WNZL Disclosure Statement for 3 months to 31 Dec 2017
Westpac
New Zealand
Limited
For the three months ended 31 December 2017
Disclosure Statement
Contents
General information ...................................................................................................................................................................................................... 1
Directors’ statement. ...................................................................................................................................................................................................... 2
Income statement. ......................................................................................................................................................................................................... 3
Statement of comprehensive income. .......................................................................................................................................................................... 3
Balance sheet................................................................................................................................................................................................................. 4
Statement of changes in equity .................................................................................................................................................................................... 5
Statement of cash flows ............................................................................................................................................................................................... 6
Notes to the financial statements ................................................................................................................................................................................. 7
Note 1 Statement of accounting policies ................................................................................................................................................................ 7
Note 2 Non-interest income ..................................................................................................................................................................................... 7
Note 3 Impairment charges/(benefits) .................................................................................................................................................................... 7
Note 4 Loans ............................................................................................................................................................................................................ 8
Note 5 Asset quality.................................................................................................................................................................................................. 8
Note 6 Financial assets pledged as collateral ........................................................................................................................................................ 8
Note 7 Deposits and other borrowings ................................................................................................................................................................... 8
Note 8 Debt issues ................................................................................................................................................................................................... 9
Note 9 Related entities ............................................................................................................................................................................................. 9
Note 10 Fair value of financial assets and financial liabilities ............................................................................................................................... 9
Note 11 Credit related commitments, contingent assets and contingent liabilities .............................................................................................12
Note 12 Segment reporting. .....................................................................................................................................................................................12
Note 13 Insurance business ....................................................................................................................................................................................13
Note 14 Capital adequacy .......................................................................................................................................................................................14
Note 15 Risk management . ....................................................................................................................................................................................15
15.1 Credit risk.. ...............................................................................................................................................................................................15
15.2 Liquidity risk . ...........................................................................................................................................................................................15
Note 16 Concentration of credit exposures to individual counterparties ..............................................................................................................15
Note 17 Subsequent events ....................................................................................................................................................................................16
Conditions of registration ..............................................................................................................................................................................................17
Westpac New Zealand Limited 1
General information
Certain information contained in this Disclosure Statement is required by the Registered Bank Disclosure Statements (New Zealand Incorporated
Registered Banks) Order 2014 (‘Order’).
In this Disclosure Statement, reference is made to:
Westpac New Zealand Limited (otherwise referred to as the ‘Bank’);
Westpac New Zealand Limited and its controlled entities (otherwise referred to as the ‘Banking Group’);
Westpac Banking Corporation (otherwise referred to as the ‘Ultimate Parent Bank’); and
Ultimate Parent Bank and its controlled entities (otherwise referred to as the ‘Ultimate Parent Bank Group’).
Words and phrases not defined in this Disclosure Statement, but defined by the Order, have the meaning given by the Order when used in this
Disclosure Statement.
Limits on material financial support by the Ultimate Parent Bank
In late 2014, the Australian Prudential Regulation Authority (‘APRA’) initiated a process to reduce Australian bank non-equity exposures to their
respective New Zealand banking subsidiaries and branches, so that these non-equity exposures are minimised during ordinary times. On 19
November 2015, APRA informed the Ultimate Parent Bank that its Extended Licensed Entity (‘ELE’) non-equity exposures to New Zealand banking
subsidiaries is to transition to be below a limit of 5% of the Ultimate Parent Bank’s Level 1 Tier 1 capital.
The ELE consists of the Ultimate Parent Bank and its subsidiary entities that have been approved by APRA to be included in the ELE for the
purposes of measuring capital adequacy.
APRA has allowed a period of five years commencing on 1 January 2016 to transition to be less than the 5% limit. Exposures for the purposes of
this limit include all committed, non-intraday, non-equity exposures including derivatives and off-balance sheet exposures. Further, APRA imposed
two conditions over the transition period – the percentage excess above the 5% limit as at 30 June 2015, is to reduce by at least one fifth by the
end of each calendar year over the transition period, and the absolute amount of routine New Zealand non-equity exposure is not to increase from
the 30 June 2015 level until the Ultimate Parent Bank is, and expects to remain, below the 5% limit. For the purposes of assessing this exposure,
the 5% limit excludes equity investments and holdings of capital instruments in New Zealand banking subsidiaries. As at 31 December 2017, the
ELE’s non-equity exposures to New Zealand banking subsidiaries affected by the limit were below 5% of Level 1 Tier 1 capital of the Ultimate
Parent Bank.
APRA has also confirmed the terms on which the Ultimate Parent Bank ‘may provide contingent funding support to a New Zealand banking
subsidiary during times of financial stress’. APRA has confirmed that, at this time, only covered bonds meet its criteria for contingent funding
arrangements.
Directors
There have been no changes in the composition of the Board of Directors of the Bank (the ‘Board’) since 30 September 2017.
Credit ratings
The Bank has the following credit ratings with respect to its long-term senior unsecured obligations, including obligations payable in New Zealand
in New Zealand dollars, as at the date the Directors signed this Disclosure Statement:
Rating Agency
Current Credit Rating Rating Outlook
Fitch Ratings AA- Stable
Moody’s Investors Service (‘Moody’s’)
A1
Stable
S&P Global Ratings AA- Negative
On 19 June 2017, Moody’s downgraded the Bank’s credit rating to A1. The downgrade follows Moody’s revision of the Australian Macro Profile to
“Strong +” from “Very Strong -”, which resulted in a downgrade for the Ultimate Parent Bank to ‘Aa3’ from ‘Aa2’. At the same time, Moody’s revised
the outlook to ‘stable’ from ‘negative’.
Guarantee arrangements
No material obligations of the Bank are guaranteed as at the date the Directors signed this Disclosure Statement.
Westpac New Zealand Limited 2
Directors’ statement
Each Director of the Bank believes, after due enquiry, that, as at the date on which this Disclosure Statement is signed, the Disclosure Statement:
(a) contains all the information that is required by the Order; and
(b) is not false or misleading.
