Westpac Banking Corporation · ASX:WBC
Westpac Banking — Debt Investor Presentation (November 2012)
56 slides from Westpac Banking's debt investor presentation, November 2012
Slide 1: Westpac Results 2012 Fixed Income Investor Presentation
WESTPAC RESULTS 2012 Fixed Income Investor Presentation November 2012 Westpac Banking Corporation ABN 33 007 457 141.
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. The information is supplied in summary form and is therefore not necessarily complete. It is not intended that it be relied upon as adv
Slide 3: Westpac FY12 Overview
Westpac FY12 Overview • Westpac well positioned – strong financial results delivered in 2012 • Strengthened balance sheet across all dimensions – capital, funding, liquidity and asset quality • Excellent portfolio of businesses, all with good momentum and stronger financial and non-financial metrics
Slide 4: Why Westpac?
Why Westpac? “Westpac…outperformed • One of Australia‟s “4 pillars” Total exposure by geography1 (%) its domestic peer group in • Most strategically focused on Australia New Zealand terms of credit costs domestic markets – 98% of Asia, Pacific, Europe & Americas assets in Australia and NZ during the
Slide 5: Response to the FY12 financial result
Response to the FY12 financial result “THIS WAS A GOOD RESULT FROM WBC, PROBABLY ITS BEST SINCE THE FINANCIAL CRISIS. NOT ONLY DID IT DELIVER A CONSISTENT STORY ACROSS THE P&L BY DIVISION, BUT THE STRENGTHENING OF ITS BALANCE SHEET WAS A STANDOUT.” UBS SECURITIES AUSTRALIA LIMITED 5 NOVEMBER 2012 We
Slide 6: Balance sheet strength a key focus
Balance sheet strength a key focus Common equity ratio1 (APRA Basel III) (%) Liquid assets ($bn) Cash, goverment and semi-government bonds 8.2 Private securities and government guaranteed paper 8.0 7.9 110 Self securitisation 103 7.5 82 43 33 74 35 45 34 31 25 29 38 29 39 42 11 18 7 2 Westpac Peer 1
Slide 7: FY12 snapshot – A strong financial result
FY12 snapshot – A strong financial result change Net interest margin (reported, %) Earnings FY12 FY12– FY11 2.6 Net profit after tax $5.970bn Down 15% 2.4 2.17 2.2 Cash earnings $6.598bn Up 5% 2.0 Cash EPS 215.9c 3% 1.8 1H07 2H07 1H08 2H08 1H09 2H09 1H10 2H10 1H11 2H11 1H12 2H12 Revenue, reported $1
Slide 8: FY12 snapshot – A strengthened balance sheet
FY12 snapshot – A strengthened balance sheet change change FY12 FY12 FY12 – FY11 FY12 – FY11 Capital, Funding and Liquidity Asset Quality Common equity ratio 10.6% Up 87bps Impairment charges to average gross loans 24bps Up 4bps (Basel III fully harmonised) Tier 1 ratio Net write-offs to average loa
Slide 9: Focus on deeper customer relationships driving earnings
Focus on deeper customer relationships driving earnings Contribution to NPAT (%) • Westpac Retail and Business Banking: Retail and business banking for Australian consumers, SMEs and commercial customers Australian Financial Services − Cash earnings of $2.1billion in FY12, up 14% on FY11 25 9 2 − In
Slide 10: Strong common equity ratio against global peers
Strong common equity ratio against global peers Global peer comparison of Basel III pro-forma common equity ratios (%) 15.7 15.4 13.3 11.0 11.0 10.6 10.6 10.5 10.0 9.8 Average 9.7% 9.3 9.3 9.3 9.3 9.3 9.2 9.1 9.0 8.7 8.7 8.6 8.6 8.5 8.4 8.2 8.1 8.0 7.9 7.8 7.8 Handelsbanken Unicredit Westpac Santand
Slide 11: Strong capital position, up on all measures
Strong capital position, up on all measures • Westpac‟s common equity ratio up under all measures Key capital ratios (%) 2H11 1H12 2H12 – Principally due to organic capital generation • Common equity ratio under fully harmonised Basel III, 10.6% Common equity ratio (APRA Basel 2.5) 8.1 8.0 8.4 – Wel
Slide 12: APRA to BCBS Basel III reconciliation
