Westpac Banking Corporation · ASX:WBC
Westpac Banking — Debt Investor Presentation (May 2013)
57 slides from Westpac Banking's debt investor presentation, May 2013
Slide 1: Westpac 1H13 Update: Fixed Income Investor Presentation
WESTPAC 1H13 UPDATE Fixed Income Investor Presentation for the six months ended 31 March 2013 May 2013 Westpac Banking Corporation ABN 33 007 457 141.
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: Westpac – consistent, strong performance
Westpac – consistent, strong performance Cash earnings1 ($m) Return on equity1 (cash basis, %) 3,525 16.4 16.5 3,403 15.8 15.6 15.9 16.1 3,168 3,195 15.1 3,133 2,949 2,930 2,605 2,442 2,332 2,295 1H10 2H10 1H11 2H11 1H12 2H12 1H13 1H08 2H08 1H09 2H09 1H10 2H10 1H11 2H11 1H12 2H12 1H13 1 2 1 2 1 2 1
Slide 4: Another strong financial result in 2013
Another strong financial result in 2013 Change Change 1H13 1H13 1H13 – 1H12 1H13 – 1H12 Earnings Asset Quality Net write-offs to average loans annualised 21bps (8bps) Net profit after tax $3,304m 11% Total impaired assets to gross loans 82bps (6bps) Cash earnings $3 525m $3,525m 10% T t l provisions
Slide 5: Delivering on clear strategic priorities
Delivering on clear strategic priorities 1 A strengthened balance sheet • Basel III fully harmonised Common equity Tier 1 A$95bn A strong company ratio 11 11.4% 4% market cap. • Stable funding ratio1 83%, up 390bps The world’s 11th largest bank by market 2 Reorient to higher Maintain ROE above 15% c
Slide 6: Setting Westpac apart – Domestic focus, balance sheet strength and efficiency
Setting Westpac apart – Domestic focus, balance sheet strength and efficiency Clear focus on home markets of Australia and New Zealand Leader in efficiency Total income by geography1 (%) Expense to income ratio2 (%) 1 4 9 16 8 15 45.1 Asia, Pacific, Europe 44.4 & Americas 7 42.5 16 40.6 New Zealand
Slide 7: Focus on deeper customer relationships driving earnings
Focus on deeper customer relationships driving earnings Contribution to cash earnings (%) • Westpac Retail & Business Banking: Retail and business banking for 2 Westpac RBB Australian consumers, SMEs and commercial customers ncial Servicess 5 8 St.George − Cash earnings of $1.1bn in 1H13, up 11% on
Slide 8: Strong Common equity Tier 1 ratio against global peers
Strong Common equity Tier 1 ratio against global peers Global peer comparison of Basel III pro-forma Common equity Tier 1 ratios1 (%) 15 0 15.0 14.4 14.0 13.5 13.0 12.0 11 8 11.8 11.6 11.4 11.0 10.8 10.6 10.5 10.3 10.1 10.0 9.6 9.4 Basel III minimum 7.0% 9.3 9.3 9.3 93 9.3 93 9.3 9.0 8.9 8.8 9.0 8.7
Slide 9: Strong capital position, up across all measures
Strong capital position, up across all measures • Westpac applying APRA Basel III Key capital ratios (%) 1H12 2H12 1H13 regulations from 1 January 2013 APRA Basel 2.5 APRA Basel III • Preferred range for common equity ratio of 8.0% to 8.5%, comfortably above regulatory Common equity Tier 1 ratio 8.0
Slide 10: Strong funding profile supported by customer deposit growth
Strong funding profile supported by customer deposit growth Funding composition by residual maturity (%) Customer deposit composition3 ($bn and %) Term deposits Savings Online Transaction SFR1 64% SFR1 83% SFR1 83% 360 348 Wholesale Onshore <1Yr 320 7 7 83 87 13% 16 78 10 10 Wholesale Offshore <1Yr
Slide 11: Customer deposits continue to fund loan growth
Customer deposits continue to fund loan growth • Customer deposit growth continued to fund Westpac deposit growth funding loan growth loan growth Customer deposit growth ($bn) Net loan growth ($bn) Customer deposit to loans ratio (%) – 142b 142bps iimprovementt iin d deposit-to-loan it t l ratio to
Slide 12: Term issuance focused on flexibility and diversity
Term issuance focused on flexibility and diversity New term issuance by type1 (%) New term issuance by original tenor1,2 (%) FY12 2013 year 1H13to date FY12 FY12 20131H13 year to date 4 0 9 15 27 10 9 8 15 47 21 46 40 24 12 33 23 45 12 1 Senior unsecured Covered bonds RMBS & ABS 1 Year 2 Years 3 Yea
