15. Capital Adequacy

Regulatory capital position

Under guidelines issued by APRA, life insurance and funds management activities are excluded from the calculation of risk-weighted assets, and the related controlled entities are deconsolidated for the purposes of calculating capital adequacy. The intangible component of the investment in these controlled entities (the difference between the appraisal value and the embedded value) is deducted from Tier 1 capital, and the embedded value is deducted from the total of eligible Tier 1 and Tier 2 capital. Additionally, any profits from these activities included in the Group's results are excluded from the determination of Tier 1 capital to the extent that they have not been remitted to the Company in the form of dividends. A reconciliation of capital under the different bases is provided.

		As at
Reconciliation to shareholders funds			Sep 03 $m		Mar 03 $m		Sep 02 $m
Contributed equity			9,728		9,052		9,931
Reserves			893		1,254		2,105
Retained profits (1)			13,786		13,224		11,148
Outside equity interest			2,804		285		67
Estimated reinvestment under dividend reinvestment plan			140		163		127
Less: Goodwill			(740)		(787)		(775)
Estimated final dividend (1)			(1,248)		(1,205)		-
Intangible assets - Wealth Management			(2,448)		(2,448)		(2,448)
Fair value adjustment on mortgage servicing rights (10% MSR)			-		-		(131)
Asset revaluation reserve			(16)		(7)		(7)
Deconsolidation of Wealth Management profits (net of dividends) (2)			(290)		(125)		(719)
FITB (excluding FITB on the general provision for doubtful debts) (3)			(66)		(108)		-
Non - qualifying outside equity interest			(2,804)		(285)		(67)
Tier 1 Capital			19,739		19,013		19,231
Asset revaluation reserve			16		7		7
General provision for doubtful debts			1,248		1,323		1,414
Perpetual floating rate notes			367		414		460
Dated subordinated debts			5,390		4,666		6,174
Exchangeable capital units			1,262		1,262		1,262
Notional revaluation of investment securities to market			37		21		12
Tier 2 Capital			8,320		7,693		9,329
Other deductions (4)			(3,591)		(3,393)		(3,253)
Total regulatory capital			24,468		23,313		25,307
Risk-weighted assets - credit risk			248,308		250,703		244,363
Risk-weighted assets - market risk			4,057		3,666		3,475
Total risk-weighted assets			252,365		254,369		247,838
Risk adjusted capital ratios
Tier 1			7.82%		7.47%		7.76%
Tier 2			3.30%		3.02%		3.76%
Deductions			(1.42%)		(1.33%)		(1.31%)
Total capital			9.70%		9.16%		10.21%

(1)	Effective 1 October 2002, the Group adopted the new Accounting Standard AASB 1044, which has resulted in a change in the accounting for dividend provisions. Under APRA guidelines the estimated dividend must be deducted from Tier 1 Capital.
(2)	From 31 March 2003, deconsolidation of Wealth Management profits are based on statutory accounts. Prior periods were based on the management accounts.
(3)	APRA requires any excess FITB (excluding FITB impact on the general provision for doubtful debts) over the provision for deferred income tax liabilities be deducted from Tier 1 capital.
(4)	Includes $2,959 million investment in non-consolidated controlled entities (net of intangible component deducted from Tier 1).