Westpac 2018 Full Year Financial Results Announcement

Proudly
Supporting
Australia
Westpac Banking Corporation
ABN 33 007 457 141
2018
Full Year
Financial
Results
Incorporating the requirements
of Appendix 4E

Results announcement to the market


ii | Westpac Group 2018 Full Year Financial Results Announcement

ASX Appendix 4E

Results for announcement to the market
1


Report for the full year ended 30 September 2018
2


Revenue from ordinary activities
3,4
($m)
up 2% to $22,133
Profit from ordinary activities after tax attributable to equity holders
4
($m)
up 1% to $8,095
Net profit for the period attributable to equity holders
4
($m)
up 1% to $8,095


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

Record date for determining entitlements to the dividend
14 November 2018 (Sydney)
13 November 2018 (New York)





1
This document comprises the Westpac Group 2018 Full Year Financial Results, and is provided to the Australian Securities Exchange
under Listing Rule 4.3A.
2
This report should be read in conjunction with the 2018 Westpac Group Annual Report and any public announcements made in the
period by the Westpac Group in accordance with the continuous disclosure requirements of the Corporations Act 2001 and ASX
Listing Rules.
3
Comprises reported interest income, interest expense and non-interest income.
4
All comparisons are with the reported results for the twelve months ended 30 September 2017.

Results announcement to the market


Westpac Group 2018 Full Year Financial Results Announcement | iii



Media
Release
5 November 2018

Westpac announces 2018 Full Year Results



 Statutory net profit $8,095 million, up 1%
 Cash earnings $8,065 million, little changed
 Cash earnings per share, 236.2 cents, down 1%
 Cash return on equity (ROE) 13.0%, at the lower end of the range Westpac is seeking to achieve
 Unchanged, final, fully franked dividend of 94 cents per share (cps), (full year, fully franked dividend of 188 cps)
 Common equity Tier 1 capital ratio 10.6%, above APRA’s unquestionably strong benchmark
 Bank Levy $378 million (pre-tax), effective tax rate including Bank Levy 33%

Westpac Group CEO, Mr Brian Hartzer said, “In a difficult year, Westpac delivered a flat financial result.

“While the economic environment remains supportive, this result reflects the tough operating conditions for banks,
with higher regulatory, compliance, and funding costs, and increased competitive pressure, particularly in the
second half. In addition, provisions for customer refunds and related costs, along with legal costs, were $281
million after tax (equivalent to 3.5% of cash earnings) as we continued to work through regulatory investigations,
remediations, and putting things right for customers.

“In response to these challenges, we’ve lifted productivity savings 16% to $304 million over the year.

“While earnings were flat, our balance sheet remains strong across all dimensions of asset quality, capital, and
liquidity. We have also made substantial progress on our service-led strategy and digital transformation program.

“Westpac’s mortgage book remains fundamentally sound, with around 70% of Australian customers ahead on
repayments
2
and 90 day delinquencies remaining low.

“Results for the Business Bank and New Zealand divisions were the standout. The Business Bank delivered cash
earnings growth of 8% supported by good growth in the small business sector and declining impairment charges.
New Zealand’s result benefited from the completion of a two-year restructuring program, with cash earnings up 5%
(NZD). WIB maintained good discipline on margin and costs, but cash earnings were down 6% mainly due to lower
markets income.

“Elsewhere, conditions were more difficult. Provisions for customer refunds were higher for BT Financial Group,
and the Consumer division experienced both increased funding costs and higher remediation costs.



1
Reported throughout this release on a cash earnings basis unless otherwise stated. For an explanation of cash earnings and
reconciliation to reported results refer to pages 4-6 and 125-128 of the Group’s 2018 Full Year Financial Results Announcement.
2
Including offset balances.
Financial highlights Full Year 2018 compared to Full Year 2017
1

Results announcement to the market


iv | Westpac Group 2018 Full Year Financial Results Announcement

“Out of a total investment spend of $1.4 billion, we invested more than $800 million in system upgrades, digital
transformation, and innovation to support our ambition to be one of the world’s great service companies. Our focus
has been on delivering our technology platforms, while simplifying and automating processes to make banking
easier for customers. We have already migrated 100 applications onto our cloud infrastructure platforms which are
now largely complete. Additionally we have over 120 APIs in production and another 180 in development.

“These capabilities support our Customer Service Hub which is progressing to schedule. While delivering these
major projects, we have also significantly improved system reliability and response times, helping our people to
provide better service to customers.

“We have introduced a number of new digital initiatives including Siri for Westpac, mobile cheque deposits, new
online home loan applications, and E-Sign which allows a customer to complete a mortgage application online or
via their mobile. Consumer payment innovations include partnerships with Google Pay, Garmin, Fit Bit, and Beem
It—a mobile payment app which enables free and instant payments for anyone in Australia with a debit card,
regardless of whom they bank with.

“Strategic investments in companies including Assembly Payments, Zip, Uno, and Open Agent, as well as
Reinventure’s growing portfolio of Fintech startups, position Westpac to harness the benefits of data and rapid
technological change while bringing new value-added services to our customers,” Mr Hartzer said.



Mr Hartzer said Westpac continues to focus on addressing issues that have been highlighted during the Royal
Commission into Misconduct in the Banking, Superannuation, and Financial Services Industry.

“We remain committed to getting things right for our customers and have made good progress on implementing
the ABA’s Six Point Plan. We have reinforced our values and service culture to all employees through additional
training, introduced the Sedgwick remuneration recommendations for employees two years earlier than required,
removed grandfathered commission payments for our salaried financial planners, and launched a simpler and
more transparent pricing structure for BT’s investment platform, Panorama.

“Importantly, our new Customer and Corporate Relations division has been established to oversee complaints
handling across the Group, and to improve the way we deal with customer issues, building on the important role of
our Customer Advocate,” Mr Hartzer said.




Strong balance sheet



Margin management


CET1 capital ratio (%)







Net interest margin (NIM) (%)


 10.6% CET1 capital ratio, above APRA’s
‘unquestionably strong’ benchmark

 Liquidity ratios above regulatory minimums of
100%:

- Liquidity coverage ratio 133%

- Net stable funding ratio 114%



 Net interest margin up 2bps over the year

 A rise in Treasury & Markets income contributed
1bp to NIM, and margins excluding Treasury &
Markets also increased 1bp

 Higher lending and deposit spreads were largely
offset by the full period impact of the Bank Levy


Royal Commission

Results

Results announcement to the market


Westpac Group 2018 Full Year Financial Results Announcement | v


Credit quality


 Asset quality remains sound

 Stressed assets to total
committed exposures (TCE)
were up 3bps over the year

 Impaired asset provision
coverage steady at 46%




Mortgage quality


 Mortgage book
fundamentally sound

 90+ day delinquencies up
5bps over the year

 Australian properties in
possession reduced to 396,
out of a portfolio of about 1.6
million loans




Divisional performance – cash earnings

Division
FY18
($m)
%
change
FY17
%
change
2H18 vs
1H18
Comments FY17–FY18

Consumer
Bank

3,140

0

(17)

Flat cash earnings (down $15 million)
4 per cent loan growth and lower impairments offset by lower
margins, increased provisions for customer refunds and
reduced card and ATM fees


Business
Bank

2,159

8

flat

Core earnings up 5 per cent with disciplined growth, higher
margins (up 5bps) and lower impairment charges


BT
Financial
Group

645

(12)

(40)

Increased remediation costs and lower margins on funds
Partially offset by higher funds and fee income, and sound
growth in private wealth


Westpac
Institutional
Bank

1,086

(6)

(3)

Revenue impacted by lower markets income and fewer large
transactions
Margins well managed (up 6bps)


Westpac
New
Zealand
($NZ)

1,017

5

11

Core earnings up 10 per cent, benefiting from two year
restructuring program (lower expenses) and a 12bps increase
in margins
Small impairment charge compared to a benefit in prior year



Stressed assets to TCE (%)
Australian mortgage portfolio delinquencies (%)
Introduced new hardship treatment

Results announcement to the market


vi | Westpac Group 2018 Full Year Financial Results Announcement



The Westpac Board has determined an unchanged, final, fully franked dividend of 94 cents per share to be paid
on 20 December 2018. Total dividends for 2018 were 188 cents per share representing a payout ratio of 80% of
cash earnings.

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



Mr Hartzer said the outlook for the Australian economy remains positive, although there are likely to be economic
headwinds in 2019, with GDP growth expected to moderate to around 2.7%. He said consumers are likely to be
more cautious in the face of flat wages growth and a soft housing market, while uncertainty ahead of a Federal
election and a less favourable international backdrop are likely to weigh on business investment decisions.

“Employment growth is expected to remain solid, with continuing above-trend investment in private and public
infrastructure. However, household income growth remains subdued and inflation is low. We expect the Reserve
Bank of Australia to keep rates on hold throughout 2019.

“Growth is slowing in Europe and most emerging markets. China will be negatively impacted by the trade war with
the US and official policies aimed at slowing growth in the non-bank sector. However as the Chinese economy tilts
towards services, Australian exports of education and tourism will continue to prosper.

“We expect house prices to cool further, and investor demand to remain weak. On the other hand, demand from
first home buyers is holding up. These dynamics are likely to lead to housing credit growth easing to 4% next year,
with total credit growth of 3.5%.

“With around 70% of Australian customers ahead on their repayments
3
and delinquencies low, credit risks in the
housing market currently remain low.

“While we have more work to do, we are dealing decisively with known issues. We have lifted our productivity
target for next year to $400 million as we continue to simplify our products, digitise our business, and modernise
our platforms.

“At the same time, we are continuing to invest in technology to improve service to customers and make it easier for
them to do business with us.

“We are committed to supporting our customers over the long term, and believe our service-led strategy remains
the best way to create value for our shareholders,” Mr Hartzer said.



To view Mr Hartzer’s FY18 results video on Westpac Wire, please visit https://www.westpac.com.au/news/making-
news/2018/11/service-strategy-right-for-the-times-hartzer.html


For further information


David Lording
Media Relations
M. 0419 683 411

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



3
Including offset balances.
Dividends
Outlook

Results announcement to the market


Westpac Group 2018 Full Year Financial Results Announcement | 1


Index

01 Group results
1.1 Reported results
1.2 Key financial information
1.3 Cash earnings results
1.4 Market share and system multiple metrics

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
33
35
40
46
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
49
49
52
54
59
62
64
04 2018 Full Year financial report
4.1 Significant developments
4.2 Consolidated income statement
4.3 Consolidated statement of comprehensive income
4.4 Consolidated balance sheet
4.5 Consolidated statement of changes in equity
4.6 Consolidated cash flow statement
4.7 Notes to the consolidated financial statements
4.8 Statement in relation to audit of the financial statements
66
67
80
81
82
83
85
86
116
05 Cash earnings financial information
117
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

130
130
131
131
131
131
133
138

07 Glossary
140


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

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

Financial calendar

Final results announcement 5 November 2018

Ex-dividend date for final dividend 13 November 2018

Record date for final dividend (Sydney) 14 November 2018

Final dividend payable 20 December 2018

2018 Full Year financial results
Group results

2 | Westpac Group 2018 Full Year 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 Sept 18 - Full Year Full Year Sept 18 -
$m Sept 18 March 18 Mar 18 Sept 18 Sept 17 Sept 17
Net interest income
8,227 8,278
(1)
16,505 15,516
6

Non-interest income
2,753 2,875
(4)
5,628 6,286
(10)

Net operating income before operating expenses





and impairment charges
10,980 11,153
(2)
22,133 21,802
2

Operating expenses
(4,967) (4,725)
5
(9,692) (9,434)
3

Net profit before impairment charges


and income tax expense
6,013 6,428 (6) 12,441 12,368 1

Impairment charges
(317) (393)
(19)
(710) (853)
(17)

Profit before income tax
5,696 6,035 (6) 11,731 11,515 2

Income tax expense
(1,797) (1,835)
(2)
(3,632) (3,518)
3

Net profit for the period
3,899 4,200 (7) 8,099 7,997 1

Net profit attributable to non-controlling interests
(2) (2)
-
(4) (7)
(43)

Net profit attributable to owners of Westpac





Banking Corporation
3,897 4,198 (7) 8,095 7,990 1


Net profit attributable to owners of Westpac Banking Corporation for Full Year 2018 was $8,095 million, an
increase of $105 million or 1% compared to Full Year 2017. Features of this result included a $331 million or 2%
increase in net operating income before operating expenses and impairment charges, a $258 million or 3%
increase in operating expenses and a $143 million or 17% decrease in impairment charges.

