Westpac Banking Corporation · ASX:WBC
Westpac Banking — Debt Investor Presentation (November 2018)
59 slides from Westpac Banking's debt investor presentation, November 2018
Slide 1: Westpac Banking Corporation Fixed Income Investor Roadshow
Westpac Banking Corporation Fixed Income Investor Roadshow
Slide 2: Disclaimer
Disclaimer 2 The material contained in this presentation is intended to be general background information on Westpac Banking Corporation (“Westpac”) (ABN 33 007 457 141) and its activities. It should not be reproduced, distributed or transmitted to any person without the consent of Westpac and is no
Slide 3: Westpac FY18 Highlights
Westpac FY18 Highlights 3 A solid and consistent story from Australia’s first bank 1H18 Financials (vs 1H17) FY18 Financials (vs FY17) Balance sheet • Return on average ordinary equity 13.1%, • CET1 capital ratio 10.6%, APRA Basel III down 60bps basis • Reported net profit $8.1bn, up 1% • CET1 capit
Slide 4: Responding to regulatory and political change in Australia
Responding to regulatory and 4 political change in Australia Australian housing market cooling • Sydney and Melbourne housing markets have cooled, as macro-prudential measures, higher lending rates and tighter lending standards have had an impact • Household debt levels remain high although are fore
Slide 5: Well positioned for 'Unquestionably strong' capital
Well positioned for ‘Unquestionably strong’ capital 5 Capital ratios (%) CET1 capital ratio (%) and CET1 capital ($bn) (APRA basis) Table may not add due to rounding Sep-17 Mar-18 Sep-18 Westpac CET1 capital (lhs, $bn) Westpac CET1 capital ratio (rhs, %) APRA introduces industry CET1 capital ratio 1
Slide 6: Internationally comparable capital ratio reconciliation
Internationally comparable capital ratio reconciliation 6 Westpac’s Common equity Tier 1 ratio (%) Common equity Tier 1 Additional Tier 1 Tier 2 21.5 2.5 Loss given default (LGD) of 15%, compared to the 20% LGD of 45%, compared to LGD floor under APRA’s requirements. APRA also applies the 60% or hig
Slide 7: Well placed on internationally comparable CET1 and leverage ratios
Well placed on internationally comparable CET1 and leverage ratios 7 Common equity Tier 1 ratio (%) 20% 15% Standard Chartered China Construction Credit Agricole SA Westpac, 16.14% Norinchukin Bank JPMorgan Chase Societe Generale 10% Bank of Montreal Sumitomo Mitsui Bank of America Intesa Sanpaolo D
Slide 8: A$32bn new term funding raised in FY18
A$32bn new term funding raised in FY18 8 Term debt issuance and maturity profile1,2,5 ($bn) Covered bond Hybrid Senior/Securitisation Sub debt 42 Issuance Maturities 37 33 31 32 29 30 30 27 22 17 5 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 FY24 >FY24 New term issuance by tenor2,3 (%) New ter
Slide 9: Westpac's SEC registration offers greater liquidity vs peers
Westpac’s SEC registration offers greater liquidity vs peers 9 Secondary trading volumes of Aussie 5yr bonds (US$m) CBA 03/23 RegS CBA 03/23 144A WSTP 05/23 SEC NAB 06/23 3(a)(2) Historical bond trading volumes for Aussie banks Westpac bonds trade more frequently in both bigger and smaller ticket si
Slide 10: Additional Tier 1 and Tier 2 issuance and maturities
Additional Tier 1 and Tier 2 issuance and maturities 10 Westpac Total Regulatory Capital (%) Westpac Additional Tier 1 (A$m) CET1 Additional Tier 1 Tier 2 Issuance1 ($m) Maturity profile2 (A$m) 21.5 AUD USD 2.5 1,702 1,690 3,013 1,576 14.8 14.7 2.9 1,384 13.1 1,311 1,324 2.2 2.0 1,732 1.9 2.1 2.1 1,
Slide 11: 2018 financial performance
2018 financial performance 11 Reported net profit after tax movements ($m) Net interest margin (%) Asset quality Net interest margin up 7bps, rise in Impairment charges to average Treasury income and fair value 100 gross loans2 (bps) 3.0 gain on economic hedges, partly offset by Bank Levy 2.5 2.14 2
Slide 12: Portfolio stress remains at historically low levels
