Slide 1: Westpac Interim 2016 Result Presentation
For personal use only Westpac Banking Corporation ABN 33 007 457 141. Financial results based on cash earnings unless otherwise stated. Refer page 33 for definition. Results principally cover the 1H16, 2H15 and 1H15 periods. Comparison of 1H16 versus 2H15 (unless otherwise stated)
Slide 2: Westpac Interim 2016 result index
Westpac Interim 2016 result index For personal use only Interim 2016 Result Presentation 3 Investor Discussion Pack of Interim 2016 Result 26 Strategy 27 Overview 32 Performance discipline 33 Service leadership 38 Digital transformation 39 Workforce revolution 44 Sustainable futures 45 Earnings driv
Slide 3: Brian Hartzer, Chief Executive Officer
For personal use only Brian Hartzer Chief Executive Officer Westpac Banking Corporation ABN 33 007 457 141. Financial results based on cash earnings unless otherwise stated. Refer page 33 for definition. Results principally cover the 1H16, 2H15 and 1H15 periods. Comparison of 1H16 versus 2H15 (unles
Slide 4: Growing value in a challenging environment
Growing value in a challenging environment For personal use only • Solid financial outcome given challenging environment • Core earnings higher with lift in impairments reducing cash earnings • Disciplined management – More selective and targeted growth, margins managed well – Increased capital and
Slide 5: Headline results
Headline results For personal use only Change Change 1H16 1H16 – 2H15 1H16 – 1H15 Reported NPAT $3,701m (16%) 3% Cash earnings $3,904m (3%) 3% Cash EPS1 118.2 (7%) (2%) Common equity Tier 1 capital ratio2 10.5% 97bps 171bps Return on equity3 14.2% (172bps) (166bps) Net tangible assets per share $13.
Slide 6: Disciplined 1H16 performance
Disciplined 1H16 performance For personal use only • CET1 capital ratio 10.5% • Margins ex Treasury & Markets • Liquidity coverage ratio 127% up 2bps • Stable funding ratio 83% • ROE 14.2% • Stressed exposures • ROE lower although to TCE1 1.03% divisions all earning above • Impairment provisions to
Slide 7: Growing the value of the franchise
Growing the value of the franchise For personal use only Drivers of franchise value Higher NTA per share ($) • Customer numbers up 3% over year 13.74 • Australian lending and deposit 13.08 growth in line or ahead of system • Margins well managed 11.57 11.84 11.13 • Sound fund flows/increased life in
Slide 8: Consumer and Business banks the engine of growth
Consumer and Business banks the engine of growth For personal use only Divisional contribution to cash earnings Consumer Bank core earnings ($m) 2,333 2,198 2% 2,025 11% 13% 37% Up 15% 12% 1H15 2H15 1H16 Business Bank core earnings ($m) 25% Consumer Bank 1,616 1,541 1,563 Business Bank BT Financial
Slide 9: Challenging conditions impacting other divisions
Challenging conditions impacting other divisions For personal use only BTFG cash earnings1 ($m) Core earnings ($m) 1 Funds management (Excl BTIM) Westpac Institutional Bank Westpac New Zealand2 Insurance 971 275 926 930 261 262 658 634 625 157 162 134 Flat Up 21% Flat Down 1% 1H15 2H15 1H16 1H15 2H1
Slide 10: Materially stronger balance sheet
Materially stronger balance sheet For personal use only APRA Basel III CET1 capital 11.0 50 Metric Sep-081 Sep-15 Mar-16 CET1 capital ($bn) 10.5 10.2 10.0 CET1 capital ratio (%) 45 9.5 Offshore short term 9.1 20 10 9 9.0 40 funding as a % of total 8.8 8.8 9.0 8.7 9.0 8.2 35 7.7 8.4 8.0 8.3 8.3 8.3 8
Slide 11: Dividends maintained
Dividends maintained For personal use only Dividends (cents per share) Dividend considerations Special dividends • Prudent management of capital • Consistency in dividends per share 10 • Sustainability of the payout ratio over 10 the long term • Maximise distribution of franking credits using DRP Di
Slide 12: Progress on our five strategic priorities
Progress on our five strategic priorities For personal use only • More selective on growth with well managed margins Performance • Further strengthened balance sheet Discipline • ROE 14.2%, target of 15% • Completed roll-out of ‘Our service promise’ Service • 24% reduction in complaints in A
Slide 13: Expectations for operating environment
Expectations for operating environment For personal use only • Outlook for Australia remains positive; transition to a more innovative services-based economy is underway • Global factors create fragility in selected sectors and geographies; signs of housing moderating • Confidence and policy certain
Slide 14: Peter King, Chief Financial Officer
For personal use only Peter King Chief Financial Officer Westpac Banking Corporation ABN 33 007 457 141. Financial results based on cash earnings unless otherwise stated. Refer page 33 for definition. Results principally cover the 1H16, 2H15 and 1H15 periods. Comparison of 1H16 versus 2H15 (unless o
Slide 15: Results at a glance
Results at a glance For personal use only Cash earnings 1H16 – 2H15 ($m) Infrequent/volatile items $252m from small Impact on cash number of large names earnings ($m) 1H15 2H15 1H16 348 (249) (38) (255) Asset sales 6 64 0 4,042 56 3,904 BTIM sale, no property Performance fees 25 25 0 sales, no perfo
Slide 16: Disciplined loan growth
Disciplined loan growth For personal use only Loans ($bn) Australian housing portfolio mix (%) Sep-15 Mar-16 15 1 (1) 2 1 641 Owner occupied loans 48.9 54.3 623 605 Investor property lending 44.5 39.5 Line of credit 6.6 6.2 Adjusted investor property loan growth1(%) Up 3% 11.9 11.2 Up 6% 9.9 7.2 Aus
Slide 17: Margins up 2bps excluding Treasury and Markets
