6-K
WESTPAC BANKING CORP (WEBNF)
6-K
2022-05-09
For: 2022-05-09
View Original
Added on
April 06, 2026
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
May 9, 2022
Commission File Number 1-10167
WESTPAC BANKING CORPORATION
(Translation of registrant’s name into English)
275 KENT STREET, SYDNEY, NEW SOUTH WALES 2000, AUSTRALIA
(Address of principal executive office)
Indicate by check mark whether the registrant files or will file annual reports
under cover of Form 20-F or Form 40-F.
Form 20-F x Form 40-F ¨
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ¨
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ¨
Incorporation by Reference
The information contained in Exhibit 1 to this Report on Form 6-K shall be incorporated by reference in the prospectuses relating to the Registrant’s securities contained in the Registrant’s Registration Statements on Form F-3 (File Nos. 333-260702 and 333-260703), as such prospectuses may be amended or supplemented from time to time.
Index to Exhibits
| ExhibitNo. | Description |
|---|---|
| 1 | Westpac Group March 2022 Pillar 3 Report |
Disclosure regarding forward-looking statements
The information contained in this Report on Form 6-K contains statements that constitute “forward-looking statements” within the meaning of section 21E of the U.S. Securities Exchange Act of 1934. Forward-looking statements are statements about matters that are not historical facts. Forward-looking statements appear in a number of places in this Report and include statements regarding our intent, belief or current expectations with respect to our business and operations, macro and micro economic and market conditions, results of operations and financial condition.
We use words such as ‘will’, ‘may’, ‘expect’, ‘indicative’, ‘intend’, ‘seek’, ‘would’, ‘should’, ‘could’, ‘continue’, ‘plan’, ‘aim’, ‘probability’, ‘risk’, ‘forecast’, ‘likely’, ‘estimate’, ‘anticipate’, ‘believe’ or other similar words to identify forward-looking statements. These forward-looking statements reflect our current views with respect to future events and are subject to change, certain risks, uncertainties and assumptions which are, in many instances, beyond our control and have been made based upon management’s expectations and beliefs concerning future developments and their potential effect upon us. There can be no assurance that future developments will be in accordance with our expectations or that the effect of future developments on us will be those anticipated. Should one or more of the risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results could differ materially from the expectations described in this Report. Factors that may impact on the forward-looking statements made include, but are not limited to, those described in the section entitled ‘Risk factors’ in Westpac’s 2021 Annual Report on Form 20-F filed with the U.S. Securities and Exchange Commission, as well as the ongoing impact of COVID-19. When relying on forward-looking statements to make decisions with respect to us, investors and others should carefully consider such factors and other uncertainties and events. We are under no obligation, and do not intend, to update any forward-looking statements contained in this Report, whether as a result of new information, future events or otherwise, after the date of this Report.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| WESTPAC BANKING<br> CORPORATION | ||
|---|---|---|
| (Registrant) | ||
| Date: May 9, 2022 | By: | /s/<br> Yvette Adiguzel |
| Yvette Adiguzel | ||
| Tier One Attorney |
Exhibit 1
| ASX<br>Release<br><br><br>9 MAY 2022<br><br>Pillar 3 Report as at 31 March 2022<br><br>Westpac Banking Corporation (“Westpac”) today provides the attached Pillar 3<br>Report (March 2022).<br><br><br><br><br><br><br><br><br><br><br>For further information:<br><br>Hayden Cooper Andrew Bowden<br>Group Head of Media Relations Head of Investor Relations<br>0402 393 619 0438 284 863<br><br><br>This document has been authorised for release by Tim Hartin, Company Secretary.<br><br><br><br>Level 18, 275 Kent Street<br>Sydney, NSW, 2000 |
|---|
| Pillar 3 report<br>Table of contents<br><br>2 | Westpac Group March 2022 Pillar 3 report<br>Structure of Pillar 3 report<br>Executive summary 3<br>Introduction 6<br>Risk appetite and risk types 7<br>Controlling and managing risk 8<br>Group structure 16<br>Capital overview 18<br>Leverage ratio 23<br>Credit risk management 25<br>Credit risk exposures 35<br>Credit risk mitigation 59<br>Counterparty credit risk 61<br>Securitisation 64<br>Market risk 74<br>Interest rate risk in the banking book 78<br>Operational risk 80<br>Equity risk 82<br>Funding and liquidity risk management 84<br>Liquidity coverage ratio 85<br>Net stable funding ratio 86<br>Appendices<br>Appendix I – Regulatory capital reconciliation 88<br>Appendix II – Entities included in regulatory consolidation 94<br>Appendix III – Level 3 entities’ assets and liabilities 97<br>Appendix IV – Regulatory expected loss 98<br>Appendix V – APS330 quantitative requirements 99<br>Glossary 102<br>Disclosure regarding forward-looking statements 107<br><br><br><br>In this report references to ‘Westpac’, ‘Westpac Group’, ‘the Group’, ‘we’, ‘us’ and ‘our’ are to Westpac Banking<br>Corporation and its controlled entities \(unless the context indicates otherwise\).<br>In this report, unless otherwise stated or the context otherwise requires, references to '$', 'AUD' or 'A$' are to<br>Australian dollars.<br>Any discrepancies between totals and sums of components in tables contained in this report are due to rounding.<br>In this report, unless otherwise stated, disclosures reflect the Australian Prudential Regulation Authority’s \(APRA\)<br>implementation of Basel III.<br>Information contained in or accessible through the websites mentioned in this report does not form part of this<br>report unless we specifically state that it is incorporated by reference and forms part of this report. All references in<br>this report to websites are inactive textual references and are for information only. |
| --- |
| Pillar 3 report<br>Executive summary<br><br> Westpac Group March 2022 Pillar 3 report | 3<br>Key capital ratios<br> 31 March 2022 30 September 2021 31 March 2021<br>Level 2 Regulatory capital structure<br>Common equity Tier 1 capital after deductions $m 52,126 53,808 52,932<br>Risk weighted assets $m 459,956 436,650 428,899<br>Common equity Tier 1 capital ratio % 11.33 12.32 12.34<br>Additional Tier 1 capital ratio % 2.08 2.33 2.21<br>Tier 1 capital ratio % 13.41 14.65 14.55<br>Tier 2 capital % 4.30 4.21 3.88<br>Total regulatory capital ratio % 17.71 18.86 18.43<br>APRA leverage ratio % 5.60 5.99 6.27<br>Level 1 Regulatory capital structure<br>Common equity Tier 1 capital after deductions $m 48,684 54,314 53,313<br>Risk weighted assets $m 433,643 431,422 424,656<br>Level 1 Common equity Tier 1 capital ratio % 11.23 12.59 12.55<br><br>Common equity Tier 1 capital ratio movement for First Half 2022 \(basis points\)<br><br>Westpac’s Level 2 CET1 capital ratio was 11.33% at 31 March 2022, 99 basis points \(bps\) lower than 30<br>September 2021. Key movements in the CET1 capital ratio over the half were:<br> • First Half 2022 cash earnings \(67bps increase\);<br> • Payment of the 2021 final dividend \(48bps decrease\). Shares for the 2021 final dividend DRP were purchased<br>on market so had no impact on capital ratios;<br> • A $3.5 billion off-market share buy-back in February 2022 \(76bps decrease\);<br> • An increase in RWA \(70bps decrease\) mostly from higher interest rate risk in the banking book \(IRRBB\) from<br>increased interest rate volatility \(44bps decrease\), an increase in lending \(16bps decrease\) and higher<br>operational risk following the adoption of the standardised measurement approach in January 2022 \(5bps<br>decrease\);<br> • Capital deductions and other capital movements \(14bps increase\) from lower deferred tax assets \(14bps<br>increase\), movements in fair value on economic hedges recognised in net profit \(4bps increase\) and<br>remeasurement of the defined benefit superannuation obligation \(1bp increase\). These were partly offset by<br>revaluation of debt securities in other comprehensive income \(5bps decrease\);<br> • Foreign currency impacts from the appreciation of the A$ against the US$ and NZ$ \(1bps increase\)1; and<br> • Divestment including Westpac Life-NZ-Limited \(7bps\) and Westpac’s motor vehicle dealer finance and<br>novated leasing business \(6bps\).<br>Westpac’s Level 1 CET1 capital ratio was 11.23% at 31 March 2022, 136 basis points lower than 30 September<br>2021. In addition to the key movements outlined above, the Level 1 CET1 ratio decreased by 18 basis points<br>following implementation of the final revised standards for APS 111 Capital Adequacy: Measurement of Capital<br>and APS 222 Associations with Related Entities from 1 January 2022.<br><br><br><br><br><br><br><br><br><br>1 Reflecting the net impact of movements in the foreign currency translation reserve and RWA |
| --- |
| Pillar 3 report<br>Executive summary<br><br>4 | Westpac Group March 2022 Pillar 3 report<br><br>Risk Weighted Assets \(RWA\)<br>$m 31 March 2022 30 September 2021 31 March 2021<br>Risk weighted assets at Level 2<br>Credit risk 359,673 357,295 347,127<br>Market risk 9,596 6,662 9,490<br>Operational risk 57,875 55,875 54,090<br>Interest rate risk in the banking book 27,710 11,446 11,998<br>Other 5,102 5,372 6,194<br>Total RWA 459,956 436,650 428,899<br>Total Exposure at Default 1,164,050 1,134,083 1,076,503<br>Total RWA increased $23.3 billion or 5.3% over the half with most of the increase in non-credit risk RWA.<br>Non-credit risk RWA was $20.9 billion, higher from:<br> • IRRBB RWA increased from $11.4b to $27.7b over the half \(up $16.3b or 142%\). Westpac currently invests its<br>capital over a 3 year term. Due to the interest rate volatility observed over the half, in particular the more<br>recent significant increases in two and three year market swap rates, the amount of IRRBB RWA has<br>increased, mainly reflecting the valuation differences to capital invested over a one year term;<br> • A $2.9 billion increase in market risk RWA mainly due to the introduction of an industry-wide overlay for<br>updates required to market risk models which require regulatory approval; and<br> • A $2.0 billion increase in operational risk RWA from adopting the standardised measurement approach for<br>calculating operational risk RWA<br>The $2.4 billion increase in credit risk RWA included:<br> • A $5.9 billion increase from specialised lending, residential mortgages and corporate lending;<br> • Modelling, methodology and overlay changes1, which together increased RWA by $0.7 billion partly offset by;<br> • Foreign currency translation impacts which reduced RWA by $1.7 billion mostly from the appreciation of the<br>A$ against the US$ and NZ$;<br> • A $1.4 billion decrease from improved credit quality metrics with lower stressed assets across business<br>lending and specialised lending; and<br> • A decrease in credit RWA associated with derivative exposures \(counterparty credit risk and mark-to-market<br>related credit risk\) of $1.1 billion.<br><br>Additional Tier 1 and Tier 2 Capital movements for First Half 2022<br>On 20 December 2021, we redeemed approximately $0.55 billion of Westpac Capital Notes 4 \(WCN 4\) that<br>remained on issue2, which decreased Tier 1 capital by 12bps.<br>During the half, we issued US$2.25 billion \(approximately A$3.2 billion\) of Tier 2 capital instruments and redeemed<br>A$0.35 billion and JPY 8,000 billion \(approximately A$0.1 billion\) of Tier 2 capital instruments. The net impact was<br>to increase the total regulatory capital ratio by 59bps.<br><br>Exposure at Default<br>Exposure at default increased $30 billion over the half, primarily due to an increase in liquid assets \(increased<br>exposure to sovereigns\) of $23.2 billion and higher exposures to residential mortgages \($3.7 billion\) and<br>specialised lending \($4.1 billion\).<br><br><br>Leverage Ratio<br>The leverage ratio represents the amount of Tier 1 capital relative to exposure3. At 31 March 2022, Westpac’s<br>leverage ratio was 5.60%, down 39bp since 30 September 2021 due to a decrease in Tier 1 capital and higher on<br>balance sheet exposures.<br><br>Liquidity Coverage Ratio \(LCR\)<br>Westpac’s average LCR for the quarter ending 31 March 2022 was 137% \(31 December 2021: 142%\).<br><br>1 Modelling changes included updates to model estimates for Australian retail and mortgage PD, credit card LGD and unsecured LGD.<br>The impacts of these changes were partially offset by a reduction in RWA overlays upon implementation of updated model estimates.<br>2 On 15 September 2021, Westpac issued $1.75 billion of Additional Tier 1 capital \(Westpac Capital Notes 8\), of which approximately<br>$1.15 billion comprised reinvestment by the holders of WCN 4. The remaining $0.55 billion of WCN 4 were redeemed on 20 December<br>2021.<br>3 As defined under Attachment D of APS110: Capital Adequacy. |
| --- |
| Pillar 3 report<br>Executive summary<br><br> Westpac Group March 2022 Pillar 3 report | 5<br>Net Stable Funding Ratio \(NSFR\)<br>Westpac had an NSFR of 125%1 as at 31 March 2022 \(31 December 2021: 127%\).<br><br>1 Calculated as total available stable funding divided by total required stable funding as at end of the quarter. |
| --- |
| Pillar 3 report<br>Introduction<br><br>6 | Westpac Group March 2022 Pillar 3 report<br>Westpac Banking Corporation is an Authorised Deposit-taking Institution \(ADI\) subject to regulation by APRA.<br>APRA has accredited Westpac to apply advanced models permitted by the Basel III global capital adequacy<br>regime to the measurement of its regulatory capital requirements. Westpac uses the Advanced Internal Ratings-<br>Based approach \(Advanced IRB\) for credit risk and the Standardised Measurement Approach \(SMA\) for<br>operational risk1.<br>In accordance with APS330 Public Disclosure, financial institutions that have received the Advanced IRB<br>accreditation, such as Westpac, are required to disclose prudential information about their risk management<br>practices on a semi-annual basis. A subset of this information must be disclosed quarterly.<br>This report describes Westpac’s risk management practices and presents the prudential assessment of Westpac’s<br>capital adequacy as at 31 March 2022.<br>In addition to this report, the regulatory disclosures section of the Westpac website2 contains the reporting<br>requirements for:<br> ⚫ Capital instruments under Attachment B of APS330; and<br> ⚫ The identification of potential Global-Systemically Important Banks \(G-SIB\) under Attachment H of APS330<br>\(disclosed annually\).<br>Capital instruments disclosures are updated when:<br> ⚫ A new capital instrument is issued that will form part of regulatory capital; or<br> ⚫ A capital instrument is redeemed, converted into CET1 capital, written off, or its terms and conditions are<br>changed.<br><br><br>1 From 1 January 2022, Westpac has adopted the Standardised Measurement Approach \(SMA\) to Operational Risk Capital as<br>permitted by Prudential Standard APS115 Capital Adequacy: Standardised Measurement Approach to Operational Risk.<br>2 http://www.westpac.com.au/about-westpac/investor-centre/financial-information/regulatory-disclosures/ |
| --- |
| Pillar 3 report<br>Risk appetite and risk types<br><br> Westpac Group March 2022 Pillar 3 report | 7<br>Westpac’s appetite for risk is informed by our strategic objectives and business plans, regulatory rules and ratios,<br>and the potential for adverse outcomes that result in material impacts on our customers, our staff, our reputation,<br>our regulatory relationships and/or our financial position including the potential for capital and liquidity ratios to fall<br>below target levels in stressed scenarios.<br>Westpac distinguishes between different types of risk and takes an integrated approach toward identifying,<br>assessing, and managing risks. The annual review of Westpac’s Risk Management Framework, which includes<br>the Risk Management Strategy and Board Risk Appetite Statement, together with the establishment and<br>monitoring of key controls through supporting frameworks and policies all play vital roles.<br>Overview of key risk types<br> ⚫ risk culture – the risk that our culture does not promote and reinforce behavioural expectations or structures to<br>identify, understand, discuss and act on risks. This leads to ineffective risk management, poor risk awareness,<br>risk-taking outside of risk appetite that is tolerated and a culture where key learnings are not integrated into<br>Group-wide and customer outcomes, impeding continuous improvement;<br> ⚫ strategic risk – the risk that Westpac makes inappropriate strategic choices, does not implement its strategies<br>successfully, or does not respond effectively to changes in the operating environment;<br> ⚫ capital adequacy risk – the risk that Westpac has an inadequate level or composition of capital to support its<br>normal business activities and to meet its regulatory capital requirements under normal operating<br>environments or stressed conditions;<br> ⚫ funding and liquidity risk – the risk that Westpac cannot meet its payment obligations or that it does not have<br>the appropriate amount, tenor and composition of funding and liquidity to support its assets;<br> ⚫ credit risk – the risk of financial loss, including financial loss due to the impacts of climate change \(e.g.<br>physical, transition and litigation risks\), where a customer or counterparty fails to meet their financial<br>obligations to Westpac;<br> ⚫ market risk – the risk of an adverse impact on earnings resulting from changes in the value of Westpac’s<br>positions because of a change in financial market factors, such as foreign exchange rates, interest rates,<br>commodity prices and equity prices. This includes interest rate risk in the banking book - the risk to interest<br>income from a mismatch between the duration of assets and liabilities that arises in the normal course of<br>business activities;<br> ⚫ operational risk – the risk of loss resulting from inadequate or failed internal processes, people and systems or<br>from external events. The definition excludes strategic risk. While legal risk and regulatory risk arise through<br>inadequate or failed processes, people, and systems or from external events, these are reflected primarily in<br>compliance and conduct risk;<br> ⚫ cyber risk – the risk that Westpac or its third parties’ data or technology are inappropriately accessed,<br>manipulated, or damaged from cybersecurity threats or vulnerabilities;<br> ⚫ compliance and conduct risk – the risk of failing to abide by compliance obligations required of us or otherwise<br>failing to have behaviours and practices that deliver suitable, fair, and clear outcomes for our customers and<br>that support market integrity;<br> ⚫ reputational and sustainability risk − the risk that an action, inaction, transaction, investment, or event<br>\(including those in relation to Climate change, Environmental, Social, and Governance matters\) will reduce<br>trust in Westpac’s integrity and competence by clients, counterparties, investors, regulators, employees, or the<br>public; and<br> ⚫ financial crime risk – the risk that Westpac fails to prevent financial crime and comply with applicable global<br>financial crime regulatory obligations. |
| --- |
| Pillar 3 report<br>Controlling and managing risk<br><br>8 | Westpac Group March 2022 Pillar 3 report<br>We have adopted and continue to embed a Three Lines of Defence model which enables all our people to<br>understand their own role and responsibilities in the active management of risk. We have put in place a risk<br>management framework that seeks to:<br> ⚫ achieve our purpose of helping Australians and New Zealanders succeed;<br> ⚫ deliver fair outcomes for our customers and counterparties that support market integrity;<br> ⚫ protect Westpac’s depositors, policyholders, and investors by maintaining a balance sheet with sound credit<br>quality and buffers over regulatory minimums;<br> ⚫ manage risk within appetite;<br> ⚫ seek appropriate reward for risk we take aligned to our purpose, values and behaviours; and<br> ⚫ meet our regulatory and statutory obligations.<br>The Group Risk Management Framework, Group Risk Management Strategy and Board Risk Appetite Statement<br>are reviewed annually by the Board Risk Committee. The review of the Risk Management Framework includes<br>consideration of whether the framework continues to be sound, and that Westpac is operating with due regard to<br>risk appetite. The Group Risk Management Framework, Group Risk Management Strategy and Board Risk<br>Appetite Statement were approved by the Board, on the recommendation of the Board Risk Committee, during the<br>12 months to 31 March 2022.<br>Risk management governance structure as at 31 March 2022<br>Board ⚫ approves our overall risk management framework, the Group Risk<br>Management Framework, Group Risk Management Strategy and Board<br>Risk Appetite Statement and monitors the effectiveness of risk<br>management by Westpac;<br> ⚫ forms a view of Westpac’s risk culture and oversees the identification of,<br>and steps taken, to address any changes to risk culture; and<br> ⚫ makes an annual declaration to APRA on risk management in accordance<br>with regulatory requirements.<br>Board Risk<br>Committee \(BRiskC\)<br>To assist the Board to:<br> ⚫ consider and approve Westpac’s overall risk framework for managing<br>financial and non-financial risks;<br> ⚫ oversee the risk culture across Westpac;<br> ⚫ review and approve other risk management frameworks and monitor<br>performance under those frameworks \(as appropriate\);<br> ⚫ review and approve the Group Risk Management Framework, Group Risk<br>Management Strategy and Board Risk Appetite Statement; and<br> ⚫ make its annual declaration to APRA on risk management under APRA<br>prudential standard CPS 220 Risk Management.<br>The Committee is also responsible for:<br> ⚫ reviewing and monitoring Westpac’s risk profile and controls for consistency<br>with the Board Risk Appetite Statement;<br> ⚫ reviewing and approving frameworks, policies, and processes for managing<br>risk;<br> ⚫ overseeing and approving the Group's Recovery Plan;<br> ⚫ reviewing and approving the limits and conditions that apply to the<br>delegated credit risk and market risk approval authorities;<br> ⚫ reviewing reports on policies and safeguards for assuring information<br>security, including systems to detect and respond to data breaches,<br>cybersecurity incidents and information security testing results;<br> ⚫ monitoring changes anticipated for the economic and business environment<br>including consideration of emerging risks and other factors considered<br>relevant to our risk profile and risk appetite;<br> ⚫ reviewing and where appropriate approving risks beyond the approval<br>discretion provided to management; and<br> ⚫ assisting the Board to oversee compliance management within Westpac,<br>supported by the Board Legal, Risk and Compliance Committee. |
| --- |
| Pillar 3 report<br>Controlling and managing risk<br><br> Westpac Group March 2022 Pillar 3 report | 9<br>Risk management governance structure \(continued\)<br> From the perspective of specific types of risk, the Board Risk Committee’s role<br>includes:<br> ⚫ credit risk – reviewing and approving material policies and limits supporting<br>the Group Credit Risk Management Framework, approving credit<br>provisioning, and monitoring the risk profile, performance, and management<br>of our credit portfolio;<br> ⚫ funding and liquidity risk – reviewing and approving key policies and limits<br>supporting the Group Liquidity Risk Management Framework, including our<br>annual funding strategy, recovery and resolution plans, liquidity targets and<br>limits, and monitoring the liquidity position and requirements;<br> ⚫ capital adequacy risk – reviewing and approving key policies and limits<br>supporting the Group Capital Adequacy Risk Management Framework,<br>overseeing and approving the Internal Capital Adequacy Assessment<br>Process \(ICAAP\) and monitoring the associated management of this risk;<br> ⚫ market risk – reviewing and approving key policies and limits supporting the<br>Group Market Risk Management Framework, and reviewing and monitoring<br>the market risk performance, exposures, and risk positions;<br> ⚫ operational risk – reviewing and approving key policies supporting the<br>Group Operational Risk Management Framework and monitoring the<br>performance of operational risk management and controls;<br> ⚫ cyber risk – reviewing and approving key policies supporting the Group<br>Cyber Risk Management Framework and monitoring safeguards for<br>assuring information and security;<br> ⚫ risk culture – reviewing and approving the Risk Culture Framework and<br>monitoring the associated measurement and management of this risk; and<br> ⚫ reputational and sustainability risk – reviewing and approving the Group<br>Reputation and Sustainability Risk Management Frameworks and<br>monitoring the associated management of these risks.<br> The Board Risk Committee also:<br> ⚫ oversees and approves the ICAAP and in doing so reviews and<br>recommends the target capital ranges for regulatory capital and reviews<br>and monitors capital levels for consistency with Westpac’s risk appetite;<br> ⚫ reviews, oversees and as appropriate, approves Westpac’s stress testing,<br>including the material scenarios adopted and monitors material stress<br>testing results and management responses;<br> ⚫ provides relevant periodic assurances and reports \(as appropriate\) to the<br>Board Audit Committee;<br> ⚫ forms a view on Westpac’s risk culture and the extent to which it supports<br>the ability of Westpac to operate consistently within the Group Risk<br>Management Framework and Board Risk Appetite Statement and oversees<br>the identification of, and steps taken to address, any desirable changes to<br>risk culture;<br> ⚫ refers or recommends to the Board and any other Board Committees \(as<br>appropriate\) any matters that have come to the attention of the Board Risk<br>Committee that are relevant for the Board or the respective Board<br>Committee; and<br> ⚫ in its capacity as the Westpac Group’s US Risk Committee, oversees the<br>key risks, risk management framework and policies of Westpac’s US<br>operations. |
| --- |
| Pillar 3 report<br>Controlling and managing risk<br><br>10 | Westpac Group March 2022 Pillar 3 report<br>Risk management governance structure \(continued\)<br>Board Legal, Regulatory<br>and Compliance<br>Committee \(BLRCC\)<br>To assist the Board Risk Committee as it oversees:<br> ⚫ material legal and regulatory change relevant to Westpac; and<br> ⚫ Westpac’s management of:<br>o material litigation \(including class actions\) and regulatory<br>investigations;<br>o compliance;<br>o conduct risk;<br>o financial crime risk;<br>o customer remediation activities and customer complaints; and<br>o such other operational risk activities as are delegated to the Board<br>Legal, Regulatory & Compliance Committee by the Board Risk<br>Committee.<br>From the perspective of specific types of risk, the BLRCC role includes:<br> ⚫ financial crime risk – reviewing and approving the Group Financial Crime<br>Risk Management Framework and key supporting policies and standards,<br>including receiving information regarding material breaches of Westpac’s<br>Anti-Bribery and Corruption \(ABC\) Policy and monitoring Westpac’s<br>financial crime risk performance and controls; and<br> ⚫ compliance and conduct risk - reviewing and approving the Group<br>Compliance and Conduct Risk Management Framework and key<br>supporting policies and standards, and reviewing and monitoring Westpac's<br>risk performance and controls.<br>Board Committees with a<br>Risk Focus<br>Board Audit Committee \(BAC\)<br>To assist the Board by overseeing the:<br> ⚫ integrity of financial statements and financial reporting systems of Westpac<br>and its related bodies corporate;<br> ⚫ external audit engagement, including the external auditor’s appointment,<br>removal and rotation of the lead audit engagement partner, and the external<br>auditor’s qualifications, performance, independence and fees;<br> ⚫ performance of the internal audit function; and<br> ⚫ integrity of the Group’s corporate reporting including the Group‘s financial<br>reporting.<br>Board Remuneration Committee \(BRC\)<br>To assist the Board by reviewing and recommending:<br> ⚫ the Group Remuneration Policy and assessing its effectiveness;<br> ⚫ individual remuneration levels of the Non-executive Directors, CEO, Group<br>Executives, and other senior executives;<br> ⚫ remuneration structures for each category of persons covered by the Group<br>Remuneration Policy;<br> ⚫ CEO’s goals and objectives and evaluating the CEO’s performance<br>considering these objectives;<br> ⚫ short and long-term variable reward plans and outcomes and adjustments<br>to variable remuneration for Group Executives and other senior executives;<br>and<br> ⚫ approval of all equity-based plans.<br>Board Technology Committee \(BTC\)<br>To assist the Board as it oversees:<br> ⚫ the implementation of the Group’s technology and data strategy; and<br> ⚫ the delivery of major technology transformation programs. |
| --- |
| Pillar 3 report<br>Controlling and managing risk<br><br> Westpac Group March 2022 Pillar 3 report | 11<br>Risk management governance structure \(continued\)<br>Executive Team Westpac Executive Team \(ET\)<br> ⚫ executes the Board-approved strategy;<br> ⚫ delivers Westpac’s various strategic and performance goals within the<br>approved risk appetite;<br> ⚫ endorsement of climate change and human rights position statements for<br>approval by the Board. All other position statements on sustainability issues<br>are approved by the CEO; and<br> ⚫ monitors key risks within each business unit, capital adequacy, Westpac’s<br>sustainability performance and reputation.<br>Executive risk committees Westpac Group Executive Risk Committee \(RISKCO\)<br> ⚫ facilitates the management and oversight of material risks by accountable<br>individuals across Westpac within the context of the risk appetite approved<br>by the Board;<br> ⚫ oversees the effectiveness of the Risk Management Framework and the<br>execution of the Risk Management Strategy;<br> ⚫ reviews and monitors risk class risk management frameworks, including the<br>Reputation and Sustainability Framework, and key supporting policies as<br>required, as well as appropriate controls and actions;<br> ⚫ monitors and reviews Westpac’s risk profile for all identified material risks;<br> ⚫ sets, reinforces and promotes expectations on risk culture and values;<br> ⚫ analyses emerging risks and oversees the adequacy of appropriate actions<br>to address these;<br> ⚫ reviews the outcomes of, annual stress testing, material risk models and<br>risk measurement methodologies, including impacts on capital adequacy<br>and the Group’s Recovery Plan; and<br> ⚫ reviews the ICAAP before approval by the Board Risk Committee.<br> Westpac Group Asset & Liability Committee \(ALCO\)<br> ⚫ facilitates the optimisation of funding and liquidity risk-reward across<br>Westpac;<br> ⚫ reviews the level and quality of capital to ensure that it is commensurate<br>with Westpac’s risk profile, business strategy and risk appetite;<br> ⚫ oversees the Liquidity Risk Management Framework, Capital Adequacy<br>Risk Management Framework and key supporting policies;<br> ⚫ oversees the funding and liquidity risk profile and balance sheet risk profile;<br>and<br> ⚫ identifies emerging funding and liquidity risks and oversees actions to<br>respond as appropriate.<br> Westpac Group Credit Risk Committee \(CREDCO\)<br> ⚫ reviews and oversees the Credit Risk Management Framework, Credit Risk<br>Management Strategy, Credit Risk Appetite Statement, and key supporting<br>policies;<br> ⚫ oversees Westpac’s credit risk profile;<br> ⚫ oversees the Climate Change Financial Risk Committee, which is chaired<br>by the Group Chief Credit Officer and is responsible for the oversight of<br>climate-related credit risk, including the potential impact on credit<br>exposures from climate change-related transition and physical risks; and<br> ⚫ identifies emerging credit risks, allocates responsibility for assessing<br>impacts, and responds as appropriate.<br> Westpac Group Market Risk Committee \(MARCO\)<br> ⚫ reviews and oversees the Market Risk Management Framework and key<br>market risk management policies;<br> ⚫ reviews policies and limits for managing traded and non-traded market risk; |
| --- |
| Pillar 3 report<br>Controlling and managing risk<br><br>12 | Westpac Group March 2022 Pillar 3 report<br>and<br> ⚫ reviews and oversees Westpac’s market risk, equity risk and insurance risk<br>profile. |
| --- |
| Pillar 3 report<br>Controlling and managing risk<br><br> Westpac Group March 2022 Pillar 3 report | 13<br>Risk management governance structure \(continued\)<br> Westpac Group Operational Risk, Compliance and Resilience Committee<br>\(ORCR\)<br> ⚫ facilitates the optimisation of operational, cyber, conduct and compliance<br>risk across Westpac;<br> ⚫ reviews and oversees the Operational Risk Management Framework, the<br>Cyber Risk Management Framework and the Compliance and Conduct<br>Risk Management Framework, and key supporting policies;<br> ⚫ oversees Westpac’s operational risk, cyber risk and conduct and<br>compliance risk profiles; and<br> ⚫ identifies emerging operational, cyber, conduct and compliance risks and<br>appropriate actions to address these.<br> Westpac Group Remuneration Oversight Committee \(ROC\)<br> ⚫ supporting the CEO, BRC and the Board by reviewing and approving<br>remuneration frameworks, guidelines and short term variable reward plans<br>underpinning the Board-approved Westpac Group Remuneration Policy from<br>a Human Resources, Risk \(including Compliance\), Finance and Legal<br>perspective and in line with external requirements;<br> ⚫ assisting the BRC and the Board in fulfilling its responsibility to oversee<br>remuneration policies and practices of Westpac in the context that these<br>policies and practices fairly and responsibly reward individuals having regard<br>to customer and shareholder interests, long term financial soundness and<br>prudent risk management;<br> ⚫ recommending to the CEO for recommendation to the BRC remuneration<br>arrangements including remuneration review and remuneration adjustment<br>outcomes for Responsible Persons, risk and financial control employees,<br>Material Risk Takers and other individuals whose activities may impact the<br>financial soundness of Westpac below the Group Executive level; and<br> ⚫ recommending to the CEO for recommendation to the BRC the criteria and<br>rationale for determining the total quantum of Westpac’s variable reward<br>pool.<br> Model Risk Committee<br> ⚫ reviews and oversees the Group Model Risk Policy and key model risk<br>management policies;<br> ⚫ reviews and oversees Westpac’s model risk profile; and<br> ⚫ reviews and oversees design quality and operating effectiveness of material<br>models.<br> Stress Testing Committee<br> ⚫ reviews and oversees the Group Stress Testing Policy;<br> ⚫ reviews and oversees the effectiveness of Westpac’s stress-testing<br>framework;<br> ⚫ oversees the generation and selection of stress testing scenarios; and<br> ⚫ identifies emerging risks with respect to Westpac’s stress testing scenarios<br>and oversees actions to address them.<br> Westpac Group Financial Crime Risk Committee<br> ⚫ oversees Anti-Money Laundering and Counter-Terrorism Financing, Anti-<br>Bribery and Corruption, Sanctions and Tax Transparency within the context<br>of the risk appetite approved by the Board;<br> ⚫ reviews and oversees the Financial Crime Risk Management Framework,<br>key supporting policies, programs and standards;<br> ⚫ monitors and oversees Westpac’s financial crime risk profile; and<br> ⚫ identifies emerging financial crime risks, and appropriate actions to address<br>these. |