Net interest income increased $989 million or 6% compared to Full Year 2017, with total loan growth of 4%, mostly
from Australian housing which grew 4%. Reported net interest margin increased 7 basis points to 2.13%, reflecting
increased spreads on certain Australian mortgages, a rise in Treasury income and contribution from fair value
gains on economic hedges and higher deposit spreads. These increases were partly offset by the full period
impact of the Bank Levy which was effective from July 2017. Wholesale funding costs were little changed, as short
term funding costs increased while long term funding costs decreased. 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 $658 million or 10% compared to Full Year 2017 primarily due to a decrease in
trading income of $257 million, the non-repeat of a large gain of $279 million on disposal of an associate in Full
Year 2017 (BTIM)
2
, a revaluation loss of $104 million on the Pendal investment in Full Year 2018, and additional
provisions for estimated customer refunds and payments recorded as negative income. These items were partly
offset by income related to the exit of the Hastings business ($135 million). Non-interest income is discussed
further in Section 2.2.5.

Operating expenses increased $258 million or 3% compared to Full Year 2017. The rise included annual salary
increases, higher technology expenses related to the Group’s investment program, and an increase in regulatory
and compliance costs and costs associated with the exit of the Hastings business. 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 $143 million or 17% lower compared to Full Year 2017. Asset quality remained sound,
with stressed exposures as a percentage of total committed exposures at 1.08%, up 3 basis points over the year.
The decrease in 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 31.0% was higher than the Full Year 2017 effective tax rate of 30.6% mostly related to an
increase in non-deductible expenses. Income tax expense is discussed further in Section 2.2.10.



1
Percentage movement represents an increase / (decrease) to the relevant comparative period.
2
Pendal Group Limited (Pendal) was previously called BT Investment Management (BTIM).

2018 Full Year financial results
Group results

Westpac Group 2018 Full Year Financial Results Announcement | 3

1.2 Key financial information


% Mov't % Mov't
Half Year Half Year Sept 18 - Full Year Full Year Sept 18 -
Sept 18 March 18 Mar 18 Sept 18 Sept 17 Sept 17
Shareholder value







Earnings per ordinary share (cents)
113.8 123.7
(8)
237.5

238.0
-

Weighted average ordinary shares (millions)
1

3,421 3,392
1
3,406

3,355
2

Fully franked dividends per ordinary share (cents)
94 94
-
188

188
-

Return on average ordinary equity
12.34% 13.79%
(145bps)
13.05%

13.65%
(60bps)

Average ordinary equity ($m)
62,978 61,051
3
62,017

58,556
6

Average total equity ($m)
63,026 61,065
3
62,048

58,576
6

Net tangible asset per ordinary share ($)
15.39 15.00
3
15.39

14.66
5









Business performance







Interest spread
1.92% 2.00%
(8bps)
1.95%

1.89%
6bps

Benefit of net non-interest bearing assets,







liabilities and equity
0.18% 0.16%
2bps
0.18%

0.17%
1bps

Net interest margin
2.10% 2.16%
(6bps)
2.13%

2.06%
7bps

Average interest-earning assets ($m)
782,834 767,011
2
774,944

752,294
3

Expense to income ratio
45.24% 42.37%
287bps
43.79%

43.27%
52bps









Capital, funding and liquidity







Common equity Tier 1 capital ratio







- APRA Basel III
10.63% 10.50%
13bps
10.63%

10.56%
7bps

- Internationally comparable
2

16.14% 16.13%
1bps
16.14%

16.20%
(6bps)

Credit risk weighted assets (credit RWA) ($m)
362,749 361,391
-
362,749

349,258
4

Total risk weighted assets (RWA) ($m)
425,384 415,744
2
425,384

404,235
5

Liquidity coverage ratio (LCR)
133% 134%
(131bps)
133%

124%
large

Net stable funding ratio (NSFR)
3

114% 112%
135bps
114%

109%
large









Asset quality







Gross impaired assets to gross loans
0.20% 0.22%
(2bps)
0.20%

0.22%
(2bps)

Gross impaired assets to equity and total provisions
2.09% 2.33%
(24bps)
2.09%

2.39%
(30bps)

Gross impaired asset provisions to







gross impaired assets
46.12% 45.54%
58bps
46.12%

46.30%
(18bps)

Total committed exposures (TCE) ($m)
1,038,006 1,023,017
1
1,038,006

1,005,882
3

Total stressed exposures as a % of TCE
1.08% 1.09%
(1bps)
1.08%

1.05%
3bps

Total provisions to gross loans
43bps 45bps
(2bps)
43bps

45bps
(2bps)

Mortgages 90+ day delinquencies
0.67% 0.65%
2bps
0.67%

0.62%
5bps

Other consumer loans 90+ day delinquencies
1.64% 1.64%
-
1.64%

1.57%
7bps

Collectively assessed provisions to credit RWA
73bps 75bps
(2bps)
73bps

76bps
(3bps)









Balance sheet ($m)
4








Loans
709,690 701,393
1
709,690

684,919
4

Total assets
879,592 871,855
1
879,592

851,875
3

Deposits and other borrowings
559,285 547,736
2
559,285

533,591
5

Total liabilities
815,019 809,190
1
815,019

790,533
3

Total equity
64,573 62,665
3
64,573

61,342
5









Wealth Management







Average Group funds ($bn)
5

217.3 217.3
-
217.3

208.4
4

Life insurance in-force premiums (Australia) ($m)
1,277 1,276
-
1,277

1,068
20

General insurance gross written premiums







(Australia) ($m)
252 251
-
503

508
(1)




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

2018 Full Year financial results
Group results

4 | Westpac Group 2018 Full Year 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 Sept 18 - Full Year Full Year Sept 18 -
$m Sept 18 March 18 Mar 18 Sept 18 Sept 17 Sept 17
Net interest income
8,038 8,301
(3)
16,339

15,704
4

Non-interest income
2,762 2,850
(3)
5,612

5,852
(4)

Net operating income
10,800 11,151
(3)
21,951

21,556
2

Operating expenses
(4,932) (4,654)
6
(9,586)

(9,105)
5

Core earnings
5,868 6,497 (10) 12,365 12,451 (1)

Impairment charges
(317) (393)
(19)
(710)

(853)
(17)

Operating profit before income tax
5,551 6,104 (9) 11,655 11,598 -

Income tax expense
(1,735) (1,851)
(6)
(3,586)

(3,529)
2

Net profit
3,816 4,253 (10) 8,069 8,069 -

Net profit attributable to non-controlling interests
(2) (2)
-
(4)

(7)
(43)

Cash earnings
3,814 4,251 (10) 8,065 8,062 -


1.3.1 Key financial information – cash earnings basis
1


% Mov't % Mov't
Half Year Half Year Sept 18 - Full Year Full Year Sept 18 -
$m Sept 18 March 18 Mar 18 Sept 18 Sept 17 Sept 17
Shareholder value







Cash earnings per ordinary share (cents)
111.2 125.0
(11)
236.2

239.7
(1)

Economic profit ($m)
2

1,395 2,049
(32)
3,444

3,774
(9)

Weighted average ordinary shares (millions)
3

3,429 3,400
1
3,414

3,364
1

Dividend payout ratio
4

84.66% 75.28%
large
79.94%

78.71%
123bps

Cash earnings on average ordinary equity (ROE)
12.08% 13.96%
(188bps)
13.00%

13.77%
(77bps)

Cash earnings on average tangible







ordinary equity (ROTE)
14.27% 16.60%
(233bps)
15.41%

16.55%
(114bps)

Average ordinary equity ($m)
62,978 61,051
3
62,017

58,556
6

Average tangible ordinary equity ($m)
5

53,327 51,344
4
52,338

48,725
7







Business performance







Interest spread
1.87% 2.00%
(13bps)
1.94%

1.91%
3bps

Benefit of net non-interest bearing assets,







liabilities and equity
0.18% 0.17%
1bps
0.17%

0.18%
(1bps)

Net interest margin
2.05% 2.17%
(12bps)
2.11%

2.09%
2bps

Average interest-earning assets ($m)
782,834 767,011
2
774,944

752,294
3

Expense to income ratio
45.67% 41.74%
393bps
43.67%

42.24%
143bps

Full time equivalent employees (FTE)
35,029 35,720
(2)
35,029

35,096
-

Revenue per FTE ($ '000's)
305 315
(3)
620

613
1

Effective tax rate
31.26% 30.32%
94bps
30.77%

30.43%
34bps







Impairment charges







Impairment charges to average loans annualised
9bps 11bps
(2bps)
10bps

13bps
(3bps)

Net write-offs to average loans annualised
14bps 13bps
1bps
14bps

22bps
(8bps)




1
Averages are based on six months for the halves and twelve months for the full year.
2
Refer to Section 5, Note 9 for further details.
3
Weighted average ordinary shares – cash earnings represents the weighted average number of fully paid ordinary shares listed on the ASX for
the relevant period.
4
The dividend payout ratio for 1H18 was based on the number of shares on issue as at 31 March. On 3 April 2018, some CPS converted into
ordinary shares. Inclusion of these shares would have resulted in a dividend payout ratio of 75.70%.

5
Average tangible ordinary equity is calculated as average equity less intangible assets (excluding capitalised software).

2018 Full Year financial results
Group results

Westpac Group 2018 Full Year 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; and

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

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

Reconciliation of reported results to cash earnings

% Mov't % Mov't
Half Year Half Year Sept 18 - Full Year Full Year Sept 18 -
$m Sept 18 March 18 Mar 18 Sept 18 Sept 17 Sept 17
NET PROFIT ATTRIBUTABLE TO OWNERS OF





WESTPAC BANKING CORPORATION
3,897 4,198 (7) 8,095 7,990 1

Amortisation of intangible assets
- 17
(100)
17

137
(88)

Fair value (gain)/loss on economic hedges
(163) 37
large
(126)

69
large

Ineffective hedges
4 9
(56)
13

16
(19)

Adjustments related to Pendal (previously BTIM)
73 -
-
73

(171)
large

Treasury shares
3 (10)
large
(7)

21
large

Total cash earnings adjustments (post-tax)
(83) 53 large (30) 72 large

Cash earnings
3,814 4,251 (10) 8,065 8,062 -


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;

2018 Full Year financial results
Group results

6 | Westpac Group 2018 Full Year Financial Results Announcement

 Adjustments related to Pendal (previously BTIM): The Group recognised a gain, net of costs, associated with
the partial sale of shares in Pendal Group Limited in Full Year 2017. In Full Year 2018, the Group marked to
market its current holding of Pendal shares. Consistent with prior years, these items have been treated as a
cash earnings adjustment given their size and that it does not reflect ongoing operations. The Group has
indicated that it may sell the remaining 10% shareholding in Pendal 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

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

- 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.

This Full Year Results Announcement is unaudited

PricewaterhouseCoopers has audited the financial statements contained within the Westpac 2018 Full Year
financial report and has issued an unmodified audit report. This Full Year Results Announcement has not been
subject to audit by PricewaterhouseCoopers. The financial information contained in this Full Year Results
Announcement includes financial information extracted from the audited financial statements together with
financial information that has not been audited. The cash earnings disclosed as part of this Full Year Results
Announcement have not been separately audited, however they are consistent with the financial information
included in Note 2 Segment Reporting of the financial statements in the 2018 Annual Report.

