Westpac 2019 Full Year Financial Results Announcement
2019
Full Year
Financial
Results
Westpac Banking Corporation
ABN 33 007 457 141
Incorporating the
requirements of Appendix 4E
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it matters.
Results announcement to the market
ii | Westpac Group 2019 Full Year Financial Results Announcement
ASX Appendix 4E
Results for announcement to the market
1
Report for the full year ended 30 September 2019
2
Revenue from ordinary activities
3,4
($m)
down 6% to $20,649
Profit from ordinary activities after tax attributable to equity holders
4
($m)
down 16% to $6,784
Net profit for the period attributable to equity holders
4
($m)
down 16% to $6,784
Dividend Distributions (cents per ordinary share)
Amount
per security
Franked amount
per security
Final Dividend 80 80
Interim Dividend 94 94
Record date for determining entitlements to the dividend
13 November 2019 (Sydney)
12 November 2019 (New York)
1
This document comprises the Westpac Group 2019 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 2019 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 2018.
Results announcement to the market
Westpac Group 2019 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
4
5
10
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
11
15
23
38
41
47
54
03 Divisional results
3.1 Consumer
3.2 Business
3.3 Westpac Institutional Bank
3.4 Westpac New Zealand
3.5 Group Businesses
62
63
67
70
72
74
04 2019 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
77
78
88
89
90
91
93
94
127
05 Cash earnings financial information 128
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
141
141
142
142
142
142
143
148
07 Glossary 151
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 4 November 2019
Ex-dividend date for final dividend 12 November 2019
Record date for final dividend (Sydney) 13 November 2019
Annual General Meeting 12 December 2019
Final dividend payable 20 December 2019
2019 Full Year financial results
Group results
2 | Westpac Group 2019 Full Year Financial Results Announcement
1.0 Group results
1.1 Reported results
1
Reported net profit attributable to owners of Westpac Banking Corporation is prepared in accordance with the
requirements of the Australian Accounting Standards (AAS) and regulations applicable to Australian Authorised
Deposit-taking Institutions (ADIs). During Full Year 2019, Westpac adopted AASB 9 Financial Instruments (AASB
9) and AASB 15 Revenue from Contracts with Customers (AASB 15). As the Group applied the standards
prospectively, comparatives have not been restated.
Adopting the new standards has resulted in measurement and classification differences between Full Year 2019
and prior periods. The significant differences are:
the measurement of credit loss provisions and impairment charges are now on an expected loss basis;
line fees (mainly in Business) are now recognised in net interest income, previously most was recognised in net
fee income;
interest on performing loans is now measured on the gross loan value. Previously, interest was recognised on
the loan balance net of impairment provision; and
certain items previously netted are now presented on a gross basis, including payments from credit card schemes
which were previously netted against related expenditure.
The changes have little impact on net profit but have a more significant impact on individual line items. As these
changes have only been applied from 1 October 2018, it is difficult to compare some line items across periods.
These changes are discussed further in the 2019 Interim Financial Report and Section 3, Note 1 of the 2019 Annual
Report.
% Mov't
2
% Mov't
2
Half Year Half Year Sept 19 - Full Year Full Year Sept 19 -
$m Sept 19 March 19 Mar 19 Sept 19 Sept 18 Sept 18
Net interest income
8,644 8,263 5 16,907 16,505 2
Net fee income
829 826 - 1,655 2,424 (32)
Net wealth management and insurance income
703 326 116 1,029 2,061 (50)
Trading income
492 437 13 929 945 (2)
Other income
2 127 (98) 129 72 79
Net operating income before operating expenses
and impairment charges
10,670 9,979 7 20,649 22,007 (6)
Operating expenses
(5,015) (5,091) (1) (10,106) (9,566) 6
Net profit before impairment charges
and income tax expense
5,655 4,888 16 10,543 12,441 (15)
Impairment charges
(461) (333) 38 (794) (710) 12
Profit before income tax
5,194 4,555 14 9,749 11,731 (17)
Income tax expense
(1,580) (1,379) 15 (2,959) (3,632) (19)
Net profit for the period
3,614 3,176 14 6,790 8,099 (16)
Net profit attributable to non-controlling interests
(3) (3) - (6) (4) 50
Net profit attributable to owners of Westpac
Banking Corporation
3,611 3,173 14 6,784 8,095 (16)
Net profit attributable to owners of Westpac Banking Corporation for Full Year 2019 was $6,784 million, a decrease
of $1,311 million or 16% compared to Full Year 2018. Full Year 2019 included significant increases in provisions for
estimated customer refunds, payments, associated costs, and litigation, along with costs associated with
restructuring of the wealth business, which together reduced net profit after tax by $1,130 million. These items are
discussed further in Section 1.3.2 and Section 2.1 and Note 14 in Section 4.7. A summary of the impact of provisions
for estimated customer refunds, payments, associated costs, and litigation and wealth restructuring costs split across
income statement line items is set out in Section 1.3.2.
1
The Group has adopted AASB 9 Financial Instruments and AASB 15 Revenue from Contracts with Customers from 1 October 2018.
Statutory comparatives have not been restated. Refer to Note 1 in the 2019 Interim Financial Results and Note 1 in Section 3 of the
2019 Annual Report for further detail. However, where applicable, cash earnings comparatives (excluding expected credit loss
provisioning) have been restated to aid comparability. Refer to the cash earnings policy in Section 1.3.4 for further detail. In addition,
during Full Year 2019, the Group has made a number of presentational changes to the Balance Sheet and Income Statement, both
statutory and cash earnings comparatives have been restated. Refer to Note 1 in the 2019 Interim Financial Results and Note 1 in
Section 3 of the 2019 Annual Report for further detail.
2
Percentage movement represents an increase/(decrease) to the relevant comparative period.
2019 Full Year financial results
Group results
Westpac Group 2019 Full Year Financial Results Announcement | 3
Net interest income increased $402 million or 2% compared to Full Year 2018 driven by an increase of $686 million
due to the reclassification of line fees from net fee income to interest income, partly offset by $239 million increase
in provisions for estimated customer refunds, payments, associated costs, and litigation. Excluding the impact of
these items, net interest income was flat compared to 2018. Average interest earning assets grew 3% primarily from
Australian and New Zealand housing, broadly offset by a lower margin. Reported net interest margin decreased
1 basis point to 2.12%.
Net interest income, loans, deposits and other borrowings and net interest margins are discussed further in Sections
2.2.1 to 2.2.4
Net fee income decreased $769 million or 32% compared to Full Year 2018 primarily due to reclassification of line
fees to net interest income ($667 million in 2018) and $126 million increase in provisions for estimated customer
refunds, payments, associated costs, and litigation.
Net wealth management and insurance income decreased $1,032 million or 50% compared to Full Year 2018
primarily due to additional provisions for estimated customer refunds, payments, associated costs, and litigation of
$531 million, higher general insurance claims from severe weather events, cessation of grandfathered advice
commissions $42 million, lower wealth management income due to changes in platform pricing structures, and exit
of the Hastings business in Full Year 2018.
Trading income decreased $16 million or 2% compared to Full Year 2018. The decline mainly relates to a change
in methodology in derivative valuation adjustments partially offset by higher non-customer income.
Other income is up $57 million or 79% compared to Full Year 2018, primarily due to the non-repeat of a 2018
impairment charge on an equity holding of $104 million;
Net fee income, net wealth management and insurance income, trading income and other income are discussed
further in Section 2.2.5.
Operating expenses increased $540 million or 6% compared to Full Year 2018. The increase was mainly due to a
$349 million increase in provisions for estimated customer refunds, payments, associated costs, and litigation, higher
technology expenses of $174 million, a rise in regulatory, compliance and investment related spend of
$171 million, partially offset by the exit of the Hastings business in 2018 of $158 million and a net productivity benefit.
Operating expenses are discussed further in Section 2.2.8.
Impairment charges were $84 million or 12% higher compared to Full Year 2018. Asset quality remained sound,
with stressed exposures as a percentage of total committed exposures at 1.20%, up 12 basis points over the year.
Impairment charges are discussed further in Section 2.2.9.
The effective tax rate of 30.4% in 2019 was lower than the 2018 effective tax rate of 31.0%. The lower effective tax
rate in 2019 reflects a decrease in non-deductible expenses from the non-repeat of the 2018 goodwill write-off
associated with the exit of Hastings. Income tax expense is discussed further in Section 2.2.10.
2019 Full Year financial results
Group results
4 | Westpac Group 2019 Full Year Financial Results Announcement
1.2 Key financial information
1
% Mov't % Mov't
Half Year Half Year Sept 19 - Full Year Full Year Sept 19 -
Sept 19 March 19 Mar 19 Sept 19 Sept 18 Sept 18
Shareholder value
Earnings per ordinary share (cents)
104.1 92.3 13 196.5 237.5 (17)
Weighted average ordinary shares (millions)
2
3,464 3,436 1 3,450 3,406 1
Fully franked dividends per ordinary share (cents)
80 94 (15) 174 188 (7)
Dividend payout ratio
77.26% 102.00% large 88.83% 79.52% large
Return on average ordinary equity
11.24% 10.05% 119bps 10.65% 13.05% (240bps)
Average ordinary equity ($m)
64,078 63,348 1 63,714 62,017 3
Average total equity ($m)
64,126 63,400 1 63,764 62,048 3
Net tangible asset per ordinary share ($)
15.36 15.12 2 15.36 15.39 -
Business performance
Interest spread
1.99% 1.89% 10bps 1.94% 1.95% (1bps)
Benefit of net non-interest bearing assets,
liabilities and equity
0.16% 0.20% (4bps) 0.18% 0.18% -
Net interest margin
2.15% 2.09% 6bps 2.12% 2.13% (1bps)
Average interest-earning assets ($m)
803,165 794,660 1 798,924 774,944 3
Expense to income ratio
47.00% 51.02% large 48.94% 43.47% large
Capital, funding and liquidity
Common equity Tier 1 capital ratio
- APRA Basel III
10.67% 10.64% 3bps 10.67% 10.63% 4bps
- Internationally comparable
3
15.85% 16.17% (32bps) 15.85% 16.14% (29bps)
Credit risk weighted assets (credit RWA) ($m)
367,864 362,762 1 367,864 362,749 1
Total risk weighted assets (RWA) ($m)
428,794 419,819 2 428,794 425,384 1
Liquidity coverage ratio (LCR)
127% 138% large 127% 133% large
Net stable funding ratio (NSFR)
112% 113% (146bps) 112% 114% (200bps)
Asset quality
Gross impaired exposure to gross loans
0.25% 0.24% 1bps 0.25% 0.20% 5bps
Gross impaired exposure to equity and total provisions
2.54% 2.57% (3bps) 2.54% 2.09% 45bps
Gross impaired exposure provisions to
gross impaired exposure
44.92% 45.74% (82bps) 44.92% 46.12% (120bps)
Total committed exposures (TCE) ($bn)
1,050 1,047 - 1,050 1,038 1
Total stressed exposures as a % of TCE
1.20% 1.10% 10bps 1.20% 1.08% 12bps
Total provisions to gross loans
54bps 56bps (2bps) 54bps 43bps 11bps
Mortgages 90+ day delinquencies
0.82% 0.75% 7bps 0.82% 0.67% 15bps
Other consumer loans 90+ day delinquencies
1.69% 1.80% (11bps) 1.69% 1.64% 5bps
Collectively assessed provisions to credit RWA
95bps 98bps (3bps) 95bps 73bps 22bps
Balance sheet ($m)
4
Loans
714,770 714,297 - 714,770 709,690 1
Total assets
906,626 891,062 2 906,626 879,592 3
Deposits and other borrowings
563,247 555,007 1 563,247 559,285 1
Total liabilities
841,119 827,127 2 841,119 815,019 3
Total equity
65,507 63,935 2 65,507 64,573 1
Wealth Management ($bn)
Average Group funds ($bn)
5
221.8 207.3 7 214.6 217.3 (1)
Life insurance in-force premiums (Australia) ($m)
1,212 1,259 (4) 1,212 1,277 (5)
General insurance gross written premiums
(Australia) ($m)
279 259 8 538 503 7
1
The Group has adopted AASB 9 Financial Instruments and AASB 15 Revenue from Contracts with Customers from 1 October 2018.
Statutory comparatives have not been restated. Refer to Note 1 in the 2019 Interim Financial Results and Note 1 in Section 3 of the
2019 Annual Report for further detail. However, where applicable, cash earnings comparatives (excluding expected credit loss
provisioning) have been restated to aid comparability. Refer to the cash earnings policy in Section 1.3.4 for further detail. In addition,
during Full Year 2019, the Group has made a number of presentational changes to the Balance Sheet and Income Statement, both
statutory and cash earnings comparatives have been restated. Refer to Note 1 in the 2019 Interim Financial Results and Note 1 in
Section 3 of the 2019 Annual Report for further detail.
2
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”).
3
Refer to Glossary for the definition.
4
Spot balances.
5
Averages are based on six months for the halves and twelve months for the full year.
2019 Full Year financial results
Group results
Westpac Group 2019 Full Year Financial Results Announcement | 5
1.3 Cash earnings results
1
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.
Section 1.3.4 describes cash earnings in detail including cash earnings adjustments and revisions to comparative
data for accounting standard and presentation changes.
Certain commentary throughout this Results Announcement refers to performance excluding ‘notable items’. Details
on notable items are discussed in Section 1.3.2.
% Mov't
% Mov't
Half Year
Half Year
Sept 19 -
Full Year
Full Year
Sept 19 -
$m Sept 19
March 19
Mar 19
Sept 19
Sept 18
Sept 18
Net interest income
8,564
8,389
2
16,953
17,187
(1)
Non-interest income
1,988
1,714
16
3,702
4,978
(26)
Net operating income
10,552
10,103
4
20,655
22,165
(7)
Operating expenses
(4,990)
(5,041)
(1)
(10,031)
(9,698)
3
Core earnings
5,562
5,062
10
10,624
12,467
(15)
Impairment charges
(461)
(333)
38
(794)
(812)
(2)
Operating profit before income tax
5,101
4,729
8
9,830
11,655
(16)
Income tax expense
(1,545)
(1,430)
8
(2,975)
(3,586)
(17)
Net profit
3,556
3,299
8
6,855
8,069
(15)
Net profit attributable to non-controlling interests
(3)
(3)
-
(6)
(4)
50
Cash earnings
3,553
3,296
8
6,849
8,065
(15)
Add back notable items
377
753
(50)
1,130
281
large
Cash earnings excluding notable items
3,930
4,049
(3)
7,979
8,346
(4)
1
The Group has adopted AASB 9 Financial Instruments and AASB 15 Revenue from Contracts with Customers from 1 October 2018.
Statutory comparatives have not been restated. Refer to Note 1 in the 2019 Interim Financial Results and Note 1 in Section 3 of the
2019 Annual Report for further detail. However, where applicable, cash earnings comparatives (excluding expected credit loss
provisioning) have been restated to aid comparability. Refer to the cash earnings policy in Section 1.3.4 for further detail. In addition,
during Full Year 2019, the Group has made a number of presentational changes to the Balance Sheet and Income Statement, both
statutory and cash earnings comparatives have been restated. Refer to Note 1 in the 2019 Interim Financial Results and Note 1 in
Section 3 of the 2019 Annual Report for further detail.
2019 Full Year financial results
Group results
6 | Westpac Group 2019 Full Year Financial Results Announcement
1.3.1 Key financial information – cash earnings basis
1
% Mov't % Mov't
Half Year Half Year Sept 19 - Full Year Full Year Sept 19 -
$m Sept 19 March 19 Mar 19 Sept 19 Sept 18 Sept 18
Shareholder value
Cash earnings per ordinary share (cents)
102.4 95.8 7 198.2 236.2 (16)
Economic profit ($m)
2
959 660 45 1,619 3,444 (53)
Weighted average ordinary shares (millions)
3
3,470 3,442 1 3,456 3,414 1
Dividend payout ratio
78.58% 98.33% large 88.09% 79.94% large
Cash earnings on average ordinary equity (ROE)
11.06% 10.43% 63bps 10.75% 13.00% (225bps)
Cash earnings on average tangible
ordinary equity (ROTE)
13.01% 12.30% 71bps 12.66% 15.41% (275bps)
Average ordinary equity ($m)
64,078 63,348 1 63,714 62,017 3
Average tangible ordinary equity ($m)
4
54,478 53,748 1 54,114 52,338 3
Business performance
Interest spread
1.96% 1.92% 4bps 1.94% 2.04% (10bps)
Benefit of net non-interest bearing assets,
liabilities and equity
0.17% 0.20% (3bps) 0.18% 0.18% -
Net interest margin
2.13% 2.12% 1bps 2.12% 2.22% (10bps)
Average interest-earning assets ($m)
803,165 794,660 1 798,924 774,944 3
Expense to income ratio
47.29% 49.90% (261bps) 48.56% 43.75% large
Full time equivalent employees (FTE)
33,288 34,241 (3) 33,288 35,029 (5)
Revenue per FTE ($ '000's)
314 294 7 608 626 (3)
Effective tax rate
30.29% 30.24% 5bps 30.26% 30.77% (51bps)
Impairment charges
Impairment charges to average loans annualised
13bps 9bps 4bps 11bps 12bps (1bps)
Net write-offs to average loans annualised
15bps 12bps 3bps 14bps 14bps -
1
The Group has adopted AASB 9 Financial Instruments and AASB 15 Revenue from Contracts with Customers from 1 October 2018.
Statutory comparatives have not been restated. Refer to Note 1 in the 2019 Interim Financial Results and Note 1 in Section 3 of the
2019 Annual Report for further detail. However, where applicable, cash earnings comparatives (excluding expected credit loss
provisioning) have been restated to aid comparability. Refer to the cash earnings policy in Section 1.3.4 for further detail. In addition,
during Full Year 2019, the Group has made a number of presentational changes to the Balance Sheet and Income Statement, both
statutory and cash earnings comparatives have been restated. Refer to Note 1 in the 2019 Interim Financial Results and Note 1 in
Section 3 of the 2019 Annual Report for further detail.
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
Average tangible ordinary equity is calculated as average ordinary equity less goodwill and other intangible assets (excluding capitalised
software).
2019 Full Year financial results
Group results
Westpac Group 2019 Full Year Financial Results Announcement | 7
1.3.2 Impact of notable items
The table below summarises the impact of notable items for each period of the Full Year 2019 financial results.
Individual line items were impacted by:
Estimated customer refunds, payments, associated costs, and litigation of $958 million (after tax); and
Costs associated with restructuring of the Wealth business of $172 million (after tax).
These costs are referred to as ‘notable items’ through the document.
Full Year Full Year
Sept 19 Sept 18
Estimated Estimated
customer customer
refunds, refunds,
associated associated
costs, and Wealth costs, and Wealth
$m litigation restructuring Total litigation restructuring Total
Net interest income
(344) - (344) (105) - (105)
Net fee income
(283) - (283) (157) - (157)
Net wealth management and insurance income
(537) - (537) (6) - (6)
Non-interest income
(820) - (820) (163) - (163)
Net operating income
(1,164) - (1,164) (268) - (268)
Staff expenses
(99) (169) (268) (37) - (37)
Technology expenses
(11) (24) (35) - - -
Other expenses
(110) (48) (158) (75) - (75)
Operating expenses
(220) (241) (461) (112) - (112)
Operating profit before tax
(1,384) (241) (1,625) (380) - (380)
Income tax expense
426 69 495 99 - 99
Cash earnings
(958) (172) (1,130) (281) - (281)
Half Year Half Year
Sept 19 March 19
Estimated Estimated
customer customer
refunds, refunds,
associated associated
costs, and Wealth costs, and Wealth
$m litigation restructuring Total litigation restructuring Total
Net interest income
(132) - (132) (212) - (212)
Net fee income
(118) - (118) (165) - (165)
Net wealth management and insurance income
(102) - (102) (435) - (435)
Non-interest income
(220) - (220) (600) - (600)
Net operating income
(352) - (352) (812) - (812)
Staff expenses
(33) (27) (60) (66) (142) (208)
Technology expenses
(2) (13) (15) (9) (11) (20)
Other expenses
(101) (11) (112) (9) (37) (46)
Operating expenses
(136) (51) (187) (84) (190) (274)
Operating profit before tax
(488) (51) (539) (896) (190) (1,086)
Income tax expense
147 15 162 279 54 333
Cash earnings
(341) (36) (377) (617) (136) (753)
1.3.3 Key financial information – cash earnings basis excluding the impact of notable items
% Mov't % Mov't
Half Year Half Year Sept 19 - Full Year Full Year Sept 19 -
Sept 19 March 19 Mar 19 Sept 19 Sept 18 Sept 18
Cash earnings per ordinary share (cents)
1
113.3 117.6 (4) 230.9 244.5 (6)
Cash earnings on average ordinary equity (ROE)
1
12.23% 12.82% (59bps) 12.52% 13.46% (94bps)
Net interest margin
1
2.16% 2.17% (1bps) 2.16% 2.23% (7bps)
Expense to income ratio
1
44.05% 43.67% 38bps 43.86% 42.73% 113bps
1
Calculated using cash earnings adjusted for the impact of notable items.
2019 Full Year financial results
Group results
8 | Westpac Group 2019 Full Year Financial Results Announcement
1.3.4 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 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 the Group’s operating
performance;
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 and cash earnings excluding notable items.
% Mov't % Mov't
Half Year Half Year Sept 19 - Full Year Full Year Sept 19 -
$m Sept 19 March 19 Mar 19 Sept 19 Sept 18 Sept 18
NET PROFIT ATTRIBUTABLE TO OWNERS OF
WESTPAC BANKING CORPORATION
3,611 3,173 14 6,784 8,095 (16)
Amortisation of intangible assets
- - - - 17 (100)
Fair value (gain)/loss on economic hedges
(90) 125 large 35 (126) large
Ineffective hedges
(15) (5) 200 (20) 13 large
Adjustments related to Pendal (previously BTIM)
40 5 large 45 73 (38)
Treasury shares
7 (2) large 5 (7) large
Total cash earnings adjustments (post-tax)
(58) 123 large 65 (30) large
Cash earnings
3,553 3,296 8 6,849 8,065 (15)
Add back notable items
377 753 (50) 1,130 281 large
Cash earnings excluding notable items
3,930 4,049 (3) 7,979 8,346 (4)
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;
2019 Full Year financial results
Group results
Westpac Group 2019 Full Year Financial Results Announcement | 9
Adjustments related to Westpac’s shareholding in Pendal (previously BTIM): Consistent with prior periods’
treatment, this item has been treated as a cash earnings adjustment given its size and that it does not reflect
ongoing operations. The Group has indicated that it may sell the remaining 10% shareholding in Pendal at some
future date. From September 2018, this adjustment relates to the mark to market of the shares held and
separation costs related to the original sell down. 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.
For Westpac, AASB 9 and AASB 15 were adopted on 1 October 2018 and as comparatives were not restated,
line item movements in our reported results are not directly comparable across periods. In order to provide the
operational trends in the business, 2018 cash earnings comparatives have been restated as if the standards
were applied from 1 October 2017, except for expected credit loss provisioning which is not feasible. These
adjustments do not impact Full Year 2018 cash earnings but affect individual line items. These adjustments are
detailed in Note 8 in Section 5. These adjustments include:
- Line fees: The Group has reclassified line fees (mostly in the Business division) from non-interest income to
net interest income to more appropriately reflect the relationship with drawn lines of credit;
- Card scheme: Support payments received from Mastercard and Visa have been reclassified to non-interest
income and related expenses have been reclassified to operating expenses;
- Interest carrying adjustment: Interest on performing loans (stage 1 and stage 2 loans) is now measured on the
gross loan value. Previously, interest on performing loans was recognised on the loan balance net of provisions.
This adjustment increases interest income and impairment charges.
- Other fees and expenses: The Group has restated the classification of a number of fees and expenses. This
has resulted in the grossing up of net interest income, non-interest income, impairment charges and operating
expenses; and
- Merchant terminal costs: Some variable costs related to Westpac’s merchant terminal business have been
reclassified between non-interest income and operating expenses.
The guidance provided in Australian Securities and Investments Commission (ASIC) Regulatory Guide 230 has
been followed when presenting this information.
This Results Announcement is unaudited
PricewaterhouseCoopers have audited the financial statements contained within the 2019 Westpac Group Annual
Report and have issued an unmodified audit report. This 2019 Full Year Results Announcement has not been subject
to audit by PricewaterhouseCoopers. The financial information contained in this Results Announcement includes
information extracted from the audited financial statements together with information that has not been audited. The
cash earnings disclosed as part of this Results Announcement have not been separately audited by
PricewaterhouseCoopers.
2019 Full Year financial results
Group results
10 | Westpac Group 2019 Full Year Financial Results Announcement
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
2019 2019 2018 2018
Australia
Banking system (APRA)
1
Housing credit
2
24% 24% 24% 25%
Cards
23% 23% 23% 23%
Household deposits
22% 23% 23% 23%
Business deposits
20% 20% 20% 20%
Financial system (RBA)
1,3
Housing credit
2
23% 23% 23% 23%
Business credit
17% 18% 19% 19%
Retail deposits
4
22% 21% 22% 21%
New Zealand (RBNZ)
5,6
Consumer lending
18% 18% 19% 19%
Deposits
18% 19% 18% 19%
Business lending
16% 17% 16% 16%
Australian Wealth Management
7
Platforms (includes Wrap and Corporate Super)
18% 18% 19% 18%
Retail (excludes Cash)
17% 17% 18% 18%
Corporate Super
14% 13% 13% 13%
1.4.2 System multiples
Half YearHalf Year Half Year Half Year
Sept 19March 19 Sept 18 March 18
Australia
Banking system (APRA)
1
Housing credit
2
0.6 0.5 0.9 1.0
Cards
8
n/a n/a n/a n/a
Household deposits
0.6 0.1 1.1 0.8
Business deposits
2.6 0.1 n/a 0.9
Financial system (RBA)
1,3
Housing credit
2
0.6 0.5 0.8 0.9
Business credit
8
n/a n/a 0.6 0.9
Retail deposits
4,8
0.7 n/a 1.3 0.6
New Zealand (RBNZ)
5,6
Consumer lending
1.1 0.4 0.6 0.7
Deposits
0.2 1.4 0.1 1.2
1
From March 2019 certain statistical data has been restated as a result of APRA’s implementation of new Economic and Financial
Statistics (EFS) collection requirements. APRA’s EFS collection requirements have clarified and revised a number of key reporting
definitions including residency, industry sectors, and loan purpose. In addition, the EFS collection coverage has been expanded to
include credit unions and building societies. The restated balances are reported in APRA’s new Monthly Authorised Deposit-taking
Institutions Statistics (MADIS) publication, which replaces APRA’s Monthly Banking Statistics (MBS) publication. Westpac’s market
share and growth multiples for the six months to September 2019 have been calculated based on APRA’s new MADIS publication, with
prior period comparative balances prepared on the previous MBS publication approach. As a result of this change, market share and
system multiples are not comparable to previous reporting periods.
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 Australian Wealth Management based on market share statistics from Strategic Insight at 30 June 2019 (for Full Year
2019), at 31 December 2018 (for First Half 2019), at 30 June 2018 (for Full Year 2018) and at 31 December 2017 (for First Half 2018).
8
n/a indicates that system growth or Westpac growth was negative.
2019 Full Year financial results
Review of Group operations
Westpac Group 2019 Full Year Financial Results Announcement | 11
2.0 Review of Group operations
Divisional cash earnings summary
1
Half Year Sept 19 WestpacWestpac
InstitutionalNew Zealand
2
Group
$m ConsumerBusinessBank(A$) Businesses
Group
Net interest income 4,059 2,573 700 915 317
8,564
Non-interest income 585 720 610 189 (116)
1,988
Net operating income 4,644 3,293 1,310 1,104 201
10,552
Operating expenses (1,931)(1,430)(631)(486) (512)
(4,990)
Core earnings 2,713 1,863 679 618 (311)
5,562
Impairment (charges) / benefits (313)(198)(31)24 57
(461)
Operating profit before income tax 2,400 1,665 648 642 (254)
5,101
Income tax expense (719)(501)(176)(181) 32
(1,545)
Net profit 1,681 1,164 472 461 (222)
3,556
Non-controlling interests - - (2)- (1)
(3)
Cash earnings 1,681 1,164 470 461 (223)
3,553
Add back notable items 31 119 - 23 204
377
Cash earnings excluding notable items 1,712 1,283 470 484 (19)
3,930
Half Year March 19 WestpacWestpac
InstitutionalNew Zealand
2
Group
$m ConsumerBusinessBank(A$) Businesses
Group
Net interest income 3,883 2,519 743 945 299
8,389
Non-interest income 556 744 682 234 (502)
1,714
Net operating income 4,439 3,263 1,425 1,179 (203)
10,103
Operating expenses (1,886)(1,375)(653)(453) (674)
(5,041)
Core earnings 2,553 1,888 772 726 (877)
5,062
Impairment (charges) / benefits (268)(74)(15)(14) 38
(333)
Operating profit before income tax 2,285 1,814 757 712 (839)
4,729
Income tax expense (678)(547)(210)(188) 193
(1,430)
Net profit 1,607 1,267 547 524 (646)
3,299
Non-controlling interests - - (3)- -
(3)
Cash earnings 1,607 1,267 544 524 (646)
3,296
Add back notable items 2 151 - - 600
753
Cash earnings excluding notable items 1,609 1,418 544 524 (46)
4,049
Mov't Sept 19 - Mar 19 WestpacWestpac
InstitutionalNew Zealand
2
Group
% ConsumerBusinessBank(A$) Businesses
Group
Net interest income 5% 2% (6%)(3%) 6%
2%
Non-interest income 5% (3%)(11%)(19%) (77%)
16%
Net operating income 5% 1% (8%)(6%) large
4%
Operating expenses 2% 4% (3%)7% (24%)
(1%)
Core earnings 6% (1%)(12%)(15%) (65%)
10%
Impairment (charges) / benefits 17% 168% 107% large 50%
38%
Operating profit before income tax 5% (8%)(14%)(10%) (70%)
8%
Income tax expense 6% (8%)(16%)(4%) (83%)
8%
Net profit 5% (8%)(14%)(12%) (66%)
8%
Non-controlling interests - - (33%)- -
-
Cash earnings 5% (8%)(14%)(12%) (65%)
8%
Add back notable items large(21%)- - (66%)
large
(50%)
Cash earnings excluding notable items 6% (10%)(14%)(8%) (59%)
(3%)
1
The Group has adopted AASB 9 Financial Instruments and AASB 15 Revenue from Contracts with Customers from 1 October 2018.
Statutory comparatives have not been restated. Refer to Note 1 in the 2019 Interim Financial Results and Note 1 in Section 3 of the
2019 Annual Report for further detail. However, where applicable, cash earnings comparatives (excluding expected credit loss
provisioning) have been restated to aid comparability. Refer to the cash earnings policy in Section 1.3.4 for further detail. In addition,
during Full Year 2019, the Group has made a number of presentational changes to the Balance Sheet and Income Statement, both
statutory and cash earnings comparatives have been restated. Refer to Note 1 in the 2019 Interim Financial Results and Note 1 in
Section 3 of the 2019 Annual Report for further detail.
2
Refer to Section 3.4 for the Westpac New Zealand NZ$ divisional result.
2019 Full Year financial results
Review of Group operations
12 | Westpac Group 2019 Full Year Financial Results Announcement
Movement in cash earnings ($m)
Second Half 2019 – First Half 2019
Movement in core earnings by division ($m)
Second Half 2019 – First Half 2019
2019 Full Year financial results
Review of Group operations
Westpac Group 2019 Full Year Financial Results Announcement | 13
Divisional cash earnings summary
1
(continued)
Full Year Sept 19 WestpacWestpac
Institutional New Zealand
2
Group
$m ConsumerBusinessBank(A$)Businesses
Group
Net interest income 7,942 5,092 1,443 1,860 616
16,953
Non-interest income 1,141 1,464 1,292 423 (618)
3,702
Net operating income 9,083 6,556 2,735 2,283 (2)
20,655
Operating expenses (3,817)(2,805)(1,284)(939)(1,186)
(10,031)
Core earnings 5,266 3,751 1,451 1,344 (1,188)
10,624
Impairment (charges) / benefits (581)(272)(46)10 95
(794)
Operating profit before income tax 4,685 3,479 1,405 1,354 (1,093)
9,830
Income tax expense (1,397)(1,048)(386)(369)225
(2,975)
Net profit 3,288 2,431 1,019 985 (868)
6,855
Non-controlling interests - - (5)- (1)
(6)
Cash earnings 3,288 2,431 1,014 985 (869)
6,849
Add back notable items 33 270 - 23 804
1,130
Cash earnings excluding notable items 3,321 2,701 1,014 1,008 (65)
7,979
Full Year Sept 18 WestpacWestpac
Institutional New Zealand
2
Group
$m ConsumerBusinessBank(A$)Businesses
Group
Net interest income 7,850 5,284 1,442 1,799 812
17,187
Non-interest income 1,311 1,640 1,565 373 89
4,978
Net operating income 9,161 6,924 3,007 2,172 901
22,165
Operating expenses (3,774)(2,651)(1,449)(855)(969)
(9,698)
Core earnings 5,387 4,273 1,558 1,317 (68)
12,467
Impairment (charges) / benefits (486)(321)16 (22)1
(812)
Operating profit before income tax 4,901 3,952 1,574 1,295 (67)
11,655
Income tax expense (1,478)(1,196)(476)(361)(75)
(3,586)
Net profit 3,423 2,756 1,098 934 (142)
8,069
Non-controlling interests - - (5)- 1
(4)
Cash earnings 3,423 2,756 1,093 934 (141)
8,065
Add back notable items 114 5 - 12 150
281
Cash earnings excluding notable items 3,537 2,761 1,093 946 9
8,346
Mov't Sept 19 - Sept 18 WestpacWestpac
Institutional New Zealand
2
Group
% ConsumerBusinessBank(A$)Businesses
Group
Net interest income 1% (4%)- 3% (24%)
(1%)
Non-interest income (13%)(11%)(17%)13% large
(26%)
Net operating income (1%)(5%)(9%)5% large
(7%)
Operating expenses 1% 6% (11%)10% 22%
3%
Core earnings (2%)(12%)(7%)2% large
(15%)
Impairment (charges) / benefits 20% (15%)largelargelarge
(2%)
Operating profit before income tax (4%)(12%)(11%)5% large
(16%)
Income tax expense (5%)(12%)(19%)2% large
(17%)
Net profit (4%)(12%)(7%)5% large
(15%)
Non-controlling interests - - - - large
50%
Cash earnings (4%)(12%)(7%)5% large
(15%)
Add back notable items (71%)large- 92% large
large
Cash earnings excluding notable items (6%)(2%)(7%)7% large
(4%)
1
The Group has adopted AASB 9 Financial Instruments and AASB 15 Revenue from Contracts with Customers from 1 October 2018.
Statutory comparatives have not been restated. Refer to Note 1 in the 2019 Interim Financial Results and Note 1 in Section 3 of the
2019 Annual Report for further detail. However, where applicable, cash earnings comparatives (excluding expected credit loss
provisioning) have been restated to aid comparability. Refer to the cash earnings policy in Section 1.3.4 for further detail. In addition,
during Full Year 2019, the Group has made a number of presentational changes to the Balance Sheet and Income Statement, both
statutory and cash earnings comparatives have been restated. Refer to Note 1 in the 2019 Interim Financial Results and Note 1 in
Section 3 of the 2019 Annual Report for further detail.
2
Refer to Section 3.4 for the Westpac New Zealand NZ$ divisional result.
2019 Full Year financial results
Review of Group operations
14 | Westpac Group 2019 Full Year Financial Results Announcement
Movement in cash earnings ($m)
Full Year 2019 – Full Year 2018
Movement in core earnings by division ($m)
Full Year 2019 – Full Year 2018
2019 Full Year financial results
Review of Group operations
Westpac Group 2019 Full Year Financial Results Announcement | 15
2.1 Performance overview
Overview
Full Year 2019 has been another challenging period for financial services companies, including Westpac. In
particular, the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry
(Royal Commission), combined with self-assessments into governance, culture and accountability conducted
across the industry have brought to light examples of poor behaviour affecting customers, shortcomings in the
management of non-financial risks, and cultures that were too accepting of certain risks. These have added to the
erosion of public sentiment and trust in the financial services industry. Westpac has taken these developments
seriously and been responding to the findings of the Royal Commission's final report (released 4 February 2019)
and its own Culture Governance and Accountability Self-Assessment (CGA self-assessment). At the same time,
the Group continued to focus on identifying where we got it wrong for customers and putting things right. These
efforts aim to strengthen the Group’s focus on leadership, governance and culture, and create better outcomes for
customers and shareholders. How Westpac is responding to these developments is summarised later in this
overview.
These issues for Westpac, and the sector, have been accompanied by slowing GDP growth, continued weak
wages growth and subdued business and consumer sentiment. At the same time, interest rates have fallen to
unprecedented lows. For financial services companies, these economic conditions have contributed to more
cautious demand for lending, a deterioration in housing markets, and structural pressures on net interest margins.
While credit growth has slowed, competition has remained intense across the sector including from domestic and
international banks, and from non-banks.
Financial performance summary
With this backdrop, Westpac reported cash earnings of $6,849 million in Full Year 2019, a reduction of $1,216
million (or 15%) compared to Full Year 2018. The Group's performance was impacted by notable items of $1,130
million in Full Year 2019 (after tax) which were up $849 million over the year and accounted for the majority of the
decline in cash earnings. In Full Year 2019 notable items included provisions for estimated customer refunds and
payments, associated costs, and litigation of $958 million (after tax), and provisions for costs associated with the
reset of Westpac's wealth strategy (announced on 19 March 2019) of $172 million (after tax). Notable items in Full
Year 2018 were $281 million (after tax). These notable items are explained later in this overview and more
information is available in Section 1.3.2 and Section 4.7, Note 14.
Excluding movements in notable items, Westpac's cash earnings in Full Year 2019 were $367 million lower, down
4% compared to Full Year 2018. This decline in cash earnings was mostly due to lower net interest margins
(including from competition and a lower Treasury contribution), a reduction in wealth income (the exit of the advice
business and lower platform and superannuation margins), a decline in insurance income (mostly from higher
claims), and a $78 million negative movement in the derivative valuation adjustment. Expenses (excluding notable
items) were well managed over the year and were little changed supported by $405 million in productivity savings.
Impairment charges declined 2% over the year and remained relatively low representing 11 basis points of gross
loans.
Reviewing half on half movements, in Second Half 2019 cash earnings were $3,553 million, an 8% rise over First
Half 2019. Most of this increase was due to lower notable items. Excluding notable items, Second Half 2019 cash
earnings were 3% lower than First Half 2019 cash earnings.
Across divisions, Westpac New Zealand increased cash earnings while all other divisions saw cash earnings lower
over the year. In Full Year 2019, most notable items were in the Business and Group Businesses divisions while in
Full Year 2018, notable items were most prevalent in the Consumer and Group Businesses divisions.
Westpac's reported net profit for Full Year 2019 was $6,784 million; a $1,311 million (or 16%) decline on Full Year
2018. In addition to the other items mentioned above (notable items and other movements in cash earnings),
reported net profit was also impacted by a negative movement in the fair value gain/losses on economic hedges of
$161 million (a $35 million charge in Full Year 2019 compared to a $126 million benefit in Full Year 2018).
On the balance sheet, Westpac's common equity tier 1 ratio (CET1 ratio) was 10.67% at 30 September 2019,
customer deposits fully funded lending over the year (lifting the deposit to loan ratio by 43 basis points to 73.4%)
and liquidity ratios remained comfortably above regulatory minimums. The liquidity coverage ratio (LCR) was
127% while the net stable funding ratio was 112%.
Despite these strengths, the Group’s lower cash earnings, new operational risk capital overlays and changes in
the calculation of risk weighted assets has meant that, absent any action, Westpac would not have had a sufficient
buffer above APRA’s unquestionably strong benchmark of a CET1 capital ratio of 10.5%. As a result, Westpac has
decided to raise around $2.5 billion in capital through an institutional placement and a share purchase plan.
The capital being raised is a prudent decision that is expected to lift the Group’s capital ratios by around 58 basis
points (Based on risk weighted assets at 30 September 2019). This assists in supporting customer growth and
provides a buffer for any additional factors that may impact capital in the period ahead, including regulatory
actions, litigation, changes in APRA or RBNZ capital rules.
2019 Full Year financial results
Review of Group operations
16 | Westpac Group 2019 Full Year Financial Results Announcement
Credit quality was little changed, with stressed exposures to total committed exposures up 10 basis points over the
last six months and up 12 basis points over the last year. The ratio was 1.20% at September 2019. Within this
measure, impaired assets were unchanged while mortgage delinquencies were higher, consistent with slower
economic activity and the softness in housing markets. While delinquencies, along with properties in possession,
have been rising over recent halves, there have been early signs of a stabilisation of property markets in the final
quarter of the year with improved property prices and higher clearance rates of properties for auction, and this is
beginning to be reflected in these metrics.
Dividends
The Board has determined a final ordinary dividend of 80 cents per share, fully franked. The dividend was
14 cents lower than both the interim dividend and the 2018 final dividend. The decision to reduce the dividend
reflects a desire to bring the dividend payout ratio closer to a more sustainable medium term range (of 70-75%),
particularly given the increase in shares on issue following the capital raising and the softer outlook.
The final ordinary dividend represents a cash earnings payout ratio of 79% while excluding notables the payout
ratio is 71%. The 80 cent dividend translates to a dividend yield of 5.5%
1
. The Board has determined to issue
shares to satisfy the dividend reinvestment plan (DRP) for the final 2019 dividend. No discount will be applied to
the market price used to determine the number of shares issued under the DRP. The market price used to
determine the number of shares issued under the DRP will be set over the 10 trading days commencing
18 November 2019. The final ordinary dividend will be paid on 20 December 2019 with the record date of
13 November 2019
2
. After allowing for the final dividend, the Group's adjusted franking account balance was
$1,558 million.
The Government's Bank Levy cost $391 million in Full Year 2019, up from $378 million in Full Year 2018. Despite
the decline in Westpac's cash earnings, the Levy increased as it is based on applicable liabilities which were
higher over the period. The Bank Levy in Full Year 2019 is equivalent to 8 cents per share and is included in net
interest income where it reduced net interest margin by 5 basis points.
2019 priorities
In the Group’s Full Year 2018 Results, Westpac reiterated that its service strategy continues to be central to its
future. In implementing its strategy and given the environment, the Group highlighted that in 2019 it would focus on
three priorities. These were: 1. Deal with outstanding issues, 2. Build momentum in the customer franchise and 3.
Structural cost reduction. Discussion in this Performance Overview is structured in line with these priorities.
Dealing with outstanding issues
Over recent years, the Group has conducted extensive work across the organisation to review its products and
operations, improve the handling of customer complaints, assess culture, and strengthen governance. This has
included: dimensioning the quantum of customer remediation, completing its detailed CGA self-assessment,
resetting the Group's wealth operations, exiting the financial advice business, working to close-out legacy
regulatory and compliance matters, reshaping how we identify and respond to complaints, and implementing the
recommendations from the Royal Commission's Final Report. The Group is now implementing the changes
needed to address the issues identified and accelerating the process of customer remediation.
Progress over the year has included:
Of the 49 Royal Commission recommendations relevant to Westpac, 11 are implemented, 11 are underway,
and a further 27 are awaiting further regulatory clarity before further progress can be made;
Commencing implementation of the recommendations from Westpac’s CGA self-assessment; 40% of the
recommendations are now complete;
Following extensive changes to how complaints are identified, managed and reported, the Group reduced the
average time to resolve complaints from 13 days to 7 days with 72% being solved in 5 days;
Implementing major changes in how the Group better identifies and supports customers experiencing
vulnerability;
Establishing a remediation hub to centralise the management of key customer remediation programs and
improve the process of refunding customers with over 600,000 customers have now received over $350 million
in refunds;
Exiting the provision of personal financial advice across salaried financial advisors and authorised
representatives and moved to a referral model to support customers with their financial advice needs; and
Completing the sale of Ascalon.
1
Based on the closing share price as at 30 September 2019 of $29.64.
2
Record date for 2019 final dividend in New York is 12 November 2019.
2019 Full Year financial results
Review of Group operations
Westpac Group 2019 Full Year Financial Results Announcement | 17
Get it right, put it right
Through the Group's 'get it right, put it right' initiative, products, processes and policies have continued to be
reviewed to identify where we may not have got it right for customers. Where problems have been identified, the
Group has committed to fix them and refund customers. These initiatives identified a number of issues that have
required remediation. The Group booked an after tax cost of $958 million for provisions for estimated customer
refunds and payments, associated costs, and litigation in Full Year 2019 with the major items relating to:
Estimated customer refunds of ongoing advice service fees associated with the Group's salaried financial
planners and the Group’s authorised representatives that provided financial planning services under the
Magnitude and Securitor brands. Provisions for these items also include implementation costs and interest
costs for the time value of money;
Refunds for certain consumer and business customers that had interest only loans that did not automatically
switch, when required, to principal and interest loans; and
Refunds to certain business customers who were provided with business loans where they should have been
provided with loans covered by the National Consumer Credit Protection Act 2009 (Cth).
Resetting Wealth
In March 2019, in addition to exiting the provision of personal financial advice, the Group announced an
organisational realignment of the previous BT Financial Group businesses. This change saw the Private Wealth,
Platforms, Investments and Superannuation businesses move to an expanded Business division, while the
Insurance business moved to an expanded Consumer division.
As a result of these changes, the Group incurred a provision for exit and transition costs of $241 million ($172
million after tax). As the Group's advice business was loss making, the exit is expected to be EPS accretive
(excluding remediation provisions) for Westpac in 2020. The exit of the advice business and resetting the Group's
wealth operations is expected to reduce costs by around $245 million per annum by 2020.
Momentum in customer franchise
The Group has continued to grow its customer franchise over the year by increasing customer numbers,
deepening relationships and improving services via digital. Developments over the year included:
Increased customer numbers by 1% to 14.2 million;
Launched a range of new digital features to better support customers including:
- a new end-to-end digital mortgage in St.George;
- a new chat-bot called ‘Red’. Based on IBM’s Watson artificial intelligence, Red is streamlining the process for
handling online customer queries;
- a pricing tool for term deposits that considers a customer’s unique circumstances and enables them to get the
best rate for the roll-over of their term deposit; and
- a new Digital Institutional Bank platform to simplify and enhance the way institutional and government
customers manage their finances;
Given the above, and a range of other improvements to the useability of online services, the number of digitally
active customers increased 4% over the year while around 40% of sales are now completed online up from
around 37% over 2018;
Continued the roll-out of the Group's Customer Service Hub (CSH) which provides a simplified home loan
process for both bankers and customers. The system commenced with Westpac first party mortgages and will
be gradually rolled out to other brands and then to other products;
Completed an extensive roll-out of the New Payments Platform (NPP). Westpac currently processes over 40%
of all NPP payments (by value);
Panorama, the Group’s main wealth administration platform, increased its funds under administration by
around $1 billion per month contributing to funds on the platform increasing to over $23 billion;
Rated Australia’s most sustainable bank in the Dow Jones Sustainability Index and ninth most sustainable
bank globally. Through the year the Group continued to expand its sustainability products with the first NZ
Green bond, green structured deposits, and sustainability-linked loans;
Continued to strengthen community engagement through: Westpac Foundation job creation grants for social
enterprises; the Westpac Scholars Foundation awarded another 102 Westpac scholarships (416 in total),
celebrated the Group’s 900th Jawun secondment, and supported indigenous businesses through Many Rivers
and a dedicated Indigenous Banking team and call centre; and
Expanded the roll-out of the Group's "Life Moments" program to help customers when they need it most.
Programs launched over the year included resources to help customers manage their finances after a break-up
or separation, and to help customers start a business, particularly migrants. This builds on enhanced support
for people who have lost a loved one, are having a baby or have been involved in a natural disaster.
2019 Full Year financial results
Review of Group operations
18 | Westpac Group 2019 Full Year Financial Results Announcement
Structural cost reduction
In 2019, the Group delivered $405 million in structural productivity savings, up from $304 million in productivity
savings achieved in 2018. Efficiency initiatives completed over the year included:
Completed wealth reset which reduced operating divisions from 5 to 4, including the exit of the Advice business
(which was a high cost, loss making business). Cost savings in the Full Year 2019 were relatively modest
$45 million with a further $200 million in Full Year 2020;
Continued restructuring of the Group’s distribution network including:
- Net reduction of 61 branches;
- Removed 375 ATMs;
- Entered into an agreement to sell most of the Group’s offsite ATMs to Prosegur. The transaction will reduce
the Group’s investment in fixed infrastructure. Completion of the transaction is not expected until 2020;
- Introduced a new State management structure aligned to customer segments rather than brands; and
- Improved cash handling, removing over $1.9 billion of cash turnover from the network, enhancing both
security and cash handling costs.