Margins up 2bps excluding Treasury and Markets For personal use only Net interest margin (NIM) movement (%) 3bps (1bp) 0 0 1bp 2.14 2.11 0 Treasury & Markets 2.05 0.07 0.06 impact on NIM 0.04 NIM excl. Treasury 2.01 2.05 NIM excl. Treasury and Markets up 2bps 2.07 & Markets Capital & Liquidity 1H15
Slide 18: Non-interest income drivers
Non-interest income drivers For personal use only Non-interest income ($m) Lower WIB fees ($43m) Lower cards income ($42m) 3,215 (89) (60) 3,086 (35) 3,031 (89) 71 (22) 2,966 (25) Infrequent/volatile items ($181m) Down 2% 1H15 2H15 BTIM Property P'formance 1H16 Excl, Fees & Wealth Trading Other 1H16
Slide 19: Productivity continues to offset operating costs
Productivity continues to offset operating costs For personal use only Expense movement ($m) Project spending expensed ($m) 42.5 41.6 41.6 1H15 2H15 1H16 109 (116) 4,419 Investment spend expensed 167 208 256 45 4,381 4,374 Investment spend expensed 4,254 36% 37% 49% as a % of total investment Softwa
Slide 20: Asset quality remains sound
Asset quality remains sound For personal use only Stressed exposures as a % of TCE1 Stressed exposure by industry last 3 halves ($bn) Watchlist & substandard 3.0 1H16 stressed exposure reduced 3.20 3.09 90+ days past due and not impaired 2.5 1H16 stressed exposure increased Impaired Date 2.48 order
Slide 21: Sources of higher impairment charges
Sources of higher impairment charges For personal use only Larger stressed exposures NZ Agriculture (Agri) portfolio • Majority downgraded from watchlist/ Sep-15 Mar-16 substandard to impaired in 2Q16 Market share1 (%) 12.3 12.6 • Coverage of impaired assets remains high NZ Agri TCE (NZ$bn) 7.8 8.1
Slide 22: Impairment charge 21bps of average loans
Impairment charge 21bps of average loans For personal use only Impairment charge components ($m) Individually assessed provisions (IAP) Collectively assessed provisions Total Write-backs Other movements in New IAPs Write-offs direct collective provisions & recoveries 667 555 471 463 $298m increase f
Slide 23: Capital movements
Capital movements For personal use only Movements in CET1 capital ratio (% and bps) Capital ratios at Mar-16 (%) Internat.1 APRA comparable 107 (71) 96 10.47 CET1 10.47 14.67 (22) 9.50 (13) Leverage 5.0 5.8 2H16 Mortgage RWA changes $bn Mortgage correlation factors (from 1 July 44 2016 ) Sep-15 Cash
Slide 24: Implementing tighter liquidity framework
Implementing tighter liquidity framework For personal use only Liquid asset buffer ($b) and LCR (%) Net Stable Funding Ratio (NSFR) ##% Liquidity coverage • Introduction of NSFR by APRA aims to ratio (LCR) (%) 127% 121% further strengthen the liquidity buffers of banks 114% 27 • APRA discussion pape
Slide 25: Considerations for 2H16
Considerations for 2H16 For personal use only • All divisions continuing to execute well • Optimise growth/return given the environment • Continue to manage margins well – Competition remains intense – Full period impact of pricing changes in mortgages and business – Deposit spread benefits to fade,
Slide 26: Investor Discussion Pack
For personal use only Investor Discussion Pack Westpac Banking Corporation ABN 33 007 457 141. Financial results based on cash earnings unless otherwise stated. Refer page 33 for definition. Results principally cover the 1H16, 2H15 and 1H15 periods. Comparison of 1H16 versus 2H15 (unless otherwise s
Slide 27: Strategy
For personal use only Strategy Financial results based on cash earnings unless otherwise stated. Refer page 33 for definition. Results principally cover the 1H16, 2H15 and 1H15 periods. Comparison of 1H16 versus 2H15 (unless otherwise stated)
Slide 28: Westpac Group at a glance: Australia's First Bank
STRATEGY Westpac Group at a glance: Australia’s First Bank For personal use only • Australia’s first bank and first company, opened in 1817 Consumer Business BT Financial Institutional Westpac • Australia’s 2nd largest bank, and 13th largest bank in the world, ranked by Bank Bank Group Bank New Zeal
Slide 29: Sources of comparative advantage
STRATEGY Sources of comparative advantage For personal use only Excellent strategic position Sector leading balance sheet • Seeking to differentiate on service • Asset quality • Major Australian bank most focused on Australia and NZ − Sector leading through global financial crisis − Sound quality; b
Slide 30: Consistent performer over the long term
STRATEGY Consistent performer over the long term For personal use only Cash earnings ($bn) Cash earnings per share (cents) 245 248 228 209 215 189 198 198 7.6 7.8 167 164 7.1 118 6.6 6.3 5.9 5.0 4.7 3.9 3.5 Common equity tier 1 capital ratio (%) 3.1 14.7 10.5 9.1 9.0 9.5 7.4 8.2 Sep-11 Sep-12 Sep-13
Slide 31: Delivering on our five strategic priorities
STRATEGY Delivering on our five strategic priorities For personal use only The Service Revolution Performance Service Digital Targeted Workforce Discipline Leadership Transformation Growth Revolution Priorities +1m customers Expense to Stronger Targets ROE (2015-2017) income ratio growth in Leading
Slide 32: Overview
For personal use only Overview Financial results based on cash earnings unless otherwise stated. Refer page 33 for definition. Results principally cover the 1H16, 2H15 and 1H15 periods. Comparison of 1H16 versus 2H15 (unless otherwise stated)
Slide 33: Cash earnings and reported net profit reconciliation
PERFORMANCE DISCIPLINE Cash earnings and reported net profit reconciliation For personal use only Cash earnings policy Reported net profit and cash earnings1 adjustments ($m) • Westpac Group uses a measure of performance referred to as cash earnings to assess financial performance at both a Group an
