Westpac 2017 Annual Report on Form 20-F
9 November 2017
Market Announcements Office
ASX Limited
20 Bridge Street
SYDNEY NSW 2000
Dear Sir/Madam
Westpac Banking Corporation US Annual Report on Form 20- F
Westpac Banking Corporation (Westpac) has filed with the US Securities and Exchange Commission an
Annual Report on Form 20-F for the financial year ended 30 September 2017 which has been prepared
specifically for distribution in the United States (2017 Form 20-F). This filing has been prepared to meet
US securities law requirements and is necessary to update Westpac’s US debt issuance programs. As the
2017 Form 20-F has been prepared to meet US requirements, its presentation differs in some limited
respects from Westpac’s 2017 Annual Report lodged with ASX Limited on 8 November 2017.
Yours sincerely
Tim Hartin
Group Company Secretary
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
Commission File Number: 1-10167
WESTPAC BANKING CORPORATION
Australian Business Number 33 007 457 141
(Exact name of Registrant as specified in its charter)
New South Wales, Australia
(Jurisdiction of incorporation or organization)
275 Kent Street, Sydney, NSW 2000, Australia
(Address of principal executive offices)
Westpac Banking Corporation, New York branch,
575 Fifth Avenue, 39 Floor, New York, New York 10017-2422,
Attention: Branch Manager, telephone number: (212) 551-1800
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Securities registered or to be registered pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: 1.50% Notes due December 1, 2017, Floating Rate Notes due December 1,
2017, 1.60% Notes due January 12, 2018, 4.625% Subordinated Notes due 2018, 1.55% Notes due May 25, 2018, Floating Rate Notes due May 25, 2018, 2.25%
Notes due July 30, 2018, Floating Rate Notes due July 30, 2018, 1.950% Notes due November 23, 2018, Floating Rate Notes due November 23, 2018, 2.25%
Notes due January 17, 2019, Floating Rate Notes due January 17, 2019, 1.650% Notes due May 13, 2019, Floating Rate Notes due May 13, 2019, 1.600% Notes
due August 19, 2019, Floating Rate Notes due August 19, 2019, 4.875% Notes due November 19, 2019, 2.150% Notes due March 6, 2020, Floating Rate Notes
due March 6, 2020, 2.30% Notes due May 26, 2020, 2.600% Notes due November 23, 2020, 2.100% Notes due May 13, 2021, Floating Rate Notes due May 13,
2021, 2.000% Notes due August 19, 2021, Floating Rate Notes due August 19, 2021, 2.800% Notes due January 11, 2022, Floating Rate Notes due January 11,
2022, 2.500% Notes due June 28, 2022, Floating Rate Notes due June 28, 2022, 2.850% Notes due May 13, 2026, 2.700% Notes due August 19, 2026, 3.350%
Notes due March 8, 2027, 4.322% Subordinated Notes due November 23, 2031, 5.000% Fixed Rate Resetting Perpetual Subordinated Contingent Convertible
Securities and notes issued under our Retail Medium-Term Notes program (Registration Statement No. 333-172579)
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes _ No
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
Yes No _
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes _ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and
post such files).
Yes No _ (not currently applicable to registrant)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See the
definitions of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the
extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act.
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards
Codification after April 5, 2012.
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP International Financial Reporting Standards as issued by the International Accounting Standards Board _
Other
If this is an annual report, indicate by check mark whether the registrant is a shell company.
Yes No _
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT
OF 1934
Or
_ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 2017
Or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Or
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Title of each className of each exchange on which registered
Ordinary sharesListed on the New York Stock Exchange, not for trading, but only in connection
with the registration of related American Depositary Shares, pursuant to the
re
quirements of the New York Stock Exchange.
American Depositary Shares, each representing the right to receive one
ordinar
y share
New York Stock Exchange
Ordinary shares3,394,364,279 fully paid
Large accelerated filer _Accelerated filer Non-accelerated filer Emerging growth company
th
Table of contents
Annual Report
Form 20-F cross-reference index2
Guide 3 cros
s-reference index4
Section 16
Information on Westpac7
Business strategy7
Outloo
k10
Significant developments11
Corporate governance19
Directors’report40
Remuneration Report54
Section 283
Five year summary84
Reading this report85
Review of Group operations87
Income statement revie
w89
Balance sheet review97
Capital resources101
Commitments103
Divisional performance104
Consumer Bank107
Business Bank108
BT Financial Group (Australia)109
Westpac Institutional Bank111
Westpac New Zealand112
Group Businesses114
Risk and risk management119
Risk factors119
Risk management129
Credit ris
k129
Liquidity risk130
In this Annual Report a reference to ‘Westpac’, ‘Group’, ‘Westpac Group’,
‘we’, ‘us’ and ‘our’ is to Westpac Banking Corporation ABN 33 007 457
141 and its subsidiaries unless it clearly means just Westpac Banking
Corporation.
For certain information about the basis of preparing the financial
information in this Annual Report see ‘Reading this report’ in Section 2.
In addition, this Annual Report contains statements that constitute
‘forward-looking statements’ within the meaning of Section 21E of the US
Securities Exchange Act of 1934. For an explanation of forward-looking
statements and the risks, uncertainties and assumptions to which they
are subject, see ‘Reading this report’ in Section 2.
Information contained in or accessible through the websites mentioned in
this Annual Report does not form part of this report unless we specifically
state that it is incorporated by reference and forms part of this report. All
references in this report to websites are inactive textual references and
are for information onl
y.
Market risk131
Operational risk and compliance risk132
Other risks133
Westpac’s approach to sustainability136
Sustainability performance136
Five year non-financial summary141
Other Westpac business information143
Section 3145
Financial statements146
Notes to the financial statements152
Statutory statements265
Section 4269
Shareholding information270
Additional information285
Information for shareholders289
Glossary of abbreviations and defined terms293
2017 Westpac Group Annual Report
1
(for the purpose of filing with the United States Securities and Exchange Commission)
Form 20-F cross-reference index
20-F item number and descriptionPage
Part I
Item 1.Identity of directors, senior management and advisersNot applicable
Item 2.Offer statistics and expected timetableNot applicable
Item 3.Key information
Selected financial data84, 89, 97-98, 288
Capitalisation and indebtednessNot applicable
Reasons for the offer and use of proceedsNot applicable
Risk factor
s119-128
Item 4.Information on Westpac
History and development of Westpac7, 9-18
Business overview7-18
Organisational structure8-9, 249-251
Property, plants and equipment143
Item 4A.Unresolved staff commentsNot applicable
Item 5.Operating and financial review and prospects
Operating results87-102, 104-118
Liquidity and capital resources101-103, 130-131, 133-135
Research and develo
pment, patents and licences etc.Not applicable
Trend information89-101, 104-118
Off-balance sheet arrangements135
Tabular disclosure of contractual obligations103
Safe harbor85
Item 6.Directors, senior management and employees
Directors and senior management40-47, 49-51
Compensation54-79, 260-262
Board practices21-43
Employees143
Share ownershi
p49-51, 260-262, 270
Item 7.Major shareholders and related party transactions
Major shareholders270-278
Related party transactions144, 260-262
Interests of experts and counselNot applicable
Item 8.Financial information
Consolidated statements and other financial information145-267
Significant changes11-16, 264
Item 9.The offer and listing
Offer and listing details279
Plan of distributionNot applicable
Markets19, 289-291
Selling shareholdersNot applicable
DilutionNot applicable
Expenses of the issueNot applicable
2
2017 Westpac Group Annual Report
(for the purpose of filing with the United States Securities and Exchange Commission)
Form 20-F cross-reference index
Page
Item 10.Additional information
Share capitalNot applicable
Memorandum and articles of associatio
n285-287
Material contracts143
Exchange controls281-282
Taxation282-284
Dividends and paying agentsNot applicable
Statements by expertsNot applicable
Documents on display287
Subsidiary informationNot applicable
Item 11.Quantitative and qualitative disclosures about market risk131-132, 221-223
Item 12.Description of securities other than equity securities
Debt securitiesNot applicable
Warrants and rightsNot applicable
Other securitiesNot applicable
American depositary shares280
Part II
Item 13.Defaults, dividend arrearages and delinquenciesNot applicable
Item 14.Material modifications to the rights of security holders and use of proceedsNot applicable
Item 15.Controls and procedures135, 266, 267
Item 16A.Audit committee financial expert31
Item 16B.Code of ethics27-29
Item 16C.Principal accountant fees and services31, 260
Item 16D.Exemptions from the Listing Standards for audit committeesNot applicable
Item 16E.Purchases of equity securities by the issuer and affiliated purchasers103, 245-247
Item 16F.Changes in Registrant’s certifying accountantNot applicable
Item 16G.Corporate governance19
Item 16H.Mine safety disclosureNot applicable
Part III
Item 17. & 18. Financial statements145-267
Item 19.Exhibits
Consolidated income statements for the years ended 30 September 2017, 2016 and 2015146
Consolidated balance sheets as at 30 September 2017 and 2016148
Consolidated statements of comprehensive income for the years ended 30 September 2017, 2016 and 2015147
Consolidated statements of cash flows for the years ended 30 September 2017, 2016 and 2015151
Notes to the financial statements152-264
Management’s report on the internal control over financial reporting266
Report of independent registered public accounting firm267
2017 Westpac Group Annual Report3
Guide 3 cross-reference index
Page
Part I Distribution of assets, liabilities and stockholders’ equity; interest rates and interest differential
Average balance sheets
97, 170-172
Analysis of net interest earnings90-91, 170-172
Volume and rate movement90, 170-172
Part II Investment portfolio
Book value of investments
174
Maturity profile175, 218-221
Book value and market value > 10% of shareholders174
Part III Loan
portfolio
Types of loans
176-179
Maturities and sensitivities of loans to chan
ges in interest rates180
Risk elements
Non-accrual, past due and restructured loans100-101, 209-213
Potential problem loans100-101
Foreign outstandings130
Loan concentrations130
Other interest bearing assets173-175, 207-208
Part IV Summary of loan loss experience
Analysis of the allowance for loan losses
181-184
Allocation of the allowance for loan losses181-184
Part V Deposits
187-188
Part VI Return on e
quity and assets
84, 98
Part VII Short-term borrowings
189-190
4
2017 Westpac Group Annual Report
This page is intentionally left blank
Guide 3 cross-reference index
2017 Westpac Group Annual Report5
Information on Westpac
Corporate governance
Directors’ report
(including Remuneration Report)
Information on Westpac
2017 Westpac Group Annual Report
7
Westpac is one of the four major banking organisations in
Australia and one of the largest banking organisations in
New Zealand. We provide a broad range of banking and
financial services in these markets, including consumer ,
business and institutional banking and wealth management
services.
We have branches, affiliates and controlled entities throughout
Australia, New Zealand, Asia and in the Pacific region, and
maintain branches and offices in some of the key financial
centres around the world.
We were founded in 1817 and were the first bank established in
Australia. In 1850, we were incorporated as the Bank of
New South Wales by an Act of the New South Wales
Parliament. In 1982, we changed our name to Westpac
Banking Corporation following our merger with the Commercial
Bank of Australia. On 23 August 2002, we were registered as a
public company limited by shares under the Australian
Corporations Act 2001 (Cth) (Corporations Act).
At 30 September 2017, our market capitalisation was
$108 billion and we had total assets of $852 billion.
Business strategy
Westpac’s vision is ‘To be one of the world’s great service
companies, helping our customers, communities and people to
prosper and grow’.
Our strategy seeks to deliver on this vision by building deep
and enduring customer relationships, being a leader in the
community, being a place where the best people want to work
and, in so doing, delivering superior returns for shareholders.
In delivering on our strategy, we are focused on our core
markets, including Australia and New Zealand, where we
provide a comprehensive range of financial products and
services that assist us in meeting the financial services needs
of customers. With our strong position in these markets, and
over 13 million customers , our focus is on organic growth,
growing customer numbers in our chosen segments and
building stronger and deeper customer relationships.
A key element of this approach is our portfolio of financial
services brands, which we believe enables us to appeal to a
broader range of customers and provides us with the strategic
flexibility to offer solutions that better meet individual customer
needs.
A consumer is defined as a person who uses our products and services.
It does not include business entities.
Refer to Note 35 to the financial statements for a list of our material
controlled entities as at 30 September 2017.
Based on the closing share price of our ordinary shares on the ASX as at
30 September 2017.
All customers with an active relationship (excludes channel only and
potential relationships) as at 30 September 2017.
1
2
3
4
1
2
3
4
As we continue to build the business, the financial services
environment remains challenging and has required us to
maintain focus on strengthening our financial position while at
the same time improving efficiency. This strengthening has
involved
:
lifting the level and quality of our capital;
improving our funding and liquidity position; and
seeking to maintain a high level of asset quality and
provisioning.
While we are currently one of the most efficient banks globally,
as measured by a cost to income ratio, we continue to focus on
ways to simplify our business to make it easier for customers to
do business with us and to make work more enjoyable for ou
r
people. We believe these improvement efforts also contribute
to reducing unit costs that create capacity for further investment
for growth.
Throughout 2017 we continued our focus on delivering superior
outcomes for our customers and shareholders through our
Service Revolution transformation. The Service Revolution is
seeking to: provide a truly personal service for customers while
better anticipating their needs; put customers in control of their
finances; respond to the increased pace of innovation,
disruption and changing customer behaviours through
digitisation and increasing our capacity for innovation; and
innovate and simplify to reinvent the customer experience
.
As part of our delivery of the Service Revolution, we have
developed an integrated, multi-year plan that will be executed
across the Group. In 2017, we delivered significant outcomes
and met key milestones on a number of our transformation
programs focused on the digitisation of the company through
the design and development of a single bank technology
infrastructure. We expect this will significantly transform
customer experiences and drive operational efficiency. At the
same time, our Consumer Bank and Business Bank
transformation programs continued to deliver market-leading
customer services, while lowering the cost to serve
.
Over the year, substantial work has also been undertaken on
conduct and culture, with work focused on continuing to
strengthen our conduct management across the Group. In
addition, work continues on ensuring that we are responding to
our changing regulatory and industry landscape, with initiatives
around a product remediation program, implementing
Australian Bankers’ Association (ABA) industry initiatives
(further information is contained in ‘Significant developments’)
and enhancing our remuneration frameworks
.
Sustainability is part of our strategy of seeking to anticipate and
shape the most pressing emerging social issues where we
have the skills and experience to make a meaningful difference
and drive business value. Our approach makes sustainability
part of the way we do business, embedded in our strategy,
values, culture and processes.
8
2017 Westpac Group Annual Report
Supporting our customer-focused strategy is a strong set of
company-wide values, which are embedded in our culture.
These are:
integrity;
service;
one team;
courage; and
achievement.
Strategic priorities
In delivering our strategy, we have five strategic priorities that
help guide our activities:
a)Service leadership
provide a seamless customer experience across
all channels;
deepen relationships through context-based customer
experiences using our portfolio of brands; and
acquire new customers by making it simpler, easier and
better for customers to choose us.
b)Digital transformation
create a 21st century, digitised bank with multi-
brand capabilities;
simplify products and processes by digitising end-to-end;
and
drive efficiency opportunities from digitisation and
consolidation of systems.
c)Performance discipline
to be the region’s best performing bank;
manage the business in a balanced way across strength,
growth, return and productivity;
maintain strong levels of capital, to meet the needs of all
our stakeholders and requirements of regulators;
continue to enhance our funding and liquidity position,
including ensuring a diversity of funding pools and meeting
new liquidity requirements; and
maintain a high quality portfolio of assets, coupled with
appropriate provisioning.
d)Growth highways
focus on stronger growth in:
–small to medium enterprises;
–wealth; and
be targeted in specific business segments.
e)Workforce revolution
focus on a customer-centric culture;
strengthen the skills of our people to better serve
customers and meet their complete financial needs;
empower our people to drive innovation, deliver new and
improved ways of working and be responsive to change;
and
continue to enhance the diversity of our workforce.
Organisational structure
Our operations comprise the following key custome
r-facing
business divisions operating under multiple brands
.
Consumer Bank (CB) is responsible for sales and service to
consumer customers in Australia under the Westpac,
St.George, BankSA, Bank of Melbourne and RAMS brands.
Activities are conducted through a dedicated team of specialist
consumer relationship managers along with our call centres
and our extensive network of branches and ATMs. Customers
are also supported by a range of internet and mobile banking
solutions. CB also works in an integrated way with BTFG and
WIB in the sales and service of select financial services and
products, including in wealth and foreign exchange. The
revenue from these products is mostly retained by the product
originator.
Business Bank (BB) is responsible for sales and service to
micro, small to medium enterprises (SME) and commercial
business customers in Australia for facilities up to
approximately $150 million. The division operates under the
Westpac, St.George, BankSA and Bank of Melbourne brands.
Customers are provided with a wide range of banking and
financial products and services to support their borrowing,
payments and transaction needs. In addition, specialist
services are provided for cash flow finance, trade finance,
automotive and equipment finance, property finance and
treasury. The division is also responsible for consumer
customers with auto finance loans. BB works in an integrated
way with BTFG and WIB in the sales and service of select
financial services and products including corporate
superannuation, foreign exchange and interest rate hedging.
The revenue from these products is mostly retained by the
product originator
.
BT Financial Group (Australia) (BTFG) is the Australian wealth
management and insurance arm of the Westpac Group,
providing a broad range of associated services. BTFG’s funds
management operations include the manufacturing and
distribution of investment, superannuation, retirement products,
wealth administration platforms, private banking, margin
lending and equities broking. BTFG’s insurance business
covers the manufacturing and distribution of life, general and
lenders mortgage insurance. The division also uses third
parties to manufacture certain general insurance products. In
managing risk across all insurance classes, the division
reinsures certain risks using external providers. BTFG operates
a range of wealth, funds management and financial advice
brands (including Ascalon which is a boutique incubator of
emerging fund managers) and operates under the banking
brands of Westpac, St.George, Bank of Melbourne and
BankSA for Private Wealth and Insurance
.
Westpac Institutional Bank (WIB) delivers a broad range of
financial products and services to commercial, corporate,
institutional and government customers with connections to
Australia and New Zealand. WIB operates through dedicated
industry relationship and specialist product teams, with expert
knowledge in transactional banking, financial and debt capital
markets, specialised capital and alternative investment
solutions. Customers are supported throughout Australia as
well as via branches and subsidiaries located in New Zealand,
the US, UK and Asia. WIB is also responsible
Information on Westpac
2017 Westpac Group Annual Report
9
for Westpac Pacific, currently providing a range of banking
services in Fiji and PNG. WIB works in an integrated way with
all the Group’s divisions in the provision of more complex
financial needs, including across foreign exchange and fixed
interest solutions.
Westpac New Zealand is responsible for sales and service of
banking, wealth and insurance products for consumers,
business and institutional customers in New Zealand. Westpac
conducts its New Zealand banking business through two banks
in New Zealand:
Westpac New Zealand Limited (WNZL), which is
incorporated in New Zealand; and
Westpac Banking Corporation (New Zealand Branch),
which is incorporated in Australia.
Westpac New Zealand operates via an extensive network of
branches and ATMs across both the North and South Islands.
Business and institutional customers are also served through
relationship and specialist product teams. Banking products are
provided under the Westpac brand, while insurance and wealth
products are provided under Westpac Life and BT brands,
respectively. Westpac New Zealand also maintains its own
infrastructure, including technology, operations and treasury.
Group Businesses include:
Treasury, which is responsible for the management of the
Group’s balance sheet including wholesale funding, capital
and management of liquidity. Treasury also manages the
interest rate risk and foreign exchange risks inherent in the
balance sheet, including managing the mismatch between
Group assets and liabilities. Treasury’s earnings are
primarily sourced from managing the Group’s balance
sheet and interest rate risk (excluding Westpac New
Zealand) within set risk limits;
Group Technology, which comprises functions for the
Australian businesses, is responsible for technology
strategy and architecture, infrastructure and operations,
applications development and business integration; and
Core Support, which comprises functions performed
centrally, including Australian banking operations, property
services, strategy, finance, risk, compliance, legal and
human resources.
Group Technology costs are fully allocated to other divisions in
the Group. Core Support costs are partially allocated to other
divisions in the Group, with costs attributed to enterprise activity
retained in Group Businesses.
Group Businesses also includes items, including earnings on
capital not allocated to divisions, accounting entries for certain
intra-group transactions that facilitate the presentation of the
performance of the Group’s operating segments, earnings from
non-core asset sales and certain other head office items such
as centrally raised provisions.
Competition
The Group operates in a highly competitive environment across
the regions in which we do business.
We serve the banking, wealth and risk management needs of
customer se
gments from consumers to small businesses
through to large corporate and institutional clients. The Group
competes with other financial services industry players fo
r
customers, by covering their transacting, saving, investing,
protecting and borrowing needs with a wide set of products and
services. Our competitors range from large global organisations
with broad offerings to entities more focused on specific
regions, products or services. Our competitors include financial
services and advisory companies such as banks, investment
banks, credit unions, building societies, mortgage originators,
credit card issuers, brokerage firms, fund and asset
management companies, insurance companies, online financial
services providers and increasingly, technology companies are
also developing competitive offerings.
Like other financial services providers, our competitive position
across customer segments, products and geographies is
determined by a variety of factors. These include
:
the quality, range, innovation and pricing of products and
services offered;
digital and technology solutions;
customer service quality and convenience;
the effectiveness of, and access to, distribution channels;
brand reputation and preference;
the types of customer served; and
the talent and experience of our employees.
We also operate in an environment where digital innovation is
changing the competitive landscape. In the context of
innovation, we are dependent on our ability to offer new
products and services that match evolving customer preference
and compare favourably to those of our competitors. The
competitive nature of the industry means that if we are not
successful in developing or introducing new products and
services, or in responding or adapting to changes in customer
preferences and habits, we will lose customers to ou
r
competitors.
Competition within Australia’s financial system is evidenced by
both the significant number of providers and the range of
products and services available to customers. In Australia, we
have seen competition for deposits partly driven by cleare
r
global regulatory requirements for liquidity management in the
pos
t-Global Financial Crisis environment, such as the
introduction of the Liquidity Coverage Ratio (LCR) in 2015 and
the upcoming Net Stable Funding Ratio (NSFR). Banks and
other financial institutions also seek to achieve a higher
proportion of high quality deposit funding as credit rating
agencies and debt investors look for strong balance sheet
positions in their assessment of quality institutions
.
Competition for lending is also expected to remain high. At the
same time, businesses and consumers are cautious about the
global outlook and continue to reduce gearing. The residential
mortgage business continues to be highly competitive, with
increased regulatory oversight to make the balance sheets of
both borrowers and lenders more resilient. In particular, the
most recent regulatory focus has been on limiting interest only
lendin
g. The high degree of competition
10
2017 Westpac Group Annual Report
and regulatory interest is expected to continue. Serving
business customers’ transaction and trade financing needs has
been at the centre of competitive activity as customer
expectations increase.
In our wealth business, we expect the broader competitive
landscape to continue to undergo significant change with
ongoing consolidation in life insurance, continued regulatory
and structural change in financial advice, and increased
overseas interest and participation in superannuation.
In New Zealand, the Group is experiencing strong competition
as banks vie for new customers. Competition for deposits
remains intense and home lending is particularly competitive on
price and switching incentives.
Outlook
The Australian economy has continued to grow solidly in 2017.
GDP increased by 1.8% for the year to June 2017, being
affected by the severe weather along Australia’s eastern
seaboard in the March quarter 2017. As this impact fades, GDP
growth is forecast to increase to around 3% by the end of
calendar 2017.
Recent growth has been supported by continued employment
growth, more confidence around the global economy, higher
commodity prices, a boost in public spending and a reduced
drag from the slowdown in mining investment. We have also
been encouraged by some improvement in the level of non-
mining business investment, particularly in the construction
sector.
Despite this encouraging news, the Reserve Bank has chosen
to keep interest rates on hold. Concerns around the consumer
are a key issue. Income growth has been modest; household
leverage has increased and household budgets are being
impacted by rising energy costs.
The current mix of growth has continued to vary across
Australia. NSW and Victoria are performing particularly well,
benefiting from low interest rates and stronger housing
construction. Conditions have been much more challenging in
areas impacted by the slowdown in mining (WA and regional
Queensland). In both these regions we have seen rising
unemployment, falling house prices, restrained spending and
higher loan delinquencies. More recently, there are signs of an
improvement, particularly in light of higher commodity prices,
although realistically, a full recovery is likely to take some time.
In New Zealand, the economy has also been sound, with a
solid pipeline of construction projects, strong population growth
and low interest rates all supporting growth. Some construction
delays and capacity constraints have, however, limited this
growth. GDP growth has held at around 3%, with
unemployment of around 5% and inflation near 2%.
The international outlook has improved over the year. The
consensus view at the recent IMF meeting in Washington was
that 2017 has been the best year for synchronised global
growth since the Global Financial Crisis.
Within Australia, the 2018 outlook is for real GDP to grow at
around 2.5%, with growth expected to slow through the year.
That profile reflects the Group’s expectation that ongoing
All data and opinions under ‘Outlook’ are generated by our internal
economists and management.
1
1
weak income growth will further weigh on the consumer
through 2018. Prospects for a reasonable lift in business
investment are still clouded while housing construction, afte
r
being a contributor to growth, is likely to peak with its impact
slowing in the year ahead. On the other hand, there will be
ongoing contributions from exports, both resources and
services, public demand, including infrastructure and from
private non-residential construction. Consistent with that growth
profile, we expect the recent strength in employment growth to
slow next year, with a small rise in the unemployment rate
likely.
Inflation is also anticipated to remain at the lower end of the
RBA’s target band and this, along with a modest slowdown in
growth, is expected to see the RBA’s cash rate hold at 1.5%
through 2018.
Financial system credit grew by just below 6% in the year to
September 2017, with system housing credit rising 6.5%, and
system business credit expanding by 4.5%. Other consumer
credit declined over the year by just over 1% – this continues a
path of no growth in other consumer credit for a number of
years.
Given the economic backdrop, and the further tightening of
credit standards as the full consequences of macr
o-prudential
measures flow through, growth in financial system credit in the
year to September 2018 is expected to slow to around 4.5%. In
particular, housing credit growth is forecast to ease to closer to
5.0%, while business credit is expected to slow to nearer 4.0%
.
Westpac Group remains focused on executing our strategy of
creating a great service company, with our five strategic
priorities assisting to guide this transformation. These include
:
maintaining our performance disciplines – continuing to be
prudent in the management of capital, funding and liquidity;
managing returns effectively seeking to achieve a cash
ROE between 13% and 14% and remaining disciplined on
asset growth;
through service leadership, continue to build our customer
base while also increasing the depth of customer
relationships;
digital transformation is utilising technology to materially
improve efficiency and reduce the Group’s cost to income
ratio to below 40% in the medium term;
wealth, small and medium business enterprises will
continue to be our areas of targeted growth. These include
further building on the Group’s wealth management
system, called Panorama, and using new technologies to
make business banking more accessible to customers; and
through our workforce revolution priority we are seeking to
further build a stronger and more diverse workforce where
the best people want to work.
The financial services industry continues to experience
significant regulatory change and pressure. The Bank Levy will
be fully applied through the year. Following announcements
from our regulator, APRA, we have greater clarity on what sort
of capital levels we require to be considered ‘unquestionably
strong’. APRA have indicated
Information on Westpac
2017 Westpac Group Annual Report
11
they expect to finalise their updated capital rules by the end of
calendar 2017, which will draw upon the capital frameworks
being developed by the Basel Committee on Banking
Supervision. Banks are expected to be required to meet these
new standards by 1 January 2020. We believe the Group is
already well placed to meet the Net Stable Funding Ratio
(NSFR) which applies from 1 January 2018.
Given the strength of our business, and our balance sheet, in
both absolute terms and relative to peers, we believe Westpac
is well placed to respond to any additional regulatory
requirements.
Looking ahead, with our strong positioning, disciplined growth
and solid operating performance across all divisions, combined
with good progress on our strategic priorities, Westpac believes
it is well positioned to continue delivering sustainable outcomes
for shareholders and customers.
Significant developments
Corporate significant developments
Bank Levy for Authorised Deposit-taking Institutions (ADIs)
On 23 June 2017, legislation was enacted that introduced a
new levy on ADIs with liabilities of at least $100 billion (Bank
Levy). The Bank Levy became effective from 1 July 2017 and
the rate is set at 0.06% per annum of certain ADI liabilities.
There is no end date provided for the Bank Levy.
The Bank Levy applies to liabilities of Westpac (including its
offshore branches), but does not apply to liabilities of
Westpac’s subsidiaries. Furthermore, the Bank Levy is not
charged on Additional Tier 1 capital, deposits protected by the
Financial Claims Scheme and RBA exchange settlement
balances. The legislation also provides for inclusion of
derivative liabilities on a net basis and for the Bank Levy to be
tax deductible.
The Bank Levy cost Westpac $95 million in Full Year 2017, with
an after tax impact of $66 million and is estimated to cost
Westpac approximately $405 million in Full Year 2018, with an
after tax impact of approximately $284 million.
House of Representatives Standing Committee on Economics’
Review of the Four Major Banks and other reviews
On 16 September 2016, the Chairman of the House of
Representatives Standing Committee on Economics
announced that the Committee had commenced its Review of
the Four Major Banks (Parliamentary Review). The terms of
reference for the Parliamentary Review are wide-ranging, with
one area of focus being how individual banks and the industry
as a whole are responding to issues identified through other
inquiries, including through the Australian Bankers’ Association
(ABA) action plan. Westpac attended public hearings of the
Parliamentary Review on 6 October 2016, 8 March 2017 and
11 October 2017.
The first report of the Parliamentary Review was published on
24 November 2016 and contained ten recommendations.
The second report was published on 21 April 2017. In its
second report, the Committee restated its support for the
recommendations in the first report and supported a
recommendation of the Australian Small Business and Family
Enterprise Ombudsman to remove non-monetary default
clauses in small business loan contracts.
In May 2017, the Australian Government announced that it
supported nine of the ten recommendations made by the
Committee in its first report and announced a range of
measures designed to implement these recommendations,
such as:
the introduction of the Banking Executive Accountability
Regime (discussed below);
an independent review to recommend the best approach
to implement an open banking regime with respect to
banking product and consumer data; and
the creation of a new dispute resolution framework,
including the establishment of the Australian Financial
Complaints Authority, which is designed to be a single
external dispute resolution body for the handling of
financial and superannuation disputes.
On 29 November 2016, the Senate referred an inquiry into the
regulatory framework for the protection of consumers, including
small businesses, in the banking, insurance and financial
services sector to the Senate Economics References
Committee. The terms of reference for the inquiry focus on a
range of matters relating to the protection of consumers against
wrongdoing in the sector. They also require the inquiry to
examine the availability and adequacy of redress and support
for consumers who have been victims of wrongdoing. The
inquiry is scheduled to produce a report in the first half of 2018.
Further, there are a number of other reviews commissioned by
the Australian Government, including an independent review to
recommend the best approach to implement an open banking
regime in Australia. The review will advise on the design of the
model and regulatory framework to require banks to share
product and customer data with customers and third parties,
including the scope of data sets to be shared, data transfe
r
mechanisms, risks such as customer trust and privacy
safeguard requirements, and costs of implementation. The
review will report to the Government by the end of 2017
.
In addition to the reviews and inquiries mentioned above, the
ACCC is undertaking a specific inquiry, until 30 June 2018, into
the pricing of residential mortgages by those banks affected by
the Bank Levy (including Westpac), which includes monitoring
the extent to which the Bank Levy is passed on to customers.
As these reviews and inquiries progress, they may lead to
further regulation and reform.
Banking Executive Accountability Regime
In May 2017, the Australian Government announced that it
would introduce the Banking Executive Accountability Regime
(BEAR). The Governmen
t’s stated intention is to introduce a
strengthened responsibility and accountability framework for
the most senior and influential directors and executives in ADI
groups (referred to as ‘accountable persons’ under BEAR). The
Treasury Laws Amendment (Banking Executive Accountability
and Related Measures) Bill 2017 was introduced into
Parliament on 19 October 2017. The Bill has been referred to
the Senate Economics Legislation Committee, which is
ex
pected to report on the Bill by 24 November 2017.
12
2017 Westpac Group Annual Report
If enacted in the form currently proposed, BEAR will involve a
range of new measures, including:
imposing a set of requirements to be met by ADIs and
accountable persons, including accountability obligations;
requirements for ADIs to register accountable persons with
APRA prior to their commencement in an accountable
person role, to maintain and provide APRA with a map of
the roles and responsibilities of accountable persons
across the ADI group, and to give APRA accountability
statements for each accountable person detailing that
individual’s roles and responsibilities; and
new and stronger APRA enforcement powers, including
disqualification powers in relation to accountable persons
who breach the obligations of BEAR and a new civil
penalty regime that will enable APRA to seek civil penalties
in the Federal Court of up to $210 million (for large ADIs,
such as Westpac) where an ADI breaches its obligations
under BEAR and the breach relates to ‘prudential matters’.
The proposed commencement date for implementation of
BEAR is 1 July 2018 (with transitional arrangements for certain
aspects of BEAR).
Productivity Commission Inquiry into Competition in the
Australian Financial System
In May 2017, the Australian Government announced a
Productivity Commission inquiry into competition in the financial
system. This review was a recommendation of the Financial
System Inquiry. The terms of reference are broad and require
the Productivity Commission to review competition in
Australia’s financial system with a view to improving consumer
outcomes, and the productivity and international
competitiveness of the financial system and the economy more
broadly, and supporting ongoing financial system innovation,
while balancing these with financial stability objectives. The
review commenced on 1 July 2017 and the Productivity
Commission is due to hand its final report to the Government
by 1 July 2018.
Australian Bankers’ Association Banking Reform Program and
industry initiatives
On 21 April 2016, the ABA announced an action plan to protect
consumer interests, increase transparency and accountability
and build trust and confidence in banks.
The reform program includes a number of industry-led
initiatives including:
a review of product sales commissions and product based
payments;
the establishment of an independent customer advocate in
each bank;
supporting the broadening of external dispute resolution
schemes;
evaluating the establishment of an industry-wide,
mandatory, last resort compensation scheme;
strengthening protections available to whistleblowers;
the implementation of a new information sharing protocol
to help stop individuals with a history of poor conduct
moving around the industry;
strengthening the commitment to customers in the Code of
Banking Practice; and
supporting ASIC as a strong regulator.
On 20 October 2017, the independent governance expert
overseeing the ABA action plan released his sixth report titled,
Australian banking industry: Package of Initiatives, which noted
that banks are continuing to make good progress in delivering
the initiatives, with a number of the initiatives now implemented
or moving into implementation stage.
Australian Securities and Investments Commission (ASIC)
Enforcement Review Taskforc
e
On 19 October 2016, the Australian Government released the
terms of reference for the ASIC Enforcement Review Taskforce
(Taskforce), which will assess the suitability of ASI
C’s existing
regulatory tools (including the penalties available) and whethe
r
they need to be strengthened.
The Taskforce has completed consultations on a range of
matters, including proposed reforms to the mandatory breach
reporting framework. These reforms include clarifying when a
reporting obligation is triggered, expanding the class of reports
that must be made to include misconduct by individual advisers
and employees and strengthening the penalties for failing to
report, including through the introduction of an infringement
notice regime
.
The Taskforce has also consulted on:
strengthening ASIC’s licensing powers, which would
enable ASIC to take action to refuse to grant, or to
suspend or cancel, a licence where the applicant or
licensee is not considered to be a fit and proper person;
and
proposals to expand ASIC’s powers to ban senior
managers working in financial services businesses.
It is currently consulting on proposals to strengthen penalties
for corporate and financial sector misconduct.
The Taskforce is scheduled to report its recommendations to
the Australian Government in 2017.
Product design and distribution obligations and product
intervention power
As part of a package of reforms announced by the Australian
Government in 2016, the Federal Government announced that
it would accelerate the implementation of certain
recommendations made by the Financial System Inquiry (FSI),
including granting ASIC a product intervention power and
introducing a new ‘principles-based’ product design and
distribution obligation on issuers and distributors
.
On 13 December 2016, the Australian Government released a
consultation paper seeking feedback on these proposed
reforms. Submissions on the consultation paper closed on
15 March 2017 and it is anticipated that draft legislation will be
released for consultation in 2018
.
Information on Westpac
2017 Westpac Group Annual Report
13
Financial benchmarks reform
In October 2016, the Australian Government announced a
package of measures designed to strengthen the regulation of
financial benchmarks. The measures were recommended to
the Australian Government by the Council of Financial
Regulators following a consultation process on financial
benchmark reform.
The key measures to be implemented include:
ASIC will be empowered to develop enforceable rules for
administrators and entities that make submissions to
significant benchmarks (such as Westpac), including the
power to compel submissions to benchmarks in the case
that other calculation mechanisms fail;
administrators of significant benchmarks will be required to
hold a new ‘benchmark administration’ licence issued by
ASIC (unless granted an exemption); and
the manipulation of any financial benchmark or financial
product used to determine a financial benchmark (such as
negotiable certificates of deposit) will be made a specific
criminal and civil offence.
These measures are expected to be implemented over the next
6-12 months.
Residential mortgage lending – reviews by and engagement
with regulators
APRA has been looking at, and speaking publicly about, the
broader issue of bank serviceability standards pertaining to
residential mortgage lending. Westpac is engaging proactively
with APRA in relation to its work in this area
.
In the mortgage area, ASIC continues to focus on interest only
mortgage origination and high risk customer groups. ASIC has
also initiated a review into public statements by some banks
(including Westpac) about interest rate changes. We are
working with ASIC on their reviews in these areas
.
BBSW proceedings
Following ASIC’s investigations into the interbank short-term
money market and its impact on the setting of the bank bill
swap reference rate (BBSW), on 5 April 2016, ASIC
commenced civil proceedings against Westpac in the Federal
Court of Australia, alleging certain misconduct, including marke
t
manipulation and unconscionable conduct. The conduct that is
the subject of the proceedings is alleged to have occurred
between 6 April 2010 and 6 June 2012. Westpac is defending
these proceedings. ASIC is seeking from the court declarations
that Westpac breached various provisions of the Corporations
Act 2001 (Cth) and the Australian Securities and Investments
Commission Act 2001 (Cth), pecuniary penalties of unspecified
amounts and orders requiring Westpac to implement a
comprehensive compliance program for persons involved in
Westpac’s trading in the relevant market.
In August 2016, a class action was filed in the United States
District Court for the Southern District of New York against
Westpac and a large number of other Australian and
international banks alleging misconduct in relation to BBSW.
These proceedings are at an early stage and the level of
damages sought has not been specified. Westpac is defending
these
proceedings.
ASIC’s responsible lending litigation against Westpac
On 1 March 2017, ASIC commenced Federal Court
proceedings against Westpac in relation to home loans entered
into between December 2011 and March 2015, which were
automatically approved by Westpac’s systems. ASIC has
alleged that the way in which Westpac used the Household
Expenditure Measure (HEM) benchmark to assess the
suitability of home loans for customers during this period was in
contravention of the National Consumer Credit Protection Act
200
9 (Cth) (NCCPA). On 26 September 2017, ASIC amended
its court documents to include an additional allegation that the
way serviceability was assessed for interest only loans during
the same period also contravened the NCCPA. ASIC has also
raised specific allegations in respect of seven loan applications.
ASIC alleges that Westpac improperly assessed whether those
loans were unsuitable because of the way Westpac used HEM,
and for five of the loan applications (which are loans with an
interest only period), because of the way Westpac assessed
serviceability. ASIC has not made any criminal allegations, or
allegations against specific individuals. Westpac is defending
the proceedings.
Outbound scaled advice division proceedings
On 22 December 2016, ASIC commenced Federal Court
proceedings against BT Financial Management Limited (BTFM)
and Westpac Securities Administration Limited (WSAL) in
relation to a number of superannuation account consolidation
campaigns conducted between 2013 and 2016. ASIC has
alleged that in the course of some of these campaigns,
customers were provided with personal advice in contravention
of a number of Corporations Act 2001 (Cth) provisions. ASIC
has selected 15 specific customers as the focus of their claim.
BTFM and WSAL are defending the proceedings. The
proceedings are scheduled to be heard in February 2018
.
Class action against Westpac Banking Corporation and
Westpac Life Insurance Services Limited
On 12 October 2017, a class action was filed in the Federal
Court of Australia on behalf of customers who, since
October 2011, have obtained insurance issued by Westpac Life
Insurance Services Limited (WLIS) on the recommendation of
financial advisers at Westpac Banking Corporation, St.George
Bank, Bank of Melbourne, BankSA or BT Advice. The action is
in relation to the premiums these customers have been
charged for the WLIS policies. The plaintiffs have alleged,
amongst other things, that in providing the financial advice
Westpac breached the fiduciary duties it owed to the members
of the class, the conduct was unconscionable and WLIS was
knowingly involved in these breaches. Westpac and WLIS are
defending the proceedings
.
Brexit
On 29 March 2017, the Prime Minister of the United Kingdom
(UK) notified the European Council in accordance with
Article 50 of the Treaty on European Union of the UK’s intention
to withdraw from the European Union (EU), triggering a two
year period for the negotiation of the UK’s withdrawal from the
EU
.
As Westpac’s business and operations are based
predominantly in Australia and New Zealand, the direct impact
of the UK’s departure from the EU is unlikely to be
14
2017 Westpac Group Annual Report
material to Westpac. However, it remains difficult to predict the
impact that Brexit may have on financial markets, the global
economy and the global financial services industry.
Reduction to the corporate tax rate
On 11 May 2017, the Australian Government introduced into
Parliament a bill to reduce the corporate tax rate progressively
from 30% to 25% over the next 10 years for all corporate
entities in a staged approach with reference to aggregated
annual turnover thresholds. If the legislation is passed in its
current form, the benefit will begin to take effect from
1 July 2023, when the corporate tax rate for Westpac will
reduce to 27.5%. Accordingly, the proposed reduction to the
corporate tax rate will not significantly impact Westpac in the
short term. A reduction to the corporate tax rate will reduce the
value of imputation credits ultimately attached to franked
dividends and distributions to certain security holders.
Taxation of cross-border financing arrangements
The Australian and New Zealand Governments have each
decided to implement the Organisation for Economic Co-
operation and Development’s (OECD) proposals relating to the
taxation treatment of cross-border financing arrangements.
These proposals may affect the taxation arrangements for
‘hybrid’ regulatory capital instruments issued by Westpac. If
implemented without grandfathering, the potential effect of the
OECD proposals is to increase the after-tax cost to Westpac of
certain previously issued Additional Tier 1 capital securities.
Neither Government has released draft legislation.
Comprehensive Credit Reporting (CCR)
On 2 November 2017, the Federal Treasurer announced that
the Australian Government will legislate for a mandatory
comprehensive credit reporting regime to come into effect by 1
July 2018. This would require credit providers to provide a
monthly update to credit reporting agencies of all open
consumer credit accounts, including credit cards, personal
loans, mortgages and auto loans. According to the
announcement, the four major banks will be required to have
50% of their credit data ready for reporting by 1 July 2018,
increasing to 100% a year later.
Westpac is currently moving to implement CCR, as we
recognise that CCR supports our principles for responsible
lending by enhancing transparency of consumers’ existing
liabilities. Westpac is also focused on ensuring the highest level
of security of personal data is maintained within the data
sharing arrangements that will underpin CCR data supply and
use.
Sale of shares in BTIM
On 26 May 2017, Westpac sold 60 million shares in BTIM at a
price of $10.75 per share, pursuant to a fully underwritten
institutional offer. Following completion of the sale, Westpac’s
holding in BTIM decreased to approximately 10%. Westpac has
announced that it intends to sell its remaining 10%
shareholding in BTIM in the future, subject to favourable market
conditions. In accordance with escrow arrangements
communicated to BTIM in respect of the retained shareholding,
any sale would not occur prior to the release of BTIM’s first half
2018 results
(expected to be in May 2018).
Issue of Additional Tier 1 capital securities
On 21 September 2017, Westpac issued US$1.25 billion
Additional Tier 1 capital securities, which qualify as Additional
Tier 1 capital under APRA’s capital adequacy framework.
Regulatory significant developments
Financial System Inquir
y’s (FSI) recommendations on bank
capital
The Australian Government’s response to the FSI has
endorsed APRA’s actions in implementing the FSI’s capital-
related recommendations, and has confirmed APRA’s
responsibility for implementing the remaining
recommendations
.
On 19 July 2017, APRA released an information paper titled,
Strengthening banking system resilience – establishing
unquestionably strong capital ratio
s. In its release, APRA
concluded that the four major Australian banks, including
Westpac, need to have a CET1 ratio of at least 10.5%, as
measured under the existing capital framework to be
considered ‘unquestionably strong’. Banks are expected to
meet this new benchmark by 1 January 2020
.
APRA’s implementation of capital standards to produce
‘unquestionably strong capital ratios’ will also incorporate
changes to the prudential framework, including consideration of
the finalisation of international Basel III reforms. The final Basel
III reforms may result in significant changes in the risk weighted
asset framework including the introduction of a revised capital
floor for internal model-based methods, based on standardised
approaches
.
Whilst APRA has signalled that its revisions to the capital
framework will not necessitate further capital increases for the
industry above the 10.5% benchmark, the details of the
changes (including at a product level) remain unclear
.
APRA has announced that it intends to release a discussion
paper on proposed revisions to the capital framework later in
2017 and, following release of the discussion paper, that it
expects to consult on draft prudential standards giving effect to
the new framework in 2018, leading to the release of final
prudential standards in 2019. The new framework is anticipated
to take effect in early 2021.
In addition to the risk-based capital ratio, APRA may also
implement other key FSI recommendations, including
:
the introduction of a leverage ratio that acts as a backstop
to an ADI’s risk-based capital requirements. Whilst APRA
requires the disclosure of the leverage ratio on a quarterly
basis, it is yet to be implemented as a minimum
requirement; and
the implementation of a framework for additional loss-
absorbing capacity, discussed further below.
Resolution planning including additional loss absorbing
capacity and APR
A’s crisis management powers
In response to the FSI recommendations, the Australian
Government also agreed to further reforms regarding crisis
management. In August 2017, Treasury issued draft legislation
to strengthen APRA’s crisis management powers. This was
introduced into Parliament in October 2017. The intention of
these reforms is to strengthen APRA’s powers to facilitate the
orderly resolution of an institution so as to protect the interests
of depositors and to protect the stability
Information on Westpac
2017 Westpac Group Annual Report
15
of the financial system. The reforms also enhance APRA’s
ability to take actions in relation to resolution planning, including
measures to ensure regulated entities and their groups are
better prepared for resolution.
Consistent with international developments, APRA may also
establish a framework for additional loss absorbing capacity for
the four major Australian banks, including Westpac. The
intention of this would be to facilitate the orderly resolution of
banks and minimise taxpayer support. APRA is yet to release
any consultation on additional loss-absorbing capacity.
Macro-prudential regulation
From December 2014, APRA has made use of macro-
prudential measures targeting mortgage lending that continue
to impact lending practices in Australia. The measures include
limiting investment property lending growth to below 10% and
imposing additional levels of conservatism in serviceability
assessments.
On 31 March 2017, APRA added to these measures, requiring
ADIs to restrict mortgage lending with interest only terms to
30% of new mortgage lending. APRA also indicated that it
expects ADIs to place strict internal limits on the volume of
interest only loans with loan-to-valuation ratios above 80%.
Westpac has implemented steps to achieve these limits,
including introducing differential pricing for investor property
loans and interest only loans, a restriction on the volume of
interest only loans with an LVR of greater than 80% (includes
limit increases, interest only term extension and switches), no
repayment switch fee for customers switching to principal and
interest from interest only loans and no longer accepting
external refinances (from other financial institutions) for owner
occupied interest only loans. Interest only residential mortgages
constituted 26% of new mortgage lending for the quarter ended
30 September 2017 (currently 46% of Westpac’s overall
Australian residential mortgage portfolio as at
30 September 2017).
Other regulatory developments
Net Stable Funding Ratio
APRA released a revised prudential standard on liquidity (APS
210) on 20 December 2016. This prudential standard includes
the Net Stable Funding Ratio (NSFR) requirement, a measure
designed to encourage longer-term funding of assets and bette
r
match the duration of assets and liabilities. The revised APS
210, inclusive of the NSFR, will commence from 1 January
2018. During Full Year 2017, Westpac continued to take steps
in preparation for the introduction of the NSFR from
1 January 2018. Based on the latest guidance from APRA,
Westpac had an estimated NSFR at 30 September 2017 which
is above that required from 1 January 2018.
OECD Common Reporting Standard
The OECD has developed Common Reporting Standard (CRS)
rules for the automatic exchange of customer tax residency and
financial account information amongst participating CRS
countries.
CRS requires the Westpac Group to collect and check the tax
residency of all customers and to report the tax residency and
financial account details of non-resident customers to the
relevant authorities in
jurisdictions with
which Australia has entered into an exchange of information
agreement
.
Together with other Australian financial institutions, Westpac
began collecting tax residency information from 1 July 2017
and will report these details and associated financial account
information from July 2018
.
Westpac has implemented changes to its business operations
to comply with the CRS requirements in countries which have
implemented the rules prior to 1 July 2017
.
European Union General Data Protection Regulation
The European Union General Data Protection Regulation (the
GDPR) contains new data protection requirements that will
apply from 25 May 2018. The GDPR is intended to ‘strengthen
and unif
y’ data protection for individuals across the EU and
supersedes the existing EU Data Protection Directive.
Australian businesses of any size may need to comply if they
have an establishment in the EU, if they offer goods or services
in the EU, or if they monitor the behaviour of individuals in the
EU. Westpac is evaluating the impact of GDPR on its
businesses with a view to implementing the necessary changes
before commencement of the GDPR
.
