Westpac figures suggest bank disclosure regime is broken

Westpac's latest figures for its New Zealand subsidiary suggest our bank disclosure regime is no longer working, at least as far as deriving meaningful information on banks' mortgage lending goes.

Monday, February 21st 2011, 6:12AM

by Jenny Ruth

The numbers the bank's December quarter general disclosure statement (GDS) throw up on what's happening to its mortgage book are farcical.

The risk analysis part of the GDS which is used in calculating Westpac's capital adequacy - how much of a buffer there is between its assets and liabilities - show its mortgage book grew by $3.53 billion to $32.68 billion in the three months ended December.

That's after it grew just $210 million in the September quarter. That was 23.3% of all new bank lending in the September quarter compared with Westpac's then market share of 18.31%.

While we won't know exactly how much banks lent in mortgages during the December quarter until all the banks' GDSs are in, and it's looking like we won't be able to believe the figures anyway (Westpac's is the first to be lodged this quarter), Reserve Bank figures provide some idea. They show mortgage lending by registered banks grew by $422 million in the December quarter.

Common sense tells one the Westpac numbers are absurd.

GoodReturns has been tracking banks' mortgage market shares since the December quarter of 2002 using the capital adequacy-based figures all the banks publish.

That's because it's in all banks' interests to get those figures right because they help determine how much equity each bank needs to hold. Expert opinion was these figures were the most comparable between the banks.

Westpac's head of risk analytics Grant Allerby says the model his bank uses to produce its GDS has just undergone its first significant review since it adopted the Basel 11 rules in the March quarter of 2008.

One reason the figures are so out of sync with previous quarters is because the Reserve Bank has moved its goal posts, Allerby says. But the changes have resulted in little difference in the amount of capital Westpac has to have, he says.

Other measures of Westpac's mortgage book also throw up silly answers. Based on its table dividing its mortgage book into loan-to-valuation ratio bands, Westpac's mortgage book grew an even more eye-watering $5.38 billion to $39.75 billion during the December quarter.

But in its note on loans, the GDS shows housing term loans at $34.3 billion at December 31, just $53 million higher than at September 30.

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