Westpac Banking Corporation · ASX:WBC
Westpac Banking — Debt Investor Presentation (May 2014)
64 slides from Westpac Banking's debt investor presentation, May 2014
Slide 1: Westpac Fixed Income Investor Presentation
WESTPAC FIXED INCOME INVESTOR PRESENTATION FOR THE SIX MONTHS ENDED 31 MARCH 2014 UNLESS OTHERWISE STATED EUROPEAN ROADSHOW MAY 2014
Slide 2: Disclaimer
Disclaimer The material contained in this presentation is intended to be general background information on Westpac Banking Corporation (“Westpac”) and its activities. It does not constitute a prospectus, offering memorandum or offer of securities. It should not be reproduced, distributed or transmit
Slide 3: Index
INDEX 1H14 HIGHLIGHTS 4 AUSTRALIAN HOME LENDING 20 ECONOMICS 28 SECURED FUNDING 40 ADDITIONAL INFORMATION 50 APPENDICES 60
Slide 4: Another quality financial performance from Westpac
Another quality financial performance from Westpac % Change Strong financial performance Net interest margin (%) 1H14 Cash earnings results 1H14 1H14 – 1H13 Cash earnings g ($m) ($ ) NIM Financial results (A$m) NIM excl. Treasury and Markets 3,772 Cash earnings 3,772 8 3,508 3,555 Reported net profi
Slide 5: Westpac has clear strategic priorities, managed in a balanced way
Westpac has clear strategic priorities... Remain strong ...managed in a balanced way T Targeted t d growth th Strength Return A strong company Maintain discipline Capital within Maintain strong ROE preferred range Maintain dividend path Target stable funding Customer relationships ratio >75% Product
Slide 6: Strategy delivering growth in targeted areas
Strategy delivering growth in targeted areas Aust. housing growth vs system (times) Customer deposits ($bn) Customer numbers (#m) Westpac RBB St George St.George 0.9x 383 389 0.8x 0.8x 348 360 6.13 6.17 6.22 0.7x 3 22 3.22 3 26 3.26 3.55 3Q13 4Q13 1Q14 2Q14 2H12 1H13 2H13 1H14 1H13 2H13 1H14 FUA2 an
Slide 7: Strong portfolio of brands
Strong portfolio of brands All comparisons to 1H13 Westpac Retail & Business • 1H14 cash earnings $1,251m Contribution to Cash Earnings (%) Banking • Up 10% on 1H13 Australian retail and business Westpac Retail & ncial Servicess • Strong franchise; lending up 4%, Business Banking banking for consume
Slide 8: Improving balance sheet momentum
Improving balance sheet momentum Australian private sector credit growth (% ann) Net loans ($bn) Housing Total credit Business 25 11 6 565 7 4 f/cs 16 20 521 end 15 '15 10 5 Up 8% 0 -5 1H13 Aust. Aust. Aust. NZ (A$) Overseas 1H14 -10 Housing Business Personal & J 94 Jan-94 J 98 Jan-98 J 02 Jan-02 J
Slide 9: Setting Westpac apart – domestic focus, efficiency and balance sheet strength
Setting Westpac apart – Domestic customer focus,, efficiencyy and balance sheet strength g Clear focus on Australia and New Zealand Brands supporting targeted growth Wealth penetration2 leads sector (%) Total income by geography1 (%) Australian Financial Services Brands rank #1 and # 3 2 4 Asia, Pac
Slide 10: CET1 ratio at the upper end of global peers
Fully harmonised common equity tier 1 capital ratio at the upper end of global peers Global peer comparison of Basel III pro-forma common equity tier 1 capital ratios1 (%) 15.0 14.7 13.9 13.6 12.8 11.9 11.9 11.8 11.4 11.3 11.1 10.9 10.7 10.5 10.5 10.5 10.4 10.4 10.4 10.3 10.3 10.0 10 0 9.8 9.7 9.7 9
Slide 11: Capital strength maintained
Capital strength maintained1 Key capital ratios (%) Mar-13 Sept-13 Mar-14 Common equity tier 1 capital ratio (% and bps) q y tier 1 capital Common equity p ratio 8.7 9.1 8.8 40 11.26 Additional tier 1 capital 2.1 1.6 1.5 73 24 107 Tier 1 capital ratio 10.8 10.7 10.3 8.82 Tier 2 capital 1.7 1.6 1.8 T
Slide 12: Capital well positioned for D-SIB capital requirement
Capital well positioned for D-SIB capital requirement • On 23 December 2013, APRA issued an information paper which Westpac’s capital base – Identified the four major Australian banks as domestic systemically important banks (D-SIB) – Provided detail of the additional higher loss absorbency requirem
Slide 13: Asset growth funded through stable sources
Asset growth funded through stable sources • Stable Funding Ratio 83% at 1H14, down 45bps (up 24bps Funding composition by residual maturity (%) 1H13/1H14) – G Growth th in i ffunding di ththrough h stable t bl sources off customer t d deposits it and term wholesale funding Stable Funding Ratio 64%
