Banks – Consolidated Group Capital

These data are derived from returns submitted to the Australian Prudential Regulation Authority (APRA) by banks authorised under the Banking ActA 1959. APR assumed responsibility for the supervision and regulation of banks on 1 July 1998. Data prior to that date were submitted to the RBA.

Prior to March 2002, banks reported to APR on the Capital Adequacy Return. From that date, banks report quarterly on ARF 110.0: Capital Adequacy. Following the introduction of a new capital framework (Basel II) on 1 January 2008, the data from March 2008 contain significant breaks. For details of the Basel II framework, refer to APR prudential standards APS 110aAPS 116, APS 120 and APS 150. For detailed definitions of the capital components listed below, refer to APS 111.

aConsolidated groupa, for a locally incorporated bank, refers to the global operations of the bank and its subsidiaries, excluding those involved in insurance, funds management/trustee and non-financial business.

This table excludes data of foreign banks authorised to operate in Australia as branches.

Measures of capital are net of deductions such as future income tax benefits, intangible assets, investments in non-consolidated subsidiaries, holdings of other banksa capital instruments and other assets that are not eligible for inclusion in capital.

The breaks in Tier 1 and Tier 2 capital in March 2008 are largely due to changes in the items that banks are required to deduct from capital. Under Basel II, there are a number of new deductions from Tier 1 and Tier 2 capital, and amounts that were previously deducted from the capital base are instead generally deducted half from Tier 1 capital and half from Tier 2 capital.

aTier 1a capital consists of aShare capitala and other Tier 1 capital items.

aShare capitala comprises the paid-up value of ordinary shares and non- innovative Tier 1 capital instruments such as irredeemable preference shares on which dividends are non-cumulative.

Other Tier 1 capital includes retained earnings, certain reserves and innovative Tier 1 capital instruments up to certain limits.

aTier 2a capital consists of aUpper Tier 2a capital and lower Tier 2 capital.

aUpper Tier 2a capital includes perpetual cumulative preference shares, mandatory convertible notes and subordinated debt, excess Tier 1 capital instruments, and revaluation reserves of premises, securities and other assets. Under Basel I and the standardised approach to credit risk under Basel II, upper Tier 2 capital also includes the eligible amount of provisions for credit losses (up to a maximum of 1.25 per cent of risk-weighted assets). Banks using the Basel II internal ratings based approach can include any excess of eligible provisions over the amount of their expected losses in upper Tier 2 capital (up to a limit of 0.6 per cent of risk-weighted assets).

Lower Tier 2 capital includes limited life redeemable preference shares, term subordinated debt and other similar instruments; it cannot exceed 50 perA cent of Tier 1 capital.

aTier 2a capital cannot exceed aTier 1a capital.

Under Basel I, the aTotal capital basea is calculated as the sum of net Tier 1 and net Tier 2 capital minus additional capital deductions. Under Basel II, the aTotal capital basea is the sum of net Tier 1 and net Tier 2 capital.

aRisk-weighted assetsa comprise a acredit riska component and a amarket risk and other exposuresa component. Basel II led to significant changes in the calculation of credit risk weights. Under Basel II, banks must also calculate an explicit charge for operational risk, which is included in amarket risk and other exposuresa from March 2008.

aOn-balance sheeta assets represent the risk-weighted gross amounts of banking book assets.

aOff-balance sheeta assets represent the risk-weighted credit equivalent amounts of commitments, derivatives and other business considered to be aoff- balance sheeta prior to the introduction of AIFRS.

aTier 1 capital ratioa refers to Tier 1 capital expressed as a proportion of total risk-weighted assets.

aTotal capital base ratioa refers to the capital base as a proportion of total risk-weighted assets.