Westpac FY17 Presentation and Investor Discussion Pack
2017
FULL YEAR
FINANCIAL
RESULTS
Westpac Banking Corporation
ABN 33 007 457 141
200 years proudly supporting Australia
Westpac Full Year 2017 result index
Image on right
Bank of New South Wales
Maldon Branch, Victoria 1870
2017 Full Year Result Presentation
3
Investor Discussion Pack of 2017 Full Year Result
25
Strategy
26
Overview
Performance discipline
Service leadership
Digital transformation
Workforce revolution
Sustainable futures
32
35
38
40
48
49
Earnings drivers
Revenue
Expenses
Impairment charges
53
54
60
63
Asset quality
64
Capital, Funding and Liquidity
85
Divisional results
Consumer Bank
Business Bank
BT Financial Group
Westpac Institutional Bank
Westpac New Zealand
95
96
99
102
106
109
Economics
114
Appendix and Disclaimer
131
Contact us
137
Disclaimer
138
BRIAN HARTZER
CHIEF EXECUTIVE OFFICER
Westpac Banking Corporation
ABN 33 007 457 141
200 years proudly supporting Australia
Financial results based on cash earnings unless otherwise
stated. Refer page 33 for definition. Results principally cover the
FY17, FY16 and 2H17 and 1H17 periods. Comparison of 2H17
versus 1H17 (unless otherwise stated)
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
Strong franchise – solid result
• Cash earnings up 3% over the year and 1% over the half
• Continued discipline: Focus on strength and return over growth
• Operating divisions all performing well
• Strategy delivering for customers and increasing franchise value
• Review of products and services underway (‘Get it right/Put it right’)
‒$169 million in customer refunds/payments (earnings impact 1.5%)
• Building a highly engaged workforce and innovative culture
4
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
Headline results
1 Cash EPS is cash earnings per weighted average ordinary shares. 2 Common equity Tier 1 capital ratio on an APRA Basel III basis. 3 Return on equity is cash earnings divided by average ordinary equity.
4 Cash earnings basis. 5 Cents per share.
5
FY17
Change
FY17 – FY16
Change
2H17 – 1H17
Reported net profit after tax $7,990m 7% 5%
Cash earnings $8,062m 3% 1%
Cash EPS
1
239.7c 2% -
Common equity Tier 1 capital ratio
2
10.6% 108bps 59bps
Return on equity (ROE)
3
13.8% (22bps) (36bps)
Net tangible assets per share $14.66 5% 3%
Margin (excl. Treasury & Markets)
4
2.03% (3bps) 6bps
Expense to income ratio
4
42.2% 18bps 82bps
Impairment charge to average loans 13bps (4bps) (4bps)
Full year dividends
5
(fully franked) 188c - -
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
Portfolio of businesses delivering
6
Division
Cash earnings (% change)
Comments 2H17 – 1H17
FY17-FY16 2H17-1H17
Consumer Bank 4 5
• Core earnings up 5%; net interest income up 7%
• Credit cards and customer refunds a drag on non-
interest income
Business Bank 6 8
• Core earnings up 5%; net interest income up 4%
• Increased fee income; expense to income ratio 35%
•Impairments down 21%
BT Financial
Group
(11) (6)
• Insurance income higher; claims mostly lower
• FUA up 1% on prior half, 6% over the year
• Income down from infrequent items
Westpac
Institutional Bank
18 (14)
• Net interest income up 3%; trading income lower
• Expense growth limited to 1%
New Zealand
(NZ$)
9 10
• Core earnings up 10%; net interest income up 7%
• Lower loan growth; improved margin
• Expenses down 2%
Our strategy for creating value is delivering
1 Refer to slide 132 for metric definition. 2 APRA banking statistics. 3 CSH is Customer Service Hub. 4 Dow Jones Sustainability Index 2017.
• Material increase in capital; CET1 capital ratio up 108 basis points
• Asset quality improved; impaired assets at 22bps of gross loans
• Prioritised strength and return above growth
• Customer numbers up 3.4%; added 1 million new customers since 2015
• NPS and customer satisfaction higher
1
; complaints lower
• Household deposits grew above system
2
; SME up 6%; FUA up 5%
• $4bn net flows on Panorama
• Cost to average interest earning assets down to 1.21%
• Delivered Panorama, Big Data, contact centre system, CSH
3
Phase 1
• Digitisation driving 59 fewer branches, net ~500 reduction in FTE
• Expanded digital partnerships with Uno, zipMoney, Assembly
• Staff engagement 79%, above global high performing benchmark
• More than 10,000 people working in an agile environment
• 50% women in leadership
1
• World’s most sustainable bank
4
4 years in a row
Grow customer
numbers and
relationship depth
Drive efficiency
via digital
Highly engaged,
innovative culture
Strong
Balance sheet
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
7
10 year balance sheet build largely complete
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
1 Minimums applied from Jan 2015 – LCR and Jan 2018 – NSFR. The LCR prior to Sep 15 is an estimate. The NSFR for Sep 16 and Sep 17 is an estimate. 2 Includes one peer with a balance date of June.
25
28
30
34
39
43
8.2
9.1
9.0
9.5
9.5
10.6
15
20
25
30
35
40
45
50
55
6 .5
7 .5
8 .5
9 .5
1 0. 5
Sep-12Sep-13Sep-14Sep-15Sep-16Sep-17
CET1 capital ($bn)
CET1 capital ratio (%)
103
121
134
124
105
109
Sep-14Sep-15Sep-16Sep-17
LCRNSFR
100% regulatory minimum
0.40
0.30
0.32
0.22
0.62
0.42
0.49
0.38
Sep-14Sep-15Sep-16Sep-17
WestpacPeer average
Impaired assets to gross loans (%)
Liquidity ratios
1
(%) CET1 Capital ($bn and %)
8
2
94 cent Dividend
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
1 2H17 assumes DRP participation rate of 10%.
Dividend payout ratio (%)
Dividend considerations Dividends per ordinary share (cents)
9
86
88
90
92
93
94 94 94 94 94
10
10
1H132H131H142H141H152H151H162H161H172H17
Special dividend
• Sustainability of the payout ratio over
the medium term
• Strong CET1 capital ratio
• Surplus franking credits
• Bank Levy equivalent to 2 cents per share
76
77
74 74
77
74
80
80
79
79
76
77
74
65
49
64
72
72
51
71
1H132H131H142H141H152H151H162H161H172H17
Payout ratio (cash earnings basis)
Effective payout ratio (after DRP shares issued)
1
DRP shares
purchased on market
Good momentum on service
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
• Materially improved mobile useability
• Credit cards: New payment plans, decrease limits
online, spending and fee alerts
• New Corporate online portal
10
Service metrics
1
1 Australian service metrics, unless indicated. Refer slide 132 for customer metric definitions.
Better services
Improved availability
New products
• System stability: no Severity 1 incidents in
Australia in 2H17 (vs. 19 in 2016)
• Mobile banking customers directly connect to call
centre with no additional verification
• Westpac Lite (low rate card), Westpac Life
(savings account), Bump savings account
• Lite pay: Low cost international funds transfer
(4 currencies/22 countries)
#1
Consumer
NPS
#2
Consumer
customer
satisfaction
#1
Business
NPS
#1
Business
customer
satisfaction
19%
Australian
compliments
18%
Australian
complaints
21%
New Zealand
complaints
4.1
4.5
5.9
7.6
6.0
5.7
6.4
6.5
6.6
Sep-16Mar-17Sep-17
Westpac investor (APRA definition)
Westpac total mortgages
System mortgages
Disciplined management
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
Australian mortgages interest only flows (% of total)
Net interest margin (NIM) (%)
Australian mortgage growth
1
(annual %)
Productivity ratios (%)
1 Gross loans. 2 RBA Financial aggregates. 3 AIEA is average interest earning assets.
2.14
2.11
2.07
2.10
2.07
2.04
2.00
2.06
1H162H161H172H17
NIMNIM excl. Treasury & Markets
50
43
26
2Q173Q174Q17
40%
42%
44%
46%
48%
50%
1.10%
1.15%
1.20%
1.25%
1.30%
1.35%
1.40%
FY11FY12FY13FY14FY15FY16FY17
Expenses / AIEA (LHS)
Expense to income ratio (RHS)
11
2
3
Outlook
• Global growth improved in 2017, further improvement likely in 2018
• Australian growth likely to remain sound but slowing through 2018
−Supported by growth in resources, services and infrastructure
−Some moderation from soft income growth and slowing construction
• House price growth expected to slow however mortgage serviceability
remains strong with significant household equity
• Westpac well positioned for the environment with good
momentum on strategy
12
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
PETER KING
CHIEF FINANCIAL OFFICER
Westpac Banking Corporation
ABN 33 007 457 141
200 years proudly supporting Australia
Financial results based on cash earning unless otherwise stated.
Refer page 33 for definition. Results principally cover the FY17,
FY16 and 2H17 and 1H17 periods. Comparison of 2H17
versus 1H17 (unless otherwise stated)
Results at a glance
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
1 CVA is credit valuation adjustment.
14
Infrequent/volatile items ($m) Cash earnings movements ($m)
Cash earnings impact 2H16 1H17 2H17
Asset sales (4) 4 0
Performance fees/
manager revaluation
22 0 (3)
Group CVA
1
3 15 20
Provision for customer
refunds/payments(after tax)
0 0 (118)
Total impact 21 19 (101)
Bank Levy from 1 July 2017 (after tax) (66)
4,017
4,045
637
133
(169)
(339)
(95)
(103)
(36)
1H17
Markets & Treasury
Customer
refunds/payments
Bank Levy
All other income
Expenses
Impairment
charges
Tax & non-controlling
interests
2H17
Revenue up $34m
Up 1%
Margins resilient
Net interest margin movement (% and bps)
15
Lower returns on capital and low rate deposits Term deposit costs over benchmark (portfolio)
1 Tractor is the 3 year moving average hedge rate for hedges on capital and low rate deposits.
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
0.0%
0.5%
1.0%
1.5%
Sep-12
Mar-13
Sep-13
Mar-14
Sep-14
Mar-15
Sep-15
Mar-16
Sep-16
Mar-17
Sep-17
2.04
2.00
2.06
0.07
0.07
(3bps)
0.04
2.11
2.07
7bps 0bp
2bps (2bps)
0bp
(1bp)
2.10
2H161H17LoansCustomer
deposits
Term
wholesale
funding
Bank LevyCapital &
other
LiquidityTreasury &
Markets
2H17
1%
3%
5%
7%
9%
Sep-03Sep-04Sep-05Sep-06Sep-07Sep-08Sep-09Sep-10Sep-11Sep-12Sep-13Sep-14Sep-15Sep-16Sep-17
3 year swap rate (spot)Tractor¹
NIM excl. Treasury & Markets
Treasury & Markets impact on NIM
Non-interest income
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
1 Fees and commissions in 2H16 and 1H17 restated to reflect the accounting change to the Westpac New Zealand credit card rewards scheme.
16
Wealth/insurance non-interest income ($m) Non-interest income ($m)
1,396
1,426
1,329
970
886
924
514
713
504
25
43
27
2,905
3,068
2,784
2H161H172H17
Fees and CommissionsWealth/Insurance
TradingOther
886
924
(56)
75
30
2
(13)
1H17
Insurance income
Hastings
Performance fees
Customer
refunds/payments
Funds Managment
income
Other
2H17
Up 4%
Down 4%
Down 9%
-29%
-7%
4%
1 1
Cyclone
Debbie claims
$37m in 1H17
Markets & Treasury
1
– soft 2H17
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
1. Includes net interest income and non-interest income but excludes DVA.
17
Markets customer income ($m) Markets non-customer and Treasury income ($m)
119
231
259
250
257
131
147
131
142
89
247
72
266
362
401
339
504
203
1H152H151H162H161H172H17
473
462
465
447
482
436
1H152H151H162H161H172H17
Markets non-customer
Treasury
Expenses well managed
1 1H17 restated to reflect the accounting change to the Westpac New Zealand credit card rewards scheme.
$m %
Consumer Bank 79 5
Business Bank 17 2
BTFG 20 3
WIB 9 1
New Zealand (in NZ$) (11) (2)
Group Businesses (3) (1)
Consistency in productivity (annual savings $m)
Divisional expense growth 2H17 – 1H17 Movement in expenses ($m)
18
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
4,501
4,604
143
50
54
(144)
1H17
Ongoing
expenses
Productivity
Regulatory/
compliance
Investment
2H17
Up 2%
1
1,208
225
219
239
263
262
FY13FY14FY15FY16FY17Cumulative
Investment spend
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
1 Data based on FY17 results, excludes write-offs. Amortisation expense is based on amortisation expense excluding any impairment and is based on FY17.
19
Capitalised software balance and amortisation
1
($bn) Total investment spend (expensed and capitalised) ($m)
527
700
580
676
1H162H161H172H17
62%
27%
11%
Growth & productivity
Regulatory change
Other technology
1.86
1.93
2.71
1.92
0.57
0.39
0.38
0.62
Peer 1Peer 2Peer 3WBC
Capitalised software
Annual software amortisation
% of 2H17 spend
Australian mortgage trends
20
1 I/O is interest only mortgage lending, restated to include RAMS. 2 Consumer only.
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
2,554
2,592
3,004
3,447
2,368
2,604
4,261
7,913
1Q172Q173Q174Q17
Customer initiated
Reached end of I/O period
0.0
1.0
2.0
3.0
Sep-14Mar-15Sep-15Mar-16Sep-16Mar-17Sep-17
NSW/ACTVIC/TASQLD
WASA/NTALL
2H16 1H17 2H17
New lending 40.2 37.0 40.3
Run-off 26.8 27.3 27.0
Net flows 13 10 13
Fixed (% of book)
17 18
21
Interest only (% of book) 51 50
46
Australian mortgages 90+ day delinquencies (%) Properties in Possession (#)
2
Mortgage portfolio ($bn) Switching from I/O to P&I
1
($m)
Introduced new hardship treatment
2H17 $18.6bn
45
65
146
129
52
0
50
100
150
200
Sep-14Mar-15Sep-15Mar-16Sep-16Mar-17Sep-17
NSW/ACTVIC/TASQLD
WASA/NT
Total: 437
Dynamic LVR bands (%)
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
1 Portfolio comprised of residential mortgages, excluding RAMS, and business mortgages originated via a separate platform such as construction loans and loans to SMSFs. 2 Dynamic LVR is the loan-to-value ratio taking into account the current
loan balance, changes in security value, offset account balances and other loan adjustments. Property valuation source Austral ian Property Monitors. 3
Source, Westpac Economics, CoreLogic. All dwellings Australia - average 8 major capital
cities. Prices to Sept 17.
21
7
24
69
>8060-80<=60
6
16
78
>8060<=80<=60
11
46
43
>8060-80<=60
% of portfolio
41 33 26
Westpac interest
rate floor (%)
7.25 6.80 6.80
Average house
price changes
3
0 – 23% 40% – 23% At least 40%
2015+ 2011-14 <2011
Australian mortgage deep dive
Australian mortgage lending
1
by origination date, dynamic LVR
2
(%)
Asset quality remains sound
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
1 TCE is total committed exposure.
22
Corporate/business stressed exposure by sector ($bn) Stressed assets as a % of TCE
1
0.0
0.5
1.0
1.5
2.0
2.5
Agriculture, forestry &
fishing
Wholesale &
retail trade
Property
Transport & storage
Manufacturing
Services
Property services &
business services
Construction
Accommodation, cafes
& restaurants
Mining
Other
Finance & insurance
Utilities
Sep-16Sep-17
0.67
0.62
0.58
0.44
0.27
0.20
0.22
0.20
0.15
0.46
0.41
0.35
0.31
0.26
0.25
0.33
0.35
0.34
2.07
1.45
1.24
0.85
0.71
0.54
0.65
0.59
0.56
3.20
2.48
2.17
1.60
1.24
0.99
1.20
1.14
1.05
Sep-10Sep-11Sep-12Sep-13Sep-14Sep-15Sep-16
Mar-17
Sep-17
Watchlist & substandard
90+ day past due and not impaired
Impaired
Impairment charge components ($m)
23
Total Collectively assessed provisions Individually assessed provisions
293
273
471
256
364
246
(218)
(210)
(174)
(173)
(228)
(228)
330
463
418
484
443
525
(64)
(114)
(48)
(110)
(86)
(183)
341
412
667
457
493
360
1H152H151H162H161H172H171H152H151H162H161H172H171H152H151H162H161H172H171H152H151H162H161H172H171H152H151H162H161H172H17
New IAPs
Write-backs
& recoveries
Write-offs
direct
Other movement
in Collective
provisions
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
Interest carrying
adjustment ($m)
98 92 97 96 95 93
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
Considerations for FY18
•Remaining disciplined on growth/return
•Expect system lending growth to moderate
•Exit margin (Sept 17 month) higher than 2H17. FY18 margin will be impacted
by more mortgage switching from interest only to principal & interest
•Headwinds from changes in ATM and transaction fees (approximately $50m)
•Targeting similar productivity savings and keeping costs in 2-3% range
•Asset quality remains in good shape
24
Investor
Discussion Pack
Westpac Banking Corporation
ABN 33 007 457 141
200 years proudly supporting Australia
Financial results based on cash earnings unless otherwise
stated. Refer page 33 for definition. Results principally cover the
FY17, FY16 and 2H17 and 1H17 periods. Comparison of 2H17
versus 1H17 (unless otherwise stated)
200 years proudly supporting Australia
Strategy
•In its 200
th
year, Australia’s first bank and first company, opened 1817
•Australia’s 2nd largest bank and 24th largest bank in the world;
ranked by market capitalisation
1
•Well positioned across key markets with a service-led strategy
focused on customers and differentiated through service
•Supporting consumers and businesses in Australia and New Zealand
and customers with ties to these markets
•Unique portfolio of brands providing a full range of financial services
including consumer, business and institutional banking,
wealth management and insurance
•One of the most efficient banks globally
2
•Consistent earnings profile over time
•Capital top quartile globally, with sound asset quality
•Credit ratings
3
AA- / Aa3 / AA-
•Leader in sustainability
4
Westpac Group at a glance: Australia’s First Bank
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
1 30 September 2017. Source: S&P Capital IQ, based in US$. 2 Credit Suisse analysis of expense to income ratio of world’s largest banks October 2017. 3 S&P Global Ratings, Moody’s Investors Service and Fitch Ratings respectively. S&P Global Ratings has
Westpac on a negative outlook, Moody’s Investor Services and Fitch Ratings have Westpac on a stable outlook. 4 Included in 2017 Global 100 most sustainable companies, announced at World Economic Forum in January 2017. 5 APRA Banking Statistics,
September 2017. 6 RBA Financial Aggregates, September 2017. 7 RBNZ, September 2017. 8 Plan for Life, June 2017, All Master Funds Admin. 9 Cash earnings basis. 10 Based on share price at 29 September 2017 of $31.92.
