Slide 1: Westpac Group Full Year 2016 Presentation & Investor Discussion Pack
For personal use only 1 | Westpac Group Full Year 2016 Presentation & Investor Discussion Pack
Slide 2: Westpac Full Year 2016 result index
Westpac Full Year 2016 result index For personal use only Full Year 2016 Result Presentation 3 Investor Discussion Pack of Full Year 2016 Result 29 Strategy 30 Overview 35 Performance discipline 37 Service leadership 41 Digital transformation 43 Workforce revolution 50 Sustainable futures 51 Earning
Slide 3: Brian Hartzer, Chief Executive Officer
For personal use only Brian Hartzer Chief Executive Officer Westpac Financial resultsBanking based onCorporation ABNunless cash earnings 33 007 457 141. otherwise stated. Refer page 36 for definition. Results principally cover the FY16, FY15 and 2H16 and 1H16 periods. Comparison of 2H16 versus 1H16
Slide 4: Consistent operating performance; strengthening the franchise
Consistent operating performance; strengthening the franchise For personal use only • Core earnings up 3%, cash earnings flat, ROE lower • Disciplined management in an environment of increased competition, low interest rates, and higher capital • Consumer and Business Banks strong; more difficult co
Slide 5: Headline results
Headline results For personal use only Change Change FY16 FY16 – FY15 2H16 – 1H16 Reported NPAT $7,445m (7%) 1% Cash earnings $7,822m - - Cash EPS1 235.5c (5%) (1%) Common equity Tier 1 capital ratio2 9.5% (2bps) (99bps) Return on equity3 14.0% (185bps) (31bps) Net tangible assets per share $13.96 7
Slide 6: Prioritising strength while managing return
Prioritising strength while managing return For personal use only • Capital above preferred range • Lower ROE • LCR & NSFR above minimums • Management of margins • Proactive provisioning • WIB prioritised return over growth • Improved Auto delinquencies in 2H16 Strength Return • Good growth in targe
Slide 7: Continued focus on productivity
Continued focus on productivity For personal use only Dealing with the current environment Building for the future • Maintained positive jaws Digitising the business • Increased productivity savings to • 7 of top 10 manual activities digitised $263m • New online business banking in • Continued to in
Slide 8: Growing the retail franchise
Growing the retail franchise For personal use only Cash earnings1 ($m) Expanding the franchise2 New Zealand 5,792 5,440 • Customer numbers up 1% 5,052 • Lending up 9%3 • Deposits up 11%3 1 New Zealand Business Bank Business Bank • Customer numbers up 5% • SME lending up 8% Consumer Bank • Deposits u
Slide 9: Consumer Bank consistently delivering
Consumer Bank consistently delivering For personal use only Revenue ($m) Expense to income ratio (%) 4,051 43.1 3,970 3,776 41.8 41.2 40.3 3,560 1H15 2H15 1H16 2H16 1H15 2H15 1H16 2H16 Core earnings ($m) Cash earnings ($m) 2,418 2,333 1,537 2,198 1,444 2,025 1,380 1,240 1H15 2H15 1H16 2H16 1H15 2H15
Slide 10: Tougher conditions impact Wealth and WIB
Tougher conditions impact Wealth and WIB For personal use only BTFG Cash earnings ($m) WIB Cash earnings ($m) Funds management (Excl BTIM) Insurance 536 520 469 1,519 1,343 333 309 291 1,098 FY14 FY15 FY16 FY14 FY15 FY16 Movement FY16 – FY15 Movement FY16 – FY15 FUM (spot) 5% Lending (3%) FUA (spot)
Slide 11: Seeking to achieve ROE in the range of 13-14%
Seeking to achieve ROE in the range of 13-14% For personal use only ROE considerations Cash return on equity (%) • ROE has structurally fallen since GFC 23 Pre GFC average 21 Post GFC average – Decline in interest rates 19 – Lower margins 17 – Increased regulatory capital 15 • Healthy ROE is require
Slide 12: Dividends
Dividends For personal use only Dividends (cents per share) Dividend considerations in 2H16 Special dividends • Strong capital position; comfortably above preferred range 10 10 • Modest RWA growth1 • Sustainability of the payout ratio over the long term • Surplus franking credits 92 93 94 94 94 Divi
Slide 13: Sustainably increasing the value of the franchise
Sustainably increasing the value of the franchise For personal use only • Customer numbers up 2% in FY16 More customers; • Deepening relationships deeper relationships • Customer complaints down 31%; more to do on customer satisfaction • Targeting a sub 40% expense to income ratio Improving • Signif
Slide 14: Expectations for operating environment
Expectations for operating environment For personal use only • Australian outlook remains positive; transition to a more innovative services-based economy is continuing • Signs of housing market moderating although underlying demand remains • Some uncertainty in global markets, particularly Europe (
Slide 15: Peter King, Chief Financial Officer
For personal use only Peter King Chief Financial Officer Westpac Financial resultsBanking based onCorporation ABNunless cash earnings 33 007 457 141. otherwise stated. Refer page 36 for definition. Results principally cover the FY16, FY15 and 2H16 and 1H16 periods. Comparison of 2H16 versus 1H16 (un
Slide 16: Results at a glance
Results at a glance For personal use only Cash earnings 2H16 – 1H16 ($m) Infrequent/volatile items ($m) $41m in additional No large institutional Cash earnings impact 2H15 1H16 2H16 regulatory and impairments this half compliance costs Asset sales 64 0 (4) 42 (77) 210 (101) 3,904 (60) 3,918 Trading
