Comparative Risk Assessment Report

Comparative Threat Evaluation Report

Nationwide Australia Financial institution Ltd



Executive Summary

Strategic Risk

Strategic risk analysis – NAB

Comparison of Big Four Banks

Interest Rate Risk

Interest rate risk analysis – NAB

Comparison of Big Four Banks

Market Risk

Market risk analysis – NAB

Comparison of Big Four Banks

Credit Risk and Credit Portfolio Risk

Credit and credit portfolio risk analysis – NAB

Comparison of Big Four Banks

Liquidity Risk

Liquidity risk analysis – NAB

Comparison of Big Four Banks

Foreign Exchange Risk

Foreign exchange risk analysis – NAB

Comparison of Big Four Banks






Govt Abstract

This report goals to guage current dangers of Nationwide Australia Financial institution together with strategic danger, rate of interest danger, market danger, credit score danger, credit score portfolio danger, liquidity danger and international alternate danger and make some suggestions to the place might be improved by making comparisons with different large three banks in Australia (Commonwealth financial institution, ANZ and Westpac).

By assessing our Group’s danger profile, it may be concluded that our strategic danger and rate of interest danger are nearly identical as different three banks due to the overall financial situation. Our market danger is far decrease than every other three banks by utilizing VaR at 99% confidence degree, nevertheless it doesn't imply that we now have extra confidence to keep away from this danger, we nonetheless want consideration and measure our market danger together with different methodology. The Group’s credit score danger is decrease than different three banks however nonetheless excessive by way of monetary knowledge which implies that we should always take actions to attempt our greatest to scale back our quantity of irredeemable loans. By way of liquidity danger, our Group skilled the hazard of illiquidity in yr 2014 which needs to be paid a lot consideration to liquidity danger. Lastly, on account of our monetary enterprise actions abroad, we're affected by international alternate danger which is identical as different three banks.

Final however not least, different dangers which embody insurance coverage danger, operational danger, compliance danger and reputational danger usually are not mentioned on this report however nonetheless should be observed.

Strategic Threat

Strategic danger evaluation – NAB

Strategic danger is the potential for monetary loss arising from modifications within the enterprise monetary, social or administration technique, each inside and exterior elements can considerably forestall organizations from reaching their strategic objectives. By way of our annual report in yr 2017, we should always acknowledge that it's doable for our Group to conduct incorrect technique and we could not react in a short time to deal with such situation. (NAB Annual Report, 2017). Our group has been searching for any alternative that may enhance our monetary efficiency in addition to social affect for a very long time, nonetheless, it might change our Group’s danger profile and capital construction, and inevitably include reputational and monetary dangers.

At the moment, our Group commits ourselves to local weather change occasions resembling discount of carbon emission, clear vitality improvement, and prioritized by way of strategic planning processes. The Group participates within the international low carbon transition and it could considerably enhance use of renewable vitality. Nonetheless, these methods will in flip have some results on our Group’s mortgage guide and funding portfolio (NAB Annual Report, 2017).

Comparability of Large 4 Banks

All large 4 banks are going through strategic danger by way of implementing new strategic selections and goals.

Particularly, commonwealth financial institution states that we face extreme challenges on account of potential adversarial influence on local weather change and it needs to be considered by way of all materials dangers. It additionally takes company accountability packages and actions following some strategic danger as nicely (Commonwealth financial institution annual report, 2017).

ANZ manages its strategic danger by way of their annual strategic planning progresses and any enhance in its key dangers (credit score danger, market danger and operational danger) might be reported and managed by government committee.

Curiosity Fee Threat

Rate of interest danger evaluation – NAB

Rate of interest danger is the potential for loss in organizations monetary efficiency brought on by fluctuation in rate of interest. Organizations could also be suffered from loss in earnings and market worth because of the results of change in rate of interest.

As we will see within the chart 1 beneath, Australia rate of interest has skilled fluctuation throughout final ten years with a lower development typically from 7% to 1.5%. These modifications in rate of interest may cause an enormous loss to monetary establishments in addition to banks resembling the worldwide monetary disaster in yr 2008. Moreover, such loss on account of rate of interest principally brought on by the mismatch between the maturity profile of a financial institution’s lending portfolio in comparison with its deposit portfolio (NAB annual report, 2017).

Chart 1 – Australia rate of interest over final 10 years

By measuring rate of interest danger, our Group use methods embody VaR, earnings in danger (EaR), rate of interest stress testing, repricing mannequin and money circulate evaluation to measure and management rate of interest danger within the banking guide (IRRBB). The desk 1 beneath reveals our Group combination VaR and EaR for the IRRBB in yr 2016 and 2017.

Desk 1

Comparability of Large 4 Banks

All 4 large banks are going through nearly identical rate of interest danger as a result of they're in identical financial market and areas.

Commonwealth financial institution makes use of two methods to handle and management rate of interest danger which incorporates subsequent 12 months’ earnings and financial worth. By way of the primary methodology, they use repricing mannequin – an asset and legal responsibility administration simulation mannequin to measure the modifications of internet curiosity revenue over the following 12 months. Rate of interest danger from the financial worth perspective is measured base on a 20-day 97.5% VaR measure and this measurement is used to guage the financial worth influence of steadiness sheet property and liabilities to unfavourable impact in rates of interest.

ANZ and Westpac financial institution additionally use nearly identical methods to measure their rate of interest danger together with repricing mannequin and maturity mannequin.


Market Threat

Market danger evaluation – NAB

Market danger is the danger associated to the potential for particular person or monetary establishments experiencing adversarial influence on the profitability or internet price on account of elements that have an effect on the general efficiency of economic markets which they're concerned. This contains modifications in rate of interest, international alternate charges, credit score spreads, fairness and commodity costs (ANZ annual report, 2017). Market danger is split by buying and selling market danger and non-trading market danger which the earlier one is the potential good points or losses that brought on by buying and selling actions performed by banks outcome from modifications in market costs.

