Westpac Pillar 3 Report (September 2020)
ASX Release
2 November 2020
Westpac Pillar 3 Report (September 2020)
Westpac Banking Corporation (“Westpac”) today provides the attached Westpac
Pillar 3 Report (September 2020).
For further information:
David Lording Andrew Bowden
Group Head of Media Relations Head of Investor Relations
0419 683 411 0438 284 863
This document has been authorised for release by Tim Hartin, General Manager & Company
Secretary.
Level 18, 275 Kent Street
Sydney, NSW, 2000
Pillar 3
Report
2020
INCORPORATING THE REQUIREMENTS OF APS330
WESTPAC BANKING CORPORATION
ABN 33 007 457 141
Fix. Simplify. Perform.
Pillar 3 report
Table of contents
2 | Westpac Group September 2020 Pillar 3 report
Structure of Pillar 3 report
Executive summary
3
Introduction 5
Risk appetite and risk types 6
Controlling and managing risk 7
Group structure 13
Capital overview 15
Leverage ratio 20
Credit risk management 22
Credit risk exposures 32
Credit risk mitigation 56
Counterparty credit risk 58
Securitisation 61
Market risk 71
Interest rate risk in the banking book 75
Operational risk 77
Equity risk 79
Funding and liquidity risk management 81
Liquidity coverage ratio 82
Net stable funding ratio 83
Remuneration 85
Appendices
Appendix I – Regulatory capital reconciliation
92
Appendix II – Entities included in regulatory consolidation
98
Appendix III – Level 3 entities’ assets and liabilities
101
Appendix IV – Regulatory expected loss
102
Appendix V – APS330 quantitative requirements
103
Glossary
106
Disclosure regarding forward-looking statements
111
In this report references to ‘Westpac’, ‘Westpac Group’, ‘the Group’, ‘we’, ‘us’ and ‘our’ are to Westpac Banking
Corporation and its controlled entities (unless the context indicates otherwise).
In this report, unless otherwise stated or the context otherwise requires, references to '$', 'AUD' or 'A$' are to
Australian dollars.
Any discrepancies between totals and sums of components in tables contained in this report are due to rounding.
In this report, unless otherwise stated, disclosures reflect the Australian Prudential Regulation Authority’s (APRA)
implementation of Basel III.
Information contained in or accessible through the websites mentioned in this 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.
Pillar 3 report
Executive summary
Westpac Group September 2020 Pillar 3 report | 3
Key capital ratios
30 September 202031 March 202030 September 2019
Level 2 Regulatory capital structure
Common equity Tier 1 capital after deductions $m48,733 47,982 45,752
Risk weighted assets (RWA) $m437,905 443,905 428,794
Common equity Tier 1 capital ratio %11.13 10.81 10.67
Additional Tier 1 capital ratio %2.10 2.13 2.17
Tier 1 capital ratio %13.23 12.94 12.84
Tier 2 capital %3.15 3.35 2.79
Total regulatory capital ratio %16.38 16.29 15.63
APRA leverage ratio %5.78 5.66 5.68
Level 1 Regulatory capital structure
Common equity Tier 1 capital after deductions ($m)49,453 48,482 46,380
Risk weighted assets (RWA) ($m)433,727 437,137 422,475
Level 1 Common equity Tier 1 capital ratio %11.40 11.09 10.98
CET1 capital ratio movement for Second Half 2020
Westpac’s CET1 capital ratio was 11.13% at 30 September 2020, 32 basis higher than 31 March 2020. This
reflects cash earnings for the half taking into account notable items
1
, a slight decline in RWAs and higher capital
deductions.
CET1 movement – Second Half 2020
Key movements in the CET1 capital ratio over the half were:
⚫ Second Half 2020 cash earnings (37 basis point increase), which includes the impact of notable items;
⚫ Capital deductions and other capital movements (11 basis point decrease). This mainly reflects movements in
fair value on economic hedges recognised in net profit (13 basis point decrease), a higher deduction for
deferred tax assets (8 basis point decrease) and a net increase in capital held in non-consolidated
subsidiaries (3 basis point decrease). These were largely offset by a lower deduction for goodwill (12 basis
point increase) and other movements (1 basis point increase);
⚫ A decline in RWA (1 basis point increase), mainly driven by decreases in credit risk RWA which were partially
offset by an increase in non-credit risk RWA; and
⚫ Foreign currency impacts from the appreciation of the A$ against the NZ$ and US$ (5 basis point increase)
2
.
1
Notable items impacting cash earnings for the Second Half 2020 includes estimated customer refunds and payments, costs
associated with estimated customer refunds and payments and litigation, AUSTRAC and related matters, intangible write-down and
asset sales/revaluation.
2
Reflecting the net impact of movements in the foreign currency translation reserve and RWA.
Pillar 3 report
Executive summary
4 | Westpac Group September 2020 Pillar 3 report
Risk Weighted Assets (RWA)
$m30 September 202031 March 202030 September 2019
Risk weighted assets at Level 2
Credit risk359,389369,142367,864
Market risk8,7618,3969,350
Operational risk54,09054,09347,680
Interest rate risk in the banking book (IRRBB)9,1245,305530
Other 6,5416,9693,370
Total RWA437,905443,905428,794
Total Exposure at Default1,062,2381,089,1041,054,178
Total RWA decreased $6.0 billion or 1.4% this half mainly driven by a reduction in credit risk RWA.
The $9.8 billion decline in credit risk RWA included:
• $3.1 billion from lower lending in corporate from reduced Trade Finance activity in Asia and a decrease in
personal lending across credit cards and other retail;
• Foreign currency translation impacts which decreased RWA by $5.6 billion from the appreciation of the A$
against the NZ$ and US$;
• Modelling and methodology changes, which reduced RWA by $2.6 billion; and
• A decrease in credit RWA associated with derivative exposures (counterparty credit risk and mark-to-market
related credit risk) of $3.9 billion mainly relating to currency and interest rate movements.
Partially offset by:
• A $5.4 billion increase from credit quality deterioration comprising:
o Downgrades mainly across corporate, business and specialised lending which increased RWA by
$3.4 billion; and
o An overlay to the probability of default for corporate, business lending and specialised lending which
led to a $2.0 billion increase in RWA and an associated increase in regulatory expected loss of $89
million. This overlay will be reviewed regularly as individual customers continue to be assessed and
re-gradings are finalised.
Non-credit risk RWA increased by $3.8 billion from higher IRRBB (up $3.8 billion), an increase in market risk RWA
(up $0.4 billion), partially offset by Other RWA down $0.4 billion.
During the half APRA approved a new IRRBB model and the revised model has been implemented at 30
September 2020. Westpac had included an IRRBB capital overlay of $500 million, which has now been released
with minimal net overall impact. The key driver for the increase this half is primarily credit spread risk from the
higher liquids portfolio.
Exposure at Default
Exposure at default (EAD) decreased $26.9 billion (or 2.5%) over the half, primarily due to lower lending, foreign
exchange movements and a reduction in derivative exposures.
Leverage Ratio
The leverage ratio represents the amount of Tier 1 capital relative to exposure
1
. At 30 September 2020, Westpac’s
leverage ratio was 5.78%, up 12 basis points since 31 March 2020.
Liquidity Coverage Ratio (LCR)
Westpac’s average LCR for the quarter ending 30 September 2020 was 151% (30 June 2020: 146%).
Net Stable Funding Ratio (NSFR)
Westpac had an NSFR of 121.7%
2
as at 30 September 2020 (30 June 2020: 116.1%).
1
As defined under Attachment D of APS110: Capital Adequacy.
2
Calculated as total available stable funding divided by total required stable funding as at end of the quarter.
Pillar 3 report
Introduction
Westpac Group September 2020 Pillar 3 report | 5
Westpac Banking Corporation is an Authorised Deposit-taking Institution (ADI) subject to regulation by APRA.
APRA has accredited Westpac 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 (Advanced IRB) for credit risk and the Advanced Measurement Approach (AMA) for operational
risk.
In accordance with APS330 Public Disclosure, financial institutions that have received this accreditation, such as
Westpac, are required to disclose prudential information about their risk management practices on a semi-annual
basis. A subset of this information must be disclosed quarterly.
This report describes Westpac’s risk management practices and presents the prudential assessment of Westpac’s
capital adequacy as at 30 September 2020.
In addition to this report, the regulatory disclosures section of the Westpac website
1
contains the reporting
requirements for:
⚫ Capital instruments under Attachment B of APS330; and
⚫ The identification of potential Global-Systemically Important Banks (G-SIB) under Attachment H of APS330
(disclosed annually).
Capital instruments disclosures are updated when:
⚫ A new capital instrument is issued that will form part of regulatory capital; or
⚫ A capital instrument is redeemed, converted into CET1 capital, written off, or its terms and conditions are
changed.
1
http://www.westpac.com.au/about-westpac/investor-centre/financial-information/regulatory-disclosures/
Pillar 3 Report
Risk appetite and risk types
6 | Westpac Group September 2020 Pillar 3 report
Westpac’s appetite for risk is informed by our strategic objectives and business plans, regulatory rules and ratios,
and the potential for adverse outcomes that result in material impacts on our customers, our staff, our reputation,
our regulatory relationships and/or our financial position including the potential for capital and liquidity ratios to fall
below target levels in stressed scenarios.
Refer to the Strategic Review section of the Westpac 2020 Annual Report for a discussion on the current risk
management issues facing Westpac.
Westpac distinguishes between different types of risk and takes an integrated approach toward identifying,
assessing and managing risks. The annual review of Westpac’s Risk Management Framework, which includes the
Risk Management Strategy and Risk Appetite Statement, together with the establishment and monitoring of key
controls through supporting frameworks and policies all play vital roles.
Overview of key risk types
⚫ risk culture – the risk that our culture does not 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;
⚫ strategic risk – the risk that Westpac makes incomplete strategic choices, does not implement its strategies
successfully, or does not respond effectively to changes in the operating environment;
⚫ capital adequacy risk – the risk that Westpac has an inadequate 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;
⚫ funding and liquidity risk – the risk that Westpac cannot meet its payment obligations or that it does not have
the appropriate amount, tenor and composition of funding and liquidity to support its assets;
⚫ credit risk – the risk of financial loss where a customer or counterparty fails to meet their financial obligations
to Westpac;
⚫ market risk – the risk of an adverse impact on earnings resulting from changes in the value of Westpac’s
positions as a result of a change in financial market factors, such as foreign exchange rates, interest rates,
commodity prices and equity prices. This includes interest rate risk in the banking book - the risk to interest
income from a mismatch between the duration of assets and liabilities that arises in the normal course of
business activities;
⚫ operational risk – the risk of loss resulting from inadequate or failed internal processes, people and systems or
from external events. This definition excludes strategic risk. While legal risk and regulatory risk arise through
inadequate or failed processes, people and systems or from external events, these are reflected primarily in
conduct and compliance risk;
⚫ cyber risk – the risk that Westpac or its third parties’ data or technology are inappropriately accessed,
manipulated or damaged from cybersecurity threats or vulnerabilities;
⚫ conduct 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;
⚫ reputational and sustainability risk − the risk that an action, inaction, transaction, investment or event will
reduce trust in Westpac’s integrity and competence by clients, counterparties, investors regulators, employees
or the public; and
⚫ financial crime risk – the risk that Westpac fails to prevent financial crime and comply with applicable global
financial crime regulatory obligations.
Pillar 3 report
Controlling and managing risk
Westpac Group September 2020 Pillar 3 report | 7
We have adopted and continue to embed a Three Lines of Defence model to aid in end-to-end management of
risk, within which all employees play an active role. We have put in place a risk management framework that
seeks to:
⚫ deliver suitable, fair and clear outcomes for our customers that support market integrity;
⚫ protect Westpac’s depositors, policyholders and investors by maintaining a balance sheet with sound credit
quality and buffers over regulatory minimums; and
⚫ meet our regulatory and statutory obligations.
The Board is responsible for approving Westpac’s overall Risk Management Framework for managing financial
and non-financial risk, including the Westpac Group Risk Management Strategy and the Westpac Group Risk
Appetite Statement and for monitoring the effectiveness of risk management by Westpac.
The Board has delegated to the Board Risk 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 and
policies for managing risk; and review and, where appropriate, approve risks beyond the approval discretion
provided to management.
In June 2020, the Board Legal, Regulatory & Compliance Committee was established as a sub-committee of the
Board Risk Committee to assist with overseeing financial crime risk, material litigation and regulatory
investigations, customer remediation activities and customer complaints, compliance and conduct risk and
material legal and regulatory change relevant to the Group.
Risk management governance structure as at 30 September 2020
Board
⚫ approves our overall risk management framework – the Westpac Group
Risk Management Framework, the Westpac Group Risk Management
Strategy and the Westpac Group Risk Appetite Statement and monitors the
effectiveness of risk management by Westpac; and
⚫ makes an annual declaration to APRA on risk management in accordance
with regulatory requirements.
Board Risk
Committee (BRiskC)
⚫ assists the Board to consider and approve Westpac’s overall risk
framework for managing financial and non-financial risks;
⚫ reviews and oversees the risk culture across Westpac;
⚫ reviews and recommends the Westpac Group Risk Management
Framework, the Westpac Group Risk Management Strategy and the
Westpac Group Risk Appetite Statement to the Board for approval on an
annual basis;
⚫ reviews and monitors Westpac’s risk profile and controls for consistency
with the Westpac Group Risk Appetite Statement and assists the Board to
set the risk appetite for material risks;
⚫ reviews and approves material frameworks, policies and processes for
managing risk;
⚫ 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 Westpac to whom the Board has delegated credit approval authority;
⚫ 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;
⚫ assists the Board to make its annual declaration to APRA on risk
management under APRA prudential standard CPS220 Risk Management;
⚫ reviews and where appropriate approves risks beyond the approval
discretion provided to management; and
⚫ assists the Board to oversee compliance management within Westpac.
From the perspective of specific types of risk, the Board Risk Committee’s role
includes:
⚫ credit risk – approving material policies and limits supporting the Westpac
Group Credit Risk Management Framework, approving credit provisioning,
and monitoring the risk profile, performance and management of our credit
portfolio;
Pillar 3 report
Controlling and managing risk
8 | Westpac Group September 2020 Pillar 3 report
Risk management governance structure (continued)
⚫ liquidity risk – approving key policies and limits supporting the Westpac
Group Liquidity Risk Management Framework, including our annual funding
strategy, recovery and resolution plans, liquidity targets and limits and
monitoring the liquidity position and requirements;
⚫ market risk – approving key policies and limits supporting the Westpac
Group Market Risk Management Framework and reviewing and monitoring
the market risk performance, exposures and risk positions;
⚫ operational risk – approving key policies supporting the Westpac Group
Operational Risk Management Framework, and monitoring the performance
of operational risk management and controls;
⚫ reputation and sustainability risk – reviewing and approving the Westpac
Group Reputation Risk and Sustainability Risk Management Frameworks,
and monitoring the associated management of these risks; and
The Board Risk Committee also:
⚫ oversees and approves the Internal Capital Adequacy Assessment Process
and in doing so reviews and recommends the target capital ranges for
regulatory capital and reviews and monitors capital levels for consistency
with Westpac’s risk appetite;
⚫ oversees and approves Westpac’s stress testing, including review and
approval of the material scenarios adopted and monitors material stress
testing results and management responses;
⚫ provides relevant periodic assurances and reports (as appropriate) to the
Board Audit Committee;
⚫ reviews and approves other risk management frameworks and/or the
monitoring of performance under those frameworks (as appropriate);
⚫ forms a view on Westpac’s risk culture and the extent to which it supports
the ability of Westpac to operate consistently within the Westpac Group’s
Risk Management Framework and the Westpac Group Risk Appetite
Statement and oversees the identification of, and steps taken to address,
any desirable changes to risk culture and periodically reports to the Board;
⚫ refers or recommends to the Board and any other Board Committees (as
appropriate) any matters that have come to the attention of the Board Risk
Committee that are relevant for the Board or the respective Board
Committee; and
⚫ in its capacity as the Westpac Group’s US Risk Committee, oversees the
key risks, risk management framework and policies of Westpac’s US
operations.
Board Legal, Regulatory
and Compliance
Committee (BLRCC)
Assist the Board Risk Committee as it oversees:
⚫ material legal and regulatory change relevant to Westpac;
⚫ Westpac’s management of:
o material litigation (including class actions) and regulatory
investigations;
o compliance;
o conduct risk;
o financial crime risk;
o customer remediation activities and customer complaints; and
o such other operational risk activities as are delegated to the Board
Legal, Regulatory & Compliance Committee by the Board Risk
Committee.
Pillar 3 report
Controlling and managing risk
Westpac Group September 2020 Pillar 3 report | 9
Risk management governance structure (continued)
From the perspective of specific types of risk, the BLRCC role includes:
⚫ financial crime risk – reviewing and approving the Financial Crime Risk
Management Framework and key supporting policies and standards,
including receiving information regarding material breaches of Westpac’s
Anti-Bribery and Corruption (ABC) Policy and monitoring Westpac’s
financial crime risk performance and controls; and
⚫ compliance and conduct risk - reviewing and approving Westpac’s
Compliance and Conduct Risk Management Framework and key
supporting policies and standards, and reviewing and monitoring Westpac's
risk performance and controls.
Board Committees with a
Risk Focus
Board Audit Committee (BAC)
⚫ oversees the integrity of the financial statements, financial reporting
systems, and the Group’s corporate reporting including the Group’s
financial reporting, and compliance with prudential regulatory reporting and
professional accounting requirements and matters relating to taxation risks.
Board Remuneration Committee (BRC)
⚫ oversees remuneration policies and practices of Westpac, 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 (BTC)
⚫ oversees the implementation of Westpac’s technology and data strategy
and oversees the implementation of programs within the Enterprise Change
Portfolio including monitoring the delivery of the major technology related
transformation programs.
Executive Team Westpac Executive Team (ET)
⚫ executes the Board-approved strategy;
⚫ delivers Westpac’s various strategic and performance goals within the
approved risk appetite;
⚫ approves position statements that guide Westpac’s response to
sustainability issues; and
⚫ monitors key risks within each business unit, capital adequacy and
Westpac’s reputation.
Executive risk committees Westpac Group Executive Risk Committee (RISKCO)
⚫ leads the management and oversight of material risks across Westpac
within the context of the risk appetite approved by the Board;
⚫ oversees the effectiveness of the Risk Management Framework and the
execution of the Risk Management Strategy;
⚫ monitors and reviews Westpac’s risk profile for all identified material risks;
⚫ shapes and promotes a strong risk culture; and
⚫ oversees emerging risks and allocates responsibility for assessing impacts
and implementing appropriate actions to address these.
Westpac Group Executive Technical Risk Committee
⚫ reviews, supports, approves and monitors risk class risk management
frameworks and key supporting policies;
⚫ monitors the review of risk models, model risk and capital measurements
and methodologies; and
⚫ monitors and reviews stress testing and scenario analysis and capital.
Pillar 3 report
Controlling and managing risk
10 | Westpac Group September 2020 Pillar 3 report
Risk management governance structure (continued)
Westpac Group Asset & Liability Committee (ALCO)
⚫ leads the optimisation of funding and liquidity risk-reward across Westpac;
⚫ reviews the level and quality of capital to ensure that it is commensurate with
Westpac’s risk profile, business strategy and risk appetite;
⚫ oversees the Liquidity Risk Management Framework and key policies;
⚫ oversees the funding and liquidity risk profile and balance sheet risk profile;
and
⚫ identifies emerging funding and liquidity risks and appropriate actions to
address these.
Westpac Group Credit Risk Committee (CREDCO)
⚫ reviews and oversees the Credit Risk Management Framework and key
supporting policies;
⚫ oversees Westpac’s credit risk profile; and
⚫ identifies emerging credit risks, allocates responsibility for assessing impacts,
and responds as appropriate.
Westpac Group Market Risk Committee (MARCO)
⚫ reviews and oversees the Market Risk Management Framework and key
market risk management policies;
⚫ reviews policies and limits for managing traded and non-traded market risk;
and
⚫ reviews and oversees the market risk, equity risk and insurance risk profile.
Westpac Group Operational and Compliance Risk Committee (OPCO)
⚫ reviews and oversees the Operational Risk Management Framework and the
Compliance and Conduct Risk Management Framework, and key supporting
policies;
⚫ oversees Westpac’s operational risk and conduct and compliance risk
profiles; and
⚫ identifies emerging operational, conduct and compliance risks and
appropriate actions to address these.
Westpac Group Remuneration Oversight Committee (ROC)
⚫ supporting the CEO, BRC 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;
⚫ assisting the BRC and the Board in fulfilling its responsibility to oversee
remuneration policies and practices of Westpac 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;
⚫ recommending to the CEO for recommendation to the BRC remuneration
arrangements including remuneration review and remuneration adjustment
outcomes 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
⚫ recommending to the CEO for recommendation to the BRC the criteria and
rationale for determining the total quantum of Westpac’s variable reward
pool.
Pillar 3 report
Controlling and managing risk
Westpac Group September 2020 Pillar 3 report | 11
Risk management governance structure (continued)
Prudential Reporting and Compliance Committee
⚫ oversees from a Group-wide perspective, Westpac’s compliance with
prudential requirements and regulatory reporting;
⚫ oversees the effective management of prudential compliance breaches,
incidents and issues including remediation actions; and
⚫ monitors and reviews ongoing prudential governance activities, including
changes to prudential standards.
Reputation Risk Committee
⚫ reviews issues with material reputation risk that arise in the operations of
Westpac’s business to mitigate reputation risk and detrimental customer
impacts.
Westpac Group Financial Crime Risk and Compliance Committee
⚫ 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;
⚫ reviews and oversees the Financial Crime Risk Management Framework,
key supporting policies, programs and standards;
⚫ monitors and oversees Westpac’s financial crime risk profile; and
⚫ identifies emerging financial crime risks, and appropriate actions to address
these.
Risk function Risk Function
⚫ promotes a strong risk culture;
⚫ owns the design and content of the Risk Management Framework;
⚫ defines the structure and coverage of risk appetite;
⚫ defines the annual risk strategy to execute the Risk Management Framework
ensuring that the management of risks is in alignment with risk appetite and
business strategy;
⚫ establishes risk policies, procedures and limits;
⚫ measures and reports on risk levels; and
⚫ provides oversight of and direction on the management of risks.
Independent internal
review
Group Audit
⚫ reviews the adequacy and effectiveness of management controls over risk.
Divisional business units
and Functions
Business Units and Functions
⚫ responsible for identifying, evaluating and managing the risks that they
originate within approved risk appetite and policies; and
⚫ establish and maintain appropriate risk management and compliance
controls, resources and self-assessment processes.
Pillar 3 report
Controlling and managing risk
12 | Westpac Group September 2020 Pillar 3 report
Roles and responsibilities
Our Three Lines of Defence approach is designed on a functional basis and covers all employees within Westpac.
The 1
st
Line of Defence – Business: manages the risks they originate
The 1
st
Line proactively identifies, evaluates, owns and manages the risks in their business/domain. It also seeks
to ensure that business activities are within approved risk appetite and policies. This accountability cannot be
abrogated. The 1
st
Line of defence is accountable for ‘self-certification’.
In managing its risk, the 1
st
Line is required to establish and maintain appropriate governance structures, controls,
resources and self-assessment processes, including issue identification, recording and escalation procedures.
The 2
nd
Line of Defence – Risk: provides oversight, insight and control of 1
st
Line activities
The 2
nd
Line sets frameworks, controls (including policies and limits), and standards for use across the Group. The
2
nd
Line can require remediation or cessation of activity where these are not adhered to. Their approach is
intended to be risk-based and proportionate to 1
st
Line activities.
The 2
nd
Lines role is to review and challenge 1
st
Line activities and decisions that may materially affect Westpac’s
risk position, and independently evaluates the effectiveness of the 1
st
Line’s controls, monitoring, compliance, and
monitors progress towards mitigating risks. In addition, the 2
nd
Line’s role is to provide insight to the 1
st
Line,
assisting in developing, maintaining and enhancing the business’ approach to risk management.
The 2
nd
Line considers and reports the aggregated risk profile of the Group to facilitate end-to-end oversight of
risk.
The 3
rd
Line of Defence – Audit: provides independent audit
Group Audit is an independent assurance function. Its role is to evaluate and opine on the adequacy and
effectiveness of both 1
st
and 2
nd
Line risk management approaches and track remediation progress, with the aim of
providing the Board, and Senior Executives, with information about whether the Group’s governance, risk
management and internal controls are operating effectively.
Pillar 3 report
Group Structure
Westpac Group September 2020 Pillar 3 report | 13
APRA applies a tiered approach to measuring Westpac’s capital adequacy
1
by assessing financial strength at
three levels:
⚫ Level 1, comprising Westpac Banking Corporation and its subsidiary entities that have been approved by
APRA as being part of a single 'Extended Licensed Entity' (ELE) for the purposes of measuring capital
adequacy;
⚫ Level 2, the consolidation of Westpac Banking Corporation and all its subsidiary entities except those entities
specifically excluded by APRA regulations. The head of the Level 2 group is Westpac Banking Corporation;
and
⚫ Level 3, the consolidation of Westpac Banking Corporation and all its subsidiary entities.
Unless otherwise specified, all quantitative disclosures in this report refer to the prudential assessment of
Westpac’s financial strength on a Level 2 basis
2
.
The Westpac Group
The following diagram shows the Level 3 conglomerate group and illustrates the different tiers of regulatory
consolidation.
Level 1 Consolidation
Level 2 Consolidation
Level 3 Consolidation
Regulatory
non-consolidated
subsidiaries
Westpac
New Zealand Ltd
Other Westpac Level 2
subsidiaries
Westpac Banking
Corporation
Westpac Level 1
subsidiaries
Accounting consolidation
3
The consolidated financial statements incorporate the assets and liabilities of all subsidiaries (including structured
entities) controlled by Westpac. Westpac and its subsidiaries are referred to collectively as the ‘Group’. The effects
of all transactions between entities in the Group are eliminated on consolidation. Control exists when the parent
entity is exposed to, or has rights to, variable returns from its involvement with an entity, and has the ability to
affect those returns through its power over that entity. Subsidiaries are fully consolidated from the date on which
control commences and they are no longer consolidated from the date that control ceases.
Group entities excluded from the regulatory consolidation at Level 2
Regulatory consolidation at Level 2 covers the global operations of Westpac and its subsidiary entities, including
other controlled banking, securities and financial entities, except for those entities involved in the following
business activities:
⚫ insurance;
⚫ acting as manager, responsible entity, approved trustee, trustee or similar role in relation to funds
management;
⚫ non-financial (commercial) operations; or
⚫ special purpose entities to which assets have been transferred in accordance with the requirements of
APS120 Securitisation.
Retained earnings and equity investments in subsidiary entities excluded from the consolidation at Level 2 are
deducted from capital, with the exception of securitisation special purpose entities.
1
APS110 Capital Adequacy outlines the overall framework adopted by APRA for the purpose of assessing the capital adequacy of an
ADI.
2
Impaired assets and provisions held in Level 3 entities are excluded from the tables in this report.
3
Refer to Note 31 of Westpac’s 2020 Annual Report for further details.
Pillar 3 report
Group structure
14 | Westpac Group September 2020 Pillar 3 report
Subsidiary banking entities
Westpac New Zealand Limited (WNZL), a wholly owned subsidiary entity, is a registered bank incorporated in New
Zealand and regulated by the Reserve Bank of New Zealand (RBNZ). WNZL uses the Advanced IRB approach for
credit risk and the AMA for operational risk. Other subsidiary banking entities in the Group include Westpac Bank-
PNG-Limited and Westpac Europe Limited. For the purposes of determining Westpac’s capital adequacy
subsidiary banking entities are consolidated at Level 2.
Restrictions and major impediments on the transfer of funds or regulatory capital within the Group
Minimum capital (‘thin capitalisation’) rules
Tax legislation in most jurisdictions in which the Group operates prescribes minimum levels of capital that must be
retained in that jurisdiction to avoid a portion of the interest costs incurred in the jurisdiction ceasing to be tax
deductible. Capital for these purposes includes both contributed capital and non-distributed retained earnings.
Westpac seeks to maintain sufficient capital/retained earnings to comply with these rules.
Tax costs associated with repatriation
Repatriation of retained earnings (and capital) may result in tax being payable in either the jurisdiction from which
the repatriation occurs or Australia on receipt of the relevant amounts. This cost would reduce the amount actually
repatriated.
Intra-group exposure limits
Exposures to related entities are managed within the prudential limits prescribed by APRA in APS222 Associations
with Related Entities
1
. Westpac has an internal limit structure and approval process governing credit exposures to
related entities. This limit structure and approval process, combined with APRA’s prudential limits, is designed to
reduce the potential for unacceptable contagion risk.
Prudential regulation of subsidiary entities
Certain subsidiary banking, insurance and trustee entities are subject to local prudential regulation in their own
right, including capital adequacy requirements and investment or intra-group exposure limits. Westpac seeks to
ensure that its subsidiary entities are adequately capitalised and adhere to regulatory requirements at all times.
There are no capital deficiencies in subsidiary entities excluded from the regulatory consolidation at Level 2.
On 4 November 2019, the RBNZ advised it would change WNZL’s conditions of registration to remove the 2%
overlay applying to its minimum capital requirements from 31 December 2019. This overlay had been in place
since 31 December 2017 following the RBNZ’s review of WNZL’s compliance with the RBNZ’s ‘Capital Adequacy
Framework’ (Internal Models Based Approach) (BS2B).
On 2 April 2020, a decision was made by the RBNZ to freeze the distribution of dividends on ordinary shares by all
banks in New Zealand during the period of economic uncertainty caused by COVID-19.
1
For the purposes of APS222, subsidiaries controlled by Westpac, other than subsidiaries that form part of the ELE, represent ‘related
entities’. Prudential and internal limits apply to intra-group exposures between the ELE and related entities, both on an individual and
aggregate basis.
Pillar 3 report
Capital overview
Westpac Group September 2020 Pillar 3 report | 15
Capital Structure
This table shows Westpac’s capital resources under APS111 Capital Adequacy: Measurement of Capital.
30 September31 March 30 September
$m202020202019
Common equity Tier 1 capital
Paid up ordinary capital40,509 40,503 37,508
Treasury shares(620) (619) (575)
Equity based remuneration1,661 1,645 1,548
Foreign currency translation reserve(309) 59 (199)
Accumulated other comprehensive income126 (190) (68)
Non-controlling interests - other57 61 58
Retained earnings26,533 25,985 27,188
Less retained earnings in life and general insurance, funds management
and securitisation entities
(1,132) (1,326) (1,407)
Deferred fees214 229 267
Total common equity Tier 1 capital
67,039 66,347 64,320
Deductions from common equity Tier 1 capital
Goodwill (excluding funds management entities)(8,532) (8,673) (8,648)
Deferred tax assets(2,963) (2,610) (2,034)
Goodwill in life and general insurance, funds management
and securitisation entities(535) (935) (940)
Capitalised expenditure(1,576) (1,656) (1,719)
Capitalised software(2,137) (2,029) (2,019)
Investments in subsidiaries not consolidated for regulatory purposes(1,941) (1,633) (1,540)
Regulatory expected loss in excess of eligible provisions
1
(40) -(1,106)
Defined benefit superannuation fund surplus(71) (80) (73)
Equity investments(492) (327) (425)
Regulatory adjustments to fair value positions(18) (407) (63)
Other Tier 1 deductions(1) (15) (1)
Total deductions from common equity Tier 1 capital
(18,306) (18,365) (18,568)
Total common equity Tier 1 capital after deductions
48,733 47,982 45,752
Additional Tier 1 capital
Basel III complying instruments9,206 9,473 9,299
Total Additional Tier 1 capital
9,206 9,473 9,299
Net Tier 1 regulatory capital
57,939 57,455 55,051
Tier 2 capital
Basel III complying instruments13,161 14,455 11,645
Basel III transitional instruments494 567 519
Eligible general reserve for credit loss397 79 62
Total Tier 2 capital
14,052 15,101 12,226
Deductions from Tier 2 capital
Investments in subsidiaries not consolidated for regulatory purposes(140) (140) (140)
Holdings of own and other financial institutions Tier 2 capital instruments(121) (102) (115)
Total deductions from Tier 2 capital
(261) (242) (255)
Net Tier 2 regulatory capital
13,791 14,859 11,971
Total regulatory capital
71,730 72,314 67,022
1
An explanation of the relationship between this deduction, regulatory expected loss and provisions for impairment charges is
contained in Appendix IV.