Each Director of the Bank believes, after due enquiry, that, over the three months ended 31 December 2017:
(a) the Bank has complied with all conditions of registration imposed on it pursuant to section 74 of the Reserve Bank of New Zealand Act
1989 (‘Reserve Bank Act’) except as noted in Note 14 to the financial statements and pages 17 and 18;
(b) credit exposures to connected persons were not contrary to the interests of the Banking Group; and
(c) the Bank had systems in place to monitor and control adequately the Banking Group's material risks, including credit risk, concentration
of credit risk, interest rate risk, currency risk, equity risk, liquidity risk, operational risk and other business risks, and that those systems
were being properly applied.
This Disclosure Statement has been signed by all the Directors:
Janice Dawson
David McLean
Malcolm Bailey
Peter King
Jonathan Mason
Christopher Moller
Mary Quin
Dated this 15
th
day of February 2018
Westpac New Zealand Limited 3
Income statement for the three months ended 31 December 2017
Three Months
Three Months Year
Ended Ended Ended
31-Dec-17 31-Dec-16 30-Sep-17
$ millionsNoteUnaudited Unaudited Audited
Interest income997 994 3,917
Interest expense
(541)
(556) (2,176)
Net interest income456
438 1,741
Non-interest income2
105
92 405
Net operating income before operating expenses and impairment charges561
530 2,146
Operating expenses
(238)
(236) (954)
Impairment (charges)/benefits3
(6)
37 76
Profit before income tax317
331 1,268
Income tax expense
(89)
(92) (359)
Net profit for the period/year228
239 909
The Banking Group
The above income statement should be read in conjunction with the accompanying notes.
Statement of comprehensive income for the three months ended 31 December 2017
Three Months Three Months Year
Ended Ended Ended
31-Dec-17 31-Dec-16 30-Sep-17
$ millionsUnaudited Unaudited Audited
Net profit for the period/year228
239 909
Other comprehensive income
Items that may be reclassified subsequently to profit or loss
Gains/(losses) on available-for-sale securities:
Recognised in equity6 4 11
Gains/(losses) on cash flow hedging instruments:
Recognised in equity
(15) 29
(76)
Transferred to income statement
15 20
79
Available-for-sale securities reserve
(2)
(1) (3)
Cash flow hedging reserve
-
(13)
-
Remeasurement of defined benefit obligation recognised in equity (net of tax)
- -
10
4
39
21
232
278 930
Other comprehensive income for the period/year (net of tax)
Total comprehensive income for the period/year
The Banking Group
Income tax on items taken to or transferred from equity:
Items that will not be reclassified subsequently to profit or loss
The above statement of comprehensive income should be read in conjunction with the accompanying notes.
Westpac New Zealand Limited 4
Balance sheet as at 31 December 2017
31-Dec-17
31-Dec-16 30-Sep-17
$ millions
Note Unaudited
Unaudited Audited
Assets
Cash and balances with central banks1,905 1,791 1,659
Receivables due from other financial institutions218 860 407
Other assets316 266 264
Trading securities2,357 5,062 1,797
Derivative financial instruments 339 60 220
Available-for-sale securities3,609 3,721 4,087
Loans4 77,733 75,756 77,261
Due from related entities2,007 1,956 2,017
Property and equipment143 153 146
Deferred tax assets165 169 162
Intangible assets
611
587 607
Total assets89,403
90,381 88,627
Liabilities
Payables due to other financial institutions237 9 143
Other liabilities 542 541 502
Deposits and other borrowings7 61,098 59,995 58,998
Other financial liabilities at fair value through income statement- - 19
Derivative financial instruments 321 901 484
Debt issues8 15,455 17,897 16,729
Current tax liabilities73 66 75
Provisions
69
72 85
Total liabilities excluding related entities liabilities77,795
79,481 77,035
Due to related entities1,898 2,982 2,126
Loan capital
2,628
1,080 2,616
Total related entities liabilities4,526
4,062 4,742
Total liabilities82,321
83,543 81,777
Net assets7,082
6,838 6,850
Shareholder's equity
Share capital3,750 3,750 3,750
Retained profits 3,393 3,125 3,165
Reserves
(61)
(37) (65)
Total shareholder's equity 7,082 6,838 6,850
Interest earning and discount bearing assets87,804 88,956 87,294
Interest and discount bearing liabilities
75,210
76,263 74,996
The Banking Group
The above balance sheet should be read in conjunction with the accompanying notes.
Westpac New Zealand Limited 5
Statement of changes in equity for the three months ended 31 December 2017
Available-
for-sale
Cash Flow
Share
Retained
Securities Hedging
$ millionsCapital
Profits
Reserve Reserve Total
As at 1 October 2016 (Audited)3,750 2,886 1 (77) 6,560
-
239 - -
239
-
- 4 29
33
Income tax effect
-
- (1) (8)
(9)
-
- - 20
20
Income tax effect
-
- - (5) (5)
Total comprehensive income for the three months ended
-
239 3 36 278
As at 31 December 2016 (Unaudited)
3,750 3,125 4 (41) 6,838
Year ended 30 September 2017 (Audited)
Net profit for the year-
909 - - 909
-
- 11 (76) (65)
Income tax effect
-
- (3) 22 19
Transferred to the income statement
-
- - 79 79
Income tax effect-
- - (22) (22)
-
14 - - 14
Income tax effect
-
(4) - - (4)
Total comprehensive income for the year ended
-
919 8 3 930
Transactions with owners:
Dividends paid on ordinary shares
-
(640) - - (640)
As at 30 September 2017 (Audited)
3,750
3,165 9 (74) 6,850
-
228 - - 228
-
- 6 (15) (9)
Income tax effect
-
- (2) 4 2
-
- - 15 15
Income tax effect-
- - (4) (4)
Total comprehensive income for the three months ended
-
228 4 - 232
As at 31 December 2017 (Unaudited)3,750 3,393 13 (74) 7,082
Net profit for the period
The Banking Group
Three months ended 31 December 2017 (Unaudited)
Net gains/(losses) from changes in fair value
Net profit for the period
Three months ended 31 December 2016 (Unaudited)
Remeasurement of employee defined benefit obligations
Net gains/(losses) from changes in fair value
30 September 2017
Transferred to the income statement
31 December 2016
Reserves
Net gains/(losses) from changes in fair value
Transferred to the income statement
31 December 2017
The above statement of changes in equity should be read in conjunction with the accompanying notes.
