Slide 1: Australia's First Bank - Investor Discussion Pack
ll | Australias First Bank Investor Discussion Pack May/June 2003 Disclaimer The material contained in this presentation is intended to be general background information on Westpac Banking Corporation and its activities as at 19 May 2003. The information is supplied in summary form and is therefore
Slide 2: Index
Index Summary of interim 2603 earnings 5 What the market is saying 42 Drivers of growth 44 Expenses and cost savings pipeline 20 Business Banking 22 fnstitutional Bank 23 New Zealand Banking 24 Credit risk 26 Wealth Management integration ELS Mortgages and housing market 43 Capital 50 Basel 2 55 Int
Slide 3: Maintaining growth momentum
Maintaining growth momentum * High quality result Reported cast earnings of $1,095m Ongoing cash earnings of $1,075m Dividend of 38 cents per share fully franked Cash return an equity * Key drivers of growth tip 10% up 18% up 12% maintained at 21% Robust loan growth with no margin deterioration Aust
Slide 4: Revenue - the key driver of growth
Revenue - the key driver of growth $m, 4800 5 3.500 4 3 Year CAGR: 3.0004 7 Revenue 7% 2,800 4 ollie Expenses 3% (excl. goodwill) 2,000 4 : wt Core earnings..11% snare - 41500 4 4,000 4 S00 4400 2HOO ~ THOT ~ 2HO1 ~ 1HOz ~ 2HO2 © fHOS 1 Underlying dusis (oxel. significant items} investor: Bi Cash ea
Slide 5: All businesses contributing to growth
All businesses contributing 4 t Progortion Cash earnings of Sroup Contribution Business & Consutner 53% Banking Wealtr Mgmt 8% insiitutionat Bank 49%, RZ 18% Sanking ia) 200. -° 400 -~. 600... BO Sm OfHe3 © 2H02 BtHO2 ‘ Excluding significant items Growth 1HO2 ~ 1103 tavestor: ayidune: 2008 Tax break
Slide 6: Consistent dividend growth and higher payout
Consistent dividend growth and higher payout Dividend growing at or above earnings: - Cash EPS 10% - Dividends 12% Payout ratio likely to Increase near term Medium term drivers of payout ratio: - Cash earnings ~ Franking capacity~ surplus now exceeding $400m ~ Organic capital requirements Dividends
Slide 7: What the market is saying
What the market is saying * How will capital be deployed? * Where is Westpac sourcing its future growth? Is this sustainable? * What is driving asset growth? Are you compromising fees for grawth? * How is Westpac growing market share in the SME market? * fs the turnaround in the institutional Bank s
Slide 8: Growth through deeper customer relationships
Growth through deeper customer relationships Australian consumer customers ate araant in Seon: Bi Low <-— Customer Value Segments me Hight im Mar-02 i Mar-03 Loan growth and market share in key products Group Average interest earieg assets Housing Corporate «nel loans & accept. Non-houising terre an
Slide 9: Analysis of margin dynamics
Analysis of margin dynamics 3.9 29 2.8 % 27. 28 25 24 T T r T T Mar-02 Spread. Free -. Sep-02 - Spread funds 2001 1HO2 Reported group margin 3.44 2.90 impact of bil acceptance funding - 0.18 impact of AGC saie - Normalised margin 3.44 3.08 Free . Mar-03 funds 2HO2 THOS 2.70 2.68 6.20 6.18 0.09 6.14
Slide 10: Non-interest income analysis
Non-interest income analysis itigalth manayoment income as? 49 292 age. Other incase” $1 Gad... 79 tange ‘Youal nen-interadt income ~~ 4,428 “4,846 “1,362 ~~ (12) Me Mlowt 9% Mev? bn aHi03 BHO “1HO2 Sopa Mar o2 Mar 03 Mar 03 Fees and commissions Londinus tees. “BS 872. - 988, @ 4 Transfer frors bill
Slide 11: Ongoing expense growth and cost efficiency pipeline
Ongoing expense growth and cost efficiency pipeline tm tHO 1HOz % Mov't Operating expenses 4,887 4,738 7 Impact of change in business mix {50} ~ nfa Ongoing opsrating expenses _ 4,807 A,T3S 4 NZ currency appreciation 422} ~ ws Superannualion ~ adaption of W319 (28) tg Cost Efficiency Pipeline. gm FY
Slide 12: Institutional Bank - sustained improved performance
Institutional Bank ~- sustained improved performance * Gash earnings up 64% * Net interest income up 24% driven by growth in loans, financial markets (FM) income and high margin structured finance deais * FM income up 17% on pep and 62% on pricy half, driven by: - Higher customer activity - improved
Slide 13: NZ dollar impact
