Macquarie : Bank Limited - Pillar 3 capital disclosures

MBL Basel III

Pillar 3

Disclosures March 2025

Macquarie Bank Limited

ABN 46 008 583 542

1 Elizabeth Street

Sydney NSW 2000

GPO Box 4294

Sydney NSW 1164

Telephone [phone] Money Market 8232 3600 Facsimile 8232 4227

Facsimile (61 2) 8232 7780Foreign Exchange 8232 3666 Facsimile 8232 3019

Telex 122246 Metals and Mining 8232 3444 Facsimile 8232 3590

Internet https://http://www.macquarie.com.au Futures 9231 1028 Telex 72263

DX 10287 SSE Debt Markets 8232 3815 Facsimile 8232 4414 SWIFT MACQAU2S

ASX Release

MACQUARIE BANK RELEASES MARCH 2025 PILLAR 3 DISCLOSURE DOCUMENT

9 May 2025 - The Macquarie Bank Limited March 2025 Pillar 3 disclosure document was released today on the Macquarie website https://www.macquarie.com. These disclosures have been prepared in accordance with the Australian Prudential Regulation Authority (APRA) requirements of Prudential Standard APS 330 Public Disclosure.

Contacts:

Sam Dobson, Macquarie Group Investor Relations [phone]

Lisa Jamieson, Macquarie Group Media Relations [phone]

Attestation

Macquarie Bank Limited (MBL), as an Authorised Deposit-taking Institution, presents the Pillar 3 report in compliance with the requirements under APRA Prudential Standard APS 330 Public Disclosure.

MBL's prudential disclosures are prepared in accordance with the Prudential Disclosure Policy, which meets the requirements of APS 330 and has been approved by the MBL Board.

We, as the Accountable Persons of MBL, confirm that MBL's prudential disclosures, as set out in the MBL Pillar 3 report for the reporting period ended 31 March 2025, have been prepared in accordance with MBL's Prudential Disclosure Policy.

This report was approved on 9 May 2025.

Alex Harvey

Chief Financial Officer

Andrew Cassidy

Chief Risk Officer

‌Contents

Attestation ........................................................................................................................................................................................ 3

Contents............................................................................................................................................................................................... 4

BCBS Disclosure Mapping ............................................................................................................................................................... 5

1. Introduction.................................................................................................................................................................................... 7

2. Overview of Risk Management 14

3. Capital Adequacy 19

4. Credit Risk 26

5. Credit Risk Mitigation 52

6. Credit Quality 56

7. Counterparty Credit Risk 61

8. Securitisation Risk 70

9. Market Risk 75

10. Interest Rate Risk in the Banking Book (IRRBB) 79

11. Operational Risk 81

12. Leverage Ratio 84

13. Countercyclical Capital Buffers 86

14. Liquidity Risk 88

15. Linkages to Financial Statements 96

16. Glossary of Terms 99

17. Disclaimer 102

‌BCBS Disclosure Mapping

BCBS Disclosure Requirements

DIS20: Overview of risk management, key prudential metrics and RWA

DIS21: Comparison of modelled and standardised RWA

DIS25: Composition of capital and TLAC

DIS30: Links between financial statements

Templates Name Section reference

KM1 Key metrics (at consolidated group level) 1. Introduction

OVA Bank risk management approach 2. Overview of Risk Management

OV1 Overview of risk-weighted assets (RWA) 1. Introduction

CMS1 Comparison of modelled and standardised RWA at risk level 4. Credit Risk

CMS2 Comparison of modelled and standardised RWA for credit risk at asset class level 4. Credit Risk

CC1 Composition of regulatory capital 3. Capital Adequacy

CC2 Reconciliation of regulatory capital to balance sheet 3. Capital Adequacy

LIA Explanations of differences between accounting and regulatory exposure amount 15. Linkages to Financial

Statements

and regulatory exposures

LI1 Differences between accounting and regulatory scopes of consolidation and mapping of financial statement categories with regulatory risk categories

LI2 Main sources of differences between regulatory exposure amounts and carrying values in financial statements

15. Linkages to Financial Statements

15. Linkages to Financial Statements

DIS31: Asset encumbrance

ENC Asset encumbrance 14. Liquidity Risk

DIS40: Credit risk CRA General qualitative information about credit risk 4. Credit Risk CR1 Credit quality of assets 6. Credit Quality

