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Reading through these as I am in writing up my comparative disclosures I just have to comment on them specifically.

In brief – these are disclosures made the way they should be. If this is not international best practice in bank disclosures I would be staggered. In there is everything that I can think of that would be of interest – from exposures broken down by PD band, exposure size and category to a full and detailed analysis of securitisation exposures and proper discussion on each type of capital employed by the group and much else in between. They are so detailed they have had to provide an index to allow you to find the actual APRA mandated disclosures in the book they have provided (see page 45).

In fact, and with a nod to Matt’s request on the previous thread, the only area that is lacking in detail is operational risk, with just the bare numbers given. A real pity as it is my favourite area. They did, however, cover it fairly well in the full year disclosures.

Well done, CBA. Are you paying attention, ANZ?

Enough gushing from me. Back to the numbers.

I was asked a question regarding a comment I made on a previous post (the one on the ANZ numbers) about the EAD and RWA numbers. I copy my response below in case it is of more general interest.

There are two measures of total outstanding assets in the disclosures (other than the CBA which seem to have thrown in the kitchen sink). One is the RWA or risk weighted assets which is the number left after the capital weights have been applied – a number that we do not know but will always be a percentage of the total. The EAD (exposure at default) is the value for what the exposure would be in the event it goes into default. It is likely to be close to either the current exposure or the facility limit.

If that was gobbledygook – let’s say a borrower has a credit card with a limit of $25k but a balance of $1k. In accounting terms you have a $1k exposure with $24k undrawn. However, normally people draw everything they can on a credit card to try to stave off bankruptcy so, just prior to going under most people will draw the card down to $25k (or more – and I have seen lots more), meaning for that $1k exposure you may have an $26 or $27k EAD figure.

The RWA for this may be any number from $0 (if they typically recover all the outstanding) to $26 or $27k (if they typically lose it all). The recovery rate varies from bank to bank and product to product, so the EAD is the closest number you will get in these disclosures to the actual (accounting) amount outstanding.

Neither of these is going to be the amount currently outstanding on the assets (or current value) but the EAD is going to be much closer, particularly for the Bank and sovereign exposures which typically arrtact a near zero risk weight. I therefore use the EAD, but it will never equate to the exact numbers in any accounting figures.

Just in time the NAB and CBA have published their Pillar 3 disclosures. Just on sheer weight alone, the CBA wins the overall disclosure stakes, with a 52 page (count ’em, 52) short form disclosure. There is comprehensive disclosure of everything I can see (just on a quick look) and numbers galore. Magnificent. This is what disclosure really means.

Besides that the NAB’s looks puny – but they still beat the ANZ’s.

I will run the numbers over the weekend and get back to you. If there are any particular areas you want me to look at, mention them in comments and I will try to do so.

The only problem with the CBA’s disclosure is that it will take a fair bit more to digest that the others.

ANZ, NAB and WBC – in this at least you can look to the CBA to show you how it should be done. [Andrew then stares happily at a lot of numbers]

My first take on these is that they seem to be trying to stick strictly to the bare minimum of disclosure – if disclosure is the right word. Last time, I gave them a distant third on the disclosures, with Westpac as tail-end Charlie. This time they are definately behind Westpac. The whole way it is written just seems to be to try to hide everything. For example the ANZ have not broken out the SL category other than in the RWA area. It complies (from memory) with APS 330 but, really guys, you should do better.

OK – brief look at the numbers (such as they are given). Capital, while the same total as before, is now better as more of it is tier one. Essentially, all of the capital raised recently will have been tier 1, so no real surprises there. Westpac was the same and I would be surprised if the others (when they deign to let us know) are any different.

The EAD numbers (the closest proxy we have to actual book size) reflect a not enormous change, with the increases in loan losses slightly more than counteracted by lending activity. Overall, this is a sign of some strength – but the only category to have increased in any material way is the “Sovereign” category, with the note saying this is due to increases in deposits with the US Fed.

As a side note I would be fascinated to see why the ANZ has over $11bn tied up with the US Federal Reserve. Perhaps this is why interest rate risk has dropped to zero – the deposits are all at call with the Fed. Odd. If the USD drops much it will hurt the bottom line immediately as these would all have to be held at fair value. As it is these will have helped over the last few months.

The rest of it is similar to the Westpac report – increased deliquencies and losses, but nothing to even come close to causing it any problems.

The disappointing thing is that they have cut back on the transparency.

So far then, Westpac was first (in both ways) and ANZ way behind. Come on NAB and CBA – show us the numbers. I think they will be instructive. I am looking forward to comparing portfolio strength across the banks, with the relative RWA to EAD numbers on the “Advanced” portfolios being a good indicator.

ANZ’s latest Pillar III report is out. I have no time to cover it at the moment, but I will later today.

CBA and NAB are going to the wire.

