Westpac 2019 Annual Report on Form 20-F
7 November 2019
Market Announcements Office
ASX Limited
20 Bridge Street
SYDNEY NSW 2000
Dear Sir/Madam
Westpac Place
Level 18, 275 Kent Street
Sydney NSW 2000
T. (02) 9155 7713
westpac.com.au
Westpac Banking Corporation US Annual Report on Form 20- F
Westpac Banking Corporation (Westpac) has filed with the US Securities and Exchange Commission an
Annual Report on Form 20-F for the financial year ended 30 September 2019 which has been prepared
specifically for distribution in the United States (2019 Form 20-F). This filing has been prepared to meet
US securities law requirements and is necessary to update Westpac’s US debt issuance programs. As the
2019 Form 20-F has been prepared to meet US requirements, its presentation differs in some limited
respects from Westpac’s 2019 Annual Report lodged with ASX on 4 November 2019.
Yours sincerely
Tim Hartin
Group Company Secretary
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
Commission File Number: 1-10167
WESTPAC BANKING CORPORATION
Australian Business Number 33 007 457 141
(Exact name of Registrant as specified in its charter)
New South Wales, Australia
(Jurisdiction of incorporation or organization)
275 Kent Street, Sydney, NSW 2000, Australia
(Address of principal executive offices)
Westpac Banking Corporation, New York branch,
575 Fifth Avenue, 39 Floor, New York, New York 10017-2422,
Attention: Branch Manager, telephone number: (212) 551-1800
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Securities registered or to be registered pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: 4.875% Notes due November 19, 2019, 2.150% Notes due March 6, 2020,
Floating Rate Notes due March 6, 2020, 3.050% Notes due May 15, 2020, Floating Rate Notes due May 15, 2020, 2.30% Notes due May 26, 2020, 2.600% Notes
due November 23, 2020, 2.650% Notes due January 25, 2021, Floating Rate Notes due January 25, 2021, 2.100% Notes due May 13, 2021, Floating Rate Notes
due May 13, 2021, 2.000% Notes due August 19, 2021, Floating Rate Notes due August 19, 2021, 2.800% Notes due January 11, 2022, Floating Rate Notes due
January 11, 2022, 2.500% Notes due June 28, 2022, Floating Rate Notes due June 28, 2022, 2.750% Notes due January 11, 2023, Floating Rate Notes due
January 11, 2023, 3.650% Notes due May 15, 2023, Floating Rate Notes due May 15, 2023, 3.300% Notes due February 26, 2024, Floating Rate Notes due
February 26, 2024, 2.850% Notes due May 13, 2026, 2.700% Notes due August 19, 2026, 3.350% Notes due March 8, 2027, 3.400% Notes due January 25,
2028, 4.322% Subordinated Notes due November 23, 2031, 4.110% Subordinated Notes due July 24, 2034, 4.421% Subordinated Notes due July 24, 2039 and
5.000% Fixed Rate Resetting Perpetual Subordinated Contingent Convertible Securities
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes _ No
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
Yes No _
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes _ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T
during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes _ No (not currently applicable to registrant)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See the
definitions of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the
extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act.
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards
Codification after April 5, 2012.
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP International Financial Reporting Standards as issued by the International Accounting Standards Board _
Other
If this is an annual report, indicate by check mark whether the registrant is a shell company.
Yes No _
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT
OF 1934
Or
_ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 2019
Or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Or
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
Title of each className of each exchange on which registered
Ordinary sharesListed on the New York Stock Exchange, not for trading, but only in connection
with the registration of related American Depositary Shares, pursuant to the
requirements of the New York Stock Exchange.
American Depositary Shares, each representing the right to receive one
ordinar
y share
New York Stock Exchang
e
Ordinary shares3,489,928,773 fully paid
Large accelerated filer _Accelerated filer Non-accelerated filer Emerging growth company
th
Table of contents
In this Annual Report a reference to ‘Westpac’, ‘Group’, ‘Westpac Group’, ‘we’, ‘us’and ‘our’ is to Westpac Banking Corporation ABN 33 007 457 141 and its subsidiaries
unless it clearly means just Westpac Banking Corporation.
For certain information about the basis of preparing the financial information in this Annual Report see ‘Reading this report’ in Section 2. In addition, this Annual Report
contains statements that constitute ‘forward-looking statements’ within the meaning of Section 21E of the US Securities Exchange Act of 1934. For an explanation of forward-
looking statements and the risks, uncertainties and assumptions to which they are subject, see ‘Reading this report’ in Section 2.
Information contained in or accessible through the websites mentioned in this Annual Report does not form part of this report unless we specifically state that it is incorporated
by reference and forms part of this report. All references in this report to websites are inactive textual references and are for information only.
2019 Westpac Group Annual Repor
t1
Annual Report
Form 20-F cross-reference index2
Guide 3 cross-reference index4
Section 15
Information on West
pac6
Si
gnificant developments7
Cor
porate governance17
Directors’report39
Remuneration Report57
Section 28
7
Five year summary88
Reading this report89
Review of Group operation
s91
Income statement review93
Balance sheet review101
Capital resources104
Commitments107
Divisional performance108
Consumer111
Business112
Westpac Institutional Bank113
Westpac New Zealand11
4
Group Businesses116
Risk and risk management120
Risk factors120
Risk management131
Credit risk132
Funding and liquidity risk133
Market ris
k134
Operational risk134
Conduct and compliance risk134
Governance risk135
Risk culture135
Strategic risk135
Capital adequacy136
Cyber risk136
Reputation risk136
Sustainability ris
k136
Westpac’s approach to sustainability140
Sustainability performance140
Five year non-financial summary149
Other Westpac business information151
Section 3153
Financial statements154
Notes to the financial statement
s160
Statutory statement
s297
Section 430
5
Shareholding information306
Additional information319
Information for shareholders323
Glossary of abbreviations and defined terms326
Form 20-F cross-reference index
22019 Westpac Group Annual Report
20-F item number and description
Part I
Item 1.Identity of directors, senior management and advisersNot applicable
Item 2.Offer statistics and expected timetableNot applicable
Item 3.
Key information
Selected financial data88, 93, 101-102, 322
Capitalisation and indebtednessNot applicable
Reasons for the offer and use of proceedsNot applicable
Risk factors120-131
Item 4.
Information on Westpac
History and development of Westpac6-16, 50-51
Business overview6-16
Organisational structure6-7, 281-282
Property, plants and equipment151
Item 4A.Unresolved staff commentsNot applicable
Item 5.Operating and financial review and prospects
Operating results91-106, 108-119
Liquidity and capital resources104-107, 133-139
Research and development, patents and licences, etc.Not applicable
Trend information93-105, 108-119
Off-balance sheet arrangements138
Tabular disclosure of contractual obligations107
Safe harbor89
Item 6.
Directors, senior management and employees
Directors and senior management39-47, 53
Compensation57-84, 290-292
Board practices19-47
Employees151
Share ownership53-54, 290-293, 306
Item 7.
Major shareholders and related party transactions
Major shareholders306-313
Related party transactions152, 291-292
Interests of experts and counselNot applicable
Item 8.Financial information
Consolidated statements and other financial information153-303
Significant changes7-14, 295
Item 9.
The offer and listing
Offer and listing details313
Plan of distributionNot applicable
Markets17, 323-324
Selling shareholdersNot applicable
DilutionNot applicable
Expenses of the issueNot applicable
Page
Form 20-F cross-reference index
2019 Westpac Group Annual Report3
20-F item number and description
Part I (continued)
Item 10.Additional information
Share capitalNot applicable
Memorandum and articles of association319-321
Material contracts152
Exchange controls315-316
Taxation316-318
Dividends and paying agentsNot applicable
Statements by expertsNot applicable
Documents on display321
Subsidiary informationNot applicable
Item 11.Quantitative and qualitative disclosures about market risk133-134, 251-252
Item 12.
Description of securities other than equity securities
Debt securitiesNot applicable
Warrants and rightsNot applicable
Other securitiesNot applicable
American depositary shares314
Part II
Item 13.Defaults, dividend arrearages and delinquenciesNot applicable
Item 14.Material modifications to the rights of security holders and use of proceedsNot applicable
Item 15.Controls and procedures139, 298, 299
Item 16A.
Audit committee financial expert29
Item 16B.
Code of ethics24-28
Item 16C.
Principal accountant fees and services30, 290
Item 16D.
Exemptions from the Listing Standards for audit committeesNot applicable
Item 16E.
Purchases of equity securities by Westpac and affiliated purchasers107, 276-278
Item 16F.
Changes in Westpac’s certifying accountantNot applicable
Item 16G.Corporate governance17
Item 16H.
Mine safety disclosureNot applicable
Part III
Items 17. & 18.Financial statements153-303
Item 19.
Exhibits
Consolidated income statements for the years ended 30 September 2019, 2018 and 2017154
Consolidated balance sheets as at 30 September 2019 and 2018
156
Consolidated statements of comprehensive income for the years ended 30 September 2019, 2018 and 2017
155
Consolidated statements of cash flows for the years ended 30 September 2019, 2018 and 2017159
Notes to the financial statements
160-296
Management’s report on the internal control over financial reporting
298
Report of independent registered public accounting firm299-303
Page
Guide 3 cross-reference index
42019 Westpac Group Annual Report
Part I Distribution of assets, liabilities and stockholders’ equity;
interest rates and interest differential
Average balance sheets101, 187-189
Analysis of net interest earnings94-95, 187-189
Volume and rate movement
94, 187-189
Part II Investment portfolio
Book value of investments192
Maturity profile193, 249-251
Book value and market value > 10% of shareholders
192
Part III Loan portfolio
Types of loans195-197
Maturities and sensitivities of loans to changes in interest rates
198
Risk elements
Non-accrual, past due and restructured loans103-104, 240-244
Potential problem loans
103-104
Foreign outstandings
133
Loan concentrations
133
Other interest bearing assets
190-194
Part IV Summary of loan loss experience
Analysis of the allowance for loan losses199-210
Allocation of the allowance for loan losses199-210
Part V Deposits
213-214
Part VI Return on equity and assets
88, 102
Part VII Short-term borrowings216-217
Page
Information on Westpac
Corporate Governance
Directors’ report
(including Remuneration Report)
2019 Westpac Group Annual Report5
Information on Westpac
62019 Westpac Group Annual Report
Westpac is one of the four major banking organisations in Australia
and one of the largest banking organisations in New Zealand. We
provide a broad range of banking and financial services in these
markets, including consumer , business and institutional banking
and wealth management services.
We have branches, affiliates and controlled entities throughou
t
Australia, New Zealand, Asia and in the Pacific region, and
maintain branches and offices in some of the key financial centres
around the world.
We were founded in 1817 and were the first bank established in
Australia. In 1850, we were incorporated as the Bank of New South
Wales by an Act of the New South Wales Parliament. In 1982, we
changed our name to Westpac Banking Corporation following our
merger with the Commercial Bank of Australia. On 23 August 2002,
we were registered as a public company limited by shares unde
r
the Australian Corporations Act 2001 (Cth) (Corporations Act).
At 30 September 2019, our market capitalisation was $103 billion
and we had total assets of $907 billion.
Organisational structure
Our business is focused in Australia and New Zealand, operating
under multiple brands. The Group operates through an extensive
branch and ATM network, significant online capability, and call
centres supported by specialist relationship and product managers.
Our operations comprise the following key divisions:
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 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.
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 thei
r
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
1.A consumer is defined as a person who uses our products and services. It
does not include business entities.
2.Refer to Note 31 to the financial statements for a list of our material
controlled entities as at 30 September 2019.
3.Based on the closing share price of our ordinary shares on the ASX as at 30
September 2019
.
1
2
3
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.
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 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
.
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
.
Group Businesses include:
xTreasury, 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;
xGroup Technology, which is responsible for technology
strategy and architecture, infrastructure and operations,
applications development and business integration in
Australia;
xCore Support, which comprises functions performed centrally,
including Australian banking operations, property services,
strategy, finance, risk, compliance, legal, human resources,
and customer and corporate relations; and
xFollowing 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.
Information on Westpac
2019 Westpac Group Annual Report7
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 Grou
p’s Fintech investments, and certain other head office
items such as centrally raised provisions.
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 o
f
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 Note 27 to the financial
statements.
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
included in the Directors’ 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 o
n-boarding, customer and payment screening; ongoing
customer due diligence, transaction monitoring and regulatory
reporting (including in relation to International Funds Transfe
r
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 Grou
p’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 othe
r
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 Note 27 to the
financial statements. Details about the consequences of failing to
comply with financial crime obligations is set out in ‘Risk Factors’ in
section 2.
Information on Westpac
82019 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
:
xnon-financial risk management requires improvement;
xaccountabilities are not always clear, cascaded and effectively
enforced;
xacknowledged weaknesses are well-known and some have
been long-standing; and
xrisk 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
.
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
.
Information on Westpac
2019 Westpac Group Annual Report9
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:
xinvestigate the prices charged for home loans across the
sector;
xconsider how banks make pricing decisions, including their
approach to passing on movements in the official cash rate;
xexamine differences in the prices paid by new and existing
customers;
xexamine differences between the interest rates published by
suppliers and the interest rates paid by customers; and
xinvestigate 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:
xthe 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
xthe 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.
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:
xupdate 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;
xintroduce ordinary criminal offences that sit alongside strict
and absolute liability offences;
xexpand 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;
xintroduce a new test that applies to all dishonesty offences
under the Corporations Act 2001 (Cth); and
xensure 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. ASI
C’s
program is examining culture and processes in major financial
institutions through three streams: Breach Reporting, Corporate
Governance and Internal Dispute Resolution (IDR). ASI
C’s onsite
on Breach Reporting and engagement on Corporate Governance is
now complete. The IDR onsite for Westpac commenced on 15
October 2019
.
Information on Westpac
102019 Westpac Group Annual Report
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.
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, bette
r
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
Commissio
n’s Final Report, which recommended changes in
relation to the protection of small businesses and having a greate
r
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 easie
r
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.
Information on Westpac
2019 Westpac Group Annual Report11
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.
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 ASI
C’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
customer
s’ financial situation, requirements and objectives; verify
custome
r’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 BTF
M’s
BT Super for Life cash investment option. The claim follows othe
r
industry class actions as part of Slater and Gordo
n’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 BTF
M’s
alleged contraventions. The damages sought by the claim are
uns
pecified. BTFM and WLIS are defending the proceedings.
Information on Westpac
122019 Westpac Group Annual Report
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.
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.
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.
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 Ratio
s’. 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 rating
s-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
.
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 no
n-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%.
Information on Westpac
2019 Westpac Group Annual Report13
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 to 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
lendin
g
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
loa
n’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
.
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 no
n-
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 Se
ptember 2021.
Information on Westpac
142019 Westpac Group Annual Report
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 measurements. 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 RBN
Z’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.
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 RBN
Z’s
institutional governance and decisio
n-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 insurer
s’ systems and
controls, governance and management of conduct risks. Westpac
Lif
e-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 no
n-
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 fo
r
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 fo
r
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
.
Information on Westpac
2019 Westpac Group Annual Report15
Supervision and regulation
Australia
Within Australia, we are subject to supervision and regulation by six
principal agencies and bodies: the Australian Prudential Regulation
Authority (APRA); the Reserve Bank of Australia (RBA); the
Australian Securities and Investments Commission (ASIC); the
Australian Securities Exchange (ASX); the Australian Competition
and Consumer Commission (ACCC); and the Australian
Transaction Reports and Analysis Centre (AUSTRAC).
APRA is the prudential regulator of the Australian financial services
industry. It oversees banks, credit unions, building societies,
general insurance, re-insurance, life insurance and private health
insurance companies, friendly societies and most of the
superannuation (pension) industry. APRA’s role includes
establishing and enforcing prudential standards and practices
designed to ensure that, under all reasonable circumstances,
financial promises made by the institutions it supervises are met
within a stable, efficient and competitive financial system. APRA
has recently received new and strengthened powers under the
Banking Executive Accountability Regime.
As an ADI, we report prudential information to APRA, including
information in relation to capital adequacy, large exposures, credit
quality and liquidity. Our controlled entities in Australia that are
authorised insurers and trustees of superannuation funds are also
subject to the APRA regulatory regime. Reporting is supplemented
by consultations, on-site inspections and targeted reviews. Our
external auditor also has an obligation to report on compliance with
certain statutory and regulatory banking requirements and on any
matters that in their opinion may have the potential to materially
prejudice the interests of depositors and other stakeholders.
Australia’s risk-based capital adequacy guidelines are based on the
approach agreed upon by the BCBS. National discretion is then
applied to that approach, which has resulted in Australia’s capital
requirements being more stringent. Refer to ‘Capital resources –
Basel Capital Accord’ in Section 2.
The RBA is responsible for monetary policy, maintaining financial
system stability and promoting the safety and efficiency of the
payments system. The RBA is an active participant in the financial
markets, manages Australia’s foreign reserves, issues Australian
currency notes and serves as banker to the Australian
Government.
ASIC is the national regulator of Australian companies and
consumer protection within the financial sector. Its primary
responsibility is to regulate and enforce company, consumer credit,
financial markets and financial products and services laws that
protect consumers, investors and creditors. With respect to
financial services, it promotes fairness and transparency by
providing consumer protection, using regulatory powers to enforce
laws relating to deposit-taking activities, general insurance, life
insurance, superannuation, retirement savings accounts, securities
(such as shares, debentures and managed investments) and
futures contracts and financial advice. ASIC has responsibility for
supervising trading on Australia’s domestic licensed markets and o
f
trading participants. ASIC has recently had its existing powers
strengthened to provide ASIC with a product intervention power.
For further information, refer to ‘Significant developments’ above.
The ASX operates Australia’s primary national market for trading of
securities issued by listed companies. Some of our securities
(including our ordinary shares) are listed on the ASX and we
therefore have obligations to comply with the ASX Listing Rules,
which have statutory backing under the Corporations Act 2001
(Cth). The ASX has responsibility for the oversight of listed entities
under the ASX Listing Rules and for monitoring and enforcing
compliance with the ASX Operating Rules by its market, clearing
and settlement participants. ASX is now also the benchmark
administrator of BBSW
.
The ACCC is the regulator responsible for the regulation and
prohibition of anti-competitive and unfair market practices and
mergers and acquisitions in Australia. Its broad objective is to
administer the Competition and Consumer Act 2010 (Cth) and
related legislation to bring greater competitiveness, fair trading,
consumer protection and product safety to the Australian economy.
The ACCC’s role in consumer protection complements that of ASIC
(for financial services) and Australian state and territory consume
r
affairs agencies that administer the unfair trading legislation of thei
r
jurisdictions.
The Australian Government’s present policy, known as the ‘four
pillars polic
y’, is that there should be no fewer than four major
banks to maintain appropriate levels of competition in the banking
sector. Under the Financial Sector (Shareholdings) Act 1998 (Cth),
the Australian Government’s Treasurer must approve an entity
acquiring a stake of more than 15% in a particular financial secto
r
company
.
Proposals for foreign acquisitions of a stake in Australian banks are
subject to the Australian Government’s foreign investment policy
and, where required, approval by the Australian Government unde
r
the Australian Foreign Acquisitions and Takeovers Act 1975 (Cth).
For further details refer to ‘Limitations affecting security holders’ in
Section 4
.
AUSTRAC oversees the compliance of Australian reporting entities
(including Westpac) with the requirements under the Anti-Money
Laundering and Counter-Terrorism Financing Act 2006 (Cth) and
the Financial Transaction Reports Act 1988 (Cth). These
requirements include
:
ximplementing programs for identifying and monitoring
customers, and for managing the risks of money laundering
and terrorism financing;
xreporting suspicious matters, threshold transactions and
international funds transfer instructions; and
xsubmitting an annual compliance report.
AUSTRAC provides financial information to Australian federal law
enforcement, national security, human services and revenue
agencies, and certain international counterparts
.
New Zealand
The Reserve Bank of New Zealand (RBNZ) is responsible for
supervising New Zealand registered banks and protects the
financial stability of New Zealand through the application of
minimum prudential obligations. The New Zealand prudential
supervision regime requires that registered banks publish
disclosure statements, which contain information on financial
performance and risk positions as well as attestations by the
directors about the bank’s compliance with its conditions of
registration and certain other matters
.
Information on Westpac
162019 Westpac Group Annual Report
The Financial Markets Authority (FMA) and the New Zealand
Commerce Commission (NZCC) are the two primary conduct and
enforcement regulators. The FMA and NZCC are responsible for
ensuring that markets are fair and transparent and are supported
by confident and informed investors and consumers. Regulation of
markets and their participants is undertaken through a combination
of market supervision, corporate governance and licensing
approvals.
In New Zealand, other relevant regulator mandates include those
relating to taxation, privacy and foreign affairs and trade.
Banks in New Zealand are also subject to a number of self-
regulatory regimes. Examples include Payments NZ, the New
Zealand Bankers’ Association and the Financial Services Council
(FSC). Examples of industry agreed codes include the New
Zealand Bankers’ Association’s Code of Banking Practice and
FSC’s Code of Conduct.
United States
Our New York branch is a US federally licensed branch and
therefore is subject to supervision, examination and regulation by
the US Office of the Comptroller of the Currency and the Board of
Governors of the Federal Reserve System (the US Federal
Reserve) under the US International Banking Act of 1978 (IBA) and
related regulations.
A US federal branch must maintain, with a US Federal Reserve
member bank, a capital equivalency deposit as prescribed by the
US Comptroller of the Currency, which is at least equal to 5% of its
total liabilities (including acceptances, but excluding accrued
expenses, and amounts due and other liabilities to other branches,
agencies and subsidiaries of the foreign bank).
In addition, a US federal branch is subject to periodic onsite
examination by the US Comptroller of the Currency. Such
examination may address risk management, operations, asset
quality, compliance with the record-keeping and reporting, and any
additional requirements prescribed by the US Comptroller of the
Currency from time to time.
A US federal branch of a foreign bank is, by virtue of the IBA,
subject to the receivership powers exercisable by the US
Comptroller of the Currency.
As of 22 June 2016, we elected to be treated as a financial holding
company in the US pursuant to the Bank Holding Company Act of
1956 and Federal Reserve Board Regulation Y. Our election will
remain effective so long as we meet certain capital and
management standards prescribed by the US Federal Reserve.
Westpac and some of its affiliates are engaged in various activities
that are subject to regulation by other US federal regulatory
agencies, including the US Securities and Exchange Commission,
the US Commodity Futures Trading Commission and the National
Futures Association.
Anti-money laundering regulation and related
requirements
Australia
Westpac has a Group-wide program to manage its obligations
under the Anti-Money Laundering and Counter- Terrorism
Financing Act 2006 (Cth). We continue to actively engage with the
regulator, AUSTRAC, on our activities
.
Our Anti-Money Laundering and Counter-Terrorism Financing
Policy (AML/CTF Policy) sets out how the Westpac Group complies
with its legislative obligations.
The AML/CTF Policy applies to all business divisions and
employees (permanent, temporary and third party providers)
working in Australia, New Zealand and overseas.
United States
The USA PATRIOT Act of 2001 requires US financial institutions,
including the US branches of foreign banks, to take certain steps to
prevent, detect and report individuals and entities involved in
international money laundering and the financing of terrorism. The
required actions include verifying the identity of financial institutions
and other customers and counterparties, terminating correspondent
accounts for foreign ‘shell banks’ and obtaining information about
the owners of foreign bank clients and the identity of the foreign
ban
k’s agent for service of process in the US. The anti-money
laundering compliance requirements of the USA PATRIOT Act
include requirements to adopt and implement an effective anti-
money laundering program, report suspicious transactions o
r
activities, and implement due diligence procedures fo
r
correspondent and other customer accounts. Westpac’s New York
branch and Westpac Capital Markets LLC maintain an anti-money
laundering compliance program designed to address US legal
requirements
.
US economic and trade sanctions, as administered by the Office of
Foreign Assets Control (OFAC), prohibit or significantly restrict US
financial institutions, including the US branches and operations of
foreign banks, and other US persons from doing business with
certain persons, entities and jurisdictions. Westpac’s New York
branch and Westpac Capital Markets LLC maintain compliance
programs designed to comply with OFAC sanctions programs, and
Westpac has a Group-wide program to ensure adequate
compliance
.
Legal proceedings
Our entities are defendants from time to time in legal proceedings
arising from the conduct of our business. Material legal
proceedings, if any, are described in Note 27 to the financial
statements and under ‘Significant developments’ above. Where
appropriate as required by the accounting standards, a provision
has been raised in respect of these proceedings and disclosed in
the financial statements.
Principal office
Our principal office is located at 275 Kent Street, Sydney, New
South Wales, 2000, Australia. Our telephone number for calls
within Australia is (+61) 2 9155 7713 and our international
telephone number is (+61) 2 9155 7700.
Corporate governance
2019 Westpac Group Annual Report17
Introduction
This Corporate Governance Statement, which has been approved
by the Board, describes our corporate governance framework,
policies and practices as at 4 November 2019.
Framework and our approach to governance
Corporate governance is the framework of systems, policies and
processes by which we operate, make decisions and hold people
to account. The framework establishes the roles and
responsibilities of Westpac’s Board and management. It also
establishes the systems, policies and processes for monitoring and
evaluating Board and management performance and the practices
for corporate reporting, disclosure, remuneration, risk management
and engagement of security holders.
Our approach to corporate governance is based on a set of values
and behaviours that underpin our day-to-day activities, provide
transparency and fair dealing and seek to protect stakeholder
interests. It includes a commitment to maintaining the highest
standards of corporate governance, which Westpac sees as
fundamental to the sustainability of our business and our
performance.
We regularly review local and global developments in corporate
governance to assess their implications and to respond to changes
in the operating environment. We also improve our systems,
processes and policies and look to strengthen our frameworks to
reflect changing expectations where appropriate.
We have equity securities quoted on securities exchanges in
Australia, New Zealand and the United States.
Australia
The principal listing of Westpac ordinary shares is on the ASX,
trading under the code WBC. Westpac also has hybrid securities,
capital notes, senior notes and subordinated notes listed on the
ASX.
We comply with the ASX Corporate Governance Principles and
Recommendations (third edition) (ASXCGC Recommendations)
published by the ASX Limited’s Corporate Governance Council
(ASXCGC). In addition, we already comply with a number of the
recommendations contained in the fourth edition of the ASX
Corporate Governance Principles and Recommendations.
We must also comply with the Corporations Act, the Banking Act,
including Part IIAA – The Banking Executive Accountability Regime
amongst other laws, and, as an Authorised Deposit-taking
Institution, with governance requirements prescribed by APRA
under Prudential Standard CPS 510 Governance.
This Corporate Governance Statement addresses each of the
ASXCGC Recommendations with an explanation of our corporate
governance practices, demonstrating our compliance with each
Recommendation.
Further details about the ASXCGC Recommendations can be
found on the ASX website www.asx.com.au.
New Zealand
Westpac’s ordinary shares are also quoted on the NZX, which is
the main board equity security market operated by NZX Limited.
Westpac also has subordinated notes quoted on the NZX Debt
Market. As an overseas listed issuer in New Zealand, we are
deemed to satisfy and comply with the NZX Listing Rules, provided
that we remain listed on the ASX and comply with the ASX Listing
Rules
.
The ASX, through the ASXCGC Recommendations and the NZX,
through the NZX Corporate Governance Code, have adopted
similar ‘comply or explain’ approaches to corporate governance.
The ASXCGC Recommendations may, however, materially differ
from the corporate governance rules and the principles of NZX’s
Cor
porate Governance Code.
Corporate governance
United States
Westpac has American Depositary Shares (ADS) representing its ordinary shares quoted on the New York Stock Exchange (NYSE), trading
under the symbol WBK. Under the NYSE Listing Rules, foreign private issuers (like Westpac) are permitted to follow home country practice in
respect of corporate governance in lieu of the NYSE Listing Rules. However, we are still required to comply with certain audit committee and
additional notification requirements.
We comply in all material respects with all NYSE Listing Rules applicable to us.
Under the NYSE Listing Rules, foreign private issuers are required to disclose any significant ways in which their corporate governance
practices differ from those followed by domestic US companies. We have compared our corporate governance practices to the corporate
governance requirements of the NYSE Listing Rules and note the significant differences below.
The NYSE Listing Rules require that, subject to limited exceptions, shareholders be given the opportunity to vote on equity compensation plans
and material revisions to those plans. In Australia, there are no laws or ASX Listing Rules that require shareholder approval of equity based
incentive plans or individual grants under those plans (other than for Directors, including the Chief Executive Officer (CEO)).
Westpac’s employee equity plans have been disclosed in the Remuneration Report in Section 10 of the Directors’ report, which is subject to a
non-binding shareholder vote at the Annual General Meeting (AGM) and grants to our CEO are approved by shareholders. The details of grants
under our equity-based incentive plans have been disclosed in Note 33 of our financial statements for the year ended 30 September 2019.
The NYSE Listing Rules set out specific requirements for determining whether a director will be regarded as independent. While these
requirements are broadly consistent with Westpac’s criteria for independence (described below under ‘Board, Committees and oversight of
management’), under Australian independence requirements, the Board is able to apply discretion in its determination of a director’s
independence that differs from the NYSE Listing Rules.
The NYSE Listing Rules also provide that the Board Nominations Committee’s responsibilities should include selecting, or recommending that
the Board select, the Director nominees for the next annual meeting for shareholders, and overseeing the evaluation of the Board. The Board,
rather than the Board Nominations Committee, reviews and recommends the Director nominees for election at the AGM and undertakes an
annual review of its performance.
Board and Board Committee Structure
The diagram above shows Westpac’s Board and current Board Committee structure. The structure comprises a Board with five Board
Committees that oversee Westpac’s business. The Board’s responsibilities include approving and overseeing the implementation of Westpac’s
strategy, approving the Group’s risk management framework, risk management strategy and risk appetite statement, and overseeing the three
lines of defence model.
From time to time, the Board may form other Committees or request Directors to undertake specific extra duties. In addition, from time to time,
the Board participates (either directly or through representatives) in due diligence committees in relation to strategic decisions and capital and
funding activities.
The Board has delegated to the CEO, and through the CEO to the Executive Team, responsibility for the day-to-day management of Westpac’s
business.
The key functions of the Board and each of the Board Committees are outlined in this Corporate Governance Statement. All Board Committee
Charters are available on our website at www.westpac.com.au/corpgov.
182019 Westpac Group Annual Report
Corporate governance
2019 Westpac Group Annual Report19
How the Board and Committees work including oversight
of management
Board of Directors
Roles and responsibilities
The role of the Board is to provide leadership and strategic
guidance for Westpac and its related bodies corporate.
The Board Charter outlines the roles and responsibilities of the
Board. Key responsibilities are:
xapproving, and overseeing management’s implementation of,
the strategic direction of Westpac Group, its business plan and
significant corporate strategic initiatives;
xevaluating Board performance and determining Board size and
composition;
xapproving the Westpac Board Renewal Policy and the
Westpac Group Remuneration Policy;
xselecting, appointing and determining the duration,
remuneration and other terms of appointment of the CEO and
Chief Financial Officer (CFO);
xapproving individual remuneration levels for Group Executives,
other executives who report directly to the CEO, any other
accountable persons under the Banking Executive
Accountability Regime, and any other person the Board
determines;
xevaluating the performance of the CEO;
xsuccession planning for the CEO and Group Executives;
xapproving the appointment of Group Executives and the
General Manager Group Audit and monitoring the performance
of Group Executives;
xapproving the annual targets and financial statements and
monitoring performance against forecast and prior periods;
xdetermining our dividend policy;
xconsidering and approving our overall risk management
framework, approving our Group Risk Management Strategy
and Group Risk Appetite Statement and monitoring the
effectiveness of risk management by the Group;
xforming a view of our risk culture and identifying any desirable
changes;
xconsidering the social, ethical and environmental impact of our
activities and monitoring compliance with our sustainability
policies and practices;
xoverseeing and monitoring Workplace Health and Safety
(WHS) issues in the Group and considering appropriate WHS
reports and information;
xmaintaining an ongoing dialogue with Westpac’s external
auditor and, where appropriate, principal regulators;
xoverseeing internal governance, including delegated authorities
and approving policies for appointments to our controlled entity
boards; and
xoverseeing and monitoring customer complaints.
Governance and conduct focus areas
In addition to the roles and responsibilities outlined in the Board
Charter, this year the Board has also focused on addressing the
recommendations, observations and findings of Westpac’s Culture,
Governance and Accountability (CGA) self-assessment and the
Royal Commission into Misconduct in the Banking, Superannuation
and Financial Services Industry (Royal Commission). These areas
of focus include Board and executive governance, risk and
compliance, customer experience, remuneration and accountability
and culture
.
The Board has continuing oversight over the implementation of
both Westpac’s Royal Commission and CGA response plans.
The Board also met with representatives from the Australian
Securities and Investments Commission, Australian Prudential
Regulation Authority, Australian Transaction Reports and Analysis
Centre and the Australian Financial Complaints Authority during the
course of the year
.
Delegated authority
The Constitution and the Board Charter enable the Board to
delegate to Committees and management.
The roles and responsibilities delegated to the Board Committees
are captured in the Charters of each of the five established
Committees, namely
:
xAudit;
xRisk & Compliance;
xNominations;
xRemuneration; and
xTechnology.
The Board Charter, Board Committee Charters and the
Constitution are available on our website at
www.westpac.com.au/corpgov.
The Delegated Authority Policy Framework outlines principles to
govern decision-making within the Westpac Group, including
appropriate escalation and reporting to the Board. The scope of,
and limitations to, authority delegated by the Board to the CEO and
through the CEO to other Group Executives, is clearly documented
and covers areas such as operating and capital expenditure,
funding and securitisation, and lending. These delegations balance
effective oversight with appropriate empowerment and
accountability of management. Any matters or transactions outside
the delegations of authority given to management are required to
be referred to the appropriate Board or relevant Board Committee
for approval.
The Executive team, Disclosure Committee and Executive Risk
Committee are not Board Committees (that is, they have no
delegation of authority from the Board) but sit beneath the CEO
and the Board Committees to implement Board-approved
strategies, policies and manage risk across the Group.
Corporate governance
Independence
Together, the Board members have a broad range of relevant financial and other skills and knowledge, combined with the extensive experience
necessary to guide our business. Details are set out in Section 1 of the Directors’ report. A skills matrix for the Board appears in this statement.
All of our Non-executive Directors satisfy our criteria for independence, which align with the guidance provided in the ASXCGC
Recommendations and the criteria applied by the NYSE and the US Securities and Exchange Commission (SEC).
The Board assesses the independence of our Directors on appointment and annually. Each Director provides an annual attestation of his or her
interests and independence.
Directors are considered independent if they are independent of management and free from any business or other relationship that could
materially interfere with, or reasonably be perceived to materially interfere with, the exercise of their unfettered and independent judgement.
Materiality is assessed on a case by case basis by reference to each Director’s individual circumstances rather than by applying general
materiality thresholds.
Each Director is expected to disclose any business or other relationship that he or she has directly, or as a partner, shareholder or officer of a
company or other entity that has an interest in Westpac or a related entity. The Board considers information about any such interests or
relationships, including any related financial or other details, when it assesses the Director’s independence.
Size and membership of Board Committees as at 30 September 2019
1.Composition requirements for each Committee are set out in the relevant Committee Charter.
2.Steven Harker was appointed as a Member of the Board Audit Committee effective from 1 October 2019.
3.Margaret Seale was appointed as a Member of the Board Remuneration Committee effective from 1 October 2019.
202019 Westpac Group Annual Repor
t
Committee Composition
Name of Committee
Board Audit
Committee
Board Risk &
Compliance
Committee
Board Nominations
Committee
Board Remuneration
Committee
Board Technology
Committee
Number of Members
Minimum three
members
Minimum three
members
Composed of all
Board Committee
Chairs, Board
Chairman and such
other members as
determined by the
Board
Minimum three
members
Minimum three
members
Composition
All members are
Independent Non-
executive Directors
All members are
Non-executive
Directors
Majority of members
are Independent
Non-executive
Directors
All members are
Independent Non-
executive Directors
All members are
Independent Non-
executive Directors
Maximum one
Executive Director
All other members
are Independent
Non-executive
Directors
Committee Chair
Chair is Independent
Non-executive
Director, who is not
the Board Chairman
Chair is Independent
Director, who is not
the Board Chairman
Chair determined by
the Board
Chair determined by
the Board
Chair determined by
the Board
Lindsay Maxsted
Chairman,
No
n-executive,Chair
Independent999
Brian Hartzer
CEO,
Executive9
Nerida Caesar
No
n-executive,
Independent99
Ewen Crouch
Non-executive,Chair
Independent9999
Alison Deans
No
n-executive,Chair
Independent9999
Craig Dunn
Non-executive,Chair
Independent999
Anita Fung
No
n-executive,
Independent9
Steven Harker
Non-executive,
Independent9
Peter Marriott
No
n-executive,Chair
Independent9999
Peter Nash
Non-executive,
Independent99
Margaret Seale
No
n-executive,
Independent9
1
2
3
Corporate governance
2019 Westpac Group Annual Report21
Chairman
The Board elects one of the independent Non-executive Directors
as Chairman. Our Chairman is Lindsay Maxsted, who became
Chairman on 14 December 2011. The Chairman’s role includes:
xproviding effective leadership to the Board in relation to all
Board matters;
xguiding the agenda and conducting all Board meetings to
facilitate discussions, challenge and decision-making;
xin conjunction with the Company Secretaries, arranging regular
Board meetings throughout the year, confirming that minutes of
meetings accurately record decisions taken and, where
appropriate, the views of individual Directors;
xoverseeing the process for appraising Directors and the Board
as a whole;
xoverseeing Board succession;
xacting as a conduit between management and the Board, and
being the primary point of communication between the Board
and CEO;
xrepresenting the views of the Board to the public; and
xtaking a leading role in creating and maintaining an effective
corporate governance system.
CEO
Our CEO is Brian Hartzer. The CEO’s role includes:
xleadership of the management team;
xdeveloping strategic objectives for the business and
achievement of planned results; and
xthe day-to-day management of the Westpac Group’s
operations, subject to the specified delegations of authority
approved by the Board.
Board meetings
The Board had 11 scheduled meetings for the financial year ended
30 September 2019, with additional meetings held as required. In
addition to the Board considering strategic matters at each Board
meeting, the Board also discusses our strategic plan and approves
our overall strategic direction on an annual basis. The Board also
conducts a half year review of our strategy. The Board conducts
workshops on specific subjects relevant to our business and the
Board throughout the year. Board meetings are characterised by
robust exchanges of views between Board and management, with
Directors bringing their experience and independent judgement to
bear on the issues and decisions.
Non-executive Directors regularly meet without management
present, so that they can discuss issues appropriate to such a
forum. In all other respects, senior executives are invited, where
considered appropriate, to participate in Board meetings. They are
also available to be contacted by Directors between meetings.
Meetings attended by Directors for the financial year ended 30
September 2019 are reported in Section 9 of the Directors’ report.
Nomination and appointment
As set out in its Charter, key responsibilities of the Board
Nominations Committee are
:
xassessing the skills required to discharge competently the
Board’s duties having regard to Westpac’s performance,
financial position and strategic direction;
xdeveloping, reviewing, assessing and recommending to the
Board policies on Director tenure, Board composition and size;
xreviewing and making recommendations to the Board annually
on diversity generally within the Group, measurable objectives
for achieving diversity and progress in achieving those
objectives;
xdeveloping and implementing succession planning for Non-
executive Directors;
xreviewing the process for the orientation and education of new
Directors and any continuing education for existing Directors;
xreviewing eligibility criteria for appointing Directors;
xconsidering and recommending candidates for appointment as
Directors to the Board and determining the terms and
conditions (excluding remuneration) on which Non-executive
Directors are appointed and hold office;
xconsidering and recommending candidates for appointment to
the Boards of significant subsidiaries (including Westpac New
Zealand Limited and our insurance and superannuation
businesses); and
xreviewing and where necessary, developing the Group’s
corporate governance policies to provide reasonable assurance
that they meet international corporate governance standards.
Board skills, experience and attribute
s
Westpac seeks to maintain a Board of Directors with a broad range
of financial and other skills, experience and knowledge necessary
to guide the business of theGroup. In addition, Westpac seeks to
maintain a diverse Board, which at a minimum, collectively has the
skills and experience detailed in Figure 1 overleaf. Figure 1 also
illustrates Board tenure and gender diversity
.
Corporate governance
Figure 1 – Board skills, experience and attributes as at 30 September 2019
1. Chart does not add to 100% due to rounding.
2
22019 Westpac Group Annual Report
Number of Directors
STRATEGIC AND COMMERCIAL ACUMEN
11 out of 11
An ability to define strategic objectives, constructively question business plans and implement strategy
using commercial judgement
FINANCIAL SERVICES EXPERIENCE
9 out of 11
Experience working in, or advising the banking and financial services industry (including wealth
management), with strong knowledge of its economic drivers and global business perspectives
FINANCIAL ACUMEN
9 out of 11
Highly proficient in accounting or related financial management and reporting for businesses of significant
size
RISK
9 out of 11
Experience in anticipating, recognising and managing risks, including regulatory, financial and non-financial
risks, and monitoring risk management frameworks and controls
TECHNOLOGY
7 out of 11
Experience in developing or overseeing the application of technology in large complex businesses, with
particular reference to innovation and the Group’s digital transformation strategic priority
GOVERNANCE
11 out of 11
Commitment to, and knowledge of, governance, environmental and social issues, with particular reference
to the legal, compliance, regulatory and voluntary frameworks applicable to listed entities and highly
re
gulated industries
PEOPLE, CULTURE AND CONDUCT
10 out of 11
Experience in people matters including workplace cultures, morale, management development, succession
and remuneration, with particular reference to the Group’s talent retention and development initiatives and
the abilit
y to consider and respond to matters relating to inclusion and diversity
EXECUTIVE LEADERSHIP
10 out of 11
Being appointed as CEO or a similar senior leadership role in a large complex organisation, and having
ex
perience in that position in managing the business through periods of significant change
LISTED COMPANY EXPERIENCE
8 out of 11
Held two or more Non-executive Directorships on Australian or international listed companies
INTERNATIONAL
7 out of 11
Senior leadership experience involving responsibility for operations across borders, and exposure to a
ran
ge of political, cultural, regulatory and business environments in that position
CUSTOMER FOCUS
7 out of 11
Experience in developing and overseeing the embedding of a strong customer-focused culture in large
com
plex organisations, and a demonstrable commitment to achieving customer outcomes
Corporate governance
1.For further information about the Service Revolution and our strategic priorities please refer to Section 3 in the Directors’Report.
2019 Westpac Group Annual Repor
t23
The Board Nominations Committee considers and makes
recommendations to the Board on candidates for appointment as
Directors. Such recommendations pay particular attention to the
mix of skills, experience, expertise, diversity, independence and
other qualities of existing Directors, and how the candidate’s
attributes will balance and complement those qualities and address
any potential skills gaps in relation to the current composition of the
Board. External consultants are used to access a wide base of
potential Directors.
Board appointments are also made with regard to the Group’s
Service Revolution vision and three strategic priorities of:
xbuilding our customer franchise;
xdigital transformation; and
xstrengthening performance disciplines.
Prior to a Director’s appointment or consideration for election or re-
election by shareholders, Westpac conducts due diligence and
provides shareholders with all material information relevant to a
decision on whether or not to elect or re-elect a Director.
New Directors receive an induction pack which includes a letter of
appointment setting out the expectations of the role, conditions of
appointment including the expected term of appointment, and
remuneration. This letter conforms to the ASXCGC
Recommendations.
