Westpac Banking Corporation · ASX:WBC
Westpac Banking — Debt Investor Presentation (July 2016)
53 slides from Westpac Banking's debt investor presentation, July 2016
Slide 1: Fixed Income Investor Presentation
Fixed Income Investor Presentation
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: Contents
Contents Westpac Overview 4 Highlights for Westpac and summary of First Half 2016 financial performance Economics 16 Key forecasts and economic data on the Australian and New Zealand economies Australian Home Lending 30 Westpac’s Australian mortgage portfolio statistics and performance Economic data
Slide 4: Westpac overview
Westpac overview • First half cash earnings1 of $3.9bn • Net profit before impairment charges and income tax expense Financials (pre-provision profit, cash basis) $6.2bn at 31 March 2016 • Return on average ordinary equity (cash basis) 14.2% • Cost to income ratio (cash basis) 41.6% • CET1 capital r
Slide 5: A resilient balance sheet
A resilient balance sheet Westpac key balance sheet ratios at 31 March 2016 (%) Capital resources at 31 March 2016 14.7 Cash earnings 127 pre-provisions (1H16 annualised) $12.4bn 100 10.5 83 >75 8.0 23 other stable 3.5 CCB inc. 60 D-SIB1 cust. 4.5 deposits Reg. CET1 minimum $38.0bn ~$64bn Stable Fun
Slide 6: Basel III CET1 capital ratios global comparison
Basel III CET1 capital ratios global comparison1 14.7% Commerzbank 2 2 2 2 2 2 2 2 2 4 2 3 2 5 5 2 2 5 5 2 2 4 2 Credit Suisse2 2 2 Royal Bank of Canada BNP Paribas Mitsubishi UFJ China Construct. Bank Nordea RBS UBS CBA NAB ICBC HSBC Sumitomo Mitsui BBVA Intesa Sanpaolo ANZ Barclays Societe General
Slide 7: Capital ratios materially strengthened
Capital ratios materially strengthened CET1 capital ratio (%) and CET1 capital ($bn) (APRA basis) Key capital ratios (%) Mar-15 Sep-15 Mar-16 50 Common equity Tier 1 (CET1) capital ratio 8.8 9.5 10.5 11.0 Preferred CET1 capital ratio range 8.75% - 9.25% 10.5 Additional Tier 1 capital 1.5 1.9 1.6 CET
Slide 8: Additional Tier 1 and Tier 2 capital
Additional Tier 1 and Tier 2 capital Westpac Additional Tier 1 issuance (issuance amount A$m) Westpac Total Regulatory Capital (%) 1 October 2011 to 30 June 2016 CET1 Additional Tier 1 Tier 2 Basel III Basel III compliant issuance transitional AUD issuance 14.0 1,702 13.3 12.1 12.3 12.1 1,384 1.9 1.
Slide 9: Target a diversified funding base
Target a diversified funding base Wholesale funding composition6 as at FY16 YTD new term issuance composition1 as at 30 June 2016 (%) 31 March 2016 (%) 0.1 CDs By type By tenor 2,3 By currency 2 3 Commercial Paper 4 3 3 Domestic MTN 30 8 4 22 14 11 EMTN 1 46 5 0.3 Covered Bonds 3 4 5 Securitisation
Slide 10: Regulatory change agenda to continue
Regulatory change agenda to continue Regulation 2016 2017 Post 2017 Net Stable • Ensures that banks hold a APRA consultation Funding minimum amount of stable NSFR commences 1 Jan 2018 ratio funding based, based on a APRA Consultation released Mar 2016 (NSFR) one-year horizon Draft prudential standar
Slide 11: First Half 2016 Financial results
First Half 2016 Financial results % Change Core earnings ($m) Net interest margin2 (%) 1H16 Cash Earnings1 Results 1H16 1H16 – 1H15 (Net profit before impairment Financial results (A$m) charges and income tax expense) 6,139 6,200 2.19 2.12 2.11 Net operating income 10,619 6 5,766 2.06 2.05 2.11 2.14
Slide 12: Asset quality remains sound
Asset quality remains sound Stressed exposures as a % of TCE (%) Areas of interest . Mining (inc. Oil and Gas) portfolio Sep-15 Mar-16 Watchlist & substandard TCE $14.4bn $11.8bn 3.09 3.20 90+ days past due and not impaired % of Group TCE 1.54% 1.23% Impaired % % of portfolio graded as ‘stressed’1 1
Slide 13: Australian mortgage delinquencies remain low
Australian mortgage delinquencies remain low Australian mortgage portfolio 1H15 2H15 1H16 Australian mortgages delinquencies (%) +30 days delinquencies (bps) 124 102 134 +90 days past due total +90 days past due investor +30 days past due total Loss rates 2.5 +90 days delinquencies (bps) 47 45 55 (i
Slide 14: Australian mortgage lending standards on a tightening bias
