Westpac Banking Corporation · ASX:WBC
Westpac Banking — Debt Investor Presentation (May 2019)
63 slides from Westpac Banking's debt investor presentation, May 2019
Slide 1: Westpac Banking Corporation Fixed Income Investor Roadshow
Westpac Banking Corporation Fixed Income Investor Roadshow
Slide 2: First Half 2019 Highlights
First Half 2019 2 Highlights Balance sheet in good shape • “Unquestionably strong” CET1 capital ratio 10.6%, APRA Basel III basis • CET1 capital ratio 16.2%, Basel III internationally comparable1 basis • LCR 138% • NSFR 113% • Loan impairment provisions increased by $989m with the adoption of AASB 9
Slide 3: Topical areas
Topical areas 3 Australian housing market in an orderly correction • National dwelling prices are down 7.2% in Change in dwelling values (%) the last 12 months, with larger falls in Past 12 months Past 5 years Sydney and Melbourne and ongoing price weakness in Perth Sydney -10.9 21.1 • However this
Slide 4: First Half 2019 cash earnings lower
First Half 2019 cash earnings lower 4 Cash earnings1 movements ($m) Notable items Resetting our Wealth strategy Notable items: • Changes announced in March 2019 • $617m in provisions for estimated customer • Sale of Hastings in 2H18 refunds and payments and associated costs • BT brand retained, howe
Slide 5: Financial metrics sound ex notable items; growth moderating
Financial metrics sound ex notable items; growth moderating 5 Net interest margin (cash earnings basis, %) Operating expenses (cash earnings basis, $m) 3.0 NIM NIM ex notable items Expenses Expenses ex notable items 2.5 5,007 5,041 2.17 Up 1% 2.11 2.12 4,895 2.0 4,767 AASB 9 / AASB 15 1.5 Down 3% 1.
Slide 6: 'Unquestionably strong' capital
‘Unquestionably strong’ capital 6 CET1 capital ratio (%) and CET1 capital ($bn) Bank capital remains under review APRA basis Mar-18 Sep-181 Mar-19 APRA proposed changes to international comparability CET1 capital ratio 10.5 10.6 10.6 • Proposed approaches would not change the amount of capital ADIs
Slide 7: Well progressed on FY19 term funding
Well progressed on FY19 term funding 7 New term issuance by tenor2,3 (%) New term issuance by type (%) New term issuance by currency (%) Charts may not add to 100 due to rounding. Charts may not add to 100 due to rounding. Charts may not add to 100 due to rounding. 5.8yrs 6.5yrs 4.7yrs WAM4 8 4 7 Su
Slide 8: Portfolio stress remains at low levels; Provisions higher on adoption of AASB 9
Portfolio stress remains at low levels; Provisions higher on adoption of AASB 9 8 Stressed exposures as a % of TCE (%) Total impairment provisions ($m) Impaired 90+ day past due and not impaired Watchlist & substandard Individually assessed provisions Collectively assessed provisions Estimated AASB
Slide 9: Australian mortgage portfolio performance
Australian mortgage portfolio performance 9 Australian mortgage delinquencies and properties in possession (PIPs) Mar-18 Sep-18 Mar-19 Housing lending portfolio by State (%) 30+ day delinquencies (bps) 144 140 159 Australian banking system1 90+ day delinquencies (bps) (includes impaired mortgages) 6
Slide 10: Australian mortgage portfolio composition
Australian mortgage portfolio composition 10 Mar-18 Sep-18 Mar-19 1H19 Australian mortgage portfolio balance balance balance Flow1 Australian mortgage portfolio composition5 (%) Bars may not add due to rounding Total portfolio ($bn) 437.2 444.7 447.2 30.1 100 5 4 Owner occupied (%) 56.0 56.8 57.3 62
Slide 11: Australian mortgage portfolio – borrower equity sound
Australian mortgage portfolio – borrower equity sound 11 Australian housing loan-to-value ratios (LVRs) (%) 100 1H19 drawdowns LVR at origination Portfolio LVR at origination Portfolio dynamic LVR 3 90 80 70 60 52 49 50 47 Negative equity remains low as nationally, prices 40 are 14.5% higher relativ
Slide 12: Australian mortgage portfolio repayment buffers
Australian mortgage portfolio repayment buffers 12 Mortgage interest rate buffers (%) Westpac Australian offset account balances2 ($bn) Westpac owner occupied SVR1 inc package • Borrowers applying Linked to I/O mortgages Linked to P&I mortgages . discount for a mortgage must be able to service 38.6
Slide 13: Quality of banks' new lending continues to improve