| --- |
| Pillar 3 report<br>Controlling and managing risk<br><br>14 | Westpac Group March 2022 Pillar 3 report<br>Risk management governance structure \(continued\)<br>Risk function Risk Function<br> ⚫ promotes a strong risk culture;<br> ⚫ owns the design and content of the Risk Management Framework;<br> ⚫ defines the structure and coverage of risk appetite;<br> ⚫ defines the annual Risk Management Strategy to execute the Risk<br>Management Framework ensuring that the management of risks is in<br>alignment with risk appetite and business strategy;<br> ⚫ establishes risk policies, procedures and limits;<br> ⚫ measures and reports on risk levels; and<br> ⚫ provides oversight of and direction on the management of risks.<br>Independent internal<br>review<br>Group Audit<br> ⚫ reviews the adequacy and effectiveness of management controls over risk.<br>Divisional business units<br>and Functions<br>Business Units and Functions<br> ⚫ responsible for identifying, evaluating and managing the risks that they<br>originate within approved risk appetite and policies; and<br> ⚫ establish and maintain appropriate risk management and compliance<br>controls, resources and self-assessment processes. |
| --- |
| Pillar 3 report<br>Controlling and managing risk<br><br> Westpac Group March 2022 Pillar 3 report | 15<br>Roles and responsibilities<br>We have adopted and continue to embed a Three Lines of Defence model which enables all our people to<br>understand their own role and responsibilities in the active management of risk.<br>The 1st Line of Defence – manages the risks they originate<br>The 1st Line proactively identifies, evaluates, owns, and manages the risks in their business. It also seeks to<br>ensure that business activities are within approved risk appetite and policies.<br>In managing its risk, the 1st Line is required to establish and maintain appropriate governance structures, controls,<br>resources, and self-assessment processes, including issue identification, recording and escalation procedures.<br>The 2nd Line of Defence – provides oversight, insight and control of 1st Line activities<br>The 2nd Line sets frameworks, controls \(including policies and limits\), and standards for use across the Group and<br>can require remediation or cessation of activity where these are not adhered to. Their approach is risk-based and<br>proportionate to 1st Line activities.<br>The 2nd Line also reviews and challenges 1st Line activities and decisions that may materially affect Westpac’s risk<br>position, and independently evaluates the effectiveness of the 1st Line’s controls, monitoring, compliance and risk<br>management.<br>The 2nd Line provides insight to the 1st Line, assisting in developing, maintaining, and enhancing the Business’<br>approach to risk management and considers and reports the aggregated risk profile of the Group, providing end-<br>to-end oversight of risk \(whilst maintaining appropriate transparency and oversight of disaggregated risks\).<br>The 3rd Line of Defence – provides independent, objective assurance<br>Group Audit is Westpac’s internal 3rd Line assurance function that provides the Board and Senior Executives with<br>independent and objective evaluation of the adequacy and effectiveness of the Group’s governance, risk<br>management and internal controls. |
| --- |
| Pillar 3 report<br>Group structure<br><br>16 | Westpac Group March 2022 Pillar 3 report<br>APRA applies a tiered approach to measuring Westpac’s capital adequacy1 by assessing financial strength at<br>three levels:<br> ⚫ Level 1, comprising Westpac Banking Corporation and its subsidiary entities that have been approved by<br>APRA as being part of a single 'Extended Licensed Entity' \(ELE\) for the purposes of measuring capital<br>adequacy;<br> ⚫ Level 2, the consolidation of Westpac Banking Corporation and all its subsidiary entities except those entities<br>specifically excluded by APRA regulations. The head of the Level 2 group is Westpac Banking Corporation;<br>and<br> ⚫ Level 3, the consolidation of Westpac Banking Corporation and all its subsidiary entities.<br>Unless otherwise specified, all quantitative disclosures in this report refer to the prudential assessment of<br>Westpac’s financial strength on a Level 2 basis2. Refer to Appendix II for a list of entities included in regulatory<br>consolidation for the purposes of measuring capital adequacy at Level 1 and Level 2.<br>The Westpac Group<br>The following diagram shows the Level 3 conglomerate group and illustrates the different tiers of regulatory<br>consolidation.<br>Level 1 Consolidation<br>Level 2 Consolidation<br>Level 3 Consolidation<br>Regulatory<br>non-consolidated<br>subsidiaries<br>Westpac<br>New Zealand Ltd<br>Other Westpac Level 2<br>subsidiaries<br>Westpac Banking<br>Corporation<br>Westpac Level 1<br>subsidiaries<br><br>Accounting consolidation3<br>The consolidated financial statements incorporate the assets and liabilities of all subsidiaries \(including structured<br>entities\) controlled by Westpac. Westpac and its subsidiaries are referred to collectively as the ‘Group’. The effects<br>of all transactions between entities in the Group are eliminated on consolidation. Control exists when the parent<br>entity is exposed to, or has rights to, variable returns from its involvement with an entity, and has the ability to<br>affect those returns through its power over that entity. Subsidiaries are fully consolidated from the date on which<br>control commences and they are no longer consolidated from the date that control ceases.<br>Group entities excluded from the regulatory consolidation at Level 2<br>Regulatory consolidation at Level 2 covers the global operations of Westpac and its subsidiary entities, including<br>other controlled banking, securities and financial entities, except for those entities involved in the following<br>business activities:<br> ⚫ insurance;<br> ⚫ acting as manager, responsible entity, approved trustee, trustee or similar role in relation to funds<br>management;<br> ⚫ non-financial \(commercial\) operations; or<br> ⚫ special purpose entities to which assets have been transferred in accordance with the requirements of<br>APS120 Securitisation.<br>Retained earnings and equity investments in subsidiary entities excluded from the consolidation at Level 2 are<br>deducted from capital, with the exception of securitisation special purpose entities.<br><br>1 APS110 Capital Adequacy outlines the overall framework adopted by APRA for the purpose of assessing the capital adequacy of an<br>ADI.<br>2 Impaired assets and provisions held in Level 3 entities are excluded from the tables in this report.<br>3 Refer to Note 30 of Westpac’s 2021 Annual Report for further details. |
| --- |
| Pillar 3 report<br>Group Structure<br><br> Westpac Group March 2022 Pillar 3 report | 17<br>Subsidiary banking entities<br>Westpac New Zealand Limited \(WNZL\), a wholly owned subsidiary entity, is a registered bank incorporated in New<br>Zealand and regulated by the Reserve Bank of New Zealand \(RBNZ\). WNZL uses the Advanced IRB approach for<br>credit risk and the AMA for operational risk. Other subsidiary banking entities in the Group include Westpac Bank<br>PNG-Limited and Westpac Europe Limited. For the purposes of determining Westpac’s capital adequacy<br>subsidiary banking entities are consolidated at Level 2.<br>Restrictions and major impediments on the transfer of funds or regulatory capital within the Group<br>Minimum capital \(‘thin capitalisation’\) rules<br>Tax legislation in most jurisdictions in which the Group operates prescribes minimum levels of capital that must be<br>retained in that jurisdiction to avoid a portion of the interest costs incurred in the jurisdiction ceasing to be tax<br>deductible. Capital for these purposes includes both contributed capital and non-distributed retained earnings.<br>Westpac seeks to maintain sufficient capital/retained earnings to comply with these rules.<br>Tax costs associated with repatriation<br>Repatriation of retained earnings \(and capital\) may result in tax being payable in either the jurisdiction from which<br>the repatriation occurs or Australia on receipt of the relevant amounts. This cost would reduce the amount actually<br>repatriated.<br>Intra-group exposure limits<br>Exposures to related entities are managed within the prudential limits prescribed by APRA in APS222 Associations<br>with Related Entities1. Westpac has an internal limit structure and approval process governing credit exposures to<br>related entities. This limit structure and approval process, combined with APRA’s prudential limits, is designed to<br>reduce the potential for unacceptable contagion risk.<br>Prudential regulation of subsidiary entities<br>On 23 March 2021, the RBNZ issued two notices to WNZL under section 95 of the Reserve Bank of New Zealand<br>Act 1989 \(NZ\) requiring WNZL to supply two external reviews to the RBNZ \(the Risk Governance Review and the<br>Liquidity Review\). These reviews only apply to WNZL and not to Westpac in Australia or its New Zealand branch.<br>The Risk Governance Review related to the effectiveness of WNZL’s risk governance, with a focus on the role<br>played by the WNZL Board. This review was undertaken by Oliver Wyman Limited \(Oliver Wyman\) and completed<br>in November 2021. WNZL has a programme of work underway to address the issues raised, which is being<br>overseen by the WNZL Board. WNZL has engaged Oliver Wyman to provide independent assurance that WNZL’s<br>remediation has been delivered to an appropriate standard.<br>The Liquidity Review relates to the effectiveness of WNZL’s actions to improve liquidity risk management and the<br>associated risk culture. Deloitte Touche Tohmatsu’s final report is due to the RBNZ by 13 May 2022.<br>From 31 March 2021, the RBNZ amended WNZL’s conditions of registration, requiring WNZL to discount the value<br>of its liquid assets by approximately 14% which at 31 March 2022 was NZ$3.1 billion. This overlay will apply until<br>the RBNZ is satisfied that:<br> ⚫ the RBNZ’s concerns regarding liquidity risk controls have been resolved; and<br> ⚫ sufficient progress has been made to address risk culture issues in WNZL’s Treasury and Market and Liquidity<br>Risk functions.<br><br><br><br>1 For the purposes of APS222, subsidiaries controlled by Westpac, other than subsidiaries that form part of the ELE, represent ‘related<br>entities’. Prudential and internal limits apply to intra-group exposures between the ELE and related entities, both on an individual and<br>aggregate basis. |
| --- |
| Pillar 3 report<br>Capital overview<br><br>18 | Westpac Group March 2022 Pillar 3 report<br>Capital Structure<br>This table shows Westpac’s capital resources under APS111 Capital Adequacy: Measurement of Capital.<br>31 March 30 September 31 March<br>$m 2022 2021 2021<br>Common equity Tier 1 capital<br>Paid up ordinary capital 39,667 41,601 41,604<br>Treasury shares \(708\) \(663\) \(660\)<br>Equity based remuneration 1,824 1,753 1,731<br>Foreign currency translation reserve \(445\) \(266\) \(519\)<br>Accumulated other comprehensive income 183 402 507<br>Non-controlling interests - other 54 57 49<br>Retained earnings 28,362 28,813 29,097<br>Less retained earnings in life and general insurance, funds management<br>and securitisation entities \(1,144\) \(1,118\) \(1,680\)<br>Deferred fees 265 238 230<br>Total common equity Tier 1 capital 68,058 70,817 70,359<br>Deductions from common equity Tier 1 capital<br>Goodwill \(excluding funds management entities\) \(7,935\) \(8,060\) \(8,529\)<br>Deferred tax assets \(1,812\) \(2,429\) \(2,260\)<br>Goodwill in life and general insurance, funds management<br>and securitisation entities \(209\) \(209\) \(451\)<br>Capitalised expenditure \(2,013\) \(1,951\) \(1,749\)<br>Capitalised software \(1,914\) \(1,840\) \(2,049\)<br>Investments in subsidiaries not consolidated for regulatory purposes \(1,541\) \(2,044\) \(2,063\)<br>Regulatory expected loss in excess of eligible provisions 1 \(164\) \(225\) \(93\)<br>Defined benefit superannuation fund surplus \(60\) \(64\) \(69\)<br>Equity investments \(161\) \(163\) \(162\)<br>Regulatory adjustments to fair value positions \(123\) \(24\) \(1\)<br>Other Tier 1 deductions --\(1\)<br>Total deductions from common equity Tier 1 capital \(15,932\) \(17,009\) \(17,427\)<br>Total common equity Tier 1 capital after deductions 52,126 53,808 52,932<br>Additional Tier 1 capital<br>Basel III complying instruments 9,566 10,180 9,493<br>Total Additional Tier 1 capital 9,566 10,180 9,493<br>Deductions from Additional Tier 1 capital<br>Holdings of own and other financial institutions Additional Tier 1 capital instruments \(25\) \(25\) \(25\)<br>Total deductions from Additional Tier 1 capital \(25\) \(25\) \(25\)<br>Net Addititional Tier 1 regulatory capital 9,541 10,155 9,468<br>Net Tier 1 regulatory capital 61,667 63,963 62,400<br>Tier 2 capital<br>Basel III complying instruments 20,147 18,228 16,373<br>Basel III transitional instruments - 487 462<br>Eligible general reserve for credit loss 158 51 161<br>Total Tier 2 capital 20,305 18,766 16,996<br>Deductions from Tier 2 capital<br>Investments in subsidiaries not consolidated for regulatory purposes \(60\) \(140\) \(140\)<br>Holdings of own and other financial institutions Tier 2 capital instruments \(445\) \(221\) \(199\)<br>Total deductions from Tier 2 capital \(505\) \(361\) \(339\)<br>Net Tier 2 regulatory capital 19,800 18,405 16,657<br>Total regulatory capital 81,467 82,368 79,057<br><br><br>1 An explanation of the relationship between this deduction, regulatory expected loss and provisions for impairment charges is<br>contained in Appendix IV. |
| --- |
| Pillar 3 report<br>Capital overview<br><br> Westpac Group March 2022 Pillar 3 report | 19<br>Capital management strategy<br>Westpac evaluates its approach to capital management through an Internal Capital Adequacy Assessment<br>Process \(ICAAP\), the key features of which include:<br> ⚫ The development of a capital management strategy, including consideration of regulatory minimums, capital<br>buffers and contingency plans. The current regulatory capital minimums together with the capital conservation<br>buffer \(CCB\) are the Total CET1 Requirement. The Total CET1 Requirement for Westpac is at least 8.0%,<br>based on an industry minimum CET1 requirement of 4.5% plus a capital buffer of at least 3.5% applicable to<br>D-SIBs12;<br> ⚫ Consideration of both regulatory and economic capital requirements and the perspectives of external<br>stakeholders including rating agencies as well as equity and debt investors; and<br> ⚫ A stress testing framework that challenges the capital measures, coverage and requirements including the<br>impact of adverse economic scenarios.<br>APRA’s final revised standards for capital indicated that the Total CET1 Requirement for D-SIBs will be 10.25%<br>from 1 January 2023. This requirement includes a CCB of 3.75% and a base level for the countercyclical capital<br>buffer of 1.0%. APRA also indicated3 that it expects that D-SIBs \(including Westpac\) will likely operate with CET1<br>above 11% under the new framework.<br>Given the above Westpac will seek to operate with a CET1 capital ratio of between 11.0% and 11.5% \(operating<br>capital range\) as measured under the new capital framework from 1 January 2023.<br>APRA announcements on capital<br> ⚫ On 5 August 2021 APRA released the final revised standard for APS 111 Capital Adequacy: Measurement of<br>Capital which came into effect on 1 January 2022. The final standard includes changes to the parent ADI’s<br>\(Level 1\) treatment of equity investments in banking and insurance subsidiaries including:<br>o equity investments in subsidiaries \(including any Additional Tier 1 and Tier 2 capital investments in<br>subsidiaries\) will be risk weighted at 250%, up to a limit of 10% of Level 1 CET1 capital per<br>investment; and<br>o any equity investments in excess of the 10% limit will be fully deducted from Level 1 CET1 capital in<br>determining Level 1 capital ratios.<br> ⚫ On 20 August 2019 APRA released the final revised standard for APS 222 Associations with Related Entities<br>which came into effect on 1 January 2022. The final standard includes changes to the requirements for<br>entities to be included in the ELE \(Level 1\). Please refer to Appendix II for further detail on Westpac’s ELE<br>structure.<br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br><br>1 Noting that APRA may apply higher CET1 requirements for an individual ADI.<br>2 If an ADI’s CET1 ratio falls below the Total CET1 Requirement \(at least 8%\), they face restrictions on the distribution of earnings, such<br>as dividends, distribution payments on AT1 capital instruments and discretionary staff bonuses.<br>3 APRA Information paper, An unquestionably strong framework for bank capital, November 2021. |
| --- |
| Pillar 3 report<br>Capital overview<br><br>20 | Westpac Group March 2022 Pillar 3 report<br>Westpac’s capital adequacy ratios<br>% 31 March 2022 30 September 2021 31 March 2021<br>The Westpac Group at Level 2<br>Common equity Tier 1 capital ratio 11.3 12.3 12.3<br>Additional Tier 1 capital 2.1 2.3 2.2<br>Tier 1 capital ratio 13.4 14.6 14.5<br>Tier 2 capital 4.3 4.2 3.9<br>Total regulatory capital ratio 17.7 18.9 18.4<br>The Westpac Group at Level 1<br>Common equity Tier 1 capital ratio 11.2 12.6 12.6<br>Additional Tier 1 capital 2.2 2.3 2.2<br>Tier 1 capital ratio 13.4 14.9 14.8<br>Tier 2 capital 4.7 4.3 4.0<br>Total regulatory capital ratio 18.1 19.2 18.8<br><br>Westpac New Zealand Limited’s capital adequacy ratios<br>% 31 March 2022 30 September 2021 31 March 2021<br>Westpac New Zealand Limited<br>Common equity Tier 1 capital ratio 11.3 13.8 13.4<br>Additional Tier 1 capital 2.0 2.8 2.8<br>Tier 1 capital ratio 13.3 16.6 16.2<br>Tier 2 capital 1.2 2.0 2.0<br>Total regulatory capital ratio 14.5 18.6 18.2<br>WNZL’s 31 March 2022 capital adequacy ratios reflect the RBNZ’s changes to the New Zealand capital adequacy<br>framework from 1 January 2022. Under the new framework, RWA of counterparties in the Bank and Sovereign<br>asset classes are calculated under a standardised approach and the modelled exposures for IRB banks have had<br>a floor of 85% of the requirement under a standardised approach applied. In addition, existing capital instruments<br>that have conversion features are no longer fully eligible as capital with 87.5% of the total nominal value of<br>affected instruments recognised as regulatory capital between 1 January 2022 and 31 December 2022. As at 31<br>March 2022 WNZL’s Tier 2 instrument is being amortised at 80% as the amount of the instrument that may be<br>recognised in capital ratio calculations during the final four years to maturity is amortised on a straight-line basis at<br>a rate of 20% per annum. |
| --- |
| Pillar 3 report<br>Capital overview<br><br> Westpac Group March 2022 Pillar 3 report | 21<br>Capital requirements<br>This table shows risk weighted assets and associated capital requirements1 for each risk type included in the<br>regulatory assessment of Westpac’s capital adequacy. Westpac’s approach to managing these risks, and more<br>detailed disclosures on the prudential assessment of capital requirements, are presented in the following sections<br>of this report. Refer to the Executive summary for further commentary on RWA movements over the First Half<br>2022.234<br>31 March 2022 IRB Standardised Total Risk Total Capital<br>$m Approach Approach2 Weighted Assets Required1<br>Credit risk<br>Corporate 69,391 870 70,261 5,621<br>Business lending 32,686 687 33,373 2,670<br>Sovereign 2,270 1,393 3,663 293<br>Bank 4,960 91 5,051 404<br>Residential mortgages 146,448 3,276 149,724 11,978<br>Australian credit cards 3,951 - 3,951 316<br>Other retail 7,785 753 8,538 683<br>Small business 14,401 - 14,401 1,152<br>Specialised lending 58,334 380 58,714 4,697<br>Securitisation 6,306 - 6,306 504<br>Mark-to-market related credit risk3 - 5,691 5,691 455<br>Total 346,532 13,141 359,673 28,773<br>Market risk 9,596 768<br>Operational risk 57,875 4,630<br>Interest rate risk in the banking book 27,710 2,217<br>Other assets4 5,102 408<br>Total 459,956 36,796<br>30 September 2021 IRB Standardised Total Risk Total Capital<br>$m Approach Approach2 Weighted Assets Required1<br>Credit risk<br>Corporate 68,715 870 69,585 5,567<br>Business lending 32,559 699 33,258 2,661<br>Sovereign 2,508 1,312 3,820 306<br>Bank 5,104 135 5,239 419<br>Residential mortgages 145,534 3,731 149,265 11,941<br>Australian credit cards 4,001 - 4,001 320<br>Other retail 8,272 763 9,035 723<br>Small business 15,187 - 15,187 1,215<br>Specialised lending 55,372 374 55,746 4,460<br>Securitisation 5,881 - 5,881 470<br>Mark-to-market related credit risk3 - 6,278 6,278 502<br>Total 343,133 14,162 357,295 28,584<br>Market risk 6,662 533<br>Operational risk 55,875 4,470<br>Interest rate risk in the banking book 11,446 916<br>Other assets4 5,372 430<br>Total 436,650 34,933<br><br>1 Total capital required is calculated as 8% of total risk weighted assets.<br>2 Westpac’s standardised risk weighted assets are categorised based on their equivalent IRB categories.<br>3 Mark-to-market related credit risk is measured under the standardised approach. It is also known as Credit Valuation Adjustment<br>\(CVA\) risk.<br>4 Other assets include cash items, unsettled transactions, fixed assets and other non-interest earning assets. |
| --- |
| Pillar 3 report<br>Capital overview<br><br>22 | Westpac Group March 2022 Pillar 3 report<br>1234<br>31 March 2021 IRB Standardised Total Risk Total Capital<br>$m Approach Approach2 Weighted Assets Required1<br>Credit risk<br>Corporate 66,086 849 66,935 5,355<br>Business lending 34,061 774 34,835 2,787<br>Sovereign 2,355 1,081 3,436 275<br>Bank 5,708 132 5,840 467<br>Residential mortgages 133,938 4,090 138,028 11,042<br>Australian credit cards 4,279 - 4,279 342<br>Other retail 9,266 779 10,045 804<br>Small business 16,097 - 16,097 1,288<br>Specialised lending 55,314 386 55,700 4,456<br>Securitisation 5,513 - 5,513 441<br>Mark-to-market related credit risk3 - 6,419 6,419 514<br>Total 332,617 14,510 347,127 27,771<br>Market risk 9,490 759<br>Operational risk 54,090 4,327<br>Interest rate risk in the banking book 11,998 960<br>Other assets4 6,194 496<br>Total 428,899 34,313<br><br><br>1 Total capital required is calculated as 8% of total risk weighted assets.<br>2 Westpac’s standardised risk weighted assets are categorised based on their equivalent IRB categories.<br>3 Mark-to-market related credit risk is measured under the standardised approach. It is also known as Credit Valuation Adjustment<br>\(CVA\) risk.<br>4 Other assets include cash items, unsettled transactions, fixed assets and other non-interest earning assets. |
| --- |
| Pillar 3 report<br>Leverage ratio<br><br> Westpac Group March 2022 Pillar 3 report | 23<br>Leverage ratio<br>The following table summarises Westpac’s leverage ratio. This has been determined using APRA’s definition of<br>the leverage ratio as specified in APS110 Capital Adequacy.<br>$ billion 31 March 2022 31 December 2021 30 September 2021 30 June 2021<br>Tier 1 Capital 61.7 63.6 64.0 62.2<br>Total Exposures 1,101.4 1,096.7 1,068.3 1,049.9<br>Leverage ratio 5.6% 5.8% 6.0% 5.9%<br><br>Leverage ratio disclosure<br>$m<br>31 March<br>2022<br>On-balance sheet exposures<br>1 On-balance sheet items \(excluding derivatives and securities financing transactions \(SFTs\), but including<br>collateral\)<br>940,851<br>2 \(Asset amounts deducted in determining Tier 1 capital\) \(15,932\)<br>3 Total on-balance sheet exposures \(excluding derivatives and SFTs\) \(sum of rows 1 and 2\) 924,919<br>Derivative exposures<br>4 Replacement cost associated with all derivatives transactions \(i.e. net of eligible cash variation margin\) 5,591<br>5 Add-on amounts for potential future credit exposure \(PFCE\) associated with all derivatives transactions 16,236<br>6 199<br>-<br>7 \(Deductions of receivables assets for cash variation margin provided in derivatives transactions\) \(6,652\)<br>8 \(Exempted central counterparty \(CCP\) leg of client-cleared trade exposures\) -<br>9 Adjusted effective notional amount of written credit derivatives 1,311<br>10 \(Adjusted effective notional offsets and add-on deductions for written credit derivatives\) \(1,306\)<br>11 Total derivative exposures \(sum of rows 4 to 10\) 15,379<br>SFT exposures<br>12 Gross SFT assets \(with no recognition of netting\), after adjusting for sales accounting transactions 40,914<br>13 \(Netted amounts of cash payables and cash receivables of gross SFT assets\) -<br>14 Counterparty credit risk exposure for SFT assets 16,701<br>15 Agent transaction exposures -<br>16 Total SFT exposures \(sum of rows 12 to 15\) 57,615<br>Other off-balance sheet exposures<br>17 Off-balance sheet exposure at gross notional amount 214,923<br>18 \(Adjustments for conversion to credit equivalent amounts\) \(111,444\)<br>19 Other off-balance sheet exposures \(sum of rows 17 and 18\) 103,479<br>Capital and total exposures<br>20 Tier 1 Capital 61,667<br>21 Total exposures \(sum of rows 3, 11, 16 and 19\) 1,101,391<br>Leverage ratio %<br>22 Leverage ratio 5.60%<br>Gross-up for derivatives collateral provided where deducted from the balance sheet assets pursuant to the<br>Australian Accounting Standards |
| --- |
| Pillar 3 report<br>Leverage ratio<br><br>24 | Westpac Group March 2022 Pillar 3 report<br>Summary comparison of accounting assets versus leverage ratio exposure measure<br><br>$m<br>31 March<br>2022<br>1 Total consolidated assets as per published financial statements 964,749<br>2<br>\(1,420\)<br>3<br>-<br>4 Adjustments for derivative financial instruments \(2,889\)<br>5 Adjustment for SFTs \(i.e. repos and similar secured lending\) 53,404<br>6<br>103,479<br>7 Other adjustments \(15,932\)<br>8 Leverage ratio exposure 1,101,391<br>Adjustment for off-balance sheet exposures \(i.e. conversion to credit equivalent amounts of off-balance sheet<br>exposures\)<br>Adjustment for investments in banking, financial, insurance or commercial entities that are consolidated for<br>accounting purposes but outside the scope of regulatory consolidation<br>Adjustment for assets held on the balance sheet in a fiduciary capacity pursuant to the Australian Accounting<br>Standards but excluded from the leverage ratio exposure measure |
| --- |
| Pillar 3 report<br>Credit risk management<br><br> Westpac Group March 2022 Pillar 3 report | 25<br>Credit risk is the potential for financial loss where a customer or counterparty fails to meet their financial<br>obligations to Westpac. Westpac maintains a credit risk management framework and a number of supporting<br>policies, processes and controls governing the assessment, approval and management of customer and<br>counterparty credit risk. These incorporate the assignment of risk grades, the quantification of loss estimates in the<br>event of default, and the segmentation of credit exposures.<br>Structure and organisation<br>The Chief Risk Officer \(CRO\) is responsible for the effectiveness of overall risk management throughout Westpac,<br>including credit risk. The Group Chief Credit Officer is responsible for the effectiveness of credit risk management,<br>including credit approval decisioning beyond business authority level and appointing our most senior authorised<br>credit officers. Authorised credit officers have delegated authority to approve credit risk exposures, including<br>customer risk grades, other credit parameters and their ongoing review. Our largest exposures are approved by<br>our most experienced authorised credit officers jointly with the most senior business managers. Line business<br>management is responsible for managing credit risks originated in their business and for managing risk adjusted<br>returns from their business credit portfolios, within the approved risk appetite, risk management framework and<br>policies.<br>Credit risk management framework and policies<br>Westpac maintains a credit risk management framework and supporting policies that are designed to clearly define<br>roles and responsibilities, acceptable practices, limits and key controls.<br>The Credit Risk Management Framework describes the principles, methodologies, systems, roles and<br>responsibilities, reports and controls that exist for managing credit risk in Westpac. The Credit Risk Rating System<br>policy describes the credit risk rating system philosophy, design, key features and uses of rating outcomes.<br>Concentration risk policies cover individual counterparties, specific industries \(e.g., property\) and individual<br>countries. In addition, we have policies covering risk appetite statements, environmental, social and governance<br>\(ESG\) risk, credit risks and the delegation of credit approval authorities.<br>At the divisional level, credit manuals embed the Group’s framework requirements for application in line<br>businesses. These manuals include policies covering the origination, evaluation, approval, documentation,<br>settlement and on-going management of credit risks, and sector policies to guide the extension of credit where<br>industry-specific guidelines are considered necessary.<br>Credit approval limits govern the extension of credit and represent the formal delegation of credit approval<br>authority to responsible individuals throughout the organisation. |
| --- |
| Pillar 3 report<br>Credit risk management<br><br>26 | Westpac Group March 2022 Pillar 3 report<br>Approach<br>Westpac adopts two approaches to managing credit risk depending upon the nature of the customer and the<br>product.<br>Transaction-managed approach<br>For larger customers, Westpac evaluates credit requests by undertaking detailed individual customer and<br>transaction risk analysis \(the ‘transaction-managed’ approach\). Such customers are assigned a customer risk<br>grade \(CRG\) representing Westpac’s estimate of their probability of default \(PD\). Each facility is assigned a loss<br>given default \(LGD\). The Westpac credit risk rating system has 20 risk grades for non-defaulted customers and 10<br>risk grades for defaulted customers. Non-defaulted CRGs down to the level of normally acceptable risk \(i.e. D<br>grade – see table below\) are mapped to Moody’s and Standard & Poor’s \(S&P\) external senior ranking unsecured<br>ratings. This mapping allows Westpac to integrate the rating agencies’ default history with internal historical data<br>when calculating PDs.<br>The final assignment of CRGs and LGDs is approved by authorised credit approvers with appropriate delegated<br>approval authority. All material credit exposures are approved by authorised Credit Officers who are part of the risk<br>management stream and operate independently of the areas originating the credit risk proposals. Authorised<br>Credit Officer decisions are subject to reviews to ensure consistent quality and confirm compliance with approval<br>authority. Separate teams are responsible for maintaining accurate and timely recording of all credit risk approvals<br>and changes to customer and facility data. These teams also operate independently of both the areas originating<br>the credit risk proposals and the credit risk approvers. Appropriate segregation of functions is one of the key<br>requirements of our credit risk management framework.<br>Mapping of Westpac risk grades<br>The table below shows the current alignment between Westpac’s internal CRGs and the corresponding external<br>rating. Note that only high-level CRG groupings are shown.<br>Westpac customer<br>risk grade<br>Standard & Poor’s<br>rating<br>Moody’s<br>rating<br>A AAA to AA– Aaa to Aa3<br>B A+ to A– A1 to A3<br>C BBB+ to BBB– Baa1 to Baa3<br>D BB+ to B+ Ba1 to B1<br> Westpac Rating<br>E Watchlist<br>F Special mention<br>G Substandard/default<br>H Default<br><br>For Specialised Lending Westpac maps exposures to the appropriate supervisory slot based on an assessment<br>that takes into account borrower strength and security quality, as required by APS 113.<br>Program-managed approach<br>High-volume retail customer credit portfolios with homogenous credit risk characteristics are managed on a<br>statistical basis according to pre-determined objective criteria \(the ‘program-managed’ approach\). Program-<br>managed exposure to a consumer customer may exceed $1 million. Business customer exposures may be<br>program managed for exposure up to $3 million. Quantitative scorecards are used to assign application and<br>behavioural scores to enable risk-based decision making within these portfolios. The scorecard outcomes and<br>decisions are regularly monitored and validated against subsequent customer performance and scorecards are<br>recalibrated or rebuilt when required. For capital estimation and other purposes, risk-based customer segments<br>are created based upon modelled expected PD, Exposure At Default \(EAD\) and LGD. Accounts are then assigned<br>to respective segments based on customer and account characteristics. Each segment is assigned a quantified<br>measure of its PD, LGD and EAD.<br>For both transaction-managed and program-managed approaches, CRGs, PDs and LGDs are reviewed at least<br>annually. |
| --- |
