Pillar III reporting needs consistency to be useful
All four major banks and Macquarie have now released their Basel II Pillar III reports for the period ending March 2010. While all reports claim to meet the requirements of APS330 as required by APRA, the format of all is different, as is the volume and quality of information provided.The latter is especially problematic when the quarter is an 'off' quarter, as the March and September quarters are for the CBA, given it has a June 30, year end. The March and September quarters are 'on' quarters for the other three.Nevertheless, some interesting observations can be made about changes apparent over the twelve months to the end of March. There is some truth to the accusation that the major banks are becoming simply big building societies.In terms of its exposure at default to residential mortgages, relative to its total credit exposures, the CBA is our largest mortgage lender, at 57 per cent. This is up from 52 per cent at the end of March 2009.The CBA is followed by Westpac at 54 per cent (+7 per cent), ANZ at 40 per cent (+4 per cent) and nab at 39 per cent (+3 per cent). Macquarie saw its proportional exposure fall to 18 per cent, from 20 per cent, but it is proportionally our largest corporate and business lender at 43 per cent of its credit exposures, followed by nab at 35 per cent, ANZ at 33 per cent, Westpac at 28 per cent and CBA at 21 per cent.This brings us to the other major trend of the year, the decline in corporate and business lending. Westpac is the only one of the group to consistently separate its business and small business credit exposures from its corporate credit exposures. Westpac's corporate exposures are down 19 per cent over the year, its business lending is flat, while its small business lending was down five per cent. nab and Macquarie are down 14 per cent and the ANZ and CBA are down 17 per cent.Needless to say, residential mortgage exposures have increased for all the banks, year on year, although the surprise is that Macquarie's exposure increased by 18 per cent. Westpac's exposure increased by 18 per cent and the CBA by 11 per cent, ANZ and nab are both up by seven per cent but NAB's exposure under the standardised risk weighting approach increased by 17 per cent. This presumably extends from its UK operations.However, it is no surprise that exposure to residential mortgages has grown faster than most other categories. The credit risk weighting assigned to mortgages under the banks' internal ratings-based methods is generally on a par with that assigned to exposures to other banks at 20 per cent or less, with only exposures to governments and sovereigns weighted lower, at around 10 per cent.There is one other category that tends to defy much meaningful analysis - specialised lending. This is asset-based lending where the asset itself services the loan, for example, project finance, commodity finance, income producing property