2018 Full Year financial results
Group results

Westpac Group 2018 Full Year Financial Results Announcement | 7

1.4 Market share and system multiple metrics

1.4.1 Market share

As at As at As at As at
30 Sept 31 March 30 Sept 31 March
2018 2018 2017 2017
Australia


Banking system (APRA)
1



Housing credit
2

24% 25% 25% 25%

Cards
23% 23% 23% 23%

Household deposits
23% 23% 23% 23%

Business deposits
20% 20% 20% 20%

Financial system (RBA)
3



Housing credit
2

23% 23% 23% 23%

Business credit
19% 19% 19% 19%

Retail deposits
4

22% 21% 22% 21%

New Zealand (RBNZ)
5,6



Consumer lending
19% 19% 19% 19%

Deposits
18% 19% 19% 19%

Business lending
16% 16% 16% 17%

Australian Wealth Management
7



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

Retail (excludes Cash)
18% 18% 18% 18%

Corporate Super
13% 13% 13% 14%


1.4.2 System multiples


Full Year Half Year Half YearFull Year Half Year Half Year
Sept 18 Sept 18 March 18Sept 17 Sept 17 March 17
Australia


Banking system (APRA)
1



Housing credit
2

1.0 0.9 1.0 0.9 1.1 0.8

Cards
8

n/a n/a n/a n/a n/a 1.1

Household deposits
1.0 1.1 0.8 1.2 1.3 1.1

Business deposits
2.0 n/a 0.9 1.1 1.1 1.0

Financial system (RBA)
3



Housing credit
2

0.9 0.8 0.9 0.9 1.0 0.8

Business credit
8

0.7 0.6 0.9 0.5 1.0 n/a

Retail deposits
4

1.0 1.3 0.6 1.2 1.3 0.7

New Zealand (RBNZ)
5,6



Consumer lending
0.7 0.6 0.7 0.6 0.6 0.7

Deposits
8

0.8 0.1 1.2 1.4 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 30 June 2018 (for Full Year 2018), as at 31 December 2017 (for First Half 2018), as at 30 June 2017 (for Full Year 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 Full Year financial results
Review of Group operations

8 | Westpac Group 2018 Full Year Financial Results Announcement

2.0 Review of Group operations







Movement in cash earnings ($m)
Second Half 2018 – First Half 2018
76
116
(278)
(263)
Net interest
income
(88)
Tax & non-
controlling
interests
Impairment
charges
Operating
expenses
4,251
3,814
Non-interest
income
Second Half
2018 cash
earnings
-437
First Half 2018
cash earnings
Movement in cash earnings ($m)
Full Year 2018 – Full Year 2017
635
143
Full Year 2018
cash earnings
8,065
(240)
Net interest
income
Impairment
charges
Tax & non-
controlling
interests
(54)
Non-interest
income
8,062
Operating
expenses
Full Year 2017
cash earnings
(481)
+3

2018 Full Year financial results
Review of Group operations

Westpac Group 2018 Full Year Financial Results Announcement | 9

2.1 Performance overview

Overview

Full Year 2018 has been a challenging period for financial services companies, including Westpac, with the
commencement of The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services
Industry (Royal Commission), a slowdown in system loan and deposit growth, and the full impact of the Bank Levy
introduced in July 2017. Within this environment, Westpac reported cash earnings of $8,065 million in Full Year
2018, $3 million higher than for Full Year 2017.

Given the significance of the Royal Commission it is important to outline its impact and to discuss how Westpac
has been responding to some of the developments.

The Royal Commission has been a valuable and rigorous process. Established in mid-December 2017, the Royal
Commission has now completed the majority of its hearings, and on 28 September 2018 released its interim
report. The interim report raised a number of important points of policy and principle for consideration by Westpac,
the industry, regulators and policy makers. It signalled that financial services organisations, including Westpac,
must do more to meet the needs of customers and the community, including by preventing, detecting and
addressing misconduct while at the same time consistently meeting legal and regulatory obligations. Westpac
provided a formal response to the interim report on 26 October 2018.

Improving outcomes for customers

The stories and examples of poor behaviour affecting customers that have come to light in the Royal Commission
are confronting and have understandably impacted the public’s trust in the industry.

Westpac has already commenced a number of initiatives to improve its policies, procedures and practices for
customers. Many of these started prior to the establishment of the Royal Commission. Major initiatives have
included:

 changing the way Westpac pays its employees. This included the removal of all individual product incentives
for branch staff and the full implementation of the Sedgwick recommendations two years ahead of schedule. As
a result, 70% of incentives for our front line people are now non-financial measures;

 ceasing the payment of grandfathered commissions to Westpac employed financial advisers. This will directly
benefit more than 140,000 BT advice customers;

 implementing the Australian Banking Association’s “Six point plan” aimed at improving the sector’s reputation;

 continuing to conduct detailed product by product reviews to reassess their features and how they can best be
structured to meet customer’s needs; and

 creating a new Group Executive role of Customer and Corporate Relations which, amongst other
responsibilities, has been tasked with bringing together the complaints management processes from across the
Group to complement the role of Customer Advocate Officer, materially improving complaints handling, more
systematically identifying root causes of complaints, helping to protect more vulnerable customers and
resolving long-standing issues.

At the same time, where Westpac gets things wrong the Group puts things right for customers. In Full Year 2018
the Group booked provisions of $380 million (after tax cost of $281 million) for estimated customer refunds,
payments and associated costs. Of these provisions, $105 million was charged against net interest income, and
$163 million was charged against non-interest income. A further $112 million was included in expenses. The
provisions covered matters including:

 certain advice fees associated with the Group’s salaried financial planners, including where inadequate advice
was provided, incidences where advice services were not provided, or where it has not been possible to verify
if the advice services were provided;

 additional provisions to resolve legacy product issues; and

 costs associated with the above along with provisions for recent litigation.

In Full Year 2017 the Group booked $169 million of provisions for customer refunds and payments, or $118 million
after tax.

2018 Full Year financial results
Review of Group operations

10 | Westpac Group 2018 Full Year Financial Results Announcement

Financial Performance

Westpac’s cash earnings of $8,065 million in Full Year 2018 was little changed over Full Year 2017 cash earnings
of $8,062 million. While underlying business growth was sound, with loan growth of 4%, average funds up 4%, and
life insurance in-force premiums 20% higher, the result in Full Year 2018 was impacted by the higher provisions
indicated above, the full period impact of the Bank Levy, and a weaker markets contribution ($151 million) in
Westpac Institutional Bank (WIB). The Group began the year well with cash earnings of $4,251 million in First Half
2018, however as the provisions and weaker markets impacts were concentrated in the second half of the year,
Second Half 2018 cash earnings were 10% lower to $3,814 million. Second Half 2018 also saw a decline in
margins, including from higher short term wholesale funding costs.

The relatively flat cash earnings combined with a 1% increase in shares on issue, led to a 1% decline in cash
earnings per share (EPS) to 236.2 cents in Full Year 2018. New share issuance, as part of the dividend
reinvestment plan and the conversion of a portion of Westpac CPS into ordinary shares, increased average
ordinary equity by 6% which in turn led to the Group’s ROE falling to 13.0%, down 77 basis points. Consistent with
the rise in capital, net tangible assets per share increased 5% to $15.39.

While the economic environment remains positive with real GDP reaching 3.4% for the year to June 2018,
unemployment remaining at historical lows and business conditions generally improving, the operating
environment for financial services has been more challenging. In particular, findings from the Royal Commission
have contributed to a deterioration in sentiment towards the sector while credit growth has eased by around 1
percentage point to 4.5% from both a moderation in the housing market and the full period impact of macro-
prudential rules on lending. Weaker sentiment toward the sector has also contributed to lower activity in wealth
management and insurance. At the same time, competition has remained intense from both local and international
financial institutions, including non-banks.

While Australia’s cash rate was unchanged over the year, short term interest rates increased with the bank bill
swap rate (BBSW) rising from early in calendar 2018 from around 1.7% to closer to 2.0%. The second half of 2018
also saw reduced opportunities in financial markets which in turn led to a lower contribution from WIB markets.

Over the year, lending across the Group grew at 4%, a little below system in Australia and New Zealand. Growth
eased through the year, with two thirds of the lending increase recorded in the first half. The slower growth in the
second half reflected a moderation in housing growth, a small decline in offshore lending and a weakening $NZ.
Growth for the year was spread across Australian mortgages (up 4%), Australian Business (up 3%) and in New
Zealand (up 4%) while other personal lending (cards, personal lending and auto finance) declined. In Australia,
Westpac grew comfortably below APRA’s mortgage macro-prudential rules through the year maintaining investor
property growth below 10% per annum and holding the proportion of new interest only mortgages to less than 30%
of new flows.

Customer deposits increased 6% over the year as the Group continues to target deposit growth higher than
lending growth. This year, the increase in customer deposits fully funded loan growth, lifting the deposit to loan
ratio to 73% at 30 September 2018. This ratio was up almost 2 percentage points over the year and further
improved Westpac’s funding mix. Deposit growth was spread across categories, with term deposits the largest
contributor. Savings, transaction and interest offset accounts all experienced sound growth.

Net interest margins were up 2 basis points over the year although the trends were different across the halves. In
First Half 2018, margins were higher, lifted by the repricing of investor and interest only mortgages in late 2017,
higher deposit spreads and increased Treasury income. In Second Half 2018 margins were 12 basis points lower
(compared to First Half 2018) as competition remained intense and customers continued to switch to lower spread
products (including the switching of interest only lending into principal and interest loans). Margins in Second Half
2018 were also reduced by higher short term wholesale funding costs and lower Treasury income.

The Bank Levy cost $378 million in Full Year 2018, up from $95 million in Full Year 2017, and reduced margins by
a further 4 basis points over the year. On a cash earnings per share basis, the Full Year 2018 impact of the Bank
Levy is equivalent to around 8 cents per share. The Bank Levy only applied for one quarter in 2017.

In 2018, Westpac finalised the exit of its infrastructure funds business, Hastings Funds Management (Hastings).
While the exit had a small impact on cash earnings it had a more significant impact on non-interest income and
costs. In particular, as part of the exit this year, the business recognised $135 million in income while writing off
$105 million in goodwill, and incurring other exit costs of $16 million (including restructuring costs).

Non-interest income declined $240 million in Full Year 2018 to $5,612 million or 4%. The decline included a $52
million increase in provisions for estimated customer refunds and payments and the Hastings income of $135
million. Excluding these items non-interest income was down $323 million or 5% with the decline mostly due to
lower trading income of $291 million and lower fee income including the full period effect of eliminating foreign
ATM fees, removing certain transaction fees, and capping account-keeping fees for some legacy accounts to no
more than $5 per month. Partially offsetting these declines were higher business line fees, a rise in insurance
revenue and gains on NZ hedges.

2018 Full Year financial results
Review of Group operations

Westpac Group 2018 Full Year Financial Results Announcement | 11

In aggregate, the 4% rise in net interest income, combined with the 4% decline in non-interest income led to total
operating income rising 2%.

Expenses increased 5% or $481 million. Expense growth this year was impacted by the exit of Hastings, higher
provisions for implementing customer refunds and payments, and provisions for estimated litigation settlements.
Excluding these infrequent items of $233 million, expenses increased 3%.

The Group has continued to offset business as usual cost increases with productivity gains. Productivity savings
were $304 million in Full Year 2018, up $42 million over the year. Savings were achieved by:

 simplifying the organisation: through product rationalisation, reducing the number of products, and operating
model changes - such as removing management spans and layers ($180 million);

 migrating more activity to digital: This included more customers using e-statements, and a shift to digital
transactions and self-service, which allowed us to amalgamate 47 branches and remove 443 ATMs across
Australia and New Zealand ($61 million); and

 modernising systems, automating processes, and reviewing and re-negotiating contracts ($63 million).

Excluding the infrequent items, most of the increase in costs was related to higher investment and regulatory and
compliance spending. This included $62 million in additional expenses associated with the Royal Commission,
and higher technology costs including from the NPP, Panorama, and cybersecurity.

Given the significant infrequent items (higher costs and negative revenues), the expense to income ratio increased
143 basis points over the year, to be 43.7% for Full Year 2018.

Core earnings (revenue less expenses but before impairment charges) were down 1%.

Credit quality remained sound, with key metrics relatively stable over the year and over the prior half. Impaired
assets were little changed over the year with no new facilities greater than $50 million becoming impaired.

As a result, impairment charges were $710 million for Full Year 2018, down 17% (or $143 million) on Full Year
2017 and representing 10 basis points to gross loans. Most of the decline was due to lower new individually
assessed provisions with fewer new impairment provisions partially offset by lower write-backs.

