Completion Instructions for Return of Capital Adequacy Ratio Form MA(BS)3(IIIa)

MA(BS)3(IIIa)/P.1 (06/2024)
Completion Instructions
Return of Capital Adequacy Ratio
Part IIIa - Risk-weighted Amount for Credit Risk
Basic Approach
Form MA(BS)3(IIIa)
Introduction

1. Form MA(BS)3(IIIa) of Part III should be completed by each authorized institution (AI)
   incorporated in Hong Kong using the basic approach (BSC approach) to calculate credit risk under Part 5 of the Banking (Capital) Rules (BCR).
2. This Form covers the following exposures of a reporting AI:
   (a) All on-balance sheet exposures and off-balance sheet exposures booked in its banking book, except:
   (i) exposures subject to deduction from the CET1 capital, additional tier 1 capital and/or tier 2 capital (which should be reported in Form MA(BS)3(II)); (ii) securitization exposures subject to Part 7 of the BCR (which should be reported in Form MA(BS)3(IIId)); and (iii) exposures to central counterparties (CCPs) subject to Division 4 of Part 6A of the BCR (which should be reported in Form MA(BS)3(IIIe)). (b) All default risk exposures to counterparties under securities financing transactions (SFTs) and derivative contracts booked in its trading book, except:
   (i) exposures subject to deduction from the CET1 capital, additional tier 1 capital and/or tier 2 capital (which should be reported in Form MA(BS)3(II)); and (ii) exposures to CCPs subject to Division 4 of Part 6A of the BCR (which should be reported in Form MA(BS)3(IIIe)). (c) All credit exposures to persons in respect of unsegregated collateral posted by the AI to those persons except:
   (i) exposures subject to deduction from the CET1 capital, additional tier 1 capital and/or tier 2 capital (which should be reported in Form MA(BS)3(II)); and (ii) exposures to CCPs subject to Division 4 of Part 6A of the BCR (which should be reported in Form MA(BS)3(IIIe)). (d) If applicable, the AI’s market risk positions which are (i) exempt from the requirements of Part 8 of the BCR; and (ii) subject to Part 5 of the BCR as required by section 22(4)(c) of the BCR.

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3. This Form and these completion instructions should be read in conjunction with the
BCR and the relevant supervisory policy/guidance related to the capital adequacy framework.
Section A: Definitions and Clarification
4. In these instructions⸺
(a) “gross sum of the stated notional amounts” refers to the sum of the stated notional amounts of all relevant contracts, without the stated notional amounts of contracts with positive replacement costs being reduced by the stated notional amounts of contracts with negative or zero replacement costs, regardless of whether the contracts are subject to recognized netting. (b) “recognized CRM” refers to recognized collateral, recognized netting, recognized guarantees and recognized credit derivative contracts. To avoid doubt, guarantees issued by other offices of the reporting AI are not regarded as recognized credit risk mitigation. Debt securities which are re-securitization exposures (whether rated or not) cannot be recognized as collateral (see section 125(2) of the BCR). (c) “stated notional amount” means the nominal notional amount of a derivative contract. It should not be confused with any effective notional amount or adjusted notional calculated for the derivative contract under Part 6A of the BCR. (d) “Tier 1 country” has the meaning given by the Banking Ordinance, that is, Hong Kong and any country or place other than Hong Kong which⸺ (i) is a member of the Organization for Economic Co-operation and Development (OECD); or (ii) has concluded special lending arrangements with the International Monetary Fund associated with the International Monetary Fund’s General Arrangements to Borrow, but excludes any such country or place which⸺ (iii) has rescheduled its external sovereign debt, whether to central government or non-central government creditors, within the previous five years; or (iv) is specified by the Monetary Authority (MA) by notice published in the Gazette as being a country or place that is not to be regarded as a Tier 1 country for the purposes of this definition. Currently, OECD members comprise1 :
Australia France Lithuania Sweden
Austria Germany Luxembourg Switzerland

1 The list is provided for reference only and may not be up-to-date. AIs must visit the website of the OECD (https://www.oecd.org) regularly to verify whether a sovereign to which the AIs have exposures is an OECD member.

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Belgium Greece Mexico Türkiye
Canada Hungary Netherlands United Kingdom
Chile Iceland New Zealand United States
Colombia Ireland Norway
Costa Rica Israel Poland
Czechia Italy Portugal
Denmark Japan Slovak Republic
Estonia Korea Slovenia
Finland Latvia Spain
5. AIs and banks include their overseas head offices and branches. For example, a
placement with a Tier 2 country incorporated AI or its overseas branch should be classified as an exposure to an AI regardless of the country of incorporation or location of its branch. A placement with a Tier 1 country incorporated bank’s branch, regardless of its location, should be classified as an exposure to a bank incorporated in Tier 1 country.
6. Double counting of exposures arising from the same contract or transaction should be
avoided. For example, only the undrawn portion of a loan commitment should be reported as an off-balance sheet exposure while the actual amount which has been lent out should be reported as an on-balance sheet exposure. Trade-related contingencies, such as trust receipts and shipping guarantees, which have already been reported as letters of credit issued or loans against import bills etc. should not be counted again as off-balance sheet exposures.
7. In certain cases, counterparty default risk exposures arising from derivative contracts
may already be reflected, in part, on the reporting AI’s balance sheet. For example, the AI may have recorded the fair value of a derivative contract on its balance sheet. To avoid double counting, such amount should be excluded from on-balance sheet exposures and treated as off-balance sheet exposures for the purposes of this Form.
8. Accruals on an exposure should be classified and risk-weighted in the same way as the
exposure. Accruals which cannot be so classified should, with the prior consent of the MA, be included in Class VIII (Other exposures).
9. For SFTs booked in the reporting AI’s banking book⸺
(a) if the assets underlying the SFTs are non-securitization exposures, the AI’s credit exposures to the assets underlying the SFTs should be reported in Division A of this Form (see also section 122(2) and (4) of the BCR); (b) if the assets underlying the SFTs are securitization exposures, the AI’s credit exposures to the assets underlying the SFTs should be risk-weighted in accordance with Part 7 of the BCR and reported in Form MA(BS)3(IIId) (see also section 122(5) of the BCR).
10. For SFTs booked in the reporting AI’s trading book, the AI’s exposures to the assets
underlying the SFTs are market risk exposures. Hence, the AI only needs to calculate