Term of office
The Board may appoint a new Director, either to fill a casual
vacancy or as an addition to the existing Directors, provided the
total number of Directors does not exceed fifteen Non-executive
Directors and three Executive Directors. Except for the CEO, a
Director appointed by the Board holds office only until the close of
the next AGM but is eligible for election by shareholders at that
meeting.
Our Constitution states that at each AGM, one-third of eligible
Directors, and any other Director who has held office for three or
more years since their last election, must retire. In determining the
number of Directors to retire by rotation, no account is to be taken
of Directors holding casual vacancy positions or of the CEO. The
Directors to retire by rotation are those who have been the longest
in office. A retiring Director holds office until the conclusion of the
meeting at which he or she retires but is eligible for re-election by
shareholders at that meeting. The Board makes recommendations
concerning the election or re-election of any Director by
shareholders. In considering whether to support a candidate, the
Board takes into account the results of the Board performance
evaluation conducted during the year.
The Westpac Board Renewal Policy limits the maximum tenure of
office that any Non-executive Director other than the Chairman
may serve to nine years, from the date of first election by
shareholders. The maximum tenure for the Chairman is twelve
years (inclusive of any term as a Director prior to being elected as
Chairman), from the date of first election by shareholders. The
Board, on its initiative and on an exceptional basis, may exercise
discretion to extend the maximum terms specified above where it
considers that such an
1
extension would benefit the Group. Such discretion will be
exercised on an annual basis and the Director concerned will be
required to stand for r
e-election annually.
Director induction and continuing educatio
n
All new Directors participate in an induction program to familiarise
themselves with our business and strategy, culture and values and
any current issues before the Board. The induction program
includes meetings with the Chairman, the CEO, the Board
Committee Chairs and each Group Executive
.
The Board encourages Directors to undertake continuing education
and training to develop and maintain the skills and knowledge
needed to perform their role as Directors effectively, including by
participating in workshops held throughout the year, attending
relevant site visits and undertaking relevant external education
.
Access to information and advice
All Directors have unrestricted access to company records and
information, and receive regular detailed financial and operational
reports from senior management. Each Director also enters into an
access and indemnity agreement, which among other things,
provides for access to documents for up to seven years after his o
r
her retirement as a Director
.
The Chairman and other Non-executive Directors regularly consult
with the CEO, CFO and other senior executives, and may consult
with, and request additional information from, any of our
employees
.
All Directors have access to advice from senior internal legal
advisors including the Group Executive, Legal & Secretariat
.
In addition, the Board collectively, and all Directors individually,
have the right to seek independent professional advice, at ou
r
expense, to help them carry out their responsibilities. While the
Chairma
n’s prior approval is needed, it may not be unreasonably
withheld.
Company Secretaries
Westpac has two Company Secretaries:
xThe Senior Company Secretary is our Group Executive,
Legal & Secretariat. The Senior Company Secretary attends
Board and Board Committee meetings and is responsible for
providing Directors with advice on legal and corporate
governance issues.
xThe Group Company Secretary also attends Board and Board
Committee meetings and is responsible for the operation of
the secretariat function, including advising the Board on
governance and, in conjunction with management, giving
practical effect to the Board’s decisions. The Group Company
Secretary is accountable to the Board, through the Chairman,
on all matters to do with the proper functioning of the Board.
Profiles of our Company Secretaries for the financial year ended 30
September 2019 are set out in Section 1 of the Director
s’ report.
Corporate governance
242019 Westpac Group Annual Report
Board Committees
Composition and independence
Board Committee members are chosen for the skills and
experience they can contribute to the respective Board Committees
and their qualifications are set out in Section 1 of the Directors’
report. The membership of each Board Committee is set out in the
table entitled ‘Size and membership of Board Committees as at 30
September 2019’ in this Corporate Governance Statement. All of
the Board Committees are comprised of independent Non-
executive Directors, except for the Board Technology Committee,
of which the CEO is a member.
Operation and reporting
Scheduled meetings of the Board Committees occur at least
quarterly. Each member’s attendance at Board Committee
meetings held during the financial year ended 30 September 2019
is reported in Section 9 of the Directors’ report. All Board
Committees are able to meet more frequently as necessary. Each
Board Committee is entitled to the resources and information it
requires and has direct access to our employees and advisers. The
CEO attends all Board Committee meetings, except where he has
a material personal interest in a matter being considered. Senior
executives and other selected employees are invited to attend
Board Committee meetings as required. All Directors can receive
all Board Committee papers and can attend any Board Committee
meeting, provided there is no conflict of interest.
Performance
Board, Board Committees and Directors
The Board undertakes ongoing self-assessment as well as
commissioning an annual performance review by an independent
consultant.
The review process conducted in 2019 included an assessment of
the performance of the Board, the Board Committees and each
Director, with outputs collected, analysed and presented to the
Board. The Board discussed the results and agreed follow up
actions on matters relating to Board composition, process, priorities
and continuing education.
The Chairman also discusses the results with individual Directors
and Board Committee Chairs. The full Board (excluding the
Chairman) reviews the results of the performance review of the
Chairman and results are then privately discussed by the Chairman
of the Board Risk & Compliance Committee with the Chairman.
Management
The Board, in conjunction with its Board Remuneration Committee,
is responsible for:
xdetermining the goals and objectives relevant to the
remuneration of the CEO, and the performance of the CEO in
light of these goals and objectives; and
xapproving individual remuneration for Group Executives, other
executives who report directly to the CEO, any other
accountable persons under the Banking Executive
Accountability Regime, and any other person the Board
determines.
The Board Risk & Compliance Committee and the Board Audit
Committee also refer to the Board Remuneration Committee any
matters that come to their attention that are relevant, including with
respect to risk adjusted remuneration
.
Management performance evaluations for the financial year ended
30 September 2019 were conducted following the end of the
financial year.
There is a further discussion on performance objectives and
performance achieved in the Remuneration Report in Section 10 of
the Directors’ report.
All new senior executives receive a letter of appointment setting out
the conditions and expectations of the role, together with an
extensive briefing on our strategies and operations and the
respective roles and responsibilities of the Board and senio
r
management
.
Advisory Boards
Westpac has established Advisory Boards for its operations in
Asia, the Pacific, Victoria and for BankSA, to advise management
on the strategies and initiatives of those businesses within the
overall Group strategy.
Responsibilities of the Advisory Boards include:
xproviding advice to management on management’s strategies
and initiatives to continue to strengthen the position and identity
of the business;
xproviding advice to management of the relevant business so as
to promote and preserve its distinct position and identity and
align business values with those of the relevant communities
served;
xconsidering and assessing reports provided by management on
the health of the relevant business;
xacting as ambassadors for the business, including by
supporting community and major corporate promotional events
to assist in building relationships with the bank’s customers,
local communities and the business and government sector,
and advising senior management on community matters
relevant to the provision of financial services in the community
it serves; and
xalerting management to local market opportunities and issues
of which Advisory Board members are aware that would
enhance the provision of services to customers and potential
customers and the position of the bank in its local communities.
Ethical and responsible decision-making
At Westpac, our vision is to become one of the world’s great
service companies, helping our customers, communities and
people to prosper and grow. One of the ways we seek to achieve
this vision is through our core values.
Westpac is also focused on the impact of its organisational culture
on the Group’s operations, including its management of risk. We
take an integrated approach to sustainably embedding a strong risk
culture, including through leadership and communication, risk
appetite and governance, risk awareness and transparency,
accountability and reinforcement, and behaviours and
relationships
.
Corporate governance
2019 Westpac Group Annual Report25
Our Values
Our Values support our customer-focused strategy and are
embedded in our culture. These are:
xintegrity – we earn trust by demonstrating the highest
standards of honesty and ethical behaviour;
xservice – we are here to help and delight our customers;
xone team – we collaborate to deliver the best outcomes for our
customers and the company overall;
xcourage – we challenge the status quo and find a way to make
things better; and
xachievement – we strive for excellence and deliver results.
Our values guide our behaviour and reflect our commitment to our
customers, communities and each other.
Our Compass
Our Compass helps us navigate the world of banking, capturing
Our Vision, Values, Behaviours and the non- negotiables of our
Code of Conduct, to consistently guide us in everything we do.
Together the four points of the Compass provide direction and
support by guiding our behaviour and outlining where to turn if we
need help:
xOur Vision – why we are here
xOur Values – how we behave
xOur Service Promise – how we serve
xOur Code of Conduct – how we deliver
Code of Conduct and Principles for Doing Business
Our Code of Conduct (Code) describes the standards of conduct
expected of our people, both employees and contractors. The
seven principles making up the Code are:
xwe act with honesty, integrity, and due skill, care and diligence;
xwe comply with laws and with our policies;
xwe do the right thing by our customers;
xwe respect confidentiality and do not misuse information;
xwe value and maintain our professionalism;
xwe work as a team; and
xwe manage conflicts of interest responsibly.
The Code’s guiding principles help us make the right decisions,
ensuring we uphold the reputation of the Group. As employees of
the banking and finance industry, we are also committed to
creating greater accountability, transparency and trust with our
customers and the broader community. With that in mind, the
principles within our Code also reflect the community’s
expectations of us, such as those outlined in the Banking and
Finance Oath. The Code has the full support of the Board and the
Executive Team and we take compliance with the Code very
seriously.
Our commitment to sustainable business practice and behaviours
against which we expect to be judged in pursuit of our vision to be
one of the world’s great service companies, helping our customers,
communities and people to prosper and grow, is set out in our
Principles for Doing Business (Principles).
The Principles apply to all Directors, employees and contractors.
We also have the frameworks in place which apply to support both
our Code and Principles, internally and externally across our value
chain, including
:
xa range of internal guidelines, policies, frameworks,
communications and training processes and tools, including an
online learning module entitled ‘Doing the Right Thing’; and
xa range of externally-facing codes, frameworks, operating
principles, policies, and position statements, addressing issues
such as human rights, climate change and the environment.
The Principles are available on our website.
Key policies
We have a number of key policies to manage our regulatory
compliance and human resource requirements. We also subscribe
to a range of external industry codes, such as the Banking Code of
Practice and the ePayments Code
.
Code of Ethics for Senior Finance Officers
The Code of Accounting Practice and Financial Reporting
complements our own Code. The Code of Accounting Practice and
Financial Reporting i
sdesigned to assist our CEO, CFO and other
principal financial officers in applying the highest ethical standards
to the performance of their duties and responsibilities with respect
to accounting practice and financial reporting by requiring those
officers to:
xact honestly and ethically, particularly with respect to conflicts
of interest;
xprovide full, fair, accurate and timely disclosure in reporting and
other communications;
xcomply with applicable laws, rules and regulations;
xpromptly report violations of the Code of Accounting Practice
and Financial Reporting; and
xbe accountable for adherence to the Code of Accounting
Practice and Financial Reporting.
The Code of Accounting Practice and Financial Reporting is
available on our website at www.westpac.com.au/corpgov.
Conflicts of interest
The Group has a detailed conflicts of interest framework, which
includes a Group policy supported by specific divisional policies
and guidelines aimed at identifying and managing actual, potential
or apparent conflicts of interest.
The conflicts of interest framework includes a separate Westpac
Group Gifts and Hospitality Policy. This Policy provides employees
with guidance to manage their obligations relating to the giving and
receiving of gifts or hospitality
.
The Board
All Directors are required to disclose any actual, potential or
apparent conflicts of interest upon appointment and are required to
keep these disclosures to the Board up to date
.
Any Director with a material personal interest in a matter being
considered by the Board must declare their interest and, unless the
Board resolves otherwise, may not be present during the
boardroom discussions or vote on the relevant matter
.
Corporate governance
262019 Westpac Group Annual Report
Our employees and contractors
We expect our employees and contractors to:
xhave in place adequate arrangements for the management o
f
actual, potential or apparent conflicts of interest;
xobtain consent from senior management before accepting a
directorship on the board of a non-Westpac Group company;
xdisclose any material interests they have with our customers o
r
suppliers to their manager and not be involved with customer
relationships where they have such an interest;
xnot participate in business activities outside their employmen
t
with us (whether as a principal, partner, director, agent,
guarantor, investor or employee) without approval or when i
t
could adversely affect their ability to carry out their duties and
responsibilities; and
xnot solicit, provide facilitation payments, accept or offer money,
gifts, favours or entertainment that might influence, or might
appear to influence, their business judgement.
Fit and Proper Person assessments
We have a Board-approved Westpac Group Fit and Proper Policy
that meets the requirements of the related APRA Prudential
Standards and covers the requirements of Part IIAA of the Banking
Act 1959 – The Banking Executive Accountability Regime, which
applies to ADIs and their subsidiaries. In accordance with that
Policy, we assess the fitness and propriety of our Directors and
also of individuals who perform specified statutory roles required by
APRA Prudential Standards or ASIC licensing requirements. The
Chairman of the Board (and in the case of the Chairman, the
Board) is responsible for assessing the Directors and Non-
executive Directors of the Westpac and subsidiary Boards, Group
Executives, external auditors and actuaries. A Fit and Proper
Committee is responsible under delegated authority of the Westpac
Board for undertaking fit and proper assessments of all other
employees who hold statutory roles. In all cases, the individual is
asked to provide a detailed declaration and background checks are
completed.
Concern reporting and whistleblower protection
Under the Westpac Group Speaking Up Policy, we encourage our
employees, contractors, secondees, former employees, brokers,
service providers (such as auditors, accountants and consultants)
and our suppliers to raise any concerns about our activities or
behaviours that may be unlawful or unethical. Our attitude is ‘when
in doubt report’ and our senior management are committed to
protecting the dignity, well-being, career and good name of anyone
reporting wrongdoing, as well as providing them with the necessary
support. Westpac does not tolerate retaliation or adverse action
related to a whistleblowing disclosure.
The Speaking Up Policy sets out how someone can raise a
concern using the whistleblowing channels, including our concern
reporting system ‘Concern Online’ and our Whistleblower Hotline.
Both channels enable reporting on an anonymous basis. Concerns
may include suspected breaches of our Code, Westpac policies or
regulatory requirements.
When a whistleblower raises a concern they may choose to involve
the Whistleblower Protection Officer, who is responsible for
protecting the whistleblower against personal disadvantage as a
result of making a report
.
We investigate reported concerns in a manner that is confidential,
fair and objective. If the investigation shows that wrongdoing has
occurred, we are committed to changing our processes and taking
action in relation to those parties who have behaved incorrectly.
Outcomes may also involve reporting the matter to relevant
authorities and regulators
.
Relevant Board Committees are charged with overseeing
Westpac’s whistleblower program and the Westpac Group
Executive Risk Committee is provided with quarterly reporting on
whistleblowing. These reports include a number of metrics,
including statistics about concerns raised
.
Westpac’s Speaking Up Policy is available on our website at
https://www.westpac.com.au/about- westpac/westpac-
group/corporate-governance/ principles-policies/.
Securities trading
Under the Westpac Group Securities Trading Policy, Directors,
employees, secondees and contractors are prohibited from dealing
in any securities and other financial products if they possess inside
information. They are also prohibited from passing on inside
information to others who may use that information to trade in
securities. In addition, Directors and any employees, secondees or
contractors (and thei
r ‘associates’) who, because of their seniority
or the nature of their position, may have access to material non-
public information about Westpac (known as Prescribed
Employees) are subject to further restrictions, including prohibitions
on trading prior to and immediately following annual and half year
results announcements
.
We manage and monitor these obligations through:
xthe insider trading provisions of our Policy, which prohibit any
dealing in any securities where a Director or employee has
access to inside information that may affect the price of those
securities;
xrestrictions limiting the periods in which the Directors and
Prescribed Employees can trade in Westpac securities and
other Westpac financial products (Blackout Periods);
xa prohibition on short-selling Westpac securities by Directors
and Prescribed Employees;
xrequiring Directors and Prescribed Employees to either obtain
approval or notify their intention to trade outside Blackout
Periods and confirm that they have no inside information;
xmonitoring the trading of Westpac securities by Directors and
Prescribed Employees;
xmaintaining a register of Prescribed Employees, which is
regularly updated;
xnotifying ASX of trades of Westpac securities by Directors of
Westpac as required under the ASX Listing Rules; and
xforbidding employees from entering into hedging arrangements
in relation to their unvested employee shares or securities,
whether directly or indirectly.
The Westpac Group Securities Trading Policy is available in the
Cor
porate Governance section of our website.
Corporate governance
2019 Westpac Group Annual Report27
Customer Advocate
Westpac’s Customer Advocate provides an avenue of escalated
review for complaints outcomes in relation to personal and small
business customers, which is separate to our standard internal
dispute resolution processes. The Customer Advocate has the
power to review and make independent and binding decisions
about these complaints, where customers are not satisfied with the
outcome of the internal dispute resolution process.
Further details on our Customer Advocate are available on our
website
.
Anti-Bribery and Corruption
The Westpac Group has an Anti-Bribery and Corruption (ABC)
Policy, an ABC Standard, and bribery prevention procedures and
systems. They comprise the Westpac ABC Framework.
Westpac has zero tolerance for any form of bribery and corruption.
This includes a ban on facilitation payments.
Westpac is committed to preventing, detecting and deterring
bribery and corruption by managing its bribery and corruption risk
and complying with relevant ABC legislation in all jurisdictions in
which it operates, not simply because it is required to, but it is the
right thing to do. This includes compliance with the Australian
Criminal Code Act 1995, the UK Bribery Act 2010 and the US
Foreign Corrupt Practices Act 1977.
Under the ABC Policy, Westpac expects that its officers,
employees, agents, contractors, subsidiaries and third parties
acting for or on behalf of Westpac will comply with all applicable
ABC laws and will not offer, provide, authorise, request or receive a
bribe or anything which may be viewed as a bribe.
Westpac is also required to design and maintain a system of
internal controls, keep accurate books and records and put in place
adequate procedures to prevent bribery, which are set out in the
Westpac ABC Framework.
Slavery and Human Trafficking
Westpac publishes its Slavery and Human Trafficking Statement in
accordance with the Transparency in Supply Chains provision
(section 54) of the UK’s Modern Slavery Act 2015 on an annual
basis. The statement outlines the Group’s commitment to
sustainable business practices and advancing human rights, and
the steps we have taken to prevent modern slavery in our business
and supply chains globally during the financial year.
The statement is available on our website.
Diversity
Westpac has an Inclusion & Diversity Policy that sets out the
inclusion and diversity initiatives for the Group. This is coupled with
a comprehensive Inclusion & Diversity strategy to help deliver on
our key priorities and actions. In this context, diversity covers both
the visible and invisible differences that make our employees
unique, whether that be gender, gender identity, age, ethnicity,
accessibility requirements, cultural background, sexual orientation
or religious beliefs, or the differences we have based on our
experiences, insights and perspectives.
The objectives of the policy and the 2018-20 Inclusion & Diversity
strategy are to ensure that the Group:
xhas a workforce profile that delivers competitive advantage
through the ability to garner a deep understanding of customer
needs;
xhas a truly inclusive workplace where every individual can
shine regardless of gender, cultural identity, age, work style or
approach; and
xleverages the value of diversity for all our stakeholders to
deliver the best customer experience, improved financial
performance and a stronger corporate reputation.
To achieve these objectives, the Group:
xhas set Board-determined, measurable objectives for achieving
gender diversity. The Board assesses annually both the
objectives and progress in achieving them;
xassesses pay equity on an annual basis;
xencourages and supports the application of flexibility policies
across the business;
xis committed to proactively assisting Aboriginal and Torres
Strait Islander Australians wishing to access employment
across our brands;
ximplements our Accessibility Action Plan for employees and
customers with accessibility requirements, including ensuring
employment opportunities are accessible for people with a
disability; and
xactively promotes an environment of inclusion for lesbian, gay,
bisexual, transgender, intersex and queer (LGBTIQ+)
employees.
The implementation of these objectives is overseen by the
Westpac Group Inclusion & Diversity Council, which is chaired by
the CEO and meets bi-annually.
The Board, or an appropriate Board Committee, receives regular
updates from the Inclusion & Diversity Council on inclusion and
diversity initiatives.
The creation of the Inclusion & Diversity Governance Framework
has resulted in the establishment of
:
xInclusion & Diversity Business Unit Councils, chaired by the
relevant Group Executive of that business unit; and
xthe Inclusion & Diversity Working Group, consisting of
appointed general manager representatives across each
business unit and chaired by the Head of Inclusion & Diversity.
We continue to listen to the needs of our employees through our
employee action groups and our periodic employee survey (which
includes questions that constitute an ‘Inclusion Index’).
Our Inclusive Leadership program ensures we are investing in the
right capabilities for an inclusive culture. The majority of senio
r
leaders and Group Executives have already completed the
program and our focus is now on completion by our broader people
leader group
.
In October 2010, the Board set an objective to increase the
proportion of women in leadership roles (over 5,000 leaders from
our Executive Team through to our bank managers) from 33% to
40% by 2014, which was achieved in September 2012, two years
ahead of schedule. Since November 2017, Westpac has
maintained 50% women in leadership roles. We continue focussing
our efforts on maintaining this equality.
Corporate governance
1.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.
2
82019 Westpac Group Annual Report
At 30 September 2019, the proportion of women employed by the
Group was as follows:
xBoard of Directors: 36%;
xleadership roles: 50%; and
xtotal Westpac workforce: 58%.
In addition to the Group’s commitment to achieving its targets, in
2015 our CEO signed up as a Pay Equity Ambassador through the
Workplace Gender Equality Agency.
Westpac offers a range of flexible working options for our people
based on their needs, work preferences and the needs of the
business. These include:
xflexible work hours;
xmobile working;
xworking part-time; and
xjob sharing.
In addition, Westpac offers a variety of leave options that support
flexibility, including parental leave, wellbeing and lifestyle leave and
domestic violence support leave. In 2018 Westpac introduced new
policies on Gender Transition leave, ‘Sorry Business’ Indigenous
bereavement leave and extended Domestic and Family Violence
leave.
Sustainability
We view sustainable and responsible business practices as
important for our business and shareholder value. Sustainability is
about managing risks and opportunities in a way that best balances
the long term needs of all our stakeholders – our customers,
employees, suppliers, investors and community partners – as well
as the wider community and the environment at large.
Our management of sustainability aims to address the matters that
we believe are the most material for our business and
stakeholders, now and in the future. We also understand that this is
an evolving agenda and seek to progressively embed the
management of sustainability matters into business practice, while
also anticipating and shaping emerging social issues where we
have the skills and experience to make a meaningful difference and
drive business value.
Reporting
We report on the most material sustainability matters to Westpac,
details of how we manage the associated risks and opportunities
and our performance against our sustainability strategy in the
Annual Review and Sustainability Report, this Annual Report, the
Sustainability Performance Report and the full year and half year
ASX results.
Our sustainability reporting is subject to independent limited
assurance, performed in accordance with the Australian Standard
on Assurance Engagements 3000 Assurance Engagements Other
Than Audits or Reviews of Historical Financial Information
(Revised) (‘ASAE 3000’). The assurance provider also assesses
whether our sustainability reporting is prepared in accordance with
AA1000 AccountAbility Principles Standard (2008) and the GRI
Standards.
1
Financial reporting
Approach to financial reporting
Our approach to financial reporting reflects three core principles:
xthat our financial reports present a true and fair view;
xthat our accounting methods comply with applicable accounting
standards and policies; and
xthat our external auditor is independent and serves security
holders’ interests.
The Board, through the Board Audit Committee, monitors
Australian and international developments relevant to these
principles, and reviews our practices accordingly
.
The Board delegates oversight responsibility for the integrity of
financial statements and financial reporting systems to the Board
Audit Committee. The Board Risk & Compliance Committee
provide periodic assurances and reports (as appropriate) to the
Board Audit Committee. Similarly, the Board delegates oversight
responsibility for the preparation of remuneration reports and
disclosures to the Board Remuneration Committee, who
recommend and provide relevant assurances through the Board
Audit Committee to the Board for approval.
Board Audit Committee
As set out in its charter, key responsibilities of the Board Audit
Committee are
:
xoverseeing the integrity of the financial statements and financial
reporting systems of Westpac and its related bodies corporate;
xoverseeing the external audit engagement, including the
external auditor’s qualifications, performance, independence
and fees;
xoverseeing the performance of the internal audit function;
xoverseeing the integrity of the Group’s corporate reporting,
including the Group’s financial reporting and compliance with
prudential regulatory reporting and professional accounting
requirements; and
xreviewing and approving policies and procedures for the
receipt, retention and treatment of information submitted
confidentially by employees and third parties about accounting,
internal control, compliance, audit or other matters about which
an employee has concerns, and monitoring employee
awareness of these policies and procedures.
The Board Audit Committee reviews, discusses with management
and the external auditor, and assesses
:
xany significant financial reporting issues and judgements made
in connection with the preparation of the financial reports;
xthe processes used to monitor and comply with laws and
regulations over financial information, reporting and disclosure;
and
xthe process surrounding the disclosures made by the CEO and
CFO in connection with their personal certifications of the
Group’s half year and full year financial statements.
Corporate governance
2019 Westpac Group Annual Report29
In addition, the Board Audit Committee maintains an ongoing
dialogue with management, the external auditor and Group Audit,
including regarding those matters that are likely to be designated
as Critical Audit Matters in the external auditor’s report. Critical
Audit Matters are those matters which, in the opinion of the
external auditor, are of the most significance in their audit of the
financial report.
As part of its oversight responsibilities, the Board Audit Committee
also conducts discussions with a wide range of internal and
external stakeholders including:
xthe external auditor, about our major financial reporting risk
exposures and the steps management has taken to monitor
and control such exposures;
xGroup Audit and the external auditor concerning their audits
and any significant findings, and the adequacy of
management’s responses;
xmanagement and the external auditor concerning the half year
and full year financial statements;
xmanagement and the external auditor regarding any
correspondence with regulators or government agencies, and
any published reports which raise material issues or could
impact on matters regarding the Westpac Group’s financial
statements or accounting policies; and
xthe Group Executive, Legal & Secretariat regarding any legal
matters that may have a material impact on, or require
disclosure in, the financial statements.
Periodically, the Board Audit Committee consults with the external
auditor without the presence of management about internal
controls over financial information, reporting and disclosure and the
fullness and accuracy of the Group’s financial statements. The
Board Audit Committee also meets with the General Manager
Group Audit without other members of management being present.
The Board Audit Committee also refers to the Board or any other
Board Committees any matters that come to the attention of the
Board Audit Committee that are relevant for the Board or the
respective Board Committees.
Financial knowledge
The Board Audit Committee comprises five independent, Non-
executive Directors and is chaired by Peter Marriott.
All Board Audit Committee members have appropriate financial
experience, an understanding of the financial services industry and
satisfy the independence requirements under the ASXCGC
Recommendations, the United States Securities Exchange Act of
1934 (as amended) and its related rules, and the NYSE Listing
Rules.
The Board has determined that Mr Marriott is an ‘audit committee
financial expert’ and independent in accordance with US securities
law.
The designation of Mr Marriott as an audit committee financial
expert does not impose duties, obligations or liability on him that
are greater than those imposed on him as a Board Audit
Committee member, and does not affect the duties, obligations or
liability of any other Board Audit Committee member or Board
member.
Audit committee financial experts are not deemed as an ‘expert’ for
any other purpose.
CEO and CFO assurance
The Board receives regular reports from management about our
financial condition and operational results, as well as that of our
controlled entities. Before the Board approves the financial
statements for a financial period, the CEO and the CFO provide
formal statements to the Board, and have done so for the financial
year ended 30 September 2019, that state that in all material
respects
:
xWestpac’s financial records have been properly maintained in
that they:
–correctly record and explain its transactions, and financial
position and performance;
–enable true and fair financial statements to be prepared
and audited; and
–are retained for seven years after the transactions covered
by the records are completed;
xthe financial statements and notes comply with the appropriate
accounting standards;
xthe financial statements and notes give a true and fair view of
Westpac’s and its consolidated entities’ financial position and of
their performance;
xany other matters that are prescribed by the Corporations Act
and regulations as they relate to the financial statements and
notes are satisfied; and
xthe declarations provided in accordance with section 295A of
the Corporations Act are founded on a sound system of risk
management and internal control, and that the system is
operating effectively in all material respects in relation to
financial reporting risks.
External auditor
The role of the external auditor is to provide an independent
opinion that our financial reports are true and fair, and comply with
applicable regulations
.
Our external auditor is PricewaterhouseCoopers (PwC), appointed
by shareholders at the 2002 Annual General Meeting (AGM). Prio
r
to 2002, individuals who were partners of PwC or its antecedent
Firms were our external auditors from 1968. Our PwC lead audit
partner is Lona Mathis and the quality review partner is Wayne
Andrews. Ms Mathis and Mr Andrews assumed responsibility for
these roles in June 2017 and January 2015, respectively.
The external auditor receives all Board Audit Committee, Board
Risk & Compliance Committee and Board Technology Committee
papers, attends all meetings of these committees and is available
to Committee members at any time. The external auditor also
attends the AGM to answer questions from shareholders regarding
the conduct of its audit, the audit report and financial statements
and its independence
.
As our external auditor, PwC is required to confirm its
independence and compliance with specified independence
standards on a semi-annual basis (at half and full year), however in
practice it confirms its independence on a quarterly basis
.
We strictly govern our relationship with the external auditor,
including restrictions on employment, business relationships,
financial interests and use of our financial products by the external
auditor
.
Corporate governance
302019 Westpac Group Annual Report
Engagement of the external auditor
To avoid possible independence or conflict issues, the external
auditor is not permitted to carry out certain types of non-audit
services for Westpac and may be limited as to the extent to which it
can perform other non-audit services as specified in our ‘Pre-
approval of engagement of PwC for audit and non-audit
services’ (Guidelines). Use of the external audit firm for any non-
audit services must be assessed and approved in accordance with
the pre-approval process determined by the Board Audit
Committee and set out in the Guidelines.
The breakdown of the aggregate fees billed by the external auditor
in respect of each of the two most recent financial years for audit,
audit-related, tax and other services is provided in Note 35 to our
financial statements for the year ended 30 September 2019. A
declaration regarding the Board’s satisfaction that the provision of
non-audit services by PwC is compatible with the general
standards of auditor independence is provided in Section 11 of the
Directors’ report.
Group Audit (internal audit)
Group Audit is Westpac’s internal third line assurance function that
provides the Board and Senior Executives with independent and
objective evaluation of the adequacy and effectiveness of the
Group’s governance, risk management and internal controls for the
Westpac consolidated group.
Group Audit is governed by a charter approved by the Board Audit
Committee that sets out the purpose, role, scope and high level
standards for the function. The General Manager Group Audit has
a direct reporting line to the Chairman of the Board Audit
Committee and an administrative line to the Chief Financial Officer.
Group Audit also has unrestricted and private access to the Chief
Executive Officer.
Group Audit’s responsibilities include regularly reporting to the
Board.
Market disclosure
We maintain a level of disclosure that seeks to provide all investors
with equal, timely, balanced and meaningful information.
Consistent with these standards, the Group maintains a Board-
approved Market Disclosure Policy, which governs how we
communicate with our shareholders and the investment
community.
The policy reflects the requirements of the ASX, NZX and other
offshore stock exchanges where we have disclosure obligations, as
well as relevant securities and corporations legislation. Under ou
r
policy, information that a reasonable person would expect to have
a material effect on the price or value of our securities must first be
disclosed via the ASX unless an exception applies under regulatory
requirements.
Our Disclosure Committee is responsible for determining what
information should be disclosed publicly under the policy, and for
assisting employees in understanding what information may require
disclosure to the market on the basis that it is price sensitive. The
Disclosure Committee is comprised of the CEO and the Executive
Team.
The Group Executive, Legal & Secretariat is the Disclosure Officer.
The Disclosure Officer is ultimately responsible for all
communication with relevant stock exchanges and notifying
regulators in any jurisdiction as a result of market disclosure
.
Once relevant information is disclosed to the market and available
to investors, it is also published on our website. This includes
investor discussion packs, presentations on and explanations
about our financial results. Our website information also includes
Annual Review and Sustainability Reports, Annual Reports, results
announcements, CEO and executive briefings (including webcasts,
recordings or transcripts of all major events), notices of meetings
and key media releases
.
Shareholder communication and participation
We seek to keep shareholders fully informed about our strategy,
business operations, performance and governance. As part of ou
r
investor relations program, we continually review ou
r
communications approach, seeking to maintain best practice and
effective tw
o-way communication with shareholders. This includes:
xDesigning and maintaining the Investor Centre on the Group’s
website to make all relevant company information available and
to structure that information in a way that makes it easy to find
and access;
xResponding to shareholder queries directly via phone, email
and mail;
xPreparing company presentations that seek to respond to the
questions frequently asked by shareholders along with major
industry and company topics of interest; and
xEnsuring appropriate access to all major market briefings and
shareholder meetings, including via webcasts and maintaining
that information on our website.
Shareholders can access our financial calendar which lists all
major market briefings and shareholder meetings. Announcements
on these events may also be made through ASX announcements.
Shareholders are given the option to receive information in print or
electronic format from both Westpac and its share registry
.
Our Annual General Meeting (AGM) is an important opportunity for
engaging and communicating with shareholders, and we typically
rotate the location of our AGM throughout capital cities to ensure
we reach a broad range of shareholders over time. While
shareholders are encouraged to attend and actively participate, the
AGM is webcast and can also be viewed at a later time from our
website. Shareholders who are unable to attend the AGM are able
to lodge a direct vote or appoint their proxies through a number of
channels, including online. At the time of receiving the Notice of
Meeting, shareholders are also invited to put forward questions
they would like addressed at the AGM.
Corporate governance
2019 Westpac Group Annual Report31
Risk management
Roles and responsibilities
The Board is responsible for approving the Group’s overall risk
management framework, the Westpac annual Group Risk
Management Strategy and the Westpac Group Risk Appetite
Statement and for monitoring the effectiveness of risk management
by the Westpac Group. The Board has delegated to the Board
Risk & Compliance Committee responsibility to: establish a view of
the Group’s current and future risk position relative to its risk
appetite and capital strength; review and approve frameworks,
policies and processes for managing risk; and review and, where
appropriate, approve risks beyond the approval discretion provided
to management.
The Westpac Group Risk Management Framework, Risk
Management Strategy, Risk Taxonomy and Risk Appetite
Statement were reviewed by the Board Risk & Compliance
Committee and were approved by the Board during the financial
year ended 30 September 2019.
The Board Risk & Compliance Committee reviews and monitors
the risk profile and controls of the Group for consistency with the
Group Risk Appetite Statement and reviews and monitors capital
levels for consistency with the Group’s risk appetite. The Board
Risk & Compliance Committee receives regular reports from
management on the effectiveness of our management of
Westpac’s material risks. More detail about the role of the Board
Risk & Compliance Committee is set out later in this section under
‘Board Risk & Compliance Committee’.
The CEO and Executive Team are responsible for implementing
our risk management framework and risk management strategy,
and for developing frameworks, policies, controls, processes and
procedures for identifying and managing risk in all of Westpac’s
activities.
We have adopted a Three Lines of Defence model to aid in holistic
end-to-end management of risk, within which all employees play an
active role. This necessitates co-operation between businesses
and functions, such that there are no gaps in risk coverage.
Effective risk management enables us to:
xaccurately measure our risk profile and to balance risk and
reward within our risk appetite, optimising financial growth
opportunities and mitigating potential loss or damage;
xprotect Westpac Group’s depositors, policyholders, investors
and counterparts by maintaining a balance sheet with sound
credit quality and buffers over regulatory minimums;
xdeliver suitable, fair and clear or transparent outcomes for our
customers that support market integrity;
xembed adequate controls to guard against excessive risk or
undue risk concentration; and
xmeet our regulatory and compliance obligations.
The 1st Line of Defence –Business and Support: manages the risk
they originate
The 1st Line proactively identifies, evaluates, owns and manages
the risks in their business/domain. It also ensures that business
activities are within approved risk appetite and policies. The 1st
Line of defence is accountable fo
r ‘self-certification’.
In managing its risk, the 1st Line is required to establish and
maintain appropriate governance structures, controls, resources
and self-assessment processes, including issue identification
recording and escalation procedures
.
The 2nd Line of Defence – Risk: provides oversight, insight and
control of First Line activitie
s
The 2nd Line sets frameworks, policies, limits and standards for
use across the Group
.
Risk reviews and challenges 1st Line activities and decisions that
may materiality affect Westpac’s risk position, and independently
evaluates the effectiveness of the 1st Lin
e’s controls, monitoring,
compliance, and monitors progress towards mitigating risks. In
addition, the 2nd Line provides insight to the 1st Line, assisting in
developing, maintaining and enhancing the business’ approach to
risk management
.
The 2nd Line analyses and reports on the aggregated risk profile of
the Group to ensure end-to-end oversight of risk, and can accept
risks outside of the busines
s’ risk appetite.
The 3rd Line of Defence – Provides Independent audit
Group Audit is an independent assurance function that evaluates
and opines on the adequacy and effectiveness of both 1st and 2nd
Line risk management approaches and tracks remediation
progress, with the aim of providing the Board, and Senio
r
Executives, with comfort that the Grou
p’s governance, risk
management and internal controls are operating effectively
.
Our overall risk management governance structure is set out in
more detail in the table ‘Risk Management Governance Structure’
included in this Corporate Governance Statement
.
Westpac distinguishes between different types of risk:
xgovernance risk – the risk that the right information does not
get to the right people or governance fora in the right format
and timeframe to empower decision making. It is driven by
organisational structures and relationships including between
the Board, management, its shareholders and other
stakeholders, which leads to deficient decision making, poor
accountability and ineffective structures and processes;
xrisk culture – is the risk that our culture doesn’t promote and
reinforce behavioural expectations or structures to identify,
understand, discuss and act on risks. This leads to ineffective
risk management, poor risk awareness, risk-taking outside of
risk appetite that is tolerated and a culture where key learnings
are not integrated into Group-wide and customer outcomes,
impeding continuous improvement;
Corporate governance
322019 Westpac Group Annual Report
xstrategic risk – the risks arising from key elements of the
strategic objectives and business plans;
xcapital adequacy risk – the risk that the firm has an insufficient
level or composition of capital to support its normal business
activities and to meet its regulatory capital requirements under
normal operating environments or stressed conditions (both
actual and as defined for internal planning or regulatory testing
purposes). This includes the risk from the Group’s pension
plans;
xcredit risk – the risk of financial loss where a customer or
counterparty fails to meet their financial obligations to Westpac;
xfunding and liquidity risk – the risk that the Group cannot meet
its payment obligations or that it does not have the appropriate
amount, tenor or composition of funding and liquidity to support
its assets;
xmarket risk – the risk of an adverse impact on earnings
resulting from changes in market factors, such as foreign
exchange rates, interest rates, commodity prices or equity
prices. This includes interest rate risk in the banking book - the
risk to interest income from a mismatch between the duration o
f
assets and liabilities that arises in the normal course of
business activities;
xconduct and compliance risk – the risk of failing to abide by
compliance obligations required of us or otherwise failing to
have behaviours and practices that deliver suitable, fair and
clear outcomes for our customers and that support market
integrity;
xoperational risk – the risk of loss resulting from inadequate or
failed internal processes, people and systems or from external
events. This definition includes legal and regulatory risk but
excludes strategic risk;
xcyber risk – The potential for loss or harm to the business and
stakeholders related to the use of technology;
xreputational risk – the risk that an action, inaction, transaction,
investment or event will reduce trust in the Group’s integrity
and competence by clients, counterparties, investors,
regulators, employees or the public; and
xsustainability risk – the risk of reputation or financial loss due to
failure to recognise or address material existing or emerging
sustainability related environmental, social or governance
issues. This includes climate change related risks.
Westpac has received advanced accreditation from APRA and the
RBNZ under the Basel II capital framework, and uses the
Advanced Internal Ratings Based (Advanced IRB) approach for
credit risk and the Advanced Measurement Approach (AMA) for
operational risk when calculating regulatory capital.
Material exposure to economic, environmental and social
sustainability risks
Westpac’s material exposures to economic, environmental and
social sustainability risks are managed in accordance with our risk
management strategy and frameworks.
Board Risk & Compliance Committee
The Board Risk & Compliance Committee comprises all of
Westpac’s independent, Non-executive Directors and is chaired by
Ewen Crouch
.
As set out in its charter, the Board Risk & Compliance Committee:
xassists the Board to consider and approve the Group’s overall
risk framework for managing risk;
xreviews and recommends the Risk Management Strategy and
Westpac Group Risk Appetite Statement to the Board for
approval;
xreviews and monitors the risk profile and controls of the Group
consistent with the Westpac Group Risk Appetite Statement;
xreviews and approves the frameworks, policies and processes
for managing risk;
xreviews and approves the limits and conditions that apply to
credit risk approval authority delegated to the CEO, CFO and
CRO and any other officers of the Westpac Group to whom the
Board has delegated credit approval authority;
xmonitors changes anticipated for the economic and business
environment including consideration of emerging risks and
other factors considered relevant to our risk profile and risk
appetite;
xassists the Board to make its annual declaration to APRA on
risk management under APRA prudential standard CPS 220
Risk Management;
xreviews and where appropriate approves risks beyond the
approval discretion provided to management; and
xassists the Board to oversee compliance management within
the Group.
From the perspective of specific types of risk, the Board Risk &
Compliance Committe
e’s role as set out in the current Committee
charter has included
:
xcredit risk – approving key policies and limits supporting the
Credit Risk Management Framework, and monitoring the risk
profile, performance and management of our credit portfolio;
xliquidity risk – approving key policies and limits supporting the
Liquidity Risk Management Framework, including our annual
funding strategy, recovery and resolutions plans and monitoring
the liquidity position and requirements;
xmarket risk – approving key policies and limits supporting the
Market Risk Management Framework, and monitoring the
market risk profile;
xconduct risk – reviewing and approving the Westpac Group
Conduct Framework and reviewing and monitoring the
performance of conduct risk management and controls;
xoperational risk – approving key policies supporting the
Operational Risk Management Framework and monitoring the
performance of operational risk management and controls;
Corporate governance
2019 Westpac Group Annual Report33
xcompliance risk – reviewing and approving the Westpac Group
Compliance Management Framework and Financial Crime Risk
Management Framework, supporting policies and standards
and monitoring the performance of compliance and financial
crime risk management and controls;
xreputation risk – reviewing and approving the Reputation Risk
Management Framework and reviewing and monitoring the
performance of reputation risk management and controls; and
xsustainability risk – reviewing and approving the Sustainability
Risk Management Framework.
The Board Risk & Compliance Committee also:
xoversees and approves the Internal Capital Adequacy
Assessment Process and in doing so reviews the outcomes of
Westpac Group stress testing, sets the target capital ranges for
regulatory capital and reviews and monitors capital levels for
consistency with the Westpac Group’s risk appetite;
xprovides relevant periodic assurances and reports (as
appropriate) to the Board Audit Committee;
xreviews and approves other risk management frameworks
and/or the monitoring of performance under those frameworks
(as appropriate);
xforms a view of Westpac’s risk culture and oversees the
identification of, and steps taken to address, any desirable
changes to risk culture and periodically reports to the Board;
xrefers to the Board or any other Board Committees any
relevant matters that come to the attention of the Board Risk &
Compliance Committee; and
xin its capacity as the Westpac Group’s US Risk Committee,
oversees the key risks, risk management framework and
policies of the Group’s US operations.
Compliance Management Framework
The Compliance Management Framework sets out our approach to
managing compliance with our obligations and mitigating
compliance risk. It is an integral part of the broader risk
management strategy and is regularly assessed and enhanced as
appropriate to ensure it responds to the internal and external
environment and supports our strategic compliance direction.
