Community CPS Australia Ltd – Public Disclosure of Prudential Information (APS 330)
Community CPS Australia Group Structure
The Community CPS Australia Group provides financial services to its members. The entities comprised within and the construct of the Group are detailed below:
STRUCTURE OF THE COMMUNITY CPS AUSTRALIA GROUP
The entities are fully consolidated within the Group and there are no restrictions or impediments on transferring of funds or capital within the Group.
The entities within the Group are fully capitalised in accordance with APRA requirements and Community CPS Board Policy.
Capital Structure – Community CPS Australia Ltd
Capital Instruments – capital is exclusively internally generated and comprises retained earnings and reserves. There is no external capital support.
Capital Adequacy
Community CPS takes a risk-based approach to the measurement of capital adequacy. Community CPS assesses risks for capital adequacy purposes with regard to the two Pillars APRA has established in the Basel II Framework, as set out below:
Pillar 1
– Credit Risk – lending and treasury activities;
– Market Risk – movement mismatches in interest rates;
– Operational Risk – ‘the risk of direct or indirect loss resulting from inadequate or failed internal processes, people and systems or from external events.’
Pillar 2
– Incorporates other risks not covered in Pillar 1 which are applicable to the business.
These risks are quantified and a level of capital is then assigned to that risk. The quantification of each risk is reviewed at least annually or with any material change in the nature of Community CPS' business activities, permitting the level of capital assigned to each risk to also be adjusted. This gives the Directors comfort that the level of capital held is appropriate for the current assessment of Community CPS' risks.
The Board has a target regulatory capital adequacy range of 13-16%.
Risk Exposure and Assessment
As Community CPS is involved in the business of lending, Credit Risk is a risk which gains a high degree of focus.
Credit Risk is associated with the quality of lending, other monetary assets and derivatives and in particular the assessment of the credit worthiness of counterparties. Accordingly, the level of total arrears is used as an indicator of the inherent credit risk in the loan book. In addition to arrears, there is an element of credit risk for loans that are not in arrears. This component is also considered when quantifying credit risk.
Community CPS raises doubtful debt provisions against expected credit risk losses. Capital is held for unexpected credit risk losses. The additional capital held for unexpected secured credit risk losses is determined using hypothetical scenario modelling allowing for abnormally high (30% - shock) levels of loan defaults, a large (50%) negative movement in security valuations and no recovery from mortgage insurance. For unsecured loans, modelling is undertaken that allows for a significant (200%) deterioration in delinquency, an abnormally high (triple - shock) level of defaults and a large (30%) increase in losses on defaulting loans.
