Westpac Banking Corporation · ASX:WBC
Westpac Banking — Non-Deal Roadshow (November 2006)
55 slides from Westpac Banking's roadshow presentation, Nov 13, 2006
Slide 1: Investor Roadshow Pack November/December 2006
AMestpac Australia’s First Bank Investor Roadshow Rack November/December 2006 Index Summary of Results......000. 00. c ccc ceeeee cece e ee secre ee seceaeeeseeesseesesseerseaesecessassecssseseeeeaersennes 3 Dividends 12 Results in Detail... 00.0 icc cc cce eee e cece eee ee ua ee sees eeeeeeeeseeue
Slide 2: Westpac Banking Corporation – at a glance
AMestpac Australia’s First Bank 2006 Results Overview November 2006 Westpac Banking Corporation — at a glance + Australia’s First Bank ~ est. 1817 : 80 September 2006 * Top 50 bank globally" ao Cash eamings A$3,079 million * Strong franchise. in core markets of Australia, New Zealand and Retum on eq
Slide 3: Consistent solid growth; A sound full year result in 2006
Consistent solid growth Cash earnings, revenue and expense {$m} r 12,000 . 3,500 5 Tyr CAGR lag Cash Earnings {LHS} 10% 3,000 | —™ Revenue (RHS) T% r 20,000 —#— Expenses (RHS #%o 2,500 | Pp {RHS) o . 8,000 2,000 5 _ 6,000 4,500.7 4,000 4,000.4 . 500 | 2,000 04 2 ” : r.& 1999 2000 2001 2002 2003. 200
Slide 4: Strategic focus delivering
Strategic focus delivering Strategic drivers * 581 front line ersonnel Feet on the p «* Completed Westpac street Way (sales management) rollout * Completed major platform investments Streamlined cards application process «* Completed Pinnacle Productivity |+ Reallocated improvement investing in grow
Slide 5: A revenue driven result
A revenue driven result 3,600 7 3,400.4 3,200.4 3,000 5 2,801 2,800 4 2,600.5 2,400.4 720 Contributions to adjusted cash earnings growth ($m) (178) (75) A strong, revenue driven result Net interest income contributing $310m Non-interest income contributing $440m (188) 3,080 2005 Revenue Operating Ex
Slide 6: Composition of earnings by business unit
Composition of earnings by business unit Cash earnings (A$m) Growth 2006 (%) BCB AA. BT. 10% WIB ex- . 209 SF. o% NZ (NZ$) . Pacific Banking 171% 2005* GRU -m2006 large 2. ReSSS8 Ses rere Composition of cash earnings Other 4%, Total New Zealand geographic contribution 18%: 14% New Zealand 2% WIB NZ
Slide 7: 2007 outlook
2007 outlook + Operating environment remains broadly favourable + Westpac's franchise is in very good health + Improved revenue momentum into 2007 + Expenses marginally higher but with healthy gap to revenue growth + No surprises anticipated for impairment losses or tax expense + Confident of delive
Slide 8: Approach to reporting
Approach to reporting Cash earnings approach Adjusts + Treasury shares Net Profit After Tax for: « Hybrid distributions in 2005 and fair value changes on economic hedges of hybrid equity instruments + One-off items - Sale of sub-custody business and Deferred tax asset write-off Reported’ Results "Ad
Slide 9: Strong growth on both sides of the balance sheet
17 Strong growth on both sides of the balance sheet Group deposit growth prior half (%)} 16 Through the year 8 volume momentum 7 8 improved over 2006 6 6 ee oo oe 8 4a 4 3 2 si fh 2 —e— Group net toan growth 4 —— Group depasit graw! wm @ Avery = ® Average o4 & o4 Sep-O4 Mar-06 Sep-05 Mar-06 Sep-06 S
Slide 10: Analysis of margin movements — half on half
Analysis of margin movements — half on half Group Margin Movement (%) 25 = ~— Underlying margin decline 245% ' ' 1 \ tbp 2.40% | 24 1 1 1 23 1 1 1 1 22 f 2.19% 1 1 | 24 ! 3 2 Be 8 8 8 £ = 4 s 8 2 # & S Eo BE Cee SEE SBE gE OE S83 B@5 82 a3 8. 88 2g eh. 282 3 = 8 re =5 > 28 SB -se Ss. 28 Be 3 Bo. 825
Slide 11: Detailed analysis of spread movements