Slide 34: 1H16 financial snapshot
PERFORMANCE DISCIPLINE 1H16 financial snapshot For personal use only Change Change Change Change 1H16 1H16 –1H15 1H16 – 2H15 1H16 1H16 – 1H15 1H16 – 2H15 Earnings1 Balance sheet Total assets ($bn) 831.8 4% 2% Earnings per share (cents) 118.2 (2%) (7%) Common equity Tier 1 (CET1) 10.5 171bps 97bps Co
Slide 35: Cash earnings impacted by volatile environment and regulatory change
PERFORMANCE DISCIPLINE Cash earnings impacted by volatile environment and regulatory change For personal use only % chg % chg Cash earnings features of 1H16 – 2H15 ($m) 1H16 1H16- 1H16- ($m) 1H15 2H15 348 (249) 4,042 (38) (255) Net interest 56 3,904 7,653 10 5 income $89m deconsolidation of BTIM; $8
Slide 36: Consumer Bank and Business Bank the engines of growth
PERFORMANCE DISCIPLINE Consumer Bank and Business Bank the engines of growth For personal use only 1H16 divisional cash earnings1 movements ($m) 1H16 divisional core earnings1 movements ($m) 135 53 (32) (41) 26 (9) (173) (31) (23) 6,200 64 6,139 4,042 (23) (23) 3,904 Down 3% Up 1% Other 3 2 2 3 2H15
Slide 37: Dividends
PERFORMANCE DISCIPLINE Dividends For personal use only Key dividend considerations Dividends (cents per share) • Balance sheet strength a priority Special dividends • Every six months we balance: 10 10 – Sustainability of the payout ratio over the long term – Use the DRP as a mechanism to support di
Slide 38: Steadily building franchise value
SERVICE LEADERSHIP Steadily building franchise value For personal use only Customer numbers and service Customer net promoter scores Customer relationships improvement Customer numbers (#’m) Overall consumer NPS2 Customer satisfaction3 (%) 1 Westpac St.George brands Peers CB BB Westpac St.George bra
Slide 39: Digital transformation continues
DIGITAL TRANSFORMATION Digital transformation continues For personal use only Transactions via Smart ATMs (%) Active digital customers1 (#’m) % digital sessions via mobile 40 36 67.8 4.0 4.1 65.1 31 3.9 59.8 Mar-15 Sep-15 Mar-16 1H15 2H15 1H16 1H15 2H15 1H16 Accounts opened on mobile devices2 Austra
Slide 40: Customer focussed approach to technology transformation
DIGITAL TRANSFORMATION Customer focussed approach to technology transformation For personal use only Today Underway Assisted Unassisted Omni-channel Channels (customer interface) Westpac Customer Service Hub St.George BT Customer Westpac St.George BT * Westpac St.George BT Systems of record Pano- ra
Slide 41: 1H16 technology transformation progress
DIGITAL TRANSFORMATION 1H16 technology transformation progress For personal use only Next generation customer experience Best in class operational efficiency • New business banking platform in St.George • Strengthened cyber security for customers • Improved mobile functionality with the launch of a
Slide 42: Actively responding to new digital opportunities
DIGITAL TRANSFORMATION Actively responding to new digital opportunities For personal use only Driving innovation Active in industry change Program supporting employee innovation Invested in QuintessenceLabs creating using ideation tools and practices to help grow opportunities with quantum technolog
Slide 43: Reinventure – Investing in disruptive technology
DIGITAL TRANSFORMATION Reinventure – Investing in disruptive technology For personal use only Westpac has invested $50m in Reinventure, an independently run venture capital fund. The operation allows Westpac to gain insights into emerging fintech business models, adjacent business opportunities and
Slide 44: Workforce revolution delivering
WORKFORCE REVOLUTION Workforce revolution delivering For personal use only Women in leadership positions Lost time injury frequency rate Agile work space providing benefits increasing (%) reducing (rolling 12 months) (#) • Around 8,700 employees now in Agile workplaces 46 1.8 • Delivering following
Slide 45: Continued sustainability leadership
SUSTAINABLE FUTURES Continued sustainability leadership For personal use only Strategic priorities and 1H16 progress highlights Leading track record • Global banking leader in the Dow Jones 1 Embracing societal change Sustainability Index since 2002, • Women in leadership at 46%, up from including b
Slide 46: Helping our communities to prosper and grow
SUSTAINABLE FUTURES Helping our communities to prosper and grow For personal use only Supporting communities1 Income tax expense on a cash earnings 1H15 2H15 1H16 basis ($m) • Provide loans to help Australians own $51bn Backing their home or grow their business Notional income tax based on the econo
Slide 47: Earnings Drivers
For personal use only Earnings Drivers Financial results based on cash earnings unless otherwise stated. Refer page 33 for definition. Results principally cover the 1H16, 2H15 and 1H15 periods. Comparison of 1H16 versus 2H15 (unless otherwise stated)
Slide 48: Net operating income up 1%
REVENUE Net operating income up 1% For personal use only Net operating income movement ($m) 273 75 (89) (149) 71 (82) 10,619 114 73 10,520 263 (14) (44) 108 10,020 Net interest Net interest Non-interest up 4% Non-interest down 8% up 5% up 5% 2 1H15 AIEA 1 Margins Fees & Wealth Trading Other 2H15 AIE
Slide 49: Composition of lending
REVENUE Composition of lending For personal use only Composition of lending (% of total) Net loans ($bn) 13.0 2.8 (0.9) 1.8 0.7 640.7 12.4 623.3 Aust mortgages 605.1 3.7 Aust business 9.6 Up 3% Aust institutional 61.0 Aust other consumer 13.3 Mar-15 Zealand Mar-16 WIB Consumer Business Sep-15 (inc.
