Slide 1: 2018 Interim Results Presentation and Investor Discussion Pack
2018 For personal use only Interim Results For the six months ended 31 March 2018 Presentation and Investor Discussion Pack Westpac Banking Corporation | ABN 33 007 457 141
Slide 2: Westpac 2018 Interim Results index
Westpac 2018 Interim Results index Image on front For personal use only 2018 Interim Result Presentation 3 Investor Discussion Pack of 2018 Interim Result 28 The Westpac Rescue Helicopter Service in action Strategy 29 Image on right Overview 35 Performance discipline 38 Westpac head office, 275 Kent
Slide 3: Brian Hartzer, CEO: Financial results
For personal use only Brian Hartzer Chief Executive Officer Financial results Westpac based on Banking cash earnings unless Corporation | ABN otherwise 33 007stated 457 141 Refer page 36 for definition. Results principally cover the 1H18, 2H17 and 1H17 periods Comparison of 1H18 versus 2H17 (unless
Slide 4: Consistency delivers
Consistency delivers 4 For personal use only • Cash earnings up 5% on 2H17 and 6% on 1H17 • Operating divisions performing well – all increased core earnings • Maintained discipline – prioritised return over growth • Increasing traction on efficiency • Continuing to build long-term franchise value •
Slide 5: Headline results
Headline results 5 For personal use only Change Change 1H18 1H18 – 2H17 1H18 – 1H17 Reported net profit after tax $4,198m 3% 7% Cash earnings $4,251m 5% 6% Cash EPS1 125.0c 4% 4% Common equity Tier 1 capital ratio2 10.5% (6bps) 53bps Return on equity (ROE)3 14.0% 37bps 1bp Net tangible assets per sh
Slide 6: Delivering for all stakeholders
Delivering for all stakeholders 6 For personal use only 14.0m Supporting customers’ Being there when it Customers Customers financial goals2 matters most to customers •• [text 126,000 to come]new home loans • •[text Helped to come]19,473 customers with 39,574 Employees Employees financial assistance
Slide 7: Core earnings up across operating divisions
Core earnings up across operating divisions 7 For personal use only 1H18-2H17 (% earnings change) Division Cash Core Comments 1H18 – 2H17 • Disciplined growth, improved margins, flat costs, lower Consumer Bank 6 3 impairments • Lending up 2% with growth across SME and commercial Business Bank 3 3 •
Slide 8: Balance sheet remains strong
Balance sheet remains strong 8 For personal use only Common equity Tier 1 (ratio % and $bn) Liquidity ratios1 (%) 55 $bn Ratio (%) 10.6 10.5 12 LCR NSFR 10.0 11 9.5 9.5 50 45 9.1 9.0 10 40 8.2 9 8 134 35 7 44 125 124 43 30 40 6 39 108 109 112 25 34 5 28 30 20 25 4 15 3 Sep-12 Sep-13 Sep-14 Sep-15 Se
Slide 9: Managing growth and return
Managing growth and return 9 For personal use only Enhanced discipline 1H18 outcomes and accountability A more granular operating structure ROE at the upper end of 14% 13-14% range the Group is 1 6 27 seeking to achieve Group Divisions Business units Australian system Additional capital 0.9x mortgag
Slide 10: Increasing traction on efficiency
Increasing traction on efficiency 10 For personal use only • Targeting a sub 40% cost to Sources of productivity ($m) income ratio • Making progress on medium 1H15 – term structural productivity 1H18 1H181 gains Halved products for sale in Simplify operating models 389 69 Consumer Bank to 60 Pan
Slide 11: Building long term franchise value
Building long term franchise value 11 For personal use only 1H16 1H18 Change CET1 capital ($bn) 38 44 16% Strong Impaired assets ($bn) 2.49 1.54 (40%) Balance sheet NTA per share ($) 13.74 15.00 9% Customer No.s Customer numbers (#m) 13.2 14.0 +800k & relationship Customer deposits ($bn) 442 502 14%
Slide 12: Positioning for changing landscape
Positioning for changing landscape 12 For personal use only Upgrading Harnessing Innovating infrastructure data for customers • Customer service hub • Reinventure • Presto Smart2 • Big data platform • AI, robotic process • BT Super Invest2 automation • Panorama • Open data & CCR1 • Institutional loa
Slide 13: Peter King, CFO: Financial results
For personal use only Peter King Chief Financial Officer Financial results Westpac based on Banking cash earnings unless Corporation | ABN otherwise 33 007stated 457 141 Refer page 36 for definition. Results principally cover the 1H18, 2H17 and 1H17 periods Comparison of 1H18 versus 2H17 (unless oth
Slide 14: Results at a glance
Results at a glance 14 For personal use only Cash earnings movements ($m) Infrequent/volatile items ($m after tax) Revenue up 3% 2H16 1H17 2H17 1H18 Asset sales (4) 4 - (7) 278 (50) (33) (67) 4,251 169 (91) 4,045 Performance fees/ 22 - (3) - fund manager revaluations Up 5% Group CVA1 3 15 20 (1) Pro
Slide 15: Australian mortgage growth 2%
Australian mortgage growth 2% 15 For personal use only Australian mortgage portfolio growth ($bn) Switching from I/O to P&I ($m) and mix (%) Reached end of I/O period Customer initiated 3% 2% 414 427 437 Portfolio $bn 7,913 5 5 4 4,717 4,261 4,045 3,004 3,447 3,911 3,623 45 49 Mix of portfolio (%) 3
Slide 16: Margins ex Treasury & Markets up 3bps
Margins ex Treasury & Markets up 3bps 16 For personal use only Net interest margin movement (% and bps) 4bps 2.17 2bps 1bp 1bp (2bps) 0bp 1bp 2.10 2.07 0.12 0.08 Treasury & Markets impact on NIM 0.11 NIM excl. Treasury & Markets 2.02 2.05 1.96 Up 3bps 1H17 2H17 Loans Customer Term w'sale Bank Levy C
Slide 17: Non-interest income
Non-interest income Total 17 For personal use only Non-interest income ($m) 1H18 - 2H17 drivers Non-repeat of customer Non-repeat of customer refunds/ Markets income and 3,068 refunds/payments payments and fund revaluations NZ hedge impact 2,850 2,784 Lower ATM, transaction Higher general insurance