Detailed analysis of spread movements Underlying spread/mix decline (bps) Asset spread/mix. Aust. Mortgages ( Aust. Credit cards (50) (1) Aust. Business (7) (1) NZ lending (2) WIB ex-FM (1) Liability spreadimix : Aust. Deposits 4 - NZ Deposits (5) - Wholesale funding Mix, rounding, other (12) (13) L
Slide 12: Expense to income improves further
23 Expense to income improves further Banking ~ expense to income (%} 70 Group - expense to income (%} 70 4 Total Wealth — expense to income (%} 40.5 70 ' 70 88 60. ! 54 52 “63 69 pe 8t eo go “60 a 60, H 54 30.4 © --@-AGAAP a 1 50 AEE A-ERS 1 =e AGAAP 30 ! — AAFRS 20 | ! Cf 20 a ooo ce NAN aw 2 40 c
Slide 13: Maintaining investment spend
25 Maintaining investment spend Project expenditure ($m) 2005 2006 Advice Platform, Reach (CRM), Corporate Online, Pinnacle, NZ teller platform 93 61 Westpac Place, One Bank platform, Front office capability Productivity & : an Infrastructure NZ lending originations, Connect@Westpac 218 198 : Basel
Slide 14: Managing exchange rate risk of future NZD earnings
Managing exchange rate risk of future NZD earnings | year 100% retail earnings hedged for following Up to 100% of the expected earnings for the next financial year and 50% of expected earnings for subsequent financial year hedged Hedge accounting applied Hedge accounting treatment not available from
Slide 15: Westpac Business Units; BCB cash earnings growth
AMestpac Australia’s First Bank Westpac Business Units November 2006 BCB — Cash earnings growth continues, up 11% * Cash earnings up 11% on 2005 BCB Cash Earnings ($m) 900.7 —e—Without cards revenue accnual adjustment * Strong volume growth: - Lending growth up 13%, driven by sales effectiveness and
Slide 16: Volume growth enhancing revenue momentum
Volume growth enhancing revenue momentum . : BCB annualised growth’ of key balance sheet Volumes in key products up aggregates (%) substantially on 2005: 204 B1H05 @ 2H05 @ 1H06 Mm ZHOG - Personal lending and retail deposit 134 growth at or above system e - Mortgages at 0.9x system 444 - Business tr
Slide 17: Frontline investment and productivity driving Business
Frontline investment and productivity driving Business * Business lending volumes up 15% * Strong performance driven by: - Recruitment of additional relationship bankers, customer managers and transactional bankers - Improved sales productivity, 25% improvement in sales contacts - Pinnacle system de
Slide 18: Business customer experience improving steadily
Business customer experience improving steadily Overall customer experience continues Customer experience tracker (CET) ays Commercial banking 2004 to steadily improve relationship score n=2393 | n=2155 Change + Customer advocacy a | commercial banking channel 84 a1 + more significant relationship s
Slide 19: Strong positions in Consumer Banking
Strong positions in Consumer Banking * Strong growth in asset books * Growth in deposits has lagged competitors as they introduced their equivalents of Max-i Direct high interest savings account Credit card volume Bank YTD growth (%) 28) ++ Banking system ~&— Pear group Oct Now Dece Jane Fiabe Mare
Slide 20: Cards portfolio continues to grow strongly
39 Cards portfolio continues to grow strongly * Credit card portfolio up 21% + Above system growth driven by: ~ Launch of new products, complementing existing suite ~ Superior branch origination processes delivered by Reach via online applications ~ Improved analytics, enabling better leverage of ex
Slide 21: Deposit growth with active spread management
44 Deposit growth with active spread management + Deposit balances up 10% * Business and Consumer Max-i Direct products driving deposit growth: - Slowed overall spread compression - Assisting to build relationships * Westpac One Saver successful in attracting savings balances above Max-i margins Sav