APRA to BCBS Basel III reconciliation • The Australian Prudential Regulation Authority (APRA) has maintained a conservative stance under its Basel III capital standards, resulting in a significant variance between capital measured under APRA standards and under the fully harmonised Basel III standar
Slide 13: Funding profile materially improved
Funding profile materially improved • Westpac has significantly strengthened its funding profile since Funding composition by residual maturity (%) 2008: − Customer deposits up from 44% in 2008 to 58% of total SFR1 64% SFR1 77% SFR1 83% funding in 2012 9 7 Wholesale Onshore <1Yr − Westpac‟s loan gro
Slide 14: Environment has supported improved funding profiles
Environment has supported improved funding profiles • Since 2008, the composition of Australian bank funding has Credit growth and deposit growth (% annual) improved 30 Total Australian credit 30 − Loan-to-deposit ratios have improved as deposit growth has 25 Total Australian household deposits 25 o
Slide 15: Westpac's funding composition in good shape
Westpac’s funding composition in good shape; Lowest short term funding of peers Short term funding1 ($bn) Short term funding /Total funding including equity1 (%) 200 30% $150bn 24% 25% 21% 150 $134bn 19% 20% 17% $103bn $104bn 100 15% 10% 50 5% - 0% Westpac Peer 1 Peer 2 Peer 3 Westpac Peer 1 Peer 2
Slide 16: FY12 term issuance highly diverse
FY12 term issuance highly diverse • Westpac‟s term debt issuance in FY12 shows the strength and breadth Term debt issuance and maturity profile2 ($bn) of the Group‟s funding franchise • Raised $31.7bn across senior unsecured, covered bonds, securitisation Covered Bond Hybrid Senior Govt Guaranteed S
Slide 17: Westpac aims to efficiently meet investor preferences
Westpac aims to efficiently meet investor preferences • Westpac‟s wholesale funding strategy is focused on diversity and Westpac’s wholesale funding capabilities flexibility • Able to issue in a broad range of formats, tenors and currencies, ECP/ECD including covered bonds EMTN • Westpac is the only
Slide 18: Covered bonds provide further funding diversity
Covered bonds provide further funding diversity • Covered bonds provide additional diversification to Westpac‟s Australian covered bond issuance (A$bn) existing funding programs ($bn) Issued (lhs) (%) – Westpac Banking Corporation US$20bn covered bond 45 Remaining capacity (8% cap & OC) (lhs) 100% p
Slide 19: Liquidity position further improved
Liquidity position further improved • Unencumbered liquid asset balance of $110bn as at 30 September 2012 Liquid assets ($bn) − Covers all short term wholesale outstandings (offshore and Cash, goverment and semi-government bonds onshore) 1 Private securities and government guaranteed paper − Covers
Slide 20: Downward trend in stressed exposures
Downward trend in stressed exposures • Asset quality continued to improve, with a reduction in portfolio Stressed exposures as a % of TCE1 (%) stress, declining new stress and improving consumer delinquencies 4.0 Impaired • Stressed exposures represented 2.17% of total committed 90+ days past due we
Slide 21: Stressed exposures across sectors
Stressed exposures across sectors • Asset quality in the consumer segment Stressed exposures by industry ($bn) has remained strong, benefiting from ongoing consumer caution, higher 5 7 2H11 1H12 2H12 repayment levels, as well as low unemployment and interest rates • The SME sector has also performed
Slide 22: Provision levels remain at upper end of peers
Provision levels remain at upper end of peers • Total provisions were $4,241m at 30 September 2012 Provisioning coverage ratios 2H11 1H12 2H12 • Strong coverage was maintained, although provisioning levels have moderated consistent with reducing stress in the portfolio Collectively assessed provisio
Slide 23: Low losses and delinquencies in Australian housing portfolio
