Westpac Banking Corporation · ASX:WBC
Westpac Banking — Debt Investor Presentation (November 2019)
68 slides from Westpac Banking's debt investor presentation, November 2019
Slide 1: Westpac 2019 Investor Presentation
November 2019 Fixed Income Investor Roadshow Westpac 2019 Investor Presentation Westpac Banking Corporation ABN 33 007 457 141
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 FY19 Summary
Westpac FY19 3 Summary Balance sheet strength prioritised • CET1 capital ratio 10.7%, APRA Basel III basis, above APRA’s “unquestionably strong” benchmark • CET1 capital ratio 15.9%, Basel III internationally comparable1 basis • LCR 127% • NSFR 112% • TLAC framework announced July 2019; Issued A$4.2
Slide 4: CET1 ratio of 10.7%, increasing to ~11.25% on a pro forma basis
CET1 ratio of 10.7%, increasing to ~11.25% on a pro forma basis 4 Table does not add due to rounding Capital ratios (APRA basis, %) Sep-18 Mar-19 Sep-19 CET1 capital ratio (%) and CET1 capital ($bn) CET1 capital ratio 10.6 10.6 10.7 Westpac CET1 capital (lhs, $bn) Additional Tier 1 capital 2.2 2.2 2
Slide 5: Long term wholesale funding
Long term wholesale funding 5 • A$33.5bn new term wholesale funding raised in FY19 Term debt issuance and maturity profile1,2,3 ($bn) • Majority of new issuance in senior unsecured Covered bond Hybrid Senior/Securitisation Sub debt bonds (51%) and covered bonds (24%) in line with 42 Issuance Maturit
Slide 6: Tier 2 capital – good progress in FY19 in meeting TLAC requirements
Tier 2 capital – good progress in FY19 in meeting TLAC requirements 6 Westpac Tier 2 issuance and calls/maturities1,2 (notional amount, A$m) 3 A$m Tier 2 maturities Approx. TLAC requirement based on RWAs at 30 Sep 19 5,000 Issuance Maturities 4,000 3,000 2,000 4,209 2,221 2,465 1,000 1,851 1,071 1,2
Slide 7: Benefits of SEC registration; USD issuance volumes lower
Benefits of SEC registration; USD issuance volumes lower 7 Fixed tranche WSTP 3.300% 02/24 CBA 3.350% 06/24 Secondary trading analysis SEC Registered vs 144A/Reg S Trade date 19 Feb 2019 25 Feb 2019 Volume: >$250k Volume: All trades Days traded Days not traded Format SEC Registered 144A Reg S Days t
Slide 8: Financial performance impacted by remediation and wealth reset
Financial performance impacted by remediation and wealth reset 8 FY19 Financial Performance FY18 Financial Performance Provisions for refunds & payments 8,376 • Customer refunds associated with certain 7,914 8,095 281 0 172 ongoing advice service fees associated with: 958 6,784 – the Group’s salarie
Slide 9: FY19 financial metrics
FY19 financial metrics 9 Net interest margin (%) Operating expenses ($m) Impairment charges (bps) 3.0 Expenses Notable items Impairment charges to 100 average gross loans1 (bps) 2.5 10,106 2.14 2.09 2.09 2.10 2.06 2.13 2.12 9,566 80 2.0 AASB 9 / 1.5 AASB 15 60 5,091 5,015 1.0 40 0.5 20 11 0.0 0 FY13
Slide 10: Credit quality sound; Provisions higher on adoption of AASB 9
Credit quality sound; Provisions higher on adoption of AASB 9 10 New and increased gross impaired assets ($m) Total impairment provisions ($m) 1,748 Individually assessed provisions Collectively assessed provisions 1,519 Overlay • Adopted AASB9 on 1 October 2018 1,343 • Provisions increased by $989m
Slide 11: Australian dwelling prices: Sydney, Melbourne prices recovering; Turnover remains low
Australian dwelling prices: Sydney, Melbourne prices recovering; Turnover remains low 11 Australian dwelling prices Finance approvals by segment (%, value of housing finance) index All dwellings (index, Jan 2004 = 100) index % 'Upgraders' Investor Foreign buyers 1 FHBs % 70 70 230 230 Rest of Austra