NZ dollar impact * 2004 AUD/NZD hedge position to be around 1.10- 1.12 * Hedge gain/oss recognised in non- interest income. retail} * Rolling 12-month focus — timing main Impact on group impact financtats (A$} Operating revenue Operating expenses Cash earings Loans and acceptances: Risk weighted ass
Slide 14: Bad debt charge
Bad debt charge Total bad & doubiful debt charge (annualised) to average loans and acceptances ie i Dives Bienes - ee ie Bs ee a ae SIA 1995 1996 .1997..1998 .1999 2000. 2001 .1HO2 2HO2 41HO3 Investor: ayidune: 2008 Stressed exposures lower - provisions increased Gategores of sessed exposures Specif
Slide 15: Portfolio by industry
Portfolio by industry! Property Finance Business senices Consumer retailfwholesaie Ubities: Mterufacturing: Food & beverage Constniction & construction matedais Manufacturing: Other Menufaciuting: Machinery & Equipment Agicutture Business products wholesale Consumer senses Transportation Hospitality
Slide 16: Total exposure by region
Total exposure by region! * Exposures outside core markets represent less than 5% of total committed exposures - sub investment grade represent 0.5% of total exposures NZi Asia ex $m Australia Pacific Americas “Europe Japan dapan Group ADA to AAy 24,544. 8404 827 783 as 148.| 34,758 At to Ae 13,174
Slide 17: No signs of deterioration across the portfolio
No signs of deterioration across the portfolio Housing Portfolio - 90 day delinquencies: Business Banking - 90 day delinquencies : ° : % % a : . . 25 28 10 Sot ~ : 48 ae . 4.9 O8. 38 o268 _. _ 025 gig 0.18 Os o—~ 4» ae ao 4996 4997 {998 1995 200C 200% 2002 1H03 1998 4999 = 2000-2064 2002 1H OS Consu
Slide 18: Wealth performance - BT Financial Group
Wealth performance -- BT Financial Group $m oo moe Sf HOB BHOZ - 1HOZ Operating income : 303 189 469 Operating expenses (192) (107) (77) Tax & outside equity interests (25) (12) (14} Cash earnings ° gg 50 78 Goodwili 28 2 2 Composition of cash earnings : Existing operations ; 68 “ag 78 2 i] Rothschi
Slide 19: Turning around the retail fund outflows
Turing around the retail fund outflows * Delivering true to label performance * More disciptined investment management process * Returns achieved through a larger nurnber of smaller active positions * Extreme market volatility previously experienced will not be repeated * Fund performance improverne
Slide 20: Wrap funds under administration
Wrap funds under administration Wrap products are the fastest growing sector in the market Wrap Is preferred administration solution for financial planners and advisors and planner groups given: - Choice — broader product range including managed funds (300+ funds) and listed equites - Transparency —
Slide 21: Wealth management acquisitions
Wealth management acquisitions * No use of embedded or appraisal value * Carrying value of goodwill for acquisitions (at 31 Mar 03) - BT Financial Group $839m - Rothschild $319m * Closing accounts for BT yet to be completed. Final numbers usually settled up fo 12 months after acquisition * Value buf
Slide 22: Housing market - economic setting
Housing market ~ economic setting Australian real house prices. * Established house prices have apt risen sharply - circa 40% over last two years 258 200. * Investment housing has replaced first home owners as ‘so predominant source of growth tog 6e * First home owners are now a . 195960 1960/70 197
Slide 23: Housing credit growth
Housing credit growth Dejyers of household formation * Housing credit growth returning to 18 ko decade average in year ahead 144 t2 * Housing credit growth will, on 19 average, continue to grow ahead of = jas nominal GDP supported by: om Popusation grows (i) * ~ Continuing positive population a2 ——
Slide 24: Mortgages - broker originated loans
Mortgages - broker originated loans * 30% of outstanding mortgage portfolio is Broker Introduced Loans broker criginated {Fgopartion af total by umber} * Brokers on average introduce 25% ~ 35% 385 es of new loans’ by way of value : * Average size of loan is up to 15% higher 304° . . oR than branch o
Slide 25: Housing portfolio stress test
Housing portfolio stress test * Stress tested separately and jointly for: - Uptoa 4 percentage point increase in interest rates) - 20 per cent decline in housing prices; and - A200 basis point increase in the unemployment rate * Behaviour of the investment loans closely tracks that of the owner occu
