Westpac Banking Corporation · ASX:WBC
Westpac Banking — Debt Investor Presentation (May 2015)
71 slides from Westpac Banking's debt investor presentation, May 2015
Slide 1: Fixed Income Investor Presentation
Fixed Income Investor Presentation May 2015 Comparison of 1H15 versus 2H14 cash earnings basis (unless otherwise stated)
Slide 2: Disclaimer
Disclaimer The material contained in this presentation is intended to be general background information on Westpac Banking Corporation (“Westpac”) and its activities. It does not constitute a prospectus, offering memorandum or offer of securities. It should not be reproduced, distributed or transmit
Slide 3: Contents
Contents Highlights 4 Highlights of Westpac’s financial performance for First Half 2015 Australian Home Lending 20 Westpac’s Australian mortgage portfolio statistics and performance Economic data on the Australian home lending market Economics 30 Key forecasts and economic data on the Australian, Ne
Slide 4: A high quality credit with a clear domestic focus and strong market positions
A high quality credit with a clear domestic focus and strong market positions Clear focus on Australia and New Zealand Large domestic presence Total income by geography1 (%) Top 10 banks in Australia by total resident assets2 (A$bn) Australia New Zealand Asia, Pacific, Europe & Americas Westpac CBA
Slide 5: A high quality credit with balance sheet strength and consistent returns
A high quality credit with balance sheet strength and consistent returns Maintaining a strong balance sheet Risk management a competitive advantage Westpac key balance sheet ratios at 31 March 2015 (%) Total impaired loans to total loans1 (%) 114 100 8.8 0.54 83 8.0 >75 0.48 0.45 0.35 Stable Target
Slide 6: First Half 2015 Financial performance
First Half 2015 Financial performance % Change Cash earnings 1H15 – 2H14 ($m) 1H15 Financial Results 1H15 1H15 – 2H14 181 122 Financial results (A$m) 3,856 73 32 32 3,778 Net profit after tax 3,609 (8) • Derivative adjustments2 $122m impact Cash earnings1 3,778 (2) • Excluding derivative adjustments
Slide 7: Steadily building our customer franchise
Steadily building our customer franchise Retail banking driving earnings Increasing customer numbers Leading consumer satisfaction 1H15 cash earnings by division (%) Australian retail customer numbers (#m) Total consumer satisfaction2 (%) 2 WRBB SGB Peers WRBB WRBB SGB 9.8 10.1 11 9.3 SGB 86.6 36 17
Slide 8: Asset quality a highlight
Asset quality a highlight Stressed exposures as a % of TCE and provisions1 ($m) Impaired 90+ days past due and not impaired Watchlist & substandard . 3.09 3.20 2.48 2.26 2.17 2.07 1.94 2.23 1.45 1.60 1.30 1.26 1.24 1.37 1.03 1.24 1.12 0.85 0.88 0.75 0.91 0.46 0.41 0.40 0.71 0.62 0.29 0.35 0.35 0.62
Slide 9: Portfolio well diversified across industries
Portfolio well diversified across industries Exposures at default1 by sector2 ($m) Stressed exposure by industry over last 3 halves ($bn) Finance & insurance3 3.5 1H15 lower stressed exposure 4 Property 3.0 1H15 higher stressed exposure Wholesale & Retail Trade Manufacturing 2.5 Government admin. &
Slide 10: Sector deep dives Commercial property and mining
Sector deep dives Commercial property and mining Commercial property portfolio Mining portfolio Total committed exposure (TCE) $64.8bn Total committed exposure (TCE) $11.7bn Lending $50.5bn Lending $7.0bn Commercial property as a % of Group TCE 7.11% Mining as a % of Group TCE 1.28% Average risk gra
Slide 11: High levels of borrower equity support Australian mortgage portfolio
High levels of borrower equity support Australian mortgage portfolio 1H14 2H14 1H15 1H15 Australian housing loan-to-value ratios (LVRs)2 (%) Australian housing portfolio balance balance balance flow1 1H15 drawdowns LVR at origination Total portfolio ($bn) 338.0 351.0 362.8 37.0 Portfolio LVR at orig
Slide 12: Mortgage customers continuing to repay ahead of schedule
Mortgage customers continuing to repay ahead of schedule Australian home loan customers ahead on repayments1,2 (%) Australian mortgage lending volumes ($bn) Mar-14 Sep-14 Mar-15 37.0 ( 25.2) 36.9 ( 23.9) 30 362.8 73% ahead on repayments 351.0 25 338.0 20 15 10 5 1H14 Run-off 2H14 Run-off 1H15 lendin
Slide 13: Capital strength maintained