Key statistics at 30 September 2017 Key financial data for Full Year 2017
Westpac
Institutional
Bank
Westpac
New Zealand
Consumer
Bank
Pacific
Business
Bank
BT Financial
Group
Reported net profit after tax
$7,990m
Cash earnings
$8,062m
Expense to income ratio
9
42.2%
Common equity Tier 1 capital ratio (APRA basis) 10.6%
Return on equity
9
13.8%
Total assets
$852bn
Market capitalisation
10
$108bn
Customers
13.8m
Australian household deposit market share
5
23%
Australian mortgage market share
6
23%
Australian business market share
6
19%
New Zealand deposit market share
7
19%
New Zealand consumer lending market share
7
19%
Australian wealth platforms market share
8
19%
WBC
listed on
ASX & NZX
Strategy
27
Progress on our strategic agenda
1 Refer slide 136 for metric definition.
Strategy
Performance
Discipline
Service
Leadership
Digital
Transformation
Targeted
Growth
Workforce
Revolution
Measures
Progress
FY17
Seeking to achieve
13-14% ROE
(medium-term)
+1m customers
(2015-2017)
Cost growth
2-3% per annum and
expense to income
ratio below 40%
Stronger growth
in wealth and SME
Employee
engagement in top
of high performing
norms, women in
leadership
1
50%
by end of 2017
ROE 13.8%
Down 22 bps
13.8m customers
up 3%
Grew by 1m
2015-2017
Expenses up 2%
Expense to income
ratio 42.2%
FUM up 12%
FUA up 5%
SME lending
up 6%
Women in
leadership 50%
Employee
engagement
79%
Strategic
Priorities
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
28
Our
Vision:
To be one of the world’s great service companies,
helping our customers, communities and people to prosper and grow
Areas of comparative advantage
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
Conservative balance sheet
Sustainability culture
Clear strategic position
Global efficiency leader
1 Gross impaired asset provisions to gross impaired loans.
29
Strategy
•Seeking to differentiate on service
•No. 1 or 2 position across key markets - all divisions well placed
•Unique portfolio of brands, reaching a broader customer set
•Comparative advantage in wealth platforms
•Embracing digital opportunities with leading online and mobile
capability
•Asset quality
−Lowest impaired assets of peers (0.22% of gross loans); well
provisioned at 46%
1
−Sound quality; balance sheet weighted to mortgages
−Sector leading through global financial crisis
•Capital - CET1 ratio above APRA’s “unquestionably strong”
benchmark internationally harmonised ratio in top quartile of
international peers
•Liquidity - LCR of 124%; NSFR of 109%
•Only major Australian bank SEC registered and listed on NYSE
•Expense to income ratio of 42.2% at lower end of global peers and
less than the average of Australian major banks
•Targeting expense to income ratio below 40%
•Productivity focus has delivered $2.1bn of savings FY09 to FY17
•Australia’s first bank and first company, reached 200 year
anniversary on 8th April 2017
•Global banking leader in Dow Jones Sustainability Index since
2002, named sector leader 10 times, including 2014, 2015, 2016
and 2017
•Ranked as one of the Global 100 most sustainable corporations in
the world by Corporate Knights for 10 of the last 11 years
•Released refreshed climate change policy
Consistent performer over the long term
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
1 Internationally comparable methodology aligns with the APRA study titled ‘International Capital Comparison Study’ dated 13 July 2015. For more details on adjustments refer slide 91.
Common equity Tier 1 capital ratio (%)
Cash earnings per share (cents) Cash earnings ($bn)
30
Strategy
3.5
5.0
4.7
5.9
6.3
6.6
7.1
7.6
7.8
7.8
8.1
FY07FY08FY09FY10FY11FY12FY13FY14FY15FY16FY17
189.4
198.3
163.7
197.8
209.3
214.8
227.8
245.4
248.2
235.5
239.7
FY07FY08FY09FY10FY11FY12FY13FY14FY15FY16FY17
7.4
8.2
9.1
9.0
9.5
9.5
10.6
16.2
Sep-11Sep-12Sep-13Sep-14Sep-15Sep-16Sep-17International
comparable
1
A conservative, high quality bank
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
1 Based on FY17 results. 2 Peer 2 data based on FY17 cash earnings results, excludes write-offs. Amortisation expense is based on amortisation expense excluding any impairment or accelerated amortisation.
Based on FY17 expense.
31
Impaired assets to gross loans
1
(%)
Individually assessed provisions to
impaired assets
1
(%)
Collectively assessed provisions to
credit RWA
1
(bps)
Effective tax rate
1
(%)
Capitalised software, average
amortisation period
1,2
(years)
Capitalised software balance and
amortisation
1,2
($bn)
Strategy
0.41
0.43
0.30
0.22
Peer 1Peer 2Peer 3WBC
47.7
36.1
45.5
46.3
Peer 1Peer 2Peer 3WBC
79
73
86
76
Peer 1Peer 2Peer 3WBC
29.4
28.4
28.7
30.4
Peer 1Peer 2Peer 3WBC
3.9
4.8
6.2
2.9
Peer 1Peer 2Peer 3WBC
1.86
1.93
2.71
1.92
0.57
0.39
0.38
0.62
Peer 1Peer 2Peer 3WBC
200 years proudly supporting Australia
Overview
Cash earnings and reported net profit reconciliation
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
1 Cash earnings is not a measure of cash flow or net profit determined on a cash accounting basis, as it includes non-cash items reflected in net profit determined in accordance with AAS (Australian Accounting
Standards). The specific adjustments outlined include both cash and non-cash items. Cash earnings is reported net profit adjusted for material items to ensure they appropriately reflect profits available to ordinary
shareholders. All adjustments shown are after tax. For further details refer to slide 132.
•Westpac Group uses a measure of performance referred to as cash earnings to assess financial
performance at both a Group and divisional level
•This measure has been used in the Australian banking market for around 15 years and management
believes it is the most effective way to assess performance for the current period against prior
periods and to compare performance across divisions and across peer companies
•To calculate cash earnings, reported net profit is adjusted for:
−Material items that key decision makers at Westpac Group believe do not reflect ongoing
operations
−Items that are not considered when dividends are recommended, such as the amortisation of
intangibles, impact of treasury shares and economic hedging impacts
−Accounting reclassifications between individual line items that do not impact reported results
Reported net profit and cash
earnings adjustments ($m)
Cash earnings
1
policy
6.8
7.6
8.0
7.4
8.0
7.1
7.6
7.8
7.8
8.1
FY13FY14FY15FY16FY17
Reported profitCash earnings
Reported net profit and cash earnings
($bn)
FY16 FY17
Reported net profit 7,445 7,990
Amortisation of intangible assets 158 137
Acquisition transaction and
integration expenses
15 -
Fair value (gain)/loss on
economic hedges
203 69
Ineffective hedges (9) 16
Partial sale of BTIM - (171)
Treasury shares 10 21
Cash earnings 7,822 8,062
FY17
($m)
% chg
FY17-
FY16
% chg
2H17-
1H17
Cash earnings 8,062 3% 1%
Cash EPS (cents) 239.7 2% -
Reported net profit 7,990 7% 5%
Results
33
FY17 financial snapshot
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
1 All measures on a cash earnings basis. 2 Total liquid assets represent cash, interbank deposits and assets eligible for exist ing repurchase agreements with a central bank.
FY17
Change
FY17 – FY16
Change
2H17 – 1H17
Earnings
1
Earnings per share (cents) 239.7 2% -
Core earnings ($m) 12,451 1% (1%)
Cash earnings ($m) 8,062 3% 1%
Return on equity
(%) 13.8 (22bps) (36bps)
Dividend (cents per share) 188 - -
Expense to income ratio
(%) 42.2 18bps 82bps
Net interest margin
(%) 2.09% (4bps) 3bps
Asset quality
Impairment charges to average gross loans
(bps)
13 (4bps) (4bps)
Impaired assets to gross loans (bps) 22 (10bps) (8bps)
Impaired provisions to impaired assets (%) 46.3 (3ppts) (6ppts)
FY17
Change
FY17 – FY16
Change
2H17 – 1H17
Balance sheet
Total assets ($bn) 851.9 2% 1%
Common equity Tier 1
(CET1) capital ratio (APRA basis) (%)
10.56 108bps 59bps
CET1 capital ratio
(Internationally comparable) (%)
16.20 177bps 86bps
CET1 capital ($bn) 42.7 10% 6%
Risk weighted assets ($bn) 404.2 (1%) -
Loans ($bn) 684.9 3% 3%
Customer deposits ($bn) 486.7 4% 2%
Net tangible assets per share ($) 14.66 5% 3%
Funding and liquidity
Customer deposit to loan ratio (%) 71.1 56bps 71bps
Net stable funding ratio (%) (estimate) 109 n/a n/a
Liquidity coverage ratio (%) 124 (10ppts) (1ppt)
Total liquid assets
2
($bn) 138 (4%) (1%)
34
Results
Cash earnings up 3% over the year and 1% on prior half
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
1 AIEA is average interest-earning assets
35
Performance discipline
Cash earnings features of FY17 – FY16 ($m)
7,822
356
271
8,062
(36)
(174)
(177)
FY16Net interest
income
Non-interest
income
ExpensesImpairment
charges
Tax & NCIFY17
Up 3%
AIEA
1
up 4%,
margins down 4bps
Lower individually assessed
provisions and higher write-backs
and recoveries
Provision for customer refunds and payments,
lower cards income, higher insurance claims
and margin compression on FUM/FUA partly
offset by higher markets income
Cash earnings features of FY17 – FY16 ($m)
4,017
318
133
4,045
(284)
(103)
(36)
1H17Net interest
income
Non-interest
income
ExpensesImpairment
charges
Tax & NCI2H17
Up 1%
AIEA up 2%,
margins up 3bps
Provision for customer refunds and
payments, lower credit card and
markets income, partially offset by
reduced general Insurance claims
Lower individually
assessed provisions
Additional investment and higher
regulatory and compliance costs
Cash earnings features of 2H17 - 1H7 ($m)
FY17
($m)
% chg
FY17-
FY16
% chg
2H17 -
1H17
Net interest
income
15,704 2 4
Non-interest
income
5,852 (1) (9)
Expenses (9,105) 2 2
Core earnings 12,451 1 (1)
Impairment
charges
(853) (24) (27)
Tax and non-
controlling
interests
(3,536) 5 2
Cash earnings
8,062 3 1
Reported net
profit
7,990 7 5
Additional investment and higher
regulatory and compliance costs
Dividends
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
Dividends (cents per share)
Ordinary dividend payout ratio (%)
Key dividend considerations for 2H17
Westpac dividend yield
1
(%)
1 Data using half year dividends and share price at 29 September 2017, or period end. 2 2H17 assumes DRP participation rate of 10%.
36
Performance discipline
•Sustainability of payout ratio over medium term. Based on current
financial position/growth a payout ratio of 70-75% is considered
sustainable
•CET1 capital ratio well positioned for APRA’s “unquestionably
strong” benchmark
•Still awaiting final regulatory capital requirements from APRA
•Modest RWA growth
•Impact of the Bank Levy (2 cents per share in 2H17)
•Surplus franking credits
86
88
90
92
93
94 94 94 94 94
10
10
1H132H131H142H141H152H151H162H161H172H17
Special dividend
4.7
6.3
6.2
6.4
5.4
5.9
6.8
9.0
8.8
9.1
7.7
8.4
1H152H151H162H161H172H17
Ordinary yieldIncluding franking
78.9
71.0
1H132H131H142H141H152H151H162H161H172H17
Payout ratio (cash earnings basis)Effective payout ratio (after DRP)
Reflects decision to add a 1.5%
discount to the DRP market price
2
Uplift in Consumer and Business divisions
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
1 Refer to division definitions, slide 133. 2 In A$. 3 Other is Group Businesses (including Treasury). 4 May not add due to rounding.
2H17 divisional
1
core earnings movements ($m)
2H17 divisional
1
cash earnings movements ($m)
37
Performance discipline
4,017
82
83
46
4,045
(23)
(96)
(64)
1H17CBBBBTFGWIBNZOther2H17
Up 1%
3
2
6,260
6,191
122
77
55
(29)
(196)
(98)
1H17CBBBBTFGWIBNZOther2H17
2
3
2H17 ($m) CB BB BTFG WIB NZ
2
Other
3
Group
Operating income 4,256 2,651 1,136 1,513 1,071 168 10,795
Bank Levy impact (pre-tax) (included above) (48) (27) (5) (15) - - (95)
Expenses (1,708) (928) (598) (666) (442) (262) (4,604)
Core earnings 2,548 1,723 538 847 629 (94) 6,191
Impairment (charges) / benefits (274) (162) (1) 8 37 32 (360)
Tax & non-controlling interests (681) (470) (163) (251) (185) (36) (1,786)
Cash earnings 1,593 1,091 374 604 481 (98) 4,045
Bank Levy impact (post-tax)
4
(34) (19) (3) (11) - - (66)
% of Group cash earnings
39 27 9 15 12 (2)
Down 1%
Building long term franchise value
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
Australian customers with a wealth product
2
(%)
New Zealand wealth metrics
2,3
(%)
Australian banking customer numbers (#m)
New Zealand customer numbers (#m)
1 September 2014 customer numbers not split between Consumer Bank and Business Bank. 2 Refer slide 136 for metric definition. 3 No peer data available for New Zealand.
38
Service leadership
8.49
8.61
8.61
8.75
8.91
9.11
1.45
1.48
1.65
1.69
1.71
1.73
9.90
9.94
10.09
10.26
10.44
10.62
10.84
Sep-14Mar-15Sep-15Mar-16Sep-16Mar-17Sep-17
Consumer BankBusiness Bank
19.8
14.9
14.3
18.8
11.9
Sep-15Sep-16Sep-17
Westpac brandSt.George brandsPeers
1.28
1.32
1.34
1.35
1.35
1.36
1.35
Sep-14Mar-15Sep-15Mar-16Sep-16Mar-17Sep-17
1
7.9
8.5
9.0
9.5
9.7
10.1
28.0
28.1
28.3
28.4
28.6
29.0
Mar-15Sep-15Mar-16Sep-16Mar-17Sep-17
Total FUM/FUA (NZ$bn)Customers with a wealth product (%)
Building long term franchise value – customer service
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
1 Refer slide 136 for metric definition.
39
Customer satisfaction
1
Consumer and New Zealand (%), Business (mean)
Customer complaints (#)
Service leadership
2H151H162H161H172H17
1H152H151H162H161H172H17
Australian retail (CB, BB and BT)
New Zealand retail
Down 31%
Down 27%
Down 41%
Down 7%
66%
70%
75%
79%
80%
Sep-15Sep-16Sep-17
WestpacPeers
New Zealand
Business
Consumer
80.8%
83.8%
82.0%
79.1%
80.1%
Sep-15Sep-16Sep-17
WestpacSt.George brandsPeers
7.3
7.6
7.1
6.9
7.3
Sep-15Sep-16Sep-17
WestpacSt.George brandsPeers
Westpac is actively responding to digital threats and opportunities through three streams of work.
These streams seek to encourage digital innovation inside, adjacent and outside the Group.
In this way Westpac can both learn directly, and gain access to emerging fintech developments
Reinventure has directly invested in a range of fintech
businesses to enable Westpac access to insights and
assess adjacent business opportunities
The model also helps Westpac review different ways
of working to be more innovative and deliver faster
16 investments to date covering areas such as:
•Blockchain
•Digital currencies
•Payments
•Peer-to-peer lending
•Big data
•Data analytics
•Social networks
•B2B networks
•Digital processes
For further details on these areas see following slide
Actively responding to digital opportunities
1
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
1 Logos are of the respective companies Stone & Chalk, R3, Uno, Surgical Partners, zipMoney, LanternPay and Qlabs.
40
Digital transformation
“The Hothouse” provides innovation services
supported by Entrepreneurs-In-Residence to
solve customer problems. Dedicated space at
Kogarah and 275 Kent St, Sydney
Active member of R3 creating opportunities
through industry collaboration. Utilising
distributed ledger-based systems to simplify
and automate financial services
Sponsoring the innovation ecosystem through
Stone & Chalk allows Westpac to partner with
the fintech community and bring the best of
the outside in
QuintessenceLabs (Qlabs) creating
opportunities with quantum
technology that encrypts
confidential data
Uno is a disruptor mortgage broker.
Enabling consumers to search,
compare and apply for a home loan
online, from a choice of 20 lenders
LanternPay is a scalable, cloud
based claims and payments
platform for use in consumer
directed care programs such as the
NDIS, aged / home care and
Government insurance schemes
Surgical Partners helps medical
practices improve efficiency by
connecting practice management
software to cloud based accounting
Reinventure is a $100m fintech
venture capital fund
Direct investment/partnering solving
business issues & customer problems
Accelerating innovation
The Hotbox program supports the
entrepreneurs within Westpac in creating
products and services that will form the
leading edge of innovation at Westpac
Offers point-of-sale credit and
digital payment services to the
retail, health, travel and education
sectors. It also owns Pocketbook, a
personal financial management app
Reinventure – Investing in new technology businesses
1
1 Logos are of the respective companies.
Westpac has committed $100m to Reinventure, an independently run venture capital fund.
The operation allows Westpac to gain access to emerging fintech business models, adjacent business
opportunities and entrepreneurial ways to execute at speed
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
Digital transformation
41
A peer-to-peer lending platform reducing the
cost of originating and managing consumer
loans, sharing its operating cost advantage
with both borrowers and investors to get a
better deal
An app to revolutionise the payment
process for customers when dining
out or grabbing a coffee on the go
Using data to shed light on high volume
crimes, improving prevention and detection
A bitcoin wallet and platform where
merchants and consumers can
transact the digital currency, bitcoin
A trust framework and secure platform
that allows users to exchange data
safely and securely
A social media platform for local
communities. Nabo differentiates itself
by helping residents develop real online
geographical communities (by suburbs)
A one-stop payments platform that helps
marketplaces, merchants and their
customers transact simply and securely
online (previously PromisePay)
A global Big Data, business
intelligence and enterprise data
warehousing company
A free, all-in-one HR and benefits
platform that manages on-boarding
and compliance and lets HR teams
focus on value added tasks
A business loan marketplace that
matches SMEs to the best lender
based on their characteristics and
needs
Connects ordering apps, payment
devices, loyalty and reservations
platforms to any point of sale
A natural language AI system for data
analysis targeting relatively simple business
queries that comprise 70% of an analyst’s
work in a large organisation
Standardises mobile forms into a
format you can easily read and fill
at the tap of a button
A platform to help home sellers find
and compare real estate agents
New
Open Banking API platform that provides
connectivity to over 100 financial sources
across Australia and NZ
Indebted is providing a new way for
businesses to collect outstanding debts.
The system helps businesses of all sizes
by leveraging modern communications,
automation and machine learning
New
Significant momentum in Customer Service Hub
Westpac Group 2017 Interim Results Presentation & Investor Discussion Pack
42
Digital transformation
Customer access
via any channel
Applications available
seamlessly across channels
Banker dashboard
Single point for bankers
to view customer information
and loan status
Application tracker
At any time customers
have clarity as to the
status of their application
Remote digital upload
of information
Customers can upload
documents digitally
Simplified application
assessment / approval for
customer and banker
Digitises a number
of manual processes
Digitised offer
and acceptance
Plain English terms
& conditions and online
acceptance
Settlement
Digital settlement.
Integrated with land
titles registry
Capabilities to be delivered
Increased
efficiency
More home
ownership
needs met at
origination
Lower cost
of change
Increased
banker
productivity
Improved
customer
experience
Leading
to
Phase 1
Strategy
Re-engineering the home loan process:
Digitising the end-to-end home loan origination experience by 2020
241
254
262
279
287
304
1H152H151H162H161H172H17
273
347
367
433
425
469
1H152H151H162H161H172H17
Customers continue to migrate to digital
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
Digital sales
1
(#’000’s)
Digital transactions
1,2
(#m)
Digitally active customers
1
(#m)
Branch transactions
1,2,3
(#m)
1 Australian Consumer and Business customers. 2 Digital transactions are typically payments and transfers. Branch transactions are typically withdrawals and deposits along with transfers and payments.
3 Prior periods have been restated to exclude certain non-financial transactions that had previously been included.
43
Digital transformation
3.84
3.96
4.05
4.18
4.33
4.53
Mar-15Sep-15Mar-16Sep-16Mar-17Sep-17
Up 8%
Up 5%
Up 8%
Up 10%
29.5
28.1
25.6
24.4
22.5
21.7
1H152H151H162H161H172H17
Down 11%
Down 4%
Up 9%
Up 6%
Mobile is our dominant channel.....
