Westpac Banking Corporation · ASX:WBC
Westpac Banking — Debt Investor Presentation (November 2014)
67 slides from Westpac Banking's debt investor presentation, November 2014
Slide 1: Westpac Group Full Year 2014 Fixed Income Presentation
FINANCIAL DATA AS AT AND FOR THE YEAR ENDED 30 SEPTEMBER 2014 UNLESS OTHERWISE STATED
Slide 2: Disclaimer
Disclaimer The material contained in this presentation is intended to be general background information on Westpac Banking Corporation (“Westpac”) and its activities. It does not constitute a prospectus, offering memorandum or offer of securities. It should not be reproduced, distributed or transmit
Slide 3: Contents
Contents Highlights 4 Highlights of Westpac’s Financial Year 2014 Australian Home Lending 19 Westpac’s Australian mortgage portfolio statistics and performance Economic data on the Australian home lending market Economics 31 Key forecasts and economic data on the Australian, New Zealand and Chinese
Slide 4: Full Year 2014 Highlights
Full Year 2014 Highlights All comparisons to Full Year 2013 unless otherwise stated. • Rated AA- / Aa2 / AA- with a Stable outlook • Operating environment has remained supportive Highlights • Strong performance from Australian Financial Services • Asset quality a highlight • Full Year 2014 cash earn
Slide 5: Consistent, high quality financial performance in Full Year 2014
Consistent, high quality financial performance in Full Year 2014 Consistent financial % Change Net interest margin1 (%) performance FY14 Financial Results FY14 FY14 – FY13 Financial results (A$m) Cash earnings ($m) 7,628 2.22 2.17 Net profit after tax 7,561 12 7,063 2.22 2.15 2.08 6,301 6,564 5,879
Slide 6: Strong performance from Australian Financial Services
Strong performance from Australian Financial Services Strong contribution from Australian retail banking Unique portfolio of brands and wealth businesses Westpac Retail & Business Banking Cash earnings1 ($m) Australian Financial Services Australian retail and business banking for consumers, SMEs and
Slide 7: Improved balance sheet growth
Improved balance sheet growth Total loan composition (%) Australian mortgage Net loans ($bn) lending ($bn) 4% 2.3 580.3 24% 10.9 3.9 3.0 1.4 70.0 (47.5) 22.6 536.2 10% 351.0 2% 328.5 60% Up 8% (ex Lloyds up 7%) Aust. Housing Aust. Business Australian Australian Australian Sep-13 finance Sep-14 Zeala
Slide 8: Asset quality a highlight
Asset quality a highlight Stress reducing across most sectors Stressed exposures as a % of TCE and provisions1 ($m) Stressed exposures by industry ($bn) Impaired 3.5 2H13 1H14 2H14 3.20 90+ days past due well secured 3.0 3.09 Watchlist & substandard 2.5 2.48 . 2.0 2.26 2.17 1.5 2.07 1.94 1.0 2.23 1.
Slide 9: Australian mortgage portfolio performing well
Australian mortgage portfolio performing well High levels of borrower equity Westpac Group Australian 2H13 1H14 2H14 2H14 Delinquencies housing portfolio Balance Balance Balance Flow1 • Sustained period of low interest rates and a continued conservative Total portfolio ($bn) 328.5 338.0 351.0 36.9 a
Slide 10: A high quality credit
A high quality credit Domestic focus, balance sheet strength, consistent returns Clear focus on Australia and New Zealand Maintaining a strong balance sheet Total income by geography1 (%) Westpac key balance sheet ratios at 30 September 2014 (%) Australia New Zealand Asia, Pacific, Europe & Americas
Slide 11: Internationally comparable CET1 capital ratio at upper end of top quartile
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 (%) 15.8 14.0 13.5 13.5 13.2 13.1 13.0 12.8 12.7 12.2 11.6 11.6 11.4 11.3 11.2 11.1 11.1 11.1 10.9 10.9 10.6 10.5 10.5 10.5 10.4 10.4 10.3 10.
Slide 12: Strong capital levels
Strong capital levels using APRA and internationally comparable measures Key capital ratios1 (%) Sep-13 Mar-14 Sep-14 Common equity tier 1 capital ratio3 (APRA Basel III basis) (%) Common equity tier 1 capital ratio 9.1 8.8 9.0 9.1 9.0 8.7 8.8 Additional tier 1 capital 1.6 1.5 1.6 8.3 8.4 8.3 8.3 8.
