Westpac Banking Corporation · ASX:WBC
Westpac Banking — Debt Investor Presentation (November 2017)
53 slides from Westpac Banking's debt investor presentation, November 2017
Slide 1: Full Year 2017 Debt Investor Update
200 years proudly supporting Australia Full Year 2017 Debt Investor Update US Roadshow November 2017 Westpac Banking Corporation ABN 33 007 457 141
Slide 2: Disclaimer
Disclaimer 2 The material contained in this presentation is intended to be general background information on Westpac Banking Corporation (“Westpac”) (ABN 33 007 457 141) and its activities. It should not be reproduced, distributed or transmitted to any person without the consent of Westpac and is no
Slide 3: Full Year 2017 highlights
Full Year 2017 highlights 3 Prioritising strength while managing returns FY17 Financials (vs FY16) Balance sheet • Return on average ordinary equity 13.6%, • CET1 capital ratio 10.6%, up 108bps up 33bps APRA Basel III basis • Reported net profit $8.0bn, up 7% • CET1 capital ratio 16.2%, up 177bps •
Slide 4: Westpac well positioned for recent developments
Westpac well positioned for recent developments 4 ‘Unquestionably strong’ capital − APRA stated in July 2017 that, on average, the 4 major Australian banks require a CET1 capital ratio of at least 10.5% to meet APRA’s unquestionably strong benchmark by 1 January 2020 − Westpac CET1 capital ratio 10.
Slide 5: Westpac capital levels 'unquestionably strong'
Westpac capital levels ‘unquestionably strong’ 5 CET1 capital ratio (%) and CET1 capital ($bn) (APRA basis) Key capital ratios (%) Westpac CET1 capital (lhs, $bn) APRA Level 2 basis Sep-16 Mar-17 Sep-17 APRA’s unquestionably Westpac CET1 capital ratio (rhs, %) strong benchmark 10.5%, under the curre
Slide 6: Well placed on internationally comparable CET1 and leverage ratios
Well placed on internationally comparable CET1 and leverage ratios 6 Common equity Tier 1 ratio (%) 25% 20% 16.20% 15% 10% 5% 0% Deutsche Bank Lloyds Credit Suisse Barclays Bank of America Scotiabank Westpac Credit Agricole SA Toronto Dominion Bank Rabobank Wells Fargo Santander Nordea BNP Paribas N
Slide 7: Well positioned for NSFR on 1 January 2018
Well positioned for NSFR on 1 January 2018 7 Liquidity coverage ratio ($bn and %) Liquidity coverage ratio (%) Unencumbered liquid assets ($bn) Committed Liquidity Facility ($bn) Self securitisation Sep-16 Mar-17 Sep-17 HQLA ($bn) Private securities 5 and deposits with other banks HQLA1 69.4 73.6 71
Slide 8: New term issuance well diversified
New term issuance well diversified 8 FY17 new term issuance composition1 (%) By type By investor location2 By currency By tenor3,4 30 22 3 43 18 9 4 5 1 2 4 12 8 8 28 49 66 21 30 17 19 0.3 Senior Unsecured Covered Bonds Asia Australia & NZ AUD USD EUR 1 Year 2 Years 3 Years Securitisation Hybrid Eur
Slide 9: Additional Tier 1 and Tier 2
Additional Tier 1 and Tier 2 9 Westpac Tier 2 capital1 as at 30 Sep 2017 (notional amt, %) Westpac AT1 capital1 as at 30 Sep 2017 (notional amt, %) Basel III and Basel III Basel III and Basel III AT1 capital by currency Tier 2 capital by currency2 Transitional capital Transitional capital 3 1 21 43
Slide 10: Full Year 2017 financial performance
Full Year 2017 financial performance 10 % Change FY17 Reported Results FY17 FY17-FY16 Reported NPAT (A$bn) Net interest margin (%) Financial results (A$m) 8.0 8.0 3.0 Net operating income 21,802 4 7.6 7.4 6.8 2.5 2.16 2.14 2.09 2.09 2.10 2.06 Expenses (9,434) 2 5.9 Net profit before impairment charg
Slide 11: Impaired assets and stressed assets lower
Impaired assets and stressed assets lower 11 Stressed exposures as a % of TCE (%) New and increased gross impaired assets ($m) Impaired 1,748 90+ day past due and not impaired 1,519 Watchlist & substandard 1,343 1,218 1,194 3.20 . 1,060 997 1,078 3.09 958 708 609 607 633 589 477 440 Lower stress ref