Slide 17: Targeted balance sheet growth
Targeted balance sheet growth For personal use only Loan/deposit growth 2H16 v 1H16 (%) Strong deposit growth lifted customer deposit SME up 5% to loan ratio over 70% 6 3 3 Growth (2) Includes 21% fall in trade exposures overseas 2 Australian1 Business Bank Institutional Customer deposits Housing (E
Slide 18: Margins impacted by cost of funds
Margins impacted by cost of funds For personal use only Net interest margin (NIM) (%) 2.14 3bps (2bps) (3bps) (1bp) 0 0 2.11 Treasury & Markets 0.07 0.07 impact on NIM 2.07 NIM excl. Treasury and Markets down 3bps 2.04 NIM excl. Treasury & Markets Capital & 1H16 2H16 Assets Liquidity Customer wholes
Slide 19: Non-interest income
Non-interest income For personal use only Non-interest income by division ($m) Markets income, long term view ($m) 2,966 18 6 (18) (94) 1,155 1,082 (1) 12 2,889 1,047 47% 2H 2 1 NZ 1H16 BTFG Other 2H16 CB BB WIB 46% 1H 55% Non-interest income growth in 2H16 (%) Consumer Bank 4 Business Bank 1 53% 54
Slide 20: Expenses include a rise in regulatory & compliance costs
Expenses include a rise in regulatory & compliance costs For personal use only Expense movement ($m) Expense growth in 2H16 (%) Productivity accelerated in Consumer Bank 0 2H16 $263m for year Business Bank 0 99 (147) 41 4,479 BTFG 5 67 4,438 WIB 1 4,419 New Zealand (in NZ$) 1 Group Businesses 4 0.4%
Slide 21: Drivers of investment spend
Drivers of investment spend For personal use only Investment spend ($m) Investment spending • FY16 spend $1.23bn, skewed to 2H16 1,227 • Per cent expensed increased from 1,025 change in accounting approach – 42% in FY16 – 37% in FY15 57% 55% 2H Capitalised software ($bn) 1H 1.78 Balance 1.65 Annual
Slide 22: Asset quality remains sound
Asset quality remains sound For personal use only Stressed exposures as a % of TCE1 Stressed exposure by sector/industry ($bn) Watchlist & substandard 3.5 Sep-15 Mar-16 Sep-16 3.20 90+ days past due and not impaired 3.0 3.09 Impaired 2.5 2.48 2.0 2.17 1.5 1.60 1.0 1.30 1.24 1.20 0.5 0.99 0.0 Propert
Slide 23: Asset quality – commercial property
Asset quality – commercial property For personal use only Commercial property (%) Residential development portfolio >$20m 2 10 % of TCE (lhs) 20 Lending for residential apartment 8 % of TCE in stress (rhs) $5.1bn 15 development >$20m (“high rise”) 6 10 4 Weighted average LVR 54% 2 5 Estimated market
Slide 24: Asset quality – consumer delinquencies and NZ dairy
Asset quality – consumer delinquencies and NZ dairy For personal use only Aust. mortgage 90+ day delinquencies (%) NZ dairy portfolio 1.5 NSW/ACT VIC/TAS QLD Sept-15 Sept-16 WA SA/NT ALL Market share1 (%) 12.3 13.0 1.0 0.66 NZ dairy TCE (NZ$bn) 5.6 5.9 0.5 0.47 0.53 0.45 % of NZ dairy stressed2 4.74
Slide 25: Impairment charge reflects sound asset quality
Impairment charge reflects sound asset quality For personal use only Impairment charge components ($m) Individually assessed provisions (IAP) Collectively assessed provisions Total Write-backs Write-offs Other movements in New IAPs collective provisions & recoveries direct 667 $298m increase from la
Slide 26: CET1 capital ratio above preferred range
CET1 capital ratio above preferred range For personal use only CET1 capital ratio (% and bps) Includes 9bps for credit spread risk in 14.43 theetete (14bps) the liquids portfolio Organic 15bps Other (4bps) 96 10.47 (110) 96 (69) 9.50 1 (6) (6) 14 (12) (6) 9.48 Loan growth largely offset by lower int
Slide 27: Well positioned for liquidity regulation
Well positioned for liquidity regulation For personal use only Liabilities and equity1 ($bn) Assets1 ($bn) 52 +13% W'sale - onshore 45 89 -11% 64 Third party 79 short term 2 72 52 liquid assets 53 125 W'sale - offshore short term 2 123 +11% 59 53 Loans - W'sale - long term supporting CLF 4 Equity 3
Slide 28: Considerations for FY17
Considerations for FY17 For personal use only • Continued discipline on growth/return • New liquidity rules see tighter link between loan and deposit growth • Active margin management required given competition and higher funding costs • Target expense growth at bottom end of 2-3% range • Productivi
Slide 29: 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 36 for definition. Results principally cover the FY16 and FY15 years, including 2H16 and 1H16. Comparison of 2H16 versus 1H16 (u
Slide 30: Strategy
For personal use only Strategy Westpac Banking Corporation ABN 33 007 457 141. Financial results based on cash earnings unless otherwise stated. Refer page 36 for definition. Results principally cover the FY16 and FY15 years, including 2H16 and 1H16. Comparison of 2H16 versus 1H16 (unless otherwise
Slide 31: 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 Zeala
Slide 32: Delivering on our five strategic priorities
STRATEGY Delivering on our five strategic priorities For personal use only Vision To be one of the world’s great service companies, helping our customers, communities and people to prosper and grow Performance Service Digital Targeted Workforce Discipline Leadership Transformation Growth Revolution