To proactively manage our compliance risks, our compliance
objective is to:
xcomply with our legal obligations, regulatory requirements,
voluntary codes of practice to which we subscribe, and Group
policies, including the Westpac Code of Conduct;
xestablish frameworks, policies and processes designed to
manage, monitor and report compliance and to minimise the
potential for breaches, fines or penalties, or loss of regulatory
accreditations; and
xensure that appropriate remedial action is taken to address
instances of non-compliance.
Remuneration
The Board Remuneration Committee assists the Board by ensuring
that Westpac has coherent remuneration policies and practices that
fairly and responsibly reward individuals having regard to
performance and that reflect Westpac’s risk management
framework, the law and the highest standards of governance.
The Board Remuneration Committee has been in place for the
whole of the financial year and is comprised of four independent
No
n-executive Directors and is chaired by Craig Dunn. All
members of the Board Remuneration Committee are also members
of the Board Risk & Compliance Committee, which assists in the
integration of effective risk management into the remuneration
framework.
As set out in its charter, the Board Remuneration Committee:
xreviews and makes recommendations to the Board in relation
to the Westpac Group Remuneration Policy (Group
Remuneration Policy) and assesses the Group Remuneration
Policy’s effectiveness and its compliance with laws, regulations
and prudential standards;
xreviews and makes recommendations to the Board in relation
to the individual remuneration levels of the CEO, Non-executive
Directors, Group Executives, other Executives who report
directly to the CEO, any other Accountable Persons under the
Banking Executive Accountability Regime, other persons
whose activities in the Board Remuneration Committee’s
opinion affect the financial soundness of Westpac, any person
specified by APRA, and any other person the Board
determines;
xreviews and makes recommendations to the Board in relation
to the remuneration structures for each category of persons
covered by the Group Remuneration Policy;
xreviews and makes recommendations to the Board on
corporate goals and objectives relevant to the remuneration of
the CEO, and the performance of the CEO in light of these
objectives;
xreviews and makes recommendations to the Board on the
short and long-term variable reward plans for Group Executives
and any other Accountable Person under the Banking
Executive Accountability Regime;
xreviews and makes recommendations to the Board in relation
to approving equity based remuneration plans; and
xoversees general remuneration practices across the Group.
Corporate governance
342019 Westpac Group Annual Report
The Board Remuneration Committee reviews and recommends to
the Board the size of variable reward pools each year based on
consideration of pre-determined business performance indicators
and the financial soundness of Westpac. The Board Remuneration
Committee also approves remuneration arrangements outside of
the Group Remuneration Policy relating to individuals or groups of
individuals which are significant because of their sensitivity,
precedent or disclosure implications. In addition, the Board
Remuneration Committee considers and evaluates the
performance of senior executives when making remuneration
determinations and otherwise as required.
The Board Remuneration Committee also reviews and makes
recommendations to the Board for the reduction of variable reward
(including to zero) where:
xsubsequent information or circumstances indicate that all or
part of the grant was not justified; or
xthe Board Remuneration Committee determines that an
adjustment should be made as a result of risk or compliance
failures, poor customer outcomes, where an Accountable
Person under the Banking Executive Accountability Regime
has failed to comply with their accountability obligations or any
other matter it considers relevant.
Independent remuneration consultants are engaged by the Board
Remuneration Committee to provide information across a range of
issues, including remuneration benchmarking, market practices
and emerging trends and regulatory reforms.
The Board Remuneration Committee seeks feedback from and
considers matters raised by the Board Risk & Compliance
Committee and Board Audit Committee, including with respect to
remuneration outcomes, adjustments to remuneration and
alignment of remuneration with the risk management framework.
The Board Remuneration Committee refers to the Board and any
other Board Committee any matters that come to its attention that
are relevant for the Board or the respective Board Committee.
Further details of our remuneration framework are included in the
Remuneration Report in Section 10 of the Directors’ report. The
Board Remuneration Committee reviews and recommends the
Remuneration Report through the Board Audit Committee to the
Board for approval.
Corporate governance
Risk Management Governance Structure
Westpac’s risk management governance structure is set out in the table below:
2019 Westpac Group Annual Report35
Board
x
approves our overall risk management framework, the Westpac Group Risk Management Strategy and the Westpac Group Risk Appetite
Statement; and
x
makes an annual declaration to APRA on risk management.
Board Risk & Compliance Committee (BRCC)
x
assists the Board to consider and approve the Group’s overall risk framework for managing risk;
x
reviews and recommends the Westpac Group Risk Management Strategy and Westpac Group Risk Appetite Statement to the Board for approval;
x
reviews and monitors the risk profile and controls of the Group consistent with the Westpac Group Risk Appetite Statement;
x
reviews and approves material frameworks, policies and processes for managing risk;
x
reviews and approves the limits and conditions that apply to credit risk approval authority delegated to the CEO, CFO, CRO and any other officers
of the Westpac Group to whom the Board has delegated credit approval authority;
x
monitors changes anticipated for the economic and business environment including consideration of emerging risks and other factors considered
relevant to our risk profile and risk appetite
;
x
assists the Board to make its annual declaration to APRA on risk management under APRA prudential standard CPS220 Risk Management;
x
reviews and where appropriate approves risks beyond the approval discretion provided to management; and
x
assists the Board to oversee compliance management within the Group.
Other Board Committees with a risk focus
Board Audit Committee
x
oversees the integrity of financial statements and financial reporting systems, and matters relating to taxation risks.
Board Remuneration Committee
x
oversees remuneration policies and practices of the Westpac Group in the context that these policies and practices reflect Westpac’s risk
management framework, including making recommendations to the Board for the reduction or lapsing of incentive-based equity grants to employees
as a result of risk or compliance failures.
Board Technology Committee
x
oversees the implementation of the Westpac Group’s technology strategy, including risks associated with major technology programs.
Executive Team
x
executes the Board-approved strategy;
x
delivers the Westpac Group’s various strategic and performance goals within the approved risk appetite;
x
approves the position statements that guide the Westpac Group’s response to sustainability issues; and
x
monitors key risks within each business unit, capital adequacy and the Westpac Group’s reputation.
Corporate governance
362019 Westpac Group Annual Report
Executive risk committees
Westpac Group Executive Risk Committee
x
leads the management and oversight of material risks across the Westpac Group within the context of the risk appetite approved by the Board;
x
oversees the effectiveness of the Risk Management Framework and the execution of the Risk Management Strategy;
x
monitors and reviews the Group’s risk profile for all identified material risks;
x
shapes and promotes a strong risk culture; and
x
oversees emerging risks and allocates responsibility for assessing impacts and implementing appropriate actions to address these.
Westpac Group Asset & Liability Committee
x
leads the optimisation of funding and liquidity risk-reward across the Group;
x
reviews the level and quality of capital to ensure that it is commensurate with the Group’s risk profile, business strategy and risk appetite;
x
oversees the Liquidity Risk Management Framework and key policies;
x
oversees the funding and liquidity risk profile and balance sheet risk profile; and
x
identifies emerging funding and liquidity risks and appropriate actions to address these.
Westpac Group Credit Risk Committee
x
reviews and oversees the Credit Risk Management Framework and key supporting policies;
x
oversees Westpac’s credit risk profile; and
x
identifies emerging credit risks, allocates responsibility for assessing impacts, and responds as appropriate.
Westpac Group Market Risk Committee
x
reviews and oversees the Market Risk, Equity Risk and Insurance Risk Management Frameworks and key market risk management policies;
x
reviews policies and limits for managing traded and non-traded market risk; and
x
reviews and overseas the market risk, equity risk and insurance risk profile.
Westpac Group Operational Risk Committee
x
reviews and oversees the Operational Risk Management Frameworks and key supporting policies;
x
oversees Westpac’s operational risk profile; and
x
identifies emerging operational risks, and appropriate actions to address these.
Westpac Group Remuneration Oversight Committee
Some of the key responsibilities of the Westpac Group Remuneration Oversight Committee include:
x
supporting the CEO, Board Remuneration Committee and the Board by reviewing and approving remuneration frameworks, guidelines and short
term variable reward plans underpinning the Board-approved Westpac Group Remuneration Policy from a Human Resources, Risk (including
Compliance), Finance and Legal perspective and in line with external requirements
;
x
assisting the Board Remuneration Committee and the Board in fulfilling its responsibility to oversee remuneration policies and practices of the
Group in the context that these policies and practices fairly and responsibly reward individuals having regard to customer and shareholder interests,
long term financial soundness and prudent risk management
;
x
recommending to the CEO for recommendation to the Board Remuneration Committee remuneration arrangements for Responsible Persons, risk
and financial control employees, Material Risk Takers and other individuals whose activities may impact the financial soundness of Westpac below
the Group Executive level; and
x
recommending to the CEO for recommendation to the Board Remuneration Committee the criteria and rationale for determining the total quantum of
the Group variable reward pool.
Prudential Reporting and Compliance Committee
x
oversees from a Group-wide perspective, the Group’s compliance with prudential requirements and regulatory reporting;
x
oversees the effective management of prudential compliance breaches, incidents and issues including remediation actions; and
x
monitors and reviews ongoing prudential governance activities, including changes to prudential standards.
Reputational Risk Committee
x
reviews issues with material reputation risk that arise in the operations of Westpac’business to mitigate reputation risk and detrimental customer
impacts
.
Westpac Group Financial Crime Risk Committee
x
oversees Anti-Money Laundering and Counter-Terrorism Financing, Anti-Bribery and Corruption, Sanctions and Tax Transparency within the
context of the risk appetite approved by the Board;
x
reviews and oversees the Financial Crime Management Framework, key supporting policies, programs and standards;
x
monitors and oversees Westpac’s financial crime risk profile; and
x
identifies emerging financial crime risks, and appropriate actions to address these.
Corporate governance
2019 Westpac Group Annual Report37
Risk function
Risk Function
x
promotes a strong risk culture;
x
owns the design and content of the Risk Management Framework;
x
defines the structure and coverage of risk appetite;
x
defines the annual risk strategy to execute the Risk Management Framework ensuring the management of risks in alignment with risk appetite and
business strategy
;
x
establishes risk policies, procedures and limits;
x
measures and reports on risk levels; and
x
provides oversight of and direction on the management of risks.
Independent internal review
Group Audit
x
reviews the adequacy and effectiveness of management controls over risk.
Divisional business units and functions
Business Units and Functions
x
responsible for identifying, evaluating and managing the risks that they originate within approved risk appetite and policies; and
x
establish and maintain appropriate risk management and compliance controls, resources and self-assessment processes.
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382019 Westpac Group Annual Report
Directors’ report
2019 Westpac Group Annual Report39
Our Directors present their
report together with the financial
statements of the Group for the
financial year ended 30
September 2019.
1. Directors
The names of the persons who have been
Directors, or appointed as Directors, during
the period since 1 October 2018 and up to
the date of this report are: Lindsay Philip
Maxsted, Brian Charles Hartzer, Nerida
Frances Caesar, Ewen Graham Wolseley
Crouch, Catriona Alison Deans (Alison
Deans), Craig William Dunn, Yuen Mei Anita
Fung (Anita Fung), Steven John Harker
(Director from 1 March 2019), Peter John
Oswin Hawkins (retired as a Director on 12
December 2018), Peter Ralph Marriott, Peter
Stanley Nash and Margaret Leone Seale
(Director from 1 March 2019).
Particulars of the skills, experience, expertise
and responsibilities of the Directors at the
date of this report, including all directorships
of other listed companies held by a Director
at any time in the three years immediately
before 30 September 2019 and the period for
which each directorship has been held, are
set out in the following pages.
Name: Lindsay Maxsted,
DipBus (Gordon), FCA, FAICD
Age: 65
Term of office: Director since March 2008
and Chairman since December 2011.
Date of next scheduled re-election:
December 2020.
Independent: Yes.
Current directorships of listed entities and
dates of office:
Transurban Group (since March 2008 and
Chairman since August 2010), BHP Group
Limited (since March 2011) and BHP Group
plc (since March 2011).
Other principal directorships: Managing
Director of Align Capital Pty Ltd and Director
of Baker Heart and Diabetes Institute.
Other interests: Nil.
Other Westpac related entities
directorships and dates of office: Nil.
Skills, experience and expertise: Lindsay
was formerly a partner at KPMG and was the
CEO of that firm from 2001 to 2007. His
principal area of practice prior to his
becoming CEO was in the corporate recovery
field managing a number of Australia’s
largest insolvency/workout/turnaround
engagements including Linter Textiles
(companies associated with Abraham
Goldberg), Bell Publishing Group, Bond
Brewing, McEwans Hardware and Brashs.
He is also a former Director and Chairman of
the Victorian Public Transport Corporation.
Westpac Board Committee membership:
Chairman of the Board Nominations
Committee. Member of each of the Board
Audit and Board Risk & Compliance
Committees.
Directorships of other listed entities over
the past three years and dates of office:
Nil.
Name: Brian Hartzer,
BA, CFA
Age: 52
Term of office: Managing Director & Chief
Executive Officer since February 2015.
Date of next scheduled re-election:
Not applicable.
Independent: No.
Current directorships of listed entities and
dates of office: Nil.
Other principal directorships: The
Australian National University Business and
Industry Advisory Board (Chairman since
March 2017), the Financial Markets
Foundation for Children and Australian
Banking Association Incorporated.
Other interests: Nil.
Other Westpac related entities
directorships and dates of office: Nil.
Skills, experience and expertise: Brian was
appointed Managing Director & Chief
Executive Officer in February 2015. Brian
joined Westpac as Chief Executive, Australian
Financial Services in June 2012,
encompassing Westpac Retail & Business
Banking, St.George Banking Group and BT
Financial Group. Prior to joining Westpac,
Brian spent three years in the UK as CEO for
Retail, Wealth and Ulster Bank at the Royal
Bank of Scotland Group.
Prior to that, he spent ten years with Australia
and New Zealand Banking Group Limited
(ANZ) in Australia in a variety of roles,
including his final role as CEO, Australia and
Global Segment Lead for Retail and Wealth.
Before joining ANZ, Brian spent ten years as a
financial services consultant in New York, San
Francisco and Melbourne.
Westpac Board Committee membership:
Member of the Board Technology Committee.
Directorships of other listed entities over
the past three years and dates of office: Nil.
Directors’ report
402019 Westpac Group Annual Report
Name: Nerida Caesar,
BCom, MBA, GAICD
Age: 55
Term of office: Director since September 2017.
Date of next scheduled re-election:
December 2019.
Independent: Yes.
Current directorships of listed entities and
dates of office: Nil.
Other principal directorships: Workplace
Giving Australia Limited (Chairman since
June 2019) and Spark Investment Holdco Pty
Ltd.
Other interests: Member of the Advisory Board
of IXUP Limited. Advisor to Equifax Australia
and New Zealand.
Other Westpac related entities directorships
and dates of office: Nil.
Skills, experience and expertise: Nerida has
over 30 years of broad- ranging commercial and
business management experience. She was
Group Managing Director and Chief Executive
Officer, Australia and New Zealand, of Equifax
(formerly Veda Group Limited) from
February 2011 to June 2017. Nerida is also a
former director of Genome.One Pty Ltd and
Stone and Chalk Limited.
Ms Caesar was formerly Group Managing
Director, Telstra Enterprise and Government,
responsible for Telstra’s corporate, government
and large business customers in Australia as
well as the international sales division. Nerida
also worked as Group Managing Director,
Telstra Wholesale, and, prior to that, held the
position of Executive Director Enterprise &
Government, where she was responsible for
managing products, services, and customer
relationships throughout Australia.
Nerida also held several senior management
and sales positions with IBM within Australia and
internationally over a 20-year period, including
as Vice President of IBM’s Intel Server Division
for the Asia Pacific region.
Westpac Board Committee membership:
Member of each of the Board Risk &
Compliance and Board Technology Committees.
Directorships of other listed entities over the
past three years and dates of office: Nil.
Name: Ewen Crouch AM,
BEc (Hons.), LLB, FAICD
Age: 63
Term of office: Director since
February 2013.
Date of next scheduled re-election:
December 2019.
Independent: Yes.
Current directorships of listed entities and
dates of office: Corporate Travel
Management Limited (Chairman since
March 2019) and BlueScope Steel Limited
(since March 2013).
Other principal directorships: Sydney
Symphony Orchestra Holdings Pty Limited
and Jawun.
Other interests: Member of the
Commonwealth Remuneration Tribunal, Law
Committee of the Australian Institute of
Company Directors, Corporations Committee
of the Law Council of Australia and ASIC’s
Director Advisory Panel.
Other Westpac related entities
directorships and dates of office: Nil.
Skills, experience and expertise: Ewen
was a Partner at Allens from 1988 to 2013,
where he was one of Australia’s most
accomplished mergers and acquisitions
lawyers. He served as a member of the firm’s
board for 11 years, including four years as
Chairman of Partners. His other roles at
Allens included Co-Head Mergers and
Acquisitions and Equity Capital Markets,
Executive Partner, Asian offices and Deputy
Managing Partner. Ewen served as a director
of Mission Australia from 1995 and as
Chairman from 2009, before retiring in
November 2016. From 2010 to 2015, Ewen
was a member of the Takeovers Panel. In
2013, Ewen was awarded an Order of
Australia in recognition of his significant
service to the law as a contributor to legal
professional organisations and to the
community.
Westpac Board Committee membership:
Chairman of the Board Risk & Compliance
Committee. Member of each of the Board
Audit, Board Nominations and Board
Remuneration Committees.
Directorships of other listed entities over
the past three years and dates of office:
Nil
.
Name: Alison Deans,
BA, MBA, GAICD
Age: 51
Term of office: Director since April 2014.
Date of next scheduled re-election:
December 2020.
Independent: Yes.
Current directorships of listed entities and
dates of office: Cochlear Limited (since
January 2015) and Ramsay Health Care
Limited (since November 2018).
Other principal directorships: SCEGGS
Darlinghurst Limited, The Observership
Program Limited and Deputy Group Pty Ltd.
Other interests: Senior Advisor, McKinsey &
Company and Investment Committee member
of the CSIRO Innovation Fund (Main
Sequence Ventures).
Other Westpac related entities
directorships and dates of office: Nil.
Skills, experience and expertise: Alison has
more than 20 years’ experience in senior
executive roles focused on building digital
businesses and digital transformation across
e-commerce, media and financial services.
During this time, Alison served as the CEO of
eCorp Limited, CEO of Hoyts Cinemas and
CEO of eBay, Australia and New Zealand.
She was the CEO of a technology-based
investment company netus Pty Ltd. Alison was
an Independent Director of Social Ventures
Australia from September 2007 to April 2013
and a director of kikki.K Holdings Pty Ltd from
October 2014 to June 2018.
Westpac Board Committee membership:
Chairman of the Board Technology
Committee. Member of each of the Board
Nominations, Board Remuneration and Board
Risk & Compliance Committees.
Directorships of other listed entities over
the past three years and dates of office:
Insurance Australia Group Limited
(February 2013 – October 2017).
Directors’ report
2019 Westpac Group Annual Report41
Name: Craig Dunn,
BCom, FCA
Age: 56
Term of office: Director since June 2015.
Date of next scheduled re-election:
December 2021.
Independent: Yes.
Current directorships of listed entities and
dates of office: Telstra Corporation Limited
(since April 2016).
Other principal directorships:
Chairman of The Australian Ballet.
Other interests: Chairman of the International
Standards Technical Committee on Blockchain
and Distributed Ledger Technologies (ISO/ TC
307) and consultant to King & Wood Mallesons.
Other Westpac related entities directorships
and dates of office: Nil.
Skills, experience and expertise: Craig has
more than 20 years’ experience in financial
services, including as CEO of AMP Limited from
2008 to 2013. Craig was previously a director of
Financial Literacy Australia Limited, a Board
member of each of the Australian Japanese
Business Cooperation Committee, Jobs for New
South Wales, and the New South Wales
Government’s Financial Services Knowledge
Hub. He is the former Chairman of Stone and
Chalk Limited and of the Investment and
Financial Services Association (now the
Financial Services Council). Craig was also a
member of the Financial Services Advisory
Committee, the Australian Financial Centre
Forum, the Consumer and Financial Literacy
Taskforce and a Panel member of the Australian
Government’s Financial System Inquiry.
Westpac Board Committee membership:
Chairman of the Board Remuneration
Committee. Member of each of the Board
Nominations and Board Risk & Compliance
Committees.
Directorships of other listed entities over the
past three years and dates of office: Nil.
Name: Anita Fung,
BSocSc, MAppFin
Age: 58
Term of office: Director since October 2018.
Date of next scheduled re-election:
December 2021.
Independent: Yes.
Current directorships of listed entities and
dates of office: Hong Kong Exchanges and
Clearing Limited (since April 2015, Hong
Kong listed), China Construction Bank
Corporation (since October 2016, Hong Kong
Listed) and Hang Lung Properties Limited
(since May 2015, Hong Kong listed).
Other principal directorships: Board
member of the Airport Authority Hong Kong.
Other interests: Member of the Hong Kong
Museum Advisory Committee.
Other Westpac related entities
directorships and dates of office: Member
of Westpac’s Asia Advisory Board since
October 2018.
Skills, experience and expertise: Anita’s
career in the banking industry spans over 30
years, including 19 years at HSBC.
During her time at HSBC, Anita held a
number of senior management roles
including Group General Manager, HSBC
Group and most recently as Chief Executive
Officer, Hong Kong from 2011 to 2015.
Prior to joining HSBC, Anita held various
positions at Standard Chartered Bank in its
Treasury and Capital markets business.
Westpac Board Committee membership:
Member of the Board Risk & Compliance
Committee.
Directorships of other listed entities over
the past three years and dates of office:
Nil.
Name: Steven Harker,
BEc (Hons.), LLB
Age: 64
Term of office: Director since March 2019.
Date of next scheduled re-election:
December 2019.
Independent: Yes.
Current directorships of listed entities and
dates of office: Nil.
Other principal directorships: The Banking
and Finance Oath Limited, The Hunger Project
Australia, ASX Refinitiv Charity Foundation,
New South Wales Golf Club Foundation
Limited and Ascham School Ltd.
Other interests: Honorary Treasurer of
Ascham School.
Other Westpac related entities
directorships and dates of office: Nil.
Skills, experience and expertise: Steve has
over 35 years of experience in investment
banking. Steve was formerly Managing
Director and Chief Executive Officer of Morgan
Stanley Australia from 1998 to 2016 and then
Vice Chairman until February 2019. Prior to
joining Morgan Stanley, he spent fifteen years
with Barclays de Zoete Wedd (BZW, now
Barclays Investment Bank).
Steve is a former Chairman and Director of
Australian Financial Markets Association
Limited and a former Director of Investa
Property Group. Steve also previously served
on the board of the Centre for International
Finance and Regulation. He is also a former
Guardian of the Future Fund of Australia.
Westpac Board Committee membership:
Member of each of the Board Audit and Board
Risk & Compliance Committees.
Directorships of other listed entities over
the past three years and dates of office: Nil.
Directors’ report
422019 Westpac Group Annual Report
Name: Peter Marriott,
BEc (Hons.), FCA
Age: 62
Term of office: Director since June 2013.
Date of next scheduled re-election:
December 2019.
Independent: Yes.
Current directorships of listed entities and
dates of office: ASX Limited (since July 2009).
Other principal directorships: ASX Clearing
Corporation Limited, ASX Settlement
Corporation Limited and Austraclear Limited.
Other interests: Member of Monash University
Council and Chairman of the Monash University
Council’s Resources and Finance Committee.
Other Westpac related entities directorships
and dates of office: Nil.
Skills, experience and expertise: Peter has
over 30 years’ experience in senior
management roles in the finance industry,
encompassing international banking, finance
and auditing. Peter joined Australia and New
Zealand Banking Group Limited (ANZ) in 1993
and held the role of Chief Financial Officer from
July 1997 to May 2012. Prior to his career at
ANZ, Peter was a banking and finance, audit
and consulting partner at KPMG Peat Marwick.
Peter was formerly a Director of ANZ National
Bank Limited in New Zealand and various ANZ
subsidiaries.
Westpac Board Committee membership:
Chairman of the Board Audit Committee.
Member of each of the Board Nominations,
Board Technology and Board Risk &
Compliance Committees.
Directorships of other listed entities over the
past three years and dates of office: Nil.
Name: Peter Nash,
BCom, FCA, F Fin
Age: 57
Term of office: Director since March 2018.
Date of next scheduled re-election:
December 2021.
Independent: Yes.
Current directorships of listed entities and
dates of office: Johns Lyng Group Limited
(Chairman since October 2017), Mirvac
Group (since November 2018) and ASX
Limited (since June 2019).
Other principal directorships:
Reconciliation Australia Limited and Golf
Victoria Limited.
Other interests: Board member of the
Koorie Heritage Trust and Migration Council
Australia. Member of the University of
Melbourne Centre for Contemporary Chinese
Studies Advisory Board.
Other Westpac related entities
directorships and dates of office: Nil.
Skills, experience and expertise: Peter was
formerly a Senior Partner with KPMG until
September 2017, having been admitted to
the partnership of KPMG Australia in 1993.
He most recently served as the National
Chairman of KPMG Australia from 2011 until
August 2017, where he was responsible for
the overall governance and strategic
positioning of KPMG in Australia. In this role,
Peter also served as a member of KPMG’s
Global and Regional Boards.
Peter has experience providing advice on a
range of topics including business strategy,
risk management, internal controls, business
processes and regulatory change. He has
also provided both financial and commercial
advice to many Government businesses at
both a Federal and State level. Peter is a
former member of the Business Council of
Australia and its Economic and Regulatory
Committee.
Westpac Board Committee membership:
Member of each of the Board Audit and
Board Risk & Compliance Committees.
Directorships of other listed entities over
the past three years and dates of office:
Nil.
Name: Margaret (Margie) Seale,
BA, FAICD
Age: 59
Term of office: Director since March 2019.
Date of next scheduled re-election:
December 2019.
Independent: Yes.
Current directorships of listed entities and
dates of office: Telstra Corporation Limited
(since May 2012) and Scentre Group Limited
(since February 2016).
Other principal directorships: Australian
Pacific (Holdings) Pty Limited.
Other interests: Member of the Australian
Public Service Commission Centre for
Learning and Leadership Advisory Board.
Other Westpac related entities
directorships and dates of office: Nil.
Skills, experience and expertise: Margie has
more than 25 years’ experience in senior
executive roles in Australia and overseas,
including in consumer goods, global
publishing, sales and marketing, and the
successful transition of traditional business
models to digital environments. Prior to her
non-executive career, Margie was the
Managing Director of Random House Australia
and New Zealand and President, Asia
Development for Random House Inc.
Margie is a former Director and then Chair of
Penguin Random House Australia Pty Limited,
and a former Director of Ramsay Health Care
Limited, Bank of Queensland Limited and the
Australian Publishers’ Association. She also
previously served on the boards of Chief
Executive Women (chairing its Scholarship
Committee), the Powerhouse Museum, and
the Sydney Writers Festival.
Westpac Board Committee membership:
Member of each of the Board Remuneration
and Board Risk & Compliance Committees.
Directorships of other listed entities over
the past three years and dates of office:
Ramsay Health Care Limited (April 2015 to
October 2018) and Bank of Queensland
Limited (January 2014 to June 2018).
Directors’ report
Company Secretary
Our Company Secretaries as at 30 September 2019 were Rebecca Lim and Tim Hartin.
Rebecca Lim (B Econ, LLB (Hons.)) was appointed Group Executive, Compliance, Legal & Secretariat and Company Secretary in
October 2016. Rebecca joined Westpac in 2002 and has held a variety of senior leadership roles including General Manager, Human
Resources for St.George Bank and General Manager, St.George Private Clients. She was appointed Group General Counsel in
November 2011 and Chief Compliance Officer from 2013 to 2017. Rebecca held an in-house role in investment banking at Goldman Sachs in
London before returning to Australia and joining Westpac. Rebecca was previously with US firm Skadden Arps where she worked in the
Corporate Finance area in both New York and London. Prior to that she worked at Blake Dawson Waldron (now Ashurst) as a solicitor.
Tim Hartin (LLB (Hons.)) was appointed Group Company Secretary in November 2011. Before that appointment, Tim was Head of Legal - Risk
Management & Workouts, Counsel & Secretariat and prior to that, he was Counsel, Corporate Core. Before joining Westpac in 2006, Tim was a
Consultant with Gilbert + Tobin, where he provided corporate advisory services to ASX listed companies. Tim was previously a lawyer at
Henderson Boyd Jackson W.S. in Scotland and in London in Herbert Smith’s corporate and corporate finance division.
2. Executive Team
As at 30 September 2019 our Executive Team was:
There are no family relationships between or among any of our Directors or Executive Team members.
1.From 1 October 2018, Rebecca Lim’s role and title has been Group Executive, Legal & Secretariat.
2019 Westpac Group Annual Repor
t43
NamePosition
Year Joined
Group
Year
Appointed
to Position
Brian HartzerManaging Director & Chief Executive Officer20122015
Craig BrightChief Information Office
r20182018
Lyn CobleyChief Executive, Westpac Institutional Bank20152015
Peter KingChief Financial Office
r19942014
Rebecca LimGroup Executive, Legal & Secretariat20022016
David LindbergChief Executive, Consume
r20122019
Carolyn McCannGroup Executive, Customer & Corporate Relations20132018
David McLeanChief Executive Officer, Westpac New Zealand19992015
Christine ParkerGroup Executive, Human Resources20072011
David StephenChief Risk Office
r20182018
Gary ThursbyChief Operating Office
r20082019
Alastair Welsh
Acting Chief Executive, Business19922019
1
Directors’ report
442019 Westpac Group Annual Report
Brian Hartzer
BA, CFA.
Age: 52
Managing Director & Chief Executive Officer
Brian was appointed Managing Director & Chief
Executive Officer in February 2015. Brian joined
Westpac as Chief Executive, Australian
Financial Services in June 2012, encompassing
Westpac Retail & Business Banking, St.George
Banking Group and BT Financial Group.
Brian is a Director of the Australian Banking
Association and was formerly the Chairman until
December 2015. Prior to joining Westpac, Brian
spent three years in the UK as CEO for Retail,
Wealth and Ulster Bank at the Royal Bank of
Scotland Group. Prior to that, he spent ten years
with Australia and New Zealand Banking Group
Limited (ANZ) in Australia in a variety of roles,
including his final role as CEO, Australia and
Global Segment Lead for Retail and Wealth.
Before joining ANZ, Brian spent ten years as a
financial services consultant in New York, San
Francisco and Melbourne.
Brian graduated from Princeton University with a
degree in European History and is a Chartered
Financial Analyst.
Craig Bright
B.Comp
.
Age: 54
Chief Information Office
r
Craig was appointed Group Chief Information
Officer in December 2018. Craig has more than
30 years’ experience in technology and financial
services. He has held divisional CIO roles in
retail banking, business banking and investment
banking and led complex global scale
technology operations.
Prior to joining Westpac, Craig was Chief
Technology Officer, Global Consumer Bank at
Citigroup. He led a division of technology
employees executing a cloud and mobile first
strategy supporting digital channels and a mix of
Citi Smart Banking formats worldwide. Craig has
also held senior roles at Barclays in London,
National Australia Bank and Ernst & Young
.
Craig has a Bachelor of Computing from
Monash University and a Computer Field
Service Certificate from Royal Melbourne
Institute of Technology
.
Lyn Cobley
BEc, SF FIN, GAICD.
Age: 56
Chief Executive, Westpac Institutional Bank
Lyn was appointed Chief Executive, Westpac
Institutional Bank in September 2015. She has
responsibility for Westpac’s global relationships
with corporate, institutional and government
clients as well as all products across financial
and capital markets, transactional banking,
structured finance and working capital
payments. In addition, Lyn oversees Westpac’s
International and Pacific Island businesses
.
Lyn has over 27 years’ experience in financial
services. Prior to joining Westpac, Lyn held a
variety of senior positions at the Commonwealth
Bank of Australia, including serving as Group
Treasurer from 2007 to 2013 and most recently
as Executive General Manager, Retail
Products & Third Party Banking. She also held
senior roles at Barclays Capital in Australia and
Citibank in Australia and Asia Pacific, and was
CEO of Trading Room (a joint venture between
Macquarie Bank and Fairfax)
.
Lyn is a Board member of the Australian
Financial Markets Association (AFMA), the
Banking & Finance Oath and the Westpac
Foundation. She is Chairman of Westpac’s Asia
Advisory Board and is also a member of Chief
Executive Women
.
Lyn has a Bachelor of Economics from
Macquarie University, is a Senior Fellow of the
Financial Services Institute of Australia and is a
graduate of the Australian Institute of Company
Directors
.
Directors’ report
2019 Westpac Group Annual Report45
Peter King
BEc, FCA.
Age: 49
Chief Financial Officer
Peter was appointed Chief Financial Officer in
April 2014. Peter has responsibility for
Westpac’s Finance, Tax, Treasury and Investor
Relations functions.
Prior to this appointment, Peter was the Deputy
Chief Financial Officer for three years and has
held other senior finance positions across the
Group, including in Group Finance, Business
and Consumer Banking, Business and
Technology Services, Treasury and Financial
Markets.
Peter commenced his career at Deloitte Touche
Tohmatsu. He has a Bachelor of Economics
from Sydney University and completed the
Advanced Management Programme at INSEAD.
He is a Fellow of the Institute of Chartered
Accountants.
Rebecca Lim
B Econ, LLB (Hons).
Age: 47
Group Executive, Legal & Secretariat
Rebecca was appointed as a Westpac Group
Executive in October 2016 and is responsible fo
r
legal and secretariat functions globally. She was
appointed Group General Counsel in
November 2011 and was Chief Compliance
Officer from 2013 to 2017
.
Rebecca joined Westpac in 2002 and has held a
variety of other senior leadership roles including
General Manager, Human Resources fo
r
St.George Bank and General Manager,
St.George Private Clients
.
Rebecca began her career at Blake Dawson
Waldron (now Ashurst) before joining the US
firm Skadden Arps where she worked in both
New York and London. Rebecca then moved
into an in-house role in investment banking at
Goldman Sachs in London before returning to
Australia and joining Westpac.
Rebecca is Deputy Chair of the GC100
Executive Committee and a member of Chief
Executive Women
.
David Lindberg
HBA (Hons. Economics).
Age: 44
Chief Executive, Consume
r
David was appointed Chief Executive,
Consumer in April 2019, responsible for the end
to end relationships with consumer customers.
This includes all consumer distribution, digital,
marketing, banking and insurance products and
services under the Westpac, St.George,
BankSA, Bank of Melbourne, BT, and RAMS
brands. Prior to this appointment, David was
Chief Executive, Business Bank from
June 2015, managing relationships with
business customers for the Westpac, St.George,
BankSA and Bank of Melbourne brands
.
Before this David was Chief Product Officer for
the Group’s retail and business products, as well
as overseeing the Group’s digital activities.
Before joining Westpac in 2012, David was
Executive General Manager, Cards, Payments &
Retail Strategy at the Commonwealth Bank of
Australia. David was also formerly Managing
Director, Strategy, Marketing & Custome
r
Segmentation at Australia and New Zealand
Banking Group Limited and Vice President and
Head of Australia for First Manhattan
.
Directors’ report
462019 Westpac Group Annual Report
Carolyn McCann
BBus (Com), BA, GradDipAppFin, GAICD.
Age: 47
Group Executive, Customer & Corporate
Relations
Carolyn was appointed as Westpac’s Group
Executive, Customer & Corporate Relations in
June 2018. This division brings together
management of the Group’s customer resolution
and reporting, alongside our corporate affairs,
communications and sustainability functions,
recognising the importance of setting high
service standards and quickly resolving
customer issues in managing the Group’s
relationship with its customers. Carolyn joined
the Westpac Group in 2013, as General
Manager, Corporate Affairs & Sustainability,
during which time she played an instrumental
role in leading the Group’s bicentenary program,
including the launch of the $100 million Westpac
Scholars Trust (formerly known as the Westpac
Bicentennial Foundation).
Prior to joining Westpac, Carolyn spent 13 years
at Insurance Australia Group in various
positions, including Group General Manager,
Corporate Affairs & Investor Relations. Carolyn
began her career in consulting and has
extensive experience in financial services.
David McLean
LLB (Hons.).
Age: 61
Chief Executive Officer, Westpac New Zealand
David was appointed Chief Executive Officer,
Westpac New Zealand in February 2015. Since
joining Westpac in February 1999, David has
held a number of senior roles, including Head of
Debt Capital Markets New Zealand, General
Manager, Private, Wealth and Insurance New
Zealand and Head of Westpac Institutional Bank
New Zealand, and most recently, Managing
Director of the Westpac New York branch
.
Before joining Westpac, David was Director,
Capital Markets at Deutsche Morgan Grenfell
from 1994. He also established the New
Zealand branch of Deutsche Bank and was New
Zealand Resident Branch Manager. In 1988,
David joined Southpac/National Bank as a
Capital Markets Executive. Prior to this, David
worked as a lawyer in private practice and also
served as in-house counsel for NatWest NZ
from 1985.
Christine Parker
BGDipBus (HRM)
.
Age: 59
Group Executive, Human Resources
Christine was appointed to Westpac Group’s
Executive Team in October 2011. As Group
Executive, Human Resources, Christine leads
the HR function for the Group, responsible for
strengthening our service oriented and inclusive
culture, attracting and retaining the best talent,
developing and helping our workforce to grow
skills for the future, rewarding and recognising
our people and ensuring the health and
wellbeing of our people. Christine also oversees
the Group’s Customer Advocate function,
corporate communications, and supports the
CEO and Board on culture and conduct.
Christine also has responsibility for Office of the
Banking Executive Accountability Regime
.
Since joining Westpac in 2007, Christine has
held a variety of senior leadership roles
including Group General Manager, Human
Resources and General Manager, Human
Resources for Westpac New Zealand Limited.
Before joining Westpac, Christine held senio
r
HR roles in a number of high profile
organisations and across a range of industries,
including Carter Holt Harvey and Restaurant
Brands New Zealand
.
Christine was previously a Director of Women’s
Community Shelters and is a current member of
Chief Executive Women, Governor of St.George
Foundation and member of the Veterans’
Em
ployment Industry Advisory Committee.
Directors’ report
2019 Westpac Group Annual Report47
David Stephen
BBus.
Age: 55
Chief Risk Officer
David was appointed Chief Risk Officer in
October 2018, with responsibility for risk
management and compliance activities across
the Group.
Prior to this, David was the Chief Risk Officer for
Royal Bank of Scotland (RBS) from 2013,
having first joined RBS in 2010 as the Deputy
Chief Risk Officer. David has also previously
held other senior roles at both retail and
investment banks in the UK, USA, Hong Kong
and Australia, including serving as Chief Risk
Officer at ANZ and Chief Credit Officer at Credit
Suisse Financial Products.
David has a Bachelor of Business in Banking
and Finance from Monash University and is a
Board member of both the International
Financial Risk Institute and the Financial
Services Institute of Australia (FINSIA).
Gary Thursby
BEc, DipAcc, FCA.
Age: 56
Chief Operating Office
r
Gary was appointed Chief Operating Officer in
April 2019, having previously been in the role of
Group Executive, Strategy & Enterprise Services
since October 2016. In addition to leading the
Group’s strategy function, his role is designed to
support delivery of the Group’s Service
Revolution and provide services to support the
Group’s operating businesses.
Gar
y’s responsibilities also include banking
operations, advice remediation, procurement,
property, analytics and enterprise investments.
In addition, Gary oversees the Group’s
corporate and business development portfolios
.
Before joining Westpac in 2008, Gary held a
number of senior finance roles at
Commonwealth Bank of Australia including
Deputy CFO and CFO Retail Bank. Gary has
over 20 years’ experience in financial services,
covering finance, M&A and large scale program
delivery. He commenced his career at Deloitte
Touche Tohmatsu
.
Gary has a Bachelor of Economics and a Post
Graduate Diploma in Accounting from Flinders
University of South Australia and is a Fellow of
the Institute of Chartered Accountants.
Alastair Welsh
MBA, BCA, CA.
Age: 54
Acting Chief Executive, Business
Alastair was appointed Acting Chief Executive,
Business in April 2019
.
The Business division leads relationships with
Australia’s small, commercial, corporate and agri
businesses providing a wide range of banking
services and support across Westpac, St
George, BankSA, Bank of Melbourne and
Capital Finance brands. The division also
supports customers’ wealth and investment
needs including Private Wealth,
Superannuation, Platforms, Investments and
Operations businesses through all of our brands
.
Alastair holds more than 30 years’ experience in
banking in the UK, New Zealand and Australia.
Since joining Westpac NZ in 1992, he has held a
variety of roles from relationship management
through to leadership positions for Small
Business Banking, BT Financial Group and
Group Customer Transformation. Prior to this
appointment, Alastair was General Manager for
the Westpac Commercial Business Bank.
Directors’ report
482019 Westpac Group Annual Report
3. Report on the business
a) Principal activities
The principal activities of the Group during the financial year ended
30 September 2019 were the provision of financial services
including lending, deposit taking, payments services, investment
platforms, superannuation and funds management, insurance
services, leasing finance, general finance, interest rate risk
management and foreign exchange services.
From 30 June 2019 and 30 September 2019 respectively, Westpac
ceased to provide personal financial advice through its salaried BT
Financial Group planners or its authorised representatives. Other
than this change, there have been no significant changes in the
nature of the principal activities of the Group during 2019.
b) Operating and financial review
The net profit attributable to owners of Westpac Banking
Corporation for 2019 was $6,784 million, a decrease of $1,311
million or 16% compared to 2018. Key features of this result were:
xNet interest income increased $402 million or 2% compared
to 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%.
xNet fee income decreased $769 million or 32% compared to
2018 primarily due to the 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.
xNet wealth management and insurance income decreased
$1,032 million or 50% compared to 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
$69 million, cessation of grandfathered advice commissions
$42 million, lower wealth management income due to
changes in platform pricing structure, and exit of the Hastings
business in 2018.
xTrading income decreased $16 million or 2% compared to
2018. The decline mainly relates to a change in methodology
in derivative valuation adjustments partially offset by higher
non-customer income.
xOther income is up $57 million or 79% compared to 2018,
primarily due to the non-repeat of a 2018 impairment charge
on an equity holding of $104 million.
xOperating expenses increased $540 million or 6% compared
to 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 $170 million, partially offset
by the exit of the Hastings business in 2018 of $158 million
and a net productivity benefit.
xImpairment charges were $84 million or 12% higher
compared to 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.
A review of the operations of the Group and its divisions and their
results for the financial year ended 30 September 2019 is set out in
Section 2 of the Annual Report under the sections ‘Review of
Group operation
s’ (see pages 91 to 107), ‘Divisional
performanc
e’ (see pages 108 to 119) and ‘Risk and risk
management’ (see pages 120 to 139), which form part of this
report
.
Further information about our financial position and financial results
is included in the financial statements in Section 3 of this Annual
Report (see pages 153 to 303), which form part of this report
.
c) Dividends
Since 30 September 2019, Westpac has announced a final
ordinary dividend of 80 cents per Westpac ordinary share, totalling
approximately $2,791 million for the year ended 30
September 2019 (2018 final ordinary dividend of 94 cents pe
r
Westpac ordinary share, totalling $3,227 million). The dividend will
be fully franked and will be paid on 20 December 2019
.