MA(BS)3(IIIa)/P.4 (06/2024) the risk-weighted amounts (RWAs) of its market risk exposures to the assets in accordance with Part 8 of the BCR (see section 123 of the BCR) and reports the exposures in Form MA(BS)3(IV). The AI is not required to calculate any RWA for the credit risk of the assets. However, if the AI is granted an exemption under section 22 of the BCR, the AI should comply with section 122 instead of section 123 in calculating the RWAs of its exposures to the assets, and report the exposures in this Form instead.
11. An originating institution of a non-eligible securitization transaction must report the
RWA of the underlying exposures of the transaction in this Form as if the exposures were not securitized. If the credit risk mitigation (CRM) afforded to the underlying exposures of an eligible synthetic securitization transaction is not in the form of tranched credit protection, the underlying exposures must be reported in this Form in the same manner as a non-eligible securitization transaction except that the CRM for transferring the credit risk of the underlying exposures to the other parties to the transaction can be taken into account in the RWA calculation and therefore should also be included in the reporting. However, if the CRM is in the form of tranched credit protection, both the underlying exposures and the CRM effect must be reported in Form MA(BS)3(IIId) (please see paragraph 15(b) of the completion instructions for Form MA(BS)3(IIId)). For cases which are not specified in these instructions or in any other supervisory guidance relevant to securitization transactions, reporting AIs should consult the HKMA on the reporting arrangements.
Section B: Reporting arrangements for Division A of Part IIIa
B.1 Exposure Classification
12. Division A of this Form is organized according to the following standard exposure
classes into which on-balance sheet and off-balance sheet exposures should be classified under the BSC approach:
Class I Sovereign exposures
Class II Public sector entity exposures
Class III Multilateral development bank exposures Class IV Bank exposures Class V Cash items Class VI Residential mortgage loans Class VII Collective investment scheme exposures Class VIII Other exposures Class IX Exposures subject to 1250% risk-weight
13. The exposure classes are mutually exclusive and therefore each exposure should be
reported under only one of them. However, it should be noted that a single transaction may give rise to more than one exposure. For example, a derivative contract booked in the banking book has counterparty default risk and may also have a credit exposure to the asset underlying the derivative contract.

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14. Classification of credit-linked notes (CLN) held
(a) A single-name CLN held by the reporting AI should be reported in Division A under⸺ (i) the exposure class applicable to the issuer of the CLN if the risk-weight attributable to the CLN is determined as the attributed risk-weight of the issuer; or (ii) the exposure class applicable to the reference obligation of the note if the risk￾weight attributable to the CLN is determined as the risk-weight attributable to the reference obligation as if it were held directly by the reporting AI. (b) A multiple-name CLN (e.g. a first-to-default CLN) should be reported in Division A under the exposure class applicable to the issuer of the CLN if the risk-weight attributable to the CLN is determined as the risk-weight attributable to the issuer, otherwise, the CLN should be reported under Class VIII.
15. Classification of off-balance sheet exposures
Off-balance sheet exposures must be classified into exposure classes in the same manner as on-balance sheet exposures (i.e. based on the source of credit risk). In particular— (a) in the case of an asset sale with recourse or forward asset purchase, since the credit risk is arising from the asset that could be repurchased or is to be purchased in the future, the exposure should be classified into the exposure class within which the asset sold/to be purchased (e.g. equities) would fall if the asset were held by the reporting AI; (b) in the case of partly paid-up shares and securities, since the credit risk associated with the shares or securities is in effect passed to the reporting AI, the exposure should be classified into the exposure class within which the relevant shares or securities would fall if they were on-balance sheet exposures of the reporting AI; (c) in the case of a direct credit substitute arising from the selling of credit protection in the form of total return swap or credit default swap booked in the reporting AI’s banking book, the exposure should be classified into the exposure class within which the relevant reference obligation of the swap would fall if the reference obligation were an on-balance sheet exposure of the reporting AI. If the swap provides credit protection to a basket of reference obligations, the exposure should be classified into Class VIII; and (d) in the case of default risk exposures, the exposures should be classified into the exposure classes within which the counterparties to the derivative contracts or SFTs concerned fall.

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B.2 Specific Instructions for Selected Exposure Classes
16. Class I Sovereign Exposures
(a) Deposits placed with, and loans made to, the Government (including those for the account of the Exchange Fund and the clearing balances with the Exchange Fund) should be reported under item 1. (b) Market makers who have short positions in Exchange Fund Bills/Notes may report their net holdings of such instruments provided that the short positions are covered by the Sale and Repurchase Agreements with the HKMA. The following steps should be taken in determining the amount to be reported:
(i) the long and short positions of instruments with a residual maturity of less than 1 year may be offset with each other; (ii) the long and short positions of instruments with a residual maturity of not less than 1 year may be offset with each other; (iii) if the net positions of both (i) and (ii) above are long, the positions should be reported under items 2 and 3 respectively; (iv) if the net positions in (i) is long and the net position in (ii) is short, or the other way round, the two positions can be netted with each other on a dollar for dollar basis. The resultant net long position, if any, should be reported under item 2 or 3 as appropriate. (c) An off-balance sheet exposure to a sovereign may be reported in item 2, 3, 4, 5, 7, 8, 9 or 10 only if it is a credit exposure arising from fixed rate or floating rate debt securities issued or guaranteed by the sovereign, e.g. a forward asset purchase to buy a fixed rate government bond.
17. Class IV Bank Exposures
For the purposes of this exposure class, clean2 export trade bills negotiated under other banks’ letters of credit may be reported as exposures to the issuing banks of the letters of credit.
18. Class V Cash Items
(a) Items 22 and 23 - Gold bullion
(i) Gold bullion held in safe custody for other entities or customers, which does not expose the reporting AI to any credit risk, is not required to be included in this Form. (ii) Gold bullion held on an unallocated basis by a third party for the reporting AI backed by gold liabilities should be reported under the exposure class to which the third party belongs instead of under Class V.

