Westpac Banking Corporation · ASX:WBC
Westpac Banking — JP Morgan Australasian Investment Conference 2003
69 slides from Westpac Banking's conference presentation, Oct 7, 2003
Slide 1: Australasian Investment Conference 2003
AMfestpac Australia’s First Bank JP Morgan Australasian Investment Conference 2003 Mike Pratt. Group Executive Business and Consumer Banking October.2003..--
Slide 2: Westpac at a glance
Westpac at a glance * Established 1817 March 2003 * Top 100 bank gla 4 year EPS CAGR 11% ° Return on equity?:. 21% Dividend yield? 4.6% * 7.5 Total assets ~~ A$206bn Market cap? A$30bn estpac JP Morgan Conference October 03
Slide 3: Consistent earnings and dividend growth
Consistent earnings and dividend growth * Strong growth across all businesses * Performance driven by: - Solid asset growth - Sustaining margins - Further improvement —_‘vrderiying cash earnings in asset quality Dividends per share (cents) ~. 36. 38 ; 36 30.3? ey * Dividends growing at or 39 above e
Slide 4: Revenue has been a key driver of growth
Revenue has been a key driver of growth 4 Year CAGR' 4,000. - : — Revenue = Expenses 0 3,500 4 ; Revenue 7% 3,000 + 2,500 + 2,000.4 18) 1,500 4 Expenses 2% 1,000. + 500 t T T T T J T T 1 DD DQ DQ HoH DV Vo .S)) Q S) S 8) 8) S) S) 8) $m ‘ Underlying business basis estpac Aw JP Morgan Conference Octob
Slide 5: Points of differentiation
Points of differentiation * Focused strategy - Core markets - Australia, New Zealand and near Pacific - Right exposure to contemporary wealth management business * Low risk - De-risked income streams - Leading asset quality and strong provisioning coverage * Leader in sustainability * Large, high qu
Slide 6: Core markets offer a favourable growth-return mix
Core markets offer a favourable growth-return mix Actual and forecast return/growth profile for major banking sectors 2002-04 Return on equity (ROE) % 23 21 19 17 15 13 11 : oe Westpac Australia US S&P. 500 Banks UK @ Canada “Hong i Korea NPVs Kong- we & I—nPVv2 gar Tai Thailand lit Singapore Taiwan
Slide 7: Acquisition strategy
Acquisition strategy * No specific requirement to acquire customers - Three regional bank acquisitions 1995 - 1998 * Filled major strategic capability gaps - Two wealth acquisitions in 2002 * Opportunities will continue to arise in core markets, with not all assets in the hands of their natural owne
Slide 8: An aligned, customer focused business model
An aligned, customer focused business model Vision » “To be a great Australian Company” "A great place to work ® A superior customer experience ® ist quartile shareholder returns "A good corporate citizen Strategy > Customer Focus How? => Outcomes Differentiator: Superior Core. Group Objectives Exec
Slide 9: Business & Consumer Banking
Business & Consumer Banking * Australian retail banking and wealth distribution * Customer-driven organisational structure * Optimal geographic footprint * 5.1 million customers * Main bank customer share: — 13% Consumer — 20% Middle Markets — 16% SME * 13,841 staff estpac Aust Cash earnings by busi
Slide 10: Business & Consumer Banking — March
Business & Consumer Banking — March 03 * Cash earnings up 13% $m : “4H03.. 4HO2 % Mov't ° sdobes, to income down 6 eerating income "2,124 1,975 Operating expenses (1,145) (4,131) * Bad debt increase Core earnings 979. 844 primarily due to dynamic —_ gag debts -- (149) (126) provisioning for rebuild
Slide 11: Consistently capturing above system credit growth
Consistently capturing above system credit growth Westpac’s credit growth as a multiple of Australian Financial System Credit growth 1.8.4 Times system growth 0.6 T v T T T T T T T T T T T T T T T T 1 = S S cS = Ss S Ss Ss Ss & Ss a oh Ss Re ase Rg & S&S Se PW VP PW WV EPP WW? NGF WP VF esipac 11 JP
Slide 12: Market share has similarly increased
Market share has similarly increased Share of Reserve Bank of wae cans S Australia financial system Jun03 Mar03- Mar 02... Mar 03 — aggregates % % % Jun 03 Credit “Housing ; 17.8 17.9 18.1 (10) Personal : a 12.2 11.5 10.2 70 Other mainly business 11.4. 11.0 10.0 10 Total credit 14.3 14.2 13.4 10 Tot
Slide 13: Strengths and opportunities
Strengths and opportunities Strengths Opportunities * Large customer franchise * Below natural share in key segments — particularly small business and consumers in their later life stages * Strong mass-affluent bias in customer base * Embedded sales and service ° Behind the leaders in culture techno