An interim ordinary dividend for the current financial year of 94
cents per Westpac ordinary share for the half year ended 31
March 2019, totalling $3,239 million, was paid as a fully franked
dividend on 24 June 2019 (2018 interim ordinary dividend of 94
cents per Westpac ordinary share, totalling $3,213 million). The
payment comprised direct cash disbursements of $2,080 million
with $1,159 million being reinvested by participants through the
DRP
.
Further, in respect of the year ended 30 September 2018, a fully
franked final dividend of 94 cents per ordinary share totalling
$3,227 million was paid on 20 December 2018. The payment
comprised direct cash disbursements of $2,897 million with $330
million, being reinvested by participants through the DRP
.
New shares were issued under the DRP for each of the 2018 final
ordinary dividend and the 2019 interim ordinary dividend.
Directors’ report
1.All customers with an active relationship (excludes channel only and potential relationships) as at 30 September 2019.
2019 Westpac Group Annual Repor
t49
d) Significant changes in state of affairs and events
during and since the end of the 2019 financial year
Throughout the financial year ended 30 September
2019, the Group has operated in a challenging external
environment, which has included ongoing and heightened scrutiny
across the industry (including as a result of the Royal Commission
into Misconduct in the Banking, Superannuation and Financial
Services Industry and self-assessments into governance, culture
and accountability), as well as challenging economic conditions
(refer to the section ‘External environment’ for more details).
In this environment, significant changes in the state of affairs of the
Group were:
xchanges to Westpac’s wealth strategy, which resulted in
major BT Financial Group businesses being realigned into
the Consumer and Business divisions and exiting the
provision of personal financial advice by Westpac Group
salaried financial advisers and authorised representatives;
xcompliance, reputation and remediation provisions;
xAPRA applying an additional $500 million to Westpac’s
operational risk capital requirement as a result of Westpac’s
self-assessment into its culture, governance and
accountability;
xthe issuance of approximately A$1.42 billion AT1 securities,
known as Westpac Capital Notes 6, which qualify as
Additional Tier 1 capital under APRA’s capital adequacy
framework, as well as the transfer and redemption of
approximately A$1.38 billion Westpac Capital Notes; and
xongoing regulatory changes and developments, which have
included changes relating to financial services, the expansion
of penalties for financial sector misconduct, the provision of
new powers to regulators, accounting standards, access to
data, information security and other regulatory requirements.
For a discussion of these matters, please refer to ‘Significant
developments’ in Section 1 of the Annual Report, which forms part
of this report (see pages 7 to 14).
On 4 November 2019, Westpac announced that it will be
undertaking an underwritten placement of fully paid ordinary shares
in Westpac to sophisticated and institutional investors to raise $2
billion. As further announced, following the placement, Westpac will
make a share purchase plan available to eligible shareholders and
is targeting to raise approximately $500 million.
The proceeds received under the placement and share purchase
plan will be used to strengthen Westpac’s regulatory capital
position.
Other than set out above, the Directors are not aware of any other
matter or circumstance that has occurred since 30 September 2019
that has significantly affected or may significantly affect the
operations of the Group, the results of these operations or the state
of affairs of the Group in subsequent financial years.
e) Business strategies, developments and expected
result
s
Our business strategies, prospects and likely major developments
in the Grou
p’s operations in future financial years and the expected
results of those operations are discussed below and in ‘Significant
developments’ in Section 1 of the Annual Report (see pages 7 to
14), which forms part of this report
.
External environment
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, 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 no
n-financial risks,
and weak risk cultures. These have added to the erosion of public
sentiment and trust in the financial services industry. Westpac has
taken these developments very seriously and is now working to
respond to the findings of the Royal Commissio
n’s final report
(released 1 February 2019) and its own CGA self-assessment. At
the same time, the Group has been focused on identifying where
we got it wrong for customers and putting things right. These efforts
aim to strengthen the Grou
p’s focus on leadership, governance and
culture, and create better outcomes for customers and
shareholders.
These issues for Westpac, and the sector, have been accompanied
by a weakening in the economic environment with lower 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, this has contributed to
more cautious demand for lending, a decline in deposit growth,
lower house prices, 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 no
n-banks.
Business Strategy
The changing environment in which we operate has reinforced the
need to deliver better customer outcomes and experiences, and
underlined the importance of continuing to deliver on our vision and
strategy, including the Service Revolution.
Westpac’s vision is ‘To be one of the world’s great service
companies, helping our customers, communities and people to
prosper and grow’.
In delivering on our strategy, we are focused on our core markets,
including Australia and New Zealand, where we provide a
comprehensive range of financial products and services that we
believe assist us in meeting the financial services needs of
customers
.
With over 14 million customers1, our focus is on organic growth,
growing customer numbers in our chosen segments and building
stronger and deeper customer relationships.
Directors’ report
502019 Westpac Group Annual Report
A key element of this approach is our portfolio of financial services
brands, which we believe enables us to appeal to a broader range
of customers and provides us with the flexibility to offer solutions
that better meet individual customer needs.
As we continue to build the business, the financial services
environment remains challenging and has required us to maintain
focus on our financial position. This has involved:
xmaintaining the high level and quality of our capital;
xcontinuing to improve our funding and liquidity position; and
xseeking to maintain a high level of asset quality and
appropriate provisioning.
We continue to focus on ways to simplify our business to make it
easier for customers to do business with us and to make work
better for our people. We believe these improvement efforts deliver
better customer outcomes while also creating capacity for
investment.
Throughout 2019 we continued our focus on seeking to deliver
positive outcomes for our customers and shareholders through our
Service Revolution transformation.
The Service Revolution is seeking to:
xprovide a truly personal service for customers while better
anticipating their needs;
xput customers in control of their finances;
xrespond to the increased pace of innovation, disruption and
changing customer behaviours through digitisation and
increasing our capacity for innovation; and
xinnovate and simplify to reinvent the customer experience.
As part of our delivery of the Service Revolution, we have
developed an integrated, multi-year plan that will be executed
across the Group. In 2019, we continued to deliver outcomes and
milestones on a number of our transformation programs focused on
the digitisation of the company through the design and
development of a single bank technology infrastructure. We expect
this will transform customer experiences and drive operational
efficiency. At the same time, we believe our divisional
transformation programs continue to deliver market-leading
customer services, while lowering the cost to serve.
Over the year, substantial work has also continued on conduct and
culture, with work focused on continuing to strengthen our conduct
management across the Group. Much of the effort this year has
been focused on improving customer outcomes and on our product
reviews, as well as working to ensure we meet customer and
community expectations. We are continuing to make adjustments
and improvements to our business. In addition, work continues on
ensuring that we are responding to the changing regulatory and
industry landscape.
Sustainability is part of our strategy of seeking to anticipate and
shape the most pressing emerging social issues where we have
the skills and experience to make a meaningful difference and drive
business value. Our approach makes sustainability part of the way
we do business, embedded in our strategy, values, culture and
processes.
Supporting our custome
r-focused strategy is a strong set of
compan
y-wide values, which are embedded in our culture. These
are
:
xintegrity;
xservice;
xone team;
xcourage; and
xachievement.
In delivering our strategy, we have a set of strategic priorities that
help guide our activities
:
Customer Franchise
xDeliver great customer outcomes;
xCreate best-in-class service experience;
xEnable channels to work together seamlessly; and
xMaintain strong and differentiated brand portfolio.
Digital transformation
xBuild out data infrastructure and capabilities;
xTransform our platforms;
xStrengthen partnerships to efficiently close capability gaps;
and
xCreate new digital experiences for customers.
Performance discipline
xUplift risk management capability;
xGet it right;
xEnhance execution proficiency; and
xDrive structural cost reduction.
Competition
The Group operates in a highly competitive environment.
We serve the banking, wealth and risk management needs of
customer segments from consumers and small businesses through
to large corporate and institutional clients. The Group competes
with other financial services providers in every segment and every
product or service. Our competitors include financial services and
advisory companies such as banks (both domestic and global),
investment banks, credit unions, building societies, mortgage
originators, credit card issuers, brokerage firms, fund and asset
management companies, insurance companies, online financial
services providers, and technology companies large and small.
Like other financial services providers, our competitive position
across customer segments, products and geographies is
determined by a variety of factors. These include:
xthe quality, range, innovation and pricing of products and
services offered;
xdigital and technology solutions;
xcustomer service quality and convenience;
xthe effectiveness of, and access to, distribution channels;
xbrand reputation and preference;
xthe types of customers served; and
xthe talent and experience of our employees.
Directors’ report
1.All data and opinions under ‘Outlook’ are generated by our internal economists and management.
2019 Westpac Group Annual Repor
t51
We also operate in an environment where digital innovation is
changing the competitive landscape. We compete on our ability to
offer new products and services that align to evolving customer
preferences. The competitive nature of the industry means that if
we are not successful in developing or introducing new products
and services, or in responding or adapting to changes in customer
preferences and habits, we could lose customers to our
competitors.
Competition within Australia’s financial system is evidenced by both
the significant number of providers and the range of products and
services available to customers. In Australia, competition for both
deposits and lending continues to be fierce, both from established
banks as well as new entrants, including technology firms. Slowing
growth in some sectors has heightened competitive intensity as
financial institutions work to win new customers and retain existing
ones.
In our wealth businesses, we expect the broader competitive
landscape to continue to undergo significant change with ongoing
consolidation in life insurance, increased overseas interest and
participation in superannuation.
In New Zealand, the Group is experiencing strong competition as
banks vie for new customers and seek to retain existing ones.
Competition for deposits and lending remains intense.
Outlook
The Australian economy had a below-trend year with annual
growth to the June quarter 2019 at only 1.4% which was below
population growth of 1.6%.
Growth has been uneven as private spending contracted over the
year while government spending and exports accounted for all of
Australia’s growth. Weakness in the private sector largely reflects a
contraction in building activity, particularly centred around
residential property, and continuing weakness in wages which is
constraining consumer spending. The softer Australian growth
combined with the slowdown in the world economy is also
impacting business confidence and investment plans.
Progress in dealing with the shocks to the global outlook from the
trade disputes, particularly between the US and China, will be
important for the outlook for the global economy and the flow-on
effect on business confidence and investment plans in Australia.
Looking ahead, the Group expects GDP growth to lift somewhat
through the remainder of 2019 and into 2020. This scenario is
expected to be supported by interest rate cuts, the lower Australian
dollar, targeted income tax cuts, and a recovery in housing
sentiment.
Nevertheless, GDP growth is likely to remain below longer term
averages (of closer to 2.75%) at 2.3% for calendar year 2019 and
2.4% for calendar year 2020. Weakness in wage growth is likely to
persist while the contraction in the residential construction cycle will
extend well into 2020. The Group expects the recent recovery in
house prices, particularly in Sydney and Melbourne, to extend into
2020, providing some boost to households who, nevertheless, are
likely to remain cautious on further increasing debt levels.
1
With the Commonwealth budget expected to return to surplus in
2019/20, the Commonwealth government may initiate additional
stimulus in 2020 to assist the recovery as further stimulus from
monetary policy appears to be limited
.
With the RBA cash rate having been reduced from 1.5% to 0.75%
over the course of 2019, one more rate cut is expected in early
2020 to 0.5%. Following that move, if further stimulus is required,
the RBA may adopt unconventional monetary policies which may
include asset purchases or long term funding for financial
institutions
.
Credit growth for the Australian financial system slowed to 2.7% in
the year to September 2019, down from 4.5% a year earlier. That
included a slowdown in housing credit to 3.1% from 5.4% and
business to 3.3% from 3.8% with personal credit contracting by
4.4% after declining by 1% a year earlier.
For the year ending 30 September 2020, total system credit growth
is expected to lift to 3%, with housing credit growth rising to 3.5%.
The lift in housing credit growth is expected to reflect the improving
conditions in major housing markets, particularly following the more
recent rise in lending approvals. Business credit growth is likely to
expand by 3% in the year to 30 September 2020 while othe
r
personal credit is expected to contract by a further 2%
.
Economic conditions in New Zealand have also softened over the
year; in part due to the deterioration in the global back drop which
has dampened conditions in export sectors. Domestic New
Zealand conditions have also softened with sluggish consumer
spending and weak business confidence. Conditions in New
Zealand are likely to remain muted for the remainder of 2019
followed by an expected improvement in 2020 supported by lower
interest rates, some fiscal stimulus, and the competitive (lower)
New Zealand dollar
.
The environment for financial services companies is expected to
continue to be impacted by the actions flowing from the Royal
Commission into Misconduct in the Banking, Superannuation and
Financial Services Industry that released its final report in
February 2019. The sector will remain focused on implementing the
recommendations of the Royal Commission and other company
specific reviews. At the same time, regulators have indicated that
they will be taking a more active position in prosecuting cases of
misconduct as well as stepping up supervisory actions. This will
likely see associated costs remain high for the sector in the period
ahead
.
In addition, regulators in Australia and New Zealand have a
number of reviews underway, in many areas including mortgage
pricing, remuneration, and capital/ risk weighted asset
methodologies across the sector. Further clarity on these reviews is
ex
pected in the year ahead.
Directors’ report
522019 Westpac Group Annual Report
Westpac Group remains focused on executing our vision of being
one of the world’s great service companies, with three strategic
priorities assisting this transformation. These are:
xCustomer franchise -continuing to build the Group’s
customer base while also increasing the depth of customer
relationships. The Group seeks to do this via superior
service, as measured by NPS, and by expanding our share of
customers that call us their main financial institution. The
priority will be supported by our strong portfolio of brands and
also recognises that leading in services requires a high
quality, diverse and engaged workforce;
xDigital transformation - utilising technology to materially
improve efficiency and reduce the Group’s cost to income
ratio to below 40% in the medium term. This will include
completing the modernisation of the Group’s technology
platforms, and migrating more activity to digital that will assist
in the continued restructuring of the Group’s distribution
network and create new experiences for customers. At the
same time we’ve developed some unique fintech
partnerships that will provide new services and close
capability gaps; and
xPerformance discipline– continuing to be prudent in the
management of capital, funding and liquidity; managing
returns effectively seeking to achieve a superior ROE to the
peer average and remaining disciplined and targeted on
asset growth. At the same time the group is focused on
improving its ability to execute on its plans with a focus on
leadership.
In the period ahead, a key focus will be to resolve outstanding
issues, including our response to the findings of the Royal
Commission and our own CGA self-assessment. At the same time
we are looking to enhance our processes and controls in areas
such as financial crime, end-to-end lending, compliance, and risk
management. As a result, investment across these areas, is
expected to lead to higher costs in 2020.
At the same time, we have already provided for customer
payments and refunds where we may not have, or have not been
able to sufficiently demonstrate that we have, done the right thing
for customers. Our review of historical practices will continue into
2020 and further provisions may be required. We will also focus on
refunding customers as quickly as practical where needed.
The low interest rate environment also has an impact on bank
earnings and should interest rates be reduced further it is likely to
place additional pressure on earnings and returns, as the ability to
fully reprice lending and deposits to account for even lower interest
rates is limited.
Our lending growth is expected to be modest in the year ahead,
partly reflecting the low system growth but also due to our decision
to remain disciplined on margins and from low mortgage growth.
Mortgage volume declined late in FY19 and are expected to ease
further in the early part of FY20. Growth should then recover
through the year as the resolution of some process issues
gradually sees new applications improve and outflows slow.
Wealth management income is also expected to be lower over the
year, from our decisions to exit financial planning, eliminate
grandfathered commission payments and change pricing on our
wealth administration platforms. The impact of regulatory change
may also reduce wealth and insurance income in the year ahead
.
On capital, our current capital raising will further lift the Group’s
CET1 capital ratio and, based on the current outlook and ou
r
capital settings, the Group will increase its buffer over APRA’s
unquestionably strong benchmark for CET1 capital ratio of ove
r
10.5%
.
Given the strength of our customer franchise, and our balance
sheet, we believe we are well placed to respond to any changes in
the operating environment or regulatory requirements.
Looking ahead, with our strong positioning, disciplined growth, solid
portfolio of businesses, and good progress on our strategic
priorities, Westpac believes it is well positioned to continue
delivering sound outcomes for shareholders and customers.
Further information on our business strategies and prospects for
future financial years and likely developments in our operations and
the expected results of operations have not been included in this
report because the Directors believe it would be likely to result in
unreasonable prejudice to us
.
f) Risks to our financial performance, position and our
operation
s
Our financial position, our future financial results, our operations
and the success of our strategy are subject to a range of risks.
These risks are set out and discussed in Section 2 of this Annual
Report under the section ‘Risk and risk management’, which forms
part of this report (see pages 120 to 139).
Directors’ report
4. Directors’ interests
a) Directors’ interests in securities
The following particulars for each Director are set out in the Remuneration Report in Section 10 of the Directors’ report for the year ended 30
September 2019 and in the tables below:
xtheir relevant interests in our shares or the shares of any of our related bodies corporate;
xtheir relevant interests in debentures of, or interests in, any registered managed investment scheme made available by us or any of our
related bodies corporate;
xtheir rights or options over shares in, debentures of, or interests in, any registered managed investment scheme made available by us or
any of our related bodies corporate; and
xany contracts:
–to which the Director is a party or under which they are entitled to a benefit; and
–that confer a right to call for or deliver shares in, debentures of, or interests in, any registered managed investment scheme made
available by us or any of our related bodies corporate.
Directors’ interests in Westpac and related bodies corporate as at 4 November 2019
1.Brian Hartzer’s interest in Westpac ordinary shares includes 20,933 restricted shares held under the CEO Restricted Share Plan.
2.Share rights issued under the CEO Long Term Variable Plan.
3.Ewen Crouch and his related bodies corporate also hold relevant interests in 250 Westpac Capital Notes 2.
4.Margaret Seale and her related bodies corporate also hold relevant interests in 3,220 Westpac Capital Notes 2.
5.Figure displayed is as at Peter Hawkins’s retirement date of 12 December 2018, at which point Peter Hawkins and his related bodies corporate also held relevant
interests in 850 Capital Notes 3, 882 Westpac Capital Notes 4 and 1,370 Westpac Capital Notes 5.
Note: Certain subsidiaries of Westpac offer a range of registered schemes. The Directors from time to time invest in these schemes and are required to provide a statement to
the ASX when any of their interests in these schemes change. ASIC has exempted each Director from the obligation to notify the ASX of a relevant interest in a security that is
an interest in BT Cash Management Trust (ARSN 087 531 539), BT Premium Cash Fund (ARSN 089 299 730), Westpac Cash Management Trust (ARSN 088 187 928) or
Advance Cash Multi-Blend Fund (ARSN 094 113 050).
2019 Westpac Group Annual Repor
t53
Number of Relevant
Interests in Westpac
Ordinary Shares
Number of Westpac
Share Rights
Westpac Banking Corporation
Current Directors
Lindsay Maxsted23,602-
Brian Hartzer151,478636,540
Nerida Caesar13,583-
Ewen Crouch78,450-
Alison Deans14,392-
Craig Dunn8,869-
Anita Fung--
Steven Harker10,365
Peter Marriott20,870-
Peter Nash8,020-
Margaret Seale21,719
Former Directors
Peter Hawkins15,880-
1
2
3
4
5
Directors’ report
542019 Westpac Group Annual Report
b) Indemnities and insurance
Under the Westpac Constitution, unless prohibited by statute, we
indemnify each of the Directors and Company Secretaries of
Westpac and of each of our related bodies corporate (except
related bodies corporate listed on a recognised stock exchange),
each employee of Westpac or our subsidiaries (except subsidiaries
listed on a recognised stock exchange), and each person acting as
a responsible manager under an Australian Financial Services
Licence of any of Westpac’s wholly-owned subsidiaries against
every liability (other than a liability for legal costs) incurred by each
such person in their capacity as director, company secretary,
employee or responsible manager, as the case may be; and all
legal costs incurred in defending or resisting (or otherwise in
connection with) proceedings, whether civil or criminal or of an
administrative or investigatory nature, in which the person becomes
involved because of that capacity.
Each of the Directors named in this Directors’ report and each of
the Company Secretaries of Westpac has the benefit of this
indemnity.
Consistent with shareholder approval at the 2000 Annual General
Meeting, Westpac has entered into a Deed of Access and
Indemnity with each of the Directors, which includes
indemnification in identical terms to that provided in the Westpac
Constitution.
Westpac also executed a deed poll in September 2009 providing
indemnification equivalent to that provided under the Westpac
Constitution to individuals acting as:
xstatutory officers (other than as a director) of Westpac;
xdirectors and other statutory officers of wholly-owned
subsidiaries of Westpac; and
xdirectors and statutory officers of other nominated companies
as approved by Westpac in accordance with the terms of the
deed poll and Westpac’s Contractual Indemnity Policy.
Some employees of Westpac’s related bodies corporate and
responsible managers of Westpac and its related bodies corporate
are also currently covered by a deed poll that was executed in
November 2004, which is on similar terms to the September 2009
deed poll.
The Westpac Constitution also permits us, to the extent permitted
by law, to pay or agree to pay premiums for contracts insuring any
person who is or has been a Director or Company Secretary of
Westpac or any of its related bodies corporate against liability
incurred by that person in that capacity, including a liability for legal
costs, unless:
xwe are forbidden by statute to pay or agree to pay the
premium; or
xthe contract would, if we paid the premium, be made void by
statute.
Under the September 2009 deed poll, Westpac also agrees to
provide directors’ and officers’ liability insurance to Directors of
Westpac and Directors of Westpac’s wholly-owned subsidiaries.
For the year ended 30 September 2019, the Group has insurance
cover which, in certain circumstances, will provide reimbursement
for amounts which we have to pay under the indemnities set out
above. That cover is subject to the terms and conditions of the
relevant insurance, including but not limited to the limit of indemnity
provided by the insurance. The insurance policies prohibit
disclosure of the premium payable and the nature of the liabilities
covered
.
c) Share rights outstanding
As at the date of this report there are 4,225,250 share rights
outstanding in relation to Westpac ordinary shares. The latest
dates for exercise of the share rights range between 1
October 2020 and 1 July 2034
.
Holders of outstanding share rights in relation to Westpac ordinary
shares do not have any rights under the share rights to participate
in any share issue or interest of Westpac or any other body
corporate
.
d) Proceedings on behalf of Westpac
No application has been made and no proceedings have been
brought or intervened in, on behalf of Westpac under section 237 o
f
the Corporations Act.
Directors’ report
1. Formerly known as the Carbon Disclosure Project.
2019 Westpac Group Annual Repor
t55
5. Environmental disclosure
As part of our 2019 Sustainability Strategy, we have set targets for
our environmental performance to 2020.
The Westpac Group’s environmental framework starts with ‘Our
Principles for Doing Business’, which outline our broad
environmental principles. This framework includes:
xour Westpac Group Environment Policy, which has been in
place since 1992;
xour Sustainability Risk Management Framework;
xour Climate Change Position Statement and 2020 Action Plan;
xour Responsible Sourcing Code of Conduct; and
xpublic reporting of our environmental performance.
We also participate in a number of voluntary initiatives including the
Dow Jones Sustainability Index (#9 in global banking group and
above our Australian peers), CDP , the Equator Principles, the
Principles for Responsible Banking, the Principles for Responsible
Investment and the United Nations Global Compact.
The National Greenhouse and Energy Reporting Act 2007 (Cth)
(NGER) came into effect in July 2008. The Group reports on
greenhouse gas emissions, energy consumption and production
under the NGER for the period 1 July through 30 June each year.
Our operations are not subject to any other significant
environmental regulation under any law of the Commonwealth of
Australia or of any state or territory of Australia. We may, however,
become subject to environmental regulation as a result of our
lending activities in the ordinary course of business and we have
policies in place to ensure that this potential risk is addressed as
part of our normal processes.
We have not incurred any liability (including for rectification costs)
under any environmental legislation.
Westpac has reported its performance against the
recommendations of the Task Force on Climate-related Financial
Disclosures (TCFD) in Section 2 of this Annual Report under the
sections titled ‘Risk and risk management – climate change
risk’ (see pages 136 to 138); and ‘Climate-related financial
disclosures (see page 146). Further information about Westpac’s
sustainability performance and approach is also included in
Section 2 of this Annual Report under the sections ‘Risk and Risk
Management’ (see pages 120 to 139) and ‘Westpac’s approach to
sustainability’ (see pages 140 to 150).
1
6. Human rights supply chain disclosure
Westpac’s overall approach to human rights is set out in our
Westpac Group Human Rights Position Statement, and this
references our Responsible Sourcing Code of Conduct as the
primary framework for managing human rights in our supply chain
.
The Group is subject to the United Kingdom’s Transparency in
Supply Chains provisions under the Modern Slavery Act 2015,
which came into effect in March 2015. Westpac releases an annual
statement each year for the period ended 30 September to disclose
the steps taken during the year to help prevent modern slavery
from occurring within the Group’s operations and supply chain.
The Group is subject to the Commonwealth of Australia’s Modern
Slavery Act 2018 (Cth), with the first reporting year being 2020 and
the first report being due six months from the end of 30
September 2020
.
7. Rounding of amounts
Westpac is an entity to which ASIC Corporations Instrument
2016/191 dated 24 March 2016, relating to the rounding of
amounts in director
s’ reports and financial reports, applies.
Pursuant to this Instrument, amounts in this Director
s’ report and
the accompanying financial report have been rounded to the
nearest million dollars, unless indicated to the contrary
.
8. Political engagement
In line with Westpac policy, no cash donations were made to
political parties during the financial year ended 30
September 2019
.
In Australia, political expenditure for the financial year ended 30
September 2019 was $166,650. This relates to payment fo
r
participation in legitimate political activities where they were
assessed to be of direct business relevance to Westpac. Such
activities include business observer programs attached to annual
party conferences, policy dialogue forums and other political
functions, such as speeches and events with industry participants.
In New Zealand, political expenditure for the financial year ended
30 Se
ptember 2019 was NZD$20,170.
Directors’ report
9. Directors’ meetings
Each Director attended the following meetings of the Board and Committees of the Board during the financial year ended 30 September 2019:
This table shows membership of standing Committees of the Board. From time to time the Board may form other committees or request
Directors to undertake specific extra duties.
A – Meetings eligible to attend as a member B – Meetings attended as a member
Unless otherwise stated, each Director has been a member, or the Chairman, of the relevant Committee for the whole of the period from 1
October 2018.
1.Chairman of the Board Nominations Committee. Member of the Board Audit Committee and the Board Risk & Compliance Committee.
2.Member of the Board Technology Committee.
3.Member of the Board Risk & Compliance Committee and Board Technology Committee.
4.Chairman of the Board Risk & Compliance Committee. Member of the Board Nominations Committee and the Board Remuneration Committee, and from 1 January 2019,
a member of the Board Audit Committee.
5.Chairman of the Board Technology Committee. Member of the Board Nominations Committee, Board Remuneration Committee and Board Risk & Compliance
Committee.
6.Chairman of the Board Remuneration Committee. Member of the Board Risk & Compliance Committee and the Board Nominations Committee.
7.Member of the Board Risk & Compliance Committee.
8.Steven Harker was appointed as a Director and member of the Board Risk & Compliance Committee on 1 March 2019.
9.Peter Hawkins retired from the Board and its Committees on 12 December 2018.
10. Chairman of the Board Audit Committee. Member of the Board Nominations Committee, Board Risk & Compliance Committee and the Board Technology Committee.
11. Member of the Board Audit Committee and Board Risk & Compliance Committee.
12. Margaret Seale was appointed as a Director and member of the Board Risk & Compliance Committee on 1 March 2019.
562019 Westpac Group Annual Repor
t
NotesBoard
Audit
Committee
Risk &
Compliance
Committee
Nominations
Committee
Remuneration
Committee
Technology
Committee
Number of meetings
held during the year
DirectorABABABABABAB
Lindsay Maxsted11111665544n/an/an/an/a
Brian Hartzer21111n/an/an/an/an/an/an/an/a44
Nerida Caesar31111n/an/a55n/an/an/an/a44
Ewen Crouch4111144554466n/an/a
Alison Deans51111n/an/a55446644
Craig Dunn61111n/an/a554466n/an/a
Anita Fung71111n/an/a55n/an/an/an/an/an/a
Steven Harker877n/an/a33n/an/an/an/an/an/a
Peter Hawkins9332211n/an/an/an/a11
Peter Marriott101111665544n/an/a44
Peter Nash1111116655n/an/an/an/an/an/a
Margaret Seale1277n/an/a33n/an/an/an/an/an/a
Directors’ report
10.Remuneration Report
Introduction from the Chairman of the Board Remuneration Committee
Dear shareholders,
On behalf of the Board, I am pleased to present Westpac’s 2019 Remuneration Report.
2019 Westpac Group Annual Report57
2019 was
a year of reflection
for the Company
and the Board
Craig Dunn, Chairman
Board Remuneration Committee
2019 Group performance
As outlined in the Chairman’s report and the CEO’s annual letter,
2019 has been another challenging period for financial services
companies, including Westpac.
Examples of poor behaviour affecting customers, shortcomings in
the management of non-financial risks and poor risk cultures have
been at the heart of challenges faced by the industry.
These issues have been accompanied by slowing economic
activity, further falls in interest rates, a decline in house prices and
weak business and consumer confidence. These operating
conditions have contributed to more cautious demand for lending, a
decline in deposit growth and intense competition as more lenders
target a smaller pool of new lending.
With this backdrop, Westpac reported cash earnings of $6,849
million in 2019, a reduction of 15% compared to the prior year. Our
performance in 2019 was impacted by estimated customer refunds,
payments, associated costs, and litigation, as well as costs
incurred with the restructuring of the Wealth business. Excluding
these items, cash earnings in 2019 were $7,979 million, down 4%
relative to 2018.
While earnings were lower, our common equity tier 1 ratio was
10.67% at 30 September 2019 and our liquidity ratios were well
above regulatory minimums. Asset quality has remained sound and
the overall level of stressed assets remained at low levels over the
year.
Recognising that much work has commenced on improving our
approach to non-financial risks, progress in resolving risk and
compliance matters has fallen short of our expectations. Resolution
of these matters and continued investment in non-financial risk
management remain a focus.
Through the year we have continued to improve service for
customers, particularly via new digital self-serve options and an
enhanced approach to capturing and responding to complaints.
Investments in our technology infrastructure have improved the
stability and speed of our systems and improved availability for
customers
.
2019 remuneration outcomes
Westpac’s short term variable reward (STVR) is designed to
ensure a significant portion of remuneration is variable, at-risk and
linked to the delivery of agreed plan targets for financial and no
n-
financial measures.
The STVR outcome can range from 0% to 100% depending on
performance relative to targets agreed at the beginning of the year,
or exceed 100% when exceptional performance is achieved.
The targets for STVR sign-post those areas of focus that the Board
regards as most critical for management and which encourage the
achievement of stretch performance while operating within
appropriate risk settings. Long term variable reward (LTVR) is
designed to further align the interests of executives with those of
shareholders by rewarding the delivery of sustained Group
performance over the long term
.
Key remuneration outcomes for 2019 include:
xThe CEO’s STVR award was zero;
xThe average 2019 STVR outcome for Group Executives was
56% of the target opportunity, down from 87% in 2018;
xThe 2016 LTVR lapsed in full;
xThe 2020 total target remuneration has been reduced by
23% and 12.5% for the CEO and Group Executives,
respectively reflecting changes made to LTVR; and
xBoard fees were reduced by 20% as a one-off measure.
Further detail regarding the key remuneration outcomes for the
CEO, Group Executives and No
n-executive Directors is provided
on the following page, and in sections 3, 6 and 7 of the
Remuneration Report
.
Directors’ report
582019 Westpac Group Annual Report
Chief
Executive
Officer
x
The CEO recommended to the Board that he forego his STVR for this year. The Board separately considered the matter and
determined that a zero STVR outcome for 2019 for the CEO was appropriate to reflect accountability for poor non-financial risk and
financial outcomes, as well as some poor customer outcomes, including those highlighted at the Royal Commission.
x
The 2016 LTVR lapsed in full because the relative TSR and cash EPS performance hurdles were not achieved. The CEO has not
received a share-based payment under the LTVR for four consecutive years, equating to $15.96 million worth of lapsed
performance share rights over that period. This result is aligned with shareholder outcomes over the period.
x
In 2019, the CEO received $2.69 million in fixed remuneration and $1.33 million in deferred STVR awarded in prior years that
vested during the year, equalling $4.02 million in total realised remuneration (i.e. take-home pay). This outcome is 33% of the
maximum remuneration he could have received for the
year.
x
For 2020, the CEO’s total target remuneration (comprising fixed remuneration, target STVR and LTVR opportunity at face value)
has been reduced by 23% as a result of changes made to LTVR, as outlined below
.
x
The CEO has not received a total target remuneration increase since his appointment in 2015.
Group
Executives
x
Group Executives received between 0% and 83% of their 2019 STVR target opportunity. The average 2019 STVR outcome for
Group Executives was 56% of the target opportunity, down from 87% in 2018
.
x
The 2019 STVR scorecard outcome for non-financial risk measures was reduced to zero for Group Executives. In addition,
downward remuneration adjustments were applied to two Group Executives and two former Group Executives in response to
material risk and compliance matters that impacted the Group, in some instances reducing 2019 STVR outcomes to zero. Many of
these adjustments related to events from prior periods which have continued to develop and, in some cases, for which material
remediation costs were accounted for in 2019
.
x
The Board exercised its discretion to apply downward adjustments to a portion of deferred STVR awarded in prior years for two
former Group Executives.
x
The 2016 LTVR lapsed in full because the relative TSR and cash EPS performance hurdles were not achieved.
x
For 2020, the total target remuneration for Group Executives has been reduced by 12.5%, as a result of changes made to LTVR.
x
Given the above remuneration adjustments to current year and deferred STVR, together with changes made to the LTVR from
2020, the Board determined that further adjustments to the quantum of 2020 LTVR were not required
.
x
David McLean (Chief Executive Officer, Westpac New Zealand) and Gary Thursby (Chief Operating Officer) received total target
remuneration increases in 2019 of 10.3% and 10.4% respectively to align their remuneration with the market. David Lindberg
received a total target remuneration increase in 2019 of 6% given the increased size and scale of his role on appointment as the
Group Executive, Consumer. No other Group Executives received total target remuneration increases during 2019
.
x
David Stephen (Chief Risk Officer) and Craig Bright (Chief Information Officer) were appointed as Group Executives in 2019. To
attract the best international talent, the Board approved remuneration packages which are higher than those of their predecessors.
The Board also approved buyout awards to compensate these executives for awards forfeited on resignation from their previous
employer
.
All
employees
x
The 2019 Group variable reward pool for all employees was reduced by $126 million from 2018 to align with Group performance.
x
In addition to the remuneration adjustments for Group Executives, downward remuneration adjustments were approved for 13
General Managers in response to material risk and compliance matters impacting the Group, ranging from 10% to 100%
.
x
The Group managed 1,134 employee conduct matters in Australia in 2019, of which 163 employees exited the business and 545
employees were subject to formal disciplinary outcomes. A range of remuneration consequences were also applied for these
matters, including ineligibility for STVR and remuneration adjustments to STVR
.
Non-
executive
Directors
x
The Chairman and other Non-executive Director base fees for 2019 were reduced by 20% as a one- off measure, which equated to
a $162,000 reduction for the Chairman. The reduction was applied to all current Non-executive Directors in recognition of our
collective accountability as the Board of Westpac for customer outcomes highlighted by the Royal Commission, shareholde
r
sentiment leading to the first strike at the 2018 Annual General Meeting and significant non-financial risk matters.
Directors’ report
2019 Westpac Group Annual Report59
First strike
Westpac received a first strike at the 2018 Annual General
Meeting, with 64% of votes cast against the adoption of the 2018
Remuneration Report. This was a disappointing outcome.
In 2019, we significantly increased our engagement across
different shareholder and shareholder advisory groups to better
understand their concerns. In addition to ongoing meetings with
shareholder advisory groups and feedback from shareholders in
the normal course, we had individual and group meetings with
many of our institutional shareholders and roundtable meetings
with representative retail shareholders c
o-facilitated with the
Australian Shareholders’ Association.
It is clear that our executive remuneration outcomes in 2018 were
not in line with shareholder expectations. Based on the feedback
from the 2018 Annual General Meeting and our more extensive
consultations, the key concerns that led to the first strike included:
(1)2018 STVR outcomes were not considered reflective of
performance. Shareholders felt that the scorecard results did
not reflect performance in some areas, in particular non-
financial risk, and the Board did not apply enough downward
discretion to the outcomes.
(2)Remuneration was considered too high, particularly for the
CEO. LTVR granted to the CEO and Group Executives in 2018
was viewed as high relative to that of peers, which was partially
driven by the use of fair value to determine the number of
performance share rights to grant for LTVR.
(3)There was insufficient transparency in our communication
with shareholders. Shareholders believed that further
information was required to explain how STVR outcomes were
determined.
The Board and management value these insights and appreciate
your feedback and willingness to engage constructively.
Changes to remuneration
We spent significant time in 2019 reflecting on your feedback.
We completed a comprehensive review of executive remuneration
including the remuneration strategy, frameworks, governance,
decision-making processes, and our approach to communication.
A key objective of our review was to identify opportunities for
improvement and to develop balanced solutions that consider the
expectations of shareholders, shareholder advisory groups,
regulators, customers and the broader community.
As a result, we have:
xChanged the LTVR allocation approach from 2020. The
number of performance share rights granted to executives is
now determined by the face value of shares at the grant date,
instead of the fair value. We believe this approach improves
trans
parency and is in line with changes in market practice.
xReduced total target and maximum remuneration for
executives from 2020. The Board reduced the face value of
2020 LTVR opportunities by 43% for the CEO and 23% to 25%
for Group Executives. As a result, the 2020 total target
remuneration has been reduced by 23% for the CEO and
12.5% for Group Executives. This means the CEO’s total target
remuneration becomes comparable to that of other Australian
major bank CEOs.
CEO target remuneration package ($’000)
xReduced fees paid to Non-executive Directors for 2019.
The Chairman and other current Non-executive Director base
fees for 2019 were reduced by 20% as a one-off measure to
recognise collective accountability as the Board of Westpac for
customer outcomes highlighted by the Royal Commission,
shareholder sentiment leading to the first strike at the 2018
Annual General Meeting and significant non-financial risk
matters.
xUpdated the CEO’s 2019 STVR scorecard. The balanced
scorecard was updated to place a greater emphasis on non-
financial risk management and customer outcomes.
xImproved our remuneration governance and decision-
making frameworks. We further improved our approach to the
assessment of material risk and compliance matters and the
flow of information between Board Committees including to
support the Board in determining possible remuneration
adjustments.
xEnhanced our remuneration adjustment guidelines to
strengthen consequence management. The guidelines build
on existing policies and practices to provide greater clarity and
consistency in the management of employee conduct and the
application of remuneration consequences.
xIntroduced clawback as an additional remuneration
adjustment tool. Clawback has been introduced to enable the
Board to recover deferred variable remuneration after it has
vested (to the extent legally permissible) in circumstances such
as serious misconduct or other conduct that may have a
serious adverse impact on Westpac or its reputation,
customers or people which has resulted in, or would justify,
termination of employment or where otherwise required by law.
Clawback will apply to variable remuneration awarded in
respect of performance periods commencing on or after 1
October 2019 where conduct warranting clawback occurs after
this date.
xImproved disclosure in the Remuneration Report. The
Remuneration Report provides greater transparency around
the rationale for remuneration decisions, seeks to clearly
demonstrate the link between performance and remuneration
and provides further detail in relation to Westpac’s minimum
shareholding requirement in section 5.
Directors’ report
Other changes for 2020
In addition, the Board has selected relative TSR as the performance hurdle for the 2020 LTVR plan as it believes this measure best aligns
executive remuneration outcomes with long-term shareholder value creation. In recent years, cash ROE has been used as a LTVR
performance hurdle in conjunction with relative TSR. The Board considers that setting an absolute cash ROE range over a three year period
has become increasingly difficult in light of current uncertainties surrounding future regulatory capital requirements and interest rates, which are
at historically low levels. The Board will review the 2021 LTVR plan following the release of APRA’s final regulatory framework for remuneration.
Regulatory developments
APRA is currently consulting on changes to the regulatory framework for remuneration. The Board recently provided a submission to APRA on
the proposed changes which sets out Westpac’s overall support for a stronger, clearer and more consistent set of requirements. Our
submission also recommends alternatives for consideration by the regulator in relation to some material aspects of the draft changes, including
in relation to the proposed maximum weighting of financial performance measures used to determine variable remuneration. If enacted, some
of the proposed changes would require substantial amendment to our remuneration arrangements for executives and employees. The Board
will continue to review the remuneration design in 2020 following the release of APRA’s final regulatory framework.
On behalf of the Board, I invite you to read our Remuneration Report and welcome your feedback.
Craig Dunn, Chairman
Board Remuneration Committee
602019 Westpac Group Annual Report
In this Report
1.Key Management Personnel61
2.Summary of the 2019 executive reward framework62
3.2019 remuneration outcomes and alignment to performance64
4.Further detail on the executive variable reward structure71
5.Remuneration governance74
6.Non-executive Director remuneration76
7.Statutory remuneration details78
Directors’ report
1.Key Management Personnel
The remuneration of Key Management Personnel (KMP) for the Group is disclosed in the Report. In 2019, KMP comprised the CEO, Group
Executives and Non-executive Directors as set out in the table below. KMP is defined as those persons having authority and responsibility for
planning, directing and controlling the activities of an entity, directly or indirectly, including any director (whether executive or otherwise) of that
entity.
1.David Lindberg was the Chief Executive, Business Bank until 1 April 2019 when he was appointed as the Chief Executive, Consumer.
2.Gary Thursby’s role and title changed from Group Executive, Strategy & Enterprise Services to Chief Operating Officer on 1 April 2019.
3.Alastair Welsh was the General Manager, Commercial Banking until 1 April 2019 when he was appointed as the Acting Chief Executive, Business.
2019 Westpac Group Annual Repor
t61
NamePositionTerm as KMP
Managing Director & Chief Executive Officer
Brian HartzerManaging Director & Chief Executive Office
rFull Year
Current Group Executives
Craig BrightChief Information Office
rCommenced in KMP role on 4 December 2018
Lyn CobleyChief Executive, Westpac Institutional Ban
kFull Year
Peter KingChief Financial Office
rFull Year
Rebecca LimGroup Executive, Legal & Secretaria
tFull Year
David LindbergChief Executive, Consume
rFull Year
Carolyn McCannGroup Executive, Customer & Corporate RelationsFull Year
David McLeanChief Executive Officer, Westpac New ZealandFull Year
Christine ParkerGroup Executive, Human ResourcesFull Year
David StephenChief Risk Office
rFull Year
Gary ThursbyChief Operating Office
rFull Year
Alastair Welsh
Acting Chief Executive, BusinessCommenced in KMP role on 1 April 2019
Former Group Executives
Brad CooperChief Executive Officer, BT Financial GroupCeased in KMP role on 1 April 2019
Dave CurranChief Information Office
rCeased in KMP role on 4 December 2018
George FrazisChief Executive, Consumer Ban
kCeased in KMP role on 1 April 2019
Current Non-executive Directors
Lindsay MaxstedChairma
nFull Year
Nerida CaesarDirecto
rFull Year
Ewen CrouchDirecto
rFull Year
Alison DeansDirecto
rFull Year
Craig DunnDirecto
rFull Year
Anita FungDirecto
rFull Year
Steven HarkerDirecto
rCommenced in KMP role on 1 March 2019
Peter MarriottDirecto
rFull Year
Peter NashDirecto
rFull Year
Margaret SealeDirecto
rCommenced in KMP role on 1 March 2019
Former Non-executive Director
Peter HawkinsDirecto
rRetired on 12 December 2018 following the completion of the 2018 Annual
General Meeting
1
2
3
Directors’ report
2.Summary of the 2019 executive reward framework
The delivery of our vision and strategy is supported by our remuneration strategy, principles and frameworks.