OTC derivatives reform
International regulatory reforms relating to over-the-counter
(OTC) derivatives continue to be implemented by financial
regulators across the globe, with the focus moving to
implementing variation margin and initial margin requirements
for non-centrally cleared derivatives.
Variation margin requirements in a number of key jurisdictions
for Westpac (being Australia, the EU, US and Hong Kong)
became applicable during Full Year 2017
.
Westpac has completed a substantial amount of work to
comply with all applicable variation margin requirements. In
addition, initial margin requirements commenced on
1 September 2016. These requirements are being introduced in
phases through to 1 September 2020
.
Westpac currently expects that it will be required to commence
exchanging initial margin by either September 2018 o
r
September 2019
.
New Zealand
Regulatory reforms and significant developments in
New Zealand include
:
Reserve Bank of New Zealand (RBNZ) – macro-prudential
policy framework
On 8 June 2017, the RBNZ published a consultation pape
r
seeking feedback on serviceability restrictions such as debt-to-
income ratio (DTI) limits being added to its macr
o-prudential
toolkit. The RBNZ stated in the consultation paper that the
RBNZ would not utilise a DTI policy in current market
conditions, but considers DTI limits a useful option in the future
.
RBNZ – Review of Outsourcing Policy
On 19 September 2017, the RBNZ released the final version of
its revised Outsourcing Policy (and updated conditions of
registration). These took effect on 1 October 2017. Key
chan
ges under the revised policy are:
16
2017 Westpac Group Annual Report
banks will need to obtain a non-objection letter from the
RBNZ before entering into outsourcing arrangements with
a parent or other related party;
a bank that outsources certain functions to any third party
will need to have certain prescribed contractual terms with
that third party and ensure that the third party has
adequate disaster recovery and business continuity plan
capability in relation to the outsourced function;
a bank that outsources certain functions to its overseas
parent or to another non-controlled related party will need
to have robust back-up arrangements in place;
banks will be required to maintain a compendium of
functions and processes that have been outsourced; and
banks that are members of foreign-owned banking groups,
such as WNZL, will be required to have a separation plan
which describes how they would operate previously
outsourced services if a statutory manager is appointed or
they are otherwise separated from their overseas parent.
There will be a five year transitional period in relation to existing
outsourcing arrangements.
The key impact of the revised policy will be in respect of
outsourcing arrangements related to institutional products,
settlements, finance, risk management and regulatory
reporting.
RBNZ Capital Review
In March 2017, the RBNZ outlined its plans for its review of
bank capital requirements. The RBNZ’s aim is to agree a
capital regime that ensures a very high level of confidence in
the solvency of the banking system while avoiding economic
inefficiency. The review will look at the three key components o
f
the regulatory capital regime:
the definition of eligible capital instruments;
the measurement of risk, in particular the risk weights
attached to credit exposures; and
the minimum capital ratio and buffers.
The RBNZ has said that the outcomes of the review will be
heavily influenced by the international regulatory context, the
risk characteristics of the New Zealand system, and the
RBNZ’s regulatory capital approach. The RBNZ released a
high-level Issues Paper in May 2017 and a consultation paper
considering what type of financial instruments should qualify as
bank capital. The RBNZ expects to conclude its review in the
first quarter of 2018. Based on the high level information
released to date, the expectation is that the RBNZ will likely
propose increasing capital ratios and certain risk weights, with
internal ratings-based (IRB) banks having fewer models to use
(to reduce the difference between standardised and IRB
banks).
Reform of the regulation of financial advice
The New Zealand Government announced plans for changes to
the regime regulating financial advice in July 2016. In
August 2017, the Financial Services Legislation Amendment
Bill was introduced into Parliament. Under the proposed new
regime, financial advice will be provided by licensed firms who
will employ financial adviser
s
and nominated representatives. A Code of Conduct will apply to
all advice and advisers and representatives will be subject to
the same duties and ethical standards, including a duty to give
priority to the client’s interests. Firms will be responsible for
ensuring their advisers and representatives comply with these
duties. The reforms will also remove legislative barriers to the
provision of rob
o-advice.
A two stage transition is proposed with all industry participants
being required to be operating under a full licence by
May 2021
.
RBNZ – Review under section 95 of the Reserve Bank of New
Zealand Act 1989
On 10 February 2017, the RBNZ issued WNZL with a notice
under section 95 of the Reserve Bank of New Zealand Act
1989, requiring WNZL to obtain an independent review of its
compliance with advanced internal ratin
g-based aspects of the
RBNZ’s ‘Capital Adequacy Framework (Internal Models Based
Approach) (BS2B)’ (BS2B). WNZL has disclosed non-
compliance with BS2B (compliance with which is a condition of
registration for WNZL) in its quarterly disclosure statements.
WNZL expects to receive the RBNZ’s final decision in 2017.
There are a range of possible consequences for WNZL,
including potential increases in minimum capital requirements
.
Supervision and regulation
Australia
Within Australia, we are subject to supervision and regulation
by six principal agencies: the Australian Prudential Regulation
Authority (APRA); the Reserve Bank of Australia (RBA); the
Australian Securities and Investments Commission (ASIC); the
Australian Securities Exchange (ASX); the Australian
Competition and Consumer Commission (ACCC); and the
Australian Transaction Reports and Analysis Centre
(AUSTRAC)
.
APRA is the prudential regulator of the Australian financial
services industry. It oversees banks, credit unions, building
societies, general insurance, re-insurance, life insurance and
private health insurance companies, friendly societies and most
of the superannuation (pension) industry. APRA’s role includes
establishing and enforcing prudential standards and practices
designed to ensure that, under all reasonable circumstances,
financial promises made by the institutions it supervises are
met within a stable, efficient and competitive financial system.
APRA is expected to have new and strengthened powers under
the proposed new Banking Executive Accountability Regime.
For further information, refer to ‘Significant developments’
above
.
As an ADI, we report prudential information to APRA, including
information in relation to capital adequacy, large exposures,
credit quality and liquidity. Our controlled entities in Australia
that are authorised insurers and trustees of superannuation
funds are also subject to the APRA regulatory regime.
Reporting is supplemented by consultations, o
n-site inspections
and targeted reviews. Our external auditor also has an
obligation to report on compliance with certain statutory and
regulatory banking requirements and on any matters that in
their opinion may have the potential to materially prejudice the
interests of depositors and other stakeholders
.
Australia’s risk-based capital adequacy guidelines are based on
the approach agreed upon by the BCBS. National
Information on Westpac
2017 Westpac Group Annual Report
17
discretion is then applied to that approach, which results in
Australia’s capital requirements being more stringent. Refer to
‘Capital resources – Basel Capital Accord’ in Section 2.
The RBA is responsible for monetary policy, maintaining
financial system stability and promoting the safety and
efficiency of the payments system. The RBA is an active
participant in the financial markets, manages Australia’s foreign
reserves, issues Australian currency notes and serves as
banker to the Australian Government.
ASIC is the national regulator of Australian companies and
consumer protection within the financial sector. Its primary
responsibility is to regulate and enforce company, consumer
credit, financial markets and financial products and services
laws that protect consumers, investors and creditors. With
respect to financial services, it promotes fairness and
transparency by providing consumer protection, using
regulatory powers to enforce laws relating to deposit-taking
activities, general insurance, life insurance, superannuation,
retirement savings accounts, securities (such as shares,
debentures and managed investments) and futures contracts
and financial advice. ASIC has responsibility for supervising
trading on Australia’s domestic licensed markets and of trading
participants. There are currently proposals to strengthen ASIC’s
existing powers and to provide ASIC with a product intervention
power. For further information, refer to ‘Significant
developments’ above.
The ASX operates Australia’s primary national market for
trading of securities issued by listed companies. Some of our
securities (including our ordinary shares) are listed on the ASX
and we therefore have obligations to comply with the ASX
Listing Rules, which have statutory backing under the
Corporations Act 2001. The ASX has responsibility for the
oversight of listed entities under the ASX Listing Rules and for
monitoring and enforcing compliance with the ASX Operating
Rules by its market, clearing and settlement participants. ASX
is now also the benchmark administrator of BBSW.
The ACCC is the regulator responsible for the regulation and
prohibition of anti-competitive and unfair market practices and
mergers and acquisitions in Australia. Its broad objective is to
administer the Competition and Consumer Act 2010 (Cth) and
related legislation to bring greater competitiveness, fair trading,
consumer protection and product safety to the Australian
economy. The ACCC’s role in consumer protection
complements that of ASIC (for financial services) and
Australian state and territory consumer affairs agencies that
administer the unfair trading legislation of their jurisdictions.
The Australian Government’s present policy, known as the ‘four
pillars policy’, is that there should be no fewer than four major
banks to maintain appropriate levels of competition in the
banking sector. Under the Financial Sector (Shareholdings) Act
1998 (Cth), the Australian Government’s Treasurer must
approve an entity acquiring a stake of more than 15% in a
particular financial sector company.
Proposals for foreign acquisitions of a stake in Australian banks
are subject to the Australian Government’s foreign investment
policy and, where required, approval by the Australian
Government under the Australian Foreign Acquisitions and
Takeovers Act 1975 (Cth). For further
details refer to ‘Limitations affecting security holders’ in
Section 4
.
AUSTRAC oversees the compliance of Australian reporting
entities (including Westpac) with the requirements under the
Anti-Money Laundering and Counter-Terrorism Financing Act
200
6 (Cth) and the Financial Transaction Reports Act 1988
(Cth). These requirements include
:
implementing programs for identifying and monitoring
customers, and for managing the risks of money
laundering and terrorism financing;
reporting suspicious matters, threshold transactions and
international funds transfer instructions; and
submitting an annual compliance report.
AUSTRAC provides financial information to Australian federal
law enforcement, national security, human services and
revenue agencies, and certain international counterparts
.
New Zealand
The Reserve Bank of New Zealand (RBNZ) is responsible for
supervising New Zealand registered banks. The New Zealand
prudential supervision regime requires that registered banks
publish quarterly disclosure statements, which contain
information on financial performance and risk positions as well
as attestations by the directors about the ban
k’s compliance
with its conditions of registration and certain other matters. The
RBNZ is developing proposals to replace off-quarter disclosure
statements with a ‘dashboard’ of key information about each
locally incorporated bank to be published on the RBNZ’s
website.
The Financial Markets Authority (FMA) is a financial conduct
regulator whose main objective is to promote and facilitate the
development of fair, efficient and transparent financial markets.
Its functions include promoting the confident and informed
participation of businesses, investors and consumers in those
markets. The Financial Markets Conduct Act, which was
passed in 2013, resulted in the FMA having extensive new
responsibilities in the licensing and supervision of various
market participants as well as new enforcement powers
.
United States
Our New York branch is a US federally licensed branch and
therefore is subject to supervision, examination and regulation
by the US Office of the Comptroller of the Currency and the
Board of Governors of the Federal Reserve System (the US
Federal Reserve) under the US International Banking Act of
1978 (IBA) and related regulations
.
A US federal branch must maintain, with a US Federal Reserve
member bank, a capital equivalency deposit as prescribed by
the US Comptroller of the Currency, which is at least equal to
5% of its total liabilities (including acceptances, but excluding
accrued expenses, and amounts due and other liabilities to
other branches, agencies and subsidiaries of the foreign bank).
In addition, a US federal branch is subject to periodic onsite
examination by the US Comptroller of the Currency. Such
examination may address risk management, operations, asset
quality, compliance with the record-keeping and
18
2017 Westpac Group Annual Report
reporting, and any additional requirements prescribed by the
US Comptroller of the Currency from time to time.
A US federal branch of a foreign bank is, by virtue of the IBA,
subject to the receivership powers exercisable by the US
Comptroller of the Currency.
As of 22 June 2016, we elected to be treated as a financial
holding company in the US pursuant to the Bank Holding
Company Act of 1956 and Federal Reserve Board Regulation
Y. Our election will remain effective so long as we meet certain
capital and management standards prescribed by the US
Federal Reserve.
Westpac and some of its affiliates are engaged in various
activities that are subject to regulation by other US federal
regulatory agencies, including the US Securities and Exchange
Commission and the US Commodity Futures Trading
Commission.
Anti-money laundering regulation and related
requirements
Westpac has a Group-wide program to manage its obligations
under the Anti-Money Laundering and Counter-Terrorism
Financing Act 2006 (Cth). We continue to actively engage with
the regulator, AUSTRAC, on our activities.
Our Anti-Money Laundering and Counter-Terrorism Financing
Policy (AML/CTF Policy) sets out how the Westpac Group
complies with its legislative obligations.
The AML/CTF Policy applies to all business divisions and
employees (permanent, temporary and third party providers)
working in Australia, New Zealand and overseas
.
United States
The USA PATRIOT Act of 2001 requires US financial
institutions, including the US branches of foreign banks, to take
certain steps to prevent, detect and report individuals and
entities involved in international money laundering and the
financing of terrorism. The required actions include verifying the
identity of financial institutions and other customers and
counterparties, terminating correspondent accounts for foreign
‘shell banks’ and obtaining information about the owners of
foreign bank clients and the identity of the foreign bank’s agent
for service of process in the US. The anti-money laundering
compliance requirements of the USA PATRIOT Act include
requirements to adopt and implement an effective anti-money
laundering program, report suspicious transactions or activities,
and implement due diligence procedures for correspondent and
other customer accounts. Westpac’s New York branch and
Westpac Capital Markets LLC maintain an anti-money
laundering compliance program designed to address US
legal requirements.
US economic and trade sanctions, as administered by the
Office of Foreign Assets Control (OFAC), prohibit or
significantly restrict US financial institutions, including the US
branches and operations of foreign banks, and other US
persons from doing business with certain persons, entities and
jurisdictions. Westpac’s New York branch and Westpac Capital
Markets LLC maintain compliance programs designed to
comply with OFAC sanctions programs, and Westpac has a
Group-wide program to ensure adequate compliance.
Legal proceeding
s
Our entities are defendants from time to time in legal
proceedings arising from the conduct of our business. Material
legal proceedings, if any, are described in Note 31 to the
financial statements and under ‘Significant developments’
above. Where appropriate as required by the accounting
standards, a provision has been raised in respect of these
proceedings and disclosed in the financial statements
.
Principal office
Our principal office is located at 275 Kent Street, Sydney, New
South Wales, 2000, Australia. Our telephone number for calls
within Australia is (+61) 2 9155 7713 and our international
telephone number is (+61) 2 9155 7700.
Corporate governance
2017 Westpac Group Annual Report
19
Introduction
This Corporate Governance Statement, which has been
approved by the Board, describes our corporate governance
framework, policies and practices as at 6 November 2017.
Framework and approach
Our approach to corporate governance is based on a set of
values and behaviours that underpin day-to-day activities,
provide transparency and fair dealing and seek to protect
stakeholder interests.
This approach includes a commitment to excellence in
governance standards, which Westpac sees as fundamental to
the sustainability of our business and our performance. It
includes monitoring local and global developments in corporate
governance and assessing their implications.
We have equity securities quoted on securities exchanges in
Australia, New Zealand and the United States.
Australia
The principal listing of Westpac ordinary shares is on the ASX,
trading under the code WBC. Westpac also has hybrid
securities, preference shares, capital notes, senior notes and
subordinated notes listed on the ASX.
We comply with the ASX Corporate Governance Principles and
Recommendations (third edition) (ASXCGC
Recommendations) published by the ASX Limited’s Corporate
Governance Council (ASXCGC). We must also comply with the
Corporations Act and, as an Authorised Deposit-taking
Institution, with governance requirements prescribed by APRA
under Prudential Standard CPS 510 Governance.
This Corporate Governance Statement addresses each of the
ASXCGC Recommendations with an explanation of our
corporate governance practices, demonstrating our compliance
with each Recommendation
.
Further details about the ASXCGC Recommendations can be
found on the ASX website www.asx.com.au.
New Zealand
Westpac’s ordinary shares are also quoted on the NZX, which
is the main board equity security market operated by NZX
Limited. Westpac also has subordinated notes quoted on the
NZX Debt Market. As an overseas listed issuer in New
Zealand, we are deemed to satisfy and comply with the NZX
Listing Rules, provided that we remain listed on the ASX and
comply with the ASX Listing Rules.
The ASX, through the ASXCGC Recommendations and the
NZX, through the NZX Corporate Governance Code, have
adopted similar ‘comply or explain’ approaches to corporate
governance. The ASXCGC Recommendations may, however,
materially differ from the corporate governance rules and the
principles of NZX’s Corporate Governance Code.
United States
Westpac has American Depositary Shares (ADS) representing
its ordinary shares quoted on the New York Stock Exchange
(NYSE), trading under the symbol WBK. Under the NYSE
Listing Rules, foreign private issuers (like Westpac) are
permitted to follow home country practice in respect of
corporate governance in lieu of the NYSE Listing
Rules. However, we are still required to comply with certain
audit committee and additional notification requirements
.
We comply in all material respects with all NYSE Listing Rules
applicable to us.
Under the NYSE Listing Rules, foreign private issuers are
required to disclose any significant ways in which their
corporate governance practices differ from those followed by
domestic US companies. We have compared our corporate
governance practices to the corporate governance
requirements of the NYSE Listing Rules and note the significant
differences below
.
The NYSE Listing Rules require that, subject to limited
exceptions, shareholders be given the opportunity to vote on
equity compensation plans and material revisions to those
plans. In Australia, there are no laws or ASX Listing Rules that
require shareholder approval of equity based incentive plans o
r
individual grants under those plans (other than for Directors,
including the Chief Executive Officer (CEO))
.
Westpac’s employee equity plans have been disclosed in the
Remuneration Report in Section 10 of the Director
s’ report,
which is subject to a non-binding shareholder vote at the
Annual General Meeting (AGM) and grants to our CEO are
approved by shareholders. The details of grants under ou
r
equit
y-based incentive plans have been disclosed in Note 37 of
our financial statements for the year ended 30 September
2017.
The NYSE Listing Rules set out specific requirements for
determining whether a director will be regarded as
independent. While these requirements are broadly consistent
with Westpac’s criteria for independence (described below
unde
r ‘Board, Committees and oversight of management’),
under Australian independence requirements, the Board is able
to apply discretion in its determination of a director’s
independence that differs from the NYSE Listing Rules.
The NYSE Listing Rules provide that the Board Nominations
Committee’s responsibilities should include selecting, or
recommending that the Board select, the Director nominees fo
r
the next annual meeting for shareholders, and overseeing the
evaluation of the Board. The Board, rather than the Board
Nominations Committee, reviews and recommends the Directo
r
nominees for election at the AGM and undertakes an annual
review of its
performance.
Governance framework
The diagram above shows Westpac’s current governance framework, including the current Committees of the Board. From time to time,
the Board may form other Committees or request Directors to undertake specific extra duties.
In addition, from time to time, the Board participates (either directly or through representatives) in due diligence committees in relation
to strategic decisions, capital and funding activities.
The Executive Team, Disclosure Committee and Executive Risk Committees are not Board Committees (that is, they have no
delegation of authority from the Board) but sit beneath the CEO and the Board Committees to implement Board-approved strategies,
policies and management of risk across the Group.
The key functions of the Board and each of the Board Committees are outlined in this Corporate Governance Statement. All Board
Committee Charters are available on our website at www.westpac.com.au/corpgov.
20
2017 Westpac Group Annual Report
Corporate governance
2017 Westpac Group Annual Report21
Board, Committees and oversight of management
Board of Directors
Roles and responsibilities
The Board Charter outlines the roles and responsibilities of the
Board. Key responsibilities in summary are:
overseeing the sound and prudent management of the
Westpac Group;
approving the strategic direction of Westpac Group;
evaluating Board performance and determining Board size
and composition;
considering and approving the Westpac Board Renewal
Policy;
appointing and determining the duration, remuneration and
other terms of appointment of the CEO, Chief Financial
Officer (CFO) and other Group Executives;
determining the remuneration of persons whose activities
in the Board’s opinion affects, the financial soundness of
Westpac, any person specified by APRA, and any other
person the Board determines;
evaluating the performance of the CEO;
succession planning for the Board, CEO and Group
Executives;
approving the appointment of Group Executives and the
General Manager Group Audit and monitoring the
performance of senior management;
approving the annual targets and financial statements and
monitoring performance against forecast and prior periods;
determining our dividend policy;
determining our capital structure;
approving our risk management strategy and frameworks,
and monitoring their effectiveness;
considering the social, ethical and environmental impact of
our activities and monitoring compliance with our
sustainability policies and practices;
monitoring Workplace Health and Safety (WHS) issues in
the Group and considering appropriate WHS reports and
information;
maintaining an ongoing dialogue with Westpac’s external
auditor and, where appropriate, principal regulators; and
overseeing internal governance, including delegated
authorities, policies for appointments to our controlled
entity boards and monitoring resources available to senior
executives.
Delegated authorit
y
The Constitution and the Board Charter enable the Board to
delegate to Committees and management
.
The roles and responsibilities delegated to the Board
Committees are captured in the Charters of each of the five
established Committees, namely
:
Audit;
Risk & Compliance;
Nominations;
Remuneration; and
Technology.
The Board Charter, Board Committee Charters and the
Constitution are available on our website at
www.westpac.com.au/corpgov.
The Delegated Authority Policy Framework outlines principles
to govern decision-making within the Westpac Group, including
appropriate escalation and reporting to the Board. The Board
has also delegated to the CEO, and through the CEO to othe
r
executives, responsibility for the da
y-to-day management of our
business. The scope of, and limitations to, management
delegated authority is clearly documented and covers areas
such as operating and capital expenditure, funding and
securitisation, and lending. These delegations balance effective
oversight with appropriate empowerment and accountability of
management
.
Independence
Together, the Board members have a broad range of relevant
financial and other skills and knowledge, combined with the
extensive experience necessary to guide our business. Details
are set out in Section 1 of the Director
s’ report.
All of our Non-executive Directors satisfy our criteria for
independence, which align with the guidance provided in the
ASXCGC Recommendations and the criteria applied by the
NYSE and the US Securities and Exchange Commission
(SEC)
.
The Board assesses the independence of our Directors on
appointment and annually. Each Director provides an annual
attestation of his or her interests and independence
.
Directors are considered independent if they are independent
of management and free from any business or other
relationship that could materially interfere with, or reasonably
be perceived to materially interfere with, the exercise of thei
r
unfettered and independent judgement. Materiality is assessed
on a case by case basis by reference to each Director’s
individual circumstances rather than by applying general
materiality thresholds
.
Each Director is expected to disclose any business or other
relationship that he or she has directly, or as a partner,
shareholder or officer of a company or other entity that has an
interest in Westpac or a related entity. The Board considers
information about any such interests or relationships, including
any related financial or other details, when it assesses the
Directo
r’s independence.
Size and membership of Board Committees as at 30 September 2017
Composition requirements for each Committee are set out in the relevant Committee Charter.
Board Audit
Committee
Board Risk &
Compliance
Committee
Board Nominations
Committee
Board Remuneration
Committee
Board
Technology
Committee
Committee Composition
Minimum three
members
All members are
Independent Non-
executive
Directors
Chair is
Independent Non-
executive
Director, who is
not the Board
Chairman
Minimum three
members
All members are
Non-executive
Directors
Majority of
members are
Independent
Directors
Chair is
Independent
Director, who is not
the Board
Chairman
Composed of all
Board Committee
Chairs, Board
Chairman and such
other members as
determined by the
Board
All members are
Independent Non-
executive Directors
Chair determined
by the Board
Minimum three
members
All members are
Independent Non-
executive Directors
Chair determined by
the Board
Minimum three
members
Maximum one
Executive
Director
All other
members are
Independent
Non-executive
Directors
Chair determined
by the Board
Lindsay
Maxsted
Chairman, Non-
executive,
Independent
99
Chair
9
Brian HartzerCEO, Executive9
Nerida Caesar
Non-executive,
Independent
99
Ewen Crouch
Non-executive,
Independent
Chair
9
99
Alison Deans
Non-executive,
Independent
99
Craig Dunn
Non-executive,
Independent
99
Chair
9
Robert Elstone
Non-executive,
Independent
999
Peter Hawkins
Non-executive,
Independent
999
Chair
9
Peter Marriott
Non-executive,
Inde
pendent
Chair
9
999
222017 Westpac Group Annual Report
1
1
Corporate governance
2017 Westpac Group Annual Report
23
Chairman
The Board elects one of the independent Non-executive
Directors as Chairman. Our Chairman is Lindsay Maxsted, who
became Chairman on 14 December 2011. The Chairman’s role
includes:
providing effective leadership to the Board in relation to all
Board matters;
guiding the agenda and conducting all Board meetings;
in conjunction with the Company Secretaries, arranging
regular Board meetings throughout the year, confirming
that minutes of meetings accurately record decisions taken
and, where appropriate, the views of individual Directors;
overseeing the process for appraising Directors and the
Board as a whole;
overseeing Board succession;
acting as a conduit between management and the Board,
and being the primary point of communication between the
Board and CEO;
representing the views of the Board to the public; and
taking a leading role in creating and maintaining an
effective corporate governance system.
CEO
Our CEO is Brian Hartzer. The CEO’s role includes:
leadership of the management team;
developing strategic objectives for the business; and
the day-to-day management of the Westpac Group’s
operations.
Board meetings
The Board had nine scheduled meetings for the financial year
ended 30 September 2017, with additional meetings held as
required. In addition to the Board considering strategic matters
at each Board meeting, the Board also discusses our strategic
plan and approves our overall strategic direction on an annual
basis. The Board also conducts a half year review of our
strategy. The Board conducts workshops on specific subjects
relevant to our business throughout the year. Board meetings
are characterised by robust exchanges of views, with Directors
bringing their experience and independent judgement to bear
on the issues and decisions at hand.
Non-executive Directors regularly meet without management
present, so that they can discuss issues appropriate to such a
forum. In all other respects, senior executives are invited,
where considered appropriate, to participate in Board meetings.
They are also available to be contacted by Directors between
meetings.
Meetings attended by Directors for the financial year ended 30
September 2017 are reported in Section 9 of the Directors’
report.
Nomination and appointment
As set out in its Charter, the Board Nominations Committee is
responsible for
:
developing and reviewing policies on Board composition,
strategic function and size;
reviewing and making recommendations to the Board
annually on diversity generally within the Group,
measurable objectives for achieving diversity and progress
in achieving those objectives;
planning succession of the Non-executive Directors;
reviewing the process for the orientation and education of
new Directors and any continuing education for existing
Directors;
reviewing eligibility criteria for the appointment of Directors;
recommending the appointment of Directors to the Board;
and
considering and recommending candidates for
appointment to the Boards of relevant subsidiaries
(including Westpac New Zealand Limited and our
insurance and superannuation businesses).
Board skills, experience and attributes
Westpac seeks to maintain a Board of Directors with a broad
range of financial and other skills, experience and knowledge
necessary to guide the business of the Group. In addition,
Westpac seeks to maintain a diverse Board, which at a
minimum, collectively has the skills and experience detailed in
Figure 1 overleaf. Figure 1 also illustrates Board tenure and
diversit
y.
Figure 1
242017 Westpac Group Annual Report
Corporate governance
2017 Westpac Group Annual Report25
The Board Nominations Committee considers and makes
recommendations to the Board on candidates for appointment
as Directors. Such recommendations pay particular attention to
the mix of skills, experience, expertise, diversity and other
qualities of existing Directors, and how the candidate’s
attributes will balance and complement those qualities and
address any potential skills gaps in light of the evolving
strategic direction of the Group. External consultants are used
to access a wide base of potential Directors.
Board appointments are also made with regard to the Group’s
Service Revolution vision and five strategic priorities of:
service leadership;
digital transformation;
performance discipline;
growth highways; and
workforce revolution.
Prior to a Director’s appointment or consideration for election or
re-election by shareholders, Westpac conducts due diligence
and provides shareholders with all material information relevant
to a decision on whether or not to elect or re-elect a Director.
New Directors receive an induction pack which includes a letter
of appointment setting out the expectations of the role,
conditions of appointment including the expected term of
appointment, and remuneration. This letter conforms to the
ASXCGC Recommendations.
Term of office
The Board may appoint a new Director, either to fill a casual
vacancy or as an addition to the existing Directors, provided the
total number of Directors does not exceed fifteen Non-
executive Directors and three Executive Directors. Except for
the Managing Director, a Director appointed by the Board holds
office only until the close of the next AGM but is eligible for
election by shareholders at that meeting.
Our Constitution states that at each AGM, one-third of eligible
Directors, and any other Director who has held office for three
or more years since their last election, must retire. In
determining the number of Directors to retire by rotation, no
account is to be taken of Directors holding casual vacancy
positions or of the CEO. The Directors to retire by rotation are
those who have been the longest in office. A retiring Director
holds office until the conclusion of the meeting at which he or
she retires but is eligible for re-election by shareholders at that
meeting. The Board makes recommendations concerning the
election or re-election of any Director by shareholders. In
considering whether to support a candidate, the Board takes
into account the results of the Board performance evaluation
conducted during the year.
The Westpac Board Renewal Policy limits the maximum tenure
of office that any Non-executive Director other than the
Chairman may serve to nine years, from the date of first
election by shareholders. The maximum tenure for the
For further information about the Service Revolution and our strategic
priorities please refer to ‘Information on Westpac’ in Section 1.
1
1
Chairman is twelve years (inclusive of any term as a Director
prior to being elected as Chairman), from the date of first
election by shareholders. The Board, on its initiative and on an
exceptional basis, may exercise discretion to extend the
maximum terms specified above where it considers that such
an extension would benefit the Group. Such discretion will be
exercised on an annual basis and the Director concerned will
be required to stand for r
e-election annually.
Director induction and continuing education
All new Directors participate in an induction program to
familiarise themselves with our business and strategy, culture
and values and any current issues before the Board. The
induction program includes meetings with the Chairman, the
CEO, the Board Committee Chairs and each Group Executive
.
The Board encourages Directors to undertake continuing
education and training to develop and maintain the skills and
knowledge needed to perform their role as Directors effectively,
including by participating in workshops held throughout the
year, attending relevant site visits and undertaking relevant
external education
.
Access to information and advice
All Directors have unrestricted access to company records and
information, and receive regular detailed financial and
operational reports from senior management. Each Director
also enters into an access and indemnity agreement, which
among other things, provides for access to documents for up to
seven years after his or her retirement as a Director.
The Chairman and other Non-executive Directors regularly
consult with the CEO, CFO and other senior executives, and
may consult with, and request additional information from, any
of our employees.
All Directors have access to advice from senior internal legal
advisors including the Group Executive, Compliance, Legal &
Secretariat
.
In addition, the Board collectively, and all Directors individually,
have the right to seek independent professional advice, at ou
r
expense, to help them carry out their responsibilities. While the
Chairma
n’s prior approval is needed, it may not be
unreasonably withheld.
262017 Westpac Group Annual Report
Company Secretaries
Westpac has two Company Secretaries:
The Senior Company Secretary is our Group Executive,
Compliance, Legal & Secretariat . The Senior Company
Secretary attends Board and Board Committee meetings
and is responsible for providing Directors with advice on
legal and corporate governance issues.
The Group Company Secretary also attends Board and
Board Committee meetings and is responsible for the
operation of the secretariat function, including
implementing our governance framework and, in
conjunction with management, giving practical effect to the
Board’s decisions. The Group Company Secretary is
accountable to the Board, through the Chairman, on all
matters to do with the proper functioning of the Board.
Profiles of our Company Secretaries for the financial year
ended 30 September 2017 are set out in Section 1 of the
Directors’ report.
Board Committees
Composition and independence
Board Committee members are chosen for the skills and
experience they can contribute to the respective Board
Committees and their qualifications are set out in Section 1 of
the Directors’ report. The membership of each Board
Committee is set out in the table entitled ‘Size and membership
of Board Committees as at 30 September 2017’ in this
Corporate Governance Statement. All of the Board Committees
are comprised of independent Non-executive Directors, save
for the Board Technology Committee, of which the CEO is also
a member.
Operation and reporting
Scheduled meetings of the Board Committees occur at least
quarterly. Each member’s attendance at Board Committee
meetings held during the financial year ended
30 September 2017 is reported in Section 9 of the Directors’
report. All Board Committees are able to meet more frequently
as necessary. Each Board Committee is entitled to the
resources and information it requires and has direct access to
our employees and advisers. The CEO attends all Board
Committee meetings, except where he has a material personal
interest in a matter being considered. Senior executives and
other selected employees are invited to attend Board
Committee meetings as required. All Directors can receive all
Board Committee papers and can attend any Board Committee
meeting, provided there is no conflict of interest.
Rebecca Lim’s title was changed from Group General Counsel & Chief
Compliance Officer to Group Executive, Compliance, Legal & Secretariat
effective from 2 October 2017.
1
1
Performance
Board, Board Committees and Directors
The Board undertakes ongoing self-assessment as well as
commissioning an annual performance review by an
independent consultant
.
The review process conducted in 2017 included an assessment
of the performance of the Board, the Board Committees and
each Director, with outputs collected, analysed and presented
to the Board. The Board discussed the results and agreed
follow up action on matters relating to Board composition,
process and priorities
.
The Chairman also discusses the results with individual
Directors and Board Committee Chairs. The full Board
(excluding the Chairman) reviews the results of the
performance review of the Chairman and results are then
privately discussed by the Chairman of the Board Risk &
Compliance Committee with the Chairman
.
Management
The Board, in conjunction with its Board Remuneration
Committee, is responsible for approving the performance
objectives and measures for the CEO and other senior
executives, and providing input into the evaluation of
performance against these objectives. The Board Risk &
Compliance Committee also refers to the Board Remuneration
Committee any matters that come to its attention that are
relevant with respect to remuneration policy or practices
.
Management performance evaluations for the financial year
ended 30 September 2017 were conducted following the end of
the financial year.
There is a further discussion on performance objectives and
performance achieved in the Remuneration Report in
Section 10 of the Director
s’ report.
All new senior executives receive a letter of appointment setting
out the conditions and expectations of the role, together with an
extensive briefing on our strategies and operations and the
respective roles and responsibilities of the Board and senio
r
management
.
Advisory Boards
Westpac has established Advisory Boards for its operations in
Asia and for each of BankSA and Bank of Melbourne, to advise
management on the strategies and initiatives of those
businesses within the overall Group strategy
.
Responsibilities of the Advisory Boards include:
providing advice to management on management’s
strategies and initiatives to continue to strengthen the
position and identity of the business;
providing advice to management of the relevant business
so as to promote and preserve its distinct position and
identity and align business values with those of the
relevant communities served;
considering and assessing reports provided by
management on the health of the relevant business;
Corporate governance
2017 Westpac Group Annual Report27
acting as ambassadors for the business, including by
supporting community and major corporate promotional
events to assist in building relationships with the bank’s
customers, local communities and the business and
government sector, and advising senior management on
community matters relevant to the provision of financial
services in the community it serves; and
alerting management to local market opportunities and
issues of which Advisory Board members are aware that
would enhance the provision of services to customers and
potential customers and the position of the bank in its local
communities.
Ethical and responsible decision-making
Code of Conduct and Principles for Doing Business
Our Code of Conduct (Code) describes the standards of
conduct expected of our people, both employees and
contractors. The seven principles making up the Code are:
we act with honesty and integrity;
we comply with laws and with our policies;
we do the right thing by our customers;
we respect confidentiality and do not misuse information;
we value and maintain our professionalism;
we work as a team; and
we manage conflicts of interest responsibly.
The Code provides a set of guiding principles to help us make
the right decisions, ensuring we uphold the reputation of the
Group. As employees of the banking and finance industry, we
are also committed to creating greater accountability,
transparency and trust with our customers and the broader
community. With that in mind, the principles within our Code
also reflect the community’s expectations of us, such as those
outlined in the Banking and Finance Oath. The Code has the
full support of the Board and the Executive Team and we take
compliance with the Code very seriously.
Our Principles for Doing Business (Principles) underpin the
Group’s commitment to sustainable business practice and
community involvement. In summary:
we believe our success depends on the trust and
confidence placed in us by our customers, people,
shareholders, suppliers, advisers and the community;
we believe in maintaining the highest level of governance
and ethical practice while protecting the interests of our
stakeholders;
we believe in putting our customers at the centre of
everything we do;
we believe our people are a crucial element of a successful
service business;
we are committed to managing our direct and indirect
impacts on the environment;
we believe being actively involved in our community is
fundamental to the sustainability of our business; and
we believe our suppliers should be viewed as partners in
our sustainability journey.
The Principles align with key global initiatives that promote
responsible business practices. The Principles apply to all
Directors, employees and contractors
.
We also have the following frameworks in place which apply to
support both our Code and Principles, internally and externally
across our value chain
:
a range of internal guidelines, policies, frameworks,
communications and training processes and tools,
including an online learning module entitled ‘Doing the
Right Thing’; and
a range of externally-facing codes, frameworks, operating
principles, policies, and position statements, addressing
issues such as human rights, climate change and the
environment.
Key policie
s
We have a number of key policies to manage our regulatory
compliance and human resource requirements. We also
voluntarily subscribe to a range of external industry codes, such
as the Code of Banking Practice and the ePayments Code
.
Code of Ethics for Senior Finance Officers
The Code of Accounting Practice and Financial Reporting
complements our own Code. The Code of Accounting Practice
and Financial Reporting is designed to assist our CEO, CFO
and other principal financial officers in applying the highest
ethical standards to the performance of their duties and
responsibilities with respect to accounting practice and financial
reporting by requiring those officers to
:
act honestly and ethically, particularly with respect to
conflicts of interest;
provide full, fair, accurate and timely disclosure in reporting
and other communications;
comply with applicable laws, rules and regulations;
promptly report violations of the Code; and
be accountable for adherence to the Code.
Conflicts of interest
The Group has a detailed conflicts of interest framework, which
includes a Group policy supported by specific divisional policies
and guidelines aimed at identifying and managing actual,
potential or apparent conflicts of interest
.
The conflicts of interest framework includes a separate
Westpac Group Gifts and Hospitality Policy. This Policy
provides our employees with guidance to manage thei
r
obligations relating to the giving and receiving of gifts or
hospitality
.
The Board
All Directors are required to disclose any actual, potential or
apparent conflicts of interest upon appointment and are
required to keep these disclosures to the Board up to date
.
Any Director with a material personal interest in a matter being
considered by the Board must declare their interest and, unless
the Board resolves otherwise, may not be
282017 Westpac Group Annual Report
present during the boardroom discussions or vote on the
relevant matter.
Our employees and contractors
We expect our employees and contractors to:
have in place adequate arrangements for the management
of actual, potential or apparent conflicts of interest;
obtain consent from senior management before accepting
a directorship on the board of a non-Westpac Group
company;
disclose any material interests they have with our
customers or suppliers to their manager and not be
involved with customer relationships where they have such
an interest;
not participate in business activities outside their
employment with us (whether as a principal, partner,
director, agent, guarantor, investor or employee) without
approval or when it could adversely affect their ability to
carry out their duties and responsibilities; and
not solicit, provide facilitation payments, accept or offer
money, gifts, favours or entertainment that might influence,
or might appear to influence, their business judgement.
Fit and Proper Person assessments
We have a Board-approved Westpac Group Fit and Proper
Policy that meets the requirements of the related APRA
Prudential Standards. In accordance with that Policy, we
assess the fitness and propriety of our Directors and also of
individuals who perform specified statutory roles required by
APRA Prudential Standards or ASIC licensing requirements.
The Chairman of the Board (and in the case of the Chairman,
the Board) is responsible for assessing the Directors and Non-
executive Directors of the Westpac and subsidiary Boards,
Group Executives, external auditors and actuaries. An
executive Fit and Proper Committee is responsible under
delegated authority of the Westpac Board for undertaking
assessments of all other employees who hold statutory roles. In
all cases, the individual is asked to provide a detailed
declaration and background checks are completed.
Concern reporting and whistleblower protection
Under the Westpac Group Whistleblower Protection Policy, we
encourage our employees, contractors, secondees, former
employees, brokers, service providers (such as auditors,
accountants and consultants) and our suppliers to raise any
concerns about activities or behaviour that may be unlawful or
unethical. Our attitude is ‘when in doubt report’and our senior
management are committed to protecting the dignity, well-
being, career and good name of anyone reporting wrongdoing,
as well as providing them with the necessary support.
The Whistleblower Protection Policy outlines all reporting
channels, including our concern reporting system ‘Concern
Online’ and our Whistleblower Hotline. Both channels enable
reporting on an anonymous basis. Concerns may include
suspected breaches of our Code, Westpac policies or
regulatory requirements.
When a whistleblower raises a concern they may choose to
involve the Whistleblower Protection Officer, who is responsible
for protecting the whistleblower against personal disadvantage
as a result of making a report.
We investigate reported concerns in a manner that is
confidential, fair and objective. If the investigation shows that
wrongdoing has occurred, we are committed to changing our
processes and taking action in relation to those parties who
have behaved incorrectly. Outcomes may also involve reporting
the matter to relevant authorities and regulators.
Relevant Board Committees charged with overseeing
Westpac’s whistleblower program and the Westpac Group
Executive Risk Committee are provided with quarterly reporting
on whistleblowing. These reports include a number of metrics,
including statistics about concerns raised.
A summary of Westpac’s Whistleblower Protection Policy is
available on our website at https://www.westpac.com.au/abou
t-
westpac/westpac-group/corporate-governance/principles-
policies/
.
Securities trading
Under the Westpac Group Securities Trading Policy, Directors,
employees, secondees and contractors (and thei
r ‘associates’)
are prohibited from dealing in any securities and other financial
products if they possess inside information. They are also
prohibited from passing on inside information to others who
may use that information to trade in securities. In addition,
Directors and any employees, secondees or contractors who,
because of their seniority or the nature of their position, may
have access to material no
n-public information about Westpac
(known as Prescribed Employees) are subject to further
restrictions, including prohibitions on trading prior to and
immediately following annual and half year results
announcements
.
We manage and monitor these obligations through:
the insider trading provisions of our Policy, which prohibit
any dealing in any securities where a Director or employee
has access to inside information that may affect the price
of those securities;
restrictions limiting the periods in which the Directors and
Prescribed Employees can trade in Westpac securities and
other Westpac financial products (Blackout Periods);
placing limitations upon Directors, employees and
contractors participating in a new product issue where their
position puts them in an actual, potential or apparent
position of conflict of interest;
requiring Directors and Prescribed Employees to either
obtain approval or notify their intention to trade outside
Blackout Periods and confirm that they have no inside
information;
monitoring the trading of Westpac securities by Directors
and Prescribed Employees;
maintaining a register of Prescribed Employees, which is
regularly updated;
notifying ASX of trades by Directors of Westpac securities
as required under the ASX Listing Rules; and
Corporate governance
2017 Westpac Group Annual Report29
forbidding employees from entering into hedging
arrangements in relation to their unvested employee
shares or securities, whether directly or indirectly.
Diversity
Westpac has an Inclusion & Diversity Policy that sets out the
inclusion and diversity initiatives for the Group. This is coupled
with a comprehensive Inclusion & Diversity strategy to enable
execution of key priorities and actions. In this context, diversity
covers both the visible and invisible differences that make our
employees unique, whether that be gender, gender identity,
age, ethnicity, accessibility requirements, cultural background,
sexual orientation or religious beliefs, or the differences we
have based on our experiences, insights and perspectives.
The objectives of the policy are to ensure that the Group:
has a workforce profile that delivers competitive advantage
through the ability to garner a deep understanding of
customer needs;
has a truly inclusive workplace where every individual can
shine regardless of gender, cultural identity, age, work
style or approach;
leverages the value of diversity for all our stakeholders to
deliver the best customer experience, improved financial
performance and a stronger corporate reputation; and
continues to take a leadership position on inclusion and
diversity practices and setting the agenda in the
external community.
To achieve these objectives, the Group:
has set Board-determined, measurable objectives for
achieving gender diversity. The Board assesses annually
both the objectives and progress in achieving them;
assesses pay equity on an annual basis;
encourages and supports the application of flexibility
policies across the business;
is committed to proactively assisting Aboriginal and Torres
Strait Islander Australians wishing to access employment
across our brands;
implements our Accessibility Action Plan for employees
and customers with accessibility requirements, including
ensuring employment opportunities are accessible for
people with a disability; and
actively promotes an environment of inclusion for lesbian,
gay, bisexual, transgender and intersex (LGBTI)
employees.
The implementation of these objectives is overseen by the
Westpac Group Inclusion & Diversity Council, which is chaired
by the CEO and meets bi-annually.
The Board, or an appropriate Board Committee, receives
regular updates from the Inclusion & Diversity Council on
inclusion and diversity initiatives.
During the financial year ended 30 September 2017, the
Inclusion & Diversity Governance Framework was implemented
and resulted in the establishment of
:
Inclusion & Diversity Business Unit Councils, chaired by
the relevant Group Executive of that business unit; and
the Inclusion & Diversity Working Group, consisting of
appointed general manager representatives across each
business unit and chaired by the Head of Inclusion &
Diversity.
We continue to listen to the needs of our employees through
the engagement of our employee action groups, our annual
employee survey (which includes questions that constitute an
‘Inclusion Index’), and bi-annual inclusion and diversity focused
surveys.
Our Inclusive Leadership program ensures we are investing in
the right capabilities for an inclusive culture. Senior leaders and
Group Executives have already completed the program which
will be rolled out to approximately 3,000 members of Westpac’s
wider leadership team from late 2017.
In October 2010, the Board set an objective to increase the
proportion of women in leadership roles (over 5,000 leaders
from our Executive Team through to our bank managers) from
33% to 40% by 2014, which was achieved in September 2012,
two years ahead of schedule. Westpac has now attained 50%
women in leadership roles. The focus will now shift to
maintaining this equality.
At 30 September 2017, the proportion of women employed by
the Group was as follows:
Board of Directors: 22%;
leadership roles: 50%; and
total Westpac workforce: 58%.
In addition to the Grou
p’s commitment to achieving its targets,
in 2015 our CEO signed up as a Pay Equity Ambassado
r
through the Workplace Gender Equality Agency.
Women in Leadership refers to the proportion of women (permanent and
maximum term) in leadership roles across the Group. It includes the
CEO, Group Executives, General Managers, senior leaders with
significant influence on business outcomes (direct reports to General
Managers and their direct reports), large (3+) team people leaders three
levels below General Manager, and Bank and Assistant Bank Managers.
1
1
302017 Westpac Group Annual Report
Sustainability
We view sustainable and responsible business practices as
important for our business and shareholder value. Sustainability
is about managing risks and opportunities in a way that best
balances the long term needs of all our stakeholders – our
customers, employees, suppliers, investors and community
partners – as well as the wider community and the environment
at large.
Our management of sustainability aims to address the matters
that we believe are the most material for our business and
stakeholders, now and in the future. We also understand that
this is an evolving agenda and seek to progressively embed the
management of sustainability matters into business as usual
practice, while also anticipating and shaping emerging social
issues where we have the skills and experience to make a
meaningful difference and drive business value.
Reporting
We report on the most material sustainability matters to
Westpac, details of how we manage the associated risks and
opportunities and our performance against our sustainability
strategy in the Annual Review and Sustainability Report, this
Annual Report, the Sustainability Performance Report and the
full year and half year ASX results.
Our sustainability reporting is subject to independent limited
assurance, performed in accordance with the Australian
Standard on Assurance Engagements 3000 (revised)
Assurance Engagements Other Than Audits or Reviews of
Historical Financial Information (‘ASAE 3000’). The AA1000
AccountAbility Principles Standard and the Global Reporting
Initiative G4 Guidelines are also used by the assurance
provider to test the extent to which sustainability policies and
processes are embedded across the organisation.
Financial reporting
Approach to financial reporting
Our approach to financial reporting reflects three
core principles:
that our financial reports present a true and fair view;
that our accounting methods comply with applicable
accounting standards and policies; and
that our external auditor is independent and serves security
holders’ interests.
The Board, through the Board Audit Committee, monitors
Australian and international developments relevant to these
principles, and reviews our practices accordingly.
The Board delegates oversight responsibility for risk
management between the Board Audit Committee and the
Board Risk & Compliance Committee. Similarly, the Board
delegates oversight responsibility for the preparation of
remuneration reports and disclosures to the Board
Remuneration Committee.
Board Audit Committee
As detailed in its charter, the Board Audit Committee has
oversight of:
the integrity of the financial statements and financial
reporting systems and matters relating to taxation risks;
the external audit engagement, including the external
auditor’s qualifications, performance, independence
and fees;
performance of the internal audit function;
financial reporting and compliance with prudential
regulatory reporting. With reference to the Board Risk &
Compliance Committee, this includes an oversight of
regulatory and statutory reporting requirements; and
procedures for the receipt, retention and treatment of
financial complaints, including accounting, internal controls
or auditing matters, and the confidential reporting by
employees of concerns regarding accounting or auditing
matters.
The Board Audit Committee reviews, discusses with
management and the external auditor, and assesses
:
any significant financial reporting issues and judgements
made in connection with the preparation of the
financial reports;
the processes used to monitor and comply with laws,
regulations and other requirements relating to external
reporting of financial and non-financial information; and
the process surrounding the disclosures made by the CEO
and CFO in connection with their personal certifications of
the annual financial statements.
In addition, the Board Audit Committee maintains an ongoing
dialogue with the external auditor, including regarding those
matters that are likely to be designated as Key Audit Matters in
the external auditor’s report. Key Audit Matters are those
matters which, in the opinion of the external auditor, are of the
most significance in their audit of the financial report
.
