Westpac Group Pillar 3 Report March 2013 - Iguana IR Sites

PILLAR 3 REPORT
GLOSSARY
Internal assessment approach
(IAA)
Internal Ratings-Based Approach
(IRB & Advanced IRB)
International Financial Reporting
Standards (IFRS)
London Inter-Bank Offered Rate
(LIBOR)
Loss given default (LGD)
Maturity
Mark-to-market related credit risk
Monte Carlo simulation
Net interest income at risk (NaR)
Off-balance sheet exposure
On balance sheet exposure
Probability of default (PD)
Ratings-Based Approach (RBA)
Basel II provides three approaches to determine the risk-weight for a
securitisation transaction, where the term securitisation includes any
complex credit derivative. The internal assessment approach, a more
complex approach, and subject to approval from APRA for use, may be
used when there is an inability to use either the Ratings-Based Approach
(no external rating available) or the supervisory formula approach.
These approaches allow banks to use internal estimates of the risks of their
loans as inputs into the determination of the amount of capital needed to
support the organisation. In the Advanced IRB approach, banks must supply
their own estimates for all three credit parameters.
A set of international reporting standards and interpretations issued by the
International Accounting Standards Board, which have been adopted by
Westpac.
The rate of interest at which banks borrow funds from each other, in
marketable size, in the London inter-bank market and forms a widely used
reference rate for short term interest rates.
The LGD represents an estimate of the expected severity of a loss to
Westpac should a customer default occur during a severe economic
downturn. Westpac assigns LGD to each credit facility, assuming an event
of default has occurred and taking into account a conservative estimate of
the net realisable value of assets to which Westpac has recourse and over
which it has security. LGDs also reflect the seniority of exposure in the
customer’s capital and debt structure.
The maturity date used is drawn from the contractual maturity date of the
customer loans.
The risk of mark-to-market losses related to deterioration in the credit quality
of a derivative counterparty also referred to as credit valuation adjustment
(CVA) risk.
A method of random sampling to achieve numerical solutions to
mathematical problems.
BRMC-approved limit expressed as a deviation from benchmark hedge level
over a 1-year time frame, at a 99% confidence level.
Credit exposures arising from facilities that are not recorded on Westpac's
balance sheet (under accounting methodology). Undrawn commitments and
the expected future exposure calculated for Westpac's derivative products
are included in off-balance sheet exposure.
Credit exposures arising from facilities that are recorded on Westpac's
balance sheet (under accounting methodology).
Probability of default is a through-the-cycle assessment of the likelihood of a
customer defaulting on its financial obligations within one year.
Basel II provides three approaches to determine the risk-weight for a
securitisation transaction, where the term securitisation includes any
complex credit derivative. The Ratings-Based Approach relies on the
number of assets in the transaction and the external credit rating of the
tranche to determining a regulatory risk-weight.
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