Advanced methods on Bendigo's mind

Bendigo and Adelaide Bank will look into the merit of shifting to the "advanced" version of working out risk-weighted assets and the required level of capital under APRA rules, the bank's chief financial officer, David Hughes, told yesterday's investor briefing.

Hughes said that "if you look at the position of risk weightings that our competitors and peers have, it's substantially less than our average risk weightings in our calculation of capital.

"If we did adopt the advanced approach, our capital position would rise from 8.63 [per cent] up to 10.76 [per cent] as a tier one position, and total capital would add 300 basis points."

The risk weighting of the mortgage portfolios of ANZ, Commonwealth and Westpac ranges from 15.7 per cent to 20.9 per cent at March 2009, while NAB's is a little higher at 27.6 per cent, taking into account the standardised treatment of NAB's business in Britain.

For Bendigo this ratio is 40 per cent.

Shifting from the standardised method for working out capital requirements will be time consuming and costly.

Macquarie Bank is the only bank outside the big four to qualify.

St George Bank tried to qualify for the introduction in Australia of the Basel 2 rules a couple of years ago, but had to plan for a delayed transition before the Westpac takeover trashed that work.

Bank of Western Australia was also aiming to operate under the advanced approach before the purchase by CBA made that work redundant.

Mike Hirst, the bank's chief executive, suggested at yesterday's briefing the bank may take six months simply to undertake the internal work to talk with APRA about readiness and then APRA may take another six months to review that; a timetable likely to prove ambitious.

Among many other building blocks Bendigo and Adelaide Bank will need is at least seven years of detailed data from credit files in a form suitable for use in credit decision making.

For a certain, specialised class of consultant Bendigo Bank may provide a lot of work.