Pillar 3 report
Capital overview
16 | Westpac Group September 2020 Pillar 3 report
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:
⚫ the development of a capital management strategy, including consideration of regulatory minimums, capital
buffers and contingency plans;
⚫ consideration of both regulatory and economic capital requirements;
⚫ a stress testing framework that challenges the capital measures, coverage and requirements including the
impact of adverse economic scenarios; and
⚫ consideration of the perspectives of external stakeholders including rating agencies as well as equity and debt
investors.
During the period of disruption caused by COVID-19, Westpac is operating with the following principles in relation
to capital:
⚫ prioritise maintaining capital strength;
⚫ retain capital to absorb further downside on credit quality and acknowledge a high degree of uncertainty
regarding the length and depth of this stress;
⚫ allow for capital flexibility to support lending to customers; and
⚫ in line with APRA guidance, Westpac will seek to maintain a buffer above the regulatory minimum (currently at
least 8% for D-SIBs including Westpac) and may utilise some of the “unquestionably strong” buffer
1
. At 30
September 2020 the CET1 buffer above the regulatory minimum of 8% is $13.7 billion.
These principles take into consideration:
⚫ current regulatory capital minimums and the capital conservation buffer (CCB), which together are the Total
CET1 Requirement. In line with the above, the Total CET1 Requirement for Westpac is at least 8.0%, based
upon an industry minimum CET1 requirement of 4.5% plus a capital buffer of at least 3.5% applicable to D-
SIBs
2, 3
;
⚫ stress testing to calibrate an appropriate buffer against a downturn; and
⚫ quarterly volatility of capital ratios due to the half yearly cycle of ordinary dividend payments.
Westpac will revise its target capital levels once the medium to longer term impacts of COVID-19 are clearer and
APRA’s review of the capital adequacy framework is finalised.
APRA announcements on capital
On 29 July 2020, APRA released further capital management guidance for ADIs
4
. This guidance included APRA’s
expectation that for 2020, ADIs will retain at least half of their earnings, actively use dividend reinvestment plans
(DRPs) and/or other capital management initiatives to at least partially offset the diminution in capital from
distributions and conduct regular stress testing to inform decision-making and demonstrate ongoing lending
capacity. APRA also committed to ensuring that any rebuild of capital buffers, if required, will be conducted in a
gradual manner. APRA noted that the implementation of the Basel III capital reforms, which will embed the
‘unquestionably strong’ level of capital in the framework, have been postponed to 1 January 2023.
1
APRA has set an “unquestionably strong” benchmark of a CET1 capital ratio of 10.5%.
2
Noting that APRA may apply higher CET1 requirements for an individual ADI.
3
If an ADI’s CET1 ratio falls below the Total CET1 Requirement (at least 8%), they face restrictions on the distribution of earnings, such
as dividends, distribution payments on AT1 capital instruments and discretionary staff bonuses.
4
Letter to Authorised Deposit Taking institutions – Capital Management, 29 July 2020.
Pillar 3 report
Capital overview
Westpac Group September 2020 Pillar 3 report | 17
Westpac’s capital adequacy ratios
%30 September 202031 March 202030 September 2019
The Westpac Group at Level 2
Common equity Tier 1 capital ratio11.1 10.8 10.7
Additional Tier 1 capital2.1 2.1 2.2
Tier 1 capital ratio13.2 12.9 12.8
Tier 2 capital3.1 3.4 2.8
Total regulatory capital ratio16.4 16.3 15.6
The Westpac Group at Level 1
Common equity Tier 1 capital ratio11.4 11.1 11.0
Additional Tier 1 capital2.1 2.2 2.2
Tier 1 capital ratio13.5 13.3 13.2
Tier 2 capital3.2 3.4 2.9
Total regulatory capital ratio16.7 16.7 16.1
Westpac New Zealand Limited’s capital adequacy ratios
%30 September 202031 March 202030 September 2019
Westpac New Zealand Limited
Common equity Tier 1 capital ratio12.3 11.4 11.3
Additional Tier 1 capital2.7 2.7 2.6
Tier 1 capital ratio 15.0 14.1 13.9
Tier 2 capital2.1 1.8 2.0
Total regulatory capital ratio17.1 15.9 15.9
Pillar 3 report
Capital overview
18 | Westpac Group September 2020 Pillar 3 report
Capital requirements
This table shows risk weighted assets and associated capital requirements
1
for each risk type included in the
regulatory assessment of Westpac’s capital adequacy. Westpac’s approach to managing these risks, and more
detailed disclosures on the prudential assessment of capital requirements, are presented in the following sections
of this report.
234
30 September 2020
IRBStandardisedTotal Risk Total Capital
$m
Approach
Approach
2
Weighted Assets
Required
1
Credit risk
Corporate73,666 976 74,642 5,971
Business lending36,777 880 37,657 3,013
Sovereign2,376 1,216 3,592 287
Bank5,640 144 5,784 463
Residential mortgages130,787 4,431 135,218 10,818
Australian credit cards4,405 - 4,405 352
Other retail10,174 774 10,948 876
Small business16,977 - 16,977 1,358
Specialised lending57,019 432 57,451 4,596
Securitisation5,413 - 5,413 433
Mark-to-market related credit risk
3
- 7,302 7,302 584
Total343,234 16,155 359,389 28,751
Market risk8,761 701
Operational risk54,090 4,327
Interest rate risk in the banking book9,124 730
Other assets
4
6,541
523
Total437,905 35,032
31 March 2020
IRBStandardisedTotal Risk Total Capital
$m
Approach
Approach
2
Weighted Assets
Required
1
Credit risk
Corporate78,288 1,087
79,375
6,350
Business lending34,493 993
35,486
2,839
Sovereign2,192 1,354
3,546
284
Bank6,956 51
7,007
561
Residential mortgages131,424 4,714
136,138
10,891
Australian credit cards4,837 -
4,837
387
Other retail11,594 805
12,399
992
Small business16,812 -
16,812
1,345
Specialised lending56,004 503
56,507
4,521
Securitisation5,747 -
5,747
460
Mark-to-market related credit risk
3
- 11,289 11,289 903
Total348,347 20,795 369,142 29,533
Market risk8,396 672
Operational risk54,093 4,327
Interest rate risk in the banking book5,305 424
Other assets
4
6,969
558
Total443,905 35,514
1
Total capital required is calculated as 8% of total risk weighted assets.
2
Westpac’s standardised risk weighted assets are categorised based on their equivalent IRB categories.
3
Mark-to-market related credit risk is measured under the standardised approach. It is also known as Credit Valuation Adjustment
(CVA) risk.
4
Other assets include cash items, unsettled transactions, fixed assets and other non-interest earning assets.
Pillar 3 report
Capital overview
Westpac Group September 2020 Pillar 3 report | 19
1234
30 September 2019
IRBStandardisedTotal Risk Total Capital
$m
Approach
Approach
2
Weighted Assets
Required
1
Credit risk
Corporate74,807 1,166
75,973
6,078
Business lending35,470 950
36,420
2,914
Sovereign2,068 1,069
3,137
251
Bank8,339 46
8,385
671
Residential mortgages131,629 5,010
136,639
10,931
Australian credit cards5,089 -
5,089
407
Other retail12,395 894
13,289
1,063
Small business16,090 -
16,090
1,287
Specialised lending55,262 518
55,780
4,462
Securitisation5,749 -
5,749
460
Mark-to-market related credit risk
3
- 11,313 11,313 905
Total346,898 20,966 367,864 29,429
Market risk9,350 748
Operational risk47,680 3,814
Interest rate risk in the banking book530 42
Other assets
4
3,370
270
Total428,794 34,303
1
Total capital required is calculated as 8% of total risk weighted assets.
2
Westpac’s standardised risk weighted assets are categorised based on their equivalent IRB categories.
3
Mark-to-market related credit risk is measured under the standardised approach. It is also known as Credit Valuation Adjustment
(CVA) risk.
4
Other assets include cash items, unsettled transactions, fixed assets and other non-interest earning assets.
Pillar 3 report
Leverage ratio
20 | Westpac Group September 2020 Pillar 3 report
Leverage ratio
The following table summarises Westpac’s leverage ratio. This has been determined using APRA’s definition of
the leverage ratio as specified in APS110 Capital Adequacy.
$ billion30 September 202030 June 202031 March 202031 December 2019
Tier 1 Capital57.9 57.9 57.5 56.8
Total Exposures1,001.8 985.6 1,014.2 948.7
Leverage ratio5.8%5.9%5.7%6.0%
Leverage ratio disclosure
$m
30 September
2020
On-balance sheet exposures
1On-balance sheet items (excluding derivatives and securities financing transactions (SFTs), but including collateral)865,400
2(Asset amounts deducted in determining Tier 1 capital)(18,306)
3Total on-balance sheet exposures (excluding derivatives and SFTs) (sum of rows 1 and 2)847,094
Derivative exposures
4Replacement cost associated with all derivatives transactions (i.e. net of eligible cash variation margin)7,749
5Add-on amounts for potential future credit exposure (PFCE) associated with all derivatives transactions14,415
65,429
-
7(Deductions of receivables assets for cash variation margin provided in derivatives transactions)(9,306)
8(Exempted central counterparty (CCP) leg of client-cleared trade exposures)-
9Adjusted effective notional amount of written credit derivatives4,071
10(Adjusted effective notional offsets and add-on deductions for written credit derivatives)(4,050)
11Total derivative exposures (sum of rows 4 to 10)18,307
SFT exposures
12Gross SFT assets (with no recognition of netting), after adjusting for sales accounting transactions48,164
13(Netted amounts of cash payables and cash receivables of gross SFT assets)-
14Counterparty credit risk exposure for SFT assets10,570
15Agent transaction exposures-
16Total SFT exposures (sum of rows 12 to 15)58,734
Other off-balance sheet exposures
17Off-balance sheet exposure at gross notional amount204,658
18(Adjustments for conversion to credit equivalent amounts)(126,976)
19Other off-balance sheet exposures (sum of rows 17 and 18)77,682
Capital and total exposures
20Tier 1 Capital57,939
21Total exposures (sum of rows 3, 11, 16 and 19)1,001,817
Leverage ratio %
22Leverage ratio5.8%
Gross-up for derivatives collateral provided where deducted from the balance sheet assets pursuant to the
Australian Accounting Standards
Pillar 3 report
Leverage ratio
Westpac Group September 2020 Pillar 3 report | 21
Summary comparison of accounting assets versus leverage ratio exposure measure
$m
30 September
2020
1Total consolidated assets as per published financial statements911,946
2(2,778)
3-
4Adjustments for derivative financial instruments(5,060)
5Adjustment for SFTs (i.e. repos and similar secured lending)38,333
677,682
7Other adjustments(18,306)
8
Leverage ratio exposure1,001,817
Adjustment for off-balance sheet exposures (i.e. conversion to credit equivalent amounts of off-balance sheet
exposures)
Adjustment for investments in banking, financial, insurance or commercial entities that are consolidated for
accounting purposes but outside the scope of regulatory consolidation
Adjustment for assets held on the balance sheet in a fiduciary capacity pursuant to the Australian Accounting
Standards but excluded from the leverage ratio exposure measure
Pillar 3 report
Credit risk management
22 | Westpac Group September 2020 Pillar 3 report
Credit risk is the potential for financial loss where a customer or counterparty fails to meet their financial
obligations to Westpac. Westpac maintains a credit risk management framework and a number of supporting
policies, processes and controls governing the assessment, approval and management of customer and
counterparty credit risk. These incorporate the assignment of risk grades, the quantification of loss estimates in the
event of default, and the segmentation of credit exposures.
Structure and organisation
The Chief Risk Officer (CRO) is responsible for the effectiveness of overall risk management throughout Westpac,
including credit risk. The Group Chief Credit Officer is responsible for the effectiveness of credit risk management,
including credit approval decisioning beyond business authority level and appointing our most senior authorised
credit officers. Authorised credit officers have delegated authority to approve credit risk exposures, including
customer risk grades, other credit parameters and their ongoing review. Our largest exposures are approved by
our most experienced authorised credit officers. Line business management is responsible for managing credit
risks originated in their business and for managing risk adjusted returns from their business credit portfolios, within
the approved risk appetite, risk management framework and policies.
Credit risk management framework and policies
Westpac maintains a credit risk management framework and supporting policies that are designed to clearly define
roles and responsibilities, acceptable practices, limits and key controls.
The Credit Risk Management Framework describes the principles, methodologies, systems, roles and
responsibilities, reports and controls that exist for managing credit risk in Westpac. The Credit Risk Rating System
policy describes the credit risk rating system philosophy, design, key features and uses of rating outcomes.
Concentration risk policies cover individual counterparties, specific industries (e.g. property) and individual
countries. In addition, we have policies covering risk appetite statements, environmental, social and governance
(ESG) risk, credit risks and the delegation of credit approval authorities.
At the divisional level, credit manuals embed the Group’s framework requirements for application in line
businesses. These manuals include policies covering the origination, evaluation, approval, documentation,
settlement and on-going management of credit risks, and sector policies to guide the extension of credit where
industry-specific guidelines are considered necessary.
Credit approval limits govern the extension of credit and represent the formal delegation of credit approval
authority to responsible individuals throughout the organisation.
Pillar 3 report
Credit risk management
Westpac Group September 2020 Pillar 3 report | 23
Approach
Westpac adopts two approaches to managing credit risk depending upon the nature of the customer and the
product.
Transaction-managed approach
For larger customers, Westpac evaluates credit requests by undertaking detailed individual customer and
transaction risk analysis (the ‘transaction-managed’ approach). Such customers are assigned a customer risk
grade (CRG) representing Westpac’s estimate of their probability of default (PD). Each facility is assigned a loss
given default (LGD). The Westpac credit risk rating system has 20 risk grades for non-defaulted customers and 10
risk grades for defaulted customers. Non-defaulted CRGs down to the level of normally acceptable risk (i.e. D
grade – see table below) are mapped to Moody’s and Standard & Poor’s (S&P) external senior ranking unsecured
ratings. This mapping allows Westpac to integrate the rating agencies’ default history with internal historical data
when calculating PDs.
The final assignment of CRGs and LGDs is approved by authorised credit approvers with appropriate delegated
approval authority. All material credit exposures are approved by authorised Credit Officers who are part of the risk
management stream and operate independently of the areas originating the credit risk proposals. Authorised
Credit Officer decisions are subject to reviews to ensure consistent quality and confirm compliance with approval
authority. Separate teams are responsible for maintaining accurate and timely recording of all credit risk approvals
and changes to customer and facility data. These teams also operate independently of both the areas originating
the credit risk proposals and the credit risk approvers. Appropriate segregation of functions is one of the key
requirements of our credit risk management framework.
Mapping of Westpac risk grades
The table below shows the current alignment between Westpac’s internal CRGs and the corresponding external
rating. Note that only high-level CRG groupings are shown.
Westpac customer
risk grade
Standard & Poor’s
rating
Moody’s
rating
A AAA to AA– Aaa to Aa3
B A+ to A– A1 to A3
C BBB+ to BBB– Baa1 to Baa3
D BB+ to B+ Ba1 to B1
Westpac Rating
E Watchlist
F Special mention
G Substandard/default
H Default
For Specialised Lending Westpac maps exposures to the appropriate supervisory slot based on an assessment
that takes into account borrower strength and security quality, as required by APS 113.
Program-managed approach
High-volume retail customer credit portfolios with homogenous credit risk characteristics are managed on a
statistical basis according to pre-determined objective criteria (the ‘program-managed’ approach). Program-
managed exposure to a consumer customer may exceed $1 million. Business customer exposures may be
program managed for exposure up to $3 million. Quantitative scorecards are used to assign application and
behavioural scores to enable risk-based decision making within these portfolios. The scorecard outcomes and
decisions are regularly monitored and validated against subsequent customer performance and scorecards are
recalibrated or rebuilt when required. For capital estimation and other purposes, risk-based customer segments
are created based upon modelled expected PD, Exposure At Default (EAD) and LGD. Accounts are then assigned
to respective segments based on customer and account characteristics. Each segment is assigned a quantified
measure of its PD, LGD and EAD.
For both transaction-managed and program-managed approaches, CRGs, PDs and LGDs are reviewed at least
annually.
Pillar 3 report
Credit risk management
24 | Westpac Group September 2020 Pillar 3 report
Mapping of Basel categories to Westpac portfolios
APS113 Capital Adequacy: Internal Ratings-Based Approach to Credit Risk, states that under the Advanced IRB
approach to credit risk, an ADI must categorise banking book exposures into six broad IRB asset classes and
apply the prescribed treatment for those classes to each credit exposure within them for the purposes of deriving
its regulatory capital requirement. Standardised and Securitised portfolios are subject to treatment under APS112
Capital Adequacy: Standardised Approach to Credit Risk and APS120 Securitisation respectively.
APS Asset Class Sub-asset class Westpac category Segmentation criteria
Corporate Corporate Corporate
All transaction-managed customers not
elsewhere classified where annual turnover
exceeds $50 million
1
.
SME Corporate Business Lending
All transaction-managed customers not
elsewhere classified where annual turnover
is $50 million or less.
Project Finance
(including Object
Finance)
Specialised Lending-
Project Finance
Applied to transaction-managed customers
where the primary source of debt service,
security and repayment is derived from the
revenue generated by a completed project
(e.g. infrastructure such as toll roads or
railways).
Income-
producing Real
Estate
Specialised Lending-
Property Finance
Applied to transaction-managed customers
where the primary source of debt service,
security and repayment is derived from
either the sale of a property development or
income produced by one or more
investment properties
2
.
Sovereign Sovereign
Applied to transaction-managed exposures
backed by governments.
Bank Bank
Applied to transaction-managed exposures
to deposit-taking institutions and foreign
equivalents.
Residential
Mortgages
Residential Mortgages
Exposures secured by residential mortgages
not elsewhere classified.
Qualifying
Revolving Retail
Australian Credit
Cards
Program-managed credit cards with low
volatility in loss rates. The New Zealand
cards portfolio is not eligible for Qualifying
Revolving Retail treatment and is classified
in Other Retail.
Other Retail Small Business
Program-managed business lending
exposures under $1 million where complex
products are not utilised by the customer.
Other Retail
All other program-managed lending to retail
customers, including New Zealand credit
cards.
1
Includes all NZ agribusiness loans, regardless of turnover.
2
Excludes large diversified property groups and property trusts, which appear in the Corporate asset class.
Pillar 3 report
Credit risk management
Westpac Group September 2020 Pillar 3 report | 25
Mapping of Credit risk approach to Basel categories and exposure types
Approach APS asset class Types of exposures
Transaction-Managed
Portfolios
Corporate
Sovereign
Bank
Direct lending
Contingent lending
Derivative counterparty
Asset warehousing
Underwriting
Secondary market trading
Foreign exchange settlement
Other intra-day settlement
obligations
Program-Managed
Portfolios
Residential mortgage
Mortgages
Equity access loans
Qualifying revolving retail Australian credit cards
Other retail
Personal loans
Overdrafts
New Zealand credit cards
Auto and equipment finance
Business development loans
Business overdrafts
Other term products
Internal ratings process for transaction-managed portfolios
The process for assigning and approving individual customer PDs and facility LGDs involves:
⚫ Business unit representatives recommend the CRG and facility LGDs under the guidance of criteria set out in
established credit policies. Each CRG is associated with an estimated PD;
⚫ Authorised credit officers evaluate the recommendations and approve the final CRG and facility LGDs.
Authorised credit officers may override line business unit recommendations;
⚫ An expert judgement decisioning process is employed to evaluate CRG and the outputs of various risk grading
models are used as one of several inputs into that process; and
⚫ Authorised credit officers’ decisions are subject to reviews to ensure consistent quality and confirm
compliance with approval authority.
For on-going exposures to transaction-managed customers, risk grades and facility LGDs are required to be
reviewed at least annually, but also whenever material changes occur.
No material deviations from the reference definition of default are permitted.
Internal ratings process for program-managed portfolios
The process for assigning PDs, LGDs and EADs to the program-managed portfolio involves dividing the portfolio
into a number of pools per product. These pools are created by analysing risk characteristics that have historically
predicted that an account is likely to go into default or loss.
No material deviations from the reference definition of default are permitted.
Internal credit risk ratings system
In addition to using the credit risk estimates as the basis for regulatory capital purposes, they are also used for the
purposes described below:
Economic capital - Economic capital includes both credit and non-credit components. Economic credit capital is
calculated using a framework that considers estimates of PD, LGD, EAD, total committed exposure and loan tenor,
as well as measures of portfolio composition not reflected in regulatory capital formulae.
Provisioning - Credit provisions are held by Westpac to cover expected credit losses in the loan portfolio.
Provisioning includes both individual and collective components. Individual provisions are calculated on impaired
loans taking into account management’s best estimate of the present value of future cashflows.
Pillar 3 report
Credit risk management
26 | Westpac Group September 2020 Pillar 3 report
Collective provisions are established on a portfolio basis using a framework that considers PD, LGD, EAD, total
committed exposure, level of arrears, recent past experience and forward looking macro-economic forecasts.
Risk-adjusted performance measurement - Business performance is measured using allocated capital, which
incorporates charges for economic capital and regulatory capital, including credit capital and capital for other risk
types.
Pricing - Westpac prices loans to produce an acceptable return on the capital allocated to the loan. Returns
include interest income and fees after expected credit losses and other costs.
Credit approval - For transaction-managed facilities, approval authorities are tiered based on the CRG, with lower
limits applicable for customers with a higher PD. Program-managed facilities are approved on the basis of
application scorecard outcomes and product based approval authorities.
Control mechanisms for the credit risk rating system include:
⚫ Westpac’s credit risk rating system is reviewed annually to confirm that the rating criteria and procedures are
appropriate given the current portfolio and external conditions;
⚫ All models materially impacting the risk rating process are periodically reviewed in accordance with Westpac’s
model risk policy;
⚫ Specific credit risk estimates (including PD, LGD and EAD levels) are overseen, reviewed annually and
supported by the Credit Risk Estimates Committee (a sub-committee of CREDCO) for approval by General
Manager, Operational Risk;
⚫ Credit Risk Assurance undertake an independent annual end-to-end technical and operational review of the
overall process; and
⚫ CREDCO, RISKCO and BRiskC monitor the risk profile, performance and management of Westpac’s credit
portfolio and the development and review of key credit risk policies.
Risk reporting
A comprehensive report on Westpac's credit risk portfolio is provided to CREDCO, RISKCO and BRiskC quarterly.
It details the current level of impairment losses, stressed exposures, delinquency trends, provisions, impaired
assets and key performance metrics. It also reports on portfolio concentrations and large exposures.
Credit risk and asset quality are also reported to the Board each month, including details of impairment losses,
stressed exposures, delinquency trends and key performance metrics.
Response to COVID-19
Westpac remains focused on supporting customers. In response to the COVID-19 pandemic Westpac has
introduced a range of support packages such as lowering interest rates on certain products, waiving certain fees
and providing impacted customers with an option to defer their repayments. In accordance with guidance from
APRA outlined below, customers approved for these deferrals will not be recorded in traditional stress metrics
while part of these packages but will be closely monitored, particularly once the deferral period changes.
APRA has revised prudential standard APS 220 Credit Quality to provide temporary capital relief where an eligible
borrower's ability to repay according to loan terms has been, or is likely to be, affected by the COVID-19
pandemic; and the loan was not 90-days past due or impaired at the time the deferral was provided.
The temporary capital treatment is available until the earlier of either a maximum period of ten months from when
the initial repayment deferral was granted, or 31 March 2021. Where a deferral is provided a bank need not treat
the period of the repayment holiday as a period of arrears, or regard the loan as restructured or impaired. Westpac
applies this treatment.
However, APRA requires that where a deferral is provided to an eligible borrower, the bank must be satisfied that
the borrower has a reasonable prospect of being able to repay the loan on appropriate terms at the end of the
deferral period. If this is not the case, the loan should be regarded as impaired if not fully secured, and should also
be considered as restructured.
In addition, if a loan impacted by COVID-19 is restructured before 1 April 2021, it will not be treated as impaired
and can be treated as 'current' immediately subject to meeting a number of key criteria.
Pillar 3 report
Credit risk management
Westpac Group September 2020 Pillar 3 report | 27
Summary credit risk disclosure
12
Regulatory
ExpectedSpecificActual
RiskRegulatoryLoss forProvisions Losses for
30 September 2020
ExposureWeightedExpectednon-defaultedImpairedfor Impairedthe 12 months
$m
at DefaultAssets
Loss
1
exposuresLoansLoansended
Corporate
129,988 73,666 758 514 558 244 95
Business lending54,542 36,777 809 534 392 208 71
Sovereign131,857 2,376 1 1 ---
Bank23,244 5,640 7 7 ---
Residential mortgages550,133 130,787 1,966 1,033 345 93 125
Australian credit cards16,944 4,405 214 166 83 48 332
Other retail13,471 10,174 522 341 326 187 275
Small business32,758 16,977 685 350 933 328 74
Specialised Lending65,491 57,019 837 659 86 25 3
Securitisation26,817 5,413 -----
Standardised
2
16,993 16,155 --56 19 2
Total1,062,238 359,389 5,799 3,605 2,779 1,152 977
Regulatory
ExpectedSpecificActual
RiskRegulatoryLoss forProvisions Losses for
31 March 2020
ExposureWeightedExpectednon-defaultedImpairedfor Impairedthe 6 months
$m
at DefaultAssets
Loss
1
exposuresLoansLoansended
Corporate
146,529 78,288 787 547 363 232 (4)
Business lending54,428 34,493 669 413 347 195 35
Sovereign127,064 2,192 2 2 ---
Bank26,633 6,956 9 9 ---
Residential mortgages553,866 131,424 1,788 1,229 404 114 67
Australian credit cards18,601 4,837 314 238 123 92 164
Other retail15,223 11,594 601 419 312 218 135
Small business33,181 16,812 557 378 501 183 39
Specialised Lending65,866 56,004 813 583 52 26 1
Securitisation28,097 5,747 -----
Standardised
2
19,616 20,795 --52 19 -
Total1,089,104 369,142 5,540 3,818 2,154 1,079 437
Regulatory
ExpectedSpecificActual
RiskRegulatoryLoss forProvisions Losses for
30 September 2019
ExposureWeightedExpectednon-defaultedImpairedfor Impairedthe 12 months
$m
at DefaultAssets
Loss
1
exposuresLoansLoansended
Corporate
139,173 74,807 523 473 135 50 30
Business lending54,570 35,470 635 431 316 168 54
Sovereign90,960 2,068 2 2 ---
Bank28,761 8,339 10 10 ---
Residential mortgages559,018 131,629 1,642 1,088 414 127 111
Australian credit cards17,541 5,089 328 248 121 80 340
Other retail15,951 12,395 582 417 283 165 354
Small business33,365 16,090 512 351 367 152 78
Specialised Lending65,553 55,262 748 557 69 29 13
Securitisation26,774 5,749 -----
Standardised
2
22,512 20,966 --58 21 2
Total1,054,178 367,864 4,982 3,577 1,763 792 982
1
Includes regulatory expected losses for defaulted and non-defaulted exposures.
2
Includes mark-to-market related credit risk.
Pillar 3 report
Credit risk management
28 | Westpac Group September 2020 Pillar 3 report
Loan impairment provisions
Expected credit losses (ECL) are estimates of the cashflow 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. Westpac
calculates provisions for ECL based on a three-stage approach:
⚫ 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-month ECL is recognised.
⚫ Stage 2: Lifetime ECL (performing) - For financial assets where there has been a significant increase in
credit risk since origination and where the asset is still performing, a provision for lifetime ECL is recognised.
Determining when a financial asset has experienced a significant increase in credit risk is primarily based on
changes in internal risk grades since origination of the financial asset. An internal risk grade assessed using
both quantitative and qualitative factors. The number of notches (changes) in the internal risk grade that
Westpac uses to represent a significant increase in credit risk is determined on a sliding scale where the
number of notches will generally be greater for a financial asset with a lower credit risk compared to a financial
asset with a higher credit risk.
⚫ 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 Westpac such as a default on interest
or principal payments, a borrower experiencing significant financial difficulties.
Collective and individual assessment - Financial assets that are in stages 1 and 2 are assessed on a collective
basis as are financial assets in stage 3 below specified exposure thresholds. Those financial assets in stage 3
above the specified exposure thresholds are assessed on an individual basis.
Expected life - Lifetime ECL represents the expected credit losses that result from default events over the
expected life of a financial instrument. In considering lifetime ECL, the remaining contractual life is used for non-
retail portfolios. For retail portfolios lifetime ECL is calibrated to historically observed portfolio behaviour.
Forward looking information - The measurement of ECL for each stage and the assessment of significant
increase in credit risk considers information about past events and current conditions as well as reasonable and
supportable projections of future events and economic conditions. In order to capture the asymmetry of the losses
expected over the range of plausible future events and economic conditions, Westpac considers three future
macroeconomic scenarios i.e. base, upside and downside scenarios.
The macroeconomic variables used in these scenarios, include (but are not limited to) employment to population
ratio, real gross domestic product growth rates and residential and commercial property price indices.
The ECL is a weighted average of the credit losses expected under these three scenarios. The scenario weights
are based on Westpac’s assessment of upside and downside risks taking into account current trends, forward
looking conditions and the degree of uncertainty attached to these projections.
Regulatory classification of loan impairment provisions
APS220 Credit Quality requires that Westpac report specific provisions and a General Reserve for Credit Loss
(GRCL). All IAPs raised under Australian Accounting Standards (AAS) are classified as specific provisions. All
Collectively Assessed Provisions (CAPs) raised under AAS are either classified into specific provisions or a GRCL.
Pillar 3 report
Credit risk management
Westpac Group September 2020 Pillar 3 report | 29
Expected credit loss provision
1
30 September 2020Total Regulatory
$m
IAPsCAPs Provisions
Specific Provisions
for impaired loans611 541 1,152
for defaulted but not impaired loansNA1,021 1,021
For Stage 2NA2,199 2,199
Total Specific Provision
1
611 3,761 4,372
General Reserve for Credit Loss
1
NA1,791 1,791
Total provisions for ECL
611 5,552 6,163
31 March 2020Total Regulatory
$m
IAPsCAPs Provisions
Specific Provisions
for impaired loans606 473 1,079
for defaulted but not impaired loansNA628 628
For Stage 2NA2,184 2,184
Total Specific Provision
1
606 3,285 3,891
General Reserve for Credit Loss
1
NA1,900 1,900
Total provisions for ECL
606 5,185 5,791
30 September 2019Total Regulatory
$m
IAPsCAPs Provisions
Specific Provisions
for impaired loans412 380 792
for defaulted but not impaired loansNA554 554
For Stage 2NA1,234 1,234
Total Specific Provision
1
412 2,168 2,580
General Reserve for Credit Loss
1
NA1,344 1,344
Total provisions for ECL
412 3,512 3,924
A-IFRS Provisions
A-IFRS Provisions
A-IFRS Provisions
1
Provisions classified according to APRA’s letter dated 4 July 2017 “Provisions for regulatory purposes and AASB 9 financial
instruments”.
Pillar 3 report
Credit risk management
30 | Westpac Group September 2020 Pillar 3 report
Movement in provisions for impairment
1
For the 12 months ended
30 September 2020
Non-
performing
Collectively
assessed
Individually
assessed
$m
Stage 1Stage 2Stage 3provisionsprovisionsTotal
Balance as at 30 September 2019 for Loans and Credit
Commitments
884 1,674 1,355 --3,913
Transfers to Stage 1
1,577 (1,528) (49) ---
Transfers to Stage 2
(344) 1,161 (817) ---
Transfers to Stage 3
(8) (955) 963 ---
Business activity during the period
212 60 (77) --195
Net remeasurement of provision for ECL
(1,232) 2,475 1,914 --3,157
Write-offs
--(1,170) --(1,170)
Exchange rate and other adjustments
(5) (12) 54 --38
Balance as at 30 September 2020 for Loans and Credit
Commitments
1,084 2,875 2,173 --6,132
Balance as at 30 September 2019 for debt securities
11 --11
Provision for ECL on debt securities at amortised cost
(9) 27 -18
Provision for ECL on debt securities at FVOCI
1
2 --2
Total provision for ECL as at 30 September 2020
4 27 ---31
Total provision for ECL as at 30 September 2020
1,088 2,902 2,173 --6,163
Performing
For the 6 months ended
31 March 2020
Non-
performing
Collectively
assessed
Individually
assessed
$m
Stage 1Stage 2Stage 3provisionsprovisionsTotal
Balance as at 30 September 2019 for Loans and Credit
Commitments
884 1,674 1,355 --3,913
Transfers to Stage 1
600 (583) (17) ---
Transfers to Stage 2
(131) 466 (335) ---
Transfers to Stage 3
(2) (334) 336 ---
Business activity during the period
120 114 (50) --184
Net remeasurement of provision for ECL
(297) 1,527 911 --2,141
Write-offs
--(537) --(537)
Exchange rate and other adjustments
7 14 44 --65
Balance as at 31 March 2020 for Loans and Credit
Commitments
1,181 2,878 1,707 --5,766
Balance as at 30 September 2019 for debt securities
11 --11
Provision for ECL on debt securities at amortised cost
10 3 -13
Provision for ECL on debt securities at FVOCI
1
1 --1
Total provision for ECL as at 31 March 2020
22 3 ---25
Total provision for ECL as at 31 March 2020
1,203 2,881 1,707 --5,791
Performing
1
Impairment of debt securities at Fair Value through Other Comprehensive Income (FVOCI) is recognised in the income statement with
a corresponding amount in other comprehensive income. There is no reduction of the carrying value of the debt securities which
remain at fair value.