2 This includes cases where discrepancies have been accepted by the issuing bank concerned.

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(iii) Gold bullion held not backed by gold liabilities (i.e. all other holdings of gold bullion not falling within subparagraph (ii) and not included in item 22) should be reported in item 23. (b) Item 24 - Cash items in the course of collection This item refers to the amount of cheques, drafts and other items drawn on other banks that are payable to the account of the reporting AI immediately upon presentation and that are in the process of collection, and includes— (i) cheques and drafts against which the AI has paid to its customers (i.e. by purchasing or discounting the cheques or drafts presented by the customers) and in respect of which it now seeks payment from the drawee banks; but excludes— (ii) import and export trade bills held by the AI that are in the process of collection (they should be reported as exposures to the counterparties concerned and allocated risk-weights applicable to the counterparties); (iii) unsettled clearing items that are being processed through any interbank clearing system in Hong Kong; and (iv) receivables arising from transactions in securities (other than repo-style transactions), and transactions in foreign exchange and commodities, that are not yet due for settlement. (c) Item 25 - Failed settlements (i) Items 25a to 25e capture any transaction in securities (other than repo-style transaction), and any transaction in foreign exchange or commodities, that is entered into on a delivery-versus-payment (DvP) basis 3 where payment / delivery has not yet taken place after the settlement date. (ii) The following exposures should not be included in item 25⸺ (A) If a transaction in securities (other than repo-style transaction), or a transaction in foreign exchange or commodities, is entered into on a non￾DvP basis and payment / delivery from the counterparty concerned has not yet taken place up to and including the fourth business day after the settlement date, the amount of the payment made or the current market value of the thing delivered by the reporting AI, plus any positive current exposure associated with the transaction, should be treated as an exposure to that counterparty. The amount of the exposure should be reported under the exposure class to which the counterparty belongs and risk-weighted at the risk-weight applicable to that counterparty.

3 DvP transactions include payment-versus-payment (PvP) transactions.

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(B) When payment / delivery under the above non-DvP transaction has not yet taken place for five or more business days after the settlement date, the reporting AI should report the exposure in item 30c under Class IX. (d) Item 26 – Exposures collateralized by cash collateral (i) This item captures exposures collateralized by the following assets (collectively referred to as “cash collateral”)⸺ (A) cash on deposit with the reporting AI; or (B) certificates of deposit, or comparable instruments, issued by the reporting AI. (ii) However, when the cash collateral is held at a third-party bank in a non￾custodial arrangement and unconditionally and irrevocably pledged or assigned to the reporting AI, the credit protection covered portion concerned must be reported as an exposure to that third-party bank under Class IV and therefore must not be reported in item 26.
19. Class VI Residential Mortgage Loans (RMLs)
(a) RMLs that satisfy the criteria set out in section 115(1) of the BCR are risk-weighted at 50% and should be reported under item 27a. (b) If the reporting AI has opted to risk-weight those RMLs that are secured by a first legal charge on residential properties situated outside Hong Kong according to the regulatory capital rules of the jurisdictions in which the properties are situated, the RMLs should be reported under item 27b if the risk-weights are other than 50% and 100%. RMLs that are risk-weighted at 50% or 100% according to those jurisdictions’ regulatory capital rules should be reported under item 27a or 27c, whichever is applicable. (c) Other RMLs, i.e. those which do not satisfy the criteria set out in section 115(1) and (2) of the BCR, should be risk-weighted at 100% and reported under item 27c. (d) See paragraph 25(d) for the reporting arrangement of RMLs guaranteed by Hong Kong Housing Authority or insured by HKMC Insurance Limited.
20. Class VII Collective Investment Scheme Exposures
Use of a single approach
(a) If a CIS exposure is risk-weighted only by using one approach, the exposure should be reported in— (i) any of items 28a(i) to (vi) if either the look-through approach (LTA) or the third-party approach is used; (ii) any of items 28b(i) to (vi) if the mandate-based approach (MBA) is used; or (iii) item 28c(i) if the fall-back approach (FBA) is used.

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(b) “Risk-weight” referred to in items 28a(i) to 28c(i) means the effective risk-weight applicable to a CIS exposure determined under Division 2 of Part 6B of the BCR. Use of a combination of approaches (c) If a CIS exposure to a collective investment scheme (CIS) is risk-weighted by using more than one approach, e.g. LTA for on-balance sheet assets held by the CIS and FBA for off-balance sheet exposures incurred by the CIS, the exposure should be reported in any of items 28d(i) to (vi). (d) “Risk-weight” referred to in items 28d(i) to (vi) is the effective risk-weight (RW) of a CIS exposure calculated as follows:
𝑅𝑊 =
∑𝑎 𝑅𝑊𝐴𝑎
𝑇𝐴 ∙ 𝐿 where—
(i) RWAa is the RWA of that portion of the underlying exposures of a CIS which is determined by using approach a; (ii) TA is the total assets of the CIS; and (iii) L is the leverage of the CIS calculated in accordance with section 226ZJ(2)(b) of the BCR. (See Part IIIa and IIIb – Annex B for numerical examples)
21. Class VIII Other Exposures
Included in this exposure class are exposures which are subject to credit risk capital requirements and have not been included in Classes I to VII and IX in this Form. Exposures included in this exposure class are subject to a risk-weight of 100%, unless otherwise specified in the BCR or by the MA. Item no. Nature of item 29a. Exposures to corporates or individuals not elsewhere reported This refers to exposures to corporates or individuals which have not been included in other exposure classes and items 29b, 29c, 29e and 29f below. 29b. Holdings of equity or other forms of capital instruments issued by, and non-capital LAC liabilities of, financial sector entities subject to 100% risk-weight This item is for reporting—