Slide 12: Physical supply/demand fundamentals
Physical supply/demand fundamentals 12 Dwelling supply has not kept pace with stronger demand Rental vacancy rates Population versus dwelling stock (annual average change ‘000) ‘000 Rental vacancy rates (%, quarterly, annual average) ‘000 % 450 Population Total increase in dwellings 450 Sydney Brisb
Slide 13: Australian mortgage portfolio performance
Australian mortgage portfolio performance 13 Australian mortgage portfolio Sep-18 Mar-19 Sep-19 Australian mortgage delinquencies and loss rates (%) 90+ day past due total 30+ day past due total Loss rates 30+ day delinquencies (bps) 140 159 161 3.0 90+ day delinquencies (bps) 72 82 88 (inc. impaire
Slide 14: Australian mortgage portfolio composition
Australian mortgage portfolio composition 14 Sep-18 Mar-19 Sep-19 2H19 Australian mortgage portfolio balance balance balance Flow1 Housing lending portfolio by State (%) Total portfolio ($bn) 444.7 447.2 449.2 30.6 Australian banking system5 41 43 Westpac Group portfolio Owner occupied (%) 56.8 57.3
Slide 15: Australian mortgage portfolio – borrower equity sound
Australian mortgage portfolio – borrower equity sound 15 Australian housing loan-to-value ratios (LVRs) (%) Australian home loan customers ahead on repayments6 (%) 100 FY19 drawdowns LVR at origination By balance 90 Portfolio LVR at origination Sep-18 Mar-19 Sep-19 1 Portfolio dynamic LVR 80 29 29 2
Slide 16: Australian economic snapshot
Australian economic snapshot 16 Australian economy key statistics Inflation remains subdued1 Labour market slack (latest available as at October 2019) Avg RBA core CPI %qtr (rhs) %qtr %yr 7.5 % unemployment rate (lhs)* % 7.5 8 Headline CPI %yr (lhs) 3.2 RBA – Aug 2019 GDP (June quarter 2019) 1.4% 7
Slide 17: Additional information: Tier 2 capital securities
Additional information: Tier 2 capital securities
Slide 18: Australia's approach to total loss-absorbing capacity (TLAC)
Australia’s approach to total loss-absorbing capacity (TLAC) 18 Australian D-SIB Total Regulatory Capital Westpac Total Regulatory Capital • Australian D-SIBs (the four major banks) will meet TLAC requirements through an • Westpac’s Tier 2 required by 1 Jan 2024 – approx. $21bn (5.0% of RWA5) increa
Slide 19: Tier 2 capital comparison across jurisdictions
Tier 2 capital comparison across jurisdictions 19 US Canada UK / EU / Scandinavia Singapore Australia Senior to Senior to Additional Senior to Additional Senior to Additional Senior to Additional Ranking Tier 1 Capital Tier 1 Capital Tier 1 Capital Tier 1 Capital Tier 1 Capital Step-ups Not permitte
Slide 20: Global Yankee Tier 2 comparison
Global Yankee Tier 2 comparison 20 Mizuho Financial Westpac BMO NAB Nordea UOB Group Issue date 24 Jul 2019 05 Oct 2018 02 Aug 2019 13 Sep 2018 20 Oct 2015 15 Apr 2019 Issue rating BBB1/Baa1/A+ BBB+/Baa1/A+ BBB1/Baa1/A+ AA-/Aa3/AA- BBB+/BBB/--- BBB+/A2/A+ S&P/Moody’s/Fitch Issuer Rating AA-/Aa3/AA-
Slide 21: Comparison of Tier 2 non-viability loss absorption
Comparison of Tier 2 non-viability loss absorption 21 Australia Canada Bank capital structures Payout • Contractual • Contractual Canadian Bank Capital Structure Approach Legacy Senior Debt (Deposit Notes) / Rank Mechanism • Permanent conversion into ordinary shares. • Permanent conversion into comm
Slide 22: Australian major bank dated Tier 2 calls