As part of its oversight responsibilities, the Board Audit
Committee also conducts discussions with a wide range of
internal and external stakeholders including
:
the external auditor, about our major financial reporting risk
exposures and the steps management has taken to
monitor and control such exposures;
the General Manager Group Audit and external auditor
concerning their audits and any significant findings, and
the adequacy of management’s responses;
management and the external auditor concerning the half
year and annual financial statements;
management and the external auditor regarding any
correspondence with regulators or government agencies,
and reports which raise material issues or could impact on
matters regarding the Westpac Group’s financial
statements or accountin
g policies; and
Corporate governance
2017 Westpac Group Annual Report31
the Group Executive, Compliance, Legal & Secretariat
regarding any legal matters that may have a material
impact on, or require disclosure in, the financial
statements.
Periodically, the Board Audit Committee consults with the
external auditor without the presence of management about
internal controls over financial information, reporting and
disclosure and the fullness and accuracy of Westpac’s financial
statements. The Board Audit Committee also meets with the
General Manager Group Audit without management being
present.
Financial knowledge
The Board Audit Committee comprises four independent, Non-
executive Directors and is chaired by Peter Marriott.
All Board Audit Committee members have appropriate financial
experience, an understanding of the financial services industry
and satisfy the independence requirements under the ASXCGC
Recommendations, the United States Securities Exchange Act
of 1934 (as amended) and its related rules, and the NYSE
Listing Rules.
The Board has determined that Mr Marriott, who is a member o
f
the Board Audit Committee, is an ‘audit committee financial
expert’ and independent in accordance with US securities law.
The designation of Mr Marriott as an audit committee financial
expert does not impose duties, obligations or liability on him
that are greater than those imposed on him as a Board Audit
Committee member, and does not affect the duties, obligations
or liability of any other Board Audit Committee member or
Board member. Audit committee financial experts are not
deemed as an ‘expert’ for any other purpose.
CEO and CFO assurance
The Board receives regular reports from management about
our financial condition and operational results, as well as that of
our controlled entities. Before the Board approves the financial
statements for a financial period, the CEO and the CFO provide
formal statements to the Board, and have done so for the
financial year ended 30 September 2017, that state that in all
material respects:
Westpac’s financial records have been properly maintained
in that they:
–correctly record and explain its transactions, and
financial position and performance;
–enable true and fair financial statements to be prepared
and audited; and
–are retained for seven years after the transactions
covered by the records are completed;
the financial statements and notes comply with the
appropriate accounting standards;
the financial statements and notes give a true and fair view
of Westpac’s and its consolidated entities’ financial position
and of their performance;
any other matters that are prescribed by the Corporations
Act and regulations as they relate to the financial
statements and notes are satisfied; and
the declarations provided in accordance with section 295A
of the Corporations Act are founded on a sound system of
risk management and internal control, and that the system
is operating effectively in all material respects in relation to
financial reporting risks.
External audito
r
The role of the external auditor is to provide an independent
opinion that our financial reports are true and fair, and comply
with applicable regulations.
Our external auditor is PricewaterhouseCoopers (PwC),
appointed by shareholders at the 2002 Annual General Meeting
(AGM). Our present PwC lead audit partner is Lona Mathis and
the quality review partner is Wayne Andrews. Ms Mathis and
Mr Andrews assumed responsibility for these roles in
June 2017 and January 2015, respectively.
The external auditor receives all Board Audit Committee, Board
Risk & Compliance Committee and Board Technology
Committee papers, attends all meetings of these committees
and is available to Committee members at any time. The
external auditor also attends the AGM to answer questions
from shareholders regarding the conduct of its audit, the audit
report and financial statements and its independence.
As our external auditor, PwC is required to confirm its
independence and compliance with specified independence
standards on a quarterly basis.
We strictly govern our relationship with the external auditor,
including restrictions on employment, business relationships,
financial interests and use of our financial products by the
external auditor
.
Engagement of the external auditor
To avoid possible independence or conflict issues, the external
auditor is not permitted to carry out certain types of no
n-audit
services for Westpac and may be limited as to the extent to
which it can perform other non-audit services as specified in
our ‘Pre-approval of engagement of PwC for audit and non-
audit services’ (Guidelines). Use of the external audit firm for
any no
n-audit services must be assessed and approved in
accordance with the pr
e-approval process determined by the
Board Audit Committee and set out in the Guidelines
.
The breakdown of the aggregate fees billed by the external
auditor in respect of each of the two most recent financial years
for audit, audit-related, tax and other services is provided in
Note 39 to our financial statements for the year ended
30 September 2017. A declaration regarding the Board’s
satisfaction that the provision of non-audit services by PwC is
compatible with the general standards of auditor independence
is provided in Section 11 of the Director
s’ report.
Group Audit (internal audit)
Group Audit is Westpac’s internal audit function and includes
the Credit Portfolio Review team, both of which provide the
Board and Executive Management with an independent and
objective evaluation of the adequacy and effectiveness of
managemen
t’s control over risk. Group Audit is governed by a
Charter approved by the Board Audit Committee that sets out
the purpose, role, scope and high level standards for the
function. Group Audit covers the governance, risk management
and internal control frameworks of West
pac
322017 Westpac Group Annual Report
and our wholly owned subsidiaries. It has access to all of our
wholly owned entities and conducts audits and reviews
following a risk-based planning approach. The General
Manager Group Audit has a direct reporting line to the
Chairman of the Board Audit Committee and an administrative
line to the Chief Financial Officer. Group Audit also has direct
access to the Chief Executive Officer.
Group Audit’s responsibilities include regularly reporting to the
Board Audit Committee and the Board Risk & Compliance
Committee and Board Technology Committee and raising any
significant issues with those committees.
Market disclosure
We maintain a level of disclosure that seeks to provide all
investors with equal, timely, balanced and meaningful
information. Consistent with these standards, the Group
maintains a Board-approved Market Disclosure Policy, which
governs how we communicate with our shareholders and the
investment community.
The policy reflects the requirements of the ASX, NZX and other
offshore stock exchanges where we have disclosure
obligations, as well as relevant securities and corporations
legislation. Under our policy, information that a reasonable
person would expect to have a material effect on the price or
value of our securities must first be disclosed via the ASX
unless an exception applies under regulatory requirements.
Our Disclosure Committee is responsible for determining what
information should be disclosed publicly under the policy, and
for assisting employees in understanding what information may
require disclosure to the market on the basis that it is price
sensitive. The Disclosure Committee is comprised of the CEO,
the Executive Team and the General Manager, Corporate
Affairs and Sustainability.
The Group Executive, Compliance, Legal & Secretariat is the
Disclosure Officer. The Disclosure Officer is ultimately
responsible for all communication with relevant stock
exchanges and notifying regulators in any jurisdiction as a
result of market disclosure.
Once relevant information is disclosed to the market and
available to investors, it is also published on our website. This
includes investor discussion packs, presentations on and
explanations about our financial results. Our website
information also includes Annual Review and Sustainability
Reports, Annual Reports, results announcements, CEO and
executive briefings (including webcasts, recordings or
transcripts of all major events), notices of meetings and key
media releases
.
Shareholder communication and participation
We seek to keep shareholders fully informed about our
business operations, performance and governance framework.
As part of our investor relations program, these methods are
regularly reviewed to continue to encourage effective tw
o-way
communication with shareholders and utilise new technologies.
These approaches include:
direct communications via mail and email;
the publication of all relevant company information in the
Investor Centre section of our website; and
access to all major market briefings and shareholder
meetings, including via webcasts and lodging information
on our website.
Shareholders are provided with advance notice of all majo
r
market briefings and shareholder meetings through ASX
announcements. We also publish an investor calendar of
events on our website
.
Shareholders are given the option to receive information in print
or electronic format from both Westpac and its share registry.
We regard our AGM as an important opportunity for engaging
and communicating with shareholders. While shareholders are
encouraged to attend and actively participate, the AGM is
webcast and can also be viewed at a later time from our
website. Shareholders who are unable to attend the AGM are
able to lodge a direct vote or their proxies through a number of
channels, including via mobile and the internet. At the time of
receiving the Notice of Meeting, shareholders are also invited to
put forward questions they would like addressed at the AGM
.
Risk management
Roles and responsibilitie
s
The Board is responsible for approving the Westpac Group
Risk Management Strategy and Westpac Group Risk Appetite
Statement and for monitoring the effectiveness of risk
management by the Westpac Group. The Board has delegated
to the Board Risk & Compliance Committee responsibility to:
review and recommend the Westpac Group Risk Management
Strategy and Westpac Group Risk Appetite Statement to the
Board for approval; set risk appetite consistent with the Group
Risk Appetite Statement; approve frameworks, policies and
processes for managing risk; and review and, where
appropriate, approve risks beyond the approval discretion
provided to management
.
Westpac’s Risk Management Strategy was reviewed by the
Board Risk & Compliance Committee and was approved by the
Board during the financial year ended 30 September 2017
.
The Board Risk & Compliance Committee monitors the
alignment of the Westpac Grou
p’s risk profile and controls with
risk appetite (as defined in the Group Risk Appetite Statement)
and reviews and monitors capital levels for consistency with the
Grou
p’s risk appetite. The Board Risk & Compliance
Committee receives regular reports from management on the
effectiveness of our management of Westpac’s material risks.
More detail about the role of the Board Risk & Compliance
Committee is set out later in this section unde
r ‘Board Risk &
Com
pliance Committee’.
Corporate governance
2017 Westpac Group Annual Report33
The CEO and Executive Team are responsible for
implementing our risk management strategy and frameworks,
and for developing policies, controls, processes and
procedures for identifying and managing risk in all of Westpac’s
activities.
We adopt a Three Lines of Defence approach to risk
management, which reflects our culture of ‘risk is everyone’s
business’ in which all employees are responsible for identifying
and managing risk and operating within the Group’s desired
risk profile. Effective risk management enables us to:
accurately measure our risk profile and balance risk and
reward within our risk appetite, optimising financial growth
opportunities and mitigating potential loss or damage;
protect Westpac’s depositors, policyholders and investors
by maintaining a balance sheet with sound credit quality
and buffers over regulatory minimums;
embed adequate controls to guard against excessive risk
or undue risk concentration; and
meet our regulatory and compliance obligations.
The 1st Line of Defence – Risk identification, risk
management and self-assessment
Divisional business units are responsible for identifying,
evaluating and managing the risks that they originate within
approved risk appetite and policies. They are required to
establish and maintain appropriate risk management controls,
resources and self-assessment processes.
The 2nd Line of Defence – Establishment of risk
management frameworks and policies and risk
management oversight
Our 2nd Line of Defence comprises separate risk and
compliance advisory, control, assurance and monitoring
functions, which establish frameworks, policies, limits and
processes for the management, monitoring and reporting of
risk. The 2nd Line of Defence can approve risks outside the
authorities granted to the 1st Line, and evaluates and provides
assurance over the adequacy and effectiveness of 1st Line
controls and application of frameworks and policies and, where
necessary, require improvement and monitor the 1st Line’s
progress toward remediation of identified deficiencies.
The 3rd Line of Defence – Independent assurance
Group Audit is an independent assurance function that
evaluates and opines on the adequacy and effectiveness of
both 1st and 2nd Line risk management approaches and tracks
remediation progress, with the aim of providing the Board, and
senior executives, with comfort that the Group’s governance,
risk management and internal controls are operating effectively.
Our overall risk management approach is summarised in the
following diagram:
Our overall risk management governance structure is set out in
more detail in the table ‘Risk Management Governance
Structur
e’ included in this Corporate Governance Statement.
Westpac distinguishes between different types of risk:
credit risk–the risk of financial loss where a customer or
counterparty fails to meet their financial obligations to
Westpac;
liquidity risk–the risk that the Group will be unable to fund
assets and meet obligations as they become due;
market risk–the risk of an adverse impact on earnings
resulting from changes in market factors, such as foreign
exchange rates, interest rates, commodity prices or equity
prices. This includes interest rate risk in the banking book -
the risk to interest income from a mismatch between the
duration of assets and liabilities that arises in the normal
course of business activities;
conduct risk–the risk that the provision of our services
and products results in unsuitable or unfair outcomes for
our stakeholders or undermines market integrity;
operational risk –the risk of loss resulting from inadequate
or failed internal processes, people and systems or from
external events. This definition is aligned to the regulatory
(Basel II) definition, including legal and regulatory risk but
excluding strategic and reputation risk;
compliance risk –the risk of legal or regulatory sanction,
financial or reputational loss, arising from our failure to
abide by the compliance obligations required of us;
business risk–the risk associated with the vulnerability of
a line of business to changes in the business environment;
sustainability risk–the risk of reputational or financial loss
due to failure to recognise or address material existing or
emerging sustainability related environmental, social or
governance issues;
equity risk–the potential for financial loss arising from
movements in equity values. Equity risk may be direct,
indirect or contin
gent;
34
2017 Westpac Group Annual Report
insurance risk–the risk in our insurance entities of mis-
estimation of the expected cost of insured events, volatility
in the number or severity of insured events, and mis-
estimation of the cost of incurred claims;
related entity (contagion) risk–the risk that problems
arising in other Westpac Group members compromise the
financial and operational position of the authorised deposit-
taking institution in the Westpac Group; and
reputation risk–the risk of the loss of reputation,
stakeholder confidence, or public trust and standing.
Westpac has received advanced accreditation from APRA and
the RBNZ under the Basel II capital framework, and uses the
Advanced Internal Ratings Based (AIRB) approach for credit
risk and the Advanced Measurement Approach (AMA) for
operational risk when calculating regulatory capital.
Material exposure to economic, environmental and social
sustainability risks
Westpac’s material exposures to economic, environmental and
social sustainability risks are managed in accordance with our
risk management strategy and frameworks.
Board Risk & Compliance Committee
The Board Risk & Compliance Committee comprises all of
Westpac’s independent, Non-executive Directors and is chaired
by Ewen Crouch.
As set out in its charter, the Board Risk & Compliance
Committee:
reviews and recommends the Risk Management Strategy
and Westpac Group Risk Appetite Statement to the Board
for approval;
sets risk appetite consistent with the Westpac Group Risk
Appetite Statement;
approves the frameworks, policies and processes for
managing risk;
reviews and approves the limits and conditions that apply
to credit risk approval authority delegated to the CEO, CFO
and CRO and any other officers of the Westpac Group to
whom the Board has delegated credit approval authority;
monitors the alignment of the Westpac Group’s risk profile
and controls with risk appetite, and oversees the
identification, management and reporting of risks inherent
in the Westpac Group’s operations;
monitors changes anticipated for the economic and
business environment and other factors relevant to our risk
profile and risk appetite; and
may approve risks beyond the approval discretion provided
to management.
From the perspective of specific types of risk, the Board Risk &
Compliance Committee’s role includes:
credit risk–approving key policies and limits supporting
the Credit Risk Management Framework, and monitoring
the risk profile, performance and management of our credit
portfolio;
market risk
–approving key policies and limits supporting
the Market Risk Management Framework, including, but
not limited to, the Value at Risk and Net Interest Income at
Risk limits, and monitoring the market risk profile;
liquidity risk–approving key policies and limits supporting
the Liquidity Risk Management Framework, including our
annual funding strategy, recovery and resolutions plans
and monitoring the liquidity position and requirements;
operational risk–approving key policies supporting the
Operational Risk Management Framework and monitoring
the performance of operational risk management and
controls;
conduct risk–reviewing and approving the Group’s
approach to the management of conduct risk and
reviewing and monitoring the performance of conduct risk
management and controls;
reputation risk–reviewing and approving the Reputation
Risk Management Framework and reviewing the
monitoring of the performance of reputation risk
management and controls; and
compliance risk–reviewing and approving the Compliance
Risk Management Framework and reviewing compliance
processes and our compliance with applicable laws,
regulations and regulatory requirements, discussing with
management and the external auditor any material
correspondence with regulators or government agencies
and any published reports that raise material issues, and
reviewing complaints and whistleblower concerns.
The Board Risk & Compliance Committee also:
approves the Internal Capital Adequacy Assessment
Process and in doing so reviews the outcomes of
enterprise wide stress testing, sets the preferred capital
ranges for regulatory capital and reviews and monitors
capital levels for consistency with the Westpac Group’s risk
appetite;
provides relevant periodic assurances to the Board Audit
Committee;
assists the Board to make its annual declaration to APRA
on risk management under APRA prudential standard
CPS220 Risk Management;
Corporate governance
2017 Westpac Group Annual Report35
reviews and approves other risk management
frameworks and the monitoring of performance under
those frameworks;
oversees Westpac’s risk culture, through the provision of
regular risk culture and organisational culture reporting;
refers to other Board Committees any matters that come to
the attention of the Board Risk & Compliance Committee
that are relevant for those respective Board Committees;
and
in its capacity as the Westpac Group’s US Risk
Committee, oversees the key risks, risk management
framework and policies of the Group’s US operations.
Compliance Management Framework
To proactively manage our compliance risks, our compliance
objective is to:
comply with our legal obligations, regulatory requirements,
voluntary codes of practice to which we subscribe, and
Group policies, including the Westpac Code of Conduct;
establish frameworks, policies and processes designed to
manage, monitor and report compliance and to minimise
the potential for breaches, fines or penalties, or loss of
regulatory accreditations; and
ensure that appropriate remedial action is taken to address
instances of non-compliance.
The Compliance Management Framework (the Framework)
sets out our approach to managing compliance obligations and
mitigating compliance risk, in order to achieve our compliance
objective. It is an integral part of Westpac’s Board-approved
Risk Management Strategy and is supported by a number of
key policies.
An effective Group compliance management system enables
us to demonstrate our commitment to compliance and to
comply with our compliance obligations. The approach we use
to establish, implement, maintain, evaluate and improve our
compliance management system includes:
strategy and scope –business strategy, compliance
objective and scope of the compliance management
system;
governance and accountability –roles and responsibilities,
governance, developing a culture where employees
understand their obligations and feel comfortable to identif
y
compliance issues and incidents in a timely fashion,
competence and training;
framework and documentation –framework, policies and
documentation supporting the compliance management
system;
compliance planning –management of compliance
obligations, risks, controls, issues & incidents, and
compliance monitoring and reporting; and
Additional frameworks include the Sustainability Risk Management
Framework, Equity Risk Management Framework, Related Entity Risk
Management Framework and Insurance Risk Management Framework.
1
1
evaluation and improvement –compliance performance
measures, escalation and continual improvement.
As with other forms of risk, 1 Line management is primarily
responsible for managing compliance. This is supported by an
independent
2 Line Compliance function, which reports to the
Group Executive, Compliance, Legal & Secretariat. The Group
Executive, Compliance, Legal & Secretariat is a member of the
Westpac Group Executive Risk Committee, has direct access
to the Chair of the Westpac Board Risk & Compliance
Committee and regularly attends and presents to that
Committee
.
Remuneration
The Board Remuneration Committee assists the Board by
ensuring that Westpac has coherent remuneration policies and
practices that fairly and responsibly reward individuals having
regard to performance, Westpac’s risk management
framework, the law and the highest standards of governance.
The Board Remuneration Committee has been in place for the
whole of the financial year and is comprised of three
independent No
n-executive Directors and is chaired by Craig
Dunn. All members of the Board Remuneration Committee are
also members of the Board Risk & Compliance Committee,
which assists in the integration of effective risk management
into the remuneration framework
.
As set out in its charter, the Board Remuneration Committee:
reviews and makes recommendations to the Board in
relation to the Westpac Group Remuneration Policy (Group
Remuneration Policy) and assesses the Group
Remuneration Policy’s effectiveness and its compliance
with prudential standards;
reviews and makes recommendations to the Board in
relation to the individual remuneration levels of the CEO,
Non-executive Directors, Group Executives, other
Executives who report directly to the CEO, other persons
whose activities in the Board’s opinion affect the financial
soundness of Westpac, any person specified by APRA,
and any other person the Board determines;
reviews and makes recommendations to the Board in
relation to the remuneration structures for each category of
persons covered by the Group Remuneration Policy;
reviews and makes recommendations to the Board on
corporate goals and objectives relevant to the
remuneration of the CEO, and the performance of the CEO
in light of these objectives;
reviews and makes recommendations to the Board on the
short-term and long-term incentive plans for
Group Executives;
reviews and makes recommendations to the Board in
relation to approving equity based remuneration plans; and
oversees general remuneration practices across
the Group.
The Board Remuneration Committee reviews and recommends
to the Board the size of variable reward pools
st
nd
362017 Westpac Group Annual Report
each year based on consideration of pre-determined business
performance indicators and the financial soundness of
Westpac. The Board Remuneration Committee also approves
remuneration arrangements outside of the Group
Remuneration Policy relating to individuals or groups of
individuals which are significant because of their sensitivity,
precedence or disclosure implications. In addition, the Board
Remuneration Committee considers and evaluates the
performance of senior executives when making remuneration
determinations and otherwise as required.
The Board Remuneration Committee also reviews and makes
recommendations to the Board for the reduction or lapsing of
incentive-based equity grants to employees, where subsequent
information or circumstances indicate that the grant was not
justified.
Independent remuneration consultants are engaged by the
Board Remuneration Committee to provide information across
a range of issues, including remuneration benchmarking,
market practices and emerging trends and regulatory reforms.
Further details of our remuneration framework are included in
the Remuneration Report in Section 10 of the Directors’ report.
The Board Remuneration Committee reviews and recommends
the report for approval.
Risk Management Governance Structure
Westpac’s risk management governance structure is set out in the table below:
Corporate governance
Board
approves our overall Westpac Group Risk Management Strategy and the Westpac Group Risk Appetite Statement; and
approves Aggregate Risk Exposures policy and Related Entity Risk Management Framework in accordance with APRA
prudential standards 3PS221: Aggregate Risk Exposures and 3PS222: Intra-group Transactions and Exposures.
Board Risk & Compliance Committee (BRCC)
reviews and recommends the Risk Management Strategy and Westpac Group Risk Appetite Statement to the Board
for approval;
sets risk appetite consistent with the Westpac Group Risk Appetite Statement;
approves the frameworks, policies and processes for managing risk;
reviews and approves the limits and conditions that apply to credit risk approval authority delegated to the CEO, CFO, CRO and
any other officers of the Westpac Group to whom the Board has delegated credit approval authority;
monitors the alignment of the Westpac Group’s risk profile and controls with risk appetite, and oversees the identification,
management and reporting of risks inherent in the Westpac Group’s operations;
monitors changes anticipated for the economic and business environment and other factors relevant to our risk profile and risk
appetite;
assists the Board to make its annual declaration to APRA on risk management under APRA prudential standard CPS220 Risk
Management; and
may approve risks beyond the approval discretion provided to management.
Other Board Committees with a risk focus
Board Audit Committee
oversees the integrity of financial statements and financial reporting systems, and matters relating to taxation risks.
Board Remuneration Committee
oversees remuneration policies and practices of the Westpac Group.
Board Technology Committee
oversees the implementation of the Westpac Group’s technology strategy, including risks associated with major technology
programs.
Executive Team
executes the Board-approved strategy;
delivers the Group’s various strategic and performance goals within the approved risk appetite; and
monitors key risks within each business unit, capital adequacy and the Group’s reputation.
Executive risk committees
Westpac Group Executive Risk Committee
leads the management and oversight of material risks across the Westpac Group within the context of the risk appetite approved
by the Board;
oversees the embedding of the Risk Management Strategy in the Group’s approach to risk governance;
oversees risk-related management frameworks and key supporting policies;
oversees the Group’s material risks;
oversees reputation risk and sustainability risk management frameworks and key supporting policies; and
identifies emerging credit, operational, compliance and market risks and allocates responsibility for assessing impacts and
implementing appropriate actions to address these.
2017 Westpac Group Annual Report37
Risk Management Governance Structure (continued)
Executive risk committees (continued)
Westpac Group Asset & Liability Committee
leads the optimisation of funding and liquidity risk-reward across the Group;
reviews the level and quality of capital to ensure that it is commensurate with the Group’s risk profile, business strategy and
risk appetite;
oversees the Liquidity Risk Management Framework and key policies;
oversees the funding and liquidity risk profile and balance sheet risk profile; and
identifies emerging funding and liquidity risks and appropriate actions to address these.
Westpac Group Credit Risk Committee
leads the optimisation of credit risk-reward across the Group;
reviews and oversees the Credit Risk Management Framework and key supporting policies;
oversees Westpac’s credit risk profile; and
identifies emerging credit risks, allocates responsibility for assessing impacts, and responds as appropriate.
Westpac Group Market Risk Committee
leads the optimisation of market risk, equity risk and insurance risk across the Group;
reviews and oversees the Market Risk, Equity Risk and Insurance Risk Management Frameworks and key market risk
management policies;
reviews policies and limits for managing traded and non-traded market risk; and
reviews and overseas the market risk, equity risk and insurance risk profile.
Westpac Group Operational Risk and Financial Crime Committee
leads the optimisation of operational risk across the Group;
reviews and oversees the Operational Risk and Financial Crime Risk Management Frameworks and key supporting policies;
oversees Westpac’s operational risk and financial crime risk profile; and
identifies emerging operational and financial crime risks, and appropriate actions to address these.
Westpac Group Remuneration Oversight Committee
provides assurance that the remuneration arrangements across the Group have been examined from a human resources, risk,
finance, legal and compliance perspective;
is responsible for ensuring that risk is embedded in all key steps in our remuneration framework;
reviews and makes recommendations to the CEO for recommendation to the Board Remuneration Committee on the Group
Remuneration Policy and provides assurance that remuneration arrangements across the Group encourage behaviour that
supports Westpac’s long-term financial soundness and the Risk Management Framework;
reviews and monitors the remuneration arrangements (other than for Group Executives) for Responsible Persons (as defined in
the Group’s Statutory Officers Fit and Proper Policy), risk and financial control personnel, and all other employees for whom a
significant portion of total remuneration is based on performance and whose activities, either individually or collectively, may
affect the financial soundness of Westpac; and
reviews and recommends to the CEO for recommendation to the Board Remuneration Committee the criteria and rationale for
determining the total quantum of the Group variable reward pool.
3
82017 Westpac Group Annual Report
Risk Management Governance Structure (continued)
Corporate governance
Risk and compliance functions
Risk Function
assist the Board, Board Committees and senior management to establish, maintain and review the Risk Management Strategy
and supporting risk management frameworks;
operate within Board approved risk appetite;
define risk appetite, risk concentration limits and authorities;
notify the Board or Board Committees of any significant breach, or material deviation from the risk management framework;
monitor emerging risk issues and risk concentration;
monitor resources and capabilities (including systems and data); and
maintain resources with the skills and tools required to fulfil their risk responsibilities and support the strategy.
Compliance Function
assist the Board, Board Committees and senior management to establish, maintain and review compliance management
frameworks;
design, implement and monitor controls to ensure compliance with internal, regulatory and legislative requirements;
provide independent advice on design, implementation and monitoring of controls and compliance;
reports on compliance standards and directs the review and development of compliance policies, compliance plans, controls and
procedures; and
maintain resources with the skills and tools required to fulfil their compliance responsibilities and support the strategy.
Independent internal review
Group Audit
reviews the adequacy and effectiveness of management controls over risk.
Divisional business units
Business Units
responsible for identifying, evaluating and managing the risks that they originate within approved risk appetite and policies; and
establish and maintain appropriate risk management and compliance controls, resources and self-assurance processes.
2017 Westpac Group Annual Report39
Our Directors present their report together with the financial statements of the Group for the financial year ended 30 September 2017.
1. Directors
The names of the persons who have been Directors, or appointed as Directors, during the period since 1 October 2016 and up to the
date of this report are: Lindsay Philip Maxsted, Brian Charles Hartzer, Elizabeth Blomfield Bryan (retired as a Director on
9 December 2016), Nerida Frances Caesar (Director from 1 September 2017), Ewen Graham Wolseley Crouch, Catriona Alison Deans
(Alison Deans), Craig William Dunn, Robert George Elstone, Peter John Oswin Hawkins and Peter Ralph Marriott.
Particulars of the skills, experience, expertise and responsibilities of the Directors at the date of this report, including all directorships of
other listed companies held by a Director at any time in the past three years immediately before 30 September 2017 and the period for
which each directorship has been held, are set out belo
w.
Directors’report
Name: Lindsay Maxsted,
DipBus (Gordon), FCA, FAICD
Age: 63
Term of office: Director since
March 2008 and Chairman since
December 2011.
Date of next scheduled
re-election: December 2017.
Independent: Yes.
Current directorships of listed
entities and dates of office:
Transurban Group (since
March 2008, and Chairman since
August 2010), BHP Billiton Limited
(since March 2011) and BHP
Billiton plc (since March 2011).
Other principal directorships:
Managing Director of Align Capital
Pty Ltd and Director of Baker Heart
and Diabetes Institute.
Other interests: Nil.
Other Westpac related entities
directorships and dates of office:
Nil.
Skills, experience and expertise:
Lindsay was formerly a partner at
KPMG and was the CEO of that firm
from 2001 to 2007. His principal area
of practice prior to his becoming CEO
was in the corporate recovery field
managing a number of Australia’s
largest
insolvency/workout/turnaround
engagements including
Linter Textiles (companies
associated with Abraham Goldberg),
Bell Publishing Group, Bond
Brewing, McEwans Hardware and
Brashs. He is also a former Director
and Chairman of the Victorian Public
Transport Corporation.
Westpac Board Committee
membership: Chairman of the
Board Nominations Committee.
Member of each of the Board Audit
and Board Risk & Compliance
Committees.
Directorships of other listed
entities over the past three years
and dates of office: Nil.
Name: Brian Hartzer,
BA, CFA
Age: 50
Term of office: Managing
Director & Chief Executive Officer
since February 2015.
Date of next scheduled
re-election: Not applicable.
Independent: No.
Current directorships of listed
entities and dates of office: Nil.
Other principal directorships:
The Australian National University
Business and Industry Advisory
Board (Chairman since
March 2017), the Financial Markets
Foundation for Children and
Australian Bankers’ Association
Incorporated.
Other interests: Nil.
Other Westpac related entities
directorships and dates of office:
Nil.
Skills, experience and expertise:
Brian was appointed Managing
Director & Chief Executive Officer in
February 2015. Brian joined Westpac
as Chief Executive, Australian
Financial Services in June 2012
encompassing Westpac Retail &
Business Banking, St.George
Banking Group and BT Financial
Group. Prior to joining Westpac, Brian
spent three years in the UK as CEO
for Retail, Wealth and Ulster Bank at
the Royal Bank of Scotland Group.
Prior to that, he spent ten years with
Australia and New Zealand Banking
Group Limited (ANZ) in Australia in
a variety of roles, including his final
role as CEO, Australia and Global
Segment Lead for Retail and
Wealth. Before joining ANZ, Brian
spent ten years as a financial
services consultant in New York,
San Francisco and Melbourne.
Westpac Board Committee
membership: Member of the Board
Technology Committee.
Directorships of other listed
entities over the past three years
and dates of office: Nil.
40
2017 Westpac Group Annual Report
Directors’report
Name: Nerida Caesar,
BCom, MBA, GAICD
Age: 53
Term of office: Director since
September 2017.
Date of next scheduled
re-election: December 2017.
Independent: Yes.
Current directorships of listed
entities and dates of office: Nil.
Other principal directorships:
Stone and Chalk Limited and
Genome.One Pty Ltd.
Other interests: Member of the
University of Technology Vice
Chancellor’s Industry Advisory
Board and the Federal
Government’s FinTech Advisory
Group.
Other Westpac related entities
directorships and dates of office:
Nil.
Skills, experience and expertise:
Nerida has 30 years of broad-
ranging commercial and business
management experience. Most
recently, Nerida was Group
Managing Director and Chief
Executive Officer, Australia and
New Zealand, of Equifax (formerly
Veda Group Limited) from
February 2011.
Nerida was formerly Group
Managing Director, Telstra
Enterprise and Government,
responsible for Telstra’s corporate,
government and large business
customers in Australia as well as
the international sales division. She
also worked as Group Managing
Director, Telstra Wholesale, and
prior to that held the position of
Executive Director National Sales
where she was responsible for
managing products, services and
customer relationships throughout
Australia.
Prior to joining Telstra, Nerida held
several senior management and
sales positions with IBM within
Australia and internationally over a
20 year period, including as Vice
President of IBM’s Intel Server
Division for the Asia Pacific region.
Westpac Board Committee
membership: Member of each of
the Board Risk & Compliance and
Board Technology Committees.
Directorships of other listed
entities over the past three years
and dates of office: Veda Group
Limited (December 2013 –
February 2016). Veda Group Limited
was a listed entity from
December 2013 to February 2016
when it was delisted upon its
acquisition by Equifax Inc.
Name: Ewen Crouch AM,
BEc (Hons.), LLB, FAICD
Age: 61
Term of office: Director since
February 2013.
Date of next scheduled
re-election: December 2019.
Independent: Yes.
Current directorships of listed
entities and dates of office:
BlueScope Steel Limited (since
March 2013).
Other principal directorships:
Sydney Symphony Orchestra
Holdings Pty Limited and Jawun.
Other interests: Member of the
Commonwealth Remuneration
Tribunal, Law Committee of the
Australian Institute of Company
Directors and Corporations
Committee of the Law Council of
Australia.
Other Westpac related entities
directorships and dates of office:
Nil.
Skills, experience and expertise:
Ewen was a Partner at Allens from
1988 to 2013, where he was one of
Australia’s most accomplished
mergers and acquisitions lawyers.
He served as a member of the
firm’s board for 11 years, including
four years as Chairman of Partners.
His other roles at Allens included
Co-Head Mergers and Acquisitions
and Equity Capital Markets,
Executive Partner, Asian offices
and Deputy Managing Partner. He
is now a Consultant to Allens. Ewen
served as a director of
Mission Australia from 1995 and as
Chairman from 2009, before
retiring in November 2016. From
2010 to 2015, Ewen was a
member of the Takeovers Panel. In
2013, Ewen was awarded an Order
of Australia in recognition of his
significant service to the law as a
contributor to legal professional
organisations and to the
community.
Westpac Board Committee
membership: Chairman of the
Board Risk & Compliance
Committee. Member of each of the
Board Nominations and Board
Remuneration Committees.
Directorships of other listed
entities over the past three years
and dates of office: Nil.
2017 Westpac Group Annual Report
41
Name: Alison Deans,
BA, MBA, GAICD
Age: 49
Term of office: Director since
April 2014.
Date of next scheduled
re-election: December 2017.
Independent: Yes.
Current directorships of listed
entities and dates of office:
Cochlear Limited (since
January 2015).
Other principal directorships:
kikki.K Holdings Pty Ltd and
SCEGGS Darlinghurst Limited.
Other interests: Senior Advisor,
McKinsey & Company and
Investment Committee member of
the CSIRO Innovation Fund (Main
Sequence Ventures).
Other Westpac related entities
directorships and dates of office:
Nil.
Skills, experience and expertise:
Alison has more than 20 years’
experience in senior executive roles
focused on building digital
businesses and digital
transformation across
e-commerce, media and financial
services. During this time, Alison
served as the CEO of eCorp
Limited, CEO of Hoyts Cinemas
and CEO of eBay, Australia and
New Zealand. She was the CEO
of a technology-based investment
company netus Pty Ltd. Alison was
an Independent Director of Social
Ventures Australia from
September 2007 to April 2013.
Westpac Board Committee
membership: Member of each of
the Board Risk & Compliance and
Board Technology Committees.
Directorships of other listed
entities over the past three years
and dates of office: Insurance
Australia Group Limited
(February 2013 – October 2017).
Name: Craig Dunn,
BCom, FCA
Age: 54
Term of office: Director since
June 2015.
Date of next scheduled
re-election: December 2018.
Independent: Yes.
Current directorships of listed
entities and dates of office:
Telstra Corporation Limited (since
April 2016).
Other principal directorships:
Financial Literacy Australia Limited,
Chairman of The Australian Ballet
and Chairman of Stone and Chalk
Limited.
Other interests: Chairman of the
Australian Government’s Fintech
Advisory Group and the
International Standards Technical
Committee on Blockchain and
Distributed Ledger Technologies
(ISO/TC 307). Member of the ASIC
External Advisory Panel, and the
New South Wales Government’s
Quantum Computing Fund Advisory
Panel. Board member of Jobs for
New South Wales and Consultant
to King & Wood Mallesons.
Other Westpac related entities
directorships and dates of office:
Nil.
Skills, experience and expertise:
Craig has more than 20 years’
experience in financial services,
including as CEO of AMP Limited
from 2008 to 2013. Craig was
previously a Board member of the
Australian Japanese Business
Cooperation Committee and the
New South Wales Government’s
Financial Services Knowledge Hub,
and
former Chairman of the Investment
and Financial Services Association
(now the Financial Services
Council). He was also a member of
the Financial Services Advisory
Committee, the Australian
Financial Centre Forum, the
Consumer and Financial Literacy
Taskforce and a Panel member of
the Australian Government’s
Financial System Inquiry.
Westpac Board Committee
membership: Chairman of the
Board Remuneration Committee.
Member of each of the Board
Nominations and Board Risk &
Compliance Committees.
Directorships of other listed
entities over the past three years
and dates of office: Nil.
422017 Westpac Group Annual Report
Directors’report
Name: Robert Elstone,
BA (Hons.), MA (Econ.), MCom
Age: 64
Term of office: Director since
February 2012.
Date of next scheduled
re-election: Not applicable. Robert
Elstone will retire following the 2017
AGM.
Independent: Yes.
Current directorships of listed
entities and dates of office: Nil.
Other principal directorships:
University of Western Australia
Business School.
Other interests: Adjunct Professor
at the Business Schools of the
Universities of
Sydney and Western Australia.
Other Westpac related entities
directorships and dates of office:
Nil.
Skills, experience and expertise:
Robert has over 30 years’
experience in senior management
roles spanning investment banking,
corporate finance, wholesale
financial markets and risk
management. From July 2006 to
October 2011, Robert was
Managing Director and CEO of
ASX Limited. Previously, he was
Managing Director and CEO of the
Sydney Futures Exchange from
May 2000 to July 2006, and from
January 1995 to May 2000, he
was Finance Director of Pioneer
International. Robert was a Non-
executive Director of the National
Australia Bank from
September 2004 to July 2006, an
inaugural member of the Board of
Guardians of the Future Fund, and
former Chairman of the Financial
Sector Advisory Council to the
Federal Treasurer.
Westpac Board Committee
membership: Member of each of
the Board Audit, Board
Remuneration and Board Risk &
Compliance Committees.
Directorships of other listed
entities over the past three years
and dates of office: Nil.
Name: Peter Hawkins,
BCA (Hons.), SF Fin, FAIM,
ACA (NZ), FAICD
Age: 63
Term of office: Director since
December 2008.
Date of next scheduled
re-election: December 2017.
Independent: Yes.
Current directorships of listed
entities and dates of office:
Mirvac Group (since January 2006).
Other principal directorships:
Liberty Financial Pty Ltd and
Crestone Holdings Limited.
Other interests: Nil.
Other Westpac related entities
directorships and dates of office:
Member of the Bank of Melbourne
Advisory Board since
November 2010.
Skills, experience and expertise:
Peter’s career in the banking and
financial services industry spans
over 40 years in Australia and
overseas at both the highest levels
of management and directorship of
major organisations. Peter has held
various senior management and
directorship positions with Australia
and New Zealand Banking Group
Limited from 1971 to 2005.
He was also previously a Director of
BHP (NZ) Steel Limited, ING
Australia Limited, Esanda Finance
Corporation, Visa Inc and Clayton
Utz.
Westpac Board Committee
membership: Chairman of the
Board Technology Committee.
Member of each of the Board Audit,
Board Nominations and Board
Risk & Compliance Committees.
Directorships of other listed
entities over the past three years
and dates of office: MG
Responsible Entity Limited, which is
the responsible entity for ASX listed
MG Unit Trust (April 2015 to
October 2016).
Name: Peter Marriott,
BEc (Hons.), FCA
Age: 60
Term of office: Director since
June 2013.
Date of next scheduled
re-election: December 2019.
Independent: Yes.
Current directorships of listed
entities and dates of office: ASX
Limited (since July 2009).
Other principal directorships:
ASX Clearing Corporation Limited,
ASX Settlement Corporation
Limited and Austraclear Limited.
Other interests: Member of the
Review Panel & Policy Council of
the Banking & Finance Oath.
Other Westpac related entities
directorships and dates of office:
Nil.
Skills, experience and expertise:
Peter has over 30 years’
experience in senior management
roles in the finance industry
encompassing international
banking, finance and auditing.
Peter joined Australia and New
Zealand Banking Group Limited
(ANZ) in 1993 and held the role of
Chief Financial Officer from
July 1997 to May 2012. Prior to his
career
at ANZ, Peter was a banking and
finance, audit and consulting partner
at KPMG Peat Marwick. Peter was
formerly a Director of ANZ National
Bank Limited in New Zealand and
various ANZ subsidiaries.
Westpac Board Committee
membership: Chairman of the
Board Audit Committee. Member of
each of the Board Nominations,
Board Risk & Compliance and
Board Technology Committees.
Directorships of other listed
entities over the past three years
and dates of office: Nil.
2017 Westpac Group Annual Report43
Company Secretary
Our Company Secretaries as at 30 September 2017 were Rebecca Lim and Tim Hartin.
Rebecca Lim (B Econ, LLB (Hons.)) was appointed as a Group Executive effective 1 October 2016, with her title now being Group
Executive, Compliance, Legal & Secretariat , as well as Company Secretary. Rebecca joined Westpac in 2002 and has held a variety
of senior leadership roles including General Manager, Human Resources for St.George Bank and General Manager, St.George Private
Clients. She was appointed Group General Counsel in November 2011 and Chief Compliance Officer from 2013 to 2017. Rebecca held
an in-house role in investment banking at Goldman Sachs in London after which she joined Westpac on her return to Australia.
Rebecca was previously with US firm Skadden Arps where she worked in the Corporate Finance area in both New York and London.
Prior to that she worked at Blake Dawson Waldron (now Ashurst) as a solicitor.
Tim Hartin (LLB (Hons.)) was appointed Group Company Secretary in November 2011. Before that appointment, Tim was Head of
Legal - Risk Management & Workouts, Counsel & Secretariat and prior to that, he was Counsel, Corporate Core. Before joining
Westpac in 2006, Tim was a Consultant with Gilbert + Tobin, where he provided corporate advisory services to ASX listed companies.
Tim was previously a lawyer at Henderson Boyd Jackson W.S. in Scotland and in London in Herbert Smith’s corporate and corporate
finance division.
2. Executive Team
As at 30 September 2017 our Executive Team was:
There are no family relationships between or among any of our Directors or Executive Team members.
Prior to 2 October 2017, Rebecca Lim’s title was Group General Counsel & Chief Compliance Officer.
Name Position
Year Joined
Group
Year Appointed
to Position
Brian HartzerManaging Director & Chief Executive Officer20122015
Lyn CobleyChief Executive, Westpac Institutional Bank20152015
Brad CooperChief Executive Officer, BT Financial Group20072010
Dave CurranChief Information Officer20142014
George FrazisChief Executive, Consumer Bank20092015
Alexandra HolcombChief Risk Officer19962014
Peter KingChief Financial Officer19942014
Rebecca LimGroup Executive, Compliance, Legal & Secretariat20022016
David LindbergChief Executive, Business Bank20122015
David McLeanChief Executive Officer, Westpac New Zealand Limited19992015
Christine ParkerGroup Executive, Human Resources, Corporate Affairs & Sustainability20072011
Gary ThursbyGroup Executive, Strategy & Enterprise Services20082016
442017 Westpac Group Annual Report
1
1
1
Directors’report
Brian Hartzer BA, CFA. Age 50
Managing Director & Chief Executive Officer
Brian was appointed Managing Director & Chief Executive Officer in February 2015. Brian joined Westpac as Chief
Executive, Australian Financial Services in June 2012 encompassing Westpac Retail & Business Banking,
St.George Banking Group and BT Financial Group.
Brian is a Director of the Australian Bankers’ Association and was formerly the Chairman until December 2015.
Prior to joining Westpac, Brian spent three years in the UK as CEO for Retail, Wealth and Ulster Bank at the Royal
Bank of Scotland Group. Prior to that, he spent ten years with Australia and New Zealand Banking Group Limited
(ANZ) in Australia in a variety of roles, including his final role as CEO, Australia and Global Segment Lead for
Retail and Wealth. Before joining ANZ, Brian spent ten years as a financial services consultant in New York, San
Francisco and Melbourne.
Brian graduated from Princeton University with a degree in European History and is a Chartered Financial Analyst.
Lyn Cobley BEc, SF FIN, GAICD. Age 54
Chief Executive, Westpac Institutional Bank
Lyn was appointed Chief Executive, Westpac Institutional Bank in September 2015. She has responsibility for
Westpac’s global relationships with corporate, institutional and government clients as well as all products across
financial and capital markets, transactional banking, structured finance and working capital payments. In addition,
Lyn oversees Hastings Funds Management as well as Westpac’s International and Pacific Island businesses.
Lyn has over 25 years’ experience in financial services. Prior to joining Westpac, Lyn held a variety of senior
positions at the Commonwealth Bank of Australia including serving as Group Treasurer from 2007 to 2013 and
most recently as Executive General Manager, Retail Products & Third Party Banking. She was also Head of
Financial Institutions at Barclays Capital in Australia, held senior roles at Citibank in Australia and Asia Pacific
including Head of Securitisation and was CEO of Trading Room (a joint venture between Macquarie Bank and
Fairfax).
Lyn is a Board member of the Australian Financial Markets Association (AFMA), the Banking & Finance Oath and
the Westpac Foundation. She is Chairman of Westpac’s Asia Advisory Board and is also a member of Chief
Executive Women.
Lyn has a Bachelor of Economics from Macquarie University, is a Senior Fellow of the Financial Services Institute
of Australia and is a graduate of the Australian Institute of Company Directors.
Brad Cooper DipBM, MBA. Age 55
Chief Executive Officer, BT Financial Group
Brad was appointed Chief Executive Officer, BT Financial Group in February 2010. Brad initially joined Westpac in
April 2007 as Chief Executive, Westpac New Zealand Limited and after successfully leading a change program in
that market, moved to the role of Group Chief Transformation Officer, leading the Westpac Group’s St.George
merger implementation. Prior to joining Westpac, Brad was Chairman of GE Capital Bank and CEO of GE
Consumer Finance UK & Ireland. He drove GE’s UK Six Sigma program and was certified as a Quality Leader
(Black Belt) in December 2002. He was promoted to CEO of GE Consumer Finance UK in January 2003 and
appointed Chairman of GE Capital Bank in April 2004.
Dave Curran BCom. Age 52
Chief Information Officer
Dave was appointed Chief Information Officer in September 2014. Dave has almost 30 years of experience with
proven expertise in IT and financial services and the implementation of large, complex projects.
Since 2015, Dave has been on the Board of the Westpac Bicentennial Foundation, a $100 million scholarship fund
with exclusive focus on Australian education and leadership
.
Before joining Westpac, Dave spent ten years in senior roles at the Commonwealth Bank of Australia (CBA).
Before joining CBA, he spent sixteen years at Accenture, where he was a partner, primarily consulting on financial
services.
2017 Westpac Group Annual Report
45
George Frazis B Eng (Hons.), MBA (AGSM/Wharton). Age 53
Chief Executive, Consumer Bank
George was appointed Chief Executive, Consumer Bank in June 2015, responsible for managing the end to end
relationship with consumer customers. This includes all consumer distribution, digital, marketing, transformation
and banking products and services under the Westpac, St.George, BankSA, Bank of Melbourne and RAMS
brands.
Prior to this appointment, he was CEO, St.George Banking Group. George joined the Westpac Group in
March 2009 as Chief Executive, Westpac New Zealand Limited. George is highly experienced in the financial
services industry. He was formerly Group Executive General Manager at National Australia Bank. Prior to that,
George was a senior executive in Commonwealth Bank of Australia’s Institutional Banking Division and has also
been a partner with the Boston Consulting Group and an officer in the Royal Australian Air Force. George is a
Governor of the St.George Foundation and is Chair of the Prime Minister’s Industry Advisory Committee on
Veteran
s’Employment.
Alexandra Holcomb BA, MBA, MA. Age 56
Chief Risk Officer
Alexandra was appointed Chief Risk Officer in August 2014. As Westpac Group’s Chief Risk Officer, Alexandra is
responsible for key risk management activities across the enterprise.
Since joining Westpac in 1996, Alexandra has held a number of senior positions including Group General Manager,
Group Strategy, M&A and Major Projects, Group Executive, Group Strategy, Head of Westpac Institutional Bank
Strategy, and until August 2014 was the Group General Manager of Global Transactional Services.
Prior to joining Westpac, Alexandra was a senior executive from 1992 to 1996 with Booz Allen & Hamilton
International where she specialised in international credit, working throughout the Asia Pacific region. Before that,
she worked with Chase Manhattan Bank in New York in private and business banking and international credit audit.
She also worked in project finance in Paris and New York for Banque Indosuez and Barclays Bank respectively.
Alexandra is Deputy Chairman of the Asia Society Australia and serves on the Westpac Foundation Board. She is
a member of Chief Executive Women and a Fellow of the Australian Institute of Company Directors. Alexandra has
an MBA in Finance and Multinational Management from the Wharton School of Business and a Master of Arts in
International Studies and French from the University of Pennsylvania. She also holds a BA in English and
Economics from Cornell University.
Peter King BEc, FCA. Age 47
Chief Financial Officer
Peter was appointed Chief Financial Officer in April 2014, with responsibility for Westpac’s Finance, Group Audit,
Tax, Treasury and Investor Relations functions. Prior to this appointment, Peter was the Deputy Chief Financial
Officer for three years.
Since joining Westpac in 1994, Peter has held senior finance positions across the Group, including in Group
Finance, Business and Consumer Banking, Business and Technology Services, Treasury and Financial Markets.
Peter commenced his career at Deloitte Touche Tohmatsu. He has a Bachelor of Economics from Sydney
University and completed the Advanced Management Programme at INSEAD. He is a Fellow of the Institute of
Chartered Accountants.
