Westpac 2017 Full Year Financial Results Announcement
Westpac Banking Corporation
ABN 33 007 457 141
2017
FULL YEAR
FINANCIAL
RESULTS
INCORPORATING
THE REQUIREMENTS
OF APPENDIX 4E
Left to right:
Barangaroo, Sydney
Westpac branch at corner of Market and Clarence Streets, Sydney
Bank of New South Wales Sydney office, 1853
Results announcement to the market
ii | Westpac Group 2017 Full Year Financial Results Announcement
ASX Appendix 4E
Results for announcement to the market
1
Report for the full year ended 30 September 2017
2
1
This document comprises the Westpac Group 2017 Full Year Financial Results and is provided to the Australian Securities Exchange
under Listing Rule 4.2A.
2
This report should be read in conjunction with the Westpac Group Annual Report 2017 and any public announcements made in the
period by the Westpac Group in accordance with the continuous disclosure requirements of the Corporations Act 2001 and ASX
Listing Rules.
3
Comprises reported interest income, interest expense and non-interest income.
4
All comparisons are with the reported results for the twelve months ended 30 September 2016.
Revenue f rom ordinary activities
3,4
($m)up4%to$21,802
Prof it f rom ordinary activities af ter tax attributable to equity holders
4
($m)up7%to$7,990
Net prof it f or the period attributable to equity holders
4
($m)up7%to$7,990
Dividend Distributions (cents per ordinary share)
Final Dividend
Interim Dividend
Record date f or determining entitlements to the dividend
14 November 2017 (Sydney)
13 November 2017 (New York)
Amount
per security
Franked amount
per security
9494
9494
Results announcement to the market
Media release and outlook
Media
Release
6 November 2017
Westpac delivers another solid result
Statutory net profit $7,990 million, up 7%
Cash earnings $8,062 million, up 3%
Cash earnings per share 239.7 cents, up 2%
Cash return on equity (ROE) 13.8%, within target range
Unchanged final fully franked dividend of 94 cents per share (Full year dividend of 188 cents per share, unchanged)
Common equity Tier 1 capital ratio of 10.6%
Bank Levy $95 million (pre-tax)
Westpac Group CEO, Mr Brian Hartzer said: “This is another solid result. We have continued to successfully navigate a
challenging environment while our strategy builds momentum.
“Our primary goal in 2017 was to carefully balance growth and returns, while meeting all of our new macro-prudential
regulatory requirements. We achieved the required macro-prudential targets for home lending. The credit quality of our loan
portfolio is in great shape with stressed assets reducing during the year.
“Our balance sheet strength is a particular highlight: with our CET1 capital ratio of 10.6% we are already above APRA’s
‘unquestionably strong’ benchmark of 10.5%, well in advance of the January 2020 deadline. We also met the new standard
for the Net Stable Funding Ratio (NSFR), ahead of the January 2018 deadline.
“Our portfolio of businesses continues to perform well. WIB was the standout, with a particularly strong First Half, and our
Consumer and Business Banks continue to deliver good earnings growth. New Zealand also performed well, benefiting from
improved credit quality. BT Financial Group had a softer year – while the underlying business continued to grow, results
were impacted by some infrequent items and higher claims.”
Mr Hartzer said the Group result also included a provision for customer payments to address legacy issues.
“As part of our ‘get it right, put it right’ program we’ve been reviewing our products and services and the way we have
engaged with our customers. Where we have found issues that we need to put right, we ensure that no customer has been
disadvantaged from those past practices. For example, a review into our superannuation disclosure is resulting in payments
to some customers with pre-existing conditions who did not have the benefit of our improved disclosure practices and who
1
Reported on a cash earnings basis unless otherwise stated. For an explanation of cash earnings and reconciliation to reported results refer to
pages 6, 7 and 116-119 of the Group’s 2017 Full Year Financial Results Announcement.
Financial highlights Full Year 2017 compared to Full Year 2016
1
Results announcement to the market
iv | Westpac Group 2017 Full Year Financial Results Announcement
previously had their claims denied. We are also refunding customers who were entitled to certain product discounts, but may
not have been aware that they needed to specifically request them. The cash earnings impact of these changes was
$118 million this year, equivalent to 1.5% of earnings.
“Despite these challenges, our business is in excellent shape: customer satisfaction has risen, employee engagement is
above the global high performing benchmark, and we have achieved our goal of welcoming one million new customers since
2015. We’ve continued to improve the functionality and convenience of our digital channels, our wealth system Panorama
added around $4 billion funds under administration in FY17, and we’ve originated our first mortgages using our new
customer service hub – an important milestone in the modernisation of our technology infrastructure. At a time of substantial
change in our industry, we’ve got a clear strategic agenda that is delivering for both customers and shareholders.”
Materially strengthened balance sheet
Margins well managed
CET1 capital ratio (%)
Net interest margin
(NIM) (%)
Conservative balance sheet
10.6% CET1 capital ratio is already ahead of
APRA’s ‘unquestionably strong’ benchmark;
CET1 internationally comparable ratio of 16.20%
- top quartile of banks globally;
Liquidity ratios well above 100% regulatory
requirements:
- LCR 124%; and
- NSFR 109%.
Net interest margin 4 basis points lower
Margins 4 basis points lower than 12 months
ago; excluding Treasury and Markets NIM is
down 3 basis points;
Margins ex-markets decline due to:
- Deposit competition and higher wholesale
funding costs;
- Introduction of Bank Levy;
- Impact of increasing liquidity balances and
lower interest rates; and
Some asset repricing contributed to rise in
margins in the Second Half.
Tight cost control
Disciplined balance sheet growth
(%) over FY17
Expenses managed tightly; lower end of 2-3%
target range
Expenses up 2% over the year;
Expense to income ratio 42%;
Cost to assets improved 3 basis points over the
year;
Productivity savings of $262 million offset
business as usual expense growth; and
Most of the cost increase due to investment and
regulatory and compliance costs.
Results announcement to the market
Westpac Group 2017 Full Year Financial Results Announcement | v
Credit quality remains sound
Stressed assets to total committed
exposures (TCE) lower over year
Conservative impaired asset
provision coverage at 46%;
Lower impaired assets to gross loans ratio -
down 10 basis points over the year to 0.22%;
and
Impairment charges (13 basis points of
average loans annualised) down 24%
over the year to $853 million.
Divisional performance – cash earnings
Division
FY17
($m)
%
change
FY16
%
change
2H17
vs
1H17
Highlights (FY17 – FY16)
Consumer
Bank
3,104 4 5
Good balance sheet growth (loans up 5%, deposits up 6%), improved
productivity with expense growth of 2% versus revenue growth of 4%.
Business
Bank
2,099 6 8
Disciplined growth (loans to small and medium enterprises
up 6% and deposits up 4%). Improved fee income. Expense to income
ratio 35%.
BT
Financial
Group
771 (11) (6)
Positive trends in FUM and FUA - up 10% and 6% respectively - as well
as in life insurance in-force premiums (+10%).
Earnings lower from infrequent items including customer refund
payments, higher general insurance claims (Cyclone Debbie), lower
Advice income, margin impact of migrating to MySuper products, and
higher regulatory/compliance costs.
Westpac
Institutional
Bank
1,304 18 (14)
Strong result supported by higher markets income and improved asset
quality. Disciplined on growth, saw margins increasing. Costs down 2%
reflecting business model change in 2016. Markets income down in
Second Half, impacting Full Year result.
Westpac
New Zealand
($NZ)
970 9 10
Higher result supported by impairment benefit of $76 million from
improved asset quality. Margins lower from intense deposit competition.
Results announcement to the market
vi | Westpac Group 2017 Full Year Financial Results Announcement
The Westpac Group Board has determined an unchanged final, fully franked dividend of 94 cents per share to be paid on
22 December 2017. The final dividend represents a payout ratio of 78.7% of cash earnings.
The Bank Levy cost $95 million for the Full Year. The Board considered a range of factors including the impact of the
Bank Levy in determining the dividend. The Bank Levy will be paid out of retained earnings and is equivalent to two cents
per share.
The dividend reinvestment plan (DRP) will continue to apply and there will be no discount to the market price. Shares will be
issued to satisfy the DRP.
Mr Hartzer said the outlook for Australia remains positive overall, with GDP growth expected to be slightly above trend at
around 2.5% in 2018. However, the growth outlook will remain mixed across the country. He said global growth is expected
to consolidate around 3.5%.
“Economic growth is picking up around the world – most major markets are now growing, which is something we haven't
seen for a while. In the US, in France, and in other markets around the world governments are cutting taxes, cutting red
tape, and investing in infrastructure. It's a good reminder that policy certainty is a great spur to business investment.
“Business in Australia is ready to invest, however many of our customers are holding back because of policy uncertainty.
Whether it's on energy policy, transport infrastructure, or fixing up the tax arrangements between the states, Governments at
all levels need to come together with business for a common purpose to provide the certainty that's needed to drive
confidence.”
Mr Hartzer said Westpac’s consistent focus on Australia and New Zealand over a long period means its high quality portfolio
was strongly positioned.
“We remain positive about the Australian housing market, although we expect price growth to moderate through 2018.
90+ day delinquencies remain low by historical measures and our home loan customers continue to take advantage of low
interest rates with more than 70% of customers ahead on their repayments
1
.
“We have a strong customer franchise which continues to grow, we are taking advantage of the opportunities created by a
digital world, and we are well-positioned in the faster growing parts of our economy. These factors, plus a highly-engaged
culture that continues to attract great people, gives me confidence about Westpac’s outlook and our ability to outperform
over the long term.”
For Further Information
David Lording
Head of Media Relations
M. 0419 683 411
Andrew Bowden
Head of Investor Relations
T. 02 8253 4008
M. 0438 284 863
1
Loans ahead on payments exclude equity/line of credit products as there are no scheduled principal payments. Includes mortgage offset balances.
Dividends
Outlook
2017 Full Year financial results
Westpac Group 2017 Full Year Financial Results Announcement | 1
Index
01 Group results
1.1 Reported results
1.2 Key financial information
1.3 Cash earnings results
1.4 Market share and system multiple metrics
3
3
4
5
8
02 Review of Group operations
2.1 Performance overview
2.2 Review of earnings
2.3 Credit quality
2.4 Balance sheet and funding
2.5 Capital and dividends
2.6 Sustainability performance
9
10
19
34
36
41
48
03 Divisional results
3.1 Consumer Bank
3.2 Business Bank
3.3 BT Financial Group (Australia)
3.4 Westpac Institutional Bank
3.5 Westpac New Zealand (NZ$)
3.6 Group Businesses
50
50
52
54
58
60
62
04 2017 Full Year financial report
4.1 Significant developments
4.2 Consolidated income statement
4.3 Consolidated statement of comprehensive income
4.4 Consolidated balance sheet
4.5 Consolidated statement of changes in equity
4.6 Consolidated cash flow statement
4.7 Notes to the consolidated financial statements
4.8 Statement in relation to audit of the financial statements
64
65
73
74
75
76
78
79
107
05 Cash earnings financial information
108
06 Other information
6.1 Disclosure regarding forward-looking statements
6.2 References to websites
6.3 Credit ratings
6.4 Dividend reinvestment plan
6.5 Changes in control of Group entities
6.6 Financial calendar and Share Registry details
6.7 Exchange rates
121
121
122
122
122
122
124
129
07 Glossary
131
In this announcement references to ‘Westpac’, ‘WBC’, ‘Westpac Group’, ‘the Group’, ‘we’, ‘us’ and ‘our’ are to Westpac Banking
Corporation and its controlled entities, unless it clearly means just Westpac Banking Corporation.
All references to $ in this document are to Australian dollars unless otherwise stated.
Financial calendar
Final results announcement 6 November 2017
Ex-dividend date for final dividend 13 November 2017
Record date for final dividend (Sydney) 14 November 2017
Final dividend payable 22 December 2017
2017 Full Year financial results
2 | Westpac Group 2017 Full Year Financial Results Announcement
[This page is intentionally blank].
2017 Full Year financial results
Group results
Westpac Group 2017 Full Year Financial Results Announcement | 3
1.0 Group results
1.1 Reported results
Reported net profit attributable to owners of Westpac Banking Corporation is prepared in accordance with the
requirements of Australian Accounting Standards (AAS) and regulations applicable to Australian Authorised
Deposit-taking Institutions (ADIs).
% Mov't
1
% Mov't
1
Half Year Half Year Sept 17 - Full Year Full Year Sept 17 -
$m Sept 17 March 17 Mar 17 Sept 17 Sept 16 Sept 16
Net interest income
7,903 7,613
4
15,516 15,148
2
Non-interest income
3,130 3,156
(1)
6,286 5,837
8
Net operating income before operating expenses
and impairment charges
11,033 10,769
2
21,802 20,985
4
Operating expenses
(4,801) (4,633)
4
(9,434) (9,217)
2
Net profit before impairment charges
and income tax expense
6,232 6,136 2 12,368 11,768 5
Impairment charges
(360) (493)
(27)
(853) (1,124)
(24)
Profit before income tax
5,872 5,643 4 11,515 10,644 8
Income tax expense
(1,787) (1,731)
3
(3,518) (3,184)
10
Net profit for the period
4,085 3,912 4 7,997 7,460 7
Net profit attributable to non-controlling interests
(2) (5)
(60)
(7) (15)
(53)
NET PROFIT ATTRIBUTABLE TO OWNERS OF
WESTPAC BANKING CORPORATION
4,083 3,907 5 7,990 7,445 7
Net profit attributable to owners of Westpac Banking Corporation for Full Year 2017 was $7,990 million,
an increase of $545 million or 7% compared to Full Year 2016. Features of this result included an $817 million or
4% increase in net operating income before operating expenses and impairment charges, a $217 million or 2%
increase in operating expenses and a $271 million or 24% decrease in impairment charges.
Net interest income increased $368 million or 2% compared to Full Year 2016, with total loan growth of 3%,
primarily from Australian housing which grew 6%. Reported net interest margin decreased 4 basis points to 2.06%
from higher funding costs, the impact of lower interest rates and lower Treasury earnings, partly offset by loan
repricing. Net interest income, loans, deposits and other borrowings and net interest margins are discussed further
in Sections 2.2.1 to 2.2.4.
Non-interest income increased $449 million or 8% compared to Full Year 2016 primarily due to a $279 million gain
associated with the sale of shares in BT Investment Management Limited (BTIM), a rise in trading income of
$78 million and the impact of volatility in economic hedges of $140 million. These increases were partly offset by
provisions for customer refunds and payments and lower wealth management income. Non-interest income is
discussed further in Section 2.2.5.
Operating expenses increased $217 million or 2% compared to Full Year 2016. The rise in operating expenses
includes expenses associated with the further sell down of BTIM shares, annual salary and rental increases,
higher technology expenses related to the Group’s investment program and a rise in regulatory and compliance
costs. These increases were partially offset by productivity benefits. Operating expenses are discussed further in
Section 2.2.8.
Impairment charges were $271 million lower or 24% compared to Full Year 2016. Asset quality remained sound,
with stressed exposures as a percentage of total committed exposures at 1.05%, down 15 basis points over the
year. The decrease in impairment charges was primarily due to significantly lower large individual provisions.
Additional provisioning for these larger facilities was required in Full Year 2016, following the downgrade to
impaired. Impairment charges are discussed further in Section 2.2.9.
The effective tax rate of 30.6% in Full Year 2017 was higher than the Full Year 2016 effective tax rate of 29.9% as
Full Year 2016 benefited from the finalisation of some prior period taxation matters. Income tax expense is
discussed further in Section 2.2.10.
1
Percentage movement represents an increase / (decrease) to the relevant comparative period.
2017 Full Year financial results
Group results
4 | Westpac Group 2017 Full Year Financial Results Announcement
1.2 Key financial information
% Mov't % Mov't
Half Year Half Year Sept 17 - Full Year Full Year Sept 17 -
$m Sept 17 March 17 Mar 17 Sept 17 Sept 16 Sept 16
Shareholder value
Earnings per ordinary share (cents)
121.2 116.8
4
238.0
224.6
6
Weighted average ordinary shares (millions)
1
3,366 3,344
1
3,355
3,313
1
Fully franked dividends per ordinary share (cents)
94 94
-
188
188
-
Return on average ordinary equity
13.72% 13.57%
15bps
13.65%
13.32%
33bps
Average ordinary equity ($m)
59,364 57,744
3
58,556
55,896
5
Average total equity ($m)
59,380 57,768
3
58,576
56,471
4
Net tangible asset per ordinary share ($)
2
14.66 14.24
3
14.66
13.90
5
Business performance
Interest spread
1.90% 1.88%
2bps
1.89%
1.91%
(2bps)
Benefit of net non-interest bearing assets,
liabilities and equity
0.17% 0.17%
-
0.17%
0.19%
(2bps)
Net interest margin
2.07% 2.05%
2bps
2.06%
2.10%
(4bps)
Average interest-earning assets ($m)
759,764 744,783
2
752,294
721,843
4
Expense to income ratio
43.51% 43.02%
49bps
43.27%
43.92%
(65bps)
Capital, funding and liquidity
Common equity Tier 1 capital ratio
- APRA Basel III
10.56% 9.97%
59bps
10.56%
9.48%
108bps
- Internationally comparable
3
16.20% 15.34%
86bps
16.20%
14.43%
177bps
Credit risk weighted assets (credit RWA) ($m)
349,258 352,713
(1)
349,258
358,812
(3)
Total risk weighted assets (RWA) ($m)
404,235 404,382
-
404,235
410,053
(1)
Liquidity coverage ratio (LCR)
124% 125%
(100bps)
124%
134%
large
Asset quality
Gross impaired assets to gross loans
0.22% 0.30%
(8bps)
0.22%
0.32%
(10bps)
Gross impaired assets to equity and total provisions
2.39% 3.15%
(76bps)
2.39%
3.49%
(110bps)
Gross impaired asset provisions to
gross impaired assets
46.30% 52.07%
large
46.30%
49.42%
(312bps)
Total committed exposures (TCE) ($m)
1,005,882 984,794
2
1,005,882
976,883
3
Total stressed exposures as a % of TCE
1.05% 1.14%
(9bps)
1.05%
1.20%
(15bps)
Total provisions to gross loans
45bps 52bps
(7bps)
45bps
54bps
(9bps)
Mortgages 90+ day delinquencies
0.62% 0.63%
(1bps)
0.62%
0.61%
1bps
Other consumer loans 90+ day delinquencies
1.57% 1.55%
2bps
1.57%
1.11%
46bps
Collectively assessed provisions to credit RWA
76bps 77bps
(1bps)
76bps
76bps
-
Balance sheet
4
($m)
Loans
684,919 666,946
3
684,919
661,926
3
Total assets
851,875 839,993
1
851,875
839,202
2
Deposits and other borrowings
533,591 522,513
2
533,591
513,071
4
Total liabilities
790,533 780,621
1
790,533
781,021
1
Total equity
61,342 59,372
3
61,342
58,181
5
Wealth Management
Average Funds Under Management ($bn)
5
73.7 68.3
8
71.0
63.8
11
Average Funds Under Administration ($bn)
5
140.2 134.9
4
137.4
128.2
7
Life insurance in-force premiums (Australia)
1,068 1,030
4
1,068
973
10
General insurance gross written premiums (Australia)
258 250
3
508
503
1
1
Weighted average number of fully paid ordinary shares listed on the ASX for the relevant period less average Westpac shares held by
the Group (“Treasury shares”).
2
Comparatives have been restated to reflect the IFRS interpretation committee updated treatment of intangible assets with an indefinite
useful life (First Half 2017: $201 million; Second Half 2016: $201 million).
3
Refer Glossary for definition.
4
Spot balances.
5
Averages are based on six months for the halves and twelve months for the full year.
2017 Full Year financial results
Group results
Westpac Group 2017 Full Year Financial Results Announcement | 5
1.3 Cash earnings results
Throughout this results announcement, reporting and commentary of financial performance for Second Half 2017,
First Half 2017, Full Year 2017 and Full Year 2016 will refer to ‘cash earnings results’, unless otherwise stated.
Section 4 is prepared on a reported basis. A reconciliation of cash earnings to reported results is set out in
Section 5, Note 8.
% Mov't % Mov't
Half Year Half Year Sept 17 - Full Year Full Year Sept 17 -
$m Sept 17 March 17 Mar 17 Sept 17 Sept 16 Sept 16
Net interest income
8,011 7,693
4
15,704
15,348
2
Non-interest income
1
2,784 3,068
(9)
5,852
5,888
(1)
Net operating income
10,795 10,761
-
21,556
21,236
2
Operating expenses
1
(4,604) (4,501)
2
(9,105)
(8,931)
2
Core earnings
6,191 6,260 (1) 12,451 12,305 1
Impairment charges
(360) (493)
(27)
(853)
(1,124)
(24)
Operating profit before income tax
5,831 5,767 1 11,598 11,181 4
Income tax expense
(1,784) (1,745)
2
(3,529)
(3,344)
6
Net profit
4,047 4,022 1 8,069 7,837 3
Net profit attributable to non-controlling interests
(2) (5)
(60)
(7)
(15)
(53)
Cash earnings
4,045 4,017 1 8,062 7,822 3
1.3.1 Key financial information – cash earnings basis
% Mov't % Mov't
Half Year Half Year Sept 17 - Full Year Full Year Sept 17 -
$m Sept 17 March 17 Mar 17 Sept 17 Sept 16 Sept 16
Shareholder value
Cash earnings per ordinary share (cents)
119.9 119.8
-
239.7
235.5
2
Economic profit ($m)
2
1,864 1,910
(2)
3,774
3,774
-
Weighted average ordinary shares (millions)
3
3,375 3,352
1
3,364
3,322
1
Dividend payout ratio
78.86% 78.57%
29bps
78.71%
80.30%
(159bps)
Cash earnings on average ordinary equity (ROE)
13.59% 13.95%
(36bps)
13.77%
13.99%
(22bps)
Cash earnings on average tangible
ordinary equity (ROTE)
16.27% 16.83%
(56bps)
16.55%
17.06%
(51bps)
Average ordinary equity ($m)
59,364 57,744
3
58,556
55,896
5
Average tangible ordinary equity ($m)
4
49,582 47,863
4
48,725
45,858
6
Business performance
Interest spread
1.92% 1.90%
2bps
1.91%
1.94%
(3bps)
Benefit of net non-interest bearing assets,
liabilities and equity
0.18% 0.17%
1bps
0.18%
0.19%
(1bps)
Net interest margin
2.10% 2.07%
3bps
2.09%
2.13%
(4bps)
Average interest-earning assets ($m)
759,764 744,783
2
752,294
721,843
4
Expense to income ratio
42.65% 41.83%
82bps
42.24%
42.06%
18bps
Full time equivalent employees (FTE)
35,096 35,290
(1)
35,096
35,580
(1)
Revenue per FTE ($ '000's)
307 306
-
613
603
2
Effective tax rate
30.60% 30.26%
34bps
30.43%
29.91%
52bps
Impairment charges
Impairment charges to average loans annualised
11bps 15bps
(4bps)
13bps
17bps
(4bps)
Net write-offs to average loans annualised
25bps 19bps
6bps
22bps
16bps
6bps
1
In 2017 the Group changed the accounting treatment for Westpac New Zealand credit card rewards scheme to align with Group
practice. This change has no impact on cash earnings or reported profit but it has led to the restatement of non-interest income and
operating expenses within cash earnings. (First Half 2017: $18 million, Second Half 2016: $16 million and First Half 2016: $17 million).
2
Capital charge is based on an 11% cost of capital and is unchanged from prior periods.
3
Weighted average ordinary shares – cash earnings: represents the weighted average number of fully paid ordinary shares listed on
the ASX for the relevant period.
4
Average tangible ordinary equity is calculated as average ordinary equity less goodwill and other intangible assets (excluding
capitalised software).
2017 Full Year financial results
Group results
6 | Westpac Group 2017 Full Year Financial Results Announcement
Cash earnings policy
In assessing financial performance, including divisional results, Westpac Group uses a measure of performance
referred to as ‘cash earnings’. Cash earnings is viewed as a measure of the level of profit that is generated by
ongoing operations and is therefore considered in assessing distributions, including dividends. Cash earnings is
neither a measure of cash flow nor net profit determined on a cash accounting basis, as it includes both cash and
non-cash adjustments to statutory net profit.
Management believes this allows the Group to more effectively assess performance for the current period against
prior periods and to compare performance across business divisions and across peer companies.
To determine cash earnings, three categories of adjustments are made to reported results:
Material items that key decision makers at the Westpac Group believe do not reflect ongoing operations;
Items that are not considered when dividends are recommended, such as the amortisation of intangibles,
impact of Treasury shares and economic hedging impacts; and
Accounting reclassifications between individual line items that do not impact reported results.
A full reconciliation of reported results to cash earnings is set out in Section 5, Note 8.
Reconciliation of reported results to cash earnings
% Mov't % Mov't
Half Year Half Year Sept 17- Full Year Full Year Sept 17-
$m Sept 17 March 17 Mar 17 Sept 17 Sept 16 Sept 16
NET PROFIT ATTRIBUTABLE TO OWNERS OF
WESTPAC BANKING CORPORATION
4,083 3,907 5 7,990 7,445 7
Amortisation of intangible assets
64 73
(12)
137
158
(13)
Acquisition, transaction and integration expenses
- -
-
-
15
(100)
Fair value (gain)/loss on economic hedges
62 7
large
69
203
(66)
Ineffective hedges
20 (4)
large
16
(9)
large
Sale of BTIM shares
(171) -
-
(171)
-
-
Treasury shares
(13) 34
(138)
21
10
110
Total cash earnings adjustments (post-tax)
(38) 110 (135) 72 377 (81)
Cash earnings
4,045 4,017 1 8,062 7,822 3
Outlined below are the cash earnings adjustments to the reported result:
Amortisation of intangible assets: The merger with St.George and the acquisition of select Lloyds’ Australian
businesses resulted in the recognition of identifiable intangible assets. Notional identifiable intangible assets
were also recognised within the carrying value of BTIM during the period this investment was equity accounted.
The intangible assets recognised relate to core deposits, customer relationships, management contracts and
distribution relationships. These intangible items are amortised over their useful lives, ranging between four and
twenty years. This amortisation (excluding capitalised software) is a cash earnings adjustment because it is a
non-cash flow item and does not affect cash distributions available to shareholders;
Acquisition, transaction and integration expenses: Costs associated with the acquisition of select Lloyds’
Australian businesses were treated as a cash earnings adjustment as they do not reflect the earnings expected
from the acquired businesses following the integration period;
Fair value on economic hedges (which do not qualify for hedge accounting under AAS) comprise:
- The unrealised fair value (gain)/loss on foreign exchange hedges of future New Zealand earnings impacting
non-interest income is reversed in deriving cash earnings as they may create a material timing difference on
reported results but do not affect the Group’s cash earnings over the life of the hedge; and
- The unrealised fair value (gain)/loss on hedges of accrual accounted term funding transactions are reversed
in deriving cash earnings as they may create a material timing difference on reported results but do not affect
the Group’s cash earnings over the life of the hedge.
Ineffective hedges: The unrealised (gain)/loss on ineffective hedges is reversed in deriving cash earnings for
the period because the gain or loss arising from the fair value movement in these hedges reverses over time
and does not affect the Group’s profits over time;
2017 Full Year financial results
Group results
Westpac Group 2017 Full Year Financial Results Announcement | 7
Sale of BTIM shares: During Second Half 2017 the Group recognised a gain, net of costs, associated with the
sale of shares in BTIM. Consistent with the treatment of prior gains from sale, this gain has been treated as a
cash earnings adjustment given its size and that it does not reflect ongoing operations. The Group has
indicated that it may sell the remaining 10% shareholding in BTIM at some future date. Any future gain or loss
on such a sale will similarly be excluded from the calculation of cash earnings;
Treasury shares: Under AAS, Westpac shares held by the Group in the managed funds and life businesses are
deemed to be Treasury shares and the results of holding these shares cannot be recognised as income in the
reported results. In deriving cash earnings, these results are included to ensure there is no asymmetrical
impact on the Group’s profits because the Treasury shares support policyholder liabilities and equity derivative
transactions which are re-valued in determining income;
Accounting reclassifications between individual line items that do not impact reported results comprise:
- In 2017 the Group changed the accounting treatment for Westpac New Zealand credit card rewards scheme
to align with Group practice. This change has no impact on cash earnings or reported profit but it has led to
the restatement of non-interest income and operating expenses, within cash earnings, in prior periods.
Components of reported profit have not been changed;
- Policyholder tax recoveries: Income and tax amounts that are grossed up to comply with the AAS accounting
standard covering Life Insurance Business (policyholder tax recoveries) are reversed in deriving income and
taxation expense on a cash earnings basis; and
- Operating leases: Under AAS rental income on operating leases is presented gross of the depreciation of the
assets subject to the lease. These amounts are offset in deriving non-interest income and operating
expenses on a cash earnings basis.
The guidance provided in Australian Securities and Investments Commission (ASIC) Regulatory Guide 230 has
been followed when presenting this information.
Audit of 2017 Full Year financial report
PricewaterhouseCoopers has audited the financial statements contained within the Westpac 2017 Full Year
financial report and has issued an unmodified audit opinion. This Full Year Results Announcement has not been
subject to audit by PricewaterhouseCoopers. The financial information contained in this Full Year Results
Announcement includes financial information extracted from the audited financial statements together with
financial information that has not been audited. The cash earnings disclosed as part of this Full Year Results
Announcement have not been separately audited, however they are consistent with the financial information
included in Note 2 of the audited 2017 Full Year financial report.
2017 Full Year financial results
Group results
8 | Westpac Group 2017 Full Year Financial Results Announcement
1.4 Market share and system multiple metrics
1.4.1 Market share
As at As atAs at As at
30 Sept 31 March30 Sept 31 March
2017 20172016 2016
Australia
Banking system (APRA)
1
Housing credit
2,3
25% 25%25% 25%
Cards
23% 23%23% 23%
Household deposits
23% 23%23% 23%
Business deposits
20% 20%20% 19%
Financial system (RBA)
4
Housing credit
2
23% 23%23% 23%
Business credit
19% 19%19% 19%
Retail deposits
3,5
22% 21%22% 21%
New Zealand (RBNZ)
6,7
Consumer lending
19% 19%20% 20%
Deposits
8
19% 19%20% 21%
Business lending
16% 17%17% 16%
Australian Wealth Management
9
Platforms (includes Wrap and Corporate Super)
19% 19%19% 19%
Retail (excludes Cash)
18% 18%18% 18%
Corporate Super
13% 14%13% 13%
Australian Life Insurance
10
Life Insurance - in-force
10% 10%10% 10%
Life Insurance - new business
12% 12%11% 11%
1.4.2 System multiples
Full Year Half YearHalf Year Full YearHalf Year Half Year
Sept 17 Sept 17March 17 Sept 16Sept 16 March 16
Australia
Banking system (APRA)
1
Housing credit
2
0.9 1.10.8 1.21.1 1.2
Cards
11
n/a n/a1.1 n/an/a 1.4
Household deposits
1.2 1.31.1 1.11.0 1.2
Business deposits
3
1.1 1.11.0 1.91.5 4.1
Financial system (RBA)
4
Housing credit
2
0.9 1.00.8 1.21.1 1.2
Business credit
3
,
11
0.5 1.0n/a 1.21.4 1.1
Retail deposits
3,5
1.0 1.30.7 1.52.1 0.9
New Zealand (RBNZ)
6,7
Consumer lending
0.6 0.60.7 0.80.8 0.8
Deposits
8,11
0.1 1.4n/a 0.80.1 1.1
1
Source: Australian Prudential Regulation Authority (APRA).
2
Includes securitised loans.
3
Comparatives have been updated to reflect amendments to APRA and RBA data.
4
Source: Reserve Bank of Australia (RBA).
5
Retail deposits as measured by the RBA, financial system includes financial corporations’ deposits.
6
New Zealand comprises New Zealand banking operations.
7
Source: Reserve Bank of New Zealand (RBNZ).
8
During First Half 2017 the RBNZ extended the definition of Deposits to include wholesale and foreign exchange deposits.
Comparative numbers have not been restated for this change.
9
Market Share Funds under Management / Funds under Administration based on published market share statistics from Strategic
Insight as at 30 June 2017 (for Full Year 2017), as at 31 December 2016 (for First Half 2017) and 30 June 2016 (for Full Year 2016)
31 December 2015 (First Half 2016) and represents the BT Wealth business market share reported at these times.
10
Source: Life Insurance – Strategic Insight as at 30 June 2017 (for Full Year 2017), 31 December 2016 (for First Half 2017), 30 June
2016 (for Second Half 2016), 31 December 2015 (for First Half 2016).
11
n/a indicates that system growth or Westpac growth was negative.
2017 Full Year financial results
Review of Group operations
Westpac Group 2017 Full Year Financial Results Announcement | 9
2.0 Review of Group operations
Movement in cash earnings ($m)
Second Half 2017 – First Half 2017
318
133
+28
Tax & non-
controlling
interests
Second Half
2017 cash
earnings
4,045
(36)
Impairment
charges
Operating
expenses
(103)
Non-interest
income
(284)
Net interest
income
First Half 2017
cash earnings
4,017
Movement in cash earnings ($m)
Full Year 2017– Full Year 2016
356
271
Full Year 2017
cash earnings
8,062
Tax & non-
controlling
interests
(177)
Impairment
charges
+240
Operating
expenses
(174)
Non-interest
income
(36)
Net interest
income
Full Year 2016
cash earnings
7,822
2017 Full Year financial results
Review of Group operations
10 | Westpac Group 2017 Full Year Financial Results Announcement
2.1 Performance overview
Overview
Westpac Group generated cash earnings of $8,062 million in Full Year 2017, 3% higher than Full Year 2016.
Half on half, cash earnings were little changed with Second Half 2017 cash earnings of $4,045 million, $28 million
higher than First Half 2017 cash earnings of $4,017 million.
The rise in cash earnings over the year was supported by a 1% rise in core earnings and a 24% reduction in
impairment charges. The 1% increase in core earnings was due to a 2% rise in net interest income, a small
decline in non-interest income and a 2% rise in expenses.
The 3% growth in cash earnings translated to 2% growth in earnings per share following new shares issued to
satisfy the dividend reinvestment plan (DRP).
Westpac has continued to manage the business in a balanced way across strength, return, productivity and
growth. This year, given evolving regulatory requirements for capital and liquidity along with macro-prudential
restrictions placed on mortgage lending the Group continued to prioritise strength and return over growth.
This focus delivered a lift in Westpac’s CET1 capital ratio to be above the 10.5% APRA ‘unquestionably strong’
benchmark, ensured the Group met the new Net Stable Funding Ratio (NSFR) liquidity requirement ahead of
schedule and maintained the Group’s sound asset quality.
The Group grew a little below system in lending, remaining cautious on certain low return sectors and managing
growth well within mortgage macro-prudential limits. Household deposits on the other hand, grew just ahead of
system supporting the Group’s funding position. Margins were lower over the year from strong competition across
both lending and deposits. Some repricing and continued discipline on discounting has contributed to margins
increasing within the year.
The Group’s investment program has made progress in digitising the organisation, contributing to improved
service and enhancing the technology infrastructure. This year the Group invested around $1.26 billion in its core
business and while most spending was directed to growth and productivity initiatives, additional spending was
directed to regulatory and compliance initiatives.
The investment highlight was the launch of the Panorama wealth system that is simplifying how customers
manage and protect their wealth. There has been further progress in helping customers better manage their
finances and a new contact centre platform has been installed supporting all brands and improving both
productivity and the customer experience. The Group is making good progress with developing the new customer
service hub that will ultimately be the centrepiece of the Group’s origination and service processes. The first
mortgages have now been originated on the platform – an important step in confirming the system’s capabilities.
The strength of the Group’s infrastructure has also been reflected in the material reduction in Severity 1 issues
(those with a major customer impact) over recent years. There were five Severity 1 incidents in Australia in Full
Year 2017, with none in Second Half 2017, compared to 19 recorded in Full Year 2016.
These developments have supported the implementation of Westpac’s service strategy which has continued to
increase the value of the Group’s franchise. Progress over the last 12 months has included:
Increasing customer numbers by 3% over 2017, delivering on the Group’s commitment to grow customer
numbers by 1 million between 2014 and 2017;
Growing lending by 3% and customer deposits by 4%;
Expanding funds on platforms with a 5% increase in funds under administration. This was supported by a
doubling of the funds now residing on the Panorama system;
A significant rise in the Group’s customer satisfaction and Net Promotor Score
1
(NPS) rankings across our
Australian business;
A further 18% reduction in Australian banking customer complaints;
Once again being rated as the global banking leader in the Dow Jones Sustainability Index for 2017, the fourth
year in a row and the 10th time since 2002; and
Workforce engagement increased 10 percentage points to 79% and is now above the level of global high
performing companies.
While Westpac has continued to grow the business and strengthen the balance sheet, it has been in an
environment where the banking industry has seen its reputation weakened.
1
Refer Glossary for details of metric and metric provider.
2017 Full Year financial results
Review of Group operations
Westpac Group 2017 Full Year Financial Results Announcement | 11
Improving the Group’s reputation has been a focus with a number of sector-wide programs and Westpac specific
actions launched this year. At an industry level, Westpac has made good progress in implementing the Australian
Bankers Association’s “Six point plan” including: appointing an independent customer advocate, changes to
remuneration to give greater weight to customer service; updating the Group’s Code of Conduct to better align with
the Code of Banking Practice; and further enhancing whistle-blower protections.
In addition to these initiatives, the Group has commenced a broader program to reduce complexity and resolve
prior issues that have the potential to impact customers and the Group’s reputation. This has included:
Reviewing the Group’s products and how we have engaged with our customers;
Simplifying fee structures including eliminating “foreign” ATM fees, removing transaction fees for everyday
bank accounts, and capping the account-keeping fee to no more than $5 per month; and
Introducing a new basic credit card (Westpac Lite) with a low interest rate, lower credit limits, a monthly fee and
no fees for missed payments.
These reviews have identified some prior instances where we are now taking action to put things right, so that our
customers are not at a disadvantage from certain past practices. In Full Year 2017, the Group provided for
customer refunds and payments of $169 million, with an after tax cash earnings impact of $118 million. These
items have been included as a negative revenue in net interest income ($58 million) and non-interest income
($111 million). Some of the items provided for include: payments to superannuation customers with pre-existing
conditions who did not have the benefit of our improved disclosure practices and who previously had their claims
denied; payments to customers who did not receive all the benefits to which they were entitled to under their
‘packaged accounts’; and refunds where ongoing advice fees were paid but we are unable to formally demonstrate
that the advice service was provided in the relevant period.
In May of this year, the Commonwealth Government introduced a levy on Australia’s five largest banks (Bank
Levy) as part of its efforts to repair Australia’s fiscal budget deficit. The Bank Levy is being applied to the Group’s
liabilities (excluding Additional Tier 1 capital, financial claims eligible deposits, RBA exchange settlement account
balances, and net derivatives). The Bank Levy has been applied since 1 July 2017 and had a cost of $95 million in
Full Year 2017 with a cash earnings impact of $66 million (which is equivalent to 2 cents per share). The Bank
Levy is reported as an interest expense, reducing net interest income in the Second Half 2017 and over the year.
The Bank Levy also impacted a number of the Group’s performance metrics including margins (reducing margins
by 2 basis points in Second Half 2017 and 1 basis point for Full Year 2017), expense to income ratio (increasing
the ratio by 37 basis points for Second Half 2017 and 19 basis points for the Full Year 2017), and return on equity
(reducing ROE by 22 basis points for Second Half 2017 and 11 basis points for the Full Year 2017).
Asset quality remains sound with stressed assets to TCE down 15 basis points over the year. Impaired assets took
another step down with less new problems emerging and the continued work-out of impaired and stressed facilities
– particularly some of the larger facilities.
Provision cover also remained sound with gross impaired asset provisions to impaired assets at 46%. The ratio
was lower over the year following the write-off of a number of large facilities that had relatively high provision
levels.
The economic provision overlay was $66 million lower as some centrally held provisions have now been utilised
(with the impairment charge booked in the divisions) and from the net reduction of some provisions following the
improved performance of certain sectors, particularly New Zealand dairy.
The Group’s tax rate for the year was 30.4%, marginally higher than the 29.9% recorded in Full Year 2016.
Higher earnings for 2017 were accompanied by a further strengthening of the Group’s balance sheet in particular:
The CET1 capital ratio increased by more than a full percentage point to 10.56%. This is just above the
‘unquestionably strong’ benchmark set by APRA, in advance of the January 2020 deadline;
Liquidity remained sound with a liquidity coverage ratio (LCR) of 124% (above the 100% regulatory minimum);
and
The NSFR finished the year at 109%, above the NSFR threshold of 100% that applies from 1 January 2018.
The strengthening of the balance sheet has continued to impact returns, with the increase in capital contributing to
a 22 basis point decline in ROE to 13.8%, although it remains within the 13% to 14% range the Group is seeking
to achieve. Higher capital also led to a flat outcome for economic profit over the year.
Consistent with the higher capital, net tangible assets per share increased 5%.
The Board determined a final ordinary dividend of 94 cents per share, fully franked unchanged over the half.
Dividends for Full Year 2017 were also unchanged compared to Full Year 2016.
2017 Full Year financial results
Review of Group operations
12 | Westpac Group 2017 Full Year Financial Results Announcement
The final ordinary dividend of 94 cents represents a payout ratio of 79% and a dividend yield of 5.9%
1
. The Board
has also determined to issue shares to satisfy the DRP for the Second Half 2017 dividend and to apply no
discount to the market price used to determine the number of shares issued under the DRP. The final ordinary
dividend will be paid on 22 December 2017 with the record date of 14 November 2017
2
.
After allowing for the final dividend, the Group’s adjusted franking account balance is $1,063 million.
All operating divisions, with the exception of BT Financial Group (BTFG), reported an increase in cash earnings
over the year. Consumer Bank, which contributed 39% to Group earnings, lifted cash earnings 4% to $3,104
million. Business Bank recorded a 6% rise in cash earnings with a 4% rise in core earnings and lower impairment
charges. Westpac Institutional Bank (WIB) reported an 18% increase in cash earnings, supported by a rise in
markets income and a lower impairment charge. The New Zealand business recorded a 9% increase in NZ$ cash
earnings, mostly from improving asset quality which led to an impairment benefit for the year. BTFG recorded an
11% decline in cash earnings with performance impacted by provisions for customer payments, a rise in insurance
claims and a reduction in income following the further sale of shares in BTIM.
Strategic Progress
In September 2015 Westpac updated its strategy, outlining the strategic priorities that will assist the Group achieve
its vision. Two years on, the strategy remains unchanged. This consistency has enabled the Group to make
significant progress on implementation and delivery through the year. Westpac’s vision is:
To be one of the world’s great service companies, helping our customers, communities and people
to prosper and grow.
The five strategic priorities supporting that vision are: performance discipline, service leadership, digital
transformation, targeted growth and workforce revolution. Progress on these priorities is outlined below.
Performance discipline
This strategic priority is focused on delivering a superior financial and risk management performance by achieving
balanced outcomes across strength, return, productivity, and growth.
One of the most significant developments in 2017 has been that after a decade of strengthening the balance sheet
from a capital and liquidity perspective, our ratios are now in line with APRAs updated benchmarks. On capital, the
Group materially lifted its capital levels and ratios over 2017 to end the year with a CET1 capital ratio of 10.56%.
While final capital rules are yet to be released by APRA, the Group is well placed to meet any subsequent
changes by the scheduled 1 January 2020 commencement date.
With liquidity, the Group is already meeting the new NSFR arrangements that become effective on 1 January
2018. The Group’s deposit to loan ratio was 57 basis points higher over the year at 71.1% while the duration of
new term funding also increased.
Westpac met APRAs mortgage macro prudential rules operating through the year – including maintaining investor
property growth below 10% per annum and reducing the proportion of new interest only mortgage lending to less
than 30% by the September 2017 quarter. These targets were managed well, with investor lending growing at
around 6% through the year and with interest only facilities representing 26% of new mortgage lending in the
September quarter 2017 down from 50% in First Half 2017. Importantly, these requirements were achieved while
delivering 6% growth in Australian mortgages, which was a little below mortgage system growth.
Productivity has also remained a focus through the year, with the Group’s productivity programs realising
$262 million of savings in 2017 (representing almost 3% of the cost base). The cost to income ratio of 42.2% was
little changed over the year (up 18 basis points). Major developments included:
The full period impact of changes to service models across the organisation. While this incorporates a wide
variety of changes it has principally involved removing manual activity and better aligning customer needs with
bankers. This has led to a reduction of roles;
A material reduction in paper statements across the organisation. Starting with consumers the program has
been extended to business customers;
Consolidation of head office locations and a net reduction of 59 branches across the Group; and
Moving certain technology activities to cloud based infrastructure.
As mentioned earlier, the strengthening of the balance sheet has seen the Group’s ROE decline to 13.8% for
Full Year 2017. The fall in ROE can be traced back to the further strengthening of the balance sheet with a 5% lift
in average ordinary equity greater than the 3% rise in cash earnings. All the Group’s operating divisions continued
to generate sound returns with ROEs above 13% for Full Year 2017.
1
Based on the closing share price as at 30 September 2017 of $31.92.
2
Record date for 2017 final dividend in New York is 13 November 2017.
2017 Full Year financial results
Review of Group operations
Westpac Group 2017 Full Year Financial Results Announcement | 13
In actively managing returns, the Group has continued to focus on improving capital efficiency. This has included
reducing lending to low returning sectors, rationalisation of life insurance entities, optimising unused limits and
continuing to transform the Group’s cost base.
Service leadership
Westpac’s goal of being one of the world’s great service companies means the Group continues to strive to deliver
market-leading customer experiences. When reaffirming this priority two years ago the Group set a target to
increase customer numbers by 1 million between 2015 and 2017. The Group achieved that goal, growing
customers by 458,000 this year (up 3%) being a total increase of 1.2 million over this three year period.
Customer service has also improved across the Group; although there is still further work to do. Developments
over 2017 included:
Customer satisfaction and NPS for the consumer bank increased over the year ranking second for customer
satisfaction and first for NPS of the major banks at September 2017. Westpac ranked first of the major banks
for both business customer satisfaction and business NPS at September 2017;
Simplifying our product suite reducing the number of consumer products for sale in Australia from 150 to less
than 75, and on track to reduce that to below 50 products;
An 18% reduction in complaints across the Australian Consumer and Business Banks and BT compared to
Full Year 2016. Complaints are down more than 40% over the last two years; and
Completing the roll out of “Our Service Promise”, a set a behaviours and values that assist employees to
deliver great customer service.
Digital transformation
Advances in digital technology provide the Group with the ability to improve the customer experience while
simultaneously enhancing productivity and risk management. In seeking to measure the success of this strategic
priority the Group aims to reduce its expense to income ratio to below 40% over the medium term. Developments
through the year have included:
Further enhancing the features and functionality of mobile and online banking including:
- Launch of a new mobile feature allowing customers to analyse their credit card spending;
- Launching new calculators to better help customers manage their finances including for home loan
repayments, home loan costs, term deposits, and credit card repayments; and
- Security upgrades for electronic identity verification for Westpac customers.
Installation of a new call centre infrastructure that will materially improve the experience of calling Westpac as
well as providing the foundation for a range of new customer service initiatives.
At the same time the Group has further enhanced its technology infrastructure including:
Largely completing the functionality of the Panorama wealth management platform; and
Commencing development of the customer service hub. The first stage of this program has now been
completed and the first mortgages have been originated on the platform.
Targeted growth
Westpac is seeking to grow value by targeting a small number of higher growth segments over the medium term.
Wealth and SME have continued to be the major areas of focus this year.
In Wealth, the Group’s strong franchise and investment has led to continuing funds management and
administration flows along with growth in insurance premiums. These trends have, however, been partially offset
by a more cautious approach from consumers and significant regulatory uncertainty. At the same time FUM and
FUA margins have been lower and insurance claims were higher. During Full Year 2017, the Group has seen:
FUM and FUA balances up 12% and 5% respectively;
Australian Life insurance in-force premiums up 10% and general insurance gross written premiums up 1%; and
$3.9 billion of net flows onto the Panorama platform.
In SME, the Group’s distribution model including video conferencing and new lending and payment solutions,
continue to gain traction. The LOLA (loan origination) system has simplified origination processes and increased
the speed of lending decisions, contributing to a 6% increase in small business lending over the year.
2017 Full Year financial results
Review of Group operations
14 | Westpac Group 2017 Full Year Financial Results Announcement
Further developments include:
Expansion of digital capabilities to new deposit account opening, instant decisioning on some overdrafts and
enrolment to receive eStatements; and
Simplified merchant pricing plans and deposit product range.