Pillar 3 report
Credit risk management
Westpac Group September 2020 Pillar 3 report | 31
For the 12 months ended
30 September 2019
Non-
performing
$m
Stage 1Stage 2Stage 3provisionsprovisionsTotal
Provision for impairment charges as at
30 September 2018
---2,631 422 3,053
Restatement for adoption of AASB 9
877 1,884 1,272 (2,631) (422) 980
Restated provision for ECL as at
1 October 2018
877 1,884 1,272 --4,033
Transfers in/(out) of Stage 1
1,458 (1,404) (54) -
Transfers in/(out) of Stage 2
(242) 956 (714) -
Transfers in/(out) of Stage 3
(5) (621) 626 -
Business activity during the year
179 (19) (330) (170)
Net remeasurement of provision for ECL
(1,385) 874 1,647 1,136
Write-offs
--(1,154) (1,154)
Exchange rate and other adjustments
2 4 62 68
Total provision for ECL on loans and credit884 1,674 1,355 --3,913
commitments as at 30 September 2019
Presented as:
Provision for ECL loans
763 1,496 1,349 3,608
Provision for ECL credit commitments
121 178 6 305
Total provision for ECL on loans and credit884 1,674 1,355 --3,913
commitments as at 30 September 2019
Of which:
Individually assessed provisions
412 412
Collectively assessed provisions
884 1,674 943 3,501
Total provision for ECL on loans and credit
commitments as at 30 September 2019
884 1,674 1,355 --3,913
Provision for ECL on debt securities at amortised cost
9 --9
Provision for ECL on debt securities at FVOCI
1
2 --2
Total provision for ECL as at 30 September 2019
895 1,674 1,355 --3,924
Collectively
assessed
Individually
assessed
Performing
1
1
Impairment of debt securities at Fair Value through Other Comprehensive Income (FVOCI) is recognised in the income statement with
a corresponding amount in other comprehensive income. There is no reduction of the carrying value of the debt securities which
remain at fair value.
Pillar 3 report
Credit risk exposures
32 | Westpac Group September 2020 Pillar 3 report
The following tables segment the portfolio by characteristics that provide an insight into the assessment of credit
risk concentration.
Exposure at Default by major type
30 September 2020
On balance
Total ExposureAverage
$m
sheet Non-market relatedMarket relatedat Default
12 months ended
1
Corporate57,485 60,099 12,404 129,988 137,385
Business lending40,989 13,553 -54,542 54,578
Sovereign106,524 1,604 23,729 131,857 111,274
Bank13,161 1,873 8,210 23,244 25,935
Residential mortgages481,096 69,037 -550,133 553,586
Australian credit cards6,652 10,292 -16,944 17,979
Other retail10,210 3,261 -13,471 14,880
Small business25,463 7,295 -32,758 33,158
Specialised lending52,803 10,629 2,059 65,491 65,530
Securitisation
2
20,542 6,138 137 26,817 27,152
Standardised12,911 1,178 2,904 16,993 19,255
Total827,836 184,959 49,443 1,062,238 1,060,712
31 March 2020
On balance
Total ExposureAverage
$m
sheet Non-market relatedMarket relatedat Default
6 months ended
3
Corporate69,038 57,950 19,541 146,529 140,586
Business lending42,083 12,345 -54,428 54,546
Sovereign119,847 1,857 5,360 127,064 102,570
Bank14,899 2,415 9,319 26,633 27,505
Residential mortgages486,270 67,596 -553,866 555,459
Australian credit cards8,218 10,383 -18,601 18,434
Other retail11,881 3,342 -15,223 15,607
Small business26,181 7,000 -33,181 33,311
Specialised lending54,066 9,750 2,050 65,866 65,739
Securitisation
2
22,690 5,276 131 28,097 27,269
Standardised13,476 1,162 4,978 19,616 19,992
Total868,649 179,076 41,379 1,089,104 1,061,018
30 September 2019
On balance
Total ExposureAverage
$m
sheet Non-market relatedMarket relatedat Default
12 months ended
4
Corporate63,994 58,903 16,276 139,173 134,619
Business lending42,385 12,185 -54,570 54,532
Sovereign80,891 1,711 8,358 90,960 81,034
Bank16,291 2,026 10,444 28,761 25,672
Residential mortgages485,049 73,969 -559,018 557,762
Australian credit cards8,720 8,821 -17,541 18,847
Other retail12,415 3,536 -15,951 16,628
Small business26,520 6,845 -33,365 33,326
Specialised lending52,745 10,761 2,047 65,553 65,495
Securitisation
2
22,559 4,037 178 26,774 26,683
Standardised13,459 1,131 7,922 22,512 18,657
Total825,028 183,925 45,225 1,054,178 1,033,255
Off-balance sheet
Off-balance sheet
Off-balance sheet
1
Average is based on exposures as at 30 September 2020, 30 June 2020, 31 March 2020, 31 December 2019, and 30 September
2019.
2
EAD associated with securitisations is for the banking book only.
3
Average is based on exposures as at 31 March 2020, 31 December 2019, and 30 September 2019.
4
Average is based on exposures as at 30 September 2019, 30 June 2019, 31 March 2019, 31 December 2018, and 30 September
2018.
Pillar 3 report
Credit risk exposures
Westpac Group September 2020 Pillar 3 report | 33
Exposure at Default by measurement method
30 September 2020IRBStandardisedTotal Exposure
$mApproachApproachat Default
Corporate129,988 6,131 136,119
Business lending54,542 866 55,408
Sovereign131,857 1,216 133,073
Bank23,244 152 23,396
Residential mortgages550,133 6,471 556,604
Australian credit cards16,944 -16,944
Other retail13,471 1,735 15,206
Small business32,758 -32,758
Specialised lending65,491 422 65,913
Securitisation26,817 -26,817
Total1,045,245 16,993 1,062,238
31 March 2020IRBStandardisedTotal Exposure
$mApproachApproachat Default
Corporate146,529 8,133 154,662
Business lending54,428 975 55,403
Sovereign127,064 1,354 128,418
Bank26,633 60 26,693
Residential mortgages553,866 6,844 560,710
Australian credit cards18,601 -18,601
Other retail15,223 1,758 16,981
Small business33,181 -33,181
Specialised lending65,866 492 66,358
Securitisation28,097 -28,097
Total1,069,488 19,616 1,089,104
30 September 2019IRBStandardisedTotal Exposure
$mApproachApproachat Default
Corporate139,173 10,580 149,753
Business lending54,570 931 55,501
Sovereign90,960 1,069 92,029
Bank28,761 53 28,814
Residential mortgages559,018 7,298 566,316
Australian credit cards17,541 -17,541
Other retail15,951 2,074 18,025
Small business33,365 -33,365
Specialised lending65,553 507 66,060
Securitisation26,774 -26,774
Total1,031,666 22,512 1,054,178
Pillar 3 report
Credit risk exposures
34 | Westpac Group September 2020 Pillar 3 report
Exposure at Default by industry classification
30 September 2020
$m
Corporate2,517 11,148 2,977 12,292 625 18,833 7,101 6,607 11,678 11,808 19,896 10,383 13,260 -863 129,988
Business lending5,894 9,456 4,488 2,225 24 4,757 556 1,021 6,704 6,010 8,685 2,343 508 -1,871 54,542
Sovereign-1 -46,537 84,464 7 69 602 9 151 -4 13 --131,857
Bank---23,194 ----50 ------23,244
Residential mortgages-------------550,133 -550,133
Australian credit cards-------------16,944 -16,944
Other retail-------------13,471 -13,471
Small business966 2,297 4,065 1,698 748 1,786 574 2,138 5,163 3,812 3,296 1,804 364 -4,047 32,758
Specialised lending393 18 34 17 -4 1,004 55,681 59 1,747 16 3,649 2,326 -543 65,491
Securitisation---25,777 ----827 -213 ----26,817
Standardised121 12 161 5,504 1,216 222 58 425 121 46 625 215 12 8,206 49 16,993
Total9,891 22,932 11,725 117,244 87,077 25,609 9,362 66,474 24,611 23,574 32,731 18,398 16,483 588,754 7,373 1,062,238
Accommodation, cafes & restaurantsAgriculture, forestry & fishingGovernment administration & defenceConstructionFinance & insurancePropertyManufacturingProperty services & business servicesUtilities
3
Retail lendingOtherTotal Exposureat DefaultMiningServices
1
Trade
2
Transport & storage
1
Includes education, health & community services, cultural & recreational services and personal & other services.
2
Includes wholesale trade and retail trade.
3
Includes electricity, gas & water, and communication services.
Pillar 3 report
Credit risk exposures
Westpac Group September 2020 Pillar 3 report | 35
123
31 March 2020
$m
Corporate2,458 11,349 3,320 17,822 1,170 23,828 8,341 7,092 10,550 11,845 21,970 13,018 12,866 -900 146,529
Business lending5,853 8,759 4,280 2,437 19 4,842 544 1,230 6,794 5,914 8,929 2,435 505 -1,887 54,428
Sovereign-1 -47,479 79,069 8 95 146 6 187 -60 13 --127,064
Bank---26,582 ----50 --1 ---26,633
Residential mortgages-------------553,866 -553,866
Australian credit cards-------------18,601 -18,601
Other retail-------------15,223 -15,223
Small business973 2,378 4,111 1,779 699 1,776 568 2,176 5,242 3,650 3,354 1,840 363 -4,272 33,181
Specialised lending489 19 32 22 -4 823 56,845 26 1,272 17 3,340 2,426 -551 65,866
Securitisation---26,432 -162 --1,236 -267 ----28,097
Standardised132 27 176 7,358 1,354 240 62 494 142 60 694 198 23 8,601 55 19,616
Total9,905 22,533 11,919 129,911 82,311 30,860 10,433 67,983 24,046 22,928 35,231 20,892 16,196 596,291 7,665 1,089,104
Accommodation, cafes & restaurantsAgriculture, forestry & fishingMiningConstructionFinance & insuranceGovernment administration & defenceTotal Exposureat DefaultTransport & storageManufacturingPropertyProperty services & business servicesTrade
2
Services
1
Utilities
3
Retail lendingOther
1
Includes education, health & community services, cultural & recreational services and personal & other services.
2
Includes wholesale trade and retail trade.
3
Includes electricity, gas & water, and communication services.
Pillar 3 report
Credit risk exposures
36 | Westpac Group September 2020 Pillar 3 report
12
30 September 2019
$m
Corporate2,450 10,290 3,192 15,986 164 24,250 7,963 6,274 11,692 10,719 22,345 10,815 12,068 -965 139,173
Business lending5,691 8,277 4,272 2,541 14 4,709 629 1,331 6,710 5,969 9,022 2,647 434 -2,324 54,570
Sovereign-1 -21,720 68,586 126 95 139 6 168 -57 62 --90,960
Bank---28,557 20 ---138 --46 ---28,761
Residential mortgages-------------559,018 -559,018
Australian credit cards-------------17,541 -17,541
Other retail-------------15,951 -15,951
Small business991 2,401 4,153 1,847 649 1,771 555 2,221 5,271 3,522 3,404 1,860 366 -4,354 33,365
Specialised lending479 18 38 23 -7 955 55,984 27 1,296 15 3,424 2,696 -591 65,553
Securitisation---25,115 -148 --1,238 -250 ---23 26,774
Standardised114 22 170 9,778 1,069 245 12 511 142 56 721 199 11 9,373 89 22,512
Total9,725 21,009 11,825 105,567 70,502 31,256 10,209 66,460 25,224 21,730 35,757 19,048 15,637 601,883 8,346 1,054,178
Accommodation, cafes & restaurantsAgriculture, forestry & fishingConstructionFinance & insuranceGovernment administration & defenceManufacturingMiningPropertyProperty services & business servicesServices
1
Total Exposureat DefaultTrade
2
Transport & storageUtilities
3
Retail lendingOther
1
Includes education, health & community services, cultural & recreational services and personal & other services.
2
Includes wholesale trade and retail trade.
3
Includes electricity, gas & water, and communication services.
Pillar 3 report
Credit risk exposures
Westpac Group September 2020 Pillar 3 report | 37
Exposure at Default by geography
1
30 September 2020Total Exposure
$mAustraliaNew ZealandAmericasAsiaEuropePacificat Default
Corporate83,682 23,058 7,662 10,111 5,475 -129,988
Business lending49,557 4,985 ----54,542
Sovereign107,694 11,611 11,060 1,064 428 -131,857
Bank20,834 793 130 1,462 25 -23,244
Residential mortgages491,418 58,497 -218 --550,133
Australian credit cards16,944 -----16,944
Other retail10,409 3,062 ----13,471
Small business30,364 2,393 -1 --32,758
Specialised lending57,388 8,103 ----65,491
Securitisation22,522 4,295 ----26,817
Standardised13,872 --19 -3,102 16,993
Total904,684 116,797 18,852 12,875 5,928 3,102 1,062,238
31 March 2020Total Exposure
$mAustraliaNew ZealandAmericasAsiaEuropePacificat Default
Corporate86,984 24,577 10,991 16,829 7,148 -146,529
Business lending49,307 5,121 ----54,428
Sovereign97,932 10,359 16,633 1,655 485 -127,064
Bank20,388 2,408 139 3,646 52 -26,633
Residential mortgages494,238 59,404 -224 --553,866
Australian credit cards18,601 -----18,601
Other retail11,784 3,439 ----15,223
Small business30,646 2,534 -1 --33,181
Specialised lending57,147 8,673 46 ---65,866
Securitisation23,627 4,106 -364 --28,097
Standardised16,207 --42 -3,367 19,616
Total906,861 120,621 27,809 22,761 7,685 3,367 1,089,104
30 September 2019Total Exposure
$mAustraliaNew ZealandAmericasAsiaEuropePacificat Default
Corporate83,966 22,251 8,849 17,077 7,030 -139,173
Business lending49,891 4,679 ----54,570
Sovereign73,168 7,634 8,054 2,079 25 -90,960
Bank24,033 1,171 132 3,379 46 -28,761
Residential mortgages504,152 54,633 -233 --559,018
Australian credit cards17,541 -----17,541
Other retail12,297 3,654 ----15,951
Small business30,958 2,406 -1 --33,365
Specialised lending57,128 8,396 29 ---65,553
Securitisation23,009 3,604 -161 --26,774
Standardised19,284 --192 -3,036 22,512
Total895,427 108,428 17,064 23,122 7,101 3,036 1,054,178
1
Geographic segmentation of exposures is based on the location of the office in which these items were booked.
Pillar 3 report
Credit risk exposures
38 | Westpac Group September 2020 Pillar 3 report
Exposure at Default by residual contractual maturity
30 September 2020Total Exposure
$m
On demand< 12 months1 to < 3 years3 to < 5 years> 5 yearsat Default
Corporate14,419 27,059 64,555 19,980 3,975 129,988
Business lending3,102 13,635 24,154 5,699 7,952 54,542
Sovereign1,452 29,198 32,192 25,851 43,164 131,857
Bank3,697 4,102 14,328 1,106 11 23,244
Residential mortgages29,233 4,315 12,766 2,734 501,085 550,133
Australian credit cards16,944 ----16,944
Other retail2,899 351 4,718 3,570 1,933 13,471
Small business4,481 2,949 8,923 8,044 8,361 32,758
Specialised lending377 20,479 31,409 9,017 4,209 65,491
Securitisation-7,074 7,217 1,625 10,901 26,817
Standardised1,522 472 7,900 281 6,818 16,993
Total78,126 109,634 208,162 77,907 588,409 1,062,238
31 March 2020Total Exposure
$m
On demand< 12 months1 to < 3 years3 to < 5 years> 5 yearsat Default
Corporate18,087 27,376 71,404 23,057 6,605 146,529
Business lending3,081 13,297 23,945 5,912 8,193 54,428
Sovereign1,899 44,635 18,625 22,685 39,220 127,064
Bank5,188 4,025 15,961 1,390 69 26,633
Residential mortgages28,723 4,658 13,725 2,760 504,000 553,866
Australian credit cards18,601 ----18,601
Other retail3,218 388 5,206 4,267 2,144 15,223
Small business4,658 2,786 9,028 8,224 8,485 33,181
Specialised lending408 19,699 32,119 9,198 4,442 65,866
Securitisation-1,706 12,585 2,075 11,731 28,097
Standardised1,574 398 10,150 252 7,242 19,616
Total85,437 118,968 212,748 79,820 592,131 1,089,104
30 September 2019Total Exposure
$m
On demand< 12 months1 to < 3 years3 to < 5 years> 5 yearsat Default
Corporate18,487 25,871 68,603 21,668 4,544 139,173
Business lending3,051 13,550 23,455 6,386 8,128 54,570
Sovereign1,774 21,634 19,742 18,643 29,167 90,960
Bank3,971 3,599 18,880 2,214 97 28,761
Residential mortgages36,004 4,501 15,235 2,731 500,547 559,018
Australian credit cards17,541 ----17,541
Other retail3,392 367 5,407 4,484 2,301 15,951
Small business4,671 2,679 9,105 8,252 8,658 33,365
Specialised lending451 21,120 30,001 8,438 5,543 65,553
Securitisation-6,991 6,331 2,024 11,428 26,774
Standardised1,860 1,025 11,821 244 7,562 22,512
Total91,202 101,337 208,580 75,084 577,975 1,054,178
Pillar 3 report
Credit risk exposures
Westpac Group September 2020 Pillar 3 report | 39
Impaired and past due loans
The following tables disclose the crystallisation of credit risk as impairment and loss. Analysis of exposures
defaulted not impaired, impaired loans, related provisions and actual losses are broken down by concentrations
reflecting Westpac’s asset categories, industry and geography.
Impaired and past due loans by portfolio
1
SpecificSpecific Actual
30 September 2020
DefaultedImpairedProvisions forProvisions to Losses for the
$m
not impaired
1
Loans Impaired LoansImpaired Loans12 months ended
Corporate127 558 244 44%95
Business lending598 392 208 53%71
Sovereign-----
Bank-----
Residential mortgages7,042 345 93 27%125
Australian credit cards-83 48 58%332
Other retail-326 187 57%275
Small business440 933 328 35%74
Specialised lending229 86 25 29%3
Securitisation-----
Standardised96 56 19 34%2
Total8,532 2,779 1,152 41%977
SpecificSpecific Actual
31 March 2020
DefaultedImpairedProvisions forProvisions to Losses for the
$m
not impaired
1
Loans Impaired LoansImpaired Loans6 months ended
Corporate91 363 232 64%(4)
Business lending474 347 195 56%35
Sovereign-----
Bank-----
Residential mortgages4,050 404 114 28%67
Australian credit cards-123 92 75%164
Other retail-312 218 70%135
Small business359 501 183 37%39
Specialised lending357 52 26 50%1
Securitisation-----
Standardised78 52 19 37%-
Total5,409 2,154 1,079 50%437
SpecificSpecific Actual
30 September 2019
DefaultedImpairedProvisions forProvisions to Losses for the
$m
not impaired
1
Loans Impaired LoansImpaired Loans12 months ended
Corporate98 135 50 37%30
Business lending455 316 168 53%54
Sovereign-----
Bank-----
Residential mortgages3,839 414 127 31%111
Australian credit cards-121 80 66%340
Other retail-283 165 58%354
Small business345 367 152 41%78
Specialised lending279 69 29 42%13
Securitisation-----
Standardised72 58 21 36%2
Total5,088 1,763 792 45%982
1
Includes items past 90 days not impaired.
Pillar 3 report
Credit risk exposures
40 | Westpac Group September 2020 Pillar 3 report
Impaired and past due loans by industry classification
1
SpecificSpecific Actual
30 September 2020DefaultedImpairedProvisions forProvisions to Losses for the
$m
not impaired
1
Loans Impaired LoansImpaired Loans12 months ended
Accommodation, cafes & restaurants132 71 34 48%5
Agriculture, forestry & fishing242 95 38 40%13
Construction 69 188 71 38%12
Finance & insurance39 68 43 63%-
Government administration & defence- ----
Manufacturing92 302 188 62%61
Mining5 44 14 32%2
Property335 103 29 28%49
Property services & business services113 452 120 27%14
Services
2
129 145 67 46%5
Trade
3
148 274 112 41%56
Transport & storage30 143 52 36%17
Utilities
4
2 12 3 25%4
Retail lending7,122 770 336 44%735
Other74 112 45 41%4
Total8,532 2,779 1,152 41%977
SpecificSpecific Actual
31 March 2020DefaultedImpairedProvisions forProvisions to Losses for the
$m
not impaired
1
Loans Impaired LoansImpaired Loans6 months ended
Accommodation, cafes & restaurants109 37 18 49%7
Agriculture, forestry & fishing233 90 34 38%3
Construction 50 107 45 42%9
Finance & insurance29 62 44 71%5
Government administration & defence- ----
Manufacturing81 221 149 67%7
Mining6 17 6 35%(1)
Property284 77 39 51%10
Property services & business services83 130 67 52%9
Services
2
243 72 38 53%4
Trade
3
124 327 152 46%6
Transport & storage27 72 25 35%9
Utilities
4
2 7 2 29%-
Retail lending4,097 851 431 51%366
Other41 84 29 35%3
Total5,409 2,154 1,079 50%437
SpecificSpecific Actual
30 September 2019DefaultedImpairedProvisions forProvisions to Losses for the
$m
not impaired
1
Loans Impaired LoansImpaired Loans12 months ended
Accommodation, cafes & restaurants84 28 14 50%12
Agriculture, forestry & fishing233 60 25 42%6
Construction 55 98 41 42%12
Finance & insurance27 30 19 63%4
Government administration & defence- ----
Manufacturing35 54 29 54%11
Mining9 17 7 41%(1)
Property212 101 47 47%23
Property services & business services76 103 53 51%23
Services
2
285 66 37 56%5
Trade
3
118 265 87 33%63
Transport & storage18 68 25 37%13
Utilities
4
3 5 1 20%1
Retail lending3,887 830 378 46%805
Other46 38 29 76%5
Total5,088 1,763 792 45%982
1
Includes items past 90 days not impaired.
2
Includes education, health & community services, cultural & recreational services and personal & other services.
3
Includes wholesale trade and retail trade.
4
Includes electricity, gas & water, and communication services.
Pillar 3 report
Credit risk exposures
Westpac Group September 2020 Pillar 3 report | 41
Impaired and past due loans by geography
12
SpecificSpecific Actual
30 September 2020DefaultedImpairedProvisions forProvisions to Losses for the
$m
not impaired
2
Loans Impaired LoansImpaired Loans12 months ended
Australia7,989 2,253 903 40%859
New Zealand502 193 96 50%21
Americas-----
Asia1 280 134 48%95
Europe-----
Pacific40 53 19 36%2
Total8,532 2,779 1,152 41%977
SpecificSpecific Actual
31 March 2020DefaultedImpairedProvisions forProvisions to Losses for the
$m
not impaired
2
Loans Impaired LoansImpaired Loans6 months ended
Australia4,964 1,681 818 49%423
New Zealand390 208 99 48%13
Americas-----
Asia2 216 145 67%-
Europe-----
Pacific53 49 17 35%1
Total5,409 2,154 1,079 50%437
SpecificSpecific Actual
30 September 2019DefaultedImpairedProvisions forProvisions to Losses for the
$m
not impaired
2
Loans Impaired LoansImpaired Loans12 months ended
Australia4,684 1,615 730 45%944
New Zealand340 94 44 47%36
Americas-----
Asia18 ----
Europe-----
Pacific46 54 18 33%2
Total5,088 1,763 792 45%982
1
Geographic segmentation of exposures is based on the location of the office in which these items were booked.
2
Includes items past 90 days not impaired.
Pillar 3 report
Credit risk exposures
42 | Westpac Group September 2020 Pillar 3 report
Portfolios subject to the standardised approach
This table presents exposures subject to the standardised approach for the calculation of risk weighted assets.
As at 30 September 2020, exposures subject to the standardised approach and categorised by risk weight are
primarily Westpac Pacific, Asian retail exposures, the margin lending portfolio, self-managed superannuation fund
exposures and some other small portfolios. Mark-to-market related credit risk and qualifying central clearing
counterparties exposure
1
is also included in the standardised approach.
30 September 2020Total ExposureRisk Weighted
Risk Weight %at Default $mAssets $m
0%1,780 -
2%3,406 68
20%1,200 240
35%415 145
50%1,328 664
75%4,451 3,338
100%4,239 4,239
150%54 81
Default fund contributions
1
120 78
Mark-to-market related credit risk-7,302
Total16,993 16,155
31 March 2020Total ExposureRisk Weighted
Risk Weight %at Default $mAssets $m
0%1,650 -
2%5,481 110
20%1,190 238
35%478 167
50%1,340 670
75%4,631 3,473
100%4,651 4,651
150%67 100
Default fund contributions
1
128 98
Mark-to-market related credit risk-11,289
Total19,616 20,795
30 September 2019Total ExposureRisk Weighted
Risk Weight %at Default $mAssets $m
0%1,442 -
2%8,136 163
20%1,472 294
35%614 215
50%1,352 676
75%4,884 3,663
100%4,435 4,435
150%66 99
Default fund contributions
1
111 108
Mark-to-market related credit risk-11,313
Total22,512 20,966
1
Portfolios subject to the standardised approach include exposures to qualifying central clearing counterparties used to clear derivative
transactions. Derivative counterparty exposure and initial margin are risk weighted at 2%. Default fund contributions to qualifying
central clearing counterparties are shown separately and are subject to higher risk weights.
Pillar 3 report
Credit risk exposures
Westpac Group September 2020 Pillar 3 report | 43
Portfolios subject to supervisory risk-weights in the IRB approach
Exposures subject to supervisory risk-weights in the IRB approach include assets categorised as specialised
lending, where a regulatory capital ‘slotting’ approach applies.
Westpac has property finance and project finance credit risk exposures categorised as specialised lending. The
‘Credit Risk Management’ section of this report describes the mapping of Westpac risk grades to both external
rating equivalents and regulatory capital ‘slots’.
Property finance
30 September 2020Exposure atRegulatoryRisk Weighted
$m
Risk WeightDefaultExpected LossAssets
Strong70%23,604 94 16,523
Good
1
90%26,218 251 24,359
Satisfactory115%5,224 146 6,008
Weak250%1,344 107 3,359
DefaultNA339 170 -
Total56,729 768 50,249
31 March 2020Exposure atRegulatoryRisk Weighted
$m
Risk WeightDefaultExpected LossAssets
Strong70%23,013 92 16,110
Good90%29,436 236 26,491
Satisfactory115%4,479 125 5,151
Weak250%795 64 1,988
DefaultNA297 148 -
Total58,020 665 49,740
30 September 2019Exposure atRegulatoryRisk Weighted
$m
Risk WeightDefaultExpected LossAssets
Strong70%23,270 92 16,289
Good90%28,607 229 25,746
Satisfactory115%4,383 123 5,041
Weak250%729 58 1,823
DefaultNA215 108 -
Total57,204 610 48,899
1
Includes $0.8 billion RWA overlay to reflect potential deterioration in credit quality due to COVID-19.
Pillar 3 report
Credit risk exposures
44 | Westpac Group September 2020 Pillar 3 report
Project and object finance
30 September 2020Exposure atRegulatoryRisk Weighted
$m
Risk WeightDefaultExpected LossAssets
Strong70%6,769 27 4,738
Good90%1,183 9 1,065
Satisfactory115%751 21 864
Weak250%41 3 103
DefaultNA18 9 -
Total8,762 69 6,770
31 March 2020Exposure atRegulatoryRisk Weighted
$m
Risk WeightDefaultExpected LossAssets
Strong70%5,803 23 4,063
Good90%1,064 9 957
Satisfactory115%589 16 677
Weak250%227 18 567
DefaultNA163 82 -
Total7,846 148 6,264
30 September 2019Exposure atRegulatoryRisk Weighted
$m
Risk WeightDefaultExpected LossAssets
Strong70%6,526 26 4,568
Good90%1,236 10 1,112
Satisfactory115%276 8 317
Weak250%146 12 366
DefaultNA165 82 -
Total8,349 138 6,363
Pillar 3 report
Credit risk exposures
Westpac Group September 2020 Pillar 3 report | 45
Portfolios subject to IRB approaches
In the table below Westpac’s transaction-managed exposures are classified by the external credit rating. Each
external credit rating aligns to one or more internally assigned credit risk grades, as outlined in the ‘Credit Risk
Management’ section of this report. Westpac’s internal rating scale has more risk grades than does the external
rating scale, and as a result, average PD can vary from portfolio to portfolio for the same external grade.
Westpac’s program-managed exposures are classified by PD band and the average PD within a band can,
likewise, vary from portfolio to portfolio.
For both non-defaulted and defaulted exposures, regulatory expected loss is defined at facility level. For non-
defaulted exposures, regulatory expected loss is the product of PD, LGD and EAD while for defaulted exposures,
this is the best estimates of loss. Total regulatory expected loss as shown in the table below is the sum of both
non-defaulted and defaulted regulatory expected loss and given the difference in methodology, regulatory
expected loss reported is not equal to the product of the corresponding reported average PD, average LGD and
aggregate EAD.
Corporate portfolio by external credit rating
Risk Average
30 September 2020
CommittedExposureProbabilityLoss GivenRegulatoryWeighted Risk
$m
Outstandings
1
Undrawn
2
at Defaultof DefaultDefaultExpected LossAssetsWeight
AAA189 - 189 0.01%50%- 20 11%
AA2,424 2,461 4,884 0.03%52%1 883 18%
A15,987 12,099 28,039 0.07%52%10 7,463 27%
BBB
3
29,416 25,139 54,099 0.22%49%57 26,466 49%
BB26,213 11,255 37,328 1.14%38%167 28,739 77%
B1,305 209 1,515 4.78%41%30 2,067 136%
Other2,396 658 3,054 21.07%39%249 6,160 202%
Subtotal77,930 51,821 129,108 0.99%46%514 71,798 56%
Default699 182 880 NA42%244 1,868 212%
Total78,629 52,003 129,988 1.66%46%758 73,666 57%
Risk Average
31 March 2020
CommittedExposureProbabilityLoss GivenRegulatoryWeighted Risk
$m
Outstandings
1
Undrawn
2
at Defaultof DefaultDefaultExpected LossAssetsWeight
AAA101 - 101 0.01%50%- 28 28%
AA7,126 2,490 9,611 0.03%50%1 1,487 15%
A19,424 13,330 32,702 0.07%52%12 8,898 27%
BBB39,261 22,664 61,632 0.22%49%64 29,637 48%
BB28,062 8,919 36,876 1.13%37%152 27,522 75%
B1,554 209 1,719 4.78%44%36 2,671 155%
Other2,765 616 3,382 21.23%41%282 7,083 209%
Subtotal98,293 48,228 146,023 0.94%46%547 77,326 53%
Default365 142 506 NA65%240 962 190%
Total98,658 48,370 146,529 1.29%47%787 78,288 53%
Risk Average
30 September 2019
CommittedExposureProbabilityLoss GivenRegulatoryWeighted Risk
$m
Outstandings
1
Undrawn
2
at Defaultof DefaultDefaultExpected LossAssetsWeight
AAA109 23 109 0.01%49%- 27 25%
AA4,223 2,292 6,001 0.03%52%1 843 14%
A18,806 18,557 31,996 0.07%54%11 8,560 27%
BBB37,160 24,807 61,361 0.22%49%65 30,119 49%
BB28,121 8,705 35,566 1.21%38%160 27,679 78%
B1,342 92 1,428 4.27%44%28 2,269 159%
Other1,842 603 2,447 21.59%39%208 4,901 200%
Subtotal91,603 55,079 138,908 0.85%47%473 74,398 54%
Default246 17 265 NA30%50 409 154%
Total91,849 55,096 139,173 1.04%47%523 74,807 54%
1
Outstandings are balances that were drawn down as at the reporting date and include certain off-balance sheet items.
