Off-balance-sheet items in the scope of AnaCredit

• Question ID: 2018/0010
• Date of publication: 24/01/2018
• Subject matter: Off-balance-sheet exposures, Credit cross-limit structures and multi-debtor/product structures, Instruments in the scope of AnaCredit
• AnaCredit Manual: Part II, Part III
• Data attribute: Type of instrument

Question

The second paragraph of Section 3.1.4 of Part II of the AnaCredit Reporting Manual explains that the distinction between instruments that are subject to reporting and instruments that are not is based on the difference between instruments with intrinsic off-balance-sheet amounts (i.e. undrawn amounts, which are subject to reporting) and strict off-balance-sheet items.

Is this consistent with the final paragraph of the same section, which directs the reader to paragraphs 57, 58 and 59 of Part 2 of Annex V to Commission Implementing Regulation (EU) No 680/2014 for a definition of a “loan commitment”? Please look at the wording of paragraph 57 of Part 2 of Annex V to Commission Implementing Regulation (EU) No 680/2014.

Answer

Paragraph 57 of Part 2 of Annex V to Commission Implementing Regulation (EU) No 680/2014 states:

“‘Loan commitments’ are firm commitments to provide credit under pre-specified terms and conditions, except those that are derivatives because they can be settled net in cash or by delivering or issuing another financial instrument. The following items of Annex I of the CRR shall be classified as ‘Loan commitments’:

1. ‘Forward deposits’.
2. ‘Undrawn credit facilities’ which comprise agreements to ‘lend’ or provide ‘acceptance facilities’ under pre-specified terms and conditions.”

Part II of the AnaCredit Manual contains a reference to such instruments:

“Strict off-balance-sheet items such as loan commitments, financial guarantees and other commitments as defined in paragraphs 57, 58 and 59 of Part 2 of Annex V to Commission Implementing Regulation (EU) No 680/2014 of 16 April 2014 (hereinafter referred to as ‘the ITS’), which do not have outstanding balances, are not considered to be any of the types of instruments referred to in Article 1(23) of the AnaCredit Regulation.”

The AnaCredit Manual differentiates between “undrawn amounts”, which are off‑balance-sheet components of instruments eligible for reporting to AnaCredit, and strict off-balance-sheet items, which the Manual refers to as follows:

“Instruments which are strict off-balance-sheet items are those where no outstanding amount may exist in combination with the off-balance-sheet amount, rendering this instrument a fully off-balance-sheet item at any time and under any condition. These are commitments which under specific circumstances may be called upon and converted into instruments for which an outstanding nominal amount may be shown, e.g. a guarantee provided by a credit institution.”

As a further clarification, in the case of structured instruments under multi‑debtor/product umbrellas, Part III of the AnaCredit Manual specifies the point at which a fully off-balance-sheet item becomes subject to reporting:

“Taking into consideration the product specificities of the relevant business cases, such instruments, irrespective of their structural complexity, become subject to reporting at the moment at which the creditor, after communicating and legally defining the commitment, creates an eligible instrument giving the debtor the possibility of taking advantage of funds. This date is at or after the moment of contractual inception.”

Thus, paragraph 57 refers to agreements which have not resulted in the creation of an eligible instrument that is subject to AnaCredit reporting. This could, for example, be a credit limit (regardless of whether it has been communicated to the debtor) which has not resulted in the creation of an eligible instrument (e.g. a credit card account or an overdraft). Clearly, such a commitment/offer will not result in any reporting to AnaCredit until a standby instrument has been created which allows it to be utilised. The same is true of conditional lending agreements prior to the creation of an eligible instrument that is subject to AnaCredit reporting.

As regards other products referred to, such as letters of credit or guarantees, it is clear from the Manual that these are reported only as protection received items for the creditor. They are not reported as instruments, as they do not fall within the types of instruments indicated (or are explicitly excluded).