Credit risk. Risk weighting. Carrying value. Public disclosure of Prudential Information. requirements. Those. Pillar. 2 - Enhanced adequacy.

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1 Public disclosure of Prudential Information as at 31st March 211 This public disclosure is prepared for for the quarter ended the 31st March 211. It complies with Prudential Standard APS 33 Capital Adequacy: Public Disclosure of Prudential Information and is unaudited. Capital management Capital levels are managed to ensure compliance with Australian Prudential Regulation Authority (APRA) requirements. Those requirements encompass a framework of three pillars. 1 - Minimum capital requirements, including a specific capital charge for operational risk. 2 - Enhanced supervision of capital management including the application of an internal capital adequacy assessment process. 3 - More extensive disclosure requirements. 1 Capital is measured as prescribed by Australian Prudential Regulation Authority (APRA) prudential standards. Thesee standards act to deliver capital requirements in respect of Credit risk, Market risk and Operational risk. Credit risk Credit risk is measured using the Standardised Approach defined in prudential standard APS112. The capital charge attached to each asset is based on weightings prescribed by APRAA as detailed in the table below: On statement of financial position exposures Risk weighting Risk weighted amount Cash 1,318,38 % Deposits in highly rated ADIs 454,461,23 2% 9,892,2466 Deposits in less highly rated ADIs 13,, 5% 65,, Standard loans secured against eligible residential mortgages up to 8% LVR (up to 9% with Lenders Mortgage Insurance) 1,856,24,15 35% 649,684,522 Standard loans secured against eligible residential mortgages over 8% LVR 475,286, % 24,919,333 Other standard mortgage loans 8,911,124 1% 8,911,1244 Non standard mortgage loans 464, % 42,16 Other loans 331,954,214 1% 331,954,2144 Other assets 49,738,686 1% 49,738,6866 3,38,375,212 1,437,51,815 ABN Page 1 of 6

2 Off statement of financial position exposures Notional principal amount Credit conversion factor Credit equivalent amount Risk weighting Risk weightedd amount Loans approved and not advancedd 15,68,736 1% 15,68,736 35%-1% 52,632,887 Redraws available 246,82,482 5% 123,41,241 35%-1% 49,333,4166 Guarantees 1 1% 1 1% 1 Unused revolving credit limits 242,35,672 % Possible contribution to CUFSS 15,69,682 % 699,849, ,479,77 11,966,43 weighted credit risk exposures 1,539,468,218 Market risk The credit union is not required to allocate capital against market risk as no trading activity iss undertaken and the standardised approach does not result in any allocation against interest rate risk in the banking book. Operational risk Operational risk is measured using the Standardised Approach defined in prudential standard APS114. The capital charge is based upon portfolio balances and revenue streams with scaling and risk factors applied to reflect APRA s assessment of the particular risk profiles. Operational risk capital requirement for retail banking 3-Jun-8 31-Dec-8 3-Jun-9 31-Dec-9 3-Jun-1 31-Dec-1 gross outstanding loans and advances for 2,3,435,538 2,147,79,127 retail banking 2,196,38,725 2,313,217,856 2,436,539,8 2,562,19,97 3.5% scaling factor 71,65,244 75,172,654 76,861,355 8,962,625 85,278,868 89,673,849 12% risk factor 8,527,829 9,2,719 9,223,363 9,715,515 1,233,464 1,76,8622 Average of the 6 half year results = operational risk capital requirement for retail banking 9,58,2922 Operational risk capital requirement for commercial banking 3-Jun-8 31-Dec-8 3-Jun-9 31-Dec-9 3-Jun-1 31-Dec-1 gross outstanding loans and advances for commercial banking 337,51, ,669,24 648,421,913 49,89,671 68,957, ,319, % scaling factor 11,796,816 23,263,422 22,694,767 17,181,173 21,313,54 2,591, % risk factor 1,769,522 3,489,513 3,44,215 2,577,176 3,197,26 3,88,6766 Average of the 6 half year results = operational risk capital requirement for commercial banking 2,921,21 ABN Page 2 of 6

