UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
February 19, 2019
Commission File Number 1-10167
WESTPAC BANKING CORPORATION
(Translation of registrants name into English)
275 KENT STREET, SYDNEY, NEW SOUTH WALES 2000, AUSTRALIA
(Address of principal executive office)
Indicate by check mark whether the registrant files or will file annual reports
under cover of Form 20-F or Form 40-F.
Form 20-F x Form 40-F
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): __________
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ___________
Incorporation by Reference
The information contained in this Report on Form 6-K, including the information contained in Exhibit No. 3 but excluding the information set forth in Exhibits No. 1 and No. 2, shall be incorporated by reference in the prospectuses relating to the Registrants securities contained in the Registrants Registration Statements on Form F-3 (File Nos. 333-228295, 333-228294 and 333-220373), as such prospectuses may be amended or supplemented from time to time.
Unaudited Statutory Net Profit for the December 2018 Quarter
On February 18, 2019, Westpac announced that unaudited statutory net profit for the December quarter 2018 was $1.95 billion. This compares to the quarterly average of Second Half 2018 of statutory net profit of $1.95 billion.
Recent Developments
The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry , which we refer to as the Royal Commission , was established on December 14, 2017 and investigated (amongst other things) whether any conduct, practices, behaviors or business activities engaged in by financial services entities amounted to potential misconduct, or fell below community standards and expectations. The Royal Commission provided its final report, including its recommendations, to the Australian Government on February 1, 2019. The Australian Government publicly released the report after close of market in Australia on February 4, 2019.
The Royal Commissions inquiries have made public instances where Westpac Banking Group and its controlled entities, which we refer to as the Group, or entities or persons associated with the Group engaged in potential misconduct or failed to meet community standards and expectations. The Royal Commissions Terms of Reference were broad and enabled the Royal Commission to investigate potential misconduct in a wide range of areas. The public hearings of the Royal Commission examined consumer lending practices, the provision of financial advice, business lending to small and medium enterprises, experiences with financial entities in regional and remote communities, superannuation and insurance, as well as policy issues related to these matters. The final report of the Royal Commission set out its r ecommendations regarding banking (including consumer lending), financial advice, superannuation, insurance, risk management practices, culture, governance and remuneration, regulators and other matters. The public hearings, submissions, evidence, findings and recommendations of the Royal Commission, have had, and are likely to continue to have, an adverse impact on the Groups reputation and potentially the financial performance of the business. The Federal Government has responded to the final report, stating that it is taking action on all 76 recommendations. The opposition Labor Party has expressed in principle support for all 76 recommendations. It is expected that it will take some time to implement all of the recommendations. The Royal Commissions findings may lead to regulators commencing investigations and/or enforcement action against the Group. The Group may also be exposed to an increased risk of litigation involving third parties (including class action proceedings) in connection with matters raised publicly at the Royal Commission.
In addition, the findings and recommendations made by the Royal Commission may result in regulators altering their existing policies and practices (including increasing their expectations for entities that they regulate). Depending on the nature of any changes to Australias legal framework and/or the policies and practices of regulators which might be prompted by the Royal Commission, there may be an adverse effect on our business, prospects, financial performance or financial condition. In addition, when implemented, the recommendations of the final report may result in increased compliance costs and may have an adverse impact on the Groups business, prospects, financial performance and financial condition.
Additionally, following the release of the final report of the Royal Commission, it is likely that credit rating agencies may review the credit ratings assigned to the Group and may revise credit ratings or credit rating outlooks. For more information on risks relating to our credit ratings, see Risk FactorsFailure to maintain credit ratings could adversely affect our cost of funds, liquidity, competitive position and access to capital markets in our Annual Report on Form 20-F for the year ended September 30, 2018 .
The Royal Commission may also lead to increased political or regulatory scrutiny of the financial industry in New Zealand.
Index to Exhibits
Exhibit
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Description |
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ASX Release: Westpac 1Q19 Update and Pillar 3 Report |
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1Q19 Capital, Funding and Credit Quality Update |
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December 2018 Pillar 3 Report: Incorporating the requirements of APS330 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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WESTPAC BANKING CORPORATION |
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(Registrant) |
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Date: February 19, 2019 |
By: /s/ Sean Crellin |
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Sean Crellin |
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Director Corporate, Legal and
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ASX Release MONDAY 18 FEBRUARY 2019 WESTPAC 1Q19 UPDATE AND PILLAR 3 REPORT Westpac Banking Corporation has today released its Pillar 3 report for December 2018, along with slides providing further detail on asset quality, funding and capital. Westpac has also announced that unaudited statutory net profit for the December quarter 2018 (1Q19) was $1.95 billion, this compares to the quarterly average of Second Half 2018 of statutory net profit of $1.95 billion. Unaudited cash earnings1 for 1Q19 was $2.04 billion. This compares to the quarterly average of Second Half 2018 of $1.91 billion or $2.05 billion before remediation charges. Key trends within cash earnings over the quarter, relative to the quarterly average of Second Half 2018, included: Net interest margins excluding Treasury and Markets were higher following some repricing late in the 2018 financial year; The contribution from Treasury and Markets was lower as trading conditions were weaker; The impairment charge was $204 million; Expenses were lower given the exit of the Hastings business and the absence of additional costs associated with remediation; The quarter included $30 million (pre-tax) in insurance claims for Sydney hailstorms. An additional $35 million (pre-tax) in claims costs (after reinsurance) are expected from the recent Queensland floods in 2Q19; and No material remediation charges (or associated costs) were booked in 1Q19 although additional charges are likely to be incurred in 2Q19. Westpacs asset quality and capital remained strong. The Groups common equity Tier 1 (CET1) capital ratio was 10.4% at 31 December 2018. The ratio was lower than the 10.6% reported for September 2018 after payment of Westpacs final dividend (net of DRP), which reduced the CET1 capital ratio by 69 bps. Excluding the dividend payment, the CET1 capital ratio increased 49 basis points. Stressed assets to total committed exposures (TCE) were little changed over the quarter and no new individual loans over $10 million became impaired in 1Q19. 1 Cash earnings is a non-GAAP measure. Refer to Westpacs Full Year 2018 Financial Results announcement for details. Quarterly business trends excludes the impact of adopting new accounting standards.
Australian mortgage delinquencies were 4 basis points higher over the quarter while Australian unsecured delinquencies were also higher, up 10 basis points. On 1 October 2018 Westpac adopted AASB 9 and AASB 15. The models for implementation of these standards are still to be finalised and so current changes associated with implementation are preliminary and may change. These will be finalised with Westpacs First Half 2019 results. Some transitional impacts from the adoption of AASB 9 have included: An increase in collectively assessed provisions of $974 million; A reduction in retained earnings and an increase in deferred tax assets; A $3.9 billion reduction in risk weighted assets; A rise in reported stressed assets; and A 2 basis point increase in the CET1 capital ratio. Prior to the announcement of Westpacs First Half 2019 results on 6 May 2019, the Group will release its First Half 2019 template which will provide further details of these changes along with some other accounting and divisional changes. These changes have no impact on the Groups cash earnings but will impact the composition of earnings and earnings across divisions. For further information Lucy Wilson Media Relations M. 0428 777 704 Andrew Bowden Investor Relations T. 02 8253 4008 M. 0438 284 863
1Q19Update Includes Capital, Funding&Credit Quality 18 February 2019 Westpac Banking Corporation | ABN 33 007 457 141 Financial results based on cash earnings unless otherwise stated. Investor Discussion Pack for definition. Refer to the 2018 Full Year This document should be read in conjunction with Westpacs Pillar 3 Report December 2018, incorporating the requirements of APS330. All comparisons in this document refer to 31 December 2018 compared to 30 September 2018 (unless otherwise stated)
Summary of 1Q19 Overview 2 1Q19 net profit after tax (statutory) of $1.95bn (cash earnings adjustments $0.09bn, mostly related to fair value Australian mortgage 90+ day delinquencies 0.76% (up 4bps over the quarter) 1 Remediation includes provisions for customer refunds and payments and associated costs and estimated litigation costs. 2 Internationally comparable methodology aligns with the APRA study titled International Capital Comparison Study dated 13 July 2015. 3 TCE is Total committed exposure. 4 The models for the implementation of these standards are still to be finalised and so current changes associated with implementation are still preliminary and may change. Westpac Group 1Q19 Update 1Q19 cash earnings (unaudited) 1Q19 cash earnings of $2.04bn, up 6.9% on 2H18 quarterly average (0.5% lower than 2H18 average excluding $281m of remediation1 provisions) losses on economic hedges) 1Q19 includes no material remediation provisions and associated costs Well positioned for unquestionably strong Common equity Tier 1 (CET1) capital ratio 10.4% at 31 Dec 2018 Down from 10.6% at 30 Sep 2018 as capital generated over the quarter and other capital movements were more than offset by the 2H18 dividend (net of shares issued for the dividend reinvestment plan) Risk weighted assets (RWA) down ($5.8bn, 1.4%); credit RWAs down $1.6bn and non-credit RWA down $4.2bn. The implementation of AASB 9 reduced credit RWA by $3.9bn Internationally comparable2 CET1 capital ratio was 15.8% at 31 Dec 2018 Credit quality remains sound Credit quality metrics remain near cyclical lows Level of impaired assets stable with no new individual impaired loans over $10m in the quarter. Stressed assets to TCE3 1.14%, up 6bps (AASB 9 adoption added 7bps) Australian unsecured 90+ day delinquencies increased to 1.83% (up 10bps over the quarter) Australian mortgage portfolio Interest only lending was 32% of portfolio at 31 Dec 2018 (down from 35% at 30 Sep 2018) Investor lending growth, using APRA extended definition, 0.8% pa Sound funding/liquidity position Liquidity coverage ratio (LCR) 128%, net stable funding ratio (NSFR) 112% $16bn term funding raised during 4 months to 31 January 2019 Estimated impact on key metrics from adoption of AASB 9 and AASB 154 Minimal impact to the CET1 ratio (+2bps) from AASB 9. No impact to CET1 ratio on transition to AASB 15 Lifted accounting impairment provisions by $974m, reduced RWA by $3.9bn, and increased stressed assets Small impact on various asset quality metrics