Portfolio stress remains at historically low levels 12 Stressed exposures as a % of TCE (%) New and increased gross impaired assets ($m) 1,748 1,519 Watchlist & substandard 1,343 1,218 1,194 90+ day past due (dpd) and not impaired 1,060 1,078 997 958 Impaired 708 609 607 633 589 477 440 471 450 2.48
Slide 13: Australian mortgage portfolio performance
Australian mortgage portfolio performance 13 Australian mortgage delinquencies and Sep-17 Mar-18 Sep-18 Australian mortgage portfolio delinquencies (%) properties in possession (PIPs) 90+ day past due total 90+ day past due investor 30+ day delinquencies (bps) 130 144 3.0 140 30+ day past due total
Slide 14: Australian mortgage portfolio well collateralised
Australian mortgage portfolio well collateralised 14 Sep-17 Mar-18 Sep-18 2H18 Australian mortgage portfolio balance balance balance flow1 Australian housing loan-to-value ratios (LVRs) (%) 100 FY18 drawdowns LVR at origination Total portfolio ($bn) 427.2 437.2 444.7 36.9 90 Portfolio LVR at origina
Slide 15: Impact of macro-prudential measures across Australian industry
Impact of macro-prudential measures across Australian industry 15 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 10% limit on investment 30% limit
Slide 16: The Australian housing market has cooled
The Australian housing market has cooled 16 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% 25 30 ann % (annual %, all dwellings, seasonally adjusted by Westpac) ann % Sydney 40
Slide 17: Physical supply/demand fundamentals remain supportive across wider market
Physical supply/demand fundamentals remain supportive across wider market 17 Dwelling supply has not kept pace with stronger demand Rental vacancy rates remain low in Sydney and Melbourne Population versus dwelling stock (annual average change ‘000) ‘000 Rental vacancy rates (%, quarterly, seasonall
Slide 18: Australian economic snapshot – growth to moderate
Australian economic snapshot – growth to moderate 18 Australian economy key statistics Global backdrop less positive Inflation remains subdued1 (latest available as at November 2018) Avg RBA core CPI %qtr (rhs) Westpac global trade PMI %yr %qtr Index 8 Headline CPI %yr (lhs) 3.2 JPMorgan global manu
Slide 19: Economics
Economics
Slide 20: Australian and New Zealand economic forecasts
Australian and New Zealand economic forecasts 20 Calendar year Key economic indicators (%) as at November 2018 2017 2018F 2019F World GDP1 3.8 3.8 3.6 Australia GDP2 2.4 3.3 2.7 Private consumption2 3.0 2.6 2.6 Business investment2,3 6.9 1.1 2.5 Unemployment – end period 5.5 5.1 5.0 CPI headline – y
Slide 21: The Australian economy
The Australian economy 21 NSW and Victoria 58% of population and employment Services employ a large part of the Australian workforce Output 2017 - sector contribution to GDP (%)1 Services Mining 56% Manufacturing 7 19 7 Construction Transport, Utilities 9 Wholesale, Retail 10 Agriculture 9 Household
Slide 22: Australian economic outlook: positive but uneven
Australian economic outlook: positive but uneven 22 Australian growth mix: shifting drivers Positive but moderating business conditions Contributions to GDP growth (ppts) Australian business conditions (net balance) ppts ppts net bal. 2015 2016 2017 2018f 2019f Goods related Consumer sectors 3 3 30
Slide 23: Population growth, public spending, lower AUD boosting activity
Population growth, public spending, lower AUD boosting activity 23 Population growth remains high Services exports remains strong Population growth 2006-2016 average (% ann) $bn Rolling annual, nominal $bn 30 Education 30 EU 0.28 Total service exports: +7% yr +14% Developed 0.33 25 25 Leisure UK 0.7
Slide 24: Housing slowdown and wages are headwinds
Housing slowdown and wages are headwinds 24 Jobs are being created… …but Australian wage inflation remains low Employment by major sector: Australia %yr Australian wage inflation (%, yr) (‘000 change in employment over the last 2 years) 8 Aus private sector wages 7 Mining industry wages education &