Capital strength maintained Common equity tier 1 capital ratio (CET1) (% and bps) 13.4 8.8 9.0 109 (72) (7) (12) (19) 50 9.3 (14) (6) 8.8 Organic (+18bps) Other items (-39bps) Mar-14 Sep-14 Cash earnings Final RWA Other Model FX DB plan Mar-15 DRP and Mar-15 Mar-15 ordinary movement changes 2 transl
Slide 14: Regulatory agenda Considerations for capital
Regulatory agenda Considerations for capital Westpac’s capital base and APRA regulatory minimums (%) Capital considerations 17.5% Current • RBNZ changes to investment property loans DRP and DRP underwrite Total regulatory considerations • Changes in IRRBB calculations capital ratio (pro forma • Adju
Slide 15: Internationally comparable CET1 capital ratio
Internationally comparable CET1 capital ratio In top quartile of global peers Global peer comparison of Basel III pro forma CET1 capital ratios1 (%) Pre- DRP and DRP underwrite (approx. 70bps) 12.7 HSBC 4 Standard Chartered 4 4 Sumitomo Mitsui 4 3 SEB 4 BBVA 4 4 4 6 Intesa Sanpaolo 4 BNP Paribas 4 W
Slide 16: Strong liquidity position LCR 114%
Strong liquidity position LCR 114% • Westpac’s Liquidity Coverage Ratio (LCR) Pro forma % Mov’t 1H15 – Liquidity Coverage Ratio ($m) as at 1H15 114% as at 2H14 pro forma 2H14 • The LCR requires banks to hold 100% of High Quality Liquid Assets1 (HQLA) 59 57 (3) their net cash outflows over a modelled
Slide 17: Sound funding profile Stable sources providing 83% of all funding
Sound funding profile Stable sources providing 83% of all funding • Stable Funding Ratio maintained at Maintaining a stable funding profile 83.2% as the Group continues to focus on funding growth through stable funding Funding composition by residual maturity (%) sources Stable Funding Ratio • Focus
Slide 18: Wholesale term issuance well diversified
Wholesale term issuance well diversified Benefit from broad product capabilities 1H15 new term issuance composition1 (%) Australian covered bond issuance5 Remaining capacity By type By tenor 2,3 By currency (8% cap & over-collateralisation) ($bn) Issued ($bn) 23 11 20 10 41 2 8 16 1 30 27 27 4 24 53
Slide 19: Areas of interest Economic snapshot
Areas of interest Economic snapshot Key economic indicators (%) as at April 2015 Australia’s economy is diversified and flexible Calendar year 2015f 2016f Sector contribution to GDP (%)1 World GDP 3.5 4.1 Manufacturing 5.7 8.4 Construction Australia GDP 2.2 3.0 11.9 8.6 Mining Rural CPI headline – y
Slide 20: Australian Home Lending
Australian Home Lending May 2015 Westpac Banking Corporation ABN 33 007 457 141. Comparison of 1H15 versus 2H14 cash earnings basis (unless otherwise stated)
Slide 21: Australian mortgage market Sound fundamentals underpin asset quality
Australian mortgage market Sound fundamentals underpin asset quality Australian mortgage market Australian housing credit market share1 (% of financial system) • 4 major banks have 78% share of housing credit1 Bank market • Major banks have a lower share of low doc market, with Westpac share 6 low f
Slide 22: Australian housing market Sound fundamentals
Australian housing market Sound fundamentals • Australian housing market continues to face a significant structural Population versus dwelling stock (annual average change ‘000) undersupply • Persistently low level of new building over the last decade has combined population dwelling stock* 365 with
Slide 23: House price growth and activity
House price growth and activity Some moderation, wide range of conditions • Price growth and activity have moderated somewhat since the start of Capital city dwelling prices 2015 but remains robust at around 8% yr nationally • Growth rates continue to vary significantly between capital cities % * 6m
Slide 24: Investment property lending Remains buoyant
Investment property lending Remains buoyant • Investor housing activity is buoyant, responding to low vacancy rates, solid rental yields, and low interest rates, including low fixed rates that Dwelling turnover also offer the opportunity to hedge interest rate risk thousands estimated investor purch
Slide 25: Australian households A cautious approach to household finances
Australian households A cautious approach to household finances Australian households: debt to income ratio (%) Consumer survey: ‘Wisest place for savings’ % total (gross) debt 70 % shares % 70 180 total debt net of offset accounts real estate 60 deposits 60 130 total debt net of deposits* includes