Rebecca Lim B Econ, LLB (Hons). Age 45
Group Executive, Compliance, Legal & Secretariat
Rebecca was appointed as Westpac’s Group Executive responsible for compliance, legal and secretariat functions
globally from October 2016. She was appointed Group General Counsel in November 2011 and was Chief
Compliance Officer from 2013 to 2017.
Rebecca joined Westpac in 2002 and has held a variety of other senior leadership roles including General
Manager, Human Resources for St.George Bank and General Manager, St.George Private Clients.
Rebecca began her career at Blake Dawson Waldron (now Ashurst) before joining the US firm Skadden Arps
where she worked in both New York and London. Rebecca then moved into an i
n-house role in investment banking
at Goldman Sachs in London before returning to Australia and joining Westpac.
Rebecca is Deputy Chair of the GC100 Executive Committee and a member of Chief Executive Women.
462017 Westpac Group Annual Report
Directors’report
David Lindberg HBA (Hons. Economics). Age 42
Chief Executive, Business Ban
k
David was appointed Chief Executive, Business Bank in June 2015. He manages the Group’s end to end
relationships with business customers for the Westpac, St.George, BankSA and Bank of Melbourne brands. The
Business Bank provides a wide range of banking and financial products and services to Australi
a’s small,
commercial, corporate and agri businesses
.
Prior to this appointment, David was Chief Product Officer, responsible for the Group’s retail and business products
across all brands, as well as overseeing the Group’s digital activities. Before joining Westpac in 2012, David was
Executive General Manager, Cards, Payments & Retail Strategy at the Commonwealth Bank of Australia. David
was also formerly Managing Director, Strategy, Marketing & Customer Segmentation at Australia and New Zealand
Banking Group Limited and Managing Vice President and Head of Australia for First Manhattan.
David McLean LLB (Hons.). Age 59
Chief Executive Officer, Westpac New Zealand Limited
David was appointed Chief Executive Officer, Westpac New Zealand Limited in February 2015. Since joining
Westpac in February 1999, David has held a number of senior roles, including Head of Debt Capital Markets New
Zealand, General Manager, Private, Wealth and Insurance New Zealand and Head of Westpac Institutional Bank
New Zealand, and most recently, Managing Director of the Westpac New York branch
.
Before joining Westpac, David was Director, Capital Markets at Deutsche Morgan Grenfell since 1994. He also
established the New Zealand branch of Deutsche Bank and was New Zealand Resident Branch Manager. In 1988,
David joined Southpac/National Bank as a Capital Markets Executive. Prior to this, David worked as a lawyer in
private practice and also served as i
n-house counsel for NatWest NZ from 1985. David is a Barrister & Solicitor of
the High Court of New Zealand.
Christine Parker BGDipBus (HRM). Age 57
Group Executive, Human Resources, Corporate Affairs & Sustainabilit
y
Christine was appointed Group Executive, Human Resources, Corporate Affairs & Sustainability in October 2011,
with responsibility for human resources strategy and management, including reward and recognition, safety,
learning and development, careers and talent, employee relations and employment policy. She is also responsible
for Corporate Affairs and Sustainability, and Customer Advocacy.
Prior to this appointment, she was Group General Manager, Human Resources, from March 2010, with
responsibilities across the entire Westpac Group. Prior to that, Christine was General Manager, Human Resources,
Westpac New Zealand Limited.
Prior to joining Westpac in 2007, Christine was Group Human Resources Director, Carter Holt Harvey, and from
1999 to 2004, she was Director of Human Resources with Restaurant Brands New Zealand
.
Christine is a Governor of the St.George Foundation and also a Director of Women’s Community Shelters.
Gary Thursby BEc, DipAcc, FCA. Age 55
Group Executive, Strategy & Enterprise Service
s
Gary was appointed Group Executive Strategy & Enterprise Services in October 2016. In addition to leading the
Group’s strategy function, his role is designed to accelerate the delivery of the Group’s Service Revolution and
provide services to support the Grou
p’s operating businesses.
Gar
y’s responsibilities also include banking operations, procurement, property, analytics, and enterprise
investments. In addition, Gary oversees the Grou
p’s mergers & acquisitions and business development portfolios.
Before joining Westpac in 2008, Gary held a number of senior finance roles at Commonwealth Bank of Australia
(CBA) including Deputy CFO and CFO Retail Bank. Gary has over 20 year
s’ experience in financial services,
covering finance, M&A and large scale program delivery. He commenced his career at Deloitte Touche Tohmatsu.
Gary has a Bachelor of Economics and a Post Graduate Diploma in Accounting from Flinders University of South
Australia and is a Fellow of the Institute of Chartered Accountants.
2017 Westpac Group Annual Report47
3. Report on the business
a) Principal activities
The principal activities of the Group during the financial year ended 30 September 2017 were the provision of financial services
including lending, deposit taking, payments services, investment portfolio management and advice, superannuation and funds
management, insurance services, leasing finance, general finance, interest rate risk management and foreign exchange services.
There have been no significant changes in the nature of the principal activities of the Group during 2017.
b) Operating and financial review
The net profit attributable to equity holders of Westpac for the financial year ended 30 September 2017 was $7,990 million, an increase
of $545 million or 7% compared to 2016. Key features of this result were:
a 4% increase in net operating income before operating expenses and impairment charges with:
–net interest income of $15,516 million, an increase of $368 million or 2% compared to 2016, with total loan growth of 3% and a 4
basis point decrease in net interest margin to 2.06%; and
–non-interest income of $6,286 million, an increase of $449 million or 8% compared to 2016, primarily due to a $279 million gain
associated with the sale of shares in BT Investment Management Limited (BTIM), a rise in trading income of $78 million and the
impact of volatility in economic hedges of $140 million. These increases were partly offset by provisions for customer refunds
and lower wealth management and insurance income;
operating expenses were $9,434 million, an increase of $217 million or 2% compared to 2016 due to annual salary and rental
increases, higher technology expenses related to the Group’s investment program, a rise in regulatory and compliance costs and
expenses associated with the sale of shares in BTIM. These increases were partially offset by productivity benefits; and
impairment charges were $853 million, a decrease of $271 million or 24% compared to 2016. Asset quality remained sound, with
stressed exposures as a percentage of total committed exposures at 1.05%, down 15 basis points over the year. The decrease in
impairment charges was primarily due to significantly lower large individual provisions. Additional provisioning for these larger
facilities was required in 2016, following the downgrade to impaired.
A review of the operations of the Group and its divisions and their results for the financial year ended 30 September 2017 is set out in
Section 2 of the Annual Report under the sections ‘Review of Group operations’, ‘Divisional performance’ and ‘Risk and risk
management’, which form part of this report.
Further information about our financial position and financial results is included in the financial statements in Section 3 of this Annual
Report, which form part of this report.
c) Dividends
Since 30 September 2017, Westpac has announced a final ordinary dividend of 94 cents per Westpac ordinary share, totalling
approximately $3,191 million for the year ended 30 September 2017 (2016 final ordinary dividend of 94 cents per Westpac ordinary
share, totalling approximately $3,145 million). The dividend will be fully franked and will be paid on 22 December 2017.
An interim ordinary dividend for the current financial year of 94 cents per Westpac ordinary share for the half year ended
31 March 2017, totalling $3,156 million, was paid as a fully franked dividend on 4 July 2017 (2016 interim ordinary dividend of 94 cents
per Westpac ordinary share, totalling $3,136 million). The payment comprised direct cash disbursements of $2,031 million with
$1,125 million being reinvested by participants through the DRP.
Further, in respect of the year ended 30 September 2016, a fully franked final dividend of 94 cents per ordinary share totalling
$3,145 million was paid on 21 December 2016. The payment comprised direct cash disbursements of $2,818 million with $327 million
being reinvested by participants through the DRP.
New shares were issued to satisfy the DRP for each of the 2016 final ordinary dividend and the 2017 interim ordinary dividend.
d) Significant changes in state of affairs and events during and since the end of the 2017 financial year
Significant changes in the state of affairs of the Group were:
introduction of the Federal Government’s Bank Levy for ADIs. The Bank Levy cost Westpac $95 million in Full Year 2017, with an
after tax impact of $66 million and is estimated to cost Westpac approximately $405 million in Full Year 2018, with an after tax
impact of approximately $284 million;
the sale by Westpac of 60 million shares in BTIM for $10.75 per share;
the issuance of US$1.25 billion AT1 securities, which qualify as Additional Tier 1 capital under APRA’s capital adequacy
framework;
the proposed sale by Westpac of its interest in Hastings Management Pty Limited, which is subject to confirmatory due diligence
and regulatory approvals; and
482017 Westpac Group Annual Report
ongoing regulatory changes and developments, which have included changes relating to liquidity, capital, financial services,
taxation, executive accountability and other regulatory requirements.
For a discussion of these matters, please refer to ‘Significant developments’ in Section 1 under ‘Information on Westpac’.
The Directors are not aware of any other matter or circumstance that has occurred since the end of the financial year that has
significantly affected or may significantly affect the operations of the Group, the results of these operations or the state of affairs of the
Group in subsequent financial years.
e) Business strategies, developments and expected results
Our business strategies, prospects and likely major developments in the Group’s operations in future financial years and the expected
results of those operations are discussed in Section 1 of the Annual Report under ‘Information on Westpac’, including under ‘Outlook’
and ‘Significant developments’.
Further information on our business strategies and prospects for future financial years and likely developments in our operations and
the expected results of operations have not been included in this report because the Directors believe it would be likely to result in
unreasonable prejudice to us.
4. Directors’ interests
a) Directors’ interests in securities
The following particulars for each Director are set out in the Remuneration Report in Section 10 of the Directors’ report for the year
ended 30 September 2017 and in the tables below:
their relevant interests in our shares or the shares of any of our related bodies corporate;
their relevant interests in debentures of, or interests in, any registered managed investment scheme made available by us or any of
our related bodies corporate;
their rights or options over shares in, debentures of, or interests in, any registered managed investment scheme made available by
us or any of our related bodies corporate; and
any contracts:
–to which the Director is a party or under which they are entitled to a benefit; and
–that confer a right to call for or deliver shares in, debentures of, or interests in, any registered managed investment scheme
made available by us or any of our related bodies corporate.
Directors’report
2017 Westpac Group Annual Report49
Directors’ interests in Westpac and related bodies corporate as at 6 November 2017
Brian Hartzer’s interest in Westpac ordinary shares includes 20,222 restricted shares held under the CEO Restricted Share Plan.
Share rights issued under the CEO Long Term Incentive Plan and Long Term Incentive Plan.
Ewen Crouch and his related bodies corporate also hold relevant interests in 250 Westpac Capital Notes 2.
Peter Hawkins and his related bodies corporate also hold relevant interests in 850 Westpac Capital Notes 3 and 882 Westpac Capital Notes 4.
Note: Certain subsidiaries of Westpac offer a range of registered schemes. The Directors from time to time invest in these schemes and are required to provide a
statement to the ASX when any of their interests in these schemes change. ASIC has exempted each Director from the obligation to notify the ASX of a relevant
interest in a security that is an interest in BT Cash Management Trust (ARSN 087 531 539), BT Premium Cash Fund (ARSN 089 299 730), Westpac Cash
Management Trust (ARSN 088 187 928), BT Wholesale Managed Cash Fund (ARSN 088 832 491), BT Wholesale Enhanced Cash Fund (ARSN 088 863 469),
Advance Cash Multi-Blend Fund (ARSN 094 113 050) or BT Cash (ARSN 164 257 854).
Number of Relevant Interests in
Westpac
Ordinary Shares
Number of Westpac
Share Rights
Westpac
CPS
Westpac Banking Corporation
Current Directors
Lindsay Maxsted20,689--
Brian Hartze
r77,427569,426-
Nerida Caesa
r---
Ewen Crouc
h36,450--
Alison Dean
s9,392--
Crai
g Dunn8,869--
Robert Elston
e12,096--
Peter Hawkin
s15,880-1,370
Peter Marriott20,870--
502017 Westpac Group Annual Report
1 2
3
4
1
2
3
4
b) Indemnities and insurance
Under the Westpac Constitution, unless prohibited by statute, we indemnify each of the Directors and Company Secretaries of Westpac
and of each of our related bodies corporate (except related bodies corporate listed on a recognised stock exchange), each employee of
Westpac or our subsidiaries (except subsidiaries listed on a recognised stock exchange), and each person acting as a responsible
manager under an Australian Financial Services Licence of any of Westpac’s wholly-owned subsidiaries against every liability (other
than a liability for legal costs) incurred by each such person in their capacity as director, company secretary, employee or responsible
manager, as the case may be; and all legal costs incurred in defending or resisting (or otherwise in connection with) proceedings,
whether civil or criminal or of an administrative or investigatory nature, in which the person becomes involved because of that capacity
.
Each of the Directors named in this Directors’ report and each of the Company Secretaries of Westpac has the benefit of this indemnity.
Consistent with shareholder approval at the 2000 Annual General Meeting, Westpac has entered into a Deed of Access and Indemnity
with each of the Directors, which includes indemnification in identical terms to that provided in the Westpac Constitution
.
Westpac also executed a deed poll in September 2009 providing indemnification equivalent to that provided under the Westpac
Constitution to individuals acting as:
statutory officers (other than as a director) of Westpac;
directors and other statutory officers of wholly-owned subsidiaries of Westpac; and
directors and statutory officers of other nominated companies as approved by Westpac in accordance with the terms of the deed
poll and Westpac’s Contractual Indemnity Policy.
Some employees of Westpac’s related bodies corporate and responsible managers of Westpac and its related bodies corporate are
also currently covered by a deed poll that was executed in November 2004, which is in similar terms to the September 2009 deed poll.
The Westpac Constitution also permits us, to the extent permitted by law, to pay or agree to pay premiums for contracts insuring any
person who is or has been a Director or Company Secretary of Westpac or any of its related bodies corporate against liability incurred
by that person in that capacity, including a liability for legal costs, unless:
we are forbidden by statute to pay or agree to pay the premium; or
the contract would, if we paid the premium, be made void by statute.
Under the September 2009 deed poll, Westpac also agrees to provide directors’ and officers’ insurance to Directors of Westpac and
Directors of Westpac’s wholly-owned subsidiaries.
For the year ended 30 September 2017, the Group has insurance cover which, in certain circumstances, will provide reimbursement for
amounts which we have to pay under the indemnities set out above. That cover is subject to the terms and conditions of the relevant
insurance, including but not limited to the limit of indemnity provided by the insurance. The insurance policies prohibit disclosure of the
premium payable and the nature of the liabilities covered.
c) Options and share rights outstanding
As at the date of this report there are 256,840 share options outstanding and 5,107,825 share rights outstanding in relation to Westpac
ordinary shares. The expiry date of the share options range between 17 December 2017 and 1 October 2018 and the weighted average
exercise price is $26.36. The latest dates for exercise of the share rights range between 17 December 2017 and 1 October 2032.
Holders of outstanding share options and share rights in relation to Westpac ordinary shares do not have any rights under the share
options and share rights to participate in any share issue or interest of Westpac or any other body corporate.
d) Proceedings on behalf of Westpac
No application has been made and no proceedings have been brought or intervened in, on behalf of Westpac under section 237 of the
Corporations Act.
Directors’report
2017 Westpac Group Annual Report51
522017 Westpac Group Annual Report
5. Environmental disclosure
As part of our 2017 Sustainability Strategy, we have set targets
for our environmental performance. The Westpac Group’s
environmental framework starts with ‘Our Principles for Doing
Business’, which outline our broad environmental principles.
This framework includes:
our Westpac Group Environment Policy, which has been in
place since 1992;
our Sustainability Risk Management Framework;
our Responsible Sourcing Code of Conduct; and
public reporting of our environmental performance.
We also participate in a number of voluntary initiatives including
the Dow Jones Sustainability Index, CDP , the Equator
Principles, the Principles for Responsible Investment, the
United Nations Global Compact and the Banking Environment
Initiative’s Soft Commodities Compact.
The National Greenhouse and Energy Reporting Act 2007(Cth)
(National Greenhouse Act) came into effect in July 2008. The
Group reports on greenhouse gas emissions, energy
consumption and production under the National Greenhouse
Act for the period 1 July through 30 June each year.
The Group was previously subject to the reporting requirements
of the Energy Efficiency Opportunities Act 2006 (Cth) (EEO
Act). The Commonwealth Government repealed the EEO Act,
effective from 29 June 2014. Accordingly, all obligations and
activities under the EEO Program, including reporting
requirements, have ceased.
Our operations are not subject to any other significant
environmental regulation under any law of the Commonwealth
of Australia or of any state or territory of Australia. We may,
however, become subject to environmental regulation as a
result of our lending activities in the ordinary course of business
and we have policies in place to ensure that this potential risk is
addressed as part of our normal processes.
We have not incurred any liability (including for rectification
costs) under any environmental legislation.
Formerly known as the Carbon Disclosure Project.
Westpac implemented energy efficiency opportunities that are expected
to result in estimated energy savings of 14,964GJ, carbon savings of
2,858 tCO2e and cost savings of $791,544 per year.
1
2
1
2
6. Human rights supply chain disclosure
Westpac’s overall approach to human rights is set out in our
Westpac Group Human Rights Position Statement, and this
references our Responsible Sourcing Code of Conduct as the
primary framework for managing human rights in our supply
chain
.
The Group is subject to the United Kingdom’s Transparency in
Supply Chains provisions under th
e Modern Slavery Act 2015,
which came into effect in March 2015. Westpac releases an
annual statement each year for the period ended 30 Septembe
r
to disclose the steps taken during the year to help prevent
modern slavery from occurring within the Grou
p’s operations
and supply chain.
7. Rounding of amounts
Westpac is an entity to which ASIC Corporations Instrument
2016/191 dated 24 March 2016, relating to the rounding of
amounts in director
s’ reports and financial reports, applies.
Pursuant to this Instrument, amounts in this Director
s’ report
and the accompanying financial report have been rounded to
the nearest million dollars, unless indicated to the contrary.
8. Political expenditure
In line with Westpac policy, no cash donations were made to
political parties during the financial year ended
30 September 2017
.
In Australia, political expenditure for the financial year ended
30 September 2017 was $162,726. This relates to payment fo
r
participation in legitimate political activities where they were
assessed to be of direct business relevance to Westpac. Such
activities include business observer programs attached to
annual party conferences, policy dialogue forums and othe
r
political functions, such as speeches and events with industry
participants
.
In New Zealand, political expenditure for the financial year
ended 30 September 2017 was NZD$2,756. In line with
Westpac policy, no cash donations were made to political
parties in New Zealand during the year.
9. Directors’ meetings
Each Director attended the following meetings of the Board and Committees of the Board during the financial year ended
30 September 2017:
This table shows membership of standing Committees of the Board. From time to time the Board may form other committees or request
Directors to undertake specific extra duties.
A - Meetings eligible to attend as a memberB - Meetings attended as a member
Unless otherwise stated, each Director has been a member, or the Chairman, of the relevant Committee for the whole of the period
from 1 October 2016.
Chairman of the Board Nominations Committee. Member of the Board Audit Committee and the Board Risk & Compliance Committee.
Member of the Board Technology Committee.
Elizabeth Bryan retired from the Board and its Committees on 9 December 2016.
Nerida Caesar was appointed as a Director on 1 September 2017. Member of the Board Risk & Compliance Committee and Board Technology Committee
from 28 September 2017.
Chairman of the Board Risk & Compliance Committee from 9 December 2016. Chairman of the Board Remuneration Committee, and member of the Board
Risk & Compliance Committee, until 9 December 2016. Member of the Board Nominations Committee and from 9 December 2016, a member of the Board
Remuneration Committee.
Member of the Board Risk & Compliance Committee and the Board Technology Committee.
Chairman of the Board Remuneration Committee from 9 December 2016. Member of the Board Remuneration Committee until 9 December 2016. Member of
the Board Risk & Compliance Committee, and from 9 December 2016, a member of the Board Nominations Committee.
Member of the Board Remuneration Committee, the Board Risk & Compliance Committee and the Board Audit Committee.
Chairman of the Board Technology Committee. Member of the Board Audit Committee, the Board Nominations Committee and the Board Risk & Compliance
Committee.
Chairman of the Board Audit Committee. Member of the Board Risk & Compliance Committee, the Board Technology Committee and the Board Nominations
Committee.
Directors’report
AuditRisk & ComplianceNominationsRemunerationTechnology
o
NotesBoardCommitteeCommitteeCommitteeCommitteeCommittee
Number of meetings
held during the year
Director
ABABABABABAB
Lindsay Maxsted
1
99444444----
Brian Hartzer
2
99- -------44
Elizabeth Bryan
3
22- -111122- -
Nerida Caesar
4
11- ---------
Ewen Crouch
5
99- -444466- -
Alison Deans
6
99- -44- ---44
Craig Dunn
7
99- -443366- -
Robert Elstone
8
994444- -66- -
Peter Hawkins
9
99444344--44
Peter Marriott
10
99444444--44
2017 Westpac Group Annual Report53
1
2
3
4
5
6
7
8
9
1
0
10. Remuneration Report
Introduction from the Chairman of the Board Remuneration Committee
Dear Shareholder,
We are pleased to present Westpac’s 2017 Remuneration Report (Report).
The past year has seen significant developments in the banking industry relating to remuneration. The Banking Executive
Accountability Regime (BEAR) will be put before Parliament and the Retail Banking Remuneration Review commissioned by the
Australian Banker’s Association (known as the Sedgwick report) was released earlier this year.
A comprehensive review is being undertaken in anticipation of the enactment of the BEAR legislation to ensure that our CEO and
Group Executive remuneration framework and principles remain consistent with both the letter and spirit of legislative developments.
While this review is underway in 2018, the remuneration framework will remain unchanged and be consistent with the 2017 structures
outlined in this Report.
We are also committed to implementing fully the recommendations of the Sedgwick report, which we are addressing in a phased
manner over the next three years. To date we have made significant progress on implementing around three quarters of the
recommendations, with good progress made on implementation of the remaining recommendations as we develop appropriate support
systems, frameworks and metrics. For example, in November 2016 we removed all product-related incentives from around 2,000 tellers
in the Westpac branch network.
2017 Remuneration outcomes – the link to Group performance
Each year the Board assesses a number of factors when determining remuneration outcomes. In addition to the financial results
included in Short-term Incentive (STI) balanced scoreboards, the Committee assesses other elements of performance such as the
quality of the results, key performance drivers, meeting customer needs, the risk and operating environment and effectiveness of
implementation of strategic initiatives to determine if the scoreboard outcomes adequately reflect actual performance and returns to
shareholders.
In what continues to be a challenging and competitive business environment, the Group’s financial performance was sound. There was
moderate growth in cash earnings and earnings per share, with marginal declines in return on equity and economic profit, as capital
and funding positions were strengthened further to position the Group to meet APRA’s unquestionably strong benchmark. Significant
improvements were achieved in net promoter scores (NPS) for customers, with Westpac being rated with the highest overall NPS
among major Australian banks for the first time in September 2017; employee engagement scores also increased significantly, with
outcomes achieved above the high performing global norm. This year we also retained our position as the most sustainable bank
globally in the 2017 Dow Jones Sustainability Indices for the fourth year running.
STI outcomes
It is against these outcomes that the short and long-term incentives were determined. STI outcomes during the year for the CEO and
the Group Executive team averaged 109% of target, up by an average of 14% on last year, and were within a range of 96% to 116%.
Different incentive outcomes across the Group Executive team reflect the performance of each division and the quality of the
performance delivered by the accountable executive.
Long-term Incentive (LTI) outcomes
In 2017, the 2014 LTI reached its test date. As the minimum performance vesting thresholds were not met, none of the 2014 LTI will
vest.
More specifically:
Westpac’s LTI plan Total Shareholder Return (TSR) over the last three years was 11.791%, which was below the 50th percentile
vesting threshold, so none of the 2014 TSR hurdled rights vested. This is the third consecutive year where the TSR hurdle has not
been met; and
Westpac’s Cash Earnings per Share (EPS) growth over the last three years was also below the vesting threshold of 15.8% (5.0%
compound annual growth), so none of the 2014 EPS hurdled rights vested.
542017 Westpac Group Annual Report
Changes to Key Management Personnel in 2017
The appointment effective 1 October 2016 of Rebecca Lim as the Group General Counsel & Chief Compliance Officer and Gary
Thursby as Group Executive, Strategy & Enterprise Services was advised in last year’s Report, and their remuneration details for the
full 2017 period have been disclosed.
Philip Coffey retired during the year, after 21 years with Westpac.
This year we have made some minor changes to the way that we have presented the information in our Report, with the aim of
improving its format and layout.
We welcome your feedback as we continue to improve the disclosure of our remuneration policies, practices and outcomes.
Craig Dunn
Chairman – Board Remuneration Committee
Rebecca Lim’s title was amended to Group Executive, Compliance, Legal & Secretariat effective 2 October 2017.
Directors’report
2017 Westpac Group Annual Report55
1
1
Note: All references to Return on Equity (ROE) in this remuneration report are on a cash ROE basis. Refer to the Glossary of
abbreviations and defined terms for more detail.
Topics covered in this Report
Section 1List of 2017 Key Management Personnel
Section 2Summary of 2017 CEO and Group Executive remuneration strategy and framewor
k
Section 3Summary of 2017 remuneration outcomes including:
remuneration paid and vested;
equity awarded;
LTI and STI outcomes; and
further details on the link to Group performance
Section 4Further detail on 2017 executive remuneration structure
Section 5Remuneration governanc
e
Section 6Non-executive Director remuneration structure
Section 7Statutory remuneration disclosures including
:
Non-executive Director remuneration;
CEO and Group Executive remuneration; and
additional statutor
y disclosures
562017 Westpac Group Annual Report
1. Key Management Personnel remuneration disclosed in this Report
The remuneration of Key Management Personnel (KMP) for the Group is disclosed in this Report. In 2017, KMP comprised Non-
executive Directors, the CEO and Group Executives who reported to the CEO.
CEO and Group Executives
Non-executive Directors
Directors’report
NamePositionTerm as KMP
Managing Director & Chief Executive Officer
Brian Hartze
rManaging Director & Chief Executive Officer
Full Year
Current Group Executives
L
yn CobleyChief Executive, Westpac Institutional BankFull Year
Brad CooperChief Executive Officer, BT Financial GroupFull Year
Dave CurranChief Information OfficerFull Year
George FrazisChief Executive, Consumer BankFull Year
Alexandra
Holcomb
Chief Risk OfficerFull Year
Peter KingChief Financial OfficerFull Year
Rebecca LimGroup General Counsel & Chief Compliance OfficerCommenced 1 October 2016
David LindbergChief Executive, Business BankFull Year
David McLeanChief Executive Officer, Westpac New Zealand LimitedFull Year
Christine ParkerGroup Executive, Human Resources, Corporate Affairs & SustainabilityFull Year
Gary ThursbyGroup Executive, Strategy & Enterprise ServicesCommenced 1 October 2016
Former Group Executive
Philip CoffeyDeputy Chief Executive OfficerCeased role 31 May 2017
NamePositionTerm as KMP
Current Non-executive Directors
Lindsa
y Maxsted ChairmanFull Year
Nerida CaesarDirectorAppointed 1 September 2017
Ewen CrouchDirectorFull Year
Alison DeansDirectorFull Year
Craig DunnDirector Full Year
Robert ElstoneDirectorFull Year
Peter HawkinsDirectorFull Year
Peter MarriottDirectorFull Year
Former Non-executive Director
Elizabeth BryanDirectorRetired 9 December 201
6
2017 Westpac Group Annual Report
57
2. Summary of the 2017 CEO and Group Executive remuneration framework
582017 Westpac Group Annual Report
3. Summary of remuneration outcomes
3.1. Executive KMP remuneration – paid and vested in 2017
The following table shows the actual remuneration paid or vested to each executive KMP in 2017 compared to 2016 (unaudited) and
includes:
fixed remuneration earned during the year;
cash STI awarded and paid in respect of the 2017 and 2016 performance years;
deferred STI amounts awarded in prior years that vested at the end of 2017 and 2016 respectively; and
LTI originally granted in 2014 and 2013 that vested or was forfeited at the end of 2017 and 2016 respectively.
This table shows actual remuneration paid, vested or forfeited while Section 7 represents outcomes prepared in accordance with
Australian Accounting Standards (AAS).
Directors’report
Fixed
Remuneration
Cash STI
awarded
and paid
Prior year
Deferred STI
vested
Prior year LTI
vested
Total realised
remuneration
Prior year LTI
forfeited
Name$$$$$$
Managing Director & Chief Executive Officer
Brian Hartzer
20172,686,0001,490,7301,280,114-5,456,8443,046,592
20162,686,0001,302,710949,349-4,938,0592,610,944
Current Group Executives
Lyn Cobley, Chief Executive, Westpac Institutional Bank
20171,122,000640,000244,864-2,006,864-
20161,122,000492,500--1,614,500-
Brad Cooper, Chief Executive Officer, BT Financial Group
20171,102,517792,500779,625-2,674,6422,206,129
20161,102,517735,000733,887-2,571,4041,350,495
Dave Curran, Chief Information Officer
2017952,000552,500510,291-2,014,791-
2016952,000467,500258,810-1,678,310-
George Frazis, Chief Executive, Consumer Bank
20171,150,000872,500876,225-2,898,7251,155,565
20161,150,000815,000798,746-2,763,746990,344
Alexandra Holcomb, Chief Risk Officer
20171,003,000532,500498,536-2,034,036772,487
20161,003,000492,500400,492-1,895,992450,134
Peter King, Chief Financial Officer
20171,088,000615,000536,202-2,239,2021,132,480
20161,088,000545,000410,367-2,043,367270,075
Rebecca Lim, Group General Counsel & Chief Compliance Officer
2017750,000412,500248,227-1,410,727388,674
2016--------------------------------------------------------------------------Not a KMP in 2016----------------------------------------------------------------------------------
David Lindberg, Chief Executive, Business Bank
2017952,000532,500419,808-1,904,308709,083
2016901,000477,500314,033-1,692,533405,142
David McLean, Chief Executive Officer, Westpac New Zealand Limited
2017864,889412,570430,410-1,707,869-
2016854,565363,050285,422-1,503,037-
2017 Westpac Group Annual Report
59
1
22
We have adopted a new approach for this table regarding equity disclosures, where we show equity that vests at the end of the performance year as being
part of the remuneration for that performance year (i.e. the 1 October 2017 vesting of deferred STI and LTI is one day after the completion of the 2017
performance year and is shown as vested or forfeited against 2017 in the table below). This is different from the approach adopted in prior years, where
equity was disclosed as being part of remuneration in the year in which it vested or was forfeited.
The value shown is calculated by multiplying the number of equity instruments by the closing share price on the date of vesting or forfeiture.
See Section 1 for details.
Summary of Group LTI vesting outcomes
The vesting outcomes for LTI awards to the CEO (CEO LTI Plan) and Group Executives (Westpac LTI Plan) that reached the
completion of the performance period in 2017 and 2016 appear below:
Other equity that vested during 2017
Lyn Cobley had 16,696 restricted shares which vested in July 2017 which were allocated in respect of equity forfeited from her previous
employer on joining Westpac.
Fixed
Remuneration
Cash STI
awarded
and paid
Prior year
Deferred STI
vested
Prior year LTI
vested
Total realised
remuneration
Prior year LTI
forfeited
Name$$$$$$
Current Group Executives (cont.)
Christine Parker, Group Executive, Human Resources, Corporate Affairs & Sustainability
2017850,000517,500481,816-1,849,3161,365,665
2016850,000450,000457,952-1,757,952630,225
Gary Thursby, Group Executive, Strategy & Enterprise Services
2017840,000485,000371,764-1,696,764409,680
2016--------------------------------------------------------------------------Not a KMP in 2016-------------------------------------------------------------------------------
Former Group Executive
Philip Coffey, Deputy Chief Executive Officer
2017908,741457,500669,828-2,036,0692,237,655
20161,363,112597,500694,327-2,654,9391,530,554
Performance
measure
Performance
start date
Test date
Performance range
Outcome
%
Vested
%
Lapsed
ThresholdMaximum
2014
LTI
grant
TSR
(50% of award)
1 October 2014
1 October
2017
50 percentile 75 percentile 20 percentile0%100%
EPS
(50% of award)
1 October 2014
1 October
2017
5.0% CAGR7.0% CAGR(0.8%) CAGR0%100%
2013
LTI
grant
TSR
(50% of award)
1 October 2013
1 October
2016
50 percentile 75 percentile 20 percentile0%100%
EPS
(50% of award)
1 October 2013
1 October
2016
4.0% CAGR6.0% CAGR1.10% CAGR0%100%
602017 Westpac Group Annual Report
22
3
1
2
3
ththth
th
thth
3.2. Executive KMP remuneration – equity awarded in 2017
The following table shows the fair value of equity awarded in 2017 and 2016 (unaudited) which is due to vest in future years, subject to
performance hurdles, tenure and malus conditions as applicable including:
deferred STI awards, being restricted shares valued as 50% of the STI allocated in the year divided by the 5 day volume weighted
average price (VWAP) to date of grant; and
LTI awards, showing fair value of share rights granted in the year, where fair value is 40% of face value at date of grant for the
2017 award, and 41.5% of face value at the date of grant for the 2016 award. LTI share rights are subject to performance
conditions – see Section 4.3 for more detail.
The final value of equity that vests will depend on the proportion of shares or share rights that vest and the share price at the time of
vesting. The values differ from those in Section 7 which represent outcomes prepared in accordance with AAS.
This table can be read in conjunction with table 7.3 which shows the number of securities granted in 2017.
The 2017 award 5 day VWAP was $29.87, and the 2016 award 5 day VWAP was $29.87.
The fair value of 2016 TSR and EPS rights was 40% and 43% respectively.
The 2016 LTI opportunity for Brian Hartzer does not include the part year award for 2015 following his appointment as CEO that was awarded at the same time
as the 2016 LTI award.
See Section 1 for details.
Directors’report
Deferred STILTI (Fair value)
Name$$
Managing Director & Chief Executive Officer
Brian Hartzer20171,490,7302,528,000
20161,302,710 2,528,000
Group Executives
Lyn Cobley2017640,0001,056,000
Chief Executive, Westpac Institutional Bank2016492,500 1,056,000
Brad Cooper2017792,5001,050,000
Chief Executive Officer, BT Financial Group2016735,000 1,050,000
Dave Curran2017552,500896,000
Chief Information Officer2016467,500 896,000
George Frazis2017872,5001,000,000
Chief Executive, Consumer Bank2016815,000 1,000,000
Alexandra Holcomb2017532,500944,000
Chief Risk Officer2016492,500 944,000
Peter King2017615,0001,024,000
Chief Financial Officer2016545,000 1,024,000
Rebecca Lim2017412,500700,000
Group General Counsel & Chief Compliance Officer2016--------Not a KMP in 2016 --------
David Lindberg2017532,500912,000
Chief Executive, Business Bank2016477,500 848,000
David McLean2017412,570810,138
Chief Executive Officer, Westpac New Zealand Limited2016363,050 804,296
Christine Parker2017517,500750,000
Group Executive, Human Resources, Corporate Affairs & Sustainability2016450,000 750,000
Gary Thursby2017485,000700,000
Group Executive, Strategy & Enterprise Services2016--------Not a KMP in 2016 --------
Former Group Executive
Philip Coffey2017457,5001,280,000
Deputy Chief Executive Officer2016597,500 1,280,000
2017 Westpac Group Annual Report
61
1
2
3
4
1
2
3
4
3.3. Summary of 2017 STI outcomes - How Group performance impacted CEO and Group Executive STI outcomes
STI scoreboard targets provide the basis of short term variable reward and communicate the areas of focus for the year, which includes
the management of risk and demonstrating behaviours which are aligned to the Group values.
Application of discretion
The Board and the Remuneration Committee recognise that the scoreboard approach, while embracing a number of complementary
performance objectives, may not always enable a complete assessment of overall performance. The Board and Remuneration
Committee may therefore make discretionary adjustments, positive and negative, to the scoreboard outcomes for the CEO and Group
Executives. The Board and Remuneration Committee use the following criteria to apply discretionary adjustments:
matters not known or not relevant at the beginning of the financial year, which are relevant to the under or over performance of the
CEO and Group Executives during the financial year;
the degree of stretch implicit in the scoreboard measures and targets themselves and the context in which the targets were set;
whether the operating environment during the financial year has been materially better or worse than forecast;
comparison with the performance of the Group’s principal competitors;
any relevant positive or negative risk management or reputational issue that impacts the Group;
the quality of the financial result including its composition and sustainability;
whether there have been major positive or negative aspects regarding the quality of leadership and/or behaviours consistent with
our values; and
any other relevant under or over performance or other matter not captured.
The process ensures that financial measures such as economic profit are adjusted for non-operating items which impact the current
year process such as write-offs, accounting standard changes or one-off transactions (where appropriate) to ensure that employees are
neither advantaged nor disadvantaged when determining the incentive outcome. Adjustments are considered on a multi-year basis
where appropriate e.g. where a material adjustment impacts future earnings
.
Group balanced scoreboard – CEO performance objectives
The structure of the Group balanced scoreboard (which forms the CEO scoreboard), performance measures, weightings, assessment
and the resulting STI outcomes are detailed in the following tables. The Group balanced scoreboard is also used in part for the Group
Executive STI outcomes, in combination with individual scoreboard measures which contribute to determining the overall Group
outcome.
The STI outcomes for individual executives have been determined using both quantitative and qualitative inputs including: the overall
Group performance relative to the external competitive environment, individual performance against stretching targets, and judgement
of individual’s capability and contribution to the Group relative to peer executives including demonstrated leadership behaviours.
62
2017 Westpac Group Annual Report
Group balanced scoreboard – CEO performance objectives (cont.)
Directors’ report
MeasureWeightingAssessmentConsiderations
Economic profit
Delivering
underlying returns
that create value
for shareholders
30% Delivered economic profit of $3,774 million with ROE at 13.8% within
the 13-14% range we are seeking to achieve. Cash earnings growth of
3% was offset by a 5% increase in capital charge as we boosted
capital levels in preparation for APRA ‘unquestionably strong’ capital
requirements.
The Group prioritised return over growth, and capital requirements
were managed actively with credit risk weighted assets down 3%.
Core earnings
growth
Delivering
consistent and
sustainable
growth in core
earnings
10% Increased 1%.
Revenues grew 2% supported by a 5% lending growth and 4% deposit
growth partly offset by 4bps margin compression.
Expenses rose just below 2% with productivity largely offsetting
operating costs, with the increase due to investment and higher
regulatory and compliance costs.
Capital
management
Providing a
strong, stable and
sustainable
capital base on
which to grow the
business
10% Capital and liquidity positions are well placed to meet new regulatory
requirements.
Common equity tier 1 ratio of 10.6% was over a full percentage point
higher over the year. Ended the year above the ‘unquestionably strong’
capital requirement set by APRA which does not come into effect until
2020.
The Group is well placed for the introduction of the Net Stable Funding
Ratio from 1 January 2018, with the 30 September 2017 ratio at 109%.
Adherence to
Group Risk
Appetite
Statement
Ensuring we
operate within
accepted risk
tolerances
10% The external risk, regulatory and compliance environment continues to
be increasingly complex and challenging. Overall we have remained
within the Group Risk Appetite.
Financial risk classes have been managed well including capital,
funding and credit risk. We have continued to tighten underwriting
standards in the residential and commercial property portfolios.
Improvements have been made to the control environment across
fraud, financial crime and conduct risk. Responsible lending, financial
advice and sales practices have been a key focus, with management
accelerating the pace of customer remediation programs. We have
also made provisions for customer refunds and payments where we’ve
identified instances where we need to take action so that our
customers are not at a disadvantage from certain past practices.
Ongoing programs of work are underway to address and enhance
management of system and data related risks.
Service
revolution
Putting customers
at the centre of
everything we do
10% Finished the year as No 1 in the Australian ranking for both consumer
and business Net Promoter Score (Roy Morgan); with Westpac
finishing the year ranked No 2 for Customer Satisfaction in the DBM
survey.
Complaints reduced by 18%.
Continued to roll out multiple technology innovations to customers,
including Panorama (our wealth management platform), e-
conveyancing, Corporate Lending portal and faster on-boarding,
Collections web portal, LOLA (our Live Online Lending Application),
and numerous feature and useability enhancements for mobile
banking across all brands.
2017 Westpac Group Annual Report
63
CEO STI outcome for 2017
The CEO outcome for 2017 was determined by the Board with reference to the Group balanced scoreboard outcome and the principles
of discretion detailed overleaf.
MeasureWeightingAssessmentConsiderations
Service
revolution
(cont.)
Continued to receive external recognition with some of the awards won
this year being: Retail Financial Institution of the year, Best Private
Bank in Australia, Best use of technology in Private Banking/Wealth
Management, and Best Digital Bank (NZ).
Building growth
highways
Securing future
growth in
earnings
10% Grew ahead of expectations on deposits and SME lending and in
target segments of health and professional services.
In Wealth maintained a market share of #1 on all retail platforms with
positive net flows in funds under administration.
Digital
transformation
Delivering
solutions that
anticipate the
needs and
expectations of
our customers
10% Delivered $262 million in productivity savings, through digitising
activities and transactions, reducing manual activity and increasing
eStatements.
Good progress on a number of major investments - Customer Service
Hub, launched a Big Data platform and installed a new call centre
platform. Major milestones included implementation of the Oracle
Banking platform and Group Customer Master within the Westpac
Technology environment.
All programs on track, delivering committed milestones and outcomes.
Continued our focus on using technology to drive transformation. We
have used process automation and simplification initiatives across
~500 processes and the management of ~32 million customer
activities annually.
Upgraded our Cybersecurity Coordination Centre (further improving
our ability to detect and respond to global threats 24x7).
Installed new call centre infrastructure that will materially improve the
experience of calling Westpac as well as providing the foundation for a
range of new customer service initiatives.
People and
sustainability
Providing an
environment that
encourages our
employees to be
the best they can
be and drives the
right behaviours
10% We were awarded the Dow Jones Sustainability Index’s most
sustainable bank for 4th year in a row, with our highest score ever
achieved of 94 out of 100 points.
Achieved our target of 50% of women in leadership roles.
Group employee engagement was 79%, 2% above the Global High
Performing Norm, with employee pride in the organisation increasing
11 points to 91%.
Strengthened our incident management and whistleblowing processes
to help our employees ‘feel safe to speak up’ (latest employee survey
result being 80% and above the Global High Performing Norm of
79%).
Our Health, Safety and Wellbeing metrics continue to be market
leading with Lost Time Injury Frequency rates of 0.65 relative to a
target of 0.75 and our same day incident reporting exceeding 90%.
Name and position titleTarget STI
STI outcome
% of target
STI outcome
% of max
Actual Cash
STI
(50%)
Actual Deferred
STI
(50%)
Brian Hartzer
Managing Director & Chief Executive Officer
$2,686,000111%74%$1,490,730$1,490,730
64
2017 Westpac Group Annual Report
Individual Group Executive STI outcomes for 2017
See Section 1 for details.
3.4. Group financial performance – five year perspective
The following table provides the Group’s economic profit, ROE, TSR, dividends per share, cash earnings per share and share price
performance each year from 2013 for the past five years including 2017 and the STI outcomes for the CEO over the same period:
Does not include $0.20 special dividend determined in 2013.
Cash earnings are not prepared in accordance with AAS and have not been subject to audit.
Directors’report
Name and position titleTarget STI
STI outcome %
of target
STI outcome
% of max
Actual Cash
STI
(50%)
Actual
Deferred STI
(50%)
Current Group Executives
Lyn Cobley
Chief Executive, Westpac Institutional Bank
$1,122,000114%76%$640,000$640,000
Brad Cooper
Chief Executive Officer, BT Financial Group
$1,600,00099%66%$792,500$792,500
Dave Curran
Chief Information Officer
$952,000116%77%$552,500$552,500
George Frazis
Chief Executive, Consumer Bank
$1,600,000109%73%$872,500$872,500
Alexandra Holcomb
Chief Risk Officer
$1,003,000106%71%$532,500$532,500
Peter King
Chief Financial Officer
$1,088,000113%75%$615,000$615,000
Rebecca Lim
Group General Counsel & Chief Compliance
Officer
$750,000110%73%$412,500$412,500
David Lindberg
Chief Executive, Business Bank
$969,000110%73%$532,500$532,500
David McLean
Chief Executive Officer, Westpac New Zealand
Limited
$860,77296%64%$412,570$412,570
Christine Parker
Group Executive, Human Resources, Corporate
Affairs & Sustainability
$900,000115%77%$517,500$517,500
Gary Thursby
Group Executive, Strategy & Enterprise Services
$860,000113%75%$485,000$485,000
Former Group Executive
Philip Coffey
Deputy Chief Executive Officer
$906,667101%67%$457,500$457,500
Years Ended 30 September
20172016201520142013
CEO STI outcome (% target)111%97%108%127%123%
Economic profit ($m)
3,7743,7744,4184,4914,068
ROE
13.77%14.00%15.80%16.40%15.90%
TSR – three years
11.79%15.24%62.30%102.03%66.09%
TSR – five years
81.32%100.72%92.78%103.74%90.91%
Dividends per Westpac share (cents)
188188187182174
Cash earnings per Westpac share
$2.40$2.35$2.48$2.45$2.28
Share price – high
$35.39$33.74$40.07$35.99$34.79
Share price – low
$28.92$27.57$29.10$30.00$24.23
Share price – close
$31.92$29.51$29.70$32.14$32.73
2017 Westpac Group Annual Report
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4. Further detail on 2017 executive remuneration structure
4.1. Fixed remuneration
Fixed remuneration takes into account the size and complexity of the role, individual responsibilities, experience and skills. Fixed
remuneration is set based on relevant market benchmarks within the financial services industry.
4.2. Short-term incentive
STI provides the opportunity for participants to earn cash and deferred equity incentives where specific outcomes have been achieved
in the financial year. The STI outcomes for the CEO and each Group Executive are assessed using a balanced scoreboard, combining
both annual financial and non-financial objectives which support the Group’s strategy.
4.3. Long-term incentive
The LTI is designed to align the remuneration of executives to the long-term performance of the Group and the interests of
shareholders. The amount of the award takes into account market benchmarks, individual performance over time, succession potential
and key skills.
LTI structure 2017 (awarded at the beginning of the 2017 performance year)
2017 STI Plan
Plan structure50% cash, 50% deferred equity in the form of restricted ordinary shares (or share rights for Group Executives
based outside of Australia).
The equity portion of the STI award vests over the following schedule: 50% at the end of year 1, and 50% at the
end of year 2.
Target
opportunity
The CEO’s STI target for 2017 was $2,686,000, unchanged from 2016.
STI targets for the CEO and Group Executives are set by the Remuneration Committee and approved by the
Board at the beginning of each performance year, based on a range of factors including market competitiveness
and the nature of each role. The STI targets for the 2017 performance year did not increase for those Group
Executives whose fixed remuneration was unchanged in 2017.
Maximum
opportunity
The maximum STI opportunity is 150% of target (the minimum opportunity being nil).
Performance
conditions
Performance is measured against risk-adjusted financial targets and non-financial targets which support the
Group’s strategy. Performance measures are based on performance at Group, divisional and individual level. The
deferred STI awards recognise past performance and are not subject to further performance hurdles (other than
continued service) and receive dividends over the vesting period.
See Section 3.3 for the Group balanced scoreboard.
Assessment of
performance
outcomes
STI outcomes are subject to both a quantitative and qualitative assessment, including a risk management overlay,
which is embedded in the scoreboard measurement process. The Board has the capacity to adjust STI outcomes
(and reduce STI outcomes to zero if appropriate) in the assessment process.
CEO LTI Plan and Westpac LTI Plan
Equity
instrument
Performance share rights - One share right entitles the holder to one ordinary share at the time of vesting at a nil
exercise cost. Share rights do not attract the payment of dividends.
LTI award
opportunity
The CEO was granted an LTI award of $2,528,000 (at fair value) in the form of share rights for 2017 under the
CEO LTI Plan.
At the beginning of each year, the Board, advised by the Remuneration Committee, sets the dollar value of the LTI
award target for the CEO and each Group Executive.
Determining
the number of
securities
The number of share rights each individual receives is determined by dividing the dollar value of the LTI award by
the fair value of the share rights at the beginning of the performance assessment period (performance period).
The fair value of share rights is determined by an independent valuer taking as a starting point the market price of
Westpac shares at grant and using a Monte Carlo simulation pricing model, applying assumptions based on
expected life, volatility, risk-free interest rate and dividend yield associated with the securities and the risk of
forfeiture attributed to each performance hurdle. The Remuneration Committee caps the valuation at a maximum
discount of 60% of the relevant share price. The value of a TSR hurdled share right may be different to an ROE
hurdled share right.
66
2017 Westpac Group Annual Report
Directors’report
CEO LTI Plan and Westpac LTI Plan
Performance
hurdles
2017 LTI (Awarded in December 2016)
TSR
50% of the allocation
ROE
50% of the allocation
The TSR performance hurdle measures Westpac’s TSR
against a composite TSR index over the four year
performance period, providing an arms-length
assessment of our comparative performance against
peers.
At the end of the performance period, TSR performance
of each of the index companies will be multiplied by its
index TSR weighting, and the total of the 10 scores will
comprise the composite index performance measure.
Performance levels required for vesting of TSR share
rights are detailed in the table below:
21.55 (5% average compound annual growth rate)
The companies in the 2017 peer group for the Westpac
LTI Plan and their relative weightings are:
For the 2017 grant, the TSR share rights will be tested
against the performance hurdle on 30 September 2020.