AASB 9 impacts AASB 9 3 Westpac implemented AASB 9 from 1 October 2018. As the models associated with implementation are still to be finalised, the impact for Westpac of AASB 9 may change. Final details will be provided as part of Westpacs 1H19 update Collectively assessed provisions $974m higher due to forward looking factors and s are [$1.0bn] higher due to forward-looking factors and lifetime expected credit losses on stage 2 erred tax unting provisions resulted iTnhe deferred tax asset is a capital deduction eduction in retained earnings; assets; capital deduction -A [$0.3bn] lower regulatory expected loss (REL) deduction; GRCGLR)CaLdwjuastamceanptitoalf d[$ed0u.4ctbionn] being no longer required as(s$e35ts6marreedlouwcteiorn)as cer pected loss, but a lower shepertovimisipoansctasgoaifnAstAthSeBse9lowanillsbreeleparsoevsidtheedeaqut i1vaHle1n9t capital previously held in assets. Most of the changes are in the treatment of the small business portfolio ratios including provision coverage, stressed assets to TCE, and capital Westpac Group 1Q19 Update Impacted items Estimated change Detail Impairment provisions Total provisions $974m higher No change in individually assessed provisions lifetime expected credit loss changes on loans classified as stage 2 Retained earnings Impairment provision $682m lower Retained earnings transferred to provisions Defloans asset The increase in acco $292m higher $292 million added to the deferred tax asset -A [$0.7bn] r ry expected loss Regulato -A [$0.3bn] inc re$2a7s4eminlodweefrerred tax Increase in impairment provisions reduces the regulatory expected loss capital deduction General re-servTehfeorgcerneedrital r losseCs raeddjuitsrtmiskenwt e(GigRhCteLd) eNseorlvoengfeorrrcerqeudireitdloss ( tain loans are treated as impaired under AASB 9. This treatment results in a higher regulatory ex CrediMt RoWdAels are still being r$e3fi.n9bend.loFwienral balance riskCwreediigt RhWtinAgfoorndethfaeultoeadnlosans are lower because the increase in accounting credit RWA Stressed assets $769m higher More loans are now classified in the watchlist and substandard category of stressed Performance metrics Various Given the changes above, AASB 9 impacts a range of credit quality and provisioning
CET1 capital ratio, well positioned for unquestionably strong Capital 4 Building for 1% unquestionably strong 10 1 Internationally comparable methodology aligns with the APRA study titled International Capital Comparison Study dated 13 July 2015. 2 Domestic systemically important bank. 3 APRAs revision to the calculation of RWA for Australian residential mortgages, which came into effect on 1 July 2016. Westpac Group 1Q19 Update Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Capital ratios (%) Mar-18Sep-18Dec-18 CET1 capital ratio (%) and CET1 capital ($bn) Westpac CET1 capital (lhs, $bn) Westpac CET1 capital ratio (rhs, %) APRA industry guidelines 10.5% $bnDSIB2 buffer% 5512 5010.0 10.0 45 8 40mortgage RWA3 356 30 4 25 2 20 150 CET1 capital ratio10.510.610.4 Additional Tier 1 capital2.32.22.4 Tier 1 capital ratio12.812.812.8 Tier 2 capital2.01.92.0 Total regulatory capital ratio14.814.714.8 Risk weighted assets (RWA) ($bn)416425420 Leverage ratio5.85.85.7 Internationally comparable ratios1 Leverage ratio6.46.56.4 CET1 capital ratio16.116.115.8 10.610.6 10.2 10.5 10.110.1 10.5 10.410.4 9.59.5 9.3 Impact of APRAs 45 44 44 44 changes to 43 42 40 41 39 38 38 37 37 34
CET1 capital and RWA movements Capital 5 movements and other capital estimated AASB 9 impacts Changes to PD models for Mar-18 Sep-18 AASB 9 Business FX Model Other Dec-18 1 Probability of default. 2 The models for the implementation of this standard are still to be finalised and so current changes associated with implementation are still preliminary and may change. Westpac Group 1Q19 Update Credit RWA movements ($bn) Chart does not add through due to rounding Corporate1 361.4362.7(3.9)2.01.9(1.0)(0.6)361.2 2 growthimpactschange Down 0.4% CET1 capital ratio (% and bps) Refer to slide 3 for details of1Q19 earnings, RWA movements 10.63210.65(69)4710.43 2 30 Sep-18AASB 91 Oct-18FinalOtherDec-18 APRAAPRAdividendAPRA (net of DRP) RWA movements ($bn) 425.4(1.6)1.4(4.7)(0.9)419.6 415.7 Down 1.4% Mar-18Sep-18Credit RWAMarketIRRBBOtherDec-18 risk
Well progressed on FY19 term funding Funding 6 1Q19 funding and liquidity highlights LCR 128% (133% at 30 September 2018) NSFR 112% (114% at 30 September 2018) $9.1bn in term funding issued in 1Q19. A further $6.7bn issued in January 2019 The majority of 1Q19 new term issuance came in AUD and Euro. Benchmark transactions included A$2.75bn 5 year senior transaction, A$1.5bn 3 year senior transaction and A$1.4bn Additional Tier 1 transaction, as well as 1.0bn 2 year senior transaction and 1.0bn 5 year covered bond 8 4 2 1 Based on residual maturity and FX spot currency translation. Includes all debt issuance with contractual maturity greater than 13 months excluding US Commercial Paper and Yankee Certificates of Deposit. 2 Contractual maturity date for hybrids and callable subordinated instruments is the first scheduled conversion date or call date for the purposes of this disclosure. 3 Tenor excludes RMBS and ABS. 4 WAM is weighted average maturity. 5 Perpetual sub-debt has been included in >FY24 maturity bucket. Maturities exclude RMBS and ABS amortisation. Westpac Group 1Q19 Update FY14 FY15 FY16 FY17 FY18 1Q19 FY19 remaining FY20 FY21 FY22 FY23 FY24 >FY24 New term issuance by currency (%) Not all bars add to 100 due to rounding AUD USD EUR 1GBP 4Other 3 11 2 FY17FY181Q19 63 35 32 32 21 21 49 22 New term issuance by tenor2,3 (%) Not all bars add to 100 due to rounding 5.8yrs6.5yrs4.2yrsWAM4 47 16 >5years 5 years 4 years 3 years 2 years 1 year 49 30 17 10 18 7 7 FY17FY181Q19 43 30 17 8 New term issuance by type (%) Not all bars add to 100 due to rounding 16 Subordinated Debt Hybrid Securitisation Covered Bonds Senior Unsecured 5 13 17 18 73 67 66 FY17FY181Q19 Term debt issuance and maturity profile1,2,5 ($bn) Sub debtSenior/SecuritisationHybridCovered bond 32 23 42Issuance 37 Maturities 3032 3331 9 24 27 18 11
Well provisioned, credit quality remains sound Credit quality 7 Stressed exposures as a % of TCE Watchlist & substandard 90+ day past due and not impaired Impaired Estimated AASB 9 transition added 7bps 2.17 4,066 4,027 3,949 1.60 1.24 1.20 1.15 1.14 3,332 1.09 1.08 1.05 0.99 (1) 7 0 115 108 46 46 47 48 (%) 75 73 99 101 (bps) 1 Facilities 90 days or more past due date not impaired. These facilities, while in default, are not treated as impaired for accounting purposes. Westpac Group 1Q19 Update Sep-18 AASB 9 1-Oct-18 Impaired 90+ dpd not impaired1 Substandard Watchlist Dec-18 Movement in stress categories to TCE (bps) 2(2)114 Total impairment provisions ($m) Estimated AASB 9 Overlaytransition Collectively assessed provisions 4,241Individually assessed provisions 363 3,605 3,640 389 3,4813,602 2,408 2,196 389 3,1193,053 389 388 2,344 323 2,225 301 2,275 2,316 2,330 1,470 1,364 867 669 869 480 422 426 422 Sep-12Sep-13Sep-14Sep-15Sep-16Sep-17Sep-18 1-Oct-18 Dec-18 Mar-18Sep-18 1-Oct-18 Dec-18 Total provisions to gross loans (bps)45435757 Impaired asset provisions to impaired assets Collectively assessed provisions to credit RWA 1.24 0.35 0.58 0.85 0.31 0.44 0.71 0.54 0.260.25 0.270.20 0.65 0.560.570.55 0.330.340.370.39 0.220.150.150.14 0.61 0.40 0.14 0.58 0.42 0.14 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16 Sep-17 Mar-18 Sep-18 1-Oct-18 Dec-18
Credit quality areas of interest Credit quality 8 1 Includes impaired exposures. 2 Percentage of portfolio TCE. Westpac Group 1Q19 Update New Zealand dairy portfolio Mar-18Sep-18Dec-18 Total committed exposures (TCE)NZ$6.1bnNZ$6.3bnNZ$6.3bn LendingNZ$5.8bnNZ$6.0bnNZ$6.1bn % of Group TCE0.550.550.57 % of portfolio graded as stressed1,214.9411.9012.19 % of portfolio in impaired20.470.360.33 Commercial property portfolio Mar-18Sep-18Dec-18 Total committed exposures (TCE)$66.3bn$67.6bn$67.6bn Lending$51.1bn$52.0bn$52.0bn % of Group TCE6.486.516.48 % of portfolio graded as stressed1,21.741.661.81 % of portfolio in impaired20.280.230.21 Mining (including oil and gas) portfolio Mar-18Sep-18Dec-18 Total committed exposures (TCE)$9.3bn$10.7bn$10.0bn Lending$5.1bn$5.7bn$5.4bn % of Group TCE0.911.030.96 % of portfolio graded as stressed1,21.720.990.92 % of portfolio in impaired20.310.170.12 Retail trade portfolio Mar-18Sep-18Dec-18 Total committed exposures (TCE)$15.5bn$16.2bn$16.4bn Lending$11.3bn$11.6bn$11.2bn % of Group TCE1.511.561.57 % of portfolio graded as stressed1,24.674.844.60 % of portfolio in impaired20.480.410.47
Australian consumer unsecured lending, 3% of Group loans Credit quality 9 Australian consumer unsecured lending portfolio Mar-18 Sep-18 Dec-18 Australian consumer unsecured lending delinquencies increased over 1Q19 in part driven by operational issues in Collections 5 5 5 (consumer) unsecured Westpac Group 1Q19 Update Australian unsecured portfolio ($bn) Mar-18Sep-18Dec-18 222121 777 Credit cardsPersonal loansAuto loansTotal consumer 1099 90+ day delinquencies (%) by product Total unsecuredCredit cardsPersonal loansAuto Finance consumer lending 3.0Introduced new hardship treatment 2.0 1.0 0.0 Dec-15Jun-16Dec-16Jun-17Dec-17Jun-18Dec-18 Lending$21.8bn$21.1bn$20.6bn 30+ day delinquencies (%)3.953.653.90 90+ day delinquencies (%)1.711.731.83 90+ day delinquencies (%) by State NSW/ACTVIC/TASQLDWASA/NT 3.0 2.0 1.0 0.0 Dec-15Jun-16Dec-16Jun-17Dec-17Jun-18Dec-18
Australian mortgage portfolio continues to perform well Credit quality 10 Portfolio delinquencies (%) Australian mortgage delinquencies and properties in possession (PIPs) Mar-18 Sep-18 Dec-18 90+ day past due total 30+ day past due total 90+ day past due investor Loss rates 30+ day delinquencies (bps) 144 140 146 3.0 90+ day delinquencies (bps) 69 72 76 (includes impaired mortgages) 2.0 Consumer PIPs 398 396 444 The increase in Australian mortgage 90+ day delinquencies over 1Q19 was driven in part by operational issues in Collections, as well as a rise in arrears in WA and NSW Properties in possession continue to be mostly in WA and Qld, where a targeted collections approach remains in place 1.0 0.0 Jun-15 Dec-15 Jun-16 Dec-16 Jun-17 Dec-17 Jun-18 Dec-18 100 1Q19 drawdowns LVR at origination Portfolio LVR at origination Portfolio dynamic LVR 55 47 49 17 11 11 9 6 5 4 N/A 2 1 1 0 0 1 LVR at origination contains RAMS while dynamic LVR does not. Westpac Group 1Q19 Update Housing loan-to-value ratios (LVRs)1 (%) 80 60 40 20 17 15 14 16 20 0<=6060<=7070<=8080<=9090<=9595<=100>100 90+ day delinquencies by State (%) 3.0NSW/ACTVIC/TAS 2.0 1.0 0.0 Jun-15Dec-15Jun-16Dec-16Jun-17Dec-17Jun-18Dec-18 QLDWA SA/NTALL Introduced new hardship treatment Introduced new hardship treatment
