800 Bourke Street Docklands VIC 3008 AUSTRALIAwww.nabgroup.com
Tuesday, 16 February 2021
ASX ANNOUNCEMENT
NAB 2021 First Quarter Pillar 3 Report
National Australia Bank Limited (NAB) today released its First Quarter Pillar 3 Report, as required under the Australian Prudential Regulation Authority Prudential Standard APS 330Public Disclosure.
The report is attached to this announcement and available at:
http://www.nab.com.au/about-us/shareholder-centre/regulatory-disclosures
For further information:
Media
Mark Alexander | Jessica Forrest |
M: +61 (0) 412 171 447 | M: +61 (0) 457 536 958 |
Investor Relations | |
Sally Mihell | Natalie Coombe |
M: +61 (0) 436 857 669 | M: +61 (0) 477 327 540 |
The release of this announcement was authorised by Gary Lennon, Group Chief Financial Officer.
National Australia Bank Limited ABN 12 004 044 937 AFSL and Australian Credit Licence 230686
Pillar 3 report | |
2021 | |
Table of Contents | |
Section 1 | |
1 | |
Section 2 | |
2 | |
Section 3 | |
3 | |
Section 4 | |
5 | |
Section 5 | |
6 | |
Section 6 | |
7 |
Introduction
Introduction
National Australia Bank Limited (NAB) is an Authorised Deposit-taking Institution (ADI) subject to regulation by the Australian Prudential Regulation Authority (APRA) under the authority of theBanking Act 1959(Cth). This document has been prepared in accordance with the quarterly reporting requirements of APRA Prudential Standard APS 330Public Disclosure, which requires disclosure of information to the market to contribute to the transparency of financial markets and to enhance market discipline. APS 330 was established to implement the third pillar of the Basel Committee on Banking Supervision's framework for bank capital adequacy. In simple terms, the framework consists of three mutually reinforcing pillars.
Pillar 1 | Pillar 2 | Pillar 3 |
Minimum capital requirement | Supervisory review process | Market discipline |
Minimum requirements for the level and quality | Management's responsibility for capital adequacy to | Disclosure to the market of qualitative and quantitative |
of capital
support risks beyond the minimum requirements, aspects of risk management, capital adequacy and various including an Internal Capital Adequacy Assessment risk metrics
Process (ICAAP)
This document provides information about risk exposures, capital adequacy and liquidity of the Group, being NAB and its controlled entities.
Amounts are presented in Australian dollars unless otherwise stated, and have been rounded to the nearest million dollars ($m) except where indicated.
Capital Adequacy Methodologies
The Group uses the following approaches to measure capital adequacy as at 31 December 2020.
Credit Risk | Operational Risk | Non-traded Market Risk | Traded Market Risk |
Advanced | Advanced | Internal Model | Internal Model |
Internal Ratings-based | Measurement | Approach (IMA) | Approach (IMA) and |
Approach (IRB) | Approach (AMA) | standard method | |
Scope of Application |
APRA measures the Group's capital adequacy by assessing financial strength at three levels as illustrated below.
Level 1 comprises NAB and its subsidiary entities approved by APRA as part of the Extended Licensed Entity.
Level 2 comprises NAB and the entities it controls, excluding superannuation and funds management entities, insurance subsidiaries and securitisation special purpose vehicles to which assets have been transferred in accordance with the requirements for regulatory capital relief in APS 120Securitisation. Level 2 controlled entities include Bank of New Zealand and other financial entities such as broking, wealth advisory and leasing companies.
Level 3 comprises the consolidation of NAB and all of its subsidiaries.
On 31 August 2020, NAB announced that it had agreed to sell MLC Wealth, comprising its advice, platforms, superannuation & investments and asset management businesses, to IOOF Holdings Ltd. On 16 December 2020, NAB announced that it had agreed to sell BNZ Life Insurance business to Partners Life. The subsidiaries subject to these agreements consist of both Level 2 and Level 3 subsidiaries, which remain part of the Group until completion of the transactions.
This report applies to the Level 2 Group, headed by NAB, unless otherwise stated.
Capital
Capital
Capital Adequacy [APS 330 paragraph 49 and Attachment C, Table 3a - f]
The following tables provide the risk-weighted assets (RWA) for each risk type.