This hurdle aims to reward achievement of returns
comfortably above the Group’s cost of capital while
generating shareholder value and further improving how
efficiently the Group uses its limited capital resources
within the Group’s risk appetite.
The ROE performance hurdle measures the average
cash return on average ordinary equity over the three
year performance period.
ROE rights which satisfy the ROE hurdle and qualify for
vesting at the completion of the three year performance
period will have a one year holding lock applied and will
vest at the completion of the four year term from the
commencement date. A description of the process used
to determine cash earnings is provided at Note 2 to the
financial statements.
Performance levels required for vesting of ROE share
rights are detailed in the table below:
For the 2017 grant, the share rights will be tested
against the performance hurdles on 30 September 2019.
Share rights that qualify for vesting will have a one year
holding lock applied and will vest on 30
September 2020.
Who measures
the
performance
hurdle
outcomes?
To ensure objectivity and external validation, TSR
results are calculated by an independent external
consultant and are provided to the Board or its delegate
to review and determine vesting outcomes. Under the
relevant plan rules, the Board may exercise discretion if
in all prevailing circumstances Directors think it is
appropriate to do so when determining the ultimate
vesting outcome.
The ROE outcome will be determined by the Board
based on the ROE disclosed in our results at the
completion of the performance period. Under the
relevant plan rules, the Board may exercise discretion if
in all prevailing circumstances Directors think it is
appropriate to do so when determining the ultimate
vesting outcome.
No re-testingThere has been no re-testing on LTI awards made since 2011. No award currently on foot is subject to re-testing.
Accordingly, securities that have not vested after the measurement period lapse immediately.
2017 Westpac Group Annual Report
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Details for other LTI awards currently on foot (CEO and Group Executives) can be found in the following Reports:
2015 LTI award, vesting on 30 September 2018 – 50% of award subject to ranked TSR performance against a peer group, and
50% of the award subject to cash EPS CAGR performance condition. Refer to the 2015 Annual Report; and
2016 LTI award, vesting on 30 September 2019 – 50% of award subject to TSR performance against a weighted composite index
of comparator companies, and 50% of the award subject to cash EPS CAGR performance condition. Refer to the 2016 Annual
Report.
LTI structure 2018 (awarded at the beginning of 2018 performance year)
The LTI structure for the 2018 award will retain the same design features as the 2017 award.
The TSR hurdle, as detailed above, will remain unchanged in 2018.
The performance range for the ROE component of the 2018 LTI has been set at an average ROE of between 13.25% and 14.25%. The
range is 25 basis points lower than the 2017 LTI ROE target as it reflects updated information on regulatory capital requirements, and
the likely prospects of a more competitive business environment and higher impairment charges. The ROE target range also takes into
account the Group’s risk appetite whilst incentivising the delivery of stretching performance outcomes.
The Board retains ultimate discretion to ensure that vesting outcomes deliver alignment between performance and shareholder
outcomes.
CEO LTI Plan and Westpac LTI Plan
Early vesting is
possible in
limited cases
For awards made since 1 October 2009, unvested securities may vest before a test date if the executive is no
longer employed by the Group due to death or disability. In general, any such vesting is not subject to
performance hurdles being met.
Treatment of
securities
The Board has discretion in relation to performance share rights where the CEO or a Group Executive resigns or
retires or otherwise leaves the Group before vesting occurs. This discretion enables the Board to vest the
relevant securities or leave them on foot for the remainder of the performance period. In exercising its discretion,
the Board will take into account all relevant circumstances including those surrounding the departure in question.
The Board may also adjust the number of performance share rights downwards, or to zero (in which case they
will lapse) where the circumstances of the departure warrant, or to respond to misconduct resulting in significant
financial and/or reputational impact to Westpac.
Where a holder acts fraudulently or dishonestly, or is in material breach of their obligations under the relevant
equity plan, unexercised performance share rights (whether vested or unvested) will lapse unless the Board
determines otherwise.
68
2017 Westpac Group Annual Report
4.4. Shareholding requirements and hedging policy
To align further their interests with those of shareholders, the CEO and Group Executives are required to build and maintain a
substantial Westpac shareholding within five years of being appointed to their role.
All Group Executives who have been in a Group Executive role for more than five years meet these shareholding requirements.
Executives that have been in Group Executive roles for less than five years are working towards, or have already satisfied, these
requirements.
Participants in the Group’s equity plans are forbidden from entering, either directly or indirectly, into hedging arrangements for unvested
securities in their STI and LTI equity awards. No financial products of any kind may be used to mitigate the risk associated with these
awards. Any attempt to hedge these securities makes them subject to forfeiture. These restrictions have been in place for some time
and satisfy the requirements of the Corporations Act which prohibit hedging of unvested securities.
4.5. Employment agreements
The remuneration and other terms of employment for the CEO and Group Executives are formalised in their employment agreements.
Each of these employment agreements provides for the payment of fixed and performance-based remuneration, employer
superannuation contributions and other benefits such as death and disablement insurance cover.
The term and termination provisions of the employment agreements for the FY17 Executive KMP are summarised below:
Payment in lieu of notice may in certain circumstances be approved by the Board for some or all of the notice period.
The maximum liability for termination benefits for the CEO and other Executive KMP at 30 September 2017 was $13.4 million (2016: $13 million).
Directors’report
Minimum shareholding requirement
CEOFive times annual fixed remuneration ($13.43 million)
Group Executives$1.2 million each
TermWhoConditions
Duration of agreementCEO and all Group Executives Ongoing until notice given by either party
Notice to be provided by the executive
or the Group to terminate the
employment agreement
CEO and Group Executives (excluding
Philip Coffey)
12 months
Philip Coffey 6 months
Termination payments to be made on
termination without cause
CEO and all Group Executives Deferred STI and LTI awards vest
according to the applicable equity plan
rules
Termination for causeCEO and Group Executives (excluding
Brad Cooper and Philip Coffey)
Immediately for misconduct
3 months’ notice for poor performance
Brad Cooper and Philip Coffey Immediately for misconduct
Contractual notice period for poor
performance
Post-employment restraintsCEO and all Group Executives 12 month non-solicitation restraint
2017 Westpac Group Annual Report
69
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5. Remuneration governance
The Group’s remuneration policy supports Westpac’s vision and strategy by:
requiring the design and management of remuneration to align with customer and shareholder interests;
supporting financial soundness; and
encouraging prudent risk management.
The role of the Board is to provide strategic guidance for the Group and effective oversight of management. As part of this role, the
Board has overall accountability for remuneration.
The Remuneration Committee assists the Board to fulfil its remuneration responsibilities to shareholders by monitoring the
remuneration policies and practices of the Group, external remuneration practices, market expectations and regulatory requirements in
Australia and internationally. The Committee’s purpose, responsibilities and duties are outlined in the Board Remuneration Committee
Charter which is available on the Group’s website. The Charter was last reviewed and amended in March 2016.
The Group’s remuneration strategy, executive remuneration framework, policies and practices all reflect the sound risk management
that is fundamental to the way the Group operates, the law and high standards of governance. The performance of each division is
reviewed and measured with reference to how risk is managed and the results influence remuneration outcomes for accountable
employees.
In carrying out its duties, the Remuneration Committee can access risk and financial control personnel and engage external advisors
who are independent of management. The Chairman of the Board Risk & Compliance Committee is also a member of the
Remuneration Committee, and members of the Remuneration Committee are also members of the Board Risk & Compliance
Committee.
The executive Total Reward framework (outlined in Section 2 of this Report) specifically includes features to take account of risk.
Members of the Remuneration Committee during 2017
All members of the Remuneration Committee are independent Non-executive Directors. During 2017, the members were:
Craig Dunn (Chairman from 9 December 2016);
Ewen Crouch (Chairman to 9 December 2016);
Elizabeth Bryan (retired on 9 December 2016); and
Robert Elstone.
Independent remuneration consultant
In 2017, the Board retained Guerdon Associates as its independent consultant to provide specialist information on executive
remuneration and other remuneration matters, the services being provided directly to the Remuneration Committee independent of
management. The Chairman of the Remuneration Committee oversees the engagement and costs of the independent consultant.
Work undertaken by Guerdon Associates during 2017 included the provision of information relating to the benchmarking of Non-
executive Director, CEO and Group Executive remuneration. No remuneration recommendations, as prescribed under the Corporations
Act, were made by Guerdon Associates in 2017.
Approval of remuneration decisions
The Group follows a strict process of ‘two-up’ approval for all remuneration decisions. This means that remuneration is approved by the
next most senior person above the employee’s manager. This concept is also reflected in our requirement for the Board, based on
recommendations from the Remuneration Committee, to approve performance outcomes and remuneration for:
the CEO and Group Executives; and
other executives who report directly to the CEO, other persons whose activities in the Board’s opinion affect the financial
soundness of the Group and any other person specified by the Australian Prudential Regulation Authority.
Any significant remuneration arrangements that fall outside the Group Remuneration Policy are referred to the Remuneration
Committee for review and approval.
702017 Westpac Group Annual Report
6. Non-executive Director remuneration
6.1. Structure and policy
Remuneration policy
Westpac’s Non-executive Director remuneration strategy is designed to attract and retain experienced, qualified Board members and
remunerate them appropriately for their time and expertise.
Fees for Non-executive Directors are not related to the Group’s short-term results and Non-executive Directors do not receive
performance-based remuneration. Non-executive Director remuneration consists of the following components:
Non-executive Director remuneration in 2017
Non-executive Director fee review — Effective 1 October 2016
The Board reviewed the Non-executive Director fee framework in late 2016. On the basis of market data provided by Guerdon
Associates, the Board approved an increase to the member fees for the Board Technology Committee recognising the workload
associated with these roles.
Changes to Board and Committee composition
The following changes were made to Board and Committee composition:
Elizabeth Bryan retired on 9 December 2016 following the 2016 Annual General Meeting;
Ewen Crouch was appointed Chairman of the Board Risk & Compliance Committee effective 9 December 2016 stepping down as
Chairman of the Board Remuneration Committee on the same date (remaining a member of that Committee);
Craig Dunn was appointed as Chairman of the Board Remuneration Committee and member of the Board Nominations Committee
effective 9 December 2016; and
Nerida Caesar was appointed as a Non-executive Director to the Westpac Board effective 1 September 2017 and appointed to the
Board Risk & Compliance and Board Technology Committees effective 28 September 2017.
Fee pool
At the 2008 Annual General Meeting, the current fee pool of $4.5 million per annum was approved by shareholders. For the year ended
30 September 2017, $2.94 million (65%) of this fee pool was used. The fee pool is inclusive of employer superannuation contributions.
Directors’report
Remuneration ComponentPaid asDetail
Base feeCashThis fee is for service on the Westpac Banking Corporation Board. The base
fee for the Chairman covers all responsibilities, including all Board
Committees.
Committee feesCashAdditional fees are paid to other Non-executive Directors for chairing or
participating in Board Committees.
Employer superannuation
contributions
SuperannuationReflects statutory superannuation contributions which are capped at the
superannuation maximum contributions base as prescribed under the
Su
perannuation Guarantee legislation.
Subsidiary Board and
Advisory Board fees
CashFees are for service on Subsidiary Boards and Advisory Boards and are paid
by the relevant subsidiary.
2017 Westpac Group Annual Report71
Fee framework
This section details the current Non-executive Director fee framework.
Base and Committee fees
The following table sets out the Board and standing Committee fees:
Committee fees are not payable to the Chairman of the Board and members of the Nominations Committee.
Employer superannuation contributions
The Group pays superannuation contributions to Non-executive Directors of up to 9.5% of their fees. The contributions are capped at
the superannuation maximum compulsory contributions base prescribed under the Superannuation Guarantee legislation.
Subsidiary Board and Advisory Board fees
During the reporting period, additional fees of $35,000 were paid to Peter Hawkins as a member of the Bank of Melbourne Advisory
Board.
Minimum shareholding
Non-executive Directors are required to build and maintain their individual holdings of Westpac ordinary shares to align their interests
with the lon
g-term interests of shareholders. The Board Chair and each Non-executive Director are required to hold an interest in
shares in Westpac with a market value not less than the Board base fee within five years of appointment to the Board. Details of Non-
executive Directors’ Westpac (and related bodies corporate) shareholdings are set out in Section 7.4.
Annual Rate
Base Fee$
Chairma
n810,000
No
n-executive Directors225,000
Committee Chairman Fee
s
Audit Committee70,400
Risk and Com
pliance Committee70,400
Remuneration Committe
e63,800
Technolo
gy Committee35,200
Committee Membershi
p Fees
Audit Committee32,000
Risk and Compliance Committe
e32,000
Remuneration Committe
e29,000
Technolo
gy Committee20,000
722017 Westpac Group Annual Report
7. Statutory remuneration details
7.1. Details of Non-executive Director remuneration
Details of Non-executive Director remuneration are set out in the table below:
Includes fee paid to the Chairman and members of Board Committees.
Refer to Section 1 of the Report for details.
The total fees for 2016 reflect the prior year remuneration for the 2016 reported Non-executive Directors.
Directors’report
Short-Term BenefitsPost-Employment Benefits
Westpac Banking
Corporation Board
Fees
Subsidiary and
Advisory Board FeesSuperannuationTotal
Name$$ $$
Current Non-executive Directors
Lindsay Maxsted, Chairman
2017810,000-19,734829,734
2016810,000-19,540829,540
Nerida Caesar
201718,921-1,61920,540
Ewen Crouch
2017323,719-19,734343,453
2016320,800-19,540340,340
Alison Deans
2017277,000-19,734296,734
2016273,000-19,540292,540
Craig Dunn
2017314,221-19,734333,955
2016286,000-19,540305,540
Robert Elstone
2017318,000-19,734337,734
2016318,000-19,540337,540
Peter Hawkins
2017324,20035,00019,658378,858
2016324,20035,00019,465378,665
Peter Marriott
2017347,400-19,734367,134
2016343,400-19,540362,940
Former Non-executive Director
Elizabeth Bryan
201762,214-3,70965,923
2016324,400-19,540343,940
Total fees
20172,795,67535,000143,3902,974,065
20162,999,80035,000156,2453,191,045
2017 Westpac Group Annual Report73
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7.2. Remuneration details — CEO and Group Executives
This section sets out details of remuneration for the CEO and Group Executives for the 2017 financial year, calculated in accordance
with AAS.
Fixed remuneration is the total cost of salary, salary sacrificed benefits (including motor vehicles, parking, etc., and any associated fringe benefits tax (FBT))
and an accrual for annual leave entitlements.
2017 STI figures reflect annual cash performance awards accrued but not yet paid in respect of the year ended 30 September 2017. STI awards are paid in
the December pay cycle.
Non-monetary benefits are determined on the basis of the cost to the Group (including associated FBT, where applicable) and include annual health checks,
provision of taxation advice, relocation costs, living away from home expenses and allowances.
Includes payments on cessation of employment or other contracted amounts.
The CEO and Group Executives are provided with life insurance cover under the Westpac Group Plan at no cost. Superannuation benefits have been
calculated consistent with AASB 119 Employee Benefits.
The value of restricted shares is amortised over the applicable vesting period and the amount shown is the amortisation relating to the 2017 reporting year
(and 2016 year as comparison). See footnote 10 for the treatment of Philip Coffey’s equity.
Short-Term Benefits
Post-
Employment
Benefits
Other
Long-
Term
BenefitsShare-Based Payments
Fixed
RemunerationSTI (Cash)
Non-
Monetary
Benefits
Other
Short-Term
Benefits
Superannuation
Benefits
Long
Service
Leave
Restricted
Shares
Share
RightsTotal
Name$$$$$$$$$
Managing Director & Chief Executive Officer
Brian Hartzer
20172,665,2491,490,73019,494-41,22640,6971,287,5901,136,7246,681,710
20162,774,8791,302,71021,349-36,52240,7221,128,1391,447,6966,752,017
Current Group Executives
Lyn Cobley, Chief Executive, Westpac Institutional Bank
20171,089,650640,0004,014-37,81816,995767,014591,6013,147,092
20161,097,409492,5001,850-27,48017,005977,182307,5142,920,940
Brad Cooper, Chief Executive Officer, BT Financial Group
20171,064,384792,5002,924-39,503(41,160)754,634347,3912,960,176
20161,060,435735,0004,089-36,72716,730831,388800,1453,484,514
Dave Curran, Chief Information Officer
2017941,632552,5004,014-28,45114,424487,089404,4062,432,516
2016914,905467,5004,089-25,92114,424428,244461,8982,316,981
George Frazis, Chief Executive, Consumer Bank
20171,127,559872,5004,014-40,50917,419842,782401,5633,306,346
20161,131,541815,0003,039-37,09017,451925,520591,0943,520,735
Alexandra Holcomb, Chief Risk Officer
2017950,564532,5002,924-39,6454,669520,145386,1312,436,578
2016949,671492,5003,039-36,93616,199587,415566,9092,652,669
Peter King, Chief Financial Officer
20171,047,360615,0004,014-34,42116,485537,796405,8752,660,951
20161,041,344545,0004,089-31,07248,728499,345661,7892,831,367
Rebecca Lim, Group General Counsel & Chief Compliance Officer
2017756,722412,5003,512-28,20145,641425,776206,0691,878,421
David Lindberg, Chief Executive, Business Bank
2017928,528532,50011,901-27,24418,507453,174398,6552,370,509
2016880,296477,50017,070-23,10315,069403,624464,1402,280,802
David McLean, Chief Executive Officer, Westpac New Zealand Limited
2017736,628412,57039,739-76,082-39837,3602,102,418
2016760,848363,05033,753-76,093-14,322932,9572,181,023
Christine Parker, Group Executive, Human Resources, Corporate Affairs & Sustainability
2017824,006517,5004,604-26,643(3,479)464,335260,1412,093,750
2016849,556450,0004,650-24,279(5,013)518,374558,6802,400,526
Gary Thursby, Group Executive, Strategy & Enterprise Services
2017820,262485,0002,924-29,81912,642372,119225,3541,948,120
Former Group Executive
Philip Coffey, Deputy Chief Executive Officer
2017844,753457,5003,053-28,65413,750780,4442,811,9044,940,058
20161,289,796597,5004,105-41,49720,678766,988913,1873,633,751
742017 Westpac Group Annual Report
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1
0
1
2
3
4
5
6
Equity-settled remuneration is based on the amortisation over the vesting period (normally three or four years) of the ‘fair value’ at grant date of hurdled and
unhurdled options and share rights that were granted during the four years ended 30 September 2017. Details of prior years’ grants have been disclosed in
previous Annual Reports. The value for David McLean includes 53% attributed to deferred STI. See footnote 10 for the treatment of Philip Coffey’s equity.
The expensed value of the December 2015 LTI EPS hurdled rights has been reduced to 0% and the expensed value of the December 2016 LTI EPS hurdled
rights and 2017 LTI ROE hurdled rights have been reduced to 50%. This reflects the Board’s current assessment of the probability of the threshold ROE (2017
grant) or EPS hurdles (2015 and 2016 grants) being met and share rights vesting over time. See footnote 10 for the treatment of Philip Coffey’s equity.
The percentage of the total remuneration which is performance related (i.e. STI cash plus share-based payments) was: Brian Hartzer 59%, Lyn Cobley 64%,
Philip Coffey 82%, Brad Cooper 64%, Dave Curran 59%, George Frazis 64%, Alexandra Holcomb 59%, Peter King 59%, Rebecca Lim 56%, David Lindberg
58%, David McLean 59%, Christine Parker 59% and Gary Thursby 56%. The percentage of total remuneration delivered in the form of options (including share
rights) was: Brian Hartzer 17%, Lyn Cobley 19%, Philip Coffey 57%, Brad Cooper 12%, Dave Curran 17%, George Frazis 12%, Alexandra Holcomb 16%,
Peter King 15%, Rebecca Lim 11%, David Lindberg 17%, David McLean 40%, Christine Parker 12% and Gary Thursby 12%.
Refer Section 1 of the Report for details. The share based payment values for Philip Coffey reflect the accruals for all unvested equity granted for the entire
period up to the end of each performance period. For example, the 2017 LTI will include the accrual for four years until the vesting date in lieu of a single year
accrual value for 2017. While the full value is being accrued for all unvested equity held by Philip Coffey, the awards may or may not vest subject to the
relevant performance hurdles.
Directors’report
2017 Westpac Group Annual Report75
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7.3. Movement in equity-settled instruments during this year
This table shows the details of movements during 2017 in the number and value of equity instruments for the CEO and Group
Executives under the relevant plans:
NameType of Equity-Based Instrument
Number
Granted
Number
Vested
Number
Exercised
Value
Granted
$
Value
Exercised
$
Value
Forfeited or
Lapsed
$
Managing Director & Chief Executive Officer
Brian HartzerCEO Performance share rights211,548--4,226,729--
Performance share rights-----2,610,944
Shares under the CEO Restricted Share Plan40,44419,746-1,302,187--
Shares under Restricted Share Plan-12,075--- -
Current Group Executives
Lyn CobleyPerformance share rights88,368--1,693,573--
Shares under Restricted Share Plan15,29016,696-492,296--
Brad CooperPerformance share rights87,866--1,683,952-1,350,495
Shares under Restricted Share Plan22,81924,599-734,710--
Dave CurranPerformance share rights74,978--1,436,953--
Shares under Restricted Share Plan14,5148,675-467,311--
George FrazisPerformance share rights83,682--1,603,766-990,344
Shares under Restricted Share Plan25,30226,773-814,655--
Alexandra HolcombPerformance share rights78,994--1,513,920-450,134
Performance options--38,847-65,509-
Shares under Restricted Share Plan15,29019,268-492,296--
Peter KingPerformance share rights85,690--1,642,249-270,075
Shares under Restricted Share Plan16,92013,755-544,778--
Rebecca LimPerformance share rights58,576--1,122,609-252,066
Shares under Restricted Share Plan7,6198,433-245,311--
David LindbergPerformance share rights76,316--1,462,596-405,142
Shares under Restricted Share Plan14,82411,849-477,292--
David McLeanPerformance share rights67,094--1,285,857--
Unhurdled share rights12,33214,623-356,629--
Shares under Restricted Share Plan-1,327----
Christine ParkerPerformance share rights62,760--1,202,795-630,225
Shares under Restricted Share Plan13,97015,350-449,796--
Gary ThursbyPerformance share rights58,576--1,122,609-351,085
Shares under Restricted Share Plan11,17611,609-359,837--
Former Group Executive
Philip CoffeyPerformance share rights107,112--2,052,801-1,503,554
Shares under Restricted Share Plan18,55023,273-597,259--
No performance options were granted in 2017. Deferred STI in the form of restricted shares or unhurdled share rights (David McLean) are awarded in
December. David McLean’s unhurdled deferred STI share rights allocated in December 2016 were allocated at a fair value of $30.28 (rights vesting on 1
October 2017) and $28.47 (rights vesting on 1 October 2018).
No hurdled share rights granted in 2013 vested in October 2016 as assessed against the TSR and EPS performance hurdles.
Vested options and share rights that were awarded prior to October 2009 can be exercised up to a maximum of 10 years from their commencement date.
Vested rights awarded between October 2009 and July 2015 are automatically exercised at vesting. Vested rights granted after July 2015 may be exercised
at will up to a maximum of 15 years from their commencement date. For each share right and each performance option exercised during the year, the relevant
executive received one fully paid Westpac ordinary share. The exercise price for share rights is nil.
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2
3
Fair value of LTI grants made during the year
The table below provides a summary of the fair value of LTI awards granted to the CEO and Group Executives during 2017 calculated
in accordance with AASB 2 (Share-based Payment) and is used for accounting purposes only. The LTI grants will vest on satisfaction
of performance and/or service conditions tested in future financial years.
7.4. Movement in equity-settled instruments during this year
Equity holdings
The following table sets out details of relevant interests in Westpac ordinary shares held by Non-executive Directors (including their
related parties) during the year ended 30 September 2017 :
Directors’report
For performance share rights, the value granted represents the number of securities granted multiplied by the fair value per instrument as set out in the table
in the sub-section titled ‘Fair value of LTI grants made during the year’ below. For restricted shares, the value granted represents the number of ordinary
shares granted multiplied by the five day VWAP of a Westpac ordinary share on the date the shares were granted. These values, which represent the full
value of the equity-based awards made to disclosed CEO and Group Executives in 2017, do not reconcile with the amount shown in the table in Section 7.2 of
this Report, which shows the amount amortised in the current year of equity awards over their vesting period. The minimum total value of the grants for future
financial years is nil and an estimate of the maximum possible total value in future financial years is the fair value, as shown above.
The value of each option or share right exercised or lapsed is calculated based on the five day volume weighted average price of Westpac ordinary shares on
the ASX on the date of exercise (or lapse), less the relevant exercise price (if any). Where the exercise price is greater than the five day VWAP of Westpac
ordinary shares, the value has been calculated as nil.
Apart from equity instruments referred to in this section, no other equity instruments granted in prior years vested and none were forfeited during the financial
year.
Fair
PerformanceCommencementValue per
Equity InstrumentGranted toHurdleGrant DateDateTest DateExpiryInstrument
CEO Long-Term
Incentive Plan
Brian Hartzer
TSR Index9 December 20161 October 20161 October 20201 October 2031$14.09
ROE9 December 20161 October 20161 October 20191 October 2031$25.87
Westpac Long-Term
Incentive Plan
All Group
Executives
TSR Index1 December 20161 October 20161 October 20201 October 2031$13.33
ROE1 December 20161 October 20161 October 20191 October 2031$25.00
The commencement date is the start of the performance period.
The fair values of share rights granted during the year included in the table above have been independently calculated at their respective grant dates based
on the requirements of AASB 2 (Share-based Payment). The fair value of rights with ROE hurdles has been assessed with reference to the share price at
grant date and a discount rate reflecting the expected dividend yield over their vesting periods which for the rights valued at $25.00 is four years to the 1
October 2019 vesting date. For the purpose of allocating rights with ROE hurdles, the valuation also takes into account the average ROE outcome using a
Monte Carlo simulation model. The fair value of rights with hurdles based on TSR performance relative to a group of comparator companies also takes into
account the average TSR outcome determined using a Monte Carlo simulation pricing model.
Name
Number Held at
Start of the Year
Other Changes
During the Year
Number Held at
End of the Year
Current Non-executive Directors
Lindsay Maxsted19,5501,21720,767
Nerida Caesarn/a--
Ewen Crouch40,2451940,264
Alison Deans9,392-9,392
Craig Dunn8,869-8,869
Robert Elstone11,38471212,096
Peter Hawkins15,880-15,880
Peter Marriott20,870-20,870
Former Non-executive Director
Elizabeth Bryan27,967-n/a
None of these share interests include non-beneficially held shares.
The information relates to the period these individuals were Non-executive Directors. Refer Section 1 for details.
In addition to holdings of ordinary shares, Ewen Crouch and his related parties held interests in 250 Westpac Capital Notes 2 at year end.
In addition to holdings of ordinary shares, Peter Hawkins and his related parties held interests in 1,370 Convertible Preference Shares, 850 Westpac Capital
Notes 3 and 882 Westpac Capital Notes 4 at year end.
2017 Westpac Group Annual Report
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4
7.5. Details of Westpac equity holdings of Executive Key Management Personnel
The following table sets out details of Westpac equity held by the CEO and Group Executives (including their related parties) for the
year ended 30 September 2017 :
Name
Type of Equity-based
Instrument
Number
Held at
Start of
the Year
Number
Granted
During the
Year as
Remuneration
Received on
Exercise
and/or
Exercised
During the
Year
Number
Lapsed
During
the Year
Other
Changes
During
the Year
Number
Held at
End of the
Year
Number
Vested and
Exercisable
at End of
the Year
Managing Director & Chief Executive Officer
Brian HartzerOrdinary shares53,72240,444--(16,739)77,427-
CEO Performance share rights323,615211,548---535,163-
Performance share rights215,375--(85,828)-129,547-
Current Group Executives
Lyn CobleyOrdinary shares56,36015,290---71,650-
Performance share rights90,91488,368---179,282-
Brad CooperOrdinary shares83,97322,819---106,792-
Performance share rights272,64887,866-(44,394)-316,120-
Dave CurranOrdinary shares17,35014,514---31,864-
Performance share rights135,89874,978---210,876-
George FrazisOrdinary shares136,26725,302--(90,000)71,569-
Performance share rights207,70883,682-(32,555)-258,835-
Alexandra HolcombOrdinary shares27,18815,29038,847-(58,115)23,210-
Performance options38,847-(38,847)----
Performance share rights178,73378,994-(14,797)-242,930-
Peter KingOrdinary shares61,32316,920---78,243-
Performance share rights192,80485,690-(8,878)-269,616-
Rebecca LimOrdinary shares27,0847,619--(8,433)26,270-
Performance share rights51,22858,576-(8,286)-101,518-
David LindbergOrdinary shares41,20214,824--(8,000)48,026-
Performance share rights133,48676,316-(13,318)-196,484-
David McLeanOrdinary shares9,613----9,613-
Performance share rights102,60867,094---169,7022,148
Unhurdled share rights30,50412,332---42,83619,770
Christine ParkerOrdinary shares23,40813,970--(15,350)22,028-
Performance share rights177,18262,760-(20,717)-219,225-
Gary ThursbyOrdinary shares65,85311,176---77,029-
Performance share rights65,60158,576-(11,541)-112,636-
Former Group Executive
Philip CoffeyOrdinary shares350,25318,550--(100,076)n/a-
Performance share rights314,438107,112-(50,313)-n/a-
The highest number of shares held by an individual in the table is 0.0031% of total Westpac ordinary shares outstanding as at 30 September 2017.
The information relates to the period the individual was a Key Management Personnel. Refer Section 1 for details.
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2
7.6. Loans to Non-executive Directors and Executive Key Management Personnel disclosures
All financial instrument transactions that occurred during the financial year between Directors or Executive KMP and the Group are in
the ordinary course of business on terms and conditions (including interest and collateral) as apply to other employees and certain
customers. These transactions consisted principally of normal personal banking and financial investment services.
Details of loans to Non-executive Directors and Executive KMP (including their related parties) of the Group:
Individuals (including their related parties) with loans above $100,000 during the 2017 financial year:
Directors’report
Balance at Start of
the Year
$
Interest Paid
and Payable
for the Year
$
Interest Not
Charged During
the Year
$
Balance at
End of the
Year
$
Number in
Group at End of
the Year
Non-executive Directors3,932,987163,646-3,199,5932
Executive KMP14,912,791575,820-12,090,7277
18,845,778739,466-15,290,3209
Some opening balances have been restated to include additional individual loans.
Opening balances are reflective of changes to Key Management Personnel effective from 1 October 2016.
Balance at Start of
the Year
$
Interest Paid
and Payable
for the Year
$
Interest Not
Charged During
the Year
$
Balance at
End of the
Year
$
Highest
Indebtedness
during the Year
$
Directors
Lindsay Maxsted2,598,160111,846-2,061,9112,971,831
Ewen Crouch1,334,82751,800-1,137,6821,516,138
Executive KMP
Brian Hartzer106,7486,544-83,617191,366
Philip Coffey2,394,00078,148-n/a2,399,831
Brad Cooper867,57173,943-2,037,9982,058,343
Alexandra Holcomb3,665,374183,799-4,114,7274,122,365
Rebecca Lim2,856,28318,096-711,6422,863,432
David McLean475,55124,414-534,828597,442
Christine Parker2,619,094111,610-2,647,3862,776,565
Gary Thursby1,928,17079,266-1,960,5292,088,080
Some opening balances have been restated to include additional individual loans.
Opening balances are reflective of changes to Key Management Personnel effective from 1 October 2016.
The information relates to the period the individual was a Key Management Personnel. Refer Section 1 of this Report for details.
2017 Westpac Group Annual Report
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11. Auditor
a) Auditor’s independence declaration
A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act is below:
Auditor’s Independence Declaration
As lead auditor for the audit of Westpac Banking Corporation for the year ended 30 September 2017, I declare that, to
the best of my knowledge and belief, there have been:
a.no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and
b.no contraventions of any applicable code of professional conduct in relation to the audit.
This declaration is in res
pect of Westpac Banking Corporation and the entities it controlled during the period.
Lona Mathis
Partner
PricewaterhouseCoopers
Sydney
6 November 2017
PricewaterhouseCoopers, ABN 52 780 433 757
One International Towers Sydney, Watermans Quay, BARANGAROO NSW 2000
T +61 2 8266 0000, F +61 2 8266 9999, www.
pwc.com.au
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2017 Westpac Group Annual Report
b) Non-audit services
We may decide to engage PwC on assignments additional to their statutory audit duties where their expertise or experience with
Westpac or a controlled entity is important.
Details of the non-audit service amounts paid or payable to PwC for non-audit services provided during the 2016 and 2017 financial
years are set out in Note 39 to the financial statements.
PwC also provides audit and non-audit services to non-consolidated entities, non-consolidated trusts of which a Westpac Group entity
is trustee, manager or responsible entity and non-consolidated superannuation funds or pension funds. The fees in respect of these
services were approximately $6 million in total (2016 $8.1 million). PwC may also provide audit and non-audit services to other entities
in which Westpac holds a minority interest and which are not consolidated. Westpac is not aware of the amount of any fees paid to
PwC by those entities.
Westpac has a policy on engaging PwC, details of which are set out in the ‘Corporate governance’ section, including the subsection
entitled ‘Engagement of the external auditor’, which forms part of this Directors’ report.
The Board has considered the position and, in accordance with the advice received from the Board Audit Committee, is satisfied that
the provision of the non-audit services during 2017 by PwC is compatible with the general standard of independence for auditors
imposed by the Corporations Act. The Directors are satisfied that the provision of non-audit services by PwC, as set out above, did not
compromise the auditor independence requirements of the Corporations Act for the following reasons:
Signed in accordance with a resolution of the Board.
Directors’report
all non-audit services have been reviewed by the Board Audit Committee, which is of the view that they do not impact the impartiality
and objectivity of the auditor; and
based on Board quarterly independence declarations made by PwC to the Board Audit Committee, none of the services undermine
the general principles relating to auditor independence including reviewing or auditing PwC’s own work, acting in a management or a
decision-making capacity for the company, acting as advocate for the company or jointly sharing economic risk and rewards.
Lindsay Maxsted
Chairman
6 November 201
7
Brian Hartzer
Managing Director & Chief Executive Officer
6 November 201
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Five year summary
Reading this report
Review of Group operations
Divisional performance
Risk and risk management
Westpac’s approach to sustainability
Other Westpac business information
Where accounting classifications have changed or where changes in accounting policy are adopted retrospectively, comparatives have been revised and may
differ from results previously reported.
The above income statement extracts for 2017, 2016 and 2015 and balance sheet extracts for 2017 and 2016 are derived from the consolidated financial
statements included in this Annual Report. The above income statement extracts for 2014 and 2013 and balance sheet extracts for 2015, 2014 and 2013 are
derived from financial statements previously published.
Excludes special dividends and adjusted for Treasury shares.
Total equity attributable to owners of Westpac Banking Corporation, after deducting intangible assets divided by the number of ordinary shares outstanding,
less Treasury shares held.
Full-time equivalent employees includes full-time, pro-rata part-time, overtime, temporary and contract staff.
Five year summary
(in $m unless otherwise indicated)20172016201520142013
Income statements for the years ended 30 September
Net interest income15,51615,14814,26713,54212,821
Non-interest income
6,2865,8377,3756,3955,774
Net operating income before operating expenses and impairment charges
21,80220,98521,64219,93718,595
Operating expenses
(9,434)(9,217)(9,473)(8,547)(7,976)
Impairment charges
(853)(1,124)(753)(650)(847)
Profit before income tax
11,51510,64411,41610,7409,772
Income tax expense
(3,518)(3,184)(3,348)(3,115)(2,947)
Profit attributable to non-controlling interests
(7)(15)(56)(64)(74)
Net profit attributable to owners of Westpac
Banking Corporation7,9907,4458,0127,5616,751
Balance sheet as at 30 September
Loans684,919661,926623,316580,343536,164
Other assets
166,956177,276188,840190,499164,933
Total assets
851,875839,202812,156770,842701,097
Deposits and other borrowings
533,591513,071475,328460,822424,482
Debt issues
168,356169,902171,054152,251144,133
Loan capital
17,66615,80513,84010,8589,330
Other liabilities
70,92082,24398,01997,57475,615
Total liabilities
790,533781,021758,241721,505653,560
Total shareholders’ equity and non-controlling interests
61,34258,18153,91549,33747,537
Key financial ratios
Shareholder value
Dividends per ordinary share (cents)188188187182174
Special dividends per ordinary share (cents)
----20
Dividend payout ratio (%)
79.2884.1973.3974.6879.71
Return on average ordinary equity (%)
13.6513.3216.2316.2715.22
Basic earnings per share (cents)
238.0224.6255.0242.5217.2
Net tangible assets per ordinary share ($)
14.6613.9013.0211.5111.02
Share price ($):
High35.3933.7440.0735.9934.79
Low
28.9227.5729.1030.0024.23
Close
31.9229.5129.7032.1432.73
Business performance
Operating expenses to operating income ratio (%)43.2743.9243.7742.8742.89
Net interest margin (%)
2.062.102.092.092.14
Capital adequacy
Total equity to total assets (%)7.26.96.66.46.8
Total equity to total average assets (%)
7.16.96.86.76.9
APRA Basel III:
Common equity Tier 1 (%)10.569.489.508.979.10
Tier 1 ratio (%)
12.6611.1711.3810.5610.65
Total capital ratio (%)
14.8213.1113.2612.2812.25
Credit quality
Net impaired assets to equity and collectively assessed provisions (%)1.291.791.802.494.08
Total provisions for impairment on loans and credit commitments to total loans (basis points)
4554536073
Other information
Full time equivalent employees (number at financial year end)35,09635,58035,48436,59635,894
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Disclosure regarding forward-looking statements
This Annual Report contains statements that constitute ‘forward-looking statements’within the meaning of Section 21E of the US
Securities Exchange Act of 1934.
Forward-looking statements are statements about matters that are not historical facts. Forward-looking statements appear in a number
of places in this Annual Report and include statements regarding Westpac’s intent, belief or current expectations with respect to its
business and operations, market conditions, results of operations and financial condition, including, without limitation, future loan loss
provisions and financial support to certain borrowers. Words such as ‘will’, ‘may’, ‘expect’, ‘intend’, ‘seek’, ‘would’, ‘should’, ‘could’,
‘continue’, ‘plan’, ‘estimate’, ‘anticipate’, ‘believe’, ‘probability’, ‘risk’, ‘aim’ or other similar words are used to identify forward-looking
statements. These forward-looking statements reflect Westpac’s current views with respect to future events and are subject to change,
certain risks, uncertainties and assumptions which are, in many instances, beyond Westpac’s control, and have been made based upon
management’s expectations and beliefs concerning future developments and their potential effect upon Westpac. There can be no
assurance that future developments will be in accordance with Westpac’s expectations or that the effect of future developments on
Westpac will be those anticipated. Actual results could differ materially from those expected, depending on the outcome of various
factors, including, but not limited to:
the effect of, and changes in, laws, regulations, taxation or accounting standards or practices and government policy, particularly
changes to liquidity, leverage and capital requirements;
regulatory investigations, litigation, fines, penalties, restrictions or other regulator imposed conditions, including as a result of our
failure to comply with laws (such as financial crime laws), regulations or regulatory policy;
internal and external events which may adversely impact Westpac’s reputation;
information security breaches, including cyberattacks;
reliability and security of Westpac’s technology and risks associated with changes to technology systems;
the stability of Australian and international financial systems and disruptions to financial markets and any losses or business
impacts Westpac or its customers or counterparties may experience as a result;
market volatility, including uncertain conditions in funding, equity and asset markets;
adverse asset, credit or capital market conditions;
the conduct, behaviour or practices of Westpac or its staff;
changes to Westpac’s credit ratings or to the methodology used by credit rating agencies;
levels of inflation, interest rates, exchange rates and market and monetary fluctuations;
market liquidity and investor confidence;
changes in economic conditions, consumer spending, saving and borrowing habits in Australia, New Zealand and in other
countries in which Westpac or its customers or counterparties conduct their operations and Westpac’s ability to maintain or to
increase market share, margins and fees, and control expenses;
the effects of competition in the geographic and business areas in which Westpac conducts its operations;
the timely development and acceptance of new products and services and the perceived overall value of these products and
services by customers;
the effectiveness of Westpac’s risk management policies, including internal processes, systems and employees;
the incidence or severity of Westpac insured events;
the occurrence of environmental change (including as a result of climate change) or external events in countries in which Westpac
or its customers or counterparties conduct their operations;
changes to the value of Westpac’s intangible assets;
changes in political, social or economic conditions in any of the major markets in which Westpac or its customers or counterparties
operate;
the success of strategic decisions involving diversification or innovation, in addition to business expansion and integration of new
businesses; and
various other factors beyond Westpac’s control.
The above list is not exhaustive. For certain other factors that may impact on forward-looking statements made by Westpac, refer to
‘Risk factors’ under the section ‘Risk and risk management’. When relying on forward-looking statements to make decisions with
respect to Westpac, investors and others should carefully consider the foregoing factors and other uncertainties and events.
Westpac is under no obligation to update any forward-looking statements contained in this Annual Report, whether as a result of new
information, future events or otherwise, after the date of this Annual Report.
Reading this report
2017 Westpac Group Annual Report85
Significant developments
For a discussion of significant developments impacting the Group, refer to ‘Significant developments’ under ‘Information on Westpac’ in
Section 1.
Currency of presentation, exchange rates and certain definitions
In this Annual Report, ‘financial statements’ means our audited consolidated balance sheets as at 30 September 2017 and 30
September 2016 and income statements, statements of comprehensive income, changes in equity and cash flows for each of the years
ended 30 September 2017, 2016 and 2015 together with accompanying notes which are included in this Annual Report.
Our financial year ends on 30 September. As used throughout this Annual Report, the financial year ended 30 September 2017 is
referred to as 2017 and other financial years are referred to in a corresponding manner.
We publish our consolidated financial statements in Australian dollars. In this Annual Report, unless otherwise stated or the context
otherwise requires, references to ‘dollars’, ‘dollar amounts’, ‘$’, ‘AUD’ or ‘A$’ are to Australian dollars, references to ‘US$’, ‘USD’ or ‘US
dollars’ are to United States dollars and references to ‘NZ$’, ‘NZD’ or ‘NZ dollars’ are to New Zealand dollars. Solely for the
convenience of the reader, certain Australian dollar amounts have been translated into US dollars at a specified rate. These translations
should not be construed as representations that the Australian dollar amounts actually represent such US dollar amounts or have been
or could be converted into US dollars at the rate indicated. Unless otherwise stated, the translations of Australian dollars into US dollars
have been made at the rate of A$1.00 = US$0.7840, the noon buying rate in New York City for cable transfers in Australian dollars as
certified for customs purposes by the Federal Reserve Bank of New York (the ‘noon buying rate’) as of Friday, 29 September 2017. The
Australian dollar equivalent of New Zealand dollars at 29 September 2017 was A$1.00 = NZ$1.0867, being the closing spot exchange
rate on that date. Refer to ‘Exchange rates’ in Section 4 for information regarding the rates of exchange between the Australian dollar
and the US dollar for the financial years ended 30 September 2013 to 30 September 2017.
Any discrepancies between totals and sums of components in tables contained in this Annual Report are due to rounding.
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Selected consolidated financial and operating data
We have derived the following selected financial information as of, and for the financial years ended, 30 September 2017, 2016, 2015,
2014 and 2013 from our audited consolidated financial statements and related notes.
This information should be read together with our audited consolidated financial statements and the accompanying notes included
elsewhere in this Annual Report.
Accounting standards
The financial statements and other financial information included elsewhere in this Annual Report, unless otherwise indicated, have
been prepared and presented in accordance with Australian Accounting Standards (AAS). Compliance with AAS ensures that the
financial statements also comply with International Financial Reporting Standards (IFRS) as issued by the International Accounting
Standards Board (IASB).
The financial statements have been prepared in accordance with the accounting policies described in the Notes to the financial
statements.
Recent accounting developments
For a discussion of recent accounting developments refer to Note 1 to the financial statements.
Critical accounting estimates
Our reported results are sensitive to the accounting policies, assumptions and estimates that underlie the preparation of the income
statement and the balance sheet. Note 1(b) includes details of the areas of our critical accounting assumptions and estimates and a
reference to the relevant note in the financial statements providing further information. Each of the assumptions and estimates have
been discussed at our Board Audit Committee (BAC). The following is a summary of the areas involving our most critical accounting
estimates.
Fair value of financial instruments
Financial instruments classified as held-for-trading (including derivatives) or designated at fair value through income statement and
financial assets classified as available-for-sale are recognised in the financial statements at fair value. All derivatives are measured and
recognised at fair value. As far as possible, financial instruments are valued with reference to quoted, observable market prices or by
using models which employ observable valuation parameters. Where valuation models rely on parameters for which inputs are not
observable, judgements and estimation may be required.
As at 30 September 2017, the fair value of trading securities and financial assets designated at fair value through profit or loss,
available-for-sale securities, loans designated at fair value, life insurance assets and regulatory deposits with central banks overseas
was $101,923 million (2016: $102,595 million). The value of other financial liabilities at fair value through income statement, deposits
and other borrowings at fair value, debt issues at fair value and life insurance liabilities was $64,317 million (2016: $67,643 million). The
fair value of outstanding derivatives was a net liability of $1,342 million (2016: $3,849 million net liability). The fair value of financial
assets and financial liabilities determined by valuation models that use unobservable market prices was $1,399 million (2016: $1,587
million) and $9 million (2016: $17 million), respectively. The fair value of financial assets and financial liabilities, including derivatives, is
largely determined based on valuation models using observable market prices and rates. Where observable market inputs are not
available, day one profits or losses are not recognised.
We believe that the judgements and estimates used are reasonable in the current market. However, a change in these judgements and
estimates would lead to different results as future market conditions can vary from those expected.
Provisions for impairment charges on loans
Provisions for credit impairment represent management’s best estimate of the impairment charges incurred in the loan portfolios as at
the balance date. There are two components of our loan impairment provisions: Individually Assessed Provisions (IAPs) and
Collectively Assessed Provisions (CAPs).
IAPs are raised where loans exceeding specified thresholds are assessed as impaired. In determining IAPs, considerations that have a
bearing on the amount and timing of expected future cash flows are taken into account. For example, the business prospects of the
customer, the realisable value of collateral, our position relative to other claimants, the reliability of customer information and the likely
cost and duration of the work-out process. These judgements and estimates can change with time as new information becomes
available or as work-out strategies evolve, resulting in revisions to the impairment provision as individual decisions are made.
CAPs are raised for impaired loans below specified thresholds and for all loans which are not individually identified as impaired. The
CAPs are established on a portfolio basis taking into account the level of arrears, collateral and security, past loss experience, current
economic conditions, expected default and timing of recovery based on portfolio trends. The most significant factors in establishing
these provisions are estimated loss rates and related emergence periods. The future credit quality of these portfolios is subject to
uncertainties that could cause actual credit losses to differ from reported loan impairment provisions. These uncertainties include the
economic environment, notably interest rates, unemployment levels, payment behaviour and bankruptcy rates.
As at 30 September 2017, gross loans to customers were $687,785 million (2016: $665,256 million) and the provision for impairment on
loans was $2,866 million (2016: $3,330 million).
Review of Group operations
2017 Westpac Group Annual Report
87
Goodwill
Goodwill represents the excess of purchase consideration, the amount of any non-controlling interest in the acquiree and the
acquisition date fair value of any previous equity interest in the acquiree, over the fair value of the identified net assets of acquired
businesses. The determination of the fair value of the assets and liabilities of acquired businesses requires the exercise of management
judgement. Different fair values would result in changes to the goodwill and to the post-acquisition performance of the acquisitions.
Goodwill is tested for impairment annually by determining if the carrying value of the cash-generating unit (CGU) that it has been
allocated to is recoverable. The recoverable amount is the higher of the CGU’s fair value less costs to sell and its value-in-use.
Determination of appropriate cash flows and discount rates for the calculation of the value in use is subjective. As at 30
September 2017, the carrying value of goodwill was $9,012 million (2016: $9,030 million).
Superannuation obligations
The actuarial valuation of our defined benefit plan obligations are dependent upon a series of assumptions, the key ones being price
inflation, salary growth, mortality, morbidity, discount rate and investment returns. Different assumptions could significantly alter the
amount of the difference between plan assets and defined benefit obligations and the amount recognised directly in retained profits.
The aggregate superannuation deficits across all our plans as at 30 September 2017 were $43 million (2016: $282 million). One plan
had a superannuation surplus as at 30 September 2017 of $48 million (2016: $32 million).
Provisions (other than loan impairment charges)
Provisions are held in respect of a range of obligations such as employee entitlements, restructuring costs, litigation provisions, non-
lending losses, impairment charges on credit commitments and surplus lease space. Some of the provisions involve significant
judgement about the likely outcome of various events and estimated future cash flows. Refer Note 29.
Income taxes
The Group is subject to income taxes in Australia and jurisdictions where it has foreign operations. All our businesses predominantly
operate in jurisdictions with similar tax rates to the Australian corporate tax rate. Significant judgement is required in determining the
worldwide provision for income taxes. There are many transactions and calculations undertaken during the ordinary course of business
for which the ultimate tax determination is uncertain. For these circumstances, we hold appropriate provisions. Where the final outcome
of these matters is different from the amounts that were initially recorded, such differences will impact the current and deferred tax
provisions in the period where such determination is made.
Life insurance contract liabilities
The actuarial valuation of life insurance contract liabilities and associated deferred policy acquisition costs are dependent upon a
number of assumptions. The key factors impacting the valuation of these liabilities and related assets are the cost of providing benefits
and administering the contracts, mortality and morbidity experience, discontinuance experience and the rate at which projected future
cash flows are discounted.