Slide 22: Leading online banking capability
Leading online banking capability * Internet Banking is Westpac’s fastest growing channel * Best Personal Banking Website 20061 * Online business payments exceeded cheque payments for the first time in September quarter * Leading corporate online platform internet Banking Transaction Volumes SEReeer
Slide 23: WIB - strengthening position in a competitive market
WIB - strengthening position in a competitive market Note: Wi8 disaggregated Structured Finance from 2005 due to significant changes in the nature of that business: + Cash earnings up 20% on 2005 + Revenue growth of 8% - Solid contributions from financial markets and transactional banking Net loans
Slide 24: Leading position in institutional market
47 Leading position in institutional market + #1 in Transactional Banking! in 2006 2006 Lead Domestic Transactional Bank’ (%) 40 #1 Relationship Strength Index 20 #1 Leader for value added services 20. #1 Leader for new product development initiatives 10 #1 Best Transactional Banking 0. Platform? We
Slide 25: Strong growth in capital solutions in 2006
Strong growth in capital solutions in 2006 + Very strong asset growth over the Instititional joans % year (Asp) 2008 2008 Growth - Particularly strong increase in Net loans and 4006 acceptances’: i | | - High volume of short term finance __Less than 1 year 8.2 H 12.1 | 748% | likely to run-off in 20
Slide 26: Specialised Capital Group; WIB portfolio ROE
Specialised Capital Group Solid position in a competitive market Revenue unchanged over year given limited availability of assets at suitable prices FUM up 11% over prior year Successful fund performance Launch of new fund platforms: - Westpac Residential Property Trust and Westpac Diversified Prope
Slide 27: Asia — executing on growth opportunities
Asia — executing on growth opportunities Revenues Locally booked revenues up 38% in 2006. Footprint. * Repositioned geographic footprint and seeking to expand activities into India and China with potential new offices * Collaboration with Standard Chartered on promoting india- Australia/NZ banking c
Slide 28: Consumer underperformance driving lower revenue
Consumer underperformance driving lower revenue * Strong volumes, in line with system, offset by 25bps margin decline - Switch from floating to fixed rate housing caused 11bps housing spread decline in 2006 « Trend stabilising in second half - Deposit spreads declined 6bps over 2006 due to shift to
Slide 29: Initiatives underway to restore growth in consumer
57 Initiatives underway to restore growth in consumer Initiatives Completed roll out of retention management program to branch network Retain customers Commenced simplification of fee structures + New branches in Auckland, including Sylvia Park ~ NZ's i, largest shopping centre Greater share of Auck
Slide 30: Expense management and asset quality sound
Expense management and asset quality sound Expense to income ratio (NZ$.%} * With revenue growth slowing, 54% have kept costs flat and invested: som - Expansion in front line FTE and 50% | 48.9% 49.2% branches in Auckland . oe 48% - Systems investment and branch 16% platform (Assist) 44% 4 + Asset q
Slide 31: Pacific Banking; BT - Strong growth, more to come
Pacific Banking — continued valuable contribution « Cash earnings up 17% Pacific Banking Cash Earnings ($m) ee: oe ©. AGABP ) AIERS + 17% uplift in operating income the 36 “0 result of: - Strong balance sheet growth * Total assets up 23% « Deposits up 17% - Non-interest income up 10% Source: Westpac
Slide 32: Delivering Wrap and Corporate Super growth