Slide 14: Strong liquidity position maintained
Strong liquidity position maintained • $127bn in unencumbered liquid assets held at 31 March 2014 Liquid assets ($bn) – Securities are eligible for repo with a central bank and proposed Committed Liquidity Facility (CLF) 127 Self securitisation 126 – Sufficient to cover all short term debt outstandi
Slide 15: New term issuance well diversified
New term issuance well diversified Term debt issuance and maturity profile1,2 ($bn) Lowest short term funding of peers Covered Bond Hybrid Senior Govt Guaranteed Sub Debt Short term funding g3,4 ($ ($bn)) Short term funding to total funding including equity3,4 (%) 45 43 Issuance Maturities 24 33 21
Slide 16: Significant improvement in asset quality
Significant improvement in asset quality Stressed exposures as a % of TCE1 (%) and provisions ($m) Stressed exposures by industry ($bn) Impaired (lhs) 1H13 2H13 1H14 4.5 90+ days past due well secured (lhs) Watchlist & substandard (lhs) 4.0 IAP (rhs) 3.5 4.0 Total Provisions (rhs) 5,500 CAP (inc. ec
Slide 17: Australian mortgage delinquencies at low levels
Australian mortgage delinquencies at low levels Delinquencies Australian mortgages delinquencies and loss rates (%) • Sustained period of low interest rates and a continued conservative 90+ Past Due Total 90+ First Home Buyer approachh to t debt d bt b by b borrowers h has supported t d very strong
Slide 18: High quality Australian mortgage portfolio
High quality Australian mortgage portfolio 1H13 2H13 1H14 1H14 Australian housing loan-to-value (LVR) ratios (%) Australian housing portfolio Balance Balance Balance Flow1 100 1H14 drawdowns LVR at origination T t l portfolio Total tf li ($bn) ($b ) 321 9 321.9 328 5 328.5 338 0 338.0 33 1 33.1 90 P
Slide 19: Mortgage customers continuing to repay ahead of schedule
Mortgage customers continuing to repay ahead of schedule • Australian mortgage customers continue to display a cautious Australian home loan customers ahead on repayments1,2 (%) approach to debt levels, taking advantage of historically low mortgage Mar-13 rates to pay down debt Sep-13 exc. mortgage
Slide 20: Australian Home Lending
AUSTRALIAN HOME LENDING
Slide 21: Housing activity responding to lower rates
Housing activity responding to lower rates Housing finance approvals: value of housing finance ($bn/mth) Housing credit: rate cut cycles compared (index) 'upgraders' upgraders , ex-refinancing ex refinancing investor finance first home buyers current 2008 09 2008-09 2001 02 2001-02 1996 97 1996-97 A
Slide 22: Australian housing market fundamentals sound
Australian housing market fundamentals sound Rental vacancy rates (%) Population versus dwelling stock (annual average change ‘000) Australia Sydney Melbourne population dwelling stock* stock % % ’000 6 6 400 * net of demolitions – implied by Census data to 2006; Westpac 350 investor 5 5 housing 300
Slide 23: A more cautious approach to household leverage
A more cautious approach to household leverage by Australian households Australian households: debt to income ratio (%) Pressure easing on existing borrowers (%) accumulated savings since Jun Jun-07 07 debt serv ratio (mortgagors (mortgagors, lagged 6mths, 6mths rhs) arrears rate (lhs) (lhs)* total
Slide 24: Australian mortgage market features underpin asset quality
Australian mortgage market features underpin asset quality Australian mortgage market Australian bank mortgage market share1 (%) Market share j banks dominate - 84% share held • 4 major • Major banks have a lower share of low doc market, with 16% low flow in this segment over recent years Westpac (i
Slide 25: Australian investment property portfolio performing well
Australian investment property portfolio performing well • Investment property loans (IPLs) 44% of Loan-to-value ratio at origination1 (%) Applicants by gross income band1 (%) Westpac’s Australian mortgage portfolio • 46% of IPL loans originated at 75-80% LVR, LVR to 50 Owner Occupied p IPL 25 Owner
Slide 26: Lenders mortgage insurance managing risk transfer