Slide 33: 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 • No. 1 or 2 position across key markets - all divisions well − Sector leading through global financial crisis placed − Soun
Slide 34: 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) 245.4 248.2 235.5 227.8 209.3 214.8 189.4 198.3 197.8 7.6 7.8 7.8 167.2 163.7 7.1 6.6 6.3 5.9 5.0 4.7 3.5 Common equity Tier 1 capital ratio (%) 3.1 14.4 9.1 9.0 9.5 9.5 7.4 8.2
Slide 35: Overview
For personal use only Overview Westpac Banking Corporation ABN 33 007 457 141. Financial results based on cash earnings unless otherwise stated. Refer page 36 for definition. Results principally cover the FY16 and FY15 years, including 2H16 and 1H16. Comparison of 2H16 versus 1H16 (unless otherwise
Slide 36: Cash earnings and reported net profit reconciliation
RESULTS Cash earnings and reported net profit reconciliation For personal use only Cash earnings1 policy Reported net profit and cash earnings1 adjustments ($m) • Westpac Group uses a measure of performance referred to as cash earnings to assess financial performance at both a Group and divisional l
Slide 37: FY16 financial snapshot
PERFORMANCE DISCIPLINE FY16 financial snapshot For personal use only Change Change Change Change FY16 FY16 – FY15 2H16 – 1H16 FY16 FY16 – FY15 2H16 – 1H16 Earnings1 Balance sheet Earnings per share (cents) 235.5 (5%) (1%) Total assets ($bn) 839.2 3% 1% Common equity Tier 1 (CET1) Core earnings ($m)
Slide 38: Cash earnings flat over the year and prior half
PERFORMANCE DISCIPLINE Cash earnings flat over the year and prior half For personal use only % chg % chg Cash earnings features of FY16 - FY15 ($m) FY16 FY16- 2H16- ($m) AIEA up 6%, Additional investment and higher FY15 1H16 margins up 1,109 (446) regulatory and compliance costs 5pbs (263) (371) Net
Slide 39: Consumer Bank and Business Bank the main contributors
PERFORMANCE DISCIPLINE Consumer Bank and Business Bank the main contributors For personal use only FY16 divisional1 cash earnings movements ($m) FY16 divisional1 core earnings movements ($m) 163 (105) (146) 20 (38) 528 (20) (20) 12,305 361 (245) 11,905 7,820 (29) (67) 7,822 Flat Up 3% Other 3 2 2 3
Slide 40: Dividends
PERFORMANCE DISCIPLINE Dividends For personal use only Key dividend considerations for 2H16 Dividends (cents per share) • Strong capital position; comfortably above preferred Special dividends range 10 10 • Modest RWA growth • Sustainability of the payout ratio over the long term 92 93 94 94 94 • Su
Slide 41: Building franchise value
SERVICE LEADERSHIP Building franchise value For personal use only Customer numbers (#’m) Customers with a wealth product 1,2(%) Consumer Bank Business Bank Australia 9.94 10.09 10.26 10.44 Westpac St.George brands Peers 1.56 21.3 1.45 1.48 1.52 19.8 16.2 8.49 8.61 8.74 8.88 15.0 11.8 Mar-15 Sep-15 M
Slide 42: Building franchise value
SERVICE LEADERSHIP Building franchise value For personal use only Customer satisfaction1 Customer complaints (#) Consumer and New Zealand (%), Business (mean) Australian retail (CB, BB and BT) Westpac St.George brands Peers Consumer 84.8% 83.4% 81.3% 79.7% 79.6% Down 37% Sep-14 Sep-15 Sep-16 Down 50
Slide 43: Significant momentum in our technology transformation
DIGITAL TRANSFORMATION Significant momentum in our technology transformation For personal use only Today Underway Assisted Unassisted Omni-channel Channels (customer interface) Westpac St.George BT Customer Service Hub Customer 4 Systems of Westpac St.George BT * Westpac St.George BT Pano- record 2
Slide 44: Improving the digital customer experience: Consumer & Business Bank
DIGITAL TRANSFORMATION Improving the digital customer experience: Consumer & Business Bank (7 of top 10 processes digitised) For personal use only Card on hold Activate card on mobile Banker in your pocket • Customers can place their card on • Activate card on mobile saves • St.George customers can
Slide 45: Improving the digital customer experience: New Zealand and WIB
DIGITAL TRANSFORMATION Improving the digital customer experience: New Zealand and WIB For personal use only Westpac One CashNav Transforming the network • Market leading platform. Canstar Best • Launched CashNav, the first integrated • Further enhanced 24/7 capability Online Bank in New Zealand 2016
Slide 46: Improving the digital customer experience: BTFG
DIGITAL TRANSFORMATION Improving the digital customer experience: BTFG For personal use only Wealth review Super profile SuperCheck Digital in insurance SUPERANNUATION & INSURANCE • An innovative solution helping • Personalised tool enabling members • Launched BT Super Profile reunite customers with
Slide 47: Digitisation improving service and efficiency for contact centres
DIGITAL TRANSFORMATION Examples of digitisation improving service and efficiency for contact centres For personal use only Contact centre average call times1 (seconds) Card lock/unlock calls2 (#) 378 300000 284,883 319 280000 Saving an average 260000 Saving around 388 238,380 of 150 hours per 240000
Slide 48: Actively responding to new digital opportunities
DIGITAL TRANSFORMATION Actively responding to new digital opportunities1 For personal use only Sponsoring & investing to build new tech Accelerating innovation businesses “The Cave” is an innovation hub in Kogarah Invested in QuintessenceLabs creating where our technology partners can showcase oppor