2
Committed undrawn balances are committed exposures that were not drawn down as at the reporting date.
3
Includes $0.3 billion RWA overlay to reflect potential deterioration in credit quality due to COVID-19.
Pillar 3 report
Credit risk exposures
46 | Westpac Group September 2020 Pillar 3 report
Business lending portfolio by external credit rating
Risk
Average
30 September 2020CommittedExposureProbabilityLoss GivenRegulatory
Weighted
Risk
$m
Outstandings
1
Undrawn
2
at Defaultof DefaultDefaultExpected LossAssetsWeight
AAA- - - - - - - -
AA- - - - - - - -
A188 74 261 0.08%42%- 53 20%
BBB1,224 625 1,845 0.21%26%1 383 21%
BB
3
36,088 10,955 46,914 1.59%30%261 28,799 61%
B1,384 226 1,612 4.78%32%25 1,369 85%
Other2,569 354 2,924 22.12%37%247 4,929 169%
Subtotal41,453 12,234 53,556 2.75%30%534 35,533 66%
Default952 32 986 NA34%275 1,244 126%
Total42,405 12,266 54,542 4.51%30%809 36,777 67%
Risk
Average
31 March 2020CommittedExposureProbabilityLoss GivenRegulatory
Weighted
Risk
$m
Outstandings
1
Undrawn
2
at Defaultof DefaultDefaultExpected LossAssetsWeight
AAA- - - - - - - -
AA- - - - - - - -
A218 65 282 0.08%42%- 60 21%
BBB1,469 502 1,969 0.21%26%1 430 22%
BB38,131 10,024 48,015 1.56%30%221 28,438 59%
B1,063 142 1,206 4.78%33%19 1,036 86%
Other1,833 266 2,099 21.74%37%172 3,516 168%
Subtotal42,714 10,999 53,571 2.37%30%413 33,480 62%
Default828 26 857 NA35%256 1,013 118%
Total43,542 11,025 54,428 3.90%30%669 34,493 63%
Risk
Average
30 September 2019CommittedExposureProbabilityLoss GivenRegulatory
Weighted
Risk
$m
Outstandings
1
Undrawn
2
at Defaultof DefaultDefaultExpected LossAssetsWeight
AAA- - - - - - - -
AA- - - - - - - -
A175 22 196 0.09%48%- 39 20%
BBB1,475 491 1,964 0.22%26%1 433 22%
BB38,439 9,938 48,228 1.57%30%228 29,031 60%
B1,166 124 1,290 4.62%32%19 1,074 83%
Other1,870 206 2,075 22.66%38%183 3,646 176%
Subtotal43,125 10,781 53,753 2.40%30%431 34,223 64%
Default788 29 817 NA32%204 1,247 153%
Total43,913 10,810 54,570 3.86%30%635 35,470 65%
1
Outstandings are balances that were drawn down as at the reporting date and include certain off-balance sheet items.
2
Committed undrawn balances are committed exposures that were not drawn down as at the reporting date.
3
Includes $0.9 billion RWA overlay to reflect potential deterioration in credit quality due to COVID-19.
Pillar 3 report
Credit risk exposures
Westpac Group September 2020 Pillar 3 report | 47
Sovereign portfolio by external credit rating
Risk
Average
30 September 2020CommittedExposureProbabilityLoss GivenRegulatory
Weighted
Risk
$m
Outstandings
1
Undrawn
2
at Defaultof DefaultDefaultExpected LossAssetsWeight
AAA71,383 157 77,107 0.01%6%- 1,135 1%
AA49,201 984 54,057 0.02%8%1 1,121 2%
A352 117 479 0.05%27%- 50 10%
BBB191 7 198 0.20%33%- 57 29%
BB5 11 16 2.23%33%- 13 81%
B- - - - - - - -
Other- - - - - - - -
Subtotal121,132 1,276 131,857 0.01%7%1 2,376 2%
Default- - - NA- - - -
Total121,132 1,276 131,857 0.01%7%1 2,376 2%
Risk
Average
31 March 2020CommittedExposureProbabilityLoss GivenRegulatory
Weighted
Risk
$m
Outstandings
1
Undrawn
2
at Defaultof DefaultDefaultExpected LossAssetsWeight
AAA56,238 150 60,998 0.01%6%- 718 1%
AA59,725 1,160 64,805 0.02%7%2 1,220 2%
A594 233 828 0.05%27%- 84 10%
BBB407 7 414 0.21%33%- 154 37%
BB8 11 19 2.07%36%- 16 84%
B- - - - - - - -
Other- - - - - - - -
Subtotal116,972 1,561 127,064 0.02%7%2 2,192 2%
Default- - - NA- - - -
Total116,972 1,561 127,064 0.02%7%2 2,192 2%
Risk
Average
30 September 2019CommittedExposureProbabilityLoss GivenRegulatory
Weighted
Risk
$m
Outstandings
1
Undrawn
2
at Defaultof DefaultDefaultExpected LossAssetsWeight
AAA40,003 143 43,383 0.01%7%- 820 2%
AA42,333 997 46,146 0.02%7%2 947 2%
A650 245 898 0.05%28%- 91 10%
BBB496 16 512 0.24%33%- 189 37%
BB10 10 21 1.96%43%- 21 100%
B- - - - 0%- - -
Other- - - - - - - -
Subtotal83,492 1,411 90,960 0.02%7%2 2,068 2%
Default- - - NA0%- - -
Total83,492 1,411 90,960 0.02%7%2 2,068 2%
1
Outstandings are balances that were drawn down as at the reporting date and include certain off-balance sheet items.
2
Committed undrawn balances are committed exposures that were not drawn down as at the reporting date.
Pillar 3 report
Credit risk exposures
48 | Westpac Group September 2020 Pillar 3 report
Bank portfolio by external credit rating
Risk
Average
30 September 2020CommittedExposureProbabilityLoss GivenRegulatory
Weighted
Risk
$m
Outstandings
1
Undrawn
2
at Defaultof DefaultDefaultExpected LossAssetsWeight
AAA2,324 - 2,351 0.01%10%- 90 4%
AA7,917 152 8,078 0.03%59%1 1,543 19%
A10,391 490 10,731 0.05%58%4 2,708 25%
BBB1,884 243 2,048 0.19%59%2 1,263 62%
BB17 17 34 0.74%53%- 29 85%
B- - - - - - - -
Other2 - 2 18.77%60%- 7 350%
Subtotal22,535 902 23,244 0.05%54%7 5,640 24%
Default- - - NA- - - -
Total22,535 902 23,244 0.05%54%7 5,640 24%
Risk
Average
31 March 2020CommittedExposureProbabilityLoss GivenRegulatory
Weighted
Risk
$m
Outstandings
1
Undrawn
2
at Defaultof DefaultDefaultExpected LossAssetsWeight
AAA625 55 680 0.01%11%- 24 4%
AA8,861 173 9,015 0.03%58%2 1,762 20%
A14,412 473 14,800 0.05%54%4 4,057 27%
BBB1,984 173 2,110 0.19%54%3 1,091 52%
BB15 12 27 0.60%48%- 19 70%
B- - - - - - - -
Other1 - 1 12.11%60%- 3 300%
Subtotal25,898 886 26,633 0.05%54%9 6,956 26%
Default- - - NA- - - -
Total25,898 886 26,633 0.05%54%9 6,956 26%
Risk
Average
30 September 2019CommittedExposureProbabilityLoss GivenRegulatory
Weighted
Risk
$m
Outstandings
1
Undrawn
2
at Defaultof DefaultDefaultExpected LossAssetsWeight
AAA515 - 516 0.01%14%- 14 3%
AA11,111 312 11,488 0.03%58%2 2,686 23%
A14,278 303 14,583 0.05%56%5 4,328 30%
BBB1,837 161 2,001 0.19%55%2 1,082 54%
BB125 47 172 1.58%54%1 225 131%
B- - - - - - - -
Other1 - 1 12.11%60%- 4 400%
Subtotal27,867 823 28,761 0.06%56%10 8,339 29%
Default- - - NA- - - -
Total27,867 823 28,761 0.06%56%10 8,339 29%
1
Outstandings are balances that were drawn down as at the reporting date and include certain off-balance sheet items.
2
Committed undrawn balances are committed exposures that were not drawn down as at the reporting date.
Pillar 3 report
Credit risk exposures
Westpac Group September 2020 Pillar 3 report | 49
Residential mortgages portfolio by PD band
Risk
Average
30 September 2020CommittedExposureProbabilityLoss GivenRegulatory
Weighted
Risk
$m
Outstandings
1
Undrawn
2
at Defaultof DefaultDefaultExpected LossAssetsWeight
0.0 to 0.10143,626 42,300 184,084 0.06%20%23 10,339 6%
0.10 to 0.2572,665 11,777 83,738 0.22%20%36 11,936 14%
0.25 to 1.0192,438 19,166 207,435 0.57%20%235 51,848 25%
1.0 to 2.537,467 3,583 39,993 1.43%21%120 18,368 46%
2.5 to 10.015,125 668 15,470 4.52%20%143 13,657 88%
10.0 to 99.9911,794 232 11,968 19.93%20%476 16,328 136%
Subtotal473,115 77,726 542,688 0.95%20%1,033 122,476 23%
Default7,430 30 7,445 NA20%933 8,311 112%
Total480,545 77,756 550,133 2.29%20%1,966 130,787 24%
Risk
Average
31 March 2020CommittedExposureProbabilityLoss GivenRegulatory
Weighted
Risk
$m
Outstandings
1
Undrawn
2
at Defaultof DefaultDefaultExpected LossAssetsWeight
0.0 to 0.10145,843 40,976 185,030 0.06%20%23 10,384 6%
0.10 to 0.2575,031 11,716 86,067 0.22%20%37 12,272 14%
0.25 to 1.0194,476 19,051 209,423 0.57%20%237 52,333 25%
1.0 to 2.536,418 3,655 38,978 1.44%21%118 17,782 46%
2.5 to 10.015,317 669 15,657 4.69%21%150 14,043 90%
10.0 to 99.9914,062 200 14,215 23.35%20%664 19,141 135%
Subtotal481,147 76,267 549,370 1.11%20%1,229 125,955 23%
Default4,486 30 4,496 NA20%559 5,469 122%
Total485,633 76,297 553,866 1.91%20%1,788 131,424 24%
Risk
Average
30 September 2019CommittedExposureProbabilityLoss GivenRegulatory
Weighted
Risk
$m
Outstandings
1
Undrawn
2
at Defaultof DefaultDefaultExpected LossAssetsWeight
0.0 to 0.10148,591 38,041 186,899 0.06%20%23 10,472 6%
0.10 to 0.2575,806 11,352 86,873 0.21%20%37 12,165 14%
0.25 to 1.0182,589 22,417 204,268 0.54%20%223 52,592 26%
1.0 to 2.543,736 3,657 46,813 1.41%20%133 19,616 42%
2.5 to 10.017,377 423 17,761 4.72%20%171 15,277 86%
10.0 to 99.9912,079 80 12,177 20.54%20%501 16,630 137%
Subtotal480,178 75,970 554,791 0.97%20%1,088 126,752 23%
Default4,216 21 4,227 NA20%554 4,877 115%
Total484,394 75,991 559,018 1.72%20%1,642 131,629 24%
1
Outstandings are balances that were drawn down as at the reporting date.
2
Committed undrawn balances are committed exposures that were not drawn down as at the reporting date.
Pillar 3 report
Credit risk exposures
50 | Westpac Group September 2020 Pillar 3 report
Australian credit cards portfolio by PD band
Risk
Average
30 September 2020CommittedExposureProbabilityLoss GivenRegulatory
Weighted
Risk
$m
Outstandings
1
Undrawn
2
at Defaultof DefaultDefaultExpected LossAssetsWeight
0.0 to 0.101,596 9,952 7,755 0.05%70%3 181 2%
0.10 to 0.25987 4,388 3,400 0.16%73%4 233 7%
0.25 to 1.01,024 1,367 1,871 0.45%73%7 307 16%
1.0 to 2.51,826 1,103 2,529 1.67%74%31 1,099 43%
2.5 to 10.0725 211 850 6.18%73%38 895 105%
10.0 to 99.99
3
424 99 446 26.52%70%83 1,401 314%
Subtotal6,582 17,120 16,851 1.37%72%166 4,116 24%
Default93 16 93 NA71%48 289 311%
Total6,675 17,136 16,944 1.91%72%214 4,405 26%
Risk
Average
31 March 2020CommittedExposureProbabilityLoss GivenRegulatory
Weighted
Risk
$m
Outstandings
1
Undrawn
2
at Defaultof DefaultDefaultExpected LossAssetsWeight
0.0 to 0.101,704 9,799 7,793 0.05%70%3 181 2%
0.10 to 0.251,146 4,397 3,603 0.16%73%4 247 7%
0.25 to 1.01,260 1,335 2,109 0.46%73%7 346 16%
1.0 to 2.52,350 1,146 3,124 1.70%74%39 1,373 44%
2.5 to 10.01,060 245 1,222 6.22%73%55 1,295 106%
10.0 to 99.99608 95 629 29.22%70%130 1,186 189%
Subtotal8,128 17,017 18,480 1.80%72%238 4,628 25%
Default121 17 121 NA72%76 209 173%
Total8,249 17,034 18,601 2.44%72%314 4,837 26%
Risk
Average
30 September 2019CommittedExposureProbabilityLoss GivenRegulatory
Weighted
Risk
$m
Outstandings
1
Undrawn
2
at Defaultof DefaultDefaultExpected LossAssetsWeight
0.0 to 0.101,808 9,814 6,254 0.05%70%2 146 2%
0.10 to 0.251,206 4,662 3,529 0.16%73%4 242 7%
0.25 to 1.01,315 1,463 2,173 0.46%73%8 358 16%
1.0 to 2.52,525 1,294 3,418 1.71%74%43 1,511 44%
2.5 to 10.01,176 289 1,405 6.20%73%63 1,488 106%
10.0 to 99.99606 99 649 27.81%70%128 1,213 187%
Subtotal8,636 17,621 17,428 1.98%72%248 4,958 28%
Default113 15 113 NA72%80 131 116%
Total8,749 17,636 17,541 2.61%72%328 5,089 29%
1
Outstandings are balances that were drawn down as at the reporting date.
2
Committed undrawn balances are committed exposures that were not drawn down as at the reporting date.
3
Includes a $0.6 billion RWA judgement-based overlay for Australian Credit Cards to maintain the average risk weight at 26%.
Pillar 3 report
Credit risk exposures
Westpac Group September 2020 Pillar 3 report | 51
Other retail portfolio by PD band
Risk
Average
30 September 2020CommittedExposureProbabilityLoss GivenRegulatory
Weighted
Risk
$m
Outstandings
1
Undrawn
2
at Defaultof DefaultDefaultExpected LossAssetsWeight
0.0 to 0.10217 878 750 0.05%47%- 57 8%
0.10 to 0.25339 1,263 1,177 0.20%60%3 306 26%
0.25 to 1.03,301 1,080 4,210 0.66%59%16 2,121 50%
1.0 to 2.52,690 904 3,386 1.63%66%39 2,854 84%
2.5 to 10.02,329 320 2,603 4.78%69%92 2,822 108%
10.0 to 99.99968 52 1,032 27.02%67%191 1,582 153%
Subtotal9,844 4,497 13,158 3.72%63%341 9,742 74%
Default310 10 313 NA66%181 432 138%
Total10,154 4,507 13,471 5.95%63%522 10,174 76%
Risk
Average
31 March 2020CommittedExposureProbabilityLoss GivenRegulatory
Weighted
Risk
$m
Outstandings
1
Undrawn
2
at Defaultof DefaultDefaultExpected LossAssetsWeight
0.0 to 0.10215 940 786 0.05%48%- 59 8%
0.10 to 0.25365 1,376 1,307 0.19%60%2 329 25%
0.25 to 1.03,469 961 4,252 0.67%56%16 2,068 49%
1.0 to 2.53,114 919 3,837 1.66%66%45 3,232 84%
2.5 to 10.03,197 340 3,486 4.90%67%121 3,630 104%
10.0 to 99.991,185 46 1,254 27.19%66%235 1,854 148%
Subtotal11,545 4,582 14,922 4.07%62%419 11,172 75%
Default298 11 301 NA67%182 422 140%
Total11,843 4,593 15,223 5.96%62%601 11,594 76%
Risk
Average
30 September 2019CommittedExposureProbabilityLoss GivenRegulatory
Weighted
Risk
$m
Outstandings
1
Undrawn
2
at Defaultof DefaultDefaultExpected LossAssetsWeight
0.0 to 0.1023 20 36 0.07%65%- 5 14%
0.10 to 0.25326 811 965 0.18%57%1 226 23%
0.25 to 1.03,870 2,136 5,362 0.61%58%19 2,514 47%
1.0 to 2.53,645 1,221 4,745 1.78%64%58 3,990 84%
2.5 to 10.02,989 251 3,236 4.77%67%110 3,386 105%
10.0 to 99.991,255 64 1,333 25.71%64%229 1,914 144%
Subtotal12,108 4,503 15,677 3.93%62%417 12,035 77%
Default271 10 274 NA65%165 360 131%
Total12,379 4,513 15,951 5.58%62%582 12,395 78%
1
Outstandings are balances that were drawn down as at the reporting date.
2
Committed undrawn balances are committed exposures that were not drawn down as at the reporting date.
Pillar 3 report
Credit risk exposures
52 | Westpac Group September 2020 Pillar 3 report
Small business portfolio by PD band
Regulatory
Risk
Average
30 September 2020CommittedExposureProbabilityLoss Given
Expected
Weighted
Risk
$m
Outstandings
1
Undrawn
2
at Defaultof DefaultDefaultLossAssetsWeight
0.0 to 0.10222 395 431 0.07%51%- 46 11%
0.10 to 0.25125 192 310 0.19%21%- 27 9%
0.25 to 1.06,041 3,723 9,667 0.47%29%13 2,024 21%
1.0 to 2.514,216 1,976 16,145 1.63%39%100 8,195 51%
2.5 to 10.02,936 332 3,270 5.09%35%61 2,198 67%
10.0 to 99.991,573 78 1,652 28.10%38%176 1,864 113%
Subtotal25,113 6,696 31,475 2.99%35%350 14,354 46%
Default1,273 29 1,283 NA39%335 2,623 204%
Total26,386 6,725 32,758 6.79%36%685 16,977 52%
Regulatory
Risk
Average
31 March 2020CommittedExposureProbabilityLoss Given
Expected
Weighted
Risk
$m
Outstandings
1
Undrawn
2
at Defaultof DefaultDefaultLossAssetsWeight
0.0 to 0.10241 361 435 0.07%50%- 46 11%
0.10 to 0.25131 191 314 0.19%21%- 27 9%
0.25 to 1.06,267 3,602 9,770 0.47%28%13 2,039 21%
1.0 to 2.514,668 1,805 16,447 1.64%39%104 8,476 52%
2.5 to 10.03,331 309 3,643 5.25%36%71 2,534 70%
10.0 to 99.991,762 66 1,831 27.83%38%190 2,039 111%
Subtotal26,400 6,334 32,440 3.14%35%378 15,161 47%
Default731 19 741 NA37%179 1,651 223%
Total27,131 6,353 33,181 5.30%35%557 16,812 51%
Regulatory
Risk
Average
30 September 2019CommittedExposureProbabilityLoss Given
Expected
Weighted
Risk
$m
Outstandings
1
Undrawn
2
at Defaultof DefaultDefaultLossAssetsWeight
0.0 to 0.10295 537 601 0.06%57%- 60 10%
0.10 to 0.2598 114 213 0.23%20%- 20 9%
0.25 to 1.05,454 3,187 8,666 0.45%28%10 1,725 20%
1.0 to 2.515,940 1,945 17,809 1.66%38%110 8,800 49%
2.5 to 10.03,485 316 3,806 5.27%35%73 2,448 64%
10.0 to 99.991,569 58 1,631 26.19%37%158 1,729 106%
Subtotal26,841 6,157 32,726 2.94%35%351 14,782 45%
Default630 14 639 NA36%161 1,308 205%
Total27,471 6,171 33,365 4.80%35%512 16,090 48%
1
Outstandings are balances that were drawn down as at the reporting date and include certain off-balance sheet items.
2
Committed undrawn balances are committed exposures that were not drawn down as at the reporting date.
Pillar 3 report
Credit risk exposures
Westpac Group September 2020 Pillar 3 report | 53
Credit Quality
The portfolio began the 2020 Financial Year performing well with stress in retail, business, and Institutional rising
modestly from the low base experienced in recent years.
Through Second Half 2020, there was a deterioration in economic activity and the rise in unemployment, with
more businesses being downgraded and more consumers defaulting on payments. Stress was increasingly
reflected in the portfolio during this period as customers were reviewed.
Actual losses
30 September 2020Write-offsLegal and Write-offs fromActual Losses for the
$m
directrecovery costs
provisions
1
Recoveries12 months ended
Corporate--101 (6) 95
Business lending44 2 34 (9) 71
Sovereign-----
Bank-----
Residential mortgages18 -108 (1) 125
Australian credit cards392 --(60) 332
Other retail373 10 -(108) 275
Small business27 2 48 (3) 74
Specialised lending1 4 4 (6) 3
Securitisation-----
Standardised2 ---2
Total857 18 295 (193) 977
31 March 2020Write-offsLegal and Write-offs fromActual Losses for the
$m
directrecovery costs
provisions
1
Recoveries6 months ended
Corporate1 -1 (6) (4)
Business lending21 -19 (5) 35
Sovereign-----
Bank-----
Residential mortgages8 -59 -67
Australian credit cards197 --(33) 164
Other retail181 7 1 (54) 135
Small business20 -19 -39
Specialised lending1 2 -(2) 1
Securitisation-----
Standardised-----
Total429 9 99 (100) 437
30 September 2019Write-offsLegal and Write-offs fromActual Losses for the
$m
directrecovery costs
provisions
1
Recoveries12 months ended
Corporate2 -35 (7) 30
Business lending40 2 21 (9) 54
Sovereign-----
Bank-----
Residential mortgages14 -98 (1) 111
Australian credit cards383 --(43) 340
Other retail438 17 6 (107) 354
Small business44 2 32 -78
Specialised lending3 6 9 (5) 13
Securitisation-----
Standardised2 ---2
Total926 27 201 (172) 982
1
Write-offs from individually assessed provisions.
Pillar 3 report
Credit risk exposures
54 | Westpac Group September 2020 Pillar 3 report
Regulatory loss estimates and actual losses
The table below compares regulatory credit risk estimates used in the calculation of risk weighted assets to the
average of actual outcomes observed since the time of Advanced IRB accreditation for each portfolio.
Predicted parameters represent average internally predicted long-run probabilities of default for non-defaulted
obligors at the start of each year, as well as downturn estimates of loss (or the regulatory minimum where
required). They are averaged using data from the financial years beginning at the time of Advanced IRB
accreditation (2008 for most portfolios) and compared to observed outcomes over the same period
1
.
Predicted parameters are reviewed annually utilising observed outcomes from prior periods as a key input.
Default rates
At the start of each year, a predicted default probability is assigned to all non-defaulted obligors. This is averaged
over the portfolio for the period since IRB accreditation and reported as the predicted default rate. The actual
default rate reflects the fraction of obligors who start the year not in default but default during the one year period.
The observed annual default rates are averaged over the period since IRB accreditation.
Loss Given Default (LGD)
The LGD analysis excludes recent defaults in order to allow sufficient time for the full workout of the facility and
hence an accurate LGD to be determined. The workout period varies by portfolio: a two year workout period is
assumed for transaction-managed and residential mortgage lending; and a one year period for other program-
managed portfolios.
Exposure at Default (EAD)
The EAD variance compares the observed EAD to the predicted EAD up to one year prior to default. For
transaction-managed portfolios, predicted EAD is currently mandated to be 100% of committed exposures. The
observed EAD is averaged for all obligors that defaulted over the observation period.
Observed EAD
30 September 2020.
Regulatory variance to
$m
Expected Loss
2
PredictedObservedPredictedObserved
Predicted
3
Corporate758 2.25%0.92%47%35%(23%)
Business lending809 2.24%1.54%35%17%(13%)
Sovereign1 0.23% - - - -
Bank7 0.43%0.13% - - -
Residential mortgages1,966 0.68%0.54%20%1%(1%)
Australian credit cards214 1.70%1.63%75%59%(2%)
Other retail522 4.79%3.71%69%44%(7%)
Small business685 3.55%2.52%38%11%(9%)
Specialised lending837 NA1.90%NA20%(9%)
Securitisation-NANANANANA
Standardised-NANANANANA
Total5,799
Default rate Loss Given Default
1
Predicted parameters are not available for specialised lending, securitisation or standardised exposures because risk weights for
these portfolios do not rely on credit estimates and are shown as NA in the tables above.
2
Includes regulatory expected losses for defaulted and non-defaulted exposures.
3
A negative outcome indicates observed EAD was lower than predicted EAD, which can happen because exposures were managed
down prior to default or off-balance sheet items or undrawn limits were not fully drawn prior to default.
Pillar 3 report
Credit risk exposures
Westpac Group September 2020 Pillar 3 report | 55
Observed EAD
31 March 2020
Regulatory variance to
$m
Expected Loss
1
PredictedObservedPredictedObserved
Predicted
2
Corporate787 2.25%0.93%47%36%(23%)
Business lending669 2.24%1.56%34%17%(13%)
Sovereign2 0.23% - - -
Bank9 0.43%0.13% - -
Residential mortgages1,788 0.66%0.53%20%1%(1%)
Australian credit cards314 1.68%1.63%75%59%(2%)
Other retail601 4.83%3.80%69%45%(8%)
Small business557 3.28%2.21%39%12%(9%)
Specialised lending813 NA1.93%NA22%(9%)
Securitisation-NANANANANA
Standardised-NANANANANA
Total5,540
Observed EAD
30 September 2019
Regulatory Default rate variance to
$m
Expected Loss
1
PredictedObservedPredictedObserved
Predicted
2
Corporate523 2.24%0.93%47%36%(23%)
Business lending635 2.24%1.52%34%17%(13%)
Sovereign2 0.23% - - - -
Bank10 0.44%0.14% - - -
Residential mortgages1,642 0.64%0.51%20%2%(1%)
Australian credit cards328 1.68%1.64%75%59%(2%)
Other retail582 4.82%3.79%69%46%(8%)
Small business512 3.19%2.11%39%13%(9%)
Specialised lending748 NA1.90%NA22%(9%)
Securitisation-NANANANANA
Standardised-NANANANANA
Total4,982
Loss Given Default Default rate
Loss Given Default
1
Includes regulatory expected losses for defaulted and non-defaulted exposures
2
A negative outcome indicates observed EAD was lower than predicted EAD, which can happen because exposures were managed
down prior to default or off-balance sheet items or undrawn limits were not fully drawn prior to default.
Pillar 3 report
Credit risk mitigation
56 | Westpac Group September 2020 Pillar 3 report
This section describes the way in which Westpac reduces its credit risk by using financial collateral, guarantees or
credit derivatives for the Corporate, Sovereign and Bank asset classes.
Approach
Westpac recognises credit risk mitigation only when formal legal documentation is held that establishes Westpac’s
direct, irrevocable and unconditional recourse to the collateral or to an unrelated credit risk mitigation provider.
Minimum standards for recognising credit risk mitigation are set out in Westpac's credit rules and policies. All
proposals for recognising risk mitigation require approval by an authorised credit officer. Authorised credit officer
approval is also required for existing risk mitigation to be discontinued or withdrawn.
The amount of credit risk mitigation recognised is the face value of the mitigation instrument, adjusted by the
application of discounts for any maturity and/or currency mismatch with the underlying obligation, so that a
discounted amount is recognised when calculating the residual exposure after mitigation.
For regulatory capital purposes:
⚫ exposures secured by eligible financial collateral, either cash or certain government or semi-government
securities, or where protection is bought via credit linked notes, provided proceeds are invested in eligible
financial collateral, are included at the gross value, with risk weighted assets for the portion thus secured
calculated by applying a 5% LGD
1
;
⚫ exposures mitigated by eligible guarantees, standby letters of credit or similar instruments, where Westpac
has direct recourse to an unrelated third party, or credit protection bought via credit default swaps where
Westpac is entitled to recover either full principal or credit losses on occurrence of defined credit events, are
treated under double default rules where the protection provider is rated A-/A3 or better. The GCCO has the
authority to approve exceptions to the A-/A3 minimum; and
⚫ exposures mitigated by guarantees, letters of credit, credit default swaps or similar instruments, which are not
eligible for double default treatment are treated under the substitution approach.
When Westpac uses credit risk mitigation techniques to reduce counterparty exposure, limits are applied to both
gross (i.e. pre-mitigation) and net exposure. Furthermore, exposure is recorded against the provider of any credit
risk mitigation and a limit framework prevents excessive concentration to such counterparties.
Netting
Risk reduction by way of current account set-offs is recognised for exposures to creditworthy customers domiciled
in Australia and New Zealand only. Customers are required to enter into formal agreements giving Westpac the
unfettered right to set-off gross credit and debit balances in their nominated accounts to determine Westpac’s net
exposure within each of these two jurisdictions. Cross-border set-offs are not permitted.
Close-out netting is undertaken for off-balance sheet financial market transactions with counterparties with whom
Westpac has entered into master netting agreements which allow such netting in specified jurisdictions. Close-out
netting effectively aggregates pre-settlement risk exposure at time of default, thus reducing overall exposure.
Collateral valuation and management
Westpac revalues financial markets and associated collateral positions on a daily basis to monitor the net risk
position, and has formal processes in place so that calls for collateral top-up or exposure reduction are made
promptly. An independent operational unit has responsibility for monitoring these positions. The collateralisation
arrangements are documented via the Credit Support Annex of the International Swaps and Derivatives
Association (ISDA) master agreement for derivatives transactions and Global Master Repurchase Agreement
(GMRA) for repurchase transactions and Clearing Agreements for cleared trades.
1
Excludes collateralised derivative transactions.
Pillar 3 report
Credit risk mitigation
Westpac Group September 2020 Pillar 3 report | 57
Total exposure covered by collateral, credit derivatives and guarantees
Impact Total exposure for
30 September 2020Total before of creditTotal after which some creditEligible FinancialCovered byCovered by
$m
mitigation
mitigation
1
mitigationrisk is mitigatedCollateralGuaranteesCredit Derivatives
Corporate130,473 (485) 129,988 4,357 1,879 295 -
Sovereign132,020 (163) 131,857 757 164 79 -
Bank24,458 (1,214) 23,244 7,981 1,214 --
Standardised16,993 -16,993 2,797 ---
Total303,944 (1,862) 302,082 15,892 3,257 374 -
Impact Total exposure for
31 March 2020Total before of creditTotal after which some creditEligible FinancialCovered byCovered by
$m
mitigation
mitigation
1
mitigationrisk is mitigatedCollateralGuaranteesCredit Derivatives
Corporate150,294 (3,765) 146,529 8,562 5,617 305 -
Sovereign127,690 (626) 127,064 1,422 626 103 -
Bank34,129 (7,496) 26,633 15,088 7,496 --
Standardised19,616 -19,616 4,932 ---
Total331,729 (11,887) 319,842 30,004 13,739 408 -
Impact Total exposure for
30 September 2019Total before of creditTotal after which some creditEligible FinancialCovered byCovered by
$m
mitigation
mitigation
1
mitigationrisk is mitigatedCollateralGuaranteesCredit Derivatives
Corporate139,598 (425) 139,173 3,351 2,028 258 -
Sovereign91,284 (324) 90,960 905 324 221 -
Bank30,496 (1,735) 28,761 4,639 1,735 --
Standardised22,512 -22,512 ----
Total283,890 (2,484) 281,406 8,895 4,087 479 -
Credit Risk Mitigants
Credit Risk Mitigants
Credit Risk Mitigants
1
Impact of credit mitigation under the substitution approach.
Pillar 3 report
Counterparty credit risk
58 | Westpac Group September 2020 Pillar 3 report
This section describes Westpac’s exposure to credit risk arising from derivative and treasury products.