Implemented a new Group-wide HR management system to improve the way resources are managed;
Strengthened the Group’s technology infrastructure, including: reducing the complexity of core networks,
migration of the Group’s data platform to the cloud, migration of 350+ applications to a hybrid on/off-premise
cloud solution, and installing more reliable technology for front line employees. In addition to cost savings,
these changes have contributed to a much faster system environment for employees and improved technology
stability, with no Severity 1 outages in over 560 days;
Renegotiated a number of major contracts, expected to contribute savings in operating and project expenses;
In New Zealand, expanded the use of agile management techniques to improve efficiency and accelerate
change. Lessons from New Zealand are being used to increase the use of agile in Australia; and
Completed various organisational reviews of head office and support roles. This, and some of the initiatives
outlined above has contributed to a 5% reduction in FTE over the year. The decline in FTE was achieved
despite absorbing around 300 new FTE to support regulatory and compliance programs.
Financial Performance Summary Full Year 2019 - Full Year 2018
Westpac's cash earnings of $6,849 million in Full Year 2019 was $1,216 million (or 15%) lower than Full Year
2018.
The reduction in cash earnings, combined with a 1% increase in the weighted average shares on issue, led to a
16% decline in cash earnings per share (EPS) to 198.2 cents in Full Year 2019. Average ordinary equity increased
3% which in turn contributed to the Group's return on equity (ROE) falling to 10.75%, down 225 basis points.
Notable items
To help explain Westpac's performance, two major items in this result are described as ‘notable items’:
provisions for estimated customer refunds and payments, associated costs, and litigation; and
exit and restructuring costs associated with the reset of Westpac's wealth strategy.
Throughout this Results Announcement, the term ‘notable items’ refers only to these items. Notable items are also
discussed further in Section 1.3.2.
Notable items impact cash earnings, the major income statement line items and certain performance metrics. The
following tables present the quantum of these items and their impact on movements in the income statement
(Table 1) and certain performance metrics (Table 2) over Full Year 2019 and Full Year 2018.
2019 Full Year financial results
Review of Group operations
Westpac Group 2019 Full Year Financial Results Announcement | 19
Financial performance summary Full Year 2019 – Full Year 2018 (continued)
1
Table 1. Cash earnings impact from notable items and impact on movements in key line items
Size of notable items
($m)
Growth
FY19 – FY18 (%)
FY19 FY18 As reported
Ex notable
items
Net interest income (344) (105) (1) -
Non-interest income (820) (163) (26) (12)
Operating expenses
(461) (112) 3 -
Core earnings
(1,625) (380) (15) (5)
Impairment charges - - (2) (2)
Tax
495 99 (17) (6)
Cash earnings
(1,130) (281) (15) (4)
Size of notable items
($m)
Growth
2H19 – 1H19 (%)
2H19 1H19 As reported
Ex notable
items
Net interest income (132) (212) 2 1
Non-interest income (220) (600) 16 (5)
Operating expenses
(187) (274) (1) 1
Core earnings
(539) (1,086) 10 (1)
Impairment charges - - 38 38
Tax
162 333 8 (3)
Cash earnings
(377) (753) 8 (3)
Table 2. Certain cash earnings performance metrics including and excluding notable items.
2H19 1H19 FY19 FY18
Cash
earnings
Cash
earnings
ex notable
items
Cash
earnings
Cash
earnings
ex notable
items
Cash
earnings
Cash
earnings
ex notable
items
Cash
earnings
Cash
earnings
ex notable
items
Return on equity (%)
11.06 12.23 10.43 12.82 10.75 12.52 13.00 13.46
Net interest margin (%) 2.13 2.16 2.12 2.17 2.12 2.16 2.22 2.23
Expense to income ratio (%)
47.29 44.05 49.90 43.67 48.56 43.86 43.75 42.73
Full Year 2019 cash earnings, excluding notable items were $367 million lower than Full Year 2018 (down 4%).
Excluding notable items the ROE was 12.5%. Net tangible assets per share, which was also impacted by the
adoption of AASB 9, ended the year at $15.36.
While the Australian economy has continued to grow in 2019, activity has slowed with GDP of 1.4% for the year to
June 2019 down from over 3.0% for the year to June 2018. Growth over the year has been principally due to
government spending and exports while private spending has declined, building activity has contracted and wage
growth remained low. A slowdown in the global economy has also contributed to weak business confidence and
investment plans. House prices also eased through the year although there are early signs of some stabilisation in
the last quarter of the year. At the same time, increased data and verification requirements have made the process
of borrowing slower and more onerous for many customers, particularly smaller businesses.
These conditions have contributed to a slowing in system credit growth in Australia to around 2.5% from almost
4.5% a year earlier with both housing and business loan growth moderating while other personal lending
contracted. In New Zealand, private sector credit has been a little stronger, growing at around 6% over the year up
from approximately 5.5% a year earlier.
For Westpac, total lending increased $5.1 billion or 1% over the 12 months to September 2019. Growth over the
year was concentrated in New Zealand and in Australian owner-occupied mortgages with Australian business
lending relatively flat. Other personal lending (mostly credit cards and personal loans) and institutional lending both
declined over the year. Customer deposits increased $6.8 billion, or 1%, more than fully funding the rise in lending.
Deposit growth was broadly sourced across consumer and business segments in both Australia and New Zealand
while institutional deposits were lower.
Net interest margin of 2.12% was down 10 basis points over the year. Of the decline, 3 basis points was due to
notable items which had a larger impact on net interest income in Full Year 2019 relative to Full Year 2018.
Excluding notable items, the net interest margin declined 7 basis points with the fall due to deposit spreads,
increased liquid asset holdings, and a lower Treasury and markets contribution. Mortgage repricing late in the
2018 supported lending spreads although these gains were offset by lower rates on new lending, more customers
switching to lower rate products (including principal and interest loans) and a rise in refinancing activity.
1
Unless otherwise stated.
2019 Full Year financial results
Review of Group operations
20 | Westpac Group 2019 Full Year Financial Results Announcement
Given the modest growth in lending and the decline in margins, net interest income was 1% lower over the year.
Excluding notables net interest income was relatively flat.
Non-interest income was down 26% over the year with much of the decline due to a $657 million increase in
notable items and the non-repeat of Hastings income ($203 million). Westpac finalised the exit of its infrastructure
funds business 'Hastings' in Second Half 2018. The exit had a small impact on cash earnings but had a more
significant impact on non-interest income (including from large exit related fees) and costs (from the write-down of
goodwill).
Excluding these items (notable items and Hastings) non-interest income was down $416 million or 8%, with the
decline mostly due to lower insurance income including from higher insurance claims ($69 million) including for
major weather events (Queensland floods and NSW hailstorms), lower wealth fees following decisions to reduce
platform pricing, eliminate grandfathered commission payments, and from a $78 million negative movement in
derivative valuation adjustments. Partly offsetting these was higher trading income of $59 million along with gains
on asset sales (mostly a CBD branch in Sydney) and disposal of an associate (Paymark in New Zealand).
In aggregate, the 1% decline in net interest income and the 26% decline in non-interest income led to total
operating income declining 7%. Excluding notable items, operating income was 3% lower over the Full Year 2019.
Expenses increased 3% or $333 million in Full Year 2019 compared to Full Year 2018. Expense growth was also
impacted by notable items which were $349 million higher in Full Year 2019. Expenses excluding notable items
were down $16 million (flat), but taking into account foreign currency movements expenses were 1% lower.
As mentioned earlier, the Group delivered $405 million in productivity savings through the year, expenses also
benefited from the absence of $158 million of Hastings costs in 2018. These savings were largely offset by a rise
in business as usual expenses, higher amortisation of capitalised investments and a significant lift in regulatory,
risk and compliance costs.
Within business as usual costs, salary costs were higher following annual salary increases from January 2019,
along with mix impacts from employing more highly qualified individuals these were partially offset by a significant
reduction in the Group’s short term incentive pool. Occupancy costs were higher from annual rent increases and
costs linked to the closure of branches. Technology costs were also higher mostly associated with investment in
the Group's infrastructure, including enhancements to cybersecurity, Panorama and launching the Customer
Service Hub.
Given the notable items (higher expenses and reduced revenues) the expense to income ratio increased almost
5 percentage points to 48.6% for Full Year 2019. Excluding notable items, the expense to income ratio was 43.9%,
around 1 percentage point higher compared to Full Year 2018.
As mentioned earlier, credit quality was sound leading to impairment charges of $794 million for Full Year 2019,
(down 2%) representing 11 basis points to average gross loans. The $18 million decline was due to lower new
individually assessed provisions particularly in Business and in New Zealand along with lower collective provisions
with a reduction in the overlay related to mining partially offset by higher provisions for the increase in mortgage
delinquencies.
Following the adoption of AASB 9, overall provision levels have increased, mostly associated with facilities that are
still performing but have experienced a significant increase in credit risk (called Stage 2 facilities). As a result, total
provisions were $3,913 million at September 2019, up from $3,053 million at September 2018.
The ratio of impaired exposure provisions to total impaired exposures was 45% at September 2019, which was
little changed compared to September 2018. Collectively assessed provisions to credit risk weighted assets were
95 basis points, up from 73 basis points at September 2018.
The effective tax rate was 30.3% for Full Year 2019. This is above the corporate tax rate due to the non-
deductibility of certain expenses, including hybrid distributions.
Financial performance summary Second Half 2019 – First Half 2019
Cash earnings of $3,553 million were up 8% with core earnings up 10%, while impairment charges increased 38%.
Net interest income rose 2% from a 1 basis point increase in margins and a 1% rise in average interest-earning
assets. Margins excluding Treasury and Markets were little changed from First Half 2019, with the benefit of lower
notable items (2 basis points) offset by increased holdings of liquid assets, lower deposit spreads lower interest
rates which impacted returns on capital and some deposits.
Total loans were little changed over the half (up $0.5 billion), with growth in Australian mortgage lending (up $2.0
billion) largely offset by a decline in Australian personal lending and exchange rate impacts on New Zealand
lending. Australian business and institutional lending was little changed compared to First Half 2019 with subdued
demand and lower property lending. Australian personal lending was lower, mostly reflecting lower demand across
cards, personal loans and auto lending. New Zealand lending was up 3% (but down 1% in A$ terms) from growth
in both mortgages and business lending.
2019 Full Year financial results
Review of Group operations
Westpac Group 2019 Full Year Financial Results Announcement | 21
Customer deposits grew 3% compared to First Half 2019. Most of the growth was in Australian savings accounts
partially offset by lower Australian term deposits and a decline in New Zealand deposits, mostly from exchange
rate movements. Customer deposits more than fully funded loan growth in Second Half 2019.
Non-interest income was up 16%, principally due to a decrease in notable items of $380 million. Excluding these,
non-interest income was down 5% mostly from a decline in financial markets income (from derivative valuation
adjustments), a charge related to financial instruments at fair value, lower fee income, a reduction in institutional
bank lending fees and lower life insurance income. These declines were partly offset by lower insurance claims for
major weather events ($94 million).
Expenses were 1% lower, from an $87 million decrease in notable items. Excluding notable items, expenses were
$36 million higher. Most of this growth was due to higher investment and an increase in regulatory and compliance
costs. The Group generated $259 million of structural productivity savings in the half more than offsetting ordinary
cost growth.
Impairment charges were $128 million (or 38%) higher than First Half 2019. Most of the rise was in new
collectively assessed provisions from higher write-offs consistent with seasonal trends from a rise in business
stress. These increases were partly offset by lower new impaired assets and a reduction in the overlay linked to
the mining sector.
Divisional performance summary
The performance of each division based on performance in Full Year 2019 compared to Full Year 2018 is
discussed below.
Consumer
Consumer cash earnings of $3,288 million was $135 million lower (down 4%) than the Full Year 2018. Excluding
notable items, cash earnings were $216 million lower, (down 6%). The fall was due to a 1% decline in operating
income, a 1% increase in expenses and a 20% lift in impairment charges. Within operating income, net interest
income grew 1%, from an increase in average interest-earning assets, partly offset by a 3 basis point reduction in
margins. Margins were down mostly from lower mortgage spreads from competition and changes to the mortgage
mix with more customers moving to lower spread principal and interest loans. Non-interest income fell 13%, largely
due to higher insurance claims, including from several major weather events early in calendar year 2019.
Expenses were higher (up 3% excluding notables), mostly from higher investment and regulatory change costs.
These were partially offset by structural productivity gains of $125 million, from organisational redesign,
rationalisation of the distribution network and further use of digital channels. The $95 million increase in
impairment charges was mostly due to higher consumer delinquencies reflecting a rise in hardship and an
increase in time taken to sell a property. The introduction of the new AASB 9 standard also impacted the outcome.
Business
Business delivered cash earnings of $2,431 million, a 12% decrease; excluding notable items, cash earnings were
down 2%. Lending was slightly lower, with lower SME balances and subdued demand across auto lending.
Deposits rose 3% over the year, with growth across transaction and at call balances, partly offset by 4% decline in
term deposits. The net interest margin was down 12 basis points but before notable items was up 3 basis points,
mostly from loan repricing late in the 2018 financial year. Non-interest income was down 11% ($176 million) with
$55 million of the fall due to notable items. The remaining decline was mostly due to lower merchant income, and
lower wealth income from new platform pricing and product mix changes. Expenses were 6% higher, primarily
from notable items and increased regulatory and compliance costs. Business as usual costs were largely offset by
productivity initiatives including operating model changes and continued digitisation and product simplification.
Credit quality was sound, with the level of stressed exposures to TCE relatively flat over the year. Impairment
charges were lower mostly due to a low individual provisions and lower auto delinquencies as the size of the auto
book declined.
Westpac Institutional Bank
Westpac Institutional Bank (WIB) delivered cash earnings of $1,014 million, $79 million, or 7%, lower compared to
Full Year 2018. This was primarily from a $78 million negative movement in derivative valuation adjustments, and
a $62 million increase in impairment charges (a $46 million impairment charge in Full Year 2019 compared to a
$16 million impairment benefit in Full Year 2018). The exit of the Hastings business in 2018 had negative impact
on cash earnings (the loss of $17 million in Hastings cash earnings) but had a more significant impact on the
movements in individual line items. In Full Year 2018 Hastings contributed $203 million to non-interest income,
$158 million to expenses and $29 million to tax. Net interest income was little changed over the year (up
$1 million). Non-interest income was 17% lower, (5% down excluding Hastings), from a negative movement in
derivative valuation adjustments. Expenses were down 11% but excluding Hastings were little changed (down
$7 million). The impairment charge of $46 million in Full Year 2019 was due to the migration of two facilities to
impaired and lower write-backs.
2019 Full Year financial results
Review of Group operations
22 | Westpac Group 2019 Full Year Financial Results Announcement
Westpac New Zealand
Westpac New Zealand delivered cash earnings of NZ$1,042 million, up 3% over the year. Excluding notable items,
cash earnings increased 4%, supported by a NZ$40 million gain on the sale of Paymark, and a NZ$10 million
impairment benefit. Net operating income was 2% higher over the year, with most of the rise due to the gain on the
sale of Paymark. Lending increased 5% over the year while deposits grew 4%. Balance sheet growth was partially
offset by an 8 basis point decline in margins leading to a $9 million increase in net interest income. Expenses were
7% higher, mostly from further investment in risk management and regulatory programs. The division delivered an
impairment benefit of $10 million from lower collective provisions.
Group Businesses
Group Businesses recorded a loss of $869 million in Full Year 2019 with most of the loss due to notable items
($804 million). Excluding notable items, cash earnings for Full Year 2019 were a loss of $65 million compared to a
cash earnings profit of $9 million in Full Year 2018. The decrease was mostly due to a lower Treasury contribution
(from interest rate risk management) and reduction in advice revenue (following the decision to exit the advice
business during the year). This decline was partially offset by a higher impairment benefit. The impairment benefit
was $94 million higher, mostly due to movements in centrally held overlays.
2019 Full Year financial results
Review of Group operations
Westpac Group 2019 Full Year Financial Results Announcement | 23
2.2 Review of earnings
2.2.1 Net interest income
1
,
2
% Mov't % Mov't
Half Year Half Year Sept 19 - Full Year Full Year Sept 19 -
$m Sept 19 March 19 Mar 19 Sept 19 Sept 18 Sept 18
Net interest income
Net interest income excluding Treasury & Markets 8,210 8,081 2 16,291 16,340 -
Treasury net interest income
3
273 240 14 513 718 (29)
Markets net interest income 81 68 19 149 129 16
Net interest income 8,564 8,389 2 16,953 17,187 (1)
Add back notable items 132 212 (38) 344 105 large
Net interest income excluding notable items 8,696 8,601 1 17,297 17,292 -
Average interest-earning assets
Loans
4
675,756 674,159 - 674,960 658,603 2
Third party liquid assets
5
107,786 97,222 11 102,519 95,639 7
Other interest-earning assets
4
19,623 23,279 (16) 21,445 20,702 4
Average interest-earning assets 803,165 794,660 1 798,924 774,944 3
Net interest margin
Group net interest margin 2.13% 2.12% 1bps 2.12% 2.22% (10bps)
Group net interest margin excluding Treasury & Markets
6
2.04% 2.04% - 2.04% 2.11% (7bps)
Excluding notable items
Group net interest margin 2.16% 2.17% (1bps) 2.16% 2.23% (7bps)
Group net interest margin excluding Treasury & Markets
6
2.07% 2.09% (2bps) 2.08% 2.12% (4bps)
Second Half 2019 – First Half 2019
Net interest income increased $175 million or 2% compared to First Half 2019. Key features include:
A 1% increase in average interest-earning assets largely from Australian and New Zealand housing lending
and higher third party liquid assets;
Group net interest margin excluding Treasury and Markets, and provisions for estimated refunds, payments,
associated costs, and litigation (notable items), decreased 2 basis points. Refer to section 2.2.4 for further
details on net interest margin; and
Treasury and Markets net interest income increased $46 million or 15%, with higher Treasury revenue related
to interest rate risk management.
Full Year 2019 – Full Year 2018
Net interest income decreased $234 million or 1% compared to Full Year 2018. Key features include:
3% growth in average interest-earning assets, primarily from Australian and New Zealand housing and higher
third party liquid assets;
Group net interest margin excluding Treasury and Markets decreased 7 basis points primarily due to a 3 basis
point net impact from notable items, higher holdings of liquid assets and lower deposit spreads. Mortgage
spreads were largely flat from competition, retention pricing and changes in the mix of the mortgage portfolio
with customer switching from interest only to principal and interest. This was partly offset by changes to pricing
of Australian variable mortgages; and
In aggregate, the contribution from Treasury and Markets was down $185 million or 22%, primarily from lower
Treasury income related to interest rate risk management.
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
The Group has adopted AASB 9 Financial Instruments and AASB 15 Revenue from Contracts with Customers from 1 October 2018.
Statutory comparatives have not been restated. Refer to Note 1 in the 2019 Annual Report for further detail. However, where
applicable, cash earnings comparatives (excluding expected credit loss provisioning) have been restated to aid comparability. Refer
to the cash earnings policy in Section 1.3.4 for further detail. In addition, during Full Year 2019, the Group has made a number of
presentational changes to the Balance Sheet and Income Statement. Both statutory and cash earnings comparatives have been
restated. Refer to Note 1 in the 2019 Annual Report for further detail.
3
Treasury net interest income excludes capital benefit.
4
First Half 2019 comparative has been revised for consistency.
5
Refer Glossary for definition.
6
Calculated by dividing net interest income excluding Treasury and Markets by total average interest earning assets.
2019 Full Year financial results
Review of Group operations
24 | Westpac Group 2019 Full Year Financial Results Announcement
2.2.2 Loans
1
,
2
As at As at As at % Mov't % Mov't
30 Sept 31 March 30 Sept Sept 19 - Sept 19 -
$m 2019 2019 2018 Mar 19 Sept 18
Australia 619,564 618,811 619,630 - -
Housing 449,201 447,164 444,741 - 1
Personal 21,247 22,463 22,997 (5) (8)
Business 152,360 152,424 154,347 - (1)
Provisions (3,244) (3,240) (2,455) - 32
New Zealand (A$) 78,428 79,000 74,045 (1) 6
New Zealand (NZ$) 84,626 82,470 80,860 3 5
Housing 51,504 49,584 48,893 4 5
Personal 1,844 1,937 2,040 (5) (10)
Business 31,599 31,308 30,251 1 4
Provisions (321) (359) (324) (11) (1)
Other overseas (A$) 16,778 16,486 16,015 2 5
Total loans 714,770 714,297 709,690 - 1
Second Half 2019 – First Half 2019
Total loans increased $0.5 billion compared to First Half 2019. Excluding foreign currency translation impacts, total
loans increased $2.2 billion.
Key features of total loan growth were:
Australian housing loans increased $2.0 billion with $30.6 billion of new lending partially offset by $28.6 billion
of run off. Owner occupied balances grew 2% and comprised 58% of the portfolio (31 March 2019: 57%), while
investor property lending decreased 1%. The interest only portfolio reduced 12% and comprised 27% of the
portfolio;
Australian personal loans decreased $1.2 billion or 5% across personal lending, credit cards and auto finance.
Demand for unsecured lending continued to decline in Second Half 2019 with our experience in line with the
market; and
New Zealand loans increased NZ$2.2 billion or 3%, due to housing loans growth of 4% mostly in fixed rate
products.
Full Year 2019 - Full Year 2018
Total loans increased $5.1 billion or 1% compared to Full Year 2018. Excluding foreign currency translation
impacts, total loans increased $2.9 billion.
Key features of total loan growth were:
Australian housing loans increased $4.5 billion or 1% with $60.6 billion of new lending partially offset by
$56.1 billion of run off. Owner occupied balances grew 3%, while investor property lending decreased 1%;
Australian personal loans decreased $1.8 billion or 8%, across personal lending, credit card and auto finance.
Demand for unsecured lending continued to decline in 2019 with our experience in line with the market;
Australian business and institutional loans decreased $2.0 billion or 1%, mostly due to lower institutional
property lending as divisions prioritised returns over growth, partially offset by growth in agricultural lending;
Australian provision balances increased $0.8 billion or 32% at the start of the year mostly from the
implementation of AASB 9 on 1 October 2018, which calculates credit loss provisioning on an expected loss
basis; and
New Zealand lending increased NZ$3.8 billion or 5%. Housing loans grew 5%, mostly in fixed rate products
and business lending increased 4%, supported by growth in agricultural, and property lending. This was
partially offset by a decline in personal lending and credit cards.
1
Spot loan balances.
2
The Group has adopted AASB 9 Financial Instruments and AASB 15 Revenue from Contracts with Customers from 1 October 2018.
Statutory comparatives have not been restated. Refer to Note 1 in the 2019 Annual Report for further detail. However, where
applicable, cash earnings comparatives (excluding expected credit loss provisioning) have been restated to aid comparability. Refer
to the cash earnings policy in Section 1.3.4 for further detail. In addition, during Full Year 2019, the Group has made a number of
presentational changes to the Balance Sheet and Income Statement. Both statutory and cash earnings comparatives have been
restated. Refer to Note 1 in the 2019 Annual Report for further detail.
2019 Full Year financial results
Review of Group operations
Westpac Group 2019 Full Year Financial Results Announcement | 25
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 19 - Sept 19 -
$m 2019 2019 2018 Mar 19 Sept 18
Customer deposits
Australia 449,066 433,736 446,667 4 1
At call 247,161 222,733 233,052 11 6
Term 158,564 168,313 171,832 (6) (8)
Non-interest bearing
2
43,341 42,690 41,783 2 4
New Zealand (A$) 59,743 61,516 56,671 (3) 5
New Zealand (NZ$) 64,464 64,218 61,887 - 4
At call 24,053 24,520 23,339 (2) 3
Term 33,540 33,320 32,645 1 3
Non-interest bearing
2
6,871 6,378 5,903 8 16
Other overseas (A$) 15,707 16,391 14,413 (4) 9
Total customer deposits 524,516 511,643 517,751 3 1
Certificates of deposit 38,731 43,364 41,534 (11) (7)
Australia 26,259 31,123 28,746 (16) (9)
New Zealand (A$) 1,058 858 1,116 23 (5)
Other overseas (A$) 11,414 11,383 11,672 - (2)
Total deposits and other borrowings 563,247 555,007 559,285 1 1
Second Half 2019 – First Half 2019
Total customer deposits increased $12.9 billion or 3% compared to First Half 2019. Excluding foreign currency
translation impacts, total customer deposits increased $13.9 billion.
Key features of total customer deposits growth were:
Australian customer deposits increased $15.3 billion or 4%, mostly from higher government, institutional, and
retail savings and transactional deposits. This was partially offset by a reduction in term deposits as customers
moved balances into at-call products. Non-interest bearing deposits were up 2% from increased mortgage
offset balances;
New Zealand customer deposits in NZ$ were little changed, with growth primarily in consumer deposits offset
by a reduction in business deposits. Non-interest bearing deposits were up 8% from growth in business and
consumer transactional deposits; and
Other overseas deposits decreased $0.7 billion or 4% due to lower term deposits in Asia.
Certificates of deposit decreased $4.6 billion or 11%, reflecting reduced short-term wholesale funding issuance in
this form.
Full Year 2019 – Full Year 2018
Total customer deposits increased $6.8 billion or 1% compared to Full Year 2018. Excluding foreign currency
translation impacts, customer deposits increased $4.7 billion.
Key features of total customer deposits growth were:
Australian customer deposits increased $2.4 billion or 1%, mostly from an increase in savings and
transactional deposits, partially offset by a reduction in term deposits. Non-interest bearing deposits were up
4% from increased mortgage offset balances; and
New Zealand customer deposits increased NZ$2.6 billion or 4%, with term deposits up 3% and interest
bearing transactional deposits up 10%. Non-interest bearing deposits increased 16%, from growth in business
and consumer transactional deposits.
Certificates of deposit decreased $2.8 billion or 7%, reflecting reduced short-term wholesale funding issuance in
this form.
1
Spot deposit balances.
2
Non-interest bearing relates to instruments which do not carry a rate of interest.
2019 Full Year financial results
Review of Group operations
26 | Westpac Group 2019 Full Year Financial Results Announcement
2.2.4 Net interest margin
Group net interest margin movement (%)
Second Half 2019 – First Half 2019
Second Half 2019 – First Half 2019
Group net interest margin of 2.13% increased 1 basis point from First Half 2019. Notable items impacted margin
by 2 basis points, as notable items were lower in the Second Half.
Group net interest margin excluding Treasury and Markets, and notable items decreased 2 basis points to
2.07% with key features including:
- 6 basis point increase from lower short term wholesale funding costs from the impact of the bank bill swap
rate (BBSW) reducing over Second Half 2019;
- 1 basis point increase from loan spreads primarily following pricing changes to certain Australian mortgages
types and business loans. This was partly offset by competition, retention pricing and changes in the mix of
the mortgage portfolio with customers switching from interest only lending to principal and interest facilities;
- 6 basis point decrease from lower customer deposit spreads, primarily due to competition driving elevated
pricing for term deposits, the impact from lower interest rates on savings and online account spreads, and our
inability or commercial appetite to lower interest rates on some at call deposits;
- Capital and other decreased 1 basis point primarily due to lower income earned on capital balances from
lower interest rates; and
- 2 basis point reduction from liquidity due to higher balances of third party liquid assets.
The contribution from Treasury and Markets increased 1 basis point.
2H19
notable
items
(6bps)
Liquidity
1bp
Treasury
&
Markets
2.07%
2H19 ex
notables
(3bps)
2H19
Group
NIM
(2bps)
Loans
1bps
Capital
& other
Short
term
wholesale
funding
5bps
1H19 ex
notable
items
6bps
2.12%
2.17%
2.16%
2.13%
2.09%
Customer
deposits
(1bp)
Te r m
wholesale
funding
2.04%
Add
back
1H19
notable
items
0bps
1H19
Group
NIM
2.04%
Group margin up 1bp
Excluding Treasury and Markets down 2bps
2019 Full Year financial results
Review of Group operations
Westpac Group 2019 Full Year Financial Results Announcement | 27
Group net interest margin movement (%)
Full Year 2019 – Full Year 2018
Full Year 2019 – Full Year 2018
Group net interest margin of 2.12% decreased 10 basis points from Full Year 2018. Higher notable items
contributed 3 basis points to the reduction in margins.
Group net interest margin excluding Treasury and Markets, and notable items decreased 4 basis points to
2.08% with key features including:
- Changes in short term wholesale funding rates had little impact with the average cost being similar in Full
Year 2018 and Full Year 2019 despite the sharp reduction in BBSW in Second Half 2019;
- Loan spreads were little changed, with the impact from changes to pricing of Australian variable mortgages
being offset by competition, retention pricing and changes in the mix of the mortgage portfolio with customers
switching from interest only to principal and interest;
- 2 basis point decrease from lower customer deposit spreads due to broad based competition, the impact from
lower interest rates, and our inability or commercial appetite to lower interest rates on some at call deposits,
particularly in the Second Half 2019; and
- 2 basis point decrease from liquidity primarily due to increased balances of third party liquid assets.
Treasury and Markets contribution decreased 3 basis point due to lower Treasury revenue from interest rate
risk management.
(2bps)
(4bps)
Liquidity Treasury
&
Markets
FY19 ex
notables
2.04%
FY19
Group
NIM
0bps
0bps
Short
term
wholesale
funding
0bps
FY18 ex
notable
items
Customer
deposits
Add
back
FY18
notable
items
2.22%
2.23%
2.16%
2.12%
1bps
FY18
Group
NIM
0bps
2.11%
(3bps)
FY19
notable
items
2.12%
Loans
(2bps)
2.08%
Capital
& other
Te r m
wholesale
funding
Group margin down 10bps
Excluding Treasury and Markets down 4bps
2019 Full Year financial results
Review of Group operations
28 | Westpac Group 2019 Full Year Financial Results Announcement
2.2.5 Non-interest income
1,2
% Mov't % Mov't
Half Year Half Year Sept 19 - Full Year Full Year Sept 19 -
$m Sept 19 Mar 19 Mar 19 Sept 19 Sept 18 Sept 18
Net fee income 829 826 - 1,655 1,910 (13)
Net wealth management and insurance income 700 323 117 1,023 2,017 (49)
Trading income 443 464 (5) 907 926 (2)
Other income 16 101 (84) 117 125 (6)
Non-interest income 1,988 1,714 16 3,702 4,978 (26)
Add back notable items 220 600 (63) 820 163 large
Non-interest income excluding notable items 2,208 2,314 (5) 4,522 5,141 (12)
Second Half 2019 – First Half 2019
Non-interest income increased $274 million or 16% compared to First Half 2019, including a net reduction of
$380 million for provisions for estimated customer refunds, payments, associated costs and litigation (notable
items). Excluding notable items, non-interest income was down $106 million or 5% mostly due to lower net fee
income (down $44 million) and reduced trading income (down $21 million) from a derivative valuation adjustment
methodology change.
Net fee income
Net fee income increased $3 million compared to First Half 2019. This included a net decrease in notable items of
$47 million mostly related to financial planning. Excluding notable items, net fee income decreased by $44 million
or 4%, largely impacted by:
Lower advice income following the exit of financial planning (down $24 million);
Corporate and institutional lending fees decreased $19 million, with First Half 2019 supported by higher
syndication fees from a number of large transactions; and
A decrease in Australian credit card income (down $12 million) primarily from lower revenue associated with
rewards programs and reduced card interchange income.
Net wealth management and insurance income
Net wealth management and insurance income increased $377 million or 117% compared to First Half 2019. This
included a decrease in notable items, mostly related to financial planning, of $333 million. Excluding notable items,
net wealth management and insurance income increased $44 million or 6% due to:
Higher general insurance income (up $94 million) from a seasonal reduction in claims, with First Half 2019
impacted by New South Wales hailstorms and Queensland flood claims. Net earned premiums were up 1%
during the half; partly offset by
Lower life insurance income (down $55 million) following implementation of regulatory reforms (“Protecting
Your Super”) and higher claims; and
Platforms and Superannuation income was little changed reflecting margin compression from platforms
repricing, implementation of regulatory reforms (‘Protecting Your Super’) and product mix changes. These
impacts were partly offset by a 7% increase in average funds from higher asset markets. Panorama funds grew
37% in Second Half 2019 to $23 billion which partly offset the outflows in legacy portfolios.
Trading income
Trading income decreased $21 million or 5% compared to First Half 2019 with Second Half 2019 seeing a new
derivative valuation methodology adopted which resulted in a charge of $41 million. Refer to Section 2.2.7 for
further detail on Markets related income.
Other income
Other income decreased $85 million in the half mostly reflecting mark-to-market impacts of financial instruments
measured at fair value and the revaluation of a Fintech investment in First Half 2019.
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.
2
The Group has adopted AASB 9 Financial Instruments and AASB 15 Revenue from Contracts with Customers from 1 October 2018.
Statutory comparatives have not been restated. Refer to Note 1 in the 2019 Interim Financial Results and Note 1 in Section 3 of the
2019 Annual Report for further detail. However, where applicable, cash earnings comparatives (excluding expected credit loss
provisioning) have been restated to aid comparability. Refer to the cash earnings policy in Section 1.3.4 for further detail. In addition,
during Full Year 2019, the Group has made a number of presentational changes to the Balance Sheet and Income Statement, both
statutory and cash earnings comparatives have been restated. Refer to Note 1 in the 2019 Interim Financial Results and Note 1 in
Section 3 of the 2019 Annual Report for further detail.
2019 Full Year financial results
Review of Group operations
Westpac Group 2019 Full Year Financial Results Announcement | 29
Full Year 2019 – Full Year 2018
Non-interest income decreased $1,276 million or 26% compared to Full Year 2018, with a net increase in notable
items of $657 million. Excluding notable items, non-interest income decreased $619 million or 12% due to the exit
of the Hastings business, reduced net wealth management and insurance income and lower trading income.
Net fee income
Net fee income decreased $255 million or 13% over the year, including $126 million additional notable items
mostly related to financial planning. Excluding notable items, net fee income reduced $129 million or 6% mainly
from:
Lower advice income following the exit of financial planning (down $76 million);
Lower revenue from payments and transaction fees (down $34 million) driven by increased merchant costs and
lower account based fees in New Zealand following the decision to simplify certain consumer fees; and
A decrease in business lending and mortgage fees largely due to reduced new lending volumes (down
$27 million); partly offset by
Higher corporate and institutional lending fees largely from syndication fees generated in First Half 2019 (up
$10 million).
Net wealth management and insurance income
Net wealth management and insurance income decreased $994 million or 49% compared to Full Year 2018,
impacted by additional provisions for notable items (mostly related to financial planning) of $531 million. Excluding
notable items, net wealth management and insurance income was down $463 million or 23% mainly due to:
No contribution from Hastings, following the exit of the business in Full Year 2018 (down $203 million);
Insurance income decreased $116 million from:
- A reduction in general insurance income (down $69 million) from higher claims, including the New South
Wales hailstorm and Queensland floods;
- A reduction in life insurance income (down $39 million) following the implementation of regulatory reforms
(“Protecting Your Super”) and higher claims; and
- Lower LMI income (down $8 million) primarily from a reduction in loans written at higher LVR bands.
Lower Platforms and Superannuation income (down $98 million) primarily driven by margin compression from
Full Year impact of platform repricing, implementation of regulatory reforms (‘Protecting Your Super’), product
mix changes and outflows in legacy platforms. This has been partly offset by an 89% increase in BT Panorama
funds to $23 billion due to inflows and higher asset markets; and
Cessation of grandfathered commission payments (down $42 million).
Trading income
Trading income decreased $19 million or 2% compared to Full Year 2018, primarily driven by the derivative
valuation adjustment (down $78 million) partially offset by higher non-customer income. Refer to Section 2.2.7 for
further detail on Markets related income.
Other income
Other income decreased $8 million or 6% compared to Full Year 2018, mostly reflecting the impact of hedging
New Zealand earnings, partly offset by higher gains from asset sales and revaluation of a fintech investment in Full
Year 2019.
2019 Full Year financial results
Review of Group operations
30 | Westpac Group 2019 Full Year Financial Results Announcement
2.2.6 Group funds
As at
As at
% Mov't
As at
% Mov't
30 Sept
Net
Other
30 Sept
Sept 19 -
31 March
Sept 19 -
$bn 2019
Inflows
Outflows
flows
Mov't
2018
Sept 18
2019
Mar 19
Superannuation 40.6
3.9
(4.4)
(0.5)
1.8
39.3
3
38.9
4
Platforms 126.5
33.0
(36.3)
(3.3)
6.9
122.9
3
120.8
5
Packaged funds 43.6
9.0
(6.7)
2.3
1.7
39.6
10
39.8
10
Other 4.7
-
-
-
0.9
3.8
24
3.6
31
Total Australia funds 215.4
45.9
(47.4)
(1.5)
11.3
205.6
5
203.1
6
Total NZ funds (A$) 10.7
2.3
(2.2)
0.1
0.8
9.8
9
10.4
3
Total Group funds 226.1
48.2 (49.6) (1.4) 12.1
215.4
5
213.5
6
Total NZ funds (NZ$) 11.5
2.5
(2.4)
0.1
0.7
10.7
7
10.9
6
% Mov't
% Mov't
Half year
Half year
Sept 19 -
Full year
Full year
Sept 19 -
$bn
Sept 19
Mar 19
Mar 19
Sept 19
Sept 18
Sept 18
Average funds for the
Group (excluding Westpac
Institutional Bank)
221.8
207.3
7
214.6
211.3
2
Westpac Institutional Bank
-
-
-
-
6.0
(100)
Average funds for the Group
1
221.8
207.3
7
214.6
217.3
(1)
1
Averages are based over a six month period.
2019 Full Year financial results
Review of Group operations
Westpac Group 2019 Full Year Financial Results Announcement | 31
2.2.7 Markets related income
1
% Mov't % Mov't
Half Year Half Year Sept 19 - Full Year Full Year Sept 19 -
$m Sept 19 Mar 19 Mar 19 Sept 19 Sept 18 Sept 18
Net interest income 81 68 19 149 129 16
Non-interest income 435 486 (10) 921 1,003 (8)
Total Markets income 516 554 (7) 1,070 1,132 (5)
Customer income 455 438 4 893 896 -
Non-customer income 114 127 (10) 241 222 9
Derivative valuation adjustments (53) (11) large (64) 14 large
Total Markets income 516 554 (7) 1,070 1,132 (5)
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 2019 - First Half 2019
Total markets income decreased $38 million, or 7%, compared to First Half 2019, with derivative valuation
adjustments increasing $42 million following the implementation of new methodologies.
Customer income increased 4% in the half from higher fixed income and foreign exchange revenue.
Non-customer income decreased $13 million, or 10%, compared to First Half 2019, due to lower foreign exchange
and commodities income.
Full Year 2019 – Full Year 2018
Total markets income decreased by $62 million, or 5%, compared to Full Year 2018 primarily from a $78 million
movement in derivative valuation adjustments, partly offset by higher non-customer income.
Customer income was little changed over the year, with growth in fixed income sales offset by lower foreign
exchange revenue.
Non-customer income increased $19 million or 9% compared to Full Year 2018 due to a higher fixed income
trading result, partly offset by lower foreign exchange and commodities income.
Markets Value at Risk (VaR)
2
$m
Average
High Low
Six months ended 30 September 2019 9.0 43.0 3.3
Six months ended 31 March 2019 9.6 17.5 6.3
Six months ended 30 September 2018 10.8 27.1 7.0
The Components of Markets VaR are as follows:
Average
Half Year Half Year Half Year
$m Sept 19 March 19 Sept 18
Interest rate risk 2.8 3.2 2.7
Foreign exchange risk 1.5 2.0 2.4
Equity risk 0.1 - -
Commodity risk
3
8.2 8.1 6.6
Credit and other market risks
4
2.3 2.8 4.4
Diversification benefit (5.9) (6.5) (5.3)
Net market risk 9.0 9.6 10.8
1
Markets income includes WIB Markets, Business division, Consumer division, 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 2019 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).
2019 Full Year financial results
Review of Group operations
32 | Westpac Group 2019 Full Year Financial Results Announcement
2.2.8 Operating expenses
1,2
% Mov't % Mov't
Half Year Half Year Sept 19 - Full Year Full Year Sept 19 -
$m Sept 19 March 19 Mar 19 Sept 19 Sept 18 Sept 18
Staff expenses (2,393) (2,624) (9) (5,017) (4,937) 2
Occupancy expenses (472) (497) (5) (969) (952) 2
Technology expenses (1,180) (1,139) 4 (2,319) (2,144) 8
Other expenses (945) (781) 21 (1,726) (1,665) 4
Total operating expenses (4,990) (5,041) (1) (10,031) (9,698) 3
Add back notable items 187 274 (32) 461 112 large
Total operating expenses excluding notable items (4,803) (4,767) 1 (9,570) (9,586) -
Second Half 2019 – First Half 2019
Operating expenses decreased $51 million or 1% compared to First Half 2019. Excluding notable items of
$87 million and the impact of foreign exchange movements, operating expenses increased $33 million or 1%
mostly from higher regulatory, compliance spend and restructuring costs.
Staff expenses decreased $231 million or 9% during the half. Excluding notable items ($148 million lower), staff
costs were $83 million lower primarily due to a decrease in FTE from productivity initiatives related to organisation
simplification and channel optimisation and lower variable reward. This was partly offset by the full period effect of
annual salary increases effective from January 2019 and higher restructuring costs.
Occupancy expenses decreased $25 million or 5% compared to First Half 2019, primarily due to productivity
benefits from lower branch numbers (down 23) and lower costs associated with branch closures.
Technology expenses increased $41 million or 4% compared to First Half 2019. Excluding notable items
($5 million lower), technology expenses increased $46 million, from higher amortisation of software assets as key
platforms became operational, including the Customer Service Hub and New Payments Platform partly offset by
lower telecommunication costs ($11 million).
Other expenses increased $164 million or 21% compared to First Half 2019. Excluding notable items ($66 million
higher), other expenses increased $98 million primarily from higher professional services related to regulatory and
compliance spend on financial crime, data privacy, product and system simplification and risk management.
Full Year 2019 – Full Year 2018
Operating expenses increased $333 million or 3% compared to Full Year 2018. Excluding notable items of
$349 million and the impact of foreign exchange movements, operating expenses were $53 million or 1% lower.
Productivity benefits of $405 million, the exit of the Hastings business ($158 million) and lower variable reward
more than offset higher regulatory and compliance costs ($99 million), higher investment related spend
($71 million) and operating cost growth ($340 million).
Staff expenses increased $80 million or 2% compared to Full Year 2018. Excluding notable items ($231 million
higher), staff expenses decreased $151 million primarily due to a 5% decrease in FTE from productivity initiatives
related to organisation simplification and channel optimisation along with lower variable reward. This was partly
offset by annual salary increases and the Group’s investment programs having a higher proportion of spend
expensed during the year.
Occupancy expenses increased $17 million or 2% compared to Full Year 2018, primarily due to annual rental
increases and costs associated with branch and ATM rationalisation. This was partly offset by benefits from the
reduction in branch numbers (down 61), the exit of 4 corporate sites and the removal of 375 ATMs.
Technology expenses increased $175 million or 8%. Excluding notable items ($35 million higher), technology
expenses increased $140 million or 7% largely due to higher amortisation of software assets ($91 million higher)
as key platforms became operational, including the Customer Service Hub, New Payments Platform and
Panorama.
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
The Group has adopted AASB 9 Financial Instruments and AASB 15 Revenue from Contracts with Customers from 1 October 2018.
Statutory comparatives have not been restated. Refer to Note 1 in the 2019 Interim Financial Results and Note 1 in Section 3 of the
2019 Annual Report for further detail. However, where applicable, cash earnings comparatives (excluding expected credit loss
provisioning) have been restated to aid comparability. Refer to the cash earnings policy in Section 1.3.4 for further detail. In addition,
during Full Year 2019, the Group has made a number of presentational changes to the Balance Sheet and Income Statement, both
statutory and cash earnings comparatives have been restated. Refer to Note 1 in the 2019 Interim Financial Results and Note 1 in
Section 3 of the 2019 Annual Report for further detail.
2019 Full Year financial results
Review of Group operations
Westpac Group 2019 Full Year Financial Results Announcement | 33
Other expenses increased $61 million or 4%. Excluding notable items ($83 million higher), other expenses
decreased $22 million from lower costs associated with the exit of the Hastings business ($111 million lower) and
the Royal Commission. This was partly offset by increased professional services costs primarily related to
regulatory and compliance activity on financial crime, data privacy, product and system simplification and risk
management and higher marketing expenses.
Full Time Equivalent (FTE) employees
As at As at As at % Mov't % Mov't
30 Sept 31 March 30 Sept Sept 19 - Sept 19 -
Number of FTE 2019 2019 2018 Mar 19 Sept 18
Permanent employees 30,326 31,007 31,672 (2) (4)
Temporary employees 2,962 3,234 3,357 (8) (12)
FTE 33,288 34,241 35,029 (3) (5)
Average FTE
1
33,648 34,344 35,362 (2) (5)
Second Half 2019 – First Half 2019
FTE decreased 953 or 3% in the half from delivery of productivity initiatives across the Group, including
organisation simplification and channel optimisation, the exit of the Advice business more than offset additional
resources required for regulatory, compliance and customer remediation related activities.
Full Year 2019 – Full Year 2018
FTE decreased 1,741 or 5% compared to Full Year 2018. Delivery of productivity initiatives including organisation
simplification and channel optimisation, the exit of the Advice business more than offset additional resources
required for regulatory, compliance and customer remediation related activities.
Investment spend
% Mov't % Mov't
Half Year Half Year Sept 19 - Full Year Full Year Sept 19 -
$m Sept 19 March 19 Mar 19 Sept 19 Sept 18 Sept 18
Expensed
2
277 331 (16) 608 583 4
Capitalised software and fixed assets 506 392 29 898 881 2
Total 783 723 8 1,506 1,464 3
Growth and productivity 383 401 (4) 784 890 (12)
Regulatory change 308 195 58 503 377 33
Other technology 92 127 (28) 219 197 11
Total 783 723 8 1,506 1,464 3
In Full Year 2019, the Group invested $1.5 billion (up 3%), with 52% directed to growth and productivity initiatives,
33% to regulatory change and control strengthening projects, and 15% to other technology programs. The mix of
project spend changed over the year with higher regulatory change and lower growth and productivity investment.
Investment over the year was skewed to the Second Half (consistent with patterns over recent years) with Second
Half 2019 spending was up 8% over First Half 2019.
Across major investment categories the following progress was achieved in Second Half 2019:
Growth and Productivity
Platform modernisation
- Customer Service Hub (CSH) is a major Group program creating a one-bank, multi-brand operating system.
The system will ultimately provide a major improvement in functionality and productivity and create a better
experience for both customers and bankers. The system went live for mortgages in First Half 2019 and the
rollout to Westpac Home Finance Managers has commenced. In addition to digitising the home loan process,
the system allows customers and bankers to track the progress of each loan. The system has already
reduced the average time to ‘yes’ for a standard home loan (from 10 to 7 days). Regional brands and broker
home loan applications will begin to be originated on CSH in 2020;
- Real time payments on the New Payment Platform (NPP) were enabled for the majority of Westpac Group
customers, over 7 million accounts now channel payments through the platform. In 2019, the Group
processed over 48 million payments with a value of $40 billion, a share of over 40% of all NPP payments by
value; and
1
Averages are based on a six month period.
2
Comparatives have been restated.
2019 Full Year financial results
Review of Group operations
34 | Westpac Group 2019 Full Year Financial Results Announcement
- Additional Panorama capabilities were delivered, including an application that helps customers set up Self-
Managed Super Funds (SMSF) and a digital opt-in solution for Insurance. In addition, the process of
migrating customers from heritage platforms onto Panorama commenced. Panorama now has $23 billion in
assets and 44,314 investors on the platform.
Digitising the company
- Expanded the features available online including enabling St.George customers to change third party payee
limits, enhanced viewing of recurring direct debit and card payments, use of SMS notifications
for mobile registration to enhance security, and allowing new card customers to more easily switch to
e-Statements:
- Enhanced features for Business customers includes resetting passwords online, add / update ABNs, and
downloading e-Statements and tax invoices;
- Launched Deposit Rate Finder, a new tool for bankers providing improved pricing for term deposits and
eSaver accounts. Bankers can offer customers a rate that takes into account a customer’s relationship
without the need for additional approvals. The system results in faster decisions for customers and has led to
a 60% reduction in the number of pricing requests requiring escalation;
- Launched a dashboard enabling Corporate and Government customers to better manage their liquidity; and
- Launched Samsung Pay for St.George, a mobile wallet allowing contactless credit card payments.