Slide 25: Australian household balance sheets
Australian household balance sheets 25 Affordability on repayment basis around long run average Australian households debt to income ratio remains high Housing affordability: all dwellings Australian households debt to income ratio (%) (% income required to service mortgage of 75% median dwelling, a
Slide 26: Australia's high rise apartment market – past the peak
Australia’s high rise apartment market – past the peak although supply still coming online 26 Aggregate supply/demand fundamentals remain positive Dwelling construction: indicative completion times1 Population versus dwelling stock (annual average change ‘000) ‘000 % % ‘000 450 Population Total incr
Slide 27: The New Zealand economy
The New Zealand economy 27 Regional GDP - 2017, nominal $NZ NZ output and employment Total nominal GDP 2017: $280bn Output 2018 - sector contribution to GDP (%) Population 4.9 mil Primary 9 7 Electricity, gas and water 3 Northland, $7bn 6 Construction 7% of population 11 3 Food manufacturing 7 Manuf
Slide 28: New Zealand economic snapshot – growth has taken a step down
New Zealand economic snapshot – growth has taken a step down 28 New Zealand economy key statistics GDP holding firm Spending to slow as housing cools (latest available as at October 2018) % % House prices and household spending % GDP (%) % House price inflation 6 Qtr % chg 6 30 6 GDP 2.7% Annual ave
Slide 29: New Zealand economic indicators
New Zealand economic indicators 29 Inflation off its lows, boosted by oil prices Export prices remain favourable % Inflation (%) % NZ export commodity price index (world prices) Index 6 6 500 Meat,skins & wool Forestry Dairy CPI inflation Forecast 5 5 450 CPI excluding petrol 400 4 4 350 3 3 300 250
Slide 30: New Zealand housing market expected to be dampened by policy changes
New Zealand housing market expected to be dampened by policy changes 30 Policy changes have softened housing demand… …and a period of subdued prices is expected New Zealand house prices by region (index) New Zealand house prices (nationwide, %) 220 220 20 20 NZ ex Auckland and Canterbury Forecast 20
Slide 31: Additional information
Additional information
Slide 32: Westpac: clear domestic focus and a strong market position
Westpac: clear domestic focus and a strong market position 32 Unique portfolio of national and regional brands Large domestic presence Top 10 banks in Australia by total resident assets1 (A$bn) Australian retail banking and wealth Westpac CBA NAB ANZ Macquarie Bendigo and Adelaide Bank ING Bank (Aus
Slide 33: Funding and liquidity metrics
Funding and liquidity metrics 33 Funding composition by residual maturity (%) Liquidity coverage ratio (LCR)3 (%) LCR 134% LCR 133% 129.0 133.5 1 Wholesale Onshore <1yr 100.4 6 5 96.0 16 7 8 Wholesale Offshore <1yr 1 20 4 4 Wholesale Onshore >1yr Net cash outflows Liquid assets Net cash outflows Liq
Slide 34: High quality portfolio with bias to mortgage lending
High quality portfolio with bias to mortgage lending 34 Asset composition (%) Lending composition at 30 September 2018 (% of total) Total assets ($880bn) Sep-16 Sep-17 Sep-18 Total loans of $710bn Loans 79 81 81 Trading securities, financial assets at fair value and 10 10 9 Housing available-for-sal
Slide 35: A well diversified loan portfolio
A well diversified loan portfolio 35 Exposures at default1 by sector ($bn) Top 10 exposures to corporations and NBFIs5 (% of TCE) 2 Finance & insurance The single largest corporation/NBFI 3 exposure represents Property less than 0.3% of TCE 1.4 1.3 1.3 Government admin. & defence 1.2 1.2 1.1 1.1 1.1
Slide 36: Overall stressed exposures little changed over 2H18
Overall stressed exposures little changed over 2H18 36 Corporate and business portfolio stressed exposures by industry ($bn) 2.0 Sep-17 Mar-18 Sep-18 1.8 New Zealand dairy improvements Reflects retail 1.6 trade sector challenges 1.4 1.2 2 exposures 1.0 0.8 2 exposures 0.6 in FY18 0.4 0.2 0.0 Agricul
