Westpac Banking Corporation · ASX:WBC
Westpac Banking — Debt Investor Presentation (November 2022)
49 slides from Westpac Banking's debt investor presentation, November 2022
Slide 1: Fixed Income Investor Presentation November 2022
FIXED INCOME INVESTOR PRESENTATION NOVEMBER 2022 WESTPAC BANKING CORPORATION ABN 33 007 457 141 Westpac Banking Corporation
Slide 2: Westpac FY22 overview – steady progress
Westpac FY22 overview – steady progress. Data at 30 September 2022 unless otherwise stated Fix Well advanced on Fix • Major remediation programs in final stages and Simplify strategic • CORE program on track and delivering change priorities Simplify Financial performance • Announced sales of 9 busin
Slide 3: FY22 Group Financial results
FY22 Group Financial results. FY22 vs FY21 Net profit after tax FY21 – FY22 ($m) Net profit after tax Average interest earning Mainly due to lower asset 5,694 + 4% (NPAT) ($m) assets up 8%, partly offset write-downs $1.0bn by 13bps reduction in net Return on average interest margin 8.10 + 40bps ordi
Slide 4: Fix priority – reducing risk
Fix priority – reducing risk. Customer Outcomes and Risk Excellence (CORE) Program. CORE activities progress1 Sept 21 March 22 Sept 22 • CORE program in place to Design address enforceable undertaking with APRA signed 76% 99% 100% December 2020 Implement • Aims to strengthen risk governance, improve
Slide 5: Simplify priority – moving to further simplify banking
Simplify priority – moving to further simplify banking. Portfolio Geographic Banking simplification simplification simplification 3 businesses exited in FY22 2 Asian offices closed 27 Co-located branches 150 Products reduced by more than applications Digital 7 Total of business exits completed 3 Asi
Slide 6: Our plan to become a net-zero, climate resilient bank
Our plan to become a net-zero, climate resilient bank. Progress • Joined NZBA in July 2022 01 Net-zero, climate resilient operations • Set interim 2030 financed emissions • Agreements in place to source the equivalent of 100% of our Australian targets for five sectors in our lending electricity cons
Slide 7: Targets set for five sectors in our lending portfolio
Targets set for five sectors in our lending portfolio. Sector targets in line with our NZBA commitment. For details on our targets and target-setting approach refer to our ‘Net-Zero 2030 Targets and Financed Emissions – our methodology and approach’. We continue to integrate and operationalise our t
Slide 8: CET1 capital ratio 11.3% (APRA basis)
CET1 capital ratio 11.3% (APRA basis). Key capital ratios (%) Sep-21 Mar-22 Sep-22 CET1 capital operating range CET1 capital ratio of 11.29% at Sep-22 10.5% Unquestionably Level 2 CET1 capital ratio 12.3 11.3 11.3 strong benchmark Management Operating range 11.0% - 11.5% buffer Buffer 0.75% Counterc
Slide 9: Provisions for Expected Credit Loss
Provisions for Expected Credit Loss. Sound coverage. Key ratios Provisions for ECL1 ($m) Sep-21 Mar-22 Sep-22 Overlay Stage 1 CAP Stage 2 CAP Provisions to gross loans (bps) 70 65 62 Stage 3 CAP Stage 3 IAP Impaired asset provisions to impaired assets (%) 54 48 48 COVID-19 6,159 Collectively assesse
Slide 10: Credit quality metrics improved
Credit quality metrics improved. Stressed exposures down 29bps in FY22. Stressed exposures as a % of TCE Australian mortgage 90+ day delinquencies (%) Watchlist and • Deterioration mostly downgrade of one large 90+ day delinquencies 30+ day delinquencies substandard customer in Australian business t
Slide 11: Australian mortgage portfolio repayment buffers
Australian mortgage portfolio repayment buffers. Offset account balances1 ($bn) Australian housing loan-to-value ratios (LVRs) (%) Linked to I/O mortgages Linked to P&I mortgages . 100 2H22 drawdowns LVR at origination 51 53 53 46 48 90 Portfolio LVR at origination 40 41 42 Portfolio dynamic LVR 3 3
Slide 12: Balance sheet funding and liquidity
