ac- cording to the type of contract and its original maturity: Type of contract Interest rate contract Original maturity less than 1 year 1 year or more Credit conversion factor 0.5% aggregate of 1% for each year (or part of a year) of maturity 2% aggregate of 2% for 1st year and 4% for each additional year (or part of year) of maturity 5% Exchange rate contract less than 1 year 1 year or more Equity or commodity contract less than 1 year 1 year or more, but less than 2 years 2 years or more 7% 10% (3) In this regulation and regulation 26,— 18 Reprinted as at 1 May 2014 Deposit Takers (Credit Ratings, Capital Ratios, and Related Party Exposures) Regulations 2010 Schedule (a) a market-related contract means a contract that is settled on a future date and the value of which is determined by reference to the price of an underlying equity or commodity, to an interest rate or exchange rate, to changes in any of those rates or prices, or to an index of any of them (the underlying market); and (b) a market-related contract is— (i) (ii) (iii) an interest rate contract if the underlying market is an interest rate, changes in an interest rate, or an index of interest rates: an exchange rate contract if the underlying market is an ex- change rate, changes in an exchange rate, or an index of exchange rates: an equity or commodity contract if the underlying market is an equity or commodity, or changes in the prices of an equity or com- modity, or an
 index of equity or commodity prices; but (c) (d) if a market-related contract is more than 1 type of market-related con- tract under paragraph (b), it must be classified as being the type of those market-related contracts that has the highest credit conversion factor under the table in subclause (2); and original maturity means the maturity of the contract under its terms as at the date it takes effect (rather than the residual maturity at the time of the calculation).
Part 5 Revocation 28 Revocation The Deposit Takers (Credit Ratings) Regulations 2009 (SR 2009/420) are re- voked.
Schedule Tables 1 to 3 Table 1 Risk-weighted exposures for on-balance sheet assets Item Class 1 Cash (notes, coin, and gold bullion held by deposit taker or borrowing group member (as applicable) on site) rr 12,13,15 Risk weight 0% 19 Schedule Deposit Takers (Credit Ratings, Capital Ratios, and Related Party Exposures) Regulations 2010 Reprinted as at 1 May 2014 Item Class 2 Claims on Crown and Re- serve Bank Claims on public sector en- tities Claims on New Zealand registered banks Rated short-term claims (see regulations 14 and 15) Rated (see regulations 14 and 15) long-term claims Qualifying insured residen- tial mortgage loans Residential mortgage loans (see regulation 16) Property loans (see regulation 17) development Risk weight 0% 20% 20% 20% 50% 100% 150% 20% 50% 100% 100% 150% 150% 20% 35% 50% 100% 125% 150% 150% 150% 200% 300% – with a rating grade of 1 – with a rating grade of 2 – with a rating grade of 3 – with a rating grade of 4 – with a rating grade of 1 – with a rating grade of 2 – with a rating grade of 3 – with a rating grade of 4 – with a rating grade of 5 – with a rating grade of 6 – first ranking with a loan-to-valuation ratio not exceeding 70% – first ranking with a loan-to-valuation ratio exceeding 70% but not exceeding 80% – first ranking with a loan-to-valuation ratio exceeding 80% but not exceeding 90% – first ranking with a loan-to-valuation ratio exceeding 90% but not exceeding 100% – first ranking with a loan-to-valuation
 ratio exceeding 100% – second or subsequent ranking – first ranking security with a loan-to- valuation ratio not exceeding 60% – first ranking security with a loan-to- valuation ratio exceeding 60% but not exceeding 100% – any other property development loans, including those with second or subse- quent ranking security, no security, and first ranking security with a loan-to- valuation ratio exceeding 100% Reprinted as at 1 May 2014 Deposit Takers (Credit Ratings, Capital Ratios, and Related Party
 Exposures) Regulations 2010 Item Class Other loans with qualifying security over land and/or buildings (see regulation 16) Schedule Risk weight – first mortgage over land and/or build- ings with a loan-to-valuation ratio not exceeding 70%, excluding property de- velopment loans and residential mort- gage loans – first mortgage over land and/or build- ings with a loan-to-valuation ratio ex- ceeding 70% but not exceeding 100%, excluding property development loans and residential mortgage loans – first ranking in respect of which a fi- nancing statement has been registered and perfected under the Personal Prop- erty Securities Act 1999 and when an identification number is used to de- scribe the collateral with a loan-to- valuation ratio not exceeding 70% – in respect of which a financing state- ment has been registered and perfected under the Personal Property Securities Act 1999 – in respect of which a financing state- ment has not been registered under the Personal Property Securities Act 1999 – where a financing statement has been registered and perfected under the Per- sonal Property Securities Act 1999 – where a financing statement has not been registered and perfected under the Personal Property Securities Act 1999 25 26 27 28 29 30 31 32 33 34 Loans secured over qualify- ing moveable machinery) (see regulation 18) Personal loans Other loans (not within classes 15 to 29, except in a case to which regulation 13(2) applies) Assets in respect of which deposit taker or
 other bor- rowing group member (as applicable) is lessor under an operating lease (excluding operating leases over assets that are land and buildings) Equity holdings (not deduc- ted from capital) Other assets 100% 150% 100% 100% 150% 150% 200% 175% 600% 350% 21 Schedule Deposit Takers (Credit Ratings, Capital Ratios, and Related Party Exposures) Regulations 2010 Reprinted as at 1 May 2014 Table 2 Rating grades for short-term credit assessments Rating grade Rating agency credit assessments 1 2 3 4 Standard
 & Poor’s Ratings Services A-1 A-2 A-3 Other Moody’s Investors Service P-1 P-2 P-3 Other Fitch Ratings F1 F2 F3 Other Table 3 Rating grades for long-term or issuer credit assessments Rating grade Rating agency credit assessments Standard & Poor’s Ratings Services AAA AA+ AA AA− A+ A A− BBB+ BBB BBB− BB+ BB BB− B+ B B− CCC+ CCC CCC− CC C D Moody’s Investors Service Aaa Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 Ba1 Ba2 Ba3 B1 B2 B3 Caa1 Caa2 Caa3 Ca C Fitch Ratings AAA AA+ AA AA− A+ A A− BBB+ BBB BBB− BB+ BB BB− B+ B B− CCC+ CCC CCC− CC C D Michael Webster, for Clerk of the Executive Council.
Issued under the authority of the Legislation Act 2012.

Date of notification in Gazette: 24 June 2010.

22 Reprinted as at 1 May 2014 Deposit Takers (Credit Ratings, Capital Ratios, and Related Party Exposures) Regulations 2010 Notes Reprints notes 1 General This is a reprint of the Deposit Takers (Credit Ratings, Capital Ratios, and Re- lated Party Exposures) Regulations 2010 that incorporates all the amendments to those regulations as at the date of the last amendment to them.
2 Legal status Reprints are presumed to correctly state, as at the date of the reprint, the law enacted by the principal enactment and by any amendments to that enactment.

Section 18 of the Legislation Act 2012 provides that this reprint, published in electronic form, has the status of an official version under section 17 of that Act.

A printed version of the reprint produced directly from this official elec- tronic version also has official status.
3 Editorial and format changes Editorial and format changes to reprints are made using the powers under sec- tions 24 to 26 of the Legislation Act 2012.

See also http://www.pco.parlia- ment.govt.nz/editorial-conventions/.

4 Amendments incorporated in this reprint Non-bank Deposit Takers Act 2013 (2013 No 104): section 92(2) Wellington, New Zealand: Published under the authority of the New Zealand Government—2015 23