Westpac New Zealand Limited 6
Statement of cash flows for the three months ended 31 December 2017
Three Months Three Months
Year
Ended
Ended
Ended
31-Dec-17
31-Dec-16
30-Sep-17
$ millionsUnaudited
Unaudited
Audited
Cash flows from operating activities
Interest income received
982
971 3,902
Interest expense paid(562)
(539) (2,158)
Non-interest income received80 86
422
Operating expenses paid(242) (224)
(844)
Income tax paid
(95)
(90)
(334)
Cash flows from operating activities before changes in operating assets and liabilities
163
204
988
Net (increase)/decrease in:
Receivables due from other financial institutions
189
(140)
313
Other assets
(29)
-
(14)
Trading securities
(539)
(2,933)
312
Loans
(484)
(623)
(2,103)
Due from related entities
64
(1)
(281)
Net increase/(decrease) in:
Payables due to other financial institutions94
(6)
128
Other liabilities28
(3)
9
Deposits and other borrowings2,100
1,204
207
Other financial liabilities at fair value through income statement
(19)
(400)
(381)
Due to related entities
1
60
114
(197)
Net movement in external and related entity derivative financial instruments
(62)
(99)
(627)
Net cash provided by/(used in) operating activities
1,565
(2,683)
(1,646)
Cash flows from investing activities
Purchase of available-for-sale securities-
-
(533)
Proceeds from available-for-sale securities
475
- 162
Purchase of capitalised computer software
(15)
(12) (61)
Purchase of property and equipment
(9)
(4)
(31)
Net cash provided by/(used in) investing activities451
(16) (463)
Cash flows from financing activities
Net movement in due to related entities
1
(215)
(83) (287)
Proceeds from debt issues-
4,550
7,490
Repayments of debt issues
(1,555)
(1,395) (5,698)
Issue of loan capital (net of transaction fees)-
-
1,485
Dividends paid to ordinary shareholders
-
- (640)
Net cash provided by/(used in) financing activities
(1,770)
3,072
2,350
Net increase/(decrease) in cash and cash equivalents
246
373 241
Cash and cash equivalents at beginning of the period/year
1,659
1,418
1,418
Cash and cash equivalents at end of the period/year1,905
1,791 1,659
Cash and cash equivalents at end of the period/year comprise:
Cash on hand
240
265
179
Balances with central banks
1,665
1,526
1,480
Cash and cash equivalents at end of the period/year
1,905
1,791 1,659
The Banking Group
1
Certain comparatives have been revised for consistency. The reclassification was made to better reflect the Banking Group's cash flows from operating and financing
activities and has no effect on the balance sheet or income statement.
The above statement of cash flows should be read in conjunction with the accompanying notes.
Notes to the financial statements
Westpac New Zealand Limited 7
Note 1 Statement of accounting policies
These condensed consolidated interim financial statements (‘financial statements’) have been prepared and presented in accordance with the
Order and Generally Accepted Accounting Practice in New Zealand, as appropriate for for-profit entities, and the New Zealand equivalent to
International Accounting Standard 34 Interim Financial Reporting and should be read in conjunction with the Disclosure Statement for the year
ended 30 September 2017. These financial statements comply with International Accounting Standard 34 Interim Financial Reporting as issued by
the International Accounting Standards Board.
Basis of preparation
These financial statements have been prepared under the historical cost convention, as modified by applying fair value accounting to available-for-
sale securities and financial assets and liabilities (including derivative instruments) measured at fair value through income statement or in other
comprehensive income. The going concern concept has been applied.
All amounts in these financial statements have been rounded to the nearest million dollars unless otherwise stated.
The same accounting policies and methods of computation have been followed in preparing these financial statements as were used in preparing
the financial statements for the year ended 30 September 2017.
The areas of judgment, estimates and assumptions in these financial statements, including the key sources of estimation uncertainty, are
consistent with those in the financial statements for the year ended 30 September 2017.
Comparative information has been revised where appropriate to conform to changes in presentation in the current reporting period and to
enhance comparability. Where there has been a material restatement of comparative information the nature of, and the reason for, the
restatement is disclosed in the relevant note.
Note 2 Non-interest income
Three Months Three Months Year
Ended Ended Ended
31-Dec-17 31-Dec-16 30-Sep-17
$ millionsUnaudited
Unaudited Audited
Fees and commissions98 95 400
Net ineffectiveness on qualifying hedges5 (6) (12)
Other non-interest income
2
3 17
Total non-interest income105
92 405
The Banking Group
Note 3 Impairment charges/(benefits)
Residential Other
$ millionsMortgages Retail
Corporate Other Total
Three months ended 31 December 2017 (Unaudited)
Individually assessed provisions1 - -
- 1
Collectively assessed provisions
2 6 (4)
- 4
Bad debts written-off/(recovered) directly to the income statement
(1) 8
(6) -
1
Total impairment charges/(benefits) 2
14 (10) -
6
Three months ended 31 December 2016 (Unaudited)
Individually assessed provisions
(1) 1
(41) -
(41)
Collectively assessed provisions
- 3 (8)
-
(5)
Bad debts written-off/(recovered) directly to the income statement
- 10
(1) - 9
Total impairment charges/(benefits)
(1) 14 (50) -
(37)
Year ended 30 September 2017 (Audited)
Individually assessed provisions4
3 (56) -
(49)
Collectively assessed provisions
5 (10)
(51) - (56)
Bad debts written-off/(recovered) directly to the income statement
- 31
(2) - 29
Total impairment charges/(benefits)
9 24
(109) - (76)
The Banking Group
Notes to the financial statements
Westpac New Zealand Limited 8
Note 4 Loans
The Banking Group
31-Dec-17 31-Dec-16 30-Sep-17
$ millions
Unaudited
Unaudited Audited
Overdrafts1,185 1,244 1,296
Credit card outstandings1,595 1,562 1,518
Money market loans1,219 1,263 1,250
Term loans:
Housing47,455 45,586 46,947
Non-housing25,876 25,680 25,778
Other
762
815 822
Total gross loans78,092
76,150 77,611
Provisions for impairment charges
(359)
(394) (350)
Total net loans77,733
75,756 77,261
As at 31 December 2017, $7,539 million of housing loans, accrued interest (representing accrued and unpaid interest on the outstanding housing
loans) and cash (representing collections of principal and interest from the underlying housing loans), were used by the Banking Group to secure
the obligations of Westpac Securities NZ Limited (‘WSNZL’) under the Bank’s Global Covered Bond Programme (‘CB Programme’)
(31 December 2016: $7,540 million, 30 September 2017: $7,535 million). These pledged assets were not derecognised from the Banking Group’s
balance sheet in accordance with the accounting policies outlined in Note 1 to the financial statements included in the Disclosure Statement for
the year ended 30 September 2017. As at 31 December 2017, the New Zealand dollar equivalent of bonds issued by WSNZL under the CB
Programme was $5,408 million (31 December 2016: $3,373 million, 30 September 2017: $5,246 million).
