Westpac 2018 Interim Financial Results Announcement

Westpac Banking Corporation | ABN 33 007 457 141
Incorporating the requirements of Appendix 4D
2018
Interim
Financial
Results
For the six months ended 31 March 2018

Results announcement to the market


ii | Westpac Group 2018 Interim Financial Results Announcement
ASX Appendix 4D

Results for announcement to the market
1


Report for the half year ended 31 March 2018
2


Revenue from ordinary activities
3,4
($m)
up 4% to $11,153
Profit from ordinary activities after tax attributable to equity holders
4
($m)
up 7% to $4,198
Net profit for the period attributable to equity holders
4
($m)
up 7% to $4,198


Dividend Distributions (cents per ordinary share)
Amount
per security
Franked amount
per security
Interim Dividend 94 94

Record date for determining entitlements to the dividend
18 May 2018 (Sydney)
17 May 2018 (New York)




1
This document comprises the Westpac Group 2018 Interim Financial Results, including the Interim Financial Report and is provided to
the Australian Securities Exchange under Listing Rule 4.2A.
2
This report should be read in conjunction with the Westpac Group Annual Report 2017 and any public announcements made in the
period by the Westpac Group in accordance with the continuous disclosure requirements of the Corporations Act 2001 and ASX
Listing Rules.
3
Comprises reported interest income, interest expense and non-interest income.
4
All comparisons are with the reported results for the six months ended 31 March 2017.

Results announcement to the market


Westpac Group 2018 Interim Financial Results Announcement | iii



Media
Release
7 May, 2018

Westpac delivers good quality result




• Statutory net profit $4,198 million, up 7%
• Cash earnings $4,251 million, up 6%
• Cash earnings per share, 125 cents, up 4%
• Cash return on equity (ROE) 14.0%, at top end of the 13 – 14% range Westpac is seeking to achieve
• Interim fully franked dividend of 94 cents per share, unchanged
• Common equity Tier 1 capital ratio 10.5%, in line with APRA’s unquestionably strong benchmark


Westpac Group CEO, Mr Brian Hartzer, said: “This is a good quality result built on consistent performance and a
disciplined approach to growth and returns.

“Over the past 12 months, we have continued to make progress on our service-led strategy, including adding over
370,000 new customers and making it easier for customers to manage their money. We have invested over
$1.3 billion in delivering new services to customers and upgrading the bank’s infrastructure.

“Our businesses continue to perform solidly, with the results for the Consumer and Business banks particularly
good. All businesses increased core earnings over the prior half. We are pleased that there were no one-offs,
making it a clean result,” Mr Hartzer said.

Compared to the prior corresponding period, the Consumer Bank delivered cash earnings growth of 12% and
revenue growth of 7%, supported by a 6% growth in mortgages. The Business Bank’s 13% increase in cash
earnings reflects good growth in the small business segment and a lower impairment charge as credit quality
improved. BT Financial Group had a solid performance, with cash earnings increasing 7% due to lower general
insurance claims and growth in Private Wealth, funds administration, and insurance premiums. WIB’s cash
earnings were 12% lower: While the underlying performance was solid, the prior corresponding period had a
strong markets performance which was not repeated.

“Including costs associated with the Royal Commission, our operating expenses rose 1% compared to the second
half last year, and our cost to income ratio fell to 41.7%.

“Our portfolio of businesses and brands means we are well positioned strategically to support customers’ changing
financial requirements across our key markets.

“We have introduced a number of new digital initiatives that make it easier for customers to manage their money,
including PayWear, our ‘wearable’ payment cards, access to finances via Amazon’s virtual assistant Alexa, and
1
Reported on a cash earnings basis unless otherwise stated. For an explanation of cash earnings and reconciliation to reported results
refer to Section 1.3 and Section 5, Note 8 of Westpac Group’s 2018 Interim Financial Results Announcement.
Financial highlights First Half 2018 compared to First Half 2017
1

Results announcement to the market


iv | Westpac Group 2018 Interim Financial Results Announcement
more convenient wealth management through our wealth system Panorama. Meanwhile our investments in
companies such as Uno Home Loans, zipMoney, and Assembly Payments, as well as Reinventure’s portfolio of
fintech startups, position Westpac to benefit from the rapid technology and data-driven changes in our core
markets.”



Noting the importance of the Royal Commission into Misconduct in the Banking, Superannuation and Financial
Services Industry, Mr Hartzer said: “We acknowledge the significant customer and community concerns that have
been raised by the Royal Commission and recognise that the process provides a critical opportunity to restore
customer trust across the sector.

“Westpac is already well advanced in taking steps that will improve customer outcomes. We have been actively
seeking out instances where we’ve got it wrong, and in those cases, putting it right for the customers affected.

“Over the last three years we have reviewed more than 300 products and made over 150 changes to our products,
policies, and business practices, including introducing a low rate credit card, removing sales incentives for tellers,
and providing an independent advocate for our customers. This work is ongoing and we will continue to make
changes to our business based on our reviews and feedback from our customers, our regulators, and the Royal
Commission itself.”

Strong balance sheet

Margins well-managed

CET1 capital ratio (%)



Net interest margin (NIM) (%)

• 10.5% CET1 capital ratio, in line with APRA’s
‘unquestionably strong’ benchmark
• Liquidity ratios well above regulatory
minimums of 100%:
- Liquidity coverage ratio 134%
- Net stable funding ratio 112%

• Net interest margin up 7bps from prior period
• A rise in Treasury & Markets income contributed
4bps to NIM, while margins excluding Treasury &
Markets increased 3bps
Expenses ($m)

• Operating expenses increased $50 million or 1% in the half, primarily due to the Group’s investment program
and higher regulatory and compliance spend, including costs associated with the Royal Commission
• An increase in ongoing expenses in the half was more than offset by productivity savings of $131 million


8.7
8.8 8.8
10.5
10.0
10.5
Mar-13Mar-14Mar-15Mar-16Mar-17Mar-18
2.14
2.11
2.07
2.10
2.17
2.03
2.04
1.96
2.02
2.05
1H162H161H172H171H18
NIMNIM excl. Treasury & Markets
4,604
125
22
34 4,654
(131)
2H17Ongoing expensesProductivityInvestmentRoyal Commission1H18
Up 1%
Royal Commission

Results announcement to the market


Westpac Group 2018 Interim Financial Results Announcement | v

Credit quality

• Asset quality remains sound

• Stressed assets to total
committed exposures (TCE)
were down 5bps over the year

• Impaired asset provision coverage
steady at 46% over the half



Mortgage quality

• Mortgage book fundamentally
sound

• Little change to 90+ day
delinquencies over the half

• Properties in possession reduced to
398 over the half, out of a portfolio
of about 1.6 million loans




Divisional performance – cash earnings
Division
1H18
($m)
%
change
1H17
%
change
2H17
Highlights (1H18 – 1H17)

Consumer
Bank

1,717

12

6

Good balance sheet growth (loans up 5%, deposits up 5%),
disciplined margin management, and reduced impairment
charges


Business
Bank

1,080

13

3

Core earnings growth of 7% (loans to small and medium
enterprises up 5%, 6% rise in deposits) and a 32% decline in
impairment charges


BT
Financial
Group

404

7

13

Cash earnings growth due to higher net interest income from
Private Wealth, sound growth in funds administration, offset by
lower fund margins. Insurance contribution higher from growth
in premiums and lower general insurance claims


Westpac
Institutional
Bank

551

(12)

4

Lower cash earnings primarily due to strong markets
performance in prior corresponding period which was not
repeated

Net interest income up 3%, loans increased 6%, margins 2bps
higher from disciplined loan pricing and changes in deposit
mix


Westpac
New Zealand
($NZ)

482

4

(5)

Core earnings increased 14%, supported by a rise in net
interest margin and improved productivity. Cash earnings
growth of 4% impacted by impairments moving from a benefit
to a small charge in 1H18



2.26
2.17
1.94
1.60
1.37
1.24
1.12
0.99
1.03
1.20
1.14
1.05
1.09
Mar-12
Sep-12
Mar-13
Sep-13
Mar-14
Sep-14
Mar-15
Sep-15
Mar-16
Sep-16
Mar-17
Sep-17
Mar-18
0.0
1.0
2.0
3.0
Mar-14Sep-14Mar-15Sep-15Mar-16Sep-16Mar-17Sep-17Mar-18
90+ day past due total90+ day past due investor
30+ day past due total
Stressed assets to TCE (%)
Australian mortgage portfolio delinquencies (%)
Introduced new hardship treatment

Results announcement to the market


vi | Westpac Group 2018 Interim Financial Results Announcement


The Westpac Group Board has determined an unchanged interim dividend of 94 cents per share to be paid on
4 July 2018.

The dividend reinvestment plan (DRP) will continue to apply and there will be no discount to the market price.
Shares will be issued to satisfy the DRP.

The Federal Government bank levy cost Westpac $186 million pre-tax for the six months. The levy will be paid out
of retained earnings and is equivalent to 4 cents per share.



Mr Hartzer said the outlook for Australia remains positive with GDP growth expected to be near trend at around
2.7% for the remainder of 2018 and 2019.

“Australia is experiencing solid employment growth and continued business investment, especially in the
construction sector. However, household income growth remains lacklustre and inflation is low. The Reserve Bank
is likely to keep rates on hold for some time,” Mr Hartzer said.

“Prospects for the US in 2018 are strong. Tax reform and government spending are supplementing a booming
jobs market, boosting growth to around 3%. However, rising interest rates and volatile markets are likely to slow
the economy in 2019.

“Momentum in Europe is slowing and China is expected to cool somewhat in the second half. For Australia, that
will weigh on commodity prices. Nevertheless the growing middle class and the rebalancing of the Chinese
economy towards consumption will continue to boost Australian service exports particularly in tourism and
education.”

Mr Hartzer said Westpac’s credit portfolio is fundamentally sound and continues to be well positioned.

“While the housing market is expected to continue to cool, this dynamic means that opportunities are opening up
for first home buyers, who are beginning to step up in place of investors. With solid underlying demand relative to
supply, and almost 70% of our customers ahead on their repayments, the Australian housing market is in good
shape.

“Westpac’s customer franchise continues to grow; we are making banking easier and more efficient, and the
strength of our brands and quality of our people means we are well positioned to support growth across regions
and industries. While there is much still to do, we remain committed to consistently increasing the value that we
deliver to our customers and shareholders over the long term.”



For further information


David Lording
Head of Media Relations
M. 0419 683 411

Andrew Bowden
Head of Investor Relations
T. 02 8253 4008
M. 0438 284 863

Dividends
Outlook

Results announcement to the market


Westpac Group 2018 Interim Financial Results Announcement | 1

Index

01 Group results
1.1 Reported results
1.2 Key financial information
1.3 Cash earnings results
1.4 Market share and system multiple metrics
2
2
3
4
7
02 Review of Group operations
2.1 Performance overview
2.2 Review of earnings
2.3 Credit quality
2.4 Balance sheet and funding
2.5 Capital and dividends
2.6 Sustainability performance
8
9
18
31
33
38
43
03 Divisional results
3.1 Consumer Bank
3.2 Business Bank
3.3 BT Financial Group (Australia)
3.4 Westpac Institutional Bank
3.5 Westpac New Zealand
3.6 Group Businesses
46
46
49
51
56
58
61
04 2018 Interim financial report
4.1 Directors’ report
4.2 Consolidated income statement
4.3 Consolidated statement of comprehensive income
4.4 Consolidated balance sheet
4.5 Consolidated statement of changes in equity
4.6 Consolidated cash flow statement
4.7 Notes to the consolidated financial statements
4.8 Statutory statements
63
64
89
90
91
92
93
94
125
05 Cash earnings financial information
127
06 Other information
6.1 Disclosure regarding forward-looking statements
6.2 References to websites
6.3 Credit ratings
6.4 Dividend reinvestment plan
6.5 Changes in control of Group entities
6.6 Financial calendar and Share Registry details
6.7 Exchange rates
138
138
139
139
139
140
141
145
07 Glossary
147


In this announcement references to ‘Westpac’, ‘WBC’, ‘Westpac Group’, ‘the Group’, ‘we’, ‘us’ and ‘our’ are to Westpac Banking
Corporation and its controlled entities, unless it clearly means just Westpac Banking Corporation.

All references to $ in this document are to Australian dollars unless otherwise stated.

Financial calendar

Interim results announcement 7 May 2018

Ex-dividend date for interim dividend 17 May 2018

Record date for interim dividend (Sydney) 18 May 2018

Interim dividend payable 4 July 2018

Final results announcement (scheduled) 5 November 2018

2018 Interim financial results
Group results

2 | Westpac Group 2018 Interim Financial Results Announcement

1.0 Group results

1.1 Reported results

Reported net profit attributable to owners of Westpac Banking Corporation is prepared in accordance with the
requirements of Australian Accounting Standards (AAS) and regulations applicable to Australian Authorised
Deposit-taking Institutions (ADIs).

% Mov't
1
% Mov't
1


Half Year Half Year Half Year Mar 18 - Mar 18 -
$m March 18 Sept 17 March 17 Sept 17 Mar 17
Net interest income
8,278 7,903 7,613 5 9

Non-interest income
2,875 3,130 3,156 (8) (9)

Net operating income before operating expenses


and impairment charges
11,153 11,033 10,769 1 4

Operating expenses
(4,725) (4,801) (4,633) (2) 2

Net profit before impairment charges



and income tax expense
6,428 6,232 6,136
3 5

Impairment charges
(393) (360) (493) 9 (20)

Profit before income tax
6,035 5,872 5,643
3 7

Income tax expense
(1,835) (1,787) (1,731) 3 6

Net profit for the period
4,200 4,085 3,912
3 7

Net profit attributable to non-controlling interests
(2) (2) (5) - (60)

Net profit attributable to owners of Westpac


Banking Corporation
4,198 4,083 3,907
3 7


Net profit attributable to owners of Westpac Banking Corporation for First Half 2018 was $4,198 million, an
increase of $291 million or 7% compared to First Half 2017. Features of this result included a $384 million or 4%
increase in net operating income before operating expenses and impairment charges, a $92 million or 2%
increase in operating expenses and a $100 million or 20% decrease in impairment charges.

Net interest income increased $665 million or 9% compared to First Half 2017, with total loan growth of 5%, mostly
from Australian housing which grew 6%. Reported net interest margin increased 11 basis points to 2.16%,
reflecting higher spreads on certain mortgage types (including investor lending and loans with an interest-only
feature), and increased deposit spreads. These were partly offset by the Bank Levy which was effective from July
2017. Net interest income, loans, deposits and other borrowings and net interest margins are discussed further in
Sections 2.2.1 to 2.2.4.

Non-interest income decreased $281 million or 9% compared to First Half 2017 primarily due to a decrease in
trading income of $226 million and the impact of economic hedges on New Zealand earnings ($63 million lower).
Non-interest income is discussed further in Section 2.2.5.