Slide 50: Customer deposits
REVENUE Customer deposits For personal use only Customer deposit mix ($bn) and % of total Customer deposit composition ($bn) Term deposits Savings Online Transaction CB BB WIB BTFG, NZ & Other 427 442 427 442 420 420 77 79 123 80 112 121 83 28% 78 80 74 80 80 39% 106 102 102 2% 3% 68 70 68 18% 160 1
Slide 51: Good growth in the New Zealand portfolio
REVENUE Good growth in the New Zealand portfolio For personal use only Gross loans (NZ$bn) Customer deposits (NZ$bn) Housing Business (incl. Institutional) Other (mostly personal) Term deposits Other deposits 54.9 69.4 72.1 49.4 51.5 51.9 65.0 67.1 48.4 63.6 2.1 2.1 1.8 1.9 2.0 25.3 26.6 29.8 23.1 2
Slide 52: Net interest margin up 3bps, primarily due to deposit spreads
REVENUE Net interest margin up 3bps, primarily due to deposit spreads For personal use only Net interest margin (NIM) movement (%) Net interest margin (NIM) (%) NIM excl. Treasury & Markets Treasury & Markets impact on NIM NIM NIM excl. Treasury & Markets Higher mortgage spreads offset Higher by com
Slide 53: Non-interest income down 8%, impacted by infrequent items
REVENUE Non-interest income down 8%, impacted by infrequent items For personal use only Non-interest income contributors ($m and % of total) Fees and commission income ($m) Decline mostly from lower Fees and commission Wealth and insurance cards revenue and debt origination fees in WIB Trading incom
Slide 54: Markets and Treasury income
REVENUE Markets and Treasury income For personal use only • Total markets income up 6% to $593m Markets income by activity ($m) • Customer income up 2% to $449m ‒ WIB’s FX business continued to see Customer Market risk Derivative valuation Total Markets customer flows as a result of volatility in in
Slide 55: Peer leading expense to income ratio, at 41.6%
EXPENSES Peer leading expense to income ratio, at 41.6% For personal use only Expense movements ($m) Project spending expensed ($m) 109 (116) 99 (29) (25) 4,381 4,374 4,419 1H15 2H15 1H16 4,254 Investment spend expensed 167 208 256 Down 0.2% Up 1.0% Investment spend expensed as a % of 36 37 49 inves
Slide 56: Investment spend focused on growth and productivity
EXPENSES Investment spend focused on growth and productivity For personal use only Investment spend Investment spend Investment spend 1H15 2H15 1H16 1H15 2H15 1H16 1H15 2H15 1H16 capitalised ($m) capitalised ($m) expensed ($m) Capitalised software Opening balance 2,070 2,102 1,654 Growth and product
Slide 57: Consistent track record of delivering productivity savings
EXPENSES Consistent track record of delivering productivity savings - $1.7bn in last 7 years For personal use only • Business Connect and Connect Now $1.7bn saved from efficiency programs since FY09 ($m) video conferencing now in 89% of sites1 • 24% reduction in retail and business Targeting FY16-FY
Slide 58: Impairment charges higher from historically low base
IMPAIRMENTS Impairment charges higher from historically low base For personal use only Impairment charges and stressed exposures (bps) Asset quality key metrics Individually assessed Collectively assessed Total Mar-15 Sep-15 Mar-16 New IAPs Write-backs Write-offs direct Other movements & recoveries
Slide 59: Asset Quality
For personal use only Asset Quality Financial results based on cash earnings unless otherwise stated. Refer page 33 for definition. Results principally cover the 1H16, 2H15 and 1H15 periods. Comparison of 1H16 versus 2H15 (unless otherwise stated)
Slide 60: High quality portfolio with bias to secured consumer lending
ASSET QUALITY High quality portfolio with bias to secured consumer lending For personal use only Asset composition as at 31 March 2016 (%) Cash and balances with central banks Total assets On balance sheet lending Receivables due from other financial institutions Housing Trading securities, financia
Slide 61: A well diversified portfolio across industries and large exposures
ASSET QUALITY A well diversified portfolio across industries and large exposures For personal use only Exposures at default1 by sector ($bn) Top 10 exposures to corporations and NBFIs5 as a % of TCE6 (%) 2 • Largest corporation/NBFI single name Finance & insurance exposure represents less than 0.2%
Slide 62: Small rise in stress off a low base; provision cover remains sound
ASSET QUALITY Small rise in stress off a low base; Provision cover remains sound For personal use only Stressed exposures as a % of TCE Provisioning cover . Watchlist & substandard (lhs) Sep-14 Mar-15 Sep-15 Mar-16 90+ days past due and not impaired (lhs) Impaired (lhs) Impaired asset provisions Tot
Slide 63: Business portfolio stress by industry
ASSET QUALITY Business portfolio stress by industry For personal use only Stressed exposures by industry ($bn) Business lending portfolio stress by state1 (%) Mar-15 Sep-15 Mar-16 Mar-15 Sep-15 Mar-16 2.5 6 Property stress lower; business 5 services higher 4 2.0 3 2 1.5 1 Mainly NZ dairy 0 NSW/ACT Q
Slide 64: Areas of interest: Commercial property
ASSET QUALITY Areas of interest: Commercial property For personal use only Commercial property portfolio 2H15 1H16 Commercial property exposures % of TCE and % in stress Total committed exposures (TCE) $65.6bn $67.5bn Commercial property as % of TCE (lhs) 10 20 Commercial property % in stress (rhs)
Slide 65: Areas of interest: Mining (including Oil and Gas)
ASSET QUALITY Areas of interest: Mining (including Oil and Gas) For personal use only Mining portfolio (total committed exposure) by sector (%)1 Mining portfolio 2H15 1H16 Total committed exposures (TCE) $14.4bn $11.8bn 9 Oil and gas 10 Iron ore Lending $7.1bn $5.9bn 46 Other metal ore 8 Mining as a
Slide 66: Areas of interest: Agriculture
ASSET QUALITY Areas of interest: Agriculture For personal use only Agriculture portfolio Group agriculture portfolio Sep-15 Mar-16 • Agriculture lending comprises 1.79% of Group TCE Total committed exposures (TCE) $18.1bn $17.1bn • Australian agri portfolio improving. NZ dairy portfolio has been the