Approach
Westpac actively assesses and manages the derivative and treasury credit risk (known collectively as counterparty
credit risk) arising from its derivatives business. Westpac’s process for managing counterparty credit risk is based
on its assessment of the potential future credit risk Westpac is exposed to when dealing in derivatives products
and securities financing transactions. Westpac quantifies this risk through a daily simulation of future market price
and rate shocks and converts the effect of these shocks on the mark-to-market value of Westpac’s positions to a
credit exposure using Westpac’s Derivative Risk Equivalent (DRE) methodology. Exposures are loaded into
Westpac’s credit limit management system where they are checked against pre-settlement risk limits that are set
at the counterparty level. Limit excesses are reported to credit managers and actioned within strict timeframes.
Structure and organisation
The Financial Markets Credit management team is charged with managing the counterparty credit exposure
arising from derivatives and treasury products.
Market related credit risk
There are two components to the regulatory capital requirements for credit risk arising from derivative products:
⚫ capital to absorb losses arising from the default of derivative counterparties; and
⚫ capital to absorb losses arising from mark-to-market valuation movements resulting from changes in the credit
quality of derivative counterparties. These valuation movements are referred to as credit valuation
adjustments (CVA) and this risk is sometimes labelled as CVA risk. Westpac refers to this requirement as
mark-to-market related credit risk.
Risk mitigation
Mitigation is achieved in a number of ways:
⚫ the limit system monitors for excesses of the pre-defined limits, with any excesses being notified to authorised
credit officers;
⚫ Westpac has netting agreements with counterparties to allow the exposure across a portfolio of trades with the
same counterparty to be netted;
⚫ Westpac has collateral agreements with its largest counterparties. The market value of the counterparty’s
portfolio is used to recalculate the credit position at each end of day, with collateral being called for when
certain pre-set limits are met or exceeded. Westpac exchanges Initial Margin with eligible counterparties for
eligible products as protection against potential future exposure to changes in market value;
⚫ Westpac has initial margin agreements with qualifying counterparties subject to relevant international
regulations. The exchange of initial margin for eligible products covers the potential future exposure that could
arise from changes in the market value of derivative transactions over the close-out period in the event of a
counterparty default;
⚫ credit derivatives are used to mitigate credit exposure against certain counterparties; and
⚫ regular marking to market and settling of the foreign exchange components of foreign exchange reset
contracts.
Counterparty derivative exposures and limits
The risk management methodology for counterparty derivatives exposures is similar to the credit methodology for
transaction-managed loans. The main difference is in the estimation of the exposure for derivatives which is based
on the DRE methodology. DRE is a credit exposure measure for derivative trades which is calibrated to a ‘loan-
equivalent’ exposure.
Counterparty credit limits are approved on an uncommitted and unadvised basis by authorised credit officers. This
follows an evaluation of each counterparty’s credit worthiness and establishing an agreed credit risk appetite for
the nature and extent of prospective business.
Pillar 3 report
Counterparty credit risk
Westpac Group September 2020 Pillar 3 report | 59
Wrong-way risk exposures
Westpac defines wrong-way risk as exposure to a counterparty which is adversely correlated with the credit quality
of that counterparty. With respect to credit derivatives, wrong-way risk refers to credit protection purchased from a
counterparty highly correlated to the reference obligation.
Wrong-way risk exposures using credit derivatives are controlled by only buying protection from highly rated
counterparties. These transactions are assessed by an authorised credit officer who has the right to decline any
transaction where they feel there is an unacceptably high correlation between the ability to perform under the trade
and the performance of the underlying counterparty.
Consequences of a downgrade in Westpac’s credit rating
A downgrade in Westpac’s credit rating can have an impact on Westpac’s collateral agreements. Where an
outright threshold and minimum transfer amount are agreed, there will not be any impact on the amount of
collateral posted by Westpac in the event of a credit rating downgrade. Where the threshold and minimum transfer
amount are tiered according to credit rating, the impact of Westpac being downgraded below its current credit
rating would be: for a one notch downgrade, postings of $61 million; while for a two notch downgrade, postings
would be $71 million
1
.
Counterparty credit risk summary
30 September31 March30 September
$m
202020202019
Gross positive fair value of contracts
85,137 92,175 89,963
Netting benefits
(31,331) (32,468) (41,834)
Netted current credit exposure
53,806 59,707 48,129
Collateral held
(1,862) (11,887) (2,798)
Mark-to-market credit related risk reduction
(219) (263) (159)
Net derivatives credit exposure
51,724 47,557 45,172
Exposure at default
Gross credit exposure amount of credit derivative
hedges
---
Credit exposure
---
Interest rate contracts
13,215 17,070 19,587
Foreign exchange contracts
13,782 20,403 18,251
Equity contracts
5 5 6
Credit derivatives
8 141 155
Commodity contracts
664 1,201 1,186
Other
24,049 8,737 5,987
Total
51,724 47,557 45,172
Credit derivative transactions that create exposures to counterparty credit risk
30 September 2020
Intermediation activities
Credit derivatives products used ($m)
BoughtSoldBoughtSold
Credit Default Swaps-8 --
Total Return Swaps----
Credit options----
Credit linked notes----
Collateralised Loan Obligations----
Other----
Total
-8 --
31 March 2020
Intermediation activities
Credit derivatives products used ($m)
BoughtSoldBoughtSold
Credit Default Swaps69 72 --
Total Return Swaps----
Credit options----
Credit linked notes----
Collateralised Loan Obligations----
Other----
Total
69 72 --
Westpac Portfolio
Westpac Portfolio
1
Credit rating downgrade postings are cumulative.
Pillar 3 report
Counterparty credit risk
60 | Westpac Group September 2020 Pillar 3 report
30 September 2019
Westpac Portfolio Intermediation activities
Credit derivatives products used ($m)
BoughtSoldBoughtSold
Credit Default Swaps29 126 1 5
Total Return Swaps----
Credit options----
Credit linked notes----
Collateralised Loan Obligations----
Other----
Total
29 126 1 5
Pillar 3 report
Securitisation
Westpac Group September 2020 Pillar 3 report | 61
A securitisation is a financial structure where the cash flow from a pool of assets is used to service obligations to at
least two different tranches or classes of creditors (typically holders of debt securities), with each class or tranche
reflecting a different degree of credit risk (i.e. one class of creditors is entitled to receive payments from the pool
before another class of creditors).
Securitisation transactions are generally grouped into two broad categories:
⚫ traditional or true sale securitisations, which involve the transfer of ownership of the underlying asset pool to a
third party; and
⚫ synthetic transactions, where the ownership of the pool remains with the originator and only the credit risk of
the pool is transferred to a third party, using credit derivatives or guarantees.
Covered bond transactions, in which bonds issued by Westpac are guaranteed by assets held in a special
purpose vehicle, are not considered to be securitisation transactions.
Approach
Westpac’s involvement in securitisation activities ranges from a seller of its own assets to an investor in third-party
transactions and includes the arranging of transactions, the provision of securitisation services and the provision of
funding for clients, including clients requiring access to capital markets.
Securitisation of Westpac originated assets - Securitisation is a funding, liquidity and capital management tool.
It allows Westpac the ability to liquefy a pool of assets and increase Westpac’s wholesale funding capacity.
Westpac may provide arm’s length facilities to the securitisation vehicles. The facilities entered into typically
include the provision of liquidity, funding, underwriting and derivative contracts.
Westpac has entered into on balance sheet securitisation transactions whereby loans originated by Westpac are
transformed into stocks of saleable mortgage backed securities and held in the originating bank’s liquid asset
portfolio. These ‘self securitisations’ do not change risk weighted assets
1
. No securitisation transactions for
Westpac originated assets are classified as a resecuritisation.
Securitisation in the management of Westpac’s credit portfolio - Westpac uses securitisation, including
portfolio credit default swaps, to manage its corporate and institutional loan and counterparty credit risk portfolios.
Single name credit default swaps are not treated as securitisations but as credit risk mitigation facilities.
Transactions are entered into to manage counterparty credit risk or concentration risks.
Provision of securitisation services, including funding and management of conduit vehicles - Westpac
provides services to clients wishing to access asset-backed financing through securitisation. Those services
include access to the Asset Backed Commercial Paper market through the Waratah conduit, which is the
Westpac-sponsored securitisation conduit; the provision of warehouse and term funding of securitised assets on
Westpac’s balance sheet; and arranging asset backed bond issues. Westpac provides facilities to the Waratah
securitisation conduit including liquidity, funding, underwriting, credit enhancement and derivative contracts.
Securitisation facilities provided by Westpac include resecuritisation exposures which are securitisation exposures
in which the risk associated with an underlying pool of exposures is tranched and at least one of the underlying
exposures is itself a securitisation exposure. Westpac also buys and sells securitisation exposures in the
secondary market to facilitate portfolio management activity by its institutional customers who hold asset backed
bonds.
Westpac’s role in the securitisation process
Securitisation activity Role played by Westpac
Securitisation of Westpac originated assets
⚫ Arranger
⚫ Asset originator
⚫ Bond distributor
⚫ Facility provider
⚫ Note holder
⚫ Trust manager
⚫ Swap provider
⚫ Servicer
Securitisation in the management of Westpac’s credit
portfolio
⚫ Hedger - protection purchaser
⚫ Investor - protection seller
⚫ Investor - purchaser of securitisation exposures
1
The credit exposures of the underlying loans are measured in accordance with APS113.
Pillar 3 report
Securitisation
62 | Westpac Group September 2020 Pillar 3 report
Provision of securitisation services including funding
and management of conduit vehicle
⚫ Arranger
⚫ Bond distributor
⚫ Credit enhancement
provider
⚫ Funder
⚫ Liquidity facility
provider
⚫ Swap counterparty
servicer
⚫ Market maker and
broker for distributed
bonds
Key Objectives
Securitisation of Westpac originated assets - The securitisation of Westpac's own assets provides funding
diversity, and is a core tool of liquidity management.
Securitisation in the management of Westpac’s credit portfolio - Westpac acts as principal in transactions and
will buy and sell protection in order to meet its portfolio management objectives. Westpac also purchases
securitisation exposures in order to earn income. All securitisation activity must follow Westpac’s credit policies
and approval processes.
Provision of securitisation services including funding and management of conduit vehicles - Westpac
receives market-based fees in return for its services as servicer, swap counterparty, arranger and facility provider
and program fees, interest margins and bond distribution fees on warehouse and term funding facilities. Westpac
facilitates portfolio management activity by its institutional customers by buying and selling securitisation
exposures in the secondary market and is compensated through an interest margin and bid-offer spread on the
transactions.
Structure and organisation
Securitisation of Westpac originated assets - Westpac’s Treasury operations are responsible for all Westpac
originated securitisation activity including funding, liquidity and capital management.
Securitisation in the management of Westpac’s credit portfolio - Westpac’s exposure arising from
securitisation, including portfolio hedging, is managed by Westpac Institutional Bank (WIB) and integrated within
Westpac’s standard risk reporting and management systems.
Provision of securitisation services including funding and management of conduit vehicles - These
services are provided by WIB and include the provision of liquidity, credit enhancement, funding and derivative
facilities, servicer and arranger services, and market-making and broking of asset-backed bonds.
Risk reporting
Credit exposure - Funding, liquidity, credit enhancement and redraw facilities, swap arrangements and
counterparty exposures are captured and monitored in key source systems along with other facilities/derivatives
entered into by Westpac.
Operational risk exposure - The operational risk review process for Westpac includes the identification of risks,
controls and key performance indicators in relation to all securitisation activity and services provided by Westpac
or any of its subsidiaries.
Market risk exposure - Exposures arising from transactions with the securitisation conduit and other
counterparties are captured as part of Westpac’s traded and non-traded market risk reporting and limit
management framework.
Liquidity risk exposure - Exposure to, and the impact of, securitisation transactions are managed under the
Liquidity Risk Management Framework and are integrated into routine reporting for capital and liquidity positions,
net interest margin analysis, balance sheet forecasting and funding scenario testing. The annual funding plan
incorporates consideration of overall liquidity risk limits and the securitisation of Westpac originated assets.
Risk mitigation
Securitisation of Westpac originated assets - The interest rate and basis risks generated by Westpac’s hedging
arrangements to each securitisation trust are captured and managed within Westpac’s asset and liability
management framework. The liquidity risk generated by Westpac’s liquidity and redraw facilities to each
securitisation trust is captured and managed in accordance with Westpac’s liquidity management policies along
with all other contingent liquidity facilities.
Securitisation in the management of Westpac’s credit portfolio - Transactions are approved in accordance
with Westpac’s credit risk mitigation approach (see pages 56 and 57).
Provision of securitisation services including funding and management of conduit vehicles - All
securitisation transactions are approved within the context of a securitisation credit policy that sets detailed
Pillar 3 report
Securitisation
Westpac Group September 2020 Pillar 3 report | 63
transaction-specific guidelines that regulate servicer counterparty risk appetite, transaction tenor, asset class, third
party credit support and portfolio quality. This policy is applied in conjunction with other credit and market risk
policies that governs the provision of derivative and other services that support securitisation transactions. In
particular, credit hedging transactions are subject to Westpac’s credit risk mitigation approach (see pages 56 and
57). Any interest rate or currency hedging is subject to counterparty credit risk management (see pages 58 and
59) and market risk management (see pages 71 and 72) policies and processes.
Regulatory capital approaches
The regulatory capital treatment of all securitisation exposures is measured in accordance with APS120. APS120
specifies that securitisation exposures held in the trading book are subject to the requirements of Prudential
Standard APS 116 Capital Adequacy: Market Risk.
Under APS120 the approaches employed include the External Rating Based Approach (ERBA) and the
Supervisory Formula Approach (SFA). Under the ERBA, APRA provides risk-weights that are matched to external
credit ratings and takes into account tranche maturity and tranche thickness. The SFA applicable to unrated
exposures dynamically looks at the type and performance of underlying asset pools funded by the securitisation
exposure as well as the structural features of the transaction to determine capital requirements. The Internal
Assessment Approach (IAA) is not permitted under APS120.
Securitisation of Westpac originated assets - The assets sold by Westpac to a securitisation trust are excluded
from Westpac’s calculation of credit risk weighted assets if capital relief is sought and the requirements of APS120
are satisfied
1
. Westpac cannot rely on external rating when risk weighting its exposure to these trusts and must
use the SFA instead.
In instances where insufficient risk transfer is achieved by the transaction for regulatory purposes, the capital
calculation is performed on the underlying asset pool while the facilities provided to such securitisation vehicles do
not attract regulatory capital charges.
Securitisation in the management of Westpac’s credit portfolio - Securitisation exposures are assessed using
either the ERBA or SFA approaches.
Provision of securitisation services including funding - Westpac uses the ERBA and the SFA methodology
when determining regulatory capital requirements for warehouse and term funding facilities related to securitised
assets on Westpac’s balance sheet.
The External Credit Assessment Institutions that can be used by Westpac for securitisations are Standard &
Poor’s, Moody’s and Fitch.
Westpac’s accounting policies for securitisation activities
Securitisation of Westpac originated assets - The assets sold by Westpac to a securitisation trust remain on
Westpac’s balance sheet for accounting purposes.
Securitisation in the management of Westpac’s credit portfolio - For risk mitigation using synthetic
securitisation, the underlying assets remain on Westpac's balance sheet for accounting purposes. The accounting
treatment of the assets will depend on their nature. They could include loans and receivables, available for sale
securities or derivatives. The most common form of synthetic securitisation is via a credit default swap, which is
treated as a derivative and recognised in the profit and loss statement at fair value.
For investment in securitisation exposures, if the instrument has been designated on initial recognition at fair value
(including instruments containing a credit default swap), the exposure will be measured at fair value through the
Income Statement. All other investments in securitisation exposures will be classified as available-for-sale (AFS)
and measured at fair value through Other Comprehensive Income (within the AFS securities reserve).
Provision of securitisation services including funding and management of conduit vehicles - Fee income
from these services is recognised on an accrual basis. Liquidity and funding facilities are treated as commitments
to provide finance, with fee and margin income recognised on an accrual basis. Warehouse and term funding
facilities are treated as loans.
1
Including the requirements to achieve capital relief.
Pillar 3 report
Securitisation
64 | Westpac Group September 2020 Pillar 3 report
Banking book summary of assets securitised by Westpac
This table shows outstanding banking book securitisation assets and assets intended to be securitised
1
for
Westpac originated assets by underlying asset type. It includes the amount of impaired and past due assets, along
with any losses recognised by Westpac during the current period.
Securitised assets are held in securitisation trusts. Trusts which meet requirements to achieve capital relief do not
form part of the Level 2 consolidated group. Self securitisation trusts remain consolidated at Level 2 and the
assets transferred to these trusts are risk weighted in accordance with APS113.
Assets
Westpac
30 September 2020
Traditional Syntheticintended to beImpairedPast duerecognised
$m
Securitisation
2
Securitisationsecuritisedloansassetslosses
Residential mortgages145,384 --56 1,407 -
Credit cards------
Auto and equipment finance1,735 --53 --
Business lending------
Investments in ABS------
Other------
Total147,119 --109 1,407 -
Assets
Westpac
31 March 2020
Traditional Syntheticintended to beImpairedPast duerecognised
$m
Securitisation
2
Securitisationsecuritisedloansassetslosses
Residential mortgages106,523 --68 838 -
Credit cards------
Auto and equipment finance2,306 --38 --
Business lending------
Investments in ABS------
Other------
Total108,829 --106 838 -
Assets
Westpac
30 September 2019
Traditional Syntheticintended to beImpairedPast duerecognised
$m
Securitisation
2
Securitisationsecuritisedloansassetslosses
Residential mortgages96,725 --70 781 -
Credit cards------
Auto and equipment finance2,710 --36 --
Business lending------
Investments in ABS------
Other------
Total99,435 --106 781 -
Total outstanding securitised by ADI
Total outstanding securitised by ADI
Total outstanding securitised by ADI
Banking book summary of total Westpac sponsored third party assets securitised
This table represents banking book third party assets where Westpac acts as a sponsor.
$m
30 September
2020
31 March
2020
30 September
2019
Residential mortgages113 122 310
Credit cards---
Auto and equipment finance---
Business lending---
Investments in ABS---
Other---
Total113 122 310
1
Represents securitisation activity from the end of the reporting period to the disclosure date of this report.
2
Includes self-securitisation assets of $138,333 million as at 30 September 2020 ($98,212 million as at 31 March 2020 and $90,184
million as at 30 September 2019).
Pillar 3 report
Securitisation
Westpac Group September 2020 Pillar 3 report | 65
Banking book summary of securitisation activity by asset type
This table shows assets transferred into securitisation schemes by underlying asset type (ADI originated) for the
relevant period.
For the 12 months ended
30 September 2020AmountRecognised gain or
$m
securitisedloss on sale
Residential mortgages76,353 -
Credit cards--
Auto and equipment finance506 -
Business lending--
Investments in ABS--
Other--
Total76,859 -
For the 6 months ended
31 March 2020
AmountRecognised gain or
$m
securitisedloss on sale
Residential mortgages19,547 -
Credit cards--
Auto and equipment finance318 -
Business lending--
Investments in ABS--
Other--
Total19,865 -
For the 12 months ended
30 September 2019AmountRecognised gain or
$m
securitisedloss on sale
Residential mortgages30,899 -
Credit cards--
Auto and equipment finance600 -
Business lending--
Investments in ABS--
Other--
Total31,499 -
Pillar 3 report
Securitisation
66 | Westpac Group September 2020 Pillar 3 report
Banking book summary of on and off-balance sheet securitisation by exposure type
30 September 2020
Off-balanceTotal Exposure
$m
Securitisation retainedSecuritisation purchasedsheetat Default
Securities-7,650 19 7,669
Liquidity facilities--308 308
Funding facilities2,167 -1,589 3,756
Underwriting facilities----
Lending facilities551 -
404
956
Warehouse facilities10,173 -3,955 14,128
Total12,892 7,650 6,275 26,817
31 March 2020Off-balanceTotal Exposure
$m
Securitisation retainedSecuritisation purchasedsheetat Default
Securities-8,583 39 8,622
Liquidity facilities--306 306
Funding facilities3,163 -783 3,946
Underwriting facilities----
Lending facilities536 -
299
835
Warehouse facilities10,408 -3,980 14,388
Total14,107 8,583 5,407 28,097
30 September 2019
Off-balanceTotal Exposure
$m
Securitisation retainedSecuritisation purchasedsheetat Default
Securities-8,685 37 8,722
Liquidity facilities147 -384 531
Funding facilities2,989 -1,054 4,043
Underwriting facilities----
Lending facilities428 -
169
597
Warehouse facilities10,310 -2,571 12,881
Total13,874 8,685 4,215 26,774
On balance sheet
On balance sheet
On balance sheet
Pillar 3 report
Securitisation
Westpac Group September 2020 Pillar 3 report | 67
Banking book securitisation exposure at default by risk weight band
30 September 2020Total ExposureTotal Risk
$m
SecuritisationResecuritisation
at Default
SecuritisationResecuritisation
Weighted Assets
Less than or equal to 10%7 -7 ---
Greater than 10 - 20%22,686 -22,686 3,892 -3,892
Greater than 20 - 30%1,804 -1,804 451 -451
Greater than 30 - 50%1,639 -1,639 659 -659
Greater than 50 - 75%599 -599 329 -329
Greater than 75 - 100%54 -54 54 -54
Greater than 100 - 250%26 -26 29 -29
Greater than 250 - 425%------
Greater than 425 - 650%------
Other------
Deductions------
Total26,817 -26,817 5,413 -5,413
31 March 2020Total ExposureTotal Risk
$m
SecuritisationResecuritisation
at Default
SecuritisationResecuritisation
Weighted Assets
Less than or equal to 10%5 -5 ---
Greater than 10 - 20%22,579 -22,579 3,887 -3,887
Greater than 20 - 30%2,787 -2,787 680 -680
Greater than 30 - 50%2,109 -2,109 814 -814
Greater than 50 - 75%554 -554 306 -306
Greater than 75 - 100%2 -2 2 -2
Greater than 100 - 250%48 -48 57 -57
Greater than 250 - 425%------
Greater than 425 - 650%------
Other------
Deductions14 -14 ---
Total28,097 -28,097 5,747 -5,747
30 September 2019Total ExposureTotal Risk
$m
SecuritisationResecuritisation
at Default
SecuritisationResecuritisation
Weighted Assets
Less than or equal to 10%------
Greater than 10 - 20%21,676 -21,676 3,743 -3,743
Greater than 20 - 30%2,007 -2,007 498 -498
Greater than 30 - 50%2,225 -2,225 859 -859
Greater than 50 - 75%464 -464 266 -266
Greater than 75 - 100%373 -373 350 -350
Greater than 100 - 250%30 -30 33 -33
Greater than 250 - 425%------
Greater than 425 - 650%------
Other------
Deductions------
Total26,774 -26,774 5,749 -5,749
Risk Weighted AssetsExposure
Risk Weighted AssetsExposure
ExposureRisk Weighted Assets
Banking book securitisation exposure deducted from capital
$m
30 September 202031 March 202030 September 2019
Securities---
Liquidity facilities---
Funding facilities-14 -
Underwriting facilities---
Credit enhancements---
Derivative transactions---
Total-14 -
Pillar 3 report
Securitisation
68 | Westpac Group September 2020 Pillar 3 report
Banking book securitisation subject to early amortisation treatment
There is no securitisation exposure in the banking book that is subject to early amortisation treatment as at 30
September 2020 (nil as at 31 March 2020).
Banking book resecuritisation exposure subject to credit risk mitigation (CRM)
As at 30 September 2020 resecuritisation exposures subject to CRM was nil (nil at 31 March 2020).
Banking book resecuritisation exposure to guarantors
Westpac has no third party guarantors providing guarantees for securitised assets, principal or interest
repayments as at 30 September 2020 (nil as at 31 March 2020).
Trading book summary of assets securitised by Westpac
As at 30 September 2020 there was nil in outstanding securitisation exposures for Westpac originated assets held
in the trading book (nil as at 31 March 2020).
Trading book summary of total Westpac sponsored third party assets securitised
There are no third party assets held in the trading book where Westpac is responsible for the establishment of the
securitisation program and subsequent management as at 30 September 2020 (nil as at 31 March 2020).
Trading book summary of securitisation activity by asset type
There is no originated securitisation activity in the trading book for the 12 months to 30 September 2020 (nil for the
6 months to 31 March 2020).
Trading book aggregated amount of exposure securitised by Westpac and subject to APS116 Capital
Adequacy: Market Risk
As at 30 September 2020 there is no Westpac originated outstanding securitisation exposure held in the trading
book subject to APS116 Capital Adequacy: Market Risk (nil as at 31 March 2020).
Pillar 3 report
Securitisation
Westpac Group September 2020 Pillar 3 report | 69
Trading book summary of on and off-balance sheet securitisation by exposure type
1
30 September 2020Off-balanceTotal Exposure
$m
Securitisation retainedSecuritisation purchasedsheetat Default
Securities-30 -30
Liquidity facilities----
Funding facilities----
Underwriting facilities----
Lending facilities----
Warehouse facilities----
Credit enhancements----
Basis swaps--103 103
Other derivatives--17 17
Total-30 120 150
31 March 2020Off-balanceTotal Exposure
$m
Securitisation retainedSecuritisation purchasedsheetat Default
Securities-92 -92
Liquidity facilities----
Funding facilities----
Underwriting facilities----
Lending facilities----
Warehouse facilities----
Credit enhancements----
Basis swaps--116 116
Other derivatives--16 16
Total-92 132 224
30 September 2019Off-balanceTotal Exposure
$m
Securitisation retainedSecuritisation purchasedsheetat Default
Securities-44 -44
Liquidity facilities----
Funding facilities----
Underwriting facilities----
Lending facilities----
Warehouse facilities----
Credit enhancements----
Basis swaps--59 59
Other derivatives--13 13
Total-44 72 116
On balance sheet
On balance sheet
On balance sheet
Trading book securitisation exposure subject to specific risk
There is no trading book securitisation exposure subject to specific risk for 30 September 2020 (nil for 31 March
2020).
Trading book securitisation exposure subject to APS120 Securitisation specific risk by risk weight band
There is no trading book securitisation exposure subject to APS120 specific risk for 30 September 2020 (nil for 31
March 2020).
Trading book capital requirements for securitisation exposures subject to internal models approach (IMA)
by risk classification
There is no trading book capital requirement for securitisation subject to IMA for 30 September 2020 (nil for 31 March
2020).
Trading book capital requirements for securitisation regulatory capital approaches by risk weight band
There is no trading book capital requirement for securitisation subject to regulatory capital approaches for 30
September 2020 (nil for 31 March 2020).
1
EAD associated with trading book securitisation is not included in the EAD by Major Type on page 32. Trading book securitisation
exposure is captured and risk weighted under APS116.
Pillar 3 report
Securitisation
70 | Westpac Group September 2020 Pillar 3 report
Trading book securitisation exposure deducted from capital
There is no trading book capital deduction for 30 September 2020 (nil for 31 March 2020).
Trading book securitisation subject to early amortisation treatment
There is no securitisation exposure in the trading book that is subject to early amortisation treatment for 30
September 2020 (nil for 31 March 2020).
Trading book resecuritisation exposure subject to CRM
Westpac has no resecuritisation exposure subject to CRM at 30 September 2020 (nil for 31 March 2020).
Trading book resecuritisation by guarantor creditworthiness
Westpac has no third party guarantors providing guarantees for securitised assets, principal or interest repayments
for 30 September 2020 (nil for 31 March 2020).
Pillar 3 report
Market risk
Westpac Group September 2020 Pillar 3 report | 71
Westpac’s exposure to market risk arises out of its Financial Markets and Treasury trading activities. This is
quantified for regulatory capital purposes using both the standard method and the internal model approach, details
of which are provided below.
Approach
Financial Markets’ trading activity includes dealings that encompass book running and distribution activity. The
types of market risk arising from these activities include interest rate, foreign exchange, commodity, equity price,
credit spread and volatility risk.
Treasury’s trading activity includes the management of interest rate, foreign exchange and credit spread risks
associated with the wholesale funding book, liquid asset portfolios and foreign exchange repatriations. Treasury
also manages banking book risk which is discussed in the Interest Rate Risk in the Banking Book section.
Trading activities are managed within a BRiskC approved market risk framework that incorporates BRiskC
approved value at risk (VaR) and stressed value at risk (SVaR) limits. VaR and SVaR are the primary mechanisms
for measuring and managing market risk. Market risk is managed using VaR, SVaR and structural risk limits
(including volume limits and basis point value limits) in conjunction with scenario analysis and stress testing.
Market risk limits are allocated to business management based upon Westpac’s risk appetite and business
strategies, in addition to the consideration of market liquidity and concentration risk.
Trades are fair valued daily using rates that have been captured from an independent market data source that has
been approved by the Revaluation Committee (RC). Where there is no source of independent rates, data will
either be derived using a methodology approved by the RC or sourced from dealer contributions. Rates that are
dealer-sourced or have limited independent sources are reviewed at least on a monthly basis. The RC will meet
monthly to review the results of independent price verification performed by the Finance valuation function. In
addition, valuation adjustments may be made as deductions from Common Equity Tier 1 Capital for exposures
which are not be captured through the fair valuation framework.
VaR and SVaR limits
Market risk arising from trading book activities is primarily measured using VaR based on an historical simulation
methodology. Westpac estimates VaR as the potential loss in earnings from adverse market movements and is
calculated to a 99% confidence level using the most recent 12 months of historical market data. SVaR is an
additional VaR measure which uses 12 months of historical market data that includes a period of significant
financial stress. VaR and SVaR take account of all material market variables that may cause a change in the value
of the trading portfolio, including interest rates, foreign exchange rates, price changes, volatility, and the
correlation between these variables.
The BRiskC approved market risk VaR and SVaR limits for trading activities include separate VaR and SVaR sub-
limits for the trading activities of Financial Markets and Treasury.
Backtesting
Daily backtesting of VaR results is performed to ensure that model integrity is maintained. A review of both the
actual and potential profit and loss outcomes is also undertaken to monitor any skew created by the historical
data.
Stress testing
Daily stress testing against pre-determined scenarios is carried out to analyse potential losses beyond the 99%
confidence level. An escalation framework around selective stress tests is approved by the Head of Market Risk.
Profit and loss notification framework
The BRiskC has approved a profit and loss notification framework. Included in this framework are levels of
escalation in accordance with the size of the profit or loss. Triggers are applied to both a 1-day and a rolling 20-
day cumulative total.
Pillar 3 report
Market risk
72 | Westpac Group September 2020 Pillar 3 report
Risk reporting
Daily monitoring of current exposure and limit utilisation is conducted independently by risk managers in the
Market Risk and Treasury Risk teams, who monitor market risk exposures against VaR, SVaR and structural
limits. Daily VaR and SVaR position reports are produced by risk type, by product lines and by geographic region.
These are supplemented by structural risk reporting, advice of profit and loss trigger levels and stress test
escalation trigger points. Model accreditation has been granted by APRA for the use of an internal model for the
determination of regulatory capital for the key classes of interest rate (general market), foreign exchange,
commodity and equity risks (including equity specific risk). Under the model, regulatory capital is derived from both
the current VaR window (based upon the most recent 12 months of historical market data) and a SVaR window
(12 months of market data that includes a period of significant financial stress), where these VaR measures are
calculated over a 10-day time horizon to a 99th percentile, one-tailed confidence interval. Specific risk refers to the
variations in individual security prices that cannot be explained by general market movements, and event and
default risk. Interest rate specific risk capital (specific issuer risk) is calculated using the Standard method and is
added to the VaR regulatory capital measure.
Risk mitigation
Market risk positions are managed by the trading desks consistent with delegated trading and product authorities.
Risks are consolidated into portfolios based on product and risk type. Risk management is carried out by qualified
personnel with varying levels of seniority commensurate with the nature and scale of market risks under
management.
The following controls allow monitoring by management:
⚫ trading authorities and responsibilities are clearly delineated at all levels;
⚫ a structured system of limits and reporting of risk exposures, including stress testing;
⚫ surveillance of dealing room conduct;
⚫ all new products and significant product variations undergo a rigorous approval process to identify business
risks prior to launch;
⚫ models that are used to determine risk or profit and loss for Westpac’s accounts are independently reviewed;
⚫ duties are segregated so that employees involved in the origination, processing and valuation of transactions
operate under separate reporting lines, minimising the opportunity for collusion; and
⚫ legal personnel review documentation for compliance with relevant laws and regulations.
In addition, Group Audit independently reviews compliance with policies, procedures and limits.
Market risk regulatory capital and risk weighted assets
The Internal model approach uses VaR and Stressed VaR, while the Standard approach is used for interest rate
specific risk.
