Slide 1: Investor Discussion Pack March 2004
AMfestpac Australia’s First Bank Investor Discussion Pack March 2004
Slide 2: Index
Index Summary of results Recent financial performance 3 Loan growth and margins 5 Impact of rising AUD/NZD 8 Expenses and efficiency pipeline 9 Dividends and payout 10 Sources of future growth 11 Business fending 12 Insurance 13 Acquisition guidelines 14 Sustainability 15 Executive team 17 Credit qu
Slide 3: Delivering on our focused strategy — 2003 full year
Delivering on our focused strategy — 2003 full year * — High quality result - Underlying cash earnings $2,271m up 10% - Underlying cash earnings per share up 9% - Cash return on equity maintained at 21% - Dividend 78 cents per share fully franked up 11% ¢ Key drivers of growth - Robust growth in loa
Slide 4: All businesses contributing
All businesses contributing Cash earnings! Proportion . ~ of Group - Contribution Business, & Consumer ggg TTT Banking a 54% ~ Wealth || —- Mgmt 8% Institutional | Bank 17% NZ Banking 414% $m , ; 1 . 500 1000 1500 @ 2003 0 2002 ‘ Excluding significant items estpac ~ Growth 2002 - 2003 Investor Discu
Slide 5: Loan growth
Loan growth % Change $bn- 2HO3. 4HO3~- 2HO2 Sep 02 - Sep 03 Business Unit : Consumer (Australia) 87 81 73 419 Housing! : 80 73 66 “20 Personal (loans. & cards) 7 7 7 7 Business (excl. equip. finance) (Australia) 27 25 25 1 Equipment finance re-build 5 4 2 120 ‘Institutional Bank “20 L222 22 3 New Ze
Slide 6: Margin dynamics
Margin dynamics 2.90 2.80.4 % UV 2. bps.-..(5). bps 2.70.9 _ Tl AAA AIIM 2.60.4 2.71 2.50 a T 7 T T T T T t 2002 AGC 2002 Product -. Overseas ~ Hybrids Free 2003 Adjusted margin funds decline estpac 6 Investor Discussion Pack — Mar 2004 ‘Austreila’s Pitst Bank:
Slide 7: Non-interest income analysis
Non-interest income analysis $m 4 3,000 - 204 5 2,800 5 2,600 5 2,400.5 fo ny 2,200 + 11 month contribution Pick-up in fees and SNE 1,800. stronger financial 1,600 - markets income 2HO3 1,400 + 1,200 5 4,000 = 1 1 r 1 2002 AGC P'holder Ongoing .. BT/RAAM - Hastings 2003 Rec. estpac ‘Austreila’s Pits
Slide 8: Impact of rising Australian dollar
Impact of rising Australian dollar Balance sheet - 18% of exposures’ outside of Australia (15% of which is in New Zealand) Capital - Lower NZD/USD risk weighted assets in A$ terms but higher foreign currency translation reserve (FCTR) deduction from capital Profit and loss - Limited impact given mod
Slide 9: Expense outlook 2004
Expense outlook 2004 Banking expense to income * Expense growth in 2004 expected to be lower ew than underlying expense growth for 2003 given: | 60 53 : : ~ No further pressure from NZD/AUD | 55 51 49 exchange rate H 50 ~ Decrease in temporary staff expected as / 45 project work eases 40 ~ 2004 inve
Slide 10: Consistent dividend growth
Consistent dividend growth * Dividend growing at or above Dividends per share (cents) earnings. In 2003: 20 a 70 ~ Cash EPS up 9% 60 : 54 - Dividends up 11% | 8 , . 30 * Medium term drivers of payout 20 ratio: | ry : - Sustainable cash earnings growth 499719981999 2000. 2001 2002. 2008 ~ Organic cap
Slide 11: Sources of future growth
Sources of future growth Australia, New Zealand and the near Pacific are highly attractive markets and will remain Westpac’s primary focus given: * Economic growth expected to exceed OECD average * Superior growth/return profile relative to risk than other developed and emerging markets * Sustainabl
Slide 12: Growth in business lending
Growth in business lending * Business lending increased 11% over the year to September 03, excluding the reacquisition of the business finance portfolio * Middle market lending has been the predominant source of growth with smail and medium enterprises (SME) providing an increasing contribution * In
Slide 13: Insurance — growing businesses
Insurance — growing businesses * Life insurance contributed $66m in cash earnings in 2003 2003 cash % earnings ° ~ Strong growth in risk in-force premiums, up 24% $m growth - 18% increase in risk sales from both better : customer cross sell and increased sales from —— direct channels Life insurance
Slide 14: Acquisition guidelines
Acquisition guidelines * No particular requirement to acquire customers - Customer franchise enhanced in Australia and New Zealand with three regional bank acquisitions 1995 — 1998 * Filled major strategic gaps - Wealth management capability enhanced with three acquisitions in 2002 * Subject to acqu
Slide 15: Improving employee commitment leading to improved customer satisfaction
Improving employee commitment leading to improved customer satisfaction Employee commitment . : Consumer Satisfaction - % of main financial _% of employees reporting a positive score institution customers very or fairly satisfied 100 68% 02000. ™.2001 oe 80.7-- 2002. 2003 °.--- 64% 62% ee SS.) ae 60
Slide 16: Reputation/sustainability — enhancing returns