Slide 18: Expenses well managed
Expenses well managed 18 For personal use only Movement in expenses ($m) Divisional expense growth 1H18 – 2H17 $m % 125 (131) Consumer Bank 3 flat 22 4,654 34 Business Bank 9 1% 4,604 – BT Financial Group (9) (1%) Up 1% Westpac Institutional Bank (5) (1%) New Zealand (in NZ$) (7) (1%) 2H17 Productiv
Slide 19: Asset quality sound
Asset quality sound 19 For personal use only Stressed assets as a % of TCE1 Corporate/business stressed exposure by sector ($bn) 2.0 Mar-17 Sep-17 Mar-18 Watchlist & substandard 1.8 3.20 90+ day past due and not impaired 2 large names 1.6 moved to watchlist Impaired 1.4 3 large names 1.2 downgraded
Slide 20: Australian mortgages performing well
Australian mortgages performing well 20 For personal use only Australian mortgage portfolio delinquencies (%) Australian mortgage portfolio characteristics 90+ day past due total 90+ day past due investor 30+ day delinquencies 144bps 3.0 30+ day past due total 90+ day delinquencies 69bps Introduced
Slide 21: Substantial equity backs pre 2015 originations
Substantial equity backs pre 2015 originations 21 For personal use only Australian mortgage lending1 by origination date and dynamic LVR2 (%) % of total portfolio 21 26 53 (Movement Sept 17 to Mar 18) (down 5ppts) (down 7ppts) (up 12ppts) 5 7 11 14 Newer loans written Dynamic LVR 21 with tighter sta
Slide 22: Impairment charge low at 11bps
Impairment charge low at 11bps 22 For personal use only Individually assessed provisions ($m) Collectively assessed provisions ($m) Total ($m) Other movement Write-backs Write-offs New IAPs in Collective & recoveries direct provisions 667 525 493 484 471 457 443 430 418 393 364 360 256 246 173 Inter
Slide 23: Unquestionably strong capital
Unquestionably strong capital 23 For personal use only CET1 capital ratio (% and bps) 16.13 102 (70) 10.56 (8) (5) (22) (2) (1) 10.50 9.97 Organic +19bps Other -25bps Mar-17 Sep-17 Cash earnings Final dividend Ordinary Other Regulatory FX translation Defined Mar-18 Mar-18 APRA APRA (net of DRP) RWA
Slide 24: Payout ratio down to 75.3%
Payout ratio down to 75.3% 24 For personal use only Dividends per ordinary share (cents) Dividend considerations • Sustainability of the payout ratio over the medium term • CET1 capital ratio = unquestionably strong benchmark • Surplus franking credits • Bank Levy equivalent to 4 cents per share1 93
Slide 25: Considerations for 2H18
Considerations for 2H18 25 For personal use only • Remaining disciplined on growth/return • Expect system lending growth to further moderate • Margins: further mortgage switching and higher funding costs • Hastings exit: small cash earnings impact, will lift revenue and expenses • Targeting similar
Slide 26: Brian Hartzer, Chief Executive Officer
For personal use only Brian Hartzer Chief Executive Officer Westpac Banking Corporation | ABN 33 007 457 141
Slide 27: Positive outlook
Positive outlook 27 For personal use only • Global growth trending higher despite some uncertainties • Australia/NZ continue to generate low risk growth Economic fundamentals sound Opportunity for upside from investment Orderly slow-down in housing likely to continue Credit growth expected t
Slide 28: Investor Discussion Pack
For personal use only Investor Discussion Pack Financial results based on cash earnings unless otherwise stated Refer page 36 for definition. Results principally cover the 1H18, 2H17 and 1H17 periods Comparison of 1H18 versus 2H17 (unless otherwise stated)
Slide 29: Strategy
For personal use only Strategy
Slide 30: Westpac Group at a glance
WBC Westpac Group at a glance: Australia’s First Bank listed on ASX & NZX Strategy 30 For personal use only • In its 201st year, Australia’s first bank and first company, opened 1817 Consumer Business BT Financial Institutional Westpac • Australia’s 2nd largest bank and 21st largest bank in the worl
Slide 31: Progress on our strategic agenda
Progress on our strategic agenda Strategy 31 For personal use only Our To be one of the world’s great service companies, Vision: helping our customers, communities and people to prosper and grow Strategic Priorities Service Performance Digital Targeted Workforce Leadership Discipline Transformation
Slide 32: What sets Westpac apart
What sets Westpac apart Strategy 32 For personal use only Strong strategic position – consistent strategy Conservative balance sheet Impaired assets to gross loans1 (%) • No. 1 or 2 position across key markets – all divisions well placed • Strong asset quality with 0.45 lowest impaired assets of 0.3
Slide 33: Consistent performer over the long term
Consistent performer over the long term Strategy 33 For personal use only Cash earnings ($bn) Cash earnings per share (cents) 127.5 125.0 121.3 124.1 120.7 118.2 117.3 119.8 119.9 8.1 113.3 114.5 7.8 7.8 7.6 7.1 6.6 6.3 5.9 1H13 2H13 1H14 2H14 1H15 2H15 1H16 2H16 1H17 2H17 1H18 4.7 4.3 Ordinary divi
Slide 34: Rebuilding trust
Rebuilding trust Strategy 34 For personal use only Completed ABA1 six point plan Get it Right. Put it Right Delivering for customers 1. Reviewing product sales and commissions • Dedicated initiative to identify where we may not • Helping customers manage their finances Sales incentives removed for
Slide 35: Overview
For personal use only Overview
Slide 36: Cash earnings and reported net profit reconciliation