Operating expenses increased $92 million or 2% compared to First Half 2017. The rise in operating expenses
includes annual salary increases and higher technology expenses related to the Group’s investment program and
a rise in regulatory and compliance costs, including costs associated with the Royal Commission. These increases
were partly offset by productivity benefits and lower amortisation of intangibles. Operating expenses are discussed
further in Section 2.2.8.

Impairment charges were $100 million or 20% lower compared to First Half 2017. Asset quality remained sound,
with stressed exposures as a percentage of total committed exposures at 1.09%, down 5 basis points compared to
First Half 2017. The decrease in the impairment charges was primarily due to reduced individual provisions for
larger facilities. Impairment charges are discussed further in Section 2.2.9.

The effective tax rate of 30.4% was lower than the First Half 2017 effective tax rate of 30.7%. Income tax expense
is discussed further in Section 2.2.10.


1
Percentage movement represents an increase / (decrease) to the relevant comparative period.

2018 Interim financial results
Group results

Westpac Group 2018 Interim Financial Results Announcement | 3

1.2 Key financial information


% Mov't % Mov't

Half Year Half Year Half Year Mar 18 - Mar 18 -
March 18 Sept 17 March 17 Sept 17 Mar 17
Shareholder value


Earnings per ordinary share (cents)
123.7 121.2 116.8 2 6

Weighted average ordinary shares (millions)
1

3,392 3,366 3,344 1 1

Fully franked dividends per ordinary share (cents)
94 94 94 - -

Return on average ordinary equity
13.79% 13.72% 13.57% 7bps 22bps

Average ordinary equity ($m)
61,051 59,364 57,744 3 6

Average total equity ($m)
61,065 59,380 57,768 3 6

Net tangible asset per ordinary share ($)
15.00 14.66 14.24 2 5




Business performance


Interest spread
2.00% 1.90% 1.88% 10bps 12bps

Benefit of net non-interest bearing assets,


liabilities and equity
0.16% 0.17% 0.17% (1bps) (1bps)

Net interest margin
2.16% 2.07% 2.05% 9bps 11bps

Average interest-earning assets ($m)
767,011 759,764 744,783 1 3

Expense to income ratio
42.37% 43.51% 43.02% (114bps) (65bps)




Capital, funding and liquidity


Common equity Tier 1 capital ratio


- APRA Basel III
10.50% 10.56% 9.97% (6bps) 53bps

- Internationally comparable
2

16.13% 16.20% 15.34% (7bps) 79bps

Credit risk weighted assets (credit RWA) ($m)
361,391 349,258 352,713 3 2

Total risk weighted assets (RWA) ($m)
415,744 404,235 404,382 3 3

Liquidity coverage ratio (LCR)
134% 124% 125% large large

Net stable funding ratio (NSFR)
3

112% 109% 108% 351bps 372bps




Asset quality


Gross impaired assets to gross loans
0.22% 0.22% 0.30% - (8bps)

Gross impaired assets to equity and total provisions
2.33% 2.39% 3.15% (6bps) (82bps)

Gross impaired asset provisions to


gross impaired assets
45.54% 46.30% 52.07% (76bps) large

Total committed exposures (TCE) ($m)
1,023,017 1,005,882 984,794 2 4

Total stressed exposures as a % of TCE
1.09% 1.05% 1.14% 4bps (5bps)

Total provisions to gross loans
45bps 45bps 52bps - (7bps)

Mortgages 90+ day delinquencies
0.65% 0.62% 0.63% 3bps 2bps

Other consumer loans 90+ day delinquencies
1.64% 1.57% 1.55% 7bps 9bps

Collectively assessed provisions to credit RWA
75bps 76bps 77bps (1bps) (2bps)




Balance sheet ($m)
4



Loans
701,393 684,919 666,946 2 5

Total assets
871,855 851,875 839,993 2 4

Deposits and other borrowings
547,736 533,591 522,513 3 5

Total liabilities
809,190 790,533 780,621 2 4

Total equity
62,665 61,342 59,372 2 6




Wealth Management


Average Group funds ($bn)
5

217.3 213.9 203.2 2 7

Life insurance in-force premiums (Australia) ($m)
1,276 1,068 1,030 19 24

General insurance gross written premiums (Australia) ($m)
251 258 250 (3) -



1
Weighted average number of fully paid ordinary shares listed on the ASX for the relevant period less average Westpac shares held by
the Group (“Treasury shares”).
2
Refer Glossary for definition.
3
The NSFR was effective from 1 January 2018 for Australian Authorised Deposit-taking Institutions (ADIs). Half Year September 2017
and Half Year March 2017 are presented on a proforma basis.
4
Spot balances.
5
Averages are based on a six month period.

2018 Interim financial results
Group results

4 | Westpac Group 2018 Interim Financial Results Announcement

1.3 Cash earnings results

Throughout this results announcement, reporting and commentary of financial performance will refer to ‘cash
earnings results’, unless otherwise stated. Section 4 is prepared on a reported basis. A reconciliation of cash
earnings to reported results is set out in Section 5, Note 8.


% Mov't % Mov't

Half Year Half Year Half Year Mar 18 - Mar 18 -
$m March 18 Sept 17 March 17 Sept 17 Mar 17
Net interest income
8,301 8,011 7,693 4 8

Non-interest income
2,850 2,784 3,068 2 (7)

Net operating income
11,151 10,795 10,761 3 4

Operating expenses
(4,654) (4,604) (4,501) 1 3

Core earnings
6,497 6,191

6,260
5 4

Impairment charges
(393) (360) (493) 9 (20)

Operating profit before income tax
6,104 5,831

5,767
5 6

Income tax expense
(1,851) (1,784) (1,745) 4 6

Net profit
4,253 4,047

4,022
5 6

Net profit attributable to non-controlling interests
(2) (2) (5) - (60)

Cash earnings
4,251 4,045

4,017
5 6


1.3.1 Key financial information – cash earnings basis

% Mov't % Mov't

Half Year Half Year Half Year Mar 18 - Mar 18 -
$m March 18 Sept 17 March 17 Sept 17 Mar 17
Shareholder value


Cash earnings per ordinary share (cents)
125.0 119.9 119.8 4 4

Economic profit ($m)
1

2,049 1,864 1,910 10 7

Weighted average ordinary shares (millions)
2

3,400 3,375 3,352 1 1

Dividend payout ratio
75.28% 78.86% 78.57% (358bps) (329bps)

Cash earnings on average ordinary equity (ROE)
13.96% 13.59% 13.95% 37bps 1bps

Cash earnings on average tangible


ordinary equity (ROTE)
16.60% 16.27% 16.83% 33bps (23bps)

Average ordinary equity ($m)
61,051 59,364 57,744 3 6

Average tangible ordinary equity ($m)
3

51,344 49,582 47,863 4 7


Business performance


Interest spread
2.00% 1.92% 1.90% 8bps 10bps

Benefit of net non-interest bearing assets,


liabilities and equity
0.17% 0.18% 0.17% (1bps) -

Net interest margin
2.17% 2.10% 2.07% 7bps 10bps

Average interest-earning assets ($m)
767,011 759,764 744,783 1 3

Expense to income ratio
41.74% 42.65% 41.83% (91bps) (9bps)

Full time equivalent employees (FTE)
35,720 35,096 35,290 2 1

Revenue per FTE ($ '000's)
315 307 306 3 3

Effective tax rate
30.32% 30.60% 30.26% (28bps) 6bps


Impairment charges


Impairment charges to average loans annualised
11bps 11bps 15bps - (4bps)

Net write-offs to average loans annualised
13bps 25bps 19bps (12bps) (6bps)



1
Refer to Section 5, Note 9 for further details.
2
Weighted average ordinary shares – cash earnings: represents the weighted average number of fully paid ordinary shares listed on
the ASX for the relevant period.
3
Average tangible ordinary equity is calculated as average ordinary equity less goodwill and other intangible assets (excluding
capitalised software).

2018 Interim financial results
Group results

Westpac Group 2018 Interim Financial Results Announcement | 5

Cash earnings policy

In assessing financial performance, including divisional results, Westpac Group uses a measure of performance
referred to as ‘cash earnings’. Cash earnings is viewed as a measure of the level of profit that is generated by
ongoing operations and is therefore considered in assessing distributions, including dividends. Cash earnings is
neither a measure of cash flow nor net profit determined on a cash accounting basis, as it includes both cash and
non-cash adjustments to statutory net profit.

Management believes this allows the Group to more effectively assess performance for the current period against
prior periods and to compare performance across business divisions and across peer companies.

To determine cash earnings, three categories of adjustments are made to reported results:

• Material items that key decision makers at the Westpac Group believe do not reflect ongoing operations;

• Items that are not considered when dividends are recommended, such as the amortisation of intangibles,
impact of Treasury shares and economic hedging impacts; and

• Accounting reclassifications between individual line items that do not impact reported results.

A full reconciliation of reported results to cash earnings is set out in Section 5, Note 8.

Reconciliation of reported results to cash earnings

% Mov't % Mov't

Half Year Half Year Half Year Mar 18 - Mar 18 -
$m March 18 Sept 17 March 17 Sept 17 Mar 17
NET PROFIT ATTRIBUTABLE TO OWNERS OF

WESTPAC BANKING CORPORATION
4,198 4,083

3,907
3 7

Amortisation of intangible assets
17 64 73 (73) (77)

Fair value (gain)/loss on economic hedges
37 62 7 (40) large

Ineffective hedges
9 20 (4) (55) large

Partial sale of BTIM shares
- (171) - (100) -

Treasury shares
(10) (13) 34 (23) large

Total cash earnings adjustments (post-tax)
53 (38)

110
large (52)

Cash earnings
4,251 4,045

4,017
5 6


Outlined below are the cash earnings adjustments to the reported result:

• Amortisation of intangible assets: Identifiable intangible assets arising from business acquisitions 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. The last of these intangible assets were fully amortised in December
2017;

• Fair value on economic hedges (which do not qualify for hedge accounting under AAS) comprise:

- The unrealised fair value (gain)/loss on foreign exchange hedges of future New Zealand earnings impacting
non-interest income is reversed in deriving cash earnings as they may create a material timing difference on
reported results but do not affect the Group’s cash earnings over the life of the hedge; and

- The unrealised fair value (gain)/loss on hedges of accrual accounted term funding transactions are reversed
in deriving cash earnings as they may create a material timing difference on reported results but do not affect
the Group’s cash earnings over the life of the hedge.

• Ineffective hedges: The unrealised (gain)/loss on ineffective hedges is reversed in deriving cash earnings
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;

• Partial sale of BTIM shares: During Second Half 2017 the Group recognised a gain, net of costs, associated
with the partial sale of shares in BTIM. Consistent with the treatment of prior gains from sale, this gain has
been treated as a cash earnings adjustment given its size and that it does not reflect ongoing operations. The
Group has indicated that it may sell the remaining 10% shareholding in BTIM at some future date. Any future
gain or loss on this shareholding 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 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; and

2018 Interim financial results
Group results

6 | Westpac Group 2018 Interim Financial Results Announcement

• Accounting reclassifications between individual line items that do not impact reported results comprise:

- Treatment of Westpac New Zealand credit card rewards scheme to align with Group practices was changed
in Second Half 2017. This change had no impact on cash earnings or reported profit, but it has led to a
restatement of non-interest income and operating expenses within cash earnings for Second Half 2017 and
First Half 2017;

- Policyholder tax recoveries: Income and tax amounts that are grossed up to comply with the AAS 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.

2018 Interim financial results
Group results

Westpac Group 2018 Interim Financial Results Announcement | 7

1.4 Market share and system multiple metrics

1.4.1 Market share


As at As at As at
31 March 30 Sept 31 March

2018 2017 2017
Australia


Banking system (APRA)
1



Housing credit
2

25% 25% 25%

Cards
23% 23% 23%

Household deposits
23% 23% 23%

Business deposits
20% 20% 20%

Financial system (RBA)
3



Housing credit
2

23% 23% 23%

Business credit
19% 19% 19%

Retail deposits
4

21% 22% 21%

New Zealand (RBNZ)
5,6



Consumer lending
19% 19% 19%

Deposits
19% 19% 19%

Business lending
16% 16% 17%

Australian Wealth Management
7



Platforms (includes Wrap and Corporate Super)
18% 19% 19%

Retail (excludes Cash)
18% 18% 18%

Corporate Super
13% 13% 14%


1.4.2 System multiples


Half Year Half Year Half Year
March 18 Sept 17 March 17
Australia




Banking system (APRA)
1





Housing credit
2

1.0 1.1 0.8

Cards
8

n/a n/a 1.1

Household deposits
0.8 1.3 1.1

Business deposits
0.9 1.1 1.0

Financial system (RBA)
3



Housing credit
2

0.9 1.0 0.8

Business credit
8

0.9 1.0 n/a

Retail deposits
4

0.6 1.3 0.7

New Zealand (RBNZ)
5,6



Consumer lending
0.7 0.6 0.7

Deposits
8

1.2 1.4 n/a


1
Source: Australian Prudential Regulation Authority (APRA).
2
Includes securitised loans.
3
Source: Reserve Bank of Australia (RBA).
4
Retail deposits as measured by the RBA, financial system includes financial corporations’ deposits.
5
New Zealand comprises New Zealand banking operations.
6
Source: Reserve Bank of New Zealand (RBNZ).
7
Market Share Funds under Management / Funds under Administration based on published market share statistics from Strategic
Insight as at 31 December 2017 (for First Half 2018), as at 30 June 2017 (for Second Half 2017) and as at 31 December 2016 (for
First Half 2017) and represents the BT Wealth business market share reported at these times.
8
n/a indicates that system growth or Westpac growth was negative.

2018 Interim financial results
Review of Group operations

8 | Westpac Group 2018 Interim Financial Results Announcement


2.0 Review of Group operations







Movement in cash earnings ($m)
First Half 2018 –Second Half 2017
66
290
Tax & non-
controlling
interests
(67)
4,251
(50)
Operating
expenses
Impairment
charges
(33)
Non-interest
income
Net interest
income
4,045
First Half 2018
cash earnings
+206
Second Half 2017
cash earnings
Movement in cash earnings ($m)
First Half 2018 –First Half 2017
100
608
Operating
expenses
(153)
Non-interest
income
(218)
Net interest
income
First Half 2017
cash earnings
4,017
+234
First Half 2018
cash earnings
4,251
Tax & non-
controlling
interests
(103)
Impairment
charges

2018 Interim financial results
Review of Group operations

Westpac Group 2018 Interim Financial Results Announcement | 9

2.1 Performance overview

Overview

Westpac Group generated cash earnings of $4,251 million in First Half 2018, 5% or $206 million higher than
Second Half 2017 cash earnings of $4,045 million. The rise in cash earnings over the half was supported by a 5%
rise in core earnings, partly offset by a 9% increase in impairment charges. The 5% increase in core earnings was
due to a 4% rise in net interest income and a 2% increase in non-interest income partially offset by a 1% increase
in expenses.