Slide 12: Australian mortgage portfolio continues to perform well, higher stress in mining regions
Australian mortgage portfolio continues to perform well, higher stress in regions impacted by mining slowdown 12 Australian mortgage delinquencies and properties in possession (PIPs) Sep-16 Mar-17 Sep-17 Australian mortgage portfolio delinquencies 90+ day past due total 90+ day past due investor 30+
Slide 13: Australian mortgage portfolio well collateralised
Australian mortgage portfolio well collateralised 13 Sep-16 Mar-17 Sep-17 2H17 Australian mortgage portfolio Australian housing loan-to-value ratios (LVRs)5 (%) balance balance balance flow1 Total portfolio ($bn) 404.2 413.9 427.2 40.3 100 FY17 drawdowns LVR at origination Owner occupied (%) 55.0 55
Slide 14: Impact of macro-prudential measures on the Australian mortgage market
Impact of macro-prudential measures on the Australian mortgage market 14 Change in composition of housing credit Introduction of differentiated mortgage pricing Australian housing credit growth (6mth % change annualised) % Mortgage interest rates (major bank average) % 10% limit on investment 7.5 ow
Slide 15: Housing market fundamentals
Housing market fundamentals 15 Dwelling prices cooling Aggregate supply/demand fundamentals remain positive Change in Australian dwelling prices (annual %) Population versus dwelling stock (annual average change ‘000) rate cuts macro-prudential tightening Population Dwelling stock* ann% ann% * net o
Slide 16: Australian economic snapshot
Australian economic snapshot 16 Australian economy key statistics Continued strength in commodity Global conditions have improved (latest available as at October 2017) prices index 60 USD/t Iron ore (TSI 62% GDP 1.8% 340 fines benchmark) Westpac f/c’s 55 to Mar 2019 300 Coking coal (Qld Westpac Econ
Slide 17: Economics
200 years proudly supporting Australia Economics US Roadshow November 2017
Slide 18: Australian and New Zealand economic forecasts
Australian and New Zealand economic forecasts 18 CALENDAR YEAR KEY ECONOMIC INDICATORS (%) AS AT OCTOBER 2017 2016 2017F 2018F World GDP1 3.2 3.6 3.6 Australia GDP2 2.4 3.0 2.5 Private consumption2 2.6 2.5 2.5 Business investment2,3 -6.2 3.0 2.0 Unemployment – end period 5.7 5.7 6.1 CPI headline – y
Slide 19: Australian economic outlook
Australian economic outlook 19 Australian growth mix points to moderation in 2018 Positive business conditions Contributions to GDP growth (ppts) Australian business conditions (net balance) ppts ppts net bal. Goods related 3 2014 2015 2016 2017f 2018f 3 30 Consumer sectors 2 2 20 Business services
Slide 20: Conditions continue to diverge across States
Conditions continue to diverge across States 20 NSW and Victoria 57% of population, 58% of employment Relative size of States (Share of Australia, 2015/16, %) GSP Population Employment Exports 38 32 32 32 25 26 21 22 19 20 20 20 15 12 11 11 6 7 7 5 2 2 2 1 NSW Vic Qld WA SA Tas Sources: ABS, Westpac
Slide 21: Jobs are being created, although wage growth remains low
Jobs are being created, although wage growth remains low 21 Services employ a large part of the Australian workforce Jobs growth across all states Sector contribution to GDP (%)1 State jobs market (Index: Dec 2011 = 100. % is share of total employment) Services index index Mining 114 114 52% Manufac
Slide 22: A closer look: State employment by sector
A closer look: State employment by sector 22 NSW backdrop of robust economic activity supportive Victorian job gains widespread across industries NSW: Employment by sector (annual change in employment, ‘000) Victoria: Employment by sector (annual change in employment, ‘000) Business services Health
Slide 23: Australian household balance sheets