| Pillar 3 report<br>Credit risk management<br><br> Westpac Group March 2022 Pillar 3 report | 27<br>Mapping of Basel categories to Westpac portfolios<br>APS113 Capital Adequacy: Internal Ratings-Based Approach to Credit Risk, states that under the Advanced IRB<br>approach to credit risk, an ADI must categorise banking book exposures into six broad IRB asset classes and<br>apply the prescribed treatment for those classes to each credit exposure within them for the purposes of deriving<br>its regulatory capital requirement. Standardised and Securitised portfolios are subject to treatment under APS112<br>Capital Adequacy: Standardised Approach to Credit Risk and APS120 Securitisation respectively.<br><br>APS Asset Class Sub-asset class Westpac category Segmentation criteria<br>Corporate Corporate Corporate All transaction-managed customers not<br>elsewhere classified where annual turnover<br>exceeds $50 million1.<br> SME Corporate Business Lending All transaction-managed customers not<br>elsewhere classified where annual turnover<br>is $50 million or less.<br> Project Finance<br>\(including Object<br>Finance\)<br>Specialised Lending-<br>Project Finance<br>Applied to transaction-managed customers<br>where the primary source of debt service,<br>security and repayment is derived from the<br>revenue generated by a completed project<br>\(e.g. infrastructure such as toll roads or<br>railways\).<br> Income-<br>producing Real<br>Estate<br>Specialised Lending-<br>Property Finance<br>Applied to transaction-managed customers<br>where the primary source of debt service,<br>security and repayment is derived from<br>either the sale of a property development or<br>income produced by one or more<br>investment properties2.<br>Sovereign Sovereign Applied to transaction-managed exposures<br>backed by governments.<br>Bank Bank Applied to transaction-managed exposures<br>to deposit-taking institutions and foreign<br>equivalents.<br>Residential<br>Mortgages<br> Residential Mortgages Exposures secured by residential mortgages<br>not elsewhere classified.<br>Qualifying<br>Revolving Retail<br> Australian Credit<br>Cards<br>Program-managed credit cards with low<br>volatility in loss rates. The New Zealand<br>cards portfolio is not eligible for Qualifying<br>Revolving Retail treatment and is classified<br>in Other Retail.<br>Other Retail Small Business Program-managed business lending<br>exposures under $1 million where complex<br>products are not utilised by the customer.<br> Other Retail All other program-managed lending to retail<br>customers, including New Zealand credit<br>cards.<br><br><br>1 Includes all NZ agribusiness loans, regardless of turnover.<br>2 Excludes large diversified property groups and property trusts, which appear in the Corporate asset class. |
| --- |
| Pillar 3 report<br>Credit risk management<br><br>28 | Westpac Group March 2022 Pillar 3 report<br>Mapping of Credit risk approach to Basel categories and exposure types<br><br>Approach APS asset class Types of exposures<br>Transaction-Managed<br>Portfolios<br>Corporate<br>Sovereign<br>Bank<br>Direct lending<br>Contingent lending<br>Derivative counterparty<br>Asset warehousing<br>Underwriting<br>Secondary market trading<br>Foreign exchange settlement<br>Other intra-day settlement<br>obligations<br>Program-Managed<br>Portfolios<br>Residential mortgage<br><br>Mortgages<br>Equity access loans<br> Qualifying revolving retail Australian credit cards<br> Other retail Personal loans<br>Overdrafts<br>New Zealand credit cards<br>Auto and equipment finance<br>Business development loans<br>Business overdrafts<br>Other term products<br>Internal ratings process for transaction-managed portfolios<br>The process for assigning and approving individual customer PDs and facility LGDs involves:<br> ⚫ Business unit representatives recommend the CRG and facility LGDs under the guidance of criteria set out in<br>established credit policies. Each CRG is associated with an estimated PD;<br> ⚫ Authorised credit officers evaluate the recommendations and approve the final CRG and facility LGDs.<br>Authorised credit officers may override line business unit recommendations;<br> ⚫ An expert judgement decisioning process is employed to evaluate CRG and the outputs of various risk grading<br>models are used as one of several inputs into that process; and<br> ⚫ Authorised credit officers’ decisions are subject to reviews to ensure consistent quality and confirm<br>compliance with approval authority.<br>For on-going exposures to transaction-managed customers, risk grades and facility LGDs are required to be<br>reviewed at least annually, but also whenever material changes occur.<br>No material deviations from the reference definition of default are permitted.<br>Internal ratings process for program-managed portfolios<br>The process for assigning PDs, LGDs and EADs to the program-managed portfolio involves dividing the portfolio<br>into a number of pools per product. These pools are created by analysing risk characteristics that have historically<br>predicted that an account is likely to go into default or loss.<br>No material deviations from the reference definition of default are permitted.<br>Internal credit risk ratings system<br>In addition to using the credit risk estimates as the basis for regulatory capital purposes, they are also used for the<br>purposes described below:<br>Economic capital - Economic capital includes both credit and non-credit components. Economic credit capital is<br>calculated using a framework that considers estimates of PD, LGD, EAD, total committed exposure and loan tenor,<br>as well as measures of portfolio composition not reflected in regulatory capital formulae.<br>Provisioning - Credit provisions are held by Westpac to cover expected credit losses in the loan portfolio.<br>Provisioning includes both individual and collective components. Individual provisions are calculated on impaired<br>loans taking into account management’s best estimate of the present value of future cashflows. |
| --- |
| Pillar 3 report<br>Credit risk management<br><br> Westpac Group March 2022 Pillar 3 report | 29<br>Collective provisions are established on a portfolio basis using a framework that considers PD, LGD, EAD, total<br>committed exposure, level of arrears, recent past experience and forward looking macro-economic forecasts.<br>Risk-adjusted performance measurement - Business performance is measured using allocated capital, which<br>incorporates charges for economic capital and regulatory capital, including credit capital and capital for other risk<br>types.<br>Pricing - Westpac prices loans to produce an acceptable return on the capital allocated to the loan. Returns<br>include interest income and fees after expected credit losses and other costs.<br>Credit approval - For transaction-managed facilities, approval authorities are tiered based on the CRG, with lower<br>limits applicable for customers with a higher PD. Program-managed facilities are approved on the basis of<br>application scorecard outcomes and product based approval authorities.<br>Control mechanisms for the credit risk rating system include:<br> ⚫ Westpac’s credit risk rating system is reviewed annually to confirm that the rating criteria and procedures are<br>appropriate given the current portfolio and external conditions;<br> ⚫ All models materially impacting the risk rating process are periodically reviewed in accordance with Westpac’s<br>model risk policy;<br> ⚫ Specific credit risk estimates \(including PD, LGD and EAD levels\) are overseen, reviewed annually and<br>supported by the Credit Risk Estimates Committee \(a sub-committee of CREDCO\) for approval by General<br>Manager, Enterprise Risk;<br> ⚫ Credit Risk Assurance undertake an independent annual end-to-end technical and operational review of the<br>overall process; and<br> ⚫ CREDCO, RISKCO and BRiskC monitor the risk profile, performance and management of Westpac’s credit<br>portfolio and the development and review of key credit risk policies.<br>Risk reporting<br>A comprehensive report on Westpac's credit risk portfolio is provided to CREDCO, RISKCO and BRiskC quarterly.<br>It details the current level of impairment losses, stressed exposures, delinquency trends, provisions, impaired<br>assets and key performance metrics. It also reports on portfolio concentrations and large exposures.<br>Credit risk and asset quality are also reported to the Board, including details of impairment losses, stressed<br>exposures, delinquency trends and key performance metrics.<br>Response to COVID-19<br>Westpac remains focused on supporting customers, including continuing to extend the Australian Government<br>SME Recovery Loan Scheme \(SMERLS\). SMERLS provides eligible companies assistance with dealing with the<br>economic impacts of COVID-19, and may be regarded as eligible guarantees by the government for risk weighting<br>purposes. The Australian Government announced on 13 December 2021 to expand the SMERLS under varied<br>terms to provide support to SMEs, and to extend the scheme to 30 June 2022. Westpac has confirmed to the<br>Australian Government Federal Treasury our participation in the scheme.<br>Westpac’s COVID-19 customer support packages in response to the COVID-19 pandemic concluded in December<br>2021. |
| --- |
| Pillar 3 report<br>Credit risk management<br><br>30 | Westpac Group March 2022 Pillar 3 report<br>Summary credit risk disclosure123<br><br>Expected Specific Actual<br>Risk Regulatory Loss for Provisions Losses for<br>31 March 2022 Exposure Weighted Expected non-defaulted Impaired for Impaired the 6 months<br>$m at Default Assets Loss1 exposures Loans Loans ended<br>Corporate 130,511 69,391 839 331 290 208 303<br>Business lending 53,364 32,686 621 350 333 150 34<br>Sovereign 199,457 2,270 2 2 ---<br>Bank 21,257 4,960 6 6 ---<br>Residential mortgages 585,810 146,448 1,615 1,139 226 65 28<br>Australian credit cards 15,193 3,951 169 133 59 33 50<br>Other retail 10,312 7,785 352 232 217 116 36<br>Small business 29,653 14,401 472 297 348 167 14<br>Specialised Lending 70,851 58,334 871 545 88 19 \(1\)<br>Securitisation 33,366 6,306 -----<br>Standardised3 14,276 13,141 -- 92 36 -<br>Total 1,164,050 359,673 4,947 3,035 1,653 794 464<br>Regulatory<br>Expected Specific Actual<br>Risk Regulatory Loss for Provisions Losses for<br>30 September 2021 Exposure Weighted Expected non-defaulted Impaired for Impaired the 12 months<br>$m at Default Assets Loss1 exposures Loans2 Loans ended<br>Corporate 130,245 68,715 925 382 602 498 67<br>Business lending 52,420 32,559 658 364 326 160 91<br>Sovereign 176,238 2,508 2 2 ---<br>Bank 21,283 5,104 6 6 ---<br>Residential mortgages 582,136 145,534 1,637 1,055 271 76 71<br>Australian credit cards 15,394 4,001 167 131 65 37 136<br>Other retail 11,518 8,272 394 258 245 136 146<br>Small business 30,877 15,187 544 348 428 196 82<br>Specialised Lending 66,732 55,372 835 535 110 23 1<br>Securitisation 30,561 5,881 -----<br>Standardised3 16,679 14,162 -- 95 40 -<br>Total 1,134,083 357,295 5,168 3,081 2,142 1,166 594<br>Regulatory<br>Expected Specific Actual<br>Risk Regulatory Loss for Provisions Losses for<br>31 March 2021 Exposure Weighted Expected non-defaulted Impaired for Impaired the 6 months<br>$m at Default Assets Loss1 exposures Loans Loans ended<br>Corporate 124,567 66,086 654 431 319 220 56<br>Business lending 53,052 34,061 750 475 388 198 25<br>Sovereign 143,237 2,355 2 2 ---<br>Bank 23,404 5,708 7 7 ---<br>Residential mortgages 562,798 133,938 1,919 1,126 263 78 44<br>Australian credit cards 16,459 4,279 202 154 82 49 71<br>Other retail 12,579 9,266 459 301 277 158 78<br>Small business 31,941 16,097 613 373 639 229 24<br>Specialised Lending 64,867 55,314 813 598 39 12 1<br>Securitisation 28,299 5,513 -----<br>Standardised3 15,300 14,510 -- 64 30 -<br>Total 1,076,503 347,127 5,419 3,467 2,071 974 299<br><br>1 Includes regulatory expected losses for defaulted and non-defaulted exposures.<br>2 Increase in impaired mainly driven by one large institutional exposure.<br>3 Includes mark-to-market related credit risk. |
| --- |
| Pillar 3 report<br>Credit risk management<br><br> Westpac Group March 2022 Pillar 3 report | 31<br>Loan impairment provisions<br>Expected credit losses \(ECL\) are estimates of the cashflow shortfalls expected to result from defaults over the<br>relevant timeframe. They are determined by evaluating a range of possible outcomes and taking into account the<br>time value of money, past events, current conditions and forecasts of future economic conditions. Westpac<br>calculates provisions for ECL based on a three-stage approach:<br> ⚫ Stage 1: 12 months ECL \(performing\) - For financial assets where there has been no significant increase in<br>credit risk since origination, a provision for 12-month ECL is recognised.<br> ⚫ Stage 2: Lifetime ECL \(performing\) - For financial assets where there has been a significant increase in<br>credit risk since origination and where the asset is still performing, a provision for lifetime ECL is recognised.<br>Determining when a financial asset has experienced a significant increase in credit risk since origination is a<br>critical accounting judgement. The determination of a significant increase in risk is driven by the change in the<br>probability of default \(PD\) since origination. In determining whether a change in PD represents a significant<br>increase in risk, relative changes in PD and absolute PD thresholds are both considered based on the<br>portfolio of the exposure.<br> ⚫ Stage 3: Lifetime ECL \(non-performing\) - For financial assets that are non-performing a provision for<br>lifetime ECL is recognised. Indicators include a breach of contract with Westpac such as a default on interest<br>or principal payments, a borrower experiencing significant financial difficulties.<br>Collective and individual assessment - Financial assets that are in Stages 1 and 2 are assessed on a collective<br>basis as are financial assets in Stage 3 below specified exposure thresholds. Those financial assets in Stage 3<br>above the specified exposure thresholds are assessed on an individual basis.<br>Expected life - Lifetime ECL represents the expected credit losses that result from default events over the<br>expected life of a financial instrument. In considering lifetime ECL, the remaining contractual life is used for non-<br>retail portfolios. For retail portfolios lifetime ECL is calibrated to historically observed portfolio behaviour.<br>Forward looking information - The measurement of ECL for each stage and the assessment of significant<br>increase in credit risk considers information about past events and current conditions as well as reasonable and<br>supportable projections of future events and economic conditions. In order to capture the asymmetry of the losses<br>expected over the range of plausible future events and economic conditions, Westpac considers three future<br>macroeconomic scenarios i.e. base, upside and downside scenarios.<br>The macroeconomic variables used in these scenarios, include \(but are not limited to\) employment to population<br>ratio, real gross domestic product growth rates and residential and commercial property price indices.<br>The ECL is a weighted average of the credit losses expected under these three scenarios. The scenario weights<br>are based on Westpac’s assessment of upside and downside risks taking into account current trends, forward<br>looking conditions and the degree of uncertainty attached to these projections.<br>Regulatory classification of loan impairment provisions<br>All IAPs raised under Australian Accounting Standards \(AAS\) are classified as specific provisions in accordance<br>with APS 220 Credit Risk Management. All Collectively Assessed Provisions \(CAPs\) raised under AAS are either<br>classified into specific provisions or a General Reserve for Credit Loss \(GRCL\). |
| --- |
| Pillar 3 report<br>Credit risk management<br><br>32 | Westpac Group March 2022 Pillar 3 report<br>Expected credit loss provision 1<br>31 March 2022 Total Regulatory<br>$m IAPs CAPs Provisions<br>Specific Provisions<br>for impaired loans 501 293 794<br>for defaulted but not impaired loans - 696 696<br>For Stage 2 - 1,914 1,914<br>Total Specific Provision1 501 2,903 3,404<br>General Reserve for Credit Loss1 - 1,278 1,278<br>Total provisions for ECL 501 4,181 4,682<br>30 September 2021 Total Regulatory<br>$m IAPs CAPs Provisions<br>Specific Provisions<br>for impaired loans 832 334 1,166<br>for defaulted but not impaired loans - 806 806<br>For Stage 2 - 1,877 1,877<br>Total Specific Provision1 832 3,017 3,849<br>General Reserve for Credit Loss1 - 1,158 1,158<br>Total provisions for ECL 832 4,175 5,007<br>31 March 2021 Total Regulatory<br>$m IAPs CAPs Provisions<br>Specific Provisions<br>for impaired loans 564 410 974<br>for defaulted but not impaired loans NA 918 918<br>For Stage 2 NA 2,051 2,051<br>Total Specific Provision1 564 3,379 3,943<br>General Reserve for Credit Loss1 NA 1,565 1,565<br>Total provisions for ECL 564 4,944 5,508<br> A-IFRS Provisions<br> A-IFRS Provisions<br> A-IFRS Provisions<br><br><br>1 Provisions classified according to APRA’s letter dated 4 July 2017 “Provisions for regulatory purposes and AASB 9 financial<br>instruments”. |
| --- |
| Pillar 3 report<br>Credit risk management<br><br> Westpac Group March 2022 Pillar 3 report | 33<br>Movement in provisions for impairment1<br>For the 6 months ended<br>31 March 2022<br>Non-<br>performing<br>$m Stage 1 Stage 2 Stage 3 Total<br>Balance as at 30 September 2021 for Loans and Credit<br>Commitments<br>936 2,091 1,972 4,999<br>Transfers to Stage 1 461 \(398\) \(63\) -<br>Transfers to Stage 2 \(102\) 509 \(407\) -<br>Transfers to Stage 3 \(8\) \(198\) 206 -<br>Business activity during the period 255 \(149\) \(200\) \(94\)<br>Net remeasurement of provision for ECL \(463\) 264 535 336<br>Write-offs --\(566\) \(566\)<br>Exchange rate and other adjustments \(1\) \(12\) 13 -<br>Balance as at 31 March 2022 for Loans and Credit<br>Commitments<br>1,078 2,107 1,490 4,675<br>Balance as at 30 September 2021 for debt securities 3 5 - 8<br>Provision for ECL on debt securities at amortised cost - 1 - 1<br>Provision for ECL on debt securities at FVOCI1 -\(2\) -\(2\)<br>Total provision for ECL as at 31 March 2022 3 4 - 7<br>Total provision for ECL as at 31 March 2022 1,081 2,111 1,490 4,682<br>Performing<br><br><br>For the 12 months ended<br>30 September 2021<br>Non-<br>performing<br>$m Stage 1 Stage 2 Stage 3 Total<br>Balance as at 30 September 2020 for Loans and Credit<br>Commitments<br>1,084 2,875 2,173 6,132<br>Transfers to Stage 1 1,246 \(1,128\) \(118\) -<br>Transfers to Stage 2 \(200\) 1,290 \(1,090\) -<br>Transfers to Stage 3 \(8\) \(507\) 515 -<br>Business activity during the period 122 \(223\) \(35\) \(136\)<br>Net remeasurement of provision for ECL \(1,284\) \(200\) 1,295 \(189\)<br>Write-offs --\(836\) \(836\)<br>Exchange rate and other adjustments \(24\) \(16\) 68 28<br>Balance as at 30 September 2021 for Loans and Credit<br>Commitments<br>936 2,091 1,972 4,999<br>Balance as at 30 September 2020 for debt securities 2 29 - 31<br>Provision for ECL on debt securities at amortised cost -\(24\) -\(24\)<br>Provision for ECL on debt securities at FVOCI1 1 -- 1<br>Total provision for ECL as at 30 September 2021 3 5 - 8<br>Total provision for ECL as at 30 September 2021 939 2,096 1,972 5,007<br>Performing<br><br><br><br><br><br>1 Impairment of debt securities at Fair Value through Other Comprehensive Income \(FVOCI\) is recognised in the income statement with<br>a corresponding amount in other comprehensive income. There is no reduction of the carrying value of the debt securities which<br>remain at fair value. |
| --- |
| Pillar 3 report<br>Credit risk management<br><br>34 | Westpac Group March 2022 Pillar 3 report<br>For the 6 months ended<br>31 March 2021<br>Non-<br>performing<br>$m Stage 1 Stage 2 Stage 3 Total<br>Balance as at 30 September 2020 for Loans and Credit<br>Commitments<br>1,084 2,875 2,173 6,132<br>Transfers to Stage 1 695 \(662\) \(33\) -<br>Transfers to Stage 2 \(112\) 719 \(607\) -<br>Transfers to Stage 3 \(3\) \(244\) 247 -<br>Business activity during the period 52 \(107\) \(171\) \(226\)<br>Net remeasurement of provision for ECL \(689\) \(8\) 688 \(9\)<br>Write-offs --\(431\) \(431\)<br>Exchange rate and other adjustments \(5\) \(5\) 26 16<br>Balance as at 31 March 2021 for Loans and Credit<br>Commitments<br>1,022 2,568 1,892 5,482<br>Balance as at 30 September 2020 for debt securities 2 29 - 31<br>Provision for ECL on debt securities at amortised cost 1 \(7\) -\(6\)<br>Provision for ECL on debt securities at FVOCI1 1 -- 1<br>Total provision for ECL as at 31 March 2021 4 22 - 26<br>Total provision for ECL as at 31 March 2021 1,026 2,590 1,892 5,508<br>Performing<br><br><br>12<br><br><br>1 Impairment of debt securities at Fair Value through Other Comprehensive Income \(FVOCI\) is recognised in the income statement with<br>a corresponding amount in other comprehensive income. There is no reduction of the carrying value of the debt securities which<br>remain at fair value. |
| --- |
| Pillar 3 report<br>Credit risk exposures<br><br> Westpac Group March 2022 Pillar 3 report | 35<br>The following tables segment the portfolio by characteristics that provide an insight into the assessment of credit<br>risk concentration.<br>Exposure at Default by major type<br>31 March 2022 On balance Total Exposure Average<br>$m sheet Non-market related Market related at Default 6 months ended1<br>Corporate 58,276 58,479 13,756 130,511 130,588<br>Business lending 39,268 14,096 - 53,364 52,938<br>Sovereign 159,656 1,802 37,999 199,457 192,393<br>Bank 12,134 1,663 7,460 21,257 21,040<br>Residential mortgages 507,070 78,740 - 585,810 584,480<br>Australian credit cards 6,097 9,096 - 15,193 15,331<br>Other retail 7,596 2,716 - 10,312 10,958<br>Small business 22,587 7,066 - 29,653 30,254<br>Specialised lending 57,146 12,933 772 70,851 68,777<br>Securitisation2 24,743 8,556 67 33,366 31,704<br>Standardised 10,939 1,013 2,324 14,276 15,642<br>Total 905,512 196,160 62,378 1,164,050 1,154,105<br>30 September 2021 On balance Total Exposure Average<br>$m sheet Non-market related Market related at Default 12 months ended3<br>Corporate 56,576 59,238 14,431 130,245 127,203<br>Business lending 39,080 13,340 - 52,420 53,340<br>Sovereign 141,437 1,524 33,277 176,238 150,012<br>Bank 12,327 1,817 7,139 21,283 22,140<br>Residential mortgages 503,883 78,253 - 582,136 565,334<br>Australian credit cards 5,872 9,522 - 15,394 16,327<br>Other retail 8,445 3,073 - 11,518 12,566<br>Small business 23,804 7,073 - 30,877 31,953<br>Specialised lending 53,084 12,234 1,414 66,732 65,723<br>Securitisation2 23,428 7,041 92 30,561 28,432<br>Standardised 12,168 1,031 3,480 16,679 16,252<br>Total 880,104 194,146 59,833 1,134,083 1,089,282<br>31 March 2021 On balance Total Exposure Average<br>$m sheet Non-market related Market related at Default 6 months ended4<br>Corporate 52,808 57,449 14,310 124,567 126,100<br>Business lending 39,220 13,832 - 53,052 53,786<br>Sovereign 109,514 1,490 32,233 143,237 137,438<br>Bank 14,085 1,829 7,490 23,404 22,546<br>Residential mortgages 486,802 75,996 - 562,798 556,398<br>Australian credit cards 6,664 9,795 - 16,459 16,731<br>Other retail 9,467 3,112 - 12,579 13,060<br>Small business 24,730 7,211 - 31,941 32,410<br>Specialised lending 52,619 10,598 1,650 64,867 65,297<br>Securitisation2 20,145 8,033 121 28,299 27,319<br>Standardised 12,192 1,048 2,060 15,300 16,208<br>Total 828,246 190,393 57,864 1,076,503 1,067,293<br> Off-balance sheet<br> Off-balance sheet<br> Off-balance sheet<br><br>1 Average is based on exposures as at 31 March 2022, 31 December 2021 and 30 September 2021.<br>2 EAD associated with securitisations is for the banking book only.<br>3 Average is based on exposures as at 30 September 2021, 30 June 2021, 31 March 2021, 31 December 2020, and 30 September<br>2020.<br>4 Average is based on exposures as at 31 March 2021, 31 December 2020 and 30 September 2020. |
| --- |
| Pillar 3 report<br>Credit risk exposures<br><br>36 | Westpac Group March 2022 Pillar 3 report<br>Exposure at Default by measurement method<br>31 March 2022 IRB Standardised Total Exposure<br>$m Approach Approach at Default<br>Corporate 130,511 5,063 135,574<br>Business lending 53,364 672 54,036<br>Sovereign 199,457 1,393 200,850<br>Bank 21,257 105 21,362<br>Residential mortgages 585,810 4,885 590,695<br>Australian credit cards 15,193 - 15,193<br>Other retail 10,312 1,783 12,095<br>Small business 29,653 - 29,653<br>Specialised lending 70,851 375 71,226<br>Securitisation 33,366 - 33,366<br>Total 1,149,774 14,276 1,164,050<br>30 September 2021 IRB Standardised Total Exposure<br>$m Approach Approach at Default<br>Corporate 130,245 6,839 137,084<br>Business lending 52,420 685 53,105<br>Sovereign 176,238 1,312 177,550<br>Bank 21,283 144 21,427<br>Residential mortgages 582,136 5,516 587,652<br>Australian credit cards 15,394 - 15,394<br>Other retail 11,518 1,815 13,333<br>Small business 30,877 - 30,877<br>Specialised lending 66,732 368 67,100<br>Securitisation 30,561 - 30,561<br>Total 1,117,404 16,679 1,134,083<br>31 March 2021 IRB Standardised Total Exposure<br>$m Approach Approach at Default<br>Corporate 124,567 5,113 129,680<br>Business lending 53,052 766 53,818<br>Sovereign 143,237 1,081 144,318<br>Bank 23,404 140 23,544<br>Residential mortgages 562,798 6,006 568,804<br>Australian credit cards 16,459 - 16,459<br>Other retail 12,579 1,812 14,391<br>Small business 31,941 - 31,941<br>Specialised lending 64,867 382 65,249<br>Securitisation 28,299 - 28,299<br>Total 1,061,203 15,300 1,076,503 |
| --- |
| Pillar 3 report<br>Credit risk exposures<br><br> Westpac Group March 2022 Pillar 3 report | 37<br>Exposure at Default by industry classification<br>31 March 2022<br>$m<br>Corporate 2,525 11,135 3,193 16,061 103 15,969 6,211 8,547 9,617 13,811 17,842 11,819 12,965 - 713 130,511<br>Business lending 5,837 10,619 4,035 1,831 10 4,875 508 842 6,562 6,015 7,797 2,278 426 - 1,729 53,364<br>Sovereign - 1 - 134,668 63,608 54 50 475 10 438 - 153 --- 199,457<br>Bank --- 21,173 4 --- 80 ------ 21,257<br>Residential mortgages ------------- 585,810 - 585,810<br>Australian credit cards ------------- 15,193 - 15,193<br>Other retail ------------- 10,312 - 10,312<br>Small business 792 2,073 3,599 1,362 810 1,573 566 2,179 4,499 3,989 2,951 1,543 332 - 3,385 29,653<br>Specialised lending 704 17 28 10 - 1 891 61,696 457 1,226 26 2,800 2,465 - 530 70,851<br>Securitisation --- 32,256 ---- 806 - 304 ---- 33,366<br>Standardised 113 1 187 4,458 1,393 151 33 375 132 35 525 100 51 6,669 53 14,276<br>Total 9,971 23,846 11,042 211,819 65,928 22,623 8,259 74,114 22,163 25,514 29,445 18,693 16,239 617,984 6,410 1,164,050<br>Accommodation, cafes &<br>restaurants<br>Agriculture, forestry &<br>fishing<br>Government administration<br> & defence<br>Construction<br>Finance & insurance<br>Property<br>Manufacturing<br>Property services &<br>business services<br>Utilities<br>3<br>Retail lending<br>Other<br>Total Exposure<br>at Default<br>Mining<br>Services<br>1<br>Trade<br>2<br>Transport & storage<br><br>1 Includes education, health & community services, cultural & recreational services and personal & other services.<br>2 Includes wholesale trade and retail trade.<br>3 Includes electricity, gas & water, and communication services. |
| --- |
| Pillar 3 report<br>Credit risk exposures<br><br>38 | Westpac Group March 2022 Pillar 3 report<br>123<br>30 September 2021<br>$m<br>Corporate 2,462 11,145 3,020 16,126 111 15,997 6,558 9,411 9,344 11,783 19,992 10,463 12,923 - 910 130,245<br>Business lending 5,749 10,152 4,030 1,904 10 4,652 450 1,144 6,361 5,722 7,832 2,234 412 - 1,768 52,420<br>Sovereign - 1 - 98,709 76,756 56 60 495 7 152 - 2 --- 176,238<br>Bank --- 21,191 12 --- 80 ------ 21,283<br>Residential mortgages ------------- 582,136 - 582,136<br>Australian credit cards ------------- 15,394 - 15,394<br>Other retail ------------- 11,518 - 11,518<br>Small business 833 2,189 3,798 1,498 807 1,663 584 2,118 4,784 3,967 3,102 1,630 351 - 3,553 30,877<br>Specialised lending 493 16 34 13 393 1 748 56,830 232 1,323 29 3,573 2,559 - 488 66,732<br>Securitisation --- 29,532 ---- 793 - 236 ---- 30,561<br>Standardised 116 11 170 6,318 1,312 144 26 373 119 42 529 92 52 7,331 44 16,679<br>Total 9,653 23,514 11,052 175,291 79,401 22,513 8,426 70,371 21,720 22,989 31,720 17,994 16,297 616,379 6,763 1,134,083<br>Utilities<br>3<br>Retail lending<br>Other<br>Total Exposure<br>at Default<br>Transport & storage<br>Manufacturing<br>Property<br>Property services &<br>business services<br>Trade<br>2<br>Services<br>1<br>Accommodation, cafes &<br>restaurants<br>Agriculture, forestry &<br>fishing<br>Mining<br>Construction<br>Finance & insurance<br>Government administration<br> & defence<br><br>1 Includes education, health & community services, cultural & recreational services and personal & other services.<br>2 Includes wholesale trade and retail trade.<br>3 Includes electricity, gas & water, and communication services. |
| --- |
| Pillar 3 report<br>Credit risk exposures<br><br> Westpac Group March 2022 Pillar 3 report | 39<br>123<br>31 March 2021<br>$m<br>Corporate 2,560 10,933 2,909 14,355 153 16,569 6,056 7,460 9,975 11,582 18,105 10,284 12,778 - 848 124,567<br>Business lending 5,830 9,724 4,230 2,035 19 4,553 476 1,098 6,451 5,901 8,173 2,318 434 - 1,810 53,052<br>Sovereign - 1 - 60,118 82,411 55 64 388 6 192 - 2 --- 143,237<br>Bank --- 23,354 ---- 50 ------ 23,404<br>Residential mortgages ------------- 562,798 - 562,798<br>Australian credit cards ------------- 16,459 - 16,459<br>Other retail ------------- 12,579 - 12,579<br>Small business 950 2,263 3,921 1,612 788 1,747 574 2,131 5,011 3,931 3,186 1,720 359 - 3,748 31,941<br>Specialised lending 435 17 35 9 - 3 757 55,562 203 1,467 21 3,535 2,323 - 500 64,867<br>Securitisation --- 27,305 ---- 788 - 206 ---- 28,299<br>Standardised 117 12 150 4,581 1,081 158 56 383 107 34 536 173 53 7,818 41 15,300<br>Total 9,892 22,950 11,245 133,369 84,452 23,085 7,983 67,022 22,591 23,107 30,227 18,032 15,947 599,654 6,947 1,076,503<br>Total Exposure<br>at Default<br>Trade<br>2<br>Transport & storage<br>Utilities<br>3<br>Retail lending<br>Other<br>Manufacturing<br>Mining<br>Property<br>Property services &<br>business services<br>Services<br>1<br>Accommodation, cafes &<br>restaurants<br>Agriculture, forestry &<br>fishing<br>Construction<br>Finance & insurance<br>Government administration<br> & defence<br><br><br>1 Includes education, health & community services, cultural & recreational services and personal & other services.<br>2 Includes wholesale trade and retail trade.<br>3 Includes electricity, gas & water, and communication services. |
| --- |
| Pillar 3 report<br>Credit risk exposures<br><br>40 | Westpac Group March 2022 Pillar 3 report<br>Exposure at Default by geography1<br>31 March 2022 Total Exposure<br>$m Australia New Zealand Americas Asia Europe Pacific at Default<br>Corporate 88,138 23,216 7,721 4,164 7,272 - 130,511<br>Business lending 48,561 4,803 ---- 53,364<br>Sovereign 170,701 17,719 10,197 351 489 - 199,457<br>Bank 18,969 1,662 1 556 69 - 21,257<br>Residential mortgages 519,859 65,790 - 161 -- 585,810<br>Australian credit cards 15,193 ----- 15,193<br>Other retail 7,616 2,696 ---- 10,312<br>Small business 27,442 2,210 - 1 -- 29,653<br>Specialised lending 63,104 7,746 -- 1 - 70,851<br>Securitisation 29,164 4,202 ---- 33,366<br>Standardised 11,350 ---- 2,926 14,276<br>Total 1,000,097 130,044 17,919 5,233 7,831 2,926 1,164,050<br>30 September 2021 Total Exposure<br>$m Australia New Zealand Americas Asia Europe Pacific at Default<br>Corporate 88,822 23,329 7,241 4,784 6,069 - 130,245<br>Business lending 47,423 4,997 ---- 52,420<br>Sovereign 147,301 15,914 12,441 212 370 - 176,238<br>Bank 19,254 1,315 112 541 61 - 21,283<br>Residential mortgages 515,772 66,189 - 175 -- 582,136<br>Australian credit cards 15,394 ----- 15,394<br>Other retail 8,667 2,851 ---- 11,518<br>Small business 28,509 2,367 - 1 -- 30,877<br>Specialised lending 58,299 8,433 ---- 66,732<br>Securitisation 26,083 4,478 ---- 30,561<br>Standardised 13,757 -- 3 - 2,919 16,679<br>Total 969,281 129,873 19,794 5,716 6,500 2,919 1,134,083<br>31 March 2021 Total Exposure<br>$m Australia New Zealand Americas Asia Europe Pacific at Default<br>Corporate 81,694 22,429 7,281 6,121 7,042 - 124,567<br>Business lending 48,255 4,797 ---- 53,052<br>Sovereign 124,825 12,824 4,721 462 405 - 143,237<br>Bank 22,165 574 106 531 28 - 23,404<br>Residential mortgages 501,445 61,160 - 193 -- 562,798<br>Australian credit cards 16,459 ----- 16,459<br>Other retail 9,626 2,953 ---- 12,579<br>Small business 29,582 2,358 - 1 -- 31,941<br>Specialised lending 56,748 8,119 ---- 64,867<br>Securitisation 23,923 4,376 ---- 28,299<br>Standardised 12,504 -- 14 - 2,782 15,300<br>Total 927,226 119,590 12,108 7,322 7,475 2,782 1,076,503<br><br>1 Geographic segmentation of exposures is based on the location of the office in which these items were booked. |
| --- |
| Pillar 3 report<br>Credit risk exposures<br><br> Westpac Group March 2022 Pillar 3 report | 41<br>Exposure at Default by residual contractual maturity<br>31 March 2022 Total Exposure<br>$m On demand < 12 months 1 to < 3 years 3 to < 5 years > 5 years at Default<br>Corporate 13,765 25,029 61,310 23,990 6,417 130,511<br>Business lending 4,389 13,507 23,254 5,797 6,417 53,364<br>Sovereign 1,350 103,649 51,994 11,610 30,854 199,457<br>Bank 2,831 2,894 14,725 627 180 21,257<br>Residential mortgages 29,763 5,158 11,127 2,769 536,993 585,810<br>Australian credit cards 15,193 ---- 15,193<br>Other retail 2,688 321 3,466 2,618 1,219 10,312<br>Small business 4,326 2,966 8,328 7,093 6,940 29,653<br>Specialised lending 382 19,195 37,544 9,626 4,104 70,851<br>Securitisation 9 5,284 11,275 2,510 14,288 33,366<br>Standardised 1,571 1,212 6,108 284 5,101 14,276<br>Total 76,267 179,215 229,131 66,924 612,513 1,164,050<br>30 September 2021 Total Exposure<br>$m On demand < 12 months 1 to < 3 years 3 to < 5 years > 5 years at Default<br>Corporate 13,514 28,465 62,097 20,217 5,952 130,245<br>Business lending 4,512 14,266 22,945 5,091 5,606 52,420<br>Sovereign 1,383 73,360 48,318 15,669 37,508 176,238<br>Bank 2,956 3,080 14,562 617 68 21,283<br>Residential mortgages 30,020 4,742 11,800 2,749 532,825 582,136<br>Australian credit cards 15,394 ---- 15,394<br>Other retail 2,798 340 3,977 2,984 1,419 11,518<br>Small business 4,428 3,194 8,582 7,467 7,206 30,877<br>Specialised lending 431 18,839 34,571 9,055 3,836 66,732<br>Securitisation - 7,190 7,931 2,067 13,373 30,561<br>Standardised 1,612 1,165 7,883 289 5,730 16,679<br>Total 77,048 154,641 222,666 66,205 613,523 1,134,083<br>31 March 2021 Total Exposure<br>$m On demand < 12 months 1 to < 3 years 3 to < 5 years > 5 years at Default<br>Corporate 13,056 24,564 64,353 19,072 3,522 124,567<br>Business lending 4,693 15,186 23,029 4,407 5,737 53,052<br>Sovereign 1,409 34,033 49,207 19,787 38,801 143,237<br>Bank 3,026 3,641 15,956 643 138 23,404<br>Residential mortgages 29,630 4,104 13,415 2,665 512,984 562,798<br>Australian credit cards 16,459 ---- 16,459<br>Other retail 2,848 357 4,376 3,316 1,682 12,579<br>Small business 4,490 3,291 8,950 7,643 7,567 31,941<br>Specialised lending 421 21,633 32,317 6,917 3,579 64,867<br>Securitisation - 3,860 11,183 2,011 11,245 28,299<br>Standardised 1,604 381 6,793 252 6,270 15,300<br>Total 77,636 111,050 229,579 66,713 591,525 1,076,503 |
| --- |