Cash earnings and reported net profit reconciliation Results 36 For personal use only Cash earnings1 policy Reported net profit and cash earnings adjustments ($m) • Westpac Group uses a measure of performance referred to as cash earnings to assess financial performance at both a Group and divisional
Slide 37: 1H18 financial snapshot
1H18 financial snapshot Results 37 For personal use only Change Change Change Change 1H18 1H18 – 2H17 1H18 – 1H17 1H18 1H18 – 2H17 1H18 – 1H17 Earnings1 Balance sheet Total assets ($bn) 871.9 2% 4% Earnings per share (cents) 125.0 4% 4% Common equity Tier 1 10.50 (6bps) 53bps Core earnings ($m) 6,49
Slide 38: Cash earnings up 6% over the year and 5% on prior half
Cash earnings up 6% over the year and 5% on prior half Performance discipline 38 For personal use only % chg % chg Cash earnings features of 1H18 – 2H17 ($m) 1H18 1H18- 1H18 - AIEA1 up 1%, Higher investment and regulatory and compliance costs ($m) 2H17 1H17 margins up 7bps including costs associated
Slide 39: All divisions contributing to core earnings growth
All divisions contributing to core earnings growth Performance discipline 39 For personal use only 1H18 divisional1 core earnings movements ($m) 1H18 divisional1 cash earnings movements ($m) 8 7 108 6,497 42 68 47 21 (40) 50 4,251 6,191 73 93 35 4,045 Up 5% Up 5% 2 3 2 3 2H17 CB BB BTFG WIB NZ Other
Slide 40: More customers, deeper relationships and strengthening of the balance sheet
More customers, deeper relationships and strengthening of the balance sheet Service leadership 40 For personal use only Grow customers Deepen relationships Strengthened balance sheet Customer numbers (#m) Transaction account balances ($bn) CET capital ratio (%) and capital ($bn) 2 3 4 2 Australian b
Slide 41: Building long term franchise value – customer service
Building long term franchise value – customer service Service leadership 41 For personal use only Customer satisfaction1 Customer complaints (#) Consumer and Business (mean) New Zealand (%) Australian retail (CB, BB and BT) Higher mostly from issues Westpac St.George brands Peers with the timing of
Slide 42: Workforce revolution delivering
Workforce revolution delivering Workforce revolution 42 For personal use only Service leadership and culture Learning and development Simplification • All teller incentives now based • Over 1,400 leaders have participated in • Digitised HR policies with embedded AI. Has 100% on customer advocacy lea
Slide 43: Actively positioning for digital opportunities
Actively positioning for digital opportunities1 Digital transformation 43 For personal use only Westpac is Westpac is activelyfor actively positioning responding to digital threats digital opportunities, and to responding opportunities. digital disruption and We encourage supportingdigital digitalin
Slide 44: Reinventure – Investing in new fintech businesses
Reinventure – Investing in new fintech businesses1 Digital transformation 44 For personal use only Westpacup Westpac has committed isto actively $100m responding to digital to Reinventure, threats and an independent earlyopportunities. stage venture capital fund. We encourage digital The innovation
Slide 45: Customer Service Hub
Customer Service Hub: Commencing with a new mortgage experience Strategy Digital transformation 45 Phase 1 For personal use only Reengineering the home ownership process: Digitising the end-to-end home loan origination experience by 2020 Capabilities to be delivered Customer access Banker dashboard
Slide 46: Customers increasingly choosing digital channels
Customers increasingly choosing digital channels Digital transformation 46 For personal use only Digitally active customers1 (#m) Quality digital sales (#000) and % of sales via digital2,3 4.69 Sales % of sales via digital 29 4.53 4.33 4.18 25 3.96 4.05 24 380 3.84 312 287 Up 4% Up 22% Up 8% Up 32%
Slide 47: Customers shifting to digital and self-serve channels
Customers shifting to digital and self-serve channels Digital transformation 47 For personal use only Proof of balance – Westpac brand (%) Accounts with e-statements (%) Digital Branch & Contact Centres E-statements Paper 54 47 55 62 64 72 46 53 45 38 36 28 2H16 1H17 1H18 1H16 1H17 1H18 Lost and sto
Slide 48: New digital services launched over the last months
New digital services launched over the last 6 months Digital transformation 48 For personal use only Electronic Automatic e-statement Automatic online Application status New ways of correspondence registrations registrations and next steps connecting via Alexa1 Through the creation Credit cards are
Slide 49: Helping customers with cybersecurity
Helping customers with cybersecurity Digital transformation 49 For personal use only Awareness Prevention Detection and remediation Enhancing security awareness for Using a variety of security features to Identifying fraudulent/ suspicious behaviour customers by providing information on: protect cus
Slide 50: Continued sustainability leadership
Continued sustainability leadership Sustainable futures 50 United Nations Sustainable Westpac’s sustainability For personal use only First Half 2018 performance outcomes Development Goals alignment priority areas • Financial literacy programs through Davidson Institute and Managing Your Money • Impr
Slide 51: Climate-related metrics
Climate-related metrics Sustainable futures 51 Climate change solutions exposure Electricity generation exposure Total scope 1, 2 and 3 emissions For personal use only ($bn) (% of TCE)1 (tCO2e, 000s)3 TCE at 31 March 2018 $3.5bn 8.5 1.8 0.9 244 7.0 220 Renewable energy 203 6.1 6.2 10.6 Gas 14.9 Blac
Slide 52: Delivering sustainable value for all stakeholders