Slide 13: Significant improvement in asset quality
Significant improvement in asset quality Stressed exposures as a % of TCE1 (%) and provisions ($m) Stressed exposures by industry ($bn) 6 Impaired p ((lhs)) 1H12 2H12 1H13 90+ days past due well secured (lhs) 5 Watchlist & substandard (lhs) 4 IAP (rhs) 3 4.0 CAP (inc. Econ Overlay) (rhs) 4,000 2 1 3
Slide 14: High quality mortgage portfolio, with strong collateralisation
High quality mortgage portfolio, with strong collateralisation Westpac Australian housing 2H12 1H13 1H13 Australian housing portfolio3,4,5 (%) portfolio1 Balance Balance Flow2 LVR at origination Dynamic LVR Total portfolio ($bn) 316.3 321.9 25.3 70 Owner-occupied (%) 48.2 48.1 50.6 60 Investment pro
Slide 15: Prepayment levels and serviceability remain strong
Prepayment levels and serviceability remain strong • Australian mortgage customers continue to display a cautious approach to Australian home loan customers ahead on repayments1,2 (%) debt levels, taking advantage of lower rates to pay down debt Sep-12 p Mar-13 Mar-13 including g mortgage g g offset
Slide 16: The Australian Economy
THE AUSTRALIAN ECONOMY “Australia has built up the capacity to absorb shocks due to...low public debt, a free floating exchange rate and liberal trade and labour markets,, which allows the authorities to run strong countercyclical policies during downturns and the economy to adjust.” FITCH AFFIRMS A
Slide 17: Australian and New Zealand economic forecasts
Australian and New Zealand economic forecasts Calendar year Key economic indicators as at 30 April 20131 (%) 2011 2012 2013f 2014f World GDP 4.0 3.2 3.4 3.1 Australia GDP 2.4 3.6 2.5 2.3 Private consumption 3.3 3.2 2.4 3.0 B i Business iinvestment t t2,3 23 17 0 17.0 16 7 16.7 50 5.0 –1.0 10 Unemplo
Slide 18: Australia remains well placed relative to developed economies
Australia remains well placed relative to developed economies Real GDP growth (%, year-ended) Major countries’ policy rates (%) Australia UK Canada US Euro Australia UK Canada US Euro 6 8 4 7 6 2 5 0 4 -2 3 2 -4 1 -6 0 Dec 96 Dec-96 Dec 00 Dec-00 Dec 04 Dec-04 Dec 08 Dec-08 Dec 12 Dec-12 Mar 06 Mar-
Slide 19: Domestic economic conditions remain sound
Domestic economic conditions remain sound Australian dollar Unemployment rate (%) USD Fair value band AUD/USD actual & forecast USD 1.20 1.20 Australia Canada UK US Euro 12 1.10 Includes coal price, exchanged traded 1.10 commodities index, relative yield curve, 1.00 1.00 10 risk proxy, NFD to GDP. 0
Slide 20: Australia has monetary and fiscal flexibility
Australia has monetary and fiscal flexibility • In contrast to most other developed economies, Australian policy Australia’s economy diversified and flexible (% of GDP)1 makers continue to enjoy considerable flexibility • Australia’s Australia s official cash rate is currently 3 3.00% 00% − Low by h
Slide 21: Australia's mining boom entering a transition phase
Australia’s mining boom entering a transition phase • Australia’s mining boom is best described as 3 separate but overlapping stages led by the cycles in: Price cycle volatile around a high average level 1. Prices; index index 700 Bulks* (lhs) 350 2. Investment; and Exchange traded* (rhs) 3. Exports
Slide 22: Chinese growth finding a sustainable level
Chinese growth finding a sustainable level • The Chinese economy is in the middle stages of its development - it is no longer poor but it is still far from rich China’s share: world activity & Australian exports (%) • Westpac estimates Chinese potential growth is now between 7% and 8%, % 30 * Goods
Slide 23: The Australian Mortgage Market and Westpac's High Quality Residential Mortgage Portfolio
THE AUSTRALIAN MORTGAGE MARKET AND WESTPAC’S HIGH QUALITY RESIDENTIAL MORTGAGE PORTFOLIO Westpac Group Fixed Income Investor Update | May 2013 | European Roadshow 23