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 holdings falling within section 116(1)(a)(i) and (iii) of the BCR which are subject to 100% risk-weight under section 116(2)(a) of the BCR; and  CIS exposures (or any part of the exposures) to which section 117AC of the BCR applies where the risk-weight allocated to the exposures is 100%. 29c. Investments in equity of entities (other than financial sector entities) subject to 100% risk-weight Included are investments in commercial entities which are subject to 100% risk-weight (see sections 116 and 117A of the BCR). 29d. Premises, plant and equipment, other fixed assets for own use, and other interest in land Included are—  investments in premises, plant and equipment and all other fixed assets of the reporting AI which are held for own use;  a right-of-use asset recognized by the reporting AI as a lessee in accordance with the prevailing accounting standards issued by Hong Kong Institute of Certified Public Accountants where the asset leased is a tangible asset; and  other interests in land which are neither occupied by the reporting AI nor used in the operation of the AI’s business. 29e. Holdings of equity or other forms of capital instruments issued by financial sector entities subject to 250% risk-weight This item is for reporting—  holdings falling within section 116(1)(a)(ii) of the BCR which are subject to 250% risk-weight under section 116(2)(b) of the BCR; and  CIS exposures (or any part of the exposures) to which section 117AC of the BCR applies where the risk-weight allocated to the exposures is 250%. 29f. Multiple-name credit-linked notes / sold credit protection to basket of exposures This item refers to—  multiple-name CLN (e.g. first-to-default CLN) for which the applicable risk-weights are determined according to section 117(a)(ii) of the BCR; and

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 sold credit protection to a basket of reference obligations, where the protection is in the form of total return swap or credit default swap booked in the reporting AI’s banking book and the risk-weight applicable to the protection is determined according to section 117AD(6), (7), (8) or (9) of the BCR. 29g. Other exposures not elsewhere reported whose risk-weight is 100% This item refers to investments or exposures that are risk-weighted at 100% and that are not reported elsewhere (e.g. exposures falling within
section 116(1)(b)(ii) of the BCR where the obligors concerned are not
corporates and individuals).
29h. Other exposures not elsewhere reported
If necessary, the MA may specify a risk-weight which is greater than 100% for an exposure falling within section 116 of the BCR. Such exposure should be reported in this item. This item also includes— (a) credit protection covered portions of exposures which are—  secured by recognized collateral for which the applicable risk￾weights are determined under Part 7 of the BCR;  covered by recognized credit derivative contracts eligible for a risk-weight of 2% or 4% under section 134(7) or 135(6A) of the BCR (The credit protection covered portions should be reported as a separate item from the credit protection covered portions mentioned in the first bullet and other exposures reported in this item). To avoid doubt, if the recognized credit derivative contracts concerned fall within section 226BI(b), 226I(b) or 226MC(b) of the BCR, the default risk exposures in respect of the contracts are regarded as zero for the purposes of Form MA(BS)3(IIIe); and (b) exposures arising from IPO financing that are eligible for a risk￾weight of 0%. These exposures must be reported separately and should not be comingled with other exposures falling within item 29h. After payments for allotted securities are made to the relevant receiving bank, any outstanding loan amounts should be reported in the exposure classes to which the obligors belong (e.g. item 29a if the obligor is a corporate).
22. Class IX Exposures subject to 1250% risk-weight
Report here the following types of exposure which are subject to a risk-weight of 1250%.

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Item no. Nature of item
30a. First loss portion of credit protection This item refers to the first loss portion mentioned in section 135(2) and (8) of the BCR. 30b. Significant exposures to commercial entities This item refers to the reporting AI’s holdings of shares in commercial entities that exceed the threshold set out in section 117A of the BCR. 30c. Non-DvP transactions remain unsettled for 5 or more business days This item refers to the amount of payment made or the current market value of the thing delivered by the reporting AI, plus any positive current exposure, in respect of a transaction in securities (other than a repo-style transaction), or a transaction in foreign exchange or commodities, entered into on a basis other than a DvP basis, where the payment or deliverables from the counterparty concerned remains unsettled after the settlement date for 5 or more business days (see also section 114A of the BCR). B.3 Reporting of On-balance Sheet Exposures – Column A1 in Division A
23. If an on-balance sheet exposure is not covered by any recognized CRM, the whole
principal amount (after deduction of specific provisions) of the exposure should be reported in column A1 of the row for the risk-weight applicable to the exposure.
24. If an on-balance sheet exposure is covered fully or partially by recognized CRM, the
exposure should be reported in column A1 in accordance with paragraphs 25 to 26 below.
25. CRM treatment by substitution of risk-weights (applicable to collateral, guarantees and
credit derivative contracts)
(a) The whole principal amount (after deduction of specific provisions) of the exposure should be divided into the credit protection covered portion(s) and the credit protection uncovered portion. (b) Each credit protection covered portion should be reported in column A1 of the row for the exposure class and risk-weight applicable to the credit protection concerned. That is, the credit protection covered portion should be allocated the risk-weight of the collateral, or, in the case of guarantee or credit derivative contract, the attributed risk-weight of the credit protection provider (or the risk-weight of 2% or 4% in the case of a credit derivative contract that falls within section 134(7) or 135(6A) of the BCR). (c) The credit protection uncovered portion of the exposure should be reported in column A1 of the row for the exposure class and risk-weight applicable to the exposure.

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(d) In the case of⸺
(i) RMLs granted for the purchase of flats under the Home Ownership Scheme, Private Sector Participation Scheme, Tenants Purchase Scheme and other similar schemes which are covered by guarantees issued by Hong Kong Housing Authority; (ii) reverse mortgage loans granted under the Reverse Mortgage Programme of HKMC Insurance Limited; and (iii) RMLs granted under Mortgage Insurance Programmes of HKMC Insurance Limited, the credit protection uncovered portion, if any, of the RMLs should be reported in Class VI and column A1 of item 27a or 27c whichever is applicable. The credit protection covered portion of the RMLs in relation to a guarantee provided by Hong Kong Housing Authority or an insurance provided by HKMC Insurance Limited should be reported in Class II and column A1 of item 13 if the guarantee or insurance concerned meets all the criteria set out in section 132 of the BCR.
26. CRM treatment by reduction of principal amount of exposures(applicable to on-balance
sheet netting)
The net credit exposure calculated under section 130 of the BCR should be reported in column A1 of the row for the exposure class and risk-weight applicable to the obligor concerned. B.4 Reporting of Off-balance Sheet Exposures other than Default Risk Exposures – Columns A2 and A3 in Division A
27. Off-balance sheet exposures (except default risk exposures and credit exposures arising
from unsegregated collateral posted)
(a) If an off-balance sheet exposure is not covered by any recognized CRM, the whole principal amount (net of specific provisions if applicable) of the exposure and its credit equivalent amount (CEA) should be reported respectively in column A2 and column A3 of the row for the exposure class and risk-weight applicable to the exposure. (b) If an off-balance sheet exposure is covered fully or partially by recognized CRM— (i) the whole principal amount (net of specific provisions if applicable) of the exposure should be reported in column A2 of the row for the exposure class and risk-weight applicable to the exposure; (ii) the amount reported in column A2 should be divided into the credit protection covered and uncovered portions and each of these portions should be multiplied by the credit conversion factor (CCF) applicable to the exposure;