Lower new impaired assets, along with the continued work-out of facilities contributed to a reduction of $66 million
in total provisions for impairment charges on loans and credit commitments for Full Year 2018. The Group’s ratio
of gross impaired asset provisions to impaired assets was 46% (down 18 basis points on the year) while the ratio
of collectively assessed provisions to credit risk weighted assets was down 3 basis points to 0.73%. The decline in
this ratio was due mostly to mortgage modelling changes which lifted RWA. The overlay provision was $22 million
lower (to $301 million) mostly from the continuing improvement in the NZ dairy sector.

The effective tax rate was 30.8% for the year, this is above the corporate tax rate and higher over the year due to
the non-deductibility of certain expenses, including litigation penalties, the write-off of Hastings goodwill, and
hybrid distributions.

Across divisions, earnings results were mixed. Business Bank recorded an 8% rise cash earnings with higher
margins and a 15% decline in impairment charges while New Zealand (in NZ$) recorded a 5% increase in cash
earnings, with core earnings up 10% from higher margins and improved efficiency. Consumer Bank’s cash
earnings were relatively flat over the year (down $15 million), with lower non-interest income and higher operating
expenses mostly offset by lower impairment charges. BT Financial Group recorded a 12% decrease in cash
earnings with growth in funds and insurance premiums more than offset by higher provisions for estimated
customer refunds and payments and associated costs. WIB recorded a 6% decrease in cash earnings reflecting
lower revenue, primarily in Financial Markets, partially offset by an impairment benefit.

Balance sheet and credit quality

The Group maintained the strength of its balance sheet across all dimensions:

 a CET1 capital ratio of 10.6%, slightly above the “unquestionably strong” benchmark set by APRA of 10.5%.
The ratio was 7 basis points higher over the year as organic capital generation was largely offset by RWA
model changes;

 a liquidity coverage ratio (LCR) of 133%, above the 100% regulatory minimum;

 a net stable funding ratio (NSFR) of 114%, comfortably above the 100% regulatory minimum which applied
from 1 January 2018; and

 credit quality remaining sound with stressed exposures to TCE remaining low relative to historical experience.

2018 Full Year financial results
Review of Group operations

12 | Westpac Group 2018 Full Year Financial Results Announcement

Stressed exposures to TCE were 1.08% at 30 September 2018, 1 basis point down from 31 March 2018, and 3
basis points higher from September 2017. Looking at the three categories within stressed exposures, impaired
assets were little changed, 90+ days past due and not impaired increased by 5 basis points, while watchlist and
substandard exposures were 1 basis point lower.
Stress has particularly improved across Institutional and in New Zealand, with a small rise in stress in the
commercial portfolio.

Credit quality of the mortgage portfolio has remained sound with 90+ day delinquencies of 0.67% at 30 September
2018. This ratio was 5 basis points higher over the year and up 2 basis points over the prior six months. There
were 396 properties in possession at 30 September 2018, 41 lower than the same period last year.

Dividends

The Board determined a final ordinary dividend of 94 cents per share, fully franked, unchanged over both Second
Half 2017 and First Half 2018.

The final ordinary dividend represents a Second Half 2018 payout ratio of 84.7% (Full Year 2018: 79.9%) and a
dividend yield of 6.7%
1
. The Board has determined to issue shares to satisfy the dividend reinvestment plan (DRP)
for the final 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 20 December 2018 with the record date of 14
November 2018
2
. After allowing for the final dividend, the Group’s adjusted franking account balance was $1,357
million.

Strategic Progress

Westpac’s vision is:

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

Westpac’s service-led strategy has remained consistent through the year. This consistency has enabled the Group
to make significant progress over the year, modernising its infrastructure, digitising processes and seeking to
make banking and financial services easier for customers.

The Group invested $1,411 million over Full Year 2018 with 59% of this spend devoted to growth and productivity
initiatives, 27% was directed to regulatory change projects and the residual 14% was spent on other technology
programs. Overall investment was up 12% over the year with the increase spread across all categories.

To outline the Group’s strategic progress, the commentary has been segmented into three categories, service
leadership, digital transformation and workforce. The following sections summarise progress through this year.

Service leadership

Westpac strives to deliver a world class customer experience, combining great in-person service with market
leading digital capabilities. In the context of the Royal Commission, there has been a decline in customer
satisfaction and net promoter (NPS) scores through the year. While Westpac’s NPS has declined, the fall has
been less than peers and this has improved Westpac’s relative consumer NPS ranking (against the major banks)
from 4th to 2nd over the last 12 months.

To address the underlying causes of this decline much effort has been focused on the Group’s product reviews
and ensuring that customer complaints are seen as a second chance to retain customers. Other initiatives
completed over the year included:

For businesses:

 enhanced support for small business including new, shorter, plain-English loan documents and strengthened
protections under small business contracts;

 introduced least-cost routing providing choice for contactless debit payments; and

 further expanding the reach and functionality the Group’s online loan origination system, LOLA.

For consumers:

 introduced voice banking for Siri, Google Assistant and Amazon’s Alexa. Customers can now ask for their
account balance and conduct simple banking transactions using their voice;

 Westpac customers can now access secure live chat on their desktop – often a more convenient way to
connect with banking specialists; and


1
Based on the closing share price as at 28 September 2018 of $27.93.
2
Record date for 2018 final dividend in New York is 13 November 2018.

2018 Full Year financial results
Review of Group operations

Westpac Group 2018 Full Year Financial Results Announcement | 13

 launched mobile cheque deposit, a first in Australia that allows customers to deposit cheques via the mobile
app.

Digital transformation

Advances in digital technology provide the Group with the ability to enhance the customer experience while
simultaneously improving productivity and risk management. Major developments over the year have included:

 piloting the Group’s “customer service hub” that will ultimately be the centrepiece of customer origination and
service processes. The new system will be rolled out for Westpac mortgages in First Half 2019;
 extending e-statements to closed deposit and card accounts;

 introducing BT Open Services, a new online advisor hub supporting independent financial advisors;

 enhancing the Group’s infrastructure to further reduce cybersecurity risks; and

 continuing to move applications on to the Group’s private cloud environment, reducing application installation
from weeks to hours.

Workforce

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 there is more to do.
Recent highlights include:

 Reinforced our commitment to supporting Veterans. In 2018 Westpac supported the Invictus Games and
through a veterans employee action group are seeking to lift Veteran employment while aiming to increase
support for Defence Force personnel and their families;

 Commenced the fourth year of the Equilibrium program, supporting accomplished female leaders (both from
within the company and outside financial services) to build a career in Westpac and to bring different
perspectives to the Group;

 Completed the roll-out of a new performance management framework called “Motivate”. The framework is a
behaviours-first approach that seeks to emphasise that how outcomes are delivered is just as important as
what is delivered;

 Monthly surveys of employee sentiment have been largely unchanged over the year at 73%;

 Further reduced the lost time injury frequency rate to 0.39 at 30 September 2018, down from 0.60 at 30
September 2017;

 Implemented a new half day training program completed for the majority of employees. Called “Navigate”,
brings together the Group’s vision, values, code of conduct and service standards to help employees manage
tough decisions and have the courage to challenge decisions. The half day sessions reinforced the Group’s
expectations around ethical behaviour and appropriate treatment of customers; and

 Further enhanced LearningBank, the Group’s online portal for self-directed learning. Over 200,000 courses
were completed on the platform in 2018.

Financial performance summary Second Half 2018 – First Half 2018

Cash earnings of $3,814 million were down 10% with core earnings also down 10%, while impairment charges fell
19%. The result was impacted by a number of infrequent items, the largest of which was $281 million (after tax) in
provisions for estimated customer refunds and payments and associated costs along with provisions for estimated
litigation settlements.

Net interest income fell 3% with a 12 basis point decrease in margins only partially offset by a 2% rise in average
interest-earning assets. Margins excluding Treasury and Markets decreased 10 basis points over the half, with the
decline due to the customer provisions, higher short term wholesale funding costs and lower mortgage spreads.
The decline in mortgage spreads has been due to customers switching from interest only to principal and interest,
changes in portfolio mix towards lower margin products (basic products) and lower rates on new mortgages.

Total loans grew 1%, with most of the rise due to an increase in Australian mortgage lending. Other areas of
growth included 3% growth in SME business lending and 1% growth in commercial loans. In New Zealand, lending
was up 2% (down 1% in A$ terms) from growth in mortgages. Australian personal lending was lower over the half,
mostly reflecting lower demand. Customer deposits grew 3% over First Half 2018 and fully funded lending over the
half.

2018 Full Year financial results
Review of Group operations

14 | Westpac Group 2018 Full Year Financial Results Announcement

Non-interest income was down 3%, impacted by infrequent items, including provisions for estimated customer
refunds and payments ($163 million) mostly offset by fees associated with the Hastings exit. Excluding these, non-
interest income was down 2% mostly from lower Financial Markets trading income, a reduction in funds
management income (from revaluation of investment in boutique funds and seed fund performance and lower fund
margins). These declines were offset by higher business line fees, an increase in merchant income, and lower
insurance claims.

Expenses increased 6%. This included a number of infrequent items, including provisions for estimated costs
associated with implementing customer refunds and payments, litigation and the exit of Hastings. Excluding these
items, expenses were $79 million higher. Most of this expense growth was due to higher spending associated with
investment and an increase in regulatory and compliance costs, with $173 million of productivity savings more
than offsetting ordinary cost growth.

Impairment charges were $76 million (or 19%) lower than First Half 2018, with most of the decrease due to lower
new collectively assessed provisions linked to a reduction in consumer early-cycle (30+ day) delinquencies. In
aggregate, mortgage 90+ day delinquencies were 2 basis points higher, while consumer unsecured 90+ day
delinquencies were unchanged over the half at 1.64%.

The effective tax rate was 31.3% in Second Half 2018, higher due to the non-deductibility of certain expenses,
including penalties and the write-off of goodwill.

Divisional performance summary

The performance of each division based on performance in Full Year 2018 compared to Full Year 2017 is
discussed below.

Consumer Bank

Consumer Bank’s (CB) cash earnings of $3,140 million were $15 million lower than Full Year 2017. Growth in net
interest income of 1% and a $114 million reduction in impairment charges were more than offset by lower non-
interest income and higher operating expenses. Net interest income increased from a 4% rise in mortgages, and a
5% increase in deposits, offset by a 7 basis point reduction in net interest margin. Margins were impacted by
higher short term wholesale funding costs, the full period impact of the Bank Levy, and provisions for estimated
customer refunds and payments, partly offset by higher deposit spreads. Mortgage spreads were little changed
over the year as the full period impact of repricing undertaken in 2017 was offset by increased competition and
customers switching into principal and interest loans from interest-only lending. Non-interest income was $67
million lower, mostly due to the elimination or reduction of certain transaction and account-keeping fees and lower
credit card interchange fees. Expenses were up $164 million (or 5%), mostly due to higher investment related
costs and regulatory and compliance costs. More customers using digital channels has reduced branch
transactions and enabled the rationalisation of 40 branches over the year. The $114 million decrease in
impairment charges was largely due to improved collection processes which led to a reduction in write-offs and
higher recoveries from the maturity of hardship changes. Recoveries were also higher.

Business Bank

Business Bank (BB) delivered an 8% increase in cash earnings to $2,159 million reflecting a 5% lift in core
earnings and a 15% decline in impairment charges. Lending increased 2%, with SME lending up 3%, and
commercial lending up 3%. Deposits rose 4% over the year, with growth spread across term deposits and
transaction accounts. The net interest margin was up 5 basis points, from the full period effect of repricing on
certain mortgages in Second Half of 2017 and higher deposit spreads. This was partially offset by the full-period
impact of the Bank Levy. Non-interest income was up 4% with higher business line fees. Expenses were 3%
higher, mostly from higher investment related costs, and regulatory and compliance spending. Credit quality has
been sound, although stressed assets to TCE were up 58 basis points, from the downgrade of a small number of
commercial customers into the watchlist category. Impairment charges were $52 million lower from lower write-offs
in the Auto finance and credit card portfolios.