| Pillar 3 report<br>Credit risk exposures<br><br>42 | Westpac Group March 2022 Pillar 3 report<br>Impaired and past due loans<br>The following tables disclose the crystallisation of credit risk as impairment and loss. Analysis of exposures<br>defaulted not impaired, impaired loans, related provisions and actual losses are broken down by concentrations<br>reflecting Westpac’s asset categories, industry and geography.<br>Impaired and past due loans by portfolio12<br>Specific Specific Actual<br>31 March 2022 Defaulted Impaired Provisions for Provisions to Losses for the<br>$m not impaired1 Loans Impaired Loans Impaired Loans 6 months ended<br>Corporate 218 290 208 72% 303<br>Business lending 1,008 333 150 45% 34<br>Sovereign -----<br>Bank -----<br>Residential mortgages 4,229 226 65 29% 28<br>Australian credit cards - 59 33 56% 50<br>Other retail - 217 116 53% 36<br>Small business 496 348 167 48% 14<br>Specialised lending 532 88 19 22% \(1\)<br>Securitisation -----<br>Standardised 73 92 36 39% -<br>Total 6,556 1,653 794 48% 464<br>Specific Specific Actual<br>30 September 2021 Defaulted Impaired Provisions for Provisions to Losses for the<br>$m not impaired1, 2 Loans Impaired Loans Impaired Loans 12 months ended<br>Corporate 400 602 498 83% 67<br>Business lending 1,106 326 160 49% 91<br>Sovereign -----<br>Bank -----<br>Residential mortgages 5,053 271 76 28% 71<br>Australian credit cards - 65 37 57% 136<br>Other retail - 245 136 56% 146<br>Small business 518 428 196 46% 82<br>Specialised lending 466 110 23 21% 1<br>Securitisation -----<br>Standardised 85 95 40 42% -<br>Total 7,628 2,142 1,166 54% 594<br>Specific Specific Actual<br>31 March 2021 Defaulted Impaired Provisions for Provisions to Losses for the<br>$m not impaired1 Loans Impaired Loans Impaired Loans 6 months ended<br>Corporate 155 319 220 69% 56<br>Business lending 793 388 198 51% 25<br>Sovereign -----<br>Bank -----<br>Residential mortgages 5,298 263 78 30% 44<br>Australian credit cards - 82 49 60% 71<br>Other retail - 277 158 57% 78<br>Small business 423 639 229 36% 24<br>Specialised lending 367 39 12 31% 1<br>Securitisation -----<br>Standardised 73 64 30 47% -<br>Total 7,109 2,071 974 47% 299<br><br><br>1 Includes items past 90 days not impaired.<br>2 Increase over the half includes reclassification of facilities subject to a forbearance agreement. |
| --- |
| Pillar 3 report<br>Credit risk exposures<br><br> Westpac Group March 2022 Pillar 3 report | 43<br>Impaired and past due loans by industry classification1<br>Specific Specific Actual<br>31 March 2022 Defaulted Impaired Provisions for Provisions to Losses for the<br>$m not impaired1 Loans Impaired Loans Impaired Loans 6 months ended<br>Accommodation, cafes & restaurants 312 66 27 41% 1<br>Agriculture, forestry & fishing 165 62 17 27% 4<br>Construction 135 88 38 43% 5<br>Finance & insurance 105 34 21 62% 9<br>Government administration & defence - ----<br>Manufacturing 115 210 141 67% 1<br>Mining 20 12 6 50% -<br>Property 682 119 31 26% -<br>Property services & business services 249 159 92 58% 10<br>Services2 183 115 60 52% 304<br>Trade3 230 176 96 55% 10<br>Transport & storage 33 39 17 44% 6<br>Utilities4 11 4 1 25% -<br>Retail lending 4,292 517 220 43% 114<br>Other 24 52 27 52% -<br>Total 6,556 1,653 794 48% 464<br>Specific Specific Actual<br>30 September 2021 Defaulted Impaired Provisions for Provisions to Losses for the<br>$m not impaired1 Loans Impaired Loans Impaired Loans 12 months ended<br>Accommodation, cafes & restaurants 587 90 51 57% 12<br>Agriculture, forestry & fishing 225 67 19 28% 25<br>Construction 128 96 38 40% 33<br>Finance & insurance 108 53 23 43% 26<br>Government administration & defence - ----<br>Manufacturing 131 203 118 58% 60<br>Mining 23 14 6 43% 6<br>Property 601 149 46 31% 11<br>Property services & business services 183 200 131 66% 11<br>Services2 135 348 311 89% 11<br>Trade3 295 215 118 55% 16<br>Transport & storage 49 49 22 45% 12<br>Utilities4 6 6 2 33% 1<br>Retail lending 5,119 596 256 43% 353<br>Other 38 56 25 45% 17<br>Total 7,628 2,142 1,166 54% 594<br>Specific Specific Actual<br>31 March 2021 Defaulted Impaired Provisions for Provisions to Losses for the<br>$m not impaired1 Loans Impaired Loans Impaired Loans 6 months ended<br>Accommodation, cafes & restaurants 187 65 32 49% 2<br>Agriculture, forestry & fishing 281 71 27 38% 13<br>Construction 108 123 51 41% 3<br>Finance & insurance 71 55 39 71% 16<br>Government administration & defence - ---<br>Manufacturing 91 200 135 68% 43<br>Mining 13 20 6 30% 3<br>Property 489 96 30 31% -<br>Property services & business services 142 266 130 49% 3<br>Services2 121 97 48 49% 7<br>Trade3 165 252 126 50% 4<br>Transport & storage 23 84 31 37% 7<br>Utilities4 3 8 2 25% -<br>Retail lending 5,365 634 293 46% 195<br>Other 50 100 24 24% 3<br>Total 7,109 2,071 974 47% 299<br><br>1 Includes items past 90 days not impaired.<br>2 Includes education, health & community services, cultural & recreational services and personal & other services.<br>3 Includes wholesale trade and retail trade.<br>4 Includes electricity, gas & water, and communication services. |
| --- |
| Pillar 3 report<br>Credit risk exposures<br><br>44 | Westpac Group March 2022 Pillar 3 report<br>Impaired and past due loans by geography12<br>Specific Specific Actual<br>31 March 2022 Defaulted Impaired Provisions for Provisions to Losses for the<br>$m not impaired2 Loans Impaired Loans Impaired Loans 6 months ended<br>Australia 6,010 1,450 694 48% 414<br>New Zealand 499 82 36 44% 50<br>Americas -----<br>Asia - 30 28 93% -<br>Europe -----<br>Pacific 47 91 36 40% -<br>Total 6,556 1,653 794 48% 464<br>Specific Specific Actual<br>30 September 2021 Defaulted Impaired Provisions for Provisions to Losses for the<br>$m not impaired2 Loans Impaired Loans Impaired Loans 12 months ended<br>Australia 7,120 1,868 1,009 54% 498<br>New Zealand 457 148 85 57% 53<br>Americas -----<br>Asia - 34 33 97% 42<br>Europe -----<br>Pacific 51 92 39 42% 1<br>Total 7,628 2,142 1,166 54% 594<br>Specific Specific Actual<br>31 March 2021 Defaulted Impaired Provisions for Provisions to Losses for the<br>$m not impaired2 Loans Impaired Loans Impaired Loans 6 months ended<br>Australia 6,601 1,671 756 45% 234<br>New Zealand 471 159 85 53% 23<br>Americas -----<br>Asia 1 178 112 63% 42<br>Europe -----<br>Pacific 36 63 21 33% -<br>Total 7,109 2,071 974 47% 299<br><br>1 Geographic segmentation of exposures is based on the location of the office in which these items were booked.<br>2 Includes items past 90 days not impaired. |
| --- |
| Pillar 3 report<br>Credit risk exposures<br><br> Westpac Group March 2022 Pillar 3 report | 45<br>Portfolios subject to the standardised approach<br>This table presents exposures subject to the standardised approach for the calculation of risk weighted assets.<br>As at 31 March 2022, exposures subject to the standardised approach and categorised by risk weight are primarily<br>Westpac Pacific, Asian retail exposures, the margin lending portfolio, self-managed superannuation fund<br>exposures and some other small portfolios. Mark-to-market related credit risk and qualifying central clearing<br>counterparties exposure1 is also included in the standardised approach.<br>31 March 2022 Total Exposure Risk Weighted<br>Risk Weight % at Default $m Assets $m<br>0% 1,674 -<br>2% 2,540 51<br>20% 1,288 258<br>35% 347 121<br>50% 1,242 621<br>75% 3,106 2,329<br>100% 3,906 3,906<br>150% 49 73<br>Default fund contributions1 124 91<br>Mark-to-market related credit risk - 5,691<br>Total 14,276 13,141<br>30 September 2021 Total Exposure Risk Weighted<br>Risk Weight % at Default $m Assets $m<br>0% 1,690 -<br>2% 4,339 87<br>20% 1,316 263<br>35% 372 130<br>50% 1,293 646<br>75% 3,624 2,718<br>100% 3,860 3,862<br>150% 50 74<br>Default fund contributions1 135 104<br>Mark-to-market related credit risk - 6,278<br>Total 16,679 14,162<br>31 March 2021 Total Exposure Risk Weighted<br>Risk Weight % at Default $m Assets $m<br>0% 2,013 -<br>2% 2,253 45<br>20% 1,289 258<br>35% 382 134<br>50% 1,311 655<br>75% 4,053 3,041<br>100% 3,826 3,826<br>150% 26 39<br>Default fund contributions1 147 94<br>Mark-to-market related credit risk - 6,419<br>Total 15,300 14,510<br><br><br><br><br><br><br>1 Portfolios subject to the standardised approach include exposures to qualifying central clearing counterparties used to clear derivative<br>transactions. Derivative counterparty exposure and initial margin are risk weighted at 2%. Default fund contributions to qualifying<br>central clearing counterparties are shown separately and are subject to higher risk weights. |
| --- |
| Pillar 3 report<br>Credit risk exposures<br><br>46 | Westpac Group March 2022 Pillar 3 report<br>Portfolios subject to supervisory risk-weights in the IRB approach<br>Exposures subject to supervisory risk-weights in the IRB approach include assets categorised as specialised<br>lending, where a regulatory capital ‘slotting’ approach applies.<br>Westpac has property finance and project finance credit risk exposures categorised as specialised lending. The<br> ‘Credit Risk Management’ section of this report describes the mapping of Westpac risk grades to both external<br>rating equivalents and regulatory capital ‘slots’.<br>Property finance12<br>31 March 2022 Exposure at Regulatory Risk Weighted<br>$m Risk Weight Default Expected Loss Assets<br>Strong 70% 28,350 113 19,847<br>Good 90% 29,863 239 26,980<br>Satisfactory 115% 3,584 100 4,162<br>Weak 250% 607 49 1,518<br>Default NA 653 327 -<br>Total 63,057 828 52,507<br>30 September 2021 Exposure at Regulatory Risk Weighted<br>$m Risk Weight Default Expected Loss Assets<br>Strong 70% 25,412 102 17,790<br>Good 90% 27,438 220 24,799<br>Satisfactory 115% 3,866 108 4,486<br>Weak 250% 621 50 1,553<br>Default NA 600 299 -<br>Total 57,937 779 48,628<br>31 March 2021 Exposure at Regulatory Risk Weighted<br>$m Risk Weight Default Expected Loss Assets1<br>Strong 70% 24,621 98 17,234<br>Good 90% 25,264 207 22,840<br>Satisfactory 115% 5,099 143 5,864<br>Weak 250% 1,195 96 2,987<br>Default NA 430 215 -<br>Total 56,609 759 48,925<br><br><br><br><br><br><br><br><br><br><br><br><br><br>1 The above table reflects that at 31 March 2021 Westpac applied an overlay for property finance to take into account facilities where<br>reviews had not been completed. This has resulted in a $0.1 billion increase in RWA at 31 March 2021. |
| --- |
| Pillar 3 report<br>Credit risk exposures<br><br> Westpac Group March 2022 Pillar 3 report | 47<br>Project and object finance<br>31 March 2022 Exposure at Regulatory Risk Weighted<br>$m Risk Weight Default Expected Loss Assets<br>Strong 70% 6,369 25 4,459<br>Good 90% 1,083 9 975<br>Satisfactory 115% 342 10 393<br>Weak 250% ---<br>Default NA ---<br>Total 7,794 44 5,827<br>30 September 2021 Exposure at Regulatory Risk Weighted<br>$m Risk Weight Default Expected Loss Assets<br>Strong 70% 7,158 29 5,011<br>Good 90% 1,242 10 1,118<br>Satisfactory 115% 275 8 316<br>Weak 250% 120 10 299<br>Default NA ---<br>Total 8,795 56 6,744<br>31 March 2021 Exposure at Regulatory Risk Weighted<br>$m Risk Weight Default Expected Loss Assets<br>Strong 70% 6,341 25 4,439<br>Good 90% 1,521 12 1,369<br>Satisfactory 115% 303 8 348<br>Weak 250% 93 7 233<br>Default NA ---<br>Total 8,258 54 6,389 |
| --- |
| Pillar 3 report<br>Credit risk exposures<br><br>48 | Westpac Group March 2022 Pillar 3 report<br>Portfolios subject to IRB approaches<br>In the table below Westpac’s transaction-managed exposures are classified by the external credit rating. Each<br>external credit rating aligns to one or more internally assigned credit risk grades, as outlined in the ‘Credit Risk<br>Management’ section of this report. Westpac’s internal rating scale has more risk grades than does the external<br>rating scale, and as a result, average PD can vary from portfolio to portfolio for the same external grade.<br>Westpac’s program-managed exposures are classified by PD band and the average PD within a band can,<br>likewise, vary from portfolio to portfolio.<br>For both non-defaulted and defaulted exposures, regulatory expected loss is defined at facility level. For non-<br>defaulted exposures, regulatory expected loss is the product of PD, LGD and EAD while for defaulted exposures,<br>this is the best estimates of loss. Total regulatory expected loss as shown in the table below is the sum of both<br>non-defaulted and defaulted regulatory expected loss and given the difference in methodology, regulatory<br>expected loss reported is not equal to the product of the corresponding reported average PD, average LGD and<br>aggregate EAD.<br>Corporate portfolio by external credit rating1<br>Risk Average<br>31 March 2022 Committed Exposure Probability Loss Given Regulatory Weighted Risk<br>$m Outstandings2 Undrawn3 at Default of Default Default Expected Loss Assets Weight<br>AAA 322 9 331 0.01% 51% - 32 10%<br>AA 3,095 1,767 4,844 0.03% 53% 1 829 17%<br>A 17,900 11,939 29,569 0.07% 53% 10 7,947 27%<br>BBB 31,200 26,382 56,699 0.22% 49% 60 28,515 50%<br>BB 25,761 10,882 36,381 1.07% 37% 145 27,997 77%<br>B 692 58 744 4.78% 37% 13 925 124%<br>Other 891 144 1,031 24.46% 40% 102 2,211 214%<br>Subtotal 79,861 51,181 129,599 0.64% 46% 331 68,456 53%<br>Default 466 163 912 NA 60% 508 935 103%<br>Total 80,327 51,344 130,511 1.33% 47% 839 69,391 53%<br>Risk Average<br>30 September 2021 Committed Exposure Probability Loss Given Regulatory Weighted Risk<br>$m Outstandings2 Undrawn3 at Default of Default Default Expected Loss Assets Weight<br>AAA 627 249 876 0.01% 39% - 71 8%<br>AA 3,365 2,063 5,402 0.03% 51% 1 800 15%<br>A 16,818 13,075 29,662 0.07% 52% 10 7,847 26%<br>BBB 29,734 25,297 54,268 0.23% 48% 59 27,318 50%<br>BB 25,011 11,677 36,449 1.11% 37% 147 27,271 75%<br>B 894 137 1,027 4.78% 38% 19 1,331 130%<br>Other 1,158 316 1,467 23.63% 41% 146 3,413 233%<br>Subtotal 77,607 52,814 129,151 0.73% 46% 382 68,051 53%<br>Default 953 132 1,094 NA 54% 543 664 61%<br>Total 78,560 52,946 130,245 1.57% 46% 925 68,715 53%<br>Risk Average<br>31 March 2021 Committed Exposure Probability Loss Given Regulatory Weighted Risk<br>$m Outstandings2 Undrawn3 at Default of Default Default Expected Loss Assets Weight<br>AAA 56 4 60 0.01% 41% - 7 12%<br>AA 3,380 1,884 5,238 0.03% 48% 1 721 14%<br>A 16,564 12,110 28,566 0.07% 51% 10 7,192 25%<br>BBB 26,975 24,710 50,951 0.22% 48% 53 24,436 48%<br>BB 24,581 11,278 35,667 1.13% 37% 151 26,775 75%<br>B 1,174 157 1,328 4.78% 41% 26 1,787 135%<br>Other 1,688 412 2,095 23.70% 39% 190 4,383 209%<br>Subtotal 74,418 50,555 123,905 0.89% 45% 431 65,301 53%<br>Default 509 154 662 NA 40% 223 785 119%<br>Total 74,927 50,709 124,567 1.41% 45% 654 66,086 53%<br><br>1 The above table reflects that at 31 March 2021 Westpac applied an overlay for corporate to take into account facilities where reviews<br>had not been completed. The overlay is reassessed as customer reviews are completed and resulted in a $0.1 billion increase in<br>RWA at 31 March 2021. The overlay has been removed from September 2021 as all customer reviews are completed.<br>2 Outstandings are balances that were drawn down as at the reporting date and include certain off-balance sheet items.<br>3 Committed undrawn balances are committed exposures that were not drawn down as at the reporting date. |
| --- |
| Pillar 3 report<br>Credit risk exposures<br><br> Westpac Group March 2022 Pillar 3 report | 49<br>Business lending portfolio by external credit rating1<br>Risk Average<br>31 March 2022 Committed Exposure Probability Loss Given Regulatory Weighted Risk<br>$m Outstandings2 Undrawn3 at Default of Default Default Expected Loss Assets Weight<br>AAA - - - - - - - -<br>AA - - - - - - - -<br>A 149 94 243 0.08% 41% - 42 17%<br>BBB 1,363 688 2,050 0.22% 29% 1 524 26%<br>BB 35,310 11,472 46,741 1.56% 29% 211 27,044 58%<br>B 1,078 193 1,272 4.78% 30% 18 1,013 80%<br>Other 1,428 263 1,691 22.12% 32% 120 2,519 149%<br>Subtotal 39,328 12,710 51,997 2.25% 29% 350 31,142 60%<br>Default 1,264 97 1,367 NA 26% 271 1,544 113%<br>Total 40,592 12,807 53,364 4.75% 29% 621 32,686 61%<br>Risk Average<br>30 September 2021 Committed Exposure Probability Loss Given Regulatory Weighted Risk<br>$m Outstandings2 Undrawn3 at Default of Default Default Expected Loss Assets Weight<br>AAA - - - - - - - -<br>AA - - - - - - - -<br>A 179 68 247 0.08% 42% - 46 19%<br>BBB 1,460 548 2,006 0.21% 28% 1 440 22%<br>BB 34,517 10,984 45,432 1.59% 29% 210 26,264 58%<br>B 1,333 235 1,569 4.78% 31% 23 1,283 82%<br>Other 1,511 187 1,697 21.86% 34% 130 2,732 161%<br>Subtotal 39,000 12,022 50,951 2.30% 29% 364 30,765 60%<br>Default 1,371 82 1,469 NA 28% 294 1,794 122%<br>Total 40,371 12,104 52,420 5.04% 29% 658 32,559 62%<br>Risk Average<br>31 March 2021 Committed Exposure Probability Loss Given Regulatory Weighted Risk<br>$m Outstandings2 Undrawn3 at Default of Default Default Expected Loss Assets Weight<br>AAA - - - - - - - -<br>AA - - - - - - - -<br>A 187 89 276 0.08% 43% - 56 20%<br>BBB 1,274 574 1,844 0.21% 27% 1 384 21%<br>BB 34,034 11,292 45,205 1.60% 29% 218 26,031 58%<br>B 1,569 267 1,836 4.78% 32% 28 1,547 84%<br>Other 2,410 307 2,716 22.45% 36% 228 4,445 164%<br>Subtotal 39,474 12,529 51,877 2.75% 30% 475 32,463 63%<br>Default 1,116 59 1,175 NA 31% 275 1,598 136%<br>Total 40,590 12,588 53,052 4.90% 30% 750 34,061 64%<br><br>1 The above table reflects that at 31 March 2021 Westpac applied an overlay for business lending to take into account facilities where<br>reviews had not been completed, which has resulted in a $0.2 billion increase in RWA at 31 March 2021. The overlay has been<br>removed from September 2021 as all customer reviews are completed.<br>2 Outstandings are balances that were drawn down as at the reporting date and include certain off-balance sheet items.<br>3 Committed undrawn balances are committed exposures that were not drawn down as at the reporting date. |
| --- |
| Pillar 3 report<br>Credit risk exposures<br><br>50 | Westpac Group March 2022 Pillar 3 report<br>Sovereign portfolio by external credit rating<br>Risk Average<br>31 March 2022 Committed Exposure Probability Loss Given Regulatory Weighted Risk<br>$m Outstandings1 Undrawn2 at Default of Default Default Expected Loss Assets Weight<br>AAA 142,828 279 143,545 0.01% 6% 1 1,078 1%<br>AA 53,148 1,024 55,195 0.02% 7% 1 1,053 2%<br>A 387 246 635 0.05% 30% - 101 16%<br>BBB 56 10 66 0.22% 40% - 24 36%<br>BB 2 14 16 2.13% 37% - 14 88%<br>B- - - - - - - -<br>Other - - - - - - - -<br>Subtotal 196,421 1,573 199,457 0.01% 6% 2 2,270 1%<br>Default - - - NA - - - -<br>Total 196,421 1,573 199,457 0.01% 6% 2 2,270 1%<br>Risk Average<br>30 September 2021 Committed Exposure Probability Loss Given Regulatory Weighted Risk<br>$m Outstandings1 Undrawn2 at Default of Default Default Expected Loss Assets Weight<br>AAA 111,781 280 113,947 0.01% 7% 1 1,324 1%<br>AA 57,360 801 61,655 0.02% 6% 1 1,096 2%<br>A 363 178 542 0.05% 26% - 50 9%<br>BBB 55 10 65 0.22% 40% - 23 35%<br>BB 2 27 29 1.47% 23% - 15 52%<br>B- - - - - - - -<br>Other - - - - - - - -<br>Subtotal 169,561 1,296 176,238 0.01% 7% 2 2,508 1%<br>Default - - - NA - - - -<br>Total 169,561 1,296 176,238 0.01% 7% 2 2,508 1%<br>Risk Average<br>31 March 2021 Committed Exposure Probability Loss Given Regulatory Weighted Risk<br>$m Outstandings1 Undrawn2 at Default of Default Default Expected Loss Assets Weight<br>AAA 79,518 106 82,215 0.01% 6% 1 1,086 1%<br>AA 55,760 968 60,446 0.02% 7% 1 1,163 2%<br>A 295 146 443 0.05% 25% - 54 12%<br>BBB 106 10 116 0.22% 35% - 37 32%<br>BB 3 14 17 2.30% 35% - 15 88%<br>B- - - - - - - -<br>Other - - - - - - - -<br>Subtotal 135,682 1,244 143,237 0.01% 7% 2 2,355 2%<br>Default - - - NA - - - -<br>Total 135,682 1,244 143,237 0.01% 7% 2 2,355 2%<br><br>1 Outstandings are balances that were drawn down as at the reporting date and include certain off-balance sheet items.<br>2 Committed undrawn balances are committed exposures that were not drawn down as at the reporting date. |
| --- |
| Pillar 3 report<br>Credit risk exposures<br><br> Westpac Group March 2022 Pillar 3 report | 51<br>Bank portfolio by external credit rating<br><br>Risk Average<br>31 March 2022 Committed Exposure Probability Loss Given Regulatory Weighted Risk<br>$m Outstandings1 Undrawn2 at Default of Default Default Expected Loss Assets Weight<br>AAA 2,411 - 2,435 0.01% 12% - 82 3%<br>AA 5,720 232 5,947 0.03% 60% 1 1,247 21%<br>A 11,404 417 11,488 0.05% 59% 4 2,912 25%<br>BBB 1,231 176 1,345 0.20% 55% 1 680 51%<br>BB 23 17 40 0.83% 52% - 33 83%<br>B 2 - 1 4.78% 60% - 2 200%<br>Other 1 - 1 23.74% 60% - 4 400%<br>Subtotal 20,792 842 21,257 0.05% 53% 6 4,960 23%<br>Default - - - NA - - - -<br>Total 20,792 842 21,257 0.05% 53% 6 4,960 23%<br>Risk Average<br>30 September 2021 Committed Exposure Probability Loss Given Regulatory Weighted Risk<br>$m Outstandings1 Undrawn2 at Default of Default Default Expected Loss Assets Weight<br>AAA 2,443 - 2,486 0.01% 11% - 90 4%<br>AA 6,693 120 6,782 0.03% 60% 1 1,358 20%<br>A 10,003 471 10,270 0.05% 58% 3 2,611 25%<br>BBB 1,464 330 1,713 0.19% 59% 2 1,011 59%<br>BB 14 17 31 0.80% 61% - 30 97%<br>B- - - - 60% - - -<br>Other 1 - 1 23.74% 60% - 4 400%<br>Subtotal 20,618 938 21,283 0.05% 53% 6 5,104 24%<br>Default - - - NA - - - -<br>Total 20,618 938 21,283 0.05% 53% 6 5,104 24%<br>Risk Average<br>31 March 2021 Committed Exposure Probability Loss Given Regulatory Weighted Risk<br>$m Outstandings1 Undrawn2 at Default of Default Default Expected Loss Assets Weight<br>AAA 2,413 - 2,463 0.01% 11% - 101 4%<br>AA 9,013 211 9,258 0.03% 59% 2 1,903 21%<br>A 9,297 576 9,690 0.05% 58% 3 2,522 26%<br>BBB 1,745 302 1,962 0.19% 60% 2 1,150 59%<br>BB 15 17 30 0.92% 57% - 28 90%<br>B- - - - 60% - - -<br>Other 1 - 1 22.50% 60% - 4 400%<br>Subtotal 22,484 1,106 23,404 0.05% 54% 7 5,708 24%<br>Default - - - NA - - - -<br>Total 22,484 1,106 23,404 0.05% 54% 7 5,708 24%<br><br>1 Outstandings are balances that were drawn down as at the reporting date and include certain off-balance sheet items.<br>2 Committed undrawn balances are committed exposures that were not drawn down as at the reporting date. |
| --- |
| Pillar 3 report<br>Credit risk exposures<br><br>52 | Westpac Group March 2022 Pillar 3 report<br>Residential mortgages portfolio by PD band1, 2<br>Risk Average<br>31 March 2022 Committed Exposure Probability Loss Given Regulatory Weighted Risk<br>$m Outstandings3 Undrawn4 at Default of Default Default Expected Loss Assets Weight<br>0.0 to 0.10 140,674 44,608 183,545 0.08% 20% 28 12,060 7%<br>0.10 to 0.25 26,650 8,000 33,913 0.24% 20% 16 5,249 15%<br>0.25 to 1.0 274,769 30,369 300,908 0.52% 20% 311 73,393 24%<br>1.0 to 2.5 33,753 3,376 36,198 1.45% 21% 109 17,572 49%<br>2.5 to 10.0 12,304 594 12,608 4.85% 20% 124 11,781 93%<br>10.0 to 99.99 13,934 248 14,152 19.48% 20% 551 19,655 139%<br>Subtotal 502,084 87,195 581,324 0.98% 20% 1,139 139,710 24%<br>Default 4,477 26 4,486 NA 20% 476 6,738 150%<br>Total 506,561 87,221 585,810 1.74% 20% 1,615 146,448 25%<br>Risk Average<br>30 September 2021 Committed Exposure Probability Loss Given Regulatory Weighted Risk<br>$m Outstandings3 Undrawn4 at Default of Default Default Expected Loss Assets Weight<br>0.0 to 0.10 143,428 44,117 185,777 0.06% 20% 23 11,042 6%<br>0.10 to 0.25 77,959 15,059 92,334 0.22% 20% 40 13,932 15%<br>0.25 to 1.0 213,790 23,049 232,515 0.56% 20% 259 61,105 26%<br>1.0 to 2.5 35,221 3,738 37,974 1.43% 21% 113 18,819 50%<br>2.5 to 10.0 12,134 628 12,449 4.60% 20% 116 11,875 95%<br>10.0 to 99.99 15,507 246 15,720 27.59% 20% 504 21,687 138%<br>Subtotal 498,039 86,837 576,769 1.23% 20% 1,055 138,460 24%<br>Default 5,356 29 5,367 NA 20% 582 7,074 132%<br>Total 503,395 86,866 582,136 2.14% 20% 1,637 145,534 25%<br>Risk Average<br>31 March 2021 Committed Exposure Probability Loss Given Regulatory Weighted Risk<br>$m Outstandings3 Undrawn4 at Default of Default Default Expected Loss Assets Weight<br>0.0 to 0.10 143,271 42,989 184,454 0.06% 20% 23 10,643 6%<br>0.10 to 0.25 75,814 14,566 89,695 0.22% 20% 39 13,149 15%<br>0.25 to 1.0 199,560 22,352 217,749 0.56% 20% 244 55,617 26%<br>1.0 to 2.5 35,525 3,779 38,296 1.44% 21% 115 18,110 47%<br>2.5 to 10.0 13,032 624 13,351 4.62% 20% 126 12,276 92%<br>10.0 to 99.99 13,467 235 13,656 21.18% 20% 579 18,956 139%<br>Subtotal 480,669 84,545 557,201 1.00% 20% 1,126 128,751 23%<br>Default 5,586 28 5,597 NA 20% 793 5,187 93%<br>Total 486,255 84,573 562,798 1.99% 20% 1,919 133,938 24%<br><br>1 The above table reflects that at 31 March 2021 Westpac applied a floor of 23.8% to its mortgage risk weights to offset the temporary<br>positive effects of COVID-19 stimulus and support measures on customer account behaviours. The floor was subsequently increased<br>to 25% in June 2021. The 25% floor resulted in a $3.9 billion increase in mortgage RWA for March 2022.<br>2 The above table reflects that at 31 March 2022 Westpac recalibrated the mortgage PD model to reflect an increase in hardship, which<br>resulted in redistribution of EAD across PD bands.<br>3 Outstandings are balances that were drawn down as at the reporting date.<br>4 Committed undrawn balances are committed exposures that were not drawn down as at the reporting date. |
| --- |
| Pillar 3 report<br>Credit risk exposures<br><br> Westpac Group March 2022 Pillar 3 report | 53<br>Australian credit cards portfolio by PD band1, 2<br>Risk Average<br>31 March 2022 Committed Exposure Probability Loss Given Regulatory Weighted Risk<br>$m Outstandings3 Undrawn4 at Default of Default Default Expected Loss Assets Weight<br>0.0 to 0.10 1,724 9,361 7,567 0.05% 79% 3 196 3%<br>0.10 to 0.25 1,060 3,331 2,922 0.16% 82% 4 226 8%<br>0.25 to 1.0 1,015 1,044 1,671 0.47% 83% 7 313 19%<br>1.0 to 2.5 1,079 735 1,601 1.55% 82% 20 728 45%<br>2.5 to 10.0 895 306 1,075 4.43% 82% 39 1,004 93%<br>10.0 to 99.99 272 70 284 26.96% 79% 60 1,015 357%<br>Subtotal 6,045 14,847 15,120 1.09% 81% 133 3,482 23%<br>Default 73 14 73 NA 80% 36 469 642%<br>Total 6,118 14,861 15,193 1.57% 81% 169 3,951 26%<br>Risk Average<br>30 September 2021 Committed Exposure Probability Loss Given Regulatory Weighted Risk<br>$m Outstandings3 Undrawn4 at Default of Default Default Expected Loss Assets Weight<br>0.0 to 0.10 1,582 9,805 7,647 0.05% 71% 2 177 2%<br>0.10 to 0.25 931 3,670 2,894 0.16% 73% 3 199 7%<br>0.25 to 1.0 942 1,148 1,649 0.47% 74% 6 276 17%<br>1.0 to 2.5 1,097 810 1,657 1.56% 74% 19 687 41%<br>2.5 to 10.0 964 335 1,158 4.43% 73% 37 963 83%<br>10.0 to 99.99 297 78 310 28.63% 70% 64 1,404 453%<br>Subtotal 5,813 15,846 15,315 1.19% 72% 131 3,706 24%<br>Default 79 14 79 NA 71% 36 295 373%<br>Total 5,892 15,860 15,394 1.70% 72% 167 4,001 26%<br>Risk Average<br>31 March 2021 Committed Exposure Probability Loss Given Regulatory Weighted Risk<br>$m Outstandings3 Undrawn4 at Default of Default Default Expected Loss Assets Weight<br>0.0 to 0.10 1,730 9,636 7,739 0.05% 70% 3 180 2%<br>0.10 to 0.25 1,058 3,929 3,219 0.16% 73% 4 221 7%<br>0.25 to 1.0 1,047 1,193 1,792 0.47% 74% 6 300 17%<br>1.0 to 2.5 1,233 867 1,843 1.56% 74% 21 765 42%<br>2.5 to 10.0 1,158 376 1,384 4.53% 73% 46 1,173 85%<br>10.0 to 99.99 370 89 388 26.90% 71% 74 1,344 346%<br>Subtotal 6,596 16,090 16,365 1.30% 72% 154 3,983 24%<br>Default 94 14 94 NA 71% 48 296 315%<br>Total 6,690 16,104 16,459 1.87% 72% 202 4,279 26%<br><br>1 The above table reflects that at 31 March 2022, 30 September 2021 and 31 March 2021 Westpac applied a floor of 26% to its<br>Australian Credit Cards risk weights. This has resulted in a $0.4 billion increase in RWA at 31 March 2022.<br>2 The above table reflects that at 31 March 2022 Westpac recalibrated the Australian Credit Cards LGD model.<br>3 Outstandings are balances that were drawn down as at the reporting date.<br>4 Committed undrawn balances are committed exposures that were not drawn down as at the reporting date. |
| --- |
| Pillar 3 report<br>Credit risk exposures<br><br>54 | Westpac Group March 2022 Pillar 3 report<br>Other retail portfolio by PD band<br>Risk Average<br>31 March 2022 Committed Exposure Probability Loss Given Regulatory Weighted Risk<br>$m Outstandings1 Undrawn2 at Default of Default Default Expected Loss Assets Weight<br>0.0 to 0.10 212 889 753 0.05% 47% - 57 8%<br>0.10 to 0.25 329 1,186 1,094 0.20% 59% 2 276 25%<br>0.25 to 1.0 2,651 860 3,351 0.65% 59% 13 1,675 50%<br>1.0 to 2.5 1,862 713 2,394 1.63% 68% 29 2,073 87%<br>2.5 to 10.0 1,670 208 1,834 4.75% 73% 68 2,071 113%<br>10.0 to 99.99 624 38 673 24.82% 68% 120 1,037 154%<br>Subtotal 7,348 3,894 10,099 3.14% 63% 232 7,189 71%<br>Default 210 10 213 NA 70% 120 596 280%<br>Total 7,558 3,904 10,312 5.14% 64% 352 7,785 75%<br>Risk Average<br>30 September 2021 Committed Exposure Probability Loss Given Regulatory Weighted Risk<br>$m Outstandings1 Undrawn2 at Default of Default Default Expected Loss Assets Weight<br>0.0 to 0.10 208 992 809 0.05% 47% - 61 8%<br>0.10 to 0.25 311 1,260 1,130 0.20% 59% 2 289 26%<br>0.25 to 1.0 2,956 990 3,785 0.65% 58% 14 1,892 50%<br>1.0 to 2.5 2,152 814 2,775 1.63% 67% 33 2,348 85%<br>2.5 to 10.0 1,829 233 2,016 4.74% 69% 71 2,171 108%<br>10.0 to 99.99 712 43 765 25.87% 66% 138 1,130 148%<br>Subtotal 8,168 4,332 11,280 3.24% 62% 258 7,891 70%<br>Default 235 10 238 NA 68% 136 381 160%<br>Total 8,403 4,342 11,518 5.24% 62% 394 8,272 72%<br>Risk Average<br>31 March 2021 Committed Exposure Probability Loss Given Regulatory Weighted Risk<br>$m Outstandings1 Undrawn2 at Default of Default Default Expected Loss Assets Weight<br>0.0 to 0.10 224 911 781 0.05% 47% - 59 8%<br>0.10 to 0.25 335 1,202 1,128 0.20% 59% 2 288 26%<br>0.25 to 1.0 3,186 1,002 4,035 0.66% 58% 15 2,024 50%<br>1.0 to 2.5 2,458 830 3,109 1.63% 66% 35 2,613 84%<br>2.5 to 10.0 2,108 291 2,359 4.79% 70% 85 2,555 108%<br>10.0 to 99.99 838 46 897 26.05% 67% 164 1,347 150%<br>Subtotal 9,149 4,282 12,309 3.47% 63% 301 8,886 72%<br>Default 267 11 270 NA 67% 158 380 141%<br>Total 9,416 4,293 12,579 5.54% 63% 459 9,266 74%<br><br>1 Outstandings are balances that were drawn down as at the reporting date.<br>2 Committed undrawn balances are committed exposures that were not drawn down as at the reporting date. |
| --- |
| Pillar 3 report<br>Credit risk exposures<br><br> Westpac Group March 2022 Pillar 3 report | 55<br>Small business portfolio by PD band<br>Regulatory Risk Average<br>31 March 2022 Committed Exposure Probability Loss Given Expected Weighted Risk<br>$m Outstandings1 Undrawn2 at Default of Default Default Loss Assets Weight<br>0.0 to 0.10 205 371 406 0.07% 53% - 46 11%<br>0.10 to 0.25 144 206 339 0.18% 21% - 28 8%<br>0.25 to 1.0 5,382 3,551 8,852 0.46% 29% 12 1,910 22%<br>1.0 to 2.5 13,463 1,807 15,282 1.60% 38% 91 7,713 50%<br>2.5 to 10.0 2,264 341 2,606 4.98% 35% 47 1,760 68%<br>10.0 to 99.99 1,366 95 1,462 29.13% 35% 147 1,602 110%<br>Subtotal 22,824 6,371 28,947 2.91% 35% 297 13,059 45%<br>Default 695 43 706 NA 33% 175 1,342 190%<br>Total 23,519 6,414 29,653 5.22% 35% 472 14,401 49%<br>Regulatory Risk Average<br>30 September 2021 Committed Exposure Probability Loss Given Expected Weighted Risk<br>$m Outstandings1 Undrawn2 at Default of Default Default Loss Assets Weight<br>0.0 to 0.10 212 389 423 0.07% 51% - 46 11%<br>0.10 to 0.25 148 199 337 0.19% 21% - 28 8%<br>0.25 to 1.0 5,822 3,638 9,367 0.46% 29% 13 2,008 21%<br>1.0 to 2.5 13,763 1,817 15,564 1.61% 38% 94 7,911 51%<br>2.5 to 10.0 2,294 283 2,577 5.05% 34% 47 1,730 67%<br>10.0 to 99.99 1,670 95 1,767 30.64% 36% 194 1,990 113%<br>Subtotal 23,909 6,421 30,035 3.22% 35% 348 13,713 46%<br>Default 830 46 842 NA 33% 196 1,474 175%<br>Total 24,739 6,467 30,877 5.85% 35% 544 15,187 49%<br>Regulatory Risk Average<br>31 March 2021 Committed Exposure Probability Loss Given Expected Weighted Risk<br>$m Outstandings1 Undrawn2 at Default of Default Default Loss Assets Weight<br>0.0 to 0.10 222 378 430 0.07% 51% - 46 11%<br>0.10 to 0.25 148 206 346 0.19% 21% - 29 8%<br>0.25 to 1.0 5,969 3,721 9,600 0.46% 29% 13 2,008 21%<br>1.0 to 2.5 13,940 1,908 15,808 1.63% 38% 96 7,982 50%<br>2.5 to 10.0 2,561 282 2,844 5.09% 35% 53 1,909 67%<br>10.0 to 99.99 1,837 82 1,921 29.07% 38% 211 2,168 113%<br>Subtotal 24,677 6,577 30,949 3.25% 35% 373 14,142 46%<br>Default 982 36 992 NA 36% 240 1,955 197%<br>Total 25,659 6,613 31,941 6.26% 35% 613 16,097 50%<br><br><br>1 Outstandings are balances that were drawn down as at the reporting date and include certain off-balance sheet items.<br>2 Committed undrawn balances are committed exposures that were not drawn down as at the reporting date. |
| --- |
| Pillar 3 report<br>Credit risk exposures<br><br>56 | Westpac Group March 2022 Pillar 3 report<br>Credit Quality<br>Actual losses<br>31 March 2022 Write-offs Legal and Write-offs from Actual Losses for the<br>$m direct recovery costs provisions1 Recoveries 6 months ended<br>Corporate -- 303 - 303<br>Business lending 23 - 20 \(9\) 34<br>Sovereign -----<br>Bank -----<br>Residential mortgages 5 - 18 5 28<br>Australian credit cards 88 --\(38\) 50<br>Other retail 88 3 -\(55\) 36<br>Small business 6 1 7 - 14<br>Specialised lending 3 1 -\(5\) \(1\)<br>Securitisation -----<br>Standardised -----<br>Total 213 5 348 \(102\) 464<br>30 September 2021 Write-offs Legal and Write-offs from Actual Losses for the<br>$m direct recovery costs provisions1 Recoveries 12 months ended<br>Corporate -- 67 - 67<br>Business lending 69 1 37 \(16\) 91<br>Sovereign -----<br>Bank -----<br>Residential mortgages 14 - 59 \(2\) 71<br>Australian credit cards 228 --\(92\) 136<br>Other retail 263 7 -\(124\) 146<br>Small business 26 2 56 \(2\) 82<br>Specialised lending 1 3 3 \(6\) 1<br>Securitisation -----<br>Standardised -----<br>Total 601 13 222 \(242\) 594<br>31 March 2021 Write-offs Legal and Write-offs from Actual Losses for the<br>$m direct recovery costs provisions1 Recoveries 6 months ended<br>Corporate -- 56 - 56<br>Business lending 30 - 3 \(8\) 25<br>Sovereign -----<br>Bank -----<br>Residential mortgages 8 - 37 \(1\) 44<br>Australian credit cards 121 --\(50\) 71<br>Other retail 142 4 -\(68\) 78<br>Small business 10 1 14 \(1\) 24<br>Specialised lending - 2 3 \(4\) 1<br>Securitisation -----<br>Standardised -----<br>Total 311 7 113 \(132\) 299<br><br>1 Write-offs from individually assessed provisions. |
| --- |