Delivering Wrap and Corporate Super growth » Wrap FUA up 34% on 2005, to $27bn « Wrap netflows (new business) up 48% on 2005; 68% in second half driven by strong sales * Corporate Super FUA up 18% on 2005 to over $5bn — almost double in three years Wrap FUA ($bn) 30 ae 25. Sep-03 Sep-04 Sep-05 ~ Sep
Slide 33: Margin lending; sustained investment performance
Excell Management momentum * Margin Lending one of our fastest Margin Lending ($m) . er 4,000 growing products again in 2006 3.500 « LUM increased to $3.7bn, an oon increase of 48% on 2005 2,000 1,500 * Sales exceeded $1bn, a 71% 4,000 increase on last year* 500 8 Sep-03 Sep-04 Sep-05 Sep-06 Source:
Slide 34: Insurance businesses - great potential
87 Insurance businesses - great potential » General insurance revenues rose 11% on the prior year, on the back of increased product sales of 18% * Full year Life sales were up a modest 3%, off a weak first half » After execution of sales and process initiatives in the second half, Life sales grew by
Slide 35: BT brand investment pays dividends
BT brand investment pays dividends Consumer brand tracking has revealed significant improvements in key brand attributes over 12 months. BT is positioned well to capture the Super opportunity. ls the leader in superannuation [7 ls aproven § investment | performer "34% increase Has excellant. f clien
Slide 36: Asset Quality and Capital
AMestpac Australia’s First Bank Asset Quality and Capital November 2006 Collective provisions increased with asset growth Adjusted impairment losses on loans ($m) Voronin teteee | Rise in interest TIA-IFRS reclassification of interest considered part of collective provisions. | reclassification due
Slide 37: Well provisioned under A-IFRS
Well provisioned under A-IFRS * On transition to A-IFRS Westpac and all - Australian banks reduced their collective Provisions for impairment losses on loans ($m) ~~. -... ~~ provision levels 2,000 {2 General Resenve for Credit Losses adjustment | ’ Westpac remains well provisioned on both an i Indi
Slide 38: Credit quality
Credit quality Categories of stressed exposures as a.% of total Total impairment provisions / Total impaired commitments (%) assets (%)' _ : : : mee tes 60 AGAAP! AJFRS A.B%, pose rans incon neon anaeces coe nronce ene ne ns 50 ; [4 °7-O Watchlist & substandard 4“ 44% 4 @ 90 days past due weil secur
Slide 39: Australian mortgage portfolio
77 Australian mortgage portfolio Proportion of total Australian Mortgage Portfolio ($bn} 110 5 a (7) Owner occupied 400 4 investment _| MIE Equity Access 4H63 2HO5 2H08 Average LVR of portfolio Average LVR of new loans Total portfolio $2,853 Avg new lending per month S walt ss ah +. -Primary applica
Slide 40: Update to mortgage portfolio stress testing
Update to mortgage portfolio stress testing + Further improvements in the model in 2006, including additional economic variables in the stress scenarios + Capacity to absorb interest rate rises strong with 72% of amortising borrowers repaying in excess of required minimum + In addition to normal exp
Slide 41: Single name concentrations; industry concentrations
81 Single name concentrations Top 19 exposures to corporations. and NBFis — September 2006 S&P Rating or equivalent ; $m “0 200 © 400 © 600 800 “1,000 4,200 1,400 Top 10 exposures as a % of total committed exposure . : . 3.0% 4 . Total exposure of Top 10 = $7.2bn 25% 4 30 Sep 2008 2.0% 5 1.5% 1.0%.
Slide 42: Capital ratio target ranges aligned to new standards
83 Capital ratio target ranges aligned to new standards Capital ratios aligned for A-IFRS and revised APRA prudential standards Tier 1 ratio targets unchanged, _ transitional relief applies until 1 Jan 2008 New ACE ratio target range: 4.0% 10 4.75% New ACE ratio due to additional capital deductions.