Slide 13: Strong capital structure
Strong capital structure Ahead of regulatory minimums Developments D-SIB – In December 2013, APRA announced the 4 major in FY14 Australian banks as D-SIBs. D-SIBs are required to hold Westpac’s capital base an additional 1% of common equity tier 1 capital. D-SIB buffer effective from 1 January 2016.
Slide 14: Stable Funding Ratio 83%
Stable Funding Ratio 83% • Stable Funding Ratio 83% down 73bps FY14/FY13 Funding composition by residual maturity (%) ‒ 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. Stable
Slide 15: Strong liquidity position
Strong liquidity position On track for introduction of LCR • Westpac is well positioned for the introduction of the Liquidity Coverage Group pro-forma Liquidity Coverage Ratio1 ($bn) Ratio (LCR) – Westpac Group pro-forma LCR1 103% at 30 September 2014 High Quality Liquid Assets2 (HQLA) 59 – As the G
Slide 16: FY14 term issuance well diversified
FY14 term issuance well diversified Benefit from broad product capabilities FY14 new term issuance composition1 (%) Australian covered bond issuance5 2,3 Remaining capacity By type By tenor By currency (8% cap & over- % Capacity utilised 3 collateralisation) ($bn) 4 7 3 43 18 18 Issued ($bn) 1 13 37
Slide 17: Economic snapshot
Economic snapshot Areas of interest Key economic indicators (%) as at October 2014 Australian growth mix: Contributions to GDP growth (%) Calendar year 2014f 2015f 4 2012 2013 2014f 2015f World GDP 2.9 3.7 3 Australia GDP 3.2 3.2 2 CPI headline – year end 2.2 2.8 1 Interest rates – cash rate 2.5 3.0
Slide 18: Full Year 2014 Summary
Full Year 2014 Summary Operating environment remains supportive Consistent, high quality financial performance Strong performance from Australian Financial Services Asset quality a highlight Capital strength maintained; ahead of regulatory minimums effective January 2016 On track for LCR implementat
Slide 19: Australian Home Lending
AUSTRALIAN HOME LENDING Westpac Banking Corporation ABN 33 007 457 141.
Slide 20: Australian mortgage market features underpin asset quality
Australian mortgage market features underpin asset quality Australian mortgage market Australian housing credit market share1 (% of financial system) • 4 major banks have 77% share of housing credit1 Bank market • Major banks have a lower share of low doc market, with Westpac (incl. St.George) share
Slide 21: Westpac's Australian mortgage portfolio
Westpac’s Australian mortgage portfolio high levels of borrower equity Australian housing loan-to-value (LVR) ratios (%) Australian mortgage loss rates (bps) FY14 drawdowns LVR at origination1 • Portfolio losses of $100m Portfolio LVR at origination1 80 represent an annualised loss 11 Portfolio dyna
Slide 22: Mortgage customers continuing to repay ahead of schedule
Mortgage customers continuing to repay ahead of schedule • Australian mortgage customers continue to display a cautious approach to debt levels, taking advantage of historically low Australian home loan customers ahead on repayments1,2 (%) mortgage rates to pay down debt Sep-13 Mar-14 Sep-14 – Inclu
Slide 23: Australian investment property portfolio
Australian investment property portfolio sound origination profile • Investment property loans (IPLs) make up 45.2% of Westpac’s Australian Strong origination standards mortgage portfolio • Compared to owner-occupied applicants, IPL applicants on average are • All IPLs are full recourse older (75% o
Slide 24: Lenders mortgage insurance
Lenders mortgage insurance • Lenders mortgage insurance (LMI) provides benefits to the Westpac Group Lenders mortgage insurance – Risk transfer / loss mitigation • LVR ≤80% • LVR >80% to ≤ 90% LVR Band • LVR >90% • Low Doc LVR ≤60% • Low Doc LVR >60% to ≤ 80% – Improvement in the quality of risk acc
Slide 25: Mortgage portfolio stress testing outcomes
Mortgage portfolio stress testing outcomes • Westpac regularly conducts a range of portfolio stress tests as part Australian mortgage portfolio stress testing of its regulatory and risk management activities as at 30 September 2014 • The Australian mortgage portfolio stress testing scenario presente
Slide 26: Westpac servicing and security assessment
Westpac servicing and security assessment Servicing capacity • Westpac adopts the Household Expenditure Measure (HEM) as its benchmark for Weighted income after tax measuring adequate surplus Less: (Fixed debt repayments) • A buffer for interest rate increases is also applied. Equivalent to 192bps a
Slide 27: Australian housing market sound fundamentals
Australian housing market sound fundamentals • Australian housing market continues to face a significant structural Population versus dwelling stock (annual average change ‘000) undersupply population dwelling stock* 373 • A persistently low level of new building over the last decade has combined wi
Slide 28: Price growth and activity some moderation since the start of 2014
Price growth and activity some moderation since the start of 2014 • Price growth and activity have moderated somewhat since the Housing credit momentum start of 2014 • Housing credit growth is currently tracking at 6.7%yr 6mth %change, annualised 36 Total • Price growth nationally has slowed from an
Slide 29: Investment property lending remains buoyant
Investment property lending remains buoyant • Investor housing activity is buoyant, responding to low vacancy Dwelling turnover rates, solid rental yields, and low interest rates, including low fixed rates that also offer the opportunity to hedge interest rate risk. thousands estimated investor purc
Slide 30: Australian households a cautious approach to household finances
Australian households a cautious approach to household finances Australian households: debt to income ratio (%) Consumer survey: ‘Wisest place for savings’ % total (gross) debt 70 % shares % 70 180 housing debt real estate 60 deposits 60 130 total debt net of deposits* includes funds trend since Jun
Slide 31: Economics
ECONOMICS Westpac Banking Corporation ABN 33 007 457 141.