Australian mortgage portfolio trends Credit quality 11 18 17 1 I/O is interest only mortgage lending. P&I is principal and interest mortgage lending. 2 New flow is based on APRA definition. 3 Excludes I/O loans that should have switched to P&I but for the previously announced mortgage processing error. 4 Investor is as per APRA extended definition used for reporting against the 10% cap. Westpac Group 1Q19 Update Scheduled I/O term expiry3 (% of total I/O loans currently outstanding) 21 0<1 Yr1<2 Yrs2<3 Yrs3<4 Yrs4<5 Yrs5<10 Yrs10 Yrs+ 16 12 9 7 Mortgage lending growth (%) Investor4Owner occupied 9.8 5.2 4.4 0.8 Oct-16Feb-17Jun-17Oct-17Feb-18Jun-18Oct-18 Switching from I/O to P&I1 ($m) Reached end of I/O periodCustomer initiated 3,788 1Q182Q183Q184Q181Q19 4,042 4,717 4,025 4,044 4,793 4,110 4,149 3,911 3,623 Proportion of I/O in total portfolio (%) Settlements 23% of new flows2 Sep-17Mar-18Sep-18Dec-18 46 40 35 32
Appendix 1: Definitions Credit quality Appendix and Disclaimer 12 Includes facilities where: Includes exposures that have deteriorated to the point where full collection of interest and principal is in doubt, based on an assessment of the customers outlook, cashflow, and the net realisation of value of assets to which recourse is held and includes: contractual payments of interest and / or principal are 90 or more calendar days overdue, including overdrafts or other revolving facilities that remain continuously outside approved limits by material amounts for 90 or more calendar days (including accounts for customers who have been granted hardship assistance); or an order has been sought for the customers bankruptcy or similar legal action has been instituted which may avoid or delay repayment of its credit obligations; and the estimated net realisable value of assets / security to which Westpac has recourse is sufficient to cover repayment of all principal and interest, or where there are otherwise reasonable grounds to expect payment in full and interest is being taken to profit on an accrual basis. facilities 90 days or more past due, and full recovery is in doubt: exposures where contractual payments are 90 or more days in arrears and the net realisable value of assets to which recourse is held may not be sufficient to allow full collection of interest and principal, including overdrafts or other revolving facilities that remain continuously outside approved limits by material amounts for 90 or more calendar days; non-accrual assets: exposures with individually assessed impairment provisions held against them, excluding restructured loans; restructured assets: exposures where the original contractual terms have been formally modified to provide for concessions of interest or principal for reasons related to the financial difficulties of the customer; other assets acquired through security enforcement (includes other real estate owned): includes the value of any other assets acquired as full or partial settlement of outstanding obligations through the enforcement of security arrangements; and any other assets where the full collection of interest and principal is in doubt 90 days past due and not impaired Impaired assets These facilities, while in default, are not treated as impaired for accounting purposes 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 expected credit losses based on unbiased forward-looking information. It is a probability-weighted estimate, evaluating a range of possible outcomes taking into account the time value of money, past events, current conditions and forecasts of future economic conditions. Included in the collectively assessed provision is an economic overlay provision which is calculated based on changes in sectors of the economy or in the economy as a whole Collectively assessed provisions (CAP) Includes 3 categories of facilities; watchlist and substandard, 90 days past due and not impaired and impaired assets Stressed assets Represents the sum of the committed portion of direct lending (including funds placement overall and deposits placed), contingent and pre-settlement risk plus the committed portion of secondary market trading and Total committed exposures (TCE) Provisions raised for losses that have already been incurred on loans that are known to be impaired and are assessed on an individual basis. The estimated losses on these impaired loans is based on expected future cash flows discounted to their present value and, as this discount unwinds, interest will be recognised in the income statement underwriting risk Individually assessed provisions or IAPs Watchlist and substandard Loan facilities where customers are experiencing operating weakness and financial difficulty but are not expected to incur loss of interest or principal Westpac Group 1Q19 Update
Appendix 1: Definitions Capital and liquidity Appendix and Disclaimer 13 Committed liquidity facility (CLF) The RBA makes available to Australian Authorised Deposit-taking Institutions a CLF that, subject to qualifying conditions, can be accessed to meet LCR requirements under APS210 Liquidity Capital ratios As defined by APRA (unless stated otherwise) Internationally comparable regulatory capital ratios are Westpacs estimated ratios after adjusting the capital ratios determined under APRA Basel III regulations for various items. Analysis aligns with the APRA study titled International Capital Comparison Study dated 13 July 2015 Internationally comparable ratios High quality liquid assets (HQLA) Assets which meet APRAs criteria for inclusion as HQLA in the numerator of the LCR An APRA requirement to maintain an adequate level of unencumbered high quality liquid assets, to meet liquidity needs for a 30 calendar day period under an APRA-defined severe stress scenario. Absent a situation of financial stress, the value of the LCR must not be less than 100%,. LCR is calculated as the percentage ratio of stock of HQLA and CLF over the total net cash out-flows in a modelled 30 day defined stressed scenario As defined by APRA (unless stated otherwise). Tier 1 capital divided by exposure measure and expressed as a percentage. Exposure measure is the sum of on-balance sheet exposures, derivative exposures, securities financing transaction exposures and other off-balance sheet exposures Liquidity coverage ratio (LCR) Leverage ratio The NSFR is defined as the ratio of the amount of available stable funding (ASF) to the amount of required stable funding (RSF) defined by APRA. The amount of ASF is the portion of an ADIs capital and liabilities expected to be a reliable source of funds over a one year time horizon. The amount of RSF is a function of the liquidity characteristics and residual maturities of an ADIs assets and off-balance sheet activities. ADIs must maintain an NSFR of at least 100% Assets (both on and off-balance sheet) are risk weighted according to each assets inherent potential for default and what the likely losses would be in case of default. In the case of non-asset-backed risks (ie. market and operational risk), RWA is determined by multiplying the capital requirements for those risks by 12.5 Net stable funding ratio (NSFR) Risk weighted assets or RWA Westpac Group 1Q19 Update Capital Liquidity
Investor Relations Team Contact us 14 www.westpac.com.au/investorcentre Head of Investor Relations Director Westpac Group 1Q19 Update Equity Investor Relations Andrew BowdenNicole MehalskiAnnual reports Presentations and webcasts +61 2 8253 4008+61 2 8253 16675 year financial summary andrewbowden@westpac.com.aunicole.mehalski@westpac.com.auPrior financial results Debt Investor Relations Jacqueline BoddyLouise Coughlan DirectorDirector (Rating Agencies) +61 2 8253 3133+61 2 8254 0549 jboddy@westpac.com.aulcoughlan@westpac.com.au Retail Shareholder Investor Relations Danielle StockRebecca Plackett Senior ManagerSenior Manager +61 2 8253 0922+61 2 8253 6556 danielle.stock@westpac.com.aurplackett@westpac.com.au Or email: investorrelations@westpac.com.au
Disclaimer 15 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 Westpacs 2018 Full Year Financial Results (incorporating the requirements of Appendix 4E) for the twelve months ended 30 September 2018 available at www.westpac.com.au for details of the basis of preparation of cash earnings. This presentation contains statements that constitute forward-looking statements within the meaning of Section 21E of the US Securities Exchange Act of 1934. Forward-looking statements are statements about matters that are not historical facts. Forward-looking statements appear in a number of places in this presentation and include statements regarding our intent, belief or current expectations with respect to our business and operations, market conditions, results of operations and financial condition, including, without limitation, future loan loss provisions, financial support to certain borrowers, indicative drivers, forecasted economic indicators and performance metric outcomes. We use words such as will, may, expect, 'indicative', intend, seek, would, should, could, continue, plan, probability, risk, forecast, likely, estimate, anticipate, believe, aim, or other similar words to identify forward-looking statements. These forward-looking statements reflect our current views with respect to future events and are subject to change, certain risks, uncertainties and assumptions which are, in many instances, beyond our control, and have been made based upon managements 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 Westpacs 2018 Full Year Financial Results (incorporating the requirements of Appendix 4E) for the twelve months ended 30 September 2018 (or Annual Report for the year ended 30 September 2018) available at www.westpac.com.au. When relying on forward-looking statements to make decisions with respect to us, investors and others should carefully consider such factors and other uncertainties and events. We are under no obligation to update any forward-looking statements contained in this presentation, whether as a result of new information, future events or otherwise, after the date of this presentation. Westpac Group 1Q19 Update
Pillar 3 report Table of contents |
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Structure of Pillar 3 report
In this report references to Westpac, Westpac Group, the Group, we, us and our are to Westpac Banking Corporation and its controlled entities (unless the context indicates otherwise).
In this report, unless otherwise stated or the context otherwise requires, references to $, AUD or A$ are to Australian dollars.
Any discrepancies between totals and sums of components in tables contained in this report are due to rounding.
In this report, unless otherwise stated, disclosures reflect the Australian Prudential Regulation Authoritys (APRA) implementation of Basel III.
Information contained in or accessible through the websites mentioned in this report does not form part of this report unless we specifically state that it is incorporated by reference and forms part of this report. All references in this report to websites are inactive textual references and are for information only.
2 | Westpac Group December 2018 Pillar 3 Report
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Pillar 3 report Executive summary |
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31 December 2018 |
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30 September 2018 |
|
31 December 2017 |
The Westpac Group at Level 2 |
|
|
|
|
|
|
Common equity Tier 1 capital ratio % |
|
10.4 |
|
10.6 |
|
10.1 |
Additional Tier 1 capital % |
|
2.4 |
|
2.2 |
|
2.1 |
Tier 1 capital ratio % |
|
12.8 |
|
12.8 |
|
12.2 |
Tier 2 capital % |
|
2.0 |
|
1.9 |
|
2.1 |
Total regulatory capital ratio % |
|
14.8 |
|
14.7 |
|
14.3 |
APRA leverage ratio % |
|
5.7 |
|
5.8 |
|
5.5 |
Westpacs common equity Tier 1 (CET1) capital ratio was 10.4% at 31 December 2018. Consistent with the normal quarterly trend, capital generated for the quarter was more than offset by the payment of the 2018 final dividend (net of the dividend reinvestment plan).