Workforce revolution
Successful achievement of the Group’s vision depends on the quality of our people and culture. Westpac is
already regarded as a leader in staff engagement, diversity and flexibility but we recognise that there is more to
do. Highlights for the year have included:
Focusing scorecards for employees on service;
Achieving an employee engagement score of 79% in 2017, a 10 percentage point increase over the last year
and now above the global high performing norm;
Achieving the Group’s target of 50% of women in senior leadership positions. This is up from 48% over the
year; and
Implementing a new performance management system called “Motivate”. The new system is centred on a
behaviours-first approach while removing performance rankings and better aligns with modern ways of
working.
Financial performance summary Second Half 2017 – First Half 2017
Cash earnings were up 1% with core earnings down 1% and a 27% reduction in impairment charges.
Performance was impacted by infrequent items during the half; including provisions for customer refunds and
payments, reducing cash earnings by $118 million or just over 3%.
Net interest income rose 4% reflecting a 2% rise in average interest-earning assets and a 3 basis point increase in
margins. Margins excluding Treasury and Markets improved 6 basis points over the half, benefiting from
differential pricing for certain mortgage types and features (including investor lending and loans with an interest
only feature) and the maturity of some more highly priced term deposits. Margins in Second Half 2017 were also
impacted by the introduction of the Bank Levy, which reduced the margin by 2 basis points.
Total loans grew 3%, with most of the rise due to an increase in Australian housing. Other major areas of growth
included Australian business lending, which was 2% higher with growth across SME customers and in mortgage
warehouse facilities while in New Zealand lending was up 1% (up 2% in A$ terms) with most growth in mortgages.
Australian personal lending was lower over the half mostly reflecting lower demand. Deposits grew 2% over
Second Half 2017, with customer deposits also rising 2%. New Zealand customer deposits grew 3% in NZ$
(3% in A$).
Non-interest income was down 9%, impacted by infrequent items indicated above. Excluding these impacts, non-
interest income was little changed over the half. Behind this performance was an increased insurance contribution
and higher performance fees offset by lower markets income (after a strong first half).
Expenses increased 2%, with higher ongoing costs largely offset by $144 million of productivity savings following
the further digitisation of activities. The increase in expenses was mostly due to higher technology investment and
increased regulatory and compliance costs.
Impairment charges were $133 million (or 27%) lower than First Half 2017, due to a decline in new impairment
provisions, a reduction in stressed assets and additional write-backs including in the NZ dairy portfolio. Consumer
delinquencies were largely unchanged over the half although there was some variance across regions with lower
delinquencies in the larger states and higher delinquencies in regions more affected by the continued slowdown in
mining investment. In aggregate, mortgage delinquencies were 1 basis point lower and consumer unsecured
delinquencies were 2 basis points higher.
The effective tax rate was 30.6% in Second Half 2017.
2017 Full Year financial results
Review of Group operations
Westpac Group 2017 Full Year Financial Results Announcement | 15
Financial performance summary Full Year 2017 – Full Year 2016
Cash earnings of $8,062 million were $240 million, or 3%, higher than Full Year 2016. Core earnings grew 1% and
impairment charges were 24% lower. Core earnings growth comprised a 2% lift in net interest income, a small
decline in non-interest income (down $36 million) and a 2% increase in operating expenses.
Performance was impacted by infrequent items indicated above, reducing Full Year 2017 cash earnings by 1%.
The rise in net interest income reflected a 4% increase in average interest-earning assets, partly offset by a
4 basis point decline in net interest margin. Margins excluding Treasury and Markets were 3 basis points lower
with the decline mostly due to higher funding costs, partly offset by loan repricing.
Lending increased 3% with Australian housing the largest contributor, growing 6%. Australian business lending
was little changed over the year as growth across SME and services sector lending was offset by a decline in
some lower returning facilities, including commercial property. Lending in New Zealand increased 3% in NZ$
(down 1% in A$). Customer deposits rose 4% over the year, increasing the deposit to loan ratio to over 71%.
Non-interest income was a little lower over the year (down 1%) with infrequent items reducing growth by
2 percentage points. Excluding these items, non-interest income increased from higher markets income including
a number of large customer transactions, improved collection and pricing of business line fees and increased
insurance premiums. This was partly offset by a reduction in credit card interchange fees, higher insurance claims,
and lower advice income.
Business as usual expenses continue to be offset by productivity gains, with the 2% rise in overall expenses due
to higher investment related spending and an increase in regulatory and compliance costs. Salaries and staff
expenses were 2% higher with annual salary increases partially offset by lower FTE, while occupancy costs were
2% higher, with rental increases partially offset by savings from the consolidation of the Group’s head office into
two Sydney CBD locations and benefits from restructuring the branch network. Technology expenses also
increased (up 4%) mostly from higher software amortisation and software maintenance and licensing costs from
the Group’s investment programs. Productivity savings were $262 million for the year, almost 3% of the cost base.
Overall asset quality remains sound with total stressed assets to TCE down 15 basis points to 1.05% at
30 September 2017. This mostly reflects the write-off of some larger impaired facilities and the reduction in stress
in the New Zealand dairy portfolio. Impairment charges were $271 million lower; the decrease mostly relates to
lower new impaired assets as Full Year 2016 included a small number of larger impaired assets. Write-backs and
recoveries were also higher in Full Year 2017.
Divisional performance summary
The performance of each division in Full Year 2017 compared to Full Year 2016 is discussed below.
Consumer Bank
Consumer Bank has continued to be a key driver of the Group’s growth, expanding its customer base by 4% and
lifting cash earnings by 4%. Net interest income was the key contributor to the performance supported by a 6%
rise in mortgages and a 6% increase in deposits partly offset by a 3 basis point decline in margins. Margins were
impacted by higher funding costs, including deposits. Non-interest income was lower, mostly due to regulatory
changes in credit card interchange fees which were partly offset by some fee repricing. Expenses were well
managed as the division continues to transform itself via digital while enhancing service. Over the counter
transactions are down 23% over the last two years, with digital transactions increasing 19%. Customer service
also continued to improve with NPS
1
rising to number one of the major banks and complaints significantly lower,
down 17% over the year.
Business Bank
Business Bank delivered a 6% increase in cash earnings with the division’s disciplined growth contributing to a 6%
rise in small business lending and a 4% lift in deposits. Non-interest income was 4% higher across business line
fees and transaction fees. Expenses were 2% higher. Asset quality has been sound with stressed assets to TCE
of 2.16%, down 8 basis points over the year mostly in the commercial portfolio. This improvement in asset quality
contributed to a 10% reduction in impairment charges. The division has made good strategic progress through its
focus on enhancing digital for both customers and bankers and on building its payments capability. This includes
extending the range of products and services online and simplifying risk reviews and onboarding processes.
Customer advocacy remains high with NPS retained at number one ranking.
1
Refer Glossary for metric definition including details of the metric provider.
2017 Full Year financial results
Review of Group operations
16 | Westpac Group 2017 Full Year Financial Results Announcement
BT Financial Group
BTFG continued to be strongly positioned across all elements of its business with good fund flows, higher
insurance premiums and a $58 million lift in the contribution from Private Wealth. However, the provision for
customer payments, a revaluation loss on investments in boutique funds, and reduced earnings from the further
sale of shares in BTIM contributed to lower cash earnings over the year. Cash earnings in Full Year 2017 were
11% below Full Year 2016 and excluding the items above, cash earnings were relatively flat. FUM and FUA
balances were up 10% and 6%, supported by Panorama going live while Life in-force premiums were up 10% and
General Insurance gross written premiums were up 1%. Offsetting these gains were lower FUM/FUA margins,
higher insurance claims and an increase in regulatory and compliance costs.
Westpac Institutional Bank
Westpac Institutional Bank (WIB) delivered an 18% lift in cash earnings to $1,304 million, reflecting a rise in
customer transactions, increased markets income, well managed expenses and lower impairment charges. WIB
has managed the business in a disciplined way over recent periods including changing its business model in 2016,
controlling expense growth, reducing exposures with low returns and continuing to focus on service and deepening
relationships. This active management of the balance sheet has led to little change in loans outstanding and a
7 basis point rise in net interest margin. The focus on relationships has supported a 1% rise in deposits and an
11% increase in non-interest income as the division supported customers involved in significant transactions.
Institutional asset quality improved in the year. Impairment charges in Full Year 2017 were $121 million lower, as
Full Year 2016 reflected the downgrade of a small number of larger exposures.
Westpac New Zealand
Westpac New Zealand delivered cash earnings of NZ$970 million, up 9%, over the year, with most of the rise due
to impairments which were a benefit of NZ$76 million in Full Year 2017 compared to a NZ$59 million charge in
Full Year 2016. Core earnings were flat over the year reflecting little change in operating income and a
1% increase in expenses. Balance sheet growth (loans up 3% and deposits up 2%) was offset by a 13 basis point
decline in net interest margin over the year. Most of the decline in net interest margin occurred in the first half of
the year from higher deposit costs and increased wholesale funding costs. Expenses were 1% higher as the
division continued to invest in its transformation program. Productivity benefits, from this multi-year program more
than offset inflationary increases. Asset quality has improved over the year with stressed assets to TCE down
48 basis points to 2.06% and a NZ$76 million impairment benefit for Full Year 2017. The improvement reflects the
improved outlook for the dairy sector and the work-out of one larger facility.
Group Businesses
Cash earnings of negative $132 million for Full Year 2017 compared to positive cash earnings in Full Year 2016 of
$64 million. Around half of the decline was due to a lower Treasury contribution with the remaining fall due to the
impact of exchange rate movements on the hedging of NZ$ earnings, higher investment costs and an increase in
tax expense. The higher tax was due to the settlement of some tax matters in 2016 and from an increase in hybrid
distributions which are not tax deductible.
2017 Full Year financial results
Review of Group operations
Westpac Group 2017 Full Year Financial Results Announcement | 17
Divisional cash earnings summary
Half Year Sept 17 BT FinancialWestpac Westpac
Consumer BusinessGroupInstitutional New Zealand
1
Group
$m Bank Bank(Australia)Bank (A$)Businesses
Group
Net interest income 3,878 2,065 286 764 837 181
8,011
Non-interest income 378 586 850 749 234 (13)
2,784
Net operating income 4,256 2,651 1,136 1,513 1,071 168
10,795
Operating expenses (1,708) (928)(598)(666) (442)(262)
(4,604)
Core earnings 2,548 1,723 538 847 629 (94)
6,191
Impairment (charges) / benefits (274) (162)(1)8 37 32
(360)
Operating profit before income tax 2,274 1,561 537 855 666 (62)
5,831
Income tax expense (681) (470)(163)(248) (185)(37)
(1,784)
Net profit 1,593 1,091 374 607 481 (99)
4,047
Non-controlling interests - - - (3) - 1
(2)
Cash earnings 1,593 1,091 374 604 481 (98)
4,045
Half Year March 17 BT FinancialWestpac Westpac
Consumer BusinessGroupInstitutional New Zealand
2
Group
$m Bank Bank(Australia)Bank (A$)Businesses
Group
Net interest income 3,631 1,990 251 743 790 288
7,693
Non-interest income 424 567 894 957 245 (19)
3,068
Net operating income 4,055 2,557 1,145 1,700 1,035 269
10,761
Operating expenses (1,629) (911)(578)(657) (461)(265)
(4,501)
Core earnings 2,426 1,646 567 1,043 574 4
6,260
Impairment (charges) / benefits (267) (205)(3)(64) 35 11
(493)
Operating profit before income tax 2,159 1,441 564 979 609 15
5,767
Income tax expense (648) (433)(167)(275) (174)(48)
(1,745)
Net profit 1,511 1,008 397 704 435 (33)
4,022
Non-controlling interests - - - (4) - (1)
(5)
Cash earnings 1,511 1,008 397 700 435 (34)
4,017
Mov't Sept 17 - Mar 17 BT FinancialWestpac Westpac
Consumer BusinessGroupInstitutional New Zealand
1
Group
% Bank Bank(Australia)Bank (A$)Businesses
Group
Net interest income
7% 4% 14% 3% 6% (37%)
4%
Non-interest income
(11%) 3% (5%)(22%) (4%)(32%)
(9%)
Net operating income
5% 4% (1%)(11%) 3% (38%)
-
Operating expenses
5% 2% 3% 1% (4%)(1%)
2%
Core earnings 5% 5% (5%)(19%) 10% large
(1%)
Impairment (charges) / benefits
3% (21%)(67%)(113%) 6% 191%
(27%)
Operating profit before income tax 5% 8% (5%)(13%) 9% large
1%
Income tax expense
5% 9% (2%)(10%) 6% (23%)
2%
Net profit 5% 8% (6%)(14%) 11% 200%
1%
Non-controlling interests
- - - (25%) - (200%)
(60%)
Cash earnings 5% 8% (6%)(14%) 11% 188%
1%
1
Refer to Section 3.5 for the Westpac New Zealand NZ$ divisional result.
2
Comparatives have been restated for the accounting change to the Westpac New Zealand credit card rewards scheme
(First Half 2017: $18 million, Second Half 2016: $16 million and First Half 2016: $17 million).
Movement in core earnings by division ($m)
Second Half 2017 – First Half 2017
77
122
-69
Second Half
2017 core
earnings
6,191
Group
Businesses
(98)
Westpac
New Zealand
(A$)
55
WIB
(196)
BTFG
(29)
Business
Bank
Consumer
Bank
First Half 2017
core earnings
6,260
2017 Full Year financial results
Review of Group operations
18 | Westpac Group 2017 Full Year Financial Results Announcement
Divisional cash earnings summary (continued)
Full Year Sept 17 BT FinancialWestpacWestpac
ConsumerBusinessGroup Institutional New Zealand
1
Group
$m BankBank(Australia)Bank(A$)Businesses
Group
Net interest income 7,509 4,055 537 1,507 1,627 469
15,704
Non-interest income 802 1,153 1,744 1,706 479 (32)
5,852
Net operating income 8,311 5,208 2,281 3,213 2,106 437
21,556
Operating expenses (3,337)(1,839)(1,176)(1,323)(903)(527)
(9,105)
Core earnings 4,974 3,369 1,105 1,890 1,203 (90)
12,451
Impairment (charges) / benefits (541)(367)(4)(56)72 43
(853)
Operating profit before income tax 4,433 3,002 1,101 1,834 1,275 (47)
11,598
Income tax expense (1,329)(903)(330)(523)(359)(85)
(3,529)
Net profit 3,104 2,099 771 1,311 916 (132)
8,069
Non-controlling interests - - - (7)- -
(7)
Cash earnings 3,104 2,099 771 1,304 916 (132)
8,062
Full Year Sept 16 BT FinancialWestpacWestpac
ConsumerBusinessGroup Institutional New Zealand
2
Group
$m BankBank(Australia)Bank(A$)Businesses
Group
Net interest income 7,175 3,925 486 1,574 1,606 582
15,348
Non-interest income 850 1,104 1,908 1,536 482 8
5,888
Net operating income 8,025 5,029 2,394 3,110 2,088 590
21,236
Operating expenses (3,270)(1,796)(1,160)(1,347)(889)(469)
(8,931)
Core earnings 4,755 3,233 1,234 1,763 1,199 121
12,305
Impairment (charges) / benefits (492)(410)- (177)(54)9
(1,124)
Operating profit before income tax 4,263 2,823 1,234 1,586 1,145 130
11,181
Income tax expense (1,279)(848)(366)(473)(320)(58)
(3,344)
Net profit 2,984 1,975 868 1,113 825 72
7,837
Non-controlling interests - - - (7)- (8)
(15)
Cash earnings 2,984 1,975 868 1,106 825 64
7,822
Mov't Sept 17 - Sept 16 BT FinancialWestpacWestpac
ConsumerBusinessGroup Institutional New Zealand
1
Group
% BankBank(Australia)Bank(A$)Businesses
Group
Net interest income
5% 3% 10% (4%)1% (19%)
2%
Non-interest income
(6%)4% (9%)11% (1%)large
(1%)
Net operating income
4% 4% (5%)3% 1% (26%)
2%
Operating expenses
2% 2% 1% (2%)2% 12%
2%
Core earnings 5% 4% (10%)7% - (174%)
1%
Impairment (charges) / benefits
10% (10%)- (68%)largelarge
(24%)
Operating profit before income tax 4% 6% (11%)16% 11% (136%)
4%
Income tax expense
4% 6% (10%)11% 12% 47%
6%
Net profit 4% 6% (11%)18% 11% large
3%
Non-controlling interests
- - - - - (100%)
(53%)
Cash earnings 4% 6% (11%)18% 11% large
3%
1
Refer to Section 3.5 for the Westpac New Zealand NZ$ divisional result.
2
Comparatives have been restated for the accounting change to the Westpac New Zealand credit card rewards scheme
(First Half 2017: $18 million, Second Half 2016: $16 million and First Half 2016: $17 million).
Movement in core earnings by division ($m)
Full Year 2017 – Full Year 2016
127136
219
BTFG
(129)
Business
Bank
Consumer
Bank
Group
Businesses
12,451
Full Year 2017
core earnings
+146
12,305
Westpac
New Zealand
(A$)
Full Year 2016
core earnings
4
WIB
(211)
2017 Full Year financial results
Review of Group operations
Westpac Group 2017 Full Year Financial Results Announcement | 19
2.2 Review of earnings
2.2.1 Net interest income
1
% Mov't % Mov't
Half Year Half Year Sept 17 - Full Year Full Year Sept 17 -
$m Sept 17 March 17 Mar 17 Sept 17 Sept 16 Sept 16
Net interest income
Net interest income excluding Treasury & Markets 7,844 7,432
6
15,276 14,849
3
Treasury net interest income
2
120 237
(49)
357 437
(18)
Markets net interest income 47 24
96
71 62
15
Net interest income 8,011 7,693
4
15,704 15,348
2
Average interest-earning assets
Loans 640,339 627,267
2
633,821 607,180
4
Third party liquid assets
3
96,262 93,798
3
95,033 84,469
13
Other interest-earning assets 23,163 23,718
(2)
23,440 30,194
(22)
Average interest-earning assets 759,764 744,783
2
752,294 721,843
4
Net interest margin
Group net interest margin 2.10% 2.07%
3bps
2.09% 2.13%
(4bps)
Group net interest margin excluding Treasury & Markets
4
2.06% 2.00%
6bps
2.03% 2.06%
(3bps)
Second Half 2017 – First Half 2017
Net interest income increased $318 million or 4% compared to First Half 2017. Key features include:
A 2% increase in average interest-earning assets (AIEA) largely from Australian housing, which grew 3%;
Group net interest margin excluding Treasury & Markets increased 6 basis points. Loan repricing and lower
wholesale funding costs were partly offset by the impact of lower interest rates;
The introduction of the Bank Levy effective 1 July 2017 impacted margin by 2 basis points; and
Treasury net interest income decreased $117 million, with lower market volatility impacting returns from interest
rate risk management.
Full Year 2017 – Full Year 2016
Net interest income increased $356 million or 2% compared to Full Year 2016. Key features include:
4% AIEA growth, primarily from Australian housing which grew 6%. Third party liquid assets increased
$11 billion or 13% in response to a $10 billion lower Committed Liquidity Facility (CLF), which reduced from
$59 billion to $49 billion on 1 January 2017;
Group net interest margin excluding Treasury & Markets decreased 3 basis points. Higher funding costs
primarily from term deposit competition and the impact of lower interest rates, were partly offset by loan
repricing; and
Treasury net interest income reduced $80 million or 18%, with lower market volatility impacting returns from
interest rate risk management.
1
Refer to Section 4 Note 3 for reported results breakdown. Refer to Section 5 Note 3 for cash earnings results breakdown.
As discussed in Section 1.3, commentary is reflected on a cash earnings basis.
2
Treasury net interest income excludes capital benefit.
3
Refer Glossary for definition.
4
Calculated by dividing net interest income excluding Treasury and Markets by total average interest earning assets.
2017 Full Year financial results
Review of Group operations
20 | Westpac Group 2017 Full Year Financial Results Announcement
2.2.2 Loans
1
As at As at As at % Mov't % Mov't
30 Sept 31 March 30 Sept Sept 17 - Sept 17 -
$m 2017 2017 2016 Mar 17 Sept 16
Australia 599,162 583,546 576,391 3 4
Housing 427,167 413,938 404,190
3 6
Personal (loans and cards) 21,952 22,716 22,825
(3) (4)
Business 150,542 147,705 150,209
2 -
Other
2
1,985 2,033 2,020
(2) (2)
Provisions (2,484) (2,846) (2,853)
(13) (13)
Blank Line
New Zealand (A$) 71,484 70,350 72,080 2 (1)
Blank Line
New Zealand (NZ$) 77,680 76,948 75,582
1 3
Housing 46,943 46,245 45,126
2 4
Personal (loans and cards) 2,017 1,977 1,956
2 3
Business 28,979 29,034 28,834
- 1
Other 92 90 101
2 (9)
Provisions (351) (398) (435)
(12) (19)
Blank Line
Other overseas 14,273 13,050 13,455 9 6
Trade finance 2,818 2,281 2,358
24 20
Other loans 11,515 10,821 11,159
6 3
Provisions (60) (52) (62)
15 (3)
Blank Line
Total loans 684,919 666,946 661,926 3 3
Second Half 2017 – First Half 2017
Total loans increased $18.0 billion or 3% compared to First Half 2017. Excluding foreign currency translation
impacts, total loans increased $17.8 billion or 3%.
Key features of total loan growth were:
Australian housing loans increased $13.2 billion or 3%. In the September 2017 quarter, the Group reduced the
proportion of interest only lending flows to 26%, below the 30% macro-prudential limit and down from 50%
during First Half 2017. In addition, customers switched $18.6 billion of interest only loans to principal and
interest during Second Half 2017. Interest only loans now comprise 46% of the portfolio (March 2017: 50%);
Australian personal loans and cards decreased $0.8 billion or 3%, primarily in auto finance and credit cards
(consistent with a reduction in the system balances);
Australian business loans increased $2.8 billion or 2%, primarily from a 2% increase in Business Bank with
growth largely in higher returning segments including SME (3%), professional services and health. Institutional
lending was up 2% from increased utilisation of existing mortgage warehouse facilities;
New Zealand loans increased NZ$0.7 billion or 1% as the business focused on improving margins and returns.
Housing was up 2% mostly in fixed rates and in owner occupied balances, with owner occupied comprising
72% of the portfolio; and
Other overseas lending increased $1.2 billion or 9%, primarily from growth in Asia.
Full Year 2017 – Full Year 2016
Total loans increased $23.0 billion or 3% compared to Full Year 2016. Excluding foreign currency translation
impacts, total loans increased $26.0 billion or 4%.
Key features of total loan growth were:
Australian housing loans increased $23.0 billion or 6%. During the year, the Group further tightened origination
standards, reduced new lending discounts and adjusted interest rates on different loan categories. Based on
the APRA definition of investor lending, the Group’s investor property lending grew 6%, below the 10% cap.
Fixed rate loans increased from 17% of the portfolio at Full Year 2016 to 21% at Full Year 2017;
Australian business loans increased $0.3 billion, with growth in Business Bank across SME, professional
services and health, largely offset by lower institutional lending including a decline in the utilisation of mortgage
warehouse facilities; and
1
Spot loan balances.
2
Includes margin lending.
2017 Full Year financial results
Review of Group operations
Westpac Group 2017 Full Year Financial Results Announcement | 21
New Zealand lending increased NZ$2.1 billion or 3%. Housing loans grew at 4% and business lending
increased 1% primarily from growth in SME and agriculture. Following the LVR restrictions imposed by the
RBNZ on investor property loans (with an LVR of greater than 60%), the proportion of new flows for investor
property lending decreased by 9 percentage points to 22%.
2.2.3 Deposits and other borrowings
1
Blank Line As at As at As at % Mov't % Mov't
Blank Line 30 Sept 31 March 30 Sept Sept 17 - Sept 17 -
$m 2017 2017 2016 Mar 17 Sept 16
Customer deposits
Australia 420,841 414,706 397,033 1 6
At call 226,920 219,445 210,666
3 8
Term 153,597 155,777 148,876
(1) 3
Non-interest bearing 40,324 39,484 37,491
2 8
Blank Line
New Zealand (A$) 53,746 51,942 54,875 3 (2)
Blank Line
New Zealand (NZ$) 58,405 56,812 57,541
3 2
At call 23,117 23,894 23,742
(3) (3)
Term 30,014 27,837 29,179
8 3
Non-interest bearing 5,274 5,081 4,620
4 14
Blank Line
Other overseas (A$) 12,083 12,012 14,700 1 (18)
Blank Line
Total customer deposits 486,670 478,660 466,608 2 4
Blank Line
Certificates of deposit 46,921 43,853 46,463 7 1
Australia 37,515 31,011 29,774
21 26
New Zealand (A$) 546 1,478 1,192
(63) (54)
Other overseas (A$) 8,860 11,364 15,497
(22) (43)
Blank Line
Total deposits and other borrowings 533,591 522,513 513,071 2 4
Second Half 2017 – First Half 2017
Total customer deposits increased $8.0 billion or 2% compared to First Half 2017. Excluding foreign currency
translation impacts, customer deposits increased $7.7 billion or 2%.
Key features of total customer deposits growth were:
Australian customer deposits increased $6.1 billion or 1%, with above system
2
growth in household deposits,
particularly at-call deposits which were up 3% in the half. Term deposits were 1% lower primarily from the
Government sector; and
New Zealand customer deposits increased NZ$1.6 billion or 3%, mainly from term deposits (up 8%) as the
business focused on higher quality deposits and customers had a preference for yield and duration.
Certificates of deposits increased $3.1 billion or 7%, primarily reflecting the Group’s increased issuance in the
Australian market in Second Half 2017.
Full Year 2017 – Full Year 2016
Total customer deposits increased $20.1 billion or 4% compared to Full Year 2016. Excluding foreign currency
translation impacts, customer deposits increased $22.3 billion or 5%.
Key features of total customer deposits growth were:
Australian customer deposits increased $23.8 billion or 6%, with above system
2
growth in household deposits
and growth in institutional deposits. Customers continued to direct funds to mortgage offset accounts,
supporting 8% growth in Australian non-interest bearing deposits. The Group continues to focus on growing
higher quality deposits in preparation for the introduction of NSFR on 1 January 2018;
New Zealand customer deposits increased NZ$0.9 billion or 2%, with a 14% increase in non-interest bearing
deposits from growth in business and consumer transaction accounts; and
Other overseas deposits decreased $2.6 billion or 18% due to a decline in Asian deposits.
1
Spot deposit balances.
2
Source: APRA
2017 Full Year financial results
Review of Group operations
22 | Westpac Group 2017 Full Year Financial Results Announcement
2.2.4 Net interest margin
Second Half 2017 – First Half 2017
Group net interest margin was 2.10%, an increase of 3 basis points from First Half 2017. Key features include:
7 basis points increase from loan spreads. This reflected differential pricing changes for certain Australian
mortgages, including investor lending and interest only loans, partly offset by broad based competition. While
there was some customer switching from interest only to principal and interest loans during the final quarter of
the year, this only had a minimal impact on loan spreads in the half;
Customer deposit spreads were little changed, with term deposit repricing offset by the continuing impact of
lower interest rates on the hedging of transaction deposits;
2 basis points increase from term wholesale funding, as pricing for new term senior issuance was lower than
maturing deals;
2 basis points decrease from the introduction of the Bank Levy, effective 1 July 2017 (equivalent to a levy of 6
basis points for three months on $631 billion of applicable liabilities);
Capital and other was unchanged as the impact of lower interest rates was offset by the positive impact from
higher capital balances;
1 basis point decrease from liquidity, reflecting the increase holdings of third party liquid assets. This was
partly offset by a lower CLF fee following a $10 billion reduction to the CLF from 1 January 2017; and
Treasury and markets contribution decreased 3 basis points, with lower market volatility impacting returns
from interest rate risk management.
Bank Levy
(2bps)
Te r m
wholesale
funding
(3bps)
First Half
2017
Group margin up 3bps
7bps
2.10%
LoansSecond
Half 2017
0bps
LiquidityCustomer
deposits
2.07%
2bps
2.06%
Treasury
& Markets
(1bps)
Capital
& other
0bps
Excluding Treasury and
Markets up 6bps
Group Net Interest Margin Movement (%)
Second Half 2017 – First Half 2017
2.00%
2017 Full Year financial results
Review of Group operations
Westpac Group 2017 Full Year Financial Results Announcement | 23
Full Year 2017 – Full Year 2016
Group net interest margin was 2.09%, a decrease of 4 basis points from Full Year 2016. Key components of the
decrease include:
9 basis points increase from loan spreads primarily from the full period impact of Australian mortgage and
business lending repricing in 2016 and changes to Australian mortgage rates for interest only and investor
loans during 2017. This was partly offset by broad based competition and higher short term funding costs;
5 basis points decrease from customer deposit spreads, driven by increased competition for term deposits in
late 2016 and early 2017 (4 basis points) and the impact of lower interest rates on the hedging of transaction
deposits;
2 basis points decrease from higher term wholesale funding costs as the Group lengthened average tenors in
preparation for the implementation of NSFR on 1 January 2018 and an increase in Additional Tier 1 and Tier 2
capital balances and the higher cost of these instruments;
1 basis point decrease from the introduction of the Bank Levy;
Capital and other decreased 2 basis points primarily from the impact of lower interest rates;
2 basis point decrease from liquidity, due to increases in third party liquid assets; and
1 basis point decrease from Treasury and Markets, with lower market volatility impacting returns from interest
rate risk management.
2.09%
Treasury
& Markets
(1bps)
Liquidity
(2bps)
Capital
& other
(2bps)
Bank Levy
Group margin down 4bps
Te r m
wholesale
funding
(2bps)
Customer
deposits
(5bps)
(1bps)
9bps
Full Year
2016
2.13%
Full Year
2017
Loans
Excluding Treasury and
Markets down 3bps
Group Net Interest Margin Movement (%)
Full Year 2017 – Full Year 2016
2.03%
2.06%
2017 Full Year financial results
Review of Group operations
24 | Westpac Group 2017 Full Year Financial Results Announcement
2.2.5 Non-interest income
1
% Mov't % Mov't
Half Year Half Year Sept 17 - Full Year Full Year Sept 17 -
$m Sept 17 March 17 Mar 17 Sept 17 Sept 16 Sept 16
Fees and commissions
2
1,329 1,426
(7)
2,755 2,788
(1)
Wealth management and insurance income 924 886
4
1,810 1,911
(5)
Trading income 504 713
(29)
1,217 1,124
8
Other income 27 43
(37)
70 65
8
Non-interest income 2,784 3,068 (9) 5,852 5,888 (1)
Second Half 2017 – First Half 2017
Non-interest income decreased $284 million, or 9% compared to First Half 2017. This was primarily due to lower
trading income ($209 million) following a strong first half and the impact of infrequent items including $111 million
in provisions for customer refunds and payments (refer to Section 2.1 for further information). Excluding these
items, non-interest income rose from an increase in insurance income and business lending fees.
Fees and commissions
Fees and commissions decreased $97 million or 7% compared to First Half 2017, primarily from:
Lower Advice income including provisions for customer refunds and payments ($55 million);
Lower Australian credit card income ($28 million) primarily from lower revenue associated with rewards
programs and regulatory changes to interchange rates from 1 July 2017; and
Lower institutional fee income ($19 million) from lower deal volumes; partly offset by
Higher business lending fees ($13 million) from business growth.
Wealth management and insurance income
Wealth management and insurance income increased $38 million or 4% during the half, with:
Insurance income $75 million higher:
- General insurance income increased $74 million from lower claims, with First Half 2017 impacted by
Cyclone Debbie claims. Net earned premiums were flat in the half;
- Life Insurance income increased $11 million, primarily from lower claims and a 4% increase in in-force
premiums; and
- LMI contribution was $10 million lower from a reduction in loans written in higher LVR bands and higher
claims.
WIB wealth management income was up $33 million with performance fees recognised in Second Half 2017;
and
FUM/FUA income was little changed as the benefit of higher asset markets and positive net flows was largely
offset by margin compression as legacy products were transferred to lower fee ‘MySuper’ products (Refer to
Section 2.2.6 for further information on FUM/FUA balance movements); partly offset by
Provisions for customer refunds and payments related to wealth products ($56 million); and
Contribution from investments in boutique funds $19 million lower.
Trading income
Trading income was $209 million lower compared to First Half 2017. The majority of the reduction was due to
lower risk income, with customer activity also lower in WIB markets. Refer to Section 2.2.7 for further detail on
Markets related income.
Other income
The decline in other income ($16 million) was mostly due to a lower share of associates profit, following the further
sale of BTIM shares.
1
Refer to Section 4 Note 4 for reported results breakdown. Refer to Section 5 Note 4 for cash earnings results breakdown.
As discussed in Section 1.3, commentary is reflected on a cash earnings basis.
2
Comparatives have been restated for the accounting change to the Westpac New Zealand credit card rewards scheme
(First Half 2017: $18 million, Second Half 2016: $16 million and First Half 2016: $17 million).
2017 Full Year financial results
Review of Group operations
Westpac Group 2017 Full Year Financial Results Announcement | 25
Full Year 2017 – Full Year 2016
Non-interest income was down $36 million or 1% over the year with business growth more than offset by a number
of infrequent items. Drivers of business growth include higher markets income in WIB and business lending fees,
partly offset by higher insurance claims and a reduction in Australian credit card interchange fees.
Fees and commissions
Fees and commissions decreased $33 million, or 1% compared to Full Year 2016, largely due to:
Lower Advice income including provisions for customer refunds and payments ($55 million);
Lower Australian credit card income ($39 million) primarily from lower revenue associated with rewards
programs and regulatory changes to interchange rates from 1 July 2017; partly offset by
Increased business lending fees ($50 million) supported by higher line fees from business growth; and
Higher transaction fees ($15 million) from an increase in account numbers, pricing changes and transaction
volumes across the Group.
Wealth management and insurance income
Wealth management and insurance income decreased $101 million or 5% with the main components being:
Provisions for customer refunds and payments related to wealth products ($56 million);
Insurance income decreased $29 million, primarily from:
- General insurance income reduced $32 million from higher claims, including the impact of Cyclone Debbie
in First Half 2017, partly offset by a 2% increase in net earned premiums;
- Higher LMI income ($6 million) related to arrangements for mortgages with an LVR >90%; and
- Life insurance income was little changed (down $3 million) with higher claims offset by a 6% increase in net
earned premiums.
Lower contribution from investments in boutique funds ($26 million); and
A decrease in FUM/FUA income ($13 million), with the benefit from higher asset markets and positive net flows
more than offset by margin compression from the transfer of legacy products to lower fee ‘MySuper’ products.
Refer to Section 2.2.6 for further information on FUM/FUA balance movements; partly offset by
Increase in WIB wealth management income ($6 million).
Trading income
Trading income increased $93 million or 8% compared to Full Year 2016. Refer to Section 2.2.7 for further detail
on Markets related income.
Other income
Other income increased $5 million, or 8% compared to Full Year 2016. Higher operating lease rental income was
partly offset by a decrease in share of associates profit following the further sale of BTIM shares.
2017 Full Year financial results
Review of Group operations
26 | Westpac Group 2017 Full Year Financial Results Announcement
2.2.6 Funds Under Management / Funds Under Administration
As at As at As at % Mov't % Mov't
30 Sept 31 March 30 Sept Sept 17 - Sept 17 -
$bn 2017 2017 2016 Mar 17 Sept 16
Funds Under Management (FUM)
1
BTFG 43.6 42.5 35.8
3 22
Advance Asset Management 9.5 12.6 12.6
(25) (25)
Westpac Institutional Bank 12.5 11.3 10.2
11 23
New Zealand (A$) 7.7 7.1 7.1
8 8
Group FUM 73.3 73.5 65.7 - 12
Funds Under Administration (FUA)
BTFG 103.2 99.3 94.3
4 9
Asgard 35.1 37.1 36.5
(5) (4)
New Zealand (A$) 1.6 1.8 2.0
(11) (20)
Group FUA 139.9 138.2 132.8 1 5
% Mov't % Mov't
Half Year Half Year Sept 17 - Full Year Full Year Sept 17 -
$bn Sept 17 March 17 Mar 17 Sept 17 Sept 16 Sept 16
Average FUM for the Group
2
73.7 68.3
8
71.0 63.8
11
Average FUA for the Group
2
140.2 134.9
4
137.4 128.2
7
1
FUM balances represent a range of Retail and Superannuation investments where the individual investor selects the risk profile and
investment options managed by Advance (multi manager of investment management companies).
2
Averages are based on a six month period.
2017 Full Year financial results
Review of Group operations
Westpac Group 2017 Full Year Financial Results Announcement | 27
2.2.7 Markets related income
1
% Mov't % Mov't
Half Year Half Year Sept 17 - Full Year Full Year Sept 17 -
$m Sept 17 March 17 Mar 17 Sept 17 Sept 16 Sept 16
Net interest income 47 24
96
71 62
15
Non-interest income 488 724
(33)
1,212 1,093
11
Total Markets income 535 748 (28) 1,283 1,155 11
Customer income 436 482
(10)
918 912
1
Non-customer income 72 247
(71)
319 231
38
Derivative valuation adjustments 27 19
42
46 12
large
Total Markets income 535 748 (28) 1,283 1,155 11
Markets income comprises sales and risk management revenue derived from the creation, pricing and distribution
of risk management products to the Group’s consumer, business, corporate and institutional customers. Dedicated
relationship specialists provide product solutions to these customers to help manage their interest rate, foreign
exchange, commodity, credit and structured products risk exposures.
Second Half 2017 – First Half 2017
Total markets income decreased by $213 million or 28% compared to the First Half 2017, primarily due to a fall in
non-customer income.
Non-customer income decreased $175 million or 71% compared to First Half 2017, due to lower market volatility
during Second Half 2017.
Customer income decreased $46 million or 10% compared to First Half 2017, from lower fixed income sales.
Full Year 2017 – Full Year 2016
Total markets income increased by $128 million or 11% compared to Full Year 2016, primarily due to higher non-
customer income.
Non-customer income increased $88 million or 38% compared to Full Year 2016, due to higher risk management
income from fixed income and commodities in Full Year 2017.
Customer income increased $6 million or 1% on Full Year 2016, across both fixed income and foreign currency
sales.
Markets Value at Risk (VaR)
2
$m Average
High Low
Six months ended 30 September 2017 11.2 16.0 7.6
Six months ended 31 March 2017 9.4 13.1 6.5
Six months ended 30 September 2016 7.0 9.7 4.7
The Components of Markets VaR are as follows:
Average
Half Year Half Year Half Year
$m Sept 17 March 17 Sept 16
Interest rate risk 3.0 3.7 3.9
Foreign exchange risk 1.5 2.3 3.0
Equity risk 0.1 0.1 0.3
Commodity risk
3
8.1 5.0 2.4
Credit and other market risks
4
3.4 3.6 2.5
Diversification benefit (4.9) (5.3) (5.1)
Net market risk 11.2 9.4 7.0
1
Markets income includes WIB Markets, Business Bank, Consumer Bank, BTFG and Westpac New Zealand markets.
2
The daily VaR presented above reflects a WIB divisional view of VaR. It varies from presentations of VaR in Westpac’s 2017 Annual
Report and Australian Prudential Standard (APS) 330 Prudential Disclosure under Basel III where market risk disclosures are
segregated into trading and banking book. VaR measures the potential for loss using a history of price volatility.
3
Includes electricity risk.
4
Includes pre-payment risk and credit spread risk.
2017 Full Year financial results
Review of Group operations
28 | Westpac Group 2017 Full Year Financial Results Announcement
2.2.8 Operating expenses
1
% Mov't % Mov't
Half Year Half Year Sept 17 - Full Year Full Year Sept 17 -
$m Sept 17 March 17 Mar 17 Sept 17 Sept 16 Sept 16
Staff expenses (2,340) (2,326)
1
(4,666) (4,591)
2
Occupancy expenses (485) (477)
2
(962) (939)
2
Technology expenses (1,019) (989)
3
(2,008) (1,922)
4
Other expenses
2
(760) (709)
7
(1,469) (1,479)
(1)
Total expenses (4,604) (4,501) 2 (9,105) (8,931) 2
Second Half 2017 – First Half 2017
Operating expenses increased $103 million or 2% compared to First Half 2017. Productivity benefits of
$144 million offset operating cost growth, with the increase due to investment related spending ($54 million) and
higher regulatory and compliance costs ($50 million).
Staff expenses increased $14 million during the half. The full period impact of salary increases and higher FTE to
support regulatory and compliance activities were partly offset by productivity benefits, lower share based
payments and lower restructuring costs.
Occupancy expenses increased $8 million or 2% in the half primarily due to exit costs associated with retail
property consolidation and rental increases across corporate sites. Australian branch numbers reduced by 13 in
the half.
Technology expenses increased $30 million or 3% compared to First Half 2017, largely from the impact of the
Group’s investment programs. Higher amortisation of software assets ($16 million), higher depreciation of IT
equipment ($6 million) and an increase in software maintenance and licensing costs ($23 million) was largely
driven by programs including the customer service hub, new payments platform and enhancing the Group’s
technology infrastructure. Technology services costs were lower, supported by benefits from renegotiation with
vendors.
Other expenses increased $51 million from increased regulatory and compliance related expenses and higher
marketing costs, largely seen through higher professional and processing services costs. This was partly offset by
disciplined cost management and lower credit card loyalty program costs ($16 million) from seasonally lower
redemptions and changes to reward programs.
Full Year 2017 – Full Year 2016
Operating expenses increased $174 million or 2% compared to Full Year 2016. Productivity benefits of
$262 million largely offset growth in operating costs. Increase in expenses was driven primarily by higher
regulatory and compliance related costs ($84 million) and the impact of the Group’s investment program
($82 million).
Staff expenses increased $75 million or 2% compared to Full Year 2016. Annual salary increases and higher
investment costs were partly offset by productivity benefits, lower restructuring costs and reduced share based
payments.
Occupancy expenses increased $23 million or 2% over the year, primarily due to annual rental expense
increases and exit costs associated with retail property consolidation. Australian branch numbers reduced by 42
over the year.
Technology expenses increased $86 million or 4% compared to Full Year 2016, largely from the completion of
key elements of the Group’s investment programs. This included higher amortisation of software assets
($57 million) and higher software maintenance and licensing costs ($37 million) from programs including the
customer service hub, Panorama, new payments platform and enhanced systems for regulatory and compliance
purposes.
Other expenses were down $10 million or 1% during the year. The increase in regulatory and compliance costs
has been mostly offset by lower outsourced operational costs and a decrease in credit card loyalty program costs
($25 million) as a result of changes to reward programs. In addition, non-lending losses were $8 million lower from
reduced credit card and digital fraud, which has benefited from recent enhancements to early detection capability
and additional security.
1
Refer to Section 4 Note 5 for reported results breakdown. Refer to Section 5 Note 5 for cash earnings breakdown. As discussed in
Section 1.3, commentary is on a cash earnings basis.
2
Comparatives have been restated for the accounting change to the Westpac New Zealand credit card rewards scheme
(First Half: $18 million, Second Half 2016: $16 million and First Half 2016: $17 million).
2017 Full Year financial results
Review of Group operations
Westpac Group 2017 Full Year Financial Results Announcement | 29
Full Time Equivalent Employees (FTE)
As at As at As at % Mov't % Mov't
30 Sept 31 March 30 Sept Sept 17 - Sept 17 -
Analysis of movement in FTE 2017 2017 2016 Mar 17 Sept 16
Permanent employees 32,044 31,994 32,190
- -
Temporary employees 3,052 3,296 3,390
(7) (10)
FTE 35,096 35,290 35,580 (1) (1)
Average FTE
1
35,216 35,132 35,410 - (1)
Second Half 2017 – First Half 2017
FTE decreased 194 or 1% in the half from productivity initiatives that have streamlined and digitised processes
across both operations and contact centres, partly offset by additional resources directed to the Group’s
investment programs and compliance related activities.
Full Year 2017 – Full Year 2016
FTE decreased 484 or 1% over the year from productivity initiatives that have streamlined and digitised processes
across both technology and operations, partly offset by growth to support investments, productivity initiatives and
compliance related activities.
Investment spend
% Mov't % Mov't
Half Year Half Year Sept 17 - Full Year Full Year Sept 17 -
$m Sept 17 March 17 Mar 17 Sept 17 Sept 16 Sept 16
Expensed 243 236
3
479 517
(7)
Capitalised software and fixed assets 433 344
26
777 710
9
Total 676 580 17 1,256 1,227 2
Growth and productivity 417 375
11
792 778
2
Regulatory change 182 143
27
325 278
17
Other technology 77 62
24
139 171
(19)
Total 676 580 17 1,256 1,227 2
In Full Year 2017, the Group spent $1.26 billion on its investment program with around 54% spent in the second
half of the year. The majority of spending continues to be directed to growth and productivity initiatives although
there has been a significant lift in regulatory change investment over the year. Of the $1.26 billion investment, 38%
was expensed while the remaining 62% was capitalised.
The 17% increase in investment spend in the second half of the year is consistent with patterns over recent years
where second half spending typically exceeds that of the first half. In 2017, the increase principally relates to the
timing of spending on the customer service hub and higher regulatory spending/investment in cyber security.
Across major investment categories the following progress was achieved in Second Half 2017:
Growth and Productivity
The customer service hub is a major program to upgrade the Group’s banking infrastructure to enable a one
bank multi-brand operating model creating greater efficiencies and a more agile environment. The system will
support a single and complete view of the customer, and it will enable continuous customer conversations
across various channels. The system is beginning with home ownership creating an ability to process all
elements of a home loan, including offset accounts, and will ultimately be broadened across other product sets.
The program reached a key milestone through the year, originating its first Westpac home loans;
Investment to connect to the industry’s new payments platform to enable customers to make and receive real
time, data rich payments. The system is expected to begin its roll out in 2018;
Enhancing digital useability by making common tasks more accessible and simplifying other tasks to make it
easier for customers. Improvements included:
- Making it easier to become a customer via mobile; customers can now open an account and sign on in five
minutes; and
- Providing better access to features on mobile such as locking/unlocking credit cards with one click, and
ability to transfer funds or check balances without needing to log on.
1
Averages are based on a six month period.
2017 Full Year financial results
Review of Group operations
30 | Westpac Group 2017 Full Year Financial Results Announcement
Digital enhancements for Business Bank customers included:
- Enabling St.George sole trader customers to open a deposit account via a contact centre in under
10 minutes compared to 45 minutes previously;
- Increased access to electronic statements with over 300,000 digitally active customers migrated;
- Improving the opening of new transaction accounts for Westpac Commercial customers. By better capturing
existing information approximately 25 forms have been reduced to 1 application form; and
- Enhancements to the credit risk management system has reduced manual processing and saved time by
simplifying risk reviews, serviceability assessments and automated covenant monitoring.
Implemented a new process for cheque imaging allowing branches to submit cheques digitally. This has
shortened the process time and reduced courier and processing costs, particularly for more remote locations;
and
Continued enhancements to Panorama (BT’s funds administration system) with automation of the Super
Stream contributions (super stream is an industry hub for clearing superannuation payments).
Regulatory Change
A number of programs are underway under this category including:
Enhancing regulatory reporting for Super Stream Government to Business, work on common reporting
standards, preparing for AASB 9 and supporting collection and reporting of new economic and financial
statistics;
Updating systems to enhance both the management and reporting of the NSFR (applying from 1 January
2018) and intraday liquidity;
Strengthening compliance processes and systems including a new integrated risk and compliance platform and
improving data management and analytics; and
Implementing various industry changes including national mortgage forms and conveyancing industry changes.
Other technology
Major initiatives under this category included further upgrades to the Group’s infrastructure, additional migration of
applications onto cloud technologies and upgrades to the Group’s 24/7 Cybersecurity Co-ordination Centre.
Capitalised software
% Mov't % Mov't
Half Year Half Year Sept 17 - Full Year Full Year Sept 17 -
$m Sept 17 March 17 Mar 17 Sept 17 Sept 16 Sept 16
Opening balance 1,814 1,781
2
1,781 1,654
8
Total additions 422 344
23
766 696
10
Amortisation expense (311) (303)
3
(614) (565)
9
Impairment expense (11) (3)
large
(14) (6)
133
Foreign exchange translation 2 (5)
(140)
(3) 2
large
Closing balance 1,916 1,814 6 1,916 1,781 8
Capitalised software
Increased 6% during Second Half 2017 and was 8% higher than Full Year 2016. In Second Half 2017 additions
increased $78 million (23%) compared to First Half 2017 consistent with the higher investment spend. Full Year
2017 additions were 10% higher compared to Full Year 2016 from both increased investment spending and higher
capitalisation as some major programs (customer service hub, Panorama and new payments platform) progressed
from planning to development and delivery stages.
