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Just a quick message to the new readers we have picked up since the Basel II numbers started coming out. Ozrisk is always keen to hear from possible new authors. If you have a single post you would like to make or believe you have quite a few in you, let me know on the address on the “Authors” page above. Provided you can convince me you have the needed abilities and knowledge to write, I am happy to post them up here. You can, as have some of our writers, remain totally anonymous – posting under a pseudonym or an acronym. Unless so ordered by a court we will never release your real name to anyone without your consent.

All I ask is that you make your best attempt to get it right, be prepared to correct where you have got it wrong, have a good idea about risk management or banking in Australia and keep it reasonably relevant.

Quick poll on the (long form) releases. I am not interested in the numbers (that is easy – the CBA wins) but in their form. Which one looks the best?

Which of the Big Four Had the Best Looking Basel II Release? (Poll Closed)
Total Votes: 41

While I had a few minutes I thought a quick post on the overall impression of the numbers may be of interest. What the numbers are saying is fairly straight-forward. The Australian “Big Four” are all:

  1. Well capitalised, particularly in comparison to their overseas peers;
  2. Even with the ANZ in there, they have low loss ratios, again, in comparison; and
  3. Have little to no risk of going bust any time soon.

If you are in any doubt, have a look at page 15 of the ANZ report. They make the same point that the CBA’s report did – that the APRA version of Basel II is tougher than the way it has been implemented elsewhere. Under APRA rules the ANZ has 7.7% in tier one capital (a strong number). Under FSA rules, it would have about 10% and under the Canadian OSFI rules it would have 10.7% – just in tier one. These are very strong numbers.

The banks really do not need that deposit insurance – there is virtually no chance it will ever be called on. It looks increasingly like it was just a panicked move from our government – a bit of “metooism”, mixed in with some extra taxes oops – guarantee fees. Can we drop it now?

Possibly a few hours late (not sure about that, but I trust they have confirmed it with APRA) the ANZ have got their numbers out. Like the CBA when they first came out they are not yet on their website, but, in compliance with Rule 3.1 of the ASX, they are on the ASX’s website. See here. Once they are up on the ANZ site I will try to find them and post a link.

Remember, the clock only stops ticking when they are on the website, so the ANZ had better not take the same 4 days the CBA did.

The only thing that the formats of all the disclosures have in common is that they have obviously not looked at each others’ as yet and more or less agreed on a common format. Maybe that will happen over the next year. Let’s hope so. The following comparison is based on my aggregation of the numbers to try to get them roughly right. If I have made any errors, please let me know.

On to the numbers in brief.

The ANZ’s capital position is the best of the three – matching the CBA on total capital, but with more of the ANZ’s being tier one (the best sort). Their book is (as you would expect) a little more weighted towards the corporate market than the CBA or WBC – and this shows up well in the impairment numbers.

The ANZ’s Basel II program looks to be the most advanced of the four, with less than 8.5% of the book left in the Standardised category. I will need to do some decent ratio analysis before I can see exactly why this is, but my first impression is that this is because they have managed to get more of their “Sovereign” and “Other Retail” into the AIRB than either CBA or WBC (NAB has to be ignored here, with more of their assets across the book in Standardised).

The ANZ, however, may need some of that big capital base they have. While their loans over 90dpd number is mid-field (in fact, the second best after the WBC), their impaired numbers are the worst of the big four, with the “Corporate” number alone being roughly as big as the total impaired by the NAB, the next worst1.

The rest of their impaired book is lineball with the WBC and NAB – the CBA is therefore the outlier (but in a good way).

Over the next few days I am aiming to do some more detailed comparisons of the numbers and, if I have time, the qualitative disclosures. They may be interesting if the banks actually say what their real attitudes are.


1. This is not directly comparable, which is why I have to hedge. The ANZ has broken the impaired book up slightly differently to the others, making this number hard to get to. The “Other” figure in their table I have guessed is mostly “Other Retail”, so I have put it all there, but some of it will be assets the others have included in “Corporate” and “Other”.


Numbers are now on the ANZ website – and they get their own, dedicated, page. Look here.

