Westpac Banking Corporation · ASX:WBC
Westpac Banking — Debt Investor Presentation (May 2006)
78 slides from Westpac Banking's debt investor presentation, May 2006
Slide 1: Westpac Banking Corporation – Westpac at a glance
Westpac Banking Corporation Curt Zuber, Group Treasurer May 2006 Westpac at a glance • Established 1817 31 March 2006 • Top 40 bank globally1 A$ 1,511 million • Broad business mix Cash earnings € 888 million - Australian retail bank (BCB) - New Zealand retail bank Tier 1 ratio 6.8% - Institutional b
Slide 2: Notes
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Slide 3: Long run consistency in growth and returns; a solid first half
Long run consistency in growth and returns Cash earnings (A$m) Prior AGAAP A-IFRS 5 year 1,600 CAGR 1H06 AGAAP* A-IFRS Cash earnings 11% 12% 1,200 Cash EPS 11% 12% Cash ROE 21% 23% 800 (5 year avg) Economic profit 13% 16% 400 Revenue 8% 10% Expenses 4% 3% 0 2H 0 00 2H 1 1H 1 02 1H 2 03 1H 3 04 1H 4
Slide 4: Notes
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Slide 5: Australian retail and BT leading the growth
Australian retail and BT leading the growth Cash earnings (A$m) Growth Composition of cash earnings 1H05 – Other 1H06 (%) 4% BCB 12% BTFG 11% BCB Consumer 27% BT 20% New Zealand 14% Institutional WIB (1)% BCB Bank 16% Business 29% NZ 1H05* (NZ$) 4% 1H06 Total Business and Consumer Banking (BCB) -100
Slide 6: Notes
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Slide 7: Asset growth driving net interest income; loan growth
Asset growth driving net interest income • Fully adjusted1 net interest Net interest income analysis ($m) income increased 6% 3,000 65 • Solid balance sheet growth 178 (38) 2 17 57 with improving momentum: 2,800 - 8% growth in adjusted average interest earning assets 2,600 136 • Adjusted margin 5 bp
Slide 8: Notes
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Slide 9: Australian mortgage portfolio
Australian mortgage portfolio Australian Mortgage Portfolio ($bn) Proportion Mortgage insurance structure of total 110 Proportion of portfolio with initial LVR > 80% Owner occupied 100 14% Investment 14 Equity Access 14 85% 90 12 13 100% 11 Westpac Lenders 80 10 15% Mortgage Insurance 70 7 39 37% 5
Slide 10: Notes
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Slide 11: Analysis of margin movements; group margin and spread trends
Analysis of margin movements Group margins 1H05 – 1H06 (%) • Adjusted margin decline 2.5 5bps 2.44% (1bps) • Major impacts on (9bps) margins: 1bps 2.4 5bps 2.39% 2.40% - Treasury +2bps - Financial markets +5bps - NZ Structured Fin -3bps 2.3 • Amending for these items the margin decline is consistent
Slide 12: Notes
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Slide 13: Non-interest income analysis; expense to income
Non-interest income analysis Non-interest income movement 1H05 – 1H06 ($m) 2000 58 (43) 1900 1,834 (13) 85 (133) 1800 4 46 48 1,703 1700 43 1,604 4 1600 1500 1400 1H05 Accounting Financial BTFG Cards High Yield Other Adjusted Policy- 2003 TPS Treasury AASB 1H06 reclass. Markets Securities & 1H06 hol
Slide 14: Notes
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Slide 15: Strong capital generation; asset quality remains sound
Strong capital generation Capital ratios and target ranges (%) • $580m in capital generated 8.0 over half ACE Tier 1 7.0 • Capital ratios above target 6.0 ranges at 31 March 06: 5.0 - ACE ratio of 5.1% 4.0 - Tier 1 ratio of 6.8% Mar- Sep- Mar- Sep- Mar- Sep- Mar- Sep- Mar- Sep- Mar- 01 01 02 02 03 0
Slide 16: Notes
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Slide 17: Reduced single name concentrations; mortgage portfolio quality
Reduced single name concentrations Top 10 exposures to corporations and NBFIs – Top 10 exposures as a % of total committed March 2005 exposure S&P Rating or equivalent 3.0% Total exposure of AAA Top 10 = $5.4bn 2.5% 31 Mar 2006 BBB+ A- 2.0% BBB A- 1.5% A+ A+ 1.0% BBB+ A- 0.5% BBB 0.0% $m 0 200 400 6
Slide 18: Notes
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Slide 19: Forward credit indicators; economic outlook
Forward credit indicators Consumer unsecured - 90 day delinquencies (%) Housing - 90 day delinquencies (%) 1.5 1.0 1.07 0.96 Housing 1.02 0.90 0.89 1.0 0.82 10 year average 0.71 0.63 0.5 0.26 0.25 0.23 0.24 0.5 0.15 0.15 0.16 0.20 Consumer unsecured 10 year average 0.0 0.0 1999 2000 2001 2002 2003 2