Slide 14: Integrated program to build sustainable success
Integrated program to build sustainable success Early 2003 alignment, planning & quick wins 2003-2005 - Re-position and-unlock growth Detailed environmental diagnostic Mapped capabilities and positioning against optimum Identified 80 “quick wins” Redefine customer experience Reposition to exploit ke
Slide 15: Strategy is focused on profit pools
Strategy is focused on profit pools Australian Retail Banking Sector Profit Pool Estimated Profile of 2002 NPAT ($m) 7,000 5 6,000 + 5,000 4 4,000 + 3,000 4 2,000 + Cards Mortgage Personal Consumer Personal Short Tern Long Term Leasing and Business Total Savings ‘Transactions Lending Lending Lending
Slide 16: The SME Segment is large and attractive
The SME Segment is large and attractive * The Australian economy is | Market profit pool for financial dominated by the middle | S*™I°°S market and small business |." Co% ) sectors m@ WBC Share * Total profit pool available & Rest of Market $1,000. — Middle market $426m — SME $1,481m $500 + Definiti
Slide 17: Opportunities identified by segment and geography
Opportunities identified by segment and geography Agribusiness SME Middle Market Total Source : Westpac analysis Estimated industry profit pool ($m) ——= Estimated Westpac profit ($m) > a Estimated share of poo! % estpac 7 JP Morgan Conference October 03
Slide 18: Major programs in place to tap opportunities
Major programs in place to tap opportunities Key Opportunities Key Programs Sales Reach * Improve customer acquisition capability Distribution RedPower * Strong relationships but weak share of wallet across existing customer base Manufacturing | Pinnacle Wealth Sunrise * Customer satisfaction levels
Slide 19: Sales - Reach program
Sales - Reach program A cross product, cross geography, end-to-end sales and information management re-engineering program including CRM Plans and objectives Metrics from pilot Performance above current model « Relationship platform delivered to Branch referral 6.0X 111 managers conversion rate * Co
Slide 20: Distribution - S-Pilot project
Distribution - S-Pilot project Part of the RedPower program, S-Pilot seeks to develop an enhanced branch based acquisition and servicing capability Progress and plans Metrics from pilot Performance above.current model * FY2003 design and test two new Activities face-to-face roles - Business Finance
Slide 21: Embedded customer experience culture
Embedded customer experience culture bad M iss i Oo n ina great service organisation the customer only has to ask once. ‘To be the No.1 service organisation in the financial services industry by September 2005’ * Ask Once is part of the Westpac DNA * Capability in place to deliver esipac JP Morgan C
Slide 22: A disciplined approach to identify customer experience improvements
A disciplined approach to identify customer experience improvements Problem? How Size of Happy? Prize $? esipac JP Morgan Conference October 03
Slide 23: Initiative — 'Ask Once' coordinators
Initiative — ‘Ask Once’ coordinators Impact of introducing ‘Ask Once’ coordinators into selected branches | ENQUIRIES | PROBLEMS COMPLAINTS | = Positive 89% aa Negative 36% ‘Ask Once’ Control Ns ‘Ask Once’ Control Source: ANOP, July 2003, Ask Once Branch Pilot survey (n=170) ‘Ask Once’ Control esipa
Slide 24: Initiative — Customer service commitment forms
nitiative — Customer service commitment forms % of Complaints referred by branches to other areas of the bank are 30 percentage points lower when Commitment forms are used 80% - H . | 70%. 4 hm — Branches not using comment forms. 60% + ee : | : | Reduction in complaints 50% | referred to o | | oines
Slide 25: Initiative — Westpac Academy
Initiative — Westpac Academy * Westpac Academy is Early results delivering value changing the way we train [979% agree the insights they and develop our people received have been applied * Key focus areas - customer experience, 91% agree the insights their leadership, e-learning team received have b
Slide 26: Customer satisfaction is improving
Customer satisfaction is improving Consumer Satisfaction - % of. main-financial institution customers very or fairly satisfied 68% 66% {\ aN 64% / \ on 62% L Y ILS =f 56% | #9 5% La 52% 50% - NaN NS « Ss rr OF eae oe t- Bank X..°.. -#- Westpac... -Bank Y “Bank Z SME satisfaction - total satisfied 65
Slide 27: What distinguishes Westpac?