Slide 26: Australian investment property portfolio Sound origination profile
Australian investment property portfolio Sound origination profile • Investment property loans (IPLs) are 46.3% of Westpac’s Australian mortgage portfolio Strong origination standards • Compared to owner-occupied applicants, IPL applicants are on average • All IPLs1 are full recourse older (75% over
Slide 27: Australian mortgage delinquencies Remain at low levels
Australian mortgage delinquencies Remain at low levels Australian mortgage portfolio 1H14 2H14 1H15 Australian mortgage loss rates (bps) 30+ days delinquencies (bps) 128 108 124 • Portfolio losses of $38m in 90+ days delinquencies (bps) 50 47 47 1H15 represent an 11 90+ days delinquencies – annualis
Slide 28: Lenders mortgage insurance
Lenders mortgage insurance • Lenders mortgage insurance (LMI) provides benefits to the Westpac Group Lenders mortgage insurance – Risk transfer / loss mitigation LVR Band • LVR ≤80% • LVR >80% to ≤ 90% • LVR >90% • Low Doc LVR ≤60% • Low Doc LVR >60% to ≤ 80% – Improvement in the quality of risk acc
Slide 29: Australian mortgage portfolio Stress testing outcomes
Australian mortgage portfolio Stress testing outcomes • Westpac regularly conducts a range of portfolio stress tests as part Australian mortgage portfolio stress testing of its regulatory and risk management activities as at 31 March 2015 • The Australian mortgage portfolio stress testing scenario p
Slide 30: Economics
Economics May 2015 Westpac Banking Corporation ABN 33 007 457 141. Comparison of 1H15 versus 2H14 cash earnings basis (unless otherwise stated)
Slide 31: Australian and New Zealand Economic forecasts
Australian and New Zealand Economic forecasts Calendar year Key economic indicators1 (%) as at April 2015 2013 2014f 2015f 2016f World GDP 3.3 3.2 3.5 4.1 Australia GDP 2.1 2.7 2.2 3.0 Private consumption 2.0 2.8 2.4 3.2 Business investment2,3 -8.0 -4.3 -7.4 -1.2 Unemployment – end period 5.8 6.2 6.
Slide 32: Australia remains well-placed relative to developed economies
Australia remains well-placed relative to developed economies Net public debt levels as a % of GDP 2013 Australia’s economy: diversified and flexible 110.7 Sector contribution to GDP (%)1 83.1 87.6 Manufacturing 81.3 5.7 8.4 Construction 60.4 55.7 11.9 8.6 Mining Rural 38.5 5.6 Utilities & transport
Slide 33: Australia's economic transition From mining to non-mining
Australia’s economic transition From mining to non-mining Australian growth mix: contributions to GDP growth (%) Investment: share of Australian economy (% of GDP) % of mining, CAPEX ppts 2012 2013 2014e 2015f 2016f ann% 4 4 GDP 15 housing investment business investment (ex mining) F’casts end 2015
Slide 34: Australian state economies
Australian state economies Shift in growth with NSW the pace setter • Domestic demand growth is shifting from the Domestic demand (% ann) Business investment by state ($bn) mining states of WA and Qld, to NSW and, to a lesser extent, Victoria Dec-13 yr Dec-14 yr Equipment Construction 3.8 25 25 – 1
Slide 35: Australian labour market
Australian labour market Unemployment rates (%) Australia: employment by sector (annual change, ’000) % Australia Canada UK US Euro 14 Business services 12 Leisure & hospitality 10 8 Construction 6 Finance & real estate 4 2 Retail 0 Feb-99 Feb-03 Feb-07 Feb-11 Feb-15 Wholesale & transp. Sources: OEC
Slide 36: Australia's population growth
Australia’s population growth • Australia’s population is just over 23 million and growing at a Population growth (%) comparatively rapid pace ‒ Population growth was 1.8% in 2013, a touch above Australia’s long % % run average pace of 1.4% and well above world population growth of 2.0 2.0 1.2% *ave
Slide 37: Interest rates to remain low AUD high relative to fundamentals
Interest rates to remain low AUD high relative to fundamentals Major countries’ policy rates (%) Australian dollar (AUD/USD) % Australia UK Canada US Euro USD USD 8 1.20 Fair value band 1.20 AUD/USD actual & forecast 7 1.10 1.10 6 1.00 F’casts 1.00 5 0.90 0.90 4 0.80 0.80 3 0.70 0.70 2 0.60 latest:
Slide 38: Credit growth picking up at a modest pace