882017 Westpac Group Annual Report
Income statement review
Consolidated income statement
Overview of performance – 2017 v 2016
Net profit attributable to owners of Westpac Banking Corporation for 2017 was $7,990 million, an increase of $545 million or 7%
compared to 2016. Features of this result included a $817 million or 4% increase in net operating income before operating expenses
and impairment charges, a $217 million or 2% increase in operating expenses and a $271 million or 24% decrease in impairment
charges.
Net interest income increased $368 million or 2% compared to 2016, with total loan growth of 3%, primarily from Australian housing
which grew 6%. Reported net interest margin decreased 4 basis points to 2.06% from higher funding costs, the impact of lower interest
rates, and lower treasury earnings, partly offset by loan repricing.
Non-interest income increased $449 million or 8% compared to 2016 primarily due to a $279 million gain associated with sale of shares
in BT Investment Management Limited (BTIM), a rise in trading income of $78 million and the impact of volatility in economic hedges of
$140 million. These increases were partly offset by provisions for customer refunds, and lower wealth management and insurance
income.
Operating expenses increased $217 million or 2% compared to 2016. The rise in operating expenses includes annual salary and rental
increases, higher technology expenses related to the Group’s investment program, a rise in regulatory and compliance costs and
expenses associated with the sale of shares in BTIM. These increases were partially offset by productivity benefits.
Impairment charges were $271 million lower or 24% compared to 2016. Asset quality remained sound, with stressed exposures as a
percentage of total committed exposures (TCE) at 1.05%, down 15 basis points over the year. The decrease in impairment charges
was primarily due to significantly lower large individual provisions. Additional provisioning for these larger facilities was required in 2016,
following the downgrade to impaired.
The effective tax rate of 30.6% in 2017 was higher than the 2016 effective tax rate of 29.9% as 2016 benefited from the finalisation of
some prior period taxation matters.
2017 basic earnings per share were 238.0 cents per share compared to 224.6 cents per share in 2016.
Review of Group operations
For the years ending 30 September201720172016201520142013
(in $m unless otherwise indicated)US$A$A$A$A$A$
Interest income24,48631,23231,82232,29532,24833,009
Interest expense(12,321)
(15,716)(16,674)(18,028)(18,706)(20,188)
Net interest income
12,165
15,51615,14814,26713,54212,821
Non-interest income4,928
6,2865,8377,3756,3955,774
Net operating income before operating expenses
and impairment charges17,09321,80220,98521,64219,93718,595
Operating expenses(7,396)
(9,434)(9,217)(9,473)(8,547)(7,976)
Impairment charges(669)
(853)(1,124)(753)(650)(847)
Profit before income tax
9,028
11,51510,64411,41610,7409,772
Income tax expense(2,758)
(3,518)(3,184)(3,348)(3,115)(2,947)
Net profit for the year6,270
7,9977,4608,0687,6256,825
Profit attributable to non-controlling interests(6)
(7)(15)(56)(64)(74)
Net profit attributable to owners of Westpac
Banking Corporation6,2647,9907,4458,0127,5616,751
Weighted average number of ordinary shares (millions)3,355
3,3553,3133,1403,1143,103
Basic earnings per ordinary share (cents)186.6
238.0224.6255.0242.5217.2
Diluted earnings per share (cents)179.8
229.3217.8248.2237.6212.5
Dividends per ordinary share (cents)147
188188187182174
Special dividends per ordinary share (cents)-
----20
Dividend payout ratio (%)79.28
79.2884.1973.3974.6879.71
Where accounting classifications have changed or where changes in accounting policy are adopted retrospectively, comparatives have been revised and may
differ from results previously reported.
Australian dollar amounts have been translated into US dollars solely for the convenience of the reader at the rate of A$1.00 = US$0.7840, the noon buying
rate in New York City on 29 September 2017.
Based on basic earnings per share, with the weighted average number of fully paid ordinary shares outstanding adjusted for the conversion of dilutive potential
ordinary shares, issued for no consideration, and after adjusting earnings for distributions on dilutive potential ordinary shares.
Excludes special dividends and adjusted for Treasury shares.
2017 Westpac Group Annual Report89
1
2
3
4
1
2
3
4
The Board has determined a final dividend of 94 cents per ordinary share. The full year ordinary dividends of 188 cents is unchanged
over ordinary dividends declared in 2016 and a pay-out ratio of 79.3%. The full year ordinary dividend is fully franked.
The Board considered the impact of the Bank Levy on shareholders (which equated to 2 cents per share in 2017), and decided to leave
the dividend unchanged.
Income statement review – 2017 v 2016
Net interest income – 2017 v 2016
Net interest income increased $368 million or 2% compared to 2016. Key features include:
4% increase in average interest-earning assets, primarily from growth in Australian housing. Third party liquid assets increased $11
billion or 13% in response to a $10 billion lower Committed Liquidity Facility (CLF), which reduced from $59 billion to $49 billion on
1 January 2017;
Group net interest margin decreased 4 basis points. Higher funding costs primarily from term deposit competition, the impact of
lower interest rates and lower Treasury earnings were, partly offset by loan repricing and economic hedge volatility.
Total loans increased $23.0 billion or 3% compared to 2016. Excluding foreign currency translation impacts, total loans increased $26.0
billion or 4%.
Key features of total loan growth were:
Australian housing loans increased $23.0 billion or 6%. During the year, the Group further tightened origination standards, reduced
new lending discounts and adjusted interest rates on different loan categories. Based on the APRA definition of investor lending,
the Group’s investor property lending grew 6%, below the 10% cap. Fixed rate loans increased from 17% of the portfolio in 2016 to
21% in 2017;
Australian business loans increased $0.3 billion, with growth in Business Bank (BB) across SME, professional services and health,
largely offset by lower institutional lending including a decline in the utilisation of mortgage warehouse facilities; and
New Zealand lending increased NZ$2.1 billion or 3%. Housing loans grew at 4% and business lending increased 1% primarily from
growth in SME and agriculture. Following the Loan to Value Ratio (LVR) restrictions imposed by the RBNZ on investor property
loans (with an LVR of greater than 60%), the proportion of new flows for investor property lending decreased by 9 percentage
points to 22%.
Total customer deposits increased $20.1 billion or 4% compared to 2016. Excluding foreign currency translation impacts, customer
deposits increased $22.3 billion or 5%.
Key features of total customer deposits growth were:
Australian customer deposits increased $23.8 billion or 6%, with above system growth in household deposits and growth in
institutional deposits. Customers continued to direct funds to mortgage offset accounts, supporting 8% growth in Australian non-
interest bearing deposits. The Group continues to focus on growing higher quality deposits in preparation for the introduction of the
Net Stable Funding Ratio (NSFR) on 1 January 2018;
New Zealand customer deposits increased NZ$0.9 billion or 2%, with a 14% increase in non-interest bearing deposits from growth
in business and consumer transaction accounts; and
Other overseas deposits decreased $2.6 billion or 18% due to a decline in Asian deposits.
Certificate of deposits increased $0.5 billion or 1%, with lower balances offshore more than offset by growth in Australia.
$m201720162015
Interest income31,23231,82232,295
Interest expense
(15,716)(16,674)(18,028)
Net interest income
15,51615,14814,267
Increase/(decrease) in net interest income
Due to change in volume8551,313878
Due to change in rate
(487)(432)(153)
Change in net interest income
368881725
Source: Australian Prudential Regulation Authority (APRA)
902017 Westpac Group Annual Report
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Interest spread and margin – 2017 v 2016
Net interest margin was 2.06% in 2017, down 4 basis points compared to 2016. Key drivers of the margin decrease were:
9 basis points increase from loan spreads primarily from the full year impact of Australian mortgage and business lending repricing
in 2016 and changes to Australian mortgage rates for interest-only and investor loans during 2017. This was partly offset by broad
based competition and higher short term funding costs;
5 basis points decrease from customer deposit spreads, driven by increased competition for term deposits in late 2016 and early
2017 and the impact of lower interest rates on the hedging of transaction deposits;
2 basis points decrease from higher term wholesale funding costs as the Group lengthened average tenors in preparation for the
implementation of NSFR on 1 January 2018 and an increase in Additional Tier 1 and Tier 2 capital balances and the higher cost of
these instruments;
1 basis point decrease from the introduction of the Bank Levy;
Capital and other decreased 2 basis points primarily from the impact of lower interest rates;
2 basis points decrease from liquidity, due to increased holdings of third party liquid assets; and
1 basis point decrease from Treasury and Markets, with lower market volatility impacting returns from interest rate risk
management.
Non-interest income – 2017 v 2016
Non-interest income was $6,286 million in 2017, an increase of $449 million or 8% compared to 2016. The increase was impacted by a
number of infrequent items ($136 million), including the profit on the further sale of BTIM shares ($279 million), provisions for custome
r
refunds and payments related to Advice and wealth products ($111 million) and a revaluation loss on the Group’s investments in
boutique funds ($32 million). Excluding these items, non-interest income increased $313 million or 5% due to the impact of hedging
New Zealand future earnings, higher Westpac Institutional Bank (WIB) markets income, increase in operating lease rental income and
higher business lending fees, partly offset by lower wealth management and insurance income and a reduction in Australian credit card
interchange fees.
Fees and commissions of $2,755 million in 2017 were flat compared to 2016, due to:
lower Advice income including provisions for customer refunds and payments ($55 million);
lower Australian credit card income ($39 million) primarily from lower revenue associated with rewards programs and regulatory
impacts on interchange rates from 1 July 2017; partly offset by
Review of Group operations
$m201720162015
Group
Net interest income15,51615,14814,267
Average interest earning assets
752,294721,843683,814
Average interest earning liabilities
694,924667,276640,628
Avera
ge net non-interest bearing assets, liabilities and equity57,37054,56743,186
Interest spread1.89%1.91%1.91%
Benefit of net non-interest bearing assets, liabilities and equity
0.17%0.19%0.18%
Net interest margin
2.06%2.10%2.09%
Interest spread is the difference between the average yield on all interest earning assets and the average yield on all interest bearing liabilities.
The benefit of net non-interest bearing assets, liabilities and equity is determined by applying the average yield paid on all interest bearing liabilities to the
average level of net non-interest bearing funds as a percentage of average interest earning assets.
Net interest margin is calculated by dividing net interest income by average interest earning assets.
$m201720162015
Fees and commissions2,7552,7552,942
Wealth management and insurance income
1,8001,8992,228
Trading income
1,2021,124964
Other income
529591,241
Non-interest income6,2865,8377,375
Some of the items provided for include: payments to superannuation customers with pre-existing conditions who did not have the benefit of our improved
disclosure practices and had their claims denied; payments to customers who did not receive all the benefits to which they were entitled under their ‘packaged
accounts’; and refunds where ongoing advice fees were paid but we were unable to demonstrate that advice service was provided in the relevant period.
2017 Westpac Group Annual Report
91
1
2
3
1
2
3
1
1
increased business lending fees ($50 million) supported by higher line fees from business growth;
higher New Zealand credit card income ($41 million) primarily from a change to accounting treatment for credit card rewards
scheme to align with Group practice; and
higher transaction fees ($15 million) from an increase in account numbers, pricing changes, and transaction volumes across the
Group.
Wealth management and insurance income was $1,800 million in 2017, a decrease of $99 million or 5% compared to 2016 with:
provisions for customer refunds and payments related to wealth products ($56 million);
insurance income decreased $29 million, primarily from;
–general insurance income reduced $32 million from higher claims, including the impact of Cyclone Debbie, partly offset by a 2%
increase in net earned premiums; and
–life insurance income was little changed (down $3 million) with higher claims partly offset by a 6% increase in net earned
premiums; partly offset by
–higher Lenders mortgage insurance (LMI) income ($6 million) related to arrangements for mortgages with an LVR >90%;
lower contribution from investments in boutique funds ($26 million); and
a decrease in funds under management (FUM) and funds under administration (FUA) income ($13 million), with the benefit from
higher asset markets and positive net flows more than offset by margin compression from the transfer of legacy products to lower
fee ‘MySuper’ products; partly offset by
increase in WIB wealth management income ($6 million).
Trading income was $1,202 million in 2017, an increase of $78 million or 7% compared to 2016. This was primarily driven by higher
WIB markets income from an increase in risk management income across fixed income, foreign exchange and commodities and higher
derivative valuation adjustments.
Other income was $529 million in 2017, an increase of $470 million compared to 2016. This result was driven by the profit on a further
sale of BTIM shares ($279 million), the impact of hedging New Zealand future earnings ($140 million) and higher rental income on
operating leases ($34 million) from portfolio growth.
Operating expenses – 2017 v 2016
Operating expenses increased $217 million or 2% compared to 2016. The key factors of the result were:
growth in regulation and compliance expenses of $84 million;
higher investment related expenses of $82 million;
separation costs related to the sale of shares in BTIM of $35 million; and
productivity benefits of $262 million largely offset growth in other operating costs.
Staff expenses were $4,701 million, an increase of $100 million or 2% compared to 2016. Annual salary increases, higher investment
costs and separation costs related to the further sale of shares in BTIM were partly offset by productivity benefits, lower restructuring
costs and reduced share based payments.
Occupancy expenses increased $41 million or 4% compared to 2016 due to higher expenses relating to annual rental expenses and
exit costs associated with retail property consolidation and branch network optimisation.
Technology expense increased $79 million or 4% compared to 2016 largely from the completion of key elements of the Group’s
investment programs. This included higher amortisation of software assets ($57 million) and higher software maintenance and licensing
costs ($36 million) from programs including the Customer Service Hub, Panorama, new payment platform and systems for regulatory
and compliance purposes.
$m201720162015
Staff expenses4,7014,6014,704
Occupancy expenses
1,0731,032954
Technology expenses
2,0081,9292,288
Other expenses
1,6521,6551,527
Total operating expenses
9,4349,2179,473
Total operating expenses to net operating income ratio
43.27%43.92%43.77%
922017 Westpac Group Annual Report
Other expenses decreased $3 million compared to 2016. The increase in regulatory and compliance costs have been mostly offset by
lower outsourced operational costs. In addition, non-lending losses were $8 million lower from reduced credit card and digital fraud,
which has benefitted from recent enhancements to early detection capability and additional security
.
Impairment charges – 2017 v 2016
Asset quality improved through 2017 with stressed assets to total committed exposures reducing 15 basis points to 1.05%. The
reduction in stress mostly reflects the work-out or return to health of a number of watchlist and substandard facilities. Impaired assets
were also lower, with gross impaired assets to gross loans reducing 10 basis points to 0.22%. The reduction in impaired assets
principally related to the work-out or write-off of a small number of institutional facilities. Where stress in the portfolio has emerged it can
mostly be traced back to the slowdown in mining investment, sectors undergoing structural change, along with a rises in delinquencies
and properties in possession in these regions, particularly in Western Australia and Queensland.
The improved asset quality and the write-off of a small number of larger impaired facilities led to a reduction in provisions which were
down $483 million. IAPs were $389 million lower while collectively assessed provisions were $94 million lower. Within collectively
assessed provisions the economic overlay was reduced by $66 million, ending at $323 million as at 30 September 2017.
This trend of improved asset quality and work-out of existing stressed facilities has contributed to the reduction in impairment charges in
2017.
Impairment charges of $853 million were down $271 million or 24% compared to 2016.
Key movements included:
total new IAPs less write-backs and recoveries were $226 million lower than 2016. New IAPs decreased $117 million primarily due
to a small number of large impairments in WIB in 2016 whereas there were only two larger facilities that migrated to impaired over
2017. This was partially offset by higher new IAPs in the Business Bank and in mortgages. 2017 also benefited from a larger
number of write-backs and recoveries which were $109 million higher than 2016 as impaired facilities were worked out; and
CAPs were $45 million lower due to a $66 million reduction in the economic overlay provision and a $45 million benefit from
improvement in asset quality, partially offset by a $66 million lift in write-offs principally in personal lending associated with changes
to reporting of customers granted hardship assistance.
Income tax expense – 2017 v 2016
The effective tax rate of 30.6% in 2017 was higher than the 2016 effective tax rate of 29.9% as 2016 benefited from the finalisation of
some prior period taxation matters. The effective tax rate above the Australian corporate tax rate of 30% reflects several Additional Tier
1 instruments whose distributions are not deductible for Australian taxation purposes.
Overview of performance – 2016 v 2015
Net profit attributable to owners for 2016 was $7,445 million, a decrease of $567 million or 7% compared to 2015. The 7% reduction
reflected higher impairment charges in 2016 compared to 2015 and a number of significant infrequent items in 2015 which in
aggregate added $347 million to Net profit attributable to owners which were not repeated in 2016.
Net interest income increased $881 million or 6% compared to 2015, with total loan growth of 6% and customer deposit growth of 9%.
Net interest margin increased 1 basis point to 2.10%, with repricing of mortgages including for increased regulatory capital
requirements, improved customer deposit spreads and higher Treasury income, partly offset by higher wholesale funding costs,
economic hedge volatility and broad based lending competition.
Non-interest income decreased $1,538 million or 21% compared to 2015 primarily due to large infrequent items in the prior year.
Infrequent items included the profit on the partial sale of BTIM and the impact of the move to equity accounting the remaining BTIM
shareholding ($1,316 million), lower profit on the sale of assets ($102 million) and lower performance fees ($24 million), partly offset by
the derivative valuation methodology adjustment of $122 million. Excluding these items, non-interest
Review of Group operations
$m201720162015
Impairment charges853 1,124 753
Impairment charges to average gross loans (basis points)
13 17 12
$m201720162015
Income tax expense3,5183,1843,348
Tax as a percentage of profit before income tax expense (effective tax rate)30.55%29.91%29.33%
2015 included the profit on the partial sale of the Group’s shareholding in BTIM of $665 million and several tax recoveries of $121 million, partially offset by
higher technology expenses of $354 million and a charge of $85 million for derivative valuation methodology changes.
2017 Westpac Group Annual Report93
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income declined $218 million or 4% with reduced fees in WIB from lower activity and reduced credit cards income in Consumer Bank
(CB) which included the impact of lower interchange rates.
Operating expenses reduced $256 million or 3% compared to 2015. 2015 included $505 million of higher technology expenses related
to changes to accounting treatment for technology investment spending. Excluding this item, operating expenses increased $249
million or 3% primarily from the impact of the Group’s investment programs, higher compliance and regulatory expenses and higher
occupancy expenses relating to operating leases in the auto and equipment finance businesses, partly offset by productivity benefits
and the impact of the partial sale of BTIM.
Impairment charges increased $371 million or 49% compared to 2015. Overall asset quality remained sound, with stressed exposures
as a percentage of TCE at 1.20% while total impaired loans to total loans were 0.32%. The increase in impairment charges was
primarily due to additional provisioning following the downgrade of a small number of institutional customers to impaired in first half of
2016, a rise in write-offs in the auto finance portfolio and lower write-backs.
The effective tax rate of 29.9% in 2016 was higher than the 29.3% recorded in 2015.
2016 basic earnings per share were 224.6 cents per share compared to 255.0 cents per share in 2015.
The Board has determined a final dividend of 94 cents per ordinary share. The full year ordinary dividends of 188 cents represent an
increase of 1% over ordinary dividends declared in 2015 and a pay-out ratio of 84.2%. The full year ordinary dividend is fully franked.
Income statement review – 2016 v 2015
Net interest income – 2016 v 2015
Net interest income increased $881 million or 6% compared to 2015. Key features include:
6% increase in average interest-earning assets, primarily from growth in Australian housing;
Group net interest margin increased 1 basis point primarily due to improved deposit spreads and Australian mortgage repricing,
including for additional regulatory capital requirements, partly offset by higher wholesale funding costs, economic hedge volatility
and the impact of lower interest rates.
Total loans increased $38.6 billion or 6% compared to 2015. Excluding foreign exchange translation impacts, total loans increased
$36.7 billion or 6%.
Key features of total loan growth were:
Australian housing loans increased $28.3 billion or 8%, with new lending volumes up 7% and run-off increasing 3%. Following the
introduction of regulatory caps on the growth in investor property lending and the introduction of differential pricing, there was some
switching of mortgage loans to more appropriately reflect their current purpose. Adjusting for these movements, owner occupied
lending grew a little faster than investor property lending;
Australian business loans increased $4.7 billion or 3% primarily in the BB, with growth in SME and diversified industries and lower
growth in the property segment;
New Zealand lending increased $8.7 billion or 14% with business lending increasing 17% largely due to growth in property,
electricity and gas and financial services. Housing increased 12% largely in facilities with a loan to value ratio (LVR) of less than
80%; and
Other overseas loans decreased $3.4 billion or 20% mainly from a decline in trade finance in Asia as the institutional division
sought to reduce lower returning assets.
Total customer deposits increased $39.5 billion or 9% compared to 2015, fully funding lending growth during the year. Excluding foreign
exchange translation impacts, customer deposits increased $38.9 billion or 9%.
Key features of total customer deposit growth were:
Australian customer deposits increased $32.2 billion or 9% with above system growth in household deposits (term deposits up
22%) and institutional deposits largely from the State Government sector. In addition, customers continued to direct funds to
mortgage offset accounts, lending to a 14% growth in Australian non-interest bearing deposits; and
New Zealand customer deposits increased $7.6 billion or 16%. Term deposits grew 27%, as customers moved funds to higher rate
fixed term products in a falling interest rate environment.
Certificates of deposits declined $1.7 billion or 4%, reflecting reduced reliance on wholesale funding in this form.
Interest spread and margin – 2016 v 2015
Net interest margin was 2.10% in 2016, up 1 basis point compared to 2015. Key drivers of the margin increase were:
a 4 basis point increase from higher customer deposit spreads across term deposits, online accounts and savings deposits, partly
offset by the impact of lower interest rates on transactional deposit spreads;
Source: Australian Prudential Regulation Authority (APRA)
942017 Westpac Group Annual Report
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a 2 basis point increase from assets spreads. Australian mortgage repricing, including for additional regulatory capital requirements
and business lending repricing were partly offset by broad based lending competition, including continued elevated levels of global
liquidity impacting institutional margins and higher short term funding costs; partly offset by
a 3 basis point decline from term wholesale funding spreads reflecting the lengthening of the average tenor in preparation for the
implementation of the NSFR and investors requiring increased spreads for new issuance. This saw new issuance spreads above
maturing deals; and
a 2 basis point decline from Treasury and Markets mainly due to economic hedge volatility partly offset by improved results relating
to Treasury’s interest rate risk management and increased earnings from higher capital balances held centrally.
Non-interest income – 2016 v 2015
Non-interest income was $5,837 million in 2016, a decrease of $1,538 million or 21% compared to 2015 with infrequent items having a
large impact. Infrequent items included the profit on the partial sale of BTIM and the impact of the move to equity accounting ($1,316
million), lower profit on the sale of assets ($102 million) and lower performance fees ($24 million), partly offset by the derivative
valuation methodology adjustment of $122 million .
Excluding these items, non-interest income decreased $218 million or 4% as underlying growth was more than offset by reduced fees
in WIB from lower activity and reduced Australian credit cards income in CB related to regulatory changes to interchange rates.
Fees and commissions decreased $187 million or 6% compared to 2015, largely due to:
lower institutional fees ($92 million) from subdued lending activity and reduced debt market issuance;
lower Australian credit card income ($70 million) including regulation impacts on interchange rates effective 1 November 2015; and
lower BT Financial Group (Australia)(BTFG) fees from reduced activity; partly offset by
higher business lending fees and transactional deposit fees from balance sheet growth.
Wealth management and insurance income decreased $329 million or 15% compared to 2015 mainly due to the impact of the partial
sale of BTIM ($310 million) in 2015.
Excluding this item, wealth management and insurance income was little changed:
lower contribution from Ascalon ($42 million) as both lower asset markets and foreign currency translation impacted returns from
overseas funds managed by this business;
lower Hastings performance fees ($24 million); and
life insurance income was flat, as net earned premium growth and repricing was offset by a rise in the number of claims which
increased the claims ratio by 2% to 36%. Lapses were also higher; partly offset by
FUM/FUA income increased $21 million, or 3% from positive flows;
general insurance income grew 15% primarily from lower insurance claims related to weather events and was supported by a 2%
increase in gross written premiums from growth in home and contents sales; and
LMI income increased $17 million related to the transitional arrangements with Arch Capital for the insurance of mortgages where
the LVR is above 90%.
Trading income increased $160 million or 17% compared to 2015, with the $122 million impact from methodology changes to derivative
valuation adjustments in 2015 not repeated . Excluding this item, trading income was up $38 million, primarily in WIB markets.
Other income was $59 million in 2016, a decrease of $1,182 million or 95% compared to 2015. This decrease reflected gains from the
partial sale of BTIM ($1,036 million) in 2015 that did not repeat, lower income from asset sales ($102 million) and the impact of hedging
New Zealand future earnings.
Operating expenses – 2016 v 2015
Operating expenses decreased $256 million or 3% compared to 2015. 2015 included $505 million of higher technology expenses
related to changes to accounting treatment for technology investment spending not repeated in 2016. Excluding this item, operating
expenses increased $249 million or 3%.The key factors of the result were:
higher investment related expenses of $143 million primarily due to a 20% increase in spend on Group’s investment programs;
and;
growth in regulation and compliance expenses of $90 million;
higher occupancy expenses of $73 million relating to operating leases in the auto and equipment finance businesses; partly offset
by
Review of Group operations
In 2015 changes were made to derivative valuation methodologies, which included the first time adoption of FVA to the fair value of derivatives.
2017 Westpac Group Annual Report95
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lower BTIM expenses associated with the partial sale and move to equity accounting ; and
delivery of productivity benefits of $263 million.
Staff expenses were $4,601 million, a decrease of $103 million or 2% compared to 2015. A reduction in average FTE from productivity
initiatives related to digitising processes and simplifying the organisation and the removal of BTIM salary expenses were partly offset by
higher restructuring costs ($18 million) and annual salary increases.
Occupancy expenses increased $78 million or 8% compared to 2015 due to higher occupancy expenses of $73 million relating to
operating leases in the auto and equipment finance businesses and rental expenses related to the relocation of various Sydney
locations to new premises at Barangaroo. This was partly offset by the benefit of corporate property consolidation and branch network
optimisation.
Technology expense decreased $359 million or 16% compared to 2015. 2015 included $505 million related to changes to accounting
treatment for technology investment spending not repeated in 2016. Excluding this item, technology expense increased $146 million or
8% due to higher investment spending, and directly expensing a higher proportion of that spending, which drove an increase to
technology services expenses of $97 million. Software maintenance and licence costs were higher ($56 million) from volume increases
and investment related licenses following delivery of enhancements to Westpac Live, BT Panorama and other digital innovations.
Other expenses increased $128 million or 8% compared to 2015 largely from an increase in professional and processing services costs
($126 million) related to the Group’s investment programs, higher outsourced operational costs from increased volumes and increased
regulation and compliance related expenses.
Impairment charges – 2016 v 2015
Asset quality was sound in 2016 with stressed assets to TCE increasing to 1.20%, but still remaining relatively low. The rise in stress
mostly reflects the impact from a slowdown in mining investment, along with a weakening of global milk prices impacting the New
Zealand dairy portfolio. Total impaired loans to total loans also remained low at 0.32%, up 2 basis points over the year. The higher
impaired assets principally reflect the downgrade of a small number of institutional customers in the first half of the year. These trends
were reflected in impairment charges, which increased to 17 basis points of average gross loans, but still low by historical experience
.
Impairment charges of $1,124 million were up by $371 million or 49% compared to 2015.
Key movements included:
total new IAPs less write-backs and recoveries were $242 million higher than 2015. New IAPs increased $161 million primarily
from the downgrade of a small number of institutional customers, partially offset by lower new impairments in Business Bank and in
Westpac New Zealand. 2015 also benefited from a larger number of write-backs and recoveries, which were $81 million higher
than 2016; and
total new CAPs were $129 million higher due to a $109 million increase in write-offs, principally for the auto finance portfolio. The
impact from other changes in CAPs was also lower, adding $20 million to the impairment charge. Total economic overlays were $1
million higher compared to 2015 with a balance of $389 million.
Income tax expense – 2016 v 2015
The effective tax rate of 29.9% in 2016 was marginally higher than the 2015 effective tax rate of 29.3%. This increase was largely due
to lower benefits following the finalisation of prior period taxation matters in 2016.
Refer to divisional results of BTFG for more detail.
962017 Westpac Group Annual Report
1
1
Balance sheet review
Selected consolidated balance sheet data
The detailed components of the balance sheet are set out in the notes to the financial statements.
Where accounting classifications have changed or where changes in accounting policy are adopted retrospectively, comparatives have been revised and may
differ from results previously reported.
Australian dollar amounts have been translated into US dollars solely for the convenience of the reader at the rate of A$1.00 = US$0.7840, the noon buying
rate in New York City on 29 September 2017.
Includes interest earning balances. Other receivables include cash and balances with central banks and other interest earning assets.
Review of Group operations
As at 30 September201720172016201520142013
US$mA$mA$mA$mA$mA$m
Cash and balances with central banks
14,423
18,39717,01514,77025,76011,699
Receivables due from other financial institutions
5,58
87,1289,9519,5837,42411,210
Trading securities and financial assets designated at fair value and
available-for-sale securities
67,45
186,03481,83382,28781,93379,100
Derivative financial instruments
18,84
224,03332,22748,17341,40428,356
Loans
536,976
684,919661,926623,316580,343536,164
Life insurance assets
8,344
10,64314,19213,12511,00713,149
All other assets
16,246
20,72122,05820,90222,97121,419
Total assets
667,87
0851,875839,202812,156770,842701,097
Payables due to other financial institutions
17,17
521,90718,20918,73118,6368,836
Deposits and other borrowings
418,33
5533,591513,071475,328460,822424,482
Other financial liabilities at fair value through income statement
3,180
4,0564,7529,22619,23610,302
Derivative financial instruments
19,894
25,37536,07648,30439,53932,990
Debt issues
131,99
1168,356169,902171,054152,251144,133
Life insurance liabilities
7,07
19,01912,36111,5599,63711,938
All other liabilities
8,28
210,56310,84510,19910,52611,549
Total liabilities excluding loan capital
605,92
8772,867765,216744,401710,647644,230
Total loan capital
13,850
17,66615,80513,84010,8589,330
Total liabilities
619,77
8790,533781,021758,241721,505653,560
Net assets
48,09
261,34258,18153,91549,33747,537
Total equity attributable to owners of Westpac
Banking Corporation
48,050
61,28858,12053,09848,45646,674
Non-controlling interests
4
25461817881863
Total shareholders’ equity and non-
controlling interests
48,09
261,34258,18153,91549,33747,537
Average balances
Total assets
677,78
8864,525843,555798,703737,124688,295
Loans and other receivables
515,917
658,058629,159594,200559,789516,482
Total equity attributable to owners of Westpac
Banking Corporation
45,90
858,55655,89649,36146,47744,350
Non-controlling interests16
205758548621,972
2017 Westpac Group Annual Report97
1
2
3
1
2
3
Summary of consolidated ratios
Australian dollar amounts have been translated into US dollars solely for the convenience of the reader at the rate of A$1.00 = US$0.7840, the noon buying
rate in New York City on 29 September 2017.
Calculated by dividing net interest income by average interest earning assets.
Calculated by dividing net profit attributable to owners of Westpac Banking Corporation by average total assets.
Calculated by dividing net profit attributable to owners of Westpac Banking Corporation by average ordinary equity.
Calculated by dividing net profit attributable to owners of Westpac Banking Corporation by average ordinary equity and non-controlling interests.
Based on the weighted average number of fully paid ordinary shares.
Based on basic earnings per share, with the weighted average number of fully paid ordinary shares outstanding adjusted for the conversion of dilutive potential
ordinary shares, issued for no consideration, and after adjusting earnings for distributions on dilutive potential ordinary shares.
Balance sheet review
Assets – 2017 v 2016
Total assets as at 30 September 2017 were $851.9 billion, an increase of $12.7 billion or 2% compared to 30 September 2016.
Significant movements during the year included:
cash and balances with central banks increased $1.4 billion or 8% reflecting higher liquid assets;
receivables due from other financial institutions decreased $2.8 billion or 28% mainly due to reduction in collateral posted with
derivative counterparties;
trading securities and financial assets designated at fair value and available-for-sale securities increased $4.2 billion or 5% in
response to a CLF reduction on 1 January 2017;
derivative assets decreased $8.2 billion or 25% mainly driven by the closing out of positions via cash settlement, partly offset by
movements in foreign currency translation impacts on cross currency swaps and forward contracts;
loans grew $23.0 billion or 3%. Refer to loan quality – 2017 v 2016 below for further information; and
life insurance assets decreased $3.5 billion or 25% mainly due to the deconsolidation of 16 managed funds as a result of a decline
in the Group’s unit holdings.
As at 30 September201720172016201520142013
(in $m unless otherwise indicated)US$ A$ A$A$A$A$
Profitability ratios (%)
Net interest margin2.062.062.102.092.092.14
Return on average assets0.92
0.920.881.001.030.98
Return on average ordinary equity13.65
13.6513.3216.2316.2715.22
Return on average total equity13.64
13.6413.1815.9615.9714.57
Capital ratios (%)
Average total equity to average total assets6.786.786.696.296.426.73
Common equity Tier 110.56
10.569.489.508.979.10
Tier 1 ratio12.66
12.6611.1711.3810.5610.65
Total capital ratio14.82
14.8213.1113.2612.2812.25
Earning ratios
Basic earnings per ordinary share (cents)186.6238.0224.6255.0242.5217.2
Diluted earnings per ordinary share (cents)179.8
229.3217.8248.2237.6212.5
Dividends per ordinary share (cents)147
188188187182174
Special dividends per ordinary share (cents)-
----20
Dividend payout ratio (%)79.28
79.2884.1973.3974.6879.71
Credit quality ratios
Impairment charges on loans written off (net of recoveries)1,1671,4881,0521,1071,3021,323
Impairment charges on loans written off (net of recoveries) to average
loans (bps)
22
2216182325
982017 Westpac Group Annual Report
1
2
3
4
5
6
7
1
2
3
4
5
6
7
Liabilities and equity – 2017 v 2016
Total liabilities as at 30 September 2017 were $790.5 billion, an increase of $9.5 billion or 1% compared to 30 September 2016.
Significant movements during the year included:
payables due to other financial institutions increased $3.7 billion or 20% due to increased funding of securities through repurchase
agreement and interbank borrowings, partially offset by lower offshore central bank deposits;
deposits and other borrowings increased $20.5 billion or 4%;
other financial liabilities at fair value through the income statement decreased $0.7 billion or 15% reflecting reduced securities sold
through repurchase agreements;
derivative liabilities decreased $10.7 billion or 30% mainly driven by the closing out of positions via cash settlement, partly offset by
movements in foreign currency translation impacts on cross currency swaps and forward contracts;
debt issues decreased $1.5 billion or 1% ($1.7 billion or 1% increase excluding foreign currency translation impacts);
life insurance liabilities decreased $3.3 billion or 27% mainly due to the deconsolidation of 16 managed funds as a result of a
decline in the Group’s unit holdings; and
loan capital increased $1.9 billion or 12% mainly due to issuances of $1.6 billion of USD Additional Tier 1 securities and net
issuances of $0.3 billion of Tier 2 subordinated notes. During the year $2.5 billion of Tier 2 Basel III fully compliant subordinated
notes were issued, mostly offset by the redemption of $2.2 billion of Tier 2 Basel III transitional subordinated notes (including
foreign currency translation impacts).
Equity attributable to owners of Westpac Banking Corporation increased $3.2 billion reflecting additional retained profits less dividends
paid during the period and shares issued under the 2017 interim DRP and 2016 final DRP.
Loan quality – 2017 v 2016
Gross loans are stated before related provisions for impairment.
Total gross loans represented 81% of the total assets of the Group as at 30 September 2017, compared to 79% in 2016.
Australia average gross loans were $588.9 billion in 2017, an increase of $26.3 billion or 5% from $562.6 billion in 2016. This increase
was primarily due to growth in housing lending
.
New Zealand average gross loans were $72.3 billion in 2017, an increase of $4.6 billion or 7% from $67.7 billion in 2016. This increase
was primarily due to growth in housing lending
.
Other overseas average loans were $12.8 billion in 2017, a decrease of $2.3 billion or 15% from $15.1 billion in 2016. This was
primarily due to a decline in Asia.
Approximately 13.1% of the loans at 30 September 2017 mature within one year and 18.9% mature between one year and five years.
Retail lending comprises the majority of the loan portfolio maturing after five years.
Review of Group operations
As at 30 September
$
m201720162015
Total gross loans687,785665,256626,344
Average gross loans
Australia588,920562,633526,378
New Zealand72,26967,68662,508
Other overseas12,83715,11215,906
Total avera
ge gross loans
674,026645,431604,792
2017 Westpac Group Annual Report
99
1
1
Non-performing loans are loans with an impaired internal risk grade, excluding restructured assets.
Impairment provisions relating to impaired loans include IAP plus the proportion of the CAP that relate to impaired loans. The proportion of the CAP that relates
to impaired loans was $234 million as at 30 September 2017 (2016: $198 million, 2015: $208 million, 2014: $180 million, 2013: $190 million). This sum is
compared to the total gross impaired loans to determine this ratio.
The credit quality of the portfolio improved over 2017, with total stressed exposures to TCE remaining low. Total impaired loans as a
percentage of total gross loans were 0.22% at 30 September 2017, a decrease of 0.10% from 0.32% at 30 September 2016.
At 30 September 2017, we had one impaired counterparty with exposure greater than $50 million, accounting for 5% of total impaired
loans. This compares to four impaired counterparties with exposure greater than $50 million in 2016 accounting for 30% of total
impaired loans. There were four impaired exposures at 30 September 2017 that were less than $50 million and greater than $20 million
(2016: seven impaired exposures).
At 30 September 2017, 78% of our exposure was to either investment grade or secured consumer mortgage segment (2016: 78%,
2015: 77%, 2014: 77%) and 96% of our exposure as at 30 September 2017 was in Australia, New Zealand and the Pacific region
(2016: 96%, 2015: 95%, 2014: 95%).
We believe that Westpac remains appropriately provisioned. Total impairment provisions for impaired loans to total impaired loans
coverage at 46.3% at 30 September 2017 compared to 49.4% at 30 September 2016. Total provisions for impairment on loans and
credit commitments to total impaired loans represented 202.3% of total impaired loans as at 30 September 2017, up from 166.8% at 30
September 2016. Total provisions for impairments on loans and credit commitments to total loans were 0.45% at 30 September 2017,
down from 0.54% at 30 September 2016 (2015: 0.53%).
Group mortgage loans 90 days past due at 30 September 2017 were 0.62% of outstandings, up from 0.61% of outstandings at 30
September 2016 (2015: 0.42%).
Group other consumer loan delinquencies (including credit card and personal loan products) were 1.57% of outstandings as at 30
September 2017, an increase of 46 basis points from 1.11% of outstandings as at 30 September 2016 (2015: 1.07%).
Potential problem loans as at 30 September 2017 amounted to $1,247 million, a decrease of 13% from $1,436 million at 30 September
2016. The decrease in potential problem loans was mainly due to the upgrade of loans that were impacted by the downturn in the New
Zealand dairy portfolio.
As at 30 September
$
m20172016201520142013
Impaired loans
Non-performing loans :
Gross1,1421,8511,5932,0303,249
Impairment provisions
(507)(885)(689)(862)(1,363)
Net
6359669041,1681,886
Restructured loans:
Gross27313993156
Impairment provisions
(12)(16)(16)(44)(56)
Net
15152349100
Overdrafts, personal loans and revolving credit facilities greater than 90 days
past due:
Gross373277263217195
Impairment provisions
(195)(166)(172)(141)(135)
Net
178111917660
Net impaired loans
8281,0921,0181,2932,046
Provisions for impairment on loans and credit commitments
Individually assessed provisions4808696698671,364
Collectively assessed provisions
2,6392,7332,6632,6142,585
Total provisions for impairment on loans and credit commitments
3,1193,6023,3323,4813,949
Loan quality
Total impairment provisions for impaired loans to total impaired loans46.30%49.42%46.28%44.76%43.17%
Total impaired loans to total loans
0.22%0.32%0.30%0.40%0.67%
Total provisions for impairment on loans and credit commitments to total loans
0.45%0.54%0.53%0.60%0.73%
Total provisions for impairment on loans and credit commitments to total impaired
loans
202.3%166.8%175.8%148.8%109.7%
1002017 Westpac Group Annual Report
1
2
1
2
Potential problem loans are facilities that are performing and no loss is expected, but the customer demonstrates significant weakness
in debt servicing or security cover that could jeopardise repayment of debt on current terms if not rectified. Potential problem loans are
identified using established credit frameworks and policies, which include the ongoing monitoring of facilities through the use of
watchlists
.
Capital resources
APRA measures an ADI’s regulatory capital using three measures:
Common Equity Tier 1 Capital (CET1) comprises the highest quality components of capital that consists of paid-up share capital,
retained profits and certain reserves, less certain intangible assets, capitalised expenses and software, and investments and
retained profits in insurance and funds management subsidiaries that are not consolidated for capital adequacy purposes;
Tier 1 Capital being the sum of CET1 and Additional Tier 1 Capital. Additional Tier 1 Capital comprises high quality components of
capital that consists of certain securities not included in CET1, but which include loss absorbing characteristics; and
Total Capital being the sum of Tier 1 Capital and Tier 2 Capital. Tier 2 Capital includes subordinated instruments and other
components of capital that, to varying degrees, do not meet the criteria for Tier 1 Capital, but nonetheless contribute to the overall
strength of an ADI and its capacity to absorb losses.
Under APRA’s Prudential Standards, Australian ADIs, including Westpac, are required to maintain a minimum CET1 ratio of at least
4.5%, Tier 1 ratio of at least 6.0% and Total Regulatory Capital of at least 8.0%. APRA may also require ADIs, including Westpac, to
meet Prudential Capital Requirements (PCRs) above the minimum capital ratios. APRA does not allow the PCRs for individual ADIs to
be disclosed.
APRA also requires ADIs to hold additional CET1 buffers comprising of:
a capital conservation buffer (CCB) of 3.5%, for ADI’s designated by APRA as domestic systemically important banks (D-SIBs)
(unless otherwise determined by APRA), which includes a 1.0% surcharge for D-SIBs. APRA has determined that Westpac is a D-
SIB; and
a countercyclical buffer. The countercyclical buffer is set on a jurisdictional basis and APRA is responsible for setting the
requirement in Australia. The countercyclical buffer requirement is currently set to zero for Australia and New Zealand.
Collectively, the above buffers are referred to as the “Capital Buffer”. Should the CET1 capital ratio fall within the capital buffer range,
restrictions on the distributions of earnings will apply. This includes restrictions on the amount of earnings that can be distributed
through dividends, Additional Tier 1 Capital distributions and discretionary staff bonuses.
Capital management strategy
Westpac’s approach to capital management seeks to balance the fact that capital is an expensive form of funding with the need to be
adequately capitalised. Westpac considers the need to balance efficiency, flexibility and adequacy when determining sufficiency of
capital and when developing capital management plans.
Westpac evaluates these considerations through an Internal Capital Adequacy Assessment Process (ICAAP), the key features of which
include:
the development of a capital management strategy, including consideration of regulatory minimums, capital buffers and
contingency plans;
consideration of both economic and regulatory capital requirements;
a stress testing framework that challenges the capital measures, coverage and requirements including the impact of adverse
economic scenarios; and
consideration of the perspectives of external stakeholders including rating agencies and equity and debt investors.
In light of APRA’s announcement on “unquestionably strong” capital on 19 July 2017, Westpac has ceased to use its preferred range of
8.75% to 9.25% as a guide to managing capital levels. Westpac will revise its preferred range for the CET1 ratio once APRA finalises
its review of the capital adequacy framework. In the interim, Westpac will seek to operate with a CET1 ratio of at least 10.5% in
March and September as measured under the existing capital framework. This also takes into consideration:
current regulatory capital minimums and the CCB, which together are the total CET1 requirement;
stress testing to calibrate an appropriate buffer against a downturn; and
quarterly volatility of capital ratios due to the half yearly cycle of ordinary dividend payments.
Review of Group operations
2017 Westpac Group Annual Report
101
Basel Capital Accord
APRA’s risk-based capital adequacy standards are generally consistent with the International Regulatory Framework for Banks, also
known as Basel III, issued by the Basel Committee on Banking Supervision (BCBS), except where APRA has exercised certain
discretions. On balance, the application of these discretions acts to reduce capital ratios reported under APRA’s Prudential Standards
relative to the BCBS approach and to those reported in some other jurisdictions.
Westpac is accredited by APRA to apply advanced models permitted by the Basel III global capital adequacy regime to the
measurement of its regulatory capital requirements. Westpac uses the Advanced Internal Ratings Based approach for credit risk, the
Advanced Measurement Approach (AMA) for operational risk and the internal model approach for Interest Rate Risk in the Banking
Book (IRRBB).
Westpac’s Level 2 regulatory capital ratios as at 30 September are summarised in the table below. As the table summarises Westpac’s
Level 2 regulatory capital structure, the capital amounts shown are not the same as the Westpac Group’s consolidated financial
statements. Westpac’s Pillar 3 Report provides further details regarding Westpac’s capital structure.
Refer to ‘Significant developments’ in Section 1 for a discussion on future regulatory developments that may impact upon capital
requirements.
$m20172016
Common equity60,52057,235
Deductions from common equity(17,850)(18,360)
Total common equity after deductions42,67038,875
Additional Tier 1 ca
pital
8,5056,910
Net Tier 1 re
gulatory capital
51,17545,785
Tier 2 capital8,9528,201
Deductions from Tier 2 capital
(217)(218)
Total Tier 2 ca
pital after deductions
8,7357,983
Total re
gulatory capital
59,91053,768
Credit risk
349,258358,812
Market risk8,0947,861
Operational risk31,22933,363
Interest rate risk in the bankin
g book11,1015,373
Other assets
4,5534,644
Total risk wei
ghted assets
404,235410,053
Common Equity Tier 1 capital ratio
10.56%9.48%
Additional Tier 1 ca
pital ratio
2.10%1.69%
Tier 1 capital ratio12.66%11.17%
Tier 2 capital ratio
2.16%1.94%
Total regulatory capital ratio
14.82%
13.11%
1022017 Westpac Group Annual Report
Purchase of equity securities
The following table details share repurchase activity for the year ended 30 September 2017:
Purchases of ordinary shares during the year were made on market and relate to the following:
to deliver to eligible employees under the Employee Share Plan (ESP): 862,912 ordinary shares;
to deliver to employees upon the exercise of options and performance share rights: 521,016 ordinary shares;
Treasury shares held by statutory life funds and managed investment schemes and ordinary shares held by Westpac in respect of
equity derivatives sold to customers: 275,014 ordinary shares; and
to allocate to eligible employees under the Restricted Share Plan (RSP): 2,123,635 ordinary shares.
Refer to Note 32 to the financial statements for a discussion of Treasury share purchases.
Commitments
Contractual obligations and commitments
In connection with our operating activities we enter into certain contractual obligations and commitments. The following table shows our
significant contractual obligations as at 30 September 2017:
Refer to Note 19 to the financial statements for details of on balance sheet long-term debt.
Refer to Note 30 to the financial statements for details of operating leases.
The above table excludes deposits and other liabilities taken in the normal course of banking business and short-term and undated
liabilities.
Commercial commitments
The following table shows our significant commercial commitments as at 30 September 2017:
The numbers in this table are notional amounts (refer to Note 31 to the financial statements).
Review of Group operations
Total Number ofMaximum Number
Ordinar
y Shares(or Approximate $ Value)
Total Number ofAverage Price PaidPurchased asof Ordinary Shares that
Ordinar
y Sharesper Ordinary SharePart of a PubliclyMay Yet Be Purchased
Purchased$Announced ProgramUnder the Plans or Programs
Month
October (2016)
121,85
830.27-n/a
November (2016
)
1,020,10631.01-n/a
December (2016)
1,959,77732.1
9-n/a
January (2017)
44,71
232.70-n/a
February (2017)
149,91432.8
9-n/a
March (2017)
218,25
534.39-n/a
April (2017)
40,62234.85-n/a
May (2017)
118,76334.5
5-n/a
June (2017
)
5,258
30.36-n/a
July (2017)
55,82132.2
2-n/a
August (2017)
38,99832.10-n/a
September (2017)
8,49331.3
9-n/a
Total
3,782,57732.0
7--
Up toOver 1Over 3Over
$
m1 Yearto 3 Yearsto 5 Years5 YearsTotal
On balance sheet long-term debt24,12156,47340,93820,259141,791
Operating leases5489136781,9944,133
Total contractual cash obli
gations
24,66957,38641,61622,253145,924
Up toOver 1Over 3Over
$
m1 Yearto 3 Yearsto 5 Years5 YearsTotal
Letters of credit and guarantees8,7972,8601,0092,79415,460
Commitments to extend credit66,66334,52316,90660,35
1178,443
Othe
r
--100548648
Total commercial commitments
75,46037,38318,01563,693194,551
2017 Westpac Group Annual Report103
1
2
1
2
1
1
Divisional performance – 2017 v 2016
Westpac reports under the following five primary customer-facing business divisions:
Consumer Bank, which we refer to as CB: responsible for all Australian consumer relationships across all brands;
Business Bank, which we refer to as BB: responsible for all Australian business and commercial consumer relationships across all
brands;
BT Financial Group (Australia), which we refer to as BTFG: responsible for the Group’s wealth management, insurance and private
banking businesses;
Westpac Institutional Bank, which we refer to as WIB: responsible for the relationship with institutional and corporate customers,
along with the Group’s international operations including Asia and the Pacific; and
Westpac New Zealand: responsible for all customer segments in New Zealand.