BT Financial Group

BT Financial Group (BTFG) cash earnings were 12% lower to $645 million. While the division recorded higher
insurance income (both higher premiums and lower claims), a stronger contribution from Private Wealth and 7%
growth in funds, this was more than offset by higher provisions for estimated customer refunds and payments and
associated costs along with fee changes in advice and platforms. Funds increased $14.2 billion, with most of the
growth in platforms. Growth was supported by stronger investment markets and $5.7 billion of net flows onto
Panorama. Funds management contribution was lower, impacted by a reduction in platform fees and product mix
changes. Expenses were up 8% mostly due to a provision for the costs associated with implementing customer
refunds and payments ($55 million) and higher investment related spending including costs associated with
Panorama and BT Open Services. Regulatory and compliance costs were lower over the year due to the
completion of the MySuper migration in 2017.

2018 Full Year financial results
Review of Group operations

Westpac Group 2018 Full Year Financial Results Announcement | 15

Westpac Institutional Bank

Westpac Institutional Bank (WIB) recorded a 6% decrease in cash earnings to $1,086 million. The $73 million
decline was principally due to lower Markets revenue and was partially offset by an impairment benefit. The net
impact of Hastings on cash earnings was not material year on year, as additional revenue from the exit of Hastings
was largely offset by higher expenses (mostly goodwill write-off) and a higher tax expense (due to non-deductibility
of the goodwill writedown). Expenses were up 7%, but excluding Hastings expenses, were well managed, up 1%.
The $38 million impairment benefit was due to the successful workout of several large impaired facilities.

Westpac New Zealand

Westpac New Zealand delivered cash earnings of NZ$1,017 million, up 5%, over the prior year. The business
generated 10% core earnings growth although this was offset by a small impairment charge of NZ$3 million which
followed a NZ$76 million impairment benefit in Full Year 2017. An 8% lift in net interest income was the main
driver of core earnings growth with lending up 4%, deposits rising 6% and margins increasing 12 basis points. The
rise in margins followed some repricing of mortgage and business lending partially offset by lower deposit spreads.
Expenses were 3% 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-service via digital.

Group Businesses

Group Businesses delivered cash earnings of $101 million in Full Year 2018, up $9 million on the prior year. The
increase was due to a higher Treasury contribution (from interest rate risk management) and a $68 million
improvement in non-interest income due to gains on NZ earnings hedges. These were partially offset by higher
expenses and a lower impairment benefit. The rise in expenses was mainly due to a rise in regulatory and
compliance costs, including expenses associated with the Royal Commission along with higher restructuring costs.
The impairment benefit was $41 million lower mostly due to movements in centrally held impairment overlays.

2018 Full Year financial results
Review of Group operations

16 | Westpac Group 2018 Full Year Financial Results Announcement

Divisional cash earnings summary

Half Year Sept 18 BT FinancialWestpacWestpac



ConsumerBusinessGroupInstitutional New Zealand
1
Group



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

Group

Net interest income 3,708 2,044 293 741 877 375

8,038

Non-interest income 369 600 750 807 214 22

2,762

Net operating income 4,077 2,644 1,043 1,548 1,091 397

10,800

Operating expenses (1,812)(946)(690)(771)(431)(282)

(4,932)

Core earnings 2,265 1,698 353 777 660 115

5,868

Impairment (charges) / benefits (218)(154)(3)21 22 15

(317)

Operating profit before income tax 2,047 1,544 350 798 682 130

5,551

Income tax expense (624)(465)(109)(261)(189)(87)

(1,735)

Net profit 1,423 1,079 241 537 493 43

3,816

Non-controlling interests - - - (2)- -

(2)

Cash earnings 1,423 1,079 241 535 493 43

3,814


Half Year March 18 BT FinancialWestpacWestpac



ConsumerBusinessGroupInstitutional New Zealand
1
Group



$m BankBank(Australia)Bank(A$)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


Mov't Sept 18 - Mar 18 BT FinancialWestpacWestpac



ConsumerBusinessGroupInstitutional New Zealand
1
Group



% BankBank(Australia)Bank(A$)Businesses

Group

Net interest income
(8%)1% 3% 10% 4% (14%)

(3%)

Non-interest income
(2%)2% (16%)8% (4%)69%

(3%)

Net operating income
(8%)1% (12%)9% 2% (12%)

(3%)

Operating expenses
5% 2% 15% 14% - (2%)

6%

Core earnings (16%)1% (39%)4% 3% (29%)

(10%)

Impairment (charges) / benefits
(6%)12% - 24% largelarge

(19%)

Operating profit before income tax (17%)- (40%)4% 11% (12%)

(9%)

Income tax expense
(15%)- (38%)23% 9% (4%)

(6%)

Net profit (17%)- (40%)(3%)12% (25%)

(10%)

Non-controlling interests
- - - (33%)- (100%)

-

Cash earnings (17%)- (40%)(3%)12% (26%)

(10%)






1
Refer to Section 3.5 for the Westpac New Zealand NZ$ divisional result.
Movement in core earnings by division ($m)
Second Half 2018 – First Half 2018
18
28
22
First Half 2018
core earnings
5,868
Business
Bank
(422)
Consumer
Bank
WIBBTFGWestpac
New Zealand
(A$)
(46)
Group
Businesses
Second Half
2018 core
earnings
(229)
6,497
-629

2018 Full Year financial results
Review of Group operations

Westpac Group 2018 Full Year Financial Results Announcement | 17

Divisional cash earnings summary (continued)
Full Year Sept 18 BT FinancialWestpacWestpac



ConsumerBusinessGroupInstitutional New Zealand
1
Group



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

Group

Net interest income 7,748 4,065 578 1,416 1,720 812

16,339

Non-interest income 746 1,189 1,648 1,556 438 35

5,612

Net operating income 8,494 5,254 2,226 2,972 2,158 847

21,951

Operating expenses (3,542)(1,876)(1,291)(1,446)(860)(571)

(9,586)

Core earnings 4,952 3,378 935 1,526 1,298 276

12,365

Impairment (charges) / benefits (451)(291)(6)38 (2)2

(710)

Operating profit before income tax 4,501 3,087 929 1,564 1,296 278

11,655

Income tax expense (1,361)(928)(284)(473)(362)(178)

(3,586)

Net profit 3,140 2,159 645 1,091 934 100

8,069

Non-controlling interests - - - (5)- 1

(4)

Cash earnings 3,140 2,159 645 1,086 934 101

8,065


Full Year Sept 17
2
BT FinancialWestpacWestpac



ConsumerBusinessGroupInstitutional New Zealand
1
Group



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

Group

Net interest income 7,638 3,885 511 1,328 1,629 713

15,704

Non-interest income 813 1,141 1,744 1,707 480 (33)

5,852

Net operating income 8,451 5,026 2,255 3,035 2,109 680

21,556

Operating expenses (3,378)(1,818)(1,199)(1,351)(903)(456)

(9,105)

Core earnings 5,073 3,208 1,056 1,684 1,206 224

12,451

Impairment (charges) / benefits (565)(343)(4)(56)72 43

(853)

Operating profit before income tax 4,508 2,865 1,052 1,628 1,278 267

11,598

Income tax expense (1,353)(862)(316)(462)(361)(175)

(3,529)

Net profit 3,155 2,003 736 1,166 917 92

8,069

Non-controlling interests - - - (7)- -

(7)

Cash earnings 3,155 2,003 736 1,159 917 92

8,062


Mov't Sept 18 - Sept 17 BT FinancialWestpacWestpac



ConsumerBusinessGroupInstitutional New Zealand
1
Group



% BankBank(Australia)Bank(A$)Businesses

Group

Net interest income
1% 5% 13% 7% 6% 14%

4%

Non-interest income
(8%)4% (6%)(9%)(9%)large

(4%)

Net operating income
1% 5% (1%)(2%)2% 25%

2%

Operating expenses
5% 3% 8% 7% (5%)25%

5%

Core earnings (2%)5% (11%)(9%)8% 23%

(1%)

Impairment (charges) / benefits
(20%)(15%)50% largelarge(95%)

(17%)

Operating profit before income tax - 8% (12%)(4%)1% 4%

-

Income tax expense
1% 8% (10%)2% - 2%

2%

Net profit - 8% (12%)(6%)2% 9%

-

Non-controlling interests
- - - (29%)- -

(43%)

Cash earnings - 8% (12%)(6%)2% 10%

-






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 ($m)
Full Year 2018 – Full Year 2017
170
92
52
12,365
(121)
Consumer
Bank
Full Year 2018
core earnings
Business
Bank
Group
Businesses
(121)
12,451
Westpac
New Zealand
(A$)
WIB
(158)
BTFGFull Year 2017
core earnings
-86

2018 Full Year financial results
Review of Group operations

18 | Westpac Group 2018 Full Year Financial Results Announcement

2.2 Review of earnings

2.2.1 Net interest income
1


% Mov't % Mov't
Half Year Half Year Sept 18 - Full Year Full Year Sept 18 -
$m Sept 18 March 18 Mar 18 Sept 18 Sept 17 Sept 17
Net interest income



Net interest income excluding Treasury & Markets 7,650 7,842
(2)
15,492 14,981
3
Treasury net interest income
2
322 396
(19)
718 652
10
Markets net interest income 66 63
5
129 71
82
Net interest income 8,038 8,301
(3)
16,339 15,704
4

Average interest-earning assets



Loans 665,227 651,943
2
658,603 633,821
4

Third party liquid assets
3
97,909 93,357
5
95,639 95,033
1
Other interest-earning assets 19,698 21,711
(9)
20,702 23,440
(12)

Average interest-earning assets 782,834 767,011
2
774,944 752,294
3
Net interest margin



Group net interest margin 2.05% 2.17%
(12bps)
2.11% 2.09%
2bps
Group net interest margin excluding Treasury & Markets
4
1.95% 2.05%
(10bps)
2.00% 1.99%
1bps

Second Half 2018 – First Half 2018

Net interest income decreased $263 million or 3% compared to First Half 2018. Key features include:

 A 2% increase in average interest-earning assets (AIEA) largely from Australian housing, which grew 2% and
5% growth in third party liquid assets;

 Group net interest margin excluding Treasury & Markets decreased 10 basis points, primarily from an increase
in short term wholesale funding costs, reduced mortgage spreads and provisions for estimated customer
refunds and payments. The mortgage spread reduction reflected demand for lower spread products,
competition and changes in the mix of the mortgage portfolio with customers switching from interest only to
principal and interest loans. This was partly offset by higher term deposit spreads and income earned on
higher capital balances; and

 Treasury and Markets net interest income decreased $71 million, with lower Treasury revenue related to
interest rate risk management.

Full Year 2018 – Full Year 2017

Net interest income increased $635 million or 4% compared to Full Year 2017. Key features include:

 A 3% growth in AIEA, primarily from Australian housing, which grew 4%;

 Group net interest margin excluding Treasury & Markets increased 1 basis point. The full period impact of
pricing changes for certain Australian mortgages in 2017, including investor lending and interest only loans,
higher New Zealand mortgage spreads and higher term deposits spreads, were partly offset by the full period
impact of the Bank Levy. Wholesale funding costs were little changed, as short term costs increased and long
term costs reduced; and

 In aggregate, the contribution from Treasury and Markets was up $124 million, from Treasury interest rate risk
management and 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
Treasury net interest income excludes capital benefit.
3
Refer Glossary for definition.
4
Calculated by dividing net interest income excluding Treasury and Markets by total average interest-earning assets and has been
restated for changes in the allocation of revenue from balance sheet management activities.