Slide 20: Notes
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Slide 21: Credit growth expected to edge lower; strong growth platform
Credit growth expected to edge lower Australian and New Zealand credit growth (%) Forecasts (To Dec 2007) 24 24 20 20 16 16 12 12 8 8 4 4 0 0 -4 -4 Jun-99 Dec-00 Jun-02 Dec-03 Jun-05 Dec-06 Aust. Housing Aust. Business Total credit (Aust) Total credit avg (Aust) Total housing avg (Aust) Total credit
Slide 22: Notes
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Slide 23: Strategic funding approach; diversified funding franchise
Strategic funding approach • Raise efficiently priced funds within prudent liquidity limits, Objective simultaneously building capacity ahead of balance sheet needs • Well timed deals driven by investor demand • Responsible pricing and realistic volume expectations • Lead Manager(s) selected on mark
Slide 24: Notes
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Slide 25: Funding expectations for 2006 onwards; global funding contacts
Funding expectations for 2006 onwards • Maintain outstandings in short-term markets within prudent liquidity limits - Currently a top 10 bank issuer of both USCP and ECP • Maintain capacity with FRN bank investors in Europe and Asia • Build capacity in the fixed rate institutional investors in Europ
Slide 26: Notes
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Slide 27: Supplementary information; 1H06 approach to reporting
Supplementary information 1H06 approach to reporting • Financial results presented on an A-IFRS basis for the first time • Continue to focus on cash earnings • Reported accounts are appropriate for assessing cash earnings growth at both a Group and business unit level • Adjusted accounts are appropr
Slide 28: Notes
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Slide 29: Cash earnings half on half; revenue productivity
Cash earnings – half on half patterns • Movement from 2H05 to 1H06 A$m 1H 2H %2H- %1H- consistent with trend of lower 1H 2H first half earnings 2001 920 981 2.6 6.6 • Traditionally consistent pattern due to: 2002 996 1,067 1.5 7.1 - Dec/Jan being more subdued months, and less working days over the p
Slide 30: Notes
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Slide 31: Revenue quality; expense management
Revenue quality - looking beyond the top line % Change1 2H05 – 1H05 – $m 1H05 2H05 1H06 1H06 1H06 Reported operating income 4,161 4,552 4,563 0% 10% Remove AASB 132/139 68 Net accounting changes & Epic 4 (140) (2) Adjusted operating income 4,165 4,412 4,629 5% 11% Normalising NZ$ Impact2 gain / (los
Slide 32: Notes
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Slide 33: Deferred expenditure and capitalised software; investing for growth
Deferred expenditure and capitalised software Deferred expenditure ($m) Amort- isation Capitalised software - period Mar Sep Mar Other deferred major projects ($m) (years) 2005 2005 2006 2H03 expenditure Business loan 3 85 91 82 Deferred origination (Pinnacle) acquistion Institutional Bank 3 34 34 3
Slide 34: Notes
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Slide 35: Tax breakdown; A-IFRS changes to bad and doubtful debts
Tax breakdown $m 1H05 2H05 1H06 Tax expense 540 683 749 Tax expense as a % NPBT 28.6% 29.9% 33.4% Adjustments Policy holder tax recoveries (29) (59) (58) Prior period adjustments (38) 2 (3) Additional tax expense (4) (44) (61) Normalised tax expense 469 582 627 Normalised tax rate 24.9% 25.5% 28.0%
Slide 36: Notes
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Slide 37: Credit charges increasing with loan growth; portfolio composition
Credit charges increasing with loan growth Impairment losses on loans ($m) 250 Individually assessed (net of write-offs and recoveries) Collective provision 200 14 41 41 91 150 77 100 189 166 166 127 50 102 0 1H04 2H04 1H05 2H05 1H06 37 Investor Discussion Pack May 2006 Presentation Title & Date Com
Slide 38: Notes
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Slide 39: Total exposure by region; industry concentrations