Credit growth picking up at a modest pace Business confidence and consumer confidence (net balance) Australian private sector credit growth (% ann) Consumer (lhs) Business * (rhs) % annual % annual Housing Total credit Business 130 monthly 30 25 Forecasts 25 end 2015 120 20 20 20 110 10 15 15 100 0
Slide 39: Australian commercial property market
Australian commercial property market Australian commercial investment sales over $5 million Total vacancy rates in capital cities (%) ($’000) NSW Vic Qld SA WA ACT Brisbane CBD Perth CBD 30 35 Recent sector activity Sydney CBD Melbourne CBD 25 30 largely in NSW and Vic 20 25 15 20 10 15 10 5 5 0 20
Slide 40: China growth remains a positive for Australia
China growth remains a positive for Australia • As a $US7 trillion economy, China grew at 10%. As a $US10 trillion Real GDP % ann 2012 2013 2014f 2015f 2016f economy, Westpac expects China to grow at 7.1% China 7.7 7.7 7.4 7.1 7.3 • Represents an equivalent incremental contribution to global growth,
Slide 41: New Zealand domestic demand to underpin growth
New Zealand domestic demand to underpin growth • The economy grew by 3.3% over 2014 - its fastest pace in seven years. New Zealand GDP growth and forecast (%) Growth is expected to remain strong over 2015 and 2016 • Growth is being support by robust domestic demand. Construction activity % is rampin
Slide 42: New Zealand housing market remains firm
New Zealand housing market remains firm • Housing market activity slowed in 2014 following the introduction of New Zealand house price inflation (annual %) restrictions on high loan-to-value lending. It picked up again in late 2014 as the impact of lending restrictions waned, and volatility associat
Slide 43: Secured Funding
Secured Funding May 2015 Westpac Banking Corporation ABN 33 007 457 141. Comparison of 1H15 versus 2H14 cash earnings basis (unless otherwise stated)
Slide 44: Westpac's covered bond program
Westpac’s covered bond program Providing valuable diversity for issuer and investor • Westpac issues covered bonds through its Westpac Australian covered pool highlights (as at 31 March 2015) US$40bn covered bond program – Westpac also maintains RCB/N-bond Total pool loan balance A$29,469,180,734 ca
Slide 45: Australian covered bond legislation
Australian covered bond legislation • Legislation was passed in October 2011 to amend Banking Act and enable Australian banks to issue Timing covered bonds • Covered bond issuances previously prohibited by Banking Act and Regulator • Covered bond issuance only permitted in accordance with the legisl
Slide 46: Westpac's Australian Covered Bond Program
Westpac’s Australian Covered Bond Program Issuer Westpac Banking Corporation Issuer rating AA-/Aa2/AA- by S&P / Moody’s / Fitch Format Legislative Covered Bond Covered Bond rating Aaa / AAA by Moody’s / Fitch Program size US$40 billion Maturity options Soft and Hard Bullet Covered Bond Guarantor Wes
Slide 47: Covered Bond Program Key features
Covered Bond Program Key features Covered Bonds are issued by Westpac, backed by an unconditional and irrevocable guarantee by the Structure Covered Bond Guarantor (the “CBT Guarantor”), which is limited in recourse to the assets in the Westpac Covered Bond Trust Security comprises a pool of Austral
Slide 48: Westpac's legislative covered bond program International comparisons
Westpac’s legislative covered bond program International comparisons Terms Westpac UK Sweden Canada UK Regulated Covered Bonds Lag om Utgivning av Säkerställda Legislation Amendment to the Banking Act 1959 National Housing Act Regulations Obligationer All assets transferred to SPV All assets transfe
Slide 49: Westpac's high quality cover pool
Westpac’s high quality cover pool Covered bond pool eligibility criteria Covered pool loan statistics as at 31 March 2015 At the time of sale, each loan: Total pool loan balance1 A$29,469,180,734 • Is denominated and payable only in A$ in Australia • Is secured by a mortgage that constitutes a first
Slide 50: Cover pool statistics as at 31 March 2015
Cover pool statistics as at 31 March 2015 Loan to value ratio by balance (%) Geographic distribution by state Current LVR (unindexed) Current LVR (indexed) 40 30 20 Northern Territory $285.2m, 10 1% Queensland 0 Western $4,449.2m, Australia South 15.1% 0-50% 50-55% 55-60% 60-65% 65-70% 70-75% 75-80%
Slide 51: Cover pool statistics as at March 2015 (cont.)