What distinguishes Westpac? * Straight forward and focused strategy, well executed * Conservative risk profile * Leader in sustainability * Business & Consumer Banking — a key driver of growth - Strong momentum across the business - SME opportunity beginning to deliver - Leading the major banks in i
Slide 28: Investor Discussion Pack
AY 7 Australia's First Bank - Investor Discussion Pack October 2003
Slide 29: Disclaimer
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 advice
Slide 30: Index
Index Summary of Interim 2003 earnings 4 Business and Consumer Banking results 7 What the market is asking 9 Loan growth 10 Housing market 13 Consumer opportunities 20 Wealth Management 23 Credit quality and risk 28 Basel Il 33 Outlook Economic environment 35 Broad earnings parameters 37 Investor Re
Slide 31: Cash earnings
Cash earnings $m : : : 4H03. 1HO2_ % Change | Net operating income 3,635 3,522 3 | Operating expenses (1,857) . (1,739) (7) Goodwill. ONES (78) (49) (59) _ Bad debts (214) (271) 21 Net profit-before tax 1,486 1,463 2 Tax (431). (443) 3 | Outside equity interests : (4) (2) (100) | Net profit after ta
Slide 32: All businesses contributing
All businesses contributing Cash earnings’ ‘OF Group Contribution usiness & : Consumer Banking 53% “Wealth Mgmt 8% nstitutional Bank 19%. NZ Banking [0 15% t r + — 1. $m 0 200 400 600 800 @ 1HO3 -w 2HO2 @ 1HO2 ‘ Excluding significant items Growth 1H02 — 1H03 84% Discussion Pack - October 2003
Slide 33: Significant momentum across the group
Significant momentum across the group Key Messages | - Quick wins achieved, traction on customer experience * Strategies in place to capture value across profit pools _ | - Transformation program delivering | 7 + Leveraging off the Australian business model + Projects delivering improved customer ex
Slide 34: Business and Consumer Banking (BCB) — March
Business and Consumer Banking (BCB) — March 03 * Cash earnings up 13% * Expense to income down 340bps * Bad debt increase primarily due to dynamic provisioning for rebuild of equipment finance book estpac Austr $m 1HO3... 1HO2 % Mov’t Operating income ~2,124---1,975 8 Operating expenses (1,145) (1,1
Slide 35: BCB achievements - year to date
BCB achievements - year to date ¢ Business-unit led initiatives contributed 13% to cash earnings ~— Pricing review ~ Disciplined cost management ¢ Branch and small business initiatives in place ~ quality of referrals up ~ customer satisfaction is up ¢ Lending process project (Pinnacle) ~ credit card
Slide 36: What the market is asking
What the market is asking ¢ What is behind the strong growth in lending? ¢ What is happening in the mortgage book, and how are you managing the broker channel? * How is Westpac going to differentiate itself from its peers on customer service? * How are Westpac’s wealth management acquisitions progre
Slide 37: Loan growth and market share in key products
Loan growth and market share in key products Annual % Change 1H02 to 1H03 Average interest earning assets Housing Corporate - net loans & accept. Non-housing term loans 27% Total deposits Housing Business lending 1 Retail deposits Discussion Pack — October 2003
Slide 38: Growth in small and medium enterprises (SME)
Growth in small and medium enterprises (SME) « SME lending increased 10% over the year to March 03, excluding the reacquisition of the business finance portfolio. Initiatives boosting growth have included: ~ Industry specialisation - 6 industry packages now in place and more planned - Lifecycle pack
Slide 39: Piloting new capabilities serving SME customers