Delivering sustainable value for all stakeholders1 Sustainable futures 52 For personal use only Customers Employees Community Suppliers Investors Economy Environment 14.0m 39,574 40+ years $2.4bn 14.0% $1.9bn $8.5bn Customers Employees Sponsorship of Spent with suppliers Cash return on Income tax Co
Slide 53: Earnings Drivers
For personal use only Earnings Drivers
Slide 54: Net operating income up 3% over the half
Net operating income up 3% over the half Revenue 54 For personal use only Net operating income movement ($m) 162 19 5 3 39 11,151 (97) 213 38 (209) 156 77 10,761 (16) 10,795 Net interest up 4% Non-interest down 9% Net interest up 4% Non-interest up 2% 1 1 1H17 AIEA Margins Fees & Wealth Trading Othe
Slide 55: Composition of lending and deposits
Composition of lending and deposits Revenue 55 For personal use only Composition of lending (% of total) Net loans ($bn) Australian mortgage lending ($bn) 38 (28) 2 Aust. mortgages 437 8 2 2 3 1 701 414 427 685 667 11 Aust. business 3 New Zealand Aust. institutional 9 up NZ$1.8bn Aust. other consume
Slide 56: Net interest margin excluding Treasury & Markets up 3bps
Net interest margin excluding Treasury & Markets up 3bps Revenue 56 For personal use only Net interest margin (NIM) movement1 (%) Net interest margin (NIM)1 (%) NIM NIM excl. Treasury & Markets Treasury & Markets impact on NIM NIM excl. Treasury & Markets 4bps 2.17 2.19 2.17 1bp (2bps) 1bp 1bp 2bps
Slide 57: Non-interest income up 2%
Non-interest income up 2% Revenue 57 For personal use only Non-interest income contributors ($m) Markets income by activity ($m) Fees and commissions Wealth and insurance Trading Other Customer Market related risk Derivative valuation adjustments 748 2,983 3,068 2,905 2,784 2,850 19 40 43 66 609 610
Slide 58: Markets & Treasury income
Markets & Treasury1 income Revenue 58 For personal use only Markets non-customer and Treasury income ($m) Markets customer income ($m) Markets non-customer Treasury 653 574 473 482 546 462 465 447 448 507 247 436 484 162 142 411 131 89 349 147 72 404 395 406 412 376 264 277 1H15 2H15 1H16 2H16 1H17
Slide 59: Expenses up 1% from investments and increased regulatory costs
Expenses up 1% from investments and increased regulatory and compliance costs including the Royal Commission Expenses 59 For personal use only Expense movements ($m) FTE run versus change (#) 125 (131) 34 4,654 Run: ongoing operations 4,604 22 Change: project based 377 35,720 35,290 (210) 16 35,096
Slide 60: Investment spend focused on growth and productivity
Investment spend focused on growth and productivity Expenses 60 For personal use only Investment spend mix ($m) Investment spend ($m) Capitalised software2 Other technology 1H17 2H17 1H18 Capitalised software balance ($bn) Amortisation ($bn) Regulatory change Expensed 236 243 251 Average amortisatio
Slide 61: Continued low impairment charge reflects sound asset quality
Continued low impairment charge reflects sound asset quality Impairments 61 For personal use only Impairment charges ($m) Individually assessed Collectively assessed New IAPs Write-backs & recoveries Write-offs direct Other movements in CAP Total Lower due to absence Lower due to an absence of large
Slide 62: Credit Quality
For personal use only Credit Quality
Slide 63: High quality portfolio with bias to mortgage lending
High quality portfolio with bias to mortgage lending Credit Quality 63 For personal use only Asset composition (%) Lending composition at 31 March 2018 (% of total) Total assets ($872bn) 1H17 2H17 1H18 Total loans of $701bn Loans 80 81 80 Trading securities, financial assets at fair value and 11 10
Slide 64: A diversified loan portfolio
A diversified loan portfolio Credit Quality 64 For personal use only Exposures at default1 by sector ($bn) Top 10 exposures to corporations and NBFIs5 (% of TCE) Finance & insurance2 Largest corporation/NBFI single name 1.9 exposure represents less than 0.3% of TCE 3 Property 1.4 1.3 1.3 Government
Slide 65: Well provisioned, sound asset quality
Well provisioned, sound asset quality Credit Quality 65 For personal use only Provisions for impairments Total impairment provisions ($m) 1H17 2H17 1H18 Overlay 5,061 Collectively assessed provisions Total provisions to gross loans (bps) 52 45 45 453 Individually assessed provisions 4,414 Impaired a
Slide 66: Stressed exposures little changed
Stressed exposures little changed Credit Quality 66 For personal use only Stressed exposures as a % of TCE Movement in stress categories (bps) 114 5 1 0 105 0 1 109 Watchlist & substandard 3 0 3 3.20 90+ day past due (dpd) and not impaired Impaired Mar-17 Mar-18 Impaired Watchlist Impaired Watchlist
Slide 67: Provision cover by portfolio category
Provision cover by portfolio category Credit Quality 67 For personal use only Exposures as a % of TCE Provisioning to TCE (%) Sep-16 Mar-17 Sep-17 Mar-18 Fully performing portfolio • Small cover as low probability of default (PD) 0.22 0.21 0.20 0.20 • Includes overlay Fully performing 98.80 98.86 po
Slide 68: Stressed exposures increased in retail trade and property
Stressed exposures increased in retail trade and property Credit Quality 68 For personal use only Corporate and business portfolio stressed exposures by industry ($bn) 2.0 Mar-17 Sep-17 Mar-18 1.8 1.6 2 stressed 3 names downgraded names to stressed 1.4 1.2 1.0 0.8 0.6 0.4 0.2 0.0 1 Services Manufact
Slide 69: Areas of interest: Commercial property