Compared to First Half 2017, cash earnings were up 6% or $234 million.

The 5% growth in cash earnings compared to the prior half translated to 4% growth in earnings per share following
new share issuance as part of the dividend reinvestment plan. The Group’s ROE for the half was 14.0%, up from
13.6% in Second Half 2017 and little changed from the prior corresponding period. Consistent with the rise in
capital, net tangible assets per share increased 2% to $15.00.

The economic environment has remained positive for the banking sector with Australian system
1
credit growth of
around 5% compared to the prior corresponding period, continued positive fund flows, and low levels of stressed
assets. That said, credit growth has eased a little over the last six months as macro prudential rules contributed to
a slowing in the housing market and businesses in aggregate remained cautious on new investment. Competition
has remained intense from both local and international financial institutions. Westpac has continued to manage
the business in a balanced way across strength, return, productivity and growth. In First Half 2018, the Group has
again prioritised return over growth.

The environment for financial services has however been impacted by the Royal Commission into Misconduct in
the Banking, Superannuation and Financial Services Industry. First established in mid-December 2017, the Royal
Commission has now completed public hearings on consumer lending and financial advice. During the course of
the Royal Commission serious questions have been raised about customer treatment and outcomes,
responsiveness to complaints, incentive structures, conflicts of interest and regulatory oversight.

In recent years, and prior to the Royal Commission, Westpac commenced a number of programs to improve its
policies, procedures, and practices for customers. This included implementing the Australian Banking
Association’s “Six point plan” to improve the sector’s reputation and commencing a “get it right, put it right”
initiative across the organisation. This effort covers all of our businesses and aims to proactively identify potential
issues for customers and fix them. At the same time, where we have got things wrong we have committed to put
things right for customers. In Full Year 2017, this included a provision of $169 million for customer refunds and
payments. More detail on these programs appears later in this overview.

Strategically, Westpac continues to focus on growing the long term value of the franchise through its customer
focused strategy. In First Half 2018 the Group has further grown its customer franchise, enhanced services to
customers and improved productivity. This has been achieved while continuing to transform the organisation, and
the customer experience, in particular using digital capabilities.

A key element of the Group’s strategy is the recognition of Westpac’s role in helping to create a positive social,
economic and environmental impact, for the benefit of all. In 2017, Westpac was recognised as the most
sustainable bank globally in the Dow Jones Sustainability Index; the fourth year in a row. For further details of our
Sustainability Strategy, refer to Section 2.6.

Performance drivers

Compared to the prior half, lending across the Group grew a little below system
1
at 2%, consistent with the
Group’s decision to prioritise return over growth. Customer deposits grew 3% supporting a further improvement in
the Group’s funding mix. Margins were higher over the half, particularly in the Consumer Bank, Business Bank
and Westpac New Zealand, along with increased Treasury income. Spreads were higher on deposits. Mortgage
spreads were also higher reflecting the full period impact of pricing changes in Second Half 2017 in investor and
interest only mortgages. These increases were partially offset by customers switching to lower spread mortgage
products and the full period impact of the Bank Levy, which only applied for one quarter in Second Half 2017. The
Bank Levy cost $186 million in First Half 2018, up from $95 million in Second Half 2017, and reduced margins by a
further 2 basis points over the half. On a cash earnings per share basis, the First Half 2018 impact of the Bank
Levy is equivalent to around 4 cents per share.

In aggregate, net interest income increased 4% over the half and, combined with 2% growth in non-interest
income, led to total operating income rising 3%.

Expenses increased 1% or $50 million, with productivity gains continuing to offset increases in business as usual
costs. Most of the increase in expenses was related to higher investment and regulatory and compliance costs
including $34 million in additional expenses associated with the Royal Commission.


1
Source: RBA March 2018.

2018 Interim financial results
Review of Group operations

10 | Westpac Group 2018 Interim Financial Results Announcement

With income growth exceeding expense growth, the expense to income ratio declined by 91 basis points over the
half and by 9 basis points compared to the prior corresponding period to be 41.7% for First Half 2018.

Core earnings (earnings after expenses but before impairment charges) were up 5% compared to the prior half
with all operating divisions contributing to the increase.

Credit quality remained sound with key metrics little changed compared to the prior half. Stressed assets to TCE
were 1.09% at 31 March 2018, up 4 basis points from September 2017 but down 5 basis points compared to
March 2017. Impaired assets were little changed over the half with no new facilities greater than $50 million
becoming impaired.

Given the trends in credit quality, total provisions were little changed over the half (up $46 million) mostly in
collectively assessed provisions. As a result, the Group’s provision coverage was steady. The ratio of gross
impaired asset provisions to gross impaired assets was 46% (down 76 basis points on the prior half) while the ratio
of collectively assessed provisions to credit risk weighted assets was little changed over the half, down one basis
point to 0.75%. The overlay provision was $12 million higher (totalling $335 million).

Operating divisions delivered an increase in cash earnings over the half, with the exception of Westpac New
Zealand (which saw impairments move from a benefit to a charge). The Consumer Bank, which contributed 40%
to Group earnings, lifted cash earnings 6%. The Business Bank recorded a 3% rise in cash earnings with core
earnings up 3% while Westpac Institutional Bank reported a 4% increase in cash earnings. BT Financial Group
(Australia) (BTFG) recorded a 13% increase in cash earnings with growth in funds and insurance premiums and
lower provisions for customer payments and refunds. The Westpac New Zealand business (in NZ$) recorded a
3% increase in core earnings although cash earnings were 5% (in NZ$) lower as a small impairment charge was
recorded this half compared to an impairment benefit in the prior half.

The Group maintained the strength of its balance sheet:

 A CET1 capital ratio of 10.5%, in line with the “unquestionably strong” benchmark set by APRA. The ratio was
little changed over the half as organic capital generation was largely offset by regulatory model changes;

 A liquidity coverage ratio (LCR) of 134% being above the 100% regulatory minimum; and

 The net stable funding ratio (NSFR) was 112% and was comfortably above the 100% regulatory minimum
which applied from 1 January 2018.

The Board determined an interim ordinary dividend of 94 cents per share, fully franked, unchanged over both
Second Half 2017 and First Half 2017.

The interim ordinary dividend of 94 cents represents a payout ratio of 75.3% and a dividend yield of 6.6%
1
. The
Board has determined to issue shares to satisfy the dividend reinvestment plan (DRP) for the First Half 2018
dividend and to apply no discount to the market price used to determine the number of shares issued under the
DRP. The final ordinary dividend will be paid on 4 July 2018 with the record date of 18 May 2018
2
. After allowing
for the final dividend, the Group’s adjusted franking account balance was $1,279 million.

Strategic progress

Westpac is committed to its service-based strategy and its existing banking operations along with the wealth and
insurance businesses operated by BTFG. This consistency has enabled the Group to make significant progress
on delivery through the half, helping build the value of the franchise. Westpac’s vision is:

To be one of the world’s great service companies, helping our customers, communities and people to
prosper and grow.

The five strategic priorities supporting that vision are: service leadership, performance discipline, digital
transformation, targeted growth and workforce revolution. Progress on these priorities is outlined below.

Service leadership

Westpac’s goal of being one of the world’s great service companies means the Group strives to deliver market-
leading customer experiences. While customer service has improved across the Group, there is still further work
required. Recent developments included:

 Helping customers to better manage their finances:

- Provided the capability for customers to reduce credit card limits online;

- Option to sign-up for reminder alerts via SMS or email five days before monthly credit card repayment is
due;

- Ability to temporarily restrict all debit transactions on credit cards; and

1
Based on the closing share price as at 29 March 2018 of $28.62.
2
Record date for 2018 interim dividend in New York is 17 May 2018.

2018 Interim financial results
Review of Group operations

Westpac Group 2018 Interim Financial Results Announcement | 11

- Introduced Westpac SmartPlan, a structured repayment schedule plan enabling customers to break down
large amounts on their credit cards into a number of regular monthly instalments.

 Helping customers develop savings habits by rewarding savings behaviour:

- Westpac Bump launched in April 2017 to encourage children and their parents develop savings habits. For
eligible children
1
Westpac will deposit $200 into their account; and

- Westpac Life account launched in August 2017, helps customers save with a 0.8% bonus interest rate if the
balance is higher at month end.

 Helping customers in times of need:

- Over 19,000 customers provided hardship assistance in the half;

- Dementia-Friendly Banking program in partnership with Alzheimer’s Australia introduced in September
2017; and

- Fraud guarantee; monitor fraud and fix it when a retail customer loses money through no fault of their own
(March 2018).

 Growing the customer base by 1% over the last 12 months;

 Making it easier for customers to understand our product offering by simplifying our product suite. We have
reduced the number of consumer products for sale - for example, in the Consumer Bank, the number of
products has more than halved from 126 in 2015 to 60;

 Customer satisfaction ranked number 2 compared to peers, and ranked number 3 for NPS for the Consumer
Bank; and

 Introducing a range of improved services using digital (see digital transformation below).

Performance discipline

This strategic priority is focused on delivering a superior financial and risk management performance by achieving
balanced outcomes across strength, return, productivity, and growth.

This half, Westpac delivered 5% growth in cash earnings and ROE of 14%, improved liquidity metrics and $131
million of productivity savings (representing almost 3% of the cost base).

The Group’s 14% ROE in First Half 2017 was at the top end of the 13% to 14% range the Group is seeking to
achieve. This half, the Group further refined its internal capital allocation models to reflect the proposed changes
to the Basel III capital rules and to enhance divisional accountability for returns. As a result, approximately $6
billion of capital (previously held in the Group centre) was allocated to operating divisions in the half, sending a
clear signal on capital requirements each division needs to operate under.

Contributors to the $131 million in productivity savings included:

 Streamlining via digital - $18 million: 45% of Consumer Bank customers and 70% of New Zealand customers
have converted to e-statements. Cheque digitisation has resulted in 45,000 cheques imaged daily (includes
savings in manual handling);

 Improving network efficiency - $12 million: Closed or amalgamated 27 branches across Australia and New
Zealand;

 Vendor and process management - $32 million: Streamlining of external contracts particularly in technology
and commercial services and more efficient use of external suppliers; and

 Simplifying the Group’s operating model - $69 million: Reducing management spans and layers, and various
improvements in operating efficiency contributing to a reduction of over 350 roles.

After a decade of strengthening the balance sheet from a capital, funding, and liquidity perspective the Group’s
ratios are now in line, or ahead of, APRA’s updated benchmarks. While APRA’s final rules on capital are yet to be
released, the Group believes it is well placed to meet any subsequent changes by the scheduled 1 January 2020
commencement date.

With funding and liquidity, the Group has met the new NSFR requirements that became effective on 1 January
2018. The Group’s customer deposit to loan ratio was 52 basis points higher over the half at 71.6% while the
duration of new term funding raised during First Half 2018 was over seven years.



1
Eligible children must be born in 2017, have a permanent Australian residential address and have the Bump Savings account opened
in their name by 31 May 2018.

2018 Interim financial results
Review of Group operations

12 | Westpac Group 2018 Interim Financial Results Announcement

Westpac effectively navigated APRA’s mortgage macro prudential rules through the half while achieving good
portfolio growth. This included maintaining investor property growth below 10% per annum and holding the
proportion of new interest only mortgages to less than 30% of new flows. These rules were achieved with annual
investor lending growing at around 5% over the year and new interest only facilities representing 23% of new
mortgage limits for the half. The repricing of investment and interest only mortgages supported this outcome. As a
result, the proportion of Australian interest only mortgage lending has declined by around 10 percentage points
over the last 12 months to 40% at March 2018. These rules were achieved while growing the Australian mortgage
portfolio by 2% for the six months to March 2018.

Digital transformation

Advances in digital technology provide the Group with the ability to improve the customer experience while
simultaneously improving productivity and risk management. As an outcome of this the Group aims to reduce its
expense to income ratio to below 40%. In First Half 2018 the Group invested $638 million, with most spending
directed to growth and productivity initiatives. Major developments over the half have included:

 Progress on the Group’s “customer service hub” that will be the centrepiece of customer origination and service
processes. The new system will go live for Westpac mortgages later this year;

 Launching of “Presto Smart” in April 2018, a new integrated payments solution for business customers. The
solution links payments and point of sale systems to accelerate transaction processing and allow sales to be
completed anywhere instore;

 Launching PayWear, a new wearable debit card that allows customers to make payments without a phone or
wallet;

 Enhancing the Group’s infrastructure that further reduce cybersecurity risks; and

 Improving the stability and efficiency of the Group’s technology infrastructure. The Group believes this has
contributed to low levels of severity one issues (those with a major customer impact). There was one severity
one incident in Australia in First Half 2018, compared to 19 recorded in Full Year 2016.

Targeted growth

Westpac seeks to grow value by targeting a small number of higher growth segments over the medium term.
Wealth and SME have continued to be the major areas of focus.

In Wealth, the Group’s franchise and investment has led to continuing funds management and administration flows
along with growth in insurance premiums. These trends have, however, been partially offset by a more cautious
approach from consumers and significant regulatory uncertainty. At the same time, funds margins have been
lower and insurance claims were higher. During First Half 2018, the Group:

 Built its digital SME capability, leading to a 2% increase in SME lending over the half. In addition to Presto
Smart mentioned earlier, enhancements over the half have included:

- Enabling merchant terminals to accept new payment mechanisms, including Fitbit Pay;

- Extending our LOLA electronic loan origination platform to St.George bankers; and

- Introducing electronic documents to speed up processing times, making it easier for customers to connect
with Westpac digitally, as well as increasing the use of e-statements.

 Improved the functionality of its Panorama wealth management platform, with a particular focus on the mobile
application and client reporting; and

 Grew Australian Life insurance in-force premiums 19%, as the division began managing Group Insurance for
BTFG Corporate Super.

Workforce revolution

Successful achievement of the Group’s vision depends on the quality and engagement of our people. Westpac is
already regarded as a leader in staff engagement, diversity, and flexibility but recognises that there is more to do.
Recent highlights include:

 All teller incentives now based 100% on customer advocacy;

 Implemented a new performance management approach called “Motivate” across all employees. The new
system is centred on a “behaviours-first” approach and removes performance rankings;

 Partnered with Australian Graduate School of Management (AGSM) to develop a range of senior leadership
programs. More than 1,400 employees have completed these programs with another 1,200 employees
enrolled;

 Developing a learning culture with 80% of Westpac employees using Learning Bank with 50,000 materials
utilised in First Half 2018; and

 Achieved the Group’s target of 50% of women in leadership positions.