$m30 September 2020
31 March 2020
30 September 2019
Internal model approach630571652
Standard approach7110196
Total capital required701672748
Risk weighted assets8,7618,3969,350
Pillar 3 report
Market risk
Westpac Group September 2020 Pillar 3 report | 73
VaR by risk type
30 September 2020
$m
High Low Average Period end
Interest rate risk25.5 14.2 19.2 16.6
Foreign exchange risk11.7 0.8 4.0 2.4
Equity risk0.7 0.1 0.3 0.3
Commodity risk3.4 0.6 1.6 0.9
Other market risks28.2 14.7 22.7 20.0
Diversification benefitNA NA (18.5) (14.9)
Net market risk
1
42.0 20.5 29.3 25.2
31 March 2020
$m
High Low Average Period end
Interest rate risk21.7 7.0 9.9 15.4
Foreign exchange risk11.2 0.5 3.9 1.5
Equity risk0.4 0.0 0.1 0.4
Commodity risk3.4 1.2 2.2 2.7
Other market risks32.9 2.4 6.5 28.1
Diversification benefitNA NA (10.9) (25.1)
Net market risk
1
31.8 7.1 11.6 23.0
30 September 2019
$m
High Low Average Period end
Interest rate risk14.3 6.6 10.1 8.2
Foreign exchange risk7.0 0.8 3.6 3.0
Equity risk0.2 0.0 0.1 0.0
Commodity risk42.0 1.7 8.2 2.6
Other market risks4.6 2.8 3.7 4.0
Diversification benefitNA NA (11.5) (8.8)
Net market risk
1
45.3 7.9 14.1 9.2
For the 6 months ended
For the 6 months ended
For the 6 months ended
Stressed VaR by risk type
30 September 2020
$m
High Low Average Period end
Interest rate risk76.0 41.0 58.7 42.5
Foreign exchange risk17.4 1.5 6.3 2.5
Equity risk0.9 0.1 0.2 0.2
Commodity risk5.1 0.8 2.4 1.1
Other market risks19.2 12.2 14.9 12.9
Diversification benefit
NA NA
(72.5) (10.3)
Net market risk
1
94.0 40.9 68.6 49.0
31 March 2020
$m
High Low Average Period end
Interest rate risk85.7 39.5 58.0 55.5
Foreign exchange risk34.3 0.9 10.8 2.4
Equity risk0.3 0.0 0.1 0.2
Commodity risk13.1 2.2 5.0 5.9
Other market risks23.3 16.2 18.8 19.0
Diversification benefitNA NA (66.6) (22.5)
Net market risk
1
89.4 34.0 56.0 60.6
For the 6 months ended
For the 6 months ended
1
VaR and SVaR measures shown here use a 1 day time horizon. The net market risk measure reflects the aggregate diversified risk
position for the period. Therefore, individual risk factors will not sum to this total.
Pillar 3 report
Market risk
74 | Westpac Group September 2020 Pillar 3 report
30 September 2019
$m
High Low Average Period end
Interest rate risk93.6 38.4 57.9 48.0
Foreign exchange risk26.2 1.4 11.4 9.3
Equity risk0.3 0.0 0.1 0.1
Commodity risk105.4 4.0 14.1 5.6
Other market risks19.6 12.4 16.7 19.0
Diversification benefitNA NA (89.5) (28.0)
Net market risk
1
106.2 37.9 56.4 54.0
For the 6 months ended
Back-testing results
The following graph gives a comparison of actual profit and loss to VaR over the 6 months ended 30 September
2020.
(50)
(40)
(30)
(20)
(10)
-
10
20
30
40
50
- 5 10 15 20 25 30 35 40 45 50
Actual Profit
and Loss ($m)
Daily Value at Risk ($m)
Traded Risk: Actual Profit and Loss vs. Var
01-Apr-2020 to 30-September-2020
Each point on the graph represents 1 day’s trading profit or loss. This result is placed on the graph relative to the
associated VaR utilisation. The downward sloping line represents the point where a loss is equal to VaR utilisation.
1
The net market risk measure reflects the aggregate diversified risk position for the period. Therefore, individual risk factors will not
sum to this total.
Pillar 3 report
Interest Rate Risk in the Banking Book (IRRBB)
Westpac Group March 2020 Pillar 3 report | 75
Interest Rate Risk in the Banking Book (IRRBB) is the risk to interest income arising from a mismatch between the
duration of assets and liabilities that arises in the normal course of banking activities.
Approach
The banking book activities that give rise to market risk include lending activities, balance sheet funding and
capital management. Interest rate risk, basis risk, currency risk and funding and liquidity risk are inherent in these
activities. Treasury’s Asset & Liability Management (ALM) unit is responsible for managing market risk arising from
Westpac’s banking book activity.
All material regions, business lines and legal entities are included in Westpac’s IRRBB framework.
Model accreditation has been granted by APRA for the use of an internal model for the determination of IRRBB
regulatory capital. Under the model, regulatory capital is primarily derived from a VaR measure using 6 years of
historical data with a scaled 1 year, 99th percentile, one-tailed confidence interval. A standardised calculation of
credit spread risk is added to the VaR regulatory capital measure.
Asset and liability management
The ALM unit manages the structural interest rate mismatch associated with the transfer priced balance sheet,
including the investment of Westpac’s capital to its agreed benchmark duration. A key risk management objective
is to achieve reasonable stability of Net Interest Income (NII) over time. These activities are performed under the
oversight of ALCO and the Treasury Risk team.
Net Interest Income sensitivity
NII sensitivity is managed in terms of the net interest income-at-risk (NaR) modelled over a set time horizon using
defined scenarios for movements in wholesale market interest rates. The NII measurement framework combines
the underlying statement of financial position data with assumptions about runoff and new business, expected
repricing behaviour and changes in wholesale market interest rates. The interest rate scenarios modelled include
those projected using 100 and 200 basis point shifts up and down from current market yield curves.
A comparison between the NII outcomes from these modelled scenarios indicates the sensitivity to interest rate
changes. On and off-balance sheet instruments are then used to manage this interest rate risk.
NaR limit
The BRiskC has approved a NaR limit. This limit is managed by the Group Treasurer and is expressed as a
defined basis point shock over a one year risk horizon. This limit is monitored by the Treasury Risk team.
VaR limit
The BRiskC has also approved an interest rate VaR limit for ALM activities. This limit is managed by the Group
Treasurer and monitored by the Treasury Risk team. Additionally, the BRiskC and the Treasury Risk team set
structural risk limits to prevent undue concentration of risk
Structural foreign exchange rate risk
Structural foreign exchange rate risk results from the generation of foreign currency denominated earnings and
from Westpac's capital deployed in offshore branches and subsidiaries, where it is denominated in currencies
other than Australian dollars. The Australian dollar equivalent of offshore earnings and capital is subject to change
as exchange rates fluctuate, which could introduce significant variability to Westpac's reported financial results.
ALCO provides oversight of the appropriateness of foreign exchange hedges on earnings and capital.
Risk reporting
Interest rate risk in the banking book risk measurement systems include front office product systems, which
capture all treasury funding and derivative transactions; the transfer pricing system, which captures all retail and
other business transactions; and non-traded Interest Rate Risk systems, which calculate amongst other things,
ALM VaR and NaR.
Daily monitoring of market risk exposure against VaR and structural risk limits is conducted independently by the
Treasury Risk team, with NaR monitored on a monthly basis. Management reports detailing structural positions
and VaR are produced and distributed daily for use by dealers and management across all stakeholder groups.
Quarterly reports are produced for the senior management market risk forums of RISKCO and BRiskC to provide
transparency of material market risks and issues.
Pillar 3 report
Interest Rate Risk in the Banking Book (IRRBB)
76 | Westpac Group September 2020 Pillar 3 report
Risk mitigation
Market risk arising in the banking book stems from the ordinary course of banking activities, including structural
interest rate risk (the mismatch between the duration of assets and liabilities) and capital management. Hedging
Westpac’s exposure to interest rate risk is undertaken using derivatives. The hedge accounting strategy adopted
utilises a combination of the cash flow, fair value and net investment hedge approaches. Some derivatives held for
economic hedging purposes do not meet the criteria for hedge accounting as defined under AASB 139 Financial
Instruments: Recognition and Measurement and therefore are accounted for in the same way as derivatives held
for trading.
The same controls used to monitor traded market risk allow for continuous monitoring by management.
Change in economic value of a sudden upward and downward movement in interest rates
30 September 2020200bp parallel200bp parallel
$m
increasedecrease
AUD(290.1) 237.4
NZD(10.0) 12.3
USD45.8 (54.9)
Total(254.3) 194.8
31 March 2020200bp parallel200bp parallel
$m
increasedecrease
AUD7.7 5.6
NZD10.2 10.6
USD71.1 (38.9)
Total89.0 (22.7)
30 September 2019200bp parallel200bp parallel
$m
increasedecrease
AUD67.9 (24.0)
NZD2.2 14.6
USD70.7 (73.0)
Total140.8 (82.4)
VaR results for non-traded interest rate risk
1
For theFor theFor the
6 months ended6 months ended6 months ended
30 September31 March30 September
$m202020202019
High219.7169.237.3
Low166.931.025.2
Average207.045.732.4
Period end202.4169.234.1
Interest rate risk in the banking book regulatory capital and risk weighted assets
30 September31 March30 September
$m202020202019
Total capital required73042442
Risk weighted assets9,1245,305530
1
IRRBB VaR includes interest rate risk, credit spread risk in liquid assets and other basis risks as used for internal management
reporting purposes.
Pillar 3 report
Operational risk
Westpac Group March 2020 Pillar 3 report | 77
Operational risk is defined as 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.
Westpac’s operational risk definition is aligned to APS115 Capital Adequacy: Advanced Measurement Approaches
to Operational Risk (AMA).
Approach
Westpac has been accredited to use the AMA in accordance with APS115. Westpac’s operational risk is
measured and managed in accordance with the policies and processes defined in its Operational Risk
Management Framework.
Westpac’s Operational Risk Management Framework
The Operational Risk Management Framework outlines our approach to the:
⚫ identification, measurement and management of operational risks that may impede Westpac’s ability to
achieve its strategic objectives and vision;
⚫ identification and escalation of operational risk incidents in order to mitigate potential financial loss, regulatory
impacts and reputational damage that may impact shareholders, the community, and employees; and
⚫ calculation of operational risk capital.
The key components of Westpac’s operational risk management framework are listed below:
Governance - The governance structure provides clearly defined roles and responsibilities for overseeing and
reviewing operational risk exposure and its management.
The Board and BRiskC are supported by committees, including RISKCO, that monitor the Group’s operational risk
profile and the effectiveness of operational risk management practices, including operational risk capital.
Risk and Control Management (RCM) - The RCM process provides a structured approach both at a Divisional
and Business Unit level for the identification, assessment and management of operational risks that could prevent
Westpac from meeting its strategic and business objectives.
Issue and Action Management - The Issue and Action Management process encompasses the identification and
management of issues, which relate to control deficiencies or gaps, to ensure that they are effectively addressed
through action plans.
Key Indicators (KIs) - The framework defines requirements and processes for KIs, which are objective measures
used by management to monitor the risk and control environment.
Incident Management - Incident management involves identifying operational risk events, capturing them in the
Group’s operational risk system and escalating them to appropriate levels of management. Early identification
supports the ability to mitigate any immediate impacts, address the primary cause, and devise management
actions to strengthen the control environment.
Data - The framework includes principles and processes to ensure the integrity of operational risk data used to
support management decision-making and calculate and allocate capital. The principles apply to the governance,
input and capture, reconciliation and validation, reporting and storage of operational risk data. Operational risk
data is subject to independent validation on a regular basis.
Scenario Analysis - Scenario analysis is used to assess the impacts of severe but plausible loss events and is an
input to the calculation of operational risk capital.
Reporting - Regular reporting of operational risk information to governance bodies and senior management is
used to support timely and proactive management of operational risk and enable transparent and formal oversight
of the risk and control environment.
Pillar 3 report
Operational risk
78 | Westpac Group September 2020 Pillar 3 report
AMA capital model overview
Operational risk regulatory capital is calculated on a quarterly basis. Westpac’s operational risk capital is based on
three data sources:
⚫ Internal Loss Data – operational risk losses experienced by Westpac;
⚫ External Loss Data – operational risk losses experienced by other financial institutions; and
⚫ Scenario Data – potential losses from severe but plausible events relevant to Westpac.
These data sources together represent the internal and external operational risk profile, across the spectrum of
operational risk losses, from both historical and forward-looking perspectives. The model combines these data
sources to produce a loss distribution.
Expected loss offsets and risk mitigation
No adjustments or deductions are currently made to Westpac’s measurement of operational risk regulatory capital
for the mitigating impacts of insurance or expected operational risk losses.
Operational Risk regulatory capital and risk weighted assets
$m
30 September
2020
31 March
2020
30 September
2019
Advanced measurement approach2,562 2,562 2,549
Standardised approach overlay765 765 765
Culture, Governance & Accountability Review overlay500 500 500
AUSTRAC related overlay500 500 -
Total capital required4,3274,3273,814
Risk weighted assets54,09054,09347,680
Pillar 3 report
Equity risk
Westpac Group March 2020 Pillar 3 report | 79
Equity risk is defined as the potential for financial loss arising from movements in equity values. The disclosures in
this section exclude investments in equities made by Westpac subsidiaries outside the regulatory Level 2 group.
Structure and organisation
Portfolio and transactional limits for Westpac’s direct equity investments are governed by various supporting
policies and delegated approval limits. Where appropriate, the BRiskC (under delegation from the Westpac Board)
will consider and approve risks beyond management’s approval authority.
Approach
Westpac has established a comprehensive set of policies defining the management of equity risk. These policies
are reviewed and approved periodically (in most cases annually).
Risk mitigation
Westpac does not use financial instruments to mitigate its exposure to equities in the banking book.
Banking book positions
Hybrid equity underwriting and equity warehousing risk - As a financial intermediary Westpac underwrites
listed and unlisted hybrid equity securities.
Investment securities - Westpac undertakes, as part of the ordinary course of business, certain investments in
strategic equity holdings and over time the nature of underlying investments will vary.
Measurement of equity securities - Equity securities are generally carried at their fair value. Fair value for
equities that have a quoted market price (in an active market) is determined based upon current bid prices. If a
market for a financial asset is not active, fair value is determined based upon a valuation technique. This includes
the use of recent arms-length transactions, discounted cash flow analysis, option pricing models and other
valuation techniques commonly used by market participants to price similar instruments. In the event that the fair
value of an unlisted security cannot be measured reliably, these investments are measured at cost.
Where the investment is held for long term strategic purposes, these investments are accounted for either at fair
value through other comprehensive income (OCI), fair values through profit and loss, or equity accounted for and
recognised as a share in associates.
Other related matters
⚫ Fair value should not differ to the listed stock price. Should a listed stock price not be available, fair value is
estimated using the valuation techniques referred to above. The book value of certain unlisted investments for
which active markets do not exist are measured at cost because cost is considered to be a reasonable
approximation of fair value.
⚫ The equity method of accounting is used for investments in Associates. Associates are entities in which the
Group has significant influence, but not control, over the operating and financial policies.
Risk reporting
Westpac manages equity risk in two ways, VaR limits and investment limits:
⚫ A VaR limit (in conjunction with structural limits) is used to manage traded equity. This limit is a sub-limit of the
overall VaR limit for Financial Markets trading activities. Equity trading activity is overseen by the independent
Market Risk function applying the same controls used for monitoring other trading book activities in Financial
Markets and Treasury; and
⚫ Investment exposures are reported annually to MARCO.
Pillar 3 report
Equity risk
80 | Westpac Group September 2020 Pillar 3 report
Book value of equity exposures
30 Sep31 March30 September
$m202020202019
Listed equity exposures (publicly traded)365 199 328
Unlisted equity exposures (privately traded)127 128 97
Total book value of equity exposures492 327 425
Gains/losses
30 September31 March30 September
$m202020202019
Cumulative realised gains (losses)47 -(2)
Total unrealised gains (losses) through profit & loss303 (91) (72)
Total unrealised gains (losses) through equity---
Total latent revaluation gains (losses)---
Pillar 3 report
Funding and liquidity risk management
Westpac Group March 2020 Pillar 3 report | 81
Funding and liquidity risk is the risk that Westpac cannot meet its payment obligations or that it does not have the
appropriate amount, tenor and composition of funding and liquidity to support its assets.
Approach
Funding and liquidity risk is measured and managed in accordance with the policies and processes defined in the
Board-approved Liquidity Risk Management Framework which is part of the Westpac Board-approved Risk
Management Strategy.
Responsibility for managing Westpac’s liquidity and funding positions in accordance with the Liquidity Risk
Management Framework is delegated to Treasury, under the oversight of Group ALCO and Treasury Risk.
Liquidity Risk Management Framework
The Liquidity Risk Management Framework sets out Westpac’s funding and liquidity risk appetite, roles and
responsibilities of key people managing funding and liquidity risk within Westpac, risk reporting and control
processes and limits and targets used to manage Westpac’s balance sheet. Key components of Westpac’s
approach to liquidity risk management are listed below.
Funding strategy
Treasury undertakes an annual funding review that outlines Westpac’s balance sheet funding strategy over a three
year period. This review encompasses trends in global markets, peer analysis, wholesale funding capacity,
expected funding requirements and a funding risk analysis. This strategy is continuously reviewed to take account
of changing market conditions, investor sentiment and estimations of asset and liability growth rates.
Westpac monitors the composition and stability of its funding so that it remains within its funding risk appetite. This
includes compliance with both the LCR and Net Stable Funding Ratio (NSFR).
Liquid asset holdings
Westpac holds a portfolio of liquid assets for several purposes, including as a buffer against unforeseen funding
requirements. The level of liquid assets held takes into account the liquidity requirements of Westpac’s balance
sheet under normal and stress conditions.
Liquidity modelling
In managing liquidity for Westpac, Treasury utilises balance sheet forecasts and the maturity profile of Westpac’s
wholesale funding portfolio to project liquidity outcomes. Local liquidity limits are also used by Westpac in
applicable jurisdictions to ensure liquidity is managed efficiently and prudently.
In addition, Westpac conducts regular stress testing to assess its ability to meet cash flow obligations under a
range of market conditions and scenarios. These scenarios inform liquidity limits and strategic planning.
Liquidity transfer pricing
Westpac has a liquidity transfer pricing framework which allocates liquidity costs across Westpac.
Contingency planning
Treasury maintains a contingent funding plan that outlines the steps that should be taken by Westpac in the event
of an emerging ‘funding crisis’. The plan is aligned with Westpac’s broader Liquidity Crisis Management Policy
which is approved annually by the Board.
Liquidity reporting
Daily liquidity risk reports are reviewed by the Group’s Treasury and Treasury Risk teams. Liquidity reports are
presented to ALCO monthly and to the Board quarterly.
Pillar 3 report
Liquidity coverage ratio
Westpac Group March 2020 Pillar 3 report | 82
Liquidity Coverage Ratio
Westpac’s LCR as at 30 September 2020 was 150%
1
(30 June 2020: 140%) and the average LCR for the quarter
was 151%
2
(30 June 2020: 146%).
Liquid assets included in the LCR comprise High Quality Liquid Assets (HQLA), the Committed Liquidity Facility
(CLF) offered by the Reserve Bank of Australia and additional qualifying Reserve Bank of New Zealand securities.
LCR liquid assets also includes Westpac’s Additional Allowance of the Term Funding Facility (TFF).
Westpac’s portfolio of HQLA averaged $116.7 billion over the quarter
2
.
Funding is sourced from retail, small business, corporate and institutional customer deposits and wholesale
funding. Westpac seeks to minimise the outflows associated with this funding by targeting customer deposits with
lower LCR outflow rates and actively manages the maturity profile of its wholesale funding portfolio. Westpac
maintains a buffer over the regulatory minimum of 100%.
Total unweighted
value (average)
2
Total weighted
value (average)
2
Total unweighted
value (average)
2
Total weighted
value (average)
2
Liquid assets, of which:
1High-quality liquid assets (HQLA)116,687 112,215
2Alternative liquid assets (ALA)56,804 64,641
3Reserve Bank of New Zealand (RBNZ) securities8,283 8,524
Cash Outflows
4Retail deposits and deposits from small business
customers, of which:
270,996 23,802 260,515 23,415
5Stable deposits135,453 6,773 127,633 6,382
6Less stable deposits135,543 17,029 132,882 17,033
7Unsecured wholesale funding, of which:158,397 74,305 163,325 78,824
8Operational deposits (all counterparties) and
deposits in networks for cooperative banks
71,549 17,809 65,410 16,277
9Non-operational deposits (all counterparties)76,666 46,314 86,445 51,077
10Unsecured debt10,182 10,182 11,470 11,470
11Secured wholesale funding--
12Additional requirements, of which:196,312 26,567 197,854 30,143
13Outflows related to derivatives exposures and other
collateral requirements
11,275 11,275 15,071 15,071
14Outflows related to loss of funding on debt products516 516 546 546
15Credit and liquidity facilities184,521 14,776 182,237 14,526
16Other contractual funding obligations185 185 324 324
17Other contingent funding obligations39,767 3,379 38,670 3,331
18Total cash outflows128,238 136,037
Cash inflows
19Secured lending (e.g. reverse repos)9,270 -5,906 -
20Inflows from fully performing exposures8,831 5,304 10,458 6,216
21Other cash inflows2,604 2,604 2,791 2,791
22Total cash inflows20,705 7,908 19,155 9,007
23Total liquid assets181,774 185,380
24Total net cash outflows120,330 127,030
25Liquidity Coverage Ratio (%)151%146%
Number of data points used6663
$m
30 June 202030 September 2020
1
Calculated as total liquid assets divided by total net cash outflows.
2
Calculated as a simple average of the daily observations over the quarter.
Pillar 3 report
Net stable funding ratio
Westpac Group March 2020 Pillar 3 report | 83
Net Stable Funding Ratio (NSFR) disclosure
The NSFR is a structural measure which requires that a bank has sufficient Available Stable Funding (ASF) to
cover its Required Stable Funding (RSF) over a one year horizon. Westpac’s NSFR as at 30 September 2020 was
121.7%
1
(30 June 2020 116.1%). Westpac maintains a buffer over the regulatory minimum of 100%.
No maturity< 6 months6 months to
< 1yr
> 1 year
Available Stable Funding (ASF) Item
1Capital66,967 1,324 -19,991 88,282
2Regulatory capital66,967 1,324 -19,991 88,282
3Other capital instruments-----
4Retail deposits and deposits from small business customers 261,705 85,738 331 171 321,178
5Stable deposits 134,311 25,886 9 13 152,209
6Less stable deposits 127,394 59,851 322 158 168,969
7Wholesale funding 129,787 144,610 25,227 123,583 213,714
8Operational deposits 73,063 - - - 36,532
9Other wholesale funding 56,724 144,610 25,227 123,583 177,183
10Liabilities with matching interdependent assets - - - - -
11Other liabilities - 27,825 370 737 922
12NSFR derivative liabilities
13All other liabilities and equity not included in the above categories - 23,296 370 737 922
14Total ASF
624,097
Required Stable Funding (RSF) Item
15a)Total NSFR (High quality liquid assets - HQLA) 4,291
15b)Alternate Liquid Assets (ALA) 7,166
15c)Reserve Bank of New Zealand (RBNZ) securities 193
16Deposits held at other financial institutions for operational purposes - - - - -
17Performing loans and securities 801 63,818 44,174 546,313 451,519
18Performing loans to financial institutions secured by Level 1 HQLA 500 19,902 - - 2,490
19Performing loans to financial institutions secured by non-Level 1 HQLA and
unsecured performing loans to financial institutions
301 3,827 5,528 10,462 14,101
20Performing loans to nonfinancial corporate clients, loans to retail and small
business customers, and loans to sovereigns, central banks and public
sector entities (PSEs), of which:
- 31,673 29,873 125,208 136,981
21With a risk weight of less than or equal to 35% under APS 112 - 38 29 1,095 745
22Performing residential mortgages, of which: - 7,810 8,173 407,247 294,483
23With a risk weight equal to 35% under APS 112 - 7,183 7,514 360,838 253,645
24Securities that are not in default and do not qualify as HQLA, including
exchange-traded equities
- 607 600 3,397 3,464
25Assets with matching interdependent liabilities - - - - -
26Other assets: 11,520 21,306 729 20,400 39,663
27Physical traded commodities, including gold - -
28Assets posted as initial margin for derivative contracts and contributions to
default funds of central counterparties (CCPs)
1,975
29NSFR derivative assets 2,334
30NSFR derivative liabilities before deduction of variation margin posted 1,764
31All other assets not included in the above categories 11,520 3,299 729 20,400 33,590
32Off-balance sheet items 9,824
33Total RSF
512,656
34Net Stable Funding Ratio (%)
121.7%
30 September 2020
$m
Unweighted value by residual maturity
Weighted
value
189,536
4,529
2,323
6,863
8,822
1
Calculated as total available stable funding divided by total required stable funding as at end of the quarter.
Pillar 3 report
Net stable funding ratio
84 | Westpac Group September 2020 Pillar 3 report
No maturity< 6 months6 months to
< 1yr
> 1 year
Available Stable Funding (ASF) Item
1Capital66,884 -1,324 20,736 88,945
2Regulatory capital66,884 -1,324 20,736 88,945
3Other capital instruments-----
4Retail deposits and deposits from small business customers 245,151 90,031 309 215 309,700
5Stable deposits 124,060 26,806 9 15 143,346
6Less stable deposits 121,091 63,224 300 200 166,354
7Wholesale funding 127,448 155,220 28,172 117,685 209,110
8Operational deposits 72,010 - - - 36,005
9Other wholesale funding 55,438 155,220 28,172 117,685 173,105
10Liabilities with matching interdependent assets - - - - -
11Other liabilities - 28,733 700 484 834
12NSFR derivative liabilities
13All other liabilities and equity not included in the above categories - 22,747 700 484 834
14Total ASF
608,589
Required Stable Funding (RSF) Item
15a)Total NSFR (High quality liquid assets - HQLA) 4,495
15b)Alternate Liquid Assets (ALA) 7,310
15c)Reserve Bank of New Zealand (RBNZ) securities 224
16Deposits held at other financial institutions for operational purposes - - - - -
17Performing loans and securities 1,103 49,608 40,685 560,496 462,089
18Performing loans to financial institutions secured by Level 1 HQLA 911 4,574 - - 1,368
19Performing loans to financial institutions secured by non-Level 1 HQLA and
unsecured performing loans to financial institutions
192 3,875 5,160 11,799 15,153
20Performing loans to nonfinancial corporate clients, loans to retail and small
business customers, and loans to sovereigns, central banks and public
sector entities (PSEs), of which:
- 32,596 26,822 132,784 142,383
21With a risk weight of less than or equal to 35% under APS 112 - 170 293 962 857
22Performing residential mortgages, of which: - 7,777 8,128 412,001 299,203
23With a risk weight equal to 35% under APS 112 - 7,158 7,469 364,486 257,329
24Securities that are not in default and do not qualify as HQLA, including
exchange-traded equities
- 786 575 3,912 3,982
25Assets with matching interdependent liabilities - - - - -
26Other assets: 11,417 30,082 557 20,427 39,755
27Physical traded commodities, including gold - -
28Assets posted as initial margin for derivative contracts and contributions to
default funds of central counterparties (CCPs)
1,816
29NSFR derivative assets 1,089
30NSFR derivative liabilities before deduction of variation margin posted 3,518
31All other assets not included in the above categories 11,417 3,277 557 20,427 33,331
32Off-balance sheet items 10,461
33Total RSF
524,334
34Net Stable Funding Ratio (%)
116.1%
7,076
17,592
186,240
Unweighted value by residual maturity
Weighted
value
30 June 2020
$m
5,986
2,137
Pillar 3 report
Remuneration
Westpac Group March 2020 Pillar 3 report | 85
Employees subject to the remuneration disclosure requirements under APS 330 Attachment G are:
⚫ Senior managers
1
: There are 32 employees identified by the Westpac Group Fit & Proper Policy as
responsible persons. These employees include the most senior executives of Westpac and other senior
employees with particular management responsibilities as set out under paragraph 25 of APRA Prudential
Standard CPS 520 Fit and Proper; and
⚫ Material risk takers: In addition to the senior managers, there are 7 employees who have been assessed as
having the ability to affect the financial soundness of Westpac as an Authorised Deposit-taking Institution.
These are employees with senior accountability and authority who can influence Westpac’s capital and/or
liquidity, take operational risk, influence compliance risk, influence financial crime risk, influence insurance
risk, take market risk positions, and/or approve large credit exposures or programs.
Qualitative disclosures
Westpac Group Remuneration Policy
The Group Remuneration Policy sets out the mandatory requirements to be reflected in the design and
management of remuneration arrangements across Westpac. Westpac’s purpose is to help Australians and New
Zealanders succeed. The policy supports Westpac’s purpose 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 applies to all legal entities, business units and employees of Westpac and its related bodies corporate
2
(except temporary and casual employees).
The policy is reviewed by the Board Remuneration Committee (BRC) on a regular basis. The policy was last
approved by the Westpac Board in May 2018. The policy was updated and reviewed by the BRC in September
2019 to include amendments in relation to Westpac’s approach to remuneration adjustments, amendments to the
arrangements for front line staff (including the addition of a requirement for an annual review of the design and
implementation of remuneration systems) and other minor administrative updates.
Reward strategy and 2020 framework
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.
Senior managers and material risk takers are rewarded based on a total reward framework which is designed to:
⚫ align remuneration with customer and shareholder interests;
⚫ support an appropriate risk culture and employee conduct;
⚫ differentiate pay for behaviour and performance in line with our purpose and strategy;
⚫ provide market competitive and fair remuneration;
⚫ enable recruitment and retention of talented employees;
⚫ provide the ability to risk-adjust remuneration; and
⚫ be simple, flexible and transparent.
For senior managers and material risk takers at or above the General Manager level, the total reward framework
has three components: fixed remuneration, Short Term Variable Reward (STVR) and Long Term Variable Reward
(LTVR), as outlined in the table below. The total reward framework is benchmarked against other financial services
companies both in Australia and internationally, as relevant.
1
The senior manager definition utilised in these disclosures reflects the APRA reference to “responsible person” under paragraph 57(a)
of Prudential Standard CPS 510 Governance. The Westpac equivalent is the CEO, Group Executives and certain General Managers
designated as responsible persons in the Authorised Deposit-taking Institution.
2
This policy does not extend to any related bodies corporate which are separately listed on the Australian Securities Exchange.
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86 | Westpac Group September 2020 Pillar 3 report
Fixed
remuneration
Variable reward
STVR LTVR
Purpose Attract and
retain high
quality
employees.
Ensure a portion of remuneration is variable, at-
risk and linked to the delivery of agreed plan
targets for financial and non-financial measures
that support Westpac’s strategic priorities.
Align accountability and remuneration with
the long-term interests of shareholders.
Delivery Fixed
remuneration
comprises cash
salary, salary
sacrificed
items, and
employer
superannuation
contributions.
STVR is awarded in cash and restricted
shares
1
based on an assessment of
performance over the preceding year.
Performance is assessed against a balanced
scorecard comprising:
⚫ financial and non-financial measures
linked to the Group’s strategic priorities;
and
⚫ a modifier to support 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.
Restricted shares vest in portions reflecting
the scope and nature of an individual’s role
and responsibility, subject to continued service
and adjustment.
The maximum STVR opportunity for these
employees is capped.
LTVR comprises:
⚫ for Group Executives, performance
share rights which vest after four years
subject to the achievement of a relative
Total Shareholder Return (TSR)
performance hurdle, continued service
and adjustment; and
⚫ for General Managers, restricted shares
or share rights without performance
hurdles, subject to continued service
and adjustment.
Eligible employees may receive an annual award of Westpac ordinary shares up to the value of $1,000 under the
Employee Share Plan. Employees who received an equity award during the year, for example, as deferred STVR
or LTVR, are not eligible to receive an Employee Share Plan award for that year.
The target mix of fixed and variable reward varies across employees and groups of employees. Factors that can
influence the mix include the role type, regulatory requirement of the role, level of responsibility of the individual,
market benchmarks and performance.
Fixed remuneration
Fixed remuneration is aligned to the market and reviewed annually. It takes into account the size, responsibilities
and complexity of the role, as well as the skills and experience of the employee.
Fixed remuneration comprises:
⚫ cash salary;
⚫ salary sacrificed items; and
⚫ superannuation or superannuation equivalent contributions for employees in Australia, New Zealand and
some other countries in which we operate.