Note 5 Asset quality
The Banking Group
Residential Other
$ millionsMortgages Retail Corporate Other Total
Assets at least 90 days past due but not impaired58 19 11 - 88
Individually impaired assets32 6 140 - 178
Individually assessed provisions8 4 36 - 48
Collectively assessed provisions
57 106 179 - 342
31-Dec-17 (Unaudited)
Note 6 Financial assets pledged as collateral
The Banking Group is required to provide collateral to other financial institutions, as part of standard terms, to secure liabilities. In addition to
assets supporting the CB Programme disclosed in Note 4, the carrying value of these financial assets pledged as collateral is:
The Banking Group
31-Dec-17 31-Dec-16 30-Sep-17
$ millions
Unaudited
Unaudited Audited
Cash217 860 407
Securities pledged under repurchase agreements
1
Available-for-sale securities
140
120 41
Trading securities
-
28 -
Total amount pledged to secure liabilities (excluding CB Programme)357
1,008 448
1
As at 31 December 2017, $ 140 million of securities were pledged as collateral to the New Zealand Branch of the Ultimate Parent Bank (31 December 2016: $ 148 million,
30 September 2017: $22 million) which is recorded within due to related entities and nil was pledged to third parties (31 December 2016: nil, 30 September 2017: $19
million) which is recorded as other financial liabilities at fair value through income statement.
Note 7 Deposits and other borrowings
31-Dec-17 31-Dec-16 30-Sep-17
$ millions
Unaudited
Unaudited Audited
Certificates of deposit1,020 1,268 593
Non-interest bearing, repayable at call5,835 5,008 5,274
Other interest bearing:
At call23,640 24,737 23,117
Term
30,603
28,982 30,014
Total deposits and other borrowings61,098
59,995 58,998
The Banking Group
Notes to the financial statements
Westpac New Zealand Limited 9
Note 7 Deposits and other borrowings (continued)
Deposits and other borrowings have been prepared under both the historical cost convention and by applying fair value accounting to certain
products. Refer to Note 10 for further details.
Note 8 Debt issues
31-Dec-17 31-Dec-16 30-Sep-17
$ millionsUnaudited Unaudited Audited
Short-term debt
Commercial paper
1,022
2,386 1,642
Total short-term debt1,022
2,386 1,642
Long-term debt
Non-domestic medium-term notes5,876 8,934 6,628
Covered bonds5,396 3,365 5,236
Domestic medium-term notes
3,161
3,212 3,223
Total long-term debt14,433
15,511 15,087
Total debt issues15,455
17,897 16,729
The Banking Group
Debt issues have been prepared under both the historical cost convention and by applying fair value accounting to certain products. Refer to Note
10 for further details.
Note 9 Related entities
Controlled entities of the Bank as at 31 December 2017 are set out in Note 24 to the financial statements included in the Disclosure Statement for
the year ended 30 September 2017.
In November 2017, the Banking Group repaid $200 million of funding owing to the New Zealand Branch of the Ultimate Parent Bank.
Note 10 Fair value of financial assets and financial liabilities
Fair valuation control framework
The Banking Group uses a Fair Valuation Control Framework where the fair value is either determined or validated by a function independent of
the transaction. This framework formalises the policies and procedures used to achieve compliance with relevant accounting, industry and
regulatory standards. The framework includes specific controls relating to:
the revaluation of financial instruments;
independent price verification;
fair value adjustments; and
financial reporting.
A key element of the Framework is the Revaluation Committee, comprising senior valuation specialists from within the Ultimate Parent Bank
Group. The Revaluation Committee reviews the application of the agreed policies and procedures to assess that a fair value measurement basis
has been applied.
The method of determining fair value differs depending on the information available.
Fair value hierarchy
A financial instrument’s categorisation within the valuation hierarchy is based on the lowest level input that is significant to the fair value
measurement.
The Banking Group categorises all fair value instruments according to the hierarchy described below.
Valuation techniques
The Banking Group applies market accepted valuation techniques in determining the fair valuation of over the counter derivatives. This includes
credit valuation adjustments and funding valuation adjustments, which incorporates credit risk and funding costs and benefits that arise in relation
to uncollateralised derivative positions, respectively.
Notes to the financial statements
Westpac New Zealand Limited 10
Note 10 Fair value of financial assets and financial liabilities (continued)
The specific valuation techniques, the observability of the inputs used in valuation models and the subsequent classification for each significant
product category are outlined below.
Financial instruments measured at fair value
Level 1 instruments
The fair value of financial instruments traded in active markets based on recent unadjusted quoted prices. These prices are based on actual arm’s
length basis transactions.
The valuations of Level 1 instruments require little or no management judgment.
Instrument Balance sheet
category
Includes: Valuation technique
Non-asset backed
debt instruments
Trading securities
New Zealand Government
bonds
These instruments are traded in liquid, active markets where prices
are readily observable. No modelling or assumptions are used in the
valuation.
Available-for-sale
securities
Level 2 instruments
The fair value for financial instruments that are not actively traded are determined using valuation techniques which maximise the use of
observable market prices. Valuation techniques include:
the use of market standard discounting methodologies;
option pricing models; and
other valuation techniques widely used and accepted by market participants.
Instrument Balance sheet
category
Includes: Valuation technique
Interest rate
products
Derivative financial
instruments
Interest rate swaps,
forwards and options –
derivative financial
instruments
Industry standard valuation models are used to calculate the
expected future value of payments by product, which is discounted
back to a present value. The model’s interest rate inputs are
benchmark interest rates and active broker quoted interest rates in
the swap, bond and futures markets. Interest rate volatilities are
sourced from brokers and consensus data providers.