Software amortisation
Increased $49 million (9%) compared to Full Year 2016. In the Second Half 2017 amortisation increased $8 million
(3%) compared to First Half 2017 as projects or major project components were completed. As part of the Group’s
regular asset review, $11 million of capitalised software was written off in Second Half 2017. The average
amortisation period for capitalised software assets was 2.9 years, which has been consistent with recent periods.
2017 Full Year financial results
Review of Group operations
Westpac Group 2017 Full Year Financial Results Announcement | 31
2.2.9 Impairment charges
% Mov't % Mov't
Half Year Half Year Sept 17 - Full Year Full Year Sept 17 -
$m Sept 17 March 17 Mar 17 Sept 17 Sept 16 Sept 16
Individually assessed provisions (IAPs)
New IAPs (246) (364)
(32)
(610) (727)
(16)
Write-backs 144 144
-
288 210
37
Recoveries 84 84
-
168 137
23
Total IAPs, write-backs and recoveries (18) (136) (87) (154) (380) (59)
Collectively assessed provisions (CAPs)
Write-offs (525) (443)
19
(968) (902)
7
Other changes in CAPs 183 86
113
269 158
70
Total new CAPs (342) (357) (4) (699) (744) (6)
Total impairment charges (360) (493) (27) (853) (1,124) (24)
Asset quality improved through Full Year 2017 with stressed assets to total committed exposures reducing 15
basis points to 1.05%. The reduction in stress mostly reflects the work-out or return to health of a number of
watchlist and substandard facilities. Impaired assets were also lower, with gross impaired assets to gross loans
reducing 10 basis points to 0.22%. The reduction in impaired assets principally related to the work-out or write-off
of a small number of institutional facilities. Where stress in the portfolio has emerged it can mostly be traced back
to the slowdown in mining investment, sectors undergoing structural change, along with a rise in delinquencies
and properties in possession in these regions, particularly in Western Australia and Queensland.
The improved asset quality and the write-off of a small number of larger impaired facilities led to a reduction in
provisions balances which were down $483 million. IAPs were $389 million lower while CAPs were $94 million
lower. Within CAPs the economic overlay was reduced by $66 million, ending at $323 million as at 30 September
2017.
This trend of improved asset quality and work-out of existing stressed facilities has contributed to the reduction in
impairment charges both over the year and in Second Half 2017 compared to First Half 2017.
Second Half 2017 – First Half 2017
Impairment charges for Second Half 2017 were $360 million, down $133 million compared to First Half 2017, and
were equivalent to 11 basis points of average gross loans. The decrease was mostly due to lower new IAPs and
lower total new CAPs.
Key movements included:
Total IAPs less write-backs and recoveries were $118 million lower than First Half 2017 due to a $118 million
reduction in new IAPs. New IAPs were lower particularly in WIB and in the Business Bank. Much of this was
due to a decline in impairments in regions impacted by the slowdown in mining investment and manufacturing.
Write-backs and recoveries were unchanged.
Total new CAPs were $15 million lower than First Half 2017. Key movements included:
- Write-offs were $82 million higher in Second Half 2017, consistent with normal seasonal patterns in
unsecured personal lending and from changes to reporting of customers granted hardship assistance;
- Benefits from other changes in CAPs were $97 million higher from changes in the economic overlay and
improved asset quality. This was partially offset by lower benefits in the institutional book where fewer
customers were downgraded to impaired; and
- The economic overlay was $55 million lower over the Second Half 2017. The reduction in the half was
mostly due to provisions utilised or no longer required for the mining and related exposures and New
Zealand dairy portfolios.
2017 Full Year financial results
Review of Group operations
32 | Westpac Group 2017 Full Year Financial Results Announcement
Full Year 2017 – Full Year 2016
Impairment charges of $853 million were down $271 million or 24% compared to Full Year 2016.
Key movements included:
Total new IAPs less write-backs and recoveries were $226 million lower than Full Year 2016. New IAPs
decreased $117 million primarily due to a small number of large impairments in WIB in Full Year 2016 whereas
there were only two larger facilities that migrated to impaired over Full Year 2017. This was partially offset by
higher new IAPs in the Business bank and in mortgages. Full Year 2017 also benefited from a larger number of
write-backs and recoveries which were $109 million higher than Full Year 2016 as impaired facilities were
worked out; and
Total new CAPs were $45 million lower due to a $111 million increase in the benefit from other changes in
CAPs partially offset by a $66 million lift in write-offs principally in personal lending associated with changes to
reporting of customers granted hardship assistance. Total economic overlays were $66 million lower compared
to Full Year 2016.
2.2.10 Tax Expense
Second Half 2017 – First Half 2017
The effective tax rate of 30.6% in Second Half 2017 was higher than the First Half 2017 effective tax rate of
30.3%. The effective tax rate is above the Australian corporate tax rate of 30% and reflects several Additional Tier
1 instruments whose distributions are not deductible for Australian taxation purposes.
Full Year 2017 – Full Year 2016
The effective tax rate of 30.4% in Full Year 2017 was higher than the Full Year 2016 effective tax rate of 29.9%.
The increase was largely due to benefits following the finalisation of prior period taxation matters in 2016 that were
not repeated.
2.2.11 Non-controlling Interests
Non-controlling interests represent profits of non-wholly owned subsidiaries attributable to shareholders other than
Westpac. These include profits on the 10.1% shareholding in Westpac-PNG-Limited and the 25% shareholding in
St.George Motor Finance Limited that are not owned by Westpac.
2017 Full Year financial results
Review of Group operations
Westpac Group 2017 Full Year Financial Results Announcement | 33
2.3 Credit quality
Credit quality improved over the year with total stressed exposures to TCE declining and remaining low relative to
historical experience. Stressed exposures to TCE were 1.05%, 15 basis points lower than 30 September 2016 and
9 basis points down on 31 March 2017 (see 2.3.1 Credit Quality Key Metrics).
The fall in stress was due to reductions in both impaired assets and to watchlist and substandard facilities. These
decreases can be broadly traced back to the write-off, refinance or work-out of some institutional facilities and to
an improved outlook for the New Zealand dairy sector. Overall trends in the portfolio remain positive and, in
general, sectors that were being closely monitored, such as mining, New Zealand dairy, and commercial property
have seen improved or stable credit quality metrics. Across regions, Western Australia (WA) and regional
Queensland (Qld) continue to experience elevated levels of stress and higher delinquencies as these markets
continue to readjust to the slowing of the mining investment cycle. Late in the year there were early signs of an
improvement in WA.
Consistent with the fall in stressed assets, provisioning levels were $483 million lower, due mainly to a decrease in
IAPs. The ratio of impairment provisions to impaired assets remained high at 46% but was lower over the year and
the half mostly from the write-off of some highly provisioned facilities. The ratio of collectively assessed provisions
to credit risk weighted assets was unchanged at 76 basis points.
Portfolio segments
The institutional and commercial segments continue to perform well with the level of stress reducing as a number
of facilities that were stressed were refinanced, repaid or written off. Over recent periods, the depth of distressed
debt markets has increased and this has enabled the Group to reduce its impaired exposures. Two new large
(>$50 million) facilities were downgraded to impaired during Full Year 2017, both in First Half 2017.
The commercial property segment has continued to perform well and improve. Stress peaked in this portfolio in the
midst of the financial crisis with the proportion of the portfolio (stress as a percent of total committed exposure)
stressed reached 15.5%. Since then stress has steadily declined to 1.3% and remains well below long term
averages.
The small and medium business portfolio has also performed well. Stress has eased over the Full Year 2017 with
decreases in agriculture, manufacturing and mining. Where new stress has emerged it has been more
concentrated in WA and regional Qld.
The New Zealand business portfolio saw an increase in stress in Second Half 2016 as lower milk prices impacted
the dairy industry. Since that period milk prices have increased, improving the prospects for the sector. As a result,
a number of stressed facilities returned to performing through Full Year 2017. Facilities remaining in the watchlist
and substandard categories are likely to return to fully performing when they achieve a sustained period of
improved cash flow and/or debt reduction.
The quality of the mortgage portfolio remains high with Australian mortgage 90+ day delinquencies just one basis
point higher over the twelve months to 30 September 2017 to end the year at 0.67%. The implementation of new
prudential rules for the reporting of delinquencies for customers granted hardship assistance, which are being
progressively applied to the industry, have matured. There has been a 4 basis point increase in 90+ day
delinquencies for those customers impacted by Cyclone Debbie and who were provided with disaster packages.
Excluding this impact, 90+ day delinquencies decreased 3 basis points as mortgage delinquencies across
Australia have improved slightly on average. Conditions are different across states with more modest growth and
higher unemployment in some regions, particularly in WA and regional Qld, contributing to higher delinquencies in
those regions. This has been offset by continued low and stable delinquencies in NSW and Victoria. The
investment property and interest only segments continue to have delinquency profiles well below the portfolio
average with 90+ day delinquencies of 0.49% and 0.52% respectively.
Australian properties in possession increased over Full Year 2017 by 175 to 437 as at 30 September 2017 with the
majority of the increases from WA and Qld. Realised mortgage losses across the Group were $87 million for
Full Year 2017, equivalent to 2 basis points.
Consumer unsecured delinquencies trended higher over the year with the increase principally due the prudential
changes in delinquency reporting and not an increase in underlying stress. Total Group other consumer 90+ day
delinquencies were 1.57%, up 46 basis points since 30 September 2016 and 2 basis points higher compared to 31
March 2017. Around 50 basis points of the increase over the year was due to the change in delinquency reporting
for customers granted hardship assistance. This was offset by a 4 basis point underlying improvement in
delinquencies mostly related to the reduction in unemployment.
New Zealand mortgage 90+ day delinquencies increased 2 basis points over the year to 0.12% at 30 September
2017. While delinquencies were higher, they remain at or near historical lows reflecting the quality of the portfolio
and prudential controls that have materially reduced the level of higher LVR lending across the country.
2017 Full Year financial results
Review of Group operations
34 | Westpac Group 2017 Full Year Financial Results Announcement
Unsecured delinquencies in New Zealand also remain low in absolute terms although they increased over the
year. Other consumer 90+ day delinquencies were 0.57% an increase of 9 basis points from 30 September 2016
and were 1 basis point lower than 31 March 2017.
Provisioning
Westpac has maintained adequate provisioning coverage with:
The ratio of gross impaired asset provisions to gross impaired assets remains high at 46.3%. This ratio was
lower over the year (down 3.1 percentage points compared to 30 September 2016) as a number of large,
highly provisioned impaired exposures were worked out or written-off; and
The ratio of collectively assessed provisions to credit risk weighted assets was 76 basis points, unchanged
from 30 September 2016.
Total impairment provisions were $3,119 million with IAPs of $480 million and CAPs of $2,639 million.
IAPs were $389 million lower primarily from a small number of large institutional names worked out and written off
during Full Year 2017.
CAPs balances were $94 million lower compared to 30 September 2016. The movement in the CAPs can
principally be traced to:
The economic overlay was $66 million lower over the year at $323 million at 30 September 2017. This was due
to the partial release and utilisation of the overlay for the mining and mining related manufacturing sectors and
for the New Zealand dairy sector; and
The reduction in stressed assets.
2.3.1 Credit quality key metrics
As at As at As at As at
30 Sept 17 31 March 17 30 Sept 16 31 March 16
Stressed exposures by credit grade as a % of TCE:
Impaired
0.15%
0.20% 0.22% 0.26%
90 days past due and not impaired
0.34%
0.35% 0.33% 0.28%
Watchlist and substandard
0.56%
0.59% 0.65% 0.49%
Total stressed exposures
1.05%
1.14% 1.20% 1.03%
Gross impaired assets to TCE for business and institutional:
Business Australia
0.47%
0.63% 0.55% 0.59%
Business New Zealand
0.62%
0.68% 0.71% 0.77%
Institutional 0.06%
0.17% 0.32% 0.40%
Mortgage 90+ day delinquencies:
Group
0.62%
0.63% 0.61% 0.52%
Australia 0.67%
0.67% 0.66% 0.55%
New Zealand
0.12%
0.14% 0.10% 0.15%
Other consumer loans 90+ day delinquencies:
Group 1.57%
1.55% 1.11% 1.42%
Australia 1.66%
1.63% 1.17% 1.49%
New Zealand 0.57%
0.58% 0.48% 0.56%
Other:
Gross impaired assets to gross loans 0.22%
0.30% 0.32% 0.39%
Gross impaired asset provisions to gross impaired assets 46.30%
52.07% 49.42% 47.65%
Total provisions to gross loans 45bps
52bps 54bps 57bps
Collectively assessed provisions to risk weighted assets 65bps
67bps 67bps 75bps
Collectively assessed provisions to credit risk weighted assets 76bps
77bps 76bps 87bps
Total provisions to risk weighted assets 77bps
87bps 88bps 101bps
Impairment charges to average loans annualised
1
11bps
15bps 14bps 21bps
Net write-offs to average loans annualised
1
25bps
19bps 19bps 13bps
1
Averages are based on a six month period.
2017 Full Year financial results
Review of Group operations
Westpac Group 2017 Full Year Financial Results Announcement | 35
2.4 Balance sheet and funding
2.4.1 Balance sheet
As at As at As at % Mov't % Mov't
30 Sept 31 March 30 Sept Sept 17 - Sept 17 -
$m 2017 2017 2016 Mar 17 Sept 16
Assets
Cash and balances with central banks 18,397 15,912 17,015
16 8
Receivables due from other financial institutions 7,128 9,545 9,951
(25) (28)
Trading securities and financial assets designated at fair value and
available-for-sale securities 86,034 90,929 81,833
(5) 5
Derivative financial instruments 24,033 24,619 32,227
(2) (25)
Loans 684,919 666,946 661,926
3 3
Life insurance assets 10,643 10,934 14,192
(3) (25)
Other assets 20,721 21,108 22,058
(2) (6)
Total assets 851,875 839,993 839,202 1 2
Liabilities
Payables due to other financial institutions 21,907 21,390 18,209
2 20
Deposits and other borrowings 533,591 522,513 513,071
2 4
Other financial liabilities at fair value through income statement 4,056 4,894 4,752
(17) (15)
Derivative financial instruments 25,375 28,457 36,076
(11) (30)
Debt issues 168,356 167,306 169,902
1 (1)
Life insurance liabilities 9,019 9,158 12,361
(2) (27)
Loan capital 17,666 17,106 15,805
3 12
Other liabilities 10,563 9,797 10,845
8 (3)
Total liabilities 790,533 780,621 781,021 1 1
Equity
Total equity attributable to owners of Westpac Banking Corporation 61,288 59,315 58,120
3 5
Non-controlling interests 54 57 61
(5) (11)
Total equity 61,342 59,372 58,181 3 5
Second Half 2017 – First Half 2017
Key movements during the half included:
Assets
Cash and balances with central banks increased $2.5 billion or 16% reflecting higher liquid assets;
Receivables due from other financial institutions decreased $2.4 billion or 25% mainly due to reduction in
collateral posted with derivative counterparties;
Trading securities and financial assets designated at fair value and available-for-sale securities decreased
$4.9 billion or 5% primarily due to lower securities purchased under agreement to resell;
Derivative assets decreased $0.6 billion or 2% mainly driven by the closing out of positions via cash settlement,
partly offset by movements in foreign currency translation impacts on cross currency swaps and forward
contracts; and
Loans grew $18.0 billion or 3%. Refer to Section 2.2.2 Loans for further information.
Liabilities
Payables due to other financial institutions increased $0.5 billion or 2% due to increased cash collateral posted
by derivative counterparties, mostly offset by lower funding of securities through repurchase agreement and
interbank borrowings;
Deposits and other borrowings increased $11.1 billion or 2%. Refer to Section 2.2.3 Deposits and other
borrowings for further information;
Derivative liabilities decreased $3.1 billion or 11% mainly driven by the closing out of positions via cash
settlement, partly offset by movements in foreign currency translation impacts on cross currency swaps and
forward contracts;
2017 Full Year financial results
Review of Group operations
36 | Westpac Group 2017 Full Year Financial Results Announcement
Debt issues increased $1.1 billion or 1% ($1.7 billion or 1% increase excluding foreign currency translation
impacts). Refer to Section 2.4.2 Funding and liquidity risk management for further information; and
Loan capital increased $0.6 billion or 3% mainly due to issuances of $1.6 billion of US$ Additional Tier 1
securities (Additional Tier 1 capital), mostly offset by the redemption of $1.0 billion of Tier 2 subordinated notes
(including foreign currency translation impacts). During Second Half 2017 $1.7 billion of Tier 2 Basel III
transitional subordinated notes were redeemed, offset by the issue of $0.7 billion of Tier 2 Basel III fully
compliant subordinated notes.
Equity attributable to owners of Westpac Banking Corporation increased $2.0 billion reflecting additional retained
profits less dividends paid during the period and shares issued under the 2017 interim DRP.
Full Year 2017 – Full Year 2016
Key movements included:
Assets
Cash and balances with central banks increased $1.4 billion or 8% reflecting higher liquid assets;
Receivables due from other financial institutions decreased $2.8 billion or 28% mainly due to reduction in
collateral posted with derivative counterparties;
Trading securities and financial assets designated at fair value and available-for-sale securities increased
$4.2 billion or 5% in response to the CLF reduction on 1 January 2017;
Derivative assets decreased $8.2 billion or 25% mainly driven by the closing out of positions via cash
settlement, partly offset by movements in foreign currency translation impacts on cross currency swaps and
forward contracts;
Loans grew $23.0 billion or 3%. Refer to Section 2.2.2 Loans for further information; and
Life insurance assets decreased $3.5 billion or 25% mainly due to the deconsolidation of 16 managed funds as
a result of a decline in the Group’s unit holdings.
Liabilities
Payables due to other financial institutions increased $3.7 billion or 20% due to increased funding of securities
through repurchase agreements and interbank borrowings, partially offset by lower offshore central bank
deposits;
Deposits and other borrowings increased $20.5 billion or 4%. Refer to Section 2.2.3 Deposits and other
borrowings for further information;
Other financial liabilities at fair value through the income statement decreased $0.7 billion or 15% reflecting
reduced securities sold through repurchase agreements;
Derivative liabilities decreased $10.7 billion or 30% mainly driven by the closing out of positions via cash
settlement, partly offset by movements in foreign currency translation impacts on cross currency swaps and
forward contracts;
Debt issues decreased $1.5 billion or 1% ($1.7 billion or 1% increase excluding foreign currency translation
impacts). Refer to Section 2.4.2 Funding and liquidity risk management for further information;
Life insurance liabilities decreased $3.3 billion or 27% mainly due to the deconsolidation of 16 managed funds
as a result of a decline in the Group’s unit holdings; and
Loan capital increased $1.9 billion or 12% mainly due to issuances of $1.6 billion of US$ Additional Tier 1
securities (Additional Tier 1 capital) and net issuances of $0.3 billion of Tier 2 subordinated notes. During the
year $2.5 billion of Tier 2 Basel III fully compliant subordinated notes were issued, mostly offset by the
redemption of $2.2 billion of Tier 2 Basel III transitional subordinated notes (including foreign currency
translation impacts).
Equity attributable to owners of Westpac Banking Corporation increased $3.2 billion reflecting additional retained
profits less dividends paid during the period and shares issued under the 2017 interim DRP and 2016 final DRP.
2017 Full Year financial results
Review of Group operations
Westpac Group 2017 Full Year Financial Results Announcement | 37
2.4.2 Funding and liquidity risk management
Liquidity risk is the risk that the Group will be unable to fund assets and meet obligations as they become due.
This type of risk is inherent in all banks through their role as intermediaries between depositors and borrowers.
The Group has a liquidity risk management framework which seeks to meet the objective of meeting cash flow
obligations under a wide range of market conditions, including name specific and market-wide stress scenarios, as
well as meeting the regulatory requirements of the LCR and NSFR
1
.
In Full Year 2017 the Group maintained its sound funding and liquidity profile, funding loan growth of $23 billion
through a mix of customer deposits, wholesale funding and equity, with little change in the overall composition of
the Group’s total funding. Key metrics remained comfortably above regulatory minimums, including an LCR of
124% despite a $10 billion reduction in the CLF for the 2017 calendar year. The Group’s NSFR as at
30 September 2017 was estimated at 109% based on current APRA guidelines.
Liquid Assets
The Group’s liquid asset portfolio includes both high-quality liquid assets (HQLA) and other securities that are
eligible for repurchase with a central bank. In total, Westpac held $137.8 billion in unencumbered liquid assets as
at 30 September 2017 (30 September 2016: $144.3 billion). At 30 September 2017 the portfolio comprised:
$72.1 billion of cash, deposits at central banks, government and semi-government bonds;
$17.8 billion of repo-eligible private securities; and
$47.9 billion of self-originated AAA rated mortgage backed securities, which are eligible collateral for
repurchase agreement with the RBA or the RBNZ.
LCR
The LCR requires banks to hold sufficient HQLA, as defined, to withstand 30 days under a regulator-defined acute
stress scenario.
Given the limited amount of government debt in Australia, the RBA, jointly with APRA, makes available to ADIs a
CLF. Subject to satisfaction of qualifying conditions, the CLF can be accessed to help meet the LCR requirement.
In order to have access to a CLF, ADIs are required to pay a fee of 15 basis points (0.15%) per annum to the RBA
on the approved undrawn facility. APRA approved Westpac’s CLF allocation of $49 billion for the 2017 calendar
year (2016 calendar year: $59 billion). APRA has approved a CLF allocation for Westpac of $57 billion for the
2018 calendar year.
The Group’s LCR as at 30 September 2017 was 124% (30 September 2016: 134%) and the average LCR for the
quarter ended 30 September 2017 was 124%
2
.
NSFR
The Group will be required to maintain a NSFR, designed to encourage longer-term funding resilience, of at least
100% when it comes into effect on 1 January 2018. Based on the latest guidance from APRA, Westpac had an
estimated NSFR of 109% at 30 September 2017 (estimated at 108% as at 31 March 2017). Improvement in the
ratio since 31 March 2017 was due mainly to a continued lengthening of wholesale funding duration, improvement
in the composition of deposits and some data refinement.
Funding
The Group monitors the composition and stability of its funding so that it remains within the Group’s funding risk
appetite. This includes compliance with both the LCR and upcoming NSFR.
Over the Full Year 2017 the Group continued to prepare for the introduction of the NSFR at the start of calendar
2018. Customer deposits increased by 91 basis points to 61.8% of total funding (30 September 2016: 60.9%).
There was little change in other sources of stable funding, with the proportion of long term funding, securitisation
and equity to total funding remaining relatively stable.
Short term funding as a proportion of total funding decreased 106 basis points over Full Year 2017, which further
lengthened the tenor of wholesale funding. Short term funding comprised 14.1% of the Group’s total funding
(30 September 2016: 15.2%). This portfolio of $110.9 billion has a weighted average maturity of 148 days and is
more than covered by the $137.8 billion of repo-eligible liquid assets held by the Group.
In Full Year 2017, the Group raised $36.6 billion of long term wholesale funding in a range of currencies, including
USD, EUR, AUD and GBP, and through a diverse range of products. Approximately two-thirds of new issuance
was issued as senior unsecured bonds, a further 18% as covered bonds, and the balance was issued in capital
securities and securitisation, providing a mix of tenor, investor and cost to the Group’s funding.
1
Refer to Glossary for definition.
2
Calculated using a daily average of LCR liquid assets and cash flows.
2017 Full Year financial results
Review of Group operations
38 | Westpac Group 2017 Full Year Financial Results Announcement
The Group also continued to lengthen the tenor of its long term funding portfolio. In Full Year 2017, 43% of new
term issuance had a contractual maturity of greater than five years and this contributed to a weighted average
maturity (excluding securitisation) of new term issuance in Full Year 2017 of 5.8 years (Full Year 2016: 5.4 years).
Notable transactions during the year included the Group’s A$2.15 billion Crusade ABS Series 2017-1 transaction
and two inaugural offshore benchmark-sized capital transactions. The Group issued US$1.5 billion of Basel III
compliant Tier 2 securities issued in November 2016 and US$1.25 billion of Basel III compliant Additional Tier 1
securities issued in September 2017. Both issues were registered with the US Securities and Exchange
Commission (SEC), with Westpac continuing to benefit in US markets from being the only major Australian bank to
have SEC registration.
Liquidity coverage ratio
As at As at As at % Mov't % Mov't
30 Sept 31 March 30 Sept Sept 17 - Sept 17 -
$m 2017 2017 2016 Mar 17 Sept 16
High Quality Liquid Assets (HQLA)
1
71,904 73,565 69,360
(2) 4
Committed Liquidity Facility (CLF)
1
49,100 49,100 58,600
- (16)
Total LCR liquid assets 121,004 122,665 127,960 (1) (5)
Cash outflows in a modelled 30-day APRA defined
stressed scenario
Customer deposits 65,612 65,861 63,521
- 3
Wholesale funding 12,231 13,238 13,149
(8) (7)
Other flows
2
20,109 19,121 19,152
5 5
Total 97,952 98,220 95,822 - 2
LCR
3
124% 125% 134% (100bps) large
Funding by residual maturity
As at 30 Sept 2017 As at 31 March 2017 As at 30 Sept 2016
$mRatio % $m Ratio % $m Ratio %
Wholesale funding
Less than 6 months 63,173
8.0
64,890
8.3
73,284
9.6
6 to 12 months 19,776
2.5
17,446
2.3
10,638
1.4
Long term to short term scroll
4
27,955
3.6
25,942
3.4
32,150
4.2
Wholesale funding - residual maturity less
than 12 months 110,904 14.1 108,278 14.0 116,072 15.2
Securitisation 8,209
1.0
9,856
1.3
9,445
1.2
Greater than 12 months 119,494
15.2
116,825
15.1
115,264
15.0
Wholesale funding - residual maturity greater
than 12 months 127,703 16.2 126,681 16.4 124,709 16.2
Customer deposits 486,670 61.8 478,660 61.9 466,608 60.9
Equity
5
61,925 7.9 59,868 7.7 58,726 7.7
Total funding 787,202 100.0 773,487 100.0 766,115 100.0
Deposits to net loans ratio
As at 30 Sept 2017 As at 31 March 2017 As at 30 Sept 2016
$mRatio % $m Ratio % $m Ratio %
Customer deposits 486,670
478,660
466,608
Net loans 684,919
71.1
666,946
71.8
661,926
70.5
1
Refer to Glossary for definition.
2
Other flows includes credit and liquidity facilities, collateral outflows and inflows from customers.
3
Calculated on a spot basis.
4
Scroll represents wholesale funding with an original maturity greater than 12 months that now has a residual maturity less than
12 months.
5
Includes total share capital, share based payments, reserve and retained profits.
2017 Full Year financial results
Review of Group operations
Westpac Group 2017 Full Year Financial Results Announcement | 39
Funding view of the balance sheet
Total liquid Customer Wholesale Customer Market
$m assets
1
deposits funding franchise inventory Total
As at 30 Sept 2017
Total assets 137,797 - - 651,573 62,505 851,875
Total liabilities - (486,670) (238,607) - (65,256) (790,533)
Total equity - - - (61,925) 583 (61,342)
Total 137,797 (486,670) (238,607) 589,648 (2,168) -
Net loans
2
47,935 - - 636,984 - 684,919
As at 31 March 2017
Total assets 138,511 - - 633,255 68,227 839,993
Total liabilities - (478,660) (234,959) - (67,002) (780,621)
Total equity - - - (59,868) 496 (59,372)
Total 138,511 (478,660) (234,959) 573,387 1,721 -
Net loans
2
47,691 - - 619,255 - 666,946
As at 30 Sept 2016
Total assets 144,284 - - 620,856 74,062 839,202
Total liabilities - (466,608) (240,781) - (73,632) (781,021)
Total equity - - - (58,726) 545 (58,181)
Total 144,284 (466,608) (240,781) 562,130 975 -
Net loans
2
56,057 - - 605,869 - 661,926
1
Refer to Glossary for definition.
2
Liquid assets in net loans include internally securitised assets that are eligible for re-purchase agreements with the RBA / RBNZ.
2017 Full Year financial results
Review of Group operations
40 | Westpac Group 2017 Full Year Financial Results Announcement
2.5 Capital and Dividends
As at As at As at % Mov't % Mov't
30 Sept 31 March 30 Sept Sept 17 - Sept 17 -
2017 2017 2016 Mar 17 Sept 16
Regulatory capital structure
Common equity Tier 1 capital after deductions ($m) 42,670 40,335 38,875
6 10
Risk weighted assets (RWA) ($m) 404,235 404,382 410,053
- (1)
Common equity Tier 1 capital ratio 10.56% 9.97% 9.48%
59bps 108bps
Additional Tier 1 capital ratio 2.10% 1.71% 1.69%
39bps 41bps
Tier 1 capital ratio 12.66% 11.68% 11.17%
98bps 149bps
Tier 2 capital ratio 2.16% 2.32% 1.94%
(16bps) 22bps
Total regulatory capital ratio 14.82% 14.00% 13.11%
82bps 171bps
APRA leverage ratio 5.66% 5.30% 5.20%
36bps 46bps
Capital management strategy
In light of APRA’s announcement on ‘unquestionably strong’ capital on 19 July 2017, Westpac has ceased to use
its preferred range of 8.75% to 9.25% as a guide to managing capital levels. Westpac will revise its preferred
range for the CET1 ratio once APRA finalises its review of the capital adequacy framework. In the interim,
Westpac will seek to operate with a CET1 ratio of at least 10.5% in March and September as measured under the
existing capital framework. This also takes into consideration:
current regulatory capital minimums and the capital conservation buffer (CCB), which together are the total
CET1 requirement. In line with the above, the total CET1 requirement for Westpac is at least 8.0%, based upon
an industry minimum CET1 requirement of 4.5% plus a capital buffer of at least 3.5% applicable to domestic
systemically important banks (D-SIBs)
1
;
stress testing to calibrate an appropriate buffer against a downturn; and
quarterly volatility of capital ratios due to the half yearly cycle of ordinary dividend payments.
Should the CET1 ratio fall below the total CET1 requirement restrictions on the distribution of earnings will apply.
This includes restrictions on the amount of earnings that can be distributed through dividends, Additional Tier 1
capital distributions and discretionary staff bonuses.
Common Equity Tier 1 capital ratio movement for Second Half 2017
Westpac’s CET1 capital ratio was 10.56% at 30 September 2017, 59 basis points higher than recorded at
31 March 2017.
1
Noting that APRA may apply higher CET1 requirements for an individual ADI.
Ordinary
RWA
growth
(4bps)
Interim
dividend
(net of DRP)
(50bps)
Other
movements
30
September
2017
10.56%
Defined
benefit
impact
2bps
(2bps)
4bps
Life
insurance
statutory
fund
consolidation
6bps
BTIM
sale
10bps
FX
translation
impact
Regulatory
modelling
change
(7bps)
Cash
earnings
100bps
31
March
2017
9.97%
Organic
(+39bps)
Other items
(+20bps)
2017 Full Year financial results
Review of Group operations
Westpac Group 2017 Full Year Financial Results Announcement | 41
Organic capital generation of 39 basis points included:
Second Half 2017 cash earnings of $4.0 billion (100 basis points increase);
The 2017 interim dividend payment, net of DRP share issuance (50 basis points decrease);
Ordinary RWAs before the impact of FX movements and RWA modelling changes increased mainly driven by
non-credit RWA (4 basis point decrease); and
Other movements reduced the CET1 capital ratio by 7 basis points, mainly from an increase in capitalised
costs and a small increase in other equity investments including fintech businesses.
Other items increased the CET1 capital ratio by 20 basis points mainly driven by:
The sale of shares in BTIM (10 basis points increase);
Consolidation of statutory funds in the life insurance business (6 basis points increase); and
Regulatory modelling changes which reduced RWA by $1.8 billion (4 basis points increase).
Additional Tier 1 and Tier 2 capital movement for Second Half 2017
During the half:
New Additional Tier 1 capital was issued, which increased Additional Tier 1 capital by $1.6 billion or 39 basis
points;
New Tier 2 capital was issued, which increased Tier 2 capital by $0.7 billion or 18 basis points; and
A Tier 2 transitional capital instrument was redeemed, which reduced Tier 2 capital by $1.7 billion or 41 basis
points.
Common Equity Tier 1 capital ratio movement for Full Year 2017
The 30 September 2017 CET1 capital ratio of 10.56% is 108 basis points higher than reported at 30 September
2016 and reflects:
Organic capital generation added 72 basis points with cash earnings (net of dividends) and shares issued to
satisfy the DRP adding 79 basis points. These gains were partially offset mainly by other capital movements (9
basis points decrease); and
Other items resulted in a 36 basis points increase in the CET1 capital ratio. These included the sale of BTIM
shares (10 basis points increase), consolidation of statutory funds in the life insurance business (6 basis points
increase), regulatory modelling changes (7 basis points increase) and a reduction in the deferred tax asset (6
basis points increase).
Deferred
tax
asset
6bps
Regulatory
modelling
changes
7bps
Life
insurance
statutory
fund
consolidation
6bps
BTIM
sale
10bps
Other
movements
(9bps)
Ordinary
RWA
growth
30
September
2017
Dividends
(net of
DRP)
(120bps)
Cash
earnings
199bps
30
September
2016
2bps
10.56%
Defined
benefit
impact
5bps
FX
translation
impact
2bps
9.48%
Organic
(+72bps)
Other items
(+36bps)
2017 Full Year financial results
Review of Group operations
42 | Westpac Group 2017 Full Year Financial Results Announcement
Leverage Ratio
The leverage ratio represents the amount of Tier 1 capital relative to exposure. At 30 September 2017, Westpac’s
leverage ratio
1
was 5.7%, up 36 basis points since 31 March 2017. The increase is primarily due to increased
capital highlighted earlier.
APRA has yet to prescribe any minimum leverage ratio requirements.
Internationally Comparable Capital Ratios
The APRA Basel III capital adequacy requirements are more conservative than those of the Basel Committee on
Banking Supervision (BCBS), leading to lower reported capital ratios when compared to international peers. In
order to facilitate comparisons, APRA conducted a study in July 2015 outlining its methodology for measuring
internationally comparable capital ratios. For details on the adjustments refer to Westpac’s 2017 Full Year Investor
Discussion Pack, available at https://www.westpac.com.au/about-westpac/investor-centre/financial-information/.
The table below calculates the Group’s reported capital ratios consistent with this methodology.
As at As at As at % Mov't % Mov't
30 Sept 31 March 30 Sept Sept 17 - Sept 17 -
2017 2017 2016 Mar 17 Sept 16
Internationally comparable capital ratios
Common equity Tier 1 capital ratio 16.20% 15.34% 14.43%
86bps 177bps
Total regulatory capital ratio 21.09% 19.37% 17.73%
172bps 336bps
Leverage ratio 6.33% 6.01% 5.93%
32bps 40bps
1
The leverage ratio is based on the same definition of Tier 1 as used for APRA capital requirements and is not comparable to the Basel
Committee for Banking Supervision leverage ratio calculation.
2017 Full Year financial results
Review of Group operations
Westpac Group 2017 Full Year Financial Results Announcement | 43
Risk Weighted Assets (RWA)
As at As at As at % Mov't % Mov't
30 Sept 31 March 30 Sept Sept 17 - Sept 17 -
$m 2017 2017 2016 Mar 17 Sept 16
Corporate
1
71,160 76,210 81,550
(7) (13)
Business lending
2
34,638 33,735 32,871
3 5
Sovereign
3
1,505 1,665 1,669
(10) (10)
Bank
4
5,905 5,887 6,815
- (13)
Residential mortgages 127,825 127,111 123,966
1 3
Australian credit cards 5,665 6,009 5,904
(6) (4)
Other retail 13,250 13,538 13,805
(2) (4)
Small business
5
11,708 11,482 11,930
2 (2)
Specialised lending: Property and project finance
6
57,081 56,122 57,961
2 (2)
Securitisation
7
4,167 3,992 4,067
4 2
Standardised 9,946 9,682 9,228
3 8
Mark-to-market related credit risk 6,408 7,280 9,046
(12) (29)
Credit risk 349,258 352,713 358,812
(1) (3)
Market risk 8,094 7,471 7,861
8 3
Operational risk
8
31,229 31,653 33,363
(1) (6)
Interest rate risk in the banking book (IRRBB) 11,101 8,143 5,373
36 107
Other 4,553 4,402 4,644
3 (2)
Total 404,235 404,382 410,053 - (1)
Second Half 2017 – First Half 2017
Total RWA decreased $0.2 billion this half:
Credit risk RWA decreased $3.4 billion or 1.0%:
- Improved asset quality reduced RWA by $4.6 billion;
- RWA modelling changes as part of ongoing model refinement reduced RWA by $1.8 billion; and
- Reduction in mark-to-market related credit risk RWA of $0.9 billion.
These items were partially offset by portfolio growth which added $3.9 billion to RWA, reflecting ongoing
discipline in RWA management.
Non-credit RWA increased $3.2 billion or 6.4%:
- Interest rate risk in the banking book (IRRBB) RWA increased $3.0 billion. Repricing and yield curve risk
increased, as well as capital for credit spread risk from holdings of liquid assets. The embedded gain
declined, which also added to IRRBB RWA;
- Market risk RWA increased $0.6 billion from higher interest rate risk exposure in the trading book; and
- Operational risk RWA decreased $0.4 billion.
1
Corporate – Typically includes exposure where the borrower has annual turnover greater than $50 million, and other business
exposures not captured under the definitions of either Business lending or Small Business.
2
Business Lending – Includes exposures where the borrower has annual turnover less than or equal to $50 million and exposure
greater than $1 million.
3
Sovereign – includes exposures to Governments themselves and other non-commercial enterprises that are owned or controlled by
them.
4
Bank – includes exposures to licensed banks and their owned or controlled subsidiaries, and overseas central banks.
5
Small Business – includes exposures less than or equal to $1 million.
6
Specialised lending – property and project finance – includes exposures to entities created to finance and/or operates specific assets
where, apart from the income received from the assets being financed, the borrower has little or no independent capacity to repay
from other activities or assets.
7
Securitisation – exposures reflect Westpac’s involvement in activities ranging from originator to investor and include the provision of
securitisation services for clients wishing to access capital markets.
8
Operational risk – the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events,
including legal risk but excluding strategic or reputational risk.
2017 Full Year financial results
Review of Group operations
44 | Westpac Group 2017 Full Year Financial Results Announcement
Full Year 2017 – Full Year 2016
Total RWA decreased $5.8 billion or 1.4% over the year:
Credit risk RWA declined $9.6 billion or 2.7%:
- Improved asset quality decreased RWA by $7.7 billion;
- Reduction in mark-to-market related credit risk RWA of $2.6 billion;
- Foreign currency translation impacts, primarily related to the impact of the depreciation of the NZ$ on NZ$
lending which decreased RWA by $1.9 billion;
- RWA modelling changes reduced RWA by $2.8 billion which included updates to Probability of Default (PD)
parameters for corporate and business lending exposures and ongoing model refinement; and
These items were partially offset by portfolio growth which added $5.4 billion to RWA, reflecting ongoing
discipline in RWA management.
Non-credit RWA increased $3.8 billion or 7.3% primarily due to:
- IRRBB RWA increased $5.7 billion. The embedded gain declined as the yield curve steepened and
repricing and yield curve risk increased;
- Operational risk RWA decreased $2.1 billion due to an update to loss scenarios; and
- Market risk RWA increased $0.2 billion.
2017 Full Year financial results
Review of Group operations
Westpac Group 2017 Full Year Financial Results Announcement | 45
Capital adequacy
As at As at As at
30 Sept 31 March 30 Sept
$m
2017 2017 2016
Tier 1 capital
Common equity Tier 1 capital
Paid up ordinary capital
34,889
33,765 33,469
Treasury shares
(436)
(420) (367)
Equity based remuneration 1,356 1,226 1,156
Foreign currency translation reserve (558) (482) (447)
Accumulated other comprehensive income 15 127 17
Non-controlling interests - other 54 57 60
Retained earnings 26,100 25,206 24,379
Less retained earnings in life and general insurance, funds management and
securitisation entities (1,153) (1,323) (1,290)
Deferred fees 253 250 258
Total common equity Tier 1 capital 60,520 58,406 57,235
Deductions from common equity Tier 1 capital
Goodwill (excluding funds management entities) (8,670) (8,557) (8,670)
Deferred tax assets (1,110) (1,179) (1,544)
Goodwill in life and general insurance, funds management and securitisation entities (1,065) (1,066) (1,069)
Capitalised expenditure (1,913) (1,859) (1,859)
Capitalised software (1,603) (1,529) (1,521)
Investments in subsidiaries not consolidated for regulatory purposes (1,589) (1,573) (1,533)
Regulatory expected loss in excess of eligible provisions (861) (915) (737)
General reserve for credit losses adjustment (332) (311) (299)
Securitisation - - -
Equity investments (679) (948) (935)
Regulatory adjustments to fair value positions (27) (133) (192)
Other Tier 1 deductions (1) (1) (1)
Total deductions from common equity Tier 1 capital (17,850) (18,071) (18,360)
Total common equity Tier 1 capital after deductions 42,670 40,335 38,875
Additional Tier 1 capital
Basel III complying instruments 7,315 5,720 5,720
Basel III transitional instruments 1,190 1,190 1,190
Total Additional Tier 1 capital 8,505 6,910 6,910
Net Tier 1 regulatory capital 51,175 47,245 45,785
Tier 2 capital
Basel III complying instruments 7,375 6,703 4,742
Basel III transitional instruments 1,526 3,288 3,840
Eligible general reserve for credit loss 51 49 48
Basel III transitional adjustment - (445) (429)
Total Tier 2 capital 8,952 9,595 8,201
Deductions from Tier 2 capital
Investments in subsidiaries not consolidated for regulatory purposes (140) (140) (140)
Holdings of own and other financial institutions Tier 2 capital instruments (77) (91) (78)
Total deductions from Tier 2 capital (217) (231) (218)
Net Tier 2 regulatory capital 8,735 9,364 7,983
Total regulatory capital 59,910 56,609 53,768
Risk weighted assets 404,235 404,382 410,053
Common equity Tier 1 capital ratio 10.56% 9.97% 9.48%
Additional Tier 1 capital ratio 2.10% 1.71% 1.69%
Tier 1 capital ratio 12.66% 11.68% 11.17%
Tier 2 capital ratio 2.16% 2.32% 1.94%
Total regulatory capital ratio 14.82% 14.00% 13.11%
2017 Full Year financial results
Review of Group operations
46 | Westpac Group 2017 Full Year Financial Results Announcement
Dividends
% Mov't % Mov't
Half Year Half Year Sept 17 - Full Year Full Year Sept 17 -
Ordinary dividend (cents per share) Sept 17 March 17 Mar 17 Sept 17 Sept 16 Sept 16
Interim (fully franked) - 94
(100)
94 94
-
Final (fully franked) 94 -
-
94 94
-
Total ordinary dividend 94 94
-
188 188
-
Payout ratio (reported) 78.05% 80.57%
(252bps)
79.28% 84.19%
large
Payout ratio (cash earnings) 78.86% 78.57%
29bps
78.71% 80.30%
(159bps)
Adjusted franking credit balance ($m) 1,063 742
43
1,063 911
17
Imputation credit (cents per share - NZ) 7.0 7.0
-
14.0 14.0
-
The Board has determined a final fully franked dividend of 94 cents per share, to be paid on 22 December 2017, to
shareholders on the register at the record date of 14 November 2017
1
. The final dividend represents a payout ratio
on a cash earnings basis of 78.9%. In addition to being fully franked, the dividend will also carry NZ$0.07 in New
Zealand imputation credits that may be used by New Zealand residents.
The Board has determined to satisfy the DRP for the 2017 final dividend by issuing Westpac ordinary shares. The
Market Price used to determine the number of shares issued to DRP participants will be set over the 10 trading
days commencing 17 November 2017, and will not include any discount.
The Board considered a range of factors including the impact of the Bank Levy on shareholders (which equated
to 2 cents per share in Second Half 2017), however decided to leave the dividend unchanged at 94 cents per
share.
Capital deduction for regulatory expected credit loss
For capital adequacy purposes APRA requires the amount of regulatory expected credit losses in excess of
eligible provisions to be deducted from CET1 capital. The table below shows the calculation of this capital
deduction.
As at As at As at
30 Sept 31 March 30 Sept
$m
2017 2017 2016
Provisions associated with eligible portfolios
Total provisions for impairment charges (Section 4 Note 10)
3,119 3,513 3,602
plus general reserve for credit losses adjustment
332 311 299
plus provisions associated with partial write-offs
148 174 208
less ineligible provisions
2
(74) (72) (68)
Total eligible provisions 3,525 3,926 4,041
Regulatory expected downturn loss 4,386 4,841 4,778
Shortfall in eligible provisions compared to regulatory expected downturn loss 861 915 737
Common equity Tier 1 capital deduction for regulatory expected downturn loss
in excess of eligible provisions (861) (915) (737)
1
Record date in New York is 13 November.
2
Provisions associated with portfolios subject to the Basel standardised approach to credit risk are not eligible.
2017 Full Year financial results
Review of Group operations
Westpac Group 2017 Full Year Financial Results Announcement | 47
2.6 Sustainability performance
Approach to operating sustainably
The Group’s approach to operating sustainably is designed to anticipate, respond to and shape the most pressing
emerging topics (issues and opportunities) that have the potential to materially impact customers, employees,
suppliers, shareholders and communities. We believe that as one of Australia’s largest companies we have a role
to play in helping to create positive social, economic and environmental impact, for the benefit of all. This view is
embedded within our core business activities, and aligns with the priorities set out in the Group’s strategy.
Sustainability leadership
Our leadership in sustainability is regularly acknowledged and validated by a number of third party ratings and
awards. During 2017, these included:
Assessed as the most sustainable bank globally in the 2017 Dow Jones Sustainability Indices (DJSI) achieving
a score of 94. This marks the fourth year in a row and 10th time that Westpac has achieved global banking
sector leadership, and the 16th year in a row that Westpac has been recognised among global banking
leaders;
Assigned a Gold Class ranking in the RobecoSAM Sustainability Yearbook for 2017, released in January 2017;
and
Recognised as one of only ten Australian companies to achieve Leadership level in the 2017 CDP
1
, with a
climate score A-. This puts Westpac among the top 22% of companies globally to achieve this level.
Sustainability objectives
Our 2013-2017 Sustainability Strategy sets out the following three priority areas:
Embracing societal change: helping improve the way people work and live, as our society changes;
Environmental solutions: helping find solutions to environmental challenges; and
Better financial futures: helping customers to have a better relationship with money, for a better life.
These areas are supported by measurable objectives, which are regularly tracked and reported. The following
table provides a summary of 2017 progress against those objectives and their targets. During the year, work
continued on refreshing and resetting our strategic objectives post-2017.
1
Formerly the Carbon Disclosure Project.
2017 Full Year financial results
Review of Group operations
48 | Westpac Group 2017 Full Year Financial Results Announcement
Performance against sustainability objectives
1
Priority Objectives Full Year 2017 progress
Help improve
the way
people work
and live, as
our society
changes
Ensure our workforce
is representative of
the community
Proportion of leadership roles held by women increased from 48% to 50% in 2017,
achieving the Group’s 2017 target;
Recruited an additional 177 people who identify as Aboriginal and Torres Strait Islander
peoples, bringing to 628 those recruited and exceeding our three year goal of 500 by
2017;
Participation of mature aged workers (50+) is 22.2%, up from 21.5% a year ago; and
Financial wellbeing of women aged 40+ as rated by the BT Financial Health Index
survey remained stable.
Extend length and
quality of working
lives
Mean employee retirement age was 62.3 years, up compared to a year ago; and
Workplace wellbeing as measured by the Work Ability Index remained within the ‘good’
range.
Anticipate the future
product and service
needs of ageing and
culturally diverse
customers
Increased convenience for multi-cultural customers by enabling foreign currency
accounts in core currencies to be opened via Westpac Live online banking;
Introduced new Bereavement Support sites on the websites for all our major bank
brands, as well as Bereavement customer guide booklets;
Improved online guidance and banker training supporting bereaved customers for all
four bank brands in Australia;
Launched educational videos via the Davidson Institute to help new arrivals and
multicultural Australians better understand Australian super, tax and the process of
transferring money overseas; and
Launched live stream videos via our social media platforms with tips on how Chinese
students in the midst of planning their move to Australia can manage their finance.
