Westpac Group Pillar 3 Report March 2013 - Iguana IR Sites

PILLAR 3 REPORT
CREDIT RISK EXPOSURES
Regulatory loss estimates and actual losses
APS330 Table 6f compares regulatory downturn credit risk estimates used in the calculation of risk weighted
assets to observed outcomes since accreditation.
Predicted parameters represent average internally predicted long-run probabilities of default for non-defaulted
obligors at the start of each year, as well as downturn estimates of loss (or the regulatory minimum where
required). They are averaged using data from all the financial years beginning in 2008 and compared to observed
outcomes over the same period 1 . Predicted parameters are established with reference to a full economic cycle,
whereas this analysis covers a shorter period.
Predicted parameters are updated annually and utilise observed outcomes from prior periods as a key input.
In order to appropriately include the most recent half-year period, its outcomes have been annualised.
Default rates
The Predicted default rate is the average of all non-defaulted obligor probabilities of default at the start of the year
averaged over the observation period. The Observed default rate is the actual default rate for each year, averaged
over the observation period.
Loss Given Default (LGD)
The LGD analysis excludes recent defaults in order to allow sufficient time for the full workout of the facility and
hence an accurate LGD to be determined. The workout period varies by portfolio: a two year workout period is
assumed for transaction-managed and residential mortgage lending; and a one year period for other programmanaged
portfolios.
Exposure at Default (EAD)
The EAD variance compares the observed EAD to the predicted EAD one year prior to default. For transactionmanaged
portfolios, predicted EAD is currently mandated to be 100% of committed exposures. The observed EAD
is averaged for all obligors that defaulted over the observation period.
Where the value is negative it means that the observed EAD was lower than the initial predicted EAD, this could
be because exposures were managed down prior to default or off-balance sheet items or undrawn limits were not
fully drawn prior to default.
Regulatory
Default rate
Loss Given Default
Observed EAD
variance to
$m Expected Loss 2 Predicted Observed Predicted Observed Predicted 3
Corporate 1,054 2.19% 1.32% 51% 40% (27%)
Business lending 970 2.21% 1.62% 34% 21% (11%)
Sovereign 3 0.26% - - - -
Bank 14 0.45% - - - -
Residential mortgages 856 0.68% 0.62% 20% 7% -
Australian credit cards 291 1.31% 1.47% 76% 55% (3%)
Other retail 409 4.69% 2.95% 71% 54% (3%)
Small business 243 2.99% 1.91% 27% 16% (6%)
Specialised lending 1,777 NA 2.67% NA 30% (7%)
Securitisation NA NA NA NA NA NA
Standardised NA NA NA NA NA NA
Total 5,617 NA NA NA NA NA
1 Predicted parameters are not available for specialised lending or standardised exposures because risk weights for these portfolios do not rely on credit
estimates.
2 Includes regulatory expected losses for defaulted and non-defaulted exposures.
3 A negative outcome indicates observed EAD was lower than predicted EAD.
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