Quality of banks’ new lending continues to improve 13 Change in composition of housing credit Introduction of differentiated mortgage pricing Australian housing credit growth (6mth % change annualised) % Mortgage interest rates (major bank average) % 7.5 10% limit on investment 30% limit on interest
Slide 14: Australian housing prices in a period of adjustment
Australian housing prices in a period of adjustment 14 Australian dwelling prices Finance approvals index All dwellings (index, Jan 2004 = 100) index $bn Value of housing finance ($bn) $bn 14 14 230 230 'upgraders' Rest of Australia 12 12 investors 210 Other capitals 210 10 10 FHBs Sydney-Melbourne
Slide 15: Physical supply/demand fundamentals remain sound across wider market
Physical supply/demand fundamentals remain sound across wider market 15 Dwelling supply has not kept pace with stronger demand Rental vacancy rates Population versus dwelling stock (annual average change ‘000) ‘000 Rental vacancy rates (%, quarterly, annual average) ‘000 % 450 Population Total incre
Slide 16: Australian economic snapshot
Australian economic snapshot 16 Australian economy key statistics Inflation remains subdued1 Labour market to cool (latest available as at 30 April 2019) Avg RBA core CPI %qtr (rhs) %qtr % %yr Unemployment rate smoothed 8 Headline CPI %yr (lhs) 3.2 10.0 GDP 2.3% 7 Avg RBA core CPI %yr (lhs) 2.8 f/cs
Slide 17: Economics
i we at “F Economic
Slide 18: Australian and New Zealand economic forecasts
Australian and New Zealand economic forecasts 18 Calendar year Key economic indicators (%) as at April 2019 2017 2018 2019F World GDP1 3.8 3.6 3.5 Australia GDP2 2.4 2.3 2.2 Private consumption2 2.8 2.0 2.2 Business investment2,3 6.9 -0.2 1.0 Unemployment – end period 5.5 5.0 5.5 CPI headline – year
Slide 19: The Australian economy
The Australian economy 19 NSW and Victoria 58% of population and employment Services employ a large part of the Australian workforce Output 2018 - sector contribution to GDP (%)1 Services Mining 54% Manufacturing 9 18 Construction 7 Transport, Utilities 9 Wholesale, Retail 10 Agriculture 8 Household
Slide 20: Australian economic outlook: slower growth ahead
Australian economic outlook: slower growth ahead 20 Australia: 27 years of uninterrupted growth %ann %ann Quarterly GDP Annual GDP period averages 8 8 6 6 4 4 2 2 0 0 -2 -2 1988 1992 1996 2000 2004 2008 2012 2016 2020 Sources: ABS, Westpac Economics. Australian growth mix: shifting drivers Australia
Slide 21: Public sector supporting growth; service exports solid
Public sector supporting growth; service exports solid 21 Budget balance: return to surplus in 2019/20 Services exports rising % of GDP Underlying cash balance $bn $bn Rolling annual, nominal $bn 4 f/cs 40 40 40 Education $bn (rhs) % of GDP (lhs) to 2022/23 35 35 Total service exports: +9.3%yr +15%
Slide 22: Australia's commodity prices holding up for now
Australia’s commodity prices holding up for now 22 Australia: key commodity exports ($bn) Australia: commodity prices (index) $bn $bn index index Iron ore Coal LNG RBA non-rural commodity price index 8 8 200 AUD USD 200 7 7 180 180 6 6 160 160 5 5 140 140 4 4 120 120 3 3 100 100 2 2 80 80 1 1 60 60
Slide 23: Some headwinds for the Australian consumer
Some headwinds for the Australian consumer 23 Australian wage inflation remains low Consumer spending constrained by income growth %yr Australian wage inflation (% ann) Australian consumer spending (% ann) vs labour income (% ann) 8 Aus private sector wages % ann Labour income real 7 Mining industry
Slide 24: Australian household balance sheets
Australian household balance sheets 24 Affordability & buyer sentiment Australian household debt to income ratio remains high index Buyer sentiment (Time to buy dwelling) (lhs) % Australian households debt to income ratio (%) 200 12 Total (gross) debt Forecasts Affordability (rhs)* 200 end 2019 180
Slide 25: Australia's high rise apartment market – past the peak
Australia’s high rise apartment market – past the peak although supply still coming online 25 Aggregate supply/demand fundamentals remain positive Dwelling construction: indicative completion times1 Population versus dwelling stock (annual average change ‘000) ‘000 % % ‘000 450 Population Total incr
Slide 26: New Zealand economic snapshot – growth has taken a step down