Piloting new capabilities serving SME customers Key issues faced Better serving SME customers in branch? Delivering a cost effective servicing model Improve acquisition capability? Improving service/ problem resolution for small business customers - providing a ‘name’, ‘face’, ‘place’ relationship (
Slide 40: Housing market — state of play
Housing market — state of play ¢ Established house prices have Household debt to assets. risen sharply over last two years ‘he 45% 4 22% : 9, + 20% ¢ First home owners are now a ne ae | 18% smaller proportion of new lending 30% [oa L 16% L 14% % . : 25% 4 L 12% ¢ Household gearing has increased 20%
Slide 41: Drivers of housing credit growth
Drivers of housing credit growth * Housing credit growth expected to Drivers of household formation . % People. return to decade average in year 416 28 ahead a : [28 aoa + 2.8 * Housing credit growth will, on vt L 27 average, continue to grow ahead of og! — population growth tn 27 nominal GDP, suppo
Slide 42: Housing credit — growth expected to slow
Housing credit — growth expected to slow | Housing credit growth warket 24 5 . . : 20+ . : % 16 5 \ TAN MW a VA \/ \ 8 4 Long term 4 os oS os -- average 14% 0 T 1 , : : eather ; Discussion Pack ~— October 2003
Slide 43: Characteristics of Westpac's mortgage portfolio
Characteristics of Westpac’s mortgage portfolio * Investment loans grew 20% _ Australian Mortgage Portfolio ~ Proportion but only represent 33% of 3: of total Australian portfolio 0 ; 7 * Average LVR of new loans 40% 61% _ * 20% of portfolio mortgage al 33% insured 501 * Lending criteria tightened f
Slide 44: Mortgages - broker introduced loans
Mortgages - broker introduced loans * 30% of outstanding mortgage portfolio is broker originated * In April 03 brokers introduced 26% of new loans by number and 29% of new loans by value % ~ 35.5 30.5 * Average size of loan is up to 15% higher than branch originated loans 254 20+ * Strict accreditat
Slide 45: Housing portfolio quality
Housing portfolio quality ¢ Average write-off less than 3 Housing Portfolio - 90 day delinquencies basis points 15° ¢ Delinquencies remain at historic lows * 100% mortgage insurance where loan to value (LVR) ratio > 80% ¢ Insurance required for loans > 1996. 1997..1998. 1999. 2000. 2001. 2002.1 2003
Slide 46: Investment lending for inner city apartments
Investment lending for inner city apartments ¢ Market expected to soften: Mar 03 $m Exposure comm: - Significant new supply Sydney B62 67 coming on stream Melbourn 257 14 - Vacancy rates between 3% - . and 5% Brisbane 196 12 ; 1 - Property yields between Total ae 2° 3% and 4.5% Total Housing portfol
Slide 47: In Consumer, mid life stages are the biggest opportunity
In Consumer, mid life stages are the biggest opportunity lin, Consumer by Aggfsrou Products 43~2@ W~44, 45 - 64 Age Or. TOTAL Credit Cards C $1Bn $700M : $1.9Bn Morigage ~ 42% 15% 13% Personal Savings Consumer Transactions Personal Lending - $280M $1.6Bn $1.6Bn $300M ¢$3.8Bn Total Banking ~ 11% 13%
Slide 48: Consumer - maximising value from profit pools
Consumer - maximising value from profit pools Pehaakd ae 2003-2005 ignment, planning Re-position and Unlock Growth & quick wins _ Extend hours to meet Meet more customer Integrated distribution customer need needs at first contact model Renew focus on Develop solutions that | Strengthen link | custo
Slide 49: Projects to improve customer experience