Cover pool statistics as at 31 March 2015 (cont.) Mortgage principal balance distribution Interest rate split (%) % of pool (lhs) Number of loans (rhs) 30 35,000 18.0 25 30,000 20 25,000 20,000 15 15,000 10 10,000 5 5,000 82.0 - - 0-100K 750k -1m > 1.5m 1m - 1.5m 100-200k 200-300k 300-400k 400-500k
Slide 52: Securitisation an important part of the Group's funding
Securitisation an important part of the Group’s funding Active RMBS and ABS capabilities • Outstanding securitisation issuance Westpac is a consistent issuer of RMBS and ABS A$12.5bn, represents 1.8% of the Group’s total funding, mostly RMBS issuance Original RMBS and ABS issuance by calendar year (
Slide 53: WST RMBS Product highlights
WST RMBS Product highlights High quality product Key pool comparison statistics (issuance) • All WST transactions backed by prime WST WST WST WST WST WST residential mortgages 2014-2 2014-1 2013-2 2013-1 2012-1 2011-3 • WST weighted average arrears have Pricing Date Dec-14 May-14 Sep-13 Feb-13 May-1
Slide 54: Crusade ABS Product comparison and highlights
Crusade ABS Product comparison and highlights • Crusade ABS – 100% auto receivables • Credit enhancement in excess of minimum required by rating agencies • Granular portfolios comprising solely auto loans • High levels of subordination (15-19%) to AAA notes • 12 month revolving period (the only Aust
Slide 55: Limited asset encumbrance
Limited asset encumbrance • Westpac has limited asset encumbrance Westpac’s asset encumbrance • Covered bond capacity has legislated cap in Australia and New Zealand – In Australia, capped at 8% of 1H15 total assets $796bn Australian assets, providing $52bn total capacity (including overcollateralis
Slide 56: Additional Information
Additional Information May 2015 Westpac Banking Corporation ABN 33 007 457 141. Comparison of 1H15 versus 2H14 cash earnings basis (unless otherwise stated)
Slide 57: Westpac business divisions A unique portfolio of brands
Westpac business divisions A unique portfolio of brands Westpac Retail & Business Banking Cash Cash Core Australian national brand for consumer and earnings earnings earnings business banking, SMEs and commercial 1H15 1H15-2H14 1H15-2H14 customers under the Westpac brand Division ($m) % change % cha
Slide 58: Balance sheet trends
First Half 2015 Balance sheet trends Net loans ($bn) Australian housing flow (gross loans) ($bn) 1.9 16.5 (25.2) 7.7 605.1 20.5 11.8 2.8 0.6 362.8 580.3 351.0 564.6 338.0 Up 4% Up 3% Other 1 Mar-14 Sep-14 Australian Australian Australian Zealand Mar-15 lending 2 WRBB new SGB new Mar-14 Sep-14 Net ru
Slide 59: High quality portfolio Bias to secured consumer lending
High quality portfolio Bias to secured consumer lending Asset composition as at 31 March 2015 (%) Cash and balances with central banks Total assets On balance sheet lending Receivables due from other financial institutions Housing Trading securities, financial assets at fair value and 6 available-fo
Slide 60: Australian unsecured lending portfolio Continues to perform well
Australian unsecured lending portfolio Continues to perform well • Total Australian consumer unsecured 90+ day delinquencies increased 18bps to 120bps (up Australian unsecured lending 90+ days delinquencies (%) 5bps 1H14/1H15) Credit cards Personal loans (excl Auto loans) • Changes in delinquencies
Slide 61: New Zealand Residential mortgage portfolio
New Zealand Residential mortgage portfolio Portfolio highlights New Zealand mortgage portfolio by region (%) • Mortgage portfolio NZ$40.7bn, up 3% • The proportion of fixed rate mortgages remains at 73%, as the outlook for cash rate rises have been delayed to late 2016 Auckland • Loan origination th