Balance sheet funding and liquidity. Funding composition (%) Key funding and liquidity measures By residual maturity Wholesale onshore <1yr1 Customer deposits to net loans ratio (%) 5 5 4 6 6 Wholesale offshore <1yr1 7 7 6 5 6 Wholesale onshore >1yr Wholesale offshore >1yr 81.6 83.5 82.9 Securitisat
Slide 13: Long term wholesale funding
Long term wholesale funding. $43 billion in new term funding, including $4 billion pre-funding. Term debt issuance and maturity profile1 ($bn) Issuance Maturities 43 38 40 37 35 Funding for Lending Programme (NZ) 32 34 32 31 29 Term Funding Facility (Aus) 12 18 24 21 Subordinated debt Senior/Securit
Slide 14: Tier 2 capital issuance and maturities
Tier 2 capital issuance and maturities. Westpac Tier 2 issuance and calls/maturities1,2,3 (notional amount, A$bn) 14.0 Issuance Maturities 12.0 10.0 FY23 issuance expected to be approx. $4-5 billion1 subject to 8.0 market conditions 6.0 12.8 4.0 6.2 5.2 2.0 4.2 2.3 3.2 3.1 2.2 1.4 1.2 0.0 FY19 FY20
Slide 15: Australian and New Zealand economic forecasts
Australian and New Zealand economic forecasts. Key economic indicators (%) 2021 2022 2023 Calendar years at November 2022 Q3 Q4 Q1 Q2 Q3F Q4F Q1F Q2F 2020 2021 2022F 2023F World GDP1 - - - - - - - - -3.0 6.0 3.2 3.0 Australia GDP2 4.1 4.5 3.3 3.6 6.7 3.4 3.0 2.2 -0.7 4.5 3.4 1.0 Unemployment – end p
Slide 16: Australian housing market
Australian housing market. Entering a significant correction phase; stabilisation expected late 2023. Australian dwelling prices (%, 3 month annualised) % 40 ‘Delta’ 35 2019 COVID-19 Macro-prudential election 30 measures 25 Macro- prudential 20 measures 15 10 5 0 -5 -10 rate cuts -15 rate hikes -20
Slide 17: Further information Westpac Group
Further information Westpac Group
Slide 18: Net-zero, climate resilient operations
Net-zero, climate resilient operations. Targets Progress Westpac Group Operational GHG4 Emissions5 (tCO2-e) Before carbon offsets Reduce Scope 1 and 2 GHG Thousands 70% reduction 29% reduction emissions by 85% by 2025 and since 2016 in 2022 250 Scope 1 and 2 GHG 90% by 2030 against 2016 emissions Re
Slide 19: Supporting customers' transition to net-zero
Supporting customers’ transition to net-zero. FY22 highlights Investing in the opportunity • Largest bank lender to greenfield renewable energy projects in Building banker capability Australia over the past five years1 • ~3,000 employees completed ESG fundamentals training • Achieved over $1.9 billi
Slide 20: Understanding our financed emissions
Understanding our financed emissions. Our approach to reporting our estimated financed emissions. Refer to our ‘Net-Zero 2030 Targets and Financed Emissions – our methodology and approach’ disclosure on our website for more information on our financed emissions analysis, including data sources, assu
Slide 21: Climate-related metrics
Climate-related metrics. TCE exposure to customers in the Energy Sector Value Chain ($bn)1. For more information, refer to our 2022 Sustainability Index and Datasheet and ‘Net-Zero 2030 Targets and Financed Emissions – our methodology and approach’ disclosures. Apart from Thermal coal in FY22, defin
Slide 22: Physical and transition risk metrics
Physical and transition risk metrics. Analysis suggests that overall potential risk exposures are likely to be low. Potential transition risk exposure to 2030 and 2050 Potential physical risk1 exposure in our Australian in our Australian business and institutional lending mortgage portfolio2 (%) por
Slide 23: Revised cost target of $8.6bn by FY24
Revised cost target of $8.6bn by FY24.1 Expenses, ex Specialist Businesses ($bn) 11.8 We are committed to reducing costs by FY24 Notable items • We revised our FY24 Target as Ongoing & Fix 1.7 ‒ Inflation2 higher than initially assumed ‒ Persistence of some regulatory and 9.7 compliance costs beyond
Slide 24: Select cost reset targets
Select cost reset targets.1 Expenses Metric FY20 baseline FY22 FY24 target 7 completed Portfolio • Sale of non-core businesses 1 under sale 11 transactions simplification agreement 2 under sale completed8 • Completion of sales agreement • Mortgages processed on digital 32% 82% 100% origination platf
