Westpac Banking Corp 6-K, filed Feb 19, 2020
Westpac Banking Corp (WEBNF)
About this 6-K
Westpac Banking Corp filed this 6-K on February 19, 2020.
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
February 19, 2020
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 this Report on Form 6-K, excluding the information set forth in Exhibit No. 2, 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. 333-228295, 333-228294 and 333-220373), as such prospectuses may be amended or supplemented from time to time.
Index to Exhibits
| Exhibit No. | Description |
|---|---|
| 1 | Westpac Group December 2019 Pillar 3 Report |
| 2 | Westpac Group 1Q20 Capital, Funding and Credit Quality Update |
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, 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 2019 Annual Report on Form 20-F filed with the U.S. Securities and Exchange Commission. 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 CORPORATION | |
|---|---|
| (Registrant) | |
| Date: February 19, 2020 | By: /s/ Yvette Adiguzel |
| Yvette Adiguzel | |
| Tier One Attorney |
Exhibit 1
| Pillar 3 report<br><br><br>Table of contents |
|---|
Structure of Pillar 3 report
| Executive summary | 3 | |
|---|---|---|
| Introduction | 5 | |
| Group structure | 7 | |
| Capital overview | 8 | |
| Leverage ratio | 12 | |
| Credit risk exposures | 13 | |
| Securitisation | 17 | |
| Liquidity coverage ratio | 20 | |
| Appendix | **** | |
| Appendix I | APS330 Quantitative requirements | 21 |
| Disclosure regarding forward-looking statements | 22 |
In this report references to ‘Westpac’, ‘Westpac Group’, ‘the Group’, ‘we’, ‘us’ and ‘our’ are to Westpac Banking Corporation and its controlled entities (unless the context indicates otherwise).
In this report, unless otherwise stated or the context otherwise requires, references to ‘$’, ‘AUD’ or ‘A$’ are to Australian dollars.
Any discrepancies between totals and sums of components in tables contained in this report are due to rounding.
In this report, unless otherwise stated, disclosures reflect the Australian Prudential Regulation Authority’s (APRA) implementation of Basel III.
Information contained in or accessible through the websites mentioned in this report does not form part of this report unless we specifically state that it is incorporated by reference and forms part of this report. All references in this report to websites are inactive textual references and are for information only.
| 2 | Westpac Group December 2019 Pillar 3 Report |
|---|
| Pillar 3 report<br><br><br>Executive summary | |||
|---|---|---|---|
| % | 31 December 2019 | 30 September 2019 | 31 December 2018 |
| --- | --- | --- | --- |
| Level 2 Regulatory capital structure | |||
| Common equity Tier 1 capital ratio % | 10.8 | 10.7 | 10.4 |
| Additional Tier 1 capital % | 2.1 | 2.2 | 2.4 |
| Tier 1 capital ratio % | 12.8 | 12.8 | 12.8 |
| Tier 2 capital % | 2.7 | 2.8 | 2.0 |
| Total regulatory capital ratio % | 15.5 | 15.6 | 14.8 |
| APRA leverage ratio % | 6.0 | 5.7 | 5.7 |
| Level 1 Common equity Tier 1 capital ratio (CET1) % | 11.1 | 11.0 | 10.2 |
Westpac’s common equity Tier 1 (CET1) capital ratio was 10.8% at 31 December 2019. The CET1 ratio was higher than the 10.7% ratio reported in September 2019 reflecting earnings for the quarter, the institutional placement completed in November 2019 (raising $2.0 billion of CET1 capital) and the share purchase plan completed in December 2019 (raising approximately $0.77 billion of CET1 capital). These were partly offset by the payment of the 2019 final dividend and an increase in risk weighted assets (RWA).
| $m | 31 December 2019 | 30 September 2019 | 31 December 2018 |
|---|---|---|---|
| Risk weighted assets at Level 2 | |||
| Credit risk | 361,400 | 367,864 | 361,173 |
| Market risk | 9,005 | 9,350 | 8,129 |
| Operational risk | 54,206 | 47,680 | 38,883 |
| Interest rate risk in the banking book | 10,989 | 530 | 8,328 |
| Other | 6,888 | 3,370 | 3,060 |
| Total RWA | 442,487 | 428,794 | 419,573 |
| Total Exposure at Default | 1,039,769 | 1,054,178 | 1,026,652 |
Total RWA increased $13.7 billion or 3.2% this quarter. This was due to an increase in non-credit risk RWA partly offset by a reduction in credit risk RWA.
The $6.5 billion decrease in credit risk RWA included:
· A decrease in mark-to-market related credit risk and counterparty credit risk RWA of $3.9 billion, including movements in market rates;
· A $2.2 billion reduction in RWA from a combination of: lower portfolio balances (Australian mortgages and corporate); improvements in asset quality from lower consumer delinquencies; and some portfolio mix effects;
· Model changes for a segment of the residential mortgage portfolio which reduced RWA by $1.4 billion; and
· Foreign currency translation impacts which increased RWA by $1.0 billion mainly from the appreciation of the NZ$ against the A$.
The $20.2 billion increase in non-credit RWA included:
· An increase in interest rate risk in the banking book (IRRBB) RWA of $10.5 billion from:
o Westpac’s implementation of a new IRRBB model more suited to low interest rates, which will need to be approved by APRA. Until the model is finalised and approved, Westpac is including an overlay in its IRRBB RWA. At December 2019 the overlay increased RWA by $6.3 billion (which equates to $500 million of capital); and
o Higher repricing and yield risk and a lower embedded gain from rising interest rates over the quarter ($4.2 billion);
· An increase of $6.5 billion in operational risk RWA mainly from the additional $500 million capital overlay imposed by APRA in response to the magnitude and nature of issues alleged by AUSTRAC in its Statement of Claim; and
· An increase of $3.5 billion mainly due to the adoption of AASB 16 Leases on 1 October 2019 in other assets RWA.
Exposure at Default
Exposure at default (EAD) decreased $14.4 billion (or 1.4%), primarily due to a change in EAD measurement for a segment of the residential mortgage portfolio and reductions in derivatives exposure mainly reflecting movements in market rates.
| Westpac Group December 2019 Pillar 3 Report | 3 |
|---|
| Pillar 3 report<br><br><br>Executive summary |
|---|
Leverage Ratio
The leverage ratio represents the amount of Tier 1 capital relative to exposure1. At 31 December 2019, Westpac’s leverage ratio was 6.0%, up from 5.7% in September 2019, reflecting higher Tier 1 capital and lower on balance sheet and derivatives exposures.
Liquidity Coverage Ratio (LCR)
Westpac’s average LCR for the quarter ending 31 December 2019 was 132% (September quarter 2019: 132%)2.
1 As defined under Attachment D of APS110: Capital Adequacy
2 Calculated as a simple average of the daily observations over the relevant quarter.
| 4 | Westpac Group December 2019 Pillar 3 Report |
|---|
| Pillar 3 report<br><br><br>Introduction |
|---|
Westpac Banking Corporation is an Authorised Deposit –taking Institution (ADI) subject to regulation by the APRA. APRA has accredited Westpac to apply advanced models permitted by the Basel III global capital adequacy regime to the measurement of its regulatory capital requirements. Westpac uses the Advanced Internal Ratings-Based approach (Advanced IRB) for credit risk and the Advanced Measurement Approach (AMA) for operational risk.
In accordance with APS330 Public Disclosure, financial institutions that have received this accreditation, such as Westpac, are required to disclose prudential information about their risk management practices on a semi-annual basis. A subset of this information must be disclosed quarterly.
In addition to this report, the regulatory disclosures section of the Westpac website1 contains the reporting requirements for:
| · | Capital instruments under Attachment B of APS330; and |
|---|---|
| · | The identification of potential Global-Systemically Important Banks (G-SIB) under Attachment H of APS330 (disclosed annually). |
Capital instruments disclosures are updated when:
| · | A new capital instrument is issued that will form part of regulatory capital; or |
|---|---|
| · | A capital instrument is redeemed, converted into CET1 capital, written off, or its terms and conditions are changed. |
| 1 http://www.westpac.com.au/about-westpac/investor-centre/financial-information/regulatory-disclosures/ | |
| --- | |
| Westpac Group December 2019 Pillar 3 Report | 5 |
| --- |
| Pillar 3 report<br><br><br>Group structure |
|---|
Westpac seeks to ensure that it is adequately capitalised at all times. APRA applies a tiered approach to measuring Westpac’s capital adequacy1 by assessing financial strength at three levels:
| · | Level 1, comprising Westpac Banking Corporation and its subsidiary entities that have been approved by APRA as being part of a single ‘Extended Licensed Entity’ (ELE) for the purposes of measuring capital adequacy; |
|---|---|
| · | Level 2, the consolidation of Westpac Banking Corporation and all its subsidiary entities except those entities specifically excluded by APRA regulations. The head of the Level 2 group is Westpac Banking Corporation; and |
| · | Level 3, the consolidation of Westpac Banking Corporation and all its subsidiary entities. |
Unless otherwise specified, all quantitative disclosures in this report refer to the prudential assessment of Westpac’s financial strength on a Level 2 basis2.
The Westpac Group
The following diagram shows the Level 3 conglomerate group and illustrates the different tiers of regulatory consolidation.
Accounting consolidation3
The consolidated financial statements incorporate the assets and liabilities of all subsidiaries (including structured entities) controlled by Westpac. Westpac and its subsidiaries are referred to collectively as the ‘Group’. The effects of all transactions between entities in the Group are eliminated. Control exists when the parent entity is exposed to, or has rights to, variable returns from its involvement with an entity, and has the ability to affect those returns through its power over that entity. Subsidiaries are fully consolidated from the date on which control commences and they are no longer consolidated from the date that control ceases.
Group entities excluded from the regulatory consolidation at Level 2
Regulatory consolidation at Level 2 covers the global operations of Westpac and its subsidiary entities, including other controlled banking, securities and financial entities, except for those entities involved in the following business activities:
| · | insurance; |
|---|---|
| · | acting as manager, responsible entity, approved trustee, trustee or similar role in relation to funds management; |
| · | non-financial (commercial) operations; or |
| · | special purpose entities to which assets have been transferred in accordance with the requirements of APS120 Securitisation. |
Retained earnings and equity investments in subsidiary entities excluded from the consolidation at Level 2 are deducted from capital, with the exception of securitisation special purpose entities.
| 1 APS110 Capital Adequacy outlines the overall framework adopted by APRA for the purpose of assessing the capital adequacy of an ADI. | |
|---|---|
| 2 Impaired assets and provisions held in Level 3 entities are excluded from the tables in this report. | |
| 3 Refer to Note 31 of Westpac’s 2019 Annual Report for further details. | |
| 6 | Westpac Group December 2019 Pillar 3 Report |
| --- |
| Pillar 3 report<br><br><br>Group structure |
|---|
Subsidiary banking entities
Westpac New Zealand Limited (WNZL), a wholly owned subsidiary entity, is a registered bank incorporated in New Zealand and regulated by the Reserve Bank of New Zealand (RBNZ). WNZL uses the Advanced IRB approach for credit risk and the AMA for operational risk. Other subsidiary banking entities in the Group include Westpac Bank-PNG-Limited and Westpac Europe Limited. For the purposes of determining Westpac’s capital adequacy subsidiary banking entities are consolidated at Level 2.
