Westpac Group Pillar 3 Report March 2013 - Iguana IR Sites

PILLAR 3 REPORT
SECURITISATION
Consistent with the APS120 the approaches employed include the Ratings-Based Approach (RBA), where the
regulator provides risk-weights that are matched to external credit ratings, and the Internal Assessment Approach
(IAA), which largely mirrors the RBA. The Supervisory Formula (SF), which determines a capital charge based on
the attributes of the securitisation structure through an industry standard formula with pre-determined parameters,
is employed under specific conditions where the RBA and IAA are deemed inappropriate.
Securitisation of Westpac originated assets - The assets sold by Westpac to a securitisation trust are excluded
from Westpac’s calculation of risk-adjusted assets if capital relief is sought and the requirements of APS120 are
satisfied 1 . In accordance with Attachment B Paragraph 11 Westpac cannot rely on external rating when risk
weighting its exposure to these trusts and has to use SF methodology instead.
In instances, where insufficient risk transfer is achieved by the transaction for regulatory purposes, capital
calculation is performed on the underlying asset pool while the facilities provided to such securitisation vehicles do
not attract regulatory capital charges, as per APS120 Attachment B - Paragraph 25 (Maximum Capital Provision).
Securitisation in the management of Westpac’s credit portfolio - Unless Westpac makes an election under
APS120, the underlying assets subject to synthetic securitisation are excluded from Westpac’s calculation of risk
adjusted assets. They are replaced with the risk-weight of the applicable securitisation instrument, usually credit
default swaps or underlying cash collateral. Westpac applies the RBA and the SF when determining regulatory
capital treatments for securitisation exposures arising from the management of its credit portfolio.
Provision of securitisation services including funding and management of conduit services - Westpac uses
the RBA and the IAA methodology when determining regulatory capital requirements for the facilities associated
with the provision of securitisation services to the Waratah securitisation conduit and facilities for the provision of
warehouse and term funding of securitised assets on Westpac's balance sheet. Regulatory capital for the Crusade
securitisation conduit is determined in accordance with APS113 pursuant to APS120, Attachment B, Paragraph
25.
The regulatory capital treatment of derivatives for securitisation exposures is currently undertaken in accordance
with APS113 pending resolution of issues relating to the practical application of APS120 to this exposure. The
difference in regulatory capital calculations using APS120 and APS113 is immaterial.
Resecuritisation - A resecuritisation exposure is a securitisation exposure in which the risk associated with an
underlying pool of exposures is tranched and at least one of the underlying exposures is a securitisation exposure.
In addition, an exposure to one or more resecuritisation exposures is a resecuritisation exposure.
The External Credit Assessment Institutions that can be used by Westpac for resecuritisations are Standard &
Poor’s, Moody’s and Fitch.
Westpac’s accounting policies for securitisation activities
Securitisation of Westpac originated assets - The assets sold by Westpac to a securitisation trust remain on
Westpac's balance sheet for accounting purposes.
Securitisation in the management of Westpac’s credit portfolio - For risk mitigation using synthetic
securitisation, the underlying assets remain on Westpac's balance sheet for accounting purposes. The accounting
treatment of the assets will depend on their nature. They could include loans and receivables, available for sale
securities or derivatives. The most common form of synthetic securitisation is via a credit default swap, which is
treated as a derivative and recognised in the profit and loss statement at fair value.
For investment in securitisation exposures, if the instrument includes a credit default swap, the exposure will be
fair valued through the profit and loss statement. Other securitisation exposures will be fair valued through the
balance sheet unless Westpac makes an election at the time of purchase to fair value through the profit and loss
statement.
Provision of securitisation services including funding and management of conduit vehicles - Fee income
from these services is recognised on an accrual basis. Liquidity and funding facilities are treated as commitments
to provide finance, with fee and margin income recognised on an accrual basis. Warehouse and term funding
facilities are treated as loans.
1 Including the requirements to achieve capital relief.
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