Slide 67: Provision cover by portfolio category
ASSET QUALITY Provision cover by portfolio category For personal use only Exposures as a % of TCE Provisioning to TCE (%) Sep-14 Mar-15 Sep-15 Mar-16 Fully performing portfolio • Small cover as low probability of default (PD) 0.22 0.22 0.21 0.22 • Includes economic overlay Collective provisions Full
Slide 68: Australian consumer unsecured lending portfolio
ASSET QUALITY Australian consumer unsecured lending portfolio For personal use only Relative size of Australian consumer unsecured lending Australian consumer unsecured lending portfolio ($bn) portfolio (%) Mar-15 Sep-15 Mar-16 Total Group lending (excl. Australian consumer unsecured portfolio) Aust
Slide 69: Australian mortgage lending standards tightened
ASSET QUALITY Australian mortgage lending standards tightened For personal use only Notable changes to Westpac mortgage lending Increase in mortgage interest rate buffers (%) (last 12 months) • Minimum floor rate 7.25% Westpac owner-occupied SVR inc package discount (%) • Buffer rate at least 2.25%
Slide 70: High levels of borrower equity supporting Australian mortgage portfolio
ASSET QUALITY High levels of borrower equity supporting Australian mortgage portfolio For personal use only 1H15 2H15 1H16 1H16 Australian housing portfolio Australian housing loan-to-value ratios (LVRs)2,3 (%) balance balance balance flow1 Total portfolio ($bn) 362.8 375.8 390.8 42.1 1H16 drawdowns
Slide 71: Australian mortgage delinquencies remain low
ASSET QUALITY Australian mortgage delinquencies remain low For personal use only Australian mortgage portfolio 1H15 2H15 1H16 Australian mortgages delinquencies (%) 30+ days delinquencies (bps) 124 102 134 2.5 +90 days past due total +90 days past due investor +30 days past due total Loss rates 90+
Slide 72: Changes in the reporting of hardship
ASSET QUALITY Changes in the reporting of hardship For personal use only • Following guidance from APRA the What is changing? industry is aligning treatment of hardship in delinquencies Previous approach Changes made in 1H16 • Westpac changed measurement and When an account enters • An account in ha
Slide 73: Westpac's Australian investment property portfolio
ASSET QUALITY Westpac’s Australian investment property portfolio For personal use only Investment property lending IPL portfolio statistics 1H15 2H15 1H16 • Investment property loans (IPLs)1 are full recourse Average LVR at origination2 (%) 72 72 72 • Maximum LVR for stand alone investment property
Slide 74: Lenders mortgage insurance
ASSET QUALITY Lenders mortgage insurance For personal use only • Lenders mortgage insurance (LMI) provides Lenders mortgage insurance benefits to the Westpac Group – Risk transfer / loss mitigation LVR Band • LVR ≤ 80% • LVR >80% to ≤ 90% • LVR >90% • Low Doc LVR ≤ 60% • Low Doc LVR >60% to ≤ 80% –
Slide 75: Mortgage portfolio stress testing outcomes
ASSET QUALITY Mortgage portfolio stress testing outcomes For personal use only • Westpac regularly conducts a range of portfolio stress tests as part of its Australian mortgage portfolio stress testing regulatory and risk management activities as at 31 March 2016 • The Australian mortgage portfolio
Slide 76: Capital, Funding & Liquidity
For personal use only Capital, Funding & Liquidity Financial results based on cash earnings unless otherwise stated. Refer page 33 for definition. Results principally cover the 1H16, 2H15 and 1H15 periods. Comparison of 1H16 versus 2H15 (unless otherwise stated)
Slide 77: A resilient balance sheet
CAPITAL A resilient balance sheet For personal use only Westpac key balance sheet ratios (%) 10.5% CET1 (APRA Basel III basis) • Materially higher - $6.0 billion in CET1 $27bn of capital raised in calendar 2015 liquidity 14.7 • 14.7% CET1 capital ratio on an Includes equity, buffer internationally c
Slide 78: Sector leading capital position
CAPITAL Sector leading capital position For personal use only Common equity Tier 1 (CET1) (%) Peer CET1 capital ratios on a comparable basis, adjusted for impact of wealth leverage and mortgage RWA changes5 (%) 10.5 Preferred CET1 capital ratio range 8.75% - 9.25% 10.2 CET1 capital ratio Mortgage RW
Slide 79: CET1 capital ratio materially strengthened
CAPITAL CET1 capital ratio materially strengthened For personal use only CET1 capital ratio (% and bps) theetete Includes higher capitalised 14.67 expenses and impact of fair value $3.5bn adjustments raised Lower discount rate on defined benefit liabilities Organic +3bps Other +94bps 107 (71) 96 4 4
Slide 80: Basel III regulatory capital ratios
CAPITAL Basel III regulatory capital ratios For personal use only Regulatory capital ratios (%) CET1 capital ratio Total Tier 1 capital ratio Total regulatory capital ratio 17.2 16.0 15.4 14.7 14.5 14.0 12.2 13.2 13.1 12.1 12.1 13.3 14.0 9.5 10.5 10.3 11.4 8.8 Mar-15 Sep-15 Mar-16 Mar-15 Sep-15 Mar-
Slide 81: RWA movements
CAPITAL RWA movements For personal use only RWA movements ($bn) Components of Credit RWA movements ($bn) 4.5 3.3 (1.0) (4.8) Increase due to growth (mostly 310.3 2.8 (1.2) (0.9) 313.0 303.0 mortgages) and update in LGD1 parameters for corporate. Higher RWA as rising Partially offset by lower mark-to
Slide 82: Regulatory change agenda to continue
CAPITAL Regulatory change agenda to continue For personal use only Regulation 2016 2017 Post 2017 Net Stable • Ensures that banks hold a APRA consultation NSFR proposed to commence 1 Funding minimum amount of stable Jan 2018 ratio funding based on a one-year APRA discussion paper released Mar 2016 (
Slide 83: Basel III CET1 capital ratios global comparison
CAPITAL Basel III CET1 capital ratios global comparison1 For personal use only 14.7% 2 2 2 2 2 2 2 2 2 2 4 2 2 3 2 2 5 5 5 5 2 2 4 2 Credit Suisse2 2 ING Group WBC Intesa Sanpaolo Barclays BNP Paribas Bank of Comm. Deutsche Bank BBVA Agri Bank of China Bank of China Bank of Montreal Toronto Dominion
Slide 84: Internationally comparable capital ratio reconciliation