Slide 24: Australian house prices firming after mild correction
Australian house prices firming after mild correction Housing affordability improved, rental markets tight House prices (annual % change) Interest rates (%) Residex (monthly) RP Data-Rismark Data Rismark (monthly) standard variable mortgage rate (lhs) ABS APM 11 housing finance approvals (rhs) 45 18
Slide 25: A structural supply/demand imbalance in housing stock
A structural supply/demand imbalance in housing stock; Little evidence of speculative investor activity Population vs dwelling stock (annual average change, ’000) Investor boom ended years ago* (annualised %) 350 pop lation population d elling stock* dwelling owner-occupiers owner occupiers investor
Slide 26: Australian mortgage market features underpin asset quality
Australian mortgage market features underpin asset quality Australian mortgage market Australian bank mortgage market share1 (%) Market share j banks dominate - 83% share held • 4 major • Major banks have a lower share of low doc market, with 17% low flow in this segment over recent years Westpac (i
Slide 27: Australian investment property portfolio sound
Australian investment property portfolio sound • Investment property loans (IPLs) make up Australian mortgage1 loan-to-value ratio at Australian mortgage1 applicants by gross 42.2% of Westpac’s Australian mortgage origination (%) income band (%) portfolio Owner Occupied p IPL Owner Occupied IPL 50 2
Slide 28: Mortgage portfolio stress testing outcomes
Mortgage portfolio stress testing outcomes • Westpac regularly conducts a range of portfolio stress tests as part of Australian mortgage portfolio stress testing as at 31 March 2013 its regulatory and risk management activities • The Th AAustralian t li mortgage t portfolio tf li stress t testing t
Slide 29: Lenders Mortgage Insurance managing risk transfer
Lenders Mortgage Insurance managing risk transfer • Westpac Group has one captive mortgage insurer, Westpac Lenders Australian mortgage portfolio LMI coverage (%) Mortgage Insurance (WLMI), which insures mortgages originated through all as at 31 March 2013 brands and channels • Mortgages with origin
Slide 30: Home loan evaluation process - originations
Home loan evaluation process - originations Credit Origination • Westpac • Approved third party • Regardless of origination source, all Application loans are subject to Westpac’s standard underwriting criteria Manual Credit Decision Referral • Credit decision and verification Credit Manager Automate
Slide 31: Arrears management and collections
Arrears management and collections • Customer delinquency management is segmented by risk: Typical collections process (medium risk customer) Days – Risk is assessed based on historical loan and customer attributes – Higher risk customers are contacted earlier and more assertively, SMS 3 leaving low
Slide 32: Westpac's Australian Covered Bond Programme Offers Diversity
WESTPAC’S AUSTRALIAN COVERED BOND PROGRAMME OFFERS DIVERSITY Westpac Group Fixed Income Investor Update | May 2013 | European Roadshow 32
Slide 33: Covered bonds offers diversity
Covered bonds offers diversity • Westpac issues covered bonds through its US$20bn covered bond Covered pool highlights (as at 31 March 2013) programme Total p pool loan balance A$18,620,467,551 – Westpac W t also l maintains i t i RCB/N-bond RCB/N b d capability bilit Average loan size A$251,105 – W
Slide 34: Australian covered bonds amongst highest rated / lowest risk
Australian covered bonds amongst highest rated / lowest risk Moody’s selected l t d credit dit risk indicators 9 for covered bonds (global) S Source: Moody’s M d ’ IInvestors t Service. S i All data d t as off 31 O October t b 2012, 2012 exceptt ffor sovereign i ratings, ti which hi h are as off 30
Slide 35: Westpac Covered Bond Programme