Restrictions and major impediments on the transfer of funds or regulatory capital within the Group
Minimum capital (‘thin capitalisation’) rules
Tax legislation in most jurisdictions in which the Group operates prescribes minimum levels of capital that must be retained in that jurisdiction to avoid a portion of the interest costs incurred in the jurisdiction ceasing to be tax deductible. Capital for these purposes includes both contributed capital and non-distributed retained earnings. Westpac seeks to maintain sufficient capital/retained earnings to comply with these rules.
Tax costs associated with repatriation
Repatriation of retained earnings (and capital) may result in tax being payable in either the jurisdiction from which the repatriation occurs or Australia on receipt of the relevant amounts. This cost would reduce the amount actually repatriated.
Intra-group exposure limits
Exposures to related entities are managed within the prudential limits prescribed by APRA in APS222 Associations with Related Entities1. Westpac has an internal limit structure and approval process governing credit exposures to related entities. This limit structure and approval process, combined with APRA’s prudential limits, is designed to reduce the potential for unacceptable contagion risk.
Prudential regulation of subsidiary entities
Certain subsidiary banking, insurance and trustee entities are subject to local prudential regulation in their own right, including capital adequacy requirements and investment or intra-group exposure limits. Westpac seeks to ensure that its subsidiary entities are adequately capitalised and adhere to regulatory requirements at all times. There are no capital deficiencies in subsidiary entities excluded from the regulatory consolidation at Level 2.
On 4 November 2019, the RBNZ advised it would change WNZL’s conditions of registration to remove the 2% overlay applying to its minimum capital requirements from 31 December 2019. This overlay had been in place since 31 December 2017 following the RBNZ’s review of WNZL’s compliance with the RBNZ’s ‘Capital Adequacy Framework’ (Internal Models Based Approach) (BS2B).
1 For the purposes of APS222, subsidiaries controlled by Westpac, other than subsidiaries that form part of the ELE, represent ‘related entities’. Prudential and internal limits apply to intra-group exposures between the ELE and related entities, both on an individual and aggregate basis.
| Westpac Group December 2019 Pillar 3 Report | 7 |
|---|
| Pillar 3 report<br><br><br>Capital overview |
|---|
Capital management strategy
Westpac’s approach to capital management seeks to ensure that it is adequately capitalised as an ADI. Westpac evaluates its approach to capital management through an Internal Capital Adequacy Assessment Process (ICAAP), the key features of which include:
| · | the development of a capital management strategy, including consideration of regulatory minimums, capital buffers and contingency plans; |
|---|---|
| · | consideration of both regulatory and economic capital requirements; |
| · | a stress testing framework that challenges the capital measures, coverage and requirements including the impact of adverse economic scenarios; and |
| · | consideration of the perspectives of external stakeholders including rating agencies and equity and debt investors. |
| --- | --- |
In light of APRA’s ‘unquestionably strong’ capital benchmarks, Westpac will seek to operate with a CET1 capital ratio above 10.5% in March and September as measured under the existing capital framework. Additional buffers may also be held to reflect challenging or uncertain environments. This also takes into consideration:
| · | current regulatory capital minimums and the capital conservation buffer (“CCB”), which together are the total CET1 requirement. In line with the above, the total CET1 requirement for Westpac is at least 8.0%, based upon an industry minimum CET1 requirement of 4.5% plus a capital buffer of at least 3.5% applicable to domestic systemically important banks (D-SIBs)1; |
|---|---|
| · | stress testing to calibrate an appropriate buffer against a downturn; and |
| · | quarterly volatility of capital ratios due to the half yearly cycle of ordinary dividend payments. |
Should the CET1 ratio fall below the total CET1 requirement, restrictions on the distribution of earnings will apply. This includes restrictions on the amount of earnings that can be distributed through dividends, Additional Tier 1 capital distributions and discretionary staff bonuses.
Westpac will revise its target capital levels once APRA finalises its review of the capital adequacy framework.
Westpac’s capital adequacy ratios
| % | 31 December 2019 | 30 September 2019 | 31 December 2018 |
|---|---|---|---|
| The Westpac Group at Level 2 | |||
| Common equity Tier 1 capital ratio | 10.8 | 10.7 | 10.4 |
| Additional Tier 1 capital | 2.1 | 2.2 | 2.4 |
| Tier 1 capital ratio | 12.8 | 12.8 | 12.8 |
| Tier 2 capital | 2.7 | 2.8 | 2.0 |
| Total regulatory capital ratio | 15.5 | 15.6 | 14.8 |
| The Westpac Group at Level 1 | |||
| Common equity Tier 1 capital ratio | 11.1 | 11.0 | 10.2 |
| Additional Tier 1 capital | 2.1 | 2.2 | 2.5 |
| Tier 1 capital ratio | 13.2 | 13.2 | 12.7 |
| Tier 2 capital | 2.7 | 2.9 | 2.1 |
| Total regulatory capital ratio | 15.9 | 16.1 | 14.8 |
| ****<br><br><br>Westpac New Zealand Limited’s capital adequacy ratios | |||
| % | 31 December 2019 | 30 September 2019 | 31 December 2018 |
| Westpac New Zealand Limited | |||
| Common equity Tier 1 capital ratio | 11.4 | 11.3 | 12.0 |
| Additional Tier 1 capital | 2.6 | 2.6 | 2.8 |
| Tier 1 capital ratio | 14.0 | 13.9 | 14.8 |
| Tier 2 capital | 1.9 | 2.0 | 2.1 |
| Total regulatory capital ratio | 15.9 | 15.9 | 16.9 |
| 1 Noting that APRA may apply higher CET1 requirements for an individual ADI. | |||
| --- | |||
| 8 | Westpac Group December 2019 Pillar 3 Report | ||
| --- |
| Pillar 3 report<br><br><br>Capital overview |
|---|
Recent regulatory capital developments
RBNZ Capital Review
On 5 December 2019 the RBNZ finalised its changes to the capital adequacy framework in New Zealand. The changes reflect the RBNZ’s final decisions on the proposals outlined in the paper “Capital Review Paper 4: How much capital is enough?” released in December 2018.
The new framework includes the following key components:
| · | Setting a Tier 1 capital requirement of 16% of risk weighted assets (RWA) for systemically important banks (including Westpac New Zealand Limited (WNZL)) and 14% for all other banks; |
|---|---|
| · | Additional Tier 1 capital (AT1) can comprise no more than 2.5% of the 16% Tier 1 capital requirement; |
| · | Eligible Tier 1 capital will comprise common equity and redeemable perpetual preference shares. Existing AT1 instruments will be phased out over a seven year period; |
| · | Maintaining the existing Tier 2 capital requirement of 2% of RWA; and |
| · | Recalibrating RWA for internal rating based banks, such as WNZL, such that aggregate RWA will increase to 90% of standardised RWA. |
The RBNZ’s new capital regime will take effect from 1 July 2020, and New Zealand banks will be given up to seven years to fully comply.
Operational Risk Capital Overlay
On 17 December 2019 APRA announced an investigation into Westpac following AUSTRAC’s Statement of Claim which was released on 20 November 2019. As part of the announcement, APRA imposed an additional $500 million capital overlay in response to the magnitude and nature of issues alleged by AUSTRAC in its statement of claim. The additional overlay applied from 31 December 2019.
| Westpac Group December 2019 Pillar 3 Report | 9 |
|---|
| Pillar 3 report<br><br><br>Capital overview |
|---|
Capital requirements
This table shows risk weighted assets and associated capital requirements1 for each risk type included in the regulatory assessment of Westpac’s capital adequacy. More detailed disclosures on the prudential assessment of capital requirements are presented in the following sections of this report.
| 31 December 2019 | IRB | Standardised | Total Risk | Total Capital |
|---|---|---|---|---|
| $m | Approach | Approach2 | Weighted Assets | Required1 |
| Credit risk | ||||
| Corporate | 73,249 | 1,072 | 74,321 | 5,946 |
| Business lending | 35,096 | 896 | 35,992 | 2,879 |
| Sovereign | 1,723 | 1,073 | 2,796 | 224 |
| Bank | 7,758 | 35 | 7,793 | 623 |
| Residential mortgages | 130,001 | 4,833 | 134,834 | 10,787 |
| Australian credit cards | 4,897 | - | 4,897 | 392 |
| Other retail | 12,222 | 881 | 13,103 | 1,048 |
| Small business | 16,535 | - | 16,535 | 1,323 |
| Specialised lending | 55,771 | 488 | 56,259 | 4,501 |
| Securitisation | 5,647 | - | 5,647 | 452 |
| Mark-to-market related credit risk3 | - | 9,224 | 9,224 | 738 |
| Total | 342,899 | 18,502 | 361,400 | 28,913 |
| Market risk | 9,005 | 720 | ||
| Operational risk | 54,206 | 4,336 | ||
| Interest rate risk in the banking book | 10,989 | 879 | ||
| Other assets4 | 6,888 | 551 | ||
| Total | 442,487 | 35,399 | ||
| 30 September 2019 | IRB | Standardised | Total Risk | Total Capital |
| $m | Approach | Approach2 | Weighted Assets | Required1 |
| Credit risk | ||||
| Corporate | 74,807 | 1,166 | 75,973 | 6,078 |
| Business lending | 35,470 | 950 | 36,420 | 2,914 |
| Sovereign | 2,068 | 1,069 | 3,137 | 251 |
| Bank | 8,339 | 46 | 8,385 | 671 |
| Residential mortgages | 131,629 | 5,010 | 136,639 | 10,931 |
| Australian credit cards | 5,089 | - | 5,089 | 407 |
| Other retail | 12,395 | 894 | 13,289 | 1,063 |
| Small business | 16,090 | - | 16,090 | 1,287 |
| Specialised lending | 55,262 | 518 | 55,780 | 4,462 |
| Securitisation | 5,749 | - | 5,749 | 460 |
| Mark-to-market related credit risk3 | - | 11,313 | 11,313 | 905 |
| Total | 346,898 | 20,966 | 367,864 | 29,429 |
| Market risk | 9,350 | 748 | ||
| Operational risk | 47,680 | 3,814 | ||
| Interest rate risk in the banking book | 530 | 42 | ||
| Other assets4 | 3,370 | 270 | ||
| Total | 428,794 | 34,303 |
1 Total capital required is calculated as 8% of total risk weighted assets.
2 Westpac’s Standardised risk weighted assets are categorised based on their equivalent IRB categories.
3 Mark-to-market related credit risk is measured under the standardised approach. It is also known as Credit Valuation Adjustment (CVA) risk.