3 Operational risk capital requirement for all other activity 3-Jun-8 31-Dec-8 3-Jun-9 31-Dec-9 3-Jun-1 31-Dec-1 Adjusted gross income 2,93,369 1,667,57 2,398,969 1,921,721 2,88,222 2,111,7 18% risk factor 376,86 3, , ,91 55,48 379,993 Average of the 3 annual results = operational risk capital requirement for all other activity 78,566 operational risk capital requirement 13,281,369 RWA equivalent amount for operational risk capital requirement = Operational risk capital * ,17,111 credit and operational risk weighted 1,75,485,329 Capital resources Tier 1 capital - The majority of Tier 1 capital consists of retained profits. Tier 2 capital - Consists of capital instrumentss that combine the features off debt and equity in that they are structured as debt instruments, but exhibit some of the loss absorptionn and funding flexibility features of equity. There are a number of criteria that capital instruments mustt meet for inclusion in Tier 2 capital resources as set down by APRA. Tier 2 capital generally comprises a reserve for credit losses. A minimum capital ratio of 8% is equired to be maintained at all times. Our policy requires reporting to the board and the regulator if thee capital ratio falls below 13.7%. The capital ratio can be affected by growth in assets relative to growth in reserves and by changes in the mix of assets. The credit unionn manages capital through reviewing the ratio monthly and monitoring major movements in asset levels. Further, a 3 year capital projection is maintained to assess how strategic decisions or trends may impact on the level of capital. A stress test based on various asset growth and profitability assumptions is conducted annually. 2 risk capital 2 of the Prudential Framework relates to any risk factor to which an ADI might be exposed that is not included in 1. Thesee risks fall into 3 categories. 1 risks not fully captured by the 1 process, for example credit concentration risk. Inherent risks not covered by 1, including: - interest rate risk in the banking book - liquidity risk - strategic risk - reputation risk Risks arising from external factors such as business cycles effects and the macroeconomic environment. The credit union documents, analyses and sets its own internal capital requirements to meet 2 risks. The methodologies used to assesss the required capital are a combination of quantitative and qualitative assessment and by their nature are based on a degree of collective subjective judgment off senior management and the board. ABN Page 3 of 6

4 Internal capital adequacy management The credit union manages its internal capital levels for both current and futuree activities through a combination of committees. The outputs of the individual committees are reviewed by the board in its capacity as the primaryy governing body. The capital required for any change in the credit union s forecasts for asset growth or unforeseen circumstances, are assessed by the board. The finance department then updates the forecast capital resources models produced andd the impact upon the overall capital position of the credit unionn is reassessed. Contingency buffer Based on historical fluctuations in capital the credit union incorporates a contingency buffer of 1.7% when targeting minimum levels off capital and when preparing its Capital Management Plan to cover volatility in the risks identified above. RWA Minimum capital required % Equivalent of RWAA Operational risk 166,17,111 13,281,369 8.% % Credit risk 1,539,468, ,157,457 8.% % 1,75,485, ,438,826 8.% % 2 uplift capital 68,219,413 4.% % ICAAP capital required 24,658, % % Buffer for business cycle volatility 28,993, % % Capital available for future growth and product and service development 39,84, % % Risk-based capital ratio 272,736, % % Tier 1 capital ratio 256,768, % % Tier 2 capital ratio 15,967,484.94% % Credit risk The credit risk of a financial institution is the risk that customerss (members), financial institutions and other counterparties will be unable to meet their obligations to the institution which may result in financial losses. Credit risk arises principally from the credit union s loan book and investmentt assets. Liquid investments The risk of losses on liquid investments is mitigated through the application off investment limits per counterparty based upon independent ratings of counterparties and by limiting exposure to groups of counterparties within a rating band. The exposure values associated with each credit quality step are as follows: Investments with: No. of institutions Past due value Provisionn ADIs-rated A-1+ or A-1 (short-term) 4 255,461,23 ADIs-rated AA or A+ (long-term) 13,, ADIs-rated A-2 (short-term) 7 187,, ADIs-rated A-3 (short-term) 1 12,, ,461,23 ABN Page 4 of 6