1 Introduced for SGB customers in June 2016 and Westpac customers in December 2016.
54.5
73.2
97.8
2H161H172H17
204
1,639
3,527
2H161H172H17
Up 34%
Up 115%
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
44
Digital transformation
2017
Innovation Excellence
Award awarded to
Quick Transfer
A new on-boarding
experience presents our
capabilities upfront
and helps customers
sign on and use them
quickly
Quick zone:
Check balances and
transfer funds between
accounts on your mobile
without having to log on,
making it easier to use
Building out mobile
specific capabilities for
banking on the go
Improve mobile
app useability
Improve mobile
app useability
Strategy of building out
mobile capabilities and
improving useability is working
Quick balance checks (#’000’s)
Quick transfer data (#’000’s)
1
72% of digitally active customers use mobile
Increasing use of self-serve options is driving efficiency
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
Accounts with e-statements (#m) Proof of balance - Westpac brand (%)
Interest & tax statements (#m)
Westpac card activation (%) Online overseas notifications (#’000’s)
45
Digital transformation
161
212
210
284
1H162H161H172H17
Up 35%
Up 34%
30
31
37
42
47
50
51
70
69
63
58
53
50
49
2H141H152H151H162H161H172H17
DigitalBranch and contact centre
944
988
1,179
1,348
1H162H161H172H17
4.6
4.8
6.0
7.2
28%
29%
36%
43%
Mar-16Sep-16Mar-17Sep-17
Number of accounts% of accounts
38
46
50
62
54
50
2H161H172H17
DigitalBranch and contact centre
0.3
1.9
1.3
2.5
1H162H161H172H17
Online password change/reset (#’000’s)
Up 32%
Up 92%
Up 36%
Up 14%
New digital services launched over the last 6 months
1 NFC is near field communication. 2 Connect allows for customers to connect directly with the contact centre once they are in a mobile app without the need to reverify. 3 Savings for Westpac brand.
Cardless cash at any
Westpac Group ATM
Activate card with NFC
1
(Westpac brands only)
Connect
2
across
all brands
•Transaction, savings and
credit card transactions are
grouped into categories
and sub-categories
•Enables customers to
obtain insight into their
spending patterns
•Cardless cash withdrawals
are now available from over
3,000 Westpac Group
ATMs (Westpac,
St.George, BankSA and
Bank of Melbourne)
•Customers with an eligible
Android device can activate
their card using the NFC
1
chip in their phone rather
than scanning their card
with their phone's camera
or entering their card
details manually
•Customers can connect to the
contact centre directly from
mobile app with no need to
verify with security questions
•Saves ~60-90 seconds per
call
3
•Offer to self-serve taken
up by ~46% of Connect
logins
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
46
Digital transformation
Categorisation of spend
(St.George brands only)
Helping customers manage their finances
1 SGB customers can access via desktop, mobile or tablet. Westpac customers can only access via desktop at this point.
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
47
Digital transformation
•Credit card reminder
alerts allows customers
to subscribe to a
notification via SMS or
email 5 days before their
monthly credit card
repayment is due
Keeping on top of
credit card repayments
Control over
spending
•Customers can add
extra discipline to their
spending habits by
restricting all debit
transactions on their
credit card account
including direct debits
and scheduled
payments
Choice and flexibility
in credit limits
•Customers can request a
decrease to their credit
card limit in an instant
through desktop, mobile
or tablet
1
Help managing
my debt
•SmartPlan is a new
structured repayment plan
to help customers manage
their credit card balance
•The system can break
down payments into a
number of regular
monthly instalments
– all within their
existing credit limit
Workforce revolution delivering
1 Spot number as at 30 September for each period. 2 Global high performing norm reflects the benchmark score for high performance organisations in the IBM engagement database. 3 Lost time injuries per hours
worked.
•Achieved 50% women in leadership
•Employee engagement up 10 percentage points to
79%, with improvements in ’ Risk Culture’ and
‘Senior Leadership’ dimensions
•Health, safety and wellbeing metrics improved
reflecting the focus and efforts in preventing injury
across the Group. Lost time injury frequency rate
0.6
•Introduced new performance framework ‘Motivate’,
focused on values, conduct, ethics and customer-
centred decision making
•Continued to build a service culture through
specialist frameworks including: ‘Our Service
Promise’, ‘Leadership Star’ and from updating the
Group’s Code of Conduct
•Remuneration structures for tellers and personal
bankers updated to focus on service
•Around 10,000 employees now in flexible
workplaces
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
48
Workforce revolution
42
44
46
48
50
Sep-13Sep-14Sep-15Sep-16Sep-17
96
96
95
95
95
Sep-13Sep-14Sep-15Sep-16Sep-17
1.5
1.1
0.8 0.8
0.6
Sep-13Sep-14Sep-15Sep-16Sep-17
Major workforce developments
Women in leadership positions
1
(%)
Lost time injury frequency rate
(rolling 12 months) (ratio)
3
Staff engagement
2
(%)
High performer retention
(rolling 12 months) (%)
69
79
77
Sep-16Sep-17
WestpacGlobal high performing norm
Continued sustainability leadership
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
1 From 2015, a higher threshold for green buildings was introduced in line with industry trends. 2 Formerly the Carbon Disclosure Project. 3 From the Westpac Bicentennial Foundation. 4 From the Westpac
Foundation.
Strategic priorities and 2H17 progress highlights
•Most sustainable bank globally in the 2017
Dow Jones Sustainability Index for the
fourth year in a row, and among sector
leaders annually since 2002
•Assigned a Gold Class ranking in the
RobecoSAM Sustainability Yearbook for
2017, released in January 2017
•Achieved ‘Leadership’ score level in the
CDP
2
2017 climate change questionnaire
•Met or exceeded 80% of 2013-17
Sustainability Strategy measures
•Awarded more than 200 scholarships
3
, 200
community grants
4
, and recognised 200
Businesses of Tomorrow in our 200
th
year
•Continue to fund social enterprises
developing skill pathways and employment
opportunities for vulnerable Australians
•Industry-first introduction of sustainability
scoring data in BT Invest and BT
Panorama
Leading track record
Help improve the way
people work and live as
our society changes
•Achieved goal of 50% women in leadership roles
(up from 48% a year ago)
•Exceeded 2017 target to recruit 500 Indigenous
employees
Help find solutions to
environmental challenges
•Released revised Climate Change Position
Statement
•Total committed exposure to the CleanTech and
environmental services sector was $7.0bn at 30
September 2017, exceeding target of $6.0bn
1
•Issued the first Australian originated offshore
foreign currency Climate Bond
Help customers to have a
better relationship with
money, for a better life
•Introduced new products to meet the changing
needs of customers, including a low interest rate
credit card and new savings accounts
•Lending to the social and affordable housing
sector increased to $1.32bn, up from $1.05bn a
year ago
Embracing societal change
1
Environmental solutions
2
Better financial futures
3
Significant achievements
Sustainable futures
49
Further information on Westpac’s Sustainability and progress on our
strategic priorities is available at www.westpac.com.au/sustainability
Continue to strengthen sustainability governance
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
•Updated the Group’s sustainability
governance frameworks responding to
material sustainability topics (issues and
opportunities) which included updates to:
−Climate Change Position Statement and
2020 Action Plan
−Human Rights Position Statement and
2020 Action Plan
−Reconciliation Action Plan 2018 - 2020
−Accessibility Action Plan 2018 - 2020
•Released our first Slavery and Human
Trafficking Statement in response to the
UK Modern Slavery Act
•Released our Responsible Sourcing Code
of Conduct and established our global
Responsible Sourcing Steering Committee
to oversee its application
50
Sustainable futures
Climate change
Reconciliation
Human rights
Supply chain
Accessibility
Modern Slavery Act
57
32
4
3
4
Green buildings
Renewable energy
Forestry
Waste
Other
Supporting the transition to a sustainable economy
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
1 Exposures in WIB only. 2 At 30 September 2017, Westpac had no exposure to water or land remediation projects that met the criteria for the Group’s CleanTech exposures.
51
Sustainable futures
CleanTech and environmental
services exposure ($bn)
Mining portfolio (TCE) by sector
(%)
CleanTech and environmental
services exposure (%)
1,2
Mining portfolio to total lending
TCE (%)
6.1
6.3
6.2
6.7
7.0
Sep-15Mar-16Sep-16Mar-17Sep-17
0
10
20
30
40
50
Oil and
gas
Other
metal
ore
Iron oreMining
services
CoalOther
1H162H161H172H17
TCE at 30 September 2017 $9.7bn
TCE at 30 September 2017 $7.0bn
Electricity generation exposure (%)
1
Emissions intensity (tCO
2
-e/MWh) –
Australia only
0.41
0.38 0.38
0.36
0.87
0.91
0.90
0.86
2014201520162017
Westpac electricty generation portfolio
National Electricity Market (NEM) Benchmark
66
17
14
2
1
Renewable energy
Gas
Black coal
Brown coal
Liquid fuel
99
1
Total Group lending
(ex. Mining)
Mining
Charts may not add to 100 due to rounding
Actively supporting Australia
1 All figures for the full year to 30 September 2017 unless otherwise stated. 2 New mortgage and new business lending in Australian retail operations which includes CB, BB and BTFG. 3 Dividends paid represents
the 1H17 plus 2H17 dividend. 4 Source: ATO’s Corporate Tax Transparency Report for the 2014 - 15 Income Year, published December 2016. 5 From the Westpac Bicentennial Foundation. 6 From the Westpac
Foundation. 7 Westpac is liable for the Major Bank Levy, which began to apply from 1 July 2017, and the amount payable for the last quarter of FY17 was $95m. This amount will be paid on 21 March 2018.
52
Sustainable futures
Supporting communities
1
•Provide loans to help Australians own
their home or grow their business
•Support the efficient flow of funds in the
economy and keep deposits safe
Backing
economic
activity
$101bn
new lending
2
$599bn
total
Aust. loans
•Support working and retired Australians
either directly or via their super funds
(630k shareholders)
Wealth
of many
Australians
$6.3bn
in dividends
3
;
Market
capitalisation
$108bn
•2
nd
largest Australian taxpayer
4
paying
more than $3bn in income tax in 2017
The
bottom
line
>$3.5bn
in income tax
expense for
the year
•Employ over 39,000 people
The
workforce
$4.7bn
in payments
to employees
•Westpac 200 Businesses of Tomorrow
•First 200 Westpac Scholars
5
•200 Community Grants
6
•40+ years continuous support of the
Westpac Rescue Helicopter Service
The
nation
>1% of
pre-tax
profit to
community
contributions
Income tax expense on a cash earnings basis ($m) FY16 FY17
Notional income tax based on the Australian company
tax rate of 30%
3,354 3,479
Net amounts not deductible/
(not assessable)
(10) 50
Total income tax expense
in the income statement
3,344 3,529
Effective tax rate (%) 29.9 30.4
Other major tax/government payments ($m) FY16 FY17
Bank Levy
7
n/a 95
Net GST, Payroll tax, FBT 447 469
Westpac also makes a number of other government and regulatory
payments including fees for the committed liquidity facility, APRA fees
and stamp duties which are not included in the above.
Similarly, Westpac also collects tax on behalf of others, such as
withholding tax and PAYG. These are excluded from this analysis
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
200 years proudly supporting Australia
Earnings Drivers
Net operating income flat over the half
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
1 AIEA is average interest-earning assets. 2 New Zealand contribution represented in A$. 3 Group Businesses.
54
Revenue
Net operating income movement ($m)
Net operating income by division ($m)
10,600
168
30
199
18 10,761
156
162
38
10,795
(170)
(84)
(97)
(209)
(16)
2H16AIEA
growth
MarginsFees &
commissions
WealthTradingOther1H17AIEA
growth
MarginsFees &
commissions
WealthTradingOther2H17
10,600
2
23
195
16 10,761
201
94
36
10,795
(46)
(29)
(9)
(187)
(101)
2H16CBBBBTFGWIBNZGroup1H17CBBBBTFGWIBNZGroup2H17
39
25
11
14
10
CB
BB
BTFG
WIB
NZ
Group
2H17 Divisional contribution (%)
1
Net interest flat Non-interest up 6% Net interest up 4% Non-interest down 9%
Up 2% Flat (up $34m)
1
2
3
2 2
3 3
(1%)
Australian business lending
1
($bn) New Zealand net loans (NZ$bn)
Composition of lending
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
1 Gross loans. 2 Run-off includes repayment. 3 Other includes business lending in Private Wealth.
Net loans ($bn) Composition of lending (% of total)
Australian mortgage lending
1
($bn)
55
Revenue
62.3 13.1
8.7
3.3
10.4
2.2
Aust. mortgages
Aust. business
Aust. institutional
Aust. other consumer
New Zealand lending
Other overseas lending
661.9
666.9
10.3
3.2
2.5
1.1
0.9 684.9
Sep-16
Mar-17
Consumer
Bank
Business
Bank
WIB
New
Zealand
Other
(inc. BT)
Sep-17
Up 3%
New Zealand lending up
NZ$0.8bn
404.2
413.9
40.3
427.2
(27.0)
Sep-16
Mar-17
New
lending
Net
run-off
Sep-17
150.2
147.7
11.5
1.0
0.1 150.5
(9.8)
Sep-16
Mar-17
BB new
lending
BB run-off
WIB net
lending
Other
Sep-17
75.1
76.5
0.8 0.0 77.3
Sep-16
Mar-17
Consumer
Business
Sep-17
Up 3%
Up 2%
Up 1%
3 2
2
Customer deposits
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
Customer deposit composition ($bn)
Mortgage offset
1
balances ($bn)
Customer deposit mix ($bn) and % of total
New Zealand customer deposits (NZ$bn) and % of total
1 Included in transaction accounts.
56
Revenue
189
191 191
64
60
58
84
92 96
130
136
142
467
479
487
Sep-16Mar-17Sep-17
Term depositsSavingsOnlineTransaction
181
186
192
111
112
115
88
94
89
87
87
91
467
479
487
Sep-16Mar-17Sep-17
CBBBWIBBTFG, NZ & Other
39%
12%
20%
29%
Up 3% Up 2%
LCR customer
deposit run-off
13.4% 13.5% 13.7%
18.4
23.5
30.5
35.1
38.1
Sep-13Sep-14Sep-15Sep-16Sep-17
29
28
30
3
4
3
14
13
12
12
12
13
58
57
58
Sep-16Mar-17Sep-17
Term depositsSavingsOnlineTransaction
51%
6%
21%
22%
Down 1% Up 1%
Net interest margin up 3bps; rise in asset spreads partly offset by
Bank Levy and lower Treasury income
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
Net interest margin by division (%)
Net interest margin (NIM) (%) Net interest margin (NIM) movement (%)
57
Revenue
2.04
2.00
2.06
0.07
0.07
(3bps)
0.04
2.11
2.07
7bps 0bp
2bps (2bps)
0bp
(1bp)
2.10
2H161H17
Loans
Customer deposits
Term wholesale
funding
Bank Levy
Capital & other
Liquidity
Treasury &
Markets
2H17
NIM excl. Treasury & MarketsTreasury & Markets impact on NIM
Repricing of
certain mortgages
New term senior
issuance lower cost
than maturing deals
Term deposit repricing offset
by the impact of lower
interest rates on hedging of
transaction deposits
2.18
2.10
2.03
2.06
2H121H132H131H142H141H152H151H162H161H172H17
NIMNIM excl. Treasury & Markets
2.37
2.72
1.72
2.18
2.34
2.72
1.76
2.13
2.28
2.70
1.77
1.96
2.35
2.74
1.85
2.08
CBBBWIBNZ
1H162H161H172H17
Lower Treasury contribution from
interest rate risk management
Non-interest income down 9% from lower markets income
and provision for customer refunds and payments
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
Fees and commissions income
1
($m)
Trading income ($m)
Non-interest income contributors ($m)
Wealth and insurance income ($m)
1 Comparatives have been restated for the accounting change to the Westpac New Zealand credit card rewards.
58
38
2,905
3,068
2,784
(97)
(209)
(16)
2H161H17Fees &
Comm.
Wealth &
insurance
Trading
income
Other2H17
Down 9%
1,482
1,392
1,396
1,426
1,329
2H151H162H161H172H17
Provision for customer refunds and payments and lower
card income, partly offset by higher business line fees
539
610
514
713
504
2H151H162H161H172H17
Risk management income lower
(fixed income, FX and commodities)
1,090
941
970
886
924
2H151H162H161H172H17
Lower insurance claims, including general insurance claims from Cyclone
Debbie, partly offset by provision for customer refunds and payments
Revenue
Wealth, insurance, markets and Treasury income
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
Insurance income ($m)
Total Group market risk-related income ($m)
Wealth management income ($m)
Markets income by activity ($m)
1 DVA is derivative valuation adjustments.
59
Revenue
382
365
371
201
206
128
82
51
86
665
622
585
2H161H172H172H161H172H172H161H172H172H161H172H17
FUM/FUA
Other
(mostly BT)
NZ & WIB Total
126
136
143
97
42
116
82
86
80
305
264
339
2H161H172H172H161H172H172H161H172H172H161H172H17
Life General LMI & NZ Total
Hastings
performance
fees
Fund flows partly offset by
margin compression
Higher premiums
and lower claims
447
482
436
89
247
72
10
19
27
546
748
535
2H161H172H172H161H172H172H161H172H172H161H172H17
250
257
131
89
247
72
10
19
27
349
523
230
2H161H172H172H161H172H172H161H172H172H161H172H17
Customer
Market risk
related
DVA
1
Total
Treasury
Market risk
related
Total
Lower fixed income and FX risk
management income
Lower fixed income and FX sales
DVA
1
Customer refunds
and revaluation of
investment in
boutique funds
Cyclone Debbie
Expenses up 2% from investments and
increased regulatory and compliance costs
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
FTE run versus change (#)
Global peer comparison of expense to income ratios
2
(%)
Expense movements ($m)
Divisional expense to income ratio
(%)
1 Comparatives have been restated for the accounting change to the Westpac New Zealand credit card rewards. 2 Company data, Credit Suisse. Expense to income ratio average for Peer 1, 2 and 3 based on their
FY17 results, all others based on FY16. European average excludes Deutsche Bank.
60
Expenses
4,501
143
54
50 4,604
(144)
1H17Ongoing
expenses
ProductivityInvestmentRegulatory/
compliance
2H17
35,580
6 35,290
16 35,096
(296)
(210)
2H16RunChange1H17RunChange2H17
Up 2%
Run: ongoing operations
Change: project based
40.3
35.5
50.0
45.0
42.3
40.2
35.6
50.5
38.6
44.4
40.1
35.0
52.6
44.0
41.4
CBBBBTFGWIBNZ
2H161H172H17
62.9
62.3
60.5
59.9
51.0
46.1
45.9
42.7 42.7
42.2
European
average
US regional
average
Canadian
average
Korean
average
Hong Kong
average
Peer 1
Singapore
average
Peer 2Peer 3
WBC
Full Year ratios
1
1
Investment spend focused on growth and productivity
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
1 Investment spend capitalised also includes technology hardware equipment. 2 Data based on FY17 results, excludes write-offs. Amortisation expense is based on amortisation expense excluding any impairment
expense.