Due from related entities
Due to related entities
Foreign exchange
products
Derivative financial
instruments
FX swaps – derivative
financial instruments
Derived from market observable inputs or consensus pricing
providers using industry standard models. Due from related entities
Due to related entities
Non-asset backed
debt instruments
Trading securities
Available-for-sale
securities
Due from related entities
Other financial liabilities at
fair value through income
statement
Due to related entities
Local authority and NZ
public securities, other bank
issued certificates of deposit,
commercial paper, other
government securities and
corporate bonds
Valued using observable market prices which are sourced from
consensus pricing services, broker quotes or inter-dealer prices.
Security repurchase
agreements and reverse
repurchase agreements over
non-asset backed debt
securities with related and
third parties
Deposits and other
borrowings at fair
value
Deposits and other
borrowings
Certificates of deposit Discounted cash flow using market rates offered for deposits of
similar remaining maturities.
Debt issues at fair
value
Debt issues Commercial paper
Discounted cash flows, using a discount rate which reflects the
terms of the instrument and the timing of cash flows adjusted for
market observable changes in the Bank’s implied credit
worthiness.
Notes to the financial statements
Westpac New Zealand Limited 11
Note 10 Fair value of financial assets and financial liabilities (continued)
Level 3 instruments
Financial instruments valued where at least one input that could have a significant effect on the instrument’s valuation is not based on observable
market data due to illiquidity or complexity of the product. These inputs are generally derived and extrapolated from other relevant market data
and calibrated against current market trends and historical transactions.
These valuations are calculated using a high degree of management judgment.
The table below summarises the attribution of financial instruments measured at fair value on a recurring basis to the fair value hierarchy:
$ millionsLevel 1Level 2Level 3Total
Financial assets measured at fair value
Trading securities7
2,350 - 2,357
Derivative financial instruments- 339
-
339
Available-for-sale securities1,199
2,410 - 3,609
Due from related entities
-
613 - 613
Total financial assets measured at fair value1,206 5,712
-
6,918
Financial liabilities measured at fair value
Deposits and other borrowings at fair value
-
1,020
- 1,020
Derivative financial instruments-
321 -
321
Debt issues at fair value
-
1,022
-
1,022
Due to related entities-
399
-
399
Total financial liabilities measured at fair value-
2,762
-
2,762
The Banking Group
31-Dec-17 (Unaudited)
$ millionsLevel 1Level 2Level 3Total
Financial assets measured at fair value
Trading securities629 4,433 - 5,062
Derivative financial instruments- 60 - 60
Available-for-sale securities1,582 2,139 - 3,721
Due from related entities- 482 - 482
Total financial assets measured at fair value
2,211 7,114 - 9,325
Financial liabilities measured at fair value
Deposits and other borrowings at fair value- 1,268 - 1,268
Derivative financial instruments- 901 - 901
Debt issues at fair value- 2,386 - 2,386
Due to related entities- 823 - 823
Total financial liabilities measured at fair value
- 5,378 - 5,378
31-Dec-16 (Unaudited)
The Banking Group
$ millionsLevel 1
Level 2Level 3Total
Financial assets measured at fair value
Trading securities20
1,777
-
1,797
Derivative financial instruments-
220
-
220
Available-for-sale securities1,556
2,531
-
4,087
Due from related entities-
587
-
587
Total financial assets measured at fair value
1,576
5,115
-
6,691
Financial liabilities measured at fair value
Deposits and other borrowings at fair value-
593
-
593
Other financial liabilities at fair value through income statement-
19
-
19
Derivative financial instruments-
484
- 484
Debt issues at fair value- 1,642
-
1,642
Due to related entities-
355
- 355
Total financial liabilities measured at fair value
-
3,093
- 3,093
The Banking Group
30-Sep-17 (Audited)
Analysis of movements between fair value hierarchy levels
During the period, there were no material transfers between levels of the fair value hierarchy (31 December 2016: no material transfers between
levels, 30 September 2017: no material transfers between levels).
Notes to the financial statements
Westpac New Zealand Limited 12
Note 10 Fair value of financial assets and financial liabilities (continued)
Financial instruments not measured at fair value
The following table summarises the estimated fair value of the Banking Group’s financial instruments not measured at fair value where the
carrying amount is not equivalent to fair value:
Total Carrying Estimated Total Carrying Estimated Total Carrying Estimated
$ millionsAmount Fair Value Amount Fair Value Amount Fair Value
Financial assets
Loans
77,733 77,769
75,756 75,897 77,261 77,292
Total77,733 77,769
75,756 75,897 77,261 77,292
Financial liabilities
Deposits and other borrowings60,078 60,110 58,727 58,777 58,405 58,450
Debt issues 14,433 14,614 15,511 15,662 15,087 15,259
Due to related entities1,499 1,511 2,159 2,175 1,771 1,786
Loan capital
2,628 2,700
1,080 1,095 2,616 2,688
Total78,638 78,935
77,477 77,709 77,879 78,183
The Banking Group
31-Dec-16 (Unaudited)30-Sep-17 (Audited)31-Dec-17 (Unaudited)
For cash and balances with central banks, receivables due from and payables due to other financial institutions and balances due from related
entities which are carried at amortised cost and other types of short-term financial instruments recognised on the balance sheet under other
assets and other liabilities, the carrying amount is equivalent to fair value. These items are either short-term in nature or reprice frequently, and are
of a high credit rating.
A detailed description of how fair value is derived for financial instruments not measured at fair value is set out in Note 26 to the financial
statements included in the Disclosure Statement for the year ended 30 September 2017.
Note 11 Credit related commitments, contingent assets and contingent liabilities
31-Dec-17 31-Dec-16 30-Sep-17
$ millionsUnaudited Unaudited Audited
Letters of credit and guarantees799 785 772
Commitments to extend credit
25,255
23,989 25,081
Other
11
- 10
Total undrawn credit commitments26,065
24,774 25,863
The Banking Group
Contingent assets
The credit commitments shown in the table above also constitute contingent assets. These commitments would be classified as loans on the
balance sheet on the contingent event occurring.
Contingent liabilities
The Banking Group has contingent liabilities in respect of actual and potential claims and proceedings. An assessment of the Banking Group’s
likely loss in respect of these matters has been made on a case-by-case basis and provision has been made in these financial statements where
appropriate.
