MBIL Basel Pillar 3 Capital Disclosures

Pillar 3 disclosures

Macquarie Bank International Limited March 2020

Contents

1.0 Overview 2 2.0 Risk Management 3 3.0 Remuneration 5 4.0 Governance Arrangements 6 5.0 Capital Adequacy 8 6.0 Credit Risk Management 11 7.0 Market Risk Management 13 8.0 Operational Risk Management 14 9.0 Exposure classification and Credit Risk Mitigation 15 10.0 Leverage Ratio 23 11.0 Asset Encumberance 27 12.0 Capital Buffers 29 13.0 Liquidity Coverage Ratio 30 Disclosure 31 Appendix 1 32

1 Macquarie Bank International Limited Pillar 3 Disclosures March 2020 macquarie.com 1.0 Overview

This disclosure is in relation to the Macquarie Bank International Limited prudential consolidation group (“the MBIL Group” or “the Group”), comprising its holding company ‘Macquarie Holdings (UK) No.1 Limited’ (“MHUK1”) and ‘Macquarie Bank International Limited’ (“MBIL”) MBIL is a UK incorporated banking institution authorised and regulated by the Prudential Regulation Authority (“PRA”). MBIL is a wholly owned subsidiary of MHUK1 which is in turn wholly owned by Macquarie Bank Limited (“MBL”) which is an Authorised Deposit-taking Institution (“ADI”) under the Australian Banking Act 1959. MBL is regulated by, and authorised to undertake “banking business” in Australia by, the Australian Prudential Regulation Authority (“APRA”), the Australian financial sector prudential regulator. MBL is ultimately owned by Macquarie Group Limited (“MGL”). MGL is a global diversified financial group. It primarily provides investment services for institutional and corporate clients around the world. MGL is listed on the Australian Securities Exchange (ASX) (ASX:MQG; ADR:MQBKY). MGL is regulated by APRA as a non-operating holding company of an ADI. The Australian Securities and Investment Commission (“ASIC”) also has supervision of MGL. The MBIL Group’s consolidated regulatory capital requirement is calculated in accordance with the Directive 2013/36/EU (“Capital Requirements Directive IV” or “CRD IV”) and the Regulation (EU) No 575/2013 (“Capital Requirements Regulation” or “CRR”). These regulations are structured in line with Basel Committee’s three Pillars of supervision: Pillar 1 “minimum capital requirements”, Pillar 2 “supervisory review process” and Pillar 3 “market discipline”. The MBIL Group is required to produce its Pillar 3 disclosures in accordance with Part 8 of CRR. These requirements are supplemented by the guidelines published by the European Banking Authority’s (“EBA”). This document sets out the Pillar 3 disclosures for the MBIL Group as at 31 March 2020.

Table 1: Overview of Group Entities and Business Lines

MBIL Group Entities Description of activities MHUK1 Holding company for MBIL MBIL MBIL is a UK-incorporated bank through which the Macquarie Group conducts banking and investment activities in Europe. MBIL has established branches in Germany and Austria to support its continental European business activities.

2.0 Risk Management

All MGL subsidiaries, including the members of the MBIL Group, are subject to Macquarie’s risk management framework. This framework has been endorsed by the MBIL Board. Macquarie’s risk management framework consists of systems, structures, policies, processes, people and culture. It is through this framework that Macquarie is able to identify, measure, evaluate, monitor, report, manage and ultimately accept risk. Acceptance of risk is an integral part of Macquarie’s operations. Strong independent prudential management has been crucial to Macquarie’s success and stability over many years. The risk management framework assigns clear risk roles and responsibilities represented by the ‘three lines of defence’. Primary responsibility for risk management lies at the business level. This is the first line of defence. Part of the role of all business managers throughout Macquarie is to ensure they manage risks appropriately. The Risk Management Group (“RMG”) forms the second line of defence and independently assesses all material risks. The third line of defence, which includes internal audit, independently reviews and challenges Macquarie’s risk management controls, processes and systems. Macquarie’s core risk management principles have remained stable, and are applied by the MBIL Group as follows: – Ownership of risk at the business level MBIL business heads are responsible for identifying risks within their businesses and operations and ensuring appropriate management. Before taking decisions, clear analysis of the risks is sought to ensure those taken are consistent with Macquarie and MBIL’s risk appetite and strategy. Furthermore, any proposed new business activity in the MBIL Group will require the approval of the relevant boards. It will be subject to Macquarie’s New Product and Business Approval (“NPBA”) process. This process is an important aspect of Macquarie’s approach to risk management, providing a well-established framework for the identification and assessment of incremental risks arising. – Understanding worst case outcomes MBIL examines the consequences of worst-case outcomes and determines whether these are acceptable. This approach is adopted for all material risk types and is often achieved by stress testing. Resultant limits effectively constrain positions where the current risk appears low but potential risk exists in extreme loss events. – Requirement for an independent sign-off by risk management MBIL has a strong, independent RMG that is charged with signing off all material risk acceptance decisions. RMG's opinion is sought at an early stage in the decision-making process. The approval document submitted to senior management includes independent input from RMG on risk and return. Additionally, the incremental impact of any proposed new activity on the MBIL Group’s capital position, and hence ICAAP, will be assessed by RMG as part of this process. Where that impact is considered material, it will be reported to the MBIL Board. MBIL’s risk appetite is the degree of risk that MBIL is willing to accept in pursuit of its strategic objectives. This is detailed in the MBIL’s Board approved Risk Appetite Statement (RAS), which describes: – MBIL’s risk appetite, being the nature and amount of risk that Macquarie is willing to accept in pursuit of its strategic objectives; – the risks MBIL is not willing to accept – the processes that MBIL has established to maintain and monitor compliance with risk appetite; and – the timing and process for review of MBIL’s risk appetite. Business divisions operating through the MBIL Group are required to act in adherence with the MBIL RAS. On an annual basis, the MBIL RAS is presented to the MBIL Group Board who review the risk management arrangements for the MBIL Group, including the appropriateness of risk appetite for MBIL, which are used to embed, set and monitor risk appetite for the MBIL Group’s material risks. The MBIL Board has formally adopted the MBIL RAS. MBIL has adopted a range of principles which govern the firm’s overall approach to risk acceptance. These principles are taken into consideration by all businesses and control functions when the firm considers accepting risk in pursuit of MBIL’s strategic objectives. These principles are consistent with the wider Macquarie Group Risk Appetite principles. MBIL’s risk appetite reflects that it only has appetite to accept risks that are consistent with the following principles which apply across the Macquarie Group: ‘Risk taking must be consistent with What We Stand For and our Code of Conduct’ MBIL only has appetite for taking risks in a manner which is consistent with the core principles expressed in Macquarie’s What We Stand For and Macquarie’s Code of Conduct. Opportunity, accountability and integrity are the principles which form the basis of all our actions. MBIL seeks to establish and maintain an appropriate and effective risk culture. This is the foundation of Macquarie’s risk management framework and is critical to MBIL’s success. We demonstrate our established risk culture by the way we behave every day. Risks must be consistent with our strategic intent MBIL only has appetite for risks which are consistent with its strategic intent. Risks must be well understood All risks are comprehensively understood before being accepted. Risks are owned at the business level and all material risk acceptance decisions are independently signed off by RMG.

3 Macquarie Bank International Limited Pillar 3 Disclosures March 2020 macquarie.com 2.0 Risk Management continued

Risks must generate returns in proportion to their risk MBIL only has appetite for risks where the financial or other returns are commensurate with the risks – both expected and unexpected. A risk and return analysis is performed for all businesses and transactions, which includes an assessment of worst-case outcomes. Further detail on Macquarie’s risk management framework, including the Risk Management Group, risk reporting and risk mitigation can be found on the Macquarie Group website and in Macquarie Group Limited’s 2020 Financial Statements at: – www.macquarie.com.au/mgl/au/about-macquarie-group/investor-relations/financial-disclosure/ financial-reports/macquarie-group-limited-mqg – www.macquarie.com/uk/about/company/risk-management-at-macquarie Regular reports are produced covering compliance, prudential, credit and operational risks to facilitate the ongoing monitoring of key risks and ensuring that any breaches, or potential breaches, are escalated to the appropriate level of management. Regular reports are also produced to monitor the liquidity and capital position of the Group, including total capital ratio, leverage ratio and liquidity coverage ratio. The risk information is included in a Risk Management report which is presented at the quarterly MBIL Board meetings in order to facilitate the information flow on risk to MBIL’s management body. MBIL’s CRO is invited to attend all MBIL Board meetings. The MBIL Board also receives regular conduct risk programme updates as well as regular whistleblowing updates. MBIL’s management body provides feedback on reporting and its content on an ongoing basis and this is particularly considered when new business lines are commenced. In addition, the annual board evaluation process includes consideration of the appropriateness of Board papers. Additionally, MBIL overall risk profile is assessed through the comprehensive risk assessment process as part of the MBIL Group’s Internal Capital Adequacy Assessment Process (“ICAAP”) which is reviewed, challenged and approved by the MBIL Board at least annually as part of the business planning cycle, or following any significant change to the business strategy and/or risk profile of MBIL. The Internal capital adequacy assessment process The MBIL Group conducts an ICAAP in accordance with Article 73 of Directive 2013/36/EU of the European Parliament and of the Council as implemented by the PRA in the Internal Capital Adequacy Assessment Part of the PRA Rulebook. The ICAAP summary document sets out the means by which the MBIL Group identifies and manages its key risks, and also detailing the required level of regulatory capital for the MBIL Group to meet its regulatory minimum (and internal target) requirements over a three-year forecast period in both base and stress cases. Key features of the MBIL Group ICAAP include - – comprehensive risk assessment process; – internal assessment of capital adequacy; – financial and capital forecasts; – business strategy and growth plans; – the impact of a three years downturn stress scenario; – the impact of reverse stress scenarios; and – wind down analysis. The MBIL Group’s ICAAP summary document is reviewed, challenged and approved by the MBIL Board. The core components of the ICAAP, including risk identification, measurement and capital assessment and stress and scenario testing are integrated into the key risk management, strategic and decision making processes of MBIL.