Slide 49: Reinventure – Investing in new technology businesses
DIGITAL TRANSFORMATION Reinventure – Investing in new technology businesses For personal use only Westpac has committed $100m to Reinventure, an independently run venture capital fund. The operation allows Westpac to gain insights into emerging fintech business models, adjacent business opportunitie
Slide 50: Workforce revolution delivering
WORKFORCE REVOLUTION Workforce revolution delivering For personal use only Lost time injury frequency rate Agile work space providing benefits Women in leadership2 (%) (rolling 12 months) (#) • Around 10,200 employees now in Agile 48 workplaces 46 • Delivering following benefits 44 1.5 − 87% decline
Slide 51: Continued sustainability leadership
SUSTAINABLE FUTURES Continued sustainability leadership For personal use only Strategic priorities and FY16 progress highlights Leading track record • Most sustainable bank globally in the 1 Embracing societal change 2016 Dow Jones Sustainability Index for • Proportion of leadership roles held by wo
Slide 52: Continued support for CleanTech and renewable electricity generation
SUSTAINABLE FUTURES Continued support for CleanTech and renewable electricity generation (Australia and New Zealand) For personal use only CleanTech1 and environmental services TCE by type (%) Electricity generation portfolio (%) 3.1 1.3 0.5 Green buildings 0.4 Renewable Non-renewable 5.3 Renewable
Slide 53: Actively supporting Australia
SUSTAINABLE FUTURES Actively supporting Australia For personal use only Supporting communities1 Income tax expense on a cash earnings basis ($m) FY15 FY16 • Provide loans to help Australians own $103bn Notional income tax based on the Australian Backing their home or grow their business 3,346 3,354
Slide 54: Earnings Drivers
For personal use only Earnings Drivers Westpac Banking Corporation ABN 33 007 457 141. Financial results based on cash earnings unless otherwise stated. Refer page 36 for definition. Results principally cover the FY16 and FY15 years, including 2H16 and 1H16. Comparison of 2H16 versus 1H16 (unless ot
Slide 55: Net operating income flat over half, up 3% over year
REVENUE Net operating income flat over half, up 3% over year For personal use only Net operating income movement ($m) 75 (89) 273 (149) 150 (108) 71 (82) 5 29 (96) 10,619 (15) 10,584 10,520 Net interest Net interest Non-interest down 8% Non-interest down 3% up 5% up 1% 2 2H15 AIEA 1 Margins Fees & W
Slide 56: Composition of lending
REVENUE Composition of lending For personal use only Composition of lending (% of total) Net loans ($bn) 11.1 4.2 (1.6) 7.1 0.4 661.9 640.7 12.9 623.3 Australian mortgages 3.6 Australian business 9.2 Up 3% Australian institutional 61.0 Australian other consumer 13.3 1 Mar-16 Zealand Consumer Busines
Slide 57: Customer deposits
REVENUE Customer deposits For personal use only Customer deposit mix ($bn) and % of total Customer deposit composition ($bn) Term deposits Savings Online Transaction CB BB WIB BTFG, NZ & Other 467 467 427 442 427 442 79 87 130 77 121 123 83 88 28% 80 80 84 80 40% 106 111 102 3% 6% 64 70 68 18% 168 1
Slide 58: Net interest margin down 3bps
REVENUE Net interest margin down 3bps, primarily due to higher funding costs and lower interest rates For personal use only Net interest margin (NIM) movement (%) Net interest margin (NIM) (%) NIM excl. Treasury & Markets Treasury & Markets impact on NIM NIM NIM excl. Treasury & Markets Full period
Slide 59: Non-interest income down 3%, primarily from lower trading income
REVENUE Non-interest income down 3%, primarily from lower trading income For personal use only Non-interest income contributors ($m) Fees and commission income ($m) Higher cards income partly offset by 3,215 lower institutional income 2,966 5 29 (96) (15) 2,889 Down 3% 1,478 1,464 1,375 1,380 2H15 1
Slide 60: Markets and Treasury income
REVENUE Markets and Treasury income For personal use only Markets income by activity1 ($m) Group market risk related income1 ($m) Customer Market risk Derivative Total markets Treasury Market risk Derivative Total Group income related income valuation income income related income valuation risk rela
Slide 61: Peer leading expense to income ratio, at 42%
EXPENSES Peer leading expense to income ratio, at 42% For personal use only Productivity benefits accelerated in 2H16. Expense movements ($m) $263m over the year FTE run versus change (#) 99 (147) 41 4,479 35,241 (589) 454 35,280 4,419 67 4,438 25 34,677 149 Up 0.4% Up 1.0% Productivity 1H16 complia
Slide 62: Investment spend focused on growth and productivity
EXPENSES Investment spend focused on growth and productivity For personal use only Investment spend Investment spend ($m) FY14 FY15 FY16 2H15 1H16 2H16 Investment spend capitalised1 ($m) 2H15 1H16 2H16 expensed ($m) Capitalised software Expensed 357 375 517 Opening balance 2,102 1,654 1,651 Addition
Slide 63: Consistent track record of delivering productivity savings
EXPENSES Consistent track record of delivering productivity savings: $1.8bn in last 8 years For personal use only • Business Connect and Connect Now $1.8bn saved from efficiency programs since FY09 ($m) video conferencing now in 89% of sites1 • 31% reduction in retail and business Targeting FY16-FY1