Australian major bank dated Tier 2 calls 22 Westpac amount callable Shown in A$m by calendar year Westpac amount called Australian major bank peers amount callable Australian major bank peers amount called 6,212 5,716 4,841 4,312 3,103 2,679 2,412 2,361 2,176 1,933 1,696 1,750 1,000 620 No call date
Slide 23: Additional information: Westpac Banking Corporation
Additional information: Westpac Banking Corporation
Slide 24: Westpac: clear domestic focus and a strong market position
Westpac: clear domestic focus and a strong market position 24 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 Commonwealth Bank of Australia Westpac Banking Corporation National A
Slide 25: Westpac's 2020 Sustainability Strategy
Westpac’s 2020 Sustainability Strategy 25 Helping people Helping people by Helping people A culture of Fundamentals make better being there when it create a prosperous doing the right financial decisions matters most to them nation thing We believe in creating a We understand that life has its Our w
Slide 26: Sustainability governance framework
Sustainability governance framework 26 Westpac Board Westpac Westpac Stakeholder New Zealand Advisory Council Executive Team External Stakeholder Panel Westpac Group Inclusion Westpac New Zealand Sustainable Westpac Westpac Group Sustainability Council and Diversity Council Business Steering Committ
Slide 27: Westpac Climate Change Position Statement and 2020 Action Plan
Westpac Climate Change Position Statement and 2020 Action Plan 27 Westpac was the first Australian bank to recognise the importance of limiting global warming to two degrees Westpac’s Approach Our Our 2020 to Climate Change Principles Action Plan The Westpac Group has long recognised The following f
Slide 28: Westpac Climate Bonds
Westpac Climate Bonds 28 Climate Bonds support Westpac’s 2020 Action Plan • Westpac’s Climate Change Position Statement and 2020 Action Plan commits to provide finance to back climate change solutions: – Target lending exposure to climate change solutions of $10 billion by 2020; – Facilitating up to
Slide 29: High quality portfolio with bias to residential mortgage lending
High quality portfolio with bias to residential mortgage lending 29 Asset composition (%) Lending composition at 30 September 2019 (% of total) Total assets ($907bn) Sep-17 Sep-18 Sep-19 Total loans of $715bn Loans 80 81 79 Available-for-sale securities and investment securities 7 7 8 Housing Tradin
Slide 30: Loan portfolio composition
Loan portfolio composition 30 Exposures at default1 by sector ($bn) Top 10 exposures to corporations and NBFIs5 (% of TCE) Finance & insurance 2 The single largest corporation/NBFI Government admin. & defence exposure represents Includes the 0.2% of TCE Group’s liquidity 1.4 1.3 1.3 Property 3 1.2 1
Slide 31: Provision cover by portfolio category
Provision cover by portfolio category 31 Exposures as a % of TCE Provisioning to TCE (%) Mar-18 Sep-18 Mar-19 Sep-19 Fully performing portfolio Stage 1 provisions Small cover as low probability of default (PD) 0.20 0.18 0.09 0.09 95.66 95.77 Fully performing 98.91 98.92 Non-stressed but significant
Slide 32: Corporate and business stressed exposures increased modestly over 2H19
Corporate and business stressed exposures increased modestly over 2H19 32 Corporate and business portfolio stressed exposures by industry ($bn) 2.0 A number of business Sep-18 Mar-19 Sep-19 exposures migrated to 1.8 Watchlist, in particular within motor vehicle retailing 1.6 1.4 A small number of 1.