4 Other assets include cash items, unsettled transactions, fixed assets and other non-interest earning assets.
| 10 | Westpac Group December 2019 Pillar 3 Report |
|---|
| Pillar 3 report<br><br><br>Capital overview | ||||
|---|---|---|---|---|
| 31 December 2018 | IRB | Standardised | Total Risk | Total Capital |
| --- | --- | --- | --- | --- |
| $m | Approach | Approach2 | Weighted Assets | Required1 |
| Credit risk | ||||
| Corporate | 72,452 | 1,921 | 74,373 | 5,950 |
| Business lending | 35,367 | 1,038 | 36,405 | 2,912 |
| Sovereign | 1,616 | 985 | 2,601 | 208 |
| Bank | 6,440 | 36 | 6,476 | 518 |
| Residential mortgages | 130,307 | 5,371 | 135,678 | 10,854 |
| Australian credit cards | 6,136 | - | 6,136 | 491 |
| Other retail | 13,650 | 989 | 14,639 | 1,171 |
| Small business | 16,454 | - | 16,454 | 1,316 |
| Specialised lending | 55,753 | 461 | 56,214 | 4,497 |
| Securitisation | 5,735 | - | 5,735 | 459 |
| Mark-to-market related credit risk3 | - | 6,462 | 6,462 | 517 |
| Total | 343,910 | 17,263 | 361,173 | 28,893 |
| Market risk | 8,129 | 650 | ||
| Operational risk | 38,883 | 3,111 | ||
| Interest rate risk in the banking book | 8,328 | 666 | ||
| Other assets4 | 3,060 | 245 | ||
| Total | 419,573 | 33,565 | ||
| 1 Total capital required is calculated as 8% of total risk weighted assets.<br><br><br>2 Westpac’s Standardised risk weighted assets are categorised based on their equivalent IRB categories.<br><br><br>3 Mark-to-market related credit risk is measured under the standardised approach. It is also known as Credit Valuation Adjustment (CVA) risk.<br><br><br>4 Other assets include cash items, unsettled transactions, fixed assets and other non-interest earning assets. | ||||
| --- | ||||
| Westpac Group December 2019 Pillar 3 Report | 11 | |||
| --- |
| Pillar 3 report<br><br><br>Leverage ratio disclosure |
|---|
Leverage ratio
The following table summarises Westpac’s leverage ratio. This has been determined using APRA’s definition of the leverage ratio as specified in APS110 Capital Adequacy.
| $ billion | 31 December 2019 | 30 September 2019 | 30 June 2019 | 31 March 2019 |
|---|---|---|---|---|
| Tier 1 Capital | 56.8 | 55.1 | 53.7 | 53.9 |
| Total Exposures | 948.7 | 968.8 | 946.7 | 942.4 |
| Leverage ratio | 6.0% | 5.7% | 5.7% | 5.7% |
| 12 | Westpac Group December 2019 Pillar 3 Report | |||
| --- |
| Pillar 3 report<br><br><br>Credit risk exposures |
|---|
Summary credit risk disclosure
| Regulatory | |||||||
|---|---|---|---|---|---|---|---|
| Expected | Specific | Actual | |||||
| Risk | Regulatory | Loss for | Provisions | Losses for | |||
| 31 December 2019 | Exposure | Weighted | Expected | non-defaulted | Impaired | for Impaired | the 3 months |
| $m | at Default | Assets | Loss1 | exposures | Loans | Loans | ended |
| Corporate | 136,056 | 73,249 | 589 | 462 | 198 | 126 | (3) |
| Business lending | 54,640 | 35,096 | 614 | 414 | 317 | 162 | 23 |
| Sovereign | 89,687 | 1,723 | 1 | 1 | - | - | - |
| Bank | 27,120 | 7,758 | 16 | 16 | - | - | - |
| Residential mortgages | 553,492 | 130,001 | 1,657 | 1,099 | 394 | 122 | 34 |
| Australian credit cards | 19,159 | 4,897 | 309 | 235 | 118 | 73 | 83 |
| Other retail | 15,646 | 12,222 | 582 | 411 | 295 | 172 | 54 |
| Small business | 33,388 | 16,535 | 530 | 362 | 380 | 168 | 20 |
| Specialised Lending | 65,798 | 55,771 | 769 | 576 | 60 | 29 | - |
| Securitisation | 26,935 | 5,647 | - | - | - | - | - |
| Standardised2 | 17,848 | 18,502 | - | - | 55 | 20 | - |
| Total | 1,039,769 | 361,401 | 5,067 | 3,576 | 1,817 | 871 | 211 |
| Regulatory | |||||||
| Expected | Specific | Actual | |||||
| Risk | Regulatory | Loss for | Provisions | Losses for | |||
| 30 September 2019 | Exposure | Weighted | Expected | non-defaulted | Impaired | for Impaired | the 12 months |
| $m | at Default | Assets | Loss1 | exposures | Loans | Loans | ended |
| Corporate | 139,173 | 74,807 | 523 | 473 | 135 | 50 | 30 |
| Business lending | 54,570 | 35,470 | 635 | 431 | 316 | 168 | 54 |
| Sovereign | 90,960 | 2,068 | 2 | 2 | - | - | - |
| Bank | 28,761 | 8,339 | 10 | 10 | - | - | - |
| Residential mortgages | 559,018 | 131,629 | 1,642 | 1,088 | 414 | 127 | 111 |
| Australian credit cards | 17,541 | 5,089 | 328 | 248 | 121 | 80 | 340 |
| Other retail | 15,951 | 12,395 | 582 | 417 | 283 | 165 | 354 |
| Small business | 33,365 | 16,090 | 512 | 351 | 367 | 152 | 78 |
| Specialised Lending | 65,553 | 55,262 | 748 | 557 | 69 | 29 | 13 |
| Securitisation | 26,774 | 5,749 | - | - | - | - | - |
| Standardised2 | 22,512 | 20,966 | - | - | 58 | 21 | 2 |
| Total | 1,054,178 | 367,864 | 4,982 | 3,577 | 1,763 | 792 | 982 |
| Regulatory | |||||||
| Expected | Specific | Actual | |||||
| Risk | Regulatory | Loss for | Provisions | Losses for | |||
| 31 December 2018 | Exposure | Weighted | Expected | non-defaulted | Impaired | for Impaired | the 3 months |
| $m | at Default | Assets | Loss1 | exposures | Loans | Loans | ended |
| Corporate | 134,917 | 72,452 | 532 | 476 | 68 | 22 | - |
| Business lending | 54,663 | 35,367 | 673 | 433 | 274 | 170 | 8 |
| Sovereign | 75,439 | 1,616 | 2 | 2 | - | - | - |
| Bank | 24,255 | 6,440 | 8 | 8 | - | - | - |
| Residential mortgages | 556,171 | 130,307 | 1,574 | 1,055 | 387 | 138 | 21 |
| Australian credit cards | 19,713 | 6,136 | 354 | 297 | 91 | 69 | 74 |
| Other retail | 17,116 | 13,650 | 635 | 464 | 301 | 172 | 73 |
| Small business | 33,336 | 16,454 | 506 | 338 | 185 | 76 | 11 |
| Specialised Lending | 66,184 | 55,753 | 820 | 568 | 138 | 54 | - |
| Securitisation | 26,896 | 5,735 | - | - | - | - | - |
| Standardised2 | 17,962 | 17,263 | - | - | 19 | 8 | - |
| Total | 1,026,652 | 361,173 | 5,104 | 3,641 | 1,463 | 709 | 187 |
| 1 Includes regulatory expected losses for defaulted and non-defaulted exposures.<br><br><br>2 Includes mark-to-market related credit risk. | |||||||
| --- | |||||||
| Westpac Group December 2019 Pillar 3 Report | 13 | ||||||
| --- |
| Pillar 3 report<br><br><br>Credit risk exposures |
|---|
Exposure at Default by major type
| 31 December 2019 | On balance | Off-balance sheet | Total Exposure | Average | |
|---|---|---|---|---|---|
| $m | sheet | Non-market related | Market related | at Default | 3 months ended1 |
| Corporate | 62,314 | 60,621 | 13,121 | 136,056 | 137,615 |
| Business lending | 42,111 | 12,529 | - | 54,640 | 54,605 |
| Sovereign | 79,117 | 1,773 | 8,797 | 89,687 | 90,323 |
| Bank | 15,811 | 2,133 | 9,176 | 27,120 | 27,940 |
| Residential mortgages | 485,438 | 68,054 | - | 553,492 | 556,255 |
| Australian credit cards | 8,651 | 10,508 | - | 19,159 | 18,350 |
| Other retail | 12,143 | 3,503 | - | 15,646 | 15,799 |
| Small business | 26,411 | 6,977 | - | 33,388 | 33,376 |
| Specialised lending | 53,903 | 10,034 | 1,861 | 65,798 | 65,676 |
| Securitisation2 | 21,740 | 5,085 | 110 | 26,935 | 26,855 |
| Standardised | 12,985 | 1,123 | 3,740 | 17,848 | 20,180 |
| Total | 820,624 | 182,340 | 36,805 | 1,039,769 | 1,046,974 |
| 30 September 2019 | On balance | Off-balance sheet | Total Exposure | Average | |
| $m | sheet | Non-market related | Market related | at Default | 12 months ended3 |
| Corporate | 63,994 | 58,903 | 16,276 | 139,173 | 134,619 |
| Business lending | 42,385 | 12,185 | - | 54,570 | 54,532 |
| Sovereign | 80,891 | 1,711 | 8,358 | 90,960 | 81,034 |
| Bank | 16,291 | 2,026 | 10,444 | 28,761 | 25,672 |
| Residential mortgages | 485,049 | 73,969 | - | 559,018 | 557,762 |
| Australian credit cards | 8,720 | 8,821 | - | 17,541 | 18,847 |
| Other retail | 12,415 | 3,536 | - | 15,951 | 16,628 |
| Small business | 26,520 | 6,845 | - | 33,365 | 33,326 |
| Specialised lending | 52,745 | 10,761 | 2,047 | 65,553 | 65,495 |
| Securitisation2 | 22,559 | 4,037 | 178 | 26,774 | 26,683 |
| Standardised | 13,459 | 1,131 | 7,922 | 22,512 | 18,657 |
| Total | 825,028 | 183,925 | 45,225 | 1,054,178 | 1,033,255 |
| 31 December 2018 | On balance | Off-balance sheet | Total Exposure | Average | |
| $m | sheet | Non-market related | Market related | at Default | 3 months ended4 |
| Corporate | 66,392 | 57,112 | 11,413 | 134,917 | 131,868 |
| Business lending | 41,697 | 12,966 | - | 54,663 | 54,258 |
| Sovereign | 70,929 | 1,817 | 2,693 | 75,439 | 77,235 |
| Bank | 14,668 | 2,315 | 7,272 | 24,255 | 23,952 |
| Residential mortgages | 480,607 | 75,564 | - | 556,171 | 554,765 |
| Australian credit cards | 9,763 | 9,950 | - | 19,713 | 19,676 |
| Other retail | 13,529 | 3,587 | - | 17,116 | 17,115 |
| Small business | 26,168 | 7,168 | - | 33,336 | 33,279 |
| Specialised lending | 53,402 | 11,911 | 871 | 66,184 | 66,807 |
| Securitisation2 | 21,754 | 5,009 | 133 | 26,896 | 27,272 |
| Standardised | 13,807 | 1,240 | 2,915 | 17,962 | 18,064 |
| Total | 812,716 | 188,639 | 25,297 | 1,026,652 | 1,024,291 |
| 1 Average is based on exposures as at 31 December 2019 and 30 September 2019.<br><br><br>2 The EAD associated with securitisations is for the banking book only.<br><br><br>3 Average is based on exposures as at 30 September 2019, 30 June 2019, 31 March 2019, 31 December 2018, and 30 September 2018.<br><br><br>4 Average is based on exposures as 31 December 2018 and 30 September 2018. | |||||
| --- | |||||
| 14 | Westpac Group December 2019 Pillar 3 Report | ||||
| --- |
| Pillar 3 report<br><br><br>Credit risk exposures |
|---|
Loan impairment provisions
APS220 Credit Quality requires that Westpac report specific provisions and a General Reserve for Credit Loss (GRCL). All Individually Assessed Provisions (IAP) raised under Australian Accounting Standards (AAS) are classified as specific provisions. All Collectively Assessed Provisions (CAP) raised under AAS are either classified into specific provisions or a GRCL.