Australian mortgage lending standards on a tightening bias Notable changes to Westpac mortgage lending Increase in mortgage interest rate buffers (%) (12 months to 30 April 2016) • Minimum floor rate 7.25% Westpac owner-occupied SVR inc package discount (%) • Buffer rate at least 2.25% 9 Westpac min
Slide 15: High levels of borrower equity support Australian mortgage portfolio
High levels of borrower equity support Australian mortgage portfolio 1H15 2H15 1H16 1H16 Australian housing portfolio Australian housing loan-to-value ratios (LVRs)2,3 (%) balance balance balance flow1 Total portfolio ($bn) 362.8 375.8 390.8 42.1 1H16 drawdowns LVR at origination Portfolio LVR at or
Slide 16: Economics
Westpac Banking Corporation ABN 33 007 457 141. Economics
Slide 17: Snapshot
Snapshot More than mining, the Australian economy is diverse and flexible Australian economy key statistics Australia’s economy is diversified and flexible (latest available) 3.1% GDP Sector contribution to GDP (%)1 Australian employment by sector 2015 (%) 2 Mining Australian economy has surprised t
Slide 18: Australian and New Zealand economic forecasts
Australian and New Zealand economic forecasts Calendar year Key economic indicators1 (%) as at July 2016 2014 2015 2016f 2017f World GDP 3.4 3.1 3.2 3.4 Australia GDP 2.7 2.5 3.0 3.0 Private consumption 2.8 2.8 3.0 3.2 Business investment2,3 -4.2 -9.3 -11.0 -4.5 Unemployment – end period 6.2 5.8 5.6
Slide 19: Australian economy adjusting well
Australian economy adjusting well • Australian economy adjusting well to Economy continues to grow AUD close to post float average significant changes − The terms of trade peaked in Real GDP growth (%) AUD/USD actual & forecast September 2011 and has since fallen 1.20 % growth, year-ended by 36% 5 1
Slide 20: Lower AUD sees non-mining sectors pick up
Lower AUD sees non-mining sectors pick up Education • $119bn education sector, of which 6.1% are International arrivals in Australia (millions) Australia’s 4th largest international students1 mn mn export • International student enrolments up 20.4% in Annual arrivals, financial years 2.5 Asia, 2.5 2
Slide 21: Australian labour market
Australian labour market Conditions improving, although wage growth subdued Employment and hours worked (index) State unemployment rates (% trend) index 2008 average = 100 % % 9 112 9 110 Employment Tas SA 8 Vic 8 Total hours worked Qld 108 NSW 7 WA 7 106 Avg hours worked 104 6 6 102 5 5 100 4 4 98
Slide 22: Australian labour market
Australian labour market Services sectors creating the vast bulk of new jobs Australia: more than just mining Australia: employment by sector (annual change, ’000) Sector contribution to GDP (%)1 Health & education Mining 5 11 Manufacturing 12 Construction Retail 9 Transport, Utilities 9 Wholesale,
Slide 23: Australian population and State breakdown
Australia’s population and State breakdown Australian population by State (million) Domestic final demand (% ann) mn % ann 7.7 • Total population: 23.9 million (Dec 2015) 6 Mar-15 yr Mar-16 yr 8 • 57% of the population live in 2 states – 3.9 7 4 3.0 3.2 6.0 NSW and Victoria 2.7 6 2.1 2.0 4.8 2 5 0.7
Slide 24: Australian state economies
Australian state economies Shift in growth with NSW the pace setter • Domestic demand growth is shifting from the WA mining states of WA and Qld, to NSW and POPULATION Victoria 2.6 million QLD SIZE OF ECONOMY POPULATION – 1 in 3 Australians live in NSW, with a 17% of Australian GDP 4.8 million simil
Slide 25: Credit growth expanding at a modest pace
Credit growth expanding at a modest pace 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 Forecasts 25 end 2017 120 20 20 20 110 10 15 15 100 0 1
Slide 26: Australia economy: fiscal and monetary flexibility remain
Australia economy: fiscal and monetary flexibility remain GDP well placed relative to other developed economies RBA still has capacity to reduce rates further Real GDP growth (%) Major countries’ policy rates (%) % growth, year-ended Australia UK Canada US Euro 6 6 Australia 5 4 UK 4 2 Canada 3 0 US
Slide 27: New Zealand economy
27 New Zealand economy Key economic statistics FY15 FY16f Change NZD/USD, NZD/AUD and TWI 1.00 85 GDP annual average growth 3.0% 2.8% (20 ppts) 0.90 80 75 0.80 Inflation rate 0.4% 0.7% 30 ppts 70 0.70 65 Official cash rate (OCR) 2.5% 2.0% (50 bps) 0.60 60 0.50 Westpac NZD/USD 55 Unemployment rate 6.
