Full Year 2 014 Financial Result Westpac Full Year 2014 result index Presentation of Full Year 2014 Result 2 1 Investor Discussion Pack of Full Year 2014 Result 33 Overview 34 Features Net interest income Non-interest income Markets and Treasury income Expenses, investment and productivity Impairment charges 48 49 53 54 55 58 Capital, Funding and Liquidity 59 Asset Quality 70 Business Unit Performance Australian Financial Services Westpac RBB St.George BT Financial Group Westpac Institutional Bank Westpac New Zealand Westpac Pacific 84 85 96 100 104 108 115 122 Technology 123 Economics 130 Appendix and Disclaimer Appendix 1: Cash earnings adjustments Appendix 2: Definitions Investor Relations Team Disclaimer 144 145 146 149 150 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack GAIL KELLY CHIEF EXECUTIVE OFFICER *?george Westpac WESTPAC BANKING CORPORATION ABN 33 00? 45?141 bankE? Bank of Melbourne FLAME). Financial Group A year of delivery Strong result with all divisions executing well Service revolution well underway, a step-up in our strategy More satisfied customers and deeper relationships Improved growth and increased return Delivering for all stakeholders 4 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack STRENGTH Strong company PRODUCTIVITY Sector leading RETURN Maintain discipline GROWTH Investment driven Delivered sustainable result for shareholders FY14 Change FY14 - FY13 Reported NPAT $7,561m 12% Cash earnings $7,628m 8% 245.4c 8% $11,574m 5% Impairment charges to average gross loans 12bps (4bps) Return on equity3 16.4% 48bps Common equity tier 1 ratio 9.0% (13bps) Full year ordinary fully franked dividends 182c 5% Cash EPS1 Core earnings2 1 EPS is cash earnings per share. 2 Core earnings is net operating income less operating expenses. 3 Return on equity is cash earnings divided by average ordinary equity. 5 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack Stepped up our customer centric strategy Service revolution 2014-2017+ Sustainable growth • Reinventing the customer experience • Transforming distribution • Simplifying the business • Revolutionising the way we work • Accelerating the pace of change 6 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack Our service revolution for customers is underway Know Me Personalised service Customers in control Bank Wow Innovate and simplify Using data and insights to provide personalised solutions Customers managing their finances when and where they want Reinventing the customer experience Examples Examples Examples Over 90% of NZ customers contacted with personalised messages via NZ Symphony platform 181 new format branches including more 24/7 locations in Australia Customers ‘walk out working’ when opening accounts Enhanced digital/mobile functionality with 2.7m customers on Westpac Live Speeding up approval times including 60 minute mortgage approvals Allowing customers access to funds anywhere anytime with Emergency Cash & Global ATM alliance Extending contactless payments to mobiles 67m proactive service messages sent to >80% of AFS customers Proactively identify customer needs using analytics 7 Empower Me Instantly recognising customers in branches with trial of iBeacon Enabling customers to access specialists via in-branch video conferencing Developing technology infrastructure around a customer service hub Collecting business payments on the go with mobile PayWay Westpac Group Full Year 2014 Presentation & Investor Discussion Pack Increasing merchant functions and flexibility with new terminal fleet BT Super for Life reduced application process times by approximately 75% Complete redesign of merchant process for large customers Customers are seeing the difference Total consumer satisfaction1 (%) WRBB SGB Total business satisfaction1 (mean) Peers WRBB SGB 7.7 7.5 7.4 7.1 83.8 82.6 82.4 82.1 Sep-13 Sep-14 Overall consumer NPS2 (#) WRBB SGB Sep-12 Sep-13 WRBB SGB 8.5 Sep-13 Sep-14 Sep-12 Sep-13 1 Refer slide 148 for customer satisfaction details. 2 Refer slide 147 for net promoter score details. 8 9.18 SGB 9.37 6% 9.89 3.16 3.26 3.61 6.02 6.11 6.28 Sep-12 Sep-13 Sep-14 AFS customer complaints (#) 15% Peers 27% 4.1 0.2 -7.0 -12.4 -14.4 1.1 -0.3 -3.2 -4.2 Sep-12 Sep-14 Overall business NPS2 (#) Peers WRBB Peers 86.6 Sep-12 AFS customer numbers (#m) Westpac Group Full Year 2014 Presentation & Investor Discussion Pack Sep-14 FY12 FY13 FY14 Deepening customer relationships Customer return1 (%) Customers with a wealth product3 (%) 4.00 3.98 3.89 WRBB SGB Peers 21.9 19.5 FY12 FY13 FY14 17.1 MyBank2 customers (%) WRBB SGB 25.6 24.8 21.2 FY12 14.2 26.1 22.7 22.1 FY13 13.3 FY14 Sep-11 Sep-12 Sep-13 Sep-14 1 Customer return to credit RWA calculated as operating income, less Treasury and Markets (non-customer) income less operating expenses, divided by average credit risk weighted assets. 2 Refer slide 148 for MyBank definition. 3 Refer slide 148 for wealth metrics provider. 9 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack Growing at or above system in all key markets in 2H14 Housing lending growth versus system1 (x) 0.9 Credit card market share2 (%) 1.0 Australian business lending ($bn) 22.9 126.3 Sep-14 2H13 133.2 136.9 1H14 2H14 0.7 22.0 2H13 1H14 2H14 Household deposit growth versus system2 (x) 1.3 1.3 Sep-13 Mar-14 Insurance premiums ($m) FUA3 and FUM4 ($bn) FUA 108 104 1.0 86 FUM 93 General GWP 114 101 2H13 1H14 2H14 2H13 1H14 2H14 2H13 Life IFP 227 1H14 6 792 734 685 218 5 235 2H14 1 RBA Financial Aggregates, September 2014. 2 APRA Banking Statistics, September 2014. 3 Funds under administration. 4 Funds under management. 5 General insurance gross written premiums. 6 Life Insurance in-force premiums. 10 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack Achieving a good return on investments WRBB revenue per FTE ($’000) 566 620 748 700 Lloyds cash earnings ($m) Up 10% adjusting for 3 months ownership in 1H14 44 Bank of Melbourne market share1 (%) 3.5 3.8 4.3 4.6 FY13 FY14 20 FY11 FY12 FY13 FY14 WIB trade volumes ($bn) Asia Australia 7.3 5.9 1.2 1.3 1.5 1.5 0.7 1.8 FY11 FY12 4.6 FY13 2H14 WIB Asia • Revenue up 43% (in USD) over year • Welcomed over 100 new corporate/institutional connections • CNY derivatives licence for G7 currencies 3.3 2.2 1H14 6.1 FY11 FY12 Digital • 4m active digital customers with digital sessions on mobile up 11 percentage points to 57%. • Digital sales now 10.5% of banking sales • Preliminary approval for Sub-branch in Shanghai Free Trade Zone • Approximately 50% of AFS new credit card sales were completed via digital • FTE up 33% over year • Westpac Live global leading Australian mobile banking app capability2 FY14 1 Bank of Melbourne market share of Victorian market, by household footings (calculated as household deposits plus housing loans). Sources RBA, APRA, ABS and internal analysis. 2 Forrester’s 2014 Australian Mobile Banking Functionality Benchmark: It’s All Happening Down Under. 11 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack Maintained disciplines of strength, return, and productivity Strength Return Productivity Common equity tier 1 capital ratios (%) Return on equity4 (%) Revenue per FTE ($’000) # CET1 ratio excluding wealth leverage1 15.4 15.9 547 525 0.7 0.2 0.5 9.0 8.6 8.6 8.2 WBC Peer 1 Peer 2 Peer 3 495 2 FY12 Stressed assets to TCE3 (%) FY13 FY14 FY12 FY13 FY14 Expense to income5 (%) Net interest margin excl. Treasury and Markets (%) 2.2 53.8 1.6 2.05 2.06 1.2 Sep-12 16.4 Sep-13 Sep-14 2.01 41.6 FY12 FY13 FY14 WBC 44.7 Peer 1 42.9 Peer 2 Peer 3 1 Reflects APRA clarification that holding companies are now part of the Level 2 Group for regulatory purposes. Transitional arrangements are in place. 2 Due to rounding, components for Peer 3 do not add. Reported CET1 total for Peer 3 is 8.6%. 3 TCE is Total Committed Exposures. 4 Return on equity is cash earnings divided by average ordinary equity. 5 Peer expense to income ratios as at their FY14 results. 12 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack Strong operating performance across all divisions1 (cash earnings $m) Australian Financial Services 4,520 12% Westpac RBB 5,057 2,158 4,032 2,355 St.George 10% 2,582 14% 1,580 1,392 1,189 FY12 FY13 FY14 BT Financial Group FY12 FY13 FY14 Westpac Institutional Bank FY12 FY13 FY14 Westpac New Zealand3 (NZ$) Infrequent/volatile items 2 685 FY12 773 16% 895 96 142 (7%) 714 4% FY13 FY14 1,322 1,433 1,484 FY12 FY13 FY14 (16) FY12 768 13% FY13 864 FY14 1 Group Businesses and Westpac Pacific not included in charts. 2 Infrequent/volatile items are CVA and revenues associated with the Hastings’ exit of its listed infrastructure business. 3 Cash earnings in NZ$. In A$ FY14 $790m (up $158m or 25% on FY13). 13 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack Delivered for all stakeholders Shareholders Customers Cash earnings and cash EPS up 8% $87bn in new lending in AFS ROE up 48bps to 16.4% Dividends per share 182 cents (dividend yield 5.7%1) WRBB No. 1 customer satisfaction4 of major banks and SGB leads majors on customer satisfaction4 AFS complaints down 27% World’s most sustainable company (2014)3 Employees Women in leadership 44%, up from 42% Global banking leader, Dow Jones Sustainability Indices Review (2014) Community $100m Westpac Bicentennial Foundation established High performer retention at 96% 2% in pre tax profit in community contributions5 Lost Time Injury Frequency Rate2 down 40bps to 1.1 $5.7bn in dividends, with 80% of shareholders based in Australia 1 FY14 ordinary dividend using 30 September 2014 Westpac closing share price of $32.14. 2 LTIFR reflects the 12 month rolling number of lost time injuries divided by the total hours worked in a year (Paid FTE x 40 hrs x 46 weeks) times 1m. 3 Ranked the highest company at the 2014 World Economic Forum, Global 100 Most Sustainable Corporations, ranked by Corporate Knights. 4 For customer satisfaction metrics refer slide 148. 5 $217m invested via community contributions in FY14 including $100m Westpac Bicentennial Foundation. 14 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack FULL YEAR 2014 RESULT PETER KING CHIEF FINANCIAL OFFICER COMPARISON OF 2H14 VERSUS 1H14 CASH EARNINGS BASIS (UNLESS OTHERWISE STATED) NOVEMBER 2014 A consistent, high quality performance • Effective management of capital sees cash EPS and cash earnings growth aligned • Quality result reflecting – Strong divisional contributions and risk disciplines – Lower Market risk related revenue, particularly impacting 2H14 result Cash earnings 2H14 – 1H14 ($m) Cash earnings and cash EPS growth (%) Cash earnings FY14 – FY13 ($m) 2H14 1,183 (196) (487) 197 (132) 7,628 FY14 7,063 Expenses Tax & NCI 3,856 Tax & NCI Impairment charges 66 Impairment charges Market risk related revenue 32 Expenses 8% Divisional revenue 1H14 Cash EPS growth 8% (116) 3,772 Market risk related revenue Cash earnings growth (222) Divisional revenue 10% 324 6% 4% FY13 2% 0% FY11 16 FY12 FY13 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack FY14 Reported profit growth higher than cash earnings growth Cash earnings / reported profit drivers • • Cash earnings vs reported profit ($bn) We believe cash earnings continues to more accurately reflect value to shareholders Reported profit Cash earnings In FY14 7.1 7.0 ‒ Cash earnings up 8% 6.6 ‒ Reported profit up 12% 6.3 7.6 7.6 6.8 6.3 5.9 5.9 FY14 notable cash earnings adjustments1 ($m) Acquisition costs Bell litigation provision 51 (54) (3) Westpac Bicentennial Foundation Prior period tax provisions 70 (70) 1 Refer to page 145 for full reconciliation between cash earnings and reported profit. 17 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack FY10 FY11 FY12 FY13 FY14 Infrequent and volatile items had little impact on cash earnings growth Infrequent and volatile items • 2H14 $12m higher than 1H14 • FY14 $33m lower than FY13 Cash earnings impact 2H14 – 2H13 ($m) 2H13 1H14 2H14 Asset sales 21 30 29 Performance fees 43 29 17 Group CVA1 47 2 (19) - - 56 111 61 73 Specific tax matters resolved Total impact FX translation impacts • Little impact on both YoY and HoH EPS growth • Impacted some line items FY14/FY13 - Added 1.3% to expense growth - Small impact on operating revenue growth due to hedging Cash earnings impact FY14 – FY13 ($m) FY13 FY14 Asset sales 45 59 Performance fees 70 46 Group CVA1 62 (17) - 56 177 144 Specific tax matters resolved Total impact 1 CVA is credit value adjustment. 18 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack Areas of interest within result 19 Challenging conditions led to lower Market risk income Customer margins well managed Expense and investment trends Asset quality remains a highlight Liquidity Coverage Ratio (LCR) on track for introduction Preferred capital range revised Westpac Group Full Year 2014 Presentation & Investor Discussion Pack Customer business higher, Markets risk income lower • 2H14 Markets risk related income down $222m Market risk related income ($m) 506 • More challenging conditions from reduced volatility including 110 1H13 Treasury 442 376 – Benign interest rate outlook (50%) 201 20 220 303 84 67 140 2H13 1H14 CVA (1) 170 72 2H14 Total Group markets customer related revenue ($m) • 8% lift in customer related markets income 360 1H13 20 Market risk income 352 – FX rates moving in relatively stable bands – Little movement in credit spreads Markets CVA Westpac Group Full Year 2014 Presentation & Investor Discussion Pack 380 389 2H13 1H14 8% 420 2H14 CVA (22) NIM excluding Treasury and Markets steady in 2H14 Net interest margin (NIM) movement (%) NIM excl. Treasury & Markets 2.12 0.06 2.11 0.10 2.06 2.01 2H13 1H14 (5bps) Treasury & Markets impact on NIM NIM down 5bps 0 2bps 5bps Assets Customer deposits Term wholesale funding 1H12 21 Liquid assets Capital & other Treasury & Markets 2.06 0.05 2.01 2H14 NIM by division (%) NIM 2.07 (5bps) NIM excl. Treasury & Markets flat NIM (%) 2.17 (2bps) NIM excl. Treasury and Markets 2.18 2H12 2.33 2.35 2.38 2.19 2.12 2.03 2H13 2.06 1H13 2.06 2H13 2.11 2.01 1H14 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack 2.21 1H14 2.04 1.98 2H14 2.32 2.28 2.27 2.06 2.01 2H14 AFS WIB NZ Expense growth reflecting investment Components of expense growth YoY (%) Ordinary expenses 1 Amortisation Lloyds Capitalised software balance2 ($bn) FX 5.5 6.3 3.8 1.0 4.5 0.6 0.8 1.3 1.3 1 2.9 3.1 2.7 FY13 FY14 6.8 4.1 ## Avg amortisation period (excluding write-offs)2 (years) 2.5 (0.1) FY12 5.9 Peer 1 1.9 2.1 2.1 Peer 2 Peer 3 WBC Components of expense movements ($m) 1 Amortisation excluding impairments. 2 Data for Westpac and Peer 1, 2 and 3 from FY14 results. 22 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack 4,181 2H14 Growth and productivity 30 Up 0.7% Up 2.9% 2H14 pre investment Productivity benefits Operating expenses 1H14 2H13 Down 0.8% 4,151 Lloyds 74 18 2H14 pre Lloyds 3,935 4,034 25 Other technology (117) Regulatory change 4,065 86 Investment supporting growth Investment spend ($bn) and composition (%) 0.94 1.15 18 32 1.07 Investment spend ($bn) SIPs • Program now complete with residual work rolled into other technology Other technology • Data centre consolidation • Various institutional and customer system upgrades • Refresh of a range of core technologies Growth and productivity • • • • • Westpac Live Bank of Melbourne roll-out Asia Panorama integrated wealth platform New digital innovation Regulatory change • • • • • FOFA1 Stronger super reforms FATCA2 Financial claims scheme Changes to customer privacy legislation 24 11 12 45 44 34 22 26 FY12 FY13 32 FY14 1 FOFA is Future of Financial Advice. 2 FATCA is Foreign Account Tax Compliance Act. 23 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack Asset quality a highlight Stressed exposures as a % of TCE New and increased gross impaired assets ($m) Watchlist & substandard 1,748 90 days past due well secured Impaired 3.09 1,519 3.20 1,343 1,218 2.48 1,194 1,060 2.17 1.94 1.60 1.30 997 958 708 1.37 1.24 609 0.88 2007 2008 2009 2010 2011 2012 1H13 2H13 1H14 2H14 24 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack 1H10 2H10 1H11 2H11 1H12 2H12 1H13 2H13 1H14 2H14 Lower impairments, strong provisioning cover Impairment charge movements ($m) 438 409 341 309 (150) 1H13 1H14 (239) 2H14 (47) 2H13 2H14 1H14 2H13 1H13 2H14 1H14 2H13 1H13 2H14 1H14 1H13 (179) (266) (289)(292)(247) 2H13 Total 326 382 331 371 349 335 1H13 Other movements in collective provisions 2H14 Write-offs direct 1H14 Write-backs & recoveries 2H13 New IAPs 557 555 Provisioning cover Individually assessed provisions ($bn) Impaired asset provisions to impaired assets1 (%) Collectively assessed provisions ($bn) Collectively assessed provisions to credit RWA1,2 (bps) Economic overlay ($m) Sep-13 Mar-14 Sep-14 1,364 1,139 867 43 46 45 2,585 2,652 2,614 99 97 93 389 398 389 1 Impact of Lloyds on impaired asset provisions to impaired assets is 1 percentage point and 3bps on collectively assessed provisions to credit RWA in March 2014. 2 RWA is risk weighted assets. 25 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack On track for introduction of LCR1 • LCR rules apply from 1 January 2015 Pro forma liquidity coverage 30 Sept 14 ($bn) • Minimum LCR of 100% required High Quality Liquid Assets2 (HQLA) 59 • Westpac’s pro-forma Group LCR was 103% at 30 September 2014 Committed Liquidity Facility (CLF) 66 • APRA has approved a $66bn CLF for calendar year 2015 (at a cost of 15bps per annum from 1 January) Total LCR liquid assets 125 Customer deposits 75 Wholesale funding 20 Other flows3 26 Total cash outflows in 30 day defined stressed scenario Pro forma LCR 121 103% 1 LCR is Liquidity Coverage Ratio. 2 HQLA includes cash at hand (including ATMs), and other LCR qualifying liquid assets including BS-13 qualifying liquids. 3 Other flows includes credit and liquidity facilities, collateral outflows and inflows from customers. 26 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack Effectively deployed capital Westpac common equity tier 1 ratio (% and bps) Effectively deployed 83bps of capital 9.1 (37) (10) Sep-13 Lloyds 2H13 special dividend 13.1 Cash earnings net of dividends and other movements. No additional share issuance 70 9.0 Other1 Sep-14 (36) Credit RWA (excluding Lloyds) Sep-14 internationally comparable Basel III 2 1 Other includes cash earnings less dividends paid along with other capital deductions and non-credit RWA movements. 2 Common equity tier 1 capital ratio on an international comparable basis. 27 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack Revised preferred range Common equity tier 1 ratio considerations Preferred range 8.75 – 9.25% 4th Quartile 3.5% capital conservation buffer including D-SIB buffer Westpac CET1 ratio 9.0% 8.0% - includes APRA minimum and CCB/D-SIB buffers 3rd Quartile 2nd Quartile 1st Quartile Management buffer considers • Regulatory minimums and CCB buffers • Stress testing • Quarterly volatility in capital ratios 4.5% APRA Minimum 28 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack Considerations for FY15 Achieving good balance of strength, growth and return Expected to carry second half momentum in housing, household deposits, business and wealth across 2015 Margin disciplines to remain. Asset competition expected to continue with lower funding costs helping to offset Productivity benefits expected to continue, largely offsetting business as usual expenses. Investment accounting for the majority of growth Strong balance sheet with leading asset quality, impairment charge to remain low although write-backs/recoveries likely to reduce All divisions showing good momentum 29 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack GAIL KELLY CHIEF EXECUTIVE OFFICER *?george Westpac WESTPAC BANKING CORPORATION ABN 33 00? 45?141 bankE? Bank of Melbourne FLAME). Financial Group FSI considerations A strong and efficient banking system is good for all Australian banks have materially strengthened their balance sheets since the GFC and are strongly capitalised today A risk-based approach to assessing/managing capital, complemented by strong supervision, has served Australia well Growth and stability are interconnected and must be considered together – we need to recognise the inherent trade-offs Adding ever more equity capital to banks has diminishing benefits to safety and TBTF1, but has real costs to customers, shareholders and the economy Recommendations should take a principles-based approach so they stand the test of time 1 TBTF is too big to fail. 31 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack Looking ahead A period of fundamental change – customers, technology, regulation Global economic conditions mixed. Domestically, conditions expected to gradually improve although caution remains Our service revolution, a step-up in our strategy, is well underway Strong financial performance and even stronger balance sheet All divisions excellently positioned 32 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack FULL YEAR 2014 INVESTOR DISCUSSION PACK COMPARISON OF 2H14 VERSUS 1H14 CASH EARNINGS BASIS (UNLESS OTHERWISE STATED) NOVEMBER 2014 FULL YEAR 2014 OVERVIEW COMPARISON OF 2H14 VERSUS 1H14 CASH EARNINGS BASIS (UNLESS OTHERWISE STATED) NOVEMBER 2014 Westpac Group at a glance, Australia’s First Bank • • • • • • • • • Australia’s first bank and first company, opened in 1817 Australia’s 2nd largest bank, and 15th largest bank in the world, ranked by market capitalisation1 Strategy focused on deepening customer relationships. Supporting customers and markets connected to Australia, New Zealand and the near Pacific Portfolio of brands providing consumer, business, institutional banking and wealth management services, with excellent positioning in key markets Efficiency leader of Australian peers and one of the most efficient banks globally2 Rated AA- / Aa2 / AA-, with stable outlook3 Strong capital, funding, liquidity and credit quality Consistent earnings profile over time Leader in sustainability, voted world’s most sustainable company4 Key statistics for FY14 Australian Financial Services (AFS) St.George Westpac Retail Banking Group & Business Banking BT Financial Group WIB Westpac Institutional Bank Westpac NZ Westpac New Zealand Key financial data for FY14 (as at 30 September 2014) Customers 13m Reported net profit $7,561m Australian household deposit market share5 23% Cash earnings $7,628m Australian housing market share6 23% Expense to income ratio9 41.6% Australian business market share6 19% Common equity tier 1 capital ratio (APRA basis) 9.0% New Zealand deposit market share7 21% Return on equity9 16.4% New Zealand consumer lending market share7 20% Total assets $771bn Australian wealth platforms market share8 20% Market capitalisation10 $100bn 1 As at 30 September 2014. Source: IRESS, CapitalIQ and www.xe.com based in US Dollars. 2 Data sourced from Credit Suisse analysis of expense to income ratio of world’s largest banks September 2014. 3 Source: Standard and Poor’s, Moody’s Investors Service, Fitch Ratings. 4 Westpac Group the highest ranked company at the 2014 World Economic Forum, Global 100 most sustainable companies. 5 APRA Banking Statistics, September 2014. 6 RBA Financial Aggregates, September 2014. 7 RBNZ, September 2014. 8 Plan for Life, June 2014, All Master Funds Admin. 9 Cash earnings basis. 10 Share price as at 30 September 2014, $32.14. 35 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack FY14 financial snapshot FY14 Change1 2H14 – 1H14 Change1 FY14 – FY13 FY14 Change1 2H14 – 1H14 Change1 FY14 – FY13 Balance sheet Earnings2 EPS3 (cents) 245.4 2% 8% Total assets ($bn) 771 6% 10% Core earnings ($m) 11,574 Flat 5% Common equity tier 1 capital ratio (APRA basis) (%) 9.0 15bps (13bps) Cash earnings ($m) 7,628 2% 8% Total regulatory capital ratio (APRA basis) (%) 12.3 18bps 3bps Return on equity (%) 16.41 (13bps) 48bps Risk weighted assets ($bn) 331.4 3% 8% Dividends per share (cents) 182 2% 5% Loans ($bn) 580 3% 8% Expense to income ratio (%) 41.6 74bps 40bps Customer deposits ($bn) 409 5% 7% 11.57 44cps 48cps Net interest margin (%) 2.08 (5bps) (7bps) 70.5 164bps (84bps) Stable funding ratio (%) 83 (28bps) (73bps) Total liquid assets5 ($bn) 134 8bn 9bn NTA4 per share ($) Funding and Liquidity Asset quality Impairment charges to average gross loans (bps) 12 (1bp) (4bps) Impaired assets to gross loans (bps) 40 (11bps) (27bps) Impaired provisions to impaired assets (%) 45 (1.6ppt) 1.6ppt Customer deposit to loan ratio (%) 1 For profitability metrics the change represents results for 2H14 versus 1H14 and FY14 versus FY13, the actual results for 2H14, 1H14, and FY13 are not represented here. 2 All measures on a cash earnings basis. 3 EPS is earnings per share. 4 NTA is net tangible assets. 