Areas of interest: Commercial property Credit Quality 69 For personal use only Commercial property portfolio Commercial property exposures % of TCE and % in stress Sep-17 Mar-18 10 Commercial property as % of TCE (lhs) 20 Total committed exposures (TCE) $65.2bn $66.3bn Commercial property % in stres
Slide 70: Areas of interest: Inner city apartments
Areas of interest: Inner city apartments Credit Quality 70 For personal use only Commercial property portfolio TCE ($bn) Mar-17 Sep-17 Mar-18 TCE %1 Residential apartment development >$20m 4.1 4.2 4.0 6.0% • Market activity is slowing as demand eases and pre-sales slow • Still a high level of constr
Slide 71: Areas of interest: Retail trade
Areas of interest: Retail trade Credit Quality 71 For personal use only Overview Retail trade portfolio • The retail sector continues to be challenged by subdued consumer demand Sep-17 Mar-18 and growth in domestic and international online channels Total committed exposures (TCE) $15.4bn $15.5bn • T
Slide 72: Areas of interest: Mining and NZ dairy
Areas of interest: Mining and NZ dairy Credit Quality 72 For personal use only Mining (inc. oil and gas) portfolio Mining portfolio (TCE) Iron Ore and Oil prices ($)3 by sector (%) 5 Sep-17 Mar-18 Iron ore (USD/t)4 Crude oil (USD/bbl) 140 Westpac 9 Economics Total committed exposures (TCE) $9.7bn $9
Slide 73: Australian consumer unsecured lending, 3% of Group loans
Australian consumer unsecured lending, 3% of Group loans Credit Quality 73 For personal use only Australian consumer unsecured lending portfolio 90+ day delinquencies (%) by State NSW/ACT VIC/TAS QLD WA SA/NT Mar-17 Sep-17 Mar-18 3.00 30+ day delinquencies (%) 3.99 3.60 3.95 2.00 90+ day delinquenci
Slide 74: Australian mortgage portfolio continues to perform well
Australian mortgage portfolio continues to perform well Credit quality 74 For personal use only Australian mortgage delinquencies and Mar-17 Sep-17 Mar-18 Australian mortgage portfolio delinquencies (%) properties in possession (PIPs) 90+ day past due total 90+ day past due investor 30+ day delinque
Slide 75: Australian mortgage portfolio well collateralised
Australian mortgage portfolio well collateralised Credit quality 75 For personal use only Mar-17 Sep-17 Mar-18 1H18 Australian mortgage portfolio Australian housing loan-to-value ratios (LVRs) (%) balance balance balance flow1 100 Total portfolio ($bn) 413.9 427.2 437.2 38.4 1H18 drawdowns LVR at or
Slide 76: Australian mortgage portfolio standards tightening
Australian mortgage portfolio standards tightening Credit quality 76 For personal use only Notable changes to Westpac mortgage lending standards Australian mortgage portfolio by year of origination 2014 • 10% limit on investment property lending growth announced – (% of total book) implemented by 30
Slide 77: Australian mortgage portfolio repayment buffers
Australian mortgage portfolio repayment buffers Credit quality 77 For personal use only Mortgage interest rate buffers (%) Westpac Australian offset . account balances2 ($bn) Westpac owner occupied SVR1 inc package • Borrowers applying Linked to P&I mortgages discount for a mortgage must be able to
Slide 78: Interest only portfolio
Interest only portfolio Credit quality 78 For personal use only I/O1 flows (% of total) Switching from I/O to P&I2 ($m) Variable mortgage interest rates3 (%) Applications Settlements Reached end of I/O period Customer initiated at 31 March 2018 APRA 30% limit Owner occupied Investor 43 5.50 5.03 4.9
Slide 79: Performance of interest only mortgages
Performance of interest only mortgages Credit quality 79 For personal use only Interest only lending Australian interest only loan portfolio balances ($m) • Interest only (I/O) loans always assessed on a principal and interest basis 250 I/O performing loans balance (lhs) 14 – Loans originated prior
Slide 80: Investment property portfolio
Investment property portfolio Credit quality 80 Mortgage applications by Investment property portfolio by For personal use only LVR at origination (%) number of properties per customer (%) gross income band (%) Owner occupied IPL Owner occupied IPL 1 1 25 50 1 20 40 7 2 2 15 30 10 3 20 26 5 10 4 62
Slide 81: Australian mortgage deep dive
Australian mortgage deep dive Credit quality 81 For personal use only Australian mortgage lending1 by origination date, dynamic LVR2 and income (%) Chart may not add due to rounding Year of origination <2011 2011-14 2015+ Gross income bands 81 >$250k 8 72 $100k - $250k 12 35 <$100k 44 45 38 10 7 21
Slide 82: Lenders mortgage insurance arrangements
Lenders mortgage insurance arrangements Credit quality 82 For personal use only Lenders mortgage insurance Lenders mortgage insurance arrangements • Where mortgage insurance is required, mortgages LVR Band Insurance are insured through Westpac’s captive mortgage insurer, Westpac Lenders Mortgage Ins
Slide 83: Mortgage portfolio stress testing outcomes
Mortgage portfolio stress testing outcomes Credit quality 83 For personal use only • Westpac regularly conducts a range of portfolio stress tests as part of its Australian mortgage portfolio stress testing regulatory and risk management activities at 31 March 2018 • The Australian mortgage portfolio
Slide 84: Capital, Funding and Liquidity
For personal use only Capital, Funding and Liquidity
Slide 85: Well positioned for "Unquestionably strong"
Well positioned for “Unquestionably strong” Capital, Funding and Liquidity 85 For personal use only CET1 capital ratio (%) and CET1 capital ($bn) Highlights (APRA basis) Westpac CET1 capital (lhs, $bn) • CET1 capital ratio down 6bps from Sep 2017 Westpac CET1 capital ratio (rhs, %) APRA industry 10.