Executive reward components
1.The Group Executive outside Australia receives deferred STVR as unhurdled share rights.
2.For the 2020 LTVR plan, the performance hurdle will be relative TSR.
3.Cash ROE is return on equity on a cash earnings basis. Cash earnings are not prepared in accordance with AAS and have not been subject to audit. Refer to Note 2 to
the Financial Statements for a description of cash earnings.
6
22019 Westpac Group Annual Report
Westpac’s vision and strategy
Westpac’s vision is to be one of the world’s great service companies, helping our customers, communities and people to prosper and grow. Our strategy seeks to deliver
on our vision by building deep and enduring customer relationships, being a leader in the community, being a place where the best people want to work and, in so doing,
delivering sustainable returns for shareholders.
Remuneration strategy
Westpac’s remuneration strategy is designed to attract and retain talented employees by rewarding them for achieving high performance and delivering superior long-
term results for our customers and shareholders, while adhering to sound risk management and governance principles.
Remuneration principles
The remuneration strategy is underpinned by the following principles:
xAlign remuneration with customer and shareholder interests.
xSupport an appropriate risk culture and employee conduct.
xDifferentiate pay for behaviour and performance in line with our vision and strategy.
xProvide market competitive and fair remuneration.
xEnable recruitment and retention of talented employees.
xProvide the ability to risk-adjust remuneration.
xBe simple, flexible and transparent.
Fixed remuneration
STVRLTVR
Purpose
Attract and retain high quality executives through
market competitive and fair remuneration.
Ensure a portion of remuneration is variable, a
t-risk
and linked to the delivery of agreed plan targets for
financial and non-financial measures that support
Westpac’s strategic priorities. The STVR outcome
can range from 0% to 100% of target depending on
performance relative to targets agreed at the
beginning of the year, or exceed 100% (up to a
maximum of 150% of target) when exceptional
performance is achieved
.
Align executive accountability and remuneration with the
long-term interests of shareholders by rewarding the
delivery of sustained Group performance over the long-
term.
Delivery
Comprises cash salary, salary sacrificed items and
superannuation contributions.
Awarded in cash (50%) and restricted shares (50%)
based on an assessment of performance over the
preceding year. Restricted shares vest in equal
portions after one and two years following grant
subject to continued service and adjustment.
Awarded in performance share rights which vest after four
years subject to the achievement of relative TSR and cash
ROE performance hurdles, continued service and
adjustment.
Alignment to performance
Set with reference to market benchmarks in the
financial services industry in Australia and globally as
well as the size, responsibilities and complexity of the
role, and the skills and experience of the executive.
Individual performance impacts fixed remuneration
adjustments.
Performance is assessed using a balanced scorecard
comprising:
xfinancial and non-financial measures linked to
Westpac’s key strategic priorities; and
xa modifier to support the adjustment of the
outcome, upwards or downwards (including to
zero), for behaviour, risk and reputation matters,
people management matters, and any other
matters as determined by the Board.
Performance is assessed against:
xRelative TSR (50%) which is a comparative
measure of Westpac’s performance relative to peers
(measured over four years); and
xCash ROE (50%) which aims to reward the
achievement of returns above the cost of capital
while generating shareholder value (measured over a
three year period with an additional one year holding
lock).
Alignment to shareholders
Minimum shareholding requirements equivalent to
five times annual fixed remuneration excluding
superannuation for the CEO and $1.2 million for
Group Executives. These requirements must be
satisfied within five years of appointment as the CEO
or as a Group Executive.
Half of the STVR award is deferred into equity for a
period of up to two years to support alignment with
shareholders over the medium term.
The LTVR is fully delivered in equity and the relative TSR
and cash ROE performance hurdles are aligned to long-
term shareholder returns and value creation.
1
2
3
Directors’ report
2.1.Risk
Westpac’s remuneration arrangements are designed and managed to support effective risk management, the generation of appropriate risk-
based returns and the risk profile associated with our businesses which incorporate products with varying complexity and maturity profiles.
xRemuneration outcomes: The performance of the Group and each division is reviewed and measured with reference to how risk is
managed in line with Westpac’s Risk Appetite Statement and the results of this review and measurement influence remuneration outcomes.
The key risks that are considered include capital, credit, market, equity, liquidity, insurance, risk culture, reputation and sustainability,
conduct, operational and compliance risk and financial crime. In addition, STVR outcomes are influenced by relevant risk-related matters
through the Board’s application of the scorecard modifier, which is partly informed by individual risk assessments for the CEO and each
Group Executive.
xVariable reward pool: Each year, the Board determines the size of the variable reward pool which funds outcomes across the Group. This
is based on the Group’s performance for the year and an assessment of how profit should be shared between shareholders and employees
while retaining sufficient capital for growth. The Group variable reward pool reflects financial performance including financial risk outcomes.
A broad range of financial and non-financial risk measures and customer outcomes may also be taken into account when allocating the
Group variable reward pool.
xMandatory risk and compliance requirements: Individuals are only eligible to receive a fixed remuneration adjustment, STVR and LTVR
where an individual has satisfied minimum requirement gates which require that behaviours are in line with Westpac’s Values and Code of
Conduct and that the individual has met the risk and compliance requirements for their role and business.
xRemuneration adjustments for prior period matters: The Board may adjust all forms of unvested deferred variable reward downward,
including to zero, for matters arising in a prior period if circumstances or information come to light which mean that in the Board’s view all or
part of the award was not appropriate. Having decided that a downward adjustment is appropriate and determined the amount of any
adjustment, typically the Board will first apply that adjustment against the STVR for the current performance period. In instances where an
adjustment to current year STVR is insufficient or unavailable, the Board may apply the adjustment to unvested deferred variable reward.
Clawback provides an additional mechanism to recover vested deferred variable reward in certain limited circumstances for awards made in
respect of performance periods commencing on or after 1 October 2019. It is the Board’s current intention that clawback will only be
considered for relevant conduct that occurred on or after 1 October 2019.
2.2.2019 remuneration mix
1.Based on a fair value methodology for LTVR.
2.Includes the Chief Risk Officer, the Group Executive, Legal & Secretariat, the Group Executive, Customer & Corporate Relations and the Chief Financial Officer.
2.3.Timeline of potential remuneration
2019 Westpac Group Annual Report63
1
Directors’ report
3.2019 remuneration outcomes and alignment to performance
3.1.Snapshot of 2019 remuneration outcomes
1.Cash EPS is cash earnings per share. Cash earnings are not prepared in accordance with AAS and have not been subject to audit. Refer to Note 2 to the Financial
Statements for a description of cash earnings.
2.Compound annual growth rate.
3.The cash EPS hurdled performance share rights reached the end of their performance period on 30 September 2018 and were subject to an additional one year holding
lock through to 30 September 2019.
3.2.Group performance
The table below summarises the key performance indicators for the Group and variable reward outcomes over the last five years.
1.Cash earnings are not prepared in accordance with AAS and have not been subject to audit. Refer to Note 2 to the Financial Statements for a description of cash
earnings.
2.Economic profit is derived from cash earnings.
642019 Westpac Group Annual Repor
t
Short term
variable
reward
The assessment of performance against the CEO’s 2019 scorecard focus areas resulted in an outcome of 60% of target (40% of
maximum) reflecting Group performance. This includes a zero outcome for non-financial risk measures in the scorecard.
Notwithstanding this assessment, the CEO recommended to the Board that he forego his STVR for this year. The Board separately
considered the matter and determined that a zero STVR outcome for 2019 was appropriate to reflect accountability for poor non-
financial risk and financial outcomes, as well as some poor customer outcomes, including those highlighted at the Royal
Commission. The Board adjusted the CEO’s STVR award through the modifier, as outlined in section 3.5.
Westpac’s strategic priorities are cascaded from the CEO to Group Executives in combination with other relevant divisional or
functional measures. STVR outcomes for Group Executives ranged from 0% to 83% of their 2019 STVR target opportunity.
The 2019 scorecard outcome for non-financial risk measures was also reduced to zero for Group Executives. In addition, downward
remuneration adjustments were applied to two Group Executives and two former Group Executives in response to material risk and
compliance matters impacting the Group, in some instances reducing 2019 STVR outcomes to zero.
50% of the 2019 STVR awards remain subject to continued service and adjustment over a two year period.
In addition, the Board exercised its discretion to apply downward adjustments to a portion of deferred STVR awarded in prior years
for two former Group Executives.
Long term
variable
reward
The relative TSR and cash EPS performance hurdles for the 2016 LTVR were not met and therefore no LTVR vested during 2019.
The Board considered that this outcome was appropriate given the Group’s performance over the relevant period. This is the fourth
consecutive year where LTVR has not vested.
The table below shows the vesting outcome for the 2016 LTVR award to the CEO and Group Executives that reached the end of its
performance period in 2019.
Performance range
Performance
hurdle
Performance
start dateTest dateThresholdMaximumOutcome% Vested% Lapsed
TSR 50% of
award
1-Oct-151-Oct-19
Equal to
composite TSR
index
Exceeds
composite TSR
index by 21.55
(i.e. 5% CAG
R)
Westpac: 14.508
Index: 17.549
0100
EPS 50% of
award
1-Oct-151-Oct-184.0% CAGR6.0% CAGR (1.6%) CAGR0100
Years ended 30 September
20192018201720162015
CEO STVR award (% of target)0%77.50%111%97%108%
Average Group Executive STVR (% of target)56%87%109%95%106%
LTVR award (% vested)0%0%0%0%36%
Cash earnings ($m)6,8498,0658,0627,8227,820
Statutory earnings ($m)6,7848,0957,9907,4458,012
Economic profit ($m)1,6193,4443,7743,7744,418
Cash ROE10.75%13.00%13.77%13.99%15.84%
TSR – three years15.33%8.27%11.79%15.24%62.30%
TSR – five years14.58%25.67%81.32%100.72%92.78%
Dividends per Westpac share (cents)174188188188187
Cash earnings per Westpac share$1.98$2.36$2.40$2.35$2.48
Share price – high$30.05$33.68$35.39$33.74$40.07
Share price – low$23.30$27.24$28.92$27.57$29.10
Share price – close$29.64$27.93$31.92$29.51$29.70
1
2
3
1
2
Directors’ report
Return on equity and LTVR vesting (2015 to 2019)
Total shareholder return (from 1 October 2014)
Cash earnings and CEO STVR award (2015 to 2019)
2019 Westpac Group Annual Report65
Directors’ report
3.3.Total realised remuneration – Chief Executive Officer and Group Executives (unaudited)
The charts below summarise the actual remuneration paid and the equity vested to the CEO and Group Executives relative to the maximum
remuneration that could have been received in 2019 and 2018, including:
xfixed remuneration earned during the year;
xcash STVR awarded in respect of the year;
xdeferred STVR awarded in prior years that vested during the year; and
xLTVR awarded in prior years that vested during the year.
The charts below also reference the maximum value of remuneration foregone in 2019, including cash STVR not awarded in respect of the year
(based on the maximum STVR opportunity) and deferred STVR and LTVR awarded in prior years that was forfeited, adjusted or lapsed during
the year.
The value of deferred STVR and LTVR is based on the number of restricted shares or share rights multiplied by the five day volume weighted
average share price (VWAP) up to and including the date of vesting. The value of equity differs from the disclosure in section 7.
Total realised remuneration ($’000)
1.Equity that vested on 1 October 2019 is included in the 2019 figures. Equity that vested on 1 October 2018 is included in the 2018 figures.
2.The information relates to the period the individual was a KMP. Refer to section 1 for further details.
662019 Westpac Group Annual Repor
t
Fixed remuneration Cash STVR paymentVesting of prior year deferred STVR awards
Vesting of prior year LTVR awards 2019 maximum realisable remuneration
1
Directors’ report
3.4.Other payments made and equity vested during 2019
Craig Bright had 39,827 restricted shares granted under the Restricted Share Plan which vested in August 2019. David Stephen had 15,727
restricted shares granted under the Restricted Share Plan which vested in March 2019. The restricted shares were allocated in respect of
equity forfeited from their previous employers on joining Westpac. In addition, Craig Bright received a one-off cash payment of $1,050,000 in
lieu of variable reward forfeited from his previous employer on joining Westpac.
2019 Westpac Group Annual Report67
Directors’ report
3.5.2019 CEO and Group Executive short term variable reward outcomes
2019 CEO short term variable reward scorecard
The graphic below illustrates the CEO’s 2019 scorecard outcomes reflecting Group and individual performance.
Target Maximum Outcome
6
82019 Westpac Group Annual Report
Group financial performance (40%)
Primary measures of performance include cash earnings and cash ROE against plan, having regard to cost and
margin outcomes.
xCash earnings were $6,849 million, down $1,216 million (or 15%) compared to 2018 and 81% of the target of
$8,411 million, resulting in a zero outcome for the cash earnings score. Group financial performance was
negatively impacted by increased lending and deposit competition, economy wide slowing of credit growth and
higher regulatory and compliance costs.
xCash earnings were also impacted by provisions for estimated customer refunds, payments, associated costs,
and litigation, as well as costs associated with the restructuring of the Wealth business. Excluding the impact of
these items, Westpac’s cash earnings were $7,979 million, down $367 million (or 4%) compared to 2018.
xImpairment charges were slightly lower as asset quality remained sound. Excluding the items outlined above,
expenses were a little lower, down $16m on 2018, and margin compression was limited to 4bps with the Group
margin (excluding Treasury & Markets) of 2.08%, resulting in a positive outcome for this focus area of the
scorecard.
xDelivered cash ROE of 10.75%, which is down from 13.00% in 2018 and lower than the 13.15% target, resulting
in a zero outcome for the cash ROE score.
21% of target
Weighted outcome:
8% of target (6% of maximum)
Risk management (15%)
Financial risk management:
Performance measurement is based on operating performance relative to Westpac’s Risk Appetite Statement as
measured by Capital, Funding and Liquidity Management and Credit Quality.
xOur common equity tier 1 ratio was 10.67%, Net Stable Funding Ratio was 112% and the Liquidity Coverage
Ratio was 127%.
xMaintained sound credit quality across the portfolio, with ratio of stressed assets to total committed exposures at
1.20%.
Non-financial risk management:
Performance measurement is based on operating performance relative to Westpac’s Risk Appetite Statement,
improvements to the control environment and audit and compliance issue resolution.
xIncreased investment to improve non-financial risk management capability over the year including through
targeted hiring in critical roles.
xNotwithstanding this improvement, progress in resolving risk and compliance matters fell short of our
expectations.
xOngoing significant focus on resolving and remediating compliance, regulatory and customer issues, including
enhancing risk management of sales practices, product design and maintenance and financial crime systems
and processes.
Financial
87% of target
Non-financial
0% of target
Weighted outcome (combined):
7% of target (4% of maximum)
Customer outcomes (20%)
Primary measures of performance include net promoter scores (NPS) and complaints handling.
xImproved service quality for our customers resulting in solid customer growth and an improvement in NPS. The
Business division achieved its target to maintain the Number 1 ranking on both Customer Satisfaction and NPS
having widened the gap to Number 2. The Consumer division narrowed the gap to Number 1 on NPS and
maintained the Number 2 ranking for the majority of the year.
xImproved how we manage complaints across the Group, through rollout of Group- wide Complaints Management
Framework, refreshed training, simplified internal processes, detailed root cause analysis and dedicated support
for vulnerable customers. This resulted in a 46% reduction in the average time taken to resolve issues for
customers (which exceeded the 10% target) and the closure of over 1,100 long dated complaints.
99% of target
Weighted outcome:
20% of target (13% of
maximum)
Directors’ report
2019 Group Executive short term variable reward outcomes
The focus areas of the CEO scorecard are cascaded to Group Executives in combination with other relevant divisional or functional measures.
2019 STVR outcomes for Group Executives ranged from 0% to 83% of the target opportunity (or 0% to 55% of the maximum opportunity). The
average 2019 STVR outcome for Group Executives was 56% of the target opportunity (or 37% of the maximum opportunity), down from 87% in
2018.
The average 2019 STVR outcome for functional Group Executives was 70% of the target opportunity. The average 2019 STVR outcome for
Australia based Group Executives leading major divisions (including Consumer, Business, Westpac Institutional Bank and the former BT
Financial Group) was 30% of the target opportunity.
The variability in outcomes reflects the lower weighting of financial and customer measures in scorecards for functional Group Executives in
line with the nature of their roles and responsibilities.
In addition, individual and divisional performance impacted STVR outcomes, as well as the application of downward remuneration adjustments
for material risk and compliance matters.
The 2019 STVR outcomes for the CEO and Group Executives are detailed in the following section.
2019 Westpac Group Annual Report69
Customer service transformation (15%)
Primary measures of performance include delivery of strategic initiatives.
xDelivered customer benefits and improved strategic capability through progress in relation to Service Revolution
Transformation milestones, including the Customer Service Hub and Panorama.
xSignificant investment in technology simplification and foundational platforms improving stability, functionality and
efficiency of the technology environment.
xNumber of digitally active consumers up 4% and an increase in digital sales in the Consumer and Business
divisions.
xAchieved the target structural productivity of $405 million, a 33% uplift from 2018 and a net ~5% reduction in FTE
over the year.
xExecution of the ‘Wealth Reset’ (including the exit of advice business), helping to deliver a better and more
integrated experience for customers and reducing structural costs.
100% of target
Weighted outcome:
15% of target (10% of maximum)
Culture and capability (10%)
Performance is measured based on delivery of key people initiatives that further drive the organisation’s change
agenda.
xDelivered key milestones as part of our people strategy within budget and on schedule, including human capital
management systems and the efficiency of the organisation’s structure, for example, reducing layers between
decision makers and customers.
xStrengthened succession planning across our talent base following the structural shifts made in the first half of
the year.
xImplemented a number of recommendations stemming from the Royal Commission and our Culture, Governance
and Accountability report.
xEmployee engagement has remained stable in a challenging industry environment. Monthly spot engagement
numbers have increased during the year in line with the delivery of our strategy and remediation activity.
102% of target
Weighted outcome:
10% of target (7% of maximum)
Modifier and final outcome
The 2019 STVR outcome for the CEO was zero.
The CEO recommended to the Board that he forego his STVR for this year. Notwithstanding the scorecard outcome of 60% of target, the Board
separately considered the matter and determined that a zero STVR outcome for 2019 for the CEO was appropriate to reflect accountability for poor
non-financial risk and financial outcomes, as well as some
poor customer outcomes, including those highlighted at the Royal Commission.
Directors’ report
3.6.Variable reward awarded in 2019 (unaudited)
The table below shows the variable reward awarded to the CEO and Group Executives in 2019, including:
xSTVR outcomes for 2019 (including the cash and deferred equity components ); and
xequity granted under the 2019 LTVR plan .
The final value of equity received by the CEO and Group Executives will depend on the share price at the time of vesting and the number of
restricted shares or share rights that vest, subject to performance hurdles (where applicable), continued service and adjustment.
The value of equity differs from the disclosure in section 7 which provides the annualised accounting value for unvested equity awards prepared
in accordance with the AAS.
1.The target STVR opportunity and STVR award have been apportioned for part year KMP to reflect their time as KMP.
2.The deferred STVR (granted as restricted shares or unhurdled share rights) is 50% of the total STVR award for the year. The number of restricted shares granted is
determined by reference to the five day VWAP up to and including the day before the grant date. This is adjusted for non-payment of dividends over the vesting period for
unhurdled share rights. The five day VWAP for the 2018 award was $24.86.
3.The fair value of the performance share rights is shown as at the commencement of the performance period and is determined by an independent valuer using a Monte
Carlo simulation pricing model, taking into consideration the life of the awards, the performance hurdles and likelihood of vesting, non-payment of dividends prior to
vesting and appropriate discount rates. The Board Remuneration Committee caps the valuation at a maximum discount of 60% of the share price. The fair value of the
2019 award was capped at $11.12.
4.The face value of the performance share rights is calculated by multiplying the number of performance share rights granted during the year by the five day VWAP up to
and including the grant date. For the 2019 awards, the five day VWAP was $24.71 except for Craig Bright and David Stephen where the five day VWAP was $26.81 and
$27.64 respectively.
5.The information relates to the period the individual was a KMP. Refer to section 1 for further details.
6.Dave Curran was not eligible to receive a 2019 STVR or 2019 LTVR award.
702019 Westpac Group Annual Repor
t
2019 STVR award2019 LTVR award
Name
Target
STVR
opportunity
Maximum
STVR
opportunity
STVR
award (as %
of target)
STVR
award
(as % of
maximum)
STVR
outcome
Maximum
STVR
foregoneFair valueFace value
Managing Director & Chief Executive Officer
Brian Hartzer2,686,0004,029,0000%0%04,029,0002,528,0005,616,534
Current Group Executives
Craig Bright
Chief Information Officer918,0001,377,00083%55%762,000615,000864,0002,082,651
Lyn Coble
y
Chief Executive,
Westpac Institutional Bank1,122,0001,683,00060%40%677,0001,006,0001,056,0002,346,148
Peter Kin
g
Chief Financial Officer1,088,0001,632,00060%40%653,000979,0001,024,0002,275,045
Rebecca Lim
Group Executive,
Legal & Secretariat750,0001,125,00070%47%525,000600,000700,0001,555,172
David Lindberg
Chief Executive,
Consumer1,124,0001,686,00022%15%250,0001,436,0001,052,0002,344,576
Carolyn McCan
n
Group Executive,
Customer & Corporate Relations555,000832,50070%47%389,000443,500555,0001,233,059
David McLea
n
Chief Executive Officer,
Westpac New Zealand1,028,9001,543,35083%55%853,949689,401941,0902,090,840
Christine Parke
r
Group Executive,
Human Resources900,0001,350,00070%47%630,000720,000816,0001,812,901
David Stephe
n
Chief Risk Officer1,350,0002,025,00069%46%932,0001,093,0001,012,5002,516,258
Gary Thursb
y
Chief Operating Officer900,0001,350,00070%47%630,000720,000850,0001,888,451
Alastair Wels
h
Acting Chief Executive, Business400,000600,00068%45%270,000330,000--
Former Group Executives
Brad Coope
r
Chief Executive Officer,
BT Financial Group800,0001,200,0000%0%01,200,0001,050,0002,332,807
Dave Curra
n
Chief Information Officer------ --
George Frazi
s
Chief Executive, Consumer Bank800,0001,200,0000%0%01,200,0001,000,0002,221,730
Average Group Executive STVR award (%)56
%37%
1 2
3
234
5
5
5
5,6
5
Directors’ report
4.Further detail on the executive variable reward structure
This section provides further details of the 2019 STVR and LTVR plans and changes for 2020.
4.1.Short term variable reward
The table below sets out the key design features of the 2019 STVR plan and changes for the 2020 STVR plan.
2019 Westpac Group Annual Report71
Short term variable reward plan
Plan structure50% of STVR is awarded in cash and 50% is deferred into equity in the form of restricted shares (or unhurdled share rights for the Group
Executive based outside Australia).
One unhurdled share right entitles the holder to one ordinary share at the time of vesting with no exercise cost.
One restricted share provides the holder with one ordinary share at no cost subject to trading restrictions until the time of vesting.
Dividends are paid on restricted shares from the grant date.
Target and maximum
opportunity
The target opportunity for the CEO and Group Executives is expressed as a percentage of fixed remuneration. The target opportunity is set
by the Board following recommendation from the Board Remuneration Committee which considers a range of factors including market
competitiveness and the nature of the role.
Target STVR
(100% of fixed remuneration for the CEO and between 75%
and 145% of fixed remuneration for Group Executives
Maximum STVR
(150% of target STVR)
0%100%150%
Remuneration at-riskReward for exceptional performance
Westpac’s STVR is designed to award the target opportunity on delivery of agreed
plan targets for financial and non-financial measures that support Westpac’s
strategic priorities. It is possible for the outcome to fall below the target amount
depending on performance relative to targets agreed at the beginning of the year.
There is the possibility to award up to a
maximum of 150% of the STVR target in
circumstances where exceptional outcomes
are achieved that are also in line with the
Group’s risk appetite and where an individual
has acted in a manner that exemplifies the
encouraged behaviours
.
Performance measuresSTVR awards are determined based on performance against a balanced scorecard which is designed to align with shareholder interests by
setting challenging measures and seeks to ensure that our customers’ and employees’ needs are met and appropriate risk settings are
maintained.
The scorecard is split into two sections:
xFocus areas: Performance is assessed against a balance of financial and non-financial metrics that are imperative to supporting the
effective execution of Westpac’s strategy; and
xModifier: The Board and Board Remuneration Committee recognise that performance metrics may not always appropriately reflect
overall performance of the Group. The modifier supports adjustment of the outcome, upwards or downwards (including to zero), for
behaviour, risk and reputation matters, people management matters, and any other matters that the Board feels are not fully reflected
in the focus areas.
Further information on focus areas and application of the modifier for the 2019 scorecard is provided in section 3.
Deferred STVR awards recognise past performance and are subject to continued service and adjustment.
Deferral period50% of STVR is deferred into equity for a period of up to two years, which aligns executive remuneration with shareholder interests and
acts as a retention mechanism. The deferral period also allows the Board to apply discretion to reduce deferred components where
necessary.
Deferred STVR vests in equal portions one and two years after the grant date, subject to continued service and adjustment.
Delayed vestingThe Board also has discretion (subject to law) to delay vesting of equity-based awards if the individual is under investigation for
misconduct, the subject of or implicated in legal or regulatory proceedings, if the Board is considering an adjustment or if otherwise
required by law.
Remuneration adjustments for
prior period matters
The Board has discretion to adjust current year STVR.
The Board may also adjust unvested deferred STVR downwards, including to zero, if circumstances or information come to light which
mean that in the Board’s view all or part of the award was not appropriate.
The Board will typically apply the adjustment to unvested STVR where an adjustment to current year STVR is considered insufficient or
unavailable.
Changes for 2020Clawback will apply, to the extent legally permissible and practicable, to deferred STVR awarded in respect of performance periods
commencing on or after 1 October 2019 for up to seven years from the date of grant. Clawback may occur in circumstances of serious or
gross misconduct, fraud, bribery, severe reputational damage, and any other deliberate, reckless or unlawful conduct that may have a
serious adverse impact on Westpac, its customers or its people which has resulted in dismissal or the Board considers at its discretion
would have justified the dismissal of the relevant executive or where otherwise required by law. It is the Board’s current intention that
clawback will only be considered for relevant conduct that occurred on or after 1 October 2019.
Directors’ report
4.2.Long Term Variable Reward
The table below sets out the key design features of the 2019 LTVR Plan awarded in December 2018 and changes for the 2020 LTVR plan.
722019 Westpac Group Annual Report
Long term variable reward plan
Plan structureLTVR is awarded in performance share rights which vest after four years subject to the achievement of performance hurdles, continued
service and adjustment.
One performance share right entitles the holder to one ordinary share at the time of vesting with no exercise cost. Dividends are not
accumulated on performance share rights.
Award opportunityThe value of LTVR awarded to the CEO and Group Executives is expressed as a percentage of fixed remuneration. The value of LTVR is
set by the Board following recommendation from the Board Remuneration Committee which considers a range of factors including market
competitiveness and the nature of the role.
The face value of the LTVR opportunity for the CEO for 2019 is 235% of fixed remuneration, and the face value of LTVR opportunities for
the Group Executives (excluding acting Group Executives) range between 185% and 240% of fixed remuneration.
Refer below for changes to apply for the 2020 LTVR award.
Allocation methodologyIn 2019 and prior years, the number of performance share rights each executive received was determined by dividing the dollar value of
the LTVR award by the fair value of the share right at the beginning of the performance period. This is valued by an independent valuer
using a Monte Carlo simulation pricing model, taking into consideration the life of the awards, the performance hurdles and likelihood of
vesting, non-payment of dividends prior to vesting and appropriate discount rates. The Board Remuneration Committee caps the valuation
at a maximum discount of 60% of the share price. The value of a relative TSR hurdled performance share right may be different to the
value of a cash ROE hurdled performance share right.
Refer below for changes to apply for the 2020 LTVR award.
Performance hurdlesLTVR performance hurdles represent a balance of internal and external measures that aims to achieve long-term growth in shareholders’
value and support alignment between executive reward and shareholder interests
.
Relative Total Shareholder ReturnCash return on equity
50% of the award50% of the award
Relative TSR hurdled performance share rights only vest where
Westpac’s TSR exceeds that of key competitors.
Relative TSR is a measure of the total return delivered to
shareholders over the performance period assuming dividends are
reinvested, relative to peers.
The performance hurdle measures Westpac’s TSR performance
over a four year period against a composite index. The composite
index is comprised of a group of 10 peers with more weight placed
on the three other major Australian banks.
At the end of the performance period, TSR performance of each
index company is multiplied by its index weighting, and the total of
the 10 scores determines the composite TSR index.
50% will vest if Westpac’s TSR performance equals the composite
TSR index. For 100% to vest, Westpac’s TSR outcome must
exceed the index by 21.55 (i.e. 5% compound annual growth over
the four
year performance period) as illustrated below.
The performance hurdle measures the average cash return on
average ordinary equity over a three year performance period (with
an additional one year holding lock).
The performance hurdle aims to reward the achievement of returns
above Westpac’s cost of capital while generating shareholder value
and improving how efficiently the Group uses capital resources
within its risk appetite.
The performance period for cash ROE differs to the TSR
performance period because TSR is an external measure that can
be calculated on an ongoing basis whereas cash ROE is an internal
measure where the hurdle reflects the time horizon of our financial
forecasting.
The graph below shows the performance levels required for the
cash ROE performance share rights to vest.
Relative Total Shareholder Return vestin
gCash return on equity vesting
The companies in the 2019 composite TSR index and their relative weightings are:
ANZ Banking Group16.67%Bendigo and Adelaide Bank7.14%
Commonwealth Bank16.67%Challenger7.14%
National Australia Bank16.67%Macquarie Group7.14%
AMP7.14%Perpetual7.14%
Bank of Queensland
7.14%Suncorp Group7.14%
Refer below for changes to apply for the 2020 LTVR award.
Directors’ report
2019 Westpac Group Annual Report73
Long term variable reward plan
Assessment of performance
outcomes
Relative Total Shareholder Retur
nCash return on equity
The relative TSR result is calculated independently to ensure
objectivity and external validation before being provided to the Board
to determine the vesting outcome.
The Board may exercise discretion in determining the final vesting
outcome, for example where relative TSR performance hurdles have
been met but the absolute TSR outcome is negative
.
Performance share rights subject to relative TSR performance will be
tested against the performance hurdle on 30 September 2022.
The cash ROE outcome is determined by the Board based on cash
ROE disclosed in the Group’s results over the performance period.
The Board may exercise discretion in determining the final vesting
outcome.
Performance share rights subject to cash ROE performance will be
tested against the performance hurdle on 30 September 2021 and
will be subject to an additional one year holding lock through to 30
September 2022.
No re-testing
There is no re-testing. Awards that have not vested after the measurement period lapse immediately.
Early vestingUnvested awards may vest before a test date if the executive is no longer employed by the Group due to death or disability (subject to law).
In these cases, vesting is generally not subject to the performance hurdles being met
.
Delayed vestingThe Board also has discretion (subject to law) to delay vesting of equity-based awards if the individual is under investigation for
misconduct, the subject of or implicated in legal or regulatory proceedings, if the Board is considering an adjustment or if otherwise
required by law
.
Treatment of awards on
cessation of employment
The Board has the discretion to determine the treatment of unvested performance share rights where the CEO or a Group Executive
resigns, retires or otherwise leaves the Group before vesting occurs
.
The Board may choose to accelerate the vesting of performance share rights or leave the awards on foot for the remainder of the
performance period
.
In exercising its discretion, the Board will consider relevant circumstances including those relating to the departure.
The Board also has the ability to adjust the number of performance share rights downwards (including to zero) in the event of
misconduct resulting in significant financial and/or reputational impact to the Group and in other circumstances considered
appropriate
.
Where an executive acts fraudulently or dishonestly, or is in material breach of their obligations under the relevant equity plan, unexercised
performance share rights (whether vested or unvested) will be forfeited unless the Board determines otherwise
.
Remuneration adjustments for
prior period matters
The Board has discretion to adjust LTVR which is awarded on a prospective basis.
The Board may also adjust unvested LTVR downwards, including to zero, if circumstances or information come to light which mean that in
the Board’s view all or part of the award was not appropriate.
The Board will typically apply the adjustment to unvested LTVR where an adjustment to current and deferred STVR is considered
insufficient or unavailable
.
Changes for 2020Allocation methodology: From the 2020 LTVR plan onwards, the number of performance share rights each executive receives will be
determined by dividing the dollar value of the LTVR award by the face value of performance share rights. The face value is the five day
VWAP up to the commencement of the performance period (which is 1 October 2019 for the 2020 LTVR grant).
Award opportunity: The Board reduced the face value of 2020 LTVR opportunities by 43% for the CEO and 23% to 25% for Group
Executives (excluding acting Group Executives). When setting LTVR opportunities for the CEO and Group Executives, the Board took into
account that no dividends are payable on LTVR performance share rights, the minimum variable remuneration deferrals required by
Banking Executive Accountability Regime (BEAR) and the overall market positioning of the executives’ remuneration (including adjusting
from a fair value to face value allocation methodology). The face value of the 2020 LTVR opportunity for the CEO is 133% of fixed
remuneration, and the 2020 LTVR opportunities for Group Executives (excluding acting Group Executives) range between 140% and 180%
of fixed remuneration. The Board intends the same percentages of fixed remuneration to apply to the determination of LTVR grants at face
value in future years, subject to market benchmarking and any changes that may flow from the release of APRA’s final regulatory
framework for remuneration.
Performance hurdle: Relative TSR has been selected as the performance hurdle for the 2020 LTVR plan as the Board believes this
measure best aligns executive remuneration outcomes with lon
g-term shareholder value creation. The Board considers that setting an
absolute cash ROE range over a three year period has become increasingly difficult in light of current uncertainties surrounding future
regulatory capital requirements and interest rates, which are at historically low levels. The Board will review the 2021 LTVR plan following
the release of APRA’s final regulatory framework for remuneration.
Clawback: Clawback will apply, to the extent legally permissible and practicable, to LTVR awarded in respect of performance periods
commencing on or after 1 October 2019 for up to seven years from the date of grant. Clawback may occur in circumstances of serious o
r
gross misconduct, fraud, bribery, severe reputational damage, and any other deliberate, reckless or unlawful conduct that may have a
serious adverse impact on Westpac, its customers or its people which has resulted in dismissal or the Board considers at its discretion
would have justified the dismissal of the relevant executive or where otherwise required by law. It is the Board’s current intention that
clawback will only be considered for relevant conduct that occurred on or after 1 October 2019
.
The table below details other LTVR awards currently on foot.
Vesting datePerformance hurdlesFurther detail
2017 LTVR award
30 September 2020
xRelative TSR performance against a weighted composite index of comparator companies
(50%)
Refer to the 2017
Annual Report
xAverage cash ROE performance (50%)
2018 LTVR award
30 September 2021
xRelative TSR performance against a weighted composite index of comparator companies
(50%)
Refer to the 2018
Annual Report
xAverage cash ROE performance (50%)
Directors’ report
5.Remuneration governance
5.1.Remuneration policy and governance oversight
Westpac’s remuneration policy sets out the mandatory requirements to be reflected in the design and management of remuneration
arrangements across Westpac.
The policy supports Westpac’s vision by requiring the design and management of remuneration to align with stakeholder interests, support
long-term financial soundness and encourage prudent risk management.
The policy is supported by an established governance structure, plans and frameworks, that are designed to support remuneration decision-
making across the Group.
742019 Westpac Group Annual Report
Board
The Board provides strategic guidance for the Group and has oversight of management. The Board has overall accountability for reviewing
and approving executive remuneration as well as Non-executive Director Board and Committee fees (subject to the Board fee pool approved
by shareholders).
Without limiting its role, the Board approves (following recommendation from the Board Remuneration Committee) performance targets for the
CEO, the size of variable reward pools, remuneration (including variable reward targets and performance outcomes) for the CEO, Group
Executives, any other accountable persons under the BEAR, other persons whose activities in the Board’s opinion affect the financial
soundness of the Group, any other person specified by APRA and any other person the Board determines.
The Board has the discretion to defer, adjust or withdraw aggregate and individual variable reward.
Further detail is contained in the Board and Committee Charters which are available on Westpac’s website.
Board Remuneration Committee
The Board Remuneration Committee assists the Board to fulfil its remuneration responsibilities to shareholders by monitoring the
remuneration policies and practices of the Group and their effectiveness, external remuneration practices, market expectations and regulatory
requirements in Australia and globally. The Board Remuneration Committee reviews and makes recommendations to the Board in relation to
the individual remuneration levels of individuals outlined above, STVR and LTVR plans and outcomes for the Group Executives and any other
Accountable Persons under the BEAR as well as performance goals and objectives relevant to the remuneration of the CEO and any and all
equity based plans.
In carrying out its duties, the Board Remuneration Committee accesses risk and financial control personnel and engages external advisers
who are independent of management.
Members of the Board Remuneration Committee are independent Non-executive Directors.
Further detail is contained in the Board Remuneration Committee Charter which is available on Westpac’s website.
Interaction with other Board CommitteesManagement remuneration oversight committees
The Chairman of the Board Risk & Compliance Committee is also a
member of the Board Remuneration Committee. Members of the
Board Remuneration Committee are all members of the Board Risk &
Compliance Committee. The cross membership of both Committees
supports alignment between risk and reward.
The Board Remuneration Committee seeks feedback from and
considers matters raised by the Board Risk & Compliance Committee
and Board Audit Committee with respect to remuneration outcomes,
adjustments to remuneration in light of relevant matters and alignment
of remuneration with the risk management framework.
Divisional remuneration oversight committees consider areas of risk
within the divisions and consider potential implications for
remuneration. These committees report to the Group Remuneration
Oversight Committee which in turn considers consistency of
remuneration across the Group and provides information to the
Board Remuneration Committee and Board for review and
decision-making as appropriate.
During the financial year, remuneration governance arrangements
were reviewed and changes were made to the Terms of Reference
for the Group Remuneration Oversight Committee. This included an
added responsibility for the Group Remuneration Oversight
Committee to review the design and implementation of
remuneration systems for front line staff, annually, in line with
Recommendation 5.4 from the Royal Commission.
Remuneration consultants
In 2019, the Board retained Guerdon Associates as its independent consultant to provide specialist information on executive remuneration and other
remuneration matters. The services were provided directly to the Board Remuneration Committee independent of management. The Chairman of the
Board Remuneration Committee oversees the engagement and associated costs. Work undertaken by Guerdon Associates during 2019 included the
provision of information relating to the benchmarking of Non-executive Director, CEO and Group Executive remuneration.
In 2019, no remuneration recommendations, as prescribed under the Corporations Act, were made by Guerdon Associates.
Directors’ report
5.2.Executive minimum shareholding requirements and current compliance
The CEO and Group Executives are required to build and maintain a significant Westpac shareholding within five years of their appointment to
strengthen alignment with shareholder interests.
At 30 September 2019, the CEO and all Group Executives comply with the requirement. The table below sets out the minimum shareholding
requirement for the CEO and Group Executives.
The multiple for the CEO’s shareholding requirement is higher than that of his peers and reflects Westpac’s approach to calculating the
minimum shareholding requirement.
Since 2006, the following has been included for the purpose of calculating the minimum shareholding requirement:
xshares held outright in the individual’s name either solely or jointly with another person;
xshares held in an employee share plan (including deferred STVR); and
x50% of any unvested performance share rights (including LTVR).
The assessment approach has included shares held in a family trust or self-managed super fund since 2012.
The minimum shareholding requirement will be reviewed in 2020 following the release of APRA’s final regulatory framework for remuneration.
5.3.Hedging policy
Participants in Westpac’s equity plans are forbidden from entering, either directly or indirectly, into hedging arrangements for unvested awards
in the STVR and LTVR plans. No financial products may be used to mitigate the risk associated with these awards. Any attempt to hedge
awards will result in forfeiture and the Board may consider other disciplinary action. These restrictions satisfy the requirements of the
Corporations Act which prohibits hedging of unvested awards.
5.4.Employment agreements
The remuneration and other terms of employment for the CEO and Group Executives are formalised in their employment agreements. Each
agreement provides for the payment of fixed and variable reward, employer superannuation contributions and other benefits such as death and
disablement insurance cover.
The table below details the key terms including termination provisions of the employment agreements for the CEO and Group Executives in
2019.
1.Payment in lieu of notice may in certain circumstances be approved by the Board for some or all of the notice period.
2.The maximum liability for termination benefits for the CEO and Group Executives at 30 September 2019 was $16.0 million (2018: $14.1 million).
3.Brad Cooper ceased in his KMP role as the Chief Executive Officer, BT Financial Group on 1 April 2019.
2019 Westpac Group Annual Repor
t75
Minimum shareholding requirement
Chief Executive OfficerFive times annual fixed remuneration excluding superannuation, equivalent to $12.26 million
Group ExecutivesEquivalent to $1.2 million
TermWhoConditions
Duration of agreementCEO and Group Executives
xOngoing until notice given by either party
Notice (by the executive or the Group) to terminate
employment
CEO and Group Executives
x12 months
Termination payments on termination without causeCEO and Group Executives
xDeferred STVR and LTVR awards vest according to
the applicable equity plan rules
Termination for causeCEO and Group Executives (excluding
xImmediately for misconduct
Brad Cooper)
x3 months’ notice for poor performance
Brad Cooper
xImmediately for misconduct
xContractual notice period for poor performance
Post-employment restraintsCEO and Group Executives
x12 month non-solicitation restraint
1
2
3
Directors’ report
6.Non-executive Director remuneration
6.1.Structure and policy
Westpac’s Non-executive Director remuneration strategy is designed to attract and retain experienced, qualified Board members and provide
appropriate remuneration for their time and expertise.
Non-executive Director fees are not related to Westpac’s results. All fees are paid in cash and no discretionary payments are made for
performance. Non-executive Directors are required to build and maintain a minimum shareholding to align their interests with those of
shareholders (refer to section 6.4 for further details).
The table below sets out the components of Non-executive Director remuneration.
6.2.Non-executive Director remuneration in 2019
The base fees payable to the Chairman and other Non-executive Directors were reduced by 20% for 2019 as a one-off measure. The reduction
was applied to all current No
n-executive Directors in recognition of the collective accountability as the Board of Westpac for customer outcomes
highlighted by the Royal Commission, shareholder sentiment leading to the first strike at the 2018 Annual General Meeting and significant non-
financial risk matters. In addition, the Board Risk & Compliance Committee Chairman fee was increased from $70,400 to $90,000 effective 1
October 2018 to reflect the significant increase in the workload of the Committee Chairman. The table below sets out the annual Board and
standing Committee fees and the changes for 2019.
The Non-executive Director fee pool of $4.5 million per annum was approved by shareholders at the 2008 Annual General Meeting. For 2019,
$3.11 million (69%) of the fee pool was used. The fee pool includes employer superannuation contributions.
Subsidiary Board and Advisory Board fees
During the reporting period, additional fees of $7,241 were paid to Peter Hawkins as a member of the Westpac Group Victoria Advisory Board
(formerly Bank of Melbourne Advisory Board) (during the period in which he was a KMP) and additional fees of $83,146 were paid to Anita
Fung as a member of the Westpac Asia Advisory Board.
