BankVic Annual Report 2019

Notes To and Forming Part of
the Financial Statements (continued)
Capital Management
The Board is responsible for ensuring BankVic has in place a process for assessing its overall capital adequacy relative to its risk
profile and a strategy for maintaining capital levels.
BankVic has established a process for identifying and classifying all material inherent risks and controls to mitigate such risks.
A minimum level of capital is determined taking account of the net residual risks.
The Company has established a management information system for measuring and reporting capital to the Board.
The current strategy is for the Company’s core capital to be derived entirely from retained earnings. Maintenance of adequate
capital over time therefore depends on balancing profit after tax with growth in risk-weighted assets. Note that the minimum
capital level determined by the Board exceeds the minimum level required pursuant to the Prudential Standards.
The Company’s regulator, APRA sets and monitors capital requirements for the Company as a whole. In implementing capital
requirements, APRA requires the Company to maintain a prescribed ratio of total capital to total risk weighted assets.
Regulatory capital is analysed into two tiers:
• Tier 1 capital includes general reserves, retained earnings and other regulatory adjustments relating to items that are included
in equity but are treated differently for capital adequacy purposes. The Company had a net Tier 1 capital ratio of 17.8% of risk
weighted assets as at 30 June 2019. (30 June 2018: 19.6%)
• Tier 2 capital includes qualifying collective impairment allowance and asset revaluation reserves after applying other regulatory
adjustments. The Company had a net Tier 2 capital ratio of 0.7% of risk weighted assets as at 30 June 2019. (30 June 2018:
0.1%)
Risk weighted assets are determined according to specified requirements that seek to reflect the varying levels of risk attached to
assets and off balance sheet exposures plus an allowance for operational risk as prescribed by APRA.
The Company has complied with all externally imposed capital requirements throughout the period. There no material changes in
the Company’s management of capital during the year.
56 | BANKVIC // ANNUAL REPORT 2019