Reducing complexity
- Removed 12 home loan products for sale and simplified 7 home loan features; and
- Simplified 10 credit cards on issue and introduced 9 new MasterCard credit cards. 40,000 customers have
been migrated to the new MasterCard credit card suite.
Regulatory Change
Major developments over the half included:
Delivered a number of regulatory requirements including:
- new and updated APRA Prudential Standards reporting (APS180, CPS226, economic and financial
statistics);
- compliance with a range of changes to superannuation regulation, including limits on management fees and
the ability to opt-in for insurance; and
- enhancements to anti-money laundering / counter-terrorism financing, and economic and trade sanction
systems.
Delivered first phase of Open Banking, with information on deposits and transactions, credit and debit card
products;
Updated systems and processes to comply with a number of new derivative compliance obligations including
ASIC Retail Derivatives Trade Reporting (Lifecycle reporting for CFDs, Margin FX and Equity Derivatives);
and
Further system updates to meet changes in industry codes including Life Insurance Code of Practice and
Banking Code of Practice.
Other technology
Major initiatives under this category included upgrades to the Group’s infrastructure improving efficiency and
speed of change. These included the implementation of an offsite private cloud, reducing cybersecurity risks and
the rollout of new desktop and work collaboration tools.
2019 Full Year financial results
Review of Group operations
Westpac Group 2019 Full Year Financial Results Announcement | 35
Capitalised software
1
% Mov't % Mov't
Half Year Half Year Sept 19 - Full Year Full Year Sept 19 -
$m Sept 19 March 19 Mar 19 Sept 19 Sept 18 Sept 18
Opening balance 2,244 2,177 3 2,177 1,916 14
Total additions
1
511 395 29 906 882 3
Amortisation expense (376) (318) 18 (694) (618) 12
Impairment expense (9) (16) (44) (25) (2) large
Foreign exchange translation (5) 6 large 1 (1) large
Closing balance 2,365 2,244 5 2,365 2,177 9
Capitalised software increased 5% during the half and 9% compared to September 2018. Second Half 2019
additions increased $116 million (or 29%) compared to First Half 2019 from higher investment spend (up 8%) and
a higher capitalisation rate relative to the first half (63% vs 54%). Full Year 2019 additions increased 3% compared
to Full Year 2018.
Software amortisation expense increased $58 million (or 18%) compared to First Half 2019 as major investments
became operational. Full Year 2019 amortisation was $76 million (or 12%) higher compared to Full Year 2018. As
part of the Group’s regular asset review, $25 million of capitalised software was impaired.
In aggregate, the average amortisation period for our capitalised software assets is 3.1 years.
1
Includes capitalised borrowing costs and card scheme following AASB 15 adoption.
2019 Full Year financial results
Review of Group operations
36 | Westpac Group 2019 Full Year Financial Results Announcement
2.2.9 Impairment charges
1
% Mov't % Mov't
Half Year Half Year Sept 19 - Full Year Full Year Sept 19 -
$m Sept 19 March 19 Mar 19 Sept 19 Sept 18 Sept 18
Individually assessed provisions (IAPs)
New IAPs (170) (173) (2) (343) (371) (8)
Write-backs 69 79 (13) 148 150 (1)
Recoveries 101 71 42 172 192 (10)
Total IAPs, write-backs and recoveries - (23) (100) (23) (29) (21)
Collectively assessed provisions (CAPs)
Write-offs (535) (418) 28 (953) (858) 11
Other changes in CAPs 74 108 (31) 182 75 143
Total new CAPs (461) (310) 49 (771) (783) (2)
Total impairment charges (461) (333) 38 (794) (812) (2)
Asset quality remained sound through Full Year 2019 with stressed exposures to total committed exposures (TCE)
increasing 12 basis points to 1.20%. The increase in stressed exposures was due to higher impaired and higher
90+ days but not impaired facilities. Emerging stress is mostly from an increase in mortgage delinquencies due to
the softening of economic activity and falling house prices.
Given modest change in asset quality, impairment charges have remained low at $794 million in Full Year 2019,
equal to 11 basis points of gross loans.
Second Half 2019 – First Half 2019
Impairment charges for Second Half 2019 were $461 million, $128 million higher than First Half 2019. The
increase was mostly due to higher total new CAPs from higher write-offs in the consumer portfolios and higher
stress in the Business division. These were partially offset by improvements in New Zealand and consumer
portfolios and a reduction in centrally held overlays.
Key movements included:
Total IAPs, write-backs and recoveries were zero, with new IAP’s offset by write-backs and recoveries, this was
$23 million less than First Half 2019 principally due to:
- New IAPs were $3 million lower compared to First Half 2019 mostly lower new impaired exposures over the
period in WIB; and
- Write-backs and recoveries were $20 million higher over the half principally from higher recoveries in the
Australian unsecured portfolio and in New Zealand.
Total new CAPs were $151 million higher than First Half 2019. Key movements included:
- Write-offs were $117 million higher in Second Half 2019, consistent with normal seasonal patterns in the
unsecured personal lending portfolios. The Auto finance portfolio write-offs were also higher with the
resolution of the operational issues experienced in Full Year 2018;
- Benefits from other changes in CAPs were $34 million lower:
o Higher new stress in the Australia Business portfolio from the softening economic conditions and in WIB
where the benefit seen in First Half 2019 turned to a small charge in Second Half 2019; partly offset by
o Lower charges for the Australian mortgage portfolio as the rate of increase of 90+ day delinquencies
slowed;
o Higher benefits in the NZ consumer portfolio from improving delinquencies and portfolio run off; and
o The overlay provision was reduced by a net $58 million in Second Half 2019 compared to a decrease of
$38 million in First Half 2019. The reduction in Second Half 2019 was mostly due to provisions utilised or
no longer required for mining related segments. The overlay was increased for areas of Australia
impacted by persistent drought.
1
The Group has adopted AASB 9 Financial Instruments and AASB 15 Revenue from Contracts with Customers from 1 October 2018.
Statutory comparatives have not been restated. Refer to Note 1 in the 2019 Interim Financial Results and Note 1 in Section 3 of the
2019 Annual Report for further detail. However, where applicable, cash earnings comparatives (excluding expected credit loss
provisioning) have been restated to aid comparability. Refer to the cash earnings policy in Section 1.3.4 for further detail. In addition,
during Full Year 2019, the Group has made a number of presentational changes to the Balance Sheet and Income Statement, both
statutory and cash earnings comparatives have been restated. Refer to Note 1 in the 2019 Interim Financial Results and Note 1 in
Section 3 of the 2019 Annual Report for further detail.
2019 Full Year financial results
Review of Group operations
Westpac Group 2019 Full Year Financial Results Announcement | 37
Full Year 2019 – Full Year 2018
Impairment charges of $794 million were down $18 million when compared to Full Year 2018.
Key movements included:
Total new IAPs, write-backs and recoveries were $6 million lower than Full Year 2018. This was due to lower
new IAPs in the Business division and New Zealand, partially offset by an increase in WIB. Recoveries were
also lower principally in the Australian unsecured portfolios; and
Total new CAPs were $12 million lower due to a $107 million reduction from other changes in CAPs partly
offset by a $95 million increase in write-offs. Within other changes in CAPs, the overlay provision was reduced
$96 million in Full Year 2019 compared to a $22 million reduction in Full Year 2018. Write-offs were higher
principally in Australian unsecured lending portfolios including Auto finance and from increases in customers
utilising hardship.
2.2.10 Income tax expense
Second Half 2019 – First Half 2019
The effective tax rate of 30.3% in Second Half 2019 was slightly higher than the First Half 2019 effective tax rate of
30.2%. The effective tax rate is above the Australian corporate tax rate of 30% and reflects several Tier 1
Instruments whose distributions are not deductible for Australian taxation purposes.
Full Year 2019 – Full Year 2018
The effective tax rate of 30.3% in Full Year 2019 was lower than the Full Year 2018 effective tax rate of 30.8%.
The lower effective tax rate in 2019 reflects a reduction in non-deductible of expenses. Non-deductible expenses
were high in 2018 as goodwill relates to the Hastings exit was non-deductible.
2.2.11 Non-controlling interests
Non-controlling interests represent results 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.
2019 Full Year financial results
Review of Group operations
38 | Westpac Group 2019 Full Year Financial Results Announcement
2.3 Credit quality
Credit quality remained sound over Full Year 2019 with total stressed exposures to TCE increasing modestly
consistent with the softening economy. Stressed exposures to TCE were 1.20%, 12 basis points higher than Full
Year 2018 and 10 basis point higher compared to First Half 2019 (see 2.3.1 Credit quality key metrics).
The 12 basis point rise in stressed exposures relates to increases in both 90 days past due and not impaired
(9 basis points) and to impaired exposures (3 basis points). The increase in 90 day past due and not impaired was
due mainly to an increase in mortgage 90+ day delinquencies and a small increase in well secured business
facilities migrating to this category of stress. The increase in impaired exposures was mostly from the deterioration
of companies already in the watchlist and substandard category which contributed to a rise in the ratio of gross
impaired exposures to gross loans by 5 basis points to 0.25% compared to September 2018.
Provisioning levels increased $989 million following the introduction of AASB 9, and on 1 October 2018 were
$4,042 million. Over Full Year 2019, total provisions were $120 million lower ending the period at $3,922 million. At
30 September 2019, the ratio of gross impaired asset provisions to gross impaired exposures was 44.92% while
the ratio of collectively assessed provisions to credit risk weighted assets increased to 95 basis points with the rise
due to the introduction of AASB 9.
Portfolio segments
The institutional segment continued to perform well – with only one new large (greater than $50 million) facility
downgraded to impaired during Full Year 2019. It has been two years since a facility of this size has migrated to
impaired. This facility is within the retail segment and was downgraded from the watchlist and substandard
category.
The quality of the commercial property sector has continued to improve as a result of decisions to tighten the
standards on new lending over recent years. At 30 September 2019 the level of stressed commercial property
exposures to TCE was 1.6% and remains well below long term averages with stress decreasing modestly (down
from 1.7%) compared to Full Year 2018.
The small and medium business portfolio has seen stress emerge in a small number of companies in Second Half
2019. The increase in stress has been driven by the manufacturing, wholesale and retail trade (including motor
vehicle retailers) sector along with the property and business services sectors.
The New Zealand business portfolio continues to perform well with stressed exposure ratios increasing over
Second Half 2019 due to exposures that are well secured.
Australian mortgage 90+ day delinquencies were 0.88% at 30 September 2019, 16 basis points higher over the
twelve months to 30 September 2019. The main driver of the increase has been the softening economic
conditions, low wages growth, and falling house prices (particularly in Sydney and Melbourne). There has been an
increase in customers utilising hardship while slower property market turnover has contributed to accounts
remaining delinquent for longer periods as properties become more difficult to sell. Lower new mortgage growth
and the compositional shift towards principal and interest mortgages (which have higher inherent delinquencies
than interest only lending) has also contributed to higher delinquencies. The rise in delinquencies has been
highest in WA and Qld while delinquencies in NSW and Vic have also risen although from a low base. NSW and
Vic delinquencies remain below the portfolio average, however, as these states account for a large portion of the
Group’s portfolio, they had a larger impact on overall delinquencies.
Australian properties in possession increased over Full Year 2019 by 162 to 558 at 30 September 2019. Most of
the rise was due to regions impacted by the slowing of the mining investment cycle. There has also been a small
rise in NSW and Vic. The rise is consistent with the lower market turnover and the longer time it takes for
properties in possession to be cleared. There has been some stabilisation in property markets in the final quarter
of 2019 and this has been reflected in delinquencies and properties in possession later in the year.
Realised mortgage losses were $111 million for Full Year 2019, equivalent to 2 basis points. This compares to
$89 million in Full Year 2018.
New Zealand mortgage 90+ day delinquencies increased 2 basis points to 0.13% compared to Full Year 2018 and
were 1 basis point lower than First Half 2019. While delinquencies were higher, they remain at or near historical
lows and reflect the more favourable economic conditions in New Zealand and prior macro-prudential rules that
limited the amount of high loan to value ratio (>80%) lending.
Other consumer 90+ day delinquencies were 5 basis points higher than Full Year 2018 to 1.69% and were
11 basis points lower compared to First Half 2019. The contraction in the portfolio size contributed around 9 basis
points of the rise. The underlying improvements in the delinquencies were in the personal loans and credit card
portfolios. The decrease over the half was due to improvements in the Auto finance portfolio and seasonal trends,
partly offset by portfolio run off.
2019 Full Year financial results
Review of Group operations
Westpac Group 2019 Full Year Financial Results Announcement | 39
Provisioning
Provisioning levels increased $989 million following the introduction of AASB 9 on 1 October 2019 to $4,042
million. Over the period provisions were $120 million lower to $3,922 million with:
CAPs were $108 million lower at $3,510 million compared to 1 October 2018 from lower centrally held overlays
and lower provisions in both WIB and the Business division from a reduction in stress. These declines were
partially offset by higher provisions for delinquencies in Australian mortgages. Within collectively assessed
provisions, the overlay reduced ($96 million) to $171 million at 30 September 2019. The reduction was mostly
due to provisions utilised or no longer required for the mining related segments. This was partially offset as the
overlay was increased for areas of Australia impacted by persistent drought.
IAPs were $10 million lower at $412 million with partial write offs larger than the rise in new impaired
provisions.
2.3.1 Credit quality key metrics
1
As at As at As at As at
30 Sept 31 March 30 Sept 31 March
2019 2019 2018 2018
Stressed exposures by credit grade as a % of TCE:
Impaired
0.17%
0.17%
0.14% 0.15%
90 days past due and not impaired
0.48%
0.43%
0.39% 0.37%
Watchlist and substandard
0.55%
0.50%
0.55% 0.57%
Total stressed exposures
1.20%
1.10%
1.08% 1.09%
Gross impaired assets to TCE for business and institutional:
Business Australia
0.61%
0.59%
0.54% 0.55%
Business New Zealand
0.23%
0.41%
0.50% 0.74%
Institutional 0.03%
0.05%
0.02% 0.04%
Mortgage 90+ day delinquencies:
Group
0.82%
0.75%
0.67% 0.65%
Australia
0.88%
0.82%
0.72% 0.69%
New Zealand
0.13%
0.14%
0.11% 0.16%
Other consumer loans 90+ day delinquencies:
Group 1.69%
1.80%
1.64% 1.64%
Australia 1.77%
1.87%
1.73% 1.71%
New Zealand 0.82%
1.02%
0.62% 0.86%
Other:
Gross impaired exposures to gross loans 0.25%
0.24%
0.20% 0.22%
Gross impaired exposures provisions
2
to gross impaired exposures 44.92%
45.74%
46.12% 45.54%
Total provisions
2
to gross loans 54bps
56bps
43bps 45bps
Collective assessed provisions
2
to credit risk weighted assets 95bps
98bps
73bps 75bps
Total provisions
2
to credit risk weighted assets 107bps
110bps
84bps 88bps
Impairment charges to average gross loans annualised
3
13bps
9bps
10bps 13bps
Net write-offs to average gross loans annualised
3
15bps
12bps
14bps 13bps
1
Comparatives have been restated.
2
The Group has adopted AASB 9 Financial Instruments and AASB 15 Revenue from Contracts with Customers from 1 October 2018.
Statutory comparatives have not been restated. Refer to Note 1 in the 2019 Interim Financial Results and Note 1 in Section 3 of the
2019 Annual Report for further detail. However, where applicable, cash earnings comparatives (excluding expected credit loss
provisioning) have been restated to aid comparability. Refer to the cash earnings policy in Section 1.3.4 for further detail. In addition,
during Full Year 2019, the Group has made a number of presentational changes to the Balance Sheet and Income Statement, both
statutory and cash earnings comparatives have been restated. Refer to Note 1 in the 2019 Interim Financial Results and Note 1 in
Section 3 of the 2019 Annual Report for further detail.
3
Averages are daily averages over a six month period.
2019 Full Year financial results
Review of Group operations
40 | Westpac Group 2019 Full Year Financial Results Announcement
2.3.2 Movement in gross impaired exposures
As at As at As at % Mov't % Mov't
30 Sept 31 March 30 Sept Sept 19 - Sept 19 -
$m 2019 2019 2018 Mar 19 Sept 18
Opening balance 1,749 1,416 1,535 24 14
New and increased - individually managed 550 519 450 6 22
Write-offs (655) (499) (593) 31 10
Returned to performing or repaid (447) (378) (393) 18 14
Portfolio managed - new/increased/returned/repaid 565 701 413 (19) 37
Exchange rate and other adjustments 1 (10) 4 large (75)
Balance as at period end 1,763 1,749 1,416 1 25
2019 Full Year financial results
Review of Group operations
Westpac Group 2019 Full Year Financial Results Announcement | 41
2.4 Balance sheet and funding
2.4.1 Balance sheet
1
As at As at As at % Mov't % Mov't
30 Sept 31 March 30 Sept Sept 19 - Sept 19 -
$m 2019 2019 2018 Mar 19 Sept 18
Assets
Cash and balances with central banks 20,059 19,486 26,788 3 (25)
Collateral paid 5,930 6,103 4,787 (3) 24
Trading securities and financial assets measured at fair value
through income statement (FVIS), available-for-sale securities
and investment securities 105,182 97,843 84,251 8 25
Derivative financial instruments 29,859 21,765 24,101 37 24
Loans 714,770 714,297 709,690 - 1
Life insurance assets 9,367 9,374 9,450 - (1)
Other assets 21,459 22,194 20,525 (3) 5
Total assets 906,626 891,062 879,592 2 3
Liabilities
Collateral received 3,287 1,889 2,184 74 51
Deposits and other borrowings 563,247 555,007 559,285 1 1
Other financial liabilities 29,215 29,013 28,105 1 4
Derivative financial instruments 29,096 23,384 24,407 24 19
Debt issues 181,457 188,759 172,596 (4) 5
Life insurance liabilities 7,377 7,503 7,597 (2) (3)
Loan capital 21,826 16,736 17,265 30 26
Other liabilities 5,614 4,836 3,580 16 57
Total liabilities 841,119 827,127 815,019 2 3
Equity
Total equity attributable to owners of Westpac Banking Corporation 65,454 63,884 64,521 2 1
Non-controlling interests 53 51 52 4 2
Total equity 65,507 63,935 64,573 2 1
Second Half 2019 – First Half 2019
Key movements during the half included:
Assets
Cash and balances with central banks increased $0.6 billion or 3% reflecting higher liquid assets held in this
form;
Trading securities and financial assets measured at FVIS, available-for-sale securities and investment
securities increased $7.3 billion or 8% reflecting higher liquid assets;
Derivative assets increased $8.1 billion or 37% mainly driven by movements across cross currency swaps and
interest rate swaps; and
Loans grew $0.5 billion. Refer to Section 2.2.2 for further information.
1
The Group has adopted AASB 9 Financial Instruments and AASB 15 Revenue from Contracts with Customers from 1 October 2018.
Statutory comparatives have not been restated. Refer to Note 1 in the 2019 Interim Financial Results and Note 1 in Section 3 of the
2019 Annual Report for further detail. However, where applicable, cash earnings comparatives (excluding expected credit loss
provisioning) have been restated to aid comparability. Refer to the cash earnings policy in Section 1.3.4 for further detail. In addition,
during Full Year 2019, the Group has made a number of presentational changes to the Balance Sheet and Income Statement, both
statutory and cash earnings comparatives have been restated. Refer to Note 1 in the 2019 Interim Financial Results and Note 1 in
Section 3 of the 2019 Annual Report for further detail.
2019 Full Year financial results
Review of Group operations
42 | Westpac Group 2019 Full Year Financial Results Announcement
Liabilities
Collateral received increased $1.4 billion or 74% driven by an increase in collateralised derivatives assets
resulting in higher collateral postings from derivative counterparties;
Deposits and other borrowings increased $8.2 billion or 1%. Refer to Section 2.2.3 for further information;
Derivative liabilities increased $5.7 billion or 24% mainly driven by movements in cross currency swaps,
foreign currency forward contracts and interest rate swaps;
Debt issues decreased $7.3 billion or 4% ($14.4 billion or 8% decrease excluding foreign currency translation
impacts, fair value and hedge accounting adjustments). Refer to Section 2.4.2 Funding and liquidity risk
management for further information; and
Loan capital increased $5.1 billion or 30% mainly due to $4.2 billion issuance of Tier 2 capital instruments to
meet APRA’s Total Loss Absorbing Capital announcement and $0.8 billion impact of hedging and foreign
currency translation.
Equity attributable to owners of Westpac Banking Corporation increased $1.6 billion or 2% mainly due to shares
issued under the interim Dividend Reinvestment Plan (DRP), retained profits and net of dividends paid during the
period.
Full Year 2019 – Full Year 2018
Key movements included:
Assets
Cash and balances with central banks decreased $6.7 billion or 25% reflecting lower liquid assets held in this
form;
Collateral paid increased $1.1 billion or 24% mainly due to an increase in collateralised derivative liabilities;
Trading securities and financial assets measured at fair value through income statement (FVIS), available-for-
sale securities and investment securities increased $20.9 billion or 25% reflecting higher liquid assets held in
this form;
Derivative assets increased $5.8 billion or 24% mainly driven by movements in cross currency swaps, foreign
currency forward contracts and interest rate swaps; and
Loans grew $5.1 billion or 1%. Refer to Section 2.2.2 for further information.
Liabilities
Collateral received increased $1.1 billion or 51% due to an increase in collateralised derivative assets;
Deposits and other borrowings increased $4.0 billion or 1%. Refer to Section 2.2.3 Deposits and other
borrowings for further information;
Other financial liabilities increased $1.1 billion or 4% mainly driven by securities sold under agreements to
repurchase and interbank deposits, partially offset by decreases in accrued interest payable and other
financial liabilities;
Derivative liabilities increased $4.7 billion or 19% driven by movements in cross currency swaps and interest
rate swaps;
Debt issues increased $8.9 billion or 5% ($1.8 billion or 1% decrease excluding foreign currency translation
impacts, fair value and hedge accounting adjustments). Refer to Section 2.4.2 Funding and liquidity risk
management for further information; and
Loan capital increased $4.6 billion or 26% mainly due to $3.2 billion net issuance of Tier 2 capital instruments
to meet APRA’s Total Loss Absorbing Capital announcement and $1.3 billion impact of hedging and foreign
currency translation.
Equity attributable to owners of Westpac Banking Corporation increased $0.9 billion or 1% reflecting retained
profits and shares issued under the 2019 interim DRP and 2018 final DRP, partly offset by $0.7 billion opening
retained earnings adjustment due to the adoption of new accounting standards and dividends paid during the
period.
2019 Full Year financial results
Review of Group operations
Westpac Group 2019 Full Year Financial Results Announcement | 43
2.4.2 Funding and liquidity risk management
Liquidity risk is the risk that the Group will be unable to fund assets and meet obligations as they become due.
This type of risk is inherent for all banks through their role as intermediaries between depositors and borrowers.
The Group has a liquidity risk management framework which seeks to meet the objective of meeting cash flow
obligations under a wide range of market conditions, including name specific and market-wide stress scenarios, as
well as meeting the regulatory requirements of the LCR and NSFR
1
.
In Full Year 2019 the Group maintained an appropriate funding and liquidity profile. Key measures of balance
sheet strength and funding and liquidity metrics remained comfortably above regulatory minimums at
30 September 2019, including an LCR of 127% and an NSFR of 112%.
LCR
The LCR requires banks to hold sufficient High Quality Liquid Assets (HQLA), as defined, to withstand 30 days
under a regulator-defined acute stress scenario. HQLA include cash, deposits with central banks, government
securities and other high quality securities that are repo-eligible with the Reserve Bank of Australia (RBA).
The Group holds a portfolio of HQLA which it manages within the Group’s risk appetite and within regulatory
requirements. As at 30 September 2019, this portfolio was $89.9 billion (31 March 2019: $79.7 billion).
In addition to its portfolio of HQLA, the Group also has access to the Committed Liquidity Facility (CLF) in order to
meet the requirements of the LCR. The RBA, jointly with APRA, makes the CLF available to ADIs due to the
limited amount of government debt in Australia. In order to have access to a CLF, ADIs must satisfy qualifying
conditions and are required to pay a fee to the RBA on the approved undrawn facility. In June 2019 the RBA
assessed that the fee for access to the CLF should be increased from 15 basis points per annum to 20 basis
points per annum. To minimise the effect on market functioning, the increase will occur in two stages, with the CLF
fee rising to 17 basis points on 1 January 2020 and to 20 basis points on 1 January 2021.
Westpac’s CLF allocation for the 2019 calendar year, as approved by APRA, was $54 billion (2018 calendar year:
$57 billion). APRA has approved an allocation of $52 billion for the 2020 calendar year.
The Group’s LCR for 30 September calculated on a spot basis was 127%, 11 percentage points lower than
31 March 2019 (138%). This movement reflects $16.3 billion increase in net cash outflows (NCO’s) from growth in
customer deposits, a higher proportion of at call deposits, higher wholesale funding outflows, as well as asset
measurement changes; partially offset by higher HQLA ($10.2 billion).
NSFR
The Group is required to maintain a NSFR, designed to encourage longer-term funding resilience, of at least
100%. Westpac had a NSFR of 112% at 30 September 2019 (31 March 2019: 113%). The reduction in the
Group’s NSFR over the half mainly reflects changes in the treatment of certain loans which increased the Group’s
required stable funding.
Funding
The Group monitors the composition and stability of its funding so that it remains within the Group’s funding risk
appetite. This includes compliance with both the LCR and NSFR.
Customer deposits as a proportion of total funding increased by 95 basis points to 62.5% (31 March 2019: 61.6%).
This reflects deposit growth across the Group’s consumer, business and institutional businesses exceeding loan
growth over the half.
Short term wholesale funding as a proportion of total funding decreased by 160 basis points to 12.1% (31 March
2019: 13.7%). This included a 29 basis point decrease in the amount of long term funding with less than one year
residual maturity. Customer deposit growth exceeded loan growth over the half by $12.4 billion and enabled the
Group to reduce short term funding. As at 30 September 2019, the Group’s short term funding portfolio (including
long term to short term scroll) was $101.2 billion (31 March 2019: $113.5 billion). The portfolio had a weighted
average maturity of 135 days and was more than covered by the $169.9 billion of unencumbered repo-eligible
liquid assets held by the Group (including LCR liquid assets, private securities and repo-eligible self-originated
AAA rated mortgage backed securities).
Long term wholesale funding made up 16.6% of the Group’s total funding as at 30 September 2019, up 72 basis
points over the half. Securitisation made up a further 1.0% of the Group’s total funding.
During the year to 30 September 2019, the Group raised $33.5 billion in new long term wholesale funding. This
included $11.8 billion raised in the Second Half, of which $4.2 billion was in Tier 2 capital securities, as the Group
made good progress towards the Total Loss Absorbing Capital (TLAC) requirements announced by APRA in July
2019.
1
Refer to Glossary for definition.
2019 Full Year financial results
Review of Group operations
44 | Westpac Group 2019 Full Year Financial Results Announcement
Despite being more active in Tier 2 markets in Second Half 2019, the majority of Westpac’s new issuance
continued to be in the form of senior unsecured bonds (51%) and covered bonds (24%). New term issuance also
included $1.4 billion of Additional Tier 1 capital securities and $2.8 billion in residential mortgage-backed
securities. AUD issuance made up 46% of the Group’s new long term wholesale funding over the year, followed by
USD (27%) and Euro (21%), with the remainder in other currencies including NZD. Westpac continues to benefit
from being the only major Australian bank able to issue SEC Registered bonds in the USD market, which delivers
superior liquidity compared to non-SEC Registered bonds, amongst other benefits.
The weighted average maturity (excluding securitisation) of new term issuance in Full Year 2019 was 6.0 years,
with 83% of new term issuance having an original tenor (or first call date) of 5 years or longer. This was slightly
shorter compared to Full Year 2018 (6.5 years).
Liquidity coverage ratio
As at As at As at % Mov't % Mov't
30 Sept 31 March 30 Sept Sept 19 - Sept 19 -
$m 2019 2019 2018 Mar 19 Sept 18
High Quality Liquid Assets (HQLA)
1
89,883 79,701 76,482 13 18
Committed Liquidity Facility (CLF)
1
54,000 54,000 57,000 - (5)
Total LCR liquid assets 143,883 133,701 133,482 8 8
Cash outflows in a modelled 30-day APRA defined
stressed scenario
Customer deposits 74,860 65,819 70,348 14 6
Wholesale funding 14,544 11,741 9,570 24 52
Other flows
2
23,986 19,482 20,476 23 17
Total 113,390 97,042 100,394 17 13
LCR
3
127% 138% 133% large large
1
Refer to Glossary for definition.
2
Other flows include credit and liquidity facilities, collateral outflows and inflows from customers.
3
Calculated on a spot basis.
2019 Full Year financial results
Review of Group operations
Westpac Group 2019 Full Year Financial Results Announcement | 45
Net stable funding ratio
As at As at As at % Mov't % Mov't
30 Sept 31 March 30 Sept Sept 19 - Sept 19 -
$m 2019 2019 2018 Mar 19 Sept 18
Available stable funding 606,774 606,217 601,184 - 1
Required stable funding 543,958 536,414 529,463 1 3
Net stable funding ratio 112% 113% 114% (146bps) (200bps)
Funding by residual maturity
As at 30 Sept 2019 As at March 2019 As at 30 Sept 2018
$m $mRatio % $m Ratio % $m Ratio %
Wholesale funding
Less than 6 months 45,334 5.4 58,244 7.0 53,649 6.5
6-12 months 25,566 3.1 22,860 2.8 18,537 2.3
Long term to short term scroll
1
30,255 3.6 32,375 3.9 29,894 3.6
Wholesale funding - residual maturity less
than 12 months 101,155 12.1 113,479 13.7 102,080 12.4
Securitisation 8,190 1.0 9,472 1.1 7,588 0.9
Greater than 12 months 139,328 16.6 132,089 15.9 128,276 15.7
Wholesale funding - residual maturity greater
than 12 months 147,518 17.6 141,561 17.0 135,864 16.6
Customer deposits 524,516 62.5 511,643 61.6 517,751 63.1
Equity
2
65,785 7.8 64,347 7.7 64,978 7.9
Total funding 838,974 100.0 831,030 100.0 820,673 100.0
Deposit to net loans ratio
3
As at 30 Sept 2019 As at March 2019 As at 30 Sept 2018
$m $mRatio % $m Ratio % $m Ratio %
Customer deposits 524,516 - 511,643 - 517,751 -
Net loans 714,770 73.4 714,297 71.6 709,690 73.0
1
Scroll represents wholesale funding with an original maturity greater than 12 months that now has a residual maturity less than 12
months.
2
Includes total share capital, share based payments reserves and retained profits.
3
Refer to Glossary for definition.
2019 Full Year financial results
Review of Group operations
46 | Westpac Group 2019 Full Year Financial Results Announcement
Funding view of the balance sheet
Total liquid Customer Wholesale Customer Market
$m assets
1
deposits funding franchise inventory Total
As at 30 Sept 2019
Total assets 169,871 - - 670,261 66,494 906,626
Total liabilities - (524,516) (248,673) - (67,930) (841,119)
Total equity - - - (65,785) 278 (65,507)
Total 169,871 (524,516) (248,673) 604,476 (1,158) -
Net loans
2
59,278 - - 655,492 - 714,770
As at 31 March 2019
Total assets 151,588 - - 679,713 59,761 891,062
Total liabilities - (511,643) (255,040) - (60,444) (827,127)
Total equity - - - (64,347) 412 (63,935)
Total 151,588 (511,643) (255,040) 615,366 (271) -
Net loans
2
49,151 - - 665,146 - 714,297
As at 30 Sept 2018
Total assets 153,694 - - 668,237 57,661 879,592
Total liabilities - (517,751) (237,944) - (59,324) (815,019)
Total equity - - - (64,978) 405 (64,573)
Total 153,694 (517,751) (237,944) 603,259 (1,258) -
Net loans
2
55,500 - - 654,190 - 709,690
1
Refer to Glossary for definition.
2
Liquid assets in net loans include internally securitised assets that are eligible for repurchase agreements with the RBA / RBNZ.
2019 Full Year financial results
Review of Group operations
Westpac Group 2019 Full Year Financial Results Announcement | 47
2.5 Capital and dividends
As at As at As at % Mov't % Mov't
30 Sept 31 March 30 Sept Sept 19 - Sept 19 -
2019 2019 2018 Mar 19 Sept 18
Level 2 Regulatory capital structure
Common equity Tier 1 capital after deductions ($m) 45,752 44,680 45,239 2 1
Risk weighted assets (RWA) ($m) 428,794 419,819 425,384 2 1
Common equity Tier 1 capital ratio (CET1) 10.67% 10.64% 10.63% 3bps 4bps
Additional Tier 1 capital ratio 2.17% 2.20% 2.15% (3bps) 2bps
Tier 1 capital ratio 12.84% 12.84% 12.78% - 6bps
Tier 2 capital ratio 2.79% 1.78% 1.96% 101bps 83bps
Total regulatory capital ratio 15.63% 14.62% 14.74% 101bps 89bps
APRA leverage ratio
1
5.68% 5.72% 5.84% (4bps) (16bps)
Level 1 Regulatory capital structure
Common equity Tier 1 capital after deductions ($m)
46,380
43,850 42,988 6 8
Risk weighted assets (RWA) ($m)
422,475
409,231 409,240 3 3
Level 1 Common equity Tier 1 capital ratio (CET1) 10.98% 10.72% 10.50% 26bps 48bps
Capital actions
While Westpac’s CET1 capital ratio is above APRA’s ‘unquestionably strong’ benchmark of 10.5%, the Group’s
lower cash earnings, new operational risk capital overlays and changes in the calculation of risk weighted assets
has impacted the Group’s capital generation over the year. Given our priority for balance sheet strength and our
goal to support customer growth, we are seeking to raise approximately $2.5 billion in capital to provide an
increased buffer above APRA’s unquestionably strong benchmark. The raising also creates flexibility for changes
in capital rules and potential litigation or regulatory action. The raising is expected to lift the Group’s CET1 ratios
by around 46-58
2
basis points.
Capital management strategy
In light of APRA's 'unquestionably strong' capital benchmarks, Westpac will seek to operate with a CET1 capital
ratio above 10.5% in March and September as measured under the existing capital framework. Additional buffers
may also be held to reflect challenging or uncertain environments. This also takes into consideration:
Current regulatory capital minimums and the capital conservation buffer (CCB), which together are the total
CET1 requirement. In line with the above, the total CET1 requirement for Westpac is at least 8.0%, based upon
an industry minimum CET1 requirement of 4.5% plus a capital buffer of at least 3.5% applicable to domestic
systemically important banks (D-SIBs)
3
;
Stress testing to calibrate an appropriate buffer against a downturn; and
Quarterly volatility of capital ratios due to the half yearly cycle of ordinary dividend payments.
Should the CET1 capital ratio fall below the total CET1 requirement, restrictions on the distribution of earnings will
apply. This includes restrictions on the amount of earnings that can be distributed through dividends, Additional
Tier 1 capital distributions and discretionary staff bonuses.
Westpac will revise its target capital level once APRA finalises its review of the capital adequacy framework.
Total regulatory capital developments
On 9 July 2019 APRA announced that it will require the major banks (including Westpac) to lift Total Regulatory
Capital by three percentage points of RWA by 1 January 2024 in order to boost loss absorbing capacity and
support orderly resolution. APRA also confirmed that its overall long term target of an additional four to five
percentage points of loss absorbing capacity remains unchanged, and that it will consider the most feasible
alternative method of sourcing the remaining one to two percentage points, taking into account the particular
characteristics of the Australian financial system.
Further details of APRA’s regulatory changes are set out in the Significant Developments section of the 2019 Full
Year Financial Results.
1
Refer to Glossary for definition.
2
Based on risk weighted assets at 30 September 2019. A 46 basis point increase reflects the impact of the placement only of $2
billion, while a 58 basis point increase reflects the impact of both the placement and the share purchase plan, assuming the share
purchase plan raises $500 million (the basis point impacts are net of issue costs).
3
Noting that APRA may apply higher CET1 requirements for an individual ADI.
2019 Full Year financial results
Review of Group operations
48 | Westpac Group 2019 Full Year Financial Results Announcement
Common Equity Tier 1 capital ratio movement for Second Half 2019
Westpac’s common equity Tier 1 (CET1) capital ratio was 10.67% at 30 September 2019, up 3 basis points from
31 March 2019, as organic capital generation was largely offset by other items.
The 51 basis point organic capital growth included:
Second Half 2019 cash earnings, excluding notable items (92 basis points increase);
The 2019 interim dividend payment, net of dividend reinvestment plan (DRP) share issuance (48 basis points
decrease);
Ordinary RWA (before regulatory measurement changes, and excluding IRRBB) grew slightly (4 basis points
decrease), mainly driven by increases in credit RWA, and mark to market CVA;
Reduction in interest rate risk in the banking book (IRRBB) RWA (17 basis points increase), driven by an
increase in the embedded gain from falling interest rates; and,
A 6 basis points reduction from other capital movements, largely driven by movements in regulatory
deductions.
Other items reduced the CET1 capital ratio by 48 basis points, principally:
Operational risk overlays comprising the Culture, Governance and Accountability (CGA) self-assessment
overlay imposed by APRA (16 basis points reduction), and an increase in the overlay to better align Westpac to
the standardised approach (5 basis points reduction);
Implementation of APRA’s new derivatives capital standard (14 basis points reduction)
1
; and
Notable items (13 basis points reduction)
2
.
Supplementary capital movement for Second Half 2019
During the half, Westpac issued $4.2 billion of Tier 2 capital instruments, increasing the total regulatory capital
ratio by 99 basis points. The higher new issuance was in response to APRA’s increased total capital requirements
to be met by 1 January 2024.
1
APRA prudential standard APS180 Counterparty Credit Risk became effective on 1 July 2019 and implements the Standardised
Approach to Counterparty Credit Risk (SA-CCR).
2
The impact of notable items on the CET1 ratio includes the capital deduction for associated deferred tax assets.
10.67%
92bps
Cash
earnings
(excluding
notable items)
(75bps)
(13bps)
(14bps)
D e r i va ti ve
capital
standard
(16bps)
1H19
Dividend
Sep-19Op Ris k CGA
Overlay
Notable Items
27bps
Dividend
reinves tm ent
plan (1.5%
discount)
(4bps)
10.64%
Ordinary
RWA growth
(6bps)
Other capital
movements
17bps
IRRBB
RWA
Mar-19
(5bps)
Op Ris k
Standardised
Overlay
Organic
(+51bps)
Other items
(-48bps)
2019 Full Year financial results
Review of Group operations
Westpac Group 2019 Full Year Financial Results Announcement | 49
Common Equity Tier 1 movement for Full Year 2019
Westpac’s common equity Tier 1 (CET1) capital ratio was 10.67% at 30 September 2019, up 4 basis points from
30 September 2018, as organic capital generation of 78 basis points was largely offset by other items (74 basis
points). Other items mainly related to ‘notable items’, implementation of the new derivative capital standard
1
, and
operational risk overlays.
Leverage Ratio
The leverage ratio represents the amount of Tier 1 capital relative to exposure
2
. At 30 September 2019, Westpac’s
leverage ratio was 5.68%, down 4 basis points since 31 March 2019.
Internationally comparable capital ratios
The APRA Basel III capital adequacy requirements are more conservative than those of the Basel Committee on
Banking Supervision (BCBS), leading to lower reported capital ratios when compared to international peers. APRA
conducted a study in July 2015 outlining its methodology for measuring international comparable capital ratios. For
details on the adjustments refer to Westpac’s 2019 Full Year Results Presentation and Investor Discussion Pack.
The table below calculates the Group’s reported capital ratios consistent with this methodology.
As at As at As at % Mov't % Mov't
30 Sept 31 March 30 Sept Sept 19 - Sept 19 -
2019 2019 2018 Mar 19 Sept 18
Internationally comparable capital ratios
Common equity Tier 1 capital ratio 15.85% 16.17% 16.14% (32bps) (29bps)
Tier 1 capital ratio 18.64% 19.07% 19.02% (43bps) (38bps)
Total regulatory capital ratio 22.08% 21.25% 21.50% 83bps 58bps
Leverage ratio 6.36% 6.39% 6.48% (3bps) (12bps)
1
APRA prudential Standard APS180 Counterparty Credit Risk became effective on 1 July 2019 and implements the Standardised
Approach to Counterparty Credit Risk (SA-CCR).
2
As defined under Attachment D of APS110: Capital Adequacy.
(14bps)
Other capital
movements
IRRBB
RWA
32bps
D e r i va ti ve
capital
standard
(16bps)
10.67%
Op Ris k
Standardised
Overlay
Ordinary
RWA growth
Sep-18
(1bps)
(12bps)
Sep-19Dividend
reinvestm ent
plans
35bps
Op Risk CGA
Overlay
Dividends
(13bps)
(38bps)
10.63%
188bps
Cash
earnings
(excluding
notable
items)
(152bps)
(5bps)
Notable
Item s
Other item s
Organic
(+78bps)
Other items
(-74bps)
2019 Full Year financial results
Review of Group operations
50 | Westpac Group 2019 Full Year Financial Results Announcement
Risk Weighted Assets (RWA)
As at As at As at % Mov't % Mov't
30 Sept 31 March 30 Sept Sept 19 - Sept 19 -
$m 2019 2019 2018 Mar 19 Sept 18
Corporate
1
74,807 73,551 69,584 2 8
Business lending
2
35,470 35,294 35,417 - -
Sovereign
3
2,068 1,653 1,644 25 26
Bank
4
8,339 7,066 6,606 18 26
Residential mortgages 131,629 132,133 132,734 - (1)
Australian credit cards 5,089 5,910 6,313 (14) (19)
Other retail 12,395 13,082 13,777 (5) (10)
Small business
5
16,090 16,092 16,329 - (1)
Specialised lending: Property and project finance
6
55,262 54,833 57,043 1 (3)
Securitisation
7
5,749 5,583 5,918 3 (3)
Standardised 9,653 10,455 10,778 (8) (10)
Mark-to-market related credit risk 11,313 7,110 6,606 59 71
Credit risk 367,864 362,762 362,749 1 1
Market risk 9,350 8,338 6,723 12 39
Operational risk
8
47,680 38,641 39,113 23 22
Interest rate risk in the banking book (IRRBB) 530 7,076 12,989 (93) (96)
Other 3,370 3,002 3,810 12 (12)
Total 428,794 419,819 425,384 2 1
Second Half 2019 – First Half 2019
Total RWA increased $9.0 billion or 2.1% this half:
Credit risk RWA increased $5.1 billion over the half. This included a $5.3 billion increase from implementation
of APRA’s new derivatives capital standard on 1 July 2019
9
. The remaining movements comprised:
- An increase in mark-to-market related credit risk of $2.0 billion, mostly due to lower interest rates;
- Changes to credit quality and portfolio mix, which reduced RWA by $2.3 billion;
- Foreign currency translation impacts which reduced RWA by $0.7 billion; and
- Business growth which increased RWA by $0.8 billion;
Non-credit RWA increased $3.9 billion over the half, driven by:
- An increase of $9.0 billion in operational risk RWA, mainly from operational risk overlays
10
;
- A decrease of $6.5 billion in interest rate risk in the banking book RWA, driven by an increase in the
embedded gain from falling interest rates; and
- An increase of $1.0 billion in market risk RWA and an increase of $0.4 billion in other assets RWA.
1
Corporate – typically includes exposure where the borrower has annual turnover greater than $50 million, and other business
exposures not captured under the definitions of either Business lending or Small Business.
2
Business lending – includes exposures not captured elsewhere where the borrower has annual turnover less than or equal to $50
million.
3
Sovereign – includes exposures to governments themselves and other non-commercial enterprises that are owned or controlled by
them.
4
Bank – includes exposures to licensed banks and their owned or controlled subsidiaries, and overseas central banks.
5
Small business – program managed business lending exposures.
6
Specialised lending – property and project finance – includes exposures to entities created to finance and / or operates specific
assets where, apart from the income received from the assets being financed, the borrower has little or no independent capacity to
repay from other activities or assets.
7
Securitisation – exposures reflect Westpac’s involvement in activities ranging from originator to investor and include the provision of
securitisation services for clients wishing to access capital markets.
8
Operational risk – the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events,
including legal risk but excluding strategic or reputational risk.
9
APRA prudential standard APS180 Counterparty Credit Risk became effective on 1 July 2019 and implements the Standardised
Approach to Counterparty Credit Risk (SA-CCR).
10
This includes the $500 million capital overlay applied by APRA in response to Westpac’s Culture, Governance and Accountability
(CGA) self-assessment, which translates to a $6.25 billion increase in RWA. This also includes a $165 million increase in the
operational risk capital overlay to align Westpac’s advance operational risk capital with the standardised approach, which translates to
a $2.1 billion increase in RWA.
2019 Full Year financial results
Review of Group operations
Westpac Group 2019 Full Year Financial Results Announcement | 51
Full Year 2019 – Full Year 2018
Total RWA increased $3.4 billion or 0.8% over the year:
Credit risk RWA increased $5.1 billion over the year, with key movements including:
- A $5.3 billion increase from implementation of APRA’s new derivatives capital standard on 1 July 2019
1
;
- An increase in mark-to-market related credit risk of $2.5 billion, mostly due to lower interest rates;
- Foreign currency translation impacts which increased RWA by $1.5 billion; and
- Business growth which increased RWA by $1.3 billion;
These were partly offset by:
- Adoption of AASB 9 on 1 October 2018, which reduced RWA $3.9 billion;
- Regulatory modelling updates for corporate and bank exposures reduced RWA by $1.0 billion; and
- Changes to credit quality and portfolio mix, which reduced RWA by $0.6 billion;
Non-credit RWA decreased by $1.7 billion over the year, driven by:
- A decrease of $12.5 billion in interest rate risk in the banking book RWA, driven by an increase in the
embedded gain from falling interest rates;
- An increase of $8.6 billion in operational risk RWA, mainly from operational risk overlays
2
;
- An increase of $2.6 billion in market risk RWA, and a decrease of $0.4 billion in other assets RWA.
1
APRA prudential standard APS180 Counterparty Credit Risk became effective on 1 July 2019 and implements the Standardised
Approach to Counterparty Credit Risk (SA-CCR).
2
This includes the $500 million capital overlay applied by APRA in response to Westpac’s Culture, Governance and Accountability
(CGA) self-assessment, which translate to a $6.25 billion increase in RWA. This also includes a $165 million increase in the
operational risk capital overlay to align Westpac’s advance operational risk capital with the standardised approach, which translates to
a $2.1 billion increase in RWA.
2019 Full Year financial results
Review of Group operations
52 | Westpac Group 2019 Full Year Financial Results Announcement
Capital adequacy
As at As at As at
30 Sept 31 March 30 Sept
$m
2019 2019 2018
Tier 1 capital
Common equity Tier 1 capital
Paid up ordinary capital
37,508
36,351 36,054
Treasury shares
(575)
(571) (507)
Equity based remuneration 1,548 1,527 1,441
Foreign currency translation reserve (199) (331) (379)
Accumulated other comprehensive income (68) 15 (11)
Non-controlling interests - other 58 54 55
Retained earnings 27,188 26,949 27,883
Less retained earnings in life and general insurance, funds management and
securitisation entities (1,407) (1,289) (1,218)
Deferred fees 267 234 258
Total common equity Tier 1 capital 64,320 62,939 63,576
Deductions from common equity Tier 1 capital
Goodwill (excluding funds management entities) (8,648) (8,665) (8,644)
Deferred tax assets (2,034) (1,710) (1,169)
Goodwill in life and general insurance, funds management and securitisation entities (940) (941) (942)
Capitalised expenditure (1,719) (1,778) (1,838)
Capitalised software (2,019) (1,881) (1,792)
Investments in subsidiaries not consolidated for regulatory purposes (1,540) (1,522) (1,567)
Regulatory expected loss in excess of eligible provisions (1,106) (1,148) (1,312)
General reserve for credit losses adjustment - - (356)
Defined benefit superannuation fund surplus (73) (66) (78)
Equity investments (425) (482) (570)
Regulatory adjustments to fair value positions (63) (65) (68)
Other Tier 1 deductions (1) (1) (1)
Total deductions from common equity Tier 1 capital (18,568) (18,259) (18,337)
Total common equity Tier 1 capital after deductions 45,752 44,680 45,239
Additional Tier 1 capital
Basel III complying instruments 9,299 9,216 9,144
Total Additional Tier 1 capital 9,299 9,216 9,144
Net Tier 1 regulatory capital 55,051 53,896 54,383
Tier 2 capital
Basel III complying instruments 11,645 7,143 8,025
Basel III transitional instruments 519 495 486
Eligible general reserve for credit loss 62 66 54
Total Tier 2 capital 12,226 7,704 8,565
Deductions from Tier 2 capital
Investments in subsidiaries not consolidated for regulatory purposes (140) (140) (140)
Holdings of own and other financial institutions Tier 2 capital instruments (115) (103) (93)
Total deductions from Tier 2 capital (255) (243) (233)
Net Tier 2 regulatory capital 11,971 7,461 8,332
Total regulatory capital 67,022 61,357 62,715
Risk weighted assets 428,794 419,819 425,384
Common equity Tier 1 capital ratio 10.67% 10.64% 10.63%
Additional Tier 1 capital ratio 2.17% 2.20% 2.15%
Tier 1 capital ratio 12.84% 12.84% 12.78%
Tier 2 capital ratio 2.79% 1.78% 1.96%
Total regulatory capital ratio 15.63% 14.62% 14.74%
2019 Full Year financial results
Review of Group operations
Westpac Group 2019 Full Year Financial Results Announcement | 53
Dividends
% Mov't % Mov't
Half Year Half Year Sept 19 - Full Year Full Year Sept 19 -
Ordinary dividend (cents per share) Sept 19 March 19 Mar 19 Sept 19 Sept 18 Sept 18
Interim (fully franked) - 94 (100) 94 94 -
Final (fully franked) 80 - 100 80 94 (15)
Total ordinary dividend 80 94 (15) 174 188 (7)
Payout ratio (reported) 77.26% 102.00% large 88.83% 79.52% large
Payout ratio (cash earnings) 78.58% 98.33% large 88.09% 79.94% large
Adjusted franking credit balance ($m) 1,558 1,234 26 1,558 1,357 15
Imputation credit (cents per share - NZ) 7.0 7.0 - 14.0 14.0 -
The Board has determined a final fully franked dividend of 80 cents per share, to be paid on 20 December 2019, to
shareholders on the register at the record date of 13 November 2019
1
. The final dividend represents a Second
Half 2019 payout ratio on a cash earnings basis of 78.58%. In addition to being fully franked, the dividend will also
carry NZ$0.07 in New Zealand imputation credits that may be used by New Zealand tax residents.