Lenders mortgage insurance managing risk transfer • Lenders mortgage insurance (LMI) provides benefits to the Westpac Group Lenders mortgage insurance structure at 31 March 2014 – Risk transfer / loss mitigation LVR ≤80% and Low Doc – Improvement in the quality of risk acceptance via the additional
Slide 27: Mortgage portfolio stress testing outcomes
Mortgage portfolio stress testing outcomes • Westpac regularly conducts a range of portfolio stress tests as part Australian mortgage portfolio stress testing as at 31 March 2014 of its regulatory and risk management activities • The A Th Australian t li mortgage t portfolio tf li stress t testing t
Slide 28: Economics
Wifestpac cr ECONOMICS Alfestpac HBankSA ¥#st.george SBT FinanciaiGroup RAMS Melbourne
Slide 29: Australian and New Zealand economic forecasts
Australian and New Zealand economic forecasts Calendar year Key economic indicators1 (%) as at April 2014 2012 2013 2014f 2015f World GDP 3.2 2.9 3.2 3.8 Australia GDP 3.6 2.4 2.7 3.0 Private consumption 2.5 2.0 3.0 3.2 B i Business iinvestment t t2,3 23 16 4 16.4 –2.3 23 –4.0 40 –3.0 30 Unemploymen
Slide 30: Australia remains well-placed relative to developed economies
Australia remains well-placed relative to developed economies Net public debt levels as a % of GDP 2012 Real GDP growth (%) 120 % Australia UK Canada US Euro 100 Australian Government % growth, year-ended 80 including 6 60 2014/15 forecasts 40 4 20 0 Italy Aus Canada France Spain Germany NZ UK US 2
Slide 31: Australia's economic transition from mining to non-mining
Australia’s economic transition from mining to non-mining Australian growth mix: Contributions to GDP growth (%) Investment: share of Australian economy (% of GDP) 2012 2013 2014f 2015f mining CAPEX mining, housing investment ppts ann% % of GDP % of GDP business investment (ex mining) 4 4 14 14 f/cs
Slide 32: Commodity cycle evolves
Commodity cycle evolves Committed Australian projects and mining investment ($bn) Commodity prices (index) committed itt d investment i t t (lhs) (lh ) bulks* (lhs) exchange traded* (rhs) $bn BREE* most likely projection $bn index index 300 120 mining capital expenditure (rhs) 680 Westpac forecasts
Slide 33: Cash rate expected to remain stable at 2.50%; AUD expected to trend lower
Cash rate expected to remain stable at 2.50%; AUD expected to trend lower over medium term Major countries’ policy rates (%) Australian dollar (AUD/USD) Australia UK Canada US Euro fair value band* band AUD/USD actual & forecast % USD USD 8 1.20 1.20 *based on commodity prices, 2yr swap spread, Fore
Slide 34: Labour market showing some signs of improvement
Labour market showing some signs of improvement in early 2014 Unemployment rates (%) Cumulative change in industry employment (‘000) household services mining Australia Canada UK US Euro 000 ‘000 construction goods distribution 500 % 400 14 300 200 100 12 0 -100 10 -200 Mar 09 Mar-09 Mar 10 Mar-10 M
Slide 35: Credit growth picking up at a modest pace
Credit growth picking up at a modest pace Business confidence and consumer confidence (net balance) Australian private sector credit growth (% ann) Consumer (lhs) Business * (rhs) Housing Total credit Business net bal. net bal. % ann % ann 25 25 monthly f/cs 130 30 end '1 '15 20 20 120 20 15 15 110
Slide 36: Chinese growth remains a positive for Australia
Chinese growth remains a positive for Australia • As a $US7 trillion economy, China grew at 10%. As a $US10 trillion Real GDP %ann 2012 2013 2014f 2015f economy, Westpac expects China to grow at 7% China 7.7 7.7 7.3 7.6 • Represents an equivalent incremental contribution to global absorptive capacit
Slide 37: Chinese growth remains a positive for Australia
Chinese growth remains a positive for Australia China’s share of selected elements of world activity (%) % 1980 2000 2010 25 20 15 10 5 0 Household Gross fixed Exports 1 Imports 1 Manufacturing Construction Services value PPP GDP Nominal USD CO2 emissions 2 Energy use 3 consumption capital formation
Slide 38: A strong economic picture in New Zealand
A strong economic picture in New Zealand • The New Zealand economy is experiencing a strong upturn driven New Zealand GDP growth and forecast (%) by earthquake-related construction activity, last year’s rise in house % % prices a four decade high in the terms of trade prices, trade, and buoyant 7 7
Slide 39: New Zealand housing market beginning to slow