Slide 64: 2H16 impairment charges down due to lower new IAPs
IMPAIRMENTS 2H16 impairment charges down due to lower new IAPs For personal use only Impairment charges ($m) Individually assessed Collectively assessed Total New IAPs Write-backs Write-offs direct Other movements & recoveries in CAP 667 471 463 484 457 293 418 412 273 256 330 341 (64) (48) (114) (1
Slide 65: Asset Quality
For personal use only Asset Quality Westpac Banking Corporation ABN 33 007 457 141. Financial results based on cash earnings unless otherwise stated. Refer page 36 for definition. Results principally cover the FY16 and FY15 years, including 2H16 and 1H16. Comparison of 2H16 versus 1H16 (unless other
Slide 66: High quality portfolio with bias to secured consumer lending
ASSET QUALITY High quality portfolio with bias to secured consumer lending For personal use only Asset composition as at 30 September 2016 (%) 1 Total assets On balance sheet lending Loans 1 Trading securities, financial assets at fair value and available-for-sale securities 2 1 Housing Derivative f
Slide 67: A well diversified portfolio across industries and large exposures
ASSET QUALITY A well diversified portfolio across industries and large exposures For personal use only Top 10 exposures to corporations and NBFIs5 Exposures at default1 by sector ($bn) as a % of TCE6 (%) • Largest corporation/NBFI single name Finance & insurance 2 exposure represents less than 0.2%
Slide 68: Strong provisioning maintained
ASSET QUALITY Strong provisioning maintained For personal use only Asset quality 2H15 1H16 2H16 Total provisions ($m) Impairment charges to average loans Total provisions 13 21 14 annualised (bps) Economic overlay Collectively assessed provisions Impairment charges to average loans annualised (bps)
Slide 69: New impaired assets lower; increase in stress
ASSET QUALITY New impaired assets lower; Increase in stress mainly in Watchlist and Substandard For personal use only Stressed exposures as a % of TCE (%) Movement in stress categories (bps) . 10 120 Watchlist & substandard 3 (2) 6 90+ day past due and not impaired 6 (3) 103 (4) 5 99 Impaired WIB la
Slide 70: Increase in stressed exposures by industry
ASSET QUALITY Increase in stressed exposures by industry mainly in NZ dairy and mining-related exposures For personal use only Corporate and business portfolio stressed exposures by industry ($bn) 2.5 Sep-15 Mar-16 Sep-16 • Across sectors, the increase in stress is due to higher Watchlist and Substa
Slide 71: Areas of interest: Commercial property
ASSET QUALITY Areas of interest: Commercial property For personal use only Commercial property portfolio Mar-16 Sep-16 Commercial property exposures % of TCE and % in stress Total committed exposures (TCE) $67.5bn $67.1bn Commercial property as % of TCE (lhs) 10 20 Commercial property % in stress (r
Slide 72: Areas of interest: Inner city apartments
ASSET QUALITY Areas of interest: Inner city apartments For personal use only Commercial property portfolio TCE ($bn) Sep-16 % Residential apartment development >$20m weighted average LVR (%) Commercial property total committed exposures 67.1 100% Average LVR 54% Residential apartment development >$2
Slide 73: Areas of interest: Mining and New Zealand dairy
ASSET QUALITY Areas of interest: Mining and New Zealand dairy For personal use only Mining portfolio Mar-16 Sep-16 New Zealand dairy portfolio Mar-16 Sep-16 Total committed exposures (TCE) $11.8bn $11.3bn Total committed exposure (TCE) NZ$5.8bn NZ$5.9bn Lending $5.9bn $6.2bn Lending NZ$5.5bn NZ$5.7b
Slide 74: Provision cover by portfolio category
ASSET QUALITY Provision cover by portfolio category For personal use only Exposures as a % of TCE Provisioning to TCE (%) Mar-15 Sep-15 Mar-16 Sep-16 Fully performing portfolio • Small cover as low probability of default (PD) 0.22 0.21 0.22 0.22 • Includes economic overlay Collective provisions Full
Slide 75: Australian consumer unsecured lending portfolio performance remains sound
ASSET QUALITY Australian consumer unsecured lending portfolio performance remains sound For personal use only Australian consumer unsecured lending Australian unsecured lending 90+ day delinquencies (%) • Australian consumer unsecured lending Total unsecured lending Credit cards remains a very small
Slide 76: High levels of borrower equity create buffers in mortgage portfolio
ASSET QUALITY High levels of borrower equity create buffers in the Australian mortgage portfolio For personal use only Sep-15 Mar-16 Sep-16 2H16 Australian housing loan-to-value ratios (LVRs)2,3 (%) Australian housing portfolio balance balance balance flow1 100 FY16 drawdowns LVR at origination Tota
Slide 77: Prudent lending standards support mortgage portfolio quality
ASSET QUALITY Prudent lending standards support Australian mortgage portfolio quality For personal use only Lending standards on a tightening bias since 2015 Mortgage interest rate buffers (%) • Minimum assessment (floor) rate 7.25% and buffer rate of at least Westpac owner occupied SVR inc package
Slide 78: Australian mortgage delinquencies remain low
ASSET QUALITY Australian mortgage delinquencies remain low; Impacted by changes in hardship treatment For personal use only Australian mortgage portfolio Sep-15 Mar-16 Sep-16 Australian mortgages delinquencies (%) 30+ day delinquencies (bps) 102 134 130 90+ day past due total 90+ day past due invest