$m |
|
31 December 2018 |
|
30 September 2018 |
|
31 December 2017 |
Risk weighted assets at Level 2 |
|
|
|
|
|
|
Credit risk |
|
361,173 |
|
362,749 |
|
355,865 |
Market risk |
|
8,129 |
|
6,723 |
|
7,607 |
Operational risk |
|
38,883 |
|
39,113 |
|
31,229 |
Interest rate risk in the banking book |
|
8,328 |
|
12,989 |
|
11,585 |
Other |
|
3,060 |
|
3,810 |
|
4,008 |
Total RWA |
|
419,573 |
|
425,384 |
|
410,294 |
Total Exposure at Default |
|
1,026,652 |
|
1,021,926 |
|
1,003,521 |
On 1 October 2018, Westpac adopted AASB 9. While the adoption of AASB 9 had an immaterial impact on Groups capital ratios (2 basis point increase), it had an impact on the components of capital ratios with CET1 capital down $0.3 billion and risk weighted assets (RWA) $3.9 billion lower. Further details of the impact of AASB 9 are provided below.
Total RWA decreased $5.8 billion or 1.4% this quarter:
· Key components of the $1.6 billion reduction in credit risk RWA included:
· Adoption of AASB 9 reduced RWA by $3.9 billion. Under the changes, certain defaulted loans (mostly mortgages) now carry higher provisions and lower credit risk RWA;
· Regulatory modelling updates for corporates reduced RWA by $1.0 billion.
These were partly offset by:
· Portfolio growth which increased RWA by $2.0 billion, primarily in corporate exposures; and
· Foreign currency translation impacts which increased RWA by $1.9 billion from the appreciation of the NZ$.
· Non-credit RWA decreased $4.2 billion or 6.8%. The decline was mostly due to a $4.7 billion reduction in interest rate risk in the banking book driven by lower interest rate risk exposure.
Additional Tier 1 Capital
On 18 December 2018, Westpac issued $1.42 billion of Additional Tier 1 capital (Westpac Capital Notes 6 (WCN6)), of which approximately $0.72 billion comprised reinvestment by the holders of Westpac Capital Notes (WCN) 1 . The incremental Additional Tier 1 capital has led to a Tier 1 capital ratio rise of 17 basis points.
Exposure at Default
Over the quarter, exposure at default (EAD) increased $4.7 billion (up 0.5%), primarily due to an increase in corporate exposures of $6.1 billion and residential mortgage exposures of $2.8 billion, partially offset by a decrease in sovereign exposures of $3.6 billion.
Leverage Ratio
The leverage ratio represents the amount of Tier 1 capital relative to exposure 2 . At 31 December 2018, Westpacs leverage ratio was 5.7%.
1 At 31 December 2018, approximately $0.66 billion of WCN remain outstanding. WCN have an optional redemption/transfer date of 8 March 2019.
2 As defined under Attachment D of APS110: Capital Adequacy
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Westpac Group December 2018 Pillar 3 Report | 3 |
Pillar 3 report Executive summary |
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Liquidity Coverage Ratio (LCR)
The LCR requires banks to hold sufficient high-quality liquid assets (HQLA), as defined in APS210 Liquidity, to withstand 30 days under a regulatory-defined acute stress scenario. Westpacs LCR as at 31 December 2018 was 128% (30 September 2018: 133%) and the average LCR for the quarter ending 31 December 2018 was 133% 1 .
AASB 9 Financial Instruments 2
Westpac adopted AASB 9 from 1 October 2018, and the following tables detail the transition impacts of this change on key Pillar 3 metrics. The transition impacts on impairment provisions and other metrics shown for 1 October 2018 in the tables below (such as risk weighted assets) are estimates and may change as refinements to models are completed. Westpac will finalise this information with its First Half 2019 results.
Change in loan impairment provisions
1 October 2018 |
|
AAS Provisions |
|
GRCL |
|
Total Regulatory |
||||
$m |
|
IAPs |
|
CAPs |
|
Total |
|
Adjustment |
|
Provisions |
Specific Provisions |
|
|
|
|
|
|
|
|
|
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for impaired loans |
|
422 |
|
263 |
|
685 |
|
NA |
|
685 |
for defaulted but not impaired loans |
|
NA |
|
645 |
|
645 |
|
NA |
|
645 |
for Stage 2 |
|
NA |
|
1,254 |
|
1,254 |
|
NA |
|
1,254 |
Total Specific Provisions 3 |
|
422 |
|
2,162 |
|
2,584 |
|
NA |
|
2,584 |
General Reserve for Credit Loss 3 |
|
NA |
|
1,443 |
|
1,443 |
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NA |
|
1,443 |
Total provisions for impairment charges |
|
422 |
|
3,605 |
|
4,027 |
|
NA |
|
4,027 |
30 September 2018 |
|
AAS Provisions |
|
GRCL |
|
Total Regulatory |
||||
$m |
|
IAPs |
|
CAPs |
|
Total |
|
Adjustment |
|
Provisions |
Specific Provisions |
|
|
|
|
|
|
|
|
|
|
for impaired loans |
|
422 |
|
231 |
|
653 |
|
NA |
|
653 |
for defaulted but not impaired loans |
|
NA |
|
205 |
|
205 |
|
NA |
|
205 |
Total Specific Provisions |
|
422 |
|
436 |
|
858 |
|
NA |
|
858 |
General Reserve for Credit Loss |
|
NA |
|
2,195 |
|
2,195 |
|
356 |
|
2,551 |
Total provisions for impairment charges |
|
422 |
|
2,631 |
|
3,053 |
|
356 |
|
3,409 |
Summary of changes in other Pillar 3 disclosures
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Credit Risk Weighted
|
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Regulatory Expected
|
|
Expected Loss for
|
|
Specific Provisions
|
||||||||
$m |
|
30-Sep-18 |
|
1-Oct-18 |
|
30-Sep-18 |
|
1-Oct-18 |
|
30-Sep-18 |
|
1-Oct-18 |
|
30-Sep-18 |
|
1-Oct-18 |
Corporate |
|
69,584 |
|
69,464 |
|
552 |
|
562 |
|
471 |
|
471 |
|
54 |
|
56 |
Business lending |
|
35,417 |
|
35,187 |
|
657 |
|
676 |
|
442 |
|
442 |
|
173 |
|
177 |
Sovereign |
|
1,644 |
|
1,644 |
|
2 |
|
2 |
|
2 |
|
2 |
|
- |
|
- |
Bank |
|
6,606 |
|
6,606 |
|
8 |
|
8 |
|
8 |
|
8 |
|
- |
|
- |
Residential mortgages |
|
132,734 |
|
129,633 |
|
1,272 |
|
1,540 |
|
1,048 |
|
1,048 |
|
103 |
|
103 |
Australian credit cards |
|
6,313 |
|
6,296 |
|
358 |
|
359 |
|
304 |
|
304 |
|
50 |
|
51 |
Other retail |
|
13,777 |
|
13,628 |
|
604 |
|
623 |
|
465 |
|
465 |
|
137 |
|
157 |
Small business |
|
16,329 |
|
16,015 |
|
453 |
|
483 |
|
339 |
|
339 |
|
77 |
|
77 |
Specialised Lending |
|
57,043 |
|
57,043 |
|
836 |
|
836 |
|
588 |
|
588 |
|
47 |
|
52 |
Securitisation |
|
5,918 |
|
5,918 |
|
- |
|
- |
|
- |
|
- |
|
- |
|
- |
Standardised |
|
17,384 |
|
17,384 |
|
- |
|
- |
|
- |
|
- |
|
12 |
|
12 |
Total |
|
362,749 |
|
358,818 |
|
4,742 |
|
5,089 |
|
3,667 |
|
3,667 |
|
653 |
|
685 |
1 Calculated as a simple average of the daily observations over the quarter ending 31 December 2018.
2 Refer to the Westpac 2018 Annual Report for further details on AASB 9.
3 Provisions classified according to APRAs letter dated 4 July 2017 Provisions for regulatory purposes and AASB 9 financial instruments.
4 | Westpac Group December 2018 Pillar 3 Report
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Pillar 3 report Introduction |
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Westpac Banking Corporation is an Authorised Deposit-taking Institution (ADI) subject to regulation by the Australian Prudential Regulation Authority (APRA). APRA has accredited Westpac to apply advanced models permitted by the Basel III global capital adequacy regime to the measurement of its regulatory capital requirements. Westpac uses the Advanced Internal Ratings-Based approach (Advanced IRB) for credit risk and the Advanced Measurement Approach (AMA) for operational risk.
In accordance with APS330 Public Disclosure, financial institutions that have received this accreditation, such as Westpac, are required to disclose prudential information about their risk management practices on a semi-annual basis. A subset of this information must be disclosed quarterly.
In addition to this report, the regulatory disclosures section of the Westpac website 1 contains the reporting requirements for:
· Capital instruments under Attachment B of APS330; and
· The identification of potential Global-Systemically Important Banks (G-SIB) under Attachment H of APS330 (disclosed annually).
Capital instruments disclosures are updated when:
· A new capital instrument is issued that will form part of regulatory capital; or
· A capital instrument is redeemed, converted into CET1 capital, written off, or its terms and conditions are changed.
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1 http://www.westpac.com.au/about-westpac/investor-centre/financial-information/regulatory-disclosures/ |
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Westpac Group December 2018 Pillar 3 Report | 5 |
Pillar 3 report Group structure |
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Westpac seeks to ensure that it is adequately capitalised at all times. APRA applies a tiered approach to measuring Westpacs capital adequacy 1 by assessing financial strength at three levels:
l Level 1, comprising Westpac Banking Corporation and its subsidiary entities that have been approved by APRA as being part of a single Extended Licensed Entity (ELE) for the purposes of measuring capital adequacy;
l Level 2, the consolidation of Westpac Banking Corporation and all its subsidiary entities except those entities specifically excluded by APRA regulations. The head of the Level 2 group is Westpac Banking Corporation; and
l Level 3, the consolidation of Westpac Banking Corporation and all its subsidiary entities.
Unless otherwise specified, all quantitative disclosures in this report refer to the prudential assessment of Westpacs financial strength on a Level 2 basis 2 .
The Westpac Group
The following diagram shows the Level 3 conglomerate group and illustrates the different tiers of regulatory consolidation.
Accounting consolidation 3
The consolidated financial statements incorporate the assets and liabilities of all subsidiaries (including structured entities) controlled by Westpac. Westpac and its subsidiaries are referred to collectively as the Group. The effects of all transactions between entities in the Group are eliminated. Control exists when the parent entity is exposed to, or has rights to, variable returns from its involvement with an entity, and has the ability to affect those returns through its power over that entity. Subsidiaries are fully consolidated from the date on which control commences and they are no longer consolidated from the date that control ceases.
Group entities excluded from the regulatory consolidation at Level 2
Regulatory consolidation at Level 2 covers the global operations of Westpac and its subsidiary entities, including other controlled banking, securities and financial entities, except for those entities involved in the following business activities:
l insurance;
l acting as manager, responsible entity, approved trustee, trustee or similar role in relation to funds management;
l non-financial (commercial) operations; or
l special purpose entities to which assets have been transferred in accordance with the requirements of APS120 Securitisation.
Retained earnings and equity investments in subsidiary entities excluded from the consolidation at Level 2 are deducted from capital, with the exception of securitisation special purpose entities.