Projects to improve customer experience Theme Projects Strategic Westpac Brand Launch new communications positioning People and Performance (Align) Several initiatives covering KPis, redeployment, Change Management, Learning & Development Joint Transformation Programs Reach, Pinnacle and Redpower Op
Slide 50: Wealth position—represented across value chain
Wealth position—represented across value chain Access to 7.5m existing customers and through External Financial Advisor (EFA) channels 700 Wesipac planners & advisers Over 15,000 EFAs Leading wrap and corporate super platforms Broad product range Proven servicing capability Manage funds where compar
Slide 51: Integration synergies ahead of expectations
Integration synergies ahead of expectations * Organisational integration virtually complete ¢ First major systems migrations (margin lending & banking services) on time and on budget * Corporate super and back office systems to be migrated through September and October * $47.7 million or 94% of 2003
Slide 52: Performance turnaround: Australian equities
Performance turnaround: Australian equities 1.2% 0.8% 0.4% 0.0% -0.4% -0.8% -1.2% -1.6% -2.0% oN -6.33% Sagitta Rothschild Australian Equity Sector Trust vs S&P/ASX300. Accumulation Index mg Monthly portfolio excess return (LHS) + :2.0% + 0.0% + -2.0% + -4.0% + 6.0% ~-8.0% —@ One-Year Excess Return
Slide 53: Diversified business: performing well
Diversified business: performing well New business Product Market Rank Market Rank share share Corporate super 5.7% 8 18.4% 2 Wrap & master trust 10.4% 5 11.2% 2 Life and risk 6.3% na 10.2% 4 Margin lending 15.3% 2 na Retail 9.7% 5 Outflow Sources: Retail - ASSIRT Jun 03 Wrap and Master Trust - ASSI
Slide 54: Diversified business: continued Wrap strength
Diversified business: continued Wrap strength ¢ Wrap products are the Number 1. WRAP for inflows . . (ASSIRT. March. 2003) fastest growing sector in sbn the market 10 eee oes * 6 new badges added 8 feveeesreeeseeeseenneeeeeeeteceeees ceceeceeeeege since August 2002 Pode dneeneeteteeeceteagectersenes
Slide 55: De-risked earnings and increased disclosure
De-risked earnings and increased disclosure * Removed embedded value accounting for wealth management * Sold lower growth, higher risk finance business (AGC) * Conservative capitalisation/amortisation policy - Removed capitalisation of outsourced transactions - Expensing restructuring costs - No sof
Slide 56: Composition of portfolio
Composition of portfolio ¢* Mortgages represent 39% of total commitments and 56% of funded lending * 67% business / corporate portfolio exceeding investment grade * Other consumer includes credit cards, personal lending and margin lending Portfolio by customer segment ? 4% 5% 5%, A% 4% 100% 80% 60%
Slide 57: Stressed exposures lower - provisions increased
Stressed exposures lower - provisions increased | Categories of stressed exposures _as.a % of total commitments 30% noon @ AGC stressed loans (J Watchlist & substandard 25% ™m 90 days past due well secured 2.0% 1.5% 1,0% 0.5% 0.0% Sep Sep. Sep...Sep."Sep . Sep. Sep -Mar- : 96 .97.2...98.299.° 00.01
Slide 58: Reduced concentrations and focusing on core markets
Reduced concentrations and focusing on core markets / ~ ¢ 2 |Top 10 exposures as a % of Total Exposure by Region total committed exposure’ - | . : NZI Europe & | Asia inc 7 / 3.5% $m Aust Pacific | Americas | . Japan Group . ‘0 7] 3.0% + Invest grade. | 59,999 | 16,230 8,999 | °° 267.) °° 85,495 25%
Slide 59: Forward indicators in good shape