Australian household balance sheets 23 Affordability on repayment basis below 10 year average Australian households debt to income ratio remains high Housing affordability: all dwellings Australian households debt to income ratio (%) (% income required to service mortgage of 75% median dwelling, all
Slide 24: A closer look: Debt servicing and arrears by State
A closer look: Debt servicing and arrears by State 24 NSW: Arrears near 13 year lows1 Victoria: Arrears low, debt burden around post GFC avg1 % Debt servicing ratio (rhs) Arrears rate (lhs) % % % 3.0 24 2.0 Debt servicing ratio (rhs) Arrears rate (lhs) 22 WBC f/c WBC f/c 1.8 2.5 to Dec- 22 to Dec-17
Slide 25: Australia's high rise apartment market
Australia’s high rise apartment market 25 Population versus new dwelling stock Projected dwelling completions, major metro areas (annual average change ‘000) Dwelling completions by capital city (‘000s, rolling 6mth totals) Population New 'high rise' apartments^ Total dwelling stock^ ‘000s ‘000s hig
Slide 26: Investor property lending
Investor property lending 26 Housing finance approvals: value of housing finance Few signs of speculative behaviour in housing markets ($bn/mth) • Investor activity has been a key driver of Australia’s housing markets in recent $bn/mth years 16 'Upgraders', ex-refinancing • Demand from investors ten
Slide 27: New Zealand economic snapshot
New Zealand economic snapshot 27 Key economic statistics FY17 FY18f Change Firm growth in recent years, pace to slow going forward GDP (%) GDP annual average growth1 2.5% 2.8% 30bps 6 6 Qtr % chg Annual average % change Forecast Inflation rate 1.9% 1.4% (50 bps) 4 4 2 2 Official cash rate (OCR) 1.75
Slide 28: New Zealand economy: growth to slow
New Zealand economy: growth to slow 28 Drivers of GDP growth in recent years are dissipating Large pipeline of construction work, increases to be gradual • After expanding at a firm pace in recent years, New Zealand GDP growth is $bn Construction spending (annual $bn) $bn expected to soften over the
Slide 29: New Zealand economic indicators
New Zealand economic indicators 29 Inflation off its lows, sustained return to target elusive Commodity prices remain firm % Inflation (%) % NZ export commodity price index (world prices) Index 6 CPI inflation Forecast 6 500 Meat skins & wool Forestry Dairy 5 CPI excluding petrol 5 450 Forecast 400
Slide 30: New Zealand housing market momentum has faded
New Zealand housing market momentum has faded 30 Housing price inflation has flattened off Sales volumes low New Zealand house prices by region (index) Sales New Zealand house sales (monthly sales) Sales 220 220 9,000 9,000 Canterbury 200 Wellington 200 Index = 100 in 2008 8,000 8,000 Index = 100 in
Slide 31: Additional information and appendices
200 years proudly supporting Australia Additional information and appendices US Roadshow November 2017
Slide 32: Westpac: clear domestic focus and a strong market position
Westpac: clear domestic focus and a strong market position 32 Unique portfolio of national and regional brands Large domestic presence Top 10 banks in Australia by total resident assets1 (A$bn) Australian retail banking and wealth Westpac CBA NAB ANZ Macquarie Bank Bendigo and Adelaide Bank Suncorp-
Slide 33: High quality portfolio with bias to secured consumer lending
High quality portfolio with bias to secured consumer lending 33 Asset composition as at 30 September 2017 (%) Loans (80%) Total assets ($852bn) Total loans ($685bn) Trading securities, financial assets at fair value and available-for-sale securities (10%) Derivative financial instruments (3%) 1 1 1
Slide 34: A well diversified asset portfolio
A well diversified asset portfolio 34 Top 10 exposures to corporations and NBFIs5 Exposures at default1 by sector ($bn) as a % of TCE (%) Finance & insurance 2 Largest corporation/NBFI single name 1.9 exposure represents less than 0.2% of TCE Property 3 1.4 1.3 1.3 Government admin. & defence 1.2 1.
