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FINS5530 Assignment
Instructions and Guidelines Introduction Banks are subjected to a wide array of risks during their operations. Risk management is about understanding and managing the Bank's risk environment and taking measures, where necessary, to ensure that risks are contained to acceptable levels, while making sure loss-absorption buffers are sufficient. In addition, the analysis of banks must also consider the current status of a country’s financial system and overall economy. Financial statements offer a window into the operation and management of a bank. The financial statements for banks can look very different from those reported by most companies. The nature of banking operations means that there will be unique items on a bank’s balance sheet. In addition, banks are also subject to some unique accounting standards and financial regulations. Purpose This term-long project will allow you to apply several finance theory and financial modelling techniques to a real bank. Thus, you will need to draw on the knowledge you acquire during lectures and the skills you practice. You will also be asked to critically analyse bank decision making. An additional learning outcome is for teams to learn to collaborate effectively, incorporate different perspectives, produce quality work according to an agreed plan, and provide constructive feedback to each other. Setting the scene As an expert team in banking, you and your team members are asked to identify and analyse bank financial risk by the usage of information provided by financial statements and other public disclosures. Your team are required to read Westpac Banking Corporation (Westpac)’s 2021 Annual Report and its Pillar 3 capital disclosures, conduct relevant research, and write a detailed consulting report.
Timeline Students will form consulting teams to combine their perspectives and skill sets to work on a detailed and critical analysis of several risk aspects of this bank. Assessment Tasks Due date (11:59 PM) Weight Deliverable Group Self Registration Friday of Week 3 n/a Self-Registration via the Group Builder tool on Moodle Team Resume and Contract Friday of Week 5 n/a Team Resume and Contract Submission Final submission Friday of Week 10 20% Final team consulting report submission Team Evaluation Monday of Week 10 5% Team evaluation survey
Consulting report Your team’s job is to deliver a consulting report on how well the bank is managing the three risk topics including a) Credit Risk, b) Liquidity Risk, and c) Capital Adequacy along the following dimensions: 1. What is the approximate risk level for each risk area? 2. What are the main strategies that the bank has used to control/manage each of the relevant risk area? 3. Compared to the previous year, do you think the bank has had a good management in each of the risk area? 4. Any suggestions/improvements you could make for its risk management strategies? Your manager has analysed these questions and broken them up into smaller and more specific questions and tasks for you and your teammates to address in the consulting report: a) Credit Risk Management 1. Examine the composition of the bank’s asset portfolio and analyse the credit exposures and credit quality of assets held. 2. Compare Westpac’s data to its peers (the other ‘big four’ banks in Australia), assess and comment on whether Westpac’s credit risk is within or below peer range. (Hint: some simple measures you can use include the provision coverage ratio, the loan loss rate, and/or total impairment provisions ratio et al. 3. What are the main strategies that the bank has used to control/manage credit risk in the context of the COVID pandemic? 4. In terms of Environmental, Social, and Governance (ESG) concerns, discuss and comment on Westpac’s strategies on sustainable lending and investments. b) Liquidity Risk Management 1. Analyse and comment on the composition of the bank’s total funding. 2. Comment on the bank’s Net Stable Funding Ratio and Liquidity Coverage Ratio relative to the minimum regulatory requirements. 3. What are the strategies used by the bank to keep these ratios in compliance with the regulatory requirements in the context of the COVID pandemic? 4. Is there room for improvement, i.e., the potential for better management of funding? c) Capital Adequacy Management 1. Present the key capital ratios for each quarter in the 2021 reporting year and the preceding year (Note: Westpac reporting year ends on 30 September of the year. Thus, Q4 reporting quarter is for the financial period ending 30 September, Q3 reporting quarter is for the financial period ending 30 June, and so on). 2. Comment on the trajectory of the capital ratios over the 2-year period. What does this tell you about the capital risk of the Bank relative to the APRA requirements in the context of the COVID pandemic? 3. On 14 Feb 2021, Westpac announced that it has successfully completed a $3.5 billion off-market share buy-back. Comment on the implication of the buyback on the bank’s capital management. 4. Are there any recommendations your team has for the bank’s capital management and disclosure?