The Board has determined to issue shares to satisfy the DRP for the Final 2019 dividend. The market price used
to determine the number of shares issued under the DRP will be set over the 10 trading days commencing
18 November 2019.
On 4 November 2019, Westpac announced that it will be undertaking an underwritten placement of fully paid
ordinary shares in Westpac to institutional investors to raise $2 billion. As further announced, following
the placement, Westpac will make a share purchase plan available to shareholders to raise approximately
$500 million, subject to scaleback, and with the ability to raise less or more. The proceeds received under the
placement and share purchase plan will be used to strengthen Westpac's regulatory capital position.
Capital deduction for regulatory expected credit loss
For capital adequacy purposes APRA requires the amount of regulatory expected credit losses in excess of
eligible provisions to be deducted from CET1 capital. The table below shows the calculation of this capital
deduction.
As at As at As at
30 Sept 31 March 30 Sept
$m
2019 2019 2018
Provisions associated with eligible portfolios
Total provisions and reserves for impairment charges (Section 4 Note 10)
3,924 3,997 3,053
plus general reserve for credit losses adjustment
- - 356
plus provisions associated with partial write-offs
41 94 101
less ineligible provisions
2
(89) (79) (80)
Total eligible provisions 3,876 4,012 3,430
Regulatory expected downturn loss 4,982 5,160 4,742
Shortfall in eligible provisions compared to regulatory expected downturn loss 1,106 1,148 1,312
Common equity Tier 1 capital deduction for regulatory expected downturn loss
in excess of eligible provisions (1,106) (1,148) (1,312)
1
Record date in New York is 12 November 2019.
2
Provisions associated with portfolios subject to the Basel standardised approach to credit risk are not eligible.
2019 Full Year financial results
Review of Group operations
54 | Westpac Group 2019 Full Year Financial Results Announcement
2.6 Sustainability performance
Westpac's approach to sustainability
The Group’s approach to operating sustainably is designed to anticipate, respond to and shape the most pressing
emerging topics (issues and opportunities) that have the potential to materially impact customers, employees,
suppliers, shareholders and communities.
As one of Australia’s largest companies, Westpac Group plays a role in helping to create positive social, economic
and environmental impact, for the benefit of all.
Our approach to sustainability is embedded within the Group’s business activities and aligns with the priorities set
out in the Group’s strategy. We are aligned with the Paris Climate Agreement and contribute to the United Nations
Sustainable Development Goals.
Guiding our approach
Accountability for the Group’s Sustainability Strategy starts with the Board, which has responsibility for considering
the social, ethical and environmental impact of the Group’s activities, setting standards and monitoring compliance
with sustainability policies and practices. The Westpac Sustainability Council comprising senior leaders from
across the business, meets at least four times a year and oversees strategic progress and guides the Group’s
approach.
Progress against the Sustainability Strategy is reported to and discussed with the Executive Team and Board
twice each year, with other items discussed as needed.
Our approach is aligned to the widely accepted global standard for corporate responsibility and sustainable
development, the AA1000 AccountAbility Principles Standard (2008), and its three key principles of Inclusivity,
Materiality and Responsiveness.
Westpac’s sustainability performance is regularly benchmarked by a number of third-party ratings and awards,
including the Dow Jones Sustainability Indices (DJSI), where the Group has been recognised as a global leader as
a member of DJSI World for 18 years in a row. In 2019, Westpac ranked number one in Australia and ninth
globally.
Frameworks and policies
Westpac responds to enduring and emerging material topics through frameworks and policies that are
complementary to its business strategy and form part of the Group’s approach to governance and risk
management. Collectively, they help to guide decisions, manage risks and drive actions. Key frameworks and
policies include:
Principles for Doing Business, which set out the behaviours the Group expects to be judged against in pursuit
of its vision, and the framework to embed sustainable practices throughout the business in the areas of
governance and ethics, customer practices, employee practices, care for the environment, community
involvement and supply chain management;
Sustainability Risk Management Framework, which sets out how the Group manages sustainability risks in
operations, lending and investment decisions, and the supply chain, providing a guide for roles and
responsibilities within the organisation, reflecting the Group’s ‘three lines of defence’ risk management
approach; and
A suite of policies that embed the principles and management requirements in day-to-day operations, including
our Code of Conduct, divisional ESG policies, and position statements on sensitive sectors and issues
including climate change and human rights.
2019 Full Year financial results
Review of Group operations
Westpac Group 2019 Full Year Financial Results Announcement | 55
Material sustainability topics
Informed by engagement with internal and external stakeholders, including the Group’s Stakeholder Advisory
Council, review of policies, industry trends, peer analysis and regulatory and non-regulatory requirements,
Westpac’s materiality process is aligned with the Global Reporting Initiative Standards (2016) and the AA1000
AccountAbility Principles Standard (2008). Prioritisation of material topics is subject to annual independent
external assurance. Westpac’s top ten material topics are outlined below.
Material sustainability topic
Conduct and culture
Instances of poor conduct have eroded
public trust in the financial services
sector, driving an increased focus on
corporate culture and improved
outcomes for customers
Changing regulatory
landscape
Supervision and regulation in
jurisdictions that the Group operates in
continue to evolve, creating uncertainty
in the operating environment
Customer
satisfaction and
experience
Customers’ needs are becoming more
complex, and at the same time their
expectations around how they want to
engage with us are evolving
Digital product and
service
transformation
Digitisation offers opportunities to
improve efficiency and deliver new and
better customer experiences when, how
and where customers choose to engage
with us
Governance and risk
Clear governance practices, active
management of risk, commitment to
compliance, and fair remuneration in our
operations, supplier and partner
relationships are critical to the longevity
and financial wellbeing of the Group
Customer
vulnerability and
hardship
Our ability to support customers in times
of financial hardship and anticipating
times when they can become vulnerable
allows us to help when it matters most
Information security
and data privacy
Maintaining customer confidentiality and
the security of our systems is paramount
to maintaining trust and confidence
Executive
remuneration
Appropriate remuneration structures
align executive remuneration and
accountability with stakeholder interests
over the long term, and play an important
role in effective corporate governance
Financial and
economic
performance
Maintaining a healthy financial
performance and strong balance sheet is
vital to the Group’s long-term
sustainability
Climate change risks
and opportunities
As a major financial institution, we have
an important role to play in managing the
risks and opportunities of climate
change, supporting collaborative efforts
to limit global warming, while also taking
steps to help the economy and
communities become more resilient to
the expected effects
For further detail, please see our Annual Review and Sustainability Report and Sustainability Performance Report
at www.westpac.com.au/sustainability.
2019 Full Year financial results
Review of Group operations
56 | Westpac Group 2019 Full Year Financial Results Announcement
Sustainability goals
Westpac Group’s 2018-2020 Sustainability Strategy outlines the Group’s commitment to building a sustainable
future. This includes taking action in the areas where the Group can have the greatest impact and create
sustainable, long-term value for customers, communities and the nation by:
helping people make better financial decisions;
helping people by being there when it matters most to them; and
helping people create a prosperous nation.
Underpinning these three priority areas is a commitment to fostering a culture of care and doing the right thing and
continuing to lead on the sustainability fundamentals – policies, action plans, frameworks and metrics reporting.
We continue to progress on our climate change, human rights and reconciliation action plans.
Westpac is committed to regular reporting to enable a comparison of performance over time. The table below
summarises progress against the goals set out in the Group’s Sustainability Strategy with a focus on activities in
the past 12 months.
Performance against sustainability goals
Priority areas Goals Full Year 2019 performance
Helping people
make better
financial decisions
Help more people
better understand
their financial
position, improving
their financial
confidence
Continued to offer financial health check programs for superannuation members,
including the digital Wealth Review tool and My Wellbeing online portal;
Delivered a range of financial literacy programs to individuals, businesses, not-for-profit
organisations and community groups through Westpac’s Davidson Institute in Australia
and the Managing Your Money program in New Zealand; and
Delivered financial capability communications for different demographic segments
including for young Australians, in partnership with 26 universities and TAFE NSW
(900,000 interactions); women, via Ruby Connection (724,000 interactions); and older
Australians, via Starts at 60 (over 3 million interactions).
Helping people by
being there when
it matters most to
them
Help people recover
from financial
hardship
Helped customers experiencing financial hardship, issuing over 52,000 financial
assistance packages during the year.
Help people lift out of
a difficult time and
recover stronger
Extended the $100 million drought relief fund launched last year to support Australian
farmers;
Committed $50 million to a flood relief fund dedicated to helping farmers in North
Queensland;
Delivered a portable ‘Bank in a Box’ branch to Townsville to help those affected by
floods;
Provided over 500 relief packages for customers impacted by natural disasters across
Australia;
Donated $150,000 to the Salvation Army and a further $100,000 to the Foundation for
Rural & Regional Renewal (FRRR) to support disaster recovery and programs to build
local community resilience;
Joined the Government-led Drought Finance Taskforce to both share information with
the government on the impact of drought on our customers and advise on measures to
help alleviate the impact; and
Continued work with the Australian Business Roundtable for Disaster Resilience and
Safer Communities to define approaches to assist government, business and
communities mitigate and respond to natural disasters.
Helping our most
vulnerable customers
Published the 2020 Customer Vulnerability Action Plan outlining the Group's principles
for engaging with customers experiencing vulnerability, including providing guidance,
help and support for customers experiencing domestic and family violence and financial
abuse;
Assisted over 900 customers since launching the Priority Assist 1800 telephone line to
support customers experiencing domestic and family violence and financial abuse;
Established specialist teams to support bankers with complex customer queries;
Established a dedicated 24/7 Scams Assist team to protect customers who may be
victims of fraud or scams;
Launched a series of Life Moments tools and resources to assist customers and their
families going through challenging circumstances such as the loss of a loved one,
divorce or separation; and
Supported over 3,000 Indigenous Australians through a dedicated customer care team
established this year to support remote Indigenous communities.
2019 Full Year financial results
Review of Group operations
Westpac Group 2019 Full Year Financial Results Announcement | 57
Priority areas
Goals Full Year 2019 performance
Helping people
create a
prosperous
nation
Build the workforce
of the future
Identified 10 core capabilities to enable our people to prepare for the future of work and
built curricula to support their growth in these areas; and
Updated our Science, Technology, Engineering and Mathematics (STEM) Commitment,
reflecting a wide range of interventions and initiatives to help build a STEM-confident
nation that is diverse and future ready.
Invest and back the
people and ideas
shaping Australia
Awarded $4.3 million in educational scholarships, through Westpac Scholars Trust to
the next 102 Westpac Scholars, bringing the total cohort to 416;
Helped to create over 700 jobs
1
for vulnerable Australians through Westpac Foundation
job creation grants to social enterprises;
Westpac Foundation awarded 100 Community Grants to the total of $1.0 million, to
support approximately 12,000 people;
Supported the establishment of 359 businesses through our Many Rivers partnership;
the partnership has created jobs
1
for more than 2,300 people, with 829 identifying as
Indigenous;
Maintained a portfolio of direct investment in nine early stage companies; and
Maintained our commitment to Reinventure - $150 million across three funds,
supporting Reinventure’s investment in 27 early stage companies.
Back the growth of
climate change
solutions
Increased lending to climate change solutions, taking total committed exposure to
$9.3 billion, progressing towards our 2020 target of $10 billion;
Facilitated $3.6 billion in funding for climate change solutions, exceeding our 2020
target of $3 billion; and
Analysed climate change risks under 1.5, 2 and 4-degree scenarios.
Back the growth of
housing affordability
solutions
Undertook research with Indigenous consultancy firm Origin Communications to
consider how Westpac can support more Indigenous Australians to own their own
home – with insights informing further exploration, such as intergenerational home
ownership;
Westpac New Zealand launched a dedicated home loan solution - ‘Westpac Prebuilt’ -
offering a simple and streamlined process to help customers into prefabricated homes,
the first bank in New Zealand to do so; and
Extended our support to Head Start Homes (HSH) – a charity that helps people move
out of social housing into their own homes.
Bring together
partners and
harness the Group’s
capacity to tackle
pressing social
issues that matter
most to the nation
A founding bank and signatory to the Principles for Responsible Banking, developed as
an initiative of the United Nations Environment Programme Finance Initiative (UNEP
FI);
Joined other Australian banks, insurers, super funds, investors and industry groups to
form the Australian Sustainable Finance Initiative; and
Joined an Expert Advisory Council, through WEConnect International, focusing on best-
in-class approaches to supply chain, supplier diversity and access to capital for women-
owned businesses.
A culture that is
caring, inclusive
and innovative
A culture of doing
the right thing
Continued programs underway to rebuild trust, strengthen governance and deliver more
consistent customer outcomes, including our Royal Commission response plan and our
Culture, Governance, Accountability Self-Assessment action plan;
Maintained ongoing Navigate training to reinforce Our Compass – a framework which
brings together our vision, service promise, values and Code of Conduct – with smaller
sessions facilitated by team leaders to continue the conversation locally; and
Continued to assess employee performance through the ‘Motivate’ framework – a
behaviours-first approach to people management.
Promote an
inclusive society,
where our workforce
reflects our
customers
Maintained 50% women in leadership
2
roles;
36% women on the Westpac Board;
161 new-to-bank Aboriginal or Torres Strait Islander hires;
Introduced a leadership shadowing program for culturally and linguistically diverse
employees to build exposure to new networks and career pathways; and
Updated leave entitlements to include 20 days paid leave for employees undergoing a
gender transition, three days Sorry Business leave for Aboriginal and Torres Strait
Islander employees, increased paid leave for employees experiencing domestic and
family violence to 20 days, and increased paid parental leave for support carers to three
weeks.
Increase channels
where customers
can provide
feedback
Established a new complaints strategy centred on customer connection, service
excellence, priority support for vulnerable customers and root cause and complaints
prevention;
Embedded a Customer Outcome Committee to work through complex cases;
Reduced non-external dispute resolution average time to close, for complaints from 13
days to seven days;
Commenced tracking customer satisfaction of the complaint resolution experience;
Launched our ‘FAIRGO’ decision principles that set out our approach to resolving
complaints;
Launched the “Spot it, Log it, Own it” internal campaign, promoting an improved culture
of complaints handling; and
97% of Australian based employees completed the “Why Complaints Matter” training.
1
All results 30 September except jobs created through the Westpac Foundation job creation grants to social enterprises and Many
Rivers job creation which are 30 June.
2
Women in Leadership refers to the proportion of women (permanent and maximum term) in leadership roles across the Group. It
includes the CEO, Group Executives, General Managers, senior leaders with significant influence on business outcomes (direct
reports to General Managers and their direct reports) large (3+) team people leaders three levels below General Manager, and Bank
and Assistant Bank Managers
2019 Full Year financial results
Review of Group operations
58 | Westpac Group 2019 Full Year Financial Results Announcement
Priority areas Goals Full Year 2019 performance
Continuing to
lead on the
Sustainability
fundamentals
Employees
Implemented the recommendations of the Sedgwick Review for employees effective
from 1 October 2018, two years ahead of schedule;
Embedded a Group Consequence Management Framework which sets out the
standards expected of our employees and ensures greater consistency and
transparency in the management of employee conduct matters;
Achieved total recordable injury frequency rate (TRIFR) of 3.1, a 20% reduction from
Full Year 2018, and lost time injury frequency rate (LTIFR) of 0.4;
Improved Employee Assistance Program utilisation from 9.0% in Full Year 2018 to
10.2%; and
Continued commitment to supporting workplace wellbeing, appointing a Chief Mental
Health Officer to drive a range of activities focused on improving the psychological
health and safety of our workforce.
Human rights
Identified key categories of products and services that are supplied to the Group that
have a higher likelihood of modern slavery risk;
Commenced work to meet the requirements of the Australian Modern Slavery Act
(2018) ahead of our 2021 reporting obligations;
Became the first bank to be accredited as a Living Wage employer in New Zealand;
and
The only Australian bank to contribute to the Liechtenstein Initiative for a Financial
Sector Commission on Modern Slavery and Human Trafficking - a public-private
partnership that aims to put the financial sector at the heart of global efforts to end
modern slavery and human trafficking - with the outcomes now published as the
Finance Against Slavery and Trafficking Blueprint.
Sustainable lending
and investment
Launched the world’s first Green Tailored Deposit to be certified by internationally
recognised Climate Bonds Initiative (CBI);
Delivered several sustainability-linked loans designed to incentivise and reward
customers for meeting pre-determined sustainability targets;
Undertook an extensive review of our Sustainability Risk Management Framework
focusing on improvements to risk identification, governance and reporting;
Updated our position statement on Financing Agribusiness and continued our work to
embed the management of key climate change and human rights-related risks across
our business; and
Updated our BT climate-related financial disclosures (superannuation and investments),
in line with the recommendations of the Task Force on Climate related Financial
Disclosures (TCFD).
Environment
1
Maintained carbon neutral status;
Achieved a 5.6% reduction in greenhouse gas emissions (‘emissions’) compared to
2018 and 17.9% compared to our 2016 baseline;
Achieved a 15.7% reduction in Group paper consumption compared to 2018 and 45.3%
reduction against our 2016 baseline;
Achieved a 3.9% reduction in water consumption in our Australian workplaces
2
compared to 2018 and 23.7% reduction against our 2016 baseline;
Achieved a 75% diversion of waste from landfill in our main Australian offices
3
; and
Committed to source 100% of global electricity consumption through renewable energy
sources by 2025 and joined RE100.
Responsible
sourcing
Sourced $18.6 million from diverse suppliers, including $3.6 million from Indigenous
suppliers; and
Joined ‘Raising the Bar’ as one of 16 inaugural signatories – a joint initiative of the
Business Council of Australia and Indigenous business advocate Supply Nation, and
committed to spend $21 million with Indigenous businesses by 2024.
Community and
social impact
Contributed over $130 million to community investment excluding commercial
sponsorships across the Group; and
13% employees participated in our volunteering programs, with more than 550 Westpac
employees contributing more than 24,000 hours of skilled volunteering support to
community partners and social enterprises to build their financial sustainability and
social impact.
1
All results are for the year ended 30 September except environmental footprint which is for the year ended 30 June.
2
Australian workplaces include commercial offices, retail branches, data centres and subsidiaries sites.
3
Our main Australian offices are Sydney based Westpac buildings located at Kent Street, Barangaroo and Kogarah.
2019 Full Year financial results
Review of Group operations
Westpac Group 2019 Full Year Financial Results Announcement | 59
2.6.1 Climate-related financial disclosures
The Group has long recognised that climate change is one of the most significant issues that will impact the long-
term prosperity of our economy and way of life. Westpac was the first Australian bank to recognise the importance
of limiting global warming to less than two degrees and that to do this, global emissions need to reach net zero in
the second half of this century.
Westpac continues to integrate the consideration of climate-related risks and opportunities into its business
operations. This includes alignment with the recommendations of the Task Force on Climate-related Financial
Disclosures (TCFD), which the Group has publicly committed to support. Westpac Group’s performance against
the recommendations of the TCFD is summarised below.
Governance
The Board has oversight of Westpac Group’s response to climate change. The Group’s third Climate Change
Position Statement and 2020 Action Plan (CCPS) was approved by the Executive Team and the Board in 2017. It
covers the management of the Group’s climate change risks and opportunities, including lending to climate
solutions, the Group’s approach to financing emissions-intensive sectors, commitment to reporting and
transparency, direct carbon footprint management, and incorporation of climate change considerations into the
Group’s Sustainability Risk Management Framework
1
. The Board Risk and Compliance Committee reviews and
approves updates to the Sustainability Risk Management Framework (which includes climate change risks) every
two years.
Management of climate change at the Board level is cascaded to the Executive Team. The Sustainability Council
(Council), formed in 2008 and sponsored by the Group Executive, Customer and Corporate Relations, brings
together senior leaders from across the Group with the explicit responsibility for managing Westpac’s sustainability
agenda, including climate change. The Council meets at least quarterly and has climate change as a fixed agenda
item. The Council reports to the Executive Team and Board through twice-yearly updates.
The Council has oversight of committees established to oversee aspects of the Group’s CCPS. This includes:
The Climate Change Solutions Committee which meets at least quarterly and oversees initiatives to achieve
Westpac’s targets for lending to and facilitating climate change solutions;
The Climate Change Risk Committee which oversees initiatives to address credit, regulatory and legal risks of
climate change, including scenario analysis. Reports on climate change-related risks are provided to the
Council on a quarterly basis; and
The Environment Management Committee which oversees strategies and initiatives to reduce the Group’s
direct environmental footprint, particularly targets around energy and emissions, and reports to the Council on
a quarterly basis.
Strategy
The Group’s 2018-2020 Sustainability Strategy and CCPS describe Westpac’s climate change strategy. The
strategy is underpinned by principles which recognise that:
A transition to a net zero emissions economy is required;
Economic growth and emissions reductions are complementary goals;
Addressing climate change creates financial opportunities;
Climate-related risk is a financial risk; and
Transparency and disclosure matters.
To address climate change risk and opportunities the CCPS identifies five focus areas where the Group is
expected to direct its attention over the short, medium and long term
2
:
Provide finance to back climate change solutions;
Support businesses that manage their climate-related risks;
Help individual customers respond to climate change;
Improve and disclose our climate change performance; and
Advocate for policies that stimulate investment in climate change solutions.
1
Westpac’s Climate Change Position Statement and 2020 Action Plan does not apply to investments made where a Westpac Group
entity is acting as a trustee (for example Responsible Super Entity licensee or Responsible Entity) or insurer. The governance and
strategies for ESG risk in these portfolios (including climate change) are the responsibility of the relevant board and management of
these entities.
2
See: Westpac Group’s Climate Change Position Statement and 2020 Action Plan.
2019 Full Year financial results
Review of Group operations
60 | Westpac Group 2019 Full Year Financial Results Announcement
Westpac uses scenario analysis to guide its climate change strategy and to analyse the implications of climate-
related factors to its business. Westpac expects to be well positioned to capitalise on opportunities arising out of
growth in sectors benefiting from a transition to a low carbon economy over the short and medium term. The
Group has lending targets to climate change solutions of $10 billion by 2020 and $25 billion by 2030.
Risk management and scenario analysis
Within the Group’s Sustainability Risk Management Framework, climate change risks are managed in the same
way as other transformational issues facing the economy. The Group examines the policy, regulatory, technology
and market changes related to climate change (‘transition risks’), and the impacts of changes in climate patterns
and extreme weather events (‘physical risks’). The Group seeks to understand the potential for these changes to
impact its business, in particular the possible impact on credit risk, regulatory and reporting obligations, and its
reputation.
Through its Climate Change Position Statement and 2020 Action Plan (CCPS), Westpac has an enhanced
approach to lending to emissions-intensive sectors, supporting customers that are in or reliant on these sectors
and who assess the financial implications of climate change on their business, including how their strategies are
likely to perform under various forward-looking scenarios, and demonstrate a rigorous approach to governance,
strategy setting, risk management and reporting.
Westpac uses scenario analysis to inform its assessment of climate-related risks over short, medium and long-
term horizons. The findings from scenario analysis conducted in 2016 were reflected in Westpac's current CCPS
which outlined enhanced lending standards for the thermal coal mining and energy sectors. These lending
parameters have been included in the Group’s risk framework and, where appropriate, are applied at the portfolio,
customer and transaction level.
In 2019 the Group undertook scenario analysis to assess the resilience of Westpac’s Australian Business and
Institutional lending
1
to transition risks brought about by rapid decarbonisation of the Australian economy under a
1.5-degree scenario.
Westpac also continued to assess:
The resilience of its Business and Institutional lending to transition risks under a 2-degree scenario (based on
scenarios from work undertaken in 2018); and
The potential impact of climate-related physical risks on the Australian mortgage portfolio
2
arising from global
warming scenarios of both 2 and 4-degrees.
The approach and results are summarised below. Further detail can be found in the Westpac Sustainability
Performance Report.
Scenario analysis - transition risk
Approach
3
To assess the possible implications of climate-related transition risks, the Group used scenario analysis to study
how the Australian economy, electricity market and other industry sectors might perform when carbon emissions
are constrained in line with 2-degree and 1.5-degree transition pathways.
The emission constraints used in the modelling were informed by the International Energy Agency’s
Sustainable Development Scenario, the International Renewable Energy Agency’s Renewable Energy
Roadmap and the Intergovernmental Panel on Climate Change (IPCC) Special Report on Global Warming of
1.5 Degrees;
Each sector’s performance under the two pathways was analysed and categorised according to risk profile;
Sectors whose medium (2030) and long-term (2050) performance under a scenario deviated significantly
4
from
average GDP growth, were classified as ‘higher risk’; and
These results were applied to the Australian Business and Institutional lending portfolio to assess the extent of
current exposure to these higher risk sectors.
Results
1.5-degrees: Westpac’s current exposure to sectors that by 2030 may face growth constraints under a 1.5-
degree scenario is approximately 2.5% of its Business and Institutional lending; and
2-degrees: Westpac’s current exposure to sectors that by 2030 may face growth constraints under a 2-degree
scenario is approximately 0.9% of its Business and Institutional lending.
1
Excludes retail, sovereign and bank exposures.
2
Excludes RAMS.
3
Undated transition risk methodology applied from First Half 2019.
4
Greater than one standard deviation.
2019 Full Year financial results
Review of Group operations
Westpac Group 2019 Full Year Financial Results Announcement | 61
Westpac continues to assess the resilience of its Business and Institutional lending portfolio to transition risks.
Lending to higher risk sectors may be subject to enhanced due diligence or restrictions under the parameters laid
out in the CCPS. The Group reviews its CCPS every three years.
Scenario analysis - physical risk
Approach
To assess the possible implications of climate-related physical risks, the Group studied the potential impact of
natural perils on its Australian mortgage portfolio under a 4-degree scenario:
The selected perils were inundation, soil contraction, floods, wind and cyclones, and bushfires;
The core scenario is based on the IPCC’s RCP8.5 scenario and a series of conservative assumptions about
the vulnerability of Australian homes to natural perils;
Changes under the scenario in average annual costs as a result of climate change were estimated to 2050;
A set of ‘higher risk’ postcodes were defined where the net present value of changes in these costs was
greater than an interest rate increase above a defined threshold - consistent with our typical stress testing
parameters; and
We applied these results to the Australian mortgage portfolio to assess the extent of the Group’s current
exposure to these postcodes.
Results
4-degrees: Approximately 1.6% of the Australian mortgage portfolio is exposed to postcodes that may
experience higher physical risk at 2050.
Westpac continues to assess the resilience of its Australian mortgage portfolio to physical risks. The Group
understands the importance of both climate mitigation and adaptation efforts, including government planning
measures, and the benefits of climate-resilient building characteristics to reduce property damage and impacts on
customers and communities. Along with the Group’s broader commitment to the Paris Agreement, Westpac
expects to continue to help individual customers respond to climate change, and to continue to advocate for more
research and investment into helping communities adapt and become resilient to climate-related impacts.
Metrics and targets
Metrics
Performance
Support for climate solutions
Total committed exposure (TCE) to climate solutions
Facilitation of climate solutions
$9.3 billion vs 2020 target - $10 billion
$3.6 billion climate-related bonds vs 2020 target - $3 billion
Energy generation
Emission intensity of electricity generation portfolio
Energy mix of electricity generation exposure (WIB
only)
0.26 (tCO
2
e/MWh) vs 2020 target 0.30 (tCO
2
e/MWh)
75% renewable versus 25% non-renewables.
Mining and coal exposure
Lending to all mining (TCE)
Lending to coal mining (metallurgical and thermal)
(TCE)
Thermal coal mining portfolio quality thresholds
$10.5 billion mining exposure representing 1% of Group TCE
$0.8 billion lending to coal mining representing 0.07% of Group TCE
Coal quality
- Existing projects > 5,700 kCal/kg – Compliant
- New projects > 6,300 kCal/Kg
– Compliant
Direct footprint
Total Scope 1 & 2 emissions (tCO
2
e)
Total Scope 3 emissions (tCO
2
e)
Carbon neutral operations
Commitment to 100% renewable energy
121,168 tCO
2
e
1
- an annual reduction of 5.6% towards 2020 target of 9%
(2016 baseline)
62,242 tCO
2
e
2
Carbon neutrality maintained
Committed to source 100% global electricity consumption through
renewable energy sources by 2025
Climate change portfolio resilience
Transition risk – 1.5-degree scenario
Transition risk – 2-degree scenario
Physical risk – 4-degree scenario
Approximately 2.5% of current business lending exposed to sectors which
by 2030 may experience higher risk in a transition to a 1.5-degree
economy
Approximately 0.9% of current business lending exposed to sectors which
by 2030 may experience higher risk in a transition to a 2-degree economy
Approximately 1.6% of current Australian mortgage portfolio in postcodes
which by 2050 may be exposed to higher physical risks under a 4-degrees
scenario
1
Total Scope 1 and 2 emissions are for the year ended 30 June 2019.
2
Total Scope 3 emissions are for the year ended 30 June 2019.
2019 Full Year financial results
Divisional results
62 | Westpac Group 2019 Full Year Financial Results Announcement
3.0 Divisional results
Comparative divisional results have been restated. The changes include updates to the methodologies to allocate
certain costs, and recent customer transfers. These changes have no impact on the overall Group’s results or
balance sheet. Refer to Section 4, Note 2 for further detail. During Full Year 2019, Westpac adopted AASB 9 and
AASB 15. Comparatives have also been restated for cash earnings for these changes except for expected credit
loss provisioning. Expected credit loss provisioning was not adjusted in comparative periods as it was not feasible.
On March 2019, the Group announced changes to the way it supports customers’ wealth and insurance needs,
realigning its major BTFG businesses into expanded Consumer and Business divisions and exiting the provision of
personal financial advice by Westpac Group financial advisers and authorised representatives. Changes to the
Group’s organisation structure were effective from 1 April 2019.
Notable items
The table below shows the impact of notable items on the divisions by half and for Full Year 2019. Notable items
are discussed in Section 1.3.2 and Section 2.1.
Second Half 2019 WestpacWestpac
InstitutionalNew ZealandGroup
$m ConsumerBusinessBank(A$)BusinessesGroup
Net interest income (38)(81)- (13)- (132)
Non-interest income (2)(23)- (4)(191)(220)
Expenses (6)(67)- (15)(99)(187)
Core earnings (46)(171)- (32)(290)(539)
Tax and non-controlling interests 15 52 - 9 86 162
Cash earnings (31)(119)- (23)(204)(377)
First Half 2019 WestpacWestpac
InstitutionalNew ZealandGroup
$m ConsumerBusinessBank(A$)BusinessesGroup
Net interest income (47)(165)- - - (212)
Non-interest income - (32)- - (568)(600)
Expenses 31 (20)- - (285)(274)
Core earnings (16)(217)- - (853)(1,086)
Tax and non-controlling interests 14 66 - - 253 333
Cash earnings (2)(151)- - (600)(753)
Full Year 2019 WestpacWestpac
InstitutionalNew ZealandGroup
$m ConsumerBusinessBank(A$)BusinessesGroup
Net interest income (85)(246)- (13)- (344)
Non-interest income (2)(55)- (4)(759)(820)
Expenses 25 (87)- (15)(384)(461)
Core earnings (62)(388)- (32)(1,143)(1,625)
Tax and non-controlling interests 29 118 - 9 339 495
Cash earnings (33)(270)- (23)(804)(1,130)
Full Year 2018 WestpacWestpac
InstitutionalNew ZealandGroup
$m ConsumerBusinessBank(A$)BusinessesGroup
Net interest income (99)- - (2)(4)(105)
Non-interest income (12)- - (11)(140)(163)
Expenses (39)(5)- (3)(65)(112)
Core earnings (150)(5)- (16)(209)(380)
Tax and non-controlling interests 36 - - 4 59 99
Cash earnings (114)(5)- (12)(150)(281)
2019 Full Year financial results
Divisional results
Westpac Group 2019 Full Year Financial Results Announcement | 63
3.1 Consumer
1
Consumer is responsible for sales and service to consumer customers in Australia. Consumer is also responsible
for the Group’s insurance business which covers the manufacture and distribution of life, general and lenders
mortgage insurances. The division also uses a third party to manufacture certain general insurance products.
Banking products are provided under the Westpac, St.George, BankSA, Bank of Melbourne, and RAMS brands,
while insurance products are provided under Westpac Life and BT brands. Consumer works with Business and
WIB in the sales, service, and referral of certain financial services and products including superannuation,
platforms, auto lending and foreign exchange. The revenue from these products is mostly retained by the product
originators.
% Mov't % Mov't
Half Year Half Year Sept 19 - Full Year Full Year Sept 19 -
$m Sept 19 March 19 Mar 19 Sept 19 Sept 18 Sept 18
Net interest income 4,059 3,883 5 7,942 7,850 1
Non-interest income 585 556 5 1,141 1,311 (13)
Net operating income 4,644 4,439 5 9,083 9,161 (1)
Operating expenses (1,931) (1,886) 2 (3,817) (3,774) 1
Core earnings 2,713 2,553 6 5,266 5,387 (2)
Impairment charges (313) (268) 17 (581) (486) 20
Operating profit before tax 2,400 2,285 5 4,685 4,901 (4)
Tax and non-controlling interests (719) (678) 6 (1,397) (1,478) (5)
Cash earnings 1,681 1,607 5 3,288 3,423 (4)
Add back notable items 31 2 large 33 114 (71)
Cash earnings excluding notable items 1,712 1,609 6 3,321 3,537 (6)
Economic profit 1,034 953 8 1,987 2,248 (12)
Expense to income ratio 41.58% 42.49% (91bps) 42.02% 41.20% 82bps
Net interest margin 2.27% 2.20% 7bps 2.24% 2.27% (3bps)
As at As at % Mov't As at As at % Mov't
30 Sept 31 March Sept 19 - 30 Sept 30 Sept Sept 19 -
$bn 2019 2019 Mar 19 2019 2018 Sept 18
Deposits
Term deposits 59.8 65.3 (8) 59.8 63.9 (6)
Other 149.5 140.5 6 149.5 142.3 5
Total customer deposits 209.3 205.8 2 209.3 206.2 2
Net loans - -
Mortgages 377.6 375.4 1 377.6 373.0 1
Other 12.3 13.2 (7) 12.3 13.3 (8)
Provisions (1.4) (1.5) (7) (1.4) (0.9) 56
Total net loans 388.5 387.1 - 388.5 385.4 1
Deposit to loan ratio 53.87% 53.16% 71bps 53.87% 53.50% 37bps
Total assets 399.2 397.7 - 399.2 395.6 1
TCE 455.8 454.3 - 455.8 452.7 1
Average interest-earning assets
2
356.4 353.2 1 354.8 346.4 2
As at As at As at As at
30 Sept 31 March 30 Sept 31 March
2019 2019 2018 2018
Credit quality
Impairment charges to
average loans annualised
3
0.16% 0.14% 0.12% 0.13%
Mortgage 90+ day delinquencies 0.90% 0.84% 0.74% 0.72%
Other consumer 90+ day delinquencies 1.75% 1.66% 1.50% 1.61%
Total stressed exposures to TCE 0.81% 0.74% 0.65% 0.64%
1
The Group has adopted AASB 9 Financial Instruments and AASB 15 Revenue from Contracts with Customers from 1 October 2018.
Statutory comparatives have not been restated. Refer to Note 1 in the 2019 Interim Financial Results and Note 1 in Section 3 of the
2019 Annual Report for further detail. However, where applicable, cash earnings comparatives (excluding expected credit loss
provisioning) have been restated to aid comparability. Refer to the cash earnings policy in Section 1.3.4 for further detail. In addition,
during Full Year 2019, the Group has made a number of presentational changes to the Balance Sheet and Income Statement, both
statutory and cash earnings comparatives have been restated. Refer to Note 1 in the 2019 Interim Financial Results and Note 1 in
Section 3 of the 2019 Annual Report for further detail.
2
Averages are daily averages over a six month period for the halves and a twelve month period for the full year.
3
The presented ratios are for the halves ended 30 September and 31 March.
2019 Full Year financial results
Divisional results
64 | Westpac Group 2019 Full Year Financial Results Announcement
Cash earnings excluding notable items
% Mov't % Mov't
Half Year
Half Year Sept 19 - Full Year Full Year Sept 19 -
$m
Sept 19
March 19 Mar 19 Sept 19 Sept 18 Sept 18
Banking
1,584
1,512 5
3,096
3,230 (4)
Insurance - Life Insurance
41
77 (47) 118 146 (19)
Insurance - General Insurance
62
- 100 62 109 (43)
Insurance - Lenders Mortgage Insurance
13
10 30 23 27 (15)
Capital and Other
12
10 20 22 25 (12)
Total Insurance (including Capital and Other)
128
97 32 225 307 (27)
Total cash earnings (ex notable items)
1,712
1,609 6 3,321 3,537 (6)
Insurance key metrics
% Mov't % Mov't
Half Year
Half Year Sept 19 - Full Year Full Year Sept 19 -
Sept 19
March 19 Mar 19 Sept 19 Sept 18 Sept 18
Life Insurance in-force premiums ($m)
Life Insurance in-force premiums at start of period
1,259 1,277 (1) 1,277 1,068 20
Sales / New Business
33 55 (40) 88 363 (76)
Lapses
(80) (73) 10 (153) (154) (1)
Life Insurance in-force premiums at end of period
1
1,212 1,259 (4) 1,212 1,277 (5)
Claims ratios
2
for Insurance Business (%)
Life Insurance
53 48
10
51 43
19
General Insurance
43 81
(47)
62 46
35
Lenders Mortgage Insurance
16 25
(36)
20 16
25
Gross written premiums ($m)
General Insurance gross written premium
279
259 8 538 503 7
Lenders Mortgage Insurance gross written premium
3
84
76 11 160 180 (11)
1
The life insurance in-force premium is comprised of:
Retail for Full Year 2019 of $960 million (First Half 2019: $979 million, Full Year 2018: $994 million; and
Group Life Insurance for Full Year 2019 of $252 million (First Half 2019: $280 million; Full Year 2018: $283 million).
2
Claims ratios are claims over earned premium plus reinsurance rebate. The lenders mortgage insurance claims ratios have been
calculated to include exchange commission.
3
LMI gross written premium includes loans >90% LVR reinsured with Arch Reinsurance Limited. Full Year 2019 gross written
premiums includes $56 million from the arrangement (First Half 2019: $52 million; Full Year 2018 $123 million).
2019 Full Year financial results
Divisional results
Westpac Group 2019 Full Year Financial Results Announcement | 65
Financial performance
Second Half 2019 - First Half 2019
Cash earnings of $1,681 million were up 5% (or $74 million) compared to First Half 2019 as improved net interest
income and higher insurance income more than offset an increase in notable items ($29 million) and impairment
charges.
Net interest
income
up $176m, 5%
Net loans were up $1.4 billion with growth in owner occupied mortgages. This growth was partially
offset by a reduction in personal lending consistent with the decline in system;
Deposits grew 2% over the half, with a 4% increase in transaction accounts (including offset
accounts) and a 8% rise in savings accounts partly offset by lower term deposits; and
Net interest margin was 7 basis points higher benefiting from lower short term wholesale funding
costs partially offset by deposit and mortgage spread compression. Mortgage spreads were lower
from competition, retention pricing, and mix changes as customers switched to lower rate principal
and interest loans. Notables were down $9 million in the half and were not a driver of margin
movements.
Non-interest
income up
$29m, 5%
Higher insurance income $39 million reflecting lower general insurance claims as no catastrophe
events occurred in Second Half 2019, partly offset by lower life insurance income flowing from new
Protecting Your Super legislation (including write-off of deferred costs) and from higher claims; and
Partly offset by lower cards related income.
Expenses
up $45m, 2%
The rise in expenses was mostly due to changes in notable items. First Half 2019 benefited from a
$31 million provision release. Excluding notable items, expenses were relatively flat;
The increase was due to higher investment related costs including amortisation associated with the
customer service hub; and
Other cost increases from annual salary reviews and inflation related increases were more than
offset by productivity gains of $78 million mostly from organisational redesign, rationalisation of 20
branches, and further use of digital channels (self-serve and e-Statements), all of which contributed
to lower FTE. Lower variable remuneration also contributed.
Impairment
charges up
$45m, 17%
Credit quality remains sound, although there has been some increase in stress over the half with
stressed exposure to TCE up 7 basis points;
Mortgage 90+ day delinquencies remain low at 0.90% but were higher (up 6 basis points) as the
easing in economic conditions led to a rise of customers in hardship. At the same time, soft
property markets increased the time taken to sell a property leading to facilities remaining
delinquent for longer periods. However, some improvement in property markets later in the second
half has seen an early improvement in metrics in the fourth quarter. Other consumer 90+ day
delinquencies were up 9 basis points, reflecting seasonal trends and the decline in the size of the
portfolio; and
Impairment charges increased mostly from higher write-offs and lower recoveries.
Economic profit
up $81m, 8%
Allocated capital was little changed over the half consistent with the low balance sheet growth. As a
result 5% increase in cash profit translated to an 8% increase in economic profit.
2019 Full Year financial results
Divisional results
66 | Westpac Group 2019 Full Year Financial Results Announcement
Full Year 2019 – Full Year 2018
Cash earnings were 4% lower from a decline in non-interest income mainly reflecting weather related general
insurance claims, and an increased impairment charge. Excluding notable items, cash earnings were 6% lower.
Net interest
income up
$92m, 1%
Lending increased 1% with growth in mortgages, partly offset by a decline in other personal lending
and higher provisions associated with the adoption of AASB 9. The decline in personal lending was
due to a 6% reduction in cards and lower personal loans;
A 4% rise in transaction accounts, and 5% increase in savings accounts supported the 2% rise in
deposits. Term deposits were 6% lower; and
Net interest margin was down 3 basis points. The decline was due to lower mortgage spreads from
increased competition and changes in mortgage mix with less interest only lending. The decline
was partly offset by mortgage repricing late in Full Year 2018. Notables were $14 million lower over
the year and were not a driver of margin movements.
Non-interest
income down
$170m, 13%
The decline was mostly due to lower insurance income, down ($116 million), from higher weather
related claims ($70 million), and lower life insurance income related to the impact of the Protecting
Your Super legislation and from higher claims; and
Lower fee income from a contraction in net interchange fees and reduced transaction volumes
across banking products.
Expenses up
$43m, 1%
Excluding notable items expenses were up 3%;
The rise was due to higher investment related costs including for the customer service hub, and
costs associated with regulatory change projects; and
Higher costs from annual salary reviews and inflation based increases were more than offset by
productivity gains of $125 million mostly from organisational redesign, rationalisation of 57
branches and 349 ATMs, and further use of digital channels, all of which contributed to a reduction
in FTE. Lower variable remuneration also contributed.
Impairment
charges up
$95m, 20%
Credit quality remains sound, although stress was higher with stressed exposures to TCE at 0.81%
up 16 basis points consistent with the deterioration in the operating environment;
Mortgage 90+ day delinquencies were up 16 basis points to 0.90% while other consumer 90+ day
delinquencies were up 25 basis points; and
Impairment charges were higher driven by the rise in delinquencies.
Economic profit
down $261m,
12%
Economic profit decreased due to higher allocated capital, lower franking benefit, and 4% reduction
in cash earnings.
2019 Full Year financial results
Divisional results
Westpac Group 2019 Full Year Financial Results Announcement | 67
3.2 Business
1
Business provides business banking and wealth facilities and products for customers across Australia. Business is
responsible for manufacturing and distributing facilities to SME and Commercial business customers (including
Agribusiness) generally for up to $150 million in exposure. SME customers include relationship managed and non-
relationship managed SME customers (generally between $100k-$250k facilities). The division offers a wide range
of banking products and services to support their borrowing, payments and transaction needs. In addition,
specialist services are provided for cash flow finance, trade finance, automotive and equipment finance and
property finance. The division is also responsible for Private Wealth and the manufacture and distribution of
investments (including margin lending and equities broking), superannuation and retirement products as well as
wealth administration platforms. Business operates under the Westpac, St.George, BankSA, Bank of Melbourne,
and BT brands. Business works with Consumer and WIB in the sale, referral and service of select financial
services and risk management products (including corporate superannuation, foreign exchange and interest rate
hedging). The revenue from these products is mostly retained by the product originators.
% Mov't
% Mov't
Half Year
Half Year
Sept 19 -
Full Year
Full Year
Sept 19 -
$m Sept 19
March 19
Mar 19
Sept 19
Sept 18
Sept 18
Net interest income
2,573
2,519
2
5,092
5,284
(4)
Non-interest income
720
744
(3)
1,464
1,640
(11)
Net operating income
3,293
3,263
1
6,556
6,924
(5)
Operating expenses
(1,430)
(1,375)
4
(2,805)
(2,651)
6
Core earnings
1,863
1,888
(1)
3,751
4,273
(12)
Impairment charges
(198)
(74)
168
(272)
(321)
(15)
Operating profit before tax
1,665
1,814
(8)
3,479
3,952
(12)
Tax and non-controlling interests
(501)
(547)
(8)
(1,048)
(1,196)
(12)
Cash earnings
1,164
1,267
(8)
2,431
2,756
(12)
Add back notable items
119
151
(21)
270
5
large
Cash earnings excluding notable items
1,283
1,418
(10)
2,701
2,761
(2)
Economic profit
764
892
(14)
1,656
2,038
(19)
Expense to income ratio
43.43%
42.14%
129bps
42.79%
38.29%
large
Net interest margin
3.08%
3.04%
4bps
3.06%
3.18%
(12bps)
Cash earnings excluding notable items
% Mov't
% Mov't
Half Year
Half Year
Sept 19 -
Full Year
Full Year
Sept 19 -
$m Sept 19
March 19
Mar 19
Sept 19
Sept 18
Sept 18
Banking 1,049
1,135
(8)
2,184
2,162
1
Super, Investments, Platforms and Private Wealth
2
234
283
(17)
517
599
(14)
Total cash earnings excluding notable items 1,283
1,418
(10)
2,701
2,761
(2)
As at
As at
% Mov't
As at
As at
% Mov't
30 Sept
31 March
Sept 19 -
30 Sept
30 Sept
Sept 19 -
$bn 2019
2019
Mar 19
2019
2018
Sept 18
Deposits
Term deposits
62.3
64.2
(3)
62.3
64.6
(4)
Other
85.5
78.4
9
85.5
79.2
8
Total deposits
147.8
142.6
4
147.8
143.8
3
Net loans
Mortgages
71.8
72.1
-
71.8
72.1
-
Business
93.3
91.7
2
93.3
92.4
1
Other
9.4
9.9
(5)
9.4
10.3
(9)
Provisions
(1.5)
(1.4)
7
(1.5)
(1.2)
25
Total net loans
173.0
172.3
-
173.0
173.6
-
Deposit to loan ratio
85.43%
82.76%
267bps
85.43%
82.83%
260bps
Total assets
187.4
186.6
-
187.4
188.2
-
TCE 216.4
218.4
(1)
216.4
219.9
(2)
Average interest-earning assets
3
166.9
166.4
-
166.7
165.9
-
Total funds 215.4
203.1
6
215.4
205.6
5
Average funds
3
211.2
197.3
7
204.3
201.7
1
1
The Group has adopted AASB 9 Financial Instruments and AASB 15 Revenue from Contracts with Customers from 1 October 2018.