| Pillar 3 report<br>Credit risk exposures<br><br> Westpac Group March 2022 Pillar 3 report | 57<br>Regulatory loss estimates and actual losses<br>The table below compares regulatory credit risk estimates used in the calculation of risk weighted assets to the<br>average of actual outcomes observed since the time of Advanced IRB accreditation for each portfolio.<br>Predicted parameters represent average internally predicted long-run probabilities of default for non-defaulted<br>obligors at the start of each year, as well as downturn estimates of loss \(or the regulatory minimum where<br>required\). They are averaged using data from the financial years beginning at the time of Advanced IRB<br>accreditation \(2008 for most portfolios\) and compared to observed outcomes over the same period1.<br>Predicted parameters are reviewed annually utilising observed outcomes from prior periods as a key input.<br>Default rates<br>At the start of each year, a predicted default probability is assigned to all non-defaulted obligors. This is averaged<br>over the portfolio for the period since IRB accreditation and reported as the predicted default rate. The actual<br>default rate reflects the fraction of obligors who start the year not in default but default during the one year period.<br>The observed annual default rates are averaged over the period since IRB accreditation.<br>Loss Given Default \(LGD\)<br>The LGD analysis excludes recent defaults in order to allow sufficient time for the full workout of the facility and<br>hence an accurate LGD to be determined. The workout period varies by portfolio: a two year workout period is<br>assumed for transaction-managed and residential mortgage lending; and a one year period for other program-<br>managed portfolios.<br>Exposure at Default \(EAD\)<br>The EAD variance compares the observed EAD to the predicted EAD up to one year prior to default. For<br>transaction-managed portfolios, predicted EAD is currently mandated to be 100% of committed exposures. The<br>observed EAD is averaged for all obligors that defaulted over the observation period.23<br>Observed EAD<br>31 March 2022 Regulatory variance to<br>$m Expected Loss2 Predicted Observed Predicted Observed Predicted3<br>Corporate 839 2.30% 0.96% 45% 26% \(22%\)<br>Business lending 621 2.26% 1.63% 35% 17% \(13%\)<br>Sovereign 2 0.24% - - - -<br>Bank 6 0.42% 0.11% - - -<br>Residential mortgages 1,615 0.73% 0.62% 20% 1% \(1%\)<br>Australian credit cards 169 1.66% 1.55% 74% 58% \(2%\)<br>Other retail 352 4.72% 3.58% 68% 41% \(7%\)<br>Small business 472 3.88% 2.94% 38% 7% \(9%\)<br>Specialised lending 871 NA 2.21% NA 17% \(10%\)<br>Securitisation - NA NA NA NA NA<br>Standardised - NA NA NA NA NA<br>Total 4,947<br> Default rate Loss Given Default<br><br><br>1 Predicted parameters are not available for specialised lending, securitisation or standardised exposures because risk weights for<br>these portfolios do not rely on credit estimates and are shown as NA in the tables above.<br>2 Includes regulatory expected losses for defaulted and non-defaulted exposures.<br>3 A negative outcome indicates observed EAD was lower than predicted EAD, which can happen because exposures were managed<br>down prior to default or off-balance sheet items or undrawn limits were not fully drawn prior to default. |
| --- |
| Pillar 3 report<br>Credit risk exposures<br><br>58 | Westpac Group March 2022 Pillar 3 report<br>Observed EAD<br>30 September 2021 Regulatory variance to<br>$m Expected Loss1 Predicted Observed Predicted Observed Predicted2<br>Corporate 925 2.22% 0.83% 46% 30% \(23%\)<br>Business lending 658 2.27% 1.49% 35% 18% \(14%\)<br>Sovereign 2 0.13% - - - -<br>Bank 6 0.42% 0.11% - - -<br>Residential mortgages 1,637 0.72% 0.62% 20% 1% \(1%\)<br>Australian credit cards 167 1.68% 1.58% 74% 58% \(2%\)<br>Other retail 394 4.75% 3.63% 68% 42% \(7%\)<br>Small business 544 3.79% 2.95% 39% 8% \(8%\)<br>Specialised lending 835 NA 1.96% N/A 19% \(10%\)<br>Securitisation - NA NA NA NA NA<br>Standardised - NA NA NA NA NA<br>Total 5,168<br>Observed EAD<br>31 March 2021 Regulatory Default rate variance to<br>$m Expected Loss1 Predicted Observed Predicted Observed Predicted2<br>Corporate 654 2.26% 0.93% 47% 35% \(23%\)<br>Business lending 750 2.25% 1.65% 35% 16% \(13%\)<br>Sovereign 2 0.22% - - - -<br>Bank 7 0.42% 0.12% - - -<br>Residential mortgages 1,919 0.70% 0.59% 20% 1% \(1%\)<br>Australian credit cards 202 1.69% 1.61% 75% 59% \(2%\)<br>Other retail 459 4.75% 3.65% 68% 43% \(7%\)<br>Small business 613 3.61% 2.67% 38% 9% \(10%\)<br>Specialised lending 813 NA 2.13% NA 20% \(9%\)<br>Securitisation - NA NA NA NA NA<br>Standardised - NA NA NA NA NA<br>Total 5,419<br> Loss Given Default Default rate<br> Loss Given Default<br><br><br><br>1 Includes regulatory expected losses for defaulted and non-defaulted exposures<br>2 A negative outcome indicates observed EAD was lower than predicted EAD, which can happen because exposures were managed<br>down prior to default or off-balance sheet items or undrawn limits were not fully drawn prior to default. |
| --- |
| Pillar 3 report<br>Credit risk mitigation<br><br> Westpac Group March 2022 Pillar 3 report | 59<br>This section describes the way in which Westpac reduces its credit risk by using financial collateral, guarantees or<br>credit derivatives for the Corporate, Sovereign and Bank asset classes.<br>Approach<br>Westpac recognises credit risk mitigation only when formal legal documentation is held that establishes Westpac’s<br>direct, irrevocable and unconditional recourse to the collateral or to an unrelated credit risk mitigation provider.<br>Minimum standards for recognising credit risk mitigation are set out in Westpac's credit rules and policies. All<br>proposals for recognising risk mitigation require approval by an authorised credit officer. Authorised credit officer<br>approval is also required for existing risk mitigation to be discontinued or withdrawn.<br>The amount of credit risk mitigation recognised is the face value of the mitigation instrument, adjusted by the<br>application of discounts for any maturity and/or currency mismatch with the underlying obligation, so that a<br>discounted amount is recognised when calculating the residual exposure after mitigation.<br>For regulatory capital purposes:<br> ⚫ exposures secured by eligible financial collateral, either cash or certain government or semi-government<br>securities, or where protection is bought via credit linked notes, provided proceeds are invested in eligible<br>financial collateral, are included at the gross value, with risk weighted assets for the portion thus secured<br>calculated by applying a 5% LGD1;<br> ⚫ exposures mitigated by eligible guarantees, standby letters of credit or similar instruments, where Westpac<br>has direct recourse to an unrelated third party, or credit protection bought via credit default swaps where<br>Westpac is entitled to recover either full principal or credit losses on occurrence of defined credit events, are<br>treated under double default rules where the protection provider is rated A-/A3 or better. The Group Chief<br>Credit Officer has the authority to approve exceptions to the A-/A3 minimum; and<br> ⚫ exposures mitigated by guarantees, letters of credit, credit default swaps or similar instruments, which are not<br>eligible for double default treatment are treated under the substitution approach.<br>When Westpac uses credit risk mitigation techniques to reduce counterparty exposure, limits are applied to both<br>gross \(i.e. pre-mitigation\) and net exposure. Furthermore, exposure is recorded against the provider of any credit<br>risk mitigation and a limit framework prevents excessive concentration to such counterparties.<br>Netting<br>Risk reduction by way of current account set-offs is recognised for exposures to creditworthy customers domiciled<br>in Australia and New Zealand only. Customers are required to enter into formal agreements giving Westpac the<br>unfettered right to set-off gross credit and debit balances in their nominated accounts to determine Westpac’s net<br>exposure within each of these two jurisdictions. Cross-border set-offs are not permitted.<br>Close-out netting is undertaken for off-balance sheet financial market transactions with counterparties with whom<br>Westpac has entered into master netting agreements which allow such netting in specified jurisdictions. Close-out<br>netting effectively aggregates pre-settlement risk exposure at time of default, thus reducing overall exposure.<br>Collateral valuation and management<br>Westpac revalues financial markets and associated collateral positions on a daily basis to monitor the net risk<br>position, and has formal processes in place so that calls for collateral top-up or exposure reduction are made<br>promptly. An independent operational unit has responsibility for monitoring these positions. The collateralisation<br>arrangements are documented via the Credit Support Annex of the International Swaps and Derivatives<br>Association \(ISDA\) master agreement for derivatives transactions and Global Master Repurchase Agreement<br>\(GMRA\) for repurchase transactions and Clearing Agreements for cleared trades.<br><br><br>1 Excludes collateralised derivative transactions. |
| --- |
| Pillar 3 report<br>Credit risk mitigation<br><br>60 | Westpac Group March 2022 Pillar 3 report<br>Total exposure covered by collateral, credit derivatives and guarantees<br>Impact Total exposure for<br>31 March 2022 Total before of credit Total after which some credit Eligible Financial Covered by Covered by<br>$m mitigation mitigation1 mitigation risk is mitigated Collateral Guarantees Credit Derivatives<br>Corporate 130,895 \(384\) 130,511 4,409 919 718 123<br>Sovereign 199,567 \(110\) 199,457 1,210 110 103 -<br>Bank 22,223 \(966\) 21,257 7,380 966 --<br>Standardised 14,276 - 14,276 2,033 ---<br>Total 366,961 \(1,460\) 365,501 15,032 1,995 821 123<br>Impact Total exposure for<br>30 September 2021 Total before of credit Total after which some credit Eligible Financial Covered by Covered by<br>$m mitigation mitigation1 mitigation risk is mitigated Collateral Guarantees Credit Derivatives<br>Corporate 130,966 \(721\) 130,245 4,464 1,283 456 10<br>Sovereign 176,303 \(65\) 176,238 596 65 116 -<br>Bank 22,443 \(1,160\) 21,283 7,233 1,160 --<br>Standardised 16,679 - 16,679 3,046 ---<br>Total 346,391 \(1,946\) 344,445 15,339 2,508 572 10<br>Impact Total exposure for<br>31 March 2021 Total before of credit Total after which some credit Eligible Financial Covered by Covered by<br>$m mitigation mitigation1 mitigation risk is mitigated Collateral Guarantees Credit Derivatives<br>Corporate 124,955 \(388\) 124,567 3,642 902 436 -<br>Sovereign 143,292 \(55\) 143,237 712 56 120 -<br>Bank 24,899 \(1,495\) 23,404 7,991 1,495 --<br>Standardised 15,300 - 15,300 1,794 ---<br>Total 308,446 \(1,938\) 306,508 14,139 2,453 556 -<br>Credit Risk Mitigants<br>Credit Risk Mitigants<br>Credit Risk Mitigants<br><br><br>1 Impact of credit mitigation under the substitution approach. |
| --- |
| Pillar 3 report<br>Counterparty credit risk<br><br> Westpac Group March 2022 Pillar 3 report | 61<br>This section describes Westpac’s exposure to credit risk arising from derivative and treasury products.<br>Approach<br>Westpac actively assesses and manages the derivative and treasury credit risk \(known collectively as counterparty<br>credit risk\) arising from its derivatives business. Westpac’s process for managing counterparty credit risk is based<br>on its assessment of the potential future credit risk Westpac is exposed to when dealing in derivatives products<br>and securities financing transactions. Westpac quantifies this risk through a daily simulation of future market price<br>and rate shocks and converts the effect of these shocks on the mark-to-market value of Westpac’s positions to a<br>credit exposure using Westpac’s Derivative Risk Equivalent \(DRE\) methodology. Exposures are loaded into<br>Westpac’s credit limit management system where they are checked against pre-settlement risk limits that are set<br>at the counterparty level. Limit excesses are reported to credit managers and actioned within strict timeframes.<br>Structure and organisation<br>The Financial Markets Credit management team is charged with managing the counterparty credit exposure<br>arising from derivatives and treasury products.<br>Market related credit risk<br>There are two components to the regulatory capital requirements for credit risk arising from derivative products:<br> ⚫ capital to absorb losses arising from the default of derivative counterparties; and<br> ⚫ capital to absorb losses arising from mark-to-market valuation movements resulting from changes in the credit<br>quality of derivative counterparties. These valuation movements are referred to as credit valuation<br>adjustments \(CVA\) and this risk is sometimes labelled as CVA risk. Westpac refers to this requirement as<br>mark-to-market related credit risk.<br>Risk mitigation<br>Mitigation is achieved in a number of ways:<br> ⚫ the limit system monitors for excesses of the pre-defined limits, with any excesses being notified to authorised<br>credit officers;<br> ⚫ Westpac has netting agreements with counterparties to allow the exposure across a portfolio of trades with the<br>same counterparty to be netted;<br> ⚫ Westpac has collateral agreements with its largest counterparties. The market value of the counterparty’s<br>portfolio is used to recalculate the credit position at each end of day, with collateral being called for when<br>certain pre-set limits are met or exceeded. Westpac exchanges Initial Margin with eligible counterparties for<br>eligible products as protection against potential future exposure to changes in market value;<br> ⚫ Westpac has initial margin agreements with qualifying counterparties subject to relevant international<br>regulations. The exchange of initial margin for eligible products covers the potential future exposure that could<br>arise from changes in the market value of derivative transactions over the close-out period in the event of a<br>counterparty default;<br> ⚫ credit derivatives are used to mitigate credit exposure against certain counterparties; and<br> ⚫ regular marking to market and settling of the foreign exchange components of foreign exchange reset<br>contracts.<br>Counterparty derivative exposures and limits<br>The risk management methodology for counterparty derivatives exposures is similar to the credit methodology for<br>transaction-managed loans. The main difference is in the estimation of the exposure for derivatives which is based<br>on the DRE methodology. DRE is a credit exposure measure for derivative trades which is calibrated to a ‘loan-<br>equivalent’ exposure.<br>Counterparty credit limits are approved on an uncommitted and unadvised basis by authorised credit officers. This<br>follows an evaluation of each counterparty’s credit worthiness and establishing an agreed credit risk appetite for<br>the nature and extent of prospective business. |
| --- |
| Pillar 3 report<br>Counterparty credit risk<br><br>62 | Westpac Group March 2022 Pillar 3 report<br>Wrong-way risk exposures<br>Westpac defines wrong-way risk as exposure to a counterparty which is adversely correlated with the credit quality<br>of that counterparty. With respect to credit derivatives, wrong-way risk refers to credit protection purchased from a<br>counterparty highly correlated to the reference obligation.<br>Wrong-way risk exposures using credit derivatives are controlled by only buying protection from highly rated<br>counterparties. These transactions are assessed by an authorised credit officer who has the right to decline any<br>transaction where they feel there is an unacceptably high correlation between the ability to perform under the trade<br>and the performance of the underlying counterparty.<br>Consequences of a downgrade in Westpac’s credit rating<br>A downgrade in Westpac’s credit rating can have an impact on Westpac’s collateral agreements. Where an<br>outright threshold and minimum transfer amount are agreed, there will not be any impact on the amount of<br>collateral posted by Westpac in the event of a credit rating downgrade. Where the threshold and minimum transfer<br>amount are tiered according to credit rating, the impact of Westpac being downgraded below its current credit<br>rating would be: for a one notch downgrade, postings of $22 million; while for a two notch downgrade, postings<br>would be $61 million1.<br>Counterparty credit risk summary<br>31 March 30 September 31 March<br>$m 2022 2021 2021<br>Gross positive fair value 19,124 20,563 23,141<br>Netting and collateral benefits \(13,138\) \(13,043\) \(14,978\)<br>including cash collateral held 5,170 861 875<br>Replacement cost 5,986 7,520 8,163<br>Potential future exposure 10,824 9,930 9,853<br>Impact of scaling factor of 1.4 and incurred credit<br>value adjustment<br>6,566 6,863 7,036<br>Net derivatives credit exposure under SA-CCR 23,376 24,313 25,052<br>Exposure type<br>Interest rate contracts 5,805 8,940 8,930<br>Foreign exchange contracts 16,639 14,495 15,590<br>Equity contracts - 1 5<br>Credit derivatives 20 7 5<br>Commodity contracts 912 870 521<br>Other ---<br>Total 23,376 24,313 25,052<br><br>Credit derivative transactions that create exposures to counterparty credit risk<br>31 March 2022 Intermediation activities<br>Credit derivatives products used \($m\) Bought Sold Bought Sold<br>Credit Default Swaps 2 19 --<br>Total Return Swaps ----<br>Credit options ----<br>Credit linked notes ----<br>Collateralised Loan Obligations ----<br>Other ----<br>Total 2 19 --<br>30 September 2021 Intermediation activities<br>Credit derivatives products used \($m\) Bought Sold Bought Sold<br>Credit Default Swaps - 7 --<br>Total Return Swaps ----<br>Credit options ----<br>Credit linked notes ----<br>Collateralised Loan Obligations ----<br>Other ----<br>Total - 7 --<br> Westpac Portfolio<br> Westpac Portfolio<br><br><br><br>1 Credit rating downgrade postings are cumulative. |
| --- |
| Pillar 3 report<br>Counterparty credit risk<br><br> Westpac Group March 2022 Pillar 3 report | 63<br>31 March 2021 Westpac Portfolio Intermediation activities<br>Credit derivatives products used \($m\) Bought Sold Bought Sold<br>Credit Default Swaps - 5 --<br>Total Return Swaps ----<br>Credit options ----<br>Credit linked notes ----<br>Collateralised Loan Obligations ----<br>Other ----<br>Total - 5 -- |
| --- |
| Pillar 3 report<br>Securitisation<br><br>64 | Westpac Group March 2022 Pillar 3 report<br>A securitisation is a financial structure where the cash flow from a pool of assets is used to service obligations to at<br>least two different tranches or classes of creditors \(typically holders of debt securities\), with each class or tranche<br>reflecting a different degree of credit risk \(i.e. one class of creditors is entitled to receive payments from the pool<br>before another class of creditors\).<br>Securitisation transactions are generally grouped into two broad categories:<br> ⚫ traditional or true sale securitisations, which involve the transfer of ownership of the underlying asset pool to a<br>third party; and<br> ⚫ synthetic transactions, where the ownership of the underlying asset pool remains with the originator and only<br>the credit risk of the pool is transferred to a third party, using credit derivatives or guarantees.<br>Covered bond transactions, in which bonds issued by Westpac are guaranteed by assets held in a special<br>purpose vehicle, are not considered to be securitisation transactions.<br>Approach<br>Westpac’s involvement in securitisation activities ranges from a seller of its own assets to an investor in third-party<br>transactions and includes the arranging of transactions, the provision of securitisation services and the provision of<br>funding for clients, including clients requiring access to capital markets.<br>Securitisation of Westpac originated assets - Securitisation is used by Westpac as a funding and liquidity<br>management tool, and may also be used as a capital management tool. It allows Westpac the ability to liquefy a<br>pool of assets and increase Westpac’s wholesale funding capacity. Westpac may provide arm’s length facilities<br>and services to the securitisation vehicles. These typically include the provision of liquidity, redraw facilities and<br>derivative contracts.<br>Westpac has entered into self securitisation transactions for funding and liquidity purposes. These are the same as<br>traditional securitisations, except that Westpac is the holder of all classes of notes issued. The senior notes qualify<br>as eligible collateral with the RBA, and are pledged against the Term Funding Facility provided by the RBA and<br>may also be used to pledge against the Committed Liquidity Facility and meet APRA’s contingent liquidity<br>requirements1.<br>These ‘self securitisations’ do not change risk weighted assets2. No securitisation transactions for Westpac<br>originated assets are classified as a resecuritisation.<br>Securitisation in the management of Westpac’s credit portfolio - Westpac uses securitisation, including<br>portfolio credit default swaps, to manage its corporate and institutional loan and counterparty credit risk portfolios.<br>Single name credit default swaps are not treated as securitisations but as credit risk mitigation facilities.<br>Transactions are entered into to manage counterparty credit risk or concentration risks. Westpac also invests in<br>securitisation exposures.<br>Provision of securitisation services, including funding and arranging asset backed bond issues – Westpac<br>provides services to clients wishing to access asset-backed financing through securitisation. Those services<br>include the provision of warehouse and term funding of securitised assets and arranging asset backed bond<br>issues.<br>Securitisation facilities provided by Westpac include resecuritisation exposures which are securitisation exposures<br>in which the risk associated with an underlying pool of exposures is tranched and at least one of the underlying<br>exposures is itself a securitisation exposure. Westpac also buys and sells securitisation exposures in the<br>secondary market to facilitate portfolio management activity by its institutional customers who hold asset backed<br>bonds.<br>Westpac’s role in the securitisation process<br>Securitisation activity Role played by Westpac<br>Securitisation of Westpac originated assets ⚫ Arranger<br> ⚫ Asset originator<br> ⚫ Bond distributor<br> ⚫ Facility provider<br> ⚫ Note holder<br> ⚫ Trust manager<br> ⚫ Swap provider<br> ⚫ Servicer<br>Securitisation in the management of Westpac’s credit<br>portfolio<br> ⚫ Hedger - protection purchaser<br> ⚫ Investor - protection seller<br> ⚫ Investor - purchaser of securitisation exposures<br><br>1 APS210 updated contingent liquidity guidance requires from 1 March 2022, self securitisations to cover 30% of AUD net cash outflows<br>2 The credit exposures of the underlying loans are measured in accordance with APS113. |
| --- |
| Pillar 3 report<br>Securitisation<br><br> Westpac Group March 2022 Pillar 3 report | 65<br><br>Provision of securitisation services including funding<br>and arranging asset backed bond issues<br> ⚫ Arranger<br> ⚫ Bond distributor<br> ⚫ Credit enhancement<br>provider<br> ⚫ Funder<br> ⚫ Liquidity facility<br>provider<br> ⚫ Swap counterparty<br>servicer<br> ⚫ Market maker and<br>broker for distributed<br>bonds<br>Key Objectives<br>Securitisation of Westpac originated assets - The securitisation of Westpac's own assets provides funding<br>diversity, and is a core tool of liquidity management.<br>Securitisation in the management of Westpac’s credit portfolio - Westpac acts as principal in transactions and<br>will buy and sell protection in order to meet its portfolio management objectives. Westpac also purchases<br>securitisation exposures in order to earn income. All securitisation activity must follow Westpac’s credit policies<br>and approval processes.<br>Provision of securitisation services including funding and arranging asset backed bond issues - Westpac<br>receives market-based fees in return for its services as servicer, swap counterparty, arranger and facility provider<br>and program fees, interest margins and bond distribution fees on warehouse and term funding facilities. Westpac<br>facilitates portfolio management activity by its institutional customers by buying and selling securitisation<br>exposures in the secondary market and is compensated through an interest margin and bid-offer spread on the<br>transactions.<br>Structure and organisation<br>Securitisation of Westpac originated assets - Westpac’s Treasury operations are responsible for all Westpac<br>originated securitisation activity including funding and liquidity management.<br>Securitisation in the management of Westpac’s credit portfolio - Westpac’s exposure arising from<br>securitisation, including portfolio hedging, is managed by Westpac Institutional Bank \(WIB\) and integrated within<br>Westpac’s standard risk reporting and management systems.<br>Provision of securitisation services including funding and arranging asset backed bond issues - These<br>services are provided by WIB and include the provision of liquidity, credit enhancement, funding and derivative<br>facilities, servicer and arranger services, and market-making and broking of asset-backed bonds.<br>Risk reporting<br>Credit exposure - Funding, liquidity, credit enhancement and redraw facilities, swap arrangements and<br>counterparty exposures are captured and monitored in key source systems along with other facilities/derivatives<br>entered into by Westpac.<br>Operational risk exposure - The operational risk review process for Westpac includes the identification of risks,<br>controls and key performance indicators in relation to all securitisation activity and services provided by Westpac<br>or any of its subsidiaries.<br>Market risk exposure - Exposures arising from transactions with the securitisation conduit and other<br>counterparties are captured as part of Westpac’s traded and non-traded market risk reporting and limit<br>management framework.<br>Liquidity risk exposure - Exposure to, and the impact of, securitisation transactions are managed under the<br>Liquidity Risk Management Framework and are integrated into routine reporting for capital and liquidity positions,<br>net interest margin analysis, balance sheet forecasting and funding scenario testing. The annual funding plan<br>incorporates consideration of overall liquidity risk limits and the securitisation of Westpac originated assets.<br>Risk mitigation<br>Securitisation of Westpac originated assets - The interest rate and basis risks generated by Westpac’s hedging<br>arrangements to each securitisation trust are captured and managed within Westpac’s asset and liability<br>management framework. The liquidity risk generated by Westpac’s liquidity and redraw facilities to each<br>securitisation trust is captured and managed in accordance with Westpac’s liquidity management policies along<br>with all other contingent liquidity facilities.<br>Securitisation in the management of Westpac’s credit portfolio - Transactions are approved in accordance<br>with Westpac’s credit risk mitigation approach \(see pages 58 and 59\). |
| --- |
| Pillar 3 report<br>Securitisation<br><br>66 | Westpac Group March 2022 Pillar 3 report<br>Provision of securitisation services including funding and arranging asset backed bond issues - All<br>securitisation transactions are approved within the context of a securitisation credit policy that sets detailed<br>transaction-specific guidelines that regulate servicer counterparty risk appetite, transaction tenor, asset class, third<br>party credit support and portfolio quality. This policy is applied in conjunction with other credit and market risk<br>policies that governs the provision of derivative and other services that support securitisation transactions. In<br>particular, credit hedging transactions are subject to Westpac’s credit risk mitigation approach \(see pages 58 and<br>59\). Any interest rate or currency hedging is subject to counterparty credit risk management \(see pages 60 and<br>61\) and market risk management \(see pages 73 and 74\) policies and processes.<br>Regulatory capital approaches<br>The regulatory capital treatment of all securitisation exposures is measured in accordance with APS120. APS120<br>specifies that securitisation exposures held in the trading book are subject to the requirements of Prudential<br>Standard APS 116 Capital Adequacy: Market Risk.<br>Under APS120 the approaches employed include the External Rating Based Approach \(ERBA\) and the<br>Supervisory Formula Approach \(SFA\). Under the ERBA, APRA provides risk-weights that are matched to external<br>credit ratings and takes into account tranche maturity and tranche thickness. The SFA applicable to unrated<br>exposures dynamically looks at the type and performance of underlying asset pools funded by the securitisation<br>exposure as well as the structural features of the transaction to determine capital requirements. The Internal<br>Assessment Approach \(IAA\) is not permitted under APS120.<br>Securitisation of Westpac originated assets - The assets sold by Westpac to a securitisation trust are excluded<br>from Westpac’s calculation of credit risk weighted assets if capital relief is sought and the requirements of APS120<br>are satisfied1.<br>In instances where insufficient risk transfer is achieved by the transaction for regulatory purposes, the capital<br>calculation is performed on the underlying asset pool while the facilities provided to such securitisation vehicles do<br>not attract regulatory capital charges.<br>Securitisation in the management of Westpac’s credit portfolio - Securitisation exposures are assessed using<br>either the ERBA or SFA approaches.<br>Provision of securitisation services including funding - Westpac uses the ERBA and the SFA methodology<br>when determining regulatory capital requirements for warehouse and term funding facilities related to securitised<br>assets on Westpac’s balance sheet.<br>The External Credit Assessment Institutions that can be used by Westpac for securitisations are Standard &<br>Poor’s, Moody’s and Fitch.<br>Westpac’s accounting policies for securitisation activities<br>Securitisation of Westpac originated assets - The assets sold by Westpac to a securitisation trust remain on<br>Westpac’s balance sheet for accounting purposes.<br>Securitisation in the management of Westpac’s credit portfolio - For risk mitigation using synthetic<br>securitisation, the underlying assets remain on Westpac's balance sheet for accounting purposes. The accounting<br>treatment of the assets will depend on their nature. They could include loans and receivables, available for sale<br>securities or derivatives. The most common form of synthetic securitisation is via a credit default swap, which is<br>treated as a derivative and recognised in the profit and loss statement at fair value.<br>For investment in securitisation exposures, if the instrument has been designated on initial recognition at fair value<br>\(including instruments containing a credit default swap\), the exposure will be measured at fair value through the<br>Income Statement. All other investments in securitisation exposures will be classified as available-for-sale \(AFS\)<br>and measured at fair value through Other Comprehensive Income \(within the AFS securities reserve\).<br>Provision of securitisation services including funding and arranging asset backed bond issues - Fee<br>income from these services is recognised on an accrual basis. Liquidity and funding facilities are treated as<br>commitments to provide finance, with fee and margin income recognised on an accrual basis. Warehouse and<br>term funding facilities are treated as loans.<br><br>1 Including the requirements to achieve capital relief. |
| --- |
| Pillar 3 report<br>Securitisation<br><br> Westpac Group March 2022 Pillar 3 report | 67<br>Banking book summary of assets securitised by Westpac<br>This table shows outstanding banking book securitisation assets and assets intended to be securitised12for<br>Westpac originated assets by underlying asset type. It includes the amount of impaired and past due assets, along<br>with any losses recognised by Westpac during the current period.<br>Securitised assets are held in securitisation trusts. Trusts which meet requirements to achieve capital relief do not<br>form part of the Level 2 consolidated group. Self securitisation trusts remain consolidated at Level 2 and the<br>assets transferred to these trusts are risk weighted in accordance with APS113.<br>Assets Westpac<br>31 March 2022 Traditional Synthetic intended to be Impaired Past due recognised<br>$m Securitisation2 Securitisation securitised loans assets losses<br>Residential mortgages 144,276 -- 35 927 1<br>Credit cards ------<br>Auto and equipment finance 571 -- 12 --<br>Business lending ------<br>Investments in ABS ------<br>Other ------<br>Total 144,847 -- 47 927 1<br>Assets Westpac<br>30 September 2021 Traditional Synthetic intended to be Impaired Past due recognised<br>$m Securitisation2 Securitisation securitised loans assets losses<br>Residential mortgages 141,414 -- 41 1,075 -<br>Credit cards ------<br>Auto and equipment finance 861 -- 13 --<br>Business lending ------<br>Investments in ABS ------<br>Other ------<br>Total 142,275 -- 54 1,075 -<br>Assets Westpac<br>31 March 2021 Traditional Synthetic intended to be Impaired Past due recognised<br>$m Securitisation2 Securitisation securitised loans assets losses<br>Residential mortgages 137,681 -- 42 1,068 -<br>Credit cards ------<br>Auto and equipment finance 1,483 -- 34 --<br>Business lending ------<br>Investments in ABS ------<br>Other ------<br>Total 139,164 -- 76 1,068 -<br>Total outstanding securitised by ADI<br>Total outstanding securitised by ADI<br>Total outstanding securitised by ADI<br><br><br>Banking book summary of total Westpac sponsored third party assets securitised<br>This table represents banking book third party assets where Westpac acts as a sponsor.<br>$m<br>31 March<br>2022<br>30 September<br>2021<br>31 March<br>2021<br>Residential mortgages 151 111 95<br>Credit cards ---<br>Auto and equipment finance ---<br>Business lending ---<br>Investments in ABS ---<br>Other ---<br>Total 151 111 95<br><br><br>1 Represents securitisation activity from the end of the reporting period to the disclosure date of this report.<br>2 Includes self-securitisation assets of $138,937 million as at 31 March 2022 \($136,266 million as at 30 September 2021 and \($131,646<br>million as at 31 March 2021\). |
| --- |
| Pillar 3 report<br>Securitisation<br><br>68 | Westpac Group March 2022 Pillar 3 report<br>Banking book summary of securitisation activity by asset type<br>This table shows assets transferred into securitisation schemes by underlying asset type \(ADI originated\) for the<br>relevant period.<br>For the 6 months ended<br>31 March 2022 Amount Recognised gain or<br>$m securitised loss on sale<br>Residential mortgages 23,921 -<br>Credit cards --<br>Auto and equipment finance --<br>Business lending --<br>Investments in ABS --<br>Other --<br>Total 23,921 -<br>For the 12 months ended<br>30 September 2021 Amount Recognised gain or<br>$m securitised loss on sale<br>Residential mortgages 35,124 -<br>Credit cards --<br>Auto and equipment finance 325 -<br>Business lending --<br>Investments in ABS --<br>Other --<br>Total 35,449 -<br>For the 6 months ended<br>31 March 2021 Amount Recognised gain or<br>$m securitised loss on sale<br>Residential mortgages 9,925 -<br>Credit cards --<br>Auto and equipment finance 325 -<br>Business lending --<br>Investments in ABS --<br>Other --<br>Total 10,250 - |
| --- |