I don’t know if I had my calculation right, but by my reckoning the ANZ is now late with their pillar 3 disclosures. I presume that one of three things has happened:

  1. I was wrong, and they really have until tomorrow. Were there any long weekends I missed?
  2. They have a waiver from APRA – presumably due to a problem with them.
  3. There is some other problem with the disclosures and it is better that they delay

The only possibility for a non-business day is Labour Day, 6 October – although Melbourne Cup day may as well be a holiday. Labour Day is only a NSW holiday, though – and the ANZ is headquartered in Melbourne. My guess is that APRA are using the NSW holiday schedule. Oh well – we can but wait. In the mean time I had better check my trading days calculator.

The NAB numbers are out – and they get their own, seperate, section of the NAB’s website, like the financial report. Not sure if they have been reading ozrisk (I know some of you do) but this is what I suggested to the CBA.

Look here for the reports. They have also added in copies of the tapes of the presentation, so have a listen. I have not (yet) listened when I wrote this, so I will update when I can sit down somewhere quiet and do that.

Interesting reading. They show the effects of the NAB not being able to use their Basel II systems to the fullest as APRA have not given their full stamp of approval, with the assets held under the standardised methodology being much larger as a proportion of total assets than for either CBA or WBC – NAB with over 20% and the others down just below 10%.

Otherwise, and as you expect, capital numbers are almost identical to those of the others out so far – NAB (level 2 basis) at 10.9%, CBA on 11.1% and WBC on 10.8%.

The downturn does seem to be hurting the NAB more, with more than double the impairments carried by the NAB, despite it having a book that is only 10 to 20% larger than its competitors. This is not a worrying number (it is still low) but it shows the NAB was doing a little more risky lending during the good times than the peers so far announced.

A comparison of the housing books shows something similar too. Despite having less residential mortgages outstanding than the CBA (and with a matching proportion of 90dpd loans) it has nearly 3 times the amount impaired. This means either (or both) that they were doing more risky lending or they are taking a much dimmer view of future property prices. My guess it that it is slightly more the second reason than the first, as the 90dpd numbers are so similar.

Meanwhile, the ANZ is taking their announcements right down to the wire. Once out, I will spend some time doing a longer piece after the (now normal) short appraisal. I will also be looking at such fascinating topics as operational risk, market risk and IRRBB.

Until then, ANZ, we are waiting…

Looks like the ANZ and NAB are waiting for the last day (if I have my calculations right) to release their Basel II numbers. So – tomorrow’s the day!

While looking for any Basel II related information, I came across a substantial shareholder announcement from CBA to NAB, informing them that CBA has an interest in over 5% of NAB. Going through it, however, it becomes a little bit less interesting. The activity in buying NAB shares looks like normal trading activity by the various arms of the CBA – with one exception. This exception is a deal between Colonial Mutual (CMLA) and 452 Captial that essentially gives CMLA some influence over the 0.53% of NAB at 452 own.

It was this 0.53% that pushed them over the 5% reporting threshold. Must have been interesting finding all the details.

ANZ and NAB still have not yet released their Basel II numbers. They have, by my calculations, until next Tuesday.

If someone in either of the banks wants to comment I am happy to hear about it – also happy to keep names confidential – otherwise, I will look forward to seeing them when they come out.

If anyone from the Commonwealth Bank is reading this you may want to get hold of your Company Secretary – he or she has not yet made sure that the Bank has complied with para 21 of APS 330 as it has not “…publish[ed] its Prudential Disclosures on its website, in full in a clearly identifiable location…”.

It must be easy to find on your website. I still cannot see it, although I would have thought they would be here and possibly on a dedicated page, somewhat like the annual reports. Have a look at the Westpac disclosures if you are not sure what this paragraph means. Go to their website, select “Westpac Info”, “Investor Centre”, “Financial Information” and the “Results Announcements”. Not ideal, but at least they can be found.


It’s finally there – look here. Well done, CBA. It only took 4 days.

Come on ANZ and NAB – show us your Basel II results.

[End Update]

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