Slide 32: Australian and New Zealand economic forecasts
Australian and New Zealand economic forecasts Calendar year Key economic indicators1 (%) as at October 2014 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
Slide 33: Australia remains well-placed relative to developed economies
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 Sector contribution to GDP (%)1 83.1 87.6 Manufacturing 81.3 5.7 8.4 Construction 60.4 55.7 11.9 8.6 Mining Rural 38.5 5.6 Utilities & transport
Slide 34: Australia's economic transition from mining to non-mining
Australia’s economic transition from mining to non-mining Australian growth mix: Contributions to GDP growth (%) Investment: share of Australian economy (% of GDP) % % of GDP 4 2012 2013 2014f 2015f 15 Forecasts mining, CAPEX end 2015 housing investment 3 business investment (ex mining) 10 2 5 1 0 0
Slide 35: Labour market showing some signs of improvement
Labour market showing some signs of improvement Unemployment rates (%) Personal bankruptcies vs company insolvencies (%) % % Company insolvencies (rhs) % Australia Canada UK US Euro 3.5 1.6 14 Personal bankruptcies (lhs) 3.0 1.4 12 1.2 2.5 10 1.0 2.0 0.8 8 1.5 0.6 6 1.0 *seasonally adjusted by Westp
Slide 36: Interest rates to remain low, AUD remains high
Interest rates to remain low AUD remains high by historical standards Major countries’ policy rates (%) Australian dollar (AUD/USD) % Australia UK Canada US Euro USD USD 8 1.20 Fair value band 1.20 AUD/USD actual & forecast Fore- 7 1.10 1.10 casts 6 1.00 1.00 5 0.90 0.90 4 0.80 0.80 3 0.70 latest: 0
Slide 37: Credit growth picking up at a modest pace
Credit growth picking up at a modest pace Business confidence and consumer confidence (net balance) Australian private sector credit growth (% ann) Consumer (lhs) Business * (rhs) % annual % annual monthly Housing Total credit Business 140 20 25 Forecasts 25 end 2015 130 20 20 10 120 15 15 0 110 10
Slide 38: New Zealand a mixed economic picture
New Zealand a mixed economic picture • New Zealand economic growth accelerated to around 3.5% per annum in New Zealand GDP growth and forecast (%) response to post-earthquake reconstruction activity in Canterbury, strong net immigration, the lagged effect of rising house prices, and a four- % decade
Slide 39: New Zealand housing market recovering, but expected to remain subdued
New Zealand housing market recovering, but expected to remain subdued • House price inflation reached 10% per annum in 2013, with the strongest New Zealand house price inflation (annual %) gains concentrated in the two biggest cities, Auckland and Christchurch • In late 2013 the Reserve Bank impleme
Slide 40: Chinese growth remains a positive for Australia
Chinese growth remains a positive for Australia • As a $US7 trillion economy, China grew at 10%. As a $US10 trillion Real GDP % ann 2012 2013 2014f 2015f economy, Westpac expects China to grow at 7% China 7.7 7.7 7.4 7.5 • Represents an equivalent incremental contribution to global absorptive capaci
Slide 41: Secured Funding
SECURED FUNDING COVERED BONDS AND SECURITISATION Westpac Banking Corporation ABN 33 007 457 141.