Help find
solutions to
environmental
challenges
Provide products and
services to help
customers adapt to
environmental
challenges
Since 2013 launched nine unique products/services, including incorporation of
sustainability market data into the Panorama investment platform and announced as
the preferred financial partner for the Tasmanian Energy Efficiency Loan Scheme.
Increase lending and
investment in
CleanTech and
environmental
services
Increased committed exposure to the CleanTech and environmental services sector
relative to FY16, taking total committed exposure to $7.0 billion, surpassing the 2017
target by 16%.
Reduce our
environmental
footprint
Maintained carbon neutral status and achieved a reduction of more than 40% in office
paper consumption since 2012;
Bank of Melbourne’s 525 Collins Street branch became the first 6 Star Green Star bank
branch in Victoria, reflecting leading eco-efficient practices;
Achieved 2017 power usage effectiveness target of 1.6 and surpassed the 2017
energy efficiency target with 169 kWh/m
2
; and
Recycling rates and water consumption in Sydney head offices improved to 75% and
104,866 kL respectively.
Help
customers to
have a better
relationship
with money,
for a better
life
Ensure all our
customers have
access to the right
advice to achieve a
secure retirement
Lifted engagement between customers and BT Adviser View to increase transparency
on quality of advice and service;
BT Advice average customer satisfaction rating was 4.91 out of 5.00 for 2017,
outperforming the FY17 target of 4.90.
Help our customers
meet their financial
goals in retirement
The proportion of Group customers with Group superannuation was 7.5%, a decrease
compared to 7.8% in 2016;
Launched SuperCheck, a tool which allows our customers to find all their
superannuation within 60 seconds and open an account and rollover in three clicks, in
Westpac and St.George group channels; and
‘Wealth Review’ tool provided members and their families key insights into their
financial position.
Increase access to
financial services in
the Pacific
Launched Choice Wantok, an ambitious financial inclusion program in PNG as part of a
joint venture between Westpac and the Pacific Financial Inclusion Program;
Met 2017 target for the number of 300,000 Choice Basic banking customers in our
Pacific operations ahead of schedule; and
There were nearly 177,000 mobile banking activations and over 330,000 In-store
transactional volumes as at 30 September 2017.
Help people gain
access to social and
affordable housing
and services
Lent over $1.32 billion to the social and affordable housing sector, up from $1.05 billion
at 30 September 2016 and short of our $2 billion 2017 target.
1
All results as at 30 September 2017 except environmental footprint which is as at 30 June 2017. Refer to
www.westpac.com.au/sustainability for glossary of terms and metric definitions.
2017 Full Year financial results
Review of Group operations
Westpac Group 2017 Full Year Financial Results Announcement | 49
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2017 Full Year financial results
Divisional results
50 | Westpac Group 2017 Full Year Financial Results Announcement
3.0 Divisional results
3.1 Consumer Bank
Consumer Bank (CB) is responsible for sales and service to consumer customers in Australia under the Westpac,
St.George, BankSA, Bank of Melbourne and RAMS brands. Activities are conducted through a dedicated team of
specialist consumer relationship managers along with an extensive network of branches, call centres and ATMs.
Customers are also supported by a range of internet and mobile banking solutions. CB also works in an integrated
way with BTFG and WIB in the sales and service of select financial services and products including in wealth and
foreign exchange. The revenue from these products is mostly retained by the product originator.
% Mov't % Mov't
Half Year Half Year Sept 17 - Full Year Full Year Sept 17 -
$m Sept 17 March 17 Mar 17 Sept 17 Sept 16 Sept 16
Net interest income 3,878 3,631
7
7,509 7,175
5
Non-interest income 378 424
(11)
802 850
(6)
Net operating income 4,256 4,055
5
8,311 8,025
4
Operating expenses (1,708) (1,629)
5
(3,337) (3,270)
2
Core earnings 2,548 2,426 5 4,974 4,755 5
Impairment charges (274) (267)
3
(541) (492)
10
Operating profit before tax 2,274 2,159 5 4,433 4,263 4
Tax and non-controlling interests (681) (648)
5
(1,329) (1,279)
4
Cash earnings 1,593 1,511 5 3,104 2,984 4
Economic profit 1,386 1,278
8
2,664 2,599
3
Expense to income ratio 40.13% 40.17%
(4bps)
40.15% 40.75%
(60bps)
Net interest margin 2.35% 2.28%
7bps
2.32% 2.35%
(3bps)
As at As at % Mov't As at As at % Mov't
30 Sept 31 March Sept 17 - 30 Sept 30 Sept Sept 17 -
$bn 2017 2017 Mar 17 2017 2016 Sept 16
Deposits
Term deposits 56.3 55.1
2
56.3 54.6
3
Other 135.5 130.8
4
135.5 126.0
8
Total deposits 191.8 185.9 3 191.8 180.6 6
Net loans
Mortgages 349.8 339.0
3
349.8 331.4
6
Other 13.6 14.1
(4)
13.6 14.3
(5)
Provisions (0.9) (0.9)
-
(0.9) (0.9)
-
Total net loans 362.5 352.2 3 362.5 344.8 5
Deposit to loan ratio 52.91% 52.78%
13bps
52.91% 52.38%
53bps
Total assets 369.5 359.3 3 369.5 351.5 5
TCE 425.0 414.3
3
425.0 407.1
4
Average interest-earning assets
1
328.7 318.8
3
323.7 304.7
6
As at As at As at As at
30 Sept 31 March 30 Sept 31 March
2017 2017 2016 2016
Credit quality
Impairment charges to average loans annualised
1
0.15% 0.15% 0.13% 0.16%
Mortgage 90+ day delinquencies 0.70% 0.72% 0.70% 0.58%
Other consumer loans 90+ day delinquencies 1.62% 1.83% 1.34% 1.48%
Total stressed assets to TCE 0.62% 0.64% 0.61% 0.51%
1
Averages are based on a six month period for the halves and a twelve month period for the full year.
2017 Full Year financial results
Divisional results
Westpac Group 2017 Full Year Financial Results Announcement | 51
Financial performance
Second Half 2017 – First Half 2017
Cash earnings of $1,593 million, was 5% higher than First Half 2017, largely due to a 7% increase in net interest
income. This was partly offset by lower non-interest income, higher operating expenses and a small rise in
impairment charges.
Net interest
income up
$247m, 7%
Mortgages grew at system
1
while effectively managing macro-prudential rules for both investor
and interest only lending. Other personal lending was lower in credit cards and personal loan
(consistent with a reduction in system
1
balances);
Deposits growth of 3% was spread broadly across term and at call accounts with most growth
in online and savings accounts. Mortgage offset accounts also increased (up 4%);
Net interest margin was 7 basis points higher from pricing changes across different mortgage
categories including investor mortgages and interest only lending. Deposit spreads benefited
from the maturity of some highly priced term deposits; and
Margins were also impacted by some switching of mortgage products and from a customer
preference for fixed rate home loan products. The Bank Levy, applied from July 2017
(3 months), reduced margins by 3 basis points.
Non-interest
income down
$46m, 11%
Decline was mostly due to a fall in cards income (lower interchange income and the seasonal
and mix impact in loyalty point redemptions, partially offset by reward point repricing); and
A $24 million provision for customer refunds and payments also contributed to the decline;
partly offset by
The full period impact of some fee repricing in First Half 2017.
Expenses up
$79m, 5%
After remaining relatively flat in the first half of the year, expenses were higher due mostly to:
- Investment, including in the customer service hub and new call centre platform;
- Regulatory and compliance costs including effort around product reviews; and
- Increased marketing spend, including the roll out new products such as the ‘Bump’ and
Westpac Life deposit accounts, and the Westpac Lite credit card.
Partially offsetting these increases has been improved efficiency from increased digitisation
and the full period benefit of restructuring of the network including the closure of 16 branches
in Second Half 2017 which followed the closure of 29 branches in First Half 2017.
Impairment
charges up
$7m, 3%
Asset quality remains sound, with stressed assets to TCE at 0.62%, however, impairment
charges were higher due mostly to changes in the reporting and treatment of facilities in
hardship.
Economic profit
up $108m, 8%
Driven by higher cash earnings and completion of a number of initiatives that have improved
the capital efficiency of mortgage lending.
Full Year 2017 – Full Year 2016
The 4% rise in cash earnings to $3,104 million, was due to good balance sheet growth and disciplined expense
management.
Net interest
income up
$334m, 5%
Mortgages growth was slightly below system
1
. The decline in other lending was in credit cards
and personal loans, in line with lower system
1
balances;
The above system growth in deposits, included a 9% lift in transaction account balances; and
Net interest margin was 3 basis points lower primarily from higher wholesale funding and
deposits costs, partly offset by some repricing and continued discipline on discounting.
Non-interest
income down
$48m, 6%
Decline mostly due to lower cards income (net impact of interchange fee changes, loyalty
point redemption costs, and a prior year benefit not repeated) and provisions for customer
refunds; and
Partly offset by some fee repricing and higher foreign exchange income.
Expenses up
$67m, 2%
Higher technology and investment related costs;
A rise in regulatory and compliance spending;
Increased product development and marketing costs; and
Productivity benefits largely offset business as usual expense increases.
Impairment
charges up
$49m, 10%
Higher impairments were mostly due to an increase in mortgage IAPs for regions impacted by
the slowing of the mining investment cycle and CAPs for hardship changes in the other
consumer lending portfolio; and
90+ day other consumer loan delinquencies were higher mostly due to changes in the
measurement and reporting of customers in hardship arrangements. Excluding hardship
changes, 90+ day delinquencies improved.
Economic profit
up $65m, 3%
Increase was lower than the rise in cash earnings due to more capital allocated to the division
in the prior year from increased regulatory capital requirements for mortgages.
1
RBA September 2017.
2017 Full Year financial results
Divisional results
52 | Westpac Group 2017 Full Year Financial Results Announcement
3.2 Business Bank
Business Bank (BB) is responsible for sales and service to micro, SME and commercial business customers in
Australia for facilities up to approximately $150 million. The division operates under the Westpac, St.George,
BankSA and Bank of Melbourne brands. Customers are provided with a wide range of banking and financial
products and services to support their borrowing, payments and transaction needs. In addition, specialist services
are provided for cash flow finance, trade finance, automotive and equipment finance, property finance and
Treasury. The division is also responsible for consumer customers with auto finance loans. BB works in an
integrated way with BTFG and WIB in the sales and service of select financial services and products including
corporate superannuation, foreign exchange and interest rate hedging. The revenue from these products is mostly
retained by the product originator.
% Mov't % Mov't
Half Year Half Year Sept 17 - Full Year Full Year Sept 17 -
$m Sept 17 March 17 Mar 17 Sept 17 Sept 16 Sept 16
Net interest income
2,065 1,990
4
4,055
3,925
3
Non-interest income
586 567
3
1,153
1,104
4
Net operating income
2,651 2,557
4
5,208
5,029
4
Operating expenses
(928) (911)
2
(1,839)
(1,796)
2
Core earnings
1,723 1,646 5 3,369 3,233 4
Impairment charges
(162) (205)
(21)
(367)
(410)
(10)
Operating profit before tax
1,561 1,441 8 3,002 2,823 6
Tax and non-controlling interests
(470) (433)
9
(903)
(848)
6
Cash earnings
1,091 1,008 8 2,099 1,975 6
Economic profit
797 661
21
1,458
1,310
11
Expense to income ratio
35.01% 35.63%
(62bps)
35.31%
35.71%
(40bps)
Net interest margin
2.74% 2.70%
4bps
2.72%
2.72%
-
As at As at % Mov't As at As at % Mov't
30 Sept 31 March Sept 17 - 30 Sept 30 Sept Sept 17 -
$bn 2017 2017 Mar 17 2017 2016 Sept 16
Deposits
Term deposits
47.1 46.7
1
47.1
47.9
(2)
Other
68.2 65.3
4
68.2
62.7
9
Total deposits
115.3 112.0 3 115.3 110.6 4
Net loans
Mortgages
61.4 59.8
3
61.4
58.3
5
Business
88.2 86.6
2
88.2
86.8
2
Other
9.1 9.2
(1)
9.1
9.5
(4)
Provisions
(1.2) (1.3)
(8)
(1.2)
(1.2)
-
Total net loans
157.5 154.3 2 157.5 153.4 3
Deposit to loan ratio
73.21% 72.59%
62bps
73.21%
72.10%
111bps
Total assets
161.1 157.8 2 161.1 156.8 3
TCE
206.4 203.1
2
206.4
201.3
3
Average interest-earning assets
1
150.5 148.1
2
149.3
144.3
3
As at As at As at As at
30 Sept 31 March 30 Sept 31 March
2017 2017 2016 2016
Credit quality
Impairment charges to average loans annualised
1
0.21% 0.27% 0.27% 0.27%
Mortgage 90+ day delinquencies
0.63% 0.58% 0.61% 0.54%
Other consumer loans 90+ day delinquencies
1.71% 1.34% 0.92% 1.34%
Business: impaired assets to TCE
0.47% 0.63% 0.55% 0.62%
Total stressed assets to TCE
2.16% 2.32% 2.24% 2.13%
1
Averages are based on a six month period for the halves and a twelve month period for the full year.
2017 Full Year financial results
Divisional results
Westpac Group 2017 Full Year Financial Results Announcement | 53
Financial performance
Second Half 2017 - First Half 2017
Cash earnings of $1,091 million were $83 million, or 8%, higher than First Half 2017. Operating income increased
4% supported by targeted balance sheet growth, higher margins and increased fee income. Expenses were 2%
up, with business as usual costs being offset by efficiency gains. Impairment charges decreased from a reduction
in commercial provisions.
Net interest
income
up $75m, 4%
The 2% increase in lending was supported by 3% growth in SME and across targeted
industries including health, agriculture and professional services. Partially offsetting this
growth has been the continued reduction in some lower returning facilities including in
commercial property and auto finance;
Deposits increased 3% fully funding loan growth. Most of the growth was in transaction
accounts (up 7%); and
Net interest margins were higher from increased asset spreads, from repricing associated with
business lending and certain mortgages, including for interest only. This increase was partially
offset by provision for customer refunds and payments, higher funding costs and the Bank
Levy which had a 4 basis point impact on margins.
Non-interest
income
up $19m, 3%
The rise was supported by higher business lending fees and transaction fees from a
combination of portfolio growth, more transaction accounts and an uplift in facility fees.
Expenses up
$17m, 2%
Most of the expense increase was due to higher technology and investment related costs and
regulatory and compliance costs; and
Increases from business as usual costs have largely been offset by productivity benefits from:
- Improvements to the customer service model with dedicated service request teams and
segmentation of customers to industry specialists;
- Using digital to increase customer self-serve, improve customer on-boarding and simplify
credit risk review processes, enabling bankers to spend more time with customers; and
- Further take-up of e-statements.
Impairment
charges down
$43m, 21%
Decline mostly due to a reduction in new individual provisions on commercial exposures;
Credit quality remains sound, with the level of stressed assets 16 basis points lower; and
Other consumer loan delinquencies increased due to changes in the reporting and treatment
of hardship.
Economic profit
up $136m,
21%
Economic profit increased more than cash earnings as the division focused on managing
returns and reducing its exposure to more capital intensive segments.
Full Year 2017 – Full Year 2016
Cash earnings of $2,099 million are $124 million, or 6% higher than Full Year 2016 from core earnings growth of
4% and a 10% decline in impairment charges. The result was supported by increased fee income, solid balance
sheet growth and productivity gains.
Net interest
income
up $130m, 3%
Lending growth of 3% was supported by SME and targeted industries while commercial
property lending was lower from optimising risk return profile;
A 15% rise in transaction balances supported the 4% rise in deposits. Term deposit balances
declined following the migration of some customers to Private Wealth (in BTFG); and
Net interest margin was little changed over the year. Asset spreads were higher following
some repricing, although these were offset by lower deposit spreads and higher wholesale
funding costs.
Non-interest
income
up $49m, 4%
Higher line fees from both portfolio growth and some repricing for facilities; and
Fees were also supported by the strong growth in transaction balances and repricing.
Expenses
up $43m, 2%
Business as usual cost increases were largely offset by efficiency gains from digitisation of
processes and streamlining in the division’s service model including specialist industry teams
and more targeted handling of customer service requests; and
Increased investment spending and technology costs led to most of the increase.
Impairment
charges
down $43m,
10%
Lower impairments were principally due to improved collections processes for auto finance.
This was partly offset by increased provisions across the property, construction, mining and
manufacturing sectors, particularly in Queensland; and
Credit quality remains sound, with total stressed assets to TCE lower. Auto delinquencies
were higher due to the changes in hardship reporting.
Economic profit
up $148m,
11%
Growth was higher than the 6% rise in cash earnings as the division focused on managing
returns and reducing its exposure to more capital intensive segments.
2017 Full Year financial results
Divisional results
54 | Westpac Group 2017 Full Year Financial Results Announcement
3.3 BT Financial Group (Australia)
BT Financial Group (Australia) (BTFG) is the Australian wealth management and insurance arm of the Westpac
Group providing a broad range of associated services. BTFG’s funds management operations include the
manufacturing and distribution of investment, superannuation, retirement products, wealth administration
platforms, private banking, margin lending and equities broking. BTFG’s insurance business covers the
manufacturing and distribution of life, general and lenders mortgage insurance. The division also uses third parties
to manufacture certain general insurance products. In managing risk across all insurance classes the division
reinsures certain risks using external providers. BTFG operates a range of wealth, funds management and
financial advice brands and operates under the banking brands of Westpac, St.George, Bank of Melbourne and
BankSA for Private Wealth and Insurance.
In Second Half 2017 Westpac sold down its investment in BTIM from 29% to 10%. That sale led to a change in the
way the business is accounted for from being equity accounted to being reflected as an available-for-sale
investment. Profit on the partial sell down of BTIM is not included in BTFG’s results.
% Mov't % Mov't
Half Year Half Year Sept 17 - Full Year Full Year Sept 17 -
$m Sept 17 March 17 Mar 17 Sept 17 Sept 16 Sept 16
Net interest income 286 251
14
537
486
10
Non-interest income 850 894
(5)
1,744
1,908
(9)
Net operating income 1,136 1,145
(1)
2,281
2,394
(5)
Operating expenses (598) (578)
3
(1,176)
(1,160)
1
Core earnings 538 567 (5) 1,105 1,234 (10)
Impairment charges (1) (3)
(67)
(4)
-
-
Operating profit before tax 537 564
(5)
1,101
1,234
(11)
Tax and non-controlling interests (163) (167)
(2)
(330)
(366)
(10)
Cash earnings 374 397 (6) 771 868 (11)
Economic profit 300 325
(8)
625 766
(18)
Expense to income ratio 52.64% 50.48%
216bps
51.56%
48.45%
311bps
Income on invested capital
1
30 36 (17) 66 54 22
As at As at % Mov't As at As at % Mov't
30 Sept 31 March Sept 17 - 30 Sept 30 Sept Sept 17 -
$bn 2017 2017 Mar 17 2017 2016 Sept 16
Deposits 29.7 28.6
4
29.7
25.5
16
Net loans
Loans 20.1 19.3
4
20.1
18.6
8
Provisions - -
-
-
-
-
Total net loans 20.1 19.3 4 20.1 18.6 8
Deposit to loan ratio 147.76% 148.19%
(43bps)
147.76%
137.10%
large
Funds Under Management (FUM) 53.1 55.1
(4)
53.1
48.4
10
Average Funds Under Management
2
54.2 50.6
7
52.4
47.7
10
Funds Under Administration (FUA) 138.3 136.4
1
138.3
130.8
6
Average Funds Under Administration
2
138.4 133.0
4
135.6 126.4
7
Cash earnings % Mov't % Mov't
Half Year Half Year Sept 17 - Full Year Full Year Sept 17 -
$m Sept 17 March 17 Mar 17 Sept 17 Sept 16 Sept 16
Funds management business 181 254
(29)
435
520
(16)
Insurance 174 119
46
293
309
(5)
Total funds management and insurance 355 373
(5)
728
829
(12)
Capital and other 19 24
(21)
43
39
10
Total cash earnings 374 397 (6) 771 868 (11)
1
Income on Invested Capital represents revenue generated from investing BTFG’s capital balances (required for regulatory purposes).
2
Averages are based on a six month period for the halves and a twelve month period for the full year.
2017 Full Year financial results
Divisional results
Westpac Group 2017 Full Year Financial Results Announcement | 55
Financial performance
Second Half 2017 - First Half 2017
Cash earnings of $374 million, was $23 million or 6% lower than First Half 2017. While the business has continued
to grow with higher funds under administration, improved insurance premiums and a 4% increase in lending,
performance was impacted by some infrequent items totalling $129 million before tax. The cash earnings impacts
of infrequent items (after tax) include a provision for customer refunds and payments ($58 million), revaluation loss
on investments in boutique funds ($24 million) and lower revenue following the further sale of shares in BTIM
($10 million).
Net interest
income
up $35m, 14%
Good balance sheet growth in Private Wealth with deposits and loans up 4%; and
Net interest margin up 23 basis points from repricing of certain mortgages and improved term
deposit spreads.
Non-interest
income
down $44m,
5%
Funds Management contribution was down $109 million (or 17%):
- Infrequent items totalled $129 million (indicated above);
- FUM and FUA related income was higher with average FUM and FUA up 7% and 4%
respectively, partly offset by margin compression;
- FUM and FUA increase was supported by positive net inflows and improved markets
including $3 billion of net flows onto the Panorama system, Panorama FUA now $7 billion;
and
- Fund margins were lower due to product mix changes including the completion of the
migration of customers from legacy superannuation products to lower fee MySuper products.
Insurance income was $71 million (or 33%) higher including from:
- General insurance income was $74 million higher, mostly due to lower claims. First Half
2017 experienced a number of large storms, including Cyclone Debbie ($37 million);
- Life insurance income was $6 million higher, mostly due to lower claims and 4% growth in
in-force premiums; and
- LMI contribution was $9 million lower from a reduction in loans written in higher LVR bands.
Returns on capital were down due to a lower investment contribution.
Expenses
up $20m, 3%
Higher regulatory and compliance costs due to elevated regulatory requests and from the
costs associated with processing customer refunds and payments;
Investment expenses increased, including costs associated with Panorama;
Expenses tend to be higher in the second half of the year given end of financial year
processing; and
Productivity savings including full period benefits from centralising certain activities partly
offset these increases.
Economic profit
down $25m,
8%
The decline in economic profit was consistent with the lower cash earnings.
Full Year 2017 – Full Year 2016
Cash earnings was 11% lower than Full Year 2016, impacted by a number of infrequent items. The underlying
business was flat over the year with volume growth partly offset by lower FUM and FUA margins, lower Advice
activity levels, higher insurance claims and increased regulatory and compliance costs.
Net interest
income
up $51m, 10%
Good balance sheet growth primarily in Private Wealth, deposits up 16% and loans up 8%;
and
Net interest margin was up 13 basis points mostly due to repricing of certain mortgages and
improved term deposit spreads.
Non-interest
income down
$164m, 9%
Funds Management contribution down $151 million:
- Infrequent items indicated above ($129 million);
- Advice income was lower mostly from reduced activity ($33 million); and
- FUM and FUA revenue was higher with growth in average FUM and FUA (10% and 7%
respectively) offsetting lower margins from product mix changes, including the migration to
MySuper products. FUM and FUA net flows were $4 billion for the year.
Insurance income down $26 million (or 5%);
- General insurance income was lower ($33 million) mostly from higher claims concentrated in
the first half of the year;
- Life insurance income was flat as the 10% growth in in-force premiums and improved lapses
was offset by higher claims; and
- LMI contribution was higher mostly due to the arrangements for loans with a LVR >90%.
Partly offsetting this was improved returns on capital mostly related to lower hedging costs.
Expenses up
$16m, 1%
Regulatory and compliance costs were $28 million higher over the year;
Investment related spending was up from costs associated with the launch of Panorama; and
Productivity benefits mostly offset these increases.
Economic profit
down $141m,
18%
The decline in economic profit was due to the lower cash earnings and higher levels of capital.
This reflected an increase in capital provided to the lenders mortgage insurance business.
2017 Full Year financial results
Divisional results
56 | Westpac Group 2017 Full Year Financial Results Announcement
3.3.1 Funds Management business
% Mov't % Mov't
Half Year Half Year Sept 17 - Full Year Full Year Sept 17 -
$m Sept 17 March 17 Mar 17 Sept 17 Sept 16 Sept 16
Net interest income 281 244
15
525 474
11
Non-interest income
1
537 646
(17)
1,183 1,334
(11)
Net operating income 818 890
(8)
1,708 1,808
(6)
Operating expenses (553) (529)
5
(1,082) (1,067)
1
Core earnings 265 361 (27) 626 741 (16)
Impairment charges (2) (1)
100
(3) -
-
Operating profit before tax 263 360 (27) 623 741 (16)
Tax and non-controlling interests (82) (106)
(23)
(188) (221)
(15)
Cash earnings 181 254 (29) 435 520 (16)
Expense to income ratio 67.60% 59.44%
large
63.35% 59.02%
large
Movement of FUM / FUA
As at As at % Mov't As at % Mov't
30 Sept Net Other 30 Sept Sept 17 - 31 March Sept 17 -
$bn 2017 Inflows Outflows Flows Mov't
2
2016 Sept 16 2017 Mar 17
Retail
3
17.5
1.9
(2.1)
(0.2)
0.6 17.1
2
17.5
-
Institutional 2.4
0.6
(0.5)
0.1
0.2 2.1
14
2.3
4
Wholesale 33.2
11.0
(8.8)
2.2
1.8 29.2
14
35.3
(6)
Total FUM 53.1 13.5 (11.4) 2.1 2.6 48.4 10 55.1 (4)
Wrap 113.1
29.7
(28.6)
1.1
5.5 106.5
6
111.0
2
Corporate Super 21.7
2.6
(2.3)
0.3
0.9 20.5
6
21.4
1
Other
4
3.5
-
-
-
(0.3) 3.8
(8)
4.0
(13)
Total FUA 138.3 32.3 (30.9) 1.4 6.1 130.8 6 136.4 1
Market share in key Australian wealth products are displayed below.
Current Australian market share
5
Market
Product share
Rank
Platforms (includes Wrap and Corporate Super) 18.9% 1
Retail (excludes Cash) 18.0% 1
Corporate Super 12.8% 3
1
Includes investments revaluation loss of $32 million as a result of annual valuations.
2
Other movement includes market movement and other client transactions including fund transfers, account fees and distributions.
3
Retail includes Annuities, Retail Investment, Retirement Products and Retail Superannuation.
4
Other includes Capital and Reserves.
5
Market share FUM / FUA based on published market share statistics from Strategic Insight as at 30 June 2017 and represents the
addition of St.George Wealth and BT Wealth business market share at this time.
2017 Full Year financial results
Divisional results
Westpac Group 2017 Full Year Financial Results Announcement | 57
3.3.2 Insurance business
The Insurance business result includes the Westpac and St.George Life Insurance, General Insurance and
Lenders Mortgage Insurance (LMI) businesses.
% Mov't % Mov't
Half Year
Half Year Sept 17 - Full Year Full Year Sept 17 -
$m
Sept 17
March 17 Mar 17 Sept 17 Sept 16 Sept 16
Net interest income
3
5
(40)
8
5
60
Non-interest income
285
214
33
499
525
(5)
Net operating income
288
219
32
507
530
(4)
Operating expenses
(46)
(46)
-
(92)
(88)
5
Core earnings
242
173 40 415 442 (6)
Impairment charges
2
(2)
(200)
-
-
-
Operating profit before tax
244
171 43 415 442 (6)
Tax and non-controlling interests
(70)
(52)
35
(122)
(133)
(8)
Cash earnings
174
119 46 293 309 (5)
Expense to income ratio
15.97%
21.00%
large
18.15%
16.60%
155bps
Cash earnings % Mov't % Mov't
Half Year
Half Year Sept 17 - Full Year Full Year Sept 17 -
$m
Sept 17
March 17 Mar 17 Sept 17 Sept 16 Sept 16
Life Insurance
81
78
4
159
156
2
General Insurance
76
18
large
94
117
(20)
Lenders Mortgage Insurance
17
23
(26)
40
36
11
Total cash earnings
174
119 46 293 309 (5)
Insurance key metrics
Life Insurance in-force premiums % Mov't % Mov't
Half Year
Half Year Sept 17 - Full Year Full Year Sept 17 -
$m
Sept 17
March 17 Mar 17 Sept 17 Sept 16 Sept 16
Life Insurance in-force premiums at start of period
1,030 973
6
973
892
9
Sales / New Business
1
112 122
(8)
234
213
10
Lapses
(74) (65)
14
(139)
(132)
5
Life Insurance in-force premiums at end of period
1,068 1,030 4 1,068
973 10
Claims ratios
2
for Insurance Business % Mov't % Mov't
Half Year
Half Year Sept 17 - Full Year Full Year Sept 17 -
(%)
Sept 17
March 17 Mar 17 Sept 17 Sept 16 Sept 16
Life Insurance
35 38
(8)
37
36
3
General Insurance
35 71
(51)
53
49
8
Lenders Mortgage Insurance
27 7
large
17
14
21
Gross written premiums % Mov't % Mov't
Half Year
Half Year Sept 17 - Full Year Full Year Sept 17 -
$m
Sept 17
March 17 Mar 17 Sept 17 Sept 16 Sept 16
General Insurance gross written premium
258
250
3
508
503
1
Lenders Mortgage Insurance gross written premium
3
109
141
(23)
250
287
(13)
Current Australian market share
4
Market
Product
share
Rank
Life insurance - in-force 10.4% 5
Life insurance - new business
11.7%
5
1
Sales/New Business in First Half 2017 includes a methodology change for the calculation of premium discounts, creating a one off
increase of $32 million. This has no impact on earned premiums. Adjusting for this change, in-force premiums growth on Second Half
2017 is 4% and growth on Full Year 2016 is 6%.
2
Claims ratios are claims over earned premium plus reinsurance rebate plus exchange commission. General Insurance claims ratios
have been calculated to align with industry standards and exclude internal commission payments from earned premiums.
3
LMI gross written premium includes loans >90% LVR reinsured with Arch Reinsurance Limited. Second Half 2017 gross written
premium includes $73 million from the arrangement (First Half 2017: $107 million, Full Year 2016: $227 million).
4
Source: Life Insurance – Strategic Insight June 2017.
2017 Full Year financial results
Divisional results
58 | Westpac Group 2017 Full Year Financial Results Announcement
3.4 Westpac Institutional Bank
Westpac Institutional Bank (WIB) delivers a broad range of financial products and services to commercial,
corporate, institutional and government customers with connections to Australia and New Zealand. WIB operates
through dedicated industry relationship and specialist product teams, with expert knowledge in transactional
banking, financial and debt capital markets, specialised capital, and alternative investment solutions. Customers
are supported throughout Australia as well as via branches and subsidiaries located in New Zealand, the US, UK
and Asia. WIB is also responsible for Westpac Pacific currently providing a range of banking services in Fiji and
PNG. WIB works in an integrated way with all the Group’s divisions in the provision of more complex financial
needs including across foreign exchange and fixed interest solutions.
% Mov't % Mov't
Half Year Half Year Sept 17 - Full Year Full Year Sept 17 -
$m Sept 17 March 17 Mar 17 Sept 17 Sept 16 Sept 16
Net interest income 764 743
3
1,507
1,574
(4)
Non-interest income 749 957
(22)
1,706
1,536
11
Net operating income 1,513 1,700
(11)
3,213
3,110
3
Operating expenses (666) (657)
1
(1,323)
(1,347)
(2)
Core earnings 847 1,043 (19) 1,890 1,763 7
Impairment (charges) / benefits 8 (64)
(113)
(56)
(177)
(68)
Operating profit before tax 855 979 (13) 1,834 1,586 16
Tax and non-controlling interests (251) (279)
(10)
(530)
(480)
10
Cash earnings 604 700 (14) 1,304 1,106 18
Economic profit 274 348
(21)
622
338
84
Expense to income ratio 44.02% 38.65%
large
41.18%
43.31%
(213bps)
Net interest margin 1.85% 1.77%
8bps
1.81%
1.74%
7bps
As at As at % Mov't As at As at % Mov't
30 Sept 31 March Sept 17 - 30 Sept 30 Sept Sept 17 -
$bn 2017 2017 Mar 17 2017 2016 Sept 16
Deposits 89.4 93.8
(5)
89.4
88.4
1
Net loans
Loans 74.3 72.0
3
74.3
74.4
-
Provisions (0.3) (0.5)
(40)
(0.3)
(0.6)
(50)
Total net loans 74.0 71.5 3 74.0 73.8 -
Deposit to loan ratio 120.81% 131.19%
large
120.81%
119.78%
103bps
Total assets 102.9 103.8
(1)
102.9
110.4
(7)
TCE 249.1 245.2
2
249.1
243.9
2
Average interest-earning assets
1
82.4 84.4
(2)
83.4
90.5
(8)
Impairment charges to average loans annualised (0.02%) 0.18%
(20bps)
0.08%
0.23%
(15bps)
Impaired assets to TCE 0.07% 0.18%
(11bps)
0.07%
0.33%
(26bps)
Total stressed assets to TCE 0.55% 0.59%
(4bps)
0.55%
0.88%
(33bps)
Funds under management 12.5 11.3
11
12.5
10.2
23
Revenue contribution
% Mov't % Mov't
Half Year Half Year Sept 17 - Full Year Full Year Sept 17 -
$m Sept 17 March 17 Mar 17 Sept 17 Sept 16 Sept 16
Lending and deposit revenue 827 801
3
1,628
1,611
1
Markets, sales and fee income 452 513
(12)
965
937
3
Total customer revenue 1,279 1,314 (3) 2,593 2,548 2
Derivative valuation adjustments 27 19
42
46
12
large
Trading revenue 71 246
(71)
317
228
39
Hastings 63 30
110
93
87
7
Other
2
73 91
(20)
164
235
(30)
Total WIB revenue 1,513 1,700 (11) 3,213 3,110 3
1
Averages are based on a six month period for the halves and a twelve month period for the full year.
2
Includes capital benefit.
2017 Full Year financial results
Divisional results
Westpac Group 2017 Full Year Financial Results Announcement | 59
Financial performance
Second Half 2017 - First Half 2017
Cash earnings of $604 million was $96 million, or 14%, lower than First Half 2017, mostly from lower markets
income from both customer and trading. This was partly offset by lower impairment charges.
Net interest
income up
$21m, 3%
Growth in lending of 3% was primarily due to higher utilisation of mortgage warehouse
facilities following a large drop in First Half 2017. Trade finance was also a little higher;
Deposits were 5% lower from the roll off of some government deposits late in the half;
The rise in margins reflects continued discipline on lending spreads and from an improved
funding mix with average deposit balances higher over the half; partly offset by the Bank Levy,
which had a 3 basis points impact on margins.
Non-interest
income down
$208m, 22%
After a strong performance in First Half 2017, trading income was lower. Markets income from
customers was also down as First Half 2017 benefited from some larger customer
transactions; and
Partly offset by higher performance fees in Hastings ($30 million) which typically occur in the
second half of the year.
Expenses up
$9m, 1%
Expenses were well managed with productivity initiatives (including refinement of the offshore
operating model) limiting expense growth to 1%.
Impairment
charges down
$72m, 113%
Asset quality remains sound with impaired assets to TCE declining 11 basis points to 0.07%;
and
Impairment charges were a small benefit from higher write-backs following the successful
work-out of some impaired facilities. New individually assessed provisions were also lower.
Economic profit
down $74m,
21%
Economic profit is 21% lower from the reduction in contribution to cash earnings from lower
Financial Markets income.
Full Year 2017 – Full Year 2016
Cash earnings of $1,304 million, was $198 million or 18% higher compared to Full Year 2016, supported by higher
customer and trading income, disciplined expense management and lower impairments.
Net interest
income
down $67m,
4%
Average loan balances were lower over the year, which contributed to lower net interest
income; partly offset by
7 basis points improvement in margin from the run down in lower return assets and pricing
disciplines.
Non-interest
income
up $170m,
11%
Higher trading revenue across both fixed income and commodities;
Customer revenue was higher reflecting some larger customer transactions; and
Positive movement in derivative valuation adjustments.
Expenses
down $24m,
2%
Disciplined expense management, productivity initiatives and lower investment in Asia
contributed to the 2% reduction in expenses.
Impairment
charges down
$121m, 68%
Asset quality sound, with the ratio of impaired assets to TCE down 26 basis points following
the work-out and write-off of some larger facilities; and
The lower charge was partly due to higher impairment charges in 2016 with increased
provisions for the downgrade of a small number of large names.
Economic profit
up $284m,
84%
Improved portfolio quality and reviews of unused limits and committed facilities, has reduced
allocated capital. This combined with the higher cash earnings led to the 84% increase in
economic profit.
2017 Full Year financial results
Divisional results
60 | Westpac Group 2017 Full Year Financial Results Announcement
3.5 Westpac New Zealand
Westpac New Zealand is responsible for sales and service of banking, wealth and insurance products for
consumers, business and institutional customers in New Zealand. Westpac conducts its New Zealand banking
business through two banks in New Zealand: Westpac New Zealand Limited, which is incorporated in New
Zealand and Westpac Banking Corporation (New Zealand Branch), which is incorporated in Australia. Westpac
New Zealand operates via an extensive network of branches and ATMs across both the North and South Islands.
Business and institutional customers are also served through relationship and specialist product teams. Banking
products are provided under the Westpac brand while insurance and wealth products are provided under Westpac
Life and BT brands, respectively. Westpac New Zealand also maintains its own infrastructure, including
technology, operations and Treasury. All figures are in New Zealand dollars (NZ$).
% Mov't % Mov't
Half Year Half Year Sept 17 - Full Year Full Year Sept 17 -
NZ$m Sept 17 March 17 Mar 17 Sept 17 Sept 16 Sept 16
Net interest income
897 838
7
1,735
1,725
1
Non-interest income
1
253 259
(2)
512
517
(1)
Net operating income
1,150 1,097
5
2,247
2,242
-
Operating expenses
1
(476) (487)
(2)
(963)
(954)
1
Core earnings
674 610 10 1,284 1,288 -
Impairment (charges) / benefits
40 36
11
76
(59)
large
Operating profit before tax
714 646 11 1,360 1,229 11
Tax and non-controlling interests
(206) (184)
12
(390)
(343)
14
Cash earnings
508 462 10 970 886 9
Economic profit
245 198
24
443
384
15
Expense to income ratio
41.39% 44.39%
(300bps)
42.86%
42.55%
31bps
Net interest margin
2.08% 1.96%
12bps
2.02%
2.15%
(13bps)
As at As at % Mov't As at As at % Mov't
30 Sept 31 March Sept 17 - 30 Sept 30 Sept Sept 17 -
NZ$bn 2017 2017 Mar 17 2017 2016 Sept 16
Deposits
Term deposits
30.0 27.8
8
30.0
29.2
3
Other
28.4 29.0
(2)
28.4
28.3
-
Total deposits
2
58.4 56.8 3 58.4 57.5 2
Net loans
Mortgages
46.9 46.2
2
46.9
45.1
4
Business
28.6 28.6
-
28.6
28.4
1
Other
2.2 2.1
5
2.2
2.0
10
Provisions
(0.4) (0.4)
-
(0.4)
(0.4)
-
Total net loans
77.3 76.5 1 77.3 75.1 3
Deposit to loan ratio
75.55% 74.25%
130bps
75.55%
76.56%
(101bps)
Total assets
88.3 87.1 1 88.3 86.0 3
TCE
108.8 107.0
2
108.8
106.2
2
Third party liquid assets
8.7 8.4
4
8.7
8.3
5
Average interest-earning assets
3
86.0 85.6
-
85.8
80.2
7
Funds under management
4
8.3 7.7
8
8.3
7.5
11
Funds under administration
4
1.8 2.0
(10)
1.8
2.0
(10)
As at As at As at As at
30 Sept 31 March 30 Sept 31 March
2017 2017 2016 2016
Credit quality
Impairment charges to average loans annualised
3
(0.10%) (0.09%) 0.14% 0.03%
Mortgage 90+ day delinquencies
0.12% 0.14% 0.10% 0.15%
Other consumer loans 90+ day delinquencies
0.57% 0.58% 0.48% 0.56%
Impaired assets to TCE
0.18% 0.20% 0.24% 0.35%
Total stressed assets to TCE
2.06% 2.41% 2.54% 1.78%
1
Comparatives have been restated for the accounting change to the Westpac New Zealand credit card rewards scheme
(First Half 2017: $19 million, Second Half 2016: $16 million and First Half 2016: $19 million).
2
Total deposits in this table refer to total customer deposits.
3
Averages are based on a six month period for the halves and a twelve month period for the full year.
4
During Second Half 2017 NZ$0.2 billion transferred from FUA to FUM.
2017 Full Year financial results
Divisional results
Westpac Group 2017 Full Year Financial Results Announcement | 61
Financial performance (NZ$)
Second Half 2017 - First Half 2017
Cash earnings up 10% to NZ$508 million, supported by a 12 basis point improvement in net interest margin and
productivity benefits.
Net interest
income
up $59m, 7%
Loan growth was modest over the half as the division focused on improving returns.
All growth achieved was in mortgages, mostly in the fixed rate book. Business lending was flat
with new lending in Agriculture offset by lower institutional demand;
Deposits fully funded lending with most growth in term deposits (up 8%) as customers
preferred higher rate products over at call accounts; and
Net interest margin was up 12 basis points supported by disciplined growth and focused
repricing of mortgages and business lending and the accelerated amortisation of deferred
mortgage costs in First Half 2017 (3 basis points). These were partly offset by lower deposit
spreads from competition for deposits, particularly longer dated term deposits.
Non-interest
income
down $6m, 2%
Decline was primarily due to the full period impact of removing certain consumer fees in First
Half 2017 and lower cards income and institutional fees; partly offset by
Higher insurance income (from lower claims) and investment income (supported by a 4% rise
in FUM and FUA).
Expenses
down $11m,
2%
The decline was mostly due to productivity benefits from a range of initiatives associated with
the division's transformation program. This has included optimising the network and using
digital to increase self-serve; and
These improvements were partly offset by a $7 million increase in the cost of the
transformation program.
Impairment
benefit of
$40m. $4m
higher over the
first half
Asset quality improved with stressed assets to TCE reducing 35 basis points. The decline in
stressed assets was due to improved conditions in the dairy sector (following higher milk
prices). Consumer delinquencies continue to be at historical lows; and;
Impairments continued to be a benefit as write-backs have remained high and improving asset
quality has reduced new provision requirements.
Economic profit
up $47m, 24%
With growth skewed to lower risk assets (including mortgages and certain business loans)
allocated equity was flat over the half. This contributed to economic profit growing 24% and
above the growth in cash earnings.
Full Year 2017 – Full Year 2016
Cash earnings up 9% to NZ$970 million, with an impairment benefit of $76 million, from higher write-backs and
recoveries, and flat core earnings. Operating income was flat, with volume growth offset by margin decline.
Expenses were up 1% driven by investment in the division’s transformation program.
Net interest
income up
$10m, 1%
Loan growth of 3% was mostly in mortgages, up 4% with business lending 1% higher;
Deposits growth of 2% mostly term deposits (up 3%) with customers preferring higher rate
term products over at call accounts; and
Net interest margin was 13 basis points lower mostly from increased term deposit competition
and increased wholesale funding costs. Repricing of certain mortgages and business loans
partly offset the margin decline.
Non-interest
income down
$5m, 1%
Increased investment income (from a 6% increase in FUM and FUA) and higher cards income
were offset by higher insurance claims and lower banking fees following the removal of some
consumer fees.
Expenses up
$9m, 1%
The increase was due to investment in the division’s transformation program; and
Outside this increase expenses were 3% lower through a range of productivity initiatives
including a net reduction of 20 branches, a 3% reduction in FTE, increased self-serve
adoption and the digitisation of more processes.
Impairment
benefit of $76m
compared to a
$59m charge
Asset quality remained sound with stressed assets to TCE reducing 48 basis points to 2.06%.
The decline was due to reduction of stress in the dairy sector (improving milk prices).
Consumer 90+ day delinquencies were higher but continue to be near historical lows; and
The impairment benefit reflects the work-out and write-back of a few large facilities combined
with lower levels of stress.
Economic profit
up $59m, 15%
Economic profit growth (15%) is higher than the increase in cash earnings (9%) from the
significant impairment benefit.
2017 Full Year financial results
Divisional results
62 | Westpac Group 2017 Full Year Financial Results Announcement
3.6 Group Businesses
Group Businesses include:
Treasury which is responsible for the management of the Group’s balance sheet including wholesale funding,
capital and management of liquidity. Treasury also manages the interest rate risk and foreign exchange risks
inherent in the balance sheet, including managing the mismatch between Group assets and liabilities.
Treasury’s earnings are primarily sourced from managing the Group’s balance sheet and interest rate risk,
(excluding Westpac New Zealand) within set risk limits;
Group Technology
1
which comprises functions for the Australian businesses is responsible for technology
strategy and architecture, infrastructure and operations, applications development and business integration;
Core Support
2
, which comprises functions performed centrally, including Australian banking operations,
property services, strategy, finance, risk, compliance, legal and human resources; and3
Group Businesses also includes: earnings on capital not allocated to divisions, accounting entries for certain
intra-group transactions that facilitate the presentation of the performance of the Group’s operating segments,
earnings from non-core asset sales, earnings and costs associated with the Group’s fintech investments and
certain other head office items such as centrally raised provisions.
% Mov't % Mov't
Half Year Half Year Sept 17 - Full Year Full Year Sept 17 -
$m Sept 17 March 17 Mar 17 Sept 17 Sept 16 Sept 16
Net interest income
181 288
(37)
469 582
(19)
Non-interest income
(13) (19)
(32)
(32) 8
large
Net operating income
168 269
(38)
437 590
(26)
Operating expenses
(262) (265)
(1)
(527) (469)
12
Core earnings
(94) 4 large (90) 121 (174)
Impairment (charges) / benefits
32 11
191
43 9
large
Operating profit before tax
(62) 15 large (47) 130 (136)
Tax and non-controlling interests
(36) (49)
(27)
(85) (66)
29
Cash earnings
(98) (34) 188 (132) 64 large
Treasury % Mov't % Mov't
Half Year Half Year Sept 17 - Full Year Full Year Sept 17 -
$m Sept 17 March 17 Mar 17 Sept 17 Sept 16 Sept 16
Net interest income
127 254
(50)
381 487
(22)
Non-interest income
4 3
33
7 22
(68)
Net operating income
131 257
(49)
388 509
(24)
Cash earnings
72 161 (55) 233 329 (29)
Treasury Value at Risk (VaR)
3
$m Average High Low
Six months ended 30 September 2017
33.2 57.4 24.2
Six months ended 31 March 2017
43.6 56.4 31.4
Six months ended 30 September 2016
41.1 53.7 29.5
1
Costs are fully allocated to other divisions in the Group.
2
Costs are partially allocated to other divisions in the Group, with costs attributed to enterprise activity retained in Group Businesses.
3
VaR includes trading book and banking book exposures. The banking book component includes interest rate risk, credit spread risk in
liquid assets and other basis risks as used for internal management purposes.
2017 Full Year financial results
Divisional results
Westpac Group 2017 Full Year Financial Results Announcement | 63
Financial performance
Second Half 2017 – First Half 2017
Cash earnings decreased $64 million in the half primarily due to a reduction in Treasury revenue.
Net operating
income down
$101m, 38%
Net interest income decreased $107 million primarily from lower Treasury revenue
related to interest rate risk management. This was partly offset by the benefit of higher
centrally held capital balances.
Non-interest income increased $6 million mostly due to the impact of hedging New
Zealand earnings.
Expenses
down $3m, 1%
Expenses were little changed with lower employee costs, mostly offset by higher
regulatory and compliance related costs.
Impairment benefits
up $21m
Impairment benefit increased $21 million due to a reduction in the centrally held
economic overlay provision, primarily related to the mining sector. This reduction offsets
provisions raised in the divisions.
Tax and non-
controlling interests
down $13m, 27%
Group Businesses effective tax rate is higher than the Australian company tax rate of
30%, mostly due to the impact of hybrid distributions which are not deductible for
Australian taxation purposes.
Full Year 2017 – Full Year 2016
Cash earnings decreased $196 million from lower Treasury revenue, increased expenses and a higher tax
expense.
Net operating
income
down $153m, 26%
Net interest income decreased $113 million largely from lower Treasury revenue related
to interest rate risk management.