5 Total liquid assets represent cash and assets eligible for existing repurchase agreements with a central bank. 36 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack Cash earnings and reported net profit reconciliation Reported net profit and cash earnings1 adjustments ($m) Cash earnings policy1 • • • Westpac Group uses a measure of performance referred to as cash earnings to assess financial performance at both a Group and divisional level This measure has been used in the Australian banking market for over a decade and management believes it is the most effective way to assess performance for the current period against prior periods and to compare performance across divisions and across peer companies To calculate cash earnings, reported net profit is adjusted for – Material items that key decision makers at the Westpac Group believe do not reflect ongoing operations (both positive and negative) – Items that are not considered when dividends are recommended, such as the amortisation of intangibles, impact of Treasury shares and economic hedging impacts – Accounting reclassifications between individual line items that do not impact reported results FY14 ($m) % change 2H141H14 % change FY14FY13 7,628 2 8 Cash earnings ($bn) 5.9 6.3 6.6 7.1 7.6 Cash earnings 4.7 Cash EPS (cents) FY09 FY10 FY11 FY12 FY13 FY14 Reported net profit 245.4 7,561 2 9 8 FY13 FY14 6,751 7,561 TPS revaluations 9 - Treasury shares 42 7 (20) 46 Fair value on economic hedges 21 (105) Buyback of government guaranteed debt 43 (42) Amortisation of intangible assets 150 147 Fair value amortisation of financial instruments 67 17 Acquisition transaction and integration expenses - 51 Bell litigation provision - (54) Westpac Bicentennial Foundation grant - 70 Prior period tax provisions - (70) 7,063 7,628 Reported net profit Ineffective hedges 12 Cash earnings 1 Cash earnings is not a measure of cash flow or net profit determined on a cash accounting basis, as it includes non-cash items reflected in net profit determined in accordance with AAS (Australian Accounting Standards). The specific adjustments outlined include both cash and non-cash items. Cash earnings is reported net profit adjusted for material items to ensure they appropriately reflect profits available to ordinary shareholders. All adjustments shown are after tax. For further details refer to slide 144 of the Westpac Group Full Year 2014 Presentation and Investor Discussion Pack. 37 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack Managing for a balanced performance FY14 outcomes Strategic priorities Remain strong • • • • Common equity tier 1 capital ratio at 9.0% Stable fund ratio at 83% Stressed exposures to TCE down 36bps, to 1.24% Ranked most sustainable company in world by Corporate Knights 2014 Global 100 Most Sustainable Corporations Targeted growth • • • • • • • BT total retail FUA growth 1.1x system1 Growing at 1.2x system in household deposits2 Mortgage growth improved, approaching system, 0.9x system3 Business growth improved, at 1.3x system3 BoM added 17 more branches, customers up 16%, market share up 30bps to 4.6x%4, household deposits up 30%, mortgages up 18% BT Super for Life retail customers up 18% and FUM up 32% General Insurance gross written premiums and Life Insurance inforce premiums up 11% and 16% respectively Trade finance revenue up 94%, strengthened capabilities Lloyds acquisition delivered $64m cash earnings Customer relationships • • • • • • Customer numbers up 5% Customer return on credit risk weighted assets5 up 2bps to 4.00 Highest customers with wealth products6, up 135bps to 20.0% Increased MyBank7 customers across all brands WRBB No. 1 of majors for both consumer and business satisfaction8 SGB ahead of majors for both consumer and business satisfaction8 Materially simplify • • • • • • Expense to income ratio 41.6%, well below major bank peers9 $219m in productivity savings Revenue per FTE up 4% New digital/mobile platform with 2.7m WRBB consumer customers 205 Bank Now/FreshStart branches (up 181) AFS customer complaints reduced 27% One team • AFS/WIB partnership generated $609m revenue, up 5% • Women in leadership roles increased to 44% from 42% • Launched third Reconciliation Action Plan Remain strong Targeted growth Customer relationships Materially simplify • • One team approach Managing the business in a balanced way across the dimensions of growth, return, productivity and strength • Maintain strong capital levels • Target stable funding ratio > 75% • Liquidity coverage ratio > 100% • Maintain expense to income ratio below peers • STRENGTH Strong company PRODUCTIVITY Sector leading RETURN Maintain discipline GROWTH Investment driven • Maintaining strong ROE Maintain dividend path • Higher growth in target segments: wealth; deposits; Asia; SME; and trade 1 Plan for Life, QDS (June 2014). 2 APRA Banking Statistics, September 2014. 3 RBA Financial Aggregates, September 2014. 4 Market share of Victorian market, by household footings (calculated as household deposits plus housing loans) Sources RBA, APRA, ABS and internal analysis. 5 Customer return to credit RWA calculated as operating income, less Treasury and Markets (non-customer) income less operating expenses, divided by average credit risk weighted assets. 6 Refer to slide 148 for wealth metrics provider details. 7 Refer slide 148 for MyBank customer definition. 8 Refer to slide 148 for customer satisfaction metric providers. 9 Refer slide 12 for Australian major bank peer comparisons. 38 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack Westpac Group service revolution building a leadership position At or above system growth in all categories1,2 in 2H14 WRBB No. 1 of majors for consumer and business satisfaction3 1.0x home lending system1 in 2H14 SGB leads majors for consumer and business satisfaction3 WRBB highest wealth products per customer6 No. 1 Australian Bank for FX, Globally5 Westpac Live global leading Australian mobile banking app capability8 World’s most sustainable company10 Smart No. 1 mobile customer satisfaction for SGB9 ATMs Westpac Group 39 1.3x household deposits2 in 2H14 WRBB leading majors for business customer advocacy4 1.4x business credit1 in 2H14 No. 1 Lead Transactional Bank in Australia5 Lead FUA position with all Platforms market share7 ranked number 1 SGB first to deliver fingerprint access logon via mobile 44% women in leadership Severity 1 outage incidents at all time low Leading employer in workforce diversity11 Established world class innovation centre Established $100m Westpac Bicentennial Foundation 1 RBA Financial Aggregates six months to September 2014. 2 APRA Banking Statistics, six months to September 2014. 3 Refer slide 148 for consumer and business satisfaction metric providers. 4 Refer slide 147 for business NPS metric providers. 5 Refer slide 111 for metrics provider. 6 Refer slide 148 for customers with wealth products metric provider. 7 Plan for Life, June 2014, All Master Funds Admin. 8 Forrester’s 2014 Australian Mobile Banking Functionality Benchmark: It’s All Happening Down Under! 9 RFi, Australian Mobility Banking Program, June 2014 survey results. 10 2014 Global Most Sustainable Corporations in the world by Corporate Knights. 11 Refer slide 148 for recognitions received in 2014. Westpac Group Full Year 2014 Presentation & Investor Discussion Pack FY14 cash earnings up 8% Cash earnings 2H14 – 1H14 ($m) 6 Core earnings 11,574 Flat 5 650 (9) (23) Cash earnings 7,628 2 8 Reported net profit 7,561 9 12 Impairment charges 7,063 Up 2% Up 8% Cash earnings features of 2H14 – 1H14 Cash earnings features of FY14 – FY13 • • • • • • • Cash earnings up 2%. AFS (up 5%), with: WRBB up 6%; SGB up 5%; and BTFG up 4%. Sound performance by Westpac NZ up 1% (flat in NZ$) after a very strong 1H14, while WIB earnings were down 5% due to lower impairment benefit in 2H14 Higher cash earnings absorbed a $222m (50%) fall in revenue from Markets related risk income within WIB and Group Businesses (Treasury) Net interest income rose 2%, with a 4% rise in average interest-earning assets partially offset by a 5bp decline in net interest margin due to Treasury and Markets. Margin excluding Treasury and Markets was steady Non-interest income down 1%, post a very strong 1H14 which included large BT performance fees Expenses up 3% (up 2% excluding Lloyds). Wage increases along with increased investment related spending including software amortisation, Bank of Melbourne, wealth and Asia, were partly offset by productivity savings of $117m Impairment charges down 9%, with continued WIB write-backs and falls in WRBB • • • • Cash earnings up 8%. AFS a highlight up 12% with: BTFG a very strong performer (up 16%); WRBB (up 10%); and SGB delivering strong growth (up 14%). Westpac NZ delivered a very strong result up 25% (up 13% in NZ$), while WIB earnings were down 7% due to Hastings and CVA gains of FY13 not repeated Net interest income up 5%, driven by a 8% rise in average interest-earning assets. Net interest margin down 7bps to 2.08% Non-interest income up 7%, reflecting strong growth in wealth management and insurance income and improved fees and commissions. This was partially offset by lower trading income due to negative CVA movement Expense growth 6% (up 4% excl. Lloyds and FX translation). Productivity savings of $219m offset ordinary costs, with expense growth due to investment, including Bank of Melbourne, wealth and Asia. Regulatory change costs also higher Impairment charges down 23%, driven by higher WIB write-backs and significant falls in Westpac NZ and a decline in WRBB and SGB 1 For profitability metrics the change represents results for 2H14 versus 1H14 and FY14 versus FY13, the actual results for FY13, 2H14 and 1H14 are not represented here. 40 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack FY14 3 (132) 7,628 Tax & NCI 8,246 197 Impairment charges Expenses (487) Expenses 7 403 Non-interest income (1) 584 Net interest income 6,324 3,856 FY13 Non-interest income Cash earnings FY14 - FY13 ($m) 2H14 5 32 66 Tax & NCI 2 (116) Impairment charges 13,496 (40) Expenses Net interest income 3,772 142 Non-interest income % chg1 % chg1 2H14-1H14 FY14-FY13 Net interest income FY14 ($m) 1H14 Cash earnings Strong growth in cash earnings and core earnings FY14 divisional contribution to cash earnings1 ($m) FY14 divisional contribution to core earnings1 ($m) (107) 158 (23) 7,628 277 11,074 212 144 (154) 11,574 SGB WRBB FY13 FY14 Other 2 NZ AFS WRBB SGB BTFG WIB NZ2 Other2 Group Operating income 14,070 7,361 4,055 2,654 3,161 1,893 696 19,820 Expenses (6,115) (3,233) (1,560) (1,322) (1,207) (776) (148) (8,246) Core earnings 7,955 4,128 2,495 1,332 1,954 1,117 548 11,574 Impairment charges (671) (437) (236) 2 136 (24) (91) (650) (2,227) (1,109) (679) (439) (622) (303) (144) (3,296) 5,057 2,582 1,580 895 1,468 790 313 7,628 67 34 21 12 19 10 4 100 FY14 ($m) Tax & non-controlling interests Cash earnings % of Group cash earnings 1 Refer to division definitions, slide 146. 2 Other includes Group Businesses (including Treasury) and Westpac Pacific. 2 In A$. 41 (194) Up 5% WIB BTFG SGB WRBB FY13 Up 8% 215 FY14 122 Other 2 188 WIB 227 BTFG 7,063 AFS 704 NZ AFS 537 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack Differentiated by our strong portfolio of brands Australian Financial Services Westpac Retail & Business Banking Westpac Group Australian national brand for consumer and business banking, SMEs and commercial customers under the Westpac brand Contribution to FY14 cash earnings (%) Westpac RBB 10 St.George Banking Group Australian local brand for consumer, business and commercial banking customers under the St.George, BankSA, Bank of Melbourne and RAMS brands 4 St.George Banking Group 34 BT Financial Group 19 Westpac Institutional Bank 12 BT Financial Group Australian Wealth and Insurance division with $89bn funds under management and $113bn funds under administration at 30 September 2014 Westpac NZ 21 Other 1 NZ Institutional Key statistics for FY14 Westpac Institutional Bank Leading Australasian institutional bank, with branches and representative offices in Australia, NZ, US, UK and Asia Westpac New Zealand Banking and wealth services to consumers, businesses and institutions in New Zealand 1 Other includes Group Businesses (including Treasury) and Westpac Pacific. 42 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack Cash earnings FY14 ($m) Cash earnings FY14-FY13 % change Core earnings FY14-FY13 % change Westpac RBB 2,582 10 7 St.George 1,580 14 9 895 16 19 1,468 (7) (9) Westpac NZ (in A$) 790 25 15 Other1 313 (7) (22) Division BT Financial Group Westpac Institutional Bank Lloyds delivering ahead of plan • On 31 December 2013, Westpac acquired selected assets of Lloyds Banking Group’s Australian business • $7.6bn of net loans at 30 September 2014 • Cash earnings contribution of $44m (taking 9 months of ownership to $64m) and ahead of initial expectations – $1.0bn WIB (corporate loans and equipment finance) • EPS accretive in FY14 At acquisition, Lloyds lifted the Group’s Australian market share • On track to deliver $100m cash earnings in FY15 – 0.6 percentage points in business lending1 • Business has maintained momentum through the integration process – $6.6bn SGB (auto and equipment finance) • Achievements in 2H14 Financial – 2.3 percentage points in personal lending1 ‒ • ‒ Growth • Cash earnings contribution ($m) Cash earnings up 10% when 1H14 adjusted for only 3 months ownership 20 1H14 Integration 2H14 1 RBA Financial aggregates, December 2013. 2 Excludes transaction costs. 43 • 44 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack Customer numbers up 4% SGB Auto and equipment finance continued to rise, up 3% to $6.6bn WIB ‒ Corporate balances down 20% to $1.0bn with runoff broadly as anticipated ‒ New lease capability acquired from Lloyds saw operating lease balances up 21% to $80m Program progressing ahead of plan ‒ Implemented integrated operations model in SGB ‒ Commenced migration of auto dealers to consolidated systems ‒ Started to rationalise property footprint ‒ Completed integration of Treasury systems • Integration costs $44m in FY14 and on track for original $130m budget2 (cash earnings adjustment) • Expense synergies of $21m realised in FY14 (on track to achieve $70m pre-tax total per annum synergies) Consistent dividend growth path • FY14 ordinary dividends of 182 cents, up 5% on FY13 Dividends per share (cents) – Interim dividend of 90 cents and final dividend of 92 cents • Payout ratio at 74% for FY14 (74% for 2H14) Special dividends 20 – Issuing shares to satisfy the DRP (no discount) • FY14 dividend yield1 5.7% – Equivalent to a fully franked dividend yield1 of 8.1% • Franking balance of $565m after final dividend payment 116 FY06 Key dividend considerations • • • Seek to consistently lift ordinary dividend cents per share each half while maintaining a strong capital position to support growth Pay fully franked dividends, utilising franking surplus to distribute value to shareholders Maintain payout ratio that is sustainable in the long term 131 142 FY07 FY08 Westpac dividend yield2 (%) WBC yield WBC fully franked yield 100.0 9.5 7.7 6.0 FY09 6.7 FY10 156 166 174 182 FY11 FY12 FY13 FY14 Ordinary dividend payout ratio3 (%) 11.0 8.5 116 139 8.5 5.9 8.1 5.7 Payout ratio (cash earnings basis) Effective payout ratio (after DRP) 80.0 74 68 60.0 40.0 20.0 0.0 FY10 FY11 FY12 FY13 FY14 FY08 FY09 FY10 FY11 FY12 FY13 FY14 1 FY14 ordinary dividend using 30 September 2014 Westpac closing share price of $32.14. 2 Data using past full year dividends and share price as at 30 September in each of the years. Includes special dividends. 3 Effective payout ratio adjusted for shares issued to satisfy DRP. 44 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack Continued sustainability leadership Sustainability strategic priorities Help improve the way people work and live as our society changes 1 Progress FY14 – FY13 Priority 1 2 Help find solutions to environmental challenges 3 Help customers to have a better relationship with money for a better life Leading track record • Assessed as the most sustainable bank globally in the 2014 Dow Jones Sustainability Indices (DJSI) Review • Ranked number one in the 2014 Global 100 Most Sustainable Corporations in the World by Corporate Knights • Named as one of the World’s Most Ethical Companies in 2014 by Ethisphere Institute, for the 7th consecutive year Significant commitments • • • 45 Launched third Reconciliation Action Plan, with almost 50 commitments including aim to employ an additional 500 Aboriginal and Torres Strait Islanders by 2017 Refreshed Climate Change and Environment Position Statement and Action Plan April 2014, launched Westpac Bicentennial Foundation, Australia’s largest ever corporate education scholarship fund $100m designed to support 100 scholars every year, in perpetuity Westpac Group Full Year 2014 Presentation & Investor Discussion Pack 2 3 Objectives FY14 achievements • Ensure our workforce is representative of community • Increased women in leadership to 44%, up from 42% • Increased participation of mature aged workers (50+) to 20.9%, up from 20.5% • Extend length and quality of working lives • Increased mean employee retirement age to 61.6 years, up from 60.6 years • Anticipate the future product and service needs of aging and culturally diverse customers • Introduced three new initiatives, for Prime of Life, migrant and Indigenous customers, bringing the number of initiatives to four to date, ahead of target • Provide products/services to help customers adapt to environmental challenges • Introduced two new products in WIB and AFS, bringing the number of initiatives to four to date, ahead of target • Increase lending and investment in CleanTech and environmental services • $8.0bn made available to the CleanTech and environmental services sector as at 30 September 2014, ahead of target • Continue to reduce our environmental footprint • Maintained carbon neutrality • Achieved office paper use reduction target three years ahead of schedule • Ensure customers have access to the right advice to achieve a secure retirement • Increased the proportion of our customer facing employees with wealth accreditation to 12% • Help customers meet their financial goals in retirement • 8.1% of customers with Westpac Group Superannuation, up from 7.4% • Increase access to financial services in Pacific Island nations • Approximately 78,000 new basic banking accounts • More than doubled the volume of customer transactions to around 380,000 • Help people gain access to social and affordable housing • $820m lent to the social and affordable housing sector as at 30 September 2014, up from $650m Helping communities prosper and grow Supporting communities1 Funding economic activity Wealth of many Australians The bottom line The workforce The nation $87bn new lending2 of $509bn total Aust. loans Provide loans to help millions of Australians own their home or grow their business Supporting working or retired Australians either individually (595K shareholders) or via their super funds One of Australia’s largest taxpayers, with an effective tax rate of 29.6% $5.7bn in dividends in FY14 Income tax expense on a cash earnings basis FY13 $m FY14 $m Notional income tax based on the Australian company tax rate of 30% 3,068 3,277 Net amounts not deductible/(not assessable) 20 (47) Total income tax expense in the income statement 3,088 3,230 Effective Tax Rate 30.2% 29.6% Other tax/government payments FY13 $m FY14 $m 426 426 >$3.2bn in tax expense in FY14 Employ approximately 36,000 fulltime equivalent employees $217m3 Invested via community contributions in FY14 includes $100m in 2H14 to establish the Westpac Bicentennial Foundation $4.6bn in employee expenses 2% community contributions to pre-tax profit Net GST, Payroll tax, FBT Westpac also makes a number of other government and regulatory payments including fees for Government guarantees, APRA fees and stamp duties which are not included in the above. Similarly, Westpac also collects tax on behalf of others, such as withholding tax, PAYG and GST. These have been excluded from this analysis. Rated the world's most sustainable company4 1 All figures for the twelve months to 30 September 2014 unless otherwise stated. 2 New mortgage and new business lending in AFS. 3 Includes NZ and Pacific. 4 2014 Global Most Sustainable Corporations in the world by Corporate Knights. 46 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack Australia’s Financial System Inquiry (FSI), the story so far Westpac’s view FSI interim report key focus areas July 2014 • Bank stability and ‘too big to fail’ FSI objectives December 2013 • Examine entire financial system • Blueprint for how the financial system can best support Australia’s economic growth 47 • Housing finance and regulatory capital for mortgages • Vertically integrated business models • Consumer protection, including disclosure • Efficiency of superannuation • Retirement income policy Westpac Group Full Year 2014 Presentation & Investor Discussion Pack Recommendations should take a principles-based approach, to stand the test of time • Growth and stability are interconnected, and should have equal focus • Risk-based approach to management of financial system, complemented by strong supervision, and cognisant of global standards • Australian banks are already strongly capitalised • Housing is a strength for Australia and for bank balance sheets • The Australian financial system is dynamic, competitive and open. There are opportunities for improvement in - Retirement incomes Bank funding Investor protection SECOND HALF 2014 FEATURES COMPARISON OF 2H14 VERSUS 1H14 CASH EARNINGS BASIS (UNLESS OTHERWISE STATED) NOVEMBER 2014 Net operating income up 1% in 2H14 – Wealth and insurance up 3% to $1,145m (up 15% FY14/FY13) – Trading income, down 14% to $470m (down 5% FY14/FY13) – Other income down 11% to $59m (down 27% FY14/FY13) Total net operating income ($m) and divisional % contribution to 2H14 Divisional contribution to net operating income ($m) AFS 290 AFS 264 9,478 57 80 Non-interest down 1% 127 (52) 70 99 9,859 143 135 12 (1) 31 (218) 9,961 9,478 9,859 9,961 2% Up 4% SGB 38% Up 1% 2H14 2 Other NZ WIB BTFG SGB WRBB 1H14 2 Other NZ WIB BTFG SGB WRBB 21% 1 AIEA is average interest-earning assets. 2 Other includes Group Businesses and Westpac Pacific. Westpac Group Full Year 2014 Presentation & Investor Discussion Pack 2H13 1H14 2H14 BTFG WIB NZ 13% 2H13 WRBB 10% 16% 49 2H14 Fees and commissions up 1% to $1,468m (up 7% FY14/FY13) (77) (7) 9,961 Other – Net interest up 2% Non-interest up 6% 34 Trading Non-interest income down 1% (up 7% FY14/FY13) 5 (108) 10 245 Wealth Net interest up 3% 22 9,859 AIEA growth Net interest margin down 5bps (down 7bps FY14/FY13). Margins excluding Treasury and Markets were flat (3) Margins (ex Treasury & Mkts Margins (Treasury & Mkts) Fees & commissions – 87 1H14 Customer deposit growth of 5% (up 7% FY14/FY13) mostly household deposits 291 (195) 114 65 Other 9,478 – 2H13 • AIEA1 growth of 4% (up 8% FY14/FY13) from strong Australian housing Trading – Net operating income movement half on half ($m) Wealth Net interest income up 2% (up 5% FY14/FY13) AIEA growth Net operating income up 1% (up 5% FY14/FY13) • Margins (ex Treasury & Mkts) Margins (Treasury & Mkts) Fees & commissions • 2 Other Loan growth from Australian housing and institutional 17.2 23.9 133.2 20.6 21.4 Sep-14 Other1 Australian business (gross loans) ($bn) 351.0 133.2 0.9 0.3 2.5 0.0 136.9 126.3 2.0 136.9 New Zealand Up 3% Sep-14 126.3 17.3 2.0 338.0 580.3 Other 2.0 328.5 19.7 (0.4) WIB Margin lending Business Personal (loans + cards) and other Housing (1.6) 536.2 Australian housing flow (gross loans) ($bn) Australian gross loans ($bn) 0.6 Australian other • 4.0 Australian business • 13.1 564.6 Australian housing • Net loans ($bn) Mar-14 • Westpac Group loans up 3% (up 8% FY14/FY13) Australian housing loans up 4% – Growth in new lending (up 11%) partly offset by continued high run-off as low rates enable customers to repay faster Australian business lending up 3% – Growth weighted towards corporate customers – Continued run-off in stressed assets, though slowing in 2H14 Australian personal lending up 3% – Growth in credit cards supported by Westpac Black card New Zealand lending up 2% (in NZ$ terms) with growth across housing, personal and business loans. Lending down 3% in A$ terms from exchange rate movements Other lending fell 2% with reductions in trade finance offset by growth in lending to corporate customers in Asia Sep-13 • • Up 4% 1 Other is trade finance and other offshore lending. 50 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack SGB WRBB Mar-14 Sep-13 Sep-14 Sep-14 Mar-14 Net run-off Sep-13 Broker new lending 351.0 Proprietary new lending 338.0 Mar-14 328.5 Sep-13 Up 3% High quality deposit focus, deposit growth fully funded loan growth in 2H14 • • Customer deposits up $20.4bn or 5% (up 7% FY14/FY13) – Fully funded loan growth in 2H14 – Focus has been on higher quality deposits – Household deposit growth at 1.3x system1 – Business deposits higher, with strong growth in working capital, SME and commercial Growth across term deposits, savings and transactions – Savings balances up 7%, with strong growth in reward saver accounts given attractive pricing and customer preference to have their funds at call – Term deposits and transaction balances up 6%, with the latter mostly mortgage offset accounts up $2.7bn2 – Online deposits up 1% Total business deposits annual growth1 (%) 25% WBC 10% 5% 0% -5% -10% WBC 10% 5% 0% Mar-11 AFS household WIB Total banking system All Banks 15% Sep-11 Customer deposit composition ($bn) 20% 15% Australian household deposits annual growth1 (%) Mar-12 Sep-12 389 409 55 73 56 72 53 77 94 92 97 161 169 182 2H13 1H14 2H14 Sep-13 Mar-14 Term deposits Savings Online Transaction 4 383 389 409 95 98 104 68 55 69 60 69 65 165 162 171 2H13 1H14 2H14 25% 42% 17% 1 APRA Banking Statistics, September 2014. 2 Excludes RAMS. 3 Other is predominately comprised of NZ and Westpac Pacific. 4 Mortgage offset accounts are included in transaction accounts. 