2018 Interim financial results
Review of Group operations

Westpac Group 2018 Interim Financial Results Announcement | 13

Restoring reputation

The First Half 2018 has continued to see the industry (including Westpac) under intense scrutiny including from
the Royal Commission into Financial Services.

Restoring the Group’s reputation has remained a focus and the Group has continued to implement a number of
programs aimed at improving trust. In particular, Westpac has largely completed the implementation of the
Australian Banking Association’s “Six point plan” with the Group waiting for finalisation of the industry Code of
Banking Practice to complete implementation. In 2017 the Group also commenced a broader program to reduce
complexity and resolve prior issues that have the potential to impact customers and the Group’s reputation. These
reviews have identified some previous instances where the Group has not met industry or community standards
and Westpac is taking action to put things right so that customers are not at a disadvantage from past practices.
Work on this program over the last 12 months included:

 Progressing the review of products to reassess their features and how the Group had engaged with customers.
As part of these reviews, 150 changes were made including more than halving the number of consumer
products on offer;

 Cutting transaction fees for 1.3 million customers, removing ATM fees, and introducing a new low rate credit
card; and

 Continuing remediation of previous issues, paying out $39 million to customers from our 2017 provision for
customer refunds and payments.

Financial performance summary First Half 2018 – Second Half 2017

Cash earnings of $4,251 million were up 5% with core earnings up 5% while impairment charges rose 9%. The
result was supported by disciplined loan and deposit growth, improved margins and well managed expenses. This
half earnings growth benefited from the absence of a provision for customer refunds and payments, which reduced
cash earnings by $118 million in Second Half 2017. Partially offsetting this increase were costs associated with
the Royal Commission of $34 million ($24 million after tax) and the full period effect of the Bank Levy ($130 million
impact after tax in First Half 2018).

Net interest income rose 4% reflecting a 1% rise in average interest-earning assets and a 7 basis point increase in
margins. Margins excluding Treasury and Markets increased 3 basis points over the half, with higher deposit
spreads, increased rates on certain mortgage types (including investor lending and interest-only loans) and lower
funding costs early in the half. Margins in First Half 2018 were also impacted by the full period impact of the Bank
Levy, which reduced margins by 2 basis points.

Total loans grew 2%, with most of the rise due to an increase in Australian mortgage lending. Other areas of
growth included Australian business lending, which was 2% higher in SME and 2% higher in commercial. In New
Zealand, lending was up 2% (up 4% in $A terms) with growth spread evenly across business and mortgages.
Australian personal lending was lower over the half mostly reflecting lower demand. Deposits grew 3% over First
Half 2018, with customer deposits rising 3%. New Zealand customer deposits grew 6% in NZ$ (8% in A$).

Non-interest income was up 2% with higher business line fees, a rise in funds under administration and higher
markets income. The increase was also supported by the non-repeat of customer refunds and payments recorded
in Second Half 2017. These increases were partially offset by reductions in cards income, lower ATM fees, caps
placed on transaction account keeping fees, higher seasonal insurance claims and lower fees from Hastings.

Expenses increased 1%, with higher ongoing costs offset by $131 million of productivity savings. The increase in
expenses was mostly due to higher technology investment and increased regulatory and compliance costs,
including expenses associated with the Royal Commission.

Impairment charges were $33 million (or 9%) higher than Second Half 2017, with most of the increase due to
higher new collectively assessed provisions mostly related to the small rise in stressed assets. In aggregate,
mortgage 90+ day delinquencies were 3 basis points higher, consistent with normal seasonal trends, while
consumer unsecured 90+ day delinquencies were also seasonally higher, up 7 basis points.

The effective tax rate was 30.3% in First Half 2018.

Financial performance summary First Half 2018 – First Half 2017

Cash earnings of $4,251 million was $234 million, or 6%, higher than First Half 2017. Core earnings grew 4% and
impairment charges were 20% lower. Core earnings growth included an 8% lift in net interest income, a 7%
decline in non-interest income and a 3% rise in expenses.

The rise in net interest income reflected a 3% increase in average interest-earning assets and a 10 basis point rise
in net interest margin. Margins excluding Treasury and Markets were 9 basis points higher mostly due to higher
spreads on mortgages and lower funding costs. These increases were partially offset by the introduction of the
Bank Levy from July 2017.

2018 Interim financial results
Review of Group operations

14 | Westpac Group 2018 Interim Financial Results Announcement

Lending increased 5%, with Australian mortgages the largest contributor, growing 6%. Australian business
lending increased 3% compared to the prior corresponding period with growth across SME and commercial
lending. Lending in New Zealand increased 3% in NZ$ (up 6% in A$). Customer deposits rose 5% compared to
the prior corresponding period, with 6% growth in Australian transaction accounts and an 8% lift in New Zealand
customer deposits in NZ$ (up 11% in A$).

Non-interest income was down $218 million compared to the prior corresponding period (down 7%) mostly from
lower markets related income and a decline in banking fee income. The reduction in banking fees was due to
lower credit card interchange fees, the elimination of certain ATM fees and capping account-keeping fees.

Business as usual expense increases continued to be offset by productivity savings, with the 3% rise in overall
expenses due to higher investment-related spending and an increase in regulatory and compliance costs,
including costs related to the Royal Commission. Salaries and staff expenses were 3% higher reflecting annual
salary increases, while occupancy costs were flat with savings from the restructuring of the network offsetting
rental increases. Technology expenses also increased (up 5%) mostly from higher software amortisation,
software maintenance and licensing costs from the Group’s investment programs.

Overall credit quality remains sound with total stressed assets to TCE down 5 basis points to 1.09% at 31 March
2018. This mostly reflects the write-off of some larger impaired facilities and the reduction in stress in the New
Zealand dairy portfolio. Impairment charges were $100 million lower, consistent with the improvement in credit
quality and the absence of any new large impaired assets.

Divisional performance summary

The performance of each division based on performance in First Half 2018 compared to Second Half 2017 is
discussed below.

Consumer Bank

Consumer Bank (CB) has continued to be a key driver of the Group’s growth, lifting cash earnings by 6%.
Disciplined balance sheet growth, flat operating expenses and a $60 million reduction in impairment charges were
the key drivers of performance. Net interest income increased from a 2% rise in mortgages, a 1% increase in
deposits and a 1 basis point improvement in margins. Margins benefited from lower funding costs, including
improved spreads on term deposits, and prior period loan repricing although this was partly offset by the full period
impact of the Bank Levy and from customers switching to lower rate loans. Non-interest income was lower, mostly
due to the elimination and reduction of certain transaction and account keeping fees and lower credit card
interchange fees. This was partly offset by the non-repeat of customer refunds and payments that occurred in
Second Half 2017. Expenses were little changed (up $3 million) as the division continues to transform itself via
digital while enhancing service. More customers migrating to digital channels has supported a 4% decrease in
branch transactions and a reduction of 21 branches in the last six months. The reduction in impairment charges
reflects the lower seasonal unsecured personal lending write-offs.

Business Bank

Business Bank (BB) delivered a 3% increase in cash earnings. Lending increased 2% with SME business lending
up 2%, and commercial lending increasing 2%. Deposits rose 1% over the half, mostly in term deposits. The net
interest margin was up 4 basis points, from repricing on certain mortgages in Second Half 2017 and improved term
deposit spreads partially offset by the full period impact of the Bank Levy. Non-interest income was up 1% with
higher business line fees. Expenses were 1% higher, mostly from higher investment related costs, and regulatory
and compliance costs. Credit quality has been sound, although stressed assets to TCE were up 35 basis points,
mostly due to commercial customers moving into the watchlist category. Impairment charges decreased $6 million
from lower impaired downgrades in the commercial portfolio.

BT Financial Group (Australia)

BTFG lifted cash earnings 13% with higher funds, an increase in life insurance premiums and a stronger
contribution from Private Wealth. Growth was also supported by provisions for customer refunds and payments
raised in the Second Half 2017 that were not repeated. Partially offsetting these gains were lower advice income
and seasonally higher general insurance claims. Superannuation balances and platform funds were both up 3%
while packaged funds increased 4%. Growth was supported by stronger investment markets and $2.6 billion of net
flows onto Panorama. Fund margins were lower including from the migration of customers into MySuper accounts
which has now been completed. Expenses were well managed, down 1%. The decline was consistent with
normal seasonal patterns (higher costs are incurred around the end of the June financial year) and continued
productivity gains. Investment spending was a little higher including from the launch of the new super product, “BT
Super Invest”. Regulatory and compliance costs were little changed but remain elevated.

2018 Interim financial results
Review of Group operations

Westpac Group 2018 Interim Financial Results Announcement | 15

Westpac Institutional Bank

Westpac Institutional Bank (WIB) delivered a 4% lift in cash earnings to $551 million. The $21 million rise was due
to a 1% rise in core earnings and a $9 million benefit from impairment charges. Supporting core earnings, lending
increased by 3% and deposits were 7% higher while markets related income also increased. These gains were
partially offset by lower net interest margins and a reduction in Hastings fees. While investing more, particularly in
payments, expenses were lower from the full period impact of productivity initiatives. Continuing good credit quality
and the workout of further impaired assets led to another impairment benefit in First Half 2018.

Westpac New Zealand

Westpac New Zealand delivered cash earnings of NZ$482 million, down 5%, compared to the prior half. The
business generated 3% core earnings growth although this was more than offset by a small impairment charge
which followed a NZ$40 million impairment benefit in the Second Half 2017. A 3% lift in net interest income was
the main driver of core earnings growth with lending up 2%, deposits rising 5% and margins increasing 6 basis
points. The rise in margins followed some repricing of mortgage and business lending and improved deposit
spreads. Expenses were 1% lower as the benefits from the division’s transformation program flowed through.
The program has led to a reduction in the size of the branch network and increased self-serve via digital channels.
Impairment charges increased NZ$67 million over the half, as Second Half 2017 benefited from the improvement
in the dairy industry and from the increase in consumer delinquencies in First Half 2018.

Group Businesses

The Group Businesses delivered cash earnings of $58 million in First Half 2018, up $50 million on the prior half.
The increase was due to a higher Treasury contribution (from interest rate risk management) partially offset by
higher expenses and an increased impairment charge. Higher expenses were mainly due to increased investment
and a rise in regulatory and compliance costs, including expenses associated with the Royal Commission and
higher employee costs. The impairment charge in Group Businesses was mostly related to movements in centrally
held impairment overlays. The impairment charge was $13 million in First Half 2018 compared to a $32 million
benefit in Second Half 2017 – a $45 million turnaround.

2018 Interim financial results
Review of Group operations

16 | Westpac Group 2018 Interim Financial Results Announcement

Divisional cash earnings summary

Half Year March 18

BT Financial Westpac Westpac





Consumer Business Group Institutional New Zealand
1
Group



$m Bank Bank (Australia) Bank (A$) Businesses

Group

Net interest income 4,040 2,021 285 675 843 437

8,301

Non-interest income 377 589 898 749 224 13

2,850

Net operating income 4,417 2,610 1,183 1,424 1,067 450

11,151

Operating expenses (1,730) (930) (601) (675) (429) (289)

(4,654)

Core earnings 2,687 1,680 582 749 638 161

6,497

Impairment (charges) / benefits (233) (137) (3) 17 (24) (13)

(393)

Operating profit before income tax 2,454 1,543 579 766 614 148

6,104

Income tax expense (737) (463) (175) (212) (173) (91)

(1,851)

Net profit 1,717 1,080 404 554 441 57

4,253

Non-controlling interests - - - (3) - 1

(2)

Cash earnings 1,717 1,080 404 551 441 58

4,251


Half Year Sept 17
2


BT Financial Westpac Westpac





Consumer Business Group Institutional New Zealand
1
Group



$m Bank Bank (Australia) Bank (A$) Businesses

Group

Net interest income 3,961 1,975 274 672 838 291

8,011

Non-interest income 380 584 850 749 235 (14)

2,784

Net operating income 4,341 2,559 1,124 1,421 1,073 277

10,795

Operating expenses (1,727) (921) (610) (680) (442) (224)

(4,604)

Core earnings 2,614 1,638 514 741 631 53

6,191

Impairment (charges) / benefits (293) (143) (1) 8 37 32

(360)

Operating profit before income tax 2,321 1,495 513 749 668 85

5,831

Income tax expense (697) (450) (156) (216) (187) (78)

(1,784)

Net profit 1,624 1,045 357 533 481 7

4,047

Non-controlling interests - - - (3) - 1

(2)

Cash earnings 1,624 1,045 357 530 481 8

4,045


Mov't Mar 18 - Sept 17

BT Financial Westpac Westpac





Consumer Business Group Institutional New Zealand
1
Group



% Bank Bank (Australia) Bank (A$) Businesses

Group

Net interest income 2% 2% 4% - 1% 50%

4%

Non-interest income (1%) 1% 6% - (5%) large

2%

Net operating income 2% 2% 5% - (1%) 62%

3%

Operating expenses - 1% (1%) (1%) (3%) 29%

1%

Core earnings
3% 3% 13% 1% 1% large

5%

Impairment (charges) / benefits (20%) (4%) 200% 113% large large

9%

Operating profit before income tax
6% 3% 13% 2% (8%) 74%

5%

Income tax expense 6% 3% 12% (2%) (7%) 17%

4%

Net profit
6% 3% 13% 4% (8%) large

5%

Non-controlling interests - - - - - -

-

Cash earnings
6% 3% 13% 4% (8%) large

5%




1
Refer to Section 3.5 for the Westpac New Zealand NZ$ divisional result.
2
Divisional comparatives have been restated.
Movement in core earnings by division ($m)
First Half 2018 –Second Half 2017
108
7
8
68
42
73
+306
First Half 2018
core earnings
6,497
Group
Businesses
Westpac
New Zealand
(A$)
WIBBTFGBusiness
Bank
Consumer
Bank
Second Half
2017 core
earnings
6,191

2018 Interim financial results
Review of Group operations

Westpac Group 2018 Interim Financial Results Announcement | 17

Divisional cash earnings summary (continued)

Half Year March 18

BT Financial Westpac Westpac





Consumer Business Group Institutional New Zealand
1
Group



$m Bank Bank (Australia) Bank (A$) Businesses

Group

Net interest income 4,040 2,021 285 675 843 437

8,301

Non-interest income 377 589 898 749 224 13

2,850

Net operating income 4,417 2,610 1,183 1,424 1,067 450

11,151

Operating expenses (1,730) (930) (601) (675) (429) (289)

(4,654)

Core earnings 2,687 1,680 582 749 638 161

6,497

Impairment (charges) / benefits (233) (137) (3) 17 (24) (13)

(393)

Operating profit before income tax 2,454 1,543 579 766 614 148

6,104

Income tax expense (737) (463) (175) (212) (173) (91)

(1,851)