3.0 Remuneration

Please refer to MBIL’s Pillar 3 Remuneration Disclosures for information on MBIL’s remuneration policy and practices. www.macquarie.com/au/about/investors/regulatory-disclosures

5 Macquarie Bank International Limited Pillar 3 Disclosures March 2020 macquarie.com 4.0 Governance Arrangements

Details of the Directors of MBIL as at 31 March 2020 are set out below: Number of total directorship Name Role Background appointments George Alford Non-Executive George Alford joined the MBI Board of Directors in February 2018 2 Director and as a Non-Executive Director. Chair George has over 40 years’ experience in financial services in both executive and non-executive roles, including at Kleinwort Benson Group, Bank of England (formerly Financial Services Authority) and Investec Bank Plc.

Peter Kearney Non-Executive Peter joined the MBI Board in December 2019. 5 Director Peter is a Certified Bank Director and a Certified Investment Fund Director, currently a member of the Board of Link Asset Services Ireland (the largest regulated Credit Servicing Firm in Ireland) where he is Chair of the Board since January 2019. Peter serves as Independent Non-Executive Director (and Chair of Audit Committee) of Macquarie Bank Europe DAC and of Macquarie Bank International Limited. He also serves as Independent Non-Executive Director (and Chair of Audit Committee) at Susquehanna Securities International Limited and Starling International Bank. At executive level, he held a number of senior roles including CEO, CFO and COO at Banks including permanent TSB, Capmark Bank Europe plc, Bankgesellschaft Berlin (Ireland) plc and IBRC (in special liquidation). Peter also recently worked with the Central Bank of Ireland (Markets Policy Division) on the transposition into Irish law of the Markets in Financial Instruments Directive II (MiFID II) and with the European Banking Authority on formulating revised prudential requirements for Investment Firms in Europe. A Chartered Accountant educated at honours degree and postgraduate levels, Peter holds postgraduate diplomas in Financial Services Law and Directors’ Duties and Responsibilities.

Phil Nash Executive Phil Nash joined the MBI Board of Directors in December 2019. 11 Director Phil joined Macquarie in 2016 and is the EMEA Chief Financial Officer. Phil previously held senior leadership positions at Bank of America Merrill Lynch, ABN AMRO and Barclays

Paul Plewman Executive Paul Plewman joined the MBI Board of Directors in July 2007. 13 Director Paul joined Macquarie in 2005 and is the Head of Commodities and Global Markets (“CGM”) EMEA. Paul holds a BA in Computer Engineering and Mathematics and previously held senior leadership positions at Investec and the Standard Bank Group.

As per MBIL’s Board Charter, the minimum number of directors required is four and the majority of directors are required to be a resident in the United Kingdom. The members of the MBIL Board are the CEO EMEA Macquarie Group & Head of Commodities and Global Markets, EMEA; CFO EMEA Macquarie Group and two independent non-executive directors MBIL is not required to have separate risk or remuneration committees. The Macquarie Group has a Nominee Directors & Officers Policy to ensure that only persons with sufficient seniority and experience are nominated to the Boards of Macquarie entities with appropriate consideration of the relevant regulatory and statutory requirements. In addition, Macquarie’s Suitability and Diversity Guidelines as formulated for management bodies of entities that are subject to the requirements of the European Securities and Markets Authority (“ESMA”) and EBA joint guidelines on the assessment of the suitability of members of the management body and key function holders have been adopted by the MBIL Board (the

4.0 Governance Arrangements continued

“S&D Guidelines”). These S&D Guidelines provide that directors of the MBIL Group should be suitable at all times and should be reassessed periodically. Suitability in this context includes, but is not limited to, the following criteria: – Being of good repute; – An ability to act with honesty, integrity and independence of mind; – Overseeing, monitoring and challenging management’s decision-making effectively; – The possession of sufficient knowledge, skills and experience to perform their duties; – Disclosing any financial or non-financial interests that could create potential conflicts of interest; – Being able to commit sufficient time to perform management body functions in a supervisory context; and – Not being restricted from taking up the position by any regulatory requirement. The MBIL Group selects its management body members in accordance with the S&D Guidelines and as per the global workforce diversity policy for the Macquarie Group. The Workforce Diversity Policy is intended to define Macquarie’s commitment to workforce diversity and the structures in place to ensure it is realised. The principles contained in Macquarie’s Workforce Diversity policy are available at: https://www.macquarie.com/uk/about/company/diversity-and- inclusion/ Macquarie Group’s governance procedures are designed to facilitate constructive challenge and debate amongst the management body, based on a range of perspectives and viewpoints. However, in order to further encourage diversity of opinion and debate, avoid group-thinking and to promote sound governance outcomes diversity aspects including but not limited to the following will be taken into account by the management body of the MBIL Group when changing and / or assessing their composition, in accordance with the S&D Guidelines: – Gender; – Educational and professional background; – Age; – Ethnicity; – Geographical Provenance; – Professional experience; and – Tenure and personal background. When recruiting Directors for the MBIL Board, the above-mentioned suitability and diversity aspects, as well as Macquarie’s wider policy and risk management framework requirements, will be taken into account, whether for executive or non- executive appointments. It is acknowledged that executive members of management bodies are typically nominated by virtue of their executive duties and in accordance with the requirements of the Nominee Directors & Officers Policy. Management body suitability and diversity is therefore closely linked to the suitability and diversity of senior management.

7 Macquarie Bank International Limited Pillar 3 Disclosures March 2020 macquarie.com 5.0 Capital Adequacy continued

5.1 Capital Resources and Key Capital Ratios The MBIL Group’s regulatory capital resources are solely in the form of CET1 capital instruments, comprising ordinary share capital, equity contribution and reserves, less retained losses and intangibles. CET1 capital is to only account for externally verified (audited) retained earnings, and foreseeable dividend payments. The MBIL Group’s capital ratios are calculated in accordance with CRR Article 92 – Capital Resources divided by the Total Risk Exposure Amount (“TREA”). Given that the MBIL Group’s Capital Resources are solely in the form of CET1 capital instruments, its CET1 capital ratio, Tier 1 capital ratios and Total capital ratios are equivalent. Under CRD IV, the capital requirements under CRR Article 92 are supplemented by the following – – Capital Conservation Buffer (“CCoB”) - The CCoB is a buffer for all firms that can be used to absorb losses while avoiding breaching minimum capital requirements. The CCoB is to be comprised entirely of CET1 and was phased in at 0.625% of the RWAs each year from 1 January 2016, until it was fully phased in at 2.5% of the RWAs from 1 January 2019. – Countercyclical Capital Buffer (“CCyB”) - The CCyB can be varied over time. The primary objective of the countercyclical capital buffer is to ensure that the banking system is able to withstand stress without restricting essential services, such as the supply of credit, to the real economy. Each firm’s CCyB depends on its weighted average CCyB rate determined according to the CCyB rates that apply in the jurisdictions in which the bank has relevant exposures. – Total Capital Requirement under Pillar 2A – This is assessed as a part of the ICAAP and PRA’s periodic supervisory review. Pillar 2A capital requirements capture the risks that are not assessed to be adequately covered under the Pillar 1 capital requirements. Pillar 1 and Pillar 2A capital requirements together constitute the ICG. – Pillar 2B or the PRA Buffer - In addition to the Pillar 2A capital requirements, the MBIL group may be required to hold Pillar 2B capital requirements or the PRA Buffer to absorb losses in a stressed scenario. 5.2 Minimum Regulatory Capital Ratios The MBIL Group is at all times required to maintain a Total Capital Ratio (“TCR”) of 10.17%. Details on the approach and methodology applied for the calculation of the risk methodologies is provided below and in Further subsequent sections. Credit Risk: – The MBIL Group calculates its Pillar 1 capital requirements for credit risk exposures under the standardised approach, per Part Three, Title II, Chapter 2 of the CRR. – The MBIL Group calculates its Pillar 1 capital requirements for counterparty credit risk exposures under the mark-to- market approach, per Article 274 of the CRR; and exposures to central counterparties per Part Three, Title II, Chapter 6, Section 9 of the CRR. – The MBIL Group currently holds no securitisation exposures. – Where forms of credit risk mitigation are applied to the MBIL Group’s credit and counterparty risk exposures, this is done in accordance with Part Three, Title II, Chapter 4 of the CRR. Market Risk: The MBIL Group calculates its Pillar 1 capital requirements for market risk per Part Three, Title IV of the CRR. Operational Risk: The MBIL Group calculates its Pillar 1 capital requirements for operational risk under the Basic Indicator Approach ("BIA"), per Part Three, Title III, Chapter 2 of the CRR. Settlement Risk: The MBIL Group calculates its Pillar 1 capital requirements for settlement risk per Part Three, Title V of the CRR. CVA Risk: The MBIL Group calculates its Pillar 1 capital requirements for CVA risk under the standardised method, per Part Three, Title VI of the CRR (noting the exclusions from the scope of the CVA risk Pillar 1 capital calculating in Article 382(4)). Large Exposures in the Trading Book: In accordance with Article 395(5) of the CRR, the MBIL group will maintain an additional capital requirement for any trading book excess to a client or group of connected clients which exceeds 25% of the MBIL Group’s eligible capital. This additional capital requirement is calculated in accordance with Articles 397 and 398 of the CRR.