Additional information relating to any provision or contingent liability has not been provided where disclosure of such information might be
expected to seriously prejudice the position of the Banking Group.
Note 12 Segment reporting
The Banking Group operates predominantly in the consumer banking and wealth, commercial corporate and institutional banking, and
investments and insurance sectors within New Zealand. On this basis, no geographical segment reporting is provided.
The operating segment results have been presented on a management reporting basis and consequently internal charges and transfer pricing
adjustments have been reflected in the performance of each operating segment. Intersegment pricing is determined on a cost recovery basis.
The Banking Group does not rely on any single major customer for its revenue base.
Comparative information for the three months ended 31 December 2016 has been restated following customer segmentation changes, as well as
changes to the net interest income in the operating segments, as a result of the Ultimate Parent Bank updating its capital allocation framework.
Comparative information has been restated to ensure consistent presentation with the current reporting period. The revised presentation has no
impact on total profit before income tax expense for the three months ended 31 December 2016.
The Banking Group’s operating segments are defined by the customers they serve and the services they provide. The Banking Group has
identified the following main operating segments:
Consumer Banking and Wealth provides financial services predominantly for individuals;
Commercial, Corporate and Institutional Banking provides a broad range of financial services for commercial, corporate, property finance,
agricultural, institutional and government customers; and
Investments and Insurance provides funds management and insurance services.
Notes to the financial statements
Westpac New Zealand Limited 13
Note 12 Segment reporting (continued)
Reconciling items primarily represent:
business units that do not meet the definition of operating segments under NZ IFRS 8 Operating Segments (‘NZ IFRS’ refers to applicable
New Zealand equivalents to International Financial Reporting Standards);
elimination entries on consolidation of the results, assets and liabilities of the Banking Group’s controlled entities in the preparation of the
consolidated financial statements of the Banking Group;
results of certain entities included for management reporting purposes, but excluded from the consolidated financial statements of the
Banking Group for statutory financial reporting purposes; and
results of certain business units excluded for management reporting purposes, but included within the consolidated financial statements of
the Banking Group for statutory financial reporting purposes.
Consumer
Commercial,
Investments
Banking andCorporate andandReconciling
$ millionsWealth Institutional
Insurance
Items
Total
Three months ended 31 December 2017 (Unaudited)
Net interest income287
171
-
(2)
456
Non-interest income
50
4034
(19)105
Net operating income before operating expenses and impairment charges
33721134(21)
561
Net operating income from external customers446
286
35(206)
561
Net internal interest expense
(109)
(75)
(1)185-
Net operating income before operating expenses and impairment charges33721134
(21)
561
Operating expenses(177)
(57)(7)3
(238)
Impairment (charges)/benefits
(19)
13--(6)
Profit before income tax
14116727(18)317
Total gross loans45,35432,711-2778,092
Total deposits and other borrowings34,833
25,245-1,02061,098
Three months ended 31 December 2016 (Unaudited)
Net interest income263172-3
438
Non-interest income59
4032(39)92
Net operating income before operating expenses and impairment charges
322212
32(36)530
Net operating income from external customers441
28633
(230)
530
Net internal interest expense
(119)
(74)
(1)194-
Net operating income before operating expenses and impairment charges
32221232(36)530
Operating expenses(189)(56)
(6)15
(236)
Impairment (charges)/benefits (14)53-(2)37
Profit before income tax
11920926(23)331
Total gross loans43,27632,825-4976,150
Total deposits and other borrowings
33,718
25,009
-1,268
59,995
Year ended 30 September 2017 (Audited)
Net interest income1,0636811(4)
1,741
Non-interest income220153131(99)405
Net operating income before operating expenses and impairment charges
1,283834132(103)2,146
Net operating income from external customers1,7471,143136(880)
2,146
Net internal interest expense(464)(309)(4)777-
Net operating income before operating expenses and impairment charges
1,283834132(103)2,146
Operating expenses(709)(221)(29)5
(954)
Impairment (charges)/benefits (34)97-1376
Profit before income tax
540710103(85)1,268
Total gross loans44,70732,870-3477,611
Total deposits and other borrowings
34,04424,361-59358,998
The Banking Group
Note 13 Insurance business
The Banking Group does not conduct any insurance business (as that term is defined in the Order).
Notes to the financial statements
Westpac New Zealand Limited 14
Note 14 Capital adequacy
The information contained in this note has been derived in accordance with the Banking Group’s conditions of registration which relate to capital
adequacy and the Reserve Bank of New Zealand (‘Reserve Bank’) Capital Adequacy Framework (Internal Models Based Approach) (‘BS2B’),
except for the matters of non-compliance with condition of registration 1B disclosed on pages 17 and 18. The Bank considers its internal credit
model methodologies result in the retention of an appropriate amount of capital to reflect its credit risk and any effect of the non-compliance with
its conditions of registration 1B on the information relating to capital adequacy is not considered by the Bank to be material.
The Banking Group’s capital summary (Unaudited)
The Banking Group
$ millions31-Dec-17
Tier 1 capital
Common Equity Tier 1 capital7,082
Less deductions from Common Equity Tier 1 capital(942)
Total Common Equity Tier 1 capital
1
6,140
Additional Tier 1 capital
1,500
Total Tier 1 capital
7,640
Tier 2 capital1,143
Total capital 8,783
1
Common Equity Tier 1 capital includes available-for-sale securities reserve and cash flow hedge reserve as disclosed on the balance sheet.
Capital ratios (Unaudited)
The table below is disclosed under the Reserve Bank’s Basel III framework in accordance with Clause 1 of Schedule 12 to the Order and
represents the capital adequacy calculation based on BS2B.
Reserve Bank
The Banking Group Minimum
%31-Dec-17
Ratios
1
Common Equity Tier 1 capital ratio11.5 6.5
Tier 1 capital ratio
14.3 8.0
Total capital ratio
16.5 10.0
Buffer ratio
5.0
2.5
1
Changes to the Bank’s conditions of registration, effective from 31 December 2017, have increased the Common Equity Tier 1 capital ratio, Tier 1 capital ratio and Total capital
ratio (‘minimum capital ratios’) by 2% compared to the minimum capital ratios as at 30 September 2017. The increased minimum capital ratios will remain in place until the
Bank has satisfied the Reserve Bank that all existing issues in relation to the matters of non-compliance on pages 17 and 18 have been resolved.