Net profit 1,717 1,080 404 554 441 57

4,253

Non-controlling interests - - - (3) - 1

(2)

Cash earnings 1,717 1,080 404 551 441 58

4,251


Half Year March 17
2


BT Financial Westpac Westpac





Consumer Business Group Institutional New Zealand
1
Group



$m Bank Bank (Australia) Bank (A$) Businesses

Group

Net interest income 3,677 1,910 237 656 791 422

7,693

Non-interest income 433 557 894 958 245 (19)

3,068

Net operating income 4,110 2,467 1,131 1,614 1,036 403

10,761

Operating expenses (1,651) (897) (589) (671) (461) (232)

(4,501)

Core earnings 2,459 1,570 542 943 575 171

6,260

Impairment (charges) / benefits (272) (200) (3) (64) 35 11

(493)

Operating profit before income tax 2,187 1,370 539 879 610 182

5,767

Income tax expense (656) (412) (160) (246) (174) (97)

(1,745)

Net profit 1,531 958 379 633 436 85

4,022

Non-controlling interests - - - (4) - (1)

(5)

Cash earnings 1,531 958 379 629 436 84

4,017


Mov't Mar 18 - Mar 17

BT Financial Westpac Westpac





Consumer Business Group Institutional New Zealand
1
Group



% Bank Bank (Australia) Bank (A$) Businesses

Group

Net interest income 10% 6% 20% 3% 7% 4%

8%

Non-interest income (13%) 6% - (22%) (9%) large

(7%)

Net operating income 7% 6% 5% (12%) 3% 12%

4%

Operating expenses 5% 4% 2% 1% (7%) 25%

3%

Core earnings
9% 7% 7% (21%) 11% (6%)

4%

Impairment (charges) / benefits (14%) (32%) - large large large

(20%)

Operating profit before income tax
12% 13% 7% (13%) 1% (19%)

6%

Income tax expense 12% 12% 9% (14%) (1%) (6%)

6%

Net profit
12% 13% 7% (12%) 1% (33%)

6%

Non-controlling interests - - - (25%) - large

(60%)

Cash earnings
12% 13% 7% (12%) 1% (31%)

6%





1
Refer to Section 3.5 for the Westpac New Zealand NZ$ divisional result.
2
Divisional comparatives have been restated.
Movement in core earnings by division ($m)
First Half 2018 –First Half 2017
40
63
110
228
Business
Bank
WIB
(194)
BTFG
(10)
Group
Businesses
6,497
+237
First Half 2018
core earnings
Westpac
New Zealand
(A$)
Consumer
Bank
First Half 2017
core earnings
6,260

2018 Interim financial results
Review of Group operations

18 | Westpac Group 2018 Interim Financial Results Announcement

2.2 Review of earnings

2.2.1 Net interest income
1


% Mov't % Mov't

Half Year Half Year
2
Half Year
2
Mar 18 - Mar 18 -
$m March 18 Sept 17 March 17 Sept 17 Mar 17
Net interest income

Net interest income excluding Treasury & Markets 7,842 7,698 7,283 2 8
Treasury net interest income
3
396 266 386 49 3
Markets net interest income 63 47 24 34 163
Net interest income 8,301 8,011 7,693 4 8
Average interest-earning assets

Loans 651,943 640,339 627,267 2 4
Third party liquid assets
4
93,357 96,262 93,798 (3) -
Other interest-earning assets 21,711 23,163 23,718 (6) (8)
Average interest-earning assets 767,011 759,764 744,783 1 3
Net interest margin

Group net interest margin 2.17% 2.10% 2.07% 7bps 10bps
Group net interest margin excluding Treasury & Markets
5
2.05% 2.02% 1.96% 3bps 9bps

First Half 2018 – Second Half 2017

Net interest income increased $290 million or 4% compared to Second Half 2017. Key features include:

 A 2% increase in average interest-earning loans largely from Australian housing, which grew 2%;

 Group net interest margin excluding Treasury and Markets increased 3 basis points, primarily from increased
spreads on certain mortgage types (including investor lending and loans with an interest only feature) partly
offset by the full period impact of the Bank Levy (2 basis points). While funding costs were lower across
deposits and wholesale funding for the half, both short and long term funding costs increased towards the end
of the half; and

 In aggregate, Treasury and Markets net interest income increased $146 million, mostly from Treasury interest
rate risk management.

First Half 2018 – First Half 2017

Net interest income increased $608 million or 8% compared to First Half 2017. Key features include:

 A 4% growth in average interest-earning loans, primarily from Australian housing, which grew 5%;

 Group net interest margin excluding Treasury and Markets increased 9 basis points. The full period impact of
pricing changes for certain Australian and New Zealand mortgages, including investor lending and interest only
loans, and lower funding costs were partly offset by the introduction of the Bank Levy from July 2017; and

 In aggregate, the contribution from Treasury and Markets was up $49 million or 12%, mostly from higher fixed
income revenue in WIB Markets.


1
Refer to Section 4, Note 3 for reported results breakdown. Refer to Section 5, Note 3 for cash earnings results breakdown. As
discussed in Section 1.3, commentary is reflected on a cash earnings basis.
2
Net interest income excluding Treasury and Markets, Treasury net interest income and Group net interest margin excluding Treasury
and Markets have been restated for changes in the allocation of revenue from balance sheet management activities.
3
Treasury net interest income excludes capital benefit.
4
Refer Glossary for definition.
5
Calculated by dividing net interest income excluding Treasury and Markets by total average interest earning assets.

2018 Interim financial results
Review of Group operations

Westpac Group 2018 Interim Financial Results Announcement | 19

2.2.2 Loans
1



As at

As at

As at
% Mov't % Mov't

31 March 30 Sept 31 March Mar 18 - Mar 18 -
$m 2018 2017 2017 Sept 17 Mar 17
Australia 610,397 599,162 583,546
2 5
Housing 437,239 427,167 413,938 2 6
Personal (loans and cards) 21,789 21,952 22,716 (1) (4)
Business 151,904 150,542 147,705 1 3
Other
2
1,963 1,985 2,033 (1) (3)
Provisions (2,498) (2,484) (2,846) 1 (12)

New Zealand (A$) 74,687 71,484 70,350
4 6

New Zealand (NZ$) 79,557 77,680 76,948 2 3
Housing 47,907 46,943 46,245 2 4
Personal (loans and cards) 2,047 2,017 1,977 1 4
Business 29,898 28,979 29,034 3 3
Other 81 92 90 (12) (10)
Provisions (376) (351) (398) 7 (6)

Other overseas 16,309 14,273 13,050
14 25
Trade finance 3,942 2,818 2,281 40 73
Other loans 12,429 11,515 10,821 8 15
Provisions (62) (60) (52) 3 19

Total loans 701,393 684,919 666,946
2 5

First Half 2018 – Second Half 2017

Total loans increased $16.5 billion or 2% compared to Second Half 2017. Excluding foreign currency translation
impacts, total loans increased $14.6 billion or 2%.

Key features of total loan growth were:

 Australian housing loans increased $10.1 billion or 2% which was slightly below system
3
growth. Owner
occupied housing balances grew 3% and comprised 56% of the portfolio. Investor loans grew 1% and
comprised 39% of the portfolio. The Group continued to manage interest only growth below the macro-
prudential limit of 30% of new flows, with new interest only facilities representing 23% of new mortgage limits
for the half. Interest only loans comprised 40% of the portfolio (30 September 2017: 46%, 31 March 2017:
50%);

 Australian business loans increased $1.4 billion or 1%, primarily from a 2% increase in Business Bank with
growth across SME, property, entertainment and construction;

 New Zealand loans increased NZ$1.9 billion or 2%, due to growth in housing (2%), mostly in fixed rate
products to owner occupiers and in business loans across a broad range of industries; and

 Other overseas lending increased $2.0 billion or 14%, across financing and trade financing in Asia.

First Half 2018 – First Half 2017

Total loans increased $34.4 billion or 5% compared to First Half 2017. Excluding foreign currency translation
impacts, total loans increased $32.5 billion or 5%.

Key features of total loan growth were:

 Australian housing loans increased $23.3 billion or 6% (slightly below system
3
). Owner occupier loans
increased 7% compared to the prior corresponding period, while investor property lending grew 5% (below the
10% regulatory cap);

 Australian personal loans and cards decreased $0.9 billion or 4%, primarily in auto finance and credit cards;

 Australian business loans increased $4.2 billion or 3%, with 4% growth in Business Bank broadly based
across areas including SME, property, professional services and agriculture. Institutional lending grew 1%,
mostly from increased utilisation of existing securitisation warehouse facilities;

 New Zealand lending increased NZ$2.6 billion or 3%. Housing grew 4% mostly in fixed rate, whilst business
lending increased 3% supported by growth in agriculture. Institutional balances were lower; and

 Other overseas lending increased $3.3 billion or 25%, across financing and trade financing in Asia.

1
Spot loan balances.
2
Includes margin lending.
3
Source: RBA March 2018.

2018 Interim financial results
Review of Group operations

20 | Westpac Group 2018 Interim Financial Results Announcement

2.2.3 Deposits and other borrowings
1



As at

As at

As at
% Mov't % Mov't

31 March 30 Sept 31 March Mar 18 - Mar 18 -
$m 2018 2017 2017 Sept 17 Mar 17
Customer deposits

Australia 429,852 420,841 414,706
2 4
At call
2
227,021 224,268 217,492 1 4
Term
2
161,864 156,249 157,730 4 3
Non-interest bearing 40,967 40,324 39,484 2 4

New Zealand (A$) 57,856 53,746 51,942
8 11



New Zealand (NZ$) 61,628 58,405 56,812 6 8
At call 24,164 23,117 23,894 5 1
Term 31,595 30,014 27,837 5 14
Non-interest bearing 5,869 5,274 5,081 11 16

Other overseas (A$) 14,355 12,083 12,012
19 20

Total customer deposits 502,063 486,670 478,660
3 5

Certificates of deposit 45,673 46,921 43,853
(3) 4
Australia 30,387 37,515 31,011 (19) (2)
New Zealand (A$) 521 546 1,478 (5) (65)
Other overseas (A$) 14,765 8,860 11,364 67 30

Total deposits and other borrowings 547,736 533,591 522,513
3 5

First Half 2018 – Second Half 2017

Total customer deposits increased $15.4 billion or 3% compared to Second Half 2017. Excluding foreign currency
translation impacts, customer deposits increased $13.4 billion or 3%.

Key features of total customer deposits growth were:

 A $9.0 billion or 2% increase in Australia, with growth in WIB and household deposits, particularly term
deposits (up 4%);

 New Zealand customer deposits increased NZ$3.2 billion or 6%, with at-call and term deposits both up 5%,
and an 11% increase from non-interest bearing deposits from growth in consumer and business transaction
accounts. Deposit growth more than fully funded loan growth in the half; and

 Other overseas deposits increased $2.3 billion or 19% due to growth in Asian deposits.

Certificates of deposits decreased $1.2 billion or 3%, reflecting less new funding in this form. The reduction in
Australian issuance was partly offset by higher issuance overseas, particularly in the United States.

First Half 2018 – First Half 2017

Total customer deposits increased $23.4 billion or 5% compared to First Half 2017. Excluding foreign currency
translation impacts, customer deposits increased $21.6 billion or 5%.

Key features of total customer deposits growth were:

 Australian customer deposits increased $15.1 billion or 4%, with above system
3
growth in household deposits
and at system
3
growth in non-financial corporation segments primarily due to growth in at-call deposits;

 New Zealand customer deposits increased NZ$4.8 billion or 8%, with the increase fully funding loan growth.
Term deposits grew 14% particularly across household and institutional segments, as the business focused
on higher quality deposits and customer preference for higher rate products; and

 Other overseas deposits increased $2.3 billion or 20% due to growth in deposits across Asia.

Certificates of deposits increased $1.8 billion or 4%, from higher short-term funding in this form.


1
Spot deposit balances.
2
Comparatives have been restated.
3
Source: APRA.

2018 Interim financial results
Review of Group operations

Westpac Group 2018 Interim Financial Results Announcement | 21

2.2.4 Net interest margin



First Half 2018 – Second Half 2017

Group net interest margin of 2.17% increased 7 basis points from Second Half 2017. Key features include:

 2 basis points increase from loan spreads primarily from pricing changes to certain Australian mortgage types
in the prior half (including investor lending and loans with an interest only feature) and higher New Zealand
mortgage spreads. These were partly offset by customer switching from interest only to principal and interest
loans (1 basis point) and competition across all loan markets;

 1 basis point increase from customer deposit spreads primarily from term deposits, partly offset by the impact
of lower rates on the hedging of transaction deposits;

 1 basis point increase from term wholesale funding, as pricing for new term senior issuance was lower than
maturing deals;

 2 basis points decrease from the full period impact of the Bank Levy, which was introduced on 1 July 2017
($186 million; based on $626 billion of applicable liabilities);

 Capital and other was unchanged as the impact of lower interest rates was offset by the positive effect of
higher capital balances;

 1 basis point increase from liquidity reflecting lower holdings of third party liquid assets. The 1 basis point
included the increase in the CLF fee following a $8 billion increase to the CLF from 1 January 2018; and

 4 basis points increase from Treasury and Markets, due to increased Treasury revenue from interest rate risk
management, including management of short term basis risk.



1
Group net interest margin excluding Treasury and Markets has been restated for changes in the allocation of revenue from balance
sheet management activities.
2.17%
1bps
Term
wholesale
funding
Customer
deposits
1bps
Loans
2bps
Second
Half 2017
2.10%
2.02%
(2bps)
4bps
Treasury
& Markets
1bps
2.05%
Group margin up 7bps
Capital
& other
0bps
Bank LevyLiquidityFirst Half
2018
Excluding Treasury and
Markets up 3bps
Group net interest margin movement (%)
First Half 2018–Second Half 2017
1

2018 Interim financial results
Review of Group operations

22 | Westpac Group 2018 Interim Financial Results Announcement




First Half 2018 – First Half 2017

Group net interest margin was 2.17%, an increase of 10 basis points from First Half 2017. Key features include:

 9 basis points increase from loan spreads. This reflected the full period impact of pricing changes for certain
Australian mortgages, including interest only loans and investor lending, along with higher spreads on New
Zealand mortgages. These gains were partly offset by the impact of customer switching from interest only to
principal and interest loans and competition across all loan markets;

 1 basis point increase from customer deposit spreads, mostly from term deposit repricing, partly offset by the
impact of lower interest rates on the hedging of transaction deposits;

 3 basis points increase from term wholesale funding, as pricing for new term senior issuance was lower than
maturing deals;

 5 basis points decrease from the introduction of the Bank Levy;

 Capital and other was little changed as the impact of lower interest rates was offset by the positive impact from
higher capital balances;

 1 basis point increase from liquidity primarily due to decreased holdings of third party liquid assets; and

 1 basis point increase from Treasury and Markets.