Westpac Covered Bond Programme Issuer Westpac Banking Corporation Issuer rating AA-/Aa2/AA- by S&P / Moody’s Moody s / Fitch Format Legislative Covered Bond Covered Bond rating g Aaa / AAA byy Moody’s y / Fitch Programme size US$20 billion Maturity options Soft and Hard Bullet Covered Bond Guarantor
Slide 36: Programme features
Programme features Covered Bonds are issued by Westpac, backed by an unconditional and irrevocable guarantee by the Covered Structure Bond Guarantor (the “CBT Guarantor”), which is limited in recourse to the assets in the Westpac Covered Bond T t Trust Security comprises a pool of Australian residen
Slide 37: Westpac cover pool
Westpac cover pool Covered Bond Pool eligibility criteria Covered pool loan statistics as at 31 March 2013 At the time of sale, each loan: Total pool loan balance1 A$18 A$18,620,467,551 620 467 551 • Is denominated and payable only in AUD in Australia • Is secured by a mortgage that constitutes a fi
Slide 38: Pool statistics as at 31 March 2013
Pools statistics as at 31 March 2013 Loan to value ratio by balance (%) Geographic distribution by state 40 Current LVR (unindexed) Current LVR (indexed) 30 20 Northern Territory $183.6m, Queensland 10 1.0% $1,896.7m, 10.19% Western Australia $2,476.2m, 13.3% South Australia 0 0 50% 0-50% 50 55% 55-
Slide 39: Pool statistics as at 31 March 2013 (cont.)
Pool statistics as at 31 March 2013 (cont.) Mortgage principal balance distribution Interest rate split (%) % of pool (lhs) Number of loans (rhs) 30 20,000 19.2 25 15,000 20 15 10,000 Fixed 10 Floating 5,000 5 - - 0-100K m - 1.5m 100-200k 200-300k 300-400k 400-500k 500-750k > 1.5m 750k -1m 80.8 1m 2
Slide 40: Westpac's Australian Securitisation Programme Supported by High Quality Assets
WESTPAC’S AUSTRALIAN SECURITISATION PROGRAMME SUPPORTED BY HIGH QUALITY ASSETS Westpac Group Fixed Income Investor Update | May 2013 | European Roadshow 40
Slide 41: Securitisation – provides diversity for investors and issuer
Securitisation – provides diversity for investors and issuer • Securitisation is an important part of the Group’s funding • Westpac has outstanding securitisation transactions under both the WST and Crusade programmes – A$11.5bn in outstanding issuance, represents 2% of the Group’s total funding at
Slide 42: WST RMBS performance
WST RMBS performance Key pool comparison statistics (issuance) High quality product WST WST WST WST WST WST • All WST transactions backed byy prime p 2013-1 2012 - 1 2011-3 2011-2 2011-1 2009-1 residential mortgages Pricing Date Feb-13 May-12 Oct-11 Jun-11 Feb-11 Dec-09 • Consistent pool parameters
Slide 43: Crusade ABS transaction comparison
Crusade ABS transaction comparison • Crusade ABS – 100% auto receivables • Credit enhancement in excess of minimum required by agencies • Long seasoning • 12 month revolving period Deal Crusade ABS 2012-1 SMART 2012-4 SMART 2012-2 REDS EHP Bella 2012-1 SMART 2012-1 (Issue Date) (Dec 12) (Oct 12) (Ju
Slide 44: Additional Information
ADDITIONAL INFORMATION Westpac Group Fixed Income Investor Update | May 2013 | European Roadshow 44
Slide 45: Loan growth predominantly in Australian housing
Loan growth predominantly in Australian housing • Westpac Group loans up 1% Net loans Sep12 – Mar13 ($bn) • Australian housing loans up 2% – Growth in new lending partly offset by high run run-off off as customers use lower rates to repay faster 5.6 (1.0) 0.4 0.7 0.8 0.3 521.1 514.4 • Australian bus
Slide 46: Risk weighted assets relatively flat over half
Risk weighted assets relatively flat over half • Basel III pro forma adjustments added $10.7bn to reported RWA at 30 RWA movements ($bn) September 2012 – $12.0bn $12 0b iincrease iin credit dit RWA 11 309 (3) 3 1 308 (2) 0 298 – Removal of $1.3bn RWA for equity risk as equity investments are now tre
Slide 47: Improvements in asset quality leading to lower impairment charges in 1H13