| Pillar 3 report<br>Securitisation<br><br> Westpac Group March 2022 Pillar 3 report | 69<br>Banking book summary of on and off-balance sheet securitisation by exposure type<br>31 March 2022 Off-balance Total Exposure<br>$m Securitisation retained Securitisation purchased sheet at Default<br>Securities - 7,590 37 7,627<br>Liquidity facilities -- 295 295<br>Funding facilities 3,132 - 1,868 5,001<br>Underwriting facilities ----<br>Lending facilities 1,930 - 371 2,301<br>Warehouse facilities 12,091 - 6,051 18,142<br>Total 17,154 7,590 8,623 33,366<br>30 September 2021 Off-balance Total Exposure<br>$m Securitisation retained Securitisation purchased sheet at Default<br>Securities - 8,025 38 8,063<br>Liquidity facilities -- 251 251<br>Funding facilities 3,870 - 1,466 5,336<br>Underwriting facilities ----<br>Lending facilities 791 - 328 1,119<br>Warehouse facilities 10,742 - 5,050 15,793<br>Total 15,404 8,025 7,133 30,561<br>31 March 2021 Off-balance Total Exposure<br>$m Securitisation retained Securitisation purchased sheet at Default<br>Securities - 7,303 37 7,340<br>Liquidity facilities -- 273 273<br>Funding facilities 2,951 - 1,451 4,402<br>Underwriting facilities ----<br>Lending facilities 625 - 540 1,165<br>Warehouse facilities 9,265 - 5,854 15,119<br>Total 12,841 7,303 8,155 28,299<br>On balance sheet<br>On balance sheet<br>On balance sheet |
| --- |
| Pillar 3 report<br>Securitisation<br><br>70 | Westpac Group March 2022 Pillar 3 report<br>Banking book securitisation exposure at default by risk weight band<br>31 March 2022 Total Exposure Total Risk<br>$m Securitisation Resecuritisation at Default Securitisation Resecuritisation Weighted Assets<br>Less than or equal to 10% 15 - 15 ---<br>Greater than 10 - 20% 29,294 - 29,294 4,964 - 4,964<br>Greater than 20 - 30% 2,434 - 2,434 608 - 608<br>Greater than 30 - 50% 1,074 - 1,074 421 - 421<br>Greater than 50 - 75% 531 - 531 293 - 293<br>Greater than 75 - 100% ------<br>Greater than 100 - 250% 18 - 18 19 - 19<br>Greater than 250 - 425% ------<br>Greater than 425 - 650% ------<br>Other ------<br>Deductions ------<br>Total 33,366 - 33,366 6,306 - 6,306<br>30 September 2021 Total Exposure Total Risk<br>$m Securitisation Resecuritisation at Default Securitisation Resecuritisation Weighted Assets<br>Less than or equal to 10% 9 - 9 ---<br>Greater than 10 - 20% 26,655 - 26,655 4,527 - 4,527<br>Greater than 20 - 30% 1,818 - 1,818 490 - 490<br>Greater than 30 - 50% 1,503 - 1,503 530 - 530<br>Greater than 50 - 75% 545 - 545 303 - 303<br>Greater than 75 - 100% 9 - 9 9 - 9<br>Greater than 100 - 250% 20 - 20 22 - 22<br>Greater than 250 - 425% ------<br>Greater than 425 - 650% ------<br>Other ------<br>Deductions ------<br>Total 30,561 - 30,561 5,881 - 5,881<br>31 March 2021 Total Exposure Total Risk<br>$m Securitisation Resecuritisation at Default Securitisation Resecuritisation Weighted Assets<br>Less than or equal to 10% 15 - 15 ---<br>Greater than 10 - 20% 24,511 - 24,511 4,205 - 4,205<br>Greater than 20 - 30% 2,117 - 2,117 540 - 540<br>Greater than 30 - 50% 946 - 946 351 - 351<br>Greater than 50 - 75% 664 - 664 370 - 370<br>Greater than 75 - 100% 15 - 15 15 - 15<br>Greater than 100 - 250% 30 - 30 33 - 33<br>Greater than 250 - 425% ------<br>Greater than 425 - 650% ------<br>Other ------<br>Deductions ------<br>Total 28,299 - 28,299 5,513 - 5,513<br>Risk Weighted Assets Exposure<br>Risk Weighted Assets Exposure<br>Exposure Risk Weighted Assets<br><br>Banking book securitisation exposure deducted from capital<br>As at 31 March 2022 banking book securitisation exposure deducted from capital was nil \(nil at 30 September<br>2021\).<br>Banking book securitisation subject to early amortisation treatment<br>There is no securitisation exposure in the banking book that is subject to early amortisation treatment as at 31<br>March 2022 \(nil as at 30 September 2021\).<br>Banking book resecuritisation exposure subject to credit risk mitigation \(CRM\)<br>As at 31 March 2022 resecuritisation exposures subject to CRM was nil \(nil at 30 September 2021\).<br>Banking book resecuritisation exposure to guarantors<br>Westpac has no third party guarantors providing guarantees for securitised assets, principal or interest<br>repayments as at 31 March 2022 \(nil as at 30 September 2021\). |
| --- |
| Pillar 3 report<br>Securitisation<br><br> Westpac Group March 2022 Pillar 3 report | 71<br>Trading book summary of assets securitised by Westpac<br>As at 31 March 2022 there was nil in outstanding securitisation exposures for Westpac originated assets held in<br>the trading book \(nil as at 30 September 2021\).<br>Trading book summary of total Westpac sponsored third party assets securitised<br>There are no third party assets held in the trading book where Westpac is responsible for the establishment of the<br>securitisation program and subsequent management as at 31 March 2022 \(nil as at 30 September 2021\).<br>Trading book summary of securitisation activity by asset type<br>There is no originated securitisation activity in the trading book for the 6 months to 31 March 2022 \(nil for the 12<br>months to 30 September 2021\).<br>Trading book aggregated amount of exposure securitised by Westpac and subject to APS116 Capital<br>Adequacy: Market Risk<br>As at 31 March 2022 there is no Westpac originated outstanding securitisation exposure held in the trading book<br>subject to APS116 Capital Adequacy: Market Risk \(nil as at 30 September 2021\). |
| --- |
| Pillar 3 report<br>Securitisation<br><br>72 | Westpac Group March 2022 Pillar 3 report<br>Trading book summary of on and off-balance sheet securitisation by exposure type1<br>31 March 2022 Off-balance Total Exposure<br>$m Securitisation retained Securitisation purchased sheet at Default<br>Securities - 331 - 331<br>Liquidity facilities ----<br>Funding facilities ----<br>Underwriting facilities ----<br>Lending facilities ----<br>Warehouse facilities ----<br>Credit enhancements ----<br>Basis swaps -- 50 50<br>Other derivatives -- 16 16<br>Total - 331 67 398<br>30 September 2021 Off-balance Total Exposure<br>$m Securitisation retained Securitisation purchased sheet at Default<br>Securities - 91 - 91<br>Liquidity facilities ----<br>Funding facilities ----<br>Underwriting facilities ----<br>Lending facilities ----<br>Warehouse facilities ----<br>Credit enhancements ----<br>Basis swaps -- 83 83<br>Other derivatives -- 9 9<br>Total - 91 92 184<br>31 March 2021 Off-balance Total Exposure<br>$m Securitisation retained Securitisation purchased sheet at Default<br>Securities - 29 - 29<br>Liquidity facilities ----<br>Funding facilities ----<br>Underwriting facilities ----<br>Lending facilities ----<br>Warehouse facilities ----<br>Credit enhancements ----<br>Basis swaps -- 112 112<br>Other derivatives -- 11 11<br>Total - 29 123 152<br>On balance sheet<br>On balance sheet<br>On balance sheet<br><br>Trading book securitisation exposure subject to internal models approach \(IMA\) for specific risk<br>There is no trading book securitisation exposure subject to internal models approach \(IMA\) for specific risk for 31<br>March 2022 \(nil for 30 September 2021\).<br>Trading book securitisation exposure subject to APS120 Securitisation specific risk by risk weight band<br>There is no trading book securitisation exposure subject to APS120 specific risk for 31 March 2022 \(nil for 30<br>September 2021\).<br>Trading book capital requirements for securitisation exposures subject to IMA by risk classification<br>There is no trading book capital requirement for securitisation subject to IMA for 31 March 2022 \(nil for 30<br>September 2021\).<br>Trading book capital requirements for securitisation regulatory capital approaches by risk weight band<br>There is no trading book capital requirement for securitisation subject to regulatory capital approaches for 31 March<br>2022 \(nil for 30 September 2021\).<br><br><br>1 EAD associated with trading book securitisation is not included in the EAD by Major Type on page 32. Trading book securitisation<br>exposure is captured and risk weighted under APS116. |
| --- |
| Pillar 3 report<br>Securitisation<br><br> Westpac Group March 2022 Pillar 3 report | 73<br>Trading book securitisation exposure deducted from capital<br>There is no trading book capital deduction for 31 March 2022 \(nil for 30 September 2021\).<br>Trading book securitisation subject to early amortisation treatment<br>There is no securitisation exposure in the trading book that is subject to early amortisation treatment for 31 March<br>2022 \(nil for 30 September 2021\).<br>Trading book resecuritisation exposure subject to CRM<br>Westpac has no resecuritisation exposure subject to CRM at 31 March 2022 \(nil for 30 September 2021\).<br>Trading book resecuritisation by guarantor creditworthiness<br>Westpac has no third party guarantors providing guarantees for securitised assets, principal or interest repayments<br>for 31 March 2022 \(nil for 30 September 2021\). |
| --- |
| Pillar 3 report<br>Market risk<br><br>74 | Westpac Group March 2022 Pillar 3 report<br>Westpac’s exposure to market risk arises out of its Financial Markets and Treasury trading activities. This is<br>quantified for regulatory capital purposes using both the standard method and the internal model approach, details<br>of which are provided below.<br>Approach<br>Financial Markets’ trading activity includes dealings that encompass book running and distribution activity. The<br>types of market risk arising from these activities include interest rate, foreign exchange, commodity, equity price,<br>credit spread and volatility risk.<br>Treasury’s trading activity includes the management of interest rate, foreign exchange and credit spread risks<br>associated with the wholesale funding book, liquid asset portfolios and foreign exchange repatriations. Treasury<br>also manages banking book risk which is discussed in the Interest Rate Risk in the Banking Book section.<br>Trading activities are managed within a BRiskC approved market risk framework that incorporates BRiskC<br>approved value at risk \(VaR\) and stressed value at risk \(SVaR\) limits. VaR and SVaR are the primary mechanisms<br>for measuring and managing market risk. Market risk is managed using VaR, SVaR and structural risk limits<br>\(including volume limits and basis point value limits\) in conjunction with scenario analysis and stress testing.<br>Market risk limits are allocated to business management based upon Westpac’s risk appetite and business<br>strategies, in addition to the consideration of market liquidity and concentration risk.<br>Trades are fair valued daily using rates that have been captured from an independent market data source that has<br>been approved by the Revaluation Committee \(RC\). Where there is no source of independent rates, data will<br>either be derived using a methodology approved by the RC or sourced from dealer contributions. Rates that are<br>dealer-sourced or have limited independent sources are reviewed at least on a monthly basis. The RC meets<br>monthly to review the results of independent price verification performed by the Finance valuation function. In<br>addition, valuation adjustments may be made as deductions from Common Equity Tier 1 Capital for exposures<br>which are not captured through the fair valuation framework.<br>VaR and SVaR limits<br>Market risk arising from trading book activities is primarily measured using VaR based on an historical simulation<br>methodology. Westpac estimates VaR as the potential loss in earnings from adverse market movements and is<br>calculated to a 99% confidence level using the most recent 12 months of historical market data. SVaR is an<br>additional VaR measure which uses 12 months of historical market data that includes a period of significant<br>financial stress. VaR and SVaR take account of all material market variables that may cause a change in the value<br>of the trading portfolio, including interest rates, foreign exchange rates, price changes, volatility, and the<br>correlation between these variables.<br>The BRiskC approved market risk VaR and SVaR limits for trading activities include separate VaR and SVaR sub-<br>limits for the trading activities of Financial Markets and Treasury.<br>Backtesting<br>Daily backtesting of VaR results is performed to ensure that model integrity is maintained. A review of both the<br>actual and potential profit and loss outcomes is also undertaken to monitor any skew created by the historical<br>data.<br>Stress testing<br>Daily stress testing against pre-determined scenarios is carried out to analyse potential losses beyond the 99%<br>confidence level. An escalation framework around selective stress tests is approved by the Head of Market Risk<br>and Treasury Risk.<br>Profit and loss notification framework<br>The BRiskC has approved a profit and loss notification framework. Included in this framework are levels of<br>escalation in accordance with the size of the profit or loss. Triggers are applied to both a 1-day and a rolling 20-<br>day cumulative total. |
| --- |
| Pillar 3 report<br>Market risk<br><br> Westpac Group March 2022 Pillar 3 report | 75<br>Risk reporting<br>Daily monitoring of current exposure and limit utilisation is conducted independently by risk managers in the<br>Market Risk and Treasury Risk teams, who monitor market risk exposures against VaR, SVaR and structural<br>limits. Daily VaR and SVaR position reports are produced by risk type, by product lines and by geographic region.<br>These are supplemented by structural risk reporting, advice of profit and loss trigger levels and stress test<br>escalation trigger points. Model accreditation has been granted by APRA for the use of an internal model for the<br>determination of regulatory capital for the key classes of interest rate \(general market\), foreign exchange,<br>commodity and equity risks \(including equity specific risk\). Under the model, regulatory capital is derived from both<br>the current VaR window \(based upon the most recent 12 months of historical market data\) and a SVaR window<br>\(12 months of market data that includes a period of significant financial stress\), where these VaR measures are<br>calculated over a 10-day time horizon to a 99th percentile, one-tailed confidence interval. Specific risk refers to the<br>variations in individual security prices that cannot be explained by general market movements, and event and<br>default risk. Interest rate specific risk capital \(specific issuer risk\) is calculated using the Standard method and is<br>added to the VaR regulatory capital measure. Westpac currently holds an industry-wide capital overlay which was<br>introduced during 1Q22 and relates to APRA’s revised risks-not-in-VaR framework. This overlay will be applied<br>until the Group’s revised framework is approved by APRA.<br>Risk mitigation<br>Market risk positions are managed by the trading desks consistent with delegated trading and product authorities.<br>Risks are consolidated into portfolios based on product and risk type. Risk management is carried out by qualified<br>personnel with varying levels of seniority commensurate with the nature and scale of market risks under<br>management.<br>The following controls allow monitoring by management:<br> ⚫ trading authorities and responsibilities are clearly delineated at all levels;<br> ⚫ a structured system of limits and reporting of risk exposures, including stress testing;<br> ⚫ surveillance of dealing room conduct;<br> ⚫ all new products and significant product variations undergo a rigorous approval process to identify business<br>risks prior to launch;<br> ⚫ models that are used to determine risk or profit and loss for Westpac’s accounts are independently reviewed;<br> ⚫ duties are segregated so that employees involved in the origination, processing and valuation of transactions<br>operate under separate reporting lines, minimising the opportunity for collusion; and<br> ⚫ legal personnel review documentation for compliance with relevant laws and regulations.<br>In addition, Group Audit independently reviews compliance with policies, procedures and limits.<br>Market risk regulatory capital and risk weighted assets<br>The Internal model approach uses VaR and Stressed VaR, while the Standard approach is used for interest rate<br>specific risk.<br>$m 31 March 2022 30 September 2021 31 March 2021<br>Internal model approach 665 472 680<br>Standard approach 103 61 79<br>Total capital required 768 533 759<br>Risk weighted assets 9,596 6,662 9,490 |
| --- |
| Pillar 3 report<br>Market risk<br><br>76 | Westpac Group March 2022 Pillar 3 report<br>VaR by risk type<br>31 March 2022<br>$m High Low Average Period end<br>Interest rate risk 16.9 5.0 8.4 16.9<br>Foreign exchange risk 3.0 0.3 1.4 1.9<br>Equity risk 0.0 0.0 0.0 0.0<br>Commodity risk 3.7 1.5 2.1 2.3<br>Other market risks 6.5 1.4 2.1 4.3<br>Diversification benefit NA NA \(5.0\) \(5.0\)<br>Net market risk1 20.5 5.4 9.1 20.5<br>30 September 2021<br>$m High Low Average Period end<br>Interest rate risk 11.9 5.1 7.6 6.9<br>Foreign exchange risk 8.7 0.6 1.7 2.7<br>Equity risk 0.2 0.0 0.0 0.0<br>Commodity risk 2.0 0.4 0.9 1.8<br>Other market risks 4.3 1.6 2.8 1.6<br>Diversification benefit NA NA \(3.8\) \(5.7\)<br>Net market risk1 14.1 5.9 9.2 7.4<br>31 March 2021<br>$m High Low Average Period end<br>Interest rate risk 28.7 8.1 18.4 8.1<br>Foreign exchange risk 6.3 0.7 2.2 1.3<br>Equity risk 3.2 0.0 0.4 0.4<br>Commodity risk 7.9 0.5 1.5 0.7<br>Other market risks 23.8 3.9 17.7 4.0<br>Diversification benefit NA NA \(13.7\) \(5.1\)<br>Net market risk1 41.5 9.5 26.5 9.5<br>For the 6 months ended<br>For the 6 months ended<br>For the 6 months ended<br><br><br>Stressed VaR by risk type<br>31 March 2022<br>$m High Low Average Period end<br>Interest rate risk 84.4 28.5 52.3 42.4<br>Foreign exchange risk 11.1 0.7 3.7 3.5<br>Equity risk 0.1 0.0 0.0 0.0<br>Commodity risk 13.0 2.1 4.2 3.4<br>Other market risks 16.8 9.2 11.9 15.8<br>Diversification benefit NA NA \(12.0\) \(8.4\)<br>Net market risk1 91.5 36.8 60.2 56.7<br>30 September 2021<br>$m High Low Average Period end<br>Interest rate risk 61.1 23.6 42.1 32.5<br>Foreign exchange risk 24.8 1.3 4.7 11.3<br>Equity risk 0.7 0.0 0.1 0.1<br>Commodity risk 13.8 1.1 3.4 7.4<br>Other market risks 14.7 10.0 12.5 10.0<br>Diversification benefit NA NA \(77.9\) \(9.6\)<br>Net market risk1 66.3 27.7 47.0 51.6<br> For the 6 months ended<br> For the 6 months ended<br><br><br>1 VaR and SVaR measures shown here use a 1 day time horizon. The net market risk measure reflects the aggregate diversified risk<br>position for the period. Therefore, individual risk factors will not sum to this total. |
| --- |
| Pillar 3 report<br>Market risk<br><br> Westpac Group March 2022 Pillar 3 report | 77<br>31 March 2021<br>$m High Low Average Period end<br>Interest rate risk 76.5 35.1 58.7 59.8<br>Foreign exchange risk 10.3 0.9 3.9 3.3<br>Equity risk 3.5 0.1 0.4 1.0<br>Commodity risk 3.5 0.6 1.5 1.7<br>Other market risks 15.2 11.2 12.5 13.9<br>Diversification benefit NA NA \(105.6\) \(20.7\)<br>Net market risk1 80.8 35.6 62.4 59.0<br> For the 6 months ended<br><br>Back-testing results1<br>The following graph gives a comparison of actual profit and loss to VaR over the 6 months ended 31 March 2022.<br><br>Each point on the graph represents 1 day’s trading profit or loss. This result is placed on the graph relative to the<br>associated VaR utilisation. The downward sloping line represents the point where a loss is equal to VaR utilisation.<br><br><br><br><br><br><br>1 The net market risk measure reflects the aggregate diversified risk position for the period. Therefore, individual risk factors will not<br>sum to this total. |
| --- |
| Pillar 3 report<br>Interest Rate Risk in the Banking Book \(IRRBB\)<br><br> Westpac Group March 2022 Pillar 3 report | 78<br>Interest Rate Risk in the Banking Book \(IRRBB\) is the risk to interest income arising predominately from a<br>mismatch between the duration of assets and liabilities that arises through the course of banking activities.<br>Approach<br>The banking book activities that give rise to market risk include lending activities, balance sheet funding and<br>capital management. Interest rate risk, basis risk, currency risk and funding and liquidity risk are inherent in these<br>activities. Treasury’s Asset & Liability Management \(ALM\) unit is responsible for managing market risk arising from<br>Westpac’s banking book activity.<br>All material regions, business lines and legal entities are included in Westpac’s IRRBB framework.<br>Model accreditation has been granted by APRA for the use of an internal model for the determination of IRRBB<br>regulatory capital. Under the model, regulatory capital is primarily derived from a VaR measure using 6 years of<br>historical data with a scaled 1 year, 99th percentile, one-tailed confidence interval.<br>Asset and liability management<br>The ALM unit manages the structural interest rate mismatch associated with the transfer priced balance sheet,<br>including the investment of Westpac’s capital to its agreed benchmark duration. A key risk management objective<br>is to achieve reasonable stability of Net Interest Income \(NII\) over time. These activities are performed under the<br>oversight of ALCO and the Treasury Risk team. During periods of significant interest rate volatility the change in<br>value of capital hedges may result in material contributions to IRRBB regulatory capital in the form of embedded<br>losses or gains.<br>Net Interest Income sensitivity<br>NII sensitivity is managed in terms of the net interest income-at-risk \(NaR\) modelled over a set time horizon using<br>defined scenarios for movements in wholesale market interest rates. The NII measurement framework combines<br>the underlying statement of financial position data with assumptions about runoff and new business, expected<br>repricing behaviour and changes in wholesale market interest rates. The interest rate scenarios modelled include<br>those projected using 100 and 200 basis point shifts up and down from current market yield curves.<br>A comparison between the NII outcomes from these modelled scenarios indicates the sensitivity to interest rate<br>changes. On and off-balance sheet instruments are then used to manage this interest rate risk.<br>NaR limit<br>The BRiskC has approved a NaR limit. This limit is managed by the Group Treasurer and is expressed as a<br>defined basis point shock over a one year risk horizon. This limit is monitored by the Treasury Risk team.<br>VaR limit<br>The BRiskC has also approved an interest rate VaR limit for ALM activities. This limit is managed by the Group<br>Treasurer and monitored by the Treasury Risk team. This internal VaR measure uses 1 year of historical data with<br>a 1 day, 99th percentile, one-tailed confidence interval. Additionally, the BRiskC and the Treasury Risk team set<br>structural risk limits to prevent undue concentration of risk.<br>Structural foreign exchange rate risk<br>Structural foreign exchange rate risk results from the generation of foreign currency denominated earnings and<br>from Westpac's capital deployed in offshore branches and subsidiaries, where it is denominated in currencies<br>other than Australian dollars. The Australian dollar equivalent of offshore earnings and capital is subject to change<br>as exchange rates fluctuate, which could introduce significant variability to Westpac's reported financial results.<br>ALCO provides oversight of the appropriateness of foreign exchange hedges on earnings and capital.<br>Risk reporting<br>Interest rate risk in the banking book risk measurement systems include front office product systems, which<br>capture all treasury funding and derivative transactions; the transfer pricing system, which captures all retail and<br>other business transactions; and the asset and liability management risk system, which calculates ALM VaR and<br>NaR.<br>Daily monitoring of market risk exposure against VaR and structural risk limits is conducted independently by the<br>Treasury Risk team, with NaR monitored on a monthly basis. Management reports detailing structural positions<br>and VaR are produced and distributed daily for use by dealers and management across all stakeholder groups.<br>Quarterly reports are produced for the senior management market risk forums of RISKCO and BRiskC to provide<br>transparency of material market risks and issues. |
| --- |
| Pillar 3 report<br>Interest Rate Risk in the Banking Book \(IRRBB\)<br><br> Westpac Group March 2022 Pillar 3 report | 79<br>Risk mitigation<br>Market risk arising in the banking book stems from the ordinary course of banking activities, including structural<br>interest rate risk \(the mismatch between the duration of assets and liabilities\) and capital management. Hedging<br>Westpac’s exposure to interest rate risk is undertaken using derivatives. The hedge accounting strategy adopted<br>utilises a combination of the cash flow, fair value and net investment hedge approaches. Some derivatives held for<br>economic hedging purposes do not meet the criteria for hedge accounting as defined under AASB 139 Financial<br>Instruments: Recognition and Measurement and therefore are accounted for in the same way as derivatives held<br>for trading.<br>The same controls used to monitor traded market risk allow for continuous monitoring by management.<br>Change in economic value of a sudden upward and downward movement in interest rates1<br>31 March 2022 200bp parallel 200bp parallel<br>$m increase decrease<br>AUD \(240.6\) 248.4<br>NZD \(17.2\) 18.7<br>USD 35.4 \(39.2\)<br>Total \(222.4\) 227.9<br>30 September 2021 200bp parallel 200bp parallel<br>$m increase decrease<br>AUD 292.1 \(309.2\)<br>NZD \(10.8\) 11.5<br>USD 35.7 \(42.5\)<br>Total 317.0 \(340.2\)<br>31 March 2021 200bp parallel 200bp parallel<br>$m increase decrease<br>AUD \(470.2\) 511.5<br>NZD 4.7 \(4.2\)<br>USD 32.5 \(38.8\)<br>Total \(433.0\) 468.5<br>VaR results for non-traded interest rate risk1<br>For the For the For the<br>6 months ended 6 months ended 6 months ended<br>31 March 30 September 31 March<br>$m 2022 2021 2021<br>High 73.8 75.4 224.3<br>Low 53.7 59.7 69.9<br>Average 65.0 66.5 190.1<br>Period end 70.7 63.7 69.9<br>Interest rate risk in the banking book regulatory capital and risk weighted assets2<br>31 March 30 September 31 March<br>$m 2022 2021 2021<br>Total capital required 2,217 916 960<br>Risk weighted assets 27,710 11,446 11,998<br><br>1 IRRBB stress test and non-traded interest rate risk VaR uses 1 year of historical data with a 1 day, 99th percentile, one-tailed<br>confidence interval and includes interest rate risk, credit spread risk in liquid assets and other basis risks as used for internal<br>management reporting purposes.<br>2 Refer to the Executive summary for further commentary on RWA movements over the First Half 2022. |
| --- |
| Pillar 3 report<br>Operational risk<br><br> Westpac Group March 2022 Pillar 3 report | 80<br>Operational risk is defined as the risk of loss resulting from inadequate or failed internal processes, people and<br>systems or from external events. This definition includes legal and regulatory risk but excludes strategic risk.<br>Westpac’s operational risk definition is aligned to APS115 Capital Adequacy: Standardised Measurement<br>Approaches to Operational Risk \(SMA\).<br>Approach<br>Westpac has transitioned to SMA in accordance with APS115. Westpac’s operational risk is measured and<br>managed in accordance with the policies and processes defined in its Operational Risk Management Framework.<br>Westpac’s Operational Risk Management Framework<br>The Operational Risk Management Framework outlines our approach to the:<br> ⚫ identification, measurement and management of operational risks that may impede Westpac’s ability to<br>achieve its strategic objectives and vision;<br> ⚫ identification and escalation of operational risk incidents to mitigate potential financial loss, regulatory impacts<br>and reputational damage that may impact shareholders, the community, and employees; and<br> ⚫ calculation of operational risk capital.<br>The key components of Westpac’s operational risk management framework are listed below:<br>Governance - The governance structure provides clearly defined roles and responsibilities for overseeing and<br>reviewing operational risk exposure and its management.<br>The Board and BRiskC are supported by committees, including RISKCO, that monitor the Group’s operational risk<br>profile and the effectiveness of operational risk management practices, including operational risk capital.<br>Risk and Control Assessment \(RCA\) - The RCA process provides a structured and consistent approach for the<br>Business to develop risk profiles and thereby supports them in implementing appropriate actions where the risk is<br>outside the defined Risk Appetite.<br>Issue and Action Management - The Issue and Action Management process encompasses the identification and<br>management of issues, which relate to control deficiencies or gaps, to ensure that they are effectively addressed<br>through action plans.<br>Key Indicators \(KIs\) - are objective measures used by management to monitor the current risk and control<br>environment, inform the assessment of risk and to assist in prompting management action when the metrics<br>indicate that the level of risk is increasing.<br>Incident Management – The Incident Management process assists in implementing consistent identification,<br>recording, escalation and rectification of incidents and related losses in a transparent and practical way. This<br>assists the Group to comply with all legal and regulatory obligations and licensing conditions \(including reporting<br>material regulatory breaches to regulatory authorities\).<br>Data - The framework includes principles and processes to ensure the integrity of operational risk data used to<br>support management decision-making and calculate and allocate capital. The principles apply to the governance,<br>input and capture, reconciliation, and validation, reporting and storage of operational risk data. Operational risk<br>data is subject to independent validation on a regular basis.<br>Scenario Analysis - is used to provide a forward looking-view and facilitate a structured and consistent approach<br>to assess the impacts of severe but plausible loss events on the Group’s objectives and operations. Scenario<br>Analysis is also an input to the calculation of operational risk economic capital.<br>Reporting - Regular reporting of operational risk information to governance bodies and senior management is<br>used to support timely and proactive management of operational risk and enable transparent and formal oversight<br>of the risk and control environment. |
| --- |
| Pillar 3 report<br>Operational risk<br><br> Westpac Group March 2022 Pillar 3 report | 81<br>SMA capital overview<br>From 1 January 2022, Westpac adopted the Standardised Measurement Approach \(SMA\) to Operational<br>Risk Capital as permitted by Prudential Standard APS115 Capital Adequacy: Standardised Measurement<br>Approach. Westpac had agreed with APRA in June 2018 to apply an SMA capital overlay to the previously<br>utilised Advanced Measurement Approach \(AMA\) calculation. The overlay broadly aligned Westpac’s<br>operational risk capital requirement to an estimate of the SMA. The transition to the final APS 115 SMA<br>calculation resulted in the offset of the overlay and a minor increase to Westpac’s operational risk capital<br>requirement of $132m \(~3%\) compared to 31 December 2021. The Culture, Governance & Accountability<br>Review and AUSTRAC related overlays will continue to apply as they did under the AMA.<br>As previously disclosed, in September 2021 Westpac identified a breach of APS 115 requirements under the<br>previous AMA model. Their root causes have been investigated and are being remediated under the Group’s<br>CORE \(Customer Outcomes and Risk Excellence\) program.<br>Expected loss offsets and risk mitigation<br>No adjustments or deductions are currently made to Westpac’s measurement of operational risk regulatory capital<br>for the mitigating impacts of insurance or expected operational risk losses.<br>Operational Risk regulatory capital and risk weighted assets1<br>$m<br>31 March<br>2022<br>30 September<br>2021<br>31 March<br>2021<br>Model based capital 3,6291 2,705 2,562<br>Standardised approach overlay N/A 765 765<br>Culture, Governance & Accountability Review overlay 500 500 500<br>AUSTRAC related overlay 500 500 500<br>Total capital required 4,629 4,470 4,327<br>Risk weighted assets 57,875 55,875 54,090<br><br><br><br><br>1 Model based capital has increased due to the transition from AMA to SMA. Under AMA Westpac held an overlay of $765m to broadly<br>align the Operational Risk capital requirement to an estimate of SMA. |
| --- |
| Pillar 3 report<br>Equity risk<br><br> Westpac Group March 2022 Pillar 3 report | 82<br>Equity risk is defined as the potential for financial loss arising from movements in equity values. The disclosures in<br>this section exclude investments in equities made by Westpac subsidiaries outside the regulatory Level 2 group.<br>Structure and organisation<br>Portfolio and transactional limits for Westpac’s direct equity investments are governed by various supporting<br>policies and delegated approval limits. Where appropriate, the BRiskC \(under delegation from the Westpac Board\)<br>will consider and approve risks beyond management’s approval authority.<br>Approach<br>Westpac has established a comprehensive set of policies defining the management of equity risk. These policies<br>are reviewed and approved periodically \(in most cases annually\).<br>Risk mitigation<br>Westpac does not use financial instruments to mitigate its exposure to equities in the banking book.<br>Banking book positions<br>Hybrid equity underwriting and equity warehousing risk - As a financial intermediary Westpac underwrites<br>listed and unlisted hybrid equity securities.<br>Investment securities - Westpac undertakes, as part of the ordinary course of business, certain investments in<br>strategic equity holdings and over time the nature of underlying investments will vary.<br>Measurement of equity securities - Equity securities are generally carried at their fair value. Fair value for<br>equities that have a quoted market price \(in an active market\) is determined based upon current bid prices. If a<br>market for a financial asset is not active, fair value is determined based upon a valuation technique. This includes<br>the use of recent arms-length transactions, discounted cash flow analysis, option pricing models and other<br>valuation techniques commonly used by market participants to price similar instruments. In the event that the fair<br>value of an unlisted security cannot be measured reliably, these investments are measured at cost.<br>Where the investment is held for long term strategic purposes, these investments are accounted for either at fair<br>value through other comprehensive income \(OCI\), fair values through profit and loss, or equity accounted for and<br>recognised as a share in associates.<br>Other related matters<br> ⚫ Fair value should not differ to the listed stock price. Should a listed stock price not be available, fair value is<br>estimated using the valuation techniques referred to above. The book value of certain unlisted investments for<br>which active markets do not exist are measured at cost because cost is considered to be a reasonable<br>approximation of fair value.<br> ⚫ The equity method of accounting is used for investments in Associates. Associates are entities in which the<br>Group has significant influence, but not control, over the operating and financial policies.<br>Risk reporting<br>Westpac manages equity risk in two ways, VaR limits and investment limits:<br> ⚫ A VaR limit \(in conjunction with structural limits\) is used to manage traded equity. This limit is a sub-limit of the<br>overall VaR limit for Financial Markets trading activities. Equity trading activity is overseen by the independent<br>Market Risk function applying the same controls used for monitoring other trading book activities in Financial<br>Markets and Treasury; and<br> ⚫ Investment exposures are reported annually to MARCO. |