Non-interest income decreased $40 million primarily due to the impact of exchange rate
movements on the hedging of New Zealand earnings.
Expenses
up $58m, 12%
Increase in expenses primarily from higher expenses associated with the Group’s fintech
investments and higher regulatory and compliance costs.
Impairment benefits
up $34m
Impairment benefit increased $34 million due to a reduction to the centrally held
economic overlay provisions, largely related to the mining sector. This reduction offsets
provisions raised in the relevant divisions.
Tax and non-
controlling interests
up $19m, 29%
Tax and non-controlling interests increased $19 million, as Full Year 2016 benefited from
the finalisation of prior period taxation matters and hybrid distributions (not deductible for
tax purposes) were also higher in the current year.
2017 Full Year financial report
Table of contents
64 | Westpac Group 2017 Full Year Financial Results Announcement
4.0 Full Year financial report 2017
4.1 Significant developments 65
4.2 Consolidated income statement 73
4.3 Consolidated statement of comprehensive income 74
4.4 Consolidated balance sheet 75
4.5 Consolidated statement of changes in equity 76
4.6 Consolidated cash flow statement 78
4.7 Notes to the consolidated financial statements 79
Note 1 Basis of preparation
79
Note 2 Segment reporting
80
Note 3 Net interest income
84
Note 4 Non-interest income
85
Note 5 Operating expenses
86
Note 6 Income tax
87
Note 7 Earnings per share
88
Note 8 Average balance sheet and interest rates
89
Note 9 Loans
90
Note 10 Provisions for impairment charges
91
Note 11 Credit quality
92
Note 12 Deposits and other borrowings
94
Note 13 Fair values of financial assets and liabilities
95
Note 14 Contingent liabilities, contingent assets and credit commitments
101
Note 15 Shareholders’ equity
103
Note 16 Notes to the consolidated cash flow statement
105
Note 17 Subsequent events
106
4.8 Statement in relation to the audit of the financial statements 107
2017 Full Year financial report
Consolidated financial statements
Westpac Group 2017 Full Year Financial Results Announcement | 65
4.1 Significant developments
Corporate significant developments
Bank Levy for Authorised Deposit-taking Institutions (ADIs)
On 23 June 2017, legislation was enacted that introduced a new levy on ADIs with liabilities of at least $100 billion
(Bank Levy). The Bank Levy became effective from 1 July 2017 and the rate is set at 0.06% per annum of certain
ADI liabilities. There is no end date provided for the Bank Levy.
The Bank Levy applies to liabilities of Westpac (including its offshore branches), but does not apply to liabilities of
Westpac’s subsidiaries. Furthermore, the Bank Levy is not charged on Additional Tier 1 capital, deposits protected
by the Financial Claims Scheme and RBA exchange settlement balances. The legislation also provides for
inclusion of derivative liabilities on a net basis and for the Bank Levy to be tax deductible.
The Bank Levy cost Westpac $95 million in Full Year 2017, with an after tax impact of $66 million and is estimated
to cost Westpac approximately $405 million in Full Year 2018, with an after tax impact of approximately
$284 million.
House of Representatives Standing Committee on Economics’ Review of the Four Major Banks and other reviews
On 16 September 2016, the Chairman of the House of Representatives Standing Committee on Economics
announced that the Committee had commenced its Review of the Four Major Banks (Parliamentary Review). The
terms of reference for the Parliamentary Review are wide-ranging, with one area of focus being how individual
banks and the industry as a whole are responding to issues identified through other inquiries, including through the
Australian Bankers’ Association (ABA) action plan. Westpac attended public hearings of the Parliamentary Review
on 6 October 2016, 8 March 2017 and 11 October 2017.
The first report of the Parliamentary Review was published on 24 November 2016 and contained ten
recommendations. The second report was published on 21 April 2017. In its second report, the Committee
restated its support for the recommendations in the first report and supported a recommendation of the Australian
Small Business and Family Enterprise Ombudsman to remove non-monetary default clauses in small business
loan contracts.
In May 2017, the Australian Government announced that it supported nine of the ten recommendations made by
the Committee in its first report and announced a range of measures designed to implement these
recommendations, such as:
the introduction of the Banking Executive Accountability Regime (discussed below);
an independent review to recommend the best approach to implement an open banking regime with respect to
banking product and consumer data; and
the creation of a new dispute resolution framework, including the establishment of the Australian Financial
Complaints Authority, which is designed to be a single external dispute resolution body for the handling of
financial and superannuation disputes.
On 29 November 2016, the Senate referred an inquiry into the regulatory framework for the protection of
consumers, including small businesses, in the banking, insurance and financial services sector to the Senate
Economics References Committee. The terms of reference for the inquiry focus on a range of matters relating to
the protection of consumers against wrongdoing in the sector. They also require the inquiry to examine the
availability and adequacy of redress and support for consumers that have been victims of wrongdoing. The inquiry
is scheduled to produce a report in the first half of 2018.
Further, there are a number of other reviews commissioned by the Australian Government, including an
independent review to recommend the best approach to implement an open banking regime in Australia. The
review will advise on the design of the model and regulatory framework to require banks to share product and
customer data with customers and third parties, including the scope of data sets to be shared, data transfer
mechanisms, risks such as customer trust and privacy safeguard requirements, and costs of implementation. The
review will report to the Government by the end of 2017.
In addition to the reviews and inquiries mentioned above, the ACCC is undertaking a specific inquiry, until
30 June 2018, into the pricing of residential mortgages by those banks affected by the Bank Levy (including
Westpac), which includes monitoring the extent to which the Bank Levy is passed on to customers.
As these reviews and inquiries progress, they may lead to further regulation and reform.
2017 Full Year financial report
Consolidated financial statements
66 | Westpac Group 2017 Full Year Financial Results Announcement
Banking Executive Accountability Regime
In May 2017, the Australian Government announced that it would introduce the Banking Executive Accountability
Regime (BEAR). The Government’s stated intention is to introduce a strengthened responsibility and
accountability framework for the most senior and influential directors and executives in ADI groups (referred to as
‘accountable persons’ under BEAR). The Treasury Laws Amendment (Banking Executive Accountability and
Related Measures) Bill 2017 was introduced into Parliament on 19 October 2017. The Bill has been referred to the
Senate Economics Legislation Committee, which is expected to report on the Bill by 24 November 2017.
If enacted in the form currently proposed, BEAR will involve a range of new measures, including:
imposing a set of requirements to be met by ADIs and accountable persons, including accountability
obligations;
requirements for ADIs to register accountable persons with APRA prior to their commencement in an
accountable person role, to maintain and provide APRA with a map of the roles and responsibilities of
accountable persons across the ADI group, and to give APRA accountability statements for each accountable
person detailing that individual’s roles and responsibilities; and
new and stronger APRA enforcement powers, including disqualification powers in relation to accountable
persons who breach the obligations of BEAR and a new civil penalty regime that will enable APRA to seek
civil penalties in the Federal Court of up to $210 million (for large ADIs, such as Westpac) where an ADI
breaches its obligations under BEAR and the breach relates to ‘prudential matters’.
The proposed commencement date for implementation of BEAR is 1 July 2018 (with transitional arrangements for
certain aspects of BEAR).
Productivity Commission Inquiry into Competition in the Australian Financial System
In May 2017, the Australian Government announced a Productivity Commission inquiry into competition in the
financial system. This review was a recommendation of the Financial System Inquiry. The terms of reference are
broad and require the Productivity Commission to review competition in Australia's financial system with a view to
improving consumer outcomes, the productivity and international competitiveness of the financial system and the
economy more broadly, and supporting ongoing financial system innovation, while balancing these with financial
stability objectives. The review commenced on 1 July 2017 and the Productivity Commission is due to hand its
final report to the Government by 1 July 2018.
Australian Bankers’ Association Banking Reform Program and industry initiatives
On 21 April 2016, the ABA announced an action plan to protect consumer interests, increase transparency and
accountability and build trust and confidence in banks.
The reform program includes a number of industry-led initiatives including:
a review of product sales commissions and product based payments;
the establishment of an independent customer advocate in each bank;
supporting the broadening of external dispute resolution schemes;
evaluating the establishment of an industry-wide, mandatory, last resort compensation scheme;
strengthening protections available to whistleblowers;
the implementation of a new information sharing protocol to help stop individuals with a history of poor conduct
moving around the industry;
strengthening the commitment to customers in the Code of Banking Practice; and
supporting ASIC as a strong regulator.
On 20 October 2017, the independent governance expert overseeing the ABA action plan released his sixth report
titled Australian banking industry: Package of Initiatives, which noted that banks are continuing to make good
progress in delivering the initiatives, with a number of the initiatives now implemented or moving into
implementation stage.
Australian Securities and Investments Commission (ASIC) Enforcement Review Taskforce
On 19 October 2016, the Australian Government released the terms of reference for the ASIC Enforcement
Review Taskforce (Taskforce), which will assess the suitability of ASIC’s existing regulatory tools (including the
penalties available) and whether they need to be strengthened.
The Taskforce has completed consultations on a range of matters, including proposed reforms to the mandatory
breach reporting framework. These reforms include clarifying when a reporting obligation is triggered, expanding
the class of reports that must be made to include misconduct by individual advisers and employees and
strengthening the penalties for failing to report, including through the introduction of an infringement notice regime.
2017 Full Year financial report
Consolidated financial statements
Westpac Group 2017 Full Year Financial Results Announcement | 67
The Taskforce has also consulted on:
strengthening ASIC’s licensing powers, which would enable ASIC to take action to refuse to grant, or to
suspend or cancel, a licence where the applicant or licensee is not considered to be a fit and proper person;
and
proposals to expand ASIC’s powers to ban senior managers working in financial services businesses.
It is currently consulting on proposals to strengthen penalties for corporate and financial sector misconduct.
The Taskforce is scheduled to report its recommendations to the Australian Government in 2017.
Product design and distribution obligations and product intervention power
As part of a package of reforms announced by the Australian Government in 2016, the Federal Government
announced that it would accelerate the implementation of certain recommendations made by the Financial System
Inquiry (FSI), including granting ASIC a product intervention power and introducing a new ‘principles-based’
product design and distribution obligation on issuers and distributors.
On 13 December 2016, the Australian Government released a consultation paper seeking feedback on these
proposed reforms. Submissions on the consultation paper closed on 15 March 2017 and it is anticipated that draft
legislation will be released for consultation in 2018.
Financial benchmarks reform
In October 2016, the Australian Government announced a package of measures designed to strengthen the
regulation of financial benchmarks. The measures were recommended to the Australian Government by the
Council of Financial Regulators following a consultation process on financial benchmark reform.
The key measures to be implemented include:
ASIC will be empowered to develop enforceable rules for administrators and entities that make submissions to
significant benchmarks (such as Westpac), including the power to compel submissions to benchmarks in the
case that other calculation mechanisms fail;
administrators of significant benchmarks will be required to hold a new ‘benchmark administration’ licence
issued by ASIC (unless granted an exemption); and
the manipulation of any financial benchmark or financial product used to determine a financial benchmark
(such as negotiable certificates of deposit) will be made a specific criminal and civil offence.
These measures are expected to be implemented over the next 6-12 months.
Residential mortgage lending – reviews by and engagement with regulators
APRA has been looking at, and speaking publicly about, the broader issue of bank serviceability standards
pertaining to residential mortgage lending. Westpac is engaging proactively with APRA in relation to its work in this
area.
In the mortgage area, ASIC continues to focus on interest only mortgage origination and high risk customer
groups. ASIC has also initiated a review into public statements by some banks (including Westpac) about interest
rate changes. We are working with ASIC on their reviews in these areas.
BBSW proceedings
Following ASIC’s investigations into the interbank short-term money market and its impact on the setting of the
bank bill swap reference rate (BBSW), on 5 April 2016, ASIC commenced civil proceedings against Westpac in the
Federal Court of Australia, alleging certain misconduct, including market manipulation and unconscionable
conduct. The conduct that is the subject of the proceedings is alleged to have occurred between 6 April 2010 and
6 June 2012. Westpac is defending these proceedings. ASIC is seeking from the court declarations that Westpac
breached various provisions of the Corporations Act 2001 (Cth) and the Australian Securities and Investments
Commission Act 2001 (Cth), pecuniary penalties of unspecified amounts and orders requiring Westpac to
implement a comprehensive compliance program for persons involved in Westpac’s trading in the relevant market.
In August 2016, a class action was filed in the United States District Court for the Southern District of New York
against Westpac and a large number of other Australian and international banks alleging misconduct in relation to
BBSW. These proceedings are at an early stage and the level of damages sought has not been specified.
Westpac is defending these proceedings.
2017 Full Year financial report
Consolidated financial statements
68 | Westpac Group 2017 Full Year Financial Results Announcement
ASIC’s responsible lending litigation against Westpac
On 1 March 2017, ASIC commenced Federal Court proceedings against Westpac in relation to home loans
entered into between December 2011 and March 2015, which were automatically approved by Westpac’s
systems. ASIC has alleged that the way in which Westpac used the Household Expenditure Measure (HEM)
benchmark to assess the suitability of home loans for customers during this period was in contravention of the
National Consumer Credit Protection Act 2009 (Cth) (NCCPA). On 26 September 2017, ASIC amended its court
documents to include an additional allegation that the way serviceability was assessed for interest only loans
during the same period also contravened the NCCPA. ASIC has also raised specific allegations in respect of
seven loan applications. ASIC alleges that Westpac improperly assessed whether those loans were unsuitable
because of the way Westpac used HEM, and for five of the loan applications (which are loans with an interest-only
period), because of the way Westpac assessed serviceability. ASIC has not made any criminal allegations, or
allegations against specific individuals. Westpac is defending the proceedings.
Outbound scaled advice division proceedings
On 22 December 2016, ASIC commenced Federal Court proceedings against BT Financial Management Limited
(BTFM) and Westpac Securities Administration Limited (WSAL) in relation to a number of superannuation account
consolidation campaigns conducted between 2013 and 2016. ASIC has alleged that in the course of some of
these campaigns, customers were provided with personal advice in contravention of a number of Corporations Act
2001 (Cth) provisions. ASIC has selected 15 specific customers as the focus of their claim. BTFM and WSAL are
defending the proceedings. The proceedings are scheduled to be heard in February 2018.
Class action against Westpac Banking Corporation and Westpac Life Insurance Services Limited
On 12 October 2017, a class action was filed in the Federal Court of Australia on behalf of customers who, since
October 2011, have obtained insurance issued by Westpac Life Insurance Services Limited (WLIS) on the
recommendation of financial advisers at Westpac Banking Corporation, St George Bank, Bank of Melbourne,
BankSA or BT Advice. The action is in relation to the premiums these customers have been charged for the WLIS
policies. The plaintiffs have alleged, amongst other things, that in providing the financial advice Westpac breached
the fiduciary duties it owed to the members of the class, the conduct was unconscionable and WLIS was
knowingly involved in these breaches. Westpac and WLIS are defending the proceedings.
Brexit
On 29 March 2017, the Prime Minister of the United Kingdom (UK) notified the European Council in accordance
with Article 50 of the Treaty on European Union of the UK’s intention to withdraw from the European Union (EU),
triggering a two year period for the negotiation of the UK’s withdrawal from the EU.
As Westpac’s business and operations are based predominantly in Australia and New Zealand, the direct impact
of the UK’s departure from the EU is unlikely to be material to Westpac. However, it remains difficult to predict the
impact that Brexit may have on financial markets, the global economy and the global financial services industry.
Reduction to the corporate tax rate
On 11 May 2017, the Australian Government introduced into Parliament a bill to reduce the corporate tax rate
progressively from 30% to 25% over the next 10 years for all corporate entities in a staged approach with
reference to aggregated annual turnover thresholds. If the legislation is passed in its current form, the benefit will
begin to take effect from 1 July 2023, when the corporate tax rate for Westpac will reduce to 27.5%. Accordingly,
the proposed reduction to the corporate tax rate will not significantly impact Westpac in the short term. A reduction
to the corporate tax rate will reduce the value of imputation credits ultimately attached to franked dividends and
distributions to certain securityholders.
Taxation of cross-border financing arrangements
The Australian and New Zealand Governments have each decided to implement the Organisation for Economic
Co-operation and Development’s (OECD) proposals relating to the taxation treatment of cross-border financing
arrangements. These proposals may affect the taxation arrangements for ‘hybrid’ regulatory capital instruments
issued by Westpac. If implemented without grandfathering, the potential effect of the OECD proposals is to
increase the after-tax cost to Westpac of certain previously issued Additional Tier 1 capital securities. Neither
Government has released draft legislation.
Comprehensive Credit Reporting (CCR)
On 2 November 2017, the Federal Treasurer announced that the Australian Government will legislate for a
mandatory comprehensive credit reporting regime to come into effect by 1 July 2018. This would require credit
providers to provide a monthly update to credit reporting agencies of all open consumer credit accounts, including
credit cards, personal loans, mortgages and auto loans. According to the announcement, the four major banks will
be required to have 50 per cent of their credit data ready for reporting by 1 July 2018, increasing to 100 per cent a
year later.
2017 Full Year financial report
Consolidated financial statements
Westpac Group 2017 Full Year Financial Results Announcement | 69
Westpac is currently moving to implement CCR on a voluntary basis, as we recognise that CCR supports our
principles for responsible lending by enhancing transparency of consumers’ existing liabilities. Westpac is also
focused on ensuring the highest level of security of personal data is maintained within the data sharing
arrangements that will underpin CCR data supply and use.
Sale of shares in BTIM
On 26 May 2017, Westpac sold 60 million shares in BTIM at a price of $10.75 per share, pursuant to a fully
underwritten institutional offer. Following completion of the sale, Westpac’s holding in BTIM decreased to
approximately 10%. Westpac has announced that it intends to sell its remaining 10% shareholding in BTIM in the
future, subject to favourable market conditions. In accordance with escrow arrangements communicated to BTIM
in respect of the retained shareholding, any sale would not occur prior to the release of BTIM’s First Half 2018
results (expected to be in May 2018).
Issue of Additional Tier 1 capital securities
On 21 September 2017, Westpac issued US$1.25 billion US Securities and Exchange Commission (SEC)
registered securities, which qualify as Additional Tier 1 capital under APRA’s capital adequacy framework.
Regulatory significant developments
Financial System Inquiry’s (FSI) recommendations on bank capital
The Australian Government’s response to the FSI has endorsed APRA’s actions in implementing the FSI’s capital-
related recommendations, and has confirmed APRA’s responsibility for implementing the remaining
recommendations.
On 19 July 2017, APRA released an Information Paper titled, Strengthening banking system resilience –
establishing ‘unquestionably strong’ capital ratios. In its release, APRA concluded that the four major Australian
banks, including Westpac, need to have a CET1 ratio of at least 10.5%, as measured under the existing capital
framework to be considered ‘unquestionably strong’. Banks are expected to meet this new benchmark by 1
January 2020.
APRA’s implementation of capital standards to produce ‘unquestionably strong’ capital ratios will also incorporate
changes to the prudential framework, including consideration of the finalisation of international Basel III reforms.
The final Basel III reforms may result in significant changes in the risk weighted asset framework including the
introduction of a revised capital floor for internal model-based methods, based on standardised approaches.
Whilst APRA has signalled that its revisions to the capital framework will not necessitate further capital increases
for the industry above the 10.5% benchmark, the details of the changes (including at a product level) remain
unclear.
APRA has announced that it intends to release a discussion paper on proposed revisions to the capital framework
later in 2017 and, following release of the discussion paper, that it expects to consult on draft prudential standards
giving effect to the new framework in 2018, leading to the release of final prudential standards in 2019. The new
framework is anticipated to take effect in early 2021.
In addition to the risk based capital ratio, APRA may also implement other key FSI recommendations, including:
the introduction of a leverage ratio that acts as a backstop to an ADI’s risk-based capital requirements. Whilst
APRA requires the disclosure of the leverage ratio on a quarterly basis, it is yet to be implemented as a
minimum requirement; and
the implementation of a framework for additional loss-absorbing capacity, discussed further below.
Resolution planning including additional loss-absorbing capacity and APRA’s crisis management powers
In response to the FSI recommendations, the Australian Government also agreed to further reforms regarding
crisis management. In August 2017, Treasury issued draft legislation to strengthen APRA’s crisis management
powers. This was introduced into Parliament in October 2017. The intention of these reforms is to strengthen
APRA’s powers to facilitate the orderly resolution of an institution so as to protect the interests of depositors and to
protect the stability of the financial system. The reforms also enhance APRA’s ability to take actions in relation to
resolution planning, including measures to ensure regulated entities and their groups are better prepared for
resolution.
Consistent with international developments, APRA may also establish a framework for additional loss absorbing
capacity for the four major Australian banks, including Westpac. The intention of this would be to facilitate the
orderly resolution of banks and minimise taxpayer support. APRA is yet to release any consultation on additional
loss-absorbing capacity.
2017 Full Year financial report
Consolidated financial statements
70 | Westpac Group 2017 Full Year Financial Results Announcement
Macro-prudential regulation
From December 2014, APRA has made use of macro-prudential measures targeting mortgage lending that
continue to impact lending practices in Australia. The measures include limiting investment property lending
growth to below 10% and imposing additional levels of conservatism in serviceability assessments.
On 31 March 2017, APRA added to these measures, requiring ADIs to restrict mortgage lending with interest-only
terms to 30% of new mortgage lending. APRA also indicated that it expects ADIs to place strict internal limits on
the volume of interest only loans with loan-to-valuation ratios above 80%.
Westpac has implemented steps to achieve these limits, including introducing differential pricing for investor
property loans and interest only loans, a restriction on the volume of interest only loans with an LVR of greater
than 80% (includes limit increases, interest only term extension and switches), no repayment switch fee for
customers switching to principal and interest from interest only loans and no longer accepting external refinances
(from other financial institutions) for owner occupied interest only loans. Interest only residential mortgages
constituted 26% of new mortgage lending for the quarter ended 30 September 2017 (currently 46% of Westpac’s
overall Australian residential mortgage portfolio as at 30 September 2017).
Further details of Westpac’s other regulatory disclosures required in accordance with prudential
standard APS 330 can be accessed at www.westpac.com.au/aboutwestpac/investor-centre/financial-
information/regulatorydisclosures.
Other regulatory developments
Net Stable Funding Ratio
APRA released a revised prudential standard on liquidity (APS 210) on 20 December 2016. This prudential
standard includes the Net Stable Funding Ratio (NSFR) requirement, a measure designed to encourage longer-
term funding of assets and better match the duration of assets and liabilities. The revised APS 210, inclusive of the
NSFR, will commence from 1 January 2018. During Full Year 2017, Westpac continued to take steps in
preparation for the introduction of the NSFR from 1 January 2018. Based on the latest guidance from APRA,
Westpac had an estimated NSFR at 30 September 2017 which is above that required from 1 January 2018.
OECD Common Reporting Standard
The OECD has developed Common Reporting Standard (CRS) rules for the automatic exchange of customer tax
residency and financial account information amongst participating CRS countries.
CRS requires the Westpac Group to collect and check the tax residency of all customers and to report the tax
residency and financial account details of non-resident customers to the relevant authorities in jurisdictions with
which Australia has entered into an exchange of information agreement.
Together with other Australian financial institutions, Westpac began collecting tax residency information from
1 July 2017 and will report these details and associated financial account information from July 2018.
Westpac has implemented changes to its business operations to comply with the CRS requirements in countries
which have implemented the rules prior to 1 July 2017.
European Union General Data Protection Regulation
The European Union General Data Protection Regulation (the GDPR) contains new data protection requirements
that will apply from 25 May 2018. The GDPR is intended to “strengthen and unify” data protection for individuals
across the EU and supersedes the existing EU Data Protection Directive. Australian businesses of any size may
need to comply if they have an establishment in the EU, if they offer goods or services in the EU, or if they monitor
the behaviour of individuals in the EU. Westpac is evaluating the impact of GDPR on its businesses with a view to
implementing the necessary changes before commencement of the GDPR.
2017 Full Year financial report
Consolidated financial statements
Westpac Group 2017 Full Year Financial Results Announcement | 71
OTC derivatives reform
International regulatory reforms relating to over-the-counter (OTC) derivatives continue to be implemented by
financial regulators across the globe, with the focus moving to implementing variation margin and initial margin
requirements for non-centrally cleared derivatives.
Variation margin requirements in a number of key jurisdictions for Westpac (being Australia, the EU, US and Hong
Kong) became applicable during Full Year 2017.
Westpac has completed a substantial amount of work to comply with all applicable variation margin requirements.
In addition, initial margin requirements commenced on 1 September 2016. These requirements are being
introduced in phases through to 1 September 2020.
Westpac currently expects that it will be required to commence exchanging initial margin by either September
2018 or September 2019.
New Zealand
Regulatory reforms and significant developments in New Zealand include:
Reserve Bank of New Zealand (RBNZ) – macro-prudential policy framework
On 8 June 2017, the RBNZ published a consultation paper seeking feedback on serviceability restrictions such as
debt-to-income ratio (DTI) limits being added to its macro-prudential toolkit. The RBNZ stated in the consultation
paper that the RBNZ would not utilise a DTI policy in current market conditions, but considers DTI limits a useful
option in the future.
RBNZ – Review of Outsourcing Policy
On 19 September 2017, the RBNZ released the final version of its revised Outsourcing Policy (and updated
conditions of registration). These took effect on 1 October 2017. Key changes under the revised policy are:
banks will need to obtain a non-objection letter from the RBNZ before entering into outsourcing arrangements
with a parent or other related party;
a bank that outsources certain functions to any third party will need to have certain prescribed contractual
terms with that third party and ensure that the third party has adequate disaster recovery and business
continuity plan capability in relation to the outsourced function;
a bank that outsources certain functions to its overseas parent or to another non-controlled related party will
need to have robust back-up arrangements in place;
banks will be required to maintain a compendium of functions and processes that have been outsourced; and
banks that are members of foreign-owned banking groups, such as WNZL, will be required to have a
separation plan which describes how they would operate previously outsourced services if a statutory
manager is appointed or they are otherwise separated from their overseas parent.
There will be a five year transitional period in relation to existing outsourcing arrangements.
The key impact of the revised policy will be in respect of outsourcing arrangements related to institutional products,
settlements, finance, risk management and regulatory reporting.
RBNZ Capital Review
In March 2017, the RBNZ outlined its plans for its review of bank capital requirements. The RBNZ’s aim is to agree
a capital regime that ensures a very high level of confidence in the solvency of the banking system while avoiding
economic inefficiency. The review will look at the three key components of the regulatory capital regime:
the definition of eligible capital instruments;
the measurement of risk, in particular the risk weights attached to credit exposures; and
the minimum capital ratio and buffers.
The RBNZ has said that the outcomes of the review will be heavily influenced by the international regulatory
context, the risk characteristics of the New Zealand system, and the RBNZ’s regulatory capital approach. The
RBNZ released a high-level Issues Paper in May 2017 and a consultation paper considering what type of financial
instruments should qualify as bank capital. The RBNZ expects to conclude its review in the first quarter of 2018.
Based on the high level information released to date, the expectation is that the RBNZ will likely propose
increasing capital ratios and certain risk weights, with internal ratings-based (IRB) banks having fewer models to
use (to reduce the difference between standardised and IRB banks).
Reform of the regulation of financial advice
The New Zealand Government announced plans for changes to the regime regulating financial advice in
July 2016. In August 2017, the Financial Services Legislation Amendment Bill was introduced into Parliament.
2017 Full Year financial report
Consolidated financial statements
72 | Westpac Group 2017 Full Year Financial Results Announcement
Under the proposed new regime, financial advice will be provided by licensed firms who will employ financial
advisers and nominated representatives. A Code of Conduct will apply to all advice and advisers and
representatives will be subject to the same duties and ethical standards, including a duty to give priority to the
client's interests. Firms will be responsible for ensuring their advisers and representatives comply with these
duties. The reforms will also remove legislative barriers to the provision of robo-advice.
A two stage transition is proposed with all industry participants being required to be operating under a full licence
by May 2021.
RBNZ – Review under section 95 of the Reserve Bank of New Zealand Act 1989
On 10 February 2017, the RBNZ issued WNZL with a notice under section 95 of the Reserve Bank of New
Zealand Act 1989, requiring WNZL to obtain an independent review of its compliance with advanced internal
rating-based aspects of the RBNZ’s ‘Capital Adequacy Framework (Internal Models Based Approach) (BS2B)’
(BS2B). WNZL has disclosed non-compliance with BS2B (compliance with which is a condition of registration for
WNZL) in its quarterly disclosure statements. WNZL expects to receive the RBNZ’s final decision in 2017. There
are a range of possible consequences for WNZL, including potential increases in minimum capital requirements.
2017 Full Year financial report
Consolidated financial statements
Westpac Group 2017 Full Year Financial Results Announcement | 73
4.2 Consolidated income statement
Westpac Banking Corporation and its controlled entities
% Mov't % Mov't
Half Year Half Year Sept 17 - Full Year Full Year Sept 17 -
$m Note Sept 17 March 17 Mar 17 Sept 17 Sept 16 Sept 16
Interest income 3 15,839 15,393
3
31,232 31,822
(2)
Interest expense 3 (7,936) (7,780)
2
(15,716) (16,674)
(6)
Net interest income 7,903 7,613
4
15,516 15,148
2
Non-interest income 4 3,130 3,156
(1)
6,286 5,837
8
Net operating income before
operating expenses and impairment charges 11,033 10,769
2
21,802 20,985
4
Operating expenses 5 (4,801) (4,633)
4
(9,434) (9,217)
2
Impairment charges 10 (360) (493)
(27)
(853) (1,124)
(24)
Profit before income tax 5,872 5,643 4 11,515 10,644 8
Income tax expense 6 (1,787) (1,731)
3
(3,518) (3,184)
10
Net profit for the period 4,085 3,912 4 7,997 7,460 7
Profit attributable to non-controlling interests (2) (5)
(60)
(7) (15)
(53)
Net profit attributable to owners of
Westpac Banking Corporation 4,083 3,907 5 7,990 7,445 7
Earnings per share (cents)
Basic 7 121.2 116.8
4
238.0 224.6
6
Diluted 7 115.6 113.7
2
229.3 217.8
5
The above consolidated income statement should be read in conjunction with the accompanying notes.
2017 Full Year financial report
Consolidated financial statements
74 | Westpac Group 2017 Full Year Financial Results Announcement
4.3 Consolidated statement of comprehensive income
Westpac Banking Corporation and its controlled entities
% Mov't % Mov't
Half Year Half Year Sept 17 - Full Year Full Year Sept 17 -
$m Sept 17 March 17 Mar 17 Sept 17 Sept 16 Sept 16
Net profit for the period 4,085 3,912 4 7,997 7,460 7
Other comprehensive income
Items that may be reclassified subsequently
to profit or loss
Gains/(losses) on available-for-sale securities:
Recognised in equity (93) 168
(155)
75 56
34
Transferred to income statements (2) (1)
100
(3) (8)
(63)
Gains/(losses) on cash flow hedging instruments:
Recognised in equity (20) (71)
(72)
(91) (304)
(70)
Transferred to income statements 86 29
197
115 21
large
Exchange differences on translation of
foreign operations (78) (38)
105
(116) (238)
(51)
Income tax on items taken to or transferred from equity:
Available-for-sale securities reserve 28 (46)
(161)
(18) (13)
38
Cash flow hedging reserve (19) 13
large
(6) 85
(107)
Share of associates' other comprehensive income:
Recognised in equity (net of tax) 5 (2)
large
3 (17)
(118)
Cash flow hedging reserve 9 -
-
9 -
-
Items that will not be reclassified subsequently
to profit or loss
Own credit adjustment on financial liabilities
designated at fair value (net of tax) (111) (53)
109
(164) (54)
large
Remeasurement of defined benefit obligation
recognised in equity (net of tax) 76 114
(33)
190 (47)
large
Other comprehensive income for the
period (net of tax) (119) 113 large (6) (519) (99)
Total comprehensive income for the period 3,966 4,025 (1) 7,991 6,941 15
Attributable to:
Owners of Westpac Banking Corporation 3,964 4,020
(1)
7,984 6,926
15
Non-controlling interests 2 5
(60)
7 15
(53)
Total comprehensive income for the period 3,966 4,025 (1) 7,991 6,941 15
The above consolidated statement of comprehensive income should be read in conjunction with the accompanying
notes.
2017 Full Year financial report
Consolidated financial statements
Westpac Group 2017 Full Year Financial Results Announcement | 75
4.4 Consolidated balance sheet
Westpac Banking Corporation and its controlled entities
As at As at As at % Mov't % Mov't
30 Sept 31 March 30 Sept Sept 17 - Sept 17 -
$m Note 2017 2017 2016 Mar 17 Sept 16
Assets
Cash and balances with central banks 18,397 15,912 17,015
16 8
Receivables due from other financial institutions 7,128 9,545 9,951
(25) (28)
Trading securities and financial assets designated
at fair value 25,324 30,977 21,168
(18) 20
Derivative financial instruments 24,033 24,619 32,227
(2) (25)
Available-for-sale securities 60,710 59,952 60,665
1 -
Loans 9 684,919 666,946 661,926
3 3
Life insurance assets 10,643 10,934 14,192
(3) (25)
Regulatory deposits with central banks overseas 1,048 1,409 1,390
(26) (25)
Investments in associates
1
60 716 726
(92) (92)
Property and equipment 1,487 1,574 1,737
(6) (14)
Deferred tax assets
2
1,112 986 1,351
13 (18)
Intangible assets
2
11,652 11,639 11,721
- (1)
Other assets 5,362 4,784 5,133
12 4
Total assets 851,875 839,993 839,202 1 2
Liabilities
Payables due to other financial institutions 21,907 21,390 18,209
2 20
Deposits and other borrowings 12 533,591 522,513 513,071
2 4
Other financial liabilities at fair value through
income statement 4,056 4,894 4,752
(17) (15)
Derivative financial instruments 25,375 28,457 36,076
(11) (30)
Debt issues 168,356 167,306 169,902
1 (1)
Current tax liabilities 308 144 385
114 (20)
Life insurance liabilities 9,019 9,158 12,361
(2) (27)
Provisions 1,462 1,187 1,420
23 3
Deferred tax liabilities 10 17 36
(41) (72)
Other liabilities 8,783 8,449 9,004
4 (2)
Total liabilities excluding loan capital 772,867 763,515 765,216 1 1
Loan capital 17,666 17,106 15,805
3 12
Total liabilities 790,533 780,621 781,021 1 1
Net assets 61,342 59,372 58,181 3 5
Shareholders’ equity
Share capital:
Ordinary share capital 15 34,889 33,765 33,469
3 4
Treasury shares and RSP treasury shares 15 (495) (501) (455)
(1) 9
Reserves 15 794 845 727
(6) 9
Retained profits 26,100 25,206 24,379
4 7
Total equity attributable to owners of
Westpac Banking Corporation 61,288 59,315 58,120 3 5
Non-controlling interests 54 57 61
(5) (11)
Total shareholders' equity and non-
controlling interests 61,342 59,372 58,181 3 5
The above consolidated balance sheet should be read in conjunction with the accompanying notes.
1
For further details, refer Note 35 of the 2017 Westpac Group Annual Report.
2
Comparatives have been restated to reflect the IFRS Interpretations Committee updated treatment of intangible assets with an
indefinite useful life.
2017 Full Year financial report
Consolidated financial statements
76 | Westpac Group 2017 Full Year Financial Results Announcement
4.5 Consolidated statement of changes in equity
Westpac Banking Corporation and its controlled entities
Total equity Total
attributable shareholders'
to owners equity and
Share of WestpacNon- non-
Capital Retained Bankingcontrolling controlling
$m (Note 15) Reservesprofits CorporationInterests interests
Balance at 1 October 2015 28,895 1,031 23,172 53,098 817 53,915
Net profit for the year - - 7,445 7,445 15 7,460
Net other comprehensive income for the year - (418)(101) (519)- (519)
Total comprehensive income for the year - (418)7,344 6,926 15 6,941
Transactions in capacity as equity holders
Dividends on ordinary shares
1
- - (6,128) (6,128)- (6,128)
Dividend reinvestment plan 726 - - 726 - 726
Share entitlement offer 3,510 - - 3,510 - 3,510
Other equity movements
Share based payment arrangements - 116 - 116 - 116
Exercise of employee share options and rights 2 - - 2 - 2
Purchase of shares (net of issue costs) (49) - - (49)- (49)
(Acquisition)/disposal of treasury shares (70) - - (70)- (70)
Other - (2)(9) (11)(771) (782)
Total contributions and distributions 4,119 114 (6,137) (1,904)(771) (2,675)
Balance at 30 September 2016 33,014 727 24,379 58,120 61 58,181
Net profit for the year - - 7,990 7,990 7 7,997
Net other comprehensive income for the year - (32)26 (6)- (6)
Total comprehensive income for the year - (32)8,016 7,984 7 7,991
Transactions in capacity as equity holders
Dividends on ordinary shares
1
- - (6,291) (6,291)- (6,291)
Dividend reinvestment plan 1,452 - - 1,452 - 1,452
Other equity movements
Share based payment arrangements - 98 - 98 - 98
Exercise of employee share options and rights 11 - - 11 - 11
Purchase of shares (net of issue costs) (43) - - (43)- (43)
(Acquisition)/disposal of treasury shares (40) - - (40)- (40)
Other - 1 (4) (3)(14) (17)
Total contributions and distributions 1,380 99 (6,295) (4,816)(14) (4,830)
Balance at 30 September 2017 34,394 794 26,100 61,288 54 61,342
1
2017 comprises 2017 interim dividend 94 cents and 2016 final dividend 94 cents (2016: 2016 interim dividend 94 cents and 2015 final
dividend 94 cents), all fully franked at 30%.
2017 Full Year financial report
Consolidated financial statements
Westpac Group 2017 Full Year Financial Results Announcement | 77
4.5 Consolidated statement of changes in equity (continued)
Westpac Banking Corporation and its controlled entities
Total equity Total
attributable shareholders'
to owners equity and
Share of WestpacNon- non-
Capital Retained Bankingcontrolling controlling
$m (Note 15) Reservesprofits CorporationInterests interests
Balance at 1 October 2016 33,014 727 24,379 58,120 61 58,181
Net profit for the period - - 3,907 3,907 5 3,912
Net other comprehensive income for the period - 52 61 113 - 113
Total comprehensive income for the period - 52 3,968 4,020 5 4,025
Transactions in capacity as equity holders
Dividends on ordinary shares
1
- - (3,141) (3,141)- (3,141)
Dividend reinvestment plan 327 - - 327 - 327
Share entitlement offer - - - - - -
Other equity movements
Share based payment arrangements - 65 - 65 - 65
Exercise of employee share options and rights 6 - - 6 - 6
Purchase of shares (net of issue costs) (37) - - (37)- (37)
(Acquisition)/disposal of treasury shares (46) - - (46)- (46)
Other - 1 - 1 (9) (8)
Total contributions and distributions 250 66 (3,141) (2,825)(9) (2,834)
Balance at 31 March 2017 33,264 845 25,206 59,315 57 59,372
Net profit for the period - - 4,083 4,083 2 4,085
Net other comprehensive income for the period - (84)(35) (119)- (119)
Total comprehensive income for the period - (84)4,048 3,964 2 3,966
Transactions in capacity as equity holders
Dividends on ordinary shares
1
- - (3,150) (3,150)- (3,150)
Dividend reinvestment plan 1,125 - - 1,125 - 1,125
Other equity movements
Share based payment arrangements - 33 - 33 - 33
Exercise of employee share options and rights 5 - - 5 - 5
Purchase of shares (net of issue costs) (6) - - (6)- (6)
(Acquisition)/disposal of treasury shares 6 - - 6 - 6
Other - - (4) (4)(5) (9)
Total contributions and distributions 1,130 33 (3,154) (1,991)(5) (1,996)
Balance at 30 September 2017 34,394 794 26,100 61,288 54 61,342
The above consolidated statement of changes in equity should be read in conjunction with the accompanying
notes.
1
Second Half 2017 reflects the 2017 interim dividend 94 cents and First Half 2017 reflects the 2016 final dividend 94 cents all fully
franked at 30%.
2017 Full Year financial report
Consolidated financial statements
78 | Westpac Group 2017 Full Year Financial Results Announcement
4.6 Consolidated cash flow statement
Westpac Banking Corporation and its controlled entities
% Mov't % Mov't
Half Year Half Year Sept 17 - Full Year Full Year Sept 17 -
$m Note Sept 17 March 17 Mar 17 Sept 17 Sept 16 Sept 16
Cash flows from operating activities
Interest received 15,832 15,301
3
31,133 31,817
(2)
Interest paid (7,722) (7,693)
-
(15,415) (16,721)
(8)
Dividends received excluding life business 3 24
(88)
27 43
(37)
Other non-interest income received 2,208 2,856
(23)
5,064 5,050
-
Operating expenses paid (3,688) (4,278)
(14)
(7,966) (8,106)
(2)
Income tax paid excluding life business (1,454) (1,934)
(25)
(3,388) (3,373)
-
Life business:
Receipts from policyholders and customers 1,172 1,067
10
2,239 1,893
18
Interest and other items of similar nature 12 12
-
24 30
(20)
Dividends received 272 161
69
433 348
24
Payments to policyholders and suppliers (900) (961)
(6)
(1,861) (1,642)
13
Income tax paid (97) (67)
45
(164) (96)
71
Cash flows from operating activities before changes in
operating assets and liabilities 5,638 4,488
26
10,126 9,243
10
Net (increase)/decrease in:
Trading securities and financial assets designated at fair value 5,464 (10,518)
(152)
(5,054) 6,755
(175)
Loans (18,103) (8,712)
108
(26,815) (38,082)
(30)
Receivables due from other financial institutions 2,310 343
large
2,653 (896)
large
Life insurance assets and liabilities 175 44
large
219 (253)
(187)
Regulatory deposits with central banks overseas 336 (28)
large
308 (209)
large
Derivative financial instruments (2,987) (2,055)
45
(5,042) (5,107)
(1)
Other assets (358) 558
(164)
200 (476)
(142)
Net increase/(decrease) in:
Other financial liabilities at fair value through income statement (840) 159
large
(681) (4,488)
(85)
Deposits and other borrowings 11,541 11,521
-
23,062 38,771
(41)
Payables due to other financial institutions 616 3,243
(81)
3,859 (73)
large
Other liabilities (294) 279
large
(15) 312
(105)
Net cash provided by/(used in) operating activities 16 3,498 (678) large 2,820 5,497 (49)
Cash flows from investing activities
Proceeds from available-for-sale securities 9,562 16,155
(41)
25,717 18,779
37
Purchase of available-for-sale securities (10,475) (16,553)
(37)
(27,028) (24,724)
9
Purchase of intangible assets (422) (344)
23
(766) (707)
8
Purchase of property and equipment (163) (101)
61
(264) (521)
(49)
Proceeds from disposal of property and equipment 24 41
(41)
65 32
103
Net (increase)/decrease in investments in associates (52) -
-
(52) -
-
Proceeds from sale of associates 630 -
-
630 -
-
Proceeds from disposal of controlled entities, net of cash disposed16 - -
-
- (104)
(100)
Net cash provided by/(used in) investing activities (896) (802) 12 (1,698) (7,245) (77)
Cash flows from financing activities
Issue of loan capital (net of issue costs) 2,330 2,107
11
4,437 3,596
23
Redemption of loan capital (1,672) (516)
large
(2,188) (1,444)
52
Net increase/(decrease) in debt issues 1,465 1,784
(18)
3,249 5,213
(38)
Proceeds from Share Entitlement Offer - -
-
- 3,510
(100)
Proceeds from exercise of employee options 5 6
(17)
11 2
large
Purchase of shares on exercise of employee options and rights (6) (11)
(45)
(17) (24)
(29)
Shares purchased for delivery of employee share plan - (27)
(100)
(27) (27)
-
Purchase of RSP treasury shares (3) (65)
(95)
(68) (62)
10
Net sale/(purchase) of other treasury shares (12) 19
(163)
7 (8)
(188)
Payment of dividends (2,025) (2,814)
(28)
(4,839) (5,402)
(10)
Payment of distributions to non-controlling interests (5) (8)
(38)
(13) (18)
(28)
Redemption of 2006 Trust Preferred Securities - -
-
- (763)
(100)
Net cash provided by/(used in) financing activities 77 475 (84) 552 4,573 (88)
Net increase/(decrease) in cash and cash equivalents 2,679 (1,005)
large
1,674 2,825
(41)
Effect of exchange rate changes on
cash and cash equivalents (194) (98)
98
(292) (580)
(50)
Cash and cash equivalents as at the beginning of the period 15,912 17,015
(6)
17,015 14,770
15
Cash and cash equivalents as at the end of the period 18,397 15,912 16 18,397 17,015 8
The above consolidated cash flow statement should be read in conjunction with the accompanying notes.
Details of the reconciliation of net cash provided by/(used in) operating activities to net profit are provided in
Note 16.
2017 Full Year financial report
Notes to the consolidated financial statements
Westpac Group 2017 Full Year Financial Results Announcement | 79
4.7 Notes to the consolidated financial statements
Note 1. Basis of preparation
The accounting policies and methods of computation adopted in the financial year were in accordance with the
requirements for an authorised deposit-taking institution under the Banking Act 1959 (as amended), Australian
Accounting Standards (AAS) and Interpretations as issued by the Australian Accounting Standards Board and the
Corporations Act 2001. Westpac’s financial statements also comply with International Financial Reporting
Standards as issued by the International Accounting Standards Board. Where necessary, comparative figures
have been adjusted to conform to changes in presentation in the current period. All amounts have been rounded to
the nearest million dollars unless otherwise stated.
2017 Full Year financial report
Notes to the consolidated financial statements
80 | Westpac Group 2017 Full Year Financial Results Announcement
Note 2. Segment reporting
Operating segments are presented on a basis consistent with information provided internally to Westpac’s key
decision makers and reflects the management of the business, rather than the legal structure of the Group.
Internally, Westpac uses ‘cash earnings’ in assessing the financial performance of its divisions. Management
believes this allows the Group to:
more effectively assess current year performance against prior years;
compare performance across business divisions; and
compare performance across peer companies.
Cash earnings is viewed as a measure of the level of profit that is generated by ongoing operations and is
therefore considered in assessing distributions, including dividends. Cash earnings is neither a measure of cash
flow nor net profit determined on a cash accounting basis, as it includes both cash and non-cash adjustments to
statutory net profit.
To determine cash earnings, three categories of adjustments are made to reported results:
material items that key decision makers at Westpac believe do not reflect ongoing operations;
items that are not considered when dividends are recommended, such as the amortisation of intangibles,
impact of Treasury shares and economic hedging impacts; and
accounting reclassifications between individual line items that do not impact statutory results.
Internal charges and transfer pricing adjustments have been reflected in the performance of each operating
segment. Inter-segment pricing is determined on an arm’s length basis.
Reportable operating segments
The operating segments are defined by the customers they service and the services they provide:
Consumer Bank (CB):
- responsible for sales and service of banking and financial products and services;
- customer base is consumer customers in Australia; and
- operates under the Westpac, St.George, BankSA, Bank of Melbourne and RAMS brands.
Business Bank (BB):
- responsible for sales and service of banking and financial products and services;
- customer base is micro, SME and commercial business customers for facilities up to approximately $150
million; and
- operates under the Westpac, St.George, BankSA and Bank of Melbourne brands.
BT Financial Group (Australia) (BTFG):
- Westpac’s Australian wealth management and insurance division;
- services include the manufacturing and distribution of investment, superannuation, retirement products,
wealth administration platforms, private banking, margin lending and equities broking;
- BTFG’s insurance business covers the manufacturing and distribution of life, general and lenders mortage
insurance;
- operates under the Advance, Ascalon Capital Managers, Asgard, Licensee Select, BT Select, and Securitor
brands, as well as the Advice, Private Banking and Insurance operations of Westpac, St.George, Bank of
Melbourne and BankSA brands; and
- includes the share of the Group’s interest in BT Investment Management (BTIM), which was equity accounted
from July 2015 to May 2017. In May 2017 the Group sold a further interest in BTIM which reduced its
ownership to approximately 10%. Following completion of the sale, the remaining interest in BTIM was
reclassified to available-for-sale securities.
2017 Full Year financial report
Notes to the consolidated financial statements
Westpac Group 2017 Full Year Financial Results Announcement | 81
Note 2. Segment reporting (continued)
Westpac Institutional Bank (WIB):
- Westpac’s institutional financial services division delivering a broad range of financial products and services;
- expert knowledge in transactional banking, financial and debt capital markets, specialised capital and
alternative investment solutions;
- customer base includes commercial, corporate, institutional and government customers in Australia and New
Zealand;
- supports customers through branches and subsidiaries located in Australia, New Zealand, US, UK and Asia;
and
- also responsible for Westpac Pacific, providing a range of banking services in Fiji and Papua New Guinea.