5.0 Capital Adequacy continued

5.3 Capital Requirements The MBIL Group calculates credit risk, counterparty credit risk and market risk using the standardised approaches, and operational risk under the basic indicator approach, as laid out under the CRD IV and CRR rules. Further details on the approach and methodology applied for the calculation of the risk methodologies is provided in the following sections. As at 31 March 2020, the total capital ratio for the MBIL Group was 28.5% which is well above the regulatory minimum required by PRA, and the MBIL Board imposed internal minimum requirement. Table 2: Capital resources and requirements

MBIL Group MBIL MBIL Group MBIL 31 March 2020 31 March 2020 31 March 2019 31 March 2019 £'m £'m £'m £'m Capital resources Equity shares 330.0 330.0 330.0 330.0 Equity contribution 1.1 1.1 1.2 1.2 from parent Profit and loss account 29.4 29.9 10.5 11.3 and other reserves Total Common Equity 360.5 361.0 341.7 342.6 Tier 1 Capital (CET1)

Deductions from CET1 capital Fair value gains and (2.0) (2.0) - - losses arising from the institution's own credit risk related to derivative liabilities Prudent Valuation (5.1) (5.1) (1.6) (1.6) Value adjustments Deferred Tax Assets (0.0) (0.0) (0.6) (0.6) CET1 capital 353.3 353.8 339.5 340.4

Tier 2 Capital General/collective - - - - provisions Total Tier 2 capital - - - - Total Capital 353.3 353.8 339.5 340.4 Resources

Capital resources requirement Credit risk1 90.5 90.5 54.2 54.2

Concentration risk 2.0 2.0

Market risk - Forex PRR 1.0 1.0 0.6 0.6 Credit valuation 2.1 2.1 1.9 1.9 adjustment Operational risk 3.6 2.6 3.7 1.7 Total Pillar 1 99.3 98.3 60.5 58.4 requirement Tier 1 Capital Ratio 28.5% 28.8% 44.9% 46.6% Total Capital Ratio 28.5% 28.8% 44.9% 46.6% 1 Credit risk movements from March 2019 to March 2020 are driven by the growth in OTC and Future Derivatives.

9 Macquarie Bank International Limited Pillar 3 Disclosures March 2020 macquarie.com 5.0 Capital Adequacy continued

Table 3: Reconciliation between balance sheet and Pillar 3 disclosure MBIL Group MBIL MBIL Group MBIL 31 March 2020 31 March 2020 31 March 2019 31 March 2019 £'m £'m £'m £'m Total Shareholders’ Funds per balance sheet 360.5 361.0 341.7 342.6 Less: Regulatory deductions (7.2) (7.2) (2.2) (2.2) Less: Reserves not eligible to be included in regulatory capital - - - - Add: General/collective provisions - - - - 353.3 353.8 339.5 340.4

Note that any figure labelled as “-“ throughout this document relates to a zero balance, whereas figures labelled as £0.0m relate to non-zero balances which round to £0.0m (to the nearest hundred thousand).

6.0 Credit Risk Management

6.1 Credit and Counterparty Risk Framework As a member of the Macquarie Group, the MBIL Group is subject to a global framework for the approval, management and reporting of credit risk exposures such as cash balances at third party banks. This includes the assessment of credit risk using Macquarie’s economic capital model that is consistent with the advanced approaches under Basel III. The MBIL Board provides oversight over the risk management framework within the MBIL Group. RMG Credit as a Division of the Risk Management Group assists the MBIL Board in establishing and maintaining a robust framework for the management of credit risks within the entity. The Credit Risk Management Framework consists of the structures, people, policies, procedures, systems and controls that support the prudent management of credit risks. The MBIL Group has put in place a separate credit policy, which details the particular structures, processes and approvals required for transacting through the MBIL Group. This policy is reviewed and approved by the MBIL Board on an annual basis. Under the MBIL Group credit risk policy, it may transfer credit or counterparty credit risk to MBL on lending and derivative transaction through risk transfer arrangements. The MBIL Group enforces a strict ‘no limit, no dealing’ principle. All proposed transactions are analysed and approved by individuals with discretion authority before they can proceed. Each proposal to incur a material credit exposure is assessed independently by RMG Credit. This assessment includes a comprehensive review of the creditworthiness of the counterparty and related entities, key risks and mitigants, and downside case scenarios. The assessment confirms consistency with risk appetite and portfolio limits. For wholesale credit exposures, under the requirements of the Macquarie Group Credit Policy, the customer creditworthiness is expressed through the probability of default (MQ rating) and loss given default (LGD) which are the main inputs into economic capital and return on economic capital calculations. Ratings and LGDs are derived using standardised rating scorecards that are tailored to specific types of counterparties to ensure comparability of creditworthiness. For regulatory capital calculations, under the CRR standardised approach for credit risk measurement, the MBIL Group is required to use ratings from external ratings agencies. Rating agencies (ECAIs) used by Macquarie are Moody’s, Standard & Poor’s and Fitch. The counterparty credit risk mark-to-market method under the CRR is used to measure exposure values for counterparty credit risk. Credit risk (including counterparty credit risk) arises on the cash balances that the MBIL Group has placed internally with the wider Macquarie group entities and external banks, and also exposures on account of lending and trading transactions arising from business activities. RMG Credit monitors the performance of counterparties on an ongoing basis to ensure any deterioration is identified and reflected in an adjustment to limits, MQ rating, LGD and other customer attributes. This is done, as applicable to the counterparty, through monitoring of covenant compliance and review and analysis of a variety of sources including publicly available information specific to the counterparty (such as share price and CDS spread movements), annual reports, financial statements, media releases, the macroeconomic environment, industry variables, regulatory changes, market updates, and private information received from the counterparty. RMG Credit also maintains close contact with the relevant businesses and in some instances, direct contact with the client. At a minimum, full counterparty reviews are completed every 12 months. Further, all loans are subject to recurring review and assessment for possible impairment. Provisions for loan losses are based on an incurred loss model that recognises a provision where there is objective evidence of impairment at each balance sheet date, and is calculated based on the discounted values of expected future cash flows. Specific provisions are recognised where specific impairment is identified. Facilities for which no individually assessed provisions are required are assessed collectively for impairment and are representative of losses that have been incurred but not yet identified. General loss provisions made on loans that are not under the risk transfer arrangements are considered as general loan-loss reserves held against future, presently unidentified losses. General loss provisions are freely available to meet losses which subsequently materialise and therefore qualify for inclusion within Tier 2. Additional details on impaired exposures, past due exposures and provisioning is set out in the MBIL group financial accounts on the Companies House website, notes 27 and 11 respectively. The MBIL Group did not have any specific provisions as at 31 March 2020 Further information about the MBIL Group’s approach to credit risk, including the approach to impairments and provisions, can be found in the Macquarie Group’s Annual Report and on the Macquarie website (see Section 1). As at 31 March 2020, the MBIL Group’s credit risk capital requirement amounted to £90.5m. This includes counterparty credit risk on trading book exposures of £86.3m. 6.2 Concentration Risk Credit concentration risk is defined as the risk of losses arising as a result of concentrations of exposures due to imperfect diversification. This could arise from having exposures to a few relatively large exposures relative to the rest of the portfolio and could exist due to single name exposures, geographies or sectors. The MBIL Group will address credit concentration risk by looking at single name, sectoral and geographical credit concentration across all exposures, including exposures and