Reputation/sustainability — enhancing returns Sustainability - supporting the value chain Employees Customers a is ; A company where people An institution customers want Enhance sustainability want to. work to. do business with of returns * Improved employee retention ¢ Enhanced ability to attract q
Slide 17: An experienced executive team
An experienced executive team Name Title Date joined Biography Group Exécutive Nov-2002 i6a0 llana Atlas Group Executive People Joined Westpac 2000, as Group Secretary and General Counsel. and Performance Previously Partner of a Major.Law firm, Mallesons Stephen Jaques. .in current role since 2002 P
Slide 18: Forward credit indicators in good shape
Forward credit indicators in good shape Housing Portfolio - 90 day delinquencies Business Banking -.90 day. delinquencies % . % 15. . 2.8 2.8 1.0 4.6 . AQ 96 0.25 0.23 0.15 | 0.15 0.15 os 0.0 + T T T T T T T T 1 0.0 + : : : : 1 1996 1997. 1998 “1999 2000. 2001-2002. 2003..10 1998 << 1999 7.2000 2001
Slide 19: Stressed exposures continue to decline
Stressed exposures continue to decline Categories of stressed exposures as a.% of total commitments’ 18% .7 oom naarc aR TAT eee w AGC stressed loans 16% |-------------.~------------ G Watchist & substandard _ & 90 days past due well aecarcs secured oa 1.4% {ame . 41.2% 4 10% 0.8% 4 --- 06% 4 04% |
Slide 20: Bad debt analysis
Bad debt analysis $m 2HO03 1HOS 2HO2 1HO2 Write-offs ~~ . : (133). (142) (171) (208) Net transfer to/from specific provisions — (70) 17 (70) (102) Recoveries of debts previously W/O 27 47 35 48 Bad debt charge-off ; (176). ~..(78) . ~ (206) (261) Increase in general provision (95) (136) 16! (10) Net
Slide 21: Composition of portfolio
Composition of portfolio * Mortgages represent 42% of total commitments and 51% of funded lending * 64% business / corporate portfolio exceeding investment grade * Other consumer includes credit cards, personal lending and margin lending egment 2 v Portfolio by customer s' 100% 80% 60% 40%. 20% 0% +
Slide 22: Total exposure by region
Total exposure by region’ * Exposures outside core markets represent less than 5% of total committed exposures — sub investment grade represent less than 0.5% of total exposures no NZ/ . ; Asia ex $m Australia Pacific Americas. Europe Japan Japan Group | AAA to AA- 26,727 “6,232 .00° 515 445 91 140.
Slide 23: Reduced single name exposures
Reduced single name exposures | Top 10.exposures as a % of total committed exposure — Sept 03 Top 10 exposures to corporations and NBF ls — Sept 03 S&P Rating or equivalent $m 3.5% BBB+ Total exposuré of 3.0% Top 10 =.$5.6bn - ~ Sep 2003 AAA 2.5% = 2.0% a 41.5% =o 1.0% —) 0.5% + — 0.0% T T T cm 2000
Slide 24: Industry concentrations
Industry concentrations % Total Group Committed Exposure — Sept 03 PROPERTY. FINANCE CONSUMER RETAILAVHOLESALE BUSINESS SERVICES. UTILITIES AGRICULTURE CONSTRUCTION & CONSTRUCTION MATERIALS MANUFACTURING NEC. MANUFACTURING: FOOD & BEVERAGE CONSUMER SERVICES, BUSINESS PRODUCTS WHOLESALE TRANSPORTATIO
Slide 25: Target capital ranges — ACE & Tier 1
Target capital ranges — ACE & Tier 1 * Target ranges: —Tier1 6.00-~-6.75% ~ACE 4.50 — 5.00% * Maintain AA rating * Tier 1 further strengthened via hybrids: —FIRsTS Dec 2002 —~ TPS August 2003 * Average share count expected to rise in 2004 estpac Aust 25 Capital ratios (quarterly) 8.0% 75% 4 7.0% 8.5
Slide 26: Basel II highlights the low risk of the balance sheet
Basel II highlights the low risk of the balance sheet Proportion of assets across classes 40% * Westpac has more of its balance sheet in assets with a higher average reduction in risk weight than the average Group 1 (5 Group.1 banks & Westpac 30% 5 20% 4 10% 4 0% banks Corporate Morigage ‘ “other ~
Slide 27: Conversion to international reporting standards
Conversion to international reporting standards Key areas of impact Business Financial * All Australian companies required to Pp P move to new IFRS standards on, or after, 1 January 2005 Hedge Accountin H H 9 9 ¢ Westpac has moved to some Provisions for doubtful standards early eg: IAS 19 FOVISIONS
Slide 28: Structured finance business
Structured finance business «+ Westpac conducts certain structured finance i transactions to meet the needs of customers operating Structured finance, portfolio. by geography, Sept 03 in our core markets. ¢ Key characteristics of the portfolio: ~ Total portfolio size approx $8bn - Most transactions
Slide 29: Housing market — state of play
Housing market — state of play Real house.prices indexed * Housing prices have risen 76% over last 5 years index index 300 300 250 4 250 200 150 100 50 —— : 50 “4959/60 - 1969/70 © 1979/80 - 1989/90 ‘4999/00 * Credit growth similarly strong, averaging 16% over last 5 years * Recent growth driven by:
Slide 30: Drivers of housing credit growth