| 31 December 2019 | A-IFRS Provisions | GRCL | Total Regulatory | |||
|---|---|---|---|---|---|---|
| $m | IAPs | CAPs | Total | Adjustment | Provisions | |
| Specific Provisions | ||||||
| for impaired loans | 483 | 388 | 871 | NA | 871 | |
| for defaulted but not impaired loans | NA | 558 | 558 | NA | 558 | |
| For Stage 2 | NA | 1,246 | 1,246 | NA | 1,246 | |
| Total Specific Provision 1 | 483 | 2,192 | 2,675 | NA | 2,675 | |
| General Reserve for Credit Loss1 | NA | 1,303 | 1,303 | NA | 1,303 | |
| Total provisions for ECL | 483 | 3,495 | 3,978 | NA | 3,978 | |
| 30 September 2019 | A-IFRS Provisions | GRCL | Total Regulatory | |||
| $m | IAPs | CAPs | Total | Adjustment | Provisions | |
| Specific Provisions | ||||||
| for impaired loans | 412 | 380 | 792 | NA | 792 | |
| for defaulted but not impaired loans | NA | 554 | 554 | NA | 554 | |
| For Stage 2 | NA | 1,234 | 1,234 | NA | 1,234 | |
| Total Specific Provision 1 | 412 | 2,168 | 2,580 | NA | 2,580 | |
| General Reserve for Credit Loss1 | NA | 1,344 | 1,344 | NA | 1,344 | |
| Total provisions for ECL | 412 | 3,512 | 3,924 | NA | 3,924 | |
| 31 December 2018 | AAS Provisions | GRCL | Total Regulatory | |||
| $m | IAPs | CAPs | Total | Adjustment | Provisions | |
| Specific Provisions | ||||||
| for impaired loans | 426 | 283 | 709 | NA | 709 | |
| for defaulted but not impaired loans | NA | 663 | 663 | NA | 663 | |
| for Stage 2 | NA | 1,255 | 1,255 | NA | 1,255 | |
| Total Specific Provisions 1 | 426 | 2,201 | 2,627 | NA | 2,627 | |
| General Reserve for Credit Loss1 | NA | 1,439 | 1,439 | NA | 1,439 | |
| Total provisions for impairment charges | 426 | 3,640 | 4,066 | NA | 4,066 | |
| 1 Provisions classified according to APRA’s letter dated 4 July 2017 “Provisions for regulatory purposes and AASB 9 financial instruments”. | ||||||
| --- | ||||||
| Westpac Group December 2019 Pillar 3 Report | 15 | |||||
| --- |
| Pillar 3 report<br><br><br>Credit risk exposures |
|---|
Impaired and past due loans
The following tables disclose the crystallisation of credit risk as impairment and loss. Analysis of exposures defaulted not impaired, impaired loans, related provisions and actual losses is broken down by concentrations reflecting Westpac’s asset categories.1
| Specific | Specific | Actual | |||
|---|---|---|---|---|---|
| 31 December 2019 | Defaulted | Impaired | Provisions for | Provisions to | Losses for the |
| $m | not impaired1 | Loans | Impaired Loans | Impaired Loans | 3 months ended |
| Corporate | 94 | 198 | 126 | 64% | (3) |
| Business lending | 430 | 317 | 162 | 51% | 23 |
| Sovereign | - | - | - | - | - |
| Bank | - | - | - | - | - |
| Residential mortgages | 3,732 | 394 | 122 | 31% | 34 |
| Australian credit cards | - | 118 | 73 | 62% | 83 |
| Other retail | - | 295 | 172 | 58% | 54 |
| Small business | 371 | 380 | 168 | 44% | 20 |
| Specialised lending | 273 | 60 | 29 | 48% | - |
| Securitisation | - | - | - | - | - |
| Standardised | 72 | 55 | 20 | 36% | - |
| Total | 4,972 | 1,817 | 871 | 48% | 211 |
| Specific | Specific | Actual | |||
| 30 September 2019 | Defaulted | Impaired | Provisions for | Provisions to | Losses for the |
| $m | not impaired1 | Loans | Impaired Loans | Impaired Loans | 12 months ended |
| Corporate | 98 | 135 | 50 | 37% | 30 |
| Business lending | 455 | 316 | 168 | 53% | 54 |
| Sovereign | - | - | - | - | - |
| Bank | - | - | - | - | - |
| Residential mortgages | 3,839 | 414 | 127 | 31% | 111 |
| Australian credit cards | - | 121 | 80 | 66% | 340 |
| Other retail | - | 283 | 165 | 58% | 354 |
| Small business | 345 | 367 | 152 | 41% | 78 |
| Specialised lending | 279 | 69 | 29 | 42% | 13 |
| Securitisation | - | - | - | - | - |
| Standardised | 72 | 58 | 21 | 36% | 2 |
| Total | 5,088 | 1,763 | 792 | 45% | 982 |
| Specific | Specific | Actual | |||
| 31 December 2018 | Defaulted | Impaired | Provisions for | Provisions to | Losses for the |
| $m | not impaired1 | Loans | Impaired Loans | Impaired Loans | 3 months ended |