2018 Full Year financial results
Review of Group operations

Westpac Group 2018 Full Year Financial Results Announcement | 19

2.2.2 Loans
1


As at As at As at % Mov't % Mov't
30 Sept 31 March 30 Sept Sept 18 - Sept 18 -
$m 2018 2018 2017 Mar 18 Sept 17
Australia 619,630 610,397 599,162 2 3

Housing 444,741 437,239 427,167
2 4
Personal (loans and cards) 21,079 21,789 21,952
(3) (4)
Business 154,347 151,904 150,542
2 3
Other
2
1,918 1,963 1,985
(2) (3)

Provisions (2,455) (2,498) (2,484)
(2) (1)



New Zealand (A$) 74,045 74,687 71,484 (1) 4



New Zealand (NZ$) 80,860 79,557 77,680
2 4

Housing 48,893 47,907 46,943
2 4

Personal (loans and cards) 1,958 2,047 2,017
(4) (3)

Business 30,251 29,898 28,979
1 4

Other 82 81 92
1 (11)

Provisions (324) (376) (351)
(14) (8)




Other overseas 16,015 16,309 14,273 (2) 12
Trade finance 3,600 3,942 2,818
(9) 28
Other loans 12,477 12,429 11,515
- 8
Provisions (62) (62) (60)
- 3


Total loans 709,690 701,393 684,919 1 4


Second Half 2018 – First Half 2018

Total loans increased $8.3 billion or 1% compared to First Half 2018. Excluding foreign currency translation
impacts, total loans increased $9.3 billion or 1%.

Key features of total loan growth were:

 Australian housing loans increased $7.5 billion or 2% which was below system growth
3
. Owner occupied
housing balances grew 3% to now comprise 57% of the portfolio (March 2018: 56%, September 2017: 56%).
The Group continues 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. In addition, customers
have switched $15.9 billion of interest only loans to principal and interest during this period. Interest only loans
now comprise 35% of the portfolio (March 2018: 40%, September 2017: 46%);

 Australian personal loans and cards decreased $0.7 billion or 3% from lower auto finance and credit card
balances;

 Australian business loans increased $2.4 billion or 2%, with institutional lending up 2% from increased
utilisation of existing warehouse facilities and a 1% increase in Business Bank largely from growth in SME and
agriculture; and

 New Zealand loans increased NZ$1.3 billion or 2% due to growth in housing (up 2%), mostly in fixed rate
products to owner occupiers. Owner occupied housing represents 75% of the portfolio.



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

2018 Full Year financial results
Review of Group operations

20 | Westpac Group 2018 Full Year Financial Results Announcement

Full Year 2018 – Full Year 2017
1


Total loans increased $24.8 billion or 4% compared to Full Year 2017. Excluding foreign currency translation
impacts, total loans increased $24.0 billion or 3%.

Key features of total loan growth were:

 Australian housing loans increased $17.6 billion or 4% (slightly below system growth
1
). Owner occupied loans
increased 6% over the year, while the Group’s investor property lending grew by 2%. Principal and interest
loan flows represented 77% of all new flows and now comprise 61% of the portfolio (September 2017: 50%);

 Australian business loans increased $3.8 billion or 3% from broad based growth in Business Bank including
SME, agriculture, manufacturing and property;

 New Zealand lending increased NZ$3.2 billion or 4%. Housing loans grew at 4% mostly in fixed rate products,
while business lending increased 4% supported by growth across agriculture, property and corporate lending;
and

 Other overseas lending increased $1.7 billion or 12%, across trade finance and institutional lending in Asia.


1
Source: RBA.

2018 Full Year financial results
Review of Group operations

Westpac Group 2018 Full Year Financial Results Announcement | 21

2.2.3 Deposits and other borrowings
1


As at As at As at % Mov't % Mov't
30 Sept 31 March 30 Sept Sept 18 - Sept 18 -
$m 2018 2018 2017 Mar 18 Sept 17
Customer deposits

Australia 446,667 429,852 420,841 4 6

At call 233,052 227,021 224,268
3 4
Term 171,832 161,864 156,249
6 10
Non-interest bearing 41,783 40,967 40,324
2 4



New Zealand (A$) 56,671 57,856 53,746 (2) 5

New Zealand (NZ$) 61,887 61,628 58,405
- 6

At call 23,339 24,164 23,117
(3) 1

Term 32,645 31,595 30,014
3 9

Non-interest bearing 5,903 5,869 5,274
1 12




Other overseas (A$) 14,413 14,355 12,083 - 19



Total customer deposits 517,751 502,063 486,670 3 6



Certificates of deposit 41,534 45,673 46,921 (9) (11)
Australia 28,746 30,387 37,515
(5) (23)
New Zealand (A$) 1,116 521 546
114 104
Other overseas (A$) 11,672 14,765 8,860
(21) 32


Total deposits and other borrowings 559,285 547,736 533,591 2 5


Second Half 2018 – First Half 2018

Total customer deposits increased $15.7 billion or 3% compared to First Half 2018, with the increase more than
fully funding loan growth in the half. Excluding foreign currency translation impacts, customer deposits increased
$15.9 billion or 3%.

Key features of total customer deposits growth were:

 Australian customer deposits increased $16.8 billion or 4%, with above system growth
2
in household deposits
and higher Government balances; and

 New Zealand customer deposits were little changed (up NZ$0.3 billion). Growth in term deposits of 3% was
offset by a decline in business transaction balances.

Certificates of deposits decreased $4.1 billion or 9%, reflecting reduced short-term wholesale funding issuance in
this form.

Full Year 2018 – Full Year 2017

Total customer deposits increased $31.1 billion or 6% compared to Full Year 2017, with the increase more than
fully funding loan growth in the year. Excluding foreign currency translation impacts, customer deposits increased
$29.5 billion or 6%.

Key features of total customer deposits growth were:

 Australian customer deposits increased $25.8 billion or 6%, particularly across term deposits (up 10%).
Household deposits growth was in line with system
2
and non-financial corporation deposits grew above
system
2
Customers continued to direct funds to mortgage offset accounts, supporting 4% growth in Australian
non-interest bearing deposits;

 New Zealand customer deposits increased NZ$3.5 billion or 6%, with the increase fully funding loan growth
during the year. Term deposits grew 9%, particularly across household and institutional segments. Non-
interest bearing deposits increased 12% from growth in business and consumer transaction deposits,
including growth in mortgage offset accounts; and

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

Certificates of deposits decreased $5.4 billion or 11%, reflecting reduced short-term wholesale funding issuance in
this form.

1
Spot deposit balances.
2
Source: APRA.

2018 Full Year financial results
Review of Group operations

22 | Westpac Group 2018 Full Year Financial Results Announcement

2.2.4 Net interest margin



Second Half 2018 – First Half 2018

Group net interest margin was 2.05%, a decrease of 12bps compared to First Half 2018. Key features include:

 2 basis point decrease from the impact of provisions for estimated customer refunds and payments;

 4 basis points decrease from loan spreads primarily due to changes in the mix of the Australian mortgage
portfolio as customers preferred lower spread products, retention pricing and continued switching from interest
only to principal and interest loans. Competition is impacting lending spreads across all loan markets,
particularly mortgages;

 1 basis point increase from customer deposit spreads, primarily from term deposits;

 5 basis points decrease from a rise in short term wholesale funding costs, including the impact of the bank bill
swap rate (BBSW) increasing in Second Half 2018;

 Capital and other increased 1 basis point largely from income earned on higher capital balances;

 1 basis point decrease from liquidity reflecting the increased holdings in third party liquid assets and a higher
CLF fee following a $8 billion increase to the CLF from 1 January 2018; and

 Treasury and Markets contribution decreased 2 basis points, with less market opportunities impacting returns
from interest rate risk management.


(2bps)
(5bps)
Te r m
wholesale
funding
LoansCustomer
deposits
0bps
Second
Half 2018
Treasury
& Markets
1bps
Capital
& other
1bps
0bps
2.05%
Bank LevyFirst Half
2018
Liquidity
(2bps)
Provisions
for
customer
refunds
2.17%
2.05%
Short term
wholesale
funding
(4bps)
(1bps)
Group margin down 12bps
Excluding Treasury and
Markets down 10bps
Group net interest margin movement (%)
Second Half 2018
–
First Half 2018
1.95%

2018 Full Year financial results
Review of Group operations

Westpac Group 2018 Full Year Financial Results Announcement | 23



Full Year 2018 – Full Year 2017
1


Group net interest margin was 2.11%, an increase of 2 basis points from Full Year 2017. Key features include:

 2 basis points increase from loan spreads. This reflected the full period impact of pricing changes for certain
Australian mortgages in late 2017, including interest only and investor lending, along with higher spreads on
New Zealand mortgages. These gains were partly offset by the impact of customers switching from interest
only to principal and interest loans, retention pricing, customer preference for lower spread basic products and
competition across loan markets;

 2 basis points increase related to customer deposit spreads, mainly from term deposits, partly offset by the
impact of lower rates on the hedging of transaction deposits;

 2 basis points decrease from a rise in short term wholesale funding costs, particularly in Second Half 2018;

 2 basis points increase from term wholesale funding as pricing for new term issuance was lower than the
portfolio average;

 4 basis point decrease from the full period impact of the Bank Levy, which was introduced on 1 July 2017;

 Capital and other increased 1 basis point largely from the positive effect of higher capital balances, partly offset
by the impact of lower interest rates; and

 1 basis point increase from Treasury and Markets, due to increased Treasury revenue from interest rate risk
management.



1
Group net interest margin excluding Treasury and Markets has been restated for changes in the allocation of revenue from balance
sheet management activities.
Bank LevyProvisions
for
customer
refunds
Short term
wholesale
funding
Customer
deposits
Treasury
& Markets
Liquidity
(4bps)
Full Year
2017
2bps
Capital
& other
0bps
2bps
2.00%
Full Year
2018
Loans
2.09%
Te r m
wholesale
funding
1bps
2bps
(2bps)
2.11%
0bps
1bps
Group margin up 2bps
Excluding Treasury and
Markets up 1bps
Group net interest margin movement (%)
Full Year 2018 – Full Year 2017
1.99%

2018 Full Year financial results
Review of Group operations

24 | Westpac Group 2018 Full Year Financial Results Announcement

2.2.5 Non-interest income
1


% Mov't % Mov't
Half Year Half Year Sept 18 - Full Year Full Year Sept 18 -
$m Sept 18 Mar 18 Mar 18 Sept 18 Sept 17 Sept 17
Fees and commissions 1,202 1,348
(11)
2,550 2,755
(7)
Wealth management and insurance income 1,088 929
17
2,017 1,810
11
Trading income 419 507
(17)
926 1,217
(24)
Other income 53 66
(20)
119 70
70
Non-interest income 2,762 2,850
(3)
5,612 5,852
(4)

Second Half 2018 – First Half 2018

Non-interest income decreased $88 million or 3% compared to First Half 2018. The impact of provisions for
estimated customer refunds and payments ($163 million) was mostly offset by fees associated with the exit of the
Hastings business ($144 million). Excluding these infrequent items, non-interest income reduced $69 million or 2%
mostly reflecting lower markets income, partly offset by growth in business lending fees and higher insurance
income.

Fees and commissions

Fees and commissions decreased $146 million or 11% compared to First Half 2018, largely from:

 Provisions for estimated customer refunds and payments in the half ($156 million); partly offset by

 Increase in business lending fees of $15 million primarily driven by portfolio growth.

Wealth management and insurance income

Wealth management and insurance income increased $159 million, or 17% in the half, due to:

 Hastings revenue, including fees associated with the exit of Hastings ($144 million); and

 Higher insurance income ($31 million) primarily from lower general insurance claims; partly offset by

 Provisions for estimated customer refunds and payments related to wealth products ($7 million); and

 Platforms and superannuation revenue was little changed. Margin compression from competition and pricing
changes to BT Panorama in July 2018, was mostly 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 $88 million or 17% lower compared to First Half 2018. Refer to Section 2.2.7 for further detail
on Markets related income.

Other income

Other income decreased $13 million compared to First Half 2018, mostly reflecting lower gains on financial
instruments designated at fair value.

Full Year 2018 – Full Year 2017

Non-interest income decreased $240 million or 4% over the year. Full Year 2018 was impacted by a number of
infrequent items, including income related to the exit of the Hastings business ($135 million), partly offset by an
increase in provisions for estimated customer refunds and payments (up $52 million from $111 million in Full Year
2017 to $163 million in Full Year 2018).

Excluding the impact of these infrequent items, non-interest income was $323 million or 5% lower, primarily due to
reduced markets income and lower banking fee income from the full period impact of regulatory changes to
Australian credit card interchange fees and removal of ATM withdrawal fees.