762019 Westpac Group Annual Report
Non-executive Director remuneration
Base feeRelates to service on the Westpac Banking Corporation Board. The base fee for the Chairman covers all
responsibilities, including for Board Committees.
Committee feesAdditional fees are paid to Non-executive Directors (other than the Board Chairman) for chairing or participating in
Board Committees other than the Board Nominations Committee.
Employer superannuation contributionsReflects statutory superannuation contributions which are capped at the superannuation maximum contributions base
as prescribed under the Superannuation Guarantee legislation.
Subsidiary Board and Advisory Board feesRelates to service on Subsidiary Boards and Advisory Boards and are paid by the relevant subsidiary.
Base and Committee fees
Annual fee
$Changes for 2019
Chairman810,000One-off reduction of
$162,000 to $648,000
Other Non-executive Directors225,000One-off reduction o
f
$45,000 to $180,000
Committee Chairman fees
Board Audit Committee70,400No change
Board Risk & Compliance Committee90,000Fee increase to
$90,000 (from $70,400) effective
1 October 201
8
Board Remuneration Committee63,800No change
Board Technology Committee35,200No change
Committee membership fees
Board Audit Committee32,000No change
Board Risk & Compliance Committee32,000No change
Board Remuneration Committee29,000No change
Board Technology Committee20,000No change
Directors’ report
6.3.Changes to Board and Committee composition
The table below outlines the changes that were made to the Board and Committee composition during the year ended 30 September 2019.
6.4.Non-executive Director minimum shareholding requirement
Non-executive Directors are required to build and maintain a holding in Westpac ordinary shares to align their interests with those of
shareholders. Each Non-executive Director is required to hold an interest in shares in Westpac with a market value not less than the Board
base fee, within five years of appointment to the Board.
At 30 September 2019, all Non-executive Directors comply with the requirement.
2019 Westpac Group Annual Report77
Name of Non-executive DirectorChange in positionEffective date
Anita Fung
xAppointed Non-executive Director
xAppointed member of the Board Risk & Compliance Committee
1 October 2018
Peter Hawkins
xRetired from the Board
12 December 2018 following the completion of the 2018
Annual General Meeting
Ewen Crouch
xAppointed member of the Board Audit Committee
1 January 2019
Steven Harker
xAppointed Non-executive Director
xAppointed member of the Board Risk & Compliance Committee
1 March 2019
Margaret Seale
xAppointed Non-executive Director
xAppointed member of the Board Risk & Compliance Committee
1 March 2019
Directors’ report
7.Statutory remuneration details
7.1.Details of Non-executive Director remuneration
The table below details Non-executive Director remuneration.
1.Includes fees paid to the Chairman and members of Board Committees.
2.The information relates to the period the individual was a KMP. Refer to section 1 for further details.
3.Non-monetary benefits are determined on the basis of the cost to the Group (including associated fringe benefits tax (FBT), where applicable) and include provision of
taxation advice.
7
82019 Westpac Group Annual Report
Short-term benefits
Post-employment
benefits
Westpac Banking
Corporation Board
fees
Subsidiary and
Advisory Board
fees
Non-
monetary
benefitsSuperannuationTotal
Name$$$$$
Current Non-executive Directors
Lindsay Maxsted, Chairma
n
2019648,000--20,658668,658
2018810,000--20,181830,181
Nerida Caesar
2019232,000--20,658252,658
2018277,000--20,181297,181
Ewen Crouc
h
2019323,000--20,658343,658
2018324,400--20,181344,581
Alison Deans
2019276,200--20,658296,858
2018312,965--20,181333,146
Craig Dunn
2019275,800--20,658296,458
2018320,800--20,181340,981
Anita Fun
g
2019212,00083,1466,30020,658322,104
2018---------------------------------- Not a KMP in 2018----------------------------------
Steven Harker
2019123,667--11,972135,639
2018---------------------------------- Not a KMP in 2018----------------------------------
Peter Marriott
2019302,400--20,658323,058
2018347,400--20,181367,581
Peter Nash
2019244,000--20,658264,658
2018164,690--11,744176,434
Margaret Seale
2019123,667--11,972135,639
2018---------------------------------- Not a KMP in 2018----------------------------------
Former Non-executive Director
Peter Hawkins
201964,3757,241-4,24875,864
2018311,83235,000-20,103366,935
Total fees
20192,825,10990,3876,300193,4563,115,252
20182,869,08835,000-152,9313,057,020
13
2
2
2
Directors’ report
7.2.Remuneration details – Chief Executive Officer and Group Executives
The table below sets out details of remuneration for the CEO and Group Executives calculated in accordance with the AAS.
2019 Westpac Group Annual Report79
Post-Other
employment long-term
Short-term benefitsbenefitsbenefitsShare-based payments
CashNon-OtherLong
FixedSTVRmonetaryshort-termSuperannuationserviceRestrictedShare
remuneratio
nawardbenefitsbenefitsbenefitsleavesharesrightsTotal
$$$$$$ $$$
Managing Director & Chief Executive Officer
Brian Hartzer
20192,608,424-21,966-44,32040,6601,169,5811,168,0405,052,991
20182,730,7141,040,82520,618-42,23540,6971,449,9641,247,127 6,572,180
Current Group Executives
Craig Bright, Chief Information Officer
20191,022,829381,000309,4951,050,00023,81815,1372,075,911170,7975,048,987
2018---------------------------------------------------------------------- Not a KMP in 2018 ----------------------------------------------------------------------
Lyn Cobley, Chief Executive, Westpac Institutional Bank
20191,108,830338,5004,948-30,61116,995516,242508,4372,524,563
20181,085,585465,5004,039-29,99317,000749,930394,975 2,747,022
Peter King, Chief Financial Officer
20191,222,006326,5004,238-36,80319,492549,189483,6922,641,920
20181,232,059517,0002,924-34,95790,204597,487512,401 2,987,032
Rebecca Lim, Group Executive, Legal & Secretariat
2019950,128262,5004,981-31,71814,390422,793260,1081,946,618
2018903,728356,5002,924-29,91255,507512,169348,768 2,209,508
David Lindberg, Chief Executive, Consumer
20191,129,075125,0006,592-30,43423,822470,092475,3682,260,383
20181,049,010440,5004,014-28,36525,006518,657435,208 2,500,760
Carolyn McCann, Group Executive, Customer & Corporate Relations
2019731,367194,5004,828-21,57911,198445,723186,5631,595,758
2018241,36574,5001,915-5,57912,665144,34425,395505,763
David McLean, Chief Executive Officer, Westpac New Zealand
2019861,551426,9751,194-87,710--907,5802,285,010
2018849,488498,43955,885-81,444--785,206 2,270,462
Christine Parker, Group Executive, Human Resources
2019875,430315,0003,123-27,420(33,023)456,373384,0052,028,328
2018865,802427,5002,924-26,848(8,854)500,697399,535 2,214,452
David Stephen, Chief Risk Officer
20191,816,090466,000263,844-25,90027,2652,023,326732,6115,355,036
2018---------------------------------------------------------------------- Not a KMP in 2018 ----------------------------------------------------------------------
Gary Thursby, Chief Operating Officer
2019881,655315,0003,123-29,60523,294423,765306,6721,983,114
2018794,889395,5002,924-28,61612,693453,951344,305 2,032,878
Alastair Welsh, Acting Chief Executive, Business
2019369,151135,000438-11,8616,557207,06613,321743,394
2018---------------------------------------------------------------------- Not a KMP in 2018 ----------------------------------------------------------------------
Former Group Executives
Brad Cooper, Chief Executive Officer, BT Financial Group
20191,553,160-27,860-95,64014,402608,2151,826,9724,126,249
20181,136,073400,00017,861-29,36616,700778,096538,531 2,916,627
Dave Curran, Chief Information Officer
2019173,917-1,11536,4756,019(45,839)140,1291,309,0461,620,862
20181,021,322485,0002,924-28,80620,703531,367480,835 2,570,957
George Frazis, Chief Executive, Consumer Bank
2019557,789-28,279522,50915,989(97,778)709,9401,739,9233,476,651
20181,109,913480,00016,771-38,13217,425858,110489,032 3,009,383
1234567,89
10,11
10
10,12,14
10,14,1
5
10,13,14
Directors’ report
1.Fixed remuneration is the total cost of salary, salary sacrificed benefits (including motor vehicles, parking and associated FBT) and an accrual for annual leave
entitlements.
2.2019 STVR awards reflect annual cash performance awards accrued but not yet paid in respect of the year ended 30 September 2019. STVR awards are paid in
December.
3.Non-monetary benefits are determined on the basis of the cost to the Group (including associated FBT, where applicable) and include annual health checks, provision of
taxation advice, bank funded car parking, relocation costs, living away from home expenses and allowances. In the 2018 and 2017 Remuneration Reports, non-
monetary benefits were understated and 2018 values for two individuals have been amended in the table above. For 2017, a total of $27,694 was understated reflecting
additional car parking benefits.
4.Includes payments on cessation of employment or other contracted amounts.
5.The CEO and Group Executives are provided with life insurance cover under the Westpac Group Plan at no cost. Superannuation benefits have been calculated
consistent with AASB 119 Employee Benefits.
6.The value of restricted shares is amortised over the applicable vesting period and the amount shown is the amortisation relating to 2019 (and 2018 for comparison). The
restricted shares held by Craig Bright and David Stephen represent an allocation made in substitution for forgone unvested equity on joining the Westpac Group. The
restricted shares replicate the vesting periods of the equity forgone.
7.Equity-settled remuneration is based on the amortisation over the vesting period (normally one, two or four years) of the fair value at grant date of hurdled and unhurdled
options and share rights that were granted during the four years ended 30 September 2019. Details of prior year grants are disclosed in previous Annual Reports. The
2019 value for David McLean includes 53% attributed to deferred STVR awards. The 2019 value for David Stephen includes an allocation of hurdled share rights made
in substitution for unvested equity foregone on joining the Westpac Group, and is subject to Westpac’s 2018 LTVR performance hurdles and vesting criteria.
8.The expensed value of the 2017 LTVR cash ROE hurdled performance share rights has been reduced to zero. The expensed value of the 2018 and 2019 LTVR cash
ROE hurdled performance share rights have been reduced by 50%. This reflects the current assessment of the probability of vesting.
9.The percentage of the total remuneration which is performance-related (i.e. cash STVR award plus share-based payments) was: Brian Hartzer 46%, Craig Bright 52%,
Lyn Cobley 54%, Peter King 51%, Rebecca Lim 49%, David Lindberg 47%, Carolyn McCann 52%, David McLean 58%, Christine Parker 57%, David Stephen 60%,
Gary Thursby 53%, Alastair Welsh 48%, Brad Cooper 59%, Dave Curran 89% and George Frazis 70%. The percentage of total remuneration delivered in the form of
options (including share rights) was: Brian Hartzer 23%, Craig Bright 3%, Lyn Cobley 20%, Peter King 18%, Rebecca Lim 13%, David Lindberg 21%, Carolyn McCann
12%, David McLean 40%, Christine Parker 19%, David Stephen 14%, Gary Thursby 15%, Alastair Welsh 2%, Brad Cooper 44%, Dave Curran 81% and George Frazis
50%.
10.The information relates to the period the individual was a KMP. Refer to section 1 for further details.
11.Craig Bright received a one-off cash payment of $1,050,000 in lieu of variable reward forfeited from his previous employer on joining the Westpac Group.
12.The information relates to Brad Cooper’s KMP role. This includes payments made or to be made during his 12 month notice period from 1 August 2019 to 31 July 2020,
where Brad continues to receive fixed remuneration and superannuation. From 1 April 2019 to 31 July 2019, Brad acted as an advisor to the Group and received fixed
remuneration of $371,730 (including superannuation), which has been excluded from the table on the basis that it did not relate to his KMP role.
1
3.
The information relates to George Frazis’ KMP role. From 1 April 2019 to 31 August 2019, George acted as an advisor to the Group and received fixed remuneration of
$480,709 (including superannuation), which has been excluded from the table on the basis that it did not relate to his KMP role. The value of other short-term benefits
relates to payments on cessation of employment, including 4 months’ pay in lieu of notice ($383,333) and annual leave and long service leave entitlements ($139,176).
14.The share based payment values for Brad Cooper, Dave Curran and George Frazis reflect the accruals for all unvested equity up to the end of each performance period.
For example, the 2019 LTVR will include the accrual for four years until the vesting date in lieu of a single year accrual value for 2018. While the full value is being
accrued for all unvested equity, the awards may or may not vest subject to the relevant performance hurdles.
15.Dave Curran was not eligible to receive a 2019 STVR or 2019 LTVR award.
802019 Westpac Group Annual Repor
t
Directors’ report
7.3.Movement in equity-settled instruments during the year
The table shows the movements in the number and value of equity instruments for the CEO and Group Executives under the relevant plan
during 2019.
1.No performance options were granted in 2019. Deferred STVR awards in the form of restricted shares or unhurdled share rights (for David McLean based in New
Zealand) are awarded in December. David McLean’s unhurdled share rights were granted on 19 December 2018 at a fair value of $23.37 (unhurdled share rights which
vested on 1 October 2019) and $21.88 (unhurdled rights vesting on 1 October 2020).
2.No hurdled share rights granted in 2014 vested in October 2018 when assessed against the relative TSR and cash EPS performance hurdles.
3.Vested options and share rights that were awarded prior to October 2009 can be exercised up to a maximum of 10 years from their commencement date. Vested share
rights awarded between October 2009 and July 2015 are automatically exercised at vesting. Vested share rights granted after July 2015 may be exercised at will up to a
maximum of 15 years from their commencement date. For each vested share right and each performance option exercised during the year, the relevant executive
received one fully paid Westpac ordinary share. The exercise price for share rights is zero.
4.For performance share rights, the value granted represents the number of securities granted multiplied by the fair value per instrument as set out in the table in the sub-
section titled ‘Fair value of Long Term Variable Reward awards made during the year’ below. For restricted shares, the value granted represents the number of ordinary
shares granted multiplied by the five day VWAP of a Westpac ordinary share on the date the shares were granted. These values, which represent the full value of the
equity-based awards made to the CEO and Group Executives in 2019, do not reconcile with the amount shown in the table in section 7.2 which shows the amount
amortised in the current year of equity awards over their vesting period. The minimum total value of the grants for future financial years is zero and an estimate of the
maximum possible total value in future financial years is the fair value, as shown above.
5.The value of each option or share right exercised, forfeited or lapsed is calculated based on the five day VWAP of Westpac ordinary shares on the date of exercise (or
forfeiture or lapse), less the relevant exercise price (if any). Where the exercise price is greater than the five day VWAP of Westpac ordinary shares, the value has been
calculated as zero.
6.The information relates to the period the individual was a KMP. Refer to section 1 for further details.
2019 Westpac Group Annual Repor
t81
NameType of equity-based instrument
Number
granted
Number
vested
Number
exercised
Value
granted
$
Value
exercised
$
Value
forfeited or
lapsed
$
Managing Director & Chief Executive Officer
Brian HartzerCEO Performance share rights227,338
--3,350,962-3,176,443
Performance share rights-
----910,932
Shares under the CEO Restricted Share Plan41,86743,914
-1,034,352--
Current Group Executives
Craig BrightPerformance share rights77,696
--1,224,953--
Shares under Restricted Share Plan132,15139,827
-3,542,324--
Lyn CobleyPerformance share rights94,964
--1,399,769--
Shares under Restricted Share Plan18,72417,817
-462,589--
Peter KingPerformance share rights92,086
--1,357,348-1,749,043
Shares under Restricted Share Plan20,79618,234
-513,779--
Rebecca LimPerformance share rights62,948
--927,854-367,504
Shares under Restricted Share Plan14,34017,343
-354,279--
David LindbergPerformance share rights94,602
--1,398,440-784,008
Shares under Restricted Share Plan17,71915,875
-437,760--
Carolyn McCannPerformance share rights49,910
--735,673-376,943
Shares under Restricted Share Plan9,81810,541
-242,560--
David McLeanPerformance share rights84,630
--1,247,446-948,126
Unhurdled share rights22,05913,351
-502,783--
Christine ParkerPerformance share rights73,380
--1,081,621-1,413,548
Shares under Restricted Share Plan17,19615,210
-424,838--
David StephenPerformance share rights278,698
--4,461,892--
Shares under Restricted Share Plan135,92915,727
-3,644,447--
Gary ThursbyPerformance share rights76,438
--1,126,696-452,315
Shares under Restricted Share Plan15,90913,296
-393,042--
Alastair WelshPerformance share rights-
-----
Shares under Restricted Share Plan4,223
--116,704--
Former Group Executive
Brad CooperPerformance share rights94,424
--1,391,810-1,978,989
Shares under Restricted Share Plan16,09024,004
-397,514--
Dave CurranPerformance share rights-
----1,688,745
Shares under Restricted Share Plan-16,038
----
George FrazisPerformance share rights89,928
--1,325,539-1,548,156
Shares under Restricted Share Plan19,30826,518
-477,017--
123
455
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Directors’ report
Fair value of Long Term Variable Reward awards made during the year
The table below provides a summary of the fair value of LTVR awards granted to the CEO and Group Executives during 2019 calculated in
accordance with AASB 2 Share-based Payment and is used for accounting purposes only. LTVR awards will only vest if performance hurdles
are achieved and service conditions are met in future years.
7.4.Details of Westpac equity holdings of Non-executive Directors
The table below sets out details of relevant interests in Westpac ordinary shares held by Non-executive Directors (including their related
parties) during the year ended 30 September 2019 .
1.The commencement date is the start of the performance period.
2.The fair values of performance share rights granted during the year have been independently calculated at their respective grant dates based on the requirements of
AASB 2 Share-based Payment. The fair value of performance share rights with cash ROE hurdles has been assessed with reference to the share price at grant date and
a discount rate reflecting the expected dividend yield over their vesting periods which for the performance share rights valued at $19.03 is four years to the 1
October 2022 vesting date. For the purpose of allocating performance share rights with cash ROE hurdles, the valuation also takes into account the average cash ROE
outcome using a Monte Carlo pricing simulation model. The fair value of performance share rights with hurdles based on TSR performance relative to that of a group of
comparator companies also takes into account the average TSR outcome determined using a Monte Carlo simulation pricing model.
3.Other than as disclosed below, no share interests include non-beneficially held shares.
4.Ewen Crouch holds 42,000 ordinary shares following the grant of probate in a deceased estate for which he is one of the executors. In addition to holdings of ordinary
shares, Ewen Crouch and his related parties held interests in 250 Westpac Capital Notes 2 at year end.
5.The information relates to the period the individual was a KMP. Refer to section 1 for further details.
6.Peter Marriott’s related party ceased to hold an interest in 2,001 ordinary shares following the realisation of assets in a deceased estate. In addition to holdings of
ordinary shares, Peter Marriott and his related parties held interests in 563 Westpac Capital Notes 2 at year end.
7.In addition to holding shares, Margaret Seale and her related parties held interests in 3,220 Westpac Capital Notes 2 at year end.
8
22019 Westpac Group Annual Report
Plan nameGranted to
Performance
hurdleGrant date
Commencement
dateTest dateExpiry
Fair value per
instrument
CEO Long Term
Variable Reward Pla
n
Brian HartzerRelative TSR12 December 20181 October 20181 October 20221 October 2033$10.45
Cash ROE12 Decembe
r20181 October 20181 October 20211 October 2033$19.03
Westpac Long TermGroupRelative TS
R12 December 20181 October 20181 October 20221 October 2033$10.45
Variable Reward PlanExecutives
Cash ROE12 December 20181 October 20181 October 20211 October 2033$19.03
Name
Number held at
start of the year
Changes
during the year
Number held at
end of the year
Current Non-executive Directors
Lindsay Maxsted22,0951,58523,680
Nerida Caesar9,9853,59813,583
Ewen Crouch82,264-82,264
Alison Deans14,392-14,392
Craig Dunn8,869-8,869
Anita Fung-- -
Steven Harkern/a10,36511,930
Peter Marriott41,072(2,001)39,071
Peter Nash8,020-8,020
Margaret Sealen/a1,06837,439
Former Non-executive Director
Peter Hawkins15,880-n/a
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4
5
6
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Directors’ report
7.5.Details of Westpac equity holdings of Executive Key Management Personnel
The table below details Westpac equity held (and movement in that equity) by the CEO and Group Executives (including their related parties)
for the year ended 30 September 2019 .
1.The highest number of shares held by an individual in the table is 0.0043% of total Westpac ordinary shares outstanding as at 30 September 2019.
2.The information relates to the period the individual was a KMP. Refer to section 1 for further details.
2019 Westpac Group Annual Repor
t83
Name
Type of equity-based
instrument
Number
held at
start of
the year
Number
granted
during the
year as
remuneration
Received
on exercise
and/or
exercised
during the
year
Number
forfeited
or lapsed
during the
year
Other
changes
during the
year
Number
held at end
of the year
Number
vested and
exercisable
at end of
the year
Managing Director & Chief Executive Officer
Brian HartzerOrdinary shares109,61141,867
---151,478-
CEO Performance share rights732,817227,338
-(119,476)-840,679-
Performance share rights34,263-
-(34,263)---
Current Group Executives
Craig BrightOrdinary sharesn/a132,151
---132,151-
Performance share rightsn/a77,696
---77,696-
Lyn CobleyOrdinary shares91,99318,724
---110,717-
Performance share rights261,84694,964
---356,810-
Peter KingOrdinary shares97,79120,796
---118,587-
Performance share rights314,25992,086
-(65,787)-340,558-
Rebecca LimOrdinary shares30,87614,340
---45,216-
Performance share rights144,09262,948
-(13,823)-193,217-
David LindbergOrdinary shares64,95217,719
---82,671-
Performance share rights254,36994,602
-(29,489)-319,482-
Carolyn McCannOrdinary shares49,4359,818
---59,253-
Performance share rights42,81649,910
-(14,178)-78,548-
David McLeanOrdinary shares9,613-
---9,613-
Performance share rights237,91884,630
-(35,662)-286,8862,148
Unhurdled share rights57,21822,059
---79,27749,831
Christine ParkerOrdinary shares27,43117,196
--(15,000)29,627-
Performance share rights240,31173,380
-(53,168)-260,523-
David StephenOrdinary shares-135,929
---135,929-
Performance share rights-278,698
---278,698-
Gary ThursbyOrdinary shares92,44515,909
---108,354-
Performance share rights154,55376,438
-(17,013)-213,978-
Alastair WelshOrdinary sharesn/a4,223--(20,802)37,256-
Performance share rightsn/a-
---14,944-
Former Group Executives
Brad CooperOrdinary shares131,98216,090
---n/a -
Performance share rights329,21694,424
-(74,436)-n/a-
Dave CurranOrdinary shares49,425-
---n/a -
Performance share rights288,436-
-(63,519)-n/a-
George FrazisOrdinary shares81,30219,308
--(10,000)n/a-
Performance share rights300,88089,928
-(58,231)-n/a-
1
2
2
2
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Directors’ report
7.6.Loans to Non-executive Directors and Executive Key Management Personnel disclosures
Financial instrument transactions that occurred during the financial year between Directors, the CEO or Group Executives and the Group are in
the ordinary course of business on terms and conditions (including interest and collateral) as they apply to other employees and certain
customers. These transactions consisted principally of normal personal banking and financial investment services.
The table below details loans to Non-executive Directors, the CEO and Group Executives (including their related parties) of the Group.
The table below details KMP (including their related parties) with loans above $100,000 during 2019.
1. The information relates to the period the individual was a KMP. Refer to section 1 for further details.
842019 Westpac Group Annual Repor
t
Balance at start of
the year
$
Interest paid and
payable for the year
$
Interest not charged
during the year
$
Balance at end of
the year
$
Number in Group at
end of the year
Non-executive Directors3,544,610306,091-19,785,1624
CEO and Group Executives9,519,382366,076
-11,932,84510
13,063,992672,167
-31,718,00714
Balance at start ofInterest paid andInterest not chargedBalance at end of
Highest
indebtedness during
the year
$
payable for the year
$
during the year
$
the year
$
the year
$
Directors
Lindsay Maxsted1,572,88971,630
-2,666,9792,666,979
Ewen Crouch979,94739,833
-928,7811,479,947
Steven Harkern/a158,722
-15,000,00015,000,000
Peter Nash991,77435,906
-1,189,4021,498,923
CEO and Group Executives
Brian Hartze
r9,84715,572-806,470814,285
Lyn Cobley2,000,00085,800-2,000,0002,007,287
Brad Cooper2,791,36073,973
-n/a3,097,569
Rebecca Lim732,84513,081
-600,000778,035
Carolyn McCan
n145,0004,788-307,697440,001
David McLea
n620,84130,059-625,816672,004
Christine Parke
r1,308,48646,955-5,001,8665,436,523
David Stephe
n-3,112--672,755
Gary Thursby1,911,00373,462-1,864,7912,034,797
Alastair Welshn/a19,274
-726,205726,205
1
1
1
Directors’ report
11. Auditor
a) Non-audit services
We may decide to engage PwC on assignments additional to their statutory audit duties where their expertise or experience with Westpac or a
controlled entity is important.
Details of the non-audit service amounts paid or payable to PwC for non-audit services provided during the 2018 and 2019 financial years are
set out in Note 39 and Note 35 to the respective financial statements.
PwC also provides audit and non-audit services to non-consolidated entities, non-consolidated trusts of which a Westpac Group entity is
trustee, manager or responsible entity and non-consolidated superannuation funds or pension funds. The fees in respect of these services were
approximately $7.5 million in total (2018: $7.5 million). PwC may also provide audit and non-audit services to other entities in which Westpac
holds a minority interest and which are not consolidated. Westpac is not aware of the amount of any fees paid to PwC by those entities.
Westpac has a policy on engaging PwC, details of which are set out in the ‘Corporate governance’ section, including the subsection entitled
‘Engagement of the external auditor’, which forms part of this Directors’ report.
The Board has considered the position and, in accordance with the advice received from the Board Audit Committee, is satisfied that the
provision of the non-audit services during 2019 by PwC is compatible with the general standard of independence for auditors imposed by the
Corporations Act. The Directors are satisfied, in accordance with advice received from the Board Audit Committee, that the provision of non-
audit services by PwC, as set out above, did not compromise the auditor independence requirements of the Corporations Act for the following
reasons:
xall non-audit services provided by PwC for the year have been reviewed by the Board Audit Committee, which is of the view that they do
not impact the impartiality and objectivity of PwC; and
xbased on Board quarterly independence declarations made by PwC to the Board Audit Committee during the year, none of the services
undermine the general principles relating to auditor independence including reviewing or auditing PwC’s own work, acting in a management
or a decision-making capacity for the company, acting as advocate for the company or jointly sharing economic risk and rewards.
Signed in accordance with a resolution of the Board.
2019 Westpac Group Annual Report85
Lindsay MaxstedBrian Hartzer
ChairmanManaging Director & Chief Executive Officer
4 November 20194 November 2019
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862019 Westpac Group Annual Report
Five year summary
Reading this report
Review of Group operations
Divisional performance
Risk and risk management
Westpac’s approach to sustainability
Other Westpac business information
2019 Westpac Group Annual Report87
Five year summary
1.Where accounting classifications have changed or where changes in accounting policy are adopted retrospectively, comparatives have been restated and may differ
from results previously reported.
2.The above income statement extracts for 2019, 2018 and 2017 and balance sheet extracts for 2019 and 2018 are derived from the consolidated financial statements
included in this Annual Report. The above income statement extracts for 2016 and 2015 and balance sheet extracts for 2017, 2016 and 2015 are derived from financial
statements previously published.
3.Adjusted for Treasury shares.
4.Total equity attributable to owners of Westpac Banking Corporation, after deducting intangible assets divided by the number of ordinary shares outstanding, less
Treasury shares held.
5.Provisions for expected credit losses (ECL) for the 30 September 2019 year end have been determined based on AASB 9 Financial Instruments (December 2014)
(AASB 9). Comparatives based on AASB 139 Financial Instruments: Recognition and Measurement (AASB 139) have not been restated. Refer to Note 1 and Note 13 to
the financial statements for further details.
6.Full-time equivalent employees include full-time, pro-rata part-time, overtime, temporary and contract staff.
8
82019 Westpac Group Annual Report
(in $m unless otherwise indicated)20192018201720162015
Income statements for the years ended 30 September
Net interest income16,90716,50515,51615,14814,267
Net fee income
1,6552,4242,6032,6112,808
Net wealth management and insurance income
1,0292,0611,8001,8992,228
Trading income
9299451,2021,124964
Other income
12972529591,241
Net operating income before operating expenses and impairment charges
20,64922,00721,65020,84121,508
Operating expenses
(10,106)(9,566)(9,282)(9,073)(9,339)
Impairment charges
(794)(710)(853)(1,124)(753)
Profit before income tax
9,74911,73111,51510,64411,416
Income tax expense
(2,959)(3,632)(3,518)(3,184)(3,348)
Profit attributable to non-controlling interests
(6)(4)(7)(15)(56)
Net profit attributable to owners of Westpac Banking Corporation
6,7848,0957,9907,4458,012
Balance sheet as at 30 September
Loans714,770709,690684,919661,926623,316
Other assets
191,856169,902166,956177,276188,840
Total assets
906,626879,592851,875839,202812,156
Deposits and other borrowings
563,247559,285533,591513,071475,328
Debt issues
181,457172,596168,356169,902171,054
Loan capital
21,82617,26517,66615,80513,840
Other liabilities
74,58965,87370,92082,24398,019
Total liabilities
841,119815,019790,533781,021758,241
Total shareholders’ equity and non-controlling interests
65,50764,57361,34258,18153,915
Key financial ratios
Shareholder value
Dividends per ordinary share (cents)174188188188187
Dividend payout ratio (%)
88.8379.5279.2884.1973.39
Return on average ordinary equity (%)
10.6513.0513.6513.3216.23
Basic earnings per share (cents)
196.5237.5238.0224.6255.0
Net tangible assets per ordinary share ($)
15.3615.3914.6613.9013.02
Share price ($):
High30.0533.6835.3933.7440.07
Low
23.3027.2428.9227.5729.10
Close
29.6427.9331.9229.5129.70
Business performance
Operating expenses to operating income ratio (%)48.9443.4742.8743.5343.42
Net interest margin (%)
2.122.132.062.102.09
Capital adequacy
Total equity to total assets (%)7.27.37.26.96.6
Total equity to total average assets (%)
7.37.47.27.06.8
APRA Basel III:
Common equity Tier 1 (%)10.6710.6310.569.489.50
Tier 1 ratio (%)
12.8412.7812.6611.1711.38
Total capital ratio (%)
15.6314.7414.8213.1113.26
Credit quality
Net impaired assets to equity and collectively assessed provisions (%)1.411.141.291.791.80
Total provisions for expected credit losses/impairment on loans and credit commitments to total loans
(basis points)
5443455453
Other information
Full time equivalent employees (number at financial year end)33,28835,02935,09635,58035,484
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Disclosure regarding forward-looking statements
This Annual Report contains statements that constitute ‘forward-looking statements’ within the meaning of Section 21E of the US Securities
Exchange Act of 1934.
Forward-looking statements are statements about matters that are not historical facts. Forward-looking statements appear in a number of
places in this Annual Report and include statements regarding Westpac’s intent, belief or current expectations with respect to its business and
operations, market conditions, results of operations and financial condition, including, without limitation, future loan loss provisions and financial
support to certain borrowers. Words such as ‘will’, ‘may’, ‘expect’, ‘intend’, ‘seek’, ‘would’, ‘should’, ‘could’, ‘continue’, ‘plan’, ‘estimate’,
‘anticipate’, ‘believe’, ‘probability’, ‘risk’, ‘aim’ or other similar words are used to identify forward-looking statements. These forward-looking
statements reflect Westpac’s current views with respect to future events and are subject to change, certain risks, uncertainties and assumptions
which are, in many instances, beyond Westpac’s control, and have been made based upon management’s expectations and beliefs concerning
future developments and their potential effect upon Westpac. There can be no assurance that future developments will be in accordance with
Westpac’s expectations or that the effect of future developments on Westpac will be those anticipated. Actual results could differ materially from
those expected, depending on the outcome of various factors, including, but not limited to:
xthe effect of, and changes in, laws, regulations, taxation or accounting standards or practices and government policy, particularly changes
to liquidity, leverage and capital requirements;
xregulatory investigations and other actions, inquiries, litigation, fines, penalties, restrictions or other regulator imposed conditions, including
as a result of our actual or alleged failure to comply with laws (such as financial crime laws), regulations or regulatory policy;
xinternal and external events which may adversely impact Westpac’s reputation;
xinformation security breaches, including cyberattacks;
xreliability and security of Westpac’s technology and risks associated with changes to technology systems;
xthe stability of Australian and international financial systems and disruptions to financial markets and any losses or business impacts
Westpac or its customers or counterparties may experience as a result;
xmarket volatility, including uncertain conditions in funding, equity and asset markets;
xadverse asset, credit or capital market conditions;
xan increase in defaults in credit exposures because of a deterioration in economic conditions;
xthe conduct, behaviour or practices of Westpac or its staff;
xchanges to Westpac’s credit ratings or the methodology used by credit rating agencies;
xlevels of inflation, interest rates (including low or negative rates), exchange rates and market and monetary fluctuations;
xmarket liquidity and investor confidence;
xchanges in economic conditions, consumer spending, saving and borrowing habits in Australia, New Zealand and other countries
(including as a result of tariffs and protectionist trade measures) in which Westpac or its customers or counterparties conduct their
o
peration
s and Westpac’s ability to maintain or to increase market share, margins and fees, and control expenses;
xthe effects of competition, including from established providers of financial services and from non-financial services entities, in the
geographic and business areas in which Westpac conducts its operations;
xthe timely development and acceptance of new products and services and the perceived overall value of these products and services by
customers;
xthe effectiveness of Westpac’s risk management policies, including internal processes, systems and employees;
xthe incidence or severity of Westpac-insured events;
xthe occurrence of environmental change (including as a result of climate change) or external events in countries in which Westpac or its
customers or counterparties conduct their operations;
xchanges to the value of Westpac’s intangible assets;
xchanges in political, social or economic conditions in any of the major markets in which Westpac or its customers or counterparties
operate;
xthe success of strategic decisions involving diversification or innovation, in addition to business expansion activity, business acquisitions
and the integration of new businesses; and
xvarious other factors beyond Westpac’s control.
The above list is not exhaustive. For certain other factors that may impact on forward-looking statements made by Westpac, refer to ‘Risk
factors’ under the section ‘Risk and risk management’. When relying on forward-looking statements to make decisions with respect to Westpac,
investors and others should carefully consider the foregoing factors and other uncertainties and events.
Westpac is under no obligation to update any forward-looking statements contained in this Annual Report, whether as a result of new
information, future events or otherwise, after the date of this Annual Report.
2019 Westpac Group Annual Report89
Reading this report
Significant developments
For a discussion of significant developments impacting the Group, refer to ‘Significant developments’ under ‘Information on Westpac’ in
Section 1.
Currency of presentation, exchange rates and certain definitions
In this Annual Report, ‘financial statements’ means our audited consolidated balance sheets as at 30 September 2019 and 30 September 2018
and income statements, statements of comprehensive income, changes in equity and cash flows for each of the years ended 30
September 2019, 2018 and 2017 together with accompanying notes which are included in this Annual Report.
Our financial year ends on 30 September. As used throughout this Annual Report, the financial year ended 30 September 2019 is referred to as
2019 and other financial years are referred to in a corresponding manner.
We publish our consolidated financial statements in Australian dollars. In this Annual Report, unless otherwise stated or the context otherwise
requires, references to ‘dollars’, ‘dollar amounts’, ‘$’, ‘AUD’ or ‘A$’ are to Australian dollars, references to ‘US$’, ‘USD’ or ‘US dollars’ are to
United States dollars and references to ‘NZ$’, ‘NZD’ or ‘NZ dollars’ are to New Zealand dollars. Solely for the convenience of the reader, certain
Australian dollar amounts have been translated into US dollars at a specified rate. These translations should not be construed as
representations that the Australian dollar amounts actually represent such US dollar amounts or have been or could be converted into US
dollars at the rate indicated. Unless otherwise stated, the translations of Australian dollars into US dollars have been made at the rate of A$1.00
= US$0.6746, the noon buying rate in New York City for cable transfers in Australian dollars as certified for customs purposes by the Federal
Reserve Bank of New York (the ‘noon buying rate’) as of Monday, 30 September 2019. The Australian dollar equivalent of New Zealand dollars
at 30 September 2019 was A$1.00 = NZ$1.0790, being the closing spot exchange rate on that date. Refer to ‘Exchange rates’ in Section 4 for
information regarding the rates of exchange between the Australian dollar and the US dollar for the financial years ended 30 September 2015
to 30 September 2019.
Any discrepancies between totals and sums of components in tables contained in this Annual Report are due to rounding.
902019 Westpac Group Annual Report
Review of Group operations
Selected consolidated financial and operating data
We have derived the following selected financial information as of, and for the financial years ended, 30 September 2019, 2018, 2017, 2016
and 2015 from our audited consolidated financial statements and related notes.
This information should be read together with our audited consolidated financial statements and the accompanying notes included elsewhere in
this Annual Report.
Accounting standards
The financial statements and other financial information included elsewhere in this Annual Report, unless otherwise indicated, have been
prepared and presented in accordance with Australian Accounting Standards (AAS). Compliance with AAS ensures that the financial
statements also comply with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board
(IASB).
The financial statements have been prepared in accordance with the accounting policies described in the Notes to the financial statements.
Recent accounting developments
For a discussion of recent accounting developments refer to Note 1 to the financial statements.
Critical accounting estimates
Our reported results are sensitive to the accounting policies, assumptions and estimates that underlie the preparation of the income statement
and the balance sheet. Note 1(b) includes details of the areas of our critical accounting assumptions and estimates and a reference to the
relevant note in the financial statements providing further information. Each of the assumptions and estimates have been discussed at our
Board Audit Committee (BAC). The following is a summary of the areas involving our most critical accounting estimates.
Provisions (other than loan impairment charges)
Provisions are held in respect of a range of obligations such as employee entitlements, litigation and non-lending losses, impairment charges
on credit commitments, surplus lease space, restructuring costs and compliance, regulation and remediation provisions. Some of the provisions
involve significant judgement about the likely outcome of various events and estimated future cash flows. Refer to Note 27.
Provisions for expected credit losses (ECL)/impairment charges on loans
Provisions for ECL are a probability-weighted estimate of the cash shortfalls expected to result from defaults over the relevant timeframe. They
are determined by evaluating a range of possible outcomes and taking into account the time value of money, past events, current conditions
and forecasts of future economic conditions.
The models use three main components to determine the ECL (as well as the time value of money) including:
xProbability of default (PD): the probability that a counterparty will default;
xLoss given default (LGD): the loss that is expected to arise in the event of a default; and
xExposure at default (EAD): the estimated outstanding amount of credit exposure at the time of the default.
The provisions for ECL are determined based on three stages as follows:
Stage 1: 12 months ECL - performing
For financial assets where there has been no significant increase in credit risk since origination a provision for 12 months ECL is recognised.
Stage 2: Lifetime ECL - performing
For financial assets where there has been a significant increase in credit risk since origination but where the asset is still performing a provision
for lifetime ECL is recognised.
Stage 3: Lifetime ECL – non-performing
For financial assets that are non-performing a provision for lifetime ECL is recognised. Indicators include a breach of contract with the Group
such as a default on interest or principal payments, a borrower experiencing significant financial difficulties or observable economic conditions
that correlate to defaults on a group of loans.
Determining when a financial asset has experienced a significant increase in credit risk since origination is a critical accounting judgement
which is primarily based on changes in internal customer risk grades since origination of the facility. The change in the internal customer risk
grade that the Group uses to represent a significant increase in credit risk is based on a sliding scale. This means that a higher credit quality
exposure at origination would require a more significant downgrade compared to a lower credit quality exposure before it is considered to have
experienced a significant increase in credit risk.
Interest income is calculated based on the gross carrying amount of financial assets in stages 1 and 2 of the Group’s ECL model and on the
carrying amount net of the provision for ECL for financial assets in stage 3.
The measurement of ECL for each stage and the assessment of significant increase in credit risk consider information about past events and
current conditions as well as reasonable and supportable projections of future events and economic conditions. The estimation of forward
looking information is a critical accounting judgement. The Group considers three future macroeconomic scenarios including a base case
scenario along with upside and downside scenarios.
2019 Westpac Group Annual Report91
Review of Group operations
The macroeconomic variables used in these scenarios, based on current economic forecasts, include (but are not limited to) unemployment
rates, real gross domestic product growth rates and residential and commercial property price indices.
The macroeconomic scenarios are weighted based on the Group’s best estimate of the relative likelihood of each scenario. The weighting
applied to each of the three macroeconomic scenarios takes into account historical frequency, current trends, and forward looking conditions.
As at 30 September 2019, gross loans to customers were $718,378 million (2018: $712,504 million) and the provision for ECL/impairment
charges on loans was $3,608 million (2018: $2,814 million) .
Fair value of financial instruments
Financial instruments classified as held-for-trading (including derivatives) are measured at fair value through income statement. Investment
securities measured at fair value through other comprehensive income (AASB 9)/available-for-sale (AASB 139) are also recognised in the
financial statements at fair value. As much as possible, financial instruments are valued with reference to quoted, observable market prices o
r
by using models which employ observable valuation parameters. Where valuation models rely on parameters for which inputs are not
observable, judgements and estimation may be required.
As at 30 September 2019, the fair value of trading securities and financial assets measured at fair value through profit or loss, investment
securities measured at fair value through other comprehensive income (2019) / available-for-sale securities (2018), loans designated at fair
value and life insurance assets was $113,989 million (2018: $94,247 million). The fair value of deposits and other borrowings at fair value, other
financial liabilities at fair value, debt issues at fair value and life insurance liabilities was $56,979 million (2018: $56,427 million). The fair value
of outstanding derivatives was a net asset of $763 million (2018: $306 million net liability). The fair value of financial assets and financial
liabilities determined by valuation models that use unobservable market prices was $399 million (2018: $964 million) and $29 million (2018: $6
million), respectively. The fair value of financial assets and financial liabilities, including derivatives, is largely determined based on valuation
models using observable market prices and rates. Where observable market inputs are not available, day one profits or losses are not
recognised.
We believe that the judgements and estimates used are reasonable in the current market. However, a change in these judgements and
estimates would lead to different results as future market conditions can vary from those expected.
Goodwill
Goodwill represents the excess of purchase consideration, the amount of any non-controlling interest in the acquiree and the acquisition date
fair value of any previous equity interest in the acquiree, over the fair value of the identified net assets of acquired businesses. The
determination of the fair value of the assets and liabilities of acquired businesses requires the exercise of management judgement. Different fair
values would result in changes to the goodwill and to the post-acquisition performance of the acquisitions.
Goodwill is tested for impairment annually by determining if the carrying value of the cash-generating unit (CGU) that it has been allocated to is
recoverable. The recoverable amount is the higher of the CGU’s fair value less costs to sell and its value-in-use. Determination of appropriate
cash flows and discount rates for the calculation of the value in use is subjective. As at 30 September 2019, the carrying value of goodwill was
$8,895 million (2018: $8,890 million).
Superannuation obligations
The actuarial valuation of our defined benefit plan obligations are dependent upon a series of assumptions, the key ones being price inflation,
salary growth, mortality, morbidity, discount rate and investment returns. Different assumptions could significantly alter the amount of the
difference between plan assets and defined benefit obligations and the amount recognised directly in retained profits.
