Westpac Group Pillar 3 Report March 2013 - Iguana IR Sites

PILLAR 3 REPORT
CREDIT RISK MANAGEMENT
Provisioning - Impairment provisions are held by Westpac to cover credit losses that are incurred in the loan
portfolio. Provisioning includes both individual and collective components. Individual provisions are calculated on
impaired loans taking into account management’s best estimate of the present value of future cashflows.
Collective provisions are established on a portfolio basis using a framework that considers PD, LGD, EAD, total
committed exposure, emergence periods, level of arrears and recent past experience.
Risk-adjusted performance measurement - Business performance is measured using economic profit, which
incorporates charges for economic capital, which includes credit capital and capital for other risk types.
Pricing - Westpac prices loans to produce an acceptable return on the capital allocated to the loan. Returns
include interest income and fees after expected credit losses and other costs.
Credit approval - For transaction-managed facilities, approval authorities are tiered based on the CRG, with lower
limits applicable for customers with a higher PD. Program-managed facilities are approved on the basis of
application scorecard outcomes and product based approval authorities.
Control mechanisms for the credit risk rating system include:
Westpac’s credit risk rating system is reviewed annually to confirm that the rating criteria and procedures are
appropriate given the current portfolio and external conditions;
All models materially impacting the risk rating process are periodically reviewed in accordance with Westpac’s
model risk policy;
Specific credit risk estimates (including PD, LGD and EAD levels) are overseen, reviewed annually and
approved by the Credit Risk Estimates Committee (a sub-committee of CREDCO);
Credit Risk Assurance undertake an independent annual end-to-end technical and operational review of the
overall process; and
CREDCO and BRMC monitor the risk profile, performance and management of Westpac’s credit portfolio and
development and review of key credit risk policies.
Risk reporting
A comprehensive report on the Group's credit risk portfolio is provided to CREDCO and the BRMC quarterly. It
details the current level of impairment losses, stressed exposures, delinquency trends, provisions, impaired assets
and key performance metrics. It reports on portfolio concentrations and large exposures.
Credit risk and asset quality are also reported to the Board each month, including details of impairment losses,
stressed exposures, delinquency trends and key performance metrics.
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