1
Group net interest margin excluding Treasury and Markets has been restated for changes in the allocation of revenue from balance
sheet management activities..
Term
wholesale
funding
2.05%
0bps
2.17%
First Half
2018
Group margin up 10bps
1bps
Liquidity
1bps
Capital
& other
Treasury
& Markets
Bank Levy
(5bps)
3bps
Customer
deposits
1bps
Loans
9bps
First Half
2017
2.07%
1.96%
Excluding Treasury and
Markets up 9bps
Group net interest margin movement (%)
First Half 2018–First Half 2017
1

2018 Interim financial results
Review of Group operations

Westpac Group 2018 Interim Financial Results Announcement | 23

2.2.5 Non-interest income
1


% Mov't % Mov't

Half Year Half Year Half Year Mar 18 - Mar 18 -
$m March 18 Sept 17 March 17 Sept 17 Mar 17
Fees and commissions 1,348 1,329 1,426 1 (5)
Wealth management and insurance income 929 924 886 1 5
Trading income 507 504 713 1 (29)
Other income 66 27 43 144 53
Non-interest income 2,850 2,784 3,068
2 (7)

First Half 2018 – Second Half 2017

Non-interest income increased $66 million or 2% compared to Second Half 2017. Excluding the impact of
provisions for customer refunds and payments of $111 million raised in Second Half 2017 that were not repeated,
non-interest income was $45 million or 2% lower. The 2% decline reflected seasonally higher insurance claims,
impacts from regulatory changes to card interchange rates, and pricing changes to transaction accounts and ATM
withdrawal fees.

Fees and commissions

Fees and commissions increased $19 million or 1% compared to Second Half 2017 from:

 Provisions for customer refunds and payments raised in the prior half of $55 million were not repeated; and

 Higher business lending fees (up $11 million) primarily driven by portfolio growth and pricing changes for
facilities including unused limits; partly offset by

 Lower revenue from changes to transaction fees and the removal of ATM withdrawal fees effective from
October 2017 ($17 million);

 Reduced credit card income ($15 million) from the full period impact of regulatory changes to Australian
interchange rates from 1 July 2017; and

 Lower corporate and institutional lending fees ($6 million) from a reduction in unused customer limits.

Wealth management and insurance income

Wealth management and insurance income was little changed in the half (up $5 million), due to:

 Provisions for customer refunds and payments raised in Second Half 2017 relating to wealth products of $56
million were not repeated; and

 Contribution from investments in boutique funds up $33 million; partly offset by

 Lower insurance income ($43 million) from:

- A reduction in general insurance income (down $39 million) from seasonally higher claims, partly offset by
3% higher net earned premiums;

- Lenders Mortgage Insurance (LMI) contribution was $3 million lower, primarily from a reduction in loans
written at higher LVR bands; and

- Life insurance income was little changed, with higher claims offset by an increase in in-force premiums. The
rise in premiums was principally due to BTFG commencing the management of Group Insurance for BTFG
Corporate Super.

 Hastings contribution reduced by $32 million, due to lower performance fees that are normally recognised in
the second half of the year and a decrease in funds;

 Platforms and Superannuation income was $11 million lower, with a reduction in member levies and the impact
of margin compression from competition, partly offset by the benefit of higher asset markets. (Refer to Section
2.2.6 for further information on Group Funds balance movements).

Trading income

Trading income was little changed in the half (up $3 million). Refer to Section 2.2.7 for further detail on Markets
related income.

Other income

Other income increased $39 million compared to Second Half 2017, mostly reflecting the impact from hedging
New Zealand earnings.

1
Refer to Section 4, Note 4 for reported results breakdown. Refer to Section 5, Note 4 for cash earnings results breakdown. As
discussed in Section 1.3, commentary is on a cash earnings basis.

2018 Interim financial results
Review of Group operations

24 | Westpac Group 2018 Interim Financial Results Announcement

First Half 2018 – First Half 2017

Non-interest income decreased $218 million or 7% primarily from a $206 million reduction to trading income
following a strong First Half 2017 and lower credit card income largely due to the full period impact from regulatory
changes to Australian interchange rates.

Fees and commissions

Fees and commissions decreased $78 million or 5% compared to First Half 2017, with:

 Credit card income down $53 million from the full period impact of regulatory changes to Australian interchange
rates from 1 July 2017 and higher rewards costs;

 Lower revenue from payments, changes to transaction fees and the removal of ATM withdrawal fees
($29 million); and

 Corporate and institutional lending fees decreased $12 million, with First Half 2017 supported by a number of
large customer transactions; partly offset by

 Business lending fees up $18 million primarily driven by portfolio growth and the full period impact of pricing
changes for facilities including unused limits.

Wealth management and insurance income

Wealth management and insurance income increased $43 million or 5% over the year reflecting:

 Insurance income $33 million higher from:

- Increase in general insurance income (up $34 million) from lower claims, with First Half 2017 impacted by
claims related to Cyclone Debbie, and a $6 million or 3% increase in net earned premiums; and

- Life insurance income was $11 million higher from a 24% increase to in-force premiums, primarily due to
BTFG commencing the management of Group Insurance for BTFG Corporate Super, along with a higher
contribution from New Zealand. This was partly offset by a rise in claims; and

- Lower LMI contribution ($12 million) primarily from less need for LMI as new loans written at higher LVR
bands have reduced.

 Increased revenue from investments in boutique funds ($9 million).

 Total Group funds income was little changed with the impact of margin compression from the transfer of legacy
products to lower fee ‘MySuper’ products and a reduction in member levies. This was partly offset by the
benefit of higher asset markets. Refer to Section 2.2.6 for further information on Group funds balance
movements.

Trading income

Trading income decreased $206 million or 29% compared to First Half 2017. The majority of the reduction was
due to lower risk income and customer activity in WIB markets. Refer to Section 2.2.7 for further detail on Markets
related income.

Other income

Other income increased $23 million over the half, reflecting the impact of hedging New Zealand earnings, partly
offset by a lower share of associates profit following the partial sale of shares in BTIM in Second Half 2017.

2.2.6 Group funds


As at

As at

As at
% Mov't % Mov't

31 March 30 Sept 31 March Mar 18 - Mar 18 -
$bn 2018 2017 2017 Sept 17 Mar 17
Superannuation 37.4 36.2 35.8 3 4
Platforms 118.6 115.3 113.3 3 5
Packaged Funds 38.0 36.4 38.4 4 (1)
Other 3.7 3.5 4.0 6 (8)
Westpac Institutional Bank 6.6 12.5 11.3 (47) (42)
New Zealand (A$) 9.7 9.3 8.9 4 9
Total Group funds 214.0 213.2 211.7
- 1

Average funds for the Group
1
217.3 213.9 203.2
2 7


1
Averages are based on a six month period.

2018 Interim financial results
Review of Group operations

Westpac Group 2018 Interim Financial Results Announcement | 25

2.2.7 Markets related income
1


% Mov't % Mov't

Half Year Half Year Half Year Mar 18 - Mar 18 -
$m March 18 Sept 17 March 17 Sept 17 Mar 17
Net interest income 63 47 24 34 163
Non-interest income 547 488 724 12 (24)
Total Markets income 610 535 748
14 (18)

Customer income 448 436 482 3 (7)
Non-customer income 162 72 247 125 (34)
Derivative valuation adjustments - 27 19 (100) (100)
Total Markets income 610 535 748
14 (18)

Markets income comprises sales and risk management revenue derived from the creation, pricing and distribution
of risk management products to the Group’s consumer, business, corporate and institutional customers. Dedicated
relationship specialists provide product solutions to these customers to help manage their interest rate, foreign
exchange, commodity, credit and structured products risk exposures.

First Half 2018 - Second Half 2017

Total markets income increased $75 million or 14% compared to Second Half 2017 across both customer and
non-customer income.

Customer income increased 3%, driven by higher fixed income sales.

Non-customer income increased 125% compared to Second Half 2017, primarily due to higher foreign exchange
and commodities risk management income.

First Half 2018 – First Half 2017

Total markets income decreased $138 million or 18% compared to the First Half 2017, primarily due to lower non-
customer income.

Customer income decreased 7% compared to First Half 2017 mainly driven by lower fixed income sales.

Non-customer income decreased $85 million or 34% compared to First Half 2017, due to lower fixed income risk
management income in First Half 2018.

Markets Value at Risk (VaR)
2


$m
Average

High Low
Six months ended 31 March 2018 9.0 19.9 3.8
Six months ended 30 September 2017 11.2 16.0 7.6
Six months ended 31 March 2017 9.4 13.1 6.5


The Components of Markets VaR are as follows:

Average

Half Year Half Year Half Year
$m March 18 Sept 17 March 17
Interest rate risk 2.7 3.0 3.7
Foreign exchange risk 1.5 1.5 2.3
Equity risk 0.1 0.1 0.1
Commodity risk
3
6.4 8.1 5.0
Credit and other market risks
4
2.6 3.4 3.6
Diversification benefit (4.3) (4.9) (5.3)
Net market risk 9.0 11.2 9.4



1
Markets income includes WIB Markets, Business Bank, Consumer Bank, BTFG and Westpac New Zealand markets.
2
The daily VaR presented above reflects a WIB divisional view of VaR. It varies from presentations of VaR in Westpac’s 2017 Annual
Report and Australian Prudential Standard (APS) 330 Prudential Disclosure under Basel III where market risk disclosures are
segregated into trading and banking book. VaR measures the potential for loss using a history of price volatility.
3
Includes electricity risk.
4
Includes pre-payment risk and credit spread risk (exposures to generic credit rating bonds).

2018 Interim financial results
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26 | Westpac Group 2018 Interim Financial Results Announcement

2.2.8 Operating expenses
1


% Mov't % Mov't

Half Year Half Year Half Year Mar 18 - Mar 18 -
$m March 18 Sept 17 March 17 Sept 17 Mar 17
Staff expenses (2,398) (2,340) (2,326) 2 3
Occupancy expenses (475) (485) (477) (2) -
Technology expenses (1,042) (1,019) (989) 2 5
Other expenses (739) (760) (709) (3) 4
Total operating expenses (4,654) (4,604) (4,501)
1 3

First Half 2018 – Second Half 2017

Operating expenses increased $50 million or 1% in the half primarily due to regulatory and compliance costs
including the Royal Commission of $34 million and the Group’s investment programs ($22 million). Operating cost
growth was offset by productivity savings of $131 million.

Staff expenses were up $58 million or 2% due to annual salary increases effective from January 2018 and higher
FTE for compliance related activities and the Group’s investment programs. In addition, the Group’s investment
programs had a higher proportion of spend on staff expenses relative to non-staff expenses.

Occupancy expenses reduced $10 million or 2%, with the full period benefit of retail property consolidation partly
offset by rental increases. Branch numbers across the Group were 27 lower over the half.

Technology expenses increased $23 million or 2% compared to Second Half 2017, largely from the impact of the
Group’s investment programs. Higher technology services costs (up $42 million) and software maintenance and
licensing costs (up $17 million) were driven by programs including the customer service hub, Panorama and
enhancements to the Group’s technology infrastructure. Amortisation of software assets and depreciation of IT
equipment, in aggregate, were $19 million lower as investments across data centres, branch teller system
upgrades and components of Westpac Live were fully amortised or depreciated. Software impairments were also
lower this half (down $9 million).

Other expenses decreased $21 million or 3% over the half, primarily reflecting lower professional and processing
services costs, including the completion of the first phase of the New Zealand transformation program. Postage
and stationery costs were also lower as customers continue to migrate to electronic statements. This was partly
offset by costs associated with the Royal Commission, higher marketing spend and partial writedown of Hastings’
goodwill ($15 million).

First Half 2018 – First Half 2017

Operating expenses increased $153 million or 3% compared to First Half 2017 due to higher regulatory and
compliance related costs ($83 million) and investment related spending ($79 million). Productivity benefits of $275
million more than offset growth in operating costs.

Staff expenses increased $72 million or 3% compared to the prior corresponding period reflecting annual salary
increases and additional FTE to support compliance related activity and the Group’s investment programs. This
was partly offset by decreased restructuring costs and lower share based payments.

Occupancy expenses were down $2 million, with benefits of retail property consolidation mostly offset by rental
expense increases across corporate sites. Branch numbers across the Group were 41 lower compared to the prior
corresponding period.

Technology expenses increased $53 million or 5% compared to First Half 2017, largely reflecting the impact of
the Group’s investment programs. This included a $40 million increase in software maintenance and licensing
costs for the customer service hub, Panorama and New Payments Platform. Telecommunication costs were up
$18 million from enhancements to the telephony infrastructure of the Group’s customer contact centres.

Other expenses were $30 million or 4% higher during the year due to increased professional services costs
primarily related to costs associated with the Royal Commission, higher marketing spend and partial writedown of
Hastings’ goodwill. This was partly offset by a $14 million decrease in credit card loyalty program costs from
changes to reward programs and a $13 million reduction in postage and stationery costs with increased customer
migration to electronic statements.


1
Refer to Section 4, Note 5 for reported results breakdown. Refer to Section 5, Note 5 for cash earnings breakdown. As discussed in
Section 1.3, commentary is on a cash earnings basis.

2018 Interim financial results
Review of Group operations

Westpac Group 2018 Interim Financial Results Announcement | 27

Full Time Equivalent (FTE) employees


As at

As at

As at
% Mov't % Mov't

31 March 30 Sept 31 March Mar 18 - Mar 18 -
Number of FTE 2018 2017 2017 Sept 17 Mar 17
Permanent employees 32,033 32,044 31,994 - -
Temporary employees 3,687 3,052 3,296 21 12
FTE 35,720 35,096 35,290
2 1
Average FTE
1
35,446 35,216 35,132
1 1

First Half 2018 – Second Half 2017

FTE was up 624 or 2% in the half, driven by an increase in employees related to regulatory and compliance
activities and the Group’s investment programs across both permanent and temporary employees. This was partly
offset by productivity initiatives, including simplifying the organisation and digitising manual processes across
operations and the branch network.

First Half 2018 – First Half 2017

FTE increased 430 or 1% compared to the prior corresponding period, with additional employees directed to
regulatory and compliance related activities and the Group’s investment programs. These increases were partly
offset by productivity initiatives across the Group.

Investment spend

% Mov't % Mov't

Half Year Half Year Half Year Mar 18 - Mar 18 -
$m March 18 Sept 17 March 17 Sept 17 Mar 17
Expensed 251 243 236 3 6
Capitalised software and fixed assets 387 433 344 (11) 13
Total 638 676 580
(6) 10
Growth and productivity 391 417 375 (6) 4
Regulatory change 163 182 143 (10) 14
Other technology 84 77 62 9 35
Total 638 676 580
(6) 10

The Group invested $638 million in First Half 2018, of which 61% was spent on growth and productivity initiatives,
26% on regulatory change and 13% on other technology programs.