The net superannuation deficit across all our plans as at 30 September 2019 was $335 million (2018: net superannuation surplus of $64
million). As at 30 September 2019, one superannuation plan was in surplus of $73 million (2018: two plans in surplus of $89 million) and three
superannuation plans were in deficit of $408 million (2018: two plans in deficit of $25 million).
Income taxes
The Group is subject to income taxes in Australia and jurisdictions where it has foreign operations. All our businesses predominantly operate in
jurisdictions with similar tax rates to the Australian corporate tax rate. Significant judgement is required in determining the worldwide provision
for income taxes. There are many transactions and calculations undertaken during the ordinary course of business for which the ultimate tax
determination is uncertain. For these circumstances, we hold appropriate provisions. Where the final outcome of these matters is different from
the amounts that were initially recorded, such differences will impact the current and deferred tax provisions in the period where such
determination is made.
Life insurance contract liabilities
The actuarial valuation of life insurance contract liabilities and associated deferred policy acquisition costs are dependent upon a number of
assumptions. The key factors impacting the valuation of these liabilities and related assets are the cost of providing benefits and administering
the contracts, mortality and morbidity experience, discontinuance experience and the rate at which projected future cash flows are discounted.
1.The provision for ECL on loans relates to the 30 September 2019 year end balance determined under AASB 9. The provision for impairment charges on loans related to
the 2018 year end balance determined under AASB 139.
2.On adoption of AASB 9, the majority of available-for-sale securities were reclassified to Investment securities measured at fair value through other comprehensive
income (FVOCI). Refer to Note 1 to the financial statements for more details.
9
22019 Westpac Group Annual Report
1
2
Review of Group operations
Income statement review
Consolidated income statement
Overview of performance – 2019 v 2018
During 2019, Westpac adopted AASB 9 Financial Instruments (AASB 9) and AASB 15 Revenue from Contracts with Customers (AASB 15). As
the Group chose to apply the standards prospectively, comparatives have not been restated.
Adopting the new standards has resulted in measurement and classification differences between 2019 and prior years. The significant
differences are:
xthe measurement of credit loss provision and impairment charges are now on an expected loss basis;
xline fees (mainly in Business) are now recognised in net interest income, previously most was recognised in net fee income;
xinterest on performing loans is now measured on the gross loan value. Previously, interest was recognised on the loan balance net of
impairment provision; and
xcertain 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 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 years. These changes are discussed further in Section 3, Note 1.
Net profit attributable to owners of Westpac Banking Corporation for 2019 was $6,784 million, a decrease of $1,311 million or 16% compared to
2018. 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 Note 27 to the financial statements. 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 shown in the ‘Divisional performance’
section.
Net interest income increased $402 million or 2% compared to 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, offset by a lower margin. Reported net interest margin decreased 1 basis
point to 2.12%.
1.Where accounting classifications have changed or where changes in accounting policy are adopted retrospectively, comparatives have been restated and may differ
from results previously reported.
2.Australian dollar amounts have been translated into US dollars solely for the convenience of the reader at the rate of A$1.00 = US$0.6746 (refer to ‘Reading this report’
section).
3.Based on basic earnings per share, with the weighted average number of fully paid ordinary shares outstanding adjusted for the conversion of dilutive potential ordinary
shares, issued for no consideration, and after adjusting earnings for distributions on dilutive potential ordinary shares.
4.Adjusted for Treasury shares.
2019 Westpac Group Annual Repor
t93
For the years ending 30 September201920192018201720162015
(in $m unless otherwise indicated)US$A$A$A$A$A$
Interest income22,41233,22232,57131,23231,82232,295
Interest expense(11,007)
(16,315)(16,066)(15,716)(16,674)(18,028)
Net interest income11,405
16,90716,50515,51615,14814,267
Net fee income1,116
1,6552,4242,6032,6112,808
Net wealth management and insurance income694
1,0292,0611,8001,8992,228
Trading income627
9299451,2021,124964
Other income88
12972529591,241
Net operating income before operating expenses and impairment charges13,930
20,64922,00721,65020,84121,508
Operating expenses(6,817)
(10,106)(9,566)(9,282)(9,073)(9,339)
Impairment charges(536)
(794)(710)(853)(1,124)(753)
Profit before income tax6,577
9,74911,73111,51510,64411,416
Income tax expense(1,996)
(2,959)(3,632)(3,518)(3,184)(3,348)
Net profit for the year4,581
6,7908,0997,9977,4608,068
Net profit attributable to non-controlling interests(5)
(6)(4)(7)(15)(56)
Net profit attributable to owners of Westpac Banking Corporation4,576
6,7848,0957,9907,4458,012
Weighted average number of ordinary shares (millions)3,450
3,4503,4063,3553,3133,140
Basic earnings per ordinary share (cents)132.6
196.5237.5238.0224.6255.0
Diluted earnings per share (cents)127.8
189.5230.1229.3217.8248.2
Dividends per ordinary share (cents)117
174188188188187
Dividend payout ratio (%)88.83
88.8379.5279.2884.1973.39
1
2
3
4
Review of Group operations
Net fee income decreased $769 million or 32% compared to 2018 primarily due to the 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 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 $69 million, cessation of grandfathered advice commissions $42 million, lower wealth management income due to changes in platform
pricing structure, and exit of the Hastings business in 2018.
Trading income decreased $16 million or 2% compared to 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 2018, primarily due to the non-repeat of a 2018 impairment charge on an equity holding of
$104 million.
Operating expenses increased $540 million or 6% compared to 2018. The increase was mainly due to a $349 million increase in provisions for
estimated customer refunds, payments, associated costs, and litigation and wealth reset, higher technology expenses of $174 million, a rise in
regulatory, compliance and investment related spend of $170 million, partially offset by the exit of the Hastings business in 2018 of $158 million
and a net productivity benefit.
Impairment charges were $84 million or 12% higher compared to 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.
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.
The Board has determined a final dividend of 80 cents per ordinary share. The full year ordinary dividends of 174 cents is lower than the
ordinary dividends declared in 2018 and represents a pay-out ratio of 88.83%. The full year ordinary dividend is fully franked.
Income statement review – 2019 v 2018
Net interest income – 2019 v 2018
Net interest income increased $402 million or 2% compared to 2018. Key features include:
x3% growth in average interest-earning assets, primarily from Australian and New Zealand housing and higher third party liquids;
xGroup net interest margin decreased 1 basis point to 2.12%. Refer to Interest spread and margin – 2019 v 2018 for primary drivers of
margin movement.
942019 Westpac Group Annual Report
$m201920182017
Interest income33,22232,57131,232
Interest expense
(16,315)(16,066)(15,716)
Net interest income
16,90716,50515,516
Increase/(decrease) in net interest income
Due to change in volume397648855
Due to change in rate
5341(487)
Change in net interest income
402989368
Review of Group operations
Loans increased $5.1 billion or 1% compared to 2018. Excluding foreign currency translation impacts, loans increased $2.9 billion.
Key features of loan growth were:
xAustralian 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% and comprised 58% of the portfolio, while investor property lending decreased 1%;
xAustralian personal loans decreased $1.8 billion or 8%, across personal lending, credit cards and auto finance. Demand for unsecured
lending continued to decline in 2019 with our experience in line with the market;
xAustralian 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;
xAustralian 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
xNew Zealand lending increased A$4.4 billion or 6%. Housing loans grew 7%, mostly in fixed rate products and business lending increased
6%, supported by growth in agricultural, and property lending. This was partially offset by a decline personal lending and credit cards.
Deposits and other borrowings excluding certificates of deposit increased $6.8 billion or 1% compared to 2018. Excluding foreign currency
translation impacts, deposits and other borrowings excluding certificates of deposit increased $4.7 billion.
Key features of deposits and other borrowings excluding certificates of deposit growth were:
xAustralian deposits and other borrowings excluding certificates of deposit 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
xNew Zealand deposits and other borrowings excluding certificates of deposit increased A$3.1 billion or 5%, as term deposits were up 4%
and interest bearing transactional deposits were up 12%. Non-interest bearing deposits increased 18%, 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.
Interest spread and margin – 2019 v 2018
Group net interest margin of 2.12% decreased 1 basis point from 2018. Key features include:
xProvisions for estimated customer refunds, payments, associated costs, and litigation contributed to a reduction in margin of 3 basis
points;
x11 basis points increase from the adoption of AASB 15 and AASB 9 primarily related to the reclassification of line fees from net fee income
to net interest income and the measurement of interest on performing loans based on the gross loan value; and
xExcept for these items, net interest margin decreased 9 basis points driven by:
xChanges in short term wholesale funding rates having little impact with the average cost being similar in 2018 and 2019 despite the
sharp reduction in bank bill swap rate (BBSW) in the second half of 2019;
xLoan 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;
x2 basis point decrease from lower customer deposit spreads due to broad based competition and the impact from lower interest rates,
particularly in the second half of 2019; and
x2 basis point decrease from liquidity primarily due to increased balances of third party liquid assets.
xTreasury & Markets contribution decreased 5 basis points due to lower Treasury revenue from interest rate risk management (3 basis
points), and fair value adjustments (2 basis points).
1.Interest spread is the difference between the average yield on all interest earning assets and the average yield on all interest bearing liabilities.
2.The benefit of net non-interest bearing assets, liabilities and equity is determined by applying the average yield paid on all interest bearing liabilities to the average level
of net non-interest bearing funds as a percentage of average interest earning assets.
3.Net interest margin is calculated by dividing net interest income by average interest earning assets.
2019 Westpac Group Annual Repor
t95
$m201920182017
Group
Net interest income16,90716,50515,516
Average interest earning assets
798,924774,944752,294
Average interest bearing liabilities
734,282715,509694,924
Average net non-interest bearing assets, liabilities and equity
64,64259,43557,370
Interest spread
1.94%1.95%1.89%
Benefit of net non-interest bearing assets, liabilities and equity
0.18%0.18%0.17%
Net interest margin
2.12%2.13%2.06%
1
2
3
Review of Group operations
Non-interest income - 2019 v 2018
Non-interest income decreased $1,760 million or 32% compared to 2018. Key features include:
x$657 million decrease from provisions for estimated customer refunds, payments, associated costs, and litigation;
x$508 million decrease from the adoption of AASB 15 primarily related to the reclassification of line fees from net fee income to net interest
income ($667 million) and reclassification of certain items previously netted that are now presented on a gross basis (up $159 million);
xExit of Hastings business in 2018 ($203 million); and
xExcept for these items, non-interest income decreased by $392 million due to reduced net wealth management and insurance income and
lower trading income.
Net fee income decreased $769 million or 32%, including $126 million additional provisions for estimated customer refunds, payments,
associated costs, and litigation mostly related to financial planning, reclassification of line fees from non-interest income to net interest income
as a result of the adoption of AASB 15 to more appropriately reflect the relationship with drawn lines of credit (down $667 million) and the
reclassification of certain items previously netted that are now presented on a gross basis including card scheme support payments (up $153
million).
Except for these items, net fee income decreased $129 million or 6% mainly from:
xLower advice income following the exit of financial planning (down $76 million);
xLower 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
xA decrease in business lending and mortgage fees largely due to reduced new lending volumes (down $27 million); partly offset by
xHigher corporate and institutional lending fees largely from syndication fees generated in the first half of 2019 (up $10 million).
Net wealth management and insurance income decreased $1,032 million or 50% compared to 2018, including additional provisions for
estimated customer refunds, payments, associated costs, and litigation (mostly related to financial planning) of $531 million. Additionally, there
was no contribution from Hastings, following the exit of the business in 2018 (down $203 million)
.
Except for these items, net wealth management and insurance income decreased $298 million, mainly from:
xInsurance income decreased $139 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 (“Protect Your Super”) and
higher claims and movement in policyholder tax recoveries (down $23 million); and
–Lower LMI income (down $8 million) primarily from a reduction in loans written at higher LVR bands.
xLower Platforms and Superannuation income (down $98 million) primarily driven by margin compression from full year impact of platform
repricing, implementation of regulatory reforms (‘Protect 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
xCessation of grandfathered commission payments (down $42 million).
Trading income decreased $16 million or 2% compared to 2018, primarily driven by the derivative valuation adjustment (down $78 million)
partially offset by higher non-customer income.
Other income increased $57 million or 79% compared to 2018, reflecting the impairment loss on the remaining Pendal shares in 2018 that did
not repeat ($104 million), higher gains from asset sales and revaluation of a Fintech investment ($98 million), partially offset by loss on financial
instruments measured at fair value ($100 million), lower rental income from operating leases ($35 million) and the impact of hedging future
earnings (down $19 million).
962019 Westpac Group Annual Report
$m201920182017
Net fee income1,6552,4242,603
Net wealth management and insurance income
1,0292,0611,800
Trading income
9299451,202
Other income
12972529
Non-interest income
3,7425,5026,134
Review of Group operations
Operating expenses – 2019 v 2018
Operating expenses increased $540 million or 6% compared to 2018. Key features include:
xincreased costs associated with the Wealth Reset ($241 million higher);
xestimated costs associated with implementing customer refunds and payments and litigation ($108 million higher);
xan increase due to the reclassification of $238 million predominantly related to merchant and card schemes from non-interest income to
operating expenses; and
xreduced costs from the exit of the Hastings business ($158 million).
Except for these items, operating expenses increased $111 million, primarily driven by regulatory and compliance costs ($99 million higher) and
investment related spend ($71 million higher) with productivity offsetting underlying cost growth.
Staff expenses increased $151 million or 3% compared to 2018. This was due to costs associated with the Wealth Reset and estimated costs
associated with implementing customer refunds and payments and litigation ($231 million higher). Except for these items, staff expenses
decreased $80 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 decreased $10 million or 1% compared to 2018, driven by the reduction in branch numbers (down 61), the exit of 4
corporate sites and the removal of 375 ATMs. This was partly offset by annual rental increases and costs associated with branch and ATM
rationalisation.
Technology expenses increased $209 million or 10%. This was due to costs associated with the Wealth Reset and estimated costs associated
with implementing customer refunds and payments and litigation ($35 million higher). Except for these items, technology expenses increased
$174 million 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.
Other expenses increased $190 million or 12%. This was due to costs associated with the Wealth Reset and estimated costs associated with
implementing customer refunds and payments and litigation ($83 million higher). Except for these items, expenses increased $107 million from
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, partly offset by lower costs associated with the exit of Hastings
business ($111 million lower) and the Royal Commission
Impairment charges – 2019 v 2018
Asset quality remained sound through 2019 with stressed exposures to total committed exposures increasing by 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 2019, equal to 11 basis points of gross loans.
Impairment charges for 2019 of $794 million were up $84 million when compared to 2018.
Key movements included:
xThe introduction of AASB9 required the removal of the recognition of the time value of money on performing collective provisions which
contributed $115 million increase in impairment charges; and
xWrite-offs, included in non-performing provisions, were $95 million higher principally in Australian unsecured lending portfolios including
Auto finance and from increases in customers utilising hardship; partially offset by
xNon performing provisions relating to new individually assessed provisions (IAPs) were $28 million lower due to lower provisions required
in the Business division and New Zealand, partially offset by an increase in WIB; and
xA higher economic overlay release of $96 million 2019 (2018: $22 million). Refer to Note 13.
2019 Westpac Group Annual Report97
$m201920182017
Staff expenses5,0384,8874,701
Occupancy expenses
1,0231,0331,073
Technology expenses
2,3192,1102,008
Other expenses
1,7261,5361,500
Total operating expenses
10,1069,5669,282
Total operating expenses to net operating income ratio
48.94%43.47%42.87%
$m201920182017
Impairment charges794710853
Impairment charges to average gross loans (basis points)
11
1013
Review of Group operations
Income tax expense – 2019 v 2018
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 which included penalties and the non-repeat of the 2018 write-off of the Hastings goodwill associated with
the exit of that business which was non-deductible. The effective tax rate above the Australian corporate tax rate of 30% reflects several Tier 1
Instruments whose distributions are not deductible for Australian taxation purposes.
Overview of performance – 2018 v 2017
Net profit attributable to owners of Westpac Banking Corporation for 2018 was $8,095 million, an increase of $105 million or 1% compared to
2017. Features of this result included a $357 million or 2% increase in net operating income before operating expenses and impairment
charges, a $284 million or 3% increase in operating expenses and a $143 million or 17% decrease in impairment charges.
Net interest income increased $989 million or 6% compared to 2017, with total loan growth of 4%, mostly from Australian housing which grew
4%. Net interest margin increased 7 basis points to 2.13% reflecting increased spreads on certain Australian mortgages, a rise in Treasury
income and contribution from fair value gains on economic hedges and higher deposit spreads. These increases were partly offset by the full
period impact of the Bank Levy which was effective from July 2017. Wholesale funding costs were little changed, as short term funding costs
increased while long term funding costs decreased.
Non-interest income decreased $632 million or 10% compared to 2017 primarily due to a decrease in trading income of $257 million, the non-
repeat of a large gain of $279 million on disposal of an associate (Pendal) in 2017, an impairment loss of $104 million on the Pendal investment
in 2018, and additional provisions for estimated customer refunds, payments, associated costs and litigation recorded as negative income.
These items were partly offset by income related to the exit of the Hastings business ($135 million).
Operating expenses increased $284 million or 3% compared to 2017. The rise included annual salary increases, higher technology expenses
related to the Group’s investment program, an increase in regulatory and compliance costs and costs associated with the exit of the Hastings
business. These increases were partly offset by productivity benefits and lower amortisation of intangibles.
Impairment charges were $143 million or 17% lower compared to 2017. Asset quality remained sound, with stressed exposures as a
percentage of total committed exposures (TCE) at 1.08%, up 3 basis points over the year. The decrease in impairment charges was primarily
due to reduced individual provisions for larger facilities.
The effective tax rate of 31.0% was higher than the 2017 effective tax rate of 30.6% mostly related to an increase in non-deductible expenses.
2018 basic earnings per share were 237.5 cents per share compared to 238.0 cents per share in 2017.
The full year ordinary dividends of 188 cents was unchanged over ordinary dividends declared in 2017 and represented a pay-out ratio of
79.52%. The full year ordinary dividend was fully franked.
Income statement review – 2018 v 2017
Net interest income – 2018 v 2017
Net interest income increased $989 million or 6% compared to 2017. Key features include:
xA 3% growth in average interest-earning assets, primarily from Australian housing which grew 4%;
xGroup net interest margin increased 7 basis points. The full period impact of pricing changes for certain Australian mortgages in 2017,
including investor lending and interest only loans, higher New Zealand mortgage spreads and higher term deposits spreads, were partly
offset by the full period impact of the Bank Levy. Wholesale funding costs were little changed, as short term costs increased and long term
costs reduced. In addition, Treasury and Markets income was higher in 2018 primarily due to increased revenue from interest risk
management and a rise in contributions from fair value gains on economic hedges.
Total net loans increased $24.8 billion or 4% compared to 2017. Excluding foreign currency translation impacts, total net loans increased $24.0
billion or 3%.
Key features of total loan growth were:
xAustralian housing loans increased $17.6 billion or 4% (slightly below system growth ). Owner occupied loans increased 6% over the year,
while the Group’s investor property lending grew by 2%. Principal and interest loan flows represented 77% of all new flows and now
comprise 61% of the portfolio (2017: 50%);
xAustralian business loans increased $3.8 billion or 3% from broad based growth in Business including SME, agriculture, manufacturing
and property;
xNew Zealand lending increased NZ$3.2 billion or 4%. Housing loans grew at 4% mostly in fixed rate products, while business lending
increased 4% supported by growth across agriculture, property and corporate lending; and
xOther overseas lending increased $1.7 billion or 12%, across trade finance and institutional lending in Asia.
1.Source: Reserve Bank of Australia.
9
82019 Westpac Group Annual Report
$m201920182017
Income tax expense2,9593,6323,518
Tax as a percentage of profit before income tax expense (effective tax rate)
30.35%30.96%30.55%
1
Review of Group operations
Total deposits and other borrowings excluding certificates of deposits increased $31.1 billion or 6% compared to 2017, with the increase more
than fully funding loan growth in the year. Excluding foreign currency translation impacts, deposits and other borrowings excluding certificates
of deposits increased $29.5 billion or 6%.
Key features of total deposits and other borrowings excluding certificates of deposits growth were:
xAustralian deposits and other borrowings excluding certificates of deposits increased $25.8 billion or 6%, particularly across term deposits
(up 10%). Household deposits growth was in line with system and non- financial corporation deposits grew above system . Customers
continued to direct funds to mortgage offset accounts, supporting 4% growth in Australian non-interest bearing deposits;
xNew Zealand deposits and other borrowings excluding certificates of deposits increased NZ$3.5 billion or 6%, with the increase fully
funding loan growth during the year. Term deposits grew 9%, particularly across household and institutional segments. Non-interest
bearing deposits increased 12% from growth in business and consumer transaction deposits, including growth in mortgage offset
accounts; and
xOther overseas deposits and other borrowings excluding certificates of deposits increased $2.3 billion or 19% due to growth in deposits
across Asia.
Certificates of deposits decreased $5.4 billion or 11%, reflecting reduced short-term wholesale funding issuance in this form.
Interest spread and margin – 2018 v 2017
Net interest margin was 2.13% in 2018, up 7 basis points compared to 2017. Key drivers of the margin increase were:
x2 basis points increase from loan spreads. This reflected the full period impact of pricing changes for certain Australian mortgages in late
2017, including interest only and investor lending, along with higher spreads on New Zealand mortgages. These gains were partly offset by
the impact of customers switching from interest only to principal and interest loans, retention pricing, customer preference for lower spread
basic products and competition across loan markets;
x2 basis points increase related to customer deposit spreads, mainly from term deposits, partly offset by the impact of lower rates on the
hedging of transaction deposits;
x2 basis points decrease from a rise in short term wholesale funding costs, particularly in the second half of 2018;
x2 basis points increase from term wholesale funding as pricing for new term issuance was lower than the portfolio average;
x4 basis points decrease from the full period impact of the Bank Levy, which was introduced on 1 July 2017;
x1 basis point increase in capital and other largely from the positive effect of higher capital balances, partly offset by the impact of lower
interest rates; and
x6 basis points increase from Treasury and Markets, due to increased Treasury revenue from interest rate risk management and a rise in
contributions from fair value gains on economic hedges.
Non-interest income – 2018 v 2017
Non-interest income decreased $632 million or 10% over the year. 2018 was impacted by a number of items, including income related to the
exit of the Hastings business ($135 million) partly offset by an increase in provisions for estimated customer refunds, payments, associated
costs and litigation (up $52 million from $111 million in 2017 to $163 million in 2018).
Excluding the impact of these items and the partial sale of Pendal shares of $279 million in 2017, non-interest income was $436 million or 7%
lower, primarily due to reduced markets income and lower banking fee income from the full period impact of regulatory changes to Australian
credit card interchange fees and removal of ATM withdrawal fees.
Fees and commissions decreased $179 million or 7% compared to 2017, largely due to:
xadditional provisions for estimated customer refunds, payments, associated costs and litigation ($101 million), related to Advice and retail
banking products;
xlower revenue from the removal of ATM withdrawal fees and changes to transaction fees ($64 million);
xlower credit card income ($49 million) from the full period impact of regulatory changes to Australian interchange rates from 1 July 2017
and lower rewards redemptions; and
xlower corporate and institutional lending fees ($23 million) from a reduction in unused customer limits; partly offset by
xhigher business lending fees ($40 million) primarily driven by portfolio growth; and
xlower credit card loyalty program costs down ($26 million) from changes to reward programs.
1.Source: Australian Prudential Regulation Authority.
2019 Westpac Group Annual Repor
t99
1 1
Review of Group operations
Wealth management and insurance income increased $261 million or 15% compared to 2017, reflecting:
xa rise in Hastings revenue which included fees of $144 million related to the exit of the business, the associated costs can be seen in other
expenses;
xa fall in provisions for estimated customer refunds and payments for wealth products ($49 million);
xhigher revenue from investments in boutique funds ($43 million); and
xhigher insurance income ($41 million) reflecting:
–increase in general insurance income ($24 million) from lower claims, with the prior year impacted by Cyclone Debbie, and a 2%
increase in net earned premiums;
–increase in life insurance income ($34 million) from movements in policyholder tax recoveries and a 17% increase to earned
premiums, primarily due to BTFG commencing the management of Group Insurance for BTFG Corporate Super in 2018. This was
partly offset by a rise in claims; and
–lower LMI contribution ($17 million) due to a reduction in loans written at higher LVR bands; partly offset by
xlower platforms income ($14 million), impacted by margin compression and pricing changes to BT Panorama in July 2018. This was partly
offset by the benefit of higher asset markets.
Trading income decreased $257 million or 21% compared to 2017. The majority of the reduction was due to a lower fixed income trading result.
Other income decreased $457 million or 86% compared to 2017 reflecting the partial sale of Pendal shares ($279 million) in 2017 that did not
repeat, impairment loss on the remaining Pendal shares ($104 million), the impact of hedging future earnings (down $44 million) and lower
rental income ($36 million).
Operating expenses – 2018 v 2017
Operating expenses increased $284 million or 3% compared to 2017. The key factors of the result were:
xhigher costs related to exit of the Hastings business ($121 million), costs associated with implementing customer refunds and payments
($62 million) and provisions for litigation ($50 million);
xgrowth in regulation and compliance expenses of $184 million, including expenses related to the Royal Commission of $62 million;
xhigher investment related expenses of $125 million largely across our banking and wealth platforms; and
xgrowth in other operating costs of $204 million; partly offset by
xlower intangible asset amortisation of $158 million; and
xproductivity benefits of $304 million.
Staff expenses increased $186 million or 4% compared to 2017 from the full period impact of annual salary increases, higher restructuring
costs (up $39 million) and additional FTE for regulatory and compliance activities and the Group’s investment program. This was partly offset by
lower bonuses and productivity benefits largely related to simplifying the organisation and digitising processes across the branch network and
operations.
Occupancy expenses decreased $40 million or 4% from lower depreciation on operating leases (down $30 million) and benefits from retail
property consolidation (branch numbers down by 47 across the Group), partly offset by higher energy costs.
Technology expenses increased $102 million or 5% compared to 2017, primarily due to the Group’s investment program. Higher technology
services costs (up $82 million) and software maintenance and licensing costs (up $29 million) were driven by continued investment spend,
increased volumes and new software licences following upgraded capability. This was partly offset by lower IT equipment depreciation (down
$17 million) as prior investment in data centres was fully depreciated.
Other expenses increased $36 million or 2% during the year and contained a number of items, including the write- off of Hastings goodwill
($105 million) following the exit of that business, provisions for litigation ($50 million) and costs associated with implementing customer refunds
and payments ($25 million). Excluding these items, expenses reduced by $144 million primarily due to lower amortisation of intangible assets
(down $158 million) as a number of intangible assets were fully amortised during the year; postage and stationery costs decreased ($35 million)
as customers migrated to electronic statements; and benefits from disciplined cost management. These were partly offset by costs associated
with the Royal Commission
.
Impairment charges – 2018 v 2017
Asset quality remained sound through 2018 with stressed assets to total committed exposures increasing by 3 basis points to 1.08%. The
increase in stress mostly reflects higher mortgage delinquencies and a small rise in stressed exposures in Business. Impaired assets were
lower, with gross impaired assets to gross loans 2 basis points lower at 0.20% compared to 30 September 2017.
Provisioning levels at 30 September 2018 of $3,053 million were $66 million lower compared to 30 September 2017. IAPs were $58 million
lower in line with the decline in impaired facilities while CAPs were $8 million lower. Within CAPs the overlay was down $22 million to $301
million at 30 September 2018.
Impairment charges for 2018 of $710 million are equivalent to 10 basis points of average loans and were down $143 million when compared to
2017.
1002019 Westpac Group Annual Report
Review of Group operations
Key movements included:
xtotal new IAPs less write-backs and recoveries were $112 million lower than 2017. This was due to lower new IAPs (down $239 million)
partially offset by lower write-backs. The reduction in new IAPs was due to a small number of large impairments in WIB in 2017 while in
2018 no new large impaired loans (greater than $50 million) emerged during the year. New IAPs in Business were also lower. This was
partially offset by higher new IAPs in New Zealand; and
xtotal new CAPs were $31 million lower due to a $110 million reduction in write-offs partially offset by a $79 million fall in the benefit from
other changes in CAPs. Write-offs were lower, principally in Consumer from the credit card portfolio and in Business related to the auto
finance and commercial portfolios. The overlay was $22 million lower in 2018 compared to a $66 million reduction in 2017.
Income tax expense – 2018 v 2017
The effective tax rate of 31.0% in 2018 was higher than the 2017 effective tax rate of 30.6%. The effective tax rate was higher than the
Australian corporate tax rate of 30% due to the non-deductibility of certain expenses, including penalties and the write-off of Hastings goodwill
associated with the exit of that business.
Balance sheet review
Selected consolidated balance sheet data
The detailed components of the balance sheet are set out in the notes to the financial statements.
1.Where accounting classifications have changed or where changes in accounting policy are adopted retrospectively, comparatives have been restated and may differ
from results previously reported.
2.Australian dollar amounts have been translated into US dollars solely for the convenience of the reader at the rate of A$1.00 = US$0.6746 (refer to ‘Reading this report’
section).
3.Includes interest earning balances. Effective from 1 October 2018, loans and other receivables are net of Stage 3 provisions to reflect the adoption of AASB 9. For prior
years, loans and receivables are net of provisions for impairment charges on loans (refer to Note 9 of the financial statements). Other receivables include cash and
balances with central banks and other interest earning assets.
2019 Westpac Group Annual Repor
t101
201920192018201720162015
As at 30 SeptemberUS$mA$mA$mA$mA$mA$m
Cash and balances with central banks13,53220,05926,78818,78617,39715,135
Collateral paid4,000
5,9304,7875,7168,2058,137
Trading securities and financial assets measured a
t
fair value through income statement and investment
securities/available-for-sale securities70,956105,18284,25186,69382,84183,231
Derivative financial instruments20,143
29,85924,10124,03332,22748,173
Loans482,184
714,770709,690684,919661,926623,316
Life insurance assets6,319
9,3679,45010,64314,19213,125
All other assets14,47621,45920,52521,08522,41421,039
Total asset
s611,610906,626879,592851,875839,202812,156
Collaterial received2,2173,2872,1842,4771,7844,045
Deposits and other borrowings379,966
563,247559,285533,591513,071475,328
Other financial liabilities19,70829,21528,10530,79928,70430,671
Derivative financial instruments19,62
829,09624,40725,37536,07648,304
Debt issues122,411
181,457172,596168,356169,902171,054
Life insurance liabilities4,977
7,3777,5979,01912,36111,559
All other liabilities3,78
85,6143,5803,2503,3183,440
Total liabilities excluding loan capital552,69
5819,293797,754772,867765,216744,401
Loan capital14,72421,82617,26517,66615,80513,840
Total liabilities567,419
841,119815,019790,533781,021758,241
Net assets44,191
65,50764,57361,34258,18153,915
Total equity attributable to owners of Westpac Banking Corporatio
n44,15565,45464,52161,28858,12053,098
Non-controlling interests3653525461817
Total shareholders’ equity and non-controlling interests44,191
65,50764,57361,34258,18153,915
Average balance
s
Total assets603,581894,724873,310854,058831,439791,719
Loans and other receivables469,009
695,240681,201657,628631,266596,378
Total equity attributable to owners of Westpa
c
Banking Corporation42,98163,71462,01758,55655,89649,361
No
n-controlling interests34503120575854
1
2
3
Review of Group operations
Summary of consolidated ratios
Balance sheet review
Assets – 2019 v 2018
Total assets as at 30 September 2019 were $906.6 billion, an increase of $27.0 billion or 3% compared to 30 September 2018. Significant
movements during the year included:
xcash and balances with central banks decreased $6.7 billion or 25% reflecting lower liquid assets held in this form;
xcollateral paid increased $1.1 billion or 24% mainly due to an increase in collateralised derivative liabilities;
xtrading 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;
xderivative assets increased $5.8 billion or 24% mainly driven by movements in cross currency swaps, foreign currency forward contracts
and interest rate swaps; and
xloans grew $5.1 billion or 1%. Refer to loan quality – 2019 v 2018 below for further information.
Liabilities and equity – 2019 v 2018
Total liabilities as at 30 September 2019 were $841.1 billion, an increase of $26.1 billion or 3% compared to 30 September 2018. Significant
movements during the year included:
xcollateral received increased $1.1 billion or 51% due to an increase in collateralised derivative assets;
xdeposits and other borrowings increased $4.0 billion or 1%;
xother 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;
xderivative liabilities increased $4.7 billion or 19% driven by movements in cross currency swaps and interest rate swaps;
xdebt issues increased $8.9 billion or 5% ($1.8 billion or 1% decrease excluding foreign currency translation impacts, fair value and hedge
accounting adjustments); and
xloan capital increased $4.6 billion or 26% mainly due to $3.2 billion net issuance of Tier 2 capital instruments in response to APRA’s Total
Loss Absorbing Capital announcement and $1.3 billion impact of hedging and foreign currency translation.
1.Australian dollar amounts have been translated into US dollars solely for the convenience of the reader at the rate of A$1.00 = US$0.6746 (refer to ‘Reading this report’
section).
2.Calculated by dividing net interest income by average interest earning assets.
3.Calculated by dividing net profit attributable to owners of Westpac Banking Corporation by average total assets.
4.Calculated by dividing net profit attributable to owners of Westpac Banking Corporation by average ordinary equity.
5.Calculated by dividing net profit attributable to owners of Westpac Banking Corporation by average ordinary equity and non-controlling interests.
6.Based on the weighted average number of fully paid ordinary shares.
7.Based on basic earnings per share, with the weighted average number of fully paid ordinary shares outstanding adjusted for the conversion of dilutive potential ordinary
shares, issued for no consideration, and after adjusting earnings for distributions on dilutive potential ordinary shares.
10
22019 Westpac Group Annual Report
As at 30 September201920192018201720162015
(in $m unless otherwise indicated)US$ A$A$A$A$A$
Profitability ratios (%)
Net interest margin2.122.122.132.062.102.09
Return on average assets0.76
0.760.930.940.901.01
Return on average ordinary equit
y10.6510.6513.0513.6513.3216.23
Return on average total equit
y10.6410.6413.0513.6413.1815.96
Capital ratios (%)
Average total equity to average total assets7.137.137.106.866.796.34
Common equity Tier 110.67
10.6710.6310.569.489.50
Tier 1 rati
o12.8412.8412.7812.6611.1711.38
Total capital ratio15.6315.6314.7414.8213.1113.26
Earning ratios
Basic earnings per ordinary share (cents)132.6196.5237.5238.0224.6255.0
Diluted earnings per ordinary share (cents)127.8
189.5230.1229.3217.8248.2
Dividends per ordinary share (cents)117
174.0188188188187
Dividend payout ratio (%)88.83
88.8379.5279.2884.1973.39
Credit quality ratios
Loans written off (net of recoveries)6629829481,4881,0521,107
Loans written off (net of recoveries) to average loans (bps)14
1414221618
1
2
3
4
5
6
7
Review of Group operations
Equity attributable to owners of Westpac Banking Corporation increased $0.9 billion or 1% reflecting retained profits and shares issued under
the 2019 interim dividend reinvestment plan (DRP) and 2018 final DRP, partially offset by $0.7 billion opening retained earnings adjustment due
to the adoption of new accounting standards and dividends paid during the year.
Loan quality – 2019 v 2018
Total gross loans represented 79% of the total assets of the Group as at 30 September 2019, 2% lower compared with 30 September 2018.
The decrease was mainly due to greater holdings of liquid assets and movements in cross currency swaps and interest rate swaps.
Australian average gross loans were $622.2 billion in 2019, an increase of $10.8 billion or 2% from $611.4 billion in 2018. This increase was
primarily due to growth in housing loans.
New Zealand average gross loans were A$78.1 billion in 2019, an increase of A$5.1 billion or 7% from A$73.0 billion in 2018. Excluding foreign
currency translation impacts, New Zealand average gross loans grew A$2.7 billion or 4%. The growth was mostly from fixed rate housing loans
and business lending, partially offset by lower personal lending and credit cards.
Other overseas average loans were $16.6 billion in 2019, an increase of $0.4 billion or 2% from $16.2 billion in 2018. This was primarily due to
the depreciation of AUD against USD.
Approximately 14% of the loans at 30 September 2019 mature within one year and 17% mature between one year and five years. Retail
lending comprises the majority of the loan portfolio maturing after five years.
Housing and personal loans that were past due, can be disaggregated based on days overdue at 30 September 2019 as follows:
Impaired exposures
1.Gross loans are stated before related provision for ECL/impairment charges on loans and credit commitments.
2.The Group has adopted AASB9 and AASB15 from 1 October 2018. Comparatives have not been restated. Refer to Note 1 for further detail.
3.Impaired provisions relating to impaired loans include IAP plus the proportion of the CAP that relates to impaired loans. The proportion of the CAP that relates to impaired
loans was $380 million as at 30 September 2019 (2018: $231 million, 2017: $234 million, 2016: $198 million, 2015: $208 million). This sum is compared to the total gross
impaired loans to determine this ratio.
2019 Westpac Group Annual Repor
t103
As at 30 September
$m201920182017
Total gross loans718,378712,504687,785
Average gross loans
Australia622,241611,398588,920
New Zealand
78,06573,00072,269
Other overseas
16,61516,22812,837
Total average gross loan
s716,921700,626674,026
Consolidated20192018
$m30-89 days90+ daysTotal30-89 days90+ daysTotal
Loans
Loans - housing3,5744,0637,6373,1333,2716,404
Loans - personal395356751427371798
Total3,9694,4198,3883,5603,6427,202
As at 30 September
$m20192018201720162015
Impaired exposures
Housing and business loans:
Gross1,3271,0191,1421,8511,593
Provisions
(534)(458)(507)(885)(689)
Net
793561635966904
Personal loans greater than 90 days past due:
Gross405371373277263
Provisions
(248)(189)(195)(166)(172)
Net
15718217811191
Restructured:
Gross3126273139
Provisions
(10)(6)(12)(16)(16)
Net
2120151523
Net impaired exposures
9717638281,0921,018
Provisions for ECL/impairment on loans and credit commitments
Individually assessed provisions412422480869669
Collectively assessed provisions
3,5012,6312,6392,7332,663
Total provisions for ECL/impairment on loans and credit commitments
3,9133,0533,1193,6023,332
Loan quality
Total provisions for ECL/impairment charges on impaired exposures to total impaired exposures44.92%46.12%46.30%49.42%46.28%
Gross impaired exposures to total gross loans
0.25%0.20%0.22%0.32%0.30%
Total provisions for ECL/impairment on loans and credit commitments to gross loans
0.54%0.43%0.45%0.54%0.53%
Total provisions for ECL/impairment on loans and credit commitments to gross impaired exposures
222.0%215.6%202.3%166.8%175.8%
1
1
2,3
3
Review of Group operations
The credit quality remained sound over 2019, with total stressed exposures to TCE increasing by 12 basis points to 1.20%. Total impaired
exposures as a percentage of total gross loans were 0.25% at 30 September 2019, an increase of 0.05% from 0.20% at 30 September 2018.
At 30 September 2019, we had one impaired counterparty with exposure greater than $50 million, accounting for 4% of total impaired loans.
This compares to one impaired counterparty with exposure greater than $50 million in 2018 accounting for 4% of total impaired loans. There
was one impaired counterparty at 30 September 2019 that was less than $50 million and greater than $20 million (2018: two impaired
counterparties).
At 30 September 2019, 79% of our exposure was to either investment grade or secured consumer mortgage segment (2018: 79%, 2017: 78%,
2016: 78%, 2015: 77%) and 96% of our exposure as at 30 September 2019 was in Australia, New Zealand and the Pacific region (2018: 95%,
2017: 96%, 2016: 96%, 2015: 95%).
We believe that Westpac remains appropriately provisioned. Total impairment provisions for impaired exposure to total impaired exposure
coverage at 44.9% at 30 September 2019 compared to 46.1% at 30 September 2018. Total provisions for ECL on loans and credit
commitments to total impaired exposures represented 222.0% of total impaired loans as at 30 September 2019, up from 215.6% at 30
September 2018. Total provisions for ECL on loans and credit commitments to total loans were 0.54% at 30 September 2019, up from 0.43%
at 30 September 2018 (2017: 0.45%) .
Group mortgage loans 90 days past due at 30 September 2019 were 0.82% of outstandings, up from 0.67% of outstandings at 30
September 2018 (2017: 0.62%).
Group other consumer loan delinquencies (including credit card and personal loan products) were 1.69% of outstandings as at 30
September 2019, up from 1.64% of outstandings as at 30 September 2018 (2017: 1.57%).
Potential problem loans as at 30 September 2019 amounted to $1,297 million, a decrease of 23% from $1,691 million at 30 September 2018.
The decrease in potential problem loans was mainly due to the downgrade of a Institutional counterparty to impaired over the year.
Potential problem loans are facilities that are performing and no loss is expected, but the customer demonstrates significant weakness in debt
servicing or security cover that could jeopardise repayment of debt on current terms if not rectified. Potential problem loans are identified using
established credit frameworks and policies, which include the ongoing monitoring of facilities through the use of watchlists.
Capital resources
APRA measures an ADI’s regulatory capital using three measures:
xCommon Equity Tier 1 Capital (CET1) comprises the highest quality components of capital that consists of paid-up share capital, retained
profits and certain reserves, less certain intangible assets, capitalised expenses and software, and investments and retained profits in
insurance and funds management subsidiaries that are not consolidated for capital adequacy purposes;
xTier 1 Capital being the sum of CET1 and Additional Tier 1 Capital. Additional Tier 1 Capital comprises high quality components of capital
that consist of certain securities not included in CET1, but which include loss absorbing characteristics; and
xTotal Regulatory Capital being the sum of Tier 1 Capital and Tier 2 Capital. Tier 2 Capital includes subordinated instruments and other
components of capital that, to varying degrees, do not meet the criteria for Tier 1 Capital, but nonetheless contribute to the overall strength
of an ADI and its capacity to absorb losses.
Under APRA’s Prudential Standards, Australian ADIs, including Westpac, are required to maintain a minimum CET1 ratio of at least 4.5%, Tier
1 Capital ratio of at least 6.0% and Total Regulatory Capital ratio of at least 8.0%. APRA may also require ADIs, including Westpac, to meet
Prudential Capital Requirements (PCRs) above the minimum capital ratios. APRA does not allow the PCRs for individual ADIs to be disclosed.
APRA also requires ADIs to hold additional CET1 buffers comprising of:
xa capital conservation buffer (CCB) of 3.5% for ADIs designated by APRA as domestic systemically important banks (D-SIBs) unless
otherwise determined by APRA, which includes a 1.0% surcharge for D-SIBs. APRA has determined that Westpac is a D-SIB; and
xa countercyclical capital buffer. The countercyclical buffer is set on a jurisdictional basis and APRA is responsible for setting the
requirement in Australia. The countercyclical buffer requirement is currently set to zero for Australia and New Zealand.
Collectively, the above buffers are referred to as the “Capital Buffer” (CB). Should the CET1 capital ratio fall within the capital buffer range
restrictions on the distributions of earnings will apply. This includes restrictions on the amount of earnings that can be distributed through
dividends, Additional Tier 1 Capital distributions and discretionary staff bonuses.
1.The provisions for impairment charges on loans and credit commitments were determined under AASB139.
1042019 Westpac Group Annual Repor
t
1
1
1
Review of Group operations
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 basis points.
