For personal use only

Basel III

Pillar 3

Capital Adequacy and Risk

Disclosures as at 31 December 2021

For personal use only

For further information contact:

Investor Relations

Melanie Kirk

Phone:

02 9118 7113

Email:

cbainvestorrelations@cba.com.au

The release of this announcement was authorised by the Board.

Commonwealth Bank of Australia | Media Release 007/2022 | ACN 123 123 124 | Ground Floor Tower 1, 201 Sussex Street, Sydney NSW 2000 | 9 February 2022

Contents

1

Introduction

Scope of Application

only

2

Capital

3

Leverage Ratio

4

Risk Weighted Assets

5

Credit Risk

6

use

6.1

Credit Risk Exposure - excluding Equities and Securitisation

6.2

Past Due and Impaired Exposures, Provisions and Reserves

6.3

Portfolios Subject to Standardised and Supervisory Risk Weights

6.4

Portfolios Subject to Internal Ratings-based Approaches

6.5

Credit Risk Mitigation

6.6

Counterparty Credit Risk

personal

6.7

Securitisation

7

Equity Risk

Market Risk

8

8.1

Traded Market Risk

8.2

Non-Traded Market Risk

9

Operational Risk

Liquidity Risk

10

10.1

Liquidity Coverage Ratio

10.2

Net Stable Funding Ratio

11

Appendices

11.1

Detailed Capital Disclosures Template (APS 330 Attachment A)

11.2

Detailed Leverage Disclosures Template (APS 330 Attachment E)

For

11.3

Regulatory Balance Sheet

11.4

Reconciliation between Detailed Capital Disclosures Template and Regulatory Balance Sheet

11.5

Entities excluded from Level 2 Regulatory Consolidated Group

11.6

List of APRA APS 330 Tables

11.7

List of Supplemental Tables and Diagrams

11.8

Glossary

2

3

4

9

10

12

12

21

26

27

37

39

41

51

52

52

53

53

54

54

55

57

57

60

61

62

65

66

68

69

Commonwealth Bank of Australia - Pillar 3 Report

1

Introduction

1 Introduction

For personal use only

The Commonwealth Bank of Australia (CBA) is an Authorised Deposit-taking Institution (ADI) regulated by the Australian Prudential Regulation Authority (APRA) under the authority of the Banking Act 1959.

This document is prepared for CBA and its subsidiaries (the Group) in accordance with a Board approved policy and APRA Prudential Standard (APS) 330 Public Disclosure (APS 330). It presents information on the Group's capital adequacy and Risk Weighted Assets (RWA) calculations for credit risk including securitisation, traded market risk, Interest Rate Risk in the Banking Book (IRRBB) and operational risk.

This document also presents information on the Group's leverage and liquidity ratios and Countercyclical Capital Buffer (CCyB) in accordance with prescribed methodologies.

The Group is required to report its assessment of capital adequacy on a Level 2 basis. Level 2 is defined as the Consolidated Banking Group excluding the insurance businesses and certain entities through which securitisation of Group assets is conducted.

The Group is predominantly accredited to use the Advanced Internal Ratings-based approach (AIRB) for credit risk and the Advanced Measurement Approach (AMA) for operational risk. The Group is also required to assess its traded market risk and IRRBB requirement under Pillar 1 of the Basel capital framework.

This document is unaudited, however, it has been prepared consistent with information that has been supplied to APRA. The Group has completed a number of activities in the year to enhance internal controls related to the calculation of RWA, and PwC's recommendations for further enhancement have been incorporated into the Group's ongoing improvement plans.

This Pillar 3 document is available on the Group's corporate website: Commbank.com.au/regulatorydisclosures.

The Group in Review

31 Dec 21

30 Jun 21

31 Dec 20

Summary Group Capital Adequacy Ratios (Level 2)

%

%

%

Common Equity Tier 1

11.

8

13.

1

12.

6

Additional Tier 1

2.

2

2.

6

2.

4

Tier 1

14.

0

15.

7

15.

0

Tier 2

4.

0

4.

1

3.

9

Total Capital (APRA)

18.

0

19.

8

18.

9

Common Equity Tier 1 (Internationally Comparable) 1

18.

4

19.

4

18.

7

1 Analysis aligns with the 13 July 2015 APRA study titled "International capital comparison study".

Group Capital Ratios

As at 31 December 2021, the Group's Basel III Common Equity Tier 1 (CET1), Tier 1 and Total Capital ratios as measured on an APRA basis were 11.8%, 14.0% and 18.0% respectively. The Basel III CET1 ratio was 18.4% on an internationally comparable basis.

Leverage Ratio

The Group's leverage ratio, which is defined as Tier 1 Capital as a percentage of total exposures, was 5.3% as at 31 December 2021 on an APRA basis and 6.2% on an internationally comparable basis.