Slide 42: Westpac's covered bond programme
Westpac’s covered bond programme Providing valuable diversity for issuer and investor • Westpac issues covered bonds through its US$40bn covered bond programme Westpac Australian covered pool highlights (as at 30 September 2014) – Westpac also maintains RCB/N- Total pool loan balance A$33,027,727,36
Slide 43: Australian covered bond legislation
Australian covered bond legislation • Legislation was passed in October 2011 to amend Banking Act and enable Australian banks to issue Timing covered bonds • Covered bond issuances previously prohibited by Banking Act and Regulator • Covered bond issuance only permitted in accordance with the legisl
Slide 44: Westpac's Australian Covered Bond Programme
Westpac’s Australian Covered Bond Programme Issuer Westpac Banking Corporation Issuer rating AA-/Aa2/AA- by S&P / Moody’s / Fitch Format Legislative Covered Bond Covered Bond rating Aaa / AAA by Moody’s / Fitch Programme size US$40 billion Maturity options Soft and Hard Bullet Covered Bond Guarantor
Slide 45: Covered bond programme key features
Covered bond programme Key features Covered Bonds are issued by Westpac, backed by an unconditional and irrevocable guarantee by the Structure Covered Bond Guarantor (the “CBT Guarantor”), which is limited in recourse to the assets in the Westpac Covered Bond Trust Security comprises a pool of Austr
Slide 46: Westpac's legislative covered bond programme international comparisons
Westpac’s legislative covered bond programme International comparisons Terms Westpac UK Sweden Canada UK Regulated Covered Bonds Lag om Utgivning av Säkerställda Legislation Amendment to the Banking Act 1959 National Housing Act Regulations Obligationer All assets transferred to SPV All assets trans
Slide 47: Westpac's high quality cover pool
Westpac’s high quality cover pool Covered bond pool eligibility criteria Covered pool loan statistics as at 30 September 2014 At the time of sale, each loan: Total pool loan balance1 A$33,027,727,363 • Is denominated and payable only in A$ in Australia • Is secured by a mortgage that constitutes a f
Slide 48: Cover pool statistics as at 30 September 2014
Cover pool statistics as at 30 September 2014 Loan to value ratio by balance (%) Geographic distribution by state Current LVR (unindexed) Current LVR (indexed) 40 30 20 Northern Territory $317.9m, 10 1.0% Queensland 0 Western $4,905.2m, Australia South 14.9% 80-100% 50-55% 55-60% 60-65% 65-70% 70-75
Slide 49: Cover pool statistics (cont.)
Cover pool statistics as at 30 September 2014 (cont.) Mortgage principal balance distribution Interest rate split (%) % of pool (lhs) Number of loans (rhs) 30 35,000 25 30,000 20.8 20 25,000 20,000 15 15,000 10 10,000 5 5,000 79.2 - - 0-100K > 1.5m 750k -1m 1m - 1.5m 100-200k 200-300k 300-400k 400-5
Slide 50: Securitisation an important part of the Group's funding
Securitisation an important part of the Group’s funding Active RMBS and ABS capabilities • Outstanding securitisation issuance A$11.3bn Westpac is a consistent issuer of RMBS and ABS at 30 September 2014, represents 1.7% of the Group’s total funding, mostly RMBS issuance Original RMBS and ABS issuan
Slide 51: WST RMBS performance
WST RMBS performance Key pool comparison statistics (issuance) High quality product WST WST WST WST WST WST WST WST All WST transactions backed by prime 2014-1 2013-2 2013-1 2012-1 2011-3 2011-2 2011-1 2009-1 residential mortgages Pricing Date May-14 Sep-13 Feb-13 May-12 Oct-11 Jun-11 Feb-11 Dec-0
Slide 52: ABS transaction comparison
ABS transaction comparison • Crusade ABS – 100% auto receivables • Credit enhancement in excess of minimum required by rating agencies • Granular portfolios comprising solely auto loans • High levels of subordination (15-16%) to AAA notes • 12 month revolving period (the only Australian ABS programm
Slide 53: Additional Information
ADDITIONAL INFORMATION Westpac Banking Corporation ABN 33 007 457 141.