Slide 43: Preliminary Basel II outcomes
Preliminary Basel Il outcomes implied overall change in capital requirements — percent of Basel i capital requirements % Change in Minimum Required Capital 0 Westpac. Othernon- .Gid Group |. CEBS* G10 Group 4 Group t t Average Approach to credit risk | Foundation IRB @ Advanced IRB + Preliminary Bas
Slide 44: Economic environment sound
87 Economic environment sound * Expansion continues in Australia, although drought a negative + By contrast, a period of consolidation in New Zealand * Global growth above par for 4th consecutive year; Likely to be solid in 2007 * However, higher inflation a challenge of current prosperity; RBA to r
Slide 45: Credit growth expected to edge lower
89 Credit growth expected to edge lower Australian and New Zealand credit growth (%) Forecasts 24 (To Sept 2007} 24 20 5 16 + 12.4 8 4 4-4 9 4 -4 Jun-99 Dec-00 Jun-02 Dec-03 Jun-05 Dec-06 ——— Aust. Housing cone PUSt, Business. Total credit {Aust} --.-.Total credit avg (Aust) °° ...s:-:- Total housin
Slide 46: Housing market — sound fundamentals
1 Housing market — sound fundamentals + Housing sector in recovery mode in 2006: + Housing finance for owner occupiers reaching new highs + First homebuyers returned to the market. ‘Upgraders’ also up off lows. + Dwelling approvals off lows, but still below underlying demand. + However, upswing will
Slide 47: New South Wales
New South Wales * NSW growth has lagged the overall Sydney house prices : ation t¢ bs Australian economy due to: {gs a ratie,so Bristane prices) - Lower relative exposure to the 20 resources sector 18 ‘ . 18 - Under investment in 7 infrastructure a feat of ABS nause pric into - Lagged impact of lowe
Slide 48: Most sustainable bank in the world, years in a row
Most sustainable bank in the world, 5 years in a row Dow Jones | Su tainability Indexes 2008/87 Snapshot of Westpac’s 2006/07 Dow Jones Sustainability index rating Westpac total score 84% Total Scare Corporate Governance Bead 105% Customer Retationship Management Human Capital Development Environmen
Slide 49: Working in partnership with the community
Working in partnership with the community Employee i a Community Our mae aes partnerships Community . . Giving communit U Paid volunteerin g y Se resources, i involvement days 9 | groups access to networks and \ strategy . ; | business and finance || expertise to support Matching Gifts ~~ tools and
Slide 50: Right balance of experience, stability and depth
89 Right balance of experience, stability and depth Hana Atlas Group Executive People and Performance Joined Nov 2002 Biography: y Joined Westpac 2000. as Group Secrelary and General Counsel. Previously Partner of a law firm, Mallesons Stephen Jaques. in current rote since 2002. Philip Chronican | G
Slide 51: Tax breakdown; Business & Consumer Banking (BCB)
101 Tax breakdown $m caste en linear renee »- 2005 2006 Tax expense. ; 4,223 4,422 Effective tax rate - 29.3% 31.3% Adjustments ne ~~ Policy holder tax recoveries (68) (61) Prior period adjustments. - G6) (36) ~-Additional tax expense (48) - (39) Normalised tax expense ; -_ 1,051 ; 4,286 Normalised
Slide 52: Westpac Institutional Bank (WIB)
103 Westpac Institutional Bank (WIB) Net interest income Net interest income dk Non-interest income {t) Nominterest income . @) Operati eS 2 ; vP per ng expen @ Operating expenses .- (4) Core earnings ~ 2 ce _ can : Core earnings A Impairment logses on 7 oval seson.. - ioans. . 9 Impairment losses o
Slide 53: New Zealand
105 New Zealand Net interest income. Non-interest income -~ Operating expenses, Core earnings. impairment losses on. - loans .. . Tax & OE! NPAT/Cash earnings - $bn . Deposits. ™ 7 Net Loans Total Assets FUM Net interest income" Non-interest income Operating expenses .- Core earnings ~ Impairment lo
Slide 54: Pacific Banking; Investor relations contacts
Pacific Banking Net interest income 1 43 Net interest income Non-interest income. 44 Non-interest income | 13 Operating expenses (27) Operating expenses (4) Core earnings oo BO Core earnings 26 - ; Impairment losses on Impairment losses on : (133) loans. oe & foans : . . Tax & OEI (31) Tax & OE! ; (
Slide 55: Disclaimer
109 Disclaimer The material contained in this presentation is intended to be general background information on Westpac Banking Corporation and its activities. The information is supplied in summary form and is therefore not necessarily complete. Also, it is not intended that it be relied upon as adv