Variable reward
Variable reward is designed to:
⚫ encourage employee conduct aligned to customer interests;
⚫ support Westpac’s long term financial soundness and risk management framework;
⚫ align remuneration with prudent risk-taking and allow for adjustments to reflect the outcomes of business
activities, the risks related to business activities (taking account of the cost of the associated capital, where
relevant) and the time necessary for outcomes to be reliably measured;
⚫ allow for an adjustment by an amount that is proportionate to the failure of an Accountable Person
2
to comply
with their accountability obligations under the Banking Executive Accountability Regime; and
⚫ reflect Australian and international regulatory requirements.
1
Deferred STVR is awarded in unhurdled share rights to some employees outside Australia.
2
As defined in the Banking Act 1959 excluding Non-executive Directors.
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Westpac Group September 2020 Pillar 3 report | 87
There are two forms of variable reward:
Short Term Variable Reward
⚫ Performance is measured against risk-adjusted financial and non-financial measures that support the Group's
strategy to determine the size of the award.
⚫ STVR is awarded in cash and, if STVR is above the deferral thresholds, a portion of the STVR is allocated as
restricted shares or unhurdled share rights. Information on the deferral framework is set out in the table below.
Long Term Variable Reward
⚫ The CEO and Group Executives receive annual LTVR awards in the form of performance share rights which
vest after four years subject to the achievement of one or more performance hurdles, continued service and
adjustment.
⚫ The CEO and Group Executives only receive value from their LTVR awards where vesting occurs. The
performance hurdle for the grants of performance share rights allocated in December 2019 is relative TSR.
⚫ A performance share right is not a Westpac share and does not attract the payment of dividends.
⚫ Senior managers and material risk takers at the General Manager level receive annual LTVR awards in the
form of restricted shares under the Restricted Share Plan or unhurdled share rights under the Westpac
Performance Plan.
The size of the award is set with reference to market benchmarks, individual performance over time, succession
potential and key skills.
Employees are required to comply with risk management and compliance requirements as they apply to their
particular role and business. Failure to meet these requirements will impact remuneration, including eligibility for a
fixed pay adjustment and variable reward participation.
Deferral
All employees who receive an STVR award above a certain threshold have a portion of the award deferred.
Deferral arrangements depend on the value of the award and the level and type of role. The table below sets out
the variable reward deferral arrangements for senior managers and material risk takers.
Role Type Deferral Arrangement
1
CEO and Group Executives ⚫ 50% of any STVR is deferred equally over two years
General Managers ⚫ 40% of any STVR is deferred equally over two years
General Managers in Westpac
Institutional Bank and Treasury
⚫ 40% of any STVR is deferred for four years
⚫ 50% deferral for portion of allocation above $500,000, vesting in full after four years
Westpac Institutional Bank and
Treasury employees
⚫ 25% deferral where STVR allocation is $150,000 or greater, vesting equally over three years
⚫ 50% deferral for portion of allocation above $500,000, vesting equally over three years
⚫ 70% deferral for portion of allocation above $2,000,000, vesting equally over three years
Other employees
⚫ 25% deferral where STVR allocation is $150,000 or greater, vesting equally over two years
⚫ 50% deferral for portion of allocation above $500,000, vesting equally over two years
⚫ 70% deferral for portion of allocation above $2,000,000, vesting equally over two years
STVR deferral periods are set within the context of the market and the overall Group risk profile. The STVR
deferral period for employees in Westpac Institutional Bank and Treasury is longer than the rest of the Group.
STVR is deferred into equity in the form of restricted Westpac ordinary shares (for Australian based employees) or
Westpac share rights (for employees outside Australia).
By deferring a portion of the STVR as restricted equity, STVR awards are better aligned with the interests of
shareholders as the ultimate value of the deferred portion is tied to the share price at the end of the restriction
period.
The deferral framework provides the ability to reduce unvested STVR, including to zero, if:
⚫ having regard to circumstances or information which has come to light after the grant of the award, all or part
of the initial award was not justified;
⚫ necessary to protect the financial soundness of Westpac or to respond to significant unexpected or
unintended consequences that were not foreseen; and/or
⚫ an accountable person has failed to comply with their accountability obligations under the Banking Executive
Accountability Regime (BEAR).
1
Thresholds shown in dollars apply to Australia and New Zealand.
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Remuneration
88 | Westpac Group September 2020 Pillar 3 report
Remuneration governance
The Group Remuneration Policy is supported by an established governance structure, plans and frameworks that
are designed to support remuneration decision-making across the Group.
Board
The Board provides strategic guidance for the Group and has oversight of management’s implementation of Westpac’s strategic
initiatives. The Board has overall accountability for reviewing and approving remuneration for select groups of employees.
Without limiting its role, the Board approves (following recommendation from the Board Remuneration Committee, where applicable)
corporate goals and objectives relevant to the remuneration of the CEO, the size of variable reward pools, adjustments to variable
remuneration (including forfeiture and clawback) in accordance with the Group Remuneration Policy, remuneration (including variable
reward targets and performance outcomes) for the CEO, Group Executives, other executives who report directly to the CEO, 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 the Australian Prudential Regulation Authority 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 discharge its responsibility by overseeing remuneration policies and practices
of Westpac and its related bodies corporate in the context that these policies and practices fairly and responsibly reward individuals
having regard to performance, and reflect Westpac’s risk management framework, the law and the highest standard of governance.
The Board Remuneration Committee reviews and makes recommendations to the Board in relation to the Westpac Group
Remuneration Policy, the individual remuneration levels of the individuals outlined above, the remuneration structures for each category
of persons covered by the Group Remuneration Policy, STVR and LTVR plans and outcomes and adjustments (including forfeiture and
clawback) for the Group Executives, any other accountable persons under the BEAR and any other person the Board determines, as
well as corporate goals and objectives relevant to the remuneration of the CEO and approving any and all equity based plans and
overseeing general remuneration practices across Westpac.
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.
There were six Board Remuneration Committee meetings held during the financial year ended 30 September 2020 (FY20).
The FY20 Board Remuneration Committee Chairman fee was $63,800 and the FY20 base fee for Board Remuneration Committee
members was $29,000.
Interaction with other Board Committees Management remuneration oversight committees
Members of the Board Remuneration Committee are all
members of either the Board Risk Committee or the Board Legal,
Regulatory & Compliance Committee. The cross membership of
those Committees supports alignment between risk and reward.
The Board Remuneration Committee seeks feedback from and
considers matters raised by the Board Risk Committee, the
Board Legal, Regulatory & Compliance Committee and the
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 and functional remuneration oversight committees
consider areas of risk 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 minor changes were made to
enhance the Terms of Reference for the Group Remuneration
Oversight Committee.
Remuneration consultants
In 2020, the Board retained Guerdon Associates 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
2020 included the provision of information relating to the benchmarking of Non-executive Director, CEO and Group Executive
remuneration as well as modelling and analysis of alternative remuneration structures for the CEO and Group Executives.
In 2020, no remuneration recommendations, as prescribed under the Corporations Act 2001 (Cth) (Corporations Act), were made by
Board advisors.
Independence of risk and financial control employees
The Group follows a process of ‘two-up’ approval for all remuneration decisions. This means that remuneration is
approved by the next most senior person above the employee’s manager.
This concept is also reflected in our requirement for the Board, based on recommendations from the Board
Remuneration Committee, to approve performance outcomes and remuneration for specified groups including the
CEO and Group Executives and other persons whose activities in the Board’s opinion may affect the financial
soundness of the Group and any other person specified by APRA.
To supplement the ‘two-up’ approval requirement, variable reward and scorecards for risk and financial control
employees at the General Manager level must be reviewed by the respective Group Executive, i.e. the Chief Risk
Officer, or the Chief Financial Officer to ensure independence is not compromised.
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Westpac Group September 2020 Pillar 3 report | 89
Variable reward for risk and financial control employees below General Manager level must also be reviewed by
the respective Risk/Compliance/Finance function General Managers to ensure they are rewarded independently of
the businesses they oversee.
Remuneration and risk
Westpac’s remuneration strategy, total reward framework, policies and practices reflect the sound risk
management that is fundamental to the way the Group operates. Westpac integrates risk management into
remuneration by designing and managing arrangements in a manner that encourages behaviour that supports our
long term financial soundness and risk management framework.
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 influence remuneration outcomes. The key risks
that are considered include capital, credit, market, equity, liquidity, insurance, risk culture, financial crime,
reputation and sustainability, conduct, operational and compliance risk. In addition, STVR outcomes are influenced
by relevant risk-related matters through the Board’s application of the scorecard modifier, which is informed by risk
and compliance input independent of the business or functional area.
The deferral framework provides consistency across the Group and enhances our remuneration framework from a
risk management perspective. The deferral framework provides the Board with the ability to adjust all forms of
unvested deferred variable reward downwards, including to zero, if having regard to circumstances or information
which has come to light after the grant of the deferred equity or cash, all or part of the initial award was not
justified.
In addition, failure to meet mandatory risk management and compliance requirements impacts eligibility for a fixed
pay adjustment and variable reward participation, and may result in disciplinary action and/or termination of
employment.
Remuneration adjustments for prior period matters
The Board may adjust all forms of unvested deferred variable reward downward, including to zero, for matters
arising from 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.
Variable reward pool
The Board determines the size of the variable reward pool each year. 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 pool reflects financial performance. A broad range of financial and non-financial risk measures and customer
outcomes may also be taken into account when allocating the pool.
Scorecards
STVR awards are determined with reference to an assessment of performance.
For FY20, the CEO, Group Executives and General Managers performance was assessed against a scorecard
split into two sections.
⚫ Focus areas: Consideration of financial and non-financial measures aligned to Westpac’s key strategic
priorities to support an initial scorecard result. In assessing outcomes for each focus area, a number of factors
are taken into account. For example:
o matters not known or not relevant at the beginning of the performance period which are relevant to
the under or over performance of the employee over the performance period;
o the degree of difficulty associated with achieving the targets that had been set in the scorecard (and
the context of those targets);
o whether the budgetary assumptions that were present when performance targets were set remain
correct (and the current financial environment compared with those assumptions); and
o comparisons with the performance of Westpac’s main competitors having regard to major
shareholder and customer benchmarks as well as the composition and/or consistency of financial
result performance.
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Remuneration
90 | Westpac Group September 2020 Pillar 3 report
⚫ Modifier: Consideration of significant matters not fully reflected in the focus areas, including behaviour, risk
and reputation measures, and people management matters, and any other matters as determined by the
Board, to support the adjustment of the overall scorecard result, upwards or downwards (including to zero).
The table below sets out the focus areas of the Group scorecard for FY20 which forms part of the CEO scorecard.
Category Weighting Examples of measures
1
Group financial
performance
40%
⚫ Group cash ROE
⚫ Group core earnings growth (cash earnings basis)
⚫ Group cash earnings growth
Balance sheet risk
management
10%
⚫ Performance relative to Group Risk Appetite Statement including as measured by
capital, funding and liquidity management
Risk management 20%
⚫ Culture, Governance and Accountability programme delivery
⚫ Remediation programme delivery
⚫ Risk management capability and culture, and financial crime capability
Customer franchise 10%
⚫ Net promoter score
⚫ Improvements in addressing root causes of customer pain points
Digital transformation 10%
⚫ Customer Service Hub programme delivery
⚫ Improvements in digital bank offering
Operating model 10%
⚫ Lines of Business programme delivery
⚫ Culture roadmap programme delivery
⚫ Digital partnership delivery
Westpac’s strategic priorities are cascaded from the CEO’s scorecard to the scorecards of senior managers and
material risk takers in combination with other divisional or functional measures which support the Group’s strategic
short and long term goals. Weightings and measures reflect individual roles.
The FY20 CEO scorecard was updated to place greater weighting on risk management and to align with
Westpac’s strategic priorities including supporting delivery of initiatives focused on risk, culture, accountability,
remediation and reputation as well as enhancing focus on delivering non-financial risk outcomes. Non-financial risk
was moved into the modifier given the significant impact that can arise. The impact of these changes on
remuneration was informed by Group and individual performance in these areas.
Scorecard focus areas for senior managers and material risk takers are consistent with that of the CEO’s:
⚫ Performance measures such as Westpac Group and divisional cash earnings, Return on Tangible Equity, core
earnings growth, expense to income and expense management accounted for up to 40% of senior managers’
scorecards.
⚫ The CEO and each senior manager are assessed on specific risk measures that may influence any
discretionary adjustment to the scorecard.
⚫ Scorecards for material risk takers at the General Manager level also include risk measures related to financial
risk and balance sheet management with non financial risk included in the modifier section of the scorecard.
Metrics include the common equity tier 1 ratio, the net stable funding ratio and the liquidity coverage ratio.
⚫ Senior Managers and material risk takers below the General Manager level have similar measures however
there are no standardised percentage weightings for specific goals.
1
Individual measures will differ for each senior manager.
Pillar 3 report
Remuneration
Westpac Group September 2020 Pillar 3 report | 91
Quantitative Disclosures
For FY20, three senior managers received payments totaling $533,180, $224,000 and $100,000 respectively
reflecting annual incentives foregone from their previous employers on appointment to Westpac. Three other
senior managers received termination payments of $824,437, $116,636 and $235,414 on their termination from
Westpac. No senior manager or material risk taker received a guaranteed bonus in FY20.
Deferred remuneration
$000
Total amount
oustanding
1
Paid out in
financial
year
Explicit
reductions
2
Implicit
reductions
3
Total amount
oustanding
1
Paid out in
financial
year
Explicit
reductions
2
Implicit
reductions
3
Senior managers
54,255 10,639 (40,047) (40,295) 124,084 10,301 (16,583) -
Material risk takers
9,343 7,498
(1,089)
(6,939) 21,130 5,943
(1,033)
-
30 September 202030 September 2019
Total value of remuneration awards for the current financial year for senior managers and material risk
takers
45
$000 Unrestricted Deferred Unrestricted Deferred Unrestricted Deferred Unrestricted Deferred
Fixed remuneration
- Cash based
5
26,204 - 4,861 - 22,191 - 6,140 -
- Shares and share-
linked instruments
- - - - - - - -
- Other
6
1,458 - 369 - 1,084 - 363 -
Variable remuneration
7
- Cash based
8
354- - 4,315 - 5,017 - 6,225 -
- Shares and share-
linked instruments
9
- 6,885 - 5,426 - 25,504 - 9,297
- Other- - - - - - - -
30 September 202030 September 2019
Senior managersMaterial risk takersSenior managersMaterial risk takers
1
Value of unvested holdings at 30 September. All outstanding deferred remuneration is subject to either explicit or implicit adjustments.
2
The FY20 explicit adjustment reflects testing of the EPS and TSR hurdles on 1 October 2019. Explicit adjustments may also include
malus, clawback or similar reversals or downward revaluations of awards.
3
Implicit adjustments include fluctuations in the value of shares or performance units during the year.
4
Prepared in accordance with APS330 Table 22A and accounting standard AASB 2, consistent with the process for the Annual Report.
5
Cash based fixed remuneration is the total cost of salary, salary sacrificed benefits (including motor vehicles, parking, etc. and any
associated fringe benefits tax) and an accrual for annual leave entitlements.
6
Other fixed remuneration relates to post-employment benefits. Senior managers and material risk takers are provided with insurance
cover under the Westpac Group Plan at no cost. Superannuation benefits have been calculated consistent with AASB 119.
7
3 of 32 senior managers and 6 of 7 material risk takers received variable reward in respect of FY20. 29 of 29 senior managers and all
10 material risk takers received variable reward in respect of FY19.
8
Cash based variable reward reflects annual cash performance awards accrued but not yet paid in respect of the year ended 30
September.
9
Shares and share-linked instruments are amortised over the vesting period and the amount shown is the amortisation relating to the
reporting year, consistent with the relevant Annual Report.
Pillar 3 report
Appendix I | Regulatory capital reconciliation
92 | Westpac Group September 2020 Pillar 3 report
Balance Sheet Reconciliation
30 September 2020
$m
Group Balance
Sheet Adjustment
Level 2 Regulatory
Balance Sheet
Reconciliation Table
Capital Disclosure
Template
Assets
Cash and balances with central banks 30,129 (151) 29,978
Collateral paid 4,778 - 4,778
Due from subsidiaries - 441 441
Trading securities and financial assets measured at
fair value through income statement (FVIS)
40,667 (370) 40,297
Derivative financial instruments 23,367 - 23,367
Available-for-sale securities - - -
Investment securities 91,539 (77) 91,462
Loans 693,059 - 693,059
Other financial assets 5,474 (227) 5,247
Current tax assets - - -
Life insurance assets 3,593 (3,593) -
Investments in associates 61 - 61
Property and equipment 3,910 (4) 3,906
Deferred tax assets 3,064 (101) 2,963 Table a
Intangible assets 11,497 (293) 11,204 Table b
Investments in life & general insurance, funds
management & securitisation entities
- 1,941 1,941 Table c
Other assets 808 (350) 458
Total assets
911,946 (2,784) 909,162
Liabilities
Collateral received 2,250 - 2,250
Due to subsidiaries - 1,285 1,285
Deposits and other borrowings 591,131 - 591,131
Other financial liabilities 40,925 (411) 40,514
Derivative financial instruments 23,054 - 23,054
Debt issues 150,325 - 150,325
Current tax liabilities 70 (9) 61
Life insurance liabilities 1,396 (1,396) -
Provisions 5,287 (66) 5,221
Deferred tax liabilities 126 (47) 79
Loan capital 23,949 - 23,949 Table d and e
Other liabilities 5,359 (965) 4,394
Total liabilities
843,872 (1,609) 842,263
Equity
Ordinary share capital 40,509 - 40,509 Row 1
Treasury shares and RSP treasury shares (563) - (563)Table f
Reserves 1,544 (49) 1,495 Table g
Retained Profits 26,533 (1,132) 25,401 Row 2
Non-controlling interests 51 6 57
Total equity
68,074 (1,175) 66,899
Pillar 3 report
Appendix I | Regulatory capital reconciliation
Westpac Group September 2020 Pillar 3 report | 93
$m
30 September
2020
Capital
Disclosure
Template
Reference
Table a
Deferred Tax Assets
Total Deferred Tax Assets per level 2 Regulatory Balance Sheet2,963
Deferred tax asset adjustment before applying prescribed thresholds 2,963 Row 26e
Less: Amounts below prescribed threshold - risk weighted
(2,963)
Row 75
Total per Capital Disclosure Template - Deferred Tax Asset
- Row 21 / 25
$m
30 September
2020
Capital
Disclosure
Template
Reference
Table b
Goodwill and other intangible assets
Total Goodwill and Intangibles Assets per level 2 Regulatory Balance Sheet11,204
Less: Capitalised Software Disclosed Under Intangibles
(2,137) Row 9
Total per Capital Disclosure Template - Goodwill
9,067 Row 8
$m
30 September
2020
Capital
Disclosure
Template
Reference
Table c
Equity Investments
Significant Investment in financial entities
369
Equity Investments in non-consolidated subsidiaries
1,941
Total Significant Investment in financial entities
2,310
Row 73
Non-significant Investment in financial entities
55
Row 72
Total Investments in financial institutions
2,365
Row 26d
Investment in commercial entities
68
Row 26g
Total Equity Investments before applying prescribed threshold
2,433
Less: Amounts below prescribed threshold
(2,433)
Total per Capital Disclosure Template - Equity Investments
- Row 18/ 19/ 23
$m
30 September
2020
Capital
Disclosure
Template
Reference
Table d
Additional Tier 1 Capital
Total Loan Capital per Level 2 Regulatory Balance Sheet
23,949
Less: Tier 2 Capital Instruments Reported Below
(14,585)
Add: Capitalised Issue Costs for Additional Tier 1 Capital Instruments
1
52
Less: Fair Value Adjustment
2
(210)
Total per Capital Disclosure Template - Tier 1 Capital
9,206 Row 36
Additional Tier 1 Capital included in Regulatory Capital
Westpac Capital Notes 2
1,311
Westpac Capital Notes 3
1,324
Westpac Capital Notes 4
1,702
Westpac Capital Notes 5
1,690
Westpac Capital Notes 6
1,423
SEC Registered Capital Securities
1,756
Total Basel III complying instruments
9,206 Row 30
Total Basel III non complying instruments
- Row 33
Total per Capital Disclosure Template - Additional Tier 1 Capital Instruments 9,206 Row 36
1
Unamortised issue costs relating to capital instruments are netted off against each instrument in the Balance Sheet. For regulatory
capital purposes, these capital instruments are shown gross of unamortised issue costs. The unamortised issue costs are deducted
from CET1 as part of capitalised expenses in Row 26f in the capital disclosure template.
2
For regulatory capital purposes, APRA requires these instruments to be included as if they were unhedged.
Pillar 3 report
Appendix I | Regulatory capital reconciliation
94 | Westpac Group September 2020 Pillar 3 report
$m
30 September
2020
Capital
Disclosure
Template
Reference
Table e
Tier 2 Capital
Total Tier 2 Capital per Level 2 Regulatory Balance Sheet
14,585
Add: Capitalised Issue Costs for Tier 2 Capital Instruments
1
-
Less: Fair Value Adjustment
2
(930)
Less: Cumulative amortisation of Tier 2 Capital Instruments
-
Less: Basel III transitional adjustment
-
Row 56c
Provisions
397
Row 50 / 76
Total per Capital Disclosure Template - Tier 2
14,052 Row 51
Tier 2 Capital included in Regulatory Capital
AUD350 million Westpac Subordinated Notes
350
SDG325 million Westpac Subordinated Notes
333
USD100 million Westpac Subordinated Notes
140
AUD700 million Westpac Subordinated Notes
700
JPY20,000 million Westpac Subordinated Notes
267
JPY10,200 million Westpac Subordinated Notes
136
JPY10,000 million Westpac Subordinated Notes
133
AUD175 million Westpac Subordinated Notes
175
NZD400 million Westpac Subordinated Notes
371
USD1,500 million Westpac Subordinated Notes
2,104
JPY8,000 million Westpac Subordinated Notes
107
JPY13,500 million Westpac Subordinated Notes
180
JPY12,000 million Westpac Subordinated Notes
160
HKD 600 million Westpac Subordinated Notes
109
AUD350 million Westpac Subordinated Notes
350
AUD185 million Westpac Subordinated Notes
185
AUD250 million Westpac Subordinated Notes
250
AUD130 million Westpac Subordinated Notes
130
AUD725 million Westpac Subordinated Notes II
725
USD1,000 million Westpac Subordinated Notes
1,399
USD1,250 million Westpac Subordinated Notes
1,753
AUD1,000 million Westpac Subordinated Notes
1,000
USD1,500 million Westpac Subordinated Notes
2,104
Total Basel III complying instruments
13,161
Row 46
USD352 million Perpetual Floating Rate Notes
494
Total Basel III non complying instruments
494
Less: Basel III transitional adjustment
-
Row 85
Total Basel III non complying instruments after transitional adjustment
494
Row 47
Provisions
397
Row 50 / 76
Total per Capital Disclosure Template - Tier 2 Capital Instruments
14,052 Row 51
$m
30 September
2020
Capital
Disclosure
Template
Reference
Table f
Treasury Shares and RSP Treasury Shares
Total treasury shares per Level 2 Regulatory Balance Sheet
(563)
Less: Treasury Shares not included for Level 2 Regulatory Capital
(57)
Total per Capital Disclosure Template - Treasury Shares
(620) Row 26a
$m
30 September
2020
Capital
Disclosure
Template
Reference
Table g
Accumulated Other Comprehensive Income
Total reserves per Level 2 Regulatory Balance Sheet
1,495
Less: Share Based Payment Reserve not included within capital
(59)
Total per Capital Disclosure Template - Accumulated Other Comprehensive Income
1,436 Row 3
1
For regulatory capital purposes, APRA requires these instruments to be included as if they were unhedged.
Pillar 3 report
Appendix I | Regulatory capital reconciliation
Westpac Group September 2020 Pillar 3 report | 95
The capital disclosure template below represents the post 1 January 2018 Basel III template.
$m
30 September
2020
Table
Reference
Common Equity Tier 1 capital: instruments and reserves
1Directly issued qualifying ordinary shares (and equivalent for mutually-owned entities) capital 40,509
2Retained earnings 25,401
3Accumulated other comprehensive income (and other reserves) 1,436 Table g
4Directly issued capital subject to phase out from CET1 (only applicable to mutually-owned
companies)
-
5Ordinary share capital issued by subsidiaries and held by third parties (amount allowed in group
CET1)
57
6
Common Equity Tier 1 capital before regulatory adjustments
67,403
Common Equity Tier 1 capital : regulatory adjustments
7Prudential valuation adjustments -
8Goodwill (net of related tax liability) (9,067) Table b
9Other intangibles other than mortgage servicing rights (net of related tax liability) (2,137) Table b
10Deferred tax assets that rely on future profitability excluding those arising from temporary
differences (net of related tax liability)
-
11Cash-flow hedge reserve 42
12Shortfall of provisions to expected losses (40)
13Securitisation gain on sale (as set out in paragraph 562 of Basel II framework) -
14Gains and losses due to changes in own credit risk on fair valued liabilities (18)
15Defined benefit superannuation fund net assets (71)
16Investments in own shares (if not already netted off paid-in capital on reported balance sheet) -
17Reciprocal cross-holdings in common equity -
18Investments in the capital of banking, financial and insurance entities that are outside the scope of
regulatory consolidation, net of eligible short positions, where the ADI does not own more than
10% of the issued share capital (amount above 10% threshold)
- Table c
19Significant investments in the ordinary shares of banking, financial and insurance entities that are
outside the scope of regulatory consolidation, net of eligible short positions (amount above 10%
threshold)
- Table c
20Mortgage service rights (amount above 10% threshold) -
21Deferred tax assets arising from temporary differences (amount above 10% threshold, net of
related tax liability)
- Table a
22Amount exceeding the 15% threshold -
23of which: significant investments in the ordinary shares of financial entities - Table c
24of which: mortgage servicing rights -
25of which: deferred tax assets arising from temporary differences - Table a
26National specific regulatory adjustments (sum of rows 26a, 26b, 26c, 26d, 26e, 26f, 26g, 26h, 26i
and 26j)
(7,379)
26aof which: treasury shares (620) Table f
26bof which: offset to dividends declared under a dividend reinvestment plan (DRP), to the extent
that the dividends are used to purchase new ordinary shares issued by the ADI
-
26cof which: deferred fee income 214
26dof which: equity investments in financial institutions not reported in rows 18, 19 and 23 (2,365) Table c
26eof which: deferred tax assets not reported in rows 10, 21 and 25 (2,963) Table a
26fof which: capitalised expenses (1,576)
26gof which: investments in commercial (non-financial) entities that are deducted under APRA
prudential requirements
(68) Table c
26hof which: covered bonds in excess of asset cover in pools -
26iof which: undercapitalisation of a non-consolidated subsidiary -
26jof which: other national specific regulatory adjustments not reported in rows 26a to 26i (1)
27Regulatory adjustments applied to Common Equity Tier 1 due to insufficient Additional Tier 1 and
Tier 2 to cover deductions
-
28
Total regulatory adjustments to Common Equity Tier 1
(18,670)
29
Common Equity Tier 1 Capital (CET1)
48,733
Pillar 3 report
Appendix I | Regulatory capital reconciliation
96 | Westpac Group September 2020 Pillar 3 report
$m
30 September
2020
Table
Reference
Additional Tier 1 Capital: instruments
30Directly issued qualifying Additional Tier 1 instruments 9,206 Table d
31of which: classified as equity under applicable accounting standards -
32of which: classified as liabilities under applicable accounting standards 9,206 Table d
33Directly issued capital instruments subject to phase out from Additional Tier 1 9,206 Table d
34Additional Tier 1 instruments (and CET1 instruments not included in row 5) issued by subsidiaries
and held by third parties (amount allowed in group AT1)
-
35of which: instruments issued by subsidiaries subject to phase out -
36
Additional Tier 1 Capital before regulatory adjustments
9,206 Table d
Additional Tier 1 Capital: regulatory adjustments
37Investments in own Additional Tier 1 instruments -
38Reciprocal cross-holdings in Additional Tier 1 instruments -
39Investments in the capital of banking, financial and insurance entities that are outside the scope of
regulatory consolidation, net of eligible short positions, where the ADI does not own more than
10% of the issued share capital (amount above 10% threshold)
-
40Significant investments in the capital of banking, financial and insurance entities that are outside
the scope of regulatory consolidation (net of eligible short positions)
-
41National specific regulatory adjustments (sum of rows 41a, 41b and 41c) -
41aof which: holdings of capital instruments in group members by other group members on behalf of
third parties
-
41bof which: investments in the capital of financial institutions that are outside the scope of
regulatory consolidations not reported in rows 39 and 40
-
41cof which: other national specific regulatory adjustments not reported in rows 41a and 41b -
42Regulatory adjustments applied to Additional Tier 1 due to insufficient Tier 2 to cover deductions -
43
Total regulatory adjustments to Additional Tier 1 capital
-
44
Additional Tier 1 capital (AT1)
9,206 Table d
45
Tier 1 Capital (T1=CET1+AT1)
57,939
Tier 2 Capital: instruments and provisions
46Directly issued qualifying Tier 2 instruments 13,161 Table e
47Directly issued capital instruments subject to phase out from Tier 2 494 Table e
48Tier 2 instruments (and CET1 and AT1 instruments not included in rows 5 or 34) issued by
subsidiaries and held by third parties (amount allowed in group T2)
-
49of which: instruments issued by subsidiaries subject to phase out -
50Provisions 397 Table e
51
Tier 2 Capital before regulatory adjustments
14,052 Table e
Tier 2 Capital: regulatory adjustments
52Investments in own Tier 2 instruments (50)
53Reciprocal cross-holdings in Tier 2 instruments -
54Investments in the Tier 2 capital of banking, financial and insurance entities that are outside the
scope of regulatory consolidation, net of eligible short positions, where the ADI does not own more
than 10% of the issued share capital (amount above 10% threshold)
-
55Significant investments in the Tier 2 capital of banking, financial and insurance entities that are
outside the scope of regulatory consolidation, net of eligible short positions
(140)
56National specific regulatory adjustments
(sum of rows 56a, 56b and 56c)
(71)
56aof which: holdings of capital instruments in group members by other group members on behalf of
third parties
-
56bof which: investments in the capital of financial institutions that are outside the scope of
regulatory consolidation not reported in rows 54 and 55
(71)
56cof which: other national specific regulatory adjustments not reported in rows 56a and 56b -
57
Total regulatory adjustments to Tier 2 capital
(261)
58
Tier 2 capital (T2)
13,791
59
Total capital (TC=T1+T2)
71,730
60
Total risk-weighted assets based on APRA standards
437,905
Pillar 3 report
Appendix I | Regulatory capital reconciliation
Westpac Group September 2020 Pillar 3 report | 97
$m
30 September
2020
Table
Reference
Capital ratios and buffers
61
Common Equity Tier 1 (as a percentage of risk-weighted assets)
11.1%
62
Tier 1 (as a percentage of risk-weighted assets)
13.2%
63
Total capital (as a percentage of risk-weighted assets)
16.4%
64
Buffer requirement (minimum CET1 requirement of 4.5% plus capital conservation buffer of 2.5%
plus any countercyclical buffer requirements expressed as a percentage of risk-weighted assets)
1
8.0%
65
of which: capital conservation buffer requirement
1
3.5%
66
of which: ADI-specific countercyclical buffer requirements
0.0%
67
of which: G-SIB buffer requirement (not applicable)
NA
68
Common Equity Tier 1 available to meet buffers (as a percentage of risk-weighted assets)
11.1%
National minima (if different from Basel III)
69
National Common Equity Tier 1 minimum ratio (if different from Basel III minimum)
4.5%
70
National Tier 1 minimum ratio (if different from Basel III minimum)
6.0%
71
National total capital minimum ratio (if different from Basel III minimum)
8.0%
Amount below thresholds for deductions (not risk-weighted)
72
Non-significant investments in the capital of other financial entities
55
Table c
73
Significant investments in the ordinary shares of financial entities
2,310
Table c
74
Mortgage servicing rights (net of related tax liability)
-
75
Deferred tax assets arising from temporary differences (net of related tax liability)
2,963
Table a
Applicable caps on the inclusion of provisions in Tier 2
76
Provisions eligible for inclusion in Tier 2 in respect of exposures subject to standardised approach
(prior to application of cap)
397
Table e
77
Cap on inclusion of provisions in Tier 2 under standardised approach
202
78
Provisions eligible for inclusion in Tier 2 in respect of exposures subject to internal ratings-based
approach (prior to application of cap)
-
79
Cap for inclusion of provisions in Tier 2 under internal ratings-based approach
2,025
Capital instruments subject to phase-out arrangements (only applicable between 1 Jan 2018
and 1 Jan 2022)
80
Current cap on CET1 instruments subject to phase out arrangements
NA
81
Amount excluded from CET1 due to cap (excess over cap after redemptions and maturities
NA
82
Current cap on AT1 instruments subject to phase out arrangements
1,115
83
Amount excluded from AT1 instruments due to cap (excess over cap after redemptions and
maturities)
-
84
Current cap on T2 instruments subject to phase out arrangements
1,137
85
Amount excluded from T2 due to cap (excess over cap after redemptions and maturities)
-
Table e
Countercyclical buffer
The table below details Westpac’s countercyclical buffer requirement.