5 Loans is the value on the statement of financial position. Maximum exposure is the value on the statement of financial position plus the undrawn facilities (loans approved but not funded, redraw facilities, undrawn overdrafts and credit cards). on statement of financial position Commitments Other non-market off statement of financial position exposures Maximum exposure Average grosss exposure inn the periodd $ $ $ $ $ Housing 2,195,6 33,85 2,,498,91 2,447,267 Personal 474, , , ,45 -natural persons 2,669, ,71 3,,262,474 3,24,717 Corporate borrowers 4,78 1,539 6,319 6,332 2,674, ,24 3,,268,793 3,211,49 The commitments set out above comprise Outstanding loan commitments The loans approved but not fundedd $ 15,69 Loan redraw facilities The loan redraw facilities available 246,82 Undrawn loan facilities Loan facilities available to members for overdrafts and credit cards are as follows: value of facilities approved 331,892 Less: Amount advanced (89,541) Net undrawn value 242,351 Thesee commitments are contingen on members maintaining credit standardss and ongoing repayment terms on amounts drawn. loan commitments 594,24 Impairment Impairment of a loan is recognised when there is reasonable doubt that not all the principal and interest can be collected in accordancee with the terms of the loan agreement. Impairment is assessed by specific identification in relation to individual loans and by estimation of expected losses in i relation to loan portfolios where specific identification is impracticable. Bad debts were written off when identified and are recognised as expenses inn the statementt of comprehensive income. All loans and advances are reviewed and gradedd according to the anticipated level of credit risk. The classification adopted is describedd below: Non-accrual loans are loans and advances, including savings accounts drawnn past their approved credit limit, where the recovery of all interest and principal is consideredd to be reasonably doubtful. Interest charged and not received on this class of loan is not recognised as revenue. APRA has made it mandatory that interest is not recognised as revenue after irregularity exceeds 9 days for a loan facilityy or 15 days for an over limit overdraft and credit card facility or 15 days for overdrawn savings account. ABN Page 5 of 6

6 Restructured loans arise when the borrower is granted a concession due to continuing difficulties in meeting the original terms and the revised terms are not comparable to new facilities of comparable risk. Loans, where interestt has been stopped or is less than the creditt union s average cost of funds, are included in non-accrual loans. The level of impaired loans by class of loan is set out below: is i the balance gross of provision (net of deferred fees). Past due loans as per APS 22 Credit Quality is the on statement of financial position loan balances which are behind in repayments by 9 days or more, well-secured and not impaired. Impaired loans value is the on statement of financial position loan balance and includess non-accrual loans and restructured loans. Provision for impairment is the amount of the impairment provision allocated to the classs of impaired loans. The losses in the period equate to the additional provisionss set aside for impaired loans and bad debts written off in excess of previous provision allowances. on statement of financial position Value of loans that are past due Valuee of loans that are impaired Provision for impairment Provision movement for impairment Bad debts in the period $ $ $ $ $ $ Housing 2,195,6 7, (412) Personal 474,767 3,943 1,678 (254) 37 -natural persons 2,669,773 11,55 1,694 (666) 37 Corporate borrowers 4, (25) 2,674,553 11,58 1,696 (691) 37 The impaired loans are generally not secured against residential property. Some impaired loans are secure vehicles or other assets of varying value. It is not practicable to determine thee fair value of all collateral as the variety of assetss and condition. ed by mortgag at the balance e over motor date due to Reserve for credit losses In addition to the above provision for impairment, the board has recognised the need to make an allocation from retained earnings to ensure there is adequate protection for members against the prospect that some members will experiencee loan repayment difficulties inn the future. The reserve is based on estimation of potential risk in the loan portfolio based upon the level of security taken as collateral. The reserve has been determined on the basis of the past experience with thee loan delinquency and amounts written off. The amount of o the reserve is currently $18,158,65. The value of the reserve is amended to reflect the changes in economic conditions and the relevant concentrations in specific regions and industries of employment within the loan book. ABN Page 6 of 6