11 Macquarie Bank International Limited Pillar 3 Disclosures March 2020 macquarie.com 6.0 Credit Risk Management continued

facilities across the trading and banking book. Intragroup exposures are considered within the MBIL Group’s concentration risk assessment. Concentration risk arises from the MBIL Group’s lending and trading activities. As the MBIL Group’s exposures are predominately to MBL through the risk transfer arrangements, it is considered to have a concentration risk exposure to MBL. The MBIL’s Group’s exposures to MBL are managed within the large exposure limits. Any excess trading book exposures over these limits will attract additional concentration risk capital in accordance with CRR Article 397. As at 31 March 2020, the MBIL Group had a concentration risk capital requirements of £2.0m. 6.3 Collateral Valuation The MBIL Group holds both cash and non-cash collateral to mitigate risks in individual facilities. This usually takes the form of general or specific security agreements over assets, insurance arrangements or guarantees or cross- collateralisation arrangements involving third parties. Where estimated future flows of income and principal reflect collateral held against potential credit losses, the assessment of that collateral and in particular the valuation of assets taken as security is significant for the measurement of impaired assets, provisions and capital. The risk characteristics of the assets to be pledged are assessed, taking into account (amongst other considerations) volatility, liquidity and the ability to realise the assets in an enforcement scenario, to determine appropriate advance rates for the particular facility to ensure minimisation of potential losses. The MBIL Group’s approach to valuing collateral is described in the Macquarie Valuation Policy. 6.4 Wrong Way Risk Wrong way risk is defined as when an exposure to a counterparty is adversely correlated with the credit quality of that counterparty. There are two types of wrong way risk, specific and general. Specific refers to scenarios where an exposure to a counterparty increases as the probability of default of the counterparty also increases. General wrong way risk can arise when a transactional security is correlated to the underlying creditworthiness of the counterparty to the transaction, though given that cash collateral makes up the vast majority of collateral received under trading agreements this instance of wrong way risk should not arise. The most likely instance of how wrong way risk might arise in the MBIL Group portfolio would be for an MBIL Group entity to enter into a transaction with a commodity producer where exposure would increase as the underlying commodity price declined – for example if an oil producer were to sell put protection on an oil underlying. The MBIL Group has very little appetite for wrong way risk. It is the responsibility of front office staff not to enter into wrong way risk transactions and credit approval is not granted for any structured transaction or ongoing trading activity involving wrong way risk. Daily sensitivity analysis is conducted by RMG on derivative positions at a client-level to identify any instances of positions containing either wrong way risk or material non-linear relationships between an underlying asset market price and the MBIL Group’s credit exposure. 6.5 Netting Netting is to be implemented for a counterparty only when appropriate documentation governing transactions between the MBIL Group entity and the counterparty has been entered into, the relevant divisional legal team has confirmed that it is legally effective to net with that counterparty, and applicable prudential standards applying to netting have been complied with. Netting agreements must meet the requirements of the Macquarie Group Netting Policy, including being recorded in an authorised Macquarie system.

7.0 Market Risk Management

7.1 Sources of Market Risk Market risk is the risk of loss associated with changes in the volatility or prices in markets to which the MBIL Group is exposed. The MBIL Group is potentially exposed to market risks in each of the following major markets: – Commodity and energy markets: changes in the price and volatility of base metals, agricultural commodities and energy products; – Foreign exchange and bullion markets: changes in spot and forward exchange rates and bullion prices and the volatility of exchange rates and bullion prices; and – Interest rates and debt securities: changes in the level, shape and volatility of yield curves, the basis between different debt securities and derivatives and credit margins. The MBIL Group is also potentially exposed to the correlation risk of market prices and rates within and across markets. The MBIL Group may also incur small levels of foreign exchange risk on cash balances denominated in foreign currencies. 7.2 Market Risk Management No traded market risk is retained in MBIL. Trades executed by the MBIL Group are subject to Risk Transfer Arrangements (RTAs) whereby for each client trade, an equal and offsetting matching transaction is entered into, on identical terms, between the MBIL Group and MBL(LB). This has the effect of giving MBL the market risk arising from the client trade, leaving the MBIL Group with no market risk but with a credit risk on MBL. As a member of the Macquarie Group, the MBIL Group is also subject to a global framework for the approval, management and reporting of market risk exposures. As part of MBL’s APRA-regulated banking group, any positions originating from the MBIL Group are captured within the VaR model. The MBIL Group calculates its market risk capital requirement using the standardised approach as laid out under the CRR. As at 31 March 2020, the MBIL Group’s market risk capital requirement amounted to £1.0m. This relates to balances denominated in foreign currencies (foreign currency position risk requirement). Table 4: Market risk under the standardised approach £ 'm Risk Weighted Assets Capital requirements Outright products Interest rate risk (general and specific) Equity risk (general and specific) Foreign exchange risk 12.4 1.0 Commodity risk Total 12.4 1.0

7.3 Interest rate risk in the banking book (“IRRBB”) IRRBB is the risk of loss in earnings or in the economic value of banking book items as a consequence of movements in interest rates. The MBIL Group’s primary exposure to IRRBB is generated mainly from corporate lending activities within CGM. The MBIL Group is subject to MBL’s management and reporting framework for interest rate risk. MBL’s approach is that lending areas do not take outright interest rate risk and that, wherever possible, interest rate risks arising in the MBIL Group are transferred to MBL via interest rate swaps and managed within market risk limits. Some residual interest rate risks remain in the Non-Trading book as an unavoidable consequence of doing business. These risks are managed through limits, set by RMG Market Risk, against specific portfolios or risk types. To the extent that any interest rate exposures remain in MBIL, the MBIL Group calculates its exposure to both Economic Risk and Earnings at Risk. As at 31 March 2020, the resulting exposure from this assessment remains immaterial.

13 Macquarie Bank International Limited Pillar 3 Disclosures March 2020 macquarie.com 8.0 Operational Risk Management

8.1 Operational Risk Framework Operational risk is defined as the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. The MBIL Group calculates its Pillar 1 capital requirements for operational risk under the Basic Indicator Approach (“BIA”), per Part Three, Title III, Chapter 2 of the CRR. The MBIL Group uses the last three yearly observations from audited financial statements to calculate the average relevant indicator over this period per Article 316 of the CRR. The average of the relevant indicator is then multiplied by 15% to calculate the capital requirement for operational risk. The Pillar 1 capital requirements for Operational Risk as at 31 March 2020 were £3.6m The relevant indicator is calculated as the sum of the following: – Interest receivable and similar income – Interest payable and similar charges – Income from shares and other variable/ fixed-yield securities – Commissions/ fees receivable – Commissions/ fees payable – Net profit or net loss on financial operations – Other operating income MBIL’s Operational Risk Management Framework (ORMF) is designed to identify, assess and manage operational risks within the organisation. The key objectives of the framework are: – Risk identification, analysis and acceptance. – Execution and monitoring of risk management practices. – Reporting and escalation of risk information on a routine and exception basis. The Framework incorporates six primary pillars in the management of operational risk: – Operational Risk Policies Policies and guidelines are established to support the management of operational risks. – NPBA process A robust change management process to ensure operational risks inherent in new products, businesses, processes or systems and major organisational projects are identified, addressed and managed prior to implementation. – Incident Reporting and Escalation Operational risk incidents are analysed to identify lessons learned and ensure appropriate actions have been taken towards the relevant risk. – Risk and Control Self-Assessment (“RCSA”) and Control Assurance The RCSA is a formal process of risk self-assessment, designed to identify operational and compliance risks that exist in the business, and to record and assess the performance of the controls in place to mitigate those risks. Control assurance is a proactive investigation to provide comfort that critical controls are adequately designed and operating effectively. – Operational Risk Capital Framework MBIL uses the Basic Indicator Approach (BIA) to calculate a Pillar 1 Operational Risk Capital Requirement. To further assess the Operational Risk Capital requirements (under Pillar 2A), MBIL uses a scenario-based methodology, in which judgement is applied to predict events that occur in the future. Its framework for managing operational risk capital have been developed to establish the level of capital required to be held for operational risk exposures and as a tool to encourage appropriate management of Macquarie’s day-to-day operational risk. – Business aligned Operational Risk Management Business Operational Risk Managers (BORMs) are appointed by the Macquarie business division heads to be their representative on operational risk management matters, and act as their delegate in ensuring that operational risk is addressed appropriately within the Group. 8.2 Structure and Organisation of the Operational Risk Function Most Macquarie operational risk staff operate at the business level. These BORMs are responsible for embedding operational risk management within their business. They report directly to the relevant business and have a dotted reporting line to the Head of RMG Operational Risk. RMG Operational Risk is a division of RMG and is managed separately from other risk disciplines within RMG. RMG Operational Risk is responsible for ensuring the ORMF remains appropriate and that skilled resources are available to support it. It is also responsible for Macquarie’s operational risk capital measurement methodology.