Slide 62: Sustainability Part of doing business at Westpac
Sustainability Part of doing business at Westpac Sustainability strategic priorities Significant achievements 1 Help improve the way people work and live as our society changes $100 million Launched Australia’s largest ever private 2 Help find solutions to environmental challenges education scholars
Slide 63: Broad funding capabilities Ability to meet investor preferences
Broad funding capabilities Ability to meet investor preferences Diverse and flexible funding capabilities Wholesale funding capabilities ECP/ECD Short term • Include Prime floaters, Federal Funds, Extendibles, Step- EMTN markets ups, Range accruals, CDs, CP and Flippers SEC Shelf Term • Issuance in
Slide 64: Tier 2 capital Basel III compliant securities
Tier 2 capital Basel III compliant securities Westpac Basel III Tier 2 highlights Significant capital buffers • Issuer – Westpac is a highly rated, major Australia bank, with a Stable rating outlook from Moody’s, S&P and Fitch. Strength of Westpac’s business provides a significant buffer for the ban
Slide 65: Tier 2 capital 'Old style' versus 'New style'
Tier 2 capital ‘Old style’ versus ‘New style’ Characteristic Basel III compliant Tier 2 Old-style Tier 2 (specifically Lower Tier 2) Absorb losses on a "gone concern" basis Gone concern capital Gone concern capital Non-discretionary, Must pay securities subject to solvency tests; deferred Must p
Slide 66: Tier 2 capital Comparison across jurisdictions
Tier 2 capital Comparison across jurisdictions1 US Canada UK / EU / Scandinavia Singapore Australia Senior to Senior to Additional Senior to Additional Senior to Additional Senior to Additional Ranking Tier 1 Capital Tier 1 Capital Tier 1 Capital Tier 1 Capital Tier 1 Capital Step-ups Not permitted
Slide 67: Appendix 1: Cash earnings adjustments
Appendix 1: Cash earnings adjustments Cash earnings adjustment 1H14 2H14 1H15 Description Reported net profit 3,622 3,939 3,609 Reported net profit after tax attributable to owners of Westpac Group Earnings on certain Westpac Banking Corporation shares held by Westpac in the wealth business are not
Slide 68: Appendix 2: Internationally comparable capital ratio
Appendix 2: Internationally comparable capital ratio • APRA has maintained its conservative stance in setting capital standards, resulting in a significant variance between capital measured under APRA and the Basel III Framework • In August 2014 the Australian Bankers Association released a report p
Slide 69: Appendix 3: Credit risk exposures
Appendix 3: Credit risk exposures Portfolios subject to IRB approaches Portfolio Regulatory Risk At 31 March 2015 Committed Exposure at Probability Loss Given Expected Weighted Average ($m) Outstandings2 Undrawn3 default of Default Default Loss4 Assets Risk Weight Corporate 83,336 51,080 134,554 1.3
Slide 70: Appendix 4: Definitions
Appendix 4: Definitions Key metrics Asset quality Core earnings Operating profit before income tax and impairment charges Stressed Stressed loans are the total of watchlist and substandard assets, 90 days loans past due and not impaired assets, and impaired assets AIEA Average interest earning asset
Slide 71: More information For investors and analysts
More information Visit us at www.westpac.com.au/investorcentre For investors and analysts or Bloomberg WBCT Contact our global funding team Curt Zuber Guy Volpicella Westpac credit Short Long Treasurer, Westpac Banking Corporation Executive Director, Structured Funding and Capital Outlook ratings te
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