The lower investment spend in First Half 2018 compared to Second Half 2017 was principally due to the
completion of some transformation and productivity initiatives. Other technology costs were higher associated with
accelerating system refreshes. Of the $638 million investment in First Half 2018, 39% was expensed while 61%
was capitalised. Investment spend also tends to be a little lower in the first half of the financial year.

Compared to the prior corresponding period investment spend rose 10% including increasing investment in the
customer service hub and the New Payments Platform. Regulatory change investment was also higher including
additional spend on systems supporting the introduction of AASB 9 and new regulatory reporting.

Across the major investment categories the following progress was achieved in First Half 2018:

Growth and productivity

 The customer service hub is a major Group program seeking to implement a one bank, multi-brand operating
system creating greater efficiencies and more agile environment. The system will support a single and
complete view of the customer, and it will enable continuous customer conversations across various channels.
The system is beginning with home ownership, creating an ability to process all elements of a home loan,
including offset accounts and insurance needs. This will ultimately be broadened across other product sets.
The program foundation was released in August 2017 enabling mortgages to be originated on the system.
Since then the focus has been on building out capability and improving the experience for customers and
bankers. By the end of 2018, new Westpac mortgage customers will be originated on the system;

 Westpac commenced the progressive roll out of 24/7 real time payments on the New Payments Platform.
Beginning with a small group of customers, the capability will be extended through 2018;



1
Averages are based on a six month period.

2018 Interim financial results
Review of Group operations

28 | Westpac Group 2018 Interim Financial Results Announcement

 New banking and payments features released to customers include:

- PayWear, a wearable, waterproof payments device providing a hands free way to pay without needing to
carry a wallet or a phone;

- Enabling Westpac customers to access their banking via Amazon's virtual assistant Alexa; and

- Rolling out iMessage which allows customers to make payments, get a cardless cash code and share BSB
and account details, with those in their contacts list, while texting on their iPhone.

 Digital enhancements for customers have included:

- Enabling St.George unsecured finance customers to more quickly register for online banking;

- Supporting customers to complete their digital applications for deposits, credit cards and personal loan
applications using email and SMS messages; and

- Simplifying the process for customers to move to electronic statements and correspondence. Almost 800,000
St.George customers have elected to be contacted electronically while over half a million St.George accounts
have switched to e-statements, saving $3 million in printing/postage costs.

 In April, launched a new payments solution for business customers called Presto Smart that streamlines the
sales processes for in-store payments. The system links the merchant terminals with point of sale software to
reduce manual inputs and enable sales to be made throughout a store;

 Business Bank launched electronic documents to reduce loan deal preparation time for bankers and faster
customer acceptance, resulting in a faster time for customers to access cash;

 Expanded the Group’s online lending origination platform (LOLA) to St.George SME bankers. The system
simplifies and speeds up loan origination;

 Further enhanced Panorama (BT’s funds administration system) including improved customer reporting,
increased mobile app functionality and building out new investor directed portfolio services; and

 Launched BT Super Invest – a new superannuation product offering broad investment choice and flexibility to
personalise a portfolio from mobile or tablet.

Regulatory change

Major developments over the half included:

 Enhancements to systems for the management and reporting of the net stable funding ratio. Banks needed to
comply with the new ratio on 1 January 2018;

 Delivery of new industry reporting for global tax compliance and economic and financial statistics data;

 Developing systems for AASB 9 implementation due to be implemented from 1 October 2018; and

 Completion of the Super Stream standards for government to business transactions.

Other technology

Investment over the half has focused on reducing cybersecurity risks and moving more of the Group’s
infrastructure onto cloud based technologies, which is expected to more efficiently and rapidly deliver major IT
developments.

Capitalised software

% Mov't % Mov't

Half Year Half Year Half Year Mar 18 - Mar 18 -
$m March 18 Sept 17 March 17 Sept 17 Mar 17
Opening balance 1,916 1,814 1,781 6 8
Total additions 389 422 344 (8) 13
Amortisation expense (301) (311) (303) (3) (1)
Impairment expense (2) (11) (3) (82) (33)
Foreign exchange translation 3 2 (5) 50 large
Closing balance 2,005 1,916 1,814
5 11

Capitalised software balances have increased compared to the prior corresponding period and the half as new
investment has not been offset by amortisation. This, in part, reflects that a number of major programs continue to
be in development, and therefore amortisation has yet to fully commence, while at the same time some projects
commenced three to five years ago are now fully amortised.

As part of the Group’s regular asset review, $2 million of capitalised software was written off in First Half 2018. In
aggregate, the average amortisation of our capitalised software assets continues to be approximately three years.

2018 Interim financial results
Review of Group operations

Westpac Group 2018 Interim Financial Results Announcement | 29

2.2.9 Impairment charges

% Mov't % Mov't

Half Year Half Year Half Year Mar 18 - Mar 18 -
$m March 18 Sept 17 March 17 Sept 17 Mar 17
Individually assessed provisions (IAPs)

New IAPs (173) (246) (364) (30) (52)
Write-backs 67 144 144 (53) (53)
Recoveries 100 84 84 19 19
Total IAPs, write-backs and recoveries (6) (18) (136)
(67) (96)
Collectively assessed provisions (CAPs)

Write-offs (430) (525) (443) (18) (3)
Other changes in CAPs 43 183 86 (77) (50)
Total new CAPs (387) (342) (357)
13 8
Total impairment charges (393) (360) (493)
9 (20)

Asset quality remained sound through First Half 2018 with stressed assets to total committed exposures
increasing by 4 basis points to 1.09%. The increase in stressed assets mostly reflects increases in mortgage
delinquencies and a small rise in stressed exposures in the Business Bank. Impaired assets were stable, with
gross impaired assets to gross loans unchanged at 0.22% compared to Second Half 2017. Emerging stress is
mostly due to the seasonal rise in delinquencies and in property and retail exposures.

With stressed assets modestly higher, provisioning levels were also higher, up $46 million to $3,165 million. IAPs
were $9 million lower at $471 million, while collectively assessed provisions were $55 million higher at $2,694
million on Second Half 2017. Within collectively assessed provisions, the overlay was a little higher (up $12
million) at $335 million at 31 March 2018.

First Half 2018 – Second Half 2017

Impairment charges for First Half 2018 were $393 million, up $33 million compared to Second Half 2017, and were
equivalent to 11 basis points of average gross loans. The increase was mostly due to higher total new CAPs
reflecting small increases in consumer delinquencies.

Key movements included:

 Total IAPs, write-backs and recoveries were $12 million lower than Second Half 2017 principally due to:

- New IAPs were $73 million lower compared to Second Half 2017 mostly from a lower level of new impaired
assets in WIB and Business Bank. There were no facilities greater than $50 million that migrated to impaired
in the half. This was partially offset by a small rise in New Zealand IAPs, mostly from one name that was
downgraded to impaired; and

- Write-backs and recoveries were $61 million lower over the half principally from a lower level of business
write-backs. Recoveries were higher primarily in the Australian unsecured consumer portfolio and the New
Zealand business portfolio.

 Total new CAPs were $45 million higher than Second Half 2017. Key movements included:

- Write-offs were $95 million lower in First Half 2018, consistent with normal seasonal patterns in unsecured
personal lending and in the auto finance portfolio;

- Benefits from other changes in CAPs were $140 million lower related to the seasonal increases in consumer
delinquencies in Australia ($48 million) and in New Zealand ($26 million); and

- While the overlay provision was little changed, the charge was $67 million higher as Second Half 2017
recorded a $55 million reduction (mostly due to provisions utilised or no longer required for the mining and
related exposures and New Zealand dairy) while in First Half 2018 a net $12 million was added to the overlay
due to modelling changes.

2018 Interim financial results
Review of Group operations

30 | Westpac Group 2018 Interim Financial Results Announcement

First Half 2018 – First Half 2017

Impairment charges of $393 million were down $100 million when compared to First Half 2017.

Key movements included:

 Total new IAPs, write-backs and recoveries were $130 million lower than First Half 2017. This was due to
much lower new IAPs (down $191 million) partially offset by lower write-backs and recoveries. The reduction
in new IAPs was primarily due to a small number of large impairments in WIB in First Half 2017 that were not
repeated. New IAPs in Business Bank were also lower. This was partially offset by higher new IAPs in New
Zealand; and

 Total new CAPs were $30 million higher due to a $43 million increase from other changes in CAPs and a $13
million reduction in write-offs principally in Business Bank related to auto finance and commercial portfolios.
Within other changes in CAPs, the overlay was increased $12 million in First Half 2018 compared to an $11
million reduction in First Half 2017.

2.2.10 Income tax expense

First Half 2018 – Second Half 2017

The effective tax rate of 30.3% in First Half 2018 was slightly lower than the 30.6% recorded in Second Half 2017.
The effective tax rate reflects several Additional Tier 1 instruments whose distributions are not deductible for
Australian taxation purposes.

First Half 2018 – First Half 2017

The effective tax rate of 30.3% in First Half 2018 is unchanged from First Half 2017.

2.2.11 Non-controlling interests

Non-controlling interests represent profits of non-wholly owned subsidiaries attributable to shareholders other than
Westpac. These include profits attributable to the 10.1% shareholding in Westpac Bank-PNG-Limited and the 25%
shareholding in St.George Motor Finance Limited that are not owned by Westpac.

2018 Interim financial results
Review of Group operations

Westpac Group 2018 Interim Financial Results Announcement | 31

2.3 Credit quality

Credit quality remained sound over First Half 2018 with total stressed exposures to TCE increasing modestly and
remaining low relative to historical experience. Stressed exposures to TCE were 1.09%, 4 basis points higher than
Second Half 2017 and 5 basis points lower compared to First Half 2017 (see 2.3.1 Credit quality key metrics).

The 4 basis points rise in stressed assets relates to increases in both 90 days past due and not impaired (3 basis
points) and to watchlist and substandard (1 basis point) facilities. The increase in 90 day past due and not
impaired was due to an increase in mortgage 90 + day delinquencies and a small increase in business facilities.

Consistent with the increase in stressed assets, provisioning levels were $46 million higher than Second Half
2017, due mainly to an increase in CAPs. The ratio of gross impaired asset provisions to gross impaired assets is
45.5% while the ratio of collectively assessed provisions to credit risk weighted assets was little changed at 75
basis points.

Portfolio segments

The institutional segment continued to perform well, with the level of stressed assets reducing as a number of
facilities were refinanced or repaid. Over recent periods, the depth of distressed debt markets has increased
allowing the Group to partially sell down or exit some impaired exposures and this contributed to the reduction in
stress in this segment this half. There were no new large (greater than $50 million) facilities downgraded to
impaired during First Half 2018.

The commercial property segment continued to have relatively low levels of stress. Stress peaked in this portfolio
in the midst of the financial crisis with the proportion of the portfolio (stress as a percent of total committed
exposure) stressed reaching 15.5%. Since then stress has declined to 1.7% and remains well below long term
averages. In First Half 2018 a small number of facilities were downgraded to stressed, which saw the ratio
increase from 1.3% at Second Half 2017.

The small and medium business portfolio has also continued to perform well. In First Half 2018 the Group has
seen stress emerge in a small number of companies, with the increases primarily in Western Australia (WA),
Queensland (Qld) and South Australia (SA).

The New Zealand business portfolio has continued to benefit from the improving prospects of the New Zealand
dairy sector with a number of facilities returning to performing status.

The credit quality of the mortgage portfolio remains high with Australian mortgage 90+ day delinquencies 2 basis
points higher over Second Half 2017 to end the half at 0.69%. This increase is primarily due to normal seasonal
trends. The implementation of new prudential rules for the reporting of delinquencies for customers granted
hardship assistance (which are being progressively applied across the industry) have now fully flowed through on
mortgages.

While mortgage delinquencies in aggregate across Australia have changed little in recent years, conditions have
been different across states with more modest growth and higher unemployment in some regions, particularly in
WA and Qld which have seen higher delinquencies. Delinquencies were a little higher in New South Wales (NSW)
mostly due to some operational changes in the management of some delinquencies at the end of March 2018.

Australian properties in possession decreased over the half by 39 to 398 at 31 March 2018 due principally to those
states and regions impacted by the slowing of the mining investment cycle which had seen elevated levels in
Second Half 2017. Realised mortgage losses were $47 million for First Half 2018, equivalent to 2 basis points.

Consumer unsecured delinquencies were higher over First Half 2018. Total Group other consumer 90+ day
delinquencies were 1.64%, up 7 basis points since Second Half 2017 and were 9 basis points higher compared to
First Half 2017. Around 22 basis points of the increase compared to the prior corresponding period was due to the
change in delinquency reporting for customers granted hardship assistance. This was offset by a 13 basis point
reduction due to improved collection processes. Over the half, the 7 basis point increase since Second Half 2017
was due to seasonal trends.

New Zealand mortgage 90+ day delinquencies increased 4 basis points to 0.16% from Second Half 2017. While
delinquencies were higher, they remain at or near historical lows and reflect the favourable economic conditions,
and the positive impact of prudential controls reducing the level of higher LVR lending.

New Zealand unsecured delinquencies were also higher at 0.86%. Other consumer 90+ day delinquencies
increased 29 basis points since Second Half 2017 and were 28 basis points higher than First Half 2017. This
increase mirrors trends across the industry, as portfolio performance starts to normalise from the low-point of the
cycle.

2018 Interim financial results
Review of Group operations

32 | Westpac Group 2018 Interim Financial Results Announcement

Provisioning

Westpac has maintained adequate provisioning coverage with:

 The ratio of gross impaired asset provisions to gross impaired assets remains high at 45.5% (down 76 basis
points compared to Second Half 2017); and

 The ratio of collectively assessed provisions to credit risk weighted assets was 75 basis points with the ratio
little changed from the 76 basis points reported at 30 September 2017.