Average amortisation period
2
(years)
Capitalised software balance
and amortisation
2
($bn)
Investment spend ($m)
Investment spend capitalised
1
($m)
2H16 1H17 2H17
Expensed 261 236 243
Capitalised
1
439 344 433
Total investment
spend
700 580 676
Investment spend
expensed
37% 41% 36%
Software amortisation 294 303 312
Average amortisation
period
2.8yrs 2.9yrs 2.9yrs
2H16 1H17 2H17
Capitalised software
Opening balance 1,651 1,781 1,814
Additions
428 344 424
Amortisation (294) (303) (312)
Write-offs, impairments and
foreign exchange translation
(4) (8) (10)
Closing balance 1,781 1,814 1,916
Other deferred expenses
Deferred acquisition costs 101 91 86
Other deferred expenses 45 56 28
Total investment spend mix (% of total)
63
65
62
23
24
27
14
11 11
2H161H172H17
Growth & productivityRegulatory change
Other technology
Expenses
61
3.9
4.8
6.2
2.9
Peer 1Peer 2Peer 3WBC
1.86
1.93
2.71
1.92
0.57
0.39
0.38
0.62
Peer 1Peer 2Peer 3WBC
Productivity track record: $2.1bn in savings since 2009
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
1 Total branches in Australia, New Zealand and Westpac Pacific. 2 Represents % of Australian branches with Business Connect/Connect Now. 3 Cumulative numbers. 4 Percentage change is based on prior corresponding period.
$2.1bn saved from efficiency programs since FY09 ($m)
Metrics
•Business model changes across divisions
•Head office consolidation and migration to flexible
workspaces
•Migration to digital, supporting the net reduction of
59 branches
•Improved e-Statement functionality in Consumer
Bank has supported an increase in the number of
accounts registered for e-Statements to 7.2 million
•67% of customers in New Zealand registered for e-
Statements
•Fast tracked application to funds from 10 days to
same day with electronic delivery and acceptance
of St.George mortgage top–up documents
•Improved time to cash for unsecured personal
loans from 8.5 days, with 45% of customers
experiencing same-day settlement
•Roll out of the new digital cheque imaging
technology, across all branches in Australia,
scanning over 45,000 items daily. Digital cheque
imaging reduces courier costs and results in faster
and more efficient processing
•Introduced two-way SMS capability that enables
St.George customers to request an instant status
update for their credit card or personal loan
application and confirm any missing information
required to assess their application
1,828
2,090
143
212
289
238
225
219
239
263
262
FY09FY10FY11FY12FY13FY14FY15FY16FY09-FY16
cumulative
FY17Cumulative
Sep-15 Sep-16 Sep-17
Number of branches
1
1,429 1,310 1,251
Australian SmartATMs as a % of total ATM network
34% 41% 44%
Business Connect/Connect Now video conferencing
2
86% 90% 94%
Consumer Bank and Business Bank active digital customers
3
(# m) 4.0 4.2 4.5
Retail and business banking and wealth complaint reduction
4
28% 31% 18%
Number of IT applications closed
3
119 151 186
FY09 - FY17 annual
productivity savings
Expenses
62
Efficiency initiatives
Lower 2H17 impairment charge reflects improving asset quality
Westpac Group 2017 Interim Results Presentation & Investor Discussion Pack
1 Pre-2008 does not include St.George. 2008 and 2009 are pro forma including St.George for the entire period with 1H09 ASX Profit Announcement providing details of pro forma adjustments.
63
471
256
364
246
(174)
(173)
(228) (228)
418
484
443
525
(48)
(110)
(86)
(183)
667
457
493
360
1H162H161H172H171H162H161H172H171H162H161H172H171H162H161H172H171H162H161H172H17
Impairment charges ($m)
Impairment charges and stressed exposures
1
(bps)
New IAPs
Write-backs & recoveries Write-offs direct Other movements in CAP
Total
Individually assessed Collectively assessed
Lower due to absence of
large single names
11bps
105bps
0
100
200
300
400
500
0
20
40
60
80
100
120
200720082009201020112012201320141H152H151H162H161H172H17
Impairment charge to average loans annualised (lhs)
Stressed exposures to TCE (rhs)
Higher due to unsecured
consumer hardship write-offs
Reflects improved
asset quality
Asset Quality
200 years proudly supporting Australia
Asset Quality
High quality portfolio with bias to secured consumer lending
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
1 Risk grade equivalent. 2 Exposure by booking office.
65
Asset composition as at 30 September 2017 (%)
Exposure by risk grade as at 30 September 2017 ($m)
81
10
3
2
1
1
1
1
Loans (81%)
Trading securities, financial assets at fair value and
available-for-sale securities (10%)
Derivative financial instruments (3%)
Cash and balances with central banks (2%)
Life insurance assets (1%)
Goodwill (1%)
Receivables due from other financial institutions (1%)
Other assets (1%)
68
17
11
4
Housing
Business
Institutional
Other consumer
Total loans ($685bn) Total assets ($852bn)
Standard and Poor’s Risk Grade
1
Australia NZ / Pacific Asia Americas Europe Group % of Total
AAA to AA-
95,108 9,341 811 7,837 575 113,672
11%
A+ to A-
31,918 5,419 6,198 4,864 2,815 51,214
5%
BBB+ to BBB-
59,189 10,367 8,025 2,133 1,582 81,296
8%
BB+ to BB
73,368 10,787 1,638 321 526 86,640
9%
BB- to B+
59,416 9,397 96 78 5 68,992
7%
<B+
5,073 2,798 28 - 18 7,917
1%
Secured consumer
493,322 51,949 447 - - 545,718
54%
Unsecured consumer
45,175 5,258 - - - 50,433
5%
Total committed exposures (TCE)
862,569 105,316 17,243 15,233 5,521 1,005,882
Exposure by region
2
(%)
86% 10% 2% 2% <1% 100%
Asset quality
A well diversified loan portfolio
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
1 Exposure at default is an estimate of the committed exposure expected to be drawn by a customer at the time of default. Excludes consumer lending. 2 Finance and insurance includes banks, non-banks,
insurance companies and other firms providing services to the finance and insurance sectors. 3 Property includes both residential and non-residential property investors and developers, and excludes real estate
agents. 4 Construction includes building and non-building construction, and industries serving the construction sector. 5 NBFI is non-bank financial institutions.
Top 10 exposures to corporations and NBFIs
5
as a % of TCE (%)
Top 10 exposures to corporations & NBFIs
5
at 30 September 2017 ($m)
66
1.9
1.4
1.3
1.1
1.2
1.3
1.1
1.2
1.0
1.1
Sep-08Sep-09Sep-10Sep-11Sep-12Sep-13Sep-14Sep-15Sep-16Sep-17
Largest corporation/NBFI single name exposure
represents less than 0.2% of TCE
03006009001,2001,5001,8002,100
A+
BBB+
BBB+
BBB+
A-
A
BBB
BBB
A
BBB-
S&P rating or equivalent
Exposure at default
1
by sector ($bn)
020406080100
Other
Mining
Accommodation, cafes
& restaurants
Construction
Utilities
Agriculture, forestry & fishing
Transport & storage
Property services & business services
Services
Manufacturing
Wholesale & retail trade
Government admin. & defence
Property
Finance & insurance
Sep-17
Mar-17
Sep-16
2
3
4
Asset quality
Well provisioned, asset quality improved
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
Provisions
Impaired asset provisions to impaired assets (%)
Sep-16 Mar-17 Sep-17
Total provisions to gross loans (bps) 54 52 45
Impaired asset provisions to impaired assets (%) 49 52 46
Collectively assessed provisions to credit RWA (bps) 76
77 76
Economic overlay ($m) 389 378 323
1,622
1,461
1,470
1,364
867
669
869
787
480
2,986
2,607
2,408
2,196
2,225
2,275
2,344
2,348
2,316
453
346
363
389
389
388
389
378
323
5,061
4,414
4,241
3,949
3,481
3,332
3,602
3,513
3,119
Sep-10Sep-11Sep-12Sep-13Sep-14Sep-15Sep-16Mar-17Sep-17
Lower total provisions
mainly due to work out of
exposures in WIB
Total provisions ($m)
67
49
41
36
38
52
43
35
45
46
48
36
46
WestpacPeer 1Peer 2Peer 3
FY161H17FY17
Economic overlay
Collectively assessed provisions
Individually assessed provisions
Asset quality
Stressed exposures lower
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
New and increased gross impaired assets ($m)
Movement in stressed exposure categories (bps to TCE) Stressed exposures as a % of TCE
68
120
(2)
2
(2)
(4)
114
(5)
(1)
0
(3)
105
Sep-16
Impaired
90+ dpd not
impaired
Substandard
Watchlist
Mar-17
Impaired
90+ dpd not
impaired
Substandard
Watchlist
Sep-17
Mainly due to work-out
of WIB exposures
1,748
1,519
1,343
1,060
1,194
997
958
708
609
607
633
1,078
477
589
440
2H101H112H111H122H121H132H131H142H141H152H151H162H161H172H17
0.67
0.62
0.58
0.44
0.27
0.20
0.22
0.15
0.46
0.41
0.35
0.31
0.26
0.25
0.33
0.34
2.07
1.45
1.24
0.85
0.71
0.54
0.65
0.56
3.20
2.48
2.17
1.60
1.24
0.99
1.20
1.05
Sep-10Sep-11Sep-12Sep-13Sep-14Sep-15Sep-16Sep-17
Watchlist & substandard
90+ day past due (dpd) and not impaired
Impaired
Lower stress reflects
refinance and work-out of
institutional facilities and an
improved outlook for some
NZ dairy exposures
Asset quality
Provision cover by portfolio category
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
69
Exposures as a % of TCE
0.26
0.22
0.20
0.15
0.28
0.33
0.35
0.34
0.49
0.65
0.59
0.56
98.97
98.80
98.86
98.95
Mar-16Sep-16Mar-17Sep-17
Fully
performing
portfolio
Watchlist &
substandard
90+ day past
due and not
impaired
Impaired
Fully performing portfolio
•Small cover as low probability
of default (PD)
•Includes economic overlay
0.22 0.22 0.21 0.20
Provisioning to TCE (%)
Mar-16 Sep-16 Mar-17 Sep-17
Watchlist & substandard
•Still performing but higher
cover reflects elevated PD
4.89 4.51 4.52 4.76
90+ day past due and not impaired
•In default but strong security 4.99 4.57 5.04 5.08
Impaired assets
•In default. High provision cover
reflects expected recovery
47.65 49.44 52.07 46.30
Impaired
asset
provisions
Collective
provisions
Asset quality
Stressed exposures lower across industries
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
1 Includes Finance & insurance, Utilities, Government admin. & defence.
Corporate and business portfolio stressed exposures by industry ($bn)
70
0.0
0.5
1.0
1.5
2.0
2.5
Agriculture, forestry
&
fishing
Wholesale &
retail trade
Property
Transport & storage
Manufacturing
Services
Property services &
business services
Construction
Accommodation,
cafes
& restaurants
Other
Mining
Sep-16Mar-17Sep-17
1
Includes New
Zealand dairy
2 larger names
in watchlist
Asset quality
Areas of interest: Commercial property
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
1 Includes impaired exposures. 2 Percentage of commercial property portfolio TCE.
Commercial property portfolio composition (%)
Commercial property exposures % of TCE and % in stress Commercial property portfolio
71
0
5
10
15
20
0
2
4
6
8
10
1H092H091H102H101H112H111H122H121H132H131H142H141H152H151H162H161H172H17
Commercial property as % of TCE (lhs)
Commercial property % in stress (rhs)
Mar-17 Sep-17
Total committed exposures (TCE) $65.5bn $65.2bn
Lending $49.7bn $49.6bn
Commercial property as a % of Group TCE 6.65 6.48
Median risk grade
BB equivalent BB equivalent
% of portfolio graded as stressed
1,2
1.39 1.27
% of portfolio in impaired
2
0.46 0.38
16
11
9
6
5
9
44
NSW & ACT
Vic
Qld
SA & NT
WA
NZ & Pacific
Institutional
(diversified)
44
11
29
16
Exposures <$10m
Developers >$10m
Investors >$10m
Diversified Property
Groups and Property
Trusts >$10m
43
27
21
9
Commercial offices
& diversified groups
Residential
Retail
Industrial
Borrower type (%) Region (%) Sector (%)
Asset quality
Areas of interest: Inner city apartments
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
72
1 Percentage of commercial property TCE.
53.9
50.5
48.3
45.0
2017201820192020
Expected Completion Year
Sep-16 Mar-17 Sep-17 TCE %
1
Residential apartment development >$20m 5.1 4.1 4.2 6.4%
•Progressively tightened risk appetite in areas of higher concern since 2012
•Actively monitoring settlements for >$20m residential development book
•While settlements have been slightly slower, Westpac’s debt has been
repaid in full given low LVRs
Residential apartment development
>$20m in major markets, shown below
3.2 2.8 2.7 4.1%
Sydney major markets 1.2 1.3 1.5 2.3%
•2H17 new lending LVR 42%
Inner Melbourne 1.4 1.0 0.7 1.1%
•2H17 new lending LVR 44%
Inner Brisbane 0.4 0.2 0.4 0.6%
•Exposure low, new lending at 47% LVR
Perth metro 0.2 0.2 0.0 0.0%
•Exposure low and falling
Adelaide CBD 0.1 0.1 0.1 0.2%
•One project
Average portfolio
LVR 50%
Consumer mortgages where
security is within an inner city
residential apartment development
Mar-17 Sep-17
Total consumer mortgage loans for
inner city apartments
$13.5bn $14.1bn
Average LVR at origination 71% 70%
Average dynamic LVR 53% 53%
Dynamic LVR >90% 2.0% 1.94%
90+ day delinquencies 37bps 36bps
Residential apartment development >$20m weighted average LVR (%) Consumer mortgages
Commercial property portfolio TCE ($bn)
No major developments
yet for completion
in 2021
Asset quality
Asset quality areas of interest
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
1 Includes impaired exposures. 2 Percentage of portfolio TCE.
New Zealand dairy portfolio Retail trade portfolio Mining (inc. oil and gas) portfolio
73
Mar-17 Sep-17
Total committed exposures (TCE) $10.4bn $9.7bn
Lending $6.0bn $5.1bn
% of Group TCE 1.05 0.96
% of portfolio graded as stressed
1,2
2.90 2.33
% of portfolio in impaired
2
1.15 0.44
Mar-17 Sep-17
Total committed exposure (TCE) NZ$5.9bn NZ$6.0bn
Lending NZ$5.6bn NZ$5.8bn
% of Group TCE 0.55 0.55
% of portfolio graded as stressed
1,2
21.70 17.02
% of portfolio in impaired
2
0.34 0.34
Mar-17 Sep-17
Total committed exposures (TCE) $15.3bn $15.4bn
Lending $11.3bn $11.5bn
% of Group TCE 1.55 1.53
% of portfolio graded as stressed
1,2
2.51 3.02
% of portfolio in impaired
2
0.40 0.31
Mining portfolio (TCE)
by sector (%)
NZ dairy portfolio (TCE)
by security (%)
Retail portfolio (TCE)
by sector (%)
39
14
20
6
13
8
Oil and gasIron ore
Other metal oreCoal
Mining servicesOther
76
23
1
Fully secured
Partially secured
Unsecured
26
33
41
Food Retailing
Motor Vehicle Retailing and Services
Personal and Household Good Retailing
Asset quality
Changes in the treatment of hardship now flowing
through other consumer delinquencies
1 For consumer unsecured portfolios when an account reaches 180 days past due, in line with portfolio practices, it is written off. 2 For consumer unsecured portfolios any payments received after write-off and until
the serviceability period has expired and if the account returns to performing are recorded as recoveries.
Industry comparability Prior Westpac approach Current Westpac approach
Impact on unsecured consumer lending Impact on mortgages - completed
APRA is standardising the industry treatment of delinquency classification of facilities in hardship
Hardship allows eligible customers to reduce or defer repayments in the short term to manage through a period of financial difficulty
(e.g. unemployment, injury, natural disasters). Solutions are tailored to customer circumstances and may include extending the loan or restructuring.
•Westpac changed hardship treatment following
guidance from APRA. Implemented change for
mortgage portfolio; changes for NZ and consumer
unsecured currently underway
•Treatment across banks and non-banks, including
serviceability period applied is not yet aligned. This
makes comparability of absolute 90+ day
delinquencies across the industry more difficult
•When a mortgage account entered hardship its
delinquency status (30, 60, or 90 days etc.) was
frozen until after hardship arrangements ended or
the facility returned to performing (or not)
•When an unsecured account entered hardship its
delinquency status was treated as performing whilst
under the hardship arrangement
•An account in hardship continues to migrate
through delinquency buckets
•Accounts reported as delinquent
1
until repayments
maintained for 6 months (‘serviceability period’)
2
•Average hardship period granted is 3-4 months
•Hardship plus serviceability period averages 10
months
•Changes have no impact on Westpac’s risk profile
0.45
0.51
0.53
0.54
0.49
0.01
0.01
0.01
0.02
0.03
0.12
0.12
0.16
0.2
0.3
0.4
0.5
0.6
0.7
Sep-15Mar-16Sep-16Mar-17Sep-17
Accounts in serviceability period
Accounts in hardship increase
90+ day delinquencies excl. hardship changes
Australian mortgage delinquencies (bps)
1.11
1.49
1.16
1.35
1.10
0.01
0.16
0.19
0.12
0.37
0.5
1.0
1.5
2.0
Sep-15Mar-16Sep-16Mar-17Sep-17
Accounts in serviceability period
Accounts in hardship increase
90+ day delinquencies excl. hardship changes
Australian unsecured consumer delinquencies (bps)
•Implemented in 1H16
and has now fully
flowed through
•Increased mortgage
90+ day delinquencies
by 18bps, with 4bps
attributed to hardship
facilities for Cyclone
Debbie.
•Implemented for
credit cards, personal
loans and auto in 2H16
and 1H17
•Impact on 90+ day
delinquencies in FY17
was 56bps.