Slide 35: Stressed exposures lower across industries
Stressed exposures lower across industries reflecting both work-out and return to health of facilities 35 Corporate and business portfolio stressed exposures by industry ($bn) 2.5 Sep-16 Mar-17 Sep-17 2.0 Includes New Zealand dairy 1.5 2 larger names in watchlist 1.0 0.5 0.0 1 Agriculture, forestry
Slide 36: Areas of interest: Commercial property
Areas of interest: Commercial property 36 Commercial property portfolio Commercial property exposures % of TCE and % in stress Mar-17 Sep-17 10 Commercial property as % of TCE (lhs) 20 Total committed exposures (TCE) $65.5bn $65.2bn Commercial property % in stress (rhs) 8 15 Lending $49.7bn $49.6bn
Slide 37: Areas of interest: Inner city apartments
Areas of interest: Inner city apartments 37 Commercial property portfolio TCE ($bn) Sep-16 Mar-17 Sep-17 TCE %1 Residential apartment development >$20m 5.1 4.1 4.2 6.4% • Progressively tightened risk appetite in areas of higher concern since 2012 • Actively monitoring settlements for >$20m residenti
Slide 38: Asset quality areas of interest
Asset quality areas of interest 38 Mining (inc. oil and gas) portfolio New Zealand dairy portfolio Retail trade portfolio Mar-17 Sep-17 Mar-17 Sep-17 Mar-17 Sep-17 Total committed exposures (TCE) $10.4bn $9.7bn Total committed exposure (TCE) NZ$5.9bn NZ$6.0bn Total committed exposures (TCE) $15.3bn
Slide 39: Changes in the treatment of hardship now flowing through other consumer delinquencies
Changes in the treatment of hardship now flowing through other consumer delinquencies 39 APRA is standardising the industry treatment of delinquency classification of facilities in hardship Hardship allows eligible customers to reduce or defer repayments in the short term to manage through a period
Slide 40: Australian consumer unsecured lending
Australian consumer unsecured lending 40 Australian consumer unsecured lending portfolio (% and $bn) 90+ day delinquencies by State (%) NSW/ACT VIC/TAS QLD Sep-16 Mar-17 Sep-17 3.00 WA SA/NT 30+ day delinquencies (%) 2.95 3.99 3.60 2.00 90+ day delinquencies (%) 1.17 1.63 1.66 Estimated impact of ch
Slide 41: Australian mortgage deep dive
Australian mortgage deep dive 41 New loans written under tighter standards and higher buffers; Older loans benefit from lower rates and higher equity Mortgages originated pre-20111 by Mortgages originated 2011-141 by Mortgages originated 2015 and later1 by dynamic LVR2 and income band (%) dynamic LV
Slide 42: Interest only portfolio reduced 6% in 2H17
Interest only portfolio reduced 6% in 2H17 42 Flow of interest only1 (% of total limits) Switching from I/O to P&I2 ($m) Mortgage lending growth (%) New interest only flows now <30% Customers switching to P&I Investor lending3 growth remaining <10% Applications Settlements Reached end of I/O period
Slide 43: Performance of interest only mortgages remains sound
Performance of interest only mortgages remains sound 43 Interest only lending Interest only lending by dynamic LVR2,5 and income band (%) • Interest only (IO) loans assessed on a principal and Applicant gross income bands interest basis, from 2015 over the residual 59 <$100k $100k - $250k >$250k amo
Slide 44: IPL portfolio: sound underwriting