Slide 33: Areas of interest: Commercial property
Areas of interest: Commercial property 33 Commercial property portfolio Commercial property exposures % of TCE and % in stress Sep-18 Mar-19 Sep-19 Commercial property as % of TCE (lhs) 10 20 Total committed exposures (TCE) $67.6bn $66.9bn $66.9bn Commercial property % in stress (rhs) 8 15 Lending $
Slide 34: Areas of interest: Inner city apartments
Areas of interest: Inner city apartments 34 Commercial property portfolio TCE ($bn) Sep-18 Mar-19 Sep- 19 TCE (%)1 Residential apartment development >$20m 4.1 3.3 3.4 5.1 • Approvals and new starts lower and expected to slow further. • Tightened risk appetite for areas of concern remains in place Re
Slide 35: Areas of interest: Retail trade
Areas of interest: Retail trade 35 Retail trade portfolio Retail trade exposure (TCE) ($bn) Sep-18 Mar-19 Sep-19 Total committed exposures (TCE) $16.2bn $16.0bn $16.0bn 16.3 15.5 16.2 16.0 16.0 Lending $11.6bn $11.5bn $11.6bn 15.3 15.4 Retail trade as a % of Group TCE 1.56 1.53 1.52 BB BB BB Median
Slide 36: Areas of interest: Mining and Australian Agriculture
Areas of interest: Mining and Australian Agriculture 36 Mining (inc. oil and gas) portfolio Mining portfolio (TCE) Iron Ore and Oil prices ($)3 by sector (%) Sep-18 Mar-19 Sep-19 Iron ore (USD/t) 4 Crude oil (USD/bbl) 5 Westpac Total committed 8 140 Economics $10.7bn $9.8bn $10.5bn exposure (TCE) 7
Slide 37: Australian consumer unsecured lending, 3% of Group loans
Australian consumer unsecured lending, 3% of Group loans 37 Australian consumer unsecured lending portfolio1 Unsecured portfolio ($bn) Unsecured performing loans balance ($bn lhs) Sep-18 Mar-19 Sep-19 25 3 Unsecured 90+ day delinquencies balance ($bn rhs) 23 Lending $21.1bn $20.7bn $19.5bn 20 2 30+
Slide 38: Australian mortgage portfolio underwriting
Australian mortgage portfolio underwriting 38 Notable changes to Westpac mortgage lending standards in FY19 Australian mortgage portfolio by • Increase in minimum assessment (‘floor’) rate to 7.25% and increase in serviceability assessment year of origination (% of total book) buffer to 2.25% Calend
Slide 39: Interest only mortgages
Interest only mortgages 39 • 73% weighted average LVR of interest only loans at origination1 Australian I/O loan portfolio ($bn) Australian mortgage delinquencies (%) • 62% of customers ahead of repayments (including I/O performing loans balance (lhs) I/O P&I offset accounts)2 250 I/O 90+ day delinq
Slide 40: Australian investment property portfolio
Australian investment property portfolio 40 Investment property lending (IPL) portfolio Sep-18 Mar-19 Sep-19 Investment property portfolio by number of properties per Weighted LVR of IPL loans at origination (%) 73 73 72 customer (%) averages1 1 1 1 LVR of new IPL loans in the period2 (%) 70 71 70 7
Slide 41: Australian mortgage deep dive
Australian mortgage deep dive 41 Australian mortgage lending1 by origination date, dynamic LVR2 and income bands (%) Chart may not add due to rounding Year of origination <2011 2011-14 2015+ Gross income bands 79 >$250k 7 66 $100k - $250k 11 <$100k 33 41 37 34 7 25 8 22 4 23 38 14 19 4 1 6 14 9 7 21
Slide 42: Lenders mortgage insurance arrangements
Lenders mortgage insurance arrangements 42 Lenders mortgage insurance (LMI) Lenders mortgage insurance arrangements • Where mortgage insurance is required, mortgages LVR Band insurance are insured through Westpac’s captive mortgage insurer, Westpac Lenders Mortgage Insurance1 • LVR ≤80% Not required
Slide 43: Mortgage portfolio stress testing outcomes
Mortgage portfolio stress testing outcomes 43 • Westpac regularly conducts a range of portfolio stress tests as part of its Australian mortgage portfolio stress testing regulatory and risk management activities • The Australian mortgage portfolio stress testing scenario assumes a severe Stressed sce
Slide 44: Funding and liquidity metrics
Funding and liquidity metrics 44 Funding composition by residual maturity (%) Liquidity coverage ratio (LCR)3 ($bn and %) Bars may not add to 100 due to rounding LCR 138% LCR 127% 143.9 133.7 1 Wholesale Onshore <1yr 113.4 5 5 97.0 16 7 7 Wholesale Offshore <1yr 1 20 4 5 Wholesale Onshore >1yr Net c
Slide 45: Economics
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Slide 46: Australian and New Zealand economic forecasts
Australian and New Zealand economic forecasts 46 Calendar year Key economic indicators (%) as at October 2019 2017 2018 2019F 2020F World GDP1 3.8 3.6 3.0 3.2 Australia GDP2 2.5 2.2 2.3 2.4 Private consumption2 2.8 2.0 1.9 2.3 Business investment2,3 7.3 –0.8 –0.4 2.8 Unemployment – end period 5.5 5.