Our Group manages and controls buying and selling market danger by utilizing Worth at Threat (VaR) which is a standard normal measurement utilized in financial institution business together with Commonwealth financial institution, ANZ and Westpac banks. VaR measures the potential loss that will come up from modifications in market options and it's measured at a 99% confidence degree. This implies that there's a 99% confidence that the loss won't exceed the VaR estimate at any time. (NAB annual report, 2017).

Chart 2

Chart 2 above reveals our Group’s VaR throughout final ten years and it has been experiencing a fluctuation particularly throughout yr 2012 to 2015.

Comparability of Large 4 Banks

Chart three beneath reveals three banks’ VaR throughout final many years besides commonwealth financial institution as a result of commonwealth financial institution use VaR at 97.5% confidence degree to measure its market danger. As it's proven to us, our Group has comparatively low VaR in comparison with ANZ and Westpac financial institution particularly after the GFC in yr 2008. It implies that our Group was uncovered to a lot decrease danger of potential loss brought on by shifts in rate of interest, international alternate fee, credit score unfold and extra.

Chart three

Nonetheless, VaR has its personal limitations and drawbacks. It may be deceptive by way of 99% confidence degree as a result of 99% confidence degree is far far-off from 100% in actuality world. Furthermore, it's tough to make use of VaR to calculate with massive portfolios (Macroption, 2016). Due to this fact, we should still want different methodology to measure market danger.


Credit score Threat and Credit score Portfolio Threat

Credit score and credit score portfolio danger evaluation – NAB

Credit score danger is the doable loss from debtors of banks who can not repay their debt. Our Group handle credit score danger by analysing the power of current clients together with particular person and enterprise organizations repeatedly to fulfill the curiosity and capital reimbursement obligations. If we discover out that they're unable to pay the debt, we'll deal with it by altering lending restrict.

Credit score portfolio danger is the danger of a portfolio of loans versus the danger of a single mortgage.

Chart four beneath reveals our group’s mortgage asset ratio from yr 2011 to 2017 (because of the N.An information from 2006-2011) and it's apparent that this ratio could be very excessive. It implies that we're affected by an enormous quantity of mortgage and the danger of consumers are unable to repay their debt could be additionally excessive.

Chart four

Comparability of Large 4 Banks

Chart 5 beneath reveals the large 4 banks internet mortgage asset ratio, it illustrates that our Group has comparatively low internet mortgage asset ratio in contrast with different three banks though the quantity shouldn't be low in any respect. It implies that large 4 banks are all uncovered to a lot greater credit score danger, if a situation occurs that some clients are unable to repay their debt and a lot of clients wish to withdraw their cash within the financial institution on the identical time, our Group could undergo from the danger of being default.

Chart 5

Liquidity Threat

Liquidity danger evaluation – NAB

Liquidity danger is the danger that monetary establishments are unable to fulfill their monetary obligations as they fall due. Because of exterior market occasions, market dimension or the person’s behaviour, the liquidity linked to monetary markets might be considerably lowered. Our Group’s funding and liquidity danger urge for food which is ready by the board has accountability to manipulate this danger. We use a number of approaches to handle and management our Group’s liquidity embody:

  • Monitor our Group’s liquidity day-after-day.
  • Keep a high-quality liquid asset portfolio.
  • Function a cheap funding technique.

Chart 6 beneath reveals the liquid asset ratio which illustrates a fluctuation of this knowledge. Our Group skilled an enormous lower in yr 2014 with 7.71% after which enhance sharply to 25.12% in 2017. It implies that our Group as soon as at risk of liquidity danger in 2014 after which efficiently clear up it.

Chart 6

Comparability of Large 4 Banks

Chart 7 beneath reveals the large 4 banks liquid asset ratio, clearly, Commonwealth financial institution was affected by low liquid asset scenario which implies that its liquid danger was a lot greater than different three banks particularly throughout yr 2011-2016.

Chart 7



Overseas Alternate Threat

Overseas alternate danger evaluation – NAB

Overseas alternate danger is the doable loss arises from the impact of change in international forex actions by way of monetary establishments’ money flows, earnings and losses. Our Group conduct companies around the globe contains investments in abroad and companies to clients, banks and enterprise organizations exterior Australia which can in flip deliver us not solely earnings but in addition danger on account of fluctuation of international forex alternate charges. Our Group earnings might be affected by alternate forex charges and modifications in reserve standing of those currencies. Destructive international alternate charges could have an adversarial influence on our Group’s monetary efficiency (NAB annual report, 2017).

Comparability of Large 4 Banks

Australia large 4 banks are all uncovered to international alternate danger as all of them have their very own monetary actions and conduct enterprise abroad.


In conclusion, this report evaluates 7 dangers of Nationwide Australia Financial institution and compares these dangers with different three large banks in Australia. I discover out that the common danger degree of our Group is decrease than different banks, however we nonetheless want to concentrate to each danger particularly credit score danger and liquidity danger which may considerably have an effect on our Group’s efficiency.

1918 phrases


Nationwide Australia Financial institution Annual Report 2017

Commonwealth Financial institution Annual Report 2017

Large 4 Banks monetary ratios


  • The Australia and New Zealand Banking Group Restricted. (2017). 2017 Annual report. Retrieved from:
  • Macroption (2016). VAR Limitations and Disadvantages. Retrieved from:
  • TradingEconomics (2017). Australia Rate of interest. [online] Buying and selling Economics. Obtainable at:



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