9.0 Exposures Classification and Credit Risk Mitigation

The MBIL Group has put in place risk transfer arrangements with MBL, which provide the capacity to transfer credit risk on a discretionary basis. These arrangements changed in FY19 such that a large portion of counterparty credit risk is now retained in the MBIL Group where it was previously transferred to MBL. The MBIL Group’s credit exposures are reviewed on a regular basis giving consideration to individual, sectoral and geographic concentration thresholds outlined in the MBL Credit Policy and action may be taken to transfer risk on individual obligor exposures where it is deemed appropriate. The external credit ratings of the group’s exposures to corporates, institutions and sovereigns have been mapped to credit quality steps to determine the appropriate risk weights according to EBA guidance. The MBIL Group ensures that the credit risk mitigation techniques used (such as netting, taking cash collateral and guarantees) are legally enforceable through taking appropriate legal opinions for the jurisdictions in which it does business. The MBIL Group utilises the financial collateral comprehensive method for the calculation of the effects of credit risk mitigation. In valuing financial collateral under this method, volatility adjustments are applied to the market value of collateral in order to take account of price volatility. Where collateral is denominated in a currency that differs from the underlying exposure, an adjustment reflecting foreign currency volatility is also made. The MBIL Group complies with the Macquarie Group policy with regards to on- and off-balance sheet netting arrangements. Table 5: MBIL Group exposures pre and post credit risk mitigation and risk weighted exposures by exposure classes and risk weights as at 31 March 2020 Sum of Net exposure after Sum of CRM Sum of Fully Sum of Exposure pre- substitution adjusted Exposure Sum of credit effects pre exposure post-credit Risk risk mitigation conversion value risk mitigation Weighted Risk pre-CCF1 factors pre-CCF post-CCF Exposure Exposure Class Weight £'m £'m £'m £'m £'m Central governments or 0% 0.0 0.0 0.0 0.0 - central banks 100% 0.7 0.7 0.7 0.7 0.7 250%2 0.3 0.3 0.3 0.3 0.7 Claims on institutions 20% 321.5 321.5 49.0 49.0 9.8 and corporate with a 50% 59.3 60.3 60.3 60.3 30.2 short-term credit assessment 100% 1.4 1.4 - - - 150% - - - - Corporates 50% 23.4 23.4 23.4 23.4 11.7 100% 1,608.3 1,443.1 1,065.4 991.6 991.6 150% 13.7 13.7 7.1 7.1 10.7 Institutions 2% 876.6 876.6 876.6 876.6 17.5 4% 38.1 38.1 38.1 38.1 1.5 20% 49.6 49.6 38.0 38.0 7.6 50% 307.3 471.5 65.9 65.9 32.9 100% 16.3 16.3 13.3 13.3 13.3 Other items 100% 3.3 3.3 3.3 3.3 3.3

Grand Total3 3,319.7 3,319.7 2,241.4 2,167.6 1,131.6

1CCF is the abbreviation for Credit Conversion Factor. 2Central Government exposures risk weighted at 250% solely relate to deferred tax assets 3Credit risk number is excluding £0.1m risk exposure amount for contributions to the default fund of a CCP

15 Macquarie Bank International Limited Pillar 3 Disclosures March 2020 macquarie.com 9.0 Exposures Classification and Credit Risk Mitigation continued

Table 6: MBIL Exposures pre and post credit risk mitigation and risk weighted exposures by exposure classes and risk weights as at 31 March 2020 Sum of Net exposure Sum of after CRM Sum of Fully Sum of Exposure pre- substitution adjusted Exposure Sum of credit effects pre exposure post-credit Risk risk mitigation conversion value pre- risk mitigation Weighted Risk pre-CCF factors CCF post-CCF Exposure Exposure Class Weight £'m £'m £'m £'m £'m Central governments or 0% 0.0 0.0 0.0 0.0 - central banks 100% 0.7 0.7 0.7 0.7 0.7 250% 0.3 0.3 0.3 0.3 0.7 Claims on institutions 20% 321.5 321.5 49.0 49.0 9.8 and corporate with a 50% 59.3 60.3 60.3 60.3 30.2 short-term credit assessment 100% 1.4 1.4 - - - 150% - - - - Corporate 50% 23.4 23.4 23.4 23.4 11.7 100% 1,608.3 1,443.1 1,065.4 991.6 991.6 150% 13.7 13.7 7.1 7.1 10.7 Institutions 2% 876.6 876.6 876.6 876.6 17.5 4% 38.1 38.1 38.1 38.1 1.5 20% 49.6 49.6 38.0 38.0 7.6 50% 307.3 471.5 65.9 65.9 32.9 100% 16.3 16.3 13.3 13.3 13.3 Other items 100% 3.3 3.3 3.3 3.3 3.3

Grand Total 3,319.7 3,319.7 2,241.4 2,167.6 1,131.6

9.0 Exposures Classification and Credit Risk Mitigation continued

Table 7: MBIL Group exposures pre and post credit risk mitigation and risk weighted exposures by exposure classes and risk weights as at 31 March 2019 Sum of Net exposure after Sum of CRM Sum of Fully Sum of Exposure pre- substitution adjusted Exposure Sum of credit effects pre exposure post-credit Risk risk mitigation conversion value risk mitigation Weighted Risk pre-CCF factors pre-CCF post-CCF Exposure Exposure Class Weight £'m £'m £'m £'m £'m Central governments or 0% 0.4 0.4 0.4 0.4 - central banks 250% 1.5 1.5 1.5 1.5 3.7 Claims on institutions 20% 195.8 196.0 151.3 151.3 30.3 and corporate with a 50% 128.8 128.8 66.6 66.6 33.3 short-term credit assessment 100% - - - - -

150% Corporates 50% 6.2 6.2 6.2 6.2 3.1 100% 878.9 870.1 552.2 504.0 504.0 150% 19.4 19.4 15.8 14.8 22.2 Institutions 2% 703.8 703.8 703.8 703.8 14.1 20% 137.2 135.8 42.3 42.3 8.5 50% 273.9 286.2 83.4 83.4 41.7 100% 7.0 4.5 3.2 3.2 3.2 Other items 100% 12.7 12.7 12.7 12.7 12.7

Grand Total 2,365.5 2,365.5 1,639.3 1,590.2 * 676.7

CCF is the abbreviation for Credit Conversion Factor. *Credit risk number is excluding £0.6m risk exposure amount for contributions to the default fund of a CCP

17 Macquarie Bank International Limited Pillar 3 Disclosures March 2020 macquarie.com 9.0 Exposures Classification and Credit Risk Mitigation continued

Table 8: MBIL Exposures pre and post credit risk mitigation and risk weighted exposures by exposure classes and risk weights as at 31 March 2019 Sum of Net exposure Sum of after CRM Sum of Fully Sum of Exposure pre- substitution adjusted Exposure Sum of credit effects pre exposure post-credit Risk risk mitigation conversion value pre- risk mitigation Weighted Risk pre-CCF factors CCF post-CCF Exposure Exposure Class Weight £'m £'m £'m £'m £'m Central governments or 0% 0.3 0.3 0.3 0.3 - central banks 250% 1.5 1.5 1.5 1.5 3.7 Claims on institutions 20% 195.8 196.0 151.3 151.3 30.3 and corporate with a 50% 128.8 128.8 66.6 66.6 33.3 short-term credit assessment 100% - - - - -

Grand Total 2,365.4 2,365.4 1,639.2 1,590.1 676.7

9.0 Exposures Classification and Credit Risk Mitigation continued

Table 9: Geographic and Exposure Class Breakdown of Exposures and Credit Risk

31 March 2020 31 March 2020 31 March 2019 31 March 2019 MHUK MBIL MHUK MBIL

Exposure Exposure Exposure Exposure pre- pre-credit pre-credit pre-credit credit risk risk risk risk mitigation pre- Credit mitigation Credit mitigation Credit mitigation Credit Geographic CCF Risk pre-CCF Risk pre-CCF Risk pre-CCF Risk Exposure Class Location £’m £’m £’m £’m £’m £’m £’m £’m

Claims on Asia institutions and Australia 109.5 2.4 109.5 2.4 158.8 2.9 158.8 2.9 corporate with a short-term credit Europe 272.8 0.8 272.8 0.8 165.8 2.2 165.8 2.2 assessment Corporates Asia 1.5 0.1 1.5 0.1 0.3 0.0 0.3 0.0 Australia 0.4 0.0 0.4 0.0 0.3 0.0 0.3 0.0 Europe 1,564.5 74.3 1,564.4 74.3 882.7 42.3 882.7 42.3 America 56.8 3.4 56.8 3.4 0.1 0.0 0.1 0.0 Pacific 22.2 - 22.2 - 21.2 - 21.2 - Central Europe 0.9 0.1 0.9 0.1 1.8 0.3 1.8 0.3 governments Institutions Africa 2.5 - 2.5 ------Asia - - - - 2.9 0.1 2.9 0.1 Australia 223.4 1.7 223.4 1.7 202.3 0.5 202.3 0.5 Europe 974.3 3.7 974.3 3.7 772.0 2.9 772.0 2.9 America 87.6 3.8 87.6 3.8 144.7 1.9 144.7 1.9 Other Items Asia - - - - Americas 2.3 0.2 2.3 0.2 Europe 3.3 0.3 3.3 0.3 10.4 0.8 10.4 0.8 Total 3,319.7 90.5 3,319.7 90.5 2,371.2 2,365.5 54.1 2,365.4

19 Macquarie Bank International Limited Pillar 3 Disclosures March 2020 macquarie.com 9.0 Exposures Classification and Credit Risk Mitigation continued

Table 10: MBIL Group exposures by residual maturity as at 31 March 2020 Exposure post-credit risk 0-3 3-6 6-12 1-5 > 5 mitigation post-CCF (£'m) Months Months Months Years Years Total Exposure class ------Central governments 0.9 - - - - 0.9 Claims on institutions and corporate 108.4 0.6 0.1 0.3 - 109.3 with a short-term credit assessment Corporates 146.0 101.7 292.0 556.3 - 1,096.0 Institutions 640.8 5.8 350.9 34.3 - 1,031.8 Other items 3.3 - - - - 3.3 Total 899.4 108.2 642.9 590.9 - 2,241.4