Capital management strategy
Westpac’s approach to capital management seeks to ensure that it is adequately capitalised as an ADI. Westpac evaluates its approach to
capital management through an Internal Capital Adequacy Assessment Process (ICAAP), the key features of which include:
xthe development of a capital management strategy, including consideration of regulatory minimums, capital buffers and contingency plans;
xconsideration of both economic and regulatory capital requirements;
xa stress testing framework that challenges the capital measures, coverage and requirements including the impact of adverse economic
scenarios; and
xconsideration of the perspectives of external stakeholders, including rating agencies and equity and debt investors.
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:
xCurrent regulatory capital minimums and the capital conservation buffer (CCB), which together are the total CET1 requirement ;
xStress testing to calibrate an appropriate buffer against a downturn; and
xQuarterly volatility of capital ratios due to the half yearly cycle of ordinary dividend payments.
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 Annual Report.
1.Based on risk weighted assets as 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).
2.Noting that APRA may apply higher CET1 requirements for an individual ADI.
2019 Westpac Group Annual Repor
t105
1
2
Review of Group operations
Basel Capital Accord
APRA’s Prudential Standards are generally consistent with the International Regulatory Framework for Banks, also known as Basel III, issued
by the Basel Committee on Banking Supervision (BCBS), except where APRA has exercised certain discretions. On balance, the application of
these discretions acts to reduce capital ratios reported under APRA’s Prudential Standards relative to the BCBS approach and to those
reported in some other jurisdictions.
Westpac is accredited by APRA to apply advanced models permitted by the Basel III global capital adequacy regime to the measurement of its
regulatory capital requirements. Westpac uses the Advanced Internal Ratings Based approach for credit risk, the Advanced Measurement
Approach (AMA) for operational risk and the internal model approach for Interest Rate Risk in the Banking Book (IRRBB).
Westpac’s Level 2 regulatory capital ratios as at 30 September are summarised in the table below. As the table summarises Westpac’s Level 2
regulatory capital structure, the capital amounts shown are not the same as the Westpac Group’s consolidated financial statements. Westpac’s
Pillar 3 Report provides further details regarding Westpac’s capital structure.
Westpac’s Level 2 regulatory capital ratios as at 30 September are summarised in the table below. Westpac’s Pillar 3 Report provides further
details regarding Westpac’s capital structure.
1062019 Westpac Group Annual Report
$m20192018
Common equity64,32063,576
Deductions from common equity
(18,568)(18,337)
Total common equity after deductions
45,75245,239
Additional Tier 1 capital
9,2999,144
Net Tier 1 regulatory capital
55,05154,383
Tier 2 capital
12,2268,565
Deductions from Tier 2 capital
(255)(233)
Total Tier 2 capital after deductions
11,9718,332
Total regulatory capital
67,02262,715
Credit risk
367,864362,749
Market risk
9,3506,723
Operational risk
47,68039,113
Interest rate risk in the banking book
53012,989
Other assets
3,3703,810
Total risk weighted assets
428,794425,384
Common Equity Tier 1 capital ratio
10.67%10.63%
Additional Tier 1 capital ratio
2.17%2.15%
Tier 1 capital ratio
12.84%12.78%
Tier 2 capital ratio
2.79%1.96%
Total regulatory capital ratio
15.63%14.74%
Review of Group operations
Purchase of equity securities
The following table details share repurchase activity for the year ended 30 September 2019:
Purchases of ordinary shares during the year were made on market and relate to the following:
xto deliver to eligible employees under the Employee Share Plan (ESP): 1,061,442 ordinary shares;
xto deliver to employees upon the exercise of options and performance share rights: 221,874 ordinary shares;
xTreasury shares held by statutory life funds and managed investment schemes and ordinary shares held by Westpac in respect of equity
derivatives sold to customers: nil ordinary shares; and
xto allocate to eligible employees under the Restricted Share Plan (RSP): 2,707,931 ordinary shares.
Refer to Note 28 to the financial statements for a discussion of Treasury share purchases.
Commitments
Contractual obligations and commitments
In connection with our operating activities we enter into certain contractual obligations and commitments. The following table shows our
significant contractual obligations as at 30 September 2019:
The above table excludes deposits and other liabilities taken in the normal course of banking business and short-term and undated liabilities.
Commercial commitments
The following table shows our significant commercial commitments as at 30 September 2019:
1.Refer to Note 18 to the financial statements for details of on balance sheet long-term debt.
2.Refer to Note 26 to the financial statements for details of operating leases.
3.The numbers in this table are notional amounts (refer to Note 27 to the financial statements).
2019 Westpac Group Annual Repor
t107
Maximum Number
Total Number of (or Approximate $ Value)
Ordinary Sharesof Ordinary Shares that
Total Number ofAverage Price PaidPurchased asMay Yet Be Purchased
Ordinary Shares per Ordinary SharePart of a PubliclyUnder the Plans or
Purchased$Announced ProgramPrograms
Month
October (2018)86,72227.33–n/a
November (2018)1,142,25625.41–n/a
December (2018)2,446,72625.38–n/a
January (2019)
–––n/a
February (2019)83126.84–n/a
March (2019)129,33526.32–n/a
April (2019)3,53826.26–n/a
May (2019)72,97026.45–n/a
June (2019)35,68427.38–n/a
July (2019)63,51228.02–n/a
August (2019)85628.32–n/a
September (2019)8,81728.63–n/a
Total3,991,24725.55––
$m
Up to
1 Year
Over
1 to 3 Years
Over
3 to 5 Years
Over
5 YearsTotal
On balance sheet long-term debt31,09035,80650,67438,049155,619
Operating leases6089807361,4213,745
Total contractual cash obligations31,69836,78651,41039,470159,364
$m
Up to
1 Year
Over
1 to 3 Years
Over
3 to 5 Years
Over
5 YearsTotal
Letters of credit and guarantees7,3344,6397192,45815,150
Commitments to extend credit41,48858,40212,91763,195176,002
Other125-–63188
Total commercial commitments48,94763,04113,63665,716191,340
1
2
3
Divisional performance
Divisional performance – 2019 v 2018
On 19 March 2019, the Group announced changes to the way it supports customer’s wealth and insurance needs, realigning its BT Financial
Group (BTFG) businesses into expanded Consumer and Business divisions and exiting the provision of personal financial advice by Westpac
Group salaried financial advisers and authorised representatives. 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 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 2018
and 2017 have been restated.
Westpac reports under the following four primary customer-facing business divisions:
xConsumer:
–is responsible for sales and service of banking and financial products and services to consumer customers in Australia;
–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.
xBusiness:
–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.
xWestpac Institutional Bank:
–is responsible for delivering a broad range of financial products and services to commercial, corporate, institutional and government
customers with connections to 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.
xWestpac New Zealand:
–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.
xGroup Businesses include:
–Treasury, which is responsible for the management of the Group’s balance sheet including wholesale funding, capital and management
of liquidity. Treasury also manages the interest rate risk and foreign exchange risks inherent in the balance sheet, including managing
the mismatch between Group assets and liabilities. Treasury’s earnings are primarily sourced from managing the Group’s balance sheet
and interest rate risk, (excluding Westpac New Zealand) within set risk limits;
–Group Technology, which comprises functions for the Australian businesses, is responsible for technology strategy and architecture,
infrastructure and operations, applications development and business integration;
–Core Support, 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 s
egment
and to exit of the Advice business in March 2019, the
remaining Advice activities (including associated remediation) and certain support functions have been transferred to Group
Businesses; and
–Group Businesses also includes earnings on capital not allocated to divisions, certain intra-group transactions that facilitate presentation
of 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.
The accounting standard AASB 8 Operating Segments requires segment results to be presented on a basis that is consistent with information
provided internally to Westpac’s key decision makers. In assessing financial performance, including divisional results, Westpac Group uses a
measure of performance referred to as ‘cash earnings’. Cash earnings is viewed as a measure of the level of profit that is generated by ongoing
operations and is therefore considered in assessing distributions, including dividends. Cash earnings is neither a measure of cash flow nor net
profit determined on a cash accounting basis, as it includes both cash and non-cash adjustments to net profit attributable to owners of Westpac
Banking Corporation. 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.
1082019 Westpac Group Annual Report
Divisional performance
A reconciliation of cash earnings to net profit attributable to owners of Westpac Banking Corporation for each business division is set out in
Note 2 of the Financial Statements.
To determine cash earnings, three categories of adjustments are made to statutory results:
xmaterial items that key decision makers at the Westpac Group believe do not reflect operating performance;
xitems that are not considered when dividends are recommended, such as the amortisation of intangibles, impact of Treasury shares and
economic hedging; and
xaccounting reclassifications between individual line items that do not impact statutory results.
The discussion of our divisional performance in this section is presented on a cash earnings basis unless otherwise stated. Cash earnings is
not directly comparable to statutory results presented in other parts of this Annual Report.
Outlined below are the cash earnings adjustments to the reported result:
xamortisation 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;
xfair value (gain)/loss 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;
xineffective 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;
xadjustment related to Pendal (previously BTIM): Consistent with prior years’ treatment, this item have been treated as a cash earnings
adjustment given their size and that it does not reflect ongoing operations. The Group has indicated that it may sell the remaining 10%
shareholding in Pendal at some future date. From September 2018, this adjustment relates to the mark to market of the shares 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;
xTreasury 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
xaccounting 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 inc
o
me 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.
xfor 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 and 2017 cash earnings comparatives as if the standards applied on 1 October 2017, except for expected credit loss provisioning
which is not feasible. These adjustments do not impact 2018 and 2017 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.
2019 Westpac Group Annual Report109
Divisional performance
The guidance provided in Australian Securities and Investments Commission (ASIC) Regulatory Guide 230 has been followed when presenting
this information.
Comparatives have also been restated for:
xrecent customer migration between divisions. This includes restatements to divisional income statements and balance sheets;
xrefinement in expense allocations; and
xchanges to the Group’s organisation structure following the realignment of the BTFG businesses into Consumer, Business and Group
Businesses.
Cash earnings by division
The following tables present, for each of the key divisions of our business, the cash earnings and total assets at the end of the financial years
ended 30 September 2019, 2018 and 2017. Refer to Note 2 to the financial statements for the disclosure of our geographic and business
segments and the reconciliation to net profit attributable to owners of Westpac Banking Corporation.
In presenting divisional results on a management reporting basis, internal charges and transfer pricing adjustments are included in the
performance of each division reflecting the management structure rather than the legal entity (these results cannot be compared to results for
individual legal entities). Where management reporting structures or accounting classifications have changed, financial results for comparative
periods have been revised and may differ from results previously reported.
Our internal transfer pricing frameworks facilitate risk transfer, profitability measurement, capital allocation and business unit alignment, tailored
to the jurisdictions in which we operate. Transfer pricing allows us to measure the relative contribution of our products and divisions to the
Group’s interest margin and other dimensions of performance. Key components of our transfer pricing frameworks are funds transfer pricing for
interest rate and liquidity risk and allocation of basis and contingent liquidity costs, including capital allocation.
Additional provisions
Net profit for 2019 was impacted by additional provisions after tax of $1,130 million for:
xEstimated customer refunds and payments, associated costs, and litigation of $958 million; and
xRestructuring costs associated with the restructuring of the Wealth business of $172 million.
The tables below show the impact of the estimated customer refunds, payments, associated costs, litigation, and restructuring costs on the
divisions for 2019 and 2018. Restructuring costs associated with the restructuring of the wealth business is only reflected in Group Business
and were only incurred in 2019.
1102019 Westpac Group Annual Report
$m201920182017
Consumer3,2883,4233,452
Business
2,4312,7562,554
Westpac Institutional Bank
1,0141,0931,163
Westpac New Zealand
985934917
Group Businesses
(869)(141)(24)
Total cash earnings
6,8498,0658,062
2019
$mConsumerBusiness
Westpac
Institutional
Bank
Westpac
New Zealand
($A)
Group
BusinessesGroup
Net interest income(85)(246)–(13)–(344)
Non-interest income(2)(55)–(4)(759)(820)
Benefits/(expenses)25(87)–(15)(384)(461)
Core earnings(62)(388)–(32)(1,143)(1,625)
Tax and non-controlling interests29118–9339495
Cash earnings(33)(270)–(23)(804)(1,130)
2018
$mConsumerBusiness
Westpac
Institutional
Bank
Westpac
New Zealand
($A)
Group
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 interests36––45999
Cash earnings(114)(5)–(12)(150)(281)
Divisional performance
Consumer
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 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.
Financial performance
2019 v 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. Cash earnings also benefited from a reduction in provisions for estimated customer refunds, payments,
associated costs and litigation.
2019 Westpac Group Annual Report111
$m201920182017
Net interest income7,9427,8507,733
Non-interest income
1,1411,3111,351
Net operating income before operating expenses and impairment charges
9,0839,1619,084
Operating expenses
(3,817)(3,774)(3,548)
Impairment charges
(581)(486)(600)
Profit before income tax
4,6854,9014,936
Income tax expense
(1,397)(1,478)(1,484)
Cash earnings for the year
3,2883,4233,452
Net cash earnings adjustments
–(15)(116)
Net profit attributable to owners of Westpac Banking Corporation
3,2883,4083,336
$bn$bn$bn
Deposits and other borrowings
209.3206.2196.2
Net loans
388.5385.4370.3
Total assets
399.2395.6381.8
Total operating expenses to net operating income ratio
42.02%41.20%39.06%
Net interest income up $92
million, 1%
xLending 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;
xA 4% rise in transaction accounts, and 5% increase in savings accounts supported the 2% rise in deposits. Term
deposits were 6% lower; and
xNet 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 2018.
Non-interest income down
$170 million, 13%
xThe 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
xLower fee income from a contraction in net interchange fees and reduced transaction volumes across banking
products.
Operating expenses up $43
million, 1%
xOperating expenses benefited from the reversal of provisions raised for estimated associated costs and litigation in
respect to customer refunds and payments, a benefit of $25 million, compared to a charge of $39 million in 2018.
Excluding the benefit of this turnaround, operating expenses were up 3%;
xThe rise was due to higher investment related costs including for the customer service hub, and costs associated with
regulatory change projects; and
xHigher 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 $95
million, 20%
xCredit 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;
xMortgage 90+ day delinquencies were up 16 basis points to 0.90% while other consumer 90+ day delinquencies were
up 25 basis points; and
xImpairment charges were higher driven by the rise in delinquencies.
Divisional performance
Business
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.
Financial performance
2019 v 2018
Cash earnings of $2,431 million were $325 million (or 12%) lower than 2018 with performance impacted by provisions for estimated customer
refunds and payments and associated costs of $270 million after tax. Excluding these provisions, cash earnings were $60 million or 2% lower
from a reduction in non-interest income and increased regulatory expenditure, partially offset by an increase in net interest margin and a
reduction in impairment charges.
1122019 Westpac Group Annual Report
$m201920182017
Net interest income5,0925,2844,950
Non-interest income
1,4641,6401,617
Net operating income before operating expenses and impairment charges
6,5566,9246,567
Operating expenses
(2,805)(2,651)(2,548)
Impairment charges
(272)(321)(369)
Profit before income tax
3,4793,9523,650
Income tax expense
(1,048)(1,196)(1,096)
Cash earnings for the year
2,4312,7562,554
Net cash earnings adjustments
(45)(76)150
Net profit attributable to owners of Westpac Banking Corporation
2,3862,6802,704
$bn$bn$bn
Deposits and other borrowings
147.8143.8137.9
Net loans
173.0173.6169.4
Total assets
187.4188.2183.7
Total operating expenses to net operating income ratio
42.79%38.29%38.80%
Net interest income down
$192 million, 4%
xLending was largely flat with growth in business lending offset by slower new auto lending;
xDeposits increased 3% mostly in transaction and at call balances. These gains were partly offset by a 4% decline in
term deposits; and
xNet interest margin declined 12 basis points with provisions for customer refunds and payments ($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
$176 million, 11%
xProvisions for estimated customer refunds and payments of $55 million contributed to a decrease in non-interest
income. Excluding these provisions, 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 platform pricing, product mix
changes, the cessation of grandfathered commission payments and implementation of Protecting Your Super
reforms.
Operating expenses up
$154 million, 6%
xProvisions for estimated costs of $87 million, to implement the division’s remediation program, was one of the main
drivers increasing expenses. Excluding these costs, 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, mostly salary rises, were largely offset by lower variable reward and productivity benefits
including operating model simplification and continued digitisation and product simplification.
Impairment charges down
$49 million, 15%
xThe level of stressed exposures increased 24 basis points from increased Commercial stressed exposures across a
broad number of industries; and
xImpairment charges decreased from lower individual and collective provisions.
Divisional performance
Westpac Institutional Bank
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.
Financial performance
2019 v 2018
Cash earnings of $1,014 million was $79 million (or 7%) lower compared to 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 2018 Hastings added $203 million to
non-interest income, $158 million to expenses and $29 million to tax.
2019 Westpac Group Annual Report113
$m201920182017
Net interest income1,4431,4421,354
Non-interest income1,2921,5651,716
Net operating income before operating expenses and impairment charges2,7353,0073,070
Operating expenses(1,284)(1,449)(1,358)
Impairment (charges)/benefits(46)16(79)
Profit before income tax1,4051,5741,633
Income tax expense(386)(476)(463)
Profit attributable to non-controlling interests(5)(5)(7)
Cash earnings for the year1,0141,0931,163
Net cash earnings adjustments–––
Net profit attributable to owners of Westpac Banking Corporation1,0141,0931,163
$bn$bn$bn
Deposits and other borrowings101.3104.992.2
Net loans75.477.474.8
Total assets98.0102.5103.3
Total operating expenses to net operating income ratio46.95%48.19%44.23%
Net interest income up $1
million, flat
xNet loans were 3% lower reflecting a focus on return. This included a decline in property lending;
xDeposits were 3% lower, mostly from a reduction in government balances; and
xNet interest margin 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
$273 million, 17%
xExcluding 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 2018 to a $64 million charge in
2019); and
–Partly offset by increase in syndication fees from some large transactions in 2019.
Operating expenses down
$165 million, 11%
xExcluding 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
new Banking Code of Practice and responding to regulator requests.
Impairment charge of $46
million (compared to a
benefit of $16 million in
FY18)
xCredit quality remains sound with stressed exposures to TCE of 0.68%. This was up 2 basis point over the year but
remains low in historical terms; and
xImpairment charges were higher due to provisions associated with the migration of two long standing stressed
exposures into impaired.
Divisional performance
Westpac New Zealand
Westpac New Zealand is responsible for sales and service of banking, wealth and insurance products for consumers, business and institutional
customers in New Zealand. Westpac conducts its New Zealand banking business through two banks in New Zealand: Westpac New Zealand
Limited, which is incorporated in New Zealand and Westpac Banking Corporation (New Zealand Branch), which is incorporated in Australia.
Westpac New Zealand operates via an extensive network of branches and ATMs across both the North and South Islands. Business and
institutional customers are also served through relationship and specialist product teams. Banking products are provided under the Westpac
brand while insurance and wealth products are provided under Westpac Life and BT brands, respectively. New Zealand also maintains its own
infrastructure, including technology, operations and treasury.
Financial performance
2019 v 2018
Cash earnings increased 3% over 2018. The increase in cash earnings was supported by a NZ$40 million gain on the sale of Paymark, and a
NZ$10 million impairment benefit partly offset by higher risk management and regulatory costs.
1.Refers to total customer deposits in this table.
1142019 Westpac Group Annual Repor
t
NZ$m201920182017
Net interest income1,9671,9581,819
Non-interest income448406438
Net operating income before operating expenses and impairment charges2,4152,3642,257
Operating expenses(993)(930)(949)
Impairment (charges)/benefits10(25)55
Profit before income tax1,4321,4091,363
Income tax expense(390)(393)(392)
Profit attributable to non-controlling interests–––
Cash earnings for the year1,0421,016971
Net cash earnings adjustments(1)14(15)
Net profit attributable to owners of Westpac Banking Corporation1,0411,030956
$bn$bn$bn
Deposits and other borrowings64.561.958.4
Net loans84.280.477.3
Total assets97.190.088.3
Total funds11.510.710.1
Total operating expenses to net operating income ratio41.12%39.34%42.05%
Net interest income up
NZ$9 million, Flat
xLoans increased 5%, or NZ$3.8 billion. Mortgages increased NZ$2.6 billion, with the majority of mortgage growth in
fixed rate products. Business growth (up NZ$1.3 billion) was distributed across a range of sectors;
xDeposits increased 4% with a NZ$1.7 billion rise in non-interest bearing and at call accounts and a NZ$0.9 billion rise
in term deposits; and
xNet 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
NZ$42 million, 10%
xThe gain on sale of Paymark contributed most (NZ$40 million) of the increase in non-interest income;
xHigher investment income from a 7% increase in fund balances, higher business fees, and a reduction in provisions for
customer refunds and payments, also contributed to the increase; and
xThis was partly offset by lower fee income following the decision to simplify certain consumer fees.
Operating expenses up
NZ$63 million, 7%
xMost of the increase was driven by further investment in risk management and regulatory programs.
xProvisions for estimated costs of NZ$16 million, to implement the division’s remediation program also contributed to the
increase; and
xExcluding investment and the above provisions, 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
NZ$10 million (compared to
an impairment charge of
NZ$25 million in FY18)
xCredit quality remains sound, with stressed exposures to TCE of 1.66%, 9 basis points higher than September 2018
with most of the increase in stress in exposures that are well secured. Other consumer 90+ day delinquencies
increased 20 basis points to 82 basis points, with much of the rise due to the decline in the portfolio; and
xImpairment benefit mostly from write-back of collectively assessed provision.
1
Divisional performance
1.Ratios calculated using NZ$.
2019 Westpac Group Annual Repor
t115
AUD$m201920182017
Net interest income1,8601,7991,706
Non-interest income
423373410
Net operating income before operating expenses and impairment charges
2,2832,1722,116
Operating expenses
(939)(855)(890)
Impairment (charges)/benefits
10(22)51
Profit before income tax
1,3541,2951,277
Income tax expense
(369)(361)(360)
Profit attributable to non-controlling interests
---
Cash earnings for the year
985934917
Net cash earnings adjustments
(1)13(14)
Net profit attributable to owners of Westpac Banking Corporation
984947903
$bn$bn$bn
Deposits and other borrowings59.756.753.7
Net loans
78.073.671.1
Total assets
90.082.481.3
Total funds
10.79.89.3
Total operating expenses to net operating income ratio
41.12%39.34%42.05%
1
Divisional performance
Group Businesses
This segment comprises:
xTreasury, 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;
xGroup Technology , which is responsible for technology strategy and architecture, infrastructure and operations, applications development
and business integration in Australia;
xCore Support , which comprises functions performed centrally, including Australian banking operations, property services, strategy, finance,
risk, compliance, legal, human resources, and customer and corporate relations; and
xFollowing 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.
Financial performance
2019 v 2018
Provisions for estimated customer refunds, payments, associated costs, and litigation of $632 million and costs associated with the Wealth
Reset of $172 million incurred during the year was the key driver of the cash earnings loss of $869 million in 2019. Excluding provisions for
estimated customer refunds, payments, associated costs, and litigation and costs associated with the Wealth Reset, Group Businesses cash
earnings was $74 million lower as the division recorded a loss of $65 million in 2019 compared to cash earnings of $9 million in 2018. The
result was driven by a lower contribution from Treasury partially offset by a higher impairment benefit.
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.
1162019 Westpac Group Annual Repor
t
$m201920182017
Net interest income616812712
Non-interest income(618)89181
Net operating income before operating expenses and impairment charges(2
)901893
Operating expenses(1,186)(969)(834)
Impairment benefits95143
Profit before income tax(1,093
)(67)102
Income tax (expense)/benefit225(75)(126)
Profit attributable to non-controlling interests(1)1—
Cash earnings for the year(869
)(141)(24)
Net cash earnings adjustments(19)108(92)
Net profit attributable to owners of Westpac Banking Corporation(888
)(33)(116)
Net operating income
down $903 million, large
xNet operating income was lower primarily from:
–an increased charge for estimated customer refunds and payments ($619 million) related to Advice;
–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).
Operating expenses up
$217 million, large
xEstimated costs associated with implementing customer refunds and payments, the Wealth Reset and litigation
were $319 million higher; and
xLower costs associated with the Royal Commission ($62 million) and lower variable reward.
Impairment benefit $95
million, a $94 million
increase
xAn impairment benefit of $95 million reflect a reduction in centrally held overlays in 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 2018.
1
2
Divisional performance
Divisional performance – 2018 v 2017
Consumer
2018 v 2017
Cash earnings of $3,423 million was down $29 million, or 1%, over the year. A decline in net interest margin, the removal of certain ATM fees,
changes in card interchange fees and increased regulatory and compliance costs, was partly offset by an $114 million decline in impairment
charges.
2019 Westpac Group Annual Report117
Net interest income up
$117 million, 2%
xLending increased 4% mostly in mortgages. Other lending decreased 4% mostly due to a 3% decline in credit cards,
which was in line with the decline in the overall system;
xA 10% increase in term deposits, and a 5% rise in transaction accounts (including mortgage offsets) supported the
5% rise in deposits; and
xNet interest margin was down 7 basis points. The decline was due to higher short term wholesale funding costs, the
full period impact of the Bank Levy, and higher provisions for estimated customer refunds and payments. The
decline was partly offset by higher deposit spreads.
Non-interest income down
$40 million, 3%
xThe decline was mostly due to the removal of certain ATM fees and changes to account keeping fees announced in
2017. Lower credit card income, mostly from changes in interchange fees, also contributed to the fall; and
xThis was partly offset by a $13 million increase in insurance income mostly from lower claims for major weather
events.
Operating expenses up
$226 million, 6%
xMost of the expense increase was due to:
–Provisions for costs associated with implementing customer refunds and payments and estimated litigation;
–Compliance costs and investment related costs; and
–Investment to improve financial crime systems and processes, cyber security and complaints management.
xOther cost increases including annual salary reviews and inflationary rises were more than offset by productivity
benefits from:
–Digital capabilities increasing customer self-service including take-up of e-statements;
–Full period benefit of 45 branches closed in 2017 and 40 branches closed in 2018; and
–Benefits from organisation redesign.
Impairment charges down
$114 million, 19%
xImpairment charges were lower from reduced write-offs due to improved collection processes and higher recoveries
from the maturing of hardship changes
Divisional performance
Business
2018 v 2017
Cash earnings of $2,756 million was $202 million, or 8% higher than 2017 from net operating income before operating expenses and
impairment charges growth of 5% and a 13% decline in impairment charges. The result was supported by increased fee income, balance sheet
growth and productivity gains.
Westpac Institutional Bank
2018 v 2017
Cash earnings were $70 million or 6% lower than 2017 mostly due to lower markets revenue. The decline was partially offset by higher margins
and an impairment benefit. In 2018 the division exited the Hastings business which lifted both revenues and expenses (and contributed to a
higher tax rate) but had little impact on cash earnings.
1182019 Westpac Group Annual Report
Net interest income up
$334 million, 7%
xLending growth of 2% was supported by diversified growth across industries including property, agriculture and
manufacturing and in equipment finance;
xThe 9% increase in term deposits supported the 4% increase in deposits; and
xNet interest margin was up 10 basis points from repricing of certain mortgages types in the second half of 2017 and
higher deposits spreads. These were partly offset by the full period impact of the Bank Levy.
Non-interest income up
$23 million, 1%
x2017 included provisions for customer refunds and payments which were not repeated
xReduced revaluation loss from investments in boutique funds and higher seed pool performance; and
xFunds related revenue was higher from a 7% growth in funds, partly offset by a lower margins from repricing and
product mix changes.
Operating expenses up
$103 million, 4%
Most of the increase was due to higher investment related costs (including costs associated with Panorama) and
higher regulatory and compliance costs; and
xIncreases from other costs were largely offset by productivity benefits from:
–Improved banker coverage and support structures;
–Better alignment of customers to bankers across SME and industries; and
–Process improvements from the extension of LOLA, improved online functionality and standardising risk
reviews.
Impairment charges down
$48 million, 13%
xImpairment charges benefited from lower credit card and auto write-offs over the year.
Net interest income up
$88 million, 6%
xLending was up 3%, from increased utilisation of mortgage warehouse facilities and a fall in the A$ lifting Asia trade
finance and loan balances;
xDeposits increased 14% from higher Australian transaction balances and term deposits. Asia term deposits also
increased due to foreign exchange translation impacts and to support lending in that region; and
xNet interest margin was up 6 basis points, from higher transaction deposit margins and reduced wholesale funding
costs. This was partially offset by the full period impact of the Bank Levy (5 basis points).
Non-interest income down
$151 million, 9%
xHastings contribution up $110 million, mainly from income associated with the exit of Hastings business;
xExcluding Hastings, non-interest income was down $261 million, or 15%, primarily from the non-repeat of several
large infrastructure transactions and lower markets revenue in fixed income sales and trading; and
xFee income was also lower from increased utilisation of existing credit limits.
Operating expenses up
$91 million, 7%
xHastings expenses up $87 million, from goodwill write-off and restructuring costs associated with the exit of the
business; and
xExcluding Hastings, operating expenses were up $4 million, due to higher technology, regulatory and compliance
expenses.
Impairment charge
positive movement of $95
million
xStressed and impaired assets to TCE decreased over the year to near historical lows; and
xThe movement in impairment charges was due to the absence in write-backs and the absence of any large
downgrade over the year.
Divisional performance
Westpac New Zealand
2018 v 2017
Cash earnings increased 5% over the year supported by a 13 basis point increase in net interest margin, and a 2% decline in expenses, partly
offset by lower non-interest income. 2018 recorded an impairment charge of NZ$25 million compared to an impairment benefit in 2017.
Group Businesses
2018 v 2017
Group Businesses resulted in a cash earnings loss of $141 million in 2018, compared to a cash earnings loss of $24 million in 2017. The Group
Businesses result in 2018 was impacted by from provisions for estimated customer refunds and payments, associated costs and litigation ($150
million). This was partly offset by higher Treasury revenue and earnings on capital.
2019 Westpac Group Annual Report119
Net interest income up
NZ$139 million, 8%
xLoans increased NZ$3.1 billion (4%), with the majority (NZ$2.0 billion) in mortgages. Business growth of NZ$1.2
billion, was across a broad range of sectors. Overall consumer lending was below system as the division balanced
return with growth;
xDeposits increased NZ$3.5 billion, more than funding loan growth over the year, and resulting in the deposit to loan
ratio increasing 144 basis points to 77.0%. Most deposit growth was in term products as customers sought higher
yields; and
xNet interest margin was 13 basis points higher from increased mortgage and business lending spreads, partly offset
by lower deposit spreads.
Non-interest income down
NZ$32 million, 7%
xDecline was driven by lower cards income, product simplification (reducing some fees on existing accounts) and
customer migration to lower/no fee digital channels; and
xHigher investment income from a 6% rise in funds and higher merchant and business lending fees, partly offset
these declines.
Operating expenses down
NZ$19 million, 2%
xBenefits from the transformation program include a reduction in branch numbers (down 6 over the year), lower FTE,
and increased self-service from digitisation;
xProject costs associated with the transformation program were also lower; and
xPartly offsetting these benefits were increased risk management and regulatory costs and higher costs from annual
salary reviews and inflation.
Impairment charge of
NZ$25 million compared
to a NZ$55 million
impairment benefit
xCredit quality improved with stressed assets to TCE reducing 49 basis points to 1.57%. The decline was mostly due
to the continued improvement in the dairy sector. Consumer 90+ day delinquencies remain near historic lows; and
xImpairment charges were higher due to the non-repeat of write-backs of some large facilities and improvement in
the dairy industry across 2017.
Net interest income up
$100 million, 14%
xNet interest income increased $100 million primarily from Treasury revenue related to Australian interest rate risk
management and increased earnings from centrally held capital.
Non-interest income down
$92 million, 51%
xNon-interest income decline mostly reflects an $85 million increase in provisions for customer refunds and
payments in respect to Advice;
xA lower contribution from Advice; partly offset by
xA $63 million benefit from the New Zealand earnings hedges and a $10 million gain on asset sales.
Operating expenses up
$135 million, 16%
xEstimated costs associated with implementing customer refunds and payments and litigation increased operating
expenses by $65 million;
xHigher regulatory and compliance costs, including costs associated with the Royal Commission;
xHigher restructuring costs; and
xExpenses associated with the Group’s fintech investments.
Impairment benefit down
$42 million
xMovements in impairments reflect a $1 million benefit from a reduction to centrally held overlays during 2018
compared to a $43 million benefit in 2017.
Tax and non- controlling
interests down $52
million, 41%
xTax and non-controlling interests decreased $52 million, reflecting lower profit before tax and the impact of non-
deductible expenses.
Risk and risk management
Risk factors
Our business is subject to risks that can adversely impact our financial performance, financial condition and future performance. If any of the
following risks occur, our business, prospects, reputation, financial performance or financial condition could be materially adversely affected,
with the result that the trading price of our securities could decline and as a security holder you could lose all, or part, of your investment. You
should carefully consider the risks described and the other information in this Annual Report before investing in our securities. The risks and
uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are unaware of, or that we currently
deem to be immaterial, may also become important factors that affect us.
Risks relating to our business
Our businesses are highly regulated and we have been and could be adversely affected by changes in laws, regulations or
regulatory policy
As a financial institution, we are subject to detailed laws and regulations in each of the jurisdictions in which we operate or obtain funding,
including Australia, New Zealand, the United Kingdom, the United States and various jurisdictions in Asia and the Pacific. We are also
supervised by a number of different regulatory and supervisory authorities which have broad administrative powers over our businesses.
The Group’s business, prospects, reputation, financial performance and financial condition could all be affected by changes to law and
regulation, changes to policies and changes in the supervisory activities and expectations of our regulators. The Group is currently operating in
an environment where there is increased scrutiny of the financial services sector and specifically, increased scrutiny of financial services
providers by regulators. In this environment, the Group faces increasing supervision and regulation in the jurisdictions in which we operate or
obtain funding. This environment has also served to increase the pace and scope of regulatory change.
Regulatory change could directly and adversely affect the Group’s financial condition and financial position. In recent years, new laws have
required Westpac to maintain increased levels of liquidity and hold higher levels of, and better quality, capital and funding. Regulatory change
may continue in this area. Regulation also affects the way we operate our business. New regulation could require us to change our existing
business models (including by imposing restrictions on the types of businesses we can conduct) or amend our corporate structure.
Recently, policy makers and regulators have developed and implemented a range of regulations that affect how we provide products and
services to our customers. New laws have been introduced that further regulate our ability to provide products and services to certain
customers and that require us to alter our product and service offerings. Our ability to set prices for certain products and services may also be
impacted by future regulation. The competitive landscape may also be altered by new laws affecting banks and financial services companies, or
our agents, authorised representatives and external service providers. The phasing in of Open Banking is one example of new laws that are
likely to affect competition amongst banks and other financial services providers in Australia.
Regulatory changes of this type could adversely affect one or more of our businesses, restrict our flexibility, require us to incur substantial
costs, impact the profitability of one or more of our business lines, result in the Group being unable to increase or maintain market share and/or
create pressure on our margins and fees, any of which could adversely affect our business, prospects, financial performance or financial
condition.
There are numerous sources of regulatory change that could affect our business. In some cases, changes to regulation are driven by
international bodies, such as the Basel Committee on Banking Supervision (BCBS). Regulatory change may also flow from reviews and
inquiries commissioned by Governments or regulators. These reviews and commissions of inquiry may lead to, and in some cases already
have led to, substantial regulatory change or investigations, which could have a material impact on our business, prospects, reputation,
financial performance or financial condition.
It is also possible that governments or regulators in jurisdictions in which we operate or obtain funding might revise their application of existing
regulatory policies that apply to, or impact, our business (including by in
stituting macro-prudential limits on len
ding). Regulators or governments
may take this action for a variety of reasons, including for reasons relating to national interest and/or systemic stability.
Regulatory changes and the timing of their introduction continue to evolve and we manage our businesses in the context of regulatory
uncertainty and complexity. The nature and impact of future changes are not predictable and are beyond our control. Regulatory compliance
and the management of regulatory change are an important part of our planning processes. We expect that we will continue to invest
significantly in compliance and the management and implementation of regulatory change and, at the same time, significant management
attention and resources will be required to update existing or implement new processes to comply with new regulations (such as obligations to
provide certain data and information to regulators) or new interpretations of existing laws or regulations. The failure of the Group to
appropriately manage and implement regulatory change, including by failing to implement effective processes to comply with new regulations,
has, in some instances, resulted in, and could in the future result in, the Group failing to meet a compliance obligation. Further information
about the consequences of failing to meet a compliance obligation is set out in the section titled ‘Our businesses are highly regulated and we
have been or could be adversely affected by failing to comply with laws, regulations or regulatory policy’ below.
Another consideration in managing regulatory change arises when regulation is introduced in one jurisdiction in which we operate that conflicts
with the way it is introduced in other jurisdictions in which we operate
.
For further information about regulatory changes affecting the Group, refer to ‘Significant developments’ in Section 1 and the sections ‘Critical
accounting assumptions and estimates’ and ‘Future developments’ in Note 1 to the financial statements.
1202019 Westpac Group Annual Report
Risk and risk management
Our businesses are highly regulated and we have been or could be adversely affected by failing to comply with laws,
regulations or regulatory policy
We are responsible for ensuring that we comply with all applicable legal and regulatory requirements and industry codes of practice in the
jurisdictions in which we operate or obtain funding, as well as meeting our ethical standards.
The Group is subject to compliance risk, which is the risk of legal or regulatory sanction or financial or reputational loss, arising from our failure
to abide by the compliance obligations required of us. This risk is exacerbated by the increasing complexity and volume of regulation and can
also arise where we interpret our obligations and rights differently to our regulators or a Court. The potential for this to occur may be heightened
in circumstances where regulation is untested and/or not accompanied by extensive regulatory guidance.
The Group employs a compliance management system which is designed to identify, assess and manage compliance risk. While this system is
currently in place, it may not always have been or continue to be effective. Breakdowns may occur in this system due, for example, to flaws in
the design of controls or processes. This has resulted in, and may in the future result in, potential breaches of our compliance obligations, as
well as poor customer outcomes
.
The Group also depends on its employees, contractors, agents, authorised representatives and external service providers to ‘do the right thing’
for it to meet its compliance obligations. Inappropriate conduct by these individuals, such as neglecting to follow a policy or engaging in
misconduct, could result in poor customer outcomes and a failure by the Group to comply with compliance obligations.
The Group’s failure, or suspected failure, to comply with a compliance obligation could lead to a regulator commencing surveillance or an
investigation into the Group. This may, depending on the circumstances, result in the regulator taking administrative or enforcement action
against the Group and/or its representatives. Regulators could seek to pursue civil or criminal proceedings, seeking substantial fines, civil
penalties or other enforcement outcomes. In addition, the failure or alleged failure of our competitors to comply with their obligations could lead
to increased regulatory scrutiny across the financial services sector.
In many cases, our regulators have broad powers. For example, under the Banking Act 1959 (Cth), APRA can, in certain circumstances, issue
a direction to us (such as a direction to comply with a prudential requirement, to conduct an audit, to remove a Director, executive officer or
employee, to take remedial action or not to undertake transactions) or disqualify an ‘Accountable Person’ under the Banking and Executive
Accountability Regime.
APRA also has the power to require us to hold additional capital, which they exercised earlier this year by applying a $500 million overlay to our
operational risk capital requirement following the completion of our self-assessment into our frameworks and practices in relation to
governance, culture and accountability. If the Group incurs additional capital overlays in the future it may need to raise additional capital which
could have an adverse impact on our business, prospects, financial performance and financial condition.
The current political and regulatory environment that the Group is operating in has also seen (and may in the future see) our regulators receive
new powers. Recently, legislation was passed by the Australian Parliament that provided ASIC with a product intervention power which enables
ASIC to make orders that prevent issuers of financial products from engaging in certain conduct.
In addition, legislation has been passed that materially increases the penalties that can be imposed for corporate and financial sector
misconduct. In particular, ASIC can commence civil penalty proceedings and seek significant civil penalties against an Australian Financial
Services licensee (such as Westpac) for failing to do all things necessary to ensure that financial services provided under the licence are
provided efficiently, honestly and fairly. The Group may also face significant penalties for failing to comply with other obligations, such as those
provided for under the recently legislated Consumer Data Right. This trend towards increasingly severe penalties for failing to meet compliance
obligations could continue in the future and be expanded into other areas of regulation that the Group is subject to.
Changes may also occur in the oversight approach of regulators, which could result in a regulator preferring its enforcement powers over a
more consultative approach. In recent years, there have been significant increases in the nature and scale of regulatory investigations,
enforcement actions and the quantum of fines issued by global regulators.
This dynamic is apparent, with ASIC committing to conducting more enforcement actions against large financial institutions and adopting a ‘why
not litigate?’ enforcement stance. ASIC has also continued to implement its ‘Close and Continuous Monitoring’ program, which has seen ASIC
staff embedded within the institutions they supervise, including Westpac.
APRA has publicly committed to a revised approach to enforcement as well. APRA has indicated that it will use enforcement where appropriate
to prevent and address serious prudential risks and hold entities and individuals to account.
The current environment may see a shift in the nature of enforcement proceedings commenced by regulators. As well as conducting more civil
penalty proceedings, our regulators may be more likely to bring criminal proceedings against institutions and/or their representatives in the
future. Alternatively, regulators may elect to make criminal referrals to the Commonwealth Department of Public Prosecutions or other
prosecutorial bodies.
The provision of new powers to regulators, coupled with the increasingly active supervisory and enforcement approaches adopted by them,
increases the prospect of adverse regulatory action being brought against the Group. Further, the severity and consequences of that action are
now greater, given the expansion of penalties for corporate and financial sector misconduct.
2019 Westpac Group Annual Report121
Risk and risk management
Regulatory action brought against the Group may expose the Group to an increased risk of litigation brought by third parties (including through
class action proceedings), which may require the Group to pay compensation to third parties and/or undertake further remediation activities.
Regulatory investigations, inquiries, litigation, fines, penalties, infringement notices, revocation, suspension or variation of conditions of relevant
regulatory licences or other enforcement or administrative action or agreements (such as enforceable undertakings) could, either individually or
in aggregate with other regulatory action, adversely affect our business, prospects, reputation, financial performance or financial condition. For
further details about regulatory matters that may affect the Group, refer to ‘Significant Developments’ in Section 1.
The failure to comply with financial crime obligations could have an adverse effect on our business and reputation
The Group is subject to anti-money laundering and counter-terrorism financing (AML/CTF) laws, anti-bribery and corruption laws, economic and
trade sanctions laws and tax transparency laws in the jurisdictions in which it operates. These laws can be complex and, in some
circumstances, impose a diverse range of obligations. For example, AML/CTF laws require Westpac and other regulated institutions to
(amongst other things) undertake customer identification and verification, conduct ongoing due diligence on customers, maintain and comply
with an AML/CTF program and undertake ongoing risk assessments. AML/CTF laws also require Westpac to report certain matters and
transactions to regulators (including in relation to International Funds Transfer Instructions, Threshold Transaction Reports and Suspicious
Matter Reports) and ensure that certain information is not disclosed to third parties in a way that would contravene the ‘tipping off’ provisions in
AML/CTF legislation.
In recent years there has been increased focus on compliance with f
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Data sourced from publicly available filings. Our datasets may not be complete. Automated analysis can produce errors. If you believe any data on this page is incorrect, please contact us at hello@nzxplorer.co.nz. For informational purposes only. Not investment advice.