| Corporate | 87 | 68 | 22 | 32% | - |
| Business lending | 308 | 274 | 170 | 62% | 8 |
| Sovereign | - | - | - | - | - |
| Bank | - | - | - | - | - |
| Residential mortgages | 3,235 | 387 | 138 | 36% | 21 |
| Australian credit cards | - | 91 | 69 | 76% | 74 |
| Other retail | - | 301 | 172 | 57% | 73 |
| Small business | 257 | 185 | 76 | 41% | 11 |
| Specialised lending | 318 | 138 | 54 | 39% | - |
| Securitisation | - | - | - | - | - |
| Standardised | 77 | 19 | 8 | 42% | - |
| Total | 4,282 | 1,463 | 709 | 48% | 187 |
1 Includes items past 90 days not impaired.
| 16 | Westpac Group December 2019 Pillar 3 Report |
|---|
| Pillar 3 report<br><br><br>Securitisation |
|---|
Banking book summary of securitisation activity by asset type
| For the 3 months ended | ||
|---|---|---|
| 31 December 2019 | Amount | Recognised gain or |
| $m | securitised | loss on sale |
| Residential mortgages | 370 | - |
| Credit cards | - | - |
| Auto and equipment finance | 81 | - |
| Business lending | - | - |
| Investments in ABS | - | - |
| Other | - | - |
| Total | 451 | - |
| For the 12 months ended | ||
| 30 September 2019 | Amount | Recognised gain or |
| $m | securitised | loss on sale |
| Residential mortgages | 30,899 | - |
| Credit cards | - | - |
| Auto and equipment finance | 600 | - |
| Business lending | - | - |
| Investments in ABS | - | - |
| Other | - | - |
| Total | 31,499 | - |
| For the 3 months ended | ||
| 31 December 2018 | Amount | Recognised gain or |
| $m | securitised | loss on sale |
| Residential mortgages | 5,892 | - |
| Credit cards | - | - |
| Auto and equipment finance | 295 | - |
| Business lending | - | - |
| Investments in ABS | - | - |
| Other | - | - |
| Total | 6,187 | - |
| Westpac Group December 2019 Pillar 3 Report | 17 | |
| --- |
| Pillar 3 report<br><br><br>Securitisation |
|---|
Banking book summary of on and off-balance sheet securitisation by exposure type
| 31 December 2019 | On balance sheet | Off-balance | Total Exposure | |
|---|---|---|---|---|
| $m | Securitisation retained | Securitisation purchased | sheet | at Default |
| Securities | - | 8,806 | 38 | 8,844 |
| Liquidity facilities | - | - | 288 | 288 |
| Funding facilities | 2,967 | - | 1,077 | 4,043 |
| Underwriting facilities | - | - | - | - |
| Lending facilities | 512 | - | 217 | 729 |
| Warehouse facilities | 9,456 | - | 3,575 | 13,031 |
| Total | 12,935 | 8,806 | 5,195 | 26,935 |
| 30 September 2019 | On balance sheet | Off-balance | Total Exposure | |
| $m | Securitisation retained | Securitisation purchased | sheet | at Default |
| Securities | - | 8,685 | 37 | 8,722 |
| Liquidity facilities | 147 | - | 384 | 531 |
| Funding facilities | 2,989 | - | 1,054 | 4,043 |
| Underwriting facilities | - | - | - | - |
| Lending facilities | 428 | - | 169 | 597 |
| Warehouse facilities | 10,310 | - | 2,571 | 12,881 |
| Total | 13,874 | 8,685 | 4,215 | 26,774 |
| 31 December 2018 | On balance sheet | Off-balance | Total Exposure | |
| $m | Securitisation retained | Securitisation purchased | sheet | at Default |
| Securities | - | 9,164 | 33 | 9,197 |
| Liquidity facilities | - | - | 250 | 250 |
| Funding facilities | 2,377 | - | 1,379 | 3,756 |
| Underwriting facilities | - | - | - | - |
| Lending facilities | 9 | - | 8 | 17 |
| Warehouse facilities | 10,086 | - | 3,590 | 13,676 |
| Total | 12,473 | 9,164 | 5,259 | 26,896 |
| 18 | Westpac Group December 2019 Pillar 3 Report | |||
| --- |
| Pillar 3 report<br><br><br>Securitisation |
|---|
Trading book summary of on and off-balance sheet securitisation by exposure type1
| 31 December 2019 | On balance sheet | Off-balance | Total Exposure | |
|---|---|---|---|---|
| $m | Securitisation retained | Securitisation purchased | sheet | at Default |
| Securities | - | 55 | - | 55 |
| Liquidity facilities | - | - | - | - |
| Funding facilities | - | - | - | - |
| Underwriting facilities | - | - | - | - |
| Lending facilities | - | - | - | - |
| Warehouse facilities | - | - | - | - |
| Credit enhancements | - | - | - | - |
| Basis swaps | - | - | 109 | 109 |
| Other derivatives | - | - | 18 | 18 |
| Total | - | 55 | 127 | 182 |
| 30 September 2019 | On balance sheet | Off-balance | Total Exposure | |
| $m | Securitisation retained | Securitisation purchased | sheet | at Default |
| Securities | - | 44 | - | 44 |
| Liquidity facilities | - | - | - | - |
| Funding facilities | - | - | - | - |
| Underwriting facilities | - | - | - | - |
| Lending facilities | - | - | - | - |
| Warehouse facilities | - | - | - | - |
| Credit enhancements | - | - | - | - |
| Basis swaps | - | - | 59 | 59 |
| Other derivatives | - | - | 13 | 13 |
| Total | - | 44 | 72 | 116 |
| 31 December 2018 | On balance sheet | Off-balance | Total Exposure | |
| $m | Securitisation retained | Securitisation purchased | sheet | at Default |
| Securities | - | 54 | - | 54 |
| Liquidity facilities | - | - | - | - |
| Funding facilities | - | - | - | - |
| Underwriting facilities | - | - | - | - |
| Lending facilities | - | - | - | - |
| Warehouse facilities | - | - | - | - |
| Credit enhancements | - | - | - | - |
| Basis swaps | - | - | 65 | 65 |
| Other derivatives | - | - | 27 | 27 |
| Total | - | 54 | 92 | 146 |
1 EAD associated with trading book securitisation is not included in EAD by major type on page 14. Trading book securitisation exposure is captured and risk weighted under APS116 Capital Adequacy: Market Risk.
| Westpac Group December 2019 Pillar 3 Report | 19 |
|---|
| Pillar 3 report<br><br><br>Liquidity Coverage Ratio |
|---|
Liquidity Coverage Ratio (LCR)
Westpac’s LCR as at 31 December 2019 was 130%1 (30 September 2019: 127%) and the average LCR for the quarter was 132%2 (30 September 2019: 132%).
Liquid assets included in the LCR comprise High Quality Liquid Assets (HQLA), the Committed Liquidity Facility (CLF) from the Reserve Bank of Australia and additional qualifying Reserve Bank of New Zealand securities. Westpac received approval from APRA for a CLF of $54.0 billion for the calendar year 2019 (2018 calendar year: $57.0 billion). Westpac maintains a portfolio of HQLA and these averaged $87.1 billion over the quarter2.
Funding is sourced from retail, small business, corporate and institutional customer deposits and wholesale funding. Westpac seeks to minimise the outflows associated with this funding by targeting customer deposits with lower LCR outflow rates and actively manages the maturity profile of its wholesale funding portfolio. Westpac maintains a buffer over the regulatory minimum of 100%.
| **** | 31 December 2019 | 30 September 2019 | ||
|---|---|---|---|---|
| **** | Total unweighted | Total weighted | Total unweighted | Total weighted |
| $m | value (average)2 | value (average)2 | value (average)2 | value (average)2 |
| Liquid assets, of which: | **** | |||
| 1 High-quality liquid assets (HQLA) | 87,120 | 85,420 | ||
| 2 Alternative liquid assets (ALA) | 47,950 | 47,985 | ||
| 3 Reserve Bank of New Zealand (RBNZ) securities | 8,098 | 7,272 | ||
| Cash Outflows | ||||
| 4 Retail deposits and deposits from small business customers, of which: | 250,147 | 22,638 | 240,156 | 21,809 |
| 5 Stable deposits | 121,356 | 6,068 | 116,023 | 5,801 |
| 6 Less stable deposits | 128,791 | 16,570 | 124,133 | 16,008 |
| 7 Unsecured wholesale funding, of which: | 131,192 | 65,100 | 131,064 | 64,923 |
| 8 Operational deposits (all counterparties) and deposits in networks for cooperative banks | 50,784 | 12,624 | 50,081 | 12,450 |
| 9 Non-operational deposits (all counterparties) | 68,156 | 40,224 | 69,068 | 40,558 |
| 10 Unsecured debt | 12,252 | 12,252 | 11,915 | 11,915 |
| 11 Secured wholesale funding | 1 | 2 | ||
| 12 Additional requirements, of which: | 188,922 | 25,166 | 188,678 | 25,306 |
| 13 Outflows related to derivatives exposures and other collateral requirements | 10,856 | 10,856 | 10,908 | 10,908 |
| 14 Outflows related to loss of funding on debt products | 183 | 183 | 241 | 241 |
| 15 Credit and liquidity facilities | 177,883 | 14,127 | 177,529 | 14,157 |
| 16 Other contractual funding obligations | 1,256 | 1,256 | 763 | 763 |
| 17 Other contingent funding obligations | 42,224 | 3,630 | 44,415 | 3,927 |
| 18 Total cash outflows | 117,791 | 116,730 | ||
| Cash inflows | ||||
| 19 Secured lending (e.g. reverse repos) | 7,730 | - | 8,102 | - |
| 20 Inflows from fully performing exposures | 11,734 | 6,910 | 11,508 | 6,786 |
| 21 Other cash inflows | 2,642 | 2,642 | 3,114 | 3,114 |
| 22 Total cash inflows | 22,106 | 9,552 | 22,724 | 9,900 |
| 23 Total liquid assets | 143,168 | **** | 140,677 | |
| 24 Total net cash outflows | 108,239 | **** | 106,830 | |
| 25 Liquidity Coverage Ratio (%) | 132% | **** | 132% | |
| Number of data points used | 65 | 67 | ||
| 1 Calculated as total liquid assets divided by total net cash outflows.<br><br><br>2 Calculated as a simple average of the daily observations over the quarter. | ||||
| --- | ||||
| 20 | Westpac Group December 2019 Pillar 3 Report | |||
| --- |
| Pillar 3 report<br><br><br>Appendix I - APS330 quantitative requirements |
|---|
The following table cross-references the quantitative disclosure requirements outlined in Attachment C of APS330 to the quantitative disclosures made in this report.
| APS330 reference<br><br><br>**** | Westpac disclosure<br><br><br>**** | Page<br><br><br>**** | |
|---|---|---|---|
| General Requirements | **** | ||
| Paragraph 49 | Summary leverage ratio | 12 | |
| Attachment C | |||
| Table 3: Capital Adequacy | (a) to (e) | Capital requirements | 10 |
| (f) | Westpac’s capital adequacy ratios | 8 | |
| Capital adequacy ratios of major subsidiary banks | 8 | ||
| Table 4: Credit Risk - general disclosures | (a) | Exposure at Default by major type | 14 |
| (b) | Impaired and past due loans | 16 | |
| (c) | General reserve for credit loss | 15 | |
| Table 5: Securitisation exposures | (a) | Banking Book summary of securitisation activity by asset type | 17 |
| (b) | Banking Book summary of on and off-balance sheet securitisation by exposure type | 18 | |
| Trading Book summary of on and off-balance sheet securitisation by exposure type | 19 | ||
| Attachment F | |||
| Table 20: Liquidity Coverage Ratio disclosure template | Liquidity Coverage Ratio disclosure | 20 |
Exchange rates
The following exchange rates were used in this report, and reflect spot rates for the period end.