Slide 25: Loan portfolio composition
Loan portfolio composition. Exposures at default1 by sector ($bn) Top 10 exposures to corporations and NBFIs5 (% of TCE) 2 Finance & insurance 1.2 1.2 1.1 1.1 1.1 1.0 1.0 Government admin. & defence 1.0 1.0 Property3 Wholesale & retail trade Agriculture, forestry & fishing Services Sep-21 Sep-15 Sep
Slide 26: Credit quality across sectors
Credit quality across sectors. Corporate and business stressed exposures by industry sector ($bn) Sep-21 Mar-22 Sep-22 2.0 Increase driven by 1.8 downgrade of one 1.6 exposure to watchlist 1.4 1.2 1.0 0.8 0.6 0.4 0.2 0.0 Accommodation, cafes Services Property Utilities business services Construction
Slide 27: Australian mortgage portfolio composition
Australian mortgage portfolio composition. Sep-21 Mar-22 Sep-22 2H22 Australian mortgage portfolio and 2H22 flow by Australian mortgage portfolio balance balance balance flow1 product and repayment type (%) Total portfolio ($bn) 455.6 458.3 467.6 56.4 Sep-21 (Portfolio) Owner occupied (OO) (%) 63.7
Slide 28: Australian mortgage portfolio loan-to-value ratios
Australian mortgage portfolio loan-to-value ratios. Australian home loan customers ahead on repayments1 Serviceability assessment creates a buffer for borrowers (% by accounts) • Loans are assessed at the higher of Sep-21 Mar-22 Sep-22 − The customer rate, including any life-of-loan discounts, plus
Slide 29: Australian mortgage portfolio underwriting
Australian mortgage portfolio underwriting. Credit policy at September 2022 Australian mortgage portfolio by • Verified via payslips, tax returns or salary credits, with other supporting documentation such year of origination (% of total book) Income as PAYG payment summaries or ATO Statements (mini
Slide 30: Australian interest only and investment property lending
Australian interest only and investment property lending. Interest only (I/O) lending by dynamic LVR1 and income Investment property portfolio by number of properties band (% of total I/O lending) per customer (%) Applicant gross income bands 11 60 <$100k $100k - $250k >$250k 6 2 1 24 2 24 3 30 4 28
Slide 31: Liquidity coverage ratio 132%
Liquidity coverage ratio 132%. CLF reduction almost complete. Liquidity coverage ratio1 (LCR) (quarterly average, $bn) Liquidity coverage ratio1 (quarterly average, %) September qtr 2021 March qtr 2022 September qtr 2022 4 LCR 129% LCR 137% LCR 132% 137 5 132 197 191 (8) (5) (1) 174 28 16 37 144 145
Slide 32: Economics Westpac Group
Economics Westpac Group
Slide 33: Global market backdrop
Global market backdrop. Central banks responding aggressively to inflation. Fed Funds and RBA Cash Rate (%) Global inflation (ann %) % Cash Rate Fed Funds (midpoint) % ann% ann% Australia G7 9 9 20 20 8 8 Westpac f’casts 7 to Dec-23 7 15 * CPI inflation; ‘G7’ is GDP- 15 6 6 weighted avg of US, EU, 1
Slide 34: RBA tightening cycle to continue
RBA tightening cycle to continue. Labour market remains key risk to policy. CPI inflation (%) Job vacancies (% of labour force) and Unemployment rate (%) % % Core CPI, %qtr Headline CPI %yr %^ 9 9 % Vacancies* (ABS survey), lhs Core CPI, avg RBA %yr 3.5 -3 8 Westpac f’casts to 8 Unemployment rate, r
Slide 35: Australian economy: slower growth expected in 2023
Australian economy: slower growth expected in 2023. Higher rates and high inflation to impact. Australia’s growth mix (ppts, annual) Australia’s GDP profile (index) ppts annual contributions to GDP growth, year end ppts annual Index pre COVID-19 forecast current forecast Index 6 6 112 112 5 4.5 5 De
Slide 36: Commodities: demand shifting, supply remains tight
Commodities: demand shifting, supply remains tight. Terms of Trade at record high in 2Q22. Australian commodity prices (index) Terms of Trade (index) 2012=100 2012=100 index index Westpac f’casts Westpac estimate 3Q22 320 to Dec-23 520 140 140 Iron ore Met coal 470 67% above long run avg Wool boom 2
Slide 37: Australian housing market