Slide 86: Clarity on changes to the capital framework expected over 2018-2019
Clarity on changes to the capital framework are expected to emerge over 2018-2019 Capital, Funding and Liquidity 86 For personal use only 1H18 2H18 2019 2020 2021 New Basel III framework Consult Finalise Implementation Implement – 1 July Counterparty credit risk Finalise 2019 Implement – 1 July Leve
Slide 87: CET1 capital ratio, top quartile globally
CET1 capital ratio, top quartile globally Capital, Funding and Liquidity 87 For personal use only Capital ratios Key capital ratios (%) APRA basis Internationally comparable1 basis Mar-17 Sep-17 Mar-18 BIS 75th percentile2 CET1 capital ratio 10.0 10.6 10.5 21.7 Additional Tier 1 capital 1.7 2.1 2.3
Slide 88: CET1 capital ratio movements
CET1 capital ratio movements Capital, Funding and Liquidity 88 For personal use only CET1 capital ratio (% and bps) 16.13 Mainly growth in credit Mostly modelling changes RWAs for mortgages for retail and securitisation 102 (70) (8) (5) (22) 10.56 (2) (1) 10.50 9.97 Organic +19bps Other -25bps Down
Slide 89: RWA increased from modelling changes and portfolio growth
RWA increased from modelling changes and portfolio growth Capital, Funding and Liquidity 89 For personal use only Movement in risk weighted assets ($bn) 12.1 (0.7) 1.8 (0.4) (1.3) 415.7 404.4 404.2 See below Spread risk on the liquids portfolio and repricing and yield curve risk Up $11.5bn or 2.8% M
Slide 90: Well placed on internationally comparable CET1 and leverage ratios
Well placed on internationally comparable CET1 and leverage ratios Capital, Funding and Liquidity 90 For personal use only Common equity Tier 1 ratio (%) 25% 20% 16.13% 15% 10% 5% 0% Lloyds Barclays Credit Suisse Westpac ING Group Deutsche Bank Scotiabank Nordea CBA RBS BNP Paribas Natixis BBVA Well
Slide 91: Internationally comparable capital ratio reconciliation
Internationally comparable capital ratio reconciliation Capital, Funding and Liquidity 91 For personal use only APRA’s Basel III capital requirements are more conservative than those of the Basel Committee on Banking Supervision (BCBS), leading to lower reported capital ratios by Australian banks. I
Slide 92: Optimising returns by actively managing capital
Optimising returns by actively managing capital Capital, Funding and Liquidity 92 For personal use only Return on equity (ROE) is important Return on AIEA1 (%) Divisional capital and ROE2 • ROE is a key measure of performance for the Group and across divisions 2007 1H17 2H17 1H18 Allocated capital (
Slide 93: Well progressed on FY18 term funding
Well progressed on FY18 term funding, $21bn raised to date Capital, Funding and Liquidity 93 For personal use only Term debt issuance and maturity profile1,3,5 ($bn) New term issuance composition1 (%) Sub debt Senior/Securitisation Hybrid Covered bond By type By currency 42 Issuance Maturities 37 20
Slide 94: Funding and liquidity metrics
Funding and liquidity metrics Capital, Funding and Liquidity 94 For personal use only Funding composition by residual maturity (%) Liquidity coverage ratio3 (%) LCR 124% LCR 134% 121.0 129.0 1 Wholesale Onshore <1yr 98.0 6 5 96.0 16 8 8 Wholesale Offshore <1yr 1 20 4 4 Wholesale Onshore >1yr Net cas
Slide 95: Divisional Results
For personal use only Divisional Results In the divisional results, prior periods financial results have been restated to ensure they are reported on the same basis as 1H18
Slide 96: Consumer Bank – growing the franchise
Consumer Bank – growing the franchise Consumer 96 For personal use only Cash earnings ($m) Key financial metrics AIEA up 2%, margin up 1bp from improved Change on term deposit spreads and lower wholesale 1H17 2H17 1H18 2H17 funding costs, partly offset by a change in Driven by reduction in mortgage
Slide 97: A disciplined 1H18 performance
A disciplined 1H18 performance Consumer 97 For personal use only Revenue ($m) Core earnings ($m) Cash earnings ($m) 4,417 2,687 1,717 4,341 2,614 1,624 4,106 4,110 2,452 2,459 1,552 1,531 4,025 2,367 1,459 1H16 2H16 1H17 2H17 1H18 1H16 2H16 1H17 2H17 1H18 1H16 2H16 1H17 2H17 1H18 Expense to income r
Slide 98: Improving the customer experience through digital and new products
Improving the customer experience through digital and new products Consumer 98 For personal use only Rewarding customers Wearables Payments via Sharing • Launched PayWear, a wearable, waterproof • iMessaging Make payments device providing a hands free way payments, obtain cardless to pay without nee
Slide 99: Business Bank, another solid result
Business Bank, another solid result Business 99 For personal use only Cash earnings ($m) Key financial metrics Change Margins up 4bps from improved Increased 1H17 2H17 1H18 on 2H17 deposit spreads and repricing of some regulatory and mortgages in the prior year compliance costs Revenue ($m) 2% 2,467
Slide 100: A disciplined 1H18 performance
A disciplined 1H18 performance Business 100 For personal use only Revenue ($m) Core earnings ($m) Cash earnings ($m) 1,680 1,080 2,610 2,559 1,638 1,045 2,467 1,570 2,447 1,558 954 958 2,408 1,523 931 1H16 2H16 1H17 2H17 1H18 1H16 2H16 1H17 2H17 1H18 1H16 2H16 1H17 2H17 1H18 Expense to income ratio
Slide 101: Transforming the Business Bank
Transforming the Business Bank Business 101 For personal use only Investing in bankers Digital for customers Payment and transaction solutions Enabling bankers to build great Empowering more customers Helping customers take customer relationships through industry with online capabilities such as and
Slide 102: BTFG, a leading wealth provider responding to industry change
BTFG, a leading wealth provider responding to industry change BT Financial Group 102 For personal use only Cash earnings ($m) Key financial metrics Loans up 8%, deposits up 7%, Higher insurance premiums Change average funds up 8%. Partly Retail Life in-force: up 4% 1H17 2H17 1H18 on 2H17 offset by m
Slide 103: Sound fundamentals