| $ | 31 December 2019 | 30 September 2019 | 31 December 2018 |
|---|---|---|---|
| USD | 0.7005 | 0.6755 | 0.7062 |
| GBP | 0.5340 | 0.5493 | 0.5564 |
| NZD | 1.0410 | 1.0791 | 1.0518 |
| EUR | 0.6252 | 0.6176 | 0.6180 |
| Westpac Group December 2019 Pillar 3 Report | 21 | ||
| --- |
| Pillar 3 report<br><br><br>Disclosure regarding forward-looking statements |
|---|
This report contains statements that constitute ‘forward-looking statements’ within the meaning of Section 21E of the US 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 Westpac’s intent, belief or current expectations with respect to its business and operations, market conditions, results of operations and financial condition, including, without limitation, future loan loss provisions and financial support to certain borrowers. Words such as ‘will’, ‘may’, ‘expect’, ‘intend’, ‘seek’, ‘would’, ‘should’, ‘could’, ‘continue’, ‘plan’, ‘estimate’, ‘anticipate’, ‘believe’, ‘probability’, ‘risk’, ‘aim’ or other similar words are used to identify forward-looking statements. These forward-looking statements reflect Westpac’s current views with respect to future events and are subject to change, certain risks, uncertainties and assumptions which are, in many instances, beyond Westpac’s control, and have been made based upon management’s expectations and beliefs concerning future developments and their potential effect upon Westpac. There can be no assurance that future developments will be in accordance with Westpac’s expectations or that the effect of future developments on Westpac will be those anticipated. Actual results could differ materially from those expected, depending on the outcome of various factors, including, but not limited to:
l the effect of, and changes in, laws, regulations, taxation or accounting standards or practices and government policy, particularly changes to liquidity, leverage and capital requirements;
l regulatory investigations, and other actions, inquiries, litigation, fines, penalties, restrictions or other regulator imposed conditions, including as a result of our actual or alleged failure to comply with laws (such as financial crime laws), regulations or regulatory policy;
l internal and external events which may adversely impact Westpac’s reputation;
l information security breaches, including cyberattacks;
l reliability and security of Westpac’s technology and risks associated with changes to technology systems;
l the stability of Australian and international financial systems and disruptions to financial markets and any losses or business impacts Westpac or its customers or counterparties may experience as a result;
l market volatility, including uncertain conditions in funding, equity and asset markets;
l adverse asset, credit or capital market conditions;
l an increase in defaults in credit exposures because of a deterioration in economic conditions;
l the conduct, behaviour or practices of Westpac or its staff;
l changes to Westpac’s credit ratings or to the methodology used by credit rating agencies;
l levels of inflation, interest rates (including low or negative rates), exchange rates and market and monetary fluctuations;
l market liquidity and investor confidence;
l changes in economic conditions, consumer spending, saving and borrowing habits in Australia, New Zealand and in other countries (including as a result of tariffs and protectionist trade measures) in which Westpac or its customers or counterparties conduct their operations and Westpac’s ability to maintain or to increase market share, margins and fees, and control expenses;
l the effects of competition, including from established providers of financial services and from non-financial service entities in the geographic and business areas in which Westpac conducts its operations;
l the timely development and acceptance of new products and services and the perceived overall value of these products and services by customers;
l the effectiveness of Westpac’s risk management policies, including internal processes, systems and employees;
l the incidence or severity of Westpac insured events;
l the occurrence of environmental change (including as a result of climate change) or external events in countries in which Westpac or its customers or counterparties conduct their operations;
l changes to the value of Westpac’s intangible assets;
l changes in political, social or economic conditions in any of the major markets in which Westpac or its customers or counterparties operate;
l the success of strategic decisions involving diversification or innovation, in addition to business expansion activity, business acquisitions and the integration of new businesses; and
l various other factors beyond Westpac’s control.
The above list is not exhaustive. For certain other factors that may impact on forward-looking statements made by Westpac refer to ‘Risk factors’ in Westpac’s 2019 Annual Report. When relying on forward-looking statements to make decisions with respect to Westpac, investors and others should carefully consider the foregoing factors and other uncertainties and events.
Westpac is under no obligation 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.
| 22 | Westpac Group December 2019 Pillar 3 Report |
|---|
Exhibit 2
'll estpac GROUP 1Q20 Capital, Funding and Credit Quality Update 19 February 2020
Summary of 1Q20 capital, funding and credit quality Overview 2 additional $500 million capital overlay imposed by APRA in response to the issues alleged by AUSTRAC in its - offset by 1bp decrease in Substandard facilities from customer upgrades regulatory minimums 1 Internationally comparable methodology aligns with the APRA study titled ‘International Capital Comparison Study’ dated 13 July 2015. 2 TCE is total committed exposure. Westpac Group 1Q20 Capital, Funding and Credit Quality Update CET1 capital (on APRA Level 2 basis unless otherwise stated) •Common equity Tier 1 (CET1) capital ratio 10.8% at 31 December 2019 (10.7% at 30 September 2019). Movement due to: -$2.8bn of additional capital raised (63bps) from a $2.0bn institutional placement and a $770m Share Purchase Plan -Payment of the 2019 final dividend, net of dividend reinvestment plan (DRP) (-57bps) -Risk weighted assets (RWA) increase of $13.7bn (-35bps) mostly from increases in interest rate risk in the banking book (IRRBB) ($10.5bn) and operational risk ($6.5bn). The increase in operational risk RWA is mainly from the Statement of Claim (increased RWA by $6.3bn). Increases were partly offset by a $6.5bn decrease in credit RWAs -1Q20 earnings and other capital movements (38bps) •Level 1 common equity Tier 1 (CET1) capital ratio 11.1% at 31 December 2019 (11.0% at 30 September 2019) •Internationally comparable1 CET1 capital ratio 16.1% at 31 December 2019 Credit quality •Credit quality sound •Impaired assets $1.8bn at 31 December 2019 ($1.8bn 30 September 2019) •Stressed assets to TCE2 increased 2bps to 1.22% -3bps increase in Watchlist due to customer downgrades in WIB, Business and NZ •Australian unsecured 90+ day delinquencies increased 5bps to 1.82% mostly from the $0.3bn decline in the portfolio •Total provision balances up 1.7%, total provisions to gross loans up 1bp. Increase in IAP includes a provision raised for one large facility >$50m Australian mortgage portfolio •Australian mortgage 90+ day delinquencies 0.86% (down 2bps over the quarter) •Properties in possession 472 (down 86 over the quarter) as housing conditions continue to improve and some seasonality Funding/liquidity position •1Q20 average liquidity coverage ratio (LCR) 132% (spot LCR 130%), net stable funding ratio (NSFR) 112% – both well above •$12.4bn term funding issued to 31 January 2020 Bushfires and other •Bushfires have had a significant impact on communities but, as yet, this has only had a small impact on credit quality •Cost of insurance claims for severe weather events, including bushfires / hail storms, to 14 February 2020 estimated at $140m (pre-tax)
Update to FY20 considerations FY20 considerations 3 • AUSTRAC’s civil penalty proceedings against Westpac, Westpac’s response plan, • Westpac remains committed to materially lifting its approach to risk management. As a regulatory investigations and reviews into the Group’s businesses has risen. The Group investigation expenses 1 The $80m will be included in cash earnings and treated as notable items. Westpac Group 1Q20 Capital, Funding and Credit Quality Update AUSTRAC and related matters • Additional expenses in FY20, including $80m (pre-tax) announced from the response plan1 • Increased litigation and regulatory • Potential significant civil penalty Additional factors impacting FY20 earnings A number of factors have emerged since Westpac released its FY19 results on 4 November 2019 which are expected to have an impact on FY20 earnings. These include: •The unprecedented bushfires across Australia, and high storm activity early in 2020 subsequent actions from other regulators, and class actions result, we are identifying further issues to address. At the same time, the number of expects to incur additional expenses in FY20 associated with this work and will need to reconsider its current cost growth expectations. We announced in FY19 that FY20 expenses excluding notables were expected to be 1% higher and a further update will be provided at the Group’s 1H20 results. In addition to the above, the bushfires, storms and Coronavirus are expected to have an economic impact which may ultimately affect banking activity and growth. Westpac Economics recently updated their Australian GDP forecast for calendar year 2020 to 1.9% (down from 2.4% forecast at November 2019). The tourism and education sectors are expected to be particularly impacted. Bushfires and storms • Insurance claims for severe weather events currently estimated at approximately $140m (pre-tax) (estimate at 14 February 2020) • Around 1,500 disaster relief packages accessed • Bushfire relief packages and grants (consumer and businesses) in FY20 estimated to cost approximately $26m (pre-tax), with most of the costs in 2H20
Update on AUSTRAC matters AUSTRAC update 4 recommendations on Board risk governance and Board accountability, review underway including committed arrangements with completed by end of 2025 safety and human rights, with $30m funding to be distributed, guided by an impact framework, by end of 1 International Funds Transfer Instructions. 2 The commitments noted here are included in the $80m expenses noted on the previous slide. Westpac Group 1Q20 Capital, Funding and Credit Quality Update Progress on response plan Immediate fixes • Reported outstanding IFTIs1 to AUSTRAC • Closed the relevant Australasian Cash Management Product • Closed the LitePay product • Lookback screen of customer transactions to further identify suspicious activity to report to AUSTRAC Lifting our standards • Board Financial Crime Committee established • Promontory appointed to provide assurance over Westpac’s assessment of management’s accountability and the adequacy of Westpac’s Financial Crime Program, review underway • Independent Advisory Panel for AUSTRAC Accountability Review established, to provide • Updated transaction monitoring rules and implemented enhanced governance over monitoring processes • Implemented priority screening and reporting of transactions indicative of child exploitation to AUSTRAC within 24 hours • Elevated the financial crime function to report directly to the Chief Risk Officer Protecting people2 • Commenced engagement with key external organisations with details of agreement in progress, -SaferKidsPH with first contribution of $1m made in January 2020. The remainder of $5m to be -The International Justice Mission with $18m to be contributed by end of 2022 • Roundtable established, with supporting Advisory Group, to advise on work program to address child 2022 Outstanding items Litigation • Continue to work cooperatively with AUSTRAC to agree Statement of Agreed Facts and Admissions • Second case management hearing scheduled for 2 March 2020 • Not able to reliably estimate penalty and no provision raised Regulatory investigations • Ongoing regulatory investigations from ASIC and APRA with outcomes of these investigations unknown Class actions • In December, Phi Finney McDonald commenced a class action against Westpac in Australia relating to alleged market disclosure issues connected to Westpac’s monitoring of financial crime and matters which are the subject of the AUSTRAC proceeding • In February, the US based Rosen Law Firm commenced a class action lawsuit naming Westpac, former CEO, Brian Hartzer and current CEO, Peter King, as defendants relating to similar alleged market disclosure issues • The damages sought by the claims are unspecified • The Group will be defending both claims • Westpac notes other similar lawsuits may be filed