Slide 79: Changes in the treatment of hardship
ASSET QUALITY Changes in the treatment of hardship now largely flowed through Australian mortgage portfolio 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
Slide 80: Australian investment property mortgage portfolio performing well
ASSET QUALITY Westpac’s Australian investment property mortgage portfolio performing well For personal use only Investment property lending IPL portfolio statistics Sep-15 Mar-16 Sep-16 • Investment property loans (IPLs)1 are full recourse Average LVR at origination3 (%) 72 72 72 • Maximum LVR for s
Slide 81: Lenders mortgage insurance
ASSET QUALITY Lenders mortgage insurance For personal use only Lenders mortgage insurance Lenders mortgage insurance arrangements • Where mortgage insurance is required, LVR Band Insurance mortgages are insured through Westpac’s captive mortgage insurer, Westpac Lenders • LVR ≤80% Not required Mortg
Slide 82: 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 30 September 2016 • The Australian mortgage portfo
Slide 83: Capital, Funding and Liquidity
For personal use only Capital, Funding and Liquidity Westpac Banking Corporation ABN 33 007 457 141. Financial results based on cash earnings unless otherwise stated. Refer page 36 for definition. Results principally cover the FY16 and FY15 years, including 2H16 and 1H16. Comparison of 2H16 versus 1
Slide 84: CET1 capital ratio above preferred range
CAPITAL CET1 capital ratio above preferred range For personal use only Common equity Tier 1 capital ratio (CET1) (%) Peer CET1 capital ratios on a comparable basis, adjusted for mortgage RWA change and the impact of wealth leverage5 (%) 10.5 Preferred CET1 capital ratio range 8.75% - 9.25% 10.1 CET1
Slide 85: Basel III regulatory capital ratios
CAPITAL Basel III regulatory capital ratios For personal use only Regulatory capital ratios (%) Internationally comparable1 Internationally comparable basis BIS 75th percentile3 APRA basis incl. transitional instruments2 basis 17.7 19.1 16.2 16.6 16.6 13.1 14.4 14.4 13.1 14.1 11.2 9.5 CET1 Tier 1 To
Slide 86: APRA CET1 capital ratio lower in 2H16 as mortgage RWA change implemented
CAPITAL APRA CET1 capital ratio lower in 2H16 as mortgage RWA change implemented For personal use only CET1 capital ratio (% and bps) 14.43 theetete (14bps) Organic 15bps Other (4bps) 96 10.47 (110) 96 (69) 9.50 1 (6) (6) 14 (12) (6) 9.48 Loan growth largely offset by lower interest Data improvement
Slide 87: Total risk weighted assets up 1%
CAPITAL Total risk weighted assets up 1% (excluding mortgage RWA methodology impact) For personal use only • Australian residential mortgages RWA Movement in risk weighted assets ($bn) methodology changed on 1 July 2016, increased RWA by $43.0bn 406.2 8.5 (5.7) 1.0 0.7 0.5 410.0 43.0 (1.2) • Excludi
Slide 88: Basel III CET1 capital ratios global comparison
CAPITAL Basel III CET1 capital ratios global comparison1 For personal use only 14.4% 3 2 2 3 3 2 3 Bank of Montreal Intesa Sanpaolo Credit Suisse Unicredit RBS UBS CBA NAB Barclays BNP Paribas BBVA Morgan Stanley ING China Merchants Bank Natixis Bank of China Deutsche Bank ANZ Westpac Lloyds Commerz
Slide 89: Internationally comparable capital ratio reconciliation
CAPITAL Internationally comparable capital ratio reconciliation For personal use only APRA’s Basel III capital requirements are more conservative than those of the Basel Committee on Banking Supervision (BCBS), leading to lower reported capital ratios. In July 2015, APRA published a study that compa
Slide 90: Optimising returns by actively managing capital
CAPITAL Optimising returns by actively managing capital For personal use only Ordinary equity1 ($bn) Actively managing returns • FY16 ROE decreased due to the significant capital raised during 0.3 0.6 58.1 calendar year 2015. Average ordinary equity (AOE) rose 3% over 3.5 0.4 0.2 57.2 the half and 1
Slide 91: Stable sources provide 85% of all funding
FUNDING & LIQUIDITY Stable sources provide 85% of all funding For personal use only Key liquidity and funding ratios ($m) Mar-16 Sep-16 Funding composition by residual maturity (%) HQLA1 66.2 69.4 6 Wholesale Primarily NCDs and long term to CLF2 58.6 58.6 7 onshore <1yr short term scroll7 Total LCR
Slide 92: Targeting a diversified funding base
FUNDING & LIQUIDITY Targeting a diversified funding base For personal use only Australian covered bond issuance5 FY16 new term issuance composition1 (%) ($bn) Charts do not add to 100 due to rounding. Remaining capacity By type By tenor 2,3 By currency (8% cap & over-collateralisation) 4 3 Outstandi
Slide 93: Divisional results
For personal use only Divisional results Westpac Banking Corporation ABN 33 007 457 141. Financial results based on cash earnings unless otherwise stated. Refer page 36 for definition. Results principally cover the FY16 and FY15 years, including 2H16 and 1H16. Comparison of 2H16 versus 1H16 (unless
Slide 94: Consumer Bank disciplined 2H16 result
CONSUMER BANK Consumer Bank disciplined 2H16 result For personal use only Cash earnings ($m) Key financial metrics Change Volume growth and Lower operating expenses 2H15 1H16 2H16 on 1H16 mortgage price changes, with productivity offsetting partly offset by competition run cost increases and Revenue