Slide 37: Areas of interest: Commercial property
Areas of interest: Commercial property 37 Commercial property portfolio Commercial property exposures % of TCE and % in stress Sep-17 Mar-18 Sep-18 10 Commercial property as % of TCE (lhs) 20 Total committed exposures (TCE) $65.2bn $66.3bn $67.6bn Commercial property % in stress (rhs) 8 15 Lending $
Slide 38: Areas of interest: Inner city apartments
Areas of interest: Inner city apartments 38 Commercial property portfolio TCE ($bn) Sep-17 Mar-18 Sep-18 TCE1 • Market activity is slowing as demand eases and pre-sales and new Residential apartment development developments start to slow. Sydney completions expected to peak in 2018, 4.2 4.0 4.1 6.1%
Slide 39: Areas of interest: Retail trade
Areas of interest: Retail trade 39 Overview Retail trade portfolio • The retail sector continues to be challenged by subdued consumer demand Sep-17 Mar-18 Sep-18 and growth in domestic and international online channels Total committed exposures (TCE) $15.4bn $15.5bn $16.2bn • These changes have been
Slide 40: Areas of interest: Aged Care sector
Areas of interest: Aged Care sector 40 Overview Aged Care portfolio • Aged care sector is forecast to grow with significant investment required to Sep-17 Mar-18 Sep-18 meet demand from Australia’s aging population Total committed exposures (TCE) $2.6bn $2.5bn $2.7bn • The stress increase over the ye
Slide 41: Areas of interest: Areas experiencing drought conditions
Areas of interest: Areas experiencing drought conditions 41 Overview Australian Agribusiness1 portfolio • Many parts of Australia are currently affected by drought, in particular, NSW. Sep-17 Mar-18 Sep-18 Other areas such as WA are performing well. This is typical in Australia where conditions can
Slide 42: Areas of interest: Mining and NZ dairy
Areas of interest: Mining and NZ dairy 42 Mining (inc. oil and gas) portfolio Mining portfolio (TCE) Iron Ore and Oil prices ($)3 by sector (%) Sep-17 Mar-18 Sep-18 Iron ore (USD/t) 4 Crude oil (USD/bbl)5 Westpac Total committed 7 Economics $9.7bn $9.3bn $10.7bn forecast exposure (TCE) 15 37 100 Len
Slide 43: Australian consumer unsecured lending, 3% of Group loans
Australian consumer unsecured lending, 3% of Group loans 43 Australian consumer unsecured lending portfolio 90+ day delinquencies (%) by State NSW/ACT VIC/TAS QLD WA SA/NT Sep-17 Mar-18 Sep-18 3.00 Hardship reporting changes commenced1 Lending $22.0bn $21.8bn $21.1bn 2.00 30+ day delinquencies (%) 3
Slide 44: Westpac Australian mortgages: selected characteristics and policies
Westpac Australian mortgages: selected characteristics and policies 44 Owner-occupied P&I Owner-occupied I/O Investor P&I Investor I/O Current mortgage rate1 4.58% 5.17% 5.13% 5.64% Recourse Full recourse Full recourse Full recourse Full recourse Maximum 30 year contractual • I/O period limited to 5
Slide 45: Australian mortgage portfolio standards tightening
Australian mortgage portfolio standards tightening 45 Notable changes to Westpac mortgage lending standards Australian mortgage portfolio by • 10% limit on investment property lending growth announced – calendar year of origination (% of total book) 2014 implemented by 30 September 2015 • Stricter l
Slide 46: Australian mortgage portfolio repayment buffers
Australian mortgage portfolio repayment buffers 46 Mortgage interest rate buffers (%) Westpac Australian offset account balances2 ($bn) Westpac owner occupied SVR1 inc package • Borrowers applying Linked to I/O mortgages Linked to P&I mortgages . discount for a mortgage must be able to service Westp
Slide 47: Interest only (I/O) portfolio
Interest only (I/O) portfolio 47 I/O portfolio (%) Switching from I/O to P&I ($m) Variable mortgage interest rates2 (%) % of total portfolio (at period end) Reached end of I/O period Customer initiated at 17 October 2018 % of all new flows1by limit (6 mnth) Owner occupied Investor 5.64 4,716 4,326 3