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(iii) the CEA of each credit protection covered portion should be reported in column A3 of the row for the exposure class and risk-weight applicable to the credit protection concerned; and (iv) the CEA of the credit protection uncovered portion should be reported in column A3 of the row for the exposure class and risk-weight applicable to the exposure.
28. Off-balance sheet exposures arising from unsegregated collateral posted by reporting
AI
In the case of off-balance sheet exposures to which section 118(2) of the BCR applies, the reporting AI should report the whole principal amount (net of specific provisions if applicable) of the collateral in columns A2 and A3 of the row for the exposure class and risk-weight applicable to the person holding the collateral. B.5 Reporting of Off-balance Sheet Exposures that are Default Risk Exposures – Columns A2 and A4 in Division A
29. For any derivative contracts or SFTs entered into by the reporting AI with a
counterparty, the AI should report the amounts listed below in column A2 of the row for the exposure class and risk-weight applicable to the counterparty:
(a) in the case of derivative contracts—the gross sum of the stated notional amounts of the derivative contracts entered into with the counterparty; (b) in the case of SFTs— (i) the principal amounts of any securities sold or lent to the counterparty by the AI under the SFTs; (ii) the principal amounts of any money paid or lent to the counterparty by the AI under the SFTs; and (iii) the principal amounts of any securities or money provided to the counterparty as collateral by the AI under the SFTs.
30. For any default risk exposure that is calculated by using the SA-CCR approach or the
IMM(CCR) approach⸺
(a) if the exposure is not covered by any recognized CRM4 , the outstanding default risk exposure of the netting set (or the default risk exposure if the netting set contains SFTs only), net of specific provisions if applicable, should be reported in

4
In the case of SFTs, “recognized CRM” refers to recognized guarantees and recognized credit derivative contracts as securities or money received by the AI under the SFTs have already been taken into account in the calculations under the IMM(CCR) approach, they should not be taken into account again under Part 5. In the case of derivative contracts, “recognized CRM” refers to recognized collateral whose credit risk mitigation effect can be taken into account under section 126(1A)(c) of the BCR, recognized guarantees and recognized credit derivative contracts.

MA(BS)3(IIIa)/P.15 (06/2024) column A4 of the row for the exposure class and risk-weight applicable to the counterparty concerned; (b) if— (i) the exposure is covered fully or partially by recognized collateral and falls within section 126(1A)(c) of the BCR; (ii) the exposure is covered fully or partially by a recognized guarantee or recognized credit derivative contract; or (iii) the exposure falls within both subparagraphs (i) and (ii), the reporting arrangement for column A4 is as follows:
(iv) the outstanding default risk exposure or default risk exposure, as the case may be, net of specific provisions if applicable, should be divided into the credit protection covered and uncovered portions; (v) each credit protection covered portion should be reported in column A4 of the row for the exposure class and risk-weight applicable to the credit protection concerned; and (vi) the credit protection uncovered portion should be reported in column A4 of the row for the exposure class and risk-weight applicable to the counterparty concerned.
31. For any default risk exposure that is calculated by using the current exposure method⸺
(a) if the exposure is not covered by any recognized CRM, the outstanding default risk exposure of the derivative contract concerned, net of specific provisions if applicable, should be reported in column A4 of the row for the exposure class and risk-weight applicable to the counterparty concerned; (b) if the exposure is covered fully or partially by one or more than one type of recognized CRM, the outstanding default risk exposure of the derivative contract concerned should be reported in column A4 in the same manner as set out in paragraph 30(b)(iv) to (vi).
32. Any default risk exposure that is calculated for an SFT in accordance with section
226MJ of the BCR and covered fully or partially by one or more than one type of recognized CRM should be reported in column A4 in the same manner as set out in paragraph 30(b)(iv) to (vi).
33. If the reporting AI issues a CLN to cover a default risk exposure, the amount of the
proceeds received from the issuance of the CLN should not be included in the calculation of the amount of the default risk exposure under Division 1A, 2, 2A or 2B of Part 6A of the BCR. The AI may only take into account the CRM effect of the proceeds in the calculation of the RWA of the default risk exposure in accordance with
section 135(8) of the BCR.

MA(BS)3(IIIa)/P.16 (06/2024)
B.6 Reporting of Risk-weighted Amount – Column A6 in Division A
34. For all items in Division A except item 27b, the RWA reported in column A6 is
calculated by multiplying the sum of the amounts reported in columns A1, A3 and A4 by the risk-weight in column A5.
Section C: Reporting arrangements for Division B of Part IIIa
C.1 General Instructions
35. Unless otherwise stated in these completion instructions, the reporting AI is not required
to report in Parts II, III, IV and V of Division B any derivative contract or SFT that is outside the scope of Divisions 1A, 2, 2A and 2B of Part 6A of the BCR (please refer to the “Q&As on exposures to counterparty credit risk and central counterparties” for more information). Default risk exposures reported in columns B11, B20, B26 and B35 should not be reduced by any CVA loss or specific provisions made. Outstanding default risk exposures in respect of derivative contracts and any specific provisions made for default risk exposures should be reported in Column A4 in Division A of this Form.
36. Breakdown of CEAs and default risk exposures by exposure class in Division B should
be consistent with the exposure classes into which the off-balance sheet exposures concerned are classified for the purposes of Division A. C.2 Part I of Division B - Off-balance Sheet Exposures other than Default Risk Exposures
37. The reporting AI should classify each of its off-balance sheet exposures other than
default risk exposures into the appropriate standard items listed in paragraph 38 and report the exposures in Part I of Division B of this Form.
38. CCFs for items 1 to 10 are set out in sections 118(1) and 120 of the BCR.
Item no. Nature of item

1. Direct credit substitutes
2. Transaction-related contingencies
3. Trade-related contingencies
4. Asset sales with recourse
5. Forward asset purchases
   This item also captures off-balance sheet exposures arising from commitments to subscribe to CISs’ future capital calls.