Slide 95: Consumer Bank consistently delivering
CONSUMER BANK Consumer Bank consistently delivering For personal use only Revenue ($m) Core earnings ($m) Cash earnings ($m) 4,051 2,418 3,970 2,333 1,537 3,776 2,198 1,444 1,380 3,560 2,025 1,240 1H15 2H15 1H16 2H16 1H15 2H15 1H16 2H16 1H15 2H15 1H16 2H16 Loans ($bn) and customer deposit to Expense
Slide 96: Business Bank delivered a solid FY16 result
BUSINESS BANK Business Bank delivered a solid FY16 result For personal use only Cash earnings ($m) Key financial metrics Change AIEA up 2%, margin down 2H15 1H16 2H16 on 1H16 1bp, pricing changes to Increased business lending was offset Revenue ($m) 2,443 2,512 2,551 2% investment by increased fundi
Slide 97: Business Bank: Sound fundamentals, trending positively
BUSINESS BANK Sound fundamentals, trending positively For personal use only Revenue ($m) Core earnings ($m) Cash earnings ($m) 1,651 1,017 2,551 1,616 1,011 2,512 1,541 1,563 988 962 2,443 2,392 1H15 2H15 1H16 2H16 1H15 2H15 1H16 2H16 1H15 2H15 1H16 2H16 Loans ($bn) and customer deposit to Expense t
Slide 98: BTFG franchise, impacted by challenging environment
BTFG franchise, impacted by challenging environment For personal use only Cash earnings movement FY15 ─ FY16 ($m) Key financial metrics Increased lending FX impacts Change on and improved Ascalon FY14 FY15 FY16 FY15 margins in Private Revenue ($m) 2,663 2,637 2,406 (9%) Wealth 48 (39) 36 4 (58) Expe
Slide 99: Funds management, positive flows impacted by FX movements
Funds management, positive flows impacted by FX movements For personal use only Earning drivers FUA ($bn) • Significant growth in Private Wealth BT Wrap/Asgard/Panorama Corporate Super Other • Advice income lower from reduced activity • FX movements from revaluation of Ascalon seed pool funds have a
Slide 100: Insurance, premium growth continues
Insurance, premium growth continues For personal use only Insurance premiums ($m) Insurance claims rates (%) General Insurance gross written premiums Life in-force premiums Up 9% General Insurance claims rate Life Insurance claims rates 973 62 892 927 827 51 50 49 38 34 33 34 Up 5% 246 246 245 258 1
Slide 101: WIB 2H16 cash earnings rose as impairment charges fell
WIB 2H16 cash earnings rose as impairment charges fell For personal use only Cash earnings ($m) Financial metrics Change No repeat of large single 2H15 1H16 2H16 on 1H16 Lower fee and trading name impairments income, partly offset by (occurring1H16) Revenue ($m) 1,650 1,599 1,499 (6%) higher Hasting
Slide 102: Continued discipline in managing the business
Continued discipline in managing the business For personal use only Disciplined balance sheet management Strong expense control WIB net loans and deposits ($bn) WIB expenses ($m) • Business costs more 88.4 than offset by 83.4 productivity gains 679 13 678 80.3 Deposits 669 (15) 5 76.3 75.4 • Investm
Slide 103: Consistent focus on customer service and innovation
Consistent focus on customer service and innovation For personal use only … driving Australasia’s Focus on innovation, service and digitisation… leading Institutional Bank • Delivering better service Innovation, Service and Digitisation New operating model • Introduced Digital Client Forms − Creatio
Slide 104: Maintaining asset quality in the Institutional Bank
Maintaining asset quality in the Institutional Bank For personal use only Stressed exposures as a % of TCE1 WIB coverage ratios 4.6 Impaired 4.3 90+ days past due and not impaired 2H15 1H16 2H16 Watchlist & substandard 11bps rise in stress driven . Impairment provisions 3.5 2.6 by a small number of
Slide 105: New Zealand: Core earnings up 3%, margins excl. Treasury flat
NEW ZEALAND Core earnings up 3%, margins excl. Treasury flat For personal use only Cash earnings (NZ$m) Key financial metrics Change AIEA up 6% partly offset by Increased investment in digital 2H15 1H16 2H16 on 1H16 margin, down 4bps driven by and costs of business reduced Treasury income. Revenue (
Slide 106: New Zealand: Maintaining sound results
NEW ZEALAND Maintaining sound results For personal use only Revenue (NZ$m) Core earnings (NZ$m) Cash earnings (NZ$m) 658 468 1,106 1,106 634 644 445 1,082 625 437 1,058 427 1H15 2H15 1H16 2H16 1H15 2H15 1H16 2H16 1H15 2H15 1H16 2H16 Expense to income ratio (%) Loans (NZ$bn) and customer deposit Reve
Slide 107: New Zealand: Increase in stress reflects review of dairy exposures
NEW ZEALAND Increase in stress reflects review of dairy exposures For personal use only Business stressed exposures as a % of New Zealand business TCE 16.2 15.6 Property Watchlist & substandard 13.2 90+ day past due not impaired Manufacturing Impaired 16 9 6 3 Agriculture, 14.4 12.8 forestry & fishi
Slide 108: New Zealand: Consumer asset quality in good shape
NEW ZEALAND Consumer asset quality in good shape For personal use only Movement in impairment charges (NZ$m) Unsecured consumer 90+ day delinquencies (%) 1.5 Up $41m 39 (2) 50 1.0 0.5 16 5 (1) 0.48 9 0.0 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13 Mar-14 Sep-14 Mar-15 Sep-15 Mar-16 Sep-1
Slide 109: Economics
For personal use only Economics Westpac Banking Corporation ABN 33 007 457 141.