The Banking Group Pillar 1 total capital requirement (Unaudited)
The Banking Group
$ millions31-Dec-17
Credit risk
Exposures subject to the internal ratings based approach:
Residential mortgages1,327
Other retail (credit cards, personal loans, personal overdrafts) 228
Small business 59
Corporate/Business lending1,503
Sovereign 7
Bank
36
Total exposures subject to the internal ratings based approach3,160
Exposures not subject to the internal ratings based approach:
Specialised lending subject to the slotting approach568
Exposures subject to the standardised approach
81
Total exposures not subject to the internal ratings based approach649
Total credit risk (scaled)
1
3,809
Operational risk372
Market risk81
Supervisory adjustment-
Total4,262
1
The value of the scalar used in determining the credit risk weighted exposure is 1.06 as required by the conditions of registration.
Capital for other material risks (Unaudited)
The Banking Group’s internal capital adequacy assessment process identifies, reviews and measures additional material risks that must be
captured within the Banking Group’s capital adequacy assessment process. The additional material risks considered are those not captured by
Pillar 1 regulatory capital requirements and include compliance risk, conduct risk, liquidity risk, reputational risk, environmental, social and
governance risk, business/strategic risk, other assets risk, model risk, deferred acquisition cost risk and subsidiary risk.
The Banking Group’s internal capital allocation for ‘other material risks’ is $251 million as at 31 December 2017.
Notes to the financial statements
Westpac New Zealand Limited 15
Note 15 Risk management
15.1 Credit risk
The Banking Group’s residential mortgages by loan-to-value ratio (‘LVR’) as at 31 December 2017 (Unaudited)
LVRs are calculated as the current exposure divided by the Banking Group’s valuation of the residential security at origination.
For loans originated from 1 January 2008, the Banking Group utilises data from its loan system. For loans originated prior to 1 January 2008, the
origination valuation is not separately recorded and is therefore not available for disclosure. For these loans, the Banking Group utilises its
dynamic LVR process to estimate an origination valuation.
Exposures for which no LVR is available have been included in the ‘Exceeds 90%’ category in accordance with the requirements of the Order.
Does notExceeds 60%
Exceeds 70%
Exceeds 80%
LVR range ($ millions)
exceed 60%
and not 70%
and not 80%
and not 90%Exceeds 90%
Total
On-balance sheet exposures19,353
11,601 12,256 2,497
1,550
47,257
Undrawn commitments and other off-balance sheet exposures
4,909
1,248 981 107
189
7,434
Value of exposures
24,262
12,849
13,237 2,604 1,739
54,691
The Banking Group
31-Dec-17
15.2 Liquidity risk
Liquid assets (Unaudited)
The table below shows the Banking Group’s holding of liquid assets and represents the key liquidity information provided to management. Liquid
assets include high quality assets readily convertible to cash to meet the Banking Group’s liquidity requirements. In management’s opinion,
liquidity is sufficient to meet the Banking Group’s present requirements.
The Banking Group
$ millions31-Dec-17
Cash and balances with central banks1,905
Receivables due from other financial institutions (included in due from related entities)837
Supranational securities1,492
NZ Government securities1,871
NZ public securities1,730
NZ corporate securities1,225
Residential mortgage-backed securities
3,950
Total liquid assets13,010
Note 16 Concentration of credit exposures to individual counterparties
Unaudited
The following credit exposures are based on actual credit exposures to individual counterparties and groups of closely related counterparties.
The number of individual bank counterparties (which are not members of a group of closely related counterparties), and groups of closely related
counterparties of which a bank is the parent, to which the Banking Group has an aggregate credit exposure or peak end-of-day aggregate credit
exposure that equals or exceeds 10% of the Banking Group's equity:
as at 31 December 2017 was nil; and
in respect of peak end-of-day aggregate credit exposure for the three months ended 31 December 2017 was nil .
Notes to the financial statements
Westpac New Zealand Limited 16
Note 16 Concentration of credit exposures to individual counterparties (continued)
The number of individual non-bank counterparties (which are not members of a group of closely related counterparties), and groups of closely
related counterparties of which a bank is not the parent, to which the Banking Group has an aggregate credit exposure or peak end-of-day
aggregate credit exposure that equals or exceeds 10% of the Banking Group’s equity:
% of Banking Group's equity
As at 31 December 2017
1
10-14-
15-19
-
20-25
1
Peak end-of-day aggregate credit exposure for the three months ended 31 December 2017
1
10-14-
15-19
-
20-25
1
A- or A3
and above
The Banking Group
31-Dec-17
Long-term credit rating
1
There were no individual non-bank counterparties with aggregate credit exposure that equals or exceeds 10% of the Banking Group’s equity and with a long-term credit rating of
at least BBB- or Baa3, or its equivalent, and at most BBB+ or Baa1, or its equivalent.
The peak end-of-day aggregate credit exposure to each individual counterparty (which are not members of a group of closely related
counterparties) or a group of closely related counterparties has been calculated by determining the maximum end-of-day aggregate amount of
actual credit exposure over the relevant three-month period and then dividing that amount by the Banking Group’s equity as at the end of the
period.
Credit exposures to individual counterparties (not being members of a group of closely related counterparties) and to groups of closely related
counterparties exclude exposures to connected persons, to the central government of any country with a long-term credit rating of A- or A3 or
above, or its equivalent, or to any bank with a long-term credit rating of A- or A3 or above, or its equivalent. These calculations relate only to
exposures held in the financial records of the Banking Group and were calculated net of individually assessed provisions.
Note 17 Subsequent events
On 17 January 2018, Westpac NZ Operations Limited (a wholly owned subsidiary of the Bank) entered into an agreement to sell its 25%
shareholding in Paymark Limited (‘Paymark’) to Ingenico Group S.A. The carrying amount of the Banking Group’s investment in Paymark is
included in other assets on the balance sheet. The transaction is subject to regulatory consents.
On 15 February 2018, the Board resolved that an unimputed dividend of $1,350m on ordinary shares will be paid by the Bank to its immediate
parent company, Westpac New Zealand Group Limited (‘WNZGL’), and that an issue of 1,350m ordinary shares in the Bank to WNZGL would be
made on the same day of payment of the dividend at a price of $1 per share and on the same terms of issue as all other ordinary shares on issue
to WNZGL.
