Allocating off-balance-sheet amounts to instruments that do not comprise an undrawn amount
- Question ID: 2018/0018
- Date of publication: 24/01/2018
- Subject matter: Off-balance-sheet exposures, Credit cross-limit structures and multi-debtor/product structures
- AnaCredit Manual: Part II
- Data attribute: Off-balance sheet amount
We understand that off-balance-sheet amounts cannot be allocated to instruments that do not, by definition, comprise an undrawn amount. While this seems a valid assumption, can we assume that no off-balance-sheet amount can be reported which exceeds the instrument’s sub-limit? Can we also assume that sub-limits do not need to add up to the higher-level credit limit?
Please note that AnaCredit does not collect information on higher-level credit limits or sub-limits.
Nevertheless, an off-balance-sheet amount should be reported if additional funds can be drawn by the debtor vis-à-vis the instrument. This is determined by, among other things, the nature of the instrument in question (e.g. revolving versus non‑revolving) and the existence of higher-level credit limits or sub-limits (beyond which funds cannot be drawn by the debtor). Section 3.2 of Part III of the AnaCredit Manual states: “The off-balance-sheet amount available, from an instrument point of view, is influenced by the total commitment, the debtor sub-limits, and any instrument‑specific limit.” This confirms the assumption that, given an instrument’s individual limit, the (allocated) off-balance-sheet amount should reflect the fact that the debtor is not able to draw funds beyond that limit. This is repeated in Section 3.4.3, which states that “any sub‑limits that are set at the level of individual instruments belonging to the credit cross-limit structure, as the sum of the outstanding nominal amount and the (allocated) off-balance-sheet amount of the instrument, cannot exceed the sub-limit of the instrument”.
As regards the mutual relationship between sub-limits and the higher-level credit limit in the case of multi-debtor/product credit limit structures in general, please note that debtor or product sub-limits are typically agreed in order to limit the creditor’s exposure to a given debtor or product, while higher-level credit limits limit the creditor’s exposure to a group of debtors (in the case of multi-debtor credit limit structures) or a group of products (in the case of multi-product credit limit structures). Obviously, the sum of all sub-limits should exceed the higher-level credit limit for the higher-level credit limit to have any effect.
However, in the specific context of AnaCredit, where not all of the products that can potentially co-exist under a higher-level credit limit are subject to AnaCredit reporting (as in the case of financial guarantees, which currently fall outside the scope of AnaCredit), it may be that the sum of all the outstanding nominal amounts and (allocated) off‑balance-sheet amounts that are reported to AnaCredit is less than the higher‑level credit limit. This is particularly true of cases where only lump-sum types of instrument or instruments with individual sub-limits existing under a higher-level credit limit are reported to AnaCredit, where, owing to the nature of those instruments and/or the individual sub-limits, it is not possible to reflect the total higher-level credit limit. This is reflected in Section 3.4.3 of Part III of the AnaCredit Manual, which states, for example, that “if an instrument, by definition, does not comprise any undrawn amounts at any moment in time (for example, lump-sum credits), the off-balance-sheet amount is reported as ‘non-applicable’.” Clearly, in such cases, the sub-limits of the instruments that are reported to AnaCredit do not add up to the higher-level credit limit (which also covers products that are not subject to AnaCredit reporting).