Total exposure by region Exposures outside core markets represent less than 2% of total committed exposures – sub investment grade represent less than 0.2% of total exposures (excluding core markets of Australia and New Zealand) $m Australia NZ / Pacific Americas Europe Asia Group AAA to AA- 42,776
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Slide 41: Aggregate market share; Business & Consumer Banking
Aggregate market share Australian financial system market share (%) 18% 17% 16% Total credit Retail deposits 15% 14% 13% 12% 11% Source: RBA, Westpac 10% 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Australian market share – RBA financial system Mar 05 Mar 06 Mar 06 Change1 (bps)
Slide 42: Notes
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Slide 43: BCB restoring growth momentum
BCB restoring growth momentum BCB Cash Earnings (A$m) • Solid performance with volume 950 growth skewed to latest half 139 (25) 28 (52) • Strong consumer result, slower 900 in business 850 842 • All portfolios close to, or above 800 system, except SME 752 750 • Margins 11bps lower 700 • Modest expen
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Slide 45: Housing loan growth back on track; low doc lending
Housing loan growth back on track Initiative Outcome Implemented a new sales management Productivity1 increased by 31% from program, ‘Westpac Way’ March 2005 to March 2006 More active broker engagement Uplift in broker sales - averaging 38% of total drawdowns over the half Selective tactical pricing
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Slide 47: Housing market fundamentals; adjusting to May rate rise
Housing market – sound fundamentals • Housing sector was beginning to turn: Housing finance up on owner occupiers AUDbn/mth AUDbn/mth 16 16 • Housing finance for owner occupiers investor finance, ex-construction reaching new highs 12 owner-occupier finance, ex-refinancing 12 'total' finance • First
Slide 48: Notes
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Slide 49: BCB business lending; deposits market structural change
BCB business lending growing solidly Business loans and acceptances ($bn) • Growth in loans and 44 acceptances 11% on 1H05 42 40 - Strong gains in middle 38 markets 36 34 - Small business lending 32 growing slower 30 Mar-05 Jun-05 Sep-05 Dec-05 Mar-06 • Growth skewed to late in the quarter with stro
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Slide 51: Cards portfolio growing strongly; Westpac Institutional Bank
Cards portfolio growing strongly BCB credit card outstandings • Credit card balances up 14% on 1H05, growth supported by: - Improvements in cards origination platform Proprietary cards Total cards - Reinvigorated focus on proprietary channel 1H04 2H04 1H05 2H05 1H06 - Success with Low Rate card - Co
Slide 52: Notes
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Slide 53: WIB divisional performance; financial markets
WIB divisional performance WIB products by revenue contribution ($m) • Solid loan growth 15% (excluding structured finance) – margins Financing continue to contract 1H06 • Continue to build on market 1H05 Transactional leading platform and lead bank position Specialised • No new deals completed over
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Slide 55: Structured finance transactions; Australasia's lead institutional bank
Structured finance transactions • Westpac conducts certain structured finance transactions with exposure primarily to global financial institutions • Certain structured finance transactions are currently under review by the New Zealand Inland Revenue Department (NZIRD) since late 2003 • Westpac init
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Slide 57: Strengthening operations in Asia; New Zealand conditions
Strengthening operations in Asia • Focus remains on organic growth meeting Key successes over the past year: the needs of: • Co-lead in an AUD850M 3-5 year - Aust/NZ clients operating in Asia financing for an Asian corporate - Asian corporates / individuals seeking to expand / migrate / invest • Joi
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Slide 59: New Zealand housing portfolio changes; balance sheet growth