Slide 28: New Zealand economy
28 New Zealand economy Conditions remain challenging for dairy sector • Global dairy prices have lifted, but remain at low levels Dairy payout and dividend1 • Prices continue to be dampened by lacklustre demand from China and strong growth in global supply, especially out of Europe $10 $/Kg Ms $/Kg
Slide 29: New Zealand economy
29 New Zealand economy Housing market trends prompt policy response • House prices have been rising at a rapid pace, including strong growth in New Zealand house prices by region (index) many regions outside of Auckland. This has been encouraged by record low interest rates. In addition, in parts of
Slide 30: Australian Home Lending
Australian Westpac Banking Corporation ABN 33 007 457 141. Home Lending
Slide 31: Australian housing market has sound fundamentals
Australian housing market has sound fundamentals, Sector moderating Population versus dwelling stock Residential rental vacancy rates (%) (annual average change ‘000) population dwelling stock* 7 % Australia Sydney Melbourne * net of demolitions – implied by Census data; Westpac estimates 355 6 300
Slide 32: House price growth and activity
House price growth and activity Some moderation, geographic differences • After a surge in the first half of calendar 2015 house price growth has Capital city dwelling prices – growth rates (%) moderated from 10% in June 2015 to 6.6% in March 2016. Price growth has lifted again in recent months but
Slide 33: Investment property lending off highs
Investment property lending off highs • Investor activity responded in 2014 and into 2015 to low vacancy Housing finance approvals: value of housing finance rates, solid rental yields, and low interest rates, including low fixed ($bn/mth) rates offering attractive opportunities to hedge interest rat
Slide 34: A cautious approach to household finances
Australian households A cautious approach to household finances 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 60 deposits 60 total debt net of all deposits* 130 inclu
Slide 35: Changes in the reporting of hardship
Changes in the reporting of hardship • Following guidance from APRA the What is changing? industry is aligning treatment of hardship in delinquencies Previous approach Changes made in 1H16 • Westpac changed measurement and When an account enters • An account in hardship is no longer frozen and repor
Slide 36: Westpac's Australian investment property portfolio
Westpac’s Australian investment property portfolio Investment property lending IPL portfolio statistics 1H15 2H15 1H16 • Investment property loans (IPLs)1 are full recourse Average LVR at origination2 (%) 72 72 72 • Maximum LVR for stand alone investment property loans capped at 80% % IPL loans orig
Slide 37: Lenders mortgage insurance
Lenders mortgage insurance • Lenders mortgage insurance (LMI) provides Lenders mortgage insurance benefits to the Westpac Group – Risk transfer / loss mitigation LVR Band • LVR ≤80% • LVR >80% to ≤ 90% • LVR >90% • Low Doc LVR ≤60% • Low Doc LVR >60% to ≤ 80% – Improvement in the quality of risk acc
Slide 38: Mortgage portfolio stress testing outcomes
Mortgage portfolio stress testing outcomes • 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 31 March 2016 • The Australian mortgage portfolio stress testing scenario presented Ke
Slide 39: Additional Information
Additional Westpac Banking Corporation ABN 33 007 457 141. Information
Slide 40: Westpac is a high quality credit
Westpac is a high quality credit with a clear domestic focus and a strong market position Unique portfolio of national and regional brands Large domestic presence Top 10 banks in Australia by total resident assets2 (A$bn) Australian retail banking and wealth Westpac CBA NAB ANZ Macquarie Bank Bendig
Slide 41: Westpac business divisions
Westpac business divisions A unique portfolio of brands Consumer Bank Cash Cash Core Sales and service, including residential earnings earnings earnings mortgages, credit cards and personal 1H16 1H16-2H15 1H16-2H15 loans, to consumer customers in Australia Division ($m) % change % change under the W