Forward indicators in good shape * Business delinquencies Business Banking - 90 day delinquencies less than one third of * eS levels recorded 4 years a tl 4 ago Na * Consumer delinquencies ea returning to more normal % 1998 1999 _2000 20012002 __1H08 levels Consumer Unsecured - 90 day delinquencies
Slide 60: Basel II — the story so far
Basel II — the story so far * Basel Il involves the development of more sophisticated and comprehensive risk measurement for banks globally including credit, market and operational risks. * Third stage of detailed global benchmarking now complete (QIS3) resulting in a model which sees no overall red
Slide 61: Basel II highlights the low risk of balance sheet
Basel II highlights the low risk of balance sheet * Wesipac has more of its balance sheet in assets with a high average reduction in risk weight than the average Group 1 banks * Across asset classes, Westpac has a lower average risk weight (except for other retail) than Group 1 banks leading to a la
Slide 62: Economic environment
Economic environment * Strong momentum in Australian Key economic indicators’ economy: - Solid domestic demand - Buoyant housing sector - Business sentiment strong Jun 03(f) | Jun 04(f) | World growth | 2.9% |Aust ¢ SDP a 2. 7% Fr | U Imemployment | -" ; t% an 2.7% | Cash ite — * In the year ahead,
Slide 63: Credit growth
Credit growth Australian Credit Growth = Ltcusing. —~Business_ ——Total : Market % ann : : estimates : 7 24 8B T — T T T T T T T T T T T 8 Jan-90.- Jan-92. Jan-94.- Jan-96. Jan-98 Jan-00.. Jan-02. Jan-04 Souee. RBA sn Discussion Pack — October 2003
Slide 64: Operating revenue parameters
Operating revenue parameters * Credit growth expected to fall from recent experience of 10-13% to 7-11% growth per annum + Margins - Prior guidance suggested 10-12 bps erosion per annum - Last 2 years performance has been more modest -Medium term erosion to continue, potentially in a narrower band 5
Slide 65: Expense outlook
Expense outlook e In a normal year we face Annual growth in expenses 6 - 4% salary increases - 2-4% increase in other prices (some much higher) - Continued volume growth 4 2 o4 2 * Expense pipeline targeted at sterilising organic cost growth % 1H99 2H99 1HOO 2HOO 1HO1 2HO1 1HO2 -2HO2 1HO3 and creati
Slide 66: Other factors
Other factors surplus capital growth of 2-3% pa Medium Term Recent : . mmen Guidance Experience Comments 1H02." 30.8% Excludin policy holder tax R40 # cluding poli ‘a Tax 29 - 31% 2H02 29.0% recoveries, and including gross-up 1HO3 30.5% 2001. 32 bps : a Bad 25 — 35 bps of 4HO2 39 bps Some volatility
Slide 67: Medium term earnings scenarios
Medium term earnings scenarios Assuming stable macro-economic environment, medium term drivers of earnings would lead to following outcomes in most scenarios Likely Ranges (%) interest Income 5-8 Non-Interest Income 5-9 Operating Revenue ; 5-8 Expenses 2-4 Bad debts 25-35 bps Tax Rate 29-31 Post-Tax
Slide 68: First half 2003 — actual capital outcome
First half 2003 — actual capital outcome * Organic growth opportunities exceeded expectations without eroding returns. This, combined with a higher payout to shareholders, resulted in no excess capital being accumulated in Hi 2003 Preliminary ; 2003 tt mn : Comments estimate actua : : ; . Strong cas
Slide 69: Investor relations contacts
Investor relations contacts Westpac’s Investor Relations Team Andrew Bowden 61 2 9226 4008 Address andrewbowden@westpac.com.au Level 25 : 60 Martin Place Hugh Devine a 2 9226 ma Sydney NSW 2000 jevine@westpac.com.au Australia Suzanne Evans 61 2 9226 3143 Fax 61 2 9226 1539 suzanneevans@westpac.com.a
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