Westpac New Zealand:
- responsible for sales and service of banking, wealth and insurance products to customers in New Zealand;
- customer base includes consumers, business and institutional customers; and
- operates under the Westpac brand for banking products, the Westpac Life brand for life insurance products
and the BT brand for wealth products.
Group Businesses include:
- Treasury which is responsible for the management of the Group’s balance sheet including wholesale funding,
capital and management of liquidity. Treasury also manages the interest rate risk and foreign exchange risks
inherent in the balance sheet, including managing the mismatch between Group assets and liabilities.
Treasury’s earnings are primarily sourced from managing the Group’s balance sheet and interest rate risk,
(excluding Westpac New Zealand) within set risk limits;
- Group Technology
1
which comprises functions in Australia responsible for technology strategy and
architecture, infrastructure and operations, applications development and business integration;
- Core Support
2
which comprises functions performed centrally, including Australian banking operations,
property services, strategy, finance, risk, compliance, legal and human resources; and
- Group Business also includes items, including earnings on capital not allocated to divisions, accounting
entries for certain intra-group transactions that facilitate the presentation of the performance of the Group’s
operating segments, earnings from non-core asset sales, earnings and costs associated with the Group’s
fintech investments and certain other head office items such as centrally held provisions.
Revisions to Westpac New Zealand
In 2017 the Group changed the accounting treatment for Westpac New Zealand credit card reward scheme to
align with Group practice. This change had no impact on cash earnings or reported profit. The following tables
present the segment results on a cash earnings basis for the Group:
1
Costs are fully allocated to other divisions in the Group.
2
Costs are partially allocated to other divisions in the Group, with costs attributed to enterprise activity retained in Group Businesses.
2017 Full Year financial report
Notes to the consolidated financial statements
82 | Westpac Group 2017 Full Year Financial Results Announcement
Note 2. Segment reporting (continued)
The tables below present the segment results on a cash earnings basis for the Group:
Half Year Sept 17
Westpac
BT FinancialWestpacNew
ConsumerBusinessGroupInstitutionalZealandGroup
$m BankBank(Australia)Bank(A$)Businesses
Group
Net interest income 3,878 2,065 286 764 837 181 8,011
Non-interest income 378 586 850 749 234 (13) 2,784
Net operating income before operating
expenses and impairment charges 4,256 2,651 1,136 1,513 1,071 168 10,795
Operating expenses (1,708)(928)(598)(666)(442)(262) (4,604)
Impairment (charges) / benefits (274)(162)(1)8 37 32 (360)
Profit before income tax 2,274 1,561 537 855 666 (62) 5,831
Income tax expense (681)(470)(163)(248)(185)(37) (1,784)
Profit attributable to non-controlling interests - - - (3)- 1 (2)
Cash earnings for the period 1,593 1,091 374 604 481 (98) 4,045
Net cash earnings adjustments (58)(5)170 - (7)(62) 38
Net profit for the period attributable to
owners of Westpac Banking Corporation 1,535 1,086 544 604 474 (160) 4,083
Total assets 369,522 161,107 35,187 102,929 81,285 101,845 851,875
Total liabilities 198,065 119,731 40,383 116,194 71,433 244,727 790,533
Half Year March 17
Westpac
BT FinancialWestpacNew
ConsumerBusinessGroupInstitutionalZealand
1
Group
$m BankBank(Australia)Bank(A$)Businesses
Group
Net interest income 3,631 1,990 251 743 790 288 7,693
Non-interest income 424 567 894 957 245 (19) 3,068
Net operating income before operating
expenses and impairment charges 4,055 2,557 1,145 1,700 1,035 269 10,761
Operating expenses (1,629)(911)(578)(657)(461)(265) (4,501)
Impairment (charges) / benefits (267)(205)(3)(64)35 11 (493)
Profit before income tax 2,159 1,441 564 979 609 15 5,767
Income tax expense (648)(433)(167)(275)(174)(48) (1,745)
Profit attributable to non-controlling interests - - - (4)- (1) (5)
Cash earnings for the period 1,511 1,008 397 700 435 (34) 4,017
Net cash earnings adjustments (58)(5)(10)- (7)(30) (110)
Net profit for the period attributable to
owners of Westpac Banking Corporation 1,453 1,003 387 700 428 (64) 3,907
Total assets 359,252 157,836 35,230 103,778 79,605 104,292 839,993
Total liabilities 190,478 116,986 39,603 120,543 69,828 243,183 780,621
1
Comparatives have been restated for the accounting change to the Westpac New Zealand credit card rewards scheme (First Half
2017 $18 million).
2017 Full Year financial report
Notes to the consolidated financial statements
Westpac Group 2017 Full Year Financial Results Announcement | 83
Note 2. Segment reporting (continued)
Full Year Sept 17
Westpac
BT FinancialWestpacNew
ConsumerBusinessGroupInstitutionalZealandGroup
$m BankBank(Australia)Bank(A$)Businesses
Group
Net interest income 7,509 4,055 537 1,507 1,627 469 15,704
Non-interest income 802 1,153 1,744 1,706 479 (32) 5,852
Net operating income before operating
expenses and impairment charges 8,311 5,208 2,281 3,213 2,106 437 21,556
Operating expenses (3,337)(1,839)(1,176)(1,323)(903)(527) (9,105)
Impairment (charges) / benefits (541)(367)(4)(56)72 43 (853)
Profit before income tax 4,433 3,002 1,101 1,834 1,275 (47) 11,598
Income tax expense (1,329)(903)(330)(523)(359)(85) (3,529)
Profit attributable to non-controlling interests - - - (7)- - (7)
Cash earnings for the period 3,104 2,099 771 1,304 916 (132) 8,062
Net cash earnings adjustments (116)(10)160 - (14)(92) (72)
Net profit for the period attributable to
owners of Westpac Banking Corporation 2,988 2,089 931 1,304 902 (224) 7,990
Total assets 369,522 161,107 35,187 102,929 81,285 101,845 851,875
Total liabilities 198,065 119,731 40,383 116,194 71,433 244,727 790,533
Full Year Sept 16
Westpac
BT FinancialWestpacNew
ConsumerBusinessGroupInstitutionalZealand
1
Group
$m BankBank(Australia)Bank(A$)Businesses
Group
Net interest income 7,175 3,925 486 1,574 1,606 582 15,348
Non-interest income 850 1,104 1,908 1,536 482 8 5,888
Net operating income before operating
expenses and impairment charges 8,025 5,029 2,394 3,110 2,088 590 21,236
Operating expenses (3,270)(1,796)(1,160)(1,347)(889)(469) (8,931)
Impairment (charges) / benefits (492)(410)- (177)(54)9 (1,124)
Profit before income tax 4,263 2,823 1,234 1,586 1,145 130 11,181
Income tax expense (1,279)(848)(366)(473)(320)(58) (3,344)
Profit attributable to non-controlling interests - - - (7)- (8) (15)
Cash earnings for the period 2,984 1,975 868 1,106 825 64 7,822
Net cash earnings adjustments (116)(10)(32)- 2 (221) (377)
Net profit for the period attributable to
owners of Westpac Banking Corporation 2,868 1,965 836 1,106 827 (157) 7,445
Total assets 351,528 156,804 38,217 110,416 82,071 100,166 839,202
Total liabilities 186,629 116,804 39,710 120,653 72,408 244,817 781,021
1
Comparatives have been restated for the accounting charge to the Westpac New Zealand credit card rewards scheme (Full Year
2016: $33 million)
2017 Full Year financial report
Notes to the consolidated financial statements
84 | Westpac Group 2017 Full Year Financial Results Announcement
Note 3. Net interest income
% Mov't % Mov't
Half Year Half Year Sept 17 - Full Year Full Year Sept 17 -
$m Sept 17 March 17 Mar 17 Sept 17 Sept 16 Sept 16
Interest income
Cash and balances with central banks 146 95
54
241 260
(7)
Receivables due from other financial institutions 59 51
16
110 100
10
Net ineffectiveness on qualifying hedges (28) 6
large
(22) 12
large
Trading securities and financial assets
designated at fair value 292 266
10
558 645
(13)
Available-for-sale securities 881 914
(4)
1,795 1,808
(1)
Loans 14,467 14,037
3
28,504 28,953
(2)
Regulatory deposits with central banks overseas 8 9
(11)
17 13
31
Other interest income 14 15
(7)
29 31
(6)
Total interest income 15,839 15,393 3 31,232 31,822 (2)
Interest expense
Payables due to other financial institutions (145) (134)
8
(279) (345)
(19)
Deposits and other borrowings (4,433) (4,435)
-
(8,868) (9,369)
(5)
Trading liabilities (1,045) (1,020)
2
(2,065) (2,520)
(18)
Debt issues (1,811) (1,774)
2
(3,585) (3,737)
(4)
Loan capital (343) (350)
(2)
(693) (589)
18
Bank levy (95) -
-
(95) -
-
Other interest expense (64) (67)
(4)
(131) (114)
15
Total interest expense (7,936) (7,780) 2 (15,716) (16,674) (6)
Total net interest income 7,903 7,613 4 15,516 15,148 2
2017 Full Year financial report
Notes to the consolidated financial statements
Westpac Group 2017 Full Year Financial Results Announcement | 85
Note 4. Non-interest income
% Mov't % Mov't
Half Year Half Year Sept 17 - Full Year Full Year Sept 17 -
$m Note Sept 17 March 17 Mar 17 Sept 17 Sept 16 Sept 16
Fees and commissions
Facility fees 671 662
1
1,333 1,297
3
Transaction fees and commissions received 598 595
1
1,193 1,177
1
Other non-risk fee income 78 151
(48)
229 281
(19)
Total fees and commissions 1,347 1,408 (4) 2,755 2,755 -
Wealth management and insurance income
Life insurance and funds management
net operating income
1
801 789
2
1,590 1,657
(4)
General insurance and lenders mortgage insurance
net operating income 130 80
63
210 242
(13)
Total wealth management and insurance income 931 869 7 1,800 1,899 (5)
Trading income
2,3
Foreign exchange income 401 474
(15)
875 974
(10)
Other trading products 88 239
(63)
327 150
118
Total trading income 489 713 (31) 1,202 1,124 7
Other income
Dividends received from other entities 1 1
-
2 7
(71)
Net gain on disposal of associates
4
279 -
-
279 -
-
Net gain on disposal of assets - 6
(100)
6 1
large
Net gain/(loss) on hedging overseas operations - -
-
- (6)
100
Net gain/(loss) on derivatives held for
risk management purposes
5
(2) 54
(104)
52 (88)
159
Net gain/(loss) on financial instruments
designated at fair value 5 6
(17)
11 (6)
large
Gain/(loss) on disposal of controlled entities 16 - -
-
- 1
(100)
Rental income on operating leases 69 74
(7)
143 109
31
Share of associates' net profit 2 15
(87)
17 30
(43)
Other 9 10
(10)
19 11
73
Total other income 363 166 119 529 59 large
Total non-interest income 3,130 3,156 (1) 6,286 5,837 8
1
Wealth management and insurance income includes policy holder tax recoveries.
2
Trading income represents a component of total markets income from our WIB markets business, Westpac Pacific and Treasury
foreign exchange operations in Australia and New Zealand.
3
Comparatives have been revised for consistency.
4
On 26 May 2017, the Group sold 60 million shares of BTIM (19% of BTIM’s shares on issue).
5
Income from derivatives held for risk management purposes reflects the impact of economic hedges of foreign currency capital and
earnings.
2017 Full Year financial report
Notes to the consolidated financial statements
86 | Westpac Group 2017 Full Year Financial Results Announcement
Note 5. Operating expenses
% Mov't % Mov't
Half Year Half Year Sept 17 - Full Year Full Year Sept 17 -
$m Sept 17 March 17 Mar 17 Sept 17 Sept 16 Sept 16
Staff expenses
Employee remuneration, entitlements and on-costs 2,111 2,022
4
4,133 4,005
3
Superannuation expense 186 194
(4)
380 369
3
Share-based payments 48 65
(26)
113 135
(16)
Restructuring costs 30 45
(33)
75 92
(18)
Total staff expenses 2,375 2,326 2 4,701 4,601 2
Occupancy expenses
Operating lease rentals 324 324
-
648 622
4
Depreciation of property and equipment 143 148
(3)
291 285
2
Other 72 62
16
134 125
7
Total occupancy expenses 539 534 1 1,073 1,032 4
Technology expenses
Amortisation and impairment of software assets 322 306
5
628 571
10
Depreciation and impairment of IT equipment 82 76
8
158 156
1
Technology services 299 340
(12)
639 672
(5)
Software maintenance and licenses 168 145
16
313 277
13
Telecommunications 106 84
26
190 181
5
Data processing 42 38
11
80 72
11
Total technology expenses 1,019 989 3 2,008 1,929 4
Other expenses
Professional and processing services
1
417 338
23
755 741
2
Amortisation and impairment of intangible assets and
deferred expenditure 94 98
(4)
192 216
(11)
Postage and stationery 109 108
1
217 217
-
Advertising 80 75
7
155 156
(1)
Credit card loyalty programs 86 66
30
152 144
6
Non-lending losses 36 37
(3)
73 81
(10)
Other expenses 46 62
(26)
108 100
8
Total other expenses 868 784 11 1,652 1,655 -
Total operating expenses 4,801 4,633 4 9,434 9,217 2
1
Professional and processing services relates to: services provided by external suppliers including items such as cash handling and
security services, marketing costs, & research and recruitment fees (Full Year 2017: $268 million; Full Year 2016: $283 million),
operations processing (Full Year 2017: $184 million; Full Year 2016: $196 million), consultants (Full Year 2017: $162 million; Full Year
2016: $120 million), credit assessment (Full Year 2017: $53 million; Full Year 2016: $60 million), legal and audit fees (Full Year 2017:
$61 million; Full Year 2016: $51 million), and regulatory fees and share market related costs (Full Year 2017: $27 million; Full Year
2016: $31 million).
2017 Full Year financial report
Notes to the consolidated financial statements
Westpac Group 2017 Full Year Financial Results Announcement | 87
Note 6. Income tax
The income tax expense for the half year is reconciled to the profit before income tax as follows:
% Mov't % Mov't
Half Year Half Year Sept 17 - Full Year Full Year Sept 17 -
$m Sept 17 March 17 Mar 17 Sept 17 Sept 16 Sept 16
Profit before income tax 5,872 5,643 4 11,515 10,644 8
Tax at the Australian company tax rate of 30% 1,762 1,693
4
3,455 3,193
8
The effect of amounts which are not
deductible/(assessable) in calculating
taxable income
Hybrid capital distributions 32 32
-
64 50
28
Life insurance:
Tax adjustment on policyholder earnings (5) 13
(138)
8 (2)
large
Adjustment for life business tax rates (1) -
-
(1) -
-
Dividend adjustments (1) (2)
(50)
(3) (4)
(25)
Other non-assessable items (2) (1)
100
(3) (10)
(70)
Other non-deductible items 15 17
(12)
32 35
(9)
Adjustment for overseas tax rates (15) (15)
-
(30) (26)
15
Income tax (over)/under provided in prior periods 2 2
-
4 (65)
(106)
Other items - (8)
(100)
(8) 13
(162)
Total income tax expense 1,787 1,731 3 3,518 3,184 10
Effective income tax rate 30.43% 30.68% (25bps) 30.55% 29.91% 64bps
2017 Full Year financial report
N
otes to the consolidated financial statements
88 |
Westpac Group 2017 Full Year Financial Results Announcement
Note 7. Earnings per share
Basic earnings per share (EPS) is calculated by dividing the net
profit attributable to shareholders by the weighted average nu
mber of ordinary shares on issue during the period,
adjusted for treasury shares. Diluted EPS is calculated by adjus
ting the basic earnings per share by assuming all dilutive pote
ntial ordinary shares are converted.
Half Year Sept 17
Half Year March 17
Full Year Sept 17
Full Year Sept 16
$m
Basic
Diluted
Basic
Diluted
Basic
Diluted
Basic
Diluted
Net profit attributable to shareholders
4,083
4,083
3,907 3,907
7,990
7,990
7,445 7,445
A
djustment for Restricted Share Plan (RSP) dividends
1
(5)
-
(1)
-
(6)
-
(5)
-
A
djustment for potential dilution:
Distributions to conver
tible loan capital holders
2
-
126
- 127
-
253
- 222
Adjusted net profit attributable to shareholders
4,078
4,209
3,906 4,034
7,984
8,243
7,440 7,667
Weighted average number of ordinary shares (millions)
Weighted average number of ordinary shares on issue
3,375
3,375
3,352 3,352
3,364
3,364
3,322 3,322
Treasury shares (incl
uding RSP share rights)
(9)
(9)
(8)
(8)
(9)
(9)
(9)
(9)
A
djustment for potential dilution:
Share-based payments
-
5
- 3
-
4
- 4
Convertible loan capital
2
-
270
- 202
-
236
- 203
Adjusted weighted average number of ordinary shares
3,366
3,641
3,344 3,549
3,355
3,595
3,313 3,520
Earnings per ordinary share (cents)
121.2
115.6
116.8 113.7
238.0
229.3
224.6 217.8
1
Some RSP share rights have not vested and are not ordinary s
hares but do receive dividends. T
hese RSP dividends are deducted t
o show the profit attributable to ordinary shareholders.
2
The Group has issued convertible
loan capital which is expected to
convert into ordinary shares
in the future. These convertib
le loan capital instruments are all dilutive and
diluted EPS is therefore calculated as if the
instruments had already been converted.
2017 Full Year financial report
Notes to the consolidated financial statements
Westpac Group 2017 Full Year Financial Results Announcement | 89
Note 8. Average balance sheet and interest rates
Full Year Full Year
30 September 2017 30 September 2016
Average Interest Average AverageInterestAverage
balance rate balance rate
$m $m % $m$m%
Assets
Interest earning assets
Receivables due from other financial institutions 9,123 110 1.2 11,357 100 0.9
Trading securities and financial assets
designated at fair value 25,870 558 2.2 26,076 645 2.5
Available-for-sale securities 58,208 1,795 3.1 54,054 1,808 3.3
Regulatory deposits with central banks overseas 1,035 17 1.6 1,197 13 1.1
Loans and other receivables
1
658,058 28,752 4.4 629,159 29,256 4.7
Total interest earning assets
and interest income 752,294 31,232 4.2 721,843 31,822 4.4
Non-interest earning assets
Cash, receivables due from other financial
institutions and regulatory deposits 2,000 2,431
Derivative financial instruments 37,673 48,666
Life insurance assets 12,447 12,702
All other assets 60,111 57,913
Total non-interest earning assets 112,231 121,712
Total assets 864,525 843,555
Liabilities
Interest bearing liabilities
Payables due to other financial institutions 18,833 279 1.5 19,948 345 1.7
Deposits and other borrowings 484,713 8,868 1.8 453,702 9,369 2.1
Loan capital 17,208 693 4.0 13,837 589 4.3
Other interest bearing liabilities 174,170 5,876 3.4 179,789 6,371 3.5
Total interest bearing liabilities and
interest expense 694,924 15,716 2.3 667,276 16,674 2.5
Non-interest bearing liabilities
Deposits and payables due to other
financial institutions 46,099 41,722
Derivative financial instruments 42,780 55,956
Life insurance policy liabilities 10,560 10,985
All other liabilities 11,586 11,145
Total non-interest bearing liabilities 111,025 119,808
Total liabilities 805,949 787,084
Shareholders' equity 58,556 55,896
Non-controlling interests 20 575
Total equity 58,576 56,471
Total liabilities and equity 864,525 843,555
Loans and other receivables
1
Australia 557,865 24,772 4.4 532,172 25,162 4.7
New Zealand 72,938 3,460 4.7 68,370 3,617 5.3
Other overseas 27,255 520 1.9 28,617 477 1.7
Deposits and other borrowings
Australia 409,586 7,344 1.8 376,115 7,801 2.1
New Zealand 51,042 1,173 2.3 48,251 1,280 2.7
Other overseas 24,085 351 1.5 29,336 288 1.0
1
Loans and other receivables are stated net of provisions for impairment charges on loans. Other receivables include cash and
balances with central banks and other interest earning assets.
2017 Full Year financial report
Notes to the consolidated financial statements
90 | Westpac Group 2017 Full Year Financial Results Announcement
Note 9. Loans
As at As at As at % Mov't % Mov't
30 Sept 31 March 30 Sept Sept 17 - Sept 17 -
$m Note 2017 2017 2016 Mar 17 Sept 16
Australia
Housing 427,167 413,938 404,190
3 6
Personal (loans and cards) 21,952 22,716 22,825
(3) (4)
Business 150,542 147,705 150,209
2 -
Margin lending 1,885 1,928 1,912
(2) (1)
Other 100 105 108
(5) (7)
Total Australia 601,646 586,392 579,244 3 4
New Zealand
Housing 43,198 42,281 43,035
2 -
Personal (loans and cards) 1,856 1,807 1,865
3 -
Business 26,667 26,544 27,499
- (3)
Other 85 82 96
4 (11)
Total New Zealand 71,806 70,714 72,495 2 (1)
Other overseas
Trade finance 2,818 2,281 2,358
24 20
Other 11,515 10,821 11,159
6 3
Total other overseas 14,333 13,102 13,517 9 6
Total loans 687,785 670,208 665,256 3 3
Provisions for impairment charges on loans 10 (2,866) (3,262) (3,330)
(12) (14)
Total net loans
1,2
684,919 666,946 661,926 3 3
1
Total net loans include securitised loans of $7,651 million as at 30 September 2017 ($8,783 million as at 31 March 2017 and $9,166
million as at 30 September 2016). The level of securitised loans excludes loans where Westpac is the holder of the related
debt securities.
2
Total net loans include assets pledged for the covered bond programs of $35,544 as at 30 September 2017 ($30,950 million as at
31 March 2017 and $38,325 million as at 30 September 2016).
2017 Full Year financial report
Notes to the consolidated financial statements
Westpac Group 2017 Full Year Financial Results Announcement | 91
Note 10. Provisions for impairment charges
Half Year Half Year Full Year Full Year
$m Sept 17 March 17 Sept 17 Sept 16
Individually assessed provisions
Opening balance
787 869 869 669
Provisions raised
246 364 610 727
Write-backs
(144) (144) (288) (210)
Write-offs
(399) (289) (688) (287)
Interest adjustment
(10) (6) (16) (13)
Other adjustments
- (7) (7) (17)
Closing balance
480 787 480 869
Collectively assessed provisions
Opening balance
2,726 2,733 2,733 2,663
Provisions raised
342 357 699 744
Write-offs
(525) (443) (968) (902)
Interest adjustment
93 95 188 193
Other adjustments 3 (16) (13) 35
Closing balance 2,639 2,726 2,639 2,733
Total provisions for impairment charges on loans
and credit commitments 3,119 3,513 3,119 3,602
Less: provisions for credit commitments (253) (251) (253) (272)
Total provisions for impairment charges on loans 2,866 3,262 2,866 3,330
Half Year Half Year Full Year Full Year
$m Sept 17 March 17 Sept 17 Sept 16
Reconciliation of impairment charges
Individually assessed provisions raised
246 364 610 727
Write-backs
(144) (144) (288) (210)
Recoveries
(84) (84) (168) (137)
Collectively assessed provisions raised
342 357 699 744
Impairment charges 360 493 853 1,124
2017 Full Year financial report
N
otes to the consolidated financial statements
92 |
Westpac Group 2017 Full Year Financial Results Announcement
Note 11. Credit quality Impaired assets
Australia
New Zealand
Other Overseas
Total
As at
As at
As at
As at
As at
As at
As at
As at
As at
As at
As at
As at
30 Sept
31 March
30 Sept
30 Sept
31 March
30 Sept
30 Sept
31 March
30 Sept
30 Sept
31 March
30 Sept
$m
2017
2017
2016
2017
2017
2016
2017
2017
2016
2017
2017
2016
Non-Performing loans:
Gross amount
975
1,388
1,589
152
164
218
15
18
44
1,142
1,570
1,851
Impairment provisions
1
(460)
(740)
(769)
(41)
(54)
(95)
(6)
(7)
(21)
(507)
(801)
(885)
Net
515
648
820
111
110
123
9
11
23
635
769
966
Restructured loans:
Gross amount
12
12
13
15
17
16
-
-
2
27
29
31
Impairment provisions
1
(7)
(11)
(11)
(5)
(4)
(4)
-
-
(1)
(12)
(15)
(16)
Net
5
1
2
10
13
12
-
-
1
15
14
15
Overdrafts, personal loans and revolving
credit facilities greater than 90 days past due:
Gross amount
362
368
267
11
11
10
-
-
-
373
379
277
Impairment provisions
2
(187)
(206)
(159)
(8)
(8)
(7)
-
-
-
(195)
(214)
(166)
Net
175
162
108
3
3
3
-
-
-
178
165
111
Total impaired assets:
Gross amount
1,349
1,768
1,869
178
192
244
15
18
46
1,542
1,978
2,159
Impairment provisions
1
(654)
(957)
(939)
(54)
(66)
(106)
(6)
(7)
(22)
(714)
(1,030)
(1,067)
Net
695
811
930
124
126
138
9
11
24
828
948
1,092
1
Includes individually assessed pr
ovisions and collectively assesse
d provisions on impaired loans.
2
Includes collectively assessed
provisions on impaired loans.
2017 Full Year financial report
Notes to the consolidated financial statements
Westpac Group 2017 Full Year Financial Results Announcement | 93
Note 11. Credit quality (continued)
Movement in gross impaired loans
1
As at As at As at % Mov't % Mov't
30 Sept 31 March 30 Sept Sept 17 - Sept 17 -
$m 2017 2017 2016 Mar 17 Sept 16
Opening balance 1,978 2,159 2,487
(8) (20)
New and increased - individually managed 440 589 477
(25) (8)
Write-offs (924) (732) (672)
26 38
Returned to performing or repaid (471) (570) (532)
(17) (11)
Portfolio managed - new/increased/returned/repaid 518 534 395
(3) 31
Exchange rate and other adjustments 1 (2) 4
(150) 75
Balance as at period end 1,542 1,978 2,159 (22) (29)
Items 90 days past due, or otherwise in default, and not impaired
As at As at As at % Mov't % Mov't
30 Sept 31 March 30 Sept Sept 17 - Sept 17 -
$m 2017 2017 2016 Mar 17 Sept 16
Australia
Housing products 2,672 2,619 2,538
2 5
Other products 650 678 537
(4) 21
Total Australia 3,322 3,297 3,075 1 8
New Zealand
Housing products 89 92 59
(3) 51
Other products 28 21 30
33 (7)
Other overseas 19 22 17
(14) 12
Total overseas 136 135 106 1 28
Total 3,458 3,432 3,181 1 9
1
Movement represents a six month period.
2017 Full Year financial report
Notes to the consolidated financial statements
94 | Westpac Group 2017 Full Year Financial Results Announcement
Note 12. Deposits and other borrowings
As at As at As at % Mov't % Mov't
30 Sept 31 March 30 Sept Sept 17 - Sept 17 -
$m 2017 2017 2016 Mar 17 Sept 16
Australia
Certificates of deposit 37,515 31,011 29,774
21 26
Non-interest bearing, repayable at call 40,324 39,484 37,491
2 8
Other interest bearing at call 226,920 219,445 210,666
3 8
Other interest bearing term 153,597 155,777 148,876
(1) 3
Total Australia 458,356 445,717 426,807 3 7
New Zealand
Certificates of deposit 546 1,478 1,192
(63) (54)
Non-interest bearing, repayable at call 4,853 4,646 4,407
4 10
Other interest bearing at call 21,273 21,845 22,642
(3) (6)
Other interest bearing term 27,620 25,451 27,826
9 (1)
Total New Zealand 54,292 53,420 56,067 2 (3)
Overseas
Certificates of deposit 8,860 11,364 15,497
(22) (43)
Non-interest bearing, repayable at call 810 820 845
(1) (4)
Other interest bearing at call 1,505 1,459 1,441
3 4
Other interest bearing term 9,768 9,733 12,414
- (21)
Total overseas 20,943 23,376 30,197 (10) (31)
Total deposits and other borrowings 533,591 522,513 513,071 2 4
Deposits and other borrowings at fair value 46,569 43,743 44,227
6 5
Deposits and other borrowings at amortised cost 487,022 478,770 468,844
2 4
Total deposits and other borrowings 533,591 522,513 513,071 2 4
2017 Full Year financial report
Notes to the consolidated financial statements
Westpac Group 2017 Full Year Financial Results Announcement | 95
Note 13. Fair values of financial assets and liabilities
Fair Valuation Control Framework
The Group uses a Fair Valuation Control Framework where the fair value is either determined or validated by a
function independent of the originator of the transaction. This framework formalises the policies and procedures
used to achieve compliance with relevant accounting, industry and regulatory standards. The framework includes
specific controls relating to:
the revaluation of financial instruments;
independent price verification;
fair value adjustments; and
financial reporting.
A key element of the Framework is the Revaluation Committee, comprising senior valuation specialists from within
the Group. The Revaluation Committee reviews the application of the agreed policies and procedures to assess
that a fair value measurement basis has been applied.
The method of determining fair value differs depending on the information available.
Fair value hierarchy
A financial instrument’s categorisation within the valuation hierarchy is based on the lowest level input that is
significant to the fair value measurement.
The Group categorises all fair value instruments according to the hierarchy described below.
Valuation techniques
The Group applies market accepted valuation techniques in determining the fair valuation of over-the-counter
(OTC) derivatives. This includes credit valuation adjustments (CVA) and funding valuation adjustments (FVA),
which incorporates credit risk and funding costs and benefits that arise in relation to uncollateralised derivative
positions, respectively.
The specific valuation techniques, the observability of the inputs used in valuation models and the subsequent
classification for each significant product category are outlined below:
Level 1 instruments
The fair value of financial instruments traded in active markets based on recent unadjusted quoted prices. These
prices are based on actual arm’s length basis transactions.
The valuations of Level 1 instruments require little or no management judgement.
Instrument Balance sheet category Includes: Valuation
Exchange traded
products
Derivatives
Exchange traded interest rate futures and
options and commodity, energy and carbon
futures
Foreign exchange
products
Derivatives FX spot and futures contracts
Equity products
Derivatives
Trading securities and financial
assets designated at fair value
Other financial liabilities at fair
value through income
statement
Listed equities and equity indices
Non-asset backed
debt instruments
Trading securities and financial
assets designated at fair value
Available-for-sale securities
Other financial liabilities at fair
value through income
statement
Australian and New Zealand
Commonwealth government bonds
Life insurance
assets and
liabilities
Life insurance assets
Life insurance liabilities
Listed equities, exchange traded derivatives
and short sale of listed equities within
controlled managed investment schemes
All these instruments are traded in
liquid, active markets where prices are
readily observable. No modelling or
assumptions are used in the valuation.
2017 Full Year financial report
Notes to the consolidated financial statements
96 | Westpac Group 2017 Full Year Financial Results Announcement
Note 13. Fair values of financial assets and liabilities (continued)
Level 2 instruments
The fair value for financial instruments that are not actively traded are determined using valuation techniques
which maximise the use of observable market prices. Valuation techniques include:
the use of market standard discounting methodologies;
option pricing models; and
other valuation techniques widely used and accepted by market participants.
Instrument
Balance sheet
category Includes: Valuation
Interest rate
products
Derivatives
Interest rate and inflation
swaps, swaptions, caps,
floors, collars and other non-
vanilla interest rate derivatives
Industry standard valuation models are used to calculate
the expected future value of payments by product, which is
discounted back to a present value. The model’s interest
rate inputs are benchmark interest rates and active broker
quoted interest rates in the swap, bond and futures
markets. Interest rate volatilities are sourced from brokers
and consensus data providers.
Foreign exchange
products
Derivatives
FX swap, FX forward
contracts, FX options and
other non-vanilla FX
derivatives
Derived from market observable inputs or consensus
pricing providers using industry standard models.
Other credit
products
Derivatives
Single Name and Index credit
default swaps (CDS)
Valued using an industry standard model that incorporates
the credit spread as its principal input. Credit spreads are
obtained from consensus data providers. If consensus
prices are not available, these are classified as Level 3
instruments.
Commodity
products
Derivatives
Commodity, energy and
carbon derivatives
Valued using industry standard models.
The models calculate the expected future value of
deliveries and payments and discounts them back to a
present value. The model inputs include forward curves,
volatilities implied from market observable inputs, discount
curves and underlying spot and futures prices. The
significant inputs are market observable or available
through a consensus data service.
If consensus prices are not available, these are classified
as Level 3 instruments.
Equity products Derivatives
Exchange traded equity
options, OTC equity options
and equity warrants
Due to low liquidity exchange traded options are Level 2.
Valued using industry standard models based on
observable parameters such as stock prices, dividends,
volatilities and interest rates.
Asset backed
debt instruments
Trading securities and
financial assets designated at
fair value
Available-for-sale securities
Australian residential
mortgage backed securities
(RMBS) denominated in
Australian dollar and other
asset backed securities
(ABS).
Valued using an industry approach to value floating rate
debt with prepayment features. The main inputs to the
model are the trading margin and the weighted average
life (WAL) of the security. These inputs are sourced from a
consensus data provider. If consensus prices are not
available these are classified as Level 3 instruments.
2017 Full Year financial report
Notes to the consolidated financial statements
Westpac Group 2017 Full Year Financial Results Announcement | 97
Note 13. Fair values of financial assets and liabilities (continued)
Level 2 instruments (continued)
Instrument Balance sheet category Includes: Valuation
Non-asset backed
debt instruments
Trading securities and
financial assets designated at
fair value
Available-for-sale securities
Regulatory deposits
Other financial liabilities
through income statement
State and other government
bonds, corporate bonds and
commercial paper.
Security repurchase agreements
and reverse repurchase
agreements over non-asset
backed debt securities.
Valued using observable market prices which are
sourced from consensus pricing services, broker quotes
or inter-dealer prices.
Loans at fair value Loans Fixed rate bills
Discounted cash flow approach, using a discount rate
which reflects the terms of the instrument and the timing
of cash flows, adjusted for creditworthiness based on
market observable inputs.
Certificates of
deposit
Deposits and other
borrowings
Certificates of deposit
Discounted cash flow using market rates offered for
deposits of similar remaining maturities.
Debt issues at fair
value
Debt issues Debt issues
Discounted cash flows, using a discount rate which
reflects the terms of the instrument and the timing of
cash flows adjusted for market observable changes in
Westpac’s implied credit worthiness.
Life insurance assets
and liabilities
Life insurance assets
Life insurance liabilities
Corporate bonds,
over the counter derivatives,
units in unlisted unit trusts,
life insurance contract liabilities,
life investment contract liabilities
and external liabilities of
managed investment schemes
controlled by statutory life funds.
Valued using observable market prices or other widely
used and accepted valuation techniques utilising
observable market input.
Level 3 instruments
Financial instruments valued where at least one input that could have a significant effect on the instrument’s
valuation is not based on observable market data due to illiquidity or complexity of the product. These inputs are
generally derived and extrapolated from other relevant market data and calibrated against current market trends
and historical transactions.
These valuations are calculated using a high degree of management judgement.
Instrument Balance sheet category Includes: Valuation
Asset backed debt
instruments
Trading securities and
financial assets designated
at fair value
Available-for-sale securities
Collateralised loan obligations
and offshore asset-backed debt
instruments
As prices for these securities are not available from a
consensus data provider these are revalued based on
third party revaluations (lead manager or inter-dealer).
Due to their illiquidity and/or complexity they are classified
as Level 3 assets.
Non-asset backed
debt instruments
Trading securities and
financial assets designated
at fair value
Available-for-sale securities
Government securities
(predominantly PNG
government bonds)
Government securities from illiquid markets are classified
as Level 3. Fair value is monitored by reference to recent
issuances.
2017 Interim financial report
N
otes to the consolidated financial statements
98 |
Westpac Group 2017 Interim Financial Results Announcement
Note 13. Fair values of financial assets and liabilities (continued) The table below summarises the attribution of financial instruments carried at fair value to the fair value hierarchy:
As at 30 Sept 2017
As at 31 March 2017
As at 30 Sept 2016
$m
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
Financial assets measured at fair value on a recurring basis
Trading securities and financial a
ssets designated at fair value
6,815
17,742
767
25,324
4,909
25,247
821
30,977
2,431
17,897
840
21,168
Derivative financial instruments
9
24,009
15
24,033
12
24,584
23
24,619
21
32,163
43
32,227
A
vailable-for-sale securities
7,252
52,841
617
60,710
4,309
55,044
599
59,952
5,047
54,914
704
60,665
Loans
-
4,587
-
4,587
-
5,202
-
5,202
-
5,562
-
5,562
Life insurance assets
2,768
7,875
-
10,643
2,987
7,947
-
10,934
5,076
9,116
-
14,192
Regulatory deposits with central banks overseas
-
659
-
659
-
1,004
-
1,004
-
1,008
-
1,008
Total financial assets carried at fair value
16,844
107,713
1,399
125,956
12,217
119,028
1,443
132,688
12,575
120,660
1,587
134,822
Financial liabilities measured at fair value on a recurring basis
Deposits and other borrowings at fair value
-
46,569
-
46,569
-
43,743
-
43,743
-
44,227
-
44,227
Other financial liabilities at fair
value through income statement
208
3,848
-
4,056
325
4,569
-
4,894
151
4,601
-
4,752
Derivative financial instruments
8
25,358
9
25,375
16
28,433
8
28,457
12
36,047
17
36,076
Debt issues at fair value
-
4,673
-
4,673
-
5,551
-
5,551
-
6,303
-
6,303
Life insurance liabilities
-
9,019
-
9,019
-
9,158
-
9,158
1,180
11,181
-
12,361
Total financial liabilities carried at fair value
216
89,467
9
89,692
341
91,454
8
91,803
1,343
102,359
17
103,719
2017 Full Year financial report
Notes to the consolidated financial statements
Westpac Group 2017 Full Year Financial Results Announcement | 99
Note 13. Fair values of financial assets and liabilities (continued)
Analysis of movements between Fair Value Hierarchy Levels
Transfers into or out of Level 3 are discussed in the following table.
The table below summarises the changes in financial instruments carried at fair value derived from non-market
observable valuation techniques (Level 3):
Full Year Sept 17
$m
Trading
Securities and
Financial
Assets
Designated
at Fair ValueDerivatives
Available-
for-Sale
Securities
Total
Level 3
Assets Derivatives
Debt Issues
at Fair
Value
Total
Level 3
Liabilities
Balance as at 1 October 2016 840 43 704 1,587 17 - 17
Gains/(losses) on
assets and (gains)/losses
on liabilities recognised in:
Income statements (26)(8)- (34) (3)- (3)
Available-for-sale reserve - - 4 4 - - -
Acquisitions and issues 122 5 1,572 1,699 6 - 6
Disposals and settlements (162)(13)(1,645) (1,820) (9)- (9)
Transfers into or out of
non-market observables 10 (12)- (2) (2)- (2)
Foreign currency
translation impacts (17)- (18) (35) - - -
Balance as at 30 Sept 2017 767 15 617 1,399 9 - 9
Unrealised gains/(losses)
recognised in the income
statement for financial
instrument held as
at 30 Sept 2017 (29)(2)- (31) (3)- (3)
Transfers into and out of Level 3 have occurred due to changes in observability in the significant inputs into the
valuation models used to determine the fair value of the related financial instruments. Transfers in and transfers
out are reported using the end of period fair values.
Significant unobservable inputs
Sensitivities to reasonably possible changes in non-market observable valuation assumptions would not have a
material impact on the Group’s reported results.
Day one profit or loss
The closing balance of unrecognised day one profit for the period was $5 million (30 September 2016: $6 million
profit).
2017 Full Year financial report
Notes to the consolidated financial statements
100 | Westpac Group 2017 Full Year Financial Results Announcement
Note 13. Fair values of financial assets and liabilities (continued)
Financial instruments not measured at fair value
The following table summarises the estimated fair value of financial instruments not measured at fair value for the
Group:
As at 30 Sept 2017 As at 31 March 2017 As at 30 Sept 2016
Carrying Fair CarryingFairCarryingFair
$m Amount Value AmountValueAmountValue
Financial assets not measured at fair value
Cash and balances with central banks 18,397 18,397 15,912 15,912 17,015 17,015
Receivables due from other financial institutions 7,128 7,128 9,545 9,545 9,951 9,951
Available-for-sale securities - - - - - -
Loans 680,332 680,568 661,744 662,184 656,364 657,594
Regulatory deposits with central banks overseas 389 389 405 405 382 382
Other financial assets 4,754 4,754 3,862 3,862 4,501 4,501
Total financial assets 711,000 711,236 691,468 691,908 688,213 689,443
Financial liabilities not measured at fair value - -
Payables due to other financial institutions 21,907 21,907 21,390 21,390 18,209 18,209
Deposits and other borrowings 487,022 487,723 478,770 479,624 468,844 469,709
Debt issues
1
163,683 165,151 161,755 163,075 163,599 164,811
Loan capital 17,666 18,087 17,106 17,377 15,805 15,773
Other financial liabilities 7,490 7,490 7,069 7,069 7,531 7,531
Total financial liabilities 697,768 700,358 686,090 688,535 673,988 676,033
A detailed description of how fair value is derived for financial instruments not measured at fair value is disclosed
in Note 23 of the Group’s annual financial statements for the year ended 30 September 2017.
1
The estimated fair value of debt issues includes the impact of changes in Westpac’s credit spreads since origination.
2017 Full Year financial report
Notes to the consolidated financial statements
Westpac Group 2017 Full Year Financial Results Announcement | 101
Note 14. Contingent liabilities, contingent assets and credit commitments
Undrawn credit commitments
The Group enters into various arrangements with customers which are only recognised in the balance sheet when
called upon. These arrangements include commitments to extend credit, bill endorsements, financial guarantees,
standby letters of credit and underwriting facilities.
They expose the Group to liquidity risk when called upon and also to credit risk if the customer fails to repay the
amounts owed at the due date. The maximum exposure to credit loss is the contractual or notional amount of the
instruments disclosed below. Some of the arrangements can be cancelled by the Group at any time and a
significant portion is expected to expire without being drawn. The actual required liquidity and credit risk exposure
is therefore less than the amounts disclosed.
The Group uses the same credit policies when entering into these arrangements as it does for on-balance sheet
instruments. Refer to Note 22 of the Group’s annual financial statements for the year ended 30 September 2017
for further details of liquidity risk and credit risk management.
Undrawn credit commitments excluding derivatives at 30 September are as follows:
As at As at As at % Mov't % Mov't
30 Sept 31 March 30 Sept Sept 17 - Sept 17 -
$m 2017 2017 2016 Mar 17 Sept 16
Undrawn credit commitments
Letters of credit and guarantees
1
15,460 17,702 16,435
(13) (6)
Commitments to extend credit
2
178,443 177,449 176,811
1 1
Other 648 314 235
106 176
Total undrawn credit commitments 194,551 195,465 193,481 - 1
2017 Up to Over 1 to Over 3 to Over
$m 1 Year 3 Years 5 Years 5 Years Total
Letters of credit and guarantees 8,797 2,860 1,009 2,794
15,460
Commitments to extend credit 66,663 34,523 16,906 60,351
178,443
Other - - 100 548
648
Total undrawn credit commitments 75,460 37,383 18,015 63,693 194,551
Contingent assets
The credit commitments shown in the table above also constitute contingent assets. These commitments would be
classified as loans in the balance sheet on the contingent event occurring.
Contingent liabilities
Regulatory action and internal reviews
Globally, regulators continue to progress various reviews involving the financial services sector. The nature of
these reviews can be wide ranging and, in Australia, currently include investigations into potential misconduct in
credit and financial services. For example, regulators such as ASIC, APRA, ACCC and AUSTRAC are currently
conducting reviews (some of which are industry-wide) that consider a range of matters including in relation to sales
practices, responsible lending (including in the context of reverse mortgages and interest only lending), financial
adviser conduct (including compliance with the obligation to act in the client’s best interests), the provision of
personal and general advice, life insurance claims handling and the pricing of residential mortgages. These
reviews may result in litigation, fines, penalties, revocation, suspension or variation of conditions of relevant
regulatory licences or other enforcement or administrative action by regulators. Westpac has received various
notices and requests for information from its regulators as part of both industry-wide and Westpac-specific
reviews.
In addition, Westpac is undertaking a number of reviews to identify and resolve prior issues that have the potential
to impact our customers and reputation. These reviews have identified, and may continue to identify, some prior
instances where we are now taking or will take action to put things right (including in relation to areas of industry
focus such as record keeping and the way some product terms and conditions are operationalised) so that our
customers are not at a disadvantage from certain past practices.
1
Letters of credit and guarantees are undertakings to pay, against presentation documents, and obligation in the event of a default by a
customer. Guarantees are unconditional undertakings given to support the obligations of a customer to third parties. The Group may
hold cash as collateral for certain guarantees issued.
2
Commitments to extend credit include all obligations on the part of the Group to provide credit facilities. As facilities may expire without
being drawn upon, the notional amounts do not necessarily reflect future cash requirements. In addition to the commitments disclosed
above, at 30 September 2017 the Group had offered $5.5 billion (31 March 2017: $5.9 billion, 30 September 2016: $5.6 billion) of
facilities to customers, which had not yet been accepted.
2017 Full Year financial report
Notes to the consolidated financial statements
102 | Westpac Group 2017 Full Year Financial Results Announcement
An assessment of the likely cost to the Group of these reviews and actions has been made on a case-by-case
basis for the purpose of the financial statements and specific provisions have been made where appropriate.
Litigation
There are outstanding court proceedings, claims and possible claims for and against the Group. Contingent
liabilities exist in respect of actual and potential claims and proceedings, including those listed below. An
assessment of the Group’s likely loss has been made on a case-by-case basis for the purpose of the financial
statements and specific provisions have been made where appropriate.
As part of ASIC’s ongoing industry-wide investigations into the interbank short-term money market and its
impact on the setting of the bank bill swap reference rate (BBSW), on 5 April 2016, ASIC commenced civil
proceedings against Westpac in the Federal Court of Australia, alleging certain misconduct, including market
manipulation and unconscionable conduct. The conduct that is the subject of the proceedings is alleged to
have occurred between 6 April 2010 and 6 June 2012. Westpac is defending these proceedings. ASIC is
seeking from the court declarations that Westpac breached various provisions of the Corporations Act 2001
(Cth) and the Australian Securities and Investments Commission Act 2001 (Cth), pecuniary penalties of
unspecified amounts and orders requiring Westpac to implement a comprehensive compliance program for
persons involved in Westpac’s trading in the relevant market.
In August 2016, a class action was filed in the United States District Court for the Southern District of New
York against Westpac and a large number of Australian and international banks alleging misconduct in relation
to BBSW. Those proceedings are at a very early stage and the level of damages sought has not been
specified. Westpac is defending these proceedings.
On 1 March 2017, ASIC commenced litigation in relation to certain Westpac home loans (including certain
interest only loans) alleging contraventions of the National Consumer Credit Protection Act 2009 (Cth). For
further information, refer to ‘Significant developments’ in this Full Year Results Announcement.
On 22 December 2016, ASIC commenced Federal Court proceedings against BT Financial Management
Limited (BTFM) and Westpac Securities Administration Limited (WSAL) in relation to a number of
superannuation account consolidation campaigns conducted between 2013 and 2016. ASIC has alleged that
in the course of some of these campaigns, customers were provided with personal advice in contravention of a
number of Corporations Act 2001 (Cth) provisions, BTFM and WSAL are defending the proceedings.
Financial Claims Scheme
Under the Financial Claims Scheme (FCS) the Australian Government provides depositors a free guarantee of
deposits in eligible ADIs up to and including $250,000. The FCS applies to an eligible ADI if APRA has applied for
the winding up of the ADI and the responsible Australian Government minister has declared that the FCS applies
to the ADI.
The Financial Claims Scheme (ADIs) Levy Act 2008 provides for the imposition of a levy to fund the excess of
certain APRA FCS costs connected to an ADI. The levy would be imposed on liabilities of eligible ADIs to their
depositors and cannot be more than 0.5% of the amount of those liabilities.
Contingent tax risk
Tax and regulatory authorities are reviewing the taxation treatment of certain transactions undertaken by the
Group in the course of normal business activities and the claiming of tax incentives (including research and
development tax incentives). The Group also responds to various notices and requests for information it receives
from tax and regulatory authorities.