MA(BS)3(IIIa)/P.17 (06/2024)
To avoid doubt, forward start repo-style transactions should be reported under item 9 instead of this item.
6. Partly paid-up shares and securities
7. Forward forward deposits placed
This refers to a commitment of the reporting AI to place a forward forward deposit. If the reporting AI has contracted to receive a forward forward deposit, failure to deliver by the counterparty will result in an unanticipated change in the AI’s interest rate exposure and may involve a replacement cost. Such exposure should therefore be regarded as default risk exposures arising from interest rate contracts and reported in Part II, III or V of Division B, as the case requires.
8. Note issuance and revolving underwriting facilities
9a. to c. Other commitments
Included is the undrawn portion of any binding arrangements which obligate the reporting AI to provide funds or to incur off-balance sheet exposures (e.g. commitment to issue letters of credit or performance bonds) at some future dates. The latter does not include commitments to enter into derivative contracts. A commitment is regarded as being created no later than the acceptance in writing by the customer of the facility offered. In the case of an off-balance sheet exposure (exposures A) arising from a commitment the drawdown of which will give rise to another off-balance sheet exposure (exposure B) falling within any of items 1 to 8 and 10, the CCF applicable to exposure A should be the lower of—  the CCF applicable to exposure A based on the original maturity of the commitment and whether it can be cancelled at any time unconditionally; and  the CCF applicable to exposure B. If the commitment is in the form of a general banking facility consisting of 2 or more credit lines (including lines for entering into derivative contracts), the AI should assign a CCF to exposure A based on the original maturity of the commitment and whether the commitment can be unconditionally cancelled at any time.

MA(BS)3(IIIa)/P.18 (06/2024)
9a. This item includes off-balance sheet exposures arising from commitments—  which are unconditionally cancellable without prior notice by the reporting AI other than for “force majeure” reason; or  which effectively provide for automatic cancellation due to deterioration in a borrower’s creditworthiness. This item also includes any revolving or undated/open-ended commitments, e.g. overdrafts or unused credit card lines, provided that they are subject to credit review at least annually and can be unconditionally cancelled at any time. 9b. This item captures off-balance sheet exposures arising from⸺  commitments with an original maturity of up to one year; or  commitments the drawdown of which would give rise to off-balance sheet exposures subject to a CCF of 20%. 9c. This item captures off-balance sheet exposures arising from⸺  commitments with an original maturity of over one year; or  commitments the drawdown of which would give rise to off-balance sheet exposures subject to a CCF of 50%.
10. Off-balance sheet exposures not specified above
10a. This item captures off-balance sheet exposures that do not fall within items 1 to 9 and that are subject to a CCF of 100%. Such exposures include, but not limited to⸺  off-balance sheet exposures to the credit risk of the underlying assets of cash-settled derivative contracts (e.g. equity forward contracts) booked in the reporting AI’s banking book; and  credit exposures to persons holding unsegregated collateral posted by the reporting AI (other than collateral posted that is included in the default risk exposures reported in Part II, III, IV or V of Division B of this Form and Form MA(BS)3(IIIe)) (see section 118(2) of the BCR). 10b. to d. These items capture off-balance sheet exposures that do not fall within items 1 to 9 and that are subject to a CCF specified in Part 2 of Schedule 1 to the BCR. For other off-balance sheet exposures not mentioned above, the reporting AI should consult the HKMA on the reporting arrangements.

MA(BS)3(IIIa)/P.19 (06/2024)
39. The reporting AI should report each of its off-balance sheet exposures as follows:
(a) report in column B2 the principal amount (net of specific provisions if applicable) of the exposure; (b) report in column B3 the CEA of the exposure (i.e. the product of the amount reported in column B2 and the applicable CCF specified in column B1); and (c) report the CEA of the exposure in one of columns B4 to B95 if the exposure falls within any one of the following exposure classes⸺ (i) Class I Sovereign exposures; (ii) Class II Public sector entity (PSE) exposures; (iii) Class III Multilateral development bank (MDB) exposures; (iv) Class IV Bank exposures; (v) Class VI Residential mortgage loans; and (vi) Class VIII Other exposures. C.3 Part II of Division B - Default Risk Exposures in respect of Derivative Contracts6 (Current Exposure Method)
40. If the reporting AI uses the current exposure method to calculate default risk exposures,
itshould report the exposuresso calculated in the appropriate items in Part II of Division B. Item no. Nature of item
11. Interest rate contracts
12. Exchange rate contracts
13. Credit-related derivative contracts
14. Equity-related derivative contracts
15. Commodity-related derivative contracts
16. Other derivative contracts not specified above
17. Of which: Offsetting or CCP-related transactions with clearing
members or clearing clients

5 Only breakdown by major exposure classes is required. As a result, for each row, the total amount reported in column B3 would be greater than or equal to the sum of the total amounts reported in columns B4 to B9. 6 Derivative contracts include long settlement transactions that fall within paragraph (c) or (d) of the definition of “derivative contract” in section 2(1) of the BCR. For example, a long settlement transaction that is a FX spot transaction must be reported as an exchange rate contract.