Helping customers through natural disaster – Bushfires Service leadership 5 In 2019/20 Australia faced unprecedented bushfires. The impacts on individuals and communities was devastating. Westpac supported people, businesses and communities impacted in a number of ways Deployed mobile customer support teams across affected areas and regions • • Set up mobile branches and ATMs Provided customers access to cash at a time when networks across the area were affected and mobile payments were not possible Established a central team to support customers’ needs • Provided around 1,500 disaster relief packages1 to help make it easier for customers to manage their finances, including providing alternative arrangements such as repayment holidays. This comprised around: •190 across cards and personal lending (excluding Auto loans) •620 for home loans •670 for business banking products (including Auto and equipment finance) Received around 500 General Insurance claims • The total claims from this event currently estimated at $37 million2 • 235 claims finalised Supporting communities and customers • • Provided over $3m in emergency cash grants to consumer and business customers Donated over $1m to community groups and charities, including $500k to Financial Counselling Australia; $300k to state-based volunteer fire services, $250k to the Foundation for Rural and Regional Renewal and $100k to the Victoria Bushfire Appeal Collected over $1.7m in donations from customers for the Salvation Army • Supporting our people • Uncapped paid leave for employees who are emergency services volunteers in bushfire affected areas 3 days paid volunteering leave for employees wanting to volunteer in bushfire affected areas Westpac employees volunteering with BlazeAid assisting to rebuild fences destroyed by bushfire in Wingham (335 km north of Sydney) • 1 Bushfire Recovery Support Packages provided to customers to 14 February 2020. Full details of Bushfire Recovery Support Packages are available at www.westpac.com.au 2 Estimated gross cost for Westpac. Westpac Group 1Q20 Capital, Funding and Credit Quality Update
Key capital ratios Capital 6 Capital ratios1 (APRA basis) 4 6.4 6.4 6.7 comparable) 1 Table may not add due to rounding. 2 Internationally comparable methodology aligns with the APRA study titled ‘International Capital Comparison Study’ dated 13 July 2015. Westpac Group 1Q20 Capital, Funding and Credit Quality Update Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 Sep-19 Dec-19 CET1 capital ratio (%) and CET1 capital ($bn) Westpac CET1 capital (lhs, $bn) Westpac CET1 capital ratio (rhs, %) $bn% 5512 50 10 45 8 40 356 30 25 2 20 150 comparable)16.215.916.1 10.610.5 10.4 10.6 10.4 10.6 10.5 10.7 10.8 10.0 10.010.1 9.3 48 46 45 45 44 44 44 44 43 42 40 41 38 %Mar-19Sep-19Dec-19 CET1 capital ratio10.610.710.8 Additional Tier 1 capital2.22.22.1 Tier 1 capital ratio12.812.812.8 Tier 2 capital1.82.82.7 Total regulatory capital ratio14.615.615.5 Risk weighted assets (RWA) ($bn)420429442 Leverage ratio5.75.76.0 Level 1 CET1 capital ratio10.711.011.1 Internationally comparable ratios2 Leverage ratio (internationally CET1 capital ratio (internationally
CET1 capital ratio 10.8% at 31 December 2019 Capital 7 1 “Revisions to APS 111 Capital Adequacy: Measurement of Capital” released on 15 October 2019. For this purpose equity investments includes Additional Tier 1 and Tier 2 capital. Westpac Group 1Q20 Capital, Funding and Credit Quality Update CET1 capital ratio (%) 10.610.7(0.6)0.60.110.811.1 1Q20 earnings, RWA movements and other capital movements Mar-19Sep-19Final dividendCapital raisingsOtherDec-19Dec-19 APRAAPRA(net of DRP)APRALevel 1 APRA Capital update • CET1 ratio of 10.8%, up from 10.7% at 30 September 2019 • Over the quarter, the ratio has been impacted by the $2.0bn institutional share placement, $0.8bn Share Purchase Plan, payment of the 2019 final dividend and higher RWAs • RWA up $13.7bn mostly from an operational risk overlay and higher IRRBB RWA • Level 1 CET1 ratio of 11.1%, up from 11.0% at 30 September 2019 Regulatory developments • Final RBNZ capital review released and confirmed a revised Tier 1 requirement for WNZL of 16% • Revisions commence from 1 July 2020 and Westpac well placed to implement the changes within the seven year transitional period • APRA consulting on changes to the capital treatment of a parent ADI (“Level 1”), expected to reduce the Level 1 CET1 ratio by 40bps primarily from Westpac's equity investment in WNZL1 • Further clarity on revised APRA capital framework expected over 2020 including on advanced credit risk RWA and the “capital stack”
RWA higher from higher operational risk and interest rate risk in the banking book Capital 8 interest rates, which will need to be approved by APRA. Until the interest rates over the quarter ($4.2bn) • Other RWA increased by $3.5bn mostly from the adoption of AASB16 risk risk risk Westpac Group 1Q20 Capital, Funding and Credit Quality Update Movement in credit risk weighted assets ($bn) 362.8367.9(2.2)1.0(3.9)(1.4)361.4 Mar-19Sep-19Volume, quality andFXDerivatives includingModelDec-19 portfolio miximpactsmark-to-market relatedchange credit risk Down $6.5bn or 2% Risk weighted assets ($bn) • Higher IRRBB from: 419.8428.8(6.5)(0.3)10.56.53.5442.5• Westpac’s implementation of a new IRRBB model more suited to low model is finalised and approved, Westpac is including an overlay in its IRRBB RWA. At December 2019 the overlay increased RWA by $6.3bn ($500m capital); and • Higher repricing and yield risk and a lower embedded gain from rising • Operational risk RWA higher mainly from the additional $500m capital overlay imposed by APRA in response to the issues alleged by Mar-19Sep-19CreditMarketIRRBB OperationalOtherDec-19AUSTRAC in its Statement of Claim Leasing from October 2019 Up $13.7bn or 3%
changes1 Expected timetable on various regulatory Regulatory timeline 9 First half 2020 Second half 2020 First half 2021 Second half 2021 2022+2 Implementation 1 Regulatory change timeline based on APRA’s papers “Revisions to the capital framework for authorised deposit-taking institutions” (published 12 June 2019) and “APRA’s Policy Priorities” (published 30 January 2020). 2 Implementation 2022 unless otherwise stated. 3 This refers to the review of IRRBB as part of ARPA’s review of the capital framework. Other changes to Westpac’s IRRBB model are on a different timeframe. Westpac Group 1Q20 Capital, Funding and Credit Quality Update Standardised approach to credit risk Advanced approach to credit risk Operational risk Leverage ratio Measurement of capital Capital floor Interest rate risk in the banking book3 Level 1 equity investments in subsidiaries RBNZ capital framework Related party exposures Loss absorbing capacity Consult, additional quantitative impact study Finalise Implementation Consult, additional quantitative impact study Finalise Implementation Consult and finalise Implementation Consult Finalise Implementation Consult Finalise Implementation Consult Finalise Implementation Finalise Implementation Consult and finalise Implementation Implementation date 1 July 2020 with a 7 year transition period Implementation Further consultation on 2nd phase 2024
YTD1 Raised $12.4bn in new term funding FY20 Funding and Liquidity 10 1Q20 funding and liquidity highlights • Average LCR for 1Q20 132% (average 132% for 4Q19) NSFR 112% at 1Q20 (112% at 4Q19) Well progressed on FY20 term funding plan, with $12.4bn issued at 31 January 2020 Constructive market conditions at the start of calendar 2020 provided good opportunities to issue across a number of products and markets, including senior unsecured bonds, covered bonds, RMBS and Tier 2 capital securities • • • 4 1 FY20 YTD is 1 October 2019 to 31 January 2020. 2 Based on residual maturity and FX spot currency translation. Includes all debt issuance with contractual maturity greater than 13 months excluding US Commercial Paper and Yankee Certificates of Deposit. 3 Contractual maturity date for hybrids and callable subordinated instruments is the first scheduled conversion date or call date for the purposes of this disclosure. 4 Perpetual sub-debt has been included in >FY26 maturity bucket. Maturities exclude securitisation amortisation. 5 Tenor excludes RMBS and ABS. 6 WAM is weighted average maturity. Westpac Group 1Q20 Capital, Funding and Credit Quality Update FY15 FY16 FY17 FY18 FY19 FY20 YTD FY20 FY21 FY22 FY23 FY24 FY25 FY26 >FY26 New term issuance by currency (%) Chart may not add to 100 due to rounding. AUD USD EUR Other FY18FY19FY20 YTD 32 15 46 20 80 32 27 21 21 7 New term issuance by type (%) Chart may not add to 100 due to rounding. 18 Subordinated debt Hybrid Securitisation Covered bonds Senior unsecured 5 13 8 20 24 73 21 51 41 FY18FY19FY20 YTD 13 New term issuance by tenor3,5 (%) Chart may not add to 100 due to rounding. 6.5yrs6.0yrs5.2yrsWAM6 46 1 1 41 0.6 30 >5years 5 years 4 years 3 years 2 years 1 year 48 42 38 22 7 11 7 5 FY18FY19FY20 YTD Term debt issuance and maturity profile2,3,4($bn) Covered bondHybridSenior/SecuritisationSub debt 32 2021 42Issuance 37 Maturities 33 31 34 12 2625 20 13 8
Well provisioned, credit quality remains sound Credit quality 11 Collectively assessed provisions 171 3,481 1.08 1.05 3,332 0.0 5 (2) 1 Includes provisions for credit commitments. Westpac Group 1Q20 Capital, Funding and Credit Quality Update Mar-19 Impaired 90+ dpd not impaired Substandard Watchlist Sep-19 Impaired 90+ dpd not impaired Substandard Watchlist Dec-19 Movement in stressed exposure categories (bps) 712000(1)3122 1100 Total impairment provisions ($m) Overlay Individually assessed provisions 3,9494,0423,9953,9223,987 215 229 171 389 3,602 3,405 3,333 3,333 3,339 2,196 389 3,1193,053 389 388 2,344 2,225 323 301 2,275 2,316 2,330 1364 869 867 669 483 480 422 433 412 422 Sep-13 Sep-14 Sep-15 Sep-16 Sep-17 Sep-18 Oct-18 Mar-19 Sep-19 Dec-19 Mar-19Sep-19Dec-19 Loan provisions1 to gross loans (bps)565455 Impaired asset provisions to impaired assets (%)464548 Collectively assessed provisions to credit RWA (bps)989599 Stressed exposures as a % of TCE 2.0 1.0 Watchlist and substandard 90+ day past due and not impaired Impaired 1.60 0.85 1.241.201.201.22 0.71 0.99 0.65 0.55 0.57 0.56 0.55 0.54 0.31 0.48 0.48 0.26 0.33 0.39 0.34 0.25 0.44 0.27 0.22 0.17 0.20 0.17 0.15 0.14 Sep-13Sep-14Sep-15Sep-16Sep-17Sep-18Sep-19Dec-19
Australian consumer unsecured lending, 3% of Group loans Credit quality 12 Consumer unsecured 90+ day delinquencies up 5bps mostly due to portfolio contraction, and temporary changes to collections operations 15 7.1 6.7 6.5 1 Does not include Margin Lending. Westpac Group 1Q20 Capital, Funding and Credit Quality Update Dec-17 Feb-18 Apr-18 Jun-18 Aug-18 Oct-18 Dec-18 Feb-19 Apr-19 Jun-19 Aug-19 Oct-19 Dec-19 Australian unsecured portfolio ($bn)1 Mar-19Sep-19Dec-19 20.7 19.5 19.2 9.28.78.7 4.44.14.0 Credit cardsPersonal loansAuto loansTotal consumer (consumer)unsecured Unsecured portfolio ($bn) Unsecured performing loans balance ($bn lhs) 25Unsecured 90+ day delinquencies balance ($bn rhs)3 20 2 10 1 5 00 9A0u+stdrayliadneluinnqseuceunrceiedsp(%ort)folio delinquencies (%) 3.00Total unsecured consumer lending 2.0082% 1.00 0.00 Dec-17Jun-18Dec-18Jun-19Dec-19 1. Australian consumer unsecured lending portfolio Mar-19Sep-19Dec-19 Lending$20.7bn$19.5bn$19.2bn 30+ day delinquencies (%)4.083.683.80 90+ day delinquencies (%)1.871.771.82