Slide 47: The Australian economy
The Australian economy 47 NSW and Victoria 58% of population and employment Services employ a large part of the Australian workforce Output 2018 - sector contribution to GDP (%)1 Services Mining 54% Manufacturing 9 18 Construction 7 Transport, Utilities 9 Wholesale, Retail 10 Agriculture 8 Household
Slide 48: Australian economic outlook: growth to remain below trend
Australian economic outlook: growth to remain below trend 48 Australia: 28 years of uninterrupted growth %ann %ann Quarterly GDP Annual GDP period averages 8 8 6 6 4 4 2 2 0 0 -2 -2 1989 1993 1997 2001 2005 2009 2013 2017 Sources: ABS, Westpac Economics. Australian growth mix: shifting drivers Austr
Slide 49: Ongoing weakness centred on consumer and housing construction
Ongoing weakness centred on consumer and housing construction 49 Australian wage inflation remains low Consumer sentiment remains weak %yr Australian wage inflation (% ann) index index 8 Aus private sector wages 140 140 Westpac-MI Consumer Sentiment Index 7 Mining industry wages 130 130 'family fina
Slide 50: Some offset from infrastructure, Government spending and population growth
Some offset from infrastructure, Government spending and population growth 50 Infrastructure pipeline ($bn, rolling annual) Household incomes: one off policy support $bn $bn %ann household disposable income %ann 9 without tax cuts 9 160 160 8 F’casts 8 140 Work done 140 without tax cuts or interest
Slide 51: Australian housing market trends
Australian housing market trends 51 Consumer housing sentiment Auction clearance rates3 ann ch ann ch % Sydney Melbourne % Westpac Consumer Housing Sentiment Index 1 Sales 2 95 95 2.5 2.5 weekly monthly 85 85 1.5 1.5 75 75 0.5 0.5 65 65 -0.5 -0.5 55 55 latest -1.5 month -1.5 45 45 -2.5 -2.5 35 35 Au
Slide 52: Trends in Australian home lending
Trends in Australian home lending 52 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 on interest Own-occ. - princ
Slide 53: Australian household balance sheets
Australian household balance sheets 53 Australian household debt to income ratio Australian household net wealth Australian households debt to income ratio (%) % Annual household disposable income Total (gross) debt Forecasts % Total assets % 200 Total debt net of offset accounts end 2020 1400 1200
Slide 54: The New Zealand economy
The New Zealand economy 54 Regional GDP NZ output and employment Total nominal GDP 2018: $293bn Output 2019 - sector shares of GDP (%) Population 4.9 mil Northland, $7bn Primary industries 9 7 Construction 4% of population 6 11 3 Electricity, gas, and water 3 Food manufacturing Auckland, $108bn Bay
Slide 55: New Zealand economic snapshot – growth has taken a step down
New Zealand economic snapshot – growth has taken a step down 55 New Zealand economy key statistics GDP growth has cooled Housing slowdown a drag on spending (latest available as at October 2019) GDP (%) House prices and household spending % % % % GDP1 2.4% 6 Qtr % chg Forecast 6 40 House price infla
Slide 56: New Zealand economic indicators – policy to support a firming in growth
New Zealand economic indicators – policy to support a firming in growth 56 Inflation off its lows, still moderate The RBNZ to hold the cash rate at low levels for some time. % Inflation (%) % % Interest rates (%) % 10 10 6 6 90 day bank bill rate Forecast CPI inflation Forecast 5 5 8 2 year swap rat