New Zealand housing market beginning to slow • House price inflation peaked at 10% in 2013, but is now slowing. New Zealand house price inflation (annual %) Westpac is forecast 5.5% house price inflation in 2014, and 1% in ann % ann % 2015 2015. 30 30 • Since 1 October 2013 the Reserve Bank has requ
Slide 40: Secured Funding: Covered Bonds and Securitisation
SECURED FUNDING COVERED BONDS AND SECURITISATION
Slide 41: Covered bonds offer diversity
Covered bonds offer diversity • Westpac issues covered bonds through its US$40bn covered bond Covered pool highlights (as at 31 March 2014) programme Total p pool loan balance A$25,338,692,789 – Westpac W t also l maintains i t i RCB/N-bond RCB/N b d capability bilit Average loan size A$240,956 – We
Slide 42: Westpac Covered Bond Programme
Westpac Covered Bond Programme Issuer Westpac Banking Corporation Issuer rating AA-/Aa2/AA- by S&P / Moody’s / Fitch Format Legislative Covered Bond Covered Bond rating Aaa / AAA by Moody’s / Fitch Programme size US$40 billion M t it options Maturity ti S ft and Soft d Hard H dB Bullet ll t Covered
Slide 43: Programme features
Programme features Covered Bonds are issued by Westpac, backed by an unconditional and irrevocable guarantee by the Covered Structure Bond Guarantor (the “CBT Guarantor”), which is limited in recourse to the assets in the Westpac Covered Bond T t Trust Security comprises a pool of Australian residen
Slide 44: Westpac cover pool
Westpac cover pool Covered Bond Pool eligibility criteria Covered pool loan statistics as at 31 March 2014 At the time of sale, each loan: Total pool loan balance1 A$25 A$25,338,692,789 338 692 789 • Is denominated and payable only in AUD in Australia • Is secured by a mortgage that constitutes a fi
Slide 45: Cover pool statistics as at 31 March 2014
Cover pool statistics as at 31 March 2014 Loan to value ratio by balance (%) Geographic distribution by state 40 Current LVR (unindexed) Current LVR (indexed) 30 20 Northern Territory $258.0m, Queensland 10 1.0% $3,466.0m, 13.6% Western Australia $3,309.8m, 13.1% South Australia 0 0 50% 0-50% 50 55%
Slide 46: Cover pool statistics as at 31 March 2014 (cont.)
Cover pool statistics as at 31 March 2014 (cont.) Mortgage principal balance distribution Interest rate split (%) % of pool (lhs) Number of loans (rhs) 30 30,000 18.6 25 25,000 20 20,000 15 15,000 Fixed 10 10 000 10,000 Floating 5 5,000 - - 0-100K 100-200k 200-300k 300-400k 400-500k 500-750k m - 1.5
Slide 47: Securitisation an important part of the Group's funding
Securitisation an important part of the Group’s funding • Securitisation is an important part of the Westpac has been a consistent RMBS issuer Group’s funding – A$11 A$11.5bn 5bn in outstanding issuance at 31 Original RMBS and ABS issuance by calendar year (A$bn) March 2014, represents 2% of the Gro
Slide 48: WST RMBS performance
WST RMBS performance Key pool comparison statistics (issuance) High quality product WST WST WST WST WST WST WST 2013-2 2013-1 2012-1 2011-3 2011-2 2011-1 2009-1 All WST transactions backed by prime Pricing Date Sep-13 Feb-13 May-12 Oct-11 Jun-11 Feb-11 Dec-09 residential mortgages Tranche A A A A
Slide 49: Crusade ABS transaction comparison
Crusade ABS transaction comparison • Crusade ABS – 100% auto receivables • Credit enhancement in excess of minimum required by rating agencies • Long seasoning • 12 month revolving period Deal Crusade ABS 2013-1 Crusade ABS 2012-1 SMART 2013-3 REDS 2013-1 EHP Bella 2012-1 (Issue Date) (Dec 13) (Dec
Slide 50: Additional Information
Wifestpac ADDITIONAL INFORMATION Alfestpac HBankSA ¥#st.george SBT FinanciaiGroup RAMS Melbourne
Slide 51: Limited asset encumbrance
Limited asset encumbrance • Westpac has limited asset encumbrance Westpac’s asset encumbrance • Covered bond capacity has legislated cap in Australia and New Zealand 100% 100.0% – In Australia, capped at 8% of 90% 90.0% Australian assets, providing $48bn total capacity (including 80% 80.0% overcolla
Slide 52: Tier 2 Capital comparison
Tier 2 Capital comparison Characteristic Basel III compliant Tier 2 Old-style Tier 2 (specifically Lower Tier 2) Ab Absorb b losses l on a "gone " concern" basis Gone concern capital Gone concern capital Non-discretionary, Must pay securities subject to solvency tests; deferred Must pay securi