Statutory comparatives have not been restated. Refer to Note 1 in the 2019 Interim Financial Results and Note 1 in Section 3 of the
2019 Annual Report for further detail. However, where applicable, cash earnings comparatives (excluding expected credit loss
provisioning) have been restated to aid comparability. Refer to the cash earnings policy in Section 1.3.4 for further detail. In addition,
during Full Year 2019, the Group has made a number of presentational changes to the Balance Sheet and Income Statement, both
statutory and cash earnings comparatives have been restated. Refer to Note 1 in the 2019 Interim Financial Results and Note 1 in
Section 3 of the 2019 Annual Report for further detail.
2
Includes Capital and Other.
3
Averages are based on a six month period for the halves and a twelve month period for the full year.
2019 Full Year financial results
Divisional results
68 | Westpac Group 2019 Full Year Financial Results Announcement
As at As at As at As at
30 Sept 31 March 30 Sept 31 March
2019 2019 2018 2018
Credit quality
Impairment charges to average loans annualised
1
0.23% 0.09% 0.19% 0.18%
Mortgage 90+ day delinquencies
0.84% 0.73% 0.64% 0.58%
Other consumer 90+ day delinquencies
1.80% 2.18% 2.09% 1.87%
Business: impaired exposure to TCE
0.62% 0.59% 0.57% 0.54%
Total stressed exposure to TCE
2.72% 2.43% 2.48% 2.31%
1
The presented ratios are for the halves ended 30 September and 31 March.
2019 Full Year financial results
Divisional results
Westpac Group 2019 Full Year Financial Results Announcement | 69
Financial performance
Second Half 2019 - First Half 2019
Cash earnings of $1,164 million were $103 million (or 8%) lower than First Half 2019. Excluding the impact of
notable items, cash earnings were 10% lower due to higher impairment charges, reduced net interest margins and
lower wealth income.
Net interest
income up
$54m, 2%
Loans were little changed over the half with 2% growth in business lending (mostly in commercial)
offset by lower auto lending and a small decline in mortgages (mostly investment lending);
Deposits were 4% higher, with growth concentrated in transaction and at call accounts; and
Net interest margin was 4 basis points higher, (down 6 basis points excluding notable items).
Excluding notable items, margins were lower mostly from reduced deposit spreads later in the half.
Non-interest
income down
$24m, 3%
Notable items in Second Half 2019 were $9 million lower than First Half 2019. Excluding this
impact, non-interest income was down $33 million or 4%, due to:
- A reduction in merchant fee income largely from changes in scheme charges; and
- Wealth experienced margin compression from platform pricing changes and product migration to
lower margin super products ($20 million), as well as the implementation of Protecting Your Super
legislation ($5 million). This was offset set by higher funds income ($26 million) with average
funds under administration rising 7% on the back of stronger markets.
Expenses
up $55m, 4%
The majority of the increase in expenses was from a rise in notable items ($47 million). Excluding
this, expenses increased $8 million, or 1%, due to increased customer support staff in Platforms,
as well as higher amortisation of investments; and
Ordinary cost increases were partly offset by lower variable reward and productivity including
operating model simplification and further digitisation of activities.
Impairment
charges up
$124m, 168%
The level of stressed exposure to TCE increased 29 basis points to 2.72% from the Commercial
portfolio; and
Impairment charges were higher, from higher write-offs and an increased weighting given to the
downturn scenario in provisioning models, contributing to higher collective provisions.
Economic profit
down $128m,
14%
The decline in economic profit was consistent with lower cash earnings.
Full Year 2019 – Full Year 2018
Cash earnings of $2,431 million were $325 million (or 12%) lower than Full Year 2018 with performance impacted
by notable items increase of $265 million after tax. Excluding notable items, cash earnings were $60 million or 2%
lower from a reduction in non-interest income and increased regulatory expenditure, partially offset by margin
expansion and a reduction in impairment charges.
Net interest
income down
$192m, 4%
Lending was largely flat with growth in business lending offset by slower new auto lending;
Deposits increased 3% mostly in transaction and at call balances. These gains were partly offset by
a 4% decline in term deposits; and
Net interest margin declined 12 basis points with notable items ($246 million) contributing 15 basis
points to the decline. Excluding this impact, the net interest margin was up 3 basis points from loan
repricing, partly offset by lower deposit spreads and a shift in the mortgage mix from interest only to
principal and interest.
Non-interest
income down
$176m, 11%
Notable items of $55 million contributed to a decrease in non-interest income. Excluding notable
items, non-interest income was down $121 million or 7% mostly due to:
A reduction in merchant income due to changes in scheme charges; and
Lower wealth income ($85 million) from platform margin compression due to new pricing, product
mix changes, the cessation of grandfathered commission payments and implementation of
Protecting Your Super reforms.
Expenses up
$154m, 6%
Notable items of $87 million, largely to implement the division’s remediation program, was one of
the main drivers increasing expenses. Excluding notable items, expenses were up 3% due to:
- Higher regulatory and compliance costs as well as increased amortisation of investments and
wealth project costs; and
- Other cost increases were largely offset by lower variable reward and productivity benefits
including operating model simplification and continued digitisation and product simplification.
Impairment
charges down
$49m, 15%
The level of stressed exposures increased 24 basis points from increased Commercial stressed
exposure across a broad number of industries; and
Impairment charges decreased from lower individual provisions.
Economic profit
down $382m,
19%
The decline in economic profit was mostly due to notable items. Excluding notable items, the
economic profit decreased 2% supported by a reduction in allocated capital of 3% driven by capital
optimisation initiatives and from implementation of AASB 9.
2019 Full Year financial results
Divisional results
70 | Westpac Group 2019 Full Year Financial Results Announcement
3.3 Westpac Institutional Bank
1
Westpac Institutional Bank (WIB) delivers a broad range of financial products and services to commercial,
corporate, institutional and government customers operating in, or with connections to, Australia and New
Zealand. WIB operates through dedicated industry relationship and specialist product teams, with expert
knowledge in financing, transactional banking, and financial and debt capital markets. Customers are supported
throughout Australia and via branches and subsidiaries located in New Zealand, the US, UK and Asia. WIB is also
responsible for Westpac Pacific providing a full range of banking services in Fiji and PNG. WIB works with all the
Group’s divisions in the provision of markets related financial needs including foreign exchange and fixed interest
solutions.
% Mov't % Mov't
Half Year Half Year Sept 19 - Full Year Full Year Sept 19 -
$m Sept 19 March 19 Mar 19 Sept 19 Sept 18 Sept 18
Net interest income 700 743 (6) 1,443 1,442 -
Non-interest income 610 682 (11) 1,292 1,565 (17)
Net operating income 1,310 1,425 (8) 2,735 3,007 (9)
Operating expenses (631) (653) (3) (1,284) (1,449) (11)
Core earnings 679 772 (12) 1,451 1,558 (7)
Impairment (charges) / benefits (31) (15) 107 (46) 16 large
Operating profit before tax 648 757 (14) 1,405 1,574 (11)
Tax and non-controlling interests (178) (213) (16) (391) (481) (19)
Cash earnings 470 544 (14) 1,014 1,093 (7)
Economic profit 147 254 (42) 401 487 (18)
Expense to income ratio 48.17% 45.82% 235bps 46.95% 48.19% (124bps)
Net interest margin 1.64% 1.67% (3bps) 1.66% 1.67% (1bps)
As at As at % Mov't As at As at % Mov't
30 Sept 31 March Sept 19 - 30 Sept 30 Sept Sept 19 -
$bn 2019 2019 Mar 19 2019 2018 Sept 18
Deposits 101.3 95.7 6 101.3 104.9 (3)
Net loans
Loans 75.6 76.7 (1) 75.6 77.7 (3)
Provisions (0.2) (0.2) - (0.2) (0.3) (33)
Total net loans 75.4 76.5 (1) 75.4 77.4 (3)
Deposit to loan ratio 134.35% 125.10% large 134.35% 135.53% (118bps)
Total assets 98.0 99.8 (2) 98.0 102.5 (4)
TCE 176.0 176.4 - 176.0 173.2 2
Average interest-earning assets
2
84.9 89.1 (5) 87.0 86.3 1
Impairment charges/(benefits) to average
loans annualised 0.08% 0.04% 4bps 0.06% (0.02%) large
Impaired exposure to TCE 0.08% 0.08% - 0.08% 0.03% 5bps
Total stressed exposure to TCE 0.68% 0.63% 5bps 0.68% 0.66% 2bps
Revenue contribution
% Mov't % Mov't
Half Year Half Year Sept 19 - Full Year Full Year Sept 19 -
$m Sept 19 March 19 Mar 19 Sept 19 Sept 18 Sept 18
Lending and deposit revenue 801 848 (6) 1,649 1,669 (1)
Markets, sales and fee income 445 458 (3) 903 890 1
Total customer revenue 1,246 1,306 (5) 2,552 2,559 -
Derivative valuation adjustments (53) (11) large (64) 14 large
Trading revenue 114 126 (10) 240 221 9
Hastings - - - - 203 (100)
Other
3
3 4 (25) 7 10 (30)
Total WIB revenue 1,310 1,425 (8) 2,735 3,007 (9)
1
The Group has adopted AASB 9 Financial Instruments and AASB 15 Revenue from Contracts with Customers from 1 October 2018.
Statutory comparatives have not been restated. Refer to Note 1 in the 2019 Interim Financial Results and Note 1 in Section 3 of the
2019 Annual Report for further detail. However, where applicable, cash earnings comparatives (excluding expected credit loss
provisioning) have been restated to aid comparability. Refer to the cash earnings policy in Section 1.3.4 for further detail. In addition,
during Full Year 2019, the Group has made a number of presentational changes to the Balance Sheet and Income Statement, both
statutory and cash earnings comparatives have been restated. Refer to Note 1 in the 2019 Interim Financial Results and Note 1 in
Section 3 of the 2019 Annual Report for further detail.
2
Averages are based on a six month period for the halves and a twelve month period for the full year.
3
Includes capital benefit and the Bank Levy.
2019 Full Year financial results
Divisional results
Westpac Group 2019 Full Year Financial Results Announcement | 71
Financial performance
Second Half 2019 - First Half 2019
Cash earnings of $470 million were $74 million, or 14%, lower than First Half 2019, mostly from an 8% decline in
net operating income. A $42 million increase in the charge for derivative valuation adjustments and a 3 basis point
reduction in net interest margin were the key drivers of lower operating income.
Net interest
income down
$43m, 6%
Net loans were down 1% as the division continued to prioritise return over growth;
Deposits increased 6%, mostly from an increase in government deposits; and
Net interest margin down 3 basis points, from lower deposit spreads due to lower interest rates and
competition. Loan spreads were higher consistent with the focus on return.
Non-interest
income down
$72m, 11%
A $42 million increase in the charge for derivative valuation adjustments (following the
implementation of new methodologies) was the main contributor to the decline;
Lower syndication fees, with more large transactions conducted in First Half 2019; and
Partly offset by higher customer related markets income across FX and fixed income.
Expenses down
$22m, 3%
The full period impact of organisational change which reduced FTE by 6% combined with lower
variable remuneration led to the decline in expenses; and
Partly offset by higher regulatory, risk and compliance costs, particularly related to the updated
requirements for the Banking Code of Practice and dealing with regulator requests.
Impairment
charges up
$16m, 107%
Credit quality remains sound. Stressed exposures to TCE increased 5 basis points to 0.68%; and
Impairment charges were higher mostly from a downgrade to impaired asset of one facility that had
been in stress grades for some time.
Economic profit
down $107m,
42%
Economic profit was lower, consistent with the reduction in cash earnings.
Full Year 2019 – Full Year 2018
Cash earnings of $1,014 million was $79 million (or 7%) lower compared to Full Year 2018, primarily from a
$78 million movement in derivative valuation adjustments, no contribution from Hastings and a $62 million
increase in impairment charges. The exit of Hastings in 2018 had a $17 million impact on cash earnings but had a
more significant impact on the movements in individual line items. In Full Year 2018 Hastings added $203 million
to non-interest income, $158 million to expenses and $29 million to tax.
Net interest
income up $1m,
Flat
Net loans were 3% lower reflecting a continued focus on return. This included a decline in property
lending;
Deposits were 3% lower, mostly from a reduction in government balances; and
Net interest margin was down 1 basis point from lower deposits spreads and a change in funding
mix, partly offset by higher loan spreads consistent with the return focus.
Non-interest
income down
$273m, 17%
Excluding Hastings (2018 $203 million; 2019 nil), non-interest income was down $70 million or 5%,
from:
- A $78 million movement in derivative valuation adjustment (a $14 million benefit in Full Year 2018
to a $64 million charge in Full Year 2019); and
- Partly offset by an increase in syndication fees from some large transactions in First Half 2019.
Expenses down
$165m, 11%
Excluding Hastings (2018 $158 million; 2019 nil), expenses were down $7 million, or 1%, from
- Productivity benefits from organisation redesign (FTE down 8%) and lower variable reward costs;
and
- Partly offset by higher regulatory, risk and compliance costs, particularly related to updated
requirements for the Banking Code of Practice and responding to regulator requests.
Impairment
charge of $46m
compared to an
impairment
benefit of $16m
in FY18
Credit quality remains sound with stressed exposures to TCE of 0.68%. This was up 2 basis points
over the year but remains low in historical terms; and
Impairment charges were higher due to provisions associated with the migration of two long
standing stressed exposures into impaired.
Economic profit
down $86m,
18%
The reduction in economic profit was greater than the reduction in cash earnings as Full Year 2018
reflected a higher benefit from franking credits (as the division’s tax paid was higher from the non-
deductibility of the Hasting goodwill write-off); and
Partly offset by a 5% reduction in allocated capital from disciplined management of credit limits.
2019 Full Year financial results
Divisional results
72 | Westpac Group 2019 Full Year Financial Results Announcement
3.4 Westpac New Zealand
1
Westpac New Zealand is responsible for sales and service of banking, wealth and insurance products for
consumer, business and institutional customers in New Zealand. Westpac conducts its New Zealand banking
business through two banks: Westpac New Zealand Limited, which is incorporated in New Zealand, and Westpac
Banking Corporation (New Zealand Branch), which is incorporated in Australia. Westpac New Zealand operates
via an extensive network of branches and ATMs across both the North and South Islands. Business and
institutional customers are also served through relationship and specialist product teams. Banking products are
provided under the Westpac brand while insurance and wealth products are provided under Westpac Life and BT
brands, respectively. New Zealand also maintains its own infrastructure, including technology, operations and
treasury.
% Mov't % Mov't
Half Year Half Year Sept 19 - Full Year Full Year Sept 19 -
NZ$m Sept 19 March 19 Mar 19 Sept 19 Sept 18 Sept 18
Net interest income
967 1,000 (3) 1,967 1,958 -
Non-interest income
200 248 (19) 448 406 10
Net operating income
1,167 1,248 (6) 2,415 2,364 2
Operating expenses
(513) (480) 7 (993) (930) 7
Core earnings
654 768 (15) 1,422 1,434 (1)
Impairment (charges) / benefits
24 (14) large 10 (25) large
Operating profit before tax
678 754 (10) 1,432 1,409 2
Tax and non-controlling interests
(191) (199) (4) (390) (393) (1)
Cash earnings
487 555 (12) 1,042 1,016 3
Add back notable items
24 - - 24 13 85
Cash earnings excluding notable items
511 555 (8) 1,066 1,029 4
Economic profit
182 249 (27) 431 459 (6)
Expense to income ratio
43.96% 38.46% large 41.12% 39.34% 178bps
Net interest margin
2.09% 2.23% (14bps) 2.16% 2.24% (8bps)
As at As at % Mov't As at As at % Mov't
30 Sept 31 March Sept 19 - 30 Sept 30 Sept Sept 19 -
NZ$bn 2019 2019 Mar 19 2019 2018 Sept 18
Deposits
Term deposits
33.5 33.3 1 33.5 32.6 3
Other
31.0 30.9 - 31.0 29.3 6
Total customer deposits
64.5 64.2 - 64.5 61.9 4
Net loans
Mortgages
51.5 49.6 4 51.5 48.9 5
Business
31.1 30.9 1 31.1 29.8 4
Other
1.9 2.0 (5) 1.9 2.0 (5)
Provisions
(0.3) (0.4) (25) (0.3) (0.3) -
Total net loans
84.2 82.1 3 84.2 80.4 5
Deposit to loan ratio
76.60% 78.20% (160bps) 76.60% 76.99% (39bps)
Total assets
97.1 93.4 4 97.1 90.0 8
TCE
117.3 113.9 3 117.3 112.0 5
Third party liquid assets
10.3 9.1 13 10.3 7.5 37
Average interest-earning assets
2
92.2 89.9 3 91.1 87.2 4
Total funds
11.5 10.9 6 11.5 10.7 7
As at As at As at As at
30 Sept 31 March 30 Sept 31 March
2019 2019 2018 2018
Credit quality
Impairment charges/(benefits) to
average loans annualised
3
(0.06%) 0.03% (0.03%) 0.10%
Mortgage 90+ day delinquencies
0.13% 0.14% 0.11% 0.16%
Other consumer 90+ day delinquencies
0.82% 1.02% 0.62% 0.86%
Impaired exposure to TCE
0.08% 0.13% 0.15% 0.21%
Total stressed exposure to TCE
1.66% 1.57% 1.57% 1.86%
1
The Group has adopted AASB 9 Financial Instruments and AASB 15 Revenue from Contracts with Customers from 1 October 2018.
Statutory comparatives have not been restated. Refer to Note 1 in the 2019 Interim Financial Results and Note 1 in Section 3 of the
2019 Annual Report for further detail. However, where applicable, cash earnings comparatives (excluding expected credit loss
provisioning) have been restated to aid comparability. Refer to the cash earnings policy in Section 1.3.4 for further detail. In addition,
during Full Year 2019, the Group has made a number of presentational changes to the Balance Sheet and Income Statement, both
statutory and cash earnings comparatives have been restated. Refer to Note 1 in the 2019 Interim Financial Results and Note 1 in
Section 3 of the 2019 Annual Report for further detail.
2
Averages are based on a six month period for the halves and a twelve month period for the full year.
3
The presented ratios are for the halves ended 30 September and 31 March.
2019 Full Year financial results
Divisional results
Westpac Group 2019 Full Year Financial Results Announcement | 73
Financial performance (NZ$)
Second Half 2019 – First Half 2019
Cash earnings decreased 12% over First Half 2019, (down $68 million), with the decline mostly due to two factors:
higher notable items (provisions for customer refunds and associated costs) of $24 million, and the gain on the
sale of Paymark (New Zealand’s payment switch business) of $40 million that was recorded in First Half 2019.
Net interest
income down
$33m, 3%
Loans up 3%, or $2.1 billion, primarily from growth in mortgages which increased $1.9 billion.
Business lending increased 1% with growth spread across property and agri lending;
Deposits were little changed (up $0.3 billion) with growth primarily in consumer deposits; and
Net interest margin was down 14 basis points. Notable items contributed 3 basis points to the
decline. Mix impacts also reduced margin, with growth skewed to lower spread products,
particularly fixed rate mortgages. Fixed rate mortgages now represent 83% of the mortgage
portfolio (up 2 percentage points over the half). Lower deposit spreads from the reduction in interest
rates in New Zealand also contributed to the decline, particularly low rate and non-interest bearing
deposits.
Non-interest
income down
$48m, 19%
Most of the decline was due to the First Half 2019 gain on the sale of Paymark ($40 million), no
large gains on sale were recorded in Second Half 2019;
Notable items reduced non-interest income by $4 million; and
Further simplification of fees also contributed to the decline.
Expenses up
$33m, 7%
Higher notable items ($16 million) and increased investment in transforming to an agile way of
working, and risk management and regulatory projects were the main contributors to the rise; and
Outside these increases, costs were relatively flat with higher salaries and inflation related rises
offset by productivity savings and lower variable remuneration.
Impairment
benefit of $24m
compared to an
impairment
charge of $14m
Credit quality remains sound, with stressed exposures to TCE 9 basis points higher at 1.66%;
Other consumer 90+ day delinquencies decreased 20 basis points to 82 basis points, with the
decline due to seasonal trends and the resolution of some operational issues. Mortgage 90+day
delinquencies remain low at 13 basis points; and
Second Half 2019 reported an impairment benefit of $24 million mostly from write-back of
collectively assessed provisions consistent with the reduction in consumer delinquencies and
business stressed exposures.
Economic profit
down $67m, 27%
Economic profit decrease was due to the reduction in cash earnings.
Full Year 2019 – Full Year 2018
Cash earnings increased 3% over Full Year 2018, or 4% excluding the impact of notable items. The increase in
cash earnings was supported by a $40 million gain on the sale of Paymark, and a $10 million impairment benefit
partly offset by higher risk management and regulatory costs.
Net interest
income up $9m,
Flat
Loans increased 5%, or $3.8 billion. Mortgages increased $2.6 billion, with the majority of mortgage
growth in fixed rate products. Business growth (up $1.3 billion) was distributed across a range of
sectors;
Deposits increased 4% with a $1.7 billion rise in non-interest bearing and at call accounts and a
$0.9 billion rise in term deposits; and
Net interest margin declined 8 basis points. Most of the decline (5 basis points) was due to mix from
the increase in lower spread products, particularly fixed rate mortgages. A fall in deposit spreads
from lower interest rates also contributed to the decline in margin.
Non-interest
income up $42m,
10%
The gain on sale of Paymark contributed most of the increase in non-interest income ($40 million);
Higher investment income from a 7% increase in fund balances and higher business fees also
contributed to the increase; and
This was partly offset by lower fee income following the decision to simplify certain consumer fees.
Expenses up
$63m, 7%
Most of the increase was driven by further investment in risk management and regulatory
programs. Notable items of $16 million, also contributed to the increase; and
Excluding investment and notables, costs were broadly unchanged with increases in salaries and
other inflation linked costs offset by productivity savings from increased digitisation of activities, with
FTE down 1% and lower variable remuneration.
Impairment
benefit of $10m
compared to an
impairment
charge of $25m
Credit quality remains sound, with stressed exposures to TCE of 1.66%, 9 basis points higher than
September 2018 with most of the increase in stress in exposures that are well secured. Other
consumer 90+ day delinquencies increased 20 basis points to 82 basis points, with much of the rise
due to the decline in the portfolio; and
Impairment benefit mostly from write-back of collectively assessed provision. New individually
assessed provisions and collective provisions were also lower.
Economic profit
down $28m, 6%
While cash earnings increased 3%, economic profit declined 6% from an increase in the capital to
meet regulatory requirements.
2019 Full Year financial results
Divisional results
74 | Westpac Group 2019 Full Year Financial Results Announcement
3.5 Group Businesses
1
This segment comprises:
Treasury, which is responsible for the management of the Group’s balance sheet including wholesale funding,
capital and the management of liquidity. Treasury also manages the interest rate risk and foreign exchange
risks inherent in the balance sheet, including managing the mismatch between Group assets and liabilities.
Treasury’s earnings are primarily sourced from managing the Group’s balance sheet and interest rate risk,
(excluding Westpac New Zealand) within set risk limits;
Group Technology
2
, which is responsible for technology strategy and architecture, infrastructure and
operations, applications development and business integration in Australia;
Core Support
3
, which comprises functions performed centrally, including Australian banking operations,
property services, strategy, finance, risk, compliance, legal, human resources, and customer and corporate
relations; and
Following the Group’s decision to restructure its wealth operations and exit its advice business in March 2019,
the residual Advice operations (including associated remediation) and certain support functions of BTFG
Australia have been transferred to Group Businesses.
Group Technology costs are fully allocated to other divisions in the Group. Core Support costs are partially
allocated to other divisions, while Group Head Office costs are retained in Group Businesses.
Group Businesses also includes earnings on capital not allocated to divisions, certain intra-group transactions that
facilitate the presentation of the performance of the Group’s divisions, gains/losses from most asset sales,earnings
and costs associated with the Group’s Fintech investments, and certain other head office items such as centrally
raised provisions.
% Mov't % Mov't
Half
Year
Half
Year
Sept 19
-
Full
Year
Full
Year
Sept 19
-
$m Sept 19
March
19
Mar 19 Sept 19 Sept 18 Sept 18
Net interest income
317 299 6 616 812 (24)
Non-interest income
(116) (502) (77) (618) 89 large
Net operating income
201 (203) large (2) 901 large
Operating expenses
(512) (674) (24) (1,186) (969) 22
Core earnings
(311) (877) (65) (1,188) (68) large
Impairment (charges) / benefits
57 38 50 95 1 large
Operating profit before tax
(254) (839) (70) (1,093) (67) large
Tax and non-controlling interests
31 193 (84) 224 (74) large
Cash earnings
(223) (646) (65) (869) (141) large
Add back notable items
Wealth restructuring
36 136 (74) 172 - 100
Provisions for customer refunds, payments, associated costs, and
litigation 168 464 (64) 632 150 large
Cash earnings excluding notable items
(19) (46) (59) (65) 9 large
1
The Group has adopted AASB 9 Financial Instruments and AASB 15 Revenue from Contracts with Customers from 1 October 2018.
Statutory comparatives have not been restated. Refer to Note 1 in the 2019 Interim Financial Results and Note 1 in Section 3 of the
2019 Annual Report for further detail. However, where applicable, cash earnings comparatives (excluding expected credit loss
provisioning) have been restated to aid comparability. Refer to the cash earnings policy in Section 1.3.4 for further detail. In addition,
during Full Year 2019, the Group has made a number of presentational changes to the Balance Sheet and Income Statement, both
statutory and cash earnings comparatives have been restated. Refer to Note 1 in the 2019 Interim Financial Results and Note 1 in
Section 3 of the 2019 Annual Report for further detail.
2
Group Technology costs are fully allocated to other divisions in the Group.
3
Core Support costs are partially allocated to other divisions in the Group, while Group Head Office costs retained in Group
Businesses.
2019 Full Year financial results
Divisional results
Westpac Group 2019 Full Year Financial Results Announcement | 75
Treasury % Mov't % Mov't
Half Year Half Year Sept 19 - Full Year Full Year Sept 19 -
$m Sept 19 March 19 Mar 19 Sept 19 Sept 18 Sept 18
Net interest income
273 239 14 512 737 (31)
Non-interest income
9 (4) large 5 10 (50)
Net operating income
282 235 20 517 747 (31)
Cash earnings
179 143 25 322 480 (33)
Treasury Value at Risk (VaR)
1
$m Average High Low
Six months ended 30 September 2019
35.1
41.1 28.6
Six months ended 31 March 2019
26.8
33.6 20.9
Six months ended 30 September 2018
29.3
32.6 25.6
1
VaR includes trading book and banking book exposures. The banking book component includes interest rate risk, credit spread risk in
liquid assets and other basis risks as used for internal management purposes.
2019 Full Year financial results
Divisional results
76 | Westpac Group 2019 Full Year Financial Results Announcement
Financial performance
Second Half 2019 – First Half 2019
Group Businesses incurred a cash earnings loss of $223 million in Second Half 2019, $423 million lower than the
$646 million loss recorded in First Half 2019. This was primarily from a $396 million reduction in notable items.
Excluding notable items, Group Businesses cash earnings loss was $27 million lower than the loss recorded in
First Half 2019. The result was supported by a higher contribution from Treasury and a higher impairment benefit.
Net operating
income up
$404m, large
Notable items were $377 million lower. Second Half 2019 included $191 million related to Advice
remediation, significantly lower than the notable item charge of $568 million in First Half 2019;
Higher Treasury revenue related to interest rate risk management;
$44 million gain on an asset sale; partly offset by
Lower revenue following the exit of the Advice business.
Expenses down
$162m, 24%
Notable items were $186 million lower. Second Half 2019 included $99 million related to costs
associated with the exit of the Advice business, remediation costs and litigation; partly offset by
Higher regulatory and compliance costs.
Impairment
benefit $57m, a
$19m increase
Increase in impairment benefits reflects a $57 million reduction to centrally held overlays principally
for the mining sector, partially offset by an increase for areas in Australia impacted by persistent
drought conditions. This compares to a $38 million benefit in First Half 2019.
Full Year 2019 – Full Year 2018
Notable items of $804 million incurred during the year was the key driver of the cash earnings loss of $869 million
in Full Year 2019. Excluding notable items, Group Businesses cash earnings was $74 million lower as the division
recorded a loss of $65 million in Full Year 2019 compared to cash earnings of $9 million in Full Year 2018. The
result was driven by a lower contribution from Treasury partially offset by a higher impairment benefit.
Net operating
income down
$903m, large
Net operating income was lower primarily from:
An increased charge for notable items ($619 million) related to Advice remediation;
A reduced contribution from Treasury related to interest rate risk management (down $230 million)
and lower Advice income; partly offset by
A gain on asset sales and revaluation gains on a fintech investment ($24 million).
Expenses up
$217m, large
Notable items were $319 million higher, largely associated with the Wealth Reset initiative; and
Lower costs associated with the Royal Commission ($62 million) and lower variable reward.
Impairment
benefit $95m, a
$94m increase
An impairment benefit of $95 million reflect a reduction in centrally held overlays in Full Year 2019,
principally for the mining sector, partially offset by the introduction of an overlay for areas in
Australia impacted by persistent drought conditions, compared to a $1 million benefit in Full Year
2018.
2019 Full Year financial results
Table of contents
Westpac Group 2019 Full Year Financial Results Announcement | 77
4.0 Full Year financial report 2019
4.1 Significant developments 78
4.2 Consolidated income statement 88
4.3 Consolidated statement of comprehensive income 89
4.4 Consolidated balance sheet 90
4.5 Consolidated statement of changes in equity 91
4.6 Consolidated cash flow statement 93
4.7 Notes to the consolidated financial statements 94
Note 1 Financial statements preparation 94
Note 2 Segment reporting 95
Note 3 Net interest income 99
Note 4 Non-interest income 100
Note 5 Operating expenses 101
Note 6 Income tax 102
Note 7 Earnings per share 103
Note 8 Average balance sheet and interest rates 104
Note 9 Loans 105
Note 10 Provisions for expected credit losses/impairment charges 106
Note 11 Credit quality 108
Note 12 Deposits and other borrowings 110
Note 13 Fair values of financial assets and liabilities 111
Note 14 Provisions, contingent liabilities, contingent assets and credit commitments 117
Note 15 Shareholders’ equity 123
Note 16 Notes to the consolidated cash flow statement 125
Note 17 Subsequent events 126
4.8 Statutory statements 127
2019 Full Year financial results
Significant developments
78 | Westpac Group 2019 Full Year Financial Results Announcement
4.1 Significant developments
Westpac significant developments
Customer remediation
Through the Group’s ‘get it right, put it right’ initiative we have continued to review products, processes and policies
to identify where we may not have got it right for our customers. Where problems have been identified, the Group
has committed to fix them and refund customers. These initiatives identified a number of issues that require ongoing
remediation.
The Group has undertaken steps designed to accelerate the processing of customer refunds and centralise oversight
of certain remediation under the Chief Operating Officer.
Further information in relation to compliance, reputation and remediation provisions is included in Section 4.7, Note
14.
Changes to wealth strategy
During the course of the year, Westpac reset its wealth strategy and made a number of changes to its wealth
business. This resulted in the realignment of our major BT Financial Group businesses into the Consumer and
Business divisions from 1 April 2019.
During the financial year ended 30 September 2019, Westpac also completed the exit of its personal financial advice
business, which included completing a sale with Viridian Advisory on 1 July 2019 and moving to a referral model for
financial advisers utilising a panel of adviser firms.
First strike against remuneration report
On 12 December 2018 at Westpac's Annual General Meeting of shareholders, Westpac incurred a first strike against
its remuneration report. A strike occurs where a company's remuneration report receives a 'no' vote of 25% or more.
If Westpac receives a second strike at its 2019 Annual General Meeting, a spill resolution will be put to shareholders.
If 50% or more of votes cast are in favour of that spill resolution, a spill meeting is required to be held within 90 days.
At that spill meeting, certain directors will be required to stand for re-election.
In response to the first strike and other feedback received, Westpac has made changes to both the structure of
remuneration and outcomes. Further detail is included in the Remuneration Report contained within the 2019
Westpac Group Annual Report.
Financial crime
In an environment of ongoing legislative reform, regulatory change and increased industry focus, Westpac continues
to progress a program of work to improve its management of financial crime risks (including Anti-Money Laundering
and Counter-Terrorism Financing (AML/CTF), sanctions, Anti-Bribery and Corruption, FATCA and Common
Reporting Standards). This work includes a review of our AML/CTF policies, the completeness of data feeding into
our AML/CTF systems and our AML/CTF processes and controls. Westpac has been regularly updating AUSTRAC
on progress and continues to implement a number of improvements to its AML/CTF Program, governance, policies,
systems and controls together with related remediation work in respect of certain controls and reporting practices.
These efforts relate to matters such as customer on-boarding, customer and payment screening; ongoing customer
due diligence, transaction monitoring and regulatory reporting (including in relation to International Funds Transfer
Instructions (IFTIs), Suspicious Matter Reports and Threshold Transaction Reports).
As reported in the Group's 2018 Annual Report, the Group self-reported to AUSTRAC a failure to report a large
number of IFTIs (as required under Australia’s AML/CTF Act). Under the Act, the 'sender' financial institution of an
IFTI transmitted out of Australia, or the 'recipient' financial institution of an IFTI transmitted into Australia, is required
to report the IFTI to AUSTRAC within 10 business days of the instruction being sent or received. The majority of the
IFTIs which are the subject of the Group’s engagement with AUSTRAC, concern batch instructions received by
Westpac through one WIB product between 2009 and 2018 from a small number of correspondent banks for
payments made predominantly to beneficiaries living in Australia in Australian dollars, on behalf of clients of those
correspondent banks. The majority of the payments were low value, recurring and made by foreign government
pension funds and corporates.
AUSTRAC has issued a number of detailed statutory notices over the last year requiring information relating to the
Group’s processes, procedures and oversight. These notices relate to a range of matters including these IFTI
reporting failures and associated potential failings related to record keeping and obligations to obtain and pass on
certain data in funds transfer instructions, as well as correspondent banking due diligence, risk assessments and
transaction monitoring. Westpac has not yet received an indication from AUSTRAC about the nature of any
enforcement action it may take. The Group is continuing to work with AUSTRAC in relation to these matters.
.
2019 Full Year financial results
Significant developments
Westpac Group 2019 Full Year Financial Results Announcement | 79
Any enforcement action against Westpac may include civil penalty proceedings and result in the payment of a
significant financial penalty, which Westpac is currently unable to reliably estimate. Previous enforcement action by
AUSTRAC against other institutions has resulted in a range of outcomes, depending on the nature and severity of
the relevant conduct and its consequences.
Further information about these matters is set out in Section 4.7, Note 14. Details about the consequences of failing
to comply with financial crime obligations is set out in ‘Risk Factors’ in Section 2 in the 2019 Westpac Group Annual
Report.
Regulatory and Government focus
Royal Commission into the banking, superannuation and financial services industries
On 14 December 2017, the Australian Government established a Royal Commission into potential misconduct in
Australia's banks and other financial services entities. The Royal Commission's Final Report was released on
4 February 2019 and contained 76 express recommendations. In light of Westpac’s wealth strategy reset and the
Government’s signalled approach to implementation, 49 of those recommendations presently apply to Westpac. Of
these 49 recommendations, 11 recommendations have now been implemented, with Westpac either establishing
new practices and procedures to meet the recommendations or having existing practices consistent with the
recommendation, and a further 11 recommendations are in the process of being implemented. Some of these
recommendations will require legislative or regulatory action before implementation can be completed.
The remaining 27 recommendations require legislative or regulatory action before implementation work can
commence. Westpac is undertaking preparatory work where possible, including through participation in Government
consultation.
The recommendations are broadly aimed at protecting consumers against misconduct, providing adequate redress
and addressing asymmetries of power and information between financial services entities and their customers.
Implementation of the recommendations is likely to continue to have a significant impact on banking and financial
services entities and their regulators. Some of the most significant recommendations include those concerning the
regulation of mortgage brokers, the prohibition of unsolicited sales of insurance and superannuation products and
removal of grandfathered commissions.
The Government has stated that it will take action on all of the recommendations contained within the Final Report.
On 19 August 2019, the Government released its Royal Commission implementation roadmap which sets out a
timeline for consultation and the introduction of legislation which will implement the recommendations. The
implementation roadmap foreshadows that a large number of legislative changes will be enacted into law or
introduced before Parliament by mid-2020.
Other impacts arising from the Royal Commission include a number of claims being brought against financial
institutions in relation to certain matters considered during the Royal Commission, and the referral of several cases
of misconduct to the financial regulators by Commissioner Hayne.
APRA self-assessment
On 29 November 2018, Westpac submitted to APRA its self-assessment on its frameworks and practices in relation
to governance, culture and accountability. A copy of Westpac’s self-assessment is available on our website.
On 22 May 2019, APRA released a report analysing self-assessments carried out by 36 banks, insurers and
superannuation licensees. APRA noted a wide variation in the quality of the self-assessments, however consistent
findings in the self-assessments included:
non-financial risk management requires improvement;
accountabilities are not always clear, cascaded and effectively enforced;
acknowledged weaknesses are well-known and some have been long-standing; and
risk culture is not well understood, and therefore may not be reinforcing the desired behaviours.
Westpac has a program of work underway to address the recommendations identified in the self-assessment report
which has oversight of the Westpac Board. Westpac has implemented 40% of the recommendations identified in the
self-assessment and expects to complete its program of work by March 2021.
2019 Full Year financial results
Significant developments
80 | Westpac Group 2019 Full Year Financial Results Announcement
Regulatory reviews and inquiries
Provision of credit - reviews by and engagement with regulators
The provision and availability of credit for residential mortgage holders, property investors and businesses has
continued to be a key area of Government, regulator and industry focus throughout the financial year ended
30 September 2019. Regulatory focus on credit from APRA has primarily been related to serviceability at an industry
level, while ASIC has continued to consult on proposed changes to its regulatory guide on responsible lending.
Judicial guidance on the extent of responsible lending obligations was also obtained from the Federal Court in its
judgment in ASIC’s responsible lending test case against Westpac (with the judgment currently under appeal). More
information on these proceedings is set out in this section below.
APRA has also been engaging with Westpac on the adequacy of our credit risk management framework including
our controls, policies and operating systems. Following feedback from APRA, the Group is making a number of
changes to its systems and controls to improve its end-to-end approach in relation to its mortgage and business
lending portfolios, as well as other key processes. This includes enhancing portfolio management practices, systems
upgrades (including data collection and rationalisation), strengthening collateral management processes, and
improving assurance and oversight over our credit management frameworks. This program of work also addresses
issues identified by Westpac’s internal assurance and audit teams.
Westpac will continue its work to improve its end to end credit processes and expects engagement with APRA in
this regard to continue throughout Full Year 2020.
Australian Competition and Consumer Commission (ACCC) inquiry into home loan pricing
On 14 October 2019, the ACCC was directed by the Treasurer of Australia to conduct an inquiry into home loan
pricing since 1 January 2019. The inquiry has been established to:
investigate the prices charged for home loans across the sector;
consider how banks make pricing decisions, including their approach to passing on movements in the official
cash rate;
examine differences in the prices paid by new and existing customers;
examine differences between the interest rates published by suppliers and the interest rates paid by customers;
and
investigate barriers that may prevent consumers from switching lenders.
An interim report is due by 30 March 2020 and a final report is due by 30 September 2020.
ACCC residential mortgage products price inquiry in relation to the Bank Levy
The ACCC undertook a specific inquiry into the pricing of residential mortgages by those banks affected by the Bank
Levy (including Westpac), which included monitoring the extent to which the Bank Levy was passed on to customers.
The final report was published in December 2018 and made a number of findings about the pricing or residential
mortgages, including that the banks that were the subject of the inquiry did not change residential mortgage prices
specifically to recover the costs of the Bank Levy.
AFCA look back review
On 4 February 2019, the Australian Government announced that, in response to the recommendations contained in
the Royal Commission's Final Report, it would expand the remit of the Australian Financial Complaints Authority
(AFCA) for 12 months so that it can consider customer claims dating back to 1 January 2008 and award
compensation where appropriate. AFCA has expanded its jurisdiction to consider these legacy complaints for an
additional 12 month period to 30 June 2020.
Increased regulatory powers and oversight
Australian Securities and Investments Commission (ASIC) Enforcement Review Taskforce
On 16 April 2018, the Australian Government agreed to implement all of the recommendations made by the ASIC
Enforcement Review Taskforce in its review of the suitability of ASIC’s existing regulatory tools.
Progress continues to be made in implementing these recommendations, including:
the Australian Treasury releasing five draft Bills on 11 September 2019 for consultation which, if enacted, would
further strengthen ASIC’s enforcement and supervision powers by implementing certain recommendations
relating to search warrants, access to telecommunications interception information, licensing and banning orders;
and
the Taskforce releasing a report on 2 October 2019. The report sets out ASIC’s observations on director and
officer oversight of non-financial risk, how directors and officers of large and complex financial services
companies are discharging their duties in relation to oversight and monitoring of non-financial risk, and ways that
governance practices could be improved.
2019 Full Year financial results
Significant developments
Westpac Group 2019 Full Year Financial Results Announcement | 81
Enhanced penalties for corporate and financial sector misconduct
On 12 March 2019, the Treasury Laws Amendment (Strengthening Corporate and Financial Sector Penalties) Act
2019 (Cth) received royal assent. The Act strengthens penalties for corporate and financial sector misconduct
consistent with the ASIC Enforcement Review Taskforce recommendations.
Key aspects of the Act are to:
update the penalties for certain criminal offences in legislation administered by ASIC, including tripling the
maximum imprisonment penalties for certain criminal offences (from 5 to 15 years), introducing a formula to
calculate financial penalties for contraventions of civil penalty provisions by individuals and companies, and
removing imprisonment as a penalty but increasing the financial penalties for all strict and absolute liability
offences;
introduce ordinary criminal offences that sit alongside strict and absolute liability offences;
expand the civil penalty regime by making a wider range of offences subject to civil penalties, such as failures
by Australian financial services licensees to act efficiently, fairly and honestly, and failures to report significant
breaches within 10 days of becoming aware of the breach or of circumstances where they are likely to breach;
introduce a new test that applies to all dishonesty offences under the Corporations Act 2001 (Cth); and
ensure the Courts prioritise compensating victims over ordering the payment of financial penalties.
ASIC's close and continuous monitoring program
ASIC has continued to use a supervisory approach in which ASIC officers are embedded in major financial
institutions, including Westpac, in order to actively limit future financial harm to consumers, investors and markets
and to catalyse positive, consumer oriented, behavioural change.
To date, the model adopted by ASIC is for officers to make extended onsite visits to major financial institutions.
ASIC's program is examining culture and processes in major financial institutions through three streams: Breach
Reporting, Corporate Governance and Internal Dispute Resolution (IDR). ASIC’s onsite on Breach Reporting and
engagement on Corporate Governance is now complete. The IDR onsite for Westpac commenced on 15 October
2019.
Product design and distribution obligations and product intervention power
On 5 April 2019, the Treasury Laws Amendment (Design and Distribution Obligations and Product Intervention
Powers) Act 2019 (Cth) received royal assent. The Act amends the Corporations Act 2001 (Cth) and the National
Consumer Credit Protection Act 2009 (Cth) and grants ASIC a product intervention power and introduces a new
'principles-based' product design and distribution obligation on issuers and distributors.
Regulatory enforcement approach
On 15 April 2019, APRA released its Enforcement Approach with immediate effect. The new Enforcement Approach
follows the results of its Enforcement Review, released on the same day. The Enforcement Review made seven
recommendations which were designed to help APRA better leverage its enforcement powers to achieve prudential
outcomes.
In response to the Enforcement Review, APRA stated it would implement all recommendations including increasing
APRA's enforcement appetite from a ‘last resort’ to a ‘constructively tough’ approach. The new enforcement
approach sets out how APRA will use its enforcement powers to prevent and address serious prudential risks, and
to hold entities and individuals to account. APRA's approach states that it may do this well before the risks (whether
financial, operational or behavioural) present an immediate threat to financial viability. Further, where entities or
individuals are failing to meet prudential obligations, APRA will act quickly and forcefully, and will be willing to set
public examples to deter unacceptable practices from occurring in the future.
On 26 February 2019, the ACCC outlined its compliance and enforcement priorities in its annual Compliance and
Enforcement Policy refresh. The ACCC's competition enforcement approach and objectives are supported by
increased budget support from the Government announced at the end of 2018.
In October 2018, ASIC committed to accelerating enforcement activities, conducting more civil and criminal
enforcement actions against large financial institutions and adopting a 'why not litigate?' enforcement stance.
Following the release of the Royal Commission's Final Report, ASIC has established a separate Office of
Enforcement within ASIC.
Review into corporate criminal responsibility regime
On 10 April 2019, the Australian Government commissioned the Australian Law Reform Commission (ALRC) to
undertake a comprehensive review of the corporate criminal responsibility regime. The review is to consider reforms
to the Criminal Code and other relevant legislation to provide a simpler, stronger and more cohesive regime for
corporate criminal responsibility. The ALRC’s report is to be provided to the Australian Government by 30 April 2020.
2019 Full Year financial results
Significant developments
82 | Westpac Group 2019 Full Year Financial Results Announcement
General regulatory changes affecting our business
Banking Code of Practice
On 31 July 2018, ASIC approved the Banking Code of Practice (the Code) with an implementation date of 1 July
2019 for each bank that has adopted the Code (including Westpac). The Code introduces a range of new measures
including a commitment to take extra care with vulnerable customers and train staff to help, simplified loan contracts
for small business written in plain English, better protection for guarantors and stronger enforcement of the Code.
The Code will be further updated with key amendments in response to the recommendations contained in the Royal
Commission's Final Report, which recommended changes in relation to the protection of small businesses and
having a greater focus on customers in remote areas and those with limited English. These changes include banning
informal overdrafts on basic accounts without prior express agreement with the customer, abolishing dishonour fees
on basic bank accounts and following AUSTRAC's guidance on the identification and verification of persons of
Aboriginal or Torres Strait Islander heritage. Subject to regulatory approvals, it is expected that these updates will
be effective from 1 March 2020.
Open banking regime
The Treasury Laws Amendment (Consumer Data Right) Act 2019 (Cth) (CDR Act) received royal assent on
12 August 2019. The CDR Act amends the Competition and Consumer Act 2010 (Cth), the Privacy Act 1988 (Cth)
and the Australian Information Commissioner Act 2010 (Cth) to introduce a consumer data right. The banking sector
is the first sector to which the consumer data right will apply.
The introduction of a consumer data right in the Australian economy signifies a shift in how data is regulated. It will
give customers in Australia a right to direct that their data (starting with banking data) be shared with accredited third
parties and follows a growing global trend to give consumers control over their data. Data sharing is expected to
facilitate competition through easier product comparison and switching. This will have significant implications for
consumers and banks.
On 2 September 2019, the ACCC released the final Competition and Consumer (Consumer Data Right) Rules 2019
(CDR Rules). The CDR Rules outline how the consumer data right is to be implemented in the banking sector. A
revised timetable for the introduction of open banking was included as part of the CDR Rules.
Both the CDR Act and CDR Rules contain new detailed privacy protections under 13 Privacy Safeguards. The
Privacy Safeguards deal with the disclosure, collection, use, accuracy, storage, security and deletion of consumer
data right data. There are also 58 civil penalty provisions under the CDR Rules. A breach of the Privacy Safeguards
or the CDR Rules could attract civil penalties of up to the greater of $10 million, 3 times any benefit obtained or 10%
of 12 month annual turnover for corporations.
Comprehensive Credit Reporting (CCR)
On 15 August 2019, an updated version of the National Consumer Credit Protection Amendment (Mandatory
Comprehensive Credit Reporting) Bill 2018 (Cth) was released for consultation by the Australian Treasury, following
the prior introduction of the Bill into the House of Representatives in March 2018. It is expected that this updated Bill
will be introduced into Parliament in late 2019.
Litigation
ASIC's responsible lending litigation against Westpac
On 1 March 2017, ASIC commenced Federal Court proceedings against Westpac in relation to certain home loans
entered into between December 2011 and March 2015, which were automatically approved by Westpac's systems
as part of its broader processes. The proceedings were heard in May 2019. On 13 August 2019, the Court handed
down its judgment in the proceedings, and dismissed ASIC’s case. On 10 September 2019 ASIC filed an appeal in
relation to the decision.