Low losses and delinquencies in Australian housing portfolio • Australian mortgage delinquencies remain below industry Australian mortgages delinquencies and loss rates (%) benchmarks, with total portfolio 90+ days delinquencies 52bps, 90+ Past Due Total down 1bp on FY11 2.5 90+ First Home Buyer • E
Slide 24: The outlook for the aggregate economy remains favorable
“THE OUTLOOK FOR THE AGGREGATE ECONOMY REMAINS FAVORABLE.” INTERNATIONAL MONETARY FUND 20 SEPTEMBER 2012 Westpac Group Fixed Income Investor Update | November 2012 24
Slide 25: Australian and New Zealand economic outlook
Australian and New Zealand economic outlook Calendar year Key economic indicators as at October 2012 (%) 2011 2012f 2013f 2014f World GDP 3.9 2.9 3.6 3.2 Australia GDP 2.1 3.5 3.2 2.8 Private consumption 3.3 4.0 3.0 3.4 Business investment1, 2 16.0 15.2 10.5 0.5 Unemployment – end period 5.2 5.6 5.4
Slide 26: Australia remains well placed relative to developed economies
Australia remains well placed relative to developed economies • The Australian economy continues to outperform peers Real GDP growth (%, year-ended) • After maintaining positive momentum through the global recession in 2008-09, GDP growth has picked up to 3.7%yr Australia UK Canada US Euro 6 • GDP f
Slide 27: ...though conditions uneven across sectors...
...though conditions uneven across sectors... • Recent growth dominated by expansion in the mining sector The Australian dollar − Particularly capital expenditure which is expected to be up 52%yr for USD Fair value band USD the sector in 2012 reaching 7% of GDP 1.20 AUD/USD actual & forecast 1.20 •
Slide 28: Importantly, Australia has monetary and fiscal flexibility
Importantly, Australia has monetary and fiscal flexibility • In contrast to most other developed economies, Australian policy makers continue to enjoy considerable flexibility Major countries’ policy rates (%) • Australia‟s official cash rate is currently 3.25% Australia UK Canada US Euro 8 − Low by
Slide 29: Australia's mining boom entering a transition phase
Australia’s mining boom entering a transition phase • Australia‟s mining boom best described as 3 separate but overlapping stages led by the cycles in: Price cycle appears to have peaked 1. Prices; index index 700 Bulks* (lhs) 350 2. Investment; and Exchange traded* (rhs) 3. Exports/production 600 3
Slide 30: Chinese growth finding a sustainable level
Chinese growth finding a sustainable level • The Chinese economy is in the middle stages of its development - it is no longer poor but it is still far from rich China’s share: world activity & Australian exports (%) • Westpac estimates Chinese potential growth is now between 7% and % * Goods & servi
Slide 31: Westpac's Australian mortgage portfolio – high quality and performing well in FY12
WESTPAC’S AUSTRALIAN MORTGAGE PORTFOLIO – HIGH QUALITY AND PERFORMING WELL IN FY12. Westpac Group Fixed Income Investor Update | November 2012 31
Slide 32: Australian mortgage market
Australian mortgage market Australian mortgage market Australian bank mortgage market share (%) Market share • 4 major banks dominate - 83% share held • Major banks have low share of low doc market Westpac (incl. St.George) 16 15 Lenders • Banks in Australia have full recourse to the CBA (incl. BWA)
Slide 33: New flows support quality Australian housing portfolio
New flows support quality Australian housing portfolio • Australian housing portfolio $316bn, up 4% on FY12 Australian housing portfolio1 • Portfolio composition reflects brand strength across market segments FY11 FY12 2H12 Balance Balance Flow2 − Owner occupied lending 48.2% − Investor lending 41.5
Slide 34: Australian housing portfolio well collateralised
Australian housing portfolio well collateralised • Australian housing portfolio remains well collateralised Australian housing portfolio FY11 FY12 • Average dynamic LVR is 48% − Modestly up compared to FY11, mainly due to declines in Average LVR at origination1 (%) 68 69 property valuations in some
