Slide 1: Earnings Drivers, Capital & Dividends
ls Australia's First Bank Earnings Drivers, Capital & Dividends | Philip Chronican. - Chief Financial Officer 31-July 2003
Slide 2: Agenda
Agenda * Earnings drivers - Operating income - Expenses - Tax, bad debts and gearing * Capital & dividends - Sustainable payout ratios - Franking position - TOE /ACE/ Tier 1 / Ratios - Medium term capital generation Market Update - July 2003
Slide 3: Operating revenue parameters
Operating revenue parameters * Credit growth expected to fall from Australian credit growth Maret recent experience of 10-13% to 7-11% 24 4 sal growth per annum 20 4 167 + Margins £42 | -Prior guidance suggested 10-12 ee bps erosion per annum 44 Os— = oT = T — — — -Last 2 years performance has been
Slide 4: Expense outlook
Expense outlook * In anormal year we face Annual growth in expenses - 4% salary increases : - 2-4% increase in other 2 prices (some much 04 higher) 2 . 4 - Continued volume growth % 1H99 2H99°1HOO 2HOO.1HOI -2HO1 4HOZ 2HO2 4HO3 * Expense pipeline targeted at sterilising organic cost growth Efficienc
Slide 5: Other factors
Other factors Surplus capital growth of 2-3% pa Medium Term Recent : ; Comments Guidance Experience TH02. 80.8% Excluding policy holder tax = # Tax 29.".31% 2HO02 29.0% recoveries, and including gross-up 1HO3 30.5% 25 — 35. bps of 2001 32 'bps Ss latility d incipaily t = ps. oO ome volatility due pr
Slide 6: Medium term earnings scenarios
Medium term earnings scenarios Assuming stable macro-economic environment, medium term drivers of earnings would lead to following outcomes in most scenarios Likely Ranges (%) Interest Income : : 5-8 Non-interest Income 5-9 Operating Revenue 5-8 Expenses 2-4 Bad debts (as a percent of risk weighted
Slide 7: Dividend payment considerations
Dividend payment considerations ° Capacity to pay — based Dividends per. share (cents) . 40 38 on cash earnings as 30 . 254, * Ensuring fully franked 20 dividend 40 5 ol 2H99 ~THOO = 2HOO ~4HO1 = 2HO4° 1HO2 2HO2 1HO3 | | Unfranked ¢ Retaining sufficient capital for growth Payout ratio?(%) * Consiste
Slide 8: Franking capacity — no longer a constraint
Franking capacity — no longer a constraint * Franking generated from Australian tax paid - not tax provided * Switch to a consistent franking surplus has been assisted by: - Run-off of prior year revenue losses increased tax paid - Reduction in the corporate tax rate to 30% - Higher proportion of re
Slide 9: Determining dividend payments
Determining dividend payments *« A key determinant of the Illustrative pay-out ratio analysis’ pay-out ratio is now growth RWA Growth | Implied capital pees in Risk Weighted Assets Scenarios growth Pay-out ratio (RWA) 8% 6.4% 75% 9% 7.2% 72% * Given likely risk asset i i 10% 8.0% 69% growth, and inc
Slide 10: First half 2003 — actual capital outcome
First half 2003 — actual capital outcome * Organic growth opportunities exceeded expectations without eroding returns. This, combined with a higher payout to shareholders, resulted in no excess capital being accumulated in H1 2003 2002 | H1:2003 . Comments estimate actual : . Strong cash returns on
Slide 11: Setting capital levels
Setting capital levels * Ensure shareholders equity Capital ratios quarterly aligns with economic capital ‘ . Th We ¢ Maintain AA rating 6% | 5% 4 * Experience provides a guide to eaten potential and acceptable ranges ase ACE TOE Tier‘ eg. March 2001 CSLLE SLL SELES TOE 5.6% ¢ Estimated Impact of pr
Slide 12: Capital ratios — consideration of targets
Capital ratios — consideration of targets Included Tier 1 TOE ACE Shareholder equity Yes Yes Yes Hybrid equity Yes No No Key Deductions Goodwill Yes Yes Yes Net FITB Yes Yes Yes Tangible investment No No Yes in non-consol subs Intangible investment in non-consol subs Yes Yes Yes Retained earnings —
Slide 13: Tier Composition
Tier 1 Composition ¢ Further scope for hybrid Composition of Tier 1 capital issuance 8% - Proportion of hybrid in Tier 1 currently 9% 6% 4 - First TOPrS call date Jul 04 - Seek to opportunistically tap markets ¢ Move to international accounting standards may see some changes 0% : in capital definiti
Slide 14: Basel II
Basel II * Important step in better understanding and managing risk ¢ Under the common framework Australian banks recognised as being at the low end of the risk spectrum compared to similarly rated peers ¢ Any potential reduction in capital contingent upon agreement with APRA and the rating agencies
Slide 15: Basel II highlights the low risk of balance sheet
Basel II highlights the low risk of balance sheet * Westpac has more of its balance sheet in assets with a high average reduction in risk weight than the average Group 1 banks * Across asset classes, Westpac has a lower average risk weight (except for other retail) than Group 1 banks leading to a la
Slide 16: Actively managing the capital base
Actively managing the capital base Strong capital returns will continue to see Organic funding of growth Sustainably high fully franked dividend payout Buy-backs an ongoing feature Near term risk asset growth precludes any 2003 buy-back Further scope for enhancing capital mix Basel II will provide m
Slide 17: Disclaimer
Disclaimer The material contained in this presentation is intended to be general background information on Westpac Banking Corporation and its activities as at 31 July 2003. The information is supplied in summary form and is therefore not necessarily complete. Also, it is not intended that it be rel