Group Businesses include Treasury, Group Technology and Core Support.
The Group has completed an update to its capital allocation framework. The update further improves the alignment of capital held by
divisions with regulatory capital requirements. Divisional results have been restated for 2016 and 2015 to ensure comparability with
2017 results (refer to Note 2 to the financial statements for the disclosure of the Group’s reportable operating segments and revisions to
capital allocation).
The accounting standard AASB 8 Operating Segments requires segment results to be presented on a basis that is consistent with
information provided internally to Westpac’s key decision makers. In assessing financial performance, including divisional results,
Westpac Group uses a measure of performance referred to as ‘cash earnings’. Cash earnings is viewed as a measure of the level of
profit that is generated by ongoing operations and is therefore considered in assessing distributions, including dividends. Cash earnings
is neither a measure of cash flow nor net profit determined on a cash accounting basis, as it includes non-cash items reflected in net
profit determined in accordance with AAS. To calculate cash earnings, the specific adjustments to the net profit attributable to owners of
Westpac Banking Corporation include both cash and non-cash items and are outlined below. Management believes this allows the
Group to more effectively assess performance for the current period against prior periods and to compare performance across business
divisions and across peer companies.
A reconciliation of cash earnings to net profit attributable to owners of Westpac Banking Corporation for each business division is set
out in Note 2 to the financial statements.
To determine cash earnings, three categories of adjustments are made to statutory results:
material items that key decision makers at Westpac believe do not reflect ongoing operations;
items that are not considered when dividends are recommended, such as the amortisation of intangibles, impact of Treasury
shares and economic hedging impacts; and
accounting reclassifications between individual line items that do not impact statutory results.
The discussion of our divisional performance in this section is presented on a cash earnings basis unless otherwise stated. Cash
earnings is not directly comparable to statutory results presented in other parts of this Annual Report.
Outlined below are the cash earnings adjustments to the reported result:
amortisation of intangible assets: The merger with St.George and the acquisition of select Lloyds’ Australian businesses resulted in
the recognition of identifiable intangible assets. Notional identifiable intangible assets were also recognised within the carrying
value of BTIM during the period this investment was equity accounted. The intangible assets recognised relate to core deposits,
customer relationships, management contracts and distribution relationships. These intangible items are amortised over their
useful lives, ranging between four and twenty years. This amortisation (excluding capitalised software) is a cash earnings
adjustment because it is a non-cash flow item and does not affect cash distributions available to shareholders;
acquisition, transaction and integration expenses: Costs associated with the acquisition of select Lloyds’ Australian businesses
were treated as a cash earnings adjustment as they do not reflect the earnings expected from the acquired businesses following
the integration period;
capitalised technology cost balances: Following changes to the Group’s technology and digital strategy, rapid changes in
technology and evolving regulatory requirements, a number of accounting changes were introduced in 2015, including moving to
an accelerated amortisation methodology for most existing assets with a useful life of greater than three years, writing off the
capitalised cost of regulatory program assets where the regulatory requirements have changed and directly expensing more project
costs. The expense recognised in 2015 to reduce the carrying value of impacted assets was treated as a cash earnings adjustment
given its size and that it does not reflect ongoing operations;
fair value on economic hedges (which do not qualify for hedge accounting under AAS) comprise:
-the unrealised fair value (gain)/loss on foreign exchange hedges of future New Zealand earnings impacting non-interest
income is reversed in deriving cash earnings as they may create a material timing difference on reported results but do not
affect the Group’s cash earnings over the life of the hedge; and
Divisional performance
1042017 Westpac Group Annual Report
-the unrealised fair value (gain)/loss on hedges of accrual accounted term funding transactions are reversed in deriving cash
earnings as they may create a material timing difference on reported results but do not affect the Group’s cash earnings over
the life of the hedge;
ineffective hedges: The unrealised (gain)/loss on ineffective hedges is reversed in deriving cash earnings for the period because
the gain or loss arising from the fair value movement in these hedges reverses over time and does not affect the Group’s profits
over time;
Lloyds tax adjustments: Tax adjustments arising from the acquisition of Lloyds have been treated as a cash earnings adjustment in
line with our treatment of Lloyds acquisition and integration costs;
sale of BTIM shares: During 2015 the Group recognised a significant gain following the partial sale of the Group’s shareholding in
BTIM. This gain has been treated as a cash earnings adjustment given its size and that it does not reflect ongoing operations.
During 2017 the Group recognised a gain, net of costs, following the further sell down of the Group’s shareholding in BTIM.
Consistent with previous treatment this gain has been treated as a cash earnings adjustment given its size and that it does not
reflect ongoing operations. The Group has indicated that it may sell the remaining 10% shareholding in BTIM at some future date.
Any future gain or loss on the sale will similarly be excluded from the calculation of cash earnings;
Treasury shares: Under AAS, Westpac shares held by the Group in the managed funds and life businesses are deemed to be
Treasury shares and the results of holding these shares cannot be recognised as income in the reported results. In deriving cash
earnings, these results are included to ensure there is no asymmetrical impact on the Group’s profits because the Treasury shares
support policyholder liabilities and equity derivative transactions which are re-valued in determining income;
accounting reclassifications between individual line items that do not impact reported results comprise:
-in 2017 the Group changed the accounting treatment for Westpac New Zealand credit card rewards scheme to align with
Group practice. This change has no impact on cash earnings or reported profit but it has led to the restatement of non-interest
income and operating expenses, within cash earnings, in prior periods. Components of reported profit have not been changed;
-policyholder tax recoveries: Income and tax amounts that are grossed up to comply with the AAS accounting standard
covering Life Insurance Business (policyholder tax recoveries) are reversed in deriving income and taxation expense on a
cash earnings basis; and
-operating leases: Under AAS rental income on operating leases is presented gross of the depreciation of the assets subject to
the lease. These amounts are offset in deriving non-interest income and operating expenses on a cash earnings basis.
The guidance provided in Australian Securities and Investments Commission (ASIC) Regulatory Guide 230 has been followed when
presenting this information.
Divisional performance
2017 Westpac Group Annual Report105
Cash earnings and assets by division
The following tables present, for each of the key divisions of our business, the cash earnings and total assets at the end of the financial
years ended 30 September 2017, 2016 and 2015. Refer to Note 2 to the financial statements for the disclosure of our geographic and
business segments and the reconciliation to net profit attributable to owners of Westpac Banking Corporation.
Cash earnings by business division
In presenting divisional results on a management reporting basis, internal charges and transfer pricing adjustments are included in the
performance of each division reflecting the management structure rather than the legal entity (these results cannot be compared to
results for individual legal entities). Where management reporting structures or accounting classifications have changed, financial
results for comparative periods have been revised and may differ from results previously reported.
Our internal transfer pricing frameworks facilitate risk transfer, profitability measurement, capital allocation and business unit alignment,
tailored to the jurisdictions in which we operate. Transfer pricing allows us to measure the relative contribution of our products and
divisions to the Group’s interest margin and other dimensions of performance. Key components of our transfer pricing frameworks are
funds transfer pricing for interest rate and liquidity risk and allocation of basis and contingent liquidity costs, including capital allocation.
$m201720162015
Consumer Bank3,1042,9842,625
Business Bank
2,0991,9751,957
BT Financial Grou
p (Australia)771868906
West
pac Institutional Bank1,3041,1061,357
West
pac New Zealand916825863
Group Businesses
(132)64112
Total cash earnin
gs8,0627,8227,820
Total assets by business division
$bn201720162015
Consumer Bank369.5351.5328.6
Business Bank
161.1156.8149.3
BT Financial Group (Australia)
35.238.235.8
West
pac Institutional Bank102.9110.4127.3
Westpac New Zealand
81.382.171.5
Grou
p Businesses
101.9100.299.7
Total asset
s851.9839.2812.2
1062017 Westpac Group Annual Report
Consumer Bank
Consumer Bank (CB) is responsible for sales and service to consumer customers in Australia under the Westpac, St.George, BankSA,
Bank of Melbourne and RAMS brands. Activities are conducted through a dedicated team of specialist consumer relationship managers
along with an extensive network of branches, call centres and ATMs. Customers are also supported by a range of internet and mobile
banking solutions. CB also works in an integrated way with BTFG and WIB in the sales and service of select financial services and
products including in wealth and foreign exchange. The revenue from these products is mostly retained by the product originator.
Financial performance
2017 v 2016
The 4% rise in cash earnings to $3,104 million, was due to balance sheet growth and disciplined expense management.
For a discussion of the results of CB for 2016 v 2015, refer to ‘Divisional performance – 2016 v 2015’.
Divisional performance
$m201720162015
Net interest income7,5097,1756,403
Non-interest income
802850940
Net operating income before operating expenses and impairment charges
8,3118,0257,343
O
perating expenses(3,337)(3,270)(3,113)
Impairment charges(541)(492)(478)
Profit before income tax4,4334,2633,752
Income tax expense
(1,329)(1,279)(1,127)
Cash earnings for the year
3,1042,9842,625
Net cash earnings adjustments(116)(116)(116)
Net profit attributable to owners of Westpac Banking Corporation
2,9882,8682,509
$bn$bn$bn
De
posits and other borrowings191.8180.6168.2
Net loans362.5344.8320.7
Total assets
369.5351.5328.6
Total operating expenses to net operating income ratio
40.15%40.75%42.39%
Net interest
income up $334
million, 5%
mortgages growth was slightly below system . The decline in other lending was in credit cards and personal
loans (in line with lower system balances);
the above system growth in deposits included a 9% lift in transaction account balances; and
net interest margin was 3 basis points lower primarily from higher wholesale funding and deposits costs, partly
offset by some repricing and continued discipline on discounting.
Non-interest
income down
$48 million, 6%
decline mostly due to lower cards income (net impact of interchange fee changes, loyalty point redemption
costs, and a prior year benefit not repeated) and provisions for customer refunds and payments; partly offset
by;
some fee repricing and higher foreign exchange income.
Operating
expenses up $67
million, 2%
higher technology and investment related costs;
a rise in regulatory and compliance spending;
increased product development and marketing costs; and
productivity benefits largely offset business as usual expense increases.
Impairment
charges up $49
million, 10%
higher impairments were mostly due to an increase in mortgage IAPs for regions impacted by the slowing of
the mining investment cycle and CAPs for hardship changes in the other consumer lending portfolio; and
90+ day other consumer loan delinquencies were higher mostly due to changes in the measurement and
reporting of customers in hardship arrangements. Excluding hardship changes, 90+ day delinquencies
im
proved.
Source: RBA September 2017.
2017 Westpac Group Annual Report107
1
1
1
Business Bank
Business Bank (BB) is responsible for sales and service to micro, SME and commercial business customers in Australia for facilities up
to approximately $150 million. The division operates under the Westpac, St.George, BankSA and Bank of Melbourne brands.
Customers are provided with a wide range of banking and financial products and services to support their borrowing, payments and
transaction needs. In addition, specialist services are provided for cash flow finance, trade finance, automotive and equipment finance,
property finance and treasury. The division is also responsible for consumer customers with auto finance loans. BB works in an
integrated way with BTFG and WIB in the sales and service of select financial services and products including corporate
superannuation, foreign exchange and interest rate hedging. The revenue from these products is mostly retained by the product
originator.
Financial performance
2017 v 2016
Cash earnings of $2,099 million was $124 million, or 6% higher than 2016 from net operating income before operating expenses and
impairment charges growth of 4% and a 10% decline in impairment charges. The result was supported by increased fee income,
balance sheet growth and productivity gains.
For a discussion of the results of BB for 2016 v 2015, refer to ‘Divisional performance – 2016 v 2015’.
$m201720162015
Net interest income4,0553,9253,735
Non-interest income1,1531,1041,068
Net operating income before operating expenses and impairment charges
5,2085,0294,803
Operating expenses(1,839)(1,796)(1,731)
Impairment charges(367)(410)(273)
Profit before income tax
3,0022,8232,799
Income tax expense(903)(848)(842)
Cash earnings for the year
2,0991,9751,957
Net cash earnings adjustments(10)(10)(10)
Net profit attributable to owners of Westpac Banking Corporation
2,0891,9651,947
$bn$bn$bn
De
posits and other borrowings115.3110.6101.8
Net loans157.5153.4146.4
Total assets
161.1156.8149.3
Total operating expenses to net operating income ratio
35.31%35.71%36.04%
Net interest
income up $130
million, 3%
lending growth of 3% was supported by growth in SME and targeted industries while commercial property
lending was lower from optimising risk return profile;
a 15% rise in transaction balances supported the 4% rise in deposits. Term deposit balances declined
following the migration of some customers to Private Wealth (in BTFG); and
net interest margin was little changed over the year. Asset spreads were higher following some repricing,
althou
gh these were offset by lower deposit spreads and higher wholesale funding costs.
Non-interest
income up $49
million, 4%
higher line fees from both portfolio growth and some repricing for facilities; and
fees were also supported by the growth in transaction balances and repricing.
Operating
expenses up $43
million, 2%
business as usual cost increases were largely offset by efficiency gains from digitisation of processes and
streamlining in the division’s service model including specialist industry teams and more targeted handling of
customer service requests; and
increased investment spending and technology costs led to most of the increase.
Impairment
charges down
$43 million, 10%
lower impairments were principally due to improved collections processes for auto finance. This was partly
offset by increased provisions across the property, construction, mining and manufacturing sectors,
particularly in Queensland; and
credit quality remains sound, with total stressed assets to TCE lower. Auto delinquencies were higher due to
the changes in hardship reporting.
1082017 Westpac Group Annual Report
BT Financial Group (Australia)
BT Financial Group (Australia) (BTFG) is the Australian wealth management and insurance arm of the Westpac Group providing a
broad range of associated services. BTFG’s funds management operations include the manufacturing and distribution of investment,
superannuation, retirement products, wealth administration platforms, private banking, margin lending and equities broking. BTFG’s
insurance business covers the manufacturing and distribution of life, general and lenders mortgage insurance. The division also uses
third parties to manufacture certain general insurance products. In managing risk across all insurance classes the division reinsures
certain risks using external providers. BTFG operates a range of wealth, funds management and financial advice brands and operates
under the banking brands of Westpac, St.George, Bank of Melbourne and BankSA for Private Wealth and Insurance.
In 2017 Westpac sold down its investment in BT Investment Management Limited (BTIM) from 29% to 10%. That sale led to a change
in the way the business is accounted for from being equity accounted to being reflected as an available-for-sale investment. The profit
on sale of shares in BTIM is not included in BTFG’s cash earnings results below.
Financial performance
Cash earnings
Divisional performance
$m201720162015
Net interest income537486434
Non-interest income
1,7441,9082,192
Net operating income before operating expenses and impairment charges
2,2812,3942,626
Operating expenses(1,176)(1,160)(1,286)
Impairment (charges)/benefit
(4)
-
4
Profit before income tax
1,1011,2341,344
Income tax expense(330)(366)(406)
Profit attributable to non-controlling interests
--
(32)
Cash earnings for the year
771868906
Net cash earnings adjustments160(32)(23)
Net
profit attributable to owners of Westpac Banking Corporation931836883
$bn$bn$bn
De
posits and other borrowings29.725.523.4
Net loans
20.118.617.2
Total assets
35.238.235.8
Funds Under Management (FUM)53.148.446.3
Funds Under Administration (FUA)
138.3130.8121.9
Total operating expenses to net operating income ratio
51.56%48.45%48.97%
$m201720162015
Funds management business435520560
Insurance
293309291
Capital and other
433955
Total cash earnings771868906
FUM represents Retail which includes Annuities, Retail Investment, Retirement Products and Retail Superannuation where risk profiles are selected by
investors and Investment Solutions through Advance (a multi manager of investment management companies).
2017 Westpac Group Annual Report
109
1
1
2017 v 2016
Cash earnings was 11% lower than full year 2016, impacted by a number of infrequent items totalling $129 million before tax. The cash
earnings impact of infrequent items (after tax) includes provisions for customer refunds and payments ($58 million), revaluation loss on
investments in boutique funds ($24 million) and lower revenue following the further sale of shares in BTIM ($10 million). The underlying
business was flat over the year with volume growth partly offset by lower FUM and FUA margins, lower Advice activity levels, higher
insurance claims and increased regulatory and compliance costs.
For a discussion of the results of BTFG for 2016 v 2015, refer to ‘Divisional performance – 2016 v 2015’.
Funds management business
Insurance business
The Insurance business result includes the Westpac and St.George Life Insurance, General Insurance and Lenders Mortgage
Insurance (LMI) businesses.
Net interest
income up $51
million, 10%
balance sheet growth in Private Wealth, deposits up 16% and loans up 8%; and
net interest margin was up 13 basis points mostly due to repricing of certain mortgages and improved term
de
posit spreads.
Non-interest
income down
$164 million, 9%
Funds Management contribution was down $151 million:
-infrequent items indicated above ($129 million);
-advice income was lower mostly from reduced activity ($33 million); and
-FUM and FUA revenue was higher with growth in average FUM and FUA (10% and 7% respectively)
offsetting lower margins from product mix changes, including the migration to MySuper products. FUM
and FUA net flows were $4 billion for the year.
insurance income was down $26 million (or 5%);
-general insurance income was lower ($33 million) mostly from higher claims concentrated in the first half
of the year;
-life insurance income was flat as the 10% growth in in-force premiums and improved lapses were offset by
higher claims; and
-LMI contribution was higher mostly due to the arrangements for loans with a LVR >90%.
partly offsetting this was improved returns on capital mostly related to lower hedging costs.
Operating
expenses up
$16 million, 1%
regulatory and compliance costs were $28 million higher over the year;
investment related spending was up from costs associated with the launch of Panorama; and
productivity benefits mostly offset these increases.
$m201720162015
Net interest income525474416
Non-interest income
1,1831,3341,663
Net operating income before operating expenses and impairment charges
1,7081,8082,079
Operating expenses(1,082)(1,067)(1,219)
Impairment (charges)/benefit
(3)-4
Profit before income tax
623741864
Income tax expense(188)(221)(272)
Profit attributable to non-controlling interests
--(32)
Cash earnings for the year
435520560
Net cash earnings adjustments160(32)(23)
Net profit attributable to owners of Westpac Banking Corporation
595488537
Total operating expenses to net operating income ratio
63.35%59.02%58.63%
$m201720162015
Net interest income8 5 6
Non-interest income
499 525 488
Net operating income before operating expenses and impairment charges
507 530 494
Operating expenses
(92)(88)(79)
Profit before income tax
415 442 415
Income tax expense
(122)(133)(124)
Cash earnings for the year
293 309 291
Net cash earnings adjustments
-
--
Net profit attributable to owners of Westpac Banking Corporation
293 309 291
Total operating expenses to net operating income ratio
18.15%16.60%15.99%
1102017 Westpac Group Annual Report
Westpac Institutional Bank
Westpac Institutional Bank (WIB) delivers a broad range of financial products and services to commercial, corporate, institutional and
government customers with connections to Australia and New Zealand. WIB operates through dedicated industry relationship and
specialist product teams, with expert knowledge in transactional banking, financial and debt capital markets, specialised capital, and
alternative investment solutions. Customers are supported throughout Australia as well as via branches and subsidiaries located in New
Zealand, the US, UK and Asia. WIB is also responsible for Westpac Pacific currently providing a range of banking services in Fiji and
PNG. WIB works in an integrated way with all the Group’s divisions in the provision of more complex financial needs including foreign
exchange and fixed interest solutions.
Financial performance
Refers to total customer deposits in this table and excludes Certificates of Deposit.
2017 v 2016
Cash earnings of $1,304 million, was $198 million or 18% higher compared to 2016, supported by higher customer and trading income,
disciplined expense management and lower impairments.
For a discussion of the results of WIB for 2016 v 2015, refer to ‘Divisional performance – 2016 v 2015’.
Divisional performance
$m201720162015
Net interest income1,507 1,574 1,658
Non-interest income
1,706 1,536 1,578
Net operating income before operating expenses and impairment charges
3,213 3,110 3,236
O
perating expenses(1,323)(1,347)(1,319)
Impairment (charges)/benefit(56)(177)38
Profit before income tax
1,834 1,586 1,955
Income tax ex
pense(523)(473)(590)
Profit attributable to non-controlling interests(7)(7)(8)
Cash earnings for the year
1,304 1,106 1,357
Net cash earnings adjustments
-
--
Net profit attributable to owners of Westpac Banking Corporation
1,304 1,106 1,357
$bn$bn$bn
Deposits and other borrowings
89.4 88.4 80.3
Net loans
74.0 73.8 76.3
Total assets
102.9 110.4 127.3
Total operating expenses to net operating income ratio
41.18%43.31%40.76%
Net interest
income down
$67 million, 4%
average loan balances were lower over the year, which contributed to lower net interest income; partly offset
by
7 basis points improvement in net interest margin from the run-down in lower returning assets and pricing
disciplines.
Non-interest
income up
$170 million,
11%
higher trading revenue across both fixed income and commodities;
customer revenue was higher reflecting some larger customer transactions; and
positive movement in derivative valuation adjustments.
Operating
expenses
down $24
million, 2
%
disciplined operating expense management, productivity initiatives and lower investment in Asia contributed to
the 2% reduction in operating expenses.
Impairment
charges down
$121 million,
68%
asset quality was sound, with the ratio of impaired assets to TCE down 26 basis points following the work-out
and write-off of some larger facilities; and
the lower charge was partly due to higher impairment charges in 2016 with increased provisions for the
down
grade of a small number of large names.
2017 Westpac Group Annual Report111
1
1
Westpac New Zealand
Westpac New Zealand is responsible for sales and service of banking, wealth and insurance products for consumers, business and
institutional customers in New Zealand. Westpac conducts its New Zealand banking business through two banks in New Zealand:
Westpac New Zealand Limited, which is incorporated in New Zealand and Westpac Banking Corporation (New Zealand Branch), which
is incorporated in Australia. Westpac New Zealand operates via an extensive network of branches and ATMs across both the North and
South Islands. Business and institutional customers are also served through relationship and specialist product teams. Banking
products are provided under the Westpac brand while insurance and wealth products are provided under Westpac Life and BT brands,
respectively. Westpac New Zealand also maintains its own infrastructure, including technology, operations and treasury.
Financial performance
Comparatives have been restated for the accounting change to the Westpac New Zealand credit card rewards scheme.
(2016: $33 million, 2015: $36 million).
Refers to total customer deposits in this table.
During 2017 $0.2 billion transferred from FUA to FUM.
$m201720162015
Net interest income1,627 1,606 1,583
Non-interest income
479 482 493
Net operating income before operating expenses and impairment charges
2,106 2,088 2,076
Operating expenses
(903)(889)(844)
Impairment (charges)/benefit
72 (54)(44)
Profit before income tax
1,275 1,145 1,188
Income tax expense
(359)(320)(322)
Profit attributable to non-controlling interests
--(3)
Cash earnings for the year
916 825 863
Net cash earnin
gs adjustments(14)2 -
Net profit attributable to owners of Westpac Banking Corporation
902 827 863
$bn$bn$bn
De
posits and other borrowings53.7 54.9 47.3
Net loans
71.1 71.7 62.8
Total assets
81.3 82.1 71.5
Funds under mana
gement7.7 7.1 5.9
Funds under administration
1.6 2.0 1.8
Total operating expenses to net operating income ratio
42.88%42.58%40.66%
1122017 Westpac Group Annual Report
1
1
2
3
3
1
2
3
2017 v 2016
Cash earnings up 11% to $916 million, with an impairment benefit of $72 million, from higher write-back and recoveries. Net operating
income before operating expenses and impairment charges was up 1%, with volume growth offset by margin decline. Operating
expenses were up 2% driven by investment in the division’s transformation program.
For a discussion of the results of Westpac New Zealand for 2016 v 2015, refer to ‘Divisional performance – 2016 v 2015’.
Divisional performance
Net interest
income up $21
million, 1%
excluding foreign currency translation impacts, loan growth of 3% was mostly in mortgages, up 4% with
business lending 1% higher;
excluding foreign currency translation impacts, deposits growth of 2% was mostly in term deposits (3%) with
customers preferring higher rate term products over at call accounts;
net interest margin was 13 basis points lower mostly from increased deposit competition and increased
wholesale funding costs, partly offset by;
repricing of certain mortgages and business loans.
Non-interest
income down
$3 million,1%
increased investment income (from a 6% increase in FUM and FUA excluding foreign currency translation
impacts) and higher cards income were offset by higher insurance claims and lower banking fees following the
removal of some consumer fees.
Operating
expenses up
$14 million, 2%
the increase was principally due to costs of and investment in the division’s transformation program; and
outside of this increase operating expenses were 3% lower through a range of productivity initiatives including
a net reduction of 20 branches, a 3% reduction in FTE, increased self-serve adoption and the digitisation of
more
processes.
Impairment
benefit of $72m
compared to a
$54 million
impairment
char
ge.
asset quality remained sound with stressed assets to TCE reducing 48 basis points to 2.06%. The decline was
due to reduction of stress in the dairy sector (improving milk prices). Consumer 90+ day delinquencies were a
little higher but continue to be near historical lows; and
the impairment benefit reflects the work-out and write-back of a few large facilities combined with the lower
levels of stress.
2017 Westpac Group Annual Report113
Group Businesses
This segment comprises:
Treasury, which is responsible for the management of the Group’s balance sheet including wholesale funding, capital and
management of liquidity. Treasury also manages the interest rate risk and foreign exchange risks inherent in the balance sheet,
including managing the mismatch between Group assets and liabilities. Treasury’s earnings are primarily sourced from managing
the Group’s balance sheet and interest rate risk, (excluding Westpac New Zealand) within set risk limits;
Group Technology , which comprises functions for the Australian businesses is responsible for technology strategy and
architecture, infrastructure and operations, applications development and business integration;
Core Support , which comprises functions performed centrally, including Australian banking operations, property services, strategy,
finance, risk, compliance, legal and human resources; and
Group Businesses also includes: earnings on capital not allocated to divisions, accounting entries for certain intra-group
transactions that facilitate the presentation of the performance of the Group’s operating segments, earnings from non-core asset
sales, earnings and costs associated with the Group’s fintech investments, and certain other head office items such as centrally
raised provisions.
Financial performance
2017 v 2016
Cash earnings decreased by $196 million from lower Treasury revenue, increased expenses and a higher tax expense.
For a discussion of the results of Group Businesses for 2016 v 2015, refer to ‘Divisional performance – 2016 v 2015’.
$m201720162015
Net interest income469582426
Non-interest income
(32)866
Net operating income before operating expenses and impairment charges
437590492
Operating expenses
(527)(469)(378)
Impairment benefits
439-
Profit before income tax
(47)130114
Income tax (expense)/benefit
(85)(58)13
Profit attributable to non-controlling interests
-(8)(15)
Cash earnings for the year
(132)64112
Net cash earnings adjustments
(92)(221)341
Net profit attributable to owners of Westpac Banking Corporation
(224)(157)453
Net operating
income down
$153 million, 26%
net interest income decreased $113 million largely from lower Treasury revenue related to interest rate risk
management; and
non-interest income decreased $40 million primarily due to the impact of exchange rate movements on the
hed
ging of New Zealand earnings.
Operating
expenses up $58
million, 12%
increase in operating expenses primarily from higher expenses associated with the Group’s fintech
investments and higher regulatory and compliance costs.
Impairment
benefits up $34
million
impairment benefit increased $34 million due to a reduction to the centrally held economic overlay provisions,
largely related to the mining sector. This reduction offsets provisions raised in divisions.
Tax and non-
controlling
interests up $19
million, 29%
tax and non-controlling interests increased $19 million, as 2016 benefitted from the finalisation of prior period
taxation matters, and hybrid distributions (not deductible for tax purposes) were also higher in the current
year.
Costs are fully allocated to other divisions in the Group.
Costs are partially allocated to other divisions in the Group, with costs attributed to enterprise activity retained in Group Businesses.
114
2017 Westpac Group Annual Report
1
2
1
2
Divisional performance – 2016 v 2015
Consumer Bank
2016 v 2015
CB increased cash earnings by $359 million or 14%.
Net interest income increased $772 million or 12% due to a 6% rise in average interest-earning assets and a 12 basis point
improvement in net interest margin:
the rise in net interest margin was predominantly due to higher asset spreads from mortgage repricing including for increased
regulatory capital requirements, along with higher rates on investor property lending. Partly offsetting these benefits were higher
wholesale funding costs and intense competition across both lending and deposits;
mortgages increased 8%, with growth higher in the first half of 2016. Other lending (mostly credit cards) grew 4%; and
deposits increased $12.4 billion or 7%, primarily from term deposits growth. The rise can be traced back to a preference for
growing deposits with a higher LCR value and from customers looking for higher relative yields in a low interest rate environment.
Non-interest income decreased $90 million or 10%, mostly from reduced credit cards revenue, including regulation changes to
interchange rates following the scheduled three year review by the RBA that reset average and maximum interchange rates.
Renegotiation and modification of the reward program introduced in the second half of 2016 partly offset these impacts.
Operating expenses increased $157 million or 5% mostly from higher investment related expenses including increased depreciation
and software amortisation. Investment spending has been directed to transforming the customer experience including completing the
digitisation of the top 7 manual service transactions. This contributed to productivity savings of $119 million.
Impairment charges increased $14 million or 3% due to higher mortgage delinquencies including from changes in the measurement
and reporting of customers in hardship arrangements and a deterioration in those states and regions impacted by the slowing mining
investment cycle
Business Bank
2016 v 2015
BB cash earnings increased by $18 million or 1%.
Net interest income increased by $190 million or 5% due to a 6% rise in average interest-earning assets, partly offset by a 1 basis point
decline in net interest margin:
BB has continued to focus on returns and as a result margin contraction was limited to 1 basis point. Increased funding costs and
compression in lending spreads were partly offset by pricing changes across the portfolio;
net loans increased $7 billion or 5%:
-mortgages increased $3.4 billion or 6%;
-business lending increased $3.5 billion or 4%, diversified across the health, professional services and agriculture segments;
and
-other lending increased 2% primarily from growth in auto finance; and
deposits increased $8.8 billion or 9%, more than funding the growth in lending and contributing to a 256 basis point increase in the
deposit to loan ratio to 72.1%. Most of the growth in deposits was in term deposits (up $7 billion) with the remainder in transaction
accounts.
Non-interest income increased by $36 million or 3% mainly due to higher facility fees in business lending.
Operating expenses increased by $65 million or 4% due to technology costs and investments to transform BB’s capability. This growth
was partly offset by productivity benefits including changes to the operating model to better align bankers and customers
.
Asset quality was broadly stable over the year, however a reduction in write-backs combined with the lift in auto finance delinquencies
in the first half of 2016 led to impairment charges increasing $137 million
Divisional performance
2017 Westpac Group Annual Report115
BT Financial Group (Australia)
2016 v 2015
BTFG cash earnings decreased by $38 million or 4% due to a decline in funds management income mostly attributed to the partial sale
of BTIM ($24 million), along with higher regulatory and compliance expenses. These were partly offset by growth in lending, FUA and
insurance premiums:
Funds management business cash earnings decreased by $40 million or 7%. Excluding the impact from the partial sale of BTIM,
the Funds management business cash earnings decreased by $16 million or 3%. Private Wealth income was higher and average
FUM and FUA were up 2% and 4%, respectively, although these increases were more than offset by lower advice income and a
reduction in the value of investments in Ascalon funds due to weaker markets and rise in the Australian dollar. Regulatory and
compliance costs also increased significantly during the year;
Insurance cash earnings increased by $18 million or 6% with growth in premiums and lower general insurance claims partially
offset by higher life insurance benefits paid to customers. Revenue growth was supported by a higher LMI contribution mostly due
to transitional arrangements with Arch Capital. Life insurance in-force premiums were up 9% and general insurance gross written
premiums rose 2%; and
Capital and other cash earnings decreased by $16 million reflecting lower returns on invested capital and higher regulatory and
compliance costs.
Funds Management Business
The partial sale of BTIM in June 2015 reduced the Group’s ownership to 31% at that time. In considering the impact of the partial BTIM
sale, the contribution to cash earnings of the BTIM shares sold was $24 million in 2015. This contribution was wholly in the Funds
management business.
BTIM is now equity accounted with the share of BTIM’s profit recorded in non-interest income, less tax Westpac is required to pay.
Cash earnings decreased by $40 million or 7%.
Net interest income was up $58 million or 14% primarily due to an 8% increase in lending, a 9% rise in deposits and improved margins
in Private Wealth.
Non-interest income decreased $329 million or 20%. Excluding the impact of the partial sale of BTIM and move to equity accounting,
non-interest income was down by $49 million with the key drivers being:
advice income was down $33 million from a reduction in activity;
the contribution from Ascalon was $42 million lower due to the revaluation of investments from weaker markets and a rise in the
Australian dollar; partly offset by
increased FUA revenues from higher net flows and good management of margins.
Operating expenses decreased by $152 million or 12%. Excluding the partial sale of BTIM and the move to equity accounting,
expenses were $32 million or 3% higher. The increase was due to higher regulatory related costs associated with remediation and
compliance programs, and increased investment costs including higher software amortisation as new modules of the Panorama
platform went live.
Tax and non-controlling interests decreased by $83 million or 27% associated with the lower earnings and the move to equity
accounting for BTIM reducing the value of non-controlling interests.
Insurance Business
Cash earnings increased by $18 million or 6%, with lower general insurance claims and increased LMI revenue, partly offset by higher
life insurance claims.
Net operating income increased by $36 million or 7%:
general insurance net earned premiums increased $17 million with gross written premiums rising 2% from growth in home and
contents sales. Net claims decreased $22 million, mostly from a reduction in significant weather events during the year;
LMI income increased $18 million related to the transitional arrangements with Arch Capital for the insurance for mortgages where
the LVR is above 90%; and
life insurance net earned premiums increased $70 million, with in-force premiums rising 9%, offset by a rise in the number of
benefits paid to customers, which increased the claims ratio to 36% and a 22% increase in lapses resulting in deferred acquisition
costs being written off during the year.
Operating expenses increased $9 million or 11% due to an increase in volumes and higher employee costs to support the larger
portfolio and costs of linking systems with Allianz following the establishment of a strategic partnership last year.
1162017 Westpac Group Annual Report
Westpac Institutional Bank
2016 v 2015
WIB cash earnings decreased by $251 million or 18% due to a $215 million increase in impairment charges and a 8 basis point decline
in net interest margin.
Net interest income decreased by $84 million or 5% from a $0.4 billion decrease in average interest-earning assets and a 8 basis point
decline in net interest margin:
net loans decreased 3% mostly from lower trade finance balances, predominantly in Asia;
deposits increased 10% mainly in term deposits; and
institutional margins continue to be impacted by higher levels of global liquidity. This has contributed to tightening asset spreads for
new lending.
Non-interest income decreased $42 million or 3%. 2015 included a $122 million negative impact from methodology changes to
derivative valuations. Excluding this impact, non-interest income was down $164 million from a decline in fee income due to lower
corporate and institutional activity and lower fees from Hastings.
Operating expenses increased $28 million or 2% mostly from further investment to meet additional regulatory and compliance
requirements. This increase was partially offset by disciplined expense management, including benefits from changes to the WIB
operating model and the sale of certain Pacific Island operations.
Asset quality remains sound and the business has maintained its focus on origination standards and portfolio diversification.
Impairments have moved to a charge of $177 million in 2016 compared to an impairment benefit of $38 million in 2015, predominantly
due to increased provisions associated with the deterioration of a small number of individual names which were downgraded in first half
of 2016.
Westpac New Zealand
2016 v 2015
Cash earnings decreased by $38 million or 4%.
Net interest income increased by $23 million or 1% due to a 9% rise in average interest-earning assets, partly offset by a 15 basis point
decline in net interest margin:
the decline in net interest margin was principally due to:
-lower asset spreads due to heightened competition for mortgages and a further customer preference for lower spread fixed
rate loans which now represent 77% of portfolio, up 3% from 2015;
-lower Treasury income;
-higher wholesale funding costs included increased term issuance costs and the higher costs of shorter term funding; partially
offset by
-improved spread on deposits principally from changed interest rates on online savings accounts;
lending increased $8.9 billion or 14%:
-mortgages increased $4.8 billion or 12%. This growth was a little lower than the system as the division was more prioritised
on return over growth especially in the second half of 2016; and
-business lending increased $4.0 billion or 18% with the key sectors of agriculture, energy and financial services contributing to
the growth; and
deposits increased $7.6 billion or 16%, with growth broadly spread across the portfolio. Term deposits dominated growth as
customers sought fixed returns in a falling interest rate environment and online savings deposits were repriced.
Non-interest income decreased $11 million or 2%. The decline was principally due to lower asset sales which contributed $21 million to
income in 2015. This was partly offset by higher wealth and insurance income. Customers with a wealth product increased 27 basis
points to 28.4%. This is reflected in FUM balances which rose 20% over the year.
Operating expenses increased $45 million or 5% mostly due to investment in the division’s transformation program, costs of
relaunching the brand and higher depreciation and software amortisation.
Overall asset quality metrics remain sound, although stressed assets to TCE increased 94 basis points to 2.54% mostly reflecting
additional stress in the dairy sector. Impairment charges increased $10 million due to higher stress in the dairy portfolio and a lower
level of write-backs and recoveries.
Divisional performance
Source: RBNZ.
2017 Westpac Group Annual Report
117
1
1
Group Businesses
2016 v 2015
Group Businesses cash earnings decreased by $48 million or 43%.
Net interest income increased $156 million or 37% due to improved Treasury performance related to interest rate risk management and
increased earnings from higher capital balances held centrally. This was partially offset by additional funding costs incurred to further
strengthen the balance sheet in preparation for NSFR and lower interest rates.
Non-interest income decreased $58 million or 88% reflecting a gain on asset sale in 2015 that did not repeat.
Operating expenses increased $91 million or 24% due to an increase in restructuring costs, higher regulation and compliance costs and
an increase in employee provisions.
Impairment benefit of $9 million is primarily due to a reduction in the centrally held economic overlay provision.
The effective tax rate of 45% is higher than the Group average primarily due to the impact of hybrid distributions that are non-deductible
for taxation purposes.
1182017 Westpac Group Annual Report
Risk factors
Our business is subject to risks that can adversely impact our financial performance, financial condition and future performance. If any
of the following risks occur, our business, prospects, reputation, financial performance or financial condition could be materially
adversely affected, with the result that the trading price of our securities could decline and as a security holder you could lose all, or
part, of your investment. You should carefully consider the risks described and the other information in this Annual Report before
investing in our securities. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties
that we are unaware of, or that we currently deem to be immaterial, may also become important factors that affect us.
Risks relating to our business
Our businesses are highly regulated and we could be adversely affected by changes in laws, regulations or regulatory policy
As a financial institution, we are subject to detailed laws and regulations in each of the jurisdictions in which we operate or obtain
funding, including Australia, New Zealand, the United Kingdom, the United States and various jurisdictions in Asia. We are also
supervised by a number of different regulatory and supervisory authorities which have broad administrative powers over our
businesses. In Australia, the relevant regulatory authorities include the Australian Prudential Regulation Authority (APRA), Reserve
Bank of Australia (RBA), Australian Securities and Investments Commission (ASIC), Australian Securities Exchange (ASX), Australian
Competition and Consumer Commission (ACCC), the Australian Transaction Reports and Analysis Centre (AUSTRAC) and the
Australian Taxation Office (ATO). The Reserve Bank of New Zealand (RBNZ) and the Financial Markets Authority (FMA) have
supervisory oversight of our New Zealand operations. In the United States, we are subject to supervision and regulation by the US
Office of the Comptroller of the Currency (OCC), the Board of Governors of the Federal Reserve System, the Commodity Futures
Trading Commission (CFTC) and the US Securities and Exchange Commission (SEC). In the United Kingdom, we are subject to
supervision and regulation by the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA). In Asia, we are
subject to supervision and regulation by local authorities, including the Monetary Authority of Singapore (MAS), the China Banking
Regulatory Commission (CBRC) and the Hong Kong Monetary Authority (HKMA). In other jurisdictions in which we operate, including
various Pacific countries, we are also required to comply with relevant requirements of the local regulatory bodies.
The Group’s business, reputation, prospects, financial performance and financial condition could all be affected by changes to law and
regulation, changes to policies and changes in the supervisory activities of our regulators.
As with other financial services providers, we face increasing supervision and regulation in most of the jurisdictions in which we operate
or obtain funding particularly in the areas of funding, liquidity, capital adequacy, tax, anti-money laundering and counter-terrorism
financing, conduct, competition and consumer protection (including in the design and distribution of financial products), remuneration,
privacy, data access, prudential regulation, anti-bribery and corruption, and economic and trade sanctions.
Regulatory changes could impact us in a number of ways. For example, new regulation could require us to have increased levels of
liquidity and higher levels of, and better quality, capital and funding. Regulatory change could also result in restrictions on how we
operate our business by imposing restrictions on the types of businesses we can conduct, require us or our competitors to change our
business models or require us to amend our corporate structure.
If regulatory change has any such effect, it could adversely affect one or more of our businesses, restrict our flexibility, require us to
incur substantial costs and could impact the profitability of one or more of our business lines. Any such costs or restrictions could
adversely affect our business, prospects, financial performance or financial condition.
Regulation may also affect how we provide products and services to our customers. New laws and regulations could restrict our ability
to provide products and services to certain customers (including by imposing regulatory limits on certain types of lending and on lending
to certain customer segments), require us to alter our product and service offerings and restrict our ability to set prices for certain
products and services. These types of changes could affect our profitability by adversely affecting our ability to maintain or increase
margins and fees. This could occur because a regulation seeks to place a cap on the price of a product or service we provide, or
because, in response to new regulation, we increase the price we charge for a product or service. This price increase could lead to
customers seeking out alternative products or services, whether within the Group or with a competitor (including customers switching
residential mortgages from interest-only to principal and interest).
There are numerous sources of regulatory change that could affect our business. In some cases, changes to regulation are driven by
international bodies. For example, in December 2010, the Basel Committee on Banking Supervision (BCBS) announced a revised
global regulatory framework known as Basel III. Basel III, among other things, increased the required quality and quantity of capital held
by banks and introduced new standards for the management of liquidity risk. The BCBS continues to refine this framework, while, in
July 2017, APRA took steps to implement the next wave of capital requirements for banks by clarifying its expectations for banks to
hold ‘unquestionably strong’ levels of capital. In other cases, authorities in the various jurisdictions in which we operate or obtain
funding may propose regulatory change for financial institutions. Examples of proposed regulatory change that could impact us include
changes to accounting and reporting standards, derivatives reform and changes to tax legislation (including dividend imputation).
Further details on regulatory changes that may impact Westpac (including the Basel III framework) are set out in ‘Significant
developments’ in Section 1.
Risk and risk management
2017 Westpac Group Annual Report
119
Further changes may occur driven by policy, prudential or political factors. Westpac is currently operating in an environment where
there is increased political scrutiny of the Australian financial services sector. This environment has served to increase the pace and
scope of regulatory change. For example, as part of the Federal Government’s 2017 Budget, a series of reforms impacting the banking
sector were announced, including the introduction of the Bank Executive Accountability Regime (BEAR) and a new levy on ADIs with
liabilities of at least A$100 billion. Further details about the Bank Levy and BEAR are set out in ‘Significant developments’ in Section 1.
Legislation introduced in one jurisdiction may lead to other governments seeking to introduce similar legislation in their jurisdiction. This
was demonstrated by the South Australian Governmen
t’s proposal to introduce a levy on the banks that are subject to the Federal
Government’s Bank Levy. While it is unclear if the South Australian levy will come into effect, it is possible that other governments may
attempt to introduce their own version of the Bank Levy or similar legislation in the future.
As part of the heightened political scrutiny on the financial services sector, the Australian Government, other regulators and
parliamentary bodies are increasingly initiating reviews and inquiries (such as the Financial System Inquiry, the House of
Representatives Standing Committee on Economics’ ongoing ‘Review of Australia’s Four Major Banks’ and the Senate Economics
References Committee’s inquiry into consumer protection in the banking, insurance and financial sector, the Productivity Commission
Inquiry into Competition in the Australian Financial System and the ACCC inquiry into residential mortgage pricing). These reviews and
commissions of inquiry could lead to substantial regulatory change or investigations, which could have a material impact on our
business, prospects, financial performance or financial condition.
It is also possible that governments or regulators in jurisdictions in which we operate or obtain funding might revise their application of
existing regulatory policies that apply to, or impact, our business (including by instituting macro-prudential limits on lending). Regulators
or governments may take this action for a variety of reasons, including for reasons relating to national interest and/or systemic stability.
Regulatory changes and the timing of their introduction continue to evolve and we manage our businesses in the context of regulatory
uncertainty and complexity. The nature and impact of future changes are not predictable and are beyond our control. Regulatory
compliance and the management of regulatory change are an important part of our planning processes. We expect that we will be
required to continue to invest significantly in compliance and the management and implementation of regulatory change and, at the
same time, significant management attention and resources will be required to update existing, or implement new, processes to comply
with new regulations. Furthermore, the challenge in managing regulatory change may be heightened by multiple jurisdictions seeking to
adopt a coordinated approach to the introduction of new regulations. Where these jurisdictions elect not to adopt regulation in a uniform
manner across each jurisdiction, this may result in conflicts between the specific requirements of the different jurisdictions in which we
operate.
For further information refer to ‘Significant developments’ in Section 1 and the sections ‘Critical accounting assumptions and estimates’
and ‘Future developments in accounting standards’ in Note 1 to the financial statements.
Our businesses are highly regulated and we could be adversely affected by failing to comply with laws, regulations or
regulatory policy
We are responsible for ensuring that we comply with all applicable legal and regulatory requirements (including accounting standards)
and industry codes of practice in the jurisdictions in which we operate or obtain funding, as well as meeting our ethical standards.
The Group is subject to compliance risk, which is the risk of legal or regulatory sanction or financial or reputational loss, arising from our
failure to abide by the compliance obligations required of us. This risk is exacerbated by the increasing complexity and volume of global
regulation. Compliance risk can also arise where we interpret our regulatory obligations, compliance requirements and rights (including
tax incentives) differently to our regulators or a court.
The Group’s failure, or suspected failure, to comply with a compliance obligation could lead to a regulator commencing an investigation
into the Group or taking other administrative or enforcement action against us. In addition, the failure or alleged failure of our
competitors to comply with their compliance obligations could lead to increased regulatory scrutiny across the financial services sector.
In many cases, our regulators have broad administrative and enforcement powers. For example, under the Banking Act 1959 (Cth),
APRA can, in certain circumstances, investigate our affairs and/or issue a direction to us (such as a direction to comply with a
prudential requirement, to conduct an audit, to remove a Director, executive officer or employee or not to undertake transactions). Other
regulators also have the power to investigate, including looking into past conduct.
The powers exercisable by our regulators may also be expanded in the future. For example, the Australian Government has consulted
on a proposal to provide ASIC with a product intervention power and has also consulted on expanding ASIC’s powers to ban individuals
working in the financial services sector. Further details are set out in ‘Significant developments’ in Section 1.
Changes may also occur in the oversight approach of regulators which could result in a regulator exercising its enforcement powers
rather than adopting a more consultative approach.
1202017 Westpac Group Annual Report
In recent years, there have been significant increases in the nature and scale of regulatory investigations, enforcement actions and the
quantum of fines issued by global regulators. The nature of regulatory activity can be wide-ranging and may result in litigation, fines,
penalties, reputational damage, revocation, suspension or variation of conditions of relevant regulatory licences (including potentially
requiring us to change or adjust our business model) or other enforcement or administrative action or agreements (such as enforceable
undertakings).
For example:
In April 2016, ASIC commenced civil proceedings against Westpac in the Federal Court of Australia, alleging certain misconduct in
relation to the setting of the BBSW in the period April 2010 to June 2012, including market manipulation and unconscionable
conduct. Westpac is defending the proceedings;
On 1 March 2017, ASIC commenced civil proceedings against Westpac in the Federal Court of Australia in relation to certain home
loan responsible lending practices (including interest only lending). Westpac is defending the proceedings; and
On 15 March 2017, Westpac entered into an enforceable undertaking with ASIC following ASIC’s industry-wide investigation into
wholesale Spot Foreign Exchange (FX) trading activity between January 2008 and June 2013. As part of the enforceable
undertaking, Westpac undertook, amongst other things, to continue to progress its program of strengthening its policies and
processes in its Spot FX trading business, with input from an independent expert.
Furthermore, regulatory activity may result in Westpac being exposed to the risk of litigation brought by third parties (including through
class action proceedings). The outcome of such litigation (including class action proceedings) may be payment of compensation to third
parties and/or further remediation activities. In addition, action taken in one jurisdiction may prompt similar action to be taken in another
jurisdiction.
During the year ended 30 September 2017, Westpac has responded to requirements, compulsory notices and requests for information
from its regulators as part of both industry-wide and Westpac-specific reviews, including in relation to matters involving sales practices,
responsible lending, reverse mortgages, interest only loans, the provision of financial advice and ongoing advice service fees.
Regulatory investigations, litigation, fines, penalties, revocation, suspension or variation of conditions of relevant regulatory licences or
other enforcement or administrative action or agreements (such as enforceable undertakings) could, either individually or in aggregate
with other regulatory action, adversely affect our business, reputation, prospects, financial performance or financial condition
.
The failure to comply with financial crime obligations could have an adverse effect on our business and reputation
The Group is subject to anti-money laundering and counter-terrorism financing laws, anti-bribery and corruption laws and economic and
trade sanctions laws in the jurisdictions in which it operates. These laws can be complex, and are undergoing change in a number of
jurisdictions. Furthermore, in recent years there has been increased focus on compliance with these obligations, with regulators around
the globe commencing large-scale investigations and taking enforcement action where they have identified non-compliance (often
seeking significant monetary penalties).
