Capital Adequacy

Regulatory Capital Position

Under Australian Prudential Regulation Authority (APRA) guidelines, the calculation of regulatory capital is based on cost accounting methods. The introduction of AASB1038: Life Insurance Accounting, which requires the adoption of mark to market principles, results in a divergence between capital for regulatory purposes and that evident from the National's statement of financial position as disclosed under Australian Accounting requirements. A reconciliation of capital under the different bases is provided.

Under the regulations adopted by APRA, life insurance and funds management businesses are de-consolidated for the purposes of calculating capital adequacy. The portion of the investment relating to intangible assets (the difference between the purchase price and the embedded value at the date of acquistion) is deducted from Tier 1 and the balance from total capital. The component of embedded value at the date of acquisition represented by inforce business is also deducted from total capital.

As at

Restated ⁽⁴⁾

Reconciliation to Shareholders Funds

Sep 01

Mar 01

Sep 00

Tier 1 Capital

$m

$m

$m

Total Shareholders Equity and outside equity interest

23,557

23,085

21,407

Add:

Estimated reinvestment under dividend reinvestment plan

365

354

283

Less:

Goodwill

(876)

(2,518)

(2,617)

Intangible assets - Wealth Management

(2,448)

(2,332)

(2,290)

Fair value adjustment on mortgage servicing rights (10% MSR)

(507)

(787)

(804)

Asset revaluation reserve

(16)

(16)

(14)

Other

(845)

(527)

(134)

Tier 1 Capital

19,230

17,259

15,831

Tier 2 Capital

Asset revaluation reserve

16

16

14

General provision for doubtful debts

1,538

1,681

1,562

Perpetual floating rate notes

507

511

461

Dated subordinated debts

6,815

6,899

6,277

Exchangeable capital units

1,262

1,262

1,262

Notional revaluation of investment securities to market

11

35

(28)

Tier 2 Capital

10,149

10,404

9,548

Regulatory Capital Ratios

Tier 1 Capital

19,230

17,259

15,831

Tier 2 Capital

10,149

10,404

9,548

Deductions

(3,225)

(3,227)

(3,234)

Total Regulatory Capital

26,154

24,436

22,145

Risk Weighted Assets - Credit Risk ⁽¹⁾

254,039

270,501

236,820

Risk Weighted Assets - Market Risk ⁽²⁾

3,474

2,005

1,769

Total Risk Weighted Assets ⁽³⁾

257,513

272,507

238,589

Risk Adjusted Capital Ratios

Tier 1

7.47%

6.33%

6.64%

Tier 2

3.94%

3.82%

4.00%

Deductions

(1.25%)

(1.18%)

(1.36%)

Total Capital

10.16%

8.97%

9.28%

⁽¹⁾

Risk Weighted Assets compiled for credit risk purposes as outlined in the APRA Prudential Statement C1 (PS C1).

⁽²⁾

Risk Weighted Assets compiled for market risk purposes as outlined in the APRA APS 113 - "Capital Adequacy: Market Risk".

⁽³⁾

Included in the Total Risk Weighted Assets for March 2001, Michigan National Corporation reported an amount of $23,260 million.

⁽⁴⁾

Comparatives have been restated.