MA(BS)3(IIIa)/P.20 (06/2024)
This item is for reporting the amounts captured under items 11 to 16 that are related to offsetting transactions or CCP-related transactions entered into by the reporting AI with clearing members or clearing clients (see Part IIIe – Annex A and paragraph 5 of the completion instructions for Form MA(BS)3(IIIe) for more information on exposures related to centrally cleared transactions that should be reported in this Form).
41. The reporting AI should report each of its derivative contracts entered into with a
counterparty as follows:
(a) report in column B10 the stated notional amount of the derivative contract; (b) report in column B11 the default risk exposure of the derivative contract calculated under the current exposure method; and (c) report the default risk exposure of the derivative contract in one of columns B12 to B167 if the counterparty to the contract is a sovereign, PSE, MDB, bank, corporate or individual.
42. The total of all stated notional amounts reported in column B10 of each of items 11 to
17 should be the gross sum of the stated notional amounts.
43. To avoid doubt, sold options falling within section 226MB(2) of the BCR should also
be reported. However, the reporting AI is not required to report credit derivative contracts falling within section 226MC of the BCR in Part II of Division B8 . C.4 Part III of Division B - Default Risk Exposures in respect of Derivative Contracts9 (SA-CCR approach)
44. If the reporting AI uses the SA-CCR approach to calculate default risk exposures, it
should report the exposures so calculated in the appropriate items in Part III of Division B (See Part IIIa and IIIb – Annex A for numerical examples). Item no. Nature of item
18. Unmargined contracts not covered by recognized netting
This item captures derivative contracts—
 that fall within the definition of unmargined contract in section 226BA of the BCR; and

7 Only breakdown by major exposure classes is required. As a result, for each row, the total amount reported in column B11 would be greater than or equal to the sum of the total amounts reported in columns B12 to B16. 8 This is to avoid double counting as the notional amounts of the contracts concerned are somehow reflected in the amounts reported in Division A (e.g. credit protection covered portions) or Part I of Division B (e.g. direct credit substitutes). 9 See footnote 6.

MA(BS)3(IIIa)/P.21 (06/2024)
 that are not covered by recognized netting.
The following contracts should also be reported in this item—  contracts that fall within section 226BH(2) or (4) of the BCR; and  contracts that have been removed from the netting sets concerned under section 226BH(3)(b) or (5) of the BCR.
19. Margined contracts not covered by recognized netting
This item captures derivative contracts—
 that fall within the definition of margined contract in section 226BA of the BCR; and  that are not covered by recognized netting.
20. Contracts covered by recognized netting
This item captures derivative contracts (whether they are margined contracts or not) covered by recognized netting.
21. Out of the amounts reported in items 18, 19 and 20, the amounts for
offsetting or CCP-related transactions with clearing members or clearing clients This item is for reporting the amounts captured under items 18 to 20 that are related to offsetting transactions or CCP-related transactions entered into by the reporting AI with clearing members or clearing clients (see
Part IIIe – Annex A and paragraph 5 of the completion instructions for
Form MA(BS)3(IIIe) for more information on exposures related to centrally cleared transactions that should be reported in this Form).
45. For all items in Part III of Division B—
(a) if a netting set contains a credit derivative contract that falls within section 226BI of the BCR and the reporting AI has— (i) treated the default risk exposure of such credit derivative contract as zero; and (ii) removed such credit derivative contract from the netting set (i.e. the default risk exposure of the netting set is calculated as if the credit derivative contract did not exist), the reporting AI is not required to report such credit derivative contract in Part III of Division B10;

10 See footnote 8.

MA(BS)3(IIIa)/P.22 (06/2024)
(b) the amount reported in column B17 is the gross sum of the stated notional amounts of the relevant derivative contracts.
46. For item 18—
(a) report in column B18 the replacement cost of a derivative contract calculated in accordance with Division 1A of Part 6A of the BCR by using the formula applicable to the contract. In the case of a sold option whose default risk exposure is set to zero under 226BH(2) or (3) of the BCR, the replacement cost of the option may be reported as zero; (b) report in column B19 the potential future exposure of the derivative contract calculated in accordance with Division 1A of Part 6A of the BCR by using the formulas applicable to the asset class into which the contract falls. In the case of a sold option whose default risk exposure is set to zero under section 226BH(2) or (3) of the BCR, the potential future exposure of the option may be reported as zero; (c) report in column B20 the default risk exposure of the derivative contract (i.e. the sum of the amounts reported in columns B18 and B19 multiplied by 1.4); and (d) report the default risk exposure of the derivative contract in one of columns B21 to B2511 if the counterparty to the contract is a sovereign, PSE, MDB, bank, corporate or individual.
47. The reporting arrangements mentioned in paragraph 46 also apply to item 19. Also—
(a) if the default risk exposure calculated for a margined contract on an unmargined basis is regarded as the default risk exposure of the contract, the default risk exposure calculated on an unmargined basis should be reported in column B20 (see
section 226BH(1) of the BCR);
(b) if more than one derivative contract is covered by a single variation margin agreement— (i) the stated notional amount of each of the derivative contracts should be reported in column B17 of item 19a, 19b, 19c, 19d or 19e, as the case requires; (ii) there is no need to report the replacement cost, potential future exposure and default risk exposure calculated for these contracts by type of contract. The amounts calculated under sections 226BE(3), 226BS and 226BE(2) of the BCR should be reported in columns B18, B19 and B20 of item 19f respectively.
48. For item 20, the replacement cost, potential future exposure and default risk exposure
of a netting set or a group of netting sets, as the case may be, should be reported in the row “SUBTOTAL” of columns B18, B19 and B20 respectively. The reporting arrangements mentioned in paragraphs 46(c) and 46(d) and paragraph 47(a) apply to the netting set or the group of netting sets as they apply to a single derivative contract.

11 Only breakdown by major exposure classes is required. As a result, for each row, the total amount reported in column B20 would be greater than or equal to the sum of the total amounts reported in columns B21 to B25.

