Today we publish what’s called our APS 330 Disclosures. These are standard regulatory reports for APRA (Australian Prudential Regulation Authority) containing information that all banks in Australia are required to disclose. As it’s the first time these disclosures have come out since we threw open the bank to everyone, we thought it would be a good idea to demystify them a bit so Eric Wilson, our CEO, takes you through them in some detail.
What are “APS 330 Disclosures” & what are they for?
It’s about transparency. About making sure ADIs (authorised deposit taking institutions – or banks for short) are open about what their position is. The APRA definition is as follows:
“[APS 330] requires a locally incorporated authorised deposit-taking institution (ADI) to meet minimum requirements for the public disclosure of key information on its capital, risk exposures, remuneration practices and, where applicable, its leverage ratio, liquidity coverage ratio, net stable funding ratio and indicators for the identification of potential global systemically important banks, so as to contribute to the transparency of financial markets and to enhance market discipline.”
They are made up of 2 reports. “Regulatory Capital Instrument” (there is a lot of definition in here but the key figure is the “amount recognised in Regulatory Capital” ) and “Basel Pillar III Disclosures” (which was defined in Basel, Switzerland, hence the name, and contains more detail about the composition of capital, the “capital adequacy” number, credit risk and securitisation.)
The idea behind all of that is that by dragging stuff out into the sunlight every quarter, it improves the transparency of the financial markets and makes participants behave better.
What do APS 330 disclosures show us?
Now we know that the Australian Prudential Standard 330 doesn’t really sound all that interesting, and sometimes it’s not….but for neobanks, and those interested in what happens when you grow a bank, it provides a really interesting insight into the ups and downs of start up banking life.
We “launched” the bank account and Stash account properly in January, so this quarter is really the first time there has been anything “interesting” to see…and yes we know “interesting” is all in the eye of the beholder!
What do they tell us about Xinja?
So what does our March APS 330 tell you about what happened to Xinja’s capital position over our launch period?
The key figure here is the Common Equity Tier 1 or “CET1” ratio. This is a percentage figure that shows how much capital we have compared to our Risk Weighted Assets (RWA).
For an established bank this doesn’t move too much. For a start up bank obviously, it moves quite a bit.
Going from no deposits to A$500m in deposits, moves the needle!
Add to that of course that as a start up we spend capital every month to build the bank, and then raise more money every few months or so. So the CET1 ratio does bounce around a bit.
So in December 2019, before we launched the Stash account and the bank account widely to the public, our CET1 ratio (capital adequacy) was at 71%. At that time we underestimated our capital adequacy by overestimating our operational risk weighted assets. The corrected number is 99% CET1 for December.
At this early stage of Xinja’s development, the volatility in Xinja’s CET1 ratio shows clearly how a start up business raises capital, burns through it, and then raises capital again in order to continue the development of the business. It also shows the impact of customer growth on the liability side of the balance sheet.
At 18% it also shows that Xinja, as a start up, is still very reliant on raising capital to survive and grow. Of interest is the fact that a few days later our CET1 was back at 34% as the next set of investments in Xinja was completed, so we should continue to expect to see some level of ongoing volatility as Xinja moves towards profitability and self sustainability. The stabilisation of the deposit base should contribute however to reducing that volatility.
Hopefully that’s been at least a little bit interesting! The disclosures apply to every Australian ADI, so if you have a quiet hour to spend, you can take a look at the capital positions of every bank in Australia! It’s a great process and we are lucky Australia has such a transparent banking system.
So how is Xinja doing?
Here at Xinja we are riding out the COVID19 pandemic as best we can. It has of course slowed down the finalisation of our investment from World Investments, which has required us to raise another A$10m in capital. We are being very prudent in terms of spend over this period, and are working flat out to complete the build of our lending infrastructure. The exact date for the launch of personal loans is uncertain, as much depends on how the post COVID world turns out, but be assured that we will launch them as soon as is commercially and ethically responsible.