51 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack Sep-14 Customer deposit composition ($bn) AFS business Other 3 383 Mar-13 16% Flat net interest margin excluding Treasury and Markets • Net interest margin (NIM) down 5bps to 2.06% (down 7bps FY14/FY13) • NIM firmer in AFS (up 3bps), slightly weaker in NZ down 1bp and WIB down 6bps • NIM excluding Treasury and Markets flat at 2.01% (down 5bps FY14/FY13) – 5bps decrease in asset spreads due to mix impacts and increased competition for new lending, particularly fixed rate mortgages – 5bps increase from customer deposits, reflecting improved term deposit spreads offset by lower hedging benefit on low interest deposits – 2bps improvement in term wholesale funding – No impact from average liquid assets holdings, which were relatively flat over the half – 2bps decline in capital and other due to lower hedging rates Treasury and Markets down 5bps, reflecting lower returns from management of liquids portfolio and interest rate risk management • Net interest margin movement (%) Net interest margin (%) NIM 2.26 2.06 2.09 2.01 1H10 2H10 1H11 2H11 1H12 2H12 1H13 2H13 1H14 2H14 Net interest margin by division (%) 2H13 NIM down 5bps 52 (5bps) 5bps 2bps 0 (2bps) (5bps) 2.33 2.35 2.38 2.21 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack 2H14 2.32 2.04 2.28 1.98 2H14 2.01 Treasury & Markets Capital & Other Liquids NIM excl. Treasury & Markets flat Term wholesale funding 2.01 2.06 1H14 0.05 Customer deposits 2.06 1H14 0.10 2H13 0.06 2.11 Assets 2.12 NIM excl. Treasury and Markets AFS WIB NZ 2.27 Non-interest income impacted by lower trading • Non-interest income down 1% (up 7% FY14/FY13) – Fees and commissions up 1% to $1,468m, with higher business lending fee income due to full period impact of Lloyds. Card income was unchanged with higher interchange income from increased customer spend on premium cards and growth in customer accounts, largely offset by seasonally lower loyalty points redemption – Wealth and insurance up 3% to $1,145m, with higher FUM/FUA due to positive net flows and improved investment markets. Life insurance up with higher premiums and increased sales. Performance fees significantly lower as majority of BT performance fees recognised in 1H14 – Trading income down 14% to $470m, due to negative CVA movement and lower risk income offsetting higher customer related flows – Other income was down $7m (11%) with gains on asset sales lower than 1H14 Non-interest income ($m) Fees and commissions 1,458 1,468 1H14 2H14 1,111 1,145 2H13 1H14 2H14 550 547 1,393 1,330 1H13 2H13 Wealth and insurance 934 1,024 Non-interest income contributors (% of total) Fees and commissions Trading income 4 Wealth and insurance Other 2 18 18 17 32 34 35 2 15 36 2 1H13 Trading income 520 470 53 46 46 46 47 1H13 2H13 1H14 2H14 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack 1H13 2H13 1H14 2H14 Markets and Treasury income: customer business higher, risk related income lower • Markets income down 11% (down 2% FY14/FY13), as more challenging market conditions and a negative CVA movement saw market risk related income materially lower • Customer income $420m, up 8% (up 9% FY14/FY13) ‒ Debt Markets sales income up 19% and FX sales income up 4%, maintaining the strong performance in 1H14 and 2H13 ‒ Debt Markets benefitted from improved deal flow through the year and FX saw increased customer demand around moves in the Australian Dollar ‒ Westpac continues to leverage its leading market positions to meet customer risk management needs, for both WIB and AFS customers through the WIB/AFS partnership. Customers are assisted by specialist product support and market insight together with broader capabilities through licencing and electronic facilitation • Market risk related income, down 64% (down 33% FY14/FY13) Markets income by activity ($m) Customer income 531 528 151 139 50 360 380 389 420 1H13 2H13 1H14 2H14 490 130 • WIB 2H14 average daily VaR $8.5m ($10.0m 1H14, $8.6m 2H13) • Treasury income $133m lower compared to 1H14, mainly due to lower returns on both liquids portfolio and from balance sheet risk management activities • Treasury income 442 130 352 139 220 151 376 201 Treasury 2H14 average daily VaR $17.6m ($15.5m 1H14, $17.9m 2H13) Westpac Group Full Year 2014 Presentation & Investor Discussion Pack Market risk related income 506 1H13 54 470 Group risk related income ($m) ‒ The more stable rates and FX environment and strong levels of liquidity has seen lower levels of volatility, significantly reducing opportunities ‒ Market risk income was also impacted by a negative movement in CVA. CVA was a $22m charge in 2H14 compared to a $1m charge in 1H14 ($23m charge FY14 compared to $87m benefit FY13) Market risk related income 2H13 303 50 170 1H14 2H14 Expenses well managed while continuing to invest • • • • • • Expenses up 2.9% (up 2.2% excluding Lloyds) – Expenses up 6.3% FY14/FY13 (up 3.7% excluding FX and Lloyds) Expense to income ratio up 74bps to 42.0% Well controlled expenses pre-investment (down 0.8%), with $86m increase in operating expenses more than offset by $117m of productivity initiatives delivered. Productivity included – $66m from redesign of roles and operating model changes – $28m simplification benefits Investment related spending up 2.9% – Growth and productivity investment includes Bank of Melbourne; Asia; wealth; and Group simplification program Lloyds contributed 0.7% to expense growth Amortisation1 added 1.2% to expense growth in 2H14 Components of expense growth (%) Up 2.9% 4,065 (117) 4,034 25 74 18 4,151 30 4,181 3,935 1.4 2.1 1.4 1.3 3.3 0.6 0.9 0.6 0.8 1.7 1.5 2H13 1H14 2.9 0.7 1.2 0.1 1.0 (0.2) (0.1) 2H12 1H13 Ongoing opex net of benefits Other projects & SIPs expensed Software amortisation and impairments 2 Regulatory change 2H14 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack 266 142 197 124 112 112 185 218 215 69 71 74 82 1H13 2H13 1H14 2H14 1 Amortisation excluding impairments. 2 Software amortisation and impairments excludes depreciation related to investments. 55 0.1 0.7 96 2H14 2H14 pre Lloyds Other technology Regulatory change Growth and productivity Lloyds Up 0.7% Up 2.9% 2H14 pre investment Productivity benefits Operating expenses 1H14 2H13 Down 0.8% 2.0 1.9 Lloyds Total impact on expenses from projects ($m) Up 3.3% 86 FX 2.9 1H12 Expense movement ($m) Amortisation1 Ordinary expenses 89 278 Disciplined investment spend, focused on growth and productivity Investment spend capitalised ($m) 2H13 1H14 2H14 Investment spend expensed ($m) 2H13 1H14 2H14 Investment spend capitalised ($m) 2H13 1H14 2H14 1,651 1,897 2,023 452 332 332 (206) (209) (256) - 3 (29) 1,897 2,023 2,070 Deferred acquisition costs 126 118 129 Other deferred expenses 24 28 11 Capitalised software Growth and productivity 251 169 166 Growth and productivity 75 80 55 Opening balance Additions Regulatory change and compliance Other technology 101 123 81 103 95 97 Regulatory change and compliance 71 Other technology 37 74 82 32 34 Amortisation Write-offs, impairments and other2 Closing balance Other deferred expenses Total1 475 345 366 Composition of investment spending (%) Other technology Growth & productivity 0.94 1.15 1.07 12 12 11 18 24 0 45 44 28 34 14 22 26 32 FY11 FY12 FY13 FY14 186 171 Average amortisation period (excluding write-offs)3 (years) Capitalised software balance3 ($bn) 6.8 5.5 1.20 46 183 SIPs Regulatory change Total investment spend ($bn) 32 Total 2.5 5.9 2.1 2.1 Peer 3 WBC 1.9 4.1 Peer 1 Peer 2 Peer 3 WBC Peer 1 Peer 2 1 Investment spend capitalised also includes technology hardware equipment. 2 Includes negative FX revaluation of $7m and write-offs of $22m in 2H14. 3 Data for Westpac and Peer 1, 2 and 3 from FY14 results. 56 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack Australia’s most efficient bank, continued focus on productivity through FY14 60.1 59.2 55.3 225 53.8 45.3 44.7 44.0 42.9 41.6 WBC 62.7 CBA 69.0 Singapore bank average 1,326 ANZ 219 Global peer comparison of expense to income ratios2 (%) Hong Kong bank average $1.3bn saved from efficiency programs since FY09 ($m) 238 FY12 FY13 FY14 FY09-FY14 cumulative total FY14 metrics 205 Branch sales FTE/branch FTE 51% % AFS active digital customers 43% % Sales growth per average customer contact centre FTE 12% AFS complaint reduction Number of IT applications closed1 NAB FY14 examples of initiatives delivered Number of Bank Now / FreshStart branches1 Number of ‘for sale’ products removed1 Korean bank average FY11 UK bank average FY10 Canadian bank average FY09 US regional bank average 212 143 European bank average 289 49 27% 77 • WRBB 60 minute mortgage approval for home finance managers (reducing average application approval time from over a week) • SGB ‘time to first yes’ approved in branch within one hour up to 69% (from 59%) • BT Super for Life application process streamlined (reducing application process times by approximately 75%) • Enhancing process for installing merchant services enabling Westpac customers to be up and running in one day, versus previous three days • Redesigned merchant bulk upload process for large customers, reducing the time needed to establish thousands of merchant IDs from an average of 25 minutes to an average of 25 seconds 1 Cumulative numbers. 2 Company data, Credit Suisse. Expense to income ratio average for all banks other than Australian banks are based on their FY13 results. Expense to income ratios for ANZ, CBA, NAB and WBC are based on their FY14 results. 57 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack Improvements in asset quality leading to lower impairment charges Impairment charge inc. interest adjustment 80 57 (15) 284 New IAPs, write-backs and recoveries 15 11 New IAPs, write-backs and recoveries ($m) 613 480 WIB CAPs3 Net change in CAPs ($m) New IAPs $14m lower (4%) as fewer stressed assets deteriorate. Write-backs $55m lower, recoveries $10m higher 983 SGB 2H14 1H14 2H13 1H13 2H12 1H12 2H11 1H11 2010 2009 2008 2007 2006 2005 0 88 221 Net change in Net change in CAPs3 1H14 20 Down 9% WRBB 40 (99) 309 New IAPs, write-backs and recoveries 60 976 20 2H14 341 2 100 18 44 Other Impairment charge Impairment charge movements ($m) NZ Impairment charges to average gross loans1 (bps) 635 New CAPs raised in 2H14 $63m lower, mainly reflecting lower consumer delinquencies in both unsecured and mortgage portfolio (excluding interest adjustment) 698 399 506 511 412 284 458 291 196 266 57 88 1H09 2H09 1H10 2H10 1H11 2H11 1H12 2H12 1H13 2H13 1H14 2H14 (36) (43) 146 147 143 221 19 1H09 2H09 1H10 2H10 1H11 2H11 1H12 2H12 1H13 2H13 1H14 2H14 1 Pre-2008 does not include St.George. 2008 and 2009 are pro forma including St.George for the entire period with 1H09 ASX Profit Announcement providing details of pro forma adjustments. 2 Other includes Westpac Pacific and centrally held provisions in Group Businesses. 3 Does not include interest carrying adjustment. 58 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack FULL YEAR 2014 CAPITAL, FUNDING AND LIQUIDITY COMPARISON OF 2H14 VERSUS 1H14 CASH EARNINGS BASIS (UNLESS OTHERWISE STATED) NOVEMBER 2014 Westpac’s preferred capital range Westpac preferred capital range • • Capital conservation buffer operation APRA have imposed a D-SIB1 requirement of 1% to be met by CET1 capital. Implementation of the D-SIB requirement is through an extension of the capital conservation buffer (CCB) effectively increasing the buffer above regulatory minimums (commences 1 January 2016) Westpac’s preferred CET1 capital range has been revised to 8.75-9.25%. The management buffer above regulatory minimums takes into consideration – Regulatory minimums and the CCB, including the 1% D-SIB requirement – Stress testing to maintain an appropriate buffer in a downturn – Quarterly volatility of capital ratios under Basel III associated with dividend payments 9.0 Westpac’s preferred CET1 capital range 8.0 7.0 Quartile 4 Quartile 3 Quartile 2 APRA Basel III common equity tier 1 capital ratio (%) 9.1 Quartile 1 9.0 8.8 8.7 7.4 7.3 7.2 8.3 8.4 8.3 Capital conservation buffer 2.5 Quartile 3 Quartile 2 D-SIB + Capital conservation buffer 3.5 Quartile 1 Regulatory minimum 4.5 Regulatory minimum 4.5 Previous APRA minimum (from 2016) Revised APRA minimum (from 2016) 8.2 7.7 Quartile 4 8.3 7.5 6.9 1 Domestic systemically important banks in Australia” Information Paper, December 2013, APRA. 60 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack Westpac Sept 14 CET1 Capital strength maintained whilst supporting business growth Key capital ratios (%) Key movements in capital • • Capital deployed over FY14 included – Special dividend to shareholders (10bps) – Acquisition of Lloyds (37bps) – Supporting Credit RWA growth which improved through the year 2H14 movements in capital included: – Cash earnings net of ordinary dividends paid (32bps) – Supporting growth in the business increased RWA (23bps) – Other includes cash earnings adjustments (3bps) and lower capital deductions (3bps) 2H13 1H14 2H14 9.1 8.8 9.0 1.6 1.5 1.6 10.7 10.3 10.6 1.6 1.8 1.7 Total regulatory capital ratio 12.3 12.1 12.3 Common equity tier 1 capital ratio Additional tier 1 capital Tier 1 capital ratio Tier 2 capital • Net increase in Additional Tier 1 capital in 2H14 of 12bps from issue of Westpac Capital Notes 2 and retirement of Westpac SPS II Risk weighted assets (RWA) ($bn) 307 322 331 • Internationally comparable CET1 capital ratio 13.09%. On a total regulatory capital basis the ratio is 17.2% Internationally comparable1 common equity tier 1 ratio 13.3 13.1 13.1 Strongest CET1 ratio of Australian bank peers on a like for like basis after adjusting for wealth leverage2,3,4 Common equity tier 1 capital ratio (CET1) (% and bps) 13.09 116 9.10 8.82 (84) 0.7 (23) 6 0.2 8.97 0.5 9.0 8.6 8.6 8.2 30 Sep 13 31 Mar 14 Cash Basel III Basel III Earnings Interim RWA ordinary movement dividend Other 30 Sep 14 30 Sep 14 Basel III Int'l Comp1 Westpac Peer 1 Peer 2 Peer 3 1 Based on PwC report, refer slide 146 for definition of internationally comparable. 2 Reflects APRA clarification that holding companies are now part of the Level 2 Group for regulatory purposes. Transitional arrangements are in place. 3 Peer 1 and 3 are as at 30 September 2014, Peer 2 is as at 30 June 2014. 4 Due to rounding components, Peer 3 does not add to actual total. Reported CET1 total for Peer 3 is 8.6% 61 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack Internationally comparable CET1 capital ratio at upper end of top quartile of global peers Global peer comparison of Basel III pro forma CET1 capital ratios1 (%) 13.1 1 2 3 4 5 WBC 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 Peer banks in table ranked 1. Nordea5 10. DBS5 19. ICBC3 28. Sumitomo Mitsui3 37. Bank of America5 46. Commerzbank AG5 2. CBA5 11. Deutsche5 20. Standard Chartered5 29. RBS5 38. JP Morgan Chase5 47. Toronto Dominion4 3. UBS5 12. NAB6 21. Citigroup5 30. Wells Fargo5 39. Goldman Sachs2 48. China Merchants3 4. Rabobank2 13. HSBC5 22. Societe Generale5 31. Barclays5 40. Bnk of Nova Scotia4 49. Banco do Brasil5 5. Dankse5 14. OCBC5 23. ING Group5 32. Bank of Comm3 41. RB of Canada4 50. Nat Bnk of Canada5 6. Westpac6 15. Natixis5 24. Morgan Stanley2 33. BBVA5 42. Bank of Montreal4 51. Mizuho FG3 7. Intesa Sanpaolo5 16. Group BPCE5 25. Mitsubishi UFG3 34. BNY Mellon5 43. Bank of China3 52. China Minsheng3 8 State Street5 17. Lloyds5 26. UniCredit5 35. Im’l Bank of Comm4 44. Credit Suisse5 9. ANZ6 18. CCB3 27. BNP Paribas5 36. Credit Agricole S.A5 45. Agri Bank of China3 1 Based on PwC report, refer slide 146 for definition of internationally comparable. 2 As at 31 December 2013. 3 As at 31 March 2014. 4 As at 30 April 2014. 5 As at 30 June 2014. 4. 6 As at 30 September 2014. 62 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack 52 Internationally comparable capital ratio • • APRA has maintained its conservative stance in setting capital standards, resulting in a significant variance between capital measured under APRA and the Basel III Framework In August 2014 the Australian Bankers Association released a report prepared by PwC titled “International comparability of capital ratios of Australia’s major banks”. This report sets out the basis for an internationally comparable CET1 ratio for the major Australian banks, using the findings from the Basel Committee for Banking Supervision’s March 2014 report on its assessment of Basel III regulations in Australia, and other items identified by PwC as areas where APRA’s implementation is different to other jurisdictions Westpac’s CET1 ratio as at 30 September 2014 (APRA basis) Capital deductions Mortgage loss given default (LGD) 20% floor Specialised lending APRA requires 100% deductions from capital for DTA, intangibles relating to capitalised expenses and all investments (e.g. financial institutions, funds management and insurance subsidiaries). The Basel Framework allows a concessional threshold before these deductions apply. Assets below the threshold can be risk weighted The Basel Framework imposes a 10% floor in downturn loss given default (LGD) models used for residential mortgages, whereas APRA imposes a 20% floor. A 15% flat LGD is has been assumed as a reasonable proxy APRA rules for “specialised lending” (corporate lending to project finance, certain real estate exposures, commodity finance, etc) are more conservative than those contained in the Basel Framework and / or which are applied by most other prominent jurisdictions 112bps 47bps 64bps Interest rate risk in the banking book (IRRBB) APRA’s rules require the inclusion of IRRBB within Pillar 1 risk weighted assets for banks using Advanced Internal Ratings Based (AIRB) approaches. IRRBB is not required to be assessed under Pillar 1 in the Basel Framework. It is highlighted as a risk that may be taken into account in assessing Pillar 2 capital ratios 20bps Undrawn corporate lending EAD1 APRA’s rules typically require AIRB banks to risk weight 100% of undrawn commitments in the AIRB bank’s corporate loan book. It is considered reasonable to apply the Foundation Internal Ratings Based (FIRB) conversion factor of 75% to the undrawn commitments in the AIRB banks corporate loan books 34bps Unsecured corporate lending LGD2 It is considered reasonable to apply the FIRB assumption of 45% LGD to unsecured corporate lending, which is typically lower than the APRA-approved LGD. This brings Australian banks more in line with banks in other jurisdictions 68bps Expected loss adjustment The amount of expected loss in excess of eligible provisions needs to be adjusted as a result of the RWA adjustments above 20bps Other Other minor items and interaction effects between capital and RWA adjustments 47bps Internationally comparable CET1 ratio 1 EAD is exposure at default. 2 LGD is loss given default. 63 8.97% Westpac Group Full Year 2014 Presentation & Investor Discussion Pack 13.09% RWA increase from good business growth RWA movements ($bn) Operational risk RWA up $0.9bn (3%) due to updated modelling to reflect operational risk losses experienced by other financial institutions globally • Lower interest rate risk in the banking book (IRRBB) from a reduction in exposure to interest rates 1.6 281.5 272.0 1.7 0.9 0.4 5.1 (0.7) 2.3 (0.2) 281.5 2H14 (1.0) Up 2.8% Other (0.7) 307.4 Standardised 9.6 331.4 Securitisation 272.0 1.3 (1.1) Credit RWA movements ($bn) 1 Attribution of credit RWA movements ($bn)1 260.3 0.9 2H14 • (1.6) Other Market risk RWA down 15% primarily due to lower market volatility 9.4 IRRBB • 322.5 Operational risk Credit RWA increased 3.5% or $9.4bn, from growth in lending (primarily mortgage, corporate and property portfolios), the impact of the lower A$ on offshore assets and foreign currency commitments and higher markto-market related credit risk. This was partly offset by the continued runoff of stressed assets Market risk • Credit risk Total RWA increased 2.8% 1H14 • 2H13 RWA movements 260.3 1 Credit RWA movements impacted by rounding. 64 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack Specialised lending Other retail Residential mortgages Corporate 1H14 2H13 2H14 Mark-to-market related credit risk Up 3.5% Credit quality Foreign exchange Net growth 1H14 2H13 Up 3.5% RWA conservatively determined Basis for determining RWA • Internal models are based on through-the cycle estimates for default rates and downturn estimates for LGD • Conservatism is built into risk models as observed rates significantly better than those predicted by risk models • The observed rates reflect the actual outcomes observed since the time of Advanced IRB accreditation for each portfolio. Westpac received Advanced accreditation in 20081 • Significant allowance for expected loss for the portfolio Conservative model risk estimates1 Regulatory expected loss $m Corporate Business lending Sovereign Bank Residual mortgages Australian credit cards Other retail Small business Specialised lending Actual losses $m (12 months) 827 768 3 22 811 304 456 213 1,232 Default rate Loss given default Regulatory Observed Regulatory Observed 121 288 190 72 2.27% 2.25% 0.24% 0.51% 0.67% 1.51% 4.42% 2.53% 1.19% 1.59% 0.59% 1.43% 2.86% 1.67% 51% 34% 20% 76% 70% 33% 39% 21% 6% 57% 53% 21% 174 NA 2.51% NA 27% 171 234 - 1 Compares regulatory credit risk estimates used in the calculation of RWA to the average of actual outcomes since the time of Advanced IRB accreditation for each portfolio. . 65 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack Actively managing capital across Group and business units to optimise returns Actively managing returns • Returns improved while increasing capital • Rise in ROE in FY14 achieved with effective management of capital and little change to ROA1 • Higher ROTE for Group given earnings growh and no capital issued in FY14 • Continue to refine capital allocation model with more capital dispersed to divisions in FY14 • Return on average interest-earning assets (AIEA) (%) ROE and CET1 (%) CET1 16.1 ROE 15.9 7.1 FY10 7.4 8.2 FY11 FY12 FY13 FY14 Net interest margin 2.17 2.15 2.08 Non-interest income 0.96 0.99 0.98 Operating income 3.13 3.14 3.06 (1.29) (1.29) (1.27) 1.14 1.18 1.18 13.56 13.53 13.93 15.4 15.9 16.4 Operating expenses 15.4 Capital held centrally includes: surplus capital, capital for Treasury, and capital for future dividend payments FY12 16.4 16.0 9.1 FY13 9.0 Cash earnings (ROA1) Leverage (AIEA/AOE2) FY14 ROE Allocated capital and ROTE Division FY13 FY14 Capital ($m) ROTE (%) Capital ($m) ROTE (%) Comments on movements in allocated capital Group3 33,850 20.9 35,897 21.2 Westpac RBB 8,558 27.5 9,673 26.7 Regulatory capital loading & increase in housing St.George 6,161 22.6 7,318 21.6 Regulatory capital loading & Lloyds acquisition BTFG 2,832 27.3 2,842 31.5 Excess capital returned to Group WIB 7,702 20.4 7,979 18.4 Higher capital allocated with uplift in lending Westpac New Zealand (A$) 3,291 19.2 3,750 21.1 Business growth and exchange rate impacts Other4 5,306 6.3 4,335 7.2 Capital for dividends & Treasury, more allocated to divisions 1 ROA is return on average interest-earning assets. 2 AOE is average ordinary equity. 3 Capital for the Group is average ordinary tangible equity. 4 Other includes Group Businesses including Treasury and Westpac Pacific. 66 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack Stable Funding Ratio 83% • Stable Funding Ratio 83%, down 28bps (down 73bps FY14/FY13) ‒ Asset growth over the year, including the acquisition of the Lloyds business in December 2013 was funded primarily through customer deposits and new term wholesale funding. An increase in short term funding was used to fund growth in short term assets • Customer deposits increased by $27bn over FY14, with a focus on deposit quality Funding composition by residual maturity (%) Stable Funding Ratio 64% 16 ‒ Household deposits growth 1.2x system1 over FY14 • Term wholesale funding increased $8bn over FY14 ‒ Term funding raised in FY14 ($33bn) had a weighted average tenor of 4.7 years2, providing a stable source of funds for the bank • Short term funding increased $13bn over FY14, supporting an increase in short dated assets, mainly growth in trade finance in Asia and Australia ‒ Weighted average maturity of short term funding portfolio little changed at 144 days 20 4 83% 84% 83% 7 7 7 Wholesale Onshore <1yr 10 9 10 Wholesale Offshore <1yr 5 5 5 11 9 9 7 2 7 Wholesale Onshore >1yr 2 7 10 2 Securitisation Equity4 1 5 Wholesale Offshore >1yr Customer deposits 58 61 60 FY12 FY13 FY14 44 FY08 3 1 APRA Banking Statistics September 2014 2 Excluding securitisation. 3 2008 does not include St.George. 4 Equity excludes FX translation, Available-for-Sale Securities and Cash Flow Hedging Reserves. 67 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack Strong liquidity position on track for introduction of LCR • • • • Westpac is well positioned for the introduction of the Liquidity Coverage Ratio (LCR) Group pro-forma Liquidity Coverage Ratio1 ($bn) – Westpac Group pro-forma LCR1 103% at 30 September 2014 High Quality Liquid Assets2 (HQLA) 59 – As the Group transitions towards LCR implementation, further initiatives are planned to deliver a suitable buffer above 100% Committed Liquidity Facility3 (CLF) 66 The LCR requires banks to hold 100% of their net cash outflows over a 30-day stressed scenario in qualifying liquid assets Total LCR liquid assets 125 Customer deposits 75 Wholesale funding 20 Other flows4 26 – Westpac held $59bn of High Quality Liquid Assets (HQLA) at 30 September 2014 – In addition, APRA has approved access to the Committed Liquidity Facility (CLF) for $66bn for calendar year 2015 – CLF provides access to the approved amount of liquidity through repo arrangements with the RBA, for a 15bps fee per annum (equates to $74m in FY15) Pro-forma LCR1 – For draws on the CLF, an additional 25bps fee is charged above the RBA’s target cash rate Liquid assets ($bn) Total cash outflows in a 30-day defined stressed scenario 103% LCR rules apply for Australian banks from 1 January 2015, with no transition arrangements Self securitisation – Cash, government and semi-government bonds New disclosure commences 1H15 $134.4bn in unencumbered liquid assets held at 30 September 2014 – – – Securities are eligible for repo with a central bank Sufficient to cover all short term debt outstanding (including long term debt with a residual maturity less than one year) Differs from LCR qualifying liquid assets due to applicable haircuts and eligibility criteria 121 Private securities5 110.2 125.6 134.4 54.1 58.1 27.3 21.7 41.8 44.2 54.6 FY12 FY13 FY14 42.8 25.6 114.7 Short term outstanding debt FY14 6 1 Calculated on a spot basis as at 30 September 2014, including the CLF approved by APRA of $66bn for calendar year 2015. 