Guideline No. 14.2
Treatment of interbank clearing items in regulatory returns
Since the inception of the Real Time Gross Settlement (RTGS) system a number of institutions have sought clarification about how unsettled clearing items should be reported under the various regulatory returns. There appears to be a common confusion as to whether such items should be regarded as a balance with the settlement institution (i.e. the HKMA for account of the Exchange Fund) or the paying banks, or as an "other assets" or "other liabilities" item. This circular serves to provide guidance on the issue.
Under the RTGS system cheques are for next day value (i.e. Day D+1) as regards the passing of value between banks. However, at the customer level, cheques banked in remain for same day value (i.e. the cheques are credited to customer accounts on Day D). In an ordinary accounting treatment, the net (inward and outward) clearing item of a bank should be kept as a separate ledger balance (debit or credit) in the books of the bank on Day D, say Clearing Suspense Account. Such balance, apart from the return items, should only be passed to the Settlement Account with Exchange Fund (opened with the HKMA) on Day D+1. As the net clearing item represents a cashflow expected from the paying banks on the next day, it should be regarded as a liquefiable asset (i.e. if a debit) which is available for meeting a qualifying liability (e.g. any customer withdrawal on the cleared cheques). However, in respect of such amounts the bank is not exposed to any credit risk. The risk arising from return items or the default of a paying bank is passed back to the customer.
It follows that the net clearing balance on Day D of the bank should be treated in the regulatory returns in the following manner:
Return of Assets and Liabilities (MA(BS)1)
Net debit balance : Due from authorised institutions in Hong Kong (item 17.2a)
Net credit balance : Due to authorised institutions in Hong Kong (item 8.2a)
Return of Capital Adequacy Ratio (MA(BS)3)
Net debit balance : This represents clearing items which the bank has no credit exposure and therefore should be excluded from reporting.
Net credit balance : The item will not feature in the return.
Return of Liquidity Position (MA(BS)1(E))
Net debit balance : Total one month liabilities of relevant banks to the authorised institution (item (3)(a) of Part I)
Net credit balance : Total one month liabilities of the authorised institution to relevant banks (item 3(b) of Part I)
On Day D+1 the net balance from Day D would be reflected in and become part of the balance with the Settlement Account with the Exchange Fund. Balance in this account will obviously be reported as exposure to the Exchange Fund.
Should you have any queries on the above, please do not hesitate to contact Mr Jackson Young (2878 1624) or Ms Irene Sy (2878 8210) of this office.