Drivers of housing credit growth ° Housing credit growth will, on Drivers of household formation People average, continue to grow a] 5 » ahead of nominal GDP, 124 Los supported by: al L 27 | : L 27 - Continuing positive population ee Population growth (ths) ; L 36 growth 02 | »——Persons. per dwellin
Slide 31: Housing market — affordability and debt servicing
Housing market — affordability and debt servicing Household debt servicing ratio ° Housing has become less Payments/household income % affordable as house prices ‘6 % have risen 2 * Average repayment burden up 15% on March ’02 but still at ‘ eee 4 acceptable levels — principal Ot r r ¥ Dec-80 Dec-83
Slide 32: Housing market — beginning to slow
Housing market — beginning to slow * Some easing in activity but Myo dee” housing loan applications growth still above long term * average nt * Current levels not seasonally ‘a adjusted — clear trends will not : be apparent until April 04 ‘Tee SR RRREREREERS 6-82-88 22-23-3523 9:83 8-8 * Higher prop
Slide 33: Mortgage portfolio characteristics
Mortgage portfolio characteristics * Market share of housing eased marginally on strong volumes - Owner occupied up 10% - Investment up 22% * Funding for alterations and additions has resulted in equity access loans growing 82% from a low base * Average LVR of new loans 63% | up from 61% in 1999 * A
Slide 34: Mortgages - broker introduced loans
Mortgages - broker introduced loans _ Broker introduced loans (Proportion of total by value) 35. * 23% of outstanding mortgage portfolio is broker originated * Brokers introduced 31% of new loans in 2003 ° Average size of loan is up to 15% higher than branch originated loan 30 25 * Same underwriting
Slide 35: Housing portfolio quality
Housing portfolio quality * Total bad debts less than 3 basis points * Delinquencies at low levels * 100% mortgage insurance where loan to value (LVR) ratio > 80% - refer next slide for exceptions * — Investment lending for CBD property stable at 2% of housing portfolio * Revised mortgage insurance
Slide 36: Housing portfolio quality
Housing portfolio quality ¢ APRA stress testing confirmed overall industry strength ¢ Westpac’s updated stress testing provides further validation * Increase in maximum losses previously estimated (10 basis points at March 2003) due to a lower base in key model variables - interest rates and unemplo
Slide 37: Earnings guidance
Earnings guidance * Medium term earnings drivers, revised at July 2003 market update unchanged * No additional earnings guidance or EPS forecast to be provided for 2004 or beyond * Westpac believes it is generally unwise to focus management on narrow range of outcomes in the short term * The regulat
Slide 38: Medium term drivers — not 2004 earnings guidance
Medium term drivers — not 2004 earnings guidance As set out in July 2003 - 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 B
Slide 39: Operating environment
Operating environment * Australia and New Zealand economic Key economic indicators fundamentals sound due to: : - Solid domestic demand : : 2004 2005 - Buoyant housing mr % % - St busi timent rong business sentimen World ° In year ahead, activity will be boosted by an . export recovery driven by the
Slide 40: Where are the risks?
Where are the risks? Risk Probability of occurrence * Blow-out in bad debts Low * Greater than expected funds outflows Low * Irrational competition Medium/Low * Higher than planned impact from credit : card and EFTPOS/debit cards reforms Medium * Re-regulation Low * New wave of corporate collapses L
Slide 41: Credit card reform
Credit card reform * Reforms released by Reserve Bank of Australia August 02 * Affects interchange fees, ends restrictions on cost recovery by merchants and removes restrictions on new entrants * Interchange reforms applied from October 03 * Major banks have agreed to pass-on the full benefit of the
Slide 42: Outlook
Outlook * All businesses are in excellent shape * Entering the 2004 year with good earnings momentum * Operating environment expected to be tougher but still accommodating * Medium term earnings drivers previously provided * Outlook for 2004 remains positive estpac Investor Discussion Pack — Mar 200
Slide 43: Investor relations contacts
Investor relations contacts Westpac’s Investor Relations Team Andrew Bowden 61 2 9226 4008 Address andrewbowden@westpac.com.au Level 25 Hugh Devine 61 2 9226 1047 hdevine@westpac.com.au Suzanne Evans 61 2 9226 3143 60 Martin Place Sydney NSW 2000 Australia Fax 61 2 9226 1539 suzanneevans@westpac.com
Slide 44: Disclaimer
Disclaimer The material contained in this presentation is intended to be general background information on Westpac Banking Corporation and its activities as at 9 March 2004. The information is supplied in summary form and is therefore not necessarily complete. Also, it is not intended that it be rel