2 HQLA of $59bn includes cash at hand (including ATMs) and other LCR qualifying liquid assets including BS-13 qualifying liquids, less RBA open repos funding end of day ESA balances with the RBA. 3 Includes RBA open repos funding end of day ESA balances with the RBA. 4 Other flows includes credit and liquidity facilities, collateral outflows and inflows from customers. 5 Private securities include Bank paper, RMBS, and Supra-nationals. 6 Includes long term wholesale funding with a residual maturity less than 1 year. 68 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack New term issuance well diversified, benefit from broad product capabilities FY14 new term issuance composition1 (%) Australian covered bond issuance5 By type By tenor 34 3 18 2,3 Remaining capacity (8% cap & overcollateralisation) ($bn) Issued ($bn) By currency 4 7 313 18 13 38 25 55 29 23 22 23 2 44 % Capacity utilised 49 16 37 49 43 Senior Unsecured RMBS Hybrid Covered Bonds ABS Subordinated Debt 1 Year 3 Years 5 Years 2 Years 4 Years >5 years AUD USD EUR JPY GBP Other 15 Peer 1 FY14 term debt issuance and maturity profile1,2,4 ($bn) Covered Bond 45 Hybrid 43 Issuance 33 25 FY09 FY10 Senior FY11 17 Peer 2 Peer 3 Westpac FY13 FY14 FY15 FY16 Peer 2 Peer 3 Westpac Short term funding ($bn)6 Sub Debt Short term funding to total funding including equity (%) 6 Maturities 21 Peer 1 Low level of short term funding Govt Guaranteed 25 43 21 33 22 FY12 23 26 FY17 16 16 14 115 115 FY18 FY19 >FY19 Westpac Peer 1 21 20 17 17 144 142 Peer 2 Peer 3 1 Based on residual maturity and FX spot currency translation. Includes all debt issuance with contractual maturity greater than 13 months, excluding US Commercial Paper. 2 Contractual maturity date for hybrids and callable subordinated instruments is the first scheduled conversion date or call date for the purposes of this disclosure. 3 Tenor excludes RMBS and ABS. 4 Perpetual sub-debt has been included in >FY19 maturity bucket. Maturities exclude securitisation amortisation. 5 Sources: Westpac, APRA Banking Statistics August 2014. 6 Short term funding includes Central Bank deposits and long term wholesale funding with a residual maturity less than 1 year. Source: Westpac, Company reports. Westpac, Peer 1 and Peer 3 as at 30 September 2014, Peer 2 as at 30 June 2014. 69 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack FULL YEAR 2014 ASSET QUALITY COMPARISON OF 2H14 VERSUS 1H14 CASH EARNINGS BASIS (UNLESS OTHERWISE STATED) NOVEMBER 2014 High quality portfolio bias to secured consumer lending Asset composition as at 30 September 2014 (%) Total assets Cash and balances with central banks On balance sheet lending Receivables due from other financial institutions Trading securities, financial assets at fair value and available-for-sale securities Derivative financial instruments 11 Loans 1 Life insurance assets 2 Housing 5 18 75 3 3 67 11 Business Institutional Other consumer 4 Other assets Exposure by risk grade as at 30 September 2014 ($m) Standard and Poor’s risk grade Australia NZ / Pacific Asia Americas Europe Group % of Total AAA to AA- 86,621 7,872 800 17,086 1,449 113,828 13% A+ to A- 30,962 4,851 6,327 2,943 2,102 47,185 5% BBB+ to BBB- 53,271 7,628 7,096 1,050 1,784 70,829 8% BB+ to BB 63,627 9,700 1,482 327 62 75,198 8% BB- to B+ 57,925 8,819 - 8 6 66,758 8% $10m Investors >$10m Diversified property groups and property trusts >$10m 73 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack Commercial offices & diversified groups Residential Retail Industrial 5 6 NSW & ACT VIC QLD SA & NT NZ & Pacific Institutional WA Portfolio stress continues to reduce Stressed exposures as a % of TCE and provisions1 ($bn) 5.0 3.20 4.5 3.0 4.0 2.48 3.0 1.94 2.23 1.45 1.26 1.30 2.5 1.60 1.24 1.37 1.03 1.24 0.85 1.0 0.88 0.91 0.62 0.0 0.46 0.29 0.13 0.13 0.15 0.24 0.57 FY07 FY08 FY09 0.67 FY10 0.75 0.41 0.62 FY11 0.40 0.60 1H12 0.35 0.58 2H12 1 FY07 and FY08 do not include St.George. 74 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack 0.35 0.31 93bps Collectively assessed provisions to performing nonhousing loans 142bps 134bps 129bps Impairment provisions to impaired assets 43% 46% 45% 73bps 67bps 60bps Total provisions to gross loans Movement in stressed exposures ($bn) 11.6 (0.02) (0.33) 2.0 (0.02) (0.15) (0.24) 1.5 0.03 10.9 0.71 1.0 0.28 0.26 0.56 0.44 0.34 0.27 1H13 2H13 1H14 2H14 0.5 0.0 NZ 2.0 2.17 97bps WIB 2.07 3.5 99bps BT 2.26 Collectively assessed provisions to credit RWA SGB 3.09 2H14 2H14 5.5 4.0 1H14 Pacific & Other $bn 2H13 WRBB % 90+ days past due well secured (lhs) IAP (rhs) CAP (inc. economic overlay) (rhs) 1H14 Impaired (lhs) Watchlist & substandard (lhs) Total Provisions (rhs) Provisioning coverage ratios 75 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack 738 2H12 731 1,179 1H14 2H14 1H14 2H13 1H13 2H12 1H12 2H11 1H11 2H10 997 958 609 1,343 1,519 1,194 2,149 1,798 1,748 1,218 1,060 708 2.5 2H14 1,232 0.5 2H13 886 792 1H12 1H13 745 925 1H11 2H11 872 1H10 2H09 3.0 2H10 568 1H10 0.0 531 1.0 2H09 2.0 1H09 2H14 162 Stressed exposures by industry ($bn) 1H09 Other Utilities Services Finance & insurance 1H14 Mining Construction 2H13 Accommodation, cafes & restaurants 3.5 Transport & storage Manufacturing Agriculture, forestry & fishing Wholesale & Retail Trade Retail lending Property & business services Improvement in portfolio quality across most sectors New and increased gross impaired assets ($m) 1.5 Gross impaired assets returned to performing or repaid ($m) Provision cover by portfolio category Provisioning to TCE (%) Exposures as a % of TCE 1H13 2H13 1H14 2H14 0.24 0.23 0.23 0.22 6.74 6.36 6.73 6.76 5.37 5.36 5.23 5.06 40.24 43.16 46.43 44.77 Fully performing portfolio • 98.06 98.40 • Small cover as low probability of default (PD) Includes economic overlay 98.76 Fully performing portfolio Watchlist & substandard Watchlist & substandard • 1.24 0.85 90+ days past due well secured 0.75 0.71 Impaired 0.35 0.58 In default but strong security 0.28 0.26 1H13 76 0.31 • Impaired assets • 0.44 0.34 0.27 2H13 1H14 2H14 In default. High provision cover reflects expected recovery Westpac Group Full Year 2014 Presentation & Investor Discussion Pack Impaired asset provisions 90+ days past due well secured Still performing but higher cover reflects elevated PD Collective provisions 98.63 Australian unsecured lending portfolio continues to perform well Australian personal loan portfolio (including auto loans) 90+ days delinquencies were down 12bps to 105bps (down 1bp FY14/FY13) 1.42 1.50 1.02 0.82 0.82 1.00 0.50 Australian unsecured lending portfolio as at 30 September 2014 ($bn and %) Credit cards – Auto loan portfolio increased to $7.7bn following acquisition of Lloyds in December 2013 – Australian auto loan 90+ days delinquencies were down 11bps to 82bps (up 6bps FY14/FY13) Personal loans 22.2 Auto loans % 7.7 35 Sep-14 Jul-14 May-14 Mar-14 21 9.9 1 Cards average payments to balance ratio is calculated using the average payment received compared to the average statement balance at the end of the reporting month. Westpac Group Full Year 2014 Presentation & Investor Discussion Pack Jan-14 Australian credit card average payments to balance ratio1 (%) 44 4.6 2H14 77 Nov-13 Sep-13 Jul-13 May-13 Mar-13 Jan-13 Nov-12 Sep-12 Jul-12 May-12 Mar-12 Nov-11 Jan-12 - 39.7 39.8 41.4 45.6 45.2 42.7 43.8 43.7 44.6 44.7 45.3 45.4 46.6 47.7 48.7 48.4 • 2.00 1H07 2H07 1H08 2H08 1H09 2H09 1H10 2H10 1H11 2H11 1H12 2H12 1H13 2H13 1H14 2H14 – Average payments to balance ratio remains strong, however reduced 30bps to 48.4% Auto loans Sep-11 Australian credit card 90+ days delinquencies were down 17bps to 82bps (down 11bps FY14/FY13) Total unsecured lending Jul-11 • Personal loans (excl Auto loans) May-11 Changes in delinquencies in 2H14 reflect normal seasonal trends Credit cards Mar-11 • 2.50 Jan-11 Total Australian consumer unsecured delinquencies decreased 13bps to 102bps (down 4bps FY14/FY13) Australian unsecured lending 90+ days delinquencies (%) Nov-10 • Unsecured consumer asset quality has remained strong as continuing low interest rates have assisted debt serviceability and the Group’s sound approach to credit decisioning has been maintained Sep-10 • Australian mortgage portfolio high levels of borrower equity 2H13 balance 1H14 balance 2H14 balance 2H14 flow1 Total portfolio ($bn) 328.5 338.0 351.0 36.9 Owner-occupied (%) 47.9 47.6 47.1 45.9 Investment property loans (%) 43.1 44.0 45.2 51.2 Portfolio loan/line of credit (%) 9.0 8.4 7.7 2.9 Variable rate / Fixed rate (%) 81 / 19 81 / 19 78 / 22 80 / 20 Low Doc (%) 4.7 4.2 3.8 1.1 Proprietary channel (%) 58.0 57.5 56.6 53.4 First Home Buyer (%) 11.4 10.9 10.3 6.6 Mortgage insured (%) 23.3 22.2 21.3 12.2 2H13 1H14 2H14 Average LVR at origination2 (%) 69 69 70 Average dynamic2,3,4 LVR (%) 46 47 44 Average LVR of new loans2,5 (%) 72 72 71 Average loan size ($’000) 221 223 229 Customers ahead on repayments, including offset accounts2,6 (%) 71 73 73 Actual mortgage losses (net of insurance)7 ($m) 43 45 55 Actual mortgage loss rate annualised (bps) 3 2 3 Australian housing portfolio Australian housing loan-to-value (LVR) ratios (%) FY14 drawdowns LVR at origination Portfolio LVR at origination Portfolio dynamic LVR 80 60 <7% portfolio with dynamic LVR >80% 40 20 0 0<=60 60<=70 70<=80 80<=90 90<=95 95+ Australian housing portfolio by State (%) Australian banking system8 Total Westpac portfolio (all brands) FY14 Westpac drawdowns (all brands) 50 40 30 20 10 0 NSW & ACT VIC & TAS QLD WA SA & NT 1 Flow is all new mortgage originations settled during the 6 month period ended 30 September 2014 and includes RAMS. 2 Excludes RAMS. 3 Dynamic LVR represents the loan-to-value ratio taking into account the current outstanding loan balance, changes in security value and other loan adjustments. 4 Property valuation source Australian Property Monitors. 5 Average LVR of new loans is based on rolling 12 month window. 6 Customer loans ahead on payments exclude equity/line of credit products as there are no scheduled payments. 7 Mortgage insurance claims 2H14 $6m (1H14 $3m, 2H13 $14m). 8 ABA Cannex August 2014. 78 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack Mortgage customers continuing to repay ahead of schedule Australian home loan customers ahead on repayments1,2 (%) Sep-13 – Including mortgage offset account balances, 73% of customers are ahead of scheduled payments, with 22% of these being more than 2 years ahead 30 • Sound underwriting criteria underpin the Westpac Group’s very low level of residential mortgage arrears and losses 20 • Credit policies are broadly aligned across brands and all credit decisions are made by the Westpac Group, regardless of the origination channel 10 Mar-14 Sep-14 73% ahead on repayments 25 15 5 Loan serviceability assessments include an interest rate buffer, adequate surplus test and discounts to certain forms of income (e.g. dividends, bonus or rental income) 0 • Westpac has a minimum assessment rate, often referred to as a floor rate, currently set at 6.80% p.a. across all brands Australian mortgage1 balance growth ($bn) • In the current interest rate environment, the minimum assessment rate is at least 180bps higher than the standard lending rate < 1 Year < 2 Years > 2 Years 21 Aust. mortgage offset account balances ($bn) (30) (27) (7) 335 1 Excludes RAMS. 2 Customer loans ahead on payments exclude equity loans/line of credit products as there are no scheduled principal payments. Includes mortgage offset account balances. ‘Behind’ is more than 30 days past due. ‘On time’ includes up to 30 days past due. 79 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack 2H14 1H14 2H13 1H13 2H12 1H12 FY11 FY10 FY09 FY14 External refinance Property sales & other runoff Accelerated repayments Contract repayments Redraw/ Interest/fees New lending FY13 8 10 313 18 32 (13) < 1 Month 16 67 On Time 15 Behind 24 • 13 Australian mortgage customers continue to display a cautious approach to debt levels, taking advantage of historically low mortgage rates to pay down debt 12 • Australian investment property portfolio sound origination profile • Investment property loans (IPLs) are 45.2% of Westpac’s Australian mortgage portfolio Strong origination standards • Compared to owner-occupied applicants, IPL applicants on average are older (75% over 35 years), have higher incomes and higher credit scores • All IPLs are full recourse • 87% of IPLs originated at or below 80% LVR • • Majority of IPLs are interest-only, however the repayment profile closely tracks the profile of the principal and interest portfolio Loan serviceability assessments include an interest rate buffer, minimum assessment rate, adequate surplus test and discounts to certain forms of income (e.g. dividends, bonus or rental income) • All IPLs are assessed on a principal & interest basis, including interestonly loans • Specific credit policies apply to IPLs to assist risk mitigation, including ‒ 61% of interest-only IPL customers ahead on repayments • IPL 90+ days delinquencies 37bps (down 2bps), compared to 47bps for total portfolio • IPL portfolio losses represent an annualised loss rate of 3bps (net of insurance claims1) – in line with total portfolio losses of 3bps • Self-managed Superannuation Fund balances are a very small part of the portfolio, at <1% of Australian mortgage balances Loan-to-value ratio at origination1 (%) FY14 25 IPL 50 20 5 Average loan size ($’000) 286 10 0 97+ 95-97 90-95 85-90 80-85 75-80 70-75 65 60-70 Customers ahead on repayments, including offset accounts1 (%) 0-60 0 1 Excludes RAMS. 2 Dynamic LVR represents the loan-to-value ratio taking into account the current outstanding loan balance, changes in security value and other loan adjustments. 3 Property valuation source Australian Property Monitors. 4 Average LVR of new loans is based on rolling 12 month window 80 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack 1m+ 70 500<=1m Average LVR of new loans1,4 (%) 200<=500 10 150<=200 30 LVR (%) 125<=150 15 49 Average IPL 20 40 dynamic1,2,3 Owner Occupied 100<=125 71 Owner Occupied Applicants by gross income band1 (%) 75<=100 Average LVR at origination1 (%) ‒ Minimum property size and location restrictions apply 50<=75 Australian IPL portfolio ‒ Additional LVR restrictions apply to single industry towns <=50 High levels of equity in the portfolio ‒ Holiday apartments subject to tighter acceptance requirements Australian mortgage delinquencies at low levels Delinquencies Australian mortgages delinquencies (%) • Sustained period of low interest rates and a continued conservative approach to debt by borrowers has supported very strong credit quality • 90+ days delinquencies remain low at 47bps, down 3bps (down 6bps FY14/FY13) 2.0 • 30+ days delinquencies 108bps, down 20bps (down 12bps FY14/FY13) reflecting some seasonality and low interest rates 1.5 • Investment property loans 90+ days delinquencies 37bps (down 2bps), compared to 47bps for total portfolio Properties in possession Sep-14 Mar-14 Sep-13 Mar-13 Sep-12 Mar-12 Sep-11 Mar-11 Sep-10 Mar-10 Sep-09 Mar-09 Australian mortgages delinquencies by state (%) 11 1.4 ALL NSW/ACT VIC/TAS 1.2 QLD WA SA/NT 1.0 0.8 3 0.6 2 0.4 0.2 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack Sep-14 Mar-14 Sep-13 Mar-13 Sep-12 Mar-12 Sep-11 Mar-11 Sep-10 0.0 Mar-10 FY14 IPL FY14 1992 total portfolio Owner Occ. portfolio portfolio (last recession) 1 Mortgage insurance claims 2H14 $6m (1H14 $3m, 2H13 $14m). 81 30+ Past Due - Sep-09 • Portfolio losses of $100m represent an annualised loss rate of 3bps (net of insurance claims1) Loss rates remain very low by international standards due to supportive economic 3 environment, sound underwriting standards, high levels of borrower equity, mortgage insurance and FY14 total portfolio active collections strategies 90+ Investor 0.5 Properties in possession of 194 at September 2014, up from 189 at March 2014 (353 at September 2013). Represents <2bps of the portfolio Australian mortgage loss rates (bps) • 90+ First Home Buyer 1.0 Mar-09 • 90+ Past Due Total Lenders mortgage insurance • Lenders mortgage insurance (LMI) provides benefits to the Westpac Group – Risk transfer / loss mitigation – Improvement in the quality of risk acceptance via the additional layer of independent review provided by the mortgage insurers • Lenders mortgage insurance LVR Band Insurance • LVR ≤80% • Low Doc LVR ≤60% • LVR >80% to ≤ 90% • Low Doc LVR >60% to ≤ 80% • LVR >90% Not required Generally insured through captive insurer, WLMI. LMI not required for certain approved borrower groups. LMI required by all Low Doc borrowers where LVR >60% to ≤ 80% Insured externally. Westpac originated loans insured through QBE LMI; St.George and RAMS loans through Genworth Australia Not required • 40% risk retained by WLMI. • 60% risk transferred through quota share with Genworth Australia, QBE LMI, Arch Re and Tokio Millennium Nil as Group retains no risk Mortgages are insured through Westpac’s captive mortgage insurer, Westpac Lenders Mortgage Insurance (WLMI), and through external LMI providers, based on risk profile • WLMI provides the Westpac Group with an increased return on the mortgages it insures through the capture of underwriting profit Reinsurance • WLMI is strongly capitalised (separate from bank capital) and subject to APRA regulation. Capitalised at 1.40x PCR1 Australian mortgage portfolio (%) • Scenarios confirm sufficient capital to fund claims arising from events of severe stress – estimated losses for WLMI from a 1 in 200 year event are $163m (net of reinsurance recoveries). This is lower compared to 1H14 in line with reductions in WLMI’s portfolio Insurance statistics 2H13 1H14 2H14 Insurance claims ($m) 14 3 6 WLMI loss ratio3 (%) 39 10 27 Gross written premiums ($m) 25 24 28 78.7 Not insured Insured by third parties 11.1 10.2 Insured by WLMI 2 1 Prudential Capital Requirement (PCR) determined by APRA. 2 Insured coverage is net of quota share. 3 Loss ratio is claims over the total of earned premium plus reinsurance plus exchange commission. 82 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack Mortgage portfolio stress testing outcomes • Westpac regularly conducts a range of portfolio stress tests as part of its regulatory and risk management activities • The Australian mortgage portfolio stress testing scenario presented represents a severe recession and assumes that significant reductions in consumer spending and business investment lead to six consecutive quarters of negative GDP growth. This results in a material increase in unemployment and nationwide falls in property and other asset prices • • Key assumptions Stressed scenario Current Year 1 Year 2 Year 3 Estimated Australian housing portfolio losses under these stressed conditions are manageable and within the Group’s risk appetite and capital base Portfolio size ($bn) 351 339 332 330 – Cumulative total losses of $2.2bn over three years for the uninsured portfolio Unemployment rate (%) 6.1 11.6 10.6 9.4 Interest rates (cash rate, %) 2.5 1.25 1.25 1.25 House prices (% change cumulative) 0.0 (13.0) (22.4) (26.2) Annual GDP growth (%) 2.9 (3.9) (0.2) 1.7 26 32 7 – Cumulative claims on LMI, both WLMI and external insurers, of $793m over the three years • Australian mortgage portfolio stress testing as at 30 September 2014 WLMI separately conducts stress testing to ensure it is sufficiently capitalised to cover mortgage claims arising from a stressed mortgage environment Preferred capital ranges incorporate buffers at the Westpac Group level that consider the combined impact on the mortgage portfolio and WLMI of severe stress scenarios Key outcomes Stressed losses (bps) (net of LMI recoveries)1,2 3 1 Assumes 30% of LMI claims will be rejected in a stressed scenario. 2 Stressed loss rates are calculated as a percentage of mortgage exposure at default. 83 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack FULL YEAR 2014 BUSINESS UNITS COMPARISON OF 2H14 VERSUS 1H14 CASH EARNINGS BASIS (UNLESS OTHERWISE STATED) NOVEMBER 2014 AFS AFS consistent track record of cash earnings growth Key features of AFS in 2H14 142 (120) 84 (91) 122 47 (91) (11) (53) • • • 2,596 2,461 • 2,324 Cash earnings ($m) and contribution (%) 2H14 Tax & NCI Impairment charges Expenses Non-II Net II 1H14 Tax & NCI Impairment charges Expenses Non-II Net II 2H13 • Up 5% Up 6% • • Cash earnings movement ($m) 459 (383) 628 5,057 4,520 AFS represents 67% of Group cash earnings Cash earnings up 5% to $2,596m All AFS businesses contributed to the strong performance. Lloyds contributed a cash earnings impact of $33m in 2H14 ($14m in 1H14) Net interest income up $243m (5%), with improved balance sheet momentum and net interest margin well managed, up 3bps Non-interest income up $47m (2%) driven by increased credit card activity, higher business line fees and solid wealth revenues offsetting drop in performance fees Expenses up $91m (3%), impacted by investment in the businesses, compliance spend and technology costs Impairment charges up $11m (3%) with the overall improvement in the portfolio continuing, but at a slower pace than 1H14 109 (276) Cash earnings contribution ($m) 5,057 4,520 4,032 4,520 227 188 122 5,057 FY14 243 BTFG Cash earnings movement ($m) 18% Up 12% 51% Up 12% 85 FY14 SGB BTFG Westpac Group Full Year 2014 Presentation & Investor Discussion Pack SGB WRBB FY13 FY14 Non-II Expenses WRBB Tax & NCI FY13 Impairment charges FY12 Net II FY13 31% AFS All divisions contributing to growth All business units delivering sustainable cash earnings growth ($m) 1H12 1,031 1,127 1,142 2H12 1,213 1,251 1H13 2H13 Core earnings growth ($m) 1H14 2H14 1,331 3,187 554 10% CAGR1 WRBB 701 635 691 3,400 3,517 3,734 3,878 4,077 772 808 410 438 457 317 368 363 16% CAGR1 15% CAGR1 SGB BTFG 10% CAGR1 1H12 2H12 1H13 2H13 AFS growth, meeting all our customer needs Continuing to improve the customer experience • • Increase in balance sheet momentum across the business - Mortgages at 1.0x system2, up from 0.9x in 1H14 and 0.7x in 2H13 - Business lending up 2% - Credit cards continued to grow above system3 while system contracted • Lloyds integration executed in line with plan, strong customer and dealership growth during integration period, and cost synergies realised • Co-ordination between banking and wealth delivering BT cash earnings up 16% on FY13. WRBB customers with a wealth product lead sector4 at 21.9% • Banking customer numbers up 6% and MyBank customer numbers as a percentage of our total customers were up 55bps to 25.0% over FY14 • Delivering growth while maintaining a strong focus on asset quality • • • • • 1H14 2H14 AFS branch network reconfiguration well under way - WRBB: 61 Bank Now sites opened5 with Smart ATMs and new digital technology. Rolled out 92 Connect Now locations for SMEs - SGB: 144 FreshStart branches and Business Connect in 140 branches Technology investment delivering improved customer interactions - 2.7m customers on Westpac Live, global leading Australian mobile banking app capability6 - Recently launched BT Panorama has $355m on ‘BT Cash’ - 67m pro-active service messages sent to >80% of customers in FY14 Digital is driving sales and service improvements in FY14: around 50%7 of AFS new credit card sales were completed via digital; 1.33m accounts converted to e-statements; and 6,000+ Livechats a month occurred WRBB No. 1 of majors in both consumer and business satisfaction8 SGB ahead of majors in both consumer and business satisfaction8 Total customer complaints down 27% in FY14 1 CAGR represents compound average growth rate from 1H12 to 2H14. 2 RBA Financial Aggregates, September 2014. 3 APRA Banking Statistics, September 2014. 4 Refer slide 148 for wealth metrics provider details. 5 Includes 24/7 lobbies. 6 Forrester’s 2014 Australian Mobile Banking Functionality Benchmark: It’s All Happening Down Under. 7 Does not include sales through contact centres or brokers. 8 Refer slide 148 for customer satisfaction metrics. 86 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack AFS Digital transformation continues Digital growth deepening relationships and improving service Continuing to roll-out new products • Mobile Tap & Pay and Mobile Payway • • • • AFS active digital customers now at 4 million up from 3.7m last year – Percentage of total customers base up 98bps to 42.9% (up 220bps FY14/FY13) 2.4 million active mobile customers with percentage of digital sessions conducted via mobile up 5 percentage points to 56.6% (up 11 percentage points FY14/FY13) Digital sales accounted for 10.5% of total core retail banking sales, down 12bps (up 90bps FY14/FY13) Westpac Live global leading Australian mobile banking app capability1 Number 1 ranking in mobile customer satisfaction for St.George in June 2014 quarter compared with the other major Australian banks2 Consumers can now download their cards to the Proximity app and make contactless mobile payments. Business customers can accept payments using the new Payway app and secure card reader WRBB Emergency Cash allowing WRBB customers to make Cardless cash withdrawals from WestpacATMs across Australia without a debit card on their person, by telephoning a call centre WRBB mobile Get Cash allowing customers to securely generate cash codes via the Westpac Mobile app to access cash from an ATM without using their card 2H12 1H13 2H13 1H14 2H14 Active digital customers (% of total customer base) 38.5 39.5 40.7 41.9 42.9 % of digital sessions via mobile 36.1 43.5 46.1 51.3 56.6 AFS digital banking logins (m) 268 288 320 338 359 Digital sales as a % of total core retail banking sales 8.2 10.2 9.1 10.6 10.5 Shift in payment transactions FY14 – FY11 (%) 40.2% 35.8% 29.8% (3.2%) (11.0%) (26.9%) Digital EFTPOS Direct Entry Branch ATM (35.8%) Telephone Cheques 1 Forrester’s 2014 Australian Mobile Banking Functionality Benchmark: It’s All Happening Down Under. 