Table 11: MBIL exposures by residual maturity as at 31 March 2020 Exposure post-credit risk 0-3 3-6 6-12 1-5 > 5 mitigation post-CCF (£'m) Months Months Months Years Years Total Exposure class ------Central governments 0.9 - - - - 0.9 Claims on institutions and corporate 108.4 0.6 0.1 0.3 - 109.3 with a short-term credit assessment Corporates 146.0 101.7 292.0 556.3 - 1,096.0 Institutions 640.8 5.8 350.9 34.3 - 1,031.8 Other items 3.3 - - - - 3.3

Total 899.4 108.2 642.9 590.9 - 2,241.4

Table 12: MBIL Group exposures by residual maturity as at 31 March 2019 Exposure post-credit risk 0-3 3-6 6-12 1-5 > 5 mitigation post-CCF (£'m) Months Months Months Years Years Total Exposure class ------Central governments 1.8 - - - - 1.8 Claims on institutions and corporate 204.1 - 13.6 0.2 - 217.9 with a short-term credit assessment Corporates 158.4 36.0 148.6 182.0 - 525.0 Institutions 827.0 0.1 4.1 1.5 - 832.7 Other items 12.0 0.7 0.0 0.0 - 12.7 Total 1,203.3 36.8 166.4 183.7 - 1,590.1

Table 13: MBIL exposures by residual maturity as at 31 March 2019 Exposure post-credit risk 0-3 3-6 6-12 1-5 > 5 mitigation post-CCF (£'m) Months Months Months Years Years Total Exposure class ------Central governments 1.7 - - - - 1.8 Claims on institutions and corporate 204.1 - 13.6 0.2 - 217.9 with a short-term credit assessment Corporates 158.4 36.0 148.6 182.0 - 525.0 Institutions 827.0 0.1 4.1 1.5 - 832.7 Other items 12.0 0.7 0.0 0.0 - 12.7 Total 1,203.2 36.8 166.4 183.7 - 1,590.1

9.0 Exposures Classification and Credit Risk Mitigation continued

Table 14: Post-CRM Post-CCF Exposure by Industry Type MBIL Group MBIL MBIL Group MBIL 31-Mar-20 31-Mar-20 31-Mar-19 31-Mar-19 Industry Type £'m £'m £'m £'m Accommodation and Food Services 2.5 2.5 0.3 0.3 Agriculture, Hunting and Forestry, Fishing 18.3 18.3 17.2 17.2 Business Services 8.8 8.8 13.8 13.8 Construction 21.5 21.5 33.8 33.8 Cultural and Recreational Services - 0.0 0.0 Electricity, Gas, Water 275.3 275.3 134.3 134.3 Finance, Property, & Business Services 1,244.8 1,244.8 1,131.5 1,131.5 Manufacturing 307.4 307.4 141.1 141.1 Mining 0.1 0.1 1.0 1.0 Transport and Storage 257.1 257.1 71.0 71.0 Wholesale &Retail Trades 13.5 13.5 23.7 23.7 Others 92.2 92.2 22.1 22.1 Central Government - -0.1 0.4 0.3 Total 2,241.4 2,241.4 1,590.2 1,590.1

Table 15: Exposure post credit risk mitigation and average exposure MBIL Group MBI 31 March 2020 31 March 2020 Exposure Average Exposure Exposure Average Exposure Post-CRM Post-CRM Post-CRM Post-CRM Post-CCF Post-CCF1 Post-CCF Post-CCF1 Exposure Class £'m £'m £'m £'m Central governments or central banks 0.9 1.3 0.9 1.3 Claims on institutions and corporate with a 109.3 110.6 109.3 108.9 short-term credit assessment Corporates 1,096.0 636.4 1,096.0 632.8 Secured by mortgages on immovable property - 0.0 - 0.0 Exposures in default - - - - Institutions 1,031.8 1,118.5 1,031.8 1,115.6 Other items 3.3 3.8 3.3 3.3 Grand Total 2,241.4 1,870.7 2,241.4 1,862.0

1 Average exposure post CRM shows the average exposure of the four quarters as at 31 March 2020.

21 Macquarie Bank International Limited Pillar 3 Disclosures March 2020 macquarie.com 9.0 Exposures Classification and Credit Risk Mitigation continued

Table 16: Net exposures to counterparty credit risk for derivative contracts 31 March 2020 31 March 2019 Particulars £'m £'m Derivative contracts 3,324.2 1,127.3

Gross positive fair value of contracts 3,324.2 1,127.3

Netting benefits (2,034.7) (807.6) Net current credit exposure 1,289.5 319.7

Potential Future Credit Exposure 1,226.1 1,081.2 Collateral held (531.8) (366.8) Net derivative current credit exposure 1,983.8 1,034.2

Counterparty credit risk exposure arising from derivative contracts are the same for MBIL Group and MBI. Table 17 (a): Post CRM Exposure by CQS

Exposure Class Unrated 1 2 3 4 5 Other Central governments or central banks 0.9 - - - - - Claims on institutions and corporate with a - 340.9 40.0 1.4 - - short-term credit assessment Corporates 1,284.4 - 23.4 283.3 40.7 13.7 Institutions 1,091.5 195.8 0.4 0.1 - - Other items 3.3 - - - - - Grand Total 2,380.1 536.7 63.8 284.7 40.7 13.7 -

Table 17 (b): Pre CRM Exposure by CQS

Exposure Class Unrated 1 2 3 4 5 Other Central governments or central banks 0.9 - - - - - Claims on institutions and corporate with a short- - 106.7 2.6 - - - term credit assessment Corporates 779.0 - 23.4 276.0 10.4 7.1 Institutions 990.7 40.7 0.4 0.1 - - Other items 3.3 - - - - -

Grand Total 1,773.9 147.4 26.5 276.1 10.4 7.1 -

Note - ‘Other items’ category includes Deferred Tax Assets and risk weight relating to Qualified Central Counterparties.

22 Macquarie Bank International Limited Pillar 3 Disclosures March 2020 macquarie.com 10.0 Leverage Ratio

Risk of excessive leverage means the risk resulting from an institution's vulnerability due to leverage or contingent leverage that may require unintended corrective measures to its business plan, including distressed selling of assets which might result in losses or in valuation adjustments to its remaining assets. Leverage is the extent to which a firm funds its assets with borrowings rather than equity. More debt relative to each dollar of equity means a higher level of leverage. Excessive leverage is measured by a leverage ratio. The leverage ratio measures the extent to which a firm has financed its assets with equity. It does not matter what those assets are, or what their risk characteristics are. Leverage ratios effectively place a cap on borrowings as a multiple of a bank's equity. Basel III reforms introduced a leverage ratio into the regulatory framework. The leverage ratio is designed to serve as an important backstop to the risk-based capital measures by constraining the build-up of leverage in the banking system and providing an extra layer of protection against model risk and measurement error. The EBA Implementing Technical Standards on Supervisory Reporting for leverage ratio have been adopted and published in the EU official journal. The leverage ratio for MBIL is calculated as per Part 7 of the CRR but is not yet a binding regulatory requirement for MBIL. As at 31 March 2020, the MBIL Group’s leverage ratio was 13.7%. Table 18: Leverage Ratio – Disclosure Template Summary reconciliation of accounting assets and leverage ratio exposures 31 March 2020 MBIL Group MBI £'m £'m Total assets as per balance sheet 2,559.9 2,559.9 Adjustment for entities which are consolidated for accounting purposes but are - - outside the scope of regulatory consolidation Adjustments for derivative financial instruments 372.5 372.5 Adjustments for securities financing transactions Adjustment for off-balance sheet items (i.e. conversion to credit equivalent 7.4 7.4 amounts of off-balance sheet exposures) Less Other accounting adjustments -357.0 -357.0 Less Regulatory adjustments to Tier 1 Capital -5.1 -5.1 Regulatory Leverage Exposure 2,577.7 2,577.6

23 Macquarie Bank International Limited Pillar 3 Disclosures March 2020 macquarie.com 10.0 Leverage Ratio continued

Table 19: Table LRCom: Leverage ratio common disclosure 31 March 2020 MBIL Group MBI CRR leverage ratio exposures £'m £'m On-balance sheet exposures (excluding derivatives and SFTs) 1 On-balance sheet items 533.0 533.0 (excluding derivatives, SFTs and fiduciary assets, but including collateral) 2 (Asset amounts deducted in -5.1 -5.1 determining Tier 1 capital) 3 Total on-balance sheet 527.9 527.9 exposures (excluding derivatives, SFTs and fiduciary assets) (sum of lines 1 and 2) Derivative exposures

4 Replacement cost associated 790.3 790.3 with all derivatives transactions (i.e. net of eligible cash variation margin) 5 Add-on amounts for PFE 1,044.3 1,044.3 associated with all derivatives transactions (mark-to-market method) EU-5a Exposure determined under - - Original Exposure Method 6 Gross-up for derivatives - - collateral provided where deducted from the balance sheet assets pursuant to the applicable accounting framework 7 (Deductions of receivables - - assets for cash variation margin provided in derivatives transactions) 8 (Exempted CCP leg of client- -105.1 -105.1 cleared trade exposures) 9 Adjusted effective notional - - amount of written credit derivatives 10 (Adjusted effective notional - - offsets and add-on deductions for written credit derivatives) 11 Total derivative exposures 1,729.6 1,729.6 (sum of lines 4 to 10) Securities financing transaction exposures 12 Gross SFT assets (with no 307.4 307.4 recognition of netting), after adjusting for sales accounting transactions 13 (Netted amounts of cash - - payables and cash