| --- |
| Pillar 3 report<br>Equity risk<br><br> Westpac Group March 2022 Pillar 3 report | 83<br>Book value of equity exposures<br>31 March 30 September 31 March<br>$m 2022 2021 2021<br>Listed equity exposures \(publicly traded\) - 3 40<br>Unlisted equity exposures \(privately traded\) 161 160 122<br>Total book value of equity exposures 161 163 162<br><br>Gains/losses<br>31 March 30 September 31 March<br>$m 2022 2021 2021<br>Cumulative realised gains \(losses\) -- 32<br>Total unrealised gains \(losses\) through profit & loss \(1\) 5 -<br>Total unrealised gains \(losses\) through equity ---<br>Total latent revaluation gains \(losses\) --- |
| --- |
| Pillar 3 report<br>Funding and liquidity risk management<br><br> Westpac Group March 2022 Pillar 3 report | 84<br>Funding and liquidity risk is the risk that Westpac cannot meet its payment obligations or that it does not have the<br>appropriate amount, tenor and composition of funding and liquidity to support its assets.<br>Approach<br>Funding and liquidity risk is measured and managed in accordance with the policies and processes defined in the<br>Board-approved Liquidity Risk Management Framework which is part of the Westpac Board-approved Risk<br>Management Strategy.<br>Responsibility for managing Westpac’s liquidity and funding positions in accordance with the Liquidity Risk<br>Management Framework is delegated to Treasury, under the oversight of ALCO and Treasury Risk.<br>Liquidity Risk Management Framework<br>The Liquidity Risk Management Framework sets out Westpac’s funding and liquidity risk appetite, roles and<br>responsibilities of key people managing funding and liquidity risk within Westpac, risk reporting and control<br>processes and limits and targets used to manage Westpac’s balance sheet. Key components of Westpac’s<br>approach to liquidity risk management are listed below.<br>Funding strategy<br>Treasury undertakes an annual funding review that outlines Westpac’s balance sheet funding strategy over a three<br>year period. This review encompasses trends in global markets, peer analysis, wholesale funding capacity,<br>expected funding requirements and a funding risk analysis. This strategy is continuously reviewed to take account<br>of changing market conditions, investor sentiment and estimations of asset and liability growth rates.<br>Westpac monitors the composition and stability of its funding so that it remains within its funding risk appetite. This<br>includes compliance with both the LCR and NSFR.<br>Liquid asset holdings<br>Westpac holds a portfolio of liquid assets for several purposes, including as a buffer against unforeseen funding<br>requirements. The level of liquid assets held takes into account the liquidity requirements of Westpac’s balance<br>sheet under normal and stress conditions.<br>Liquidity modelling<br>In managing liquidity for Westpac, Treasury utilises balance sheet forecasts and the maturity profile of Westpac’s<br>wholesale funding portfolio to project liquidity outcomes. Local liquidity limits are also used by Westpac in<br>applicable jurisdictions to ensure liquidity is managed efficiently and prudently.<br>In addition, Westpac conducts regular stress testing to assess its ability to meet cash flow obligations under a<br>range of market conditions and scenarios. These scenarios inform liquidity limits and strategic planning.<br>Liquidity transfer pricing<br>Westpac has a liquidity transfer pricing framework which allocates liquidity costs across Westpac.<br>Contingency planning<br>Treasury maintains a contingent funding plan that outlines the steps that should be taken by Westpac in the event<br>of an emerging ‘funding crisis’. The plan is aligned with Westpac’s broader Liquidity Crisis Management Policy<br>which is approved annually by the Board.<br>Liquidity reporting<br>Daily liquidity risk reports are reviewed by the Group’s Treasury and Treasury Risk teams. Liquidity reports are<br>presented to ALCO monthly and to the Board quarterly.<br>Committed Liquidity Facility<br>In September 2021, APRA announced it expects Authorised Deposit-taking Institutions \(ADIs\) subject to the LCR<br>to reduce their Committed Liquidity Facility \(CLF\) usage to zero by the end of 2022, subject to financial market<br>conditions. |
| --- |
| Pillar 3 report<br>Liquidity coverage ratio<br><br> Westpac Group March 2022 Pillar 3 report | 85<br>Liquidity Coverage Ratio<br>Westpac’s average LCR for the quarter was 137% \(31 December 2021: 142%\)<br>Liquid assets included in the LCR comprise High Quality Liquid Assets \(HQLA\), the Committed Liquidity Facility<br>\(CLF\) offered by the Reserve Bank of Australia and additional qualifying Reserve Bank of New Zealand securities.<br>In September 2021, APRA announced it expects ADIs subject to the LCR to reduce their CLF usage to zero by the<br>end of 2022, subject to financial market conditions. The facility reduction will be in four phases, with the first<br>reduction having occurred on 1 January 2022 and the second on 1 May 2022 \(reducing by $9.25 billion\).<br>Westpac’s CLF allocation is being replaced with additional HQLA.<br>Westpac’s portfolio of HQLA averaged $164.7 billion over the quarter1.<br>Funding is sourced from retail, small business, corporate and institutional customer deposits and wholesale<br>funding. Westpac seeks to minimise the outflows associated with this funding by targeting customer deposits with<br>lower LCR outflow rates and actively manages the maturity profile of its wholesale funding portfolio. Westpac<br>maintains a buffer over the regulatory minimum of 100%.<br>Effective 1 January 2021, the Group is required by APRA to increase the value of its net cash outflows by 10% for<br>the purpose of calculating LCR. The overlay to the Group’s net cash outflows has been required by APRA in<br>response to breaches of liquidity requirements. A program is underway to address APRA’s requirements which<br>includes APRA mandated reviews.<br>Total unweighted<br>value \(average\)1<br>Total weighted<br>value \(average\)1<br>Total unweighted<br>value \(average\)1<br>Total weighted<br>value \(average\)1<br>Liquid assets, of which:<br>1 High-quality liquid assets \(HQLA\) 164,706 159,682<br>2 Alternative liquid assets \(ALA\) 27,750 37,000<br>3 Reserve Bank of New Zealand \(RBNZ\) securities 4,640 6,546<br><br>Cash Outflows<br>4 Retail deposits and deposits from small business<br>customers, of which:<br>321,457 28,127 315,576 26,998<br>5 Stable deposits 156,295 7,815 156,147 7,807<br>6 Less stable deposits 165,162 20,312 159,429 19,191<br>7 Unsecured wholesale funding, of which: 181,535 79,750 176,557 79,153<br>8 Operational deposits \(all counterparties\) and<br>deposits in networks for cooperative banks<br>84,850 21,117 83,423 20,762<br>9 Non-operational deposits \(all counterparties\) 85,159 47,107 81,694 46,951<br>10 Unsecured debt 11,526 11,526 11,440 11,440<br>11 Secured wholesale funding --<br>12 Additional requirements, of which: 204,876 26,075 208,701 27,381<br>13 Outflows related to derivatives exposures and other<br>collateral requirements<br>8,597 8,597 10,099 10,099<br>14 Outflows related to loss of funding on debt products 1,145 1,145 634 634<br>15 Credit and liquidity facilities 195,134 16,333 197,968 16,648<br>16 Other contractual funding obligations 5,113 3,778 4,418 4,418<br>17 Other contingent funding obligations 42,700 3,728 41,439 3,348<br>18 Total cash outflows 141,458 141,298<br><br>Cash inflows<br>19 Secured lending \(e.g. reverse repos\) 4,543 - 3,594 -<br>20 Inflows from fully performing exposures 8,476 5,035 9,073 5,314<br>21 Other cash inflows 5,251 5,251 5,561 5,561<br>22 Total cash inflows 18,270 10,286 18,228 10,875<br><br>23 Total liquid assets 197,096 203,228<br>24 Total net cash outflows 144,289 143,465<br>24.1 Net cash outflows overlay 13,117 13,042<br>25 Liquidity Coverage Ratio \(%\) 137% 142%<br>Number of data points used 62 64<br>31 March 2022<br>$m<br>31 December 2021<br><br><br>1 Calculated as a simple average of the daily observations over the quarter. |
| --- |
| Pillar 3 report<br>Net stable funding ratio<br><br> Westpac Group March 2022 Pillar 3 report | 86<br>Net Stable Funding Ratio \(NSFR\) disclosure<br>The NSFR is a structural measure which requires that a bank has sufficient Available Stable Funding \(ASF\) to<br>cover its Required Stable Funding \(RSF\) over a one year horizon. Westpac’s NSFR as at 31 March 2022 was<br>125%1 \(31 December 2021 127%\). Westpac maintains a buffer over the regulatory minimum of 100%.<br>No maturity < 6 months 6 months<br>to < 1yr<br> > 1 year<br>Available Stable Funding \(ASF\) Item<br>1 Capital 68,149 1,311 - 27,450 96,910<br>2 Regulatory capital 68,149 1,311 - 27,450 96,910<br>3 Other capital instruments -----<br>4 Retail deposits and deposits from small business customers 312,639 60,912 28 28 345,058<br>5 Stable deposits 154,112 22,060 2 5 167,371<br>6 Less stable deposits 158,527 38,852 25 23 177,687<br>7 Wholesale funding 147,710 142,590 36,774 122,549 227,014<br>8 Operational deposits 84,296 - - - 42,148<br>9 Other wholesale funding 63,414 142,590 36,774 122,549 184,866<br>10 Liabilities with matching interdependent assets - - - - -<br>11 Other liabilities - 21,478 - 673 673<br>12 NSFR derivative liabilities<br>13 All other liabilities and equity not included in the above categories 15,439 - 673 673<br>14 Total ASF 669,655<br>Required Stable Funding \(RSF\) Item<br>15a\) Total NSFR \(High quality liquid assets - HQLA\) 3,001<br>15b\) Alternate Liquid Assets \(ALA\) 5,753<br>15c\) Reserve Bank of New Zealand \(RBNZ\) securities 297<br>16 Deposits held at other financial institutions for operational purposes - - - - -<br>17 Performing loans and securities 1,359 44,580 35,779 596,039 479,101<br>18 Performing loans to financial institutions secured by Level 1 HQLA 1,255 2,954 - - 1,550<br>19 Performing loans to financial institutions secured by non-Level 1 HQLA and<br>unsecured performing loans to financial institutions<br> 104 3,885 3,509 17,241 19,683<br>20 Performing loans to nonfinancial corporate clients, loans to retail and small<br>business customers, and loans to sovereigns, central banks and public<br>sector entities \(PSEs\), of which:<br> - 28,944 23,004 129,142 135,438<br>21 With a risk weight of less than or equal to 35% under APS 112 - 24 1 1,532 1,009<br>22 Performing residential mortgages, of which: - 8,141 8,334 443,752 316,628<br>23 With a risk weight equal to 35% under APS 112 - 7,615 7,793 402,743 280,852<br>24 Securities that are not in default and do not qualify as HQLA, including<br>exchange-traded equities<br> - 656 931 5,904 5,802<br>25 Assets with matching interdependent liabilities - - - - -<br>26 Other assets: 10,530 23,026 365 21,902 37,874<br>27 Physical traded commodities, including gold 683 683<br>28 Assets posted as initial margin for derivative contracts and contributions to<br>default funds of central counterparties \(CCPs\)<br> 1,890<br>29 NSFR derivative assets -<br>30 NSFR derivative liabilities before deduction of variation margin posted 2,649<br>31 All other assets not included in the above categories 9,846 3,004 365 21,902 32,651<br>32 Off-balance sheet items 9,995<br>33 Total RSF 536,022<br>34 Net Stable Funding Ratio \(%\) 125%<br>31 March 2022<br>$m<br>Unweighted value by residual maturity<br>Weighted<br>value<br>196,946<br>6,039<br>2,224<br>4,553<br>13,245<br><br><br><br>1 Calculated as total available stable funding divided by total required stable funding as at end of the quarter. |
| --- |
| Pillar 3 report<br>Net stable funding ratio<br><br> Westpac Group March 2022 Pillar 3 report | 87<br>No maturity < 6 months 6 months<br>to < 1yr<br> > 1 year<br>Available Stable Funding \(ASF\) Item<br>1 Capital 70,188 - 1,311 28,324 99,823<br>2 Regulatory capital 70,188 - 1,311 28,324 99,823<br>3 Other capital instruments -----<br>4 Retail deposits and deposits from small business customers 309,439 60,366 61 26 341,766<br>5 Stable deposits 154,938 22,268 4 5 168,353<br>6 Less stable deposits 154,501 38,098 58 21 173,413<br>7 Wholesale funding 148,527 144,497 32,829 125,786 228,259<br>8 Operational deposits 82,843 - - - 41,422<br>9 Other wholesale funding 65,684 144,497 32,829 125,786 186,838<br>10 Liabilities with matching interdependent assets - - - - -<br>11 Other liabilities - 20,071 - 515 515<br>12 NSFR derivative liabilities<br>13 All other liabilities and equity not included in the above categories 15,769 - 515 515<br>14 Total ASF 670,364<br>Required Stable Funding \(RSF\) Item<br>15a\) Total NSFR \(High quality liquid assets - HQLA\) 3,387<br>15b\) Alternate Liquid Assets \(ALA\) 6,678<br>15c\) Reserve Bank of New Zealand \(RBNZ\) securities 280<br>16 Deposits held at other financial institutions for operational purposes - - - - -<br>17 Performing loans and securities 1,241 45,817 39,115 578,886 468,057<br>18 Performing loans to financial institutions secured by Level 1 HQLA 1,140 4,800 - - 1,619<br>19 Performing loans to financial institutions secured by non-Level 1 HQLA and<br>unsecured performing loans to financial institutions<br> 101 5,112 2,115 17,014 18,939<br>20 Performing loans to nonfinancial corporate clients, loans to retail and small<br>business customers, and loans to sovereigns, central banks and public<br>sector entities \(PSEs\), of which:<br> - 27,436 27,971 123,088 132,051<br>21 With a risk weight of less than or equal to 35% under APS 112 - 7 28 1,390 921<br>22 Performing residential mortgages, of which: - 7,977 8,226 433,943 310,697<br>23 With a risk weight equal to 35% under APS 112 - 7,445 7,675 391,826 273,896<br>24 Securities that are not in default and do not qualify as HQLA, including<br>exchange-traded equities<br> - 492 804 4,840 4,751<br>25 Assets with matching interdependent liabilities - - - - -<br>26 Other assets: 10,038 14,345 369 22,327 36,960<br>27 Physical traded commodities, including gold - -<br>28 Assets posted as initial margin for derivative contracts and contributions to<br>default funds of central counterparties \(CCPs\)<br> 2,366<br>29 NSFR derivative assets -<br>30 NSFR derivative liabilities before deduction of variation margin posted 1,323<br>31 All other assets not included in the above categories 10,038 793 369 22,327 33,271<br>32 Off-balance sheet items 10,423<br>33 Total RSF 525,784<br>34 Net Stable Funding Ratio \(%\) 127%<br>4,155<br>6,613<br>200,693<br>Unweighted value by residual maturity<br>Weighted<br>value<br>31 December 2021<br>$m<br>4,302<br>2,784 |
| --- |
| Pillar 3 report<br>Appendix I | Regulatory capital reconciliation<br><br>88 | Westpac Group March 2022 Pillar 3 report<br>Balance Sheet Reconciliation<br>31 March 2022<br>$m<br>Group Balance<br>Sheet Adjustment<br>Level 2 Regulatory<br>Balance Sheet<br>Reconciliation Table<br>Capital Disclosure<br>Template<br>Assets<br>Cash and balances with central banks 102,410 \(5\) 102,405<br>Collateral paid 7,374 - 7,374<br>Due from subsidiaries - 104 104<br>Trading securities and financial assets measured at<br>fair value through income statement \(FVIS\) 23,738 \(58\) 23,680<br>Derivative financial instruments 18,269 - 18,269<br>Available-for-sale securities - - -<br>Investment securities 70,442 \(320\) 70,122<br>Loans 719,556 - 719,556<br>Other financial assets 4,896 \(137\) 4,759<br>Current tax assets 214 - 214<br>Life insurance assets - - -<br>Investments in associates 41 \(11\) 30<br>Property and equipment 2,614 - 2,614<br>Deferred tax assets 1,831 \(19\) 1,812 Table a<br>Intangible assets 10,064 \(6\) 10,058 Table b<br>Investments in life & general insurance, funds<br>management & securitisation entities - 1,541 1,541 Table c<br>Other assets 600 \(3\) 597<br>Assets held for sale 2,700 \(2,700\) -<br>Total assets 964,749 \(1,614\) 963,135<br>Liabilities<br>Collateral received 2,170 - 2,170<br>Due to subsidiaries - 721 721<br>Deposits and other borrowings 645,606 - 645,606<br>Other financial liabilities 51,345 \(99\) 51,246<br>Derivative financial instruments 25,347 - 25,347<br>Debt issues 133,629 - 133,629<br>Current tax liabilities 21 \(6\) 15<br>Life insurance liabilities - - -<br>Provisions 3,035 \(83\) 2,952<br>Deferred tax liabilities 164 \(7\) 157<br>Loan capital 29,036 - 29,036 Table d and e<br>Other liabilities 3,379 \(5\) 3,374<br>Liabilities held for sale 684 \(684\) -<br>Total liabilities 894,416 \(163\) 894,253<br>Equity<br>Ordinary share capital 39,667 \(57\) 39,610 Row 1<br>Treasury shares and RSP treasury shares \(651\) - \(651\) Table f<br>Reserves 2,901 \(250\) 2,651 Table g<br>Retained Profits 28,362 \(1,144\) 27,218 Row 2<br>Non-controlling interests 54 - 54<br>Total equity 70,333 \(1,451\) 68,882 |
| --- |
| Pillar 3 report<br>Appendix I | Regulatory capital reconciliation<br><br> Westpac Group March 2022 Pillar 3 report | 89<br>$m 31 March 2022<br>Capital<br>Disclosure<br>Template<br>Reference<br>Table a<br>Deferred Tax Assets<br>Total Deferred Tax Assets per level 2 Regulatory Balance Sheet 1,812<br>Add: Held for sale deferred tax assets \(per Level 2\) -<br>Deferred tax asset adjustment before applying prescribed thresholds 1,812 Row 26e<br>Less: Amounts below prescribed threshold - risk weighted \(1,812\) Row 75<br>Total per Capital Disclosure Template - Deferred Tax Asset - Row 21 / 25<br>$m 31 March 2022<br>Capital<br>Disclosure<br>Template<br>Reference<br>Table b<br>Goodwill and other intangible assets<br>Total Goodwill and Intangibles Assets per level 2 Regulatory Balance Sheet 10,058<br>Less: Capitalised Software Disclosed Under Intangibles \(1,914\) Row 9<br>Total per Capital Disclosure Template - Goodwill 8,144 Row 8<br>$m 31 March 2022<br>Capital<br>Disclosure<br>Template<br>Reference<br>Table c<br>Equity Investments<br>Significant Investment in financial entities 1<br>Equity Investments in non-consolidated subsidiaries 1,541<br>Total Significant Investment in financial entities 1,542 Row 73<br>Non-significant Investment in financial entities 115 Row 72<br>Total Investments in financial institutions 1,657 Row 26d<br>Investment in commercial entities 45 Row 26g<br>Total Equity Investments before applying prescribed threshold 1,702<br>Less: Amounts below prescribed threshold \(1,702\)<br>Total per Capital Disclosure Template - Equity Investments - Row 18/ 19/ 23<br>$m 31 March 2022<br>Capital<br>Disclosure<br>Template<br>Reference<br>Table d<br>Additional Tier 1 Capital<br>Total Loan Capital per Level 2 Regulatory Balance Sheet 29,036<br>Less: Tier 2 Capital Instruments Reported Below \(19,552\)<br>Add: Capitalised Issue Costs for Additional Tier 1 Capital Instruments 1 53<br>Less: Fair Value Adjustment2 29<br>Total per Capital Disclosure Template - Tier 1 Capital 9,566 Row 36<br>Additional Tier 1 Capital included in Regulatory Capital<br>Westpac Capital Notes 2 1,311<br>Westpac Capital Notes 5 1,690<br>Westpac Capital Notes 6 1,423<br>SEC Registered Capital Securities 1,669<br>Westpac Capital Notes 7 1,723<br>Westpac Capital Notes 8 1,750<br>Total Basel III complying instruments 9,566 Row 30<br>Total Basel III non complying instruments - Row 33<br>Total per Capital Disclosure Template - Additional Tier 1 Capital<br>Instruments 9,566 Row 36<br>12<br><br>1 Unamortised issue costs relating to capital instruments are netted off against each instrument in the Balance Sheet. For regulatory<br>capital purposes, these capital instruments are shown gross of unamortised issue costs. The unamortised issue costs are deducted<br>from CET1 as part of capitalised expenses in Row 26f in the capital disclosure template.<br>2 For regulatory capital purposes, APRA requires these instruments to be included as if they were unhedged. |
| --- |
| Pillar 3 report<br>Appendix I | Regulatory capital reconciliation<br><br>90 | Westpac Group March 2022 Pillar 3 report<br>$m 31 March 2022<br>Capital<br>Disclosure<br>Template<br>Reference<br>Table e<br>Tier 2 Capital<br>Total Tier 2 Capital per Level 2 Regulatory Balance Sheet 19,552<br>Add: Capitalised Issue Costs for Tier 2 Capital Instruments 1 50<br>Less: Fair Value Adjustment2 1,016<br>Less: Cumulative amortisation of Tier 2 Capital Instruments -<br>Less: Basel III transitional adjustment \(471\) Row 56c<br>Provisions 158 Row 50 / 76<br>Total per Capital Disclosure Template - Tier 2 20,305 Row 51<br>Tier 2 Capital included in Regulatory Capital<br>SDG325 million Westpac Subordinated Notes 321<br>USD100 million Westpac Subordinated Notes 133<br>JPY20,000 million Westpac Subordinated Notes 219<br>JPY10,200 million Westpac Subordinated Notes 112<br>JPY10,000 million Westpac Subordinated Notes 109<br>AUD175 million Westpac Subordinated Notes 175<br>USD1,500 million Westpac Subordinated Notes 2,001<br>JPY13,500 million Westpac Subordinated Notes 148<br>JPY12,000 million Westpac Subordinated Notes 131<br>HKD 600 million Westpac Subordinated Notes 102<br>AUD350 million Westpac Subordinated Notes 350<br>AUD185 million Westpac Subordinated Notes 185<br>AUD250 million Westpac Subordinated Notes 250<br>AUD130 million Westpac Subordinated Notes 130<br>AUD725 million Westpac Subordinated Notes II 725<br>USD1,000 million Westpac Subordinated Notes 1,329<br>USD1,250 million Westpac Subordinated Notes 1,666<br>AUD1,000 million Westpac Subordinated Notes 1,000<br>USD1,500 million Westpac Subordinated Notes 2,001<br>USD1,000 million Westpac Subordinated Notes 1,329<br>USD1,500 million Westpac Subordinated Notes 2,001<br>AUD1,250 million Westpac Subordinated Notes 1,250<br>EUR1,000 million Westpac Subordinated Notes 1,485<br>USD1,000 million Westpac Subordinated Notes 1,329<br>USD1,250 million Westpac Subordinated Notes 1,666<br>Total Basel III complying instruments 20,147 Row 46<br>Total Basel III non complying instruments<br>Less: Basel III transitional adjustment Row 85<br>Total Basel III non complying instruments after transitional adjustment - Row 47<br>Provisions 158 Row 50 / 76<br>Total per Capital Disclosure Template - Tier 2 Capital Instruments 20,305 Row 51<br>$m 31 March 2022<br>Capital<br>Disclosure<br>Template<br>Reference<br>Table f<br>Treasury Shares and RSP Treasury Shares<br>Total treasury shares per Level 2 Regulatory Balance Sheet \(651\)<br>Less: Treasury Shares not included for Level 2 Regulatory Capital \(57\)<br>Total per Capital Disclosure Template - Treasury Shares \(708\) Row 26a<br>$m 31 March 2022<br>Capital<br>Disclosure<br>Template<br>Reference<br>Table g<br>Accumulated Other Comprehensive Income \(and other reserves\)<br>Total reserves per Level 2 Regulatory Balance Sheet 2,651<br>Less: Share Based Payment Reserve not included within capital \(41\)<br>Total per Capital Disclosure Template - Accumulated Other<br>Comprehensive Income \(and other reserves\) 2,610 Row 3<br>1<br><br>1 For regulatory capital purposes, APRA requires these instruments to be included as if they were unhedged. |
| --- |
| Pillar 3 report<br>Appendix I | Regulatory capital reconciliation<br><br> Westpac Group March 2022 Pillar 3 report | 91<br>The capital disclosure template below represents the post 1 January 2018 Basel III template.<br>$m 31 March 2022<br>Table<br>Reference<br>Common Equity Tier 1 capital: instruments and reserves<br>1 Directly issued qualifying ordinary shares \(and equivalent for mutually-owned entities\) capital 39,610<br>2 Retained earnings 27,218<br>3 Accumulated other comprehensive income \(and other reserves\) 2,610 Table g<br>4 Directly issued capital subject to phase out from CET1 \(only applicable to mutually-owned<br>companies\)<br> -<br>5 Ordinary share capital issued by subsidiaries and held by third parties \(amount allowed in group<br>CET1\)<br> 54<br>6 Common Equity Tier 1 capital before regulatory adjustments 69,492<br>Common Equity Tier 1 capital : regulatory adjustments<br>7 Prudential valuation adjustments -<br>8 Goodwill \(net of related tax liability\) \(8,144\) Table b<br>9 Other intangibles other than mortgage servicing rights \(net of related tax liability\) \(1,914\) Table b<br>10 Deferred tax assets that rely on future profitability excluding those arising from temporary<br>differences \(net of related tax liability\)<br> -<br>11 Cash-flow hedge reserve \(1,048\)<br>12 Shortfall of provisions to expected losses \(164\)<br>13 Securitisation gain on sale \(as set out in paragraph 562 of Basel II framework\) -<br>14 Gains and losses due to changes in own credit risk on fair valued liabilities \(123\)<br>15 Defined benefit superannuation fund net assets \(60\)<br>16 Investments in own shares \(if not already netted off paid-in capital on reported balance sheet\) 57<br>17 Reciprocal cross-holdings in common equity -<br>18 Investments in the capital of banking, financial and insurance entities that are outside the scope<br>of regulatory consolidation, net of eligible short positions, where the ADI does not own more than<br>10% of the issued share capital \(amount above 10% threshold\)<br> - Table c<br>19 Significant investments in the ordinary shares of banking, financial and insurance entities that are<br>outside the scope of regulatory consolidation, net of eligible short positions \(amount above 10%<br>threshold\)<br> - Table c<br>20 Mortgage service rights \(amount above 10% threshold\) -<br>21 Deferred tax assets arising from temporary differences \(amount above 10% threshold, net of<br>related tax liability\)<br> - Table a<br>22 Amount exceeding the 15% threshold -<br>23 of which: significant investments in the ordinary shares of financial entities - Table c<br>24 of which: mortgage servicing rights -<br>25 of which: deferred tax assets arising from temporary differences - Table a<br>26 National specific regulatory adjustments \(sum of rows 26a, 26b, 26c, 26d, 26e, 26f, 26g, 26h, 26i<br>and 26j\)<br> \(5,970\)<br>26a of which: treasury shares \(708\) Table f<br>26b of which: offset to dividends declared under a dividend reinvestment plan \(DRP\), to the extent<br>that the dividends are used to purchase new ordinary shares issued by the ADI<br> -<br>26c of which: deferred fee income 265<br>26d of which: equity investments in financial institutions not reported in rows 18, 19 and 23 \(1,657\) Table c<br>26e of which: deferred tax assets not reported in rows 10, 21 and 25 \(1,812\) Table a<br>26f of which: capitalised expenses \(2,013\)<br>26g of which: investments in commercial \(non-financial\) entities that are deducted under APRA<br>prudential requirements<br> \(45\) Table c<br>26h of which: covered bonds in excess of asset cover in pools -<br>26i of which: undercapitalisation of a non-consolidated subsidiary -<br>26j of which: other national specific regulatory adjustments not reported in rows 26a to 26i -<br>27 Regulatory adjustments applied to Common Equity Tier 1 due to insufficient Additional Tier 1 and<br>Tier 2 to cover deductions<br> -<br>28 Total regulatory adjustments to Common Equity Tier 1 \(17,366\)<br>29 Common Equity Tier 1 Capital \(CET1\) 52,126 |
| --- |
| Pillar 3 report<br>Appendix I | Regulatory capital reconciliation<br><br>92 | Westpac Group March 2022 Pillar 3 report<br>$m 31 March 2022<br>Table<br>Reference<br>Additional Tier 1 Capital: instruments<br>30 Directly issued qualifying Additional Tier 1 instruments 9,566 Table d<br>31 of which: classified as equity under applicable accounting standards -<br>32 of which: classified as liabilities under applicable accounting standards 9,566 Table d<br>33 Directly issued capital instruments subject to phase out from Additional Tier 1 -<br>34 Additional Tier 1 instruments \(and CET1 instruments not included in row 5\) issued by subsidiaries<br>and held by third parties \(amount allowed in group AT1\)<br> -<br>35 of which: instruments issued by subsidiaries subject to phase out -<br>36 Additional Tier 1 Capital before regulatory adjustments 9,566 Table d<br>Additional Tier 1 Capital: regulatory adjustments<br>37 Investments in own Additional Tier 1 instruments \(25\)<br>38 Reciprocal cross-holdings in Additional Tier 1 instruments -<br>39 Investments in the capital of banking, financial and insurance entities that are outside the scope<br>of regulatory consolidation, net of eligible short positions, where the ADI does not own more than<br>10% of the issued share capital \(amount above 10% threshold\)<br> -<br>40 Significant investments in the capital of banking, financial and insurance entities that are outside<br>the scope of regulatory consolidation \(net of eligible short positions\)<br> -<br>41 National specific regulatory adjustments \(sum of rows 41a, 41b and 41c\) -<br>41a of which: holdings of capital instruments in group members by other group members on behalf<br>of third parties<br> -<br>41b of which: investments in the capital of financial institutions that are outside the scope of<br>regulatory consolidations not reported in rows 39 and 40<br> -<br>41c of which: other national specific regulatory adjustments not reported in rows 41a and 41b -<br>42 Regulatory adjustments applied to Additional Tier 1 due to insufficient Tier 2 to cover deductions -<br>43 Total regulatory adjustments to Additional Tier 1 capital \(25\)<br>44 Additional Tier 1 capital \(AT1\) 9,541 Table d<br>45 Tier 1 Capital \(T1=CET1+AT1\) 61,667<br>Tier 2 Capital: instruments and provisions<br>46 Directly issued qualifying Tier 2 instruments 20,147 Table e<br>47 Directly issued capital instruments subject to phase out from Tier 2 - Table e<br>48 Tier 2 instruments \(and CET1 and AT1 instruments not included in rows 5 or 34\) issued by<br>subsidiaries and held by third parties \(amount allowed in group T2\)<br> -<br>49 of which: instruments issued by subsidiaries subject to phase out -<br>50 Provisions 158 Table e<br>51 Tier 2 Capital before regulatory adjustments 20,305 Table e<br>Tier 2 Capital: regulatory adjustments<br>52 Investments in own Tier 2 instruments \(100\)<br>53 Reciprocal cross-holdings in Tier 2 instruments -<br>54 Investments in the Tier 2 capital of banking, financial and insurance entities that are outside the<br>scope of regulatory consolidation, net of eligible short positions, where the ADI does not own<br>more than 10% of the issued share capital \(amount above 10% threshold\)<br> -<br>55 Significant investments in the Tier 2 capital of banking, financial and insurance entities that are<br>outside the scope of regulatory consolidation, net of eligible short positions<br> \(60\)<br>56 National specific regulatory adjustments<br>\(sum of rows 56a, 56b and 56c\)<br> \(345\)<br>56a of which: holdings of capital instruments in group members by other group members on behalf<br>of third parties<br> -<br>56b of which: investments in the capital of financial institutions that are outside the scope of<br>regulatory consolidation not reported in rows 54 and 55<br> \(345\)<br>56c of which: other national specific regulatory adjustments not reported in rows 56a and 56b -<br>57 Total regulatory adjustments to Tier 2 capital \(505\)<br>58 Tier 2 capital \(T2\) 19,800<br>59 Total capital \(TC=T1+T2\) 81,467<br>60 Total risk-weighted assets based on APRA standards 459,956 |
| --- |
| Pillar 3 report<br>Appendix I | Regulatory capital reconciliation<br><br> Westpac Group March 2022 Pillar 3 report | 93<br>$m 31 March 2022<br>Table<br>Reference<br>Capital ratios and buffers<br>61 Common Equity Tier 1 \(as a percentage of risk-weighted assets\) 11.3%<br>62 Tier 1 \(as a percentage of risk-weighted assets\) 13.4%<br>63 Total capital \(as a percentage of risk-weighted assets\) 17.7%<br>64 Buffer requirement \(minimum CET1 requirement of 4.5% plus capital conservation buffer of 2.5%<br>plus any countercyclical buffer requirements expressed as a percentage of risk-weighted assets\)1<br>8.0%<br>65 of which: capital conservation buffer requirement1 3.5%<br>66 of which: ADI-specific countercyclical buffer requirements 0.0%<br>67 of which: G-SIB buffer requirement \(not applicable\) NA<br>68 Common Equity Tier 1 available to meet buffers \(as a percentage of risk-weighted assets\) 11.3%<br>National minima \(if different from Basel III\)<br>69 National Common Equity Tier 1 minimum ratio \(if different from Basel III minimum\) 4.5%<br>70 National Tier 1 minimum ratio \(if different from Basel III minimum\) 6.0%<br>71 National total capital minimum ratio \(if different from Basel III minimum\) 8.0%<br>Amount below thresholds for deductions \(not risk-weighted\)<br>72 Non-significant investments in the capital of other financial entities 115 Table c<br>73 Significant investments in the ordinary shares of financial entities 1,542 Table c<br>74 Mortgage servicing rights \(net of related tax liability\) -<br>75 Deferred tax assets arising from temporary differences \(net of related tax liability\) 1,812 Table a<br>Applicable caps on the inclusion of provisions in Tier 2<br>76 Provisions eligible for inclusion in Tier 2 in respect of exposures subject to standardised approach<br>\(prior to application of cap\)<br>56 Table e<br>77 Cap on inclusion of provisions in Tier 2 under standardised approach 164<br>78 Provisions eligible for inclusion in Tier 2 in respect of exposures subject to internal ratings-based<br>approach \(prior to application of cap\)<br> 102 Table e<br>79 Cap for inclusion of provisions in Tier 2 under internal ratings-based approach 2,040<br>Capital instruments subject to phase-out arrangements \(only applicable between 1 Jan<br>2018 and 1 Jan 2022\)<br>80 Current cap on CET1 instruments subject to phase out arrangements NA<br>81 Amount excluded from CET1 due to cap \(excess over cap after redemptions and maturities\) NA<br>82 Current cap on AT1 instruments subject to phase out arrangements NA<br>83 Amount excluded from AT1 instruments due to cap \(excess over cap after redemptions and<br>maturities\)<br> NA<br>84 Current cap on T2 instruments subject to phase out arrangements NA<br>85 Amount excluded from T2 due to cap \(excess over cap after redemptions and maturities\) NA Table e<br>Countercyclical buffer12<br>The table below details Westpac’s countercyclical buffer requirement.<br>Mar-22<br>Exposure at<br>default<br>Risk Weighted<br>Assets2<br>Jurisdictional<br>buffer ADI-specific buffer<br>Hong Kong 680 320 1.00% 0.00087%<br>Luxembourg 16 6 0.50% 0.00001%<br>Norway 1 1 1.00% 0.00000%<br>Other 1,163,354 365,313 0.00% 0.00000%<br>Total 1,164,050 365,641 0.00089%<br>Total Risk Weighted Assets 459,956<br>Countercyclical capital buffer 4<br><br><br>1 Includes 1% Domestic Systemically Important Bank \(D-SIB\) requirement.<br>2 Represents total private sector \(excludes Banks and Sovereigns\) credit and specific market risk weighted assets. |
