Fast-growing NAB pays capital penalty
With National Australia Bank's release of its third quarter "pillar 3" disclosure on Wednesday, it is possible to undertake a comparative analysis across the Big Four banks and Macquarie Bank. Such an analysis reveals some interesting changes over the last 12 months across the banks' lending portfolios, and in capitalisation and asset quality.The first point to note is that growth across the banks' lending portfolios, in total, has been modest. (Lending is described in these quarterly reports as a bank's "exposure at default"). NAB recorded the greatest growth over the year, at six per cent, while Westpac has been the laggard with only 2.6 per cent growth. Macquarie has not fared much better with 3.3 per cent growth.However, it is the change in the composition of the lending portfolios that is most interesting. Growth in exposure to the corporate sector has been mostly flat to declining. NAB saw the largest growth, at 3.5 per cent, while Westpac decreased its exposure to the corporate sector by almost eight per cent and Macquarie's exposure fell by 22 per cent. Growth in residential mortgage lending has been stronger, with NAB leading the way at 11.3 per cent. Macquarie modestly reduced its home loan exposure as its efforts to restart its fortunes as a mortgage funder faded.Those sectors that have benefitted most from the banks' lending largesse are government and, in a climate of abundant liquidity, themselves. All the banks, with the exception of ANZ and Macquarie, have significantly increased their exposure to the sovereign sector (via investment in short- and long-term securities issued by governments). CBA increased its exposure to government borrowers by almost 40 per cent and Westpac by almost 28 per cent, while Macquarie reduced its exposure by 29 per cent.As for holdings of bank bills and other longer term negotiable securities issued by banks, Macquarie increased its holdings by 47 per cent and ANZ by 40 per cent. No doubt these combined changes have been driven by the banks' need to increase their holdings of high quality liquid assets as they strive to meet the new Basel III liquidity requirements. Bank-issued securities are higher yielding than government securities and this may explain some of the compositional changes.With the banks able to determine the risk weighting of their assets, for capital adequacy purposes, it interesting to see the variation in risk weightings among the banks and across the sectors. Commonwealth Bank stands out among the Big Four for the risk weighting of its corporate exposures. It obviously has a higher quality portfolio than its peers, with a risk weighting of 58 per cent, compared with 62 per cent for the others. Macquarie is a higher risk lender and so has a 76 per cent risk weighting on its portfolio. Interestingly, NAB's portfolio of residential mortgages must be a higher risk one - or have a less accommodating risk model - because it has a risk weighting of 21.4 per cent. The average for its peers' mortgage lending portfolios is closer to 16