Slide 35: Lenders mortgage insurance managing risk transfer
Lenders mortgage insurance managing risk transfer • Westpac Group has one captive mortgage insurer, Westpac Lenders Australian mortgage portfolio LMI coverage (%) Mortgage Insurance (WLMI)1, which insures mortgages originated at 30 September 2012 through all brands and channels 3 Not LMI insured Ins
Slide 36: Australian investment property portfolio
Australian investment property portfolio • Investment property loans (IPLs) make up 41.5% of Westpac‟s Loan-to-value ratio at Application Australian mortgage portfolio origination (%) total gross income (%) Owner Occupied IPL Owner Occupied IPL • The majority (46%) of IPL loans are originated at 80%
Slide 37: Australian house prices have eased in an orderly fashion
Australian house prices have eased in an orderly fashion • Conditions in the Australian housing market have been subdued in 2012 although there are signs of a recovery starting to gain traction. House prices (annual % change) • Interest rate cuts since November 2011 have delivered a soft landing Res
Slide 38: Improvements in housing affordability
Improvements in housing affordability • Housing affordability has improved significantly over 2011-12. Interest rates (%) • Westpac‟s preferred measures of affordability – the cost of servicing a mortgage on a median-priced dwelling as a % of standard variable mortgage rate (lhs) housing finance app
Slide 39: Housing stock: A structural supply/demand imbalance
Housing stock: A structural supply/demand imbalance • A key feature of the Australian housing market and the main Australia’s housing stock deficiency1 (’000) reason for its resilient price performance is an acute shortage of stock estimated housing stock deficiency Aus dwelling approvals (SA annual
Slide 40: Little evidence of speculative investor activity
Little evidence of speculative investor activity • There is little evidence of „speculative‟ investor activity in the Investor boom ended 8 years ago* (annualised %) Australian market in recent years owner-occupiers investors • Lending to investors has lagged well behind owner-occupied 20 *percentag
Slide 41: A number of positive drivers support the WBC franchise
“A NUMBER OF POSITIVE DRIVERS SUPPORT THE WBC FRANCHISE, INCLUDING: STRONG CREDIT PROFILE, HIGH LEVELS OF PROVISIONING COVERAGE...” BANK OF AMERICA MERRILL LYNCH 5 NOVEMBER 2012 Westpac Group Fixed Income Investor Update | November 2012 41
Slide 42: Balance sheet composition of Westpac and domestic peers
Balance sheet composition of Westpac and domestic peers Regulatory exposure mix1 (%) 100% 1% 1% 2% 1% 3% 3% 5% 5% 3% 7% 7% Other retail 4% 7% 6% 11% 80% 10% Qualifying revolving 31% 27% Sovereign 60% 40% 34% Bank Corp, SME & Spec lending 40% Residential mortgages 56% 56% 20% 40% 40% 0% Westpac Peer
Slide 43: High quality portfolio with bias to secured consumer lending
High quality portfolio with bias to secured consumer lending Asset composition as at 30 September 2012 (%) Cash and balances with central banks Housing Business lending Corporate Other consumer Receivables due from other financial institutions 5 Trading securities, financial assets at fair 67 value
Slide 44: Diversification across industries and large exposures
Diversification across industries and large exposures Exposures at default1 by sector ($m) Top 10 exposures to corporations and NBFIs as a % of TCE5 (%) 2% 1% 1% 1% • Top 10 single name exposures to corporations and non-bank financial 2% 2% institutions (NBFIs) continue to be well below 2% of TCE 2%
Slide 45: Commercial property portfolio comfortably within appetite
Commercial property portfolio comfortably within appetite • Commercial property represents 6.8% of Total Committed Exposure Commercial property exposures size ($bn) and % of TCE (TCE) and 7.9% of gross lending at 30 September 2012, down from peak of 10.0% and 13.0% respectively in December 2008 Comm