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1 APS110 Capital Adequacy outlines the overall framework adopted by APRA for the purpose of assessing the capital adequacy of an ADI. |
2 Impaired assets and provisions held in Level 3 entities are excluded from the tables in this report. |
3 Refer to Note 35 of Westpacs 2018 Annual Report for further details. |
6 | Westpac Group December 2018 Pillar 3 Report |
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Pillar 3 report Group structure |
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Subsidiary banking entities
Westpac New Zealand Limited (WNZL), a wholly owned subsidiary entity, is a registered bank incorporated in New Zealand and regulated by the Reserve Bank of New Zealand. WNZL uses the Advanced IRB approach for credit risk and the AMA for operational risk. Other subsidiary banking entities in the Group include Westpac Bank-PNG-Limited and Westpac Europe Limited. For the purposes of determining Westpacs capital adequacy subsidiary banking entities are consolidated at Level 2.
Restrictions and major impediments on the transfer of funds or regulatory capital within the Group
Minimum capital (thin capitalisation) rules
Tax legislation in most jurisdictions in which the Group operates prescribes minimum levels of capital that must be retained in that jurisdiction to avoid a portion of the interest costs incurred in the jurisdiction ceasing to be tax deductible. Capital for these purposes includes both contributed capital and non-distributed retained earnings. Westpac seeks to maintain sufficient capital/retained earnings to comply with these rules.
Tax costs associated with repatriation
Repatriation of retained earnings (and capital) may result in tax being payable in either the jurisdiction from which the repatriation occurs or Australia on receipt of the relevant amounts. This cost would reduce the amount actually repatriated.
Intra-group exposure limits
Exposures to related entities are managed within the prudential limits prescribed by APRA in APS222 Associations with Related Entities 1 . Westpac has an internal limit structure and approval process governing credit exposures to related entities. This limit structure and approval process, combined with APRAs prudential limits, is designed to reduce the potential for unacceptable contagion risk.
Prudential regulation of subsidiary entities
Certain subsidiary banking, insurance and trustee entities are subject to local prudential regulation in their own right, including capital adequacy requirements and investment or intra-group exposure limits. Westpac seeks to ensure that its subsidiary entities are adequately capitalised and adhere to regulatory requirements at all times. There are no capital deficiencies in subsidiary entities excluded from the regulatory consolidation at Level 2.
On 15 November 2017, the RBNZ advised WNZL of changes to its conditions of registration resulting from its review of WNZLs compliance with the RBNZs Capital Adequacy Framework (Internal Models Based Approach) (BS2B). The changes to WNZLs conditions of registration came into effect on 31 December 2017 and increase the minimum Total Capital ratio, Tier 1 Capital ratio and Common Equity Tier 1 Capital ratio of WNZL and its controlled entities by 2%. WNZL has also undertaken to the RBNZ to maintain the Total Capital ratio of WNZL and its controlled entities above 15.1%. WNZL and its controlled entities retain an appropriate amount of capital to comply with the increased minimum ratios.
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1 For the purposes of APS222, subsidiaries controlled by Westpac, other than subsidiaries that form part of the ELE, represent related entities. Prudential and internal limits apply to intra-group exposures between the ELE and related entities, both on an individual and aggregate basis. |
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Westpac Group December 2018 Pillar 3 Report | 7 |
Pillar 3 report Capital overview |
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Capital management strategy
Westpacs approach to capital management seeks to balance the fact that capital is an expensive form of funding with the need to be adequately capitalised as an ADI. Westpac considers the need to balance efficiency, flexibility and adequacy when determining sufficiency of capital and when developing capital management plans.
Westpac evaluates these considerations through an Internal Capital Adequacy Assessment Process (ICAAP), the key features of which include:
l the development of a capital management strategy, including consideration of regulatory minimums, capital buffers and contingency plans;
l consideration of both economic and regulatory capital requirements;
l a stress testing framework that challenges the capital measures, coverage and requirements including the impact of adverse economic scenarios; and
l consideration of the perspectives of external stakeholders including rating agencies and equity and debt investors.
In light of APRAs announcement on unquestionably strong capital benchmarks on 19 July 2017, Westpac will seek to operate with a CET1 capital ratio of at least 10.5% in March and September as measured under the existing capital framework. This also takes into consideration:
l current regulatory capital minimums and the capital conservation buffer (CCB), which together are the total CET1 requirement. In line with the above, the total CET1 requirement for Westpac is at least 8.0%, based upon an industry minimum CET1 requirement of 4.5% plus a capital buffer of at least 3.5% applicable to domestic systemically important banks (D-SIBs) 1 ;
l stress testing to calibrate an appropriate buffer against a downturn; and
l quarterly volatility of capital ratios due to the half yearly cycle of ordinary dividend payments.
Should the CET1 ratio fall below the total CET1 requirement, restrictions on the distribution of earnings will apply. This includes restrictions on the amount of earnings that can be distributed through dividends, Additional Tier 1 capital distributions and discretionary staff bonuses.
Westpac will revise its target capital level once APRA finalises its review of the capital adequacy framework.
Westpacs capital adequacy ratios
% |
31 December 2018 |
30 September 2018 |
31 December 2017 |
The Westpac Group at Level 2 |
|
|
|
Common equity Tier 1 capital ratio |
10.4 |
10.6 |
10.1 |
Additional Tier 1 capital |
2.4 |
2.2 |
2.1 |
Tier 1 capital ratio |
12.8 |
12.8 |
12.2 |
Tier 2 capital |
2.0 |
1.9 |
2.1 |
Total regulatory capital ratio |
14.8 |
14.7 |
14.3 |
|
|
|
|
The Westpac Group at Level 1 |
|
|
|
Common equity Tier 1 capital ratio |
10.2 |
10.5 |
9.9 |
Additional Tier 1 capital |
2.5 |
2.3 |
2.2 |
Tier 1 capital ratio |
12.7 |
12.8 |
12.1 |
Tier 2 capital |
2.1 |
2.0 |
2.3 |
Total regulatory capital ratio |
14.8 |
14.8 |
14.4 |
Westpac New Zealand Limiteds capital adequacy ratios
% |
31 December 2018 |
30 September 2018 |
31 December 2017 |
Westpac New Zealand Limited |
|
|
|
Common equity Tier 1 capital ratio |
12.0 |
11.7 |
11.5 |
Additional Tier 1 capital |
2.8 |
2.8 |
2.8 |
Tier 1 capital ratio |
14.8 |
14.5 |
14.3 |
Tier 2 capital |
2.1 |
2.1 |
2.2 |
Total regulatory capital ratio |
16.9 |
16.6 |
16.5 |
|
|
1 Noting that APRA may apply higher CET1 requirements for an individual ADI. |
8 | Westpac Group December 2018 Pillar 3 Report |
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Pillar 3 report Capital overview |
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Capital requirements
This table shows risk weighted assets and associated capital requirements 1 for each risk type included in the regulatory assessment of Westpacs capital adequacy. More detailed disclosures on the prudential assessment of capital requirements are presented in the following sections of this report.
31 December 2018 |
IRB |
Standardised |
Total Risk |
Total Capital |
$m |
Approach |
Approach 2 |
Weighted Assets |
Required 1 |
Credit risk |
|
|
|
|
Corporate |
72,452 |
1,921 |
74,373 |
5,950 |
Business lending |
35,367 |
1,038 |
36,405 |
2,912 |
Sovereign |
1,616 |
985 |
2,601 |
208 |
Bank |
6,440 |
36 |
6,476 |
518 |
Residential mortgages |
130,307 |
5,371 |
135,678 |
10,854 |
Australian credit cards |
6,136 |
- |
6,136 |
491 |
Other retail |
13,650 |
989 |
14,639 |
1,171 |
Small business |
16,454 |
- |
16,454 |
1,316 |
Specialised lending |
55,753 |
461 |
56,214 |
4,497 |
Securitisation |
5,735 |
- |
5,735 |
459 |
Mark-to-market related credit risk 3 |
- |
6,462 |
6,462 |
517 |
Total |
343,910 |
17,263 |
361,173 |
28,893 |
Market risk |
|
|
8,129 |
650 |
Operational risk |
|
|
38,883 |
3,111 |
Interest rate risk in the banking book |
|
|
8,328 |
666 |
Other assets 4 |
|
|
3,060 |
245 |
Total |
|
|
419,573 |
33,565 |
|
|
|
|
|
|
|
|
|
|
30 September 2018 |
IRB |
Standardised |
Total Risk |
Total Capital |
$m |
Approach |
Approach 2 |
Weighted Assets |
Required 1 |
Credit risk |
|
|
|
|
Corporate |
69,584 |
1,807 |
71,391 |
5,711 |
Business lending |
35,417 |
1,052 |
36,469 |
2,918 |
Sovereign |
1,644 |
962 |
2,606 |
208 |
Bank |
6,606 |
57 |
6,663 |
533 |
Residential mortgages |
132,734 |
5,460 |
138,194 |
11,056 |
Australian credit cards |
6,313 |
- |
6,313 |
505 |
Other retail |
13,777 |
993 |
14,770 |
1,182 |
Small business |
16,329 |
- |
16,329 |
1,306 |
Specialised lending |
57,043 |
447 |
57,490 |
4,599 |
Securitisation |
5,918 |
- |
5,918 |
473 |
Mark-to-market related credit risk 3 |
- |
6,606 |
6,606 |
528 |
Total |
345,365 |
17,384 |
362,749 |
29,019 |
Market risk |
|
|
6,723 |
538 |
Operational risk |
|
|
39,113 |
3,129 |
Interest rate risk in the banking book |
|
|
12,989 |
1,039 |
Other assets 4 |
|
|
3,810 |
305 |
Total |
|
|
425,384 |
34,030 |
|
|
1 Total capital required is calculated as 8% of total risk weighted assets. 2 Westpacs Standardised risk weighted assets are categorised based on their equivalent IRB categories. 3 Mark-to-market related credit risk is measured under the standardised approach. It is also known as Credit Valuation Adjustment (CVA) risk. 4 Other assets include cash items, unsettled transactions, fixed assets and other non-interest earning assets. |
|
Westpac Group December 2018 Pillar 3 Report | 9 |
Pillar 3 report Capital overview |
|
|
|
|
|
31 December 2017 |
IRB |
Standardised |
Total Risk |
Total Capital |
$m |
Approach |
Approach 2 |
Weighted Assets |
Required 1 |
Credit risk |
|
|
|
|
Corporate |
71,735 |
1,870 |
73,605 |
5,888 |
Business lending |
35,035 |
1,030 |
36,065 |
2,885 |
Sovereign |
1,526 |
965 |
2,491 |
199 |
Bank |
6,105 |
42 |
6,147 |
492 |
Residential mortgages |
126,091 |
5,435 |
131,526 |
10,522 |
Australian credit cards |
6,358 |
- |
6,358 |
509 |
Other retail |
13,703 |
1,007 |
14,710 |
1,177 |
Small business |
15,832 |
- |
15,832 |
1,267 |
Specialised lending |
57,675 |
429 |
58,104 |
4,648 |
Securitisation |
4,425 |
- |
4,425 |
354 |
Mark-to-market related credit risk 3 |
- |
6,602 |
6,602 |
528 |
Total |
338,485 |
17,380 |
355,865 |
28,469 |
Market risk |
|
|
7,607 |
608 |
Operational risk |
|
|
31,229 |
2,498 |
Interest rate risk in the banking book |
|
|
11,585 |
927 |
Other assets 4 |
|
|
4,008 |
321 |
Total |
|
|
410,294 |
32,823 |
|
|
1 Total capital required is calculated as 8% of total risk weighted assets. 2 Westpacs Standardised risk weighted assets are categorised based on their equivalent IRB categories. 3 Mark-to-market related credit risk is measured under the standardised approach. It is also known as Credit Valuation Adjustment (CVA) risk. 4 Other assets include cash items, unsettled transactions, fixed assets and other non-interest earning assets. |
10 | Westpac Group December 2018 Pillar 3 Report |
|
Pillar 3 report Leverage ratio disclosure |
|
|
|
|
|
Leverage ratio
The following table summarises Westpacs leverage ratio at 31 December 2018. This has been determined using APRAs definition of the leverage ratio as specified in APS110 Capital Adequacy.