•Is resulting in higher
write-offs
1
and higher
recoveries
2
•The change has yet to
flow through to risk
weighted assets
74
Asset quality
90+ day delinquencies (%) 90+ day delinquencies (%)
Australian consumer unsecured lending, 3% of Group loans
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
Sep-16 Mar-17 Sep-17
30+ day delinquencies
(%) 2.95 3.99 3.60
90+ day delinquencies
(%) 1.17 1.63 1.66
Estimated impact of changes to hardship
treatment for 90+ day delinquencies (bps)
1bp 28bps 56ps
•APRA hardship policy adopted across Australian unsecured portfolios in FY17
•September 2017 unsecured consumer delinquencies, excluding hardship reporting
changes are 6bps lower than September 2016
Australian unsecured portfolio ($bn)
10
5
8
23
10
5
8
23
10
5
7
22
Credit cardsPersonal
loans
Auto loans
(consumer)
Total
consumer
unsecured
Sep-16Mar-17Sep-17
90+ day delinquencies (%) - By State Australian consumer unsecured lending portfolio
75
-
1.00
2.00
3.00
Sep-14Mar-15Sep-15Mar-16Sep-16Mar-17Sep-17
NSW/ACTVIC/TASQLDWASA/NT
-
1.00
2.00
3.00
Total unsecured
consumer lending
Credit cards
Total ex-hardshipCredit cards
ex-hardship
-
1.00
2.00
3.00
Personal loansAuto loans
Personal loans
ex-hardship
Auto loans
ex-hardship
Asset quality
Australian mortgage portfolio continues to perform well,
higher stress in regions impacted by mining slowdown
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
Australian mortgages 90+ day delinquencies by state (%)
Housing lending portfolio by State (%)
Australian mortgage delinquencies and
properties in possession (PIPs)
Sep-16 Mar-17 Sep-17
30+ day delinquencies
(bps) 130 139 130
90+ day delinquencies
(bps)
(includes impaired mortgages)
66 67 67
Estimated cumulative impact of changes to
hardship treatment (bps)
13 13 18
Consumer PIPs 262 382 437
Increase in both 1H17 and 2H17 mainly due to rise in WA and Qld
reflecting weaker economic conditions in those states
0.0
1.0
2.0
3.0
Mar-14Sep-14Mar-15Sep-15Mar-16Sep-16Mar-17Sep-17
90+ day past due total90+ day past due investor
30+ day past due totalLoss rates
0.0
1.0
2.0
3.0
Mar-14Sep-14Mar-15Sep-15Mar-16Sep-16Mar-17Sep-17
NSW/ACTVIC/TASQLD
WASA/NTALL
36
28
18
12
7
41
26
17
9
7
45
27
16
6
6
NSW & ACTVIC & TASQLDWASA & NT
Australian banking system
Westpac Group portfolio
FY17 Westpac Group drawdowns
1 Source ABA Cannex August 2017.
76
1
Introduced new hardship treatment
Australian mortgage portfolio delinquencies
Introduced new hardship treatment
Asset quality
Australian mortgage portfolio well collateralised
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
Australian mortgage portfolio
Sep-16
balance
Mar-17
balance
Sep-17
balance
2H17
flow
1
Total portfolio ($bn)
404.2 413.9 427.2 40.3
Owner occupied (%)
55.0 55.3 55.5 52.5
Investment property loans (%)
39.3 39.5 39.8 46.8
Portfolio loan/line of credit (%)
5.7 5.3 4.8 0.7
Variable rate / Fixed rate (%)
83 / 17 82 / 18 79 / 21 64 / 36
Interest only (%)
51.0 50.1 45.5 34.2
Low doc (%)
2.4 2.2 2.0 0.4
Proprietary channel (%)
57.9 57.7 57.3 54.1
First home buyer (%)
8.6 8.4 8.1 6.5
Mortgage insured (%)
18.4 18.1 17.5 14.1
Sep-16 Mar-17 Sep-17
Average loan size
2
($’000’s)
254 259 264
Customers ahead on repayments
including offset account balances
3,5
(%)
72 71 70
Actual mortgage losses
net of insurance
4
($m)
31 36 48
Actual mortgage loss rate
annualised (bps)
2 2 2
18
14
48
12
6
2
17
13
50
11
5
4
61
16
15
5
1
2
0
10
20
30
40
50
60
70
80
90
100
0<=6060<=7070<=8080<=9090<=9595+
FY17 drawdowns LVR at origination
Portfolio LVR at origination
Portfolio dynamic LVR
77
Asset quality
1 Flow is all new mortgages settled during the 6 month period ended 30 September 2017 and includes RAMS. 2 Includes amortisation. 3 Customer loans ahead on payments exclude equity/line of credit products as there are no scheduled principal
payments. 4 Mortgage insurance claims 2H17 $9m (1H17 $3m, 2H16 $7m). 5 Excludes RAMS. 6 LVR calculated as simple average by balances. 7 Dynamic LVR is the loan-to-value ratio taking into account the current loan balance, changes in
security value, offset account balances and other loan adjustments. Property valuation source Australian Property Monitors. 8 Average LVR of new loans is on rolling 6 month window.
Australian housing loan-to-value ratios (LVRs)
5
(%)
Australian mortgage portfolio LVRs
Sep-16
balance
Mar-17
balance
Sep-17
balance
Average LVR at origination
5,6
(%) 70 70 70
Average dynamic
LVR
5,6,7
(%) 43 42 42
Average LVR of new loans
5,6,8
(%)
70 68 67
Interest only now 46% of mortgage portfolio
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
1 Flow is based on APRA definition. 2 I/O is interest only mortgage lending. P&I is principal and interest mortgage lending. 3 Investor is as per APRA extended definition used for reporting against the 10% cap. 4 Interest rates as at 20 September
2017 for Westpac Rocket Repay Home Loan inclusive of Premier Advantage Package discount assuming loan amount $250,000 - $499,999. 5 Product maximum term for Interest only is 5 years for owner occupied and 10 years for investor loans.
78
Mortgage lending growth (%)
Interest only flow definition
Switching from I/O to P&I
2
($m)
•The 30% interest only cap incorporates all new
interest only loans including bridging facilities,
construction loans and limit increases on existing
loans
•The interest only cap excludes flows from switching
between repayment types, such as interest only to
P&I or from P&I to interest only and also excludes
term extensions of interest only terms within
product maximums
5
•Any request to extend term beyond the product
maximum is considered a new loan, and hence is
included in the cap
Flow of interest only
1
(% of total limits)
•Pricing – differential pricing for investor property
lending, interest only and SMSF lending
•80% maximum LVR for all new interest only loans
(includes limit increases, interest only term
extension and switches) with limited exceptions
•No switch fee for customers switching to P&I from
interest only since June 2017
•No longer accepting external refinances (from other
financial institutions) for owner-occupied
interest only
Key changes to interest only mortgage settings
4.44
5.03
4.99
5.50
P&II/OP&II/O
Owner occupiedInvestor
Current variable mortgage interest rate
4
(%)
New interest only flows now <30% Customers switching to P&I Investor lending
3
growth remaining <10%
46
45
35
23
49
50
43
26
1Q172Q173Q174Q17
ApplicationsSettlements
2,554
2,592
3,004
3,447
2,368
2,604
4,261
7,913
1Q172Q173Q174Q17
Reached end of I/O periodCustomer initiated
4.4%
5.9%
9.8%
5.4%
Oct-16
Nov-16Dec-16
Jan-17
Feb-17
Mar-17
Apr-17
May-17
Jun-17
Jul-17
Aug-17Sep-17
Investor (APRA Extended definition)
Owner occupied
Asset quality
Performance of interest only mortgages remains sound
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
1 A surplus requirement measures the extent to which a borrower’s income exceeds loan repayments, expenses and other commitments, as assessed. 2 Excludes RAMS. 3 LVR calculated as simple average by balances. 4 Customer loans ahead
on payments exclude equity/line of credit products as there are no scheduled principal payments. 5 Dynamic LVR is the loan-to-value ratio taking into account the current loan balance, changes in security value, offset account balances and other loan
adjustments. Property valuation source Australian Property Monitors.
•Interest only (I/O) loans assessed on a principal and
interest basis, from 2015 over the residual
amortising term. I/O loans are full recourse
•Serviceability assessments include an interest rate
buffer (at least 2.25%), minimum assessment rate
(7.25%) and a requirement to be in surplus
1
Interest only lending by dynamic LVR
2,5
and income band (%)
I/O portfolio statistics as at 30 September 2017
•67% average LVR of interest only loans at
origination
2,3
•65% of customers ahead of repayments (including
offset accounts)
2,4
•Offset account balances attached to interest only
loans represent 62% of offset account balances
I/O portfolio performance as at 30 September 2017
•90+ day delinquencies 52bps (compared to portfolio
of 67bps)
•Annualised loss rate 2bp (net of insurance claims)
79
15
8
2
31
18
5
14
7
2
59
33
8
<=60%60%<=80%>80%
Dynamic LVR bands (%)
<$100k$100k - $250k>$250k
Applicant gross income bands
Westpac Australian offset account balances
2
($bn)
Interest only lending
Asset quality
13
15
16
18
21
24
27
31
33
35
36
38
Mar-12Sep-12Mar-13Sep-13Mar-14Sep-14Mar-15Sep-15Mar-16Sep-16Mar-17Sep-17
.
Offset account balances attached to P&I mortgages
Offset account balances attached to I/O mortgages
Chart may not add due to rounding
Investor property lending (IPL) portfolio: sound underwriting
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
1 Excludes RAMS. 2 LVR calculated as simple average by balances. 3 Average LVR of new loans is on rolling 6 month window. 4 Dynamic LVR is the loan-to-value ratio taking into account the current loan balance, changes in security value, offset
account balances and other loan adjustments. Property valuation source Australian Property Monitors. 5 Includes amortisation. 6 Customer loans ahead on payments exclude equity/line of credit products as there are no scheduled principal payments.
Investment property lending portfolio Sep-16 Mar-17 Sep-17
Average LVR of IPL loans at origination
1,2
(%) 72 72 72
Average LVR of new IPL loans in the period
1,2,3
(%)
66 65 66
Average dynamic
LVR
1,2,4
of IPL loans (%) 48 47 47
Average loan size
5
($’000) 305 309 313
Customers ahead on repayments
including offset accounts
1,6
(%)
62 61 59
90+ day delinquencies (bps) 48 47 49
Annualised loss rate (net of insurance claims) (bps) 2 2 3
0
10
20
30
40
50
0<=6060<=7070<=7575<=8080<=8585<=9090<=9595<=9797+
Owner occupiedIPL
0
5
10
15
20
25
30
<=50
50<=75
75<=100
100<=125125<=150150<=200200<=500
500<=1m
1m+
Owner occupiedIPL
Applicants by gross income band (%) LVR at origination
1
(%)
80
Investment property portfolio by number of properties per
customer (%)
62
26
7
2
1
1
1
2
3
4
5
6+
Asset quality
Mortgage serviceability assessment settings
1 HEM is the Household Expenditure Measure, produced by the University of Melbourne. 2 SVR is the Standard Variable Rate for owner-occupied Westpac Rocket Repay Home Loan inclusive of Premier Advantage Package discount. 3 Customer
loans ahead on payments exclude equity/line of credit products as there are no scheduled principal payments. ‘Behind’ is more than 30 days past due. ‘On time’ includes up to 30 days past due.
Income
•Income and employment is verified
•Separate guidelines in place to assess self employed and
contractor applicants
•Discounts of 20% apply to less certain income sources such as
rental income/bonuses/dividends
Expenses
•Higher of declared expenses or HEM
1
(HEM varies by family
size, income level and geography)
Other loans
•Verified using payments data, bank statements and/or Credit
Bureau
Interest only
loans
•New loans assessed at principal & interest over the residual
amortising term
•Max LVR 80% (with limited exceptions) and max interest only
term 5 years (owner occupied) / 10 years (investment)
Interest rate
buffer
•Higher of customer rate plus 2.25% or the minimum assessment
(‘floor’) rate of 7.25% applied
Security
•Conservative bank valuation methodologies
•Maximum LVR limits
•Minimum property size and location restrictions apply
Restrictions
•LVR restrictions apply to single-industry towns, high-density
apartments in defined areas
•LVR restrictions to Australian and NZ citizens and permanent visa
holders using foreign income
•Loans to non-residents not offered since April 2016 (limited
exceptions)
1
26
17
24
7
25
1
27
17
23
7
25
1
29
18
23
6
24
0
5
10
15
20
25
30
BehindOn Time< 1 Month< 1 Year< 2 Years> 2 Years
Sep-16Mar-17Sep-17
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
81
4.44
7.25
3
5
7
9
Mar-14Sep-14Mar-15Sep-15Mar-16Sep-16Mar-17Sep-17
Westpac owner occupied SVR inc package discount
Westpac minimum assessment ('floor') rate
Asset quality
2
Westpac’s key serviceability requirements and controls Mortgage interest rate buffers (%)
Australian home loan customers ahead on repayments
3
(%)
Australian mortgage deep dive
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
1 Portfolio comprised of residential mortgages, excluding RAMS, and business mortgages originated via a separate platform such as construction loans and loans to SMSFs. 2 Dynamic LVR is the loan-to-value ratio taking into account the current
loan balance, changes in security value, offset account balances and other loan adjustments. Property valuation source Austral ian Property Monitors. 3 Based on a specific Rocket Repay rate offered during the period. Westpac Rocket Repay Home
Loan exclusive of discounts assuming loan amount $250,000 - $499,999. 4 Source, Westpac Economics, CoreLogic. All dwellings Australia - average 8 major capital cities. Prices to Sept 17.
Australian mortgage lending
1
by origination date, dynamic LV R
2
and income (%)
82
2
8
21
4
13
36
1
3
12
7
24
69
>8060-80<=60
2
7
38
3
7
33
1
1
7
6
16
78
>8060<=80<=60
3
13
11
6
25
22
2
8
10
11
46
43
>8060-80<=60
% of portfolio 41 33 26
Westpac SVR
3
(%)
(excl. discounts)
5.24 6.89 – 5.70 7.86
Westpac interest rate buffer (%) 2.25 1.80 1.80
Westpac interest rate floor (%) 7.25 6.80 6.80
House price changes
4
0 – 23% 40% – 23% At least 40%
2015+ 2011-14 <2011
>$250k
$100k - $250k
<$100k
Dynamic LVR bands (%)
Gross income
bands
Asset quality
Lenders mortgage insurance arrangements
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
1 From 18 May 2015 WLMI underwrites all mortgage insurance, where required, on Westpac originated Mortgages. The in-force portfolio of loans includes mortgage insurance provided by external providers. 2 Prudential Capital Requirement (PCR)
calculated in accordance with APRA standards. 3 Insured coverage is net of quota share. 4 Loss ratio is claims over the total earned premium plus reinsurance plus exchange commission. 5 LMI gross written premium includes loans >90% LVR
reinsured with Arch Reinsurance Limited. 2H17 gross written premium includes $73m from the arrangement (1H17: $107m, 2H16: $125m).
Lenders mortgage insurance arrangements Lenders mortgage insurance
83
LVR Band Insurance
•LVR ≤80%
• Low doc LVR ≤60%
Not required
•LVR >80% to ≤ 90%
• Low doc
LVR >60% to ≤ 80%
•Where insurance required, insured through captive insurer, WLMI
•LMI not required for certain borrower groups
•Reinsurance arrangements:
−40% risk retained by WLMI
−60% risk transferred through quota share arrangements with Arch Reinsurance
Limited, Tokio Millennium Re, Endurance Re, Everest Re, Trans Re and AWAC
• LVR >90% •100% reinsurance through Arch Reinsurance Limited
−Reinsurance arrangements see loans with LVR >90% insured through WLMI with
100% of risk subsequently transferred to Arch Reinsurance Limited
2H16 1H17 2H17
Insurance claims ($m) 7 3 9
WLMI loss ratio
4
(%) 17 7 27
WLMI gross written premiums
5
($m) 154 141 109
Insurance statistics
•Where mortgage insurance is required, mortgages
are insured through Westpac’s captive mortgage
insurer, Westpac Lenders Mortgage Insurance
1
(WLMI), and reinsured through external LMI
providers, based on risk profile
•WLMI is well capitalised (separate from bank capital)
and subject to APRA regulation. WLMI targets a
capitalisation ratio of 1.2x PCR
2
and has consistently
been above this target
•Scenarios indicate sufficient capital to fund claims
arising from events of severe stress – estimated
losses for WLMI from a 1 in 200 year event are
$117m net of re-insurance recoveries (1H17: $130m)
83
10
7
Not insured
Insured by third
parties
Insured by WLMI
Australian mortgage portfolio (%)
3
Asset Quality
Mortgage portfolio stress testing outcomes
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
1 Assumes 30% of LMI claims will be rejected in a stressed scenario. 2 Stressed loss rates are calculated as a percentage of mortgage exposure at default.
84
Asset quality
Australian mortgage portfolio stress testing
as at 30 September 2017
Stressed scenario
Key assumptions Current Year 1 Year 2 Year 3
Portfolio size ($bn) 426 411 403 400
Unemployment rate (%) 5.6 11.8 10.8 9.5
Interest rates (cash rate, %) 1.50 0.50 0.50 0.50
House prices
(% change cumulative)
- (13.0) (22.4) (26.2)
Annual GDP growth (%) 1.8 (4.8) (1.1) 0.8
Stressed loss outcomes (net of LMI recoveries)
1
$ million
85
1,033 1,622 527
Basis points
2
2 22 35 12
•Westpac regularly conducts a range of portfolio stress tests as part of its
regulatory and risk management activities
•The Australian mortgage portfolio stress testing scenario presented represents a
severe recession and assumes that significant reductions in consumer spending
and business investment lead to six consecutive quarters of negative GDP growth.
This results in a material increase in unemployment and nationwide falls in
property and other asset prices
•Estimated Australian housing portfolio losses under these stressed conditions are
manageable and within the Group’s risk appetite and capital base
−Cumulative total losses of $2.9bn over three years for the uninsured portfolio
(FY16: $2.9bn)
−Cumulative claims on LMI, both WLMI and external insurers, of $762m over the
three years (FY16: $856m)
−Cumulative loss rates are unchanged (69bps compared to 69bps at FY16)
−WLMI separately conducts stress testing to test the sufficiency of its capital
position to cover mortgage claims arising from a stressed mortgage
environment
•Capital targets incorporate buffers at the Westpac Group level that also consider
the combined impact on the mortgage portfolio and WLMI of severe stress
scenarios
200 years proudly supporting Australia
Capital, Funding and
Liquidity
27
30
29
30
32
34
37
38
37
39
38
40
41
43
8.3
9.0
8.4
8.8
9.0
9.5
10.2
10.5
10.1
9.5
9.3
10.0
10.0
10.6
0.0
2.0
4.0
6.0
8.0
10.0
12.0
15
20
25
30
35
40
45
50
55
Jun-14
Sep-14
Dec-14
Mar-15
Jun-15
Sep-15
Dec-15
Mar-16
Jun-16
Sep-16
Dec-16
Mar-17
Jun-17
Sep-17
Westpac CET1 capital (lhs, $bn)
Westpac CET1 capital ratio (rhs, %)
Well positioned for “Unquestionably strong”
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
1 Domestic systemically important bank. 2 APRA’s revision to the calculation of RWA for Australian residential mortgages, which came into effect on 1 July 2016.
86
CET1 capital ratio (%) and CET1 capital ($bn)
(APRA basis)
Highlights
Capital, Funding and Liquidity
$bn %
APRA industry
guidelines >10.5%
unquestionably
strong
10.6% CET1
capital ratio
Above APRA’s
unquestionably
strong
benchmark
Disciplined
RWA
management
Capital built
•108bps increase over the year
•59bps increase from March 2017
•APRA’s unquestionably strong industry
benchmark is 10.5%
•Well placed to respond to final APRA
requirements
•Total RWA flat over the half
•Credit risk RWA 1.0% lower over the half
from disciplined RWA management and
improvement in asset quality
•1.5% discount on 1H17 DRP
•Further sell down of BTIM
•Life insurance statutory fund
consolidation
Impact of APRA’s
changes to
mortgage RWA
2
Building for 1%
DSIB
1
10.6
12.7
14.8
16.2
18.6
21.1
CET1Tier 1Total
regulatory
capital
CET1Tier 1Total
regulatory
capital
CET1 ratio, top quartile globally
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
1 Internationally comparable methodology aligns with the APRA study titled ‘International Capital Comparison Study’ dated 13 July 2015. For more details on adjustments refer slide 91. 2 Group 1 banks BIS 75
th
percentile fully phased-in Basel III capital ratios from BIS monitoring report released 12 September 2017. 3 Includes transitional capital instruments eligible as Additional Tier 1 and Tier 2 capital under APRA Basel III
rules.
87
Key capital ratios (%) Capital ratios
•Internationally comparable ratios exclude Basel III transitional
instruments, which are included in the APRA capital ratios on a
transitional basis
•Westpac is seeking to replace Basel III transitional instruments with
Basel III fully compliant instruments. Should Westpac do this, pro
forma internationally comparable:
−Tier 1 capital ratio would be 19.0%
3
(up from 18.6%)
−Total regulatory capital ratio would be 21.9%
3
(up from 21.1%)
−CET1 capital ratio would be unchanged
BIS 75
th
percentile
2
APRA basis
Internationally comparable
1
basis
Sep-16 Mar-17 Sep-17
CET1 capital ratio 9.5 10.0 10.6
Additional Tier 1 capital 1.7 1.7 2.1
Tier 1 capital ratio 11.2 11.7 12.7
Tier 2 capital 1.9 2.3 2.1
Total regulatory capital ratio 13.1 14.0 14.8
Risk weighted assets (RWA)
($bn) 410 404 404
Leverage ratio 5.2 5.3 5.7
Internationally comparable ratios
1
Leverage ratio (internationally comparable) 5.9 6.0 6.3
CET1 ratio (internationally comparable) 14.4 15.3 16.2
Capital, Funding and Liquidity
Strong capital generation
supported by disciplined loan growth
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
1 Internationally comparable methodology aligns with the APRA study titled ‘International Capital Comparison Study’ dated 13 July 2015.