10.0 Leverage Ratio continued

MBIL Group MBI CRR leverage ratio exposures £'m £'m receivables of gross SFT assets) 14 Counterparty credit risk 5.3 5.3 exposure for SFT assets EU-14a Derogation for SFTs: - - Counterparty credit risk exposure in accordance with Article 429b (4) and 222 of Regulation (EU) No 575/2013 15 Agent transaction exposures - - EU-15a (Exempted CCP leg of client- - - cleared SFT exposure) 16 Total securities financing 312.7 312.7 transaction exposures (sum of lines 12 to 15a) Other off-balance sheet exposures 17 Off-balance sheet exposures 73.8 73.8 at gross notional amount 18 (Adjustments for conversion -66 -66 to credit equivalent amounts) 19 Other off-balance sheet 7.8 7.8 exposures (sum of lines 17 to 18)

EU-19a (Exemption of intragroup exposures (solo basis) in accordance with Article 429(7) of Regulation (EU) No 575/2013 (on and off balance sheet)) EU-19b (Exposures exempted in accordance with Article 429 (14) of Regulation (EU) No 575/2013 (on and off balance sheet)) Capital and total exposures 20 Tier 1 capital 353 354 21 Total leverage ratio 2,578 2,578 exposures (sum of lines 3, 11, 16, 19, EU-19a and EU- 19b) Leverage ratio 22 Leverage ratio 13.71% 13.73%

Table 20: LRSpl: Split-up of on balance sheet exposures (excluding derivatives, SFTs and exempted exposures) CRR leverage ratio exposures MBIL Group MBI £'m £'m EU-1 Total on-balance sheet 428.0 427.9 exposures (excluding derivatives, SFTs, and

25 Macquarie Bank International Limited Pillar 3 Disclosures March 2020 macquarie.com 10.0 Leverage Ratio continued

exempted exposures), of which: EU-2 Trading book exposures 0.9 0.9 EU-3 Banking book exposures, of 427.1 427.0 which: EU-4 Covered bonds - - EU-5 Exposures treated as 0.9 0.9 sovereigns EU-6 Exposures to regional - - governments, MDB, international organisations and PSE NOT treated as sovereigns EU-7 Institutions 126.1 126.1 EU-8 Secured by mortgages of - - immovable properties EU-9 Retail exposures - - EU-10 Corporate 292 292 EU-11 Exposures in default - - EU-12 Other exposures (e.g. equity, 8 8 securitisations, and other non-credit obligation assets) LRQua: Disclosure on qualitative items Description of the processes used to manage the risk of excessive leverage The MBIL Group’s leverage ratio calculated and monitored by the Financial Management Group. Although there is no minimum binding leverage ratio value yet, an internal benchmark of 5% is adhered to. New transactions or business activities which may have a material impact to the MBIL Group's leverage ratio will be assessed as part of the NPBA process (see Section 2). Description of the factors that had an impact on the leverage ratio during the period to which the disclosed leverage ratio refers As at 31 March 2020, the MBIL Group’s leverage ratio was 14% as compared to leverage ratio of 19% as at 31 March 2019 taking into account Tier 1 capital of £353.3m over an applicable exposure measure of £2,578m as at 31 March 2019 (339.5m and £1,791.4m as at 31 March 2019 respectively). The decrease in the Leverage Ratio is primarily on account on the increase in the MBIL Group’s capital resources post recapitalisation during the course of the year as depicted in Table 2 of this document.

11.0 Asset Encumbrance

An asset shall be treated as encumbered if it has been pledged or if it is subject to any form of arrangement to secure, collateralise or credit enhance any transaction from which it cannot be freely withdrawn. Encumbered assets as at 31 March 2020 were £2,032.0m. Disclosure The data provided in the tables below represents figures as at 31 March 2020 as per the EBA Technical standards on encumbered assets disclosures (Commission Delegated Regulation (EU) 2017/2295). Table 21: Template A – Assets Carrying amount of Fair value of Carrying amount of Fair value of encumbered assets encumbered assets unencumbered assets unencumbered assets of which of which of which of which notionally notionally EHQLA EHQLA eligible eligible and HQLA and HQLA EHQLA EHQLA and HQLA and HQLA 10 30 40 50 60 80 90 100 10 Assets of the reporting 2,032.0 748.3 institution 20 Loans on demand 138.5 480.9 30 Equity instruments 40 Debt securities 50 of which: covered bonds 60 of which: asset-backed

securities 70 of which: issued by general

governments 80 of which: issued by financial

corporations 90 of which: issued by non-

financial corporations 100 Loans and advances other than loans on 282.5 - - - 267.5 demand 120 Other assets 1,611.1 - - - 0.0

27 Macquarie Bank International Limited Pillar 3 Disclosures March 2020 macquarie.com 11.0 Asset Encumbrance continued

Table 22: Template B – Collateral received The table below discloses information on collateral received by MHUK1 that is kept off balance sheet. Unencumbered Fair value of collateral received or own Fair value of encumbered collateral debt securities issued available for received or own debt securities issued encumbrance of which notionally eligible of which EHQLA EHQLA and HQLA and HQLA 10 30 40 60 130 Collateral received 629.3 629.3 by the reporting institution 140 Loans on demand 150 Equity instruments 160 Debt securities 629.3 629.3 190 of which: issued by 629.3 629.3 general governments 230 Other collateral received 240 Own debt securities issued other than own covered bonds or asset-backed securities 241 Own covered bonds and asset- backed securities issued and not yet pledged 250 TOTAL ASSETS, 2032.0 1,377.6 1,377.6 COLLATERAL RECEIVED AND OWN DEBT SECURITIES ISSUED

Table 23: Template C – Sources of encumbrance The following table discloses sources of encumbrance as at 31 March 2020: Assets, collateral received and own debt securities Matching liabilities, issued other than covered contingent liabilities or bonds and ABSs securities lent encumbered £'m £'m

010 Carrying amount of selected financial liabilities

170 Total sources of encumbrance 2,032

D – Information on importance of encumbrance Assets are considered encumbered when they have been pledged or used to secure, collateralise or credit enhance a transaction which impacts their transferability and free use. Asset encumbrance for the MBIL Group is almost wholly driven by MBI, whose key sources of encumbrance are derivative activities and secured funding received against the loans.

11.0 Asset Encumbrance continued

The unencumbered HQLA’s relate to reverse repos pledged with other financial institutions. Collateral received relates to government bonds and UK Gilts received as collateral that does not meet the conditions to be recognised on the balance sheet in accordance with the applicable accounting framework.

29 Macquarie Bank International Limited Pillar 3 Disclosures March 2020 macquarie.com 12.0 Capital Buffers

Capital Conservation Buffer The MBIL Group holds a CCoB of 2.5% of the RWAs in the form of CET1 from 1 January 2019. Countercyclical Buffer (“CCyB”) Institution-specific countercyclical capital buffer is calculated as a weighted average of the counter-cyclical buffer rates that apply in the countries where the relevant credit exposures are located. Each member state designates an authority responsible for setting the counter-cyclical buffer rate in that member state on a quarterly basis, taking into account the growth of credit levels and changes to the ratio of credit to GDP. The Financial Policy Committee (“FPC”) of the Bank of England is responsible for setting the rate in the UK. The MBIL Group will hold additional capital in respect of exposures with countries as and when the FPC prescribes the CCyB rate. The MBIL Group’s own funds requirements for CCyB are immaterial as it has limited exposures to countries with a prescribed CCyB rate. Table 24: Geographical distribution of credit exposures relevant for the calculation of the countercyclical capital buffer as at 31 March 2020

General credit exposures Own funds requirements of which: of which: of which: Counter- Exposure Exposure General Trading Securitisati Own funds cyclical value value for credit book on requireme capital for SA IRB exposures exposures exposures Total nts buffer £’m £’m £’m £’m £’m £’m weights rate

10 Breakdown by country: BULGARIA 0.5 0.0 0.0 0.04% 0.50% FRANCE 108.3 8.7 8.7 10.61% 0.25% IRELAND 85.2 6.8 6.8 8.34% 1.00% LUXEMBOU 59.4 4.8 4.8 5.82% 0.25% RG LITHUANIA 0.7 0.1 0.1 0.07% 1.00% NORWAY 26.4 2.1 2.1 2.58% 1.00% SLOVAKIA 50.3 4.0 4.0 4.92% 1.50%

20 Total 330.8 26.5 26.5

£’m 10 Total risk exposure amount 1,241.1 20 Institution specific countercyclical capital buffer rate 0.23% 30 Institution specific countercyclical capital buffer requirement 2.8