Slide 110: More than mining, the Australian economy is diverse and flexible
Snapshot More than mining, the Australian economy is diverse and flexible For personal use only Australian economy key statistics Australia’s economy is diversified and flexible (latest available as at 2 November 2016) Sector contribution to GDP (%)1 Australian employment by sector 2015/16 (%) GDP 3
Slide 111: Australian and New Zealand economic forecasts
Australian and New Zealand economic forecasts For personal use only Calendar year Key economic indicators1 (%) as at October 2016 2014 2015 2016f 2017f World GDP 3.4 3.1 3.2 3.4 Australia GDP 2.7 2.4 2.9 3.0 Private consumption 2.8 2.8 2.7 3.0 Business investment2,3 -4.2 -9.2 -9.2 -4.5 Unemployment
Slide 112: Australian economy outlook sound, though some soft spots
Australian economy outlook sound, though some soft spots For personal use only Economy continues to grow AUD close to post float average Non-mining economy advancing Real GDP growth (%) AUD/USD actual & forecast Employment (# ’000) 1.20 ‘000 Household services % growth, year-ended 700 Business servi
Slide 113: Service exports performing strongly
Service exports performing strongly, supported by ‘consumer’ China For personal use only • International trade in services is contributing Service exports ($bn) Education to the rebalancing of growth in Australia $bn ’000 Commencements, ’000 • Service exports represent 4% of GDP and Rolling annual,
Slide 114: Australian labour market
Australian labour market Widening of employment gains to more sectors For personal use only Australia: more than just mining Australia: employment by sector (annual change, ’000) Sector contribution to GDP (%)1 2 Health & education Mining 4 11 Manufacturing Construction Leisure & hospitality 13 7 Tr
Slide 115: NSW and Victoria performing strongly; weakness in WA
NSW and Victoria performing strongly; weakness in WA For personal use only Australian population by State (#m) Domestic final demand (% ann) mn % ann Jun-15 yr Jun-16 yr 7.7 • Total population: 24.1 million (Mar 2016) 6 8 3.6 3.8 3.4 3.5 7 • 57% of the population live in 2 states – 4 6.0 NSW and Vic
Slide 116: Australian state economies
Australian state economies For personal use only WA QLD POPULATION POPULATION 2.6 million 4.8 million SIZE OF ECONOMY SIZE OF ECONOMY 17% of Australian GDP 19% of Australian GDP GROWTH GROWTH 1.0% forecast for 2015/16 2.5% forecast for 2015/16 1.1% forecast for 2016/17 4.0% forecast for 2016/17 HOUS
Slide 117: 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 25 Forecasts end 2017 120 20 20 2
Slide 118: Australia's high rise apartment market
Australia’s high rise apartment market For personal use only • Construction in Australia has responded to low rates and the end of the Population versus dwelling stock mining boom (annual average change ‘000) • A pick-up in apartment construction in recent years will see a large Population New 'high
Slide 119: 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 120: House price growth and activity
House price growth and activity Some moderation, geographic differences For personal use only % Change Year Average Capital city dwelling prices – growth rates (%) Capital city Population on Year (Oct-16) since 2007 % Sydney 4.9m Up 9.7% Up 7.3% 30 * 6mth annualised growth rates, all dwellings, comp
Slide 121: 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 returns compared to other asset ($bn/mth) classes, and low interest rates, including low f
Slide 122: 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 debt net of all 60 60 total debt n
Slide 123: New Zealand economy
123 New Zealand economy For personal use only Key economic statistics FY15 FY16f Change NZD/USD, NZD/AUD and TWI 1.00 90 GDP annual average growth 2.9% 3.2% 30 bps 85 0.90 80 0.80 75 Inflation rate 0.4% 0.2% (20 bps) 70 0.70 65 Official cash rate (OCR) 3.0% 2.0% (100 bps) 60 0.60 Westpac 55 NZD/USD
Slide 124: Conditions are improving for the dairy sector
124 New Zealand economy Conditions are improving for the dairy sector For personal use only • Global dairy prices have improved significantly in recent months as Dairy payout and dividend1 fundamentals have shifted in favour of dairy producers • The sustained period of lower prices has led to milk s
Slide 125: Housing market trends prompt policy response
125 New Zealand economy Housing market trends prompt policy response For personal use only • House prices have been rising at a rapid pace, including strong growth in New Zealand house prices by region (index) many regions outside of Auckland. This has been encouraged by record low interest rates. I
Slide 126: Appendix & Disclaimer
For personal use only Appendix & Disclaimer Financial results based on cash earnings unless otherwise stated. Refer page 36 for definition. Results principally cover 1H16 and 2H15. Comparison of 1H16 versus 2H15 (unless otherwise stated)
Slide 127: Appendix 1: Cash earnings adjustments
Appendix 1: Cash earnings adjustments For personal use only 2H15 1H16 2H16 Cash earnings adjustment Description $m $m $m Reported net profit 4,403 3,701 3,744 Net profit attributable to owners of Westpac Banking Corporation During Second Half 2015 the Group recognised a significant gain following th
Slide 128: Appendix 2: Definitions
Appendix 2: Definitions For personal use only Westpac’s divisions Westpac’s divisions BT Financial Group (Australia) (BTFG) is the wealth management and Consumer Bank (CB) is responsible for sales and service to consumer insurance arm of the Westpac Group providing a broad range of associated custom
Slide 129: Appendix 2: Definitions (continued)
Appendix 2: Definitions (continued) For personal use only Capital and asset quality Asset quality Capital ratios As defined by APRA (unless stated otherwise) 4. other assets acquired through security enforcement (includes other real The internationally comparable common equity Tier 1 (CET1) capital
Slide 130: Appendix 2: Definitions (continued)
Appendix 2: Definitions (continued) For personal use only Asset quality (continued) & financial performance Other Loans not found to be individually impaired or significant will be collectively assessed in pools of similar assets with similar risk characteristics. The size of the provision is an est
Slide 131: Appendix 2: Definitions (continued)
Appendix 2: Definitions (continued) For personal use only Other Other Source: DBM Consultants Business Financial Services Monitor, September Customer 2014 - 2016, 6MMA. MFI customers, SME businesses. The Customer Data based on Roy Morgan Research, Respondents aged 14+ and 12 month satisfaction – Sat
Slide 132: Investor Relations Team
Investor Relations Team For personal use only Equity Investor Relations www.westpac.com.au/investorcentre Andrew Bowden Nicole Mehalski Head of Investor Relations Director +61 2 8253 4008 +61 2 8253 1667 andrewbowden@westpac.com.au nicole.mehalski@westpac.com.au Debt Investor Relations Jacqueline Bo
Slide 133: 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