While the Group has systems, policies, processes and controls in place that are designed to manage its financial crime obligations,
these may not always be effective. If we fail to comply with these obligations, we could face regulatory action such as litigation, fines,
penalties and the revocation, suspension or variation of licence conditions. Non-compliance could also lead to litigation commenced by
third parties (including class action proceedings) and cause reputational damage. These actions could, either individually or in
aggregate, adversely affect our business, reputation, prospects, financial performance or financial condition.
Reputational damage could harm our business and prospects
Our ability to attract and retain customers and our prospects could be adversely affected if our reputation is damaged.
Reputation risk is the risk of loss of reputation, stakeholder confidence or public trust and standing. It arises where there are differences
between stakeholders’ current and emerging perceptions, beliefs and expectations and our current and planned activities, processes,
performance and behaviours.
During the full year ended 30 September 2017, we commenced a broader program to reduce complexity and resolve prior issues that
have the potential to impact customers and reputation. As part of these reviews, we are strengthening our processes and controls in
certain businesses and we have identified some prior instances where we are now taking action to put things right so that our
customers are not at a disadvantage from certain past practices. For further information about these and other internal reviews, refer to
Note 31 to the Financial Statements.
There are various potential sources of reputational damage, including failure to effectively manage risks in accordance with our risk
management frameworks, potential conflicts of interest, failure to comply with legal and regulatory requirements, failure to meet our
market disclosure obligations, regulatory investigations into past conduct, adverse findings from regulatory reviews (including Westpac-
specific and industry-wide reviews), making inaccurate public statements, environmental, social and ethical issues, engagement and
conduct of external suppliers, failure to comply with anti-money laundering and counter-terrorism
Risk and risk management
2017 Westpac Group Annual Report121
financing laws, anti-bribery and corruption laws, economic and trade sanctions legislation or privacy laws, litigation, failure of
information security systems, improper sales and trading practices, failure to comply with personnel and supplier policies, improper
conduct of companies in which we hold strategic investments, technology failures and security breaches and inadequate record
keeping which may prevent Westpac from demonstrating that a past decision was appropriate at the time it was made.
Westpac may incur reputational damage where one of its practices fails to meet evolving community expectations. As these
expectations may exceed the standard required in order to comply with the law, Westpac may incur reputational damage even where it
has met its legal obligations. A divergence between community expectations and Westpac’s practices could arise in a number of ways,
including in relation to our product and services disclosure practices, the features and benefits available under our products, pricing
policies and use of data. Our reputation could also be adversely affected by the actions of the financial services industry in general or
from the actions of our competitors, customers, suppliers and other counterparties. Furthermore, the risk of reputational damage may
be heightened by the increasing use of social media.
Failure, or perceived failure, to appropriately address issues that could or do give rise to reputational risk could also impact the
regulatory change agenda, give rise to additional legal risk, subject us to regulatory investigations, regulatory enforcement actions, fines
and penalties or litigation brought by third parties (including class actions), require us to remediate and compensate customers and
incur remediation costs or harm our reputation among customers, investors and the marketplace. This could lead to loss of business
which could adversely affect our business, prospects, financial performance or financial condition
.
We could suffer information security risks, including cyberattacks
The proliferation of new technologies, the increasing use of the internet and telecommunications to conduct financial transactions and
the growing sophistication and activities of attackers (including organised crime and state-sponsored actors) have resulted in increased
information security risks for major financial institutions such as Westpac and our external service providers.
While Westpac has systems in place to protect against, detect and respond to cyberattacks, these systems may not always be effective
and there can be no assurance that we will not suffer losses from cyberattacks or other information security breaches in the future.
Our operations rely on the secure processing, storage and transmission of information on our computer systems and networks, and the
systems and networks of external suppliers. Although we implement measures to protect the security, integrity and confidentiality of our
information, there is a risk that the computer systems, software and networks on which we rely may be subject to security breaches,
unauthorised access, malicious software, external attacks or internal breaches that could have an adverse impact on our confidential
information or that of our customers and counterparties.
Major banks in other jurisdictions have suffered security breaches from sophisticated cyberattacks. Our external service providers or
other parties that facilitate our business activities (such as vendors, exchanges, clearing houses, central depositories and financial
intermediaries) are also subject to the risk of cyberattacks. Any such security breach could result in the loss of customers and business
opportunities, significant disruption to Westpac’s operations, misappropriation of Westpac’s confidential information and/or that of our
customers and damage to Westpac’s computers or systems and/or those of our customers. Such a security breach could also result in
reputational damage, claims for compensation and regulatory investigations and penalties, which could adversely affect our business,
prospects, financial performance, or financial condition.
Our risk and exposure to such threats remains heightened because of the evolving nature of technology, Westpac’s prominence within
the financial services industry, the prominence of our customers (including government, mining and health) and our plans to continue to
improve and expand our internet and mobile banking infrastructure.
We could suffer losses due to technology failures
The reliability, integrity and security of our information and technology is crucial in supporting our customers’ banking requirements and
meeting our compliance obligations and our regulators’ expectations.
While the Group has a number of processes in place to provide for and monitor the availability and recovery of our systems, there is a
risk that our information and technology systems might fail to operate properly or become disabled as a result of events that are wholly
or partially beyond our control. If we incur a technology failure we may fail to meet a compliance obligation, which could result in a
regulator commencing an investigation and/or taking administrative or enforcement action against us.
Further, in order to continue to deliver new products and services to customers and comply with our regulatory obligations, we need to
regularly renew and enhance our technology. We are constantly managing technology projects including projects to consolidate
technology platforms, simplify and enhance our technology and operations environment, improve productivity and provide for a better
cu
sto
mer experience. Failure to implement these projects or manage associated change effectively could result in cost overruns,
unrealised productivity, operational instability or reputational damage. In turn, this could place us at a competitive disadvantage and
adversely affect our financial performance.
1222017 Westpac Group Annual Report
Adverse credit and capital market conditions or depositor preferences may significantly affect our ability to meet funding and
liquidity needs and may increase our cost of funding
We rely on deposits, and credit and capital markets, to fund our business and as a source of liquidity. Our liquidity and costs of
obtaining funding are related to credit and capital market conditions.
Global credit and capital markets can experience periods of extreme volatility, disruption and decreased liquidity as was demonstrated
during the Global Financial Crisis. While there have now been extended periods of stability in these markets, the environment remains
unpredictable. The main risks we face are damage to market confidence, changes to the access and cost of funding and a slowing in
global activity or other impacts on entities with whom we do business.
As of 30 September 2017, approximately 30% of our total funding originated from domestic and international wholesale markets. Of
this, around 62% was sourced outside Australia and New Zealand. Customer deposits provide around 62% of total funding. Customer
deposits held by Westpac are comprised of both term deposits which can be withdrawn after a certain period of time and at call
deposits which can be withdrawn at any time.
A shift in investment preferences could result in deposit withdrawals by customers which could increase our need for funding from
other, potentially less stable, or more expensive, forms of funding.
If market conditions deteriorate due to economic, financial, political or other reasons, there may also be a loss of confidence in bank
deposits and we could experience unexpected deposit withdrawals. In this situation our funding costs may be adversely affected and
our liquidity and our funding and lending activities may be constrained.
If our current sources of funding prove to be insufficient, we may be forced to seek alternative financing. The availability of such
alternative financing, and the terms on which it may be available, will depend on a variety of factors, including prevailing market
conditions, the availability of credit, our credit ratings and credit market capacity. Even if available, these alternatives may be more
expensive or on unfavourable terms, which could adversely affect our financial performance, liquidity, capital resources or financial
condition. There is no assurance that we will be able to obtain adequate funding and do so at acceptable prices, nor that we will be able
to recover any additional costs.
If Westpac is unable to source appropriate funding, we may also be forced to reduce our lending or begin selling liquid securities. Such
actions may adversely impact our business, prospects, liquidity, capital resources, financial performance or financial condition.
Westpac enters into collateralised derivative obligations, which may require Westpac to post additional collateral based on movements
in market rates, which has the potential to adversely affect Westpac’s liquidity or ability to use derivative obligations to hedge its interest
rate, currency and other financial instrument risks.
For a more detailed description of liquidity risk, refer to ‘Funding and liquidity risk management’ in Note 22 to the financial statements.
Sovereign risk may destabilise financial markets adversely
Sovereign risk is the risk that foreign governments will default on their debt obligations, will be unable to refinance their debts as they
fall due or will nationalise parts of their economy including assets of financial institutions such as Westpac. Sovereign defaults could
negatively impact the value of our holdings of high quality liquid assets. There may also be a cascading effect to other markets and
countries, the consequences of which, while difficult to predict, may be similar to or worse than those experienced during the Global
Financial Crisis. Such an event could destabilise global financial markets adversely affecting our liquidity, financial performance or
financial condition.
Failure to maintain credit ratings could adversely affect our cost of funds, liquidity, competitive position and access to capital
markets
Credit ratings are independent opinions on our creditworthiness. Our credit ratings can affect the cost and availability of our funding
from capital markets and other funding sources and they may be important to customers or counterparties when evaluating our
products and services. Therefore, maintaining high credit ratings is important.
The credit ratings assigned to us by rating agencies are based on an evaluation of a number of factors, including our financial strength,
the quality of our governance, structural considerations regarding the Australian financial system and the credit rating of the Australian
Government. A credit rating downgrade could be driven by a downgrade of the Australian Government, the occurrence of one or more
of the other risks identified in this section or by other events including changes to the methodologies used by the rating agencies to
determine ratings.
A downgrade or series of downgrades to our credit ratings could have an adverse effect on our cost of funds and related margins,
collateral requirements, liquidity, competitive position and our access to capital markets. The extent and nature of these impacts would
depend on various factors, including the extent of any ratings change, whether our ratings differ among agencies (split ratings) and
whether any ratings changes also impact our competitors or the sector
.
Risk and risk management
2017 Westpac Group Annual Report123
A systemic shock in relation to the Australian, New Zealand or other financial systems could have adverse consequences for
Westpac or its customers or counterparties that would be difficult to predict and respond to
There is a risk that a major systemic shock could occur that causes an adverse impact on the Australian, New Zealand or other
financial systems.
As outlined above, during the past decade the financial services industry and capital markets have been, and may continue to be,
adversely affected by market volatility, global economic conditions, geopolitical instability (such as threats of or actual conflict occurring
around the world) and political developments (such as Brexit). A shock to one of the major global economies could again result in
currency and interest rate fluctuations and operational disruptions that negatively impact the Group.
Any such market and economic disruptions could adversely affect financial institutions such as Westpac because consumer and
business spending may decrease, unemployment may rise and demand for the products and services we provide may decline, thereby
reducing our earnings. These conditions may also affect the ability of our borrowers to repay their loans or our counterparties to meet
their obligations, causing us to incur higher credit losses and affect investors’ willingness to invest in the Group. These events could
also result in the undermining of confidence in the financial system, reducing liquidity, impairing our access to funding and impairing our
customers and counterparties and their businesses. If this were to occur, our business, prospects, financial performance or financial
condition could be adversely affected.
The nature and consequences of any such event are difficult to predict and there can be no certainty that we could respond effectively
to any such event.
Declines in asset markets could adversely affect our operations or profitability
Declines in Australian, New Zealand or other asset markets, including equity, residential and commercial property and other asset
markets, could adversely affect our operations and profitability.
Declining asset prices also impact our wealth management business. Earnings in our wealth management business are, in part,
dependent on asset values because we typically receive fees based on the value of securities and/or assets held or managed. A
decline in asset prices could negatively impact the earnings of this business.
Declining asset prices could also impact customers and counterparties and the value of security (including residential and commercial
property) we hold against loans and derivatives. This may impact our ability to recover amounts owing to us if customers or
counterparties were to default. It may also affect our level of provisioning which in turn impacts our profitability and financial condition.
Our business is substantially dependent on the Australian and New Zealand economies
Our revenues and earnings are dependent on economic activity and the level of financial services our customers require. In particular,
lending is dependent on various factors including economic growth, business investment, business and consumer sentiment, levels of
employment, interest rates, asset prices and trade flows in the countries in which we operate.
We conduct the majority of our business in Australia and New Zealand and, consequently, our performance is influenced by the level
and cyclical nature of lending in these countries. These factors are in turn impacted by both domestic and international economic
conditions, natural disasters and political events. A significant decrease in Australian and New Zealand housing valuations could
adversely impact our home lending activities because borrowers with loans in excess of their property value show a higher propensity
to default. In the event of defaults our security may be eroded, causing us to incur higher credit losses. The demand for our home
lending products may also decline due to adverse changes in tax legislation (such as changes to tax rates, concessions or deductions),
regulatory requirements or other buyer concerns about decreases in values.
Adverse changes to economic and business conditions in Australia and New Zealand and other countries such as China, India and
Japan, could also adversely affect the Australian economy and our customers. In particular, due to the current economic relationship
between Australia and China, particularly in the mining and resources sectors, a slowdown in China’s economic growth could negatively
impact the Australian economy. Changes in commodity prices, Chinese government policies and broader economic conditions could, in
turn, result in reduced demand for our products and services and affect the ability of our borrowers to repay their loans. If this were to
occur, it could negatively impact our business, prospects, financial performance or financial condition.
An increase in defaults in credit exposures could adversely affect our liquidity, capital resources, financial performance or
financial condition
Credit risk is the risk of financial loss where a customer or counterparty fails to meet their financial obligations to Westpac. It is a
significant risk and arises primarily from our lending activities.
We establish provisions for credit impairment based on current information. If economic conditions deteriorate, some customers and/or
counterparties could experience higher levels of financial stress and we may experience a significant increase in defaults and write-offs,
and be required to increase our provisioning. Such events would diminish available capital and could adversely affect our liquidity,
capital resources, financial performance or financial condition.
124
2017 Westpac Group Annual Report
Credit risk also arises from certain derivative, clearing and settlement contracts we enter into, and from our dealings with, and holdings
of, debt securities issued by other banks, financial institutions, companies, clearing houses, governments and government bodies, the
financial conditions of which may be affected to varying degrees by economic conditions in global financial markets.
For a discussion of our risk management procedures, including the management of credit risk, refer to the ‘Risk management’ section
and Note 22 to the financial statements.
We face intense competition in all aspects of our business
The financial services industry is highly competitive. We compete, both domestically and internationally, with retail and commercial
banks, asset managers, investment banking firms, brokerage firms, other financial service firms and businesses in other industries with
emerging financial services aspirations. This includes specialist competitors that may not be subject to the same capital and regulatory
requirements and therefore may be able to operate more efficiently. Digital technologies are changing consumer behaviour and the
competitive environment. The use of digital channels by customers to conduct their banking continues to rise and emerging competitors
are increasingly utilising new technologies and seeking to disrupt existing business models, including in relation to digital payment
services. The Group faces competition from established providers of financial services as well as from banking businesses developed
by non-financial services companies.
If we are unable to compete effectively in our various businesses and markets, our market share may decline. Increased competition
may also adversely affect us by diverting business to our competitors or creating pressure to lower margins and fees.
Increased competition for deposits could also increase our cost of funding and lead us to seek access to other types of funding or
reduce lending. We rely on bank deposits to fund a significant portion of our balance sheet and deposits have been a relatively stable
source of funding. We compete with banks and other financial services firms for such deposits. To the extent that we are not able to
successfully compete for deposits, we would be forced to rely more heavily on other, potentially less stable or more expensive forms of
funding, or reduce lending.
We are also dependent on our ability to offer products and services that match evolving customer preferences. If we are not successful
in developing or introducing new products and services or responding or adapting to changes in customer preferences and habits, we
may lose customers to our competitors. This could adversely affect our business, prospects, financial performance or financial
condition.
For more detail on how we address competitive pressures refer to ‘Competition’ in Section 1.
We could suffer losses due to market volatility
We are exposed to market risk as a consequence of our trading activities in financial markets, our defined benefit plan and through the
asset and liability management of our financial position. This is the risk of an adverse impact on earnings resulting from changes in
market factors, such as foreign exchange rates, commodity prices, equity prices and interest rates including the potential for negative
interest rates. This includes interest rate risk in the banking book, such as the risk to interest income from a mismatch between the
duration of assets and liabilities that arises in the normal course of business activities. If we were to suffer substantial losses due to any
market volatility it may adversely affect our business, prospects, liquidity, capital resources, financial performance or financial condition.
For a discussion of our risk management procedures, including the management of market risk, refer to the ‘Risk management’ section.
We could suffer losses due to operational risks
Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. It
also includes, among other things, technology risk, model risk and outsourcing risk, as well as the risk of business disruption due to
external events
such as natural
disasters, environmental hazard, damage to critical utilities, and targeted activism and protest activity.
While we have policies, processes and controls in place to manage these risks, these may not always be effective.
If a process or control is ineffective, it could result in an adverse outcome for Westpac’s customers. For example, a process breakdown
could result in a customer not receiving a product on the terms and conditions, or at the pricing, they agreed to. In addition, inadequate
record keeping may prevent Westpac from demonstrating that a past decision was appropriate at the time it was made. If this was to
occur, Westpac may incur significant costs in paying refunds and compensation to customers, as well as remediating any underlying
process breakdown. These types of failure may also result in increased regulatory scrutiny, with a regulator potentially commencing an
investigation and/or taking other enforcement, administrative or supervisory action.
We could incur losses from fraudulent applications for loans or from incorrect or fraudulent payments and settlements, particularly real-
time payments. Fraudulent conduct can also emerge from external parties seeking to access the bank’s systems and customers’
accounts. If systems, procedures and protocols for managing fraud fail, or are ineffective, they could lead to losses which could
adversely affect our business, prospects, reputation, financial performance or financial condition.
As a financial services organisation, Westpac is heavily reliant on the use of data and models in the conduct of its business (including in
the calculation of risk-weighted assets). We are therefore exposed to model risk, being the risk of loss arising because of errors or
inadequacies in data or a model, or in the control and use of the model.
Risk and risk management
2017 Westpac Group Annual Report125
Westpac relies on a number of suppliers, both in Australia and overseas, to provide services to it and its customers. Failure by these
suppliers to deliver services as required could disrupt services and adversely impact Westpac’s operations, profitability or reputation.
Operational risks can directly impact our reputation and result in financial losses (including through decreased demand for our products
and services) which would adversely affect our financial performance or financial condition.
The Group (and individual entities within the Group) may, from time to time, be involved in legal proceedings (including class action
proceedings), regulatory actions or arbitration arising from the conduct of their business. These may, either individually or in aggregate,
adversely affect the Group’s business, operations, prospects or financial condition. Such matters are subject to many uncertainties (for
example, the outcome may not be able to be predicted accurately) and the Group may be required to pay money such as damages,
fines, penalties or legal costs. The Group’s material contingent liabilities are described in Note 31 to the financial statements. There is a
risk that these contingent liabilities may be larger than anticipated or that additional litigation or other contingent liabilities may arise.
For a discussion of our risk management procedures, including the management of operational risk, refer to the ‘Risk management’
section.
We could suffer losses due to conduct risk
Conduct risk is the risk that our provision of services and products results in unsuitable or unfair outcomes for our stakeholders or
undermines market integrity. This risk can manifest itself through the poor conduct of our employees, contractors and external service
providers. In addition, conduct risk could occur through the provision of products and services to our customers that do not meet their
needs or do not support market integrity. This could occur through a failure to meet professional obligations to specific clients (including
fiduciary and suitability requirements), poor product design and implementation, selling products and services outside of customer
target markets or a failure to adequately provide the products or services we had agreed to provide a customer. While we have policies
and processes that are designed to manage poor conduct outcomes, these policies and processes may not always be effective. The
failure of these policies and processes could result in financial losses and reputational damage and this could adversely affect our
business, prospects, financial performance or financial condition.
We could suffer losses due to failures in governance or risk management strategies
We have implemented risk management strategies, frameworks and internal controls involving processes and procedures intended to
identify, monitor and manage risks including liquidity risk, credit risk, equity risk, market risk (such as interest rate and foreign exchange
risk), compliance risk, conduct risk, insurance risk, sustainability risk, related entity (contagion) risk and operational risk, all of which
may impact the Group’s reputation.
However, there are inherent limitations with any risk management framework as there may exist, or emerge in the future, risks that we
have not anticipated or identified. The effectiveness of risk management frameworks is also connected to the establishment and
maintenance of a sound risk management culture.
If any of our governance or risk management processes and procedures prove ineffective or inadequate or are otherwise not
appropriately implemented, we could suffer unexpected losses and reputational damage which could adversely affect our business,
prospects, financial performance or financial condition.
For a discussion of our risk management procedures, refer to the ‘Risk management’ section.
Climate change may have adverse effects on our business
We and our customers may be adversely affected by the physical risks of climate change, including increases in temperatures, sea
levels, and the frequency and severity of adverse climatic events including fires, storms, floods, and droughts. These changes may
directly impact us and our customers through reputational damage, environmental factors, insurance risk, and an increase in defaults in
cr
edit exposures.
I
nitiatives to mitigate or respond to adverse impacts of climate change may in turn impact market and asset prices, economic activity,
and customer behaviour, particularly in geographic locations and industry sectors adversely affected by these changes. Failure to
effectively manage these transition risks could adversely affect our reputation, business, prospects, financial performance or financial
condition.
We could suffer losses due to environmental factors
We and our customers operate businesses and hold assets in a diverse range of geographic locations. Any significant environmental
change or external event (including fire, storm, flood, earthquake, pandemic, civil unrest or terrorism events) in any of these locations
has the potential to disrupt business activities, impact on our operations, damage property and otherwise affect the value of assets held
in the affected locations and our ability to recover amounts owing to us. In addition, such an event could have an adverse impact on
economic activity, consumer and investor confidence, or the levels of volatility in financial markets, all of which could adversely affect
our business, prospects, financial performance or financial condition.
1262017 Westpac Group Annual Report
We could suffer losses due to insurance risk
We have exposure to insurance risk in our life insurance, general insurance and lenders mortgage insurance businesses, which may
adversely affect our business, operations or financial condition.
Insurance risk is the risk of mis-estimation of the expected cost of insured events, volatility in the number or severity of insured events,
and mis-estimation of the cost of incurred claims.
In the life insurance business, risk arises primarily through mortality (death) and morbidity (illness and injury) risks, the costs of claims
relating to those risks being greater than was anticipated when pricing those risks and policy lapses.
In the general insurance business, insurance risk arises mainly through environmental factors (including storms, floods and bushfires)
and other calamities, such as earthquakes, tsunamis and volcanic activity, as well as general variability in home and contents insurance
claim amounts. The frequency and severity of external events such as natural disasters is difficult to predict and it is possible that the
amounts we reserve for potential losses from existing events, such as those arising from natural disaster events, may not be adequate
to cover actual claims that may arise.
In the lenders mortgage insurance business, insurance risk arises primarily from unexpected downturn in economic conditions leading
to higher levels of mortgage defaults from unemployment or other economic factors.
If our reinsurance arrangements are not effective, this could also lead to greater risks, and more losses than anticipated.
We could suffer losses due to impairment of capitalised software, goodwill and other intangible assets that may adversely
affect our business, operations or financial condition.
In certain circumstances Westpac may be exposed to a reduction in the value of intangible assets. As at 30 September 2017, Westpac
carried goodwill principally related to its investments in Australia, other intangible assets principally relating to assets recognised on
acquisition of subsidiaries and capitalised software balances.
Westpac is required to assess the recoverability of the goodwill and other intangible asset balances on at least an annual basis or
wherever an indicator of impairment exists. For this purpose Westpac uses a discounted cash flow calculation. Changes in the
methodology or assumptions upon which the calculation is based, together with expected changes in future cash flows, could materially
impact this assessment, resulting in the potential write-off of part or all of the intangible assets.
Capitalised software and other intangible assets are assessed for indicators of impairment at least annually or on indication of
impairment. In the event that an asset is no longer in use, or its value has been reduced or that its estimated useful life has declined, an
impairment will be recorded, adversely impacting the Group’s financial condition. The estimates and assumptions used in assessing the
useful life of an asset can be affected by a range of factors including changes in strategy and the rate of external changes in technology
and regulatory requirements.
We could suffer losses if we fail to syndicate or sell down underwritten securities
As a financial intermediary, we underwrite listed and unlisted debt and equity securities. Underwriting activities include the development
of solutions for corporate and institutional customers who need capital and investor customers who have an appetite for certain
investment products. We may guarantee the pricing and placement of these facilities. We could suffer losses if we fail to syndicate or
sell down our risk to other market participants. This risk is more pronounced in times of heightened market volatility.
Certain strategic decisions may have adverse effects on our business
Westpac, at times, evaluates and may implement strategic decisions and objectives including diversification, innovation, divestment or
business expansion initiatives, including acquisitions of businesses. The expansion or integration of a new business, or entry into a new
business, can be complex and costly and may require Westpac to comply with additional local or foreign regulatory requirements which
may carry additional risks. In addition, we may be unable to successfully divest businesses or assets. These activities may, for a variety
of reasons, not deliver the anticipated positive business results and could have a negative impact on our business, prospects,
engagement with regulators, financial performance or financial condition.
Limitation on Independent Registered Public Accounting Firm’s Liability
The liability of PricewaterhouseCoopers (an Australian partnership which we refer to as PwC Australia), with respect to claims arising
out of its audit report included in this Annual Report, is subject to the limitations set forth in the Professional Standards Act 1994 of New
South Wales, Australia, as amended (the Professional Standards Act) and Chartered Accountants Australia and New Zealand (NSW)
scheme adopted by Chartered Accountants Australia and New Zealand on 8 October 2014 and approved by the New South Wales
Professional Standards Council pursuant to the Professional Standards Act (the NSW Accountants Scheme). For matters occurring on
or prior to 7 October 2014, the liability of PwC Australia may be subject to the limitations set forth in predecessor schemes. The current
NSW Accountants Scheme expires on 7 October 2019 unless further extended or replaced.
The Professional Standards Act and the NSW Accountants Scheme may limit the liability of PwC Australia for damages with respect to
certain civil claims arising in, or governed by the laws of, New South Wales directly or vicariously from anything done or omitted to be
done in the performance of its professional services for us, including, without limitation, its audits of our financial statements. The extent
of the limitation depends on the timing of the relevant matter and is:
Risk and risk management
2017 Westpac Group Annual Report127
in relation to matters occurring on or after 8 October 2013, a maximum liability for audit work of A$75 million; or
in relation to matters occurring on or prior to 7 October 2013, the lesser of (in the case of audit services) ten times the reasonable
charge for the service provided and a maximum liability for audit work of A$75 million.
The limitations do not apply to claims for breach of trust, fraud or dishonesty.
In addition, there is equivalent professional standards legislation in place in other states and territories in Australia and amendments
have been made to a number of Australian federal statutes to limit liability under those statutes to the same extent as liability is limited
under state and territory laws by professional standards legislation. Accordingly, liability for acts or omissions by PwC Australia in
Australian states or territories other than New South Wales may be limited in a manner similar to that in New South Wales. These
limitations of liability may limit recovery upon the enforcement in Australian courts of any judgement under US or other foreign laws
rendered against PwC Australia based on or related to its audit report on our financial statements. Substantially all of PwC Australia’s
assets are located in Australia. However, the Professional Standards Act and the NSW Accountants Scheme have not been subject to
extensive judicial consideration and therefore how the limitation might be applied by the courts and the effect of the limitation remain
untested in a number of respects, including its effect in respect of the enforcement of foreign judgements.
128
2017 Westpac Group Annual Report
Risk management
Westpac’s vision is to be one of the world’s great service companies, helping our customers, communities and people to prosper and
grow.
Effective risk management including a sound risk culture is one of the keys to achieving our vision as it influences our customers’
experiences, the public’s perceptions, our financial performance, our reputation and our shareholders’ expectations. It is critical to our
future success. We regard managing risk as a core function performed at all levels of the Group.
The Risk Management Strategy is approved by the Board and reviewed by the Board Risk and Compliance Committee (BRCC) on an
annual basis or more frequently where required by a material business or strategy change or a material change to the Group’s risk
profile. It is owned by the Chief Executive Officer (CEO).
For further information regarding the roles and responsibilities of the BRCC and other Board committees in managing risk, refer to
Westpac’s Corporate Governance Statement in Section 1.
The CEO and Executive Team are responsible for implementing our Risk Management Strategy and frameworks, and for developing
policies, controls, processes and procedures for identifying and managing risk in all of Westpac’s activities.
As outlined in the ‘Corporate governance’ section, we adopt a Three Lines of Defence approach to risk management which reflects our
culture of ‘risk is everyone’s business’ and that all employees are responsible for identifying and managing risk and operating within the
Group’s desired risk profile.
For a discussion of the risks to which Westpac is exposed, and its policies to manage these risks, refer to Westpac’s 2017 Corporate
Governance Statement and Note 22 to the financial statements.
Credit risk
Credit risk is the risk of financial loss where a customer or counterparty fails to meet their financial obligations to Westpac.
We have a framework and supporting policies for managing the credit risk associated with lending across our business divisions. The
framework and policies encompass all stages of the credit cycle – origination, evaluation, approval, documentation, settlement, ongoing
administration and problem management. For example, we have established product-based standards for lending to individuals, with
key controls including minimum serviceability standards and maximum loan to security value ratios. We offer residential property loans
to both owner-occupiers and investors at both fixed and variable rates, secured by a mortgage over the property or other acceptable
collateral. Where we lend to higher loan to value ratios, we typically also require lenders mortgage insurance. Similarly, we have
established criteria for business, commercial, corporate and institutional lending, which can vary by industry segment. In this area we
focus on the performance of key financial risk ratios, including interest coverage, debt serviceability and balance sheet structure. When
providing finance to smaller business, commercial and corporate borrowers we typically obtain security, such as a mortgage over
property and/or a general security agreement over business assets. For larger corporates and institutions, we typically also require
compliance with selected financial ratios and undertakings and may hold security. In respect of commercial property lending, we
maintain loan origination and ongoing risk management standards, including specialised management for higher value loans. We
consider factors such as the nature, location, quality and expected demand for the asset, tenancy profile and experience and quality of
management. We actively monitor the Australian and New Zealand property markets and the composition of our commercial property
loan book across the Group.
The extension of credit is underpinned by the Group’s Principles of Responsible Lending. This is reflected in our commitment to comply
with all local legislation, codes of practice and relevant guidelines and obligations to market our products responsibly and stay in touch
with the expectations of customers and the community
.
Refer to Note 22 to the financial statements for details of our credit risk management policies.
Provisions for impairment charges on loans
For information on the basis for determining the provision for impairment charges on loans refer to ‘Critical accounting assumptions and
estimates’ in Note 14 to the financial statements.
Risk and risk management
2017 Westpac Group Annual Report129
Credit risk concentrations
We monitor our credit portfolio to manage risk concentrations. At 30 September 2017, our exposure to consumers comprised 72%
(2016: 72%, 2015: 71%) of our on-balance sheet loans and 59% (2016: 58%, 2015: 57%) of total credit commitments. At 30
September 2017, 92% (2016: 91%, 2015: 90%) of our exposure to consumers was supported by residential real estate mortgages. The
consumer category includes investment property loans to individuals, credit cards, personal loans, overdrafts and lines of credit. Our
consumer credit risks are diversified, with substantial consumer market share in every state and territory in Australia, New Zealand and
the Pacific region. Moreover, these customers service their debts with incomes derived from a wide range of occupations, in city as well
as country areas.
Exposures to businesses, government and other financial institutions are classified into a number of industry clusters based on
groupings of related Australian and New Zealand Standard Industrial Classification (ANZSIC) codes and are monitored against industry
risk limits. The level of industry risk is measured and monitored on a dynamic basis. We also control the concentration risks that can
arise from large exposures to individual borrowers.
Cross-border outstandings
Cross-border outstandings are loans, placements with banks, interest earning investments and monetary assets denominated in
currencies other than the borrower’s or guarantor’s local currency, or the local currency of the Westpac branch or subsidiary holding the
asset. They are grouped on the basis of the country of domicile of the borrower or the ultimate guarantor of the risk. The table below
excludes irrevocable letters of credit, amounts of which are immaterial. The relevant foreign denominated currencies have been
converted at the closing spot exchange rate used in the financial statements.
Our cross-border outstandings to borrowers in countries that individually represented in excess of 0.75% of Group total assets as at 30
September in each of the past three years were as follows:
At face value.
Impaired assets among cross-border outstandings were $12 million as at 30 September 2017 (2016: $277 million, 2015: $6 million).
Liquidity risk
Liquidity risk is the risk that the Group will be unable to fund assets and meet obligations as they become due. This risk could
potentially arise as a result of:
an inability to meet both expected and unexpected current and future cash flows and collateral needs without affecting either daily
operations or the financial condition of the bank; and/or
inadequate market depth or market disruption impacting the ability to offset or eliminate a position at the market price.
The Westpac Group has a liquidity risk management framework which seeks to meet cash flow obligations under a wide range of
market conditions, including name specific and market-wide scenarios as well as meeting the requirements of the LCR.
Refer to Note 22 to the financial statements for a more detailed discussion of our liquidity risk management policies.
Banks and OtherOther (Primarily%
Governments andFinancialCommercialof Tota
l
(in $millions unless otherwise indicated)Official InstitutionsInstitutionsand Industrial)TotalAssets
2017
United States8,1062,49794711,5501.4%
2016
United States8,28
83,8311,35113,4701.6%
2015
United States8,0633,40395112,4171.5%
Australia22,2374,4386,6770.8%
130
2017 Westpac Group Annual Report
1
1
Westpac debt programs and issuing shelves
Access in a timely and flexible manner to a diverse range of debt markets and investors is provided by the following programs and
issuing shelves as at 30 September 2017:
Market risk
Market risk is the risk of an adverse impact on earnings resulting from changes in market factors, such as foreign exchange rates,
interest rates, commodity prices or equity prices. This includes interest rate risk in the banking book – the risk to interest income from a
mismatch between the duration of assets and liabilities that arises in the normal course of business activities. Market risk arises in both
trading and banking book activities.
Our trading activities are conducted in our Financial Markets and Treasury businesses. Financial Markets trading book activity
represents dealings that encompass book running and distribution activity. Treasury’s trading activity represents dealings that include
the management of interest rate, foreign exchange (FX) and credit spread risk associated with wholesale funding, liquid asset portfolios
and hedging of foreign currency earnings and capital deployed offshore.
Refer to Note 22 to the financial statements for a more detailed discussion of our market risk management policies.
Risk and risk management
Program LimitIssuer(s)Program/Issuing Shelf Type
Australia
No limitWB
CDebt Issuance Program
Euro Market
USD 2.5 billionWBCEuro Transferable Certificate of Deposit Program
USD 20 billionWBC/WSNZLEuro Commercial Paper and Certificate of Deposit Program
USD 70 billionWBCEuro Medium Term Note Program
USD 10 billionWSNZLEuro Medium Term Note Program
USD 40 billionWBCGlobal Covered Bond Program
EUR 5 billionWSNZLGlobal Covered Bond Program
Japan
JPY 750 billionWBCSamurai shelf
JPY 750 billionWB
CUridashi shelf
United State
s
USD 45 billionWBCUS Commercial Paper Program
USD 10 billionWSNZLUS Commercial Paper Program
USD 35 billionWB
CUS Medium Term Note Program
USD 15 billionWBC (NY Branch)US Medium Term Deposit Note Program
No limitWBC (NY Branch)Certificate of Deposit Program
No limitWBCUS Securities and Exchange Commission registered shelves
New Zealand
No limitWNZLMedium Term Note and Registered Certificate of Deposit Program
Notes issued under this program by Westpac Securities NZ Limited, London branch are guaranteed by Westpac New Zealand Limited, its parent company.
Notes issued under this program are guaranteed by BNY Trust Company of Australia Limited as trustee of the Westpac Covered Bond Trust.
Notes issued under this program by Westpac Securities NZ Limited, London branch are guaranteed by Westpac New Zealand Limited, its parent company, and
Westpac NZ Covered Bond Limited.
2017 Westpac Group Annual Report131
1
1
2
3
1
1
2
3
The table below depicts the aggregate Value at Risk (VaR), by risk type, for traded risk for the year ended 30 September:
Includes electricity risk.
Include prepayment risk and credit spread risk (exposure to movements in generic credit rating bands).
The graph below compares the actual profit and loss from trading activities on a daily basis to VaR over the reporting period:
Traded Risk: Actual Profit and Loss vs. VaR
01 October 2016 to 30 September 2017
Each point on the graph represents one day’s profit or loss from trading activities. The result is placed on the graph relative to the
associated VaR utilisation. The downward sloping line represents the point where a loss is equal to VaR utilisation. Therefore, any point
below the line represents a back-test exception (i.e. where the loss is greater than VaR).
Operational risk and compliance risk
Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems, or from external events.
This definition is aligned to regulatory (Basel II) definition, including legal and regulatory risk but excluding strategic and reputation risk.
It also includes, among other things, technology risk, model risk and outsourcing risk.
The way operational risk is managed has the potential to positively or negatively impact our customers, our employees, our financial
performance and our reputation.
Compliance risk is the risk of legal or regulatory sanction, financial or reputational loss, arising from our failure to abide by the
compliance obligations required of us.
Compliance is focused on meeting our legal and regulatory obligations in each of the jurisdictions in which we operate by proactively
managing compliance risk. Refer to Westpac’s Corporate Governance Statement in Section 1 for information on our management of
operational and compliance risk.
Consolidated and Parent Entity201720162015
$
mHighLowAverageHighLowAverageHighLowAverage
Interest rate risk16.04.68.514.04.68.818.17.011.4
Foreign exchange risk
9.40.63.112.21.45.111.80.53.6
Equity risk
0.40.00.12.90.10.30.60.10.3
Commodity risk
14.13.36.64.51.42.75.71.73.1
Other market risks
5.13.54.26.02.63.66.72.94.6
Diversification effect
n/an/a(8.6)n/an/a(8.0)n/an/a(7.2)
Net market risk
22.99.713.918.77.712.523.59.015.8
Westpac estimates VaR as the potential loss in earnings from adverse market movements and is calculated over a 1 day time horizon to a 99% confidence
level using 1 year of historical data.
1322017 Westpac Group Annual Report
1
2
1
2
1
1
The Group’s Operational Risk Management Framework and Compliance Management Framework provide the basis for divisions to
identify, assess, measure, manage, monitor and report on their risks. The Operational Risk Management Framework sets out the
Group’s approach to managing operational risk, and is supported by a number of key Group-wide and divisional operational risk
policies. The Compliance Management Framework sets out the approach of Westpac Group to managing compliance obligations and
mitigating compliance risk, in order to achieve our compliance objective. This is discussed in further detail in Note 22 to the financial
statements.
Other risks
Business risk
The risk associated with the vulnerability of a line of business to changes in the business environment.
Conduct risk
The risk that our provision of services and products results in unsuitable or unfair outcomes for our stakeholders or undermines market
integrity.
The Westpac Group Code of Conduct describes the standards of conduct expected of our people, both employees and contractors. It is
supported by policies and procedures to manage conduct-related risks, including through our dealings in financial markets, and through
managing our statutory and professional obligations to specific clients, including fiduciary and suitability requirements, and product
management and design.
Sustainability risk
The risk of reputational or financial loss due to failure to recognise or address material existing or emerging sustainability related
environmental, social or governance issues.
The Group has in place a Sustainability Risk Management Framework that is supported by a suite of key policies and position
statements. These include the Principles for Doing Business, Responsible Investment Position Statement, Environmental, Social and
Governance (ESG) Credit Risk Policy, Climate Change Position Statement and Action Plan, Human Rights Position Statement and
Action Plan and sensitive sector position statements, and Responsible Sourcing Code of Conduct and Framework, many of which are
publicly available. The Sustainability Risk Management Framework was reviewed and updated in 2017.
Westpac is also a signatory to a number of voluntary principles-based frameworks that guide the integration of ESG-related issues into
banking, lending and investment analysis. These include the Equator Principles, covering project finance activities and the Principles for
Responsible Investments, covering investment analysis.
Equity risk
The potential for financial loss arising from movements in equity values. Equity risk may be direct, indirect or contingent.
The Group’s direct equity risk arises from principal investments or net trading or underwriting positions in listed or unlisted equities. It
also includes seed funding, debt for equity swaps, equity derivatives and other situations where the value of Westpac’s investment is
directly affected by the change in value of the equity instrument to the full extent of that change.
Our indirect equity risk arises from movements in the equity markets that affect business performance e.g. income derived as a result of
managing or the administration of equity investments on behalf of other parties where fee income is based on the value of funds under
management.
Our contingent equity risk arises from normal lending activities secured by, or with recourse to, listed and/or unlisted equities or to
another equity-like source of risk protection. This risk materialises when there is a default, and a subsequent shortfall from the
realisation of equity-related assets that is not covered from other sources of recourse.
The Group has in place various policies, limits and controls which seek to manage these risks and the conflicts of interest that can
potentially arise.
Insurance risk
The risk in our licensed regulated insurance entities of mis-estimation of the expected cost of insured events, volatility in the number or
severity of insured events, and mis-estimation of the cost of incurred claims.
Subsidiaries within the Group undertake life insurance, general insurance and lenders mortgage insurance. They are governed by
independent boards and are subject to separate regulatory oversight and controls. These subsidiaries have reinsurance arrangements
in place to reduce risk, including from catastrophic events. They are capitalised to a level that exceeds the minimum required by the
relevant regulator.
Related entity (contagion) risk
The risk that problems arising in other Westpac Group members compromise the financial and operational position of the authorised
deposit-taking institution in the Westpac Group.
The Group has in place a Related Entity Risk Management Framework and a suite of supporting policies and procedures governing the
control of dealings with, and activities that may be undertaken by, Group members. Controls include the measurement, approval and
monitoring of, and limitations on, the extent of intra-group credit exposures and other forms of
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2017 Westpac Group Annual Report133
parent entity support, plus requirements related to control of Group badging, product distribution, promotional material, service-level
agreements and managing potential conflicts of interest.
Reputation risk
The risk of the loss of reputation, stakeholder confidence, or public trust and standing.
Reputation risk arises where there are differences between stakeholder’s current and/or emerging perceptions, beliefs and expectations
relative to our current and planned activities, performance and behaviours. It can affect the Group’s brands and businesses positively or
negatively. Stakeholder perceptions can include (but are not limited to) views on financial performance, quality of products or services,
quality of management, leadership and governance, history and heritage and our approach to sustainability, social responsibility and
ethical behaviour.
We have a Reputation Risk Management Framework and key supporting policies in place covering the way we manage reputation risk
as one of our key risks across the Group, including the setting of risk appetite and roles and responsibilities for risk identification,
measurement and management, monitoring and reporting. The Reputation Risk Management Framework was reviewed and updated in
2017.
Structured entities
We are associated with a number of structured entities in the ordinary course of business, primarily to provide funding and financial
services products to our customers.
Structured entities are typically set up for a single, pre-defined purpose, have a limited life, generally are not operating entities and do
not have employees. The most common form of structured entity involves the acquisition of financial assets by the structured entity that
is funded by the issuance of securities to external investors (securitisation). Repayment of the securities is determined by the
performance of the assets acquired by the structured entity.
Under AAS, a structured entity is consolidated and reported as part of the Group if it is controlled by the parent entity in line with AASB
10 Consolidated Financial Statements. The definition of control is based on the substance rather than the legal form. Refer to Note 36
to the financial statements for a description of how we apply the requirements to evaluate whether to consolidate structured entities and
for information on both consolidated and unconsolidated structured entities.
In the ordinary course of business, we have established or sponsored the establishment of structured entities in relation to
securitisation, as detailed below.
Covered bond guarantors
Through our covered bond programs we assign our equitable interests in residential mortgage loans to a structured entity covered bond
guarantor which guarantees the obligations of our covered bonds. We provide arm’s length swaps to the covered bond guarantor in
accordance with relevant prudential guidelines. We have no obligation to repurchase any assets from the covered bond guarantor,
other than in certain circumstances where there is a breach of representation or warranty. We may repurchase loans from the covered
bond guarantor at our discretion, subject to the conditions set out in the transaction documents.
As at 30 September 2017, the carrying value of assets pledged for the covered bond programs for the Group was $42.1 billion (2016:
$45.4 billion).
Refer to Note 25 to the financial statements for further details.
Securitisation structured entities
Through our securitisation programs we assign our equitable interests in assets (in respect of RMBS, principally residential mortgage
loans, and in respect of ABS, principally auto receivables) to structured entities, which issue securities to investors. We provide arm’s
length interest rate swaps and liquidity facilities to the structured entities in accordance with relevant prudential guidelines. We have no
obligation to repurchase any securitisation securities, unless there is a breach of representation or warranty within 120 days of the initial
sale (except in respect of our program in New Zealand which imposes no such time limitation). We may remove assets from the
program where they cease to conform with the terms and conditions of the securitisation programs or through a program’s clean-up
features.
As at 30 September 2017, our assets securitised through a combination of privately or publicly placed issues primarily to Australian,
New Zealand, European and Asian investors was $8.2 billion (2016: $9.5 billion).
Under AAS substantially all of the structured entities involved in our loan securitisation programs are consolidated by the Group.
Refer to Note 25 to the financial statements for further details.
1342017 Westpac Group Annual Report
Customer funding conduits
We arrange financing for certain customer transactions through a commercial paper conduit that provides customers with access to the
commercial paper market. As at 30 September 2017, we administered one significant conduit (2016: one), that was created prior to 1
February 2003, with commercial paper outstanding of $0.4 billion (2016: $0.9 billion). We provide a letter of credit facility as credit
support to the commercial paper issued by the conduit. This facility is a variable interest in the conduit that we administer and
represents a maximum exposure to loss of $41 million as at 30 September 2017 (2016: $97 million). The conduit is consolidated by the
Group.
Refer to Note 25 to the financial statements for further details.
Structured finance transactions
We have entered into transactions with structured entities to provide financing to customers or to provide financing to the Group. Any
financing arrangements to customers are entered into under normal lending criteria and are subject to our normal credit approval
processes. The assets arising from these financing activities are generally included in loans, receivables due from other financial
institutions or available-for-sale securities. The liabilities arising from these financing activities are generally included in payables due to
other financial institutions, debt issues or financial liabilities designated at fair value. Exposures in the form of guarantees or undrawn
credit lines are included within contingent liabilities and credit-related commitments.
Other off-balance sheet arrangements
Refer to Note 38 to the financial statements for details of our superannuation plans and Note 31 for details of our contingent liabilities,
contingent assets and credit commitments.
Financial reporting
Internal control over financial reporting
The US Congress passed the Public Company Accounting Reform and Investor Protection Act in July 2002, which is commonly known
as the Sarbanes-Oxley Act of 2002 (SOx). SOx is a wide ranging piece of US legislation concerned largely with financial reporting and
corporate governance. We are obligated to comply with SOx by virtue of being a foreign registrant with the SEC and we have
established procedures designed to comply with all applicable requirements of SOx.
Disclosure controls and procedures
Our management, with the participation of our CEO and CFO, evaluated the effectiveness of the design and operation of our disclosure
controls and procedures (as defined in Rule 13a-15(e) under the US Securities Exchange Act of 1934) as of 30 September 2017.
Based upon this evaluation, our CEO and CFO have concluded that the design and operation of our disclosure controls and procedures
were effective as of 30 September 2017
.
Management’s Report on internal control over financial reporting
Rule 13a-15(a) under the US Securities Exchange Act of 1934 requires us to maintain an effective system of internal control over
financial reporting. Refer to the sections headed ‘Management’s report on internal control over financial reporting’ and ‘Report of
independent registered public accounting firm’ in Section 3 for those reports.
Changes in our internal control over financial reporting
There has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) of the US Securities Exchange
Act of 1934) for the year ended 30 September 2017 that has been identified and that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
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2017 Westpac Group Annual Report
135
Sustainability performance
Westpac’s approach to sustainability
The Group’s approach to operating sustainably is designed to anticipate, respond to and shape the most pressing emerging topics
(issues and opportunities) that have the potential to materially impact customers, employees, suppliers, shareholders and communities.
We believe that as one of Australia’s largest companies we have a role to play in helping to create positive social, economic and
environmental impact, for the benefit of all. This view is embedded within our core business activities, and aligns with the priorities set
out in the Group’s strategy.
Guiding our approach
Accountability for the Group’s Sustainability Strategy starts with the Board and flows through to all employees. The Board has
responsibility for considering the social, ethical and environmental impact of the Group’s activities, setting standards and monitoring
compliance with sustainability policies and practices. The Westpac Sustainability Council, comprising senior leaders from across the
business and meeting four times a year, oversees strategic progress and guides the Group’s approach.
Progress against the sustainability strategy is reported to and discussed with the Executive Team and Board twice each year, with other
items discussed on an as needs basis.
Westpac’s sustainability strategy is based upon the use of the widely accepted global standard for corporate responsibility and
sustainable development, the AA1000 AccountAbility Principles Standard (2008).
Our sustainability principles
In line with AA1000, Westpac has adopted the Standard’s three key principles:
Involving all stakeholders in identifying topics and developing strategy – Inclusivity;
Evaluating all topics identified to determine the impact they may have on stakeholders and the Group’s operations – Sustainability
materiality; and
Ensuring decisions, actions and performance, as well as communication with stakeholders, is responsive to the topics identified –
Responsiveness.
Frameworks and policies
Westpac responds to enduring and emerging material topics through frameworks and policies that are complementary to the business
strategy and form part of the Group’s overall approach to risk management. Collectively, they help to guide decisions, manage risk and
drive action. Key frameworks and policies include:
Our Principles for Doing Busine
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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.