Looks like Westpac got a big jump on the others in releasing their quarterlies for 31 December. Well done guys – a full 7 business days early. Are the rest of you going to wait till the last day like the ANZ did last time? The last day (by my calculation) is at close of business on Friday.

… are now coming out. Westpac looks to be the first off the block, so I will go through their report first – comparing them to their prior results.

When they are out, the ANZ’s should appear here, the NAB ones may appear here (but I cannot be sure they will be explicitly linked as the NAB do not appear to be particularly clear about where they will go) and the CBA’s here, although, like the NAB, they do not appear to be completely sure about the location yet.

On to WBC, then. First thing to note, and a good one at that, is that they seem to be erring a little more on the side of putting more qualitative information out than in their previous, rather terse, report – not, mind you, that this is a model for open disclosure. The second thing to note is that the numbers are directly comparable, as the St. George prudential numbers (except for the capital ratios) are not actually in here. Presumably this is because the St. George Pillar III report will be issued seperately.

One other point to note is that I have taken the opportunity to correct a couple of small inconsistencies in my previous treatments out of the updated spreadsheet. The “Small Business” category is now consistently treated in the way the banks treat them – as retail loans, so they are now in the “Other Retail” category.

Last thing to note, before getting onto the numbers, is that Westpac seem to be doing well in their program to get more “Advanced” approvals for their book. The amount covered under their Standardised (with the exception of Specialised Lending, with they cannot until APRA allows it for all banks) is down from $10.4Bn to $6.6Bn. As they have not broken this out amongst the categories I cannot see where the improvements are, but this is good nonetheless. My guess is that this is in the “Other Retail” category, perhaps with the personal lending business now in the Advanced category, but this is just a guess.

The Numbers

The numbers are quite interesting. WBC has greatly reduced lending to governments, with more than half of that portfolio gone. This seems to be as a result of a massive sell-off of government bonds, as the major part of the drop has been in the “Market-related” section of the portfolio. My guess is that this is profit-taking in a reducing interest rate environment – but I cannot be sure as the results announcement makes no mention of it.

On the other hand, lending to other banks is massively up, with a halving of the holdings of other bank’s bands being overwhelmed by an increase in normal inter-bank lending from $2.9bn to $43.8bn. As the regulatory capital impact is minimal, this must have (nearly all) been lent to others of the Big 4. I await their reports to check on this. If theirs look similar then we may have a big money-go-round happening.

With the exception of residential lending (up 9% in a quarter), the rest of the business seems to be in gentle decline, with securitisation and credit cards (QRR) slightly down and other lending only slightly up.

Passt Due and Impaired

As has already been heavily trailed, the past due and impaired numbers are up and, in the case of corporate lending, heavily up. Many of the problem loans do not even seem to have gone overdue before being counted as “Impaired” as last the disclosures’ “Corporate” 90 dpd number was only $157m and the impaired number this time has gone up by nearly $700m – and some of the $513m reported last time should have been written off by now.

The rest of the movements are what could be expected at this point in the cycle, with the “Residential Mortgage” impaired number implying that something around 700 residential mortgages are likely to cause the bank some losses. In this market that is a good result and reflects the strength of the normal lending policies.


Overall, the capital numbers are largely unchanged, but there has been a significant shift to Tier One from Tier Two. Like the losses, this has been well trailed in the announcements and really needs no further comment.

I await the announcements from the other banks.


I received an email on this one – I missed one thing and need to correct another. The Sovereign and Bank numbers changes are explained on page 4 of the release – they have changed their EAD calculation methodology for these and it resulted in the numbers changing. As they note in the release, though, this has little impact on the actual capital numbers as neither of them receive much capital weight.

The correction is to my calculation of the Standardised portfolio. Previously, following a methodology for calculation where I have worked in the past, the “Other Assets” were thrown into the Standardised bucket. I will pull them out and do those seperately from now on.

I will incorporate this change into my analysis of future numbers from all the Banks.


While close readers may have an inkling of my opinion on the matter, I would like to know what you think.

What caused the "GFC" (Poll Closed)

If you vote for “something else” (or just want to vent on the subject, add a comment in below.

Finally: a regulator who has the good sense to see that there is a direct correlation between the intrusiveness of the regulation and the extent of the impact of the current market situation.

Don Brash is a former Governor of the Reserve Bank of New Zealand, who, along with Australia is one of the systems to have had few problems recently.

In many ways, this intensive supervision by official agencies made matters worse by leading bank customers to assume that banks were effectively “guaranteed” by Government, thereby enabling banks to operate with levels of capital well below those regarded as prudent in earlier decades. Perhaps even more serious, intensive supervision led some bank directors to suspend their own judgment, and believe that they were behaving prudently provided they were observing all the rules.(my emphasis)

Hat tip – Jason Soon

Brief apologies for the long hiatus in posts here. I have been very busy over the last few weeks getting all the materials together that are needed for a new course I am going to lecture this semester.

As it is on statistics in finance I will probably rescue a some of the content to put up on Ozrisk over the next few weeks.

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