CET1 capital ratio (% and bps)
88
Capital, Funding and Liquidity
9.48
9.97
100
10
6
4 2 10.56
16.20
(50)
(4)
(7)
(2)
Sep-16
APRA
Mar-17
APRA
Cash earningsInterim
dividend
(net of DRP)
Ordinary
RWA
growth
Other
movements
Sell down of
BTIM
Life insurance
statutory fund
consolidation
Regulatory
modelling
change
FX translation
impact
Defined
benefit impact
Sep-17
APRA
Sep-17
Int. Comp.
Up 59 basis points
A reduction in credit risk has
been offset by movements in
non-credit risk
Organic +39bps
Other +20bps
1
1H17 DRP
participation rate
35.6%
Capitalised expenses
and other small equity
investments
Disciplined management
and improved asset quality reduce RWA
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
89
Movement in risk weighted assets ($bn)
Movement in credit risk weighted assets ($bn)
Capital, Funding and Liquidity
410.1
404.4
0.6
3.0 404.2
(3.4)
(0.4)
Sep-16Mar-17Credit riskMarket
risk
Operational
risk
IRRBBSep-17
Down $0.2bn
Spread risk on the liquids portfolio
and repricing and yield curve risk
Higher interest
rate exposure
349.3
358.8
352.7
3.9 (1.8)
(4.6)
(0.9)
Sep-16Mar-17Business growthRegulatory modelling
changes
Credit quality and
portfolio mix
Mark-to-marketSep-17
Down $3.4bn or 1.0%
Updates to credit models
See below
Improved asset quality
Well placed on internationally comparable
CET1 and leverage ratios
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
Peer group comprises listed commercial banks with assets in excess of A$700bn and which have disclosed fully implemented Basel III ratios or provided sufficient disclosure to estimate. Based on company
reports/presentations. Ratios at 30 June 2017, except for Westpac, ANZ and NAB, which are at 30 Sep 2017, while Scotiabank, Bank of Montreal, Royal Bank of Canada and Toronto Dominion are at 31 July 2017.
For CET1, assumes Basel III capital reforms fully implemented. Leverage ratio is on a transitional basis. Where accrued expected dividends have been deducted, these have been added back for comparability. US
banks are excluded from leverage ratio analysis due to business model differences, for example from loans sold to US Government sponsored enterprises.
90
Common equity Tier 1 ratio (%)
Leverage ratio (%)
16.20%
0%
5%
10%
15%
20%
25%
Nordea
Norinchukin Bank
Westpac
ANZ
CBA
ING
HSBC
RBS
Rabobank
BPCE
NAB
Deutsche Bank
Standard Chartered
Lloyds
Commerzbank
Intesa Sanpaolo
Credit Suisse
Barclays
Citigroup
Unicredit
Credit Agricole SA
JPMorgan Chase
China Construction Bank
ICBC
Sumitomo Mitsui
China Merchants Bank
BNP Paribas
Societe Generale
Mitsubishi UFG
Wells Fargo
Mizuho FG
Bank of America
Scotiabank
Natixis
Bank of Montreal
BBVA
Toronto Dominion Bank
Bank of China
Royal Bank of Canada
Santander
Bank of Communications
Agricultural Bank of China
6.33%
0%
2%
4%
6%
8%
ICBC
China Construction Bank
Intesa Sanpaolo
Bank of China
BBVA
Bank of Communications
Westpac
ANZ
Agricultural Bank of China
HSBC
Standard Chartered
NAB
Norinchukin Bank
China Merchants Bank
CBARBS
Credit Suisse
Unicredit
Lloyds
Commerzbank
BPCE
Rabobank
Barclays
Santander
Mitsubishi UFG
Credit Agricole SA
Sumitomo Mitsui
ING
Nordea
Scotiabank
Royal Bank of Canada
Bank of Montreal
Societe Generale
BNP Paribas
Deutsche Bank
Toronto Dominion Bank
Mizuho FG
Natixis
Capital, Funding and Liquidity
Internationally comparable capital ratio reconciliation
1 Methodology aligns with the APRA study titled “International capital comparison study", dated 13 July 2015.
Capital, Funding and Liquidity
(%)
Westpac’s CET1 capital ratio (APRA basis)
10.6
Equity investments Balances below prescribed threshold are risk weighted, compared to a 100% CET1 deduction under APRA’s requirements 0.5
Deferred tax assets Balances below prescribed threshold are risk weighted, compared to a 100% CET1 deduction under APRA’s requirements 0.3
Interest rate risk in the banking
book (IRRBB)
APRA requires capital to be held for IRRBB. The BCBS does not have a Pillar 1 capital requirement for IRRBB 0.4
Residential mortgages
Loss given default (LGD) of 15%, compared to the 20% LGD floor under APRA’s requirements. APRA also applies a
correlation factor for mortgages higher than the 15% factor prescribed in the Basel rules
1.8
Unsecured non-retail exposures LGD of 45%, compared to the 60% or higher LGD under APRA’s requirements 0.7
Non-retail undrawn commitments Credit conversion factor of 75%, compared to 100% under APRA’s requirements 0.5
Specialised lending
Use of internal-ratings based (IRB) probabilities of default (PD) and LGDs for income producing real estate and project
finance exposures, reduced by application of a scaling factor of 1.06. APRA applies higher risk weights under a supervisory
slotting approach, but does not require the application of the scaling factors
0.8
Currency conversion threshold
Increase in the A$ equivalent concessional threshold level for small business retail and small to medium enterprise
corporate exposures
0.2
Capitalised expenses
APRA requires these items to be deducted from CET1. The BCBS only requires exposures classified as intangible assets
under relevant accounting standards to be deducted from CET1
0.4
Internationally comparable CET1 capital ratio 16.2
Internationally comparable Tier 1 capital ratio 18.6
Internationally comparable total regulatory capital ratio 21.1
APRA’s Basel III capital requirements are more conservative than those of the Basel Committee on Banking Supervision (BCBS), leading to lower reported
capital ratios by Australian banks. In July 2015, APRA published a study that compared the major banks’ capital ratios against a set of international peers
1
.
The following details the adjustments from this study and how Westpac’s APRA Basel III CET1 capital ratio aligns to an internationally comparable ratio
91
Optimising returns by actively managing capital
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
Actively managing returns
Return on equity (%)
Ordinary equity
(spot and includes reserves) ($bn)
Capital allocated to divisions (average, $bn)
•All divisions with a full year ROE > 13%
•Divisional capital allocation model to be refined in 2018 (post APRA
clarification)
•$3.8bn of capital still to be allocated
•Group ROE is lower from higher levels of capital held; average
equity up 5%, cash earnings up 3% over FY17
•Leverage ratio improved from the increased average ordinary equity
(AOE)
92
Capital, Funding and Liquidity
58.1
0.3
0.9 59.3
1.1
0.9 61.3
Sep-16DRPOtherMar-17DRPOtherSep-17
Division 2H16
1H17
2H17
Total Group (including intangibles)
56.6 57.7 59.4
Consumer Bank and Business Bank 23.7 24.4 23.7
BTFG 3.3 3.4 3.4
WIB 9.6 9.4 8.9
Westpac NZ (A$) 4.4 4.6 4.4
Excess capital held in Group Businesses 1.7 1.8 3.8
Division FY16
FY17
2H17
Total Group
14.0 13.8 13.6
Consumer Bank and Business Bank 16.6 17.0 17.6
BTFG 15.6 14.0 13.6
WIB 10.6 13.4 12.7
Westpac NZ (A$) 17.2 18.3 19.4
New term issuance well diversified
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
1 Based on residual maturity and FX spot currency translation. Includes all debt issuance with contractual maturity greater than 370 days excluding US Commercial Paper and Yankee Certificates of Deposit. 2 Westpac public benchmark transactions
only. 3 Contractual maturity date for hybrids and callable subordinated instruments is the first scheduled conversion date or call date for the purposes of this disclosure. 4 Tenor excludes RMBS and ABS. 5 Perpetual sub-debt has been included in
>FY22 maturity bucket. Maturities exclude securitisation amortisation. 6 Sources: Westpac, APRA Banking Statistics September 2017.
FY17 new term issuance composition
1
(%)
Term debt issuance and maturity profile
1,3,5
($bn)
Australian covered bond issuance
6
($bn)
66
18
5
4
8
By type
Senior UnsecuredCovered Bonds
SecuritisationHybrid
Subordinated Debt
12
19
28
30
9
1
By investor location
2
AsiaAustralia & NZ
EuropeNorth America
UKOther
21
49
22
3
4
By currency
AUDUSDEUR
GBPOther
2
8
17
0.3
30
43
By tenor
3,4
1 Year2 Years3 Years
4 Years5 Years>5 years
14
23
20
25
27
31
31
34
Peer 1Peer 2Peer 3Westpac
OutstandingRemaining capacity
(8% cap & over-collateralisation)
33
22
33
31
42
37
27
27
26
26
20
21
FY12FY13FY14FY15FY16FY17FY18FY19FY20FY21FY22>FY22
Sub Debt
Senior/Securitisation
Hybrid
Covered Bond
Issuance Maturities
Charts may not add to 100 due to rounding.
Capital, Funding and Liquidity
93
Well positioned for NSFR on 1 January 2018
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
1 Includes HQLA as defined in APS 210, RBNZ eligible liquids, less RBA open repos funding end of day ESA balances with the RBA. 2 The RBA makes available to Australian Authorised Deposit-taking Institutions a committed liquidity facility (CLF) that,
subject to qualifying conditions, can be accessed to meet LCR requirements under APS210 – Liquidity. 3 Other flows include credit and liquidity facilities, collateral outflows and inflows from customers. 4 LCR is calculated as the percentage ratio of
stock of HQLA and CLF over the total net cash outflows in a modelled 30 day defined stressed scenario. Calculated on a spot basis. 5 Private securities include Bank paper, RMBS, and Supra-nationals. 6 Includes long term wholesale funding with a
residual maturity less than or equal to 1 year. 7 NSFR is estimated based on current APRA guidelines. NSFR will commence in Australia on 1 January 2018. 8 Other includes derivatives and other assets. 9 Other loans includes off balance sheet
exposures and residential mortgages >35% risk weight. 10 Equity excludes FX translation, Available-for-Sale securities and Cash Flow Hedging Reserves. 11 Tenor excludes RMBS and ABS. 12 Contractual maturity date for hybrids and callable
subordinated instruments is the first scheduled conversion date or call date for the purposes of this disclosure.
Total funding composition (%) New term issuance by tenor
11,12
(%) Net stable funding ratio (NSFR, $bn)
Liquidity coverage ratio (%) Unencumbered liquid assets ($bn) Liquidity coverage ratio ($bn and %)
94
Sep-16 Mar-17 Sep-17
HQLA
1
69.4 73.6 71.9
CLF
2
58.6 49.1 49.1
Total LCR Liquid assets 128.0 122.7 121.0
Customer deposits 63.5 65.9 65.6
Wholesale funding 13.1 13.2 12.2
Other flows
3
19.2 19.1 20.1
Total cash outflows 95.8 98.2 98.0
LCR
4
134% 125% 124%
5
68
75
72
111
21
16
18
56
47
48
144
139
Sep-16Mar-17Sep-17
Self securitisation
Private securities and deposits with other banks
Cash, government and semi-government bonds
Total short term
wholesale debt
6
outstanding at
30 Sep 17
138
44
61
62
5
8
8
1
1
1
10
11
11
4
4
4
20
8
8
16
7
6
Sep-08Sep-16Sep-17
Wholesale Onshore <1yr
Wholesale Offshore <1yr
Wholesale Onshore >1yr
Wholesale Offshore >1yr
Securitisation
Equity
Customer deposits
66.2
69.4
73.6
71.9
58.6
58.6
49.1
49.1
127
134
125
124
Mar-16Sep-16Mar-17Sep-17
Committed Liquidity Facility ($bn)
HQLA ($bn)
LCR (%)
By residual maturity
7
4
8
25
30
25
17
44
40
45
30
18
25
28
43
FY14FY15FY16FY17
>5years
5 years
4 years
3 years
2 years
1 years
Available Stable
Funding
Required Stable
Funding
Estimated NSFR
7
Mar-17 Sep-17
108% 109%
566
521
Capital
Retail & SME
deposits
Corporate &
Institutional
deposits
W’sale funding
& other liabilities
Residential
mortgages
≤35%
Other loans
9
Liquids
and other
8
Capital, Funding and Liquidity
10
4.7yrs 4.9yrs 5.4yrs 5.8yrs WAM
11
200 years proudly supporting Australia
Divisional results
Consumer Bank – growing the franchise
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
1 Refer slide 136 for metric definition and details of provider.
Key operating metrics
Key financial metrics Cash earnings ($m)
96
Consumer
1,539
1,511
247
1,593
(46)
(79)
(7)
(33)
2H161H17
Net interest income
Non-interest income
Operating expenses
Impairment charges
Tax and NCI
2H17
AIEA up 3%, margin up 7bps, repricing of
mortgages partly offset by some switching,
customer preference for fixed rate home
loans and the impact of the Bank Levy (3bps)
Investments, product
development and
regulatory and
compliance cost
increases partly
offset by productivity
Lower cards fees
and provision for
customer refunds
and payments
2H16 1H17 2H17
Change on
1H17
Revenue ($m)
4,053 4,055 4,256
5%
Net interest margin (%)
2.34 2.28 2.35
7bps
Expense to income (%)
40.3 40.2 40.1
(4bps)
Customer deposit to loan ratio (%)
52.4 52.8 52.9
13bps
Stressed assets to TCE (%)
0.61 0.64 0.62
(2bps)
2H16 1H17 2H17
Change on
1H17
Total customers (#m)
8.8 8.9 9.1
2%
Active digital customers (#m)
3.6 3.8 4.0
5%
Total branches (#)
1,085 1,059 1,046
(13)
Customer satisfaction
1
(%)
81.3 81.6 81.9
30bps
Net promoter score (NPS)
1
6mma
4
th
4
th
1
st
+4.9
Service quality – complaints (#‘000)
13.1 11.8 12.7
8%
Up $82m or 5%
A disciplined 2H17 performance
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
1 Following an update to the Group’s capital allocation framework, numbers prior to 1H17 have been restated to ensure comparability to 1H17 and 2H17.
Revenue per FTE
1
($’000’s) Loans ($bn) & deposit to loan ratio (%) Expense to income ratio
1
(%)
Core earnings
1
($m) Cash earnings
1
($m) Revenue
1
($m)
97
Consumer
3,564
3,779
3,972
4,053
4,055
4,256
1H152H151H162H161H172H17
2,029
2,201
2,335
2,420
2,426
2,548
1H152H151H162H161H172H17
1,243
1,382
1,445
1,539
1,511
1,593
1H152H151H162H161H172H17
43.1
41.8
41.2
40.3
40.2
40.1
1H152H151H162H161H172H17
324
360
393
398
396
417
1H152H151H162H161H172H17
311
321
334
345
352
362
51.7
52.4
52.1
52.4
52.8
52.9
Mar-15Sep-15Mar-16Sep-16Mar-17Sep-17
LoansCustomer deposit to loan ratio
Improving the customer experience through digital and new products
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
1 Everyday accounts are consumer transaction accounts. 2 Eligible children must be born in 2017, have a permanent Australian residential address and have the Bump Savings account opened in their name by
31 May 2018.
Westpac Life Westpac Lite Bump
Categorisation of spend Banker in Pocket – all brands SmartPlan
98
Consumer
•Launched in May 2017,
SmartPlan is a structured
repayment plan that helps
customers manage their credit
card balance by breaking it down
into a number of regular monthly
instalments – all within their
existing credit limit
•Supported with SMS alerts to
assist customers to make their
payments on time
•Over 3,700 SmartPlans have
been established
•Enables St.George
customers to obtain insight
into their spending patterns
•Automatically groups credit
card, everyday
1
and savings
account transactions into
categories
•Monthly spend is categorised
by category and sub-category
•Launched in June, Westpac Lite is a basic credit
card with a low interest rate (9.90%) and low fees
•No fees for foreign transactions or late payments
•Low credit limit, between $500 and $4,000
•Over 1,600
cards activated
since launch
•Bump Savings account introduced in April.
Designed to encourage children (and their parents)
to develop saving habits
•The account has no fees, a competitive base
interest rate (1.5%) and the opportunity to earn a
bonus interest rate (plus 0.8%)
•For eligible children
2
, Westpac will deposit $200 into
their account
•Since launch, around 33,000 accounts have been
opened, with an average balance of $1,400. 25%
are new to bank customers
•Enables customers to ring the
contact centre directly from
mobile app with no need to
verify with security questions
•Saves ~60-90 seconds
per call
•Before connecting to the
contact centre, customers
directed to a targeted self-
serve option, with around 50%
of customers taking up the
self-serve option
•Westpac Life is a new savings product designed to
help customers save on a regular basis by
rewarding savings behaviour (1.5% plus 0.8%
bonus if balance is higher at month end)
•Since the August launch, over 25,000 accounts
have been opened, with an average balance of
$32k
•37% of these accounts are for customers who
have not had a savings account with Westpac
Business Bank delivers another solid result
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
1 Refer slide 136 for metric definition and details of provider. 2 Represents the % of sales of products that are available via digital. 3 Loans via LOLA in 2H16 includes both loans completed on the platform and
conditional limits. From 1H17 this metric no longer includes conditional limits.
Key operating metrics
Key financial metrics Cash earnings ($m)
99
Business
999
1,008
75
19
43
1,091
(17)
(37)
2H161H17
Net interest income
Non-interest income
Operating expenses
Impairment charges
Tax and NCI
2H17
AIEA up 2%, margin up 4bps from asset
repricing, partially offset by increase in
funding costs and the Bank Levy
Higher line fees and
transaction fees
Lower stressed assets
Increased technology,
regulatory and
investment costs
Up $83m or 8%
2H16 1H17 2H17
Change on
1H17
Revenue ($m)
2,534
2,557 2,651
4%
Net interest margin (%)
2.72
2.70 2.74
4bps
Expense to income (%)
35.5
35.6 35.0
(62bps)
Customer deposit to loan ratio (%)
72.1
72.6 73.2
62bps
Stressed assets to TCE (%)
2.24
2.32 2.16
(16bps)
2H16 1H17 2H17
Change on
1H17
Total business customers (‘000’s)
1,170 1,183 1,207
2%
Customer satisfaction
1
(rank)
#1 =#1 #1
-
Customer satisfaction - SME
1
(rank)
#1 #2 #1
+ 1 place
Digital sales (%)
2
9 10 12
+ 2ppt
Loans via LOLA ($m)
3
729 1,236 1,244
1%
A disciplined 2H17 performance
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
1 Following an update to the Group’s capital allocation framework, numbers prior to 1H17 have been restated to ensure comparability to 1H17 and 2H17.