2.3.1 Credit quality key metrics


As at As at As at

31 March 30 Sept 31 March

2018 2017 2017
Stressed exposures by credit grade as a % of TCE:



Impaired
0.15%

0.15% 0.20%
90 days past due and not impaired
0.37%

0.34% 0.35%
Watchlist and substandard
0.57%

0.56% 0.59%
Total stressed exposures
1.09%

1.05% 1.14%



Gross impaired assets to TCE for business and institutional:



Business Australia
0.48%

0.47% 0.63%
Business New Zealand
0.74%

0.62% 0.68%
Institutional 0.04%

0.06% 0.17%



Mortgage 90+ day delinquencies:



Group
0.65%

0.62% 0.63%
Australia
0.69%

0.67% 0.67%
New Zealand
0.16%

0.12% 0.14%



Other consumer loans 90+ day delinquencies:



Group 1.64%

1.57% 1.55%
Australia 1.71%

1.66% 1.63%
New Zealand 0.86%

0.57% 0.58%



Other:



Gross impaired assets to gross loans 0.22%

0.22% 0.30%
Gross impaired asset provisions to gross impaired assets 45.54%

46.30% 52.07%
Total provisions to gross loans 45bps

45bps 52bps
Collectively assessed provisions to risk weighted assets 65bps

65bps 67bps
Collectively assessed provisions to credit risk weighted assets 75bps

76bps 77bps
Total provisions to risk weighted assets 76bps

77bps 87bps
Impairment charges to average loans annualised
1
11bps

11bps 15bps
Net write-offs to average loans annualised
1
13bps

25bps 19bps



1
Averages are based on a six month period

2018 Interim financial results
Review of Group operations

Westpac Group 2018 Interim Financial Results Announcement | 33

2.4 Balance sheet and funding

2.4.1 Balance sheet


As at

As at

As at
% Mov't % Mov't

31 March 30 Sept 31 March Mar 18 - Mar 18 -
$m 2018 2017 2017 Sept 17 Mar 17
Assets

Cash and balances with central banks 21,580 18,397 15,912 17 36
Receivables due from other financial institutions 3,977 7,128 9,545 (44) (58)
Trading securities and financial assets designated at fair value and
available-for-sale securities 85,484 86,034 90,929 (1) (6)
Derivative financial instruments 26,904 24,033 24,619 12 9
Loans 701,393 684,919 666,946 2 5
Life insurance assets 10,481 10,643 10,934 (2) (4)
Other assets 22,036 20,721 21,108 6 4
Total assets 871,855 851,875 839,993
2 4
Liabilities

Payables due to other financial institutions 19,073 21,907 21,390 (13) (11)
Deposits and other borrowings 547,736 533,591 522,513 3 5
Other financial liabilities at fair value through income statement 5,590 4,056 4,894 38 14
Derivative financial instruments 24,066 25,375 28,457 (5) (15)
Debt issues 174,138 168,356 167,306 3 4
Life insurance liabilities 8,763 9,019 9,158 (3) (4)
Loan capital 18,333 17,666 17,106 4 7
Other liabilities 11,491 10,563 9,797 9 17
Total liabilities 809,190 790,533 780,621
2 4
Equity

Total equity attributable to owners of Westpac Banking Corporation 62,615 61,288 59,315 2 6
Non-controlling interests 50 54 57 (7) (12)
Total equity 62,665 61,342 59,372
2 6

First Half 2018 – Second Half 2017

Key movements during the half included:

Assets

 Cash and balances with central banks increased $3.2 billion or 17% reflecting higher liquid assets held in this
form;

 Receivables due from other financial institutions decreased $3.2 billion or 44% mainly due to a reduction in
collateral posted with derivative counterparties and less interbank lending;

 Trading securities and financial assets designated at fair value and available-for-sale securities decreased
$0.6 billion or 1% reflecting lower holdings of liquid assets in this form;

 Derivative assets increased $2.9 billion or 12% mainly driven by foreign currency translation impacts on cross
currency swaps and forward contracts, partly offset by movements in interest rate swaps; and

 Loans grew $16.5 billion or 2%. Refer to Section 2.2.2 Loans for further information.

Liabilities

 Payables due to other financial institutions decreased $2.8 billion or 13% due to lower securities sold under
agreements to repurchase, interbank borrowings and offshore central bank deposits, partly offset by higher
collateral posted by derivative counterparties;

 Deposits and other borrowings increased $14.1 billion or 3%. Refer to Section 2.2.3 Deposits and other
borrowings for further information;

 Other financial liabilities at fair value through the income statement increased $1.5 billion or 38% reflecting
higher securities sold under agreements to repurchase and increased trading activity;

 Derivative liabilities decreased $1.3 billion or 5% mainly driven by movements in interest rate swaps and
foreign currency translation impacts on cross currency swaps and forward contracts;

2018 Interim financial results
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34 | Westpac Group 2018 Interim Financial Results Announcement

 Debt issues increased $5.8 billion or 3% ($1.1 billion or 1% increase excluding foreign currency impacts).
Refer to Section 2.4.2 Funding and liquidity risk management for further information; and

 Loan capital increased $0.7 billion or 4% as new issuances exceeded maturities for both Additional Tier 1 and
Tier 2 capital instruments.

Equity attributable to owners of Westpac Banking Corporation increased $1.3 billion or 2% reflecting retained
profits less dividends paid during the period and shares issued under the 2017 final dividend reinvestment plan
(DRP).

First Half 2018 – First Half 2017

Key movements included:

Assets

 Cash and balances with central banks increased $5.7 billion or 36% reflecting higher liquid assets held in this
form;

 Receivables due from other financial institutions decreased $5.6 billion or 58% mainly due to a reduction in
collateral posted with derivative counterparties and lower interbank lending;

 Trading securities and financial assets designated at fair value and available-for-sale securities decreased
$5.4 billion or 6% reflecting lower holdings of liquid assets in this form;

 Derivative assets increased $2.3 billion or 9% mainly driven by foreign currency translation impacts on cross
currency swaps and forward contracts, partly offset by movements in interest rate swaps; and

 Loans grew $34.4 billion or 5%. Refer to Section 2.2.2 Loans for further information.

Liabilities

 Payables due to other financial institutions decreased $2.3 billion or 11% due to lower securities sold under
agreements to repurchase, interbank borrowings and offshore central bank deposits, partly offset by higher
collateral posted by derivative counterparties;

 Deposits and other borrowings increased $25.2 billion or 5%. Refer to Section 2.2.3 Deposits and other
borrowings for further information;

 Other financial liabilities at fair value through the income statement increased $0.7 billion or 14% mainly due to
higher securities sold under agreements to repurchase;

 Derivative liabilities decreased $4.4 billion or 15% mainly driven by movements in interest rate swaps and
foreign currency translation impacts on cross currency swaps and forward contracts;

 Debt issues increased $6.8 billion or 4% ($2.7 billion or 2% increase excluding foreign currency impacts). Refer
to Section 2.4.2 Funding and liquidity risk management for further information; and

 Loan capital increased $1.2 billion or 7% as new issuances exceeded maturities for both Additional Tier 1 and
Tier 2 capital instruments.

Equity attributable to owners of Westpac Banking Corporation increased $3.3 billion reflecting retained profits less
dividends paid during the period and shares issued under the 2017 interim DRP and 2017 final DRP.

2018 Interim financial results
Review of Group operations

Westpac Group 2018 Interim Financial Results Announcement | 35

2.4.2 Funding and liquidity risk management

Liquidity risk is the risk that the Group will be unable to fund assets and meet obligations as they become due.
This type of risk is inherent for all banks through their role as intermediaries between depositors and borrowers.
The Group has a liquidity risk management framework which seeks to meet the objective of meeting cash flow
obligations under a wide range of market conditions, including name specific and market-wide stress scenarios, as
well as meeting the regulatory requirements of the LCR and NSFR
1
.

In First Half 2018 the Group maintained its funding and liquidity profile, funding the majority of loan growth of $16.5
billion through growth in customer deposits of $15.4 billion, leading to an improvement in the overall composition
of the Group’s total funding. Key metrics remained comfortably above regulatory minimums, including an LCR of
134% and an NSFR of 112%.

Liquid Assets

The Group’s liquid asset portfolio includes both high-quality liquid assets (HQLA) and other securities that are
eligible for repurchase with a central bank. In total, Westpac held $147.6 billion in unencumbered liquid assets as
at 31 March 2018 (30 September 2017: $137.8 billion). At 31 March 2018 the portfolio comprised:

 $73.5 billion of cash, deposits at central banks, government and semi-government bonds;

 $19.1 billion of repo-eligible private securities; and

 $55.0 billion of self-originated AAA rated mortgage backed securities, which are eligible collateral for
repurchase agreement with the RBA or the RBNZ.

LCR

The LCR requires banks to hold sufficient HQLA, as defined, to withstand 30 days under a regulator-defined acute
stress scenario.

Given the limited amount of government debt in Australia, the RBA, jointly with APRA, makes available to ADIs a
CLF. Subject to satisfaction of qualifying conditions, the CLF can be accessed to help meet the LCR requirement.
In order to have access to a CLF, ADIs are required to pay a fee of 15 basis points (0.15%) per annum to the RBA
on the approved undrawn facility. APRA approved Westpac’s CLF allocation of $57 billion for the 2018 calendar
year (2017 calendar year: $49.1 billion).

The Group’s LCR as at 31 March 2018 was 134% (30 September 2017: 124%) and the average LCR for the
quarter ended 31 March 2018 was 128%
2
.

NSFR

The Group is required to maintain a NSFR, designed to encourage longer-term funding resilience, of at least
100%. The NSFR came into effect for Australian ADIs on 1 January 2018. Westpac had a NSFR of 112% at 31
March 2018 (estimated at 109% as at 30 September 2017). Improvement in the ratio since 30 September 2017
mainly reflects continued lengthening of wholesale funding profile, an increased CLF allocation and ongoing data
and methodology refinements.

Funding

The Group monitors the composition and stability of its funding so that it remains within the Group’s funding risk
appetite. This includes compliance with both the LCR and NSFR.

Customer deposits as a proportion of total funding increased by 31 basis points to 62.1% (30 September 2017:
61.8%). The proportion of long term funding to total funding increased by 77 basis points to 16.0% (30 September
2017: 15.2%). There was little change in other sources of stable funding, with securitisation and equity to total
funding remaining relatively stable.

Short term wholesale funding as a proportion of total funding decreased by 101 basis points over the six months to
31 March 2018 and now makes up 13.1% of the Group’s total funding (30 September 2017: 14.1%). This portfolio
of $105.7 billion has a weighted average maturity of 158 days and is more than covered by the $147.6 billion of
repo-eligible liquid assets held by the Group.

In First Half 2018, the Group raised $21.3 billion of long term wholesale funding in a range of currencies, including
AUD, USD, EUR and GBP, and through a diverse range of products, proactively accessing constructive market
conditions in the first five months of the financial year.

The Group also continued to lengthen the tenor of its long term funding portfolio. In First Half 2018, 56% of new
term issuance had a contractual maturity of greater than five years and this contributed to a weighted average
maturity (excluding securitisation) of new term issuance in First Half 2018 of 7.0 years (Full Year 2017: 5.8 years).

1
Refer to Glossary for definition.
2
Calculated as a simple average of the daily observations over the 31 March 2018 quarter.

2018 Interim financial results
Review of Group operations

36 | Westpac Group 2018 Interim Financial Results Announcement

Liquidity coverage ratio



As at

As at

As at
% Mov't % Mov't

31 March 30 Sept 31 March Mar 18 - Mar 18 -
$m 2018 2017 2017 Sept 17 Mar 17
High Quality Liquid Assets (HQLA)
1
71,952 71,904 73,565 - (2)
Committed Liquidity Facility (CLF)
1
57,000 49,100 49,100 16 16
Total LCR liquid assets 128,952 121,004 122,665
7 5
Cash outflows in a modelled 30-day APRA defined

stressed scenario

Customer deposits 66,222 65,612 65,861 1 1
Wholesale funding 8,411 12,231 13,238 (31) (36)
Other flows
2
21,405 20,109 19,121 6 12
Total 96,038 97,952 98,220
(2) (2)
LCR
3
134% 124% 125%
large large

Net stable funding ratio
4






Proforma Proforma




As at

as at as at
% Mov't % Mov't

31 March 30 Sept 31 March
Mar 18 - Mar 18 -

$m 2018 2017 2017
Sept 17 Mar 17

Available stable funding 593,669 566,304 557,489 5 6

Required stable funding 529,100 521,048 513,904 2 3

Net stable funding ratio 112% 109%

108%
351bps 372bps



Funding by residual maturity



As at 31 March 2018

As at 30 Sept 2017

As at 31 March 2017

$m Ratio % $m Ratio % $m Ratio %
Wholesale funding

Less than 6 months 61,245 7.6 63,173 8.0 64,890 8.3
6 to 12 months 16,973 2.1 19,776 2.5 17,446 2.3
Long term to short term scroll
5
27,522 3.4 27,955 3.6 25,942 3.4
Wholesale funding - residual maturity less

than 12 months 105,740
13.1
110,904
14.1
108,278
14.0
Securitisation 8,186 1.0 8,209 1.0 9,856 1.3
Greater than 12 months 128,921 16.0 119,494 15.2 116,825 15.1
Wholesale funding - residual maturity greater

than 12 months 137,107
17.0
127,703
16.2
126,681
16.4
Customer deposits 502,063
62.1
486,670
61.8
478,660
61.9
Equity
6
63,225
7.8
61,925
7.9
59,868
7.7
Total funding 808,135
100.0
787,202
100.0
773,487
100.0


Deposits to net loans ratio
1




As at 31 March 2018

As at 30 Sept 2017

As at 31 March 2017

$m Ratio % $m Ratio % $m Ratio %
Customer deposits 502,063

486,670 478,660
Net loans 701,393 71.6

684,919 71.1 666,946 71.8



1
Refer to Glossary for definition.
2
Other flows include credit and liquidity facilities, collateral outflows and inflows from customers.
3
Calculated on a spot basis.
4
The NSFR was effective from 1 January 2018 for ADIs. Half Year September 2017 and Half Year March 2017 are presented on a pro
forma basis.
5
Scroll represents wholesale funding with an original maturity greater than 12 months that now has a residual maturity less than
12 months.
6
Includes total share capital, share based payments, reserve and retained profits.

2018 Interim financial results
Review of Group operations

Westpac Group 2018 Interim Financial Results Announcement | 37

Funding view of the balance sheet

Total liquid Customer Wholesale Customer Market
$m assets
1
deposits funding franchise inventory Total
As at 31 March 2018

Total assets 147,634 - - 660,417 63,804 871,855
Total liabilities - (502,063) (242,847) - (64,280) (809,190)
Total equity - - - (63,225) 560 (62,665)
Total 147,634 (502,063) (242,847) 597,192 84 -
Net loans
2
55,058 - - 646,335 - 701,393
As at 30 Sept 2017

Total assets 137,797 - - 651,573 62,505 851,875
Total liabilities - (486,670) (238,607) - (65,256) (790,533)
Total equity - - - (61,925) 583 (61,342)
Total 137,797 (486,670) (238,607) 589,648 (2,168) -
Net loans
2
47,935 - - 636,984 - 684,919
As at 31 March 2017

Total assets 138,511 - - 633,255 68,227 839,993
Total liabilities - (478,660) (234,959) - (67,002) (780,621)
Total equity - - - (59,868) 496 (59,372)
Total 138,511 (478,660) (234,959) 573,387 1,721 -
Net loans
2
47,691 - - 619,255 - 666,946



1
Refer to Glossary for definition.
2
Liquid assets in net loans include internally securitised assets that are eligible for repurchase agreements with the RBA / RBNZ.