2 Rfi, Australian Mobility Banking Program. 87 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack AFS A service revolution for customers is underway with more to come WIB/AFS partnership Smart Contactless payments New wealth platform IMPROVING CUSTOMER EXPERIENCE Westpac Live 88 ATMs tailored messages to better support sales and service • 24/7 access • Emergency cash • Global alliance, 50,000 ATMs New Merchant Fleet Branch reconfiguration Westpac Group Full Year 2014 Presentation & Investor Discussion Pack Enhanced Private wealth offer Business Connect & Connect Now AFS Structural change improving productivity • Expenses increased 3% (up 2% excluding Lloyds) – • Disciplined expense management ($m) Expenses up 7% FY14/FY13 (up 5% excluding Lloyds FY14/FY13) 1H14 up 3% 2H14 up 2% ex Lloyds ex Lloyds Simplification and service revolution continues to deliver structural productivity – Total of 205 FreshStart and Bank Now branches1 3,103 – Digital channels are now generating 10.4% of total retail sales – Complaints down 18% (down 27% FY14/FY13) 3,012 • Expense to income ratio down 50bps to 43.2% (down 69bps FY14/FY13) • Revenue per FTE up 2% (up 6% FY14/FY13) from a focus on branch productivity and lifting branch sales staff as a percentage of total branch staff 2,736 1H12 Revenue per FTE ($‘000) 304 1H12 322 2H12 334 1H13 2H12 2,840 1H13 2,892 2H13 1H14 43.6 43.7 2H13 1H14 2H14 Expense to income ratio (%) 347 357 365 46.2 44.9 2H13 1H14 1 Includes 24/7 lobbies. 89 2,775 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack 2H14 1H12 2H12 44.7 1H13 43.2 2H14 AFS Lifted mortgage growth in sustainable way Home lending multiple of system1 (x) 350.7 Proprietary WBC 2H14 ADIs (excluding other ADIs) 4 40 12.7 2H14 Run-off Loans approved above 80% LVR3 (%) 3rd party 0.7 1H14 New lending 328.2 0.9 2H13 (24.0) 337.8 AFS new home lending ($bn) 1.0 36.9 (23.6) 1H14 • 33.1 Run-off • AFS net mortgage lending volumes2 ($bn) New lending • AFS mortgage market share1 of 23.2% – Grew at 1.0x system1 (up from 0.9x 1H14) 4% lift in balances – 11% uplift in new lending, through both proprietary and 3rd party channels – Partly offset by run-off of $24bn, up 2% Risk appetite unchanged with – Average dynamic LVRs slightly lower – % of loans written over 80% largely steady and significantly lower than industry Process redesign such as launch of WRBB “60 minute Home Loans” and new loans variation process saving customers and staff time – Mortgage complaints down 3% 2H13 • 14.7 17.2 30 20 16.8 18.4 19.7 2H13 1H14 2H14 10 0 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 1 RBA Financial Aggregates, September 2014. 2 Run-off figures are net of provision movements. 3 Westpac data, APRA ADI property exposure statistics, June 2014. 4 Other ADIs consist of ADIs that are not banks, building societies or credit unions. 90 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack AFS Growth in business banking • • • AFS business lending up 2% (up 6% FY14/FY13 or 1% excluding Lloyds) – Business customers up 2% – Stressed business to TCE down 38bps to 4.8% (stressed balances down $301m) – New lending volumes up 2% for WRBB and 12% for SGB (normalising for Lloyds one quarter of contribution in 1H14) WRBB business balances up 2% through the small business banking model, industry specialisation and the launch of Connect Now SGB business balances up 2% – Investment in banker capability and banking franchise, with higher performance from Business Connect SME distribution model – Lloyds integration successfully executed – New business lending growth exceeding run-off in 2H14 Business banking customers2 (#’000) Lloyds 969 949 75.7 8.4 (7.4) 76.7 1,007 2H12 1H13 2H13 8.1 (8.3) 3.7 80.2 9.1 (7.7) Business TCE ($bn) 81.6 105 99.6 100.8 100 Up 1% Up 5% Up 2% 2H14 Stressed business to business TCE (%) 1 Net loans. 2 Business banking customers in 1H14 have been restated to include Lloyds customers. Westpac Group Full Year 2014 Presentation & Investor Discussion Pack 98.4 100.6 105.1 107.1 1200% 1000% 800% 90 2H14 Runoff New lending 1H14 Lloyds Runoff New lending 2H13 Runoff New lending 1H14 95 85 1H13 1,132 Business TCE 110 91 1,108 70 1,038 1H12 Business lending1 ($bn) 985 8.0% 7.8% 80 7.2% 75 600% 6.3% 5.2% 70 4.8% 400% 200% 65 60 0% 1H12 2H12 1H13 2H13 1H14 2H14 AFS Consumer finance delivering growth ahead of market • • • • Total consumer finance up 3% to $22.6bn (up 20% FY14/FY13 including Lloyds transaction) Good growth across both personal lending and credit cards – Applications for credit cards down 7% due to seasonal factors (up 30% FY14/FY13) – Credit card growth of 1% versus a system1 that contracted. Market share up 39bps to 22.9% – Personal lending growth at 1.8x system2, with market share up 34bps to 27.6% Auto finance up 7% Simplification and service enhancements improving customer experience – Reduced consumer finance products offered by 6 to 17 – 31% reduction in credit card complaints – SGB continued to lead majors in NPS among credit card customers. WBC improved from 4th to 1st of the majors over 2H143 Consumer finance lending ($bn) 18.8 0.2 0.5 2.5 Credit card and personal loan applications (#’000) Credit cards 172 204 145 140 2H12 Personal lending 257 179 1H13 160 148 2H13 1H14 240 149 2H14 AFS market share of credit cards1 (%) 22.9% 22.1% 22.0 0.4 0.2 22.6 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 AFS market share of personal lending2 (%) 27.6% 2H14 Other consumer finance Auto finance Up 3% 1H14 Lloyds (auto finance) Other consumer finance Auto finance 2H13 Up 17% (up 4% ex Lloyds) 26.8% Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 1 APRA monthly banking statistics, September 2014. 2 Rfi data, September 2014, excludes Auto Finance. 3 NPS among credit card customers refer slide 147 for metric provider details. 92 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack Sep-14 AFS Continuing to grow quality deposits • Deposit to loan ratio up 154bps to 61.4%, with a focus on originating high quality deposits • Household deposits – Increased household deposit market share to 23.3%, growing at 1.3x system1 in the half. Consistently growing above or at system in recent periods – Improved quality of portfolio, with focus on gathering deposits of higher quality that better supports LCR requirements. 97% of FY14 growth was in LCR efficient deposits • Consumer transaction balances increased 11% (up 14% FY14/FY13) • Deposit complaints reduced 33% (reduced 40% FY14/FY13) AFS customer deposit to loan ratio (%) Lloyds reduced deposit to loan by 87bps Household deposits1 market share (%) and system multiple (x) 23.60 23.20 23.00 22.80 22.60 22.3 22.5 22.7 22.40 22.20 22.00 21.80 1.1 1.1 1H12 2H12 1.2 2H12 1H13 2H13 1H14 22.9 23.0 1.3 23.3 2H14 AFS deposits ($bn) Market share 23.80 23.40 59.8 55.8 1H12 System multiple 59.4 58.1 61.4 61.1 11.6 259.0 1.3 8.5 (4.2) 263.3 Up 2% 279.2 4.3 Up 6% 1.0 21.60 20.40 20.20 20.00 1H13 2H13 1H14 1 APRA Banking Statistics, September 2014. 93 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack 2H14 2H14 Savings, transactions and online deposits 20.60 Term deposits 20.80 1H14 21.00 Savings, transactions and online deposits 2H13 21.20 Term deposits 21.40 AFS Delivering our customer’s total financial service needs ‒ Establishment of “Adviser View”, our online adviser register with details of an advisor’s customer satisfaction ratings and qualifications ‒ “Advice commitment” which explicitly states the standards that a customer should expect from their advisor ‒ Minimum education and professional standards for all our advisers Customer with wealth products2 change over last year and last 4 years (bps) 1 Year BT Super for Life customer satisfaction now 60.5%1 (up 12ppt FY14/FY13) • Life insurance lapse rates significantly below peers • Wealth investment continues with BT Panorama and the launch of BT Cash Hub. Ongoing investment will deliver phased capabilities to transform how customers build, manage and protect their wealth BT Super for Life (retail) customer numbers and FUM Total customers ('000) 4.9 (107) WBC Peer 1 WBC Peer 2 WBC Peer 3 Peer 1 Avg of next Top 4 20% Peer 1 Peer 4 Peer 2 20% 15% 15% 10% Jun-14 Jun-13 10% Jun-12 2H14 Jun-11 1H14 Jun-10 5% 2H13 Peer 3 Life insurance lapse rates4 (%) 4.3 2.9 1H13 Peer 2 (92) Jun-14 3.7 57 Jun-13 396 466 57 38 Jun-12 348 432 176 135 Life Insurance Individual new sales market share3 (%) FUM $bn 4 Years 413 Jun-11 • Leading the industry in adopting transparent practices including Jun-10 • 1 Roy Morgan research. Customer satisfaction – retail funds August 2014. 2 Refer slide 148 for wealth metrics provider details. 3 Plan for Life rolling 12 month average. New sales includes sales, premium rerates, age and CPI indexation. June 2014. 4 Plan for Life, June 2014. 94 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack AFS AFS high quality portfolio, significant improvement in business Consumer portfolio remains sound, supported by low interest rates and consumer caution with continued strong debt serviceability – Mortgage 90+ days delinquencies down 3bps to 47bps (down 6bps FY14/FY13) – Credit card 90+ days delinquencies down 17bps to 82bps (down 11bps FY14/FY13) – Auto finance 90+ days delinquencies down 11bps to 82bps (down 6bps FY14/FY13) Stressed exposures as a % of TCE Impaired (31) 16 (31) 51 6 341 2H14 • 330 BTFG Continued improvement in business portfolio quality, with asset sales and refinancing helping to reduce stressed assets by $366m or 5% (down $1,187m or 14% FY14/FY13) SGB business • SGB consumer Impaired assets down 7bps to 25bps of TCE (down 14bps FY14/FY13) WRBB business • Movement in impairment charges ($m) WRBB consumer AFS stressed exposures as a % of TCE reduced 12bps to 1.28% (down 33bps FY14/FY13) 1H14 • 90+ days delinquencies (%) 90+ days past due well secured Watchlist & substandard 1.28 Credit cards Mortgages Auto finance 0.83 0.82 0.47 2H11 95 1H12 2H12 1H13 2H13 1H14 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack 2H14 WRBB Strong operating performance FY14 % of Group cash earnings Cash earnings movement ($m) 83 303 (109) 49 (99) 2,582 2,355 Key financial metrics FY14 - FY13 Cash earnings  10% Core earnings  7% • Up $277m to $4,128m with 6% revenue growth 5% • Up $303m to $5,958m • Disciplined asset growth: 6% in home lending 3% business lending and above system growth in cards1 and personal loans2 • 9% deposit growth with household deposits above system1, transaction and savings accounts up 12% 34 Impairment charge ($m) Net interest margin (%) 5bps 2.33 (3bps) Net interest income FY14 Tax & NCI Impairment charges Expenses Non-II Net II FY13 Up 10% 4bps 6bps Non-interest income  6% • Increased credit cards revenue from higher activity levels from WRBB Black cards • Increased business volumes and activity Expenses  3% • Productivity savings in branches and customer servicing, partly offsetting salary and lease cost increases, volume related costs and increased investment spend Impairment charges  10% • Impairment charges down to $437m. Reduced stressed assets in business lending and lower delinquency rates in consumer loans FY14 Wholesale funding & other Customer deposits Assets FY13  437 429 FY12 1 APRA Banking Statistics, September 2014. 2 Rfi data, September 2014. Westpac Group Full Year 2014 Presentation & Investor Discussion Pack FY13 FY14 • Asset spread compression of 3bps due to competitive pricing for new business • Increased deposit spreads of 4bps driven by growth in transaction accounts and market pricing • Wholesale funding costs 5bps lower Net interest margin 486 2.39 Up 6bps 96  • Up $227m to $2,582m WRBB 2H14 delivered across growth, return, strength and productivity Cash earnings movement 2H14 - 2H13 ($m) 16 (14) 1,251 2H14 Non-II Net II 1H14 Tax & NCI Impairment charges Expenses Non-II Net II (35) 1,331 Key financial metrics 2H13 1H14 Change on 1H14 2H14 Revenue ($m) 3,552 3,609 3,752  4% Net interest margin (%) 2.35 2.37 2.40  3bps Expense to income (%) 44.3 44.2 43.7  54bps Customer deposit to loan ratio (%) 58.5 58.6 60.3  171bps ROTE (%) 28.1 26.6 26.8  28bps 1 RBA Financial Aggregates, September 2014. 2 APRA Banking Statistics, September 2014. 97 Cash Earnings  6% • Up $80m to $1,331m Core earnings  5% • Up $100m to $2,114m with 4% revenue growth 4% • Up $122m to $3,040m • 3% asset growth: home lending growth of 4% approaching system1 and business lending growth at system1 • 6% deposits growth with household deposits above system2 Up 6% Up 3% 2H13 15 Tax & NCI (21) (43) Impairment charges 8 21 Expenses 1,213 49 122 Key financial metrics 2H14 – 1H14 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack Net interest income  • Asset margin compression of 4bps from increased competition • Deposit spreads up 3bps due to market repricing of term deposits • Lower wholesale funding costs of 4bps Net interest margin  3bps Noninterest income  3% • Increased credit card revenue from higher activity levels • Increased business line fees Expenses  3% • Increase due to full period impact of January salary increases, launch of small business banking unit and increase in sales roles. Partly offset by continued productivity saves Impairment charges  7% • Impairment charges down to $211m from a reduction in business lending stressed assets and lower mortgage delinquency rates WRBB Relationship based customer franchise driving growth Consumer banking highlights Key performance metrics • Customer service revolution delivering improved customer experience. Complaints improved 24% and consumer satisfaction1 lifted to #1 of majors • Continuing to meet customer needs 24/7 with 61 Bank Now sites, Premium 24/7 call centre, 2.7m customers migrated to Westpac Live platform, Smart ATMs and Emergency cash capability. Also launched “60min Home Loan”, simplified card products, enabled more self-service and e-statements • 1.2x system in household deposits2, above system growth in credit cards2, and 1.8x system in personal lending3 • Market leading customers with wealth product4 at 21.9% • Winner: CANSTAR - Best First Home Buyer Loan (3 consecutive years); AMIA Best Enterprise / Digital product or service; Smart Investor – Best Rewards Card; Australian Mortgage Awards – most effective internet presence (broker distribution) Business banking highlights 1H14 2H14 Total customers (#m) 6.11 6.20 6.28  1% Business customers (#’000) 722 743 752  1% Active digital customers (#m) 2.45 2.53 2.63  4% Active mobile customers (#m) 1.51 1.64 1.77  8% Bank Now branches (#) 17 34 61  27 Connect Now enabled branches 0 35 92  57 MyBank customers (%) 25.6 25.6 26.1  53bps Average products per customer7 (#) 3.12 3.14 3.08 X (2%) Customers with BT Super for Life (‘000) 299 324 466  44% Service quality (complaints #‘000) 35.8 26.7 20.3  (24%) Overall consumer NPS8 4th 4th 3rd  1 rank Overall business NPS6 2nd 3rd 1st  2 ranks Women in leadership (%) 43 45 47  2ppts majors5, • #1 in business customer satisfaction of the #1 NPS overall business, SME and agribusiness6 • Small business banking unit established • Rolled out 92 Connect Now sites: enabling customers and staff in branches and business banking centres access to business specialists via video conference • Business banking transformation and productivity driving deposit and lending growth above system while improving credit quality • Successful partnership model with WIB providing increased access to FX, foreign accounts and debt markets products • Business banking excellence recognised through awards. Winner: AB+F Best Business Bank at Branch; AB+F Best Cash Management Business Bank; Roy Morgan Business Bank of the Year (2013 calendar year) Change on 1H14 2H13 1 Refer slide 148 for customer satisfaction details. 2 APRA Banking Statistics, September 2014. 3 Rfi Australian Consumer Lending Council, PLBT - September 2014 report for Westpac Group. 4 Refer slide 148 for wealth metrics provider details. 5 Refer slide 148 for business satisfaction details. 6 Refer slide 147 for business NPS provider details. 7 Refer slide 148 for average products per customer metrics. 8 Refer slide 147 for consumer NPS provider details. 98 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack WRBB WRBB consistently delivering high quality results Cash earnings ($m) 2,158 1,708 Core earnings ($m) 2,355 2,582 3,851 3,041 1,878 Customers with a wealth product1 (%) 3,231 4,128 21.9 3,472 20.8 21.2 19.8 18.8 FY10 FY11 FY12 FY13 FY14 Expense to Income ratio (%) FY10 FY11 FY12 48.6 510 46.8 FY11 FY12 FY13 FY11 FY12 FY13 FY14 748 58.5 271 55.3 620 50.4 51.7 250 60.3 256 242 43.9 FY14 227 FY10 1 Refer slide 148 for wealth metrics provider details. 99 566 FY10 Loans ($bn) and customer deposit to loan ratio (%) 700 44.8 FY14 Revenue per FTE ($’000) 49.8 FY10 FY13 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack FY11 FY12 FY13 FY14 FY10 FY11 FY12 FY13 FY14 St.George delivering growth and customer choice FY14 % of Group cash earnings Cash earnings movement ($m) 321 49 (158) 57 (81) 1,580 1,392 Key financial metrics FY14 - FY13  14% Core earnings  9% FY14 Tax & NCI Impairment charges Expenses Non-II Net II FY13 Up 14% Net interest income 21 7bps 2bps 4bps 2.29 Net interest margin  7bps • Non-interest income  10% • 1.4 1.2 Expenses  11% • • • FY14 • Lloyds Wholesale funding & other Customer deposits Assets Up 7bps FY13 • • • 1.6 (6bps)  • • • 10% • Cash earnings ($bn) Net interest margin (%) 2.22 • Cash earnings Impairment charges FY12 1 APRA Banking Statistics, September 2014. 100 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack FY13 FY14 • •  19% • Up $188m to $1,580m with all brands contributing Up 10% excluding Lloyds Up $212m to $2,495m with 10% revenue growth Up $321m to $3,537m Lending up 10% (up 6% excluding Lloyds) Deposits up 6%, with strong growth in household deposits (above system1) Lloyds added 4bps Deposit spreads improved 7bps and wholesale funding contributed 2bps Partly offset by a 6bps decline in asset spreads, mostly reflecting increased competition and customer preference for fixed rate lending Higher business lending fees due to increase in line fees Fee income related to Lloyds added $26m Expenses up 5% excluding Lloyds Expansion of Bank of Melbourne and continued roll-out of Business Connect model for serving SME customers Partly offset by productivity initiatives Impairment charges down $57m to $236m Business impairment charges declined with a continued reduction in stressed assets, particularly property Consumer impairment charges higher, mainly due to credit card and auto finance loans 2H14 momentum delivered 6% core earnings growth Cash earnings movement 2H14 – 2H13 ($m) 121 701 69 11 (38) 63 14 Key financial metrics 2H14 – 1H14 (66) (20) (13) 808 (34) 772 Up 10% Cash earnings  5% • Up $36m to $808m Core earnings  6% • Up $69m to $1,282m with 7% revenue growth 7% • Up $121m to $1,829m, showing pick-up in growth and full period impact of Lloyds • Lending up 4% • Deposits up 5%, with strong growth in household deposits (above system1) Up 5%  2H14 Tax & NCI Impairment charges Expenses Non-II Net II 1H14 Tax & NCI Impairment charges Expenses Non-II Net II 2H13 Net interest income Net interest margin  3bps • Margins up to 2.30% • Deposit spreads improved 7bps and wholesale funding contributed 2bps • Partly offset by a 6bps decline in asset spreads, mostly reflecting increased competition and customer preference for fixed rate lending Non-interest income  6% • Higher business lending fees due to increase in line fees • Full period contribution from Lloyds 9% • Expenses up 5% excluding Lloyds • Expansion of Bank of Melbourne and continued roll-out of Business Connect model for serving SME customers • Partly offset by productivity initiatives Key financial metrics Change on 1H14 2H13 1H14 2H14 Revenue ($m) 1,880 1,960 2,095  7% Net interest margin (%) 2.25 2.27 2.30  3bps Expense to income (%) 37.7 38.1 38.8  70bps Customer deposit to loan ratio (%) 58.0 54.7 55.5  87bps ROTE (%) 22.7 22.1 21.1  98bps Expenses 1 APRA Banking Statistics, September 2014. 101 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack Impairment charges   19% • Impairment charges up from a low base to $128m • Business impairment charges were a little higher as 1H14 included the benefit of a significant reduction in stressed assets • Consumer impairment charges lower, driven by a decrease in delinquencies St.George delivering across all metrics Consumer banking highlights • • • • • Above system growth across housing1 and household deposits2 Customer service revolution and continued innovation is delivering a better customer experience. Overall consumer NPS3 leads the major banks and complaints were down 10% Continued improvement in depth of relationships with MyBank customers up 49bps to 22.7% and customers with wealth products4 up a further 95bps to 17.1% The reconfiguration of the network to deliver better service continued with 144 FreshStart branches now in place Continued to focus on simplification of processes including Time to First Yes (69% now approved in branch within one hour); and deliver innovative digital mobility solutions that support customer needs including: finger print access on mobiles, Smartwatch capability and iBeacon technology Business banking highlights • Key performance metrics Change on 1H14 2H13 1H14 2H14 Total customers (#m) 3.26 3.55 3.61  2% Business customers (#’000) 287 296 307  4% Active mobile customers (#m) 0.52 0.57 0.62  9% Active digital customers (#m) 1.27 1.32 1.38  4% FreshStart branches (#) 7 61 144  83 Business Connect enabled branches (#) 30 112 140  28 MyBank customers (%) 22.1 22.2 22.7  49bps SME Business Connect (our innovative distribution model in branches providing efficient access to specialists using online, video and mobile channels) is gaining traction, now in 140 branches. Benefits include: increased customer facing time for business bankers from 30% to 70%; 95% of video conference referrals have resulted in an average products per customer of 4.5 Avg. products per customer6 (#) 2.59 2.61 2.64  1% Customers with wealth product4 (%) 14.9 16.1 17.1  95bps • Business customer numbers up 4% with new business lending growth exceeding run-off in 2H14 Service quality (complaints #’000) 11.1 10.9 9.8  (10%) • Lloyds being successfully integrated with strong FY14 delivery, outperforming in revenue and balance sheet growth, with 7% increase in customers Overall consumer NPS3 1st 1st 1st  Steady • Business NPS5 leads major banks Overall business NPS6 3rd 1st 1st  Steady Women in leadership (%) 46 45 48  3ppts 1 RBA Financial Aggregates, September 2014. 2 APRA Banking Statistics, September 2014. 3 Refer slide 147 for consumer NPS details. 4 Refer to slide 148 for wealth metrics provider details. 5 Refer to slide 147 for business NPS details. 6 Refer to slide 148 for average products per customer metrics details. 102 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack Investment, innovation and customer focus delivering growth across all brands Positive cash earnings across all brands ($m) 1,392 47 96 17 12 16 Quality improvement – reduced stressed assets to TCE (%) Excellent customer growth (#’000) 1,580 Lloyds 3,613 3.9 3.7 3.2 240 3,260 2.3 3,159 Bank of Melbourne delivering growth FY14-FY13 • • • • • • • 3,026 1.6 3,373 FY14 RAMS BankSA Bank of Melbourne St.George Lloyds FY13 2,961 Positive cash earnings growth funding expansion 94 branches/instores (up 17) Market share 4.6% (up 30bps)1 Household deposits 3.2x Victorian banking system2 and mortgages 2.4x Victorian system3 Strong household deposit growth up 30% to $5.5bn, mortgages up 18% to $17.8bn and total lending up 13% to $23.9bn 13% lift in customer numbers. MyBank customer growth up 15% Very involved with the Victorian communities including: a partnership with Melbourne City Mission; Bank of Melbourne Neighbourhood Fund and Local Project; presenting partner of Melbourne Food and Wine Festival FY10 FY11 FY12 FY13 FY10 FY14 Maintaining innovation edge • • Leverage strong heritage of digital capability – First internet banking4 (1995) – Real time banking4 (1996) – First to send SMS alerts4 (2003) – First savings/transaction accounts opened via mobile devices4 (2010) – First to deliver finger print access logon via mobile devices5 (2014) Provide innovative customer solutions – Credit and debit card application and activation via mobile (2012) – Personal loans on mobile (2013) – Ability to view e-statements via mobile (2013) – Identifying customers entering branch via iBeacon (2014) FY11 FY12 FY13 FY14 Service revolution • • • Development of ‘Our Service Promise’ program which included – Establishment of key service behaviours and staff empowerment model – Successful national roll-out with all staff attending immersion sessions around Australia Reinvigoration of branch network model through FreshStart now rolled out to 144 branches Business Connect, providing SME customers access to expert bankers now rolled out to 140 branches 1 Market share as measured by footings (household deposits and housing balances). 2 Bank of Melbourne growth multiple is for the 9 months to June 2014 for Victoria and estimated based on State based ABS National Accounts data along with ABA/Cannex surveys. 3 Growth multiple is for the 11 months to August 2014 for Victoria and estimated based on ABS new housing finance statistics, State based ABS National Accounts data along with ABA/Cannex surveys. 4 First in Australia. 5 First bank in the world. 