CAPITAL Internationally comparable capital ratio reconciliation For personal use only The APRA Basel III capital requirements are more conservative than those of the Basel Committee on Banking Supervision (BCBS), leading to lower reported capital ratios. In July 2015, APRA published a study that com
Slide 85: Actively managing capital to optimise returns
CAPITAL Actively managing capital to optimise returns For personal use only Return on equity and CET1 capital ratios (%) Actively managing returns ROE CET1 • Returns in 1H16 decreased due to the significant capital raised during 16.5 16.4 15.8 15.9 2015. Average ordinary equity (AOE) rose 9% over th
Slide 86: Stable sources provide 83% of all funding
FUNDING & LIQUIDITY Stable sources provide 83% of all funding For personal use only % Mov’t Stable funding ratio (%) Liquidity Coverage Ratio ($bn) Sep-15 Mar-16 Mar 16 – Sep 15 High Quality Liquid Assets1 (HQLA) 61 66 9 83.2% 83.8% 83.3% Committed Liquidity Facility2 (CLF) 66 59 (11) 5 127 125 (2)
Slide 87: Targeting a diversified funding base
FUNDING & LIQUIDITY Targeting a diversified funding base For personal use only 1H16 new term issuance composition1 (%) Wholesale funding composition5 (%) 0.1 CDs By type By tenor 2,3 By currency 2 3 Commercial Paper 33 Domestic MTN 7 22 5 EMTN 16 6 4 11 19 53 0.4 0.3 Covered Bonds 49 4 Securitisatio
Slide 88: Divisional Results
For personal use only Divisional Results Financial results based on cash earnings unless otherwise stated. Refer page 33 for definition. Results principally cover the 1H16, 2H15 and 1H15 periods. Comparison of 1H16 versus 2H15 (unless otherwise stated)
Slide 89: Consumer Bank disciplined 1H16 result
CONSUMER BANK Consumer Bank disciplined 1H16 result For personal use only Cash earnings ($m) Key financial metrics Change AIEA up 3% and margin up 1H15 2H15 1H16 on 2H15 9bps; deposit repricing and Operating expense higher SVR partly offset by increase offset by Revenue ($m) 3,560 3,776 3,970 5% com
Slide 90: Consumer Bank consistently delivering
CONSUMER BANK Consumer Bank consistently delivering For personal use only Revenue ($m) Core earnings ($m) Cash earnings ($m) 3,970 1,444 2,333 3,776 1,380 2,198 3,560 1,240 2,025 Up 12% Up 15% Up 16% 1H15 2H15 1H16 1H15 2H15 1H16 1H15 2H15 1H16 Loans ($bn) and customer deposit to Expense to income r
Slide 91: Consumer Bank: Solid franchise
CONSUMER BANK Solid franchise For personal use only Good growth Leading the market Satisfaction & lower complaints • Best Retail Bank in Australia Customer Satisfaction (%)8 Housing system multiple1 (Westpac Brand)3 Mar 2016 – 6MMA 1.2 • Internet Banking Product of the Year – 80.8 83.1 83.3 82.5 1.0
Slide 92: Transformation driving productivity
CONSUMER BANK Transformation driving productivity For personal use only Active digital customers (#m) Digital sales (#’000) Digital transactions (#m) 343 354 3.56 262 263 254 3.48 241 3.39 Up 5% Up 35% Up 9% Mar-15 Sep-15 Mar-16 1H15 2H15 1H16 1H15 2H15 1H16 Customers converted to e-statements Trans
Slide 93: Enhancing the digital customer experience
CONSUMER BANK Enhancing the digital customer experience For personal use only Attract Deepen Simplify - make it easier for Grow customer base Build deeper relationships customers and employees Walk out working Easier call centre access via mobile Helping customers Enhancing banking register for and
Slide 94: Business Bank delivers a balanced 1H16 result
BUSINESS BANK Business Bank delivers a balanced 1H16 result For personal use only Cash earnings ($m) Key financial metrics Change 1H15 2H15 1H16 on 2H15 AIEA up 3%, margin up 1bp; Increased salary and repricing of mortgages and technology costs partly Revenue ($m) 2,392 2,443 2,512 3% higher deposit
Slide 95: Business Bank: Sound fundamentals
BUSINESS BANK Sound fundamentals For personal use only Revenue ($m) Core earnings ($m) Cash earnings ($m) 2,512 1,017 1,616 988 2,443 1,563 962 1,541 2,392 1H15 2H15 1H16 1H15 2H15 1H16 1H15 2H15 1H16 Loans ($bn) and customer deposit to Expense to income ratio (%) Revenue per FTE ($’000) loan ratio
Slide 96: New capabilities gaining traction
BUSINESS BANK New capabilities gaining traction For personal use only Digital for customers Payments Digital for bankers Simplified origination for fast lending decisions • $600m of loans settled • Completed roll-out Market leading • “Time to Yes” reduced • 31% increase in digital merchant terminals
Slide 97: BTFG franchise growing, financials impacted by market volatility
BTFG franchise growing, financials impacted by market volatility For personal use only Cash earnings movement 1H15 - 1H16 ($m) Key financial metrics Increased lending Change and higher Lower returns on 1H14 1H15 1H16 on 1H15 margins in Private invested capital Revenue ($m) 1,325 1,333 1,209 (9%) Wea
Slide 98: Funds management net flows offset by weaker markets
Funds management net flows offset by weaker markets For personal use only Earning drivers FUA ($bn) • Positive net inflows across FUM and FUA has been offset by negative BT Wrap/Asgard/Panorama Corporate Super Other market impact • FUM related revenue increased over 1H15 driven by Down 1% – Positive
Slide 99: Quality insurance portfolio
Quality insurance portfolio For personal use only Premiums ($m) Insurance loss rates (%) General Insurance gross written premiums Life in-force premiums General Insurance loss rate Life Insurance loss rates Up 12% 892 927 62 792 827 51 50 Flat 32 34 33 34 30 235 246 246 245 2H14 1H15 2H15 1H16 2H14
Slide 100: Leading wealth provider, investing for the future
Leading wealth provider, investing for the future For personal use only Panorama – the journey so far Developments over 1H16 Panorama is our new wealth administration platform that supports the end-to-end • BT Panorama delivered new capabilities: management of a customer’s wealth including superannu
Slide 101: WIB 1H16 cash earnings lower with higher impairment charge
WIB 1H16 cash earnings lower with higher impairment charge For personal use only Cash earnings ($m) Key financial metrics Change 1H15 2H15 1H16 on 2H15 Small number of individual names Revenue ($m) 1,566 1,650 1,599 (3%) moved to impaired in 1H16 and Core earnings 4% lower write-backs. Total stresse