Fees and commissions

Fees and commissions decreased $205 million or 7% compared to Full Year 2017, largely due to:

 Additional provisions for estimated customer refunds and payments ($101 million), related to Advice and retail
banking products;

 Lower revenue from the removal of ATM withdrawal fees and changes to transaction fees ($64 million);

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 Full Year financial results
Review of Group operations

Westpac Group 2018 Full Year Financial Results Announcement | 25

 Lower credit card income ($49 million) from the full period impact of regulatory changes to Australian
interchange rates from 1 July 2017 and lower rewards redemptions; and

 Lower corporate and institutional lending fees ($23 million) from a reduction in unused customer limits; partly
offset by

 Higher business lending fees ($40 million) primarily driven by portfolio growth.

Wealth management and insurance income

Wealth management and insurance income increased $207 million or 11% over the year reflecting:

 A rise in Hastings revenue which included fees of $144 million related to the exit of the business, the
associated costs can be seen in other expenses;

 A fall in provisions for estimated customer refunds and payments for wealth products ($49 million);

 Higher revenue from investments in boutique funds ($43 million); and

 Higher insurance income ($17 million) reflecting:

- Increase in general insurance income (up $24 million) from lower claims, with the prior year impacted by
Cyclone Debbie, and a 2% increase in net earned premiums;

- Life insurance income up $10 million from a 17% increase to earned premiums, primarily due to BTFG
commencing the management of Group Insurance for BTFG Corporate Super in Full Year 2018. This was
partly offset by a rise in claims; and

- Lower LMI contribution ($17 million) due to a reduction in loans written at higher LVR bands; partly offset by

 Lower platforms income ($14 million), impacted by margin compression and pricing changes to BT Panorama
in July 2018. 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 $291 million or 24% compared to Full Year 2017. The majority of the reduction was
due to a lower fixed income trading result. Refer to Section 2.2.7 for further detail on Markets related income.

Other income

Other income increased $49 million over the year, reflecting the impact of hedging New Zealand earnings, partly
offset by a loss on the sale of offshore Hastings business in first half.

2.2.6 Group funds


As at As at As at % Mov't % Mov't
30 Sept 31 March 30 Sept Sept 18 - Sept 18 -
$bn 2018 2018 2017 Mar 18 Sept 17
Superannuation 39.3 37.4 36.2
5 9
Platforms 122.9 118.6 115.3
4 7
Packaged Funds 39.6 38.0 36.4
4 9

Other 3.8 3.7 3.5
3 9

New Zealand (A$) 9.8 9.7 9.3
1 5

Total Group funds (excluding Westpac Institutional Bank) 215.4 207.4 200.7 4 7
Westpac Institutional Bank - 6.6 12.5
(100) (100)

Total Group funds 215.4 214.0 213.2 1 1

Average funds for the Group (excluding Westpac
Institutional Bank) 214.9 207.6 201.9 4 6
Westpac Institutional Bank 2.4 9.7 12.0
(75) (80)

Average funds for the Group
1
217.3 217.3 213.9 - 2




1
Averages are based on a six month period.

2018 Full Year financial results
Review of Group operations

26 | Westpac Group 2018 Full Year Financial Results Announcement

2.2.7 Markets related income
1


% Mov't % Mov't
Half Year Half Year Sept 18 - Full Year Full Year Sept 18 -
$m Sept 18 Mar 18 Mar 18 Sept 18 Sept 17 Sept 17
Net interest income 66 63
5
129 71
82
Non-interest income 456 547
(17)
1,003 1,212
(17)
Total Markets income 522 610 (14) 1,132 1,283 (12)






Customer income 448 448
-
896 918
(2)
Non-customer income 60 162
(63)
222 319
(30)
Derivative valuation adjustments 14 -
-
14 46
(70)
Total Markets income 522 610 (14) 1,132 1,283 (12)


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

Second Half 2018 - First Half 2018

Total markets income decreased by $88 million, or 14% compared to First Half 2018 from a fall in non-customer
income from lower trading income in foreign currency and commodities.


Full Year 2018 – Full Year 2017

Total markets income decreased by $151 million, or 12%, compared to Full Year 2017, primarily due to lower non-
customer income from a reduced fixed income trading result.

Customer income decreased 2% year on year, driven by lower fixed income and foreign exchange sales revenue.

Markets Value at Risk (VaR)
2


$m
Average

High Low
Six months ended 30 September 2018 10.8 27.1 7.0
Six months ended 31 March 2018 9.0 19.9 3.8
Six months ended 30 September 2017 11.2 16.0 7.6


The Components of Markets VaR are as follows:

Average
Half Year Half Year Half Year
$m Sept 18 March 18 Sept 17
Interest rate risk 2.7 2.7 3.0
Foreign exchange risk 2.4 1.5 1.5
Equity risk - 0.1 0.1
Commodity risk
3
6.6 6.4 8.1
Credit and other market risks
4
4.4 2.6 3.4
Diversification benefit (5.3) (4.3) (4.9)
Net market risk 10.8 9.0 11.2



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 the 2018 Westpac Group
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 prepayment risk and credit spread risk (exposures to generic credit rating bonds).

2018 Full Year financial results
Review of Group operations

Westpac Group 2018 Full Year Financial Results Announcement | 27

2.2.8 Operating expenses
1


% Mov't % Mov't
Half Year Half Year Sept 18 - Full Year Full Year Sept 18 -
$m Sept 18 March 18 Mar 18 Sept 18 Sept 17 Sept 17
Staff expenses (2,489) (2,398)
4
(4,887) (4,666)
5
Occupancy expenses (477) (475)
-
(952) (962)
(1)
Technology expenses (1,068) (1,042)
2
(2,110) (2,008)
5
Other expenses (898) (739)
22
(1,637) (1,469)
11
Total operating expenses (4,932) (4,654) 6 (9,586) (9,105) 5


Second Half 2018 – First Half 2018

Operating expenses increased $278 million or 6% compared to First Half 2018. Expenses were impacted by a
number of infrequent items in second half ($199 million)
2
. Excluding these infrequent items, expenses rose $79
million or 2%. This increase was primarily driven by higher investment spend (up $66 million) across our key
programs and an increase in regulatory and compliance costs (up $60 million). Productivity benefits increased $42
million in the half to $173 million, which more than offset growth in operating costs.

Staff expenses increased $91 million or 4% during the half due to the full period impact of salary increases and
infrequent items of $49 million. In addition, higher restructuring costs resulted from accelerated productivity
initiatives in the last quarter which supported a 2% decrease in FTE. These costs were partly offset by productivity
benefits.

Occupancy expenses were littled changed, with rental increased across retail and corporate sites mostly offset
by a reduction in branch numbers (down 20 in the half).

Technology expenses increased $26 million or 2% compared to First Half 2018, reflecting a rise in costs related
to the Group’s investment program. Higher technology services costs were driven by increased spend across our
key platform programs and enhancements to the Group’s technology infrastructure. Amortisation of software
assets also increased as programs delivered additional capability (up $16 million). These increases were partly
offset by lower software maintenance and license costs (down $28 million) supported by productivity, including
renegotiation with vendors.

Other expenses increased $159 million or 22% and were impacted by $150 million of infrequent items. Excluding
these items, other expenses increased $9 million or 1% due to additional regulatory and compliance activity, partly
offset by lower Royal Commission costs and reduced postage and stationary expenses from increased customer
use of electronic statements.

Full Year 2018 – Full Year 2017

Operating expenses increased $481 million or 5% compared to Full Year 2017, impacted by a number of
infrequent items ($233 million)
3
. Excluding these infrequent items, operating expenses increased 3% primarily from
higher regulatory and compliance costs (up $184 million), including expenses relating to the Royal Commission
($62 million), and investment related spend (up $125 million) largely across our banking and wealth platforms.
Productivity benefits increased 16% to $304 million, more than offsetting growth in operating costs.

Staff expenses increased $221 million or 5% compared to Full Year 2017 from the full period impact of annual
salary increases, higher restructuring costs (up $39 million) and additional FTE for regulatory and compliance
activities and the Group’s investment program. This was partly offset by lower bonuses and productivity benefits
largely related to simplifying the organisation and digitising processes across the branch network and operations.

Occupancy expenses decreased $10 million or 1%, with benefits from retail property consolidation (branch
numbers down by 47 across the Group) partly offset by higher energy costs.

Technology expenses increased $102 million or 5% compared to Full Year 2017, primarily due to the Group’s
investment program. Higher technology services costs (up $82 million) and software maintenance and licensing
costs (up $29 million) were driven by continued investment spend, increased volumes and new software licences
following upgraded capability. This was partly offset by lower IT equipment depreciation (down $17 million) as prior
investment in data centres was fully depreciated.



1
Refer to Section 4, Note 5 for reported results breakdown. Refer to Section 5, Note 5 for cash earnings breakdown. As discussed in
Section 1.3, commentary is on a cash earnings basis.
2
Exit of Hastings business ($87 million), estimated costs associated with implementing customer refunds and payments ($62 million)
and provisions for litigation ($50 million).
3
Exit of Hastings business ($121 million), estimated costs associated with implementing customer refunds and payments ($62 million)
and provisions for litigation ($50 million).

2018 Full Year financial results
Review of Group operations

28 | Westpac Group 2018 Full Year Financial Results Announcement

Other expenses increased $168 million or 11% during the year and contained a number of infrequent items,
including the write-off of Hastings goodwill ($105 million) following the exit of that business, provisions for litigation
($50 million) and costs associated with implementing customer refunds and payments ($25 million). Excluding
these items, costs reduced $12 million primarily due to a decrease in postage and stationery costs (down $35
million) as customers migrated to electronic statements; lower credit card loyalty program costs (down $26 million)
from changes to reward programs and benefits from disciplined cost management. This was partly offset by costs
associated with the Royal Commission.

Full Time Equivalent (FTE) employees


As at As at As at % Mov't % Mov't
30 Sept 31 March 30 Sept Sept 18 - Sept 18 -
Number of FTE 2018 2018 2017 Mar 18 Sept 17
Permanent employees 31,672 32,033 32,044
(1) (1)
Temporary employees 3,357 3,687 3,052
(9) 10
FTE 35,029 35,720 35,096 (2) -

Average FTE
1
35,362 35,446 35,216 - -



Second Half 2018 – First Half 2018

FTE decreased 691 or 2% in the half primarily from delivery of productivity initiatives across the Group, including
simplifying the organisation and digitising processes across the branch network and operations.

Full Year 2018 – Full Year 2017

FTE decreased 67 over the year. Delivery of productivity initiatives accelerated in the last quarter, more than
offsetting additional resources required for regulatory and compliance related activities and the Group’s investment
programs across the year.

Investment spend

% Mov't % Mov't
Half Year Half Year Sept 18 - Full Year Full Year Sept 18 -
$m Sept 18 Mar 18 Mar 18 Sept 18 Sept 17 Sept 17
Expensed 279 251
11
530 479
11
Capitalised software and fixed assets 494 387
28
881 777
13
Total 773 638 21 1,411 1,256 12

Growth and productivity 446 391
14
837 792
6
Regulatory change 214 163
31
377 325
16
Other technology 113 84
35
197 139
42
Total 773 638 21 1,411 1,256 12


The Group invested $1.4 billion in Full Year 2018, with 59% directed to growth and productivity initiatives, 27% to
regulatory change and 14% to other technology programs. In line with recent years, 38% of the $1.4 billion was
expensed while 62% was capitalised. Spending in the second half of the year was up 21%, and is consistent with
patterns over recent years where second half spending typically exceeds that of the first half.

Full Year 2018 investment was $155 million (or 12%) higher than Full Year 2017. The Group decided to lift its
annual investment to closer to $1.4 billion (compared to recent years where investment has been around $1.3
billion) to increase investment in modernising the Group’s major technology platforms in addition to compliance
spending. As a result spending was higher across all investment categories.