Credit risk
Subject to IRB approach
As at
31 Dec 20 30 Sep 20 $m $m
Corporate (including Small and Medium Enterprises (SME)) | 130,096 | 132,922 |
Sovereign | 2,010 | 2,143 |
Bank | 8,257 | 8,856 |
Residential mortgage | 108,268 | 106,269 |
Qualifying revolving retail | 2,491 | 2,524 |
Retail SME | 6,136 | 5,983 |
Other retail | 2,241 | 2,281 |
Total IRB approach | 259,499 | 260,978 |
Specialised lending | 58,072 | 59,465 |
Subject to standardised approach | ||
Residential mortgage | 1,272 | 1,296 |
Corporate | 4,443 | 4,355 |
Other | 426 | 418 |
Total standardised approach | 6,141 | 6,069 |
Other | ||
Securitisation exposures | 5,047 | 5,237 |
Credit value adjustment | 12,238 | 12,703 |
Central counterparty default fund contribution guarantee | 76 | 83 |
Other(1) | 9,973 | 9,456 |
Total other | 27,334 | 27,479 |
Total credit risk | 351,046 | 353,991 |
Market risk | 14,587 | 12,678 |
Operational risk | 50,432 | 49,993 |
Interest rate risk in the banking book | 9,746 | 8,485 |
Total RWA | 425,811 | 425,147 |
(1)
Other mainly consists of RWA for other assets, claims and exposures and RWA overlay adjustments for regulatory prescribed methodology requirements. Other includes RWA of $54m for equity exposures (30 September 2020: nil).
The following tables provide the capital ratios and leverage ratio.
Capital ratiosCommon Equity Tier 1 Tier 1
Total
17.2 16.6
As at
31 Dec 20 30 Sep 20
%
%Leverage ratio
31 Dec 20 $m
Tier 1 capital Total exposures | 57,905 976,034 | 56,131 960,575 56,189 51,761 964,854 988,245 |
Leverage ratio (%) | 5.93% | 5.84% 5.82% 5.24% |
As at
30 Sep 20 $m
30 Jun 20 $m
31 Mar 20 $m
Credit Risk
Credit Risk
Information presented in this section excludes credit risk information in respect of certain securitisation exposures and non-lending assets. In particular, it excludes information on third party securitisation exposures and own asset securitisations with capital relief which have separate disclosures in Section 4Securitisation.
Exposure at default throughout this section represents credit risk exposures net of offsets for eligible financial collateral.
Credit Risk Exposures [APS 330 Attachment C, Table 4a]
The following table provides a breakdown of credit risk exposures between on and off-balance sheet. The table also includes average credit risk exposure, which is the simple average of the credit risk exposure at the beginning and end of the reporting period.
As at 31 Dec 20
3 months ended 31 Dec 20
On-balance sheet
Exposure type
$mNon-market related off-balance sheet $mMarket related off-balance sheet $m
Total exposure
Average total exposure
$m
$m
Subject to IRB approachCorporate (including SME) Sovereign Bank Residential mortgage Qualifying revolving retail Retail SME Other retail | 157,998 84,895 23,412 1,509 10,310 266,305 110,865 33,033 |
95,319 1,795 13,751 21,214 338,681 51,777 -390,457 4,197 5,268 -9,465 12,180 4,819 -17,000 2,131 1,055 -3,186 | |
Total IRB approach | 631,720 151,118 47,473 830,311 |
Specialised lending | 56,320 7,607 1,657 65,584 |
Subject to standardised approachResidential mortgage Corporate Other | 1,546 4,782 1,075 117 688 2 -1,663 5,53411,004 -1,077 |
Total standardised approach | 7,403 807 5,534 13,744 |
Total exposure (EaD) | 695,443 159,532 54,664 909,639 |
266,213
102,519
34,008
388,615
9,429
17,026
3,207821,017 66,101
1,685 11,029 1,06113,775 900,893
As at 30 Sep 20
3 months ended 30 Sep 20
On-balance sheet
Exposure type
$mNon-market related off-balance sheet $mMarket related off-balance sheet $m
Total exposure
Average total exposure
$m
$m
Subject to IRB approachCorporate (including SME) Sovereign
159,620
83,412
79,999
817
Bank
22,562
1,604
Residential mortgage Qualifying revolving retail Retail SME
336,540
50,233
3,957
5,436
12,400
4,652
Other retail
Total IRB approach Specialised lending
2,141617,219 56,175
1,087147,241 8,538
23,089 13,357 10,816 - - - -47,262 1,905
266,121267,872
94,17384,896
34,98236,698
386,773387,617
9,3939,554
17,05217,143
3,2283,347
811,722 807,127
66,618 67,006
Subject to standardised approachResidential mortgage
Corporate
Other
Total standardised approach Total exposure (EaD)
1,589 4,900 1,0447,533 680,927
117 690 2809 156,588
- 5,464 -5,464 54,631
1,7061,732
11,05410,982
1,0461,046
13,806 13,760
892,146 887,893
Credit Risk
Credit Provisions and Losses [APS 330 Attachment C, Table 4b - c]
The following table provides information on asset quality.