Revenue per FTE
1
($’000) Loans ($bn) & deposit to loan ratio (%) Expense to income ratio
1
(%)
Core earnings
1
($m) Cash earnings
1
($m) Revenue
1
($m)
100
Business
2,376
2,427
2,495
2,534
2,557
2,651
1H152H151H162H161H172H17
1,525
1,547
1,599
1,634
1,646
1,723
1H152H151H162H161H172H17
1,006
951
976
999
1,008
1,091
1H152H151H162H161H172H17
35.8
36.3
35.9
35.5
35.6
35.0
1H152H151H162H161H172H17
721
787
818
811 811
843
1H152H151H162H161H172H17
141
146
149
153
154
157
72.5
69.5
71.2
72.1
72.6
73.2
Mar-15Sep-15Mar-16Sep-16Mar-17Sep-17
LoansCustomer deposit to loan ratio
Simplified
onboarding
process
Transforming Business Bank
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
1 For existing customers with credit limits. 2 Represents the % of sales of products that are available via digital.
Payment solutions
Digital for customers Digital for bankers
101
Business
Enhancements to the credit risk management system have
reduced manual processing and saved time by simplifying
credit risk reviews, serviceability assessments and
automated covenant monitoring
LOLA, the division’s simplified loan origination platform
continues to deliver reduced processing times and faster
credit decisions to customers. $2.5bn loans processed via
LOLA in FY17
New businesses to the St.George brands can be
established over the phone in 10 mins, without the need to
visit a branch for verification. Includes account opening,
ordering a new debit card and the set up of internet banking
St.George
“Walk-out-working”
•Including Union Pay card acceptance, surcharge configuration and improved
reporting (such as shift totals, tips, transaction listings)
•Over 2017, merchant numbers are up 4%
•Rationalising deposit products to a core set providing greater clarity to customers
and improving efficiency through streamlining processes and systems
•To date, 30 products have been closed or grandfathered with 110,000 customers
migrated
•For Westpac Commercial customers, reducing 25 forms to 1 single application for
transaction products
Product
rationalisation
Westpac
Live
• Providing more digital self service options, including
new deposit account opening and instant decisions on
overdrafts
1
• Digital sales accounted for 11%
of sales in FY17 (8% in FY16)
2
eStatements
• Converted over 300,000 accounts to eStatements
Westpac
Live
Enhanced
merchant
terminal
capabilities
Optimist
BT continued business growth offset by industry headwinds
Westpac Group 2017 Interim Results Presentation & Investor Discussion Pack
1 Includes income ($10 million) on invested capital balances required to held for regulatory purpose primarily in relation to Life Insurance entities. 2 Excluding one-off increase of $32 million for methodology change in the calculation of premium
discounts, in-force premium growth on Full Year 2016 is 6%. 3 Refer slide 136 for details of metric and metric provider 4 Strategic Insight, All Master Funds Admin as at June 2017 (for 2H17), as at December 2016 (for 1H17), as at June 2016 (for
2H16) and represents the BT Wealth business market share at these times. 5 Strategic Insight (Individual Risk) rolling 12 month average. New sales includes sales, premium re-rates, age and CPI indexation June 2017. 6 Internally calculated from
APRA quarterly general insurance performance statistics, June 2017.
(10)
(28)
(37)
(6)
(82)
868
858
30
24
12
771
FY16
Income loss from
partial sale BTIM
FY16
Funds
Management
Insurance and
Capital
Productivity
benefits
Regulatory and
compliance
Higher insurance
claims
Tax and NCI
Infrequent items
(after tax)
FY17
FY15 FY16 FY17
Change
on FY16
Revenue ($m)
2,626 2,394 2,281 (5%)
Expense to income (%)
49.0 48.5 51.6 large
FUM and FUA ($bn) (spot)
168.2 179.2 191.4 7%
Loans ($bn) (spot)
17.2 18.6 20.1 8%
Deposits ($bn) (spot)
23.4 25.5 29.7 16%
2H16 1H17 2H17
Change
on 1H17
Customers with a wealth product
3
(%) 19 19 18 (1ppt)
Planners (salaried & aligned) (#) (spot)
1,134 1,094 1,011 (83)
Platform FUA market share
4
(inc. Corp Super) (%)
19 19 19 (10bps)
Platform gross flows market share
4
(inc. Corp Super) (%)
21 20 21 1ppt
Life Insurance market share
5
(%)
11 12 12 10bps
Life Insurance in-force premiums ($m)
973 1,030 1,068 4%
H&C insurance market share
6
(%)
6 6 6 -
General Insurance gross written premiums ($m) 258 250 258 3%
Key operating metrics ($m)
Key financial metrics Cash earnings ($m)
102
BT Financial Group
Infrequent items includes
$83m ($58m after tax) for
customer payments
$32m ($24m after tax)
revaluation of investment in
boutique funds
1
Down $97m or 11%
Loans up 8%; deposits up
16%, total FUM/FUA up
7%. Partly offset by
FUM/FUA margin
compression
Higher insurance
premiums
Life in-force
2
: up 10%
General GWP: up 1%
Steady underlying performance
Funds management: Growth in Private Wealth and Platforms
offset by margin compression and lower Advice income
Westpac Group 2017 Interim Results Presentation & Investor Discussion Pack
FUA ($bn)
Industry recognition
Cash earnings movement ($m)
FUM ($bn)
1 Includes $4bn increase due to MySuper migrations which occurred in late 1H17. 2 $2.9bn redemption of BTNZ FUM which is now being managed through BTNZ.
103
25.4
25.9
27.2
33.1
33.2
18.3
17.8
18.3
19.1
19.9
2.6
2.7
2.9
2.9
46.3
46.4
48.4
55.1
53.1
Sep-15Mar-16Sep-16Mar-17Sep-17
AdvanceRetail Super/otherBTNZ FUM
98.7
100.1
106.5
111.0
113.1
19.3
19.6
20.5
21.4
21.7
3.9
3.6
3.8
4.0
3.5
121.9
123.3
130.8
136.4
138.3
Sep-15Mar-16Sep-16Mar-17Sep-17
BT Wrap/Asgard/PanoramaCorporate superOther
1
BT Financial Group
Up 10%
Up 6%
2
(10)
(30)
(33)
(15)
(8)
(82)
520
510
58
35
517
435
FY16
BTIM
earnings
FY16
PrivateWealth
FUM FUA
volume
FUM/FUA
margin
Advice
Expenses
Tax and NCI
FY17
Infrequent
Items
FY17
Core franchise up $7m or 1%
"Best Private Bank in Australia"
Global Private Banking Awards 2017 for consecutive third year.
“Best Fund Insurance”
2017 Chant West Best Funds: Insurance
“Australia’s Top 50 Financial Advisers”
Eight BT employed advisers, and eight core clients of BT Group
Licensees named in Barrons Inaugural publication of the Top 50 Advisers
“Best Adviser Investment Platform”
CoreData SMSF Awards
Sound insurance fundamentals
Westpac Group 2017 Interim Results Presentation & Investor Discussion Pack
Insurance claims rates (%)
Life Insurance lapse rates
1
(%)
Insurance premiums ($m)
Life Insurance individual new sales market share
1
(%)
1 Strategic Insight June 2017.
104
246
245
258
250
258
892
927
973
1,030
1,068
2H151H162H161H172H17
General Insurance gross written premiumsLife in-force premiums
51
50
49
71
35
33
34
38 38
35
2H151H162H161H172H17
General InsuranceLife Insurance
BT Financial Group
Jun-13Jun-14Jun-15Jun-16Jun-17
WBCPeer 1Peer 2Avg next top 4
Jun-13Jun-14Jun-15Jun-16Jun-17
WBCPeer 1Peer 2Market Avg
Up 3%
Up 4%
Panorama: a market leading
wealth management system for customers and advisors
Westpac Group 2017 Interim Results Presentation & Investor Discussion Pack
A direct investment offer,
integrated with Westpac
Live
Personal Super for
advised and direct
customers
Investment,
superannuation and
pension with integrated
insurance
One core
operating
system
One
system for
investors
& advisors
One of the first platforms to
support complex account types
online, such as SMSFs
Building on our direct customer
investment offers by leveraging
Panorama’s integration with
Westpac’s banking systems
Investments
SMSFs
Super
Insurance
Unique end-to-end solution
from establishment,
administration to reporting
105
BT Financial Group
4,274
11,778
Sep-16
Oct-16
Nov-16Dec-16
Jan-17
Feb-17
Mar-17
Apr-17
May-17
Jun-17
Jul-17
Aug-17Sep-17
2,719
6,713
Sep-16
Oct-16
Nov-16Dec-16
Jan-17
Feb-17
Mar-17
Apr-17
May-17
Jun-17
Jul-17
Aug-17Sep-17
2,173
4,305
Sep-16
Oct-16
Nov-16Dec-16
Jan-17
Feb-17
Mar-17
Apr-17
May-17
Jun-17
Jul-17
Aug-17Sep-17
834
1,355
Sep-16
Oct-16
Nov-16Dec-16
Jan-17
Feb-17
Mar-17
Apr-17
May-17
Jun-17
Jul-17
Aug-17Sep-17
Up 147%
Up 62% Up 98%
Up 176%
FUA on Panorama ($m) Investors on Panorama (#)
SMSF Funds on Panorama (#) Advisers using Panorama (#)
21
72
28
585
700
(208)
(9)
604
2H161H17
Net interest income
Non-interest income
Operating expenses
Impairment charges
Tax and NCI
2H17
WIB 2H17 result reflects lower markets income after a strong 1H17
and significantly lower impairment charges
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
1 WIB customer revenue is lending revenue, deposit revenue, sales and fee income. Excludes trading, derivative valuation adjustments and Hastings.
Key operating metrics
Key financial metrics Cash earnings ($m)
106
Lower customer and risk
management income after a
strong 1H17
Higher margins,
balance sheet
discipline maintained
Improved asset
quality
Down $96m or 14%
2H16 1H17 2H17
Change on
1H17
Revenue ($m)
1,505 1,700 1,513 (11%)
Net interest margin (%)
1.76 1.77 1.85 8bps
Expense to income ratio (%)
45.0 38.6 44.0 large
Customer deposit to loan ratio (%)
119.8 131.2 120.8 large
Stressed assets to TCE (%)
0.88 0.59 0.55 (4bps)
2H16 1H17 2H17
Change on
1H17
Customer revenue
1
/ total revenue (%) 82 77 85 large
Trading revenue / total revenue (%) 6 14 5 (large)
Revenue per FTE ($’000) 555 631 564 (11%)
Deposits ($bn) 88.4 93.8 89.4 (5%)
Westpac Institutional Bank
Disciplined performance, focus on returns
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
Deposits
•Deposits 5% lower reflecting
the roll-off of some
government deposits
towards the end of 2H17
•Average balances up 4%
Net loans
•3% increase in loans
primarily reflects an increase
in the use of mortgage
warehouse facilities
following a decline in 1H17
Margin
•Margin up 8 basis points to
1.85% reflecting continued
discipline on lending
spreads and an improved
funding mix, with higher
average deposit balances
over the half
ROE
•Discipline reflected in FY17
return on average equity
13.4% (2H17: 12.7%)
•Portfolio performing
well, with very low
stress levels
•Impaired assets to TCE
0.07%, down 11bps
•Impairment provisions
to impaired assets
2H17 46.5%
(1H17: 66.6%)
Expense control Disciplined balance sheet management
107
4.6
2.6
2.1
1.2
0.9
0.8
0.9
0.6
FY10FY11FY12FY13FY14FY15FY16FY17
.
Watchlist & substandard
90+ days past due and not impaired
Impaired
Westpac Institutional Bank
Stressed exposures as a % of TCE
WIB expenses ($m)
•Expense growth 1%
supported by productivity
initiatives, including
refinement of the offshore
operating model
73.8
71.5
74.0
87.3
81.7
78.2
Sep-16Mar-17Sep-17
Net loansRWA
88.4
93.8
89.4
Sep-16Mar-17Sep-17
WIB deposits ($bn)
WIB net loans and RWA ($bn)
678
657
666
Sep-16Mar-17Sep-17
Portfolio stress remains at historically low levels
Delivering for customers
with leading industry expertise and capabilities
•7 out of 10 major infrastructure deals won in FY17; >$45bn total infrastructure project value
•Provided >$2.4bn of new committed funding in support of Australian and NZ infrastructure
sector in FY17
•Provided funding commitments to support over 2,100MW of Renewable Energy projects,
enough to power over 1.1 million homes when complete
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
108
Industry
expertise
and
capability
•Continuing the landmark successes for Ausgrid, WIB acted as joint lead placement
agent for the largest ever Australian corporate international USPP for Ausgrid, raising
USD$1.88 billion (AUD$2.4 billion) alongside alliance partner, BAML
•Building on success with QuickSuper’s digital superannuation payments solutions,
WIB is working with the Digital Business Council on developing eInvoicing standards
•First to market with online Corporate Loan Portal
−Over 40 customers currently being onboarded, with several already live on the portal
•LitePay enables low value international payments from online and mobile banking,
offering a low cost, fast and transparent service for sending funds overseas
−Available in 4 currencies including EUR, GBP, INR and PHP to 22 countries
Well
positioned for
opportunities
as they arise
Investing in
innovative
customer
solutions
•864 transactional banking relationships
•99% transactional banking retention rate
1
•94% of the ASX100 bank with Westpac Institutional Bank
•Main transaction banker to 4 of the 8 State and Territory governments and several
Commonwealth Government agencies
Strong and
enduring
customer
franchise
1 Transactional banking relationships retention rate defined as the percentage of transactional relationships at the start of FY17 that were retained through to the end of FY17.
Westpac Institutional Bank
NZ delivered improved 2H17 from margin management
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
1 Refer slide 136 for metric definition.
Key operating metrics
Key financial metrics Cash earnings (NZ$m)
109
New Zealand
2H16 1H17 2H17
Change on
1H17
Revenue (NZ$m)
1,132 1,097 1,150
5%
Net interest margin (%)
2.13 1.96 2.08
12bps
Expense to income (%) 42.3 44.4 41.4
(300bps)
Customer deposit to loan ratio (%)
76.6 74.2 75.5
130bps
Stressed assets to TCE (%)
2.54 2.41 2.06
(35bps)
2H16 1H17 2H17
Change on
1H17
Customers (#m) 1.35 1.36 1.35 -
Branches
189 170 169 (1)
Customers with a wealth product
1
(%)
28.4 28.6 29.0 36bps
FUM and FUA (NZ$bn) (spot)
9.5 9.7 10.1 4%
Service quality - complaints (000’s) 13.2 11.4 9.6 (16%)
434
462
59
11
4
508
(6)
(22)
2H161H17
Net interest income
Non-interest income
Operating expenses
Impairment charges
Tax and NCI
2H17
Up $46m or 10%
Disciplined growth and repricing of
mortgages and business lending,
partly offset by lower deposit spreads
Productivity benefits from
increased customer self-service
and business restructure were
partly offset by costs associated
with the transformation program
Improved asset
quality particularly in
dairy
New Zealand key metrics
1
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
1 All figures in NZ$ unless otherwise indicated. 2 Following an update to the Group’s capital allocation framework, numbers prior to 1H17 have been restated to ensure comparability to 1H17 and 2H17.
3 Revenue and expense to income ratios prior to 2H17 have been restated to reflect the accounting change to the Westpac New Zealand credit card rewards scheme.
Net interest margin
2
(%) Loans ($bn) & deposit to loan ratio (%) Expense to income ratio
2,3
(%)
Core earnings
2
($m) Cash earnings
2
($m) Revenue
2,3
($m)
110
New Zealand
1,095
1,141
1,110
1,132
1,097
1,150
1H152H151H162H161H172H17
651
675
635
653
610
674
1H152H151H162H161H172H17
449
480
452
434
462
508
1H152H151H162H161H172H17
40.6
40.8
42.8
42.3
44.4
41.4
1H152H151H162H161H172H17
2.28
2.31
2.18
2.13
1.96
2.08
1H152H151H162H161H172H17
67
69
72
75
77
77
77.3
75.2
76.6 76.6
74.2
75.5
Mar-15Sep-15Mar-16Sep-16Mar-17Sep-17
LoansCustomer deposit to loan ratio
Improving the digital customer experience
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
•Further enhancing 24/7 capability
•175 SmartATM’s across the country
•Market first with Reo Māori and Reo Waikato
language options on ATMs and ATM coin dispenser
•Over 750k paper statements have
migrated to e-Statements
•Over 700k transactions
migrated to self-serve in the half
•Market leading online platform. Canstar Best Online
Bank in New Zealand 2017, 2016, 2015
•Around 36% of all applications are online, with over
58% of all card applications
•772k active digital customers up 14% since launch
in April 2015
•Active digital customers 57% of total
•Integrated app to track finances and deliver
spending insights
•Market first and leading - Canstar Innovation
Excellence Award 2017
•Over 96,000 registrations to date since launched in
September 2016
Digital sales (% of total sales) SmartATM deposits (% of total) Digitally active customers (#’000’s)
CashNav Transforming the network Westpac One
111
New Zealand
2017 Canstar
Best Online Bank
in New Zealand
723
736
758
772
1H162H161H172H17
Up 5%
18
17
19
27
1H162H161H172H17
Up 10ppts
39
42
52
54
1H162H161H172H17
Up 12ppts
Stressed exposures lower as dairy portfolio improves
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
1 Large reduction in stressed exposures from Sep 2011 to Sep 2012 due primarily to transfer of WIB assets during 2012. 2 Includes impaired exposures.
112
Business stressed exposures as a % of New Zealand business TCE
Agribusiness portfolio Milk price & Fonterra dividend (NZ$) Summary
New Zealand
2.6
3.4
2.2
1.5
0.8
0.9
1.1
0.8
0.7
0.5
0.4
0.3
0.2
0.3
0.2
0.3
0.1
0.1
0.2
0.1
0.0
0.2
0.1
0.1
12.8
9.6
4.4
3.2
2.9
2.3
2.3
2.4
2.9
5.0
4.8
4.0
15.6
13.2
6.8
4.9
3.8
3.3
3.6
3.4
3.7
5.5
5.3
4.4
Sep-10Sep-11Sep-12Sep-13Mar-14Sep-14Mar-15Sep-15Mar-16Sep-16Mar-17Sep-17
Impaired90+ day past due not impairedWatchlist & substandard
14
8
59
3
4
12
Property
Manufacturing
Agriculture,
forestry & fishing
Wholesale trade
Construction
Other
1
Sep-16 Mar-17 Sep-17
TCE (NZ$bn) 8.6 8.6 8.9
Agriculture as a % of
total TCE
8.1 8.0 8.2
% of portfolio graded
as ‘stressed’
2
18.6 16.9 13.5
% of portfolio in
impaired
0.42 0.44 0.41
$0
$1
$2
$3
$4
$5
$6
$7
$8
$9
$10
2013/142014/152015/162016/172017/18
Kg Ms
DividendMilk price
Westpac
forecast
•Dairy portfolio’s risk grade profile is
improving following favourable milk price
movements
•Focus remains on supporting existing
dairy customers with proven long-term
financial viability
•Expect portfolio to continue improving as
high milk price translates to cash flow
1
Consumer asset quality in good shape
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
Unsecured consumer 90+ day delinquencies (%)
Mortgage loss rates each half (%)
Mortgage 90+ day delinquencies (%)
Mortgage portfolio LVR
1
(%) of portfolio
1 LVR based on current loan and property value at latest credit event.
0.12
0.0
0.5
1.0
Sep-10
Mar-11
Sep-11
Mar-12
Sep-12
Mar-13
Sep-13
Mar-14
Sep-14
Mar-15
Sep-15
Mar-16
Sep-16
Mar-17
Sep-17
113
New Zealand
44%
23%
25%
5%
3%
0<=6060<=7070<=8080<=9090+
92% of mortgage portfolio less than 80% LVR
0.57
0.0
0.5
1.0
1.5
Sep-10
Mar-11
Sep-11
Mar-12
Sep-12
Mar-13
Sep-13
Mar-14
Sep-14
Mar-15
Sep-15
Mar-16
Sep-16
Mar-17
Sep-17
0.01
0.00
0.05
0.10
0.15
0.20
0.25
2H101H112H111H122H121H132H131H142H141H152H151H162H161H172H17
200 years proudly supporting Australia
Economics
Australian economic snapshot
Australian economy key statistics
(latest available as at October 2017)
-200
-100
0
100
200
300
400
500
600
700
800
900
Jun-09Jun-10Jun-11Jun-12Jun-13Jun-14Jun-15Jun-16Jun-17
Sources: ABS, Westpac Economics.