| --- |
| Pillar 3 report<br>Appendix II | Entities included in regulatory consolidation<br><br>94 | Westpac Group March 2022 Pillar 3 report<br>This appendix lists all subsidiaries controlled by Westpac according to their level of regulatory consolidation.<br>Level 1 Entities<br>The following controlled entities have been approved by APRA for inclusion in the Westpac ADI’s ‘Extended<br>Licensed Entity’ \(ELE\) for the purposes of measuring capital adequacy at Level 1:<br>Westpac Banking Corporation Value Nominees Pty Limited<br>1925 \(Commercial\) Pty Limited Westpac Administration 2 Pty Limited<br>1925 \(Industrial\) Pty Limited Westpac Administration Pty Limited<br>Bill Acceptance Corporation Pty Limited Westpac Debt Securities Pty Limited<br>Capital Finance Australia Limited Westpac Direct Equity Investments Pty Limited<br>CBA Pty Limited Westpac Financial Holdings Pty Limited<br>Challenge Limited Westpac Investment Vehicle Pty Limited<br>Mortgage Management Pty Limited Westpac Leasing Nominees-Vic.-Pty Limited<br>Partnership Pacific Pty Limited Westpac New Zealand Group Limited<br>Partnership Pacific Securities Pty Limited Westpac Overseas Holdings No. 2 Pty Limited<br>Pashley Investments Pty Limited Westpac Properties Limited<br>Sallmoor Pty Limited Westpac Securitisation Holdings Pty Limited<br>Sixty Martin Place \(Holdings\) Pty Limited Westpac Structured Products Limited<br>St.George Business Finance Pty Limited Westpac TPS Trust<br>St.George Finance Holdings Limited Westpac Unit Trust<br>St.George Security Holdings Pty Limited<br><br>Level 2 Entities<br>The following controlled entities are included in the Level 2 consolidation \(along with the ELE entities\) for the<br>purposes of measuring capital adequacy:<br>1925 Advances Pty Limited Hastings Management Pty Limited<br>Altitude Administration Pty Limited MoneyBrilliant Pty Ltd<br>Altitude Rewards Pty Limited Net Nominees Limited<br>Aotearoa Financial Services Limited Number 120 Limited<br>Belliston Pty Limited Qvalent Pty Limited<br>BT \(Queensland\) Pty Limited RAMS Financial Group Pty Limited<br>BT Australia Pty Limited RMS Warehouse Trust 2007-1<br>BT Financial Group \(NZ\) Limited Series 2008-1M WST Trust<br>BT Financial Group Pty Limited Series 2013-1 WST Trust<br>BT Securities Limited Series 2013-2 WST Trust<br>Capital Corporate Finance Pty Limited Series 2014-1 WST Trust<br>Capital Motor Finance Pty Limited Series 2014-2 WST Trust<br>Crusade ABS Series 2017-1P Trust Series 2015-1 WST Trust<br>Crusade ABS Series 2018-1P Trust Series 2019-1 WST Trust<br>Crusade Trust No.2P of 2008 Series 2020-1 WST Trust<br>Danaby Pty Limited Series 2021-1 WST Trust<br>General Credits Pty Limited St.George Finance Limited |
| --- |
| Pillar 3 report<br>Appendix II | Entities included in regulatory consolidation<br><br> Westpac Group March 2022 Pillar 3 report | 95<br>Level 2 Entities \(Continued\)<br>St.George Motor Finance Limited Westpac Financial Services Group-NZ-Limited<br>The Home Mortgage Company Limited Westpac Global Capital Markets Pty Limited<br>W2 Investments Pty Limited Westpac Group Investment-NZ-Limited<br>Westpac \(NZ\) Investments Limited Westpac Holdings-NZ-Limited<br>Westpac Administration 3 Pty Limited Westpac Investment Capital Corporation<br>Westpac Administration 4 Pty Limited Westpac Investment Vehicle No.2 Pty Limited<br>Westpac Altitude Rewards Trust Westpac Investment Vehicle No.3 Pty Limited<br>Westpac Americas Inc. Westpac New Zealand Limited<br>Westpac Asian Lending Pty Limited Westpac Notice Saver PIE Fund<br>Westpac Bank-PNG-Limited Westpac NZ Covered Bond Holdings Limited<br>Westpac Capital Markets Holding Corp. Westpac NZ Covered Bond Limited<br>Westpac Capital Markets LLC Westpac NZ Operations Limited<br>Westpac Capital-NZ-Limited Westpac NZ Securitisation Holdings Limited<br>Westpac Cash PIE Fund Westpac NZ Securitisation Limited<br>Westpac Covered Bond Trust Westpac NZ Securitisation No.2 Limited<br>Westpac Digital Partnerships Pty Ltd Westpac Overseas Holdings Pty Limited<br>Westpac Equity Holdings Pty Limited Westpac Securities Limited<br>Westpac Equity Investments NZ Limited Westpac Securities NZ Limited<br>Westpac Europe GmbH Westpac Securitisation Management Pty Limited<br>Westpac Europe Limited Westpac Singapore Limited<br>Westpac Finance \(HK\) Limited Westpac Syndications Management Pty Limited<br>Westpac Financial Consultants Pty Limited Westpac Term PIE Fund<br>Westpac Financial Services Group Limited Westpac USA Inc. |
| --- |
| Pillar 3 report<br>Appendix II | Entities included in regulatory consolidation<br><br>96 | Westpac Group March 2022 Pillar 3 report<br>Level 3 Entities<br>The following controlled entities are excluded from the Level 2 consolidation but form part of the conglomerate<br>group at Level 3:<br>Advance Asset Management Limited Reinventure Fund II I.L.P<br>Asgard Capital Management Limited Reinventure Fund III I.L.P<br>Asgard Wealth Solutions Limited Reinventure Special Purpose Investment Unit Trust<br>BT Funds Management \(NZ\) Limited Securitor Financial Group Pty Limited<br>BT Funds Management Limited Sydney Capital Corporation Inc.<br>BT Funds Management No.2 Limited Waratah Receivables Corporation Pty Limited<br>BT Portfolio Services Limited Waratah Securities Australia Limited<br>GIS Private Nominees Pty Limited Westpac Financial Services Limited<br>Hastings Funds Management Pty Limited Westpac Life Insurance Services Limited<br>Hyde Potts Insurance Services Pte. Limited Westpac New Zealand Staff Superannuation Scheme<br>Trustee Limited<br>Magnitude Group Pty Limited Westpac Nominees-NZ-Limited<br>Pendal Short Term Income Fund Westpac RE Limited<br>Red Bird Ventures Limited Westpac Securities Administration Limited<br>Reinventure Fund, I.L.P. Westpac Superannuation Nominees-NZ-Limited |
| --- |
| Pillar 3 report<br>Appendix III | Level 3 entities’ assets and liabilities<br><br> Westpac Group March 2022 Pillar 3 report | 97<br>The following legal entities are excluded from the regulatory scope of consolidation.<br>The total assets and liabilities should not be aggregated because some of the entities are holding companies for<br>other entities in the table shown below.<br>31 March 2022<br>$m Total Assets<br>a\) Securitisation<br>Sydney Capital Corporation Inc. - -<br>Waratah Receivables Corporation Pty Limited - -<br>Waratah Securities Australia Limited - -<br>b\) Insurance, funds management and other<br>Advance Asset Management Limited 59 33<br>Asgard Capital Management Limited 37 16<br>Asgard Wealth Solutions Limited 30 6<br>BT Funds Management \(NZ\) Limited 61 17<br>BT Funds Management Limited 504 386<br>BT Funds Management No.2 Limited 12 2<br>BT Portfolio Services Limited 117 58<br>GIS Private Nominees Pty Limited 11 2<br>Hastings Funds Management Pty Limited - -<br>Hyde Potts Insurance Services Pte. Limited 20 3<br>Magnitude Group Pty Limited 3 -<br>Pendal Short Term Income Fund 284 284<br>Red Bird Ventures Limited 9 6<br>Reinventure Fund II I.L.P 76 -<br>Reinventure Fund III I.L.P 126 -<br>Reinventure Fund, I.L.P. 67 11<br>Reinventure Special Purpose Investment Unit Trust 62 -<br>Securitor Financial Group Pty Limited 3 -<br>Westpac Financial Services Limited 43 24<br>Westpac Life Insurance Services Limited 3,095 1,029<br>Westpac New Zealand Staff Superannuation Scheme Trustee Limited - -<br>Westpac Nominees-NZ-Limited 4 -<br>Westpac RE Limited 9 1<br>Westpac Securities Administration Limited 7 -<br>Westpac Superannuation Nominees-NZ-Limited - -<br> Liabilities<br>\(excluding equity\) |
| --- |
| Pillar 3 report<br>Appendix IV | Regulatory expected loss<br><br>98 | Westpac Group March 2022 Pillar 3 report<br>Capital deduction for regulatory expected loss2<br>For capital adequacy purposes APRA requires the amount of regulatory expected credit losses in excess of<br>eligible provisions to be deducted from capital. The following table shows how the deduction is calculated.<br>31 March 30 September 31 March<br>$m 2022 2021 2021<br>Provisions associated with eligible portfolios<br>Total provisions for impairment charges 4,682 5,007 5,508<br>plus general reserve for credit losses adjustment - - -<br>plus provisions associated with partial write-offs 304 40 20<br>less ineligible provisions1 \(101\) \(104\) \(106\)<br>Total eligible provisions 4,885 4,943 5,422<br>Regulatory expected downturn loss 4,947 5,168 5,419<br>Excess/\(shortfall\) in eligible provisions compared to<br>regulatory expected downturn loss \(62\) \(225\) 3<br>Common equity Tier 1 capital deduction for regulatory expected<br>downturn loss in excess of eligible provisions2 \(164\) \(225\) \(93\)<br><br><br><br><br><br>1 Provisions associated with portfolios subject to the Basel standardised approach to credit risk are not eligible.<br>2 Regulatory expected loss is calculated for portfolios subject to the Basel advanced IRB approach to credit risk. The comparison<br>between regulatory expected loss and eligible provisions is performed separately for defaulted and non-defaulted exposures. As at 31<br>March 2022, there was $164 million excess of regulatory expected loss compared to eligible provisions for defaulted exposures \(30<br>September 2021: $129 million\). |
| --- |
| Pillar 3 report<br>Appendix V | APS330 quantitative requirements<br><br> Westpac Group March 2022 Pillar 3 report | 99<br>The following table cross-references the quantitative disclosure requirements given by Attachments A, C, D and E<br>of APS330 to the quantitative disclosures made in this report. The continuous reporting requirements for capital<br>instruments under Attachment B are satisfied separately and can be found on the regulatory disclosures section<br>on the Westpac website1.<br>In addition to this report, the regulatory disclosures section of the Westpac website contains the reporting<br>requirements for:<br> ⚫ Capital instruments under Attachment B of APS330; and<br> ⚫ The identification of potential Global-Systemically Important Banks \(G-SIB\) under Attachment H of APS330<br>\(disclosed annually\).<br>APS330 reference Westpac disclosure Page<br>General Requirements<br>Paragraph 12 \(a\) \(c\) to \(d\) Balance Sheet Reconciliation 88<br>Paragraph 13 Level 3 entities’ assets and liabilities 97<br>Paragraph 49 Summary leverage ratio 23<br><br>Attachment A:<br>Table 1: Capital disclosure template Capital disclosure template 89<br><br>Attachment C:<br>Table 3: Capital adequacy \(a\) to \(e\) Capital requirements 21<br>\(f\) Westpac’s capital adequacy ratios 20<br> Capital adequacy ratios of major subsidiary banks 20<br><br>Table 4: Credit risk \(a\) Exposure at Default by major type 35<br> \(b\) Impaired and past due loans by portfolio 42<br> \(c\) General reserve for credit losses 32<br>Table 5: Securitisation exposures \(a\) Banking book summary of securitisation activity by asset<br>type<br>68<br> \(b\) Banking book summary of on and off-balance sheet<br>securitisation by exposure type<br>69<br> \(c\) Trading book summary of on and off-balance sheet<br>securitisation by exposure type<br>72<br><br>Attachment D:<br>Table 6: Capital adequacy \(b\) to \(f\) Capital requirements 21<br>\(g\) Westpac’s capital adequacy ratios 20<br> Capital adequacy ratios of major subsidiary banks 20<br>Table 7: Credit risk - general<br>disclosures<br>\(b\) Exposure at Default by major type 35<br>\(c\) Exposure at Default by geography 40<br>\(d\) Exposure at Default by industry classification 37<br>\(e\) Exposure at Default by residual contractual maturity 41<br>\(f\) Impaired and past due loans by industry classification 43<br>\(g\) Impaired and past due loans by geography 44<br>\(h\) Movement in provisions for impairment charges 33<br>\(h\) Loan impairment provisions 32<br>\(i\) Exposure at Default by measurement method 36<br> \(j\) General reserve for credit losses 32<br>Table 8: Credit risk - disclosures for<br>portfolios subject to the<br>standardised approach and<br>supervisory risk-weights in the IRB<br>approaches \(formerly Table 5\)<br>\(b\) Portfolios subject to the standardised approach 45<br> Property finance 46<br> Project finance 47<br><br><br>1 http://www.westpac.com.au/about-westpac/investor-centre/financial-information/regulatory-disclosures/ |
| --- |
| Pillar 3 report<br>Appendix V | APS330 quantitative requirements<br><br>100 | Westpac Group March 2022 Pillar 3 report<br><br>APS330 reference Westpac disclosure Page<br>Table 9: Credit risk - disclosures for<br>portfolios subject to IRB approaches<br>\(d\) Corporate portfolio by external credit rating 48<br> Business lending portfolio by external credit rating 49<br> Sovereign portfolio by external credit rating 50<br> Bank portfolio by external credit rating 51<br> Residential mortgages portfolio by PD band 52<br> Australian credit cards portfolio by PD band 53<br> Other retail portfolio by PD band 54<br> Small business portfolio by PD band 55<br> \(e\) Actual losses 56<br> \(f\) Comparison of regulatory expected and actual loss rates 57<br>Table 10: Credit risk mitigation<br>disclosures<br>\(b\) to \(c\) Total exposure covered by collateral, credit derivatives<br>and guarantees<br>60<br>Table 11: General disclosure for<br>exposures related to counterparty<br>credit risk<br>\(b\) Counterparty credit risk summary 62<br>\(c\) Credit derivative transactions that create exposures to<br>counterparty credit risk<br>62<br>Table 12: Securitisation exposures Banking Book<br> \(g\) part i and<br>\(h\) to \(i\)<br>Summary of assets securitised by Westpac 67<br> \(g\) part ii Summary of total Westpac sponsored third party assets<br>securitised<br>67<br> \(j\) Summary of securitisation activity by asset type 68<br> \(k\) Summary of on and off-balance sheet securitisation by<br>exposure type<br>69<br> \(l\) part i Securitisation exposure by risk weight band 70<br> \(l\) part ii Securitisation exposures deducted from capital 70<br> \(m\) Securitisation subject to early amortisation treatment 70<br> \(n\) part i Resecuritisation exposure subject to credit risk mitigation 70<br> \(n\) part ii Resecuritisation exposure to guarantors 70<br> Trading Book<br> \(o\) part i and<br>\(p\)<br>Summary of assets securitised by Westpac 71<br> \(o\) part ii Summary of total Westpac sponsored third party assets<br>securitised<br>71<br> \(q\) Summary of securitisation activity by asset type 71<br> \(r\) Aggregate amount of exposures securitised by Westpac<br>and subject to APS116 Capital Adequacy: Market Risk<br>71<br> \(s\) Summary of on and off-balance sheet securitisation by<br>exposure type<br>72<br> \(t\) part i Securitisation exposure retained or purchase subject to<br>specific risk<br>72<br> \(t\) part ii Securitisation exposure subject to APS120 for Specific<br>risk by risk weight band<br>72<br> \(u\) part i Capital requirements for securitisation exposure subject<br>to internal models approach \(IMA\) by risk classification<br>72<br> \(u\) part ii Capital requirements for securitisation regulatory capital<br>approaches by risk weight band<br>72<br> \(u\) part iii Securitisation exposures deducted from capital 73<br> \(v\) Securitisation subject to early amortisation treatment 73<br> \(w\) part i Aggregate resecuritisation exposures retain or purchased<br>subject to credit risk mitigation<br>73<br> \(w\) part ii Resecuritisation exposure to guarantors credit<br>worthiness<br>73 |
| --- |
| Pillar 3 report<br>Appendix V | APS330 quantitative requirements<br><br> Westpac Group March 2022 Pillar 3 report | 101<br>APS330 reference Westpac disclosure Page<br>Table 13: Market risk - disclosures<br>for ADIs using the standard method<br>\(b\) Market Risk regulatory capital and risk weighted assets 75<br>Table 14: Market risk - disclosures<br>for ADIs using the IMA for trading<br>portfolios<br>\(d\) VaR and Stressed VaR by risk type 76<br>Table 16: Equities - disclosures for<br>banking book positions<br>\(b\) to \(c\) Book value of listed equity exposures by industry<br>classification / Book value of unlisted equity exposures<br>by industry classification<br>83<br>\(d\) to \(e\) Gains/losses 83<br>\(f\) Capital requirement1 N/A<br>Table 17: Interest rate risk in the<br>banking book<br>\(b\) Change in economic value of sudden upward and<br>downward movement in interest rates<br>79<br> \(b\) Capital requirement 79<br><br>Attachment E<br>Table 18: Leverage ratio disclosure<br>template<br> Leverage ratio disclosure 23<br>Table 19: Summary comparison of<br>accounting assets vs leverage ratio<br>exposure measure<br> Summary comparison of accounting assets vs leverage<br>ratio exposure measure<br>24<br><br>Attachment F<br>Table 20: Liquidity Coverage Ratio<br>disclosure template<br> Liquidity Coverage Ratio disclosure 85<br>Table 21: Net Stable Funding Ratio<br>template<br> Net Stable Funding Ratio disclosure 86<br><br>Attachment G2<br>Table 21: Remuneration disclosure<br>requirements<br>\(g\) Governance structure NA<br>\(h\) Quantitative Disclosures NA<br>\(i\) Deferred remuneration NA<br>\(j\) to \(k\) Total value of remuneration awards for the current<br>financial year for senior managers and material risk<br>takers<br>NA<br><br><br>1 Equity exposures are not risk weighted at Level 2.<br>2 Remuneration disclosure is an annual reporting requirement under APS330. |
| --- |
| Pillar 3 report<br>Glossary<br><br>102 | Westpac Group March 2022 Pillar 3 report<br>Term Description<br>Actual losses Represent direct write-offs and write-offs from provisions after adjusting for<br>recoveries.<br>Additional Tier 1 capital<br><br>Comprises high quality components of capital that provide a permanent and<br>unrestricted commitment of funds that are freely available to absorb losses<br>but rank behind claims of depositors and other more senior creditors. They<br>also provide for fully discretionary capital distributions.<br>Alternate Liquid Assets \(ALA\) Assets that qualify for inclusion in the numerator of the LCR in jurisdictions<br>where there is insufficient supply of HQLA.<br>Advanced measurement<br>approach \(AMA\)<br>The capital requirement using the AMA is based on a bank’s internal<br>operational risk systems, which must both measure and manage operational<br>risk.<br>Assets intended to be securitised Represents securitisation activity from the end of the reporting period to the<br>disclosure date of this report.<br>Australian accounting standards<br>\(AAS\)<br>A set of Australian reporting standards and interpretations issued by the<br>Australian Accounting Standards Board.<br>Australian and New Zealand<br>standard industrial classification<br>\(ANZSIC\)<br>A code used by the Australian Bureau of Statistics and Statistics<br>New Zealand for classifying businesses.<br>Authorised deposit-taking<br>institution \(ADI\)<br>ADIs are corporations that are authorised under the Banking Act 1959 to<br>carry on banking business in Australia.<br>Banking book The banking book includes all securities that are not actively traded by<br>Westpac.<br>Committed Liquidity Facility \(CLF\) Facility established with the RBA to cover the shortfall in Australian dollars<br>between the ADI’s holding of HQLA and net cash outflows. The CLF is an<br>ALA for the Group’s LCR calculation.<br>Common equity Tier 1 \(CET1\)<br>capital<br>The highest form of capital. The key components of common equity are<br>shares, retained earnings and undistributed current year earnings.<br>Credit valuation adjustment \(CVA\)<br>risk<br>Refer to mark-to-market related credit risk.<br>Default A customer default is deemed to have occurred when Westpac considers<br>that either or both of the following events have taken place:<br> ⚫ the customer is unlikely to pay its credit obligations to its financiers in<br>full, without recourse by any of them to actions such as realising security<br>\(where held\); and<br> ⚫ the customer is past due 90 or more calendar days on any material<br>credit obligation to its financiers. Overdrafts will be considered past due<br>once the customer has breached an advised limit, or been advised of a<br>limit smaller than the current outstandings. |
| --- |
| Pillar 3 report<br>Glossary<br><br> Westpac Group March 2022 Pillar 3 report | 103<br><br>Term Description<br>Defaulted not impaired Includes facilities where:<br> ⚫ contractual payments of interest and/or principal are 90 or more<br>calendar days overdue, including overdrafts or other revolving facilities<br>that remain continuously outside approved limits by material amounts<br>for 90 or more calendar days \(including accounts for customers who<br>have been granted hardship assistance\); or<br> ⚫ an order has been sought for the customer’s bankruptcy or similar legal<br>action has been instituted, which may avoid or delay repayment of its<br>credit obligations; and<br> ⚫ the estimated net realisable value of assets/security to which Westpac<br>has recourse is sufficient to cover repayment of all principal and interest,<br>or where there are otherwise reasonable grounds to expect payment in<br>full and interest is being taken to profit on an accrual basis.<br>These facilities, while in default, are not treated as impaired for accounting<br>purposes.<br>Double default rules Double default applies to exposures where a particular obligor’s exposure<br>has been hedged by the purchase of credit protection from a counterparty<br>and loss will only occur if both obligor and counterparty default. In this<br>instance, capital can be reduced.<br>Exposure at default \(EAD\) EAD is calculated at facility level and includes outstandings as well as the<br>proportion of committed undrawn that is expected to be drawn in the event<br>of a future default.<br>Extended licensed entity \(ELE\) An extended licensed entity \(ELE\) comprises an ADI and any subsidiaries of<br>the ADI that have been approved by APRA as being part of a single ‘stand-<br>alone’ entity.<br>External credit assessment<br>institution<br>\(ECAI\)<br>ECAI is an external institution recognised by APRA \(directly or indirectly\) to<br>provide credit assessment in determining the risk-weights on financial<br>institutions’ rated credit exposures \(including securitisation exposures\).<br>Geography Geographic segmentation of exposures is based on the location of the office<br>in which these items were booked.<br>High-quality liquid assets \(HQLA\) Assets which meet APRA’s criteria for inclusion as HQLA in the numerator<br>of the LCR.<br>Impaired exposures Includes exposures that have deteriorated to the point where full collection<br>of interest and principal is in doubt, based on an assessment of the<br>customer’s outlook, cashflow, and the net realisation of value of assets to<br>which recourse is held:<br> ⚫ facilities 90 days or more past due, and full recovery is in doubt:<br>exposures where contractual payments are 90 or more days in arrears<br>and the net realisable value of assets to which recourse is held may not<br>be sufficient to allow full collection of interest and principal, including<br>overdrafts or other revolving facilities that remain continuously outside<br>approved limits by material amounts for 90 or more calendar days;<br> ⚫ non-accrual facilities: exposures with individually assessed impairment<br>provisions held against them, excluding restructured loans;<br> ⚫ restructured facilities: exposures where the original contractual terms<br>have been formally modified to provide for concessions of interest or<br>principal for reasons related to the financial difficulties of the customer;<br> ⚫ other assets acquired through security enforcement \(includes other real<br>estate owned\): includes the value of any other assets acquired as full or<br>partial settlement of outstanding obligations through the enforcement of<br>security arrangements; and<br> ⚫ any other facilities where the full collection of interest and principal is in<br>doubt. |
| --- |
| Pillar 3 report<br>Glossary<br><br>104 | Westpac Group March 2022 Pillar 3 report<br><br>Term Description<br>Industry Exposures to businesses, government and other financial institutions are<br>classified into industry clusters based upon groups of related ANZSIC<br>codes. Companies that operate in multiple industries are classified<br>according to their primary industry. Consumer customers as classified as<br> “retail” and not further broken down.<br>Interest rate risk in the banking<br>book \(IRRBB\)<br>The risk to current and future year interest income arising from a mismatch<br>between the duration of assets and liabilities that arises in the normal course<br>of banking activities.<br>Internal ratings-based approach<br>\(IRB & Advanced IRB\)<br>These approaches allow banks to use internal estimates of the risks of their<br>loans as inputs into the determination of the amount of credit risk capital<br>needed to support the organisation. In the Advanced IRB approach, banks<br>must supply their own estimates for all three credit parameters – Probability<br>of Default, Loss Given Default and Exposure at Default.<br>Leverage ratio The leverage ratio is defined by APRA as Tier 1 capital divided by the<br> “Exposure measure” and is expressed as a percentage. “Exposure<br>measure” includes on-balance sheet exposures, derivatives exposures,<br>securities financing transaction \(SFT\) exposures, and other off-balance<br>sheet exposures.<br>Liquidity coverage ratio \(LCR\) An APRA requirement to maintain an adequate level of unencumbered<br>high quality liquid assets, to meet liquidity needs for a 30 calendar day<br>period under an APRA-defined severe stress scenario. Absent a situation<br>of financial stress, the value of the LCR must not be less than 100%. LCR<br>is calculated as the percentage ratio of stock of HQLA, CLF and qualifying<br>Reserve Bank of New Zealand securities over the total net cash out flows<br>in a modelled 30 day defined stressed scenario.<br>Loss given default \(LGD\) The LGD represents an estimate of the expected severity of a loss to<br>Westpac should a customer default occur during a severe economic<br>downturn. Westpac assigns LGD to each credit facility, assuming an event<br>of default has occurred and taking into account a conservative estimate of<br>the net realisable value of assets to which Westpac has recourse and over<br>which it has security. LGDs also reflect the seniority of exposure in the<br>customer’s capital and debt structure.<br>Maturity The maturity date used is drawn from the contractual maturity date of the<br>customer loans.<br>Mark-to-market related credit risk The risk of mark-to-market losses related to deterioration in the credit quality<br>of a derivative counterparty also referred to as credit valuation adjustment<br>\(CVA\) risk.<br>Monte Carlo simulation A method of random sampling to achieve numerical solutions to<br>mathematical problems.<br>Net cash outflows Total expected cash outflows minus total expected cash inflows in the<br>specified LCR stress scenario calculated in accordance with APRA’s liquidity<br>standard.<br>Net interest income at risk \(NaR\) BRiskC approved limit expressed as a defined basis point shock in interest<br>rates over a one year risk horizon.<br>Net Stable Funding Ratio \(NSFR\) The NSFR is defined as the ratio of the amount of available stable funding<br>\(ASF\) to the amount of required stable funding \(RSF\) defined by APRA. The<br>amount of ASF is the portion of an ADI’s capital and liabilities expected to be<br>a reliable source of funds over a one year time horizon. The amount of RSF<br>is a function of the liquidity characteristics and residual maturities of an ADI’s<br>assets and off-balance sheet activities. ADI’s must maintain an NSFR of at<br>least 100%.<br>Off-balance sheet exposure Credit exposures arising from facilities that are not recorded on Westpac's<br>balance sheet \(under accounting methodology\). Undrawn commitments and<br>the expected future exposure calculated for Westpac's derivative products<br>are included in off-balance sheet exposure. |
| --- |
| Pillar 3 report<br>Glossary<br><br> Westpac Group March 2022 Pillar 3 report | 105<br>Term Description<br>On balance sheet exposure Credit exposures arising from facilities that are recorded on Westpac's<br>balance sheet \(under accounting methodology\).<br>Potential future credit exposure<br>\(PFCE\)<br>The PFCE for each transaction is calculated by multiplying the effective<br>notional principal amount by a credit conversion factor specified in APS112.<br>Probability of default \(PD\) Probability of default is a through-the-cycle assessment of the likelihood of a<br>customer defaulting on its financial obligations within one year.<br>Resecuritisation A resecuritisation exposure is a securitisation exposure in which the risk<br>associated with an underlying pool of exposures is tranched and at least one<br>of the underlying exposures is a securitisation exposure. In addition, an<br>exposure to one or more resecuritisation exposures is a resecuritisation<br>exposure;<br>Risk weighted assets \(RWA\) Assets \(both on and off-balance sheet\) are risk weighted according to each<br>asset's inherent potential for default and what the likely losses would be in<br>case of default. In the case of non-asset backed risks \(i.e. market and<br>operational risk\), RWA is determined by multiplying the capital requirements<br>for those risks by 12.5.<br>Securitisation purchased The purchase of third party securitisation exposure, for example residential<br>mortgage backed securities.<br>Securitisation retained Securitisation exposures arising through Westpac originated assets or<br>generated by Westpac third party securitisation activity.<br>Securities financing transactions<br>\(SFT\)<br>APRA defines SFTs as “transactions such as repurchase agreements,<br>reverse repurchase agreements, and security lending and borrowing, and<br>margin lending transactions, where the value of the transactions depends on<br>the market valuation of securities and the transactions are typically subject<br>to margin agreements.”<br>Sponsor An ADI would generally be considered a sponsor if it, in fact or substance,<br>manages or advises the securitisation program, places securities into the<br>market, or provide liquidity and/or credit enhancements.<br>Standard model The standard model for Market risk applies supervisory risk weights to<br>trading positions.<br>Stressed VaR \(SVaR\) Stressed VaR uses the approved VaR model but applies a period of<br>significant market stress. Market risk capital is estimated by adding Stressed<br>VaR to regular VaR.<br>Substitution approach Substitutions refers to the rules governing the circumstances when capital<br>can be reduced because an obligor’s exposure has been hedged by the<br>purchase of credit protection from a counterparty and the counterparty’s PD<br>is used in place of the obligors’ PD.<br>Supervisory Formula Approach<br>\(SFA\)<br>The SFA applicable to unrated exposures dynamically looks at the type and<br>performance of underlying asset pools funded by the securitisation exposure<br>as well as the structural features of the transaction to determine capital<br>requirements<br>Tier 2 capital<br><br>Includes other capital elements, which, to varying degrees, fall short of the<br>quality of Tier 1 capital but still contribute to the overall strength of an entity<br>as a gone concern capital. |
| --- |
| Pillar 3 report<br>Glossary<br><br>106 | Westpac Group March 2022 Pillar 3 report<br><br>Term Description<br>Trading book Trading book activity represents dealings that encompass book running and<br>distribution activity. The types of market risk arising from trading activity<br>include interest rate risk, foreign exchange risk, commodity risk, equity price<br>risk, credit spread risk and volatility risk. Financial Markets and Treasury are<br>responsible for managing market risk arising from Westpac’s trading activity.<br>Value at risk \(VaR\) VaR is the potential loss in earnings from adverse market movements and is<br>calculated over a one-day time horizon at a 99% confidence level using a<br>minimum of one year of historical rate data. VaR takes account of all<br>material market variables that may cause a change in the value of the<br>trading portfolio and the banking book including interest rates, foreign<br>exchange rates, price changes, volatility, and the correlation among these<br>variables.<br><br><br>Exchange rates<br>The following exchange rates were used in the Westpac Pillar 3 report, and reflect spot rates for the period end.<br><br>$ 31 March 2022 30 September 2021 31 March 2021<br>USD 0.7481 0.7205 0.7596<br>GBP 0.5704 0.5359 0.5536<br>NZD 1.0760 1.0477 1.0892<br>EUR 0.6704 0.6211 0.6487 |
| --- |
| Pillar 3 report<br>Disclosure regarding forward-looking statements<br><br> Westpac Group March 2022 Pillar 3 report | 107<br>The information contained in this report contains statements that constitute “forward-looking statements” within the<br>meaning of section 21E of the U.S. Securities Exchange Act of 1934. Forward-looking statements are statements<br>about matters that are not historical facts. Forward-looking statements appear in a number of places in this report<br>and include statements regarding Westpac’s intent, belief or current expectations with respect to its business and<br>operations, macro and micro economic and market conditions, results of operations and financial condition.<br>Words such as ‘will’, ‘may’, ‘expect’, ‘indicative’, ‘intend’, ‘seek’, ‘would’, ‘should’, ‘could’, ‘continue’, ‘plan’, ‘aim’,<br> ‘probability’, ‘risk’, ‘forecast’, ‘likely’, ‘estimate’, ‘anticipate’, ‘believe’ or other similar words are used to identify<br>forward-looking statements. These forward-looking statements reflect Westpac’s current views with respect to<br>future events and are subject to change, certain risks, uncertainties and assumptions which are, in many<br>instances, beyond Westpac’s control and have been made based upon management’s expectations and beliefs<br>concerning future developments and their potential effect upon Westpac. There can be no assurance that future<br>developments will be in accordance with Westpac’s expectations or that the effect of future developments on<br>Westpac will be those anticipated. Should one or more of the risks or uncertainties materialize, or should<br>underlying assumptions prove incorrect, actual results could differ materially from the expectations described in<br>this report. Factors that may impact on the forward-looking statements made include, but are not limited to, those<br>described in the section entitled ‘Risk factors’ in the Directors’ report included in Westpac’s 2022 Interim Financial<br>Results Announcement, as well as the ongoing impact of COVID-19. When relying on forward-looking statements<br>to make decisions with respect to Westpac, investors and others should carefully consider such factors and other<br>uncertainties and events. Westpac is under no obligation, and does not intend, to update any forward-looking<br>statements contained in this report, whether as a result of new information, future events or otherwise, after the<br>date of this report. |
| --- |