Outbound scaled advice division proceedings
On 22 December 2016, ASIC commenced Federal Court proceedings against BT Funds Management Limited
(BTFM) and Westpac Securities Administration Limited (WSAL) in relation to a number of superannuation account
consolidation campaigns conducted between 2013 and 2016. ASIC has alleged that in the course of some of these
campaigns, customers were provided with personal advice in contravention of a number of Corporations Act 2001
(Cth) provisions, and selected 15 specific customers as the focus of their claim. In December 2018 the primary Court
handed down a judgment in which it held that no personal advice had been provided and that BTFM and WSAL did
not contravene the relevant personal advice provisions although it did make a finding that BTFM and WSAL had
each contravened section 912A(1)(a) of the Corporations Act. In February 2019, ASIC filed an appeal against this
decision. On 28 October 2019, the Full Federal Court handed down its decision in ASIC’s favour and made findings
that BTFM and WSAL each provided personal advice on the relevant calls. Once formal declarations of contravention
are made, the matter will be remitted for penalty.
2019 Full Year financial results
Significant developments
Westpac Group 2019 Full Year Financial Results Announcement | 83
ASIC's proceedings against Westpac for poor financial advice by a financial planner
On 14 June 2018, ASIC commenced proceedings in the Federal Court against Westpac in relation to alleged poor
financial advice provided by a former financial planner, Mr Sudhir Sinha. Mr Sinha was dismissed by Westpac
in November 2014 and subsequently banned by ASIC. Westpac has proactively initiated remediation to identify and
compensate affected customers and has completed remediation activities. ASIC's proceedings relate
to advice provided by Mr Sinha in respect of four specific customer files. The matter was heard by the Court on
15 April 2019 and judgment has been reserved.
Class action against Westpac Banking Corporation and Westpac Life Insurance Services Limited
On 12 October 2017, a class action was filed in the Federal Court of Australia on behalf of customers who, since
February 2011, obtained insurance issued by Westpac Life Insurance Services Limited (WLIS) on the
recommendation of financial advisers employed within the Westpac Group. The plaintiffs have alleged that aspects
of the financial advice provided by those advisers breached fiduciary and statutory duties owed to the advisers'
clients, including the duty to act in the best interests of the client, and that WLIS was knowingly involved in those
alleged breaches. Westpac and WLIS are defending the proceedings. These proceedings are currently stayed by
order of the Court, pending the outcome of an appeal concerning a procedural issue unrelated to the substantive
claims made in the class action.
BBSW proceedings
Following ASIC's investigations into the interbank short-term money market and its impact on the setting of the bank
bill swap reference rate (BBSW), on 5 April 2016, ASIC commenced civil proceedings against Westpac in the Federal
Court of Australia, alleging certain misconduct, including market manipulation and unconscionable conduct. On 24
May 2018, Justice Beach found that Westpac had not engaged in market manipulation or misleading or deceptive
conduct under the Corporations Act 2001 (Cth). His Honour also found that there was no 'trading practice' of
manipulating the BBSW rate. However, the Court found that Westpac engaged in unconscionable conduct on 4
occasions and that Westpac breached certain of its duties as a financial services licensee. On 9 November 2018,
the Court ordered Westpac to pay a penalty of $3.3 million and 50% of ASIC’s costs, and have an independent
expert review particular aspects of Westpac's compliance arrangements. Westpac has complied with these orders.
The amount of costs recoverable by ASIC is still in the process of being determined.
In August 2016, a class action was filed in the United States District Court for the Southern District of New York
against Westpac and large number of Australian and international banks alleging misconduct in relation to the bank
bill swap reference rate. In April 2019, an amended claim was filed by the Plaintiffs. Westpac is defending the
proceedings with a Motion to Dismiss filed in May 2019.
Responsible lending class action
On 21 February 2019, a class action against Westpac was filed in the Federal Court of Australia. As directed
by the Court, the Plaintiffs filed a Statement of Claim on 22 May 2019 and an amended statement of claim on
18 October 2019. The claims allege that Westpac did not comply with its responsible lending obligations and entered
into certain home loans that it should otherwise have assessed as unsuitable. The allegations include that, during
the period from 1 January 2011 to 17 February 2018, Westpac failed to: conduct reasonable inquiries about the
customers’ financial situation, requirements and objectives; verify customer’s financial situation; conduct
assessments of suitability; and act efficiently and fairly. Westpac is defending the proceedings.
Cash in super class action
On 5 September 2019, a class action against BT Funds Management Limited (BTFM) and Westpac Life Insurance
Services Limited (WLIS) was commenced in relation to aspects of BTFM’s BT Super for Life cash investment option.
The claim follows other industry class actions as part of Slater and Gordon’s ‘Get your super back’ campaign.
It is alleged in the proceedings that BTFM failed to adhere to a number of obligations under the general law, the
relevant trust deed and the Superannuation Industry (Supervision) Act 1993 (Cth), and that WLIS was knowingly
concerned with BTFM’s alleged contraventions. The damages sought by the claim are unspecified. BTFM and WLIS
are defending the proceedings.
Regulatory capital transactions
Capital raising
On 4 November 2019, Westpac announced that it will be undertaking an underwritten placement of fully paid ordinary
shares in Westpac to institutional investors to raise $2 billion. As further announced, following the placement,
Westpac will make a share purchase plan available to shareholders to raise approximately $500 million, subject to
scaleback, and with the ability to raise less or more.
2019 Full Year financial results
Significant developments
84 | Westpac Group 2019 Full Year Financial Results Announcement
Issue of Westpac Capital Notes 6
On 18 December 2018, Westpac issued approximately $1.42 billion of securities known as Westpac Capital Notes
6 which qualify as Additional Tier 1 capital under APRA's capital adequacy framework.
Transfer and redemption of Westpac Capital Notes
On 18 December 2018, approximately $722 million of Westpac Capital Notes were transferred to the Westpac
Capital Notes nominated party for $100 each pursuant to the Westpac Capital Notes 6 reinvestment offer. Those
Westpac Capital Notes were subsequently redeemed by Westpac.
On 8 March 2019, being the optional redemption/transfer date of the Westpac Capital Notes, the remaining
$662 million of Westpac Capital Notes were transferred to the Westpac Capital Notes nominated party for $100
each. Those Westpac Capital Notes were subsequently redeemed by Westpac.
Adoption of new accounting standards
Adoption of AASB 9 and AASB 15
The Group adopted the classification and measurement, and impairment requirements of AASB 9: Financial
Instruments (AASB 9) on 1 October 2018. AASB 9 includes a forward looking 'expected credit loss' impairment
model, revised classification and measurement model and modifies the approach to hedge accounting.
The adoption of AASB 9 reduced the Group’s retained earnings at 1 October 2018 by $722 million (net of tax)
primarily due to the increase in impairment provisions under the new standard.
The Group also adopted AASB 15: Revenue from Contracts with Customers (AASB 15) on 1 October 2018. AASB
15 provides a systematic approach to revenue recognition by introducing a five-step model governing revenue
measurement and recognition. The adoption of AASB 15 reduced the Group’s retained earnings at
1 October 2018 by $5 million (net of tax).
Further details of the changes from the adoption of AASB 9 and AASB 15 as well as details of accounting standards
that have been issued but are not yet effective for the Group are included in Note 1 to the financial statements in the
2019 Westpac Group Annual Report.
Transition to AASB 16
AASB 16: Leases (AASB 16) replaced AASB 117: Leases from 1 October 2019. AASB 16 requires all leases
of greater than 12 months duration to be presented on balance sheet by the lessee as a right-of-use asset and
a lease liability. The application of AASB 16 is expected to result in the recognition of a right-of-use asset of
$3.4 billion with a corresponding lease liability, with no impact on retained earnings.
Further details of the changes under the new standard are included in Note 1 to the financial statements in the 2019
Westpac Group Annual Report.
APRA regulatory changes
APRA's proposed changes to capital standards
On 19 July 2017, APRA released an Information Paper titled 'Strengthening Banking System Resilience -
Establishing Unquestionably Strong Capital Ratios'. In its release, APRA concluded that the four major Australian
banks, including Westpac, need to have a common equity tier 1 (CET1) capital ratio of at least 10.5%, as measured
under the existing capital framework, to be considered ‘unquestionably strong’. Banks are expected to meet this new
benchmark by 1 January 2020.
APRA has commenced consultation on revisions to the capital framework which includes proposals on changes to
risk weighted assets, including in relation to residential mortgages as well as improving the transparency,
comparability and flexibility of the framework.
As part of the proposals, APRA has proposed a minimum Leverage Ratio requirement of 3.5% for ADIs, such as
Westpac, that use the internal ratings-based approach to determine capital adequacy.
APRA has indicated that it expects to finalise the suite of prudential standards to give effect to the ‘unquestionably
strong’ benchmark in 2020-21, with the revised prudential standards likely to come into effect from 1 January 2022.
In regards to the proposed revisions to the capital treatment of operational risk, APRA has proposed an earlier
implementation date of 1 January 2021 for advanced IRB banks, such as Westpac.
APRA has announced that its revisions to the capital framework are not intended to necessitate further capital
increases for the industry above the 10.5% benchmark. However, given the proposals include higher risk weights
for certain mortgage products, such as interest only loans and loans for investment purposes, the impact on
individual banks may vary. The proposals are currently under consultation and final details remain unclear, and it is
therefore too soon to determine the impact on Westpac.
2019 Full Year financial results
Significant developments
Westpac Group 2019 Full Year Financial Results Announcement | 85
Further details of Westpac's other regulatory disclosures required in accordance with prudential standard APS 330
can be accessed at https://www.westpac.com.au/about-westpac/investor-centre/financial-information/regulatory-
disclosures/.
APRA’s additional capital requirements
On 11 July 2019, Westpac received APRA’s response to its self-assessment. In its response, APRA decided to
apply an additional $500 million to Westpac’s operational risk capital requirement. This follows APRA concluding
that Westpac was required to improve its management and oversight of non-financial risk. The additional capital
requirement will remain in place until APRA is satisfied that Westpac has completed its action plan.
The $500 million requirement, applied through an increase in risk weighted assets, took effect from 30 September
2019. The change reduced Westpac’s Level 2 CET1 capital ratio by 16 basis points. Westpac’s CET1 capital ratio
at 30 September 2019 was 10.67%.
APRA’s proposed revisions to subsidiary capital investment treatment
On 15 October 2019, APRA released a discussion paper on proposed changes to APS 111 Capital Adequacy:
Measurement of Capital. The key proposal is in relation to a parent ADI’s treatment of its equity investments in
banking and insurance subsidiaries (Level 1). Westpac’s largest investment in banking and insurance subsidiaries
is Westpac New Zealand Limited (WNZL). There is no impact from this proposal on the calculation of the Group’s
reported regulatory capital ratios on a Level 2 basis. On a Level 1 basis, on a proforma basis as at 30 September
2019, it is estimated that applying APRA’s proposed approach would reduce Westpac’s Level 1 CET1 ratio by
approximately 40bps ($1.6 billion). APRA has indicated that the updated standard will come into effect from
1 January 2021.
Associations with Related Entities
On 20 August 2019, APRA released the finalised prudential standard APS 222: Associations with Related Entities.
The revised standard is intended to strengthen the ability of ADIs to monitor, limit and control risks arising from
transactions and other associations with related entities. Key changes include revisions to the limit for exposure for
ADIs from 50% of Total Capital to 25% of Tier 1 capital. The revised standard is effective from 1 January 2021.
Westpac’s largest exposure to a related entity is WNZL. As at 30 September 2019, Westpac would remain within
the revised limits based on the current level of exposure to WNZL.
Additional loss absorbing capacity
In response to the Financial System Inquiry recommendations, the Australian Government agreed to further reforms
regarding crisis management and establishing a framework for minimum loss-absorbing and recapitalisation
capacity.
On 9 July 2019, APRA announced a requirement for the Australian major banks (including Westpac) to increase
their total capital requirements by three percentage points of risk weighted assets (RWA) as measured under the
current capital adequacy framework. This increase in total capital will take full effect from 1 January 2024.
Based on Westpac’s RWA of $429 billion at 30 September 2019, this represents around $13 billion of additional
capital over the four year transition period. The additional capital is expected to be raised through Tier 2 Capital and
is likely to be offset by a decrease in other forms of long term wholesale funding. Westpac has commenced progress
towards the new requirements and in the financial year ended 30 September 2019 issued a total of
$4.2 billion in Tier 2 capital.
APRA is still targeting an additional four to five percentage points of loss-absorbing capacity. Over the next four
years, APRA will consider feasible alternative methods for raising the remaining 1-2 percentage points.
APRA intends to consult on a prudential framework covering both recovery and resolution planning in 2020.
APRA’s proposed amendment to guidance on mortgage lending
On 5 July 2019, APRA announced that it no longer required ADIs to assess home loan applications using a minimum
interest rate of at least 7%. Instead, ADIs are permitted to review and set their own minimum interest rate floor for
use in serviceability assessments and utilise a revised interest rate buffer of at least 2.5% over the loan’s interest
rate. Also on 5 July 2019, APRA also released its final version of Prudential Practice Guide APG 223 – Residential
Mortgage Lending.
APRA Prudential Standard CPS 234: Information Security Management
On 1 July 2019, APRA’s Prudential Standard CPS 234: Information Security came into effect, except for information
assets managed by a third party which will come into effect from the earlier of the next contract renewal date or
1 July 2020. The standard is aimed at improving the ability of APRA-regulated entities to detect cyber adversaries,
ensure appropriate security capabilities are in place commensurate to the risk of the information assets including
responding swiftly and effectively in the event of an information security incident. Westpac continues to enhance its
systems and processes to further mitigate cybersecurity risks.
2019 Full Year financial results
Significant developments
86 | Westpac Group 2019 Full Year Financial Results Announcement
APRA Prudential Standard CPS 511: Remuneration
On 23 July 2019, APRA released for consultation a new draft prudential standard and supporting discussion paper
on remuneration. It is aimed at clarifying and strengthening remuneration arrangements in APRA-regulated entities.
The new standard will replace existing remuneration requirements under CPS/SPS 510 Governance with a proposed
implementation date of 1 July 2021.
International developments affecting Westpac
Brexit
There continues to be uncertainty on the timing and process for the United Kingdom's (UK) withdrawal from the
European Union (EU).
As Westpac's business and operations are based predominantly in Australia and New Zealand, Westpac expects
that the direct impact of the UK's departure from the EU is unlikely to be material to Westpac. However, it remains
difficult to predict the impact that Brexit may have on financial markets, the global economy and the global financial
services industry. Westpac has contingency planning in place and has been active in dialogue with affected
customers.
OTC derivatives reform
International regulatory reforms relating to over-the-counter (OTC) derivatives continue to be implemented across
the globe, with a current focus on initial margin and risk mitigation practices for non-centrally cleared derivatives.
As of 1 September 2019, Westpac is required to post and collect collateral on a gross basis, held at third party
custodians. Global initial margin requirements will continue to be introduced in phases until 1 September 2021.
New Zealand
Reserve Bank of New Zealand (RBNZ) - Revised Outsourcing Policy
As at 30 September 2019, WNZL is compliant with the requirement in the RBNZ’s revised Outsourcing Policy (BS11)
(Revised Outsourcing Policy) to maintain a compendium of outsourcing arrangements and work is underway to
comply with the other aspects of the Revised Outsourcing Policy by 30 September 2022 in line with the regulatory
timeline.
As a result of complying with the Revised Outsourcing Policy, the ongoing cost of operating the WNZL business will
increase, in addition to the costs of implementing the changes.
RBNZ Capital Review
On 14 December 2018, the RBNZ released a consultation paper to seek the public's view on a proposal to set a Tier
1 capital requirement equal to 16% of risk weighted assets for banks deemed systemically important, such as WNZL.
The proposal of a Tier 1 ratio of 6% of risk weighted assets as a regulatory minimum is unchanged, and of this no
more than 1.5% of risk weighted assets can be contributed by Additional Tier 1 capital or redeemable preference
shares. The RBNZ has also proposed changes to risk weighted asset measurement. The RBNZ has proposed a five
year transition period.
The proposed changes aim to further strengthen the New Zealand banking system to protect the economy and
depositors from bank failure. WNZL would be required to hold a further estimated NZ$2.3-$2.9 billion of Tier 1 capital
(assuming a WNZL Tier 1 capital ratio of 16-17%) if the proposals were applied at 30 September 2019. WNZL is
already strongly capitalised with a Tier 1 capital ratio of 13.9% at 30 September 2019.
On a pro-forma basis this change would also increase Westpac’s Level 1 capital requirements by NZ$1.2-$1.8 billion
if the proposals were applied at 30 September 2019, assuming that some of WNZL’s supplementary capital can be
issued externally over time and that APRA’s proposed revisions to subsidiary capital investment treatment are
implemented (more information on these proposed revisions is set out above). Further clarity on the proposals is
expected from the RBNZ in December 2019, with implementation of any new rules starting from April 2020.
RBNZ - Review under section 95 of the Reserve Bank of New Zealand Act 1989
In June 2019, in response to a review under section 95 of the Reserve Bank of New Zealand Act 1989 of WNZL’s
compliance with advanced internal rating based aspects of the RBNZ's 'Capital Adequacy Framework (Internal
Models Based Approach)’, (BS2B), WNZL presented the RBNZ with a submission providing an overview of its credit
risk rating system and activities undertaken to address compliance issues and enhance risk management practices.
On 30 October 2019, the RBNZ informed WNZL that it had accepted the submission and measures undertaken by
WNZL to achieve satisfactory compliance with BS2B, and that WNZL would retain its accreditation to use internal
models for credit risk in the calculation of its regulatory capital requirements. It also advised WNZL that, with effect
from 31 December 2019, the RBNZ will remove the requirement imposed on WNZL since 31 December 2017 to
maintain minimum regulatory capital ratios which are two percentage points higher than the ratios applying to other
locally incorporated banks.
2019 Full Year financial results
Significant developments
Westpac Group 2019 Full Year Financial Results Announcement | 87
Review of the Reserve Bank of New Zealand Act
In November 2017, the New Zealand Government announced it would undertake a review of the Reserve Bank of
New Zealand Act 1989 (RBNZ Review). The RBNZ Review will consist of two phases. The legislation for
the recommended Phase 1 related changes to New Zealand's monetary policy framework received royal assent on
20 December 2018, and came into force on 1 April 2019.
The terms of reference for Phase 2 were released in June 2018 and will consider the overarching objectives of the
RBNZ's institutional governance and decision-making, the macro-prudential framework, the current prudential
supervision model, trans-Tasman coordination, supervision and enforcement and resolution and crisis management.
Final policy decisions on all components of the review are expected to be made in 2020.
RBNZ/Financial Markets Authority (FMA) - Financial Services Conduct & Culture Review
In May 2018, the RBNZ and FMA commenced a review in respect of New Zealand's 10 major banks and 15 life
insurers, including WNZL and Westpac Life-NZ-Limited, to explain why conduct issues highlighted by the Australian
Royal Commission are not present in New Zealand. An industry thematic review report for the banks was released
on 5 November 2018. WNZL submitted a plan responding to recommendations in the review report and in WNZL’s
individual feedback letters to the regulators on 29 March 2019.
The industry thematic review report into life insurers, including Westpac Life-NZ-Limited, was released on
29 January 2019. The report identified extensive weaknesses in life insurers' systems and controls, governance and
management of conduct risks. Westpac Life-NZ-Limited provided its plan to address the findings to the regulators in
June 2019.
Conduct of Financial Institutions Review
Following the developments and findings of the Financial Services Conduct and Culture Review and the Australian
Royal Commission, the Minister of Commerce announced a proposal to introduce a conduct licensing regime for
banks, insurers and non-bank deposit takers in respect of their conduct in relation to retail customers. The regime
will require licensed institutions to meet a fair treatment standard, and implement effective policies, processes,
systems and controls to meet this standard. The regime will also create obligations relating to remuneration and
sales incentives. Legislation is expected to be introduced to parliament by the end of 2019.
Reform of Credit Contracts and Consumer Finance Legislation
In April 2019, the Credit Contracts Legislation Amendment Bill was introduced to parliament and is currently before
the select committee. The Bill introduces a number of changes to the Credit Contracts and Consumer Finance Act,
including new duties for directors and senior managers and increased penalties and statutory damages. The Bill
also introduces stricter requirements around suitability and affordability assessments as well as a cap for interest
and fees of ‘high cost’ loans (being loans with annualised interest exceeding 50%). The intention is that the Bill will
come into effect in March 2020.
2019 Full Year financial results
Consolidated financial statements
88 | Westpac Group 2019 Full Year Financial Results Announcement
4.2 Consolidated income statement
1
Westpac Banking Corporation and its controlled entities
% Mov't
% Mov't
Half Year
Half Year
Sept 19 -
Full Year
Full Year
Sept 19 -
$m Note Sept 19
March 19
Mar 19
Sept 19
Sept 18
Sept 18
Interest income:
Calculated using the effective
interest rate method 3 15,900
16,618
(4)
32,518
31,987
2
Other 3 354
350
1
704
584
21
Total interest income 16,254
16,968
(4)
33,222
32,571
2
Interest expense 3 (7,610)
(8,705)
(13)
(16,315)
(16,066)
2
Net interest income 8,644
8,263
5
16,907
16,505
2
Net fee income 4 829
826
-
1,655
2,424
(32)
Net wealth management and insurance income 4 703
326
116
1,029
2,061
(50)
Trading income 4 492
437
13
929
945
(2)
Other income 4 2
127
(98)
129
72
79
Net operating income before operating
expenses and impairment charges 10,670
9,979
7
20,649
22,007
(6)
Operating expenses 5 (5,015)
(5,091)
(1)
(10,106)
(9,566)
6
Impairment charges 10 (461)
(333)
38
(794)
(710)
12
Profit before income tax 5,194
4,555
14
9,749
11,731
(17)
Income tax expense 6 (1,580)
(1,379)
15
(2,959)
(3,632)
(19)
Net profit for the period 3,614
3,176
14
6,790
8,099
(16)
Net profit attributable to non-controlling interests (3)
(3)
-
(6)
(4)
50
Net profit attributable to owners of
Westpac Banking Corporation 3,611
3,173
14
6,784
8,095
(16)
Earnings per share (cents)
Basic 7 104.1
92.3
13
196.5
237.5
(17)
Diluted 7 99.9
89.5
12
189.5
230.1
(18)
The above consolidated income statement should be read in conjunction with the accompanying notes.
1
The Group has adopted AASB 9 Financial Instruments and AASB 15 Revenue from Contracts with Customers from 1 October 2018.
Statutory comparatives have not been restated. Refer to Note 1 in the 2019 Interim Financial Report and Note 1 in Section 3 of the 2019
Annual Report for further detail. However, where applicable, cash earnings comparatives (excluding expected credit loss provisioning)
have been restated to aid comparability. Refer to the cash earnings policy in Section 1.3.4 for further detail. In addition, during Full Year
2019, the Group has made a number of presentational changes to the Balance Sheet and Income Statement, both statutory and cash
earnings comparatives have been restated. Refer to Note 1 in the 2019 Interim Financial Report and Note 1 in Section 3 of the 2019
Annual Report for further detail.
2019 Full Year financial results
Consolidated financial statements
Westpac Group 2019 Full Year Financial Results Announcement | 89
4.3 Consolidated statement of comprehensive income
1
Westpac Banking Corporation and its controlled entities
% Mov't
% Mov't
Half Year
Half Year
Sept 19 -
Full Year
Full Year
Sept 19 -
$m Sept 19
March 19
Mar 19
Sept 19
Sept 18
Sept 18
Net profit for the period 3,614
3,176
14
6,790
8,099
(16)
Other comprehensive income
Items that may be reclassified subsequently
to profit or loss
Gains/(losses) recognised in equity on:
Available-for-sale securities -
-
-
-
(102)
(100)
Debt securities measured at fair value through other
comprehensive income (FVOCI) (111)
65
large
(46)
-
-
Cash flow hedging instruments (11)
(192)
(94)
(203)
(161)
26
Transferred to income statements:
Available-for-sale securities -
-
-
-
66
(100)
Debt securities measured at FVOCI (4)
(25)
(84)
(29)
-
-
Cash flow hedging instruments 117
80
46
197
203
(3)
Foreign currency translation reserve -
(10)
(100)
(10)
(3)
large
Exchange differences on translation of
foreign operations (net of associated hedges) 127
55
131
182
181
1
Income tax on items taken to or transferred from equity:
Available-for-sale securities reserve -
-
-
-
9
(100)
Debt securities measured at FVOCI reserve 34
(14)
large
20
-
-
Cash flow hedge reserve (31)
33
large
2
(13)
large
Items that will not be reclassified subsequently
to profit or loss
Gains/(losses) on equity securities measured
at FVOCI 10
1
large
11
-
-
Own credit adjustment on financial liabilities
designated at fair value (net of tax) (8)
(2)
large
(10)
43
large
Remeasurement of defined benefit obligation (125)
(151)
(17)
(276)
45
large
Other comprehensive income for the
period (net of tax) (2)
(160)
(99)
(162)
268
large
Total comprehensive income for the period 3,612
3,016
20
6,628
8,367
(21)
Attributable to:
Owners of Westpac Banking Corporation 3,608
3,012
20
6,620
8,363
(21)
Non-controlling interests 4
4
-
8
4
100
Total comprehensive income for the period 3,612
3,016
20
6,628
8,367
(21)
The above consolidated statement of comprehensive income should be read in conjunction with the accompanying
notes.
1
The Group has adopted AASB 9 Financial Instruments and AASB 15 Revenue from Contracts with Customers from 1 October 2018.
Statutory comparatives have not been restated. Refer to Note 1 in the 2019 Interim Financial Report and Note 1 in Section 3 of the 2019
Annual Report for further detail. However, where applicable, cash earnings comparatives (excluding expected credit loss provisioning)
have been restated to aid comparability. Refer to the cash earnings policy in Section 1.3.4 for further detail. In addition, during Full Year
2019, the Group has made a number of presentational changes to the Balance Sheet and Income Statement, both statutory and cash
earnings comparatives have been restated. Refer to Note 1 in the 2019 Interim Financial Report and Note 1 in Section 3 of the 2019
Annual Report for further detail.
2019 Full Year financial results
Consolidated financial statements
90 | Westpac Group 2019 Full Year Financial Results Announcement
4.4 Consolidated balance sheet
1
Westpac Banking Corporation and its controlled entities
As at
As at
As at
% Mov't
% Mov't
30 Sept
31 March
30 Sept
Sept 19 -
Sept 19 -
$m Note 2019
2019
2018
Mar 19
Sept 18
Assets
Cash and balances with central banks 20,059
19,486
26,788
3
(25)
Collateral paid 5,930
6,103
4,787
(3)
24
Trading securities and financial assets measured
at fair value through income statement (FVIS) 31,781
29,307
23,132
8
37
Derivative financial instruments 29,859
21,765
24,101
37
24
Available-for-sale securities -
-
61,119
-
(100)
Investment securities 73,401
68,536
-
7
-
Loans 9 714,770
714,297
709,690
-
1
Other financial assets 5,367
6,444
5,517
(17)
(3)
Current tax assets -
72
-
(100)
-
Life insurance assets 9,367
9,374
9,450
-
(1)
Investment in associates
2
129
115
115
12
12
Property and equipment 1,155
1,200
1,329
(4)
(13)
Deferred tax assets 2,048
1,723
1,180
19
74
Intangible assets 11,953
11,850
11,763
1
2
Other assets 807
790
621
2
30
Total assets 906,626
891,062
879,592
2
3
Liabilities
Collateral received 3,287
1,889
2,184
74
51
Deposits and other borrowings 12 563,247
555,007
559,285
1
1
Other financial liabilities 29,215
29,013
28,105
1
4
Derivative financial instruments 29,096
23,384
24,407
24
19
Debt issues 181,457
188,759
172,596
(4)
5
Current tax liabilities 163
-
296
-
(45)
Life insurance liabilities 7,377
7,503
7,597
(2)
(3)
Provisions 14 3,169
2,764
1,928
15
64
Deferred tax liabilities 44
-
18
-
144
Other liabilities 2,238
2,072
1,338
8
67
Total liabilities excluding loan capital 819,293
810,391
797,754
1
3
Loan capital 21,826
16,736
17,265
30
26
Total liabilities 841,119
827,127
815,019
2
3
Net assets 65,507
63,935
64,573
2
1
Shareholders’ equity
Share capital:
Ordinary share capital 15 37,508
36,351
36,054
3
4
Treasury shares and Restricted Share
Plan (RSP) treasury shares 15 (553)
(557)
(493)
(1)
12
Reserves 15 1,311
1,141
1,077
15
22
Retained profits 27,188
26,949
27,883
1
(2)
Total equity attributable to owners of
Westpac Banking Corporation 65,454
63,884
64,521
2
1
Non-controlling interests 53
51
52
4
2
Total shareholders' equity and non-
controlling interests 65,507
63,935
64,573
2
1
The above consolidated balance sheet should be read in conjunction with the accompanying notes.
1
The Group has adopted AASB 9 Financial Instruments and AASB 15 Revenue from Contracts with Customers from 1 October 2018.
Statutory comparatives have not been restated. Refer to Note 1 in the 2019 Interim Financial Report and Note 1 in Section 3 of the 2019
Annual Report for further detail. However, where applicable, cash earnings comparatives (excluding expected credit loss provisioning)
have been restated to aid comparability. Refer to the cash earnings policy in Section 1.3.4 for further detail. In addition, during Full Year
2019, the Group has made a number of presentational changes to the Balance Sheet and Income Statement, both statutory and cash
earnings comparatives have been restated. Refer to Note 1 in the 2019 Interim Financial Report and Note 1 in Section 3 of the 2019
Annual Report for further detail.
2
For further detail refer to Note 31 of the financial statements contained in the 2019 Westpac Group Annual Report.
2019 Full Year financial results
Consolidated financial statements
Westpac Group 2019 Full Year Financial Results Announcement | 91
4.5 Consolidated statement of changes in equity
1
Westpac Banking Corporation and its controlled entities
Total equity
Total
attributable
shareholders'
to owners
equity and
Share of Westpac Non-
non-
Capital RetainedBanking controlling
controlling
$m (Note 15)ReservesprofitsCorporation interests
interests
Balance at 1 October 2017 34,394 794 26,100 61,288 54
61,342
Net profit for the year - - 8,095 8,095 4
8,099
Net other comprehensive income for the year - 180 88 268 -
268
Total comprehensive income for the year - 180 8,183 8,363 4
8,367
Transactions in capacity as equity holders
Dividends on ordinary shares
2
- - (6,400)(6,400) -
(6,400)
Dividend reinvestment plan 631 - - 631 -
631
Conversion of Convertible Preference Shares 566 - - 566 -
566
Other equity movements
Share-based payment arrangements - 103 - 103 -
103
Exercise of employee share options and rights 3 - - 3 -
3
Purchase of shares (net of issue costs) (35)- - (35) -
(35)
Net (acquisition)/disposal of treasury shares 2 - - 2 -
2
Other - - - - (6)
(6)
Total contributions and distributions 1,167 103 (6,400)(5,130) (6)
(5,136)
Balance at 30 September 2018 35,561 1,077 27,883 64,521 52
64,573
Impact on adoption of new accounting standards - 2 (727)(725) - (725)
Restated opening balance 35,561 1,079 27,156 63,796 52 63,848
Net profit for the year - - 6,784 6,784 6 6,790
Net other comprehensive income for the year - 122 (286)(164) 2 (162)
Total comprehensive income for the year
- 122 6,498 6,620 8 6,628
Transactions in capacity as equity holders
Dividends on ordinary shares
2
- - (6,466)(6,466) - (6,466)
Dividend reinvestment plan
1,489 - - 1,489 - 1,489
Other equity movements
Share-based payment arrangements
- 108 - 108 - 108
Purchase of shares (net of issue costs)
(33)- - (33) - (33)
Net (acquisition)/disposal of treasury shares
(62)- - (62) - (62)
Other
- 2 - 2 (7) (5)
Total contributions and distributions
1,394 110 (6,466)(4,962) (7) (4,969)
Balance at 30 September 2019 36,955 1,311 27,188 65,454 53 65,507
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
1
The Group has adopted AASB 9 Financial Instruments and AASB 15 Revenue from Contracts with Customers from 1 October 2018.
Statutory comparatives have not been restated. Refer to Note 1 in the 2019 Interim Financial Report and Note 1 in Section 3 of the 2019
Annual Report for further detail. However, where applicable, cash earnings comparatives (excluding expected credit loss provisioning)
have been restated to aid comparability. Refer to the cash earnings policy in Section 1.3.4 for further detail. In addition, during Full Year
2019, the Group has made a number of presentational changes to the Balance Sheet and Income Statement, both statutory and cash
earnings comparatives have been restated. Refer to Note 1 in the 2019 Interim Financial Report and Note 1 in Section 3 of the 2019
Annual Report for further detail.
2
2019 comprises 2019 interim dividend 94 cents per share ($3,239 million) and 2018 final dividend 94 cents per share ($3,227 million)
(2018: 2018 interim dividend 94 cents per share ($3,213 million) and 2017 final ordinary dividend 94 cents per share ($3,187 million))
all fully franked at 30%.
2019 Full Year financial results
Consolidated financial statements
92 | Westpac Group 2019 Full Year Financial Results Announcement
4.5 Consolidated statement of changes in equity
1
(continued)
Westpac Banking Corporation and its controlled entities
Total equity
Total
attributable
shareholders'
to owners
equity and
Share of Westpac Non-
non-
Capital RetainedBanking controlling
controlling
$m (Note 15)ReservesprofitsCorporation interests
interests
Balance at 1 October 2018 35,561 1,077 27,883 64,521 52
64,573
Impact on adoption of new accounting standards - 2 (727)(725) -
(725)
Restated opening balance 35,561 1,079 27,156 63,796 52
63,848
Net profit for the period - - 3,173 3,173 3
3,176
Net other comprehensive income for the period - (8)(153)(161) 1
(160)
Total comprehensive income for the period - (8)3,020 3,012 4
3,016
Transactions in capacity as equity holders
Dividends on ordinary shares
2
- - (3,227)(3,227) -
(3,227)
Dividend reinvestment plan 330 - - 330 -
330
Other equity movements
Share-based payment arrangements - 70 - 70 -
70
Purchase of shares (net of issue costs) (31)- - (31) -
(31)
Net (acquisition)/disposal of treasury shares (66)- - (66) -
(66)
Other - - - - (5)
(5)
Total contributions and distributions 233 70 (3,227)(2,924) (5)
(2,929)
Balance at 31 March 2019 35,794 1,141 26,949 63,884 51
63,935
Net profit for the period - - 3,611 3,611 3 3,614
Net other comprehensive income for the period - 130 (133)(3) 1 (2)
Total comprehensive income for the period
- 130 3,478 3,608 4 3,612
Transactions in capacity as equity holders
Dividends on ordinary shares
2
- - (3,239)(3,239) - (3,239)
Dividend reinvestment plan 1,159 - - 1,159 - 1,159
Other equity movements
Share-based payment arrangements - 38 - 38 - 38
Purchase of shares (net of issue costs) (2)- - (2) - (2)
Net (acquisition)/disposal of treasury shares
4 - - 4 - 4
Other - 2 - 2 (2) -
Total contributions and distributions
1,161 40 (3,239)(2,038) (2) (2,040)
Balance at 30 September 2019 36,955 1,311 27,188 65,454 53
65,507
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
1
The Group has adopted AASB 9 Financial Instruments and AASB 15 Revenue from Contracts with Customers from 1 October 2018.
Statutory comparatives have not been restated. Refer to Note 1 in the 2019 Interim Financial Results and Note 1 in Section 3 of the
2019 Annual Report for further detail. However, where applicable, cash earnings comparatives (excluding expected credit loss
provisioning) have been restated to aid comparability. Refer to the cash earnings policy in Section 1.3.4 for further detail. In addition,
during Full Year 2019, the Group has made a number of presentational changes to the Balance Sheet and Income Statement, both
statutory and cash earnings comparatives have been restated. Refer to Note 1 in the 2019 Interim Financial Results and Note 1 in
Section 3 of the 2019 Annual Report for further detail.
2
Second Half 2019 reflects the 2019 interim dividend 94 cents per share ($3,239 million) and First Half 2019 reflects the 2018 final
dividend 94 cents per share ($3,227 million), all fully franked at 30%.
2019 Full Year financial results
Consolidated financial statements
Westpac Group 2019 Full Year Financial Results Announcement | 93
4.6 Consolidated cash flow statement
1
Westpac Banking Corporation and its controlled entities
% Mov't
% Mov't
Half Year
Half Year
Sept 19 -
Full Year
Full Year
Sept 19 -
$m Note Sept 19
March 19
Mar 19
Sept 19
Sept 18
Sept 18
Cash flows from operating activities
Interest received 16,389
16,704
(2)
33,093
32,639
1
Interest paid (7,709)
(8,777)
(12)
(16,486)
(15,789)
4
Dividends received excluding life business 2
4
(50)
6
9
(33)
Other non-interest income received 1,568
2,297
(32)
3,865
4,995
(23)
Operating expenses paid (4,127)
(4,953)
(17)
(9,080)
(7,889)
15
Income tax paid excluding life business (1,529)
(1,877)
(19)
(3,406)
(3,585)
(5)
Life business:
Receipts from policyholders and customers 1,154
1,035
11
2,189
2,008
9
Interest and other items of similar nature 2
4
(50)
6
17
(65)
Dividends received 502
51
large
553
642
(14)
Payments to policyholders and suppliers (1,407)
(843)
67
(2,250)
(2,089)
8
Income tax paid (44)
(50)
(12)
(94)
(143)
(34)
Cash flows from operating activities before changes in
operating assets and liabilities 4,801
3,595
34
8,396
10,815
(22)
Net (increase)/decrease in:
Collateral paid 371
(1,218)
large
(847)
969
large
Trading securities and financial assets measured at FVIS (2,203)
(5,426)
(59)
(7,629)
3,492
large
Derivative financial instruments 4,937
2,668
85
7,605
8,584
(11)
Loans (2,399)
(1,789)
34
(4,188)
(24,740)
(83)
Other financial assets 570
(234)
large
336
859
(61)
Life insurance assets and liabilties (130)
(4)
large
(134)
(230)
(42)
Other assets (15)
2
large
(13)
10
large
Net increase/(decrease) in:
Collateral received 1,324
(317)
large
1,007
(295)
large
Deposits and other borrowings 8,685
(7,572)
large
1,113
23,928
(95)
Other financial liabilities 454
1,009
(55)
1,463
(3,632)
large
Other liabilities 3
(8)
large
(5)
10
large
Net cash provided by/(used in) operating activities 16 16,398
(9,294)
large
7,104
19,770
(64)
Cash flows from investing activities
Proceeds from available-for-sale securities -
-
-
-
23,878
(100)
Purchase of available-for-sale securities -
-
-
-
(24,376)
(100)
Proceeds from investment securities 6,796
12,972
(48)
19,768
-
-
Purchase of investment securities (10,143)
(19,384)
(48)
(29,527)
-
-
Proceeds/(payments) from disposal of controlled
entities, net of cash disposed -
(1)
(100)
(1)
9
large
Proceeds from disposal of associates 1
44
(98)
45
-
-
Purchase of associates (9)
(16)
(44)
(25)
(30)
(17)
Proceeds from disposal of property and equipment 106
51
108
157
91
73
Purchase of property and equipment (188)
(92)
104
(280)
(310)
(10)
Purchase of intangible assets (511)
(395)
29
(906)
(882)
3
Net cash provided by/(used in) investing activities (3,948)
(6,821)
(42)
(10,769)
(1,620)
large
Cash flows from financing activities
Proceeds from debt issues (net of issue costs) 22,191
39,293
(44)
61,484
59,456
3
Redemption of debt issues (36,585)
(26,728)
37
(63,313)
(64,698)
(2)
Issue of loan capital (net of issue costs) 4,245
690
large
4,935
2,342
111
Redemption of loan capital (11)
(1,651)
(99)
(1,662)
(2,387)
(30)
Proceeds from exercise of employee options -
-
-
-
3
(100)
Purchase of shares on exercise of employee options and rights (2)
(4)
(50)
(6)
(8)
(25)
Shares purchased for delivery of employee share plan -
(27)
(100)
(27)
(27)
-
Purchase of RSP treasury shares (3)
(66)
(95)
(69)
(71)
(3)
Net sale/(purchase) of other treasury shares 7
-
-
7
73
(90)
Payment of dividends (2,080)
(2,897)
(28)
(4,977)
(5,769)
(14)
Payment of distributions to non-controlling interests -
(5)
(100)
(5)
(6)
(17)
Net cash provided by/(used in) financing activities (12,238)
8,605
large
(3,633)
(11,092)
(67)
Net increase/(decrease) in cash and balances with central banks 212
(7,510)
large
(7,298)
7,058
large
Effect of exchange rate changes on cash and balances with central banks 361
208
74
569
944
(40)
Cash and balances with central banks as at the beginning of the period 19,486
26,788
(27)
26,788
18,786
42
Cash and balances with central banks as at the end of the period 20,059
19,486
3
20,059
26,788
(25)
The above consolidated cash flow statement should be read in conjunction with the accompanying notes. Details
of the reconciliation of net cash provided by/(used in) operating activities to net profit are provided in Note 16.
1
The Group has adopted AASB 9 Financial Instruments and AASB 15 Revenue from Contracts with Customers from 1 October 2018.
Statutory comparatives have not been restated. Refer to Note 1 in the 2019 Interim Financial Results and Note 1 in Section 3 of the
2019 Annual Report for further detail. However, where applicable, cash earnings comparatives (excluding expected credit loss
provisioning) have been restated to aid comparability. Refer to the cash earnings policy in Section 1.3.4 for further detail. In addition,
during Full Year 2019, the Group has made a number of presentational changes to the Balance Sheet and Income Statement, both
statutory and cash earnings comparatives have been restated. Refer to Note 1 in the 2019 Interim Financial Results and Note 1 in
Section 3 of the 2019 Annual Report for further detail.
2019 Full Year financial results
Notes to the consolidated financial statements
94 | Westpac Group 2019 Full Year Financial Results Announcement
4.7 Notes to the consolidated financial statements
Note 1. Financial statements preparation
The accounting policies and methods of computation adopted in the financial year were in accordance with the
requirements for an authorised deposit-taking institution under the Banking Act 1959 (as amended), Australian
Accounting Standards (AAS) and Interpretations as issued by the Australian Accounting Standards Board and the
Corporations Act 2001 Westpac’s financial statements also comply with International Financial Reporting Standards
as issued by the International Accounting Standards Board.
All amounts have been rounded in accordance with ASIC Corporations (Rounding in Financial/Directors’ Reports)
Instrument 2016/191, to the nearest million dollars, unless otherwise stated.
For further information, refer to Westpac’s 2019 Annual Report.
Comparative revisions
Comparative information has been revised where appropriate to conform with changes in presentation in the current
period and to enhance comparability.
2019 Full Year financial results
Notes to the consolidated financial statements
Westpac Group 2019 Full Year Financial Results Announcement | 95
Note 2. Segment reporting
Operating segments are presented on a basis consistent with information provided internally to Westpac's key
decision makers and reflect the management of the business, rather than the legal structure of the Group.
Internally, Westpac uses 'cash earnings' in assessing the financial performance of its divisions. Management
believes this allows the Group to:
more effectively assess current year performance against prior years;
compare performance across business divisions; and
compare performance across peer companies.
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.
To determine cash earnings, three categories of adjustments are made to statutory results:
material items that key decision makers at the Westpac Group believe do not reflect ongoing operations;
items that are not considered when dividends are recommended, such as the amortisation of intangibles, impact
of Treasury shares and economic hedging impacts; and
accounting reclassifications between individual line items that do not impact statutory results.
Internal charges and transfer pricing adjustments have been reflected in the performance of each operating segment.
Inter-segment pricing is determined on an arm's length basis.
Reportable operating segments
On 19 March 2019, the Group announced changes to the way it supports customer’s wealth and insurance needs,
realigning its BTFG businesses into expanded Consumer and Business and exiting the provision of personal
financial advice. As a result, the insurance business was transferred to Consumer, the funds management business
was transferred to Business, and the Advice business and certain support functions of BTFG Australia were
transferred to Group Businesses. Changes to the Group’s organisation structure were effective from 1 April 2019
and the results of the operating segments for First Half 2019 and Full Year 2018 have been restated.
The operating segments are defined by the customers they service and the services they provide:
Consumer:
- is responsible for sales and service of banking and financial products and services to consumer and micro SME
customers in Australia;
- is also responsible for the Group’s Australian insurance business, which covers the manufacture and
distribution of life, general and lenders mortgage insurance; and
- operates under the Westpac, St.George, BankSA, Bank of Melbourne, RAMS and BT brands.
Business:
- is responsible for sales and service of banking and financial products and services for SME and commercial
business customers in Australia. SME and Commercial business customers typically have facilities up to
approximately $150 million;
- is responsible for Private Wealth, serving the banking needs of high net worth customers across the banking
brands;
- is responsible for the manufacture and distribution of investments (including margin lending and equities
broking), superannuation and retirement products as well as wealth administration platforms; and
- operates under the Westpac, St.George, BankSA, Bank of Melbourne and BT brands.
Westpac Institutional Bank (WIB):
- is responsible for delivering a broad range of financial products and services to commercial, corporate,
institutional and government customers with connections in Australia and New Zealand;
- services include financing, transactional banking, financial and debt capital markets;
- customers are supported throughout Australia, as well as via branches and subsidiaries located in New
Zealand, US, UK and Asia; and
- also responsible for Westpac Pacific, providing a range of banking services in Fiji and Papua New Guinea.
2019 Full Year financial results
Notes to the consolidated financial statements
96 | Westpac Group 2019 Full Year Financial Results Announcement
Note 2. Segment reporting (continued)
Westpac New Zealand:
- is responsible for sales and service of banking, wealth and insurance products to customers in New Zealand;
- customer base includes consumers, business and institutional customers; and
- operates under the Westpac brand for banking products, the Westpac Life brand for life insurance products
and the BT brand for wealth products.
Group Businesses include:
- Treasury, which is responsible for the management of the Group’s balance sheet including wholesale funding,
capital and management of liquidity. Treasury also manages the interest rate risk and foreign exchange risks
inherent in the balance sheet, including managing the mismatch between Group assets and liabilities.
Treasury’s earnings are primarily sourced from managing the Group’s balance sheet and interest rate risk
(excluding Westpac New Zealand) within set risk limits;
- Group Technology
1
, which comprises functions for the Australian businesses, is responsible for technology
strategy and architecture, infrastructure and operations, applications development and business integration;
- Core Support
2
, which comprises functions performed centrally, including Australian banking operations,
property services, strategy, finance, risk, compliance, legal, human resources and customer and corporate
relations;
- Following the Group’s decision to restructure the Wealth operating segment and to exit the Advice business in
March 2019, the remaining Advice activities (including associated remediation) and support functions have
been transferred to Group Business; and
- Group Businesses also includes earnings on capital not allocated to divisions, accounting entries for certain
intra-group transactions that facilitate the presentation of the performance of the Group’s operating segments,
earnings from non-core asset sales, earnings and costs associated with the Group’s fintech investments and
certain other head office items such as centrally held provisions.
For Westpac, AASB 9 and AASB 15 were adopted on 1 October 2018 and as comparatives were not restated,
line item movements in our reported results are not directly comparable across periods. In order to provide the
operational trends in business, we have revised the 2018 cash earnings comparatives as if the standards were
adopted on 1 October 2017, except for expected credit loss provisioning which is not feasible. These adjustments
do not impact Full Year 2018 cash earnings but affect individual line items. These adjustments are comprised of:
- Line fees: The Group has reclassified line fees (mostly Business) from non-interest income to net interest
income to more appropriately reflect the relationship with drawn lines of credit;
- Card scheme: Support payments received from Mastercard and Visa have been reclassified to non-interest
income and related expenses have been reclassified to operating expenses;
- Interest carrying adjustment: Interest on performing loans (stage 1 and stage 2 loans) is now measured on the
gross loan value. Previously, interest on performing loans was recognised on the loan balance net of provisions.
This adjustment increases interest income and impairment charges;
- Other fees and expenses: The Group has restated the classification of a number of fees and expenses. This
has resulted in the grossing up of net interest income, non-interest income, impairment charges and operating
expenses; and
- Merchant terminal costs: Some variable costs related to Westpac's merchant terminal business have been
reclassified between non-interest income and operating expenses.
Comparatives have also been restated for:
recent customer migration and accompanying impacts on divisional income statement and balance sheet; and
refinement in expense allocations; and
changes to the Group’s organisation structure following the realignment of the BTFG businesses into Consumer,
Business and Group Businesses.
1
Costs are fully allocated to other divisions in the Group.
2
Costs are partially allocated to other divisions in the Group, with costs attributed to enterprise activity retained in Group Businesses.