Exposure at
default
Risk Weighted
Assets
2
Jurisdictional
bufferADI-specific buffer
Hong Kong2,668 1,403 1.000%0.00384%
Luxembourg264 101 0.250%0.00007%
Norway1 1 1.000%0.00000%
Other1,059,305 363,810 0.000%0.00000%
Total1,062,238 365,315 0.00391%
Total Risk Weighted Assets437,905
Countercyclical capital buffer17
1
Includes 1% Domestic Systemically Important Bank (D-SIB) requirement.
2
Represents total private sector (excludes Banks and Sovereigns) credit and specific market risk weighted assets.
Pillar 3 report
Appendix II | Entities included in regulatory consolidation
98 | Westpac Group September 2020 Pillar 3 report
This appendix lists all subsidiaries controlled by Westpac according to their level of regulatory consolidation.
Level 1 Entities
The following controlled entities have been approved by APRA for inclusion in the Westpac ADI’s ‘Extended
Licensed Entity’ (ELE) for the purposes of measuring capital adequacy at Level 1:
Westpac Banking Corporation Westpac Capital-NZ-Limited
1925 (Commercial) Pty Limited Westpac Debt Securities Pty Limited
1925 (Industrial) Pty Limited Westpac Direct Equity Investments Pty Limited
Belliston Pty Limited Westpac Equity Investments NZ Limited
Bill Acceptance Corporation Pty Limited Westpac Finance (HK) Limited
Capital Finance Australia Limited Westpac Financial Holdings Pty Limited
CBA Limited Westpac Group Investment-NZ-Limited
Challenge Limited Westpac Holdings-NZ-Limited
Mortgage Management Pty Limited Westpac Investment Capital Corporation
Partnership Pacific Pty Limited Westpac Investment Vehicle No.2 Pty Limited
Partnership Pacific Securities Pty Limited Westpac Investment Vehicle Pty Limited
Pashley Investments Pty Limited Westpac Leasing Nominees-Vic.-Pty Limited
Sallmoor Pty Limited Westpac New Zealand Group Limited
Sixty Martin Place (Holdings) Pty Limited Westpac Overseas Holdings No. 2 Pty Limited
St.George Business Finance Pty Limited Westpac Overseas Holdings Pty Limited
St.George Equity Finance Limited Westpac Properties Limited
St.George Finance Holdings Limited Westpac Securitisation Holdings Pty Limited
St.George Security Holdings Pty Limited Westpac Structured Products Limited
Value Nominees Pty Limited Westpac TPS Trust
Westpac Administration 2 Pty Limited Westpac Unit Trust
Westpac Administration Pty Limited Westpac USA Inc.
Westpac Americas Inc.
Level 2 Entities
The following controlled entities are included in the Level 2 consolidation (along with the ELE entities) for the
purposes of measuring capital adequacy:
1925 Advances Pty Limited Capital Finance New Zealand Limited
Altitude Administration Pty Limited Capital Fleetlease Pty Limited
Altitude Rewards Pty Limited Capital Motor Finance Pty Limited
Aotearoa Financial Services Limited Capital Rent Group Pty Limited
BT (Queensland) Pty Limited Crusade ABS Series 2017-1 Trust
BT Australia Pty Limited Crusade ABS Series 2017-1P Trust
BT Financial Group (NZ) Limited Crusade ABS Series 2018-1P Trust
BT Financial Group Pty Limited Crusade Trust No.2P of 2008
BT Securities Limited Danaby Pty Limited
Capital Corporate Finance Limited General Credits Pty Limited
Capital Finance (NZ) Pty Limited Hastings Management Pty Limited
Pillar 3 report
Appendix II | Entities included in regulatory consolidation
Westpac Group September 2020 Pillar 3 report | 99
Level 2 Entities (Continued)
Net Nominees Limited Westpac Asian Lending Pty Limited
Number 120 Limited Westpac Bank-PNG-Limited
Oniston Pty Limited Westpac Capital Markets Holding Corp.
Platin 1925. GmbH Westpac Capital Markets LLC
Qvalent Pty Limited Westpac Cash PIE Fund
RAMS Financial Group Pty Limited Westpac Covered Bond Trust
RMS Warehouse Trust 2007-1 Westpac Digital Partnerships Pty Ltd
Series 2008-1M WST Trust Westpac Equity Holdings Pty Limited
Series 2011-3 WST Trust Westpac Europe Limited
Series 2012-1 WST Trust Westpac Financial Consultants Pty Limited
Series 2013-1 WST Trust Westpac Financial Services Group Limited
Series 2013-2 WST Trust Westpac Financial Services Group-NZ-Limited
Series 2014-1 WST Trust Westpac Global Capital Markets Pty Limited
Series 2014-2 WST Trust Westpac Investment Vehicle No.3 Pty Limited
Series 2015-1 WST Trust Westpac New Zealand Limited
Series 2019-1 WST Trust Westpac Notice Saver PIE Fund
Series 2020-1 WST Trust Westpac NZ Covered Bond Holdings Limited
SIE-LEASE (Australia) Pty Limited Westpac NZ Covered Bond Limited
SIE-LEASE (New Zealand) Pty Limited Westpac NZ Operations Limited
St.George Commercial Credit Corporation Pty Limited Westpac NZ Securitisation Holdings Limited
St.George Finance Limited Westpac NZ Securitisation Limited
St.George Motor Finance Limited Westpac NZ Securitisation No.2 Limited
The Home Mortgage Company Limited Westpac Securities Limited
W2 Investments Pty Limited Westpac Securities NZ Limited
Westpac (NZ) Investments Limited Westpac Securitisation Management Pty Limited
Westpac Administration 3 Pty Limited Westpac Singapore Limited
Westpac Administration 4 Pty Limited Westpac Syndications Management Pty Limited
Westpac Altitude Rewards Trust Westpac Term PIE Fund
Pillar 3 report
Appendix II | Entities included in regulatory consolidation
100 | Westpac Group September 2020 Pillar 3 report
Level 3 Entities
The following controlled entities are excluded from the Level 2 consolidation but form part of the conglomerate
group at Level 3:
Advance Asset Management Limited Reinventure Special Purpose Investment Unit Trust
Asgard Capital Management Limited Securitor Financial Group Limited
Asgard Wealth Solutions Limited Sydney Capital Corporation Inc.
BT Funds Management (NZ) Limited Waratah Receivables Corporation Pty Limited
BT Funds Management Limited Waratah Securities Australia Limited
BT Funds Management No.2 Limited Westpac Custodian Nominees Pty Limited
BT Portfolio Services Limited Westpac Financial Services Limited
eQR Securities Pty. Limited Westpac General Insurance Limited
GIS Private Nominees Pty Limited Westpac General Insurance Services Limited
Hastings Funds Management Pty Limited Westpac Lenders Mortgage Insurance Limited
Magnitude Group Pty Limited Westpac Life Insurance Services Limited
Pendal Long Term Income Fund Westpac Life-NZ-Limited
Pendal Short Term Income Fund
Westpac New Zealand Staff Superannuation Scheme
Trustee Limited
Planwise AU Pty Ltd Westpac Nominees-NZ-Limited
Red Bird Ventures Limited Westpac RE Limited
Reinventure Fund II I.L.P Westpac Securities Administration Limited
Reinventure Fund III I.L.P Westpac Superannuation Nominees-NZ-Limited
Reinventure Fund, I.L.P.
Pillar 3 report
Appendix III | Level 3 entities’ assets and liabilities
Westpac Group September 2020 Pillar 3 report | 101
The following legal entities are excluded from the regulatory scope of consolidation.
The total assets and liabilities should not be aggregated because some of the entities are holding companies for
other entities in the table shown below.
30 September 2020
$m Total Assets
a) Securitisation
Sydney Capital Corporation Inc.
- -
Waratah Receivables Corporation Pty Limited
1 1
Waratah Securities Australia Limited
- -
b) Insurance, funds management and other
Advance Asset Management Limited
55 26
Asgard Capital Management Limited
43 16
Asgard Wealth Solutions Limited
51 5
BT Funds Management (NZ) Limited
69 15
BT Funds Management Limited
358 315
BT Funds Management No.2 Limited
10 1
BT Portfolio Services Limited
132 85
eQR Securities Pty. Limited
- -
GIS Private Nominees Pty Limited
7 2
Hastings Funds Management Pty Limited
- -
Magnitude Group Pty Limited
4 -
Pendal Long Term Income Fund
454 454
Pendal Short Term Income Fund387 387
Planwise AU Pty Ltd
6 4
Red Bird Ventures Limited
- -
Reinventure Fund II I.L.P
33 -
Reinventure Fund III I.L.P
17 -
Reinventure Fund, I.L.P.
98 1
Reinventure Special Purpose Investment Unit Trust
17 -
Securitor Financial Group Limited
4 -
Westpac Custodian Nominees Pty Limited
- -
Westpac Financial Services Limited
26 15
Westpac General Insurance Limited
825 680
Westpac General Insurance Services Limited
63 6
Westpac Lenders Mortgage Insurance Limited
1,069 783
Westpac Life Insurance Services Limited
3,318 1,534
Westpac Life-NZ-Limited
221 (50)
Westpac New Zealand Staff Superannuation Scheme Trustee Limited
- -
Westpac Nominees-NZ-Limited
4 -
Westpac RE Limited
7 1
Westpac Securities Administration Limited
8 1
Westpac Superannuation Nominees-NZ-Limited
- -
Liabilities (excluding
equity)
Pillar 3 report
Appendix IV | Regulatory expected loss
102 | Westpac Group September 2020 Pillar 3 report
Capital deduction for regulatory expected loss
2
For capital adequacy purposes APRA requires the amount of regulatory expected credit losses in excess of
eligible provisions to be deducted from capital. The following table shows how the deduction is calculated.
30 September31 March30 September
$m202020202019
Provisions associated with eligible portfolios
Total provisions for impairment charges6,163 5,791 3,924
plus general reserve for credit losses adjustment- - -
plus provisions associated with partial write-offs26 41 41
less ineligible provisions
1
(118) (129) (89)
Total eligible provisions
6,071 5,703 3,876
Regulatory expected downturn loss
5,801 5,540 4,982
Excess/(shortfall) in eligible provisions compared to
regulatory expected downturn loss
270 163 (1,106)
Common equity Tier 1 capital deduction for regulatory expected
downturn loss in excess of eligible provisions
2
(40) - (1,106)
1
Provisions associated with portfolios subject to the Basel standardised approach to credit risk are not eligible.
2
Regulatory expected loss is calculated for portfolios subject to the Basel advanced IRB approach to credit risk. The comparison
between regulatory expected loss and eligible provisions is performed separately for defaulted and non-defaulted exposures. As at 30
September 2020, there was $40 million excess of eligible provisions compared to regulatory expected loss for defaulted exposures
(31 March 2020: nil).
Pillar 3 report
Appendix V | APS330 quantitative requirements
Westpac Group September 2020 Pillar 3 report | 103
The following table cross-references the quantitative disclosure requirements given by Attachments A, C, D and E
of APS330 to the quantitative disclosures made in this report. The continuous reporting requirements for capital
instruments under Attachment B are satisfied separately and can be found on the regulatory disclosures section
on the Westpac website
In addition to this report, the regulatory disclosures section of the Westpac website
1
contains the reporting
requirements for:
⚫ Capital instruments under Attachment B of APS330; and
⚫ The identification of potential Global-Systemically Important Banks (G-SIB) under Attachment H of APS330
(disclosed annually).
APS330 reference Westpac disclosure Page
General Requirements
Paragraph 12 (a) (c) to (d) Balance Sheet Reconciliation 92
Paragraph 13 Level 3 entities’ assets and liabilities 101
Paragraph 49 Summary leverage ratio 20
Attachment A:
Table 1: Capital disclosure template Capital disclosure template 95
Attachment C:
Table 3: Capital adequacy (a) to (e) Capital requirements 18
(f) Westpac’s capital adequacy ratios 17
Capital adequacy ratios of major subsidiary banks 17
Table 4: Credit risk (a) Exposure at Default by major type 32
(b) Impaired and past due loans by portfolio 39
(c) General reserve for credit losses 31
Table 5: Securitisation exposures (a) Banking book summary of securitisation activity by asset
type
65
(b) Banking book summary of on and off-balance sheet
securitisation by exposure type
66
Trading book summary of on and off-balance sheet
securitisation by exposure type
71
Attachment D:
Table 6: Capital adequacy (b) to (f) Capital requirements 18
(g) Westpac’s capital adequacy ratios 17
Capital adequacy ratios of major subsidiary banks 17
Table 7: Credit risk - general
disclosures
(b) Exposure at Default by major type 32
(c) Exposure at Default by geography 37
(d) Exposure at Default by industry classification 34
(e) Exposure at Default by residual contractual maturity 38
(f) Impaired and past due loans by industry classification 40
(g) Impaired and past due loans by geography 41
(h) Movement in provisions for impairment charges 30
(h) Loan impairment provisions 29
(i) Exposure at Default by measurement method 33
(j) General reserve for credit losses 29
Table 8: Credit risk - disclosures for
portfolios subject to the
standardised approach and
supervisory risk-weights in the IRB
approaches (formerly Table 5)
(b) Portfolios subject to the standardised approach 42
Property finance 43
Project finance 44
1
http://www.westpac.com.au/about-westpac/investor-centre/financial-information/regulatory-disclosures/
Pillar 3 report
Appendix V | APS330 quantitative requirements
104 | Westpac Group September 2020 Pillar 3 report
APS330 reference Westpac disclosure Page
Table 9: Credit risk - disclosures for
portfolios subject to IRB approaches
(d) Corporate portfolio by external credit rating 45
Business lending portfolio by external credit rating 46
Sovereign portfolio by external credit rating 47
Bank portfolio by external credit rating 48
Residential mortgages portfolio by PD band 49
Australian credit cards portfolio by PD band 50
Other retail portfolio by PD band 51
Small business portfolio by PD band 52
(e) Actual losses 53
(f) Comparison of regulatory expected and actual loss rates 54
Table 10: Credit risk mitigation
disclosures
(b) to (c) Total exposure covered by collateral, credit derivatives
and guarantees
57
Table 11: General disclosure for
exposures related to counterparty
credit risk
(b)
Counterparty credit risk summary 59
(c) Credit derivative transactions that create exposures to
counterparty credit risk
59
Table 12: Securitisation exposures Banking Book
(g) part i and
(h) to (i)
Summary of assets securitised by Westpac
64
(g) part ii Summary of total Westpac sponsored third party assets
securitised
64
(j) Summary of securitisation activity by asset type 65
(k) Summary of on and off-balance sheet securitisation by
exposure type
66
(l) part i Securitisation exposure by risk weight band 67
(l) part ii Securitisation exposures deducted from capital 67
(m) Securitisation subject to early amortisation treatment 68
(n) part i Resecuritisation exposure subject to credit risk mitigation 68
(n) part ii Resecuritisation exposure to guarantors 68
Trading Book
(o) part i and
(p)
Summary of assets securitised by Westpac
68
(o) part ii Summary of total Westpac sponsored third party assets
securitised
68
(q) Summary of securitisation activity by asset type 68
(r) Aggregate amount of exposures securitised by Westpac
and subject to APS116 Capital Adequacy: Market Risk
68
(s) Summary of on and off-balance sheet securitisation by
exposure type
69
(t) part i Securitisation exposure retained or purchase subject to
specific risk
69
(t) part ii Securitisation exposure subject to APS120 for Specific
risk by risk weight band
69
(u) part i Capital requirements for securitisation exposure subject
to internal models approach (IMA) by risk classification
69
(u) part ii Capital requirements for securitisation regulatory capital
approaches by risk weight band
69
(u) part iii Securitisation exposures deducted from capital 70
(v) Securitisation subject to early amortisation treatment 70
(w) part i Aggregate resecuritisation exposures retain or purchased
subject to credit risk mitigation
70
(w) part ii Resecuritisation exposure to guarantors credit
worthiness
70
Pillar 3 report
Appendix V | APS330 quantitative requirements
Westpac Group September 2020 Pillar 3 report | 105
APS330 reference Westpac disclosure Page
Table 13: Market risk - disclosures
for ADIs using the standard method
(b) Market Risk regulatory capital and risk weighted assets 72
Table 14: Market risk - disclosures
for ADIs using the IMA for trading
portfolios
(d) VaR and Stressed VaR by risk type 73
Table 16: Equities - disclosures for
banking book positions
(b) to (c) Book value of listed equity exposures by industry
classification / Book value of unlisted equity exposures
by industry classification
80
(d) to (e) Gains/losses 80
(f) Capital requirement
1
NA
Table 17: Interest rate risk in the
banking book
(b) Change in economic value of sudden upward and
downward movement in interest rates
76
(b) Capital requirement 76
Attachment E
Table 18: Leverage ratio disclosure
template
Leverage ratio disclosure 20
Table 19: Summary comparison of
accounting assets vs leverage ratio
exposure measure
Summary comparison of accounting assets vs leverage
ratio exposure measure
21
Attachment F
Table 20: Liquidity Coverage Ratio
disclosure template
Liquidity Coverage Ratio disclosure 82
Table 21: Net Stable Funding Ratio
template
Net Stable Funding Ratio disclosure 83
Attachment G
2
Table 21: Remuneration disclosure
requirements
(g) Governance structure 88
(h) Quantitative Disclosures 91
(i) Deferred remuneration 91
(j) to (k) Total value of remuneration awards for the current
financial year for senior managers and material risk
takers
91
1
Equity exposures are not risk weighted at Level 2.
2
Remuneration disclosure is an annual reporting requirement under APS330.
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Term Description
Actual losses
Represent direct write-offs and write-offs from provisions after adjusting for
recoveries.
Additional Tier 1 capital
Comprises high quality components of capital that provide a permanent and
unrestricted commitment of funds that are freely available to absorb losses
but rank behind claims of depositors and other more senior creditors. They
also provide for fully discretionary capital distributions.
Alternate Liquid Assets (ALA)
Assets that qualify for inclusion in the numerator of the LCR in jurisdictions
where there is insufficient supply of HQLA.
Advanced measurement
approach (AMA)
The capital requirement using the AMA is based on a bank’s internal
operational risk systems, which must both measure and manage operational
risk.
Assets intended to be securitised
Represents securitisation activity from the end of the reporting period to the
disclosure date of this report.
Australian accounting standards
(AAS)
A set of Australian reporting standards and interpretations issued by the
Australian Accounting Standards Board.
Australian and New Zealand
standard industrial classification
(ANZSIC)
A code used by the Australian Bureau of Statistics and Statistics
New Zealand for classifying businesses.
Authorised deposit-taking
institution (ADI)
ADIs are corporations that are authorised under the Banking Act 1959 to
carry on banking business in Australia.
Banking book
The banking book includes all securities that are not actively traded by
Westpac.
Cash EPS compound annual
growth rate (CAGR)
An internal measure used to assess performance by measuring growth in
cash earnings per share over a three year performance period.
Committed Liquidity Facility (CLF) Facility established with the RBA to cover the shortfall in Australian dollars
between the ADI’s holding of HQLA and net cash outflows. The CLF is an
ALA for the Group’s LCR calculation.
Common equity Tier 1 (CET1)
capital
The highest form of capital. The key components of common equity are
shares, retained earnings and undistributed current year earnings.
Credit valuation adjustment (CVA)
risk
Refer to mark-to-market related credit risk.
Default
A customer default is deemed to have occurred when Westpac considers
that either or both of the following events have taken place:
⚫ the customer is unlikely to pay its credit obligations to its financiers in
full, without recourse by any of them to actions such as realising security
(where held); and
⚫ the customer is past due 90 or more calendar days on any material
credit obligation to its financiers. Overdrafts will be considered past due
once the customer has breached an advised limit, or been advised of a
limit smaller than the current outstandings.
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Term Description
Defaulted not impaired Includes facilities where:
⚫ contractual payments of interest and/or principal are 90 or more
calendar days overdue, including overdrafts or other revolving facilities
that remain continuously outside approved limits by material amounts
for 90 or more calendar days (including accounts for customers who
have been granted hardship assistance); or
⚫ an order has been sought for the customer’s bankruptcy or similar legal
action has been instituted, which may avoid or delay repayment of its
credit obligations; and
⚫ the estimated net realisable value of assets/security to which Westpac
has recourse is sufficient to cover repayment of all principal and interest,
or where there are otherwise reasonable grounds to expect payment in
full and interest is being taken to profit on an accrual basis.
These facilities, while in default, are not treated as impaired for accounting
purposes.
Double default rules
Double default applies to exposures where a particular obligor’s exposure
has been hedged by the purchase of credit protection from a counterparty
and loss will only occur if both obligor and counterparty default. In this
instance, capital can be reduced.
Exposure at default (EAD)
EAD is calculated at facility level and includes outstandings as well as the
proportion of committed undrawn that is expected to be drawn in the event
of a future default.
Extended licensed entity (ELE)
An extended licensed entity (ELE) comprises an ADI and any subsidiaries of
the ADI that have been approved by APRA as being part of a single ‘stand-
alone’ entity.
External credit assessment
institution
(ECAI)
ECAI is an external institution recognised by APRA (directly or indirectly) to
provide credit assessment in determining the risk-weights on financial
institutions’ rated credit exposures (including securitisation exposures).
Geography
Geographic segmentation of exposures is based on the location of the office
in which these items were booked.
High-quality liquid assets (HQLA)
Assets which meet APRA’s criteria for inclusion as HQLA in the numerator
of the LCR.
Impaired exposures
Includes exposures that have deteriorated to the point where full collection
of interest and principal is in doubt, based on an assessment of the
customer’s outlook, cashflow, and the net realisation of value of assets to
which recourse is held:
⚫ facilities 90 days or more past due, and full recovery is in doubt:
exposures where contractual payments are 90 or more days in arrears
and the net realisable value of assets to which recourse is held may not
be sufficient to allow full collection of interest and principal, including
overdrafts or other revolving facilities that remain continuously outside
approved limits by material amounts for 90 or more calendar days;
⚫ non-accrual facilities: exposures with individually assessed impairment
provisions held against them, excluding restructured loans;
⚫ restructured facilities: exposures where the original contractual terms
have been formally modified to provide for concessions of interest or
principal for reasons related to the financial difficulties of the customer;
⚫ other assets acquired through security enforcement (includes other real
estate owned): includes the value of any other assets acquired as full or
partial settlement of outstanding obligations through the enforcement of
security arrangements; and
⚫ any other facilities where the full collection of interest and principal is in
doubt.
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Term Description
Industry
Exposures to businesses, government and other financial institutions are
classified into industry clusters based upon groups of related ANZSIC
codes. Companies that operate in multiple industries are classified
according to their primary industry. Consumer customers as classified as
“retail” and not further broken down.
Interest rate risk in the banking
book (IRRBB)
The risk to current and future year interest income arising from a mismatch
between the duration of assets and liabilities that arises in the normal course
of banking activities.
Internal ratings-based approach
(IRB & Advanced IRB)
These approaches allow banks to use internal estimates of the risks of their
loans as inputs into the determination of the amount of credit risk capital
needed to support the organisation. In the Advanced IRB approach, banks
must supply their own estimates for all three credit parameters – Probability
of Default, Loss Given Default and Exposure at Default.
Leverage ratio
The leverage ratio is defined by APRA as Tier 1 capital divided by the
“Exposure measure” and is expressed as a percentage. “Exposure
measure” includes on-balance sheet exposures, derivatives exposures,
securities financing transaction (SFT) exposures, and other off-balance
sheet exposures.
Liquidity coverage ratio (LCR)
An APRA requirement to maintain an adequate level of unencumbered
high quality liquid assets, to meet liquidity needs for a 30 calendar day
period under an APRA-defined severe stress scenario. Absent a situation
of financial stress, the value of the LCR must not be less than 100%. LCR
is calculated as the percentage ratio of stock of HQLA, CLF and qualifying
Reserve Bank of New Zealand securities over the total net cash out flows
in a modelled 30 day defined stressed scenario.
Loss given default (LGD)
The LGD represents an estimate of the expected severity of a loss to
Westpac should a customer default occur during a severe economic
downturn. Westpac assigns LGD to each credit facility, assuming an event
of default has occurred and taking into account a conservative estimate of
the net realisable value of assets to which Westpac has recourse and over
which it has security. LGDs also reflect the seniority of exposure in the
customer’s capital and debt structure.
Maturity
The maturity date used is drawn from the contractual maturity date of the
customer loans.
Mark-to-market related credit risk
The risk of mark-to-market losses related to deterioration in the credit quality
of a derivative counterparty also referred to as credit valuation adjustment
(CVA) risk.
Monte Carlo simulation
A method of random sampling to achieve numerical solutions to
mathematical problems.
Net cash outflows
Total expected cash outflows minus total expected cash inflows in the
specified LCR stress scenario calculated in accordance with APRA’s liquidity
standard.
Net interest income at risk (NaR)
BRiskC-approved limit expressed as a deviation from the benchmark hedge
level over a 1-year time frame, at a 99% confidence level.
Net Stable Funding Ratio (NSFR)
The NSFR is defined as the ratio of the amount of available stable funding
(ASF) to the amount of required stable funding (RSF) defined by APRA. The
amount of ASF is the portion of an ADI’s capital and liabilities expected to be
a reliable source of funds over a one year time horizon. The amount of RSF
is a function of the liquidity characteristics and residual maturities of an ADI’s
assets and off-balance sheet activities. ADI’s must maintain an NSFR of at
least 100%.
Off-balance sheet exposure
Credit exposures arising from facilities that are not recorded on Westpac's
balance sheet (under accounting methodology). Undrawn commitments and
the expected future exposure calculated for Westpac's derivative products
are included in off-balance sheet exposure.
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Term Description
On balance sheet exposure
Credit exposures arising from facilities that are recorded on Westpac's
balance sheet (under accounting methodology).
Potential future credit exposure
(PFCE)
The PFCE for each transaction is calculated by multiplying the effective
notional principal amount by a credit conversion factor specified in APS112.
Probability of default (PD)
Probability of default is a through-the-cycle assessment of the likelihood of a
customer defaulting on its financial obligations within one year.
Resecuritisation
A resecuritisation exposure is a securitisation exposure in which the risk
associated with an underlying pool of exposures is tranched and at least one
of the underlying exposures is a securitisation exposure. In addition, an
exposure to one or more resecuritisation exposures is a resecuritisation
exposure;
Risk weighted assets (RWA)
Assets (both on and off-balance sheet) are risk weighted according to each
asset's inherent potential for default and what the likely losses would be in
case of default. In the case of non-asset backed risks (i.e. market and
operational risk), RWA is determined by multiplying the capital requirements
for those risks by 12.5.
Securitisation purchased
The purchase of third party securitisation exposure, for example residential
mortgage backed securities.
Securitisation retained
Securitisation exposures arising through Westpac originated assets or
generated by Westpac third party securitisation activity.
Securities financing transactions
(SFT)
APRA defines SFTs as “transactions such as repurchase agreements,
reverse repurchase agreements, and security lending and borrowing, and
margin lending transactions, where the value of the transactions depends on
the market valuation of securities and the transactions are typically subject
to margin agreements.”
Sponsor
An ADI would generally be considered a sponsor if it, in fact or substance,
manages or advises the securitisation program, places securities into the
market, or provide liquidity and/or credit enhancements.
Standard model
The standard model for Market risk applies supervisory risk weights to
trading positions.
Stressed VaR (SVaR)
Stressed VaR uses the approved VaR model but applies a period of
significant market stress. Market risk capital is estimated by adding Stressed
VaR to regular VaR.
Substitution approach
Substitutions refers to the rules governing the circumstances when capital
can be reduced because an obligor’s exposure has been hedged by the
purchase of credit protection from a counterparty and the counterparty’s PD
is used in place of the obligors’ PD.
Supervisory Formula Approach
(SFA)
The SFA applicable to unrated exposures dynamically looks at the type and
performance of underlying asset pools funded by the securitisation exposure
as well as the structural features of the transaction to determine capital
requirements
Tier 2 capital
Includes other capital elements, which, to varying degrees, fall short of the
quality of Tier 1 capital but still contribute to the overall strength of an entity
as a gone concern capital.
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Term Description
Trading book
Trading book activity represents dealings that encompass book running and
distribution activity. The types of market risk arising from trading activity
include interest rate risk, foreign exchange risk, commodity risk, equity price
risk, credit spread risk and volatility risk. Financial Markets and Treasury are
responsible for managing market risk arising from Westpac’s trading activity.
Value at risk (VaR)
VaR is the potential loss in earnings from adverse market movements and is
calculated over a one-day time horizon at a 99% confidence level using a
minimum of one year of historical rate data. VaR takes account of all
material market variables that may cause a change in the value of the
trading portfolio and the banking book including interest rates, foreign
exchange rates, price changes, volatility, and the correlation among these
variables.
Exchange rates
The following exchange rates were used in the Westpac Pillar 3 report, and reflect spot rates for the period end.
$30 September 202031 March 202030 September 2019
USD0.7108 0.6191 0.6755
GBP0.5540 0.5017 0.5493
NZD1.0802 1.0264 1.0791
EUR0.6060 0.5620 0.6176
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Disclosure regarding forward-looking statements
Westpac Group September 2020 Pillar 3 report | 111
This 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 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’, ‘outlook’ 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:
⚫ the effect of the global COVID-19 pandemic, which has had, and is expected to continue to have, a negative
impact on our business and global economic conditions, adversely affected a wide-range of Westpac's key
suppliers, third-party contractors and customers, created increased volatility in financial markets and may
result in increased impairments, defaults and write-offs;
⚫ the effect of, and changes in, laws, regulations, taxation or accounting standards or practices and government
policy, particularly changes to liquidity, leverage and capital requirements;
⚫ regulatory investigations, reviews, 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;
⚫ the failure to comply with financial crime obligations, which has had, and could further have, adverse effects
on our business and reputation;
⚫ internal and external events which may adversely impact Westpac's reputation;
⚫ litigation and other legal proceedings and regulator investigations and enforcement actions;
⚫ information security breaches, including cyberattacks;
⚫ reliability and security of Westpac's technology and risks associated with changes to technology systems;
⚫ the 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;
⚫ market volatility, including uncertain conditions in funding, equity and asset markets;
⚫ an increase in defaults in credit exposures because of a deterioration in economic conditions;
⚫ adverse asset, credit or capital market conditions;
⚫ the incidence of inadequate capital levels under stressed conditions;
⚫ the risk that governments will default on their debt obligations or will be unable to refinance their debts as they
fall due;
⚫ changes to Westpac's credit ratings or to the methodology used by credit rating agencies;
⚫ levels of inflation, interest rates (including low or negative rates), exchange rates and market and monetary
fluctuations and volatility;
⚫ an increase in defaults, write-offs and provisions for credit impairment;
⚫ changes 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 operations and Westpac’s ability to maintain or to increase market
share, margins and fees, and control expenses;
⚫ the effects of competition, including from established providers of financial services and from non-financial
service entities, in the geographic and business areas in which Westpac conducts its operations;
⚫ poor data quality or poor data retention;
⚫ the effectiveness of Westpac's risk management policies, including internal processes, systems and
employees, and operational risks resulting from ineffective processes and controls, as well as breakdowns in
processes and procedures requiring remediation activity;
⚫ the incidence or severity of Westpac-insured events;
⚫ the 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;
⚫ changes to Westpac’s critical accounting estimates and judgments and changes to the value of Westpac's
intangible assets;
⚫ changes in political, social or economic conditions in any of the major markets in which Westpac or its
customers or counterparties operate;
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⚫ the inability to syndicate or sell down underwritten securities, particularly during times of heightened market
volatility;
⚫ the success of strategic decisions involving diversification or innovation, in addition to business expansion
activity, business acquisitions and the integration of new businesses; and
⚫ various 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’ in Westpac’s 2020 Annual report. 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 report, whether as a
result of new information, future events or otherwise, after the date of this report.
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.