Exposure type
Subject to IRB approachCorporate (including SME) Residential mortgage Qualifying revolving retail Retail SME
Other retail
Total IRB approach Specialised lending
As at 31 Dec 20
Impaired facilities
$m
1,048
319 -
86
41,457 215
Subject to standardised approachResidential mortgage
Corporate
Total standardised approach Total
Additional regulatory specific provisions
Total regulatory specific provisions
11 213 1,685
Past due facilities ≥90 days
$m
284 3,632 11 272 444,243 63
34 -34 4,340
General reserve for credit losses
Specific provision for credit impairment $m
525
109
-
60
3
697
93
4 8
12 8021,638
As at 30 Sep 20
Exposure type
Subject to IRB approachCorporate (including SME) Residential mortgage Qualifying revolving retail Retail SME
Other retail
Total IRB approach Specialised lending
Subject to standardised approachResidential mortgage
Corporate
Total standardised approach Total
Additional regulatory specific provisions
Total regulatory specific provisions
Impaired facilities
$m
1,228
314 -
86
41,632 221
11 213 1,866
Past due facilities ≥90 days
3 months ended
31 Dec 20
Specific credit impairment charge $m
Net write-offs
$m
(18) 17
11 14
21 20
6 6
9 10
29 67
(3) (1)
- -- 26
3 months ended
30 Sep 20
- -- 66
Specific provision for credit impairment $m
$mSpecific credit impairment charge $m
Net write-offs
$m
284 3,530
562
69 93
110 - 9
27 - 34 24
268 58 7 9
58 3 14 14
4,167 58
733 95
29 1
124 149
8 7
30 4,255
4 8
12 8401,648
- 11 133
- -- 156
2,488
General reserve for credit losses
3,888
Securitisation
Securitisation
Recent Securitisation Activity [APS 330 Attachment C, Table 5a]
There were no assets sold by the Group to securitisation special purpose vehicles in the three months ended 31 December 2020.
3 months ended 30 Sep 20
Group | Group | Group | Recognised | |
originated | originated | originated | gain or loss | |
capital relief | funding only | internal | on sale | |
RMBS | ||||
Underlying asset | $m | $m | $m | $m |
Residential mortgage | - | - | 18,000 | - |
Securitisation Exposures Retained or Purchased [APS 330 Attachment C, Table 5b]
The following table provides the amount of securitisation exposures held in the banking book, broken down between on and off-balance sheet exposures.
As at 31 Dec 20
As at 30 Sep 20
Securitisation exposure typeOn-balance sheet $mOff-balance sheet $m
Total
$mOn-balance sheet $mOff-balance sheet $m
Total
$m
Liquidity facilities Warehouse facilities Securities Derivatives | 255 11,387 8,002 - 1,2681,523 6,42217,809 -8,002 9898 |
Total | 19,644 7,788 27,432 |
170
1,5291,699
11,745
6,62618,371
8,123
-8,123
-20,038
106106
8,261 28,299
The Group had $903 million of derivative exposures held in the trading book as at 31 December 2020 (30 September 2020: $728 million).