103 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack Strong BT cash earnings growth up 16% Cash earnings ($m) Cash earnings movement ($m) Revenue up 331 (14%) 7 96 97 Expenses up 116 (10%) (20) (96) 3 131 (96) Movement FY14 – FY13 Cash earnings up 122 (16%) 51 (39) 110 895 Markets  4% 895 • Flows revenue up $131m 773 Flows  6% FY14 Capital & other Insurance Funds Management FY13 FY14 Tax and NCI Impairment charges 2 Other expenses Strategic investment Other revenue 1 GI Claims Markets Flows FY13 773 Funds Management Insurance Capital and other   • Up $51m to $319m – Life in-force premium growth of 16%, lapse rates improved at 13.2%3 and remain below market 19% – General Insurance gross written premium up 11%, claims down $7m – LMI cash earnings down $9m  • Down $39m to $37m 51% – Lower returns on invested capital and higher stamp duty costs • Life Insurance in-force premium and General Insurance gross written premium up 16% and 11% respectively • delivering quality advice and improved productivity • Private Wealth lending up 9% • Strong net flows into Advance Other revenue  4% Cash earnings FY14 – FY13 up 16% • Up $110m to $539m – Increase in asset markets 26% – BTIM performance fee revenue up $79m – Increased strategic investment and compliance spend • Asset markets stronger, positively impacting FUM and FUA related revenue across platforms, superannuation and asset management • Mainly driven by BTIM performance fees, up $79m on FY13 due to strong outperformance of funds • Strategic investment costs up $20m driven by investment in Panorama and planner productivity Expenses  10% • Other expenses up $96m, driven by higher volume, regulatory change expenses and bonuses associated with performance fees Key financial metrics FY14 Expense to income (%) 51.9 49.8  211bps ROTE (%) 27.3 31.5  419bps 1 Other revenue includes BTIM performance fees and Life Insurance revenue. 2 Other expenses includes performance related payments in BTIM. 3 Plan for Life, June 2014. 104 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack Change on FY13 FY13 Leading wealth provider and investing for the future BTFG’s cash earnings tend to be seasonal – given insurance claims and fund activity – and are best compared annually or to prior corresponding period (2H13) Cash earnings ($m) Cash earnings movement ($m) Revenue up 139 (12%) 103 33 (12) 15 Expenses up 43 (7%) (15) (28) (1) (48) 457 Movement 2H14 – 2H13 Cash earnings up 47 (11%) 24 (29) 52 457 Markets  3% 410 410 2H14 Insurance Capital and other Funds Management 2H13 2H14 Tax and NCI Impairment charges Other expenses2 Strategic investment Other revenue 1 Gl Claims Markets • Flows revenue up $103m Flows 2H13 • Asset markets higher, positively impacting FUM (up 17%) and FUA (up 10%). Related revenue across platforms, superannuation and asset management higher • Maintained lead FUA position with all Platforms market share ranked number 1 at 19.7%3 Flows  9% • Average margin lending balances down 6% • Private Wealth lending up 9% Cash earnings 2H14 – 2H13 up 11% Funds Management Insurance Capital and other    23% • Up $52m to $274m driven by – Increase in asset management with FUM growth of 17% – Partially offset by increased strategic investment – Impairment charge of $2m, up $1m 16% • Up $24m to $172m driven by – Life in-force premiums up 16% – General Insurance claims up $12m – 8% General Insurance gross written premium growth • Down $29m to $11m driven by – Lower returns on invested capital 73% • Life Insurance in-force premium and General Insurance gross written premium growth of 16% and 8% respectively Expenses  7% • Strategic investment costs up $15m with focus on improving planner productivity, investment in Panorama • Other expenses up $28m, driven by compliance and volume related costs Key financial metrics 2H14 Expense to income (%) 51.0 48.9  210bps ROTE (%) 29.3 32.0  271bps 1 Other includes BTIM performance fees. 2 Other expenses includes performance related payments in BTIM. 3 Plan for Life, June 2014, All Master Funds Admin. 105 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack Change on 2H13 2H13 Continued growth across business drivers Key features of 2H14 • • • Key performance metrics Solid growth across all earnings drivers – FUM and FUA up 8% and 6% respectively – Insurance businesses continue to offer a range of solutions to help customers protect their wealth. Life Insurance in-force premiums increased 8%. General Insurance gross written premiums up 4% The Advice and Private Wealth businesses continue to meet our customer’s whole of wealth needs Delivering on strategic investments – Panorama’s successful cash hub launch and ongoing phased delivery – 1,000+ advisors currently registered to use Panorama – Well positioned for regulatory change FUM / FUA Average Period end $bn 2H14 – 1H14 % mov't $bn FY14 – FY13 % mov't BT Wrap/Asgard FUA 90.6 7 91.7 11 Corporate Super 18.0 8 18.1 14 Other FUA 3.1 (6) 2.9 (28) Total FUA 111.7 7 112.7 10 Retail FUM 16.8 2 16.7 2 Institutional FUM 23.1 - 23.4 4 Wholesale FUM 46.5 13 48.9 30 Total FUM 86.4 7 89.0 17 Change on 1H14 2H13 1H14 2H14 Planners (salaried & aligned) (# spot) 1,169 1,195 1,220  2% Revenue per Private Wealth banker1 ($’000) 1,240 1,340 1,457  9% BT Super for Life (retail) customers (#’000) 396 432 466  8% BT Super for Life (retail) FUM ($bn) 3.7 4.3 4.9  14% Platform market share2 (including Corporate Super) (%) 19.5 19.7 19.7  Flat Retail market share2 (excluding cash) (%) 18.3 18.4 18.4  Flat Life Insurance market share3 (%) 10.3 10.8 11.4  59bps Home & contents market share4 (%) 5.1 5.2 5.5  26bps Women in leadership (%) 41 41 44  3ppts 1 Revenue per spot Private Wealth banker. 2 Plan for Life, June 2014, All Master Funds Admin. 3 Plan for Life (Individual Risk) rolling 12 month average. New sales includes sales, premium re-rates, age and CPI indexation. June 2014. 4 Internally calculated from APRA quarterly general insurance performance statistics, June 2014. 106 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack Strong value creation across wealth business Planner numbers (#) FUM ($bn) Salaried planners Aligned planners Aligned planners up 8% FUA ($bn) BTIM (exc. JOHCM) Advance JOHCM Retail Super/Other Up 17% 619 564 651 Up 2% 76.2 667 65.7 15.9 550 1H13 2H13 553 544 1H14 2H14 Life Insurance lapse rates1 (%) WBC Peer 3 Peer 1 Peer 4 Up 8% 25.2 20.8 14.4 17.1 20.5 24.1 27.7 17.4 17.0 18.1 1H13 2H13 1H14 2H14 Life Insurance in-force premiums ($m) Peer 2 102.7 106.8 Up 6% 2H13 1H14 18.0 23.0 18.3 557 17.5 112.7 89.0 82.1 18.0 Up 10% 95.5 1H13 General Insurance gross written premiums ($m) Up 16% 20% 635 685 2H14 Up 8% 235 792 734 227 Up 8% 218 Up 4% 15% 198 Jun-14 Jun-13 Jun-12 Jun-11 Jun-10 10% 1H13 1 Plan for Life, June 2014. 107 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack 2H13 1H14 2H14 1H13 2H13 1H14 2H14 Solid WIB performance up 4% in FY14 excluding significant items Cash earnings movement ($m) 1,575 (61) (81) 1,433 110 13 Movement FY14 – FY13 (92) 47 (27) 1,484 (16) 1,468 • Cash earnings  7% up 4% •  9% FY14 1 CVA FY14 (adjusted) Impairments Tax & NCI Core earnings Expenses Non-II Net II FY13 (adjusted) 1,2 Hastings CVA FY13 1 Down 7% Net interest income  • Excluding impacts of CVA and Hastings (as above) core earnings up 2% • Average interest-earning assets up 13%. Growth was supported by a lift in business lending, trade finance and Lloyds, with net loans up 17%. Deposits up 6%, mainly in term deposits Offset by net interest margin compression 1% • Investing in the business, expanding capabilities in Asia Net interest margin WIB expenses ($m) 15 7 Amort'n & Depr'n Lloyds Core expenses 1,207 Non-interest income Building capabilities in Asia and meeting regulation Expenses ex. investment and Lloyds FY13 74 1 After tax impact. 2 Represents revenue associated with Hastings’ exit of listed infrastructure funds. 108 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack  • Lower net interest margin reflects competition for both assets and liabilities, in particular transactional deposits • FY13 included significant revenue from the exit of listed infrastructure funds, and an $87m CVA benefit compared to a $23m CVA charge in FY14 Excluding the impact of these items, non-interest income was up 8% or $110m 7% • FY14 (4) Business investment 1,115  24bps Expenses  8% Impairment benefit  53% FY13 included a large benefit from CVA and revenue associated with Hastings’ exit of listed infrastructure funds. These items were not repeated in FY14 Excluding these impacts WIB’s cash earnings increased 4% • Increase in expenses reflects continued build of capabilities in Asia. Excluding investment and Lloyds, core expenses were down $4m • $136m benefit in FY14 (FY13: $89m benefit) mainly reflects lower new IAPs 2H14 impairment benefit and market risk income lower sound operating performance, good customer flows Cash earnings movement ($m) 752 21 (22) Movement 2H14 – 1H14 (27) (44) 716 36 Cash earnings  5% Core earnings  3% • Cash earnings lower mainly due to an impairment benefit of $90m in 1H14 compared to a $46m benefit in 2H14 and lower market risk related income, including a $21m negative movement in the CVA • Core earnings outcome reflects continued investment in the business, revenue in line with 1H14 • Average interest-earning assets up 5%, supported by 7% growth in business lending, including in property and infrastructure. Deposits up 7% Partly offset by lower net interest margin 2H14 Tax & NCI Impairments Expenses Non-II Net II 1H14 Down 5% Net interest income  3% • Net interest margin Solid growth on both sides of WIB balance sheet Loans (A$bn) 118.4 56.0 66.3 1H13 Deposits (A$bn) 116.8 112.8 56.5 2H13 6bps Deposit to loan ratio (%) 128.9 72.8  64.0 72.2 66.2 1H14 109 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack Non-interest income  Some stability in liability spreads, although competition for assets remains strong • Higher lending and transaction fees and higher performance fee revenue from Hastings were offset by a lower contribution from risk management activities and a higher CVA charge • Increase in expenses reflects continued build of capabilities in Asia Excluding investment and Lloyds, expenses down 3% 3% 77.3 2H14 • Expenses  5% Impairment benefit  49% • • $46m benefit in 2H14, lower compared to 1H14 ($90m benefit) mainly due to lower write-backs Customer revenue up 6% reflecting focus on customer relationships • Customer revenue1 $1,301m, up 6% (up 6% FY14/FY13). Supported by ‒ Lift in FX and Debt Markets sales from meeting customers’ risk management needs in interest rates and foreign exchange   ‒  ‒ Leveraged investment in platforms, people and product capabilities to maintain No. 1 position in core AUD and NZD FX markets2 Supported by growth in business lending, particularly in property and infrastructure, partly offset by net interest margin compression Improved capabilities in finance and operating leases delivering good momentum, with particularly strong growth in asset finance revenue 32 1,232 1,204 Well positioned to capture customer risk management activity through specialist product support and market insight, including broader capabilities through licencing and electronic facilitation 6% uplift in lending revenue and strong growth in fee revenue  Customer revenue1 ($m) Up 2% 2H13 Up 6% 1H14 Lending Focused on delivering for customers 2H14 revenue composition (%) Customer Market risk Hastings Other Deposits revenue lower with ongoing net interest margin pressure 1,301 40 (3) 12 Deposits 82 WIB customer revenue 82% of total revenue, up from 78% 2H14 Solid customer sales in WIB markets WIB markets customer sales revenue ($m) 2H13 178 3 3 Sales and fees 179 1H14 2H14 185 89 FX & CCE 101 113 Debt Markets 1 WIB customer revenue is lending revenue, deposit revenue, sales and fee income. Excludes trading, CVA and Hastings. 2 Source: Euromoney FX Poll 2014, Number 1 Australian Bank for FX, Globally. Measure of market share from 14,050 FX industry votes. 110 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack Institutional market leadership 11 years as Number 1 Lead Domestic Transactional Bank1 Global Transactional Services. No.1 Lead Transactional Bank in Australia 20142 No.1 Relationship Strength Index (All domestic relationships)2 No.1 Overall Satisfaction (All domestic relationships)2 Foreign Exchange. Debt Markets. Relationship. Insight. No.1 Australian Bank for FX, Globally3 No.1 Debt House in Australia7 No.2 Lead Relationship Bank in Australia10 No.1 Australian Bank for FX Quantitative Research in Australasia4 No.1 Australian Domestic Bank in the Fixed Income Markets8 No.1 Most Useful Analysis of the Australian Economy11 No.2 Relationship Strength Index10 No.1 Research and Analysis on Structured Finance9 No.2 Overall Satisfaction with Products and Services10 No.1 Australian FX Bank for Client Service in the Asian and Australasian Timezone and Geography5 No.1 Most Useful Interest Rate Forecasts and Trend Analysis11 No.1 Overall FX Relationship Strength Index6 1 Peter Lee Associates Large Corporate and Institutional Transactional Banking Survey Australia. Quantitative measure from 576 votes in 2014. Westpac ranks No.1 for citations as a ‘lead’ domestic transactional bank 2004-2014. 2 Peter Lee Associates Large Corporate and Institutional Transactional Banking Survey Australia. Rank vs. Top 4. Quantitative measure from 576 votes in 2014. 3 Euromoney FX Poll 2014. Measure of market share from 14,050 FX industry votes. 4 Euromoney FX Poll 2014. Quantitative measure of market share vs. global competitors from 308 FX industry votes. 5 Euromoney FX Poll 2014, Asian Timezone. Measure of client service from 5,405 FX service user votes. 6 Peter Lee Associates Foreign Exchange Survey Australia 2013. Quantitative measure from 310 corporate and financial institution respondents. Rank vs. Top 4. 7 Euromoney Awards for Excellence 2014. 8 Peter Lee Associates Debt Securities Investors Australia Survey 2013. Rank vs. top 4 major domestic banks. Based upon the most active investors in each type of security. Based upon Westpac achieving a no.1 ranking amongst the four major domestic banks for estimated market share across Commonwealth Treasury and Semi Government Bonds, Corporate Bonds, Asset Backed Securities and CPI Linked Securities, a No.1 ranking for Relationship Strength amongst the four major domestic banks across Commonwealth Treasury and Semi Government Bonds, Corporate Bonds and Asset Backed Securities. 9 KangaNews fixed income research poll 2014. Votes by more than 60 Australian-based institutional fixed income investors only. 10 Peter Lee Associates Large Corporate and Institutional Banking Survey Australia 2014. Rank vs Top 4 from 570 respondents. 11 Peter Lee Associates Interest Rate Derivatives Survey, Australia 2013. Quantitative measure from 182 corporate respondents. Rank vs. Top 4. 111 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack Service revolution delivering solutions and new capabilities to help customers prosper and grow Delivering growth in targeted areas Revenue % Mov’t FY14/FY13 Asia (USD) 43 Trade Finance Australia and Asia 47 Natural Resources 11 WIB/AFS Partnership 5 WIB/AFS Partnership revenue up 5% • • • • Leading web-based receivables product for independent schools leveraging WIB transactional capability now rolled out to 15 schools. Reduces five month implementation to 3-4 weeks, getting customers up and running quickly FX capabilities delivered to retail customers. Global Currency Card launched April 2014 – 36,000 card sales, four star Canstar Rating2 in first year Institutional insights provided to Private Banking customers through WIBIQ Fixed income investment options available on BT platforms Delivering solutions and new capabilities for customers WIBS for Service Bureaus – end to end automation of customers’ digital bank statement distribution to third party service bureaus reducing processing time by 2-3 weeks Mobile PayWay delivered for transactional banking customers Redesigned Merchant ID establishment to a bulk upload process for large customers Positioned strongly for future growth Infrastructure • Westpac has a leading position in infrastructure, with a strong team in place. Hastings also gives Westpac a unique opportunity for growth in this sector • 7 major transactions successfully closed by WIB in FY14, with a total project value of approximately $16bn • Key growth area. Non-mining projects in total are valued at $456bn, up $27bn on a year ago1 and there is a renewed commitment by Government to invest in infrastructure Joint Lead Manager on the first Green Bond in Australia, issued by The World Bank Launch of Corporate Mobile accessing Corporate Online features on smartphones and tablets – almost 10,000 downloads since launch Delivering electronic trade solutions to reduce processing costs, lower operational risk and improve the working capital cycle for customers Superannuation • Westpac is a leader in superannuation rollover services • Westpac’s QuickSuper Clearing House and Gateway streamlines and automates superannuation payments • More than 25,000 employers across the country are now using Westpac’s Clearing House and Gateway to pay their employees’ superannuation contributions Closed loop payments solution eliminating cash handling and manual processes (for clubs, universities schools and others) 1 Sources: Deloitte Access Economics “Investment Monitor”, Westpac Economics June 2014. 2 Canstar Star Ratings Travel Money Cards, June 2014. 112 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack Connecting our customers to the trade, capital and people flows between Asia and Australasia Building capabilities in Asia in key product and customer areas Trade Finance Key milestones in FY14 – Focus on China First Half 2014 Sub-branch preliminary approval in Shanghai Free Trade Zone Global Capital Markets Financial Institutions Structured Asset Finance 3rd bank since 2011 to be granted China Derivatives licence Second Half 2014 China FX Derivative approved for G7 currencies UnionPay Agreement signed Granted NZD/CNY Market Makers Licence Structured Commodity Finance Key milestones in FY14 – Broader Asian region Premium Banking Welcomed over 100 corporate and institutional customers In May 2014, Westpac launched its market leading index tracking Chinese consumer sentiment, gaining significant market commentary 113 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack Structured Commodity Finance business up and running - completed 4 key deals Commenced trading G10 interest rate derivatives and USD Interest Rate Swaps under the current general derivatives licence 1st RMB offshore trade in Singapore Risk management continues to be a competitive advantage Impairments: (charges) / benefits ($m) New IAPs Write-backs Stressed exposures as a % of TCE Change in CAP Total impairment benefit Impaired 125 104 98 93 58 48 4.3 90 66 43 46 90+ days past due well secured Watchlist & substandard 4.6 46 3 3.5 (15) (69) (100) 2.3 1.8 0.8 2H14 1H14 2H13 • WIB continues to benefit from its strong risk management disciplines, recording impairment benefits in the last four halves • Impairment benefit of $46m was 49% lower compared to 1H14 ($90m). Lower new IAPs have not fully offset the lower write-backs and lower changes in CAP. Write-backs and changes in CAP have reduced as the volume of stressed assets has declined and the quality of the portfolio has improved 114 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack 1H13 2H14 1H14 2H13 1H13 2H14 1H14 2H13 1H13 2H13 2H14 1H13 (186) 1H14 2.6 3.6 1.0 2.1 1.6 1.5 1.2 1.4 1.0 1.0 0.9 0.7 0.7 0.8 0.7 0.9 0.7 0.7 0.7 0.7 0.6 0.6 0.4 0.3 0.2 0.2 0.1 FY07 FY08 FY09 FY10 FY11 1H12 2H12 1H13 2H13 1H14 2H14 • The level of stress in the portfolio has declined substantially from the peak in FY10 (4.6%) and is down 14bps to 89bps (down 27bps FY14/FY13) • The current level of stress remains below the long term average of approximately 2% • Impaired assets to TCE down 11bps to 23bps (down 19bps FY14/FY13) New Zealand NZ delivers a strong performance across return, growth, productivity and strength FY14 % of Group cash earnings Cash earnings movement (NZ$m) 91 768 38 6 (35) 864 (4) 10 2.33 (2bps) 2.31 (30bps) 21bps 5bps Core earnings  3% • Up $40m to $1,222m, driven by 2% revenue growth and flat expense outcome 2% • Up $38m to $1,592m • Solid lending growth of 5% with strong targeted growth in housing and agriculture, both ahead of system1 • Deposits up 6% largely funding lending growth 6bps • Underlying margins declined by 4bps • The transfer of assets from NZ Branch Treasury operations in 2H14 reduced NIM by 2bps • Asset spread compression due to continued customer preference for lower spread fixed rate mortgages and intense market competition • Partly offset by deposit spread improvement and lower wholesale funding costs  Net interest margin  26 FY12 1 Reserve Bank of New Zealand (RBNZ) September 2014. 115 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack FY13 FY14 • Up $96m to $864m Non-interest income  1% • Underlying income up 3% driven by increased wealth and insurance income • Partly offset by Christchurch earthquake insurance received in FY13 not repeated Expenses - Flat • Ongoing investment in strategic initiatives delivering productivity benefits 117 FY14 Wholesale funding costs and other Customer deposits Assets Down 4bps FY13 adjusted 13% 2.27 191 Branch treasury  FY14 Tax & NCI Impairment charge (NZ$m) Net interest margin (% and bps) FY13 Cash earnings Net interest income Impairment charges Expenses Non-II Net II FY13 Up 13% Key financial metrics FY14 - FY13 (NZ$m) Impairment charges  78% • Impairment charges down to $26m due to disciplined credit decisioning, reduced stressed assets in business lending and continued improvement in mortgage and other consumer lending delinquencies New Zealand Improved core earnings growth with continued low impairments Cash earnings movement (NZ$m) 46 1 (4) 432 (8) - Flat • Cash earnings of $432m flat on 1H14 Core earnings  4%  • Up $26m to $809m • Lending up 2% with growth ahead of system1 in 3% housing and agriculture lending • Deposits grew by 2% Net interest margin  • Underlying margins improved 2bps • The transfer of assets from NZ Branch Treasury operations in 2H14 reduced NIM 3bps • Asset spreads declined mainly reflecting 1bp continued customer preference for fixed rate mortgages and intense competition • Deposit spreads improved driven by active rate management and portfolio optimisation as well as a reduction in wholesale funding costs Non-interest income - Flat • Maintained strong wealth and insurance performance from 1H14 Expenses  1% • Ongoing investment in strategic initiatives delivering productivity savings 2H14 Non-II Net II 1H14 Tax & NCI Flat Impairment charges Expenses Cash earnings Net interest income Tax & NCI 3 Non-II Net II (18) 432 Up 8% 2H13 (5) Impairment charges 3 26 Expenses 400 (12) Key financial metrics 2H14 – 1H14m (NZ$m) Key financial metrics Change on 1H14 2H13 1H14 2H14 Revenue (NZ$m) 1,016 1,022 1,049  3% Margins (%) 2.32 2.28 2.27  1bp Expense to income (%) 40.7 41.3 40.7  58bps Customer deposit to loan ratio (%) 75.7 76.6 76.5  11bps ROTE (%) 19.8 21.2 20.9  29bps 1 RBNZ September 2014. 116 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack Impairment charges  • Up $22m to $622m driven by 3% increase in revenue • Impairments up $18m to $22m, coming off a very low 1H14 charge of $4m • Asset quality continues to improve with total Large stressed assets to TCE at 1.59% (down 26bps) and 90+ days mortgage delinquencies at 21bps (down 8bps) New Zealand Investment delivering improvement in key operating metrics Building deeper customer relationships • Key performance metrics Deepening customer relationships continues to be a key area of focus with good growth in MyBank customers (now 27.7% of customer base, up 63bps) Change on 1H14 2H13 1H14 2H14 Customers (#m) 1.28 1.28 1.28 − Flat Active digital customers (#’000) 630 647 661  2% Active mobile customers (#’000) 219 254 280  10% MyBank customers (%) 26.8 27.1 27.7  63bps Customers with a wealth product3 (%) 26.7 27.0 27.9  94bps Responding to changing customer preferences FUM (NZ$bn) 4.4 4.9 5.5  12% • A continued focus on responding to changing customer preferences through digital innovation, self-serve and direct channels New internet banking platform providing self-service banking experience – Now over 10 million log ins per month, over 3 million were via mobile devices The continued roll-out of Smart ATMs offering greater flexibility and choice for customers (now 133, the largest fleet in NZ)2 FUA (NZ$bn) 1.4 1.5 1.7  13% Number of Smart ATMs (#) 115 118 133  13% Deposits through Smart ATMs (#’000) 706 880 946  8% – Mobile mortgage managers (MMM) (#) 41 48 54  13% Mortgages applied via MMMs (%) 11 14 16  200bps Women in leadership (%) 43 43 44  1ppt • Continued roll out of Symphony1 customer communication tool, enabling timely and relevant customer conversations – • Successful growth of wealth and insurance products fulfilling customer needs – – – • • • Over 90% of customers contacted during the year, up from 78% in FY13. Over 15,000 “Next Best Conversations” per week Wealth balances of NZ$7.2bn up 24% on FY13 KiwiSaver default status provider awarded in July 2014 KiwiSaver balances grew 33% in FY14 Deposits through Smart ATMs up 41% on FY13, now 28% of all deposits with over 1 in 3 transactions outside normal banking hours Business on Demand team providing dedicated services to New Zealand SME customers 1 Symphony is Westpac New Zealand’s customer relationship management program. 2 Based on information from peer websites on distribution channels. 3 Refer slide 148 for wealth metric provider. 