Jobs growth
Australian Employment since 2009 (# ’000)
Household
services
Business
services
Mining
Construction
Goods
distribution
Manufacturing
Sources: Reuters, Westpac Economics
30
35
40
45
50
55
60
Sep-97Sep-01Sep-05Sep-09Sep-13Sep-17
Westpac global
trade PMI
JPMorgan global
manufacturing PMI
Index
115
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
Continued strength in commodity
prices
Global conditions have improved
Sources: Westpac Economics, Bloomberg
Economics
GDP 1.8%
Westpac Economics Forecast
(end calendar 2018)
2.5%
Unemployment
Rate
5.5%
Westpac Economics Forecast
(end calendar 2018)
6.1%
Inflation 1.8%
Westpac Economics Forecast
(end calendar 2018)
2.5%
Cash Rate 1.50%
Westpac Economics Forecast
(end calendar 2018)
1.50%
AUD/USD US$0.78
Westpac Economics Forecast
(end calendar 2018)
US$0.70
20
60
100
140
180
220
260
300
340
Oct-11Oct-13Oct-15Oct-17
USD/t
Iron ore (TSI 62% fines benchmark)
Coking coal (Qld HCC spot)
Westpac f/c’s
to Mar 2019
(‘000)
Australian economic outlook
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
Positive business conditions
Australian private sector credit growth (% ann)
Australian growth mix points to moderation in 2018
Consumer spending constrained by slow income growth
1 Incl. housing. 2 Mining investment.
116
Sources: RBA, Westpac Economics.
ann%
Sources: NAB survey, Westpac Economics.
-30
-20
-10
0
10
20
30
Sep-05Sep-07Sep-09Sep-11Sep-13Sep-15Sep-17
Net bal.
Goods related
Consumer sectors
Business services
3 month moving avg.
deviation from avg.
Australian consumer spending (% ann) vs labour income (% ann)
Australian business conditions (net balance)
Sources: ABS, Westpac Economics.
-2
-1
0
1
2
3
-2
-1
0
1
2
3
Consumer¹Mining²Non-mining
investment
PublicNet exportsGDP
ppts
ppts
2014201520162017f2018f
Sources: ABS, Westpac Economics.
-4
-2
0
2
4
6
8
10
Sep-97Sep-01Sep-05Sep-09Sep-13Sep-17
% ann
Labour income
Consumption
Real
Consumption
long run avg: 3.3%yr
Contributions to GDP growth (ppts)
Economics
-10
-5
0
5
10
15
20
25
Sep-93Sep-97Sep-01Sep-05Sep-09Sep-13Sep-17
HousingTotal creditBusiness
Forecasts
end 2018
Conditions continue to diverge across States
1 GSP is Gross State Product. 2 Real, financial years, experimental estimates.
NSW and Victoria 57% of population, 58% of employment
Activity picking up in NSW and Victoria
2
Population growth strongest in NSW and Victoria
32
22
19
15
6
2
32
25
20
11
7
2
32
26
20
11
7
2
21
12
20
38
5
1
NSWVicQldWASATas
GSPPopulationEmploymentExports
Relative size of States (Share of Australia, 2015/16, %)
0
10
20
30
40
50
60
1992199620002004200820122016
$bn
NSWQldVicWA
Non-mining Business investment ($bn)
Sources: ABS, Westpac Economics
Sources: ABS, Westpac Economics
Sources: ABS, Westpac Economics
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
Mar-87Mar-91Mar-95Mar-99Mar-03Mar-07Mar-11Mar-15
ann%
NSW-ACTVic-SA-TasQld-WA-NT
Last 6mths
announced
Population growth (% ann)
117
Economics
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
1
Jobs are being created, although wage growth remains low
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
Australian wage inflation (%, yr)
Jobs growth across all states
Services employ a large part of the Australian workforce
118
Sources: ABS, Westpac Economics.
1 Excludes ownership of dwellings and taxes less subsidies.
Sources: ABS, Westpac Economics.
Sources: ABS, Westpac Economics.
Australian wage inflation remains low
11
7
9
8
10
2
6
13
6
10
13
4
Mining
Manufacturing
Construction
Transport, Utilities
Wholesale, Retail
Rural
Household services
Education & Health
Government
Finance
Property, Business services
Communications
Sector contribution to GDP (%)
1
Services
52%
2
7
9
6
14
3
13
13
8
6
4
15
Mining
Manufacturing
Construction
Transport, Utilities
Wholesale, Retail
Agriculture
Household services
Health, Social Assistance
Education
Public Administration
Finance
Business services
Australian employment by sector 2015/16 (%)
Services
59%
0
1
2
3
4
5
6
7
8
Sep-99Sep-01Sep-03Sep-05Sep-07Sep-09Sep-11Sep-13Sep-15Sep-17
%yr
Aus private sector wages
Mining industry wages
Last 6mths
annualised
Australian wage inflation (%, yr)
State jobs market (Index: Dec 2011 = 100. % is share of total employment)
94
98
102
106
110
114
Sep-11Sep-13Sep-15Sep-17
WA (11%)
Qld (20%)
SA (7%)
Index
94
98
102
106
110
114
Sep-11Sep-13Sep-15Sep-17
Vic (26%)
NSW (32%)
Tas (2%)
Index
Economics
A closer look: State employment by sector
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
Charts represents 6 month average level compared to 6 month average level a year ago
119
NSW backdrop of robust economic activity supportive Victorian job gains widespread across industries
Queensland mining downtrend has ceased Western Australian employment conditions improving
Sources: ABS, Westpac Economics.
Sources: ABS, Westpac Economics.
Sources: ABS, Westpac Economics.
Sources: ABS, Westpac Economics.
NSW: Employment by sector (annual change in employment, ‘000) Victoria: Employment by sector (annual change in employment, ‘000)
Queensland: Employment by sector (annual change in employment, ‘000) WA: Employment by sector (annual change in employment, ‘000)
-30-20-10010203040
Finance & real estate
Leisure & hospitality
Agriculture
Utilities
Retail
Government
Construction
Mining
Manufacturing
Health & education
Wholesale & transp.
Business services
Q2, Q3 '16
Q2, Q3 '17
-1001020304050
Utilities
Business services
Wholesale & transp.
Mining
Finance & real estate
Agriculture
Manufacturing
Government
Construction
Retail
Leisure & hospitality
Health & education
Q2, Q3 '16
Q2, Q3 '17
-20-100102030
Business services
Retail
Wholesale & transp.
Utilities
Agriculture
Finance & real estate
Manufacturing
Government
Mining
Leisure & hospitality
Construction
Health & education
Q2, Q3 '16
Q2, Q3 '17
-30-25-20-15-10-50510152025
Mining
Retail
Manufacturing
Utilities
Business services
Government
Agriculture
Finance & real estate
Leisure & hospitality
Wholesale & transp.
Construction
Health & education
Q2, Q3 '16
Q2, Q3 '17
Economics
Housing market fundamentals
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
Rental vacancy rates remain tight in Sydney and Melbourne
187
236
196
320
371
114
128
134
137
157
1970s1980s1990s2000s2011-2017
PopulationDwelling stock¹
Aggregate supply/demand fundamentals remain positive
120
Sources: ABS, Westpac Economics. 1 Net of demolitions – implied by Census data.
Dwelling prices cooling
Population versus dwelling stock (annual average change ‘000)
Economics
Sources: REIA, Westpac Economics.
Rental vacancy rates (%, quarterly, seasonally adjusted by Westpac)
1.9
2.9
2.3
6.7
0
1
2
3
4
5
6
7
8
Jun-87Jun-92Jun-97Jun-02Jun-07Jun-12Jun-17
%
SydneyBrisbane
MelbournePerth
National
average since
1980
House prices
Capital
city Pop’n
% Change last
3mths (Oct-17)
% Change YoY
(Oct-17)
Avg since
2007
Sydney 4.8m Down 0.6% Up 7.7% Up 6.4%
Melbourne 4.5m Up 1.9% Up 11.0% Up 5.8%
Brisbane 2.3m Up 0.6% Up 2.7% Up 1.1%
Perth 1.9m Down 0.7% Down 2.5% Down 0.6%
-10
-5
0
5
10
15
20
-10
-5
0
5
10
15
20
Oct-11Oct-12Oct-13Oct-14Oct-15Oct-16Oct-17
ann%
ann%
Sources: ABS, CoreLogic, Westpac Economics.
Sources: CoreLogic, Westpac Economics. Dwelling prices are all dwellings, 6mth annualised growth.
Macro-prudential
tightening
Rate cuts
Change in Australian dwelling prices (annual %)
Impact of macro-prudential measures across Australian industry
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
Introduction of differentiated mortgage pricing
Lower new flow of high LVR loans
Change in composition of housing credit
Lower new flow of interest only loans
121
Sources: RBA, Westpac Economics.
0
4
8
12
16
Sep-11Sep-12Sep-13Sep-14Sep-15Sep-16Sep-17
Total
Investor
Owner-occupier
Sources: ABS, APRA, RBA, Westpac Economics.
Sources: ABS, APRA, RBA, Westpac Economics
Source: APRA, RBA, Westpac Economics
Australian housing credit growth (6mth % change annualised)
High LVR housing loans
5.0
5.5
6.0
6.5
7.0
7.5
Sep-12Sep-13Sep-14Sep-15Sep-16Sep-17
%
Own-occ. - principal and interest
Own-occ. - interest only
Investor - principal and interest
Investor - interest only
Mortgage interest rates (major bank average)
10% limit on investment
property annual portfolio
growth
30% limit on interest
only originations
0
10
20
30
40
50
60
Sep-08Sep-09Sep-10Sep-11Sep-12Sep-13Sep-14Sep-15Sep-16Sep-17
%
Outstanding loans
New loans
30% interest only
limit
announced
10% investor
credit limit
APRA limit
effective
Sep 17
%
0
5
10
15
20
25
Sep-08Sep-09Sep-10Sep-11Sep-12Sep-13Sep-14Sep-15Sep-16Sep-17
%
80-90%90%+
Economics
Interest only housing loans
Australian household balance sheets
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
Australian households debt to income ratio (%)
Australian household net wealth has also increased
Affordability on repayment basis below 10 year average
Higher income households have increased borrowings
122
Sources: ABS, RBA, Westpac Economics.
Sources: ABS, RBA, Westpac Economics
Sources: ABS, RBA, Westpac Economics.
-40
-20
0
20
40
60
80
100
120
140
160
180
200
Sep-83Sep-88Sep-93Sep-98Sep-03Sep-08Sep-13Sep-18
Total (gross) debt
Total debt net of offset accounts
Total debt net of all deposits*
Trend since Jun-07
* Westpac Economics estimates prior to 1988
0
200
400
600
800
1000
1200
1400
Jun-82Jun-87Jun-92Jun-97Jun-02Jun-07Jun-12Jun-17Jun-22
%
Total assets
Total liabilities
Total net worth
+72pts
+101pts
+29pts
Jun-07
Since Jun-07
% Annual household disposable income
Debt net of all
deposits also
excludes funds held
in mortgage offset
accounts
–20pts since peak
10
15
20
25
30
35
40
Jun-82Jun-87Jun-92Jun-97Jun-02Jun-07Jun-12Jun-17
Estimates based on capital cities prior to 1993
Long run avg
Deteriorate
Improve
10yr avg
If mortgage
rate was 1%
higher
%
Sources: RBA, Westpac Economics. Housing credit in 6 month % change annualised.
Housing affordability: all dwellings
(% income required to service mortgage of 75% median dwelling, all regions)
Australian household debt-to-income ratios by income quintile (%)
Economics
0
50
100
150
200
250
1st2nd3rd4th5th
2002200620102014
%
A closer look: Debt servicing and arrears by State
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
Victoria: Arrears low, debt burden around post GFC avg
1
WA: Arrears reflect weak economic conditions
1
NSW: Arrears near 13 year lows
1
Qld: Higher arrears mainly in mining-related regions
1
1. Debt servicing ratio is % mortgagors’ household income required to service existing mortgage debt, advanced 6mths. Arrears rate is % of securitised loans in arrears, by value, seasonally adjusted.
123
Sources: ABS, RBA, Standard & Poor's, Westpac Economics
Sources: ABS, RBA, Standard & Poor's, Westpac Economics
Sources: ABS, RBA, Standard & Poor's, Westpac Economics
Sources: ABS, RBA, Standard & Poor's, Westpac Economics
0.0
0.5
1.0
1.5
2.0
2.5
3.0
Jun-96Jun-99Jun-02Jun-05Jun-08Jun-11Jun-14Jun-17
10
12
14
16
18
20
22
24
%
%
Debt servicing ratio (rhs)Arrears rate (lhs)
WBC f/c
to Dec-
17
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2.0
Jun-96Jun-99Jun-02Jun-05Jun-08Jun-11Jun-14Jun-17
8
10
12
14
16
18
20
22
%
%
Debt servicing ratio (rhs)Arrears rate (lhs)
WBC f/c
to Dec-17
0.0
0.5
1.0
1.5
2.0
2.5
Jun-96Jun-99Jun-02Jun-05Jun-08Jun-11Jun-14Jun-17
8
10
12
14
16
18
20
22
%
%
Debt servicing ratio (rhs)Arrears rate (lhs)
WBC f/c
to Dec-17
0.0
0.5
1.0
1.5
2.0
2.5
Jun-96Jun-99Jun-02Jun-05Jun-08Jun-11Jun-14Jun-17
6
8
10
12
14
16
18
%
%
Debt servicing ratio (rhs)Arrears rate (lhs)
WBC f/c
to Dec-17
Economics
Australia’s high rise apartment market
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
Dwelling construction: indicative completion times
1
1 Estimated proportion of approved dwellings completed by months after approval. Note that not all approved dwellings are completed, reflecting both cancellations and reductions in project size. Also, ‘high rise’ projects
often have significant delays between approval and commencement.
Projected dwelling completions, major metro areas
124
Population versus new dwelling stock
(annual average change ‘000)
210
226
187
236
196
320
371
385
77
99
114
128
134
137
157
192
0
50
100
150
200
250
300
350
400
0
50
100
150
200
250
300
350
400
1950s1960s1970s1980s1990s2000slast 6
yrs
next
4yrs#
PopulationNew 'high rise' apartments^Total new dwelling stock^
*Average annual change
^Net of demolitions – implied by
Census data;
‘high rise’ is completions only;
#Westpac Economics estimates
0
10
20
30
40
50
60
70
80
90
100
0
10
20
30
40
50
60
70
80
90
100
01224364860
%
%
Detached houses
Low-mid rise
High rise
Average construction time for
‘high rise’ about 2-2½yrs
Dwelling completions by capital city (‘000s, rolling 6mth totals)
Sources: ABS, Westpac Economics
0
5
10
15
20
25
30
35
0
5
10
15
20
25
30
35
Dec-05Dec-11Dec-17Dec-05Dec-11Dec-17Dec-05Dec-11Dec-17
‘000s
‘000s
high rise top 5 areasother high risenon-high rise
projected
Sydney Brisbane/SEQ Melbourne
42%
12%
46%
19%
13%
68%
20%
12%
68%
projected
project-
ed
Economics
Source: RBA, CoreLogic.
Source: REIA, Westpac Economics.
Investor property lending
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
•Investor activity has been a key driver of Australia’s housing markets in recent
years
•Demand from investors tends to be less sensitive to affordability considerations
with price expectations and yields more important factors
−Both remain supportive for demand with surveyed price expectations positive
and gross rental yields similar to the dividend yield on Australian shares and
well above returns on term deposits
•Investor activity can also be more volatile and susceptible to riskier ‘speculative’
behaviour. However, the latter does not appear to be a significant factor at the
moment. In particular, the proportion of ‘short term’ transactional buying appears
to be low: turnover in Australia’s housing markets is low by historical standards,
even in the stronger Sydney and Melbourne markets
Housing finance approvals: value of housing finance
($bn/mth)
Investor housing yields vs shares, deposits (% p.a.)
Few signs of speculative behaviour in housing markets
Dwelling turnover¹ (% total stock)
125
0
2
4
6
8
10
12
14
16
Aug-97Aug-02Aug-07Aug-12Aug-17
'Upgraders', ex-refinancing
Investor finance
First home buyers
$bn/mth
0
2
4
6
8
10
Dec-96Dec-00Dec-04Dec-08Dec-12Dec-16
Rental yield
ASX 200 dividend yield
1yr term deposit
%
3.0
4.0
5.0
6.0
7.0
8.0
9.0
Dec-96Dec-00Dec-04Dec-08Dec-12Dec-16
AustraliaNSWVic
%
Sources: CoreLogic, ABS, Westpac Economics
1 Quarterly, annualised; last 3mths are estimates based on partial data.
Sources: CoreLogic, REIA, RBA, Westpac Economics.
2 Gross yield, median rent on 2bdrm unit as % of median unit price.
Sources: ABS, Westpac Economics.
Economics
2
0
2
4
6
8
0
2
4
6
8
20052007200920112013201520172019
%
%
New Zealand economic snapshot
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
Low rates keeping downward pressure on NZD Labour market has firmed, spare capacity remains
1 For year to September. 2 Seasons ended May.
126
Key economic statistics FY17 FY18f Change
GDP annual average growth
1
2.5% 2.8% 30bps
Inflation rate 1.9% 1.4% (50 bps)
Official cash rate (OCR) 1.75% 1.75% -
Unemployment rate 4.6% 4.6% -
Dairy payout (ex dividend)
2
$6.12 $6.50 $0.38
Source: RBNZ, Westpac Economics
Firm growth in recent years, pace to slow going forward
40
45
50
55
60
65
70
75
80
85
90
0.40
0.50
0.60
0.70
0.80
0.90
1.00
20052008201120142017
NZD/USD
NZD/AUD
TWI (right axis)
Forecast
Source: Statistics NZ, Westpac Economics
Source: Statistics NZ, Westpac Economics
Unemployment rate (%)
NZD/USD, NZD/AUD and TWI
-4
-2
0
2
4
6
-4
-2
0
2
4
6
20052007200920112013201520172019
Qtr % chgAnnual average % change
%
GDP (%)
Forecast
Economics
Forecast
%
Source: Stats NZ, Westpac Economics
New Zealand economy: growth to slow
Westpac Group 2017 Full Year Results Presentation & Investor Discussion Pack
127
•After expanding at a firm pace in recent years, New Zealand GDP growth is
expected to soften over the next few years
•Strong net migration has been a key driver of demand growth in recent years.
Migration flows have now started to ease back, and net migration is set to fall
sharply before the closer of the decade. Potential policy changes could reinforce
this slowdown
•There is a large amount of residential and non-residential building work planned
nationwide. However, construction activity has flattened off at a high level due to
tighter credit conditions, constraints on access to skilled labour and the softening
housing market. The level of activity is expected to remain elevated for an
extended period
•Post-earthquake reconstruction in the South Island is continuing. Spending is
well advanced and has been gradually winding down
•Housing market conditions have softened, and this is weighing on household
spending
•Export returns for our key commodities have improved over 2017, but prices are
expected to soften over the coming year. Tourist inflows remain strong
•The new coalition Government looks set to spend more than the previous one,
with new spending weighted towards education and health. It will be partly
funded by cancelling the income tax cuts that were legislated to take effect on
April 1 and by introducing new taxes. The balance would be funded by an
additional $7bn of net core Crown debt over the next four years. Proposed
changes would not significantly affect the Governments financial position
•Borrowing rates are expected to remain low for an extended period
Large pipeline of construction work, increases to be gradual
Migration cycle has started to turn down
-50
-25
0
25
50
75
-50
-25
0
25
50
75
20002002200420062008201020122014201620182020
000s
000s
Total
New Zealanders
Other
Forecast
0
5
10
15
20
25
30
35
40
0
5
10
15
20
25
30
35
40
2005200820112014201720202023
$bn
$bn
Construction (excl. quake costs)
Canterbury rebuild
Kaikoura earthquake costs
Construction spending (annual $bn)
Forecast
Source: Statistics NZ, Westpac Economics
Source: Westpac Economics estimates
Drivers of GDP growth in recent years are dissipating
Net migration (annual ‘000s)
Economics
[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.