$ billion |
31-December 2018 |
30 September 2018 |
30 June 2018 |
31 March 2018 |
Tier 1 Capital |
53.6 |
54.4 |
52.6 |
53.2 |
Total Exposures |
936.0 |
931.1 |
935.1 |
925.2 |
Leverage ratio |
5.7% |
5.8% |
5.6% |
5.8% |
|
Westpac Group December 2018 Pillar 3 Report | 11
|
Pillar 3 report Credit risk exposures |
|
|
|
|
|
Summary credit risk disclosure
Regulatory |
|||||||
Expected |
Specific |
Actual |
|||||
Risk |
Regulatory |
Loss for |
Provisions |
Losses for |
|||
31 December 2018 |
Exposure |
Weighted |
Expected |
non-defaulted |
Impaired |
for Impaired |
the 3 months |
$m |
at Default |
Assets |
Loss 1 |
exposures |
Loans |
Loans |
ended |
Corporate |
134,917 |
72,452 |
532 |
476 |
68 |
22 |
- |
Business lending |
54,663 |
35,367 |
673 |
433 |
274 |
170 |
8 |
Sovereign |
75,439 |
1,616 |
2 |
2 |
- |
- |
- |
Bank |
24,255 |
6,440 |
8 |
8 |
- |
- |
- |
Residential mortgages |
556,171 |
130,307 |
1,574 |
1,055 |
387 |
138 |
21 |
Australian credit cards |
19,713 |
6,136 |
354 |
297 |
91 |
69 |
74 |
Other retail |
17,116 |
13,650 |
635 |
464 |
301 |
172 |
73 |
Small business |
33,336 |
16,454 |
506 |
338 |
185 |
76 |
11 |
Specialised Lending |
66,184 |
55,753 |
820 |
568 |
138 |
54 |
- |
Securitisation |
26,896 |
5,735 |
- |
- |
- |
- |
- |
Standardised 2 |
17,962 |
17,263 |
- |
- |
19 |
8 |
- |
Total |
1,026,652 |
361,173 |
5,104 |
3,641 |
1,463 |
709 |
187 |
|
|
|
|
|
|
|
|
Regulatory |
|||||||
Expected |
Specific |
Actual |
|||||
Risk |
Regulatory |
Loss for |
Provisions |
Losses for |
|||
30 September 2018 |
Exposure |
Weighted |
Expected |
non-defaulted |
Impaired |
for Impaired |
the 12 months |
$m |
at Default |
Assets |
Loss 1 |
exposures |
Loans |
Loans |
ended |
Corporate |
128,819 |
69,584 |
552 |
471 |
112 |
54 |
22 |
Business lending |
53,853 |
35,417 |
657 |
442 |
294 |
173 |
99 |
Sovereign |
79,030 |
1,644 |
2 |
2 |
- |
- |
- |
Bank |
23,648 |
6,606 |
8 |
8 |
- |
- |
- |
Residential mortgages |
553,358 |
132,734 |
1,272 |
1,048 |
309 |
103 |
89 |
Australian credit cards |
19,639 |
6,313 |
358 |
304 |
87 |
50 |
273 |
Other retail |
17,114 |
13,777 |
604 |
465 |
284 |
137 |
332 |
Small business |
33,221 |
16,329 |
453 |
339 |
165 |
77 |
112 |
Specialised Lending |
67,430 |
57,043 |
836 |
588 |
141 |
47 |
20 |
Securitisation |
27,648 |
5,918 |
- |
- |
- |
- |
- |
Standardised 2 |
18,166 |
17,384 |
- |
- |
24 |
12 |
1 |
Total |
1,021,926 |
362,749 |
4,742 |
3,667 |
1,416 |
653 |
948 |
|
|
|
|
|
|
|
|
|
|
|
|
Regulatory |
|
|
|
|
|
|
|
Expected |
|
Specific |
Actual |
|
|
Risk |
Regulatory |
Loss for |
|
Provisions |
Losses for |
31 December 2017 |
Exposure |
Weighted |
Expected |
non-defaulted |
Impaired |
for Impaired |
the 3 months |
$m |
at Default |
Assets |
Loss 1 |
exposures |
Loans |
Loans |
ended |
Corporate |
129,663 |
71,735 |
565 |
431 |
176 |
94 |
- |
Business lending |
53,883 |
35,035 |
601 |
423 |
260 |
154 |
25 |
Sovereign |
72,896 |
1,526 |
1 |
1 |
- |
- |
- |
Bank |
22,672 |
6,105 |
7 |
7 |
- |
- |
- |
Residential mortgages |
540,479 |
126,091 |
1,153 |
952 |
313 |
106 |
20 |
Australian credit cards |
19,809 |
6,358 |
370 |
311 |
92 |
48 |
73 |
Other retail |
17,760 |
13,703 |
590 |
451 |
318 |
135 |
89 |
Small business |
32,724 |
15,832 |
450 |
320 |
150 |
77 |
25 |
Specialised Lending |
67,897 |
57,675 |
833 |
605 |
158 |
54 |
1 |
Securitisation |
27,486 |
4,425 |
- |
- |
- |
- |
- |
Standardised 2 |
18,252 |
17,380 |
- |
- |
20 |
11 |
- |
Total |
1,003,521 |
355,865 |
4,570 |
3,501 |
1,487 |
679 |
233 |
|
|
1 Includes regulatory expected losses for defaulted and non-defaulted exposures. 2 Includes mark-to-market related credit risk. |
12 | Westpac Group December 2018 Pillar 3 Report |
|
Pillar 3 report Credit risk exposures |
|
|
|
|
|
Exposure at Default by major type
31 December 2018 |
On balance |
Off-balance sheet |
Total Exposure |
Average |
|
$m |
sheet |
Non-market related |
Market related |
at Default |
3 months ended 1 |
Corporate |
66,392 |
57,112 |
11,413 |
134,917 |
131,868 |
Business lending |
41,697 |
12,966 |
- |
54,663 |
54,258 |
Sovereign |
70,929 |
1,817 |
2,693 |
75,439 |
77,235 |
Bank |
14,668 |
2,315 |
7,272 |
24,255 |
23,952 |
Residential mortgages |
480,607 |
75,564 |
- |
556,171 |
554,765 |
Australian credit cards |
9,763 |
9,950 |
- |
19,713 |
19,676 |
Other retail |
13,529 |
3,587 |
- |
17,116 |
17,115 |
Small business |
26,168 |
7,168 |
- |
33,336 |
33,279 |
Specialised lending |
53,402 |
11,911 |
871 |
66,184 |
66,807 |
Securitisation 2 |
21,754 |
5,009 |
133 |
26,896 |
27,272 |
Standardised |
13,807 |
1,240 |
2,915 |
17,962 |
18,064 |
Total |
812,716 |
188,639 |
25,297 |
1,026,652 |
1,024,291 |
30 September 2018 |
On balance |
Off-balance sheet |
Total Exposure |
Average |
|
$m |
sheet |
Non-market related |
Market related |
at Default |
12 months ended 3 |
Corporate |
62,298 |
54,574 |
11,947 |
128,819 |
128,848 |
Business lending |
40,961 |
12,892 |
- |
53,853 |
53,639 |
Sovereign |
74,906 |
1,864 |
2,260 |
79,030 |
76,376 |
Bank |
14,012 |
2,246 |
7,390 |
23,648 |
23,263 |
Residential mortgages |
477,270 |
76,088 |
- |
553,358 |
547,108 |
Australian credit cards |
9,623 |
10,016 |
- |
19,639 |
19,667 |
Other retail |
13,536 |
3,578 |
- |
17,114 |
17,583 |
Small business |
26,140 |
7,081 |
- |
33,221 |
31,858 |
Specialised lending |
53,799 |
12,754 |
877 |
67,430 |
67,363 |
Securitisation 2 |
22,437 |
5,089 |
122 |
27,648 |
27,045 |
Standardised |
13,926 |
1,190 |
3,050 |
18,166 |
17,985 |
Total |
808,908 |
187,372 |
25,646 |
1,021,926 |
1,010,735 |
31 December 2017 |
On balance |
Off-balance sheet |
Total Exposure |
Average |
|
$m |
sheet |
Non-market related |
Market related |
at Default |
3 months ended 4 |
Corporate |
62,545 |
56,756 |
10,362 |
129,663 |
128,205 |
Business lending |
40,228 |
13,655 |
- |
53,883 |
53,204 |
Sovereign |
68,253 |
1,934 |
2,709 |
72,896 |
72,184 |
Bank |
14,184 |
1,928 |
6,560 |
22,672 |
21,907 |
Residential mortgages |
462,360 |
78,119 |
- |
540,479 |
541,583 |
Australian credit cards |
9,975 |
9,834 |
- |
19,809 |
19,766 |
Other retail |
14,181 |
3,579 |
- |
17,760 |
17,845 |
Small business |
25,643 |
7,081 |
- |
32,724 |
30,073 |
Specialised lending |
52,308 |
14,584 |
1,005 |
67,897 |
67,503 |
Securitisation 2 |
20,424 |
6,933 |
129 |
27,486 |
27,099 |
Standardised |
13,893 |
1,154 |
3,205 |
18,252 |
17,820 |
Total |
783,994 |
195,557 |
23,970 |
1,003,521 |
997,187 |
|
|
1 Average is based on exposures as at 31 December 2018 and 30 September 2018. 2 The EAD associated with securitisations is for the banking book only. 3 Average is based on exposures as at 30 September 2018, 30 June 2018, 31 March 2018, 31 December 2017, and 30 September 2017. 4 Average is based on exposures as at 31 December 2017 and 30 September 2017. |
|
Westpac Group December 2018 Pillar 3 Report | 13
|
Pillar 3 report Credit risk exposures |
|
|
|
|
|
Loan impairment provisions
APS220 Credit Quality requires that Westpac report specific provisions and a General Reserve for Credit Loss (GRCL). All Individually Assessed Provisions (IAP) raised under Australian Accounting Standards (AAS) are classified as specific provisions. Collectively Assessed Provisions (CAP) raised under AAS are either classified into specific provisions or a GRCL.
