NAB carries greatest credit risk

Andrew Reynolds of Ozrisk
In the corporate lending portfolio NAB has a much bigger portfolio than any of the others with a combined exposure at default of more than $200 billion. ANZ has the second largest credit portfolio at $152 billion.

NAB also comes out worst in the risk comparison, with an (advanced) capital weight of 68 per cent, compared to the leader Westpac on 56 per cent. This is not much of a difference, but leads to a substantial difference in the level of capital needed.

By Ozrsisk's calculations, if the NAB had Westpac's risk weight here they could shed more than $19 billion in capital without affecting their tier two capital levels. This is, of course, assuming you could do it without reducing lending margins - a questionable assumption.

This is the biggest capital sink for all the banks, with the risk weighted assets from this area typically being nearly half of the credit risk RWA for the banks.

These sorts of numbers mean you need to keep rates fairly high to support it - and that is what you see out in the market. This is why the NAB have been making a bit of cash over the last few years - and it is also hurting them a bit now.

Ozrisk