2019 Full Year financial results
Notes to the consolidated financial statements
Westpac Group 2019 Full Year Financial Results Announcement | 97
Note 2. Segment reporting
1
(continued)
The tables below present the segment results on a cash earnings basis for the Group:
Half Year Sept 19
Westpac
WestpacNew
InstitutionalZealand Group
$m Consumer BusinessBank(A$) Businesses
Group
Net interest income 4,059 2,573 700 915 317 8,564
Net fee income 297 232 291 88 (79) 829
Net wealth management and insurance income 231 455 - 96 (82) 700
Trading income 49 52 338 12 (8) 443
Other income 8 (19)(19)(7) 53 16
Net operating income before operating
expenses and impairment charges 4,644 3,293 1,310 1,104 201 10,552
Operating expenses (1,931) (1,430)(631)(486) (512) (4,990)
Impairment (charges) / benefits (313) (198)(31)24 57 (461)
Profit before income tax 2,400 1,665 648 642 (254) 5,101
Income tax expense (719) (501)(176)(181) 32 (1,545)
Net profit attributable to non-controlling interests - - (2)- (1) (3)
Cash earnings for the period 1,681 1,164 470 461 (223) 3,553
Net cash earnings adjustments - (40)- 4 94 58
Net profit for the period attributable to
owners of Westpac Banking Corporation 1,681 1,124 470 465 (129) 3,611
Half Year March 19
Westpac
WestpacNew
InstitutionalZealand Group
$m Consumer BusinessBank(A$) Businesses
Group
Net interest income 3,883 2,519 743 945 299 8,389
Net fee income 311 232 319 75 (111) 826
Net wealth management and insurance income 194 444 - 81 (396) 323
Trading income 44 54 357 25 (16) 464
Other income 7 14 6 53 21 101
Net operating income before operating
expenses and impairment charges 4,439 3,263 1,425 1,179 (203) 10,103
Operating expenses (1,886) (1,375)(653)(453) (674) (5,041)
Impairment (charges) / benefits (268) (74)(15)(14) 38 (333)
Profit before income tax 2,285 1,814 757 712 (839) 4,729
Income tax expense (678) (547)(210)(188) 193 (1,430)
Net profit attributable to non-controlling interests - - (3)- - (3)
Cash earnings for the period 1,607 1,267 544 524 (646) 3,296
Net cash earnings adjustments - (5)- (5) (113) (123)
Net profit for the period attributable to
owners of Westpac Banking Corporation 1,607 1,262 544 519 (759) 3,173
1
The Group has adopted AASB 9 Financial Instruments and AASB 15 Revenue from Contracts with Customers from 1 October 2018.
Statutory comparatives have not been restated. Refer to Note 1 in the 2019 Interim Financial Results and Note 1 in Section 3 of the
2019 Annual Report for further detail. However, where applicable, cash earnings comparatives (excluding expected credit loss
provisioning) have been restated to aid comparability. Refer to the cash earnings policy in Section 1.3.4 for further detail. In addition,
during Full Year 2019, the Group has made a number of presentational changes to the Balance Sheet and Income Statement, both
statutory and cash earnings comparatives have been restated. Refer to Note 1 in the 2019 Interim Financial Results and Note 1 in
Section 3 of the 2019 Annual Report for further detail.
2019 Full Year financial results
Notes to the consolidated financial statements
98 | Westpac Group 2019 Full Year Financial Results Announcement
Note 2. Segment reporting
1
(continued)
Full Year Sept 19
Westpac
WestpacNew
InstitutionalZealand Group
$m ConsumerBusinessBank(A$) Businesses
Group
Net interest income 7,942 5,092 1,443 1,860 616
16,953
Net fee income 608 464 610 163 (190)
1,655
Net wealth management and insurance income 425 899 - 177 (478)
1,023
Trading income 93 106 695 37 (24)
907
Other income 15 (5)(13)46 74
117
Net operating income before operating
expenses and impairment charges 9,083 6,556 2,735 2,283 (2)
20,655
Operating expenses (3,817)(2,805)(1,284)(939) (1,186)
(10,031)
Impairment (charges) / benefits (581)(272)(46)10 95
(794)
Profit before income tax 4,685 3,479 1,405 1,354 (1,093)
9,830
Income tax expense (1,397)(1,048)(386)(369) 225
(2,975)
Net profit attributable to non-controlling interests - - (5)- (1)
(6)
Cash earnings for the period 3,288 2,431 1,014 985 (869)
6,849
Net cash earnings adjustments - (45)- (1) (19)
(65)
Net profit for the period attributable to
owners of Westpac Banking Corporation 3,288 2,386 1,014 984 (888)
6,784
Full Year Sept 18
Westpac
WestpacNew
InstitutionalZealand Group
$m ConsumerBusinessBank(A$) Businesses
Group
Net interest income 7,850 5,284 1,442 1,799 812
17,187
Net fee income 659 511 610 164 (34)
1,910
Net wealth management and insurance income 549 1,012 212 149 95
2,017
Trading income 96 100 697 51 (18)
926
Other income 7 17 46 9 46
125
Net operating income before operating
expenses and impairment charges 9,161 6,924 3,007 2,172 901
22,165
Operating expenses (3,774)(2,651)(1,449)(855) (969)
(9,698)
Impairment (charges) / benefits (486)(321)16 (22) 1
(812)
Profit before income tax 4,901 3,952 1,574 1,295 (67)
11,655
Income tax expense (1,478)(1,196)(476)(361) (75)
(3,586)
Net profit attributable to non-controlling interests - - (5)- 1
(4)
Cash earnings for the period 3,423 2,756 1,093 934 (141)
8,065
Net cash earnings adjustments (15)(76)- 13 108
30
Net profit for the period attributable to
owners of Westpac Banking Corporation 3,408 2,680 1,093 947 (33)
8,095
1
The Group has adopted AASB 9 Financial Instruments and AASB 15 Revenue from Contracts with Customers from 1 October 2018.
Statutory comparatives have not been restated. Refer to Note 1 in the 2019 Interim Financial Results and Note 1 in Section 3 of the
2019 Annual Report for further detail. However, where applicable, cash earnings comparatives (excluding expected credit loss
provisioning) have been restated to aid comparability. Refer to the cash earnings policy in Section 1.3.4 for further detail. In addition,
during Full Year 2019, the Group has made a number of presentational changes to the Balance Sheet and Income Statement, both
statutory and cash earnings comparatives have been restated. Refer to Note 1 in the 2019 Interim Financial Results and Note 1 in
Section 3 of the 2019 Annual Report for further detail.
2019 Full Year financial results
Notes to the consolidated financial statements
Westpac Group 2019 Full Year Financial Results Announcement | 99
Note 3. Net interest income
1
% Mov't
% Mov't
Half Year
Half Year
Sept 19 -
Full Year
Full Year
Sept 19 -
$m Sept 19
March 19
Mar 19
Sept 19
Sept 18
Sept 18
Interest income
2
Calculated using the effective interest rate method
Cash and balances with central banks 141
193
(27)
334
326
2
Collateral paid 99
102
(3)
201
129
56
Available-for-sale securities -
-
-
-
1,914
(100)
Investment securities 961
958
-
1,919
-
-
Loans 14,679
15,350
(4)
30,029
29,583
2
Other financial assets 20
15
33
35
35
-
Total interest income calculated using the
effective interest rate method 15,900
16,618
(4)
32,518
31,987
2
Other
Net ineffectiveness on qualifying hedges 21
7
200
28
(18)
large
Trading securities and financial assets measured at FVIS 328
334
(2)
662
564
17
Loans 5
9
(44)
14
38
(63)
Total other 354
350
1
704
584
21
Total interest income 16,254
16,968
(4)
33,222
32,571
2
Interest expense
Calculated using the effective interest rate method
Collateral received (37)
(20)
85
(57)
(45)
27
Deposits and other borrowings (3,843)
(4,124)
(7)
(7,967)
(8,141)
(2)
Debt issues (2,407)
(2,299)
5
(4,706)
(4,325)
9
Loan capital (390)
(386)
1
(776)
(774)
-
Other financial liabilities (131)
(143)
(8)
(274)
(318)
(14)
Total interest expense calculated using the
effective interest rate method (6,808)
(6,972)
(2)
(13,780)
(13,603)
1
Other
Deposits and other borrowings (427)
(551)
(23)
(978)
(880)
11
Trading liabilities (27)
(888)
(97)
(915)
(959)
(5)
Debt issues (110)
(53)
108
(163)
(155)
5
Bank Levy (198)
(193)
3
(391)
(378)
3
Other interest expense (40)
(48)
(17)
(88)
(91)
(3)
Total other (802)
(1,733)
(54)
(2,535)
(2,463)
3
Total interest expense (7,610)
(8,705)
(13)
(16,315)
(16,066)
2
Total net interest income 8,644
8,263
5
16,907
16,505
2
1
The Group has adopted AASB 9 Financial Instruments and AASB 15 Revenue from Contracts with Customers from 1 October 2018.
Statutory comparatives have not been restated. Refer to Note 1 in the 2019 Interim Financial Results and Note 1 in Section 3 of the
2019 Annual Report for further detail. However, where applicable, cash earnings comparatives (excluding expected credit loss
provisioning) have been restated to aid comparability. Refer to the cash earnings policy in Section 1.3.4 for further detail. In addition,
during Full Year 2019, the Group has made a number of presentational changes to the Balance Sheet and Income Statement, both
statutory and cash earnings comparatives have been restated. Refer to Note 1 in the 2019 Interim Financial Results and Note 1 in
Section 3 of the 2019 Annual Report for further detail.
2
Refer to Note 14.
2019 Full Year financial results
Notes to the consolidated financial statements
100 | Westpac Group 2019 Full Year Financial Results Announcement
Note 4. Non-interest income
1
% Mov't
% Mov't
Half Year
Half Year
Sept 19 -
Full Year
Full Year
Sept 19 -
$m Sept 19
March 19
Mar 19
Sept 19
Sept 18
Sept 18
Net fee income
Facility fees 355
375
(5)
730
1,365
(47)
Transaction fees 601
624
(4)
1,225
1,182
4
Other non-risk fee income
2
(17)
(59)
(71)
(76)
98
large
Fee income 939
940
-
1,879
2,645
(29)
Credit card loyalty programs (58)
(63)
(8)
(121)
(126)
(4)
Transaction fee related expenses (52)
(51)
2
(103)
(95)
8
Fee expenses (110)
(114)
(4)
(224)
(221)
1
Net fee income 829
826
-
1,655
2,424
(32)
Net wealth management and insurance income
Wealth management income
2
308
(32)
large
276
1,145
(76)
Life insurance premium income 736
707
4
1,443
1,410
2
General insurance and LMI net premium earned 242
240
1
482
472
2
Life insurance investment and other income
3
383
26
large
409
666
(39)
General insurance and LMI investment
and other income 27
25
8
52
50
4
Total insurance premium, investment
and other income 1,388
998
39
2,386
2,598
(8)
Life insurance claims and changes
in insurance liabilities (852)
(414)
106
(1,266)
(1,396)
(9)
General insurance and LMI claims
and other expenses (141)
(226)
(38)
(367)
(286)
28
Total insurance claims, changes in liabilities
and other expenses (993)
(640)
55
(1,633)
(1,682)
(3)
Net wealth management and insurance income 703
326
116
1,029
2,061
(50)
Trading income 492
437
13
929
945
(2)
Other income
Dividends received from other entities 2
4
(50)
6
3
100
Net gain on sale of associates -
38
(100)
38
-
-
Net gain on disposal of assets 59
2
large
61
24
154
Net gain/(loss) on derivatives held for risk
management purposes
4
17
(28)
large
(11)
8
large
Net gain/(loss) on financial instruments
measured at fair value (83)
44
large
(39)
38
large
Gain/(loss) on disposal of controlled entities -
3
(100)
3
(9)
large
Rental income on operating leases 34
38
(11)
72
107
(33)
Share of associates' net profit/(loss) (13)
(10)
30
(23)
(10)
130
Other
2,5
(14)
36
large
22
(89)
large
Total other income 2
127
(98)
129
72
79
Total non-interest income 2,026
1,716
18
3,742
5,502
(32)
1
The Group has adopted AASB 9 Financial Instruments and AASB 15 Revenue from Contracts with Customers from 1 October 2018.
Statutory comparatives have not been restated. Refer to Note 1 in the 2019 Interim Financial Results and Note 1 in Section 3 of the
2019 Annual Report for further detail. However, where applicable, cash earnings comparatives (excluding expected credit loss
provisioning) have been restated to aid comparability. Refer to the cash earnings policy in Section 1.3.4 for further detail. In addition,
during Full Year 2019, the Group has made a number of presentational changes to the Balance Sheet and Income Statement, both
statutory and cash earnings comparatives have been restated. Refer to Note 1 in the 2019 Interim Financial Results and Note 1 in
Section 3 of the 2019 Annual Report for further detail.
2
Refer to Note 14.
3
Includes policy holder tax recoveries.
4
Income from derivatives held for risk management purposes reflects the impact of economic hedges of foreign currency capital and
earnings.
5
Full Year September 2018 included $104 million of impairment on the remaining shareholdings of Pendal.
2019 Full Year financial results
Notes to the consolidated financial statements
Westpac Group 2019 Full Year Financial Results Announcement | 101
Note 5. Operating expenses
1
,
2
% Mov't
% Mov't
Half Year
Half Year
Sept 19 -
Full Year
Full Year
Sept 19 -
$m Sept 19
March 19
Mar 19
Sept 19
Sept 18
Sept 18
Staff expenses
Employee remuneration, entitlements and on-costs 2,081
2,239
(7)
4,320
4,292
1
Superannuation expense 184
194
(5)
378
386
(2)
Share-based payments 51
57
(11)
108
95
14
Restructuring costs 77
155
(50)
232
114
104
Total staff expenses 2,393
2,645
(10)
5,038
4,887
3
Occupancy expenses
Operating lease rentals 315
343
(8)
658
632
4
Depreciation of property and equipment 113
109
4
222
245
(9)
Other 69
74
(7)
143
156
(8)
Total occupancy expenses 497
526
(6)
1,023
1,033
(1)
Technology expenses
Amortisation and impairment of software assets 385
334
15
719
620
16
Depreciation and impairment of IT equipment 61
68
(10)
129
141
(9)
Technology services 405
405
-
810
721
12
Software maintenance and licenses 186
185
1
371
342
8
Telecommunications 98
109
(10)
207
209
(1)
Data processing 45
38
18
83
77
8
Total technology expenses 1,180
1,139
4
2,319
2,110
10
Other expenses
Professional and processing services 607
453
34
1,060
824
29
Amortisation and impairment of intangible assets and
deferred expenditure 4
5
(20)
9
138
(93)
Postage and stationery 92
87
6
179
182
(2)
Advertising 116
129
(10)
245
173
42
Non-lending losses 67
(9)
large
58
133
(56)
Other 59
116
(49)
175
86
103
Total other expenses 945
781
21
1,726
1,536
12
Total operating expenses 5,015
5,091
(1)
10,106
9,566
6
1
The Group has adopted AASB 9 Financial Instruments and AASB 15 Revenue from Contracts with Customers from 1 October 2018.
Statutory comparatives have not been restated. Refer to Note 1 in the 2019 Interim Financial Results and Note 1 in Section 3 of the
2019 Annual Report for further detail. However, where applicable, cash earnings comparatives (excluding expected credit loss
provisioning) have been restated to aid comparability. Refer to the cash earnings policy in Section 1.3.4 for further detail. In addition,
during Full Year 2019, the Group has made a number of presentational changes to the Balance Sheet and Income Statement, both
statutory and cash earnings comparatives have been restated. Refer to Note 1 in the 2019 Interim Financial Results and Note 1 in
Section 3 of the 2019 Annual Report for further detail.
2
Refer to Note 14.
2019 Full Year financial results
Notes to the consolidated financial statements
102 | Westpac Group 2019 Full Year Financial Results Announcement
Note 6. Income tax
The income tax expense is reconciled to the profit before income tax as follows:
% Mov't
% Mov't
Half Year
Half Year
Sept 19 -
Full Year
Full Year
Sept 19 -
$m Sept 19
March 19
Mar 19
Sept 19
Sept 18
Sept 18
Profit before income tax 5,194
4,555
14
9,749
11,731
(17)
Tax at the Australian company tax rate of 30% 1,558
1,367
14
2,925
3,519
(17)
The effect of amounts which are not deductible/
(assessable) in calculating taxable income
Hybrid capital distributions 31
41
(24)
72
69
4
Life insurance:
Tax adjustment on policyholder earnings 8
-
-
8
24
(67)
Adjustment for life business tax rates (1)
-
-
(1)
(1)
-
Dividend adjustments -
(1)
(100)
(1)
(1)
-
Other non-assessable items (1)
(13)
(92)
(14)
(5)
180
Other non-deductible items 7
5
40
12
64
(81)
Adjustment for overseas tax rates (16)
(16)
-
(32)
(28)
14
Income tax (over)/under provided in prior periods (5)
(5)
-
(10)
9
large
Other items (1)
1
large
-
(18)
(100)
Total income tax expense 1,580
1,379
15
2,959
3,632
(19)
Effective income tax rate 30.42%
30.27%
15bps
30.35%
30.96%
(61bps)
2019 Full Year financial results
Notes to the consolidated financial statements
Westpac Group 2019 Full Year Financial Results Announcement | 103
Note 7. Earnings per share
Basic earnings per share (EPS) is calculated by dividing the net profit attributable to shareholders by the weighted
average number of ordinary shares on issue during the period, adjusted for treasury shares. Diluted EPS is
calculated by adjusting the basic EPS by assuming all dilutive potential ordinary shares are converted.
Half Year Half Year Full Year Full Year
Sept 19 March 19 Sept 19 Sept 18
$m Basic Diluted Basic DilutedBasic Diluted Basic Diluted
Net profit attributable to shareholders 3,611 3,611 3,173 3,173 6,784 6,784 8,095 8,095
Adjustment for Restricted Share Plan (RSP) dividends
1
(4) (4) (2) (2)(6) (6) (5)-
Adjustment for potential dilution:
Distributions to convertible loan capital holders
2
- 136 - 154 - 290 - 283
Adjusted net profit attributable to shareholders 3,607 3,743 3,171 3,325 6,778 7,068 8,090 8,378
Weighted average number of ordinary shares (millions)
Weighted average number of ordinary shares on issue 3,470 3,470 3,442 3,442 3,456 3,456 3,414 3,414
Treasury shares (including RSP share rights)
1
(6) (6) (6) (6)(6) (6) (8)(8)
Adjustment for potential dilution:
Share-based payments - 1 - 1 - 1 - 3
Convertible loan capital
2
- 283 - 278 - 278 - 232
Adjusted weighted average number of ordinary shares 3,464 3,748 3,436 3,715 3,450 3,729 3,406 3,641
Earnings per ordinary share (cents) 104.1 99.9 92.3 89.5 196.5 189.5 237.5 230.1
1
Some RSP share rights have not vested and are not ordinary shares but do receive dividends. These RSP dividends are deducted to
show the profit attributable to ordinary shareholders. RSP share rights were antidilutive for all periods presented, except for Full Year
September 2018.
2
The Group has issued convertible loan capital which may convert into ordinary shares in the future. These convertible loan capital
instruments are all dilutive, and diluted EPS is therefore calculated as if the instruments had been converted at the beginning of the
respective period or, if later, the instruments’ issue date.
2019 Full Year financial results
Notes to the consolidated financial statements
104 | Westpac Group 2019 Full Year Financial Results Announcement
Note 8. Average balance sheet and interest rates
1
Full Year Full Year
30 September 2019 30 September 2018
Average Income Average Average Income Average
Balance Interest Rate Balance Interest Rate
$m $m % $m $m %
Assets
Interest earning assets
Collateral paid 10,823 201 1.9 8,085 129 1.6
Trading securities and financial assets
measured at FVIS 29,074 662 2.3 24,118 564 2.3
Available-for-sale securities - - - 61,540 1,914 3.1
Investment securities 63,787 1,919 3.0 - - -
Loans and other receivables
2
695,240 30,440 4.4 681,201 29,964 4.4
Total interest earning assets
and interest income 798,924 33,222 4.2 774,944 32,571 4.2
Non-interest earning assets
Derivative financial instruments
3
25,959 26,443
Life insurance assets 9,610 10,664
All other assets
3
60,231 61,259
Total non-interest earning assets
3
95,800 98,366
Total assets
3
894,724 873,310
Liabilities
Interest bearing liabilities
Collateral received 3,617 57 1.6 2,909 45 1.5
Deposits and other borrowings 506,789 8,945 1.8 499,973 9,021 1.8
Loan capital 18,181 776 4.3 17,997 774 4.3
Other interest bearing liabilities 205,695 6,537 3.2 194,630 6,226 3.2
Total interest bearing liabilities and
interest expense 734,282 16,315 2.2 715,509 16,066 2.2
Non-interest bearing liabilities
Deposits and other borrowings 49,270 47,177 - -
Derivative financial instruments
3
26,568 26,218
Life insurance policy liabilities 7,653 8,874
All other liabilities
3
13,187 13,484
Total non-interest bearing liabilities
3
96,678 95,753
Total liabilities
3
830,960 811,262
Shareholders' equity 63,714 62,017
Non-controlling interests 50 31
Total equity 63,764 62,048
Total liabilities and equity
3
894,724 873,310
Loans and other receivables
2
Australia 589,427 25,931 4.4 578,679 25,700 4.4
New Zealand 79,255 3,650 4.6 73,902 3,516 4.8
Other overseas 26,558 859 3.2 28,620 748 2.6
Deposits and other borrowings
Australia 425,799 7,023 1.6 422,006 7,308 1.7
New Zealand 54,720 1,235 2.3 51,368 1,196 2.3
Other overseas 26,270 687 2.6 26,599 517 1.9
1
The Group has adopted AASB 9 Financial Instruments and AASB 15 Revenue from Contracts with Customers from 1 October 2018.
Statutory comparatives have not been restated. Refer to Note 1 in the 2019 Interim Financial Results and Note 1 in Section 3 of the
2019 Annual Report for further detail. However, where applicable, cash earnings comparatives (excluding expected credit loss
provisioning) have been restated to aid comparability. Refer to the cash earnings policy in Section 1.3.4 for further detail. In addition,
during Full Year 2019, the Group has made a number of presentational changes to the Balance Sheet and Income Statement, both
statutory and cash earnings comparatives have been restated. Refer to Note 1 in the 2019 Interim Financial Results and Note 1 in
Section 3 of the 2019 Annual Report for further detail.
2
For Full Year 2019, loans and other receivables are net of Stage 3 provisions to reflect the adoption of AASB 9 where interest income
is determined based on their carrying value, net of Stage 3 provisions. Stages 1 and 2 provisions were not included in the average
interest earning assets balance as interest income is determined based on the gross value of loans and other receivables. For Full Year
2018, loans and other receivables are net of provisions for impairment charges on loans as interest income is determined based on
their carrying value, net of provisions for impairment charges on loans.
3
Derivative assets for the year ended 30 September 2018 were restated from $34,702 million to $26,443 million, all other assets were
restated from $61,938 million to $61,259 million, derivative liabilities were restated from $37,504 million to $26,218 million and all other
liabilities were restated from $12,199 million to $13,484 million. Accordingly, total non-interest earning assets, total assets, total non-
interest bearing liabilities, and total liabilities and equity.
2019 Full Year financial results
Notes to the consolidated financial statements
Westpac Group 2019 Full Year Financial Results Announcement | 105
Note 9. Loans
1
As at
As at
As at
% Mov't
% Mov't
30 Sept
31 March
30 Sept
Sept 19 -
Sept 19 -
$m Note 2019
2019
2018
Mar 19
Sept 18
Australia
Housing 449,201
447,164
444,741
-
1
Personal
2
21,247
22,463
22,997
(5)
(8)
Business 152,360
152,424
154,347
-
(1)
Total Australia 622,808
622,051
622,085
-
-
New Zealand
Housing 47,731
47,499
44,772
-
7
Personal
2
1,709
1,855
1,869
(8)
(9)
Business 29,285
29,990
27,701
(2)
6
Total New Zealand 78,725
79,344
74,342
(1)
6
Total other overseas 16,845
16,539
16,077
2
5
Total loans 718,378
717,934
712,504
-
1
Provisions for expected credit losses/impairment
charges on loans 10 (3,608)
(3,637)
(2,814)
(1)
28
Total net loans
3,4
714,770
714,297
709,690
-
1
1
The Group has adopted AASB 9 Financial Instruments and AASB 15 Revenue from Contracts with Customers from 1 October 2018.
Statutory comparatives have not been restated. Refer to Note 1 in the 2019 Interim Financial Results and Note 1 in Section 3 of the
2019 Annual Report for further detail. However, where applicable, cash earnings comparatives (excluding expected credit loss
provisioning) have been restated to aid comparability. Refer to the cash earnings policy in Section 1.3.4 for further detail. In addition,
during Full Year 2019, the Group has made a number of presentational changes to the Balance Sheet and Income Statement, both
statutory and cash earnings comparatives have been restated. Refer to Note 1 in the 2019 Interim Financial Results and Note 1 in
Section 3 of the 2019 Annual Report for further detail.
2
Margin lending and other are included in Personal loans.
3
Total net loans include securitised loans of $7,737 million as at 30 September 2019 (31 March 2019: $8,901 million; 30 September
2018: $7,135 million). The level of securitised loans excludes loans where Westpac is the holder of related debt securities.
4
Total net loans include assets pledged for the covered bond programs of $38,832 million as at 30 September 2019 (31 March 2019:
$37,548 million; 30 September 2018: $35,175 million).
2019 Full Year financial results
Notes to the consolidated financial statements
106 | Westpac Group 2019 Full Year Financial Results Announcement
Note 10. Provisions for expected credit losses/impairment charges
1
Loans and credit commitments
The following table reconciles the 30 September 2019 provision for ECL on loans and credit commitments based on
the requirements of AASB 9.
Consolidated CollectivelyIndividually
Performing Non-performing assessedassessed
$m Stage 1Stage 2Stage 3provisionsprovisionsTotal
Provision for impairment charges
as at 30 September 2018 - - - 2,631 422 3,053
Restatement for adoption of AASB 9 877 1,884 1,272 (2,631)(422)980
Restated provision for ECL as at 1 October 2018 877 1,884 1,272 - - 4,033
Transfers to Stage 1 1,458 (1,404)(54)- - -
Transfers to Stage 2 (242)956 (714)- - -
Transfers to Stage 3 (5)(621)626 - - -
Business activity during the year 179 (19)(330)- - (170)
Net remeasurement of provision for ECL (1,385)874 1,647 - - 1,136
Write-offs - - (1,154)- - (1,154)
Exchange rate and other adjustments 2 4 62 - - 68
Total provision for ECL on loans and credit
commitments as at 30 September 2019 884 1,674 1,355 - - 3,913
Presented as:
Provision for ECL on cedit commitments (refer to Note 14) 121 178 6 - - 305
Provision for ECL on loans (refer to Note 9) 763 1,496 1,349 - - 3,608
Total provision for ECL on loans and credit
commitments as at 30 September 2019 884 1,674 1,355 - - 3,913
Of which:
Individually assessed provisions - - 412 - - 412
Collectively assessed provisions 884 1,674 943 - - 3,501
Total provision for ECL on loans and credit
commitments as at 30 September 2019 884 1,674 1,355 - - 3,913
Reconciliation of impairment charges
The following table details impairment charges for the year ending 30 September 2019 based on the requirements
of AASB 9.
Half Year
Half Year
Full Year
$m Sept 19
March 19
Sept 19
Provisions raised
Net changes in provisions
562
404
966
Recoveries
(101)
(71)
(172)
Impairment charges
461
333
794
of which relates to:
Loans and credit commitments
462
332
794
Debt securities at amortised cost
(1)
1
-
Impairment charges 461
333
794
1
The Group has adopted AASB 9 Financial Instruments and AASB 15 Revenue from Contracts with Customers from 1 October 2018.
Statutory comparatives have not been restated. Refer to Note 1 in the 2019 Interim Financial Results and Note 1 in Section 3 of the
2019 Annual Report for further detail. However, where applicable, cash earnings comparatives (excluding expected credit loss
provisioning) have been restated to aid comparability. Refer to the cash earnings policy in Section 1.3.4 for further detail. In addition,
during Full Year 2019, the Group has made a number of presentational changes to the Balance Sheet and Income Statement, both
statutory and cash earnings comparatives have been restated. Refer to Note 1 in the 2019 Interim Financial Results and Note 1 in
Section 3 of the 2019 Annual Report for further detail.
2019 Full Year financial results
Notes to the consolidated financial statements
Westpac Group 2019 Full Year Financial Results Announcement | 107
Note 10. Provisions for expected credit losses/impairment charges (continued)
Investment Securities – debt securities
The following table reconciles the 30 September 2019 provision for ECL on debt securities based on the
requirements of AASB 9.
Debt
Debtsecurities at
securities atamortised Total debt
$m FVOCI
1
costsecurities
Provision for impairment charges as at 30 September 2018
‐ ‐ ‐
Restatement for adoption of AASB 9 2 9 11
Restated provision for ECL as at 1 October 2018 2 9 11
Stage 1 - change in the provision during the period - - -
Provision for ECL charges as at 30 September 2019 2 9 11
No impairment was provided as at 30 September 2018 for these securities which were previously classified as
Available-for-sale securities under AASB 139, as no impairment had been incurred.
Comparative disclosures
As comparatives have not been restated for the adoption of AASB 9, the following tables are presented based on
the requirements of AASB 139. In subsequent reporting periods, as AASB 9 will have been effective for this
disclosure for all periods presented in the 2019 Financial Report, these tables will no longer be presented.
Provisions for impairment charges on loans and credit commitments
Full Year
$m Sept 18
Individually assessed provisions
Opening balance
480
Provisions raised
371
Write-backs
(150)
Write-offs
(269)
Interest adjustment
(11)
Other adjustments
1
Closing balance
422
Collectively assessed provisions
Opening balance
2,639
Provisions raised
668
Write-offs
(858)
Interest adjustment
179
Other adjustments 3
Closing balance 2,631
Total provisions for impairment charges on loans and credit commitments 3,053
Less: provisions for credit commitments (239)
Total provisions for impairment charges on loans 2,814
Impairment charges
Full Year
$m Sept 18
Individually assessed provisions raised
371
Write-backs
(150)
Recoveries
(179)
Collectively assessed provisions raised
668
Impairment charges 710
1
Impairment on debt securities at FVOCI is recognised in the income statement with a corresponding amount in other comprehensive
income (refer to Note 15). There is no reduction for the carrying value of the debt securities which remain at fair value.
2019 Full Year financial results
Notes to the consolidated financial statements
108 | Westpac Group 2019 Full Year Financial Results Announcement
Note 11. Credit quality
1
The loan and credit commitments balance in stage 3 (non-performing) is represented by those loans and credit
commitments which are in default. A default occurs when Westpac considered that the customer is unlikely to repay
its credit obligations in full, irrespective of recourse by the Group to actions such as realising security, or the customer
is more than 90 days past due on any material credit obligation. This definition of default is aligned to the APRA
regulatory definition of default and can be disaggregated into:
Impaired loans and credit commitments (which is where the customer is unlikely to pay its credit obligations in
full including restructured loans); and
Items 90 days past due, or otherwise in default but not impaired.
Further detail of these balances is as follows:
Impaired loans and credit commitments
Australia New Zealand Other overseas Total
As at As atAs at As at As atAs at As at As atAs at As at As atAs at
30 3130
30 3130
30 3130
30 3130
Sept MarchSept
Sept MarchSept
Sept MarchSept
Sept MarchSept
$m 2019 20192018 2019 20192018 2019 20192018 2019 20192019
Housing and
business:
Gross amount 1,215 1,204 882
62 105 124
50 11 13
1,327 1,320 1,019
Impairment
provisions
2
(491) (513)(422) (26) (40)(30) (17) (5)(6) (534) (558)(458)
Net 724 691 460
36 65 94
33 6 7
793 762 561
Personal
greater than 90
days past due:
Gross amount 384 379 358
20 19 12
1 - 1
405 398 371
Impairment
provisions
3
(233) (215)(179) (15) (17)(9) - - (1) (248) (232)(189)
Net 151 164 179
5 2 3
1 - -
157 166 182
Restructured:
Gross amount 16 12 9
12 16 14
3 3 3
31 31 26
Impairment
provisions
2
(6) (6)(1) (3) (3)(4) (1) (1)(1) (10) (10)(6)
Net 10 6 8
9 13 10
2 2 2
21 21 20
Total
Impaired
exposures:
Gross amount 1,615 1,595 1,249
94 140 150
54 14 17
1,763 1,749 1,416
Impairment
provisions
2,4
(730) (734)(602) (44) (60)(43) (18) (6)(8) (792) (800)(653)
Net 885 861 647 50 80 107 36 8 9 971 949 763
1
The Group has adopted AASB 9 Financial Instruments and AASB 15 Revenue from Contracts with Customers from 1 October 2018.
Statutory comparatives have not been restated. Refer to Note 1 in the 2019 Interim Financial Results and Note 1 in Section 3 of the
2019 Annual Report for further detail. However, where applicable, cash earnings comparatives (excluding expected credit loss
provisioning) have been restated to aid comparability. Refer to the cash earnings policy in Section 1.3.4 for further detail. In addition,
during Full Year 2019, the Group has made a number of presentational changes to the Balance Sheet and Income Statement, both
statutory and cash earnings comparatives have been restated. Refer to Note 1 in the 2019 Interim Financial Results and Note 1 in
Section 3 of the 2019 Annual Report for further detail.
2
Includes individually assessed provisions and collectively assessed provisions on impaired exposures.
3
Includes collectively assessed provisions on impaired exposures.
4
The impairment provision of $792 million for impaired exposures and the impairment provision of $563 million for items 90 days
past due, or otherwise in default and not impaired equates to the stage 3 provisions for ECL on loans and credit commitments of
$1,355 million.
2019 Full Year financial results
Notes to the consolidated financial statements
Westpac Group 2019 Full Year Financial Results Announcement | 109
Note 11. Credit quality (continued)
Items 90 days past due, or otherwise in default, but not impaired
As at
As at
As at
% Mov't
% Mov't
30 Sept
31 March
30 Sept
Sept 19 -
Sept 19 -
$m 2019
2019
2018
Mar 19
Sept 18
Australia 4,684
4,295
3,861
9
21
New Zealand 340
192
127
77
168
Other overseas 64
35
29
83
121
Total
1
5,088
4,522
4,017
13
27
1
The impairment provision of $792 million for impaired exposures and the impairment provision of $563 million for items 90 days
past due, or otherwise in default and not impaired equates to the stage 3 provisions for ECL on loans and credit commitments of
$1,355 million.
2019 Full Year financial results
Notes to the consolidated financial statements
110 | Westpac Group 2019 Full Year Financial Results Announcement
Note 12. Deposits and other borrowings
As at As at As at % Mov't % Mov't
30 Sept 31 March 30 Sept Sept 19 - Sept 19 -
$m 2019 2019 2018 Mar 19 Sept 18
Australia
Certificates of deposit 26,259 31,123 28,746 (16) (9)
Non-interest bearing, repayable at call 43,341 42,690 41,783 2 4
Other interest bearing at call 247,161 222,733 233,052 11 6
Other interest bearing term 158,564 168,313 171,832 (6) (8)
Total Australia 475,325 464,859 475,413 2 -
New Zealand
Certificates of deposit 1,058 858 1,116 23 (5)
Non-interest bearing, repayable at call 6,368 6,110 5,406 4 18
Other interest bearing at call 22,291 23,488 21,368 (5) 4
Other interest bearing term 31,084 31,918 29,897 (3) 4
Total New Zealand 60,801 62,374 57,787 (3) 5
Other overseas
Certificates of deposit 11,414 11,383 11,672 - (2)
Non-interest bearing, repayable at call 824 800 830 3 (1)
Other interest bearing at call 1,610 1,323 1,638 22 (2)
Other interest bearing term 13,273 14,268 11,945 (7) 11
Total other overseas 27,121 27,774 26,085 (2) 4
Total deposits and other borrowings 563,247 555,007 559,285 1 1
2019 Full Year financial results
Notes to the consolidated financial statements
Westpac Group 2019 Full Year Financial Results Announcement | 111
Note 13. Fair values of financial assets and financial liabilities
Fair Valuation Control Framework
The Group uses a Fair Valuation Control Framework where the fair value is either determined or validated by a
function independent of the transaction. This framework formalises the policies and procedures used to achieve
compliance with relevant accounting, industry and regulatory standards. The framework includes specific controls
relating to:
the revaluation of financial instruments;
independent price verification;
fair value adjustments; and
financial reporting.
A key element of the framework is the Revaluation Committee, comprising senior valuation specialists from within
the Group. The Revaluation Committee reviews the application of the agreed policies and procedures to assess that
a fair value measurement basis has been applied.
The method of determining fair value differs depending on the information available.
Fair value hierarchy
A financial instrument’s categorisation within the valuation hierarchy is based on the lowest level input that is
significant to the fair value measurement.
The Group categorises all fair value instruments according to the hierarchy described below.
Valuation techniques
The Group applies market accepted valuation techniques in determining the fair valuation of over the counter (OTC)
derivatives. This includes credit valuation adjustments (CVA) and funding valuation adjustments (FVA), which
incorporate credit risk and funding costs and benefits that arise in relation to uncollateralised derivative positions,
respectively.
The specific valuation techniques, the observability of the inputs used in valuation models and the subsequent
classification for each significant product category are outlined below:
Level 1 instruments
The fair value of financial instruments traded in active markets is based on recent unadjusted quoted prices. These
prices are based on actual arm’s length basis transactions.
The valuations of Level 1 instruments require little or no management judgement.
Instrument Balance sheet category Includes: Valuation
Exchange traded
products
Derivatives
Exchange traded interest rate
futures and options and commodity,
energy and carbon futures
All these instruments are traded in
liquid, active markets where prices are
readily observable. No modelling or
assumptions are used in the valuation.
Foreign exchange
products
Derivatives FX spot and futures contracts
Equity products
Derivatives
Trading securities and financial
assets measured at FVIS
Other financial liabilities
Listed equities and equity indices
Non-asset backed
debt instruments
Trading securities and financial
assets measured at FVIS
Available-for-sale securities/
Investment securities
Other financial liabilities
Australian Commonwealth and New
Zealand government bonds
Life insurance assets
and liabilities
Life insurance assets
Life insurance liabilities
Listed equities, exchange traded
derivatives and short sale of listed
equities within controlled managed
investment schemes
2019 Full Year financial results
Notes to the consolidated financial statements
112 | Westpac Group 2019 Full Year Financial Results Announcement
Note 13. Fair values of financial assets and financial liabilities (continued)
Level 2 instruments
The fair value for financial instruments that are not actively traded is determined using valuation techniques which
maximise the use of observable market prices. Valuation techniques include:
the use of market standard discounting methodologies;
option pricing models; and
other valuation techniques widely used and accepted by market participants.
Instrument Balance sheet category Includes: Valuation
Interest rate
products
Derivatives
Interest rate and inflation
swaps, swaptions, caps,
floors, collars and other
non-vanilla interest rate
derivatives
Industry standard valuation models are used to calculate
the expected future value of payments by product, which
is discounted back to a present value. The model’s
interest rate inputs are benchmark interest rates and
active broker quoted interest rates in the swap, bond and
future markets. Interest rate volatilities are sourced from
brokers and consensus data providers. If consensus
prices are not available, these are classified as Level 3
instruments.
Foreign
exchange
products
Derivatives
FX swap, FX forward
contracts, FX options and
other non-vanilla FX
derivatives
Derived from market observable inputs or consensus
pricing providers using industry standard models.
Other credit
products
Derivatives
Single Name and Index
credit default swaps (CDS)
Valued using an industry standard model that
incorporates the credit spread as its principal input.
Credit spreads are obtained from consensus data
providers. If consensus prices are not available, these
are classified as Level 3 instruments.
Commodity
products
Derivatives
Commodity, energy and
carbon derivatives
Valued using industry standard models.
The models calculate the expected future value of
deliveries and payments and discount them back to a
present value. The model inputs include forward curves,
volatilities implied from market observable inputs,
discount curves and underlying spot and futures prices.
The significant inputs are market observable or available
through a consensus data service. If consensus prices
are not available, these are classified as Level 3
instruments.
Equity products Derivatives
Exchange traded equity
options, OTC equity options
and equity warrants
Due to low liquidity, exchange traded options are Level
2.
Valued using industry standard models based on
observable parameters such as stock prices, dividends,
volatilities and interest rates.
Asset backed
debt instruments
Trading securities and
financial assets measured
at FVIS
Available-for-sale securities/
Investment securities
Australian residential
mortgage backed securities
(RMBS) denominated in
Australian dollar and other
asset backed securities
(ABS)
Valued using an industry approach to value floating rate
debt with prepayment features. Australian RMBS are
valued using prices sourced from a consensus data
provider. If consensus prices are not available these are
classified as Level 3 instruments.
2019 Full Year financial results
Notes to the consolidated financial statements
Westpac Group 2019 Full Year Financial Results Announcement | 113
Note 13. Fair values of financial assets and financial liabilities (continued)
Level 2 instruments (continued)
Instrument Balance sheet category Includes: Valuation
Non-asset
backed debt
instruments
Trading securities and
financial assets measured
at FVIS
Available-for-sale securities/
Investment securities
Other financial liabilities
State and other government
bonds, corporate bonds and
commercial paper
Repurchase agreements and
reverse repurchase agreements
over non-asset backed debt
securities
Valued using observable market prices, which are
sourced from consensus pricing services, broker
quotes or inter-dealer prices.
Loans at fair
value
Loans
Fixed rate bills and syndicated
loans
Discounted cash flow approach, using a discount rate
which reflects the terms of the instrument and the
timing of cash flows, adjusted for creditworthiness, or
expected sale amount.
Certificates of
deposit
Deposits and other
borrowings
Certificates of deposit
Discounted cash flow using market rates offered for
deposits of similar remaining maturities.
Debt issues at
fair value
Debt issues Debt issues
Discounted cash flows, using a discount rate which
reflects the terms of the instrument and the timing of
cash flows adjusted for market observable changes in
Westpac’s implied credit worthiness.
Life insurance
assets and
liabilities
Life insurance assets
Life insurance liabilities
Corporate bonds, over the
counter derivatives, units in
unlisted unit trusts, life
insurance contract liabilities, life
investment contract liabilities
and external liabilities of
managed investment schemes
controlled by statutory life funds
Valued using observable market prices or other widely
used and accepted valuation techniques utilising
observable market input.
Level 3 instruments
Financial instruments valued where at least one input that could have a significant effect on the instrument’s
valuation is not based on observable market data due to illiquidity or complexity of the product. These inputs are
generally derived and extrapolated from other relevant market data and calibrated against current market trends and
historical transactions.
These valuations are calculated using a high degree of management judgement.
Instrument Balance sheet category Includes: Valuation
Asset backed
debt instruments
Trading securities and
financial assets measured
at FVIS
Collateralised loan obligations
As prices for these securities are not available from a
consensus provider these are revalued based on third
party revaluations (lead manager or inter-dealer). Due
to their illiquidity and/or complexity they are classified
as Level 3 assets.
Non-asset
backed debt
instruments
Trading securities and
financial assets measured
at FVIS
Available-for-sale securities/
Investment securities
Offshore non-asset backed debt
instruments and debt securities
issued via private placement
These securities are evaluated by an independent
pricing service or based on third party revaluations.
Due to their illiquidity and/or complexity these are
classified as Level 3 assets
Equity
investments
Trading securities and
financial assets measured
at FVIS
Available-for-sale securities/
Investment securities
Strategic equity investments,
investments in unlisted funds
and investments in boutique
investment management
companies
Valued using valuation techniques appropriate to the
investment, including the use of recent arm’s length
transactions where available, discounted cash flow
approach, reference to the net assets of the entity or
to the most recent fund unit pricing.
Due to their illiquidity, complexity and/or use of
unobservable inputs into valuation models, they are
classified as Level 3 assets.
2019 Full Year financial results
Notes to the consolidated financial statements
114 | Westpac Group 2019 Full Year Financial Results Announcement
Note 13. Fair values of financial assets and financial liabilities
1
(continued)
The following tables summarise the attribution of financial instruments measured at fair value to the fair value
hierarchy:
$m
As at 30 September 2019 Level 1 Level 2 Level 3 Total
Financial assets measured at fair value on a recurring basis
Trading securities and financial assets measured at FVIS 10,440 21,121 220 31,781
Derivative financial instruments 7 29,828 24 29,859
Investment securities 11,163 61,284 134 72,581
Loans - 239 21 260
Life insurance assets 1,097 8,270 - 9,367
Total financial assets measured at fair value on a recurring basis 22,707 120,742 399 143,848
Financial liabilities measured at fair value on a recurring basis
Deposits and other borrowings - 38,413 - 38,413
Other financial liabilities 262 5,108 - 5,370
Derivative financial instruments 8 29,059 29 29,096
Debt issues - 5,819 - 5,819
Life insurance liabilities - 7,377 - 7,377
Total financial liabilities measured at fair value on a recurring basis 270 85,776 29 86,075
As at 31 March 2019
Financial assets measured at fair value on a recurring basis
Trading securities and financial assets measured at FVIS 10,039 19,037 231 29,307
Derivative financial instruments 10 21,735 20 21,765
Investment securities 10,796 56,816 112 67,724
Loans - 394 19 413
Life insurance assets 1,255 8,119 - 9,374
Total financial assets measured at fair value on a recurring basis 22,100 106,101 382 128,583
Financial liabilities measured at fair value on a recurring basis
Deposits and other borrowings - 43,119 - 43,119
Other financial liabilities 211 4,715 - 4,926
Derivative financial instruments 10 23,344 30 23,384
Debt issues - 3,934 - 3,934
Life insurance liabilities - 7,503 - 7,503
Total financial liabilities measured at fair value on a recurring basis 221 82,615 30 82,866
As at 30 September 2018
Financial assets measured at fair value on a recurring basis
Trading securities and financial assets measured at FVIS 8,958 13,844 330 23,132
Derivative financial instruments 20 24,066 15 24,101
Available-for-sale securities 11,996 48,504 619 61,119
Loans - 546 - 546
Life insurance assets 1,345 8,105 - 9,450
Total financial assets measured at fair value on a recurring basis 22,319 95,065 964 118,348
Financial liabilities measured at fair value on a recurring basis
Deposits and other borrowings - 41,178 - 41,178
Other financial liabilities 496 3,801 - 4,297
Derivative financial instruments 76 24,325 6 24,407
Debt issues - 3,355 - 3,355
Life insurance liabilities - 7,597 - 7,597
Total financial liabilities measured at fair value on a recurring basis 572 80,256 6 80,834
1
The Group has adopted AASB 9 Financial Instruments and AASB 15 Revenue from Contracts with Customers from 1 October 2018.
Statutory comparatives have not been restated. Refer to Note 1 in the 2019 Interim Financial Results and Note 1 in Section 3 of the
2019 Annual Report for further detail. However, where applicable, cash earnings comparatives (excluding expected credit loss
provisioning) have been restated to aid comparability. Refer to the cash earnings policy in Section 1.3.4 for further detail. In addition,
during Full Year 2019, the Group has made a number of presentational changes to the Balance Sheet and Income Statement, both
statutory and cash earnings comparatives have been restated. Refer to Note 1 in the 2019 Interim Financial Results and Note 1 in
Section 3 of the 2019 Annual Report for further detail.
2019 Full Year financial results
Notes to the consolidated financial statements
Westpac Group 2019 Full Year Financial Results Announcement | 115
Note 13. Fair values of financial assets and financial liabilities (continued)
Reconciliation of non-market observables
1
The following table summarises the changes in financial instruments carried at fair value derived from non-market
observable valuation techniques (Level 3):
Full Year Sept 19
Trading
securities and
financial
assets Available-
Total
Total
designatedfor-sale Investment
Level 3
Level 3
$m at fair value securities securitiesOther
2
assets
Derivatives
liabilities
Balance as at beginning of year 330 619 - 15
964
6
6
Impact on adoption of AASB 9 4 (619) 109 14
(492)
-
-
Restated opening balance 334 - 109 29
472
6
6
Gains/(losses) on assets and (gains)/
losses on liabilities recognised in:
Income statements 36 - - 12
48
7
7
Other comprehensive income - - 11 -
11
-
-
Acquisitions and issues 63 - 36 16
115
4
4
Disposals and settlements (216)- (22)(12)
(250)
(6)
(6)
Transfers into or out of
non-market observables - - - -
-
18
18
Foreign currency
translation impacts 3 - - -
3
-
-
Balance as at end of year 220 - 134 45
399
29
29
Unrealised gains/(losses) recognised
in the income statement for financial
instruments held as at end of year 26 - - 16
42
(11)
(11)
Transfers into and out of Level 3 have occurred due to changes in observability in the significant inputs into the
valuation models used to determine the fair value of the related financial instruments. Transfers in and transfers out
are reported using the end of year fair values.