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

Growth and Productivity

 Platform modernisation

-
Customer Service Hub (CSH) is a major Group program seeking to implement a one bank, multi-brand
operating system creating greater efficiencies and a more agile environment. Development through 2018
has focused on simplifying documents and developing a valuation platform ready for its launch in 2019;

- Continued roll out of the New Payments Platform (NPP). Capability has now been extended to Tasmania,
South Australia and Northern Territory. Over 1.3 million payments, with a total value of over $1.0 billion
have been processed on the system;

1
Averages are based on a six month period.

2018 Full Year financial results
Review of Group operations

Westpac Group 2018 Full Year Financial Results Announcement | 29

- LOLA (online lending platform) has been rolled out to St.George bankers and expanded to include more
products and features; and

- Additional products and capabilities on Panorama were delivered, including CMA Saver, an interest bearing
cash account with no fees and annuities products with integrated account opening and reporting. BT
Corporate Super employers have the ability to set up plans online and members can access their super via
Panorama and Westpac Live. Advisers can set up client bank accounts online using digital consent capture.

 Digitising the company

-
Launched a range of new features for customers to make it easier for them to manage their banking and
finances. This includes real time details of Handycard or Debit Mastercard transactions, live chat support,
the ability to recover incomplete applications, currency converter, and travel insurance. Customers can now
deposit cheques via the mobile banking app, by taking a photo of the cheque with their smartphone;

- Launched an Online Home Loan Application – St.George, Bank of Melbourne and BankSA customers can
now complete their mortgage application online or via mobile. The process includes on the spot
personalised pricing and valuations, live chat support, and ability to stop and re-start the process at any
time. Bank of Melbourne customers can receive and sign their mortgage documents electronically through
e-sign;

- Increased the ways a customer can access their banking, including through simple voice commands with
Apple’s Siri, Amazon’s Alexa and Google Assistant. Customers can also transact via wearable devices,
such as via FitBit, Garmin and Apple watch; and

- Launched Beem It, a third party payment app that allows instant secure payments between family and
friends, no matter who they bank with. Beem It was developed jointly with CBA and NAB.

 Reducing complexity

- Expansion of Presto Smart, an integrated payment solution enabling merchants to link payments from
different sources to their terminal, removing manual input and reconciliations; and

- Closed 27 business deposit products making it easier for customers and bankers.

Regulatory Change

Major developments over the half included:

 Delivered a number of regulatory and industry reporting requirements including Common Reporting Standards
and Tax Country by Country reporting which supports global tax compliance, reporting of business
transactions through the payments systems to the Australian Taxation Office, reporting of life insurance
commissions, implementation of AASB 9, and updates to a range of economic and financial statistics
reporting; and

 Continued update of systems and processes to comply with Comprehensive Credit Reporting and Open
Banking.

Other technology

Major initiatives under this category included further upgrades to the Group's infrastructure, migration of
applications onto cloud technologies and reducing cybersecurity risks.

Capitalised software

% Mov't % Mov't
Half Year Half Year Sept 18 - Full Year Full Year Sept 18 -
$m Sept 18 March 18 Mar 18 Sept 18 Sept 17 Sept 17
Opening balance 2,005 1,916
5
1,916 1,781
8
Total additions 493 389
27
882 766
15
Amortisation expense (317) (301)
5
(618) (614)
1
Impairment expense - (2)
(100)
(2) (14)
(86)
Foreign exchange translation (4) 3
large
(1) (3)
(67)
Closing balance 2,177 2,005 9 2,177 1,916 14


Capitalised software increased 9% over the half and 14% over the year. Contributing to the increase was both
higher investment spending (up $155 million over the year) and a higher proportion of investment spent on larger
infrastructure programs (CSH, NPP, Panorama) which have a longer assessed life. A number of projects remain in
development which has also contributed to the higher capitalisation rate, as amortisation is yet to commence.

2018 Full Year financial results
Review of Group operations

30 | Westpac Group 2018 Full Year Financial Results Announcement

Software amortisation was $4 million higher compared to Full Year 2017. In Second Half 2018 amortisation
increased $16 million (5%) compared to First Half 2018 as more projects were completed. In addition, as part of
the Group’s regular asset review, $2 million in amortised software was assessed as impaired and written off during
the year.

Overall, the average amortisation period for capitalised software assets is 3.1 years.

2018 Full Year financial results
Review of Group operations

Westpac Group 2018 Full Year Financial Results Announcement | 31

2.2.9 Impairment charges

% Mov't % Mov't
Half Year Half Year Sept 18 - Full Year Full Year Sept 18 -
$m Sept 18 March 18 Mar 18 Sept 18 Sept 17 Sept 17
Individually assessed provisions (IAPs)



New IAPs (198) (173)
14
(371) (610)
(39)
Write-backs 83 67
24
150 288
(48)
Recoveries 79 100
(21)
179 168
7
Total IAPs, write-backs and recoveries (36) (6) large (42) (154) (73)

Collectively assessed provisions (CAPs)



Write-offs (428) (430)
-
(858) (968)
(11)
Other changes in CAPs 147 43
large
190 269
(29)
Total new CAPs (281) (387) (27) (668) (699) (4)

Total impairment charges (317) (393) (19) (710) (853) (17)


Asset quality remained sound through Full Year 2018 with stressed assets to total committed exposures
increasing by 3 basis points to 1.08%. The increase in stress mostly reflects higher mortgage delinquencies and a
small rise in stressed exposures in Business Bank. Impaired assets were lower, with gross impaired assets to
gross loans 2 basis points lower at 0.20% compared to 30 September 2017.

Provisioning levels at 30 September 2018 of $3,053 million were $66 million lower compared to 30 September
2017. IAPs were $58 million lower in line with the decline in impaired facilities while CAPs were $8 million lower.
Within collectively assessed provisions the overlay was down $22 million to $301 million at 30 September 2018.

Second Half 2018 – First Half 2018

Impairment charges for Second Half 2018 were $317 million, down $76 million compared to First Half 2018, and
were equivalent to 9 basis points of average gross loans. The decrease was mostly due to lower total new CAPs.

Key movements included:

 Total IAPs less write-backs and recoveries were $30 million higher than First Half 2018 principally due to:

- New IAPs were up $25 million mostly from higher new impaired assets in Business Bank. No facility greater
than $50 million migrated to impaired in either half. This rise was partially offset by a small reduction in New
Zealand IAPs; and

- Recoveries were $21 million lower primarily in the Australian unsecured consumer portfolio and the New
Zealand institutional portfolio; partly offset by:

- Write-backs were $16 million higher with WIB, Business Bank and New Zealand (in business) all recording a
small increase in write-backs.

 Total new CAPs were $106 million lower than First Half 2018. Key movements included:

- Write-offs were $2 million lower in Second Half 2018;

- Benefits from other changes in CAPs were $104 million higher related to the seasonal decrease in consumer
early cycle delinquencies in Australia and New Zealand. Second Half 2018 continued to benefit from
improved conditions in the dairy sector, with lower stressed assets and an associated reduction in provisions;
and

- The provisioning overlay was reduced $34 million in Second Half 2018 compared to an increase of $12
million in First Half 2018. The reduction in Second Half 2018 was mostly due to provisions utilised or no
longer required for New Zealand dairy and the Australian automotive industry.

Full Year 2018 – Full Year 2017

Impairment charges for Full Year 2018 of $710 million are equivalent to 10 basis points of average loans and were
down $143 million when compared to Full Year 2017.

Key movements included:

 Total new IAPs less write-backs and recoveries were $112 million lower than Full Year 2017. This was due to
lower new IAPs (down $239 million) partially offset by lower write-backs. The reduction in new IAPs was due to
a small number of large impairments in WIB in Full Year 2017 while in 2018 no new large impaired loans
(greater than $50 million) emerged during the year. New IAP’s in Business Bank were also lower. This was
partially offset by higher new IAPs in New Zealand; and

2018 Full Year financial results
Review of Group operations

32 | Westpac Group 2018 Full Year Financial Results Announcement

 Total new CAPs were $31 million lower due to a $110 million reduction in write-offs partially offset by a $79
million fall in the benefit from other changes in CAPs. Write-offs were lower, principally in Consumer Bank from
the credit card portfolio and in Business Bank related to the auto finance and commercial portfolios. The
overlay was $22 million lower over Full Year 2018 compared to a $66 million reduction in Full Year 2017.

2.2.10 Income tax expense

Second Half 2018 – First Half 2018

The effective tax rate of 31.3% in Second Half 2018 was higher than the 30.3% recorded in First Half 2018. The
increase was largely due to the non-deductibility of certain expenses, including penalties and the write-off of
Hastings goodwill associated with the exit of that business.

Full Year 2018 – Full Year 2017

The effective tax rate of 30.8% in Full Year 2018 is higher than the 30.4% recorded in Full Year 2017. The
increase was largely due to the non-deductibility of certain expenses, including penalties and the write-off of
Hastings goodwill associated with the exit of that business.

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 Full Year financial results
Review of Group operations

Westpac Group 2018 Full Year Financial Results Announcement | 33

2.3 Credit quality

Credit quality remained sound over the year with total stressed exposures to TCE increasing modestly and
remaining low relative to historical experience. Stressed exposures to TCE were 1.08%, 3 basis points higher than
30 September 2017 and 1 basis point lower compared to 31 March 2018 (see 2.3.1 Credit quality key metrics).

The 3 basis points rise in stressed assets relates to 90 days past due and not impaired facilities which increased
by 5 basis points over the year, partially offset by a 1 basis point reduction in both impaired and in watchlist and
substandard 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.

Provisioning levels at 30 September 2018 of $3,053 million were $66 million lower compared to 30 September
2017, due mainly to a decrease in IAPs from the workout of impaired facilities. The ratio of gross impaired asset
provisions to gross impaired assets remains high at 46.1%, while the ratio of collectively assessed provisions to
credit risk weighted assets was lower at 73 basis points.

Portfolio segments

The institutional segment continued to perform well – this has been reflected in no new large (greater than
$50 million) facilities migrating to impaired over the last 18 months. With little growth in new stressed facilities, the
overall level of stressed assets has reduced as the Group continued to work-out existing stressed assets through
refinance or repayment.

The tightening of standards on new commercial property lending over recent years has continued to contribute to
relatively low levels of stress. At 30 September 2018 the level of stressed assets to TCE was 1.7% and remains
well below long term averages. Over the year, stress has increased modestly (up from 1.3%) with the rise due
predominantly to a small number of medium sized apartment developments becoming stressed.

The small and medium business portfolio has seen stress emerge in a small number of companies in Second Half
2018. Over recent years, new stress has typically been concentrated in Western Australia (WA) and Queensland
(Qld), consistent with the more challenging conditions in those states. In 2018, new stress in these markets has
abated and new stressed assets have tended to originate in South Australia (SA), Victoria (Vic) and New South
Wales (NSW). Over the year, there has been little stress emerge in the agriculture portfolio from drought
conditions evident in NSW and Qld. New stress has been more prevalent in the retail trade and health sectors.

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.

The credit quality of the mortgage portfolio remains sound with Australian mortgage 90+ day delinquencies 5 basis
points higher over the twelve months to 30 September 2018 to end the year at 0.72%. The rise in delinquencies
has been more broadly spread across the country. This year NSW delinquencies have risen from a low base and
while they remain below the portfolio average, given NSW accounts for a large portion of the Group’s portfolio it
had the largest influence on overall delinquencies.

Australian properties in possession decreased over Full Year 2018 by 41 to 396 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 for the Group were $89 million for Full Year 2018, equivalent to 2 basis points.

Consumer unsecured delinquencies were higher over Full Year 2018. Total Group other consumer 90+ day
delinquencies were 1.64%, up 7 basis points since 30 September 2017 and were unchanged compared to
31 March 2018.

New Zealand mortgage 90+ day delinquencies decreased 1 basis point from 30 September 2018 to 0.11% and
improved 5 basis points in Second Half 2018 in line with seasonal trends. Delinquencies 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 higher at 0.62%. Other consumer 90+ day delinquencies increased
5 basis points since 30 September 2017 and were 24 basis points lower than 31 March 2018.

Provisioning

Westpac has maintained adequate provisioning coverage:

 The ratio of gross impaired asset provisions to gross impaired assets remain high at 46.1% (46.3% at
30 September 2017); and

 The ratio of collectively assessed provisions to credit risk weighted assets was 73 basis points with the ratio
down 2 basis points compared to 30 September 2017. Most of the decline is due to higher risk weighted
assets, mostly from mortgage RWA modelling changes.