New Zealand – changes to housing portfolio WBC housing margin vs fixed/housing ratio (%) • Proportion of fixed rate 90% lending in the portfolio has 85% increased to 79%, compared 80% to: 75% 70% - 65% 18 months ago 65% Fixed/Total Housing Ratio 60% - 82% industry average 55% Industry Avg Fixed Lend
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Slide 61: BT – good momentum; strong performance
BT - good momentum Reported (A$m) 1H05 1H06 % Change • Cash earnings up 20% on Net interest income 13 34 162 1H05 Non-interest income 432 467 8 • Solid revenue growth from: Operating expenses (261) (265) (2) Core earnings 184 236 28 - Strong growth in FUA Impairment losses on - - - loans - Favourabl
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Slide 63: Strong and growing market share; insurance businesses
Strong and growing market share Current share Current Australian market share of new business Market share Market share Product Rank Rank (%) (%) Platforms (Wrap) 12.2 2 15.7 2 Corporate super 6.7 6 10.4 3 Margin lending 15.2 3* 31.0 1* Broking 9.7 3 9.6 3 Life and risk n/a n/a 6.5 5 Source: *BT com
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Slide 65: Pacific Banking; Group Business Unit
Pacific Banking Reported (A$m) 1H05 1H06 % Change • Cash earnings up 24% 34 43 26 Net interest income • Strong uplift in operating Non-interest income 36 44 22 Operating expenses (26) (27) (4) income, driven by: Core earnings 44 60 36 - Asset growth across the region Impairment losses on (1) (4) lar
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Slide 67: Strong dividend; A-IFRS transition changes
Strong dividend Dividends per share (cents) Factor Current approach 60 56 51 49 50 44 Dividend Deliver dividend increase 40 42 path each half 38 40 34 36 30 32 30 Only pay fully franked Franking 20 dividends 1H01 2H01 1H02 2H02 1H03 2H03 1H04 2H04 1H05 2H05 1H06 General principle is to neutralise ne
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Slide 69: A-IFRS transition earnings reconciliation; capital impacts
A-IFRS transition – Group earnings reconciliation Consolidated income statement for the six months ended 31 March 2006 Accounting Other AGAAP Reported AASB 132/139 (A$m) reclassifica- A-IFRS adjusted A-IFRS adjustments tion adjustments earnings Net interest income 2,860 - (65) (6) 2,789 Non-interest
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Slide 71: Preparing for New Zealand incorporation; customer focused strategy
Preparing for New Zealand incorporation • Agreed to incorporate systemically important operations in New Zealand in December 2004 • Proposed incorporation model received in-principle agreement from the Reserve Bank of New Zealand in October 2005 • The incorporation model involves Westpac operating a
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Slide 73: Right balance of experience, stability and depth
Right balance of experience, stability and depth Name Title Joined Biography Group Executive David Morgan Chief Executive Officer Oct 1990 Joined 1990, CEO since 1999. Headed all major business units in Westpac prior to CEO appointment in March 1999. Extensive prior experience in financial sector in
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Slide 75: Economic environment sound; supportive credit quality
Economic environment sound • Expansion continues in Annual GDP (Calendar years %) 5 GDP (Aust) GDP (NZ) Australia 4 • By contrast, a period of 3 consolidation in New Zealand 2 • Global growth above par for 1 fourth consecutive year 0 • Headline inflation boosted by 2003 2004 2005(e) 2006(f) rising e
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Slide 77: Westpac's franchise health is strong; confident outlook
Westpac’s franchise health is strong Sustainability Committed Satisfied leader employees customers Westpac employee commitment Westpac customer satisfaction1,2 Total score 70 68 69 80% 65 65 Human 65 70% Capital 60 Development 60 60% 56 Advanced CRM 55 50% 0 20 40 60 80 100 50 Small and medium busin
Slide 78: Disclaimer
Disclaimer The material contained in this presentation is intended to be general background information on Westpac Banking Corporation and its activities. The information is supplied in summary form and is therefore not necessarily complete. Also, it is not intended that it be relied upon as advice
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