General Instructions: • This is a group assignment. Each group should have a minimum of 4 to a maximum of 5 members. You are expected to work collaboratively on this assignment. • You are required to register yourself into a group via the group builder tool on Moodle. The sooner you finalize your group, the more time you have on this assignment. • You are encouraged to include tables and graphs in your report. You should avoid direct screenshots of tables and graphs from the annual report. • You may also use the textbook or other online resources as references. All sources must be carefully cited in a reference list. • To write a successful report, please carefully read the marking criteria in the last page.
Submission Format: • Your written report should have a maximum of 12 pages in length. Tables and graphs are counted into the page limit. Reference list, table of content, and cover page are not included in the page limit. • You can include formulas, middle-step work, notes or raw data in the Appendix, which is not included in the page limit. However, main graphs and tables should always be included in the body of the report, NOT in the Appendix. • Line spacing should be at least 1.5. Front should be Arial or Calibri with a size of 12. Margin should be Moderate or Normal. • A general report structure should be used. Your report should include an introduction and conclusion with appropriate headings to facilitate reading. • All materials used in this report must be referenced in Harvard format. Any assessment submitted without a reference list will not be marked. For details and assistance on Harvard referencing, see https://student.unsw.edu.au/harvard-referencing
Submission Guide: • Final report Due date: the assignment should be submitted electronically on Moodle by the Friday of Week 10 at 11:59 pm. • You are required to submit your assignment as a group TWICE: 1) Submit through the Turnitin link to check for copying and plagiarism. 2) Submit through the Assignment Submission link for grading purpose. • The submission should be done by one member from your team and only assignments with BOTH submissions will be graded. • A penalty of 5% grade deduction will apply for each day of late submission after the due date.
Team Evaluation: You will each provide a confidential evaluation of each of your fellow group members by completing a team evaluation survey via the Group Assignment Submission Link on Moodle individually. Self and peer evaluation increase your ability to critically evaluate and reflect on your own learning and skills development. By honestly reflecting on your own performance, as well as the performance of each member of the group, you may find that you will be able to discover strategies that will help you work more effectively in your next group work task. A 5% penalty will apply for not completing the survey. Please make sure your response in the survey is a fair reflection of each group member's contribution. If you give a too high or too low rating, you will provide an explanation of your reasons for doing so. The team evaluation scores can affect your final grade in this assessment. Below is the list of questions included in the team evaluation survey: • For each person, indicate the extent to which you agree with the statement, using a scale of 1-5 (1=strongly disagree; 2=disagree; 3=neutral; 4=agree; 5=strongly agree): • Attends group meetings regularly and arrives on time. • Contributes meaningfully to group discussions. • Prepares work in a quality manner. • Demonstrates a cooperative and supportive attitude. • Rate each team member's overall contribution to the Group Assignment. • Justify your rating of contribution. Were the behaviours of any of your team members particularly valuable or detrimental to the team? Please justify the rating for any team member that you deemed to have not performed or contributed equally to your Group Assignment.
Some Useful Links: https://www.westpac.com.au/about-westpac/investor-centre/financial- information/annual-reports/ https://www.westpac.com.au/about-westpac/investor-centre/financial- information/regulatory-disclosures/ https://www.westpac.com.au/about-westpac/investor-centre/ https://www.apra.gov.au/news-and-publications
Detailed Marking Criteria Criteria Poor <50% (Fail) Below Average 50% - 64% (Pass) Average 65% - 74% (Credit) Above Average 75% - 84% (Distinction) Exceptional ≥ 85% (HD) Demonstrates knowledge and understanding of bank risks and risk management (30%) Show little understanding and reasoning. Does not demonstrate understanding of bank risks and risk management.
Show some thinking and reasoning but most ideas are based on general knowhow. Main points lack detailed development and understanding of bank risks and risk management. Content indicates thinking and reasoning with understanding of bank risks and risk management. Main points are present with some detail and development. Content indicates articulated thinking and good understanding of bank risks and risk management. Main points well developed with quality supporting details.
Content indicates clear, logical and insightful understanding of bank risks and risk management. Main points well developed with high qualitive and quantitative support. Critical analysis of issues applying theory and academic concepts (30%) Limited or no application of theory or constructive analysis. No evidence of critical thinking and research. Some application of theory or data but mainly descriptive. Ideas are vague with little evidence of critical thinking and research.