Liquidity Coverage Ratio
Liquidity Coverage Ratio
The Liquidity Coverage Ratio (LCR) presented in the disclosure template below is based on a simple average of daily LCR outcomes excluding non-business days.
The Group's LCR increased to 147% for the three months ended 31 December 2020 as a result of higher high-quality liquid assets (HQLA) and lower net cash outflows. The increase in HQLA was primarily the result of increased funding, mainly from deposit inflows, which has resulted in increased holdings of Australian government and semi-government securities.
Lower net cash outflows was driven by increased cash inflows from performing loans combined with lower cash outflows from wholesale funding and other contingent funding obligations, partly offset by increased outflows related to derivative exposures and other collateral requirements.
Liquidity Coverage Ratio Disclosure Template [APS 330 Attachment F, Table 20]
3 months ended
unweighted value (average)
31 Dec 20 | 30 Sep 20 |
62 data points | 64 data points |
Total Total | Total Total |
weighted value (average)
unweighted value (average)weighted value (average)
$m(1)
$m
$m(1)
$m
Liquid assets, of which:
205,270 199,275
1 2 3
High-quality liquid assets (HQLA)(2)(3)
Alternative liquid assets (ALA)(3)
Reserve Bank of New Zealand (RBNZ) securities(2)(3)
1,6332,164
138,751125,687
64,88671,424
Cash outflows
4
5
6
7
Retail deposits and deposits from small business customers of which: stable deposits of which: less stable deposits Unsecured wholesale funding
230,927
23,629
219,269 22,772
167,053
101,088 5,054
118,181 17,718
78,275
162,871 80,901
8
of which: operational deposits (all counterparties) and deposits in networks for cooperative banks(4)
9
10
of which: non-operational deposits (all counterparties)(4)of which: unsecured debt
70,717 17,680
79,918 50,985
12,236 12,236
11
12
Secured wholesale funding(3)Additional requirements
2,1622,924
13
of which: outflows related to derivatives exposures and other collateral requirements
14
15
of which: outflows related to loss of funding on debt products of which: credit and liquidity facilities
168,335
188,776 42,845
23,802 23,802
-
-
19,618
164,974 19,043
16
1718
Other contractual funding obligations Other contingent funding obligationsTotal cash outflows
1,314
622
1,612 986
58,273
3,998
65,830 4,545
153,128 154,973
Cash inflows
19 20 212223 24 25
Secured lending
Inflows from fully performing exposures Other cash inflows
Total cash inflowsTotal liquid assets Total net cash outflows Liquidity Coverage Ratio (%)
86,181 20,554 1,041107,776
1,543 11,149 1,04113,733
78,078 1,723
17,076 9,638
689 689
95,843 12,050
205,270 199,275
139,395 142,923
147%
139%
(1)Unweighted inflow and outflow values are outstanding balances maturing or callable within 30 days.
(2)Weighted values exclude New Zealand dollar (NZD) liquid asset holdings in excess of NZD LCR of 100%, reflecting liquidity transferability considerations. The amount excluded during both the three months to 31 December 2020 and 30 September 2020 was on average $6 billion.
(3)APS 330 does not require unweighted amounts to be reported for these items.
(4)Comparative amounts have been restated to reflect a reclassification of certain cash outflows from operational deposits into non-operational deposits with no impact to overall net cash outflows reported. Amounts previously reported for operational deposits were $70,937m unweighted and $19,969m weighted, and for non-operational deposits $79,698m unweighted and $48,696m weighted.