Australian mortgage portfolio performance Credit quality 13 due loans > 90days ($bn and %)2 0.91 6 1.00 5 0.80 0.60 days (lhs) • • Small decrease in mortgage delinquencies driven by improvements in all States NSW delinquencies lower at 69bps and remains below the portfolio average. WA delinquencies improved to 179 bps (from 196bps September 2019) Properties in possession lower from improved housing conditions and some residential mortgage • seasonality. Properties in possession continue to be mostly in WA and Qld 1 Dec 19 mortgage loss rate is for the 3 months ending annualised. Mar 19 and Sept 19 mortgage loss rates are for the 6 months ending annualised. 2 Source: Pillar 3 Reports, based on APRA Residential Mortgage classification. Exposure is on and off balance sheet exposure at default. Data for Peer 2 and 3 at 31 December 2019, Peer 1 at 30 September 2019. Westpac Group 1Q20 Capital, Funding and Credit Quality Update Australian mortgage portfolio delinquencies (%) 90+ day past due total90+ day past due investor 2.030+ day past due totalLoss rates 1.5 1.0 0.5 0.0 Dec-17Jun-18Dec-18Jun-19Dec-19 Australian mortgages 90+ day delinquencies by State (%) NSW/ACTVIC/TAS 2.5 2.0 1.5 1.0 0.5 0.0 Dec-17Jun-18Dec-18Jun-19Dec-19 QLDWA SA/NTALL Major banks’ total residential mortgage impaired and past $bn% Impaired assets (lhs) 4Past due loans >90 3 20.40Total as a % 10.20exposures (rhs) 00.00 Peer 1Peer 2Peer 3Westpac 0.87 0.720.74 Australian mortgage portfolio Mar-19Sep-19Dec-19 30+ day delinquencies (bps)159161161 90+ day delinquencies (bps) (inc. impaired mortgages)828886 Consumer properties in possession482558472 Mortgage loss rate annualised (bps)1233
Appendix 1: Definitions – Capital and liquidity Appendix and Disclaimer 14 As defined by APRA (unless stated otherwise) Capital ratios Committed liquidity facility (CLF) The RBA makes available to Australian Authorised Deposit-taking Institutions a CLF that, subject to qualifying conditions, can be accessed to meet LCR requirements under APS210 Liquidity Internationally comparable regulatory capital ratios are Westpac’s estimated ratios after adjusting the capital ratios determined under APRA Basel III regulations for various items. Analysis aligns with the APRA study titled “International capital comparison study” dated 13 July 2015 Internationally comparable ratios High quality liquid assets (HQLA) Assets which meet APRA’s criteria for inclusion as HQLA in the numerator of the LCR An APRA requirement to maintain an adequate level of unencumbered high quality liquid assets, to meet liquidity needs for a 30 calendar day period under an APRA-defined severe stress scenario. Absent a situation of financial stress, the value of the LCR must not be less than 100%. LCR is calculated as the percentage ratio of stock of HQLA and CLF over the total net cash out-flows in a modelled 30 day defined stressed scenario As defined by APRA (unless stated otherwise). Tier 1 capital divided by ‘exposure measure’ and expressed as a percentage. ‘Exposure measure’ is the sum of on-balance sheet exposures, derivative exposures, securities financing transaction exposures and other off-balance sheet exposures Liquidity coverage ratio (LCR) Leverage ratio The NSFR is defined as the ratio of the amount of available stable funding (ASF) to the amount of required stable funding (RSF) defined by APRA. The amount of ASF is the portion of an ADI’s capital and liabilities expected to be a reliable source of funds over a one year time horizon. The amount of RSF is a function of the liquidity characteristics and residual maturities of an ADI’s assets and off-balance sheet activities. ADI’s must maintain an NSFR of at least 100% Assets (both on and off-balance sheet) are risk weighted according to each asset’s inherent potential for default and what the likely losses would be in case of default. In the case of non-asset-backed risks (i.e. market and operational risk), RWA is determined by multiplying the capital requirements for those risks by 12.5 Net stable funding ratio (NSFR) Risk weighted assets or RWA Westpac Group 1Q20 Capital, Funding and Credit Quality Update Liquidity Capital
Appendix 1: Definitions – Credit quality Appendix and Disclaimer 15 Includes facilities where: For financial assets that are non-performing a provision for lifetime expected losses is recognised. Interest revenue is calculated on the carrying amount net of the provision for ECL rather than the gross carrying amount Stage 3 Lifetime ECL – non-performing • contractual payments of interest and / or principal are 90 or more calendar days overdue, including overdrafts or other revolving facilities that remain continuously outside approved limits by material amounts for 90 or more calendar days (including accounts for customers who have been granted hardship assistance); or an order has been sought for the customer’s bankruptcy or similar legal action has been instituted which may avoid or delay repayment of its credit obligations; and the estimated net realisable value of assets / security to which Westpac has recourse is sufficient to cover repayment of all principal and interest, or where there are otherwise reasonable grounds to expect payment in full and interest is being taken to profit on an accrual basis. Includes exposures that have deteriorated to the point where full collection of interest and principal is in doubt, based on an assessment of the customer’s outlook, cashflow, and the net realisation value of assets to which recourse is held and includes: 90 days past due and not impaired • • facilities 90 days or more past due, and full recovery is in doubt: exposures where contractual payments are 90 or more days in arrears and the net realisable value of assets to which recourse is held may not be sufficient to allow full collection of interest and principal, including overdrafts or other revolving facilities that remain continuously outside approved limits by material amounts for 90 or more calendar days; non-accrual assets: exposures with individually assessed impairment provisions held against them, excluding restructured loans; restructured assets: exposures where the original contractual terms have been formally modified to provide for concessions of interest or principal for reasons related to the financial difficulties of the customer; other assets acquired through security enforcement (includes other real estate owned): includes the value of any other assets acquired as full or partial settlement of outstanding obligations through the enforcement of security arrangements; and any other assets where the full collection of interest and principal is in • These facilities, while in default, are not treated as impaired for accounting purposes Impaired assets • Loans not found to be individually impaired or significant will be collectively assessed in pools of similar assets with similar risk characteristics. The size of the provision is an estimate of the losses already incurred and will be estimated on the basis of historical loss experience for assets with credit characteristics similar to those in the collective pool. The historical loss experience will be adjusted based on current observable data. Included in the collectively assessed provision is an overlay provision which is calculated based on changes that have occurred in sectors of the economy or in the economy as a whole • Collectively assessed provisions (CAP) • • doubt Provisions raised for losses that have already been incurred on loans that are known to be impaired and are assessed on an individual basis. The estimated losses on these impaired loans is based on expected future cash flows discounted to their present value and, as this discount unwinds, interest will be recognised in the income statement Individually assessed provisions (IAP) Stressed exposures Total of watchlist and substandard, 90 days past due and not impaired, and impaired assets Represents the sum of the committed portion of direct lending (including funds placement overall and deposits placed), contingent and pre-settlement risk plus the committed portion of secondary market trading and underwriting risk For financial assets where there has been no significant increase in credit risk since origination, a provision for 12 months expected credit losses is recognised. Interest revenue is calculated on the gross carrying amount of the financial asset Total committed exposures (TCE) Stage 1: 12 months ECL – performing For financial assets where there has been a significant increase in credit risk since origination but where the asset is still performing a provision for lifetime expected losses is recognised. Interest revenue is calculated on the gross carrying amount of the financial asset Stage 2: Lifetime ECL – performing Watchlist and substandard Loan facilities where customers are experiencing operating weakness and financial difficulty but are not expected to incur loss of interest or principal Westpac Group 1Q20 Capital, Funding and Credit Quality Update
Investor Relations Team Contact us 16 www.westpac.com.au/investorcentre Head of Investor Relations Director Westpac Group 1Q20 Capital, Funding and Credit Quality Update Investor Relations Team Andrew BowdenNicole MehalskiAnnual reports Presentations and webcasts +61 2 8253 4008+61 2 8253 16675 year financial summary andrewbowden@westpac.com.aunicole.mehalski@westpac.com.auPrior financial results Jacqueline BoddyLouise Coughlan Director (Debt Investor Relations)Director +61 2 8253 3133+61 2 8254 0549 jboddy@westpac.com.aulcoughlan@westpac.com.au Danielle StockRebecca Plackett Senior ManagerSenior Manager +61 2 8253 0922+61 2 8253 6556 danielle.stock@westpac.com.aurplackett@westpac.com.au Alec Leithhead Senior Analyst +61 2 8254 0159 alec.leithhead@westpac.com.au Or email: investorrelations@westpac.com.au
Disclaimer 17 The material contained in this presentation is intended to be general background information on Westpac Banking Corporation (Westpac) and its activities. The information is supplied in summary form and is therefore not necessarily complete. It is not intended that it be relied upon as advice to investors or potential investors, who should consider seeking independent professional advice depending upon their specific investment objectives, financial situation or particular needs. The material contained in this presentation may include information derived from publicly available sources that have not been independently verified. No representation or warranty is made as to the accuracy, completeness or reliability of the information. All amounts are in Australian dollars unless otherwise indicated. Unless otherwise noted, financial information in this presentation is presented on a cash earnings basis. Cash earnings is a non-GAAP measure. Refer to Westpac’s 2019 Full Year Financial Results (incorporating the requirements of Appendix 4E) for the twelve months ended 30 September 2019 available at www.westpac.com.au for details of the basis of preparation of cash earnings. This presentation contains statements that constitute “forward-looking statements” within the meaning of Section 21E of the US 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 presentation and include statements regarding our intent, belief or current expectations with respect to our business and operations, market conditions, results of operations and financial condition, including, without limitation, future loan loss provisions, financial support to certain borrowers, indicative drivers, forecasted economic indicators and performance metric outcomes. We use words such as ‘will’, ‘may’, ‘expect’, ‘intend’, ‘seek’, ‘would’, ‘should’, ‘could’, ‘continue’, ‘plan’, ‘estimate’, ‘anticipate’, ‘believe’, ‘probability’, ‘risk’, ‘aim’, 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. Actual results could differ materially from those which we expect, depending on the outcome of various factors. Factors that may impact on the forward-looking statements made include, but are not limited to, those described in the section titled ‘Risk factors' in Westpac’s 2019 Annual Report for the year ended 30 September 2019 available at www.westpac.com.au. 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 to update any forward-looking statements contained in this presentation, whether as a result of new information, future events or otherwise, after the date of this presentation. Westpac Group 1Q20 Capital, Funding and Credit Quality Update