31 December 2018 |
|
AAS Provisions |
|
GRCL |
|
Total Regulatory |
||||
$m |
|
IAPs |
|
CAPs |
|
Total |
|
Adjustment |
|
Provisions |
Specific Provisions |
|
|
|
|
|
|
|
|
|
|
for impaired loans |
|
426 |
|
283 |
|
709 |
|
NA |
|
709 |
for defaulted but not impaired loans |
|
NA |
|
663 |
|
663 |
|
NA |
|
663 |
for Stage 2 |
|
NA |
|
1,255 |
|
1,255 |
|
NA |
|
1,255 |
Total Specific Provisions 1 |
|
426 |
|
2,201 |
|
2,627 |
|
NA |
|
2,627 |
General Reserve for Credit Loss 1 |
|
NA |
|
1,439 |
|
1,439 |
|
NA |
|
1,439 |
Total provisions for impairment charges |
|
426 |
|
3,640 |
|
4,066 |
|
NA |
|
4,066 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30 September 2018 |
|
AAS Provisions |
|
GRCL |
|
Total Regulatory |
||||
$m |
|
IAPs |
|
CAPs |
|
Total |
|
Adjustment |
|
Provisions |
Specific Provisions |
|
|
|
|
|
|
|
|
|
|
for impaired loans |
|
422 |
|
231 |
|
653 |
|
NA |
|
653 |
for defaulted but not impaired loans |
|
NA |
|
205 |
|
205 |
|
NA |
|
205 |
Total Specific Provisions |
|
422 |
|
436 |
|
858 |
|
NA |
|
858 |
General Reserve for Credit Loss |
|
NA |
|
2,195 |
|
2,195 |
|
356 |
|
2,551 |
Total provisions for impairment charges |
|
422 |
|
2,631 |
|
3,053 |
|
356 |
|
3,409 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31 December 2017 |
|
AAS Provisions |
|
GRCL |
|
Total Regulatory |
||||
$m |
|
IAPs |
|
CAPs |
|
Total |
|
Adjustment |
|
Provisions |
Specific Provisions |
|
|
|
|
|
|
|
|
|
|
for impaired loans |
|
454 |
|
225 |
|
679 |
|
NA |
|
679 |
for defaulted but not impaired loans |
|
NA |
|
183 |
|
183 |
|
NA |
|
183 |
Total Specific Provisions |
|
454 |
|
408 |
|
862 |
|
NA |
|
862 |
General Reserve for Credit Loss |
|
NA |
|
2,248 |
|
2,248 |
|
338 |
|
2,586 |
Total provisions for impairment charges |
|
454 |
|
2,656 |
|
3,110 |
|
338 |
|
3,448 |
|
|
1 Provisions classified according to APRAs letter dated 4 July 2017 Provisions for regulatory purposes and AASB 9 financial instruments. |
14 | Westpac Group December 2018 Pillar 3 Report |
|
Pillar 3 report Credit risk exposures |
|
|
|
|
|
Impaired and past due loans
The following tables disclose the crystallisation of credit risk as impairment and loss. Analysis of exposures 90 days past due not impaired, impaired loans, related provisions and actual losses is broken down by concentrations reflecting Westpacs asset categories.
Items |
Specific |
Specific |
Actual |
||
31 December 2018 |
past 90 days |
Impaired |
Provisions for |
Provisions to |
Losses for the |
$m |
not impaired |
Loans |
Impaired Loans |
Impaired Loans |
3 months ended |
Corporate |
87 |
68 |
22 |
32% |
- |
Business lending |
308 |
274 |
170 |
62% |
8 |
Sovereign |
- |
- |
- |
- |
- |
Bank |
- |
- |
- |
- |
- |
Residential mortgages |
3,235 |
387 |
138 |
36% |
21 |
Australian credit cards |
- |
91 |
69 |
76% |
74 |
Other retail |
- |
301 |
172 |
57% |
73 |
Small business |
257 |
185 |
76 |
41% |
11 |
Specialised lending |
318 |
138 |
54 |
39% |
- |
Securitisation |
- |
- |
- |
- |
- |
Standardised |
77 |
19 |
8 |
42% |
- |
Total |
4,282 |
1,463 |
709 |
48% |
187 |
Items |
Specific |
Specific |
Actual |
||
30 September 2018 |
past 90 days |
Impaired |
Provisions for |
Provisions to |
Losses for the |
$m |
not impaired |
Loans |
Impaired Loans |
Impaired Loans |
12 months ended |
Corporate |
87 |
112 |
54 |
48% |
22 |
Business lending |
313 |
294 |
173 |
59% |
99 |
Sovereign |
- |
- |
- |
- |
- |
Bank |
- |
- |
- |
- |
- |
Residential mortgages |
3,121 |
309 |
103 |
33% |
89 |
Australian credit cards |
- |
87 |
50 |
57% |
273 |
Other retail |
- |
284 |
137 |
48% |
332 |
Small business |
158 |
165 |
77 |
47% |
112 |
Specialised lending |
309 |
141 |
47 |
33% |
20 |
Securitisation |
- |
- |
- |
- |
- |
Standardised |
29 |
24 |
12 |
50% |
1 |
Total |
4,017 |
1,416 |
653 |
46% |
948 |
Items |
Specific |
Specific |
Actual |
||
31 December 2017 |
past 90 days |
Impaired |
Provisions for |
Provisions to |
Losses for the |
$m |
not impaired |
Loans |
Impaired Loans |
Impaired Loans |
3 months ended |
Corporate |
72 |
176 |
94 |
53% |
- |
Business lending |
199 |
260 |
154 |
59% |
25 |
Sovereign |
- |
- |
- |
- |
- |
Bank |
- |
- |
- |
- |
- |
Residential mortgages |
2,783 |
313 |
106 |
34% |
20 |
Australian credit cards |
- |
92 |
48 |
52% |
73 |
Other retail |
- |
318 |
135 |
42% |
89 |
Small business |
136 |
150 |
77 |
51% |
25 |
Specialised lending |
258 |
158 |
54 |
34% |
1 |
Securitisation |
- |
- |
- |
- |
- |
Standardised |
18 |
20 |
11 |
55% |
- |
Total |
3,466 |
1,487 |
679 |
46% |
233 |
|
Westpac Group December 2018 Pillar 3 Report | 15 |
Pillar 3 report Securitisation |
|
|
|
|
|
Banking book summary of securitisation activity by asset type
For the 3 months ended |
||
31 December 2018 |
Amount |
Recognised gain or |
$m |
securitised |
loss on sale |
Residential mortgages |
5,892 |
- |
Credit cards |
- |
- |
Auto and equipment finance |
295 |
- |
Business lending |
- |
- |
Investments in ABS |
- |
- |
Other |
- |
- |
Total |
6,187 |
- |
For the 12 months ended |
||
30 September 2018 |
Amount |
Recognised gain or |
$m |
securitised |
loss on sale |
Residential mortgages |
21,298 |
- |
Credit cards |
- |
- |
Auto and equipment finance |
2,493 |
- |
Business lending |
- |
- |
Investments in ABS |
- |
- |
Other |
- |
- |
Total |
23,791 |
- |
For the 3 months ended |
||
31 December 2017 |
Amount |
Recognised gain or |
$m |
securitised |
loss on sale |
Residential mortgages |
10,867 |
- |
Credit cards |
- |
- |
Auto and equipment finance |
1,436 |
- |
Business lending |
- |
- |
Investments in ABS |
- |
- |
Other |
- |
- |
Total |
12,303 |
- |
16 | Westpac Group December 2018 Pillar 3 Report |
|
Pillar 3 report Securitisation |
|
|
|
|
|
Banking book summary of on and off-balance sheet securitisation by exposure type
31 December 2018 |
On balance sheet |
Off-balance |
Total Exposure |
|
$m |
Securitisation retained |
Securitisation purchased |
sheet |
at Default |
Securities |
- |
9,164 |
33 |
9,197 |
Liquidity facilities |
- |
- |
250 |
250 |
Funding facilities |
2,377 |
- |
1,379 |
3,756 |
Underwriting facilities |
- |
- |
- |
- |
Lending facilities |
9 |
- |
8 |
17 |
Warehouse facilities |
10,086 |
- |
3,590 |
13,676 |
Total |
12,473 |
9,164 |
5,259 |
26,896 |
30 September 2018 |
On balance sheet |
Off-balance |
Total Exposure |
|
$m |
Securitisation retained |
Securitisation purchased |
sheet |
at Default |
Securities |
- |
9,341 |
32 |
9,373 |
Liquidity facilities |
- |
- |
212 |
212 |
Funding facilities |
3,220 |
- |
1,341 |
4,561 |
Underwriting facilities |
- |
- |
- |
- |
Lending facilities |
11 |
- |
5 |
16 |
Warehouse facilities |
9,865 |
- |
3,621 |
13,486 |
Total |
13,096 |
9,341 |
5,211 |
27,648 |
31 December 2017 |
On balance sheet |
Off-balance |
Total Exposure |
|
$m |
Securitisation retained |
Securitisation purchased |
sheet |
at Default |
Securities |
- |
9,412 |
- |
9,412 |
Liquidity facilities |
33 |
- |
881 |
914 |
Funding facilities |
10,960 |
- |
5,989 |
16,949 |
Underwriting facilities |
- |
- |
82 |
82 |
Lending facilities |
- |
- |
129 |
129 |
Warehouse facilities |
- |
- |
- |
- |
Total |
10,993 |
9,412 |
7,081 |
27,486 |
|
Westpac Group December 2018 Pillar 3 Report | 17 |
Pillar 3 report Securitisation |
|
|
|
|
|
Trading book summary of on and off-balance sheet securitisation by exposure type 1
31 December 2018 |
On balance sheet |
Off-balance |
Total Exposure |
|
$m |
Securitisation retained |
Securitisation purchased |
sheet |
at Default |
Securities |
- |
54 |
- |
54 |
Liquidity facilities |
- |
- |
- |
- |
Funding facilities |
- |
- |
- |
- |
Underwriting facilities |
- |
- |
- |
- |
Lending facilities |
- |
- |
- |
- |
Warehouse facilities |
- |
- |
- |
- |
Credit enhancements |
- |
- |
- |
- |
Basis swaps |
- |
- |
65 |
65 |
Other derivatives |
- |
- |
27 |
27 |
Total |
- |
54 |
92 |
146 |
|
|
|
|
|
30 September 2018 |
On balance sheet |
Off-balance |
Total Exposure |
|
$m |
Securitisation retained |
Securitisation purchased |
sheet |
at Default |
Securities |
- |
76 |
- |
76 |
Liquidity facilities |
- |
- |
- |
- |
Funding facilities |
- |
- |
- |
- |
Underwriting facilities |
- |
- |
- |
- |
Lending facilities |
- |
- |
- |
- |
Warehouse facilities |
- |
- |
- |
- |
Credit enhancements |
- |
- |
- |
- |
Basis swaps |
- |
- |
51 |
51 |
Other derivatives |
- |
- |
36 |
36 |
Total |
- |
76 |
87 |
163 |
|
|
|
|
|
31 December 2017 |
On balance sheet |
Off-balance |
Total Exposure |
|
$m |
Securitisation retained |
Securitisation purchased |
sheet |
at Default |
Securities |
- |
125 |
- |
125 |
Liquidity facilities |
- |
- |
- |
- |
Funding facilities |
- |
- |
- |
- |
Underwriting facilities |
- |
- |
- |
- |
Lending facilities |
- |
- |
- |
- |
Warehouse facilities |
- |
- |
- |
- |
Credit enhancements |
- |
- |
- |
- |
Basis swaps |
- |
- |
51 |
51 |
Other derivatives |
- |
- |
43 |
43 |
Total |
- |
125 |
94 |
219 |
1 EAD associated with trading book securitisation is not included in EAD by major type on page 13. Trading book securitisation exposure is captured and risk weighted under APS116 Capital Adequacy: Market Risk.
