Document ID: chunk:federal_register_of_legislation:F2024L01074:body:0:p1
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Banking (prudential standard) determination No. 2 of 2024

Prudential Standard APS 113 Capital Adequacy: Internal Ratings-based Approach to Credit Risk

Banking Act 1959
I, Clare Gibney, a delegate of APRA:

    (a) under subsection 11AF(3) of the Banking Act 1959 (the Act), REVOKE Banking (prudential standard) determination No. 7 of 2022, including Prudential Standard APS 113 Capital Adequacy: Internal Ratings-based Approach to Credit Risk made under that determination; and

    (b) under subsection 11AF(1) of the Act, DETERMINE Prudential Standard APS 113 Capital Adequacy: Internal Ratings-based Approach to Credit Risk in the form set out in the schedule, which applies to all ADIs and authorised NOHCs to the extent provided in paragraphs 2 to 4 of the prudential standard.

This instrument commences on 30 September 2024.

Dated: 27 August 2024

Clare Gibney
Executive Director
Policy & Advice Division

Interpretation
    In this instrument:

    APRA means the Australian Prudential Regulation Authority.

ADI, authorised NOHC and prudential standard have their respective meanings given in subsection 5(1) of the Act.

Schedule

Prudential Standard APS 113 Capital Adequacy: Internal Ratings-based Approach to Credit Risk comprises the document commencing on the following page.

Prudential Standard APS 113

Capital Adequacy: Internal Ratings-based Approach to Credit Risk
Objectives and key requirements of this Prudential Standard
This Prudential Standard sets out the requirements that an authorised deposit-taking institution that has, or is seeking, approval to use an internal ratings-based approach to credit risk must meet, both at the time of initial implementation and on an ongoing basis.
The key requirements of this Prudential Standard are that an authorised deposit-taking institution must:
     * determine the capital requirement for a given credit exposure, within certain parameters set by APRA;
     * develop and maintain rating and risk estimation systems and processes that provide for a meaningful assessment of borrower and transaction characteristics, meaningful differentiation of risk, and accurate and consistent quantitative estimates of risk; and
     * ensure that systems and processes for the internal ratings-based approach to determining capital also play an integral role in the institution's credit approval, risk management and internal capital allocation functions.

Table of Contents
Authority
Application and commencement
Interpretation
Adjustments and exclusions
Previous exercise of discretion
Scope
Definitions
Key principles
Governance and oversight
Asset classes
IRB approval
Attachment A - IRB risk-weight functions
Attachment B – Risk components for each asset class
Attachment C - Treatment of expected losses and provisions
Attachment D - Minimum requirements for the use of an IRB approach
Attachment E - Requirements for recognition of collateral and credit risk mitigation
Attachment F - Risk-weighted assets for purchased receivables
Attachment G - Supervisory slotting criteria

Authority
 1.              This Prudential Standard is made under section 11AF of the Banking Act 1959 (Banking Act).

Application and commencement