CR2 Changes in stock of defaulted loans and debt securities 6. Credit Quality

CRB Additional disclosure related to the credit quality of assets 6. Credit Quality

CRC Qualitative disclosure related to credit risk mitigation techniques 5. Credit Risk Mitigation CR3 Credit risk mitigation techniques - overview 5. Credit Risk Mitigation

CRD Qualitative disclosure on banks' use of external credit ratings under the standardised approach for credit risk

4. Credit Risk

DIS42: Counterparty credit risk

CR4 Standardised approach - Credit risk exposure and credit risk mitigation effects 4. Credit Risk CR5 Standardised approach - Exposures by asset classes and risk weights 4. Credit Risk CRE Qualitative disclosure related to internal ratings-based (IRB) models 4. Credit Risk CR6 IRB - Credit risk exposures by portfolio and probability of default (PD) range 4. Credit Risk CR8 RWA flow statements of credit risk exposures under IRB 4. Credit Risk

CR9 IRB - Backtesting of probability of default (PD) per portfolio 4. Credit Risk

CR10 IRB (specialised lending under the slotting approach) 4. Credit Risk

CCRA Qualitative disclosure related to CCR 7. Counterparty Credit Risk

CCR1 Analysis of CCR exposures by approach 7. Counterparty Credit Risk CCR3 Standardised approach - CCR exposures by regulatory portfolio and risk weights 7. Counterparty Credit Risk CCR4 IRB - CCR exposures by portfolio and probability-of-default (PD) scale 7. Counterparty Credit Risk CCR5 Composition of collateral for CCR exposures 7. Counterparty Credit Risk

CCR6 Credit derivatives exposures 7. Counterparty Credit Risk

CCR8 Exposures to central counterparties 7. Counterparty Credit Risk

DIS43: Securitisation SECA Qualitative disclosure requirements related to securitisation exposures 8. Securitisation Risk SEC1 Securitisation exposures in the banking book 8. Securitisation Risk

SEC4 Securitisation exposures in the banking book and associated capital requirements -bank acting as investor

8. Securitisation Risk

Market risk (APS 330) Market risk qualitative disclosures 9. Market Risk

Table 2(f) MBL VaR exposures arising from the internal models approach (IMA) for trading portfolios

Table 2(f) MBL SVaR exposures arising from the internal models approach (IMA) for trading portfolios

9. Market Risk

9. Market Risk

DIS51: Credit valuation adjustment risk

Table 1(b) MBL exposure arising from the standard method 9. Market Risk Market risk RWA calculation methods 9. Market Risk

CVAA General qualitative disclosure requirements related to CVA 7. Counterparty Credit Risk Total CVA risk capital charge 7. Counterparty Credit Risk

BCBS Disclosure Requirements	Templates	Name	Section reference
DIS60: Operational risk	ORA	General qualitative information on a bank's operational risk framework	11. Operational Risk
	OR1	Historical losses	11. Operational Risk
	OR2	Business indicator and subcomponents	11. Operational Risk
	OR3	Minimum required operational risk capital	11. Operational Risk
DIS70: Interest rate risk in the banking book	IRRBBA	Interest rate risk in the banking book (IRRBB) risk management objective and policies	10. Interest Rate Risk in the Banking Book (IRRBB)
	IRRBB1	Quantitative information on IRRBB	10. Interest Rate Risk in the Banking Book (IRRBB)
DIS75: Macroprudential supervisory measures	CCyB1	Geographical distribution of credit exposures used in the calculation of the bank-specific countercyclical capital buffer requirement	13. Countercyclical Capital Buffers
DIS80: Leverage ratio	LR1	Summary comparison of accounting assets vs leverage ratio exposure measure	12. Leverage Ratio
	LR2	Leverage ratio common disclosure template	12. Leverage Ratio
DIS85: Liquidity	LIQA	Liquidity risk management	14. Liquidity Risk
	LIQ1	Liquidity coverage ratio (LCR)	14. Liquidity Risk
	LIQ2	Net stable funding ratio (NSFR)	14. Liquidity Risk

1. ‌Introduction

   Macquarie Bank Limited (MBL) is an Authorised Deposit-taking Institution (ADI) regulated by the Australian Prudential Regulation Authority (APRA). MBL presents in this report, regulatory information mandated by the revised APRA Prudential Standard APS 330 Public Disclosure (APS 330) which came into effect on 1 January 2025.