Slide 26: Capital ratios - back in target ranges
Capital ratios ~ back in target ranges Tier 1/ Risk weighted assets : Sep-2 ‘Earnings Dividend BT Hastings RAA Other Mar-O3 Surplus capital generation model ~ 2002 * In 2002 we demonstrated that our business mode! could generate growth in surplus capital per annum based on certain assumptions opw® %
Slide 27: First half 2003 - actual capital outcome
First half 2003 — actual capital outcome * Organic growth opportunities exceeded expectations without eroding returns. Combined with a higher payout to shareholders saw no excess capital accumulated in Ht 2003 2002 HH 2003 “Comments estimate actual . : Strong cash returns on equity Oy a7 Return on e
Slide 28: Basel 2 - the story so far
Base} 2 ~- the story so far * Basel 2 involves the development of more sophisticated and comprehensive risk measurernent for banks gichbally including credit, market and operational risks. * Third stage of detailed global benchmarking now complete (QIS3} resulting in a model which sees no overall re
Slide 29: Conversion to international reporting standards
Conversion to international reporting standards * Westpac is well advanced in preparing for the conversion fo international Financial Reporting Standards (JFRS} 17 Aprit 3 September 34 January 2003 wy 2003 Phasat Preliminary. study + Accounting and + Recornmended + Issues cescived + 30 September + F
Slide 30: Outlook
ll | Australias First Bank Outlook May/June2003 Core objectives on track * Increase employee commitment by at least 5% * Improve customer satisfaction by at least 5% * Deliver cash earnings per share growth of 7% to 9% in 02/03 * Maintain global sector leadership position in sustainability practices
Slide 31: Sustainably meeting the needs of all stakeholders
Sustainably meeting the needs of all stakeholders * Staff cornmitment above industry norms * Beginning to exceed peers in customer satisfaction * Number 1 financial institution globally in Dow Jones Sustainability Index 2002/03 * Number 1 Sydney Morning Herald / The Age Good Reputation Index 2002 *
Slide 32: Regulatory issues
Regulatory issues * Credit card reform - Reforms released by Reserve Bank of Australia August 02 - Affects interchange fees, ends restrictions on cost recovery by merchants and removes restrictions on new entrants ~ interchange reforns apply from October 03 - Assuming average reduction of 40 bps! in
Slide 33: Macro economic environment
Macro economic environment * Australian economy consistently performed ahead of OECD * Continued sound growth in Australia and New Zealand reliant on: ~ Breaking of drought ~Recovery in world economy ~impact of SARS on major trading partners * interest rate outiook - stable GOP Growth: Australia/(OE
Slide 34: Priorities for 2003
Priorities for 2003 * Maintain momentum in ongoing businesses - NZ program review - Impfement Australian restructuring programs - Complete end-to-end re-engineering of lending process - Enhance customer experience and relationship management * Deliver value from new acquisitions - Complete wealth in
Slide 35: Supplementary information
ll | Australias First Bank Supplementary information May/June2003 Deferred expenditure $m . Mar 03 Sept 02 Capitalised software 283 232 Other deferred expenditure’ 207 162 Deferred acquisition costs? 90 86 Deferred start up cosis - - discounts associated with wholesale bank dabt issues and associale
Slide 36: Composition of portfolio
Composition of portfolio * Morigages represent 39% of total Portfolio by customer segment? os commitments and 56% of funded 30h ; e lending oh * 67% business / corporate portfotic blag exceeding investment grade 80% . " 20% * Other consumer includes credit : % cards, personal lending and margin + ;
Slide 37: Half year earnings reconciliation - 2H02
Half year earnings reconciliation ~ 2HO2 ‘SB mantns ta: 30 Septumbae 2002 wid significant Embedded — Lactarlying Ongoing Pon Rams Vara Uptitt _Businass__ AGC? RAM busingss TaTeeThoame BRAY : Sa TTe ay Inereatepence - - $2563) * (105) - (2.458) Neténlerestincome Grcl. grass. up) - - 2326 Pry - 2962 ‘