Sound fundamentals BT Financial Group 103 For personal use only Funds ($bn) Insurance premiums ($m) Insurance claims rates (%) Platforms Superannuation Packaged funds Other Group in-force premiums General Insurance Life Insurance 197.7 Retail in-force premiums 191.5 191.4 179.2 3.7 71 169.7 4.0 3.5
Slide 104: Digitally enhancing customer experiences
Digitally enhancing customer experiences BT Financial Group 104 For personal use only Customer offering enhancements Digitising insurance BT SuperCheck allows customers to search for their lost super in 60 seconds $267m Home and contents (H&C) insurance policies are now 41%3 Funds rolled over with r
Slide 105: Panorama: an innovative wealth management system
Panorama: an innovative wealth management system for customers and advisors BT Financial Group 105 For personal use only FUA on Panorama ($m) Investors on Panorama (#) One Core One of the first platforms to operating support complex account types 9,363 17,608 system online, such as SMSFs 6,713 11,77
Slide 106: WIB performance reflects continued disciplined execution
WIB performance reflects continued disciplined execution Westpac Institutional Bank 106 For personal use only Cash earnings ($m) Key financial metrics Disciplined growth in Change on lending (up 3%) and 1H17 2H17 1H18 2H17 deposits (up 7%) Revenue ($m) 1,614 1,421 1,424 - NIM 4bps lower Higher marke
Slide 107: Maintaining focus on returns, balance sheet in good shape
Maintaining focus on returns, balance sheet in good shape Westpac Institutional Bank 107 For personal use only Disciplined balance sheet management Expense control WIB deposits ($bn) Deposits • Expenses down 1% WIB expenses ($m) reflecting both ongoing • Deposits up 7% due to discipline and producti
Slide 108: Building on the strength of our franchise
Building on the strength of our franchise with a focus on transactional banking and liquidity management Westpac Institutional Bank 108 For personal use only Service Efficiency Innovation Franchise Strength Banker to 91% of the ASX top 100 Developing solutions for customers to Track record of
Slide 109: NZ transformation delivering
NZ transformation delivering New Zealand 109 For personal use only Cash earnings (NZ$m) Key financial metrics Loans up 2%, deposits up 5%. Change on Margins higher from repricing of Write-backs from large 1H17 2H17 1H18 2H17 mortgages and business lending, facilities in 2H17 not repeated Revenue (NZ
Slide 110: New Zealand key metrics
New Zealand key metrics1 New Zealand 110 For personal use only Revenue ($m) Core earnings ($m) Cash earnings ($m) 698 1,166 676 508 1,151 653 482 1,132 635 1,110 1,098 463 611 452 434 1H16 2H16 1H17 2H17 1H18 1H16 2H16 1H17 2H17 1H18 1H16 2H16 1H17 2H17 1H18 Expense to income ratio (%) Net interest
Slide 111: Improving the digital customer experience
Improving the digital customer experience New Zealand 111 For personal use only Business digital experience Consumer digital experience Declining branch transactions • Single online business banking platform, Westpac • Value Me program launched in 1H18, providing • 3.4% of financial transactions1 fo
Slide 112: Balance sheet drivers
Balance sheet drivers New Zealand 112 For personal use only New Zealand net loans (NZ$bn) New Zealand deposits (NZ$bn) 77.3 0.9 0.9 79.1 76.5 1.2 2.0 61.6 56.8 58.4 Up 2% Up 5% Mar-17 Sep-17 Consumer Business Mar-18 Mar-17 Sep-17 Consumer Business Mar-18 New Zealand customer loans (NZ$bn) and % of t
Slide 113: Stressed exposures lower as dairy portfolio improves
Stressed exposures lower as dairy portfolio improves New Zealand 113 For personal use only Business stressed exposures as a % of New Zealand business TCE 15.6 Impaired Property 13.2 90+ day past due not impaired Watchlist & substandard 10 14 Manufacturing 4 5 8 Agriculture, 12.8 9.6 forestry & fishi
Slide 114: Consumer asset quality in good shape
Consumer asset quality in good shape New Zealand 114 For personal use only Mortgage 90+ Mortgages 90+day daydelinquencies daysdelinquencies past due (%) Unsecured consumer 90+ day delinquencies (%) 1.5 1.0 Rise due to operational issue in collections 1.0 0.86 0.5 0.5 0.16 0.0 0.0 Mar-11 Mar-12 Mar-1
Slide 115: Economics
For personal use only Economics
Slide 116: Australian economic snapshot
Australian economic snapshot Economics 116 For personal use only Australian economy key statistics Global backdrop mostly positive Australian investment cycles offsetting1 (latest available as at April 2018) Westpac global trade PMI $bn Business construction ex mining Index Westpac f/cs JPMorgan glo
Slide 117: Australian and New Zealand economic forecasts
Australian and New Zealand economic forecasts Economics 117 For personal use only Calendar year Key economic indicators (%) as at April 2018 2017 2018E 2019F World GDP1 3.8 3.9 3.7 Australia GDP2 2.4 2.7 2.5 Private consumption2 2.9 2.6 2.5 Business investment2,3 5.8 3.0 3.5 Unemployment – end perio
Slide 118: Australian economic outlook
Australian economic outlook Economics 118 For personal use only Contributions to GDP growth (ppts) Positive but uneven business conditions ppts ppts Australian business conditions (net balance) 2015 2016 2017 2018f 2019f net bal. 3 3 30 Goods related Consumer sectors Business services 2 2 20 1 1 10
Slide 119: New South Wales and Victoria continue to outperform other States
New South Wales and Victoria continue to outperform other States Economics 119 For personal use only NSW and Victoria 58% of population and employment Jobs growth strongest in NSW and Victoria Labour market conditions by State (index) index index 118 *First 6mths = 100 Queensland 118 Western Austral
Slide 120: Jobs being created, although weak income growth remains a headwind
Jobs being created, although weak income growth remains a headwind Economics 120 For personal use only Jobs momentum slowing Australian wage inflation remains low Employment (% ann) %yr Australian wage inflation (%, yr) % ann % ann * smoothed Employment, %yr* 8 Aus private sector wages 5 3 month chg
Slide 121: The Australian housing market has cooled