   The revised APS 330 integrates the Pillar 3 disclosure requirements from the Basel III Framework, with some national specific modifications. The disclosures consist of key prudential metrics and information relating to MBL's risk management approach, regulatory capital, credit risk, counterparty credit risk, securitisation, market risk, operational risk, interest rate risk in the banking book (IRRBB), countercyclical capital buffer requirement, leverage ratio and liquidity.

   MBL's Pillar 3 disclosures are prepared on a Level 2 basis, in accordance with the applicable reporting requirements and the Board-approved Prudential Disclosure Policy. Unless otherwise indicated, references to MBL in this report refer to the Level 2 regulatory group which includes MBL (the ADI). Further details on the regulatory structure are provided in Section 1.3 Scope of Application.

   1. Overview of the Basel III Framework

      The Basel Committee on Banking Supervision (BCBS) Basel III framework is designed to strengthen the regulation, supervision, and risk management within the banking sector. The key objectives are to enhance bank resilience, improve risk management, increase transparency and enhance regulatory standards. The APRA Capital framework adopted the Basel III framework, with stricter requirements implemented in specific areas relating to the calculation and measurement of capital (APRA super equivalence).

      The Basel III framework is divided into three broad sections known as 'Pillars', outlined as follows:

      Pillar 1

      Pillar 1 of the Basel III framework covers the rules by which the capital requirements (risk-weighted assets or RWA) and capital adequacy are determined. The framework seeks to increase the sensitivity to risk in the capital calculations and to ensure that this is aligned with an ADI's internal processes for assessing risk.

      Consequently, there are a number of different approaches to risk calculation that allow the use of internal models to calculate regulatory capital. A bank may be accredited to use the advanced approaches when it can demonstrate the integrity and sophistication of its risk management framework. It must also ensure that its internal estimates of risk are fully integrated into corporate governance functions as well as internal calculations of capital. Further to this, the most advanced approaches are available if a bank has sufficient depth and history of default data to enable it to generate its own Loss Given Default (LGD) and Probability of Default (PD) estimates based on its own loss experience.

      APRA has approved the use of the Foundation Internal Ratings-Based Approach (F-IRB) for wholesale exposures and the Advanced Internal Ratings-Based Approach

      (A-IRB) for retail exposures in the calculation of MBL's credit risk capital requirements. These approaches utilise the internal PD and internal rating assigned to the obligor. The internal LGD or APRA-assigned LGD is applied to the respective approaches accordingly. APRA-assigned Credit Conversion Factors (CCF) are applied to off-balance sheet exposures based on the nature of the exposure.

      Market risk and IRRBB are calculated using the Internal Model Approach (IMA). Operational risk is calculated using the Standardised Measurement Approach (SMA).

      The use of the internal approaches place a higher reliance on the internal capital measures and therefore require a sophisticated level of risk management and risk measurement practices. Further details on Macquarie's risk management are provided in Section 2 Overview of Risk Management.

      Pillar 2

      Pillar 2 (the Supervisory Review Process) of the Basel III framework requires ADIs to make their own assessments of capital adequacy considering their risk profile and to

      have a strategy in place for maintaining their capital levels. Macquarie's Internal Capital Adequacy Assessment Process (ICAAP) addresses the requirements of Pillar 2.

      The ICAAP is part of Macquarie's overall risk management framework; its key features include:

      • Comprehensive risk assessment process

      • Internal assessment of capital adequacy using Macquarie's economic capital adequacy model (refer to Section 3.1 Capital management)

      • Risk appetite setting (refer to Section 2.2 Macquarie's Risk Management Framework)

      • Capital management plans designed to ensure the appropriate level and mix of capital given Macquarie's risk profile; and

      • Regular reporting of capital adequacy and monitoring of risk profile against risk appetite.

        Macquarie's ICAAP is subject to Board and Senior Management oversight.

        Pillar 3

        Pillar 3 of the Basel III framework lays out the public disclosure requirements seeking to provide clear, comprehensive, meaningful, consistent and comparable information across market participants. In alignment with these principles, APRA has incorporated the BCBS's disclosure requirements into the revised APS 330, effective from 1 January 2025.