Westpac New Zealand Limited 17
Conditions of registration
Non-compliance with conditions of registration
The Bank underwent a review of compliance with certain aspects of condition of registration 1B in response to a notice issued by the Reserve
Bank under section 95 of the Reserve Bank Act during the reporting period (‘Section 95 Review’). Condition of registration 1B requires the
Bank to comply with the Reserve Bank Capital Adequacy Framework (Internal Models Based Approach) (‘BS2B’).
The Section 95 Review considered the Bank’s compliance with aspects of BS2B since accreditation in 2008. It found that the Bank had not
complied with aspects of BS2B over that period, and in particular it used a number of capital models not approved by the RBNZ and failed to
meet requirements around model governance, process and documentation.
The Bank accepts the findings of the Section 95 Review and is committed to addressing the issues raised. As disclosed in Note 14 to the
financial statements, the Bank considers its current internal credit model methodologies result in the retention of an appropriate amount of
capital to reflect its credit risk. Any effect of the non-compliance with condition of registration 1B on the information relating to capital
adequacy disclosed in the financial statements is not considered by the Bank to be material.
During the reporting period, the Bank was non-compliant with condition of registration 1B in relation to the following matters:
• It has continued to operate versions of the following capital models which were not approved by the Reserve Bank, in some cases
since December 2008:
o Probability of Default (‘PD’) models for small business and agriculture.
o Loss Given Default (‘LGD’) and Exposure at Default (‘EAD’) models for credit card exposures.
o PD and LGD models for:
Banks;
Sovereigns;
Corporates; and
SME Corporates.
o Risk Grade model utilised within expert judgement evaluation for wholesale property development and investment
customers.
• In some instances, changes to expert judgement policies, compositional changes and an asset class segmentation rule within the
Bank’s loan book were not notified to the Reserve Bank as required under paragraph 1.3A(a) of BS2B.
• The Bank’s Model Compendium required under 1.3B of BS2B is not accurate as it does not include all models, has unapproved
models and has not been updated to include changes in models.
• It is not fully compliant with paragraph 4.246 of BS2B in that, with the exception of wholesale property development and investment
customers, non-retail risk grade credit policy overrides are not captured and monitored.
• It is not fully compliant with paragraph 4.248 of BS2B in that not all historical origination data for non-retail customers is maintained
in a format that allows easy accessibility to key data used to derive the original risk rating.
• It is not fully compliant with 4.256 of BS2B in that WNZL management accountabilities and authorities are not specified in the
relevant framework policies published by the Ultimate Parent Bank.
• For less than one percent of its residential mortgages by loan value, its use of total committed exposure rather than EAD for
calculating loan-to-value ratio (‘LVR’) for capital adequacy purposes does not meet the minimum LGD requirements of paragraph
4.150 of BS2B. Additionally, for less than 5% of accounts by number, the security value utilised within the calculation of LVR is an
updated valuation and not the origination value as required by that paragraph.
• For credit risk capital purposes, off-balance sheet exposures include amounts that have been approved but not yet drawn by the
customer. The Bank has identified that, for some loans to commercial and corporate customers, amounts approved but not yet
drawn are not accurately included in its capital estimates. The aggregate amount is not assessed to be material.
• The Banking Group has some minor portfolios where risk weights for these exposures are assessed for capital adequacy under a
standardised approach rather than under BS2B without the Reserve Bank’s approval.
• For a small number of corporate customers, certain committed credit facilities have been incorrectly recorded as uncommitted. The
error has been corrected and capital calculations adjusted accordingly. The aggregate amount is not assessed to be material.
Westpac New Zealand Limited 18
Conditions of registration (continued)
In addition to the non-compliance described above, the Section 95 Review noted that the Bank had failed to meet the Reserve Bank’s
requirements in relation to:
• model documentation and associated model documentation policies;
• internal processes for changes to the Bank’s rating system;
• data maintenance; and
• policies or processes to support incorporating conservatism into models and estimates.
Changes to conditions of registration
On 19 September 2017 the Reserve Bank advised the Bank of changes to its conditions of registration that will give effect to the Reserve Bank’s
revised Outsourcing Policy (BS11) (‘Revised Outsourcing Policy’). Both the changes to the conditions of registration and the Revised
Outsourcing Policy came into effect on 1 October 2017. The Revised Outsourcing Policy sets out requirements that banks need to meet when
outsourcing particular functions and services, especially if the service provider is a related party of the bank. The Bank will have two years before
it must fully comply with the requirement to maintain a compendium of outsourcing arrangements and five years to fully comply with other aspects
of the Revised Outsourcing Policy.
The Revised Outsourcing Policy replaces an earlier policy introduced in 2006. The Bank was subject to the earlier 2006 version of the policy as at
30 September 2017 and will, therefore, continue to have to meet any relevant requirements of the 2006 version of the policy with respect to
existing outsourcing arrangements for a transitional period of up to five years, as well as the requirements of the Revised Outsourcing Policy.
On 15 November 2017, the Reserve Bank also advised the Bank of changes to its conditions of registration that will give effect to the Reserve
Bank’s decision taken in response to a notice issued by the Reserve Bank under section 95 of the Reserve Bank Act. These changes came into
effect on 31 December 2017 and require that:
• the Total capital ratio of the Banking Group is not less than 10 percent;
• the Tier 1 capital ratio of the Banking Group is not less than 8 percent; and
• the Common Equity Tier 1 capital ratio of the Banking Group is not less than 6.5 percent.
In addition, the Bank has undertaken to the Reserve Bank to maintain the Banking Group’s Total capital ratio above 15.1%.
On 19 December 2017, the Reserve Bank further advised the Bank on changes to its conditions of registration that will give effect to the Reserve
Bank’s further changes to the LVR restrictions which ease those restrictions. These changes to the conditions of registration came into effect from
1 January 2018, being:
(a) the limit of 5 per cent on new lending carried out in the relevant measurement period for residential property investment will apply where
the LVR is greater than 65 per cent (currently, the required LVR is 60 per cent), and
(b) there will be a limit of 15 percent (currently, the required limit is 10 per cent) on new non-residential property investment lending carried
out in the measurement period where the LVR is greater than 80 per cent.
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.