MA(BS)3(IIIa)/P.23 (06/2024)
C.5 Part IV of Division B - Default Risk Exposures in respect of SFTs (Non-IMM(CCR) Approach)
49. If the reporting AI calculates default risk exposures in respect of SFTs under Division
2B of Part 6A of the BCR, it should report the exposures so calculated in the appropriate items in Part IV of Division B as follows:
(a) Under item 22a, for each of the SFTs entered into by the reporting AI— (i) report in column B26 the default risk exposure of the SFT calculated under
section 226MJ of the BCR; and
(ii) report the default risk exposure in one of columns B27 to B31 12 if the counterparty to the SFT is a sovereign, PSE, MDB, bank, corporate or individual. (b) Item 22b is for reporting the amounts captured under item 22a that are related to offsetting transactions or CCP-related transactions entered into by the reporting AI with clearing members or clearing clients (see Part IIIe – Annex A and paragraph 5 of the completion instructions for Form MA(BS)3(IIIe) for more information on exposures related to centrally cleared transactions that should be reported in this Form). C.6 Part V of Division B - Default Risk Exposures (IMM(CCR) Approach)
50. If the reporting AI uses the IMM(CCR) approach to calculate default risk exposures, it
should report the exposures so calculated in the appropriate items in Part V of Division B. Item no. Nature of item
23. Portfolio-level risk-weighted amount based on current market data
The portfolio-level RWA calculated under section 226D(1)(a) and (2)(a) of the BCR should be reported in this item.
24. Portfolio-level risk-weighted amount based on stress calibration
The portfolio-level RWA calculated under section 226D(1)(b) and (2)(b) of the BCR should be reported in this item. Only the higher of item 23 and item 24 will be used in the calculation of the total RWA for credit risk under the BSC approach.
25. to 28. Items 25 to 28 capture the breakdown of the default risk exposures
included in the portfolio-level RWA that will be used in the capital adequacy ratio calculation. In other words, if the portfolio-level RWA

12 Only breakdown by major exposure classes is required. As a result, for each row, the total amount reported in column B26 would be greater than or equal to the sum of the total amounts reported in columns B27 to B31.

MA(BS)3(IIIa)/P.24 (06/2024) calculated using current market data is larger, the default risk exposures reported in items 25 to 28 should be those used in calculating the RWA reported in item 23.
25. Netting sets (not subject to recognized netting)
This item captures transactions—
 that are not subject to recognized netting; or  that are required to be treated as a separate netting set under section 226J(1) of the BCR. If the reporting AI’s IMM(CCR) approval covers one or more than one of the following categories of transactions:
 derivative contracts (excluding long settlement transactions (LSTs));  SFTs (excluding LSTs); and  LSTs, the AI should report each of its transactions in item 25a, 25b or 25c based on the category within which the transaction falls.
26. Netting sets (subject to valid bilateral netting agreements)
This item captures transactions—
 that are subject to valid bilateral netting agreements; and  that are not required to be treated as a separate netting set under
section 226J(1) of the BCR.
Derivative contracts and SFTs covered by the reporting AI’s IMM(CCR) approval must be reported in items 26a and 26b respectively. The amounts reported in these two items will include derivative contracts and SFTs that are LSTs unless these LSTs are not covered by the IMM(CCR) approval. If the reporting AI’s IMM(CCR) approval only covers LSTs, the AI should report the LSTs in item 26c.
27. Netting sets (subject to valid cross-product netting agreements)
This item captures transactions—
 that are subject to valid cross-product netting agreements; and  that are not required to be treated as a separate netting set under
section 226J(1) of the BCR.
LSTs are included unless the IMM(CCR) approval of the reporting AI does not cover LSTs.

MA(BS)3(IIIa)/P.25 (06/2024)
28. Out of the amounts reported in items 25, 26 and 27, the amounts for
offsetting or CCP-related transactions with clearing members or clearing clients This item is for reporting the amounts captured under items 25 to 27 that are related to offsetting transactions or CCP-related transactions entered into by the reporting AI with clearing members or clearing clients (see
Part IIIe – Annex A and paragraph 5 of the completion instructions for
Form MA(BS)3(IIIe) for more information on exposures related to centrally cleared transactions that should be reported in this Form).
51. The reporting AI should report the default risk exposures calculated under the
IMM(CCR) approach in Part V of Division B of this Form as follows:
(a) report in column B33 of items 25a, 25c, 26a, 26c, 27a and 28a the gross sum of the stated notional amounts of the derivative contracts and LSTs concerned; (b) report in column B34 of items 25b, 25c, 26b, 26c, 27b, 27c and 28a the principal amounts of the securities sold, lent or delivered, or the money paid, by the AI to the counterparties under the SFTs and LSTs concerned; (c) report in column B35 of items 25a to 26c, 27 and 28a the default risk exposures of the netting sets concerned calculated under section 226E of the BCR. In the case of item 25, the netting set only contains one transaction; and (d) report the default risk exposure of each of the netting sets reported in column B35 in one of columns B36 to B4013 if the counterparty to the netting set is a sovereign, PSE, MDB, bank, corporate or individual.
52. If a netting set contains a credit derivative contract that falls within section 226I of the
BCR and the reporting AI has—
(a) treated the default risk exposure of such credit derivative contract as zero; and (b) removed such credit derivative contract from the netting set (i.e. the default risk exposure of the netting set is calculated as if the credit derivative contract did not exist), the reporting AI is not required to report such credit derivative contract in Part V of Division B of this Form14 . C.7 Multiple Credit Risk Mitigation
53. If an exposure is covered by two or more forms of recognized CRM (e.g. with both
collateral and guarantee partially covering the exposure), the treatments for the

13 Only breakdown by major exposure classes is required. As a result, for each row, the total amount reported in column B35 would be greater than or equal to the sum of the total amounts reported in columns B36 to B40. 14 See footnote 8.

MA(BS)3(IIIa)/P.26 (06/2024) recognized CRM are set out in section 136(1) and (2) of the BCR. The calculation of the RWA of each portion will be done separately.
54. Unless otherwise stated in the BCR, the reporting AI may determine, at its discretion,
how recognized CRM that is shared by multiple exposures are allocated to each of the exposures for the purpose of RWA calculation. C.8 Maturity Mismatches
55. If the credit protection provided has a residual maturity which is shorter than the
residual maturity of the exposure, the reporting AI must not take into account the CRM effect of that credit protection. Hong Kong Monetary Authority June 2024