Glossary
Glossary
Term
Additional regulatory specific provisions | In line with APRA's July 2017 guidance "Provisions for regulatory purposes and AASB 9 Financial Instruments", regulatory specific provisions include collective provisions for facilities in Stage 2 with identified deterioration (that do not meet the two exception clauses per the APRA guidance), and Stage 3 in default. All other facilities are classified as general reserve for credit losses. |
Additional Tier 1 capital | Additional Tier 1 capital comprises high quality components of capital that satisfy the following essential characteristics:
|
ADI | Authorised Deposit-taking Institution. |
Advanced Internal Ratings-based Approach (IRB) | The process used to estimate credit risk through the use of internally developed models to assess potential credit losses using the outputs from the probability of default, loss given default and exposure at default models. |
Advanced Measurement Approach (AMA) | The risk estimation process used for operational risk, combining internally developed risk estimation processes with an integrated risk management process, embedded within the business with loss event management. |
Alternative liquid assets (ALA) | Assets that qualify for inclusion in the numerator of the Liquidity Coverage Ratio in jurisdictions where there is insufficient supply of high-quality liquid assets in the domestic currency to meet the aggregate demand of banks with significant exposure in the domestic currency in the Liquidity Coverage Ratio framework. The Committed Liquidity Facility and Term Funding Facility provided by the Reserve Bank of Australia to ADIs are treated as ALAs in the Liquidity Coverage Ratio. |
APRA | Australian Prudential Regulation Authority. |
APS | Prudential Standards issued by APRA applicable to ADIs. |
Banking book | Exposures not contained in the trading book. |
Central counterparty (CCP) | A clearing house which interposes itself, directly or indirectly, between counterparties to contracts traded in one or more financial markets, thereby insuring the future performance of open contracts. |
CET1 capital ratio | CET1 capital divided by risk-weighted assets. |
Committed Liquidity Facility (CLF) | A facility provided by the Reserve Bank of Australia to certain ADIs to assist them in meeting the Basel III liquidity requirements. |
Common Equity Tier 1 (CET1) capital | The highest quality component of capital. It is subordinated to all other elements of funding, absorbs losses as and when they occur, has full flexibility of dividend payments and has no maturity date. It is predominately comprised of paid-up ordinary share capital, retained profits plus certain other items as defined in APS 111Capital Adequacy: Measurement of Capital. |
Corporate (including SME) | Corporate (including SME) consists of corporations, partnerships or proprietorships not elsewhere classified and includes non-banking entities held by banks. |
Credit value adjustment (CVA) | A capital charge to reflect potential mark-to-market losses due to counterparty migration risk for bilateral over-the-counter derivative contracts. |
Default fund | Clearing members' funded or unfunded contributions towards, or underwriting of, a central counterparty's mutualised loss sharing arrangements. |
Eligible financial collateral (EFC) | Under the standardised approach, EFC is the amount of cash collateral, netting and eligible bonds and equities. Under the Internal Ratings-based approach, EFC is limited to the collateral items detailed in APS 112Capital Adequacy: Standardised Approach to Credit Risk. Recognition of EFC is subject to the minimum conditions detailed in APS 112. |
Exposure at default (EaD) | An estimate of the credit exposure amount outstanding if an obligor defaults. EaD is presented net of eligible financial collateral. |
Extended Licensed Entity | The ADI and any APRA approved subsidiaries assessed as effectively part of a single 'stand-alone' entity, as defined in APS 222Associations with Related Entities. |
General Reserve for Credit Losses (GRCL) | An estimate of the reasonable and prudent expected credit losses over the remaining life of the portfolio of non-defaulted assets, as set out under APS 220Credit Quality. The GRCL is calculated as a collective provision for credit impairment, excluding securitisation exposures and provisions for facilities in default but for which no loss is expected (which are reported as additional regulatory specific provisions). Where the GRCL (regulatory reserve) is greater than the accounting provision, the difference is covered with an additional top-up, created through an appropriation of retained profits to a non-distributable reserve. |
Group | NAB and its controlled entities. |
High-quality liquid assets (HQLA) | Consists primarily of cash, deposits with central banks, Australian government and semi-government securities and securities issued by foreign sovereigns as defined in APS 210Liquidity. |
Impaired facilities | Impaired facilities consist of: - retail loans (excluding unsecured portfolio managed facilities) which are contractually 90 days past due with insufficient security to cover principal and interest - unsecured portfolio managed facilities that are 180 days past due (if not written off) - non-retail loans which are contractually past due and / or sufficient doubt exists about the ability to collect principal and interest in a timely manner - off-balance sheet credit exposures where current circumstances indicate that losses may be incurred. |