IPL portfolio: sound underwriting 44 Applicants by gross income band (%) LVR at origination1 (%) Owner occupied IPL 50 Owner occupied IPL 30 25 40 20 15 30 10 20 5 0 10 <=50 75<=100 500<=1m 1m+ 100<=125 125<=150 150<=200 200<=500 50<=75 0 0<=60 60<=70 70<=75 75<=80 80<=85 85<=90 90<=95 95<=97 97+ In
Slide 45: Mortgage serviceability assessment settings
Mortgage serviceability assessment settings 45 Westpac’s key serviceability requirements and controls Mortgage interest rate buffers (%) • Income and employment is verified Westpac owner occupied SVR 2 inc package discount • Separate guidelines in place to assess self employed and Westpac minimum as
Slide 46: Lenders mortgage insurance arrangements
Lenders mortgage insurance arrangements 46 Lenders mortgage insurance Lenders mortgage insurance arrangements • Where mortgage insurance is required, mortgages LVR Band Insurance are insured through Westpac’s captive mortgage insurer, Westpac Lenders Mortgage Insurance1 • LVR ≤80% Not required (WLMI
Slide 47: Mortgage portfolio stress testing outcomes
Mortgage portfolio stress testing outcomes 47 • Westpac regularly conducts a range of portfolio stress tests as part of its regulatory and risk management activities Australian mortgage portfolio stress testing as at 30 September 2017 • The Australian mortgage portfolio stress testing scenario prese
Slide 48: Westpac and Australian major bank ratings
Westpac and Australian major bank ratings 48 Agency Fitch Ratings Agency Moody’s Investors Service S&P Global Ratings Viability Rating aa- Macro score Strong + Anchor BICRA 3 bbb+ Westpac’s ratings structure Support Rating 1 Solvency score a1 Business position Strong +1 Support Rating Floor A Liquid
Slide 49: Appendix 1: Internationally comparable capital ratio reconciliation
Appendix 1: Internationally comparable capital ratio reconciliation 49 APRA’s Basel III capital requirements are more conservative than those of the Basel Committee on Banking Supervision (BCBS), leading to lower reported capital ratios by Australian banks. In July 2015, APRA published a study that
Slide 50: Appendix 2: Cash earnings adjustments
Appendix 2: Cash earnings adjustments 50 Cash earnings adjustment FY17 FY16 Description Reported net profit 7,990 7,445 Net profit attributable to owners of Westpac Banking Corporation The merger with St. George and acquisition of Lloyds resulted in the recognition of identifiable intangible assets.
Slide 51: Appendix 3: Definitions
Appendix 3: Definitions 51 Capital ratios As defined by APRA (unless stated otherwise) The NSFR is defined as the ratio of the amount of available stable funding (ASF) to the amount of required stable funding Assets (both on and off-balance sheet) are risk weighted (RSF) defined by APRA. The amount
Slide 52: Appendix 3: Definitions (cont.)
Appendix 3: Definitions (cont.) 52 Total Represents the sum of the committed portion of direct lending Loans not found to be individually impaired or significant will be committed (including funds placement overall and deposits placed), contingent collectively assessed in pools of similar assets wit
Slide 53: More information
More information | www.westpac.com.au/investorcentre 53 + - X Contact our Global Funding team Curt Zuber Joanne Dawson Alexander Bischoff Treasurer, Westpac Banking Corporation Deputy Treasurer, Westpac Banking Corporation Executive Director, Global Funding +61 2 8253 4230 +61 2 8204 2777 +61 2 8253
Westpac Banking — Debt Investor Presentation (November 2017) on 6ix