117 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack New Zealand Delivering returns through growth and productivity whilst strengthening the balance sheet Cash earnings (NZ$m) Core earnings (NZ$m) FUA and FUM (NZ$bn) 864 1,222 1,181 FUA 1,182 4.4 768 3.6 714 2.7 1,066 578 FY11 1.1 FY12 FY13 5.5 FUM FY14 FY11 FY12 FY13 FY14 Impairments to average gross loans (bps) Expense to income ratio (%) FY11 1.2 FY12 1.4 FY13 1.7 FY14 Deposit to loan ratio (%) 42 43.4 75.7 76.5 32 41.6 70.7 41.7 19 41.0 66.0 4 FY11 FY12 FY13 FY14 FY11 118 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack FY12 FY13 FY14 FY11 FY12 FY13 FY14 New Zealand Delivered above system performance in target markets • Housing growth of 3% (up 6% FY14/FY13), ahead of system1 – – • Transition to new >80% LVR lending restrictions well managed delivering above market average new flows (and below RBNZ limit) Good growth in Government supported Welcome Home Loans Business lending up 1% (up 4% FY14/FY13) with above system growth in agriculture lending over 2x system1 – • Good new business origination offset by run-off of business stressed assets Deposit growth of 2% (up 6% FY14/FY13) and maintaining peer leading customer deposit to loan ratio of 76.5% – Deposit growth continues to fund the majority of lending – Growth driven by at call and transaction accounts, primarily in online deposits Balance sheet growth compared to system1 growth (%) System Balance sheet (NZ$bn) 1H14 2H14 Net loans 61.6 63.2 64.6  2 Housing 37.5 38.6 39.6  3 Business & institutional 22.3 22.8 23.1  1 Other 1.8 1.8 1.9  6 Total deposits 46.6 48.4 49.4  2 Term deposits 24.9 24.5 25.2  3 Other 21.7 23.9 24.2  1 TCE 88.0 90.1 92.7  3 Customer deposits (NZ$bn) Westpac % of >80% LVR flows2 Westpac RBNZ Limit (10%) 49.4 12.5 12.2 Change on 1H14 (%) 2H13 46.6 System Westpac FY14 average = 8.2% System FY14 average = 7.1% 42.0 38.0 4.7 6.3 5.4 1 Source: RBNZ September 2014. 2 LVR flows before exemptions. 119 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack Sep-14 Aug-14 Jul-14 Jun-14 Apr-14 May-14 Mar-14 FY14 Jan-14 FY13 Feb-14 FY12 Dec-13 FY11 Nov-13 At call deposits Oct-13 Agriculture Sep-13 Housing Aug-13 2.9 New Zealand Mortgage portfolio quality significantly improved New Zealand mortgage portfolio by region (%) Portfolio highlights Auckland Christchurch • Mortgage portfolio NZ$39.6bn, up 3% (up 6% FY14/FY13) • The distribution of the mortgage portfolio across regions remains consistent with population concentrations of New Zealand • The proportion of fixed interest rate mortgages is 73%, up 5ppt (up 10ppt FY14/FY13) driven by continued customer preference for lower spread fixed rate loans • Loan origination through proprietary channels remained steady at 74% • Well secured portfolio, with 82% of the portfolio having LVR of 80% or less • Mortgage 90+ days delinquencies improved further to 21bps, down 8bps (down 8bps FY14/FY13), reflecting improved origination and stable employment levels • Westpac New Zealand has a servicing assessment approach, that includes a buffer which in the current interest rate environment is 1.00% to 1.50% higher than the standard lending rate New Zealand mortgage portfolio LVR1 (%) of portfolio 40 42 8 Mortgage 90+ days delinquencies (%) 1.0 82% of mortgage portfolio less than 80% LVR Wellington Rest of New Zealand 10 Mortgage loss rates each half (%) 0.3 0.2 42 0.2 0.5 0.1 12 0.1 0.06 0.21 1 LVR based on current loan balance and current assessment of property value. 120 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack 1H14 2H13 1H13 2H12 1H12 2H11 1H11 2H10 1H10 2H09 0.0 1H09 2H14 1H14 2H13 1H13 2H12 1H12 2H11 1H11 2H10 1H10 95+ 0.0 2H09 0<=60 60<=70 70<=80 80<=90 90<=95 3 1H09 3 2H14 23 17 New Zealand Improving asset quality with a reduction in business stressed assets Total business stressed exposures as a % of business TCE is at 3.26%, down 51bps (down 165bps FY14/FY13) Business impaired exposures increased to 0.92% of business TCE up 11bps from the downgrade of a small number of loans • Watchlist and substandard exposures have continued to improve to 2.30%, down 60bps • Impairment charges increased NZ$18m in 2H14, coming off a very low charge in 1H14 of NZ$4m, due to higher impairment charges on a small number of business customers • Overall, asset quality continues to improve with the New Zealand economy 3 12 50 (36) 39 22 2H14 Write-offs Writebacks + recoveries CAP changes + other Up $18m 4 New IAPs • Improvements across property, agriculture and manufacturing sectors 1H14 – Movement in impairment charges (NZ$m) 2H13 • Business stressed exposures as a % of New Zealand business TCE Impaired 90+ days past due well secured 16.2 15.6 Watchlist & substandard Property 21.2 13.2 14.4 12.8 9.6 7.0 6.8 4.8 4.4 6.1 4.9 4.1 3.8 1 Large reduction in stressed exposures from FY11 to 1H12 due primarily to transfer of WIB assets during 1H12. Manufacturing Agriculture, forestry & fishing Wholesale trade 6.4 3.3 3.2 0.3 0.2 2.9 0.2 2.3 0.2 0.1 3.4 0.4 2.6 0.2 2.2 2.0 1.9 1.4 1.5 0.8 0.1 0.9 1 FY09 FY10 FY11 1H12 2H12 1H13 2H13 1H14 2H14 121 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack 25.3 10.3 19.9 Mining 16.9 Other Westpac Pacific solid earnings contribution despite regional headwinds Cash Earnings movement ($m) (10) (2) (5) 6 65 flat (22) 3 5 57 Cash earnings  12% Net interest income - flat Net interest margin  19bps • Cash earnings down $8m, impacted by foreign exchange controls introduced in Papua New Guinea (PNG) • Translation impacts from movements between the A$ and local currencies had little impact on cash earnings • Net interest income was unchanged over the half. Net interest margin management offset the reduction in average interest earning assets. Lending increased by 13%, mainly driven by a rise in business lending in PNG and Fiji • Non-interest income was $22m lower, due to Impairment charges Expenses Non-II Net II 1H14 Down 12% Tax & NCI Impairment charges Expenses Non-II Net II 2H13 Down 18% 6 2H14 (3) Tax & NCI 79 Movement 2H14 – 1H14 ‘Everywhere Banking’ in the Pacific Non-interest income Launched new mobile banking platform in the Solomon Islands (February) and PNG (September) - more than 10,000 customers registered in the Solomon Islands • Corporate Online active in 2 largest markets, PNG and Fiji • Launched the Kina Finance esiLoan Card in PNG, alongside our business customer Kina Finance 122 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack  ‒ Lower FX income from the impact of new financial markets regulations in PNG 25% Expenses  10% Impairment charges  50% ‒ Partly offset by increased fees and commissions due to retail growth and an increase in Corporate Online in PNG and Fiji • Strong expense management and productivity benefits as customers transition to using storebased banking services and electronic channels saw expenses $5m lower • Impairment charges of $3m were $3m lower, reflecting the quality of the portfolio Bank of mestpac *?georga banks-? Melbourne RAMS. Financialemup WESTPAC BANKING CORPORATION ABN 33 00? 45?141 Our investment in technology will continue at current levels as we progress Phase II of our modernisation journey Progress in 2014 Channels: helping customers to bank their way • Westpac Live – our market-leading integrated mobile and digital system is the foundation of transforming the digital banking experience for customers • World class mobile capabilities – simple and helpful customer experiences that drive deep and enduring relationships Customer Channels • Branch experience – continued roll-out of our next generation branch network Processing Systems: scalable, modular, flexible • Deposits - Commenced the consolidation of Hogan platforms • Panorama – continued delivery of best-in-class wealth technology Processing Systems • Lloyds integration – continuing the integration and decommissioning legacy system environment and four data centres • Group general ledger – completed a significant system upgrade and replacement of aged, underlying infrastructure Infrastructure Infrastructure: robust, stable, secure • Further data centre consolidation • Continued modernisation of the Group’s desktop fleet Blue shading indicates progress to 2017+ target state • Productivity enhancements through the transformation of our workplace Phase I: 2008 – 2013 centred on rebuild and refresh; Phase II: 2014 – 2017+ focuses on building for the future 124 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack Market leading mobile capabilities, world class digital platforms and secure infrastructure Our customer first technology strategy is delivering leading functionality and capabilities… Paris Westpac Live - New digital banking experience with award winning design and user friendly features across digital, mobile and tablet Enabling customers to submit $18.7 billion of payments with 55 million customer logons to date Emergency Cash allowing customers to access their cash from ATMs without their card, and the mobile version - Get Cash, allows customers to access the temporary ATM code via their mobile Helping 34,000+ customers out of bind with emergency cash since launch Mobile PayWay - Accept payments using the PayWay app and a wireless, secure card reader Helping over 800+ merchants accept transactions since the July launch of mobile PayWay Travel Notifications - Westpac Mobile now has the ability to prompt customers to advise us if they are going overseas Allowing 80,000 customers per month to head overseas with confidence Simplified and mobile-optimised sales for consumer and business deposits, credit cards, and personal loans Making it easier for customers to buy resulting in additional 10 – 20% increase in application completion Global ATM Search - mobile app allows customers to search for largest free ATM network in the world Helping customers with over 10,000 searches each month across 45 countries London 125 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack …which is supporting our customers’ shift to the digital economy 2.7m customers migrated onto Westpac Live >50% credit cards originated via digital in the past year Global leading Westpac Live Australian Mobile Banking app capability1 10-20% increase in Mobile Business Card completion rates #1 >10% 79% mobile customer satisfaction for St.George2 Digital sales % of overall retail sales year on year increase in mobile sales $150m+ 67m 633k New new sales revenue from digital pro-active service messages customers have switched to e-statements in FY14 >200% increase in digital gross productivity save3 59% year on year reduction in ‘Severity 1’ outage incidents FY13 – 44 FY14 – 26 1Forrester’s 2014 Australian Mobile Banking Functionality Benchmark: It’s All Happening Down Under! 2 RFi, Australian Mobility Banking Program, June 2014 survey results. 3. Financial $ productivity benefits associated with shifting servicing activity out of high-cost channels such as Branch and customer contact centres (ccc) to low-cost channels such as digital. This is a gross opportunity associated with freeing up capacity in branches and CCC, and requires harvesting through cost reduction to be realised. 126 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack Our strategy orients the Group’s technology around a Customer Service Hub… The Customer Service Hub enables us to know our customer, anticipate their needs and empower them to bank how and when they want. It is a combination of technology infrastructure, data, tools and new processes centred on the customer and the information we have about the customer. Simplified Product sets and service are simplified and easy to understand for customers and bankers which also allows quicker speed to market for products that best meet customer needs Omni-channel Personalisation Customers are able to contact the bank however and wherever they want, and can seamlessly move between channels Customers are understood and are offered bundled and relationship based pricing that rewards loyalty, customers are personally welcomed Customer Service Hub ‘Walk out working’ Provide information once Customer information is re-used and their history is known and recognised at each interaction Proactive service Customers are proactively offered the ‘next best offer’ based on their needs and information they have provided 127 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack Simple processes that are easy and transparent supported by straight through processing that allows realtime approval and activation of products …which elevates customer experiences and enables modular upgrades to best-in-class processing systems Customer Channels Processing Systems Today banks typically have siloed customer and product data & processes making it difficult to provide an integrated customer experience Infrastructure Description: Features: Outcome: Banks of today Banks of the future Channel Systems Channel Systems Customer Service Hub Customer Data Product System A Product System B Product System C Product System D Product System E In the future winning banks will have integrated customer, product processes & data Customer Data Product System A Product System B Product System C Product System D Product System E Analytics Systems Analytics Systems Infrastructure Platforms Infrastructure Platforms Siloed customer and product data and processes that is duplicated or scattered across multiple product processing systems Duplicate customer data, multiple product catalogues, product-specific pricing and offers, fragmented risk and customer service A fragmented and repetitive customer experience and cumbersome, monolithic product systems with duplicated data and processes Consolidated customer and product information integrated via the Customer Service Hub 128 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack Integrated customer master, cross-product catalogue, relationship pricing and offers, integrated risk and customer service The ability to put the customer at the centre of service, offers, pricing and risk Duplicated customer and product related data and processes will be consolidated in the future to support customer experience outcomes Our earlier investments in infrastructure platforms are now supporting and accelerating our strategy A robust, stable and secure infrastructure environment... Consolidated data centres • An additional data centre consolidated, 4 data centres consolidated over recent years • 9 major data centres to 5 Flexible and agile working environments • New Audio/Visual and collaboration technologies • Cloud based Mobile Device Management solution Enhanced enterprise security Modern desktop fleet • Real-time Group Fraud Management Platform • Westpac Live enhanced, riskbased customer authentication • 452 applications remediated to run on a modern desktop • 190 branches now running virtual PCs • Majority of all users now on Windows 7 and above Consolidation of legacy workplace • Migration from 3 legacy email systems to 1 • Mailbox migration 65% complete • 1,000 smartphone desk-phone replacements 129 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack Starting the journey to leverage the Cloud • Foundational infrastructure build underway to allow for broad enterprise consumption of public Cloud services …enables Resource shift to value-add services Rapid deployment, high services reuse and agile delivery Secure platforms to support trusted relationships with our customers FULL YEAR 2014 ECONOMICS COMPARISON OF 2H14 VERSUS 1H14 CASH EARNINGS BASIS (UNLESS OTHERWISE STATED) NOVEMBER 2014 Australian and New Zealand economic forecasts Key economic indicators1 (%) as at October 2014 Calendar year 2012 2013 2014f 2015f World GDP 3.4 3.3 2.9 3.7 Australia GDP 3.6 2.3 3.2 3.2 Private consumption 2.6 2.0 2.5 3.2 Business investment2,3 16.4 –2.2 –4.0 –2.0 Unemployment – end period 5.3 5.8 6.1 5.8 CPI headline – year end 2.2 2.7 2.2 2.8 Interest rates – cash rate 3.0 2.5 2.5 3.0 Credit growth, Total – year end 3.6 3.8 5.2 6.7 Credit growth, Housing – year end 4.5 5.4 6.7 7.5 Credit growth, Business – year end 2.9 1.7 3.5 5.5 GDP 2.5 2.8 3.6 3.2 Unemployment – end period 6.8 6.0 5.4 4.9 Consumer prices 0.9 1.6 1.0 2.2 Interest rates – official cash rate 2.5 2.5 3.5 4.0 Credit growth – Total 3.6 4.8 4.5 4.9 Credit growth – Housing 3.7 5.9 5.1 5.1 Credit growth – Business 3.6 3.5 3.5 4.7 New Zealand 1 Source: Westpac Economics . 2 GDP and component forecasts updated following the release of quarterly national accounts. 3 Business investment adjusted to exclude the effect of private sector purchases of public assets. 131 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack Australia remains well-placed relative to developed economies Net public debt levels as a % of GDP 2013 Australia’s economy: diversified and flexible 110.7 81.3 55.7 83.1 Sector contribution to GDP (%)1 87.6 60.4 11.9 38.5 13.5 Manufacturing 5.7 8.4 Construction 5.6 26.0 Mining 8.6 Rural Utilities & transport 11.5 3.2 Wholesale & retail Property, business services 12.7 Finance 2.6 8.4 Italy France UK US Spain Germany Canada NZ Aus 11.1 Communications Household services 10.3 Education & health Government Sources: ABS, Westpac Economics. 1 Excludes ownership of dwellings and taxes less subsidies. Sources: IMF, Westpac Economics. Real GDP growth (%) Australian economic growth and external shocks % growth, year-ended 8 8 6 Australia 4 UK 2 Canada 0 US -2 -4 Euro -6 -8 Jun-98 Jun-02 Jun-06 Jun-10 Jun-14 Sources: OECD, Westpac Economics. 132 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack GDP %yr 6 Tech Wreck, ~ 90% of export markets in recession Global recession, but home grown property bust GFC, ~ 70% of export markets in recession GDP %yr 8 6 4 4 2 Asian Crisis, ~ 60% of export markets in recession 0 -2 Jun-86 € shock 2 0 -2 Jun-90 Jun-94 Sources: ABS, Westpac Economics. Jun-98 Jun-02 Jun-06 Jun-10 Jun-14 Australia’s economic transition from mining to non-mining Australian growth mix: Contributions to GDP growth (%) % 4 2012 2013 2014f Investment: share of Australian economy (% of GDP) % of GDP 15 mining, CAPEX 2015f Forecasts end 2015 housing investment business investment (ex mining) 3 10 2 5 1 0 Dec-89 0 -1 Dec-01 Dec-05 Dec-09 Dec-13 Commodity prices: the long view Consumer* * includes housing Mining investment Business investment Net Exports GDP Sources: ABS, Westpac Economics. • Dec-97 Sources: ABS, Westpac Economics. -2 • Dec-93 The Australian economy is moving through a transition from mining to non-mining led growth. After a large, multi-year rise, mining investment peaked at 7% of GDP in 2012 and is now moving through a gradual but prolonged decline. Falling resource prices have added to this drag on national income but are expected to improve in 2015 Surging export volumes and reduced imports have provided an important offset in 2013. Rising consumer and housing demand and a modest lift in non-mining business investment are expected to provide more support to growth in 2014 and 2015 index 600 Australian commodities in US$ 400 300 200 100 0 Oct-85 Oct-90 Oct-95 Oct-00 Sources: Westpac Economics, Bloomberg, ABS. 133 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack Forecasts 500 Oct-05 Oct-10 Oct-15 Oct-20 Labour market showing some signs of improvement Unemployment rates (%) % 14 Australia Personal bankruptcies vs company insolvencies (%) Canada UK US Euro 3.5 Company insolvencies (rhs) % Personal bankruptcies (lhs) 3.0 12 % 2.5 Sources: OECD, Westpac Economics. Household services sector accounts for approx. 20% of Australia’s output and employs about one third of the population. 500 400 300 200 Cumulative change in industry employment (‘000) ‘000 Household Services 500 400 Mining 300 Construction 200 Business Services Public Admin Manufacturing 100 100 Goods Distribution 0 Other 0 134 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack Sources: ABS, Westpac Economics. Mar-14 Mar-13 Mar-12 Mar-11 Mar-10 Mar-14 Mar-13 Mar-12 Mar-11 Mar-10 Sources: ABS, Westpac Economics. Mar-09 -100 -100 Mar-09 Jan-14 Sources: ASIC, ITSA, ABS, Westpac Economics. Cumulative change in industry employment (‘000) ‘000 Jan-13 Sep-14 Jan-12 Sep-10 Jan-11 Sep-06 Jan-10 Sep-02 Jan-09 0 Sep-98 Jan-08 0.0 Jan-07 2 *seasonally adjusted by Westpac; bankruptcies shown as per 1000 people, insolvencies shown as per employing businesses Jan-06 0.5 Jan-05 4 Jan-04 1.0 Jan-03 1.5 6 Jan-02 2.0 8 Jan-01 10 1.6 1.4 1.2 1.0 0.8 0.6 0.4 0.2 0.0 Interest rates to remain low AUD remains high by historical standards Major countries’ policy rates (%) % 8 Australia UK Canada Australian dollar (AUD/USD) US Euro USD USD 1.20 Fair value band 1.20 AUD/USD actual & forecast Forecasts 7 1.10 6 1.00 1.00 5 0.90 0.90 4 0.80 0.80 3 0.70 2 0.60 1 0.50 0 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 Sources: RBA, OECD, Westpac Economics. • We expect the growth mix to see the RBA maintain its current accommodative stance, holding the cash rate at 2.5% • As conditions improve abroad and domestic demand shows signs of firming the Bank is expected to begin a gradual policy tightening with two 25bp interest rate rises in the second half of 2015 • Price pressures are expected to remain benign with core CPI inflation easing back towards 2.5% in 2015 and wages growth subdued. Labour markets are only expected to improve slowly 135 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack latest: 87.2 1.10 0.70 0.60 0.50 Includes WCFI+BI commodities index, 2 year swap spread, and NFD to GDP. 0.40 Apr-91 Apr-95 Apr-99 Apr-03 Apr-07 Apr-11 0.40 Apr-15 Sources: RBA, Westpac Economics. • The high Australian dollar remains an additional headwind to growth, albeit a reduced one following significant falls in recent months • The currency remains above ‘fair value’ based on long run fundamentals and is still relatively high by historical standards • The AUD is also expected to lift again, rising back above 90c in 2015 as global conditions and an associated recovery in commodity prices provide support Credit growth picking up at a modest pace Business confidence and consumer confidence (net balance) 140 monthly Consumer (lhs) Business * (rhs) 130 % annual 25 10 20 20 15 15 10 10 5 5 0 100 % annual 20 120 110 Australian private sector credit growth (% ann) Housing Total credit Business Forecasts end 2015 25 -10 90 -20 80 70 -30 * rebased to avg 0 60 Aug-02 -40 Aug-06 Aug-10 Aug-14 Sources: Westpac MI, NAB, Westpac Economics. • Confidence remains relatively subdued • Despite a strong start to 2014, consumer sentiment has fallen over the course of the year as renewed job loss concerns have combined with concerns around a Budget tightening by the Government • Business confidence has been more resilient but has slipped back towards long run average levels in recent months 136 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack (5) (5) (10) Aug-94 (10) Aug-98 Aug-02 Aug-06 Aug-10 Aug-14 Sources: RBA, Westpac Economics. • Credit growth strengthened over the past year to around 5% annual from a little above 3% a year earlier, with a lift in both housing and business • A further improvement is expected over the coming year supported by a period of stability in interest rates at record lows, investors continuing to move in to the housing market, and an improved international environment Chinese growth remains a positive for Australia Real GDP % ann • As a $US7 trillion economy, China grew at 10%. As a $US10 trillion economy, Westpac expects China to grow at 7% • Represents an equivalent incremental contribution to global absorptive capacity, at higher levels of energy, protein, metal and consumer goods demand per head 2014f 2015f 7.7 7.7 7.4 7.5 • Chinese authorities have shown a clear commitment to maintaining growth above 7% but will be less tolerant of strong credit driven expansions – the double digit growth rates that have featured regularly over the past 20 years are now unlikely to occur • Australia will continue to benefit as Chinese households progressively expand their living standards and their consumption basket Chinese real GDP increments: 4 scenarios (% of 2012 GDP) 8% CAGR Per capita growth from middle income stage index 400 Taiwan History & 7% CAGR 6% CAGR 5% CAGR 35 35 30 30 25 25 20 20 15 15 10 10 5 5 Japan 300 250 Hong Kong Korea 200 China 150 Malaysia Thailand 100 Middle income is defined as 20% of contemporaneous US per capita GDP in PPP terms 50 years 0 0 1 6 11 16 21 26 31 36 41 Sources: GGDC, Westpac Economics. 137 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack 46 51 0 1993 1998 2003 Source: Westpac Economics. 2008 2013 2018 2023 2028 % of 2012 GDP % of 2012 GDP Were China to slow immediately to a 5% pace (a big downside shock that we do not envisage), it would still double its 2012 size by 2025 350 2013 China • 450 2012 New Zealand a mixed economic picture • New Zealand economic growth accelerated to around 3.5% per annum in response to post-earthquake reconstruction activity in Canterbury, strong net immigration, the lagged effect of rising house prices, and a fourdecade high in the terms of trade • The pace of growth has slowed since the peak, but remains reasonably robust. Conditions are now more mixed • Dairy and forestry export prices have fallen very sharply, while other export industries including meat, horticulture, tourism and education are experiencing very strong conditions • Domestic construction activity is booming, and is expected to accelerate further. However, the housing market is now cooler than it was last year, and this is restricting consumer spending • The RBNZ increased the OCR from 2.5% to 3.5% earlier this year. However, outside of the construction sector inflation has proven weaker than expected. Consequently, the RBNZ has put its OCR hiking cycle on pause. The RBNZ is expected to resume OCR hikes from late-2015 Selected NZ export commodity prices 450 index 400 350 300 Meat and wool Dairy Forestry index 450 F’cast 400 350 300 250 200 200 150 150 100 100 50 50 0 0 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 138 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack % 7 6 5 4 3 2 1 0 -1 -2 -3 1999 Forecasts 2001 2003 2005 2007 2009 2011 2013 2015 2017 Source: Statistics NZ, Westpac Economics. Earthquake-related construction activity in Christchurch ($bn) 250 Source: ANZ, Westpac Economics. New Zealand GDP growth and forecast (%) Residential Commercial Infrastructure $bn 1.6 Estimate Forecasts 1.4 1.2 1.0 0.8 0.6 0.4 0.2 0.0 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Source: Westpac Economics. 