New Zealand economic snapshot – growth has taken a step down 26 New Zealand economy key statistics GDP growth has cooled Spending to slow as housing cools (latest available as at 30 April 2019) GDP (%) House prices and household spending % % % 6 6 House price inflation % 30 6 GDP1 2.8% Qtr % chg Ann
Slide 27: The New Zealand economy
The New Zealand economy 27 Regional GDP NZ output and employment Total nominal GDP 2018: $293bn Output 2018 - sector contribution to GDP (%) Population 4.9 mil Primary industries 3 7 Construction 11 7 Northland, $7bn Electricity / Gas / Water 4% of population 5 3 3 Food Manufacturing Manufacturing (
Slide 28: New Zealand economic indicators
New Zealand economic indicators 28 Inflation off its lows, still moderate Export prices remain favourable % Inflation (%) % NZ export commodity price index (world prices) Index 6 6 450 Meat,skins & wool Forestry Dairy CPI inflation Forecast 5 5 400 CPI excluding petrol 350 4 4 300 3 3 250 200 2 2 15
Slide 29: New Zealand housing market expected to be dampened by policy changes
New Zealand housing market expected to be dampened by policy changes 29 Policy changes have softened housing demand… …and a period of subdued price growth is expected New Zealand house prices by region (index) New Zealand house prices (nationwide, %) 220 220 20 20 NZ ex Auckland and Canterbury Forec
Slide 30: Additional information
Additional information . _
Slide 31: Westpac: clear domestic focus and a strong market position
Westpac: clear domestic focus and a strong market position 31 Unique portfolio of national and regional brands Large domestic presence Top 10 banks in Australia by total resident assets1 (A$bn) Australian retail banking and wealth Westpac Banking Corporation Commonwealth Bank of Australia National A
Slide 32: Royal Commission response plan implementation examples
Royal Commission response plan implementation examples 32 Implementation of Westpac’s Royal Commission response plan is underway. Examples of some recommendations, along with our progress and considerations, are set out below. Topic area Recommendation Accountability Progress / considerations Farm d
Slide 33: Continued sustainability leadership
Continued sustainability leadership 33 United Nations Sustainable Westpac’s sustainability 1H19 outcomes (unless otherwise stated) Development Goals alignment priority areas • Delivered a range of financial literacy programs to individuals, businesses, not-for-profit organisations and community grou
Slide 34: Climate-related metrics
Climate-related metrics 34 Climate change solutions exposure Electricity generation exposure Total scope 1, 2 and 3 emissions ($bn of TCE) (% of TCE)1,3 (tCO2-e, 000s)3 TCE at 30 September 2018 $3.5bn 1.9 0.8 10.1 220 9.1 Renewable energy 11.8 7.0 Gas 6.2 203 14.1 Black coal 194 Brown coal 71.4 Liqu
Slide 35: Reinventure – Investing in new fintech businesses
Reinventure – Investing in new fintech businesses1 35 Westpac Westpac has committed is fintech $150m to actively responding venture capital to digital fund, threats 2and Reinventure opportunities. . Reinventure enables Westpac to access We encourage digital innovation insights through and adjacent i
Slide 36: Funding and liquidity metrics
Funding and liquidity metrics 36 Funding composition by residual maturity (%) Liquidity coverage ratio (LCR)3 (%) LCR 133% LCR 138% 133.5 133.7 1 5 5 Wholesale Onshore <1yr 100.4 97.0 16 7 9 Wholesale Offshore <1yr 1 20 4 4 Wholesale Onshore >1yr Net cash outflows Liquid assets Net cash outflows Liq
Slide 37: Well placed on internationally comparable CET1 and leverage ratios
Well placed on internationally comparable CET1 and leverage ratios 37 Common equity Tier 1 ratio (%)1 20% 15% Standard Chartered China Construction Bank Toronto Dominion Bank Credit Agricole SA China Merchants Bank Norinchukin Bank JPMorgan Chase Societe Generale Agricultural Bank of China 10% Sumit
Slide 38: High quality portfolio with bias to mortgage lending
High quality portfolio with bias to mortgage lending 38 Asset composition (%) Lending composition at 31 March 2019 (% of total) Total assets ($891bn) Mar-18 Sep-18 Mar-19 Total loans of $714bn Loans 80.5 80.8 80.2 Available-for-sale securities and investment securities 7.4 6.9 7.7 Trading securities
Slide 39: A well diversified loan portfolio