Slide 54: Westpac Australia's First Bank
Westpac Australia’s First Bank Westpac’s leading suite of brands and divisions Westpac balance sheet as at 30 September 2014 (A$) Total assets $770.8bn Australian Financial Westpac Westpac Westpac Pacific Services Institutional New Zealand and Group Net loans $580.3bn Bank Westpac St.George BT Retai
Slide 55: Funding capabilities to meet investor preferences
Funding capabilities to meet investor preferences Diverse and flexible funding capabilities Wholesale funding capabilities ECP/ECD Short term • Include Prime floaters, Federal Funds, Extendibles, Step- EMTN markets ups, Range accruals, CD, CP and Flippers SEC Shelf Term • Issuance in senior unsecure
Slide 56: Tier 2 Capital comparison
Tier 2 Capital comparison Characteristic Basel III compliant Tier 2 Old-style Tier 2 (specifically Lower Tier 2) Absorb losses on a "gone concern" basis Gone concern capital Gone concern capital Non-discretionary, Must pay securities subject to solvency tests; deferred Must pay securities subjec
Slide 57: Tier 2 Capital comparison by country
Tier 2 Capital comparison1,2 US Canada UK Scandinavia Australia Senior to Senior to Additional Senior to Additional Senior to Additional Senior to Additional Ranking Tier 1 Capital Tier 1 Capital Tier 1 Capital Tier 1 Capital Tier 1 Capital Step-ups Not permitted Not permitted Not permitted Not perm
Slide 58: High quality portfolio with bias to secured consumer lending
High quality portfolio with bias to secured consumer lending Asset composition as at 30 September 2014 (%) Cash and balances with central banks Total assets On balance sheet lending Receivables due from other financial institutions Housing Trading securities, financial assets at fair value and 5 18
Slide 59: A well diversified portfolio across industries and large exposures
A well diversified portfolio across industries and large exposures Exposures at default1 by sector ($m) Top 10 exposures to corporations and NBFIs5 as a % of total committed exposures6 (%) 2 Largest corporation/NBFI single Finance & insurance name exposure represents less than 0.2% of TCE 3 Property
Slide 60: Commercial property portfolio well diversified, low levels of stress
Commercial property portfolio well diversified, low levels of stress Commercial property exposures size ($bn) and % of TCE Commercial property portfolio (TCE) classified as stressed (%) Commercial property exposure ($bn) 9.6 20.0 9.1 Commercial property as % of TCE 8.0 18.0 15.5 7.7 7.1 6.9 6.8 6.7
Slide 61: Australian unsecured lending portfolio continue to perform well
Australian unsecured lending portfolio continue to perform well • Unsecured consumer asset quality has remained strong as continuing low interest Australian unsecured lending 90+ days delinquencies (%) rates have assisted debt serviceability Credit cards Personal loans (excl Auto loans) and the Grou
Slide 62: Limited asset encumbrance
Limited asset encumbrance • Westpac has limited asset encumbrance Westpac’s asset encumbrance • Covered bond capacity has legislated cap in Australia and New Zealand – In Australia, capped at 8% of FY14 total assets $771bn Australian assets, providing $50bn total capacity (including overcollateralis
Slide 63: Appendix 1: Cash earnings adjustments
Appendix 1: Cash earnings adjustments Cash earnings adjustment (A$m) FY14 FY13 2H14 1H14 Reported NPAT 7,561 6,751 3,939 3,622 TPS revaluations - 9 - - Treasury shares 7 42 (6) 13 Ineffective hedges 46 (20) 29 17 Fair value on economic hedges (105) 21 (151) 46 Buyback of government guaranteed debt (
Slide 64: Appendix 2: Cash earnings adjustments by segment
Appendix 2: Cash earnings adjustments by segment Westpac BT Retail & St.George Financial Westpac New Business Banking Group Institutional Zealand Westpac Group FY14 Segment Results (A$m) Banking Group1 (Australia)2 Bank (in A$) Pacific Businesses Group Reported NPAT 2,582 1,455 873 1,468 790 122 271
Slide 65: Appendix 3: Internationally comparable capital ratio
Appendix 3: 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 p
Slide 66: Appendix 4: Definitions
Appendix 4: Definitions Financial performance Asset quality Core earnings Operating profit before income tax and impairment charges Stressed Stressed loans are the total of watchlist and substandard, 90 days past loans due well secured and impaired assets AIEA Average interest earning assets Net int
Slide 67: Information for investors
Information for investors Contact our global funding team Curt Zuber Guy Volpicella Treasurer, Westpac Banking Corporation Executive Director, Structured Funding and Capital +61 2 8253 4230 +61 2 8254 9261 [email protected] [email protected] Joanne Dawson Richard Salmon Deputy Treasurer
Westpac Banking — Debt Investor Presentation (November 2014) on 6ix