Australian housing market. Slowdown in activity in response to higher rates. Mortgage interest rates (%) Housing finance approvals by segment ($bn) % % $bn Value of housing finance $bn Variable* 3 year fixed 9 9 18 First home buyers 18 8 8 16 16 Upgraders 7 7 14 14 Investors 6 6 12 12 5 5 10 10 4 4
Slide 38: Australian housing market
Australian housing market. Rental market continues to tighten. Affordability: Australia (%) Westpac Rental vacancy rates (% quarterly, annual average) f’casts to % % Sydney Melbourne Dec-23 % 8 Sydney Melbourne Perth Brisbane latest month % 8 35 2017 peaks 35 (where 7 available) 7 30 30 6 6 5 5 25 2
Slide 39: The Australian economy
The Australian economy. Population 26 million. Australian population Australian GDP and employment composition Output by sector 2021-22 (% contribution to GDP)1 NT Mining 250k 11 Manufacturing 19 QLD 7 Construction WA 5.3m Transport, Utilities 2.8m SA 8 Wholesale, Retail 9 1.8m Agriculture NSW House
Slide 40: New Zealand economic overview
New Zealand economic overview. Interest rates rising in response to firm economy activity and increasing inflation. New Zealand GDP ($bn) Consumer prices (% year) %yr %yr $bn $bn 80 80 9 Westpac 9 Westpac forecasts 8 8 forecasts 75 75 7 7 ‘Red Traffic light’ 6 6 70 (Omicron) 70 Initial Covid 5 5 loc
Slide 41: New Zealand economic activity
New Zealand economic activity. Demand has remained firm in recent months. Manufacturing conditions (index) and Residential dwelling consents (annual, total) Service sector conditions (index) Index Annual total Annual total Index 70 Delta 70 30000 30000 Auckland Initial Covid lockdown 60 lockdown 60
Slide 42: New Zealand inflation and interest rates
New Zealand inflation and interest rates. Demand and supply pressures widespread, interest rates to continue pushing higher. Inflation (% yr) Strong demand and shortage of supplies %yr %yr % of business highlighting % of business highlighting a 8 8 100 a lack of demand as a lack of supplies as a 25
Slide 43: New Zealand exports
New Zealand exports. Commodity price strength expected to be sustained, services exports recovery in train. NZ export commodity prices (index) Farmgate milk price ($/kg Ms) Index = 100 in 1986 Index = 100 in 1986 $/kg Ms $/kg Ms 450 450 12 12 400 400 Forecast 10 10 350 350 300 300 8 8 250 250 6 6 20
Slide 44: New Zealand housing market
New Zealand housing market. The housing market is cooling as interest rates rise. Monthly house sales and prices (% yr) New Zealand dwelling prices (index) Sales %yr Index Index 14,000 40 Auckland Sales (left axis) 2750 2750 12,000 30 Canterbury 10,000 House prices (right axis) 20 2250 Wellington 22
Slide 45: The New Zealand economy
The New Zealand economy. Population 5 million. Regional GDP Economy Output 2022 - sector shares of GDP (%) Total nominal GDP 2021: $350bn Primary industries 11 6 Construction 7 Total nominal GDP 2019: $303bn 3 Electricity, gas, and water 10 Manufacturing Northland, $8bn 9 4% of population 5 Wholesal
Slide 46: Sustainability – footnotes
Sustainability – footnotes. Our plan to become a net-zero, climate resilient bank. 1. Predominantly through a virtual power purchase agreement with Bomen Solar Farm in NSW and through other sources including Westpac rooftop solar and Large-Scale Generation Certificates sourced and retired on behalf
Slide 47: Sustainability – footnotes continued
Sustainability – footnotes continued. Targets set for five sectors in our lending portfolio. 1. Financed emissions are the Group’s Scope 3 emissions attributable to its lending portfolios. We aim to achieve these targets by 30 September 2030. 2. Upstream oil and gas includes exploration, extraction
Slide 48: Disclaimer
Disclaimer. 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 not
Slide 49: Disclaimer continued
Disclaimer continued. Further important information regarding climate change and sustainability-related statements This presentation contains forward-looking statements and other representations relating to environment, social and governance (ESG) topics, including but not limited to climate change,
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