Significant unobservable inputs
Sensitivities to reasonably possible changes in non-market observable valuation assumptions would not have a
material impact on the Group’s reported results.
Day one profit or loss
The closing balance of unrecognised day one profit for the year was $3 million (30 September 2018: $4 million
profit).
1
The Group has adopted AASB 9 Financial Instruments and AASB 15 Revenue from Contracts with Customers from 1 October 2018.
Statutory comparatives have not been restated. Refer to Note 1 in the 2019 Interim Financial Results and Note 1 in Section 3 of the
2019 Annual Report for further detail. However, where applicable, cash earnings comparatives (excluding expected credit loss
provisioning) have been restated to aid comparability. Refer to the cash earnings policy in Section 1.3.4 for further detail. In addition,
during Full Year 2019, the Group has made a number of presentational changes to the Balance Sheet and Income Statement, both
statutory and cash earnings comparatives have been restated. Refer to Note 1 in the 2019 Interim Financial Results and Note 1 in
Section 3 of the 2019 Annual Report for further detail.
2
Other is comprised of derivative financial assets and certain loans.
2019 Full Year financial results
Notes to the consolidated financial statements
116 | Westpac Group 2019 Full Year Financial Results Announcement
Note 13. Fair values of financial assets and financial liabilities (continued)
Financial instruments not measured at fair value
1
The following table summarises the estimated fair value of financial instruments not measured at fair value for the
Group:
As at 30 Sept 2019 As at 31 March 2019 As at 30 Sept 2018
Carrying
Fair
CarryingFair CarryingFair
$m amount
value
amountvalue amountvalue
Financial assets not measured at fair value
Cash and balances with central banks 20,059
20,059
19,486 19,486 26,788 26,788
Collateral paid 5,930
5,930
6,103 6,103 4,787 4,787
Investment securities 820
820
812 812 - -
Loans 714,510
716,130
713,884 714,341 709,144 709,446
Other financial assets 5,367
5,367
6,444 6,444 5,517 5,517
Total financial assets not measured at fair value 746,686
748,306
746,729 747,186 746,236 746,538
Financial liabilities not measured at fair value
Collateral received 3,287
3,287
1,889 1,889 2,184 2,184
Deposits and other borrowings 524,834
525,516
511,888 512,544 518,107 518,791
Other financial liabilities 23,845
23,845
24,087 24,087 23,808 23,808
Debt issues
2
175,638
176,838
184,825 185,423 169,241 170,060
Loan capital 21,826
22,076
16,736 16,655 17,265 17,438
Total financial liabilities not measured at fair value 749,430
751,562
739,425 740,598 730,605 732,281
A detailed description of how fair value is derived for financial instruments not measured at fair value is disclosed in
Note 22 of the Annual Report.
1
The Group has adopted AASB 9 Financial Instruments and AASB 15 Revenue from Contracts with Customers from 1 October 2018.
Statutory comparatives have not been restated. Refer to Note 1 in the 2019 Interim Financial Results and Note 1 in Section 3 of the
2019 Annual Report for further detail. However, where applicable, cash earnings comparatives (excluding expected credit loss
provisioning) have been restated to aid comparability. Refer to the cash earnings policy in Section 1.3.4 for further detail. In addition,
during Full Year 2019, the Group has made a number of presentational changes to the Balance Sheet and Income Statement, both
statutory and cash earnings comparatives have been restated. Refer to Note 1 in the 2019 Interim Financial Results and Note 1 in
Section 3 of the 2019 Annual Report for further detail.
2
The estimated fair value of debt issues includes the impact of changes in Westpac’s credit spreads since origination.
2019 Full Year financial results
Notes to the consolidated financial statements
Westpac Group 2019 Full Year Financial Results Announcement | 117
Note 14. Provisions, contingent liabilities, contingent assets and credit commitments
1
Provisions are recognised for present obligations arising from past events where a payment (or other economic
transfer) is likely to be necessary to settle the obligation and can be reliably estimated. Provisions raised by the
Group are set out in the table in the “Provisions” section below. Where it is not probable there will be an outflow of
economic resources or where a liability cannot be reliably estimated a contingent liability may exist.
Provisions
Annual
leaveLitigationProvision for
Compliance,
Longand otherand non-impairment
regulation
serviceemployeelendingon credit
and
$m
leavebenefitslossescommitments
1
LeaseholdRestructuringremediationTotal
Balance at 30 September 2018 417 699 53 239 24 27 469 1,928
Impact on adoption of AASB 9 - - - 98 - - - 98
Restated opening balance 417 699 53 337 24 27 469 2,026
Additions 90 866 66 - 7 259 1,489 2,777
Utilisation (51)(931)(81)- (7)(125)(324)(1,519)
Reversal of unutilised provisions - (20)- (32)- (1)(61)(114)
Other - - - - - - (1)(1)
Balance at 30 September 2019 456 614 38 305 24 160 1,572 3,169
Compliance, regulation and remediation provisions
Provisions in respect of compliance, regulation and remediation at 30 September 2019 include:
customer refunds associated with certain ongoing advice service fees charged by the Group's salaried financial
planners;
customer refunds associated with certain ongoing advice service fees charged by authorised representatives of
the Group's wholly owned subsidiaries Securitor Financial Group Limited (Securitor) and Magnitude Group Pty
Ltd (Magnitude);
refunds for certain consumer and business customers that had interest only loans that did not automatically
switch, when required, to principal and interest loans; and
refunds to certain business customers who were provided with business loans where they should have been
provided with loans covered by the National Consumer Credit Protection Act 2009 (Cth).
The provisions for certain ongoing advice service fees charged by the Group’s salaried financial planners and by
authorised representatives of Securitor and Magnitude require significant judgement and are summarised as follows:
Customer refunds associated with certain ongoing advice service fees charged by the Group's salaried financial
planners
Westpac has raised a provision for customer refunds associated with certain ongoing advice service fees charged
by the Group's salaried financial planners during the period 2008 to 2018, including instances where records of
financial advice are insufficient.
A number of estimates have been used and judgements have been applied in determining the provision of
$276 million as at 30 September 2019. These include:
total fees received by the Group in respect of salaried financial planners in the period 2008 to 2018 were
approximately $594 million;
the proportion of total fees that are estimated to be refunded is 26%. The key assumption in this estimate relates
to the nature and extent of records to evidence that services were provided; and
the time value of money including the forecast timing over which payments are likely to be made.
The provision also includes estimated costs associated with running the remediation program.
1
The Group has adopted AASB 9 Financial Instruments and AASB 15 Revenue from Contracts with Customers from 1 October 2018.
Statutory comparatives have not been restated. Refer to Note 1 in the 2019 Interim Financial Results and Note 1 in Section 3 of the
2019 Annual Report for further detail. However, where applicable, cash earnings comparatives (excluding expected credit loss
provisioning) have been restated to aid comparability. Refer to the cash earnings policy in Section 1.3.4 for further detail. In addition,
during Full Year 2019, the Group has made a number of presentational changes to the Balance Sheet and Income Statement, both
statutory and cash earnings comparatives have been restated. Refer to Note 1 in the 2019 Interim Financial Results and Note 1 in
Section 3 of the 2019 Annual Report for further detail.
2019 Full Year financial results
Notes to the consolidated financial statements
118 | Westpac Group 2019 Full Year Financial Results Announcement
Note 14. Provisions, contingent liabilities, contingent assets and credit commitments (continued)
Ongoing advice service fees charged by authorised representatives of Securitor and Magnitude
The Group has estimated customer remediation costs (including interest on refunded fees and additional costs to
implement the remediation program) where customers of authorised representatives of the Group's wholly owned
subsidiaries Securitor and Magnitude paid ongoing advice service fees to those representatives and where it is not
clear that the services were provided. The ongoing advice service fees were charged during the period from 2008
to 2018.
There are challenges involved in determining the extent of the services provided by authorised representatives who
are no longer operating under the Magnitude and Securitor licences because, amongst other things, many of the
former authorised representatives' files have been difficult to access particularly where authorised representatives
have ceased operating under the Group’s licences or have left the industry.
As a result, we have conducted sample based reviews in order to develop an estimate of fees that may need to be
refunded. The insights from these reviews have informed a number of the estimates that have been used and the
judgements which have been applied in estimating the provision of $606 million at 30 September 2019. They include:
Total fees received by authorised representatives from their customers in the period 2008 to 2018 were
approximately $936 million; and
The proportion of fees that are estimated to be refundable under the current proposed remediation methodology
is 32%. The key assumptions in this estimate include:
- The basis for refunding customers of the authorised representatives; and
- The nature, extent and availability of records to evidence that service was provided.
Changes in how the time value of money is calculated by including the forecast timing over which payments are
likely to be made
The provision also includes estimated program costs.
The provision is necessarily based on a number of assumptions and incomplete information. Westpac is also yet to
finalise its remediation approach which may change following industry and regulator discussions. It is possible that
the final outcome could be below or above the provision, if the actual outcome differs to the assumptions used in
estimating the provision. Remediation processes may change over time as further facts emerge and such changes
could result in a change to the final exposure.
Restructuring provisions
The Group holds restructuring provisions in relation to management changes to the scope or manner of certain
business activities.
During the year, the Group raised a restructuring provision in relation to the reset of its wealth strategy which was
announced on 19 March 2019. This resulted in a number of changes to its wealth business. Key changes that have
been made include:
The realigning of the major BT businesses into expanded Consumer and Business divisions;
Exit of the provision of personal financial advice by Westpac Group salaried financial planners and authorised
representatives;
Moved to a referral model for financial advice by utilising a panel of advisers or adviser firms; and
Sold part of the advice business to Viridian Advisory. This enabled many BT Financial Advice ongoing advice
customers to transfer to Viridian Advisory. A number of the Group's salaried financial advisers and support staff
transitioned to Viridian Advisory from 1 July 2019. Some authorised representatives also moved to Viridian
Advisory prior to 30 September 2019.
Other provisions
The Group also holds certain provisions relating to previously claimed research and development tax incentives.
Contingent liabilities
Contingent liabilities are possible obligations whose existence will be confirmed only by uncertain future events and
present obligations where the transfer of economic resources is not probable or cannot be reliably measured.
Contingent liabilities are not recognised on the balance sheet but are disclosed unless the outflow of economic
resource is remote.
2019 Full Year financial results
Notes to the consolidated financial statements
Westpac Group 2019 Full Year Financial Results Announcement | 119
Note 14. Provisions, contingent liabilities, contingent assets and credit commitments (continued)
Regulatory actions
Regulators and other bodies routinely conduct investigations and reviews involving the financial services sector,
both in Australia and overseas. These investigations and reviews may consider a range of subject matters, and in
Australia, a number of investigations and reviews have recently considered, and continue to consider, potential
misconduct in credit and financial services.
Domestic regulators such as ASIC, APRA, ACCC, AUSTRAC, the OAIC and the ATO, as well as certain international
regulators such as the Reserve Bank of New Zealand, Financial Markets Authority in New Zealand, Hong Kong
Monetary Authority, Monetary Authority of Singapore and National Futures Association in the U.S. are also currently
conducting investigations and reviews and inquiries (some of which are industry-wide) that involve or may involve
the Group in the future. These investigations and reviews are separately considering a range of matters, including
matters such as ongoing advice services fees, responsible lending, residential mortgages, credit portfolio
management, consumer credit insurance, privacy and information governance, the provision of financial advice,
competition law conduct, anti-money laundering and counter-terrorism financing processes and procedures, and
financial markets conduct.
Westpac has also received various notices and requests for information from regulators as part of both industry-
wide and Westpac-specific investigations and reviews and inquiries.
These investigations and reviews and inquiries, which may be conducted by a regulator, and in some cases also an
external third party retained either by the regulator or by the Group (including where a matter has been self- identified
by the Group), may result in litigation (including class action proceedings against the Group), fines, imposition of
additional capital, civil or criminal penalties, revocation, suspension or variation of conditions of relevant regulatory
licences or other enforcement or administrative action being taken by regulators or other parties. An assessment of
the likely cost to the Group of these investigations and reviews and actions has been made on a case-by-case basis
for the purpose of the financial statements but cannot always be reliably estimated.
One regulatory action currently being conducted relates to International Funds Transfer Instructions (IFTIs) required
to be reported under Australia's AML/CTF Act. Under the Act, the 'sender' financial institution of an IFTI transmitted
out of Australia, or the 'recipient' financial institution of an IFTI transmitted into Australia, is required to report the
IFTI to AUSTRAC within 10 business days of the instruction being sent or received. As reported in the Group's 2018
Annual Report, the Group self-reported to AUSTRAC a failure to report a large number of IFTIs. The majority of the
IFTIs which are the subject of the Group’s engagement with AUSTRAC, concern batch instructions received by
Westpac through one WIB product between 2009 and 2018 from a small number of correspondent banks for
payments made predominantly to beneficiaries living in Australia in Australian dollars, on behalf of clients of those
correspondent banks. The majority of the payments were low value, recurring and made by foreign government
pension funds and corporates.
AUSTRAC has issued a number of detailed statutory notices over the last year requiring information relating to the
Group’s processes, procedures and oversight. These notices relate to a range of matters including these IFTI
reporting failures and associated potential failings related to record keeping and obligations to obtain and pass on
certain data in funds transfer instructions, as well as correspondent banking due diligence, risk assessments and
transaction monitoring. Westpac has not yet received an indication from AUSTRAC about the nature of any
enforcement action it may take. The Group is continuing to work with AUSTRAC in relation to these matters.
Any enforcement action against Westpac may include civil penalty proceedings and result in the payment of a
significant financial penalty, which Westpac is currently unable to reliably estimate. Previous enforcement action by
AUSTRAC against other institutions has resulted in a range of outcomes, depending on the nature and severity of
the relevant conduct and its consequences.
As AUSTRAC is still investigating these issues, any penalty cannot be reliably estimated and accordingly no
provision has been raised for this matter.
Litigation
There are ongoing court proceedings, claims and possible claims for and against the Group. Contingent liabilities
exist in respect of actual and potential claims and proceedings, including those listed below. An assessment of the
Group's likely loss has been made on a case-by-case basis for the purpose of the financial statements but cannot
always be reliably estimated, including in relation to those listed below.
On 1 March 2017, ASIC commenced litigation in relation to certain Westpac home loans (including certain interest
only loans) alleging contraventions of the National Consumer Credit Protection Act 2009 (Cth). The proceedings
were heard in May 2019. On 13 August 2019, the Court handed down its judgment in the proceedings, and
dismissed ASIC’s case. On 10 September 2019, ASIC filed an appeal in relation to the decision. No provision
has been recognised in relation to this matter.
2019 Full Year financial results
Notes to the consolidated financial statements
120 | Westpac Group 2019 Full Year Financial Results Announcement
Note 14. Provisions, contingent liabilities, contingent assets and credit commitments (continued)
On 22 December 2016, ASIC commenced Federal Court proceedings against BT Funds Management Limited
(BTFM) and Westpac Securities Administration Limited (WSAL) in relation to a number of superannuation
account consolidation campaigns conducted between 2013 and 2016. ASIC has alleged that in the course of
some of these campaigns, customers were provided with personal advice in contravention of a number of
Corporations Act 2001 (Cth) provisions, and selected 15 specific customers as the focus of their claim. In
December 2018 the primary Court handed down a judgment in which it held that no personal advice had been
provided and that BTFM and WSAL did not contravene the relevant personal advice provisions although it did
make a finding that BTFM and WSAL had each contravened section 912A(1)(a) of the Corporations Act. In
February 2019, ASIC filed an appeal against this decision. On 28 October 2019, the Full Federal Court handed
down its decision in ASIC’s favour and made findings that BTFM and WSAL each provided personal advice on
the relevant calls. Once formal declarations of contravention are made, the matter will be remitted for penalty.
No provision has been recognised in relation to this matter.
In August 2016, a class action was filed in the United States District Court for the Southern District of New York
against Westpac and a large number of Australian and international banks alleging misconduct in relation to the
bank bill swap reference rate. On 26 November 2018, the US Court delivered its judgment on the Motion to
Dismiss the US BBSW class action proceedings, with the case against Westpac and certain other foreign banks
being dismissed on the basis that the Court does not have jurisdiction to hear the case. In April 2019, the Plaintiffs
filed an amended claim, which brings Westpac back into the proceedings. Westpac is continuing to defend the
proceedings with a Motion to Dismiss filed in May 2019. No provision has been recognised in relation to this
matter.
On 12 October 2017, a class action against Westpac and Westpac Life Insurance Services Limited (WLIS) was
filed in the Federal Court of Australia. The class action was filed on behalf of customers who, since February
2011, obtained insurance issued by WLIS on the recommendation of certain financial advisers employed within
the Westpac Group. The plaintiffs have alleged that aspects of the financial advice provided by those advisers
breached fiduciary and statutory duties owed to the advisers' clients, including the duty to act in the best interests
of the client, and that WLIS was knowingly involved in those alleged breaches. Westpac and WLIS are defending
the proceedings. These proceedings are currently stayed by order of the Court, pending the outcome of an appeal
concerning a procedural issue unrelated to the substantive claims made in the class action. No provision has
been recognised in relation to this matter.
On 21 February 2019, a class action against Westpac was filed in the Federal Court of Australia. As directed
by the Court, the Plaintiffs filed a Statement of Claim on 22 May 2019 and an amended statement of claim on
18 October 2019. The claims allege that Westpac did not comply with its responsible lending obligations and
entered into certain home loans that it should otherwise have assessed as unsuitable. The allegations include
that during the period from 1 January 2011 to 17 February 2018, Westpac failed to: conduct reasonable inquiries
about the customers’ financial situation, requirements and objectives; verify customer’s financial situation;
conduct assessments of suitability; and act efficiently and fairly. Westpac is defending the proceedings. No
provision has been recognised in relation to this matter.
On 5 September 2019, a class action against BT Funds Management Limited (BTFM) and WLIS was commenced
in relation to aspects of BTFM’s BT Super for Life cash investment option. The claim follows other industry class
actions as part of Slater and Gordon’s ‘Get your super back’ campaign. It is alleged in the proceedings that BTFM
failed to adhere to a number of obligations under the general law, the relevant trust deed and the Superannuation
Industry (Supervision) Act 1993 (Cth), and that WLIS was knowingly concerned with BTFM’s alleged
contraventions. The damages sought by the claim are unspecified. BTFM and WLIS are defending the
proceedings. No provision has been recognised in relation to this matter.
Internal reviews and remediation
Westpac is currently undertaking a number of reviews to identify and resolve prior issues that have the potential to
impact our customers and reputation. These internal reviews have identified, and may continue to identify, issues in
respect of which we are, or will be, taking steps to put things right (including in relation to areas of industry focus
such as compliance with responsible lending obligations and the way some product terms and conditions are
operationalised) so that our customers are not at a disadvantage from certain past practices. By undertaking these
reviews we can also improve our processes and controls. An assessment of the Group's likely loss has been made
on a case-by-case basis for the purpose of the financial statements but cannot always be reliably estimated.
Contingent liabilities may exist in respect of actual or potential claims, compensation payments and/or refunds
identified as part of these reviews.
2019 Full Year financial results
Notes to the consolidated financial statements
Westpac Group 2019 Full Year Financial Results Announcement | 121
Note 14. Provisions, contingent liabilities, contingent assets and credit commitments (continued)
Australian Financial Complaints Authority
Contingent liabilities may also exist in relation to customer complaints brought before the Australian Financial
Complaints Authority (AFCA). AFCA has the power to make determinations about complaints and can
award compensation up to certain thresholds. AFCA has a broader jurisdiction than previous dispute resolution
bodies which it has replaced and, up until 30 June 2020, can also consider customer complaints dating back to
1 January 2008.
Financial Claims Scheme
Under the Financial Claims Scheme (FCS) the Australian Government provides depositors a free guarantee of
deposits in eligible ADIs up to and including $250,000. The FCS applies to an eligible ADI if APRA has applied for
the winding up of the ADI and the responsible Australian Government minister has declared that the FCS applies to
the ADI.
The Financial Claims Scheme (ADIs) Levy Act 2008 provides for the imposition of a levy to fund the excess of certain
APRA FCS costs connected to an ADI, including payments by APRA to deposit holders in a failed ADI. The levy
would be imposed on liabilities of eligible ADIs to their depositors and cannot be more than 0.5% of the amount of
those liabilities. A contingent liability may exist in respect of any levy imposed under the FCS.
Contingent tax risk
Tax and regulatory authorities in Australia and in other jurisdictions are reviewing the taxation treatment of certain
transactions (both historical and present-day transactions) undertaken by the Group in the course of normal business
activities and the claiming of tax incentives and GST. The Group also responds to various notices and requests for
information it receives from tax and regulatory authorities.
These reviews, notices and requests may result in additional tax liabilities (including interest and penalties).
The Group has assessed these and other taxation claims arising in Australia and elsewhere, including seeking
independent advice.
Settlement risk
The Group is subject to a credit risk exposure in the event that another counterparty fails to settle for its payments
clearing activities (including foreign exchange). The Group seeks to minimise credit risk arising from settlement risk
in the payments system by aligning our processing method with the legal certainty of settlement in the relevant
clearing mechanism.
Parent Entity guarantees and undertakings
The Parent Entity makes the following guarantees and undertakings to subsidiaries:
letters of comfort for certain subsidiaries which recognise that Westpac has a responsibility that those
subsidiaries continue to meet their obligations; and
guarantees to certain wholly owned subsidiaries which are Australian financial services or credit licensees to
comply with legislative requirements. Each guarantee is capped at $40 million per year and can only be utilised
if the entity concerned becomes legally obliged to pay for a claim under the relevant licence. The Parent Entity
has a right to recover any funds payable under the guarantees from the relevant subsidiary.
Contingent assets
The credit commitments shown in the following table also constitute contingent assets. These commitments would
be classified as loans in the balance sheet on the contingent event occurring.
Undrawn credit commitments
Group enters into various arrangements with customers which are only recognised in the balance sheet when called
upon. These arrangements include commitments to extend credit, bill endorsements, financial guarantees, standby
letters of credit and underwriting facilities.
They expose the Group to liquidity risk when called upon and also to credit risk if the customer fails to repay the
amounts owed at the due date. The maximum exposure to credit loss is the contractual or notional amount of the
instruments. Some of the arrangements can be cancelled by the Group at any time and a significant portion is
expected to expire without being drawn. The actual required liquidity and credit risk exposure is therefore less than
the amounts disclosed.
2019 Full Year financial results
Notes to the consolidated financial statements
122 | Westpac Group 2019 Full Year Financial Results Announcement
Note 14. Provisions, contingent liabilities, contingent assets and credit commitments (continued)
The Group uses the same credit policies when entering into these arrangements as it does for on-balance sheet
instruments. Refer to Note 21 of the Group’s annual financial statements for the year ended 30 September 2019 for
further details of liquidity risk and credit risk management.
Undrawn credit commitments excluding derivatives are as follows:
As at As at As at % Mov't % Mov't
30 Sept 31 Mar 30 Sept Sept 19 - Sept 19 -
$m 2019 2019 2018 Mar 19 Sept 18
Undrawn credit commitments
Letters of credit and guarantees
1
15,150 15,804 15,585 (4) (3)
Commitments to extend credit
2
176,002 176,242 174,658 - 1
Other 188 431 154 (56) 22
Total undrawn credit commitments 191,340 192,477 190,397 (1) -
1
Standby letters of credit are undertakings to pay, against presentation documents, an obligation in the event of a default by a customer.
Guarantees are unconditional undertakings given to support the obligations of a customer to third parties. The Group may hold cash as
collateral for certain guarantees issued.
2
Commitments to extend credit include all obligations on the part of the Group to provide credit facilities. As facilities may expire without
being drawn upon, the notional amounts do not necessarily reflect future cash requirements. In addition to the commitments disclosed
above, at 30 September 2019 the Group had offered $5.5 billion (30 September 2018: $5.7 billion, 31 March 2018: $4.6 billion) of
facilities to customers, which had not yet been accepted.
2019 Full Year financial results
Notes to the consolidated financial statements
Westpac Group 2019 Full Year Financial Results Announcement | 123
Note 15. Shareholders’ equity
As at As atAs at
30 Sept 31 March30 Sept
$m 2019 20192018
Share capital
Ordinary share capital, fully paid 37,508 36,351 36,054
RSP treasury shares held
1
(572) (569)(505)
Other treasury shares held
2
19 12 12
Total treasury shares held (553) (557)(493)
Total share capital 36,955 35,794 35,561
Non-controlling interests 53 51 52
Ordinary Shares
Westpac does not have authorised capital and the ordinary shares have no par value. Ordinary shares entitle the
holder to participate in dividends and, in the event of Westpac winding up, to a share of the proceeds in proportion
to the number of and amounts paid on the shares held.
Each ordinary share entitles the holder to one vote, either in person or by proxy, at a shareholder meeting.
Reconciliation of movement in number of ordinary shares
Consolidated
As at As atAs at
30 Sept 2019 31 March 201930 Sept 2018
Opening balance 3,447,571,023 3,434,796,711 3,404,172,038
Dividend reinvestment plan
3
42,357,750 12,774,312 11,434,908
Conversion of Westpac Convertible Preference Shares
4
- - 19,189,765
Issued shares for the period 42,357,750 12,774,312 30,624,673
Closing balance 3,489,928,773 3,447,571,023 3,434,796,711
Ordinary shares purchased on market
Full Year SeptFull Year Sept
20192019
Consolidated NumberAverage Price ($)
For share-based payment arrangements:
Employee share plan (ESP) 1,061,442 25.27
RSP
5
2,707,931 25.55
Westpac Performance Plan (WPP) - share rights exercised 184,043 26.73
Westpac Long Term Variable Reward Plan (LTVR) - options exercised
6
37,831 27.68
As treasury shares:
Treasury shares sold (308,263)26.19
Net number of ordinary shares purchased/(sold) on market 3,682,984
1
30 September 2019: 4,784,213 unvested shares held (31 March 2019: 4,803,772, 30 September 2018: 3,943,660).
2
30 September 2019: 1,721,532 shares held (31 March 2019: 2,029,795, 30 September 2018: 2,029,795).
3
The price per share for the issuance of shares in relation to the dividend reinvestment plan for the 2019 interim dividend was $27.36;
2018 final dividend was $25.82 and 2018 interim dividend was $28.11.
4
The conversion price per share for the issuance of shares in relation to the conversion of Westpac Convertible Preference Shares was
$29.49.
5
Ordinary shares allocated to employees under the RSP are classified as treasury shares until the shares vest.
6
The average exercise price received was $23.40 on the exercise of the LTVR options.
2019 Full Year financial results
Notes to the consolidated financial statements
124 | Westpac Group 2019 Full Year Financial Results Announcement
Note 15. Shareholders’ equity (continued)
Reconciliation of movement in reserves
1
,
2
As at
As at
As at
30 Sept
31 March
30 Sept
$m
2019
2019
2018
Available-for-sale securities reserve
Opening balance
-
37
35
Impact on adoption of AASB 9
-
(37)
-
Net gains/(losses) from changes in fair value
-
-
(71)
Income tax effect
-
-
24
Transferred to income statements
-
-
75
Income tax effect
-
-
(28)
Exchange differences
-
-
2
Closing balance
-
-
37
Debt securities at FVOCI reserve
Opening balance
59
-
-
Impact on adoption of AASB 9
-
33
-
Net gains/(losses) from changes in fair value
(111)
64
-
Income tax effect
33
(21)
-
Transferred to income statements
(4)
(25)
-
Income tax effect
1
7
-
Exchange differences
-
1
-
Closing balance
(22)
59
-
Equity securities at FVOCI reserve
Opening balance
7
-
-
Impact on adoption of AASB 9
-
6
-
Net gains/(losses) from changes in fair value
10
1
-
Closing balance
17
7
-
Share-based payment reserve
Opening balance
1,604
1,534
1,500
Share-based payment expense
38
70
34
Closing balance
1,642
1,604
1,534
Cash flow hedge reserve
Opening balance
(204)
(125)
(134)
Net gains/(losses) from changes in fair value
(11)
(192)
(96)
Income tax effect
4
56
28
Transferred to income statements
117
80
109
Income tax effect
(35)
(23)
(32)
Closing balance
(129)
(204)
(125)
Foreign currency translation reserve
Opening balance
(306)
(351)
(494)
Exchange differences on translation of foreign operations
(112)
423
(22)
Gains/(losses) on net investment hedges
239
(368)
165
Transferred to income statements
-
(10)
-
Closing balance
(179)
(306)
(351)
Other reserves
Opening balance
(19)
(18)
(17)
Transactions with owners
1
(1)
(1)
Closing balance
(18)
(19)
(18)
Total reserves
1,311
1,141
1,077
1
The Group has adopted AASB 9 Financial Instruments and AASB 15 Revenue from Contracts with Customers from 1 October 2018.
Statutory comparatives have not been restated. Refer to Note 1 in the 2019 Interim Financial Results and Note 1 in Section 3 of the
2019 Annual Report for further detail. However, where applicable, cash earnings comparatives (excluding expected credit loss
provisioning) have been restated to aid comparability. Refer to the cash earnings policy in Section 1.3.4 for further detail. In addition,
during Full Year 2019, the Group has made a number of presentational changes to the Balance Sheet and Income Statement, both
statutory and cash earnings comparatives have been restated. Refer to Note 1 in the 2019 Interim Financial Results and Note 1 in
Section 3 of the 2019 Annual Report for further detail.
2
Movement represents a six month period.
2019 Full Year financial results
Notes to the consolidated financial statements
Westpac Group 2019 Full Year Financial Results Announcement | 125
Note 16. Notes to the consolidated cash flow statement
1
% Mov't
% Mov't
Half Year
Half Year
Sept 19 -
Full Year
Full Year
Sept 19 -
$m Sept 19
March 19
Mar 19
Sept 19
Sept 18
Sept 18
Reconciliation of net cash provided by/(used in)
operating activities to net profit for the period
Net profit for the period 3,614
3,176
14
6,790
8,099
(16)
Adjustments:
Depreciation, amortisation and impairment 563
516
9
1,079
1,144
(6)
Impairment charges 562
404
39
966
889
9
Net (decrease)/increase in current and deferred tax 7
(548)
large
(541)
(96)
large
(Increase)/decrease in accrued interest receivable 303
(171)
large
132
(83)
large
(Decrease)/increase in accrued interest payable (185)
(156)
19
(341)
241
large
(Decrease)/increase in provisions 405
738
(45)
1,143
289
large
Other non-cash items (468)
(364)
29
(832)
332
large
Cash flows from operating activities before changes
in operating assets and liabilities 4,801
3,595
34
8,396
10,815
(22)
Net (increase)/decrease in derivative
financial instruments 4,937
2,668
85
7,605
8,584
(11)
Net (increase)/decrease in life insurance
assets and liabilities (130)
(4)
large
(134)
(230)
(42)
(Increase)/decrease in other operating assets:
Collateral paid 371
(1,218)
large
(847)
969
large
Trading securities and financial assets
measured at FVIS (2,203)
(5,426)
(59)
(7,629)
3,492
large
Loans (2,399)
(1,789)
34
(4,188)
(24,740)
(83)
Other financial assets 570
(234)
large
336
859
(61)
Other assets (15)
2
large
(13)
10
large
(Decrease)/increase in other operating liabilities:
Collateral received 1,324
(317)
large
1,007
(295)
large
Deposits and other borrowings 8,685
(7,572)
large
1,113
23,928
(95)
Other financial liabilities 454
1,009
(55)
1,463
(3,632)
large
Other liabilities 3
(8)
large
(5)
10
large
Net cash provided by/(used in) operating activities 16,398
(9,294)
large
7,104
19,770
(64)
Non-cash financing activities
% Mov't
% Mov't
Half Year Half Year
Sept 19 -
Full Year
Full Year
Sept 19 -
$m Sept 19 March 19
Mar 19
Sept 19
Sept 18
Sept 18
Shares issued under the dividend reinvestment plan 1,159 330
large
1,489
631
136
Shares issued from the conversion of Westpac CPS - -
-
-
566
(100)
On 13 March 2018, $623 million of CPS were transferred to the Westpac CPS nominated party for $100 each
pursuant to the Westpac Capital Notes 5 reinvestment offer. Those CPS were subsequently bought back and
cancelled by Westpac. On 3 April 2018, the remaining $566 million of CPS were transferred to the Westpac CPS
nominated party for $100 each. Following the transfer, those remaining CPS were converted into 19,189,765
ordinary shares.
1
The Group has adopted AASB 9 Financial Instruments and AASB 15 Revenue from Contracts with Customers from 1 October 2018.
Statutory comparatives have not been restated. Refer to Note 1 in the 2019 Interim Financial Results and Note 1 in Section 3 of the
2019 Annual Report for further detail. However, where applicable, cash earnings comparatives (excluding expected credit loss
provisioning) have been restated to aid comparability. Refer to the cash earnings policy in Section 1.3.4 for further detail. In addition,
during Full Year 2019, the Group has made a number of presentational changes to the Balance Sheet and Income Statement, both
statutory and cash earnings comparatives have been restated. Refer to Note 1 in the 2019 Interim Financial Results and Note 1 in
Section 3 of the 2019 Annual Report for further detail.
2019 Full Year financial results
Notes to the consolidated financial statements
126 | Westpac Group 2019 Full Year Financial Results Announcement
Note 16. Notes to the consolidated cash flow statement (continued)
Businesses disposed in Full Year 2019
Westpac sold its interest in Ascalon Capital Managers (Asia) Limited and Ascalon Capital Managers Limited on
8 February 2019, for a combined profit of $3 million recognised in non-interest income. The total cash consideration
paid, net of transaction costs and cash held, was $1 million. Refer to Section 6.5 changes in control of Group entities
for details.
Businesses disposed in Full Year 2018
Westpac sold its interest in a number of Hastings offshore subsidiaries to Northill Capital. Completion of the sale of
the US and UK entities occurred on 28 February 2018 and completion of the Singapore entity occurred on
23 March 2018, with a total loss of $9 million recognised in non-interest income. The total cash consideration
received, net of transaction costs and cash held, was $9 million.
Restricted cash
Certain of our foreign operations are required to maintain reserves or minimum balances with central banks in
their respective countries of operation, totalling $330 million (31 March 2019: $330 million; 30 September 2018:
$357 million) for the Group.
Note 17. Subsequent events
Since the end of the year ended 30 September 2019, the Board has determined to pay a fully franked final dividend
of 80 cents per fully paid ordinary share. The dividend is expected to be $2,791 million. The dividend is not
recognised as a liability as at 30 September 2019. The proposed payment date of the dividend is 20 December
2019.
The Board has determined to issue shares to satisfy the Dividend Re-investment Plan (DRP) for the final 2019
ordinary dividend. The market price used to determine the number of shares issued under the DRP will be set over
the 10 trading days commencing 18 November 2019.
On 4 November 2019, Westpac announced that it will be undertaking an underwritten placement of fully paid ordinary
shares in Westpac to institutional investors to raise $2 billion. As further announced, following the placement,
Westpac will make a share purchase plan available to shareholders and to raise approximately $500 million, subject
to scaleback, and with the ability to raise less or more.
No other matters have arisen since the year ended 30 September 2019, which are not otherwise dealt with in this
report, that have significantly affected or may significantly affect the operations of the Group, the results of its
operations or the state of affairs of the Group in subsequent periods.
2019 Full Year financial results
Notes to the consolidated financial statements
Westpac Group 2019 Full Year Financial Results Announcement | 127
4.8 Statement in relation to the audit of the financial statements.
PricewaterhouseCoopers has audited the financial statements contained within the Westpac 2019 financial report
and has issued an unmodified audit report. A copy of their report is available with the Annual financial report. This
full year results announcement has not been subject to audit by PricewaterhouseCoopers. The preceding financial
information contained in Section 4 “Full Year 2019 reported financial information” includes financial information
extracted from the audited financial statements together with financial information that has not been audited.
Dated at Sydney this 4th day of November 2019 for and on behalf of the Board.
Tim Hartin
Company Secretary
2019 Full Year financial results
Cash earnings financial information
128 | Westpac Group 2019 Full Year Financial Results Announcement
5.0 Cash earnings financial information
Note 1 Interest spread and margin analysis (cash earnings basis) 129
Note 2 Average balance sheet and interest rates (cash earnings basis) 130
Note 3 Net interest income (cash earnings basis) 132
Note 4 Non-interest income (cash earnings basis) 133
Note 5 Operating expense analysis (cash earnings basis) 134
Note 6 Deferred expenses 135
Note 7 Earnings per share (cash earnings basis) 135
Note 8 Group earnings reconciliation 136
Note 9 Divisional result and economic profit 140
2019 Full Year financial results
Cash earnings financial information
Westpac Group 2019 Full Year Financial Results Announcement | 129
Note 1. Interest spread and margin analysis (cash earnings basis)
1
Half Year Half Year Full Year Full Year
Sept 19 March 19 Sept 19 Sept 18
Group
Average interest-earning assets ($m) 803,165 794,660 798,924 774,944
Net interest income ($m) 8,564 8,389 16,953 17,187
Interest spread 1.96% 1.92% 1.94% 2.04%
Benefit of net non-interest bearing assets, liabilities and equity 0.17% 0.20% 0.18% 0.18%
Net interest margin 2.13% 2.12% 2.12% 2.22%
Analysis by division
Average interest-earning assets ($m)
Consumer 356,411 353,246 354,833 346,358
Business 166,876 166,435 166,656 165,920
Westpac Institutional Bank 84,874 89,116 86,989 86,315
Westpac New Zealand (A$) 87,300 85,038 86,172 80,159
Group Businesses 107,704 100,825 104,274 96,192
Group total 803,165 794,660 798,924 774,944
Westpac New Zealand (NZ$) 92,246 89,946 91,099 87,223
Net interest income ($m)
2
Consumer 4,059 3,883 7,942 7,850
Business 2,573 2,519 5,092 5,284
Westpac Institutional Bank 700 743 1,443 1,442
Westpac New Zealand (A$) 915 945 1,860 1,799
Group Businesses 317 299 616 812
Group total 8,564 8,389 16,953 17,187
Westpac New Zealand (NZ$) 967 1,000 1,967 1,958
Interest margin
Consumer 2.27% 2.20% 2.24% 2.27%
Business 3.08% 3.04% 3.06% 3.18%
Westpac Institutional Bank 1.64% 1.67% 1.66% 1.67%
Westpac New Zealand (NZ$) 2.09% 2.23% 2.16% 2.24%
Group Businesses 0.59% 0.59% 0.59% 0.84%
Group total 2.13% 2.12% 2.12% 2.22%
1
The Group has adopted AASB 9 Financial Instruments and AASB 15 Revenue from Contracts with Customers from 1 October 2018.
Statutory comparatives have not been restated. Refer to Note 1 in the 2019 Interim Financial Results and Note 1 in Section 3 of the
2019 Annual Report for further detail. However, where applicable, cash earnings comparatives (excluding expected credit loss
provisioning) have been restated to aid comparability. Refer to the cash earnings policy in Section 1.3.4 for further detail. In addition,
during Full Year 2019, the Group has made a number of presentational changes to the Balance Sheet and Income Statement, both
statutory and cash earnings comparatives have been restated. Refer to Note 1 in the 2019 Interim Financial Results and Note 1 in
Section 3 of the 2019 Annual Report for further detail.
2
Includes capital benefit. Capital benefit represents the notional revenue earned on capital allocated to divisions under Westpac’s
economic capital framework.
2019 Full Year financial results
Cash earnings financial information
130 | Westpac Group 2019 Full Year Financial Results Announcement
Note 2. Average balance sheet and interest rates (cash earnings basis)
1
Half Year Half Year
30 September 2019 31 March 2019
AverageInterestAverage AverageInterestAverage
balanceRate balanceRate
$m$m% $m$m%
Assets
Interest earning assets
Collateral paid 11,368991.7 10,275 102 2.0
Trading securities and other financial assets designated at fair value 30,1743282.2 27,968 334 2.4
Available-for-sale securities --- - - -
Investment securities 67,2509612.9 60,305 958 3.2
Loans and other receivables 694,37314,8454.3 696,112 15,567 4.5
Total interest earning assets and interest income 803,16516,2334.0 794,660 16,961 4.3
Non-interest earning assets
Derivative financial instruments 27,818 24,090
Life insurance assets 10,026 9,192
All other assets 61,244 59,212
Total non-interest earning assets 99,088 92,494
Total assets 902,253 887,154
Liabilities
Interest bearing liabilities
Collateral received 4,849371.5 2,378 20 1.7
Deposits and other borrowings 508,1124,2701.7 505,459 4,675 1.9
Loan capital 18,4193904.2 17,942 386 4.3
Other interest bearing liabilities 207,7792,9722.9 203,600 3,491 3.4
Total interest bearing liabilities and interest expense 739,1597,6692.1 729,379 8,572 2.4
Non-interest bearing liabilities
Deposits and other borrowings 49,765 48,772
Derivative financial instruments 27,574 25,556
Life insurance policy liabilities 8,018 7,286
All other liabilities 13,611 12,761
Total non-interest bearing liabilities 98,968 94,375
Total liabilities 838,127 823,754
Shareholders' equity 64,078 63,348
Non-controlling interests 48 52
Total equity 64,126 63,400
Total liabilities and equity 902,253 887,154
Loans and other receivables
Australia 589,00712,6384.3 589,849 13,267 4.5
New Zealand 80,0741,7974.5 78,432 1,851 4.7
Other overseas 25,2924103.2 27,831 449 3.2
Deposits and other borrowings
Australia 426,8783,3251.6 424,715 3,698 1.7
New Zealand 55,0386012.2 54,400 634 2.3
Other overseas 26,1963442.6 26,344 343 2.6
1
The Group has adopted AASB 9 Financial Instruments and AASB 15 Revenue from Contracts with Customers from 1 October 2018.
Statutory comparatives have not been restated. Refer to Note 1 in the 2019 Interim Financial Results and Note 1 in Section 3 of the
2019 Annual Report for further detail. However, where applicable, cash earnings comparatives (excluding expected credit loss
provisioning) have been restated to aid comparability. Refer to the cash earnings policy in Section 1.3.4 for further detail. In addition,
during Full Year 2019, the Group has made a number of presentational changes to the Balance Sheet and Income Statement, both
statutory and cash earnings comparatives have been restated. Refer to Note 1 in the 2019 Interim Financial Results and Note 1 in
Section 3 of the 2019 Annual Report for further detail.
2019 Full Year financial results
Cash earnings financial information
Westpac Group 2019 Full Year Financial Results Announcement | 131
Note 2. Average balance sheet and interest rates (cash earnings basis)
1
Full Year Full Year
30 September 2019 30 September 2018
AverageInterestAverage AverageInterestAverage
balanceRate balanceRate
$m$m% $m$m%
Assets
Interest earning assets
Collateral paid 10,8232011.9 8,085 129 1.6
Trading securities and other financial assets measured at FVIS 29,0746622.3 24,118 564 2.3
Available-for-sale securities --- 61,540 1,914 3.1
Investment securities 63,7871,9193.0 - - -
Loans and other receivables
2
695,24030,4124.4 681,201 30,830 4.5
Total interest earning assets and interest income 798,92433,1944.2 774,944 33,437 4.3
Non-interest earning assets
Derivative financial instruments
3
25,959 26,443
Life insurance assets 9,610 10,664
All other assets
3
60,231 61,259
Total non-interest earning assets
3
95,800 98,366
Total assets
3
894,724 873,310
Liabilities
Interest bearing liabilities
Collateral received 3,617571.6 2,909 45 1.5
Deposits and other borrowings 506,7898,9451.8 499,973 9,021 1.8
Loan capital 18,1817764.3 17,997 774 4.3
Other interest bearing liabilities 205,6956,4633.1 194,630 6,410 3.3
Total interest bearing liabilities and interest expense 734,28216,2412.2 715,509 16,250 2.3
Non-interest bearing liabilities
Deposits and other borrowings 49,270 47,177
Derivative financial instruments
3
26,568 26,218
Life insurance policy liabilities 7,653 8,874
All other liabilities
3
13,187 13,484
Total non-interest bearing liabilities
3
96,678 95,753
Total liabilities
3
830,960 811,262
Shareholders' equity 63,714 62,017
Non-controlling interests 50 31
Total equity 63,764 62,048
Total liabilities and equity
3
894,724 873,310
Loans and other receivables
2
Australia 589,42725,9054.4 578,679 26,488 4.6
New Zealand 79,2553,6484.6 73,902 3,591 4.9
Other overseas 26,5588593.2 28,620 751 2.6
Deposits and other borrowings
Australia 425,7997,0231.6 422,006 7,308 1.7
New Zealand 54,7201,2352.3 51,368 1,196 2.3
Other overseas 26,2706872.6 26,599 517 1.9
1
The Group has adopted AASB 9 Financial Instruments and AASB 15 Revenue from Contracts with Customers from 1 October 2018.
Statutory comparatives have not been restated. Refer to Note 1 in the 2019 Interim Financial Results and Note 1 in Section 3 of the
2019 Annual Report for further detail. However, where applicable, cash earnings comparatives (excluding expected credit loss
provisioning) have been restated to aid comparability. Refer to the cash earnings policy in Section 1.3.4 for further detail. In addition,
during Full Year 2019, the Group has made a number of presentational changes to the Balance Sheet and Income Statement, both
statutory and cash earnings comparatives have been restated. Refer to Note 1 in the 2019 Interim Financial Results and Note 1 in
Section 3 of the 2019 Annual Report for further detail.
2
For Full Year 2019, loans and other receivables are net of Stage 3 provisions to reflect the adoption of AASB 9 where interest income
is determined based on their carrying value, net of Stage 3 provisions. Stages 1 and 2 provisions were not included in the average
interest earning assets balance as interest income is determined based on the gross value of loans and other receivables. For Full Year
2018, loans and other receivables are net of provisions for impairment charges on loans as interest income is determined based on
their carrying value, net of provisions for impairment charges on loans.
3
At 30 September 2018, derivatives assets were restated from $34,702 million to $26,443 million, all other assets were restated from
$61,938 million to $61,259 million, derivative liabilities were restated from $37,504 million to $26,218 million and all other liabilities were
restated from $12,199 million to $13,484 million.
2019 Full Year financial results
Cash earnings financial information
132 | Westpac Group 2019 Full Year Financial Results Announcement
Note 3. Net interest income (cash earnings basis)
1
% Mov't % Mov't
Half Year Half Year Sept 19 - Full Year Full Year Sept 19 -
$m Sept 19 March 19 Mar 19 Sept 19 Sept 18 Sept 18
Interest income
Cash and balances with central banks 141 193 (27) 334 326 2
Collateral paid 99 102 (3) 201 129 56
Net ineffectiveness of qualifying hedges - - - - - -
Trading securities and financial assets measured at FVIS 328 334 (2) 662 564 17
Available-for-sale securities - - - - 1,914 (100)
Investment securities 961 958 - 1,919 - -
Loans 14,684 15,359 (4) 30,043 30,469 (1)
Other interest income 20 15 33 35 35 -
Total interest income 16,233 16,961 (4) 33,194 33,437 (1)
Interest expense
Collateral received (37) (20) 85 (57) (45) 27
Deposits and other borrowings (4,270) (4,675) (9) (8,945) (9,021) (1)
Trading liabilities (86) (755) (89) (841) (1,143) (26)
Debt issues (2,517) (2,352) 7 (4,869) (4,480) 9
Loan capital (390) (386) 1 (776) (774) -
Bank levy (198) (193) 3 (391) (378) 3
Other interest expense (171) (191) (10) (362) (409) (11)
Total interest expense (7,669) (8,572) (11) (16,241) (16,250) -
Total net interest income 8,564 8,389 2 16,953 17,187 (1)
1
The Group has adopted AASB 9 Financial Instruments and AASB 15 Revenue from Contracts with Customers from 1 October 2018.
Statutory comparatives have not been restated. Refer to Note 1 in the 2019 Interim Financial Results and Note 1 in Section 3 of the
2019 Annual Report for further detail. However, where applicable, cash earnings comparatives (excluding expected credit loss
provisioning) have been restated to aid comparability. Refer to the cash earnings policy in Section 1.3.4 for further detail. In addition,
during Full Year 2019, the Group has made a number of presentational changes to the Balance Sheet and Income Statement, both
statutory and cash earnings comparatives have been restated. Refer to Note 1 in the 2019 Interim Financial Results and Note 1 in
Section 3 of the 2019 Annual Report for further detail.
2019 Full Year financial results
Cash earnings financial information
Westpac Group 2019 Full Year Financial Results Announcement | 133
Note 4. Non-interest income (cash earnings basis)
1
% Mov't % Mov't
Half Year Half Year Sept 19 - Full Year Full Year Sept 19 -
$m Sept 19 March 19 Mar 19 Sept 19 Sept 18
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