Improvements in asset quality leading to lower impairment charges in 1H13 New IAPs, write-backs and recoveries ($m) Impairment charge movements ($m) Includes 23% reduction in new IAPs IAPs, with fewer companies downgraded to 983 impaired and top-ups to existing IAPs 33 (71) 976 604 lower due to more
Slide 48: High quality portfolio with bias to secured consumer lending
High quality portfolio with bias to secured consumer lending Asset composition as at 31 March 2013 (%) Cash and balances with central banks Total assets On balance sheet lending Receivables due from other financial institutions 18 Trading securities, financial assets at fair value and 4 Housing avai
Slide 49: Diversification across industries and large exposures
Diversification across industries and large exposures Exposures at default1 by sector ($m) Top 10 exposures to corporations and NBFIs as a % of TCE5 (%) • Topp 10 single g name exposures p p to corporations and non-bank financial Finance & insurance 2 institutions (NBFIs) continue to be well below 2
Slide 50: Commercial property portfolio comfortably within appetite
Commercial property portfolio comfortably within appetite Commercial property exposures size ($bn) and % of TCE1 Commercial property portfolio by sector and region (%) Commercial property exposure ($bn) As at 31 March 2013 96 9.6 9 18 70 9.1 Commercial Property as % of TCE 10.00 9 17 8.0 7.7 17 55 7
Slide 51: Australian consumer asset quality sound
Australian consumer asset quality sound Australian housing portfolio by State (%) as at 31 March 2013 Australian credit card average payments to balance ratio2 (%) 1 50 WRBB, St.George WRBB St George & RAMS All banks 46 6 46.6 45.6 45.2 45.3 45.4 40 44.6 44.7 43.8 43.7 42.7 30 41.4 20 39.7 39.8 10 -
Slide 52: Westpac aims to efficiently meet investor preferences
Westpac aims to efficiently meet investor preferences • Westpac’s wholesale funding strategy is focused on diversity and Westpac’s wholesale funding capabilities flexibility • Able Abl tto iissue iin a b broad d range off fformats, t ttenors and d currencies, i ECP/ECD including covered bonds EMTN •
Slide 53: Appendix 1: Cash earnings adjustments
Appendix 1: Cash earnings adjustments Cash earnings adjustment (A$m) 1H13 2H12 1H12 R Reported t d NPAT 3 304 3,304 3 003 3,003 2 967 2,967 TPS revaluations 8 3 24 Treasury shares 29 15 12 Ineffective hedges (23) 1 (8) Fair value gain/(loss) on economic hedges 57 (13) 20 Buyback y of government g g
Slide 54: Appendix 2: Cash earnings adjustments by segment
Appendix 2: Cash earnings adjustments by segment Westpac BT St.George Westpac Retail & Financial New Pacific Group 1H13 Segment Results (A$m) Banking Institutional Group Business Group Zealand Banking Businesses Group Bank Banking (Australia) Reported NPAT 1,116 651 334 813 298 64 28 3,304 TPS reval
Slide 55: Appendix 3: APRA to BCBS Basel III reconciliation
Appendix 3: APRA to BCBS Basel III reconciliation • The Australian Prudential Regulation Authority (APRA) has maintained the conservative stance adopted under its Basel III capital standards, resulting in a significant variance between capital measured under APRA and fully harmonised Basel III • Key
Slide 56: Appendix 4: Definitions
Appendix 4: Definitions Financial performance Asset quality Core earnings Operating profit before income tax and impairment charges Stressed Stressed loans are Watchlist and Substandard, 90 days past due well loans secured and impaired assets AIEA Average interest earning assets Impaired assets can
Slide 57: Contacts
Contacts For further information For further information go to: www.westpac.com.au/investorcentre Curt Zuber Treasurer, Westpac Banking Corporation and click on ‘Fixed income investors’ +61 2 8253 4230 czuber@westpac.com.au or visit our Bloomberg page ‘WBCT’ Joanne Dawson D Deputy t T Treasurer, Wes
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