Risk reviews and audits are also being undertaken by revenue authorities in other jurisdictions, as part of normal
revenue authority activity in those countries. These reviews, notices and requests may result in additional tax
liabilities (including interest and penalties).
The Group has assessed these and other taxation claims arising in Australia and elsewhere, including seeking
independent advice where appropriate, and holds appropriate provisions.
Settlement risk
The Group is subject to a credit risk exposure in the event that another counterparty fails to settle for its payments
clearing activities (including foreign exchange). The Group seeks to minimise credit risk arising from settlement
risk in the payments system by aligning our processing method with the legal certainty of settlement in the relevant
clearing mechanism.
2017 Full Year financial report
Notes to the consolidated financial statements
Westpac Group 2017 Full Year Financial Results Announcement | 103
Note 15. Shareholders’ equity
As at As at As at
30 Sept 31 March 30 Sept
$m 2017 2017 2016
Share capital
Ordinary share capital, fully paid 34,889 33,765 33,469
Restricted Share Plan (RSP) treasury shares held
1
(434) (431) (366)
Other treasury shares held
2
(61) (70) (89)
Total treasury shares held (495) (501) (455)
Total share capital 34,394 33,264 33,014
Non-controlling interests 54 57 61
Ordinary Shares
Westpac does not have authorised capital and the ordinary shares have no par value. Ordinary shares entitle the
holder to participate in dividends and, in the event of Westpac winding up, to a share of the proceeds in proportion
to the number of and amounts paid on the shares held.
Each ordinary share entitles the holder to one vote, either in person or by proxy, at a shareholder meeting.
Reconciliation of movement in number of ordinary shares
Consolidated
As at As atAs at
30 Sept 2017 31 March 201730 Sept 2016
Opening balance 3,356,614,808 3,346,166,853 3,335,774,947
Dividend reinvestment plan
3
37,749,471 10,447,955 10,391,906
Issued shares for the period 37,749,471 10,447,955 10,391,906
Closing balance 3,394,364,279 3,356,614,808 3,346,166,853
Ordinary shares purchased on market
Full Year Sept Full Year Sept
2017 2017
Consolidated Number Average Price ($)
For share-based payment arrangements:
Employee share plan (ESP) 862,912 30.97
Restricted share plan (RSP)
4
2,123,635 32.08
WPP - options exercised
5
52,745 31.55
WPP - share rights exercised 142,093 31.03
LTI - options exercised
5
326,178 33.52
As treasury shares:
Treasury shares purchased (excluding RSP)
6
275,014 33.59
Treasury shares sold (1,200,067) 32.62
Total ordinary shares purchased/(sold) on market
7
2,582,510
1
30 September 2017: 3,549,035 unvested shares held (31 March 2017: 3,606,211, 30 September 2016: 3,472,010).
2
30 September 2017: 4,652,579 shares held (31 March 2017: 5,577,632, 30 September 2016: 5,577,632).
3
The price for the issuance of shares in relation to the dividend re-investment plan for the 2017 interim dividend was $29.79, 2016 final
dividend was $31.32, 2016 Interim dividend was $30.43.
4
Ordinary shares allocated to employees under the RSP are classified as treasury shares until the shares vest.
5
The average exercise price received was $23.98 on the exercise of the WPP options and $28.54 on the exercise of the LTI options.
6
Treasury shares include ordinary shares held by statutory life funds and managed investment schemes and ordinary shares held by
Westpac for equity derivatives sold to customers.
7
The purchase of ordinary shares on market resulted in a tax benefit of $0.7 million being recognised as contributed equity.
2017 Full Year financial report
Notes to the consolidated financial statements
104 | Westpac Group 2017 Full Year Financial Results Announcement
Note 15. Shareholders’ equity (continued)
Reconciliation of movement in reserves
Reserves As at As atAs at
$m 30 Sept 2017 31 March 201730 Sept 2016
Available-for-sale securities reserve
Opening balance 131 10 (55)
Net gains/(losses) from changes in fair value (93) 168 88
Income tax effect 27 (46)(24)
Transferred to income statements (2) (1)(3)
Income tax effect 1 - 1
Exchange differences - - 3
Closing balance 64 131 10
Share-based payment reserve
Opening balance 1,398 1,333 1,287
Share-based payment expense 33 65 46
Closing balance 1,431 1,398 1,333
Cash flow hedging reserve
Opening balance (201) (172)(89)
Net gains/(losses) from changes in fair value (20) (71)(146)
Income tax effect 6 21 43
Transferred to income statements 86 29 27
Income tax effect (25) (8)(7)
Closing balance (154) (201)(172)
Foreign currency translation reserve
Opening balance (451) (413)(410)
Exchange differences on translation of foreign operations
(net of associated hedges) (78) (38)(3)
Closing balance (529) (451)(413)
Other reserves
Opening balance (18) (19)(17)
Transactions with owners - 1 (2)
Closing balance (18) (18)(19)
Group's share of reserves of associates - (14)(12)
Total reserves 794 845 727
2017 Full Year financial report
Notes to the consolidated financial statements
Westpac Group 2017 Full Year Financial Results Announcement | 105
Note 16. Notes to the consolidated cash flow statement
% Mov't % Mov't
Half Year Half Year Sept 17 - Full Year Full Year Sept 17 -
$m Sept 17 March 17 Mar 17 Sept 17 Sept 16 Sept 16
Reconciliation of net cash provided by/(used in)
operating activities to net profit for the period
Net profit for the period 4,085 3,912
4
7,997 7,460
7
Adjustments:
Depreciation, amortisation and impairment 645 624
3
1,269 1,208
5
Impairment charges 444 577
(23)
1,021 1,261
(19)
Net (decrease)/increase in current and deferred tax 236 (270)
(187)
(34) (285)
(88)
(Increase)/decrease in accrued interest receivable 5 (80)
(106)
(75) 25
large
(Decrease)/increase in accrued interest payable 61 87
(30)
148 (47)
large
(Decrease)/increase in provisions 275 (233)
large
42 (68)
(162)
Other non-cash items (113) (129)
(12)
(242) (311)
(22)
Cash flows from operating activities before changes
in operating assets and liabilities 5,638 4,488
26
10,126 9,243
10
Net (increase)/decrease in derivative
financial instruments (2,987) (2,055)
45
(5,042) (5,107)
(1)
Net (increase)/decrease in life insurance
assets and liabilities 175 44
large
219 (253)
(187)
(Increase)/decrease in other operating assets:
Trading securities and financial assets
designated at fair value 5,464 (10,518)
(152)
(5,054) 6,755
(175)
Loans (18,103) (8,712)
108
(26,815) (38,082)
(30)
Receivables due from other financial institutions 2,310 343
large
2,653 (896)
large
Regulatory deposits with central banks overseas 336 (28)
large
308 (209)
large
Other assets (358) 558
(164)
200 (476)
(142)
(Decrease)/increase in other operating liabilities:
Other financial liabilities at fair value
through income statement (840) 159
large
(681) (4,488)
(85)
Deposits and other borrowings 11,541 11,521
-
23,062 38,771
(41)
Payables due to other financial institutions 616 3,243
(81)
3,859 (73)
large
Other liabilities (294) 279
large
(15) 312
(105)
Net cash provided by/(used in) operating activities 3,498 (678) large 2,820 5,497 (49)
Non-cash financing activities
% Mov't % Mov't
Half Year Half Year Sept 17 - Full Year Full Year Sept 17 -
$m Sept 17 March 17 Mar 17 Sept 17 Sept 16 Sept 16
Shares issued under the dividend reinvestment plan 1,125 327
large
1,452 726
100
Businesses disposed in Full Year September 2017
No businesses were sold in Full Year September 2017.
Businesses disposed in Full Year September 2016
Pacific Islands
Westpac sold its banking operations in Solomon Islands and Vanuatu to the Bank of South Pacific Limited (BSP).
Settlement occurred on 30 October 2015 and 1 July 2016 respectively, with a gain of $1 million recognised in non-
interest income.
The total cash consideration paid, net of transaction costs and cash held, was $104 million.
2017 Full Year financial report
Notes to the consolidated financial statements
106 | Westpac Group 2017 Full Year Financial Results Announcement
Note 16. Notes to the consolidated cash flow statement (continued)
Details of the assets and liabilities of controlled entities over which control ceased
% Mov't % Mov't
Half Year Half Year Sept 17 - Full Year Full Year Sept 17 -
$m Sept 17 March 17 Mar 17 Sept 17 Sept 16 Sept 16
Assets:
Cash and balances with central banks - -
-
- 138
(100)
Trading securities and financial assets
designated at fair value - -
-
- -
-
Available-for-sale securities - -
-
- 1
(100)
Loans - -
-
- 132
(100)
Regulatory deposits with central banks overseas - -
-
- 5
(100)
Property and equipment - -
-
- 3
(100)
Deferred tax assets - -
-
- 1
(100)
Goodwill and other intangible assets - -
-
- 1
(100)
Other assets - -
-
- 27
(100)
Total assets - -
-
- 308
(100)
Liabilities:
Deposits and other borrowings - -
-
- 264
(100)
Debt issues - -
-
- -
-
Current tax liabilities - -
-
- 2
(100)
Provisions - -
-
- 1
(100)
Deferred tax liabilities - -
-
- -
-
Other liabilities - -
-
- 6
(100)
Total liabilities - -
-
- 273
(100)
Net assets - - - - 35 (100)
Non-controlling interests - -
-
- -
-
Total equity attributable to owners of Westpac
Banking Corporation - - - - 35 (100)
Cash proceeds (net of transaction costs) - -
-
- 34
(100)
Fair value of retained interest - -
-
- -
-
Total consideration - - - - 34 (100)
Reserves recycled to income statement - -
-
- 2
(100)
Gain/(loss) on disposal - - - - 1 (100)
Reconciliation of cash proceeds from disposal
Cash proceeds received (net of transaction costs) - -
-
- 34
(100)
Less: Cash deconsolidated - -
-
- (138)
(100)
Cash consideration (paid)/received (net of
transaction costs and cash held) - - - - (104) (100)
Restricted cash
The amount of cash and cash equivalents not available for use at 30 September 2017 was $38 million
(31 March 2017: $120 million, 30 September 2016: $48 million) for the Group.
Note 17. Subsequent events
On 3 November 2017, the Group announced that it has entered into an agreement with Northill Capital regarding
the sale of its interest in Hastings Management Pty Limited (HMPL). The proposed sale is subject to confirmatory
due diligence and regulatory approvals.
No other matters have arisen since the year ended 30 September 2017 which is not otherwise dealt with in this
report, that has significantly affected or may significantly affect the operations of the Group, the results of its
operations or the state of affairs of the Group in subsequent periods.
2017 Full Year financial report
Statutory statements
Westpac Group 2017 Full Year Financial Results Announcement | 107
4.8 Statement in relation to the audit of the financial statements.
PricewaterhouseCoopers has audited the financial statements contained within the Westpac 2017 financial report
and has issued an unmodified audit report. A copy of their report is available with the Annual financial report. This
full year results announcement has not been subject to audit by PricewaterhouseCoopers. The preceding financial
information contained in Section 4 “Full Year 2017 reported financial information” includes financial information
extracted from the audited financial statements together with financial information that has not been audited.
Dated at Sydney this 6th day of November 2017 for and on behalf of the Board.
Tim Hartin
Company Secretary
2017 Full Year financial results
Cash earnings financial information
108 | Westpac Group 2017 Full Year Financial Results Announcement
5.0 Cash earnings financial information
Note 1 Interest spread and margin analysis (cash earnings basis)
109
Note 2 Average balance sheet (cash earnings basis)
110
Note 3 Net interest income (cash earnings basis)
112
Note 4 Non-interest income (cash earnings basis)
113
Note 5 Operating expense analysis (cash earnings basis)
114
Note 6 Deferred expenses
114
Note 7 Earnings per share (cash earnings basis)
115
Note 8 Group earnings reconciliation
116
Note 9 Divisional result and economic profit
120
2017 Full Year financial results
Cash earnings financial information
Westpac Group 2017 Full Year Financial Results Announcement | 109
Note 1. Interest spread and margin analysis (cash earnings basis)
1
Half Year Half Year Full Year Full Year
Sept 17 March 17 Sept 17 Sept 16
Group
Average interest-earning assets ($m) 759,764 744,783 752,294 721,843
Net interest income ($m) 8,011 7,693 15,704 15,348
Interest spread 1.92% 1.90% 1.91% 1.94%
Benefit of net non-interest bearing assets, liabilities and equity 0.18% 0.17% 0.18% 0.19%
Net interest margin 2.10% 2.07% 2.09% 2.13%
Analysis by division
Average interest-earning assets ($m)
Consumer Bank 328,655 318,792 323,737 304,686
Business Bank 150,528 148,085 149,310 144,319
BT Financial Group 18,028 17,095 17,563 16,582
Westpac Institutional Bank 82,428 84,375 83,399 90,518
Westpac New Zealand (A$) 80,142 80,864 80,502 74,701
Group Businesses 99,983 95,572 97,783 91,037
Group total 759,764 744,783 752,294 721,843
Westpac New Zealand (NZ$) 85,988 85,647 85,818 80,153
Net interest income ($m)
1
Consumer Bank 3,878 3,631 7,509 7,175
Business Bank 2,065 1,990 4,055 3,925
BT Financial Group 286 251 537 486
Westpac Institutional Bank 764 743 1,507 1,574
Westpac New Zealand (A$) 837 790 1,627 1,606
Group Businesses 181 288 469 582
Group total 8,011 7,693 15,704 15,348
Westpac New Zealand (NZ$) 897 838 1,735 1,725
Interest margin
Consumer Bank 2.35% 2.28% 2.32% 2.35%
Business Bank 2.74% 2.70% 2.72% 2.72%
BT Financial Group 3.16% 2.94% 3.06% 2.93%
Westpac Institutional Bank 1.85% 1.77% 1.81% 1.74%
Westpac New Zealand (NZ$) 2.08% 1.96% 2.02% 2.15%
Group Businesses 0.36% 0.60% 0.48% 0.64%
Group total 2.10% 2.07% 2.09% 2.13%
1
Includes capital benefit. Capital benefit represents the notional revenue earned on capital allocated to divisions under Westpac’s
economic capital framework.
2017 Full Year financial results
Cash earnings financial information
110 | Westpac Group 2017 Full Year Financial Results Announcement
Note 2. Average balance sheet (cash earnings basis)
Half Year Half Year
30 September 2017 31 March 2017
Average InterestAverage AverageInterestAverage
balance Rate balanceRate
$m $m% $m$m%
Assets
Interest earning assets
Receivables due from other financial institutions 7,899 591.5 10,354 51 1.0
Trading securities and other financial assets designated at fair
value
26,883 2922.2 24,851 266 2.1
Available-for-sale securities 57,124 8813.1 59,298 914 3.1
Regulatory deposits with central banks overseas 908 81.8 1,163 9 1.6
Loans and other receivables
1
666,950 14,6274.4 649,117 14,147 4.4
Total interest earning assets and interest income 759,764 15,8674.2 744,783 15,387 4.1
Non-interest earning assets
Cash, receivables due from other financial
institutions and regulatory deposits 1,792 2,209
Derivative financial instruments 35,593 39,764
Life insurance assets 10,965 13,937
All other assets
2
59,245 60,982
Total non-interest earning assets 107,595 116,892
Total assets 867,359 861,675
Liabilities -
Interest bearing liabilities -
Payables due to other financial institutions 19,166 1451.5 18,498 134 1.5
Deposits and other borrowings 489,707 4,4331.8 479,692 4,435 1.9
Loan capital 17,217 3434.0 17,199 350 4.1
Other interest bearing liabilities
3
174,075 2,9353.4 174,266 2,775 3.2
Total interest bearing liabilities and interest expense 700,165 7,8562.2 689,655 7,694 2.2
Non-interest bearing liabilities - - -
Deposits and payables due to other
financial institutions 47,028 45,165
Derivative financial instruments 39,867 45,709
Life insurance policy liabilities 9,148 11,980
All other liabilities
4
11,771 11,398
Total non-interest bearing liabilities 107,814 114,252
Total liabilities 807,979 803,907
Shareholders' equity 59,364 57,744
Non-controlling interests 16 24
Total equity 59,380 57,768
Total liabilities and equity 867,359 861,675
Loans and other receivables
1
Australia 564,432 12,5954.5 551,261 12,188 4.4
New Zealand 73,004 1,7424.8 72,872 1,728 4.8
Other overseas 29,514 2902.0 24,984 231 1.9
Deposits and other borrowings
Australia 417,349 3,6801.8 401,781 3,664 1.8
New Zealand 50,297 5772.3 51,791 596 2.3
Other overseas 22,061 1761.6 26,120 175 1.3
1
Loans and other receivables are stated net of provisions for impairment charges on loans. Other receivables include cash and
balances held with central banks and other interest earning assets.
2
Includes property and equipment, intangibles, deferred tax, non-interest bearing loans relating to mortgage offset accounts and other
assets.
3
Includes net impact of Treasury balance sheet management activities.
4
Includes provisions for current and deferred income tax.
2017 Full Year financial results
Cash earnings financial information
Westpac Group 2017 Full Year Financial Results Announcement | 111
Note 2. Average balance sheet (cash earnings basis)
Full Year Full Year
30 September 2017 30 September 2016
Average InterestAverage AverageInterestAverage
balance Rate balanceRate
$m $m% $m$m%
Assets
Interest earning assets
Receivables due from other financial institutions 9,123 1101.2 11,357 100 0.9
Trading securities and other financial assets designated at fair
value
25,870 5582.2 26,076 645 2.5
Available-for-sale securities 58,208 1,7953.1 54,054 1,808 3.3
Regulatory deposits with central banks overseas 1,035 171.6 1,197 13 1.1
Loans and other receivables
1
658,058 28,7744.4 629,159 29,245 4.6
Total interest earning assets and interest income 752,294 31,2544.2 721,843 31,811 4.4
Non-interest earning assets
Cash, receivables due from other financial
institutions and regulatory deposits 2,000 2,431
Derivative financial instruments 37,673 48,666
Life insurance assets 12,447 12,702
All other assets
2
60,111 57,913
Total non-interest earning assets 112,231 121,712
Total assets 864,525 843,555
Liabilities
Interest bearing liabilities
Payables due to other financial institutions 18,833 2791.5 19,948 345 1.7
Deposits and other borrowings 484,713 8,8681.8 453,702 9,369 2.1
Loan capital 17,208 6934.0 13,837 589 4.3
Other interest bearing liabilities
3
174,170 5,7103.3 179,789 6,160 3.4
Total interest bearing liabilities and interest expense 694,924 15,5502.2 667,276 16,463 2.5
Non-interest bearing liabilities
Deposits and payables due to other
financial institutions 46,099 41,722
Derivative financial instruments 42,780 55,956
Life insurance policy liabilities 10,560 10,985
All other liabilities
4
11,586 11,145
Total non-interest bearing liabilities 111,025 119,808
Total liabilities 805,949 787,084
Shareholders' equity 58,556 55,896
Non-controlling interests 20 575
Total equity 58,576 56,471
Total liabilities and equity 864,525 843,555
Loans and other receivables
1
Australia 557,865 24,7834.4 532,172 25,155 4.7
New Zealand 72,938 3,4704.8 68,370 3,614 5.3
Other overseas 27,255 5211.9 28,617 476 1.7
Deposits and other borrowings
Australia 409,586 7,3441.8 376,115 7,801 2.1
New Zealand 51,042 1,1732.3 48,251 1,280 2.7
Other overseas 24,085 3511.5 29,336 288 1.0
1
Loans and other receivables are stated net of provisions for impairment charges on loans. Other receivables includes cash and
balances held with central banks and other interest bearing assets.
2
Includes property and equipment, intangibles, deferred tax, non-interest bearing loans relating to mortgage offset accounts and other
assets.
3
Includes net impact of Treasury balance sheet management activities.
4
Includes provisions for current and deferred income tax.
2017 Full Year financial results
Cash earnings financial information
112 | Westpac Group 2017 Full Year Financial Results Announcement
Note 3. Net interest income (cash earnings basis)
% Mov't % Mov't
Half Year Half Year Sept 17 - Full Year Full Year Sept 17 -
$m Sept 17 March 17 Mar 17 Sept 17 Sept 16 Sept 16
Interest income
Cash and balances with central banks 146 95
54
241
260
(7)
Receivables due from other financial institutions 59 51
16
110
100
10
Net ineffectiveness of qualifying hedges - -
-
-
-
-
Trading securities and financial assets designated at
fair value 292 266
10
558
645
(13)
Available-for-sale securities 881 914
(4)
1,795
1,808
(1)
Loans 14,467 14,037
3
28,504
28,953
(2)
Regulatory deposits with central banks overseas 8 9
(11)
17
13
31
Other interest income 14 15
(7)
29
32
(9)
Total interest income 15,867 15,387 3 31,254 31,811 (2)
Interest expense
Payables due to other financial institutions (145) (134)
8
(279)
(345)
(19)
Deposits and other borrowings (4,433) (4,435)
-
(8,868)
(9,369)
(5)
Trading liabilities (964) (934)
3
(1,898)
(2,309)
(18)
Debt issues (1,811) (1,774)
2
(3,585)
(3,737)
(4)
Loan capital (343) (350)
(2)
(693)
(589)
18
Bank levy (95) -
-
(95)
-
-
Other interest expense (65) (67)
(3)
(132)
(114)
16
Total interest expense (7,856) (7,694) 2 (15,550) (16,463) (6)
Total net interest income 8,011 7,693 4 15,704 15,348 2
2017 Full Year financial results
Cash earnings financial information
Westpac Group 2017 Full Year Financial Results Announcement | 113
Note 4. Non-interest income (cash earnings basis)
% Mov't % Mov't
Half Year Half Year Sept 17 - Full Year Full Year Sept 17 -
$m Sept 17 March 17 Mar 17 Sept 17 Sept 16 Sept 16
Fees and commissions
Facility fees 671 662
1
1,333
1,297
3
Transaction fees and commissions received
1
580 613
(5)
1,193
1,210
(1)
Other non-risk fee income 78 151
(48)
229
281
(19)
Total fees and commissions 1,329 1,426 (7) 2,755 2,788 (1)
Wealth management and insurance income
Life insurance and funds management
net operating income 794 806
(1)
1,600
1,669
(4)
General insurance and lenders mortgage insurance
net operating income 130 80
63
210
242
(13)
Total wealth management and insurance income 924 886 4 1,810 1,911 (5)
Trading income
2,3
Foreign exchange income 401 474
(15)
875
974
(10)
Other trading products 103 239
(57)
342
150
128
Total trading income 504 713 (29) 1,217 1,124 8
Other income
Dividends received from other entities 1 1
-
2
7
(71)
Net gain on disposal of assets - 6
(100)
6
1
large
Net gain/(loss) on hedging overseas operations - -
-
-
(6)
(100)
Net gain/(loss) on derivatives held for risk
management purposes
4
(7) (23)
(70)
(30)
(11)
173
Net gain/(loss) on financial instruments designated
at fair value 5 6
(17)
11
(6)
large
Gain on disposal of controlled entities - -
-
-
1
(100)
Rental income on operating leases 15 17
(12)
32
16
100
Share of associates net profit 4 26
(85)
30
52
(42)
Other 9 10
(10)
19
11
73
Total other income 27 43 (37) 70 65 8
Total non-interest income 2,784 3,068 (9) 5,852 5,888 (1)
Wealth management and insurance income reconciliation
% Mov't % Mov't
Half Year Half Year Sept 17 - Full Year Full Year Sept 17 -
$m Sept 17 March 17 Mar 17 Sept 17 Sept 16 Sept 16
BTFG non-interest income 850 894
(5)
1,744
1,908
(9)
Net commission, premium, fee and banking income (38) (109)
(65)
(147)
(230)
(36)
BTFG wealth management and insurance income 812 785 3 1,597 1,678 (5)
NZ wealth management and insurance income 77 71
8
148
146
1
WIB wealth management income 63 30
110
93
87
7
CB and BB wealth management and insurance income (28) -
-
(28)
-
-
Total wealth management and insurance income 924 886 4 1,810 1,911 (5)
1
Comparatives have been restated for the accounting change to the Westpac New Zealand credit card rewards scheme
(First Half 2017: $18 million, Second Half 2016: $16 million and First Half 2016: $17 million).
2
Trading income represents a component of total markets income from our WIB markets business, Westpac Pacific, Westpac New
Zealand and Treasury foreign exchange operations in Australia and New Zealand.
3
Comparatives have been revised for consistency.
4
Net gain/(loss) on derivatives held for risk management purposes reflects the impact of economic hedges of foreign currency capital
and earnings.
2017 Full Year financial results
Cash earnings financial information
114 | Westpac Group 2017 Full Year Financial Results Announcement
Note 5. Operating expenses (cash earnings basis)
% Mov't % Mov't
Half Year Half Year Sept 17 - Full Year Full Year Sept 17 -
$m Sept 17 March 17 Mar 17 Sept 17 Sept 16 Sept 16
Staff expenses
Employee remuneration, entitlements and on-costs 2,076 2,022
3
4,098
3,995
3
Superannuation expense 186 194
(4)
380
369
3
Share based payments 48 65
(26)
113
135
(16)
Restructuring costs 30 45
(33)
75
92
(18)
Total staff expenses 2,340 2,326 1 4,666 4,591 2
Occupancy expenses
Operating lease rentals 325 324
-
649
622
4
Depreciation of property and equipment 88 91
(3)
179
192
(7)
Other 72 62
16
134
125
7
Total occupancy expenses 485 477 2 962 939 2
Technology expenses
Amortisation and impairment of software assets 322 306
5
628
571
10
Depreciation and impairment of IT equipment 82 76
8
158
156
1
Technology services 299 340
(12)
639
666
(4)
Software and maintenance and licenses 168 145
16
313
276
13
Telecommunications 106 84
26
190
181
5
Data processing 42 38
11
80
72
11
Total technology expenses 1,019 989 3 2,008 1,922 4
Other expenses
Professional and processing services
1
417 338
23
755
736
3
Amortisation and impairment of intangible assets 5 5
-
10
12
(17)
Postage and stationery 109 108
1
217
217
-
Advertising 80 75
7
155
156
(1)
Credit card loyalty programs
2
68 84
(19)
152
177
(14)
Non-lending losses 36 37
(3)
73
81
(10)
Other expenses 45 62
(27)
107
100
7
Total other expenses 760 709 7 1,469 1,479 (1)
Operating expenses 4,604 4,501 2 9,105 8,931 2
Note 6. Deferred expenses
3
As at As at As at % Mov't % Mov't
30 Sept 31 March 30 Sept Sept 17 - Sept 17 -
$m
2017 2017 2016 Mar 17 Sept 16
Deferred acquisition costs 86 91
101
(5) (15)
Other deferred expenditure 28 56
45
(50) (38)
1
Professional and processing services relate to: services provided by external suppliers including items such as cash handling and
security services, marketing costs, and research and recruitment fees (Full Year 2017: $268 million; Full Year 2016: $278 million),
operations processing (Full Year 2017: $184 million; Full Year 2016: $196 million), consultants (Full Year 2017: $162 million;
Full Year 2016: $120 million), credit assessment (Full Year 2017: $53 million; Full Year 2016: $60 million), legal and audit fees
(Full Year 2017: $61 million; Full Year 2016: $51 million), and regulatory fees and share market related costs (Full Year 2017:
$27 million; Full Year 2016: $31 million).
2
Comparatives have been restated for the accounting change to the Westpac New Zealand credit card rewards scheme
(First Half 2017: $18 million, Second Half 2016: $16 million and First Half 2016: $17 million).
3
Deferred expenses principally relates to a small number of capitalised costs in the wealth business. It does not include insurance
deferred acquisition costs (which are offset to revenue) or mortgage broker costs (which are offset to net interest income).
2017 Full Year financial results
Cash earnings financial information
Westpac Group 2017 Full Year Financial Results Announcement | 115
Note 7. Earnings per share (cash earnings basis)
% Mov't % Mov't
Half Year Half Year Sept 17 - Full Year Full Year Sept 17 -
$m Sept 17 March 17 Mar 17 Sept 17 Sept 16 Sept 16
Cash earnings 4,045 4,017 1 8,062 7,822 3
Weighted average number of fully paid
ordinary shares (millions) 3,375 3,352
1
3,364
3,322
1
Cash earnings per ordinary share (cents)
119.9 119.8 - 239.7 235.5 2
Half Year Half Year Full Year Full Year
Sept 17 March 17 Sept 17 Sept 16
Reconciliation of ordinary shares on issue before
the effect of own shares held (millions)
Opening balance 3,357 3,346
3,346
3,184
Share entitlement offer - -
-
139
Number of shares issued under the Dividend
Reinvestment Plan (DRP) 37 11
48 23
Closing balance
3,394 3,357 3,394 3,346
2017 Full Year financial results
Cash earnings financial information
116
| Westpac Group 2017 Full Year Financial Results Announcement
Note 8. Group earnings reconciliation
Cash Earnings adjustments
Six months to 30 September 2017
Acquisition,
Fair value
NZ credit
Amortisation
transaction and
(gain)/loss
card
Policyholde
r
Reported
of intangible
integration
on economic
Ineffective
Sale of BTIM
Treasury
rewards
Operating
tax
Cash
$m
results
assets
1
expenses
hedges
hedges
shares
shares
scheme
2
leases
recoveries
earnings
Net interest income
7,903
- - 80 28 - - - - -
8,011
Fees and commission
1,347
-
- - - - - (18)
- -
1,329
Wealth management and insurance income
931
- - - - - (15)
- - 8
924
Trading income
489
-
- 15 - - - - - -
504
Other income
363
2 - (5)
- (279)
- - (54)
-
27
Non-interest income
3,130
2 - 10 - (279)
(15)
(18)
(54)
8
2,784
Net operating income
11,033
2 - 90 28 (279)
(15)
(18)
(54)
8
10,795
Salaries and other staff expenses
(2,375)
- - - - 35 - - - -
(2,340)
Equipment and occupancy expenses
(539)
- - - - - - - 54 -
(485)
Technology expenses
(1,019)
-
- - - - - - - -
(1,019)
Other expenses
(868)
90
- - - - - 18 - -
(760)
Operating expenses
(4,801)
90 - - - 35 - 18 54 -
(4,604)
Core earnings
6,232
92 - 90 28 (244)
(15)
- - 8
6,191
Impairment charges
(360)
-
- - - - - - - -
(360)
Operating profit before tax
5,872
92 - 90 28 (244)
(15)
- - 8
5,831
Income tax expense
(1,787)
(28)
- (28)
(8)
73 2 - - (8)
(1,784)
Net profit
4,085
64 - 62 20 (171)
(13)
- - -
4,047
Net profit attributable to non-controlling interests
(2)
-
- - - - - - - -
(2)
NET PROFIT ATTRIBUTABLE TO OWNERS OF WBC
4,083
64 - 62 20 (171)
(13)
- - -
4,045
WBC Cash Earnings adjustments:
-
- - - - - - - -
A
mortisation of intangible assets
1
64
(64)
- - - - - - - -
-
A
cquisition, transaction and integration expenses
-
-
- - - - - - - -
-
Fair value (gain)/loss on economic hedges
62
-
- (62)
- - - - - -
-
Ineffective hedges
20
- - - (20)
- - - - -
-
Sale of BTIM shares
(171)
- - - - 171 - - - -
-
Treasury shares
(13)
-
- - - - 13 - - -
-
Cash earnings
4,045
-
- - - - - - - -
4,045
1
Amortisation of intangible assets reflec
ts the amortisation of St.George intangibl
e assets including the core deposit intangib
le, credit card and financial planner relationshi
ps as well as intangible assets (management
contracts) related to the acquisition of select Lloyds’ Aust
ralian businesses and for BTIM during the period equity accounted.
2
Comparatives have been restated for the accounting change to t
he Westpac New Zealand credit card rewards scheme (First Half 20
17: $18 million, Second Half 2016: $16 million and First Half 2016: $17 million).
2017 Full Year financial results
Cash earnings financial information
Westpac Group 2017 Full Year Financial Results Announcement |
117
Note 8. Group earnings reconciliation (continued)
Cash Earnings adjustments
Six months to 31 March 2017
Acquisition,
Fair value
NZ credit
Amortisation
transaction and
(gain)/loss
card
Policyholde
r
Reported
of intangible
integration
on economic
Ineffective
Sale of BTIM
Treasury
rewards
Operating
tax
Cash
$m
results
assets
1
expenses
hedges
hedges
shares
shares
scheme
2
leases
recoveries
earnings
Net interest income
7,613
- - 86 (6)
- - - - -
7,693
Fees and commission
1,408
-
- - - - - 18 - -
1,426
Wealth management and insurance income
869
- - - - - 36 - - (19)
886
Trading income
713
-
- - - - - - - -
713
Other income
166
11 - (77)
- - - - (57)
-
43
Non-interest income
3,156
11 - (77)
- - 36 18 (57)
(19)
3,068
Net operating income
10,769
11 - 9 (6)
- 36 18 (57)
(19)
10,761
Salaries and other staff expenses
(2,326)
-
- - - - - - - -
(2,326)
Equipment and occupancy expenses
(534)
- - - - - - - 57 -
(477)
Technology expenses
(989)
-
- - - - - - - -
(989)
Other expenses
(784)
93
- - - - - (18)
- -
(709)
Operating expenses
(4,633)
93 - - - - - (18)
57 -
(4,501)
Core earnings
6,136
104 - 9 (6)
- 36 - - (19)
6,260
Impairment charges
(493)
-
- - - - - - - -
(493)
Operating profit before tax
5,643
104 - 9 (6)
- 36 - - (19)
5,767
Income tax expense
(1,731)
(31)
- (2)
2 - (2)
- - 19
(1,745)
Net profit
3,912
73 - 7 (4)
- 34 - - -
4,022
Net profit attributable to non-controlling interests
(5)
-
- - - - - - - -
(5)
NET PROFIT ATTRIBUTABLE TO OWNERS OF WBC
3,907
73 - 7 (4)
- 34 - - -
4,017
WBC Cash Earnings adjustments:
-
- - - -
-
- -
-
A
mortisation of intangible assets
1
73
(73)
- - - - - - - -
-
A
cquisition, transaction and integration expenses
-
-
- - - - - - - -
-
Fair value (gain)/loss on economic hedges
7
-
- (7)
- - - - - -
-
Ineffective hedges
(4)
-
- - 4 - - - - -
-
Sale of BTIM shares
-
-
- - - - - - - -
-
Treasury shares
34
-
- - - - (34)
- - -
-
Cash earnings
4,017
-
- - - - - - - -
4,017
1
Amortisation of intangible assets reflec
ts the amortisation of St.George intangibl
e assets including the core deposit intangib
le, credit card and financial planner relationships
as well as intangible assets (management
contracts) related to the acquisition of select Lloyds’ Aust
ralian businesses and for BTIM during the period equity accounted.
2
Comparatives have been restated for the accounting change to t
he Westpac New Zealand credit card rewards scheme (First Half 20
17: $18 million, Second Half 2016: $16 million and First Half 2016: $17 million).
2017 Full Year financial results
Cash earnings financial information
118
| Westpac Group 2017 Full Year Financial Results Announcement
Note 8. Group earnings reconciliation (continued)
Cash Earnings adjustments
Twelve months to 30 September 2017
Acquisition,
Fair value
NZ credit
Amortisation
transaction and
(gain)/loss
card
Policyholde
r
Reported
of intangible
integration
on economic
Ineffective
Sale of BTIM
Treasury
rewards
Operating
tax
Cash
$m
results
assets
1
expenses
hedges
hedges
shares
shares
scheme
2
leases
recoveries
earnings
Net interest income
15,516
- - 166 22 - - - - -
15,704
Fees and commission
2,755
-
- - - - - - - -
2,755
Wealth management and insurance income
1,800
- - - - - 21 - - (11)
1,810
Trading income
1,202
-
- 15 - - - - - -
1,217
Other income
529
13 - (82)
- (279)
- - (111)
-
70
Non-interest income
6,286
13 - (67)
- (279)
21 - (111)
(11)
5,852
Net operating income
21,802
13 - 99 22 (279)
21 - (111)
(11)
21,556
Salaries and other staff expenses
(4,701)
- - - - 35 - - - -
(4,666)
Equipment and occupancy expenses
(1,073)
- - - - - - - 111 -
(962)
Technology expenses
(2,008)
-
- - - - - - - -
(2,008)
Other expenses
(1,652)
183
- - - - - - - -
(1,469)
Operating expenses
(9,434)
183 - - - 35 - - 111 -
(9,105)
Core earnings
12,368
196 - 99 22 (244)
21 - - (11)
12,451
Impairment charges
(853)
-
- - - - - - - -
(853)
Operating profit before tax
11,515
196 - 99 22 (244)
21 - - (11)
11,598
Income tax expense
(3,518)
(59)
- (30)
(6)
73 - - - 11
(3,529)
Net profit
7,997
137 - 69 16 (171)
21 - - -
8,069
Net profit attributable to non-controlling interests
(7)
-
- - - - - - - -
(7)
NET PROFIT ATTRIBUTABLE TO OWNERS OF WBC
7,990
137 - 69 16 (171)
21 - - -
8,062
WBC Cash Earnings adjustments:
A
mortisation of intangible assets
1
137
(137)
- - - - - - - -
-
A
cquisition, transaction and integration expenses
-
-
- - - - - - - -
-
Fair value (gain)/loss on economic hedges
69
-
- (69)
- - - - - -
-
Ineffective hedges
16
- - - (16)
- - - - -
-
Sale of BTIM shares
(171)
- - - - 171 - - - -
-
Treasury shares
21
-
- - - - (21)
- - -
-
Cash earnings
8,062
-
- - - - - - - -
8,062
1
Amortisation of intangible assets reflec
ts the amortisation of St.George intangibl
e assets including the core deposit intangib
le, credit card and financial planner relationshi
ps as well as intangible assets (management
contracts) related to the acquisition of select Lloyds’ Aust
ralian businesses and for BTIM during the period equity accounted.
2
Comparatives have been restated for the accounting change to t
he Westpac New Zealand credit card rewards scheme (First Half 20
17: $18 million, Second Half 2016: $16 million and First Half 2016: $17 million).
2017 Full Year financial results
Cash earnings financial information
Westpac Group 2017 Full Year Financial Results Announcement |
119
Note 8. Group earnings reconciliation (continued)
Cash Earnings adjustments
Twelve months to 30 September 2016
Acquisition,
Fair value
NZ credit
Amortisation
transaction and
(gain)/loss
card
Policyholde
r
Reported
of intangible
integration
on economic
Ineffective
Sale of BTIM
Treasury
rewards
Operating
tax
Cash
$m
results
assets
1
expenses
hedges
hedges
shares
shares
scheme
2
leases
recoveries
earnings
Net interest income
15,148
- - 212 (12)
- - - - -
15,348
Fees and commission
2,755
-
- - - - - 33 - -
2,788
Wealth management and insurance income
1,899
- - - - - 9 - - 3
1,911
Trading income
1,124
-
- - - - - - - -
1,124
Other income
59
22 - 77 - - - - (93)
-
65
Non-interest income
5,837
22 - 77 - - 9 33 (93)
3
5,888
Net operating income
20,985
22 - 289 (12)
- 9 33 (93)
3
21,236
Salaries and other staff expenses
(4,601)
- 10 - - - - - - -
(4,591)
Equipment and occupancy expenses
(1,032)
- - - - - - - 93 -
(939)
Technology expenses
(1,929)
-
7 - - - - - - -
(1,922)
Other expenses
(1,655)
204
5 - - - - (33)
- -
(1,479)
Operating expenses
(9,217)
204 22 - - - - (33)
93 -
(8,931)
Core earnings
11,768
226 22 289 (12)
- 9 - - 3
12,305
Impairment charges
(1,124)
-
- - - - - - - -
(1,124)
Operating profit before tax
10,644
226 22 289 (12)
- 9 - - 3
11,181
Income tax expense
(3,184)
(68)
(7)
(86)
3 - 1 - - (3)
(3,344)
Net profit
7,460
158 15 203 (9)
- 10 - - -
7,837
Net profit attributable to non-controlling interests
(15)
-
- - - - - - - -
(15)
NET PROFIT ATTRIBUTABLE TO OWNERS OF WBC
7,445
158 15 203 (9)
- 10 - - -
7,822
WBC Cash Earnings adjustments:
- - - -
-
- -
A
mortisation of intangible assets
1
158
(158)
- - - - - - - -
-
A
cquisition, transaction and integration expenses
15
- (15)
- - - - - - -
-
Fair value (gain)/loss on economic hedges
203
-
- (203)
- - - - - -
-
Ineffective hedges
(9)
-
- - 9 - - - - -
-
Sale of BTIM shares
-
-
- - - - - - - -
-
Treasury shares
10
-
- - - - (10)
- - -
-
Cash earnings
7,822
-
- - - - - - - -
7,822
1
Amortisation of intangible assets reflec
ts the amortisation of St.George intangibl
e assets including the core deposit intangib
le, credit card and financial planner relationships
as well as intangible assets (management
contracts) related to the acquisition of select Lloyds’ Aust
ralian businesses and for BTIM during the period equity accounted.
2
Comparatives have been restated for the accounting change to t
he Westpac New Zealand credit card rewards scheme (First Half 20
17: $18 million, Second Half 2016: $16 million and First Half 2016: $17 million).
2017 Full Year financial results
Cash earnings financial information
120 | Westpac Group 2017 Full Year Financial Results Announcement
Note 9. Divisional result and economic profit
Group economic profit is defined as cash earnings plus a franking benefit equivalent of 70% of the value of
Australian tax expense less a capital charge calculated at 11% of average ordinary equity
4
.
Divisional economic profit is defined as cash earnings plus the franking benefit less a capital charge. The capital
charge is calculated at 11% on allocated capital.
Economic profit is used as a key measure of financial performance because it focuses on shareholder value
generated by requiring a return in excess of a risk-adjusted cost of capital.
The divisional results have been prepared on a consistent basis, with the Group having built up $3.8 billion in
average equity for pending regulatory changes. This capital will be allocated across the divisions once further
guidance has been received from APRA.
Six months to 30 September 2017 Consumer and BT FinancialWestpac
Business GroupInstitutional Westpac New
$m GroupBank
1
(Australia)
2
BankZealand
3
Reported results 4,083 2,621 544 604 474
Cash earnings adjustments (38)63 (170)- 7
Cash earnings 4,045 2,684 374 604 481
Franking benefit 1,093 806 114 158 -
Adjusted cash earnings 5,138 3,490 488 762 481
Average equity
4
59,364 23,703 3,417 8,856 4,446
Capital charge (3,274)(1,307) (188)(488)(245)
Economic profit 1,864 2,183 300 274 236
Return on average equity (including intangibles) 13.6%17.6% 13.6%12.7%19.4%
Six months to 31 March 2017 Consumer and BT FinancialWestpac
Business GroupInstitutional Westpac New
$m GroupBank
1
(Australia)
2
BankZealand
3
Reported results 3,907 2,456 387 700 428
Cash earnings adjustments 110 63 10 - 7
Cash earnings
4,017 2,519 397 700 435
Franking benefit
1,060 756 117 163 -
Adjusted cash earnings 5,077 3,275 514 863 435
Average equity
4
57,744 24,359 3,445 9,383 4,556
Capital charge (3,167)(1,336) (189)(515)(250)
Economic profit
1,910 1,939 325 348 185
Return on average equity (including intangibles) 14.0%16.4% 14.4%14.1%17.3%
Twelve months to 30 September 2017 Consumer and BT FinancialWestpac
Business GroupInstitutional Westpac New
$m GroupBank
1
(Australia)
2
BankZealand
3
Reported results 7,990 5,077 931 1,304 902
Cash earnings adjustments 72 126 (160)- 14
Cash earnings
8,062 5,203 771 1,304 916
Franking benefit
2,153 1,562 231 321 -
Adjusted cash earnings 10,215 6,765 1,002 1,625 916
Average equity
4
58,556 24,029 3,431 9,119 4,501
Capital charge (6,441)(2,643) (377)(1,003)(495)
Economic profit
3,774 4,122 625 622 421
Return on average equity (including intangibles) 13.8%17.0% 14.0%13.4%18.3%
Twelve months to 30 September 2016 Consumer andBT FinancialWestpac
BusinessGroupInstitutional Westpac New
$m GroupBank
1
(Australia)
2
BankZealand
3
Reported results 7,445 4,833 836 1,106 827
Cash earnings adjustments 377 126 32 - (2)
Cash earnings
7,822 4,959 868 1,106 825
Franking benefit
2,101 1,488 256 290 -
Adjusted cash earnings 9,923 6,447 1,124 1,396 825
Average equity
4
55,896 23,077 3,259 9,616 4,207
Capital charge (6,149)(2,538)(358)(1,058)(463)
Economic profit
3,774 3,909 766 338 362
Return on average equity (including intangibles) 14.0%16.6%15.6%10.6%17.2%
1
Cash earnings adjustment relates to amortisation of intangible assets including the core deposit intangible and credit cards related to
the merger with St.George, as well as intangible assets relating to the Lloyds acquisition.
2
Cash earnings adjustment reflects amortisation of intangible assets related to financial planner relationships following merger with
St.George, as well as intangible assets related to BTIM up to the sale of shares in May 2017.
3
In A$ equivalents.
4
For divisions average equity does not include intangible assets.
2017 Full Year financial results
Other information
Westpac Group 2017 Full Year Financial Results Announcement | 121
6.0 Other information
6.1 Disclosure regarding forward-looking statements
This Full Year Financial Results Announcement contains statements that constitute ‘forward-looking statements’
within the meaning of Section 21E of the US Securities Exchange Act of 1934.
Forward-looking statements are statements about matters that are not historical facts. Forward-looking statements
appear in a number of places in this Full Year Financial Results Announcement and include statements regarding
Westpac’s intent, belief or current expectations with respect to its business and operations, market conditions,
results of operations and financial condition, including, without limitation, future loan loss provisions and financial
support to certain borrowers. Words such as ‘will’, ‘may’, ‘expect’, ‘intend’, ‘seek’, ‘would’, ‘should’, ‘could’,
‘continue’, ‘plan’, ‘estimate’, ‘anticipate’, ‘believe’, ‘probability’, ‘risk’, ‘aim’ or other similar words are used to identify
forward-looking statements. These forward-looking statements reflect Westpac’s current views with respect to
future events and are subject to change, certain risks, uncertainties and assumptions which are, in many
instances, beyond Westpac’s control, and have been made based upon management’s expectations and beliefs
concerning future developments and their potential effect upon Westpac. There can be no assurance that future
developments will be in accordance with Westpac’s expectations or that the effect of future developments on
Westpac will be those anticipated. Actual results could differ materially from those expected, depending on the
outcome of various factors, including, but not limited to:
the effect of, and changes in, laws, regulations, taxation or accounting standards or practices and government
policy, particularly changes to liquidity, leverage and capital requirements;
regulatory investigations, litigation, fines, penalties, restrictions or other regulator imposed conditions, including
as a result of our failure to comply with laws (such as financial crime laws), regulations or regulatory policy;
internal and external events which may adversely impact Westpac’s reputation;
information security breaches, including cyberattacks;
reliability and security of Westpac’s technology and risks associated with changes to technology systems;
the stability of Australian and international financial systems and disruptions to financial markets and any
losses or business impacts Westpac or its customers or counterparties may experience as a result;
market volatility, including uncertain conditions in funding, equity and asset markets;
adverse asset, credit or capital market conditions;
the conduct, behaviour or practices of Westpac or its staff;
changes to Westpac’s credit ratings or the methodology used by credit rating agencies;
levels of inflation, interest rates, exchange rates and market and monetary fluctuations;
market liquidity and investor confidence;
changes in economic conditions, consumer spending, saving and borrowing habits in Australia, New Zealand
and in other countries in which Westpac or its customers or counterparties conduct their operations and
Westpac’s ability to maintain or to increase market share, margins and fees, and control expenses;
the effects of competition in the geographic and business areas in which Westpac conducts its operations;
the timely development and acceptance of new products and services and the perceived overall value of these
products and services by customers;
the effectiveness of Westpac’s risk management policies, including internal processes, systems and
employees;
the incidence or severity of Westpac-insured events;
the occurrence of environmental change (including as a result of climate change) or external events in
countries in which Westpac or its customers or counterparties conduct their operations;
changes to the value of Westpac’s intangible assets;
changes in political, social or economic conditions in any of the major markets in which Westpac or its
customers or counterparties operate;
the success of strategic decisions involving diversification or innovation, in addition to business expansion and
integration of new businesses; and
various other factors beyond Westpac’s control.