Liquidity Coverage Ratio

The Liquidity Coverage Ratio (LCR) requires Australian ADIs to hold sufficient liquid assets to meet 30 day net cash outflows projected under an APRA prescribed stress scenario. The Group maintained an average LCR of 134% in the December 2021 quarter.

In September 2021, APRA announced a sector-wide phased reduction in the reliance on the Committed Liquidity Facility (CLF) to zero by the end of 2022, subject to financial market conditions, as APRA and the Reserve Bank of Australia (RBA) expect there will be sufficient High Quality Liquid Assets (HQLA) for ADIs to meet their LCR requirements without the need to utilise the CLF.

Net Stable Funding Ratio

The Net Stable Funding Ratio (NSFR) is the ratio of the amount of Available Stable Funding (ASF) to the amount of Required Stable Funding (RSF). Factors prescribed by APRA are used to determine the stable funding requirement of assets and the stability of alternative sources of funding. The Group's NSFR was 131% at 31 December 2021.

Policy Framework

The Group regularly benchmarks and aligns its policy framework against existing prudential and regulatory standards. Potential developments in Australian and international standards, and global best practice are also considered.

The Group continues to monitor and take actions to enhance and strengthen its risk culture. The Group has a formal Risk Management Approach (RMA) that creates clear obligations and transparency over risk management and strategy decisions. A risk accountability model (Three Lines of Accountability) requires business management to operate responsibly by taking well understood and managed risks that are appropriately and adequately priced.

The application is reflected in the Group's overall asset quality and capital position. In particular, the Group remains in a small group of banking institutions with an AA-/Aa3 credit rating. To maintain this strength, the Group continues to invest in its risk systems and management processes.

The Group's capital forecasting process and capital plans are in place to ensure a sufficient capital buffer above minimum levels is maintained at all times. The Group manages its capital by regularly and simultaneously considering regulatory capital requirements, rating agency views on the capital required to maintain the Group's credit rating, the market response to capital levels and stress testing. These views then cascade into consideration of the target capital level. The Group's management of its capital adequacy is supported by robust capital management processes applied in each Business Unit (BU). The results are integrated into the Group's risk-adjusted performance and pricing processes.

  • 2 Commonwealth Bank of Australia - Pillar 3 Report

Scope of Application

2 Scope of Application

For personal use only

This document has been prepared in accordance with Board approved policy and reporting requirements set out in APS 330. APRA adopts a tiered approach to the measurement of an ADI's capital adequacy:

  • Level 1: the Parent Bank (CBA) and offshore branches (the Bank) and APRA approved Extended Licensed Entities (ELE);
  • Level 2: the Consolidated Banking Group excluding the insurance businesses and certain entities through which securitisation of Group assets is conducted; and
  • Level 3: the conglomerate group including the Group's insurance businesses1 (the Group).

The Group is required to report its assessment of capital adequacy on a Level 2 basis. The head of the Level 2 Group is the Parent Bank. Additional disclosure of capital ratios relating to material ADIs within the Group together with CBA's own Level 1 capital ratios are included under Table 6g of this report (page 7).

ASB Bank Limited (ASB) operates under Advanced Basel III status and is subject to regulation by the Reserve Bank of New Zealand (RBNZ). The RBNZ applies a similar methodology to APRA in calculating regulatory capital requirements.

CBA Europe N.V. and PT Bank Commonwealth (PTBC) apply the Standardised Basel III methodology in calculating regulatory capital requirements.

During the half year ended December 2021:

  • The Group completed the majority sale of Colonial First State (CFS); and
  • CommBank Europe Limited voluntarily surrendered its Banking Licence to the Malta Financial Services Authority and ceased to be a banking entity.

Restrictions on transfer of funds or regulatory capital within the Group

The transfer of regulatory capital and funding within the Group is subject to restrictions imposed by local regulatory requirements. In particular, APS 222 Associations with Related Entities establishes prudential limits on the level of exposure that the Bank may have to a related entity.

The Bank and all of the subsidiaries of the Group are adequately capitalised. With the exception of RBNZ imposed restrictions on the payment of dividends (refer to page 5), there are no restrictions or other major impediments on the transfer of funds within the Group. There are no capital deficiencies in non-consolidated (regulatory) subsidiaries in the Group.

APS 330 reporting structure

Commonwealth

Offshore Branches

and Extended

Bank of Australia

Level 1

Licensed Entities

ASB Bank Ltd (ASB)

PT Bank Commonwealth

Colonial Holding

(PTBC)

Company Ltd and

immediate holding

CBA Europe N.V.

companies

Other Banking Entities

Level 2

Qualifying securitisation

Insurance entities

Level 3

vehicles2

  1. A detailed list of non-consolidated entities is provided in Appendix 11.5.
  2. Securitisation that meets APRA's operational requirements for regulatory capital relief under APS 120 Securitisation (APS 120).

Commonwealth Bank of Australia - Pillar 3 Report

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Commonwealth Bank of Australia published this content on 08 February 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 08 February 2022 20:41:02 UTC.