18 | Westpac Group December 2018 Pillar 3 Report |
|
Pillar 3 report Liquidity coverage ratio |
|
|
|
|
|
Liquidity Coverage Ratio
The Liquidity Coverage Ratio (LCR) requires banks to hold sufficient high-quality liquid assets, as defined by APRA, to withstand 30 days under a regulator-defined acute stress scenario. Westpacs LCR as at 31 December 2018 was 128% 1 (30 September 2018: 133%) and the average LCR for the quarter was 133% 2 (30 September 2018: 131%).
Liquid assets included in the LCR comprise High Quality Liquid Assets (HQLA), the Committed Liquidity Facility (CLF) from the Reserve Bank of Australia and additional qualifying Reserve Bank of New Zealand securities. Westpac received approval from APRA for a CLF of $57.0 billion for the calendar year 2018 (2017 calendar year: $49.1 billion). Westpac maintains a portfolio of HQLA and these averaged $76.5 billion over the quarter 2 .
Funding is sourced from retail, small business and institutional customer deposits and wholesale funding. Westpac seeks to minimise the outflows associated with this funding by targeting customer deposits with lower LCR outflow rates and actively manages the maturity profile of its wholesale funding portfolio. Westpac maintains a buffer over the regulatory minimum of 100%.
|
31 December 2018 |
30 September 2018 |
||
|
Total unweighted |
Total weighted |
Total unweighted |
Total weighted |
$m |
value (average) 2 |
value (average) 2 |
value (average) 3 |
value (average) 3 |
Liquid assets, of which: |
|
|
|
|
1 High-quality liquid assets (HQLA) |
|
76,472 |
|
77,532 |
2 Alternative liquid assets (ALA) |
|
50,125 |
|
50,992 |
3 Reserve Bank of New Zealand (RBNZ) securities |
|
5,872 |
|
5,077 |
|
|
|
|
|
Cash Outflows |
|
|
|
|
4 Retail deposits and deposits from small business customers, of which: |
234,425 |
21,512 |
232,847 |
21,246 |
5 Stable deposits |
114,025 |
5,701 |
113,369 |
5,668 |
6 Less stable deposits |
120,400 |
15,811 |
119,478 |
15,578 |
|
|
|
|
|
7 Unsecured wholesale funding, of which: |
126,663 |
61,004 |
125,689 |
63,733 |
8 Operational deposits (all counterparties) and deposits in networks for cooperative banks |
46,111 |
11,459 |
43,499 |
10,808 |
9 Non-operational deposits (all counterparties) |
71,333 |
40,326 |
68,999 |
39,734 |
10 Unsecured debt |
9,219 |
9,219 |
13,191 |
13,191 |
|
|
|
|
|
11 Secured wholesale funding |
|
6 |
|
- |
|
|
|
|
|
12 Additional requirements, of which: |
199,825 |
26,170 |
200,525 |
26,892 |
13 Outflows related to derivatives exposures and other collateral requirements |
9,084 |
9,084 |
10,428 |
10,428 |
14 Outflows related to loss of funding on debt products |
650 |
650 |
164 |
164 |
|
|
|
|
|
15 Credit and liquidity facilities |
190,091 |
16,436 |
189,933 |
16,300 |
|
|
|
|
|
16 Other contractual funding obligations |
1,838 |
1,838 |
508 |
508 |
17 Other contingent funding obligations |
45,746 |
4,166 |
42,654 |
3,902 |
|
|
|
|
|
18 Total cash outflows |
|
114,696 |
|
116,281 |
|
|
|
|
|
Cash inflows |
|
|
|
|
19 Secured lending (e.g. reverse repos) |
4,790 |
- |
4,162 |
- |
20 Inflows from fully performing exposures |
18,443 |
11,660 |
17,897 |
11,288 |
21 Other cash inflows |
3,328 |
3,328 |
3,080 |
3,080 |
22 Total cash inflows |
26,561 |
14,988 |
25,139 |
14,368 |
|
|
|
|
|
23 Total liquid assets |
|
132,469 |
|
133,601 |
24 Total net cash outflows |
|
99,708 |
|
101,913 |
25 Liquidity Coverage Ratio (%) |
|
133% |
|
131% |
Number of data points used |
|
64 |
|
66 |
|
|
1 Calculated as total liquid assets divided by total net cash outflows for 31 December 2018. 2 Calculated as a simple average of the daily observations over the 31 December 2018 quarter. 3 Calculated as a simple average of the daily observations over the 30 September 2018 quarter. |
|
|
Westpac Group December 2018 Pillar 3 Report | 19 |
Pillar 3 report Appendix I | APS330 quantitative requirements |
|
|
|
|
|
The following table cross-references the quantitative disclosure requirements outlined in Attachment C of APS330 to the quantitative disclosures made in this report.
APS330 reference
|
|
Westpac disclosure
|
Page
|
General Requirements |
|
|
|
Paragraph 49 |
|
Summary leverage ratio |
11 |
|
|
|
|
Attachment C |
|
|
|
Table 3: Capital Adequacy |
(a) to (e) |
Capital requirements |
9 |
|
(f) |
Westpacs capital adequacy ratios |
8 |
|
|
Capital adequacy ratios of major subsidiary banks |
8 |
|
|
|
|
Table 4: Credit Risk - general disclosures |
(a) |
Exposure at Default by major type |
13 |
|
(b) |
Impaired and past due loans |
15 |
|
(c) |
General reserve for credit loss |
14 |
|
|
|
|
Table 5: Securitisation exposures |
(a) |
Banking Book summary of securitisation activity by asset type |
16 |
|
(b) |
Banking Book summary of on and off-balance sheet securitisation by exposure type |
17 |
|
|
Trading Book summary of on and off-balance sheet securitisation by exposure type |
18 |
|
|
|
|
Attachment F |
|
|
|
Table 20: Liquidity Coverage Ratio disclosure template
|
|
Liquidity Coverage Ratio disclosure |
19 |
Exchange rates
The following exchange rates were used in this Westpac Pillar 3 report, and reflect spot rates for the period end.
$ |
31 December 2018 |
30 September 2018 |
31 December 2017 |
USD |
0.7062 |
0.7218 |
0.7798 |
GBP |
0.5564 |
0.5520 |
0.5794 |
NZD |
1.0518 |
1.0919 |
1.0984 |
EUR |
0.6180 |
0.6206 |
0.6528 |
20 | Westpac Group December 2018 Pillar 3 Report |
|
Pillar 3 report Disclosure regarding forward-looking statements |
|
|
|
|
|
This report contains statements that constitute forward-looking statements within the meaning of Section 21E of the US Securities Exchange Act of 1934.
Forward-looking statements are statements about matters that are not historical facts. Forward-looking statements appear in a number of places in this report and include statements regarding Westpacs intent, belief or current expectations with respect to its business and operations, market conditions, results of operations and financial condition, including, without limitation, future loan loss provisions and financial support to certain borrowers. Words such as will, may, expect, intend, seek, would, should, could, continue, plan, estimate, anticipate, believe, probability, risk, aim or other similar words are used to identify forward-looking statements. These forward-looking statements reflect Westpacs current views with respect to future events and are subject to change, certain risks, uncertainties and assumptions which are, in many instances, beyond Westpacs control, and have been made based upon managements expectations and beliefs concerning future developments and their potential effect upon Westpac. There can be no assurance that future developments will be in accordance with Westpacs expectations or that the effect of future developments on Westpac will be those anticipated. Actual results could differ materially from those expected, depending on the outcome of various factors, including, but not limited to:
· the effect of, and changes in, laws, regulations, taxation or accounting standards or practices and government policy, particularly changes to liquidity, leverage and capital requirements;
· regulatory investigations, and other actions, inquiries, litigation, fines, penalties, restrictions or other regulator imposed conditions, including as a result of our actual or alleged failure to comply with laws (such as financial crime laws), regulations or regulatory policy;
· internal and external events which may adversely impact Westpacs reputation;
· information security breaches, including cyberattacks;
· reliability and security of Westpacs technology and risks associated with changes to technology systems;
· the stability of Australian and international financial systems and disruptions to financial markets and any losses or business impacts Westpac or its customers or counterparties may experience as a result;
· market volatility, including uncertain conditions in funding, equity and asset markets;
· adverse asset, credit or capital market conditions;
· an increase in defaults in credit exposures because of a deterioration in economic conditions;
· the conduct, behaviour or practices of Westpac or its staff;
· changes to Westpacs credit ratings or to the methodology used by credit rating agencies;
· levels of inflation, interest rates, exchange rates and market and monetary fluctuations;
· market liquidity and investor confidence;
· changes in economic conditions, consumer spending, saving and borrowing habits in Australia, New Zealand and in other countries in which Westpac or its customers or counterparties conduct their operations and Westpacs ability to maintain or to increase market share, margins and fees, and control expenses;
· the effects of competition, including from established providers of financial services and from non-financial service entities in the geographic and business areas in which Westpac conducts its operations;
· the timely development and acceptance of new products and services and the perceived overall value of these products and services by customers;
· the effectiveness of Westpacs risk management policies, including internal processes, systems and employees;
· the incidence or severity of Westpac insured events;
· the occurrence of environmental change (including as a result of climate change) or external events in countries in which Westpac or its customers or counterparties conduct their operations;
· changes to the value of Westpacs intangible assets;
· changes in political, social or economic conditions in any of the major markets in which Westpac or its customers or counterparties operate;
· the success of strategic decisions involving diversification or innovation, in addition to business expansion activity, business acquisitions and the integration of new businesses; and
· various other factors beyond Westpacs control.
The above list is not exhaustive. For certain other factors that may impact on forward-looking statements made by Westpac refer to Risk factors in Westpacs 2018 Annual Report. When relying on forward-looking statements to make decisions with respect to Westpac, investors and others should carefully consider the foregoing factors and other uncertainties and events.
Westpac is under no obligation to update any forward-looking statements contained in this report, whether as a result of new information, future events or otherwise, after the date of this report.
|
Westpac Group December 2018 Pillar 3 Report | 21 |