A well diversified loan portfolio 39 Exposures at default1 by sector ($bn) Top 10 exposures to corporations and NBFIs5 (% of TCE) 2 Finance & insurance The single largest corporation/NBFI 3 exposure represents Property less than 0.2% of TCE 1.4 1.3 1.3 Government admin. & defence 1.2 1.2 1.1 1.1 1.1
Slide 40: Provision cover by portfolio category
Provision cover by portfolio category 40 Exposures as a % of TCE Provisioning to TCE (%) Sep-17 Mar-18 Sep-18 Mar-19 Fully performing portfolio Stage 1 provisions Small cover as low probability of default (PD) 0.20 0.20 0.18 0.09 95.66 Fully performing 98.95 98.91 Non-stressed but significant increa
Slide 41: Overall stressed exposures little changed over 1H19
Overall stressed exposures little changed over 1H19 41 Corporate and business portfolio stressed exposures by industry ($bn) 2.0 Mar-18 Sep-18 Mar-19 1.8 1.6 1.4 1.2 1.0 0.8 0.6 0.4 0.2 0.0 Property Property services & Construction Agriculture, forestry & Transport & storage Finance & insurance Util
Slide 42: Areas of interest: Commercial property
Areas of interest: Commercial property 42 Commercial property portfolio Commercial property exposures % of TCE and % in stress Mar-18 Sep-18 Mar-19 10 Commercial property as % of TCE (lhs) 20 Total committed exposures (TCE) $66.3bn $67.6bn $66.9bn Commercial property % in stress (rhs) 8 15 Lending $
Slide 43: Areas of interest: Inner city apartments
Areas of interest: Inner city apartments 43 Commercial property portfolio TCE ($bn) Mar-18 Sep-18 Mar-19 TCE (%)1 Residential apartment development >$20m 4.0 4.1 3.3 4.9 • Approvals and new starts lower and expected to slow further. • Tightened risk appetite for areas of concern remains in place Res
Slide 44: Areas of interest: Retail trade
Areas of interest: Retail trade 44 Overview Retail trade portfolio • The retail sector continues to be challenged by subdued consumer demand Mar-18 Sep-18 Mar-19 and growth in domestic and international online channels Total committed exposures (TCE) $15.5bn $16.2bn $16.0bn • These changes have been
Slide 45: Areas of interest: Aged care sector
Areas of interest: Aged care sector 45 Overview Aged care portfolio • Aged care sector is forecast to grow with significant investment required to Mar-18 Sep-18 Mar-19 meet demand from Australia’s aging population Total committed exposures (TCE) $2.5bn $2.7bn $2.9bn • Stress decrease over 1H19 drive
Slide 46: Areas of interest: Mining and Australian Agriculture
Areas of interest: Mining and Australian Agriculture 46 Mining (inc. oil and gas) portfolio Mining portfolio (TCE) Iron Ore and Oil prices ($)3 by sector (%) Mar-18 Sep-18 Mar-19 Iron ore (USD/t) 4 Crude oil (USD/bbl)5 Westpac Total committed 8 Economics $9.3bn $10.7bn $9.8bn 8 forecast exposure (TC
Slide 47: Australian consumer unsecured lending, 3% of Group loans
Australian consumer unsecured lending, 3% of Group loans 47 Australian consumer unsecured lending portfolio 90+ day delinquencies (%) by State NSW/ACT VIC/TAS QLD WA SA/NT Mar-18 Sep-18 Mar-19 3.00 Hardship reporting changes commenced1 Lending $21.8bn $21.1bn $20.7bn 2.00 30+ day delinquencies (%) 3
Slide 48: Australian consumer unsecured lending portfolios
Australian consumer unsecured lending portfolios 48 Auto finance portfolio 90+ day delinquencies (%) Auto finance portfolio ($m) – reduced over last 2 years Auto loans Auto loans 8,000 Auto Finance performing loans balance ($m lhs) 1,600 4.00 ex-hardship Auto Finance 90+ day delinquencies balance ($
Slide 49: Westpac Australian mortgages: selected characteristics and policies
Westpac Australian mortgages: selected characteristics and policies 49 Owner-occupied P&I Owner-occupied I/O Investor P&I Investor I/O Current mortgage rate1 4.58% 5.17% 5.13% 5.64% Recourse Full recourse Full recourse Full recourse Full recourse Maximum 30 year contractual • I/O period limited to 5
Slide 50: Australian mortgage portfolio underwriting
Australian mortgage portfolio underwriting 50 Notable changes to Westpac mortgage lending standards Australian mortgage portfolio by year 2014 • 10% limit on investment property lending growth announced – implemented by 30 September 2015 of origination (% of total book) Calendar year • Stricter loan
Slide 51: Interest only portfolio