Slide 53: Tier 2 Capital comparison by region
Tier 2 Capital comparison1,2 US Canada UK Scandinavia Australia Senior to Senior to Additional Senior to Additional Senior to Additional Senior to Additional Ranking Tier 1 Capital Tier 1 Capital Tier 1 Capital Tier 1 Capital Tier 1 Capital Step-ups Not permitted Not permitted Not permitted Not perm
Slide 54: High quality portfolio with bias to secured consumer lending
High quality portfolio with bias to secured consumer lending Asset composition as at 31 March 2014 (%) Cash and balances with central banks Total assets On balance sheet lending Receivables due from other financial institutions Trading securities, financial assets at fair value and 4 Housing availab
Slide 55: Diversification across industries and large exposures
Diversification across industries and large exposures Exposures at default1 by sector ($m) Top 10 exposures to corporations and NBFIs6 as a % of TCE5 (%) Finance & insurance 2 Largest corporation/NBFI single name exposure represents less than 0.2% of TCE 3 Property 2.0 2.0 1.9 Wholesale & Retail Tra
Slide 56: Commercial property portfolio performing well
Commercial property portfolio performing well Commercial property exposures size ($bn) and % of TCE Commercial property portfolio by sector and region (%) 18 Commercial property exposure ($bn) 9.6 10 9 16 9.1 Commercial Property as % of TCE 10 17 17 8.0 4640 10 7.7 7.1 6.7 54 55 6.9 6.8 6.7 6.6 8 12
Slide 57: Australian unsecured lending portfolio performing well
Australian unsecured lending portfolio performing well • Unsecured consumer asset quality has Australian unsecured lending 90+ days delinquencies (%) remained strong as continuing low interest rates have assisted debt serviceability and C dit cards Credit d P Personal l lloans ((excll A Auto t LLoan
Slide 58: Wholesale funding portfolio
Wholesale funding portfolio • Westpac’s wholesale funding strategy is focused on diversity and Wholesale funding composition1 as at 31 March 2014 (%) flexibility • Able Abl tto iissue iin a b broad d range off fformats, t ttenors and d currencies, i 0 including covered bonds 2 3 • Westpac is the onl
Slide 59: Westpac – Australia's First Bank
Westpac – Australia’s First Bank Westpac’s leading suite of brands and divisions Westpac balance sheet as at 31 March 2014 (A$) Total assets $734.2bn A t li Financial Australian Fi i l Services S i Net loans $564.6bn Westpac Retail & St.George BT Westpac Westpac Westpac Business Banking Banking Fina
Slide 60: Appendix 1: Cash earnings adjustments
Appendix 1: Cash earnings adjustments Cash earnings adjustment (A$m) 1H14 2H13 1H13 R Reported t d NPAT 3 622 3,622 3 464 3,464 3 287 3,287 TPS revaluations - 1 8 Treasury shares 13 13 29 Ineffective hedges 17 3 (23) Fair value gain/(loss) on economic hedges 46 (36) 57 Buyback y of government g g gu
Slide 61: Appendix 2: Cash earnings adjustments by segment
Appendix 2: Cash earnings adjustments by segment Westpac BT St.George Westpac Retail & Financial New Pacific Group 1H14 Segment Results (A$m) Banking Institutional Group Business Group Zealand Banking Businesses Group Bank Banking (Australia) Reported NPAT 1,251 713 427 752 393 65 21 3,622 TPS reval
Slide 62: Appendix 3: CET1 APRA to BCBS Basel III reconciliation
Appendix 3: CET1 APRA to BCBS Basel III reconciliation • APRA has maintained the conservative stance adopted under its Basel II capital standards, resulting in a significant variance between capital measured under APRA and fully harmonised Basel III • Key differences in the calculation of CET1 capit
Slide 63: Appendix 4: Definitions
Appendix 4: Definitions Financial performance Asset quality Core earnings Operating profit before income tax and impairment charges Stressed Stressed loans are Watchlist and Substandard, 90 days past due well loans secured and impaired assets AIEA Average interest earning assets Impaired assets can
Slide 64: Contacts
Contacts For further information For further information go to: www.westpac.com.au/investorcentre Curt Zuber Treasurer, Westpac Banking Corporation and click on ‘Fixed income investors’ +61 2 8253 4230 or visit our Bloomberg page ‘WBCT’ czuber@westpac.com.au Joanne D J Dawson Deputy Treasurer, Westp
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