201 New Zealand housing market recovering, but expected to remain subdued • House price inflation reached 10% per annum in 2013, with the strongest gains concentrated in the two biggest cities, Auckland and Christchurch New Zealand house price inflation (annual %) • In late 2013 the Reserve Bank implemented restrictions on high-LVR lending. At around the same time mortgage rates began to rise Annual % 30 • The housing market responded rapidly. House sales dropped 19% between September 2013 and April 2014, and house prices stagnated in the first three months of 2014. Investors gained prominence in the market, at the expense of first home buyers Westpac forecast 20 10 • The market has subsequently recovered partially. House prices are rising again, and sales have lifted • The market is expected to continue picking up in the near term, as fixed mortgage rates have recently fallen and net immigration is booming (10) • Further ahead, rising interest rates are expected to subdue the housing market more comprehensively (20) 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 Source: QV, Statistics NZ, Westpac Economics. Annual growth in system housing lending (% annual change) Ann % change 2.0% 1.8% Westpac forecast 1.6% 1.4% 1.2% 1.0% 0.8% 0.6% 0.4% 0.2% 0.0% Sep-00 Sep-02 Sep-04 Sep-06 Sep-08 Sep-10 Sep-12 Source: RBNZ, Westpac Economics. 139 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack Sep-14 Sep-16 New Zealand Official Cash Rate (%) % 9 8 7 6 5 4 3 2 1 0 1999 Westpac forecast 2001 2003 2005 Source: RBNZ, Westpac Economics. 2007 2009 2011 2013 2015 2017 Australian housing market sound fundamentals • Australian housing market continues to face a significant structural undersupply • A persistently low level of new building over the last decade has combined with a strongly migration-led burst in population growth. While Australia’s annual population increase has lifted from just under 200,000 a year to well over 300,000, construction has been adding about 125,000 new dwellings net of demolitions over the same time • New construction has increased to a relatively high historical level over the last year and is expected to remain elevated in 2015 with around a net addition of around 150,000 new dwellings. While this may result in pockets of excess dwelling stock, it will only begin to address shortages across the broader market Population versus dwelling stock (annual average change ‘000) population dwelling stock* * net of demolitions – implied by Census data; Westpac estimates 196 187 77 1950s 300 236 226 210 373 114 98 1960s 1970s 125 1980s 136 1990s 125 2000s 125 last 4 years Sources: REIA, Westpac Economics. Australia’s housing stock deficiency '000 300 Rental vacancy rates (%) '000 indicative accumulated deficiency 300 7 % 250 6 200 5 150 150 4 100 100 3 50 50 2 0 0 1 f'casts Aus dwelling approvals (SA annualised) 250 Sources: ABS, Westpac Economics. 140 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack Aug-14 Aug-12 Aug-10 Aug-08 Aug-06 Aug-04 Aug-02 Aug-00 Aug-98 Aug-94 Aug-92 Aug-96 underlying 200 0 Jun-84 Australia Sydney Melbourne investor housing boom Jun-89 Jun-94 Sources: ABS, Westpac Economics. Jun-99 Jun-04 Jun-09 Jun-14 Price growth and activity some moderation since the start of 2014 • Price growth and activity have moderated somewhat since the start of 2014 Housing credit momentum • Housing credit growth is currently tracking at 6.7%yr • Price growth nationally has slowed from an annualised pace of 13.8% in second half 2013 to 9.1% in the year to October 2014 • Growth rates have varied significantly between capital cities 6mth %change, annualised Total 36 32 Owner-occupier 28 Investor 24 20 16 12 8 4 0 Aug-00 Aug-02 Aug-04 Aug-06 Aug-08 Aug-10 Aug-12 Aug-14 – Sydney up 12.8%yr; average since 2007: 5.7% – Melbourne up 8.6%yr; average since 2007: 4.9% – Brisbane up 5.2%yr, average since 2007: 0.6% • Repayment-based measures of affordability remain around their long run average levels only partly reflecting low interest rates Sources: ABS, Westpac Economics. Sources: RBA, Westpac Economics. Australia: dwelling prices vs labour incomes index Capital city dwelling prices dwelling prices labour income per household labour income per capita 250 220 190 30 % * 6mth annualised growth rates, all dwellings, composite of all measures, seasonally adjusted 20 10 160 0 130 100 -10 Sydney 70 40 Dec-95 Dec-98 Dec-01 Dec-04 Dec-07 Dec-10 Sources: RP Data-Rismark, ABS, Westpac Economics. 141 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack Dec-13 -20 Oct-08 Oct-09 Oct-10 Melbourne Oct-11 Oct-12 Sources: ABS, RP Data-Rismark, APM, Residex, Westpac Economics. Brisbane Oct-13 Oct-14 Investment property lending remains buoyant • Investor housing activity is buoyant, responding to low vacancy rates, solid rental yields, and low interest rates, including low fixed rates that also offer the opportunity to hedge interest rate risk. Rental yields are attractive compared to returns on other assets, many of which exhibit much greater volatility • New investor loans currently account for almost 40% of the value of total housing loan approvals. While that is high and brings risks, activity is coming from a relatively low starting point and evidence suggests borrowing and lending decisions are conservative • Notably, total market turnover remains below recent peaks and well below the levels seen in 2002-03, when activity was clearly overheating. High levels of turnover are often associated with increased speculative activity Housing finance approvals: value of housing finance ($bn/mth) $bn/mth 12 'upgraders', ex-refinancing 10 investor finance first home buyers 4 2 Aug-99 estimated investor purchases all dwellings units FIRB approvals Jun-02 Jun-06 Jun-10 Jun-14 Investor housing yields vs shares, deposits 6 0 Aug-94 thousands 200 *quarterly 180 160 140 120 100 80 60 40 20 0 Jun-94 Jun-98 Sources: RP Data-Rismark, ABS, FIRB, Westpac Economics. Sources: ABS, Westpac Economics. 8 Dwelling turnover Aug-04 Aug-09 Sources: ABS, Westpac Economics. 142 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack Aug-14 10 %pa 9 8 7 6 5 4 3 2 1 0 Sep-94 improved access to finance and CGT changes rental yield* ASX 200 dividend yield 1yr term deposit investor boom *median rent on 2bdrm unit as % of median unit price Sep-98 Sep-02 Sources: REIA, RBA, Westpac Economics. Sep-06 Sep-10 Sep-14 Australian households a cautious approach to household finances Australian households: debt to income ratio (%) % 180 total (gross) debt 130 total debt net of deposits* 80 Consumer survey: ‘Wisest place for savings’ 70 housing debt trend since Jun-07 * Westpac estimates prior to 1988 40 40 30 30 20 10 10 Mar-12 Mar-07 Mar-02 Mar-97 Mar-92 Mar-87 Mar-82 Mar-77 0 Sep-96 Sources: ABS, RBA, Westpac Economics. % income required to service mortgage of 75% median dwelling, all regions if mortgage rate was 1% higher Sep-08 Sep-11 Sep-14 12 9 10yr avg 6 3 20 10 Mar-79 Sep-05 % income 15 improve 15 Sep-02 Household savings rate (% income) deteriorate 30 long run avg 0 Sep-99 Sources: Melbourne Institute, Westpac Economics. Housing affordability: all dwellings 25 50 20 -20 35 % 50 shares real estate deposits pay down debt 60 includes funds held in mortgage offset accounts –23pts since peak 30 % 40 % 0 estimates based on capital cities prior to 1993 Mar-84 Mar-89 Mar-94 Mar-99 Mar-04 Mar-09 Sources: RP Data-Rismark, Residex, Westpac Economics. 143 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack Mar-14 -3 Jun-90 Jun-94 Jun-98 Sources: ABS, Westpac Economics. Jun-02 Jun-06 Jun-10 Jun-14 Bank of 6) Westpac *?georga [Janka Melbourne W5. Financial Group WESTPAC BANKING CORPORATION ABN 33 00? 457141 Appendix 1: Cash earnings adjustments Cash earnings adjustment 2H13 1H14 2H14 Description 3,464 3,622 3,939 Reported net profit after tax attributable to owners of Westpac Group TPS revaluations 1 - - Treasury shares 13 13 (6) Earnings on certain Westpac Banking Corporation shares held by Westpac in the wealth business are not recognised under AAS. These are added back as these shares support policyholder liabilities and equity derivative transactions, which are re-valued in deriving income (36) 46 (151) Unrealised profit/losses on economic hedges: FX hedges on future NZ earnings, FX hedges on fees payable on Governmentguaranteed debt, accrual accounted term funding transactions and credit spread movements on certain long term debt issuances are reversed as they may create a material timing difference on reported earnings in the current period, which does not affect cash earnings over the life of the hedge Ineffective hedges 3 17 29 Buyback of government guaranteed debt - (30) (12) The Group has bought back portions of its government guaranteed debt, which reduced the government fees on that debt, currently 70bps. The charge is being amortised over the original term of the debt that was bought back. This has been treated as a cash earnings adjustment as the economic benefit of ceasing to pay the government guarantee fee cannot be recognised Bell litigation provision - - (54) During Full Year 2012, the Group recognised additional provisions in respect of the long running Bell litigation. This was treated as a cash earnings adjustment at the time due to its size, historical nature and because it did not reflect ongoing operations. In the current year, the Bell litigation has been settled and the release of provisions no longer required has also been treated as a cash earnings adjustment. Westpac Bicentennial Foundation grant - - 70 Prior period tax provisions - - (70) Merger & acquisition related items Non merger & acquisition related items Reported net profit Fair value gain/(loss) on economic hedges The TPS hybrid instrument is not fair valued however the economic hedge is fair valued. The mismatch in the timing of income recognition is added back. The gain/(loss) on qualified hedge ineffectiveness is reversed as the gain/(loss) from fair value movements reverses over time The Group provided a grant to establish the Westpac Bicentennial Foundation. The $100 million grant ($70 million after tax) has been treated as a cash earnings adjustment due to its size and because it does not reflect ongoing operations. During Full Year 2011, the Group raised provisions in respect of certain tax positions for transactions previously undertaken by the Group. A number of these matters have now been resolved, resulting in a release of the provisions which are no longer required. As the provisions raised were treated as a cash earnings adjustment, the release has been treated in a consistent manner. Amortisation of intangible assets 75 70 77 The merger with St.George and the acquisitions of J O Hambro Capital Management and Lloyds resulted in the recognition of identifiable intangible assets. These assets include intangibles related to core deposits, customer relationships, management contracts and distribution relationships. These intangible items are amortised over their useful lives, ranging between 4 and 20 years. The amortisation of intangible assets (excluding capitalised software) is a cash earnings adjustment because it is a non-cash flow item and does not reflect cash distribution available to shareholders. Fair value amortisation of financial instruments 35 9 8 The unwind of the merger accounting adjustments associated with the fair valuing of St.George retail bank loans, deposits, wholesale funding and associated hedges. Given these are not considered in determining dividends they are treated as cash earnings adjustments. - 25 26 Transaction and integration costs associated with the acquisition of Capital Finance Australia Ltd and BOS International Australia Ltd incurred have been treated as a cash earnings adjustment as they do not impact the earnings expected from the acquired businesses following the integration period. 3,555 3,772 3,856 Acquisition transaction and integration expenses Cash earnings 145 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack Appendix 2: Definitions Westpac’s business units Australian Financial Services or AFS Australian Financial Services is responsible for the Westpac Group’s Australian retail banking, business banking and wealth operations. It incorporates WRBB, SGB and BTFG. AFS also includes the product, marketing and risk responsibilities for Australian retail banking and wealth Westpac RBB or WRBB Westpac Retail & Business Banking is part of Australian Financial Services division and is responsible for sales and service to consumer, SME, commercial and agribusiness customers (with turnover of up to $100 million) in Australia under the Westpac brand St.George Banking Group or St.George or SGB St.George Banking Group is part of Australian Financial Services division and provides sales and service to consumer, SME and corporate customers (businesses with facilities typically up to $150 million) in Australia under the St.George, BankSA, Bank of Melbourne and RAMS brands BTFG BT Financial Group (Australia) is part of Australian Financial Services division and is the Group’s wealth management business, including operations under the Advance Asset Management, Ascalon, Asgard, BT Investment Management, Licensee Select, and Securitor brands. Also included are the advice, private banking, and insurance operations of Bank of Melbourne, BankSA, St.George and Westpac. BTFG designs, manufactures and distributes financial products that are designed to help customers achieve their financial goals by administering, managing and protecting their assets WIB Westpac Institutional Bank provides a broad range of financial services to commercial, corporate, institutional and government customers with connections to Australia and New Zealand. Operates in Australia, New Zealand, UK, US and Asia Westpac NZ Westpac New Zealand provides a full range of retail and commercial banking and wealth management and insurance products and services to consumer, business, and institutional customers throughout New Zealand. New Zealand operates under the Westpac New Zealand, Westpac Institutional Bank, Westpac Life and BT brands in NZ Westpac Pacific Westpac Pacific provides banking services for retail and business in seven Pacific Island Nations Group Business of GB Group Businesses provides centralised Group functions, including Treasury and Finance 146 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack Financial performance Cash earnings Is a measure of the level of profit that is generated by ongoing operation and is therefore available for distribution to shareholders. Three categories of adjustments are made to reported results to determine cash earnings: material items that key decision makers at Westpac believe do not reflect ongoing operations; items that are not considered when dividends are recommended; and accounting reclassifications that do not impact reported results. For details of these adjustments refer to slide 145 Core earnings Net operating income less operating expenses AIEA Average interest-earning assets Net interest spread The difference between the average yield on all interest bearing assets and the average rate paid on all interest bearing liabilities Net interest margin Net interest income divided by average interest-earning assets ROTE Return on average tangible equity and is average ordinary equity less average goodwill and other intangible assets (excluding capitalised software) Full-time equivalent employees (FTE) A calculation based on the number of hours worked by full and part-time employees as part of their normal duties. For example, the full-time equivalent of one FTE is 76 hours paid work per fortnight Capital Risk Weighted Assets or RWA Assets (both on and off-balance sheet) of Westpac are assigned within a certain category. Amounts included in these categories are multiplied by risk weighting, and with the resulting weighted values added together to arrive at total risk weighted assets NCI Non-controlling interests Capital ratios As defined by APRA (unless stated otherwise) Internationally comparable Internationally comparable regulatory capital ratios are Westpac’s estimated ratios after adjusting the capital ratios determined under APRA Basel III regulations for various items as identified in the August 2014 Australian Bankers Association’s report titled “International comparability of capital ratios of Australia’s major banks” prepared by Pricewaterhouse Coopers. This report is available at “bankers.asn.au/FSI/Papers-and-Reports/Papersand-Reports” Appendix 2: Definitions (continued) Asset quality Key metrics TCE Total committed exposures Stressed loans Stressed loans are the total of watchlist and substandard, 90 days past due well secured and impaired assets Impaired assets can be classified as Impaired assets 1. Non-accrual assets: Exposures with individually assessed impairment provisions held against them, excluding restructured loans 2. Restructured assets: exposures where the original contractual terms have been formally modified to provide concessions of interest or principal for reasons related to the financial difficulties of the customer 3. 90 days past due (and not well secured): exposures where contractual payments are 90 days or more in arrears and not well secured 4. other assets acquired through security enforcement 5. any other assets where the full collection of interest and principal is in doubt 90 days past due - well secured A loan facility where payments of interest and/or principal are 90 or more calendar days past due and the value of the security is sufficient to cover the repayment of all principal and interest amounts due, and interest is being taken to profit on an accrual basis 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 Individually assessed provisions or IAPs Provisions raised for losses that have already been incurred on loans that are known to be impaired and are individually significant. 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 statement of financial performance Collectively assessed provisions or CAPs 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 of assets with credit characteristics similar to those in the collective pool. The historical loss experience will be adjusted based on current observable data 147 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack Net Promoter score Net Promoter Score measures the net likelihood of recommendation to others of the customer’s main financial institution for retail or business banking. Net Promoter ScoreSM is a trademark of Bain & Co Inc., Satmetrix Systems, Inc., and Mr Frederick Reichheld. For retail banking, using a scale of 1 to 10 (1 means ‘very unlikely’ and 10 means ‘very likely’), the 1-6 raters (detractors) are deducted from the 9-10 raters (promoters). For business banking, using a scale of 0 to 10 (0 means ‘extremely unlikely’ and 10 means ‘extremely likely’), the 0-6 raters (detractors) are deducted from the 9-10 raters (promoters). Consumer NPS Source: Roy Morgan Research, September 2014, six month moving average (6MMA). Main Financial Institution (MFI), as defined by the customer. Consumers aged 14 or over. Business NPS Source: DBM Consultants Business Financial Services Monitor, September 2014, 6MMA. MFI customers, all businesses. SME NPS Source: DBM Consultants Business Financial Services Monitor, September 2014, 6MMA. MFI customers, SME businesses. SME businesses are those organisations with annual turnover under $5 million (excluding Agricultural business). Agribusiness NPS Source: DBM Consultants Business Financial Services Monitor, September 2014, 6MMA. MFI customers, Agribusinesses. Agribusinesses are those organisations whose main activities are Agriculture, Forestry and Fishing. Westpac RBB NPS rank The ranking refers to Westpac RBB’s position relative to the other three major Australian banks (CBA, NAB, and ANZ) St.George NPS rank The ranking refers to St.George Banking Group’s position relative to the four major Australian banks (Westpac, CBA, NAB and ANZ). NPS among credit card customers Source: Roy Morgan Research, September 2014, 6MMA. Main Financial Institution (as defined by the customer). Consumers aged 14 or over. Credit Card customers refers to customers who have a credit card with their MFI. Appendix 2: Definitions (continued) Key metrics (continued) Customer satisfaction – overall business Source: DBM Consultants Business Financial Services Monitor, September 2014, 6MMA. MFI customers, all businesses. The Customer Satisfaction score is an average of customer satisfaction ratings of the customer’s main financial institution for business banking on a scale of 0 to 10 (0 means ‘extremely dissatisfied’ and 10 means ‘extremely satisfied’). Customer satisfaction – overall consumer Source: Roy Morgan Research, September 2014, 6MMA. Main Financial Institution (as defined by the customer). Satisfaction ratings are based on the relationship with the financial institution. Customers must have at least a Deposit/Transaction account relationship with the institution and are aged 14 or over. Satisfaction is the percentage of customers who answered ‘Very’ or ‘Fairly satisfied’ with their overall relationship with their MFI. NZ customers with wealth products (%) Number of customers who have managed investments or superannuation with Westpact NZ as a proportion of the total active customers in Westpac NZ Retail, Private and Business Bank. Data based on Roy Morgan Research, Respondents aged 14+ and 12 month average to September 2014. Wealth penetration is defined as the proportion of Australians who have a Deposit or Transaction Account, Mortgage, Personal Lending or Major Card with a Banking Group and also have Managed Investments, Superannuation or Insurance with the same Banking Group Australian customers with wealth products metrics provider WRBB includes Bank of Melbourne (until Jul 2011), BT, Bankers Trust, BT Financial Group, Challenge Bank, RAMS (until Dec 2011), Rothschild, and Westpac St.George includes Advance Bank, Asgard, BankSA, Bank of Melbourne (from Aug 2011), Dragondirect, Sealcorp, St.George and RAMS (from Jan 2012) Westpac Group includes Bank of Melbourne, BT, Bankers Trust, BT Financial Group, Challenge Bank, RAMS, Rothschild, Westpac, Advance Bank, Asgard, BankSA, Barclays, Dragondirect, Sealcorp and St.George ‘Peers includes: ANZ Group, CBA Group, NAB Group, WRBB and St.George’ 148 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack Key metrics (continued) Average products per customer Source: Roy Morgan Research, 6 month rolling average, September 2014. Products Per Customer (PPC) results are based on the total number of ‘Banking and Finance’ products from the ‘Institution Group’ held by a ‘Retail and Business Banking (RBB)’ customer. The figure is calculated by dividing the total number of Banking and Finance products held by ‘Retail and Business Banking (RBB)’ customers at the Institution Group by its total ‘Retail and Business Banking (RBB)’ number of customers. MyBank customer A MyBank customer is one where we have their quality transaction account (they are active; have salary credit; and/or have multiple regular deposits) and they do multiple transactions per month; and we meet at least 2 out of 5 of their following needs: (a) long term borrowing; (b) short term borrowing; (c) savings and investment; (d) protection; and (e) wealth Leading employer in workplace diversity We were recognised as the leading bank in the 2014 Australian Workforce Equality Index for creating an inclusive workplace culture for lesbian, gay, bisexual, transsexual and intersex employees; as a leading employer of people with disability in the Australian Government’s National Disability Awards; as a leading employer of mature employees by US-based AARP; and we retained our status as an Employer of Choice for Women by the Workplace Gender Equality Agency. Investor Relations Team Equity Investor Relations For further information on Westpac Andrew Bowden Leigh Short www.westpac.com.au/investorcentre click on ‘Analysts’ Centre’ Head of Investor Relations Senior Manager • Annual reports +61 2 8253 4008 +61 2 8253 1667 • Presentations and webcasts andrewbowden@westpac.com.au lshort@westpac.com.au • 5 year financial summary • Prior financial results Debt Investor Relations Jacqueline Boddy Louise Coughlan Director Director (Rating Agencies) +61 2 8253 3133 +61 2 8254 0549 jboddy@westpac.com.au lcoughlan@westpac.com.au Retail Shareholder Investor Relations Rebecca Plackett Manager +61 2 8253 6556 rplackett@westpac.com.au or email: investorrelations@westpac.com.au 149 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack Disclaimer 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 Full Year 2014 Results (incorporating the requirements of Appendix 4E) for the full year ended 30 September 2014 available at www.westpac.com.au for details of the basis of preparation of cash earnings. Refer to slides 37 for an explanation of cash earnings and Appendix 1 slide 145 for a reconciliation of reported net profit to 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’, 'indicative', ‘intend’, ‘seek’, ‘would’, ‘should’, ‘could’, ‘continue’, ‘plan’, ‘probability’, ‘risk’, ‘forecast’, ‘likely’, ‘estimate’, ‘anticipate’, ‘believe’, or 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 Interim Financial Report for the half year ended 31 March 2014 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, where as a result of new information, future events or otherwise, after the date of this presentation. 150 Westpac Group Full Year 2014 Presentation & Investor Discussion Pack