Slide 102: Disciplined approach to managing the business
Disciplined approach to managing the business For personal use only Balance sheet Expenses Asset quality WIB net loans and deposits ($bn) WIB expenses ($m) WIB TCE by risk grade (%) Deposits Loans 100% 679 AAA to AA- 83 (11) 7 (6) 80% 80 669 A+ to A- 78 60% 76 75 BBB+ to BBB- 72 40% BB+ to BB- 20% B
Slide 103: Maintaining our leading institutional franchise
Maintaining our leading institutional franchise For personal use only Australasia’s leading Institutional Bank Westpac Institutional Bank global presence 88% 82% 17 Franchise of the ASX Top of WIB revenue new transactional 100 bank with from customer bank customers WIB business1 won in 1H16 Europe A
Slide 104: Institutional Bank asset quality
Institutional Bank asset quality For personal use only Stressed exposures as a % of TCE1 WIB coverage ratios 4.6 Impaired 4.3 90+ days past due and not impaired 1H15 2H15 1H16 Watchlist & substandard 2.6 . Impairment provisions 3.5 55.9 45.0 46.1 3.6 2.1 to impaired assets (%) 1.8 1.0 1.4 1.2 0.8 0.
Slide 105: New Zealand: Results reflect competitive environment
NEW ZEALAND Results reflect competitive environment For personal use only Cash earnings (NZ$m) Key financial metrics AIEA up 4% offset by margin, Change down 12bps; compression on 1H15 2H15 1H16 on 2H15 mortgage and business lending Revenue (NZ$m) 1,058 1,106 1,082 (2%) from intense competition, par
Slide 106: Transforming the customer experience and deepening relationships
NEW ZEALAND Transforming the customer experience and deepening relationships For personal use only Transforming the customer experience Enhanced position in NZ • Migration of customers onto Westpac One largely complete, • Acquired Airpoints alliance with Air New Zealand in 2015 which is contributing
Slide 107: New Zealand: Asset quality in good shape
NEW ZEALAND Asset quality in good shape For personal use only Business stressed exposures as a % of New Zealand business TCE Impaired 90+ days past due not impaired Watchlist & substandard Property 16.2 15.6 Manufacturing 13.2 21.7 16.7 Agriculture, 4.1 forestry & fishing 12.8 14.4 Wholesale trade 7
Slide 108: New Zealand: Asset quality in good shape
NEW ZEALAND Asset quality in good shape For personal use only Movement in impairment charges (NZ$m) Other consumer1 90+ days delinquencies (%) 1.5 31 Down 44% 1.0 16 (13) 13 (4) (3) 9 0.5 0.56 Write- Offs New IAPS Write-back and other 1H15 2H15 1H16 recoveries changes 0.0 CAP Mar-10 Sep-10 Mar-11 Se
Slide 109: Economics
For personal use only Economics Financial results based on cash earnings unless otherwise stated. Refer page 33 for definition. Results principally cover the 1H16, 2H15 and 1H15 periods. Comparison of 1H16 versus 2H15 (unless otherwise stated)
Slide 110: More than mining, the Australian economy is diverse and flexible
Snapshot More than mining, the Australian economy is diverse and flexible For personal use only Australian economy key statistics Australia’s economy is diversified and flexible (latest available) 3.0% GDP Sector contribution to GDP (%)1 Mining Australian employment by sector 2015 (%) 2 Mining Austr
Slide 111: Australian and New Zealand economic forecasts
Australian and New Zealand economic forecasts For personal use only Calendar year Key economic indicators1 (%) forecasts as at April 2016 2014 2015 2016f 2017f World GDP 3.4 3.1 3.3 3.5 Australia GDP 2.6 2.5 2.8 3.2 Private consumption 2.8 2.8 2.9 3.2 Business investment2,3 -4.3 -8.9 -10.0 -3.5 Unem
Slide 112: Australian economy adjusting well
Australian economy adjusting well For personal use only • Australian economy adjusting well to Economy continues to grow AUD close to post float average significant changes − The terms of trade peaked in Real GDP growth (%) AUD/USD actual & forecast September 2011 and, by end 2015, 1.20 % growth, ye
Slide 113: Transition to non-mining growth is taking place
Transition to non-mining growth is taking place For personal use only Jobs outpaced population growth in 2015 Consumer related industries improving % ann % ann ann% Consumer spending vs industry activity (ann %) ann% 6 6 employment population, working age 8 8 *retail, hospitality, household services
Slide 114: Lower Australian dollar key to rebalancing of the economy
Lower Australian dollar key to rebalancing of the economy For personal use only Positives Australian dollar lower against major currencies Australian dollar, change last 18mths (%) • A critical buffer to external shocks CAD • Australia’s commodity prices –40% last 2yrs in USD terms but a NZD more mo
Slide 115: Lower AUD sees non-mining sectors pick up
Lower AUD sees non-mining sectors pick up For personal use only Education • $119bn education sector, of which 6.1% are International arrivals in Australia (millions) Australia’s 4th largest international students1 mn mn export • International student enrolments up 20.4% in 2.5 Annual arrivals, finan
Slide 116: Australian labour market
Australian labour market Conditions improving, although wage growth subdued For personal use only Employment and hours worked (index) State unemployment rates (% trend) index 2008 average = 100 % % 9 112 9 110 Employment Tas SA 8 Vic 8 Total hours worked Qld 108 NSW 7 WA 7 106 Avg hours worked 104 6
Slide 117: Australian labour market: services sectors creating jobs
Australian labour market Services sectors creating the vast bulk of new jobs For personal use only Australia: more than just mining Australia: employment by sector (annual change, ’000) Sector contribution to GDP (%)1 Health & education Mining 5 11 Manufacturing 12 Construction Business services 9 T
Slide 118: Australia's population and State breakdown
Australia’s population and State breakdown For personal use only Australian population by State (million) Domestic final demand (% ann) mn % ann 7.6 • Total population: 23.9 million (Sep 2015) 6 Dec-14 yr Dec-15 yr 8 4.6 • 57% of the population live in 2 states – 3.7 3.4 7 4 3.0 6.0 NSW and Victoria