Internal Model Approach (IMA) - Non-traded Market Risk | The approach used in the assessment of non-traded market risk. The Group uses, under approval from APRA, the IMA to calculate interest rate risk in the banking book for all transactions in the banking book. |
Internal Model Approach (IMA) - Traded Market Risk | The approach used in the assessment of traded market risk. The Group uses, under approval from APRA, the IMA to calculate general market risk for all transactions in the trading book other than those covered by the standardised approach. |
Leverage ratio | Tier 1 capital divided by exposures as defined by APS 110Capital Adequacy. It is a simple, non-risk based supplementary measure to supplement the RWA based capital requirements. Exposures include on-balance sheet exposures, derivative exposures, securities financing transaction exposures and other off-balance sheet exposures. |
Liquidity Coverage Ratio (LCR) | A metric that measures the adequacy of high-quality liquid assets available to meet net cash outflows over a 30-day period during a severe liquidity stress scenario. |
Loss given default (LGD) | An estimate of the expected severity of loss for a credit exposure following a default event. Regulatory LGDs reflect a stressed economic condition at the time of default. |
NAB | National Australia Bank Limited ABN 12 004 044 937. |
Net write-offs | Write-offs, net of recoveries. |
Past due facilities ≥ 90 days | Well-secured assets that are more than 90 days past due and portfolio managed facilities that are not well secured and between 90 and 180 days past due. For eligible COVID-19 payment deferrals granted in respect of otherwise performing loans, the counting of |
Description
Glossary
Term
Probability of default (PD) | days past due is stopped when the repayment deferral is granted in accordance with APRA guidance. Past due facilities do not include impaired facilities. An estimate of the likelihood of a customer defaulting or not repaying their borrowings and other obligations in the next 12 months. |
Qualifying revolving retail | Revolving exposures to individuals less than $100,000, unsecured and unconditionally cancellable by the Group. Only Australian retail credit cards qualify for this asset class. |
Risk-weighted assets (RWA) | A quantitative measure of risk required by the APRA risk-based capital adequacy framework, covering credit risk for on and off-balance sheet exposures, market risk, operational risk and interest rate risk in the banking book. |
RMBS | Residential mortgage-backed securities. |
Securitisation exposures | Securitisation exposures include the following exposure types: - liquidity facilities: facilities provided to securitisation vehicles for the primary purpose of funding any timing mismatches between receipts of funds on underlying exposures and payments on securities issued by the securitisation vehicle or to cover the inability of the securitisation vehicle to roll-over securities due to market disruption - warehouse facilities: lending facilities provided to securitisation vehicles for the financing of exposures in a pool. These may be on a temporary basis pending the issue of securities or on an on-going basis - securities: holding of debt securities issued by securitisation vehicles - derivatives: derivatives provided to securitisation vehicles, other than for credit risk mitigation purposes. |
SME | Small and medium sized enterprises. |
Specific provision for credit impairment | The provision assessed on an individual basis in accordance with Australian Accounting Standard AASB 9Financial Instruments. |
Standardised approach | An alternative approach to the assessment of credit risk whereby an ADI uses external rating agencies to assist in assessing credit risk and/or the application of specific values provided by regulators to determine risk-weighted assets. |
Standard method | The standard method for market risk applies supervisory risk weights to positions arising from trading activities. |
Term Funding Facility (TFF) | A facility provided by the Reserve Bank of Australia to certain ADIs to support lending to Australian businesses. |
Tier 1 capital | Tier 1 capital comprises CET1 capital and instruments that meet the criteria for inclusion as Additional Tier 1 capital set out in APS 111Capital Adequacy: Measurement of Capital. |
Tier 1 capital ratio | Tier 1 capital divided by risk-weighted assets. |
Tier 2 capital | Tier 2 capital includes other components of capital that, to varying degrees, fall short of the quality of Tier 1 capital but nonetheless contribute to the overall strength of an ADI and its capacity to absorb losses. |
Total capital | The sum of Tier 1 capital and Tier 2 capital. |
Total capital ratio | Total capital divided by risk-weighted assets. |
Trading book | Positions in financial instruments, including derivative products and other off-balance sheet instruments, that are held either with a trading intent or to hedge other elements of the trading book. |
Write-offs | A reduction in the carrying amount of loans and advances at amortised cost and fair value where there is no reasonable expectation of recovery of a portion or the entire exposure. |
Description
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NAB - National Australia Bank Ltd. published this content on 16 February 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 16 February 2021 08:12:01 UTC.