The Australian housing market has cooled Economics 121 For personal use only Dwelling prices cooling Price decline felt most in the top 25% of house prices Change in Australian dwelling prices (annual %) Dwelling prices by property value ann% ann% 30 30 ann % (annual %, all dwellings, seasonally adj
Slide 122: Housing supply/demand fundamentals remain sound
Housing supply/demand fundamentals remain sound Economics 122 For personal use only Aggregate supply/demand fundamentals remain positive Rental vacancy rates remain tight in Sydney and Melbourne Population versus dwelling stock (annual average change ‘000) ‘000 Rental vacancy rates (%, quarterly, se
Slide 123: Impact of macro-prudential measures across Australian industry
Impact of macro-prudential measures across Australian industry Economics 123 For personal use only Change in composition of housing credit Introduction of differentiated mortgage pricing Australian housing credit growth (6mth % change annualised) % Mortgage interest rates (major bank average) % 7.5
Slide 124: Australian household balance sheets
Australian household balance sheets Economics 124 For personal use only Housing affordability: all dwellings Australian household debt to income ratio remains high (% income required to service mortgage of 75% median dwelling, all regions) Australian households debt to income ratio (%) 35 Total (gro
Slide 125: Australia's high rise apartment market
Australia’s high rise apartment market – past the peak although supply still coming online Economics 125 For personal use only Aggregate supply/demand fundamentals remain positive Dwelling construction: indicative completion times1 Population versus dwelling stock (annual average change ‘000) ‘000 %
Slide 126: New Zealand economic snapshot
New Zealand economic snapshot Economics 126 For personal use only Key economic statistics FY17 FY18f Change Firm growth in recent years, but momentum has faded GDP (%) % % GDP annual average growth1 3.0% 2.7% (30bps) 6 6 Qtr % chg Annual average % change Forecast Inflation rate 1.9% 1.6% (30 bps) 4
Slide 127: New Zealand economy: growth to slow
New Zealand economy: growth to slow Economics 127 For personal use only Drivers of GDP growth in recent years are dissipating Large pipeline of construction work, increases to be gradual • After expanding at a firm pace in recent years, New Zealand GDP growth has $bn Construction spending (annual $b
Slide 128: New Zealand economic indicators
New Zealand economic indicators Economics 128 For personal use only Inflation off its lows, sustained return to target elusive Commodity prices remain firm % Inflation (%) % NZ export commodity price index (world prices) Forecast Index 6 CPI inflation 6 500 Meat,skins & wool Forestry Dairy 5 5 450 C
Slide 129: New Zealand housing market to be dampened by policy changes
New Zealand housing market to be dampened by policy changes Economics 129 For personal use only Lower mortgage rates have boosted housing demand… …but a period of softness is expected New Zealand house prices by region (index) New Zealand house prices (nationwide, %) 220 220 20 20 Canterbury Welling
Slide 130: Appendix and Disclaimer
For personal use only Appendix and Disclaimer
Slide 131: Appendix 1: Cash earnings adjustments
Appendix 1: Cash earnings adjustments Appendix and Disclaimer 131 For personal use only Cash earnings 1H17 2H17 1H18 Description adjustment $m $m $m Reported net profit 3,907 4,083 4,198 Net profit attributable to owners of Westpac Banking Corporation Identifiable intangible assets arising from busi
Slide 132: Appendix 2: Sustainability
Appendix 2: Sustainability Appendix and Disclaimer 132 For personal use only Industry awards1 Sustainability indexes1 Inclusion and diversity recognition1 Number one bank globally in Awarded Gold Class ranking in 2017, for the 4th year in a row Included in the 2018 RobecoSAM’s 2018 and the 10th time
Slide 133: Appendix 2: Sustainability
Appendix 2: Sustainability Appendix and Disclaimer 133 For personal use only Key commitments and partnerships1 The Equator Principles UN Environment Program UN Sustainable Development Goals United Nations Global Compact Founding Adopter, Finance Initiative CEO Statement of Commitment (2015) Signator
Slide 134: Appendix 3: Definitions
Appendix 3: Definitions Appendix and Disclaimer 134 For personal use only Consumer Bank (CB) is responsible for sales and service to consumer customers in Australia under the Westpac, St.George, BankSA, Bank of BT Financial Group (Australia) (BTFG) is the Australian wealth Melbourne and RAMS brands.
Slide 135: Appendix 3: Definitions
Appendix 3: Definitions Appendix and Disclaimer 135 For personal use only Capital ratios As defined by APRA (unless stated otherwise) 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 Assets (both on a
Slide 136: Appendix 3: Definitions
Appendix 3: Definitions Appendix and Disclaimer 136 For personal use only Represents the sum of the committed portion of direct lending (including Includes exposures that have deteriorated to the point where full collection Total committed funds placement overall and deposits placed), contingent and
Slide 137: Appendix 3: Definitions
Appendix 3: Definitions Appendix and Disclaimer 137 Data based on Roy Morgan Research, Respondents aged 14+ and 12 Net Promoter Score measures the net likelihood of recommendation to For personal use only month rolling. Wealth penetration is defined as the proportion of others of the customer’s main
Slide 138: Investor Relations Team
Investor Relations Team Contact us 138 For personal use only Equity Investor Relations www.westpac.com.au/investorcentre Andrew Bowden Nicole Mehalski Annual reports Presentations and webcasts Head of Investor Relations Director +61 2 8253 4008 +61 2 8253 1667 5 year financial summary andrewbowden@w
Slide 139: Disclaimer
Disclaimer 139 For personal use only The material contained in this presentation is intended to be general background information on Westpac Banking Corporation (Westpac) and its activities. The information is supplied in summary form and is therefore not necessarily complete. It is not intended tha