Interest only portfolio 51 I/O portfolio (%) Switching from I/O to P&I1 ($m) Variable mortgage interest rates2 (%) % of total portfolio (at period end) Reached end of I/O period Customer initiated at 12 April 2019 % of all new flows by new lending (6 mnth) Owner occupied Investor 5.64 5.17 5.13 4.58
Slide 52: Performance of interest only mortgages
Performance of interest only mortgages 52 Interest only lending Australian interest only loan portfolio balances ($bn) • Interest only (I/O) loans assessed on a principal and interest basis 250 I/O performing loans balance (lhs) 14 – Loans originated prior to 2015 were assessed on a principal and in
Slide 53: Australian investment property portfolio
Australian investment property portfolio 53 Mortgage applications by Investment property portfolio by LVR at origination (%) number of properties per customer (%) gross income band (%) Owner occupied IPL Owner occupied IPL 1 1 30 50 1 25 40 20 7 2 2 30 15 3 10 20 26 5 10 4 62 0 0 5 100<=125 125<=150
Slide 54: Australian mortgage deep dive
Australian mortgage deep dive 54 Australian mortgage lending1 by origination date, dynamic LVR2 and income bands (%) Chart may not add due to rounding Year of origination <2011 2011-14 2015+ Gross income bands 79 >$250k 7 67 $100k - $250k 11 <$100k 33 42 38 35 7 8 25 3 23 20 38 15 19 4 1 6 14 9 7 21
Slide 55: Lenders mortgage insurance arrangements
Lenders mortgage insurance arrangements 55 Lenders mortgage insurance (LMI) Lenders mortgage insurance arrangements • Where mortgage insurance is required, mortgages LVR Band Insurance are insured through Westpac’s captive mortgage insurer, Westpac Lenders Mortgage Insurance1 • LVR ≤80% Not required
Slide 56: Mortgage portfolio stress testing outcomes
Mortgage portfolio stress testing outcomes 56 • Westpac regularly conducts a range of portfolio stress tests as part of its Australian mortgage portfolio stress testing regulatory and risk management activities • The Australian mortgage portfolio stress testing scenario presented here assumes Stress
Slide 57: Appendix 1: Internationally comparable capital ratio reconciliation
Appendix 1: Internationally comparable capital ratio reconciliation 57 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 by Australian banks. In July 2015, APRA published a study that
Slide 58: Appendix 2: Current proposals on the capital framework
Appendix 2: Current proposals on the capital framework1 58 1st half 2019 2nd half 2019 2020 2021 2022 Standardised approach to Consult Finalise Implementation credit risk Advanced approach to credit Consult, Quantitative impact study Implementation risk Operational risk Consult Finalise APRA expecte
Slide 59: Appendix 3: Cash earnings adjustments
Appendix 3: Cash earnings adjustments 59 $m 1H19 2H18 1H18 Description Reported net 3,173 3,897 4,198 Net profit attributable to owners of Westpac Banking Corporation profit Identifiable intangible assets arising from business acquisitions are amortised over their useful lives, ranging between four
Slide 60: Appendix 4: Definitions – Credit quality
Appendix 4: Definitions – Credit quality 60 Includes facilities where: For financial assets that are non-performing a provision for lifetime Stage 3 Lifetime • contractual payments of interest and / or principal are 90 or more expected losses is recognised. Interest revenue is calculated on the ECL
Slide 61: Appendix 5: Definitions – Capital and liquidity
Appendix 5: Definitions – Capital and liquidity 61 Capital Liquidity Capital ratios As defined by APRA (unless stated otherwise) Committed The RBA makes available to Australian Authorised Deposit-taking liquidity facility Institutions a CLF that, subject to qualifying conditions, can be accessed (CL
Slide 62: More information
More information | www.westpac.com.au/investorcentre 62 + - X Contact our Global Funding team Curt Zuber Joanne Dawson Alexander Bischoff Treasurer, Westpac Banking Corporation Deputy Treasurer, Westpac Banking Corporation Executive Director, Global Funding +61 2 8253 4230 +61 2 8204 2777 +61 2 8253
Slide 63: Disclaimer
Disclaimer 63 The material contained in this presentation is intended to be general background information on Westpac Banking Corporation (“Westpac”) (ABN 33 007 457 141) and its activities. It should not be reproduced, distributed or transmitted to any person without the consent of Westpac and is n
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