Slide 42: High quality portfolio with bias to secured consumer lending
High quality portfolio with bias to secured consumer lending Asset composition as at 31 March 2016 (%) Cash and balances with central banks Total assets On balance sheet lending Receivables due from other financial institutions Housing Trading securities, financial assets at fair value and available
Slide 43: Portfolio diversified across industries
Portfolio diversified across industries; Small rise in portfolio stress from low base Exposures at default1 by sector ($bn) Stressed exposures by industry ($bn) 2 Finance & insurance 2.5 Mar-15 Sep-15 Mar-16 3 Property stress Property lower; Business Services higher Government admin. & defence 2.0 W
Slide 44: Areas of interest: Commercial property
Areas of interest: Commercial property Commercial property portfolio 2H15 1H16 Commercial property exposures % of TCE and % in stress Total committed exposures (TCE) $65.6bn Commercial property as % of TCE (lhs) $67.5bn 10 20 Commercial property % in stress (rhs) Lending $51.3bn $52.1bn 8 15 Commerc
Slide 45: Areas of interest: Mining (including Oil and Gas)
Areas of interest: Mining (including Oil and Gas) Mining portfolio (total committed exposure) by sector (%)2 Mining portfolio 2H15 1H16 Total committed exposures (TCE) $14.4bn $11.8bn 9 Oil and gas 10 Iron ore Lending $7.1bn $5.9bn 46 Other metal ore 8 Mining as a % of Group TCE 1.54% 1.23% Coal Med
Slide 46: Areas of interest: Agriculture
Areas of interest: Agriculture Agriculture portfolio Group agriculture portfolio Sep-15 Mar-16 • Agriculture lending comprises 1.79% of Group TCE Total committed exposures (TCE) $18.1bn $17.1bn • Australian agri portfolio improving. NZ dairy portfolio has been the sector under more stress from decli
Slide 47: Stable sources provide 83% of all funding
Stable sources provide 83% of all funding % Mov’t Stable funding ratio (%) Liquidity Coverage Ratio ($bn) Sep-15 Mar-16 Mar 16 – Sep 15 High Quality Liquid Assets1 (HQLA) 61 66 9 66 59 (11) 83.2% 83.8% 83.3% Committed Liquidity Facility2 (CLF) 5 127 125 (2) 6.2 6.2 7.4 Wholesale Onshore <1yr Total L
Slide 48: Appendix 1: Cash earnings adjustments
Appendix 1: Cash earnings adjustments 1H15 2H15 1H16 Cash earnings adjustment Description $m $m $m Reported net profit 3,609 4,403 3,701 During Second Half 2015 the Group recognised a significant gain following the partial sale of the Group’s shareholding in BT Partial sale of BTIM 0 (665) 0 Investm
Slide 49: Appendix 2: Cash earnings and reported net profit reconciliation
Appendix 2: Cash earnings and reported net profit reconciliation Reported net profit and cash earnings1 Cash earnings policy adjustments ($m) • Westpac Group uses a measure of performance referred to as cash earnings to assess financial performance at both a Group and divisional level 2H15 1H16 • Th
Slide 50: Appendix 3: Definitions
Appendix 3: Definitions Is a measure of the level of profit that is generated by ongoing operation Stressed Stressed loans are the total of watchlist and substandard assets, 90 days and is therefore available for distribution to shareholders. Three loans past due and not impaired assets, and impaire
Slide 51: Appendix 4: Internationally comparable capital ratio
Appendix 4: Internationally comparable capital ratio The APRA 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 compared the major banks’ capital ra
Slide 52: Appendix 5: Tier 2 capital comparison across jurisdictions
Appendix 5: Tier 2 capital comparison across jurisdictions1 US Canada UK / EU / Scandinavia Singapore 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 No
Slide 53: More information
Visit us at More information www.westpac.com.au/investorcentre For investors and analysts or Bloomberg WBCT Contact our global funding team Curt Zuber Guy Volpicella Treasurer, Westpac Banking Corporation Executive Director, Structured Funding and Capital +61 2 8253 4230 +61 2 8254 9261 czuber@westp
Westpac Banking — Debt Investor Presentation (July 2016) on 6ix