Slide 48: Performance of interest only mortgages
Performance of interest only mortgages 48 Interest only lending Australian interest only loan portfolio balances ($m) • Interest only (I/O) loans assessed on a principal and interest basis 250 I/O performing loans balance (lhs) 14 – Loans originated prior to 2015 were assessed on a principal and int
Slide 49: Investment property portfolio
Investment property portfolio 49 Mortgage applications by Investment property portfolio by 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 0 0 5 100<=125 125<=150 150<=200 200<
Slide 50: Australian mortgage deep dive
Australian mortgage deep dive 50 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 80 >$250k 7 69 $100k - $250k 12 34 <$100k 45 41 36 8 9 23 3 25 38 14 21 14 1 13 8 3 7 6 22 1 11
Slide 51: Lenders mortgage insurance arrangements
Lenders mortgage insurance arrangements 51 Lenders mortgage insurance Lenders mortgage insurance arrangements • Where mortgage insurance is required, mortgages LVR Band Insurance are insured through Westpac’s captive mortgage insurer, Westpac Lenders Mortgage Insurance1 • LVR ≤80% Not required (WLMI
Slide 52: Mortgage portfolio stress testing outcomes
Mortgage portfolio stress testing outcomes 52 • Westpac regularly conducts a range of portfolio stress tests as part of its Australian mortgage portfolio stress testing regulatory and risk management activities at 30 September 2018 • The Australian mortgage portfolio stress testing scenario assumes
Slide 53: Appendix 1: Internationally comparable capital ratio reconciliation
Appendix 1: Internationally comparable capital ratio reconciliation 53 APRA’s Basel III capital requirements are more conservative than those of the Basel Committee on Banking Supervision (BCBS), leading to lower reported capital ratios by Australian banks. In July 2015, APRA published a study that
Slide 54: Appendix 2: Regulatory capital agenda
Appendix 2: Regulatory capital agenda 54 2H18 2019 2020 2021 New Basel III framework Consult Finalise Implementation Counterparty credit risk Implement – 1 July 2019 Leverage ratio Finalise Implement – 1 July 2019 Standardised approach to Consult Consult and finalise Implementation credit risk Advan
Slide 55: Appendix 3: Cash earnings adjustments
Appendix 3: Cash earnings adjustments 55 Cash earnings FY18 FY17 adjustment ($m) ($m) Description Reported net profit 8,095 7,990 Net profit attributable to owners of Westpac Banking Corporation Identifiable intangible assets arising from business acquisitions are amortised over their useful lives,
Slide 56: Appendix 4: Estimated impact of AASB 9 and AASB 15
Appendix 4: Estimated impact of AASB 9 and AASB 15 56 Approach to provisioning Estimated transition impacts • The current requirement for provisioning (AASB 139) is based on an • Impairment provisions “incurred loss approach”, with the revised methodology (AASB 9) based on ─ $974m increase in impair
Slide 57: Appendix 5: Definitions
Appendix 5: Definitions 57 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 Assets (both on and off-balance sheet) are risk weighted (RSF) defined by APRA. The amount
Slide 58: Appendix 5: Definitions (cont.)
Appendix 5: Definitions (cont.) 58 Total Represents the sum of the committed portion of direct lending Loans not found to be individually impaired or significant will be committed (including funds placement overall and deposits placed), contingent collectively assessed in pools of similar assets wit
Slide 59: More information
More information | www.westpac.com.au/investorcentre 59 + - X Contact our Global Funding team Curt Zuber Joanne Dawson Alexander Bischoff Treasurer, Westpac Banking Corporation Deputy Treasurer, Westpac Banking Corporation Executive Director, Global Funding +61 2 8253 4230 +61 2 8204 2777 +61 2 8253
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