        This report has been produced in compliance with the revised APS 330, containing disclosures that address the following requirements:

      • DIS20: Overview of risk management, key prudential metrics and RWA

      • DIS21: Comparison of modelled and standardised RWA

      • DIS25: Composition of capital

      • DIS30: Links between financial statements and regulatory exposures

      • DIS31: Asset encumbrance

      • DIS40: Credit risk

      • DIS42: Counterparty credit risk

      • DIS43: Securitisation

      • Market risk (APS 330)

      • DIS51: Credit valuation adjustment risk

      • DIS60: Operational risk

      • DIS70: Interest rate risk in the banking book

      • DIS75: Countercyclical capital buffer

      • DIS80: Leverage ratio

      • DIS85: Liquidity

      Disclosures relating to Remuneration and Global Systemically Important Bank (G-SIB) Indicators are published separately and are not included in this report. These disclosures are available on the Macquarie website under regulatory disclosures.

   2. Pillar 3 Disclosure and Governance

      MBL is committed to following a robust internal controls framework to ensure that market disclosures are complete, accurate, and comply with applicable standards and regulations. As set out in APS 330, MBL has implemented a Prudential Disclosure Policy which was approved by the MBL Board as the internal governance for the disclosures in this report. The key elements of the Prudential Disclosure Policy include:

      Content of disclosures

      MBL is required to assess the disclosure requirements. The level of detail and extent of the required disclosures must align with MBL's prudential obligations. Disclosures should be supported by relevant underlying data and information for the relevant period and reflect the key principles from APS 330.

      Key controls for the disclosures

      MBL has controls in place to ensure the appropriateness and accuracy of the Pillar 3 information. These controls are aligned with the verification process applied to MBL's preparation of financial reports. The Pillar 3 document also contains disclosures reported to APRA, which are reconciled with regulatory submissions to ensure consistency and are subject to the same internal controls as other regulatory reporting.

      Review and approval process

      The policy outlines the roles and responsibilities for the preparation and review, as well as the approval mechanism, of the Pillar 3 document. The governance in place allows for thorough review and Senior Management oversight prior to publication.

      As an external publication, this document has been subject to internal verification and approval in line with the Prudential Disclosure Policy to ensure compliance with the regulatory requirements outlined in APS 330. The disclosures in this report are not required to be audited by an external auditor; however, they have been prepared on a basis consistent with information submitted to APRA. The current and historical Pillar 3 reports are available on the Macquarie website under regulatory disclosures.

   3. Scope of Application

      APS 330 requires MBL, as a subsidiary of an authorised non-operating holding company (NOHC), to disclose Pillar 3 information for the Level 2 regulatory consolidated group. The regulatory consolidated group differs from the accounting consolidated group and identifies three different levels of consolidation. The overall regulatory reporting structure of Macquarie Group is illustrated below, and the reporting levels are in accordance with APRA definitions contained in APS 001 Definitions (APS 001).

      
      
      

      The Level 2 regulatory group primarily consists of MBL (the ADI), its immediate parent (Macquarie B.H. Pty Ltd), and its subsidiaries. The group excludes specific subsidiaries which are required to be deconsolidated according to APRA reporting requirements. These subsidiaries include:

      • Special purpose vehicles (SPVs) for which MBL has satisfied operational requirements per APS 120 Securitisation Attachment A for regulatory capital relief; and

      • Entities conducting insurance, funds management and non-financial operations.

Equity investments into these deconsolidated subsidiaries by the Level 2 group are deducted from Common Equity Tier 1 (CET1) capital under APS 111 Capital Adequacy: Measurement of Capital (APS 111). Consequently, the Level 2 regulatory group excludes a subset of entities which are in scope for the accounting consolidation of MBL and its subsidiaries. These entities are listed in Section 15.1 Entities deconsolidated from the Level 2 Regulatory Group for APRA reporting purposes.

MBL (the ADI), also equivalent to the Level 1 regulatory group, is part of the larger consolidated group of Macquarie Group Limited (MGL) and its subsidiaries, collectively referred to as the Macquarie Group, the Level 3 regulatory group, or Macquarie. APS 330 does not require disclosures relating to the Level 3 group, however, some limited Level 3 disclosures are made in this report. Comments on policies in this report generally reflect policies adopted across Macquarie, unless it is stated that the policies are specific to any one part of the Group.

References to MBL in this report refer to the Level 2 regulatory group as described above. Unless otherwise stated, all disclosures in this report represent the Level 2 regulatory group prepared on an APRA Basel III basis.