Slide 119: Australian state economies
Australian state economies Shift in growth with NSW the pace setter For personal use only • Domestic demand growth is shifting from the WA mining states of WA and Qld, to NSW and Victoria POPULATION 2.6 million QLD SIZE OF ECONOMY POPULATION – 1 in 3 Australians live in NSW, with a 17% of Australian
Slide 120: Credit growth expanding at a modest pace
Credit growth expanding at a modest pace For personal use only 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 2017 120 20 20 2
Slide 121: Australia economy: fiscal and monetary flexibility remain
Australia economy: fiscal and monetary flexibility remain For personal use only GDP well placed relative to other developed economies RBA still has capacity to reduce rates further Real GDP growth (%) Major countries’ policy rates (%) % growth, year-ended Australia UK Canada US Euro 6 5 Australia 4
Slide 122: Australian housing market has sound fundamentals, sector moderating
Australian housing market has sound fundamentals, Sector moderating For personal use only Population versus dwelling stock Residential rental vacancy rates (%) (annual average change ‘000) population dwelling stock* 7 % Australia Sydney Melbourne * net of demolitions – implied by Census data; Westpa
Slide 123: House price growth and activity
House price growth and activity Some moderation, geographic differences For personal use only • After a surge in the first half of calendar 2015 house price growth has Capital city dwelling prices – growth rates (%) moderated. Nationally, annual price growth has slowed from 10% in June 2015 to 6.6%
Slide 124: Investment property lending off highs
Investment property lending off highs For personal use only • Investor activity responded in 2014 and into 2015 to low vacancy Housing finance approvals: value of housing finance rates, solid rental yields, and low interest rates, including low fixed ($bn/mth) rates offering attractive opportunities
Slide 125: Australian households: a cautious approach to household finances
Australian households A cautious approach to household finances For personal use only 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 total debt net of d
Slide 126: New Zealand economy
126 New Zealand economy For personal use only Key economic statistics FY15 FY16f Change NZD/USD, NZD/AUD and TWI 1.00 85 GDP annualised average 3.0% 2.7% (30 ppts) 0.90 80 growth 75 0.80 Inflation rate 0.4% 0.1% (30 ppts) 70 0.70 65 Official cash rate (OCR) 2.5% 2.0% (50 bps) 0.60 60 0.50 Westpac NZ
Slide 127: New Zealand economy: challenging conditions for dairy sector
127 New Zealand economy Conditions remain challenging for dairy sector For personal use only • Global dairy prices have fallen around 20% over the last year Dairy payout and dividend1 • Prices have been weighed down by lacklustre demand from China and strong growth in global supply, especially out o
Slide 128: New Zealand economy: housing sales slowed, prices picking up
128 New Zealand economy Housing sales have slowed, but prices picking up For personal use only • Following new regulations in late 2015 there has been a slowdown in the New Zealand house prices by region (index) Auckland housing market, with sales down from their peak • However, we are seeing signs
Slide 129: Appendix and Disclaimer
For personal use only Appendix and Disclaimer Financial results based on cash earnings unless otherwise stated. Refer page 33 for definition. Results principally cover the 1H16, 2H15 and 1H15 periods. Comparison of 1H16 versus 2H15 (unless otherwise stated)
Slide 130: Appendix 1: Cash earnings adjustments
Appendix 1: Cash earnings adjustments For personal use only 1H15 2H15 1H16 Cash earnings adjustment Description $m $m $m Reported net profit 3,609 4,403 3,701 During Second Half 2015 the Group recognised a significant gain following the partial sale and deconsolidation of the Group’s Partial sale of
Slide 131: Appendix 2: Definitions
Appendix 2: Definitions For personal use only Westpac’s divisions Westpac’s divisions Consumer Bank (CB) is responsible for sales and service to consumer customers in Australia under the Westpac, St.George, BankSA, Bank of Melbourne and RAMS brands. Activities are conducted through a dedicated Westp
Slide 132: Appendix 2: Definitions (continued)
Appendix 2: Definitions (continued) For personal use only Financial performance Asset quality TCE Total committed exposures Is a measure of the level of profit that is generated by ongoing operation and is therefore available for distribution to shareholders. Three categories of Stressed loans are t
Slide 133: Appendix 2: Definitions (continued)
Appendix 2: Definitions (continued) For personal use only Key metrics Key metrics (continued) Net Promoter Score measures the net likelihood of recommendation to Data based on Roy Morgan Research, Respondents aged 14+ and 12 month others of the customer’s main financial institution for retail or bus
Slide 134: Appendix 2: Definitions (continued)
Appendix 2: Definitions (continued) For personal use only Capital Other Liquidity coverage The level of high quality liquid assets (as defined by APRA) over total cash ratio (LCR) outflows in a 30-day defined stressed scenario Assets (both on and off-balance sheet) are risk weighted according to eac
Slide 135: Investor Relations Team
Investor Relations Team For personal use only Equity Investor Relations For further information on Westpac Andrew Bowden Nicole Mehalski www.westpac.com.au/investorcentre Head of Investor Relations Director • Annual reports +61 2 8253 4008 +61 2 8253 1667 • Presentations and webcasts andrewbowden@we
Slide 136: Disclaimer
Disclaimer For personal use only The material contained in this presentation is intended to be general background information on Westpac Banking Corporation (Westpac) and its activities. The information is supplied in summary form and is therefore not necessarily complete. It is not intended that it