Slide 46: Australian credit card portfolio continues sound performance
Australian credit card portfolio continues sound performance • Australian credit card portfolio has continued to perform well, Australian credit card average payments to balance ratio1 (%) largely driven by cautious consumer behaviour resulting in increased payment levels • The average credit card p
Slide 47: Asset quality improving; impairment charges little changed in 2H12
Asset quality improving; impairment charges little changed in 2H12 • In 2H12, impairment charges were $604m, or 1% lower than 1H12 Impairment charges movement by business ($m) – In the Australian business portfolio, impairment charges were a little Aust Business higher, due to a reduction in write b
Slide 48: Appendix 1: Cash earnings adjustments
Appendix 1: Cash earnings adjustments Cash earnings adjustment (A$m) 2H12 1H12 FY12 FY11 Reported NPAT 3,003 2,967 5,970 6,991 TPS revaluations 3 24 27 21 Treasury shares 15 12 27 (6) Non-merger related items Fair value gain/(loss) on economic hedges (13) 20 7 36 Ineffective hedges 1 (8) (7) 13 Buyb
Slide 49: Appendix 2: Cash earnings adjustments by segment
Appendix 2: Cash earnings adjustments by segment Westpac St.George BT Financial Westpac Retail & Pacific Group FY12 Segment Results (A$m) Banking Group Institutional New Zealand Business Banking Businesses Group (Australia) Bank Banking Reported NPAT 2,114 1,102 631 1,473 548 107 (5) TPS revaluation
Slide 50: Appendix 3: Australia's superannuation sector
Appendix 3: Australia’s superannnuation sector • As at 30 June 2011, Australians had approx. A$1.34trillion1 in Expected growth in Australia’s superannuation assets (A$tn)2 superannuation savings • Projected to increase to over $6trillion by 2030, driven by 8 compulsory superannuation contributions
Slide 51: Appendix 4: Westpac covered bond programme
Appendix 4: Westpac 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$20 billion Maturity options Soft and Hard Bullet Covered Bond Guarantor
Slide 52: Program features
Program features Covered Bonds are issued by Westpac, backed by an unconditional and irrevocable guarantee by the Covered Bond Structure Guarantor (the “CBT Guarantor”), which is limited in recourse to the assets in the Westpac Covered Bond Trust Security comprises a pool of Australian residential m
Slide 53: Westpac cover pool
Westpac cover pool Covered Bond Pool eligibility criteria Covered pool loan statistics as at 30 September 2012 • At the time of sale, each loan: Total pool loan balance1 A$13,693,183,764 – Is denominated and payable only in AUD in Australia – Is secured by a mortgage that constitutes a first ranking
Slide 54: Pools statistics as at 30 September 2012 (cont.)
Pools statistics as at 30 September 2012 (cont.) Loan to value ratio by balance (%) Geographic distribution by state (%) 35 Current LVR (unindexed) Current LVR (indexed) 30 25 20 Northern 15 Territory 10 $155m, Queensland 1.1% $0m, 0% 5 0 Western Australia South Australia 50-55% 55-60% 60-65% 65-70%
Slide 55: Pool statistics as at September 2012
Pool statistics as at 30 September 2012 Mortgage principal balance distribution Interest rate split (%) % of pool (lhs) Number of loans (rhs) Fixed Floating 30 16,000 25 14,000 12,000 20 10,000 84.8 15 8,000 10 6,000 4,000 15.2 5 2,000 0 0 100-200k 200-300k 300-400k 400-500k 500-750k 750k -1m 0-100K
Slide 56: Contacts
Contacts For further information For further information go to: www.westpac.com.au/investorcentre Curt Zuber Treasurer, Westpac Banking Corporation and click on „Fixed income investors‟ +61 2 8253 4230 [email protected] or visit our Bloomberg page ‘WBCT’ Joanne Dawson Deputy Treasurer, Westpac B
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