Slide 57: New Zealand economic indicators
New Zealand economic indicators 57 Labour market has tightened Export prices still remainfirmfavourable Unemployment rate and wage growth (%) NZ export commodity price index (world prices) % %yr Index Index 7 4.5 450 450 6 4.0 400 400 3.5 5 350 350 3.0 300 300 4 2.5 250 250 3 2.0 200 200 1.5 150 150
Slide 58: Appendices
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Slide 59: Appendix 1: Westpac vs Canadian Banks
Appendix 1: Westpac vs Canadian Banks 59 Westpac Period Q4 2019 Q3 2019 Q3 2019 Q3 2019 Q3 2019 Q3 2019 Period Ended 30-Sep-2019 31-Jul-2019 31-Jul-2019 31-Jul-2019 31-Jul-2019 31-Jul-2019 Aa3 / AA- / Aa3 / A / A2 / A / A2 / A- / A2 / A- / A2 / BBB+ / Senior Debt Rating1,2 AA / AA- AA / - AA / AA AA
Slide 60: Appendix 2: Internationally comparable capital ratio reconciliation
Appendix 2: Internationally comparable capital ratio reconciliation 60 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 61: Appendix 3: Internationally comparable CET1 and leverage ratios
Appendix 3: Internationally comparable CET1 and leverage ratios 61 Common equity Tier 1 ratio (%)1 20% 15% Standard Chartered China Construction Bank Royal Bank of Canada Toronto Dominion Bank Credit Agricole SA China Merchants Bank Norinchukin Bank Societe Generale 10% Bank of Montreal Sumitomo Mit
Slide 62: Appendix 4: Expected timetable on various regulatory changes
Appendix 4: Expected timetable on various regulatory changes1 62 Second half First half Second half 2021 2022 2019 2020 2020 Standardised approach to Consult, additional quantitative impact study Finalise Implementation credit risk Advanced approach to Consult, additional quantitative impact study F
Slide 63: Appendix 5: New Zealand Capital Review
Appendix 5: New Zealand Capital Review 63 Level 1 and New Zealand Capital Review Level 1 CET1 capital ratio (%, bps) • APRA has proposed changes to the capital treatment of a parent ADI’s (“Level 1”) equity investments in subsidiary banking and insurance companies to commence 1 January 20211 10.98 (
Slide 64: Appendix 6: Cash earnings adjustments
Appendix 6: Cash earnings adjustments 64 $m FY19 FY18 Description Reported net 6,784 8,095 Net profit attributable to owners of Westpac Banking Corporation profit Identifiable intangible assets arising from business acquisitions are amortised over their useful lives, ranging between four and twenty
Slide 65: Appendix 7: Definitions – Credit quality
Appendix 7: Definitions – Credit quality 65 Includes facilities where: For financial assets that are non-performing a provision for lifetime Stage 3 Lifetime • contractual payments of interest and / or principal are 90 or more expected losses is recognised. Interest revenue is calculated on the ECL
Slide 66: Appendix 8: Definitions – Capital and liquidity
Appendix 8: Definitions – Capital and liquidity 66 Capital Liquidity Capital ratios As defined by APRA (unless stated otherwise) Committed The RBA makes available to Australian Authorised Deposit-taking liquidity facility Institutions a CLF that, subject to qualifying conditions, can be accessed (CL
Slide 67: More information
More information | www.westpac.com.au/investorcentre 67 + - 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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