2017 Full Year financial results
Other information
122 | Westpac Group 2017 Full Year Financial Results Announcement
6.1 Disclosure regarding forward-looking statements (continued)
The above list is not exhaustive. For certain other factors that may impact on forward-looking statements made by
Westpac, refer to ‘Risk factors’ in the Westpac Group 2017 Annual Report. When relying on forward-looking
statements to make decisions with respect to Westpac, investors and others should carefully consider the
foregoing factors and other uncertainties and events.
Westpac is under no obligation to update any forward-looking statements contained in this Full Year Financial
Results Announcement, whether as a result of new information, future events or otherwise, after the date of this
Full Year Financial Results Announcement.
6.2 References to websites
Information contained in or accessible through the websites mentioned in this Full Year Financial Results
Announcement does not form part of this Full Year Financial Results Announcement unless we specifically state
that it is incorporated by reference and forms part of this Full Year Financial Results Announcement. All references
in this Full Year Financial Results Announcement to websites are inactive textual references and are for
information only.
6.3 Credit ratings
1
Rating agency
Long
Term
Short
Term
Outlook
Fitch Ratings AA- F1+ Stable
Moody's Investor Services Aa3 P-1
Stable
S&P Global Ratings AA- A-1+
Negative
On 19 June 2017, Moody’s lowered the Macro Profile for Australia to “Strong +” from “Very Strong. As a result of
this revision, Moody’s lowered the ratings for the major Australian banks, including Westpac, by one notch to Aa3,
from Aa2. At the same time, Moody’s updated their rating outlook on Westpac to “stable” from “negative”.
6.4 Dividend reinvestment plan
Westpac operates a DRP that is available to holders of fully paid ordinary shares who are resident in, and whose
address on the register of shareholders is in, Australia or New Zealand. As noted in Section 2.5, the Directors
have made certain determinations in relation to the calculation of the Market Price which will apply to the DRP for
the 2017 final dividend only.
Shareholders who wish to commence participation in the DRP, or to vary their current participation election, must
do so by 5.00pm (AEST) on 15 November 2017.
Shareholders can provide these instructions by:
For shareholders with holdings that have a market value of less than $50,000 (for a single holding) or less than
$1,000,000 (per shareholding held within a Link Market Services portfolio), logging into the Westpac share
registrar’s website at www.linkmarketservices.com.au and electing the DRP or amending their existing
instructions online; or
Completing and returning a DRP Application or Variation form to Westpac’s share registry. Registry contact
details are listed in Section 6.6.
6.5 Changes in control of Group entities
During the twelve months ended 30 September 2017 the following controlled entities were acquired:
Core Infrastructure Income Feeder 1 LP (acquired 3 October 2016);
Core Infrastructure Income Feeder 2 LP (acquired 3 October 2016);
Core Infrastructure Income Master LP (acquired 3 October 2016);
Core Infrastructure Income Holdings Limited (acquired 3 October 2016);
Hastings Infrastructure 3 Limited (acquired 7 December 2016);
Hastings Infrastructure 4 Limited (acquired 7 December 2016);
Neo Investment GP Limited (acquired 7 December 2016); and
Crusade ABS Series 2017-1 Trust (created 17 February 2017).
1
As at 30 September 2017.
2017 Full Year financial results
Other information
Westpac Group 2017 Full Year Financial Results Announcement | 123
During the twelve months ended 30 September 2017 the following controlled entities ceased to be controlled:
Hickory Trust (terminated 7 October 2016);
Hastings Investment Management (Europe) Limited (dissolved 11 October 2016);
HLT Custodian Trust (terminated 30 November 2016);
MIF Custodian Trust (terminated 30 November 2016);
Crusade Euro Trust 1E of 2006 (terminated 24 January 2017);
Crusade Global Trust 2 of 2006 (terminated 24 January 2017);
Canning Park Capital Pte Limited (struck off 7 April 2017);
Hastings Infrastructure 3 Limited (dissolved 9 May 2017);
Hastings Infrastructure 4 Limited (dissolved 9 May 2017);
Neo Investment GP Limited (dissolved 9 May 2017);
Halcyon Securities Pty Limited (deregistered 17 May 2017);
Australian Loan Processing Security Trust (terminated 29 May 2017);
Crusade ABS Series 2012-1 Trust (terminated 23 June 2017);
Westpac Funding Holdings Pty Ltd (deregistered 16 July 2017);
Core Infrastructure Income Holdings Limited (dissolved 18 July 2017);
The Mortgage Company Pty Limited (deregistered 2 August 2017);
Australian Loan Processing Security Company Pty Limited (deregistered 2 August 2017);
Crusade CP Management Pty Limited (deregistered 2 August 2017); and
Westpac Equipment Finance Limited (deregistered 30 August 2017).
2017 Full Year financial results
Other information
124 | Westpac Group 2017 Full Year Financial Results Announcement
6.6 Financial calendar and Share Registry details
Westpac shares are listed on the securities exchanges in Australia (ASX) and New Zealand (NZX) and as
American Depository Receipts in New York. Westpac Convertible Preference Shares, Westpac Capital Notes,
Westpac Capital Notes 2, Westpac Capital Notes 3, Westpac Capital Notes 4 and Westpac Subordinated Notes II
are listed on the ASX. Westpac NZD Subordinated Notes are listed on the NZX.
Important dates to note are set out below, subject to change. Payment of any distribution, dividend or interest
payment is subject to the relevant payment conditions and the key dates for each payment will be confirmed to the
ASX for securities listed on the ASX.
Westpac Ordinary Shares (ASX code: WBC, NYSE code: WBK)
New York ex-dividend date for final dividend 10 November 2017
Ex-dividend date for final dividend 13 November 2017
New York record date for final dividend 13 November 2017
Record date for final dividend 14 November 2017
Annual General Meeting 8 December 2017
1
Final dividend payable 22 December 2017
Financial Half Year end 31 March 2018
Interim results and dividend announcement 7 May 2018
New York ex-dividend date for interim dividend 16 May 2018
Ex-dividend date for interim dividend 17 May 2018
New York record date for interim dividend 17 May 2018
Record date for interim dividend 18 May 2018
Interim dividend payable 4 July 2018
Financial Year end 30 September 2018
Final results and dividend announcement 5 November 2018
New York ex-dividend date for final dividend 9 November 2018
Ex-dividend date for final dividend 13 November 2018
New York record date for final dividend 13 November 2018
Record date for final dividend 14 November 2018
Annual General Meeting 12 December 2018
1
Final dividend payable 21 December 2018
Westpac Convertible Preference Shares (ASX code: WBCPC)
Ex-date for semi-annual dividend 22 March 2018
Record date for semi-annual dividend 23 March 2018
Payment date for semi-annual dividend 3 April 2018
2,4
Ex-date for semi-annual dividend 20 September 2018
Record date for semi-annual dividend 21 September 2018
3
Payment date for semi-annual dividend 1 October 2018
2
1
Details regarding the location of the meeting and the business to be dealt with will be contained in a Notice of Meeting sent to
shareholders in the November before the meeting.
2
Adjusted to next business day as payment date falls on a non-ASX business day.
3
Adjusted to immediately preceding business day as record date falls on a non-ASX business day.
4
The First Optional Redemption Date for Westpac CPS will be 31 March 2018. Redemption on this date is subject to APRA’s prior
written consent. There can be no certainty that APRA will provide its consent and Westpac has not made any decision to redeem
Westpac Convertible Preference Shares.
2017 Full Year financial results
Other information
Westpac Group 2017 Full Year Financial Results Announcement | 125
Westpac Capital Notes (ASX code: WBCPD)
Ex-date for quarterly distribution 29 November 2017
Record date for quarterly distribution 30 November 2017
Payment date for quarterly distribution 8 December 2017
Ex-date for quarterly distribution 27 February 2018
Record date for quarterly distribution 28 February 2018
Payment date for quarterly distribution 8 March 2018
Ex-date for quarterly distribution 30 May 2018
Record date for quarterly distribution 31 May 2018
Payment date for quarterly distribution 8 June 2018
Ex-date for quarterly distribution 30 August 2018
Record date for quarterly distribution 31 August 2018
Payment date for quarterly distribution 10 September 2018
1
Ex-date for quarterly distribution 29 November 2018
Record date for quarterly distribution 30 November 2018
Payment date for quarterly distribution 10 December 2018
1
Westpac Capital Notes 2 (ASX code: WBCPE)
Ex-date for quarterly distribution 14 December 2017
Record date for quarterly distribution 15 December 2017
Payment date for quarterly distribution 27 December 2017
1
Ex-date for quarterly distribution 14 March 2018
Record date for quarterly distribution 15 March 2018
Payment date for quarterly distribution 23 March 2018
Ex-date for quarterly distribution 14 June 2018
Record date for quarterly distribution 15 June 2018
Payment date for quarterly distribution 25 June 2018
1
Ex-date for quarterly distribution 13 September 2018
Record date for quarterly distribution 14 September 2018
2
Payment date for quarterly distribution 24 September 2018
1
Ex-date for quarterly distribution 13 December 2018
Record date for quarterly distribution 14 December 2018
2
Payment date for quarterly distribution 24 December 2018
1
1
Adjusted to next business day as payment date falls on a non-ASX business day.
2
Adjusted to immediately preceding business day as record date falls on a non-ASX business day.
2017 Full Year financial results
Other information
126 | Westpac Group 2017 Full Year Financial Results Announcement
Westpac Capital Notes 3 (ASX code: WBCPF)
Ex-date for quarterly distribution 13 December 2017
Record date for quarterly distribution 14 December 2017
Payment date for quarterly distribution 22 December 2017
Ex-date for quarterly distribution 13 March 2018
Record date for quarterly distribution 14 March 2018
Payment date for quarterly distribution 22 March 2018
Ex-date for quarterly distribution 13 June 2018
Record date for quarterly distribution 14 June 2018
Payment date for quarterly distribution 22 June 2018
Ex-date for quarterly distribution 13 September 2018
Record date for quarterly distribution 14 September 2018
Payment date for quarterly distribution 24 September 2018
1
Ex-date for quarterly distribution 13 December 2018
Record date for quarterly distribution 14 December 2018
Payment date for quarterly distribution 24 December 2018
1
Westpac Capital Notes 4 (ASX code: WBCPG)
Ex-date for quarterly distribution 21 December 2017
Record date for quarterly distribution 22 December 2017
Payment date for quarterly distribution 2 January 2018
1
Ex-date for quarterly distribution 21 March 2018
Record date for quarterly distribution 22 March 2018
Payment date for quarterly distribution 3 April 2018
1
Ex-date for quarterly distribution 21 June 2018
Record date for quarterly distribution 22 June 2018
Payment date for quarterly distribution 2 July 2018
1
Ex-date for quarterly distribution 20 September 2018
Record date for quarterly distribution 21 September 2018
2
Payment date for quarterly distribution 1 October 2018
1
Ex-date for quarterly distribution 20 December 2018
Record date for quarterly distribution 21 December 2018
2
Payment date for quarterly distribution 24 December 2018
1
1
Adjusted to next business day as payment date falls on a non-ASX business day.
2
Adjusted to immediately preceding business day as record date falls on a non-ASX business day.
2017 Full Year financial results
Other information
Westpac Group 2017 Full Year Financial Results Announcement | 127
Westpac Subordinated Notes II (ASX code: WBCHB)
Ex-date for quarterly interest payment 13 November 2017
Record date for quarterly interest payment 14 November 2017
Payment date for quarterly interest payment 22 November 2017
Ex-date for quarterly interest payment 13 February 2018
Record date for quarterly interest payment 14 February 2018
Payment date for quarterly interest payment 22 February 2018
Ex-date for quarterly interest payment 11 May 2018
Record date for quarterly interest payment 14 May 2018
Payment date for quarterly interest payment 22 May 2018
Ex-date for quarterly interest payment 13 August 2018
Record date for quarterly interest payment 14 August 2018
Payment date for quarterly interest payment 22 August 2018
1
Ex-date for quarterly interest payment 13 November 2018
Record date for quarterly interest payment 14 November 2018
Payment date for quarterly interest payment 22 November 2018
1
Westpac NZD Subordinated Notes 11 (ASX code: WBC010)
Ex-date for quarterly interest payment 20 November 2017
Record date for quarterly interest payment 21 November 2017
Payment date for quarterly interest payment 1 December 2017
Ex-date for quarterly interest payment 16 February 2018
Record date for quarterly interest payment 19 February 2018
Payment date for quarterly interest payment 1 March 2018
Ex-date for quarterly interest payment 21 May 2018
Record date for quarterly interest payment 22 May 2018
Payment date for quarterly interest payment 1 June 2018
Ex-date for quarterly interest payment 21 August 2018
Record date for quarterly interest payment 22 August 2018
Payment date for quarterly interest payment 3 September 2018
2
Ex-date for quarterly interest payment 20 November 2018
Record date for quarterly interest payment 21 November 2018
Payment date for quarterly interest payment 3 December 2018
2
1
The First Optional Redemption Date for Westpac Subordinated Notes II will be 22 August 2018. Redemption on this date is subject to
APRA’s prior written consent. There can be no certainty that APRA will provide its consent and Westpac has not made any decision to
redeem Westpac Subordinated Notes II.
2
Adjusted to next business day as payment date does not fall on a day on which banks are open for general business in Wellington
and Auckland, New Zealand and Sydney, Australia.
2017 Full Year financial results
Other information
128 | Westpac Group 2017 Full Year Financial Results Announcement
Share Registries
Australia New Zealand
Ordinary shares on the main register, Westpac Convertible
Preference Shares, Westpac Capital Notes, Westpac
Capital Notes 2, Westpac Capital Notes 3, Westpac Capital
Notes 4 and Westpac Subordinated Notes II
Ordinary shares on the New Zealand branch registe
r
and Westpac NZD Subordinated Notes
Link Market Services Limited
Link Market Services Limited
Level 12, 680 George Street Level 11, Deloitte Centre, 80 Queen Street
Sydney NSW 2000 Australia Auckland 1010 New Zealand
Postal Address: Locked Bag A6015,
Sydney South NSW 1235
Postal Address: P.O. Box 91976,
Auckland 1142, New Zealand
Website: www.linkmarketservices.com.au
Email: westpac@linkmarketservices.com.au
Website: www.linkmarketservices.co.nz
Email: enquiries@linkmarketservices.co.nz
Telephone: 1800 804 255 (toll free in Australia)
International:
+61 1800 804 255
Facsimile: +61 2 9287 0303
Telephone: 0800 002 727 (toll free in New Zealand)
International: +64 9 375 5998
Facsimile: +64 9 375 5990
New York
For further information contact:
Depositary in USA for American Depositary Shares
BNY Mellon Shareholder Services
PO Box 305000
Louiseville, KY 40233-5000, USA
Media:
David Lording, Group Head of Media Relations,
+61 2 8219 8512
Website: www.mybnymdr.com
Analysts and Investors:
Email: shrrelations@cpushareownerservices.com
Andrew Bowden, Head of Investor Relations,
Telephone: +1 888 269 2377 (toll free in US) +61 2 8253 4008
International: +1 201 680 6825
2017 Full Year financial results
Other information
Westpac Group 2017 Full Year Financial Results Announcement | 129
6.7 Exchange rates
6.7.1 Exchange rates against A$
Twelve months to/as at 30 September 2017 30 September 2016
Currency Average Spot Average Spot
US$ 0.7620 0.7844 0.7367 0.7618
GBP 0.6016 0.5846 0.5193 0.5875
NZ$ 1.0665 1.0867 1.0742 1.0487
Six months to/as at 30 September 2017 31 March 2017 30 September 2016
Currency Average Spot Average Spot Average Spot
US$ 0.7702 0.7844 0.7538 0.7646 0.7524 0.7618
GBP 0.5954 0.5846 0.6078 0.6124 0.5494 0.5875
NZ$ 1.0731 1.0867 1.0599 1.0938 1.0643 1.0487
6.7.2 Westpac New Zealand division performance (A$ Equivalent to Section 3.5)
Westpac New Zealand operations provide banking, wealth and insurance products and services to New Zealand
consumer, business and institutional customers. The New Zealand wealth business includes New Zealand Life
Company and BT New Zealand. Results for the Second Half 2017, First Half 2017 and Second Half 2016 have
been converted into Australian dollars (A$) at the average exchange rates each month, the average rates for the
reporting periods are: 1.0730, 1.0599 and 1.0643 respectively.
% Mov't % Mov't
Half Year Half Year Sept 17 - Full Year Full Year Sept 17 -
$m Sept 17 March 17 Mar 17 Sept 17 Sept 16 Sept 16
Net interest income 837 790
6
1,627 1,606
1
Non-interest income
1
234 245
(4)
479 482
(1)
Net operating income 1,071 1,035
3
2,106 2,088
1
Operating expenses
1
(442) (461)
(4)
(903) (889)
2
Core earnings 629 574 10 1,203 1,199 -
Impairment charges 37 35
6
72 (54)
large
Operating profit before tax 666 609 9 1,275 1,145 11
Tax and non-controlling interests (185) (174)
6
(359) (320)
12
Cash earnings 481 435 11 916 825 11
Economic profit 236 185
28
421 362
16
Expense to income ratio
2
41.39% 44.39%
(300bps)
42.86% 42.55%
31bps
Net interest margin
2
2.08% 1.96%
12bps
2.02% 2.15%
(13bps)
As at As at % Mov't As at As at % Mov't
30 Sept 31 March Sept 17 - 30 Sept 30 Sept Sept 17 -
$bn 2017 2017 Mar 17 2017 2016 Sept 16
Deposits
3
53.7 51.9
3
53.7 54.9
(2)
Net loans 71.1 70.0
2
71.1 71.7
(1)
Deposit to loan ratio
2
75.55% 74.25%
130bps
75.55% 76.56%
(101bps)
Total assets 81.3 79.6
2
81.3 82.1
(1)
TCE 100.1 97.9
2
100.1 101.2
(1)
Third party liquid assets 8.0 7.6
5
8.0 8.0
-
Average interest-earning assets
4
80.1 80.9
(1)
80.5 74.7
8
Funds under management 7.7 7.1
8
7.7 7.1
8
Funds under administration 1.6 1.8
(11)
1.6 2.0
(20)
1
Comparatives have been restated for the accounting change to the Westpac New Zealand credit card rewards scheme
(First Half 2017: $18 million, Second Half 2016: $16 million and First Half 2016: $17 million).
2
Ratios calculated using NZ$.
3
Deposits refer to total customer deposits.
4
Averages are based on a six month period for the halves and a twelve month period for the full year.
2017 Full Year financial results
Other information
130 | Westpac Group 2017 Full Year Financial Results Announcement
6.7.3 Impact of exchange rate movements on Group results
Half Year Sept 17 vs
Half Year Mar 17
Full Year Sept 17 vs
Full Year Sept 16
$m
Cash
earnings
growth
FX impact
$m
Growth
ex-FX
Cash
earnings
growth
FX impact
$m
Growth
ex-FX
Net interest income
4% (13) 4% 2% -2%
Non-interest income
(9%)7 (9%) (1%)(26) (0%)
Net operating income
0% (6) 0% 2% (26)2%
Operating expenses
2% 8 2% 2% 9 2%
Core earnings (1%)2 (1%) 1% (17)1%
Impairment charges
(27%)- (27%) (24%)1 (24%)
Operating profit before income tax 1% 2 1% 4% (16)4%
Income tax expense
2% (1) 2% 6% 56%
Net profit 1% 1 1% 3% (11) 3%
Net profit attributable to non-controlling interests
(60%)- (60%) (53%)- (53%)
Cash earnings 1% 1 1% 3% (11) 3%
6.7.4 Exchange rate risk on future NZ$ earnings
Westpac’s policy in relation to the hedging of the future earnings of the Group’s New Zealand division is to
manage the economic risk where Westpac believes there is a likelihood of depreciation of NZ$ against A$.
Westpac manages these flows over a time horizon under which up to 100% of the expected earnings for the
following twelve months and 100% of the expected earnings for the subsequent twelve months can be hedged. As
at 30 September 2017, Westpac has hedges in place for forecast First Half 2018 earnings (average rate $1.07)
and for forecast up to July 2018 earnings (average rate $1.05).
2017 Full Year financial results
Glossary
Westpac Group 2017 Full Year Financial Results Announcement | 131
7.0 Glossary
Shareholder value
Average ordinary
equity
Average total equity less average non-controlling interests.
Average tangible
ordinary equity
Average ordinary equity less average goodwill and other intangible assets (excluding capitalised software).
Cash earnings per
ordinary share
Cash earnings divided by the weighted average ordinary shares (cash earnings basis).
Cash ROE Cash earnings divided by average ordinary equity.
Cash earnings to
average tangible
equity (ROTE)
Cash earnings divided by average tangible ordinary equity.
Dividend payout ratio
– cash earnings
Ordinary dividend to be paid divided by cash earnings.
Dividend payout ratio
– net profit
Ordinary dividend per share divided by net profit per share attributable to the owners of WBC.
Earnings per ordinary
share
Net profit attributable to the owners of WBC divided by the weighted average ordinary shares (reported).
Economic profit –
Divisions
Cash earnings less a capital charge calculated at 11% of allocated capital plus 70% of the value of Australian
tax expense.
Economic profit –
Group
Cash earnings less a capital charge calculated at 11% of average ordinary equity plus a value on franking
credits calculated as 70% of the Group’s Australian tax expense.
Fully franked
dividends per ordinary
shares (cents)
Dividends paid out of retained profits which carry a credit for Australian company income tax paid by Westpac.
Net tangible assets
per ordinary share
Net tangible assets (total equity less goodwill and other intangible assets less minority interests) divided by
the number of ordinary shares on issue (reported).
Return on equity
(ROE)
Net profit attributable to the owners of WBC divided by average ordinary equity.
Weighted average
ordinary shares
(cash earnings)
Weighted average number of fully paid ordinary shares listed on the ASX for the relevant period.
Weighted average
ordinary shares
(reported)
Weighted average number of fully paid ordinary shares listed on the ASX for the relevant period less Westpac
shares held by the Group (‘Treasury shares’).
Productivity and efficiency
Expense to income
ratio
Operating expenses divided by net operating income.
Full-time equivalent
employees (FTE)
A calculation based on the number of hours worked by full and part-time employees as part of their normal
duties. For example, the full-time equivalent of one FTE is 76 hours paid work per fortnight.
Revenue per FTE Total operating income divided by the average number of FTE for the period.
Business performance
Average interest-
earning assets
The average balance of assets held by the Group that generate interest income. Where possible, daily
balances are used to calculate the average balance for the period.
Average interest-
bearing liabilities
The average balance of liabilities owed by the Group that incur an interest expense. Where possible, daily
balances are used to calculate the average balance for the period.
Divisional margin Net interest income (including capital benefit) for a division as a percentage of the average interest earning
assets for that division.
Net interest margin Calculated by dividing net interest income by average interest-earning assets.
Net interest spread The difference between the average yield on all interest-earning assets and the average rate paid on interest
bearing liabilities.
Capital adequacy
Common equity tier 1
capital ratio
Total common equity capital divided by risk weighted assets, as defined by APRA.
Credit risk weighted
assets (Credit RWA)
Credit risk weighted assets represent risk weighted assets (on-balance sheet and off-balance sheet) that
relate to credit exposures and therefore exclude market risk, operational risk, interest rate risk in the banking
book and other assets.
Internationally
comparable capital
ratios
Internationally comparable regulatory capital ratios are Westpac’s estimated ratios after adjusting the capital
ratios determined under APRA Basel III regulations for various items. Analysis aligns with the APRA study
titled “International capital comparison study” dated 13 July 2015.
2017 Full Year financial results
Glossary
132 | Westpac Group 2017 Full Year Financial Results Announcement
Capital adequacy (cont’d)
Risk weighted assets
(RWA)
Assets (both on and off-balance sheet) are risk weighted according to each asset’s inherent potential for
default and what the likely losses would be in case of default. In the case of non-asset backed risks (ie.
market and operational risk), RWA is determined by multiplying the capital requirements for those risks
by 12.5.
Tier 1 capital ratio Total Tier 1 capital divided by risk weighted assets, as defined by APRA.
Total regulatory capital
ratio
Total regulatory capital divided by risk weighted assets, as defined by APRA.
Funding and liquidity
Committed Liquidity
Facility (CLF)
The RBA makes available to Australian Authorised Deposit-taking Institutions a CLF that, subject to qualifying
conditions, can be accessed to meet LCR requirements under APS210 Liquidity.
High Quality Liquid
Assets (HQLA)
Assets which meet APRA’s criteria for inclusion as HQLA in the numerator of the LCR.
Liquidity Coverage
Ratio (LCR)
An APRA requirement to maintain an adequate level of unencumbered high quality liquid assets, to meet
liquidity needs for a 30 calendar day period under an APRA-defined severe stress scenario. Absent a situation
of financial stress, the value of the LCR must not be less than 100%, effective 1 January 2015. LCR is
calculated as the percentage ratio of stock of HQLA and CLF over the total net cash out-flows in a modelled
30 day defined stressed scenario.
Net Stable Funding
Ratio (NSFR)
The NSFR is defined as the ratio of the amount of available stable funding (ASF) to the amount of required
stable funding (RSF) defined by APRA. The amount of ASF is the portion of an ADI’s capital and liabilities
expected to be a reliable source of funds over a one year time horizon. The amount of RSF is a function of the
liquidity characteristics and residual maturities of an ADI’s assets and off-balance sheet activities. When it is
implemented by APRA from 1 January 2018, ADI’s must maintain an NSFR of at least 100%.
Third party liquid
assets
HQLA and non LCR qualifying liquid assets, but excludes internally securitised assets that are eligible for a
repurchase agreement with the RBA and RBNZ.
Total liquid assets Third party liquid assets and internally securitised assets that are eligible for a repurchase agreement with a
central bank.
Asset quality
90 days past due and
not impaired
Includes facilities where:
contractual payments of interest and / or principal are 90 or more calendar days overdue, including
overdrafts or other revolving facilities that remain continuously outside approved limits by material amounts
for 90 or more calendar days (including accounts for customers who have been granted hardship
assistance); or
an order has been sought for the customer’s bankruptcy or similar legal action has been instituted which
may avoid or delay repayment of its credit obligations; and
the estimated net realisable value of assets / security to which Westpac has recourse is sufficient to cover
repayment of all principal and interest, or where there are otherwise reasonable grounds to expect payment
in full and interest is being taken to profit on an accrual basis.
These facilities, while in default, are not treated as impaired for accounting purposes.
Collectively assessed
provisions (CAPs)
Loans not found to be individually impaired or significant will be collectively assessed in pools of similar assets
with similar risk characteristics. The size of the provision is an estimate of the losses already incurred and will
be estimated on the basis of historical loss experience for assets with credit characteristics similar to those in
the collective pool. The historical loss experience will be adjusted based on current observable data. Included
in the collectively assessed provision is an economic overlay provision which is calculated based on changes
that occurred in sectors of the economy or in the economy as a whole.
Impaired assets Includes exposures that have deteriorated to the point where full collection of interest and principal is in doubt,
based on an assessment of the customer’s outlook, cash flow, and the net realisation of value of assets to
which recourse is held:
facilities 90 days or more past due, and full recovery is in doubt: exposures where contractual payments are
90 or more days in arrears and the net realisable value of assets to which recourse is held may not be
sufficient to allow full collection of interest and principal, including overdrafts or other revolving facilities that
remain continuously outside approved limits by material amounts for 90 or more calendar days;
non-accrual assets: exposures with individually assessed impairment provisions held against them,
excluding restructured loans;
restructured assets: exposures where the original contractual terms have been formally modified to provide
for concessions of interest or principal for reasons related to the financial difficulties of the customer;
other assets acquired through security enforcement (includes other real estate owned): includes the value
of any other assets acquired as full or partial settlement of outstanding obligations through the enforcement
of security arrangements; and
any other assets where the full collection of interest and principal is in doubt.
2017 Full Year financial results
Glossary
Westpac Group 2017 Full Year Financial Results Announcement | 133
Asset quality (cont’d)
Individually assessed
provisions (IAPs)
Provisions raised for losses that have already been incurred on loans that are known to be impaired and are
assessed on an individual basis. The estimated losses on these impaired loans is based on expected future
cash flows discounted to their present value and, as this discount unwinds, interest will be recognised in the
income statement.
Stressed assets Watchlist and substandard, 90 days past due and not impaired and impaired assets.
Total committed
exposure (TCE)
Represents the sum of the committed portion of direct lending (including funds placement overall and deposits
placed), contingent and pre-settlement risk plus the committed portion of secondary market trading and
underwriting risk.
Watchlist and
substandard
Loan facilities where customers are experiencing operating weakness and financial difficulty but are not
expected to incur loss of interest or principal.
Other
Credit Value
Adjustment (CVA)
CVA adjusts the fair value of over-the-counter derivatives for credit risk. CVA is employed on the majority of
derivative positions and reflects the market view of the counterparty credit risk. A Debit Valuation Adjustment
(DVA) is employed to adjust for our own credit risk.
Divisional results Divisional results are presented on a management reporting basis. Internal charges and transfer pricing
adjustments are included in the performance of each division reflecting the management structure rather than
the legal entity (these results cannot be compared to results for individual legal entities). Where management
reporting structures or accounting classifications have changed, financial results for comparative periods have
been revised and may differ from results previously reported. Overhead costs are allocated to revenue
generating divisions.
The Group’s internal transfer pricing frameworks facilitate risk transfer, profitability measurement, capital
allocation and divisional alignment, tailored to the jurisdictions in which the Group operates. Transfer pricing
allows the Group to measure the relative contribution of products and divisions to the Group’s interest margin
and other dimensions of performance. Key components of the Group’s transfer pricing frameworks are funds
transfer pricing for interest rate and liquidity risk and allocation of basis and contingent liquidity costs,
including capital allocation.
First Half 2017 Six months ended 31 March 2017.
Full Year 2017 Twelve months ended 30 September 2017.
Full Year 2016 Twelve months ended 30 September 2016.
Funding Valuation
Adjustment (FVA)
FVA reflects the estimated present value of the future market funding cost or benefit associated with funding
uncollateralised derivatives.
Lloyds’ Refers to the acquisition of select Australian businesses of Lloyds’ Banking Group including Capital Finance
Australia Limited and BOS International (Australia) Ltd on 31 December 2013.
Net Promoter Score
(NPS)
Net Promoter Score measures the net likelihood of recommendation to others of the customer’s main financial
institution for retail or business banking. Net Promoter ScoreSM is a trademark of Bain & Co Inc., Satmetrix
Systems, Inc., and Mr Frederick Reichheld.
For retail banking, using a scale of 1 to 10 (1 means ‘extremely unlikely’ and 10 means ‘extremely likely’),
the 1-6 raters (detractors) are deducted from the 9-10 raters (promoters); and
For business banking, using a scale of 0 to 10 (0 means ‘extremely unlikely’ and 10 means ‘extremely
likely’), the 0-6 raters (detractors) are deducted from the 9-10 raters (promoters).
Prior corresponding
period
Refers to the six months ended 30 September 2016.
Prior half / Prior period Refers to the six months ended 31 March 2017.
Run-off Scheduled and unscheduled repayments and debt repayments (from for example property sales, external
refinancing), net of redraws.
Second Half 2017 Six months ended 30 September 2017.
Women in Leadership Women in Leadership refers to the proportion of women (permanent and maximum term) in leadership roles
across the Group. It includes the CEO, Group Executive, General Managers, senior leaders with significant
influence on business outcomes, (direct reports to General Managers and their direct reports), large (3+) team
people leaders three levels below General Manager, and Bank and Assistant Bank Managers.
---
Westpac Banking Corporation
ABN 33 007 457 141
2017
FULL YEAR
FINANCIAL
RESULTS
INCORPORATING
THE REQUIREMENTS
OF APPENDIX 4E
Left to right:
Barangaroo, Sydney
Westpac branch at corner of Market and Clarence Streets, Sydney
Bank of New South Wales Sydney office, 1853
Results announcement to the market
ii | Westpac Group 2017 Full Year Financial Results Announcement
ASX Appendix 4E
Results for announcement to the market
1
Report for the full year ended 30 September 2017
2
1
This document comprises the Westpac Group 2017 Full Year Financial Results and is provided to the Australian Securities Exchange
under Listing Rule 4.2A.
2
This report should be read in conjunction with the Westpac Group Annual Report 2017 and any public announcements made in the
period by the Westpac Group in accordance with the continuous disclosure requirements of the Corporations Act 2001 and ASX
Listing Rules.
3
Comprises reported interest income, interest expense and non-interest income.
4
All comparisons are with the reported results for the twelve months ended 30 September 2016.
Revenue f rom ordinary activities
3,4
($m)up4%to$21,802
Prof it f rom ordinary activities af ter tax attributable to equity holders
4
($m)up7%to$7,990
Net prof it f or the period attributable to equity holders
4
($m)up7%to$7,990
Dividend Distributions (cents per ordinary share)
Final Dividend
Interim Dividend
Record date f or determining entitlements to the dividend
14 November 2017 (Sydney)
13 November 2017 (New York)
Amount
per security
Franked amount
per security
9494
9494
Results announcement to the market
Media release and outlook
Media
Release
6 November 2017
Westpac delivers another solid result
Statutory net profit $7,990 million, up 7%
Cash earnings $8,062 million, up 3%
Cash earnings per share 239.7 cents, up 2%
Cash return on equity (ROE) 13.8%, within target range
Unchanged final fully franked dividend of 94 cents per share (Full year dividend of 188 cents per share, unchanged)
Common equity Tier 1 capital ratio of 10.6%
Bank Levy $95 million (pre-tax)
Westpac Group CEO, Mr Brian Hartzer said: “This is another solid result. We have continued to successfully navigate a
challenging environment while our strategy builds momentum.
“Our primary goal in 2017 was to carefully balance growth and returns, while meeting all of our new macro-prudential
regulatory requirements. We achieved the required macro-prudential targets for home lending. The credit quality of our loan
portfolio is in great shape with stressed assets reducing during the year.
“Our balance sheet strength is a particular highlight: with our CET1 capital ratio of 10.6% we are already above APRA’s
‘unquestionably strong’ benchmark of 10.5%, well in advance of the January 2020 deadline. We also met the new standard
for the Net Stable Funding Ratio (NSFR), ahead of the January 2018 deadline.
“Our portfolio of businesses continues to perform well. WIB was the standout, with a particularly strong First Half, and our
Consumer and Business Banks continue to deliver good earnings growth. New Zealand also performed well, benefiting from
improved credit quality. BT Financial Group had a softer year – while the underlying business continued to grow, results
were impacted by some infrequent items and higher claims.”
Mr Hartzer said the Group result also included a provision for customer payments to address legacy issues.
“As part of our ‘get it right, put it right’ program we’ve been reviewing our products and services and the way we have
engaged with our customers. Where we have found issues that we need to put right, we ensure that no customer has been
disadvantaged from those past practices. For example, a review into our superannuation disclosure is resulting in payments
to some customers with pre-existing conditions who did not have the benefit of our improved disclosure practices and who
1
Reported on a cash earnings basis unless otherwise stated. For an explanation of cash earnings and reconciliation to reported results refer to
pages 6, 7 and 116-119 of the Group’s 2017 Full Year Financial Results Announcement.
Financial highlights Full Year 2017 compared to Full Year 2016
1
Results announcement to the market
iv | Westpac Group 2017 Full Year Financial Results Announcement
previously had their claims denied. We are also refunding customers who were entitled to certain product discounts, but may
not have been aware that they needed to specifically request them. The cash earnings impact of these changes was
$118 million this year, equivalent to 1.5% of earnings.
“Despite these challenges, our business is in excellent shape: customer satisfaction has risen, employee engagement is
above the global high performing benchmark, and we have achieved our goal of welcoming one million new customers since
2015. We’ve continued to improve the functionality and convenience of our digital channels, our wealth system Panorama
added around $4 billion funds under administration in FY17, and we’ve originated our first mortgages using our new
customer service hub – an important milestone in the modernisation of our technology infrastructure. At a time of substantial
change in our industry, we’ve got a clear strategic agenda that is delivering for both customers and shareholders.”
Materially strengthened balance sheet
Margins well managed
CET1 capital ratio (%)
Net interest margin
(NIM) (%)
Conservative balance sheet
10.6% CET1 capital ratio is already ahead of
APRA’s ‘unquestionably strong’ benchmark;
CET1 internationally comparable ratio of 16.20%
- top quartile of banks globally;
Liquidity ratios well above 100% regulatory
requirements:
- LCR 124%; and
- NSFR 109%.
Net interest margin 4 basis points lower
Margins 4 basis points lower than 12 months
ago; excluding Treasury and Markets NIM is
down 3 basis points;
Margins ex-markets decline due to:
- Deposit competition and higher wholesale
funding costs;
- Introduction of Bank Levy;
- Impact of increasing liquidity balances and
lower interest rates; and
Some asset repricing contributed to rise in
margins in the Second Half.
Tight cost control
Disciplined balance sheet growth
(%) over FY17
Expenses managed tightly; lower end of 2-3%
target range
Expenses up 2% over the year;
Expense to income ratio 42%;
Cost to assets improved 3 basis points over the
year;
Productivity savings of $262 million offset
business as usual expense growth; and
Most of the cost increase due to investment and
regulatory and compliance costs.
Results announcement to the market
Westpac Group 2017 Full Year Financial Results Announcement | v
Credit quality remains sound
Stressed assets to total committed
exposures (TCE) lower over year
Conservative impaired asset
provision coverage at 46%;
Lower impaired assets to gross loans ratio -
down 10 basis points over the year to 0.22%;
and
Impairment charges (13 basis points of
average loans annualised) down 24%
over the year to $853 million.
Divisional performance – cash earnings
Division
FY17
($m)
%
change
FY16
%
change
2H17
vs
1H17
Highlights (FY17 – FY16)
Consumer
Bank
3,104 4 5
Good balance sheet growth (loans up 5%, deposits up 6%), improved
productivity with expense growth of 2% versus revenue growth of 4%.
Business
Bank
2,099 6 8
Disciplined growth (loans to small and medium enterprises
up 6% and deposits up 4%). Improved fee income. Expense to income
ratio 35%.
BT
Financial
Group
771 (11) (6)
Positive trends in FUM and FUA - up 10% and 6% respectively - as well
as in life insurance in-force premiums (+10%).
Earnings lower from infrequent items including customer refund
payments, higher general insurance claims (Cyclone Debbie), lower
Advice income, margin impact of migrating to MySuper products, and
higher regulatory/compliance costs.
Westpac
Institutional
Bank
1,304 18 (14)
Strong result supported by higher markets income and improved asset
quality. Disciplined on growth, saw margins increasing. Costs down 2%
reflecting business model change in 2016. Markets income down in
Second Half, impacting Full Year result.
Westpac
New Zealand
($NZ)
970 9 10
Higher result supported by impairment benefit of $76 million from
improved asset quality. Margins lower from intense deposit competition.
Results announcement to the market
vi | Westpac Group 2017 Full Year Financial Results Announcement
The Westpac Group Board has determined an unchanged final, fully franked dividend of 94 cents per share to be paid on
22 December 2017. The final dividend represents a payout ratio of 78.7% of cash earnings.
The Bank Levy cost $95 million for the Full Year. The Board considered a range of factors including the impact of the
Bank Levy in determining the dividend. The Bank Levy will be paid out of retained earnings and is equivalent to two cents
per share.
The dividend reinvestment plan (DRP) will continue to apply and there will be no discount to the market price. Shares will be
issued to satisfy the DRP.
Mr Hartzer said the outlook for Australia remains positive overall, with GDP growth expected to be slightly above trend at
around 2.5% in 2018. However, the growth outlook will remain mixed across the country. He said global growth is expected
to consolidate around 3.5%.
“Economic growth is picking up around the world – most major markets are now growing, which is something we haven't
seen for a while. In the US, in France, and in other markets around the world governments are cutting taxes, cutting red
tape, and investing in infrastructure. It's a good reminder that policy certainty is a great spur to business investment.
“Business in Australia is ready to invest, however many of our customers are holding back because of policy uncertainty.
Whether it's on energy policy, transport infrastructure, or fixing up the tax arrangements between the states, Governments at
all levels need to come together with business for a common purpose to provide the certainty that's needed to drive
confidence.”
Mr Hartzer said Westpac’s consistent focus on Australia and New Zealand over a long period means its high quality portfolio
was strongly positioned.
“We remain positive about the Australian housing market, although we expect price growth to moderate through 2018.
90+ day delinquencies remain low by historical measures and our home loan customers continue to take advantage of low
interest rates with more than 70% of customers ahead on their repayments
1
.
“We have a strong customer franchise which continues to grow, we are taking advantage of the opportunities created by a
digital world, and we are well-positioned in the faster growing parts of our economy. These factors, plus a highly-engaged
culture that continues to attract great people, gives me confidence about Westpac’s outlook and our ability to outperform
over the long term.”
For Further Information
David Lording
Head of Media Relations
M. 0419 683 411
Andrew Bowden
Head of Investor Relations
T. 02 8253 4008
M. 0438 284 863
1
Loans ahead on payments exclude equity/line of credit products as there are no scheduled principal payments. Includes mortgage offset balances.
Dividends
Outlook
2017 Full Year financial results
Westpac Group 2017 Full Year Financial Results Announcement | 1
Index
01 Group results
1.1 Reported results
1.2 Key financial information
1.3 Cash earnings results
1.4 Market share and system multiple metrics
3
3
4
5
8
02 Review of Group operations
2.1 Performance overview
2.2 Review of earnings
2.3 Credit quality
2.4 Balance sheet and funding
2.5 Capital and dividends
2.6 Sustainability performance
9
10
19
34
36
41
48
03 Divisional results
3.1 Consumer Bank
3.2 Business Bank
3.3 BT Financial Group (Australia)
3.4 Westpac Institutional Bank
3.5 Westpac New Zealand (NZ$)
3.6 Group Businesses
50
50
52
54
58
60
62
04 2017 Full Year financial report
4.1 Significant developments
4.2 Consolidated income statement
4.3 Consolidated statement of comprehensive income
4.4 Consolidated balance sheet
4.5 Consolidated statement of changes in equity
4.6 Consolidated cash flow statement
4.7 Notes to the consolidated financial statements
4.8 Statement in relation to audit of the financial statements
64
65
73
74
75
76
78
79
107
05 Cash earnings financial information
108
06 Other information
6.1 Disclosure regarding forward-looking statements
6.2 References to websites
6.3 Credit ratings
6.4 Dividend reinvestment plan
6.5 Changes in control of Group entities
6.6 Financial calendar and Share Registry details
6.7 Exchange rates
121
121
122
122
122
122
124
129
07 Glossary
131
In this announcement references to ‘Westpac’, ‘WBC’, ‘Westpac Group’, ‘the Group’, ‘we’, ‘us’ and ‘our’ are to Westpac Banking
Corporation and its controlled entities, unless it clearly means just Westpac Banking Corporation.
All references to $ in this document are to Australian dollars unless otherwise stated.
Financial calendar
Final results announcement 6 November 2017
Ex-dividend date for final dividend 13 November 2017
Record date for final dividend (Sydney) 14 November 2017
Final dividend payable 22 December 2017
2017 Full Year financial results
2 | Westpac Group 2017 Full Year Financial Results Announcement
[This page is intentionally blank].
2017 Full Year financial results
Group results
Westpac Group 2017 Full Year Financial Results Announcement | 3
1.0 Group results
1.1 Reported results
Reported net profit attributable to owners of Westpac Banking Corporation is prepared in accordance with the
requirements of Australian Accounting Standards (AAS) and regulations applicable to Australian Authorised
Deposit-taking Institutions (ADIs).
% Mov't
1
% Mov't
1
Half Year Half Year Sept 17 - Full Year Full Year Sept 17 -
$m Sept 17 March 17 Mar 17 Sept 17 Sept 16 Sept 16
Net interest income
7,903 7,613
4
15,516 15,148
2
Non-interest income
3,130 3,156
(1)
6,286 5,837
8
Net operating income before operating expenses
and impairment charges
11,033 10,769
2
21,802 20,985
4
Operating expenses
(4,801) (4,633)
4
(9,434) (9,217)
2
Net profit before impairment charges
and income tax expense
6,232 6,136 2 12,368 11,768 5
Impairment charges
(360) (493)
(27)
(853) (1,124)
(24)
Profit before income tax
5,872 5,643 4 11,515 10,644 8
Income tax expense
(1,787) (1,731)
3
(3,518) (3,184)
10
Net profit for the period
4,085 3,912 4 7,997 7,460 7
Net profit attributable to non-controlling interests
(2) (5)
(60)
(7) (15)
(53)
NET PROFIT ATTRIBUTABLE TO OWNERS OF
WESTPAC BANKING CORPORATION
4,083 3,907 5 7,990 7,445 7
Net profit attributable to owners of Westpac Banking Corporation for Full Year 2017 was $7,990 million,
an increase of $545 million or 7% compared to Full Year 2016. Features of this result included an $817 million or
4% increase in net operating income before operating expenses and impairment charges, a $217 million or 2%
increase in operating expenses and a $271 million or 24% decrease in impairment charges.
Net interest income increased $368 million or 2% compared to Full Year 2016, with total loan growth of 3%,
primarily from Australian housing which grew 6%. Reported net interest margin decreased 4 basis points to 2.06%
from higher funding costs, the impact of lower interest rates and lower Treasury earnings, partly offset by loan
repricing. Net interest income, loans, deposits and other borrowings and net interest margins are discussed further
in Sections 2.2.1 to 2.2.4.
Non-interest income increased $449 million or 8% compared to Full Year 2016 primarily due to a $279 million gain
associated with the sale of shares in BT Investment Management Limited (BTIM), a rise in trading income of
$78 million and the impact of volatility in economic hedges of $140 million. These increases were partly offset by
provisions for customer refunds and payments and lower wealth management income. Non-interest income is
discussed further in Section 2.2.5.
Operating expenses increased $217 million or 2% compared to Full Year 2016. The rise in operating expenses
includes expenses associated with the further sell down of BTIM shares, annual salary and rental increases,
higher technology expenses related to the Group’s investment program and a rise in regulatory and compliance
costs. These increases were partially offset by productivity benefits. Operating expenses are discussed further in
Section 2.2.8.
Impairment charges were $271 million lower or 24% compared to Full Year 2016. Asset quality remained sound,
with stressed exposures as a percentage of total committed exposures at 1.05%, down 15 basis points over the
year. The decrease in impairment charges was primarily due to significantly lower large individual provisions.
Additional provisioning for these larger facilities was required in Full Year 2016, following the downgrade to
impaired. Impairment charges are discussed further in Section 2.2.9.
The effective tax rate of 30.6% in Full Year 2017 was higher than the Full Year 2016 effective tax rate of 29.9% as
Full Year 2016 benefited from the finalisation of some prior period taxation matters. Income tax expense is
discussed further in Section 2.2.10.
1
Percentage movement represents an increase / (decrease) to the relevant comparative period.
2017 Full Year financial results
Group results
4 | Westpac Group 2017 Full Year Financial Results Announcement
1.2 Key financial information
% Mov't % Mov't
Half Year Half Year Sept 17 - Full Year Full Year Sept 17 -
$m Sept 17 March 17 Mar 17 Sept 17 Sept 16 Sept 16
Shareholder value
Earnings per ordinary share (cents)
121.2 116.8
4
238.0
224.6
6
Weighted average ordinary shares (millions)
1
3,366 3,344
1
3,355
3,313
1
Fully franked dividends per ordinary share (cents)
94 94
-
188
188
-
Return on average ordinary equity
13.72% 13.57%
15bps
13.65%
13.32%
33bps
Average ordinary equity ($m)
59,364 57,744
3
58,556
55,896
5
Average total equity ($m)
59,380 57,768
3
58,576
56,471
4
Net tangible asset per ordinary share ($)
2
14.66 14.24
3
14.66
13.90
5
Business performance
Interest spread
1.90% 1.88%
2bps
1.89%
1.91%
(2bps)
Benefit of net non-interest bearing assets,
liabilities and equity
0.17% 0.17%
-
0.17%
0.19%
(2bps)
Net interest margin
2.07% 2.05%
2bps
2.06%
2.10%
(4bps)
Average interest-earning assets ($m)
759,764 744,783
2
752,294
721,843
4
Expense to income ratio
43.51% 43.02%
49bps
43.27%
43.92%
(65bps)
Capital, funding and liquidity
Common equity Tier 1 capital ratio
[TRUNCATED]
Data sourced from publicly available filings. Our datasets may not be complete. Automated analysis can produce errors. If you believe any data on this page is incorrect, please contact us at hello@nzxplorer.co.nz. For informational purposes only. Not investment advice.