13.0 Liquidity Coverage Ratio

The MBIL Group maintains a Liquidity Coverage Ratio (“LCR”) in line with the requirements under Part 8 of the CRR. Table 25: LCR Disclosure Template Total unweighted value Total weighted value 31 March 2020 31 March 2020 Consolidated £'m £'m High-quality liquid assets 1 Total high-quality liquid assets (HQLA) 629.30 629.30 Cash-outflows 2 Retail deposits and deposits from small business - - customers, of which: 3 - Stable deposits - - 4 - Less stable deposits - - 5 Unsecured wholesale funding - - 6 - Operational deposits (all counterparties) and deposits in - - networks of cooperative banks 7 - Non-operational deposits (all counterparties) - - 8 - Unsecured debt - - 9 Secured wholesale funding - - 10 Additional requirements 264.48 198.04 11 - Outflows related to derivative exposures and other 190.65 190.65 collateral requirements 12 - Outflows related to loss of funding on debt products - - 13 - Credit and liquidity facilities 73.83 7.38 14 Other contractual funding obligations 57.42 56.24 15 Other contingent funding obligations - - 16 Total cash outflows 321.91 254.28

Cash-inflows

17 Secured lending (eg reverse repos) 223.69 - 18 Inflows from fully performing exposures 147.43 61.31 19 Other cash inflows 164.31 127.52 20 Total cash inflows 535.44 188.83

Total adjusted value 21 Liquidity buffer 629.30 22 Total net cash outflows 65.45 23 Liquidity coverage ratio (%) 962%

31 Macquarie Bank International Limited Pillar 3 Disclosures March 2020 macquarie.com Disclosure

– The material in this document has been prepared by Macquarie Bank International Limited Company number 06309906 (“MBIL”) purely for the purpose of explaining the basis on which MBIL has prepared and disclosed certain capital requirements and information about the management of risks relating to those requirements and for no other purpose. Information in this document, including any forward-looking statements, should not be considered as advice or a recommendation to investors or potential investors in relation to holding, purchasing or selling securities or other financial products or instruments (the “Investment Activity”) and does not take into account investors’ or potential investors’ particular investment objectives, financial situation or needs. Before acting on any information investors and potential investors should consider the appropriateness of information having regard to the Investment Activity, any relevant offer document and in particular, investors and potential investors should seek independent financial advice. No representation or warranty is made as to the accuracy, completeness or reliability of the information. All securities and financial product or instrument transactions involve risks, which include (among others) the risk of adverse or unanticipated market, financial or political developments and, in international transactions, currency risk. – This document may contain forward-looking statements that is, statements related to future, not past, events or other matters – including, without limitation, statements regarding our intent, belief or current expectations with respect to MBIL’s businesses and operations, market conditions, results of operation and financial condition, capital adequacy, individually assessed provisions for impairment and risk management practices. Readers are cautioned not to place undue reliance on these forward-looking statements. MBIL does not undertake any obligation to publicly release the result of any revisions to these forward looking statements or to otherwise update any forward looking statements, whether as a result of new information, future events or otherwise, after the date of this document. Actual results may vary in a materially positive or negative manner. Forward-looking statements and hypothetical examples are subject to uncertainty and contingencies outside MBIL’s control. Past performance is not a reliable indication of future performance. Unless otherwise specified all information is at 31 March 2020. – Although Pillar 3 disclosures are intended to provide transparent disclosures on a common basis the information contained in this document may not be directly comparable with the information of other banks. This may be due to a number of factors such as: – the mix of business exposures differs between banks; and – the fact that Pillar 2 capital requirements are excluded from this disclosure but play a major role in determining both the total capital requirements of the bank and any surplus capital available.

Appendix 1

(B) REGULATION 31 March 2020 (EU) No 575/2013 Capital Adequacy £'m ARTICLE REFERENCE Capital instruments and the related share premium accounts 330.0 26 (1), 27, 28, 29, EBA list 26 (3) of which: Instrument type 1 EBA list 26 (3) of which: Instrument type 2 EBA list 26 (3) of which: Instrument type 3 EBA list 26 (3) Retained earnings 30.3 26 (1) (c) Accumulated other comprehensive income (and any other reserves) 0.2 26 (1) Funds for general banking risk 26 (1) (f) Amount of qualifying items referred to in Article 484 (3) and the related share 486 (2) premium accounts subject to phase out from CET1 Public sector capital injections grandfathered until 1 January 2018 483 (2) Minority interests (amount allowed in consolidated CET1) 84, 479, 480 Independently reviewed interim profits net of any foreseeable charge or dividend 26 (2)

Common Equity Tier 1 (CET1) capital before regulatory adjustments 360.5 Common Equity Tier 1 (CET1) capital: regulatory adjustments

Additional value adjustments (negative amount) (7.2) 34, 105 Intangible assets (net of related tax liability) (negative amount) - 36 (1) (b), 37, 472 (4) Deferred tax assets that rely on future profitability excluding those arising from - temporary difference (net of related tax liability where the conditions in Article 38 (3) are met) (negative amount) Total regulatory adjustments to Common Equity Tier 1 (CET1) (0.0) 36 (1) (c), 38, 472 (5) Common Equity Tier 1 (CET1) capital Total regulatory adjustments to Additional Tier 1 (AT1) capital Additional Tier 1 (AT1) capital

Tier 1 capital (T1 = CET1 + AT1) 353.3

Tier 2 (T2) capital Total capital (TC = T1 + T2) 353.3

Total risk-weighted assets 1,241.1 Capital ratios and buffers Common Equity Tier 1 (as a percentage of total risk exposure amount 28.5% 92 (2) (a), 465 Tier 1 (as a percentage of total risk exposure amount 28.5% 92 (2) (b), 465 Total capital (as a percentage of total risk exposure amount 28.5% 92 (2) (c) Institution specific buffer requirement (CET1 requirement in accordance with article 2.73% CRD 128, 129, 140 92 (1) (a) plus capital conservation and countercyclical buffer requirements plus a systemic risk buffer, plus systemically important institution buffer expressed as a percentage of total risk exposure amount) of which: capital conservation buffer requirement 2.50% of which: countercyclical buffer requirement 0.23% of which: systemic risk buffer requirement of which: Global Systemically Important Institution (G-SII) or Other Systemically CRD 131 Important Institution (O-SII) buffer

33 Macquarie Bank International Limited Pillar 3 Disclosures March 2020 macquarie.com Appendix 1 continued

(B) REGULATION 31 March 2020 (EU) No 575/2013 Capital Adequacy £'m ARTICLE REFERENCE Common Equity Tier 1 available to meet buffers 20.5% CRD 128 (as a percentage of risk exposure amount) Amounts below the thresholds for deduction (before risk-weighting) Deferred tax assets arising from temporary difference (amount below 10 % 0.3 36 (1) (c), 38, 48, 470, threshold , net of related tax liability where the conditions in Article 38 (3) are met 472 (5)

Applicable caps on the inclusion of provisions in Tier 2 Credit risk adjustments included in T2 in respect of exposures subject to 0.0 62 standardised approach (prior to the application of the cap) Cap on inclusion of credit risk adjustments in T2 under standardised approach 15.5 62

Appendix 1 continued

Capital instruments’ main features template 1 Issuer MBIL Group MBI 2 Unique identifier (eg CUSIP, ISIN or Bloomberg identifier for private N/a N/a placement) 3 Governing law(s) of the instrument UK UK Regulatory treatment 4 Transitional CRR rules CET1 CET1 5 Post-transitional CRR rules CET1 CET1 6 Eligible at solo/(sub-)consolidated/solo & (sub-)consolidated Solo Solo 7 Instrument type (types to be specified by each jurisdiction) Ordinary Shares Ordinary Shares 8 Amount recognised in regulatory capital (currency in million, as of 330 330 most recent reporting date) 9 Nominal amount of instrument 330 330 9a Issue price 1 1 9b Redemption price 1 1 10 Accounting classification Called Up Share capital Called Up Share capital 11 Original date of issuance January 24, 2008 January 24, 2008 12 Perpetual or dated Perpetual Perpetual 13 Original maturity date No Maturity Date No Maturity Date 14 Issuer call subject to prior supervisory approval N/a N/a 15 Optional call date, contingent call dates and redemption amount N/a N/a 16 Subsequent call dates, if applicable N/a N/a Coupons / dividends 17 Fixed or floating dividend / coupon N/a N/a 18 Coupon rate and any related index N/a N/a 19 Existence of a dividend stopper No No 20a Fully discretionary, partially discretionary or mandatory Fully discretionary Fully discretionary (in terms of timing) 20b Fully discretionary, partially discretionary or mandatory Fully discretionary Fully discretionary (in terms of amount) 21 Existence of step up or other incentive to redeem No No 22 Noncumulative or cumulative Non-cumulative Non-cumulative 23 Convertible or non-convertible Non-convertible Non-convertible 24 If convertible, conversion trigger(s) N/a N/a 25 If convertible, fully or partially N/a N/a 26 If convertible, conversion rate N/a N/a 27 If convertible, mandatory or optional conversion N/a N/a 28 If convertible, specify instrument type convertible into N/a N/a 29 If convertible, specify issuer of instrument it converts into N/a N/a 30 Write-down features N/a N/a 31 If write-down, write-down trigger(s) N/a N/a 32 If write-down, full or partial N/a N/a 33 If write-down, permanent or temporary N/a N/a 34 If temporary write-down, description of write-up mechanism N/a N/a 35 Position in subordination hierarchy in liquidation (specify instrument N/a N/a type immediately senior to instrument) 36 Non-compliant transitioned features No No 37 If yes, specify non-compliant features N/a N/a

'N/a' inserted if the question is not applicable.

35 Macquarie Bank International Limited Pillar 3 Disclosures March 2020 macquarie.com

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